By: Jeffrey M. Haber The law can be funny. Not in a comedic way, but in a way that defies expectations about what is needed to bring a cause of action. Sometimes this is manifested in the quantum of evidence needed to bring an action and survive a pre-answer motion to dismiss. Other times, it is manifested in the capacity or standing of the plaintiff to commence the action. In Greco v. Syracuse ASC, LLC , 2023 N.Y. Slip Op. 03987 (4th Dept., July 28, 2023) ( here ), the Appellate Division, Fourth Department addressed the latter scenario in the context of a computer hack; in particular, in connection with the unauthorized access to certain personal information belonging to plaintiff and others, which was stored on defendant’s computer system. The Rules Concerning Standing Standing is a threshold determination, resting in part on policy considerations, that a person should be allowed access to the courts to adjudicate the merits of a particular dispute. 1 Without standing, a person cannot bring a lawsuit. Whether a person seeking relief is a proper party to request an adjudication is an aspect of justiciability which, when challenged, must be considered at the beginning of litigation.  In order to have standing to sue, a plaintiff must allege the existence of an injury-in-fact that ensures that s/he has some concrete interest prosecuting the action. 2 The injury-in-fact requirement necessitates a showing that the party has “an actual legal stake in the matter being adjudicated” 3 and that the party has suffered a cognizable harm that is not “‘tenuous,’ ‘ephemeral,’ or ‘conjectural,’” but is, instead, “sufficiently concrete and particularized to warrant judicial intervention.” 4 Notably, an alleged injury will not confer standing if it is based on speculation about what might occur in the future or what future harm might be incurred. 5 Background Plaintiff, a former patient of defendant, Syracuse ASC d/b/a Special Surgery Center of CNY (“SSC”), alleged that SSC failed to safeguard and protect her confidential information as well as that of class members, including private health information protected under HIPAA and sensitive personal information. Plaintiff alleged that a data breach occurred on March 31, 2021, whereby cybercriminals were able to gain access to approximately 24,891 class members’ sensitive information. Defendant moved to dismiss, claiming, among other things, plaintiff lacked standing to bring the action. Defendant argued that plaintiff failed to offer any facts to support the claim that the potential for misuse of information sufficed to confer standing. Defendant contended that general allegations that individuals whose confidential information had been exposed during a data breach were more likely to experience future identity theft were conclusory and speculative.  The motion court denied the motion. The motion court held that the risk of harm from the cyberattack satisfied the injury-in-fact requirement. The motion court explained that the risk of imminent future harm arising from the theft of plaintiff’s personal and sensitive information by cybercriminals was sufficiently concrete to confer standing on her. 6 Indeed, noted the motion court, “ ourts have found that victims of targeted data breaches have standing based on an imminent risk of threat to seek redress from a defendant<’s> negligence, notably including where the stolen data has not yet been used.” 7 Defendant appealed. The Fourth Department “unanimously reversed.” 8 The Fourth Department’s Decision The Court held, after considering “all relevant circumstances,” that plaintiff failed to allege “an injury-in-fact and thus lack standing.” 9 “ mportantly,” explained the Court, “plaintiff ha not alleged that any of the information purportedly accessed by the unknown third party ha actually been misused.” 10 Similarly, the Court noted that “Plaintiff ha not alleged that her own information ha been misused or that the data of any similarly situated person ha been misused in the over one-year period between the alleged data breach and the issuance of the trial court’s decision.” 11 The absence of such allegations, held the Court, was fatal to the survival of the pleading. Further, the Court noted that, according to the complaint, only health information was accessed by a third-party. 12 The complaint did not, said the Court, “allege that a third party accessed data more readily used for financial crimes such as dates of birth, credit card numbers, or social security numbers.” 13 In sum, the Court found that plaintiff merely expressed “a general concern that certain of health information may have been illegally accessed by a third party”; she did not “allege any direct harm flowing from the breach of defendant’s electronic system.” 14 As a result, the Court concluded that “plaintiff failed to allege an injury-in-fact inasmuch as the potential for future misuse of her data and possible economic harm too ‘conjectural, tenuous hypothesized’ to constitute an interest that sufficiently concrete to confer standing.” 15 Finally, the Court rejected plaintiff’s argument that she “established an injury-in-fact by virtue of the cost of identity protection and other mitigation efforts.” 16 In doing so, the Court “conclude that such mitigation efforts cannot confer standing absent a sufficiently concrete injury-in-fact legitimizing or warranting such efforts.” 17 A plaintiff “‘cannot manufacture standing merely by inflicting harm on themselves based on their fears of hypothetical future harm that is not certainly impending,’” said the Court. 18 Takeaway Greco is an important decision because it represents the first decision of an appellate court in the state system to address standing “in a case brought by an individual whose information was involved in a larger electronic data breach or whose personal data was otherwise involved in the unauthorized access of electronic files stored on a computer system.” 19 In deciding the issue of standing, the Court took great pains to recognize the tension between modern harms and traditional notions of standing, concluding that the law can adapt to the new issues that impact our modern lives:  Although the rise of unauthorized access to secure electronic systems, resulting in third parties obtaining the information stored thereon, is a relatively modern issue, the injury-in-fact requirement recognized in other contexts applies equally here. Thus, the novel issue presented is simply what circumstances, specific to this context, create an injury that is “sufficiently concrete” and non-speculative to constitute an injury-in-fact. 20 The Court’s observation about adaptation makes sense. In a modern society, social, political and economic circumstances change. The risks and harms that people face in their daily lives are many. One risk –identity theft – affects far too many people. Readers of this Blog would be hard-pressed to read a newspaper or magazine and not find an article discussing a data breach or some other cyberattack. Greco shows that the risk of harm resulting from a cyberattack on a third-party that controls one’s personal and sensitive information is not, by itself, sufficient to confer standing to sue the third-party for relief. “ llegations of possible future injury” or even an “objectively reasonable likelihood” of future injury are insufficient to confer standing. 21 The injury must be concrete and particularized to warrant judicial intervention. 22 Greco makes this point clear.  Footnotes Society of Plastics Indus. v. County of Suffolk , 77 N.Y.2d 761 (1991). Matter of Association for a Better Long Is., Inc. v. New York State Dept. of Envtl. Conservation , 23 N.Y.3d 1, 6 (2014); see also Matter of Sheive v. Holley Volunteer Fire Co., Inc. , 170 A.D.3d 1589, 1590 (4th Dept. 2019). This is true for a class representative. See Raske v. Next Mgmt., LLC , 40 Misc. 2d 1240(A) (Sup. Ct., N.Y. County 2013). Society of Plastics Indus. , 77 N.Y.2d at 772; see also Matter of Mental Hygiene Legal Serv. v Daniels , 33 N.Y.3d 44, 50 (2019). Mental Hygiene , 33 N.Y.3d at 50; see also New York State Assn. of Nurse Anesthetists v. Novello , 2 N.Y.3d 207, 211, 214 (2004); Matter of Festa v. Town of Oyster Bay , 210 A.D.3d 678, 679-680 (2d Dept. 2022). Frankel v. J.P. Morgan Chase & Co. , 193 A.D.3d 689, 690 (2d Dept. 2021); Matter of Niagara County v. Power Auth. of State of N.Y. , 82 A.D.3d 1597, 1599 (4th Dept. 2011), lv. dismissed in part & denied in part , 17 N.Y.3d 838 (2011); Matter of Brewster v. Wright , 45 A.D.3d 1369, 1370 (4th Dept. 2007). Citing Galaria v. Nationwide Mutual Ins. Co. , 663 F. Appx. 384 (6th Cir. 2016); Lewert v. PF Chang’s China Bistro , 819 F.3d 963 (7th Cir. 2016). Citing, Galaria , supra . Slip Op. at *1. Id. Id. Id. Id. Id. Id. Id. (citing, Niagara County , 82 A.D.3d at 1599; and Mental Hygiene , 33 N.Y.3d at 50). Id. Id. Id. (quoting, Matter of Practicefirst Data Breach Litig. , 2022 WL 354544 at *4 (W.D.N.Y. 2022)). Id. Id. (citing, Mental Hygiene , 33 N.Y.3d at 50). Clapper v. Amnesty Int’l USA , 568 U.S. 398, 409-10 (2013) (internal quotation marks, alterations, and emphasis omitted). Mental Hygiene , 33 N.Y.3d at 50. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger As discussed in a prior blog article < here =">here"> , a notice of pendency (or lis pendens) is a provisional remedy governed by Article 65 of the CPLR.  The Court of Appeals, in 5303 Realty Corp. v. O & Y Equity Corp. , 64 N.Y.2d 313 (1984), one of the leading cases on the subject, described the a notice of pendency as a: potent shield to protect litigants claiming an interest in real property. The powerful impact that this device has on the alienability of property, when conjoined with the facility with which it may be obtained, calls for its narrow application to only those lawsuits directly affecting title to, or the possession, use or enjoyment of, real property.  5303 Realty , 64 N.Y.2d at 315 – 16.  Indeed, the statute itself provides that a notice of pendency may only be filed where the “judgment demanded would affect the title to, or the possession, use or enjoyment of, real property.”  CPLR 6501. The notice of pendency acts as “constructive notice to all subsequent purchasers or incumbrancers” that an action is pending that may affect title to the property.  5303 Realty , 64 N.Y.2d at 318.  Thus, “ person whose conveyance or incumbrance is recorded after the filing of the notice is bound by all proceedings taken in the action after such filing to the same extent as a party.”  CPLR 6501; 5303 Realty , 64 N.Y.2d at 318. The Court of Appeals in 5303 Realty reversed the Appellate Division, First Department, and cancelled a notice of pendency because the provisional remedy was not appropriate in a “suit to specifically perform a contract for the sale of stock representing a beneficial ownership of real estate.”  5303 Realty , 64 N.Y.2d at 316.  Similarly, a “notice of pendency is improper where the party who has filed it claims no right, title or interest in or to the real estate against which it is filed, and where the suit concerns simply some encroachment or wrong perpetrated by defendants on plaintiff's land.”  Board of Managers of 334 East 54 th Street Condominium v. 336 East 54 Street Assoc. LLC , 198 A.D.3d 560, 561 (1 st Dep’t 2021) (citation and internal quotation marks omitted).  The same Court, in 801-803, LLC v. 805 Ninth Avenue Realty Group, LLC , 188 A.D.3d 478 (1 st Dep’t 2020), affirmed the vacatur of a notice of pendency where “plaintiff claims no interest in defendant's land but merely seeks to prevent defendants from committing a wrongful act against it” because plaintiff merely alleged that “defendants' construction of a six-story building on the property is causing damage to the party wall, the roof, and other parts of its building, and asserts causes of action for, inter alia, nuisance and encroachment.”  801-803, LLC , 188 A.D.3d at 478 (citations omitted).   It has been noted that the “statutory scheme permits a party to effectively retard the alienability of real property without any prior judicial review.”  5303 Realty , 64 N.Y.2d at 320.  Moreover, while CPLR 6514 provides for the cancellation of a notice of pendency in certain circumstances, the “court’s scope of review is circumscribed” and the “likelihood of success on the merits is irrelevant to determining the validity of the notice of pendency.”  5303 Realty , 64 N.Y.2d at 320 (citations omitted).   As to the duration of a notice of pendency, Article 65 provides that: A notice of pendency shall be effective for a period of three years from the date of filing. Before expiration of a period or extended period, the court, upon motion of the plaintiff and upon such notice as it may require, for good cause shown, may grant an extension for a like additional period. An extension order shall be filed, recorded and indexed before expiration of the prior period. CPLR 6513 .  Because the “ability to file a notice of pendency is a privilege that can be lost if abused” once lost, a successive notice of pendency may not be filed after the initial notice is cancelled.  In re Sakow , 97 N.Y.2d 436 , 441 - 42 (2002) (citations omitted).  Moreover, an application to extend a notice of pendency must be made “prior to the expiration of the prior notice” and an expired notice, without extension is a “nullity”.  Sakow , 97 N.Y.2d at 442 (citations omitted).  The “no second chance” rule applies whether the notice expires or is cancelled.  Id .  [Eds. Note: an exception to the “no second chance” rule is found in CPLR 6516 , which permits successive notices of pendency in mortgage foreclosure actions because RPAPL 1331 requires that a notice of pendency must be filed “at least twenty days before a final judgment directing a sale is rendered”.) These issues were addressed in Strong Island Contracting Corp. v. Padilla , a case decided on July 26, 2023, by the Appellate Division, Second Department.  Strong Island was a mechanic’s lien foreclosure action in which plaintiff filed a notice of pendency.  Shortly before the expiration of the three-year post filing period, plaintiff moved to extend the notice for an additional three-year period.  Prior thereto, however, defendant’s counsel moved to be relieved and, in accordance with said motion, the motion court stayed all proceedings until the motion was decided.  Plaintiff’s motion was granted and the notice of pendency was extended.  Subsequently, the motion court granted counsel’s motion to be relieved and it continued the stay.  “Thereafter, the defendant moved to cancel the notice of pendency pursuant to CPLR 6513 and 6514, in effect, to vacate the order …, and to direct the plaintiff to pay the costs, expenses, and legal fees for making the motion.”  The motion court granted defendant's motion. On plaintiff’s appeal, the Second Department reversed and, in so doing, stated: Pursuant to CPLR 6513, a notice of pendency is valid for three years from the date of filing and may be extended for additional three-year periods upon a showing of good cause. The extension, however, must be requested prior to the expiration of the prior notice. This is an exacting rule; a notice of pendency that has expired without extension is a nullity. A lapsed notice of pendency may not be revived. Here, the plaintiff timely requested and established good cause for extending the notice of pendency by demonstrating that the trial for the instant foreclosure action was delayed by the motion of the defendant's counsel to be relieved and the court closures due to the COVID-19 pandemic. Contrary to the defendant's contention, it was not improper to extend the notice of pendency while all proceedings in this action were stayed. (Citations and internal quotation marks omitted.) Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In Merchant Factors Corp. v. Crush Apparel & Accessories Inc. , 2023 N.Y. Slip Op. 50755(U) (Sup. Ct., N.Y. County July 21, 2023) ( here ), plaintiff, Merchant Factors Corp., a factoring and commercial financing services provider, brought suit against defendant Crush Apparel & Accessories Inc. (“Crush Apparel”), among others, 1 to recover for an allegedly fraudulent scheme to steal and divert millions of dollars in goods, services, and real property that defendants pledged as collateral, and against which plaintiff made cash advances.  Plaintiff asserted 20 causes of action in its amended complaint, including: (1) replevin; (2) conversion; (3) injunction; (4) accounting; (5) fraudulent misrepresentation; (6) aiding and abetting fraud; and (7) actual and constructive fraudulent conveyances. Defendants moved to dismiss the complaint, pursuant to CPLR § 3211(a)(7), for failure to state a cause of action. As discussed below, the motions were granted in part and denied in part. Below, we examine the motion court’s decision with regard to the replevin and conversion, fraudulent misrepresentation, and fraudulent conveyance causes of action. Background In August 2017, Merchant and Crush Apparel, an importer and distributor of clothing, entered into a factoring agreement, pursuant to which Crush Apparel sold and assigned all of its accounts receivable to Merchant in return for substantial cash advances. Pursuant to the factoring agreement, Crush Apparel gave Merchant a security interest in all of its assets (the “Collateral”). In addition, Crush Apparel expressly represented and warranted that each account receivable generated and assigned to Merchant: (1) “covered a bona fide sales and delivery of merchandise”; (2) “relate to merchandise or services which have been accepted by customers … without dispute”; (3) was “payable in accordance with the terms of related invoice”; and (4) was “absolutely enforceable against customers free and clear of any lien, encumbrance or dispute.” Merchant was also permitted under the factoring agreement to (and did) re-factor accounts receivable assigned by Crush Apparel with The CIT Group/Commercial Services, Inc. (“CIT”). As a result, customer payments on such accounts were required to be remitted directly to CIT. Merchant alleged that from December 2017 through September 2019, more than 2,000 checks totaling over $14.2 million were remitted to CIT drawn on a Crush Apparel bank account, purporting to reflect payments that Crush Apparel received directly from its customers. As an inducement to enter into the factoring agreement, Crush Apparel executed a written inventory supplement to the factoring agreement. Under the inventory agreement, Crush Apparel gave Merchant “a continuing security interest” in its inventory and “all contract rights with respect thereto.” Merchant perfected its security interest by filing a Uniform Commercial Code financing statement with the appropriate authorities. Merchant maintained that the remitted funds did not reflect legitimate, bona fide sales. In that regard, Merchant alleged that Crush Apparel fabricated nearly all of the sales to induce Merchant to advance funds to Crush Apparel. Merchant alleged that it advanced funds to Crush Apparel believing that the invoices were bona fide and collectible accounts receivable under the terms of the factoring agreement. Merchant further alleged that the Kraiem defendants transferred certain property relevant to the factoring agreement for less than fair consideration and in an effort to defraud their creditors, including Merchant. In this regard, the property in Brooklyn, N.Y. (the “Brooklyn Property”) was transferred for $1,500,000 and the property in New Jersey (the “New Jersey Property”) was transferred for $0.00.  The Motion Court’s Decision Replevin and Conversion Defendants sought dismissal of Merchant’s fifth and sixth causes of action for replevin and conversion, arguing that dismissal was appropriate because: (1) plaintiff failed to allege that the Kraiem defendants exercised unauthorized dominion over Merchant’s funds transferred from Crush Apparel’s bank accounts; (2) Merchant could not identify any specific, identifiable funds because those funds were comingled; and (3) Merchant did not demand the return of any specific funds. Merchant countered, arguing that it had a first priority security interest in the Collateral and that defendants were wrongfully retaining possession of the Collateral.  “Conversion is an unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner’s rights. Money, if specifically identifiable, may be the subject of a conversion action.” 2 “Two key elements of conversion are (1) plaintiff’s possessory right or interest in the property and (2) defendant’s dominion over the property or interference with it, in derogation of plaintiff’s rights.” 3 “To state a cause of action for replevin, a plaintiff must establish a superior possessory right to property in a defendant’s possession.” 4 The objective of replevin is the recovery of property. 5 Where a defendant has acquired property legally, the plaintiff must allege demand for return of the property and refusal by the defendant for both conversion and replevin. 6 The motion court denied the motion as to the replevin and conversion claims. 7 The motion court held that Merchant’s security interest sufficed to show entitlement to immediate possession of the Collateral in the event of a default of the factoring agreement. 8 The motion court found that Crush Apparel and the Kraiem defendants were wrongfully retaining possession of the Collateral, including, but not limited to, Crush Apparel’s inventory. 9 Finally, the motion court held that plaintiff adequately alleged a demand for the collateral, especially in light of the fact that it sought a temporary restraining order and preliminary injunction. 10 Fraudulent Misrepresentation Defendants sought dismissal of Merchant’s tenth cause of action for fraudulent misrepresentation, arguing that dismissal was appropriate because the claim duplicated Merchant’s breach of contract claims. In opposition, Merchant maintained that the fraud claim was pleaded in the alternative and that, even if not permitted to do so, it properly alleged a duty independent of the contract. 11 here,=">here," >here.=">here."> The motion court denied the motion dismiss the fraudulent misrepresentation claim. 12 The motion court held that Merchant’s fraud claim was not duplicative of its breach of contract claims. The motion court found that Merchant did more than “merely allege that defendants entered into agreement with an intention not to perform thereunder, but rather, allege that, after that agreement was entered into, defendants misrepresented or concealed existing facts.” 13 In that regard, said the motion court, plaintiff alleged that defendants “misrepresented or concealed that: (1) the accounts receivable assigned to Merchant were bona fide collectible receivables constituting legitimate sales and deliveries of goods to customers; (2) checks issued to CIT constituted legitimate customer payments; and (3) Crush Apparel was generating more than $7 million in sales.” 14 The motion court also held that plaintiff adequately alleged “that that it relied on invoices submitted by Crush Apparel, and advanced funds to Crush Apparel” in reliance thereon. 15 Fraudulent Conveyance Defendants also sought dismissal of Merchant’s fourteenth through sixteenth causes of action for violations of the Debtor and Creditor Law (“DCL”). 16 With respect to the fourteenth cause of action, alleging a fraudulent transfer of the New Jersey Property, defendants argued that: (1) 108 Crosby was not a proper defendant because it was not a debtor or potential debtor to Merchant; (2) Merchant failed to allege that defendants did not receive adequate consideration for the transfer of the property; (3) the transfer took place before Merchant sent any demand letters; and (4) the buyers of the property were necessary parties to the cause of action.  As for the fifteenth cause of action, alleging a fraudulent transfer of the Brooklyn Property, defendants argued that Merchant failed to allege intent to defraud.  DCL (former) § 276 provides that “ very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay or defraud either present or future creditors, is fraudulent as to both present and future creditors.” To state a cause of action under DCL (former) § 276, the plaintiff must comply with CPLR § 3016, and allege that the conveyance was made with “intent to hinder, delay or defraud present or future creditors.” 17 “Due to the difficulty of proving actual intent to hinder, delay, or defraud creditors, the pleader is allowed to rely on ‘badges of fraud’ to support his case, i.e. , circumstances so commonly associated with fraudulent transfers that their presence gives rise to an inference of intent.” 18 These include “a close relationship between the parties to the alleged fraudulent transaction, a questionable transfer not in the usual course of business, inadequacy of the consideration, the transferor’s knowledge of the creditor’s claim and the inability to pay it, and retention of control of the property by the transferor after the conveyance.” 19 The motion court held that 108 Crosby was a potential debtor to Merchant in that it executed a corporate guaranty, in which it: “guarantee the due and full performance by the Principal, in all respects of the Factoring Agreement.” 20 The motion court also held that Merchant sufficiently alleged badges of fraud sufficient to support the DCL (former) § 276 claims. 21 The motion court found that Merchant alleged that Joan and 108 Crosby transferred the New Jersey Property for $1,500,000, at a time when their alleged fraudulent scheme was about to be exposed. That fact sufficed to satisfy the intent element of the claim, said the motion court, rendering the absence of adequate consideration of no moment. 22 The motion court also found that Merchant sufficiently alleged that Erica and Joan transferred the Brooklyn Property to 201 Oakhurst, an entity controlled by the Kraiem defendants, for no consideration. Given plaintiff’s allegations that Erica and Joan were aware of Merchant’s claim and Crush Apparel’s inability to pay it, the motion court held that Merchant satisfied the pleading requirements of the claim. 23 Notwithstanding, the motion court dismissed the fourteenth cause of action because plaintiff failed to include the buyers of the Brooklyn Property as necessary parties. 24 The motion court explained that Merchant could not recover a money judgment against Joan and 108 Crosby for the value of the property that was fraudulently conveyed. 25 The motion court explained that “ either Joan nor 108 Crosby were transferees, and the amended complaint only conclusory allegations that Joan and 108 Crosby benefitted from the fraudulent transfers.” 26 Regarding the sixteenth cause of action, asserting a fraudulent conveyance claim with respect to the Crush Apparel money transfers, the motion court denied the motion. The motion court rejected the argument that the claim was duplicative of the replevin and conversion claims because it sought damages and the delivery of the Collateral pursuant to the factoring agreement and inventory agreement. 27 The motion court held that the sixteenth cause of action also stated a cause of action under DCL (former) § 276, given the allegations that “(1) Victor, Erica, Raphael and/or Joan were authorized signatories on the entities’ bank accounts…; (2) approximately $1.9 million of Merchant’s monies were transferred and/or paid to Victor, Raphael, Erica, Joan, 201 Oakhurst or to pay down the mortgages on the Deal Property and Brooklyn Property…; and (3) defendants sought to hide the transfers by moving money through various accounts….” 28 The foregoing facts, said the motion court, sufficed as “badges of fraud” and, therefore, gave “rise to an inference of intent to defraud Merchant.” 29 With respect to the seventeenth through twentieth causes of action, under DCL (former) §§ 274 and 275, the motion court granted the motion.  To state a cause of action for constructive fraudulent conveyance, the plaintiff must allege lack of “fair consideration” and that one of the following three conditions is satisfied: “(i) the transferor is insolvent or will be rendered insolvent by the transfer in question, DCL § 273; (ii) the transferor is engaged in or is about to engage in a business transaction for which its remaining property constitutes unreasonably small capital, DCL § 274; or (iii) the transferor believes that it will incur debt beyond its ability to pay, DCL § 275.” 30 Fair consideration requires that “the exchange not only be for equivalent value, but also that the conveyance be made in good faith.” 31 Fair consideration exists “when in exchange for such property or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied” or “ hen such property, or obligation is received in good faith to secure a present advance or antecedent debt in an amount not disproportionately small as compared with the value of the property, or obligation obtained.” 32 The motion court found that Merchant only made conclusory allegations that Crush Apparel was insolvent or was rendered insolvent by the transfers, “Crush Apparel was engaged in a business or a transaction or was about to engage in a business or a transaction, for which any property remaining in its hands after the transfer constituted an unreasonably small capital,” and that “ he Crush Apparel Transfers were made for less than fair consideration and with the intent or belief that Crush Apparel would incur debts beyond its ability to pay as said debts matured.” 33 Takeaway There are a number of takeaways from the motion court’s decision. First, there is a distinction to be made between unidentified funds, such as cash, and collateral (comprised of inventory, for example) for which there is a security interest, for purposes of replevin and conversion. As discussed, defendants focused solely on the funds advanced by Merchant ( i.e. , the cash advances) rather than on the alleged unlawful retention of the Collateral upon which Merchant’s claims for replevin and conversion were premised. Moreover, a demand for the return of the property being unlawfully held and the refusal to comply with said demand can come in many different forms. As noted by the motion court, “refusal of a demand need not use the specific word ‘refuse’ so long as it clearly conveys an intent to interfere with the demander’s possession or use of his property.” 34 The allegations in the amended complaint and the proceedings for the TRO and preliminary injunction detailed Merchant’s demands made prior to filing the initial complaint to recover the Collateral – allegations that defendants did not contest. Second, Merchant Factors shows that a plaintiff can avoid dismissal of a fraud claim on duplication grounds when the alleged misstatement or omission is made after the contract is formed. As explained by the motion court, the misrepresentation does not concern performance of the contract, or a future intent to perform, but rather relates to existing facts after the contract was formed. In that situation, a duty independent of, or collateral to, the contract is established. We wrote about this distinction here . In Merchant Factors those misrepresentations concerned the legitimacy of the accounts receivable, customer payments, and Crush Apparel’s revenue.  Third, establishing a fraudulent conveyance under DCL (former) § 276 is, in many respects, no different than establishing fraud. Among other elements, the plaintiff must allege (and prove) intent to defraud. Intent can be shown through circumstantial evidence, or in the DCL context, through badges of fraud. In Merchant Factors , the motion court found that plaintiff sufficiently alleged badges of fraud and/or facts raising an inference of an intent to deceive. Footnotes The other named defendants are: 108 Crosby LLC (“108 Crosby”), Erica Kraiem (“Erica”), Victor Kraiem (“Victor”), 201 Oakhurst Inc. (“201 Oakhurst”), I.L.C.K. Inc. (“ILCK”), Jiangsu Taiwan Enterprise Inc. (“Jiangsu”), and Kids Apparel Club, Inc. (“Kids Apparel”). Peters Griffin Woodward, Inc. v. WCSC, Inc ., 88 A.D.2d 883, 883 (1st Dept. 1982) (citation omitted). Colavito v. New York Organ Donor Network, Inc. , 8 N.Y.3d 43, 50 (2006) (citations omitted). Reif v. Nagy , 175 A.D.3d 107, 120 (1st Dept 2019), lv. dismissed , 35 N.Y.3d 986 (2020). Genger v. Genger , 2016 N.Y. Slip Op. 30602(U), *7 (Sup. Ct., N.Y. County 2016), aff’d , 147 A.D.3d 443 (1st Dept. 2017). Chen v. New Trend Apparel, Inc. , 8 F. Supp. 3d 406, 456 (S.D.N.Y. 2014). Slip Op. at *4. Id. Id. Id. Notably, defendants did not contest that Merchant sufficiently alleged a refusal of its demand. Id. (citing, Swain v. Brown , 135 A.D.3d 629, 631 (1st Dept. 2016). Slip Op. at *6. Id. Id. (citing, Comtronics, Inc. v. Pico Prods., Inc. , 256 A.D.2d 1202, 1203 (4th Dept. 1998), lv. denied , 1999 N.Y. App. Div. LEXIS 3112 (4th Dept. 1999) (fraud claim not duplicative of breach of contract claim where plaintiff alleged fraud after formation of contract); Minnie Rose LLC v. Yu , 169 F. Supp. 3d 504, 520 (S.D.N.Y. 2016) (“Misrepresentations of present facts made post-contract formation are collateral or extraneous to the contract and are actionable in fraud.”)). Id. at *6-*7. Id. at *7. The former DCL was replaced on April 4, 2020, by the New York Uniform Voidable Transactions Act (“NYUVTA”). Under New York’s version of the UVTA, which Governor Cuomo signed into law on December 6, 2019, the State joined the vast majority of jurisdictions to have adopted the UVTA in whole or in part. Thus, as to transfers made and obligations incurred after the effective date ( i.e. , April 4, 2020), New York law will be more aligned with the fraudulent transfer laws of most states in the country, as well as with the federal Bankruptcy Code. We previously examined the NYUVTA, the former DCL and the changes the NYUVTA made to the former DCL ( here ). RTN Networks, LLC v. Telco Grp., Inc. , 126 A.D.3d 477, 478 (1st Dept. 2015). Wall St. Assoc. v. Brodsky , 257 A.D.2d 526, 529 (1st Dept. 1999) (internal quotation marks and citation omitted). Id. Slip Op. at *8. Id. (citations omitted). Id. (citing, In re Sharp Intl. Corp. , 403 F.3d 43, 56 (2d Cir. 2005) (quoting, United States v. McCombs , 30 F.3d 310, 328 (2d Cir .1994)). Id. Id. Id. (citing, Federal Deposit Ins. Corp. v. Porco , 75 N.Y.2d 840, 842 (1990)). Id. (citations omitted). Id. at *8-*9. Id. at *9. Id. (citing, Pen Pak Corp. v. LaSalle Natl. Bank of Chicago , 240 A.D.2d 384, 386 (2d Dept. 1997)). Sharp Intl. , 403 F.3d at 53. Ede v. Ede , 193 A.D.2d 940, 941-942 (3d Dept. 1993). DCL (former) § 272. Id. Swain , 135 A.D.3d at 631.  Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In the merger and acquisition world it is common to form a special purpose acquisition company (“SPAC”). A SPAC is a company with no underlying business operations that is formed to raise capital through an initial public offering (“IPO”) for the purpose of using the proceeds to acquire an unidentified private operating company at a later date but within a specified period of time (typically two years). A SPAC is also known as a blank check company (i.e., a publicly traded, developmental stage company that has no established business plan). SPACs have existed for decades. Recently, however, their popularity has been on the rise. “In 2020, 247 SPACs were created with $80 billion invested, and in 2021, there were a record 613 SPAC IPOs. By comparison, only 59 SPACs came to market in 2019.”1 Following its IPO, a SPAC will seek to identify acquisition candidates and attempt to complete a business combination transaction after which the company will continue the operations of the acquired company as a public company. Investors in a SPAC at the IPO stage are, therefore, relying on the management team that formed the SPAC to expend efforts after the IPO to identify and look to acquire or combine with a private operating company. Given that the purpose of a SPAC is to identify and acquire an operating business after conducting its IPO, steps a SPAC has taken in furtherance of a particular acquisition is material to a reasonable investor, who would want to know about the SPAC’s prospects with future acquisition targets. Disclosures made in a SPAC’s IPO – including as it relates to any pre-IPO discussions or negotiations with future acquisition targets or concerning potential business combinations – need to be accurate and cannot be materially false or misleading. In addition, the economic interests of the sponsors and the directors, officers, and affiliates of a SPAC often differ from the economic interests of public shareholders, which may lead to conflicts of interests as they evaluate and decide whether to recommend business combination transactions to shareholders. Clear and accurate disclosure regarding these potential conflicts of interest and the nature of the sponsors’, directors’, officers’ and affiliates’ economic interests in the SPAC is particularly important because these parties are generally responsible for negotiating the SPAC’s post-IPO business combination transaction. The SPAC sponsor2 typically is compensated through its ability to buy the SPAC’s securities at a discount at or around the time of the SPAC’s formation. Sponsors also frequently buy additional securities (usually units or warrants) at the time of the IPO. Unlike securities bought by investors in a SPAC IPO, the securities purchased by a sponsor are not redeemable for cash in the event the SPAC fails to complete a business transaction, and the sponsor’s securities usually have restrictions that prevent resale until after completion of a SPAC’s business combination. here).=">here)." For="For" discussion="discussion" pros="pros" cons="cons" SPAC,="SPAC," see="see" Young,="Young," Julie,="Julie," “Special="“Special" Purpose="Purpose" Company="Company" (SPAC)="(SPAC)" Explained:="Explained:" Examples="Examples" Risks,”="Risks,”" Investopedia.com="Investopedia.com" (Mar.="(Mar." 15,="15," 2023)="2023)"> In the Matter ofDigital World Acquisition Corporation On July 20, 2023, the Securities and Exchange Commission (“SEC”) announced (here) that it settled fraud charges against Digital World Acquisition Corporation (“DWAC”), a special purpose acquisition company, for making material misrepresentations in forms filed with the SEC as part of DWAC’s IPO and proposed merger with Trump Media & Technology Group Corp. (“TMTG”). According to the Order Instituting Cease-and-Desist Proceedings against Digital World Acquisition Corporation (here) (the “Order”), the SEC found that DWAC misled investors and the SEC by failing to disclose that it had formulated a plan to acquire and was pursuing the acquisition of TMTG prior to DWAC’s IPO. As set forth in the Order, DWAC filed an amended Form S-1 in support of its IPO in early September 2021. The Form S-1 stated that neither DWAC nor its officers and directors had any discussions with any potential target companies prior to the IPO. But, as the SEC found, as early as February 2021, an individual who would later become DWAC’s CEO and Board Chairman, and others involved with DWAC, had extensive SPAC merger discussions with TMTG. The SEC found that, while DWAC’s CEO and Chairman initially pursued these discussions with TMTG on behalf of another SPAC, he created a plan in the spring and summer of 2021 to potentially use DWAC to pursue a merger with TMTG and used this plan to solicit certain pre-IPO investors. The SEC also found that DWAC failed to disclose that the CEO had a potential conflict of interest based on an agreement he had signed with TMTG. As a result, said the SEC, DWAC’s amended Form S-1 was materially false and misleading. The SEC’s order further found that, in a later Form S-4 filed with the SEC following the announcement of the proposed merger with TMTG, DWAC mischaracterized and omitted information about the history of its interactions with TMTG. Commenting on the settlement, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated: “DWAC failed to disclose its discussions with TMTG and failed to disclose a material conflict of interest of its CEO and Chairman. In the context of a SPAC – a ‘blank-check’ entity without business operations – these disclosure failures are particularly problematic because investors focus on factors such as the SPAC’s management team and potential merger targets when making financial decisions.” In the Order, the SEC found that DWAC violated the antifraud provisions of the federal securities laws. DWAC agreed to a cease-and-desist order and to pay an $18 million penalty in the event it closes a merger transaction. It also agreed to undertake that, should DWAC file an amended Form S-4, any such Form S-4 will be materially complete and accurate and consistent with the findings in the SEC’s order. In June 2023, federal prosecutors in the U.S. Attorney’s office for the Southern District of New York filed charges against three investors for insider trading related to DWAC’s deal with TMTG. According to the indictment, the investors allegedly made more than $22 million by illegally trading on knowledge that DWAC would purchase TMTG — before it was public knowledge (here). The SEC also filed civil insider trading charges against the three investors (here).3 Also commenting on the settlement, Eric Swider, the Chief Executive Officer of DWAC, stated: “Through steadfast dedication to our shareholders, we tirelessly worked to reach a settlement with the SEC regarding charges against DWAC. This is an important milestone for us, as it clears the path for the SEC to review our expected upcoming filing of the Registration Statement related to our proposed merger with TMTG. Subject to further SEC review of our future filings related to the merger, we are eager to move forward the consummation of the business combination with TMTG and we look forward to TMTG's cooperation in this regard.” Footnotes See Young, Julie, “Special Purpose Acquisition Company (SPAC) Explained: Examples and Risks,” Investopedia.com (Mar. 15, 2023) (here) (citing, Harvard Business Review. “SPACS: What You Need to Know” (here), and Statista, “Number of Special Purpose Acquisition Company (SPACs) IPOs in the United States from 2003 to February 2022” (here). A SPAC sponsor is the entity and/or persons primarily responsible for establishing the SPAC, which is thereafter managed by a board of directors and management. A copy of the SEC’s complaint can be found here. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger In most situations, the contemplated goal of a mortgage foreclosure action is the sale of the subject property at public auction pursuant to a judgment of foreclosure and sale.  Once a sale occurs, however, can it be set aside?  “A court has the inherent power to ensure that a sale conducted pursuant to a judgment of foreclosure is not made an instrument of injustice in the exercise of its equitable powers, has the discretion to set aside a judicial sale where fraud, collusion, mistake, or misconduct casts suspicion on the fairness of the sale.”  Alkaifi v. Celestial Church of Christ Calvary Parish , 24 A.D.3d 476, 477 (2 nd Dep’t 2005) (citations and internal quotation marks omitted).  This is so even if the sale is made to a “good faith purchaser”.  Altshuler Shaham Provident Funds, Ltd. V. GML Tower LLC , 129 A.D.3d 1439, 1442 (4 th Dep’t 2015) (citations omitted).  As the Altshuler court noted, the discretion to set aside a sale “is separate and distinct from any statutory authority” and should be “exercised where … fairness of the sale” is called into question.  Altshuler , 129 A.D.3d at 1442 (citations and internal quotation marks omitted).  Further, sales may be set aside where the “price is so inadequate as to shock the court’s conscience”, but not where the price is “mere inadequate.  Polish National Alliance of Brooklyn, U.S.A. v. White Eagle Hall Co., Inc. , 98 A.D.2d 400, 407 (2 nd Dep’t 1983) (citations omitted). A foreclosure sale was set aside on July 19, 2023, by the Second Department in Golden Bridge, LLC v. Rutland Development Group, Inc. golden have been simplified significantly for the purpose of this discussion.> golden have been simplified significantly for the purpose of this discussion.>  Plaintiff commenced a foreclosure action against borrower with respect to a parcel of property comprising two lots (the “Property”).  The Property was ultimately sold to purchaser at public auction pursuant to a judgment of foreclosure and sale.  At the auction, purchaser paid the required down payment and had thirty days to close.  Between the time of the foreclosure sale and the time to close, a quiet title action was commenced against one of the two lots comprising the Property and against which, the plaintiff in the quiet title action filed a notice of pendency.  The complaint in the quiet title action was dismissed, but a notice of appeal was filed.  Ultimately, the Second Department reversed that order and reinstated the complaint in the quiet title action.   Purchaser appealed two orders.  In the first, the motion court denied purchaser’s motion to set aside the foreclosure sale and to have the referee return to it the down payment and granted lender’s cross-motion to compel a closing.  The second order directed the referee to deliver the down payment to the lender and to direct the re-auction of the Property.  Both orders were reversed and the sale was vacated and the referee was directed to return the down payment to the purchaser.  In so doing, the Second Department stated: Generally, a court has the discretion to set aside a judicial sale where fraud, collusion, mistake, or misconduct casts suspicion on the fairness of the sale. A court may exercise its inherent equitable power over a sale made pursuant to its judgment or decree to ensure that it is not made the instrument of injustice. Marketability of title is concerned with impairments on title to a property, i.e., the right to unencumbered ownership and possession. As a general rule, a purchaser at a foreclosure sale is entitled to a good, marketable title. A purchaser at a judicial sale should not be compelled by the courts to accept a doubtful title, and, if it was bad or doubtful, he or she should, on his or her application, be relieved from completing the purchase. Moreover, the rule that a buyer must protect himself or herself against undisclosed defects does not apply in all strictness to a purchaser at a judicial sale.  A sale of land in the haste and confusion of an auction room is not governed by the strict rules applicable to formal contracts made with deliberation after ample opportunity to investigate and inquire. Here, the continuing quiet title litigation involves allegations that the deed to one of the lots comprising the subject property was procured by forgery. This litigation casts suspicion on the fairness of the sale of the property to , and therefore should not be compelled by the courts to accept a doubtful title.  Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber Most litigants think that financial documents, such as tax returns, are confidential. The same is true with regard to trade secrets and other proprietary business information. While those sentiments are most often true, as discussed below, litigants are, nevertheless, often surprised to learn that there are well-developed rules governing the protection of such information from public view.  “Under New York law, there is a broad presumption that the public is entitled to access to judicial proceedings and court records.” 1 The public’s right to access is, however, not absolute. 2 Under certain circumstances, “public inspection of court records has been limited by numerus statutes.”3 One of those statutes is Section 216.1(a) of the Uniform Rules for New York State Trial Courts , which empowers courts to seal documents upon a written finding of good cause.  “ he determination of whether access to such records is appropriate is best left to the sound discretion of the trial court<.> ” 4 “Although the term ‘good cause’ is not defined, ‘a sealing order should clearly be predicated upon a sound basis or legitimate need to take judicial action.”’ 5 The party seeking to seal court records must demonstrate compelling circumstances to justify restricted public access. 6 The fact that the parties have a confidentiality agreement or otherwise stipulate to sealing is not sufficient by itself to warrant sealing or redaction of specific documents. 7 The Court has an independent obligation to determine whether sealing is appropriate. 8 In making the determination, courts consider “the interests of the public as well as of the parties.” 9 As one court observed, a finding of good cause “boils down to … the prudent exercise of the court’s discretion.” 10 “A finding of good cause presupposes that public access to the documents at issue will likely result in harm to a compelling interest of the movant and that no alternative to sealing can adequately protect the threatened interest.” 11 Notably, “mere curiosity” is not a sufficient public interest for denying a motion to seal. 12 So, when will the courts permit documents to be sealed or redacted? Generally, “when trade secrets are involved or when disclosure of information contained in documents ‘could threaten a business’s competitive advantage.’” 13 Similarly, courts have found that a party’s privacy interest in tax returns and other personal financial information warrants protection from public disclosure. 14 To the extent the information sought to be protected from disclosure concerns third parties, courts have found that “ here a compelling interest in sealing” such information “since disclosure could impinge on the privacy rights of third parties who clearly are not litigants herein.” 15 Finally, courts require those seeking to seal or redact information narrowly tailor their application in order to outweigh the public’s right to access. 16 When the moving party does so, their application is “more likely to be permitted than sealing of an entire document or court file.” 17 The foregoing principles were recently examined in Jaffrey v. Scaminaci , 2023 N.Y. Slip Op. 32297(U) (Sup. Ct., N.Y. County July 6, 2023) ( here ), Youge Venture Capital LLP v. Xueyuan Han , 2023 N.Y. Slip Op 32299(U) (Sup. Ct., N.Y. County July 6, 2023) ( here ), and Meshechok v. Corporate Solutions Group I, LLC , 2023 N.Y. Slip Op. 32301(U) (Sup. Ct., N.Y. County July 6, 2023) ( here ). In Jaffray , nonparties Melody Capital Partners, L.P. and Melody Capital Partners GP, LLC (collectively, “Melody”) moved to seal certain exhibits and memoranda of law submitted in connection with defendant’s motion to dismiss because they contained confidential or proprietary information. In particular, Melody claimed that the identities and investment activities of certain investors, i.e. , limited partnerships (“Investor Information”), in private investment funds managed by Melody should be redacted. Melody claimed, inter alia , that it was contractually obligated, under various agreements to prevent unnecessary disclosure of the Investor Information and that the parties’ interest in protecting the Investor Information outweighed the public’s right to access court records because the Investor Information was not relevant to the underlying dispute between the parties, and because the investors in Melody were simply “bystanders” to the action. 18 The motion court granted the motions, finding that Melody “demonstrated good cause to narrowly redact the identities of the investors, their activities, and their representatives,” 19 and that “disclosure of the Investor Information would be in breach of the confidentiality provisions of certain agreements … to keep information like the Investor Information confidential.” 20 In Youge Venture Capital , the parties sought to seal certain documents because they contained personally identifying information and sensitive, non-public financial information of defendant as well as nonparties. The motion court granted defendants’ motion and granted in part plaintiffs’ motion. In Meshechok , defendants moved to seal tax information, confidential business information and information that, if revealed, would give competitors a competitive advantage. In particular, defendants maintained that the tax information was private and confidential because it concerned the “amount of corporate distributions, company finances (including income, expenses, assets, investments, and liabilities), and amount of personal distributions and expenses for both parties and nonparties.” 21 Defendants also claimed that license agreements, if disclosed, would reveal their “approach and structure of certain licensing arrangements related to their business activities.” 22 Defendants further sought to redact the advice from counsel relating to the company’s organizational structure and information regarding the processes used to protect the company’s trade secret. 23 Finally, defendants sought to redact information disclosing fee structures, operational and organizational structures, and details regarding allocation of income. 24 The motion court granted defendants’ motions, holding that they met their burden of showing good cause to shield the materials from the public. 25 The motion court also found that defendants’ proposed redactions were “narrowly tailored.” 26 Footnotes Mosallem v. Berenson , 76 A.D.3d 345, 348 (1st Dept. 2010) (citations omitted). IDW Grp., LLC v. Levine Ins. Risk Mgt. Servs., Inc. , 40 Misc. 3d 368, 381 (Sup. Ct., N.Y. County Apr. 12, 2013) (citations omitted). Mosallem , 76 A.D.3d at 349. Matter of Crain Commc’ns v. Hughes , 135 A.D.2d 351, 351 (1st Dept. 1987), aff’d , 74 N.Y.2d 626 (1989). Gryphon Domestic VI, LLC v. APP Int’l Fin. Co., B.V. , 28 A.D.3d 322, 325 (1st Dept. 2006). Maxim, Inc. v. Feifer , 145 A.D.3d 516, 517 (1st Dept. 2016). Id. at 518; Gryphon Domestic VI , 28 A.D.3d at 324. Maxim , 145 A.D.3d at 518. Id. Applehead Pictures LLC v. Perelman , 80 A.D.3d 181, 191 (1st Dept. 2010) (citation omitted). Mancheski v. Gabelli Grp. Capital Partners , 39 A.D.3d 499, 502-503 (2d Dept. 2007) (citations omitted). Dawson v. White & Case , 184 A.D.2d 246, 247 (1st Dept. 1992). Natixis Real Est. Capital Tr. 2007-HE2 v. Natixis Real Est. Capital, Inc. , 77 Misc. 3d 1224(A), 180 N.Y.S.3d 525 (Table) at *1 (Sup. Ct., N.Y. County 2023) (quoting Mosallem , 76 A.D.3d at 345, 348-49); Mancheski , 39 A.D.3d at 503; SeealsoDawson , 184 A.D.2d at 247; Hindlin v. Prescription Songs LLC , 2020 N.Y. Slip Op. 32583(U), at *3 (Sup. Ct., N.Y. County 2020) (permitting redactions in documents containing “various financial and business terms” when “disclosure could threaten ’s competitive advantage in the market”) (citation omitted). D’Amour v. Ohrenstein & Brown, LLP , 2007 WL 4126386, at *21 (Sup. Ct., N.Y. County Aug. 13, 2007) (sealing all files in connection with a motion to dismiss a partnership dispute, when the parties’ financial information, including its tax returns, financial statements and reports, and firm agreements and memoranda, were non-public and confidential); Fruhling v. Westreich , 2022 WL 314046, at *1 (Sup. Ct., N.Y. County Feb. 2, 2022), aff’d , 88 A.D.3d 567 (1st Dept. 2011); State v. Bayrock Grp. LLC , 2017 WL 748826, at *2 (Sup. Ct., N.Y. County Feb. 27, 2017); Feffer v. Goodkind, Wechsler, Labaton & Rudoff , 152 Misc. 2d 812, 816 (Sup. Ct., N.Y. County 1991) (noting “minimal” public interest in law firm’s “internal finances”). Mancheski , 39 A.D.3d at 502 (2d Dept. 2007); Catalyst Investors III, L.P. v. The We Co. , 2022 WL 1516276, at *2 (Sup. Ct., N.Y. County May 13, 2022). Danco Labs., Ltd v. Chemical Works of Gedeon Richter, Ltd ., 274 A.D.2d 1, 6 (1st Dept. 2000). See Danco Labs., Ltd. v. Chemical Works of Gedeon Richter, Ltd. , 274 A.D.2d 1, 6 (1st Dept. 2000). Slip Op. at *3-*5. Id. at *6 (citations omitted). Id. at *5 (citations omitted). Slip Op. at *3. Id. Id. at *5. Id. Id. (citation omitted). Id. (citations omitted). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In 1990, Congress created the EB-5 Immigrant Investor Visa Program (“EB-5 Program”) to stimulate the U.S. economy through job creation and capital investment by foreign investors. The EB-5 Program offers foreign investors and members of their family an opportunity to obtain permanent residence in the United States ( i.e. , obtain a green card) and provides a source of financing for developers to use in, among other things, construction and business projects. The EB-5 Program has been a material source of private investment in the U.S. for many years. According Invest in the USA, the national trade association whose members are EB-5 regional centers, “between 2008 and 2021, the EB-5 program helped generate $37.4 billion in foreign direct investment to create and retain U.S. jobs for Americans, all at no cost to the taxpayer” ( here ). Despite the benefits of the EB-5 Program, the incidence of fraud and abuse has increased over time. Typically, where fraud is involved, a company/regional center and its financial backers will solicit EB-5 Program investors with promises of high rates of return. In some cases, the companies/regional centers guarantee that the investment is risk-free. The Securities and Exchange Commission (“SEC”) has identified a set of common violations of the securities laws arising from the misconduct surrounding the EB-5 Program. These violations include: (a) false or misleading statements in placement memoranda, subscription agreements, advertisements, and sales brochures in violation of Section 10(b)-5 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (b) theft or misuse of investor funds in violation of Section 17(a) of the Securities Act of 1933, as amended; and (c) improper solicitation of investors by unregistered broker-dealers in violation of Section 15(a) of the Exchange Act. Due to the incidence of fraud, the SEC has released an investor alert to warn investors about potential scams in EB-5 offerings. The USCIS has also noted that “fraud – in the form of embezzlement, securities violations, investment schemes, and criminal conduct – has plagued the Regional Center program since its inception.” In a letter to then-President Trump, Senator Charles Grassley also noted that the EB-5 Program had “become riddled with fraud and serious vulnerabilities that present real national security concerns,” and strayed materially from its intended purpose of bringing investment to areas that need investment opportunities the most. Given the incidence of fraud and abuse, it is not surprising that EB-5 investors have brought suit against companies/regional centers, claiming violations of the common law, as well as federal law. In Youyi Chen v. 215 Chrystie Venture, LLC , 2023 N.Y. Slip Op. 50716(U) (Sup. Ct., N.Y. County July 13, 2023) ( here ), 37 foreign nationals (“plaintiffs” or “investors”), brought an action against 215 Chrystie Venture, LLC, 215 Chrystie Investors, LLC, The Ian Schrager Company, and The Witkoff Group, LLC (“defendants”), asserting six causes of action – fraud, negligent misrepresentation, breach of fiduciary duty, unjust enrichment, accounting, and constructive trust – based upon their investments in a commercial development under the EB-5 Program. Defendants collectively moved to dismiss the complaint in its entirety, pursuant to CPLR §§ 3211(a)(1), (3), and (7). The motion court granted the motion to the extent of dismissing the fraud and negligent misrepresentation causes of action as against all defendants, and denied the motion to the extent that plaintiffs alleged sufficient facts to survive dismissal of their claims related to causes of action for breach of fiduciary duty, unjust enrichment, accounting, and constructive trust as against all defendants. We examine the court’s decision as it pertains to the fraud and negligent misrepresentation claims. Background Plaintiffs are Chinese nationals who took part in the EB-5 Program to secure permanent resident status in the United States. They described themselves as unsophisticated investors with little or no proficiency in English and with limited knowledge about the U.S. real estate market. Each plaintiff invested $549,000 in Manhattan Chrystie Street Development Fund, LLC (“MCSDF” or the “fund”), a non-party to the action, for the development of a project that included the construction of a new mixed-use commercial building containing what would become the 374-room PUBLIC Hotel and 11 residential condominium units. Upon receiving plaintiffs’ funds, MCSDF was to aggregate the equity investment portion of plaintiffs’ money and invest that money in 215 Investors — for which MCSDF was to receive a “preferred equity” interest in 215 Investors. Plaintiffs alleged, however, that they never acquired membership interests in 215 Investors, and that, instead, their interests were solely connected to MCSDF. 215 Investors was managed by 215 Venture, LLC (“215 Venture” or the “managing member”), which was jointly controlled and owned by the Witkoff and Schrager entities. Plaintiffs alleged that all defendants had a direct interest in inducing plaintiffs’ investments in MCSDF, as such funds would directly flow to them; accordingly, plaintiffs alleged, all defendants were the ultimate beneficiaries and recipients of the funds invested by plaintiffs. Plaintiffs also alleged that defendants acted as promoters and solicitors for the investments and that Witkoff and Schrager were touted as having specialized skill and expertise in the U.S. real estate market generally, and in the development and operation of the project specifically. In their capacity as promoters with specialized skill and expertise, Witkoff, Schrager, and 215 Venture were allegedly responsible for compiling, crafting, and confirming the accuracy of information presented to plaintiffs concerning the nature and structure of their investment in the project. Prior to investing in the project, plaintiffs received a confidential private offering memorandum, dated June 14, 2013 (the “OM”), describing how the project would function, what the project would do, how the project was to be financed, and the financial and operational details of the investment. The OM was intended to convince investors to invest in the project. The OM was not drafted by defendants, but instead, it was drafted, approved, and distributed by MCSDF, which, as noted, was not a named defendant in the action. Notwithstanding, according to the OM, certain “information, financial statements, statistics, and graphics” were “compiled” by defendants, and “information about the Owner and the Project contained was also provided by .” With respect to defendants’ involvement in compiling and providing information for the OM, the OM also stated that it was “not an offering of ” and that “none of the nor any of their respective affiliates any representations or warranties with respect to the adequacy of the disclosures in th .” The Contentions of the Parties Plaintiffs contended that the OM contained material misrepresentations and omissions attributable to defendants which were reasonably relied upon by plaintiffs in deciding to make their investment in the project. First, the OM allegedly represented that plaintiffs’ investments would be used to purchase a preferred equity interest in 215 Investors, such that plaintiffs would have an indirect equity interest in the project and would share in the profits and losses associated with the completion of the project. Plaintiffs alleged that statements in the OM regarding the nature of their investment were false and misleading when made since plaintiffs’ investment was effectively nothing more than an unsecured junior loan. Regarding the use of proceeds, the OM provided that “ he proceeds of the Qualifying Investment will be used by the Venture to fund the construction costs of condominium and hotel portions of the Project.” Plaintiffs maintained that this representation was misleading and untrue when made, since between 2015 and 2019, instead of using the investments to fund the project, defendants diverted to themselves and their own use approximately $109 million from the project funds. The OM also allegedly falsely represented that defendants were putting their own capital at risk and that such capital would remain at risk throughout the life of the project. Plaintiffs further contended that the OM was misleading when made in that it falsely summarized the terms of the 215 Investors’ operating agreement (the “OA”). According to the complaint, defendants drafted the OA and were responsible for summarizing it in the OM and confirming the accuracy of statements concerning the OA in the OM. The OA allegedly reinforced the false and misleading narrative that plaintiffs would have an indirect equity interest in 215 Investors by investing in MCSDF, and that MCSDF would be treated as a “member” of 215 Investor. Plaintiffs also alleged that the schedules attached to the OA were false and misleading in that they omitted material information. Defendants argued that plaintiffs did not have standing to pursue any of the claims because they lacked privity with defendants. Defendants argued that all claims asserted by plaintiffs fell into one of two categories: they should be asserted against MCSDF (which was a non-party to the action) or are derivative in nature and belonged to MCSDF, and not to plaintiffs individually – plaintiffs neither asserted direct claims against, nor derivative claims on behalf of, MCSDF. Therefore, argued defendants, plaintiffs lacked standing to pursue their claims. Defendants also argued that plaintiffs’ claim for fraud should be dismissed as no statement or representation made in the OM could be attributed to defendants, as the OM was drafted, signed and distributed by MCSDF. Defendants further argued that they did not owe plaintiffs any special or fiduciary duties, even if plaintiffs could establish standing. According to defendants, plaintiffs were not investors in (or members of) any of defendants, including 215 Investors, and under New York law controlling members and managers of LLC’s do not owe any special or fiduciary duties to non-members. Given that plaintiffs have not pled any recognized special or fiduciary relationship with defendants, defendants maintained that plaintiffs’ claims for, inter alia , negligent misrepresentation and breach of fiduciary duty should be dismissed, as each requires the existence of a special or fiduciary relationship between the parties. Plaintiffs argued that defendants’ conduct constituted fraud because plaintiffs were induced by defendants’ misrepresentations and omissions to invest in MCSDF and then in the project. Plaintiffs maintained, based on representations made in the OM, that they were investing as indirect equity owners in 215 Investors and thus would have shared in distributions of profits (and incurred any losses) from the development and operation of the project. Instead, plaintiffs argued, their investment was treated as an unsecured junior loan, rendering payments owed to plaintiffs due at a significantly later date than payments owed to investors with equity interests in the project. Considering their lack of sophistication, plaintiffs argued, it was reasonable for them to rely on statements provided in the OM, especially since defendants were touted as experts with specialized skill and knowledge. Plaintiffs further argued that had they known of the true structure of their investment, they would either not have invested in the project or would have insisted on substantial changes. Alternatively, plaintiffs argued that defendants’ misstatements and omissions constituted negligent misrepresentation. The Motion Court’s Decision The motion court dismissed the fraud and negligent misrepresentation claims. The motion court found that “dismissal of the fraud claim warranted given plaintiffs’ failure to allege any statements made directly by defendants to plaintiffs.” The motion court found that the OM, which was used “to solicit plaintiffs’ investment in MCSDF, was drafted, approved, and distributed exclusively by MCSDF.” Plaintiffs did not “allege that any of the defendants had any direct involvement with the process of drafting, approving or distributing the OM,” said the motion court. That failure, noted the motion court, was underscored by the OM, which specifically stated that the OM was not an offering of the defendants. Thus, any claims related to the falsity or misleading nature of the OM, held the motion court, were properly asserted “only against MCSDF, and its principals, none of whom defendants” in the action. The motion court held that to the extent 215 Venture allegedly provided false information to MCSDF regarding the OA — and to the extent that MCSDF included such information in the OM — such claims belonged to MCSDF, not plaintiffs. “And although defendants certainly had a hand in drafting the OA,” noted the motion court, the OA was “an arms-length agreement between 215 Venture and MCSDF,” which plaintiffs did not allege contained any representations intended to be relied upon by third parties. “The OA simply sets out the governance of 215 Investors, including the rights and obligations of each member,” observed the motion court. Since plaintiffs did not allege that they were members in 215 Investors, explained the motion court, “the OA cannot possibly form the basis of fraud-related claims between plaintiffs — non-parties thereto — and any of the defendants.” Since plaintiffs’ negligent misrepresentation claim was “exclusively rooted in statements allegedly made by defendants in the OM and OA, which the exact same statements that formed the basis for plaintiffs’ fraud claim,” it suffered from the same infirmities as plaintiffs’ fraud claim, held the motion court. “ o statement in either of the two documents was ever made by defendants directly to plaintiffs,” said the motion court. Thus, concluded the motion court, “ o the extent that the OM or OA contain any misrepresentations — whether fraudulent or negligent — those misrepresentations were made either by defendants to MCSDF or by MCSDF to plaintiffs” and, therefore, were not actionable. Takeaway In prior articles, we have discussed the pleading requirement that the plaintiff identify a statement or omission claimed to be false or misleading in order to survive a motion to dismiss. As noted above, in Chen , the motion court found that plaintiffs failed to satisfy this requirement. Of interest to us is the absence of any specific discussion of the principle that a defendant can be liable to a plaintiff for fraud when the plaintiff relies on the misstatement or omission of a third-party who acts as a conduit for the fraud. We have examined this principle of law on numerous occasions. In Pasternack v. Laboratory Corp. of Am. Holdings , 27 N.Y.3d 817 (2016), the New York Court of Appeals held that third-party reliance does not satisfy the reliance element of a fraud claim unless the third party “acted as a conduit to relay the false statement to plaintiff, who then relied on the misrepresentation to his detriment.” In other words, the alleged misrepresentation or omission does not need to be made directly to the plaintiff so long as the statement was made with the intent that it be communicated to the plaintiff by a third party and the plaintiff relied on the representation or omission to his or her detriment. Based upon the motion court’s discussion of the facts and allegations, it seems that the misrepresentations and omissions in the OM were made for the purpose of being communicated to plaintiffs, as investors of the project, in order to induce their reliance thereon. As noted in the discussion above, plaintiffs alleged that many of the alleged misrepresentations and omissions were attributable to defendants. While there is no way of knowing if this principle would have changed the outcome of the motion, it, nevertheless, is interesting that the principle was not specifically discussed. __________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. Regional centers are business that offer investment opportunities under the program. The fact that a business is designated as a regional center by the U.S. Citizenship and Immigration Services (“USCIS”) does not mean that USCIS, the SEC, or any other government agency has approved the investments offered by the business, or has otherwise expressed a view on the quality of the investment. See Hearing on “Citizenship for Sale: Oversight of the EB-5 Investor Visa Program” before the Senate Committee on the Judiciary on June 19, 2018 ( here ). See Investor Alert: Investment Scams Exploit Immigrant Investor Program (Oct. 9, 2013) ( here ). See Grassley to Trump: You Can Restore Integrity To EB-5 Visa Program (June 8, 2018) ( here ). As an initial matter, the motion court held that the plaintiffs did not lack standing to pursue their claims. The motion court explained that plaintiffs’ claims “go to allegedly fraudulent misrepresentations and omissions made by defendants without which plaintiffs would not have invested in the project.” Slip Op. at *4. Such claims, noted the motion court, are “properly brought as a direct claim, as the plaintiffs individually suffered the alleged harm and would benefit from any recovery.” Id. (citing, SFR Holdings Ltd. v. Rice , 132 A.D.3d 424, 425 (1st Dept. 2015)). Slip Op. at *5. Id. Id. Id. Id. Id. Id. Id. Id. Id. To state a claim for negligent misrepresentation, the plaintiff must prove that “(1) the defendant had a duty, as a result of a special relationship, to give correct information; (2) the defendant made a false representation that he or she should have known was incorrect; (3) the information supplied in the representation was known by the defendant to be desired by the plaintiff for a serious purpose; (4) the plaintiff intended to rely and act upon it; and (5) the plaintiff reasonably relied on it to his or her detriment.” Hydro Inv’rs, Inc. v. Trafalgar Power Inc. , 227 F.3d 8, 20 (2d Cir. 2000). Id. Id. at *5-*6. See , e.g. , here . See , e.g. , here , here ,  here . 27 N.Y.3d at 828.

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

By Jonathan H. Freiberger Folks sign contracts of all types that purport to contain limitations of liability; but are they enforceable.  In many cases, the answer is “yes”.  “In the absence of a contravening public policy, exculpatory provisions in a contract, purporting to insulate one of the parties from liability resulting from the party’s own negligence, although disfavored by the law and closely scrutinized by the courts, generally are enforced, subject however to various qualifications.”  Lago v. Krollage , 78 N.Y.2d 95, 99 (1991) (citations omitted).  See also Princetel, LLC, v. Buckley , 95 A.D.3d 855 (2 nd Dep’t 2012) (quoting Lago and citing to others).  “Where the language of an exculpatory agreement expresses in ‘unequivocal terms’ the intention of the parties to relieve a defendant of liability for its own negligence, the agreement will be enforced.”  Princetel , 95 A.D.3d at 855 – 56 (quoting Lago ).  Thus, “ o be enforceable, exculpatory language must be unambiguously so: it must plainly and precisely provide that the limitation of liability extends to negligence or other fault of the party attempting to shed his ordinary responsibility courts do not necessarily require that the word ‘negligence’ be used, there must be words conveying a similar import.”  Spancake v. Aggressor Fleet Ltd. , 1995 WL 322148 (S.D.N.Y. 1995) (citations, internal quotation marks and brackets omitted). However, “ ublic policy … forbids a party’s attempt to escape liability, through a contractual clause, for damages occasioned by grossly negligent conduct.”  Colnaghi, U.S.A., Ltd. V. Jewelers Protection Services, Ltd ., 81 N.Y.2d 821, 823 (1993) (citation and internal quotation marks omitted); see also S.A. De Obras y Servicios, COPASA v. Bank of Nova Scotia , 170 A.D.3d 468, 472 (1 st Dep’t 2019).  “Gross negligence” is “conduct that evinced a reckless disregard for the rights of others or smacks of intentional wrongdoing.”  Colnaghi , 81 N.Y.2d at 823 – 24 (citation and internal quotation marks omitted); see also Diniro v. Aspen Athletic Club, LLC , 173 A.D.3d 1789, 1790 (4 th Dep’t 2019). The Appellate Division, Second Department, addressed these issues on July 5, 2023, in Seti v. Carnell Associates, Inc .   The plaintiffs in Seti were home purchasers that hired Carnell Associates, Inc., a home inspection company, to conduct a prepurchase inspection of a house.  The operative contract provided that “a Carnell employee would conduct a limited visual inspection of apparent conditions in easily accessible areas, and that no warranties or guarantees were made for any latent or concealed defects.”  The contract further provided that Carnell’s liability would be limited “to the cost of the inspection.”  Plaintiff purchased the home after Carnell issued its report.   Plaintiffs commenced action against Carnell “alleging that it was grossly negligent in its inspection in that it failed to identify, among other things, termite damage and a structural defect with the concrete slab.”  Carnell moved for summary judgment dismissing the complaint and plaintiff cross-moved for summary judgment on its complaint.  The motion court granted Carnell’s motion and denied plaintiff’s cross-motion “as academic.”  The Second Department affirmed.  After discussing the general law on the subject along the lines discussed herein, the Second Department stated: Here, the inspection contract entered into by the parties limited Carnell's liability for any deficiencies in its performance to the cost of the inspection. Notwithstanding that provision of the contract, the plaintiffs allege that they are entitled to recover from Carnell the full cost of repairing the alleged defects that Carnell failed to observe during the inspection and disclose in its report, since those omissions constituted gross negligence on its part. The evidence submitted by Carnell in support of its motion was sufficient to demonstrate, prima facie, that the inspection performed in this case was not so defective as to evince a reckless indifference to the rights of others or a failure to exercise even slight care. In opposition, the plaintiffs failed to raise a triable issue of fact as to whether Carnell's alleged omissions went beyond ordinary negligence and satisfied the gross negligence standard. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber The voluntary payment doctrine bars recovery of payments voluntarily made with full knowledge of the facts, and in the absence of fraud or material mistake of fact or law. 1 Notably, there is a presumption that payments are voluntary. 2 Thus, to rebut the presumption, the plaintiff must show that he/she protested the payment. In order for a protest to be effective, it must be in writing and made at the time of payment. 3 In addition, the written protest must indicate that the plaintiff was reserving his/her rights when the payment was made 4 and must communicate as much to the party receiving the payment. 5 Moreover, “the voluntary payment doctrine does not apply when a party makes payments under economic duress or compulsion, e.g. , when a party must make payment or face the loss of possession of its property.” 6 Significantly, “ owever, a mere threat by one party to breach the contract by not delivering the required items, though wrongful, does not in itself constitute economic duress. It must also appear that the threatened party could not obtain the goods from another source of supply and that the ordinary remedy of an action for breach of contract would not be adequate.” 7 here,=">here," >here,  here.=">here."> . An accord and satisfaction “requires the existence of an actual dispute, manifested by a specific demand by the alleged creditor and an express, good-faith disagreement with that demand by the debtor.” 8 The “essential element of an accord and satisfaction is a clear manifestation of intent by one tendering less than full payment of an unliquidated claim that the payment has been sent in full satisfaction of the disputed claim.” 9 Notably, as relevant to today’s article, the “payment of an admitted liability is not a payment of or in consideration for an alleged accord and satisfaction of another independently alleged liability.” 10 Moreover, the acceptance of a payment in full satisfaction of a disputed claim without a reservation of rights may operate as an accord and satisfaction. 11 Notwithstanding, even under that circumstance, “there must be a clear manifestation of intent by the parties that the payment was made, and accepted, in full satisfaction of the claim.” 12 Finally, using words such as “full and final payment” or “in “settlement of” is not dispositive of the issue. 13 Whether there is unequivocal language expressing the intent of the parties is a matter for the “trier of facts, be it court or jury.” 14 On June 29, 2023, the Appellate Division, First Department addressed the foregoing issues in Pinnacle Managing Co., LLC v. Slade Industries, Inc . ( here ). 15 Slade provided elevator maintenance and repair services to about 80 to 100 buildings managed by Pinnacle and its affiliates. The written contracts between the parties stated that Slade would “systematically and regularly examine, adjust, repair, replace and lubricate, as required, components” of the elevators. According to the complaint (as well as the briefing on appeal), Pinnacle terminated Slade in late November 2017, after determining that its prices were too high. Prior thereto, Pinnacle directed Slade to present all of its unpaid invoices for review, consideration and approval. Having done as requested, Pinnacle paid Slade $312,709.76, representing payment of all Slade’s outstanding invoices in full satisfaction of the monies owed to Slade. At the time of payment, there was no reservation of rights by plaintiff. Approximately two months after Slade was paid and terminated, Pinnacle allegedly learned that Slade had failed to lubricate some elevators on a regular basis, requiring extensive repair work in six of Pinnacle’s buildings. Pinnacle brought the action to recover the damages allegedly sustained as a result of Slade’s failure to properly service and maintain Pinnacle’s elevators in an amount not less than $135,000. In its complaint, plaintiff asserted claims for breach of contract, negligence, and unjust enrichment. The motion court dismissed the latter two claims on a pre-answer motion to dismiss.  Thereafter, Slade filed an answer in which it denied all the material allegations in the complaint and alleged that Pinnacle’s payment of $312,709.76 was “in full satisfaction of the indebtedness owing to Slade.” In addition to the foregoing, Slade asserted three affirmative defenses and two counterclaims. The first affirmative defense alleged that “the doctrine of accord and satisfaction bar plaintiffs’ claims.” The second affirmative defense stated that “Plaintiff’s claim ha been compromised or settled.” The final affirmative defense alleged that “Slade, at all times, performed for plaintiff consistent with its contractual obligations.”  In its first counterclaim, Slade alleged that “if this Court does not enforce Slade’s accord and satisfaction defense, then seek judgment against Pinnacle for the balance owing to Slade for the performance of services.” In its second counterclaim, Slade sought legal fees.  Following discovery, defendant moved for summary judgment. The motion court denied the motion, holding that defendant “neither” established “‘accord and satisfaction’ nor ‘voluntary payment’, as a matter of law.” With respect to the voluntary payment doctrine, the motion court found that plaintiff “raised an issue of fact whether it had full knowledge of the extent to which defendant performed the contracted for services at the time it rendered payment of the invoices for such services.”  As for accord and satisfaction, the motion court agreed with plaintiff that payment of an admitted liability is not payment or of in consideration for an alleged accord and satisfaction of another independently alleged liability. The motion court explained that plaintiff sought approximately $100,000 in damages for breach of contract, thus admitting that approximately $212,000 of the amount it remitted was compensation defendant earned for services performed. The motion court also found that defendant failed to establish “‘unequivocal language expressive of intent’ on the part of plaintiff that it made payment of the invoices only on condition that defendant accepted same in full satisfaction of any dispute between the parties.” The First Department unanimously affirmed. Regarding the voluntary payment doctrine, the Court found that “the record present issues of fact as to whether plaintiff rendered payment without full knowledge of the facts.” 16 The Court explained that “ laintiff presented evidence showing that it paid defendant before plaintiff obtained information indicating that defendant had breached its contractual obligations, thus raising a triable issue of fact regarding whether plaintiff had full knowledge of the facts.” 17 As to accord and satisfaction, the Court found that “the record lacked unequivocal language expressing intent that plaintiff paid in satisfaction of an ongoing dispute between the parties when it paid the invoices supplied by defendant in full.” 18 The Court explained that the “record not show any genuine controversy concerning the amount due, and defendant did not produce any records or documents evincing an express agreement between the parties that plaintiff’s payment constituted a settlement of any claims. 19 Takeaway The voluntary payment doctrine provides that a person cannot recover payments made with full knowledge of the facts, and in the absence of fraud or material mistake of fact or law. The doctrine is an affirmative defense to the repayment of money to which the defendant presumably has no legal claim. It is not an independent cause of action.  In Pinnacle , the record did not support application of the doctrine. There were issues of fact as to whether plaintiff made the payment to Slade will full knowledge of the facts. This was especially so, as noted by the First Department, given the evidence that plaintiff submitted showing that it paid Slade before it learned that Slade had allegedly breached its contractual obligations. Accord and satisfaction is an affirmative defense that must be proven by the party asserting the claim. 20 To establish the defense, the party asserting it must establish that there is a disputed unliquidated claim between the parties which they have mutually resolved through a new contract discharging all or part of their obligations under the original contract. 21 In Pinnacle , the record lacked unequivocal language expressing the parties’ intent that plaintiff paid in full satisfaction of an ongoing dispute between the parties when it paid the invoices supplied by defendant. In fact, as noted by the First Department, the record did not show any genuine controversy concerning the amount due, and lacked any evidence evincing an express agreement between the parties that plaintiff’s payment constituted a settlement of any claims.  Footnotes Dubrow v. Herman & Beinin , 157 A.D.3d 620 (1st Dept. 2018) (citation and quotation marks omitted). See 82 N.Y. Jur. 2d, Payment and Tender, § 82. See Nunner v. Newburgh City School Dist. , 92 A.D.2d 888 (2d Dept. 1983). DRMAK Realty LLC v. Progressive Credit Union , 133 A.D.3d 401, 405 (1st Dept. 2015). C.f. Walton v New York State Dept. of Correctional Servs. , 13 N.Y.3d 475, 489 (2009) (noting that “the protest requirement would have been fulfilled by a letter to MCI,” the entity levying the charge, “and DOCS,” the entity receiving commission for that charge “at the time the bills were paid”). Rocky Knoll Estates MHC, LLC v. C W Capital Asset Mgmt., LLC , 2015 WL 1632637, at *2 (W.D.N.Y. Apr. 13, 2015); see also U.S. Bank Nat. Ass’n v. PHL Variable Ins. Co. , 2014 WL 2199428, at *10 (S.D.N.Y. May 23, 2014) (voluntary payment doctrine does not apply “where payments were necessary in order to preserve property or protect his business interests”). Austin Instr. v. Loral Corp. , 29 N.Y.2d 124, 130 (1971). See also Oleet v. Pennsylvania Exch. Bank , 285 A.D. 411, 414-15 (1st Dept. 1955). Rosenthal v. Quadriga Art, Inc. , 105 A.D.3d 507, 508 (1st Dept. 2013). Complete Messenger & Trucking Corp. v. Merrill Lynch Money Markets, Inc. , 169 A.D.2d 609, 611 (1st Dept. 1991). Manley v. Pandick Press, Inc. , 72 A.D.3d 452 (1st Dept. 1980). Nationwide Registry & Security Ltd. v. B&R Consultants, Inc. , 4 A.D.3d 299, 300 (1st Dept. 2004). Id. Equitable Tower Assocs. v. Asarco Inc. , 127 A.D.2d 456, 457 (1st Dept. 1987); Rosenthal v. Quadriga Art, Inc. , 105 A.D.3d 507, 508 (1st Dept. 2013). Manley , 72 A.D.3d at 458. Pinnacle Managing Co., LLC v. Slade Indus., Inc. , 2023 N.Y. Slip Op. 03558 (1st Dept. June 29, 2023) ( here ). Slip Op. at *1 (citing, Dillon v. U-A Columbia Cablevision of Westchester , 100 N.Y.2d 525, 526 (2003); New York Eye & Ear Infirmary v. Bowne , 200 A.D.3d 467 (1st Dept. 2021)). Id. (citing, Dubrow , 171 A.D.3d at 673 ; Rite Aid of N.Y., Inc. v. Chalfonte Realty Corp. , 105 A.D.3d 470 (1st Dept. 2013)). Id. (citing, Rosenthal v. Quadriga Art, Inc. , 105 A.D.3d 507, 507-508 (1st Dept. 2013)). Id. (citing, EchoStar Satellite L.L.C. v. ESPN, Inc. , 79 A.D.3d 614, 619 (1st Dept. 2010)). 19 N.Y. Jur. 2d, Compromise, Accord, and Release, § 26. 6 Corbin, Contracts, § 1276; Restatement, Contracts 2d, § 281; Merrill Lynch Realty/Carll Burr, Inc. v Skinner , 63 N.Y.2d 590, 596 (1984). 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 Under the law, the perpetration of a fraud can be the great equalizer between winning and losing a case. For example, a court may relieve a party from the effects of a judgment against it upon, among other things, proof that the judgment was the result of the fraud, misrepresentation, or misconduct by an adverse party. Similarly, a court may exercise its inherent power over its judgments to relieve a party from a judgment obtained through, among other things, fraud and mistake. Additionally, a stipulation or a settlement agreement can be set aside in the face of fraudulent behavior. The examples in which fraud may relieve a party of the consequences of its pleadings and/or actions are too many to discuss here. Suffice it to say, the perpetration of a fraud can neutralize the effects of a party’s inartful pleadings and/or actions. In EPAC Tech. Ltd. v. Interforum S.A. , 2023 N.Y. Slip Op. 03543 (1st Dept. June 29, 2023) ( here ), the Appellate Division, First Department considered whether the plaintiff adequately alleged fraud to overcome the economic interest defense (which plaintiff actually pleaded in its operative complaints) in a tortious interference with contract action. As discussed below, the Court held that plaintiff satisfied its burden. In Barlow v. Skroupa , 2023 N.Y. Slip Op. 03541 (1st Dept. June 29, 2023) ( here ), the First Department examined the particularity requirement under CPLR § 3016(b). In particular, the Court examined the falsity element of the claim and whether plaintiffs’ group pleading satisfied CPLR § 3016(b). As discussed below, the Court held that plaintiffs failed to meet their burden. EPAC Tech. Ltd. v. Interforum S.A. As noted, EPAC involved a claim for tortious interference with contractual relations. It is well settled that a person “who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.” To plead a claim for tortious interference with contractual relations, “the plaintiff must show the existence of its valid contract with a third party, defendant’s knowledge of that contract, defendant’s intentional and improper procuring of a breach, and damages.” “In response to such a claim, a defendant may raise the economic interest defense—that it acted to protect its own legal or financial stake in the breaching party’s business.” However, “‘an interferer acting to protect its own direct interests, rather than its interests in the breaching party, may not raise the economic interest defense.’” The defense has been applied, for example, where defendants were significant stockholders in the breaching party’s business; where defendant and the breaching party had a parent-subsidiary relationship; where defendant was the breaching party’s creditor; and where the defendant had a managerial contract with the breaching party at the time defendant induced the breach of contract with plaintiff. A plaintiff can overcome the economic interest defense by alleging that the interference was procured by malice or improper means. “For purposes of a claim of tortious interference with business relations, misrepresentation constitutes an improper means.” The court may dismiss a tortious interference claim on the basis of the economic interest defense at the pleading stage where the defense is apparent from the face of the complaint. Background EPAC arose from a Master Facility Development and Services Agreement (“the Agreement”) between Plaintiff EPAC Technologies Ltd. (“EPAC”) and Interforum S.A. (“Interforum”) and Editis S.A. (“Editis”) (collectively the “Editis Defendants”), pursuant to which EPAC agreed to provide state-of-the-art, on-demand printing services (the “Online Production” system) at a French facility. Because the development and installation of the system would take time, the parties contemplated that EPAC would produce books using a less efficient printing system (the “Micro-Inventory Production”) as an interim measure. The Agreement further provided that, once the Online Production system became operational, EPAC would be paid in accordance with a variable pricing formula tethered to EPAC’s “fixed and variable costs during applicable periods with allowed adjustments.” Due to various installation delays and other problems, the parties amended the Agreement to, among other things, extend the installation phase of the deal through July 1, 2019, and delay variable price adjustments to February 1, 2020. At the time the parties entered the Agreement, Editis and Interforum were owned by Planeta Corporacion S.R.L. On January 31, 2019, Vivendi announced that it closed on the purchase of Editis, which owns Interforum. Bolloré owns 27% of Vivendi’s shares, including 30% of its voting shares. After the acquisition, Vivendi and Bolloré took over operational control of the Agreement. According to plaintiff, once Vivendi and Bolloré took control over the Editis Defendants’ performance under the Agreement, they undermined and interfered with it. For example, they allegedly (a) demanded that Editis fabricate complaints about plaintiff’s performance and costs; (b) tried to convince EPAC to revise the Agreement by claiming that Vivendi and/or Bolloré would soon increase their portfolio in European publishing, which would provide EPAC with a massive increase in printing work in France and throughout Europe – if EPAC agreed to price concessions; and (c) tried to convince EPAC that the Editis Defendants could withhold payments under the Agreement based on French tax law. EPAC commenced the action against the Editis Defendants, alleging breach of contract. The Editis Defendants answered and counterclaimed. On July 20, 2021, EPAC filed its first amended complaint, adding claims against Vivendi and Bolloré for tortious interference with contractual relations. On September 30, 2021, Vivendi moved to dismiss the complaint for want of personal jurisdiction and failure to state a claim. Bolloré also moved on those bases. EPAC opposed both motions. Also on September 30, 2021, the Editis Defendants filed an answer to the complaint, pleading counterclaims for fraudulent inducement, breach of contract, and wrongful termination. In response, EPAC moved to dismiss the fraudulent inducement counterclaim. The motion court granted the Vivendi and Bolloré motions, finding, among other things, that given Vivendi’s and Bolloré’s ownership interests in the Editis Defendants, each had an economic interest in the Agreement such that the economic interest doctrine applied, thereby allowing Vivendi and Bolloré to protect their own legal or financial stake in the Editis Defendants’ business. The motion court rejected plaintiff’s arguments that Vivendi and Bolloré could not rely on the economic interest defense because they had acted to further their own interests, not their interests in the Editis Defendants, and because they had acted maliciously and employed fraudulent means. The motion court also dismissed the Editis Defendants’ fraudulent-inducement counterclaim for failure to satisfy the particularity requirement of CPLR § 3016(b). EPAC also had moved to dismiss the counterclaim on the grounds that: (1) the claim was duplicative of the breach of contract counterclaim; and (2) it was “barred by the Agreement’s boilerplate merger clause.” The motion court entered judgment on these claims on July 21, 2022. The First Department’s Decision On appeal, the First Department “unanimously reversed, on the law,” vacated the judgment, reinstated the tortious interference with contract claim, and “remanded for further proceedings.” The Court held that “ laintiff stated a valid claim against and Vivendi … for tortious interference with a contract.” The Court noted that “ lthough plaintiff’s own allegations established that Vivendi and Bolloré ‘acted to protect own legal or financial stake in the breaching part business,’ thereby invoking the economic interest defense …, it also alleged facts sufficient to overcome this defense.…” These facts, said the Court, included that “Vivendi and BollorÉ instructed the breaching parties to employ fraudulent or illegal renegotiation tactics — including lying about their desire to acquire additional publishers, fabricating complaints about plaintiff’s performance, and feigning concern about inapplicable French tax withholding requirements.…” The Court also found that plaintiff “demonstrated malice by instructing nonpayment of monies duly owed.” The Court further found that “ laintiff’s allegations of interference and causation with respect to BollorÉ were likewise sufficient.” Regarding the fraudulent inducement counterclaim, the Court held that the motion court properly dismissed the claim, noting that the Editis Defendants failed to satisfy the scienter element of the claim: “The fraudulent inducement counterclaim was properly dismissed for failure to sufficiently allege facts from which it may be reasonably inferred that plaintiff knew its representations regarding its projected costs were inaccurate when made.” The Court also held that the Editis Defendants failed to satisfy the justifiable reliance element of the claim: “ he Editis Defendants’ argument that these facts are peculiarly within the knowledge of plaintiff is unavailing in view of the absence of any allegations that they undertook any due diligence to verify the cost projections (or took other steps to protect themselves) — thereby negating any claim of justifiable reliance.” “In view of the foregoing,” said the Court, the Court declined to address “the parties’ arguments with respect to whether the fraudulent inducement counterclaim was duplicative of the breach of contract counterclaim and/or was barred by the agreement’s merger clause.” Barlow v. Skroupa As noted, Barlow concerned the particularity requirement of CPLR § 3016(b). In particular, it concerned pleading a false statement or omission and the practice of group pleading. To state a claim for fraud, a plaintiff must allege “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.” Importantly, “ o fulfill the element of misrepresentation of material fact, the party advancing the claim must allege a misrepresentation of present fact rather than of future intent.” “General allegations of lack of intent to perform are insufficient; rather, facts must be alleged establishing that the adverse party, at the time of making the promissory representation, never intended to honor the promise.” Significantly, “ claim rooted in fraud must be pleaded with the requisite particularity under CPLR 3016 (b).” Under CPLR § 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.” To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. Put another way, the complaint must identify the “who, what, where, when and how” of the alleged fraud. Notwithstanding, the Court of Appeals has explained that CPLR § 3016(b) “should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” Therefore, at the pleading stage, a complaint need only “allege the basic facts to establish the elements of the cause of action.” Thus, as noted, a plaintiff will satisfy CPLR § 3016(b) when the facts permit a “reasonable inference” of the alleged misconduct. If “sufficient factual allegations of even a single element are lacking,” the claim must be dismissed. It follows from the foregoing that group pleading, in which the plaintiff fails to attribute false statements to a particular defendant, does not meet the requirements of CPLR § 3016(b). In fact, New York courts have dismissed complaints on particularity grounds, where a complaint lumps together numerous defendants without differentiation. Background As a general matter, Barlow involved a failure to pay plaintiffs for services rendered to defendant Inspire Summits LLC, which does business as Skytop Strategies. According to plaintiffs, defendants Skytop, Christopher Skroupa, David Katz and Paula Luff engaged in fraudulent activity in which they induced consultants and employees to work for prolonged periods and provide substantial services to Skytop without payment of contractual fees, wages, commissions, bonuses, overtime, costs of reimbursable health insurance, and reimbursable business expenses. Plaintiffs originally brought the action alleging a breach of contract by defendants Skytop and Skroupa, plus related claims. Plaintiffs amended the complaint multiple times thereafter; the operative complaint was before the First Department. In the complaint, plaintiffs added parties and causes of action, including fraud, claims under General Business Law § 350 and unspecified sections of the Labor Law, equitable claims, and intentional infliction of emotional distress, based on Skytop’s alleged failure to pay its employees and contractors, overcharging participants in its conferences, and related conduct. Defendants Katz and Luff moved to dismiss all claims pleaded against them. Plaintiffs cross-moved to amend the complaint, submitting a proposed fourth amended class action complaint. Defendants Katz and Luff opposed the cross-motion. Defendants argued that plaintiffs failed to identify any particular statement(s) that either defendant may have made. Instead, according to the moving defendants, plaintiffs generally referred to “Defendants.” Similarly, said defendants, plaintiffs failed to identify the particular plaintiff to whom such unidentified statement(s) may have been made. In fact, defendants argued that plaintiffs did not even attempt to explain how the undifferentiated group of defendants purportedly did so. The motion court granted defendants’ motion to dismiss. The motion court held that plaintiffs failed to credit Katz or Luff with any fraudulent statements. Instead, noted the motion court, “ laintiffs rest on their allegations that ‘defendants’ made material misrepresentations and fraudulent omissions to plaintiffs.” The motion court explained that “ he failure to distinguish among the various defendants regarding which misrepresentations and omissions each defendant made to each plaintiff, when, and where is ‘improper group pleading.’” “By pleading the fraud claim against all defendants collectively, without any specification of the conduct charged to particular defendants,” said the motion court, “plaintiffs deprive defendants of the notice regarding ‘the material elements of each cause of action’ to which defendants are entitled under CPLR 3013.” Moreover, concluded the motion court, “ y referring to all defendants together, plaintiffs … fail to plead their fraud claim with the particularity required by CPLR 3016(b).” The First Department’s Decision On appeal, the First Department unanimously affirmed, holding that “Supreme Court properly dismissed that claim, as plaintiffs failed to plead fraud with particularity as required under CPLR 3016(b).” The Court explained that “ he complaint fail to identify any specific and material misrepresentation of fact by either Katz or Luff, and offered only general and conclusory allegations that they made ‘false representations’ regarding Skytop’s revenues and its ability to pay wages and benefits.” ____________________________ 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. See CPLR § 5015(a)(3); Oppenheimer v. Westcott , 47 N.Y.2d 595, 602-604 (1979). Matter of McKenna v. County of Nassau, Off. of County Attorney , 61 N.Y.2d 739, 742 (1984) (internal quotation marks and citation omitted). E.g. , Hallock v. State of New York , 64 N.Y.2d 224, 230 (1984); McCoy v. Feinman , 99 N.Y.2d 295, 302 (2002); Matter of Alsaede v. Kelly , 96 A.D.3d 495, 496 (1st Dept. 2012). White Plains Coat & Apron Co., Inc. v. Cintas Corp. , 8 N.Y.3d 422, 425 (2007)) (quoting, Restatement (Second) of Torts § 766). Id. at 426. Id. Hudson Bay Master Fund Ltd. v. Patriot Nat’l, Inc. , 2019 WL 1649983, at *16 (S.D.N.Y. Mar. 28, 2019) (quoting, Bausch & Lomb Inc. v. Mimetogen Pharms., Inc. , 2016 WL 2622013, at *11 (W.D.N.Y. May 5, 2016)); see also Foster v. Churchill , 87 N.Y.2d 744 (1996); UMG Recordings, Inc. v. Escape Media Grp., Inc. , 37 Misc. 3d 208, 224 (Sup. Ct., N.Y. County 2012). Felsen v. Sol Cafe Mfg. Corp. , 24 N.Y.2d 682, 687 (1969); Morrison v. Frank , 81 N.Y.S.2d 743 (1948); see also Foster , 87 N.Y.2d at 751. American Protein Corp. v. AB Volvo , 844 F.2d 56, 63 (2d Cir 1988), cert. denied , 488 U.S. 852 (1988); WMW Mach. Co. v. Koerber AG. , 240 A.D.2d 400, 401 (2d Dept. 1997); Koret, Inc. v. Christian Dior, S.A. , 161 A.D.2d 156, 157 (1st Dept. 1990), lv. denied , 76 N.Y.2d 714 (1990). Ultramar Energy v. Chase Manhattan Bank , 179 A.D.2d 592, 592-593 (1st Dept. 1992). Don King Prods., Inc. v. Smith , 47 Fed. App’x 12 (2d Cir 2002). See UMG , 37 Misc. 3d at 225; Green Star Energy Solutions, LLC v. Edison Props., LLC , 2022 U.S. Dist. LEXIS 196738, at *48-49, 2022 WL 16540835, at *16 (S.D.N.Y. Oct. 28, 2022). Id. (citing, Carvel Corp. v. Noonan , 3 N.Y.3d at 191; Krinos Foods, Inc. v. Vintage Food Corp. , 30 A.D.3d 332, 333 (1st Dept. 2006)). See , e.g. , Johnson v. Cestone , 162 A.D.3d 526, 527 (1st Dept. 2018). Slip Op. at *1. Id. Id. (quoting, White Plains , 8 N.Y.3d at 426). Id. (citations omitted). Id. Id. Id. at *2-*3 (citing, Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 71-72 (1st Dept. 2017)). Id. at *3 (citing, MMCT, LLC v. JTR Coll. Point, LLC , 122 A.D.3d 497, 498 (1st Dept. 2014); Abrahami v. UPC Constr. Co. , 224 A.D.2d 231, 234 (1st Dept. 1996)). Id. Lama Holding Co. v. Smith Barney Inc. , 88 N.Y.2d 413, 421 (1996). Perella Weinberg Partners LLC v. Kramer , 153 A.D.3d 443, 449 (1st Dept. 2017). Id. ; Meiterman v. Corp. Habitat , 173 A.D.3d 593, 594 (1st Dept. 2019). Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559 (2009). Pludeman v. Northern Leasing Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (citation omitted). Antigenics Inc. v. U.S. Bancorp Piper Jaffray, Inc. , 2004 WL 51224, at *3 (S.D.N.Y. Jan. 9, 2004) (quoting, In re Initial Public Offering Sec. Litig. , 241 F. Supp. 2d 281, 327 (S.D.N.Y. 2003)). Pludeman , 10 N.Y.3d at 491 (internal quotation marks and citation omitted). Id. at 492. Id. RKA Film Fin., LLC v. Kavanaugh , 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting, Shea v. Hambros PLC , 244 A.D.2d 39, 46 (1st Dept. 1998)). Person v. PSI Sys., Inc. , 73 Misc. 3d 1220(A) (Sup. Ct., N.Y. County Npv. 16, 2021). E.g. , Principia Partners LLC v. Swap Fin. Group, LLC , 194 A.D.3d 584, 584 (1st Dept. 2021); Aetna Cas. & Sur. Co v. Merchants Mut. Ins. Co. , 84 A.D.2d 736 (1st Dept. 1981) (affirming a dismissal of a complaint where the claims were “pleaded against all defendants collectively without any specification”); Ritchie v. Carvel Corp. , 180 A.D.2d 786, 787 (2d Dept. 1992) (“allegations of fraud that refer only to the ‘defendants’ without connecting particular misrepresentations to the particular defendants are insufficient”); Excel Realty Advisers LP v. SCP Capital, Inc. , 2010 N.Y. Slip Op. 33447 (U) (Sup Ct. Nassau Co. Dec. 2, 2010), aff’d. , 101 A.D.3d 669 (2d Dept. 2012) (dismissing fraud claim “primarily based upon a series of oblique averments which . . . lump the defendants together without any specification as to the precise fraudulent conduct attributed to each….”). Principia="Principia" Partners="Partners" here.=">here."> Slip Op. at *1 (citation omitted). Id. at *1-*2 (citing, Principia Partners , 194 A.D.3d at 584).

By Jonathan H. Freiberger Because there have been a number of appellate decisions interpreting RPAPL 1304 , this Blog has written frequently on that topic.  See, e.g. , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .   By way of background, and as previously noted in the Blog, RPAPL 1304 requires that at least ninety days before commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a “lender, assignee or mortgage loan servicer” must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that offer free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter.  Many cases we have treated relate to the sufficiency of proof presented to demonstrate compliance with RPAPL 1304.  See, e.g., < here =">here"> and < here =">here"> . On June 28, 2023, the Appellate Division, Second Department, decided two more RPAPL 1304 cases related to the sufficiency of proof presented by the lender. Ditech Servicing, LLC v. McFadden Borrower borrowed approximately $400,000.00 from GMAC Mortgage Corp. secured by a mortgage on real property.  Ocwen Loan Servicing, LLC, GMAC’s successor in interest, commenced a foreclosure action against borrower, who, in his answer, asserted defenses based on lender’s failure to comply with, inter alia , RPAPL 1304.   Owen Loan Servicing moved, inter alia , for summary judgment on its complaint, to strike borrower’s answer and to substitute Ditech Servicing, LLC as plaintiff.  The motion court granted the motion to the extent of substituting Ditech as plaintiff, but denied the remainder of the motion. Thereafter, lender renewed its motion for summary judgment and to strike borrower’s answer. Borrower cross-moved to dismiss the complaint for failure to, inter alia , comply with RPAPL 1304.  In support of the motion, lender: submitted an affidavit of Richard J. Schwiner, a loan analyst employed by Ocwen Financial Corporation …, "whose indirect subsidiary is the original named plaintiff in this action, ." Throughout his affidavit, Scwhiner referred to Ocwen Servicing exclusively as "Ocwen." Schwiner stated that he was familiar with the records and record-keeping practices of Ocwen Servicing, and that its records had incorporated GMAC's prior records for the subject loan.  Regarding Ocwen Servicing's compliance with RPAPL 1304 …, Schwiner stated, inter alia, that " t was the practice, policy, and procedure of Ocwen to contemporaneously enter a notation into the account notes of borrowers once the 90-Day Notice letters were sent by regular and certified mail." He stated that Ocwen Servicing's business records showed that such a contemporaneously entered notation was entered on March 14, 2013, showing that the RPAPL 1304 notice was sent to the defendant in accordance with New York State law. Schwiner attached the business records upon which he relied to his affidavit.  By Order dated March 6, 2020, the motion court granted lender’s motion for summary judgment and to strike borrower’s answer and denied borrower’s cross-motion.  On the same day, the motion court also issued another order granting the same relief and appointing a referee to compute.  Borrower appealed both orders. The Second Department modified the first order by denying lender’s motion.  In so doing, the Court agreed with borrower that lender failed to demonstrate compliance with RPAPL 1304 and stated: In support of its motion, the plaintiff submitted, among other things, a copy of a 90-day notice dated March 14, 2013, addressed to the defendant at the address of the mortgaged premises. However, the copy of the notice contains no indication that it was sent by registered or certified mail, or by first-class mail. Nor is there a copy of any United States Post Office document indicating that the notice was sent by registered or certified mail as required by the statute. Although Schwiner stated his purported familiarity with the records and record-keeping practices of Ocwen Servicing, this carried no probative value, as Schwiner never stated that he worked for that entity. Schwiner further represented that Ocwen Servicing was an "indirect subsidiary" of his employer, Ocwen Financial; however, he failed to explain why that would have made him privy to the record-keeping practices utilized by Ocwen Servicing at the time that the 90-day notice was allegedly sent, which was more than 5 ½ years before Schwiner executed his affidavit. Morever, Schwiner did not attest to having any personal knowledge of, or familiarity with, Ocwen Servicing's actual standard mailing procedures during the relevant time period, which were designed to ensure that items are properly addressed and mailed. Accordingly, Schwiner's assertion in his affidavit that the RPAPL 1304 notice was sent to the defendant on March 14, 2013, at the address of the mortgaged premises, "by registered or certified and first-class mail," was unsubstantiated and conclusory.  (Citations, internal quotation marks and brackets omitted.) The Court also determined that the motion court properly denied borrower’s cross-motion because he failed to “affirmatively demonstrate that did not comply with RPAPL 1304….”  (Citation omitted.) MTGLQ v. Cacioppo Lender commenced an action to foreclose a mortgage and moved for summary judgment on its complaint and to strike borrower’s answer.  Borrower opposed the motion, and cross-moved to dismiss the complaint, for failure to comply with RPAPL 1304.  The motion court denied lender’s motion and granted borrower’s cross-motion.  On lender’s appeal, the Second Department modified and denied lender’s motion and, in so doing, stated: Here, the plaintiff failed to establish, prima facie, that it strictly complied with RPAPL 1304. The plaintiff submitted a detailed affidavit of mailing from an assistant secretary of loan documentation at Rushmore Loan Management Services, LLC (hereinafter Rushmore), which demonstrated that the RPAPL 1304 notices had been mailed in accordance with the statute. However, this affidavit failed to demonstrate that Rushmore had the authority to service the loan at the time that it mailed the RPAPL 1304 notices to the defendant, and this record presents triable issues of fact as to whether Rushmore had this authority.  The Court also held that borrower’s cross-motion should have been denied because borrower’s “bare denial of receipt of the RPAPL 1304 notice was insufficient to establish her prima facie entitlement to judgment as a matter of law, and she did not carry her burden in moving for summary judgment by pointing to the gaps in the plaintiff's proof.  (Citations, internal quotation marks and brackets omitted.)