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By: Jeffrey M. Haber The federal securities laws impose recordkeeping requirements on registered investment advisers to ensure that they responsibly discharge their roles in the nation’s markets. The Securities and Exchange Commission (“SEC” or “Commission”) has long said that compliance with these requirements is essential to investor protection and to the Commission’s efforts to further its mandate of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.  Section 204 of the Advisers Act of 1940 (the “Advisers Act”) authorizes the Commission to issue rules requiring investment advisers to make and keep for prescribed periods, and furnish copies of, certain records. The Commission adopted Advisers Act Rule 204-2 pursuant to this authority. Rule 204-2 specifies the manner and length of time that the records created in accordance with Commission rules, and certain other records produced by investment advisers, must be maintained and produced promptly to Commission representatives. The rules adopted under Advisers Act Section 204, including Advisers Act Rule 204-2(a)(7), require that investment advisers preserve in an easily accessible place originals of all communications received and copies of all written communications sent relating to, among other things, recommendations made or proposed to be made and any advice given or proposed to be given; any receipt, disbursement, or delivery of funds or securities; or the placing or execution of any order to purchase or sell any security. In recent years, the SEC has brought charges against numerous firms for violating the foregoing rules. In September 2022, the SEC fined 15 broker-dealers and one affiliated investment advisor a total of $1.1 billion to settle charges of “widespread and long-standing” regulatory failures ( here ). The SEC maintained that the firms violated record-keeping requirements, with employees (including those at senior levels) communicating via text messaging and platforms like WhatsApp.  On August 8, 2023, the SEC announced charges against 10 firms in their capacity as broker-dealers and one dually registered broker-dealer and investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications ( here ). The firms admitted the facts set forth in their respective SEC orders and agreed to pay combined penalties of $289 million to settle charges against them. In September 2023, the SEC announced charges against five broker-dealers, three dually registered broker-dealers and investment advisers, and two affiliated investment advisers for widespread and longstanding failures to maintain and preserve electronic communications ( here ). To settle the matter, the firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, and agreed to pay combined civil penalties of $79 million. In February 2024, the SEC charged 16 broker-dealers, dual registrants and affiliated investment advisors for sending and receiving off-channel communications that related to the broker-dealer business, and for sending and receiving off-channel communications that related to recommendations made or proposed to be made and advice given or proposed to be given. To settle the matter, the firms agreed to pay combined civil penalties of $81 million. Senvest Management LLC, a registered investment adviser, is the latest registered investment adviser to be charged with violating the SEC’s recordkeeping rules.  On April 3, 2024, the SEC announced ( here ) that it charged Senvest for widespread and longstanding failures to maintain and preserve certain electronic communications. The SEC also charged Senvest with failing to enforce its code of ethics. To settle the matter, Senvest admitted the facts set forth in the Commission’s order ( here ), acknowledged that its conduct violated the federal securities laws, and agreed to pay a $6.5 million penalty and to implement improvements to its compliance policies and procedures. According to the Commission’s order, from at least January 2019 through December 2021, Senvest employees at various levels of authority communicated about company business internally and externally using personal texting platforms and other non-Senvest messaging applications in violation of the firm’s policies and procedures. Senvest also failed to maintain or preserve the off-channel communications as required under the federal securities laws and the firm’s policies and procedures. In one instance, said the SEC, three senior employees engaged in off-channel communications on personal devices that were set to automatically delete messages after 30 days. Additionally, the SEC found that certain Senvest employees failed to adhere to provisions of the firm’s code of ethics requiring them to obtain pre-clearance for all securities transactions in their personal accounts. The SEC found that Senvest violated certain recordkeeping and ethics provisions of the Investment Advisers Act of 1940 and failed to reasonably supervise with a view to preventing and detecting violations. In addition to the $6.5 million penalty, Senvest was censured and ordered to cease and desist from future violations of the relevant provisions of the federal securities laws. The firm also agreed to retain a compliance consultant to, among other things, conduct comprehensive reviews of its policies and procedures relating to the retention of electronic communications found on personal devices and the framework for addressing non-compliance by its employees with those policies and procedures. Commenting on the order, Eric Werner, Director of the Fort Worth Regional Office, stated: “The Commission continues to focus on regulated entities’ compliance with the recordkeeping requirements. Adherence to these requirements is essential for the Commission to effectively exercise its regulatory oversight and enforce the federal securities laws.” Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.  This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jeffery Haber There are four primary levels of services provided by an accountant with respect to an entity’s financial statements: preparation, compilation, review, and audit.  A preparation engagement is a basic one. In this level of service, the accountant assists management or the business owner in preparing financial statements for internal use.  In a compilation engagement, the accountant assists management or the business owner in the presentation of the entity’s financial statements in accordance with General Accepted Accounting Principles (“GAAP”). In this level of service, the primary function of the accountant is to review the financial statements and propose adjustments, if any are necessary to make them materially correct. The accountant is not required to obtain an understanding of the entity’s internal controls or assess the presence of fraud risks . However, if the presence of fraud comes to the accountant’s attention, then he or she is supposed to report such fraud to management or the business owner.  In a review engagement, the accountant takes a more in-depth examination of the financial statements than in a compilation. In this level of service, the accountant provides a limited level of assurance that there are no material modifications that should be made to the financial statements. This limited assurance is obtained primarily through inquiry and procedures, which are not required in a preparation or compilation engagement. In a review, the accountant is not required to obtain an understanding of the entity’s internal controls or assess any fraud risks that may be extant at the time of the review.  In an audit engagement, the highest level of service provided by an accountant, the objective is to obtain reasonable assurance about whether the financial statements are free of material misstatement. In this level of service, the accountant expresses an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with GAAP. In all four levels of services, the responsibility for the financial information provided, and the financial statements that are prepared, is with management or the business owner.  In 1650 Broadway Assoc., Inc. v. Sturm , 2024 N.Y. Slip Op. 01864 (1st Dept. April 4, 2024) ( here ), the Appellate Division, First Department was asked to determine whether an outside auditor performing a compilation can be held liable for aiding and abetting a fraud in connection with the services provided by the accountant. As discussed below, the First Department held that when an accountant performs “unaudited services,” the accountant is not shielded “from liability because accountant must perform all services in accordance with the standard of a reasonable accountant under similar circumstances, which includes reporting fraud that is or should be apparent” to the accountant.” 1 1650 Broadway is action for accounting malpractice and fraud, in which the “question on appeal whether an accountant hired to perform ‘compilation services’ shielded from liability for the alleged improper activities of an officer of the company.” 2 Plaintiff 1650 Broadway Associates, Inc. owns the Stardust Diner, a family business originally owned by Irving Sturm and plaintiff Ellen Sturm, and then in part by their son, defendant Kenneth Sturm. At all relevant times, Ellen, along with the two trust plaintiffs, owned 89% of the Diner, and Kenneth owned 11%. After Irving’s death in 2010, Kenneth assumed day-to-day managerial responsibility for the Diner. Ellen was vice-president of the Diner, while Kenneth served as secretary and treasurer. Plaintiffs alleged that when Ellen stepped back from active operations of the Diner, Kenneth began looting the Diner. In particular, he allegedly gave himself large salary increases and began to take unauthorized loans from the Diner. Over the course of several years, these loans amounted to approximately $12 million. Plaintiffs also alleged that in 2016 and 2017, Kenneth obtained a $2.5 million line of credit from Citibank. Kenneth allegedly forged Ellen’s signature on loan documents that made Ellen the personal guarantor on the loans. The books and records of the Diner reflected the loans. They also reflected certain “reductions” in the amounts of the loans. Plaintiffs alleged that the records purporting to show the reductions were manufactured after the fact by Kenneth. Defendant Getzel, Schiff & Pesce, LLP is a public accounting firm. For a period including 2012 through 2019, defendant performed certain accounting services for plaintiffs, the Diner, and Kenneth. It provided these services through a series of year-after-year engagement letters. Under the terms of these letters, for each of the relevant years, defendant agreed to provide “compilation services” and to prepare the local, state, and federal tax returns for the clients. Between 2002 and 2008, defendant’s managing partner had annual meetings with Ellen at her home, during which the partner provided her only a broad summary of the Diner’s finances but never disclosed any details about the Diner’s accounting, books and records. In 2019, Ellen hired new personal accountants who uncovered the alleged loans to Kenneth. In addition to taking the money for himself, Kenneth also allegedly used the “loan” proceeds to finance various other business ventures. Plaintiffs alleged that defendant was the accountant to these other businesses. In 2021, plaintiffs commenced the action asserting claims for fraud and breach of fiduciary duty against Kenneth. Regarding defendant, plaintiffs asserted claims for accounting malpractice and aiding and abetting fraud. Kenneth and defendant each moved to dismiss. The motion court granted Kenneth’s motion, but gave plaintiffs leave to amend. The court also granted defendant’s motion. The court held that because it was undisputed that the loans were disclosed on the financial statements, plaintiffs could not show how defendant breached professional accounting standards or aided Kenneth’s fraud. Plaintiffs appealed the grant of defendant’s motion. The First Department reversed. The Court held that “Plaintiffs sufficiently pleaded causes of action for accounting malpractice and aiding and abetting fraud, which not utterly refuted by the documentary evidence” presented with the motion. 3 On appeal, defendant primarily argued “that the malpractice and fraud claims refuted by the fact that the accounting firm was hired to prepare tax returns and other financial statements that documented the loans at issue”; it was not engaged to “investigat and report[ ] Kenneth’s alleged fraud,” as such services “were beyond its duties.” 4 Defendant did not contend that plaintiffs failed to plead accounting malpractice and aiding and abetting fraud by Kenneth.  Plaintiffs countered, arguing that defendant was not “hired to discover Kenneth’s wrongdoing, but rather that information obtained by defendant during its business interactions with Kenneth and information used by defendant in order to prepare tax returns and financial statements put defendant on notice about the impropriety of Kenneth’s loans to himself such that defendant had a duty to inform plaintiffs of the questionable payments.” 5 The Court agreed, noting that the “law is very clear that an agreement to perform unaudited services does not shield an accountant from liability because an accountant must perform all services in accordance with the standard of a reasonable accountant under similar circumstances, which includes reporting fraud that is or should be apparent.” 6 In addition, plaintiffs argued that not only did defendant have knowledge of Kenneth’s alleged improper transactions but that it participated in the alleged breaches. 7 Under New York law, noted the Court, “ ne who aids and abets a breach of a fiduciary duty is liable for that breach as well, even if he or she had no independent fiduciary obligation to the allegedly injured party, if the alleged aider and abettor rendered ‘substantial assistance’ to the fiduciary in the course of effecting the alleged breaches of duty.” 8 Alternatively, defendant argued that the accounting malpractice and aiding and abetting claims were refuted by the fact that the allegedly improper loans were included in the tax returns and financial statements, which plaintiff Ellen had a duty to review. 9 “However,” said the Court, “while plaintiffs’ own negligence in monitoring Kenneth’s activities in managing the Diner may have been a factor in enabling Kenneth to continue his alleged fraudulent scheme for several years, the pleadings and documentary evidence submitted do not show that such negligence was the sole proximate cause of the Diner’s loss.” 10 The Court noted that it had “not been established that such negligence impeded defendant’s duties to reveal to plaintiffs what it knew about Kenneth’s alleged improper conduct regarding the loans.” 11 Accordingly, the Court reversed the motion court’s order which granted defendant’s motion. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.  This article is for informational purposes and is not intended to be and should not be taken as legal advice. References Slip Op. at *3. Id. at *1. Id. Id. Id. at *2-*3. Id. at *3 (citing 1136 Tenants’ Corp. v. Rothenberg & Co. , 36 A.D.2d 804 (1st Dept. 1971), aff’d , 30 N.Y.2d 585 (1972); William Iselin & Co., Inc. v. Mann Judd Landau , 71 N.Y.2d 420, 424-425 (1988); United States v. Natelli , 527 F2d 311, 320-321 (2d Cir. 1975), cert. denied , 425 U.S. 934 (1976); Blakely v. Lisac , 357 F. Supp. 255, 265-266 (D. Or. 1972); Robert Wooler Co. v. Fidelity Bank , 330 Pa. Super. 523, 531-535, 479 A.2d 1027, 1031-1033 (1984)). Id. Id. (citing Caprer v. Nussbaum , 36 A.D.3d 176, 193 (2d Dept. 2006); Operative Cake Corp. v. Nassour , 21 A.D.3d 1020 (2d Dept. 2005)). Id. Id. Id. (citing Collins v. Esserman & Pelter , 256 A.D.2d 754, 757 (3d Dept. 1998); National Sur. Corp. v. Lybrand , 256 App. Div. 226, 235-236 (1st Dept. 1939)).

By Jonathan H. Freiberger Whether a non-existent corporation can enter into a contract is an interesting question. The interesting answer is that sometimes it can.  Pursuant to BCL § 403 , a corporation’s existence begins “ pon the filing of the certificate of incorporation by the department of state.”  Generally, “a nonexistent entity cannot acquire rights or assume liabilities, a corporation which has not yet been formed normally lacks capacity to enter into a contract.” Rubenstein v. Mayor , 41 A.D.3d 826, 828 (2 nd Dep’t 2007); see also TY Builders II v. 55 Day Spa, Inc. , 167 A.D.3d 679, 680 (2 nd Dep’t 2018) ( quoting Rubenstein ).  Under certain circumstances, despite not having been formed prior to entering into a contract, “a corporation may be deemed to exist and possess the capacity to contract pursuant to the doctrine of incorporation by estoppel.”  TY Builders , 167 A.D.3d at 681 (citation omitted). The doctrine of corporation (or incorporation) by estoppel “is based on the principle that "one who has recognized the organization as a corporation in business dealings should not be allowed to quibble or raise immaterial issues on matters which do not concern him in the slightest degree or affect his substantial rights." Rubenstein , 41 A.D.3d at 828; see also TY Builders , 167 A.D.3d at 681.  One of the leading, and often cited, cases on this subject is Boslow Family Ltd. Partnership v. Glickenhouse & Co. , 7 N.Y.3d 664 (2006). Boslow , involved a limited partnership, and not a corporation, but nonetheless the Court applied the doctrine of corporation by estoppel. The plaintiff in Boslow signed an initial certificate of limited partnership, but its counsel “failed to file the initial certificate with the Department of State. Id . at 666. 1 The plaintiff opened a discretionary investment account with the defendant investment advisory firm .  The account was active for three years, during which time the defendant earned $31,000 in fees. The plaintiff closed the account due to displeasure with the defendant’s investments choices. Thereafter, the plaintiff brought suit alleging breach of contract and negligence in the management of the investment account. “Defendant moved to dismiss the complaint pursuant to CPLR 3211 (a) (1), (3) and (7), asserting, among other things, that plaintiff had failed to file its initial certificate prior to the commencement of the action and therefore lacked the capacity to enter into the agreement and bring suit.” The Court of Appeals reversed the Appellate Division’s affirmance of the motion court’s grant of the motion to dismiss. The Boslow Court found that while it “is undisputed that plaintiff had not complied with the Partnership Law’s mandatory formation requirements at the time it entered into the agreement and commenced this suit … efendant … does not dispute that it derived a benefit from the agreement and that the investment services provided were not dependent in any way on the nature of the plaintiff as a limited partnership.” Boslow , 7 N.Y.3d at 667. Accordingly, the Court held that the defendant was “estopped from denying the partnership’s validity.” Id. at 667-68 (citations omitted). The Court reasoned that should not be able to “us that sword to escape liability after it benefitted from its contract with plaintiff.”  On April 3, 2024, the Appellate Division, Second Department, decided Teva Realty, LLC v. Comega Holding Corp . , 2 a case decided under the doctrine of corporation by estoppel. Teva Realty is an action for, inter alia , specific performance and anticipatory breach with respect to a contract for the purchase of three parcels of real estate. 3 In 2016, a plaintiff, Rockaway Cornaga LLC (“RC”) entered into a contract for the purchase of the real property. At or about the time the contract was executed, a related, non-party, entity delivered to the defendant seller a $100,000.00 down payment. The contract provides, inter alia , that the purchaser is RC or “an entity to be formed”. At the time the contract was executed, RC had not been formed. In fact, RC was not formed until 2019 – just prior to commencing its action.  In addition, the other two plaintiffs were formed for the purpose of acquiring the lots and were not parties to the contract.  When the defendant failed to close, the plaintiffs commenced their action.  The motion court granted the seller’s motion for summary judgment dismissing the specific performance and anticipatory breach causes of action because RC did not exist at the time the contract was executed and could not acquire contract rights. Relying on the corporation by estoppel doctrine, the Second Department modified the motion court’s order by denying summary judgment on the anticipatory breach cause of action.  The Court sustained the dismissal of the specific performance cause of action; albeit on different grounds.  In so doing, the Court stated: The defendants failed to make a prima facie showing that RC lacked capacity to enter into a contract and, thus, that they were entitled to summary judgment dismissing the causes of action for specific performance of the contract … and alleging anticipatory breach of contract on that basis. Generally, it is true that since a nonexistent entity cannot acquire rights or assume liabilities, a corporation which has not yet been formed normally lacks capacity to enter into a contract. However, under the doctrine of corporation by estoppel, one who has recognized an organization as a corporation in business dealings should not be allowed to quibble or raise immaterial issues which do not concern him or her in the slightest degree or affect his or her substantial rights. Thus, parties who deal with an entity holding itself out as a corporation and who receive performance from such entity are estopped from avoiding their obligations to it. Here, the defendants dealt with RC as an incorporated entity for several years, from the execution of the contract in 2016 until the commencement of this action in 2019. Contrary to their contentions, the defendants failed to establish that they received no benefit from the contract, as they admit to having received the contract deposit, which was held in escrow by their attorney. Accordingly, the defendants are estopped from denying RC's validity for the purposes of avoiding their obligations to it….  However, the Supreme Court properly granted those branches of the defendants' renewed motion which were for summary judgment dismissing the causes of action for specific performance of the contract … on the alternate ground that those remedies are unavailable pursuant to the contract. … The contract provides that RC "agrees that after July 31, 2017, it shall not have the right to compel specific performance of this Agreement." As this action was not commenced until 2019, the defendants established, prima facie, that RC cannot seek specific performance of the contract….  Footnotes Like BCL § 403, Partnership Law § 121-201(b) provides that a limited partnership is formed when the initial certificate of limited partnership is filed with the department of state. Eds. Note: some of the facts recited herein came from the supreme court file available on NYSCEF. Eds. Note: this BLOG discussed specific performance of real estate contracts < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber Attorneys are often asked by their clients if they can sue for attorney’s fees. Whether attorney’s fees may be recovered in litigation depends on the circumstances. Under the general rule, attorney’s fees are incidents of litigation, and the prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties, statute or court rule. 1 In LMM Capital Partners, LLC v. Mill Point Capital, LLC , 2024 N.Y. Slip Op. 31014(U) (Sup. Ct., N.Y. County (Mar. 26, 2024) ( here ), the question before the motion court was whether the defendants – the prevailing parties in the action – were entitled to attorney’s fees under an agreement between the parties? As discussed below, the motion court answered that question in the affirmative.  LMM Capital involved the potential acquisition of E&M Logistics, Inc. (“E&M”) and its affiliate Mill Point Capital LLC (“Mill Point”) by LMM Capital Partners, LLC (“LMM”). On April 21, 2021, LMM entered into a Mutual Termination Agreement and Release with E&M (the “Termination Agreement”), pursuant to which the parties terminated their letter of intent, dated August 4, 2020 (the “LOI”), governing LMM’s potential acquisition of E&M. Among other things, if a superior offer came along after entry of the Termination Agreement, the LOI gave E&M the option to pay a $400,000 “break-up fee” to pursue that proposal. E&M exercised this option and paid LMM $420,000 over a period of six months, which LMM accepted.  Section 1.C of the Termination Agreement included a broad mutual release, pursuant to which LMM released E&M and E&M’s “future Affiliates,” from any and all claims by LMM, whether known or unknown, “arising out of … the and the transactions contemplated thereby.” Mill Point became an “Affiliate” of E&M under the Termination Agreement on September 7, 2022, when it acquired E&M.  Section 2 of the Termination Agreement provided that: “The successful Party in any action to enforce this Agreement will be entitled to be awarded all costs, including reasonable attorney’s fees, paid, or incurred by such prevailing Party in such action to enforce this Agreement.” (the “Prevailing Party Provision”). On September 30, 2022, LMM filed the action, alleging breach of contract and tortious interference with Plaintiffs’ business relations against Mill Point; tortious interference with contract and constructive fraud against Defendants; and fraudulent inducement against Defendants. Plaintiffs also sought a declaration that the Termination Agreement and release were unenforceable. On December 8, 2022, Defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(1), (5), and (7) and demanded, among other things, that Plaintiffs withdraw the complaint.  On May 10, 2023, the motion court dismissed the complaint with prejudice, finding, inter alia , that the release at issue was “extremely broad” and “applie to all claims asserted … by LMM against all the named defendants.” 2 On August 30, 2023, pursuant to the Termination Agreement, Defendants filed their motion for attorneys’ fees. The motion court granted the motion as to liability and “referred to a Special Referee or Judicial Hearing Officer to determine the proper amount of fees to be awarded.” 3 “To determine whether a party has ‘prevailed’ for the purpose of awarding attorneys’ fees, the court must consider the ‘true scope’ of the dispute litigated and what was achieved within that scope.” 4 A “prevailing party” is a person or entity that “prevail on the central claims advanced, and receive substantial relief in consequence thereof.” 5 Based upon the foregoing principles, the motion court held that there was no question that Defendants were the successful or prevailing parties under Section 2 of the Termination Agreement. 6 As such, Defendants were entitled to their attorney’s fees. In so holding, the motion court rejected Plaintiffs’ arguments that the court lacked jurisdiction to consider the motion for attorney’s fees and that the motion was premature. 7 Plaintiffs maintained that Defendants were required to include in their motion to dismiss an express request that the court retain jurisdiction to award attorney’s fees if the court granted the motion. The motion court noted that that Plaintiffs failed to cite to any authority for that proposition.” 8 Plaintiffs also contended that the motion for attorney’s fees was premature due to the pendency of the appeal. The motion court concluded that the argument failed since the First Department affirmed the dismissal of the action. 9 Having found Plaintiffs liable for Defendants’ attorney’s fees, the motion court referred the determination of the amount to a Special Referee or Judicial Hearing Officer. The motion court found that “the invoices submitted by the defendants heavily redacted and otherwise provide minimal details of the legal work performed and other costs incurred in th action.” 10 Finally, the motion court directed Defendants to submit “proper and adequate proof to meet their burden of establishing a reasonable amount of fees and costs.” 11 In doing so, the Court stated that the following factors should be considered: “the time and labor expended, the difficulty of the questions involved and the required skill to handle the problems presented, the attorney’s experience, ability, and reputation, the amount involved, the customary fee charged for such services, and the results obtained.” 12 Footnotes See Flemming v. Barnwell Nursing Home and Health Facilities, Inc. , 15 N.Y.3d 375 (2010); Hooper Assoc. v. AGS Computers , 74 N.Y.2d 487, 491 (1989); see also Coopers & Lybrand v. Levitt , 52 A.D.2d 493 (1st Dept. 1976). By order dated February 15, 2024, the Appellate Division, First Department, affirmed. This Blog examined the First Department’s decision and order here . Slip Op. at *1. Excelsior 57th Corp. v. Winters , 227 A.D.2d 146 (1st Dept. 1996). Board of Mgrs. of 55 Walker Condo. v. Walker St. LLC , 6 A.D.3d 279 (1st Dept. 2004); Sykes v. RFD Third Ave. I Assocs., LLC, 39 AD3d at 279 (1st Dept. 2007). Id. at *2. Id. Id. Id. See also n.2, supra . Id. Id. Id. (quoting Matter of Barich , 91 A.D.3d 769 (2d Dept. 2012), and citing Matter of Freeman , 34 N.Y.2d 1 (1974)). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.  This article is for informational purposes and is not intended to be and should not be taken as legal advice. One method of providing for attorney's fees in actions between the parties is to provide for payment as a form of liquidated damages. Such fees are enforceable if they are not unconscionable (see, Equitable Lbr. Corp. v IPA Land Dev. Corp., 38 N.Y.2d 516 (1976).

By Jonathan H. Freiberger This Blog frequently writes on numerous issues related to mortgage foreclosure.  One aspect of a foreclosure action is the calculation of the amounts due to the lender.  Generally, when the foreclosing lender moves for summary judgment and/or a default judgment it also moves for the appointment of a referee to compute the amounts due to the lender.  [Eds. Note: this BLOG has previously written about referees in foreclosure actions.  See, e.g., < here =">here"> , < here =">here"> and < here =">here"> .]  Although the judge presiding over the action can calculate the amounts due, the task is typically referred to a referee.  See CPLR 4317 (b). On March 27, 2024, the Appellate Division, Second Department, decided Bank of America v. Danzig , a case involving the calculation of the amounts due to the lender under a mortgage.  In 2009, the lender in Danzig commenced an action to foreclose a mortgage.  Thereafter, an order of reference and a judgment of foreclosure and sale were entered on default.  The property was sold at auction, but the purchaser failed to close. Apparently, the borrower saw the failed sale as an opportunity to move to, inter alia , vacate the judgment of foreclosure and sale, set aside the sale and to vacate his default in appearing in the action.  The borrower’s motion was denied “except that branch which was to vacate the judgment of foreclosure and sale and set aside the sale ‘based upon a “mistake” with respect to the judgment amount,’ which the court declined to rule on, citing insufficiencies in the plaintiff’s papers, which failed to address the particular amounts challenged by the defendant.”  The motion court directed a framed-issue hearing to address the accuracy of the referee’s calculations.  If it was determined that the referee’s calculations were inaccurate, “then the court granted the subject branch of the ’s motion in the interest of justice to the limited extent that the sale shall be deemed rescinded, the judgment of foreclosure and sale shall be deemed vacated, and the shall submit, on notice, a proposed new judgment of foreclosure and sale including a new amount due to the as ‘calculated by the earing ourt.’”  (Some brackets omitted and some added.) The lender and the borrower appeared before the hearing court and reached a settlement in which both parties agreed on the proper amount due after acknowledging that the original referee’s calculation was erroneous.  Despite placing the proposed settlement terms on the record, the parties failed to finalize the settlement. Accordingly, the lender moved to amend the judgment of foreclosure and sale to include as the amount due, the amount the parties stipulated to as part of the failed settlement.  The motion court granted the motion and accepted the amount due “as stipulated”.   On the borrower’s appeal, the Second Department reversed finding that foreclosure actions are equitable in nature, and it would be inequitable to permit the amount due to be derived from the failed settlement.  Thus, the Court stated: A foreclosure action is equitable in nature and triggers the equitable powers of the court ( Bank of N.Y. Mellon v George , 186 AD3d 661, 663 <2 nd dep’t 2020> nd dep’t 2020>; see Notey v Darien Constr. Corp . , 41 NY2d 1055, 1056 <1977> ; U.S. Bank N.A. v Losner , 145 AD3d 935, 937 <2 nd dep’t 2016> nd dep’t 2016>. “‘Once equity is invoked, the court’s power is as broad as equity and justice require’” ( Bank of N.Y. Mellon v George , 186 AD3d at 663, quoting U.S. Bank N.A. v Losner , 145 AD3d at 938 ). Here, as noted above, the hearing court was charged with calculating the amount due and owing to the and, in the event that the hearing court found that the referee’s calculation of the amount due to the was inaccurate and that the had not received certain credits to which he was entitled, amending the judgment of foreclosure and sale accordingly. A review of the hearing transcript makes clear that the parties’ stipulation as to the amount due to the was made in conjunction with the parties’ global settlement discussions. As the settlement was never finalized, as a matter of equity, it remained the obligation of the hearing court to calculate the amount due to the and to amend the judgment of foreclosure and sale, nunc pro tunc, to reflect that amount.  Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber It is not often that we examine a case involving the doctrine of champerty. The last time we did so was on March 8, 2023 ( here ). We also examined the champerty doctrine in 2021 ( here ), 2020 ( here ), and 2016 ( here ).  Today, we examine the champerty doctrine in our discussion of IKB Intl. S.A. v. Morgan Stanley , 2024 N.Y. Slip Op. 01675 (1st Dept. Mar. 26, 2024) ( here ). Champerty is the prohibited practice of purchasing claims for the purpose of commencing litigation. It has been described as “a venerable doctrine developed hundreds of years ago to prevent or curtail the commercialization of or trading in litigation .” 1 The doctrine of champerty is codified in New York within Judiciary Law § 489. 2 Under Judiciary Law § 489, no corporation “shall solicit, buy or take an assignment of … a bond, promissory note, bill of exchange, book debt, or other thing in action, or any claim or demand, with the intent and for the purpose of bringing an action or proceeding thereon.” However, for an assignment of a claim to be void for champerty, the assignee must have made the purchase “for the very purpose of bringing such suit” to the “exclusion of any other purpose.” 3 Thus, while assignments “for the primary purpose of obtaining costs or ” are void as champertous, 4 assignments are not champertous where the intent to bring a suit is merely “incidental and contingent” to other rights. 5 Moreover, champerty does not apply where the assignee had a “preexisting proprietary interest” in the subject matter. 6 IKB began in the years immediately prior to the financial crisis of 2007-2008. Plaintiff IKB International S.A. (“IKB S.A.”) was a commercial bank incorporated in Luxembourg.  IKB S.A. purchased a number of certificates (“Certificates”) for residential mortgage-backed securities from Morgan Stanley, allegedly in reliance on misrepresentations that Morgan Stanley made in its offering documents. In particular, Morgan Stanley allegedly made misrepresentations to IKB S.A.’s investment managers, Standish Mellon and BlackRock, including misrepresentations regarding loan-to-value and combined loan-to-value statistics, owner-occupancy status of borrowers, and adherence to the originators’ underwriting guidelines. The contemporary value of the Certificates collapsed during the onset of the financial crisis as the poor quality of the underlying loans and resulting increased credit risk became apparent. Ultimately, IKB S.A. was placed into liquidation as part of the German government’s bailout of IKB S.A.’s parent, IKB A.G. In November 2008, IKB S.A. sold the Certificates to IKB A.G. Two weeks later, IKB A.G. sold the Certificates to Rio Debt Holdings (Ireland) Limited (“Rio”), a newly created Irish special purpose vehicle. As part of the sale of Certificates to Rio, IKB A.G. became a junior lender to Rio and also became a portfolio administrator to Rio. IKB A.G. and Rio subsequently executed an assignment on May 9, 2012 (the “2012 Assignment”) in which Rio assigned to IKB A.G. “all the rights of action and claims against any other party with respect to the Securities it may have obtained in connection with its purchase of the Securities from IKB Deutsche Industriebank AG … except rights of action and claims for the receipt of interest and principal on the Securities.” In exchange, IKB A.G. agreed to provide to Rio “a sum equal to the proceeds of any recovery stemming from a resolution of claims relating to the Assigned Rights, net of all agreed costs, taxes and expenses, which shall be set out and governed by a separate agreement to be executed by the Parties.” IKB A.G. maintained that under a supplementary deed (the “Supplementary Deed”) and other governing documents, the parties agreed that 80% of the net litigation proceeds would revert to IKB A.G. Rio and IKB A.G. executed the Supplementary Deed on January 11, 2013—after Plaintiffs filed the summons in the action—but gave it retroactive effect from May 9, 2012. IKB A.G. filed the summons in November 2012 and later filed the complaint on May 17, 2013. The complaint alleged causes of action for fraud, fraudulent concealment, aiding and abetting fraud, and negligent misrepresentation. Defendants moved to dismiss the complaint, in part for lack of standing, arguing that the 2012 Assignment of the fraud claims back to IKB A.G. was void as champertous. The motion court denied the motion, finding that Defendants had not shown that “IKB AG’s primary or sole purpose was not to enforce a legitimate claim, or that the claim was not acquired as part of a larger transaction or for leverage in other disputes between the parties.” The motion court determined that IKB A.G.’s intent in the 2012 Assignment was a factual question that required further development of the record. However, the motion court dismissed the causes of action for fraudulent concealment and negligent misrepresentation. On summary judgment, Defendants again sought dismissal on the basis of champerty. The motion court held that the 2012 Assignment was not champertous “because IKB AG had a preexisting proprietary interest in the subject matter.” The motion court explained that  In order to finance the initial assignment of the Certificates to Rio in 2008, IKB AG and Rio entered into a loan agreement. Pursuant to the 2008 loan agreement between IKB AG and Rio, IKB AG as junior lender was entitled to 80% of the profits from the assets. While Defendants are correct that the loan has since been paid down to one dollar, this does not change the fact that, unlike other champertous assignments, the 2012 Assignment indisputably did not involve a “stranger” to the transaction, but a party with a prior interest. 7 The motion court also held that Defendants “failed to establish that the sole purpose for the 2012 Assignment was to profit off of litigation, to the exclusion of all other purposes.” The motion court explained that “ n assignment is not champertous merely because the parties enter into the assignment ‘for the purpose of collecting damages, by means of a lawsuit.’” 8 “Rather,” said the motion court, “there is a key distinction between ‘acquir a right in order to make money from litigating it and … acquir a right in order to enforce it .’” 9 The motion court found that Plaintiffs “provided evidence that they still entitled to 80% of the future cash flows under the 2008 loan agreement with Rio because the loan was not paid off entirely—even though it was paid down almost in its entirety.” “Therefore,” concluded the motion court, “regardless of whether or not the 2012 Assignment’s primary purpose was litigation, Defendants not provided sufficient evidence to establish that the sole purpose, to the exclusion of all other purposes, was to profit off of litigation.” “As such,” said the motion court, “Defendants have failed to establish that the 2012 Assignment is void as champertous.” The Appellate Division, First Department unanimously affirmed. As an initial mater, the Court rejected Defendants’ argument (as the Court framed it) that “any assignment of litigation claims — even when fashioned to protect an independent litigation right of the assignee — must necessarily be void,” stating that such a formulation was “not the law.” 10 “Rather,” explained the Court, “the champerty doctrine is intended to prevent opportunistic parties from profiting from litigation claims that otherwise would not have been brought — not preventing the assignment of legitimate claims to a party holding a beneficial interest in those claims to enforce its own rights.” 11 “The critical distinction,” noted the Court, was “‘between acquiring a thing in action in order to obtain costs and acquiring it in order to protect an independent right of the assignee.’” 12 The Court also held that the motion court “correctly found that champerty only prohibits the acquisition of a cause of action by a ‘stranger’ to the underlying dispute.” 13 The Court found that the evidence “establishe that plaintiff IKB Deutsche Industriebank A.G. had an independent interest in pursuing the claims, and was not a stranger to the action.” 14 “IKB A.G. owns 100% of plaintiff IKB International, S.A., the original purchaser of the assets, and was the assignor’s junior lender beginning in November 2008,” said the Court. “Defendants’ reading of Justinian not compel a different result,” concluded the Court. 15 Footnotes Bluebird Partners, L.P. v. First Fidelity Bank, N.A. , 94 N.Y.2d 726, 729 (2000). Ehrlich v. Rebco Ins. Exchange, Ltd. , 225 A.D.2d 75, 77 (1st Dept. 1996). See Richbell Information Servs., Inc. v. Jupiter Partners , 280 A.D.2d 208, 215 (1st Dept. 2001) (citing Moses v.McDivitt , 88 N.Y. 62 (1882)). In Justinian Capital SPC v. WestLB AG, N.Y. Branch , the New York Court of Appeals explained that to “constitute the offense the primary purpose of the purchase must be to enable to bring suit, and the intent to bring a suit must not be merely incidental or contingent.” 28 N.Y.3d 160, 166 (2016) (internal quotation marks omitted). See 71 Clinton St. Apts. LLC v. 71 Clinton Inc. , 114 A.D.3d 583, 585 (1st Dept. 2014); Trust For the Certificate Holders of Merrill Lynch Mortg. Investors, Inc. v. Love Funding Corp. , 13 N.Y.3d 190, 198 (2009). New York Chinese TV Programs, Inc. v. U.E. Enterprises, Inc. , 1989 WL 22442, *13 (S.D.N.Y. Mar. 8, 1989). See Love Funding , 13 N.Y.3d at 198. Citing Jamaica Public Service Co., Ltd. v. La Interamericana Compania De Seguros Generales S.A. , 262 A.D.2d 73, 74 (1st Dept. 1999); In re Imax Sec. Litig. , 2011 WL 1487090, *6 (S.D.N.Y. Apr. 15, 2011). Quoting Universal Inv. Advisory SA v. Bakrie Telecom Pte., Ltd. , 154 A.D.3d 171, 180 (1st Dept. 2017). Quoting id. Slip Op. at *1. Id. (citation omitted). Id. (citing Justinian , 28 N.Y.3d at 167) (internal quotation marks omitted)). Id. (citation omitted). Id. at *2. Id. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.  This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber On many occasions, we have written about Ponzi schemes that have been the subject of enforcement actions brought by, and/or settlements with, the Securities and Exchange Commission (“SEC” or the “Commission”). E.g ., here , here , here , here , and here . We remain unsurprised by the frequency with which people operate a Ponzi scheme and do so by exploiting the trust and friendship that exist in groups of people who have something in common, such as a religious group, an ethnic group, or a community – also known as affinity fraud. 1 here,=">here," >here.=">here."> Today, we examine an enforcement action brought by the SEC involving a Ponzi scheme that targeted the Latino community. SEC v. Sanchez On March 14, 2024, the SEC announced ( here ) that it charged 17 individuals for their roles in a $300 million Ponzi scheme (collectively, the “Individual Defendants”) that involved CryptoFX LLC, a Texas-based company engaged in trading in the crypto-assets and foreign exchange markets for investors. 2 According to the SEC, CryptoFX targeted more than 40,000 predominantly Latino investors in the United States and two other countries. The complaint ( here ) followed the SEC’s  emergency action  in September 2022. In the prior action, the SEC obtained a temporary restraining order halting the alleged fraud , as well as temporary orders freezing assets and granting other emergency relief. The SEC charged CryptoFX and its two main principals with violating, or aiding and abetting violations of, the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC also charged one of the principals with violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act. According to the SEC, CryptoFX purported to trade in the crypto asset and foreign exchange markets for investors. The SEC claimed that in reality, CryptoFX was a Ponzi scheme. The SEC alleged that, from May 2020 to October 2022, the Individual Defendants –  individuals from Texas, California, Louisiana, Illinois, and Florida – acted as leaders of the CryptoFX network and solicited investors by variously promising that CryptoFX’s crypto asset and foreign exchange trading would generate returns of 15 to 100 percent. The SEC alleged that CryptoFX raised $300 million from investors but did not use most of the funds for its claimed trading purposes. 3 Instead, said the SEC, the Individual Defendants allegedly used investor funds to pay supposed returns to other investors, to pay commissions and bonuses to themselves and investors, and to fund their own lifestyles. The SEC further alleged that two of the defendants continued to solicit investments after the court issued orders to halt the CryptoFX scheme in September 2022, and one defendant instructed two investors to rescind their complaints to the SEC for them to recover their investments. Another defendant allegedly told investors that the SEC’s lawsuit was fake. The SEC filed the complaint in the U.S. District Court for the Southern District of Texas. 4 It charged six of the Individual Defendants with violating the antifraud, securities-registration, and broker-registration provisions of the federal securities laws. The SEC charged the remaining defendants with violating the securities-registration and broker-registration provisions. In addition, the SEC also charged one of the defendants with violating the whistleblower protection provisions of the federal securities laws. The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against each defendant. Without admitting or denying the allegations in the SEC’s complaint, two of the Individual Defendants consented to the entry of final judgments, subject to court approval, that permanently restrain and enjoin them from violating the securities-registration and broker-registration provisions of the federal securities laws. They also agreed to pay more than $68,000 combined in civil penalties, disgorgement, and interest. Commenting on the allegations, Gurbir S. Grewal (“Grewal”), Director of the SEC’s Division of Enforcement, stated: “We allege that CryptoFX was a $300 million Ponzi scheme that targeted Latino investors with promises of financial freedom and life-altering wealth from ‘risk free’ and ‘guaranteed’ crypto and foreign exchange investments. In the end, the only thing that CryptoFX guaranteed was a trail of thousands upon thousands of victims stretching across ten states and two foreign countries.”  Grewal also commented on the SEC’s commitment to protect investors from fraud: “A scheme of that size requires lots of participants, and as today’s action demonstrates, we will pursue charges against not just the principal architects of these massive schemes, but all those who further their fraud by unlawfully soliciting victims.” Footnotes In 2014, the SEC issued an investor alert about affinity fraud. The alert can be found here . CryptoFX was registered as a crypto trading platform in February 2020. For example, the SEC claimed that the Individual Defendants misappropriated investors’ funds by falsely promising investments into potentially lucrative cryptocurrencies and nonfungible tokens. SEC v. Sanchez , Case No. 4:24-00939 (S.D.Tx. 2024) Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.  This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger On March 19, 2024, the Court of Appeals decided Favourite Limited v. Cico , a case concerning “the proper scope of the trial court's discretion to grant leave to amend a complaint under CPLR 3025 (b) .” (Hyperlink added.)  [Eds. Note: this BLOG has previously addressed CPLR 3025 < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .   This BLOG has previously explained that CPLR 3025(b) provides, in pertinent part, that “ party may amend his or her pleading … at any time by leave of court or by stipulation of all parties.” Importantly, CPLR 3025(b) provides that “ eave shall be freely given.…” Thus, “unless the proposed amendment would unfairly prejudice or surprise the opposing party, or is palpably insufficient or patently devoid of merit,” the motion for leave to amend should be granted. Cirillo v. Lang , 206 A.D.3d 611, 612 (2d Dept. 2022) (citations omitted).  See also Greene v. Esplanade Venture P’ship , 36 N.Y.3d 513, 526 (2021); Toiny, LLC v. Rahim , 214 A.D.3d 1023, 1024 (2d Dept. 2023) (citations omitted). Briefly, in Favourite , plaintiff Upper East Side Suites LLC (“UESS”) is a Delaware corporation that was formed to purchase a building in Manhattan to be used for short-term apartment rentals.  The remaining Plaintiffs are investors in UESS.  The defendants are the managers of UESS.  When the short-term rental business failed, the subject building was sold at a distress sale and the proceeds were used by the defendants as a down payment on the purchase of a different building.  The defendants lost the down payment when they failed to close on the purchase of the new property.  Because of the loss of the down payment, there were no funds to return to the investors, who alleged that the managers “repeatedly lied to them about these operations and that the purchase of the second building was never authorized or disclosed.”  The managers were removed and “plaintiffs commenced an action in May 2016 for breach of the operating agreement, breach of fiduciary duty, and other related claims.”  After the removal of the managers, one of those managers, who was also UESS’ registered agent, resigned from that position.  Accordingly, under Delaware law, UESS’ certificate of formation was cancelled by Delaware’s Secretary of State. After UESS’ counsel failed to appear, the first complaint was dismissed.  After an amended complaint was filed by the investors (and not UESS), the defendants moved to dismiss “arguing among other things that a suit may not be brought on behalf of a cancelled Delaware LLC.”  After one of UESS’ members obtained a “certificate of revival”, the plaintiffs cross-moved to file an amended complaint with the investors and UESS as plaintiffs.  The motion was denied, and the cross-motion was granted, the motion court holding that “because UESS had been revived, the s' arguments related to the inactivity of were no longer relevant.”  The defendant appealed.  While the appeal was pending, the defendants interposed counterclaims against the plaintiffs based on breaches of the operating agreement. The Appellate Division reversed the motion court’s order and dismissed the complaint “holding that UESS had not been properly revived” because there was no evidence that the entity that obtained the certificate of revival for UESS had the authority to do so and, therefore, “ continued to lack standing or capacity.”  A new and proper certificate of revival was obtained, and the plaintiffs moved under CPLR 3025(b) to file a third amended complaint.  The motion was opposed by the defendants, who argued that amendment would be improper because the prior complaint was dismissed in its entirety.  The motion court granted the motion to amend reasoning that “although plaintiffs could have commenced a separate action under CPLR 205 (a) after the Appellate Division dismissed their claims without prejudice, "it would make no sense, under the circumstances, for plaintiffs to have commenced another separate action and then to have moved to consolidate it with this one when this one has always remained active and pending." The Court also noted that the filing of a new action would have been timely on the amendment date.”  As stated in the Favourite opinion, on appeal, and as is relevant here, a divided Appellate Division reversed, holding that “its dismissal of the second amended complaint left Supreme Court powerless to entertain a motion to file another amended complaint, because no complaint remained pending to amend.” The Plaintiffs appealed, as of right, pursuant to CPLR 5601(a) , because “there a dissent by at least two justices on a question of law in favor of the party taking such appeal.”  CPLR 5601(a).  The Court of Appeals reversed the Appellate Division.  Recognizing that “prejudice or surprise” was an issue, the Court of Appeals noted that “the Appellate Division holding rests on the more fundamental premise that when an appellate court has dismissed a complaint in its entirety, the trial court has no discretion to grant leave to amend that complaint under CPLR 3025 (b), even if the dismissal was without prejudice and not on the merits and the defect would be curable by amendment.”  The Court explained: he question on appeal, then, is whether the Appellate Division's decision required the plaintiffs to commence a separate action instead of seeking leave to file an amended complaint. Whatever the answer to that question might be in a case in which no action remained between the parties in Supreme Court, here the action remained pending in Supreme Court because of the s’ counterclaims. Therefore, Supreme Court retained control over the parties and continued to adjudicate claims related to the same transactions that formed the subject-matter of the complaint. For that reason, the Appellate Division order also did not render the case final for purposes of appealability, as no appeal to the Court of Appeals may be taken from an order which leaves claims pending in the action between the same parties.  Thus, despite the fact that the complaint was dismissed, the action remained pending and “Supreme Court retained the power to grant leave to plaintiffs to file another amended complaint.”  As the Court recognized, “ here is nothing particularly novel about repleading a dismissed complaint in Supreme Court to cure a defect discovered on appeal.” Recognizing that there is no such requirement, the Court also rejected the defendants’ argument that amendments are only permitted “when leave to amend is expressly granted by the appellate court.”  The Court also rejected the defendants’ “more technical” argument “that where the entire complaint has been dismissed, granting leave to amend is not possible because there is no complaint remaining to amend,” because such an argument “is at odds with the common practice of dismissing complaints with leave to amend.” 1 It should be noted that there was a lengthy dissent in which Judge Rivera urged, inter alia , that once the “Appellate Division dismissed the second amended complaint in its entirety and held that the named company-plaintiff lacked standing and capacity to sue” the plaintiffs’ only recourse  was to commence a new action under CPLR 205 (a) based on the same transaction or occurrence, if, within that time, it acquired standing to sue.” (Hyperlink added.) 2 Footnotes The Court also determined that the plaintiffs’ motion to amend was timely. This BLOG has previously addressed CPLR 205.  See, e.g. , < here =">here"> and < here =">here"> . Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By:  Jeffrey M. Haber As we have often explained in the articles in which we have examined the duplication doctrine, fraud claims that are nothing more than contract claims dressed up in fraud clothing, are subject to dismissal. E.g. , here ,  here ,  here , and  here . Thus, courts will apply the doctrine when a plaintiff alleges a breach of contract claim and a fraud claim that arise from the same facts and circumstances. When that happens, the fraud claim will be deemed duplicative of the contract claim not only because the fraud claim arises from the same facts as the contract claim, but also because the fraud claim seeks the same damages and does not allege a breach of any duty collateral to or independent of the parties’ agreements. 1 Moreover, “ fraud-based claim duplicative of a breach of contract claim when the only fraud alleged is that the defendant was not sincere when it promised to perform under the contract.” 2 In Colle Capital Partners LP v. Automaton, Inc. , 2024 N.Y. Slip Op. 01504 (1st Dept. Mar. 19, 2024) (here), the Appellate Division, First Department considered the duplication doctrine when it reversed the motion court’s order granting leave to amend a complaint to add a fraud claim. colle capital comes from the parties’ briefing on appeal.> colle capital comes from the parties’ briefing on appeal.> Colle Capital involved a claim against Automaton, Inc. (“Automation”) for breach of a stock sale and purchase agreement (“Sale Agreement”), which governed the sale to Colle Capital Partners LP and Colle Logistics Associates, LLC (collectively, “Colle”) of Automaton shares that had been awarded to defendant Michael Murphy (“Murphy”), a former Automaton employee, on terms set forth in a separate restricted stock award agreement (“Stockholder Agreement”). The breach of contract claim concerned Section 5(a) of the Sale Agreement, which provided that Automaton “fully consent to the transfer of the Shares under this Agreement”. Spencer Hewett (“Hewett”), Automation’s Chief Executive Officer, was alleged to have signed the agreement on Automaton’s behalf. Colle based its breach of contract claim on Automaton’s alleged refusal to effectuate the share transfer contemplated by the agreement notwithstanding Colle having paid the purchase price to Murphy, on the ground that the transaction had not been approved by Automaton’s board of directors (the “Board”) as required by the Stockholder Agreement. The proposed amended complaint also asserted a fraud claim against Automaton, based upon Hewett’s alleged misrepresentation that “Automaton and Hewett would … broker the sale of Murphy’s shares in the company to Colle at a discounted price” if Colle would buy a $250,000 promissory note held by SB Media Capital LLC, that the holder had called and which “Automaton lacked sufficient capital to repay”.  Colle alleged that it was led to believe by Hewett that he had authority to make the deal and had obtained all requisite approvals by the Board. Colle also maintained that Hewett represented that Automation’s outside counsel reviewed the terms of the transaction.  When it came time for Automaton and Hewett to transfer Murphy’s shares to Colle, Hewett allegedly informed Colle that he had not received, nor would he seek, consent from Automaton’s Board for the share sale unless Colle agreed to purchase additional convertible notes on non-market terms. When Colle approached Murphy with the problem, Colle claimed that Murphy fraudulently induced Colle to pay Murphy for his shares by representing that all requisite consents were obtained to sell his shares.  Colle sought leave to amend its complaint. The motion court granted the motion, allowing plaintiff to amend its allegations with respect to the fraud and breach of sale agreement claims and to add Hewett and Murphy as defendants. The Appellate Division, First Department modified the motion court’s order to deny the motion with respect to the fraud claim. 3 In a brief decision, the Court held that “ eave to amend the fraud claim should, … , have been denied because this claim, even as amended, was duplicative of the breach of sale agreement claim.” 4 The Court explained that “ he alleged misrepresentations were not collateral to the subject matter of the sale agreement; indeed, some of them were explicitly contained therein.” 5 Finally, said the Court, as alleged, the damages sought by the fraud claim were the same as those alleged with respect to the contract claim: “ lthough plaintiffs could theoretically have suffered damages separate from their payment for shares they never received, they did not allege any other losses.” 6 Footnotes Havell Capital Enhanced Mun. Income Fund, L.P. v. Citibank, N.A. , 84 A.D.3d 588, 589 (1st Dept. 2011). Manas v. VMS Assoc., LLC , 53 A.D.3d 451, 453 (1st Dept. 2008); see also Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 64-65 (1st Dept. 2017); HSH Nordbank AG v. UBS AG , 95 A.D.3d 185, 206 (1st Dept. 2012); Metropolitan Life Ins. Co. v. Noble Lowndes Intl. , 192 A.D.2d 83, 88 (1st Dept. 1993). Slip Op. at *1. Id. Id. (citations omitted). Id. (citation omitted). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.  This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger Actions or proceedings (collectively, “Actions”) are commenced by filing the initiatory papers with the appropriate county clerk.  CPLR 304(a) . 1 Once the Action is commenced, the plaintiff is required to serve the initiatory papers on the defendant and, generally, such service must occur within 120 days after the Action is commenced.  CPLR 306-b . 2 “If service is not made upon a defendant within the time provided in this section, the court, upon motion, shall dismiss the action without prejudice as to that defendant, or upon good cause shown or in the interest of justice, extend the time for service.” Id. The Leader Court made clear that, under CPLR 306-b, “good cause” and “the interest of justice” are “two separate standards by which to measure an application for an extension of time to serve” a defendant if service is not made within 120 days of the commencement of an Action. Leader , 97 N.Y.2d at 104. In this regard, the Leader Court recognized that because “good cause” and “the interest of justice” are “stated separately, joined by the word ‘or’ hey cannot be defined by the same criteria; otherwise, one would have been sufficient.” Id . (citation omitted). “To establish good cause, a plaintiff must demonstrate reasonable diligence in attempting service.”  Bumpus v. New York City Tr. Auth. , 66 A.D.3d 26, 31 (2 nd Dep’t 2009) (citing Leader ); see also Wilmington Savings Fund Society, FSB v. James , 174 A.D.3d 835, 837 (2 nd Dep’t 2019)).  “Good cause will not exist where a plaintiff fails to make any effort at service or fails to make at least a reasonably diligent effort at service.”  Bumpus , 66 A.D.3d at 31 (citations omitted). Where “good cause” is not established, “courts must consider the ‘interest of justice’ standard of CPLR 306-b.” Bumpus , 66 A.D.3d at 32 (citations omitted); see also Wilmington , 174 A.D.3d at 837. Under the “interest of justice” standard, a court must analyze “the factual setting of the case and a balancing of the competing interests presented by the parties.” Gjurashaj v. ABM Industry Groups, LLC , 213 A.D.3d 479, 480 (1 st Dep’t 2023) ( citing Leader , internal quotation marks omitted); see also Wells Fargo Bank v. Barrella , 166 A.D.3d 711, 713 (2 nd Dep’t 2018). In addition, while no single factor “is determinative,” courts may consider factors such as “diligence, or lack thereof, along with any other relevant factor in making its determination, including expiration of the statute of limitations, the meritorious nature of the cause of action, the length of delay in service, the promptness of a plaintiff's request for the extension of time, and prejudice to defendant.” Id . The Appellate Division, Second Department, addressed CPLR 306-b on March 13, 2024, in PNC Bank, National Ass’n v. Sarfaty , a residential mortgage foreclosure action. In 2013, the lender commenced its foreclosure action. Thereafter, the borrower interposed an answer asserting an affirmative defense of lack of personal jurisdiction due to improper service of process. Within sixty days of serving the answer, the borrower moved to dismiss the complaint pursuant to CPLR 3211(a)(8) due to the failure of service of process. Two years later, and before the borrower’s motion to dismiss was decided, the lender moved for summary judgment. Four years after the borrower moved to dismiss, the motion court issued an order which, “in effect, held in abeyance that branch of 's motion which was pursuant to CPLR 3211(a)(8) to dismiss the complaint insofar as asserted against him for lack of personal jurisdiction due to improper service of process and directed that a traverse hearing be held to determine whether was properly served. After the hearing, the motion court granted the borrower’s motion to dismiss and denied, as moot, the lender’s motion for summary judgment. Thereafter, the lender moved to vacate the dismissal order and for an order pursuant to CPLR 306-b extending the time to serve the summons and complaint on the borrower, which motion was granted. On the borrower’s appeal the Second Department affirmed and, in so doing, stated: Pursuant to CPLR 306-b, a court may exercise its discretion to extend a plaintiff's time to effectuate service for good cause shown or in the interest of justice…. To establish good cause, a plaintiff must demonstrate reasonable diligence in attempting service. The interest of justice standard requires a court to carefully analyze the factual setting of the case and to balance the competing interests presented by the parties…. The interest of justice standard is a broader standard than good cause, intended to accommodate late service that might be due to mistake, confusion or oversight, so long as there is no prejudice to the defendant. Here, although the exhibited a lack of diligence in seeking an extension of time to serve the summons and complaint upon , for example, by waiting more than one year after the issuance of the dismissal order before making the subject motion, the other relevant factors all favor the granting of such relief. Specifically, the timely commenced this action, but the statute of limitations had expired when the moved for the subject relief. In addition, the attempted service in a timely manner, and even though that service was defective, acquired actual notice of this action well within 120 days after its commencement. Moreover, did not demonstrate that his ability to defend against this action would be prejudiced in any way by the delay in service, and the submitted evidence of a potentially meritorious cause of action via incorporation by reference of its prior summary judgment motion, which included an affidavit of merit. Finally, the Supreme Court faulted both parties for delaying this action commenced in 2012. Footnotes This BLOG has previously addressed CPLR 304.  See, e.g., < here =">here"> and < here =">here"> . This BLOG has previously addressed CPLR 306-b.  See, e.g., < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .  The history and import of CPLR 306-b, as discussed in prior BLOGS, is explained by the Court of Appeals in Leader v. Maroney, Ponzini & Spencer , 97 N.Y.2d 95, 101 (2001).  Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In New York, Article 75 of the Civil Practice Law and Rules (“CPLR”) governs the confirmation, vacatur, modification, and enforcement of arbitration awards. Under CPLR 7511(b)(1)(iii), a court may vacate an arbitration award if “an arbitrator, or agency or person making the award exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made.” In addition, a court may vacate an award when it is irrational, violates public policy, and/or fails to resolve all the issues submitted to the arbitrator. 1 Irrationality includes, among other things, an interpretation of the parties’ agreement that “is unsupported by the plain language of th agreement,” 2 or an award that is “inherently inconsistent.” 3 To vacate an arbitration award, the party seeking to vacate the award “bears a heavy burden and must establish a ground for vacatur by clear and convincing evidence.” 4 Alternatively, a court may modify an arbitral award if, among other things, “there was a miscalculation of figures or a mistake in the description of any person, thing or property referred to in the award.” 5 In today’s article, this Blog examines Gowanus Park LLC v. KSK Construction Group LLC , 2024 N.Y. Slip Op. 30726(U) (Sup. Ct., Kings County Mar. 6, 2024) ( here ), a case addressing the foregoing principles. Gowanus Park involved a contract for the construction of a four-story residential building located in Brooklyn, New York. Plaintiff alleged that defendant KSK Construction Group LLC was not equipped to manage and complete the construction project. Plaintiff maintained that the work defendant performed was defective and had to be redone at significant cost to plaintiff. Litigation ensued and the parties eventually engaged in a multi-day arbitration proceeding that resulted in an award that required plaintiff to pay defendant $589,913.36, plus administrative fees.  Defendant moved to confirm the award. Plaintiff opposed and cross-moved to modify or vacate the award, arguing that the arbitrator failed to properly calculate the amount plaintiff had paid various subcontractors and that such mistake amounted to windfall of almost $300,000 in defendant’s favor. Plaintiff further argued that the arbitrator failed to consider the damages it suffered as a result of defendant’s defective work. The court rejected plaintiff’s windfall argument. The court found that the argument was based upon the testimony of defendant’s principal, who testified at the arbitration that plaintiff had paid subcontractors $1,140, 219.19, without any supporting documentation or evidence. As such, the court found that “the arbitrator was free to ignore such isolated testimony without any supporting documentation.” 6 The court explained that although plaintiff produced checks totaling $1,055,077.06 that it paid to subcontractors, it did not produce any invoices (other than two) substantiating “that those checks concerned work under” defendant’s direction. 7 “Indeed,” said the court, defendant “introduced competent evidence in the form of a detailed spreadsheet that the amount paid by to subcontractors amounted to no more than $846,203.58,” which the court concluded, “the arbitrator appropriately credited.” 8 Thus, concluded the court, “ here can be no improper conclusion reached by the arbitrator for failing to credit unsubstantiated payments urged by .” 9 Turning to the arbitrator’s claimed failure to consider the damages that plaintiff allegedly suffered by reason of defendant’s defective workmanship and delay, the court denied plaintiff’s motion to vacate, holding that it was tantamount to a disagreement with the decision of the arbitrator. 10 “ erely disagreeing with the arbitrators conclusions is not a basis upon which to vacate any arbitration award,” explained the Court. 11 Indeed, said the Court, “it is well settled that even where an arbitrator’s award ‘contains errors of law and fact committed by the arbitrator’ the decision will not be vacated.…’” 12 Accordingly, the court denied the motion to vacate and granted the motion to confirm the arbitration award. here,=">here," and="and" >here.=">here."> Footnotes See , e.g. , Denson v. Donald J. Trump For President, Inc. , 180 AD3d 446, 450 <1st dept 2020> ; Rosenberg v. Schwartz , 176 A.D.3d 1069, 1071 (2d Dept. 2019). Cnty. of Westchester v. Civ. Serv. Emps. Ass’n, Inc., Loc. 860, Westchester Cnty. Unit , 270 A.D.2d 348, 348 (2d Dept. 2000). Spear, Leads & Kellogg v. Bulseye Sec., Inc. , 291 A.D.2d 255, 256 (1st Dept. 2002); City Sch. Dist. of City of New York v. Hershkowitz , 801 NYS2d 231 (Sup. Ct., N.Y. County 2005). Jurcec v. Moloney , 164 A.D. 3d 1431, 1432, 84 NYS3d 433, 434 (2d Dept. 2018). CPLR 7511(c). Slip Op. at *3. Id. Slip Op. at *3-*4. Id. at *4. Id. Id. Id. (quoting Wien & Malkin LLP v. Helrilsley-Spear, Inc. , 6 N.Y.3d 471 (2006) (citation omitted)). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.  This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In commercial and business litigation, it is common for plaintiffs to assert claims against a business entity for wrongs committed by a corporate entity. Often, plaintiffs will try to “pierce the corporate veil,” or get behind the corporate form, to hold the entity’s officers or members liable for the alleged wrongdoing.  “Generally, a plaintiff seeking to pierce the corporate veil must show that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff’s injury.” 1 Importantly, it is not enough for the plaintiff to demonstrate that the officer, director or shareholder dominated and controlled the corporate entity. 2 The plaintiff must show that the officer, director or member used the corporation for his/her personal benefit and the corporation was nothing more than an “alter ego” or instrumentality of the officer or member. 3 Because “New York law disfavors disregard of the corporate form,” 4 conclusory allegations of domination and control are insufficient. 5 The plaintiff must demonstrate that there was a unity of interest and control between the defendant and the entity such that they are indistinguishable. While application of the doctrine depends on the facts and circumstances of each case, 6 several factors have emerged in determining whether the plaintiff has made the requisite showing. These factors include, among others: (1) the failure to adhere to corporate formalities; (2) inadequate capitalization (that is, the corporation or LLC does not have sufficient funds to operate); (3) a commingling of assets; (4) one person or a small group of closely related people were in complete control of the corporation or LLC; and (5) use of corporate funds for personal benefit. 7 No one factor controls the consideration. 8 The alter ego liability doctrine has also been applied to pierce the veil between corporations when affiliate or subsidiary corporations are used by a dominating parent corporation to engage in fraudulent or wrongful conduct. Under New York law, a corporation is considered to be a “mere alter ego when it ‘has been so dominated by … another corporation … and its separate identity so disregarded, that it primarily transacted the dominator’s business rather than its own.’” 9 When that occurs, “the dominating corporation will be held liable for the actions of its subsidiary.…” 10 As with veil piercing, control is an important factor. The factors considered for veil piercing are also used to determine alter ego liability. 11 Again, no one factor is dispositive and “all need not be present to support a finding of alter ego status.” 12 Finally, a plaintiff must establish a causal connection between the domination and control of the corporate entity and the injury complained of. 13 See,  e.g. ,="See, e.g.," here,  here,=">here," and  here.=">here."> In today’s article, we examine the alleged use of multiple corporate entities to commit a wrong and the court’s unwillingness to find alter ego liability based on their alleged collective actions in committing the wrongs complained of. Cortlandt St. Recovery Corp. v. Bonderman , 2024 N.Y. Slip Op. 01250 (1st Dept. Mar. 7, 2024) ( here ). Cortlandt Street arose from a 2006 corporate recapitalization involving TIM Hellas, a Greek telecommunications company, and certain of its affiliates (the “Hellas Group”). In early 2005, funds separately advised by two private equity firms agreed to invest indirectly in the Hellas Group. The TPG-advised funds and an Apax-advised fund each acquired a 41% indirect minority interest. Approximately eighteen months later, as part of a recapitalization (the “Recap”), Hellas Telecommunications Finance S.C.A. (“Hellas Finance”), a Luxembourg partnership, issued, and Hellas Telecommunications I, S.à.r.l. (“Hellas I”), a Luxembourg limited liability company, guaranteed, €200 million in payment-in-kind notes (the “Notes”) that were sold to European institutional investors.  In 2009, the Notes went into default. Plaintiff Wilmington Trust Company (“WTC”), the successor Trustee on the Indenture and representative for all noteholders, contended that the Hellas Group was rendered insolvent as a result of the Recap payments.  In 2014, WTC obtained a judgment (the “Judgment”) against Hellas Finance and Hellas I (the “Judgment Debtors”). The Judgment was based on the failure of the Judgment Debtors to pay the amounts due under the Notes.  In April 2019, WTC filed an amended complaint, which asserted ten causes of action against the TPG defendants, various Apax-related entities, and two individuals. WTC alleged claims for breach of contract, unjust enrichment and imposition of a constructive trust, fraudulent conveyance (five counts), conversion, the payment of unlawful dividends, and judgment enforcement. Only one of those claims survived against nine of the original defendants: the third cause of action, seeking enforcement of the Judgment on an alter ego theory against the TPG defendants. Following discovery, defendants moved for summary judgment dismissing the action. The motion court denied the motion of the TPG defendants and granted the motion of defendants Giancarlo Aliberti, Matthias Calice, and Apax Partners, L.P.  In denying the TPG defendants’ motion, the motion court treated the TPG defendants and numerous non-parties as a collective entity. The motion court did not identify the role played by any of the TPG defendants in dominating the Hellas Group to commit the wrongs complained of. Instead, the motion court allowed the TPG defendants to “be considered collectively for alter ego purposes” with each other and with other non-parties.  On appeal, the Appellate Division, First Department modified the motion court’s order to grant the motion as to the TPG defendants, and otherwise affirmed the order as to the other moving defendants. The Court held that Plaintiff failed to raise an issue of fact precluding summary judgment in favor of the TPG defendants. The Court found that plaintiff failed to identify any evidence demonstrating the actions taken by each TPG defendant in the wrongs alleged by WTC. Instead, said the Court, “Plaintiff points to tangential relations of each of the TPG Defendants to the transaction at issue and contends that when the actions of each of the nine TPG Defendants are taken as a collective whole, the evidence supports an alter ego claim.” 14 However, explained the Court, the case authority upon which plaintiff relied did not support the collective approach advance by plaintiff. 15 Rather, said the Court, the cases required “each defendant” to be “the alter ego of another.” 16 The Court noted that even if it accepted plaintiff’s view of collective alter ego liability, plaintiff nonetheless failed to proffer “proof sufficient to raise an issue of fact as to how each of the TPG Defendants, … , exercised ‘complete domination’ over the purportedly dominated companies (the Hellas entities), let alone how ‘such domination was used to commit a fraud or wrong against the plaintiff.’” 17 Plaintiff offers no evidence sufficient to demonstrate how the individual TPG Defendants satisfy the alter ego factors. Notably, plaintiff has offered no particularized proof that the TPG Defendants: owned any stock in any Hellas entity; played any role in the issuance of the offering memorandum and eventual 2006 corporate recapitalization; disregarded any of the corporate formalities (as plaintiff's expert concedes); intermingled its funds with those of any Hellas entity; shared its officers, directors and corporate personnel or even common office space and telephone numbers with any Hellas entity; interfered with the ability of any Hellas entity to make independent business decisions; or failed to treat the Hellas entities as independent profit centers. 18 The Court, therefore, held that the motion court “erred in assessing factors under a collective liability theory by treating the TPG Defendants as a single entity.” 19 The Court also held that the “alter ego claim was properly dismissed as against individual defendants Giancarlo Aliberti and Matthias Calice, as there no evidence that they were ‘actually doing business in their individual capacities, shuttling their personal funds in and out of the corporations without regard to formality and to suit their immediate convenience.’” 20 Finally, the Court held that the “alter ego claim was also properly dismissed as against defendant Apax Partners, L.P., which had no involvement in the transaction at issue.” 21 Takeaway Cortlandt Street is notable because of its rejection of a collective alter ego theory of liability, which lumps together for alter ego purposes distinct corporate entities and/or non-parties without requiring the plaintiff to present evidence as to each defendant’s conduct and involvement in the transaction at issue. As noted by the Court, this theory of collective liability conflicts with case authority requiring a plaintiff to show particularized facts of improper domination and control, and the use of that improper domination and control, to perpetrate a fraud or other wrong as to each entity to be held liable as an alter ego.  In effect, the collective theory of alter ego liability conflicts with the prohibition of group pleading. Group pleading occurs when the plaintiff lumps all defendants together without any specification of the conduct charged to a particular defendant.  here,=">here," >here.=">here."> Under New York law, group pleading is insufficient to defeat a motion to dismiss, let alone summary judgment, in the veil piercing context. 22 As the First Department explained in another case, a plaintiff who “simply states that everyone who was involved in any way with the … transaction participated in fraudulent activity,” and fails to “allege exactly which defendant engaged in what activity and when, in furtherance of the alleged fraud,” cannot survive a motion to dismiss, and therefore, such collective evidence is “ fortiori . . . insufficient to defeat a motion for summary judgment.” 23 Finally, Cortlandt Street serves as a reminder that the plaintiff who seeks to impose alter ego liability must proffer facts and evidence. When the plaintiff fails to provide factual support for the allegations, as the Court found, the alter ego liability claim will fail. Footnotes Conason v. Megan Holding, LLC , 25 N.Y.3d 1, 18 (2015) (internal quotation marks omitted); TNS Holdings v. MKI Sec. Corp. , 92 N.Y.2d 335, 339 (1998). Matter of Morris v. New York State Dept. of Taxation & Fin. , 82 N.Y.2d 135, 141-142 (1993); TNS Holdings , 92 N.Y.2d at 339. TNS Holdings , 92 N.Y.2d at 339. Sutton 58 Assoc. LLC v. Pilevsky , 189 A.D.3d 726, 729 (1st Dept. 2020) (internal quotation marks omitted). East Hampton Union Free School Dist. v. Sandpebble Bldrs., Inc. , 16 N.Y.3d 775, 776 (2011) (noting that at the pleading stage, “a plaintiff must do more than merely allege that engaged in improper acts or acted in ‘bad faith’ while representing the corporation”), aff’d , 16 N.Y.3d 775 (2011); Metropolitan Transp. Auth. v. Triumph Adv. Prods. , 116 A.D.2d 526, 528 (1st Dept. 1986). Ledy v. Wilson , 38 A.D.3d 214, 214 (1st Dept. 2007). Shisgal v. Brown , 21 A.D.3d 845, 848 (1st Dept. 2005) (internal citation omitted). Tap Holdings, LLC v. Orix Fin. Corp. , 109 A.D.3d 167, 174 (1st Dept. 2013) (citation omitted). Trabucco v. Intesa Sanpaolo, S.p.A , 695 F. Supp. 2d 98, 107 (S.D.N.Y. 2010). See also Austin Powder Co. v. McCullough , 216 A.D.2d 825, 827 (3d Dept. 1995) (commingling assets and operating corporations “as one entity”). Trabucco , 695 F. Supp. 2d at 107. Id. N.Y. Dist. Council of Carpenters Pension Fund v. Perimeter Interiors, Inc. , 657 F. Supp. 2d 410, 421 (S.D.N.Y. 2009). See also Tap Holdings , 109 A.D.3d at 174. Matter of Morris , 82 N.Y.2d at 141; Guptill Holding Corp. v. State of N.Y. , 33 A.D.2d 362, 365 (3d Dept. 1970) (noting that an element of veil piercing is “an injury proximately caused by said wrong”) (citation omitted); East Hampton Union Free School Dist. , 66 A.D.3d at 132 (noting that the plaintiff must articulate conduct by the individual that creates a nexus between it and the “transactions or occurrences” alleged in the complaint). Slip Op. at *1. Id. Id. at *1-*2 (citing Perez v. Masonry Servs., Inc. , 189 A.D.3d 703, 704 (1st Dept. 2020), lv. denied , 37 N.Y.3d 903 (2021) (specifically finding that the defendants treated two corporate entities “as a single entity,” and thus “abused the privilege of doing business in the corporate form”); Wm. Passalacqua Bldrs., Inc. v Resnick Devs. S., Inc. , 933 F.2d at 139-141 (specifically detailing the evidence demonstrating the “blurred” “lines of corporate control and responsibility” and “high degree of intermingling” among various entities “all controlled either directly or indirectly by family members”)). Id. at *2 (citing Matter of Morris , 82 N.Y.2d at 141). Id. Id. Id. at *2-*3 (quoting Walkovszky v. Carlton , 18 N.Y.2d 414, 420 (1966) (internal quotation marks omitted)). Id. at *3. E.g. , Principia Partners LLC v. Swap Fin. Grp., LLC , 194 A.D.3d 584, 584 (1st Dept. 2021) (dismissing veil piercing claim where the “complaint failed to distinguish between the entities” it sought to pierce); Art Cap. Bermuda Ltd. v. Bank of N.T. Butterfield & Son Ltd. , 169 A.D.3d 426, 427 (1st Dept. 2019) (dismissal of veil piercing claim for failure to “allege particularized facts”); Ferro Fabricators, Inc. v. 1807-1811 Park Ave. Dev. Corp. , 127 A.D.3d 479, 480 (1st Dept. 2015) (dismissal of veil piercing claim where complaint failed to “plead any particularized facts” and was not specific “as to when and by whom” wrongful statements were made). 3 E. 54th St. N.Y., LLC v. Patriarch Partners, LLC , 90 A.D.3d 418, 419 (1st Dept. 2011). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.  This article is for informational purposes and is not intended to be and should not be taken as legal advice.