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By: Jonathan H. Freiberger Last Week in our BLOG article: “ Just When You Thought It Could Not Get More Unanimous, The Court of Appeals Determines that FAPA’s Retroactive Application Does Not Violate the Due Process or Contract Clauses of the United States Constitution or the Right to Substantive and Procedural Due Process Under the New York Constitution – Part 1 ,” we discussed FAPA and the New York Court of Appeals’ decision in Van Dyke v. U.S. Bank, N. A. , in which the Court determined that retroactive application of FAPA passes constitutional muster under the Constitution of the United States. We also promised a sequel – and here it is. Today we will discuss Van Dyke’s sister case, Article 13 LLC v. Ponce De Leon Fed. Bank . ARTICLE 13 LLC Certified Questions Article 13 LLC arrived at the door of the New York Court of Appeals from the United States Court of Appeals for the Second Circuit ( Art. 13 LLC v. Ponce De Leon Fed. Bank, 132 F.4th 586, 594 (2d Cir.2025 )) on the following two certified question: “1. Whether, or to what extent does, Section 7 of the Foreclosure Abuse Prevention Act, codified at N.Y. C.P.L.R. § 213(4)(b) , apply to foreclosure actions commenced before the statute's enactment.” “2. Whether FAPA's retroactive application violates the right to substantive and procedural due process under the New York Constitution, N.Y. Const., art. I, § 6 .” (Hyperlink added.) Underlying Facts Borrower purchased a property in Brooklyn, New York, that was subject to a first mortgage. At or around the time of the purchase, borrower borrowed additional funds and delivered a second mortgage to the lender. The first and second mortgages were consolidated into a single consolidated mortgage on the property (the “Senior Mortgage”). The same day that the consolidated loan transaction occurred, the borrower borrowed additional funds from the consolidated loan lender, who took a second mortgage on the property (the “Junior Mortgage”). Thereafter, the Senior Mortgage was sold. Central Mortgage Company (“CMC”) was the servicer until July of 2008. In 2007, the borrower defaulted on the consolidated loan and, later that year, CMC commenced a foreclosure action (the “First Foreclosure Action”) in its own name against the borrower, in which it identified itself as the holder of the consolidated loan. Ten years later, in 2017, CMC’s motion to discontinue the First Foreclosure Action was granted. In 2020, Article 13 LLC acquired the Junior Mortgage and brought a quiet title action pursuant to RPAPL 1501(4) in the United States District Court for the Eastern District of New York in which it sought to cancel and discharge the Senior Mortgage as time barred. Both parties moved for summary judgment. The lender, among other things, argued that CMC’s acceleration of the Senior Mortgage was invalid. Both motions were denied by the district court, which held, in part, that: there was a disputed issue of material fact regarding whether CMC had standing to bring the Foreclosure Action as a "holder" of the Consolidated Note. Article 13 LLC v. Ponce de Leon Fed. Bank , No. 20-CV-3553 (HG), 2022 WL 17977493, at *7, *9 (E.D.N.Y. Dec. 28, 2022). That genuine dispute related to material facts because, if CMC lacked standing, the Foreclosure Action was invalid to accelerate the debt, and the statute of limitations on the Senior Mortgage did not begin to run with CMC's initiation of the Foreclosure Action. (Hyperlink added.) FAPA was enacted two days after the district court’s decision. Section 7 of FAPA, which is codified at CPLR 231(4)(b), provides: In any action seeking cancellation and discharge of record of an instrument described under subdivision four of section fifteen hundred one of the real property actions and proceedings law, a defendant shall be estopped from asserting that the period allowed by the applicable statute of limitation for the commencement of an action upon the instrument has not expired because the instrument was not validly accelerated prior to, or by way of commencement of a prior action, unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated. Section 10 of FAPA provides that the law "shall apply to all actions commenced on in which a final judgment of foreclosure and sale has not been enforced.” After FAPA’s enactment, Article 13 LLC moved for reconsideration, “arguing that FAPA was an intervening change in controlling law” and, therefore, Section 7 of FAPA applied and operated to estop the lender from challenging the validity of CMC’s acceleration. The district court agreed and held that FAPA’s retroactive application “estopped from bringing a defense against the quiet title action based on the invalidity of a prior acceleration of the mortgage debt.” Accordingly, summary judgment was granted to Article 13 LLC. The Senior Mortgage lender appealed to the Second Circuit. The Second Circuit articulated the issues related to New York law raised by the Senior Mortgage lender as “(1) whether FAPA applies retroactively as a matter of statutory construction, and (2) whether its retroactive application would violate substantive and procedural due process rights guaranteed by the N.Y. Constitution. After reviewing the issues, the Second Circuit certified the referenced questions to the Court of Appeals. Legal Analysis The Court of Appeals’ analysis tracks that which was discussed in last week’s BLOG.                                 Retroactivity The Court of Appeals found that the “plain language” of FAPA Sections 7 and 10 supports retroactivity. Accordingly, it framed the “real issue” as being one of timing: “how does FAPA apply to pending or future foreclosure actions when a previous foreclosure action was dismissed for some reason other than ‘an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated?’” Although legislation is presumed to apply prospectively, retroactive application, according to the Court of Appeals, is appropriate where “(1) the legislature has made a specific pronouncement with respect to retroactive effect or conveyed a sense of urgency, (2) the statute was designed to rewrite an unintended judicial interpretation and (3) the statute reaffirms a legislative judgment about what the law in question should be.” (Citation and internal quotation marks omitted). Simply stated, the Court of Appeals found all three factors applicable and, therefore: even if a prior foreclosure action was commenced by another party not in possession of the underlying note, and that action was discontinued without an express determination by the court that the instrument was not validly accelerated, the six-year statute of limitations accrued on the date that action was commenced and continued to run from that date, tollable only as provided for under FAPA.                                 Violation of New York State Constitution Substantive Due Process Having found retroactivity appropriate “in some circumstances,” the Court of Appeals moved on to the question of whether the retroactive application of FAPA violates both procedural and substantive due process rights afforded by the New York State Constitution. The Court of Appeals found that it did not. Substantive due process is implicated when vested rights are “taken away or impaired.” (Citation omitted.) The Court of Appeals’ discussion focused on the lender’s lack of diligence being the true issue and, when observed in that light, “FAPA Section 7 does not deprive the noteholder of the ability to protect its property interest.” The Court of Appeals also noted that even if a protectable interest was impaired by FAPA, “the legislature may impair legally cognizable interests without running afoul of substantive due process” if “a rational legislative purpose” exists. (Citations and internal quotation marks omitted.) Based on prior abuses of borrowers by financial institutions, the Court of Appeals found that the FAPA legislation was rationally based. Procedural Due Process The Court of Appeals also found that the lender’s procedural due process rights were not impacted. The lender argued that “that because FAPA Section 7 modified the event that triggers the limitations period, our Court must therefore provide a reasonable time in which to file foreclosure actions that would be timely but for FAPA's application.” (Citation, internal quotation marks and brackets omitted.) The Court of Appeals rejected the lender’s argument finding that “FAPA did not alter the six-year statute of limitations whatsoever; the successive holders of the note and mortgage have had the full six-year limitations period in which to discontinue an improperly commenced foreclosure action and commence a new one lacking the prior infirmity.” 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. The background of FAPA was discussed in last Friday’s BLOG and will not be recounted here. To review that summary, please click on the link to last week’s BLOG article. In addition, this BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosure, or other commercial litigation, topics that may be of interest to you. As relates to today’s article, type “FAPA,” “statute of limitations,” “acceleration,” “quiet title,” or “1501(4)” into the “search” box. The fact section is summarized, in part, from the Second Circuit’s certification request ( Art. 13 LLC v. Ponce De Leon Fed. Bank, 132 F.4th 586, 594 (2d Cir. 2025 ). The facts are greatly simplified for editorial purposes. This BLOG has written numerous of articles addressing RPAPL 1501(4). To find such articles, please see the BLOG tile on our website and type “1501(4)” into the “search” box. Similar legal issues were discussed.

By:  Jeffrey M. Haber In today’s Fraud Notes, we examine two cases involving different issues impacting a fraud claim. In RSD857, LLC v. Wright , 2025 N.Y. Slip Op. 06833 (1st Dept. Dec. 09, 2025), we examine the actionability of appraisals. In Olshan Frome Wolosky, LLP v. Kestenbaum , 2025 N.Y. Slip Op. 06816 (Dec. 09, 2025), we examine the duplication doctrine. RSD857 involved allegations that one of the defendants orchestrated a foreclosure rescue scheme to acquire another defendant’s property through deceptive short sale tactics. Defendant claimed that the other defendant promised to preserve his equity and allow him to remain in his home but induced him to transfer title under false pretenses. A key element of the alleged scheme was an appraisal that allegedly undervalued the property using flawed methodologies that caused defendant and the lender to approve the short sale. On appeal, the First Department held that defendant stated a fraud claim against the appraiser notwithstanding the fact that an appraisal is generally not actionable because it is an opinion as to value. In Olshan , plaintiff sought payment of unpaid legal fees for representing certain defendants in three commercial actions. The parties formalized their relationship in July 2022 through an engagement agreement, later modified by a July 2023 revised fee agreement after one of the defendants promised to make payment. When defendants failed to comply, Olshan withdrew and sued for breach of contract, fraudulent inducement, and veil piercing. The motion court dismissed all claims against most of the defendants, finding, inter alia , the fraud claim duplicative of the breach of contract claim and the veil-piercing allegations to be insufficient. On appeal, the First Department reinstated the breach of contract claim against one of the defendants, holding that the emails exchanged with respect to the revised fee agreement evidenced a binding modification, but affirmed dismissal of the fraud and veil-piercing claims. RSD857 v. Wright RSD857 arose from allegations of a predatory mortgage foreclosure rescue scheme involving multiple defendants. At the center of the controversy is defendant Albert Wright (“Wright”), a homeowner who claimed he was fraudulently induced to transfer title to his property (the “Property”) under the guise of a short sale arrangement designed to save his home from foreclosure. Wright and his wife, Doreen Green (“Green”), purchased the Property in 1998 for $95,000. Over the years, they refinanced multiple times to fund repairs. In 2006, they obtained a $1.151 million mortgage loan secured by the Property. The loan eventually went into default in April 2011, and by 2017, the mortgagee initiated a foreclosure action against Wright, Green, and others. In September 2017, defendant Michael Petrokansky (“Petrokansky”) approached Wright on behalf of YKSNAK Holdings LLC (“YKSNAK”), acknowledging the foreclosure and initially offering to purchase the Property outright. Petrokansky later proposed an alternative to the purchase: he would assist Wright in keeping his home through a short sale arrangement. Thereafter, Petrokansky allegedly assured Wright that he could prevent foreclosure, preserve Wright’s equity, and allow him to remain in the Property. In February 2018, Wright and Green executed a memorandum of contract to sell the Property to RSD857. Allegedly acting on Petrokansky’s advice, Wright filed for Chapter 13 bankruptcy on March 5, 2018, to halt foreclosure proceedings. On April 4, 2018, Wright and Green signed a short sale contract to sell the Property to defendant Joby Hcock1131 LLC for $520,000, and on April 9, 2018, they executed a memorandum of option contract with YKSNAK. In January 2019, Petrokansky arranged for two appraisals of the Property; defendant John Viscusi (“Viscusi”) performed the second. Wright alleged that Viscusi grossly undervalued the Property at $825,000, ignoring its development potential. The appraisal, dated January 18, 2019, was allegedly instrumental in convincing Wright and the mortgagee to approve the short sale. Wright alleged that Viscusi’s appraisal employed unreliable standards and methodologies, misrepresented zoning restrictions, omitted prior sale contracts, and failed to include comparable rentals or land sales. According to Wright’s counterclaims/crossclaims, a forensic review later identified these deficiencies and concluded that the appraisal did not comply with professional standards. In particular, the review showed that Viscusi’s appraisal egregiously undervalued the property by millions of dollars, contained numerous errors, was misleading, and was not credible. Although Viscusi invoiced Petrokansky, the appraisal stated it was prepared for Wright, indicating that Viscusi knew Wright would rely on it. Wright alleged that this awareness, combined with the appraisal’s flaws, supported his fraud claim against Viscusi. On October 17, 2019, Wright and Green executed a short sale approval application. Eleven days later, on October 28, 2019, they signed approximately 20 documents intended to resolve the foreclosure and finalize the short sale. Among these documents were a residential contract of sale transferring the property to RSD857 for $850,000 and a deed recorded on November 18, 2019. A property transfer report listed the sale price as $975,000. Wright alleged that RSD857 paid $975,000 to the mortgagee, despite an outstanding balance exceeding $1.7 million. Following this transaction, the court discontinued the foreclosure action and canceled the notice of pendency. In August 2020, defendant, Spencer Developers Inc. (“Spencer”), applied to demolish the Property and construct a luxury condominium tower. Wright claimed that Petrokansky reneged on promises to allow him to remain in the home and instead sought to eject him. In his amended answer, Wright asserted eight affirmative defenses and nine counterclaims, including, as relevant to the appeal and this article, fraud against RSD857, Petrokansky, Viscusi, and Cohen. Wright alleged that Petrokansky and his affiliates orchestrated a scheme to strip him of his property under false pretenses, aided by, among other things, Viscusi’s false and misleading appraisal. Viscusi, among others, moved to dismiss the counterclaims/crossclaims. Regarding the fraud claim asserted against Viscusi, the motion court denied the motion. Viscusi argued that the fraud claim should be dismissed because an appraisal is a matter of opinion upon which there can be no basis for detrimental reliance. Wright maintained that an appraisal is actionable when it is supported by flimsy and unreliable information. It is well settled that appraisals are generally not actionable under a theory of fraud or fraudulent inducement because such representations of value are matters of opinion upon which there can be no basis for detrimental reliance.  However, “an opinion, especially an opinion by an expert, may be found to be fraudulent if the grounds supporting it are so flimsy as to lead to the conclusion that there was no genuine belief back of it.” Furthermore, “an assessment of market value that is based upon misrepresentations concerning existing facts may support a cause of action for fraud”. In such a case, the appraisal is actionable because it is a factual representation—not an opinion. Based upon the foregoing principles, the motion held that Wright stated a claim for fraud against Viscusi. The motion court explained that Petrokansky allegedly arranged for Viscusi to prepare an appraisal in which Viscusi significantly undervalued the Property by “using unreliable standards and methodologies, to make the short sale more appealing to the lender and to mislead Mr. Wright”. The motion court pointed to the forensic review appraisal and analysis that was performed, which identified numerous misrepresentations and deficiencies in Viscusi’s appraisal. The motion court explained that according to the forensic review, Viscusi failed to prepare a report in conformity with the Uniform Standards of Professional Appraisal Practice; failed to accurately report publicly available information that Wright and Green had twice contracted to sell the Property before the short sale transaction; accurately report current zoning restrictions; failed to identify the development potential for the site; included a misleading statement with respect to the highest and best use for the Property; and failed to cite any comparable rentals or comparable properties for sale in the appraisal. Additionally, the forensic review found fault with Viscusi’s cost approach because Viscusi failed to include or cite information on comparable land sales in the area. The motion court also found that Viscusi may have been aware that Wright would rely on the appraisal. The motion court explained that although Viscusi sent the invoice for the appraisal to Petrokansky, the first page of the appraisal stated that it was prepared for Wright. Given the number of alleged misstatements and deficiencies in the appraisal, together with Viscusi’s acknowledgement that the appraisal had been prepared for Wright, the motion court held that Wright pleaded facts sufficient to state a claim of fraud. On appeal, the First Department affirmed. The Court held that the motion court “properly denied Viscusi’s motion to dismiss the counterclaims against him because Wright adequately pleaded a claim for fraud.” The Court found that “Wright's allegations that Viscusi’s valuation of the roperty at $825,000, and that ‘statements used to support this valuation’ were ‘false and misleading and misrepresented material facts,’ were supported by the forensic analysis performed by appraiser … annexed to Wright’s pleading”. That analysis, said the Court, showed “that Viscusi’s appraisal egregiously undervalued the roperty by millions of dollars, contained numerous errors, was misleading, and not credible.” “Moreover”, said the Court, “Wright adequately pleaded that Viscusi was aware that his misrepresentations would reasonably be relied upon by Wright”.   The motion explained that “Viscusi’s appraisal explicitly stated that its intended recipient was Wright, and that its intended use was for Wright, as ‘lender/client,’ to evaluate the roperty as to its fair market value.” Under those circumstances, the Court concluded that “Wright sufficiently pleaded that he reasonably relied on Viscusi’s appraisal for this purpose.” Olshan Frome Wolosky, LLP v. Kestenbaum Olshan arose from a non-payment of legal fees, in which plaintiff, Olshan Frome Wolosky LLP (“Olshan”), asserted five causes of action against defendants, Fortis Property Group, LLC (“Fortis”), FPG Maiden Lane, LLC (“FPG Maiden Lane”), FPG Maiden Holdings, LLC (“FPG Maiden Holdings”), Joel Kestenbaum, and Louis Kestenbaum (collectively, the “Defendants”): (1) breach of contract; (2) unjust enrichment; (3) quantum merit; (4) fraudulent misrepresentation; and (5) charging lien. Defendants moved to dismiss the complaint in its entirety. The motion court granted in part, and denied in part the motion. Olshan alleged that the fees owed by defendants stemmed from its representation of defendants in three different ongoing commercial actions in New York County Supreme Court (collectively, the “Actions”).  Defendants’ retention of Olshan was memorialized in July 2022 through Olshan’s Engagement Letter and accompanying Terms of Engagement (collectively, the “Engagement Agreement”). The Engagement Agreement was signed by Fortis’ General Counsel on behalf of FPG Maiden Lane, formally commencing Olshan’s representation of the Defendants. Olshan continuously provided legal services to Defendants until November 2023. Olshan alleged that Defendants defaulted on payments multiple times under the payment procedure clause of the Engagement Agreement, but that Olshan had continued representing Defendants because they had promised to pay. The most notable of these promises asserted in the complaint occurred on July 12, 2023, when Fortis’ General Counsel informed Olshan that “Louis ha approved payment of $425k to fully resolve the open invoices from November through April,” and further set out new guidelines regarding how Defendants’ would handle payments from thereon out. Olshan accepted these new terms, thus forming a supplementary agreement between the parties (“Revised Fee Agreement”). When Defendants allegedly did not comply with the new terms, Olshan indicated that it would not continue representing Defendants without full payment for the services previously rendered. The parties formally severed their relationship by stipulating to a substitution of counsel in one of the Actions. Olshan asserted three causes of action that are relevant to the appeal and this article: (1) breach of contract for failing to pay legal fees (encompassing the alleged Revised Fee Agreement); (2) fraudulent inducement based on the allegation that Louis Kestenbaum never intended to perform the July 2023 payment promises; and (3) an alter ego/veil-piercing claim to hold Louis Kestenbaum personally liable for the debts of the Fortis entities.   By decision and order dated August 21, 2024, the motion court granted the motion in relevant part. The motion court dismissed the breach of contract cause of action as against Fortis, Louis and Joel Kestenbaum, and FPG Maiden Holdings, LLC, on the grounds of lack of privity. The motion court also dismissed the fraudulent misrepresentation claim for failure to state a claim and because the cause of action was duplicative of the breach of contract cause of action, and held that the complaint be dismissed in its entirety as against Louis Kestenbaum. Olshan appealed the dismissal order, but only with respect to: (1) the breach of contract claim; (2) the fraud claim; and (3) the alter ego/veil-piercing theory against Louis Kestenbaum. The First Department unanimously modified the order, on the law, to deny the motion to dismiss the first cause of action as against Fortis, and otherwise affirmed. The Court held that the motion court “should have allowed the cause of action for breach of contract to proceed as against Fortis ….” The Court noted that “ lthough a breach of contract cause of action generally cannot be asserted against a nonsignatory to the agreement and Fortis … did not execute the engagement letter, the complaint sufficiently allege that the engagement letter was modified by the later revised fee agreement, which bound Fortis … to the terms of the engagement letter”. The Court found that the “emails between the parties sufficient to demonstrate agreement to modify the engagement letter so that Fortis … would pay the outstanding and ongoing legal fees under the terms of the revised fee agreement”. Turning to the fraud cause of action, the Court held that the motion court “properly dismissed the cause of action … as against Louis Kestenbaum”. The Court observed that “in effect”, plaintiff claimed that “Louis Kestenbaum made a promise of payment without the intent to perform that promise”. The Court explained that “ ven assuming the truth of this allegation, … Kestenbaum’s alleged statement would not constitute a promise collateral or extraneous to the agreements at issue”. Notably, the Court found that “ laintiff also did not allege that it sustained any damages that would not be recoverable under its breach of contract cause of action. Rather, plaintiff merely seeks to recover its legal fees, which it is entitled to under the terms of the agreements should it prevail in this action”. Under such circumstances, the claim was duplicative of the breach of contract claim. Finally, the Court held that “plaintiff failed to allege sufficient facts that would warrant piercing the corporate veil to hold Louis Kestenbaum personally liable for the legal fees that the Fortis entities allegedly owe to plaintiff.” The Court explained that “ lthough Louis Kestenbaum may have dominated some of the Fortis entities, plaintiff failed to allege that he abused the corporate form for the purpose of obtaining legal services without intending to pay for them.” Takeaway RSD857 raises several significant legal implications concerning fraud causes of action. Generally, appraisals are treated as opinions, not actionable statements of fact. However, the RSD857 court reaffirmed that an appraisal may support a fraud claim when its underlying methodology is so deficient that it suggests no genuine belief in its accuracy. As discussed, Wright alleged that Viscusi’s appraisal undervalued the property by ignoring development potential, misreporting zoning restrictions, and omitting comparable sales. These alleged deficiencies, coupled with forensic findings, allowed the Court to infer fraudulent intent and affirm the denial of the motion to dismiss. RSD857 , therefore, underscores that professionals cannot shield themselves behind the “opinion” defense when their work is knowingly misleading or recklessly prepared. RSD857 also highlights a critical principle concerning reliance: when a person knows that a third party will rely on their work, tort liability may attach for fraudulent preparation. In RSD857 , Viscusi’s appraisal explicitly stated it was prepared for Wright, creating a reliance scenario that the Court found actionable. Olshan raises several significant legal implications concerning breach of contract and fraud causes of action. Olshan highlights the fact that emails can constitute a binding modification of an agreement. As noted, the First Department held that the July 2023 Revised Fee Agreement—formed through email exchanges—was enforceable against Fortis even though Fortis did not sign the original engagement letter. Olshan also reaffirms three principles involving fraud claims: fraud claims based on promises without intent to perform are not actionable; promises to perform are not collateral to the contract; and fraud damages that seek the same damages as the contract claim are duplicative. _________________________________ 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. This Blog has written dozens of articles addressing numerous aspects of fraud claims and fraud claims and breach of contract claims asserted in the same action. To find such articles, please see the  Blog  tile on our  website  and search for any fraud, fraudulent inducement,  breach of contract, or other commercial litigation topics that may be of interest to you. As relates to today’s article, type “fraud”, “justifiable reliance”, “fraudulent inducement”, “matters of opinion”, or “duplication” into the “search” box. Brang v. Stachnik , 235 App. Div. 591, 592 (1932), aff’d , 261 N.Y. 614 (1933); Ellis v. Andrews , 56 N.Y. 83, 85-87 (1874); Stuart v. Tomasino , 148 A.D.2d 370, 371 (1st Dept. 1989). Ambassador Factors v. Kandel & Co. , 215 A.D.2d 305, 308 (1st Dept. 1995) (citation omitted); see also Ultramares Corp. v. Touche , 255 N.Y. 170, 186 (1931). Flandera v. AFA Am., Inc. , 78 A.D.3d 1639, 1640 (4th Dept. 2010). See Cristallina v. Christie, Manson & Woods Int’l , 117 A.D.2d 284, 294 (1st Dept. 1986); People v. Peckens , 153 N.Y. 576, 591 (1897) (statement “as to value” amounts to an actionable “affirmation of fact” when “made by a person knowing them to be untrue, with an intent to deceive and mislead”); Polish & Slavic Fed. Credit Union v. Saar , 39 Misc. 3d 850, 855 (Sup. Ct., Kings County 2013) (“ o the extent that the EMVs < i.e. , estimated market values> i.e., estimated market values> of the subject properties were extrapolated from misrepresentations of factual data, the appraisal itself may be considered a factual misrepresentation rather than a mere matter of opinion.”).  See Rodin Props. Shore Mall v. Ullman , 264 A.D.2d 367, 368-369 (1st Dept. 1999) (“ hen a professional ... has a specific awareness that a third party will rely on his or her advice or opinion, the furnishing of which is for that very purpose, and there is reliance thereon, tort liability will ensue if the professional report or opinion is negligently or fraudulently prepared”). Houbigant, Inc. v. Deloitte & Touche , 303 A.D.2d 92, 100 (1st Dept. 2003). Slip Op. at *1. Id. (citations omitted). Id. Id. (citation omitted). Id. Id. (citing Remediation Capital Funding LLC v. Noto , 147 A.D.3d 469, 470-471 (1st Dept. 2017)). Slip Op. at *1. Id. (citing Lawrence M. Kamhi, M.D., P.C. v. East Coast Paint Mgt., P.C. , 177 A.D.3d 726, 727 (2d Dept. 2019)). Id. (citing Kataman Metals LLC v. Macquarie Futures USA, LLC , 227 A.D.3d 569, 569 (1st Dept. 2024)). Id. Id. Id. (citing Cronos Group Ltd. v XComIP, LLC , 156 A.D.3d 54, 65 (1st Dept. 2017)). Id. (citing MaÑas v. VMS Assoc., LLC , 53 A.D.3d 451, 454 (1st Dept. 2008)). Id. Id. (citations omitted).

By:  Jeffrey M. Haber In Brearly v. Weis Mkts., Inc. , 2025 N.Y. Slip Op. 34485(U) (Sup. Ct., Broome County Oct. 31, 2025), the motion court was asked to consider the viability of claims for violations of General Business Law (“GBL”) §§ 349 and 350, which prohibit false advertising and deceptive acts or practices in the conduct of any business, trade, or commerce. As discussed below, the motion court held that plaintiff failed to satisfy the elements of the claims asserted. In particular, plaintiff alleged that “Salt & Vinegar Flavored Potato Chips” packaging was misleading under GBL §§ 349 and 350 because it implied natural ingredients, though the chips contained artificial flavorings like malic acid. The motion court held the claims failed. While the packaging was consumer-oriented, an element of a GBL claim, it was not materially misleading: the label stated “flavored,” signaling artificial ingredients, and omitted terms like “all natural.” Additionally, the motion court rejected plaintiff’s “price premium” theory of damages because the chips were a lower-cost store brand, not marketed at a premium. Without material deception or injury, the motion court concluded that the complaint did not meet statutory requirements necessary to withstand the motion to dismiss. Summary of the Action Plaintiff alleged that she purchased defendant’s “Salt & Vinegar Flavored Potato Chips” from January 2022 through January 2025. She asserted that many consumers, including herself, seek foods made with natural flavors and ingredients and try to avoid products containing artificial flavoring, which they view as potentially less healthy. Plaintiff claimed that the product’s packaging misled consumers because the chips did not contain real vinegar; instead, the vinegar taste was derived from artificial ingredients. Plaintiff emphasized that the words “salt & vinegar” appeared in a large, white font at the top of the front label, while the phrase “flavored potato chips” appeared below it in a smaller, darker font, allegedly suggesting the presence of natural ingredients. Plaintiff also pointed to the imagery on the packaging: a glass bowl that appeared to hold salt and a wooden spoon next to a cruet filled with vinegar. Despite these representations, the ingredient panel on the back listed sodium diacetate and malic acid—both artificial flavorings—rather than vinegar. Plaintiff further asserted that she paid more for the product than she otherwise would have had she known it contained artificial flavoring, even though the chips were sold as a more economical store-brand alternative to national brands. She alleged that these labeling and pricing practices amounted to deceptive conduct in violation of the GBL.   The GBL To state a claim under GBL §§ 349 and 350, “a plaintiff must allege that a defendant has engaged in (1) consumer-oriented conduct, that is (2) materially misleading, and that (3) the plaintiff suffered injury as a result of the allegedly deceptive act or practice. A claim under these statutes does not lie when the plaintiff alleges only “a private contract dispute over policy coverage and the processing of a claim which is unique to the[] parties, not conduct which affects the consuming public at large.” Thus, a plaintiff claiming the benefit of either Section 349 or Section 350 “must charge conduct of the defendant that is consumer-oriented” or, stated differently, “demonstrate that the acts or practices have a broader impact on consumers at large.” Notably, the deceptive practice does not have to rise to “the level of common-law fraud to be actionable under section 349.” In fact, “ lthough General Business Law § 349 claims have been aptly characterized as similar to fraud claims, they are critically different.” For example, while reliance is an element of a fraud claim, it is not an element of a GBL § 349 claim. Nevertheless, a plaintiff must allege the existence of a materially misleading act or advertisement to state a cause of action under GBL §§ 349 and 350. The test for both a deceptive act or deceptive advertisement is whether the act or advertisement is “likely to mislead a reasonable consumer acting reasonably under the circumstances.” Whether a particular act or advertisement is materially misleading may be made by a reviewing court as a matter of law. The Motion Court’s Decision As to the first element, the motion court found there was “no question … the packaging at issue is consumer oriented.” Though plaintiff satisfied the first element of the claims, the motion court held that plaintiff failed to satisfy the second and third elements of the claims. With regard to the second element ( i.e. , consumer-oriented conduct that is materially misleading), the motion court held that plaintiff failed to state a claim. The motion court found that the “label at issue expressly state the chips ‘flavored’, thereby indicating the presence or possibility of artificial ingredients.” Plaintiff alleged that the packaging was deceptive because a reasonable consumer would expect the chips to contain only “natural” ingredients based on the label “Salt & Vinegar Flavored Potato Chips” juxtaposed with the image of a cruet containing vinegar adjacent to a bowl containing salt. Defendant argued, among other things, that no reasonable consumer would be misled into believing that its salt and vinegar potato chips did not contain artificial ingredients. Defendant further argued that the packaging at issue did not contain overt statements, such as “all natural,” and that the presence of a cruet filled with amber liquid, ostensibly vinegar, did not create the false impression about the ingredients of the chips. The representations about flavoring, as opposed to ingredients, said defendant, were standard marketing techniques that had been widely held to be permissible in other litigations. The motion court also held that “ laintiff’s position further undercut by the omission of any terms that den the presence of artificial ingredients to a reasonable consumer, such as ‘all natural’”. “Although the front label refer to a flavor (i.e., vinegar),” said the motion court, “it makes no claims about ingredients or the source of the vinegar flavoring, nor it reasonable to presume the product contain a specific ingredient”. “Case law repeatedly dismisses claims alleging deception by flavoring coming from a particular ingredient,” noted the motion court. Therefore, the motion court found that the “complaint conflate the packaging’s representations about the product’s flavoring with its ingredients and, therefore, fail to state a viable cause of action because the packaging unlikely to mislead a reasonable consumer”. The motion court further held that plaintiff failed to satisfy the third element of the claim, “namely … that plaintiff suffered an injury from the supposedly false or misleading packaging”. In the complaint, plaintiff advanced a “price premium theory”, under which “ company market a product as having a unique quality, that the marketing allowed the company to charge a price premium for the product, and that the plaintiff paid the premium and later learned that the product did not, in fact, have the marketed quality”. The motion court found that the allegations in the complaint actually undermined plaintiff’s position: “A review of the complaint, however, reveals plaintiff’s acknowledgment that defendant’s potato chips were not marketed as a national brand at a premium price, but rather as a ‘private label product’ sold at a lower cost compared to national brands.”   The motion court concluded that “ ithout the allegation that plaintiff paid a premium for defendant’s product because of its labeling, but rather an admission that she did not, plaintiff … failed to satisfy the third prong of a claim for deceptive practice and/or false advertising by failing to allege damages arising from the allegedly deceptive labeling of defendant's product”. Takeaway For GBL §§ 349 and 350 claims, plaintiffs must demonstrate that the subject marketing is materially misleading and caused actual harm. As explained by the motion court in Brearly , flavor descriptions and imagery alone, without explicit ingredient claims, generally do not suffice. Additionally, price-premium arguments require evidence that the product was sold at a higher price due to the alleged misrepresentation. In Brearly , plaintiff failed to allege harm due to a price premium, especially since plaintiff acknowledged that defendant’s potato chips were not marketed as a national brand at a premium price. _______________________________ 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. This Blog has written numerous articles examining GBL §§ 349 and 350, including: New York Court of Appeals Reaffirms that Claims Under GBL 349 and 350 Must Have a Broader Impact On Consumers at Large ; GBL 349 and 350, Contractual Privity and The Warranty of Merchantability ; and Licorice Sticks and New York’s General Business Law . In addition to the foregoing articles, readers can find other articles examining GBL § 349 by clicking on the  BLOG  tile on our  website  and searching for any GBL topics that may be of interest to you. Koch v. Acker, Merrall & Condit Co. , 18 N.Y.3d 940, 941 (2012); Goshen v. Mutual Life Ins. Co. of N.Y. , 98 N.Y.2d 314, 324 n.1 (2002). GBL § 349(a) provides that “ eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful<,> ” while GBL § 350 states that “ alse advertising in the conduct of any business, trade or commerce or in the furnishing of any service in this state is hereby declared unlawful.” New York Univ. v. Continental Ins. Co. , 87 N.Y.2d 308, 321 (1995) (internal quotation marks omitted). Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank , 85 N.Y.2d 20, 25 (1995). Boule v. Hutton , 328 F.3d 84, 94 (2d Cir. 2003) (citing Gaidon v. Guardian Life Ins. Co. , 94 N.Y.2d 330, 343 (1999)). Gaidon , 94 N.Y.2d at 343. Stutman v. Chemical Bank , 95 N.Y.2d 24, 29 (2000); Small v. Lorillard Tobacco Co. , 94 N.Y.2d 43, 55-56 (1999). See Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v. Matthew Bender & Co., Inc. , 37 N.Y.3d 169, 176 (2021); Andre Strishak & Assocs., P.C. v. Hewlett Packard Co. , 300 A.D.2d 608, 609 (2d Dept. 2002). Oswego , 85 N.Y.2d at 26. See also Andre Strishak , 300 A.D.2d at 609;  Himmelstein , 37 N.Y.3d at 178. Id. Slip Op. at *4 (citation omitted). Id. at *5. Id. (citing Angeles v. Nestl é USA, Inc. , 632 F. Supp. 3d 309, 315 (S.D.N.Y. 2022)). Id. at *6 (citing Marotto v. Kellogg Co. , 2018 WL 10667923, at *8 (S.D.N.Y. 2018)). Id. (citing Wynn v. Topco Assocs., LLC , 2021 WL 168541, at *4 (S.D.N.Y. 2021)). Id. (citing Oldrey v. Nestl é Waters North America, Inc. , 2022 WL 2971991 (S.D.N.Y. 2022); see also Myers v. Wakerfern Food Corp. , 2022 WL 603000 (S.D.N.Y. 2022) (“flavor designation does not convey an explicit ingredient claim”)). Id. (citing Angeles , 632 F. Supp. 3d at 315-316). Id. Colpitts v. Blue Diamond Growers , 527 F. Supp. 3d 562, 577 (S.D.N.Y. 2021) (internal citations omitted); Hawkins v. Coca-Cola Co. , 654 F. Supp. 3d 290, 301 (S.D.N.Y. 2023). Slip Op. at *7. Id.

By: Jonathan H. Freiberger Last Week in our BLOG article: “ It’s Unanimous – The Fourth Department Joins the Other Departments and Confirms the Retroactive Application of FAPA ,” we again discussed FAPA and noted that on November 25, 2025, the New York Court of Appeals decided two cases: Article 13 LLC v. Ponce De Leon Fed. Bank , and Van Dyke v. U.S. Bank, N. A. , in which the Court determined that retroactive application of FAPA’s provisions passes constitutional muster under the United States and New York Constitutions. Today we will discuss Van Dyke and next week we will discuss Article 13 LLC . FAPA The Foreclosure Abuse Prevention Act (“FAPA”), which went into effect in December of 2022, “represents the Legislature’s response to litigation strategies and certain legal principles that distorted the operation of the statute of limitations in foreclosure actions.” Genovese v. Nationstar Mortgage LLC , 223 A.D.3d 37, 41 (1 st Dep’t 2023) (citation omitted). Thus, inter alia , FAPA’s provisions were designed to prevent lenders from circumventing statute of limitations problems in residential mortgage foreclosure actions by the simple expedient of accelerating and de-accelerating loans to restart the running of statutes of limitations. One of the main purposes of FAPA was to overrule the Court of Appeals decision in Freedom Mortgage Corp. v. Engel , 37 N.Y.3d 1 (2021), in which the Court held that if a lender accelerates a loan by the service of a foreclosure complaint, the lender’s discontinuance of that action is an “affirmative act” sufficient to de-accelerate the loan. As is relevant to today’s discussion, “ ections 4 and 8 of FAPA overrule components of FAPA.” Van Dyke at *3. Section 4 of FAPA prevents a party from unilaterally resetting the statute of limitations on, inter alia , a residential mortgage note once the limitations period has accrued. Section 8 prevents a lender from resetting the limitations period to sue on, inter alia , a residential mortgage note by the voluntary discontinuance of a foreclosure action. Finally, “section 7 of FAPA estops a noteholder in a successive foreclosure action from challenging the validity of a loan acceleration made ‘prior to, or by way of commencement of’ a prior foreclosure action, unless the court in the prior action expressly determined, based on a timely raised defense, that the acceleration was invalid.” Id . Finally, section 10 of FAPA “provides that FAPA ‘shall take effect immediately and shall apply to all actions commenced on<, as relevant here, a residential mortgage loan agreement,> in which a final judgment of foreclosure and sale has not been enforced.’” Van Dyke In 2009, borrower (the plaintiff herein) defaulted on a loan secured by a mortgage and later that year the present lender’s (U.S. Bank) predecessor (BONY Mellon) commenced a foreclosure action (the “2009 Foreclosure Action”). In its complaint in the 2009 Foreclosure Action, the plaintiff lender (BONY Mellon) purported to accelerate the loan and alleged that it was the holder of the subject note or was authorized by the holder to commence the 2009 Foreclosure Action. The borrower asserted a lack of standing defense in its answer. The facts suggest that the lender in the 2009 Foreclosure Action (BONY Mellon) was not assigned the underlying promissory note until after that Action was commenced. Nonetheless, the 2009 Foreclosure Action was pending for more than ten years, during which time the underlying note and mortgage were assigned by BONY Mellon to U.S. Bank. The motion court denied the parties’ subsequent cross-motions for summary judgment on the issue of BONY Mellon’s standing to commence the 2009 Foreclosure Action due to the existence of fact issues related to BONY Mellon’s possession of the note at the commencement of that action. The parties’ cross-appeals were affirmed by the Appellate Division in 2020. In 2022, the 2009 Foreclosure Action was discontinued by a “So Ordered” stipulation that stated: “‘based upon’ Supreme Court's affirmed order denying summary judgment on the issue of Mellon's standing, Mellon had ‘failed to demonstrate that it had standing to commence the action.’” (Internal brackets omitted.) Further, the “stipulation did not address or purport to revoke Mellon's purported acceleration of the loan.” In 2022, after the voluntary dismissal of the 2009 Foreclosure Action, the lender (U.S. Bank) commenced a new foreclosure action (the “2022 Foreclosure Action”) and, pursuant to RPAPL 1501(4), the borrower commenced the subject quiet title action (the “Quiet Title Action”). In the complaint in the Quiet Title Action, the borrower alleges that the lender (U.S. Bank) accelerated the underlying loan more than six years earlier and, therefore, any action on the note and mortgage would be time-barred. The lender (U.S. Bank) moved to dismiss arguing that the loan was not validly accelerated in the 2009 Foreclosure Action and the borrower cross-moved for summary judgment. During the pendency of both motions, FAPA was enacted and the parties submitted supplemental briefing on the issue. The motion court issued orders resolving the motions in the borrower’s favor. First, the court held that, pursuant to section 7 of FAPA, the lender is estopped from challenging the validity of BONY Mellon’s acceleration of the loan by the complaint in the 2009 Foreclosure Action and, accordingly, the limitations period in which to sue on the underlying obligation has expired. Additionally, the court rejected the challenge to the retroactive application of FAPA. The Appellate Division unanimously affirmed, and leave was granted to appeal to the Court of Appeals. The Court of Appeals affirmed. First, the Court determined that sections 4, 7 and 8 of FAPA apply retroactively. The Court noted that retroactive application of statutes is not favored absent clear intent by the Legislature. Van Dyke at *5. Here, the Court found clear intent for the retroactive application of FAPA based on the legislative history and FAPA’s plain text. Next, the Court discussed its rejection of the lender’s argument that retroactive application of FAPA would violate its substantive and procedural due process rights under the United States constitution. As to the substantive due process challenge, the Court recognized that “legislation can implicate substantive due process where it takes away or impairs vested rights in respect to transactions or considerations already past, and where its retroactive application lacks an adequate rational basis. 's substantive due process challenge raises both issues.” (Citations, internal quotation marks and ellipses omitted.) The lender articulated two vested property rights: (1) its property interest in the mortgage; and, (2) its interest in prosecuting the 2022 Foreclosure Action which, the lender argues, “was timely under the pre-FAPA laws in effect when the action was brought.” The lender’s arguments were rejected by the Court. As to the property interested in the mortgage, the Court noted that “it is the six-year statute of limitations, not FAPA itself, that has extinguished that interest.” Similarly, the estoppel bar of FAPA’s section 7 does not unconstitutionally impair any property rights in the mortgage. The Court further rejected the lender’s argument that FAPA sections 4 and 8 infringe on its property interest because “but for FAPA, the filing of Mellon's 2009 foreclosure complaint did not trigger the limitations period in the first place, on the theory that under pre-FAPA law, the discontinuance of Mellon's 2009 action rendered Mellon's acceleration a ‘legal nullity.’” The lender argued that “retroactively giving that ‘nullity’ legal effect, FAPA has extinguished 's property interest.” The Court stated that such a position is not supported by case law; “certainly not in a manner capable of conferring a vested right.” In rejecting a claimed vested right in prosecuting the 2022 Foreclosure Action, the Court stated that “assuming, without deciding, that a party may have a vested right in a timely commenced cause of action, has not established as a legal matter that the 2022 oreclosure ction was timely brought under well-settled pre-FAPA law, and thus has not shouldered its ultimate burden of demonstrating FAPA's constitutional invalidity as applied here.” (Citations, internal quotation marks and brackets omitted.) Due process, according to the Court, also requires that retroactive application be supported by “a legitimate legislative purpose furthered by rational means.” (Citations and internal quotation marks omitted.) The Court recognized that there was a rational basis for applying FAPA’s relevant provisions to the action based on the abusive litigation practices employed by lenders prior to FAPA’s enactment. Also, to the extent that FAPA clarifies or alters the application of the six-year statute of limitations, retroactive application “rationally advances the strong public policy favoring finality, predictability, fairness and repose in human affairs.” (Citations and internal quotation marks omitted.) The lender further argued that its procedural due process rights under the United States Constitution were adversely impacted because when the Legislature’s shortens applicable limitation periods, the parties must be afforded “a reasonable grace period in which to bring claims that were timely under the old limitations period but are untimely under the new limitations period.” (Citation omitted.) The Court rejected this argument and noted that FAPA “did not shorten the limitations period, procedural due process does not demand a reasonable grace period before FAPA's relevant provisions take effect.” The Court also rejected the lender’s challenge based on the Contract Clause of the United States Constitution, which prohibits a state law from operating “as a substantial impairment of a contractual relationship.” (Citations and internal quotation marks omitted.) With respect to a Contract Clause analysis, the Court stated that the: initial inquiry contains three components: whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial. Even where all three components are satisfied, the Contract Clause is not violated if the impairment has a significant and legitimate public purpose, and if the adjustment of the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation's adoption. Furthermore, unless the State itself is a contracting party, as is customary in reviewing economic and social regulation, courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure. Here, the Court concluded that even if the lender’s contractual rights were substantially impaired, the “necessity and reasonableness” of the provisions address questionable litigation practices and advance strong public policy considerations. Thus, the Court held that there are no Contract Clause violations. 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. This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosure, or other commercial litigation, topics that may be of interest you. As relates to today’s article, type “FAPA,” “statute of limitations,” “Engel,” “acceleration,” “quiet title” or “1501(4)” into the “search” box. This BLOG has written numerous of articles addressing RPAPL 1501(4). To find such articles, please see the BLOG tile on our website and type “1501(4)” into the “search” box. The Court based its discussion of the law in Article 13 LLC . Accordingly, the issue of retroactivity will be discussed in more depth in next Friday’s BLOG article.

By:  Jeffrey M. Haber In Badme v. AECOM , 2025 N.Y. Slip Op. 06640, (1st Dept. Dec. 02, 2025), plaintiff sued for age discrimination after termination, arguing the arbitration clause in his employment contract expired when the contract ended. The motion court held that the arbitration agreement remained enforceable, citing the contract’s broad arbitration clause and survival clause. The Appellate Division, First Department, affirmed, emphasizing that the contract’s broad arbitration provision required the parties to arbitrate the dispute, though it held that it was up to the arbitrator —not the motion court—to resolve whether the expiration of the employment term within the contract affected the enforceability of the arbitration provision. Plaintiff was employed by defendant, a publicly traded, multinational infrastructure consulting firm that conducts business nationwide. Plaintiff alleged that he was demoted and subsequently fired by defendant because of his age. Plaintiff brought suit against defendant for age discrimination and retaliation pursuant to the New York State Human Rights Law, New York State Labor Law, and New York City Human Rights Law. The employment agreement contained an arbitration provision in which the parties agreed that “any dispute arising out of or relating to Agreement or the formation, breach, termination or validity thereof, be settled by binding arbitration by a panel of three arbitrators in accordance with the employment arbitration rules of the ”. Plaintiff argued that the foregoing arbitration clause expired when the employment agreement was terminated on December 31, 2022. Defendant moved to compel arbitration and to stay the action pending arbitration. The motion court granted the motion. As an initial matter, the motion court held that the parties had entered an enforceable arbitration agreement that contained a clear and unmistakable intent to delegate questions of arbitrability to the AAA. Since the parties agreed that the AAA rules governed, said the motion court, “questions concerning the scope and validity of the arbitration agreement, including issues of arbitrability, reserved for the arbitrators”. The motion court rejected plaintiff’s argument that the arbitration clause expired when the employment agreement was terminated on December 31, 2022, at which time plaintiff became an employee at will. The motion court held that this argument was contrary to rulings by the First Department, in which the Court directed the lower courts to “treat an agreement containing an arbitration clause as if there were two separate agreements – the substantive agreement between the parties, and the agreement to arbitration”. The motion court noted that the “survival” clause in the employment agreement manifested the parties’ intent that the arbitration provision would survive the termination of the agreement. That clause provided: The rights and obligations of the parties under the provisions of this Agreement that relate to post-termination obligations shall survive and remain binding and enforceable, notwithstanding the expiration of the term of this Agreement, the termination of Executive's employment with the Company for any reason or any settlement of the financial rights and obligations arising from Executive's employment hereunder, to the extent necessary to preserve the intended benefits of such provisions.   Therefore, concluded the motion court, “considering the above survival clause, and there being no clear manifestation to the contrary, the arbitration clause survived the termination of the Employment Contract.” “Because the dispute arose from the Employment Contract,” said the motion court, “the arbitration clause triggered” and “Defendant’s motion to compel arbitration is granted.” On appeal, the First Department unanimously affirmed. The Court found the “arbitration provision in the employment agreement between plaintiff and defendant” to be “broad” “requiring ‘all disputes arising out of or relating to the agreement’ to be referred to arbitration under AAA rules.” Under the AAA’s rule, noted the Court, the arbitration tribunal is “authorize … to rule on its own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” “Accordingly,” said the Court, “the issue as to whether the expiration of the employment term affects the enforceability of the arbitration provision is one of arbitrability, which is for the arbitrators to determine.” However, the Court held that “ hile the motion court properly recognized the effect of the broad arbitration provision and granted the motion to compel on that basis, the court should not have addressed the merits” – i.e. , whether the expiration of the employment term affected the enforceability of the arbitration provision. The Court found that the “complaint assert at least some claims that plainly within the scope of the employment agreement and would be subject to arbitration if the arbitrators determine that the arbitration obligation was not entirely extinguished by the expiration of the employment term.” Accordingly, the Court held that the motion “court properly stayed th action in its entirety pending the determination by the arbitrators on the arbitrability issues.” Takeaway Badme underscores that arbitration agreements can survive the termination of a contract, unless expressly negated. One reason is because courts treat an arbitration clause as a separate agreement from the substantive contract. As such, the enforceability of the arbitration agreement does not automatically end when the terms of the contract expire. Badme also reinforces the principle that where parties clearly and unambiguously delegate questions of arbitrability to an arbitral form, such as the American Arbitration Association, arbitrators—not the courts—decide whether the arbitration obligation continues post-termination. As shown in Badme , broad arbitration provisions, coupled with AAA rules granting arbitrators authority over jurisdictional issues, reinforce this principle. Additionally, as in Badme , survival clauses in contracts strongly indicate the parties’ intent for arbitration obligations to continue beyond termination. ________________________________ 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. We examined the issue of who decides arbitrability in numerous articles, including: Who Decides Whether A Binding Agreement to Arbitrate Exists? First Department Tackles This Threshold Question ; Who Decides “Gateway” Issues of Arbitrability? The Second Department Weighs In ; Who Decides Arbitrability? It Depends on The Agreement ; Gatekeepers of Arbitrability: Fraud, Mistake, and the Absence of Consideration ;  The Arbitrator, Not The Court, Decides Questions of Contract Validity ; and Who Decides Arbitrability? It Depends on The Agreement – Revisited. To find additional articles related to the arbitration, visit the “ Blog ” tile on our  website  and enter the search term “arbitration” or any other related search term in the “search” box. See Anima Group, LLC v. Emerald Expositions, LLC, 191 A.D.3d 572 (1st Dept. 2021). Flintlock Const. Services, LLC v. Weiss , 122 A.D.3d 51, 54 (1st Dept. 2014). O’Neill v. Krebs Communications Corp. , 16 A.D.3d 144, 144 (1st Dept. 2005) (citing Matter of Weinrott (Carp.) , 32 N.Y.2d 190 (1973)). Primex Int’l Corp. v. Wal-Mart Stores, Inc. , 89 N.Y.2d 594, 601-02 (1997). Slip Op. at *1. Id. (citing Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s , 66 A.D.3d 495, 496 (1st Dept. 2009),  aff’d , 14 N.Y.3d 850 (2010),  cert denied , 562 US 962 (2010)). Id.  (citing Life Receivables , 66 A.D.3d at 496;  Schindler v. Cellco P’ship , 200 A.D.3d 505, 506 (1st Dept. 2021);  Remco Maintenance, LLC v. CC Mgt. & Consulting, Inc. , 85 A.D.3d 477, 480 (1st Dept. 2011)). Id. (citing L&R Exploration Venture v. Grynberg , 22 A.D.3d 221, 222 (1st Dept. 2005),  lv. denied , 6 N.Y.3d 749 (2005);  Fairfield Towers Condominium. Assn. v. Fishman , 1 A.D.3d 252 (1st Dept. 2003)). Id. Id. (citing County Glass & Metal Installers, Inc. v. Pavarini McGovern, LLC , 65 A.D.3d 940, 940-941 (1st Dept. 2009)).

By:  Jeffrey M. Haber In Kober v. Nestampower , 2025 N.Y. Slip Op. 06609 (2d Dept. Nov. 26, 2025), the Appellate Division, Second Department, decided an appeal involving disputes over membership interests in a limited liability company. After a member’s death, her daughter attempted to assign the trust’s LLC interest to herself and siblings without obtaining consent from other members. Plaintiffs sued for declaratory relief and damages. The Court held that under New York’s Limited Liability Company Law and the LLC’s operating agreement, an assignment of interest does not confer management rights or membership unless expressly permitted and consented to by existing members. Since plaintiffs lacked such consent, they were not members of the LLC and had no standing to assert the derivative claims alleged in the complaint.   Defendants Rita Nestampower and Martha Gendel and their sister Bernice Klein (the “decedent”) were members of KGN Associates, LLC (hereinafter, “KGN” or the “LLC”). The sisters formed KGN on February 26, 2003, for the purpose of owning and managing commercial property in Farmingdale, New York. KGN also owned two parcels of vacant land in Yaphank, New York. All properties were inherited from the sisters’ father. In October 2004, the decedent assigned her interest in the LLC “to the extent of thirty three and one third Percent (33 1/3%) of the Net Profits in the as defined by the ” to a living trust in her name (hereinafter, the “trust”), of which she was the trustee. In June 2010, the decedent died, and plaintiff, Linda Robin Kober (“Kober”), the decedent’s daughter, became the trustee of the trust. In February 2011, Kober executed an assignment on behalf of the trust (the “assignment”), intending to assign the trust’s interest in the LLC to herself and the decedent’s other children, plaintiff Bettina Iris Rabinowitz (“Rabinowitz”) and defendant Jules Mark Klein (“Klein”), each as an 11.11% member. In February 2018, Kober and Rabinowitz (collectively, the “plaintiffs”), individually and derivatively on behalf of the LLC, commenced the action against, among others, defendants, inter alia , to recover damages for breach of fiduciary duty and for declaratory relief. In particular, plaintiffs asserted the following four causes of action: First – declaratory judgment that plaintiffs and Klein were members of the LLC, each owning an 11.11% interest, and permanently enjoining defendants from excluding them from the management of the LLC; Second – on behalf of the LLC and against defendants in an amount equal to the difference between the fair market value and the sales price of the Yaphank property, with interest from the date of sale, and reasonable attorney’s fees for the prosecution of the claim; Third –  on behalf of the LLC against the attorney and his law firm for the LLC in connection with the sale of the Yaphank property, in an amount equal to the difference between the fair market value and the sales price of the Yaphank property, with interest from the date of sale; and Fourth – on behalf of the LLC against defendants, permanently enjoining them from selling the Farmingdale property without notice to plaintiffs and Klein, and without permitting them to participate equally in the management of the LLC, together with reasonable attorney’s fees in prosecuting the claim. Thereafter, plaintiffs moved for summary judgment on the complaint. Defendants cross-moved for summary judgment dismissing the first, second, and fourth causes of action on the ground, among others, that plaintiffs lacked standing to assert derivative causes of action on behalf of the LLC. In an amended order dated April 30, 2021, the Supreme Court denied plaintiffs’ motion and granted defendants’ cross-motion. Plaintiffs appealed. The Second Department affirmed. “A membership interest in a limited liability company is assignable in whole or in part.” However, the assignment of a membership interest “does not . . . entitle the assignee to participate in the management and affairs of the limited liability company or to become or to exercise any rights or powers of a member.” Rather, “the only effect of an assignment of a membership interest is to entitle the assignee to receive, to the extent assigned, the distributions and allocations of profits and losses to which the assignor would be entitled.” “A person can become a member of a limited liability company by assignment, but only where the operating agreement grants the assignor such power, and, then, where the conditions of such authority have been complied with.” Looking at the LLC’s operating agreement, the Court noted that the agreement “allow for the transfer of a membership interest, but provide that new members only be admitted with the consent of the LLC’s other members”. The assignment at issue provided that the transfer of the membership interest was “ ubject to the acceptance of assignment and assumption by the LLC.” The Court found that, as demonstrated by defendants in their cross-motion, “there had not been any prior consent allowing for the transfer of any membership interest to the plaintiffs”. As a result, the Court held that “defendants established their prima facie entitlement to judgment as a matter of law dismissing the first, second, and fourth causes of action”. “In opposition,” said the Court, “plaintiffs failed to raise a triable issue of fact, as they not dispute that they failed to obtain the consent of the LLC’s other members to be admitted as members of the LLC when they acquired their membership interest.” “Therefore,” concluded the Court, “plaintiffs, as nonmembers who had not been admitted as members of the LLC, lacked standing to pursue derivative causes of action on behalf of the LLC.” For the reasons stated with respect to defendants’ cross-motion, the Court held that “plaintiffs failed to demonstrate their prima facie entitlement to judgment as a matter of law on the complaint.” Takeaway Under the LLC Law, assigning a membership interest only transfers economic rights (profits and losses), not management rights or membership status. As explained in Kober , becoming a member requires compliance with the operating agreement and consent from existing members. Kober also underscores the importance of an operating agreement. An operating agreement typically includes a number of provisions that give clarity to the conduct of the LLC and its members. For example, an operating agreement specifies: (a) each member’s ownership percentage, voting rights, and responsibilities; (b) whether the LLC is member-managed or manager-managed, detailing decision-making authority and operational procedures, provisions that are important in determining the fiduciary duties each member has, or may have, vis-à-vis the other and/or the LLC; and (c) the rules for admitting new members and transferring interests, ensuring that ownership changes occur only with proper consent—avoiding issues like those in Kober . Moreover, an operating agreement typically addresses profit distribution, dispute resolution, and dissolution procedures, thereby reducing risk and uncertainty. Without an operating agreement, the LLC Law applies by default, which may not align with members’ intentions. A tailored agreement, therefore, gives members flexibility and control. In Kober , the LLC had an operating agreement that governed the admission of new members. Under that agreement, even if an assignment occurs, without explicit consent from other members, the assignee cannot participate in management or assert member rights. The failure to obtain the consent of the other members was the death knell of plaintiff’s derivative claims. Only members of an LLC have standing to bring derivative actions on behalf of an LLC. As made clear in Kober , nonmembers, even with assigned economic interests, cannot pursue such claims. _______________________ 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. Behrend v. New Windsor Group, LLC , 180 A.D.3d 636, 639 (2d Dept. 2020); see Limited Liability Company Law (“LLC Law”) § 603(a)(1). LLC Law § 603(a)(2); see Behrend , 180 A.D.3d at 639. It is important to note that Section 603(a) of the LLC Law makes clear that an assignment of a membership interest is governed by the statute, “ xcept as provided in the operating agreement.” LLC Law § 603(a)(3); see Behrend , 180 A.D.3d at 639. Behrend , 180 A.D.3d at 639; see LLC Law § 602(b)(2). Addressing the terms of the operating agreement, the Supreme Court found that there was “no provision in the Operating Agreement which contradicts the language of § 603(a)(3).” Slip Op. at *2. Id. (citing Behrend , 180 A.D.3d at 640; Kaminski , 169 A.D.3d at 786). The Supreme Court found “ here is no provision in the Operating Agreement that a member’s interest may be evidenced by a certificate issued by the company, and plaintiffs do not claim that such a certificate reflecting transfer of membership was ever issued. The Operating Agreement at ¶ 13 sets forth the process whereby members may admit new members. Plaintiffs do not allege that the defendant members ever caused the Company to admit plaintiffs as members.” Id. Id. (citing Kaminski v. Sirera , 169 A.D.3d 785, 786 (2d Dept. 2019)). Id. (citing   Tzolis v. Wolff , 10 N.Y.3d 100, 102 (2008); Harounian v. Harounian , 198 A.D.3d 734, 736 (2d Dept. 2021); Kaminski , 169 A.D.3d at 786). Id. (citing Behrend , 180 A.D.3d at 640).

By: Jonathan H. Freiberger oday’s article is about MCLP Asset Co. v. Zaveri , an action that involves numerous areas of the law about which we frequently write -- mortgage foreclosure, FAPA, CPLR 205(a), CPLR 205-A and statutes of limitation. Statute of Limitations in Foreclosure Actions By way of brief background, and as previously written in this BLOG, an action to foreclose a mortgage is governed by a six-year statute of limitations. CPLR 213(4) ; see also Medina v. Bank of New York Mellon Trust Co., N.A . , 240 A.D.3d 879 (2 nd Dep’t 2025); Fed. Nat. Mort. Assoc. v. Schmitt , 172 A.D.3d 1324, 1325 (2 nd Dep’t 2019). When a mortgage is payable in installments, “separate causes of action accrue for each installment that is not paid and the statute of limitations begins to run on the date each installment becomes due.” HSBC Bank USA, N.A. v. Gold , 171 A.D.3d 1029, 1030 (2 nd Dep’t 2019). Most mortgages, however, provide that a mortgagee may accelerate the entire debt in the event of, inter alia , a payment default by a mortgagor. Once the mortgagee’s election to accelerate is properly made, “the borrower’s right and obligation to make monthly installments ceased and all sums become immediately due and payable, and the six-year Statute of Limitations begins to run on the entire mortgage debt.” EMC Mortgage Corp. v. Patella , 279 A.D.2d 604, 605 (2 nd Dep’t 2001) citations and internal quotation marks and brackets omitted); see also Medina , 240 A.D.3d at 881; HSBC , 171 A.D.3d at 1030. FAPA The Foreclosure Abuse Prevention Act (“FAPA”), which went into effect in December of 2022, “represents the Legislature’s response to litigation strategies and certain legal principles that distorted the operation of the statute of limitations in foreclosure actions.” Genovese v. Nationstar Mortgage LLC , 223 A.D.3d 37, 41 (1 st Dep’t 2023) (citation omitted). Thus, inter alia , FAPA’s provisions were designed to prevent lenders from circumventing statute of limitations problems in residential mortgage foreclosure actions by the simple expedient of accelerating and deaccelerating loans to restart the running of statutes of limitations. The First, Second and Third Departments have all held that FAPA is to be applied retroactively. See, e.g., Genovese v. Nationstar Mortgage LLC , 223 A.D.3d 37 (1 st Dep’t 2023), 97 Lyman Avenue, LLC v. MTGLQ Investors, L.P. , 233 A.D.3d 1038 (2 nd Dep’t 2024); U.S. Bank N.A. v. Lynch , 233 A.D.3d 113 (3 rd Dep’t 2024) CPLR 205(a) and 205-A Sometimes the applicable statute of limitations expires after the dismissal of a timely commenced action. Such an occurrence is not be a problem if a new action can be commenced before the limitations period expires. However, issues may arise when an otherwise timely action is dismissed subsequent to the expiration of the limitations period. Depending on the nature of the dismissal, even in the latter scenario, a plaintiff may be permitted to commence a new action notwithstanding the expiration of the applicable statute of limitations by virtue of the savings provisions of CPLR 205(a) . CPLR 205(a) is a “remedial” statute that “has existed in New York law since at least 1788” and can race[] its roots to seventeenth century England.” Wells Fargo Bank, N.A. v. Eitani , 148 A.D.3d 193, 199 (2 nd Dep’t 2017), appeal dismissed , 29 N.Y.3d 1023 (2017). The purpose of CPLR 205(a) is to “ameliorate the potentially harsh effect of the Statute of Limitations in certain cases in which at least one of the fundamental purposes of the Statute of Limitations has in fact been served, and the defendant has been given timely notice of the claim being asserted by or on behalf of the injured party.” George v. Mt. Sinai Hospital , 47 N.Y.2d 170, 177 (1979). Thus, the statute provides “a second opportunity to the claimant who has failed the first time around because of some error pertaining neither to the claimant’s willingness to prosecute in a timely fashion nor to the merits of the underlying claim.” George , 47 N.Y.2d at 178-79. To address the previously discussed gamesmanship employed by lenders to artificially extend applicable statutes of limitation, FAPA added CPLR 205-A, which limits the ability of lenders to manipulate the statute of limitations in mortgage foreclosure actions. MCLP Asset Co., Inc. v. Zaveri All the previously discussed principles are addressed in MCLP . In MCLP, the plaintiff lender’s predecessor in interest commenced an action in 2012 to foreclose a mortgage that was “deemed abandoned” and dismissed in 2017 pursuant to CPLR 3404 . A subsequent appeal from the denial of the predecessor lender’s motion to restore was dismissed as abandoned. Another of plaintiff’s predecessors in interest commenced the subject foreclosure action in 2019. The motion court granted the defendant’s motion to dismiss the complaint on statute of limitations grounds. On the lender’s appeal, the Fourth Department reversed “concluding that the 2019 action was not time-barred inasmuch as CPLR 205 (a) applied to extend the statute of limitations.” Shortly after the appeal was decided, however, FAPA was enacted and, inter alia , amended CPLR 205 to provide that " his section shall not apply to any proceeding governed by CPLR 205-a. (Ellipses and brackets omitted.) After the complaint was reinstated, the predecessor assigned the mortgage to the plaintiff lender, who moved for summary judgment. The borrower cross-moved for leave to amend the answer to include a statute of limitations defense based on FAPA’s amendment of CPLR 205 and its enactment of CPLR 205-a. The motion court granted the borrower’s cross-motion. Thereafter, relying on decisions from the First and Second Departments, the motion court concluded that “FAPA was intended to be applied retroactively and, pursuant to CPLR 3212(b) , searched the record and granted summary judgment to the borrower . On appeal the lender argued that “FAPA, particularly CPLR 205-a, applie retroactively.” As to retroactivity, the Court stated: Retroactive operation is not favored by the courts and statutes will not be given such construction unless the language expressly or by necessary implication requires it. However, remedial legislation should be given retroactive effect in order to effectuate its beneficial purpose. Factors to consider in determining whether a statute should be applied retroactively include, whether the legislature has made a specific pronouncement about retroactive effect or conveyed a sense of urgency; whether the statute was designed to rewrite an unintended judicial interpretation; and whether the enactment itself reaffirms a legislative judgment about what the law in question should be. Based on the legislative history, the Fourth Department determined that FAPA was intended to apply retroactively. Specifically with respect to CPLR 205-a, the Court stated: we note that, in drafting that provision, which was modeled on CPLR 205 (a), the legislature did not include the CPLR 205 (a) language "requiring that the court set forth on the record the specific conduct constituting the neglect, which conduct shall demonstrate a general pattern of delay in proceeding with the litigation, which had occasioned erroneous judicial interpretations that the court's recitation of the specific conduct is a condition precedent to the bar against an extension of the statute of limitations for a neglect based dismissal. Indeed the legislative history makes clear that in omitting the aforementioned language, the legislature intended to correct those "erroneous judicial interpretations". In enacting CPLR 205-a, the legislature sought to, inter alia, bring greater clarity in mortgage foreclosure actions concerning what constitutes a neglect to prosecute and thereby promote "the objectives of 'finality, certainty and predictability,' to the benefit of both plaintiffs and defendants". We thus conclude that the legislature intended for CPLR 205-a, like the rest of FAPA, to apply retroactively. In addition, the Court found the new CPLR 205-a did not operate to extend the statute of limitations and, therefore, the motion court properly granted summary judgment to the borrower. Specifically, the Court noted that CPLR 205-a does not apply to successors in interest or assignees unless it is pleaded and proved that they are “acting on behalf of the original plaintiff” or where the first action is dismissed for any form of neglect. The Court also rejected, on the merits, the lender’s argument that the retroactive application of FAPA is violative of its due process rights. 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. This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosure, or other commercial litigation, issue that may be of interest you. In particular, as relates to today’s article, type “FAPA”, “statute of limitations”, “CPLR 205” and/or “CPLR 205-a” into the search box. Genovese was also discussed in this BLOG’s article: “ The Appellate Division, First Department, Reiterates in Two Cases That The Foreclosure Abuse Prevention Act (“FAPA”) is to Have Retroactive Application and Otherwise Passes Constitutional Muster ”. Lynch was also discussed in this BLOG’s article: “ The Appellate Division, Third Department, Holds that Retroactive Application of the Foreclosure Abuse Prevention Act (“FAPA”) Does Not Violate Due Process ”. In previous BLOG articles, we compared CPLR 205(a) with 205-A. See, e.g., < here =">here"> and < here =">here"> . On November 25, 2025, the New York Court of Appeals decided two cases: Article 13 LLC v. Ponce De Leon Fed. Bank and Van Dyke v. U.S. Bank, N. A. , in which the Court determined that certain provisions of FAPA operate retroactively and that such retroactive application violates neither the lender’s substantive nor procedural due process rights as applied to the subject cases. We will address these cases in next week’s BLOG article.

By:  Jeffrey M. Haber On November 18, 2025, the Securities and Exchange Commission (“SEC” or “Commission”) announced that, on October 16, 2025, it charged Joshua Wander (“Defendant A”), Steven Pasko (“Defendant B”), and two companies that they founded, co-managed, and controlled—777 Partners LLC and 600 Partners LLC—with defrauding investors while raising approximately $237 million. The Commission also charged Damien Alfalla (“Defendant C”), the companies’ former Chief Financial Officer, for his role in the alleged fraud. According to the SEC’s complaint , between January 2021 and May 2024, Defendants misled investors about the companies’ financial condition, and fraudulently induced investments in a $237 million preferred equity offering, by falsely representing that the companies were earning, and would continue to earn, substantial positive net income sufficient to pay investors a 10% annual dividend. In fact, as alleged by the SEC, the companies were in a severe and worsening liquidity crisis and had no realistic prospects of earning net income sufficient to pay the dividend. According to the SEC, Defendants A and C misused a credit facility, resulting in a $300 million overdraw that damaged the companies’ financial prospects. As alleged, these Defendants made false and misleading representations to investors about the companies’ prospects and ability to pay dividends, while concealing the $300 million overdraw and its causes. The SEC further alleged that Defendant B signed all investor subscription agreements, which incorporated false and misleading representations about the companies’ financial prospects, even though he allegedly knew or should have known of the credit facility overdraw and its negative effects on the companies’ financial prospects. As alleged, Defendant A also misled investors when he represented that the proceeds of the offering would be used for general corporate purposes, when, in fact, said the SEC, Defendant A caused the companies to divert approximately $33 million of investor funds to himself and Defendant B personally. By March 2023, the alleged scheme began to unravel. One of the firm’s lenders confronted Defendant A about allegations of double-pledged assets. Defendant A allegedly claimed (falsely) that there had been an error caused by 777 Partners’ antiquated computer system. A few days later, Defendant A again allegedly assured the lender (falsely), among other things, that the double-pledging had been inadvertent. The SEC alleged these representations and assurances were false. In October 2024, the High Court in London issued a winding-up order, formally declaring 777 Partners bankrupt. According to the SEC, 777 Partners still owes its lenders hundreds of millions of dollars. The SEC filed its complaint in the U.S. District Court for the Southern District of New York. In the complaint, the SEC charged Defendant A, 777 Partners, and 600 Partners with violating Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933 (the “Securities Act”). The SEC charged Defendant C with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 17(a)(1) and 17(a)(3) of the Securities Act. The SEC charged Defendant B with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act. The SEC seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties. In parallel actions, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Defendants A and C on the same day as the SEC action. The U.S. Attorney charged Defendant A with conspiracy to commit wire fraud, wire fraud, conspiracy to commit securities fraud, and securities fraud. Defendant C previously pled guilty to an information before U.S. District Judge Arun Subramanian on October 14, 2025, in connection with his participation in the alleged fraudulent scheme at 777 Partners. Defendant C is cooperating with the government. “As alleged, used his investment firm, 777 Partners, to cheat private lenders and investors out of hundreds of millions of dollars by pledging assets that his firm did not own, falsifying bank statements, and making other material misrepresentations about 777’s financial condition,” said U.S. Attorney Jay Clayton. “When financial firms lie to their lenders, they do not merely breach contracts. They undermine the integrity and stability of our credit markets and our financial system more broadly.” FBI Assistant Director in Charge Christopher G. Raia also commented on the charges: “ and , the cofounder and CFO respectively of the 777 Partners investment firm, allegedly stole more than $500 million from his company’s lenders and investors through fabricated lies of success and doctored financial records. The defendants’ alleged deceit targeted the wallets of his trusting stakeholders to obfuscate the failing fiscal ventures of the business.” Takeaway As discussed, the alleged scheme to defraud involved raising $237 million through a preferred equity offering while concealing a severe liquidity crisis and misusing a $300 million credit facility. Such a large-scale alleged fraud demonstrates how complex financial structures can be exploited to mislead investors and lenders. The complexity of the alleged fraud also underscores the multiple layers of purported deception. Defendants allegedly falsified financial statements, misrepresented dividend sustainability, and diverted $33 million for personal use. Additionally, the alleged scheme highlights the problem of internal financial governance failures that are not readily discernible to investors. The involvement of, and apparent manual override by, top executives—including the co-founder and CFO—highlights systemic governance breakdowns that can occur in an alleged complex scheme to defraud. ____________________________________ 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. It must be remembered that an indictment merely alleges that crimes have been committed. Like all defendants, defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

By:  Jeffrey M. Haber In today’s article, we explore New York’s heightened pleading standard for defamation per se and defamation by implication. In Armbruster Capital Mgt., Inc. v. Barrett , 2025 N.Y. Slip Op. 06493 (4th Dept. Nov. 21, 2025), defendants sought to amend a counterclaim alleging that emails from plaintiff’s executives implied defendant lacked professional integrity. Initially denied by the motion court, the amendment was later deemed sufficient because defendants provided specific emails satisfying CPLR 3016(a), which requires particular words, time, place, and manner of the alleged defamatory statements. The Appellate Division, Fourth Department, found the emails suggested ethical noncompliance, qualifying as defamation per se, thereby eliminating the need to plead special damages. The Court explained that even if substantially true, the statements conveyed a false impression that defendant resigned solely due to burdensome compliance policies, meeting the rigorous standard for defamation by implication. The Court also held the proposed amendment was not meritless and permitted defendants to add individual parties, concluding the motion court abused its discretion in denying the motion to amend. The dispute in Armbruster centered on an asset purchase agreement (APA) between plaintiff and Apex Wealth Advisers, LLC, formerly known as Apex Advisers, LLC (Apex), which was owned by defendant Elizabeth Barrett. Plaintiff and defendants entered into the APA whereby defendant sold Apex’s client list to plaintiff for a set price, payable in installments. In connection with the APA, defendant agreed to work part-time for plaintiff for the purpose of providing plaintiff with assistance in retaining Apex’s former clients. However, defendant resigned from plaintiff’s employment after less than a year. Plaintiff commenced the action for breach of a restrictive covenant in the APA, and defendants counterclaimed for, inter alia , defamation, alleging that plaintiff made statements asserting that defendant lacked professional competence or integrity. Plaintiff moved to dismiss the defamation counterclaim pursuant to CPLR 3016(a) and 3211(a)(7). Defendants cross-moved for leave to amend the defamation counterclaim and to add as parties plaintiff’s chief executive officer and president (individual parties), who authored the alleged defamatory statements. The motion court granted the motion and denied the cross-motion. Defendants appealed only from the denial of their cross-motion. A party asserting a claim for defamation must show “a false statement, published without privilege or authorization to a third party, constituting fault as judged by, at a minimum, a negligence standard, and it must either cause special harm or constitute defamation per se.”   Statements “that tend to injure another in his or her trade, business or profession” constitute defamation per se. In addition, a plaintiff claiming defamation, must plead the claim with particularity, that is, the plaintiff must “set forth in the complaint the particular words complained of, as required by CPLR 3016 (a), and must state the time, place and manner of the allegedly false statements and to whom such statements were made.” As an initial matter, the Court rejected plaintiff’s assertion, raised as an alternative basis for affirmance, “that the proposed amended counterclaim failed to comply with CPLR 3016 (a).” The Court noted that “ n support of their cross-motion, defendants submitted the emails that were sent by the individual parties, which contained the alleged defamatory statements.” “ n doing so,” concluded the Court, defendants “met the pleading requirements of CPLR 3016 (a) … as the court implicitly found. Addressing the cross-motion, the Court “conclude that the court abused its discretion in denying defendants’ cross-motion”.   The Court found that “Defendants sufficiently alleged that the statements made by the individual parties were false and that they were reasonably susceptible of a defamatory connotation.” “In determining the sufficiency of a defamation pleading,” noted the Court, “we must consider ‘whether the contested statements are reasonably susceptible of a defamatory connotation’”, and, in doing so, “we must ‘give the disputed language a fair reading in the context of the publication as a whole.’” The Court concluded that “the disputed language provide a basis ‘from which the ordinary reader could draw an inference’ … that plaintiff was accusing defendant of failing to adhere to ethical standards in the investment trading industry.” The Court noted that “the emails were sent to clients of plaintiff who had previously been clients of defendants and advised them that defendant was no longer employed by plaintiff.” “The emails stated that the investment trading industry was ‘highly regulated,’ that plaintiff had ‘compliance policies’ to protect its clients against ‘conflicts of interest,’ and that defendant found those policies ‘overly burdensome,’ thereby suggesting that defendant failed to adhere to such policies and standards.” The Court further held that the statements constituted defamation per se, such that defendants did not need to allege special damages. “‘A statement imputing incompetence or dishonesty to the is defamatory per se if there is some reference, direct or indirect, in the words or in the circumstances attending to their utterance, which connects the charge of incompetence or dishonesty to the particular profession or trade engaged in by .’” The statement “must be more than a general reflection upon character or qualities<;> . . . must reflect on performance or be incompatible with the proper conduct of business.” The Court found that, as alleged in the proposed amended counterclaim, “the statements conveyed that defendant was unable to conduct her work in a legally compliant and ethical manner and that she lacked professional competence or integrity.” Regarding the merit of the proposed amendment, the Court held that it was not “patently lacking in merit”. After recounting the substance of the emails exchanged between plaintiff’s chief executive officer and defendant, as well as deposition testimony, the Court found that “defendant’s statements established that found the policies burdensome and time-consuming, but they not establish that left plaintiff’s employment because of those policies, as stated in the emails by the individual parties.” “Moreover,” said the Court, “even assuming, arguendo, that the statements were substantially true and that defendants are relying on a theory of defamation by implication, we conclude that the proposed amended counterclaim is not patently lacking in merit.” “Defamation by implication is premised not on direct statements but on false suggestions, impressions and implications arising from otherwise truthful statements.” “There is a heightened legal standard for a claim of defamation by implication.” “Under that standard, ‘ o survive a motion to dismiss a claim for defamation by implication where the factual statements at issue are substantially true, the must make a rigorous showing that the language of the communication as a whole can be reasonably read both to impart a defamatory inference and to affirmatively suggest that the author intended or endorsed that inference.’”   “The second part of the test is an objective inquiry and asks whether the plain language of the communication itself suggests that an inference was intended or endorsed.” The Court held that defendant “met the heightened pleading standard.” The Court found that the statements at issue did “not tell the whole story and conveyed a false impression that defendant was entirely at fault for the demise of the employment relationship because she found plaintiff’s compliance policies burdensome.” In context, the Court said that defendant left plaintiff’s employ after an “outburst” by plaintiff’s chief executive officer who “blamed defendant for the departure of a large client, said that he did not trust her and that she would steal all of plaintiff’s clients, and threatened legal action against her.” “Thus”, concluded the Court, “the statements by the individual parties, even if true, conveyed the false suggestion and impression that the only reason defendant left plaintiff’s employment was because she did not want to comply with policies that were in place to ‘protect[ ]’ the clients.” The plain language of the statements, therefore, “suggested that the individual parties intended that false suggestion and impression so that the clients would remain with plaintiff.” ________________________ 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. Fika Midwifery PLLC v. Independent Health Assn., Inc. , 208 A.D.3d 1052, 1054 (4th Dept. 2022) (internal quotation marks omitted); see Miserendino v. Cai , 218 A.D.3d 1261, 1262 (4th Dept. 2023); Accadia Site Contr., Inc. v. Skurka , 129 A.D.3d 1453, 1453 (4th Dept. 2015). Fika Midwifery , 208 A.D.3d at 1054 (internal quotation marks omitted). Id. (internal quotation marks omitted). Slip Op. at *2. Id. Id. , citing Accadia , 129 A.D.3d at 1454; McRedmond v. Sutton Place Rest. & Bar, Inc. , 48 A.D.3d 258, 259 (1st Dept. 2008); Polish Am. Immigration Relief Comm. v. Relax , 172 A.D.2d 374, 374 (1st Dept. 1991). Id. , citing Holst v. Liberatore , 105 A.D.3d 1374, 1374 (4th Dept. 2013); LHR, Inc. v. T-Mobile USA, Inc. , 88 A.D.3d 1301, 1304 (4th Dept. 2011). Id. Id. , quoting Davis v. Boeheim , 24 N.Y.3d 262, 268 (2014); see Bisimwa v. St. John Fisher Coll. , 194 A.D.3d 1467, 1471 (4th Dept. 2021). Id. , quoting Armstrong v. Simon & Schuster , 85 N.Y.2d 373, 380 (1995). Id. , quoting James v. Gannett Co. , 40 N.Y.2d 415, 420 (1976), r’arg denied , 40 N.Y.2d 990 (1976). Id. Id. Id. Miserendino , 218 A.D.3d at 1265. Id. , quoting Golub v. Enquirer/Star Group , 89 N.Y.2d 1074, 1076 (1997). Slip Op. at *2. Id. Id. at *2-*3. Id. at *3. Armstrong , 85 N.Y.2d at 380-381; see also Bisimwa , 194 A.D.3d at 1472; Partridge v. State of New York , 173 A.D.3d 86, 90 (3d Dept. 2019). Slip Op. at *3, citing Bisimwa , 194 A.D.3d at 1472). Id. , quoting Bisimwa , 194 A.D.3d at 1472; see also Partridge , 173 A.D.3d at 91-92. Id. , quoting Partridge , 173 A.D.3d at 94 (internal quotation marks omitted). Id. Id. Id. Id. Id.

By: Jonathan H. Freiberger On October 31, 2025, the Supreme Court, Kings County, decided loanDepot.com LLC v. Ortner , a case addressing the meaning of the “taking proceedings” requirement of CPLR 3215(c) . By way of brief background, when a defendant defaults in appearing in an action, CPLR 3215(c) requires that the plaintiff act promptly to secure a default judgment. As previously discussed in prior BLOG articles, CPLR 3215(c) provides, in pertinent part, that: If the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed…. (Emphasis added.) Courts have held that the language of CPLR 3215(c) is mandatory in the first instance unless plaintiff demonstrates “sufficient cause” for the failure to timely “take proceedings for the entry of judgment]”. See, e.g., US Bank v. Onuoha , 162 A.D.3d 1094, 1095 (2 nd Dep’t 2018); Wells Fargo Bank v. Cafasso , 158 A.D.3d 848, 849 (2 nd Dep’t 2018). A default judgment need not be obtained within one year, as long as proceedings to obtain a default judgment have been initiated. See Bank of America v. Lucido , 163 A.D.3d 614, 615 (2 nd Dep’t 2018); see also Bank of America, N.A. v. Bhola , 219 A.D.3d 430, 432 (2 nd Dep’t 2023); Mort. Electronic Registration Systems, Inc. v. McVicar , 203 A.D.3d 915, 916 – 17 (2 nd Dep’t 2022). Numerous cases have addressed the issue of the meaning of “taking proceedings” and this BLOG has addressed this issue in “ ‘Initiating Proceedings’ Under CPLR 3215(c) Revisited ” and “ Second Department Finds that Requesting Foreclosure Settlement Conference Satisfies Requirement for ‘Taking Proceedings’ Under CPLR 3215(c) ”. In the latter article we discussed the Second Department’s decision in U.S. Bank N.A. v. Jerriho-Cadogan , 224 A.D.3d 788 (2 nd Dep’t 2024), in which the Court, following its decision in Citimortgage, Inc v. Zaibak , 188 A.D.3d 982 (2 nd Dep’t 2020), held that filing a settlement conference RJI satisfied the “taking proceedings” requirement. loanDepot is a mortgage foreclosure action in which the court was presented with “a question of statutory construction with significant consequences for foreclosure litigation in New York: whether the filing of a request for judicial intervention for purposes of convening a mandatory settlement conference-an act required before a defendant is in default-constitutes the ‘taking of proceedings for the entry of judgment after the default’ within the meaning of CPLR 3215(c).” Disagreeing with the Second Department’s decision in Zaibak and its progeny, the loanDepot court determined it did not. The loanDepot Court noted that pursuant to “ 22 NYCRR 202.12-a(b)(l) , the Request for Judicial Intervention ("RJI") for a settlement conference must be filed ‘at the same time as proof of service’; and under CPLR 3408(a)(1) , proof of service must be filed within twenty days of service.’” (Emphasis in original.) Thus, the court concluded, that in “every foreclosure action subject to CPLR 3408 settlement conferences … the RJI must be filed before the defendant's time to answer has expired-before a default can occur as a matter of law.” For a variety of reasons (each of which the court found sufficient to warrant a departure from Zaibak ), the court concluded that a settlement conference RJI does not constitute “taking proceedings.” First, the court concluded that Zaibak conflicted with the legislative and regulatory scheme because of the timing issues previously mentioned. Simply stated, in foreclosure actions settlement conference RJIs, generally, are required to be filed before a default occurs. Accordingly, “ Zaibak inverts CPLR 3215(c) by treating a pre-default filing as compliance with a post-default statutory mandate.” (Emphasis in original.) Thus, CPLR 3215(c) and 3408 cannot be harmonized under Zaibak. However, “ his statutory tension disappears once CPLR 3215(c) is construed the way every Department of the Appellate Division (including the Second Department, save for the aberrant Zaibak line of cases) has already construed it: the phrase ‘take proceedings’ means a motion for judicial relief directed toward the entry of a default judgment, not the ministerial filing of an RJI.” Second, Zaibak is “irreconcilable” with the express language of CPLR 3125(d) -- which relates to multi-defendant situations in which a defendant answers and another defendant defaults -- and requires the plaintiff to make “‘an application to the court’ ‘within one year of the default’ before a default can be taken against the nonappearing party.” Thus, the “statutory text leaves no doubt that the Legislature required a judicial application - not a ministerial filing such as an RJI - to qualify as the taking of proceedings.’"  (Internal brackets omitted.) Third, the loanDepot court noted that the statutory purpose of CPLR 3215 (c), which was drafted decades before the foreclosure conference RJI requirement, was the entry of judgment. The purpose of the settlement conference was loss mitigation. Thus: a settlement-conference RJI cannot constitute "tak proceedings for the entry of judgment" within the meaning of CPLR 3215(c) for a fundamental threshold reason: when CPLR 3215(c) was enacted in 1962 …, the Legislature had not yet created-nor even contemplated-the mandatory settlement conference procedure codified decades later in 22 NYCRR 202.12-a. A later-adopted court rule cannot possibly retroactively redefine a statutory term (and the intent of the legislature in enacting it) that predates it. The Legislature designed CPLR 3215(c) to require post-default prosecutorial action for the entry of a judgment, not a ministerial administrative filing created years later for a wholly different purpose. Fourth, the ministerial steps involved with the filing of an RJI “do not seek adjudication” and, therefore, “are not ‘proceedings’ for judgment.” The filing of the RJI is “a predicate to negotiation-not adjudication” and CPLR 3215(c), “calls for proceedings for the entry of judgment,” which implicates “the court's authority to determine rights or grant judicial relief.” Fifth, the court noted that of CPLR 3215(c) “reflects a legislative judgment that dormant claims should not be kept alive indefinitely and that plaintiffs bear the responsibility to prosecute their actions diligently,” and provides for mandatory dismissal if violated. “Because the statute's purpose is to compel diligence in prosecuting actions to judgment, with the attendant benefit of clearing court backlogs, its effect necessarily evaporates if courts begin carving out judicial exceptions based on sympathetic facts, administrative filings, or post- default settlement procedures.” Finally, the court spent significant time analyzing why “ Zaibak and its progeny are not precedentially dispositive under stare decisis Zaibak neither raised nor considered the specific questions presented here.” Ultimately, the court concluded that dismissal of the action was mandatory because the plaintiff failed to move for a default judgment within a year of defendant’s default and the filing of an RJI did not satisfy the “taking proceedings” requirement of CPLR 3215. 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. This BLOG has written numerous articles addressing CPLR 3215(c). To find such articles, please see the BLOG tile on our website and type “CPLR 3215(c)” into the “search” box. This BLOG has previously addressed issues related to a defendant’s appearance in an action. See, e.g. , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosure, or other commercial litigation, issue that may be of interest you. The loanDepot court provides a thoughtful and detailed analysis of each of the bases of its decision, and we will briefly summarize each one.

By:  Jeffrey M. Haber In Sire Spirits, LLC v. Beam Suntory, Inc. , 2025 N.Y. Slip Op. 06297 (1st Dept. Nov. 18, 2025), the Appellate Division, First Department affirmed the denial of a motion to amend a complaint seeking damages for “diminution of enterprise value” due to the alleged fraud. Under CPLR 3025(b), leave to amend is freely given unless the amendment is prejudicial or patently meritless. However, New York’s fraud damages rule limits recovery to out-of-pocket losses—the actual pecuniary loss caused by the fraud—not speculative gains or lost profits. As discussed below, Sire’s proposed amendment effectively sought unrealized profits by reframing them as diminished business value, violating the out-of-pocket damages rule. The Court held that such damages were legally insufficient and barred as a matter of law, emphasizing that fraud claims cannot include potential earnings or enterprise valuation. Applicable Rules of The Road Amended Pleadings CPLR 3025(b) provides, in pertinent part, that “ party may amend his 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. Prejudice may be found where “the nonmoving party has been hindered in the preparation of its case or has been prevented from taking some measure in support of its position.” “Prejudice is more than the mere exposure of the party to greater liability” as “there must be some indication that the party has been hindered in the preparation of the party’s case or has been prevented from taking some measure in support of its position.” The burden of demonstrating prejudice or surprise “falls upon the party opposing the motion.” Conclusory statements of prejudice cannot defeat a motion to amend a pleading. An amendment will not cause surprise when the causes of action alleged in the amended pleading are based on the facts and circumstances already pleaded or already known by the non-moving party. For this reason, new theories of liability pertaining to the facts and circumstances already in controversy will not bar a motion to amend. Delay in-and-of-itself is not enough to defeat a motion for leave to amend. For this reason, “ ere lateness is not a barrier” to amendment, absent prejudice. “It must be lateness coupled with significant prejudice to the other side, the very elements of the laches doctrine.” As the Court of Appeals recognized, “absent prejudice, courts are free to permit amendment even after trial.” Thus, where a case has not proceeded to meaningful discovery, the amendment of a pleading will not prejudice a defendant. Moreover, the mere passage of time, without “consequential” prejudice, separate and apart from the delay, is insufficient to defeat a motion for leave to amend. Even unexcused lateness, without prejudice, will not bar amendment. “The determination whether to grant leave to amend a pleading is within the court’s discretion, and the exercise of that discretion will not lightly be disturbed.” Thus, “ party opposing leave to amend ‘must overcome a heavy presumption of validity in favor of .’” Fraud Damages To allege a cause of action based on fraud, plaintiffs must assert “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury. To withstand a motion to dismiss, plaintiffs must satisfy each element of the claim. Generally, plaintiffs are allowed to recover only their out-of-pocket damages – that is, the actual pecuniary loss sustained as the direct result of the alleged fraud. Under the out-of-pocket damages rule, plaintiffs may recover what they lost because of the fraud, not what they might have gained had there been no fraud. In other words, plaintiffs cannot recover the profits that would have been realized in the absence of the fraud. For that reason, plaintiffs cannot recover damages for fraud based on the loss of a contractual bargain, “the extent, and, indeed the very existence of which is completely undeterminable and speculative.” To determine whether the plaintiff sustained out-of-pocket losses, courts employ a two-part test. First, the plaintiff must show the actual value of the consideration it received. Second, the plaintiff must prove that the defendant’s fraudulent inducement directly caused the plaintiff to agree to deliver consideration that was greater than the value of the received consideration. The difference between the value of the received consideration and the delivered consideration constitutes the plaintiff’s out-of-pocket damages. Sire Spirits, LLC v. Beam Suntory, Inc. Sire brought the action in 2023, against defendants for, among other claims, fraud. Initially, Sire sought “all monetary losses” due to the fraud, punitive damages, attorneys’ fees, and costs. The motion court dismissed the requests for punitive damages, attorneys’ fees, and costs with prejudice. The First Department affirmed. As fact discovery was approaching its conclusion, Sire informed defendants, through an expert witness disclosure, that it intended to seek damages for “ loss of sales and profits and disruption of business growth.” In response, Defendants Beam Suntory Inc. and Jim Beam Brands Co. (collectively, “Beam”) sought leave to file an early summary judgment motion, explaining that damages based on lost profits, lost opportunities, and the like were not permitted under New York’s “out-of-pocket” damages rule. Looking to avoid unnecessary motion practice, the motion court urged the parties to stipulate that with respect to the fraud claims, Sire was limited to out-of-pocket damages. Thereafter, Sire stipulated that “lost profits” and “lost business opportunities” damages were not available on its fraud claims. Sire moved to amend its complaint. Sire proposed adding two paragraphs to its complaint, alleging that the fraud “fundamentally disrupted” Sire’s business and caused Sire’s business’s value “to be diminished” by “millions of dollars.” Sire also sought to add a request for damages based on the “diminution” of its “enterprise value.” Beam opposed the motion, arguing that damages based on estimates of what revenues Sire might have earned but for the fraud violated New York law – e.g. , damages that plaintiffs alleging fraud cannot recover under the out-of-pocket rule. The motion court denied the motion, holding, in part: plaintiffs attempt to repackage barred lost profits damages by relabeling it “diminution of value” does not pass muster. Whatever plaintiff calls these damages, they are still based on the potential value the company could have realized absent the defendants’ alleged misconduct. As the court has previously held in this matter, fraud claims are limited to recovery of the actual pecuniary loss. One cannot recover for potential lost earnings on a fraud theory. On appeal, the First Department unanimously affirmed. The Court held that “Plaintiffs’ proposed amendment to the prayer for relief in its pleading, which sought recovery based on profits not realized as a result of the alleged fraud, violated the out-of-pocket damages rule.” The Court explained that “Plaintiffs fail to explain how expert discovery would have availed them, because the court ruled as a matter of law based on plaintiffs’ own characterization of their damages.” “Accordingly,” said the Court, “the proposed amendment was palpably insufficient, and the court properly denied it.” Takeaway Sire serves as a reminder to practitioners and litigants that leave to amend may be freely given but within reason. Under CPLR 3025(b), courts generally grant leave to amend pleadings unless the amendment causes unfair prejudice or is palpably insufficient or patently devoid of merit. In Sire , the Court determined that the proposed amendment was patently devoid of merit because Sire could not recover “diminution in value” damages under the out-of-pocket damages rule. _______________________________________ 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. This Blog examined motions to amend under CPLR 3025(b) on numerous occasions, including: Amended Pleadings Under CPLR 3025(b) ; The Court of Appeals Makes a Ruling on “the Proper Scope of the Trial Court’s Discretion to Grant Leave to Amend a Complaint Under CPLR 3025(b)” ; and Defendant Barred From Adding a Counterclaim for Fraud Because the Claim Was Deemed Patently Devoid of Merit . 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); Matter of Chustckie , 203 A.D.3d 820, 822 (2d Dept. 2022); Toiny, LLC v. Rahim , 214 A.D.3d 1023, 1024 (2d Dept. 2023) (citations omitted). Cirillo , 206 A.D.3d at 612 (citation, internal quotation marks, and brackets omitted). Kimso Apartments, LLC v. Gandhi , 24 N.Y.3d 403, 411 (2014) (citations, internal quotation marks and brackets omitted). Toiny , 214 A.D.3d at 1024 (citation and internal quotation marks omitted); see also Kimso , 24 N.Y.3d at 411 (citations). See Petion v. New York City Health & Hosps. Corp. , 175 A.D.3d 519, 520 (2d Dept. 2019). See , e.g. , Bamira v. Greenberg , 256 A.D.2d 237, 239 (1st Dept. 1998). See , e.g. , Harding v. Filancia , 144 A.D.2d 538, 540 (2d Dept. 1988); Matter of Smith , 104 A.D.2d 445, 448 (2d Dept. 1984). Edenwald Contr. Co. v. City of New York , 60 N.Y.2d 957, 959 (1983); see also Granieri v. Ryder Truck Rental, Inc. , 112 A.D.2d 189, 190 (2d Dept. 1985); Matter of Chustckie , 203 A.D.3d at 822. Shields v. Darpoh , 207 A.D.3d 586, 587 (2d Dept. 2022) (internal quotation marks and citations omitted). Kimso , 24 N.Y.3d at 411 (citations omitted). Janssen v. Inc. Vill. of Rockville Ctr. , 59 A.D.3d 15, 24 (2d Dept. 2008); see also Seda v. New York City Housing Auth. , 181 A.D.2d 469, 470 (1st Dept. 1992); 558 Seventh Ave Corp. v. Times Sq. Photo, Inc. , No. 653090/2020, 2023 WL 360630, at *1 (Sup. Ct., N.Y. County Jan. 18, 2023). Granieri , 112 A.D.2d at 190. See Holchendler v. We Transp., Inc. , 292 A.D.2d 568, 569 (2d Dept. 2002); Hilltop Nyack Corp. v. TRMI Holdings Inc. , 275 A.D.2d 440, 441 (2d Dept. 2000). AFBT-II, LLC v. Country Vill. on Mooney Pond, Inc. , 21 A.D.3d 972, 972 (2d Dept. 2005) (citations omitted). McGhee v. Odell , 96 A.D.3d 449, 450 (1st Dept. 2012) (quoting Otis Elevator Co. v. 1166 Ave. of Americas Condo. , 166 A.D.2d 307, 307 (1st Dept. 1990)). Lama Holding Co. v. Smith Barney , 88 N.Y.2d 413, 421 (1996) (citations omitted). This Blog wrote about the out-of-pocket rule on numerous occasions, including: Out-of-pocket Fraud Damages: Proof Required to Determine the Value of Restricted Securities ; Out-Of-Pocket Damages, Intent to Deceive and The Business Judgment Rule ; First Department Affirms Dismissal of Fraud Claim Because Damages Alleged Were Speculative ; and Damages in a Holder Claim Found to Be Too Speculative For Recovery . Connaughton v. Chipotle Mexican Grill, Inc. , 29 N.Y.3d 137, 142-43 (2017) (quoting, Lama, supra ) (internal quotations omitted)). Id . Kumiva Grp., LLC v. Garda USA Inc. , 146 A.D.3d 504, 506 (1st Dept. 2017). Id . Id. Id. Sire Spirits, LLC v. Beam Suntory, Inc. , 227 A.D.3d 630, 632 (1st Dept. 2024). Sapienza v. Becker & Poliakoff , 173 A.D.3d 640 (1st Dept. 2019) (quotation marks and brackets omitted). Connaughton , 29 N.Y.3d at 142-43; see also Rondeau v. Houston , 224 A.D.3d 616, 617 (1st Dept. 2024). Slip Op. at *1. Id. Id.

By:  Jeffrey M. Haber In Allen v. Fidelity Brokerage Servs. LLC , 2025 N.Y. Slip Op. 34169(U) (Sup. Ct., N.Y. County Oct. 30, 2025), plaintiff, the representative of her son’s estate, sought to vacate a FINRA arbitration award after claims alleging negligent oversight of speculative options trading were denied. The arbitration panel imposed $25,000 in sanctions for violating FINRA Rule 12209 by filing a parallel court action. Plaintiff argued the panel exceeded its authority and manifestly disregarded FINRA Rule 2360 by ignoring unrebutted expert testimony. The motion court rejected these arguments, emphasizing the narrow grounds for vacating arbitration awards and confirming the panel’s authority to sanction rule violations. The award was upheld, reinforcing arbitration finality and compliance with FINRA rules. Allen arose after William Tyler Allen passed away in September 2021. His mother, acting as fiduciary of his estate, initiated a FINRA arbitration in August 2022, alleging that the respondent brokerage firms failed to properly assess the suitability of speculative options trading in the decedent’s account in violation of FINRA Rule 2360 , which plaintiff claimed contributed to the decedent taking his own life. Plaintiff later filed the action in September 2023, arguing that the FINRA arbitration could not adequately address wrongful death claims. In April 2025, the arbitration panel conducted a hearing at which the parties introduced documentary and testimonial evidence. Relevant to the motion before the court, plaintiff introduced the testimony of her proposed expert regarding the application of Rule 2360. While defendants introduced their own experts, as well as fact and witness testimony going to Rule 2360, they did not introduce expert testimony relating to Rule 2360. Following the close of proceedings, the arbitration panel issued an award, denying plaintiff’s claims and awarding sanctions against plaintiff in the form of $25,000 of attorneys’ fees for violating FINRA rules (the “Award”). The basis for this portion of the Award was that during the course of the arbitration, defendants had sought an order from the arbitration panel directing plaintiff to withdraw the court action as a violation of FINRA Rule 12209 (which bars the bringing of court proceedings that would resolve any matters raised in arbitration), with sanctions to be awarded if plaintiff failed to dismiss the action. The arbitration panel granted the motion for sanctions in a non-final order. The Award confirmed the sanctions and awarded defendants a combined $25,000 for their legal fees in the proceeding. Plaintiff moved to vacate the Award, and defendants cross-moved to confirm the Award. Pursuant to CPLR 7511(b)(1)(iii) , an arbitration award may be vacated if “an arbitrator, or agency or person making the award exceeded his power.” An arbitration award may also be vacated under federal law pursuant to the “severely limited doctrine” of manifest disregard, meaning that the award “exhibits a manifest disregard of law.” But the judicial review of arbitration awards is “extremely limited.” Plaintiff raised two main issues with the Award as a basis for vacatur. First, she argued that the arbitration panel exceeded its authority by issuing sanctions for bringing the action and by directing her to drop the court action. Second, Plaintiff argued that the arbitration panel manifestly disregarded the law by failing to accept unrebutted expert testimony regarding Rule 2360 provided by plaintiff in the arbitration. Defendants opposed the motion to vacate and separately (although largely for similar reasons) cross-moved to confirm the Award. The motion court denied plaintiff’s motion and granted defendants’ cross-motions to confirm the Award. Addressing the first point raised by plaintiff – whether the arbitration panel exceeded its power in imposing sanctions or ordering plaintiff to drop the court proceeding – the motion court held that the panel did not do so. Plaintiff argued that because federal courts lack the discretionary authority under the Federal Arbitration Act (“FAA”) to dismiss a case subject to arbitration, the arbitration panel could not tell her to drop a case or be subject to sanctions pursuant to FINRA Rule 12209. Plaintiff also argued that by issuing such an order, the arbitration panel became biased against her when she failed to comply. The motion court rejected the arguments. The motion court found that “it apparent that Plaintiff in fact violated FINRA Rule 12209, and that the arbitration panel was therefore empowered to issue sanctions in response to such a violation.” Any “‘limitation of an arbitrator’s power must be contained, explicitly or by reference, in the arbitration clause itself’ in order for a court to find that an arbitration panel exceeded their power,” said the motion court. Accordingly, concluded the motion court, “ he Arbitration Panel was clearly allowed to issue sanctions for the rule violation here,” especially since “Plaintiff not establish[ ] that directing her to cure the violation or to face sanctions as a result violated any explicit or referenced power held by the arbitration panel.” Turning to the second argument – whether the arbitration panel manifestly disregarded FINRA Rule 2360 – the motion court held that it did not do so. Plaintiff argued that the arbitration panel manifestly disregarded FINRA Rule 2360 because defendants did not provide expert testimony to match that provided by plaintiff. To vacate an award on the grounds of manifest disregard of the law, “a court must find both (1) that the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case.” The motion court rejected plaintiff’s argument that, because defendants did not provide expert testimony on Rule 2360, the conclusion of their witness regarding the application of Rule 2360 to the facts of the matter, would have required the arbitration panel to adopt those conclusions. “Such a reasoning,” said the motion court, “is not supported by the case law, nor is it sufficient to meet the heavy burden required to vacate an arbitration award.” “Because Defendants provided testimony and facts to support their position that they had complied with the FINRA rule in question,” concluded the motion court, “it cannot be said that the arbitration panel must have ignored FINRA Rule 2360 altogether.” Finally, the motion court addressed defendants’ cross-motion to confirm the Award. A court is required to confirm an arbitration award unless it is vacated or modified pursuant to one of the grounds listed in CPLR 7511(b). Because plaintiff did not meet “her heavy burden in establishing that the Award should be vacated,” the motion court held that it must confirm the Award. Takeaway Allen underscores several important principles concerning arbitration and the awards that are issued in them. First, judicial review of arbitration awards is extremely limited under both New York law and the FAA. Courts will only vacate an award if the petitioner can satisfy any of the enumerated bases under Section 10 of the FAA and CPLR 7511(b) or acted with manifest disregard of the law, a doctrine that, as the Allen court reiterated, is applied narrowly. Under that doctrine, even errors or misinterpretations of law are insufficient grounds for vacatur. Second, Allen reinforces the authority of arbitrators to enforce the alternative dispute resolution organization’s rules. As discussed, the Allen court confirmed that arbitrators have the authority to impose sanctions—including attorneys’ fees—when such rules are violated, provided that the arbitration agreement does not expressly limit this power. In Allen , the rule at issue was Rule 12209, which prohibits parties from pursuing parallel court actions on issues already before an arbitration panel. Third, Allen highlights the informality of arbitral proceedings. As shown in the background discussion of the case, arbitrators exercise broad discretion in accepting and weighing evidence. Thus, as discussed, the absence of opposing expert evidence did not compel the arbitration panel to adopt plaintiff’s interpretation of Rule 2360. Fourth, the decision illustrates that courts will confirm arbitration awards unless statutory grounds for vacatur are met. This promotes finality and efficiency in arbitration, thereby showing litigants that vacating an adverse award is an uphill battle. _______________________________ 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. In Rule 2360 , FINRA established a regulatory framework for the conduct of member firms involved in options trading. The rule governs all aspects of options activity, including account approvals, supervision, position limits, reporting, disclosures, and settlement.   Defendants challenged the witness’s admission as an expert, and the arbitration panel reserved decision on the matter and permitted the witness to testify. On many occasions, this Blog has examined the grounds upon which an arbitration award may be vacated under the FAA, CPLR 7511(b), and the manifest disregard of the law doctrine. To find such articles, please see the Blog tile on our website and search for “FAA”, “CPLR 7511”, “vacatur”, and “manifest disregard of the law” or any other issue that may be of interest to you. Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 480 (2006). Id. at 479. We have examined the vacatur of arbitral awards under CPLR 7511(b)(1)(iii) on numerous occasions. E.g. , Scope of Court Proceedings Limited By Parties’ Agreement , Arbitration Award Confirmed in the Absence of Proof That Arbitrator Exceeded His Authority , Court Finds Performance of an Accounting Within the Scope of the Arbitrator’s Authority , First Department Finds Arbitrator Exceeded Authority By Awarding Relief Not Demanded , and Fourth Department Vacates Portion of Arbitral Award Because Arbitrator Exceeded His Authority . We have examined the vacatur of arbitral awards under the manifest disregard of the law doctrine on numerous occasions. E.g. , Manifest Disregard of The Law and Class Arbitrations , Manifest Disregard of the Law and the Arbitrability of Class Claims , Fourth Department Rejects Violation of Public Policy and Manifest Disregard of the Law as Bases To Vacate Arbitral Award , Saying One Thing When You Mean Another , and Irrationality, Manifest Disregard of The Law and The Contractual Obligation to Arbitrate Disputes . See Smith v. Spizzirri , 601 U.S. 472, 477 (2024). Slip Op. at *3. Id. , quoting Brown & Williamson Tobacco Corp. v. Chesley , 7 A.D.3d 368, 372 (1st Dept. 2004). Id. Id. at *3-*4. Wien , at 481. Slip Op. at *4. Id. , citing Transparent Value, LLC v. Johnson , 93 A.D.3d 599, 601 (1st Dept. 2012) (holding that even an error or misunderstanding of the relevant law is not sufficient to support vacatur). Matter of Bernstein Family Ltd. P’ship v. Sovereign Partners, L.P. , 66 A.D.3d 1, 3 (1st Dept. 2009). Slip Op. at *4-*5.