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

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

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

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

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

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

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

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

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

By: Jeffrey M. Haber “The right to a trial by jury is governed by article I (§ 2) of the New York State Constitution,” which provides “that a ‘ rial by jury in all cases in which it has heretofore been guaranteed by constitutional provision shall remain inviolate forever.’” 1 Enacted in 1938, “ his provision, …, is generally interpreted to mean that the guarantee extends to all matters to which the prior Constitution, enacted in 1894, extended the guarantee.” 2 “This includes all matters to which a constitutional right attached at the time of adoption of the first Constitution in 1777, i.e. , matters traditionally triable before a jury in a court of law or to which the right had been extended by statute prior to 1777, as well as any matters as to which a right to trial by jury was created by statute between 1777 and adoption of the 1894 Constitution.” 3 Article I (§ 2) of the New York State Constitution also provides that the right to a jury trial “may be waived by the parties in all civil cases in the manner to be prescribed by law.” Section 4101 of the Civil Practice Law and Rules (“CPLR”) provides that the party may demand a jury trial in cases where: (a) the facts set forth in the action “would permit a judgment for a sum of money only”; (b) the party demanding a jury trial files “an action of ejectment; for dower; for waste; for abatement of and damages for a nuisance”; (c) the demanding party files an action “to recover a chattel; or for determination of a claim to real property under article fifteen of the real property actions and proceedings law”; and (d) the demanding party files “any other action in which party is entitled by the constitution or by express provision of law to a trial by jury.”  Not surprisingly, issues arise with regard to the right to a jury trial when the pleading party asserts both legal and monetary claims. When, as in Pelletier v. Morgan , 2023 N.Y. Slip Op. 04167 (1st Dept. Aug. 3, 2023) ( here ), “the complaint either joins legal and equitable causes of action arising out of the same alleged wrong or seeks both legal and equitable relief, there is a waiver of a plaintiff’s right to a jury trial.” 4 “However, the right to a jury trial is to be determined by the facts alleged in the complaint and not by the prayer for relief.” 5 Indeed, “ he fact that plaintiff is seeking money damages ‘does not, in and of itself, guarantee entitlement to a jury trial.’” 6 Thus, “ here a plaintiff alleges facts upon which monetary damages alone will afford full relief, inclusion of a demand for equitable relief in the complaint’s prayer for relief will not constitute a waiver of the right to a jury trial.” 7 Notably, the party seeking a jury trial cannot reclaim the right by withdrawing equitable claims or requests for equitable relief. “Once the right to a jury trial has been intentionally lost by joining legal and equitable claims, any subsequent dismissal, settlement or withdrawal of the equitable claim(s) will not revive the right to trial by jury.” 8 Against this background, we examine Pelletier v. Morgan . Plaintiff entered into a land contract with defendant Morgan Shedlock LLC and defendant Robert J. Morgan, the managing member of Morgan Shedlock, to purchase two parcels of land in Tompkins County, New York. Under the contract, plaintiff agreed to make certain monthly payments. Plaintiff further agreed that if she defaulted on the payments, Morgan Shedlock could accelerate the debt and then, if plaintiff failed to make full payment, retain her prior payments as rent and commence an eviction proceeding against her.  Plaintiff subsequently defaulted. Rather than proceeding through the eviction process, the parties entered into a termination agreement, waiving any claims arising out of the land contract against the other. In return, plaintiff committed to vacating the premises, which defendants would be entitled to possession at such time. Thereafter, plaintiff commenced the action seeking, among other things, declaratory and injunctive relief, including recission of the termination agreement and damages relating to defendants’ efforts to eject her from the property.  Following service of an amended complaint, defendants served an amended answer and moved for partial summary judgment. The motion court denied the motion, which the Appellate Division, Third Department affirmed. 9 Thereafter, plaintiff filed a note of issue demanding a trial by jury. Defendants moved to strike the note of issue, which was opposed by plaintiff. The motion court granted the motion. Plaintiff appealed. The Third Department affirmed. The Court held that plaintiff “waived her right to a jury trial” because she “joined legal and equitable causes of action arising out of the same transaction — the execution of the termination agreement.”10 In so holding the Court rejected plaintiff’s contention that she could be made whole “solely by a monetary judgment”: “Inasmuch as plaintiff seeks recission of that termination agreement and a declaration that she is the rightful owner of the subject property, contrary to her contention, her relief cannot be obtained solely by a monetary judgment.”11 The Court further rejected plaintiff’s contention that her claims for recission of the termination agreement and a declaration that she was the rightful owner of the subject property were incidental to her claims for monetary damages. 12 “Indeed,” said the Court, “plaintiff acknowledged in two of her causes of action that she did not have an adequate remedy at law.” 13 Takeaway Litigants should be mindful of the possibility of a waiver. Pelletier highlights the ease with which a party can waive a jury trial. This is especially true when, as in Pelletier, the pleading party asserts legal and equitable claims, such as rescission, arising from a single transaction. Footnotes Hudson View Assocs. v. Gooden , 222 A.D.2d 163, 165 (1st Dept. 1996). Id. Id. (citations omitted). Errant Gene Therapeutics, LLC v. Sloan-Kettering Inst. for Cancer Research , 176 A.D.3d 459, 459 (1st Dept. 2019), lv. dismissed , 35 N.Y.3d 1060 (2020); Matter of Briere v. City of Schenectady , 201 A.D.3d 1189, 1190 (3d Dept. 2022); Margesson v. Bank of N.Y. , 291 A.D.2d 694, 698 (3d Dept. 2002). Hebranko v. Bioline Labs., Inc. , 149 A.D.2d 567, 568 (2d Dept. 1989) (citations omitted). Aroch v. 391 Broadway LLC , 203 A.D.3d 642, 642 (1st Dept. 2022) (quoting, Phoenix Garden Rest. v. Chu , 234 A.D.2d 233, 234 (1st Dept. 1996)). Id. (citing, Murphy v. American Home Prods. Corp. , 136 A.D.2d 229, 232 (2d Dept. 1989)). See Anesthesia Assoc. of Mount Kisco, LLP v. Northern Westchester Hosp. Ctr. , 59 A.D.3d 481, 482 (2d Dept. 2009). See 215 A.D.3d 1153 (3d Dept. 2023). Slip Op. at *1. Id. (citations and footnote omitted). Id. at *2 (citations omitted). Id. (citations omitted). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger This Blog has recently written on the issue of contractual limitations of liability.  < Here =">Here"> Proving that timing is everything, Jonathan H. Freiberger, one of Freiberger Haber LLP’s founding members, was interviewed for, and quoted in, an August 1, 2023, article appearing in Hotel News Now, titled: “Is Extreme Tourism Responsible Tourism? Hotels Catering to Adventurous Guests Seek to Limit Liability Exposure.”  Hotel News Now is a vital, daily source of news for hotel decision makers. Hotel News Now is a division of CoStar News and always free to read. Click here to subscribe to HNN’s Daily Update and biweekly EMEA (Europe, Middle East and Africa) e-newsletters. (Link: https://www.costar.com/subscribe-hotel-news-now-newsletters ) The article, which was originally published at Hotel News Now, is reprinted in its entirety with permission from Hotel News Now.   The article was written by Leora Halpern Lanz. Is Extreme Tourism Responsible Tourism? Hotels Catering to Adventurous Guests Seek To Limit Liability Exposure There has been much talk recently about “extreme tourism” — particularly in light of the catastrophic implosion of the OceanGate's Titan vessel, bringing four passengers and the company’s CEO to their tragic, and likely avoidable, deaths. “Extreme tourism,” sometimes called “shock tourism,” can be defined as a form of travel that involves a sense of danger — such as adventure in jungles, deserts, caves, canyons or in today’s times: space and the bottom of the ocean floor. In the case of the Titan submersible, this particularly expensive and very extreme adventure is one that had an element of “look what I can do that others can’t do.” But it also may have had an element of altruism for the passengers aboard — the ability to explore and learn from the newly developed ecosystems at the wreckage site of the Titanic. Was this specific experience intended as an educational eco-tourism opportunity, or did it naturally also attract a status of significance because the passengers were able to afford this? It’s been shared that the high prices of these adventures also help with funding future explorations. By the way, I would not classify all eco-tourism as “extreme tourism.” These terms are not, and should not be, interchangeable. Are these extreme experiences truly eco-educational in nature, though only a select few can afford them? Will the tragedy of the Titan stop other individuals from pursuing extreme thrills or experiences? And will this disaster encourage regulation and policies to better prioritize safety and protect human lives? As USA Today pointed out in a post-event article, OceanGate CEO Stockton Rush had been quoted saying “safety was a pure waste.” His public downplaying of safety, coupled with the exorbitant fees, didn’t stop these individuals from participating in the excursion, one in which the waiver mentions “death” three times on its first page — as reported in MSN.com among other news outlets. Will this June 18 tragedy conclude the existence of OceanGate? It has . To have survived, the company would have needed to prove it values life and would have needed to greatly boost safety measures. It may even have had to change its name.  In the meantime, other high-risk adventures continue. Victor Viscovo, who founded Caladan Oceanic , and was quoted in the Dallas Morning News as not being deterred by the Titan tragedy, charges willing passengers $750,000 to submerge to the Mariana Trench, almost seven miles to the bottom of the Pacific. Space Perspective aims to bring people, by the end of next year, on a ride with a futuristic hot air balloon, up 100,000 feet in the air, for a mere $125,000. As technology improves, and the public awareness of so many of these once-in-a-lifetime experiences continues, and as personal wealth grows, the demand for extreme adventure will only continue. It may pause now in light of the Titan incident, but I imagine this pause will be short as individuals continue to find meaningful, once-in-a-lifetime, activities for their once-in-a-lifetime memories. Hotels Also Provide These Extreme Experiences One of the more renowned extreme hotels is the Icehotel in Sweden. Every winter, since 1989, this hotel situated 200 kilometers north of the Arctic Circle is rebuilt from ice and snow. Artists and sculptors from all over the world assemble to rebuild the hotel annually. Guests sleep on ice beds topped with reindeer skins and the hotel recommends guests only stay one night. Guests enjoying the Skylodge Adventure Suites in Peru can only bring what they can carry 400 meters up a mountain. To arrive in the transparent pods, which have 300-degree views of Sacred Valley, guests must hike and zipline or mountain climb to reach the guestrooms which hang off the side of the visibly perilous mountainside. And the underwater guestroom of the Manta Resort in Zanibar, Tanzania, is anchored among the coral with a submerged bedroom, sea-level living area and elevated stargazing deck. Meals are delivered to the isolated floating hotel room at set times; guests simply enjoy the solitude — for approximately $2,000 per night. Hotels and other operators frequently seek to minimize their exposure to liability by having adventurers acknowledge the risks of participating in extreme experiences by signing waivers. Risk management typically revolves around liability waivers and insurance. The efficacy of a waiver and the availability of insurance may be subject to their “duty of care.” Hotels and operators should be mindful of their obligations to adventurers in order to obtain the maximum benefits of their waivers and/or insurance. “In the event of an injury during extreme activities, hotels and operators should assume that litigation will follow, despite the existence of signed waivers and, accordingly, they should strive to put themselves in the best position to successfully defend against such claims,” said Jonathan Freiberger , founding partner of Freiberger and Haber, LLP, a New York-based law firm that has worked with hotels in New York and Florida. “In many cases, this can be done by utilizing waivers that are drafted to maximize the protections available to the hotel or operator.” “Insurance policies should also be reviewed carefully because general liability policies frequently exclude coverage for grossly negligent, reckless and/or intentional behavior,” he said. Hotels and operators should discuss the intended activities with their brokers and/or the carriers themselves to determine if the intended adventures would be covered and/or what, if any, safety protocols need to be followed to avoid denials of coverage in the event of an accident. Leora Halpern Lanz, ISHC is the assistant dean of academics at Boston University’s School of Hospitality Administration, associate professor of the Practice, and a member of ISHC. The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or CoStar Group and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to contact an editor with any questions or concerns. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber Defamation is broadly defined as any false statement that harms the reputation of a person, business, or organization. It is a false statement “‘that tends to expose a person to public contempt, hatred, ridicule, aversion or disgrace.’” 1 Defamation includes both libel and slander. Libel generally refers to defamatory statements that are published or broadcast in writing, while slander refers to statements that are verbally made. To state a cause of action for defamation, a plaintiff must allege “a false statement, published without privilege or authorization to a third party, constituting fault as judged by, at a minimum, a negligence standard, and it must either cause special harm or constitute defamation per se.” 2 “Since falsity is a necessary element of a defamation cause of action and only ‘facts’ are capable of being proven false, … only statements alleging facts can properly be the subject of a defamation action.” 3 “A defamatory statement of fact is in contrast to ‘pure opinion’ which … is not actionable because ‘ xpressions of opinion, as opposed to assertions of fact, are deemed privileged and, no matter how offensive, cannot be the subject of an action for defamation.’” 4 “While a pure opinion cannot be the subject of a defamation claim, an opinion that implies that it is based upon facts which justify the opinion but are unknown to those reading or hearing it, … is a mixed opinion and is actionable.” 5 “This requirement that the facts upon which the opinion is based are known ‘ensure that the reader has the opportunity to assess the basis upon which the opinion was reached in order to draw own conclusions concerning its validity.’” 6 “What differentiates an actionable mixed opinion from a privileged, pure opinion is ‘the implication that the speaker knows certain facts, unknown to audience, which support opinion and are detrimental to the person’ being discussed.” 7 “Distinguishing between fact and opinion is a question of law for the courts, to be decided based on ‘what the average person hearing or reading the communication would take it to mean.’” 8 A false statement constitutes defamation per se where, as relevant in Miserendino v. Cai , 2023 N.Y. Slip Op. 04031 (4th Dept. July 28, 2023) ( here ), the statement “charge a person with committing a serious crime or … would tend to cause injury to a person’s profession or business.” 9 “A statement imputing incompetence or dishonesty to the plaintiff is defamatory per se if there is some reference, direct or indirect, in the words or in the circumstances attending their utterance, which<, as in miserendino ,> miserendino,> connects the charge of incompetence or dishonesty to the particular profession or trade engaged in by plaintiff.” 10 “Whether particular statement[ is] considered defamatory per se is a question of law.” 11 As noted above, the statement claimed to be defamatory cannot be privileged. There are two types of privilege relevant to a defamation claim: absolute and qualified.  “Absolute privilege … entirely immunizes an individual from liability in a defamation action [] regardless of the declarant’s motives.” 12 It is “generally reserved for communications made by ‘individuals participating in a public function, such as judicial, legislative, or executive proceedings.’” 13 “The absolute protection afforded such individuals is designed to ensure that their own personal interests—especially fear of a civil action, whether successful or otherwise—do not have an adverse impact upon the discharge of their public function.” 14 “On the other hand, a statement is subject to a qualified privilege when it ‘is fairly made by a person in the discharge of some public or private duty, legal or moral, or in the conduct of his own affairs, in a matter where his interest is concerned.’” 15 Circumstances in which a qualified privilege may apply include statements made in self-defense or to protect the safety of others, statements by an employer to a former employee’s prospective employer, communications made by an individual to a law enforcement officer, 16 communications made to persons who share a common interest in the subject matter, 17 and reports of official proceedings. “When subject to this form of conditional privilege, statements are protected if they were not made with ‘spite or ill will’ or ‘reckless disregard of whether false or not’ … , i.e. , malice.” 18 The plaintiff bears the burden of proving the speaker acted with malice. 19 “Whether allegedly defamatory statements are subject to an absolute or a qualified privilege depend on the occasion and the position or status of the speaker …, a complex assessment that must take into account the specific character of the proceeding in which the communication is made.” 20 “In judicial proceedings<,> the protected participants include the Judge, the jurors, the attorneys, the parties and the witnesses,” who are granted the protection of absolute privilege “for the benefit of the public, to promote the administration of justice, and only incidentally for the protection of the participants.” 21 “The immunity does not attach solely because the speaker is a Judge, attorney, party or a witness, but because the statements are … spoken in office.” 22 Thus, for example, “statements made by counsel and parties in the course of ‘judicial proceedings’ are privileged as long as such statements ‘are material and pertinent to the questions involved … irrespective of the motive’ with which they are made.” 23 The Court of Appeals has nonetheless “reiterated that s a matter of policy, the courts confine absolute privilege to a very few situations.” 24 here.=">here."> Against the foregoing principles, we examine Miserendino v. Cai . Background Plaintiffs, Joy E. Miserendino (“Miserendino”) and her law firm, commenced the action against defendants, John J. Cai (“Cai”) and his cardiology medical practice, seeking damages for alleged defamatory statements that Cai – who had been romantically involved with Miserendino and had also performed work for her law firm – made about Miserendino after their relationship ended.  During their relationship, Miserendino was counsel in a matter pending in the U.S. District Court for the Western District of New York, titled Blake v. United States (“Blake”). Blake was purportedly a high-value lawsuit.  During the Blake litigation, opposing counsel inadvertently disclosed certain documents that were protected and should not have been turned over. Miserendino claimed that she notified opposing counsel of the issue and returned the documents without making use of the information contained in the documents. Since the parties were in a relationship, Miserendino told Cai about receiving and returning the documents from opposing counsel in the Blake action. As the relationship began to sour, Cai claimed that Miserendino owed him a substantial sum of money. To induce Miserendino to repay the money, Cai allegedly threatened to undermine Miserendino’s career and livelihood by defaming her reputation and position in her career, in particular in the Blake action .  In that regard, Cai allegedly put the Blake verdict “on the line” by sending the judge overseeing the case a letter accusing Miserendino of acting illegally and unethically by intentionally using documents that “belong to the defense attorney and U.S. government.” In his letter, Cai stated that Miserendino had “possession” of these documents, stating that the original documents were held in his possession. Cai also stated that Miserendino “used these documents during the trial and the submission of arguments.”  The Court in Blake did not “consider[]” the letter in issuing its decision. Separately, Cai allegedly made defamatory statements about Miserendino to her former law partner with whom Miserendino was in litigation concerning the distribution of fees earned by their prior, co-owned law firm. At a meeting Cai arranged during the pendency of that litigation, Cai allegedly advised the former law partner that Miserendino had dissipated the fee recovered in a case that originated with the co-owned law practice, that Miserendino was hiding money and frequently used a money transfer company to send money elsewhere. Cai stated that Miserendino was “manipulative and ethically ‘sketchy.’” Shortly after the meeting, the former law partner used Cai’s alleged oral statements as the basis for his request in the pending litigation against Miserendino for the appointment of a temporary receiver and for injunctive relief.  Defendants moved for summary judgment. The motion court granted the motion. On appeal, the Fourth Department unanimously reversed. The Fourth Department’s Decision With regard to the statements Cai allegedly made to Miserendino’s former law partner, the Court held that the motion court erred in determining that the statements “constituted pure opinion and were thus not actionable as a matter of law.” 25 The Court found that the statements contained mixed statements of fact and opinion and, therefore, were actionable: We conclude on this record that, “ lthough comments were mixed statements of opinion and fact, the could reasonably infer, in light of working relationship with , that such statements were ‘based upon certain facts known to that are undisclosed to the and are detrimental to .’”< 26 > 26>  With regard to the letter that Cai wrote to the judge in the Blake action, the Court held that the statements in the letter were actionable: Upon “look to the over-all context in which the assertions were made” and “consider the content of the as a whole, as well as its tone and apparent purpose,” which was serious and seemingly designed to alert the federal judge to purported wrongdoing, we conclude that “ ‘the reasonable reader would have believed that the challenged statements were conveying facts about … plaintiff ’ ” …, namely, that plaintiffs actually retained possession of documents containing confidential information that had been inadvertently disclosed by opposing counsel in the federal case and that plaintiffs had used such documents to their advantage during the course of litigating the federal case.< 27 > 27>   Having determined that the statements made to the former law partner and the judge in the Blake action were actionable, the Court concluded that Plaintiff stated a claim for defamation per se. 28 In this regard, the Court explained that the statements were “‘actionable as words that tend to injure another in his or her profession’ inasmuch as the statements ‘more than a general reflection upon character or qualities’ and, instead, ‘reflect on her performance or incompatible with the proper conduct of her business ’ as an attorney operating law practices.” 29 The Court further held that the statements in the letter were not absolutely privileged and there were issues of fact as to whether the statements were protected by a qualified privilege. As to the absolute privilege, the Court found that the absolute privilege did not apply to Cai because he “was not a party, a witness, or an attorney in the federal case.” 30 “ lthough may have performed some work on plaintiffs’ behalf during the course of the federal case,” said the Court, “his professional and personal relationship with Miserendino had ended months before his submission of the letter to the federal judge.” 31 Thus, Cai “had no ‘office’ in the judicial proceedings and therefore … was not entitled to the immunity received by those who did,” concluded the Court. 32 As to the qualified privilege, the Court found that there were issues of fact as to whether Cai’s statements were motivated by malice:  e conclude that plaintiffs’ submissions—including Miserendino’s sworn statement that she had informed Cai prior to his submission of the letter that she had returned any confidential information inadvertently disclosed by opposing counsel in the federal case and text messages in which Cai arguably threatened Miserendino’s career and livelihood by alluding to his ability to jeopardize a potential verdict in the federal case if she did not agree to repay debts he believed she owed—“raised an issue of fact whether statements were motivated solely by malice and thus are not protected by a qualified privilege.”< 33 > 33> Footnotes Davis v. Boeheim , 24 N.Y.3d 262, 268 (2014) (quoting, Thomas H. v. Paul B. , 18 N.Y.3d 580, 584 (2012)). D’Amico v. Correctional Med. Care, Inc. , 120 A.D.3d 956, 962 (4th Dept. 2014). Gross v. New York Times Co. , 82 N.Y.2d 146, 152-153 (1993); see also Davis , 24 N.Y.3d at 268. Davis , 24 N.Y.3d at 269 (quoting, Mann v. Abel , 10 N.Y.3d 271, 276 (2008), cert. denied , 555 U.S. 1170 (2009)). Id. (internal quotation marks omitted). Id. Id. Id. (quoting, Steinhilber v. Alphonse , 68 N.Y.2d 283, 290 (1986)). Geraci v. Probst , 15 N.Y.3d 336, 344 (2010); Liberman v. Gelstein , 80 N.Y.2d 429, 435 (1992). Van Lengen v. Parr , 136 A.D.2d 964, 964 (4th Dept. 1988). Geraci , 15 N.Y.3d at 344. Stega v. New York Downtown Hosp. , 31 N.Y.3d 661, 669 (2018). Id. (quoting, Toker v. Pollak , 44 N.Y.2d 211, 219 (1978)). Stega , 31 N.Y.3d at 669; Rosenberg v. MetLife, Inc. , 8 N.Y.3d 359, 365 (2007); Toker , 44 N.Y.2d at 219. Stega , 31 N.Y.3d at 669-670 (quoting, Toker , 44 N.Y.2d at 219). Toker , 44 N.Y.2d at 219-220. Liberman , 80 N.Y.2d at 437. Id. at 670 (quoting, Liberman , 80 N.Y.2d at 437-438). Id. Id. Park Knoll Assoc. v. Schmidt , 59 N.Y.2d 205, 209 (1983). Id. at 210. Wiener v. Weintraub , 22 N.Y.2d 330, 331 (1968) (quoting, Marsh v. Ellsworth , 50 N.Y. 309, 311 (1872)); see also Stega , 31 N.Y.3d at 669. Stega , 31 N.Y.3d at 670. Slip Op. at *2. Id. (quoting, Zulawski v. Taylor , 63 A.D.3d 1552, 1553 (4th Dept. 2009)). Id. (quoting, ( Brian v. Richardson , 87 N.Y.2d 46, 51 (1995)). Id. Id. (quoting, Golub v. Enquirer/Star Grp., Inc. , 89 N.Y.2d 1074, 1076 (1997) and citing Liberman , 80 N.Y.2d at 436). Id. Id. Id. at *3-*4 (citing, Park Knoll Assoc. , 59 N.Y.2d at 210; Silverman v Clark, 35 A.D.3d 1, 12 (1st Dept. 2006); Garson v. Hendlin , 141 A.D.2d 55, 59 (2d Dept. 1988), lv. denied , 74 N.Y.2d 603 (1989)). Id. at *4 (citations omitted). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP commercial litigation attorneys . This article is for informational purposes and is not intended to be and should not be taken as legal advice.