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By: Jeffrey M. Haber Sometimes, a plaintiff will find it difficult to serve a defendant with process. There can be many reasons for such difficulties. Avoidance is one such reason. After all, no one wants to be sued. When a defendant tries to avoid service, a plaintiff may request permission from the court to serve the defendant using alternative means, such as service by publication. That was the situation in Big Yuk Chiu v. Louzon , 2022 N.Y. Slip Op. 32941(U) (Sup. Ct., N.Y. County Aug. 31, 2022) ( here ). As shown in Big Yuk Chiu , the courts do not engage in “catch me if you can” games. Big Yuk Chiu was an action to recover on a guaranty. Defendant moved to dismiss on the ground that he was never served. He claimed that the affidavit of service, which asserted that defendant was served via “nail and mail” at an address on Prince Street in New York City, was not sufficient because he does not live there. Defendant claimed that he resides, and has resided, in Paris, France. Defendant did not, however, provide an address of where he lives. In opposition and in support of his cross-motion, plaintiff asked the motion court for an extension of time to serve defendant, that he be permitted to serve defendant via his counsel or, in the alternative, for leave to serve defendant in some other way. Plaintiff maintained that, as shown on a deed for a separate property (located on Thompson Street in Manhattan), defendant resided in Manhattan. As an initial matter, the motion court held that defendant adequately established that service was not properly effectuated. The motion court accepted defendant’s averment that he does not live in Manhattan, but noted that in his supporting documentation, defendant failed to provide the street address in Paris on which he lives. Turning to plaintiff’s cross-motion to serve defendant using alternative means, the motion court granted the motion. “CPLR 308(5) vests a court with the discretion to direct an alternative method of service of process when it has determined that the methods set forth in CPLR 308(1), (2), and (4), which provide for service by personal delivery, delivery and mail, and affixing and mailing, respectively, are impracticable. The impracticability standard does not require the applicant to satisfy the more stringent standard of due diligence under CPLR 308(4 ) nor make an actual showing that service has been attempted pursuant to CPLR 308(1), (2), and (4). Once the impracticability standard is satisfied, due process requires that the method of service be ‘reasonably calculated, under all the circumstances, to apprise’ the defendant of the action.” 1 The motion court found that plaintiff demonstrated that he identified a probable address for defendant in New York City. 2 But, having done so only left “plaintiff in a tough predicament, one that obviously impracticable. He must now try to find where defendant lives in Paris and then spend the resources necessary to serve him via the Hague Convention.” 3 The motion court “decline to play along with defendant’s game of ‘Catch Me If You Can.’” 4 The motion court reasoned that “ efendant clearly knows about this case having already learned about it due to plaintiff’s efforts – and so an alternative means of service appropriate.” 5 However, the motion court declined to allow service by serving the attorney who brought the motion, as plaintiff requested. “If courts appointed the attorney as the defendant’s agent for service of process,” noted the motion court, “then there would be no need for traverse hearings or any real attempts to properly serve defendants; no defendant could ever win a jurisdictional challenge if judges issued opinions saying, in effect, that ‘service was bad but just email the attorney defendant hired to challenge service to make it good.’” 6 The motion court also opined that allowing service on the attorney would “disincentivize parties from seeking counsel altogether.” 7 Since plaintiff did not provide an email address for defendant, the motion court held that publication was an acceptable means to serve defendant. 8 In so holding, the motion court noted that “service by publication a method of notice that least calculated to notify a defendant about the case. However, posting notices in publications based in Manhattan (both of which have an online presence) about a case concerning a breach of a guaranty for a property located in Manhattan sufficient under these circumstances,” said the Court. 9 “After all, plaintiff alleges that defendant signed a guaranty in connection with a store in Manhattan and defendant now owes plaintiff nearly $700,000.” 10 In conclusion, the motion court found that there was “no reason to make plaintiff hunt all over the world when plaintiff already showed that he followed the document trail in front of him and that defendant fully aware of this action. Now defendant is also fully aware of the publications in which notice of this lawsuit will be published.” 11 Takeaway CPLR § 308(5) empowers a court to direct the use of alternative methods of service when the customary methods are impracticable. Such impracticability may result when, as in Big Yuk Chiu , the defendant intentionally evades or resists service. When that happens, courts will “decline[] to play along with defendant’s game of ‘Catch Me If You Can.’” 12 Footnotes Slip Op. at *2 (quoting, Jean v. Csencsits , 171 A.D.3d 1149, 1149-50 (2d Dept. 2019) (internal quotations and citations omitted)). Id. at *3. Id. Id. Id. Id. Id. Id. at *3 (citing, Fid. Nat. Tit. Ins. Co. v. Smith , 2015 N.Y. Slip Op. 32497(U) (Sup. Ct, N.Y. County 2015)). Id. at *4. Id. Id. Id. at *3. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber On August 26, 2022, the Securities and Exchange Commission (“SEC” or “Commission”) announced ( here ) that it adopted two amendments to the rules governing its whistleblower program. The first rule change allows the Commission to pay whistleblowers for their information and assistance in connection with non-SEC actions in certain circumstances. The second rule affirms the Commission’s authority to consider the dollar amount of a potential award for the limited purpose of increasing an award but not to lower an award. Specifically, the SEC amended Rule 21F-3 to allow the Commission to pay whistleblower awards for certain actions brought by other entities, including designated federal agencies, in cases where those awards might otherwise be paid under the other entity’s whistleblower program. The amendments allow for such awards when the other entity’s program is not comparable to the Commission’s program or if the maximum award that the Commission could pay on the related action would not exceed $5 million. Further, the amendments affirm the Commission’s authority under Rule 21F-6 to consider the dollar amount of a potential award for the limited purpose of increasing the award amount, and it would eliminate the Commission’s authority to consider the dollar amount of a potential award for the purpose of decreasing an award. A copy of the final rule can be found here . A copy of the fact sheet summarizing the final rule can be found here . “In 2010, Congress under the Dodd-Frank Act directed the SEC to establish a whistleblower program, which to date has greatly aided the Commission’s work to protect investors,” said SEC Chair Gary Gensler. “Today’s amendments enact two changes to help enhance the whistleblower program. The first amendment expands the circumstances in which a whistleblower who assisted in a related action can receive an award from the Commission for that related action rather than from the other agency’s whistleblower program. Under the second amendment, when the Commission considers the size of the would-be award as grounds to change the award amount, it can do so only to increase the award, and not to decrease it. I think that these rules will strengthen our whistleblower program. That helps protect investors.” The SEC’s whistleblower program was established in 2010 to encourage individuals to report high-quality tips to the Commission and help the agency detect wrongdoing and better protect investors and the marketplace. The program has made significant contributions to the effectiveness of the Commission’s enforcement of the federal securities laws. Since the program’s inception, enforcement matters brought using original information from meritorious whistleblowers have resulted in orders for more than $5 billion in total monetary sanctions. The Commission has awarded more than $1.3 billion to meritorious whistleblowers under the program. The whistleblower rule amendments will become effective 30 days after publication in the Federal Register. Speaking of the whistleblower program … On August 9, 2022, the SEC announced ( here ) the award of more than $16 million to two whistleblowers who provided information and assistance in a successful SEC enforcement action.   The first whistleblower prompted the opening of the investigation and provided information on difficult-to-detect violations. This whistleblower also identified key witnesses and provided critical information, which helped the staff in their investigation. As a result, the SEC is awarding this whistleblower approximately $13 million. The second whistleblower submitted important new information during the course of the investigation. As a result, the SEC is awarding this whistleblower more than $3 million. “The information and assistance provided by these two whistleblowers in helping to identify complex wrongdoing demonstrates the importance of the whistleblower program to the SEC’s enforcement efforts,” said Creola Kelly, Chief of the SEC’s Office of the Whistleblower. “These whistleblowers reported critical information that aided the SEC’s investigation and provided extensive, ongoing cooperation that helped stop the wrongdoing and protect the capital markets.” Under the SEC’s whistleblower program, whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 to 30 percent of the money collected when the monetary sanctions exceed $1 million.  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 Regular readers of this Blog are familiar with Bank of America, N.A. v. Kessler , 202 A.D.3d 10 (2021)(“ Kessler ”), a case about which we have previously written < here ,=">here," here=">here"> and which addresses the pre-foreclosure notice requirements of RPAPL 1304 (a topic that is a frequent subject of this Blog – see < here =">here"> and the articles linked therein).  Briefly, as noted in prior Blog articles, 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. As has been discussed in this Blog’s prior articles, New York courts have strictly construed RPAPL 1304.  For example, in our October 1, 2021, Blog article < here =">here"> , we discussed Wells Fargo Bank, N.A. v. Yapkowitz , 199 A.D.3d 126 (2021), in which the Appellate Division, Second Department held that strict compliance with RPAPL 1304 required that separate notices be sent to each borrower and, accordingly, a jointly addressed notice to multiple borrowers was deemed insufficient.  Similarly, in our December 17, 2021, Blog article < here =">here"> , we discussed Kessler , in which the Second Department strictly interpreted RPAPL 1304 and dismissed a foreclosure complaint because the lender included a bankruptcy notice and a debt collection notice under the Fair Debt Collection Practices Act (“FDCPA”) with the RPAPL 1304 notice sent to the borrower.  In our February 11, 2022, Blog article < here =">here"> , we discussed U.S. Bank National Ass’n v. Gordon , 202 A.D.3d 872 (2022), in which the Second Department held that the lender failed to strictly comply with the requirements of RPAPL 1304 because it failed to demonstrate that the 90-day notices it sent to the borrowers contained the requisite list of five housing counseling agencies serving the county in which the subject property is located.  Numerous subsequent cases (and Blog articles) have been decided (and written) that have strictly construed RPAPL 1304. On August 30, 2022, the New York Supreme Court, Suffolk County, decided JPMorgan Chase Bank, N.A. v. Sapienza , a mortgage foreclosure action in which the lender sought “a discretionary stay because plaintiff believes that controlling Appellate Division case law will adversely affect plaintiff's case, but the Court of Appeals will, in plaintiff's estimation reverse” Kessler .  The lender in JPMorgan included debt collection and bankruptcy notices with its RPAPL 1304 notices.  The extra notice, which was obtained from the NYSCEF system, provides as follows: We are a debt collector This communication is an attempt to collect a debt and any information obtained will be used for that purpose. However, to the extent your original obligation was discharged or is subject to an automatic stay of bankruptcy under Title 11 of the United States Code, this notice is for compliance with non-bankruptcy law and/or informational purposes only and does not constitute an attempt to collect a debt or to impose personal liability for such obligation. Nothing in this letter (including our use of the words "your, " "loan, " "mortgage," or "account") means that you're required to repay a debt that's been discharged. Any payment you make on the account is voluntary, but we may still have rights under the security instrument, including the right to foreclose on the property. The lender’s argument in JPMorgan was premised on the notion that Kessler’s “strict compliance” requirement was somehow new.  The supreme court disagreed and, in so doing, rejected the lender’s “warp drive hyperbole that ‘ Kessler represented a world-shifting deviation from prior precedent and one that had not been foreshadowed in any way.’"  The JPMorgan court analyzed a litany of pre- Kessler cases advocating strict compliance with RPAPL 1304 – demonstrating a judicial history of strict compliance.  Further, the court noted that “ Kessler itself provides compelling evidence that it sets forth no new rule” to the extent that the Kessler Court “described the case as requiring ‘the Court to determine how exacting the requirement of strict compliance is with respect to the 'separate envelope' requirement of RPAPL 1304 (2).’" Among other things, the JPMorgan court rejected the lender’s argument that Kessler would not be applied retroactively.  In order for a case to be applied retroactively, a determination must be made that it has espoused a new rule.  The JPMorgan court made plain its view that no new rule was created in Kessler . Further, the court also minimized the lender’s reliance on CIT Bank, N.A. v. Neris , ___ F. Supp.3d ___, 2022 WL 1799497 (S.D.N.Y. 2022).  The borrower in CIT Bank defended a foreclosure action based on lender’s failure to comply with RPAPL 1304 because it included a debt collection notice along with its RPAPL 1304 notice.  The Lender argued, and the CIT Bank Court agreed,that the additional notice was required by the FDCPA.  The CIT Bank Court noted that, “ n particular, Section 1692e(11) of the FDCPA requires that an ‘initial written communication with the consumer,’ and any ‘subsequent communications,’ must state that the ‘debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.’”  Thus, the CIT Bank Court concluded that “the New York Court of Appeals would not follow the bright-line rule that the Second Department adopted in Kessler ” because federal law required the debt collection notices with the 1304 Notices.  In questioning the holding in CIT Bank , however, the JPMorgan court noted that the CIT Bank Court’s assumption that “the 1304 notice is, in fact, a communication from a debt collector subject to the FDCPA requirements” “may be incorrect”.  Among other analyses made by the J PMorgan court supporting the conclusion that strict compliance with RPAPL 1304 does not conflict with the FDCPA, the court stated: Mortgage foreclosures fall within the FDCPA's definition of debt collection. The FDCPA requires the so-called mini -Miranda warning only in the initial communication with the debtor. As to subsequent communications, "failure to disclose that the communication is from a debt collector" is forbidden (15 USC § 1692e <11> ). Thus, Kessler 's point about staging the sequence of communication has incredible force—in plain words, if a 1304 notice is a communication as defined in the FDCPA, then do not use the 1304 notice as the initial communication. Of course, that leaves the question of how a debt collector complies in the subsequent communication (i.e., the 1304 notice) that the debt collection not fail to disclose that the communication is from a debt collector. The answer may be that a 1304 notice is not subject to the disclosure requirement.  Finally, the JPMorgan court addressed the bankruptcy language included with the lender’s RPAPL 1304 notice.  The court found, inter alia , that such language was unnecessary. ______________________________ Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger Section 3025 of the CPLR permits litigants to amend their pleadings.  Without leave of court, a party can amend a pleading once, as of right, “within twenty days after its service, or at any time before the period for responding to it expires, or within twenty days after service of a pleading responding to it.”  CPLR 3025(a).   After the expiration of the “as of right” time to amend pleadings, a party can seek the court’s permission (or all parties can stipulate) to amend pleadings or supplement them with “additional or subsequent transactions or occurrences.”  CPLR 3025(b).  When amendment is sought be motion, “leave shall be freely given upon such terms as may be just….”  Id.  When leave is sought, the proposed amended or supplemental pleading must accompany the motion and all changes must be “clearly show .”  Id . Leave to amend a pleading pursuant to CPLR 3025(b) “should be granted where the amendment is neither palpably insufficient nor patently devoid of merit, and the delay in seeking amendment does not prejudice or surprise the opposing party.  DLJ Mortgage Capital, Inc. v. David , 147 A.D.3d 1024, 1025 (2 nd Dep’t 2017) (citations omitted).  Accordingly, “ o evidentiary showing of merit is required under CPLR 3025(b).”  Siddiqui v. Smith , 207 A.D.3d 681 (2 nd Dep’t 2022) (citations and internal quotation marks omitted). Determinations of whether to grant leave to amend “is within the Supreme Court’s broad discretion, and the exercise of that discretion will not be lightly disturbed.”  Gitlin v. Chirinkin , 60 A.D.3d 901, 902 (2 nd Dep’t 2009) (citation omitted). On August 24, 2022, the Appellate Division, Second Department, decided U.S. Bank Nat. Ass’n v. Cuesta , a mortgage foreclosure action addressing pleading amendments.  The defendant in US Bank borrowed money secured by a mortgage.  The underlying paper was assigned to plaintiff, who commenced a foreclosure action in April of 2016, after borrower’s default.  Lender moved for summary judgment in September of 2016.  Borrower, who appeared pro se , opposed the motion by arguing that lender failed to comply with the mandatory settlement conference provisions of CPLR 3408 .  CPLR 3408 requires a lender in residential foreclosure actions involving “home loans” to file proof of service of process within twenty days of service and for the court to hold a mandatory settlement conference within 60 days of such filing (or such adjourned date agreed to by the parties).  The purpose of the settlement conference is to further “settlement discussions pertaining to the relative rights and obligations of the parties under the mortgage loan documents, including, but not limited to: (i) determining whether the parties can reach a mutually agreeable resolution to help the defendant avoid losing his or her home, and evaluating the potential for a resolution in which payment schedules or amounts may be modified or other workout options may be agreed to, including, but not limited to, a loan modification, short sale, deed in lieu of foreclosure, or any other loss mitigation option; or (ii) whatever other purposes the court deems appropriate.”  CPLR 3408.  Ultimately, settlement conferences were held in January and April of 2017. Thereafter, in April of 2018, borrower, who had since retained counsel, moved pursuant to CPLR 3025(b) to amend her answer to include additional affirmative defenses.  In August of 2019, supreme court granted borrower’s motion for leave to amend and denied lender’s motion for summary judgment.  Lender appealed and the Second Department affirmed. First, the Court rejected lender’s argument that the amendment process cannot be used to revive defenses that would have otherwise been waived.  Thus, the Court reiterated that “defenses waived under CPLR 3211(e) can nevertheless be interposed in an answer amended by leave of court pursuant to CPLR 3025(b) so long as the amendment does not cause the other party prejudice or surprise resulting directly from the delay.” (Citation omitted.) Second, the Court rejected lender’s argument that borrower’s motion was not supported by an adequate affidavit of merit.  The Court stated that it will not “not examine the legal sufficiency or merits of a pleading unless such insufficiency or lack of merit is clear and free from doubt” and, instead, it “need only determine whether the proposed amendment is palpably insufficient to state a cause of action or defense, or is patently devoid of merit.”  (Citations and internal quotation marks omitted.) Finally, the Court rejected lender’s claim of prejudice due to the delay in resolution caused by the amendment.  “Mere lateness is not a barrier to the amendment. It must be lateness coupled with significant prejudice to the other side, the very elements of the laches doctrine.”  (Citations and internal quotation marks omitted.)  The Court explained that prejudice “requires some indication that the defendant has been hindered in the preparation of his or her case or has been prevented from taking some measure in support of his or her position.” (Citations, internal quotation marks and brackets 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 New York “favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties”. 1 Under the Federal Arbitration Act, “‘questions of arbitrability must be addressed with a healthy regard for the federal policy ... any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.’” 2 Thus, “where the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute”. 3 Although the intention of the parties is controlling, “those intentions are generously construed as to issues of arbitrability”. 4 As a general rule, “ hether a dispute is arbitrable is … an issue for the court to decide. 5 The exception to this rule occurs when “the parties clearly and unmistakably provide otherwise”. 6 Thus, “ f a valid agreement exists, and agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue.” 7 Often, the parties to an agreement will include broad arbitration clauses that incorporate by reference the rules of an arbitration organization, such as the American Arbitration Association (“AAA”), which provide that the issue of arbitrability rests with the arbitrators. In such circumstances, the courts will “leave the question of arbitrability to the arbitrators”. 8 However, if the parties’ agreement “contains a narrow arbitration provision, the reference to the does not constitute clear and unmistakable evidence that they have intended to have an arbitrator decide arbitrability. Thus, that question is for the court to decide in the first instance”. 9 The rationale for the exception to the rule makes sense. When the parties include a broad arbitration provision covering all or substantially all disputes under the agreement, 10 it is reasonable to conclude that they clearly and unmistakably agreed to refer disputes regarding the scope of the arbitration provision itself to the arbitrator. When the arbitration provision is more limited, as it was in Zachariou (where the arbitrator was limited to determining the amount of certain distributions), there is no such clarity as to whether the parties agreed to defer the question of arbitrability to the arbitrator. Thus, in such cases, the default rule controls ( i.e. , the court decides). The foregoing principles were considered by the Appellate Division, First Department in Matter of Metropolitan Transp. Auth. v. Westfield Fulton Ctr., LLC , 2022 N.Y. Slip Op. 05008 (1st Dept. Aug. 23, 2022) ( here ). The parties were signatories to a lease agreement with respect to certain portions of the Fulton Center transportation complex in lower Manhattan. The lease provided that New York state and the federal courts would have “exclusive jurisdiction over any case or controversy arising from, under or in connection with Lease” and would “be the sole and exclusive forum in which to adjudicate any such dispute, except for any dispute that by the express terms of Lease is to be resolved by Arbitration”.  The Lease described seven specific categories of disputes that were subject to Arbitration, including (as relevant to the case) “any dispute between Landlord and Tenant as to whether Substantial Completion or Final Completion has occurred”. If an arbitrable dispute is “construction-related,” the arbitration would “be administered under the Construction Industry Arbitration Rules and Mediation Procedures of the AAA”. Under those rules, “ he arbitrator the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement”. Respondent filed with the AAA a demand for arbitration and a statement of claim against Petitioner. Broadly construed, Respondent’s claims arose under Section 3.1 of the Lease, which, as noted, mandated arbitration of “any dispute between Landlord and Tenant as to whether Substantial Completion or Final Completion has occurred.” In response, Petitioner sought a permanent stay of the arbitration under CPLR §§ 7502 and 7503(b). Petitioner asserted that Respondent’s claims for relief did not fall “within any of the narrow grounds for arbitration identified in the Lease”.  Shortly thereafter, Petitioner moved by order to show cause for a preliminary injunction and temporary restraining order enjoining Respondent from proceeding with the arbitration. In response, Respondent asserted that its claims in arbitration were disputes “as to whether Substantial Completion or Final Completion ha occurred,” and therefore were subject to mandatory arbitration under Section 3.1 of the Lease. The motion court signed the order to show cause, temporarily staying the arbitration pending the hearing on the motion for a preliminary injunction. Following argument, the motion court dissolved the temporary restraining order, denied the motion for a preliminary injunction, and denied the petition seeking a permanent stay of the arbitration. As an initial matter, the motion court held that the issue of arbitrability was one for the court and not the arbitrator: Most importantly, the default rule under Section 29 of the Lease is that “any case or controversy arising from, under or in connection with this Lease” are to be resolved exclusively in litigation unless the dispute is expressly directed to arbitration elsewhere in the agreement. Although there are several provisions in the Lease directing the parties to arbitrate specific substantive disputes, including Section 3.1 upon which Westfield relies, there are no provisions stating “clearly and unmistakably” that the question of arbitrability is to be decided by the arbitrator. Having decided that issue, the motion court held that the claims asserted by Respondent were arbitrable under Section 3.1 of the Lease. The motion court explained that “ he gravamen of Statement of Claim is that failed to deliver the Commercial Usage Areas of the Premises to in ‘Tenant-Ready Condition’”. 11 “As such,” concluded the motion court, “the Statement of Claim concern a dispute as to whether satisfied a condition of Substantial Completion and Final Completion.”  On appeal, the First Department unanimously affirmed the decision and order of the motion court. First, the Court found that the motion court “correctly reached the issue of whether the claims asserted by respondent … came within the scope of the arbitration provisions in the parties’ lease.” 12 The Court explained that “ lthough there several provisions in the lease directing that the parties arbitrate specific substantive disputes, including section 3.1 upon which relie , there no provisions stating ‘clearly and unmistakably that the question of arbitrability to be decided by the arbitrator”. 13 Second, the Court held that the motion court “correctly dismissed petition to stay the arbitration.” 14 The Court explained that “ lthough Section 3.1 of the lease contain a narrow arbitration clause, the allegations in statement of claim, broadly construed, all relate to ‘whether Substantial Completion or Final Completion has occurred.’” 15 Accordingly, concluded the Court, the motion court “correctly” held “that respondent’s claims triggered the arbitration clause.” 16 Further, said the Court, “even if some of the relief requested in the arbitration appears to fall outside the narrow arbitration clause, that alone not a basis to stay the arbitration as long as ‘the fashioning of some relief on the issue sought to be arbitrated remains within the arbitrator’s power”. 17 The Court held that “ his includes request for attorneys’ fees under section 23.1 of the lease, should it ultimately prevail at arbitration.” Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP complex commercial litigation attorneys. This article is for informational purposes and is not intended to be and should not be taken as legal advice. Footnotes Smith Barney Shearson Inc. v. Sacharow , 91 N.Y.2d 39, 49-50 (1997) (citations omitted). Singer v. Jefferies & Co., Inc. , 78 N.Y.2d 76, 81-82 (1991) (quoting Cone Mem. Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24-25 (1983)). AT&T Techs. v. Communs. Workers of Am. , 475 U.S. 643, 650 (1986) (citations omitted); see also Wilson v. PBM, LLC , 193 A.D.3d 22 (2d Dept. 2021). Singer , 78 N.Y.2d at 82 (citation omitted). Zachariou v. Manios , 68 A.D.3d 539, 539 (1st Dept. 2009). Id. Henry Schein, Inc. v. Archer and White Sales, Inc. , 139 S.Ct. 524, 530 (2019). Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s , 66 A.D.3d 495, 496 (2009) (citation omitted). Zachariou , 68 A.D.3d at 539. See, e.g. , Flintlock Const. Servs., LLC. v Weiss , 122 A.D.3d 51, 54 (1st Dept. 2014). Under the lease, “Substantial Completion” was defined to include, among other things, that the premises was in “Tenant-Ready Condition”. Slip Op. at *1. Id. (citing Zachariou , supra ). Id. Id. Id. Id. (quoting Zachariou , 68 A.D.3d at 540 (internal quotation marks omitted)).

By: Jeffrey M. Haber It is common to include a notice provision in commercial contracts and instruments, such as a loan, promissory note or guaranty. Notice provisions identify the party to whom written notice is to be given and specify the required method and means for delivery of written notice under the contract or instrument. Sometimes, the provision will require the parties to update the provision to account for changes to his or her contact information. As shown in Hudson Val. Bank, N.A. v. Eagle Trading , 2022 N.Y. Slip Op. 04956 (2d Dept. Aug. 17, 2022) ( here ), failing to update one’s contact information in a notice provision can have significant repercussions. In Hudson Valley Bank , plaintiff sought to recover on a promissory note and a personal guaranty, both of which were executed by defendant. Defendant failed to appear or answer the complaint. Plaintiff was subsequently granted leave to enter a default judgment against defendant, and, after an inquest on the issue of damages, a judgment was entered in favor of plaintiff and against defendant in the principal sum of $127,860.26. Thereafter, defendant moved (a) to vacate the judgment, arguing, among other things, lack of personal jurisdiction , and (b) to dismiss the complaint for lack of personal jurisdiction. Defendant argued that service was invalid because he never resided at the address set forth in the affidavit of service. In support of his motion, defendant submitted his own affidavit and documentary evidence, including utility bills and his New York State driver license, to substantiate his assertion that he never resided at the service address. In opposition to defendant’s motion, plaintiff relied upon the affidavit of service to establish that defendant was served at his residence. Plaintiff argued, among other things, that defendant should be estopped from challenging the propriety of the service address, as that address had been provided by defendant and set forth in the personal guaranty, and defendant had personally and affirmatively agreed to receive written notice at that location and to notify plaintiff if and when his address changed. The motion court denied defendant’s motion. The motion court concluded that the affidavit of service constituted prima facie evidence of proper service and that defendant’s evidentiary submissions were insufficient to rebut the presumption of proper service established by the affidavit of service.  On appeal, the Appellate Division, Second Department affirmed, “albeit on grounds different from those relied upon by the ”. 1 As an initial matter, the Court held that because defendant raised a jurisdictional objection under CPLR § 5015(a)(4) 2 as a basis for vacating the default judgment, the motion court was required “to resolve the jurisdictional question before determining whether it appropriate to grant a discretionary vacatur of the default under CPLR 5015(a)(1)”. 3 “Service of process upon a natural person must be made in strict compliance with the statutory methods of service set forth in CPLR 308.” 4 “The failure to comply with the specific mandates of CPLR 308(4)”, said the Court, “is a jurisdictional defect, and ‘notice received by means other than those authorized by statute cannot serve to bring a defendant within the jurisdiction of the court.’” 5 Service “is invalid if the service address is not, in fact, the defendant’s actual place of business, dwelling place, or usual place of abode”, noted the Court. 6 “Ordinarily, a process server’s affidavit of service establishes a prima facie case as to the method of service and, therefore, gives rise to a presumption of proper service”, said the Court. 7 The Court found that the motion court “properly determined, the affidavit of service demonstrated, prima facie, that the defendant was served with the summons and complaint pursuant to CPLR 308(4) by affixing a copy of the summons and complaint to the door of his actual dwelling place, and by mailing a copy of the summons and complaint to his last known residence.” 8 Turning its attention to defendant’s argument that service was invalid because he did not reside at the address set forth in the affidavit of service, the Court agreed with plaintiff that “defendant should be estopped from challenging the propriety of that address.” 9 “Estoppel, in this context,” explained the Court, “may preclude a defendant ‘from challenging the location and propriety of service of process if that defendant has engaged in affirmative conduct which misleads a party into serving process at an incorrect address’”. 10 For example, said the Court, “where a defendant willfully misrepresented his address or violated a statutory notification requirement ( see Ray v Metropolitan Transp. Auth. , 221 AD2d 613), or where he engaged in conduct calculated to prevent the plaintiff from learning his actual place of residence ( European Am. Bank & Trust Co. v Serota , 242 AD2d 363, 364 ), he may be estopped from asserting the defense of defective service”. 11 The Court found that “the record established that the defendant engaged in ‘affirmative conduct which misl a party into serving process at an incorrect address’”. 12 “Under the circumstances,” concluded the Court, “the defendant should have been estopped from contending that the address set forth in the affidavit of service was not his ‘dwelling place’ (CPLR 308<2> ), and that branch of the defendant’s motion which was pursuant to CPLR 5015(a)(4) should have been denied on this ground.” 13 Takeaway Although often an afterthought in contract negotiations, parties should give the notice provision more attention both during contract negotiations and after execution of the agreement. Hudson Valley Bank highlights the consequences of not keeping the information contained in the notice provision updated. 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. Footnotes Slip Op. at *2. Pursuant to CPLR § 5015(a)(4), “ he court which rendered a judgment or order may relieve a party from it upon such terms as may be just, on motion of any interested person … upon the ground of … lack of jurisdiction to render the judgment or order”. See Paulus v. Christopher Vacirca, Inc. , 128 A.D.3d 116, 122 (2d Dept. 2015). Id. (quoting HSBC Bank USA, N.A. v. Dalessio , 137 A.D.3d 860, 862-863 (2d Dept. 2016) (internal quotation marks omitted); and citing Wells Fargo Bank, N.A. v. Besemer , 131 A.D.3d 1047, 1047-1048 (2d Dept. 2015). HSBC Mtge. Corp. (USA) v. Hollender , 159 A.D.3d 883, 883 (2d Dept. 2018). Slip Op. at *2 (quoting Feinstein v. Bergner , 48 N.Y.2d 234, 241 (1979)). Id. (citing Everbank v. Kelly , 203 A.D.3d 138, 147 (2d Dept. Feb. 2, 2022)). Id. (citations omitted). Id. Id. Id. (quoting Everbank , 203 A.D.3d at 145). Id. (quoting Bank of New York v. MacPherson , 301 A.D.2d 485, 486 (2d Dept. 2003) (internal quotation marks omitted)). Id. at *2-*3 (quoting Everbank , 203 A.D.3d at 145; additional citations omitted). Id. at *3.

By: Jeffrey M. Haber The disclosure of related-party transactions is an important part of a company’s corporate governance and financial statements. It provides transparency as to how the entity’s financial position and financial performance may be affected by transactions with related parties. 1 The definition of a related party is not limited. A related party may be someone who has direct or indirect control (including common control), joint control or significant influence over another. 2 A controlling investor and key management person, as well as their close family members, can be a related party. 3 An entity’s related-party relationships and transactions can also take a variety of forms. 4 These transactions may occur in the normal course of business, such as the purchase and sale of goods, cash pooling or central treasury functions, management services, and loans and guarantees. 5 They may or may not be conducted on an arm’s-length basis. 6 Although related-party transactions are themselves legal, they may create conflicts of interest or lead to other illegal situations. 7 For this reason, securities regulators, like the Securities and Exchange Commission (“SEC”), require disclosure of related-party transactions so that investors and shareholders can assess whether such transactions are conflict-free and do not affect shareholder value or the corporation’s profits negatively. 8 On August 16, 2022, the SEC announced ( here ) that it charged Eagle Bancorp, Inc., based in Bethesda, Maryland, and its former Chief Executive Officer and Chairman of the Board, Ronald D. Paul, with negligently making false and misleading statements about related-party loans extended by the bank to Paul’s family trusts. Eagle and Paul agreed to settle the SEC’s charges . In its Order Instituting Cease-and-Desist Proceedings, the SEC found that, from March 2015 through April 2018, Eagle failed to disclose loans to Paul’s family trusts totaling at times nearly $90 million in the related-party loan balances included in its annual reports and proxy statements ( here ). The SEC also found that Eagle improperly omitted tens of millions of dollars of loans to Eagle directors and their family members from these related-party loan balances. Both SEC regulations and Generally Accepted Accounting Principles (“GAAP”) required Eagle to disclose these related-party transactions. The SEC further found that, following a December 2017 short seller’s report asserting that Eagle had made significant undisclosed loans to Paul’s family trusts, Eagle and Paul falsely stated in press releases, news articles, and meetings with investors that the trust loans were not related-party loans and that Eagle was in compliance with all related-party loan requirements. The SEC said that even though Eagle’s independent auditor and primary regulator concluded that the trusts were related parties under GAAP and banking regulations, respectively, Eagle failed to disclose the trust loans as related-party loans in its 2017 annual report. The SEC claimed that Eagle violated the negligence-based anti-fraud, proxy, reporting, books and records, and internal accounting controls provisions of the federal securities laws. Without admitting or denying the SEC’s findings, Eagle agreed to cease and desist from future violations and to pay disgorgement of $2.6 million, prejudgment interest of $750,493, and a civil penalty of $10 million. In a complaint filed in the United States District Court for the Southern District of New York against Paul ( here ), the SEC charged Paul with violating the negligence-based antifraud and proxy provisions of the federal securities laws and making false certifications. Without admitting or denying the SEC’s allegations, Paul agreed to a permanent injunction, a two-year officer and director bar, and disgorgement of $109,000, prejudgment interest of $22,216, and a penalty of $300,000. The settlement is subject to court approval. “Adequate disclosures of related party transactions are essential to enable investors to evaluate an issuer’s corporate governance,” said Sanjay Wadhwa, Deputy Director of the SEC’s Enforcement Division. “Here, faced with a short seller’s report alleging undisclosed related party loans by the bank, both Eagle and Paul failed to respond truthfully and accurately.” In a parallel action, the Federal Reserve Board announced settled enforcement actions against EagleBank and Paul. 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. Footnotes KPMG Advisory, Related Party Disclosures: IFRS® Standards vs US GAAP (June 4, 2021) ( here ). Id. Id. Id. Id. Id. Will Kenton, Related-Party Transaction , Investopedia (April 2022). Id.

By: Jeffrey M. Haber It is not often that a defendant can defeat a motion for summary judgment under CPLR § 3213. In Landa v. Friedman , 2022 N.Y. Slip Op. 32673(U) (Sup. Ct. N.Y. County Aug. 5, 2022) (here), however, that is exactly what happened. See,  e.g. ,="See, e.g.," here,  here and  here.=">here."> Under CPLR § 3213, a plaintiff may seek summary judgment in lieu of a complaint “ hen action is based upon an instrument for the payment of money only.” 1 The purpose of the statute “is to provide an accelerated procedure where liability for a certain sum is clearly established by the instrument itself.” 2 A promissory note may qualify as such an instrument, so long as the plaintiff submits proof of the existence of the note and of the defendant’s failure to make payment. 3 Such proof must be in admissible form sufficient to establish the absence of any material, triable issues of fact. 4 However, “ here the instrument requires something in addition to defendant’s explicit promise to pay a sum of money, CPLR 3213 is unavailable.” 5 A plaintiff’s prima facie proof “cannot be drawn from sources outside the agreement itself.” 6 Once the movant meets this burden, it becomes incumbent upon the party opposing the motion to come forward with proof in admissible form to raise a triable issue of fact. 7 In Landa , plaintiff, as Trustee of the Golda Landa 2011 Irrevocable Trust, submitted seven promissory notes and a sworn affidavit to support the motion. Each note was in the principal amount of $28,000.00 signed by defendant and his ex-wife. The notes were dated October 31, 2013 and had a maturity date ranging from December 2015 through December 2021. The notes were executed several months after plaintiff’s mother provided $269,287.00 as a down payment on a Manhattan condominium unit for defendant and his then-wife. Defendant and his then-wife lived in the apartment until May 2018, when defendant commenced a divorce proceeding against his wife. No note was repaid, and no payment was demanded from October 2013 until July 2020.  Plaintiff commenced the action in in December 2021, seeking recovery on the notes from defendant.  The Court held that the foregoing facts presented factual issues as to whether the funds were intended as a loan or a gift. The Court noted that “ ven assuming that the plaintiff had met his burden in the first instance under CPLR 3213,” defendant’s affidavit and submissions “ha raised triable issues of fact in regard to whether the down payment for apartment … was intended as a gift ….” 8 In that regard, defendant averred that the money was intended as a gift, not a loan, and that the circumstances surrounding execution of the notes confirmed that fact. According to defendant, in October 2013, several months after the closing on the apartment, plaintiff asked defendant and his then-wife to sign the notes “in order for you guys to get the gift without tax.” Defendant claimed that the notes were “made in the precise amount of $28,000.00, to be split between the signatories, $14,000.00 each, … because $14,000.00 was the limit for tax-free gifts under the 2013 Internal Revenue Code, leaving the full amount untaxed.” 9 Defendant claimed that the notes “submitted by the plaintiff were missing a third page, which included an amortization or ‘note forgiveness’ schedule that required no repayment at all and provided that each note would ultimately be forgiven.” 10 Defendant also observed that the notes contained no merger clause precluding proof of the oral representations that the funds were intended as a gift. 11 Further, said the Court, “defendant correctly argue that the relationship of the parties involved increase the likelihood that, notwithstanding the existence of the notes, the funds were intended as gift.” 12 Thus, concluded the Court, plaintiff did not demonstrate “entitlement to summary relief by means of CPLR 3213.” 13 Takeaway CPLR § 3213 is designed to afford a speedy and efficient remedy by which to secure a judgment in certain cases where service of formal papers would be unnecessary for the expeditious resolution of the dispute between the parties. This accelerated procedure, however, is limited solely to an action based either upon an instrument for the payment of money only or upon a judgment. To qualify for CPLR § 3213 treatment, plaintiff must prove a prima facie case by the instrument and a failure to make the payments called for by its terms. While at first blush the notes at issue in Landa appeared to be instruments suited for the accelerated judgment provisions of CPLR § 3213, closer scrutiny was necessary because of the circumstances surrounding execution of the notes. Plaintiff’s entitlement to recovery under the notes required proof, outside the notes, that the money provided was in fact a loan. Since proof of a loan was necessary before defendant’s obligation to pay became enforceable, the notes could not be said to be the simple unconditional promise to pay which would render them each “an instrument for the payment of money only”. Accordingly, the Landa Court concluded that the use of the expedited procedures provided by CPLR § 3213 was not available. 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. Footnotes See HSBC Bank USA v. Community Parking Inc. , 108 A.D.3d 487 (1st Dept. 2013); Allied Irish Banks, P.L.C. v. Young Men’s Christian Assn. of Greenwich , 105 A.D.3d 516 (1st Dept. 2013); German Am. Capital Corp. v. Oxley Dev. Co., LLC , 102 A.D.3d 408 (1st Dept. 2013). G.O.V. Jewelry, Inc. v. United Parcel Serv. , 181 A.D.2d 517, 517 (1st Dept. 1992). See Bonds Fin’l, Inc. v. Kestrel Techs., LLC , 48 A.D.3d 230 (1st Dept. 2008); Seaman-Andwall Corp. v. Wright Machine Corp. , 31 A.D.2d 136 (1st Dept. 1968). See CPLR § 3212(b); Jacobsen v. New York City Health & Hosps. Corp. , 22 N.Y.3d 824 (2014); Alvarez v. Prospect Hosp. , 68 N.Y.2d 320 (1986); Zuckerman v. City of New York , 49 N.Y.2d 557 (1980). Weissman v. Sinorm Deli , 88 N.Y.2d 437, 444 (1996). Rhee v. Meyers , 162 A.D.2d 397, 398 (1st Dept. 1990); see Ian Woodner Family Collection, Inc. v. Abaris Brooks, Ltd. , 284 A.D.2d 163 (1st Dept. 2001). See Alvarez v Prospect Hosp. , supra ; Zuckerman , supra . Slip Op. at *2 (citing Jurkiewicz v. Zechewytz , 15 A.D.3d 721 (3d Dept. 2005); Dayan v. Yurkowski , 238 A.D.2d 541 (2d Dept. 1997)). Id. at *3. Id. “ arol evidence may be offered ‘to show that a writing, although purporting to be a contract, is, in fact, no contract at all.’” Polygram Holding, Inc. v. Cafaro , 42 A.D.3d 339, 340 (1st Dept. 2007) (quoting Val-Ford Realty Corp. v. J.Z.’s Toy World , 231 A.D.2d 434, 435 (1st Dept, 1996)). Slip op. at *3 (citations omitted). Id. at *4.

By:  Jeffrey M. Haber “Understanding what investors value and look for in a financial adviser is critical to both the client’s and adviser’s success.” 1 One factor investors consider is reputation. For an adviser, a good reputation can be a valuable tool. It can be used to attract new clients and generate revenue. But, it can also undermine an advisor’s business in complex litigation. Indeed, there are many circumstances that can negatively impact an adviser’s reputation ( e.g. , here ). These include, among others:  Misleading Investors – Advisers who mislead investors with false and misleading information can severely undermine the strength of their reputation. Poor Working Conditions – An advisory firm can see its reputation negatively affected by promoting a toxic culture, subjecting employees to discrimination, or acting unethically toward employees. Poor Service – Poor performance can sink an adviser’s reputation.  Poor Data Security and Privacy – Data breaches are a significant source of reputational risk. Advisers who cannot safeguard client data and information can see their reputation plummet in the eyes of their clients and potential clients. Poor Regulatory Compliance – Poor regulatory compliance is a source of reputational risk. Enforcement actions and regulatory investigations negatively impact the perception of an adviser in the eyes of clients. The importance of a good reputation was at the heart of the SEC’s enforcement action against (and settlement with) Atlanta-based Angel Oak Capital Advisors, LLC and its portfolio manager Ashish Negandhi. As discussed in the SEC’s announcement of the charges ( here ), the SEC charged Angel Oak and its portfolio manager Ashish Negandhi for misleading investors about the firm’s fix-and-flip loan securitization’s delinquency rates. Angel Oak and Negandhi agreed to settle the charges and pay a penalty of $1.75 million and $75,000, respectively.  According to the SEC’s order ( here ), in March 2018, Angel Oak raised $90 million through a first-of-its-kind securitization of loans made to borrowers for the purpose of purchasing, renovating, and selling residential properties, also known as “fix-and-flip” loans, which were originated by an Angel Oak-affiliated entity. The deal included a provision that would accelerate Angel Oak’s obligation to return funds to certain investors if delinquencies reached a pre-defined threshold. Shortly after the deal closed, loan delinquency rates increased unexpectedly. Concerned about the reputational and financial harm its securitization business would suffer from an early repayment, Angel Oak and Negandhi allegedly artificially reduced delinquency rates by improperly diverting funds ostensibly held to reimburse borrowers for renovations made to the mortgaged properties, to instead pay down outstanding loan balances. Because Angel Oak and Negandhi did not disclose these actions, said the SEC, the performance data regularly disseminated to investors provided an inaccurate view of the actual delinquency rates on the mortgages in the securitization pool as well as the securitization’s compliance with the early repayment trigger. The SEC found that had Angel Oak and Negandhi not engaged in the foregoing practices, the triggers would have been breached, and an early amortization would have been declared, in November 2018. “Angel Oak and Negandhi failed to disclose the firm’s improper use of funds while continuing to issue larger securitizations, which painted a misleading picture for investors,” said Osman Nawaz, Chief of the Division of Enforcement’s Complex Financial Instruments Unit. “Firms must provide investors with full and accurate information regarding the performance of an investment, even after closing, to ensure the integrity of our markets.” The SEC found that Angel Oak and Negandhi violated the antifraud provisions of the Securities Act of 1933 , and that Angel Oak violated, and Negandhi caused Angel Oak’s violation of, the antifraud provisions of the Investment Advisers Act of 1940. Without admitting or denying the SEC’s findings, Angel Oak and Negandhi agreed to a cease-and-desist order, a censure, and the imposition of civil monetary penalties in the amounts referenced above. 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. Footnote  Ryan O. Murphy, PhD.; Samantha Lamas; and Ray Sin, PhD. Identifying What Investors Value in a Financial Adviser: Uncovering Opportunities and Pitfalls , Journal of Financial Planning (July 2020) ( here ).

By:  Jeffrey M. Haber Arbitration is an alternative form of dispute resolution where the parties voluntarily agree that a neutral, private person will resolve any legal disputes between them, instead of a judge or jury in a court of law. 1 In business and commercial transactions, arbitration is the preferred means of resolving disputes. It is encouraged and recognized as the public policy of the State of New York. 2 For this reason, “New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to arbitration.” 3 Since arbitration is a “creature of contract” 4 , only signatories to a contract containing an arbitration agreement can be compelled to arbitrate. 5 Consequently, “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” 6 For this reason, “a party will not be compelled to arbitrate and, thereby, to surrender the right to resort to the courts, absent evidence which affirmatively establishes that the parties expressly agreed to arbitrate their disputes. The agreement must be clear, explicit and unequivocal and must not depend upon implication or subtlety.” 7 Notably, and relevant to today’s article, “an assignee of a contract may avail itself of an arbitration clause contained therein even though the assignee was not a party to the underlying agreement and the contract does not refer to an assignee”. 8 Today, we examine Roberts v. Rodgers & Hammerstein Holdings LLC , 2022 N.Y. Slip Op. 04885 (1st Dept. Aug. 9, 2022) ( here ), a case in which the Court was asked to decide whether a breach of contract claim fell within the scope of the parties’ agreement to arbitrate. As discussed below, the Court held that such claims were included within the agreement to arbitrate. Roberts involved motions to compel arbitration and to stay the action.  Plaintiff is musician who has worked in the business for five decades. Plaintiff contended that he composed vocal arrangements for various Broadway shows, including Smokey Joe’s Café, the subject of the litigation. Plaintiff claimed that defendants deprived him of royalties relating to the show pursuant to the terms of a Vocal Arranger Agreement that he executed in May 1994 with non-party L&S Broadway Company (“L&S”).  The agreement contained a clause requiring the arbitration of all disputes related to the agreement: “Any dispute arising under, out of, or in relation to this Agreement or any breach or asserted breach thereof shall be determined and settled by arbitration ….” The Vocal Arranger Agreement also contained a provision that permitted L&S to assign “all or any part of rights” therein to third parties. Plaintiff alleged that L&S assigned all of its right related to the musical (Smokey Joe’s Café) to the Stoller Defendants. 9 Plaintiff claimed that he was not aware of this assignment until 2020. Plaintiff also contended that he was not aware of another agreement in which L&S assigned the rights to license stock, amateur and second-class productions of the musical to the R&H Defendants in 1999. 10 He claimed that defendants were not informed that he was entitled to credit relating to future productions of the musical and that he needed to be paid accordingly. Plaintiff sued, asserting causes of action for breach of contract against all defendants pursuant to the Vocal Arranger Agreement. Plaintiff also asserted causes of action for money had and received and unjust enrichment. The R&H Defendants claimed that the dispute had to be resolved by arbitration. They claimed that the Vocal Arranger Agreement contained an arbitration clause that governed the allegations and relief sought in the operative complaint. The R&H Defendants noted that their agreement with L&S also contained an arbitration provision. Thus, they claimed that plaintiff’s breach of contract claim relied upon the R&H Agreement with L&S, under which plaintiff was a third-party beneficiary. The R&H Defendants argued that arbitration was required for third-party beneficiaries to a contract. The Stoller Defendants made similar arguments. They argued that plaintiff could not pick and choose which provisions of the agreement to rely on. The Stoller Defendants emphasized that plaintiff was seeking compensation under the Vocal Arranger Agreement, which has a clear and unambiguous arbitration provision.  In opposition, plaintiff maintained that he was not a party to any subsequent agreements (agreements which he claimed he only recently learned about) and could not be required to arbitrate with parties with whom he never entered into a contract. He insisted that defendants exploited his arrangements without payment or credit to him.  The motion court granted defendants’ motions to compel arbitration . The motion court found that the Vocal Arranger Agreement contained a clear and unambiguous arbitration provision requiring the parties to arbitrate their dispute. This included assignees ( e.g. , the Stoller Defendants and the R&H Defendants) under the assignment provision of the agreement, which specifically “permitted L&S to assign its rights under the contract without limitation”. “That the defendants were not signatories to that contract”, said the motion court, “is of no moment because they assumed the obligations of the original signatory (L&S).” The motion court also observed that plaintiff’s claims fell within the scope of the arbitration agreement: “The glaring fact is that, here, plaintiff signed a contract which contained an arbitration clause, and he brings claims based on that contract. So, he has to arbitrate.”  The motion court further held that since plaintiff was a beneficiary of the R&H agreement that contained an arbitration provision, even though it was not a signatory, under the direct benefits estoppel theory, plaintiff could be compelled to arbitrate. “Under the direct benefits theory of estoppel, a nonsignatory may be compelled to arbitrate where the nonsignatory ‘knowingly exploits’ the benefits of an agreement containing an arbitration clause, and receives benefits flowing directly from the agreement”. 11 “Here,” said the motion court, “that is exactly what plaintiff is trying to do. He is trying to enforce the R&H Defendants’ obligations under contracts (and receive those benefits) that contain an arbitration provision.” here.=">here."> On appeal, the Appellate Division, First Department affirmed. In a pithy decision, the Court held, as did the motion court, that the arbitration provision in the agreement required arbitration of the dispute: “Since plaintiff’s claim for breach of contract is based on the Vocal Arranger Agreement’s payment provision, the claim is related to an asserted breach of the agreement and is therefore subject to its arbitration clause.” 12 The Court also held, without stating the applicable doctrine by name, that plaintiff was required to arbitrate his breach of contract claims under the direct benefits estoppel theory: “because plaintiff’s claim for breach of contract invokes benefits incorporated into the R&H Agreement explicitly for plaintiff’s benefit, his claim is also subject to that agreement’s arbitration clause”. 13 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. Footnotes Rent-A-Ctr., W, Inc. v. Jackson , 561 U.S. 63, 67 (2010) (noting that “arbitration is a matter of contract”). Matter of Smith Barney Shearson v. Sacharow , 91 N.Y.2d 39, 49 (1997) (citations and quotation marks omitted); Stark v. Molod Spitz DeSantis & Stark, P.C. , 9 N.Y.3d 59, 66 (2007) (internal citation omitted). Stark , 9 N.Y.3d at 66 (internal quotation marks and citation omitted). Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc. , 252 F.3d 218, 224 (2d Cir. 2001). TBA Global, LLC v. Fidus Partners, LLC , 132 A.D.3d 195, 202 (1st Dept. 2015). AT&T Techs., Inc. v. Communications Workers of Am. , 475 U.S. 643, 648 (1986) (quoting Steelworkers v. Warrior & Gulf Nav. Co. , 363 U.S. 574, 582 (1960)). Waldron v. Goddess , 61 N.Y.2d 181, 183-84 (1984); see also Matter of Trump (Refco Props.) , 194 A.D.2d 70, 74 (1st Dept. 1993). Application of Vann , 78 A.D.2d 255, 259 (1st Dept. 1980) (internal quotations and citation omitted). The Stoller Defendants are: Mike Stoller, The Estate of Jerome Leiber a.k.a. The Jerome I. Leiber 1997 Family Trust, and Leiber Stoller Productions, Inc. The R&H Defendants are: Rodgers & Hammerstein Holdings, LLC, The Rodgers & Hammerstein Organization, Concord Theatricals Corp., and Broadway Asia Company LLC. Matter of Belzberg v. Verus Invs. Holdings Inc. , 21 N.Y.3d 626, 631 (2013). Slip Op. at *1 (citing God’s Battalion of Prayer Pentecostal Church, Inc. v. Miele Assoc., LLP , 6 N.Y.3d 371, 374 (2006)). Matter of SSL Intl., PLC v Zook , 44 A.D.3d 429, 430 (1st Dept. 2007).

By:  Jeffrey M. Haber Previously, this Blog examined the doctrines of frustration of purpose and impossibility of performance in the context of Covid-19 ( See here ,  here , and here ).  Because the Covid-19 pandemic and these doctrines continue to work their way through the courts, we do so again today.  In McLearen Square Shopping Center Herndon, Va. L.P. v. BadaNara, LLC , the plaintiff, a commercial landlord, brought suit against defendant BadaNara, LLC (“BadaNara”) 1 and its members, defendants Hae-Chan Park and Kyunghwa Park for, inter alia , the failure to pay rent during the pandemic.  Defendants operated a restaurant that they rented from plaintiff pursuant to a commercial lease. The individual defendants guaranteed BadaNara’s obligations under the lease (the “guarantor defendants”). Plaintiff asserted a cause of action against BadaNara for breach of contract for failure to pay rent, a cause of action against the guarantor defendants seeking to recover on the guaranty based on BadaNara’s breach of the lease, and a cause of action against all defendants seeking attorneys’ fees and expenses.  Plaintiff moved for summary judgment on, inter alia , the complaint and sought an order striking BadaNara’s answer for failure to appear by an attorney as required by CPLR § 321(a). The motion court struck BadaNara’s answer and entered a default judgment against it, granted those parts of plaintiff’s motion seeking summary judgment on the causes of action against the guarantor defendants, awarded plaintiff $380,949.90 in damages with statutory interest of nine percent from April 1, 2020, and ordered that plaintiff could submit an application for the recovery of attorneys’ fees.  Defendants appealed. The Appellate Division, Fourth Department modified the motion court’s order by vacating that portion of the order awarding interest and, as modified, affirmed the order. In an action upon a guaranty, a plaintiff must establish “the existence of the guaranty, the underlying debt and the guarantor’s failure to perform under the guaranty”. 2 If the plaintiff does so, “the burden shifts to the defendant to establish, by admissible evidence, the existence of a triable issue with respect to a bona fide defense”. 3 The Court of Appeals has explained that when a party executes an “absolute and unconditional” guaranty, courts have found that the absolute and unconditional guaranty precludes “guarantors from asserting a broad range of defenses”. 4 The Court held that plaintiff met its initial burden by submitting the guaranty executed by the guarantor defendants, the underlying lease, and evidence of BadaNara’s and the guarantor defendants’ nonpayment of rent. 5 The guarantor defendants, said the Court, failed to establish, by admissible evidence, the existence of a triable issue of fact with regard to the defenses raised. In that regard, the guarantor defendants claimed that they and BadaNara were excused from payment because of the Covid-19 pandemic.  First, the guarantor defendants asserted the defense of frustration of purpose. “In order to invoke the doctrine of frustration of purpose, the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense.” 7 The Court found that the temporary pandemic-related governmental restrictions imposed on BadaNara’s business operations did not implicate that defense because BadaNara “was not completely deprived of the benefit of its bargain”. 8 The Court explained that “although the governmental restriction at issue here precluded BadaNara from offering in-person dining services, it expressly permitted restaurants such as BadaNara to offer take-out or delivery services.” 9 The Court concluded that  “frustration of purpose is not implicated by temporary governmental restrictions on in-person operations, as the parties’ respective duties were to pay rent in exchange for occupying the leased premises”. 10 Second, the guarantor defendants asserted the defense of impossibility of performance. The doctrine of impossibility of performance “excuses a party’s performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible”. 11 The Court held that, “for essentially the same reasons” as above ( i.e. , the frustration of purpose defense), “the temporary restrictions on in-person dining did not render BadaNara’s performance under the lease objectively impossible.” 12 The Court explained that “the pandemic, while continuing to be ‘disruptive for many businesses,’ did not render performance impossible, even if its ability to provide a experience was rendered more difficult, because the leased premises were not destroyed”. 13 However, the Court agreed with the guarantor defendants that the motion court erred to the extent that it directed statutory interest to run from April 1, 2020, i.e. , the earliest date that the lease was breached. CPLR § 5001(b) provides that “ here such damages were incurred at various times, interest shall be computed upon each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date”. 14 Thus, concluded the Court, the motion court “incorrectly calculated the amount of prejudgment interest . . . based on the entire principal balance measured from , rather than upon the accumulating balance as remaining became due.” 15 Consequently, the Court vacated that portion of the fourth ordering paragraph awarding interest from April 1, 2020, and remitted the matter to the motion court to calculate the interest in accordance with CPLR § 5001(b). 16 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. References 2022 N.Y. Slip Op. 04864 (4th Dept. Aug. 4, 2022) ( here ).  Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. v. Navarro , 25 N.Y.3d 485, 492 (2015). Id. Id. Slip Op. at *2 (citations omitted). Id. (citations omitted). Warner v. Kaplan , 71 A.D.3d 1, 6 (1st Dept. 2009), lv. denied, 14 N.Y.3d 706 (2010) (internal quotation marks omitted); see also Shmaltz Brewing Co., LLC v. Dog Cart Mgt. LLC , 202 A.D.3d 1349, 1352 (3d Dept. 2022). Slip Op. at *2-*3, quoting Gap, Inc. v. 170 Broadway Retail Owner, LLC , 195 A.D.3d 575, 577 (1st Dept. 2021) (internal quotation marks omitted); see also Arista Dev. LLC v Clearmind Holdings, LLC , 2022 N.Y. Slip Op. 04451, at *3 (4th Dept. 2022).  Id. Id. at *3, quoting Valentino U.S.A., Inc. v. 693 Fifth Owner LLC , 203 A.D.3d 480, 480 (1st Dept. 2022). Kel Kim Corp. v. Central Mkts. , 70 N.Y.2d 900, 902 (1987). Slip Op. at *3. Id. , quoting Valentino U.S.A. , 203 A.D.3d at 480; see also Gap , 195 A.D.3d at 577. CAS Mktg. & Licensing Co. v. Jay Franco & Sons, Inc. , 188 A.D.3d 522, 523 (1st Dept. 2020). Slip Op. at *3, quoting State Farm Fire & Cas. Co. v. Browne , 43 A.D.3d 1149, 1150 (2d Dept. 2007) (internal quotation marks omitted). Id .

By: Jeffrey M. Haber It is axiomatic that a plaintiff cannot succeed on his or her cause of action if there are no provable damages. It is, therefore, important that the plaintiff plead and prove each element of the claim, including the damages element. After all, damages are “an essential element” 1 of any tort cause of action. 2 This basic tenant of law was at the heart of Mohinani v. Charney , 3 a case in which plaintiff failed to prove damages resulting from defendants’ alleged breach of fiduciary.  Mohinani involved a commercial real estate project in which plaintiffs invested $4.5 million.  Plaintiffs asserted, among other claims, breach of fiduciary duty against the estate of Leon H. Charney, based on Charney’s alleged conduct with respect to the real estate venture that he organized and managed. Plaintiffs and Charney were the sole members of defendant LHC Club LLC (“LHC”), in which Charney held the majority interest and of which he was manager. LHC, in turn, held a 30% interest in two limited liability companies (the “LLCs”) that owned and managed two adjoining real estate properties that were to be redeveloped. Plaintiffs claimed at trial and in their pre- and post-trial submissions that at the March 2007 closing of the LLCs’ acquisition of the properties, Charney breached his fiduciary duty to plaintiffs, as minority investors, by taking for himself $1.5 million in “special distributions” from the LLCs and a $1 million “acquisition fee” that should have been received by LHC. Plaintiffs further contended that Charney breached his fiduciary duty to them by obtaining payment from the LLCs to his management company of approximately $850,000 in management fees during the life of the project. The project ultimately failed, resulting in the loss of plaintiffs’ $4.5 million capital investment. After a bench trial, the motion court held that, among other things, plaintiffs did not prove that Charney breached any duty to them. “The only possible fiduciary violation,” said the motion court, was “the taking of fees that are not entirely fair to LHC or the LLCs that own the Properties.” Those fees, said the motion court, “were expressly authorized by contract with the other investors, who paid the bulk of them since they had a much bigger equity stake than the Mohinanis.” In other words, the motion court found that plaintiffs did not prove any direct damages to themselves. The Mohinanis’ contention that Charney had a direct fiduciary duty to buy them out on the same terms as the other investors is rejected. They cite no authority actually supporting this unpersuasive proposition; instead, they rely on cases involving operation, management or disposition of an entity’s property in a manner unfair to the entity and damaging the entity. The motion court directed that judgment be entered in defendants’ favor.  Plaintiffs appealed. The Appellate Division, First Department affirmed. The Court held that the motion court “properly concluded that plaintiffs failed to establish a valid claim for breach of fiduciary duty against Charney at trial.” 4 The reason, said the Court, was because plaintiffs were not damaged by the alleged breach of fiduciary duty: In this case, all of the damages plaintiffs sought to prove and to recover upon a theory of breach of fiduciary duty — the $1.5 million in special distributions and the $1 million acquisition fee that Charney (rather than LHC) allegedly received at the closing, and the $850,000 in management fees that his company allegedly thereafter received from the LLCs — would have been losses directly suffered by LHC (the special distributions and the acquisition fee) or by the LLCs (the management fees). Therefore, plaintiffs cannot validly assert a claim to recover such damages in their own names. 5 “ uch claims”, noted the Court, “must be asserted as derivative claims on behalf of LHC, or as double derivative claims on behalf of the LLCs.” 6 The Court explained that “ he fact that plaintiffs were the only other members of LHC does not obviate the requirement that a claim of misappropriation of funds owed to LHC be brought derivatively. Any injury is to LHC, and any damages must be recovered by LHC.” 7 The Court went on to say that “ or the same reasons”, “plaintiffs lack standing to bring a direct claim for any breach of fiduciary duty” in connection with the $850,000 in fees paid by the LLCs in which LHC had a partial stake. 8 Any action regarding those fees, said the Court, should have been brought as a double derivative claim. 9 The Court rejected plaintiffs’ argument that defendants waived their standing defense because they did not raise it in their answer or in a pre-answer motion to dismiss. 10 The Court noted that “plaintiffs consistently asserted these causes of action as direct claims on their own behalf, not as derivative or double-derivative claims.” 11 “It is only now, upon appeal,” said the Court, “after the trial court ha dismissed the claims for lack of the element of an injury directly suffered by plaintiffs, that plaintiffs argue that they should be permitted to pursue the claims as derivative or double-derivative claims, and to amend their complaint accordingly.” 12 Indeed, explained the Court, “when the court and defense counsel sought clarification of the nature of plaintiffs’ claims in the months preceding trial, plaintiffs never moved to amend the complaint to plead derivative claims and argued only that Charney’s duties to plaintiffs, rather than to LHC, were breached. Plaintiffs never sought leave to replead their claims as derivative claims and thus waived their argument that they should be able to do so now.” 13 Takeaway A tort claim is actionable when all elements of the tort can be truthfully alleged in a complaint. 14 As with other torts in which damage is an essential element, a breach of fiduciary duty claim “is not enforceable until damages are sustained.” 15 Mohinani highlights this point. 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. Footnotes IDT Corp. v. Morgan Stanley Dean Witter & Co. , 12 N.Y.3d 132, 140 (2009). Besen v. Farhadian , 195 A.D.3d 548, 549-550 (1st Dept. 2021) (“To state a claim for breach of fiduciary duty, plaintiffs must allege that … they suffered damages caused by (the) misconduct”) (internal quotation marks omitted), quoting Burry v. Madison Park Owner LLC , 84 A.D.3d 699, 699-700 (1st Dept. 2011). Mohinani v. Charney , 2022 N.Y. Slip Op. 04782 (1st Dept. Aug. 2, 2022) ( here ). Slip Op. at *1. Id. at *1-*2. Id. at *2 (citations omitted). Id. (citation omitted). Id. Id. Id. Id. Id. Id. (citing, OFSI Fund II, LLC v. Canadian Imperial Bank of Commerce , 82 A.D.3d 537, 540 (1st Dept. 2011), lv. denied , 17 N.Y.3d 702 (2011)). Kronos, Inc. v. AVX Corp. , 81 N.Y.2d 90, 94 (1993). Id.