By: Jeffrey M. Haber The objective of an auditor is to supervise the audit engagement, including supervising the work of engagement team members so that the work is performed as directed and supports the conclusions reached. 1 The engagement partner is responsible for the engagement and its performance. 2 Accordingly, the engagement partner is responsible for the supervision of the engagement team and for compliance with PCAOB standards, 3 including standards regarding using the work of specialists, other auditors, internal auditors, and others who are involved in testing controls. 4 The engagement partner and, as applicable, other engagement team members performing supervisory activities, should inform engagement team members of their responsibilities, including, among other things, the objectives of the procedures that they are to perform; the nature, timing, and extent of the procedures they are to perform; and matters that could affect the procedures to be performed or the evaluation of the results of those procedures, including relevant aspects of the company, its environment, and its internal control over financial reporting, and possible accounting and auditing issues. 5 Those in a supervisory role are also required to review the work of engagement team members to determine whether the work was performed and documented; the objectives of the procedures were achieved; and the results of the work support the conclusions reached. 6 In addition to supervision, an auditor is required to exercise due professional care in the planning and performance of an audit and preparation of the audit report. 7 Due professional care requires an auditor to exercise “professional skepticism,” which includes “a questioning mind and a critical assessment of audit evidence.” 8 Negligent conduct by an auditor violates the duty of due care. 9 The generally accepted method for engagement partners to document their supervision of an audit in compliance with PCAOB auditing standards, and their review of the work performed by engagement team members, is by signing and dating (or “signing off”) work papers when they perform or review work. Historically, sign offs occurred on hard copies of work papers but, in recent years, many audit firms moved to electronic sign offs. Whether a sign off occurs in hard copy or electronic form, it provides evidence of who performed or reviewed audit work and the date on which such work or review occurred. By signing off on work papers, an engagement partner documents his or her supervision of the audit. When conducting an audit, the auditor is required to provide a written record of the basis for the auditor’s conclusions. Audit documentation facilitates the planning, performance, and supervision of the audit engagement. 10 An auditor must prepare audit documentation in connection with each audit engagement conducted pursuant to PCAOB auditing standards. 11 The audit documentation should demonstrate, among other things, that the engagement complied with the standards of the PCAOB. 12 The foregoing accounting standards, among others, are the subject of an administrative and cease-and-desist proceeding brought by the Division of Enforcement of the Securities and Exchange Commission (“SEC”) against an engagement partner (“Respondent”) at a national accounting and advisory firm (the “Firm”) for allegedly violating PCAOB audit standards, including those related to supervision, audit documentation, and due professional care, in audits for which Respondent was the lead engagement partner. 13 According to the SEC’s Order ( here ), from 2012 through 2022, Respondent served as the engagement partner for at least 240 audits of public companies, including both operating companies and special purpose acquisition companies. For at least 204 of those audit engagements (or approximately 85%), Respondent allegedly failed to supervise the work of the engagement team as shown by, among other things, his purported failure to review the work of the engagement team and to document his review by the report release date. 14 Respondent also allegedly failed to assemble complete and final audit documentation within 45 days of the report release date for 126 (or approximately 53%) of the audit engagements. These failures, alleged the SEC, violated PCAOB auditing standards.  Further, in connection with the 2018 through 2020 audits of a public company, where Respondent served as the engagement partner, Respondent allegedly violated PCAOB auditing standards, including the exercise of due professional care. The SEC charged Respondent with engaging in improper professional conduct within the meaning of Section 4C(a)(2) of the Securities Exchange Act of 1934 and Rule 102(e)(1)(ii) of the SEC’s Rules of Practice and causing the Firm’s violations of Rule 2-02(b)(1) of Regulation S-X. 15 Footnotes AS 1201.02. Id. at .03. The Public Company Accounting Oversight Board (“PCAOB”) was created as part of the Sarbanes-Oxley Act of 2002. The PCAOB oversees audits of public companies that are subject to the securities laws in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB established Auditing Standards for registered public accounting firms to follow in the preparation of audit reports for public companies, other issuers, and broker-dealers. AS 1201.03. Id. at .05. Id. AS 1015.01. Id. at .07. Id. at .03. AS 1215.02. AS 1215.04. Id. at .05.a. The administrative summary from which the description of the proceeding comes can be found here . The report release date is the date on which an audit firm grants permission to use its audit report in connection with the issuance of its client’s financial statements. It is important to remember that the Order is merely an allegation of wrongdoing. Nothing has been proven by the SEC and no findings have been made before a trier of fact. 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 Today’s BLOG article addresses the circumstances pursuant to which the buyer under a real estate sales contract is entitled to prejudgment statutory interest pursuant to CPLR 5001(a) on the return of its down payment upon seller’s breach of that contract. CPLR 5001(a) provides that “ nterest shall be recovered upon a sum awarded because of a breach of performance of a contract, or because of an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property, except that in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court's discretion.”  The purpose of the “interest award is to compensate the wronged party for the loss of use of the money” that is the subject of the underlying claim.  CRP/EXTELL Parcel I, L.P. v. Cuomo , 124 A.D.3d 560, 561 (1 st Dep’t 2015), aff’d , 27 N.Y.3d 1034 (2016). Sometimes contracts contain “liquidated damages” provisions, which are designed to quantify, “‘the compensation which, the parties have agreed, should be paid in order to satisfy any loss or injury flowing from a breach of contract.’”  Seymour v. Hovnanian , 211 A.D.3d 549, 553 (1 st Dep’t 2022) ( quoting Truck Rent-A-Center, Inc. v. Puritan Farms 2 nd , Inc. , 41 N.Y.2d 420, 423-24 (1977).  [Eds. Note: this BLOG has addressed liquidated damages, inter alia , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .]  Liquidated damages provisions are ideal “‘in those situations where it would be difficult, if not actually impossible, to calculate the amount of actual damage.’”  Id . ( quoting Truck Rent ).  Such provisions will be sustained if they are not deemed to be a “penalty” ( JMD Holding Corp. v. Congress Financial Corp ., 4 N.Y.3d 373, 379 (2005)), but reflect a “reasonable estimate of actual damages” ( J.P. Morgan Securities Inc. v. Vigilant Ins. Co. , 37 N.Y.3d 552, 563 (2021)).   On January 16, 2024, the Appellate Division, First Department, decided IHG Harlem I LLC v. 406 Manhattan LLC .  IHG involved three “largely identical” real estate contracts for the purchase/sale of real property.  At the time of signing of the contracts, the plaintiff/purchaser delivered a down payment exceeding $600,000, which, pursuant to the contracts, were to be deposited in the IOLA account of seller’s attorney.  In a prior appeal, the First Department “held that ‘the contracts provided that if defendants refused or failed to convey the properties, 'shall elect as its sole and exclusive remedy' either termination of the contract and the return of its deposits or enforcement of obligation to convey the property by seeking specific performance. As has elected not to seek specific performance, its sole remedy is the return of its deposits.’”  [Eds. Note: this BLOG has addressed specific performance of real estate contracts < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .] Upon the motion court’s order granting summary judgment to buyer, the parties submitted competing proposed judgments – buyer’s proposed judgment providing for prejudgment interest on the amount held in escrow and seller’s providing for no such interest.  The motion court, denying buyer’s request for interest, signed seller’s proposed judgment, which directed that “the funds being held in escrow be returned to without interest.”  Since the contracts were breached in 2015, the accrued interest on $600,000 (at 9% ( see CPLR 5004)) is significant.  The motion court, in denying interest to the buyer, relied on J. D’Addario & Co., Inc. v. Embassy Indus., Inc. , 20 N.Y.3d 113 (2012), and Sommer v. General Bronze Corp. , 28 A.D.2d 981 (1 st Dep’t 1967), aff’d, 21 N.Y.2d 775 (1968), and stated: In J. D'Addario , the Court of Appeals affirmed the First Department's decision which vacated the trial court's award of statutory interest on the return of a deposit because the parties agreed the seller would have no further rights once the down payment was paid as liquidated damages and the contract required the deposit be held in an interest-bearing account. Meanwhile, in Sommer , the First Department explicitly held that where a contract of sale limited liability to the amount of the down payment, money damages equivalent to the amount of the down payment or interests on that amount were not warranted . . . J. D'Addario and Sommer are squarely on point and since this court is bound to follow its precedent, the court will sign the judgment proposed by defendants which does not award plaintiff a money judgment. The IHG Court in modifying the motion court’s order to include prejudgment interest distinguished J. D' Addario & Co. and Sommer and agreed with buyer’s argument that the motion court “erred by employing too broad a reading” of those cases.  The IHG Court framed the issue for it to decide as “whether the parties' contract language specifying that purchaser's ‘sole remedy’ in the event of sellers' breach is the return of its downpayment constitutes a clear waiver of CPLR 5001 (a) as defined by the Court of Appeals in J. D' Addario & Co. … and requires denying the nonbreaching party statutory prejudgment interest.” In reaching its decision that buyer was entitled to interest, the First Department noted that CPLR 5001(a) provides that prejudgment interest “shall be recovered”.  This the Court concluded, demonstrates that the legislature intended the award of such interest to be a “duty, not discretion.”  (Citation and internal quotation marks omitted.)  The Court further noted that the “principle behind awarding statutory interest on amounts in escrow is not to punish the breaching party, but rather to compensate the wronged party for the loss of use of their money.”  (Citation omitted.)  The Court, however, recognized a few circumstances where the denial of an award of prejudgment interest would be appropriate – including where the parties to a contract agree to waive statutory interest in a manner that “clearly manifests their intent to do so comports with the requirements for waivers in other contexts.”  (Citations omitted.)  The IHG Court, unlike the J. D' Addario & Co. Court, found no such “clear manifestation” precluding an award of prejudgment interest to buyer.   As noted by the First Department in IHG, the Court of Appeals in J. D' Addario & Co. , based its decision to deny prejudgment interest pursuant to CPLR 5001(a) on a “cumulation of factors” that resulted in the conclusion that the parties waived the right to such prejudgment statutory interest.  J. D' Addario & Co. involved a real estate contract that was breached by the buyer.  The contract provided that the “sole remedy” upon breach involved a “liquidated sum” that, inter alia , “included compensation for the lost use of that money over time” and “explicitly waived all further rights and obligations.” The contracts in IHG designated buyer’s “sole and exclusive remedy the return of its downpayment limits damages to the liquidated sum of plaintiff's downpayment.”  However, the IHG Court noted that the mere “use of the term ‘liquidated damages’ neither precludes nor waives the application of CPLR 5001 (a).”  Where compensation for the time value of money – such as the inclusion of bank interest – is included as part of the agreed upon liquidated damages “an award of statutory interest would result in a windfall to the nonbreaching party.”  The IHG Court found that no such compensation is reflected in the parties’ contracts because the deposit was placed in an IOLA account and, therefore, the interest “that accrued on downpayment over seven years was paid to tate’s IOLA fund not to .” Thus, the Court concluded that “ n these carefully drafted agreements there are no express limitations on liability that suggest the parties here intended to vitiate CPLR 5001(a).”  Accordingly, the IHG Court’s award directed the return of the downpayment (in the amount of $626,250.00) plus “statutory prejudgment interest on its deposits at the rate of 9% from November 12, 2015 through November 16, 2022. 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 The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), enacted on July 21, 2010, amended the Securities Exchange Act by adding Section 21F-17, “Whistleblower Incentives and Protection.” The purpose of these provisions was to encourage whistleblowers to report possible securities law violations by providing, among other things, financial incentives and confidentiality protections. To achieve this Congressional purpose, the Securities and Exchange Commission (the SEC” or the “Commission”) adopted Rule 21F-17, which provides in relevant part: “No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.” Since its adoption, 1 the SEC has vigorously enforced Rule 21F-17. On January 16, 2024, the SEC announced ( here ) that it settled charges against J.P. Morgan Securities LLC (“JPMS”) for impeding hundreds of advisory clients and brokerage customers from reporting potential securities law violations to the SEC. JPMS agreed to pay an $18 million civil penalty to settle the charges. According to the SEC, from 2020 through July 2023 (the “Relevant Period”), JPMS requested that certain clients sign a release (the “Release”) if the clients received a credit or settlement of over $1,000, regardless of whether JPMS admitted or denied any error or wrongdoing in connection with the credit or settlement. In addition, said the SEC, JPMS sometimes offered its clients an additional payment above and beyond the credit or payment calculated for the dispute. In at least one case, noted the SEC, this payment or credit was higher than the original credit or settlement. The SEC alleged that since 2020, at least 362 JPMS clients signed a release, receiving an amount ranging from approximately $1,000 to $165,000. Pursuant to the Release, the client released JPMS from liability and “promise not to sue or solicit others to institute any action or proceeding against arising out of events concerning the Account.” If the client breached the foregoing provision, said the SEC, then JPMS could “undertake whatever legal action deem appropriate to address the breach(s), including, but not limited to, injunctive relief, and monetary damages not to exceed the settlement amount.” According to the SEC, in a another section of the Release, the client agreed to keep the Release confidential and “not use or disclose (including but not limited to, media statements, social media, or otherwise) the allegations, facts, contentions, liability, damages, or other information relating in any way to the Account, including but not limited to, the existence or terms of this Agreement.” Notwithstanding, noted the SEC, the client and the client’s attorneys were permitted to respond “to any inquiry about settlement or its underlying facts by FINRA, the SEC, or any other government entity or self-regulatory organization, or as required by law.” Despite this statement, however, the Release prohibited clients from affirmatively reporting violations of the securities laws to the Commission, claimed the SEC. To settle the action, JPMS agreed to pay a civil penalty of $18 million. In doing so, JPMS neither admitted nor denied the findings, except as to the Commission’s jurisdiction over JPMS and the subject matter of the proceedings, which were admitted.  “Whether it’s in your employment contracts, settlement agreements or elsewhere, you simply cannot include provisions that prevent individuals from contacting the SEC with evidence of wrongdoing,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “But that’s exactly what we allege J.P. Morgan did here. For several years, it forced certain clients into the untenable position of choosing between receiving settlements or credits from the firm and reporting potential securities law violations to the SEC. This either-or proposition not only undermined critical investor protections and placed investors at risk, but was also illegal.” “Investors, whether retail or otherwise, must be free to report complaints to the SEC without any interference,” said Corey Schuster, Co-Chief of the Enforcement Division’s Asset Management Unit. “Those drafting or using confidentiality agreements need to ensure that they do not include provisions that impede potential whistleblowers.” A copy of the cease-and-desist order can be found here . Footnote Rule 21F-17 became effective on August 12, 2011. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber A common theme in commercial litigation is the assertion of a breach of contract claim and a fraudulent inducement claim. A plaintiff claiming a breach of contract must show (1) the existence of a contract; (2) the plaintiff’s performance under that agreement; (3) the defendant’s breach of its obligations; and (4) damages resulting from the breach. One of the provisions parties often include in their contract is a merger clause. A merger clause is a provision in which the parties declare their writing to be the complete and final agreement between themselves. Although it is common to find a merger clause in a contract, it is not necessary to include one for the agreement to be enforceable. A written agreement that is “complete, clear and unambiguous on its face be enforced according to the plain meaning of its terms.” To determine whether a contract without a merger clause is “complete, clear and unambiguous,” the courts look at the agreement in “light of surrounding circumstances” and determine whether other proposed oral contract terms are the type “which the parties would ordinarily be expected to embody in the writing.” If the other proposed terms are the type that would “ordinarily be expected” to have been included in the writing, their omission indicates that the writing is complete. As readers of this Blog know, where contract and fraud claims are asserted in the same complaint, more times than not, the fraud claim will be dismissed under the duplication of claims doctrine. Under this doctrine, “ cause of action to recover damages for fraud will not lie where the only fraud claimed arises from the breach of a contract.” “Mere unfulfilled promissory statements as to what will be done in the future are not actionable as fraud and the injured party’s remedy is to sue for breach of contract.” However, if the plaintiff alleges a misrepresentation of “present facts that collateral to the contract and served as an inducement to enter into the contract, a cause of action alleging fraudulent inducement is not duplicative of a breach of contract cause of action.” The foregoing principles were recently examined in Lentner v. Upstate Forestry & Development, LLC , 2023 N.Y. Slip Op. 06626 (4th Dept. Dec. 22, 2023) ( here ). Lentner involved the sale of timber rights on real property consisting of approximately 299 acres of property improved by a residence (the “Property”). The Property is owned by plaintiff, Joanne Lentner (“Lentner”). On February 24, 2015, Lentner and “Upstate Development” entered into a written Timber Sale Contract (the “Timber Sale Contract”), pursuant to which Lentner sold to Defendant, Upstate Forestry and Development LLC (“Upstate Forestry”), the rights to remove timber on the Property in exchange for an upfront cash payment of $15,500.00. The Timber Sale Contract was negotiated and signed by Defendant, David Isabell (“Isabell”), as authorized agent for Upstate Forestry, and/or Defendant, Charles Nowack (“Nowack”), a member of Upstate Forestry. During negotiations, Isabell proposed dividing the Property into three sections, each to be treated differently under the arrangement. That proposal was reflected in an aerial map that Isabell marked up to show the partition. Pursuant to the parties’ discussions, Lentner would be paid for the “lower” or southerly section of the Property. The “upper” or northern section of the Property was marked on the map by Isabell with x’s to show there was to be no logging on that parcel and would be addressed in a future contract. The “middle” section of the Property was to be logged on a per-tree basis and Plaintiff was to be paid 50% of the value of the timber set forth on sawmill tally sheets to be provided to Plaintiff. The aerial map was not annexed to the Timber Sale Contract. It was attached to another document at the time the parties entered the Timber Sale Contract. Nowak paid Plaintiffs the $15,500.00 in cash on May 27, 2015, after logging was underway. No other payments were made to Plaintiffs. Plaintiffs halted logging on the Property when they discovered the upper or northerly parcel was being logged. Plaintiffs subsequently commenced the action, claiming breach of contract in connection with the trees removed from the middle zone of the Property and not paid for, as well as the trees improperly removed from the northernmost zone. In addition to claiming breach of contract, Plaintiffs alleged that they were fraudulently induced to enter into the Timber Sale Contract. In particular, Plaintiffs alleged that Defendants falsely represented that they would not conduct any logging on the Northern most section of the Property delineated by the parties on the aerial map and that they would compensate Plaintiffs on a per log basis for any timber removed from the middle section of the Property as delineated on the aerial map annotated by the parties. Following discovery, Defendants moved for summary judgment to dismiss the complaint. The motion court denied the motion, holding that the Timber Sale Contract was not integrated and that there were “issues of fact as to the terms of the contract.” The motion court noted that the agreement “lack a sufficient description of the property to be logged,” because “ he only potential description of where logging was to occur is . . . listed as the 911 or mailing address of the seller/owner.” The motion court further noted that “ here no acreage, tax map reference, or any other identifying information” for the Property. As a result, the motion court held, that Plaintiffs’ “testimony as to the area to be logged not necessarily contradictory to the terms” of the Timber Sale Contract “which nowhere clearly states the entire … property is to be logged for $15,500, which would presumably include the area of the residence” in the northern section of the Property. Regarding the fraudulent inducement claim, the motion court held that Defendants “made a number of misrepresentations” to induce Plaintiffs to enter into the agreement, “which include promising not to log on the Northernmost section of the property and paying … on a per log basis for any timber removed from the middle section of the property.” On appeal, the Fourth Department modified and affirmed the motion court’s order. The Court held that “Defendants met their initial burden of establishing that the timber sale contract a complete written instrument,” and, as such, “plaintiffs failed to raise a triable issue of fact in opposition.” Defendants argued that the Timber Sale Contract was a complete contract that set forth the salient terms of the parties’ agreement. The Court agreed, finding that the “contract sets forth the parties, the address of the property, the contract period, the payment terms, and a description of the items sold.” Accordingly, the Court held that “ nasmuch as the contract constituted a complete, integrated agreement, plaintiffs may not rely on an alleged oral agreement to permit logging on the southernmost section of the property, permit logging on the middle section of the property only upon additional payment, and prohibit logging on the northernmost section of the property, to vary the terms of the contract.” In so concluding, the Court emphasized that “one would expect the contract to embody any such restrictions on logging, and ‘ uch a collateral agreement cannot be separately enforced.’” The Court also held that the motion court properly denied the motion with regard to the fraudulent inducement claim against Upstate Forestry. The Court “reject defendants’ contention that the fraud cause of action was merely duplicative of the cause of action for breach of contract.” The Court found that Upstate Forestry’s “representations … to secure permission to log timber on the property, i.e., representations regarding the northernmost and middle sections of the property,” were different than the breach of contract claim. “ hose representations,” said the Court, “were false and known by the agents to be false at the time they were made inasmuch as Upstate intended to log the entire property and not adequately compensate plaintiffs, and that plaintiffs relied upon those fraudulent misrepresentations to their detriment.” Takeaway In Lentner , the Court is making a distinction between the terms of the Timber Sale Contract – $15,500.00 for the right to log timber on the Property – and the partition of the Property for logging purposes that was delineated on the aerial map associated with the Timber Sale Contract. The distinction makes sense: the parties agreed that Upstate Forestry would make an upfront cash payment in exchange for the right to log timber on the Property for a defined period. The partition of the Property for logging timber was not included in the one-page agreement. If the parties intended to include the differentiated zones for logging, then they would have included it in the agreement itself. There was nothing in the Timber Sale Contract that indicated the parties intended to include the delineations outlined in the associated map. Since the delineations in the associated map were not part of the Timber Sales Contract, then the fraudulent inducement claim, which was based on those delineations, could not be duplicative of the breach of contract claim.   Davis v. Zeh , 200 A.D.3d 1275, 1278 (3d Dept. 2021). Greenfield v. Philles Records , 98 N.Y.2d 562, 569 (2002). Braten v. Bankers Trust Co. , 60 N.Y.2d 155, 162 (1983) (internal quotation marks and citation omitted); see also Manufacturers Hanover Trust Co. v. Margolis , 115 A.D.2d 406, 407 (1st Dept. 1985). Braten , 60 N.Y.2d at 162 (citing Mitchill v. Lath , 247 N.Y. 377, 380–381 (1928)). Gorman v. Fowkes , 97 A.D.3d 726, 727 (2d Dept. 2012); see also Selinger Enters., Inc. v. Cassuto , 50 A.D.3d 766, 768 (2d Dept. 2008); Tiffany at Westbury Condominium v. Marelli Dev. Corp. , 40 A.D.3d 1073, 1076 (2d Dept. 2007). Brown v. Lockwood , 76 A.D.2d 721, 731 (2d Dept. 1980) (citation omitted). Did-it.com, LLC v. Halo Group, Inc. , 174 A.D.3d 682, 683 (2d Dept. 2019). Slip Op. at *2 (citing Alvarez v. Prospect Hosp. , 68 N.Y.2d 320, 324 (1986)). Id. (citing Battista v. Radesi , 112 A.D.2d 42, 42 (4th Dept. 1985)). Id. Id. (quoting Braten , 60 N.Y.2d at 162). Id. Id. Id. Id. ____________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger Today’s Blog relates to extensions of time to serve a defendant under CPLR 306-b, a topic previously addressed by this Blog < HERE =">HERE"> , < HERE =">HERE"> and < HERE =">HERE"> .  The background discussion in today’s Blog was taken from the linked prior Blogs. Under the present “commencement by filing” system, an action (or proceeding) (collectively, an “Action”) is commenced by filing (CPLR 304(a)) the initiatory paper(s) with the “clerk of the court in the county in which the ction … is brought or any other person designated by the clerk of the court for that purpose (CPLR 304(c)).  Once an Action is commenced, the plaintiff (or petitioner) (collectively, a “Plaintiff”) must effectuate service of process pursuant to the parameters of CPLR 306-b, which provides: Service of the summons and complaint, summons with notice, third-party summons and complaint, or petition with a notice of petition or order to show cause shall be made within one hundred twenty days after the commencement of the ction, provided that in an ction ….  If service is not made upon a defendant within the time provided in this section, the court, upon motion, shall dismiss the action without prejudice as to that defendant, or upon good cause shown or in the interest of justice, extend the time for service. Among other things, CPLR 306-b provides that, in general, service of process on a defendant (or respondent) (collectively, a “Defendant”) must be effectuated within 120 days of the commencement of an Action.  The Court of Appeals in Leader v. Maroney, Ponzini & Spencer , 97 N.Y.2d 95 (2001), explained the history of CPLR 306-b.  According to Leader , “ s originally enacted in 1992, CPLR 306-b transformed New York from a commencement-by-service to a commencement-by-filing jurisdiction.”  Leader , 97 N.Y.2d at 100 (citation omitted).  Plaintiffs were “considerabl benefit ” by “making the act of filing the point at which a claim is interposed for Statute of Limitations purposes.”  Leader , 97 N.Y.2d at 100 (citation omitted).  Under the old statute, a Plaintiff was afforded 120 days to effectuate service of process and the Action would be “deemed dismissed” if service was not timely made.  Leader , 97 N.Y.2d at 100 (citation omitted).  “The plaintiff was free to commence a new ction and serve process within a second 120-day period from the date of the automatic dismissal, even if the Statute of Limitations had expired.”  Leader , 97 N.Y.2d at 100 (citation omitted).  For a variety of reasons, the “deemed dismissed” provisions of the old statute were considered “unnecessarily harsh” and were amended to provide that if service of process is not made within the 120-day period after the commencement of the Action, an unserved Defendant can move for the dismissal, without prejudice, or the court could extend Plaintiff’s time to serve a Defendant “upon good cause shown or in the interest of justice.”  Leader , 97 N.Y.2d at 101 (citing CPLR 306-b). The Leader Court, in a trio of cases, was called upon to determine the circumstances under which a Plaintiff would be permitted to avail itself of the extension provisions of CPLR 306-b.  Importantly, the Leader Court made clear that, under CPLR 306-b, “good cause” and “the interest of justice” are “two separate standards by which to measure an application for an extension of time to serve” a Defendant if service is not made within 120 days of the commencement of an Action.    See also State of New York Mortgage Agency v. Braun , 182 A.D.3d 63, 66 (2 nd Dep’t 2020).  “Good cause” and “the interest of justice” standards are discussed < HERE =">HERE"> .  “Good cause” is established by demonstrating “reasonable diligence in attempting service.”  Wells Fargo Bank, NA v. Barrella , 166 A.D.3d 711, 713 (2 nd Dep’t 2018) (citation and internal quotation marks omitted).  Absent “good cause” the court must consider the “interest of justice” standard, which requires a careful judicial analysis of the factual settings of the case and a balancing of the competing interests presented by the parties.  Id . (citation and internal quotation marks omitted).  Under the “interest of justice” standard, as opposed to “good cause”, “diligent efforts at service” need not be established “as a threshold matter”; although it may be considered “along with any other relevant factor.”  Id . (citation and internal quotation marks omitted).  Other relevant factors may include the “expiration of the statute of limitations, the potentially meritorious nature of the cause of action, the length of delay in service, the promptness of a plaintiff's request for the extension of time, and prejudice to defendant.”  Id . (citation internal quotation marks and brackets omitted).  Relying on Leader, the Barrella Court reiterated that “ here the plaintiff's delay in serving a defendant is protracted, and the defendant has no notice of the action for a protracted period of time, an inference of substantial prejudice arises.  Id . at 714 (citations omitted). On January 11, 2024, the Appellate Division, First Department, decided 1400 Ardel Const’n & Design Group, Inc. v. VBG 990 AOA, LLC , a case addressing the “interest of justice” standard.    Plaintiff in Ardel was a construction contractor and defendant VBG is the owner of property that Ardel, pursuant to a contract, was to redevelop and renovate.  Ardel claimed that VBG breached the agreement (including failure to pay for some of Ardel’s work).  Ardel filed a mechanics’ lien, which was ultimately discharged by a “Discharge of Mechanic’s Lien Bond” issued by defendant Atlantic Specialty Insurance.  [EDS. Note: this BLOG addressed mechanic’s lien discharge bonds < HERE =">HERE"> .]  Ardel commenced action against VBG for, inter alia , breach of contract and against Atlantic to foreclose its lien on the bond.   Ardel did not effectuate service of process on Atlantic and VBG moved to dismiss the complaint.  After the motion to dismiss was decided, Ardel moved for an extension of time to serve Atlantic pursuant to, inter alia , CPLR 306-b.  The motion court denied the motion and plaintiff appealed.  The First Department reversed and stated: Plaintiff's motion for an extension of time to serve Atlantic with the summons and complaint should have been granted because plaintiff established the existence of several relevant factors weighing in favor of the extension.  The eight-month delay in service that would have resulted from the grant of the extension was not so protracted to allow for an inference that Atlantic suffered prejudice from the delay.  Moreover, although there is no record evidence that Atlantic was given actual or constructive notice of the claim, plaintiff aptly notes that any claim of prejudice is undercut by the fact that Atlantic, who posted a bond for the release of the mechanic's lien, knew there was a high likelihood of litigation involving it as defendant VBG's surety and had ample opportunity to investigate the claim.  The record further establishes the potential merits of the lien foreclosure claim, and because the statute of limitations has expired, the denial of the extension would bar plaintiff from litigating the otherwise timely filed claim against Atlantic.  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 many of the fraud cases that we examine, the plaintiff alleges that the defendant made an affirmative misrepresentation of fact upon which he/she relied. As we have often noted, fraud does not, however, always concern an affirmative statement. Sometimes a person can perpetrate a fraud through the omission of a material fact.  Where fraud by omission is claimed, the plaintiff must allege that the defendant had a duty to disclose the omitted fact. A duty to disclose arises when (1) the defendant speaks on the subject, in which case he/she must speak truthfully and completely about the matter; 1 (2) there is a fiduciary relationship between the plaintiff and defendant; 2 or (3) the defendant possesses “special facts” about the matter not known by the plaintiff. 3 A fraud by omission claim is not sustainable where information allegedly withheld is ascertainable through publicly available sources. 4  Nor is an omission case sustainable where the omitted information could have been discovered by the plaintiff through the exercise of ordinary intelligence. 5 Both of the foregoing circumstances will negate application of the special facts doctrine. Moreover, if the two-prong test is satisfied, where the party with superior knowledge of essential facts withholds or conceals such facts, the transaction at issue must be “inherently unfair” without such disclosure for the omission to be actionable. 6 Finally, as in a fraud by misrepresentation case, the plaintiff must satisfy the other elements of the claim – namely, intent to defraud, justifiable reliance and injury. And the plaintiff must do so with particularity. 7 e.g.,="e.g.," here,  here=">here" and="and" >here.=">here."> The foregoing principles were examined by the Appellate Division, First Department in Supply Co., LLC v. Hardy Way, LLC , 2024 N.Y. Slip Op. 00058 (1st Dept. Jan. 9, 2024) ( here ). Supply arose from a license agreement between Supply Co., LLC (“Supply”) and Hardy Way, LLC (“Hardy”).  The parties entered into the agreement in November 2014, pursuant to which Hardy permitted Supply to manufacture, warehouse, distribute, bill and collect payment for Ed Hardy brand products (“License Agreement”). Under the License Agreement, Supply was required to pay Hardy royalty fees amounting to 20% of its “Gross Wholesale Sales.” Supply was entitled to take certain deductions relating to markups, chargebacks, or returns of Ed Hardy products when calculating its Gross Wholesale Sales. Supply was also entitled to apply a maximum deduction of 18% of its Gross Wholesale Sales for any annual period, and Supply was required to make a minimum royalty payment of $1,500,000.00. Kevin Yap (“Yap”), Supply’s principal, guaranteed Supply’s performance under the License Agreement (the “Guarantee”). In the Guarantee, Yap agreed to pay all sums due to Hardy in the event of Supply’s default. Under the License Agreement, Supply was required to “document and accept orders” for Ed Hardy products from the list of “approved” retailers set forth in a schedule attached to the agreement. Nonparty Rainbow Apparel Distribution Center Corp. (“Rainbow”) was one of the pre-approved retailers on the Schedule. Yap testified that Iconix—the brand management company that created Hardy to manage the Ed Hardy trademarks—arranged for the sale of Ed Hardy products to Rainbow at least as early as June or July 2014. Rainbow agreed to purchase, in total, over $4.5 million worth of Ed Hardy products. Iconix—not Supply—placed the orders. Under the License Agreement, the Iconix parties were “solely responsible” for placing sales of the Ed Hardy products. From January to March 2015, Supply fulfilled Rainbow’s orders. Supply also entered into a markup agreement (“Markup Agreement”) with Rainbow in November 2014 in connection with the sale of Ed Hardy products to Rainbow. Neither Hardy nor Iconix were parties to the Markup Agreement. Under the Markup Agreement, Supply guaranteed Rainbow a minimum maintained markup percentage of 50% on sales of Ed Hardy merchandise. Supply was also required to reimburse Rainbow for Rainbow’s losses – Rainbow had the right to markdown any Ed Hardy products it received from Supply without Supply’s approval, and Supply was obligated to reimburse Rainbow “the difference of what would have needed in order to achieve the Minimum Maintained Markup percentage target.” Subsequently, Rainbow submitted a $3,300,000.00 markup reimbursement request to Supply. After Hardy and Iconix declined to reimburse Supply for Rainbow’s reimbursement request, Supply refused to pay Hardy the $1.5 million minimum royalty amount under the License Agreement. Thereafter, Supply brought suit. Supply asserted causes of action for breach of contract, fraud in the inducement, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. The motion court dismissed all of Supply’s causes of action except for its fraud in the inducement claim. With regard to that claim, Supply alleged that Hardy and Iconix fraudulently induced it to enter into the License Agreement by omitting material nonpublic information regarding the Ed Hardy trademarks’ lack of value. Hardy and Iconix answered the complaint and asserted a counterclaim for breach of the License Agreement based on Supply’s failure to tender the $1.5 million minimum royalty fee. Hardy commenced another action against Yap for breach of the Guarantee. Yap answered the complaint and asserted counterclaims for declaratory judgment based on Hardy and Iconix’s alleged “deceptive misrepresentations and/or omissions,” which were made “in order to induce Supply Co. and Yap to ... enter into the License Agreement.” Following discovery, the parties in each of the actions moved for summary judgment. The motion court granted defendants’ motions, dismissed Plaintiff’s complaint, and awarded Hardy attorneys’ fees. The motion court also granted the motion with regard to Hardy’s counterclaim for breach of contract and granted in part Hardy’s motion for attorneys' fees. On appeal, the Appellate Division, First Department unanimously affirmed. “The issue on appeal,” said the Court, was “narrow — namely, application of the special facts doctrine in connection with plaintiff’s claim that it was fraudulently induced to enter into a license agreement with Hardy.” 8 The Court held that Plaintiff met the “the threshold two-prong test for the special facts doctrine.” 9 In that regard, the Court found that defendants failed to disclose ( i.e. , omitted) “the criminal behavior of nonparties Neil Cole (the former chief executive officer of defendant Iconix Brand Group, Inc.) and Seth Horowitz (Iconix’s former chief operating and financial officer) and that such information was peculiarly within defendants’ knowledge.” 10 “ laintiff could not have discovered this information through the exercise of ordinary diligence,” said the Court. 11 “However,” concluded the Court, “plaintiff did not show that this was an essential fact, or that defendants’ superior knowledge of this fact rendered the license agreement inherently unfair.” 12 “In addition,” held the Court, “plaintiff did not establish all the elements of fraudulent inducement of contract.” 13 In this regard, the Court was referring to the causation element.  “To establish causation, plaintiff must show both that defendant’s misrepresentation induced plaintiff to engage in the transaction in question (transaction causation) and that the misrepresentations directly caused the loss about which plaintiff complains (loss causation).” 14 Transaction causation is often the easier of the two prongs to satisfy, while loss causation is typically more difficult. As noted by the First Department in Laub : “ egardless of whether plaintiff could establish that he was induced by the alleged misrepresentations to follow recommendations on purchases of equities, plaintiff’s claims must fail because he has not alleged or produced any evidence that those misrepresentations directly and proximately caused his investment losses.” 15 In Supply , the Court found that Yap’s deposition testimony showed “that plaintiff was damaged because it entered into the license agreement with Hardy and at a minimum maintained a markup agreement with nonparty Rainbow Apparel Distribution Center Corp,” and not because of an omitted fact. 16 The Court also found that Yap’s “testimony further showed … that plaintiff entered into those contracts because Yap (1) placed orders with factories before he had agreements in place and (2) allegedly relied on an oral guarantee from Iconix that he would have zero losses.” 17 Takeaway Where a party alleges fraud (or fraudulent inducement) based on an omission of information, rather than an affirmative misrepresentation, a special relationship ( e.g. , a fiduciary relationship) is required to state a claim. However, in the absence of a special relationship, a party may still allege fraud based on an omission where there are special facts such that one party had superior knowledge of certain information, not readily available to the other party. In Supply , there was no fiduciary relationship between the parties, as the parties dealt with each other at arm’s length in a commercial transaction. The special facts doctrine was, however, unavailable to Supply because it could not show that the transactions at issue were inherently unfair, or that the omitted facts were essential to the transactions. With no duty to disclose, Supply could not withstand the challenge to its fraudulent inducement claim. Supply also demonstrates the importance of satisfying all the elements of a fraudulent inducement claim. As noted, the causation element proved to be the foil. Supply was unable to prove that the omitted facts caused its loss. Footnotes Bank of Am., N.A. v. Bear Stearns Asset Mgmt. , 969 F. Supp. 2d 339, 351 (S.D.N.Y. 2013). Balanced Return Fund Ltd. v. Royal Bank of Canada , 138 A.D.3d 542, 542 (1st Dept. 2016). Pramer S.C.A. v. Abaplus Int’l Corp. , 76 A.D.3d 89, 99 (1st Dept. 2010). “The ‘special facts’ doctrine holds that ‘absent a fiduciary relationship between parties, there is nonetheless a duty to disclose when one party’s superior knowledge of essential facts renders a transaction without disclosure inherently unfair.’” Greenman-Pedersen, Inc. v. Berryman & Henigar, Inc. , 130 A.D.3d 514, 516 (1st Dept. 2015), lv. denied , 29 N.Y.3d 913 (2017) (quoting, Pramer , 76 A.D.3d at 99). Northern Group Inc. v. Merrill Lynch, Pierce, Fenner & Smith Inc. , 135 A.D.3d 414 (1st Dept. 2016). Black v. Chittenden , 69 N.Y.2d 665, 669 (1986); Schumaker v. Mather , 133 N.Y. 590, 596 (1892). Jana L. v. West 129th St. Realty Corp. , 22 A.D.3d 274, 278 (1st Dept. 2005). CPLR § 3016(b). Slip Op. at *1. Id. Id. Id. (citing Jana L. , 22 A.D.3d at 278); and Solomon Capital, LLC v. Lion Biotechnologies, Inc. , 171 A.D.3d 467, 469 (1st Dept. 2019)). Id. (citing Jana L. , 22 A.D.3d at 277). Id. (citing Frank Crystal & Co., Inc. v. Dillmann , 84 A.D.3d 704, 704 (1st Dept. 2011)). Laub v. Faessel , 297 A.D.2d 28, 31 (1st Dept. 2002). Id. Slip Op. at *1. Id. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber It is often said that a fiduciary owes the duties of care, loyalty and candor to the person with whom the fiduciary has a relationship. The duty of care requires the fiduciary to act as a reasonable and prudent person would act in a similar circumstance. The duty of loyalty requires the fiduciary to act in good faith and with the best interests of the person or entity with whom the fiduciary relationship exists. This means that the fiduciary must put the interests of the person or entity above his/her own personal interests. As one court observed: The reasons for the loyalty rule are evident. A man cannot serve two masters. He cannot fairly act for his interest and the interest of others in the same transaction. Consciously or unconsciously, he will favor one side or the other, and where placed in this position of temptation, there is always the danger that he will yield to the call of self-interest. The duty of candor requires the fiduciary to act with honesty. This means that the fiduciary must fully disclose information that may harm the person or entity that is owed the duty. In other words, the fiduciary cannot perpetrate a fraud on the person or entity with whom the fiduciary has a fiduciary relationship. here.=">here."> The duty of candor was at issue in Chan v. Havemeyer Holdings LLC , 2024 N.Y. Slip Op. 00020 (1st Dept. Jan. 4, 2024) ( here ). Chan involved the investment by plaintiffs in a real estate investment limited liability company. Plaintiffs are investors and minority members of Havemeyer Holdings LLC (“Havemeyer”), a real estate investment vehicle formed in 2016 for the purpose of developing a property located in Williamsburg, Brooklyn. Each of the plaintiffs – Dai Yu, Kai Cho Vincent Chan, and Allen Fu (collectively, the “Individual Plaintiffs”) – invested in the project at various times between 2016 and 2018, and Yuca Capital Partners LP (an entity controlled by Yu) in 2020. Plaintiffs were passive investors in the project, which was run by TC Havemeyer Manager LLC (“TC Havemeyer”) and Tavros Holdings LLC (“Tavros”) of which Nicholas Silvers (“Silvers”) was a principal. On February 27, 2020, Defendants sent an email solicitation to Plaintiffs offering an opportunity for them, as members of Havemeyer, to make a further investment in the project. Among other things, Defendants stated that refinancing was in process, by which Havemeyer was de-leveraging and de-risking its investment in the project, leading to a projected “sixty percent plus” rate of return (with a worst-case return of 47%) within twelve to fifteen months. On March 2, 2020, Plaintiffs spoke to Silvers about the opportunity set forth in the email. In response to their question as to the status of the refinancing, Silvers stated it was “already done”. Based on the content of the solicitation, the representation about the status of the refinancing, and Defendants’ answers to Plaintiffs’ questions, and after consulting with industry experts and real estate investors about the investment, Plaintiffs invested a total of $3.1 million in Havemeyer.   Within two months after their checks had cleared, Plaintiffs allegedly learned that the refinancing was not “done”. As a result, Plaintiffs demanded rescission of the transactions and the return of their money. Defendants refused to satisfy the demand. Plaintiffs commenced the action, asserting that their March 2020 investments were induced by a materially false statement about the refinancing. The complaint at issue contained seven counts: Count 1 – rescission based on fraud against all defendants; Count 2 – fraud against all defendants; Counts 3 and 4 – violations of the federal securities laws, which were dismissed by agreement; Count 5 – breach of fiduciary duty against TC Havemeyer); Count 6 – negligent misrepresentation by TC Havemeyer; and Count 7 – unjust enrichment against all Defendants. Defendants moved to dismiss. Relying on a no-reliance disclaimer in the subscription agreement, which Plaintiffs signed to make their investment, the motion court dismissed the fraud, rescission and negligent misrepresentation claims, while upholding plaintiffs’ claim for breach of fiduciary duty. The Appellate Division, First Department modified the motion court’s order to deny Defendants’ motion insofar as the Individual Plaintiffs are concerned, and to strike Plaintiffs’ demands for lost profits and punitive damages, and otherwise affirmed the motion court’s order. As an initial matter, the Court held that TC Havemeyer owed plaintiffs the fiduciary duty of candor and breached that duty by failing to provide “full disclosure about the refinancing opportunity.” In this regard, the Court explained that “TC Havemeyer’s interest in enabling Havemeyer to quickly and easily obtain funds from existing investors allegedly conflicted with the Individual Plaintiffs’ efforts to obtain complete and accurate information about the refinancing opportunity.” Notably, the Court held that the no-reliance clause (which can bar a claim for fraud) in the subscription agreement did not bar the Individual Plaintiffs’ breach of fiduciary duty claim. Under New York law, a disclaimer clause in a contract cannot defeat a claim of fraud if the defendant owes the plaintiff a fiduciary duty. Under such circumstances, the contract itself –including the specific disclaimer clause – would be voidable because “a fiduciary cannot by contract relieve itself of the fiduciary obligation of full disclosure by withholding the very information the beneficiary needs in order to make a reasoned judgment whether to agree to the proposed contract.” Thus, held the Court, the motion court “properly declined to dismiss the fifth cause of action with respect to the Individual Plaintiffs, who are the only plaintiffs alleging breach of fiduciary duty against TC Havemeyer.” “By contrast,” noted the Court, “TC Havemeyer did not owe a fiduciary duty to plaintiff Yuca Capital Partners LP, which, unlike the Individual Plaintiffs, was not a preexisting investor.” Without being a pre-existing investor, Yuca entered into the transaction at arm’s length. As such, the no-reliance clause applied to bar Yuca’s fraud claim: Because the plain language of section 4 says Yuca is relying solely on the Offering Materials, as a matter of law, Yuca could not have relied on defendant Nicholas Silvers’ statement that the refinancing was “already done”. Moreover, the Court held that there were hints of falsity ( e.g. , the conflicting statements about the refinancing) that required Yuca to “have exercised a heightened degree of diligence.” Accordingly, the Court held that “Yuca’s claims for fraud and rescission based upon fraud … fail.” The Court also rejected Defendants’ arguments that Plaintiffs failed to plead the elements of their fraud claims. “With respect to justifiable reliance,” said the Court, “the beneficiaries of a fiduciary relationship, such as the Individual Plaintiffs, are entitled to rely on their fiduciary’s ‘representations and complete, undivided loyalty.’” Thus, concluded the Court, Plaintiffs were “‘not required to perform independent inquiries … to reasonably rely on their fiduciary’s representations.’” “As to whether there was a false representation of existing fact,” the Court concluded that “the statement that ‘the refinancing was “already done”’ was a factual statement about the past, not an expression of hope about the future.” Under New York law, to be actionable, the “representation relied upon must relate to a past or existing fact,” as opposed to a representation of what is “hoped or expected to occur in the future.” The Court also held that “Plaintiffs … sufficiently allege scienter,” stating that “intent to commit fraud is a question of fact which cannot be resolved on a motion to dismiss.” Finally, the Court held that Plaintiffs were not required to allege their demand for damages with particularity. Unlike cases where the complaint did not contain any facts from which it could be inferred that the plaintiff incurred damages or where the claim of damages was conclusory and without any factual support, the Court held that Plaintiffs’ demand for the return of their investment sufficed to satisfy the damages element of the claim. Takeaway Chan is notable for three reasons. First, it confirms that fiduciaries owe a duty of candor to those with whom they have a fiduciary relationship. Second, it makes clear that a defendant cannot use a no-reliance or disclaimer clause to bar a claim of fraud ( i.e. , a breach of the duty of candor claim) in the fiduciary duty context. Finally, it underscores the rule that a plaintiff pleading fraud does not have to plead damages with particularity . ______________________________ 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. Wachovia Bank & Trust Co. v. Johnston , 269 N.C. 701, 715, 153 S.E.2d 449, 459-60 (1967). See also Birnbaum v. Birnbaum , 73 N.Y.2d 461, 466 (1989) (“it is elemental that a fiduciary owes a duty of undivided and undiluted loyalty to those whose interests the fiduciary is to protect. This is a sensitive and ‘inflexible’ rule of fidelity, barring not only blatant self-dealing, but also requiring avoidance of situations in which a fiduciary’s personal interest possibly conflicts with the interest of those owed a fiduciary duty.”) (citations omitted). The facts discussed herein come from the motion court’s decision, the First Department’s decision and the parties’ briefing on appeal. Slip Op. at *1 (citing Birnbaum , 73 N.Y.2d at 466; Shatz v. Chertok , 180 A.D.3d 609, 610-611 (1st Dept. 2020)). Id. Id. (citing Dube-Forman v. D’Agostino , 61 A.D.3d 1255, 1257 (3d Dept. 2009); Salm v. Feldstein , 20 A.D.3d 469, 470 (2d Dept. 2005)). Dube-Forman , 61 A.D.3d at 1257; Salm , 20 A.D.3d at 470; see also Dubbs v. Stribling & Assoc. , 96 N.Y.2d 337, 341 (2001). Blue Chip Emerald v. Allied Partners , 299 A.D.2d 278, 279-280 (1st Dept. 2002). Slip Op. at *1. Id. Id. (citing D’Artagnan, LLC v. Sprinklr Inc. , 192 A.D.3d 475, 476-477 (1st Dept. 2021)). Id. (citing Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V. , 17 N.Y.3d 269, 279 (2011) (“When the party to whom a misrepresentation is made has hints of its falsity, a heightened degree of diligence is required of it. It cannot reasonably rely on such representations without making additional inquiry to determine their accuracy.”) (internal brackets and quotation marks omitted)). Id. at *2. Id. (quoting Frame v. Maynard , 83 A.D.3d 599, 602 (1st Dept. 2011) (internal quotation marks omitted)). Id. (quoting Frame , at 602 (internal quotation marks omitted)). Id. Id. (quoting Zanani v. Savad , 217 A.D.2d 696, 697 (2d Dept. 1995)). Id. (citing ACA Fin. Guar. Corp. v. Goldman, Sachs & Co. , 131 A.D.3d 427, 428 (1st Dept. 2015)). Id. Id. (citations omitted).

By:  Jeffrey M. Haber Invoice fraud is a type of accounting fraud. Invoice fraud comes in many forms. For example, bill padding is a type of invoice fraud. In this type of fraud, the invoice is legitimate, but the payment request includes charges that are erroneous ( i.e. , they are inflated). Another type of invoice fraud involves duplicate charges. In this form of invoice fraud, the company will send the same invoice twice or list the same materials on more than one invoice. Still another type of invoice fraud involves the issuance of fake invoices. In this form of fraud, the company will send an invoice for non-existent orders. In today’s Enforcement News , we examine an enforcement action and settlement involving the issuance of fake invoices. On December 22, 2023, the Securities and Exchange Commission (“SEC”) announced ( here ) that it had settled charges against Brooge Energy Limited, a publicly traded energy company located in the United Arab Emirates, the company’s former CEO, Nicolaas Lammert Paardenkooper, and its former Chief Strategy Officer and Interim CEO, Lina Saheb. According to the SEC, before and after going public through a special purpose acquisition transaction, Brooge, whose securities trade on NASDAQ, misstated between 30 and 80 percent of its revenues from 2018 through early 2021 in SEC filings related to the offer and sale of up to $500 million of securities and the issuance (by an affiliate) of $200 million of 5-year senior secured bonds in the Nordic bond market (the “Nordic Bonds”). The alleged fraud was perpetrated through the creation of two sets of invoices. According to the SEC, the first set consisted of actual invoices to customers who stored oil at Brooge’s facilities in Fujairah. Customers paid these invoices in the ordinary course of business. A second set of invoices, which reflected significantly higher rates and volumes were ostensibly sent to customers who never used Brooge’s facilities. These invoices, said the SEC, were “paid” through a complicated series of unsupported transactions involving an affiliated or related party. The SEC alleged that Paardenkooper and Saheb (together “Senior Management”) knew, or were reckless in not knowing, of the accounting fraud. In addition to the foregoing, the SEC alleged that certain company personnel reporting to Senior Management provided Brooge’s outside auditors with only the second set of invoices along with falsified ledger entries and other documents designed to support the inflated rates and volumes on the false second set of invoices. As a result, claimed the SEC, Senior Management misled the company’s auditors regarding Brooge’s revenues.  Further, said the SEC, in order to avoid an event of default on the Nordic Bonds, an affiliate of the company created a third set of unsupported invoices, and certain persons at the company directed the creation of additional false documents during the pendency of the SEC’s investigation. Finally, the SEC alleged that Brooge personnel tried to conceal the accounting fraud from the Commission.  In April 2023, the company announced a restatement of its audited financial statements from 2018 through 2020. The SEC charged the company with violations of the antifraud, proxy statement, reporting, and books and records provisions of the federal securities laws. In settlement of the charges, the company agreed to pay a $5 million penalty. Paardenkooper and Saheb also agreed to settle the charges, to each pay $100,000 civil penalties, and to permanent officer and director bars. The defendants agreed to settle the charges without admitting or denying the SEC’s findings, except as to the SEC’s jurisdiction over them and the subject matter of the proceeding. On news of the charges and settlement, the price of Brooge’s stock fell $0.37 per share, or 11.08%, to close at $2.97 per share on December 26, 2023. A copy of the SEC’s Cease-and-Desist Order 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 This BLOG has written numerous times on issues related to contract formation.  See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .  Briefly stated, “ o create a binding contract, there must be a manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with all material terms.”  Total Telcom Group Corp. v. Kendal on Hudson , 157 A.D.3d 746, 747 (2 nd Dep’t 2018) (Citations and internal quotation marks omitted).  The Court of Appeals, in Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher , 52 N.Y.2d 105 (1981), explained the importance of “definiteness” in a contract’s terms: t also follows that, before the power of law can be invoked to enforce a promise, it must be sufficiently certain and specific so that what was promised can be ascertained. Otherwise, a court, in intervening, would be imposing its own conception of what the parties should or might have undertaken, rather than confining itself to the implementation of a bargain to which they have mutually committed themselves. Thus, definiteness as to material matters is of the very essence in contract law. Impenetrable vagueness and uncertainty will not do. Martin Delicatessen , 52 N.Y.2d at 109 (citations omitted).  See also Vizel v. Vitale , 184 A.D.3d 602, 604 (2 nd Dep’t 2020).  The definiteness doctrine, however, should not be applied “rigidly” because “ ontracting parties are often imprecise in their use of language, which is, after all, fluid and often susceptible to different and equally plausible interpretations.”  166 Mamaroneck Avenue Corp. v. 151 East Post Road Corp. , 78 N.Y.2d 88, 91 (1991).  Because a “strict application of the definiteness doctrine could actually defeat the underlying expectations of the contracting parties<,> where it is clear from the language of an agreement that the parties intended to be bound and there exists an objective method for supplying a missing term, the court should endeavor to hold the parties to their bargain.” Id. (citations omitted).  The Court of Appeals has “identified two ways in which the requirement of definiteness could be satisfied in the absence of an explicit contract term: (1) an agreement could contain a methodology for determining the missing term within the four corners of the lease, for a term so arrived at would have been the end product of agreement between the parties themselves; or (2) an agreement could invite recourse to an objective extrinsic event, condition or standard on which the amount was made to depend.  Id. , at 91 -92 ( quoting Martin Delicatessen, internal quotation marks, ellipses and brackets omitted). Moreover, New York General Obligations Law 5-703(2) requires that certain contracts relating to real property be in writing.  As we have previously noted in this BLOG : The statute of frauds provides that “ contract for the . . . the sale, of any real property, or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his lawful agent thereunto authorized by writing.”  New York General Obligations Law 5-703(2) “To satisfy the statue of frauds, a memorandum evidencing a contract and subscribed by the party to be charged must designate the parties, identify and describe the subject matter, and state all of the essential terms of a complete agreement.”  Nesbitt v. Penalver , 40 A.D.3d 596, 598 (2d Dept. 2007) (citation and quotation omitted). The memorandum may be informal – it can be a series of emails – and therefore in compliance with the statute of frauds “where it identifies the parties, describes the subject property, recites all essential terms of a complete agreement.” O’Brien v. West , 199 A.D.2d 369, 370 (2d Dept. 1993). “If the contract does not contain all the necessary terms, the law presumes that the parties have not reached an agreement as to such terms and, therefore the agreement is fatally flawed and unenforceable.” 3-32 Warren’s Weed New York Property § 32.10.  In that instance, or if “it is necessary to resort to parol evidence to ascertain what was agreed to, the remedy of specific performance is not available.” Nesbitt , 40 A.D.3d at 598 (citation and internal quotation marks omitted). These general principles are addressed in Duffy v. Leteri , decided by the Appellate Division, Second Department, on December 20, 2023.  Duffy was an action in which the plaintiff/seller sought a declaration from the court that its contract for the sale of real property was unenforceable.  The relevant facts are summarized herein.    The parties in Duffy entered into two contracts for the sale of real property.  According to the motion court’s decision: The first contract involved land on tax map … (Approximately 4.20 acres) which comprises the entirety of lot 7 of the property. The contract states that it was conveying 4.20 acres of vacant land. The second contract indicates the tax map … with a handwritten additions of "p/o 006.000". In parenthesis, "Approximately 4.20 acres" has been crossed out and changed to "Approximately 4.71 acres". The addition of "p/o 006.000" refers to "part of Lot 6," which lot is 7.20 acres. The second contract still stated that the property being conveyed consisted of 4.20 acre . The defendant, in his statement of fact, states that there was only one contract. The defendant claims that there was a mistake in the contract that refers to 4.20 acre . Furthermore, he remembers distinctly which .50 acre P/O lot #6 was included in the contract.  The plaintiff, seller, commenced an action seeking, inter alia , a declaration that the contracts are unenforceable.  The defendant, purchaser, counterclaimed for, inter alia , specific performance.  The plaintiff moved for summary judgment arguing, inter alia , that the subject contract is unenforceable because it contains indefinite terms.  The defendant cross-moved for summary judgment enforcing the contract.  [Eds. Note: this BLOG has addressed specific performance of real estate contracts < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .  The motion court granted the motion of plaintiff/seller and denied the cross-motion of defendant/purchaser, finding that the property description was not certain. The Second Department affirmed and, in so doing, stated: Where a contract's material terms are not reasonably definite, the contract is unenforceable. To be enforceable, a contract for the sale of real property must be evidenced by a writing sufficient to satisfy the statute of frauds. The statute of frauds provides that " contract for the sale, of any real property, or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his lawful agent thereunto authorized by writing." (General Obligations Law § 5-703<2> ). To satisfy the statute of frauds, a memorandum, subscribed by the party to be charged, must designate the parties, identify and describe the subject matter, and state all the essential terms of a complete agreement. The writing must set forth the entire contract with reasonable certainty so that the substance thereof appears from the writing alone. Parol evidence—evidence outside the four corners of the document—is admissible only if a court finds an ambiguity in the contract. Whether or not a writing is ambiguous is a question of law to be resolved by the courts. The description of real property in a contract of sale need not be as detailed and exact as the description in a deed. Only reasonable certainty, not absolute certainty, as to the terms of the agreement is required. Where the property is described with such definiteness and exactness as will permit it to be identified with reasonable certainty, parol evidence would then be admissible to enable the court to identify precisely the property to which the contract relates. Here, the plaintiff demonstrated her entitlement to judgment as a matter of law by submitting evidence establishing that the contract lacked a material term. The description of the property was not sufficiently definite and exact to permit the property to be identified with reasonable certainty in satisfaction of the statute of frauds. In opposition, the defendant failed to raise a triable issue of fact. Contrary to the defendant's contentions, the precise location of the property cannot be ascertained by extrinsic evidence. For the same reasons, the defendant failed to meet his prima facie burden on that branch of his cross-motion which was for summary judgment on his counterclaim for specific performance of the contract. 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 past articles, we have examined a motion under CPLR § 3213 ( see , e.g. , here , here , here , here , and here ). CPLR § 3213 is a procedural mechanism that allows a party to make a motion for summary judgment before filing a complaint in actions based upon “an instrument for the payment of money only or a judgment.” The purpose of the statute “is to provide an accelerated procedure where liability for a certain sum is clearly established by the instrument itself.” 1 CPLR § 3213 is a device that “for the limited matters within its embrace, melded pleading and motion practice into one step, allowing a summary judgment motion to be made before issue was joined.” 2 The provision 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.” 3 “The prototypical example of an instrument within the ambit of is of course a negotiable instrument for the payment of money – an unconditional promise to pay a sum certain, signed by the maker and due on demand or at a definite time.” 4 Generally, CPLR § 3213 is used to enforce “some variety of commercial paper in which the party to be charged has formally and explicitly acknowledged an indebtedness,” so that “a prima facie case would be made out by the instrument and a failure to make the payments called for by its terms.” 5 A promissory note may qualify as such an instrument, 6 so long as the plaintiff submits proof of the existence of the note and of the defendant’s failure to make payment. 7 Such proof must be in admissible form sufficient to establish the absence of any material, triable issues of fact. 8 A settlement agreement may also qualify as instrument for the payment of money, when the agreement contains an unconditional promise to pay a sum certain, signed by one the parties and due on demand or at a definite time. In I nsitro, Inc. v. Cellaria, Inc. , 2022 N.Y. Slip Op. 30902(U) (Sup. Ct., N.Y. County Mar. 14, 2022) ( here ), a case that we examined here , the court held that a settlement agreement constituted an instrument for the payment of money only because the agreement contained an unconditional commitment by the defendant to make certain installment payments to the plaintiff over a certain period of time.  The cases show, however, that “ here the instrument requires something in addition to defendant’s explicit promise to pay a sum of money, CPLR 3213 is unavailable.” 9 A plaintiff’s prima facie proof “cannot be drawn from sources outside the agreement itself.” 10 Once the movant meets this burden, it becomes incumbent upon the party opposing the motion to come forward with proof in admissible form to raise a triable issue of fact. 11 On December 14, 2023, the Supreme Court, New York County decided Brooke v. Streit , 2023 N.Y. Slip Op. 51426(U) (Lebovits, J.) ( here ), a case involving a motion for summary judgment in lieu of complaint and a settlement agreement. As discussed below, the motion court held that the agreement fell within the scope of CPLR § 3213. Plaintiff moved for summary judgment in lieu of complaint to enforce a settlement agreement he entered into with defendants Michael Streit and Streit’s single-member LLC, Home Enterprises Group LLC (collectively, “Defendant”). In 2019, the parties began work on a home-development project in the Town of Southampton, New York. Plaintiff handled the financing, providing partial funding and securing the remainder from a bank. Defendant oversaw the development aspects of the project, including hiring a builder and managing the day-to-day home design and construction. The Southampton project exceeded the parties’ initial cost predictions. Priceless Custom Homes, Inc. (“Priceless”), the construction company hired for the project, provided the remaining funds needed for its completion. After further delays and unforeseen costs, Plaintiff terminated Priceless’ services and sued Priceless for fraud and unjust enrichment. 12 As that action progressed, the parties entered into a settlement agreement to resolve who would pay for the legal fees and expenses incurred from the prolonged litigation. Four amended agreements were signed by the parties, with the most recent version executed on January 28, 2021. Defendant claimed that he entered into the agreements under economic duress. Defendant argued that Plaintiff threatened to sue him and exclude him from all future projects, leveraging his financial vulnerability stemming from an 18-month jail term for grand larceny. Plaintiff maintained that Defendant voluntarily agreed to reimburse him for the legal fees and expenses resulting from the Priceless Lawsuit.  Plaintiff moved to enforce the terms of the settlement agreement under CPLR 3213.  Defendant opposed the motion, arguing that the settlement agreement was not an instrument for the payment of money only, because it discussed other projects that he worked on with Plaintiff. The motion court disagreed and granted the motion. The motion court held that the discussion of auxiliary projects between the parties in the settlement agreement did not establish that additional performance from those projects was required for payment. 13 The motion court explained that the obligations imposed by the settlement agreement involved only the payment of money, without any non-monetary performance. 14 As such, concluded the motion court, plaintiff’s claim fell within the scope of CPLR 3213. 15 Since Defendant was in default of the terms of the settlement agreement, and did not contest that he had not cured his defaults, the motion court held that Plaintiff was entitled to the principal amount, pre-judgment interest, and attorney fees, as stipulated to in the settlement agreement. 16 Having determined that Plaintiff’s claim came within the scope of CLR 3213, the motion court addressed Defendant’s asserted defenses. First, the motion court rejected Defendant’s argument that he was under economic duress when he signed the settlement agreement. 17 Under New York law, economic duress may void a contract when a party is compelled to agree to its terms by means of a wrongful threat which precludes the exercise of the party’s free will. 18 Financial pressure and unequal bargaining pressure are insufficient to constitute economic duress. 19 That a defendant felt economically constrained to accept the terms of an agreement is immaterial to a defendant’s economic duress claim. 20 Similarly, the use of financial leverage and a person’s difficult financial circumstances to one’s advantage does not create economic duress. 21 The party asserting an economic-duress defense has the burden to establish it. 22 The motion court found that Defendant was actively involved in the negotiation of the settlement agreement, showing that Defendant “had the opportunity to negotiate terms, propose changes, and express concerns”, actions that foreclosed a duress defense. 23 Here, Streit agreed to a valid contract that was duly executed on January 28, 2021. He provided no evidence that he was compelled to agree to the terms of the settlement agreement by means of a wrongful threat that precluded his exercise of free will. To the contrary, email communications show that Streit actively participated, and negotiated in, the formation of the settlement agreement. In an email dated April 9, 2019, Streit wrote, “there are 2 items that need to be changed and then we are good to go .” In another email later that day, Brooke and Streit’s lawyer asked Streit to “please confirm you’re ok with everything now so we can execute.” Streit later responded saying he was indeed ok with the changes. This level of active participation suggests that Streit had the opportunity to negotiate terms, propose changes, and express concerns—thus foreclosing his duress defense. 24 Second, the motion court rejected Defendant’s conflict-of-interest defense. Defendant argued that Plaintiff used financial leverage and Defendant’s financial circumstances to force him to use an attorney who also represented Plaintiff, thus creating an irreconcilable conflict of interest. The motion court held that Defendant’s “conflict-of-interest defense unavailing.” 25 The motion court stated that it was “not persuaded … that a disinterested lawyer would believe it impossible to competently and diligently represent the interests of both and in preparing the settlement agreement.” 26 This was so, noted the motion court, because “each side consented to the simultaneous representation after full disclosure of the implications and risks involved, as required by Rule 1.7 of the New York Rules of Professional Conduct.” 27 Footnotes G.O.V. Jewelry, Inc. v. United Parcel Serv. , 181 A.D.2d 517, 517 (1st Dept. 1992). Weissman v. Sinorm Deli, Inc. , 88 N.Y.2d 437, 443 (1996).  Interman Indus. Products, Ltd. v. R.S.M. Electron Power, Inc. , 37 N.Y.2d 151, 154 (1975) (citations and internal quotation marks omitted). Weissman , 88 N.Y.2d at 443-44 (citations, internal quotation marks and footnote omitted). Interman Indus. Prods., Ltd. , 37 N.Y.2d at 154-155 (1975). “An unconditional guaranty is an instrument for the payment of money only within the meaning of CPLR 3213.” Cooperatieve Centrale Raiffeisen Boerenleenbank, B.A. v. Navarro , 25 N.Y.3d 485, 492 (2015). See Bonds Fin’l, Inc. v. Kestrel Techs., LLC , 48 A.D.3d 230 (1st Dept. 2008); Seaman-Andwall Corp. v. Wright Machine Corp. , 31 A.D.2d 136 (1st Dept. 1968). See CPLR § 3212(b); Jacobsen v. New York City Health & Hosps. Corp. , 22 N.Y.3d 824 (2014); Alvarez v. Prospect Hosp. , 68 N.Y.2d 320 (1986); Zuckerman v. City of New York , 49 N.Y.2d 557 (1980). Weissman , 88 N.Y.2d at 444. Rhee v. Meyers , 162 A.D.2d 397, 398 (1st Dept. 1990); see Ian Woodner Family Collection, Inc. v. Abaris Brooks, Ltd. , 284 A.D.2d 163 (1st Dept. 2001). See Alvarez v Prospect Hosp. , supra ; Zuckerman , supra . See 32 Westway LLC, v. Priceless Custom Homes, Inc. , Index No. 606025/2017 (Sup. Ct., Suffolk County) (the “Priceless Lawsuit”). Slip Op. at *2. Id. Id. Id. at *3. Id. at *2-*3. See 767 Third Ave. LLC v. Orix Capital Markets, LLC , 26 A.D.3d 216, 218 (1st Dept 2006). See Edison Stone Corp. v. 42nd St. Dev. Corp , 145 A.D.2d 249, 256 (1st Dept. 1989). See Dreyer and Traub v. Rubinstein , 191 A.D.2d 236, 237 (1st Dept. 1993). See Matter of Will of Bryer , 72 A.D.3d 532, 532 (1st Dept. 2010); accord Bethlehem Steel Corp. v. Solow , 63 A.D.2d 611 (1st Dept. 1978). See Austin Instrument v. Loral Corp. , 29 N.Y.2d 124, 130 (1971). Slip Op. at *3. Id. (citations to the record omitted). Id. Id. Id. (citing 22 NYCRR 1200.00 (Rule 1.7 (b); Gustavo G. , 9 A.D.3d 102, 105 (1st Dept. 2004)). 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 today’s article, we examine Eva Chen Fine Jewelry, Inc. v. Recovery Racing IX, LLC , 2023 N.Y. Slip Op. 06511 (2d Dept. Dec. 20, 2023) ( here ), a case involving common law fraud, New York’s lemon law and Section 349 of New York’s General Business Law (“GBL”). In May 2014, plaintiff purchased a 2014 Maserati Ghibli from Maserati of Bergen County, an authorized Maserati dealership owned at the time by defendant Recovery Racing IX, LLC. The subject vehicle was used solely by plaintiff’s principal and only employee, Eva Chen (“Chen”). After seeking repairs with respect to the vehicle’s air conditioning system on six occasions, plaintiff commenced the action to recover damages pursuant to GBL §§ 198-a and 349, and for fraud and breach of contract . Defendants moved for summary judgment dismissing the complaint. The motion court granted the motion. The motion court held that Chen’s claim for relief under GBL § 198-a (New York’s Lemon Law) was “baseless because the Lemon Law only applies to consumers.” In the complaint, plaintiff, a corporation, purchased the car as a company car. Under GBL § 198-a, the purchaser of a motor vehicle must use the vehicle “primarily for personal, family or household purposes. If the vehicle is used primarily for commercial purposes, the statute does not apply. The motion court similarly held that the claim under GBL § 349 was without merit. To state a claim under GBL § 349, the plaintiff must plead and prove that the defendant “has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice.” “ arties claiming the benefit of must, at the threshold, charge conduct that is consumer oriented.” “Private contract disputes, unique to the parties … not fall within the ambit of the statute.” The deceptive practices that GBL § 349 seeks to combat involve recurring transactions of a consumer type. The practices at issue cannot be, in effect, a “single shot transaction”, which is “tailored to meet the purchaser’s wishes and requirements.” The motion court found that Chen failed to allege any effect on consumers at large or to establish any injury suffered. The motion court also dismissed plaintiff’s fraud cause of action for failure to plead fraud with particularity. Under CPLR § 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.” To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. Put another way, the complaint must identify the “who, what, where, when and how” of the alleged fraud. The motion court found that plaintiff failed to allege any misrepresentations or omissions with specificity. On appeal, the Appellate Division, Second Department affirmed. The Court held that “defendants established their prima facie entitlement to judgment as a matter of law dismissing the cause of action pursuant to General Business Law § 198-a, by demonstrating that the plaintiff was not a ‘consumer’ that would be entitled to relief under the statute.” The Court noted that “defendants submitted evidence establishing that the vehicle was purchased, paid for, and insured in the name of the , and the had claimed the vehicle as a 100% business use deduction on its corporate tax returns since the year the vehicle was purchased.” Such evidence, and plaintiff’s failure to raise a triable issue of fact, sufficed to grant defendants’ motion for summary judgment. The Court also held that defendants “established their prima facie entitlement to judgment as a matter of law dismissing the cause of action pursuant to General Business Law § 349.” The Court found that the alleged conduct attributed to defendants “did not constitute consumer-oriented conduct pursuant to General Business Law § 349.” As shown in the record on appeal, the evidence demonstrated that Plaintiff’s complaints were specific to her vehicle ( i.e. , they were individualized concerns about the air conditioning system in Chen’s vehicle) and did not affect the general public or consumers at large. Finally, the Court held that the motion court “properly granted that branch of the defendants’ motion which was for summary judgment dismissing the cause of action alleging fraud.” The Court found that “plaintiff failed to plead fraud with specificity, as the complaint did not identify any specific material misrepresentation of fact, the person or entity who made such alleged misrepresentation, or any alleged knowledge of any party who made the misrepresentation of its falsity.” Takeaway The courts have been steadfast in their holdings that a plaintiff must identify the alleged misrepresentation or omission upon which they relied to satisfy the first element of a fraud claim. Just last month, we wrote about Barlow v. Skroupa , 2023 N.Y. Slip Op. 05786 (1st Dept. Nov. 16, 2023) ( here ), in which the First Department affirmed the dismissal of a fraud claim because the plaintiffs failed to identify any misrepresentations of material fact uttered by any of the defendants. Eva Chen is another reminder that a plaintiff who does not allege a specific misrepresentation or omission will not survive a challenge to his/her fraud claim. The courts have also been steadfast in their holding that a party claiming the benefit of GBL § 349 must allege conduct that is consumer oriented. This means that “ defendant’s acts or practices must have a broad impact on consumers at large.” The deceptive practices GBL § 349 seeks to combat involve recurring transactions of a consumer type. Private transactions not of a recurring nature or without ramifications for the public at large are not a proper subject of a claim under GBL § 349. In Eva Chen , the only parties affected by the alleged deceptive practices were plaintiff and defendants. “A breach of a private contract affecting no one but the parties to the contract, whether that breach be negligent or intentional, is not an act or practice affecting the public interest.” Thus, an action that involves a “single shot transaction,” such as the repair of a plaintiff’s vehicle, “which is tailored to meet the wishes and requirements,” does not, without more, “constitute consumer-oriented conduct for the purposes of .” Colabella v. Europa Int’l, Inc. , 168 A.D.2d 534 (2d Dept. 1990) (citation omitted). Aracena v. BMW of N. Am., LLC , 159 A.D.3d 664, 666 (2d Dept. 2018) (citation and internal quotation marks omitted). See , e.g. , New York Univ. v. Continental Ins. Co. , 87 N.Y.2d 308, 320 (1995); Gaidon v. Guardian Life Ins. Co. of Am. , 94 N.Y.2d 330, 334 (1999); Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank , 85 N.Y.2d 20, 25 (1995). Oswego Laborers’ Local 214 , 85 N.Y.2d at 25; see also New York Univ. , 87 N.Y.2d at 320. Genesco Entertainment, a Div. of Lymutt Indus., Inc. v. Koch , 593 F. Supp. 743, 752 (S.D.N.Y. 1984). Id. New York Univ. , 87 N.Y.2d at 321. See also North State Autobahn, Inc. v. Progressive Ins. Grp. Co. , 102 A.D.3d 5, 12 (2d Dept. 2012). Pludeman v. Northern Leasing Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (citation omitted). Slip Op. at *1 (citation omitted). Id. (citation omitted). In Parlato v. Chrysler Corp. , 170 A.D.2d 442 (2d Dept. 1991), the Second Department held that a party is a “consumer” as defined under BCL § 198-a in relation to the actual manner of use of the vehicle, rather than to the technicalities of whether title is held in an individual or corporate name. A finding that the vehicle is “used primarily” for “personal, family, or household” purposes entitles the purchaser to “consumer” status, even if that purchaser is a corporation. Id. (citations omitted). Id. Id. (citing Nafash v. Allstate Ins. Co. , 137 A.D.3d at 1090 (2d Dept. 2016); Brualdi v. IBERIA, Lineas Aereas de España, S.A. , 79 A.D.3d 959, 960-961 (2d Dept. 2010); Dumas v. Fiorito , 13 A.D.3d 332 (2d Dept. 2004)). New York Univ. , 87 N.Y.2d at 320; Oswego Laborers’ Local 214 , 85 N.Y.2d at 25; see also North State Autobahn , 102 A.D.3d at 12. Genesco Entertainment , 593 F. Supp. at 752 (citation omitted). North State Autobahn , 102 A.D.3d at 12. __________________________ 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 written numerous times on statutes of limitation issues in mortgage foreclosure actions.  See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . Briefly stated, and as has been stated previously in this BLOG, an action to foreclose a mortgage is governed by a six-year statute of limitations.  CPLR 213(4) .  See also , Fed. Nat. Mort. Assoc. v. Schmitt , 172 A.D.3d 1324, 1325 (2 nd Dep’t 2019).  When a mortgage is payable in installments, “separate causes of action accrue for each installment that is not paid and the statute of limitations begins to run on the date each installment becomes due.”  HSBC Bank USA, N.A. v. Gold , 171 A.D.3d 1029, 1030 (2 nd Dep’t 2019).  Most mortgages, however, provide that a mortgagee may accelerate the entire debt in the event of, inter alia , a payment or other default by a mortgagor. Thus, “the terms of the mortgage may contain an acceleration clause that gives the lender the option to demand due the entire balance of principal and interest upon the occurrence of certain events delineated in the mortgage.”  Bank of New York Mellon v. Dieudonne , 171 A.D.3d 34, 37 (2 nd Dep’t 2019) (citations and internal quotation marks omitted).  Once the mortgagee’s election to accelerate is properly made, “the borrower’s right and obligation to make monthly installments ceased and all sums became immediately due and payable.”  The statute of limitations begins to run anew on the entire debt upon acceleration.  HSBC , 171 A.D.3d at 1030 (citations omitted). Today’s BLOG will discuss Genovese v. Nationstar Mortgage LLC , a case decided by the Appellate Division, First Department, on December 19, 2023.  Genovese , is an action to cancel and discharge a mortgage pursuant to RPAPL 1501(4) .  [Eds. Note: this BLOG has addressed RPAPL 1501(4) < here =">here"> , < here =">here"> and < here =">here"> .]  Simply stated, RPAPL 1501(4) permits , inter alia , a mortgagor to commence an action to have a mortgage discharged and cancelled of record if the lender would otherwise be time-barred from bringing its own action to foreclose the mortgage.   The basic facts of Genovese are important.  Plaintiff’s decedent executed a reverse mortgage on property in the Bronx.  Plaintiff’s decedent’s repayment obligation was triggered by the decedent’s death in March 2008.  Lender commenced a foreclosure action against the decedent’s heirs in May 2009.  At the time of the commencement of the action a fiduciary had not yet been appointed.  The lender clearly accelerated the debt in the complaint.  A fiduciary was appointed seven months after the commencement of the action.  An order of reference was obtained in September of 2015 and a judgment of foreclosure and sale was issued in or about April of 2016.  In April of 2017, the judgment of foreclosure and sale was vacated, and the action dismissed, because the court lacked personal jurisdiction over the decedent’s heirs, who were the named defendants because “a plaintiff is unable to commence an action during the period between the death of a potential defendant and the appointment of a representative of the estate and no representative had been appointed for the decedent's estate at the time the foreclosure action was commenced.”  (Citation and internal quotation marks omitted.)  The motion court, however, did not address acceleration in any way.  As will be discussed, this last fact is important.  Thereafter, the original lender assigned the mortgage to another lender. In 2022, one of the co-executors of decedent’s estate commenced an action pursuant to RPAPL 1501(4) to cancel and discharge the mortgage as time-barred.  Plaintiff argued that the mortgage debt was accelerated in 2009, thus triggering the six-year statute of limitations.  Defendant lender moved to dismiss the complaint “on the grounds that the debt secured by the mortgage had not been validly accelerated in the foreclosure action because that action was a nullity, the six-year statute of limitations to commence a foreclosure action had not begun to run (let alone expire), and, therefore, an action to foreclose the mortgage was not time-barred.”  Agreeing with the lender’s position, the motion court granted the motion to dismiss.  Also, in its decision, the motion court “intimated” that no acceleration occurred because “the foreclosure action was a nullity.”  After the complaint was dismissed, but before the appeal was perfected, the Foreclosure Abuse Prevention Act (“FAPA”) became the law in New York. Because some lenders were employing a tactic of acceleration/deacceleration/reacceleration to extend the six-year statute of limitations to circumvent mistakes made in pending foreclosure actions, among other reasons, FAPA was passed by the New York Legislature and signed into law by the Governor.  The Genovese Court described the problem thusly: FAPA represents the Legislature's response to litigation strategies and certain legal principles that distorted the operation of the statute of limitations in foreclosure actions (Assembly Mem in Support of 2022 Assembly Bill A7737B, L2022, ch 821 at 1; Senate Introducer's Mem in Support of 2022 NY Senate Bill S5473D at 1). "The legislature that there is an ongoing problem with abuses of the judicial foreclosure process and lenders' attempts to manipulate statutes of limitations; that the problem has been exacerbated by recent court decisions which, contrary to the intent of the legislature, have given mortgage lenders and loan servicers opportunities to avoid strict compliance with remedial statutes and manipulate statutes of limitations to their advantage; and that the purpose of is to clarify the meaning of existing statutes, and to rectify these erroneous judicial interpretations thereof" (Assembly Mem in Support of 2022 Assembly Bill A7737B, L2022, ch 821 at 1). FAPA's aim: "to thwart and eliminate abusive and unlawful litigation tactics that have been adopted and pursued in mortgage foreclosure actions to manipulate the law and judiciary to yield to expediency and the convenience of mortgage banking and servicing institutions at the expense of the finality and repose that statutes of limitations are meant to ensure" ( id. ; see also Senate Introducer's Mem in Support of 2022 NY Senate Bill S5473D at 1). Genovese , at *2 - *3.  Indeed, FAPA, “had the effect of nullifying holding in < Freedom=">Freedom" Mtge.="Mtge." Corp.="Corp." v.="v." Engel ,="Engel," N.Y.3d="N.Y.3d" 1,="1," (2021)="(2021)"> ” ( GMAT Legal Title Trust 2014-1 v. Kator , 213 A.D.3d 915 (2 nd Dep’t 2023)), in which, inter alia , the Court adopted a bright-line rule “that where the maturity of the debt has been validly accelerated by commencement of a foreclosure action, the noteholder’s voluntary withdrawal of that action revokes the election to accelerate, absent the noteholder’s contemporaneous statement to the contrary”  ( Engel , 37 N.Y.3d at 19).  [Eds. Note: this BLOG has addressed Engel < here =">here"> , < here =">here"> , < here =">here"> . In describing FAPA, the Genovese Court stated: Although FAPA effected a number of important changes to the RPAPL (i.e., RPAPL 1301<3> , <4> ), the General Obligations Law (i.e., General Obligations Law § 17-105<4> , <5> ), and the CPLR (e.g., CPLR 203 , 205 , 205-a, 3217 ), this appeal implicates only one: the addition of paragraph b to CPLR 213(4) ( see L 2022, ch 821, § 7). The new CPLR 213(4)(b) provides that, in an action under RPAPL 1501(4) to cancel and discharge a mortgage, "a defendant shall be estopped from asserting that the period allowed by the applicable statute of limitation for the commencement of an action upon the instrument has not expired because the instrument was not validly accelerated prior to, or by way of commencement of a prior action, unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated." An outstanding issue with FAPA is whether it is to be applied retroactively -- an issue about which New York lower courts are split.  See, e.g. , HSBC Bank USA, N.A. v. Besharat , 80 Misc 3d 269, 284 - 85 (Sup. Ct. Putnam Co. 2023) (FAPA is not to be applied retroactively); U.S. Bank Trust, N.A. v. Miele , 80 Misc. 3d 839, 848 (Sup. Ct. Westchester Co. 2023) (FAPA is to be applied retroactively).  The plaintiff in Genovese argued that FAPA should be applied retroactively.  Retroactive application of FAPA would negate the lender’s defense that the statute of limitations never began to run because the 2009 acceleration did not occur because the first action was a nullity. After analyzing the language of FAPA and the relevant law on retroactive application of statutes, the Court concluded that FAPA should be applied retroactively.  First, the Court determined that FAPA’s clear language supports retroactive application.  Second, the Court found that FAPA is “remedial in nature,” as it was “designed, in part, to rewrite unintended judicial interpretations, and to reaffirm legislative judgment about what certain laws relating to the application of the statute of limitations to mortgage foreclosure actions should be.”   After concluding that FAPA is to be applied retroactively, the Court found that the lender was estopped under CPLR 213 (4)(b) “from asserting that the statute of limitations on a cause of action to foreclose on the mortgage has not expired.”  The Court noted that “CPLR 213(4)(b)'s potent estoppel bar will not be imposed, and a defendant will be free to assert that the debt secured by the mortgage was not validly accelerated in connection with a prior action, if, and only if, the prior action was dismissed based on an express judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated.”  The Court then noted that the motion court made mention of acceleration. The Court did not address the defendant’s constitutional challenge on retroactive application because the lender did not notify the Attorney General of such a challenge as is required by CPLR 1012 (b). 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.