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By: Jeffrey M. Haber The Duplication Doctrine is well-known to readers of this Blog. In a nutshell, the doctrine holds that “ cause of action for fraud does not arise when the only fraud charged relates to a breach of contract.” 1 “To plead a viable cause of action for fraud arising out of a contractual relationship, the plaintiff must allege a breach of duty which is collateral or extraneous to the contract between the parties.” 2 A plaintiff must also allege that the recovery sought does not arise out of the same facts and circumstances. 3 As we have noted before ( here ), courts do not hesitate to dismiss fraud claims when they are merely contract claims “dressed in the garb of a fraud count.” 4 In December 2020, we wrote an article about Shear Enterprises, LLC v. Cohen , 189 A.D.3d 423 (1st Dept. Dec. 1, 2020) ( here ), a case in which the plaintiff avoided the duplication of claims doctrine by alleging a misrepresentation about the ability to perform under the contract. As we discussed, representations about the ability to perform are not the same as inactionable promises to perform. We have also written about the damages aspect of the doctrine. In January 2021, for example, we examined Demurjian v. Demurjian , 2021 N.Y. Slip Op. 00008 (1st Dept. Jan. 5, 2021) ( here ), a case in which the Court affirmed the dismissal of a fraud cross-claim as duplicative of a contract cross-claim because the damages sought were the same notwithstanding the alleged independent duty owed to the cross-claim plaintiff.   In today’s article, we examine New York City Waterfront Development Fund II, LLC v. Pier A Battery Park Assocs., LLC , 2022 N.Y. Slip Op. 04127 (1st Dept. June 28, 2022) ( here ), a case in which the foregoing issues were considered by the Appellate Division, First Department. In particular, the Court examined the distinction between a promise to perform and the ability to perform under a contract, as well as the consequences of seeking the same recovery in both the fraud and contract causes of action notwithstanding the existence of an independent duty.  waterfront development is based on the complaint and the parties’ briefing on appeal.> waterfront development is based on the complaint and the parties’ briefing on appeal.> In 2011, Plaintiff and defendant Pier A LLC (“Borrower”) entered into a loan agreement to provide funds for the development of a restaurant in New York City. Specifically, plaintiff loaned $16.5 million (the “Loan”) to Borrower for the development of Pier A Harbor House (“Harbor House”), a restaurant located at the southern tip of Battery Park. The Loan was made pursuant to a loan agreement, dated July 7, 2011 (the “Loan Agreement”). As security for the Loan, Borrower executed and delivered the following documents to plaintiff: (1) a Leasehold Mortgage, Security Agreement and Fixture Filing, dated July 7, 2011 (for a $5 million advance); and (2) a Leasehold Mortgage, Security Agreement and Fixture Filing, dated July 7, 2011 (for a $11.5 million advance). Also on July 7, 2011, plaintiff and Borrower executed a Promissory Note (the “Note”) in accordance with the Loan Agreement (collectively, the “Loan Documents”).  Prior to executing the Loan Documents, defendants provided plaintiff pro forma financial statements for Pier A’s operations. These financial statements projected EBITDA of over $2.5 million every year for the first six years of operation and revenues from $24 to $27 million annually. After the Loan Agreement was signed, however, defendants allegedly admitted that the “project undercapitalized and over leveraged from the beginning.” Plaintiff maintained that the project’s financial instability was known to defendants and never disclosed to plaintiff prior to execution of the Loan Agreement. Plaintiff claimed that it relied on the financial information, including a representation and warranty from Borrower that the financial projections were “prepared in good faith based upon assumptions believed to be reasonable at the time.” After the Loan Agreement was executed, plaintiff claimed that defendants falsely represented that they were running the project in a way that would enable them to refinance and repay the Loan, when in fact they were defaulting on their obligations. By allegedly deceiving plaintiff as to their ability to repay, plaintiff maintained that defendants induced it to amend the lease and forbear taking enforcement action. Plaintiff also claimed that defendants continued to misrepresent the state of the business and their ability to repay, in order to further delay any remedial actions by plaintiff. When the pandemic-related lockdown began, Borrower advised plaintiff that it had “no viable way forward under the current and arrangements,” and would not repay or refinance the loan by the maturity date. On July 14, 2020, Borrower stated that it was surrendering the leasehold. Borrower allegedly admitted that it had not made its quarterly interest payments since January 2020. On August 15, 2020, Borrower tendered the keys to the premises. On December 8, 2020, plaintiff gave Borrower notice that it was “in default under the Note and Loan Agreement for failure to make any interest payments for calendar year 2020.…” On December 15, 2020, plaintiff filed the action, seeking to recover damages based on breaches of the Loan Documents, fraudulent and negligent misrepresentations, aiding and abetting fraud, and unjust enrichment and quantum meruit. On February 26, 2021, defendants moved to dismiss all claims, except for the breach of contract claims asserted against Borrower. On August 20, 2021, the motion court granted defendants’ motion to dismiss, holding that, inter alia , plaintiff’s fraudulent inducement and misrepresentation claims were “baseless”. The motion court noted that, as to the alleged pre-loan misrepresentations, plaintiff failed to demonstrate scienter (that is, a lack of intention to pay back the loan). In this regard, the motion court explained that plaintiff’s offer in 2017 to pay back the loan negated an inference of fraud: “Even if plaintiff had pleaded facts indicating a lack of intention or capacity to pay back the loan at the outset, in 2017, Borrower actually offered to repay the loan and plaintiff refused.” Thus, concluded the motion court, there was “no basis to infer that any fraud at the outset may have been a reason the loan was not repaid.” 5 The Court also found that the “ ost-loan fraud claims duplicative of the breach of contract claims”. 6 Defendants argued that the post-loan fraud and misrepresentation claims concerned Defendants’ intent or lack thereof to perform under the Loan Agreement – that is, all the claims related to defendants’ purported promises to meet their payment obligations and assurances of performance. Plaintiff appealed. The Appellate Department, First Department affirmed. As to the pre-loan fraudulent inducement claim, the Court held that the claim was founded on a breach of contract. 7 In so holding, the Court avoided the issue of whether plaintiff alleged scienter with the requisite particularity: 8 The complaint alleges that defendants fraudulently induced plaintiff to extend the loan to Borrower by furnishing false financial projections. However, Borrower expressly represented in section 3.10 of the loan agreement that those projections were prepared in good faith upon assumptions believed to be reasonable at the time.… As the essence of the allegations is that defendants did not comply with that provision, the only claim stated is breach of contract…. Thus, we need not reach the issue of whether the court properly credited defendants’ written request to prepay the loan as irrefutable proof of absence of intent to defraud. The Court also held that the alleged misrepresentations that were made prior to entering into the lease amendments were similarly duplicative of the contract claims. 9 Finally, the Court held that the post-lease amendment misrepresentations were “not misrepresentations of defendants’ ability to perform”. 10 Nevertheless, the Court held that those fraud claims were duplicative of the contract claims because plaintiff did “not allege that it sustained damages that would not be recoverable under the breach of contract cause of action”. Takeaway As a general matter, New York courts will not permit a fraud-based claim to survive a motion to dismiss when the claim arises from a breach of contract. Indeed, courts routinely dismiss a fraud claim where the existence of a valid and enforceable written contract governs a particular subject matter and the recovery sought arises out of the same facts and circumstances. However, where “a legal duty independent of the contract itself has been violated<,> ” or where the misrepresentation is “collateral or extraneous to the terms of the parties’ agreement,” a fraudulent inducement claim can stand side-by-side with “a simple breach of contract” claim. 11 What constitutes “a legal duty independent of a contract” is not a question easily answered. 12 It is a fact dependent examination. Waterfront Development illustrates this point. On the one hand, the facts revealed that the pre-loan and pre-lease amendment representations were duplicative of the Loan Agreement because they pertained to performance obligations. On the other hand, the facts showed that the post-Loan Agreement representations did not pertain to performance obligations; rather, the facts showed that the representations related an ability to perform.  Waterfront Development also highlights the point that the determining factor as to the viability of a fraud claim may not be whether “a legal duty independent of the contract itself has been violated<,> ” or the misrepresentation is “collateral or extraneous to the terms of the parties’ agreement”, but the measure of damages sought. Thus, as in Waterfront Development , although a plaintiff may allege a duty independent of a contract (as in Waterfront Development. with respect to the post-Loan Agreement representations), the fraud claim may nevertheless be duplicative of the breach of contract claim, if both claims seek the same damages. 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 Krantz v. Chateau Stores of Can. Ltd. , 256 A.D.2d 186, 187 (1st Dept. 1998) (citations omitted). Id. (citations and quotation marks omitted). Clark-Fitzpatrick v. Long Is. , 70 N.Y.2d 382 (1987). Songbird Jet Ltd., Inc. v. Amax Inc. , 581 F. Supp. 912, 924 (S.D.N.Y. 1984). Citing, Basis PAC-Rim Opportunity Fund (Master) v. TCW Asset Mgt. Co. , 149 A.D.3d 146, 149-50 (1st Dept. 2017). Citing, Manas v. VMS Assoc., LLC , 53 A.D.3d 451, 454 (1st Dept. 2008), and International Dev. Inst., Inc. v.Westchester Plaza, LLC , 194 A.D.3d 411 (1st Dept. 2021). Slip Op. at *1. Id. Id. (citations omitted). Id. (citing, Shear Enters. , supra ; Man Advisors, Inc. v. Selkoe , 174 A.D.3d 435 (1st Dept. 2019). This Blog examined Man Advisors, Inc. v. Selkoe here . Dormitory Auth. v. Samson Constr. Co. , 30 N.Y.3d 704 (2018) (citation omitted). Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 56 (1st Dept. 2017) (referring to the question as a “recurring” one).

By Jonathan H. Freiberger Issues relating to contract interpretation are a frequent subject addressed in this Blog.  “The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties’ intent and the best evidence of what the parties to a written agreement intend is what they say in their writing.”  Henrich v. Phazar Antenna Corp. , 33 A.D.3d 864, 866-67 (2 nd Dep’t 2006) (citations, internal quotation marks and brackets omitted).  Thus, “where the language is clear, unequivocal and unambiguous, the contract is to be interpreted by its own language.”  R/S Associates v. New York Job Development Authority , 98 N.Y.2d 29 (2002) (citations and internal quotation marks omitted). This is so because in “adjudicating the rights of parties to a contract, courts may not fashion a new contract under the guise of contract construction….”  Slatt v. Slatt , 64 N.Y.2d 966, 967 (1985) (citation omitted).  “Extrinsic evidence of the parties’ intent may be considered only if the agreement is ambiguous, which is an issue of law for the courts to decide.”  Greenfield v. Philles Records, Inc. , 98 N.Y.2d 562, 569 (2002) (citations omitted).  When a contract contains a merger clause “ vidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add or to vary the writing.”   W.W.W. Assoc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990) (citations omitted). These well-accepted rules of contract construction are particularly important in the context of real estate transactions because in such transactions “commercial certainty is a paramount concern.”  Vermont Teddy Bear Co., Inc. v. 538 Madison Realty Co. , 1 N.Y.3d 470, 475 (2004) (citations, internal quotation marks and ellipses omitted).  Such was the case in Hylan Ross, LLC v. 2582 Hylan Boulevard Fitness Group, LLC. , a case decided by the Appellate Division, Second Department, on June 22, 2022. The plaintiff in Hylan Ross , was a landlord/owner of property on Staten Island that entered into a lease agreement with defendant tenant to operate a Planet Fitness health club.  Defendant PFNY, LLC guaranteed certain of tenant’s payment obligations for the first ten years of the lease.  As to the landlord’s build-out requirements, the lease provided as follows: The landlord was to complete construction of the building prior to delivery of the premises. Section 7.01(b) of the lease (hereinafter the Approvals provision) provided, in pertinent part: “Landlord hereby agrees that Landlord, at Landlord’s sole cost and expense, shall obtain any and all approvals, including any and all building permits, hereunder (collectively, the “ Approvals ”) and obtain a Certificate of Occupancy (temporary or permanent<)> for the Building. Landlord shall have a period of eighteen (18) months after the Effective Date (the “ Approval Period ”) to obtain the Approvals.” In the event the landlord was unable to timely obtain all approvals, the tenant had the right to terminate the lease. When landlord failed to obtain required approvals prior to the expiration of the of the Approval Period, tenant sent landlord written notice of lease termination.  Arguing that it had timely obtained all required approvals, Landlord rejected the notice.   Thereafter, landlord commenced action alleging that tenant breached the lease and guarantor breached the guaranty by purporting to terminate same when all landlord Approvals were timely obtained.  Among other things, the complaint alleged that “the parties specifically agreed that, in accordance with industry standards, it would be the tenant’s responsibility to obtain certain permits, and other permits did not need to be obtained prior to substantial completion of construction.”  Supreme court granted defendants’ motion to dismiss pursuant to CPLR 3211(a)(1) and (7), in which defendants argued that “the lease unambiguously required the landlord to obtain all approvals, and that the plaintiff conceded that the approvals process was ongoing beyond the 18–month period set forth in the Approvals provision.” In affirming supreme court, the Appellate Division relied on the contract interpretation principles set forth herein.  The Court rejected landlord’s contention that “in light of the provisions of the lease which required the landlord to promptly commence work following receipt of the ‘Approvals,’ and which provided the landlord two years from that date to deliver the premises, the ‘Approvals’ required by the Approvals provision included only those approvals which were necessary to commence construction, or at least did not include permits which generally are, or could only be, obtained after substantial completion of the building.”  The Court also rejected the claim that lease was ambiguous as to “which permits were included in the ‘Approvals’”. Thus, the Court found that plaintiff’s suggested limitation on the “Approvals” “to only those necessary to commence construction improperly adds a term and distorts the meaning of the Approvals provision.”  (Citations omitted.)  Moreover: any ambiguity regarding the timing of permits which allegedly could not be obtained prior to substantial completion of construction would not impact all of the outstanding permits. The plaintiff may not rely on the parties’ communications and industry standards to modify the clear term of the lease that the landlord was responsible for obtaining the approvals.  The Court also rejected the contention that there was an oral modification of the of the lease relative to the Approvals because “plaintiff failed to sufficiently allege that there had been partial performance or reliance sufficient to defeat the no-oral modification clause of the written agreement.”  (Citations omitted.) Thus, the Court concluded that “the clear terms of the lease utterly refute the plaintiff’s allegation that the tenant improperly terminated the lease.”  (Citation 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 On June 5, 2019, the Securities and Exchange Commission (“SEC” or the “Commission”) adopted “Regulation Best Interest” or “Reg BI”. 1 In connection with adoption of the regulation, the SEC issued a 175-page release in which it offered guidance on how the Commission interprets Reg BI. 2 The regulation established a standard of conduct for broker-dealers and associated persons when they recommend securities transactions to retail customers. Reg BI is intended to enhance the broker-dealer standard of conduct beyond existing suitability obligations, by requiring broker-dealers to, among other things: act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker-dealer ahead of the interests of the retail customer; and address conflicts of interest by establishing, maintaining, and enforcing policies and procedures reasonably designed to identify and fully and fairly disclose material facts about conflicts of interest. Reg BI is satisfied by compliance with four component obligations: (1) Disclosure Obligation, (2) Care Obligation, (3) Conflict of Interest Obligation, and (4) Compliance Obligation. Under the Disclosure Obligation, before or at the time of the recommendation, a broker-dealer must disclose, in writing, all material facts about the scope and terms of its relationship with the customer. This includes a disclosure that the firm or representative is acting in a broker-dealer capacity; the material fees and costs the customer will incur; and the type and scope of the services to be provided, including any material limitations on the recommendations that could be made to the retail customer. Moreover, the broker-dealer must disclose all material facts relating to conflicts of interest associated with the recommendation that might incline a broker-dealer to make a recommendation that is not disinterested, including, for example, conflicts associated with proprietary products, payments from third parties, and compensation arrangements.  The Care Obligation requires a broker, dealer, or associated person to exercise reasonable diligence, care, and skill to understand the potential risks, rewards, and costs associated with a recommendation of a securities transaction to a retail customer. The Adopting Release states that what constitutes reasonable diligence depends on, among other things, the complexity of, and risks associated with, the recommended security. The Care Obligation also requires a broker, dealer, or associated person to exercise reasonable diligence, care, and skill to have a reasonable basis to believe that the recommendation is in the best interest of the particular retail customer, based on that customer’s investment profile and the potential risks, rewards, and costs associated with the recommendation.  The Adopting Release states that what is in the best interest of a retail customer depends on the facts and circumstances of the recommendation, including “matching” the recommended security to the retail customer’s investment profile. Where the “match” between the retail customer profile and the recommendation appears less reasonable, it is more important for the broker to establish that it had a reasonable belief that the recommendation was in the best interest of the retail customer. The Adopting Release also states that, in addition to “matching” the recommendation to the customer’s suitability profile, a registered representative should also exercise reasonable diligence, care, and skill to consider reasonably available alternatives. Under the Conflict of Interest Obligation, a broker-dealer must establish, maintain, and enforce reasonably designed written policies and procedures addressing conflicts of interest associated with its recommendations to retail customers. These policies and procedures must be reasonably designed to identify all such conflicts and at a minimum disclose or eliminate them. Importantly, the policies and procedures must be reasonably designed to mitigate conflicts of interests that create an incentive for an associated person of the broker-dealer to place its interests or the interest of the firm ahead of the retail customer’s interest. Moreover, when a broker-dealer places material limitations on recommendations that may be made to a retail customer ( e.g. , offering only proprietary or other limited range of products), the policies and procedures must be reasonably designed to disclose the limitations and associated conflicts and to prevent the limitations from causing the associated person or broker-dealer from placing the associated person’s or broker-dealer’s interests ahead of the customer’s interest. Finally, the policies and procedures must be reasonably designed to identify and eliminate sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sale of specific securities or specific types of securities within a limited period of time. The Compliance Obligation requires a broker-dealer to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI. According to the Adopting Release, a broker “should consider the nature of that firm’s operations and how to design such policies and procedures to prevent violations from occurring, detect violations that have occurred, and to correct promptly any violations that have occurred.” In sum, Reg BI requires a broker, dealer, or associated person to act in the best interest of a retail customer when making a recommendation of a securities transaction (the “Best Interest Obligation”). Firms comply with the Best Interest Obligation if they comply with the foregoing four component obligations. Similarly, associated persons of broker-dealers comply with Reg BI’s Best Interest Obligation if they comply with the Disclosure Obligation and the Care Obligation. In SEC v. Western International Securities, Inc. , Case No. 2:22-cv-04119 (C.D. Cal.) ( here ), the SEC charged Western International Securities, Inc. (“Western”), a registered broker-dealer, and five of its registered representatives with violating the Best Interest Obligation when they recommended and sold an unrated, high-risk debt security known as L Bonds to retirees and other retail investors. These bonds were only suitable for customers with substantial financial resources. From July 2020 through April 2021, Western sold an aggregate of $13.3 million of L Bonds. 3 The SEC alleged that, between July 2020 and April 2021, Western and the brokers recommended and sold L Bonds to retail customers, many of whom were on fixed incomes and had moderate risk tolerances, despite GWG’s warning that the L Bonds were high risk, illiquid, and only suitable for customers with substantial financial resources. According to the SEC, defendants failed to comply with Reg BI’s “Care Obligation” both because they did not exercise reasonable diligence, care, and skill to understand the risks, rewards, and costs associated with L Bonds, and also because they recommended L Bonds to at least seven particular customers without a reasonable basis to believe the bonds were in their customers’ best interests.  The SEC also alleged that Western failed to comply with Reg BI’s “Compliance Obligation” because it did not adequately establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI. Commenting on the filing, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement , stated: “Reg BI is clear: broker-dealers must act in the best interest of their customers. When they fail to do so, as we allege happened here, they put retail investors at risk and we’ll hold them accountable.” “Reg BI is an essential tool for the protection of the best interests of retail investors,” said Regional Director, Daniel R. Gregus. “Protecting retail investors is one of the fundamental duties of the SEC, and a top priority of the Chicago Regional Office.” The SEC’s press release announcing the filing of the complaint can be found here . The SEC’s complaint against defendants 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. Footnotes The SEC set June 30, 2020 as the compliance date in order to give broker-dealers sufficient time to comply with Reg BI. On and after the compliance date, broker-dealers that provide recommendations of securities transactions or investment strategies that register with the Commission are required to comply with Reg BI as of the date of registration. See Regulation Best Interest: The Broker-Dealer Standard of Conduct, Exchange Act Release No. 34-86031, 84 Fed. Reg. 33318 (July 12, 2019) (the “Adopting Release”) ( here ). The L Bonds at issue paid fixed interest rates of between 5.50% and 8.50%, depending on the maturity period of the bond. The issuer, GWG Holdings, Inc., a publicly traded financial services company, offered maturity periods of two, three, five, or seven years.

By: Jeffrey M. Haber It has been more than two years since this Blog has written about the account stated cause of action ( here ). On June 21, 2022, the Appellate Division, First Department gave us the opportunity to do so again. Hess 938 St. Nicholas Judgment LLC v. 936-938 Cliffcrest Hous. Dev. Fund Corp. , 2022 N.Y. Slip Op. 03989 (1st Dept. June 21, 2022) ( here ). “An account stated is an agreement between parties to an account based upon prior transactions between them with respect to the correctness of the account items and balance due.” 1 An account stated is predicated upon a transaction between the parties such that it creates a debtor and creditor relationship, prior to the statement of the account. 2 To make an account stated, the indebtedness must refer to an existing debt; it cannot be made to create a liability where none existed before. 3 A cause of action alleging an account stated cannot be used to collect under a disputed contract. 4 The agreement to pay may be express or implied. 5 An agreement may be implied if a party receiving a statement of account keeps it without objecting to it within a reasonable time because the party receiving the account is bound to examine the statement and object to it, if there is an objection. 6 Silence is deemed acquiescence and warrants enforcement of the implied agreement to pay. 7 An agreement may also be implied if the debtor makes partial payment. The partial payment is considered acknowledgment of the correctness of the account. 8 To state a cause of action for an account stated, a plaintiff must allege that: (1) the defendant is indebted to the plaintiff for a specific amount, constituting the sum of one or several billing invoices delivered to the defendant over a particular period of time; (2) the plaintiff’s demands have not been complied with; (3) the account remains outstanding; and (4) there is an absence of objection from the defendant. In the absence of fraud, mistake or other equitable considerations making it improper to recognize the agreement, if the foregoing elements are satisfied, then the account is conclusive. 9 A prima facie case on a claim for an account stated is established with proof that the plaintiff prepared and sent invoices to the defendant in the ordinary course of business and that the defendant did not object to the invoices in a timely fashion. 10 A cause of action for an account stated will fail where the defendant has rendered to the plaintiff its objections to its obligation to pay the amounts billed within a reasonable time. 11 For purposes of a claim of account stated, whether a bill has been held without objection for a period of time sufficient to give rise to an inference of assent is typically a question of fact, and becomes a question of law only in those cases where only one inference is rationally possible. 12 However, generalized objections advanced by a defendant after receiving a plaintiff’s billing statements do not constitute objections to the billing statements. 13 In Hess , plaintiff failed to establish, among other things, that the invoices for the delivered oil were mailed to defendant. Hess involved the delivery of home heating oil by plaintiff to defendant during the period June 2012 through February 2013. Defendant purportedly failed to fully pay for the oil. As a result, on April 17, 2015, plaintiff commenced the action, asserting causes of action for breach of contract and account stated. Plaintiff sought damages of $48,276.86.  On September 6, 2018, plaintiff assigned all of its rights, title and interest in the matter to Hess 938 St. Nicholas Judgment LLC (“Hess 938”). Defendant answered the complaint and asserted a counterclaim for champerty against Hess 938. here=">here" and="and" >here.=">here."> It also commenced a third-party action for champerty against Maverick Real Estate Partners, LLC. (“Maverick”), the owner of Hess 938. Hess 938 and Maverick moved for summary judgment on, inter alia , plaintiff’s causes of action for breach of contract and an account stated against defendant. The motion court denied the motion. The motion court held that plaintiff failed to establish, among other things, that the invoices were properly addressed and mailed to defendant. 14 In fact, said the motion court, “Plaintiff has provided no evidence that this was ever done.” On appeal, the First Department affirmed. The Court held that “Plaintiff failed to establish its prima facie entitlement to summary judgment on its claim for account stated against Cliffcrest, the owner of the premises, as it established neither retention of bills without objection nor partial payment….” 15 The Court explained that “Plaintiff provided no evidence that it properly addressed and mailed account invoices to , and in fact, the invoices were billed to a different entity.” 16 “Accordingly,” concluded the Court, “plaintiff should not be afforded the presumption that actually received the invoices.” 17 18="delivered.”18" “The="“The" presumption="presumption" founded="founded" upon="upon" the="the" probability="probability" officers="officers" of="of" government="government" will="will" do="do" their="their" duty”. 19 ="duty”.19" It="It" may="may" “be="“be" created="created" by="by" either="either" proof="proof" actual="actual" mailing="mailing" or="or" standard="standard" office="office" practice="practice" procedure="procedure" designed="designed" ensure="ensure" items="items" are="are" addressed="addressed" mailed” 20 ="mailed”20" “A="“A" mere="mere" allegation="allegation" non-receipt="non-receipt" not="not" sufficient="sufficient" rebut="rebut" this="this" receipt.” 21 ="receipt.”21" “In="“In" addition="addition" claim="claim" no="no" receipt,="receipt," there="there" must="must" be="be" showing="showing" routine="routine" was="was" followed="followed" so="so" careless="careless" it="it" would="would" unreasonable="unreasonable" assume="assume" notice="notice" mailed.” 22 ="mailed.”22" This="This" Blog="Blog" examined="examined" here,=">here," for="for" example.="example."> Takeaway Hess shows that for a plaintiff to prevail on an account stated claim, he/she must demonstrate an account for which (a) he/she sent an invoice to defendant, (b) he/she demanded the specific amount sought in the complaint, and (c) defendant failed to object within a reasonable time. The failure to demonstrate any of the foregoing will result in dismissal of the claim or, as in Hess , denial of summary judgment in favor of the plaintiff. 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 Jim-Mar Corp. v. Aquatic Constr. , 195 A.D.2d 868, 869 (3d Dept. 1993) (citations omitted); Citibank (S. Dakota) N.A. v. Jones , 184 Misc. 2d 63, 64 (Dist. Ct., Nassau County 2000). Bank of New York-Delaware v. Santarelli , 128 Misc. 2d 1003, 1004 (County Ct., Broome County 1985). Ryan Graphics, Inc. v. Bailin , 39 A.D.3d 249, 250 (1st Dept. 2007). Ross v. Sherman , 57 A.D.3d 758 (2d Dept. 2008). Id. Chisholm-Ryder v. Sommer , 70 A.D.2d 429, 431 (4th Dept. 1979). Id. (citations omitted). Id. (citing, inter alia , Parker Chapin Flattau & Klimpl v. Daelen Corp. , 59 A.D.2d 375, 377 (1st Dept. 1977). See also Shea & Gould v. Burr , 194 A.D.2d 369 (1st Dept. 1993) (receipt and retention of account without objection within a reasonable time coupled with a partial payment gives rise to an actionable account stated entitling plaintiff to summary judgment). Id. EPF Intl. Ltd. v. Lacey Fashions, Inc. , 170 A.D.3d 515 (1st Dept. 2019). Joe O’Brien Investigations Inc. v. Zorn , 263 A.D.2d 812 (3d Dept. 1999). Accent Collections, Inc. v. Cappelli Enterprises, Inc. , 94 A.D.3d 1026 (2d Dept. 2012); Whiteman, Osterman & Hanna, LLP v. Oppitz , 105 A.D.3d 1162, 1163 (3d Dept. 2013). Costopoulos v. DeCoursey , 151 A.D.3d 1452 (3d Dept. 2017). Bank of America, N.A. v. Ball , 188 A.D.3d 974 (2d Dept. 2020); Citibank (S.D.), N.A. v. Brown-Serulovic , 97 A.D.3d 522 (2d Dept. 2012). Slip Op. at *1 (citations omitted). Id. Id. (citing, Penthouse Global Media, Inc. v. Exec. Club LLC , 187 AD3d 410, 411 (1st Dept. 2020), lv. dismissed , 36 N.Y.3d 1115 (2021); Morrison Cohen Singer & Weinstein, LLP v. Brophy , 19 A.D.3d 161, 161-162 (1st Dept. 2005)). 5421 Sylvan Ave. Associates Corp. v. New York City Conciliation and Appeals Bd. , 100 A.D.2d 812, 813 (1st Dept. 1984); see also, Trusts & Guarantee Co. v. Barnhardt , 270 N.Y. 350, 352 (1936). News Syndicate Co., Inc. v. Gatti Paper Stock Corp. , 256 N.Y. 211, 214 (1931) (internal quotation marks omitted). Progressive Casualty Ins. Co. v. Infinite Ortho Prods., Inc. , 127 A.D.3d 1050, 1051 (2d Dept. 2015) (citations and internal quotation marks omitted). 5421 Sylvan , 100 A.D.2d at 813. Nassau Ins. Co. v. Murray , 46 N.Y.2d 828, 829-30 (1978) (citation omitted).

By Jonathan H. Freiberger When an action is timely commenced but gets dismissed, CPLR 205(a) may permit a plaintiff to commence a new action within six months of the dismissal notwithstanding the expiration of the limitations period.  here,=">here," and="and" the="the" introduction="introduction" to="to" this="this" article="article" is="is" taken="taken" our="our" former="former" article.="article.">   CPLR 205(a) provides: New action by plaintiff. If an action is timely commenced and is terminated in any other manner than by a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits, the plaintiff or, if the plaintiff dies, and the cause of action survives, his or her executor or administrator , may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months after the termination provided that the new action would have been timely commenced at the time of commencement of the prior action and that service upon defendant is effected within such six-month period. Where a dismissal is one for neglect to prosecute the action made pursuant to rule thirty-two hundred sixteen of this chapter or otherwise, the judge shall set forth on the record the specific conduct constituting the neglect, which conduct shall demonstrate a general pattern of delay in proceeding with the litigation.  (Emphasis and hyperlink added.) CPLR 205(a) is a “remedial” statute that “has existed in New York law since at least 1788” and can race[] its roots to seventeenth-century England.”  Wells Fargo Bank, N.A. v. Eitani , 148 A.D.3d 193, 199 (2 nd Dep’t 2017), appeal dismissed , 29 N.Y.3d 1023 (2017).  The purpose of CPLR 205(a) is to “ameliorate the potentially harsh effect of the Statute of Limitations in certain cases in which at least one of the fundamental purposes of the Statute of Limitations has in fact been served, and the defendant has been given timely notice of the claim being asserted by or on behalf of the injured party.”  George v. Mt. Sinai Hospital , 47 N.Y.2d 170, 177 (1979).  Thus, the statute provides “a second opportunity to the claimant who has failed the first time around because of some error pertaining neither to the claimant’s willingness to prosecute in a timely fashion nor to the merits of the underlying claim.”  George , 47 N.Y.2d at 178-79. On June 16, 2022, the New York Court of Appeals decided Ace Securities Corp. v. DB Structured Products, Inc. (“ Ace 2”) in which the Court held that CPLR 205(a) is available only where both actions are commenced by the same plaintiff.  Ace=">Ace" Securities="Securities" Corp.="Corp." v.="v." DB="DB" Structured="Structured" Products,="Products," Inc. ,="Inc.," N.Y.3d="N.Y.3d" (2015)="(2015)" (“ Ace ="(“Ace" 1”).="1”).">   The facts as set forth herein are taken from Ace 1 and Ace 2.  Defendant, DB, was the sponsor of a residential mortgage-backed securities (“RMBS”) transaction pursuant to which it purchased 8,800 mortgage loans, which were packaged and sold to an affiliate, Ace, pursuant to a “Mortgage Loan Purchase Agreement” (“MLPA”). DB made representations and warranties in the MLPA as to the “quality and characteristics” of the pooled loans.  The loans were placed in a trust.  Ace transferred all rights in the trust and arising under the MLPA to HSBC, in its capacity as a trustee of a RMBS trust, under a pooling and servicing agreement (“PSA”).  The trust issued $500 million in certificates, which were collateralized by the underlying loans.  Principal and interest was paid to certificate holders from proceeds of payments made on the underlying loans.  The PSA provided a mechanism pursuant to which the sponsor, DB, was required to cure or buy back loans that were in breach of the representations and warranties.  Thus, if loans were found to be in breach, HSBC, as trustee, was required to notify sponsor of same within 60 days and sponsor was required to cure the breach or buy back the non-conforming loan within 90 days.   Due to extensive losses caused by underlying loans defaults, two certificate holders commissioned a forensic analysis of the loans that revealed significant breaches of the representations and warranties.  These certificate holders demanded that HSBC follow procedures in the underlying documents so as to force the sponsor to repurchase the entire pool of loans.  Because of statute of limitations issues, the certificate holders also requested that HSBC seek a tolling agreement.  In the absence of HSBC’s failure to take any of the requested actions, the certificate holders commenced a lawsuit against the sponsor by filing a Summons with Notice on the last day before the expiration of the statute of limitations.  Six months later, in response to the sponsor’s demand for a complaint, “HSBC filed a complaint on behalf of the trust, purporting to substitute as plaintiff for the certificate holders.”  The sponsor moved to dismiss.  After numerous appeals, it was ultimately determined that HSBC’s complaint was untimely because it was filed after the expiration of the statute of limitations and the certificate holders did not validly commence their action by the filing of the Summons with Notice because “they failed to comply with the contractual condition precedent to suit since they did not give the sponsor the requisite notice and opportunity to cure or repurchase.”  (Internal quotation marks omitted.) During the pendency of the previously discussed appeals “HSBC commenced the instant action against the sponsor seeking to ‘revive’ the certificate holders' action pursuant to CPLR 205 (a) assert that the certificate holders' action was timely commenced and based on the same transaction, and that it had been dismissed less than six months before on grounds that did not preclude CPLR 205 (a) relief.”  HSBC argued that “CPLR 205 (a) authorized commencement of the present action, which would otherwise be barred by the statute of limitations.” Sponsor moved to dismiss HSBC’s second Complaint arguing that “the action was untimely and CPLR 205 (a) did not apply because HSBC was not the same "plaintiff" as the certificateholders who commenced the prior action.” Supreme court granted the sponsor's motion < here =">here"> and the Appellate Division affirmed < here =">here"> .  The Court of Appeals granted leave to appeal. Quoting George , 47 N.Y.3d at 175, the Court, noted that “ he effect of the statute is quite simple: if a timely brought action has been terminated for any reason other than one . . . specified in the statute, the plaintiff may commence another action based on the same transactions or occurrences within six months of the dismissal of the first action" and obtain the benefit of the prior timely filing for statute of limitations purposes.” The Court recognized that its resolution of the matter was based on a “question of statutory interpretation”, and, therefore, the Court’s “primary consideration is to ascertain and give effect to the intention of the legislature, the clearest indicator of which is the statutory text.”  (Citations, internal quotation marks and brackets omitted.)  Further, the Court noted that “ ny construction that would render a portion of the statute superfluous must be avoided.”  (Citation omitted.) HSBC argued that while it is not the same entity as the plaintiff in the prior action, “this new action may nevertheless be deemed timely under CPLR 205 (a) because HSBC, as trustee, is only "nominally" different from the plaintiffs in the original action insofar as it seeks to enforce the "same rights" as the certificate holders—namely, those of the RMBS trust itself.”  The Court rejected HSBC’s position and stated: HSBC's argument in favor of applying CPLR 205 (a) cannot be reconciled with the text of the savings statute, the public policy underlying the provision, or our precedent. We have long recognized that the benefit provided by CPLR 205 (a) is explicitly , and exclusively , bestowed on “the plaintiff” who prosecuted the initial action except in the limited scenario where "the plaintiff" dies, the cause of action survives, and an administrator or executor of the deceased plaintiff's estate seeks to commence a new action based on the same occurrence. That is, the savings statute applies only where the second action is brought by the same plaintiff or an estate representative. (Citations, internal quotation marks, and brackets omitted, emphasis in original.)  The Court reasoned that HSBC’s argument that “ onstruing the term "the plaintiff" in CPLR 205 (a) to authorize commencement of a new action by any entity seeking to pursue the "same rights" as the prior plaintiff—as HSBC urges us to do—would render the statutory language permitting commencement of new actions by administrators and executors superfluous.” Because “HSBC is not ‘the plaintiff’ in the prior action” “the benefit of CPLR 205(a) is unavailable to save its untimely complaint.” The Court stated: Where, as here, the litigant commencing the second action is not the original plaintiff, application of CPLR 205 (a) would protect the rights of a dilatory —not a diligent—suitor. By failing to bring the action within the statute of limitations, HSBC signaled that it had no intention to pursue its claims in court. CPLR 205 (a) does not apply and HSBC's failure to commence an action within the statute of limitations is fatal. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber Previously, this Blog examined the doctrines of frustration of purpose and impossibility of performance in the context of Covid-19 ( here and here ).  The doctrine of frustration of purpose is narrowly applied. 1 “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.” 2 In other words, the doctrine will not apply “unless the frustration is substantial”. 3 There are many examples of situations in which one or both of the doctrines applied. Relevant to today’s article, such examples include situations where the tenant was unable to use the premises as a restaurant until a public sewer was completed, which took nearly three years after the lease was executed, 4 and where a tenant who entered into a lease for office space could not occupy the premises because the certificate of occupancy allowed only residential use and the landlord refused to correct it. 5 However, “frustration of purpose … is not available where the event which prevented performance was foreseeable and provision could have been made for its occurrence”. 6 The doctrine of impossibility “excuses a party’s performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible.” 7 The “impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract.” 8 The doctrines of frustration and impossibility of performance were recently examined by the Appellate Division, First Department in The Gap v. 44-45 Broadway Leasing LLC , 2022 N.Y. Slip Op. 03980 (1st Dept. June 16, 2022) ( here ). In 2015, plaintiffs entered into two 15-year leases for commercial space in Times Square, New York. The leases required plaintiffs to operate the stores “continuously,” with the premises open “in entirety,” for “at least” fourteen hours a day, seven days a week.  The leases contemplated only limited reasons for the interruption of operations. The stores could close, and the rent would be abated, for the time needed to repair the premises in the event of “casualty.” The stores could also close without abatement if plaintiffs’ operations were delayed by some event “beyond Tenant’s reasonable control …, including, without limitation strikes, labor troubles, acts of terrorism, or the occurrence of an act of God.” The leases did not contain any provision for interruptions caused by governmental orders or restrictions. As the pandemic took hold in 2020, Governor Cuomo signed a number of executive orders that were designed to address the spread of Covid-19. On March 20, 2020, the Governor issued an order that required all non-essential businesses to “reduce the in-person workforce at any work locations by 100%” by the evening of March 22, 2020.  Some of the restrictions were lifted in early June 2020. Although non-essential businesses, such as retailers, were permitted to open their doors to customers as of June 22, 2020, they remained subject to extensive restrictions – restrictions that plaintiffs claimed made it impossible for them to resume their store operations. Plaintiffs further claimed that they could not reopen to in-person business until June 2021, albeit with the mask requirements reimposed during the winter months. Based upon the foregoing, plaintiffs concluded that the purpose for leasing the space with defendant had concluded. Consequently, plaintiffs paid a portion of their April and May rent but refused to make further payments. On June 16, 2020, defendant served plaintiffs with default notices for May and June rent. In response, plaintiffs filed the action, seeking injunctive and declaratory relief.  The complaint alleged that the pandemic and the government-mandated shutdown had frustrated the leases’ purpose, had resulted in a failure of consideration, and had rendered performance illegal, impossible, and impracticable. Plaintiffs sought, among other things, alternative forms of declaratory relief, including a declaration that the leases terminated by operation of law, or that the obligation to pay rent and expenses was abated. The complaint also sought an injunction to prevent defendant from invoking the termination provisions of the leases.  On January 1, 2021, defendant moved for summary judgment on plaintiffs’ claims and for partial summary judgment on a counterclaim for unpaid rent. Defendant argued, among other things, that lease provisions requiring plaintiffs to pay rent without any offset or abatement precluded plaintiffs from raising common-law defenses, such as frustration. Defendant also claimed that plaintiffs’ “continuing use of the Premises and the signs attached thereto” meant that the purpose of the leases was not frustrated, and that plaintiffs had “knowingly and willingly” accepted the risk of “changing market conditions.”  Plaintiffs argued that the pandemic and the government measures taken to contain it had frustrated the purpose of the parties’ agreement.  The motion court granted defendant’s motion. Plaintiffs appealed. The Appellate Division, First Department affirmed.  The Court held that “ laintiffs’ reliance on the doctrine of frustration of purpose unavailing, as they were not ‘completely deprived’ from using the premises as intended under their lease agreements.” 9 In so holding, the Court noted that “ laintiffs … were allowed to provide curbside and in-store pickup on June 8, 2020, and to reopen at half capacity, with masking and social distancing, on June 22, 2020.” 10 Moreover, said the Court, plaintiffs “were allowed to reopen fully from June 2021, albeit with the mask requirements reimposed during the winter months.” 11 Thus, concluded the Court, “ ontrary to plaintiffs’ contention, ‘frustration of purpose not implicated by temporary governmental restrictions on in-person operations.’” 12 The Court also held that plaintiffs failed to satisfy the doctrine of impossibility. The Court noted that in a prior appeal, it had “already rejected plaintiff Gap’s contention that ‘rendered it objectively impossible to perform its operations as a retail store’”. 13   The Court further noted that plaintiffs filed their complaint after reopening was allowed. 14 In addition, said the Court, “even if the reopening restrictions made plaintiffs’ ability to provide a flagship store experience more difficult, the pandemic did not render their performance impossible.” 15 The Court explained that the means of performance under the leases were not objectively impossible because “‘the leased premises were not destroyed’”. 16 Takeaway As readers know, many states imposed emergency measures to address the health crisis – measures that had the effect of reducing business operations or shutting down the business. New York was no different. As we noted in our prior articles, businesses have been impacted by the pandemic, and will be impacted by the pandemic for years to come. From a legal perspective, there are many issues to consider. Among them is the performance of a contract, such as a lease. In The Gap , the courts ruled that the pandemic did not frustrate the purpose of the parties’ lease agreement, nor did it make performance thereunder impossible. To be sure, the pandemic negatively affected The Gap’s business, but to the courts, it did not completely thwart the very reason for the lease. 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 Jack Kelly Partners LLC v. Zegelstein , 140 A.D.3d 79, 85 (1st Dept. 2016), lv. dismissed , 28 N.Y.3d 1103 (2016). Warner v. Kaplan , 71 A.D.3d 1, 6 (1st Dept. 2009) (internal quotation marks omitted), lv. denied , 14 N.Y.3d 706 (2010). Rockland Dev. Assoc. v. Richlou Auto Body, Inc. , 173 A.D.2d 690, 691 (1991). Benderson Dev. Co. v. Commenco Corp. , 44 A.D.2d 889 (4th Dept. 1974), aff’d , 37 N.Y.2d 728 (1975). Jack Kelly Partners , 140 A.D.3d at 85. Warner , 71 A.D.3d at 6 (internal quotation marks omitted). Id. at 5. Id. Slip Op. at *1. Id. Id. Id. (quoting, U.S.A., Inc. v. 693 Fifth Owner LLC , 203 A.D.3d 480, 480 (1st Dept. 2022)). Id. (quoting, Gap, Inc. v. 170 Broadway Retail Owner, LLC , 195 A.D.3d 575, 577 (1st Dept. 2021)). Id. Id. Id. (quoting, Valentino U.S.A., Inc. v 693 Fifth Owner LLC , 203 A.D.3d 480, 480 (1st Dept. 2022) (citing, 558 Seventh Ave. Corp. v. Times Sq. Photo Inc. , 194 A.D.3d 561, 562 (1st Dept. 2021), appeal dismissed , 37 N.Y.3d 1040 (2021)).

By: Jeffrey M. Haber Obtaining jurisdiction over a corporation that is incorporated and headquartered outside of the state can be difficult. A plaintiff must plead and prove that the corporation purposefully availed itself of the resources of the state for a court to exercise personal jurisdiction over the defendant. The failure to do so will result in dismissal of the action. Under CPLR § 302(a)(1), a court can exercise specific personal jurisdiction over a non-domiciliary who “transacts any business within the state.” CPLR § 302(a)(1). To satisfy CPLR § 302(a)(1), a plaintiff must satisfy a two-part test. First, the defendant must have “transacted business” in New York. 1 Second, the plaintiff must demonstrate “some articulable nexus between the business transacted and the cause of action sued upon.” 2 CPLR § 302(a)(1) is a “single act statute,” whereby “proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as the defendant’s activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted.” 3 “Purposeful activities are those with which a defendant, through volitional acts, ‘avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” 4 Whether a non-domiciliary has engaged in sufficient purposeful activity to confer jurisdiction requires an examination of the totality of the circumstances. 5 The quality of a defendant’s contacts is the “primary consideration” in establishing jurisdiction. 6 As to the required nexus, the courts require “a relatedness between the transaction and the legal claim such that the latter is not completely unmoored from the former, regardless of the ultimate merits of the claim.” 7 “ here at least one element arises from the New York contacts, the relationship between the business transaction and the claim asserted supports specific jurisdiction under the statute.” 8 Further, the exercise of “personal jurisdiction under the long-arm statute must comport with federal constitutional due process requirements.” 9   In this regard, the nondomiciliary must have “certain minimum contacts with such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” 10 The “minimum contacts” test “has come to rest on whether a defendant’s conduct and connection with the forum State are such that it should reasonably anticipate being haled into court there.” 11 Such minimum contacts exist where a defendant “purposefully avails itself of the privilege of conducting activities within the forum State.” 12 Similarly, where the non-domiciliary uses the forum to “achieve the wrong complained of … satisfies the minimum contacts component of the due process inquiry.” 13 Whether personal jurisdiction offends “notions of fair play and substantial justice” depends on a consideration of “the burden on the defendant, the forum State’s interest in adjudicating the dispute, the plaintiff’s interest in obtaining convenient and effective relief, the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and the shared interest of the several States in furthering fundamental substantive social policies” 14 With the foregoing principles in mind, we examine 4069 Rosen Assoc., LLC v. Tournamentone Corp. , 2022 N.Y. Slip Op 03864 (1st Dept. June 14, 2022) ( here ). 4069 Rosen Assoc. involved a series of loans made by plaintiffs to defendant. In that regard, between October 2013 and July 2016, plaintiffs made eleven loans to defendant in the form of convertible debentures and promissory notes (the “Notes”).  According to plaintiffs, in connection with the Notes (and additional loans plaintiffs subsequently made to defendant), defendant met with plaintiffs’ representatives at their offices and/or with defendant’s in-state agent in New York City on no fewer than thirteen separate occasions, directed substantial email and mail communications to plaintiffs and its agent in New York, and sent money into New York to pay its agent’s transaction fees.  On each Note, defendant subsequently defaulted and failed to satisfy any of its payment obligations. Plaintiffs commenced the action in December 2020, to enforce the Notes. On February 26, 2021, the motion court issued a decision and order granting plaintiffs’ motion for summary judgment in lieu of complaint, pursuant to CPLR § 3213, on default. Defendant moved to vacate the order on the ground that the motion court lacked personal jurisdiction over it. The motion court denied the motion to vacate, noting that defendant’s numerous visits to New York to negotiate the loans at issue were more than sufficient to confer personal jurisdiction over it.  Defendant appealed. The Appellate Division, First Department affirmed the denial of the motion. The Court held that the motion court “properly found that the nature and quality of defendant’s contacts in New York were sufficient to support long-arm jurisdiction under the ‘transacts … business’ provision of CPLR 302(a)(1).” 15 The Court found that “defendant’s New York activities were purposeful and substantially related to plaintiffs’ claims to recover on 11 notes and debentures signed by defendant.” 16 The Court explained that such a finding was supported by the fact that “defendant’s principal purposefully transacted business in New York by negotiating the terms of 8 of the 11 notes and debentures during in-person meetings in New York. 17 Additionally, noted the Court, “in connection with the loan transactions, defendant retained a New York firm to represent it, traveled to New York on multiple occasions to meet with plaintiffs’ representatives to promote and provide progress reports on defendant’s business, and established a continuing relationship with plaintiffs that lasted several years and spanned 11 separate loans.” 18 Such activities, said the Court, were “sufficient to satisfy the statutory test for long-arm jurisdiction.” 19 Finally, the Court held the motion court’s “exercise of personal jurisdiction over defendant comport with due process, since plaintiffs’ cause of action to recover on the notes and debentures ha a substantial nexus with defendant’s contacts with New York.” 20 The Court explained that “ efendant’s numerous contacts with New York demonstrate that litigating in this state was foreseeable and would not be unduly burdensome.” 21 Takeaway 4069 Rosen Assoc. is a good example of a court looking at the totality of the contacts within the state to determine whether a defendant has “on his or her own initiative project himself of herself into th state to engage in a sustained and substantial transaction of business.” 22 Thus, where, as in 4069 Rosen Assoc. , the contacts within the state were numerous and purposeful, a court will find that the exercise of jurisdiction over a non-domiciliary is appropriate and consistent with 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. Footnotes McGowan v. Smith , 52 N.Y.2d 268, 271 (1981). Id. at 272. Deutsche Bank Secs., Inc. v. Mont. Bd. of Invs. , 7 N.Y.3d 65, 71 (2006); see also Wilson v Dantas , 128 AD3d 176, 182-83 (1st Dept. 2015). Fischbarg v. Doucet , 9 N.Y.3d 375, 380 (2007) (quoting McKee Elec. Co. v. Rauland–Borg Corp. , 20 N.Y.2d 377, 382 (1967)). Id. (quoting Farkas v. Farkas , 36 A.D.3d 852, 853 (2d Dept. 2007)). Id. Licci ex rel. Licci v. Lebanese Canadian Bank, SAL , 20 N.Y.3d 327, 339 (2012). Id. at 341. Rushaid v. Pictet & Cie , 28 N.Y.3d 316, 331 (2016). Id. (citation omitted). LaMarca v. Pak-Mor Mfg. Co. , 95 N.Y.2d 210, 216 (2000). Id. Licci ex rel. Licci v Lebanese Can. Bank, SAL , 732 F.3d 161, 173 (2d Cir. 2013). Rushaid , 28 N.Y.3d at 331 (citation omitted). Slip Op. at *1. Id. (citing, C. Mahendra (NY), LLC v. National Gold & Diamond Ctr., Inc. , 125 A.D.3d 454, 457 (1st Dept. 2015)). Id. (citing, Kleinfeld v. Rand , 143 A.D.3d 524 (1st Dept. 2016); and San Ysidro Corp. v Robinow , 1 A.D.3d 185, 187 (1st Dept. 2003)). Id. Id. (citing, Wilson v. Dantas , 128 A.D.3d 176, 182-83 (1st Dept. 2015), aff’d on other grounds , 29 N.Y.3d 1051 (2017)). Id. (citing, D&R Global Selections, S.L. v. Bodega Olegario Falcon Pineiro , 29 N.Y.3d 292, 299 (2017)). Id. Berkshire Capital Group, LLC v. Palmet Ventures, LLC , 307 Fed. App’x. 479, 481 (2d Cir.2008) (internal quotations and citation omitted).

By: Jeffrey M. Haber Litigation can be lengthy, costly and potentially damaging to the financial viability of a business and the financial security of an individual. Often, the parties can resolve their disputes without going to court by using alternative methods such as arbitration and mediation.  Alternative Dispute Resolution (“ADR”) is an area of law devoted to settling disputes without using the court system. ADR is often a shorter and less costly process by which businesses and individuals can confidentially resolve their disputes. Arbitration is similar to a trial without the formalities. It is an adversarial proceeding where the parties can call witnesses and present evidence to a neutral arbitrator or panel of arbitrators. The rules of discovery and evidence are relaxed to make it a shorter and more cost-efficient process.  Typically, an attorney or retired judge, who works for a private ADR firm, conducts the proceeding. Arbitration can be binding, in which the arbitrator renders a decision that can be enforced by the courts, or non-binding, in which the arbitrator renders an advisory opinion that the parties can accept or reject. Since arbitration is an adversarial proceeding, does the arbitrator have to hear testimony from the parties and witnesses? Can the arbitrator decide the dispute on the papers, in a summary judgment fashion? Does the failure to conduct an evidentiary hearing with witnesses negate the process such that the award issued by the arbitrator is subject to vacatur? In Xiangyang Luo v. Tessler , 2022 N.Y. Slip Op. 31684(U) (Sup. Ct., N.Y. County May 23, 2022) ( here ), the motion court answered the foregoing questions in the negative. The Governing Principles of Law The grounds for vacating are limited. 1 The reason for such a limited review is “to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation.” 2 In New York, CPLR § 7511(b) sets forth the statutory grounds for vacating an arbitration award. Under that section, a court may vacate an award if the rights of the movant were prejudiced by: (1) corruption, fraud or misconduct in procuring the award; (2) the partiality of the arbitrator; (3) the arbitrator exceeding or imperfectly executing his/her power; or (4) the arbitrator failing to follow the procedure of Article 75. With respect to CPLR § 7511(b)(3) – that is, whether the arbitrator exceeded or imperfectly executed his/her power – an award will not be overturned unless it violates a strong public policy, is totally irrational or exceeds a specifically enumerated limitation on the arbitrator’s power. 3 In general, the grounds for vacating an arbitration award are narrowly construed. 4 It will be upheld even when the arbitrator makes errors of law and/or fact. 5 As noted by the Court of Appeals, the courts are not to assume the role of overseer of the arbitration and mold an award to its sense of justice. 6 An arbitration award violates strong public policy “only where court can conclude, without engaging in any extended fact-finding or legal analysis, that a law prohibits the particular matters to be decided by arbitration, or where the award itself violates a well-defined constitutional, statutory, or common law of th state.” 7 Vacatur on public policy grounds is exercised sparingly 8 in order to preserve the parties’ choice of a nonjudicial forum to the greatest extent possible. 9 Xiangyang Luo v. Tessler Xiangyang involved a loan agreement. Plaintiffs maintained that defendant caused Big Apple Capital Lenders, LLC (“Big Apple”), an entity in which plaintiffs were members, to violate the terms of the agreement. Plaintiffs sought repayment of two loans made to defendants, loans that were allegedly made pursuant to the EB-5 program offered by U.S. Customs and Immigration Service. Under this program, projects can secure investment from foreign investors. Plaintiffs argued that the borrowers, all entities controlled by defendant, received $6 million and that none of the principal or interest had been repaid.  In prior motion practice, the Court found that the dispute should be decided by arbitration pursuant to the terms of the parties’ agreement. Following that arbitration, plaintiffs moved to confirm the arbitrator’s award, which awarded plaintiffs over $7 million in relation to two loans from certain defendants and found that Tessler Developments, LLC (as the guarantor) was liable “in the amount of $8 million to the extent the loan is not paid by ”.  In issuing the award, the arbitrator concluded that the books and records of Big Apple and Big Apple Capital Management LLC had to be immediately turned over. The arbitrator also found that the contractual interest rate of 4.5% applied rather than the 1.5% rate as argued by defendants. The arbitrator issued the award – an initial 38-page partial award, followed by a final award – after hearing oral argument on a dispositive motion. In the initial award, the arbitrator concluded that the first loan of $4 million matured on June 30, 2019, and the second loan of $2 million matured on June 30, 2021. The arbitrator also found that the Manager (defendant Big Apple Capital Management LLC) was subject to removal for the failure to act on behalf of the lender’s members, including the failure to prosecute the loan default. The final award incorporated the initial award and focused on the guaranty by Tessler Developments LLC.  Plaintiffs moved to confirm the award. They insisted the award was rational and the result of a careful analysis of the loan documents and the facts presented. They further argued that a hearing was not required, and that the arbitrator was entitled to make a decision on the papers. They noted that the parties reached an agreement whereby plaintiffs were to seek dispositive relief, there would be oral argument on that motion and the hearing on the remaining claims would be adjourned “sine die”.  Defendants cross-moved to vacate the award. They argued that the arbitrator exhibited manifest disregard for the law and exceeded his powers. here=">here" and="and" >here.=">here."> Defendants complained that the only thing that transpired before the arbitrator was a pre-evidentiary hearing followed by the dispositive motion. They insisted that there should have been a full evidentiary hearing to explore disputed factual issues, including whether the interest rate on the loans should be 1.5% or 4.5%.  Finally, defendants questioned how the arbitrator could reach the conclusions he did without having witnesses and evidence presented. They claimed that the evidence presented raised factual disputes that could not be decided based on papers alone. The Motion Court’s Decision The Court granted the motion to confirm the award and denied the cross-motion to vacate it. The Court held that the arbitrator’s award was neither irrational nor against public policy. 10 The Court rejected defendants’ argument that the absence of a formal hearing, complete with witnesses, was a bar to confirmation of the award. 11 In doing so, the Court commented on the use of dispositive motions as the means to resolve disputes in arbitration: “The Court recognizes that, ordinarily, it is preferable to conduct a hearing and hear from witnesses in an arbitration. But the failure to do so here is not a violation of defendants’ due process rights.” 12 The Court explained that the issue before the arbitrator was contract interpretation – an issue that is often decided by the courts and arbitrators “without the need for witness testimony.” 13 his is a case about interpreting contracts for loans, loans that defendants do not deny taking out nor do they claim they paid them back. Rather the dispute appears to be about the maturity dates and the applicable interest rates. The Court is unable to find it was wholly irrational for the arbitrator to make findings, in the context of a dispositive motion, about the provisions of a contract. Such conclusions are often made by arbitrators and courts without the need for witness testimony. 14 In conclusion, the Court found that the two awards issued by the arbitrator ( i.e. , the partial awards and final award) were “entirely rational.” 15 “Defendants’ dissatisfaction with the award,” said the Court, was “not a basis … to nullify it.” 16 Takeaway Arbitrators have “great latitude to determine the procedures governing their proceedings and to restrict or control evidentiary proceedings.” 17 Thus, an arbitrator may proceed “with only a summary hearing and with restricted inquiry into factual issues.” 18 Today, the major ADR organizations include within their rules, the right to seek summary disposition of the dispute. For example, Rule 33 of the AAA Commercial Arbitration Rules ( here ) permits dispositive motions, but only if there is a likelihood of success on the motion: “The arbitrator may allow the filing of and make rulings upon a dispositive motion only if the arbitrator determines that the moving party has shown that the motion is likely to succeed and dispose of or narrow the issues in the case.” Rule 18 of the JAMS Comprehensive Rules ( here ) provides that the arbitrator “may” permit a party to file a motion for summary disposition, “either by agreement of all interested Parties or at the request of one Party, provided other interested Parties have reasonable notice to respond to the request.” Like the AAA Rules, “The equest may be granted only if the Arbitrator determines that the requesting Party has shown that the proposed motion is likely to succeed and dispose of or narrow the issues in the case”. Dispositive motions have a place in arbitration, despite the increased cost that they may impose upon the parties. They can avoid the time and expense of arbitrating a case where a claim is clearly barred as a matter of law, such as by res judicata or collateral estoppel, waiver, statute of limitations, or lack of standing. Dispositive motions can also narrow the issues for an evidentiary hearing, which can be a benefit in a complex proceeding with multiple claims and parties. And dispositive motions can promote settlement by clarifying and/or narrowing the issues in dispute. However, dispositive motions should not be used as a substitute for an evidentiary hearing, especially on matters that are not clearly barred as a matter of law. As the Court in Xiangyang noted, although evidentiary hearings are preferable, arbitrators are not compelled to conduct evidentiary hearings. 19 Thus, the focus of the courts is not on whether the award was issued after a full evidentiary hearing or a dispositive motion, but whether the award was issued in violation of CPLR § 7511(b). In Xiangyang , the motion court held that the award was rational and consistent with the powers arbitrators and courts are often asked to exercise when interpreting contractual provisions. 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 Frankel v. Sardis , 76 A.D.3d 136, 139-40 (1st Dept. 2010). Dirussa v. Dean Witter Reynolds, Inc. , 121 F.3d 818, 821 (2d Cir.1997) (citation omitted). Matter of Silverman (Benmor Coats) , 61 N.Y.2d 299 (1984); Matter of Kowaleski (New York State Dept. of Correctional Servs.) , 16 N.Y.3d 85, 90 (2010). Frankel , 76 A.D.3d at 139-140. Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 479-480 (2006) (citing, Matter of Sprinzen (Nomberg) , 46 N.Y.2d 623, 629 (1979)). Wein & Malkin , 6 N.Y.3d at 480. Matter of Reddy v. Schaffer , 123 A.D.3d 935, 937 (2d Dept. 2014). Matter of Neirs-Folkes, Inc. (Drake Ins. Co. of N.Y.) , 75 A.D.2d 787 (1st Dept. 1980). Sprinzen , 46 N.Y.2d at 630. Slip Op. at *4. Id. (citing, Brooks v. BDO Seidman, LLP , 94 A.D.3d 528, 528-29 (1st Dept. 2012) (“Although the panel made a determination of the proceeding on respondent’s motion for summary judgment, this was not improper since arbitrators are not compelled to conduct hearings, and may decide a case on summary judgment”)). Id. at *5. Id. Id. (citing, CPLR § 3213 (motion for summary judgment in lieu of complaint)).  Id . Id. Supreme Oil Co., Inc. v. Abondolo , 568 F. Supp. 2d 401, 408 (S.D.N.Y. 2008). AT & T Corp. v. Tyco Telcoms (U.S.) Inc. , 255 F. Supp. 2d 294, 303 (S.D.N.Y.2003); Areca, Inc. v. Oppenheimer & Co. , 960 F. Supp. 52, 55 (S.D.N.Y. 1997).

By: Jeffrey M. Haber It is common in commercial and business contracts for the parties to agree upon the law to be applied in the event a dispute arises between them. Typically, these choice of law provisions only apply to the substantive law of the chosen state. 1 They do not apply to the procedural laws of the jurisdiction. For application of the procedural laws, the parties must look to the forum state.  In Baker v. Greentech Capital Advisors, L.P. , 2022 NY Slip Op. 03679 (1st Dept. June 7, 2022)   ( here ), the Appellate Division, First Department was asked to consider the scope of a contractual choice-of-law provision in the parties’ contract. In particular, the Court was asked whether the law of Delaware or New York governed the application of the statute of limitations for a breach of contract claim. Baker involved the repurchase by defendant, Greentech Capital Advisors, L.P. (“Greentech”), an investment bank, of plaintiff’s Class B-2 Units (“Units”) in the partnership. Plaintiff was a partner of Greentech who had resigned from the partnership a year earlier. Pursuant to the partnership agreement , Greentech was required to pay “market value” for plaintiff’s Units. Greentech was also required to send plaintiff a written notice advising her of the repurchase (the “Call Notice”). By letter dated February 17, 2016, Greentech sent plaintiff a Call Notice, wherein it advised her that Greentech was repurchasing her Units for $0. Plaintiff took no action with respect to the valuation until March 2020, when plaintiff brought suit against Greentech and Greentech Capital Advisors LLC (“GCA”), alleging a breach of the Partnership Agreement and challenging the repurchase of her Units. 2 On October 6, 2021, Greentech moved for summary judgment on the plaintiff’s breach of contract claim. Greentech argued that plaintiff’s claim was time-barred by Delaware’s three-year statute of limitations because the partnership agreement’s choice-of-law provision stated the agreement would be “enforced” in accordance with Delaware law. Consequently, argued defendants, since plaintiff did not file her action within the three-year statute of limitations, her complaint should be dismissed. 3 In opposition, plaintiff argued that Delaware law governed the choice-of-law clause, not New York law. Plaintiff maintained that, under Delaware law, a choice-of-law provision must specify that the agreed upon law extends to procedural matters, such as the application of the statute of limitations, for it to apply, and the partnership agreement did not do so.  The motion court denied Greentech’s motion, holding that the choice-of-law provision “must be interpreted under Delaware law, which requires application of the forum state’s rules absent explicit mention of the statute of limitations in the contract.”  On Appeal, the Appellate Division, First Department unanimously affirmed. The Court noted that the first step in its analysis was to examine the language of the choice of law provision to determine the substantive law to be applied:  he preliminary question of whether the choice-of-law clause should be “construed” to cover the applicable statute of limitations period must be decided under the law the parties chose in the contract, that is, Delaware substantive law, and not the law of the forum state. 4 Under the partnership agreement, the parties selected Delaware law as the substantive law to apply. The next step in the process, therefore, was to determine whose law applied to procedural issues. Under Delaware law, noted the Court, “choice-of-law provisions apply to issues of substantive law, while procedural issues (such as the appropriate limitations period) are governed by the forum state.” 5 Thus, explained the Court, “ nder Delaware law, a contract’s choice-of-law provision does not apply to the statute of limitations unless it says so explicitly.” 6 Applying the foregoing analysis, the Court concluded that New York’s statute of limitations should apply to plaintiff’s breach of contract claim: As the choice-of-law provision in the partnership agreement does not expressly mention the application of the Delaware statute of limitations, the law of the forum state (New York) governs the limitations period. 7 Takeaway Baker provides litigants with a basic, but important, takeaway that cannot be underscored enough: if the parties want their choice-of-law provision to include procedural issues, such as the application of a statute of limitations, then they must explicitly say so. As shown in Baker , the failure to expressly state that procedural issues are to be included in a choice-of-law provision, can be fatal to the survival of a complaint.  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 Deutsche Bank Nat’l Tr. Co. v. Barclays Bank PLC , 34 N.Y.3d 327, 340 (2019) (noting that where parties to a contract have included in their agreement a “substantive choice-of-law provision, making it clear that contractual language is to be interpreted pursuant to law,” the courts are “bound to interpret the contract provisions according to substantive law.”). Plaintiff filed a second amended complaint on March 31, 2021. The choice of law provision in the agreement provided: “This agreement and the rights of the partners shall be governed by and construed and enforced in accordance with the internal laws of the state of Delaware, without regard to the conflict of laws rules thereof.” Slip Op. at *2 (citing, Deutsche Bank , 34 N.Y.3d at 340). Id. (citing, Pivotal Payments Direct Corp. v. Planet Payment, Inc. , 2015 WL 11120934, at *3, 2015 Del. Super. LEXIS 1058, at *7-9 (Del. Super., Dec. 29, 2015); Portfolio Recovery Assoc., LLC v. King , 14 N.Y.3d 410, 415-416 (2010)).  Id. (citing, ( Hatcher v. Collecto, Inc. , 2021 WL 765759, at *2, 2021 U.S. Dist. LEXIS 36293, at *5 (D. Del. Feb. 26, 2021)). “If no provision expressly includes it, then the law of the forum applies because the statute of limitations is a procedural matter.” Pivotal Payments , 2015 WL 11120934, at *3. New York law is the same. See , e.g. , Portfolio Recovery Assocs. , 14 N.Y.3d at 416. Id. (citing, Hatcher , 2021 WL 765759, at *2, 2021 U.S. Dist. LEXIS 36293, at *5).

By: Jeffrey M. Haber It goes without saying that lawyers do not win every motion they make. When that happens, a lawyer can appeal the order or avail himself/herself of the two options afforded by CPLR § 2221: he/she can make: (1) a motion to reargue, or (2) a motion to renew. 1 In either case, the lawyer is asking the judge who ruled against him or her to change the outcome of the original motion.  A motion to reargue is addressed to the discretion of the court. It must be made within thirty (30) days of service of a copy of the order and written notice of its entry. 2 A motion to reargue is “based upon matters of fact or law allegedly overlooked or misapprehended by the court in determining the prior motion.” 3 It must be based on the set of papers on which the judge relied to make his/her original decision. 4 The motion cannot include any matters of fact or principles of law not offered or argued on the prior motion. 5 It should not “serve as a vehicle to permit the unsuccessful party to argue once again the very questions previously decided.” 6 Therefore, the movant cannot use the motion for reargument as mechanism to “present arguments different from those originally presented.” 7 A motion to renew is similar to a motion to reargue in that the motion is addressed to the discretion of the court and asks the court to change the outcome of the original decision. 8 “A motion for leave to renew must be based upon new facts that were unavailable at the time of the original motion.” 9 When a motion to renew is made based on facts not previously offered, the movant must justify his/her failure to offer the facts in the original motion. Although there is no deadline for a motion to renew, it is good practice to make the motion within 30 days of service of the original order and written notice of its entry. Against this background, we consider 2006905 Ontario Inc. v. Goodrich Aerospace Can., Ltd. , 2022 N.Y. Slip Op. 03613 (4th Dept. June 3, 2022) ( here ). Plaintiff commenced the action seeking damages for, inter alia , fraud allegedly arising from failed negotiations regarding the renewal of a contract to supply parts. On a prior appeal, the Appellate Division, Fourth Department affirmed an order denying that part of plaintiff’s motion, which plaintiff made before taking depositions, seeking “partial summary judgment on certain elements of its fraud cause of action, i.e. , the elements requiring a material misrepresentation of fact, knowledge of its falsity, and an intent to induce reliance.” 11 After depositions and other discovery occurred, plaintiff moved for leave to renew its prior motion insofar as the prior motion sought partial summary judgment. The motion court denied the motion. Plaintiff appealed. The Fourth Department affirmed. In a pithy decision, the Court held that plaintiff failed to present evidence that could not be obtained with due diligence in support of the earlier motion. The submission of the deposition transcripts, said the Court, was not enough. Plaintiff could have obtained the information prior to moving for summary judgment: “‘nothing prevented from conducting discovery, including depositions, prior to moving for summary judgment.’” 12 As such, plaintiff failed to meet its burden “‘of proving that the new evidence sought to present could not have been discovered earlier with due diligence and would have led to a different result.’” 13 Takeaway “ motion for leave to renew ‘is not a second chance freely given to parties who have not exercised due diligence in making their first factual presentation.’” 14 In 2006905 Ontario , the only justification proffered by plaintiff for failing to present the claimed newly discovered facts in support of the prior motion was that depositions had not yet been conducted. 15 But, as the Court explained, those facts could have been obtained by taking the depositions before filing the motion for partial summary judgment. By not availing itself of the opportunity to take testimonial discovery, the Court found that plaintiff had not met its burden. 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 Sometimes, where appropriate, a lawyer will make a motion for both forms of relief. CPLR § 2221(d)(3). CPLR § 2221(d)(2). Phillips v. Vill. of Oriskany , 57 A.D.2d 110, 113 (4th Dept. 1977). Amato v. Lord & Taylor, Inc. , 10 A.D.3d 374, 375 (2d Dept. 2004); Levi v. Utica First Ins. Co. , 12 A.D.3d 256, 258 (1st Dept. 2004); Frisenda v. X Large Enterprises, Inc. , 280 A.D.2d 514, 515 (2d Dept. 2001). Foley v. Roche , 68 A.D.2d 558, 567 (1st Dept. 1979). Gellert & Rodner v. Gem Community Mgt., Inc. , 20 A.D.3d 388 (2d Dept. 2005). CPLR § 2221(e)(2). Boreanaz v. Facer-Kreidler , 2 A.D.3d 1481, 1482 (2003).  CPLR § 2221(e)(3). 2006905 Ontario Inc. v. Goodrich Aerospace Can., Ltd. , 197 A.D.3d 1008, 1008-1009 (4th Dept. 2021). Slip Op. at *1 (quoting, Centerline/Fleet Hous. Partnership, L.P.-Series B v. Hopkins Ct. Apts., LLC , 176 A.D.3d 1596, 1598 (4th Dept. 2019)). Id. (quoting Centerline/Fleet Hous. Partnership , 176 A.D.3d at 1598). Id. (quoting, Welch Foods v. Wilson , 247 A.D.2d 830, 831 (4th Dept. 1998) (internal quotation marks omitted)); see also Heltz v. Barratt , 115 A.D.3d 1298, 1300 (4th Dept. 2014), aff’d , 24 N.Y.3d 1185 (2014). Slip Op. at *1. Schumann v. City of New York , 242 A.D.2d 616 (2d Dept. 1997).

By: Jeffrey M. Haber Variable annuities are complex securities pursuant to which customers, typically seniors and vulnerable adults, enter into long-term contracts with an issuing company, such as a life insurance company. Variable annuities entitle customers to certain payments depending on the terms of the contract and the performance of an underlying portfolio of securities. Variable annuities often have surrender periods, before the end of which customers must pay a fee for selling or exchanging their annuity contract.  Although the industry is regulated by state and federal law, such as the Investment Company Act of 1940 (“ICA”), there is no shortage of fraud and other improper conduct involving the purchase and sale of annuities.  As with any fraud, annuity scams are limited only by the scammer’s imagination. We highlight a few of the more common types of annuity fraud. 1 Cutting Out Beneficiaries . Scammers convince their targets to buy an annuity contract in which any money left in the annuity at the target’s death will remain with the adviser, broker or insurance agent (collectively, “Agents”) or the advisory firm, broker-dealer or insurance company instead of the annuitant’s beneficiaries.  Fear Mongering and High-Pressure Tactics . Agents conduct high-pressure sales meetings to profit from clients’ fears. On top of the fear mongering, Agents typically offer signing bonuses and today-only deals to manipulate investors into buying annuities that they may not want or need and/or that may not be suitable for their investment needs and objectives.  Twisting and Churning . In “twisting,” an agent will convince a client to exchange an annuity from one company for an annuity from another company. Unbeknown to the client, however, the second annuity is worth less. When the transaction is complete, the client incurs a surrender charge from the old policy. Agents urging the purchase of the new policy “earn” a commission on the transaction. In “churning”, an Agent will convince a client to trade one annuity policy for another one from the same company. The Agent will convince the client to engage in multiple transactions over a period of time so that the Agent can “earn” a commission on the transactions. Often, the client loses the value on the policy they previously owned and must pay a surrender charge to complete the transaction. Against this backdrop, we examine In the Matter of RiverSource Distributors, Inc. , an administrative proceeding that the SEC settled involving the alleged perpetrators of annuity fraud. Defendant, RiverSource Distributors, Inc. (“RDI”), is a registered broker-dealer headquartered in Minneapolis, Minnesota, and a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise”), a publicly traded company. RDI is a principal underwriter of variable annuities issued by RiverSource Life.  Between January 2017 and May 2018 (“Relevant Period”), RDI offered and sold variable annuities to retail investors through AFS, an affiliated broker-dealer/investment adviser. To support these efforts, RDI employed a team of approximately forty wholesalers. RDI wholesalers were responsible for assisting AFS registered representatives to understand these financial instruments. The wholesalers received commissions from the sale of variable annuities underwritten by RDI. RDI’s variable annuity business experienced downward pressures in the years leading up to the Relevant Period. According to the SEC, during the Relevant Period, certain RDI wholesalers developed and implemented a sales practice that involved the creation of lists of variable annuities that were still in effect and owned by AFS customers, and then color-coding those lists to highlight exchange opportunities, including information about commissions from exchanges that could be earned by AFS registered representatives. The SEC found that some RDI wholesalers were trained on how to create and use these “in-force” annuity lists.  The AFS registered representatives’ compensation depended, in part, on whether the annuity contract was out of the surrender period or how long it had been out of that period. Depending on the annuity, if the contract was out of the surrender period or had been out of that period for a certain number of years, AFS registered representatives would receive full compensation on any exchange. On contracts that were not out of the surrender period or had not been out of this period for the requisite number of years, the registered representative’s compensation would be reduced. According to the SEC, certain RDI wholesalers caused exchange offers to be made to holders of variable annuities during the Relevant Period. These efforts included in-person and virtual meetings with AFS registered representatives during which RDI wholesalers were granted access to the AFS registered representatives’ computers, pulled customer lists and holdings, filtered the lists to focus on in-force annuities, and color-coded variable annuities based on their surrender status in order to highlight how registered representatives could increase their compensation. Subsequent to these meetings, said the SEC, certain individuals exchanged their variable annuities. According to the SEC, variable annuity exchanges increased during the Relevant Period from $671 million in 2015 and $768 million in 2016, to $1,006 million in 2017 and $1,049 million in 2018. The SEC said that contemporaneous RDI emails and other internal documents suggested that at least some portion of the increase likely resulted from the use of in-force annuity lists.  The SEC found that RDI’s compliance department became aware of the RDI wholesalers’ efforts and use of lists in or around March 2018. The department investigated the wholesalers’ conduct, and as a result, in May 2018, reprimanded the wholesalers and/or the wholesalers’ supervisors who were involved in the scheme. The SEC said that RDI’s remedial efforts to end the practice included a training program for wholesalers during which its Chief Compliance Officer explained in detail how the creation and use of the in-force annuity lists violated Section 11 of the ICA. 2 After the Relevant Period, RDI’s variable annuity exchanges decreased from $1,049 million in 2018 to $838 million in 2019. Without admitting or denying the SEC’s findings, RDI consented to an order finding that it violated Section 11 of the ICI and imposing a cease-and-desist order, a censure and a $5 million civil penalty. “Congress enacted Section 11 to prohibit the improper ‘switching’ of investors from one investment product to another for the purpose of generating additional selling charges – precisely the conduct our order finds RiverSource to have engaged in,” said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement . “Protecting retail investors from abusive sales practices is a mainstay of our enforcement program, and we remain committed to holding accountable those who engage in such conduct.” A copy of the press release announcing the settlement can be found here . A copy of the cease-and-desist order 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. References See Alanna Ritchie, Annuity Scams , Annuity.Org (updated Feb. 25, 2022) ( here ). Section 11 of the ICA prohibits any principal underwriter from making or causing to be made an offer to exchange the securities of registered unit investment trusts (including variable annuities) unless the terms of the offer have been approved by the SEC or they fall within certain limited exceptions. According to the SEC, none of the exceptions applied to RDI.

By: Jeffrey Haber Under New York’s Business Corporation Law (“BCL”), the Secretary of State is designated as the “agent of every domestic corporation and every authorized foreign corporation upon whom process against the corporation may be served.” 1 “In addition to such designation of the Secretary of State, every domestic corporation or authorized foreign corporation may designate a registered agent in this state upon whom process against such corporation may be served.” 2 The BCL defines the term “process” to mean: “judicial process and all orders, demands, notices or other papers required or permitted by law to be personally served on a domestic or foreign corporation, for the purpose of acquiring jurisdiction of such corporation.” 3 [Ed. Note: BCL § 1301(a) provides that a foreign corporation “shall not do business in this state until it has been authorized to do so.” As part of the registration process, a foreign corporation’s application for authority to do business in New York must include “ designation of the secretary of state as its agent upon whom process against it may be served.” 4 ]  The method of service upon a corporate agent is prescribed by BCL § 306. “Service of process on a registered agent may be made in the manner provided by law for the service of a summons, as if the registered agent was a defendant.” In contrast, “ ervice of process on the secretary of state as agent of a domestic or authorized foreign corporation” must be made “by personally delivering to and leaving with the secretary of state … duplicate copies of process together with the statutory fee.” 6 “Service of process on corporation shall be complete when the secretary of state is so served.” 7 This is so irrespective of whether the process subsequently reaches the corporate defendant. 8 Thus, the BCL contemplates the service of “papers” (BCL § 102(11)) and provides that service on the Secretary of State, as the statutory agent for a corporation, shall be “complete” when “duplicate copies” of the initiatory papers have been personally delivered. There is nothing within this framework that allows the Secretary of State to relax the statutory requirements for service of process or to accept service on behalf of a corporation by a method other than the one established in BCL § 306(b). 9 Against this backdrop, we examine, Majada Inc. v. E&A RE Capital Corp. , 2022 N.Y. Slip Op. 03476 (1st Dept. May 31, 2022) ( here ), a case in which defendant failed to update the corporation’s contact information with the Department of State and was held to be in default in answering the complaint as a consequence of that failure. Majada arose as a result of a dispute between the parties regarding ownership of real property after defendant, Giselle Gilman, allegedly transferred the same property on different dates to plaintiff and subsequently to co-defendant, E&A RE Capital Corp. (“E&A”). Plaintiff served E&A on August 15, 2019, through the Secretary of State. E&A filed an answer on September 19, 2019, three days after the date on which a response or answer was due. E&A moved to compel plaintiff to accept its answer, arguing that the delay in answering was only three days, the default was not willful, defendant possessed meritorious defenses, and there was no evidence of prejudice to plaintiff. Among other arguments, E&A claimed that it “was unaware of the instant action” because, inter alia , the address on which the Secretary of State served the complaint was neither the address at which Majada’s principal was residing nor the address that constituted the company’s principal place of business. Majada’s principal “believed that the DOS address was updated,” and averred that he “did not willfully attempt to conceal address”. The motion court granted the portion of E&A’s cross-motion seeking to compel the acceptance of its answer. Plaintiff appealed. The Appellate Division, First Department reversed. The Court held that “Supreme Court should have denied E&A’s cross motion insofar as it sought to compel plaintiff to accept its untimely answer, as E&A failed to show a reasonable excuse for its default in serving the answer.” 10  The Court rejected E&A’s assertion that “it did not receive the summons and complaint, which had been served on the Secretary of State, because it had failed to keep its address updated.” 11 Under New York law, said the Court, “where a defendant does not receive service of process because it failed to keep a current address on file with the Secretary of State, courts will not find a reasonable excuse for a default.” 12 Takeaway As discussed, under the BCL, the Secretary of State is designated as the “agent of every domestic corporation and every authorized foreign corporation upon whom process against the corporation may be served.” 13 The rules governing designation and service of process are rigidly applied. There is nothing within the BCL that allows the Secretary of State to relax the statutory requirements for service of process.  For this process to work, corporations must keep their contact information current with the Department of State. Too often, corporations, especially the small, privately held ones, forget to update the information on file with the Department of State. When the corporation is sued, as in Majada , the failure to update the information can have serious consequences. Indeed, as E&A learned in Majada , a corporate defendant’s failure to keep a current address on file with the Secretary of State is not a reasonable excuse for its delay in appearing and answering a complaint. 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 BCL § 304(a)(2). BCL § 305(a). BCL § 102(11). BCL § 1304(a)(6). BCL § 306(a). BCL § 306(b). Id. See , e.g. , Micarelli v. Regal Apparel , 52 A.D.2d 524 (1st Dept. 1976). See Cedar Run Homeowners’ Assn., Inc. v. Adirondack Dev. Grp., LLC , 173 A.D.3d 1330, 1330-1331 (3d Dept. 2019). Slip Op. at *1 (citing, CPLR 3012(d), and Nouveau El. Indus., Inc. v. Tracey Towers Hous. Co. , 95 A.D.3d 616, 618 (1st Dept. 2012)). A corporate defendant’s failure to receive copies of process served upon the Secretary of State due to a breach of its obligation to keep a current address on file with the Secretary of State does not constitute a reasonable excuse for its delay in appearing and answering a complaint. Conte Cadillac v. C.A.R.S. Purchasing Serv. , 126 A.D.2d 621, 622 (2d Dept. 1987). Id. Id. (citing., NYCTL 1999-1 Trust v. 114 Tenth Ave. Assoc., Inc. , 44 A.D.3d 576, 577 (1st Dept. 2007), appeal dismissed , 10 N.Y.3d 757 (2008), cert. denied , 555 U.S. 970 (2008); Associated Imports v. Amiel Publ. , 168 A.D.2d 354, 354 (1st Dept. 1990), lv. dismissed , 77 N.Y.2d 873 (1991)). BCL § 304(a)(2).