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By: Jeffrey M. Haber Trust. Trust is an important part of investing. Studies show that trust has a significant impact on investor decision making, such as investing with a hedge fund manager. As one commentator observed, “Clients entrust their capital to advisers to invest, often at the advisers’ discretion … That requires an immense amount of trust. And when properly earned and thoughtfully applied, that trust pays off. It sets in motion successful ideas that benefit both the investor and society at large, creating greater social wealth and well-being. Trust is the glue that binds the financial system together and is essential if the investment industry is to benefit society.” 1 Since trust is so important, how does a hedge fund manager build trust with existing and prospective investors? The answer is not so easy. Investors consider many factors in deciding whether to invest their money with a hedge fund. Clearly, performance is an important factor. But other factors also play an important role, such as brand identity, the qualifications of the hedge fund manager, disciplinary history within the securities industry and the way in which the hedge fund manager safeguards the fund’s assets.  In  Future State of the Investment Profession , the CFA Institute developed a trust equation in which the authors tried to outline some of the factors investors and prospective investors consider when determining whether the hedge fund manager is trustworthy. The study showed that hedge fund managers establish trust through credibility ( i.e. , credentials, track record and brand) and professionalism ( i.e. , competency and values). When one or more of the foregoing factors is missing investors may be harmed.  Today, we examine SEC v. Middlebrooks , an enforcement action brought by the Securities and Exchange Commission (“SEC” or “Commission”) to redress the harm done to fund investors by defendants’ alleged scheme to defraud. According to the SEC, from at least mid-2017 through the present (the "Relevant Period"), defendant Andrew M. Middlebrooks, through the EIA All Weather Alpha Fund I Partners, LLC (“EIA”), a purported long/short equity hedge fund, solicited and raised approximately $39 million from over 100 investors for a private fund that he managed. Defendants allegedly made numerous false and misleading statements to fund investors and prospective investors, in which they misstated the fund’s performance and claimed that its financials were audited by an independent accounting firm when they were not. Defendants allegedly represented to investors and prospective investors that the fund was extremely successful, with cumulative returns of more than 2,500% from the fund’s inception through January 2022. In reality, alleged the SEC, the fund suffered catastrophic trading losses of approximately $27 million. Additionally, said the SEC, defendants falsely represented that the fund had an auditor and would provide audited financial statements to investors. In reality, claimed the SEC, no audit was ever performed and, in early 2022, defendants fabricated financial statements and an audit report, which they provided to existing and prospective fund investors. Further, the SEC alleged that defendants made over $9 million in Ponzi-like payments to conceal the fund’s poor performance. Specifically, the SEC said that defendants met redemption requests using other investors’ funds, paying not only the original amount invested despite the dismal trading losses, but also the phony returns defendants had claimed.  According to the SEC, Middlebrooks also misappropriated investor money, by, among other things, transferring at least $470,000 to his wife’s business, making over $750,000 in transfers to his personal bank account, and using $64,000 of investor money to pay for jewelry.  To halt the alleged ongoing fraud, the SEC sought and obtained emergency relief from the U.S. District Court in the Eastern District of Michigan, including a temporary restraining order against EIA and Middlebrooks and an asset freeze against defendants and the named relief defendants. “As we allege in the complaint, Middlebrooks lured investors by touting extraordinary performance returns and then concealed the truth of his fraud, including by fabricating documents provided to investors,” said C. Dabney O’Riordan, Co-Chief of the Asset Management Unit.  By its compliant, the SEC charged EIA and Middlebrooks with violating the antifraud provisions of the federal securities laws and further charged Middlebrooks with aiding and abetting EIA’s violations of the Investment Advisers Act of 1940. The SEC seeks injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties against EIA and Middlebrooks.  A copy of the SEC’s complaint can be found here . A copy of the SEC’s press release announcing the enforcement action can be found here . Takeaway A hedge fund pools investors’ money and invests the money in securities in an effort to make a positive return. Hedge funds typically have more flexible investment strategies than, for example, mutual funds. Many hedge funds seek to profit in all kinds of markets by using leverage ( i.e. , borrowing to increase investment exposure as well as risk), short-selling and other speculative investment practices that are not often used by mutual funds. To invest, a person must generally be an accredited investor ( i.e. , the investor has a minimum level of income or assets to invest in hedge funds). Typical investors include institutional investors, such as pension funds and insurance companies, and wealthy ( i.e. , high net worth) individuals.  Hedge funds are not subject to many of the regulations that protect investors. Depending on the amount of assets in the hedge funds advised by a manager, some hedge fund managers may not be required to register or to file public reports with the SEC. Hedge funds, however, are subject to the same prohibitions against fraud as are other market participants, and their managers owe a fiduciary duty to the funds that they manage. The SEC has issued an investor bulletin ( here ) in which investors and potential investors are provided with information concerning the factors to consider when investing with a hedge fund manager. According to the SEC, investors should do, among other things, the following before entrusting money with a hedge fund manager:  Read the fund’s offering memorandum and related materials . These documents contain information about investing in the fund, including the investment strategies of the fund, whether the fund is based in the United States or abroad, the risks of the investment, fees earned by the hedge fund manager, expenses charged to the hedge fund, and the hedge fund manager’s potential conflicts of interest. Understand the fund’s investment strategy . In particular, investors should be sure that they understand the level of risk involved in the fund’s investment strategies and that investment strategies are suitable to their investment objectives, time horizons and risk tolerance. Determine if the fund is using leverage or other speculative investment techniques . A hedge fund using leverage will typically invest both the investors’ capital and the borrowed money to make investments in an effort to increase the potential returns of the fund. The use of leverage will magnify both the potential gain and the potential loss from an investment. The use of leverage can turn an otherwise conservative investment into an extremely risky investment. A hedge fund may also invest in derivatives (such as options and futures) and use short-selling (selling a security it does not own) to increase its potential returns, which could likewise increase the potential gain or loss from an investment. Evaluate potential conflicts of interest disclosed by hedge fund managers . For example, if the investment adviser recommends that investment in a fund that the adviser manages, there may be a conflict of interest because the adviser may earn higher fees from the investment in the hedge fund than the adviser might earn from other potential investments. Understand how a fund’s assets are valued . Hedge funds may invest in highly illiquid securities that may be difficult to value. Moreover, many hedge funds give themselves significant discretion in valuing illiquid securities. You should understand a fund’s valuation process and know the extent to which a fund’s securities are valued by independent sources. Valuations of fund assets will affect the fees that the manager charges. Understand how a fund’s performance is determined . Hedge funds do not need to follow any standard methodology when calculating performance, and they may invest in securities that are relatively illiquid and difficult to value. By contrast, the federal securities laws dictate how mutual funds can advertise their performance by requiring specific ways to calculate current yield, tax equivalent yield, average annual total return and after-tax return, as well as having detailed requirements for the types of disclosure that must accompany any performance data.  Understand any limitations on the right to redeem shares . Unlike mutual funds where an investor can elect to sell shares on any given day, hedge funds typically limit opportunities to redeem, or cash in, shares ( e.g. , monthly, quarterly or annually), and often impose a “lock-up” period of one year or more, during which an investor cannot cash in his or her shares. Further, hedge funds may charge a redemption fee before an investor is allowed to cash in his or her shares. Hedge funds may also have authority to suspend redemptions under certain circumstances, including in times of market distress or when their investments are not able to be quickly or easily liquidated. Research the backgrounds of hedge fund managers . Investors should be sure that the hedge fund manager is qualified to manage money. In doing so, investors should ascertain whether the fund manager has a disciplinary history within the securities industry. Ask about fees and expenses . Fees and expenses affect an investors’ return on investment. Hedge funds typically charge an annual asset management fee of 1 percent to 2 percent of assets as well as a “performance fee” of 20 percent of a hedge fund’s profit. These fees are typically higher than the fees charged by a mutual fund. A performance fee could motivate a hedge fund manager to take greater risks in the hope of generating a larger return. Ask about how a fund’s assets are safe guarded . A hedge fund’s manager generally has authority to access and transfer the fund’s assets. To guard against this, many hedge funds undergo an annual financial audit by an independent auditor that includes verification of the existence of the fund assets. Investors should inquire about where a fund’s assets are held ( e.g. , whether they are held in custodial accounts at a reputable bank or broker) and whether an independent third party confirms or otherwise verifies the existence of the fund’s assets. 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 Robert Stammers, How Can Investment Professionals Build Trust?, CFA Institute (June 22, 2018) ( here ).

By Jonathan H. Freiberger On May 24, 2022, the New York Court of Appeals decided Batavia Townhouses, Ltd. v. Council of Churches Hous. Dev. Fund Co., Inc. , and held that “General Obligations Law § 17-105, by its express terms, is the sole statute governing the tolling or revival of the statute of limitations for an action to foreclose a mortgage.”  In so doing, the Court rejected plaintiff’s assertion that GOL §17-101 was equally applicable.  This Blog has written numerous articles related to mortgage foreclosure and has treated GOL §17-101 and §17-105 < here ,=">here," here=">here"> . The facts related to the underlying transaction giving rise to the lawsuit as relevant to the Batavia decision were set forth by the Court of Appeals as follows: Defendant Council of Churches Housing Development Fund Company (Council) borrowed approximately $4.7 million in 1971 to develop and operate Birchwood Village Apartments (Birchwood). Council defaulted on the private loan in 1979, which was insured by the U.S. Department of Housing and Urban Development (HUD). Upon Council's default, HUD acquired the note and associated mortgage on Birchwood. With HUD poised to foreclose on the property, Council subsequently formed plaintiff Batavia Townhouses, Ltd. (the Partnership) to bring in a cash infusion from private investors. Council is the managing general partner of the Partnership, which also currently has two limited partners: plaintiffs Arlington Housing Corp. and Batavia Investors, Ltd. The Partnership bought Birchwood from the Council in 1979 for $5.5 million and executed a wraparound note and mortgage (wraparound mortgage) in that amount in favor of Council. From 1979 to 2012, the Partnership used income from Birchwood to make payments to Council on the wraparound mortgage, and Council used those funds to pay off the HUD mortgage on the property, which was fully satisfied in February 2012. The Partnership's wraparound mortgage, the only remaining encumbrance on Birchwood, matured on March 1, 2012. The Partnership made no further payments on that debt for the next seven years, and Council did not commence any foreclosure proceedings. In 2019, the limited partners brought a derivative action against defendant pursuant to RPAPL § 1501(4) to cancel the wraparound mortgage because it was unenforceable, as time-barred, since the statute of limitations to foreclose the mortgage expired in 2018 – six years after the Partnership’s last payment.  here,=">here," >here=">here" (in="(in" which="which" the="the" Batavia="Batavia" Appellate="Appellate" Court="Court" decision="decision" was="was" discussed),="discussed)," >here.=">here.">   RPAPL §1501(4) permits a mortgagor to commence an action to have an encumbrance of record removed after the expiration of the statute of limitations for the mortgagee to commence foreclosure proceedings. Defendant, Council, responded by arguing that “the Statute of limitations had been tolled under General Obligations Law §§ 17-101 or 17-105 because the Partnership’s annual financial statements and tax returns for 2012 and 2018 listed the mortgage as an outstanding liability.”  GOL §17-101 provides, in relevant part, that “ n acknowledgment or promise contained in a writing signed by the party to be charged thereby is the only competent evidence of a new or continuing contract whereby to take an action out of the operation of the provisions of limitations of time for commencing actions under the civil practice law and rules other than an action for the recovery of real property ….” (Emphasis added.)  GOL §17-105(1) provides, in relevant part, that “ waiver of the expiration of the time limited for commencement of an action to foreclose a mortgage of real property … or a promise to pay the mortgage debt … by the express terms of a writing signed by the party to be charged is effective … to make the time limited for commencement of the action run from the date of the waiver or promise.” Supreme court granted plaintiff’s motion for summary judgment, holding that Council was time-barred from commencing a foreclosure action and that GOL §17-105 did not revive same.  According to the Court of Appeals, the Appellate Division agreed that “only General Obligations Law § 17-105 (1) ‘applies to the type of action brought here under RPAPL § 1501 (4), which requires the party bringing such an action to establish that the limitations period for the commencement of a mortgage foreclosure action has expired,’" recognizing that the Appellate Division: reached that conclusion based on the "plain language" and legislative history of sections 17-101 and 17-105. The Court explained that, although section 17-101 allows a "mere 'acknowledgment'" to extend the statute of limitations for "contractual debts," section 17-105 (1) "was enacted specifically to address the waiver of the statute of limitations applicable to mortgage debt and . . . provided that an express promise to pay such debt . . . would be sufficient to revive the otherwise expired statute of limitations”. As a result, the Appellate Division unanimously concluded that the Partnership's financial statements and tax returns could not revive the limitations period because they "do not constitute an express promise to pay the mortgage debt". The Court of Appeals, in granting leave to appeal, recognized that the question that it was required to answer was whether General Obligations Law §§ 17-101 or 17-105 applied to the facts presented by Batavia .  In concluding that General Obligations Law § 17-105, only, applied, the Court of Appeals stated: Despite what Council contends, General Obligations Law § 17-105, by its express terms, is the sole statute governing the tolling or revival of the statute of limitations for an action to foreclose a mortgage. Section 17-105 (1) states that, among other things, a "promise to pay the mortgage debt, if made after the accrual of a right of action to foreclose the mortgage . . . by the express terms of a writing signed by the party to be charged is effective . . . to make the time limited for commencement of the action run from the date of the . . . promise" (emphasis added). The statute further states that " xcept as provided in subdivision five, no acknowledgment, waiver or promise has any effect to extend the time limited for commencement of an action to foreclose mortgage for any greater time or in any other manner than that provided in this section, nor unless it is made as provided in this section" (§ 17-105 <4> ). Moreover, section 17-101 excludes itself—and by implication its allowance for a mere acknowledgment to toll or revive the statute of limitations—because it indicates that it does not apply to "actions for the recovery of real property."  * * * Under General Obligations Law § 17-105 (1), the Partnership's actions in this case could only toll or revive the statute of limitations for the Council to bring a foreclosure action if the Partnership made an "express" "promise to pay the mortgage debt." Accordingly, the Appellate Division correctly concluded that the Partnership's delivery of its financial statements and tax returns to Council did not meet the requirements of section 17-105 (1) because they were not express promises to pay the mortgage debt. * * * The legislative history further demonstrates that the purpose behind General Obligations Law section 17-105 was to require more express actions by a mortgage debtor to toll or revive the statute of limitations so as to prevent " erious impairment of titles to land and hindrance of real property financing" (1961 Law Rev Commn., Acts, Recommendation and Study Relating to Transaction Affecting the Time Limited for an Action to Foreclose a Mortgage of Real Property at 112). It would conflict with that legislative intent to allow an acknowledgment ( i.e. , an implied promise), as opposed to an express promise, to toll or revive the statute of limitations for a mortgage foreclosure action . (Citations to the Appellate Division decision and a footnote omitted.) It should be noted that Judge Wilson issued a lengthy dissent, in part.   Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In New York, as in other jurisdictions, settlement agreements “are judicially favored, will not lightly be set aside,” and will be enforced “with rigor and without a searching examination into their substance.” 1 A court called upon to enforce a settlement must be satisfied that the agreement is “clear, final and the product of mutual accord.” 2 Thus, an out-of-court agreement settling an action is binding on each party to the agreement only if “it is in a writing subscribed by him or his attorney.” 3 “In addition, since settlement agreements are subject to the principles of contract law, for an enforceable agreement to exist, all material terms must be set forth” in that writing, “and there must be a manifestation of mutual assent.” 4 Correspondence between the parties or counsel “can qualify as an enforceable stipulation of settlement under CPLR 2104,” so long as that correspondence “set forth the material terms of the stipulation” and is a properly subscribed ( i.e. , signed) writing. This principle also holds true where, as in DT Net Lease I REIT v. Coughlan , 2022 N.Y. Slip Op. 31381(U) (Sup. Ct., New York County Apr. 26, 2022) ( here ), the correspondence is by email rather than traditional physical means. To meet the requirement of a subscribed writing in the context of email, “the party to be charged, or his or her agent,” must “type[ ] his or her name” at the end of the email “under circumstances manifesting an intent that the name be treated as a signature.” However, where the sender of the emails are identifiable and there is no contention that counsel sent the emails unintentionally, CPLR § 2104 is satisfied. In other words, when “an attorney hits ‘send’ with the intent of relaying a settlement offer or acceptance, and their email account is identified in some way as their own, then it is unnecessary for them to type their own signature.” In DT Net Lease , the Court held that the parties had reached an enforceable settlement through the exchange of email.  DT Net Lease was an action to enforce a completion guaranty executed in connection with the development of a new office building intended to serve as the headquarters of a tenant named Dealertrack Technologies, Inc.  Defendants maintained that the parties “settled this matter on January 25, 2022,” when defendants’ counsel “accepted final draft of the fully-integrated settlement agreement … which … contained all material terms of the settlement.” As with most settlement negotiations, the parties exchanged many offers and counteroffers. To put the background in perspective, we discuss the relevant dates on which the parties’ negotiations were conducted. On January 6, 2022, plaintiff’s counsel emailed defendants’ counsel, stating that plaintiff “want to wrap things up” and would settle at the number defendants offered, “provided that we have an agreement in principle by the end of the business day tomorrow and the settlement is documented by January 11, 2022.” Both deadlines came and went.  Notwithstanding, plaintiff continued to negotiate. In that regard, plaintiff’s counsel emailed defendants’ counsel about the date on which the settlement payment would be made, stating that the time proposed by defendants (60 days) was problematic. Plaintiff’s counsel noted that the “settlement amount was based on quick payment.”  On January 17, 2022, plaintiff’s counsel emailed a draft settlement agreement to defendants’ counsel. Plaintiff’s counsel emailed a revised draft the following day. Defendants’ counsel provided proposed changes to the draft settlement agreement, including a proposed term of 60 days to pay the settlement amount. After further discussion, defendants’ counsel agreed to a 45-day payment window with interest accruing if the payment was not timely made.  For the next two weeks, defendants’ counsel negotiated settlements with the third-party defendants in a related action to fund the settlement.  On January 24, 2022, despite plaintiff’s alleged deadline to close the negotiations, plaintiff’s counsel checked in with defendants’ counsel on the settlement status by email. The following day, defendants’ counsel confirmed in an email that “the 45 days is acceptable, and this agreement can be executed.”  On January 28, 2022, defendants’ counsel updated the Court by email, stating that he was “hopeful that the settlement of the first-party action be finalized next week.” On February 8, 2022, defendants’ counsel sent another email to the Court, stating that the settlement agreement between plaintiff and defendants had been “finalized” and that counsel were coordinating the parties’ signature on the agreement. In addition, counsel advised that the parties in the main action had agreed to the exchange of general releases. Counsel also advised that the “ he only hold up as to the entire main action being discontinued at this time the status of general releases and a discontinuance between my clients and defendant Cox Automotive Inc. against whom my clients have indemnity and contribution crossclaims.”  The next day, defendants’ counsel emailed plaintiff’s counsel, stating that “we were simply going to discontinue against Cox Automotive” and “having accepted your final draft, we are ready to coordinate signatures. Please let me know how you would like to go about this ministerial step.”  On February 14, 2022, plaintiff’s counsel renounced the settlement agreement because the settlement “was not concluded timely” and that “time was of the essence and that there was a short window to settle the claims.” Plaintiff’s settlement discussions with defendants were conducted against the backdrop of the Carlyle Group’s then-pending $3 billion acquisition of plaintiff’s portfolio of assets, including its shares in REIT. Defendants moved to enforce the settlement. Plaintiff opposed, arguing that the settlement was not contained in one writing subscribed by both parties in violation of CPLR § 2104. In that regard, plaintiff noted that defendants never signed the settlement agreement.  Plaintiff also argued that it did not intend to be bound to a settlement until the draft settlement agreement was signed by both parties. Plaintiff interpreted the January 28, 2022, email to the Court as an acknowledgment that, of that date, the settlement had not been finalized. According to plaintiff, that email contradicted defendants’ contention that a settlement was reached by email three days earlier. The Court found that the January 25, 2022 email, combined with the attached draft settlement agreement, satisfied CPLR § 2104. “These documents,” said the Court, “contain the entire agreement and counsels’ signatures.” The Court noted that the “execution of releases (or a discontinuance in this case) not change whether the parties an enforceable settlement pursuant to CPLR 2104.” 8 The Court explained that there was no evidence to show that finalization of the settlement was “of the essence” – that is, there was a hard deadline to finalize the settlement because of plaintiff’s sale transaction. 9 The Court noted that plaintiff’s counsel “repeatedly adjourned her target dates.” Most significantly, said the Court, the settlement agreement did not contain any deadline to close and the words “time is of the essence” or words to that effect were never used. 10 Moreover, the Court noted that an expectation to execute documents does not preclude an earlier agreement; there must be an express reservation not to be bound without a fully executed document. 11 The Court found no evidence of an express indication to be bound only upon execution of the settlement agreement. Rather, said the Court, defendants’ counsel’s statement that “ his agreement can be executed” on January 25, 2022, was the equivalent of “confirmed” or “we are settled.” 12 Finally, the Court held that “plaintiff’s accepted offer be revoked after acceptance.” 13 Takeaway In in Philadelphia Ins. Indemn. Co. v. Kendall , the First Department held that there are two factors the lower courts should consider in determining whether a settlement by email is binding and enforceable: whether there is an authentication issue; and whether the emails contain all the material terms of the settlement. 14 In DT Net Lease , as discussed, the first factor was not at issue and the second factor was satisfied. 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. Forcelli v. Gelco Corp. , 109 A.D.3d 244, 247-248 (2d Dept. 2013) (internal quotation marks omitted). Id. CPLR § 2014. Forcelli , 109 A.D.3d at 248 (internal quotation marks omitted). Id. at 249. Forcelli , 109 A.D.3d at 251. Philadelphia Ins. Indemn. Co. v. Kendall , 197 A.D.3d 75 (1st Dept. July 8, 2021)  Slip Op. at *5-*6 (citing, Philadelphia. Ins. lndemn. , 197 A.D.3d at 81, and Rawald v. Dormitory Auth. , 199 A.D.3d 477 (1st Dept. 2021)). Id. at *6. Id. Id. (citing, Kowalchuk v. Stroup , 61 A.D.3d 118, 123 (1st Dept. 2009) (citations omitted)). Id. (citations omitted). Id. at *7 (citing, Kowalchuk , 61 A.D.3d at 122). 197 A.D.3d at 81.

By: Jeffrey M. Haber In prior articles, we have examined the rules governing the bringing of shareholder derivative litigations ( e.g. , here and here ). Among other things, we discussed the rule requiring the plaintiff to be a shareholder of the company at the time of the wrongdoing to have standing to sue. The same principle applies to plaintiffs bringing direct claims against the corporation for wrongs allegedly inflicted on the plaintiff as a shareholder of the company. As discussed below, the plaintiff in Sebrow v. Sebrow , 2022 N.Y. Slip Op. 03337 (1st Dept. May 19, 2022) ( here ), could not satisfy this elemental principle of standing. Sebrow was brought as a shareholder derivative action against Zvi Sebrow (“Defendant”) to recover the damages allegedly incurred by Worbes Coproration (“Worbes” or the “Company”) as a consequence of Defendants’ malfeasance and misconduct.  Worbes is a family-owned business for which there was a stockholders’ agreement that was signed by Defendant, Abraham Sebrow (“Abraham”), Joseph Sebrow (“Joseph”), and David Sebrow (“David”) (the “stockholders’ agreement”). The stockholders’ agreement provided that each of the foregoing individuals owned 25 shares of the Company.  Plaintiff alleged that, prior to their deaths, Abraham and Joseph transferred their shares to their children, Defendant and David, respectively, through testamentary dispositions. As a result, Defendant and David became the owners of 50 shares of the Company. In approximately 1991, David married Betty Sebrow (“Plaintiff”). In May 2017, David passed away. Although he had executed a will and testament, he never made a testamentary disposition of his shares in Worbes to his issue, or to any other person with Defendant’s consent. Following David’s death, Defendant became the sole shareholder of Worbes; Defendant has never consented to the transfer of Worbes shares to any third party. Defendant moved for an order pursuant to CPLR § 3211(a) dismissing Plaintiff’s complaint for lack of legal capacity to bring the suit as a shareholder and for failure to state a claim. The motion court granted the motion. Governing Legal Principles On a motion to dismiss pursuant to CPLR § 3211, the pleading is to be liberally construed. 1 The court must accept the facts alleged in the complaint as true, accord the plaintiff the benefit of every possible favorable inference, and determine whether the facts as alleged fit within any cognizable legal theory. 2 A motion to dismiss under CPLR § 3211 should be granted only where “the essential facts have been negated beyond substantial question by the affidavits and evidentiary matter submitted.” 3 Under CPLR § 3211(a)(1), a motion to dismiss will be granted only if the documentary evidence resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff’s claim. 4 Dismissal is appropriate only where the documentary evidence submitted “utterly refutes plaintiff’s factual allegations,” and conclusively establishes a defense to the asserted claims as a matter of law. 5 Under CPLR § 3211(a)(3), a defendant moving to dismiss based upon a plaintiff’s alleged lack of standing has the burden to establish, prima facie, the plaintiff’s lack of standing as a matter of law. 6 “To defeat the motion, a plaintiff must submit evidence which raises a question of fact as to its standing.” 7 The Motion Court’s Decision In seeking dismissal, Defendant submitted the stockholders’ agreement. Pursuant to Section 6 of the stockholders’ agreement, stockholders were prohibited from selling, transferring, assigning, mortgaging, hypothecating or entering into any agreement that would result in a third party becoming a stockholder in Worbes or any of the other family businesses “without the unanimous consent of all the other stockholders.” The “sole exception” to the foregoing was a testamentary disposition of shares to the stockholders’ issue “in which event his issue shall own the shares of his deceased father….” In opposition, Plaintiff submitted David’s last will and testament. The will and testament provided that all the rest, remainder and residue of David’s real or personal property, wherever situated and whether acquired before or after the execution of the will and testament, was left to Plaintiff. Defendant maintained that the will and testament was not dispositive because David did not make a testamentary disposition of his Company shares, and Defendant had not consented to any third party becoming a shareholder of Worbes. The motion court agreed with Defendant. According to the stockholders’ agreement, said the motion court, unless David made a testamentary disposition of his shares to his issue, or Defendant consented to David’s transfer of his shares in Worbes to his wife, such transfer or disposition of the shares in Worbes was a nullity and unenforceable. The motion court found no evidence that David made a testamentary disposition of his shares to his issue or obtained a consent from Defendant.  Therefore, concluded the motion court, after David’s death, Defendant remained the sole shareholder of Worbes, and Plaintiff was not a shareholder of Worbes. Finally, the motion court rejected Plaintiff’s argument that Defendant forged David’s signature on the stockholders’ agreement. According to Plaintiff, Defendant routinely forged David’s signature when he needed it. The motion court held that even if it accepted the alleged facts as true and drew every possible favorable inference for Plaintiff, Plaintiff’s argument was, nevertheless, unavailing. Plaintiff did not raise an issue that the stockholders’ agreement was unenforceable in her complaint, said the motion court, and the factual allegations and causes of action in the complaint were based on the stockholders’ agreement. “If the stockholders’ agreement was actually forged,” reasoned the motion court, “then the plaintiff should not rely on such stockholders’ agreement to allege her causes of action.” The motion court explained that “plaintiff first has to allege that the stockholders’ agreement was forged and not enforceable, and show that David was a shareholder of Worbes, but not based on the allegedly forged stockholders’ agreement. However, the plaintiff failed to do so ….” In conclusion, the motion court found that “the stockholders’ agreement submitted as … documentary evidence resolved all factual issues as a matter of law, and the defendant made a prima facie showing that the plaintiff does not have standing to sue as a matter of law.” Accordingly, the motion granted Defendant’s motion under CPLR § 3211(a). On appeal, the Appellate Division, First Department unanimously affirmed. The First Department’s Decision First, the Court held, like the motion court, that the stockholders’ agreement was dispositive and satisfied CPLR § 3211(a).  The documentary evidence on the motion to dismiss established that plaintiff is not a shareholder of Worbes Corporation and thus does not have standing to bring either individual or derivative claims. Specifically, the terms of the stockholders’ agreement provide, among other things, that the shares owned by plaintiff's deceased husband — shares that plaintiff claims she now owns — could be transferred only with the consent of defendant or by a testamentary disposition to the deceased husband's issue. However, because neither one of these events occurred, the stock was never transferred to plaintiff. 8 Second, the Court “reject plaintiff’s contention that the transfer restriction in the stockholders’ agreement should not be enforced.” 9 The Court found Plaintiff’s allegation that her husband’s signature on the agreement was a forgery to be conclusory and insufficient “to create an issue of fact contesting the signature’s authenticity, as it amounts to nothing more than her opinion.” 10 “Likewise,” said the Court, “plaintiff submitted no evidence supporting her argument that her husband had actually signed a different shareholder agreement that did not prevent him from bequeathing or otherwise transferring his ownership interest in Worbes to her.” 11 Consequently, there was no genuine dispute as to the authenticity of Defendant’s documentary evidence. 12 Finally, the Court held, like the motion court, that Plaintiff could not claim an interest in the Company based upon a document that she claimed was not legitimate: “In any event, given her complaint, which asserts her interest in the shares based upon the terms of the stockholders’ agreement, plaintiff cannot now be heard to argue that the agreement is not legitimate or is of no legal effect.” 13 Takeaway The rules concerning derivative standing are designed to prevent plaintiffs from buying into a lawsuit or commencing a derivative action by simply purchasing shares after the alleged wrong has occurred. 14 Although there are exceptions to the rule (not applicable in Sebrow ), the law has long required plaintiffs bringing a derivative action to have a stake in the company on whose behalf the action is commenced.  After all, if the plaintiff is not a shareholder of the company, then he or she has no right to vindicate the company’s rights and obtain a judgment on its behalf. In Sebrow , the Court reinforced this common-sense rule. As shown in Sebrow , CPLR § 3211(a)(1) can be a powerful tool to secure dismissal of a complaint. While not every document will demonstrate the absence of a cause of action, Sebrow demonstrates that where the document is clear, unambiguous, and undeniable, and “utterly refutes” the claims asserted, dismissal is appropriate. References Leon v. Martinez , 84 N.Y.2d 83 (1994). Chanko v. American Broadcasting Cos. Inc. , 27 N.Y.3d 46 (2016); Leon , 84 N.Y.2d at 87-88. Biondi v. Beekman Hill House Apt. Corp. , 257 A.D.2d 76, 81 (1st Dept. 1999). Leon , 84 N.Y.2d at 88. Carlson v. American Intl. Group, Inc. , 30 N.Y.3d 288, 298 (2017). Berger v. Friedman , 151 A.D.3d 678, 679 (2d Dept. 2017). U.S. Bank N.A. v. Guy , 125 A.D.3d 845, 847 (2d Dept. 2015). Slip Op. at *1. Id. Id. (citing, Banco Popular N. Am. V. Victory Tax Mgt. , 1 N.Y.3d 381, 383-384 (2004). Id. Id. (citation omitted). Id. See , e.g. , Independent Investor Protective League v. Time, Inc. , 50 N.Y.2d 259, 263 (1980).

By: Jeffrey M. Haber In today’s Fraud Notes, we examine three decisions issued by the Appellate Division, First Department in which themes familiar to readers of this Blog are at issue: pleading fraud with particularity ( e.g. , here and here ), making a material misstatement of present fact ( e.g. , here and here ) duplication of a breach of contract claim ( e.g. , here , here and here ), pleading justifiable reliance ( e.g. , here , here and here ), and no reliance and disclaimer clauses ( e.g. , here and here ).  470 4th Ave. Fee Owner, LLC v. Adam Am. LLC 470 4th Avenue concerned the construction and purchase of a luxury residential building in Brooklyn, New York (“Building”). Plaintiff alleged that defendant, Adam America LLC (“Adam America”), 470 4th Avenue Investors LLC (“Seller”) and Danya Cebus Construction LLC (“Danya Cebus”, together with Adam America and Seller, the “Defendants”) defectively developed and constructed the Building, then concealed and misrepresented those defects to induce Plaintiff to purchase the Building for $81 million.  In July 2014, Seller hired Danya Cebus to begin construction of the Building. According to Plaintiff, “with Seller’s knowledge and acquiescence, Danya Cebus cut corners to save money,” which caused numerous defects in the construction that were “concealed and undiscoverable without destructive investigation”. These shortcuts “ultimately … resulted in severe water infiltration” inside the Building.  In late 2014, Plaintiff entered into discussions with Adam America and Seller to purchase the Building. Plaintiff alleged that throughout the process, these defendants made misrepresentations about the quality of the construction. Although the sale and purchase agreement provided that the Building was being purchased “as is,” it also contained representations and warranties by Seller on which Plaintiff allegedly relied. After the closing, Plaintiff discovered extensive water damage to the Building and, despite numerous requests, Seller failed to repair the defects.  Plaintiff commenced the action in December 2018, and filed an amended complaint in March 2019, asserting, among other claims, breach of contract, fraudulent inducement, fraudulent concealment and misrepresentation. Defendants moved to dismiss. The motion court denied the motion. Danya Cebus argued that Plaintiff failed to plead its fraud claims with particularity as required under CPLR § 3016(b). The motion court held the argument to be unavailing. The motion court explained that the amended complaint was replete with allegations showing that Danya Cebus (a) knowingly cut corners in the construction of the Building, (b) introduced and caused many construction defects in the Building, including defects in the foundation, roof, facade and fenestration systems, and (c) made material misrepresentations to Plaintiff that there were no problems despite knowing and causing the defects. The motion court also found that Plaintiff reasonably relied upon the alleged fraudulent representations and sustained damages thereby.  AARE argued that the fraud claim was barred by a “no reliance” clause in the purchase and sale agreement (“PSA”), including representations with respect to the “present or future structural and physical condition of the Building”. AARE also argued that the waiver and release clause in the agreement was broad and barred Plaintiff’s fraud claim because it alleged misrepresentations about the quality of the Building’s construction.  Under New York law, a party’s disclaimer of reliance on extra-contractual representations and omissions will not preclude a fraudulent inducement claim unless: (1) the disclaimer is specific to the fact alleged to be misrepresented or omitted; and (2) the alleged misrepresentation or omission does not concern facts peculiarly within the knowledge of the non-moving party. 1 Based upon the foregoing, the motion court rejected AARE’s argument, stating that the alleged misrepresentation concerned facts peculiarly within AARE’s knowledge – that is, latent defects that Plaintiff could not discover without conducting invasive testing.  Regarding Plaintiff’s fraudulent concealment claims, the motion court held that Plaintiff sufficiently alleged that Danya Cebus, as the general contractor of the Building, had superior knowledge of the material facts relating to the alleged construction defects and knew of such defects but failed to disclose them to Plaintiff. The motion court also held that even though Danya Cebus was not a party to the PSA, it nevertheless had a “duty to disclose materially damaging information” and, therefore, could be held liable for the fraud. 2 The motion court also rejected AARE’s argument that the fraudulent concealment claim should be dismissed because of the “waiver and release” and the “no representation” clauses in the PSA. The motion court observed that the amended complaint showed that defendants, including AARE, concealed the latent construction defects, prevented Plaintiff from taking invasive measures to uncover them, and that there was a special duty to disclose material damaging information to Plaintiff.  On appeal, the First Department affirmed the denial of the motion with respect to the fraud claims. The Court held that Plaintiff pleaded its fraud claims “with the specificity required under CPLR 3016(b)” by providing the “details about the allegedly fraudulent statements”. 3 The Court also held that Plaintiff pleaded its justifiable reliance on the alleged false statements with the requisite specificity. 4 The Court further held that the fraud claims were not duplicative of Plaintiff’s breach of contract claims, “since many of the allegations relate to acts predating the Purchase and Sale Agreement (“PSA”). Additionally, said the Court, the PSA did “not bar the fraud claims as against the seller” because “the claims governed by the special facts doctrine.” 5 Finally, the Court held that the fraud claims fell within the carve-out to the PSA’s release, which specifically stated that it did not apply to any acts constituting fraud. 6 470 4th Ave. Fee Owner, LLC v. Adam Am. LLC , 2022 N.Y. Slip Op. 03204 (1st Dept. May 17, 2022), can be found here . PanWest NCA2 v Rockland NCA2 PanWest arose out of an agreement to purchase and sell a power plant. Pursuant to the agreement, the parties agreed that the seller would share information with the buyer, and that the buyer would rely on that information and the representations and warranties of the seller in the agreement in entering into the transaction (except to the extent expressly addressed in the agreement).  The parties also agreed that in the event that the representations and warranties in the agreement were not true at closing, the buyer did not have to close. The parties further agreed that the buyer was to do its own due diligence and limited the buyer’s reliance on the seller’s representations to those contained in the agreement (which included the obligations to provide accurate financial information and all environmental reports). The accuracy of the information was a condition to the buyer’s obligation to close.  According to Plaintiff, after the agreement was signed, defendant provided Plaintiff with a summary of the annual operating budget for 2020. The budget contained a line item for certain non-annual maintenance (“NAM”) costs, which had been included as maintenance costs in defendant’s prior budgets. Defendant (through its investment banker) allegedly advised that the costs were mistakenly included in the 2020 budget and did “not reflect any view of expenses in 2020.” Thereafter, Defendant provided a revised 2020 budget without this line item.  After the closing, Plaintiff was presented with an environmental survey of a pond that was conducted at Defendant’s direction and during Defendant’s ownership of the facility. The pond survey showed that the water level in the pond did not meet certain state requirements.  According to Plaintiff, Defendant never disclosed the pond survey to Plaintiff, or made any mention of the lack of compliance with the state’s requirements. Plaintiff maintained that Defendant instructed plant staff to not discuss the pond compliance with Plaintiff during the due diligence period. In addition, Plaintiff contended that Defendant had been aware of the failure to meet the state’s requirements prior to entry of the agreement.   On March 16, 2020, plaintiff sought an adjustment to the budget due to environmental maintenance and remediation costs. In response, defendant disputed the necessity for any adjustments. Defendant also disputed that it had an obligation to disclose the pond survey to plaintiff.  Plaintiff alleged that defendant committed fraud and otherwise breached its obligations in the agreement by misrepresenting the NAM costs and failing to disclose the pond survey report. Defendant moved to dismiss.  The motion court denied the motion. First, the motion court held that plaintiff sufficiently alleged a breach of contract with regard to the NAM costs. The motion court found that certain representations in the agreement were not true, correct and complete at the time of the closing. The motion court explained that Defendant’s concealment of the new line-item NAM current liability and the pond survey report prevented Plaintiff from doing a complete analysis under the agreement and deprived Plaintiff of its contractual right to walk away from the transaction. Additionally, Defendant’s approval of the new line-item NAM current liability was not permitted without Plaintiff’s consent. The motion court also held that Defendant failed to make available the pond survey report as set forth in the agreement. The motion court rejected Defendant’s argument that, among other things, the pond survey report was not material, explaining that the $2 million in estimated remediation costs demonstrated the materiality of the alleged breach.  Second, the motion court held that the fraudulent inducement claims were viable and should not be dismissed. The motion court explained that Plaintiff adequately alleged a misrepresentation of fact, i.e. , the false statement that the new NAM line-item charge should not have been in the budget. The motion court also held that the fraudulent concealment claims were viable and should not be dismissed. The motion court found that as pleaded, Defendant concealed the pond survey report, which would have disclosed the imminent need for remediation. The motion court explained that Defendant had such information months before the agreement was executed. The failure to disclose the report and the allegations that plant employees were told not to discuss the pond survey report, said the motion court, was more than sufficient to state a claim of fraud and fraudulent concealment.  On appeal, the First Department modified the motion court’s order to grant the motion as to the causes of action for fraud and otherwise affirmed the order as to the breach of contract claims. The Court held that the fraud claims should have been dismissed. With respect to the NAM costs, the Court found the claims to be “duplicative of the breach of contract claims; even though the alleged misstatements and omissions related to matters of present fact.…” The Court explained that “the matters in question were not collateral to the purchase agreement but were within the scope of the parties’ rights and obligations under the terms of the purchase agreement.” 7 Panwest NCA2 Holdings LLC v. Rockland NCA2 Holdings, LLC , 2022 N.Y. Slip Op. 03328 (1st Dept. May 19, 2022), can be found here . Pope Investments II LLC v. Belmont Partners, LLC Pope involved a series of transactions (the “SMT Transactions”) in which plaintiffs invested in Aamaxan Transport Group, Inc. (the “AAXT Investment”) with the intention of owning a significant interest in Shanghai Atrip Medical Technology (“SMT”). Plaintiffs rested their claims on defendants’ actions or inactions, which allegedly enabled Shao Gan Hua (“Shao”), a non-party, to embezzle AAXT Investment’s proceeds, less fees paid to Guzov (a law firm), Belmont, and the Deheng Law Firm (“Deheng”), a non-party to the action. The series of transactions began in 2007, when Helen Lv (“Lv”), a partner of Deheng, contacted Darren L. Ofsink (an employee of Guzov) about jointly seeking U.S.-based investors to organize an investment transaction in SMT. Ofsink solicited Belmont to act as the investment banker on the transactions and Belmont solicited the investors for the AAXT Investment. Before, and allegedly in anticipation of, the AAXT Investment, Kamick Assets Limited (“Kamick”), a British Virgin Islands company solely owned by Shao, transferred 100% of the outstanding equity of its subsidiary ABM in exchange for shares in AAXT (the “ABM Transaction”). A Share Exchange Agreement, dated April 14, 2008, documented the ABM transaction. As a result of the ABM Transaction, ABM became a wholly owned direct subsidiary of AAXT, and Anhante, a wholly foreign owned enterprise of ABM, became a wholly owned subsidiary of ABM. A Securities Purchase Agreement, dated April 14, 2008, documented the AAXT Investment. Plaintiffs, along with other investors not named as plaintiffs, invested approximately $12.5 million in AAXT in exchange for shares of AAXT’s Series A Senior Convertible Preferred Stock. Of the $12.5 million, approximately $10.1 million was left in net proceeds after fees were paid to Deheng and named defendants Guzov and Belmont. In conjunction with the closing of the AAXT Investment, AAXT and SMT entered into the China Control Agreement. SMT transferred all of the economic benefits and liabilities of its business to Anhante in exchange for the net proceeds of the AAXT Investment, namely, $10,132,522.35. Pursuant to the China Control Agreement, AAXT effectively became the indirect beneficial owner of SMT. As part of the SMT Transactions, Chen Zhong (“Chen”), the principal owner of SMT, also became the Chairman and CEO of AAXT. Chen and Shao, the sole owner of Kamick, entered into a Call Option Agreement, dated April 14, 2008. Pursuant to the terms of the Call Option Agreement, Chen had the option of purchasing all of Kamick’s outstanding stock over approximately two years for a total purchase price of less than thirty dollars. Although Chen held himself out as the CEO and Chairman of Kamick, Shao was the controlling shareholder of Kamick, subject to the Call Option Agreement. The SMT Transactions made Shao essentially the majority shareholder of AAXT. Kamick was the majority shareholder of AAXT and Shao was the sole owner of Kamick subject to the Call Option Agreement. AAXT was the only shareholder of ABM and the only shareholder of Anhante, the entity that entered into the China Control Agreement with SMT. While Shao and Kamick were nominees of ABM, they were not supposed to have any control over ABM. Chen was supposed to have control of ABM as CEO of AAXT. After the AAXT Investment closed, Guzov placed the net proceeds in an HSBC account under ABM’s name for holding before they were transferred to SMT. Plaintiffs alleged, however, that Shao and/or Kamick retained control of AMB and the bank account at issue, and that they were not aware that Shao and/or Kamick could exercise control over the net proceeds. The complaint alleged that Shao embezzled most or all of the money in the ABM account within several days. The complaint also alleged that Shao and Lv had been conspiring to embezzle the money invested in AAXT since 2007. On September 18, 2008, Lv informed the AAXT Investors that their investment had been invested elsewhere, contrary to the Transaction Documents and SEC filings. After Deheng had advised Kamick to transfer the net proceeds out of ABM’s account, Lv informed the AAXT Investors on October 9, 2008, that Deheng would no longer be representing Kamick. According to the complaint, after the net proceeds were removed from ABM’s account, the funds were deposited into Shao’s personal bank account, accounts of entities controlled by Shao, and an account controlled by Lv. Plaintiffs asserted claims for, among other things, fraudulent inducement. They alleged that defendants fraudulently induced them to purchase shares of AAXT. Plaintiffs further claimed that Guzov and Ofsink were responsible because of the alleged material misrepresentations they made in a legal opinion that the transactions were legal and binding. Specifically, plaintiffs alleged that defendants fraudulently induced them to invest in AAXT by misrepresenting that they had fully vetted Shao and Kamick, and by not disclosing that Shao and Helen Lv were close friends with the intent to defraud and deceive plaintiffs. Defendants moved to dismiss. The motion court denied the motions.  On appeal, the First Department affirmed. The Court held that the “motion court correctly determined that the amended complaint adequately stated claims for fraudulent inducement by alleging, among other things, that but for defendants’ misrepresentations that the nonparties who embezzled plaintiffs’ investment were trustworthy and that the transactions were properly structured, plaintiffs would not have agreed to complete the transactions.” 8 Pope Invs. II LLC v. Belmont Partners, LLC , 2022 N.Y. Slip Op. 03334 (1st Dept. May 19, 2022), can be found here . Takeaway As noted in the introduction, the cases examined today address several issues commonly found in fraud litigations. The issue that stands out to us, however, is the particularity requirement of CPLR § 3016(b).  Under CPLR § 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.” 9 To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. In other words, the complaint must identify the “who, what, where, when and how” of the alleged fraud. The Court of Appeals has explained, however, that CPLR § 3016(b) “should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” 10 Therefore, at the pleading stage, a complaint need only “allege the basic facts to establish the elements of the cause of action.” 11 Thus, as noted, a plaintiff will satisfy CPLR § 3016(b) when the facts permit a “reasonable inference” of the alleged misconduct. 12 As today’s discussion shows, factual allegations devoid of specificity will not suffice to satisfy CPLR § 3016(b). 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 Basis Yield Alpha Fund v. Goldman Sachs Group, Inc. , 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty Corp. v. Harris , 5 N.Y.2d 317, 323 (1959); MBIA Ins. Corp. v. Merrill Lynch , 81 A.D.3d 419 (1st Dept. 2011). Citing, Standish-Parkin v. Lorillard Tobacco Co. , 12 A.D.3d 301, 303 (1st Dept. 2004). Slip Op. at *1. Id. Id. (citation omitted). Id. Slip Op. at *2 (citing, Orix Credit Alliance v. Hable Co. , 256 A.D.2d 114, 115 (1st Dept. 1998) Slip Op. at *1. Pludeman v. Northern Leasing Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (citation omitted). Id. (internal quotation marks and citation omitted). Id. at 492. Id

By Jonathan H. Freiberger In this Blog’s August 23, 2021, article, entitled “ Second Department Finds Release Binding Despite Plaintiff’s Claim About Not Understanding the English Language ”(the “Prior Article”), we discussed, inter alia , the import of general releases and the difficulty that one may have invalidating same once executed.   One of the leading cases on the law of releases, and as relied upon in the Prior Article, is Centro Emprésarial Cempresa S.A. v. America Móvil, S.A.B. DE C.V. , 17 N.Y.3d 269 (2011).  The plaintiff in Centro sold its interest in a company to the defendant, a co-owner of the subject entity.  The Centro plaintiff sued for damages claiming they were fraudulently induced to agree to the sale of its co-ownership interest and to “release the defendant from claims arising from that ownership.”  The Court of Appeals affirmed the Appellate Division’s determination that the release barred the action.   In discussing the law on releases, the Centro Court recognized that, in general, “a valid release constitutes a complete bar to an action on a claim which is the subject of the release.”  Centro , 17 N.Y.3d at 276 (citation and internal quotation marks omitted).  Further, if "the language of a release is clear and unambiguous, the signing of a release is a `jural act' binding on the parties."  Id.  (Citation and internal quotation marks omitted.)  “ release may encompass unknown claims, including unknown fraud claims, if the parties so intend and the agreement is fairly and knowingly made.”  However, “ release may be invalidated … for any of the traditional bases for setting aside written agreements, namely, duress, illegality, fraud, or mutual mistake.”  Id.  (Citation and internal quotation marks omitted.)   In Ivaasyuk v. Raglan , 197 A.D.3d 635 (2 nd Dep’t 2021), the case that was the focus of the Prior Article, plaintiff was injured when he fell off a ladder while working at a home being renovated.  Prior to the commencement of the action, plaintiff executed a general release pursuant to which all claims “arising out of the subject accident” were released.  Defendant moved for summary judgment dismissing the complaint based on the general release.  Supreme court denied the motion and the Appellate Division reversed.  Notwithstanding that the Ivasyuk plaintiff neither spoke nor read English, the Court explained that a “person who does not understand the English language is not automatically excused from complying with the terms of a signed agreement, since such person must make a reasonable effort to have the agreement made clear to him or her.”  Ivasyuk , 107 A.D.3d at 638 (citations omitted).  The Court found that “the deposition testimony of the injured plaintiff and demonstrates that the terms of the release were explained to the injured plaintiff before he executed the document.”  Id. The First Department was faced with a similar situation when, on May 17, 2022, it decided Rosa v. McAlpine Contracting Co.   The plaintiff in Rosa fell off a ladder at a construction site.  Plaintiff executed a release in exchange for a $30,000.00 payment.  Nonetheless, plaintiff commenced a personal injury action.  Supreme court granted defendants’ motion to dismiss the complaint based on the release and denied, as moot, plaintiff’s cross-motion to dismiss defendants’ release based affirmative defenses.  The First Department modified the order to deny both motions without prejudice.  In so doing, the Court stated: The complaint and plaintiff's affidavit raise issues of fact as to whether defendants engaged in fraud, duress, and/or overreaching to procure plaintiff's signature on a general release of his claims against them related to his alleged fall from a 30-foot ladder while working at a construction site. There is little dispute that the release, written in English, unambiguously released all plaintiff's claims against defendants in exchange for $30,000 in consideration, which plaintiff received. However, plaintiff avers that he does not read English, that he did not have counsel at the time he executed the document, that he did not know the nature or purpose of the document he signed, and that defendants represented to him that the execution of the document was a mere formality required for his receipt of compensation for work performed. Plaintiff averred that he was out of work at the time, facing eviction and medical bills, and in need of financial support, and that he was hoping to travel to Puerto Rico to see his brother, who was dying. He averred that he did not understand the nature of the release he signed until he retained counsel to aid him in prosecuting a workers' compensation claim.  (Citations 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 As readers of this Blog know, pleading and proving fraud is not easy. The law reporters (not to mention the pages of this Blog) are bursting with cases in which the courts have dismissed fraud actions due to pleading and proof deficiencies. Moskowitz v. Fischer , 2022 N.Y. Slip Op. 50385(U) (Sup. Ct., Suffolk County May 3, 2022) ( here ), is a recent example of this occurrence. To plead a viable cause of action for fraud, a plaintiff must allege that the defendant made a misrepresentation or omission of a material existing fact, which was false and known to be false by the defendant when made, for the purpose of inducing the plaintiff’s reliance thereon; that the plaintiff justifiably relied on such misrepresentation or omission; and that the plaintiff was injured thereby. 1 One of the more “nettlesome” elements of a fraud claim is justifiable reliance. 2 Whether a plaintiff justifiably relied on a misrepresentation or omission is a fact-intensive inquiry. 3 As the New York Court of Appeals observed, “ o two cases are alike ….” For this reason, the courts look to whether the plaintiff had the “means available to him for discovering, ‘by the exercise of ordinary intelligence,’ the true nature of a transaction he is about to enter into” and whether he made “use of those means”. 4 If the plaintiff does not do so, “he will not be heard to complain that he was induced to enter into the transaction by misrepresentations.” 5 After all, a plaintiff cannot claim justifiable reliance on a misrepresentation when he or she could have discovered the truth with reasonable diligence. 6 Whether a plaintiff exercised diligence in ascertaining the truth should not be determined by hindsight. As the Court of Appeals explained, when “a plaintiff has taken reasonable steps to protect itself against deception, it should not be denied recovery merely because hindsight suggests that it might have been possible to detect the fraud when it occurred.” 7 Sophisticated parties have a heightened duty to use the means available to them to verify the truth of the information upon which they rely and to use their sophistication to conduct due diligence. 8 A sophisticated plaintiff cannot establish justifiable reliance on an alleged misrepresentation if the plaintiff failed to make use of the means of verification that were available to him. 9 Thus, to sustain a claim of fraud, sophisticated parties must have discharged their own affirmative duty to exercise ordinary intelligence and conduct an independent appraisal of the risks they are assuming. 10 Moskowitz v. Fischer Moskowitz involved the amendment of a tax return for Quogue Street Development, LLC (“QSD”), a company formed by plaintiff, nonparty Timothy Stevens, and a third party to acquire and develop real property in Quogue, New York. Plaintiff owns a 50% interest in QSD, and Stevens owns a 10% interest in the company. In addition to his capital contribution, plaintiff loaned QSD $1,042,487.11 upon its formation. Stevens personally guaranteed repayment of the loan. QSD defaulted on the loan by failing to pay the principal and interest when they came due in July 2013. The property was sold at auction on or about November 18, 2015, and the loan remains unpaid.  Following the foregoing events, Stevens and defendant William Fischer amended QSD’s 2014 tax return by converting plaintiff’s loan to equity, thereby eliminating Stevens’ obligation to repay the loan under the guarantee. According to plaintiff, Fischer did not consult with plaintiff before amending the tax return, nor did Fischer send plaintiff a copy of the amended return or an amended K-1 reflecting the change.  QSD’s 2015 tax returns, which were prepared by Fischer in July 2016, were consistent with the amended 2014 tax return, showing the loan as an equity contribution. Plaintiff contended that he did not discover the change until he received his 2015 K-1 on July 7, 2016. Plaintiff maintained that he immediately telephoned Fischer and asked him, “Why did my equity number increase by over a million?” Fischer allegedly replied, “ is exactly the same as last year's K-1.” Plaintiff alleged that he “took Fischer at his word.” Defendants prepared and filed QSD’s 2016 tax return in September 2017. The 2016 return was consistent with the 2015 return, showing the loan as an equity contribution. Moreover, because the 2016 return was QSD’s final tax return, plaintiff’s equity was reflected as a loss. Plaintiff included the loss on his personal tax return for 2016, which he filed in September 2017, relying on the 2016 K-1 prepared by defendants.  In June 2019, QSD retained Grassi & Co. to represent it in connection with an IRS audit of its 2016 tax return. By letter dated August 20, 2019, Grassi & Co. advised plaintiff that the IRS was auditing QSD’s 2016 tax return. The IRS has sought documents related to the amended 2014 tax return that converted plaintiff’s loan to equity.  Plaintiff filed suit, claiming that defendants wrongfully amended QSD’s 2014 tax return in order to wipe out his loan; the amendment was done without his knowledge or consent; defendants intentionally concealed the amendment from him; and defendants were trying to convince the IRS to ratify the change. Plaintiff asserted causes of action for fraud, accounting malpractice, aiding and abetting a breach of fiduciary duty, and negligent misrepresentation. Defendants moved to dismiss the complaint, inter alia , as untimely and for failure to state a cause of action. The Court granted the motion. Regarding the fraud cause of action, plaintiff alleged that Fischer knowingly made a material misrepresentation of fact when he told him that his equity in QSD in 2015 was “exactly the same as last year’s” and that Fischer made a material omission of fact at the same time by failing to tell plaintiff that his equity in QSD had been “wrongfully amended” in 2014. Defendants claimed, inter alia , that plaintiff failed to demonstrate that he justifiably relied on the alleged misrepresentation and omission. The Court held that “plaintiff ha failed to state a cause of action for fraud.” 11 The Court found that “plaintiff was on inquiry notice of the alleged fraud when he received his 2015 K-1 on July 7, 2016, and telephoned Fischer, asking him, ‘Why did my equity number increase by over a million?’” 12 The Court noted that “ lthough his suspicions were aroused, the plaintiff took Fischer’s reply, which was not false, at face value and made no further inquiry into or attempt to investigate the matter.” 13 The Court reasoned that “plaintiff a sophisticated businessman who employed his own accountant to prepare his personal tax returns.” 14 As such, plaintiff had the means to verify Fischer’s statement, but took no action. 15 “ nder these circumstances,” explained the Court, “plaintiff’s reliance on Fischer’s statement was unreasonable as a matter of law.” 16 Finally, because the Court held that plaintiff failed to satisfy the justifiable reliance element of the fraud claim, it also held that the negligent misrepresentation claim should fall for the same reason. 17 Takeaway A plaintiff suing for fraud (and particularly a sophisticated plaintiff, such as the plaintiff in Moskowitz ) must establish that it “has taken reasonable steps to protect itself against deception.” 18 Typically, this means that a plaintiff claiming to have been fraudulently induced to take some type of action must allege that, before entering into the transaction, the plaintiff availed himself or herself of the opportunity to verify the defendant’s representations through some sort of prophylactic action. As shown in Moskowitz , despite having suspicions that something was amiss with the amended tax return, plaintiff failed to inquire further even though he had the means to do so. Such a failure, said the Court, was fatal to plaintiff’s fraud and negligent misrepresentation claims. ___________________________ 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 Lama Holding Co. v. Smith Barney , 88 N.Y.2d 413, 421 (1996); see also New York Univ. v. Continental Ins. Co. , 87 N.Y.2d 308, 318 (1995). DDJ Mgt., LLC v. Rhone Group L.L.C. , 15 N.Y.3d 147, 155 (2010) (internal quotation marks omitted). Id. 88 Blue Corp. v. Reiss Plaza Assoc. , 183 A.D.2d 662, 664 (1st Dept. 1992) (internal citations omitted). Id. (internal quotation marks omitted). KNK Enters. Inc. v Harriman Enters., Inc. , 33 A.D.3d 872 (2d Dept. 2006). DDJ Mgt. , 15 N.Y.3d at 154. McGuire Children, LLC v. Huntress , 24 Misc. 3d 1202 , at *12 (Sup. Ct., Erie County), aff’d , 83A.D.3d 1418 (4th Dept. 2011). Id. Id.  Slip Op. at *3. Id. Id. Id. Id. Id. Id. To recover damages for negligent representation, a plaintiff must demonstrate, inter alia , that he or she was justified in relying on the information supplied and, as a consequence, suffered damages. See Goldman v. Strough Real Estate , 2 A.D.3d 677, 678 (2d Dept. 2003). DDJ Mgt. , 15 N.Y.3d at 154.

By: Jeffrey M. Haber On May 6, 2022, the Securities and Exchange Commission (“SEC” or the “Commission”) announced ( here ) the filing of fraud charges against MCC International Corp. (“MCC”), which does business as Mining Capital Coin Corp., its founders Luiz Carlos Capuci, Jr. (“Capuci”) and Emerson Souza Pires (“Pires”), and two other entities controlled by Capuci, CPTLCoin Corp. (“CPTLCoin”) and Bitchain Exchanges (“Bitchain”), in connection with the unregistered offerings and fraudulent sales of investment plans called mining packages to thousands of investors. According to the SEC’s complaint ( here ), Defendants MCC, Capuci, and Pires allegedly received in excess of $8.1 million from the sale of the mining packages and $3.2 million in initiation fees. On April 21, 2022, the United States District Court for the Southern District of Florida issued a temporary restraining order against all defendants and an order freezing defendants’ assets, among other relief. 1 networks use the process to confirm new transactions. 2 it is a critical component of a blockchain ledger’s maintenance and development. 3 > 1 networks use the process to confirm new transactions. 2 it is a critical component of a blockchain ledger’s maintenance and development. 3 > According to the SEC, since at least January 2018, MCC, Capuci, and Pires sold mining packages to tens of thousands of investors worldwide and promised daily returns of 1 percent, paid weekly, for a period of up to 52 weeks. MCC also allegedly represented that the weekly profits were a result of “profit sharing” and that MCC earned profits from its operations involving cryptocurrency mining, trading stocks and foreign exchange, and trading cryptocurrency on digital asset trading platforms through the use of arbitrage trading and semi-automatic robotic trading. The SEC also alleged that, in its early days, investors were promised returns in Bitcoin, but later defendants required investors to withdraw their investments in tokens called Capital Coin (“CPTL”), which was MCC’s own token. In addition, the SEC alleged that investors were required to redeem their CPTL on Bitchain, a fake crypto asset trading platform Capuci created and managed. However, when investors tried to liquidate their CPTL on Bitchain before their one-year memberships expired, they encountered purported errors that stymied their efforts and were required to either buy another mining package or forfeit their investments. “As the complaint alleges, Capuci and Pires took every opportunity to extract more money from unsuspecting investors on false promises of outlandish returns and used investor funds raised from this fraudulent scheme to fund a lavish lifestyle, including purchasing Lamborghinis, yachts, and real estate,” said A. Kristina Littman, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit. “The restraining order and asset freeze helps preserve investor assets and puts a stop to the defendants’ alleged ongoing fraudulent enterprise.” The SEC’s complaint charges defendants with violating the registration and anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 (“Exchange Act”), and Capuci and Pires with control person liability on behalf of MCC under the Exchange Act. The SEC seeks injunctions against future securities law violations, disgorgement, civil penalties, and officer and director bars against Capuci and Pires. 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 Hong, Euny, “How Does Bitcoin Mining Work?”, Investopedia (Updated May 5, 2022) ( here ). Id. Id.

By: Jeffrey M. Haber Commercial transactions very often involve parties from different states and/or different countries. One party can be domiciled in New York, for example, while the other can be incorporated or headquartered in Delaware or London. When a dispute arises between such geographically diverse parties, questions concerning the jurisdiction of a court over the parties often get litigated. This was the situation in Kingstown Capital Management L.P. v. CPI Property Group, S.A. , 2022 N.Y. Slip Op. 03064 (1st Dept. May 5, 2022) ( here ). Kingstown="Kingstown" Capital="Capital" come="come" from="from" decisions="decisions" motion="motion" court="court" ( here)=">here)" and="and" First="First" Department.="Department."> Kingstown Capital concerned the alleged takeover of nonparty ORCO, a Luxembourg-based real estate development company. In September 2012, plaintiff, an investment advisor, acquired a substantial interest in ORCO. Beginning in the following month, defendant Radovan Vitek, a Czech Republic citizen, who resided in, among other places, the Czech Republic, Switzerland, and the United Kingdom, gained control of more than 90 percent of ORCO through a series of corrupt transactions. Thereafter, Vitek took control of ORCO’s most valuable assets, including certain real estate owned by ORCO’s then-subsidiary, ORCO Germany, now defendant CPI Property Group (“CPIPG”), a company formed under the laws of Luxembourg, and sold the assets at below-market value to entities secretly controlled by him.  Vitek also arranged for the shares in ORCO Germany to be issued for improper purposes, thereby diluting the interests held by Kingstown and others, and forcing them to sell their shares in ORCO at a substantial loss. Through additional corrupt transactions, which involved lying and defrauding his business partners, Vitek seized control of CPIPG and ORCO, and diverted more than a billion dollars in assets to entities he controlled. In December 2013, a Luxembourg financial regulator launched an investigation into defendants, and on December 8, 2017, concluded that defendants had acted unlawfully. In 2019, the full report detailing its investigation and findings was made public. On April 10, 2019, plaintiffs commenced an action against defendants in the United States District Court for the Southern District of New York, alleging violations of the Federal Racketeer Influenced and Corrupt Organizations Act and various New York laws. As a result, CPIPG, at Vitek’s direction, published a series of press releases in English on its website and distributed them through a nonparty German newswire service which, according to its website, uses nonparty Bloomberg, based in New York, as an outlet for distributing press releases. The press releases, which were published by Bloomberg, were alleged to include defamatory statements. Plaintiffs claimed to have been injured “in their trade and community standing” as a result of the press releases. Defendants moved to dismiss pursuant to CPLR §§ 3211(a)(7) (failure to state a claim) and (8) (lack of personal jurisdiction). Defendants denied that the court had personal jurisdiction over them because they were neither domiciled in New York nor had a physical presence in the state. Defendants maintained, among other things, that: (1) CPIPG is headquartered in and organized under the laws of Luxembourg, that all of its assets are located outside of the United States, and that its shares are traded on the Frankfurt stock exchange; (2) they did not transact or solicit any business in New York; and (3) neither the press release that CPIPG posted on its website in Europe nor the use of a German newswire, which globally distributes its press materials, constitutes a sufficient basis for jurisdiction, 1 even if CPIPG intended to have the press releases ultimately reach a New York audience; and (4) any contact with New York bondholders was not directly related to the allegedly defamatory statements, which were a response to the SDNY action. In response, plaintiffs argued that the court’s personal jurisdiction over defendants was obtained through: (1) their targeted “campaign” of communications toward the New York bond market to solicit investors like plaintiffs; (2) the publication of a series of English-language press releases targeted at New York; and (3) the use of a newswire service that promised to publish the statement with Bloomberg in New York, which they expressly intended would be published in New York. Plaintiff maintained that Defendants’ conduct was a deliberate attempt to reach a New York audience with their communications. Plaintiffs further maintained that the defamatory statements were used to enhance defendants’ financing efforts targeted at New York, and thus, the defamation arose from defendants’ contact with New York. Plaintiffs denied that the SDNY action constituted the sole basis of defendants’ contact with the State and contended that the dismissal of the SDNY action did not impact the court’s jurisdiction. To the extent that there was an issue of fact concerning personal jurisdiction, plaintiffs sought jurisdictional discovery, by which they sought the disclosure of communications soliciting and reassuring investors in New York, and evidence of the retention of New York agents, public relations professionals, and legal counsel to draft the press releases and the existence of New York investors in CPIPG. The motion court granted defendants’ motion to dismiss for lack of personal jurisdiction. Pursuant to CPLR § 3211(a)(8), a cause of action may be dismissed on the ground that the court lacks personal jurisdiction over the defendant. If jurisdiction is challenged, the plaintiff bears the burden of establishing such jurisdiction over the defendant. 2 Jurisdiction is a threshold issue, which must be determined before other defenses in a motion to dismiss. 3 The court may exercise personal jurisdiction over a non-domiciliary who, in person or through an agent, transacts business within the state or contracts to supply services in the state. The motion court held that the dissemination of information through a press release was insufficient to confer jurisdiction: “That CPIPG relied on a German newswire to send press releases to Bloomberg in New York with the intention that they would be distributed specifically to a New York audience, even if true, does not constitute transacting business within the state, as the material is accessible to a global audience.” 4 Moreover, said the motion court, “the content of the press releases, although concerning New York litigation, not of sole importance to New Yorkers, as allegations of fraud against a Luxembourg company with assets mainly in Europe would likely interest global investors.”  The motion court rejected plaintiffs’ argument that distribution of the press releases in English supported an inference that they were targeted to a New York audience only: “That the press releases were distributed solely in English does not support an inference that they were targeted solely at a New York audience as English is spoken throughout the world.” The motion court also rejected plaintiffs’ argument that CPIPG’s prior solicitation of investors in New York, as well as the investment in ORCO by Kingstown and other New York entities, sufficed to confer jurisdiction. The motion court reasoned that in both instances, defendants failed to demonstrate that such activities were accompanied by New York-based business transactions. The motion court further held that the any harm that may have resulted in New York due to defendants’ allegedly defamatory statements was insufficient to confer personal jurisdiction, as “ efamation claims are accorded separate treatment to reflect the state’s policy of preventing disproportionate restrictions on freedom of expression” and “cannot form the basis for ‘tortious act’ jurisdiction.” 5 Finally, the motion court denied plaintiffs’ request to conduct jurisdictional discovery. The motion court found plaintiffs’ belief that defendants retained agents or other professionals in New York to be “speculative and undermined by their allegations that the press releases were published using a German newswire”. More significantly, the motion court held that because plaintiffs failed offer any affidavits or other evidence supporting their request, they failed to make a “sufficient start” for jurisdictional discovery. 6 On appeal, the Appellate Division, First Department affirmed. The Court held that “ laintiffs failed to establish personal jurisdiction over defendants under CPLR 302(a)(1), New York’s long-arm statute, as they did not show that defendants engaged in purposeful activities in New York, conducted or transacted business in this state, or availed themselves of the benefits of New York law.” 7 Like the motion court, the Court rejected the dissemination of the press releases by Bloomberg to be sufficient to confer personal jurisdiction over defendants: What plaintiffs describe as a press “campaign” was a single press release, which was distributed to a German newswire service, DGAP; in turn, DGAP distributed the press release to its 20 or so international outlets, including Bloomberg. Plaintiffs maintain that defendants intended the press release to reach a New York audience because they knew that, by using DGAP to distribute the press releases, Bloomberg would publish the press release in New York County. However, placing allegedly defamatory content on the internet and making it accessible to the public does not constitute the transaction of business in New York, even when it is likely that the material will be read by New Yorkers. 8 Further, the Court held that “plaintiffs failed to demonstrate an articulable nexus between defendants’ New York activities and the cause of action for defamation.” 9 The Court explained that “ eyond an allegation in the federal action that several phone calls and emails were exchanged and a meeting held in New York in anticipation of a deal (which was ultimately consummated in Europe),” there was “nothing in the record” to suggest “that defendants conceived, drafted, published, or distributed the press release in this state.” 10 Finally, the Court held that “ iscovery on the jurisdictional issue not warranted because plaintiffs failed to make a ‘sufficient start’ in demonstrating the existence of long-arm jurisdiction over defendants.” 11 Takeaway CPLR §§ 302(a)(2) and (3), which permit jurisdiction over tortious acts committed in New York and those committed outside New York that cause injuries in the state, respectively, explicitly exempt causes of action for defamation from their scope. However, when a person makes a defamatory statement without the state that causes injury to the plaintiff within the state, jurisdiction may be acquired under CPLR § 302(a)(1), even though CPLR § 302(a)(3) – which explicitly concerns jurisdiction as to out-of-state tortious acts that cause in-state injury – excludes defamation cases from its scope. To determine the existence of jurisdiction under CPLR § 302(a)(1), a court must decide (1) whether the defendant “transacts any business” in New York and, if so, (2) whether the cause of action “aris from” such a business transaction. 12 “A suit will be deemed to have arisen out of a party’s activities in New York if there is an articulable nexus, or a substantial relationship, between the claim asserted and the actions that occurred in New York.” 13 New York courts define “transact business” as purposeful activity — “‘some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.’” 14 New York courts do not interpret “transact business” to include mere defamatory utterances sent into the state. Although CPLR § 302(a)(1) does not exclude defamation from its coverage, New York courts construe “transacts any business within the state” more narrowly in defamation cases than they do in the context of other sorts of litigation. 15 In non-defamation cases, “proof of one transaction,” or a “single act,” “is sufficient to invoke jurisdiction, even though the defendant never enters New York.” 16 In defamation cases, however, the “single act” of uttering a defamation, no matter how loudly, is not a “transact business” that may provide the foundation for personal jurisdiction. 17 “In other words, when the defamatory publication itself constitutes the alleged ‘transact business’ for the purposes of section 302(a)(1), more than the distribution of a libelous statement must be made within the state to establish long-arm jurisdiction over the person distributing it.” 18 The posting of defamatory material on a website accessible in New York does not, without more, constitute “transact business” in New York for the purposes of conferring jurisdiction over an out-of-state defendant. 19 As the Court held in Kingstown Capital , the same is true with regard to a press release that is transmitted worldwide.  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. Defendants further argued that the German newswire, which distributes press releases to nearly 20 global media publishers, not only Bloomberg, and the press releases were republished electronically in every global market. Arroyo v. Mountain School , 68 A.D.3d 603 (1st Dept. 2009). 342 E. 67 Realty LLC v. Jacobs , 106 A.D.3d 610, 611 (1st Dept. 2013); Howard v. Spitalnik , 68 A.D.2d 803 (1st Dept. 1979). Citing, Best Van Lines, Inc. v Walker , 490 F.3d 239, 250 (2d Cir. 2007) (posting of defamatory material on website accessible in New York does not, without more, constitute transacting business in New York for purposes of New York’s long-arm statute). Citing, SPCA of Upstate New York, Inc. v. Am. Working Collie Ass’n , 18 N.Y.3d 400, 404 (2012) (citing, CPLR §§ 302(a)(2) and (3)). SNS Bank, N. V. v. Citibank, N.A. , 7 A.D.3d 352, 354 (1st Dept. 2004); McBride v. KPMG Int’l , 135 A.D.3d 576, 577 (1st Dept. 2016) Warck-Meister v. Diana Lowenstein Fine Arts , 7 A.D.3d 351, 352 (1st Dept. 2004). Slip Op. at *1 (citations omitted). Slip Op. at *1 (citations omitted). Id. (citation omitted). Id. (citation omitted). Id. at *1-*2 (citing, Concotilli v. Brown , 168 A.D.3d 426, 426 (1st Dept. 2019). See Deutsche Bank Sec., Inc. v. Montana Bd. of Invs. , 7 N.Y.3d 65, 71 (2006). Henderson v. INS , 157 F.3d 106, 123 (2d Cir.1998) (internal quotation marks omitted); accord Deutsche Bank , 7 N.Y.3d at 71. McKee Elec. Co. v. Rauland-Borg Corp. , 20 N.Y.2d 377, 382 (1967) (quoting, Hanson v. Denckla , 357 U.S. 235, 253 (1958)). Best Van Lines , 490 F.3d at 248. Deutsche Bank , 7 N.Y.3d at 7 (internal quotation marks omitted). Best Van Lines , 490 F.3d at 248. Id. Id. at 250.

By Jonathan H. Freiberger The readers of this Blog know that we frequently discuss numerous aspects of residential mortgage litigation.  S ee, e.g., < here =">here"> and the articles linked therein.  A related subtopic that gets much attention in this Blog is the pre-foreclosure notice requirements of RPAPL 1304 .  See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . Briefly, and as noted in prior Blog articles, RPAPL 1304 requires that at least ninety days before commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a lender must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that offer free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter.  One purpose of RPAPL 1304 is to enable defaulted borrowers to “benefit from the information provided in the notice and the 90–day period during which the parties could attempt to work out the default without imminent threat of a foreclosure action, in an effort to further the ultimate goal of reducing the number of foreclosures”.  CIT Bank N.A. v. Schiffman , 36 N.Y.3d 550, 555 (2021) (citation and internal quotation marks omitted). The failure of a lender to comply with RPAPL 1304 will result in the dismissal of a foreclosure complaint ( see, e.g., U.S. Bank N.A. v. Beymer , 161 A.D.3d 543 (1 st Dep’t 2018)) when the issue is raised as an affirmative defense by the borrower ( see, e.g., One West Bank, FSB v. Rosenberg , 189 A.D.3d 1600, 1602-3 (2 nd Dep’t 2020) (citation omitted)).  Indeed, “proper service of the notice containing the statutorily mandated content is a condition precedent to the commencement of a foreclosure action.”  U.S. Bank N.A. v. Taormina , 187 A.D.3d 1095, 1096 (2 nd Dep’t 2020) (citations omitted).  When failure to comply with RPAPL 1304 is raised as an affirmative defense, the foreclosing lender must demonstrate its compliance with the statute as part of its prima facie case.  Bank of America, N.A. v. Wheatly , 158 A.D.3d 736 (2 nd Dep’t 2018) (citations omitted).   In our October 1, 2021, blog article we discussed Wells Fargo Bank, N.A. v. Yapkowitz , 199 A.D.3d 126 (2 nd Dep’t 2021), a case in which the Court dismissed lender’s complaint and held that a joint notice in one envelope addressed to two borrowers residing at the same address did not satisfy the requirements of RPAPL 1304.  In our December 17, 2021, blog article we discussed Bank of America, N.A. v. Kessler , 202 A.D.3d 10 (2 nd Dep’t 2021), in which the Court dismissed lender’s complaint for failure to comply with CPLR 1304 because it included material in addition to the RPAPL 1304 notice in the envelope in which the RPAPL 1304 notice was mailed. On May 4, 2022, the Second Department decided several cases in which lenders’ complaints were dismissed due to failure to comply with RPAPL 1304; two of which address the issues decided by Yapkowitz and/or Kessler . HSBC Bank USA, N.A. v. DiBenedetti In 2007, Cheryl DiBenedetti (“Cheryl”) delivered a $900,000.00 note to lender, the repayment obligation for which was secured by a mortgage on real property.  The mortgage was executed by Cheryl and Denis DiBenedetti (“Denis” and together with Cheryl, “Borrowers”).  As the Court highlighted “Denis … was identified as a "borrower" on both the first page of the mortgage, and below his signature.”  Lender commenced a foreclosure action in which Borrowers asserted a defense based on lender’s failure to comply with RPAPL 1304.   Lender’s initial motion for summary judgment on the complaint and to strike Borrowers’ answer was denied by supreme court, which found that “ failed to establish that it complied with RPAPL 1304.”  Lender renewed its summary judgment motion and, this time, submitted a copy of the RPAPL 1304 notice, which the Court described as follows: The notice, which was addressed to both Cheryl DiBenedetti and Denis DiBenedetti, stated, among other things, that " his communication is an attempt to collect a debt and any information obtained will be used for that purpose. However, if you have received a discharge of this debt in bankruptcy or are currently in a bankruptcy case, this notice is not intended as an attempt to collect a debt and, this company has a security interest in the property and will only exercise its rights as against the property. Supreme court granted lender’s motion to renew and, upon renewal, vacated its prior order. Later, supreme court confirmed the referee’s report and issued a judgment of foreclosure and sale.   The Appellate Division reversed and held that, upon renewal, supreme court should have adhered to its original decision and dismissed the complaint because lender “failed to establish, prima facie, that it strictly complied with RPAPL 1304, since additional material was sent in the same envelope as the 90-day notice required by RPAPL 1304, and a single notice was jointly addressed to both .”  (Citations omitted.)  Significantly, the Court found that Denis was indeed a “borrower” under RPAPL 1304 and, therefore, entitled to notice thereunder.  Thus, Lender’s argument to the contrary notwithstanding, the Court held that “although Denis DiBenedetti did not sign the note, he is considered a "borrower" within the meaning of RPAPL 1304 because he was identified as such, both on the first page of the mortgage and beneath his signature”. US Bank National Association v. Drakakis Borrower in Drakakis appealed from orders in which the supreme court granted lender summary judgment on its complaint and struck borrower’s answer, denied borrower’s cross-motion for summary judgment dismissing the complaint for failure to comply with RPAPL 1304 and appointed a referee to compute.  On appeal, the Second Department reversed and denied lender’s motion and granted borrower’s cross-motion dismissing the complaint.  In so doing, the Court stated: Here, in support of its motion for summary judgment, the plaintiff failed to establish, prima facie, its compliance with the "separate envelope" mandate of RPAPL 1304(2) since the RPAPL 1304 notice submitted with its motion included, in addition to the statutorily prescribed language, a document titled "Consumer Notice Pursuant to 15 U.S.C. Section 1692(G)". In support of his cross motion, the defendant Christos Drakakis demonstrated, prima facie, that the plaintiff failed to comply with the "separate envelope" mandate of RPAPL 1304(2). In opposition to the cross motion, the plaintiff failed to raise a triable issue of fact.  (Citations omitted.) Takeaway Compliance with the requirements of RPAPL 1304 is critical for lenders.  Similarly, it is equally critical that borrowers preserve such defenses in their answer.  Both DiBenedetti and Drakakis have 2014 index numbers and were dismissed by the Second Department in 2022 due to the failure of both lenders to comply with RPAPL 1304. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber As a general matter, a fraud claim is not duplicative of a contract claim where the plaintiff alleges misrepresentations of fact, as opposed to misrepresentations of a future intent to perform. In IS Chrystie Mgt. LLC v. ADP, LLC , 2022 N.Y. Slip Op. 02950 (1st Dept. May 3, 2022) ( here ), this general principle of law was one of the issues before the Court. In particular, the First Department was asked to determine whether post-contractual misrepresentations were collateral to the contractual obligations of the parties. As discussed below, the Court ruled that they were separate and apart from the contractual duties set forth in the parties’ agreement.  IS Chrystie Mgt. LLC v. ADP, LLC ADP arose out of a Master Services Agreement (“MSA”) pursuant to which ADP provided certain payroll processing services to plaintiff IS Chrystie Management LLC (“ISC”). ISC alleged that ADP willfully breached the MSA and, as a result, sustained $747,442.75 in direct and consequential damages. ISC also asserted a fraud claim. The motion court dismissed the claim without prejudice to replead after ISC developed sufficient facts in discovery to support the claim. 1 The court did so on the ground that ISC failed to demonstrate that ADP had a duty collateral to its contractual obligations that would form a basis for a gross negligence or fraud claim. In other words, the motion court found that the breach of contract claim, and fraud claim were duplicative. 2 As noted by the motion court, since the limitation of liability provision did not apply to willful, criminal or fraudulent misconduct, if ISC prevailed on its breach of contract claim, “there’s no limitation of liability and entitled to recover all of the damages that seek .” Following extensive discovery, ISC moved to amend its complaint to reinstate its tort claims. 3 ISC alleged that ADP made misrepresentations regarding the (i) implementation of a benefits accrual policy; (ii) creation of a “spread of hours” setup; (iii) calculation of a commuter tax; and (iv) calculation of a residency tax.  ADP maintained that the foregoing were services encompassed by the MSA. In particular, ADP argued that the services in question concerned payroll processing services that ADP provided pursuant to the MSA. ADP also argued that any damages ISC may have sustained by reason of the alleged fraud were the same damages it was pursuing on its breach of contract claim. Finally, ADP contended that ISC did not allege a breach of any duty collateral to or independent of the MSA because the relationship between the parties was purely contractual.  The motion court denied the motion to amend, holding that ISC “failed to demonstrate that ADP had a duty beyond its contractual duties that would form a basis for a tort claim for gross negligence or fraud”. As it did on the motion to dismiss, the motion court found that ISC could “argue at trial that ADP’s breach of contract was willful, including the impact any such willful misconduct has on plaintiff’s right to recover the damages it seeks.” On appeal, the Appellate Division, First Department modified the motion court’s order and reinstated ISC’s fraud claim. The Court held that ISC’s fraud claim was not duplicative of the contract claim. 4 The Court found that “ nlike Cronos Group Ltd. v XComIP, LLC (156 AD3d 54 <1st dept 2017> ),” on which both parties relied but reached different conclusions as to what the court held, “this not a case where ‘the only fraud alleged’ was the defendant’s ‘unkept promise to perform certain of its preexisting obligations under the parties’ contract’ ( id. at 64).” 5 “Rather,” said the Court, “plaintiff alleges, ‘Whenever ADP’s services for Plaintiff[] proved to be deficient, ADP would purport to deal with the problem and then misrepresent to Plaintiff[] that the problem had been fixed, when … it had not.” 6 Such an allegation, explained the Court, was a misrepresentation of present fact that was collateral to the MSA and, therefore, involved a separate duty. 7 [Ed. Note: In Cronos , the parties entered a contract governing the transmission of customer calls on the other party’s network. 8 During the term of the contract, plaintiff learned that fraudulent calls had gone from its network to defendant’s network, thereby generating charges to plaintiff under the contract. 9 When plaintiff advised defendant of the situation, defendant assured plaintiff that the charges would be reversed. 10 However, defendant did not reverse the charges. Plaintiff alleged that defendant’s assurances were fraudulently made. 11 The Court held that plaintiff’s fraud claim “falls short under the principle that a fraud claim is not stated by allegations that simply duplicate, in the facts alleged and damages sought, a claim for breach of contract, enhanced only by conclusory allegations that the pleader’s adversary made a promise while harboring the concealed intent not to perform it.” 12 According to the Court, the only fraud alleged by plaintiff was defendant’s “unkept promise to perform certain of its preexisting obligations under the parties’ contract … for which seeks exactly the same damages as are sought under the rubric of the claim for breach of contract.” 13 In fact, noted the Court, “it is clear from the complaint itself that understood ’s assurances to be promises of future conduct.”14 The Court explained that the fraud claim “adds to the contract cause of action only the allegation that gave insincere oral assurances that would perform the very same act (reversal of the charges for the fraudulent calls) that contends, in the contract claim, that was already contractually obligated to perform under the parties’ written agreement.” 15 The Court concluded that “the allegedly false promise at issue in the fraud claim was … a promise to perform under the parties’ contract, not any promise collateral or extraneous to that contract.” 16 ]  The Court also held that the damages sought by the fraud claim were not entirely the same as those of the breach of contract claim. 17 As it explained during oral argument on defendant’s CPLR 3211 motion to dismiss, defendant’s substandard performance under the parties’ contract resulted in plaintiff’s overpaying its employees. If defendant had admitted that its system was not working, plaintiff “would have terminated … wouldn’t have … overpaid employees for that period of time post the supposed fix.” Plaintiff does not seek this item under its contract damages. 18 Takeaway A fraud claim, which arises from the same facts, seeks identical damages and does not allege a breach of any duty collateral to or independent of the parties’ agreement, is duplicative of a contract claim. Often the fraud claim is asserted in connection with pre-contractual representations. Sometimes, however, a fraud claim will be asserted in connection with post-contractual representations, as in IS Chrystie Mgt. In either circumstance, the issue to be determined is whether the misrepresentation is one of an existing fact or a naked promise of future performance ( i.e. , a promise to perform under the contract without an accompanying undisclosed intention to break that promise when it comes time to perform). As the Court in IS Chrystie Mgt. made clear, whether the representation is made before or after the contract is entered is not dispositive. 19 IS Chrystie Mgt. also shows that the courts look to the damages sought to ascertain whether they are the same. If they are, then the fraud claim will be dismissed. In IS Chrystie Mgt. , plaintiff successfully alleged damages that were somewhat different. 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 In the complaint, ISC asserted two additional causes of action: (i) gross negligence; and (ii) breach of the implied covenant of good faith and fair dealing. A fraud claim will be deemed duplicative of a breach of contract claim where (1) the fraud claim arises out of the same facts as the breach of contract claim; (2) the fraud claim seeks the same damages as the breach of contract claim; and (3) the fraud claim fails to identify a duty collateral to or independent of the contract. If one or more of the foregoing factors is missing, the fraud claim will be deemed sufficiently separate to stand on its own. Jo Ann Homes at Bellmore, Inc. v. Dworetz , 25 N.Y.2d 112, 119 (1969); Strasser v. Prudential Sec., Inc., 218 A.D.2d 526 (1st Dept. 1995). ISC also moved for summary judgment, as did ADP. ADP’s motion was based on the limitation on liability provisions in the MSA. The MSA contained two clauses governing damages. The first clause, Section 6A entitled “Limit on Monetary Damages”, capped direct damages pursuant to a defined formula. The provision did not apply to “ADP’s willful, criminal or fraudulent misconduct.” The second clause, Section 6B entitled “No Consequential Damages”, barred consequential damages without any stated exception. The Court denied summary judgment based on issues of fact related to, inter alia , whether ADP’s conduct qualified as “willful misconduct” and the impact of any such misconduct on the application of the two damages clauses. Slip Op. at *1 (citing, BML Props. Ltd. v. China Constr. Am. Inc. , 174 A.D.3d 419 (1st Dept. 2019)).   Id Id. Id. (quoting, Wyle Inc. v. ITT Corp. , 130 A.D.3d 438, 440-441 (1st Dept. 2015) (emphasis and internal quotation marks omitted)). 156 A.D.3d at 57. Id. at 58-59. Id. Id. at 62. Id. Id. at 64. Id. at 70. Id. at 64-65. Id. at 65. Slip Op. at *1 (citing, MBIA Ins. Corp. v. Credit Suisse Sec. (USA) LLC , 165 A.D.3d 108, 114 (1st Dept. 2018)). Id. We have previously written about the application of the doctrine to pre-contractual representations ( e.g. , here and here ) and post-contractual representations ( e.g. , here ).

By: Jeffrey M. Haber In Wilsey v. 7203 Rawson Rd., LLC , 2022 N.Y. Slip Op. 02905 (4th Dept. Apr. 29, 2022) ( here ), the Appellate Division, Fourth Department considered principles of law familiar to readers of this Blog; namely, breach of contract and fraudulent misrepresentation.   As we have noted in prior articles ( e.g. , here ), “ he essential elements of a cause of action to recover damages for breach of contract are the existence of a contract, the plaintiff’s performance pursuant to the contract, the defendant’s breach of its contractual obligations, and damages resulting from the breach.” 1 Under New York law, “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.” 2 It is the court’s function to determine whether a contract is clear and unambiguous on its face, i.e. , “whether the agreement on its face is reasonably susceptible of more than one interpretation ….” 3 To state a claim for fraud, a plaintiff must allege a material misrepresentation of fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages. 4 The allegations must be stated with particularity to satisfy CPLR § 3016(b). 5 Thus, the plaintiff must provide sufficient facts to support a “reasonable inference” that the allegations of fraud are true. 6 Conclusory allegations will not suffice. 7 Neither will allegations based on information and belief. 8 Although, CPLR § 3016(b) provides that “the circumstances constituting the shall be stated in detail,” the New York Court of Appeals has “cautioned that section 3016 (b) should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” 9 Thus, where the facts “are peculiarly within the knowledge of the party charged with the fraud,” and “it would work a potentially unnecessary injustice to dismiss a case at an early stage where any pleading deficiency might be cured later in the proceedings,” dismissal should be denied. 10 Wilsey v. 7203 Rawson Rd., LLC Background On October 11, 2017, plaintiffs entered into a Lot Reservation Agreement (the “Reservation Agreement) with RSM Development Co., LLC (“RSM”), whereby they paid RSM a $5,000.00 deposit to reserve property that they intended to build upon. The Reservation Agreement provided, among other things, that if plaintiffs failed “to sign a contract for new construction with” RSM by November 12, 2017, RSM would “return the deposit and be free to re-sell or reserve the with a different buyer.” The agreement was silent about the return of the deposit after plaintiffs entered into a purchase contract for the property.  On February 12, 2018, plaintiffs entered into a purchase and sale agreement with 7203 Rawson Rd., LLC to purchase the property at issue and construct a house thereon (the “Purchase Contract”) and paid 7203 Rawson a deposit in the amount of $20,000.00. Attached to the Purchase Contract was an addendum that specified certain changes / options for the construction. Pursuant thereto, plaintiffs paid 7203 Rawson a construction draw of $40,000. Notably, the transaction contemplated by the Purchase Contract was contingent on the “sale and transfer” of property in Honeoye Falls (Mendon), New York. Plaintiffs were unable to sell that property. As a result, on December 5, 2018, they cancelled the Purchase Contract. Thereafter, plaintiffs demanded return of all deposits paid to defendants ( e.g. , the $5,000.00 deposit on the Reservation Agreement, the $20,000.00 deposit and $40,000.00 construction draw deposit on the Purchase Contract). Defendants returned the $20,000.00 deposit on the Purchase Contract but, based on an alleged oral modification of the agreements, declined to return the $5,000.00 deposit on the Reservation Agreement, and the $40,000.00 construction draw under the Purchase Contract. Defendants maintained that plaintiffs agreed that RSM would return the construction draw paid to RSM when the property was under contract with a new buyer.  Plaintiffs alleged that the Purchase Contract prohibited oral modification. They further alleged that defendants falsely and fraudulently claimed that they had completed the changes / options contemplated in the addendum to the Purchase Contract.  Plaintiffs filed suit, asserting three causes of action against defendants: (1) breach of contract for refusal to return the $5,000.00 deposit under the Reservation Agreement; (2) breach of contract as to the $40,000.00 deposit under the Purchase Contract; and (3) fraudulent misrepresentation for falsely claiming that custom changes / options had been completed, justifying retention of the $40,000.00 deposit for a construction draw.  Following some discovery, plaintiffs moved for summary judgment. The motion court granted the motion without decision. Defendants appealed. The Appellate Division, Fourth Department unanimously modified the decision by denying the motion in its entirety. The Court’s Ruling The Court held that plaintiffs failed to satisfy their burden of proving “that their interpretation of the relevant contracts the only reasonable interpretation thereof.” 11 Under settled summary judgment principles, noted the Court, “the moving party has the burden of establishing that its construction of the is the only construction can fairly be placed thereon.” 12 “Here,” concluded the Court, “plaintiffs did not meet their initial burden on those parts of the motion seeking summary judgment on the first and second causes of action” because plaintiffs “failed to submit sufficient evidence to establish that their interpretation of the relevant contracts is the only reasonable interpretation thereof.” 13 Under New York law, where “ambiguity or equivocation exists and the extrinsic evidence presents a question of credibility or a choice among reasonable inferences, the case should not be resolved by way of summary judgment.” 14 The Court also held that summary judgment should not have been granted as to the fraudulent misrepresentation claim. 15 First, the Court found that plaintiffs failed to allege a duty collateral to the agreements at issue. Rather, said the Court, plaintiffs were complaining about alleged misrepresentations that related to the performance under the contracts: “On this record, we conclude that, far from being collateral to the contract, the purported misrepresentation was directly related to a specific provision of the contract.” 16  Second, the Court held, without explanation, that plaintiffs failed to comply with CPLR § 3016 (b), which provides that plaintiffs alleging fraud must do so with particularity. 17 E.g.,="E.g.," here,=">here," >here=">here" and="and" >here.=">here."> Takeaway Wilsey is interesting for a couple of reasons.  First, there is no mention of the duplication doctrine. As we have seen in other cases, fraud claims that are alleged to be nothing more than a failure to perform contractual obligations are dismissed under the duplication doctrine. Indeed, 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. Accordingly, courts routinely dismiss fraud claims where “ he existence of a valid and enforceable written contract govern a particular subject matter” and the recovery sought arises out of the same facts and circumstances. 18 Duplication could have been a basis for the Court’s ruling in Wilsey . Second, Wilsey is interesting because of the interplay between the initial burden a movant bears on summary judgment and the proof required in a breach contract action to satisfy that burden. “To grant summary judgment, it must clearly appear that no material and triable issue of fact is presented.” 19 Summary judgment will not be granted “where there is any doubt as to the existence of a factual issue or where the existence of a factual issue is arguable.” 20 On summary judgment, “facts must be viewed ‘in the light most favorable to the non-moving party’”. 21 Importantly, the movant must make a prima facie showing of entitlement to judgment as a matter of law, “tendering sufficient evidence to demonstrate the absence of any material issues of fact.” 22 In a breach of contract action, to satisfy the initial burden on summary judgment, the movant must demonstrate with sufficient evidence (in admissible form) that its interpretation of the contract is the only reasonable interpretation thereof. In other words, the moving party must establish that its construction of the contract is the only construction that can fairly be placed thereon. 23 The failure to do so will result in denial of the motion. In Wilsey , plaintiffs were unable to satisfy their initial burden. 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 Carione v. Hickey , 133 A.D.3d 811, 811 (2d Dept. 2015), lv. denied , 27 N.Y.3d 909 (2016) (internal quotation marks omitted). Greenfield v. Philles Records , 98 N.Y.2d 562, 569 (2002). Nancy Rose Stormer, P.C. v. County of Oneida , 66 A.D.3d 1449, 1450 (4th Dept. 2009). Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 558 (2009). Id. Id. at 559-60. Id. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). Pludeman v. Northern Leasing, Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (internal quotation marks and citations omitted). Id. at 491-92 (internal quotation marks and citations omitted).   Slip Op. at *2. Id. (quoting Nancy Rose Stormer , 66 A.D.3d at 1450 (internal quotation marks omitted) (additional citations omitted). Id. Mohawk Val. Water Auth. v. State of New York , 159 A.D.3d 1548, 1550 (4th Dept. 2018) (citation and internal quotation marks omitted). Slip Op. at *2. Preston v. Northside Collision-Dewitt, LLC , 158 A.D.3d 1127, 1128 (4th Dept. 2018) (internal quotation marks omitted). Slip Op. at *2 (citing Maki v. Bassett Healthcare, 85 A.D.3d 1366, 1369-1370 (3d Dept. 2011), appeal dismissed , 17 N.Y.3d 870 (2011), lv. denied in part and dismissed in part , 18 N.Y.3d 870 (2012). Clark-Fitzpatrick v. Long Is. , 70 N.Y.2d 382 (1987). Glick & Dolleck v. Tri-Pac Export Corp. , 22 N.Y.2d 439, 441 (1968). Forrest v. Jewish Guild for the Blind , 3 N.Y.3d 295, 315 (2004) (citing, Glick , 22 N.Y.2d at 441). Vega v. Restani Constr. Corp. , 18 N.Y.3d 499, 503 (2012) (quoting, Ortiz v. Varsity Holdings, LLC , 18 N.Y.3d 335, 339 (2011)). Alvarez v. Prospect Hosp. , 68 N.Y.2d 320, 324 (1986).