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By: Jeffrey M. Haber “The right to a trial by jury is governed by article I (§ 2) of the New York State Constitution,” which provides “that a ‘ rial by jury in all cases in which it has heretofore been guaranteed by constitutional provision shall remain inviolate forever.’” 1 Enacted in 1938, “ his provision, …, is generally interpreted to mean that the guarantee extends to all matters to which the prior Constitution, enacted in 1894, extended the guarantee.” 2 “This includes all matters to which a constitutional right attached at the time of adoption of the first Constitution in 1777, i.e. , matters traditionally triable before a jury in a court of law or to which the right had been extended by statute prior to 1777, as well as any matters as to which a right to trial by jury was created by statute between 1777 and adoption of the 1894 Constitution.” 3 Article I (§ 2) of the New York State Constitution also provides that the right to a jury trial “may be waived by the parties in all civil cases in the manner to be prescribed by law.” Section 4101 of the Civil Practice Law and Rules (“CPLR”) provides that the party may demand a jury trial in cases where: (a) the facts set forth in the action “would permit a judgment for a sum of money only”; (b) the party demanding a jury trial files “an action of ejectment; for dower; for waste; for abatement of and damages for a nuisance”; (c) the demanding party files an action “to recover a chattel; or for determination of a claim to real property under article fifteen of the real property actions and proceedings law”; and (d) the demanding party files “any other action in which party is entitled by the constitution or by express provision of law to a trial by jury.”  Not surprisingly, issues arise with regard to the right to a jury trial when the pleading party asserts both legal and monetary claims. When, as in Pelletier v. Morgan , 2023 N.Y. Slip Op. 04167 (1st Dept. Aug. 3, 2023) ( here ), “the complaint either joins legal and equitable causes of action arising out of the same alleged wrong or seeks both legal and equitable relief, there is a waiver of a plaintiff’s right to a jury trial.” 4 “However, the right to a jury trial is to be determined by the facts alleged in the complaint and not by the prayer for relief.” 5 Indeed, “ he fact that plaintiff is seeking money damages ‘does not, in and of itself, guarantee entitlement to a jury trial.’” 6 Thus, “ here a plaintiff alleges facts upon which monetary damages alone will afford full relief, inclusion of a demand for equitable relief in the complaint’s prayer for relief will not constitute a waiver of the right to a jury trial.” 7 Notably, the party seeking a jury trial cannot reclaim the right by withdrawing equitable claims or requests for equitable relief. “Once the right to a jury trial has been intentionally lost by joining legal and equitable claims, any subsequent dismissal, settlement or withdrawal of the equitable claim(s) will not revive the right to trial by jury.” 8 Against this background, we examine Pelletier v. Morgan . Plaintiff entered into a land contract with defendant Morgan Shedlock LLC and defendant Robert J. Morgan, the managing member of Morgan Shedlock, to purchase two parcels of land in Tompkins County, New York. Under the contract, plaintiff agreed to make certain monthly payments. Plaintiff further agreed that if she defaulted on the payments, Morgan Shedlock could accelerate the debt and then, if plaintiff failed to make full payment, retain her prior payments as rent and commence an eviction proceeding against her.  Plaintiff subsequently defaulted. Rather than proceeding through the eviction process, the parties entered into a termination agreement, waiving any claims arising out of the land contract against the other. In return, plaintiff committed to vacating the premises, which defendants would be entitled to possession at such time. Thereafter, plaintiff commenced the action seeking, among other things, declaratory and injunctive relief, including recission of the termination agreement and damages relating to defendants’ efforts to eject her from the property.  Following service of an amended complaint, defendants served an amended answer and moved for partial summary judgment. The motion court denied the motion, which the Appellate Division, Third Department affirmed. 9 Thereafter, plaintiff filed a note of issue demanding a trial by jury. Defendants moved to strike the note of issue, which was opposed by plaintiff. The motion court granted the motion. Plaintiff appealed. The Third Department affirmed. The Court held that plaintiff “waived her right to a jury trial” because she “joined legal and equitable causes of action arising out of the same transaction — the execution of the termination agreement.”10 In so holding the Court rejected plaintiff’s contention that she could be made whole “solely by a monetary judgment”: “Inasmuch as plaintiff seeks recission of that termination agreement and a declaration that she is the rightful owner of the subject property, contrary to her contention, her relief cannot be obtained solely by a monetary judgment.”11 The Court further rejected plaintiff’s contention that her claims for recission of the termination agreement and a declaration that she was the rightful owner of the subject property were incidental to her claims for monetary damages. 12 “Indeed,” said the Court, “plaintiff acknowledged in two of her causes of action that she did not have an adequate remedy at law.” 13 Takeaway Litigants should be mindful of the possibility of a waiver. Pelletier highlights the ease with which a party can waive a jury trial. This is especially true when, as in Pelletier, the pleading party asserts legal and equitable claims, such as rescission, arising from a single transaction. Footnotes Hudson View Assocs. v. Gooden , 222 A.D.2d 163, 165 (1st Dept. 1996). Id. Id. (citations omitted). Errant Gene Therapeutics, LLC v. Sloan-Kettering Inst. for Cancer Research , 176 A.D.3d 459, 459 (1st Dept. 2019), lv. dismissed , 35 N.Y.3d 1060 (2020); Matter of Briere v. City of Schenectady , 201 A.D.3d 1189, 1190 (3d Dept. 2022); Margesson v. Bank of N.Y. , 291 A.D.2d 694, 698 (3d Dept. 2002). Hebranko v. Bioline Labs., Inc. , 149 A.D.2d 567, 568 (2d Dept. 1989) (citations omitted). Aroch v. 391 Broadway LLC , 203 A.D.3d 642, 642 (1st Dept. 2022) (quoting, Phoenix Garden Rest. v. Chu , 234 A.D.2d 233, 234 (1st Dept. 1996)). Id. (citing, Murphy v. American Home Prods. Corp. , 136 A.D.2d 229, 232 (2d Dept. 1989)). See Anesthesia Assoc. of Mount Kisco, LLP v. Northern Westchester Hosp. Ctr. , 59 A.D.3d 481, 482 (2d Dept. 2009). See 215 A.D.3d 1153 (3d Dept. 2023). Slip Op. at *1. Id. (citations and footnote omitted). Id. at *2 (citations omitted). 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 This Blog has recently written on the issue of contractual limitations of liability.  < Here =">Here"> Proving that timing is everything, Jonathan H. Freiberger, one of Freiberger Haber LLP’s founding members, was interviewed for, and quoted in, an August 1, 2023, article appearing in Hotel News Now, titled: “Is Extreme Tourism Responsible Tourism? Hotels Catering to Adventurous Guests Seek to Limit Liability Exposure.”  Hotel News Now is a vital, daily source of news for hotel decision makers. Hotel News Now is a division of CoStar News and always free to read. Click here to subscribe to HNN’s Daily Update and biweekly EMEA (Europe, Middle East and Africa) e-newsletters. (Link: https://www.costar.com/subscribe-hotel-news-now-newsletters ) The article, which was originally published at Hotel News Now, is reprinted in its entirety with permission from Hotel News Now.   The article was written by Leora Halpern Lanz. Is Extreme Tourism Responsible Tourism? Hotels Catering to Adventurous Guests Seek To Limit Liability Exposure There has been much talk recently about “extreme tourism” — particularly in light of the catastrophic implosion of the OceanGate's Titan vessel, bringing four passengers and the company’s CEO to their tragic, and likely avoidable, deaths. “Extreme tourism,” sometimes called “shock tourism,” can be defined as a form of travel that involves a sense of danger — such as adventure in jungles, deserts, caves, canyons or in today’s times: space and the bottom of the ocean floor. In the case of the Titan submersible, this particularly expensive and very extreme adventure is one that had an element of “look what I can do that others can’t do.” But it also may have had an element of altruism for the passengers aboard — the ability to explore and learn from the newly developed ecosystems at the wreckage site of the Titanic. Was this specific experience intended as an educational eco-tourism opportunity, or did it naturally also attract a status of significance because the passengers were able to afford this? It’s been shared that the high prices of these adventures also help with funding future explorations. By the way, I would not classify all eco-tourism as “extreme tourism.” These terms are not, and should not be, interchangeable. Are these extreme experiences truly eco-educational in nature, though only a select few can afford them? Will the tragedy of the Titan stop other individuals from pursuing extreme thrills or experiences? And will this disaster encourage regulation and policies to better prioritize safety and protect human lives? As USA Today pointed out in a post-event article, OceanGate CEO Stockton Rush had been quoted saying “safety was a pure waste.” His public downplaying of safety, coupled with the exorbitant fees, didn’t stop these individuals from participating in the excursion, one in which the waiver mentions “death” three times on its first page — as reported in MSN.com among other news outlets. Will this June 18 tragedy conclude the existence of OceanGate? It has . To have survived, the company would have needed to prove it values life and would have needed to greatly boost safety measures. It may even have had to change its name.  In the meantime, other high-risk adventures continue. Victor Viscovo, who founded Caladan Oceanic , and was quoted in the Dallas Morning News as not being deterred by the Titan tragedy, charges willing passengers $750,000 to submerge to the Mariana Trench, almost seven miles to the bottom of the Pacific. Space Perspective aims to bring people, by the end of next year, on a ride with a futuristic hot air balloon, up 100,000 feet in the air, for a mere $125,000. As technology improves, and the public awareness of so many of these once-in-a-lifetime experiences continues, and as personal wealth grows, the demand for extreme adventure will only continue. It may pause now in light of the Titan incident, but I imagine this pause will be short as individuals continue to find meaningful, once-in-a-lifetime, activities for their once-in-a-lifetime memories. Hotels Also Provide These Extreme Experiences One of the more renowned extreme hotels is the Icehotel in Sweden. Every winter, since 1989, this hotel situated 200 kilometers north of the Arctic Circle is rebuilt from ice and snow. Artists and sculptors from all over the world assemble to rebuild the hotel annually. Guests sleep on ice beds topped with reindeer skins and the hotel recommends guests only stay one night. Guests enjoying the Skylodge Adventure Suites in Peru can only bring what they can carry 400 meters up a mountain. To arrive in the transparent pods, which have 300-degree views of Sacred Valley, guests must hike and zipline or mountain climb to reach the guestrooms which hang off the side of the visibly perilous mountainside. And the underwater guestroom of the Manta Resort in Zanibar, Tanzania, is anchored among the coral with a submerged bedroom, sea-level living area and elevated stargazing deck. Meals are delivered to the isolated floating hotel room at set times; guests simply enjoy the solitude — for approximately $2,000 per night. Hotels and other operators frequently seek to minimize their exposure to liability by having adventurers acknowledge the risks of participating in extreme experiences by signing waivers. Risk management typically revolves around liability waivers and insurance. The efficacy of a waiver and the availability of insurance may be subject to their “duty of care.” Hotels and operators should be mindful of their obligations to adventurers in order to obtain the maximum benefits of their waivers and/or insurance. “In the event of an injury during extreme activities, hotels and operators should assume that litigation will follow, despite the existence of signed waivers and, accordingly, they should strive to put themselves in the best position to successfully defend against such claims,” said Jonathan Freiberger , founding partner of Freiberger and Haber, LLP, a New York-based law firm that has worked with hotels in New York and Florida. “In many cases, this can be done by utilizing waivers that are drafted to maximize the protections available to the hotel or operator.” “Insurance policies should also be reviewed carefully because general liability policies frequently exclude coverage for grossly negligent, reckless and/or intentional behavior,” he said. Hotels and operators should discuss the intended activities with their brokers and/or the carriers themselves to determine if the intended adventures would be covered and/or what, if any, safety protocols need to be followed to avoid denials of coverage in the event of an accident. Leora Halpern Lanz, ISHC is the assistant dean of academics at Boston University’s School of Hospitality Administration, associate professor of the Practice, and a member of ISHC. The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or CoStar Group and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to contact an editor with any questions or concerns. 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 Defamation is broadly defined as any false statement that harms the reputation of a person, business, or organization. It is a false statement “‘that tends to expose a person to public contempt, hatred, ridicule, aversion or disgrace.’” 1 Defamation includes both libel and slander. Libel generally refers to defamatory statements that are published or broadcast in writing, while slander refers to statements that are verbally made. To state a cause of action for defamation, a plaintiff must allege “a false statement, published without privilege or authorization to a third party, constituting fault as judged by, at a minimum, a negligence standard, and it must either cause special harm or constitute defamation per se.” 2 “Since falsity is a necessary element of a defamation cause of action and only ‘facts’ are capable of being proven false, … only statements alleging facts can properly be the subject of a defamation action.” 3 “A defamatory statement of fact is in contrast to ‘pure opinion’ which … is not actionable because ‘ xpressions of opinion, as opposed to assertions of fact, are deemed privileged and, no matter how offensive, cannot be the subject of an action for defamation.’” 4 “While a pure opinion cannot be the subject of a defamation claim, an opinion that implies that it is based upon facts which justify the opinion but are unknown to those reading or hearing it, … is a mixed opinion and is actionable.” 5 “This requirement that the facts upon which the opinion is based are known ‘ensure that the reader has the opportunity to assess the basis upon which the opinion was reached in order to draw own conclusions concerning its validity.’” 6 “What differentiates an actionable mixed opinion from a privileged, pure opinion is ‘the implication that the speaker knows certain facts, unknown to audience, which support opinion and are detrimental to the person’ being discussed.” 7 “Distinguishing between fact and opinion is a question of law for the courts, to be decided based on ‘what the average person hearing or reading the communication would take it to mean.’” 8 A false statement constitutes defamation per se where, as relevant in Miserendino v. Cai , 2023 N.Y. Slip Op. 04031 (4th Dept. July 28, 2023) ( here ), the statement “charge a person with committing a serious crime or … would tend to cause injury to a person’s profession or business.” 9 “A statement imputing incompetence or dishonesty to the plaintiff is defamatory per se if there is some reference, direct or indirect, in the words or in the circumstances attending their utterance, which<, as in miserendino ,> miserendino,> connects the charge of incompetence or dishonesty to the particular profession or trade engaged in by plaintiff.” 10 “Whether particular statement[ is] considered defamatory per se is a question of law.” 11 As noted above, the statement claimed to be defamatory cannot be privileged. There are two types of privilege relevant to a defamation claim: absolute and qualified.  “Absolute privilege … entirely immunizes an individual from liability in a defamation action [] regardless of the declarant’s motives.” 12 It is “generally reserved for communications made by ‘individuals participating in a public function, such as judicial, legislative, or executive proceedings.’” 13 “The absolute protection afforded such individuals is designed to ensure that their own personal interests—especially fear of a civil action, whether successful or otherwise—do not have an adverse impact upon the discharge of their public function.” 14 “On the other hand, a statement is subject to a qualified privilege when it ‘is fairly made by a person in the discharge of some public or private duty, legal or moral, or in the conduct of his own affairs, in a matter where his interest is concerned.’” 15 Circumstances in which a qualified privilege may apply include statements made in self-defense or to protect the safety of others, statements by an employer to a former employee’s prospective employer, communications made by an individual to a law enforcement officer, 16 communications made to persons who share a common interest in the subject matter, 17 and reports of official proceedings. “When subject to this form of conditional privilege, statements are protected if they were not made with ‘spite or ill will’ or ‘reckless disregard of whether false or not’ … , i.e. , malice.” 18 The plaintiff bears the burden of proving the speaker acted with malice. 19 “Whether allegedly defamatory statements are subject to an absolute or a qualified privilege depend on the occasion and the position or status of the speaker …, a complex assessment that must take into account the specific character of the proceeding in which the communication is made.” 20 “In judicial proceedings<,> the protected participants include the Judge, the jurors, the attorneys, the parties and the witnesses,” who are granted the protection of absolute privilege “for the benefit of the public, to promote the administration of justice, and only incidentally for the protection of the participants.” 21 “The immunity does not attach solely because the speaker is a Judge, attorney, party or a witness, but because the statements are … spoken in office.” 22 Thus, for example, “statements made by counsel and parties in the course of ‘judicial proceedings’ are privileged as long as such statements ‘are material and pertinent to the questions involved … irrespective of the motive’ with which they are made.” 23 The Court of Appeals has nonetheless “reiterated that s a matter of policy, the courts confine absolute privilege to a very few situations.” 24 here.=">here."> Against the foregoing principles, we examine Miserendino v. Cai . Background Plaintiffs, Joy E. Miserendino (“Miserendino”) and her law firm, commenced the action against defendants, John J. Cai (“Cai”) and his cardiology medical practice, seeking damages for alleged defamatory statements that Cai – who had been romantically involved with Miserendino and had also performed work for her law firm – made about Miserendino after their relationship ended.  During their relationship, Miserendino was counsel in a matter pending in the U.S. District Court for the Western District of New York, titled Blake v. United States (“Blake”). Blake was purportedly a high-value lawsuit.  During the Blake litigation, opposing counsel inadvertently disclosed certain documents that were protected and should not have been turned over. Miserendino claimed that she notified opposing counsel of the issue and returned the documents without making use of the information contained in the documents. Since the parties were in a relationship, Miserendino told Cai about receiving and returning the documents from opposing counsel in the Blake action. As the relationship began to sour, Cai claimed that Miserendino owed him a substantial sum of money. To induce Miserendino to repay the money, Cai allegedly threatened to undermine Miserendino’s career and livelihood by defaming her reputation and position in her career, in particular in the Blake action .  In that regard, Cai allegedly put the Blake verdict “on the line” by sending the judge overseeing the case a letter accusing Miserendino of acting illegally and unethically by intentionally using documents that “belong to the defense attorney and U.S. government.” In his letter, Cai stated that Miserendino had “possession” of these documents, stating that the original documents were held in his possession. Cai also stated that Miserendino “used these documents during the trial and the submission of arguments.”  The Court in Blake did not “consider[]” the letter in issuing its decision. Separately, Cai allegedly made defamatory statements about Miserendino to her former law partner with whom Miserendino was in litigation concerning the distribution of fees earned by their prior, co-owned law firm. At a meeting Cai arranged during the pendency of that litigation, Cai allegedly advised the former law partner that Miserendino had dissipated the fee recovered in a case that originated with the co-owned law practice, that Miserendino was hiding money and frequently used a money transfer company to send money elsewhere. Cai stated that Miserendino was “manipulative and ethically ‘sketchy.’” Shortly after the meeting, the former law partner used Cai’s alleged oral statements as the basis for his request in the pending litigation against Miserendino for the appointment of a temporary receiver and for injunctive relief.  Defendants moved for summary judgment. The motion court granted the motion. On appeal, the Fourth Department unanimously reversed. The Fourth Department’s Decision With regard to the statements Cai allegedly made to Miserendino’s former law partner, the Court held that the motion court erred in determining that the statements “constituted pure opinion and were thus not actionable as a matter of law.” 25 The Court found that the statements contained mixed statements of fact and opinion and, therefore, were actionable: We conclude on this record that, “ lthough comments were mixed statements of opinion and fact, the could reasonably infer, in light of working relationship with , that such statements were ‘based upon certain facts known to that are undisclosed to the and are detrimental to .’”< 26 > 26>  With regard to the letter that Cai wrote to the judge in the Blake action, the Court held that the statements in the letter were actionable: Upon “look to the over-all context in which the assertions were made” and “consider the content of the as a whole, as well as its tone and apparent purpose,” which was serious and seemingly designed to alert the federal judge to purported wrongdoing, we conclude that “ ‘the reasonable reader would have believed that the challenged statements were conveying facts about … plaintiff ’ ” …, namely, that plaintiffs actually retained possession of documents containing confidential information that had been inadvertently disclosed by opposing counsel in the federal case and that plaintiffs had used such documents to their advantage during the course of litigating the federal case.< 27 > 27>   Having determined that the statements made to the former law partner and the judge in the Blake action were actionable, the Court concluded that Plaintiff stated a claim for defamation per se. 28 In this regard, the Court explained that the statements were “‘actionable as words that tend to injure another in his or her profession’ inasmuch as the statements ‘more than a general reflection upon character or qualities’ and, instead, ‘reflect on her performance or incompatible with the proper conduct of her business ’ as an attorney operating law practices.” 29 The Court further held that the statements in the letter were not absolutely privileged and there were issues of fact as to whether the statements were protected by a qualified privilege. As to the absolute privilege, the Court found that the absolute privilege did not apply to Cai because he “was not a party, a witness, or an attorney in the federal case.” 30 “ lthough may have performed some work on plaintiffs’ behalf during the course of the federal case,” said the Court, “his professional and personal relationship with Miserendino had ended months before his submission of the letter to the federal judge.” 31 Thus, Cai “had no ‘office’ in the judicial proceedings and therefore … was not entitled to the immunity received by those who did,” concluded the Court. 32 As to the qualified privilege, the Court found that there were issues of fact as to whether Cai’s statements were motivated by malice:  e conclude that plaintiffs’ submissions—including Miserendino’s sworn statement that she had informed Cai prior to his submission of the letter that she had returned any confidential information inadvertently disclosed by opposing counsel in the federal case and text messages in which Cai arguably threatened Miserendino’s career and livelihood by alluding to his ability to jeopardize a potential verdict in the federal case if she did not agree to repay debts he believed she owed—“raised an issue of fact whether statements were motivated solely by malice and thus are not protected by a qualified privilege.”< 33 > 33> Footnotes Davis v. Boeheim , 24 N.Y.3d 262, 268 (2014) (quoting, Thomas H. v. Paul B. , 18 N.Y.3d 580, 584 (2012)). D’Amico v. Correctional Med. Care, Inc. , 120 A.D.3d 956, 962 (4th Dept. 2014). Gross v. New York Times Co. , 82 N.Y.2d 146, 152-153 (1993); see also Davis , 24 N.Y.3d at 268. Davis , 24 N.Y.3d at 269 (quoting, Mann v. Abel , 10 N.Y.3d 271, 276 (2008), cert. denied , 555 U.S. 1170 (2009)). Id. (internal quotation marks omitted). Id. Id. Id. (quoting, Steinhilber v. Alphonse , 68 N.Y.2d 283, 290 (1986)). Geraci v. Probst , 15 N.Y.3d 336, 344 (2010); Liberman v. Gelstein , 80 N.Y.2d 429, 435 (1992). Van Lengen v. Parr , 136 A.D.2d 964, 964 (4th Dept. 1988). Geraci , 15 N.Y.3d at 344. Stega v. New York Downtown Hosp. , 31 N.Y.3d 661, 669 (2018). Id. (quoting, Toker v. Pollak , 44 N.Y.2d 211, 219 (1978)). Stega , 31 N.Y.3d at 669; Rosenberg v. MetLife, Inc. , 8 N.Y.3d 359, 365 (2007); Toker , 44 N.Y.2d at 219. Stega , 31 N.Y.3d at 669-670 (quoting, Toker , 44 N.Y.2d at 219). Toker , 44 N.Y.2d at 219-220. Liberman , 80 N.Y.2d at 437. Id. at 670 (quoting, Liberman , 80 N.Y.2d at 437-438). Id. Id. Park Knoll Assoc. v. Schmidt , 59 N.Y.2d 205, 209 (1983). Id. at 210. Wiener v. Weintraub , 22 N.Y.2d 330, 331 (1968) (quoting, Marsh v. Ellsworth , 50 N.Y. 309, 311 (1872)); see also Stega , 31 N.Y.3d at 669. Stega , 31 N.Y.3d at 670. Slip Op. at *2. Id. (quoting, Zulawski v. Taylor , 63 A.D.3d 1552, 1553 (4th Dept. 2009)). Id. (quoting, ( Brian v. Richardson , 87 N.Y.2d 46, 51 (1995)). Id. Id. (quoting, Golub v. Enquirer/Star Grp., Inc. , 89 N.Y.2d 1074, 1076 (1997) and citing Liberman , 80 N.Y.2d at 436). Id. Id. Id. at *3-*4 (citing, Park Knoll Assoc. , 59 N.Y.2d at 210; Silverman v Clark, 35 A.D.3d 1, 12 (1st Dept. 2006); Garson v. Hendlin , 141 A.D.2d 55, 59 (2d Dept. 1988), lv. denied , 74 N.Y.2d 603 (1989)). Id. at *4 (citations omitted). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP commercial litigation attorneys . This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber The law can be funny. Not in a comedic way, but in a way that defies expectations about what is needed to bring a cause of action. Sometimes this is manifested in the quantum of evidence needed to bring an action and survive a pre-answer motion to dismiss. Other times, it is manifested in the capacity or standing of the plaintiff to commence the action. In Greco v. Syracuse ASC, LLC , 2023 N.Y. Slip Op. 03987 (4th Dept., July 28, 2023) ( here ), the Appellate Division, Fourth Department addressed the latter scenario in the context of a computer hack; in particular, in connection with the unauthorized access to certain personal information belonging to plaintiff and others, which was stored on defendant’s computer system. The Rules Concerning Standing Standing is a threshold determination, resting in part on policy considerations, that a person should be allowed access to the courts to adjudicate the merits of a particular dispute. 1 Without standing, a person cannot bring a lawsuit. Whether a person seeking relief is a proper party to request an adjudication is an aspect of justiciability which, when challenged, must be considered at the beginning of litigation.  In order to have standing to sue, a plaintiff must allege the existence of an injury-in-fact that ensures that s/he has some concrete interest prosecuting the action. 2 The injury-in-fact requirement necessitates a showing that the party has “an actual legal stake in the matter being adjudicated” 3 and that the party has suffered a cognizable harm that is not “‘tenuous,’ ‘ephemeral,’ or ‘conjectural,’” but is, instead, “sufficiently concrete and particularized to warrant judicial intervention.” 4 Notably, an alleged injury will not confer standing if it is based on speculation about what might occur in the future or what future harm might be incurred. 5 Background Plaintiff, a former patient of defendant, Syracuse ASC d/b/a Special Surgery Center of CNY (“SSC”), alleged that SSC failed to safeguard and protect her confidential information as well as that of class members, including private health information protected under HIPAA and sensitive personal information. Plaintiff alleged that a data breach occurred on March 31, 2021, whereby cybercriminals were able to gain access to approximately 24,891 class members’ sensitive information. Defendant moved to dismiss, claiming, among other things, plaintiff lacked standing to bring the action. Defendant argued that plaintiff failed to offer any facts to support the claim that the potential for misuse of information sufficed to confer standing. Defendant contended that general allegations that individuals whose confidential information had been exposed during a data breach were more likely to experience future identity theft were conclusory and speculative.  The motion court denied the motion. The motion court held that the risk of harm from the cyberattack satisfied the injury-in-fact requirement. The motion court explained that the risk of imminent future harm arising from the theft of plaintiff’s personal and sensitive information by cybercriminals was sufficiently concrete to confer standing on her. 6 Indeed, noted the motion court, “ ourts have found that victims of targeted data breaches have standing based on an imminent risk of threat to seek redress from a defendant<’s> negligence, notably including where the stolen data has not yet been used.” 7 Defendant appealed. The Fourth Department “unanimously reversed.” 8 The Fourth Department’s Decision The Court held, after considering “all relevant circumstances,” that plaintiff failed to allege “an injury-in-fact and thus lack standing.” 9 “ mportantly,” explained the Court, “plaintiff ha not alleged that any of the information purportedly accessed by the unknown third party ha actually been misused.” 10 Similarly, the Court noted that “Plaintiff ha not alleged that her own information ha been misused or that the data of any similarly situated person ha been misused in the over one-year period between the alleged data breach and the issuance of the trial court’s decision.” 11 The absence of such allegations, held the Court, was fatal to the survival of the pleading. Further, the Court noted that, according to the complaint, only health information was accessed by a third-party. 12 The complaint did not, said the Court, “allege that a third party accessed data more readily used for financial crimes such as dates of birth, credit card numbers, or social security numbers.” 13 In sum, the Court found that plaintiff merely expressed “a general concern that certain of health information may have been illegally accessed by a third party”; she did not “allege any direct harm flowing from the breach of defendant’s electronic system.” 14 As a result, the Court concluded that “plaintiff failed to allege an injury-in-fact inasmuch as the potential for future misuse of her data and possible economic harm too ‘conjectural, tenuous hypothesized’ to constitute an interest that sufficiently concrete to confer standing.” 15 Finally, the Court rejected plaintiff’s argument that she “established an injury-in-fact by virtue of the cost of identity protection and other mitigation efforts.” 16 In doing so, the Court “conclude that such mitigation efforts cannot confer standing absent a sufficiently concrete injury-in-fact legitimizing or warranting such efforts.” 17 A plaintiff “‘cannot manufacture standing merely by inflicting harm on themselves based on their fears of hypothetical future harm that is not certainly impending,’” said the Court. 18 Takeaway Greco is an important decision because it represents the first decision of an appellate court in the state system to address standing “in a case brought by an individual whose information was involved in a larger electronic data breach or whose personal data was otherwise involved in the unauthorized access of electronic files stored on a computer system.” 19 In deciding the issue of standing, the Court took great pains to recognize the tension between modern harms and traditional notions of standing, concluding that the law can adapt to the new issues that impact our modern lives:  Although the rise of unauthorized access to secure electronic systems, resulting in third parties obtaining the information stored thereon, is a relatively modern issue, the injury-in-fact requirement recognized in other contexts applies equally here. Thus, the novel issue presented is simply what circumstances, specific to this context, create an injury that is “sufficiently concrete” and non-speculative to constitute an injury-in-fact. 20 The Court’s observation about adaptation makes sense. In a modern society, social, political and economic circumstances change. The risks and harms that people face in their daily lives are many. One risk –identity theft – affects far too many people. Readers of this Blog would be hard-pressed to read a newspaper or magazine and not find an article discussing a data breach or some other cyberattack. Greco shows that the risk of harm resulting from a cyberattack on a third-party that controls one’s personal and sensitive information is not, by itself, sufficient to confer standing to sue the third-party for relief. “ llegations of possible future injury” or even an “objectively reasonable likelihood” of future injury are insufficient to confer standing. 21 The injury must be concrete and particularized to warrant judicial intervention. 22 Greco makes this point clear.  Footnotes Society of Plastics Indus. v. County of Suffolk , 77 N.Y.2d 761 (1991). Matter of Association for a Better Long Is., Inc. v. New York State Dept. of Envtl. Conservation , 23 N.Y.3d 1, 6 (2014); see also Matter of Sheive v. Holley Volunteer Fire Co., Inc. , 170 A.D.3d 1589, 1590 (4th Dept. 2019). This is true for a class representative. See Raske v. Next Mgmt., LLC , 40 Misc. 2d 1240(A) (Sup. Ct., N.Y. County 2013). Society of Plastics Indus. , 77 N.Y.2d at 772; see also Matter of Mental Hygiene Legal Serv. v Daniels , 33 N.Y.3d 44, 50 (2019). Mental Hygiene , 33 N.Y.3d at 50; see also New York State Assn. of Nurse Anesthetists v. Novello , 2 N.Y.3d 207, 211, 214 (2004); Matter of Festa v. Town of Oyster Bay , 210 A.D.3d 678, 679-680 (2d Dept. 2022). Frankel v. J.P. Morgan Chase & Co. , 193 A.D.3d 689, 690 (2d Dept. 2021); Matter of Niagara County v. Power Auth. of State of N.Y. , 82 A.D.3d 1597, 1599 (4th Dept. 2011), lv. dismissed in part & denied in part , 17 N.Y.3d 838 (2011); Matter of Brewster v. Wright , 45 A.D.3d 1369, 1370 (4th Dept. 2007). Citing Galaria v. Nationwide Mutual Ins. Co. , 663 F. Appx. 384 (6th Cir. 2016); Lewert v. PF Chang’s China Bistro , 819 F.3d 963 (7th Cir. 2016). Citing, Galaria , supra . Slip Op. at *1. Id. Id. Id. Id. Id. Id. Id. (citing, Niagara County , 82 A.D.3d at 1599; and Mental Hygiene , 33 N.Y.3d at 50). Id. Id. Id. (quoting, Matter of Practicefirst Data Breach Litig. , 2022 WL 354544 at *4 (W.D.N.Y. 2022)). Id. Id. (citing, Mental Hygiene , 33 N.Y.3d at 50). Clapper v. Amnesty Int’l USA , 568 U.S. 398, 409-10 (2013) (internal quotation marks, alterations, and emphasis omitted). Mental Hygiene , 33 N.Y.3d at 50. 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 As discussed in a prior blog article < here =">here"> , a notice of pendency (or lis pendens) is a provisional remedy governed by Article 65 of the CPLR.  The Court of Appeals, in 5303 Realty Corp. v. O & Y Equity Corp. , 64 N.Y.2d 313 (1984), one of the leading cases on the subject, described the a notice of pendency as a: potent shield to protect litigants claiming an interest in real property. The powerful impact that this device has on the alienability of property, when conjoined with the facility with which it may be obtained, calls for its narrow application to only those lawsuits directly affecting title to, or the possession, use or enjoyment of, real property.  5303 Realty , 64 N.Y.2d at 315 – 16.  Indeed, the statute itself provides that a notice of pendency may only be filed where the “judgment demanded would affect the title to, or the possession, use or enjoyment of, real property.”  CPLR 6501. The notice of pendency acts as “constructive notice to all subsequent purchasers or incumbrancers” that an action is pending that may affect title to the property.  5303 Realty , 64 N.Y.2d at 318.  Thus, “ person whose conveyance or incumbrance is recorded after the filing of the notice is bound by all proceedings taken in the action after such filing to the same extent as a party.”  CPLR 6501; 5303 Realty , 64 N.Y.2d at 318. The Court of Appeals in 5303 Realty reversed the Appellate Division, First Department, and cancelled a notice of pendency because the provisional remedy was not appropriate in a “suit to specifically perform a contract for the sale of stock representing a beneficial ownership of real estate.”  5303 Realty , 64 N.Y.2d at 316.  Similarly, a “notice of pendency is improper where the party who has filed it claims no right, title or interest in or to the real estate against which it is filed, and where the suit concerns simply some encroachment or wrong perpetrated by defendants on plaintiff's land.”  Board of Managers of 334 East 54 th Street Condominium v. 336 East 54 Street Assoc. LLC , 198 A.D.3d 560, 561 (1 st Dep’t 2021) (citation and internal quotation marks omitted).  The same Court, in 801-803, LLC v. 805 Ninth Avenue Realty Group, LLC , 188 A.D.3d 478 (1 st Dep’t 2020), affirmed the vacatur of a notice of pendency where “plaintiff claims no interest in defendant's land but merely seeks to prevent defendants from committing a wrongful act against it” because plaintiff merely alleged that “defendants' construction of a six-story building on the property is causing damage to the party wall, the roof, and other parts of its building, and asserts causes of action for, inter alia, nuisance and encroachment.”  801-803, LLC , 188 A.D.3d at 478 (citations omitted).   It has been noted that the “statutory scheme permits a party to effectively retard the alienability of real property without any prior judicial review.”  5303 Realty , 64 N.Y.2d at 320.  Moreover, while CPLR 6514 provides for the cancellation of a notice of pendency in certain circumstances, the “court’s scope of review is circumscribed” and the “likelihood of success on the merits is irrelevant to determining the validity of the notice of pendency.”  5303 Realty , 64 N.Y.2d at 320 (citations omitted).   As to the duration of a notice of pendency, Article 65 provides that: A notice of pendency shall be effective for a period of three years from the date of filing. Before expiration of a period or extended period, the court, upon motion of the plaintiff and upon such notice as it may require, for good cause shown, may grant an extension for a like additional period. An extension order shall be filed, recorded and indexed before expiration of the prior period. CPLR 6513 .  Because the “ability to file a notice of pendency is a privilege that can be lost if abused” once lost, a successive notice of pendency may not be filed after the initial notice is cancelled.  In re Sakow , 97 N.Y.2d 436 , 441 - 42 (2002) (citations omitted).  Moreover, an application to extend a notice of pendency must be made “prior to the expiration of the prior notice” and an expired notice, without extension is a “nullity”.  Sakow , 97 N.Y.2d at 442 (citations omitted).  The “no second chance” rule applies whether the notice expires or is cancelled.  Id .  [Eds. Note: an exception to the “no second chance” rule is found in CPLR 6516 , which permits successive notices of pendency in mortgage foreclosure actions because RPAPL 1331 requires that a notice of pendency must be filed “at least twenty days before a final judgment directing a sale is rendered”.) These issues were addressed in Strong Island Contracting Corp. v. Padilla , a case decided on July 26, 2023, by the Appellate Division, Second Department.  Strong Island was a mechanic’s lien foreclosure action in which plaintiff filed a notice of pendency.  Shortly before the expiration of the three-year post filing period, plaintiff moved to extend the notice for an additional three-year period.  Prior thereto, however, defendant’s counsel moved to be relieved and, in accordance with said motion, the motion court stayed all proceedings until the motion was decided.  Plaintiff’s motion was granted and the notice of pendency was extended.  Subsequently, the motion court granted counsel’s motion to be relieved and it continued the stay.  “Thereafter, the defendant moved to cancel the notice of pendency pursuant to CPLR 6513 and 6514, in effect, to vacate the order …, and to direct the plaintiff to pay the costs, expenses, and legal fees for making the motion.”  The motion court granted defendant's motion. On plaintiff’s appeal, the Second Department reversed and, in so doing, stated: Pursuant to CPLR 6513, a notice of pendency is valid for three years from the date of filing and may be extended for additional three-year periods upon a showing of good cause. The extension, however, must be requested prior to the expiration of the prior notice. This is an exacting rule; a notice of pendency that has expired without extension is a nullity. A lapsed notice of pendency may not be revived. Here, the plaintiff timely requested and established good cause for extending the notice of pendency by demonstrating that the trial for the instant foreclosure action was delayed by the motion of the defendant's counsel to be relieved and the court closures due to the COVID-19 pandemic. Contrary to the defendant's contention, it was not improper to extend the notice of pendency while all proceedings in this action were stayed. (Citations and internal quotation marks omitted.) 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 Merchant Factors Corp. v. Crush Apparel & Accessories Inc. , 2023 N.Y. Slip Op. 50755(U) (Sup. Ct., N.Y. County July 21, 2023) ( here ), plaintiff, Merchant Factors Corp., a factoring and commercial financing services provider, brought suit against defendant Crush Apparel & Accessories Inc. (“Crush Apparel”), among others, 1 to recover for an allegedly fraudulent scheme to steal and divert millions of dollars in goods, services, and real property that defendants pledged as collateral, and against which plaintiff made cash advances.  Plaintiff asserted 20 causes of action in its amended complaint, including: (1) replevin; (2) conversion; (3) injunction; (4) accounting; (5) fraudulent misrepresentation; (6) aiding and abetting fraud; and (7) actual and constructive fraudulent conveyances. Defendants moved to dismiss the complaint, pursuant to CPLR § 3211(a)(7), for failure to state a cause of action. As discussed below, the motions were granted in part and denied in part. Below, we examine the motion court’s decision with regard to the replevin and conversion, fraudulent misrepresentation, and fraudulent conveyance causes of action. Background In August 2017, Merchant and Crush Apparel, an importer and distributor of clothing, entered into a factoring agreement, pursuant to which Crush Apparel sold and assigned all of its accounts receivable to Merchant in return for substantial cash advances. Pursuant to the factoring agreement, Crush Apparel gave Merchant a security interest in all of its assets (the “Collateral”). In addition, Crush Apparel expressly represented and warranted that each account receivable generated and assigned to Merchant: (1) “covered a bona fide sales and delivery of merchandise”; (2) “relate to merchandise or services which have been accepted by customers … without dispute”; (3) was “payable in accordance with the terms of related invoice”; and (4) was “absolutely enforceable against customers free and clear of any lien, encumbrance or dispute.” Merchant was also permitted under the factoring agreement to (and did) re-factor accounts receivable assigned by Crush Apparel with The CIT Group/Commercial Services, Inc. (“CIT”). As a result, customer payments on such accounts were required to be remitted directly to CIT. Merchant alleged that from December 2017 through September 2019, more than 2,000 checks totaling over $14.2 million were remitted to CIT drawn on a Crush Apparel bank account, purporting to reflect payments that Crush Apparel received directly from its customers. As an inducement to enter into the factoring agreement, Crush Apparel executed a written inventory supplement to the factoring agreement. Under the inventory agreement, Crush Apparel gave Merchant “a continuing security interest” in its inventory and “all contract rights with respect thereto.” Merchant perfected its security interest by filing a Uniform Commercial Code financing statement with the appropriate authorities. Merchant maintained that the remitted funds did not reflect legitimate, bona fide sales. In that regard, Merchant alleged that Crush Apparel fabricated nearly all of the sales to induce Merchant to advance funds to Crush Apparel. Merchant alleged that it advanced funds to Crush Apparel believing that the invoices were bona fide and collectible accounts receivable under the terms of the factoring agreement. Merchant further alleged that the Kraiem defendants transferred certain property relevant to the factoring agreement for less than fair consideration and in an effort to defraud their creditors, including Merchant. In this regard, the property in Brooklyn, N.Y. (the “Brooklyn Property”) was transferred for $1,500,000 and the property in New Jersey (the “New Jersey Property”) was transferred for $0.00.  The Motion Court’s Decision Replevin and Conversion Defendants sought dismissal of Merchant’s fifth and sixth causes of action for replevin and conversion, arguing that dismissal was appropriate because: (1) plaintiff failed to allege that the Kraiem defendants exercised unauthorized dominion over Merchant’s funds transferred from Crush Apparel’s bank accounts; (2) Merchant could not identify any specific, identifiable funds because those funds were comingled; and (3) Merchant did not demand the return of any specific funds. Merchant countered, arguing that it had a first priority security interest in the Collateral and that defendants were wrongfully retaining possession of the Collateral.  “Conversion is an unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner’s rights. Money, if specifically identifiable, may be the subject of a conversion action.” 2 “Two key elements of conversion are (1) plaintiff’s possessory right or interest in the property and (2) defendant’s dominion over the property or interference with it, in derogation of plaintiff’s rights.” 3 “To state a cause of action for replevin, a plaintiff must establish a superior possessory right to property in a defendant’s possession.” 4 The objective of replevin is the recovery of property. 5 Where a defendant has acquired property legally, the plaintiff must allege demand for return of the property and refusal by the defendant for both conversion and replevin. 6 The motion court denied the motion as to the replevin and conversion claims. 7 The motion court held that Merchant’s security interest sufficed to show entitlement to immediate possession of the Collateral in the event of a default of the factoring agreement. 8 The motion court found that Crush Apparel and the Kraiem defendants were wrongfully retaining possession of the Collateral, including, but not limited to, Crush Apparel’s inventory. 9 Finally, the motion court held that plaintiff adequately alleged a demand for the collateral, especially in light of the fact that it sought a temporary restraining order and preliminary injunction. 10 Fraudulent Misrepresentation Defendants sought dismissal of Merchant’s tenth cause of action for fraudulent misrepresentation, arguing that dismissal was appropriate because the claim duplicated Merchant’s breach of contract claims. In opposition, Merchant maintained that the fraud claim was pleaded in the alternative and that, even if not permitted to do so, it properly alleged a duty independent of the contract. 11 here,=">here," >here.=">here."> The motion court denied the motion dismiss the fraudulent misrepresentation claim. 12 The motion court held that Merchant’s fraud claim was not duplicative of its breach of contract claims. The motion court found that Merchant did more than “merely allege that defendants entered into agreement with an intention not to perform thereunder, but rather, allege that, after that agreement was entered into, defendants misrepresented or concealed existing facts.” 13 In that regard, said the motion court, plaintiff alleged that defendants “misrepresented or concealed that: (1) the accounts receivable assigned to Merchant were bona fide collectible receivables constituting legitimate sales and deliveries of goods to customers; (2) checks issued to CIT constituted legitimate customer payments; and (3) Crush Apparel was generating more than $7 million in sales.” 14 The motion court also held that plaintiff adequately alleged “that that it relied on invoices submitted by Crush Apparel, and advanced funds to Crush Apparel” in reliance thereon. 15 Fraudulent Conveyance Defendants also sought dismissal of Merchant’s fourteenth through sixteenth causes of action for violations of the Debtor and Creditor Law (“DCL”). 16 With respect to the fourteenth cause of action, alleging a fraudulent transfer of the New Jersey Property, defendants argued that: (1) 108 Crosby was not a proper defendant because it was not a debtor or potential debtor to Merchant; (2) Merchant failed to allege that defendants did not receive adequate consideration for the transfer of the property; (3) the transfer took place before Merchant sent any demand letters; and (4) the buyers of the property were necessary parties to the cause of action.  As for the fifteenth cause of action, alleging a fraudulent transfer of the Brooklyn Property, defendants argued that Merchant failed to allege intent to defraud.  DCL (former) § 276 provides that “ very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay or defraud either present or future creditors, is fraudulent as to both present and future creditors.” To state a cause of action under DCL (former) § 276, the plaintiff must comply with CPLR § 3016, and allege that the conveyance was made with “intent to hinder, delay or defraud present or future creditors.” 17 “Due to the difficulty of proving actual intent to hinder, delay, or defraud creditors, the pleader is allowed to rely on ‘badges of fraud’ to support his case, i.e. , circumstances so commonly associated with fraudulent transfers that their presence gives rise to an inference of intent.” 18 These include “a close relationship between the parties to the alleged fraudulent transaction, a questionable transfer not in the usual course of business, inadequacy of the consideration, the transferor’s knowledge of the creditor’s claim and the inability to pay it, and retention of control of the property by the transferor after the conveyance.” 19 The motion court held that 108 Crosby was a potential debtor to Merchant in that it executed a corporate guaranty, in which it: “guarantee the due and full performance by the Principal, in all respects of the Factoring Agreement.” 20 The motion court also held that Merchant sufficiently alleged badges of fraud sufficient to support the DCL (former) § 276 claims. 21 The motion court found that Merchant alleged that Joan and 108 Crosby transferred the New Jersey Property for $1,500,000, at a time when their alleged fraudulent scheme was about to be exposed. That fact sufficed to satisfy the intent element of the claim, said the motion court, rendering the absence of adequate consideration of no moment. 22 The motion court also found that Merchant sufficiently alleged that Erica and Joan transferred the Brooklyn Property to 201 Oakhurst, an entity controlled by the Kraiem defendants, for no consideration. Given plaintiff’s allegations that Erica and Joan were aware of Merchant’s claim and Crush Apparel’s inability to pay it, the motion court held that Merchant satisfied the pleading requirements of the claim. 23 Notwithstanding, the motion court dismissed the fourteenth cause of action because plaintiff failed to include the buyers of the Brooklyn Property as necessary parties. 24 The motion court explained that Merchant could not recover a money judgment against Joan and 108 Crosby for the value of the property that was fraudulently conveyed. 25 The motion court explained that “ either Joan nor 108 Crosby were transferees, and the amended complaint only conclusory allegations that Joan and 108 Crosby benefitted from the fraudulent transfers.” 26 Regarding the sixteenth cause of action, asserting a fraudulent conveyance claim with respect to the Crush Apparel money transfers, the motion court denied the motion. The motion court rejected the argument that the claim was duplicative of the replevin and conversion claims because it sought damages and the delivery of the Collateral pursuant to the factoring agreement and inventory agreement. 27 The motion court held that the sixteenth cause of action also stated a cause of action under DCL (former) § 276, given the allegations that “(1) Victor, Erica, Raphael and/or Joan were authorized signatories on the entities’ bank accounts…; (2) approximately $1.9 million of Merchant’s monies were transferred and/or paid to Victor, Raphael, Erica, Joan, 201 Oakhurst or to pay down the mortgages on the Deal Property and Brooklyn Property…; and (3) defendants sought to hide the transfers by moving money through various accounts….” 28 The foregoing facts, said the motion court, sufficed as “badges of fraud” and, therefore, gave “rise to an inference of intent to defraud Merchant.” 29 With respect to the seventeenth through twentieth causes of action, under DCL (former) §§ 274 and 275, the motion court granted the motion.  To state a cause of action for constructive fraudulent conveyance, the plaintiff must allege lack of “fair consideration” and that one of the following three conditions is satisfied: “(i) the transferor is insolvent or will be rendered insolvent by the transfer in question, DCL § 273; (ii) the transferor is engaged in or is about to engage in a business transaction for which its remaining property constitutes unreasonably small capital, DCL § 274; or (iii) the transferor believes that it will incur debt beyond its ability to pay, DCL § 275.” 30 Fair consideration requires that “the exchange not only be for equivalent value, but also that the conveyance be made in good faith.” 31 Fair consideration exists “when in exchange for such property or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied” or “ hen such property, or obligation is received in good faith to secure a present advance or antecedent debt in an amount not disproportionately small as compared with the value of the property, or obligation obtained.” 32 The motion court found that Merchant only made conclusory allegations that Crush Apparel was insolvent or was rendered insolvent by the transfers, “Crush Apparel was engaged in a business or a transaction or was about to engage in a business or a transaction, for which any property remaining in its hands after the transfer constituted an unreasonably small capital,” and that “ he Crush Apparel Transfers were made for less than fair consideration and with the intent or belief that Crush Apparel would incur debts beyond its ability to pay as said debts matured.” 33 Takeaway There are a number of takeaways from the motion court’s decision. First, there is a distinction to be made between unidentified funds, such as cash, and collateral (comprised of inventory, for example) for which there is a security interest, for purposes of replevin and conversion. As discussed, defendants focused solely on the funds advanced by Merchant ( i.e. , the cash advances) rather than on the alleged unlawful retention of the Collateral upon which Merchant’s claims for replevin and conversion were premised. Moreover, a demand for the return of the property being unlawfully held and the refusal to comply with said demand can come in many different forms. As noted by the motion court, “refusal of a demand need not use the specific word ‘refuse’ so long as it clearly conveys an intent to interfere with the demander’s possession or use of his property.” 34 The allegations in the amended complaint and the proceedings for the TRO and preliminary injunction detailed Merchant’s demands made prior to filing the initial complaint to recover the Collateral – allegations that defendants did not contest. Second, Merchant Factors shows that a plaintiff can avoid dismissal of a fraud claim on duplication grounds when the alleged misstatement or omission is made after the contract is formed. As explained by the motion court, the misrepresentation does not concern performance of the contract, or a future intent to perform, but rather relates to existing facts after the contract was formed. In that situation, a duty independent of, or collateral to, the contract is established. We wrote about this distinction here . In Merchant Factors those misrepresentations concerned the legitimacy of the accounts receivable, customer payments, and Crush Apparel’s revenue.  Third, establishing a fraudulent conveyance under DCL (former) § 276 is, in many respects, no different than establishing fraud. Among other elements, the plaintiff must allege (and prove) intent to defraud. Intent can be shown through circumstantial evidence, or in the DCL context, through badges of fraud. In Merchant Factors , the motion court found that plaintiff sufficiently alleged badges of fraud and/or facts raising an inference of an intent to deceive. Footnotes The other named defendants are: 108 Crosby LLC (“108 Crosby”), Erica Kraiem (“Erica”), Victor Kraiem (“Victor”), 201 Oakhurst Inc. (“201 Oakhurst”), I.L.C.K. Inc. (“ILCK”), Jiangsu Taiwan Enterprise Inc. (“Jiangsu”), and Kids Apparel Club, Inc. (“Kids Apparel”). Peters Griffin Woodward, Inc. v. WCSC, Inc ., 88 A.D.2d 883, 883 (1st Dept. 1982) (citation omitted). Colavito v. New York Organ Donor Network, Inc. , 8 N.Y.3d 43, 50 (2006) (citations omitted). Reif v. Nagy , 175 A.D.3d 107, 120 (1st Dept 2019), lv. dismissed , 35 N.Y.3d 986 (2020). Genger v. Genger , 2016 N.Y. Slip Op. 30602(U), *7 (Sup. Ct., N.Y. County 2016), aff’d , 147 A.D.3d 443 (1st Dept. 2017). Chen v. New Trend Apparel, Inc. , 8 F. Supp. 3d 406, 456 (S.D.N.Y. 2014). Slip Op. at *4. Id. Id. Id. Notably, defendants did not contest that Merchant sufficiently alleged a refusal of its demand. Id. (citing, Swain v. Brown , 135 A.D.3d 629, 631 (1st Dept. 2016). Slip Op. at *6. Id. Id. (citing, Comtronics, Inc. v. Pico Prods., Inc. , 256 A.D.2d 1202, 1203 (4th Dept. 1998), lv. denied , 1999 N.Y. App. Div. LEXIS 3112 (4th Dept. 1999) (fraud claim not duplicative of breach of contract claim where plaintiff alleged fraud after formation of contract); Minnie Rose LLC v. Yu , 169 F. Supp. 3d 504, 520 (S.D.N.Y. 2016) (“Misrepresentations of present facts made post-contract formation are collateral or extraneous to the contract and are actionable in fraud.”)). Id. at *6-*7. Id. at *7. The former DCL was replaced on April 4, 2020, by the New York Uniform Voidable Transactions Act (“NYUVTA”). Under New York’s version of the UVTA, which Governor Cuomo signed into law on December 6, 2019, the State joined the vast majority of jurisdictions to have adopted the UVTA in whole or in part. Thus, as to transfers made and obligations incurred after the effective date ( i.e. , April 4, 2020), New York law will be more aligned with the fraudulent transfer laws of most states in the country, as well as with the federal Bankruptcy Code. We previously examined the NYUVTA, the former DCL and the changes the NYUVTA made to the former DCL ( here ). RTN Networks, LLC v. Telco Grp., Inc. , 126 A.D.3d 477, 478 (1st Dept. 2015). Wall St. Assoc. v. Brodsky , 257 A.D.2d 526, 529 (1st Dept. 1999) (internal quotation marks and citation omitted). Id. Slip Op. at *8. Id. (citations omitted). Id. (citing, In re Sharp Intl. Corp. , 403 F.3d 43, 56 (2d Cir. 2005) (quoting, United States v. McCombs , 30 F.3d 310, 328 (2d Cir .1994)). Id. Id. Id. (citing, Federal Deposit Ins. Corp. v. Porco , 75 N.Y.2d 840, 842 (1990)). Id. (citations omitted). Id. at *8-*9. Id. at *9. Id. (citing, Pen Pak Corp. v. LaSalle Natl. Bank of Chicago , 240 A.D.2d 384, 386 (2d Dept. 1997)). Sharp Intl. , 403 F.3d at 53. Ede v. Ede , 193 A.D.2d 940, 941-942 (3d Dept. 1993). DCL (former) § 272. Id. Swain , 135 A.D.3d at 631.  Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In the merger and acquisition world it is common to form a special purpose acquisition company (“SPAC”). A SPAC is a company with no underlying business operations that is formed to raise capital through an initial public offering (“IPO”) for the purpose of using the proceeds to acquire an unidentified private operating company at a later date but within a specified period of time (typically two years). A SPAC is also known as a blank check company ( i.e. , a publicly traded, developmental stage company that has no established business plan). SPACs have existed for decades. Recently, however, their popularity has been on the rise. “In 2020, 247 SPACs were created with $80 billion invested, and in 2021, there were a record 613 SPAC IPOs. By comparison, only 59 SPACs came to market in 2019.” 1 Following its IPO, a SPAC will seek to identify acquisition candidates and attempt to complete a business combination transaction after which the company will continue the operations of the acquired company as a public company. Investors in a SPAC at the IPO stage are, therefore, relying on the management team that formed the SPAC to expend efforts after the IPO to identify and look to acquire or combine with a private operating company. Given that the purpose of a SPAC is to identify and acquire an operating business after conducting its IPO, steps a SPAC has taken in furtherance of a particular acquisition is material to a reasonable investor, who would want to know about the SPAC’s prospects with future acquisition targets. Disclosures made in a SPAC’s IPO – including as it relates to any pre-IPO discussions or negotiations with future acquisition targets or concerning potential business combinations – need to be accurate and cannot be materially false or misleading. In addition, the economic interests of the sponsors and the directors, officers, and affiliates of a SPAC often differ from the economic interests of public shareholders, which may lead to conflicts of interests as they evaluate and decide whether to recommend business combination transactions to shareholders. Clear and accurate disclosure regarding these potential conflicts of interest and the nature of the sponsors’, directors’, officers’ and affiliates’ economic interests in the SPAC is particularly important because these parties are generally responsible for negotiating the SPAC’s post-IPO business combination transaction. The SPAC sponsor 2 typically is compensated through its ability to buy the SPAC’s securities at a discount at or around the time of the SPAC’s formation. Sponsors also frequently buy additional securities (usually units or warrants) at the time of the IPO. Unlike securities bought by investors in a SPAC IPO, the securities purchased by a sponsor are not redeemable for cash in the event the SPAC fails to complete a business transaction, and the sponsor’s securities usually have restrictions that prevent resale until after completion of a SPAC’s business combination. here).=">here)." For="For" discussion="discussion" pros="pros" cons="cons" SPAC,="SPAC," see ="see" Young,="Young," Julie,="Julie," “Special="“Special" Purpose="Purpose" Company="Company" (SPAC)="(SPAC)" Explained:="Explained:" Examples="Examples" Risks,”="Risks,”" Investopedia.com="Investopedia.com" (Mar.="(Mar." 15,="15," 2023)="2023)"> In the Matter of Digital World Acquisition Corporation On July 20, 2023, the Securities and Exchange Commission (“SEC”) announced ( here ) that it settled fraud charges against Digital World Acquisition Corporation (“DWAC”), a special purpose acquisition company, for making material misrepresentations in forms filed with the SEC as part of DWAC’s IPO and proposed merger with Trump Media & Technology Group Corp. (“TMTG”). According to the Order Instituting Cease-and-Desist Proceedings against Digital World Acquisition Corporation ( here ) (the “Order”), the SEC found that DWAC misled investors and the SEC by failing to disclose that it had formulated a plan to acquire and was pursuing the acquisition of TMTG prior to DWAC’s IPO. As set forth in the Order, DWAC filed an amended Form S-1 in support of its IPO in early September 2021. The Form S-1 stated that neither DWAC nor its officers and directors had any discussions with any potential target companies prior to the IPO. But, as the SEC found, as early as February 2021, an individual who would later become DWAC’s CEO and Board Chairman, and others involved with DWAC, had extensive SPAC merger discussions with TMTG. The SEC found that, while DWAC’s CEO and Chairman initially pursued these discussions with TMTG on behalf of another SPAC, he created a plan in the spring and summer of 2021 to potentially use DWAC to pursue a merger with TMTG and used this plan to solicit certain pre-IPO investors. The SEC also found that DWAC failed to disclose that the CEO had a potential conflict of interest based on an agreement he had signed with TMTG. As a result, said the SEC, DWAC’s amended Form S-1 was materially false and misleading. The SEC’s order further found that, in a later Form S-4 filed with the SEC following the announcement of the proposed merger with TMTG, DWAC mischaracterized and omitted information about the history of its interactions with TMTG.  Commenting on the settlement, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated: “DWAC failed to disclose its discussions with TMTG and failed to disclose a material conflict of interest of its CEO and Chairman. In the context of a SPAC – a ‘blank-check’ entity without business operations – these disclosure failures are particularly problematic because investors focus on factors such as the SPAC’s management team and potential merger targets when making financial decisions.” In the Order, the SEC found that DWAC violated the antifraud provisions of the federal securities laws. DWAC agreed to a cease-and-desist order and to pay an $18 million penalty in the event it closes a merger transaction. It also agreed to undertake that, should DWAC file an amended Form S-4, any such Form S-4 will be materially complete and accurate and consistent with the findings in the SEC’s order. In June 2023, federal prosecutors in the U.S. Attorney’s office for the Southern District of New York filed charges against three investors for insider trading related to DWAC’s deal with TMTG. According to the indictment, the investors allegedly made more than $22 million by illegally trading on knowledge that DWAC would purchase TMTG — before it was public knowledge ( here ). The SEC also filed civil insider trading charges against the three investors ( here ). 3 Also commenting on the settlement, Eric Swider, the Chief Executive Officer of DWAC, stated: “Through steadfast dedication to our shareholders, we tirelessly worked to reach a settlement with the SEC regarding charges against DWAC. This is an important milestone for us, as it clears the path for the SEC to review our expected upcoming filing of the Registration Statement related to our proposed merger with TMTG. Subject to further SEC review of our future filings related to the merger, we are eager to move forward the consummation of the business combination with TMTG and we look forward to TMTG's cooperation in this regard.” Footnotes See Young, Julie, “Special Purpose Acquisition Company (SPAC) Explained: Examples and Risks,” Investopedia.com (Mar. 15, 2023) ( here ) (citing, Harvard Business Review. “SPACS: What You Need to Know” ( here ), and Statista, “Number of Special Purpose Acquisition Company (SPACs) IPOs in the United States from 2003 to February 2022” ( here ). A SPAC sponsor is the entity and/or persons primarily responsible for establishing the SPAC, which is thereafter managed by a board of directors and management. A copy of the SEC’s complaint can be found here . 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 In most situations, the contemplated goal of a mortgage foreclosure action is the sale of the subject property at public auction pursuant to a judgment of foreclosure and sale.  Once a sale occurs, however, can it be set aside?  “A court has the inherent power to ensure that a sale conducted pursuant to a judgment of foreclosure is not made an instrument of injustice in the exercise of its equitable powers, has the discretion to set aside a judicial sale where fraud, collusion, mistake, or misconduct casts suspicion on the fairness of the sale.”  Alkaifi v. Celestial Church of Christ Calvary Parish , 24 A.D.3d 476, 477 (2 nd Dep’t 2005) (citations and internal quotation marks omitted).  This is so even if the sale is made to a “good faith purchaser”.  Altshuler Shaham Provident Funds, Ltd. V. GML Tower LLC , 129 A.D.3d 1439, 1442 (4 th Dep’t 2015) (citations omitted).  As the Altshuler court noted, the discretion to set aside a sale “is separate and distinct from any statutory authority” and should be “exercised where … fairness of the sale” is called into question.  Altshuler , 129 A.D.3d at 1442 (citations and internal quotation marks omitted).  Further, sales may be set aside where the “price is so inadequate as to shock the court’s conscience”, but not where the price is “mere inadequate.  Polish National Alliance of Brooklyn, U.S.A. v. White Eagle Hall Co., Inc. , 98 A.D.2d 400, 407 (2 nd Dep’t 1983) (citations omitted). A foreclosure sale was set aside on July 19, 2023, by the Second Department in Golden Bridge, LLC v. Rutland Development Group, Inc. golden have been simplified significantly for the purpose of this discussion.> golden have been simplified significantly for the purpose of this discussion.>  Plaintiff commenced a foreclosure action against borrower with respect to a parcel of property comprising two lots (the “Property”).  The Property was ultimately sold to purchaser at public auction pursuant to a judgment of foreclosure and sale.  At the auction, purchaser paid the required down payment and had thirty days to close.  Between the time of the foreclosure sale and the time to close, a quiet title action was commenced against one of the two lots comprising the Property and against which, the plaintiff in the quiet title action filed a notice of pendency.  The complaint in the quiet title action was dismissed, but a notice of appeal was filed.  Ultimately, the Second Department reversed that order and reinstated the complaint in the quiet title action.   Purchaser appealed two orders.  In the first, the motion court denied purchaser’s motion to set aside the foreclosure sale and to have the referee return to it the down payment and granted lender’s cross-motion to compel a closing.  The second order directed the referee to deliver the down payment to the lender and to direct the re-auction of the Property.  Both orders were reversed and the sale was vacated and the referee was directed to return the down payment to the purchaser.  In so doing, the Second Department stated: Generally, a court has the discretion to set aside a judicial sale where fraud, collusion, mistake, or misconduct casts suspicion on the fairness of the sale. A court may exercise its inherent equitable power over a sale made pursuant to its judgment or decree to ensure that it is not made the instrument of injustice. Marketability of title is concerned with impairments on title to a property, i.e., the right to unencumbered ownership and possession. As a general rule, a purchaser at a foreclosure sale is entitled to a good, marketable title. A purchaser at a judicial sale should not be compelled by the courts to accept a doubtful title, and, if it was bad or doubtful, he or she should, on his or her application, be relieved from completing the purchase. Moreover, the rule that a buyer must protect himself or herself against undisclosed defects does not apply in all strictness to a purchaser at a judicial sale.  A sale of land in the haste and confusion of an auction room is not governed by the strict rules applicable to formal contracts made with deliberation after ample opportunity to investigate and inquire. Here, the continuing quiet title litigation involves allegations that the deed to one of the lots comprising the subject property was procured by forgery. This litigation casts suspicion on the fairness of the sale of the property to , and therefore should not be compelled by the courts to accept a doubtful title.  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 Most litigants think that financial documents, such as tax returns, are confidential. The same is true with regard to trade secrets and other proprietary business information. While those sentiments are most often true, as discussed below, litigants are, nevertheless, often surprised to learn that there are well-developed rules governing the protection of such information from public view.  “Under New York law, there is a broad presumption that the public is entitled to access to judicial proceedings and court records.” 1 The public’s right to access is, however, not absolute. 2 Under certain circumstances, “public inspection of court records has been limited by numerus statutes.”3 One of those statutes is Section 216.1(a) of the Uniform Rules for New York State Trial Courts , which empowers courts to seal documents upon a written finding of good cause.  “ he determination of whether access to such records is appropriate is best left to the sound discretion of the trial court<.> ” 4 “Although the term ‘good cause’ is not defined, ‘a sealing order should clearly be predicated upon a sound basis or legitimate need to take judicial action.”’ 5 The party seeking to seal court records must demonstrate compelling circumstances to justify restricted public access. 6 The fact that the parties have a confidentiality agreement or otherwise stipulate to sealing is not sufficient by itself to warrant sealing or redaction of specific documents. 7 The Court has an independent obligation to determine whether sealing is appropriate. 8 In making the determination, courts consider “the interests of the public as well as of the parties.” 9 As one court observed, a finding of good cause “boils down to … the prudent exercise of the court’s discretion.” 10 “A finding of good cause presupposes that public access to the documents at issue will likely result in harm to a compelling interest of the movant and that no alternative to sealing can adequately protect the threatened interest.” 11 Notably, “mere curiosity” is not a sufficient public interest for denying a motion to seal. 12 So, when will the courts permit documents to be sealed or redacted? Generally, “when trade secrets are involved or when disclosure of information contained in documents ‘could threaten a business’s competitive advantage.’” 13 Similarly, courts have found that a party’s privacy interest in tax returns and other personal financial information warrants protection from public disclosure. 14 To the extent the information sought to be protected from disclosure concerns third parties, courts have found that “ here a compelling interest in sealing” such information “since disclosure could impinge on the privacy rights of third parties who clearly are not litigants herein.” 15 Finally, courts require those seeking to seal or redact information narrowly tailor their application in order to outweigh the public’s right to access. 16 When the moving party does so, their application is “more likely to be permitted than sealing of an entire document or court file.” 17 The foregoing principles were recently examined in Jaffrey v. Scaminaci , 2023 N.Y. Slip Op. 32297(U) (Sup. Ct., N.Y. County July 6, 2023) ( here ), Youge Venture Capital LLP v. Xueyuan Han , 2023 N.Y. Slip Op 32299(U) (Sup. Ct., N.Y. County July 6, 2023) ( here ), and Meshechok v. Corporate Solutions Group I, LLC , 2023 N.Y. Slip Op. 32301(U) (Sup. Ct., N.Y. County July 6, 2023) ( here ). In Jaffray , nonparties Melody Capital Partners, L.P. and Melody Capital Partners GP, LLC (collectively, “Melody”) moved to seal certain exhibits and memoranda of law submitted in connection with defendant’s motion to dismiss because they contained confidential or proprietary information. In particular, Melody claimed that the identities and investment activities of certain investors, i.e. , limited partnerships (“Investor Information”), in private investment funds managed by Melody should be redacted. Melody claimed, inter alia , that it was contractually obligated, under various agreements to prevent unnecessary disclosure of the Investor Information and that the parties’ interest in protecting the Investor Information outweighed the public’s right to access court records because the Investor Information was not relevant to the underlying dispute between the parties, and because the investors in Melody were simply “bystanders” to the action. 18 The motion court granted the motions, finding that Melody “demonstrated good cause to narrowly redact the identities of the investors, their activities, and their representatives,” 19 and that “disclosure of the Investor Information would be in breach of the confidentiality provisions of certain agreements … to keep information like the Investor Information confidential.” 20 In Youge Venture Capital , the parties sought to seal certain documents because they contained personally identifying information and sensitive, non-public financial information of defendant as well as nonparties. The motion court granted defendants’ motion and granted in part plaintiffs’ motion. In Meshechok , defendants moved to seal tax information, confidential business information and information that, if revealed, would give competitors a competitive advantage. In particular, defendants maintained that the tax information was private and confidential because it concerned the “amount of corporate distributions, company finances (including income, expenses, assets, investments, and liabilities), and amount of personal distributions and expenses for both parties and nonparties.” 21 Defendants also claimed that license agreements, if disclosed, would reveal their “approach and structure of certain licensing arrangements related to their business activities.” 22 Defendants further sought to redact the advice from counsel relating to the company’s organizational structure and information regarding the processes used to protect the company’s trade secret. 23 Finally, defendants sought to redact information disclosing fee structures, operational and organizational structures, and details regarding allocation of income. 24 The motion court granted defendants’ motions, holding that they met their burden of showing good cause to shield the materials from the public. 25 The motion court also found that defendants’ proposed redactions were “narrowly tailored.” 26 Footnotes Mosallem v. Berenson , 76 A.D.3d 345, 348 (1st Dept. 2010) (citations omitted). IDW Grp., LLC v. Levine Ins. Risk Mgt. Servs., Inc. , 40 Misc. 3d 368, 381 (Sup. Ct., N.Y. County Apr. 12, 2013) (citations omitted). Mosallem , 76 A.D.3d at 349. Matter of Crain Commc’ns v. Hughes , 135 A.D.2d 351, 351 (1st Dept. 1987), aff’d , 74 N.Y.2d 626 (1989). Gryphon Domestic VI, LLC v. APP Int’l Fin. Co., B.V. , 28 A.D.3d 322, 325 (1st Dept. 2006). Maxim, Inc. v. Feifer , 145 A.D.3d 516, 517 (1st Dept. 2016). Id. at 518; Gryphon Domestic VI , 28 A.D.3d at 324. Maxim , 145 A.D.3d at 518. Id. Applehead Pictures LLC v. Perelman , 80 A.D.3d 181, 191 (1st Dept. 2010) (citation omitted). Mancheski v. Gabelli Grp. Capital Partners , 39 A.D.3d 499, 502-503 (2d Dept. 2007) (citations omitted). Dawson v. White & Case , 184 A.D.2d 246, 247 (1st Dept. 1992). Natixis Real Est. Capital Tr. 2007-HE2 v. Natixis Real Est. Capital, Inc. , 77 Misc. 3d 1224(A), 180 N.Y.S.3d 525 (Table) at *1 (Sup. Ct., N.Y. County 2023) (quoting Mosallem , 76 A.D.3d at 345, 348-49); Mancheski , 39 A.D.3d at 503; SeealsoDawson , 184 A.D.2d at 247; Hindlin v. Prescription Songs LLC , 2020 N.Y. Slip Op. 32583(U), at *3 (Sup. Ct., N.Y. County 2020) (permitting redactions in documents containing “various financial and business terms” when “disclosure could threaten ’s competitive advantage in the market”) (citation omitted). D’Amour v. Ohrenstein & Brown, LLP , 2007 WL 4126386, at *21 (Sup. Ct., N.Y. County Aug. 13, 2007) (sealing all files in connection with a motion to dismiss a partnership dispute, when the parties’ financial information, including its tax returns, financial statements and reports, and firm agreements and memoranda, were non-public and confidential); Fruhling v. Westreich , 2022 WL 314046, at *1 (Sup. Ct., N.Y. County Feb. 2, 2022), aff’d , 88 A.D.3d 567 (1st Dept. 2011); State v. Bayrock Grp. LLC , 2017 WL 748826, at *2 (Sup. Ct., N.Y. County Feb. 27, 2017); Feffer v. Goodkind, Wechsler, Labaton & Rudoff , 152 Misc. 2d 812, 816 (Sup. Ct., N.Y. County 1991) (noting “minimal” public interest in law firm’s “internal finances”). Mancheski , 39 A.D.3d at 502 (2d Dept. 2007); Catalyst Investors III, L.P. v. The We Co. , 2022 WL 1516276, at *2 (Sup. Ct., N.Y. County May 13, 2022). Danco Labs., Ltd v. Chemical Works of Gedeon Richter, Ltd ., 274 A.D.2d 1, 6 (1st Dept. 2000). See Danco Labs., Ltd. v. Chemical Works of Gedeon Richter, Ltd. , 274 A.D.2d 1, 6 (1st Dept. 2000). Slip Op. at *3-*5. Id. at *6 (citations omitted). Id. at *5 (citations omitted). Slip Op. at *3. Id. Id. at *5. Id. Id. (citation omitted). 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: Jeffrey M. Haber In 1990, Congress created the EB-5 Immigrant Investor Visa Program (“EB-5 Program”) to stimulate the U.S. economy through job creation and capital investment by foreign investors. The EB-5 Program offers foreign investors and members of their family an opportunity to obtain permanent residence in the United States ( i.e. , obtain a green card) and provides a source of financing for developers to use in, among other things, construction and business projects. The EB-5 Program has been a material source of private investment in the U.S. for many years. According Invest in the USA, the national trade association whose members are EB-5 regional centers, “between 2008 and 2021, the EB-5 program helped generate $37.4 billion in foreign direct investment to create and retain U.S. jobs for Americans, all at no cost to the taxpayer” ( here ). Despite the benefits of the EB-5 Program, the incidence of fraud and abuse has increased over time. Typically, where fraud is involved, a company/regional center and its financial backers will solicit EB-5 Program investors with promises of high rates of return. In some cases, the companies/regional centers guarantee that the investment is risk-free. The Securities and Exchange Commission (“SEC”) has identified a set of common violations of the securities laws arising from the misconduct surrounding the EB-5 Program. These violations include: (a) false or misleading statements in placement memoranda, subscription agreements, advertisements, and sales brochures in violation of Section 10(b)-5 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (b) theft or misuse of investor funds in violation of Section 17(a) of the Securities Act of 1933, as amended; and (c) improper solicitation of investors by unregistered broker-dealers in violation of Section 15(a) of the Exchange Act. Due to the incidence of fraud, the SEC has released an investor alert to warn investors about potential scams in EB-5 offerings. The USCIS has also noted that “fraud – in the form of embezzlement, securities violations, investment schemes, and criminal conduct – has plagued the Regional Center program since its inception.” In a letter to then-President Trump, Senator Charles Grassley also noted that the EB-5 Program had “become riddled with fraud and serious vulnerabilities that present real national security concerns,” and strayed materially from its intended purpose of bringing investment to areas that need investment opportunities the most. Given the incidence of fraud and abuse, it is not surprising that EB-5 investors have brought suit against companies/regional centers, claiming violations of the common law, as well as federal law. In Youyi Chen v. 215 Chrystie Venture, LLC , 2023 N.Y. Slip Op. 50716(U) (Sup. Ct., N.Y. County July 13, 2023) ( here ), 37 foreign nationals (“plaintiffs” or “investors”), brought an action against 215 Chrystie Venture, LLC, 215 Chrystie Investors, LLC, The Ian Schrager Company, and The Witkoff Group, LLC (“defendants”), asserting six causes of action – fraud, negligent misrepresentation, breach of fiduciary duty, unjust enrichment, accounting, and constructive trust – based upon their investments in a commercial development under the EB-5 Program. Defendants collectively moved to dismiss the complaint in its entirety, pursuant to CPLR §§ 3211(a)(1), (3), and (7). The motion court granted the motion to the extent of dismissing the fraud and negligent misrepresentation causes of action as against all defendants, and denied the motion to the extent that plaintiffs alleged sufficient facts to survive dismissal of their claims related to causes of action for breach of fiduciary duty, unjust enrichment, accounting, and constructive trust as against all defendants. We examine the court’s decision as it pertains to the fraud and negligent misrepresentation claims. Background Plaintiffs are Chinese nationals who took part in the EB-5 Program to secure permanent resident status in the United States. They described themselves as unsophisticated investors with little or no proficiency in English and with limited knowledge about the U.S. real estate market. Each plaintiff invested $549,000 in Manhattan Chrystie Street Development Fund, LLC (“MCSDF” or the “fund”), a non-party to the action, for the development of a project that included the construction of a new mixed-use commercial building containing what would become the 374-room PUBLIC Hotel and 11 residential condominium units. Upon receiving plaintiffs’ funds, MCSDF was to aggregate the equity investment portion of plaintiffs’ money and invest that money in 215 Investors — for which MCSDF was to receive a “preferred equity” interest in 215 Investors. Plaintiffs alleged, however, that they never acquired membership interests in 215 Investors, and that, instead, their interests were solely connected to MCSDF. 215 Investors was managed by 215 Venture, LLC (“215 Venture” or the “managing member”), which was jointly controlled and owned by the Witkoff and Schrager entities. Plaintiffs alleged that all defendants had a direct interest in inducing plaintiffs’ investments in MCSDF, as such funds would directly flow to them; accordingly, plaintiffs alleged, all defendants were the ultimate beneficiaries and recipients of the funds invested by plaintiffs. Plaintiffs also alleged that defendants acted as promoters and solicitors for the investments and that Witkoff and Schrager were touted as having specialized skill and expertise in the U.S. real estate market generally, and in the development and operation of the project specifically. In their capacity as promoters with specialized skill and expertise, Witkoff, Schrager, and 215 Venture were allegedly responsible for compiling, crafting, and confirming the accuracy of information presented to plaintiffs concerning the nature and structure of their investment in the project. Prior to investing in the project, plaintiffs received a confidential private offering memorandum, dated June 14, 2013 (the “OM”), describing how the project would function, what the project would do, how the project was to be financed, and the financial and operational details of the investment. The OM was intended to convince investors to invest in the project. The OM was not drafted by defendants, but instead, it was drafted, approved, and distributed by MCSDF, which, as noted, was not a named defendant in the action. Notwithstanding, according to the OM, certain “information, financial statements, statistics, and graphics” were “compiled” by defendants, and “information about the Owner and the Project contained was also provided by .” With respect to defendants’ involvement in compiling and providing information for the OM, the OM also stated that it was “not an offering of ” and that “none of the nor any of their respective affiliates any representations or warranties with respect to the adequacy of the disclosures in th .” The Contentions of the Parties Plaintiffs contended that the OM contained material misrepresentations and omissions attributable to defendants which were reasonably relied upon by plaintiffs in deciding to make their investment in the project. First, the OM allegedly represented that plaintiffs’ investments would be used to purchase a preferred equity interest in 215 Investors, such that plaintiffs would have an indirect equity interest in the project and would share in the profits and losses associated with the completion of the project. Plaintiffs alleged that statements in the OM regarding the nature of their investment were false and misleading when made since plaintiffs’ investment was effectively nothing more than an unsecured junior loan. Regarding the use of proceeds, the OM provided that “ he proceeds of the Qualifying Investment will be used by the Venture to fund the construction costs of condominium and hotel portions of the Project.” Plaintiffs maintained that this representation was misleading and untrue when made, since between 2015 and 2019, instead of using the investments to fund the project, defendants diverted to themselves and their own use approximately $109 million from the project funds. The OM also allegedly falsely represented that defendants were putting their own capital at risk and that such capital would remain at risk throughout the life of the project. Plaintiffs further contended that the OM was misleading when made in that it falsely summarized the terms of the 215 Investors’ operating agreement (the “OA”). According to the complaint, defendants drafted the OA and were responsible for summarizing it in the OM and confirming the accuracy of statements concerning the OA in the OM. The OA allegedly reinforced the false and misleading narrative that plaintiffs would have an indirect equity interest in 215 Investors by investing in MCSDF, and that MCSDF would be treated as a “member” of 215 Investor. Plaintiffs also alleged that the schedules attached to the OA were false and misleading in that they omitted material information. Defendants argued that plaintiffs did not have standing to pursue any of the claims because they lacked privity with defendants. Defendants argued that all claims asserted by plaintiffs fell into one of two categories: they should be asserted against MCSDF (which was a non-party to the action) or are derivative in nature and belonged to MCSDF, and not to plaintiffs individually – plaintiffs neither asserted direct claims against, nor derivative claims on behalf of, MCSDF. Therefore, argued defendants, plaintiffs lacked standing to pursue their claims. Defendants also argued that plaintiffs’ claim for fraud should be dismissed as no statement or representation made in the OM could be attributed to defendants, as the OM was drafted, signed and distributed by MCSDF. Defendants further argued that they did not owe plaintiffs any special or fiduciary duties, even if plaintiffs could establish standing. According to defendants, plaintiffs were not investors in (or members of) any of defendants, including 215 Investors, and under New York law controlling members and managers of LLC’s do not owe any special or fiduciary duties to non-members. Given that plaintiffs have not pled any recognized special or fiduciary relationship with defendants, defendants maintained that plaintiffs’ claims for, inter alia , negligent misrepresentation and breach of fiduciary duty should be dismissed, as each requires the existence of a special or fiduciary relationship between the parties. Plaintiffs argued that defendants’ conduct constituted fraud because plaintiffs were induced by defendants’ misrepresentations and omissions to invest in MCSDF and then in the project. Plaintiffs maintained, based on representations made in the OM, that they were investing as indirect equity owners in 215 Investors and thus would have shared in distributions of profits (and incurred any losses) from the development and operation of the project. Instead, plaintiffs argued, their investment was treated as an unsecured junior loan, rendering payments owed to plaintiffs due at a significantly later date than payments owed to investors with equity interests in the project. Considering their lack of sophistication, plaintiffs argued, it was reasonable for them to rely on statements provided in the OM, especially since defendants were touted as experts with specialized skill and knowledge. Plaintiffs further argued that had they known of the true structure of their investment, they would either not have invested in the project or would have insisted on substantial changes. Alternatively, plaintiffs argued that defendants’ misstatements and omissions constituted negligent misrepresentation. The Motion Court’s Decision The motion court dismissed the fraud and negligent misrepresentation claims. The motion court found that “dismissal of the fraud claim warranted given plaintiffs’ failure to allege any statements made directly by defendants to plaintiffs.” The motion court found that the OM, which was used “to solicit plaintiffs’ investment in MCSDF, was drafted, approved, and distributed exclusively by MCSDF.” Plaintiffs did not “allege that any of the defendants had any direct involvement with the process of drafting, approving or distributing the OM,” said the motion court. That failure, noted the motion court, was underscored by the OM, which specifically stated that the OM was not an offering of the defendants. Thus, any claims related to the falsity or misleading nature of the OM, held the motion court, were properly asserted “only against MCSDF, and its principals, none of whom defendants” in the action. The motion court held that to the extent 215 Venture allegedly provided false information to MCSDF regarding the OA — and to the extent that MCSDF included such information in the OM — such claims belonged to MCSDF, not plaintiffs. “And although defendants certainly had a hand in drafting the OA,” noted the motion court, the OA was “an arms-length agreement between 215 Venture and MCSDF,” which plaintiffs did not allege contained any representations intended to be relied upon by third parties. “The OA simply sets out the governance of 215 Investors, including the rights and obligations of each member,” observed the motion court. Since plaintiffs did not allege that they were members in 215 Investors, explained the motion court, “the OA cannot possibly form the basis of fraud-related claims between plaintiffs — non-parties thereto — and any of the defendants.” Since plaintiffs’ negligent misrepresentation claim was “exclusively rooted in statements allegedly made by defendants in the OM and OA, which the exact same statements that formed the basis for plaintiffs’ fraud claim,” it suffered from the same infirmities as plaintiffs’ fraud claim, held the motion court. “ o statement in either of the two documents was ever made by defendants directly to plaintiffs,” said the motion court. Thus, concluded the motion court, “ o the extent that the OM or OA contain any misrepresentations — whether fraudulent or negligent — those misrepresentations were made either by defendants to MCSDF or by MCSDF to plaintiffs” and, therefore, were not actionable. Takeaway In prior articles, we have discussed the pleading requirement that the plaintiff identify a statement or omission claimed to be false or misleading in order to survive a motion to dismiss. As noted above, in Chen , the motion court found that plaintiffs failed to satisfy this requirement. Of interest to us is the absence of any specific discussion of the principle that a defendant can be liable to a plaintiff for fraud when the plaintiff relies on the misstatement or omission of a third-party who acts as a conduit for the fraud. We have examined this principle of law on numerous occasions. In Pasternack v. Laboratory Corp. of Am. Holdings , 27 N.Y.3d 817 (2016), the New York Court of Appeals held that third-party reliance does not satisfy the reliance element of a fraud claim unless the third party “acted as a conduit to relay the false statement to plaintiff, who then relied on the misrepresentation to his detriment.” In other words, the alleged misrepresentation or omission does not need to be made directly to the plaintiff so long as the statement was made with the intent that it be communicated to the plaintiff by a third party and the plaintiff relied on the representation or omission to his or her detriment. Based upon the motion court’s discussion of the facts and allegations, it seems that the misrepresentations and omissions in the OM were made for the purpose of being communicated to plaintiffs, as investors of the project, in order to induce their reliance thereon. As noted in the discussion above, plaintiffs alleged that many of the alleged misrepresentations and omissions were attributable to defendants. While there is no way of knowing if this principle would have changed the outcome of the motion, it, nevertheless, is interesting that the principle was not specifically discussed. __________________________ 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. Regional centers are business that offer investment opportunities under the program. The fact that a business is designated as a regional center by the U.S. Citizenship and Immigration Services (“USCIS”) does not mean that USCIS, the SEC, or any other government agency has approved the investments offered by the business, or has otherwise expressed a view on the quality of the investment. See Hearing on “Citizenship for Sale: Oversight of the EB-5 Investor Visa Program” before the Senate Committee on the Judiciary on June 19, 2018 ( here ). See Investor Alert: Investment Scams Exploit Immigrant Investor Program (Oct. 9, 2013) ( here ). See Grassley to Trump: You Can Restore Integrity To EB-5 Visa Program (June 8, 2018) ( here ). As an initial matter, the motion court held that the plaintiffs did not lack standing to pursue their claims. The motion court explained that plaintiffs’ claims “go to allegedly fraudulent misrepresentations and omissions made by defendants without which plaintiffs would not have invested in the project.” Slip Op. at *4. Such claims, noted the motion court, are “properly brought as a direct claim, as the plaintiffs individually suffered the alleged harm and would benefit from any recovery.” Id. (citing, SFR Holdings Ltd. v. Rice , 132 A.D.3d 424, 425 (1st Dept. 2015)). Slip Op. at *5. Id. Id. Id. Id. Id. Id. Id. Id. Id. To state a claim for negligent misrepresentation, the plaintiff must prove that “(1) the defendant had a duty, as a result of a special relationship, to give correct information; (2) the defendant made a false representation that he or she should have known was incorrect; (3) the information supplied in the representation was known by the defendant to be desired by the plaintiff for a serious purpose; (4) the plaintiff intended to rely and act upon it; and (5) the plaintiff reasonably relied on it to his or her detriment.” Hydro Inv’rs, Inc. v. Trafalgar Power Inc. , 227 F.3d 8, 20 (2d Cir. 2000). Id. Id. at *5-*6. See , e.g. , here . See , e.g. , here , here ,  here . 27 N.Y.3d at 828.

By: Jeffrey M. Haber Under New York law, there are two methods by which a person can domesticate a foreign judgment – i.e. , a judgment obtained outside the State of New York. The first method is contained in Article 54 of the Civil Practice Law and Rules (“CPLR”), which codified the Uniform Enforcement of Foreign Judgments Act. Under CPLR § 5402(a), to recognize a foreign judgment, a judgment creditor must: (1) file the foreign judgment within 90 days of the date of the judgment’s authentication in the office of any county clerk of the state; and (2) file an affidavit, stating (i) that the judgment was not obtained by default in appearance or by confession of judgment, (ii) that the judgment is unsatisfied in whole or in part, (iii) that the amount remaining on the judgment is unpaid, (iv) that enforcement of the judgment has not been stayed, and (v) setting forth the name and last known address of the judgment debtor. If the judgment creditor complies with the requirements of CPLR § 5402, under CPLR § 5402(b), the foreign judgment will be treated “in the same manner as a judgment of the supreme court of this state.” Therefore, a foreign judgment that is filed in accordance with the requirements of CPLR § 5402 will have the same legal effect as a judgment entered in New York and will be “subject to the same procedures, defenses, and proceedings for reopening, vacating or staying” a New York judgment. Since CPLR § 5402(a) specifically excludes judgments obtained by default, a foreign judgment creditor must use Article 53 of the CPLR to recognize and enforce a money judgment – the second method of recognizing a foreign judgment.    Article 53 of the CPLR covers any “foreign country judgment” granting or denying recovery of a sum of money, other than a judgment for taxes, a fine or other penalty, or “a judgment for divorce, support or maintenance, or other judgment rendered in connection with domestic relations.” New York courts generally recognize a foreign money judgment, provided that (a) procurement of the judgment meets basic notions of due process and (b) the original court had personal jurisdiction over the defendant. The latter was at tissue in Kingdom of Sweden v. Pashkovski , 2023 N.Y. Slip Op. 23202 (Sup. Ct., Kings County July 10, 2023) ( here ), the subject of today’s article. CPLR § 5304 provides numerous grounds, both mandatory and discretionary, for resisting recognition of a foreign judgment. The Act makes clear that the party seeking recognition of a foreign judgment bears the burden of establishing that the judgment is subject to the Act, while the party resisting recognition has the burden of establishing that a specific ground for non-recognition applies. When a judgment creditor seeks recognition of a foreign judgment as an original matter, the party seeking recognition must file an action on the judgment, or a motion for summary judgment in lieu of complaint, to obtain such recognition. However, when the judgment creditor seeks recognition in a pending action, he/she may do so by counterclaim, cross-claim, or affirmative defense. CPLR § 3213 governs motions for summary judgment in lieu of complaint. It can be used “ hen an action is based upon an instrument for the payment of money only or upon any judgment.” It is “intended to provide a speedy and effective means of securing a judgment on claims presumptively meritorious … a formal complaint is superfluous and even the delay incident upon waiting for an answer and then moving for summary judgment is needless.” Thus, where a foreign judgment creditor satisfies the requirement for recognition in Article 53 or 54 of the CPLR, a motion under CPLR § 3213 can provide a cost-effective method of recognizing and enforcing the judgment without the need to engage in time-consuming and expensive discovery and litigation. Kingdom of Sweden v. Pashkovski Kingdom of Sweden involved the attempt to recognize and enforce a Swedish money judgment obtained by default. The judgment was obtained on July 22, 2022, when the Örebro District Court in Sweden issued a default judgment (“Swedish Default Judgment”) to The Swedish Board of Student Finance against defendant Milena Daniella Koste Pashkovski for unpaid student loans. On October 20, 2022, the Kingdom of Sweden commenced an action against defendant in the Supreme Court, New York County by filing a summons and notice of motion for summary judgment in lieu of complaint to domesticate the Swedish Default Judgment against defendant on behalf of The Swedish Board of Student Finance. Plaintiff claimed the right to do so pursuant to Article 53 of the CPLR. Defendant opposed the motion and cross-moved for summary judgment, contending that she was not made aware of the Swedish Default Judgment. Defendant maintained that, until 2007, she was paying back the loans and had not heard anything further about them until November 8, 2022, when she received papers from the Kingdom of Sweden that it had taken legal action against her in New York. Additionally, Defendant argued that (a) there were discrepancies with the English translation of the Swedish Default Judgment that plaintiff submitted; (b) she was unemployed, experiencing financial difficulties, and had medical problems; (c) the judgment was not admissible in New York; (d) she was not afforded due process; and (e) the process was unfair in nature in that, among other things, there was no proof that the loans remained outstanding. The motion court denied plaintiff’s motion. As an initial matter, the motion court held that the Kingdom of Sweden was not the real party in interest and, therefore, lacked standing to bring the action. The motion court observed that the Kingdom of Sweden did not appear on any of the documents until the action was filed. In fact, noted the motion court, the Swedish Default Judgment was issued by the Örebro, Sweden court to The Swedish Board of Student Finance against defendant; the judgment was not issued to the Kingdom of Sweden. Accordingly, the Kingdom of Sweden, said the motion court, lacked standing to bring the action because it was not the judgment creditor. Turning to Article 53 of the CPLR, the motion court held that the Swedish Default Judgment should not be recognized and enforced because it did not comport with notions of due process and because the foreign court lacked personal jurisdiction over defendant. The motion court found that defendant did not receive notice in Sweden sufficient to enable her to defend against the action. The motion court accepted defendant’s argument that: (a) she was presented with a document ( i.e. , a notice) in Swedish, a language in which she is not conversant, and asked to sign it; and (b) she had not been in Sweden since 1998, as she was only in the country from September 1995 through June 1998 while attending the University of Örebro, Sweden. Moreover, the motion court held that the translation of the Swedish Default Judgment did not comport with CPLR § 2101(b). The motion court noted that plaintiff offered translations of the notice of the Swedish action and the judgment without an affidavit from the translator as is required by CPLR § 2101(b). The motion court stated that the translator did not submit an affidavit; instead, he provided “a self-sworn certification.” That certification explained the motion court, “did not set forth his qualifications — just that he is ‘familiar with the English and Swedish languages.’” “Without presenting himself to a notary public or another official authorized by law to take oaths, Christofferson’s certifications do not constitute affidavits,” said the motion court. “Therefore,” concluded the motion court, “there a defect in content, not form.” In sum, “ ithout a properly attested translation of what Defendant signed (and a properly attested translation of the judgment),” the motion court denied plaintiff’s motion and granted defendant’s cross-motion, holding “that the Örebro court lacked personal jurisdiction over Defendant, Defendant did not receive notice in sufficient time to enable her to defend, the judgment was repugnant to New York State policy, and the judgment did not comport with New York’s notions of due process.” ____________________________ 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. Article 53 was amended on June 11, 2021, when Governor Andrew M. Cuomo signed into law the Uniform Foreign Country Money Judgments Act, which amended New York’s Uniform Foreign Country Money-Judgments Recognition Act of 1970. CPLR § 5302(b). CPLR § 5302(c). CPLR § 5304(c). CPLR § 5303(b). CPLR § 5303(c). Interman Indus. Products, Ltd. v. R.S.M. Electron Power, Inc. , 37 N.Y.2d 151, 154 (1975) (citations and internal quotation marks omitted). CPLR § 2101(b) provides: “Each paper served or filed shall be in the English language which, where practicable, shall be of ordinary usage. Where an affidavit or exhibit annexed to a paper served or filed is in a foreign language, it shall be accompanied by an English translation and an affidavit by the translator stating his qualifications and that the translation is accurate.” Citing CPLR § 5304(a)(3), (b)(1), (3), (8).

By: Jeffrey M. Haber On October 8, 1971, ABC aired an episode of The Brady Bunch, titled “The Wheeler-Dealer”. In the episode, Greg gets his driver’s license and wants to buy a car of his own. He gets snookered by a friend into buying a lemon for $100. When Greg complains to Mike about how he was conned into the deal, Mike expresses little sympathy and instead gives Greg a lesson on salesmen and the caveat emptor doctrine. The common law doctrine of caveat emptor is a well-accepted rule of law in New York. Under the doctrine, the courts will not impose liability on a seller of property for failing to disclose information material to the transaction when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment. “If, however, some conduct ( i.e. , more than mere silence) on the part of the seller rises to the level of active concealment, a seller may have a duty to disclose information concerning the property.” “To maintain a cause of action to recover damages for active concealment, the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his responsibilities fixed by the doctrine of caveat emptor.” “Where the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him or her of knowing, by the exercise or ordinary intelligence, the truth or the real quality of the subject of the representation, he or she must make use of those means, or he or she will not be heard to complain that he or she was induced to enter into the transaction by misrepresentations.” Today we examine Striplin v. AC&E Home Inspection Corp. , 2023 N.Y. Slip Op. 03720 (2d Dept. July 5, 2023) ( here ). Striplin arose from the purchase of real property. Among other things, defendants claimed that plaintiffs purchased the premises “as is” and failed to investigate the condition of the premises at or about the time of purchase. They claimed, inter alia , that under the doctrine of caveat emptor plaintiffs’ fraudulent concealment claim should be dismissed. As discussed below, the Appellate Division, Second Department disagreed and reversed the dismissal of plaintiffs’ fraudulent concealment claim. In 2012, plaintiffs purchased a home from defendants. Prior to signing the contract of sale, plaintiffs had the home inspected by AC&E Home Inspection Corp. (“AC&E”). Thereafter, on July 13, 2012, plaintiffs and defendants entered into a contract of sale (the “Contract”). The closing was held on September 21, 2012. In 2015, plaintiffs allegedly became aware of the damage to the home when they listed the property for sale and the proposed buyer “expressed misgivings” as a result of the damage. Plaintiffs claimed that the Acrylic Stucco Overframe or Exterior Insulation and Finish System known as “EIFS” on the home was damaged and allowed for water infiltration. Plaintiffs claimed that defendants had concealed the damage from them by making cosmetic repairs, such as placing new wood on top of rotten wood, in an effort to hide the water damage which the property had suffered. Plaintiff sued, alleging among other things, fraudulent inducement/fraudulent concealment. Defendants moved to dismiss the fraud cause of action; they also moved for summary judgment as to the same cause of action. The motion court granted the motion to dismiss. The motion court found that even if plaintiffs’ argument were true that the water damage was peculiarly within defendants’ knowledge and concealed by them, they, nonetheless, had the means available to them of knowing by the exercise of ordinary intelligence the condition of the property. In this regard, the motion court noted that plaintiffs utilized those means by having a home inspection performed by AC&E. Notably, the motion court held that plaintiffs failed to allege that defendants thwarted their efforts to discover the condition of the property prior to signing the Contract. On appeal, the Second Department reversed to deny the motion. The Court held that “the amended complaint sufficiently state a cause of action to recover damages for fraud on the theory that … defendants actively concealed extensive water damage to the property.” The Court found that the “amended complaint, as amplified by an affidavit of one of the plaintiffs …, allege , among other things, that … defendants took measures to actively conceal the existence of leaks and water damage to the property, including placing new wood on top of rotten wood to hide the extent of the damage.” Thus, if true, said the Court, plaintiffs demonstrated that defendants “might have thwarted the plaintiffs’ efforts to fulfill their responsibilities imposed by the doctrine of caveat emptor with respect to the property.” here.=">here."> Takeaway Under the doctrine of caveat emptor, the purchaser of real property has a duty to inspect the property and satisfy himself/herself as to the bona fides the transaction. The courts in New York will not hesitate to dismiss a fraud claim by a purchaser of real property where a defective condition exists and was reasonably discovered through an inspection or another form of due diligence. Since the seller has no duty to disclose the pre-existing condition, the seller will be liable only when he/she thwarts or prevents the purchaser from discovering the condition through the exercise of due diligence. As shown in Striplin , the caveat emptor doctrine will not apply where a purchaser can show that the seller engaged in acts that constituted active concealment of the condition that were intended to thwart the purchaser’s ability to fulfill his responsibility to inspect the property and prevent the discovery of the defective condition. ______________________________ 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. Simone v. Homecheck Real Estate Servs., Inc. , 42 A.D.3d 518, 520 (2d Dept. 2007); Razdolskaya v. Lyubarsky , 160 A.D.3d 994, 996 (2d Dept. 2018); Radushinsky v. Itskovich , 127 A.D.3d 838, 839 (2d Dept. 2015). Hecker v. Paschke , 133 A.D.3d 713, 716 (2d Dept. 2015) (internal quotation marks omitted); see also Daly v. Kochanowicz , 67 A.D.3d 78, 92 (2d Dept. 2009). Jablonski v. Rapalje , 14 A.D.3d 484, 485 (2d Dept. 2005); Razdolskaya , 160 A.D.3d at 996. Rojas v. Paine , 101 A.D.3d 843, 845 (2d Dept. 2012). Slip Op. at *2. Id. (citation omitted). Id. (citations omitted).