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By: Jeffrey M. Haber The law reporters are brimming with cases in which a plaintiff seeks relief from a defendant for the failure to make a payment that is due and owing. The scenarios in which this fact pattern occurs are too many to recite here. As the reader might expect, plaintiffs do not always retain the invoice or other similar writing. Nevertheless, they seek relief, claiming that alternative evidence, such as an email, suffices to demonstrate that the defendant owes the money. While such forms of evidence may ultimately prove to be dispositive, on a motion to dismiss, they often raise issues of fact rather than conclusively show that the money (in the amount sought) is owed. In Sky Virtue Ltd. V. Trend Direct Global LLC , 2023 N.Y. Slip Op. 30527(U) (Sup. Ct., N.Y. County Feb. 21, 2023) ( here ), Justice Arlene Bluth was faced with the foregoing scenario.  Plaintiff brought the action to recover under an account stated theory for goods sold and delivered to defendant. 1 Plaintiff claimed that defendant the placed orders, which was not in dispute, received the invoices and did not object to them, making defendant liable for the amount charged therein.  Plaintiff attached a series of emails in which its president informed defendant about the outstanding invoices. Plaintiff maintained that defendant did not timely object to the invoices and that, in fact, defendant made partial payments on some of the invoices. Defendant claimed that there were a few issues related to the amount sought by plaintiff. Among other things, Defendant claimed that the amount sought by plaintiff was not readily apparent from the moving papers; it pointed out that the amounts included in the emails totaled less than the amount sought in the amended complaint. Defendant said that at least two of the invoices included goods that were never delivered to defendant. Plaintiff moved for summary judgment. The motion court denied the motion. The court found that plaintiff did not prove as a matter of law that it sent bills to defendant and that defendant failed to timely object to those invoices. 2   The court explained that plaintiff failed to “include the underlying invoices upon which this case based,” opting instead to attach the email chain that cited to the invoices. 3 The court said that the charts included in the emails were of no probative value, noting that “some of charts cut off and some contain columns written in Chinese characters.” 4 lthough the email chain upon which plaintiff relies suggests that there were outstanding invoices, the Court is unable make any determinations about when these invoices were sent, how much plaintiff seeks, or how defendant responded. For instance, the Court is unable to reconcile the amount plaintiff seeks where plaintiff failed to upload supporting documentation. Moreover, it appears that defendant uploaded certain invoices (although these do not appear to encompass all the invoices for which plaintiff seeks to recover). 5 The court underscored the point that the party claiming an account stated must “clearly establish, with the requisite specificity, the invoices it claims sent to the defendant.” 6 The court found that plaintiff failed to do so. 7 Accordingly, the court denied the motion. The court denied the motion for another reason: plaintiff failed to comply with CPLR § 2101(b), which requires that supporting documentation written in another language must be accompanied by a certified translation into English. 8 The court reminded the parties that it “must be able to understand an entire document, not only the parts in English, in order to make a determination.” 9 By failing to do so, plaintiff “failed to meet its burden.” 10 Footnotes “An account stated is an agreement between parties to an account based upon prior transactions between them with respect to the correctness of the account items and balance due. An agreement may be implied where a defendant retains bills without objecting to them within a reasonable period of time, or makes partial payment on the account.” Citibank (S. Dakota), N.A. v. Brown-Serulovic , 97 A.D.3d 522, 523 (2d Dept. 2012). Slip Op. at *3. Id. Id. Id. at *4. Id. 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 Many times, multiple actions are pending that involve similar facts and/or legal issues.  In such instances it may be appropriate to consolidate those actions pursuant to CPLR 602(a) , which provides that “ hen actions involving a common question of law or fact are pending before a court, the court, upon motion, may order a joint trial of any or all the matters in issue, may order the actions consolidated, and may make such other orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.”   A court may, in its discretion, grant consolidation to “serve[] the interest of judicial economy.”  Isa Realty Group, LLC v. EBM Development Co. , 212 A.D.3d 427 (1 st Dep’t 2023) (citations omitted).  Consolidation is appropriate to “foreclose inconsistent results” that may obtain in related actions pending independently.  Id .  Put another way, consolidation is “appropriate where it will avoid unnecessary duplication of trials, save unnecessary costs and expense, and prevent an injustice which would result from divergent decisions based on the same facts”, Best Price Jewlers.Com, Inc. v. Internet Data Storage & Systems, Inc. , 51 A.D.3d 839 (1 st Dep’t 2008) (citation omitted), or where discovery may be “streamlin ”, Scarola Zubatov Schaffzin PLLC v. Dynamic Credit Partners, LLC , 210 A.D.3d 605, 607 (1 st Dep’t 2022).  When factors favoring consolidation exist, a motion to consolidate should be granted “absent a showing of prejudice to a substantial right by the party opposing the motion.”  Calle v. 2118 Flatbush Avenue Realty, LLC , 209 A.D3d 961, 963 (2 nd Dep’t 2022) (citations and internal quotation marks omitted). On February 22, 2023, the Appellate Division, Second Department, decided HSBC Bank USA, N.A., v. Francis , a case that addressed consolidation in the context of a residential mortgage foreclosure action.  In HSBC , the Court held “as an issue of first impression … that consolidation should be denied where one of the cases to be consolidated is subject to a meritorious motion to dismiss.”  The facts of HSBC are simple, albeit a bit unusual.  In 2008, lender commenced a mortgage foreclosure action in which borrower defaulted.  While lender obtained a judgment of foreclosure and sale, it moved to vacate same in order to have a corrected judgment entered in its place.  The corrected judgment was never entered and the action was never discontinued or dismissed.  Fast forward to 2017, when lender commenced a new action to foreclose the same mortgage.  Borrower answered in the new action and moved to dismiss on statute of limitations grounds and for summary judgment “on her counterclaim pursuant to RPAPL 1501 (4), inter alia, to cancel and discharge the subject mortgage.”  [Eds. Note: this blog has discussed statute of limitations in mortgage foreclosure actions < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> and RPAPL 1501 < here =">here"> , < here =">here"> and < here =">here"> .]  In response, lender cross-moved to consolidate the earlier and later actions to foreclose the same mortgage. Supreme court granted lender’s cross-motion and denied borrower’s motion.  According to the Second Department, supreme court “reasoned that the cases arose from identical facts and circumstances, involved common questions of law and fact, and involved causes of action to foreclose on a residential mortgage onsolidation … would avoid unnecessary duplication of trials and the possibility of inconsistent verdicts since both actions arose from the same transaction or occurrence.”  Borrower appealed. On appeal, the Second Department found the later filed action time-barred.  As this Blog has previously noted: 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).  … 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.”  Fed. Nat. Mort. Assoc. v. Mebane , 208 A.D.2d 892, 894 (2 nd Dep’t 1994) (citation omitted) The statute of limitations begins to run anew on the entire debt upon acceleration.  HSBC , 171 A.D.3d at 1030 (citations omitted). Because borrower demonstrated, that the underlying loan was accelerated in 2008, and the later action was commenced in 2017 -- more than six years later -- the Second Department found that borrower met her burden of demonstrating the later action was untimely.  Thus, the burden shifted to lender “to raise a question of fact as to whether the statute of limitations was tolled or otherwise inapplicable, or whether the plaintiff actually commenced the action within the applicable limitations period.”  Supreme court found persuasive, lender’s argument that “the statute of limitations defense failed once the 2017 action was consolidated with the timely 2008 action.”  The Second Department disagreed. After explaining the law on consolidation, the Second Department determined that “a precondition for merging two or more actions is that each action should itself be viable, meaning that neither is confronted with a pending—and apparently meritorious—motion to dismiss.”  Lender could not meet its shifted burden on the statute of limitations issue by “merely asserting that the 2017 action will become timely once it is merged with the timely 2008 action.” In so doing, the Court stated: The purpose of consolidation under CPLR 602(a) is not to provide a party with a procedural end run around a legal defense applicable to one of the actions. In our opinion, in such instances, judicial discretion should not be used to cure the untimeliness of one action by tethering it to a related timely action. We hold, as an issue of apparent first impression that, in this case, the Supreme Court improvidently exercised its discretion in granting consolidation and that, in general, consolidation should be denied where one of the cases to be consolidated is subject to a meritorious motion to dismiss. *     *     * Moreover, we note that, leaving aside the untimeliness of the 2017 action, there is an additional procedural challenge further demonstrating that consolidation is not appropriate in this instance. The actions are at very different procedural stages, with an order of reference and a judgment of foreclosure and sale having been entered already, though the judgment was vacated on motion, in the 2008 action. Additionally, the defendant failed to appear in the 2008 action but answered in the 2017 action. Were the actions merged, would the defendant be properly viewed as having defaulted in appearing in that merged action, or would she be properly viewed as having appeared in it? These two cases should not be consolidated where the defendant has defaulted in one but appeared and answered in the other. 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 Celebrities often use their fame and likeness to promote goods and services. After all, it is a way to make extra money.  Sometimes, when securities are involved, the celebrity will promote an investment opportunity without making any disclosure about whether they are paid for their endorsement. Even worse, the celebrity makes materially false and misleading statements about the investment opportunity. When the investment opportunity involves a virtual token or coin, the SEC’s Division of Enforcement and Office of Compliance Inspections and Examinations has said that “ ny celebrity or other individual who promotes a virtual token or coin that is a security” and who fails to “disclose the nature, scope, and amount of compensation received in exchange for the promotion” violates “the anti-touting provisions of the federal securities laws.” 1 In the Matter of Paul Anthony Pierce , SEC Release No. 11157 (Feb. 17, 2023), the SEC brought charges against former NBA player Paul Pierce (“Respondent”) for touting virtual tokens on social media without disclosing the payment he received for the promotion and for making false and misleading promotional statements about the same crypto asset. As discussed in the SEC’s Order Instituting Cease-and-Desist Proceedings ( here ), Respondent promoted virtual tokens on his Twitter account in exchange for financial payment from the issuer. He received crypto asset securities worth approximately $244,116 for his promotions. At the time of his promotions, Respondent had in excess of approximately 4 million Twitter followers. Specifically, Respondent allegedly promoted a securities offering conducted by EthereumMax, an online company with a public website (“EthereumMax” or the “Company”), in which it offered and sold digital “Emax tokens” (“EMAX”) to the general public. The EMAX tokens promoted by Respondent were offered and sold as investment contracts. According to the SEC, as such, these investment contracts were securities within the meaning of Section 2(a)(1) of the Securities Act of 1933. Starting on or about May 14, 2021, EthereumMax made the EMAX tokens available for public trading on a so-called “decentralized” crypto asset trading platform. According to the SEC, on May 24, 2021, EthereumMax and/or its agents began transferring EMAX tokens to Respondent in exchange for his agreement to make social media posts promoting the tokens. Respondent allegedly received at least eight (8) transfers of EMAX tokens through June 18, 2021. According to the SEC, Respondent accepted the tokens as compensation for his promotional services in lieu of payments in dollars. On May 26, 2021, Respondent allegedly promoted EthereumMax’s offering on his Twitter page. The post contained a link to the EthereumMax website, where instructions were provided for potential investors to purchase EMAX tokens. The SEC said that Respondent did not disclose that he was compensated by EthereumMax for the promotion, nor did he disclose the amount and nature of the compensation. The SEC also said that the Tweet, in which Respondent compared his compensation with ESPN and the value of the crypto token was materially misleading.  Two days later, Respondent posted another allegedly misleading statement on his Twitter account about the EMAX and failed to disclose the fact that the Company was compensating him for the promotion or the amount of the compensation. The SEC also claimed that Respondent failed to disclose that his own personal holdings were in fact far lower than the amount posted in the Tweet.  Respondent made additional Tweets about the Company and the offering over the next several days. The SEC maintained that the information in those Tweets were materially false and misleading for substantially the same reasons.  The SEC alleged that, in total, Respondent received approximately 1,622,319,996,192 EMAX tokens, worth approximately $244,116 at the time he received them, from EthereumMax and/or its agents in exchange for his promotional tweets. In the order, the SEC found that Respondent violated the anti-touting and antifraud provisions of the federal securities laws. Without admitting or denying the SEC’s findings, Respondent agreed to pay a $1,115,000 penalty, prejudgment interest of $15,449, and approximately $240,000 in disgorgement. Respondent also agreed to not promote any crypto asset securities for three years. “This case is yet another reminder to celebrities: The law requires you to disclose to the public from whom and how much you are getting paid to promote investment in securities, and you can’t lie to investors when you tout a security,” said SEC Chair Gary Gensler. “When celebrities endorse investment opportunities, including crypto asset securities, investors should be careful to research if the investments are right for them, and they should know why celebrities are making those endorsements.” “The federal securities laws are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source, and amount of compensation they received in exchange for the promotion,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Investors are entitled to know whether a promotor of a security is unbiased, and failed to disclose this information.” A copy of the press release announcing the charges and settlement can be found here . Footnote See SEC Staff Statement Urging Caution Around Celebrity Backed ICOs (Nov. 1, 2017), available at https://www.sec.gov/news/public-statement/statement-potentially-unlawful-promotion-icos . 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 Arbitration is an alternative form of dispute resolution where the parties voluntarily agree that a neutral, private person will resolve any legal disputes between them, instead of a judge or jury in a court of law. 1 In business and commercial transactions, arbitration is the preferred means of resolving disputes. It is encouraged and recognized as the public policy of the State of New York. 2 For this reason, “New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to arbitration.” 3 Since arbitration is a “creature of contract”, 4 courts will enforce arbitration provisions as they would enforce contractual rights generally. 5 Even though parties have agreed to arbitrate their disputes, one or more parties may resist availing themselves of the arbitral forum. For this reason, an aggrieved party will file a motion to compel arbitration to force the resisting party to settle the dispute in the arbitral forum.  In P.S. Finance, LLC v. Eureka Woodworks, Inc. , 2023 N.Y. Slip Op. 00877 (2d Dept. Feb. 15, 2023) ( here ), the Appellate Division, Second Department was faced with a “novel” question: whether, upon reviewing an agreement and determining that an arbitration provision governs, a court should, sua sponte , direct the parties to arbitrate though neither party had requested such relief? As discussed below, the Court answered the question in the negative. P.S. Finance involved a litigation funder and the effects of the Deepwater Horizon oil spill on the hotel industry along the Gulf of Mexico. Defendant Eureka Woodworks, Inc. (“Eureka”) was in the business of designing and manufacturing beach furniture and wooden advertising displays. Following the oil spill from the Deepwater Horizon oil rig in April 2010, Eureka filed a claim for damages with the Gulf Coast Claims Facility (“GCCF”), alleging that its revenue and profits decreased due to the effects the oil spill had on the hotel industry along the Gulf of Mexico. The law firm defendants, as well as nonparty Watts Guerra, LLP (“Watts Guerra”), represented Eureka in connection with its claim with the GCCF. Plaintiff P.S. Finance, LLC (“PSF”) was a New York limited liability company engaged in the business of advancing funding to plaintiffs in litigation, including personal injury litigation and commercial claims. According to PSF, in exchange for the funds that PSF advanced to plaintiffs in litigation, the plaintiffs agreed to pay a portion of the potential proceeds of their litigation to PSF. However, if the plaintiffs did not recover money from their litigation, then the plaintiffs were not obligated to pay PSF. On March 14, 2012, PSF and Eureka entered into an agreement, entitled “Plaintiff’s Agreement to Pay Proceeds Contingent on Successful Settlement, Judgment or Verdict and Receipt of Proceeds: Agreement to Assign Proceeds” (the “Agreement to Pay”). Pursuant to the Agreement to Pay, PSF agreed to provide $120,250 to Eureka in connection with the Eureka’s claim with the GCCF and any other related actions or claims. Among other provisions, the Agreement to Pay included an arbitration provision. On April 2017, PSF commenced the action in the Supreme Court, Richmond County, against Eureka and the attorney defendants by summons and motion for summary judgment in lieu of complaint pursuant to CPLR § 3213. PSF alleged that, in exchange for $120,250, Eureka and the attorney defendants assigned to PSF a portion of the proceeds of Eureka’s claim with the GCCF, and despite Eureka and the attorney defendants receiving settlement funds from the GCCF, they failed to pay PSF its portion of the proceeds. PSF requested that the motion court grant PSF summary judgment on its causes of action based on breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty in handling trust funds.  On May 12, 2017, Eureka and the attorney defendants opposed PSF’s motion. In addition, the attorney defendants moved pursuant to CPLR § 3211(a)(8) to dismiss the action insofar as asserted against them for lack of personal jurisdiction, raising the same contentions as those raised in opposition to PSF’s motion for summary judgment in lieu of complaint. By order dated December 14, 2017, the motion court held that, inter alia , pursuant to the Agreement to Pay, it did not have jurisdiction over the matter, sua sponte directed the parties to arbitrate, directed dismissal of the action, and, in effect, denied, as academic, the attorney defendants’ motions.  On appeal, the Second Department reversed the portion of the motion court’s order directing the parties to arbitrate the dispute. In arguing for reversal, the attorney defendants noted that no party had sought arbitration at the time the motion court sua sponte directed arbitration. As such, the attorney defendants contended that the motion court’s sua sponte directive was improper. The attorney defendants further contended that PSF waived any potential right to arbitrate by commencing the action in court, and in any event, the attorney defendants were not bound by the arbitration provision in the Agreement to Pay.  Initially, the Court took issue with the motion court’s conclusion that the existence of the arbitration provision in the Agreement to Pay by itself divested it of jurisdiction over the matter: “contrary to the Supreme Court’s determination, ‘the mere existence of an arbitration clause in the contract not … authorize dismissal of the action. Only an arbitration and award would warrant such a dismissal.’” 6 The Court noted that “ here is no provision of the CPLR that requires a court to direct arbitration based upon the existence of what the court believes to be an applicable arbitration provision covering the subject matter of the action, absent a request from one of the parties to arbitrate.” 7 The Court also noted that under the Federal Arbitration Act (“FAA”), “there is no provision in the statute that requires a court to sua sponte enforce an arbitration provision.” 8 The Court explained that under United States Supreme Court jurisprudence, the FAA “does not mandate the arbitration of all claims, but merely the enforcement—upon the motion of one of the parties—of privately negotiated arbitration agreements.” 9 “Numerous federal courts considering the issue have also held that sua sponte directions to arbitrate are improper,” observed the Court. 10 Accordingly, the Court held “that a court should not direct arbitration absent a request from one of the parties to arbitrate.” 11 From a policy perspective, the Court held that courts should not be creating “special rules to promote arbitration.” 12 “In our view,” said the Court, “a policy favoring arbitration does not authorize courts to create special rules to promote arbitration.” 13 Having determined that the motion court erred in directing, sua sponte , the parties to arbitrate, the Court addressed the issue of whether plaintiff waived the right to compel arbitration. Since arbitration agreements are like any other agreement, 14 “a right to arbitration may be modified, waived or abandoned.” 15 “A litigant waives arbitration when its conduct is ‘clearly inconsistent with later claim that the parties were obligated to settle their differences by arbitration.’” 16 The Court found that, as against the attorney defendants, PSF waived its right to arbitrate through its conduct. 17 “First,” said the Court, “PSF chose to commence this action instead of seeking to enforce the arbitration provision in the Agreement to Pay.” 18 “Second,” said the Court, “PSF did not move to compel arbitration or even mention the arbitration provision of the Agreement to Pay in its papers in support of its motion for summary judgment in lieu of complaint.” 19 The same was true, noted the Court, when PSF moved to add an additional defendant to the action and made a second motion for summary judgment in lieu of complaint more than two months later. 20 “Indeed,” noted the Court, “up until the time the Supreme Court decided the parties’ motions and cross-motion, no party had ever requested or even mentioned arbitration.” 21 The Court rejected PSF’s contention that it did not waive the right to arbitrate because it resorted to litigation in order to seek protective relief and to preserve the status quo pending arbitration. 22 While acknowledging the law that “ ot every foray into the courthouse effects a waiver of the right to arbitrate,” 23 the Court found that PSF’s claim of urgency failed because it did not explain “why, after it commenced the action, did not then take any action to demand arbitration in response to the attorney defendants’ motion or the cross-motion or in the eight months before the Supreme Court made its sua sponte directive to arbitrate.” 24 “To the extent that PSF contends that waiver analysis should take into account the parties’ conduct after the Supreme Court’s sua sponte directive to arbitrate,” the Court “disagree .” 25 The Court held that “the parties’ subsequent conduct ha no bearing on the court’s determination to direct arbitration in December 2017.” 26 The Court explained that “PSF’s purported demand to arbitrate, made after the court’s directive, not change the fact that PSF had waived the right to arbitrate before the court’s directive.” 27 “Once waived,” said the Court, “the right to arbitrate cannot be regained.” 28 Takeaway P.S. Finance presented the Court with a novel issue: whether a court, on its own, can direct the parties to arbitrate their dispute in the absence of a motion to compel. As discussed, the Court held that the courts do not have such power. In our view, this issue was correctly decided. If the parties do not request arbitration, then the courts should not, on its own, force them to do so.  In addition, the Court’s decision brings the courts of New York in lockstep with those federal courts addressing the same issue. As noted, those courts held that a court should not direct arbitration absent a request from one of the parties to arbitrate. Footnotes Rent-A-Ctr., W, Inc. v. Jackson , 561 U.S. 63, 67 (2010) (noting that “arbitration is a matter of contract”). Matter of Smith Barney Shearson v. Sacharow , 91 N.Y.2d 39, 49 (1997) (citations and quotation marks omitted); Stark v. Molod Spitz DeSantis & Stark, P.C. , 9 N.Y.3d 59, 66 (2007) (internal citation omitted). Stark , 9 N.Y.3d at 66 (internal quotation marks and citation omitted). Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc. , 252 F.3d 218, 224 (2d Cir. 2001). Matter of Monarch Consulting, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA , 26 N.Y.3d 659, 665 (2016); Sablosky v. Gordon Co. , 73 N.Y.2d 133, 136 (1989). Slip Op. at *4 (quoting, BR Ambulance Serv. v. Nationwide Nassau Ambulance , 150 A.D.2d 745, 746 (2d Dept. 1989), and citing Lischinskaya v. Carnival Corp. , 56 A.D.3d 116, 122 (2d Dept. 2008) (rejecting contention that the jurisdiction of the court can be divested by a term of the contract between the parties)). Id. (citations omitted). Id. (footnote omitted). The FAA applies to any arbitration agreement evidencing a transaction involving interstate commerce ( see 9 U.S.C. § 2). The United States Supreme Court has interpreted the term “involving commerce” in the FAA as the functional equivalent of “affecting commerce” — words of art that ordinarily signal the broadest permissible exercise of Congress’ Commerce Clause power. Citizens Bank v. Alafabco, Inc. , 539 U.S. 52, 56 (2003). None of the parties argued that the FAA applied. Id. at *4-*5 (quoting, Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. 213, 219 (1985)). Id. at *5 (citations omitted). Id. Id. (citing, Morgan v. Sundance, Inc. , _____ US _____, _____, 142 S.Ct. 1708, 1713 (2022) (“a court may not devise novel rules to favor arbitration over litigation”)). Id. Id. (citations omitted). Id. (citations omitted). Id. (quoting, Cusimano v. Schnurr , 26 N.Y.3d 391, 400 (2015) (internal quotation marks omitted)). Id. Id.See also De Sapio v. Kohlmeyer , 35 N.Y.2d 402, 405 (1974) (“ he party who commences an action may generally be assumed to have waived any right it may have had to submit the issues to arbitration.”). Id. at *6. Id. Id. (citations omitted). Id. Id. (citing, Sherrill v. Grayco Bldrs. , 64 N.Y.2d 261, 273 (1985) (“ here urgent need to preserve the status quo requires some immediate action which cannot await the appointment of arbitrators, waiver will not occur”)). Id. (citing, Hyde v. Jewish Home Lifecare , 149 A.D.3d 674 (1st Dept. 2017) (finding, the defendant waived arbitration where, among other things, the defendant did not move to compel arbitration until approximately four months after the commencement of the plaintiff’s action)). Id. Id. (citations omitted). Id. Id. (quoting, Matter of Village of Bronxville v. Bronxville Police Taylor Act Comm. , 171 A.D.3d 932, 934 (2d Dept. 2019) (internal quotation marks omitted), and citing, Sherrill , 64 N.Y.2d at 274)). 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 Because there have been a number of appellate decisions interpreting RPAPL 1304 , this Blog has written frequently on that topic.  See, e.g. , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .   By way of background, and as previously noted in the Blog, RPAPL 1304 requires that at least ninety days before commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a “lender, assignee or mortgage loan servicer” must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that offer free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter. In one such article we wrote about Wells Fargo Bank, N.A. v. Yapkowitz , 199 A.D.3d 126 (2 nd Dep’t 2021), in which the Court held that if there are more than one borrower, each one must receive a separate RPAPL 1304 notice because the “practice is insufficient to satisfy the requirements of RPAPL 1304, and that the plaintiff is required to mail a 90–day notice addressed to each borrower in separate envelopes as a condition precedent to commencing the foreclosure action.”  Yapkowitz , 199 A.D.3d at 128.  In our February 11, 2022, Blog article < here =">here"> , we discussed U.S. Bank National Ass’n v. Gordon , 202 A.D.3d 872 (2022), in which the Second Department held that the lender failed to strictly comply with the requirements of RPAPL 1304 because it failed to demonstrate that the 90-day notices it sent to the borrowers contained the requisite list of five housing counseling agencies serving the county in which the subject property is located.  Numerous subsequent cases (and Blog articles) have been decided (and written) that have strictly construed RPAPL 1304. Discussion of the strict interpretation of RPAPL 1304 was present in our December 17, 2021, article concerning the Second Department’s decision in Bank of America, N.A. v. Kessler , 202 A.D.3d 10 (2021), reversed , 2023 NY Slip Op 00804 (Feb. 14, 2023).  Kessler="Kessler" here,=">here," >here.=">here.">   The Second Department in Kessler , strictly interpreted RPAPL 1304 and dismissed a Complaint because lender included additional notices in the envelope with the required 1304 notices in contravention of RPAPL 1304(2)’s requirement that “ he notices required by this section shall be sent by the lender, assignee or mortgage loan servicer in a separate envelope from any other mailing or notice .”  (Emphasis added.)  Thus, the notice in Kessler contained short debt collection, bankruptcy and military personnel assistance language in addition to the required language of the RPAPL 1304 notice. The Second Department, in Kessler , held that “inclusion of any material in the separate envelope sent to the borrower under RPAPL 1304 that is not expressly delineated in these provisions constitutes a violation of the separate envelope requirement of RPAPL 1304(2) .”  Kessler, 202 A.D.3d 10 at 14.  In so doing, the Second Department adopted a “bright-line rule.”  Kessler, 202 A.D.3d 10 at 16.   On September 5, 2022, we wrote about Kessler in, “ Supreme Court, Suffolk County, Refuses Lender’s Request to Stay a Foreclosure Action Pending the Court of Appeals’ Decision in Bank of America, N.A. v. Kessler ” where we discussed JPMorgan Chase Bank, N.A. v. Sapienza , 76 Misc.3d. 1207(A) (Sup. Ct. Suffolk Co. August 30, 2022). There, lender included short debt collection and bankruptcy notices with its 1304 notice.  Lender had commenced a foreclosure action but sought a discretionary stay while awaiting the Court of Appeals’ decision in Kessler .  Lender argued, inter alia , that Kessler would likely be reversed and that additional notices such as those at issue in Kessler and Sapienza , would be permitted with 1304 notices.  Accordingly, supreme court should await guidance from the Court of Appeals on this issue.  Lender further argued that the Court’s strict interpretation  of 1304 reflected a significant departure from existing law.  Supreme court did not agree, found, among other things, that Kessler ’s strict interpretation of 1304 had ample support in the case-law and rejected the Sapienza lender’s position. On February 14, 2023, the Court of Appeals reversed Kessler .  In so doing, the Court held that “the inclusion of concise and relevant additional information void[] an otherwise proper notice to borrowers sent pursuant to § 1304, thus barring a subsequently filed foreclosure action.” The Court noted that “Section 1304 was enacted to address the pre-foreclosure lack of communication between borrower and lender, which often leads to needless foreclosure proceedings in cases where a foreclosure alternative might otherwise have been possible.”  (Citations and internal quotation marks omitted.)   Interpreting statutes, the Court said, should be done in a manner that “avoid an unreasonable or absurd application of the law.”  Citing to RPAPL 1304(1) and (2), the Court went on to indicate that the “operative statutory language here contains two requirements: (1) the notice "shall include" the specified language and information; and (2) the notice must be sent "in a separate envelope from any other mailing or notice".  “As to the first requirement, subdivision (1) does not say that the notice must state only the cautionary language set forth in the statute, but rather that the notice ‘shall include’ that language.”  (Emphasis in original.)  The “include” language, the Court noted, “suggests that more can be added to the notice”. Nor did the Court did not find that subdivision (2), addressing “any other mailing,” supported the strict rule espoused by the Appellate Division in Kessler .  Thus, the Court stated: The question then is the constraint imposed by the requirement that the envelope not contain "any other mailing or notice." The bright line rule adopted by the lower courts effectively defines "any other mailing or notice" as "any additional material or information whatsoever." Although it might be possible to read "other notice" as the lower courts did—such that any deviation from the statutory language, however minor, would void the notice—that interpretation would stand in great tension with "shall include," a phrase that contemplates the addition of something else. The statute must be given a sensible and practical over-all construction, which harmonizes all its interlocking provisions. Application of a bright line rule here would require the use of a highly constrained definition of "other," where it is more appropriately read to mean mailings or notices "of a different kind." Here, "other mailing or notice" more aptly refers other kinds of notices, such as pre-acceleration default notices, notices disclosing interest rate changes to borrowers with adjustable-rate mortgages (12 CFR 1026.20 ), monthly mortgage statements (12 CFR 1026.41), or notices disclosing to the borrower a transfer of the loan servicer (12 CFR 1024.33 ).  In the Court’s view a “bright-line rule would also lead to nonsensical results” because adding language such as "THIS IS EXTREMELY IMPORTANT, PLEASE PAY ATTENTION!" would be fatal to a 1304 notice. Additionally, the Court found that a bright-line rule would be inconsistent with the “remedial purpose” of RPAPL 1304 and, held that “accurate statements that further the underlying statutory purpose of providing information to borrowers that is or may become relevant to avoiding foreclosure do not constitute an ‘other notice.’"  In determining that the additional language about which the borrower in Kessler complained furthered the policies behind RPAPL 1304, the Court stated: Here, the additional two paragraphs are directly related to the notice's subject matter and further the statutory purpose by informing certain borrowers of additional protections they may have beyond those identified in the statutory notice language. The paragraphs relate to and supplement the statutory language as applied to two distinct groups of borrowers, and thus make most sense and are most helpful when read together with the notice. In addition, the paragraph relating to bankruptcy proceedings may be particularly useful to avoid confusing borrowers who are subject to the automatic stay in bankruptcy court and to avoid potential violation of such stays by the lender. The added language is specifically directed at that concern: it states that if the borrower is in bankruptcy, the section 1304 notice "is for information only and is not an attempt to collect the debt, a demand for payment, or an attempt to impose personal liability for that debt." It thus functions as both a protection for lenders and an explanation to borrowers of additional rights they may have. Moreover, a bright-line rule against any additional language in the same envelope could conflict with certain disclosure requirements under federal law .  Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber On February 14, 2023, the New York Court of Appeals decided State of New York v. Vayu, Inc. , 2023 N.Y. Slip Op. 00801 (Feb. 14, 2023) ( here ). Vayu addressed what it means to purposefully avail oneself of the privilege of conducting activities within New York by transacting business in the state. In a 5-1 decision, authored by Judge Michael J. Garcia, the Court held that Vayu, acting through its chief executive officer, repeatedly projected itself into New York over a two-year period through telephone calls and emails that created an ongoing business relationship with a New York State agency and visited New York in furtherance of that agreement. In so holding, the majority rejected the notion that “although a defendant’s initiation of contact with New York is a relevant factor in the purposeful availment analysis, it is not determinative”. The reason said the Court is because the courts must examine the nature and quality of the contacts and the relationship established as a result of such contacts.  Judge Jenny Rivera filed a lengthy dissent, stating that she would have affirmed the dismissal of the action on personal jurisdiction grounds. Judge Rivera concluded that the case involved nothing more than “a purchase by telephone and email of a product manufactured outside of New York, designed to specifications serving the needs of non-New Yorkers, and sent directly from the factory floor to Madagascar”. “On these facts”, Judge Rivera said, “defendant did not transact business within New York but merely entered a contract with a New York client for a product sent to and used in another country”. A Primer on Personal Jurisdiction Under CPLR § 302(a)(1) CPLR § 302(a)(1) provides for personal jurisdiction over a non-domiciliary who “transacts any business within the state or contracts anywhere to supply goods or services in the state.” To satisfy this rule, a plaintiff must show: (1) the defendant “transacts any business” in the state, or (2) defendant “contracts anywhere to supply goods or services” in the state. 1 The first prong of the rule requires an objective inquiry into whether “ non-domiciliary defendant<,> . . . ‘on own initiative<,> . . . project into this state to engage in a sustained and substantial transaction of business’”. 2 “ single transaction in New York, out of which the cause of action has arisen, may satisfy the requirement of the transaction of business provision”. 3 Significantly, “ he primary consideration is the quality of the non-domiciliary’s New York contacts”. 4 While a non-domiciliary need not physically “enter[ ] New York”, 5 its transactions will be deemed sufficiently purposeful only where “ defendant, through volitional acts, ‘avails itself of the privilege of conducting activities within the forum tate, thus invoking the benefits and protections of its laws’”. 6 “ urposeful availment occurs when the non-domiciliary ‘seeks out and initiates contact with New York, solicits business in New York, and establishes a continuing relationship’” with a New York-based party. 7 Notably, “the nature and purpose of a solitary business meeting conducted for a single day in New York may supply the minimum contacts necessary to subject a nonresident participant to the jurisdiction of courts”. 8 “ lthough determining what facts constitute ‘purposeful availment’ is an objective inquiry, it always requires a court to closely examine the defendant’s contacts for their quality”. 9 In addition to satisfying the requirements of CPLR § 302(a)(1), the plaintiff must establish that the “ xercise of personal jurisdiction under the long-arm statute … comport with federal constitutional due process requirements”. 10 The Court of Appeals has adopted a two-pronged analysis under the federal constitutional standard: Federal due process requires first that a defendant have minimum contacts with the forum state such that the defendant should reasonably anticipate being haled into court there, and second, that the prospect of having to defend a suit in New York comports with traditional notions of fair play and substantial justice. 11 Under the “minimum contacts” analysis, the court evaluates whether a defendant has purposefully availed itself of the privilege of conducting business within New York. 12 “The contacts must be the defendant’s own choice and not ‘random, isolated, or fortuitous’”. 13 Moreover, “it is the defendant’s conduct that must form the necessary connection with the forum State that is the basis for its jurisdiction over ”; “a defendant’s relationship with a plaintiff or third party, standing alone, is an insufficient basis for jurisdiction”. 14 “The ultimate burden of proving a basis for personal jurisdiction rests with the party asserting jurisdiction.” 15 Thus, where a defendant, as in Vayu , moves to dismiss an action for lack of personal jurisdiction pursuant to CPLR § 3211(a)(8), “the plaintiff must come forward with sufficient evidence, through affidavits and relevant documents, to prove the existence of jurisdiction”. 16 State of New York v Vayu, Inc. Vayu, Inc. is a Delaware corporation that is headquartered in Michigan. It designs and manufactures unmanned aerial vehicles (also known as “drones”). Vayu sold two UAVs to the State University of New York at Stony Brook (“SUNY Stoney Brook”) for delivery in Madagascar. Following a dispute regarding the operability of the UAVs, plaintiff commenced the action on behalf of SUNY Stony Brook, asserting, among other claims, breach of contract. In 2013, Vayu’s Chief Executive Officer, Daniel Pepper (“Pepper”), contacted Dr. Peter Small (“Small”), who was not yet affiliated with SUNY Stony Brook, about using UAVs to transport laboratory samples. It is unclear whether Small was in New York at the time. Two years later, in 2015, while working as a professor of medicine and director of the Global Health Institute at SUNY Stony Brook, Small contacted Pepper seeking a business relationship between Vayu and SUNY Stony Brook for the development and use of UAVs to deliver medical supplies to remote areas in underdeveloped countries. From 2015 through 2017, Pepper communicated with Small and other representatives of SUNY Stony Brook through telephone calls to SUNY Stony Brook phone numbers, emails to SUNY Stony Brook email addresses, and later through a face-to-face meeting in New York. These discussions concerned both the development of UAVs to be sold to SUNY Stony Brook, as well as broader partnership opportunities. In the summer of 2016, Vayu and SUNY Stony Brook worked together to submit a grant application to the United States Agency for International Development (“USAID”), in which Vayu described SUNY Stony Brook as a “partner” and identified Small as a key member of its “team”. The submission also outlined a two-year budget with SUNY Stony Brook receiving approximately $85,000 per year for costs such as travel, stipends, and technical support as part of an effort to supply 10 UAVs to Madagascar. USAID ultimately approved the grant proposal that included these representations. In September 2016, SUNY Stony Brook purchased two UAVs from Vayu for $25,000 each. Vayu sent an invoice to SUNY Stony Brook at a post office box located in New York, and Vayu accepted a wire payment from SUNY Stony Brook that originated in New York. Attached to the invoice was a note from a Vayu employee stating “ e can discuss down the line whether would like these shipped to NY, or on behalf to Madagascar”. The drones were later shipped directly to Madagascar from Michigan.  By November 2016, problems arose with the operation of the two UAVs. Vayu employees and SUNY Stony Brook representatives attempted to resolve the issues by telephone and email, and in September 2017, Pepper offered to meet Small in New York. At that meeting, Pepper and Small agreed to terms for moving forward, which were memorialized via email: SUNY Stony Brook would bear the cost of shipping the UAVs from Madagascar to Michigan; Vayu would provide replacement UAVs that met SUNY Stony Brook’s specifications; and Vayu would train one of SUNY Stony Brook’s employees to operate the UAVs. The parties also discussed an ongoing business relationship and future opportunities between Vayu and SUNY Stony Brook. In November 2017, SUNY Stony Brook returned the two UAVs to Vayu in Michigan. Vayu failed to replace them or provide a refund. The Court held that the foregoing facts demonstrated “a clear intent by Vayu to engage purposefully in business activities within the meaning of CPLR 302 (a) (1)”. The Court explained that “ or two years, Vayu projected itself into the State via calls and emails with Small and others at SUNY Stony Brook that resulted in the sale of two UAVs”. The Court found that the “content of the communications … show that Vayu purposefully sought to establish a substantial ongoing business relationship with SUNY Stony Brook.” The Court noted that “ ong-arm jurisdiction is appropriately exercised over commercial actors who have, as Vayu did here, us electronic and telephonic means to project themselves into New York to conduct business transactions” (internal quotation marks omitted). The Court further noted that “although being physically present in New York is not required, the fact that Pepper traveled to New York to meet with Small in furtherance of the ongoing business relationship significant”. The Court found that the communications in Vayu went beyond the sale of the two drones; they evinced “a continuing business relationship between Vayu and SUNY Stony Brook”. The Court rejected the notion that the case was similar to those where the plaintiff responded to a “passive website[]”, explaining that the interactions “involved an active dialogue between principals based on earlier personal contact”.  Importantly, the Court rejected the argument that a defendant’s initiation of contact with New York is the determinative factor, stating “although a defendant’s initiation of contact with New York is a relevant factor in the purposeful availment analysis, it is not determinative”.  Speaking to the dissent, the Court found that the arrangement between the parties was more than a unilateral plan that was conceived by Small. The Court noted that the email communications between the parties made it clear “that Pepper reached out to Small in December 2013 to discuss “the idea to use drones to transport lab samples”. “According to Pepper, that idea was ‘a shared vision’ between the two, specifically for ‘an affordable and autonomous, long-range . . . delivery drone that can address the needs of “last mile” rural healthcare delivery.’” The Court found that the sale of the drones to SUNY Stony Brook for use in Madagascar furthered that shared vision. In sum, as to the first prong of CPLR § 302(a)(1), the Court found that the interactions with New York exceeded the bare minimum.  The parties had a two-year business relationship when the principals met—at Pepper’s request—in New York in 2017. In the weeks that followed, the parties exchanged emails and calls, including an email from Pepper to Small memorializing the modified terms of the agreement with an assurance that “above all else, we want to figure out a solution and work together.” The meeting in New York, and the follow up communications, “designedly and materially forwarded the negotiation and performance of the contract for sale” of the UAVs ( Dulman v Potomac Baking Co. , 85 AD2d 676, 677 <2d dept 1981> ). Regarding the second prong of CPLR § 302(a)(1), requiring the cause of action to arise from a defendant’s relevant business transaction in the state, the Court held that plaintiff easily met it.  Plaintiff’s claims are based on the sale of the two UAVs, and Vayu’s contacts in New York were directly related to efforts to resolve the dispute over operability of the purchased UAVs. Thus, “ here is an articulable nexus or substantial relationship between defendant’s New York activities and the parties’ contract, defendant’s alleged breach thereof, and potential damages.” Finally, the Court held that the exercise of personal jurisdiction over Vayu satisfied constitutional due process. The Court found that “Vayu sought, negotiated, and then entered a contractual relationship with a New York State entity”. “Vayu furthered that relationship”, said the Court, “through numerous telephonic and email communications with SUNY Stony Brook and continued negotiations over terms of the deal when Vayu’s CEO visited New York and met with Small in 2017”. Moreover, noted the Court, “Vayu’s 2016 grant application to USAID, describing SUNY Stony Brook as a ‘partner’ and projecting a two-year budget for SUNY Stony Brook’s costs related to delivery of an additional 10 UAVs, further demonstrate Vayu’s understanding of this relationship with SUNY Stony Brook as ongoing and connected to New York”. Under such circumstances, concluded the Court, “Vayu should reasonably have anticipated being haled into court here”. Addressing the dissent, the Court argued that it misconstrued the nature of the agreement between the parties, noting that there were “voluminous contacts between Vayu and SUNY Stony Brook over a two-year period” and that such contacts “were not merely ‘responsive in nature’, but rather ongoing negotiations over the original terms and subsequent modification of a contractual relationship”.  The Court said that the dissent also mischaracterized the meeting in New York, which was not simply to ‘assuage’ concerns, but to modify the terms of their agreement and discuss ongoing collaboration. In fact, noted the Court, the new terms agreed upon were at issue in the lawsuit. “Likewise”, said the Court, “the refrain that the drones, which were intended for use in SUNY Stony Brook’s initiative to provide health solutions in developing countries, were for the ‘benefit and use of people’, confuse the concept of potential third-party beneficiaries of a commercial agreement with the long-arm jurisdictional inquiry into defendant’s activities in New York”. The fact that persons located in remote areas of Madagascar might benefit from delivery of much-needed medical supplies by SUNY Stony Brook’s drones, noted the Court, did not mean that SUNY Stony Brook itself would reap no benefit from the success of the program. The school could find success in an “enhanced … reputation” and an expanded “program to service other populations in need”. The dissent found that the lower court had no jurisdiction over Vayu. Judge Rivera argued that the parties’ discussions about, and preliminary steps toward, establishing a potential but unconsummated future business relationship was insufficient to satisfy CPLR § 302(a)(1). Judge Rivera explained that the lawsuit was based on a contract formed outside of New York for products manufactured in Michigan and sent directly to Madagascar for the benefit and use of its people. “This section of our long arm statute”, said Judge Rivera, “applies to those who transact business within New York and not to those, like defendant, who happen to conduct some business with a party located in New York”.  Judge Rivera argued that by its holding, the majority “adopt an overly broad reading and unconstitutional extension of CPLR 302 (a) (1)”.  Takeaway As noted, Judge Rivera argued that the majority “adopt an overly broad reading and unconstitutional extension of CPLR 302 (a) (1)”. Time will tell whether that assessment is accurate. However, in analyzing the facts and the law, it is hard to overlook some of the objections Judge Rivera had to the majority’s decision.  For example, the first prong of the rule requires an inquiry into whether the non-domiciliary projects itself into the state on its own initiative to engage in the transaction of business. Purposeful availment occurs when the non-domiciliary seeks out and initiates contact with New York, solicits business in New York, and establishes a continuing relationship with a New York-based party. The facts of Vayu show that it was plaintiff’s action that were the impetus for the transaction between SUNY Stony Brook and Vayu. As Judge Rivera noted, “ plaintiff’s actions cannot serve as the basis for personal jurisdiction over a defendant who merely responds to a business opportunity through common email and telephone communications”. The majority opinion gives little, if any, weight to this principle. Moreover, as Judge Rivera noted, Pepper’s visit to New York was part of an attempt to address complaints about performance of the drones that arose after the contract had been entered – that is, after the transaction had been completed. Indeed, the failure to perform was the crux of plaintiff’s breach of contract claim. Pepper did not enter New York to transact new business with the university or to modify the agreement.  Further, all business between Vayu and SUNY Stony Brook was conducted remotely. As Judge Rivera explained, both parties entered into an agreement with the understanding that they could perform their contractual obligations without Vayu or its drones entering New York. Finally, the negotiation between a non-domiciliary and a New York resident to create an ongoing business relationship is not typically sufficient to support a claim of personal jurisdiction when the negotiation is based on a previous transaction. As Judge Rivera noted, “ o communications on this subject occurred in New York or led to the formation of a contract in New York. As they did during the original transaction, the parties contemplated engaging in a business relationship focused on public health issues in Madagascar and other foreign nations”. Footnotes D & R Global Selections, S.L. v. Bodega Olegario Falcon Pineiro , 29 N.Y.3d 292, 297 (2017) (quoting, CPLR § 302(a)(1)). Id. at 298 (quoting, Paterno v. Laser Spine Inst. , 24 N.Y.3d 370, 377 (2014)). Longines-Wittnauer Watch Co. v. Barnes & Reinecke , 15 N.Y.2d 443, 456 (1965). D & R Global , 29 N.Y.3d at 298 (citing, Fischbarg v. Doucet , 9 N.Y.3d 375, 380 (2007)). Kreutter v. McFadden Oil Corp. , 71 N.Y.2d 460, 467 (1988). Fischbarg , 9 N.Y.3d at 380 (quoting, McKee Elec. Co. v. Rauland-Borg Corp. , 20 N.Y.2d 377, 382 (1967)). D & R Global , 29 N.Y.3d at 298 (quoting, Paterno , 24 N.Y.3d at 377). Presidential Realty Corp. v. Michael Sq. W., Ltd. , 44 N.Y.2d 672, 673 (1978). Licci v. Lebanese Can. Bank, SAL , 20 N.Y.3d 327, 338 (2012). Rushaid v. Pictet & Cie , 28 N.Y.3d 316, 330 (2016) (citing, LaMarca v. Pak-Mor Mfg. Co. , 95 N.Y.2d 210, 216 (2000)). D & R Global , 29 N.Y.3d at 300 (cleaned up). Id. ; Rushaid , 29 N.Y.3d at 331; LaMarca , 95 N.Y.2d at 217. Ford Motor Co. v. Montana Eighth Judicial Dist. Ct. , 141 S.Ct. 1017, 1025 (2021) (quoting, Keeton v. Hustler Magazine, Inc. , 465 U.S. 770, 774 (1984)). Walden v. Fiore , 571 U.S. 277, 285-286 (2014). Fanelli v. Latman , 202 A.D.3d 758, 759 (2d Dept. 2022) (citing, Fischbarg , 9 N.Y.3d 375, 381 n.5, and Aybar v. Aybar , 169 A.D.3d 137, 142 (2d Dept. 2019), aff’d , 37 N.Y.3d 274 (2021)). Fischbarg , 9 N.Y.3d at 381 n.5 (internal quotation marks omitted) (quoting, Vincent C. Alexander, Prac. Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C302:5). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber As readers of this Blog know, to form a contract, the following elements must be present: an offer, acceptance of the offer, consideration, mutual assent (or a meeting of the minds) and an intent to be bound. Contracts are subject to the equitable remedy of rescission or reformation if entered under a mutual mistake. 1 To invoke the doctrine of mutual mistake, a party must present proof that the agreement, as expressed, does not represent a “meeting of the minds” between the parties in some material respect. 2 The mutual mistake must be substantial 3 and exist at the time the parties enter the contract. 4 To establish mutual mistake, the moving party must overcome a heavy presumption, and prove, by clear and convincing evidence, that the agreement did not express the intentions of either party. 5 When, as in Ralph Lauren Retail, Inc. v. 888 Madison LLC , 2023 N.Y. Slip Op. 00747 (1st Dept. Feb. 9, 2023) ( here ), “the parties have reached an oral agreement and, unknown to either, the signed writing does not express that agreement”, the court may reform the written agreement to correct the mistake. 6 In other words, “‘ here there is no mistake about the agreement and the only mistake alleged is in the reduction of that agreement to writing, such mistake of the scrivener, or of either party, no matter how it occurred, may be corrected.’” 7 Ralph Lauren involved a dispute concerning a renewal lease for the third and fourth floors of Ralph Lauren’s flagship store located at Madison Avenue and 72nd Street. Plaintiff, Ralph Lauren Retail, Inc., is the tenant of four floors in the building owned by defendant and of an adjacent townhouse, combined with those floors, that is also owned by defendant. Plaintiff, Ralph Lauren Corporation, is the tenant’s guarantor.  On November 30, 2006, plaintiffs and defendant extended the lease for those premises to August 31, 2027. The modification granted plaintiffs two options to renew the lease, each time for ten additional years. Plaintiffs could exercise their first renewal right until September 1, 2025. The parties subsequently modified the lease a second time. On December 1, 2020, during the height of the pandemic, the lease was modified a third time to extend the term by ten years to August 31, 2037. According to plaintiffs, the parties had orally agreed to keep the rent for two floors flat without extending the term of the lease. Plaintiffs alleged that they had unambiguously told defendant they would not extend the lease without more favorable rent provisions. Plaintiffs alleged that they erroneously drafted the modification because, during a significant change of their legal personnel, there was a communication error between their departing counsel (who had negotiated the modification) and their incoming counsel (who wrote it). Plaintiffs commenced the action seeking rescission or reformation of the third modification agreement, alleging that the modification agreement did not reflect the parties’ meeting of the minds and the terms of their actual agreement. Defendant moved to dismiss. The motion court denied the motion as to the first cause of action seeking recission based on mistake or, in the alternative, reformation to reflect the terms of any actual agreement. The motion court found that plaintiffs sufficiently alleged unilateral mistake resulting in defendant’s unjust enrichment, or mutual mistake on the ground that the third modification agreement as written did not reflect the parties’ meeting of the minds. The motion court granted the motion as to the third cause of action seeking rescission or reformation based upon fraudulent inducement. The motion court found that plaintiffs failed to allege any affirmative misrepresentation by defendant to support a claim of fraud. “At best”, said the motion court, “the Landlord did not advise counsel for Ralph Lauren (who had drafted the Agreement) that the Modification Agreement did not reflect any terms to which the parties had agreed”. The motion court noted that defendant had no legal duty (as opposed to a potential ethical one on which it declined to opine) to disclose that information to opposing counsel, particularly since plaintiffs’ executives who signed the lease modification agreement could have readily ascertained the contents of the two-page document by reading it. Further, the motion court held that plaintiffs did not satisfy the justifiable reliance element of a fraud claim. The motion court explained that plaintiffs were solely responsible for the conduct of their attorney who drafted the agreement and its executives who signed the agreement.  On appeal, the Appellate Division, First Department modified the motion court’s order to dismiss plaintiffs’ claim sounding in unilateral mistake; the Court otherwise affirmed the order. The Court held that plaintiffs failed to state a claim for unilateral mistake. However, said the Court, plaintiffs “pleaded facts sufficient to sustain a claim for rescission or reformation based on mutual mistake”. 8 The Court found that “ he allegations that the parties had orally agreed to modify the lease to keep the rent for the third and fourth floors of the premises flat for the remainder of the lease term without extending that term, and that the written agreement did not accurately reflect the oral agreement, sufficiently stated a claim”. 9 here.=">here."> Takeaway Reformation is an equitable form of relief that is designed to effectuate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties. 10 When a party seeks reformation, he or she “‘must establish right to such relief by clear, positive and convincing evidence.’” 11 Therefore, the party seeking reformation must “show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties.” 12 When a scrivener’s error is the basis for reformation, the party demanding reformation must prove “a prior agreement between parties, which when subsequently reduced to writing fails to accurately reflect the prior agreement.” 13 In Ralph Lauren , the oral agreement between the parties reflected the actual agreement between them and, as such, was considered to be the most persuasive evidence of the intention of the parties. 14 Under those circumstances, plaintiffs met their burden and stated a claim for reformation or rescission based on a mutual mistake. Footnotes Matter of Gould v. Board of Educ. of Sewanhaka Cent. High Sch. Dist. , 81 N.Y.2d 446, 453 (1993). E.g. , Zacharius v. Kensington Publ. Corp. , 167 A.D.3d 452, 454 (1st Dept. 2018); Jerome M. Eisenberg, Inc. v. Hall , 147 A.D.3d 602, 604 (1st Dept. 2017); Resort Sports Network Inc. v. PH Ventures III, LLC , 67 A.D.3d 132, 135 (1st Dept. 2009). Matter of Gould , 81 N.Y.2d at 453; Jerome M. Eisenberg , 147 A.D.3d at 604. Matter of New York Agency & other Assets of Bank of Credit & Commerce Intl. , 90 N.Y.2d 410, 424 (1997). Gunther v. Vilceus , 142 A.D.3d 639, 641 (2d Dept. 2016); US Bank Natl. Assn. v. Lieberman , 98 A.D.3d 422, 424 (1st Dept. 2012). Chimart Assocs. v. Paul , 66 N.Y.2d 570, 573 (1986). Harris v. Uhlendorf , 24 N.Y.2d 463, 467 (1969) (quoting, Born v. Schrenkeisen , 110 N.Y. 55, 59 (1888)). Slip Op. at *1. Id. (citations omitted). George Backer Mgt. Corp. v. Acme Quilting Co. , 46 N.Y.2d 211, 219 (1978). Schultz v. 400 Coop. Corp. , 292 A.D.2d 16, 19 (1st Dept. 2002) (quoting, Amend v. Hurley , 293 N.Y. 587, 595 (1944)). Id. US Bank , 98 A.D.3d at 424. Gulf Ins. Co. v Transatlantic Reins. Co. , 69 A.D.3d 71, 85 (1st Dept. 2009). 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 A commercial lease can be a valuable asset for a business.  Accordingly, a tenant must be mindful of its rights in the face of a default/cure notice from a landlord.  Generally, a tenant that wants to retain its lease and disputes a curable default, or cannot remedy a curable default within the contractual cure period, should consider obtaining a Yellowstone injunction.  Yellowstone="Yellowstone" injunctions="injunctions" here,=">here," and="and" >here.=">here."> The “purpose of a Yellowstone injunction is to allow a tenant confronted by a threat of termination of the lease to obtain a stay tolling the running of the cure period so that, after a determination of the merits, the tenant may cure the defect and avoid a forfeiture of the leasehold.”  Empire State Bldg. Assocs. V. Trump Empire State Partners , 245 A.D.2d 225, 227 (1 st Dep’t 1997) (citations omitted).  “In order to obtain a Yellowstone injunction, the commercial tenant must demonstrate that: (1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises.” Id. , at 227-28 (citations omitted). Yellowstone injunctions got their name from First National Stores, Inc. v. Yellowstone Shopping Center, Inc. , 21 N.Y.2d 630 (1968).  The landlord in Yellowstone was ordered by the fire department to install sprinklers in tenant’s space but there was a disagreement as to whether under the lease landlord or tenant was responsible for same.  After unsuccessfully obtaining compliance from tenant, landlord sent a default notice with a ten-day notice to cure.  The tenant did not cure and, instead, commenced a declaratory judgment action to determine responsibility for the installation of the sprinklers.  Tenant also brought an order to show cause for a preliminary injunction, without seeking a stay, that was returnable after the expiration of the cure period.  Before the return date of the OSC, and after the expiration of the cure period, the landlord terminated the lease. The Second Department in Yellowstone determined that tenant was responsible to install the sprinklers, but that the lease should not have been terminated because of tenant’s good faith in bringing the declaratory judgment action.  The Court of Appeals reversed, holding that once tenant’s leasehold interest was terminated, it could not be revived.  The tenant should have obtained a temporary restraining order to “preserve[] the status quo” prior to the end of the cure period – absent which, the Court was powerless to revive the lease post-termination. Yellowstone , 21 N.Y.2d at 637. On February 7, 2023, the First Department, in Elite Wine & Spirits LLC v. Michelangelo Preservation LLC , affirmed supreme court’s grant of a Yellowstone injunction to plaintiff, tenant.  According to the Court, the “issue elite> elite> is whether the record supports Supreme Court’s finding that tenant engaged in good-faith efforts to remedy the defaults alleged by defendant-landlord, so as to support application of the extended cure period provided for in the subject lease.”  The Court agreed with supreme court and affirmed its “exercise[] discretion in granting tenant’s Yellowstone application. The landlord in Elite issued a 20-day notice to cure as to nine alleged defaults – seven of which were resolved. Tenant disputed the remaining two – a cracked sidewalk and an entrance step in violation of the Americans with Disabilities Act (the “ADA”).  Thereafter, landlord issued a second notice of default describing the crack and ADA issues “in greater detail” and adding that the sidewalk had been raised in a dangerous manner and, accordingly, a slab had to be removed and replaced.  In response, tenant advised that: the crack had been repaired; the raised sidewalk was caused by Con Edison (who should fix same); and, as to the ADA issue, there was insufficient room to install a permanent ramp because Con Edison equipment was in the way so instead, it “acquired a custom-made ‘removable ADA ramp,’ and placed a ‘notice on the window advising patrons of the availability of’ the ramp.” In response, landlord issued a third and “final notice of default” claiming that the crack repair was improper, the raised slab was tenant’s responsibility notwithstanding its potential claim against Con Edison and the movable ramp was not ADA compliant.  The final notice further stated that tenant had previously received the "required" 20-day period to cure alleged defaults as provided under the lease. Landlord nonetheless expressly gave tenant an additional 10 days to cure the alleged defaults.”  The purported 10-day cure period passed, and landlord did nothing for two and one-half months at which time a “Notice of Cancellation” was issued due to the alleged failure to cure the crack, slab and ADA issues and advising that the lease would be cancelled in 10 days. Prior to the termination date, tenant commenced an action seeking declaratory relief and in which it sought, by order to show cause, a Yellowstone injunction staying the cancellation of the lease.  Hearings were held, after which supreme court issued a preliminary injunction finding that “tenant timely addressed all nine defaults alleged in the first notice, immediately remedying seven. The court stated that in the second notice, landlord clarified the nature of the alleged defaults on the remaining sidewalk and step issues. By April 17, 2019, tenant attempted to cure by constructing a removable ramp and filling in a sidewalk crack. The court credited tenant's explanation that it did not immediately repair the raised slab, believing that this was the responsibility of Con Edison.”  Supreme court further noted that tenant "was consistently responsive to Landlord's requests and made good faith efforts to comply with same that the lease itself provides for an indefinite period to cure where tenant is making good faith efforts to remedy the default….”  Supreme court, therefore, “held that tenant satisfied the requirements for a Yellowstone injunction.” In affirming, the First Department stated that: The lease provides an indefinite cure period where the alleged default cannot reasonably be remedied within the base 20-day cure period and tenant has demonstrated a good faith effort to remedy the default. Supreme Court found, after holding a three-day hearing, that issues of fact exist as to the nature of the alleged defaults and the effectiveness of tenant's efforts to remedy them. These open questions include the repair of the raised slab and the feasibility of construction of a permanent ramp, as well as the suitability of the removable ramp to alternatively satisfy ADA requirements. While landlord disputes the effectiveness of tenant's efforts, this merely generates issues of fact that Supreme Court properly declined to resolve within the context of the Yellowstone application.  The Court also rejected landlord’s claim that tenant’s Yellowstone application was outside 20-day cure period of the original notice because “ andlord's argument ignores the lease's provision for an extended cure period, and landlord itself extended the cure periods in its successive and distinct default notices.”  (Citations omitted.) Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By:  Jeffrey M. Haber Previously, this Blog has examined the doctrine of res judicata ( here and  here ). Under the doctrine, a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter. The doctrine applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation. The rationale underlying the doctrine is that a party who has been given a full and fair opportunity to litigate a claim should not be allowed to do so again. 1 New York has adopted a transactional approach in deciding res judicata issues. 2 Under this approach, once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy. 3 “Res judicata is designed to provide finality in the resolution of disputes to assure that parties may not be vexed by further litigation.” 4 “The policy against relitigation of adjudicated disputes is strong enough generally to bar a second action even where further investigation of the law or facts indicates that the controversy has been erroneously decided, whether due to oversight by the parties or error by the courts.” 5 As the Court of Appeals noted, “ onsiderations of judicial economy as well as fairness to the parties mandate, at some point, an end to litigation.” 6 In Condor Capital Corp. v. CALS Invs., LLC , 2023 N.Y. Slip Op. 00629 (1st Dept. Feb. 7, 2023) ( here ), the Appellate Division, First Department addressed the foregoing issues, finding that there were issues of fact as to whether the earlier filed action was dismissed on the merits.  Condor Capital involved an alleged breach of contract. Plaintiff claimed it suffered damages by reason of Defendants’ breach of the parties’ Portfolio Purchase Agreement (the “Agreement”), wherein Plaintiff sold its loan portfolio to Defendant, CALS Investors, LLC (“CALS”) in November of 2015. The transaction closed in February 2016. In May of 2017, Plaintiff commenced an action against CALS for breach of contract, based on, inter alia , on the improper calculation of certain targets and for inflated servicing fees, and for breach of the implied covenant of good faith and fair dealing based on the inflated servicing fees. Defendant moved to dismiss. The motion court granted the motion by order dated June 7, 2018. On January 2, 2019, Plaintiff commenced an action against CALS, as well as its loan servicer. Plaintiff later amended the complaint on May 30, 2019. Plaintiff asserted causes of action for, inter alia : breach of contract. Defendants moved to dismiss the Amended Complaint.  On March 11, 2020, the motion court granted Defendants’ motion. The dismissal was based upon Plaintiff’s failure to plead a breach of contract cause of action. The motion court also dismissed as duplicative the claims for breach of the implied covenant of good faith and fair dealing and negligence in servicing and administering the loan portfolio. The motion court’s order did not state whether Plaintiff’s claims were dismissed with prejudice, or on the merits. On July 30, 2020, Plaintiff filed a motion for leave to file a Second Amended Complaint in an effort to address the insufficiency of the First Amended Complaint and to incorporate into its pleading the theories that the motion court declined to consider in ruling on Defendants’ motion to dismiss. On February 8, 2021, the motion court denied Plaintiff’s motion because there was no pleading before the court to amend ( i.e. , since the court dismissed the First Amended Complaint, Plaintiff could not amend that pleading). On April 20, 2021, Plaintiff filed a new action against Defendants. The complaint, which largely tracked the proposed Second Amended Complaint that the motion court declined to accept sought $5 million in damages for breach of contract.  CALS moved to dismiss on res judicata grounds. CALS argued, among other things, that the complaint realleged the same claims, allegations and theories that the motion court previously dismissed as insufficient, and simply restyled the previously dismissed negligence claim as a breach of contract claim. Defendant also sought dismissal because even if res judicata did not apply, the allegations based on the indemnification provisions of the Agreement were insufficient to state a claim for breach of contract.  On February 8, 2022, the motion court dismissed the claims as barred by the res judicata doctrine, holding “ his case must be dismissed with prejudice because the Court … already determined that no cause of action lies with respect to damages accruing for mismanagement under the … Agreement”. On Appeal, the First Department reversed. The Court held that “Defendants did not establish that plaintiff’s newly asserted breach of contract claim barred by the doctrine of res judicata following dismissal of plaintiff’s prior action for failure to plead a cause of action”. 7 The Court noted that “ n the prior action, the motion court dismissed the complaint in its entirety, but declined to consider theories raised by plaintiff in opposition to defendants’ motion to dismiss”. 8 “Accordingly,” said the Court, “it not clear that the dismissal of the prior action was on the merits and with prejudice, and that plaintiff … barred from bringing an action asserting the proposed claim based on alleged violation of other contract provisions”. 9 Takeaway When a prior complaint is dismissed on the pleadings for failure to state a cause of action, without any indication that the dismissal is intended to be with prejudice or on the merits, the doctrine of res judicata does not bar the timely commencement of the second action purporting to correct the pleading deficiency. 10 In other words, when, as in Condor Capital , the prior action is dismissed solely for defects in the pleading, the present action is not barred by the doctrine of res judicata. Footnotes S ee O’Connell v. Corcoran , 1 N.Y.3d 179, 184-185 (2003); Gramatan Home Invs. Corp. v. Lopez , 46 N.Y.2d 481, 485 (1979)). Matter of Reilly v. Reid , 45 N.Y.2d 24 (1978). O’Brien v. City of Syracuse , 54 N.Y.2d 353, 357 (1981) (citation omitted). See Matter of Reilly , 45 N.Y.2d at 28 (citations omitted). Id. (citations omitted). Id. Slip Op. at *1 (citations omitted). Id. Id. Komolov v. Segal , 96 A.D.3d 513, 513 (1st Dept. 2012); Hodge v. Hotel Empls. & Rest. Empls. Union Local 100 of AFL-CIO , 269 A.D.2d 330 (1st Dept. 2000). 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 We have often written about the SEC’s whistleblower program and, in particular, the success of the program with respect to detecting and preventing violations of the federal securities laws. The success of the program depends, in large part, on the ability of would-be whistleblowers to have the freedom to report wrongdoing without fear of reprisal. Taking steps to impede a departing employee from sharing information with the SEC impairs this free flow of information to the Commission. To ensure the freedom to communicate, the SEC has cracked down on companies that use severance agreements and other types of employment contracts to silence and discourage employees from reporting wrongdoing to the Commission. See here , here ,  here , and  here . In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) to combat illegal and fraudulent conduct on Wall Street and promote compliance with the federal securities and commodities laws.  The Dodd-Frank Act contains whistleblower provisions that authorize the Commission to pay substantial cash rewards to whistleblowers that voluntarily provide the SEC with information about securities fraud and other violations of the securities laws, including the Foreign Corrupt Practices Act.  To fulfill the purpose of the Dodd-Frank Act, the Commission adopted Rule 21F-17, 1 which provides in relevant part: (a) 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. Despite being effective for more than 11 years, many companies have ignored the mandate of Rule 21F-17. In this regard, they have used severance agreements and other types of employment contracts to silence and discourage employees from reporting violations of the securities laws to the Commission. That was the case in In the Matter of Activision Blizzard, Inc. , Securities Exchange Act of 1934 Release No. 96796 (Feb. 3, 2023) ( here ). As a regular part of its business, Activision Blizzard, Inc. (“Respondent”), a video game development and publishing company, enters into separation agreements with employees when they end their employment with the company. 2 As of 2016, Respondent’s separation agreement included a clause requiring departing employees to notify the company of any requests from an administrative agency in connection with a report or complaint. Specifically, the separation agreement stated, in part: Nothing in this Separation Agreement shall prohibit . . . disclosures that are truthful representations in connection with a report or complaint to an administrative agency (but only if I notify the Company of a disclosure obligation or request within one business day after I learn of it and permit the Company to take all steps it deems to be appropriate to prevent or limit the required disclosure). Between 2016 and 2021, in the ordinary course of Respondent’s business, a significant number of departing employees signed separation agreements that contained the foregoing notification clause. Most, but not all, of the separation agreements executed between 2016 and 2021 also contained an additional clause stating, “Nothing in this Release prevents me from … giving truthful testimony, or truthfully responding to a valid subpoena, or communicating or filing a charge with government or regulatory entities (such as the Equal Employment Opportunity Commission, National Labor Relations Board, Department of Labor, or Securities and Exchange Commission.)” The SEC maintained that, notwithstanding the additional clause, the language found in the separation agreements, requiring Respondent to be notified about the disclosure obligation or request, undermined the purpose of Section 21F and Rule 21F-17(a). 3 The SEC noted that it was unaware of any specific instances in which a former employee was prevented from communicating with the SEC’s staff about potential violations of securities laws or in which Respondent took action to enforce the notification clause or otherwise prevented such communications. In early 2022, Respondent revised its separation agreement templates and removed the notification clause. In addition, the SEC charged Respondent with failing to maintain adequate disclosure controls related to complaints of workplace misconduct. Rule 13a-15(a) requires issuers that have a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (“Exchange Act’) to maintain disclosure controls and procedures. Rule 13a-15(e) defines disclosure controls and procedures to be “controls and other procedures … that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.” The rule explains that disclosure controls and procedures include those “designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management … to allow timely decisions regarding required disclosure.” Disclosure controls and procedures “are intended to cover a broader range of information than is covered by an issuer’s internal controls related to financial reporting” and “should capture information that is relevant to an assessment of the need to disclose developments and risks that pertain to the issuer’s businesses.” 4 If an Exchange Act registrant fails to implement and maintain disclosure controls and procedures as required, its management may not have adequate information to assess whether the disclosures it makes to investors are fulsome, accurate, and not misleading by omission. Respondent made risk factor disclosures pertaining to its workforce in its annual reports on Form 10-K for the fiscal years ended December 31, 2017 through December 31, 2020. Those risk factor disclosures each included a heading stating, “If we do not continue to attract, retain, and motivate skilled personnel, we will be unable to effectively conduct our business.” Following the heading, the company stated: Our success depends to a significant extent on our ability to identify, attract, hire, retain, motivate, and utilize the abilities of qualified personnel, particularly personnel with the specialized skills needed to create and sell the high-quality, well-received content upon which our business is substantially dependent. Our industry is generally characterized by a high level of employee mobility, competitive compensation programs, and aggressive recruiting among competitors for employees with technical, marketing, sales, engineering, product development, creative, and/or management skills. We may have difficulties in attracting and retaining skilled personnel or may incur significant costs to do so. If we are unable to attract additional qualified employees or retain and utilize the services of key personnel, it could have a negative impact on our business. Additionally, each of the company’s quarterly reports on Form 10-Q filed between May 2018 and August 2021 included the following disclosure: The company cautions that a number of important factors could cause Activision Blizzard, Inc.’s actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to . . . maintenance of relationships with key personnel… including the ability to attract, retain, and develop key personnel and developers that can create high-quality titles, products, and services. Though Respondent disclosed the risk factors described above related to its workforce and how its ability to attract, retain, and motivate skilled personnel might materially impact its business, according to the SEC, Respondent lacked controls and procedures designed to ensure that it captured and assessed – from a disclosure perspective – certain information related to these risk factors. This included lacking controls and procedures among its separate business units designed to collect or analyze employee complaints of workplace misconduct. As a result, said the SEC, complaints related to workplace misconduct were not collected and analyzed for disclosure purposes. Additionally, noted the SEC, Respondent required that individual business unit leaders report certain categories of potentially material information to the company’s Disclosure Committee. However, those categories did not include information relevant to Respondent’s ability to retain employees, such as employee complaints or incidents of workplace misconduct. As a result, concluded the SEC, such information often was not accessible to the company’s management and disclosure personnel, and was not assessed from a disclosure perspective. By lacking sufficient information to understand the volume and substance of employee complaints of workplace misconduct, explained the SEC, Respondent’s management was unable to assess related risks to the company’s business, whether material issues existed that warranted disclosure to investors, or whether the disclosures it made to investors in connection with these risks were fulsome and accurate. Between May 2020 and May 2022, Respondent implemented several company-wide structural changes and policies that enhanced the manner in which employee complaints were required to be documented, maintained, and communicated to the company’s senior management and disclosure personnel. The SEC instituted cease and-desist proceedings against Respondent. Without admitting or denying the SEC’s findings, Respondent agreed to a cease-and-desist order ( here ) and a penalty of $35 million.  Commenting on the order and settlement, Jason Burt, Director of the SEC’s Denver Regional Office, stated: “The SEC’s order finds that Activision Blizzard failed to implement necessary controls to collect and review employee complaints about workplace misconduct, which left it without the means to determine whether larger issues existed that needed to be disclosed to investors.” With regard to the severance agreements, he stated: “Moreover, taking action to impede former employees from communicating directly with the Commission staff about a possible securities law violation is not only bad corporate governance, it is illegal.”A copy of the press release announcing the proceeding and settlement can be found here . Footnotes Rule 21F-17 became effective on August 12, 2011. A separation agreement is a contract between a former employer and employee documenting the rights and responsibilities of both parties incidental to the employee’s departure. Securities Whistleblower Incentives and Protections Adopting Release, Release No. 34-63434 (June 13, 2011). Certification of Disclosure in Companies’ Quarterly & Annual Reports Final Rule Adopting Release, Release No. 33-8124 (Aug. 29, 2002). 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 frequently addresses issues related to mortgage foreclosure actions, generally, and issues of standing, specifically.  Much of the background of this article was taken from a prior article: “ Appellate Division, Second Department, Validates Mortgage Foreclosure Defendants’ Cries of ‘Leave me Allonge ’”.  As to the issues relating to the standing of a lender to commence a foreclosure action, this Blog has noted that, in general, a foreclosing mortgagee makes out its prima facie case by producing the “mortgage, the unpaid note, and evidence of default.”  Deutsche Bank Nat. Trust Co. v. Abdan , 131 A.D.3d 1001, 1002 (2 nd Dep’t 2015).  When standing is raised as a defense, the lender must also prove its standing to obtain relief from the court.  Nationstar Mortgage, LLC v. LaPorte , 162 A.D.3d 784, 785 (2 nd Dep’t 2018).  The lender in a mortgage foreclosure action establishes its standing by demonstrating that it “is the holder or assignee of the underlying note at the time the action is commenced.”  Nationstar , 162 A.D.3d at 785.  A “holder” is “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.”  N.Y.U.C.C 1-201 <21> ; Deutsche Bank Nat. Trust Co. v. Brewton , 142 A.D.3d at 684 (2 nd Dep’t 2016).  A written assignment of the note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation.  Brewton , 142 A.D.3d at 684 (citation omitted).  The mortgage, because it is merely security for the maker’s obligation to repay the underlying debt, passes with the debt as an inseparable incident when the note is assigned.  Brewton, 142 A.D.3d at 684 (citation omitted) .   Where, however, a note is “neither indorsed in blank nor specifically indorsed” to the person in physical possession of the note, that person cannot be “the lawful holder thereof for purposes of enforcing it.”  McCormack v. Maloney , 160 A.D.3d 1098, 1100 (3 rd Dep’t 2018) (citations omitted).  Therefore, such a person would not, inter alia , have standing to commence a mortgage foreclosure action.  McCormack , 160 A.D.3d at 1100 (citations omitted). Section 3-202 of New York’s Uniform Commercial Code governs the “negotiation” of a negotiable instrument, which is the “transfer of an instrument in such form that the transferee becomes the holder.”  UCC § 3-202(1) .  “If the instrument is payable to order it is negotiated by delivery with any necessary indorsement; if payable to bearer it is negotiated by delivery.” UCC § 3-202(1) .    "Holder status is established where the plaintiff possesses a note that, on its face or by allonge, contains an indorsement in blank or bears a special indorsement payable to the order of the plaintiff.”  Wells Fargo Bank, NA v. Ostiguy , 127 A.D.3d 1375, 1376 (3 rd Dep’t 2015) (citations omitted).  An allonge is an additional piece of paper “so firmly affixed as to become a part thereof.”  NY UCC § 3-202(2) ; U.S. Bank National Assoc. v. Moulton , 179 A.D.3d 734 (2 nd 2020).  An allonge may be needed where “there is insufficient space on the itself for the endorsements; as long as the allonge remains firmly affixed to the note, it becomes part of the note.”  Id. (citation omitted).  In “Leave Me Allonge,” we discussed Moulton , a case analyzing the sufficiency of an endorsement.  Today’s Blog involves US Bank National Ass’n. v. Okoye-Oyibo , decided on February 1, 2023, a case in which, inter alia , the affixation requirement of an allonge was the subject of the decision.  UCC § 3-202(2).   The lender in Okoye-Oyibo commenced a mortgage foreclosure action in which the borrower asserted a lack of standing defense, among others.  Supreme court denied the lender’s motion for, inter alia , summary judgment “on the complaint insofar as asserted against the and dismissing her affirmative defenses and counterclaims.”  Lender appealed.  Among other things, the Second Department modified supreme court’s order by granting lender summary judgment dismissing borrower’s affirmative defenses except for standing and failure to comply with conditions precedent.   As to standing, the Court held that it was not demonstrated by the lender that the allonge in question was “firmly affixed” to the note, and stated: Here, the plaintiff failed to establish, prima facie, the defendant's default or the plaintiff's standing to commence the action. A plaintiff may demonstrate its standing in a foreclosure action through proof that it was in possession of the subject note endorsed in blank, or the subject note and a firmly affixed allonge endorsed in blank, at the time of commencement of the action. Although the plaintiff attached to the complaint copies of the note and a chain of purported allonges ending with an undated purported allonge endorsed in blank, the plaintiff did not demonstrate that the purported allonges, which were on pieces of paper completely separate from the note, were “so firmly affixed thereto as to become a part thereof," as required by UCC 3-202(2) ( see Raymond James Bank, NA v Guzzetti , 202 AD3d <841,> 843 <(2 nd dep’t 2022)> nd dep’t 2022)>; Wells Fargo Bank, N.A. v Maleno-Fowler , 194 AD3d 1094, 1095 <(2 nd dep’t 2014)> nd dep’t 2014)>; Citimortgage, Inc. v Ustick , 188 AD3d 793, 795 <(2 nd dep’t 2020)> nd dep’t 2020)>). None of the pieces of paper in the record comprising the note or the allonges bore any markings of having ever been attached to one another.  In addition, the Okoye-Oyibo Court found that lender failed to prove that it was in possession of the note prior to the commencement of the action and that borrower defaulted.  In support of its motion for summary judgment, the lender relied on an affidavit of a “foreclosure specialist” employed by its servicer in which the affiant “failed to identify the records upon which she relied in making the statements, and the failed to submit copies of the records themselves.”  (Citations and internal quotation marks omitted).  Similarly, the Court found that the lender failed to prove that it complied with the notice requirements of RPAPL 1304 because the affiant failed to attest that she was familiar with the standard office mailing procedures of … the third-party vendor that apparently sent the RPAPL 1304 notices on behalf of the .”  okoye-oyibo court.> okoye-oyibo court.> 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 Under New York law, a party’s termination of a contract is ineffective when the contract provides for notice and an opportunity to cure, and notice was not provided. 1 As explained by the First Department:  Our case law is clear that a party’s termination is ineffective where the relevant contract provides for a notice to cure and notice is not provided …This approach gives effect to the principle that, generally, where contracting parties agree on a termination procedure, the procedure will be enforced as written…. 2 “There are limited circumstances where despite being contractually required, notice to cure is not necessary, such as where the other party expressly repudiates the contract or abandons performance.” 3 “ otice to cure is not required where the breach by the other party is impossible to cure, or so substantial that it ‘undermines the entire contractual relationship such that it cannot be cured’”. 4 In Hudson Valley Window Cleaning, Inc. v. Rotron Inc. , 2023 N.Y. Slip Op. 00395 (1st Dept. Jan. 31, 2023) ( here ), the foregoing issues were before the Appellate Division, First Department. Hudson Valley involved a rate and service agreement pursuant to which Plaintiff agreed to provide cleaning services at one of Defendant’s facilities (the “Agreement”). The Agreement contained a requested statement of work for janitorial service, which detailed the work to be performed by Plaintiff pursuant to the Agreement (the “SOW”).  The Agreement also contained a notice and cure provision (“Notice and Cure Provision”), which provided, in pertinent part, that Defendant could “terminate the contract with 60 days written notice for nonperformance”. In such event, Defendant was required to “first notify in writing describing the problem” and, “ f after 30 days of the notice, the problem ha not been corrected,” the parties agreed that the Agreement “may be terminated”. According to Defendant, Plaintiff frequently failed to fully perform under the terms of the Agreement. On numerous occasions, Defendant allegedly advised Plaintiff of instances where Plaintiff failed to perform services in accordance with the Agreement. Despite being put on notice of Plaintiff’s poor performance, Plaintiff allegedly continued to provide the same quality of substandard services.  Following a telephone call between the parties during which Plaintiff was put on notice of being terminated, Defendant notified Plaintiff in writing, on July 20, 2021, of its intent to terminate the Agreement. In pertinent part, Defendant advised Plaintiff that its “service falling short of … expectations on all aspects of the SOW” and warned that “ f the service does not improve in its entirety in the next thirty days; our agreement will be considered null and void”. Defendant explained that its letter “shall serve as Notice of Intent to Terminate pursuant to the Agreement”. Plaintiff rejected the termination notice letter. Plaintiff allegedly failed to cure the defects in its service. On August 26, 2021, approximately one week after service had ceased completely, Defendant issued a “Termination Letter”.  On September 10, 2021, Plaintiff commenced the action by filing a summons and complaint (the “Complaint”). On December 9, 2021, Defendant filed a verified answer with affirmative defenses and counterclaims (the “Answer”). On December 29, 2021, Plaintiff filed a reply to counterclaims with affirmative defenses.  On March 9, 2022, Plaintiff filed a motion for summary judgment and to dismiss Defendant’s counterclaims. On July 27, 2022, the motion court denied plaintiff’s motion on the issue of liability on its claims and for summary judgment dismissing Defendant’s counterclaims. The motion court found that the Notice and Cure Provision was ambiguous, and that discovery was required to “give clarity” to the provision. Plaintiff appealed. The First Department modified the motion court’s order to grant plaintiff’s motion to dismiss defendant’s unjust enrichment counterclaim, 5 and otherwise affirmed the order. The Court found that “whether defendant provided the requisite notice to cure and whether plaintiff complied issues of fact”. 6 The Court explained that the July 20 notice of intent letter “was not a ‘positive and unequivocal’ termination of the contract, since it recognized that plaintiff could cure and the contract could continue”. 7 The Court also found issues of fact as to whether (a) “plaintiff previously abandoned performance,” thereby “obviating the need for a notice of termination” 8 and (b) “plaintiff failed to cure, so that defendant then had a contractual right to terminate, but merely provided the erroneous date of termination”. 9 Takeaway In holding that the were issues of fact as to whether the July 20th notice of intent letter was a “positive and unequivocal” termination of the Agreement, the Court relied on Princes Point LLC v. Muss Dev. L.L.C. , 30 N.Y.3d 127, 133 (2017). In Princess Point , the Court of Appeals explained that “the expression of intent not to perform … must be ‘positive and unequivocal.’” In Husdon Valley , as explained by the First Department, the notice of intent letter did not meet this standard because “it recognized that plaintiff could cure and the contract could continue” as if there were no issues. 10 The First Department’s decision is also interesting because of the way it treated the issue of abandonment. “A contract will be treated as abandoned when one party acts in a manner inconsistent with the existence of the contract and the other party acquiesces in that behavior.” 11 In other words, “the refusal of one party to perform his contract amounts to an abandonment of it, leaving the other party to his choice of remedies, but his assent to abandonment dissolves the contract so that he can neither sue for a breach nor compel specific performance.” 12 “To establish abandonment of a contract by conduct, it must be shown that the conduct is mutual, positive, unequivocal, and inconsistent with the intent to be bound”. 13 “Generally, a finding of an abandonment will be based upon clear, affirmative conduct by at least one of the parties that is entirely at odds with the contract.” 14 In Savitsky, the plaintiff, the contract vendee of real property, was said to have evinced an intent to abandon the contract by her failure to take any steps to preserve her rights to purchase the property once she became aware of the owner’s impending sale of the subject property to a third party. Thus, the seller took affirmative steps contrary to the contract, and the purchaser failed to object. 15 In Steven Strong Dev. Corp. v Washington Med. Assoc., 303 A.D.2d 878 (3d Dept. 2003), a real estate developer, years after entering into an agreement to develop real property, conceded, in writing, the failure of the project and affirmatively waived the developer’s fee. Its own action in writing that letter was an affirmative step inconsistent with enforcing its rights under the agreement, therefore constituting an abandonment. In Hudson Valley , the First Department held that there here were issues of fact as to whether Plaintiff took affirmative steps inconsistent with its contract with Defendant. After all, it rejected the notice of intent to terminate and continued to perform under the Agreement. Footnotes E.g. , East Empire Construction, Inc. v. Borough Construction Grp., LLC , 200 A.D.3d 1 (1st Dept. 2021); Kleinberg Electric, Inc. v. E-J Electric Installation Co. , 111 A.D.3d 410 (1st Dept. 2013). East Empire , 200 A.D.3d at 5. Id. at 6 (citations omitted). Id. The Court held that “plaintiff’s motion to dismiss defendant’s counterclaim for unjust enrichment should have been granted, as the services were governed by a contract”. Slip Op. at *2. Unjust enrichment is a quasi-contractual claim that is “imposed by law where there has been no agreement or expression of assent, by word or act, on the part of either party involved. The law creates it . . . to assure a just and equitable result.” Bradkin v Leverton , 26 N.Y.2d 192, 196 (1970). Under New York law, “the existence of a valid and enforceable agreement governing a particular subject matter of the dispute ordinarily precludes recovery in quasi contract for events arising out of the same subject matter”. Clark-Fitzpatrick, Inc. v. Long Island R. Co. , 70 N.Y.2d 382, 388 (1987). Id. at *1. Id. (citing, Princes Point LLC v. Muss Dev. L.L.C. , 30 N.Y.3d 127, 133 (2017)). Id. (citing, 34-06 73, LLC v. Seneca Ins. Co. , 39 N.Y.3d 44, 52 (2022); and Kleinberg Elec. , 111 A.D.3d at 411.), Id. (citing, G.B. Kent & Sons v. Helena Rubinstein, Inc. , 47 N.Y.2d 561, 564-565 (1979); and New Image Constr., Inc. v TDR Enters. Inc. , 74 A.D.3d 680, 681 (1st Dept. 2010)). Id. Savitsky v. Sukenik , 240 A.D.2d 557, 559 (2d Dept. 1997) (quoting, 91 N.Y. Jur.2d, Real Property Sales and Exchanges § 146). Id. EMF Gen. Contr. Corp. v. Bisbee , 6 A.D.3d 45, 49-50 (1st Dept. 2004). Id. Savitsky , 240 A.D.2d at 559. 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.