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By: Jeffrey M. Haber A question about the application of law sometimes arises when a statute is amended, or the Legislature enacts a new statute that governs a particular issue. In this regard, the question concerns whether the new law or amendment should be applied retroactively or prospectively. There are “two axioms of statutory interpretation” that are relevant in determining whether a statute or amendment should be given retroactive effect. 1 “Amendments are presumed to have prospective application unless the Legislature’s preference for retroactivity is explicitly stated or clearly indicated.” 2 However, “remedial legislation should be given retroactive effect in order to effectuate its beneficial purpose.” 3 “Remedial statutes are those designed to correct imperfections in prior law, by generally giving relief to the aggrieved party.” 4 Courts also consider a statute or amendment to be remedial where: the Legislature has conveyed a sense of urgency; the statute was designed to rewrite an unintended judicial interpretation; and the enactment itself reaffirms a legislative judgment about what the law in question should be. 5 While the foregoing principles serve as guides, a court must discern the legislative intent either from the particular words used or from the nature of the legislation. 6 In Pacheco v. P.V.E. Co., LLC , 2023 N.Y. Slip Op. 23279 (Sup. Ct., Kings County Sept. 6, 2023) ( here ), the court was asked to determine whether the Justice for Injured Workers Act (N.Y. Work. Comp. § 118-a) (the “Act”), enacted on December 30, 2022, should be applied retroactively or prospectively. As discussed below, the court held that the Act should be applied retroactively. Pacheco is an action to recover damages for personal injuries. Defendants/third-party plaintiffs/third third-party plaintiffs P.V.E. CO., LLC, P.V.E. II CO., LLC, and 70 NARDOZZI LLC (“PVE/Nardozzi”) moved pursuant to CPLR § 3025 (b) and (c) for leave to amend its verified answer to assert a proposed affirmative defense of collateral estoppel. Plaintiff cross-moved for the imposition of costs and sanctions against PVE/Nardozzi for interposing a frivolous motion. Plaintiff commenced the action against PVE/Nardozzi and Suffolk Construction Company, Inc., alleging that he sustained injuries as a result of an accident that occurred at a construction site located in New Rochelle, New York. On or about March 17, 2021, PVE/Nardozzi filed its answer to the complaint. Subsequently, the parties received a Notice of Decision from the Workers’ Compensation Board (the “Board decision”), in which, inter alia , the Workers’ Compensation Board determined that treatment for plaintiff’s neck injury had not been established and disallowed the neck injury claim. PVE/Nardozzi moved for leave to amend its answer to assert a proposed affirmative defense of collateral estoppel based upon the Board decision. In opposition, plaintiff argued that the Act, which was enacted on December 30, 2022, warranted the denial of PVE/Nardozzi’s motion. Under Work. Comp. § 118-a, “no finding or decision by the workers’ compensation board, judge or other arbiter shall be given collateral estoppel effect in any other action or proceeding arising out of the same occurrence, other than the determination of the existence of an employer employee relationship.” Plaintiff moved for costs and sanctions against defendants for refusing to withdraw the motion and for willfully interposing a frivolous motion. PVE/Nardozzi opposed the cross-motion, arguing that Work. Comp. § 118-a was not applicable as it should be applied prospectively to actions filed post-enactment. The court denied both motions. In denying the motion to amend, the court observed that, although there was “no express directive” in Work. Comp. § 118-a instructing that it should be applied retroactively, “it clear that is a remedial law intended to ‘correct recent court decisions that granted preclusive effect to decisions of the Workers’ Compensation Board (WCB), barring injured workers from seeking justice through the courts because of an administrative decision of the WCB.’” 7 The court explained that the “legislative history, specifically the sponsor memorandum, highlight that administrative hearings before a Worker’s Compensation Law Judge sacrifice basic procedures and evidentiary rules of trials to swiftly decide the claims and that NY WORK COMP § 118-a ‘needed to ensure that findings from cursory Worker’s Compensation Board hearings not prevent workers from exercising their constitutional right to a jury trial.’” 8 Apart from the legislative history, the court noted that “the statute took effect immediately,” thereby evincing “a sense of urgency.” 9 The court also noted that “retroactive application not result in unfairness or impair substantive rights.” 10 The court explained that “retroactive application not increase liability but rather provide plaintiff with an opportunity to exercise his right to a fair trial.” 11 “These factors together,” concluded the court, “weigh in favor of the finding that the remedial purpose of NY WORK COMP § 118-a should be effectuated through retroactive application.” 12 Takeaway In determining whether a statute should be given retroactive effect, the New York Court of Appeals has identified two competing axioms of statutory interpretation. On the one hand, new statutes and amendments are presumed to have prospective application unless the Legislature states a preference for retroactivity that is explicitly stated or clearly indicated. On the other hand, remedial legislation or statutes governing procedural matters should be applied retroactively, unless such application would “impair vested rights or bestow additional rights.” 13 Courts must discern the Legislature’s intent, first by looking to the language of the statute and, if necessary, considering legislative history and other guides, such as those discussed above. In Pacheco , the court examined a number of the factors discussed above, including legislative history, whether retroactive application would result in unfairness or impair substantive rights, and whether there was a sense of urgency in passing the legislation, to conclude that Work. Comp. § 118-a should be applied retroactively. Footnotes Matter of Gleason (Michael Vee, Ltd.) , 96 N.Y.2d 117, 122 (2001); see also Nelson v. HSBC Bank USA , 87 A.D.3d 995, 997 (2d Dept. 2011). Id. ; see also Majewski v. Broadalbin-Perth Cent. School Dist. , 91 N.Y.2d 577, 584 (1998); Matter of OnBank & Trust Co. , 90 N.Y.2d 725, 730 (1997); People v. Duggins , 192 A.D.3d 191 (3d Dept. 2021). Matter of Gleason , 96 N.Y.2d at 122; Majewski , 91 N.Y.2d at 584; Matter of OnBank & Trust Co. , 90 N.Y.2d at 730. Nelson , 87 A.D.3d at 998 (internal quotation marks omitted). E.g. , Matter of OnBank & Trust Co. , 90 N.Y.2d at 730. See Matter of Regina Metro. Co., LLC v. New York State Div. of Hous. & Community Renewal , 35 N.Y.3d 332, 370 (2020); Matter of OnBank & Trust Co. , 90 N.Y.2d at 730. Slip Op. at *3 (quoting 2021 N.Y. Senate Bill S9149). Id. (quoting id. ). Id. (quoting Matter of Gleason , 96 N.Y.2d at 122). Id. Id. Id. See Matter of City of New York (Long Is. Sound Realty Co.) , 160 A.D.2d 696, 697 (2d Dept. 1990). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber “Cherry-picking” is a practice of fraudulently allocating profitable trades to favored accounts at the expense of other advisory clients.  here.=">here."> On September 14, 2023, the Securities and Exchange Commission (“SEC”) announced ( here ) that it settled fraud charges against GlennCap LLC (“GlennCap”), a Connecticut-based investment advisory firm, and its owner, Jonathan Vincent Glenn (“Glenn”), for engaging in a cherry-picking scheme whereby they allocated profitable securities trades to favored accounts, including GlennCap’s own accounts and client accounts that paid GlennCap a higher percentage of positive returns in fees, while allocating a disproportionate amount of unprofitable trades to disfavored clients. Under the settlement, respondents agreed to disgorge $2,743,616, plus prejudgment interest of $251,357. Glenn agreed to pay a civil money penalty of $500,000. According to the SEC, between at least January 2020 and March 2022, Glenn, who was also an investment adviser of GlennCap, engaged in block trading, which allowed him to pool funds from multiple clients’ accounts into trades, and then, after seeing whether a position increased or decreased in value, he allocated the more profitable trades to accounts that he favored. The SEC noted that the probability that the favored accounts received the more profitable trades by chance was statistically nearly zero. The SEC found that respondents received at least $2.7 million in profits from the cherry-picking scheme. The SEC found that the scheme, which was perpetrated in two phases, came to a stop in March 2022, when the broker-dealer that was executing respondents’ trades notified respondents that, due to concerns about respondents’ trading, the broker-dealer was terminating GlennCap’s access to the omnibus account that respondents were using and ending its relationship with GlennCap altogether in 90 days. Thereafter, said the SEC, Glenn asked GlennCap’s clients to move their accounts to another broker-dealer. That brokerage firm, noted the SEC, prohibited investment advisers from using omnibus trading accounts. As a result, said the SEC, respondents could no longer cherry-pick profitable trades. Further, the SEC found that Glenn made false and misleading statements regarding GlennCap’s trading practices in documents it provided to clients and prospective clients. Commenting on the settlement, Andrew Dean, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, said: “Glenn allocated millions of dollars from profitable trades to accounts benefitting himself while unloading unprofitable trades on GlennCap’s clients.” In an effort to warn other brokers and investment advisors about the SEC’s ability to detect cherry-picking schemes, Dean stated: “The SEC has the means to identify investment advisers that abuse their position through cherry-picking, as Glenn and GlennCap did. We use these methods to ensure investor trust in our markets.”In the cease and desist order ( here ), the SEC found that Glenn and GlennCap violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, Section 17(a) of the Securities Act of 1933, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Respondents consented to the entry of the cease-and-desist order, without admitting or denying the SEC’s findings, and, as noted, the payment of more than $3 million in civil penalties, disgorgement, and prejudgment interest. Glenn also consented to an industry and officer bar, which prohibits him from associating with any investment advisor, broker-dealer, transfer agent, municipal securities dealer, municipal advisor, or nationally recognized statistical rating organization, as well as from acting as an officer, director, manager, advisor, underwriter or depositor of any such entity. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger Sometimes someone receives a valuable benefit from your efforts and refuses to compensate you.  If the “benefit” was the result of a contractual relationship, a lawsuit for the breach of that contract would be viable.  What happens, however, where there is no contract on which to bring a claim?  There are several theories of liability sounding in “quasi-contract” that may offer you relief for your efforts.  While today’s post will focus on the quasi-contract claim of unjust enrichment, there are others. By way of background, a quasi-contract “is not really a contract at all, but rather a legal obligation imposed in order to prevent a party’s unjust enrichment.”  Clark-Fitzpatrick, Inc. v. Long Island Rail Road Co. , 70 N.Y.2d 382, 388 (1987) (citations omitted).  The New York Court of Appeals has explained that: uasi contracts are not contracts at all, although they give rise to obligations more akin to those stemming from contract than from tort. The contract is a mere fiction, a form imposed in order to adapt the case to a given remedy.  Briefly stated, a quasi-contractual obligation is one imposed by law where there has been no agreement or expression of assent, by word or act, on the part of either party involved. The law creates it, regardless of the intention of the parties, to assure a just and equitable result. Clark-Fitzpatrick , 70 N.Y.2d at 388-89 (citation, internal quotation marks and ellipses omitted; emphasis in original).  For these reasons, a quasi-contract claim, such as unjust enrichment, will ordinarily be dismissed when “the relationship between the parties defined by a valid written contract, which detailed the applicable terms and conditions” of the parties’ relationship.  Fortune Limousine Service, Inc. v. Nextel Communications , 35 A.D.3d 350, 353 (1 st Dep’t 2006); see also, The Fifth and Fifty-Fifth Residence Club Assoc., Inc. v. Vistana Signature Experiences, Inc. , 217 A.D.3d 564, 566 (1 st Dep’t 2023).  Conversely, the “theory of unjust enrichment lies as a quasi-contract claim and contemplates an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties.”  Nasca v. Greene , 216 A.D.3d 648, 650 (2 nd Dep’t 2023) (citation and internal quotation marks omitted). However, in Sebastian Holdings, Inc. v. Deutsche Bank AG , 78 A.D.3d 446 (1 st Dep’t 2010), the Court sustained an unjust enrichment claim on a motion to dismiss because the “claim for unjust enrichment does not depend on the existence of valid and enforceable written contracts between the parties, but rather arises from facts wholly independent of any contract upon which the plaintiff sues herefore, it cannot be said at this early stage of the proceedings that these claims are duplicative of the breach-of-contract claims, and the rule of Clark-Fitzpatrick … does not apply.” The elements of a claim for unjust enrichment are “(1) the defendant was enriched, (2) at the plaintiff’s expense, and (3) that it is against equity and good conscience to permit the defendant to retain what is sought to be recovered.”  GFRE, Inc. v. U.S. Bank, N.A. , 130 A.D.3d 569, 570 (2 nd Dep’t 2015) (citation and internal quotation marks omitted); see also, Paramount Film Distr. v. State of New York , 30 N.Y.2d 415, 421 (1972) (“The essential inquiry in any action for unjust enrichment … is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered.”)   A claim for unjust enrichment was sustained on September 13, 2023, by the Appellate Division, Second Department, in Bedford-Carp Construction, Inc. v. Brooklyn Union Gas .    The plaintiff in Bedford-Carp was a construction contractor that entered into a contract with a New York City agency to “install a box storm sewer” in Brooklyn.  During performance of the contract, plaintiff discovered 45,000 tons of contaminated soil.  The site of the work was near Brooklyn Union Gas’ facility.  The parties contract provides that plaintiff “shall not seek additional compensation from gas companies except as specifically set forth its contract” and  anticipated that there may be interference from existing and abandoned gas lines. Plaintiff’s bid was to reflect same.  In addition, the contract indicates that Brooklyn Union Gas may be responsible to the City for contamination it caused.   When contamination was found and verified, the City was notified and, in turn, contacted Brooklyn Union Gas and requested that it undertake remediation efforts.  Defendant declined.  In order to maintain the progress of the project, plaintiff undertook the remediation effort.  Subsequently, plaintiff sued Brooklyn Union Gas – alleging causes of action sounding in breach of contract, declaratory judgment (that defendant, Brooklyn Union Gas must compensate plaintiff for remediation costs) and unjust enrichment.  Plaintiff appealed the motion court’s dismissal of each cause of action in response to defendant’s motion to dismiss. The Second Department sustained the dismissal as to the breach of contract and declaratory judgment cause of action because “there was no contractual relationship or privity between the plaintiff and the defendant.”  The Court, however, held that the unjust enrichment claim should not have been dismissed and, in so doing, stated: However, the Supreme Court erred in granting that branch of the defendant's motion which was to dismiss the third cause of action, alleging unjust enrichment. Unjust enrichment lies as a quasi-contract claim and contemplates an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties. To recover under a theory of unjust enrichment, a litigant must show that (1) the other party was enriched, (2) at that party's expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered.  The essential inquiry in any action for unjust enrichment is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered. Although privity is not required for an unjust enrichment claim, a claim will not be supported if the connection between the parties is too attenuated. Here, affording the complaint a liberal construction, we find that it sufficiently alleged that the defendant was unjustly enriched, at the plaintiff's expense, by the plaintiff's remediation of the contaminated soil, and that it would be against equity and good conscience to permit the defendant to retain what was sought to be recovered. Moreover, we find that the Supreme Court erred in determining, in effect, that the connection between the parties was too attenuated to support a claim for unjust enrichment.  Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In our last article ( here ), we examined a choice-of-law provision that, if applied, would violate New York public policy concerning usurious loans. In that case, Virginia law, which does not prohibit usury, was deemed “so violative of New York’s public policy that the choice-of-law provision” at issue was deemed invalid.  The underlying predicate in that case was an agreement whereby the corporate defendant agreed to pay plaintiff $1,742,000 over the course of 52 weeks in exchange for a loan of $1,300,000 that had a stated interest rate of 34% – a percentage that is significantly higher than the maximum interest rate allowable in New York. Under those facts, there was no question that the court was examining the terms of a loan agreement – a requirement under the General Obligations Law for a finding of usury. 1 Sometimes, however, it is not always easy to determine whether the financial instrument at issue is a loan or forbearance or something else, such as the sale of a receivable (the question presented in EBF Partners, LLC v. Creative Sports Concepts LLC , 2023 N.Y. Slip Op. 33073(U) (Sup. Ct., N.Y. County Sept. 6, 2023) ( here )). To address this issue, courts look to “the real purpose of the transaction” – that is, “on the one side, to lend money at usurious interest reserved in some form by the contract and, on the other side, to borrow upon the usurious terms dictated by the lender.” 2 Notably, “ he court will not assume that the parties entered into an unlawful agreement . . . when the terms of the agreement are in issue, and the evidence is conflicting.” 3 Nevertheless, “the lender is entitled to a presumption that he did not make a loan at a usurious rate.” 4 There are three factors that courts consider in determining whether the transaction at issue should be considered a loan or a sale of receivables: “(1) whether there is a reconciliation provision in the agreement; (2) whether the agreement has a finite term; and (3) whether there is any recourse should the merchant declare bankruptcy.” 5 No factor is dispositive. 6 In addition, courts may consider other factors such as a discretionary reconciliation provision, default provisions entitling the lender to immediate repayment, and collection on a personal guaranty in the event of default or bankruptcy. 7 here.=">here."> EBF Partners involved a Payment Rights Purchase and Sale Agreement, pursuant to which plaintiff purchased $99,400.00 worth of the corporate defendant’s future receivables for $70,000. The agreement was guaranteed by the individual defendant. Under the agreement, defendant was entitled to reconcile the daily payment amount to better reflect its actual sales each calendar month. While several events of default were listed in the agreement, a bankruptcy proceeding involving the corporate defendant was not one of them. Shortly after the agreement was executed, Plaintiff claimed that plaintiff’s daily debit on defendant’s account was blocked, and since that time defendant had not tendered the daily percentage of its receivables to plaintiff or restored plaintiff’s access to the account.  Plaintiff filed suit claiming, among other causes of action, breach of contract. On plaintiff’s motion for summary judgment, defendants argued that the agreement was a usurious loan, that plaintiff was barred from enforcing the agreement due to its unclean hands, that the guarantee did not sufficiently bind the individual defendant, and that there were issues of fact related to how much money was actually owed. Relevant to this article, the motion court granted the motion, 8 finding that the agreement was not a usurious loan. The motion court found that the agreement “appear to be what it states on its face, a purchase of future receivables.” 9 In that regard, noted the motion court, “ he agreement lacks a finite term, contains a reconciliation provision, and does not provide that ’s filing for bankruptcy protection is a default under the agreement.” 10 As such, weighing the factors discussed above, the motion court concluded that “defendants cannot show that the Agreement is a criminally usurious loan.” 11 Footnotes Under General Obligations Law § 5-501, usury only applies to a “loan or forbearance of any money, goods or things in action.” See also Donatelli v. Siskind , 170 A.D.2d 433, 434 (2d Dept. 1991). Donatelli , 170 A.D.2d at 434. Giventer v. Arnow , 37 N.Y.2d 305, 309 (1975). Id. LG Funding, LLC v. United Senior Props. of Olathe, LLC , 181 A.D.3d 664 (2d Dept. 2020). Id. at 666. Davis v. Richmond Capital Grp. , LLC, 194 A.D.3d 516, 517 (1st Dept. 2021). The motion court found, however, issues of fact with regard to the issue of damages. See Slip Op. at *5. Slip Op. at *4. Id. Id. (citing, Principis Capital, LLC v. I Do, Inc. , 201 A.D.3d 752, 754 (2d Dept. 2022)). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber It is well settled that parties to a contract are free to include choice-of-law provisions in their agreements. Such provisions are generally enforced by New York courts 1 and will be “interpreted so as to effectuate the parties’ intent.” 2 The freedom to contract, however, has limits. Courts will not, for example, enforce agreements that are illegal or where the chosen law violates “some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal.” 3 Indeed, New York appellate courts have repeatedly determined that a foreign jurisdiction’s laws should not be applied when they violate New York public policy. 4 As shown in Samson Lending LLC v. Greenfield Mgt. LLC , 2023 N.Y. Slip Op. 23267 (Sup. Ct., Ontario County, Sept. 5, 2023) ( here ), the prohibition against usury is such a fundamental policy of New York, the courts will not hesitate to void a choice of law provision that conflicts with this state policy.   A Primer on Usury New York has a long history prohibiting usury. Since at least 1717, various New York legislatures have repeatedly passed legislation to address (and prohibit) usury. Over the intervening years, while other states repealed their usury laws, New York’s legislature refused to lessen the protections afforded by the usury statutes. 5 Adar="Adar" Bays,="Bays," LLC="LLC" v.="v." GeneSYS="GeneSYS" ID,="ID," Inc.="Inc." ( here),=">here)," the="the" New="New" York="York" Court="Court" of="of" Appeals="Appeals" provided="provided" a="a" lengthy="lengthy" and="and" extensive="extensive" discussion="discussion" State’s="State’s" history="history" with="with" enacting="enacting" usury="usury" laws.="laws."> Today, New York’s usury law can be found in General Obligations Law §§ 5-501, 5-511, 5-521; Banking Law § 14-a (1); and Penal Law § 190.40. Together, the statutes establish that loans of less than $250,000 to individuals cannot exceed a 16% annual rate, loans between $250,000 and $2.5 million cannot exceed 25% (the criminal usury rate) and loans of $2.5 million or more are not subject to the usury laws. More specifically, the General Obligations Law and Banking Law provide that the maximum rate of interest upon a “loan or forbearance of any money, goods, or things” is 16% per annum unless otherwise provided by law, 6 and “ o person or corporation shall, directly or indirectly, charge, take or receive any money, goods or things in action as interest” at a rate exceeding 16%. 7 In addition, a lender commits a class E felony when, without other legal authorization, the lender “knowingly charges, takes or receives any money or other property as interest on the loan or forbearance of any money or other property, at a rate exceeding <25%> per annum or the equivalent rate for a longer or shorter period.” 8 Any loan that reserves or takes any greater interest “than is prescribed in section 5-501”— the civil usury prohibition (16%) —“shall be void”, unless the lender is a bank or loan association, which will be held to have forfeited all interest on the loan. 9 Under General Obligations Law § 5-521 (1), the defense of usury is not available to corporations, but this bar does not preclude a corporate borrower from raising the defense of “criminal usury” ( i.e. , interest over 25%) in a civil action. 10 Samson Lending LLC v. Greenfield Mgt. LLC Samson Lending involved a loan agreement pursuant to which the corporate defendants agreed to pay plaintiff $1,742,000 over the course of 52 weeks in exchange for a loan of $1,300,000, a stated interest rate of 34%, with the terms of the corporate defendants’ compliance guaranteed by the individual defendant.  The agreement contained a choice-of-law and a venue and jurisdiction provision that would require the court to apply Virginia law to the agreement. Defendants moved to dismiss the complaint, arguing that the interest rate under the loan agreement (34%) violated New York’s public policy against criminal usury and that this vitiated the application of the agreement’s choice-of-law provision requiring application of New York law to the agreement.  In opposition, Plaintiff argued that the choice-of-law provision must be honored, as Virginia law does account for usury, and alternatively argued that should New York law apply, the agreement should be modified according to its terms to allow the maximum interest rate allowable under New York law. The motion court agreed with defendants, finding that “regardless of the agreement’s provision that Virginia substantive law would apply to the agreement’s terms, … the application of Virginia law (which would allow a 34% interest rate) would be so violative of New York’s public policy that the choice-of-law provision is invalid.” 11 Thus, concluded the motion court, “the choice-of-law provision is void, and New York law will apply to the agreement.” 12 Having determined that New York law would apply to the dispute, the motion court next addressed whether defendants met their burden of showing that plaintiff acted with usurious intent. Under New York law, “where a loan agreement usurious on its face, usurious intent will be implied, and usury will be found as a matter of law.” 13 The motion court concluded that defendants met their burden. 14 Here, the agreement had a stated interest rate of 34%, significantly higher than the maximum interest rate allowable in New York. Thus, as the agreement was for a loan less than $2.5 million, the agreement was usurious on its face.  Finally, the motion court rejected plaintiff’s request to reform the contract in accordance with the “usury savings clause” in the agreement. 15 The motion court explained that, under New York law, reformation is not available, either as a contractual or equitable remedy, when the lender has charged criminally usurious interest. 16 Takeaway Samson Lending is notable because of its conclusion that the bar against usurious loans is a fundamental precept of New York public policy. As such, the motion court could not apply the parties’ choice-of-law agreement. To do so would be, as the motion court held, offensive to the public policy of this State.  Footnotes inisters & Missionaries Ben. Bd. v. Snow , 26 N.Y.3d 466, 470 (2015). Welsbach Elec. Corp. v. MasTec N. Am., Inc. , 7 N.Y.3d 624, 629 (2006). Cooney v. Osgood Mach., Inc. , 81 N.Y.2d 66, 78 (1993) (quoting, Loucks v. Standard Oil Co. of N.Y ., 224 N.Y. 99, 111 (1918)). See , e.g. , Brown & Brown, Inc. v. Johnson , 25 N.Y.3d 364, 370 (2015) (holding that application of Florida law “would be offensive to a fundamental public policy of this State.”) (internal quotation marks and citation omitted); Welsbach , 7 N.Y.3d at 632; Cooney , 81 N.Y.2d at 80. Adar Bays, LLC v. GeneSYS ID, Inc. , (37 N.Y.3d 320, 329 (2021). GOL § 5-501 (1); Banking Law § 14-a (1). GOL § 5-501 (2). Penal Law § 190.40. GOL § 5-511 (1). GOL § 5-521 (3). Slip Op. at *5. Id. at *7. See O’Donovan v. Galinski , 62 A.D.3d 769, 770 (2d Dept. 2009); Fareri v. Rain’s Intl. , 187 A.D.2d 481, 482 (2d Dept. 1992); Roopchand v. Mohammed , 154 A.D.3d 986, 988-89 (2d Dept. 2017). Id. Slip Op. at *8. Id. (citations omitted). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger Frequently, individuals or entities looking to purchase real property have insufficient savings to make the purchase with cash or otherwise do not want to purchase with cash.  In such circumstances purchasers typically seek bank financing to consummate the purchase.  At the time of contract purchasers are generally required to deliver a substantial down payment.  Absent a mortgage contingency clause in the sale contract, the purchaser’s down payment would be put at risk if lenders denied the purchaser’s mortgage applications.  [Eds. Note: this Blog has previously written about mortgage contingency clauses < here =">here"> and < here =">here"> .]  Thus, contracts for the purchase of real property generally provide that purchasers have a certain period of time to obtain a mortgage without risking the loss of a down payment.  “A mortgage contingency clause protects a contract vendee from being obligated to consummate the transaction in the event mortgage financing cannot be obtained in the exercise of good faith through no fault of the purchaser.”  Creighton v. Milbauer , 191 A.D.2d 162, 166 (1 st Dep’t 1993) (citations omitted).  Accordingly, a “purchaser is entitled to return of the down payment where the mortgage contingency clause unequivocally provides for its return upon the purchaser’s inability to obtain a mortgage commitment within the contingency period.”  Blair v. O’Donnell , 85 A.D.3d 954 (2 nd Dep’t 2011) (citation omitted).  “However, when the lender revokes the mortgage commitment after the contingency period has elapsed, the contractual provision relating to failure to obtain an initial commitment is inoperable, and the question becomes whether the lender's revocation was attributable to any bad faith on the part of the purchaser.”  Chahlis v. Roberta Ebert Irrevocable Trust , 163 A.D.3d 623, 624 (2 nd Dep’t 2018) (citations and internal quotation marks omitted). A “mortgage contingency clause is construed to create a condition precedent to the contract of sale.”  Bunnell v. Haghighi , 661 Fed Appx 110 at 5 (2d Cir. 2016) (citation and internal quotation marks omitted).  “In the absence of waiver by the buyer, any claim that the seller is entitled to retain the down payment for failure to satisfy such a condition must be based on allegations that the buyer acted in bad faith by bringing about the failure of the condition precedent.”  Id . (Citations, internal quotation marks, brackets and ellipses omitted.)  The seller has the burden of establishing bad faith.  Id .  See also, Creighton , 191 A.D.2d at 165.  Thus, in order “to enforce the purchase agreement in the absence of the financing contemplated by the mortgage contingency clause, it is incumbent upon to establish that failure to fulfill the condition necessary to obtaining financing was a mere pretense to avoid their obligations under the contract.”  Lindenbaum v. Royco , 165 A.D.2d 254, 260 (1 st Dep’t 1991). In circumstances where a mortgage contingency is solely for the benefit of the purchaser, it can be unilaterally waived by the purchaser, who can proceed to closing with cash, but if the clause is for the benefit of both parties, it cannot be unilaterally waived by the purchaser.  Dale Mortgage Bankers Corp. v. 877 Stewart Avenue Assoc. , 133 A.D.2d 65, 66 (2 nd Dep’t 1987) (citation omitted).  A mortgage contingency clause will be deemed for the benefit of the purchaser and the seller where either party has the right to cancel the contract in the event the purchaser fails to procure a mortgage commitment.  Indeed, it has been held that “unless the contract clearly states otherwise, such provisions are meant to protect the seller as well as the buyer, on the theory that the issuance of a mortgage commitment to the prospective buyer increases in direct proportion to the amount of the mortgage commitment itself, the chances that the buyer will in fact be able to perform his obligations in a timely manner.”  Ting v. Dean , 156 A.D.2d 358, 360 (2 nd Dep’t 1989) (citations omitted).  Further, a purchaser can be found to be in breach where a mortgage commitment is denied, but the mortgage application is inconsistent with the nature of the loan required by the sales contract.  See, e.g., HSM Real Estate, Inc. v. Dragon , 94 A.D.3d 702 (2 nd Dep’t 2012) (the purchaser applied for a $455,000 loan but the contract required the purchaser to apply for a $400,000 loan). On August 30, 2023, the Appellate Division, Second Department, in Rivkin v. 1946 Holding Corp. , addressed mortgage contingency clauses.  The plaintiff in Rivkin entered into a contract to purchase real property and delivered the requisite down payment to seller.  The mortgage contingency clause in the contract “conditioned the obligations under the contract on his ability to obtain a mortgage loan commitment within a certain period of time, and provided him with the right to cancel the contract and receive his down payment if he did not obtain such a commitment within the specified time.”  The purchaser timely obtained a loan commitment; however, it was subject to an environmental report satisfactory to the seller.  Although the purchaser’s loan commitment was extended several times by the lender while the parties were awaiting the environmental report, the lender refused to further extend the loan commitment due to the lack of a satisfactory environmental report.  The seller refused to return the purchaser’s deposit when requested. The purchaser commenced action against the seller in which he sought a declaratory judgment that he was entitled to the return of the down payment.  The seller asserted a counterclaim for breach of contract. Both sides moved for summary judgment.  The motion court denied the purchaser’s motion and granted summary judgment to the seller.  The purchaser appealed. After discussing the relevant caselaw, the Rivkin Court reversed the motion court’s decision and stated: Here, the was entitled to the return of his down payment on the basis that the revocation of the loan commitment was not attributable to any bad faith on his part. Contrary to the contention, the did not waive his right to cancel the contract of sale. The established that the lender revoked the loan commitment due to delays regarding remediating environmental contamination on the property and that these delays were not attributable to the . In opposition, the failed to raise a triable issue of fact. Accordingly, the was entitled to summary judgment on his first cause of action and dismissing the counterclaims. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber A suspicious activity report (“SAR”) is a document that financial institutions, broker-dealers, and those associated with their business, must file with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) whenever money laundering or fraud is suspected. In May 2021, this Blog wrote about an enforcement action the Securities and Exchange Commission (“SEC”) brought against a broker-dealer for failing to file SARs in connection with retirement accounts it serviced ( here ). As we typically do, in that article, we discussed the legal principles that governed the SEC’s action. For the convenience of our readers, we reprint that discussion below.  SARs are governed by the Bank Secrecy Act (“BSA”) and implementing regulations promulgated by FinCEN. The law requires broker-dealers to file SARs with FinCEN to report a transaction (or pattern of transactions of which the transaction is a part) conducted or attempted by, at, or through the broker-dealer involving or aggregating funds or other assets of at least $5,000 that the broker-dealer knows, suspects, or has reason to suspect: (1) involves funds derived from illegal activity or is conducted to disguise funds derived from illegal activities; (2) is designed to evade any requirement of the BSA; (3) has no business or apparent lawful purpose and the broker-dealer knows of no reasonable explanation for the transaction after examining the available facts; or (4) involves use of the broker-dealer to facilitate criminal activity. 1 FinCEN’s regulations require that: “A suspicious transaction shall be reported by completing a Suspicious Activity Report.” 2 FinCEN instructs SAR filers to “provide a clear, complete, and concise description of the activity, including what was unusual or irregular that caused suspicion” in the narrative and to “include any other information necessary to explain the nature and circumstances of the suspicious activity.” 3 To be effective, the SAR should describe “the five essential elements of information – who? what? when? where? and why? – of the suspicious activity being reported.” 4 When a SAR is filed “it must include information about each of the Five Essential Elements of the suspicious activity.” 5 When a SAR “lack basic information regarding the Five Essential Elements … SAR s deficient as a matter of law.” 6 FinCEN has provided additional instruction regarding the obligations of financial institutions to report cyber-related events. In December 2011, for example, FinCEN issued an advisory to alert financial institutions to the increased threat of cyber account takeover activity. 7 FinCEN advised that “ ybercriminals are increasingly using sophisticated methods to obtain access to accounts” and these “attacks aim to deliberately exploit a customer’s account and, in many instances, to gain seemingly legitimate access to another customer’s account.” 8 In order to assist financial institutions with identifying and reporting account takeover activity where cybercriminals attempt intrusions into a customer’s account in order to steal the customer’s funds, FinCEN also set forth detailed instruction for reporting account takeovers that emphasizes the importance of reporting cyber-related information—including cyber-event data, such as URL address and IP addresses with timestamps, as well as email addresses and other electronic identifying information—in the event of a cyber-enabled account takeover. 9 Rule 17a-8 promulgated pursuant to Section 17(a) of the Securities Exchange Act of 1934 (“Exchange Act”) requires broker-dealers registered with the Commission to comply with the reporting, record-keeping, and record retention requirements of the BSA. The failure to file a SAR as required by the SAR Rule—including omitting from a filed SAR “a clear, complete, and concise description of the activity, including what was unusual or irregular that caused suspicion” or failing to “identify the five essential elements of information – who? what? when? where? and why? – of the suspicious activity being reported”—is a violation of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder. 10 In the Matter of Archipelago Trading Services, Inc. On August 29, 2023, the SEC announced ( here ) that it brought charges against Archipelago Trading Services Inc. (“ATSI”), a Chicago-based broker-dealer, for failing to file hundreds of SARs between August 2012 and September 2020. The charges were related to transactions in over-the-counter (“OTC”) securities executed on ATSI’s alternative trading system (“ATS”). 11 ATSI agreed to pay $1.5 million to settle the charges. According to the SEC’s order ( here ), ATSI’s sole line of business was to operate an OTC equity securities ATS, known as Global OTC, which was used by broker-dealers to execute trades in OTC securities. Global OTC played a significant role in executing trades of microcap and penny stock securities, which are not listed on any national exchange and tend to be high-risk securities. Despite thousands of high-risk microcap and penny stock securities transactions executed daily on Global OTC, the SEC found that ATSI failed to establish an anti-money laundering surveillance program for its transactions until September 2020. 12 Therefore, said the SEC, ATSI failed to surveil approximately 15,000 transactions executed on Global OTC for possible red flags regarding suspicious manipulative trading activity, including possible spoofing, layering, wash trading, and pre-arranged trading. As a result, the SEC found that ATSI failed to file at least 461 SARs, most of which involved microcap or penny stock securities.     Commenting on the action, Daniel R. Gregus, Director of the SEC’s Chicago Regional Office stated: “All SEC-registered broker-dealers have the responsibility to comply with the requirements of the Bank Secrecy Act, including the obligation to file SARs. When firms like ATSI fail to investigate red flags, especially those involving higher-risk microcap and penny stock securities, they put the investing public at risk.”  The SEC’s order found that ATSI violated Section 17(a) of the Exchange Act and Rule 17a-8 promulgated thereunder. Without admitting or denying the SEC’s findings, ATSI agreed to a censure and a cease-and-desist order in addition to the $1.5 million penalty. Footnotes: 31 C.F.R. § 1023.320(a)(2) (the “SAR Rule”). 31 C.F.R. § 1023.320(b)(1). See FinCEN, FinCEN Suspicious Activity Report (FinCEN SAR) Electronic Filing Instructions (October 2012) ( here ). See , e.g. , FinCEN, Guidance on Preparing a Complete & Sufficient Suspicious Activity Report Narrative , at 3 (Nov. 2003) ( here ). See SEC v. Alpine Sec. Corp. , 308 F. Supp. 3d 775, 804 (S.D.N.Y. 2018) < here =">here"> , aff’d , 982 F.3d 68 (2d Cir. 2020). Id. at 800. FinCEN, Account Takeover Activity , FIN-2011-A016 (Dec. 19, 2011) ( here ). Id. See FinCEN, Advisory to Financial Institutions on Cyber-Events and Cyber-Enabled Crime , FIN2016-A005 (Oct. 25, 2016) ( here ); see also Frequently Asked Questions (FAQs) regarding the Reporting of Cyber-Events, Cyber-Enabled Crime, and Cyber-Related Information through Suspicious Activity Reports (SARs) (Oct. 25, 2016). See Alpine Sec. Corp. , 308 F. Supp. 3d at 798–800. OTC securities are securities that are not listed on a national securities exchange. The securities at issue in ATSI were primarily microcap and penny stock securities. The term “microcap stock” generally refers to securities issued by companies with a market capitalization of less than $250 to $300 million. See , e.g. , U.S. Securities and Exchange Commission, Microcap Stock: A Guide for Investors (Sept. 18, 2013) ( here ); U.S. Securities and Exchange Commission, Investor Bulletin, Microcap Stock Basics (Sept. 30, 2016) ( here ). The term “penny stock” generallyrefers to a security issued by a very small company that trades at less than $5 per share ( here ). See Section 3(a)(51) of the Exchange Act and Rule 3a51-1 thereunder. ATSI updated its systems after receiving a deficiency letter from the SEC’s Division of Examinations in May 2020. ATSI updated its AML Policies in August 2020. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP complex commercial litigation. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber On March 20, 2018, the United States Supreme Court decided Cyan, Inc. v. Beaver County Employees Retirement Fund , in which it unanimously held that the Securities Litigation Uniform Standards Act of 1998 does not strip state courts of subject-matter jurisdiction over class actions involving claims brought under the Securities Act of 1933 (the “Securities Act”) and does not allow for the removal of those cases to federal court. Since that time, there has been an increase in the number of state court class action lawsuits asserting claims under the Securities Act. Today, we examine one such case, City of Hialeah Employees’ Retirement System v. Teladoc Health, Inc. , 2023 N.Y. Slip Op. 50876(U) (Sup. Ct., N.Y. County Aug. 23, 2023) ( here ). Cyan="Cyan" decision="decision" here.=">here."> A Primer on The Securities Act Following the stock market crash in 1929, Congress enacted the Securities Act and the Securities and Exchange Act of 1934 (the “Exchange Act”). The Securities Act has two primary objectives: (1) to provide transparency in financial statements so investors can make informed decisions about securities being offered for public sale; and (2) to address misstatements and omissions in the securities markets. To accomplish these goals, Congress required the disclosure of material information through the registration process. Thus, under the Securities Act, companies that issue securities must file with the Securities and Exchange Commission (“SEC”) a statement (known as a registration statement) that contains the following information: a description of the company’s business, the securities offered to the public, the company’s corporate management structure, and recent audited financial statements. In addition to the registration statement, issuers are required to file a prospectus. A prospectus is used to market securities to potential investors. The prospectus is included as part of the registration statement. Registration statements are subject to SEC examination for compliance with disclosure requirements. An issuer cannot make false statements in, or omit material facts from, a registration statement or prospectus. In fact, when a fact is disclosed, the issuer must disclose all information required to make that fact not misleading. This includes all known trends or uncertainties that the registrant reasonably expects will have a material, unfavorable impact on revenues or income from continuing operations, 1 and “material factors that make an investment … speculative or risky. 2 Section 11 of the Securities Act provides securities purchasers a private right of action if any part of a registration statement, when it became effective, “contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statement therein not misleading.” A plaintiff bringing an action under Section 11 must establish one of the following bases of liability: “(1) a material misrepresentation; (2) a material omission in contravention of an affirmative legal disclosure obligation; or (3) a material omission of information that is necessary to prevent existing disclosures from being misleading.” 4 Section 11 “‘imposes strict liability on issuers and signatories, and negligence liability on underwriters,’ for material misstatements or omissions in a registration statement.” 5 To be actionable under Section 11, any misrepresentation or omission must be material. Materiality is an “inherently fact-specific finding.” 6 A plaintiff demonstrates materiality when there is a “substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” 7 Neither accurate statements about past performance, nor expressions of puffery and corporate optimism are actionable under the Securities Act. 8 Unlike a securities fraud under Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), a Section 11 plaintiff need not demonstrate “scienter, reliance, or loss causation.” 9 Nevertheless, a defendant in a Section 11 action will not be liable if it can prove “negative loss causation” – that is, if it can demonstrate that the alleged misstatement or omission did not lead to a decline in the company’s stock price. 10 To sustain this defense, a defendant must establish that “the risk that caused the losses was not within the zone of risk concealed by the misrepresentations and omissions,” or that “the subject of the misstatements and omissions was not the cause of the actual loss suffered.” 11 Because Section 11 “allocate the risk of uncertainty to the defendants,” courts have described rebutting loss causation as a “heavy burden.” 12 “Section 12(a)(2) provides similar redress where the securities at issue were sold using prospectuses or oral communications that contain material misstatements or omissions.” 13 Claims under Section 12(a)(2) may be brought against a “statutory seller,” which includes those who successfully solicited the purchase of the security in service of their own financial interests. 14 “ he elements of a prima facie claim under section 12(a)(2) are: (1) the defendant is a ‘statutory seller’; (2) the sale was effectuated ‘by means of a prospectus or oral communication’; and (3) the prospectus or oral communication ‘include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.’” 15 Section 11 imposes “‘virtually absolute’ liability” as to issuers, while other defendants under Sections 11 and 12(a)(2) may be held liable for mere negligence. Securities Act claims “must be brought ‘within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence.’” 16 Under CPLR § 3211(a)(5), defendants bear the “initial burden” to establish that the limitations period has expired and if successful, the “burden then shifts to the plaintiff to raise an issue of fact as to whether the statute of limitations is tolled or otherwise inapplicable.” 17 “In considering , a court must take the allegations in the complaint as true and resolve all inferences in favor of the plaintiff” and give the plaintiff’s responses “their most favorable intendment<.> ” 18 City of Hialeah Employees’ Retirement System v. Teladoc Health, Inc. Background Teladoc is a securities class action brought on behalf of all persons who purchased or otherwise acquired shares of Teladoc Health, Inc. (“Teladoc” or the “Company”) common stock in connection with Teladoc’s merger with Livongo Health, Inc. (“Livongo”) on or about October 30, 2020 (the “Merger”). Teladoc is a virtual healthcare company. The Company generates revenue by selling access to the Company’s platform and services to clients, such as large employers or insurance companies. The Company charges clients a subscription access fee on a per-member-per-month basis, where a member is an individual user of the Company’s platform. As alleged, the Company’s subscription access revenue is the primary source of its revenue and is driven primarily by how many clients and members it has under contract, with the majority of its members and subscription access revenue coming from the United States. As such, U.S. membership is one of the most important metrics in assessing the Company’s success and future prospects.  In August 2020, the Company issued a press release indicating that it had agreed to merge with Livongo in a deal valued at $18.5 billion. The press release provided that pursuant to the terms of the Merger, Livongo shareholders would receive 0.592 Teladoc shares for each Livongo share and following closing, Teladoc shareholders would own 58% and Livongo shareholders would own 42% of the combined Company. The Merger required Livongo shareholder approval. Plaintiff alleged that the Company continued to report significant U.S. membership growth in the lead up to the Merger and otherwise indicated that there remained a lot of opportunity for continued growth. However, claimed plaintiff, despite these assurances, the Company’s pipeline was virtually depleted, that the rebuilding process would take more than a year following the Merger, and that U.S. memberships would grow as little as 1% in the 18 months following the Merger. The Company filed a registration statement in connection with the Merger on September 3, 2020; it was declared effective as of September 15, 2020. The Company also filed a joint proxy statement and prospectus on September 15, 2020, incorporating various financial reports and other SEC filings for the Company. The registration statement did not make any projection about membership growth. The registration statement did, however, make a projection about 2021 revenue. As noted by the motion court, it was “undisputed that the Company met its 2021 projection.” 19 Plaintiff alleged that the registration statement was materially misleading because it failed to disclose that the extraordinary growth in membership tied to the COVID-19 pandemic had been pulled forward to be booked prior to the Merger and that the Company should have disclosed that its pipeline for future membership growth would take more time to rebuild than the market anticipated based on the track record that defendants stated in the registration statement. Thus, plaintiff alleged that investors had a false and misleading picture about the future membership growth and cash flows for the Company. Plaintiff alleged that, on February 24, 2021 (the “February Disclosure”), the Company issued a press release revealing the Company’s financial results for Q4 2020 and full year 2020 detailing a low membership outlook for 2021. Plaintiff claimed that this negative trend was known by the Company at the time of the Merger and that, as a result of the low membership growth in 2021, the price of the Company’s stock fell substantially.  Defendants moved to dismiss the complaint on two grounds: the action was time-barred, and plaintiff failed to state a cause of action. The motion court granted the motion. The Motion Court’s Decision First, the motion court held that the action was time-barred by the one-year statute of limitations. 20 The motion court noted that in “a previously filed lawsuit in (the Illinois Lawsuit), the amended complaint filed by the Plaintiff in that action alleged that the Company … first disclosed the alleged misstatements on January 11, 2021 (the January ‘Bombshell’ Disclosure) during an analyst conference.” 21 The motion court found that “Plaintiff then waited until January 26, 2022 to file this action.” 22 In a footnote, the motion court rejected plaintiff’s argument that “the January ‘Bombshell’ Disclosure … was actually February 24, 2021” and “that the January ‘Bombshell’ Disclosure’ ‘did not include every problem that the ompany disclosed’ or that the disclosures not perfectly match the Plaintiff’s allegations.” 23 The motion court concluded that “ hat matters is that this Plaintiff previously admitted that the January ‘Bombshell’ Disclosure disclosed the basis upon which the was allegedly misleading and they did not proceed to prosecute this action within the statute of limitations period provided for by the United States Congress.” 24 Since there was no tolling agreement entered into between the parties and plaintiff was not entitled to class action tolling, the lawsuit was dismissed. 25 Second, the motion court held that even if timely, plaintiff failed to state a claim. 26 In that regard the motion court found that plaintiff failed to “allege a material misstatement of fact.” 27 The motion court explained that the “complaint predicated on the theory that the Registration Statement … was materially misleading because the defendant Company … failed to disclose, in connection with … that a surge of membership growth occasioned by the COVID-19 pandemic had been pulled forward prior to the erger and, because the indicated that membership growth was important to the Company’s revenue growth, the should have disclosed that the pipeline for membership growth was to be truncated for the next year — 2021.” 28 “The problem,” said the motion court, was that the registration statement “did disclose the effects of the COVID-19 pandemic and did not otherwise make any projection about membership growth.” 29 “In fact,” said the motion court, the registration statement “set forth historical data, made other accurate statements, and made a 2021 revenue projection which projection the Company met.” 30 “In addition,” noted the motion court, “the record … indicate that the Company did disclose that it had pulled forward its surge in membership in other filings, and that this was in fact discussed on, among other things, an earnings call on April 29, 2020 … — approximately five months before the September, 2020 was issued and approximately six months before the October 2020 erger was consummated.” “Thus,” concluded the motion court, “it can not be said that the failure to disclose the timeline for growth in membership was material or would have otherwise affected the ‘total mix of information’ available to investors.” 31 Finally, the motion court rejected plaintiff’s argument that information from other sources could not be incorporated into the registration statement, finding that the complaint made “clear that membership did not decline. It had surged during the pandemic to 51.5 million members in a six-month period at the beginning of 2020 and it remained at 51.8 million at the end of 2020….” 32 “Thus,” concluded the motion court, “it not matter that the disclaimed that investors could not rely on information not incorporated into the [registration statement (as registration statements typically provide) because this alleged omission of interim membership rate growth and membership pipeline activity was not material and simply not actionable.” 33 Footnotes Item 303, 17 C.F.R. § 229.303. See also Litwin v. Blackstone Grp., L.P. , 634 F.3d 706, 716 (2d Cir. 2011). Item 105, 17 C.F.R. §229.105. See also Citiline Holdings, Inc. v. iStar Financial Inc. , 701 F. Supp. 2d 506, 514 (S.D.N.Y. 2010). 15 U.S.C. § 77k(a). Hutchison v. Deutsche Bank Sec. Inc. , 647 F.3d 479, 484 (2d Cir. 2011). Fed. Hous. Fin. Agency for Fed. Nat’l Mortg. Ass’n v. Nomura Holding Am., Inc. , 873 F.3d 85, 99 (2d Cir. 2017) (quoting, NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co. , 693 F.3d 145, 156 (2d Cir. 2012)). Basic Inc. v. Levinson , 485 U.S. 224, 236 (1988). Ganino v. Citizens Utils. Co. , 228 F.3d 154, 162 (2d Cir. 2000) (quoting, Basic , 485 U.S. at 231-32). In the Matter of Netshoes Sec. Litig. , 64 Misc. 3d 926 (Sup. Ct., N.Y. County 2019); Nadoff v. Duane Reade, Inc. , 107 Fed. App’x 250, 252 (2d Cir. 2004). In re Morgan Stanley Info. Fund Sec. Litig. , 592 F.3d 347, 359 (2d Cir. 2010). See 15 U.S.C. § 77k(e) (“ f the defendant proves that any portion or all of such damages represents other than the depreciation in value of such security resulting from , such portion of or all such damages shall not be recoverable.”). Fed. Hous. Fin. Agency , 873 F.3d at 154 (alterations and internal quotation marks omitted). Akerman v. Oryx Commc’ns, Inc. , 810 F.2d 336, 341 (2d Cir. 1987). Morgan Stanley , 592 F.3d at 359 (citing, 15 U.S.C. § 77l(a)(2)). Id. Id. (quoting 15 U.S.C. § 77l(a)(2)). Netshoes , 64 Misc. 3d at 933 (quoting, 15 U.S.C. §77m). Id. at 930. Benn v. Benn , 82 A.D.3d 548, 548 (1st Dept. 2011). Slip Op. at *2. Id. at **1, 4. Id. at *1. Id. Id. at n.1 (citations omitted). See also id. at *4. Id. (citation omitted). Id. at **1 and 4 (citing, American Pipe & Const. Co. v. Utah , 414 U.S. 538, 553-555 (1974)). Id. at **1 and 5. Id. at *1. Id. Id. Id. Id. (citations omitted). Id. Id. See also id. at *5. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber On August 23, 2023, the Appellate Division, Second Department issued two decisions that briefly touched upon fraud causes of action: Hershman v. Bank of N.Y. Mellon , 2023 N.Y. Slip Op. 04369 (2d Dept. Aug. 22, 2023) ( here ), and Hillary Dev., LLC v. Security Title Guar. Corp. of Baltimore , 2023 N.Y. Slip Op. 04370 (2d Dept. Aug. 23, 2023) ( here ). In Hershman , the Court affirmed the dismissal of a fraud claim for failure to state a claim, and in Hillary , the Court reversed the denial of a motion to dismiss fraud claims in a third-party action for, among other things, failure to allege an omission upon which the third-party plaintiff relied. Hershman v. Bank of N.Y. Mellon   In Hershman , plaintiff brought suit to recover damages for breach of contract and fraud in connection with a note that was secured by a mortgage on real property located in Tarrytown, New York (the “Property”). Plaintiffs executed the note in September 2005, which, as noted, was secured by a mortgage on the Property. In May 2016, the Bank of New York Mellon (“BNYM”), as the mortgagee’s alleged successor-in-interest, commenced an action to foreclose the mortgage (the “foreclosure action”). BNYM alleged, inter alia , that plaintiffs defaulted in making mortgage payments beginning on April 1, 2014. In December 2019, plaintiffs sued BNYM and the Bank of America (together, the “defendants”) to recover damages for breach of contract and fraud. Plaintiffs alleged, among other things, that on October 28, 2013, defendants, for the first time, paid real estate taxes on the Property which were not yet due. Plaintiffs further alleged that, starting on January 1, 2014, defendants unilaterally increased plaintiffs’ monthly mortgage payments to include escrow payments for real estate taxes, which was in breach of an agreement by which plaintiffs were to make no escrow payments if plaintiffs paid the real estate taxes.  Defendants moved, pursuant to CPLR 3211(a), to dismiss the operative complaint.  In an order dated March 10, 2021, the motion court, inter alia , granted those branches of defendants’ motion to dismiss the causes of action alleging breach of contract and fraud.  Plaintiffs appealed. As noted, the Second Department affirmed. The Court held that plaintiffs’ fraud claim duplicated their breach of contract claim: “Here, the allegations which form the basis of the cause of action alleging fraud are the same as those underlying the breach of contract cause of action.” The Court also held that plaintiffs failed to satisfy two of the elements of a fraud claim – a material misrepresentation upon which plaintiff justifiably relied: “Moreover, the plaintiffs failed to allege or provide details of any material misrepresentation made by the defendants or the plaintiffs’ justifiable reliance thereon.” “Accordingly,” concluded the Court, the motion court “properly granted that branch of the defendants’ motion which was pursuant to CPLR 3211(a)(7) to dismiss the cause of action alleging fraud for failure to state a cause of action.” Hillary Developer, LLC v. Security Title Guarantee Corp. of Baltimore Hillary was an action, inter alia , to recover damages for breach of contract. Relevant to today’s article was the fraudulent concealment claim that was asserted by defendant, third-party plaintiff, Naomi Cohen-Tsedek (“Cohen-Tsedek” or “third-party plaintiff”). On November 18, 2014, third-party plaintiff obtained a judgment against Steven Browd (“Browd”) in the amount of $269,145 (the “subject judgment”). The subject judgment was docketed with the County Clerk on the same date. At that time, Browd, also known as “Shraga Browd,” together with his wife, Sheyna Browd (“Sheyna”), owned certain real property located in Queens, New York (the “subject premises”). In 2019, Browd, under the name Shraga Browd, and his wife sold the subject premises to Hillary Developer, LLC (“plaintiff”). The subject judgment was not satisfied from the proceeds of the sale. Subsequently, upon learning that the subject premises had since been sold to a different buyer at a sheriff’s auction to satisfy the subject judgment, plaintiff commenced an action against, among others, Browd, Sheyna, and Cohen-Tsedek, as well as Security Title Guarantee Corporation of Baltimore (“Security Title”), the company which had issued plaintiff a title insurance policy with regard to its purchase of the subject premises. Plaintiff alleged that, at the time it purchased the subject premises, it did not know about the subject judgment. Third-party plaintiff interposed an answer that included, inter alia , third-party causes of action to recover damages for fraudulent concealment and prima facie tort asserted against SSS Settlement Services, LLC (“SSS Settlement”), which had acted as Security Title’s agent with regard to Security Title’s issuance of the title insurance policy. Third-party plaintiff alleged that, among other things, SSS Settlement had concealed the existence of the subject judgment and that Browd was also known as Shraga Browd. SSS Settlement moved, pursuant to CPLR 3211(a), to dismiss the third-party causes of action to recover damages for fraudulent concealment and prima facie tort insofar as asserted against it. Third-party plaintiff opposed the motion. In an order dated March 30, 2021, the motion court denied SSS Settlement’s motion. SSS Settlement appealed. The Second Department reversed. The Court held that third-party plaintiff failed to satisfy two of the elements of her fraudulent concealment claim – a material omission upon which the plaintiff justifiably relied: “Cohen-Tsedek failed to allege, inter alia , any material omission of fact by SSS Settlement or that she relied upon any such material omission.” The Court also held that third-party plaintiff failed to allege that “SSS Settlement owed her a duty to disclose the material information.” “Accordingly,” concluded the Court, the motion court “should have granted SSS Settlement’s motion pursuant to CPLR 3211(a) to dismiss the third-party causes of action to recover damages for fraudulent concealment … insofar as asserted against it.” Footnotes Slip Op. at *1 (citations omitted). To state a claim for fraud, a plaintiff must allege “a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury.” Global Mins. & Metals Corp. v. Holme , 35 A.D.3d 93, 98 (1st Dept. 2006). “Absent any of the elements, plaintiff does not have a prima facie case.” Id. Slip Op. at *1. Id. As discussed in note 2, above, to state a claim for fraud, a plaintiff must allege “a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury.” Global Mins. & Metals , 35 A.D.3d at 98. To sufficiently plead a cause of action to recover damages for fraudulent concealment, a plaintiff must also allege “that the defendant had a duty to disclose the material information.” Bannister v. Agard , 125 A.D.3d 797, 798 (2d Dept. 2015). Slip Op. at *2. Id. Id. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger Generally, folks borrow money to purchase real property.  Such loans are typically secured by a mortgage on the property being purchased.  The mortgage, when filed with the clerk of the county in which the property is located, creates a lien on the property.  Upon full payment of the underlying loan, the borrower expects that a mortgage satisfaction will be filed with the Clerk to release the lien of the mortgage from the property.  Indeed, RPAPL 1921(1) requires that, once a mortgage is paid in full, a lender must “execute and acknowledge before a proper officer, in like manner as to entitle a conveyance to be recorded, a satisfaction of mortgage, and thereupon within thirty days arrange to have the satisfaction of mortgage:  (a) presented for recording to the recording officer of the county where the mortgage is recorded, or (b) if so requested by the mortgagor or the mortgagor's designee, to the mortgagor or the mortgagor's designee.”  Failure of a mortgagee to provide such a satisfaction piece exposes the mortgagee to the financial penalties set forth in the statute.  See RPAPL 1921(1). The Appellate Division, on August 16, 2023, in Green Tree Servicing, LLC v. Ferando , had occasion to address the circumstance where a lender erroneously files a satisfaction of mortgage notwithstanding a balance due on the underlying loan.  The borrowers in Green Tree borrowed $260,000 from the lender and a mortgage securing the borrower’s repayment obligations under the loan was recorded in the office of the clerk of the county in which the property was located.  A few years later, the borrowers borrowed additional funds and delivered a second mortgage to the lender.  On the same day as the second loan, the borrowers entered into a consolidation, extension, and modification agreement (“CEMA”) pursuant to which the first and second mortgages, and the underlying notes, were consolidated into a single lien on the property.  The CEMA, and the consolidated note and mortgage, were duly recorded. Thereafter, however, the lender erroneously executed and recorded a full satisfaction of the first mortgage in the amount of $260,000.  In 2015, some nine years after the filing of the satisfaction, the lender commenced an action by which it sought to cancel and vacate the previously recorded satisfaction.  The motion court granted summary judgment to the lender and cancelled the satisfaction.  On the borrower’s initial appeal, the Second Department reversed “on the ground that the plaintiff failed to submit evidence establishing that the satisfaction of mortgage was erroneously or fraudulently issued.” The lender again moved for summary judgment and submitted evidence that the satisfaction was mistakenly issued and that, at the time the satisfaction was recorded, a significant balance remained due and payable to the lender.  Further, the borrowers continued to make payments on the consolidated loan for several years subsequent to the recording of the recorded mortgage satisfaction.  The motion court again granted the lender’s motion and the borrowers appealed. In affirming the motion court, the Second Department stated: Where, as here, balances of first mortgage loans are increased with second mortgage loans and CEMAs are executed to consolidate the mortgages into single liens, the first notes and mortgages still exist and may be assigned to other lenders. Thus, the mortgage was not extinguished by the borrowers’ execution of the CEMA. A mortgagee may have an erroneous discharge or satisfaction of mortgage set aside where the underlying mortgage debt has not been satisfied and there has not been any detrimental reliance on the erroneous recording.  Here, there are no allegations of detrimental reliance on the satisfaction of mortgage. Further, not contest the admissibility of the business records submitted by the in support of its motion for summary judgment.  Those records established that the mortgage has not been satisfied, that the balance due under the loan remains outstanding, and that the satisfaction of mortgage was erroneously issued. In opposition to the 's prima facie showing, failed to raise a triable issue of fact as to whether the satisfaction of mortgage was erroneously issued.  Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger Specific Performance is an equitable remedy used to compel a party to perform under a contract.  McGinnis v. Cowhey , 24 A.D.3d 629 (2 nd Dep’t 2005).  Specific Performance is frequently used to enforce a party’s rights under real estate contracts.  This Blog has previously discussed specific performance.  See, e.g. , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .    In EMF General Contracting Corp. v. Bisbee , 6 A.D.3d 45 (2004), the First Department set forth the elements of a specific performance claim: The elements of a cause of action for specific performance of a contract are that the plaintiff substantially performed its contractual obligations and was willing and able to perform its remaining obligations, that defendant was able to convey the property, and that there was no adequate remedy at law. *     *     * Generally, the equitable remedy of specific performance is routinely awarded in contract actions involving real property, on the premise that each parcel of real property is unique. EMF , 774 N.Y.S.2d at 44 (citations omitted).   While money damages in an action at law may “afford a full and complete remedy” to make a plaintiff whole in the event of a contractual breach, such is not always the case.  Le Bel v. Donovan , 96 A.D.3d 415 (1 st Dep’t 2012) (citation and internal quotation marks omitted).  Frequently, remedies for breach of contract other than monetary damages are necessary to make a party whole.  Specific performance is an equitable remedy that requires the breaching party to perform under the contract instead of an award of monetary damages.  Accordingly, specific performance “will not be ordered where money damages would be adequate to protect the expectation interests of the injured party,” Sokoloff v. Harriman Estates Development Corp. , 96 N.Y.2d 409, 415 (2001) (citations and internal quotation marks omitted), and is appropriate where “‘the subject matter of the particular contract is unique and has no established market value.’”  BT Triple Crown Merger Co., Inc. v. Citigroup Global Markets Inc. , 19 Misc. 3d 1129, *8 (NOR) (Sup. Ct. N.Y. Co. 2008) (quoting Van Wagner Advert. Corp. v. S&M Enters. , 67 N.Y.2d 186, 193 (1986)).  “The point at which breach of a contract will be redressable by specific performance thus must lie not in any inherent physical uniqueness of the property but instead the uncertainty of valuing it….”  Van Wagner , 67 N.Y.2d at 193.  The Sokoloff Court also stated that: The decision whether or not to award specific performance is one that rests in the sound discretion of the trial court. In determining whether money damages would be an adequate remedy, a trial court must consider, among other factors, the difficulty of proving damages with reasonable certainty and of procuring a suitable substitute performance with a damages award ( see, Restatement of Contracts § 360). Specific performance is an appropriate remedy for a breach of contract concerning goods that “are unique in kind, quality or personal association” where suitable substitutes are unobtainable or unreasonably difficult or inconvenient to procure ( see, id., comment c ). Sokoloff , 96 N.Y.2d at 415. It is generally accepted that “the equitable remedy of specific performance is routinely awarded in contract actions involving real property, on the premise that each parcel of real property is unique.”  Alba v. Kaufman , 27 A.D.3d 816, 818 (3 rd Dep’t 2006) (citations and internal quotation marks omitted).   On July 26, 2023, the Appellate Division, Second Department, decided Herman v. 818 Woodward, LLC , a specific performance case.  In Herman , buyer and seller entered into a contract for the purchase/sale of two parcels of property.  The contract price was $6,100,000, and buyer made a $450,000 down payment upon the execution of the contract.  The contract had an “on or about” sale date of January 10, 2020.  Additionally, the contract provided that if buyer breached the contract and failed to cure after notice of the default, seller could terminate the contract and retain the down payment.  After 60 days, seller set a “time of the essence” closing date and buyer failed to appear.  [Eds. Note: this Blog has discussed “time of the essence” closings < here =">here"> and < here =">here"> .]  Seller sent a notice to cure, but buyer failed to do so. Buyer commenced an action for specific performance.  Seller moved to dismiss the complaint and the motion court “in effect, granted the motion to the extent of directing that a closing take place within 30 days and that failure to close within this time frame would result in dismissal of the complaint.”  Both parties appealed. The Second Department modified the decision of the motion court by granting the motion to dismiss without permitting a closing to occur within 30 days.  Initially, the Court noted that because the motion court considered “evidentiary material without converting the motion to dismiss to one for summary judgment, must … determine whether the proponent of the pleading has a cause of action, as opposed to whether one was stated.”  (Citations omitted.) After stating the elements of a cause of action for specific performance, the Court noted that “there is no significant dispute as to the relevant facts.” On March 13, 2020, seller sent buyer a letter setting an April 13, 2020, closing date and clearly stating that that “time was of the essence that the buyer’s failure to close on April 13, 2020, would constitute a breach and willful default under the contract, which would entitle the to any and all available remedies, including the retention of the down payment as liquidated damages.”  The April 13 closing date was rejected by buyer, who indicated that he would, instead, close on April 20, 2020.  Thereafter, buyer attempted to reject the April 20, 2020, closing, but subsequently agreed to close remotely on that date due to the COVID-19 pandemic.  On April 20, 2020, however, buyer again attempted to reject the April 20 closing due to the pandemic.  Nonetheless, seller appeared with a stenographer at a video conference to conduct the closing at which, after waiting five hours, seller’s representative swore under oath that he was “authorized and prepared to sign the deed and other documents to complete the sale.” Seller sent a notice to cure advising buyer of his default and providing buyer with an opportunity to cure by delivering the balance of the purchase price by May 11, 2020.  On April 27, 2020, buyer sent a letter to seller rejecting the notice to cure and claiming that he was not in default.  In rejecting buyer’s cause of action for specific performance, the Second Department stated: Under the circumstances here, the buyer does not have a cause of action for specific performance. Although time was not made of the essence in the contract, the defendants subsequently provided valid notice that time was of the essence insofar as the notice: (1) gave clear, distinct, and unequivocal notice that time was of the essence, (2) gave the buyer a reasonable time in which to act, and (3) informed the buyer that if he did not perform by the designated date, he would be considered in default. What constitutes a reasonable time for performance depends upon the facts and circumstances of the particular case. Although the determination of reasonableness is usually a question of fact, it may become a question of law where, as here, there is no dispute as to the facts. Contrary to the buyer’s contention, he had a reasonable amount of time to perform, where, among other things, he had approximately 62 days to close from the initial closing date. Because he failed to close after the notice to cure was sent, the defendants were entitled, pursuant to the contract, to terminate the contract and retain the down payment as liquidated damages. Further, the parties’ submissions clearly demonstrate that the buyer did not substantially perform his contractual obligations, and was not ready, willing, and able to perform his remaining obligations. His allegations that he remained ready, willing, and able to close and had fulfilled all of his obligations under the contract are bare legal conclusions, which are not presumed to be true.  Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber On numerous occasions, this Blog has examined the attorney-client privilege and the attorney work product doctrine. 1 Today, we take another opportunity to explore the contours of these privileges. The Tension Between Disclosure and The Attorney-Client Privilege The Civil Practice Law and Rules (“CPLR”) directs that there shall be “full disclosure of all matter material and necessary in the prosecution or defense of an action.” 2 Notwithstanding, the CPLR establishes three categories of materials protected from disclosure: privileged matter, which is afforded absolute immunity from discovery; 3 attorney work product, which is also afforded absolute immunity 4 ; and trial preparation material, which is subject to disclosure only on a showing of substantial need and undue hardship in obtaining substantially equivalent material by other means. 5 As the Court of Appeals noted, there exists an obvious tension between the policy favoring full disclosure and the policy permitting parties to withhold relevant information. 6 Consequently, the burden of establishing any right to protection is on the party asserting it; the protection claimed must be narrowly construed; and its application must be consistent with the purposes underlying immunity. 7 The burden cannot be satisfied by conclusory assertions of privilege. Rather, the proponent of the privilege must set forth competent evidence establishing the elements of the privilege. 8 The attorney-client privilege is the oldest among common-law evidentiary privileges. 9 It is intended to foster open and candid dialog between lawyer and client and is deemed essential to effective representation. 10 In order for the privilege to apply, the communication from attorney to client must be made for “the purpose of facilitating the rendition of legal advice or services, in the course of a professional relationship.” 11 The communication itself must be primarily or predominately of legal character. 12 Communications Protected From Disclosure The attorney-client privilege insulates from disclosure a discreet category of communications between attorney, client, and, in some instances, third parties that assist the attorney to formulate and render legal advice. 13 The privilege does not apply merely because a statement was uttered by or to an attorney (or an attorney’s agent). Nor does it attach simply because a statement conveys advice that is legal in nature. 14 The privilege is not limited, however, to communications directly between the client and counsel. It also encompasses communications between attorney and a client’s agent or representative provided that the communications are intended to facilitate the provision of legal services by the attorney to the client. 15 It does not, however, protect communications between a nonlawyer and a client that involve the conveyance of legal advice offered by the nonlawyer, except when the nonlawyer is acting under the supervision or the direction of an attorney. 16 Moreover, the privilege protects from disclosure communications among corporate employees that reflect advice rendered by counsel to the corporation. 17 “A privileged communication should not lose its protection if an executive relays legal advice to another who shares responsibility for the subject matter underlying the consultation.” 18 This follows from the recognition that since the decision-making power of the corporate client may be diffused among several employees, the dissemination of confidential information to such persons does not defeat the privilege. 19 The Attorney Work Product Doctrine The attorney work product doctrine protects those materials prepared by an attorney, acting as an attorney and which contain the attorney’s analysis and trial strategy. 20 The work product of an attorney consists of interviews, statements, memoranda, correspondence, briefs, mental impressions, personal beliefs, and other tangible and intangible things. 21 As with the attorney client privilege, the burden of showing that material is protected under the doctrine is on the party asserting the protection. 22 Conclusory assertions that documents constitute attorney work product or material prepared for litigation will not suffice. 23 In West 87 LP v. Paul Hastings LLP , 2023 N.Y. Slip Op. 50821(U) (Sup. Ct., N.Y. County Aug. 4, 2023) (here), the foregoing principles were considered by the court in ruling on a motion for a protective order to prevent the disclosure of documents and information deemed to be privileged. West 87 LP v. Paul Hastings LLP West 87 involved a claim of legal malpractice. The action was brought by West 87 LP, on its own behalf and as assignee of QSB 267 Property Co. LLC, QSB 267 Holdings LLC, Simon Baron Development LLC and JSMB 267 LLC (“plaintiffs”).  Plaintiffs were a group of limited liability companies that owned or controlled various aspects of a real estate development project located on West 87th Street in New York City. Defendant purportedly represented plaintiffs in the execution of lease agreements for the project. Plaintiffs alleged that defendant failed to properly analyze and draft a rent escalation clause in a ground lease for the development. The parties engaged in discovery, pursuant to which they produced documents that contained communications between defendant and plaintiffs’ nonparty owner-entities Quadrum Global and Simon Baron Development Inc. At issue was certain correspondence between plaintiffs and other entities purportedly employed by plaintiffs for legal representation. Plaintiffs made 87 privilege designations over the communications. Plaintiffs maintained that the communications were protected by the attorney-client privilege, the attorney work product privilege, and the litigation privilege. Defendant challenged 82 of the designations, which involved 32 documents.  The withheld documents fell into five categories of records. The first category involved communications between representatives of nonparty developer Quadrum Global and plaintiff Simon Baron Development. The communications purportedly conveyed information provided by outside legal counsel. The second category of documents related to information obtained from outside legal counsel for the purposes of evaluating legal claims against defendants, and the third and fourth categories pertained to communications regarding the drafting of the malpractice complaint. The fifth and final category of documents reflected discussions regarding prior and anticipated legal advice, and requests for legal advice relevant to the evaluation of claims in the litigation. Plaintiffs moved for a protective order exempting the 32 documents from disclosure.  In seeking protection, plaintiffs conceded that the majority of the disputed documents did not include legal counsel as senders or recipients on the communications. Rather, the senders were businesspersons who, at some point during the communication, referenced legal advice allegedly provided by counsel. Despite not having legal counsel as a participant in a majority of the communications at issue, plaintiffs nonetheless asserted that either the attorney-client privilege, the attorney work product privilege, or the trial preparation privilege applied. The motion court conducted an in-camera review of the documents. In doing so, the motion court found that “a number of documents contain communications made by corporate representatives of plaintiff Simon Baron Development which convey legal instruction or advice.” 24 As such, the motion court concluded that those documents were protected by the attorney client privilege. 25 A number of the withheld documents, however, contained information regarding purported legal advice provided to plaintiffs, but communicated through third-party entities who, plaintiffs admitted, were not attorneys and not parties to the litigation. The motion court held that these documents were privileged under the common interest doctrine. 26 Pursuant to the common interest doctrine, attorney-client communications disclosed to a third party remain privileged if shared with parties of common legal interest in pending or anticipated litigation. 27 The motion court found that the entities referenced in the withheld communications were interrelated, and the communications at issue “were made for the purpose of discussing the pending litigation, strategies for addressing the litigation, or for preparation of relevant materials for the litigation.” 28 As such, the communications between plaintiffs, nonparty entities and non-lawyers were privileged and protected “by virtue of the entities’ common legal interests in the prosecution of th action.” 29 Finally, with respect to plaintiffs’ claim of work product privilege, some of the communications were made for the purpose of preparing materials to assist in anticipated litigation, while a number of documents reflected the production of engagement letters and invoices. As to the latter ( i.e. , retention and engagement letters), the motion court held that such materials were discoverable. 30 The motion court also held that “ mails merely reflecting the production of invoices and engagement letters generated by defendant should not have been withheld.” 31 Footnotes We examined these privileges, for example, here , here , here , here , here , and here . CPLR § 3101(a). CPLR § 3101(b). CPLR § 3101(c). CPLR § 3101(d)(2); see also Spectrum Sys. Intl. Corp. v. Chemical Bank , 78 N.Y.2d 371 (1991). Spectrum Sys. , 78 N.Y.2d at 377. Id. ; Matter of Priest v. Hennessy , 51 N.Y.2d 62, 69 (1980); Matter of Jacqueline F. , 47 N.Y.2d 215 (1979). Delta Fin. Corp. v. Morrison , 15 Misc. 3d 308, 316-17 (Sup. Ct., Nassau County 2007); see also Martino v. Kalbacher , 225 A.D.2d 862 (3d Dept. 1996). 8 Wigmore, Evidence § 2290 (McNaughton rev. 1961). See Matter of Vanderbilt (Rosner—Hickey) , 57 N.Y.2d 66 (1982). Rossi v. Blue Cross & Blue Shield of Greater N.Y. , 73 N.Y.2d 588, 593 (1989). Id. at 594. See United States v. Kovel , 296 F.2d 918, 922 (2d Cir. 1961); see also Westinghouse Elec. Corp. v. Republic of Philippines , 951 F.2d 1414, 1424 (3d Cir. 1991). See HPD Labs., Inc. v. Clorox Co. , 202 F.R.D 410 (D.N.J. 2001). Delta Fin. , 15 Misc. 3d at 316-17 (citations omitted). Id. (citations omitted). Id. (citations omitted). See SCM Corp. v. Xerox Corp. , 70 F.R.D 508, 518 (D. Conn. 1976). Id. (citation omitted). See Weinstein-Korn-Miller , N.Y. Civ. Prac. ¶ 3101.44 (2d ed.); see also Aetna Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s , 263 A.D.2d 367 (1st Dept. 1999). Hickman v. Taylor , 329 U.S. 495 (1947). See generally Koump v. Smith , 25 N.Y.2d 287 (1969). See Salzer v. Farm Family Life Ins. Co. , 280 A.D.2d 844 (3d Dept. 2001); Zimmerman v. Nassau Hosp. , 76 A.D.2d 921 (2d Dept. 1980). Slip Op. at *3 (citing, Delta Fin. , 15 Misc. 3d at 316-17). Id. Id. Ambac v. Countrywide , 27 N.Y.3d 616, 620 (2016). Slip Op. at *3. Id. Id. (citing, In re Nassau Cnty. Grand Jury Subpoena Duces Tecum , 4 N.Y.3d 665, 679 (2005); Matter of Priest , 51 N.Y.2d at 69). Id. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.