By:  Jeffrey M. Haber A recurring question that courts and litigants often encounter is how to apply the continuing wrong doctrine to a statute of limitations.  Statutes of limitations restrict the time within which a defendant can be held liability for all types of alleged wrongdoing. Plaintiffs who do not pursue their rights within the limitations period will find the courthouse doors closed to their claims. For this reason, whether the statute of limitations has run is an important issue for a lawyer and client to discuss. In today’s article, we examine  225 ADC Realty Corp. v. Popular Jewelry Corp. , 2023 N.Y. Slip Op. 06469 (1st Dept. Dec. 19, 2023) ( here ), a case involving the statute of limitations for a breach of contract cause of action and the application of the continuing wrong doctrine.   This Blog has examined statutes of limitations and the continuing wrong doctrine on many occasions.  See ,  e.g. , here ,  here ,  here ,  here , and  here . Before we examine 225 ADC Realty , we will discuss the relevant law, in particular the law concerning the continuing wrong doctrine. Since we have written on the topic on many occasions, we reprint our legal discussion below. In New York, the statute of limitations for a breach of contract claim is six years. It begins to run ( i.e. , accrue) from the date of the breach. The claim does not accrue from the date of discovery. As the Court of Appeals explained, a contrary rule “would be entirely dependent on the subjective equitable variations of different Judges and courts instead of the objective, reliable, predictable and relatively definitive rules that have long governed this aspect of commercial repose.” Statutes of limitation can be tolled – that is extended. One doctrine that allows for tolling is the continuing wrong doctrine. “The continuous wrong doctrine is an exception to the general rule that the statute of limitations runs from the time of the breach though no damage occurs until later.” Where applicable, the doctrine “serves to toll the running of a period of limitations to the date of the commission of the last wrongful act” and “may only be predicated on continuing, unlawful acts and not on the continuing effects of earlier unlawful conduct.” “The distinction is between a single wrong that has continuing effects and a series of independent, distinct wrongs.” Thus, the doctrine does not apply where the subsequent wrongs are consequences of the original, time-barred wrongful act. The distinction between the consequences of a wrongful act and the wrongs themselves was discussed by the Appellate Division, First Department in Henry , a case involving a plaintiff who was enrolled in two credit card programs without his consent and billed monthly for those programs. The First Department held that the doctrine did not toll the limitations period for two reasons: first, the absence of a breach of a recurring duty, and second, the wrongful acts – automatic monthly credit card fee charges – “represent the consequences of those wrongful acts in the form of continuing damages, not the wrongs themselves.…” The same result was rendered by the First Department in Matter of Yin Shin Leung Charitable Foundation v. Seng (Matter of Yin Shin) , 177 A.D.3d 463 (1st Dept. 2019), where the Court held that the doctrine did not toll the plaintiffs’ claim because “ he loss of corporate income was merely a continuing effect of the initial decision” from which the claim arose. In CWCapital Cobalt VR Ltd. v. CWCapital Investment LLC (Cobalt) , 195 A.D.3d 12, 13-16 (1st Dept. 2021), the plaintiff asserted a breach of contract claim against the defendant CWCapital Investment, LLC (“CWCI”) for CWCl’s failure to manage certain commercial mortgage-backed securities (“CMBS”) based on their agreement. The agreement required CWCI to, in pertinent part, appoint a special servicer to “direct and supervise the disposition of nonperforming and underperforming loans that are held by a particular CMBS trust so as to mitigate the losses suffered by the trust.” The parties’ arrangement also required CWCI “to ensure that the value of assets is maximized.” The plaintiff alleged that CWCI breached the agreement in three distinct ways, each category of wrongdoing dealing “with the actions of the special servicer CWCI selected on behalf”. CWCI moved to dismiss the complaint in its entirety, arguing that the plaintiff’s causes of action were time-barred. The First Department held that the continuing wrong doctrine applied to toll the statute of limitations as to the last wrongful act because “ he explicit language of the conferred on CWCI a continuing duty to manage investment.” Cobalt alleged that, “with respect to special servicers like CWCA, this responsibility included wielding the power not only to appoint and terminate, but also to ensure that all services being performed by the special servicer were done only to benefit the COO investors.” “Essentially,” noted the Court, “the allegations describe an arrangement by which CWCI acted as eyes and ears with respect to the CMBS trusts and had a responsibility to do everything in its power to prevent any activities that could possibly be to detriment.” “Thus,” concluded the Court, “while certainly a claim accrued the first time CWCI failed to act upon CWCA’s engagement in behavior that allegedly diminished the value of its investment, there no basis for the argument that each subsequent time CWCI failed to act did not constitute a separate, actionable, wrong.” The First Department placed heavy emphasis on the parties’ agreement, which conferred a “contractual obligation to manage the CMBS trust assets on an ongoing basis, with ‘reasonable care and in good faith.’” Therefore, the defendants’ subsequent breaches were based on new failures or omissions of the ongoing, recurring duty. In Marcal Finance SAA v. Middlegate Securities Ltd. , 203 A.D.3d 467 (1st Dept. 2022), the plaintiff contracted with defendant Middlegate Securities Ltd. to “manage inheritance for their benefit.” Plaintiffs sued defendant in October 2015 for breaching their agreement by misappropriating the funds in 2011. The First Department held that the plaintiffs sufficiently alleged a “series of unauthorized transfers” whereby the “continuing wrong doctrine tolled the running of the statute of limitations until the last such transfer was made.” Similarly, in Manipal Education Americas, LLC v. Taufiq , 203 A.D.3d 662 (1st Dept. 2022), the defendant, who was the plaintiff’s former director of marketing, repeatedly contracted with the company, Exit Editorial, Inc., for video editing services. The plaintiff brought suit, asserting that the defendant “falsely represented to it that he negotiated with Exit at arm’s length and that Exit’s prices were reasonable, when in fact its prices were well above market rate, he had an ownership interest in Exit, and he received a cash finder’s fee for each contract with Exit.” The First Department found that “a separate exercise of judgment, and thus a separate wrong, was committed each time Exit was hired, thereby enabling the application of the continuing wrong doctrine.” With these decisions in mind, we examine 225ADC Realty . 225ADC Realty involved an alleged breach of a sublease. Defendant entered the sublease on October 1, 2010, for use of plaintiff’s premises on Canal Street in New York City (the “Premises”). The term of the sublease extended to September 30, 2018. Among other things, when work was to be performed by defendant on the Premises, the sublease required defendant to “comply with all laws, orders, rules and regulations of all government authorities having jurisdiction of the premises.” On January 15, 2011, the New York City Department of Buildings (“DOB”) issued a Notice of Violation to plaintiff, after defendant installed signs on the building’s facade without a permit. Plaintiff cured the violation on March 1, 2011, and paid the fine assessed by the DOB on March 18, 2011. Over seven years later, on December 21, 2018, plaintiff mailed a demand letter to defendant for the costs incurred from the DOB violation. Plaintiff commenced the action on March 11, 2019, seeking to recover damages for defendant’s alleged breach of the sublease, indemnification, and attorneys’ fees. Defendant moved to dismiss the complaint on statute of limitations grounds. Defendant maintained that plaintiff commenced the action well after the six-year limitation period under CPLR 213(2) expired. The motion court granted the motion. The motion court found that plaintiff’s breach of contract claim “plainly” arose from defendant’s alleged noncompliance with the DOB’s code. The motion court rejected plaintiff’s argument that the breach was caused by defendant’s failure to surrender the Premises in broom-swept condition. As such, the motion court held that the breach of contract claim arose in January 2011, well after the six-year limitation period expired. The motion court rejected plaintiff’s argument that the continuing wrong doctrine tolled the statute of limitations until defendant’s last breach occurred. The motion court found that plaintiff failed to allege that defendant breached any “recurring duty.” Rather, said the motion court, the complaint alleged that the breach arose from “the same DOB violation issued January 15, 2011.” Thus, concluded the motion court, “ bsent any allegation of continuing unlawful conduct, the continuing wrongs doctrine is inapplicable.” On appeal, the First Department affirmed. The Court held that the motion court “properly found that the action barred by the six-year statute of limitations applicable to breach of contract claims.” Noting that the statute of limitations for breach of contract begins to run at the time of the alleged breach, the Court found that the breach occurred in January 2011, “over six years before this action was commenced.” The Court also held that the continuing wrong doctrine did not apply because “plaintiff alleged a single breach that caused the Department of Buildings to issue a violation in January 2011.” Thus, concluded the Court, “the claim accrued, and the statute of limitation began to run, no later than March 1, 2011.” CPLR § 213(2). ACE Sec. Corp., Home Equity Loan Trust, Series 2006-SL2 v. DB Structured Prods., Inc. , 25 N.Y.3d 581, 594 (2015). Id. (citations and internal quotation marks omitted). Henry v. Bank of Am. , 147 A.D.3d 599, 601 (1st Dept. 2017) (citation omitted). Id. Id. (internal quotation marks and citation omitted). Id. at 602. Id. Id. Id. at 464. 195 A.D.3d at 19-20. Id. at 20. 203 A.D.3d at 468. 203 A.D.3d at 663. Citing Henry , 147 A.D.3d at 602. Citations omitted. Slip Op. at *1. Id. (citation omitted). 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: Jeffrey M. Haber In Columbia Consultants, LLC v. Danucht Entertainment, LLC , 2023 N.Y. Slip Op. 06439 (1st Dept. Dec. 14, 2023) ( here ), the Appellate Division, First Department addressed the issues in the title of this article: fraudulent inducement claims in the context of settlement agreements, broad releases and no reliance clauses. As discussed below, the Court found that the release at issue was broad enough to cover the alleged fraud claim and that the no reliance clause in the parties’ settlement agreement barred the claim to the extent it was based on extra-contractual representations. The Court also held that even if plaintiff could overcome the foregoing obstacles, plaintiff nevertheless failed to satisfy the justifiable reliance element of the claim, explaining that in light of the no reliance clause, any reliance on the extra-contractual representations was unreasonable. Columbia Consultants involved a dispute between two former partners. Plaintiff and defendant previously owned and operated various nightclubs around the world. In 2015, plaintiff requested that defendant buy out his share in the businesses that they owned. The parties entered into an agreement (the “Agreement”) pursuant to which plaintiff was compensated for his share of the businesses and, among other things, granted certain rights to share in potential future revenues, in addition to the upfront payment of money. The Agreement was subject to a provision which granted plaintiff a substantial portion of the excess of any sale by defendant of his membership interests to a third party above the $2.5 million that defendant had paid plaintiff. Almost immediately after the Purchase Agreement (and related agreements) was executed, the parties began to dispute the various amounts and rights set forth in the agreements. After two years of negotiations and threats of litigation, the parties entered into a settlement agreement to resolve all of their disputes (the “Settlement Agreement”). Relevant to the appeal, the Settlement Agreement expressly provided that it “superseded,” “extinguished,” and “nullified” the obligations in the Agreement and related agreements. It contained, among other things, a broad mutual release of “all claims … known and unknown,” a no reliance clause whereby the parties expressly agreed that they were not relying on extra-contractual oral representations, a general merger clause, and a statement that each party understood “that it may later discover Claims or facts that may be different from, or in addition to, those that it or any other Releasor now knows … which … may have materially affected this Agreement.” Plaintiff claimed that defendant made knowingly false and misleading statements regarding the negotiation and consummation of defendants’ sale of the purchased membership interests in 2017. Plaintiff maintained that, although defendant was “knee deep” in negotiations for the sale of the interests, defendant failed to disclose such negotiations to plaintiff, even when asked repeatedly if any negotiations were ongoing. Plaintiff brought suit, claiming, among other things, fraudulent inducement against defendant.  Defendant moved to dismiss, among other claims, the fraud cause of action on the grounds that the claim was barred by the broad release, no reliance clause, and other provisions in the Settlement Agreement. The motion court denied the motion (including on reargument). On appeal, the First Department modified the motion court’s order to grant the motion to dismiss the fraudulent inducement claim. The Court held that “Plaintiffs released their claim that they had been fraudulently induced to enter into the settlement agreement and release.” 1 The Court explained that the “release cover all claims (with certain exceptions that not relevant to this appeal), whether ‘known or unknown, foreseen or unforeseen, matured or unmatured, suspected or unsuspected, … arising out of or relating to’ the purchase agreements, the businesses covered by the purchase agreements, and the dispute between the parties concerning their obligations thereunder.” 2 The Court concluded that “ his broad enough to cover plaintiffs’ fraud claim.” 3 In New York, “a valid release constitutes a complete bar to an action on a claim which is the subject of the release.” 4 If “the language of a release is clear and unambiguous, the signing of a release is a ‘jural act’ binding on the parties.” 5 For this reason, “ release should never be converted into a starting point for … litigation except under circumstances and under rules which would render any other result a grave injustice.” 6 The Court also held that “ he release was ‘fairly and knowingly made.’” 7 In New York, “a release may encompass unknown claims, including unknown fraud claims, if the parties so intend and the agreement is ‘fairly and knowingly made.’” 8 The Court found it dispositive that the Settlement Agreement was negotiated by counsel and that the Settlement Agreement specifically provided for the release of unknown claims, even if such claims were discovered after the agreement was executed:  The settlement agreement and release was the subject of negotiations between counselled parties. ection 1.3(b) provides that the release will remain in effect despite that each releasor “may later discover laims or facts that may be different from … those that it … now knows or believes to exist regarding the subject matter of the release’ and which ‘if known at the time of signing of greement, may have materially affected greement and such arty’s decision to enter into it.” The Court further held that “Plaintiffs … failed to identify ‘a separate fraud from the subject of the release.’” 10 Under New York law, a party that releases a fraud claim may later challenge that release as fraudulently induced only if he/she can identify a separate fraud from the subject of the release. 11 As the Court of Appeals observed, “ ere this not the case, no party could ever settle a fraud claim with any finality.” 12 Finally, the Court noted that “ ven if the fraud claim were not barred by the release, it would fail for lack of justifiable reliance.” 13 A plaintiff seeking to invalidate a release due to fraudulent inducement must “establish the basic elements of fraud, namely a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury.” 14 In concluding that plaintiff failed to satisfy the justifiable reliance element of the claim, the Court pointed to the no-reliance clause in the Settlement Agreement. 15 In New York, a party’s disclaimer of reliance cannot preclude a fraudulent inducement claim unless: (1) the disclaimer is specific to the fact alleged to be misrepresented or omitted; and (2) the alleged misrepresentation or omission does not concern facts peculiarly within the knowledge of the non-moving party. 16 “Accordingly, only where a written contract contains a specific disclaimer of responsibility for extraneous representations, that is, a provision that the parties are not bound by or relying upon representations or omissions as to the specific matter, is a plaintiff precluded from later claiming fraud on the ground of a prior misrepresentation as to the specific matter.” 17 In holding that the no-reliance provision of the Settlement Agreement barred plaintiff’s fraudulent inducement claim, the Court pointed to section 3 of the Settlement Agreement, which stated in pertinent part: “‘Each party … acknowledges that in entering into agreement, it has not relied upon any representation or warranty made by the other parties …, except as specifically provided in section 2.” 18 “ nd,” said the Court, “section 2 has nothing to do with indication of interest in buying membership interests.” 19 Thus, concluded the Court, “ n light of section 3, plaintiffs’ reliance on misrepresentation is unreasonable as a matter of law.” 20 Footnotes Slip Op. at *1. Id. Id. (citing Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V. , 17 N.Y.3d 269, 277 (2011); Sodhi v. IAC/InterActive Corp. , 201 A.D.3d 451 (1st Dept. 2022); Avnet, Inc. v. Deloitte Consulting LLP , 187 A.D.3d 430, 431 (1st Dept. 2020)). Global Minerals & Metals Corp. v. Holme , 35 A.D.3d 93, 98 (1st Dept. 2006). Booth v. 3669 Delaware, Inc. , 92 N.Y.2d 934, 935 (1998) (quoting Mangini v. McClurg , 24 N.Y.2d 556, 563 (1969)). See also Centro , 17 N.Y.3d at 276. Id. (internal quotation omitted). Slip Op. at *1 (quoting Centro , 17 N.Y.3d at 276 (internal quotation marks omitted)). Centro , 17 N.Y.3d at 276 (citations omitted). Slip Op. at *1. Id. (citations omitted). Centro , 17 N.Y.3d at 276 (citation omitted). Id. Slip Op. at *1. Centro , 17 N.Y.3d at 276 (quoting Global Mins. , 35 A.D.3d at 98). Slip Op. at *1-*2. Basis Yield Alpha Fund (Master) v. Goldman Sachs Group, Inc. , 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty Corp. v. Harris , 5 N.Y.2d 317, 323 (1959); MBIA Ins. Corp. v. Merrill Lynch , 81 A.D.3d 419 (1st Dept. 2011). Basis Yield , 115 A.D.3d at 137. Slip Op. at *2. Id. Id. (citations omitted). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger A court can award sanctions to any party or attorney in any civil action or proceeding before the court, except where prohibited by law, costs in the form of reimbursement for actual expenses reasonably incurred and reasonable attorney's fees, resulting from frivolous conduct as defined in this Part.  22 NYCRR 130-1.1 ; see also Conregation Ahavas Moische, Inc. v. Katzoff , 134 A.D.3d 934 (2 nd Dep’t 2015).  “In addition to or in lieu of awarding costs, the court, in its discretion may impose financial sanctions upon any party or attorney in a civil action or proceeding who engages in frivolous conduct as defined in this Part, which shall be payable as provided in section 130-1.3 of this Part.”  22 NYCRR 130-1.1.  “Conduct is frivolous if (1) it is completely without merit in law or fact and cannot be supported by a reasonable argument for the extension, modification, or reversal of existing law; (2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or (3) it asserts material factual statements that are false.”  Id. ; see also Congregation Ahavas , 134 A.D.3d at 934.  “The decision whether to impose costs or sanctions against a party for frivolous conduct, and the amount of any such costs or sanctions, is generally entrusted to the court’s sound discretion.”  Strunk v. New York State Bd. of Elections , 126 A.D.3d 779, 781 (2 nd Dep’t 2015) (citation omitted). On December 12, 2023, the First Department, in 13 East 124 LLC v. J&M Realty Services Corp. , upheld a sanctions award against the plaintiff of in excess of $22,000.00 for frivolous conduct pursuant to 22 NYCRR 130-1.1.  The plaintiff in 13 East was a building owner that entered into a contract with the defendant to “manage, maintain, and lease vacant units in plaintiff’s building.”  The plaintiff terminated the contract and alleged that, post termination, the defendant “withheld books, records, security deposits, and keys, and were generally uncooperative with the new property management company.”  The plaintiff commenced an action against the defendant for declaratory and injunctive relief, breach of contract, breach of fiduciary duty, professional malpractice and negligence, and accounting against defendants in connection with the parties' property management contract.” The plaintiff “moved by order to show cause for a preliminary injunction directing defendants to cooperate with the change in property management.”  The defendant cross-moved for sanctions; alleging that it agreed to the relief sought in the plaintiff’s motion but the plaintiff refused to so stipulate.  Thus, the defendants’ cross-motion: was supported by the affidavit of Jerry Edelman, an individual defendant, and president of defendant J&M Realty Services Corp. Mr. Edelman explained that he agreed to turn over the books and records and comply with the property management transition, but he requested plaintiffs execute a formal termination letter as required by the terms of the contract as well as by the New York City Department of Housing Preservation and Development. Mr. Edelman transferred the books and records to his former attorney to be held in escrow pending plaintiffs' execution of the formal termination letter. Upon receiving plaintiffs' order to show cause, Mr. Edelman directed his attorney to resolve the dispute with plaintiffs' counsel directly rather than in court by offering plaintiffs the entirety of their requested relief. In response to Mr. Edelman's overture, plaintiffs' counsel stated that the "motion's goal was not the possession of the documents, . . . 'but to make Jerry cry, pay $500,000 in legal fees, and then only agree to discontinue the action when Jerry agrees to reimburse laintiffs' legal fees.'" Subsequently, the plaintiff refused to sign a stipulation drafted by the defendants’ counsel pursuant to which “plaintiffs would receive all books and records, the parties would acknowledge that the management contract was terminated, and plaintiffs would discontinue the action.” The motion court denied the plaintiff’s motion for injunctive relief and granted the defendants’ cross-motion for sanctions, finding that “plaintiffs acted in bad faith when they refused to withdraw their motion despite defendants consenting to all relief requested.”  The defendants’ counsel submitted an affirmation supporting a claim for $22,133.45 in legal fees.  On the same day plaintiff filed a notice of discontinuance of the action and opposed the application for legal fees on the ground that the action was discontinued and, therefore, the supreme court was without jurisdiction to “issue further orders in connection with the matter pursuant to CPLR 3217.”  Rejecting the plaintiff’s arguments, the motion court issued an order directing the plaintiff to pay the full amount demanded by the defendant.  The plaintiff appealed, arguing that the discontinuance “divested the Supreme Court of jurisdiction to impose sanctions based on their pre-discontinuance conduct.” The First Department affirmed the motion court’s order.  In describing the purpose of sanctions, the Court stated that “Rule 130 sanctions are retributive, in that they punish past conduct. They are also goal oriented, in that they are useful in deterring future frivolous conduct not only by the particular parties, but also by the Bar at large. The goals include preventing the waste of judicial resources, and deterring vexatious litigation and dilatory or malicious litigation tactics."  (Citation, internal quotation marks and brackets omitted.)  The Court reiterated that the plaintiff acted in bad faith by refusing “to consent to a stipulation which would have granted them all the relief they were seeking.” In rejecting the plaintiff’s jurisdictional argument, the Court stated: Voluntary discontinuance did not divest the court of jurisdiction to impose sanctions for pre-discontinuance conduct. The Second Circuit has held that the District Court "clearly jurisdiction to impose sanctions irrespective of the status of the underlying case because the imposition of sanctions is an issue collateral to and independent from the underlying case" ( Schlaifer Nance & Co. v Estate of Warhol , 194 F.3d 323, 333 <2d cir 1999> , citing Cooter & Gell v Hartmarx Corp. , 496 US 384, 395-396 <1990> ). Similarly, this Court has held that the trial court's jurisdiction over the underlying case is not necessary to impose sanctions pursuant to 22 NYCRR 130-1.1 ( see e.g . World Sports Group v Motion Picture Academy of Arts & Sciences , 273 AD2d 53, 54 <1st dept 2000> ). Accordingly, plaintiffs' voluntary discontinuance did not divest the court of jurisdiction to determine the amount of the attorneys' fees award to defendants ( see Schlaifer Nance & Co. , 194 F3d at 333 ; World Sports Group , 273 AD2d at 54).  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 As readers of this Blog know, we often write about the pleading requirements under the Civil Practice Law and Rules (“CPLR”). In that regard, many of our articles involve cases in which CPLR 3016(b) is at issue – the provision of the civil practice rules requiring pleading fraud with particularity. There is another provision of the civil practice rules that requires particularity – CPLR 3016(a). This provision of the CPLR concerns claims for libel and slander ( i.e. , defamation) and requires the plaintiff to plead “the particular words complained of.” Today, we examine the particularity requirement of CPLR 3016(a). To plead a claim of defamation, the plaintiff must satisfy the following elements: “a false statement, published without privilege or authorization to a third party, constituting fault as judged by, at a minimum, a negligence standard, and it must either cause special harm or constitute defamation per se.” 1 There are two forms of defamation: libel and slander. 2 Since only facts can be proven false, statements purporting to assert facts about the plaintiff are the proper subject of a defamation claim. 3 In deciding whether a statement is defamatory, a court “must consider the content of the communication as a whole, as well as its tone and apparent purpose and in particular should look to the over-all context in which the assertions were made and determine on that basis whether the reasonable reader would have believed that the challenged statements were conveying facts about the [] plaintiff.” 4 When pleading a claim of defamation, “ he complaint … must allege the time, place and manner of the false statement and specify to whom it was made.”5 The failure to make such allegations is fatal to a defamation cause of action. 6 Additionally, pursuant to CPLR 3016(a), the complaint must set forth “the particular words complained of.” The language at issue cannot amount to “expressions of opinion” or ‘“loose, figurative or hyperbolic statements.’” 7 Nor can the language at issue be paraphrased. Courts will only consider “the particular defamatory words” stated; they will not entertain a claim “based instead on a paraphrased version.” 8 Indeed, imprecision and paraphrasing “not only opens the complaint to the question of whether the words were ever published, but also renders the complaint defective as a matter of law.” 9 Finally, a plaintiff alleging defamation per quod must plead special damages. 10 Special damages must be “fully and accurately identified ‘with sufficient particularity to identify actual losses.’” 11 Against this background, we examine Salescare, Inc. v. SEIU 1199 Natl. Benefits Fund , 2023 N.Y. Slip Op. 06340 (1st Dept. Dec. 12, 2023) ( here ). Plaintiffs, SalesCare Inc. (“SalesCare”) and Marian Parker (“Parker,” and collectively with SalesCare, the “plaintiffs”) brought action against defendants, SEIU 1199 National Benefit Fund (the “Fund”), 1199 SEIU Funds, 12 and Auburn IT Resources (“Auburn”), claiming breach of contract and defamation. In August 2019, Auburn contacted Parker about the potential for SalesCare working on an Information Security project with the Fund. Parker, who was SalesCare’s President at the time, met with the Fund’s staff and discussed the project. Thereafter, Parker entered into a Contractors Agreement (the “agreement”) with Auburn. Among other things, the agreement governed the terms of the project.  Relevant to the order on appeal, the agreement provided that its terms became effective on the date it was signed, and that Parker’s engagement with the Fund would continue “AS REQUIRED, or until the completion of designated work at the client, whichever occur first.” Either SalesCare or Auburn could terminate the agreement on ten days’ written notice. If the Fund elected to terminate SalesCare’s assignment “prior to the time or event as specified in paragraph 1 , such notice as gives to will also be given to .” On September 3, 2019, Parker began her assignment with the Fund. Shortly before the Fund ended the assignment, the Fund changed Parker’s job responsibilities in a way that Parker claimed went beyond the terms of the agreement. Because of this switch and a lack of administrative guidance with the Fund, Parker alleged that her last two weeks of work with the Fund were unproductive. On November 7, 2019, Parker reported to work and found that her ID credentials had been canceled. Shortly thereafter, she was dismissed from the assignment. According to Parker, that evening, Auburn’s President contacted her and told her that an unnamed representative of the Fund had told him that the Chief Information Security Officer (“CISO”) had said to them that Parker’s assignment had ended due to her “insubordination.” A few days later, Parker spoke to one of her former colleagues at the Fund, who informed her that the CISO had stated in a meeting on November 7, 2019, that he “had to fire her” and he would fire anyone else who challenged him. Defendants moved separately to dismiss the complaint based on documentary evidence and for failure to state a cause of action, pursuant to CPLR 3211(a)(1) and (a)(7). The motion court granted the motion. Regarding the defamation causes of action, the motion court held that plaintiffs failed to satisfy the particularity requirement of CPLR 3016(a). First, the motion court held that plaintiffs failed to identify the person to whom the alleged defamatory statement was published. Instead, said the motion court, plaintiffs simply alleged that an unnamed employee of the Fund was told by the CISO that Parker’s assignment was terminated because she was insubordinate. Second, the motion said that the second statement – that the CISO had to fire Parker – was qualified in the complaint by the statement “or words to that effect.” Such imprecision, held the motion court, rendered the claim inactionable. 13 On appeal, the Appellate Division, First Department affirmed, holding that the motion court “properly dismissed plaintiffs’ defamation claim and related business disparagement claim against Funds.” 14 Like the motion court, the Court found that the first statement – that Parker was “insubordinate” – failed to satisfy CPLR 3016(a) because “plaintiffs failed to identify the employee to whom the supervisor made the alleged statement.” 15 The Court also found the second statement – that Parker was fired – to be inactionable because the statement was true. 16 Finally, the Court held that the claim for defamation per quod was defective because “plaintiffs were required to allege special damages,” which they “failed to do.” 17 Takeaway To satisfy CPLR 3016(b), the plaintiff must state the defamatory statement in haec verba and identify the time, place and person(s) to whom the statement was made. These requirements are strictly enforced. As shown in SalesCare , the failure to comply with CPLR 3016(a) and related interpretations will result is dismissal of a defamation claim. Footnotes Circulation Assocs., Inc. v. State , 26 A.D.2d 33, 38 (1st Dept. 1966); Salvatore v. Kumar , 45 A.D.3d 560, 563 (2d Dept. 2007). Ava v. NYP Holdings, Inc. , 64 A.D.3d 407, 411 (1st Dept. 2009). Davis v. Boeheim , 24 N.Y.3d 262, 268 (2014). Mann v. Abel , 10 N.Y.3d 271, 276 (2008) (internal quotation marks omitted). Dillon v. City of New York , 261 A.D.2d 34, 38 (1st Dept. 1999). E.g. , CSI Grp., LLP v. Harper , 153 A.D.3d 1314, 1321 (2d Dept. 2017) (“ ailure to state the particular person or persons to whom the allegedly defamatory statements were made … warrants dismissal” of a complaint for defamation); Arvanitakis v. Lester , 145 A.D.3d 650, 652 (2d Dept. 2016) (failure to plead when the false statement was made). Wolberg v. IAI N. Am., Inc. , 161 A.D.3d 468, 470 (1st Dept. 2018) (quoting Dillon , 261 A.D.2d at 38). BCRE 230 Riverside LLC v. Fuchs , 59 A.D.3d 282, 283 (1st Dept. 2009). Stephan v. Cawley , 24 Misc. 3d 1204(A), at *2 (Sup. Ct., N.Y. County 2009); Oszustowicz v. Admiral Ins. Brokerage , 25 Misc. 3d 1201(A), at *5 (Sup. Ct., Kings County 2007), aff’d sub nom. , Oszustowicz v. Admiral Ins. Brokerage Corp., 49 A.D.3d 515 (2d Dept. 2008); Ramos v. Madison Square Garden Corp. , 257 A.D.2d 492, 493 (1st Dept. 1999). See Liberman v. Gelstein , 80 N.Y.2d 429 (1992); L.W.C. Agency, Inc. v. St. Paul Fire & Marine Ins. Co. , 125 A.D.2d 371 (2d Dept. 1986). Carter v. Waks , 57 Misc. 3d 1208(A) (Sup. Ct., Queens County 2017) (citing Cammarata v. Cammarata , 61 A.D.3d 912, 915 (2d Dept. 2009)); see also Epifani v. Johnson , 65 A.D.3d 224 (2d Dept. 2009). The SEIU defendants are collectively referred to as the “Funds”. Citing Geddes v. Princess Properties Intern., Ltd. , 88 A.D.2d 835 (1st Dept. 1982) (stating, “ ny qualification in the pleading thereof by use of the words ‘to the effect’, ‘substantially’, or words of similar import generally renders the complaint defective”); see alsoOffor v. Mercy Med. Ctr. , 171 A.D.3d 502, 503 (1st Dept. 2019). Slip Op. at *2. Id. (citing BDCM Fund Adviser, L.L.C. v. Zenni , 98 A.D.3d 915, 917 (1st Dept. 2012); Bell v. Alden Owners , 299 A.D.2d 207, 208 (1st Dept. 2002), lv. denied , 100 N.Y.2d 506 (2003)). Id. (citing Rosenberg v. Metlife, Inc. , 8 N.Y.3d 359, 370 (2007)). Id. (citing Franklin v. Daily Holdings, Inc. , 135 A.D.3d 87, 93 (1st Dept. 2015); Harris v. Hirsh , 228 A.D.2d 206, 209 (1st Dept. 1996), lv. denied , 89 N.Y.2d 805 (1996)). 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 Among the problems resulting from COVID-19, is the pandemic’s effect on business.  Numerous businesses were forced to close due to lock downs and supply chain issues.  The economic slowdowns and business closures caused by the pandemic has generated much litigation; a great deal of which has occurred in the landlord/tenant arena.  [This BLOG has addressed landlord/tenant COVID-19 related litigation < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .]  As discussed in this BLOG’s prior articles, commercial tenants have generally been unsuccessful in defending rent arrears and eviction cases by relying on, inter alia , the doctrines of frustration of purpose and impossibility of performance. A landlord makes it prima facie case for rent arrears by “submit the original lease … and a detailed rent statement documenting defendant’s outstanding rent….”  Dee Cee Assoc. LLC v. 44 Beehan Corp. , 148 A.D.3d 636, 640 - 41 (1 st Dep’t 2017); see also Kate Spade & Co., LLC v. G-CNY Group LLC , 63 Misc. 3d 1205(A) at *3 (Civil Ct., City of New York 2019). Many tenants have interposed defenses such as “frustration of purpose” and “impossibility” in response to rent arrears suits in the COVID era.  The Appellate Division, First Department, has described frustration of purpose as follows: For a party to a contract to invoke frustration of purpose as a defense for nonperformance, the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense.  The doctrine applies when a change in circumstances makes one party's performance virtually worthless to the other, frustrating his purpose in making the contract. PPF Safeguard, LLC v. BCR Safeguard Holding, LLC , 85 A.D.3d 506, 508 (1 st Dep’t 2011) (citations and internal quotation marks omitted); see also Schmaltz Brewing Co., LLC v. Dog Cart Mgt LLC , 202 A.D.3d 1349, 1352 (3 rd Dep’t 2022). Impossibility “is an affirmative defense under New York law against liability for nonperformance of a contractual obligation.  Siemens Energy, Inc. v. Petroleos De Venezuela, S.A. , 82 F.4 th 144, 154 (2 nd Cir. 2023) (applying New York law).  The Appellate Division, First Department, has explained the defense of impossibility as follows: Impossibility excuses a party's performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible. Moreover, the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract.  The excuse of impossibility is generally “limited to the destruction of the means of performance by an act of God, vis major, or by law. Kolodin v. Valenti , 115 A.D.3d 197, 200 (1 st Dep’t 2014) (citations, internal quotation marks and brackets omitted); see also Siemens , supra , at 153 - 54. Durst Pyramid LLC v. Silver Cinemas Acquisition Co. , decided by the First Department on December 7, 2023, addressed these issues.    The motion court, in its decision and order , recognized that the action “is a dispute, one of many in New York courts, between a commercial tenant and its former landlord about whether the tenant may be relieved of its obligation to pay rent due to disruptions caused by the COVID-19 pandemic.”  The defendant/tenant is a movie theatre operator that, in 2016, entered into a twenty-year lease with the plaintiff/landlord.  The premises, located in Manhattan, were to be used as a movie theatre.  The tenant was behind in rent prior to the pandemic and stopped paying rent once movie theatres were ordered to be shut down in March 2020.  In August 2020, the tenant surrendered to the landlord physical possession of the premises.  Later that year, the landlord commenced an action against, inter alia , the tenant to collect rent arrears and other charges.  The landlord moved for summary judgment on, inter alia , its claim for rent arrears. As to the landlord’s evidentiary showing on its arrears claim, the motion court stated: Landlord is entitled to summary judgment against Tenant on its First Cause of Action for breach of contract, based on unpaid Rent Arrears under the Lease from January 1, 2020, through September 11, 2020, in the amount of $1,082,317.00. Landlord’s evidentiary submission shows: (i) the existence of a valid, binding Lease; (ii) the Lease provisions required Tenant to pay rent and additional charges without offset, reduction, counterclaim and/or deduction; (iii) Tenant’s undisputed failure to pay rent due and owing; and (iv) Landlord’s calculation of the Rent Arrears in the amount of $1,082,317.00. That evidence establishes a prima facie case for entitlement to summary judgment ( Thor Gallery at S. Dekalb, LLC v Reliance Mediaworks (USA) Inc. , 143 AD3d 498, 498 <1st dept 2016> ).  The motion court held that plaintiff/landlord satisfied its burden on its arrears claim and summarily rejected defendant/tenant’s frustration of purpose and impossibility defenses, noting that a “steady drumbeat of New York cases have rejected those doctrines as defenses to claims for unpaid rent, despite government restrictions that temporarily limited, or even outlawed, commercial tenants’ businesses.” (Citations omitted.)  The motion court recognized that temporary closures in the face of a long-term lease does not “give rise to a viable frustration defense.” As to its affirmance of the motion court’s grant of summary judgment to the landlord and its dismissal of the tenant’s frustration and impossibility affirmative defenses, the First Department stated: The landlord established its entitlement to summary judgment on its cause of action for rent arrears by submitting documentary evidence establishing the existence of a valid lease signed by defendant tenant Silver Cinemas Acquisition and a guaranty signed by defendant guarantor Silver Holdco, Inc., and by submitting affidavits along with invoices and ledgers showing that neither the tenant nor the guarantor paid rent from January 1, 2020 through September 11, 2020. This evidence was sufficient to establish a cause of action for rent arrears. Supreme Court also properly dismissed defendants' affirmative defenses of frustration of purpose, impossibility, and failure of consideration because under the terms of the force majeure provision of the lease, the temporary disruption that the COVID-19 pandemic caused to the tenant's business was foreseeable and was not serious enough for unilateral rescission of a 20-year lease.

By: Jeffrey M. Haber It should come as no surprise that one of the goals of an investment fraud is the theft of customer funds for the scammer’s personal benefit. In legal parlance, this aspect of a fraudulent investment scheme is called misappropriation.  Misappropriation occurs when a person uses another person’s money without authorization. Misappropriation of funds mirrors the crime of embezzlement, which is a crime committed by a person having a relationship of trust or fiduciary duty to another person and who steals that person’s money or property for his/her own personal gain.  On November 29, 2023, the SEC announced ( here ) that it brought fraud charges against Phoenix-based real estate investment company ArciTerra Companies LLC and its CEO, Jonathan M. Larmore, for engaging in a multi-year scheme to misappropriate millions of dollars of investor funds from investment vehicles that ArciTerra managed. The SEC also charged several entities controlled by Larmore for their roles in the scheme. The SEC alleged that, since at least January 2017, Larmore and the charged entities misappropriated more than $35 million from private real estate funds and other investment vehicles that ArciTerra managed. Larmore allegedly used a substantial portion of the misappropriated funds to pay for his family members’ personal expenses and to fund a lavish lifestyle of private jets, yachts, and expensive residences. The SEC also alleged that Larmore and Cole Capital Funds LLC, an entity Larmore formed and controlled, issued a press release in November 2023 falsely stating that Cole Capital intended to purchase 51 percent of all minority ownership shares in WeWork, Inc., an unrelated public company, at $9 per share, more than nine times WeWork’s then-current trading price. According to the SEC, WeWork’s stock rose close to 150 percent in after-hours trading shortly after the press release was issued. The SEC alleged that Larmore purchased more than 72,000 call options in WeWork at a price far below the stock price in the days before the press release was published, hoping to execute the trades at profit after manipulating the stock price. However, due to a delay in the issuance of the press release, most of the options expired before Larmore could exercise them. The SEC filed its complaint on November 28, 2023. A copy of the complaint, which was filed in the United States District Court for the District of Arizona, can be found here . 1 Commenting on the action, Andrew Dean, Co-Chief of the Asset Management Unit stated, “ s the complaint alleges, instead of protecting client assets, Larmore and his related entities took advantage of investor trust for his and his family’s personal gain. Protecting investors from fraud by their financial advisers is a priority for the SEC, as is protecting the market from false press releases aimed at manipulating the stock of a publicly traded company for personal gain and leaving unknowing investors to lose out.” The SEC’s complaint charged Larmore, ArciTerra, and several related entities controlled by Larmore with violating the antifraud provisions of the federal securities laws. The complaint seeks permanent injunctive relief, the appointment of a receiver, disgorgement and prejudgment interest, and a civil penalty, and other relief. Footnote The case is styled: SEC v. Lamore, et al. , Case 2:23-cv-02470-DWL (D. Az. Nov. 28, 2023). It is important to remember that the complaint is merely an allegation of wrongdoing. Nothing has been proven by the SEC and no findings have been made before a trier of fact ( e.g. , a judge or jury). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In TD Bank, N.A. v. Keenan , 2023 N.Y. Slip Op. 06158 (2d Dept. Nov. 29, 2023) ( here ), the Appellate Division, Second Department examined the often “nettlesome” question of whether a plaintiff claiming fraud has satisfied the justifiable reliance element of the claim. As readers of this Blog know, we often write about fraud cases where the primary issue for the court to consider is the justifiable reliance element of the claim. We do so because of the importance of pleading and proving justifiable reliance. As noted by the New York Court of Appeals, it is a “fundamental precept” of a fraud claim and is critical to the success of such a claim. 1 Determining whether a plaintiff justifiably relied on a misrepresentation or omission is “always nettlesome” because it is so fact intensive. 2 Recognizing this difficulty, the courts look to whether the plaintiff exercised “ordinary intelligence” in ascertaining “the truth or the real quality of the subject of the representation.” 3 Where the falsity of a representation could have been ascertained by reviewing “publicly available information,” courts have not hesitated to dismiss a fraud claim because of the failure to satisfy the justifiable reliance element. 4 Sophisticated parties also have a heightened responsibility to inquire of the truth. They must use due diligence and take affirmative steps to protect themselves from misrepresentations by employing whatever means of verification are available at the time. Such means include obtaining a prophylactic provision in a contract or other writing or making an additional inquiry into the representation. 5 If they fail to do the foregoing, their complaint will be dismissed. 6 Against this background, we examine TD Bank, N.A. v. Keenan . TD Bank, N.A. v. Kennan Defendant Kevin Keenan (“K. Keenan”) and his wife Courtney Keenan (“C. Keenan” and together with K. Keenan, the “Defendants”) acquired property in Garden City, N.Y. on November 2, 2002 (the “Property”). Several years later, TD Bank procured a mortgage on the Property in exchange for a Home Equity Line of Credit (“HELOC”), which it advanced to K. Keenan. On September 12, 2014, Defendants sold the Property to the Allabashis for $1,150,000. The Allbashis purchased the Property in part by a $475,000 loan, which was secured by a mortgage, they obtained from Luxury Mortgage Corp. (“Luxury Mortgage”). In conjunction with that sale, Stewart Title Insurance Company (“Stewart Title”) issued title insurance policies to the Allabashis, as the owners of the Property, and to Luxury Mortgage Corp, as the lender. K. Keenan allegedly drew, and made payments, on the line of credit up to and including the spring of 2016. On April 20, 2016, K. Keenan defaulted on HELOC, a year and a half after the Property had been sold by Defendants to the Allabashis.  On September 30, 2016, TD Bank commenced an action, seeking to foreclose on its mortgage and recover the balance outstanding on the HELOC. The Allabashis and Luxury Mortgage’s successor Bank United, N.A. filed claims under their title insurance policies with Stewart Title. Thereafter, TD Bank settled its claims against the Allabashis and Bank United, based upon Stewart Title’s payment of a negotiated sum to it. TD Bank delivered the original HELOC and its mortgage along with an allonge in Stewart Title’s favor to Stewart Title and stipulated to Stewart Title’s substitution as the plaintiff in the action. TD Bank sought to have Stewart Title substituted as the plaintiff in the action since it held the HELOC and the mortgage. In addition, TD Bank executed a discharge of the accompanying mortgage, which had been recorded in the County’s land records.  Stewart Title sought to amend the complaint to discontinue the foreclosure claim and to add a breach of contract claim against K. Keenan. Stewart Title also sought to add C. Keenan as a defendant and to interpose claims for fraudulent misrepresentation and unjust enrichment against both Defendants. With regard to the fraud claim, Stewart Title alleged that Defendants made materially false statements in the closing affidavits that they executed in connection with the title insurance policies it issued to the Allabashis and Luxury Mortgage. Among other things, Defendants represented that they had no knowledge of any “claims, rights, liens, encumbrances and defects in title except those set forth in the title report,” that they knew of “no other financing which affect the property,” and that they “ha not extended any Instrument that not disclosed by the … title report.” Defendants further represented and acknowledged that they executed the affidavits “to induce Stewart Title” to remove certain possible exceptions to title set forth in the title report and to issue the policy of title insurance covering the Property knowing that Stewart Title would rely on their statements. Finally, they represented that they were unaware of any judgment, encumbrance, lien or claim of right to the Property, except as shown in the title report. Notably, Defendants represented that in the event that there were any open credit line mortgages affecting the Property, they canceled their right to draw against them and directed that any such mortgage be satisfied of record.  Stewart Title alleged that C. Keenan knew of the HELOC and the accompanying mortgage despite not having been a party to them when she executed the affidavits. Defendants opposed the amendment, claiming, among other things, that Plaintiff failed to plead fraud with particularity, the fraud claim duplicated the breach of contract claim and Plaintiff failed to plead justifiable reliance. 7 The motion court denied the motion to amend. Although the motion court found that Plaintiff satisfied the particularity requirement of CPLR § 3016, Plaintiff failed to plead justifiable reliance.  The motion court explained that because the HELOC and mortgage were recorded and publicly available long before Stewart Title extended its title insurance policies, Plaintiff could have protected itself with reasonable diligence: “‘ uch information was readily verifiable through public records and there could be no justifiable reliance on the misrepresentations.’” 8 Therefore, concluded the motion court, the proposed claim for fraudulent misrepresentations was “patently lacking in merit.” On appeal, the Second Department modified the order to allow the amendment. In a pithy opinion, the Court held that “in light of the multiple written and sworn misrepresentations allegedly made by the defendant Kevin Keenan and his wife, Courtney Keenan, and relied upon by the plaintiff, it cannot be said that a cause of action alleging fraud against the Keenans, including the element of the plaintiff’s reasonable reliance, is patently insufficient or palpably devoid of merit.” 9 Takeaway Though not stated in its opinion, it appears that the Court was persuaded by Plaintiff’s argument that the truth concerning the alleged misrepresentations could not have been ascertained simply by looking at the public record. In its briefs on appeal, Plaintiff argued that whether the HELOC was paid down was peculiarly within the knowledge of Defendants. Plaintiff maintained that Defendants, as the only parties to 2014 sale of the Property, knew whether K. Keenan paid the HELOC down to zero or requested that TD Bank close the HELOC. Therefore, simply because the TD Bank mortgage was open of record at the time of the 2014 sale of the Property did not mean that Stewart Title could have learned the truth of the representations in the closing affidavits.  Moreover, Plaintiff maintained that even if the payment and HELOC closure status were verifiable from the public land records, as the motion court held, Stewart Title sought to protect itself from fraud by obtaining written representations in the affidavits from Defendants that the HELOC was paid down and closed and, therefore, had no obligation to conduct any further inquiry as to the veracity of Defendants’ representations. In DDJ Mgmt., LLC v. Rhone Group L.L.C. , the Court of Appeals held that obtaining written representations and warranties suffices to show that an alleged victim of fraud exercised the “means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation.” 10 In particular, the Court held: “We decline to hold as a matter of law that plaintiffs were required to do more—either to conduct their own audit or to subject the preparers of the financial statements to detailed questioning” where “they obtained representations and warranties to the effect that nothing in the financials was materially misleading.” 11 Again, though not stated in the TD Bank opinion, it appears that the Court was persuaded by this argument as well. Footnotes Ambac Assurance Corp. v. Countrywide Home Loans, Inc. , 31 N.Y.3d 569 (2018). DDJ Mgt., LLC v. Rhone Group L.L.C. , 15 N.Y.3d 147, 155 (2010) (internal quotation marks omitted). Curran, Cooney, Penney v. Young & Koomans , 183 A.D.2d 742, 743) (2d Dept. 1992). See also Danann Realty Corp. v. Harris , 5 N.Y.2d 317, 322 (1959). E.g. , HSH Nordbank AG v. UBS AG , 95 A.D.3d 185, 195 (1st Dept. 2012); see also Churchill Fin. Cayman, Ltd. v. BNP Paribas , 95 A.D.3d 614 (1st Dept. 2012). ACA Fin. Guar. Corp. v. Goldman, Sachs & Co. , 25 N.Y.3d 1043, 1045 (2015); DDJ Mgmt., LLC v. Rhone Group L.L.C. , 15 N.Y.3d 147, 154 (2010) (holding that in contract negotiations between sophisticated parties, justifiable reliance element sufficiently alleged where plaintiff “has gone to the trouble” of insisting on warranties in the written agreement that certain facts were true). See , e.g. , HSH Nordbank AG v. UBS AG , 95 A.D.3d 185, 194-95 (1st Dept. 2012). The motion court held that the fraud claim was not duplicative of the breach of contract claim because it did not relate to the failure to perform under the insurance policy. Instead, Plaintiff’s fraud claim was based on alleged misrepresentation made in applying for the policy. Citing Fartello v. Checkmate Holdings, LLC , 82 A.D.3d 437, 438 (1st Dept. 2011) (citation omitted). Slip Op. at *1. Feldman v. Byrne , 210 A.D.3d 646, 649 (2d Dept. 2022. DDJ Mgmt. , 15 N.Y.3d at 154. 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, remedies for the breach of a contract other than monetary damages are necessary to make a plaintiff whole.  One such remedy is specific performance [a topic previously addressed by this BLOG, inter alia ,  < here =">here"> , < here =">here"> , < here =">here"> < here =">here"> and < here =">here"> ].  The remedy of specific performance “will not be ordered where money damages would be adequate to protect the expectation interests of the injured party.”  Sokoloff v. Harriman Estates Development Corp. , 96 N.Y.2d 409, 415 (2001) (citations and internal quotation marks omitted).  Specific performance is an equitable remedy that, instead of awarding money damages to the prevailing party, requires the breaching party to perform under the contract.  “Specific performance is appropriate … when ‘the subject matter of the particular contract is unique and has no established market value.’”  BT Triple Crown Merger Co., Inc. v. Citigroup Global Markets Inc. , 19 Misc. 3d 1129, *8 (NOR) (Sup. Ct. N.Y. Co. 2008) (quoting Van Wagner Advert. Corp. v. S&M Enters. , 67 N.Y.2d 186, 193 (1986)).  “The point at which breach of a contract will be redressable by specific performance thus must lie not in any inherent physical uniqueness of the property but instead the uncertainty of valuing it….”  Van Wagner , 67 N.Y.2d at 193.  The Sokoloff Court also stated that: The decision whether or not to award specific performance is one that rests in the sound discretion of the trial court. In determining whether money damages would be an adequate remedy, a trial court must consider, among other factors, the difficulty of proving damages with reasonable certainty and of procuring a suitable substitute performance with a damages award ( see, Restatement of Contracts § 360). Specific performance is an appropriate remedy for a breach of contract concerning goods that “are unique in kind, quality or personal association” where suitable substitutes are unobtainable or unreasonably difficult or inconvenient to procure ( see, id., comment c ). Sokoloff , 96 N.Y.2d at 415.  It is generally accepted that “the equitable remedy of specific performance is routinely awarded in contract actions involving real property, on the premise that each parcel of real property is unique.”  Alba v. Kaufman , 27 A.D.3d 816, 818 (3 rd Dep’t 2006) (citations and internal quotation marks omitted); EMF General Contracting Corp. v. Bisbee , 6 A.D.3d 45, 52 (1 st Dep’t 2004) (same). On November 29, 2023, the Appellate Division, Second Department, in First Korean Church of New York v. 35 Ave & Parsons, LLC , affirmed the motion court’s order dismissing an action for, inter alia , specific performance of a real estate contract because the seller failed to obtain required approvals for the sale in the timeframes set forth in the contract.  The plaintiff/seller in First Korean is a religious corporation that owned a valuable piece of real property in Queens, New York (the “Property”).  In order for a religious corporation to sell real property and/or a significant portion or all of its assets it must comply with various provisions of New York’s Religious Corporations Law (“RCL”) and Not-For-Profit Corporation Law (“NPC”).  See, e.g. , NPC §§ 509 , 510 and 511 ; RCL § 12 .  Under various provisions of the NPC and RCL, inter alia : a majority of a not-for-profit’s board must approve the sale of the corporation’s real property ( see NPC § 509(b)); the “sale … of all, or substantially all, the assets of a corporation may be made” pursuant to certain terms and conditions of the statute ( see NPC § 510); permission to sell or transfer substantially all a corporations assets may be obtained from a court ( see NPC § 511); and, a religious corporation “shall not sell … any of its real property without applying for and obtaining leave of court or the attorney general… ( see RCL § 12).   Plaintiff entered into a contract with defendant/purchaser pursuant to which plaintiff was to sell the Property to defendant for over $40,000,000.  The contract provided that if plaintiff failed to obtain the requisite approvals from its board, the court and/or the Attorney General within ninety (90) days, either party could terminate the contract.  Approvals were not obtained within the agreed upon 90-day period and defendant sent a termination notice per the contract.  Plaintiff responded to defendant’s termination letter by sending its own letter arguing that due to the COVID-19 pandemic it could not hold the necessary Board meeting to obtain necessary approvals.  In addition, plaintiff filed a petition with the court for approval of the sale and said petition was denied by the court and the proceeding was dismissed.  Under the parties’ contract, the failure of the court to grant plaintiff’s petition resulted in the automatic termination of the contract. In light of defendant’s decision to terminate the contract, plaintiff commenced an action in which it sought, inter alia, specific performance of the contract and damages for breach of contract.  Defendant moved to dismiss the complaint pursuant to , inter alia , CPLR 3211(a)(1) based on documentary evidence.  As previously noted in this BLOG, under CPLR § 3211(a), a party may make a motion to dismiss on the “ground that . . . a defense is founded upon documentary evidence.” The CPLR does not, however, define the phrase “documentary evidence.”  To qualify as “documentary,” the content of the document must be “essentially undeniable and …, assuming the verity of and the validity of its execution, will itself support the ground on which the motion is based.” Amsterdam Hospitality Grp., LLC v. Marshall-Alan Assocs., Inc., 120 A.D.3d 431, 432 (1 st Dep’t 2014) , quoting David D. Siegel, Practice Commentaries, McKinney’s Cons. Laws of N.Y., Book 7B, C.P.L.R. C3211:10 at 22. Materials that clearly qualify as “documentary evidence” include judicial records, such as judgments and orders, as well as documents reflecting out of-court transactions, such as contracts, deeds, wills, and mortgages. Fontanetta v. Doe , 73 A.D.3d 78, 84 - 85 (2 nd Dep’t 2010) (citation omitted); see also Davis v. Henry , 212 A.D.3d 597 (2 nd Dep’t 2023).  Thus, in order for evidence to qualify as “documentary,” it must be unambiguous, authentic and undeniable.” Granada Condominium III Ass’n v. Palomino , 78 A.D.3d 996, 996-97 (2 nd Dep’t 2010).   In affirming the motion court, the Second Department stated: When deciding a motion to dismiss for failure to state a cause of action, "the court must 'accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every cognizable legal theory"' ( Rudovic v Law Off. of Timothy A. Green , 200 AD3d 814, 815, quoting Leon v Martinez , 84 NY2d 83, 87-88). A motion to dismiss based on documentary evidence pursuant to CPLR 3211 (a)(l) may be granted "only where the documentary evidence utterly refutes the plaintiffs factual allegations" (Bedford-Carp Constr., Inc. v Brooklyn Union Gas Co., 215 AD3d 907 , 908 ; see Mawere v Landau , 130 AD3d 986, 987).  Here, in support of its motion, the defendant submitted, inter alia, the agreement, which provided, in relevant part, that, if the plaintiff did not obtain all the required approvals for the purchase and sale of the property for any reason within a 90-day time period from the date the parties entered into an amendment to the agreement, either party was permitted to terminate the agreement by written notice. The defendant also submitted documentary evidence that, more than 90 days after the parties executed the amendment to the agreement, the plaintiff had not obtained the required approvals for the purchase and sale of the property and that the defendant served the plaintiff with written notice exercising its option to terminate the agreement. Thus, the defendant's documentary evidence utterly refuted the plaintiffs allegations in the complaint and resolved all factual issues (see Bedford-Carp Constr., Inc. v Brooklyn Union Gas Co., 215 AD3d at 909).  Contrary to the plaintiffs contention, Executive Order (A. Cuomo) No. 202.8 (9 NYCRR 8.202.8), and the subsequent orders extending it, did not toll the 90-day period set forth in the agreement (see Prestige Deli & Grill Corp. v PLG Bedford Holdings, LLC, 213 AD3d 962 , 963).  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.

In Stagen v. Neu , 2023 N.Y. Slip Op. 06105 (1st Dept. Nov. 28, 2023) ( here ), the Appellate Division, First Department addressed an issue of contract interpretation involving a word in a settlement agreement that most readers would think has a distinct and undisputed meaning – “employ”. As discussed below, the Court found an issue of fact as to what it means to be “employed” in the context of the record before it.  The Court also touched upon the law surrounding third-party beneficiaries of contracts. As discussed below, the Court found that based upon the prominence of the third-party in the agreement between the parties, the parties intended to make that third-party a beneficiary of the subject agreement. The plaintiff in Stagen worked as the president of Eden Wood Realty LLC (“Eden”) from April 2017 through October 2022. Plaintiff alleged that in May 2022, defendant entered into a settlement agreement with her father, Richard (“Richard”), in which they both agreed that upon Richard’s retirement, defendant would become president of Eden. The settlement agreement also provided that, until his retirement, Richard had the sole discretion about whether to retain plaintiff as president of Eden and then, if plaintiff remained employed at the time of Richard’s retirement, plaintiff would stay on under the same terms. It also permitted defendant to remove plaintiff if she made a “good faith determination” that plaintiff could no longer perform his duties. Richard retired in August 2022. In October 2022, defendant terminated plaintiff from his employment at Eden. Plaintiff contended that defendant could not possibly have made a good faith determination about his ability to do the job. Plaintiff sued, asserting a single cause of action for breach of contract. Defendant moved to dismiss. Defendant insisted that the settlement agreement cited by plaintiff arose after years of litigation with her father and related to other businesses in addition to Eden. Defendant maintained that plaintiff was no longer an employee of Eden as of the date of her father’s retirement and that another entity, Phyllis Cory Consulting Corp. (“Phyllis Consulting”) was actually paying plaintiff to provide services to Eden. Defendant argued that the provision in the settlement agreement contained a condition precedent—namely that plaintiff remain employed by Eden—at the time of Richard’s retirement. She insisted that because plaintiff was working for Phyllis Consulting, and not Eden, at the time of her father’s retirement, he could not seek relief under the subject provision. Defendant also contended that the complaint failed to allege that plaintiff was an intended third-party beneficiary of the settlement agreement. Defendant argued that the settlement agreement did not mention Phyllis Consulting and so plaintiff could not seek the benefit of an agreement given that Phyllis Consulting was the entity who paid him.  Plaintiff argued that he stated a cause of action for breach of contract. He claimed the provision that cites him in the settlement agreement ( i.e. , paragraph 6) between defendant and her father specifically conferred him with benefits and entitled him to bring this lawsuit. That provision provided that: After Richard chooses to retire in his sole and absolute discretion, or dies, Amy shall become the President of Eden Wood. Until that time, the decision whether to continue to employ Stagen by Eden Wood shall be Richard's alone. Thereafter, and assuming that as of that time Stagen remains employed by Eden Wood, Eden Wood shall continue to employ Stagen on terms no less favorable to Stagen than those in place on the date of Richard's retirement or death, unless and until Stagen voluntarily retires or Amy makes a good faith determination that Stagen is no longer capable of performing his employment duties competently.  Plaintiff claimed that he was employed by Eden at the time he was fired, and that paragraph 6 of the settlement agreement did not prohibit him from using Phyllis Consulting as an intermediary.  Defendant insisted that Eden paid Phyllis Consulting for plaintiff’s services and so there was no basis to find that plaintiff was working for Eden at the time her father retired, which eviscerated a condition precedent to the agreement. She added that there was no evidence that Phyllis Consulting was the intended beneficiary of the agreement. And she argued that plaintiff was merely acting as an agent of the corporate entity, Phyllis Consulting. The motion court granted the motion. On appeal, the First Department unanimously reversed, on the law, and the denied the motion. The Court found that plaintiff was employed by Eden: In support of her motion to dismiss, Amy contends that plaintiff was not “employed by” Eden Wood on the date of Richard’s retirement because Eden Wood did not pay him at all but instead paid his consulting company. At the time of the Settlement Agreement, plaintiff was president of Eden Wood, and with Richard’s knowledge, he was being paid through the corporation he created. Plaintiff’s position as president and the payment arrangement continued after the Agreement was signed and through the time that Richard retired. Accordingly, notwithstanding this arrangement, plaintiff adequately alleges that he was, and remained for all intents and purposes, an employee of Eden Wood at the time of Richard’s retirement. 1 The Court explained that: The court’s interpretation of the contract to require any claim to be made by plaintiff’s consulting company, rather than plaintiff individually, would render the words of the agreement meaningless. Under the circumstances, the undefined term “employ” is subject to ambiguity. Accordingly, it is appropriate to examine the facts and circumstances to determine the intent of the parties. Moreover, interpreting the contract as imposing a requirement that plaintiff must be directly employed by Eden Wood as a condition precedent to recovery would elevate form over substance. The Settlement Agreement did not include any language supporting that reading. 2 Finally, regarding the third-party beneficiary claim, the Court held that “the prominent mention of plaintiff in paragraph 6 of the Settlement Agreement evince the contracting parties’ intent to benefit him.” 3 In reaching this conclusion, the Court relied on LaSalle Natl. Bank v. Ernst & Young , 285 A.D.2d 101 (1st Dept. 2001). In LaSalle , the court discussed the law concerning third-party beneficiaries as follows: In order to claim third-party benefits, the putative third-party beneficiary will be deemed an intended beneficiary if “recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties  and  either (a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary ; or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. * * * An incidental beneficiary * * * is not an intended beneficiary”. A non-party may sue for breach of contract only if it is an intended, and not a mere incidental, beneficiary, and even then, even if not mentioned as a party to the contract, the parties’ intent to benefit the third party must be apparent from the face of the contract. Absent clear contractual language evincing such intent, New York courts have demonstrated a reluctance to interpret circumstances to construe such an intent. 4 Accordingly, the Court concluded that plaintiff was entitled to assert a cause of action for breach of contract as a third-party beneficiary. 5 Footnotes Slip Op. at *1. Id. (citations omitted). Id. at *1-*2 (citation omitted). LaSalle , 285 A.D.2d at 108-109. Slip Op. at *2. 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 we have often explained in the articles in which we have examined fraud claims, to withstand a motion to dismiss, the plaintiff must plead fraud with particularity as required under CPLR § 3106(b), cannot lump all the defendants together so that the plaintiff runs afoul of the group pleading prohibition, and cannot duplicate a breach of contract claim with the fraud claim. Lerman v. 2211 Third Ave. Mazal Holdings LLC , 2023 N.Y. Slip Op. 34092(U) (Sup. Ct., N.Y. County Nov. 16, 2023) ( here ), is another example of a plaintiff failing to comply with the foregoing. Lerman began as a motion for summary judgment in lieu of complaint arising out of an agreement between plaintiff and 2211 Third Avenue Mazal Holdings LLC (“Holdings”) and was based on breach of a promissory note to repay a loan. Because the amount of interest could not be readily discerned, the case was converted to a plenary action.  Plaintiff alleged that defendants fraudulently induced him to increase the amount, and extend the maturity date, of the loan. Plaintiff claimed that defendants Amir Hasid (“Hasid”) and HAP Investments LLC (“HAP”) made material misrepresentations about the financial condition of Holdings, including about the financial projections for the development of a property located at 2211 Third Avenue in New York City (the “Third Avenue Property”). Plaintiff maintained that in December 2018, Holdings executed a promissory note evincing a $500,000.00 loan in connection with the Third Avenue Property. Plaintiff claimed that HAP fraudulently convinced him to increase his “investment” to $700,000.00 and execute a new promissory note showing this increased “investment”. The new note contained a maturity date of one year with an option to extend it another year (to December 2020). Plaintiff alleged that Hasid (on behalf of HAP) wrongfully convinced him to enter into this agreement. Plaintiff alleged that in December 2019, Holdings used its option and extended the maturity date to December 2020. Thereafter, Holdings failed to pay the balance due. Defendants moved to dismiss the operative complaint. They claimed that the complaint contained confusing allegations about the various defendants in an attempt to pierce the corporate veil and hold all the defendants liable under the agreement plaintiff executed with Holdings. Defendants argued that plaintiff did not identify the allegedly fraudulent misrepresentations that were made to him in connection with the loan. Defendants noted that various allegations asserted by plaintiff were made upon information and belief, including that both defendant 2211 Third Avenue Mazal LLC (“Mazal”) and HAP were controlling principals, members, and managers of Holdings. Defendants stressed that the complaint was bereft of sufficient details about the alleged fraud committed by defendants and how that affected plaintiff’s decision to loan money to Holdings. In opposition, plaintiff submitted an affirmation in which he claimed that Hasid spoke with him on behalf of HAP to induce plaintiff to loan the money. Plaintiff claimed that Hasid provided him with financial projections for the building and assurances that the loan would be timely repaid.  Plaintiff explained that Hasid informed him that defendant Eran Polack (“Polack”) was no longer involved with HAP (according to plaintiff, Polack was adjudged to be a fraudster in Israel). He claimed that he would not have invested without that assurance. Plaintiff contended that he started to become uneasy and demanded his money back after learning that Polack was still the CEO of HAP. Plaintiff admitted that he received $200,000.00 “from HAP and/or Mazal” and later received another $10,000.00. The motion court granted the motion. “To state a cause of action to recover damages for fraudulent inducement, there must be a knowing misrepresentation of material present fact, which is intended to deceive another party and induce that party to act on it, resulting in injury.” 1 The motion court found that plaintiff failed to satisfy the foregoing elements of a fraud claim. First, the motion court found that plaintiff failed to identify any “specific actions by each defendant; instead, plaintiff engage in a ‘group pleading’ that fail to sufficiently separate the allegations between each defendant.” 2 In other words, plaintiff failed to distinguish among the various defendants regarding which misrepresentations each defendant made to plaintiff, when the misrepresentations were made, and where the misrepresentations were made. 3 By pleading the fraud claim against all defendants collectively, without any specification of the conduct charged to a particular defendant, the motion court concluded, without specifically stating as much, that plaintiff deprived defendants of the notice regarding “the material elements of each cause of action” to which defendants were entitled under CPLR § 3013. 4 Second, the motion court held that plaintiff failed to plead his fraud claim with particularity. 5 Under CPLR § 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.” 6 To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. Put another way, the complaint must identify the “who, what, where, when and how” of the alleged fraud.  In Lerman , the motion court found that plaintiff failed to allege the “misrepresentations and how they were a proximate cause of plaintiff’s decision to enter into the agreement with Holdings.” 7 By doing so, plaintiff failed to identify any specific and material misrepresentation of fact by any of the defendants.  Third, the motion court held that the fraud claims were duplicative of the breach of contract claim. 8 In that regard, the motion court explained that in effect, plaintiff alleged “that defendants misrepresented whether or not Holdings would be able to repay the loan.” 9 “ othing in plaintiff’s opposition (including plaintiff’s affirmation),” said the motion court, “detail what was false in the various projections or documents supplied to plaintiff as part of the negotiating process.” 10 The motion court further noted that “ o the extent that plaintiff alleging that future promises about the expected success of the building project were false, that not an actionable basis for fraud.” 11 A plaintiff must allege misrepresentations of present fact, not merely misrepresentations of future intent to perform under a contract. 12 Under New York law, “ eneral allegations of lack of intent to perform are insufficient ; rather, facts must be alleged establishing that the adverse party, at the time of making the promissory representation, never intended to honor the promise.” 13 In conclusion, the motion court made the following observations about plaintiff’s fraud claims: The majority of plaintiff’s opposition claims that he loaned the money because he was provided with materials about future projections concerning the building project. But “mere puffery, opinions of value or future expectations” do not sustain a fraud claim based on alleged misrepresentations” ( Sidamonidze v Kay , 304 AD2d 415, 416, 757 NYS2d 560 <1st dept 2003> ). To be sure, if an investor was convinced to invest and promised returns based on material misrepresentations, then that would state a claim based upon fraud. But, here, plaintiff was not an investor. Instead, plaintiff was a lender – he loaned money to Holdings – and that loan was not secured by the property and there were no guarantors. And plaintiff received some (but not all) of what he claims he was owed. That renders the alleged misrepresentations as immaterial because the amount he was entitled to receive was not dependent on the success (or failure) of the building project or on which entity actually owned the property. 14 Accordingly, the motion court dismissed the fraud claims against defendants. Footnotes 651 Bay St., LLC v. Discenza , 189 A.D.3d 952, 953-54 (2d Dept. 2020). Slip Op. at *6. See Principia Partners LLC v. Swap Fin. Group, LLC , 194 A.D.3d 584, 584 (1st Dept. 2021). We note that by referring to all defendants together without differentiation, plaintiff failed to plead his fraud claim with the particularity required by CPLR § 3016(b). See El Toro Group, LLC v. Bareburger Group, LLC , 190 A.D.3d 536, 541 (1st Dept. 2021); Total Asset Recovery Servs. LLC v. Metlife, Inc. , 189 A.D.3d 519, 523 (1st Dept. 2020). Slip Op. at *6. Pludeman v. Northern Leasing Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (citation omitted). Slip Op. at *6. Id. Id. Id. Id. (citing GE Oil & Gas, Inc. v. Turbine Generation Servs., L.L.C. , 168 A.D.3d 563, 564 (1st Dept. 2019) (noting, that a promise about a prediction or expectation cannot form the basis of a fraud claim arising out of a misrepresentation). Wyle Inc. v. ITT Corp. , 130 A.D.3d 438, 439–41 (1st Dept. 2015). Perella Weinberg Partners LLC v. Kramer , 153 A.D.3d 443, 449 (1st Dept. 2017); see Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 71 (1st Dept. 2017). Slip Op. at *8-*9. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In July of this year, we wrote about a fraud action involving the EB-5 Immigrant Investor Program (“EB-5 Program” or “Program”) (here). Under the EB-5 Program, investors are eligible for permanent residency status in the U.S. if they make a qualifying investment in a new commercial enterprise in the U.S. that creates a certain number of permanent full-time jobs for qualified U.S. workers. As we often do in our articles, we examine the legal issues involved in the case that we examine. In our July post, we examined the EB-5 Program so that our readers could gain an understanding of the program, as well as the risks of fraud and abuse attendant to the program. We repost that examination of the Program below. The EB-5 Program and The Risk of Fraud In 1990, Congress created the EB-5 Program to stimulate the U.S. economy through job creation and capital investment by foreign investors. The EB-5 Program offers foreign investors and members of their family an opportunity to obtain permanent residence in the United States (i.e., obtain a green card) and provides a source of financing for developers to use in, among other things, construction and business projects. The EB-5 Program has been a material source of private investment in the U.S. for many years. According Invest in the USA, the national trade association whose members are EB-5 regional centers,1 “between 2008 and 2021, the EB-5 program helped generate $37.4 billion in foreign direct investment to create and retain U.S. jobs for Americans, all at no cost to the taxpayer” (here). Despite the benefits of the EB-5 Program, the incidence of fraud and abuse has increased over the years.2 Typically, where fraud is involved, a company/regional center and its financial backers will solicit EB-5 Program investors with promises of high rates of return. In some cases, the companies/regional centers guarantee that the investment is risk-free. The Securities and Exchange Commission (“SEC”) has identified a set of common violations of the securities laws arising from the misconduct surrounding the EB-5 Program. These violations include: (a) false or misleading statements in placement memoranda, subscription agreements, advertisements, and sales brochures in violation of Section 10(b)(5) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (b) theft or misuse of investor funds in violation of Section 17(a) of the Securities Act of 1933, as amended; and (c) improper solicitation of investors by unregistered broker-dealers in violation of Section 15(a) of the Exchange Act. Due to the incidence of fraud, the SEC has released an investor alert to warn investors about potential scams in EB-5 offerings.3 The USCIS has also noted that “fraud – in the form of embezzlement, securities violations, investment schemes, and criminal conduct – has plagued the Regional Center program since its inception.” In a letter to then-President Trump, Senator Charles Grassley also noted that the EB-5 Program had “become riddled with fraud and serious vulnerabilities that present real national security concerns,” and strayed materially from its intended purpose of bringing investment to areas that need investment opportunities the most.4 Given the incidence of fraud and abuse, it is not surprising that the SEC, as well as EB-5 investors, have brought suit against individuals and companies/regional centers, claiming violations of the common law, as well as the federal securities laws. We highlight a few of the many enforcement actions brought by the SEC against EB-5 Program scammers below. In SEC v. Marco A. Ramirez, et al., the SEC brought fraud charges against a husband and wife in Texas for stealing funds from foreign investors under the guise of an investment opportunity to create U.S. jobs and a path to U.S. residency. The SEC alleged that the couple and three companies they own fraudulently raised at least $5 million from investors by falsely promising that their money would be invested as part of the EB-5 Program. The SEC alleged that instead of investing the money as promised, the couple routinely diverted investor funds to other undisclosed businesses and for their personal use. In at least one instance, they used new investor funds to make Ponzi-like payments to an existing investor. In SEC v. A Chicago Convention Center, et al., the SEC charged an individual living in Illinois and two companies behind an investment scheme defrauding foreign investors seeking profitable returns and a legal path to U.S. residency through the EB-5 Program. The SEC alleged that Anshoo R. Sethi created A Chicago Convention Center (“ACCC”) and Intercontinental Regional Center Trust of Chicago (“IRCTC”) and fraudulently sold more than $145 million in securities and collected $11 million in administrative fees from more than 250 investors primarily from China. Sethi and his companies allegedly duped investors into believing that by purchasing interests in ACCC, they would be financing construction of the “World’s First Zero Carbon Emission Platinum LEED certified” hotel and conference center near Chicago’s O’Hare Airport. According to the SEC, investors were misled to believe their investments were simultaneously enhancing their prospects for U.S. citizenship through the EB-5 Program. The SEC alleged that Sethi and his companies spent more than 90 percent of the administrative fees collected from investors despite their promise to return the money to investors if their visa applications were denied. More than $2.5 million of the funds, said the SEC, were directed to Sethi’s personal bank account in Hong Kong. In SEC v. San Francisco Regional Center, LLC, et al., the SEC brought fraud charges against an Oakland, California-based businessman accused of misusing money he raised from investors through the EB-5 Program intended to create or preserve jobs for U.S. workers. The SEC alleged that Thomas M. Henderson and his company San Francisco Regional Center LLC falsely claimed to foreign investors that their $500,000 investments would help create at least 10 jobs within several distinct EB-5 related businesses he created, including a nursing facility, call centers, and a dairy operation. This would qualify the investors for a potential path to permanent U.S. residency through the EB-5 Program. But according to the SEC, Henderson jeopardized investors’ residency prospects and combined the $100 million he raised from investors into a general fund from which he allegedly misused at least $9.6 million to purchase his home and personal items and improperly fund several personal business projects, such as Bay Area restaurants that were unrelated to the companies he purportedly established to create jobs consistent with EB-5 requirements. According to the SEC, Henderson also improperly used $7.5 million of investor money to pay overseas marketing agents, and he shuffled millions of dollars among the EB-5 businesses to obscure his fraudulent scheme. In SEC v. Seyed Taher Kameli, et al., the SEC charged a Chicago-based immigration attorney with defrauding investors participating in the EB-5 Program by improperly commingling and misusing a portion of the approximately $88.7 million raised. The SEC alleged that Seyed Taher Kameli and his companies, Chicagoland Foreign Investment Group, LLC and American Enterprise Pioneers, Inc., falsely claimed to at least 226 foreign investors that each of their $500,000 investments would be used to help construct a specific senior living project in the Chicago area or Florida and create at least 10 permanent full-time jobs within that project. This would qualify each investor for a potential path to permanent U.S. residency through the EB-5 Program. According to the SEC, rather than use investor funds solely for the senior living project for which an investor was solicited, Kameli diverted millions of dollars to fund other projects and to make unrelated payments, which was contrary to representations to investors and the requirements of the EB-5 Program. Kameli also allegedly spent a significant portion of investor proceeds for his own benefit, for his brother’s benefit, and for the benefit of companies he owns. SEC. v. Ahmed Yesterday, on November 21, 2023, the SEC announced (here) that it charged Nadim Ahmed, a New York-based businessman and his companies, NuRide Transportation Group, LLC (“NuRide”) and NYC Green Transportation Group, LLC (NYC Green”), with making fraudulent misrepresentations in securities offerings to investors seeking permanent residency through the EB-5 Program. The SEC also charged Ahmed and Mehreen Shah a/k/a Mona Shah, a New York-based immigration attorney, and her law firm with offering unregistered securities to investors in offerings that raised more than $66 million from more than 100 investors. A copy of the complaint, which was filed in the United States District Court for the Southern District of New York, can be found here.5 According to the SEC, from approximately June 2014 through December 2018, Ahmed, NuRide and NYC Green falsely told NYC Green investors that NYC Green would be operated in a manner consistent with the requirements of the EB-5 Program and that NYC Green’s principals had contributed $11 million to the company. Further, Ahmed, NuRide, and NYC Green allegedly put key revenue-generating contracts in NuRide’s name despite telling investors that NYC Green would be the operating transportation business. Ahmed also allegedly used one investor’s funds to pay a portion of a prior settlement between another one of his companies and the SEC. In addition, said the SEC, from June 2014 through November 2022, Ahmed, NuRide, and NYC Green, along with Shah, her law firm, and three other entities associated with Ahmed and/or Shah, allegedly offered or sold unregistered securities, including to individuals residing in the United States, in three offerings, for which no exemption to the registration requirements was available. According to the complaint, none of the investors in the offerings has received unconditional permanent residency status or a return of their investment. Commenting on the allegations in the complaint, Thomas P. Smith, Jr., Associate Regional Director in the New York Regional Office, said “ll offering materials, including those provided to investors seeking residency under the EB-5 program, must contain accurate disclosures about the securities being issued. And all securities offerings must comply with the registration requirements or the exemptions to those requirements.” The SEC charged Ahmed, NYC Green, and NuRide with violating the antifraud provisions and, along with Shah, her law firm, and three other entities associated with Ahmed and/or Shah, the registration provisions of the federal securities laws. The complaint seeks permanent and conduct-based injunctions, disgorgement, prejudgment interest, and civil penalties. Footnotes Regional centers are businesses that offer investment opportunities under the Program. The fact that a business is designated as a regional center by the U.S. Citizenship and Immigration Services (“USCIS”) does not mean that USCIS, the SEC, or any other government agency has approved the investments offered by the business, or has otherwise expressed a view on the quality of the investment. See Hearing on “Citizenship for Sale: Oversight of the EB-5 Investor Visa Program” before the Senate Committee on the Judiciary on June 19, 2018 (here). See Investor Alert: Investment Scams Exploit Immigrant Investor Program (Oct. 9, 2013) (here). See Grassley to Trump: You Can Restore Integrity To EB-5 Visa Program (June 8, 2018) (here). The case is styled: SEC v. Ahmed, et al., 23 Civ. 10210 (S.D.N.Y. Nov. 21, 2023). It is important to remember that the complaint is merely an allegation of wrongdoing. Nothing has been proven by the SEC and no findings have been made before a trier of fact (e.g., a judge or jury). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In Barlow v. Skroupa , 2023 N.Y. Slip Op. 05786 (1st Dept. Nov. 16, 2023) ( here ), the Appellate Division, First Department affirmed the dismissal of a fraud claim because the plaintiffs failed to plead fraud with particularity, as required under CPLR § 3016(b), and identify any specific misrepresentations of material fact. We examine Barlow below.  Plaintiffs, who were employees and consultants of Inspire Summits LLC (“Inspire”), doing business as Skytop Strategies (“Skytop”), originally brought the action alleging breach of contract by defendants Skytop and its owner Christopher Skroupa, in addition to other related claims. Following multiple amendments, plaintiffs added parties and causes of action, including, inter alia , fraud in connection with Skytop’s alleged failure to pay its employees and contractors, overcharging participants in its conferences, and related misconduct. More specifically, the fraud claim was based on alleged misrepresentations about Skytop’s revenue, funding, and prospects and defendants’ nondisclosure of Skytop’s financial irregularities. Plaintiffs alleged that defendants misrepresented that they profited only from Skytop’s conferences and not from inducing employees, consultants, and vendors to provide services without payment and that Skytop possessed the financial ability to pay employees, was growing fast, and offered employees rapid growth. Defendants David Katz (“Katz”) and Paula Luff (“Luff”) moved to dismiss all claims pleaded against them pursuant to CPLR § 3211(a)(7). Katz and Luff maintained that plaintiffs failed to allege that these defendants owed any duties to plaintiffs or made any misrepresentations on which plaintiffs reasonably relied and that the allegations otherwise lacked the required particularity for a fraud claim. The motion court granted the motion. The motion court found that plaintiffs engaged in improper group pleading by failing to distinguish among the various defendants regarding which misrepresentations and omissions each defendant made to each plaintiff, when the misrepresentations were made, and where the misrepresentations were made. 1 By pleading the fraud claim against all defendants collectively, without any specification of the conduct charged to a particular defendant, the motion court concluded that plaintiffs deprived defendants of the notice regarding “the material elements of each cause of action” to which defendants were entitled under CPLR § 3013.  The motion court also held that by referring to all defendants together, plaintiffs failed to plead their fraud claim with the particularity required by CPLR § 3016(b). 2 As noted, the First Department affirmed. The Court agreed with the motion court, finding that “plaintiffs failed to plead fraud with particularity as required under CPLR 3016(b).” 3 The Court also found that plaintiffs failed “to identify any specific and material misrepresentation of fact by either Katz or Luff, and offered only general and conclusory allegations that they made “false representations” regarding Skytop’s revenues and its ability to pay wages and benefits.” 4 As a result, concluded the Court, the motion court “properly dismissed claim.” 5 Takeaway To state a claim for fraud, a plaintiff must allege “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.” 6 The claim must pleaded with particularity. 7 Conclusory allegations will not suffice. 8 Neither will allegations based on information and belief. 9 If “sufficient factual allegations of even a single element are lacking,” then the claim must be dismissed. 10 The requirement that a fraud claim be pleaded with particularity can be found in CPLR § 3016(b). Under CPLR § 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.” 11  To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. Put another way, the complaint must identify the “who, what, where, when and how” of the alleged fraud. Group pleading runs afoul of the particularity requirement. It also violates CPLR § 3013, which requires the pleader to provide the parties notice of the transactions or occurrences intended to be proved together with the material elements of the plaintiff’s cause of action or the defendant’s defense. In Barlow , plaintiffs failed to comply with the foregoing principles. First, plaintiffs violated the group pleading prohibition “ y pleading the fraud claim against all defendants collectively, without any specification of the conduct charged to particular defendant[ ].” In doing so, “plaintiffs deprive defendants of the notice regarding ‘the material elements of each cause of action’ to which defendants” were entitled under CPLR § 3013. By group pleading their fraud claim, the plaintiffs in Barlow also failed to plead their claim with particularity. Courts routinely hold that a complaint, which asserts, in general terms, that all defendants engaged in the alleged misconduct, is insufficiently particular under CPLR § 3016(b). 12 Second, plaintiffs failed to identify any specific misrepresentation of material fact that either Katz or Luff had made to them. Instead, plaintiffs offered only general and conclusory allegations that defendants made “false representations” regarding Skytop’s revenues and its ability to pay wages and benefits. 13 As such, plaintiffs were unable to satisfy the first element of a fraud claim: the making of a misrepresentation or omission of a material fact. Footnotes See Principia Partners LLC v. Swap Fin. Group, LLC , 194 A.D.3d 584, 584 (1st Dept. 2021). El Toro Group, LLC v. Bareburger Group, LLC , 190 A.D.3d 536, 541 (1st Dept. 2021); Total Asset Recovery Servs. LLC v. Metlife, Inc. , 189 A.D.3d 519, 523 (1st Dept. 2020). Slip Op. at a*1 (citation omitted). Id. Id. Lama Holding Co. v. Smith Barney Inc. , 88 N.Y.2d 413, 421 (1996). Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559 (2009). Id. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015). RKA Film Fin., LLC v. Kavanaugh , 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting Shea v. Hambros PLC , 244 A.D.2d 39, 46 (1st Dept. 1998)). See also Gregor v. Rossi , 120 A.D.3d 447 (1st Dept. 2014). Pludeman v. Northern Leasing Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (citation omitted). Total Asset Recovery Servs. LLC v. Metlife, Inc. , 189 A.D.3d 519, 523 (1st Dept. 2020). Slip Op. at *1 (citing Principia Partners, 194 A.D.3d at 584). 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.