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By Jonathan H. Freiberger Statute of limitations issues frequently arises in mortgage foreclosure actions.  This Blog has written extensively on a variety of issues related to mortgage foreclosure, including those related specifically to limitations periods ( see, e.g., < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .   In this Blog article entitled: “ Revive a Time-Barred Claim Using § 17-101 of New York’s General Obligations Law ” addressed situations where certain writings acknowledging a mortgage debt, that comply with General Obligations Law § 17-101 , can operate to revive an otherwise time-barred foreclosure claim.  There, we also discussed the general purpose of statutes of limitations, noting that: “The Statute of Limitations was enacted to afford protection to defendants against defending stale claims after a reasonable period of time had elapsed during which a person of ordinary diligence would bring an action. The statutes embody an important policy of giving repose to human affairs.” Flanagan > >, 24 N.Y.2d <427> at 429 <1969> (citation omitted). It has been stated that “the primary purpose of Statutes of Limitation is to relieve defendants of the necessity of investigating and preparing a defense where the action is commenced against them after the expiration of the statutory period because the law presumes that by that time evidence has been lost, memories have faded and witnesses have disappeared.”  Connell v. Hayden , 83 A.D.2d 30 (2 nd Dep’t 1981).  As to the limitations period relevant to mortgage foreclosure actions, we have previously written that: An action to foreclose a mortgage is governed by a six-year statute of limitations.  CPLR 213(4) .  See also , Fed. Nat. Mort. Assoc. v. Schmitt , 172 A.D.3d 1324, 1325 (2 nd Dep’t 2019).  When a mortgage is payable in installments, “separate causes of action accrue for each installment that is not paid and the statute of limitations begins to run on the date each installment becomes due.”  HSBC Bank USA, N.A. v. Gold , 171 A.D.3d 1029, 1030 (2 nd Dep’t 2019).  Most mortgages, however, provide that a mortgagee may accelerate the entire debt in the event of, inter alia , a payment default by a mortgagor. Thus, “the terms of the mortgage may contain an acceleration clause that gives the lender the option to demand due the entire balance of principal and interest upon the occurrence of certain events delineated in the mortgage.”  Bank of New York Mellon v. Dieudonne , 171 A.D.3d 34, 37 (2 nd Dep’t 2019) (citations and internal quotation marks omitted).  Once the mortgagee’s election to accelerate is properly made, “the borrower’s right and obligation to make monthly installments ceased and all sums became immediately due and payable.”  The statute of limitations begins to run anew on the entire debt upon acceleration.  HSBC , 171 A.D.3d at 1030 (citations omitted). “ o dismiss an action pursuant to CPLR 3211(a)(5) on the ground that it is time-barred by the applicable statute of limitations, a defendant bears the initial burden of demonstrating, prima facie, that the time within which to commence the action has expired.”  Gurecki v. Gurecki , 189 A.D.3d 1729, 1731 (3 rd Dep’t 2020) (citations internal quotation marks and brackets omitted).  “If the defendant satisfies this burden, the burden shifts to the plaintiff to raise a question of fact as to whether the statute of limitations was tolled or otherwise inapplicable.”  Gurecki , 189 A.D.3d at 1731 (citation and internal quotation marks omitted). Section 17-101 of the GOL can provide a statutory basis to revive the limitations period to foreclose a mortgage in the face of a qualifying writing.  Similarly, the “common-law, partial payment exception to the statute of limitations …, if proven, has the effect of extending or renewing the statute of limitations period” when qualifying partial payments are made to lender.  McNeary v. Charlebois , 169 A.D.3d 1295, 1296 (3 rd Dep’t 2019) (citations omitted).  According to this exception, a “debtor’s partial payment toward a mortgage debt may renew the statute of limitations in a foreclosure action if the creditor “show that there was a payment by the debtor or the debtor’s agent of an admitted debt, made and accepted as such, accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remaining balance.”  Wells Fargo Bank N.A. v. Grover , 165 A.D.3d 1541, 1542 (3 rd Dep’t 2018) (citations and internal quotation marks omitted). In 1998, the Gurecki plaintiff (“lender”) sold property to a family member and took a note secured by a mortgage on the property to evidence the repayment obligation.  The note, which did not require periodic payments, came due in 2008 and borrower defaulted.  The mortgage was not recorded until April 2017.  In May of 2017, borrower sold the property to a third-party (“buyer”), who obtained a mortgage from the Bank of Greene County (“bank”).  The title report issued in conjunction with the sale to purchaser failed to turn out the belatedly recorded mortgage.  Lender commenced a foreclosure action and named borrower, buyer and bank as defendants.  Buyer and bank moved to dismiss the complaint as against them asserting , inter alia , a statute of limitations defense.  Supreme court denied the motion and buyer and bank appealed.  The Third Department reversed. To support a “partial payment exception” argument Lender averred that borrower “made payments, in varying amounts, on fourteen occasions over an eight-year period.  Twelve of the payments were made before the expiration of statute of limitations and two were made after. As to first twelve payments, the Gurecki Court stated they were “mere naked payments of money without anything to show on what account, or for what reason, the money was paid, and, thus, they are insufficient to raise an issue of fact as to whether the statute of limitations was tolled.”  Gurecki , 189 A.D.3d at 1731 (citations and internal quotation marks omitted).  As to the last two payments, however, lender averred they were “accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder” sufficient to satisfy the requirements of the “partial payment exception.” Gurecki , 189 A.D.3d at 1731. The Gurecki Court found the exception inapplicable to the buyer and bank and, in so doing, made a distinction focusing on the timing of the payments: owever, the tolling or revival effect of partial payments differs as between the payor – – and subsequent purchasers – buyer and bank ( see General Obligations Law § 17–107 <2> ). To that end, as relevant here, a qualifying partial payment that is made before the expiration of the statute of limitations will renew the statute of limitations against any subsequent purchaser. In contrast, a qualifying partial payment that is made after the expiration of the statute of limitations will only revive the statute of limitations as to a subsequent purchaser who did not give value or who had actual notice of the making of the payment ( see General Obligations Law § 17–107<2> ; <2d par> ). Here, even assuming that the 2016 payments met the test set forth in Lew Morris Demolition Co. v. Board of Educ. of City of N.Y ., 40 N.Y.2d at 521, 387 N.Y.S.2d 409, 355 N.E.2d 369 <1976> , at the time that they were made the statute of limitations had expired. Given that the record is clear that are purchasers for value and put forth no evidence that had actual notice of the 2016 payments, the payments did not have the effect of reviving the statute of limitations as to . Gurecki , 189 A.D.3d at 1732 (some citations and footnote omitted; emphasis in original). The Fourth Department, on April 22, 2022, addressed these issues in Citibank, N.A. v. Gifford . There, borrowers, Thomas and Marlene, executed a noted secured by a mortgage on their residence.  Thomas executed a modification agreement twenty years later.  Lender commenced a mortgage foreclosure action and moved for summary judgment.  Borrower cross-moved for summary judgment on statute of limitations grounds .  Supreme court granted lender’s motion as against Thomas and denied it as against Marlene and granted the cross-motion to the extent that it sought dismissal as against Marlene.  The Fourth Department modified the order to the extent of denying the cross-motion as to Marlene and granting lender’s motion in its entirety.  After discussing the issues previously set forth in this article, the Court stated: Here, even assuming, arguendo, that met their initial burden on their cross motion, we conclude that established in opposition that the common-law, partial payment exception to the statute of limitations had the effect of extending or renewing the statute of limitations period with respect to Thomas…. The partial payment exception requires proof that there was a payment of a portion of an admitted debt, made and accepted as such, accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder.  If the exception is established, the statute of limitations begins to run anew from the date of the partial payment. For 's action to have been timely commenced, a qualifying partial payment must have been made on or after April 18, 2013. Here, 's submissions demonstrated that a payment in the amount of the monthly payment required under the terms of the 2011 Agreement was made on or about May 1, 2017. Indeed, lender's submissions showed that it received multiple payments in that amount between April 2013 and May 2017, and did not dispute that such payments had been made. Further, inasmuch as also established that the partial payment exception applied to Marlene …, we agree with 's contention on its appeal that the court erred in granting the cross motion insofar as it sought summary judgment dismissing the complaint against Marlene …. took title to the property in question as husband and wife without any restriction, and they thereupon became tenants by the entirety. In an estate by the entirety the husband and wife are each seized of the entire estate, per tout et non per my . Each owns, not an undivided part, but the whole estate. Thus, any payments made by Thomas … that inured to Marlene<'s> … benefit were implicitly authorized by Marlene … and worked to renew the statute of limitations as to both .  (Citations, ellipses, internal quotation marks and brackets omitted; emphasis in original.) Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber New York courts favor the enforcement of forum selection clauses. They do so because they provide certainty and predictability in the resolution of disputes.  here=">here" and="and" >here.=">here."> A forum selection clause is “prima facie valid and enforceable unless it is shown by the challenging party to be unreasonable, unjust, in contravention of public policy, invalid due to fraud or overreaching.” Because a forum selection clause is “prima facie valid and enforceable”, New York courts do not hesitate to dismiss actions that were brought in violation of the agreed upon forum. “ he party asserting the applicability of the forum selection clause has the burden of establishing that the forum selection clause applies.”  In Massoumi v. Ganju , 2022 N.Y. Slip Op. 02760 (1st Dept. Apr. 26, 2022) ( here ), the Appellate Division, First Department reversed the dismissal of the action because the forum selection clauses at issue did not govern the dispute and was alleged to have been procured by fraud.   Plaintiff is the co-founder, former Chief Executive Officer (“CEO”) and board member of non-party Zocdoc, Inc. (“Zocdoc”), a Delaware corporation with its principal place of business in New York. In September 2020, plaintiff commenced the action against defendants Oliver Kharraz, Nikhil Ganju (Zocdoc co-founders and officers), and Netta Samroengraja, alleging fraud and conspiracy to commit fraud. Plaintiff sought damages and declaratory relief that, inter alia , he should be restored to his former executive and board member positions. He also sought to invalidate Amendment No. 4 to Zocdoc’s bylaws, proposed in his absence, which purported to make the Court of Chancery of the State of Delaware the exclusive forum for issues governed by the internal affairs doctrine. In November of 2015, Zocdoc’s board of directors voted to remove plaintiff as CEO. At the same meeting, the board voted to adopt a number of corporate actions, including an amendment to the company’s bylaws that made Delaware the exclusive forum for lawsuits that concerned the company’s internal affairs. After being approved by the board, the forum selection bylaw amendment was submitted for stockholder consent and ratification. In October 2018, plaintiff made a shareholder inspection demand under Section 220 of the Delaware General Corporation Law (“DGCL”) to review certain non-public details about Zocdoc’s business (the “Demand”). In connection with the Demand, plaintiff signed a Confidentiality and Non-Disclosure Agreement (“NDA”), as a stockholder, to inspect Zocdoc’s books and records. The NDA required that a demanding stockholder who wished to file a claim based on “Confidential Inspection Material” must do so in Delaware.  Under the NDA, the following information was excluded from the definition of “Confidential Inspection Material”: a) information generally available to the public; (b) information that was available to the demanding stockholder on a non-confidential basis prior to its disclosure by the company; and/or (c) information that was in the demanding stockholder’s possession prior to its disclosure by the company.  As noted, plaintiff brought suit in connection with his removal from the company, claiming, among other things, fraud. In particular, plaintiff alleged that defendants lied to him about the purpose and agenda of the November 2015 board meeting and concealed the meeting’s true purpose from him. Plaintiff claimed that had he known the truth, he would have taken majority control of Zocdoc’s Class B common shares and protected his position with the company. Defendants moved to dismiss the action pursuant to CPLR § 3211(a)(1) and (7), arguing that the forum selection clauses in the NDA and Amendment No. 4 to the bylaws required the plaintiff to bring his claims in Delaware, and, in any event, plaintiff failed to state a claim upon which relief could be granted. Plaintiff opposed the motion. The motion court granted the motion to the extent of “dismissing the complaint without prejudice to refiling the action in Delaware.” The First Department reversed, vacated the judgment issued in connection with the motion court’s decision and order, reinstated the complaint, and denied the defendants’ motion. The Court held that “defendants failed to meet their burden of establishing that the forum selection clause in the NDA applie to th action.” The Court found that “ he complaint not based on, not rely on, and not incorporate Confidential Inspection Material.” The Court explained that the “crux of the complaint concern actions taken in November 2015 — three years before the NDA — of which plaintiff ha personal knowledge.” Under the NDA, said the Court, “Confidential Inspection Material not include information that plaintiff already possessed prior to signing the NDA.” Moreover, held the Court, “Confidential Inspection Material not include public information.” The Court noted that plaintiff “specifically cite to public information to support allegation that nonparty Zocdoc, Inc. ha lost value since defendants ousted him as CEO and chairman of the board, thus reducing the value of his Zocdoc shares.” The Court rejected the argument that Zocdoc’s current bylaws may constitute Confidential Inspection Material, noting that the focus of the complaint was “on the amendments that were passed in November 2015 … which … part of the non-confidential record on appeal.” With regard to the forum selection clause in the amendment to the bylaws ( i.e. , Amendment No. 4), the Court held that the internal affairs doctrine did not warrant dismissal of the claims.  Under 8 Del. C. § 115, a corporation’s “bylaws may require … that any or all internal corporate claims shall be brought solely and exclusively in any or all of the courts ”. When they do, Delaware courts (and the courts of New York) require litigation concerning the corporation’s internal affairs to be brought in a Delaware court as such a provision is valid and enforceable to the same extent as other contractual forum-selection clauses.   The internal affairs doctrine governs claims that, among other things, “are based upon a violation of a duty by a current or former director or officer or stockholder,” or “as to which confers jurisdiction upon the Court of Chancery.” “Matters falling within the scope of the … include … the election or appointment of directors and officers, the adoption of by-laws, … the holding of directors’ and shareholders’ meetings, … by-law amendments<.> ”  The Court found that based upon the allegations in the complaint, Amendment No. 4 was not valid. The Court explained that “plaintiff ha set forth sufficient allegations that the amendment was part of the fraud perpetrated upon him.” Under New York law, fraud vitiates the entire agreement, including a forum selection clause found therein. The same is true under Delaware law, where the courts have held that “the use of deception as a means by which to conduct a Delaware corporation’s affairs” is prohibited.  Finally, the Court rejected the defendants’ contention that Amendment No. 4 was valid because Zocdoc’s shareholders ratified it. Since the fraudulent acts rendered the amendment void, said the Court, it could not “be cured by shareholder approval.” In other words, said the Court, “ f an action is ‘the product of fraud,’ it is void.”  Takeaway Massoumi highlights the distinction between acts that are void and voidable. As noted by the Court, acts of fraud are void. And, in the corporate context, such acts cannot be ratified by shareholder vote and approval. The distinction between void and voidable acts was an issue in Klaasen v. Allegro Dev. Corp. , cited herein. There, the Delaware Supreme Court, in an en banc decision, held that board action carried out by means of deception is per se void, not voidable. In doing so, the Court made the distinction between void and voidable acts, corrected past cases that blurred the distinction, and partially overruled two other cases.  New York takes the same approach. In DeSola Group v. Coors Brewing Co. , the First Department held that fraudulent acts vitiate an agreement in its entirety: “Even assuming the Agreement is applicable, the forum selection clause contained therein is unenforceable since the record is replete with allegations indicating that the entire Agreement was permeated with fraud…. Since plaintiff’s allegations of fraud pervading the entire Agreement would render the entire Agreement void, the forum selection clause contained therein is unenforceable.”  The takeaway, therefore, is the importance of the distinction between void and voidable acts. As shown in Massoumi , acts that are the result of alleged fraudulent behavior are void and not subject to equitable defenses (such as acquiescence and ratification). 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 Brodsky v. Match.com LLC , 2009 WL 3490277, at *4 (S.D.N.Y. Oct. 28, 2009). Boss v. Am. Express Fin. Advisors, Inc. , 6 N.Y.3d 242, 246 (2006). Premium Risk Grp. v. Legion Ins. Co. , 294 A.D.2d 345, 346 (2d Dept. 2002). Creative Mobile Techs., LLC v. Smart Modular Techs., Inc. , 97 A.D.3d 626, 627 (2d Dept. 2012); British W. Indies Guar. Tr. Co. v. Banque Internationale a Luxembourg , 172 A.D.2d 234, 234 (1st Dept. 1991). U.S. Immigration Fund LLC v. Litowitz , 2019 WL 1421377, at *6 (Sup. Ct., N.Y. County Mar. 29, 2019), aff’d as modified , 2020 N.Y. Slip Op. 02533 (1st Dept. 2020).  The factual discussion of Massoumi comes from the Court’s decision and the briefing of the parties before the motion court and the First Department.  Slip Op. at *1 (citing, DeSola Grp. v. Coors Brewing Co. , 199 A.D.2d 141 (1st Dept. 1993)). Id. Id. Id. Id. at *2. Id. Boilermakers Local 154 Ret. Fund v. Chevron Corp. , 73 A.3d 934 (Del. Ch. 2013). See also Hemg Inc. v. Aspen Univ. , 2013 WL 5958388, at *2-3 (Sup. Ct., N.Y. County Nov. 4, 2013). 8 Del. C. § 115. Restatement (Second), Conflict Of Laws § 302, cmt. a. Slip Op. at *2.  Id. (citing, DeSola , 199 A.D.2d at 141). Amazing Home Care Servs., LLC v. Applied Underwriters Captive Risk Assur. Co. Inc. , 191 A.D.3d 516, 518 (1st Dept 2021). See also DeSola , 199 A.D.2d at 141-142. Klaasen v. Allegro Dev. Corp. , 106 A.3d 1035, 1046 (Del. 2014). See also Bäcker v. Palisades Growth Capital II , 246 A.3d 81, 106 (Del. 2021) (noting that board actions tainted by deception are invalid); Hockessin Cmty. Ctr., Inc. v. Swift , 59 A.3d 437, 458 (Del. Ch. 2012) (actions taken by a board or director that were “obtained through trickery or misrepresentation” are invalid). Slip Op. at *2 (quoting, Nevins v. Bryan , 885 A2d 233, 245 (Del. Ch. 2005), aff’d , 884 A.2d 512 (Del. 2005)). Id. (citing, Nevin , 885 A.2d at 253 n.77). DeSola Group v. Coors Brewing Co. , 199 A.D.2d 141, 141-142 (1993).

By:  Jeffrey M. Haber Since inception of this Blog, we have written about many types of fraud, such as affinity fraud, common law fraud, fraud in the inducement, fraudulent concealment, and securities fraud.  Until today, we have not directly examined fraud in the execution. 1 Fraud in the execution, or fraud in the factum, arises where a party did not know the nature or the contents of the document being signed, or the consequences of signing it, and was nonetheless misled into executing it. 2 As one might expect, the failure to read the document before signing “prevents from establishing justifiable reliance, an essential element of fraud in the execution.” 3 In other words, absent some impairment ( e.g. , “the signer is illiterate, blind, or not a speaker of the language in which the document is written”), 4 a plaintiff cannot justifiably rely on another’s representation that the words used in the document means something other than what they plainly state. 5 Importantly, the signer who claims to have some impairment, must be free of negligence. 6 This means that disability by itself does not automatically excuse the signer from making a reasonable effort to learn the contents of the document being signed. 7 “The cases consistently hold that a person” with a disability or an inability to speak and/or read the English language “must make a reasonable effort to have the document read to him.” 8 With the foregoing principles in mind, we examine Paredes v. Vorhand , recently decided by the Appellate Division, Fourth Department ( here ). 9 Paredes arose from an alleged installment purchase contract concerning real property located in Buffalo, New York (the “Property”). Plaintiff contended that he entered a “lease to own” transaction through an “installment land contract” involving the Property (the “Contract”).  According to the complaint, plaintiff is from Puerto Rico and lacks a fluency in the English language. The Contract identified Hermann Vorhand as the seller of the Property. Defendant maintained, however, that Hermann was not the owner of the Property; instead, the Property was owned by defendant. Plaintiff signed the Contract, but the seller did not.  Plaintiff became a tenant of the Property in July 2014. Plaintiff maintained that he made 62 monthly payments pursuant to the Contract. The rent was collected by defendant International Realty of WNY, LLC, a property management company that leases and collects rents for residential real properties, including the Property.  Defendants denied the validity of the Contract and, upon demand for a warranty deed to the Property, refused to provide same. Thereafter, plaintiff commenced the action.  In the complaint, plaintiff asserted claims for specific performance ( i.e. , breach of contract), fraudulent inducement, fraud in the execution, unjust enrichment, and wrongful eviction. Defendants moved to dismiss. With regard to the fraud claims, defendants argued that plaintiff failed to plead fraud with particularity under CPLR § 3016(b) and satisfy the justifiable reliance element of the fraud claims. Plaintiff opposed the motion and filed a cross motion for summary judgment, which defendants opposed. The motion court denied the motion and cross motion without decision. Defendants appealed. The Fourth Department modified the motion court’s order with respect to the fraud in the execution claim. In a pithy decision and order, the Court agreed with defendants that the motion court erred in not dismissing the fraud in the execution cause of action. 10 The Court held that plaintiff failed to challenge the validity of the Contract, which is the essence of fraud in the execution claim: “the complaint fails to state a cause of action for fraud in the execution because it does not allege that plaintiff was induced to sign anything other than the installment land contract that he now seeks to enforce.” 11 Without such an allegation, the Court said that plaintiff was not induced “to sign something entirely different than what thought was signing.” 12 Takeaway Fraud in the execution generally concerns an attack upon the very existence of a contract from its inception. In effect, the allegation is that from the beginning there was no legal contract. The challenge is focused on the facts occurring at the time of the alleged execution of the agreement, upon which the validity of the agreement depends. For example, the claim would be that the signatory signed an instrument different from that which he was told or understood it to be. 13 In Paredes , plaintiff could not meet this burden because he was relying on the existence of the Contract for his breach of contract and fraud in the inducement claims. Fraud in the execution is different than fraud in the inducement. In the latter, the fraud is based on facts occurring prior or subsequent to the execution of a contract which tend to demonstrate that an agreement, valid on its face and properly executed, is to be limited or avoided. In Paredes , the Court affirmed the denial of the motion to dismiss the fraud in the inducement cause of action. 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 article, “Second Department Finds Release Binding Despite Plaintiff’s Claim About Not Understanding The English Language” ( here ), this Blog discussed the principle of impairment ( i.e. , an inability to speak and/or read the English language for one reason or another) in the context of the enforcement of a release.  Fleming v. Ponziani , 24 N.Y.2d 105, 111 (1969); Gilbert v. Rothschild , 280 N.Y. 66, 71-72 (1939). Sorenson v. Bridge Capital Corp. , 52 A.D.3d 265, 266 (1st Dept. 2008), lv. dismissed , 12 N.Y.3d 748 (2009). Anderson v. Dinkes & Schwitzer, P.C. , 150 A.D.3d 805, 806 (2d Dept. 2017). Countrywide Home Loans, Inc. v. Gibson , 157 A.D.3d 853, 856 (2d Dept. 2018); see also Ackerman v. Ackerman , 120 A.D.3d 1279, 1280 (2d Dept. 2014); Dasz, Inc. v. Meritocracy Ventures, Ltd. , 108 A.D.3d 1084, 1084-1085 (4th Dept. 2013); Sorenson , 52 A.D.3d at 266. See also Pimpinello v. Swift & Co. , 253 N.Y. 159, 163 (1930) (holding, “ f the signer is illiterate, or blind, or ignorant of the alien language of the writing, and the contents thereof are misread or misrepresented to him by the other party, or even by a stranger, unless the signer be negligent, the writing is void”). Sofio v. Hughes , 162 A.D.2d 518, 520 (2d Dept. 1990). Id. Id. (citing, Albany Med. Center Hosp. v. Armlin , 146 A.D.2d 866, 867 (3d Dept. 1989), and Brian Wallach Agency v. Bank of N.Y. , 75 A.D.2d 878, 879 (2d Dept. 1980)). Paredes v. Vorhand , 2022 N.Y. Slip Op. 02732 (4th Dept. Apr. 22, 2022). Slip Op. at *1. Id. Id. (quoting, ABR Wholesalers, Inc. v. King , 172 A.D.3d 1929, 1930 (4th Dept. 2019)).  Under New York law, “ party to a writing is presumed to have read and understood the document which he signed.” Marine Midland Bank v. Idar Gem Distribs. , 133 A.D.2d 525, 526 (4th Dept. 1987).

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).   As specifically relates to this article, RPAPL 1304 sets forth the precise text of the pre-foreclosure notice that must be sent to a borrower, which requires the lender to, inter alia , advise the borrower that “ s of ____, your loan is ____ days and ____ dollars in default.”  Whether an alleged inaccuracy in the dollar amount of the default “filled-in” on the RPAPL 1304 notice sent to the borrower provided a defense to a mortgage foreclosure action, was one of the issues decided on April 20, 2022, by the Appellate Division, Second Department, in Emigrant Bank v. Cohen . The facts of Emigrant are typical.  Emigrant Mortgage Corp. (“EMC”) loaned borrower $2.1 million secured by a mortgage on real property in Brookville, New York.  Emigrant Bank (“Plaintiff”), successor by merger with Emigrant Savings Bank-Long Island (“ESB-LI”), commenced a foreclosure action after borrower’s default.  Borrower answered the complaint and asserted affirmative defenses, including lack of standing and failure to comply with the requirements of RPAPL 1304.  Plaintiff moved for summary judgment on its complaint, to strike borrower’s answer and for an order of reference.  Among other things, Plaintiff annexed to its moving papers a copy of the RPAPL 1304 notice which “identified the default amount as $64,862.12 over 57 days.”  Supreme court granted the motion, finding that Plaintiff had standing to commence the action and that the RPAPL 1304 notices were proper.  Borrower appealed.  The Second Department affirmed supreme court on the RPAPL 1304 issues but reversed on the issue of standing. RPAPL 1304 As to the RPAPL 1304 notice, borrower argued that the proper mailing was not established, and that the inaccuracy of the default amount rendered the notice defective.  The Court disagreed with borrower on both counts.  Issues related to proof of proper mailing and business records are discussed in the Emigrant decision and in numerous prior Blog articles linked herein. On appeal, borrower disputed the accuracy of the amount allegedly due because “a $10,636.81 monthly obligation which is overdue by 57 days cannot possibly amount to $64,862.12.”  Borrower argued, therefore, that “an alleged inaccuracy in the default amount set forth in the plaintiffs RPAPL 1304 notice warrants denial of the plaintiff’s motion for summary judgment, as an inaccuracy represents a lack of strict compliance with the requirements of the statute.”  The Second Department described this issue as one “of first appellate impression,” and promptly rejected same.  In so doing, the Court concluded that “strict compliance with RPAPL 1304 is satisfied so long as the duration and an amount of the default is contained in the notice, and that any continuing dispute over the specific amount is an issue that must await the parties' later litigation.” In reaching its conclusion, the Court noted that while the RPAPL 1304 notice is a “condition precedent to the commencement of” certain mortgage foreclosure litigations, the “notice is not jurisdictional and does not represent the litigation itself.”  (Citations omitted.)  Stated differently, “the notice provides homeowners with required and useful ‘information’ to protect their interests, but is not ‘adjudicative’ in nature since there is no litigation between the parties during its statutory 90-day period.”  The adjudication of the amounts due occurs, as noted by the Court, after the order of reference “when a referee hears and reports on the amount due under the note and when the court thereafter entertains a motion for a judgment of foreclosure and sale using the referee’s sum or other sum in a judgment.”  (Citations omitted.)   The Court acknowledged its prior recognition that “there must be strict compliance with the mandates of RPAPL 1304”, but found that “where RPAPL 1304 requires that homeowner to be informed of the duration and dollar amount of a mortgage-related default, and the creditor provides a notice that includes the number of days of the default, a dollar amount of claimed arrears, and the cure date, the plaintiff has met its burden of demonstrating strict compliance with the statute.”  (Citations omitted.)  Explaining its decision, the Court stated: The language of RPAPL 1304 necessarily requires the creditor to unilaterally determine the default amount that it believes due at that snapshot in time, and advise the homeowner of that sum and of other rights and warnings. No provision of the statute, which has otherwise been written with great legislative detail, care, and precision, requires that there be any breakdown about how the default amount is mathematically computed. The statute does not infuse into the notice procedure an adjudicative mechanism or penalty in the event that the homeowner takes issue with the amount of the identified default sum. The sum, once set forth in the notice, will necessarily change with time. It may be discussed and negotiated with the mortgagee post-notice, consistent with the statute's public policy purpose of helping the mortgagor bridge the communication gap to potentially avoid a foreclosure litigation and retain the home. Here, the plaintiff satisfied the requirements of RPAPL 1304 by advising in the RPAPL 1304 notice of the number of days of the default and the sum claimed then to be due. If this Court were to accept 's argument that an RP APL 1304 notice is rendered defective because of an alleged inaccuracy in the stated default amount, then we would elevate it from a notice statute to one which determines the merits of the dispute and, at the same time, eviscerate the purpose of the provisions of RPAPL 1321. This is not to say that an RPAPL 1304 notice survives scrutiny if it is actually defective on its face.  Where an RPAPL 1304 notice fails to reflect information mandated by the statute, including but not limited to the duration and an amount of the default, the statute will not have been strictly complied with and the notice will not be valid.   Citations omitted. Standing This Blog has also addressed the issue of standing in mortgage foreclosure actions.  See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> .  As previously noted in this Blog’s articles, where “a plaintiff’s standing to commence a foreclosure action is placed in issue by the defendant, it is incumbent upon the plaintiff to prove its standing to be entitled to relief.”  Wells Fargo Bank, N.A. v. Arias , 121 A.D.3d 973, 973-74 (2 nd Dep’t 2014) (citation and internal quotation marks omitted).  A lender establishes standing in a foreclosure action “by demonstrating that, when the action was commenced, it was either the holder or the assignee of the underlying note.”  U.S. Bank National Association v. Seeley , 177 A.D.3d 933, 935 (2 nd Dep’t 2019) (citations omitted).  The Emigrant Court explained that “ tanding in residential mortgage foreclosure actions may be established any of three ways: (1) where the plaintiff is the original lender in direct privity with the defendant; (2) where the plaintiff is a holder in physical possession of the note prior to the commencement of the action, with an allonge or indorsement in blank or special indorsement to the plaintiff; or (3) when the note underlying an action was assigned to the plaintiff prior to the date of commencement of the action.”  (Citations and internal quotation marks omitted.) In Emigrant , the Court found that Plaintiff failed to establish standing because “ he plaintiff is not the original lender he subject note, though attached to the complaint, bears no indorsement.”  Additionally, “the plaintiff failed to produce evidence in admissible form as part of its prima facie case that the note was assigned to it prior to the date of commencement of the action.”  In this regard, the Court stated: while the plaintiff submitted the assignment of the mortgage from the originator, EMC, to its assignee, ESB-LI, "together with the bond or note or obligation described in said mortgage," the record contains no evidence in admissible form that the note was ever further assigned from ESB-LI to the plaintiff  The certificate of merger showing that ESB-LI merged into the plaintiff does not demonstrate that the plaintiff is the holder of the subject note. It was submitted to the Supreme Court for the first time in the plaintiff's reply papers, and therefore, could not be considered as part of the plaintiff's initial prima facie proof of standing. Procedure aside, the certificate of merger and related documents submitted by the plaintiff indicate that ESB-LI transferred its assets to one or more institutions including Emigrant Bank …, which fails to adequately track the subject note and mortgage specifically to the plaintiff. Citations and internal quotation marks omitted, emphasis in original. 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 Under well-settled principles, summary judgment in lieu of complaint is available for an instrument for the payment of money only. In considering such a motion, the courts will look at the four corners of the instrument sued upon in determining whether the instrument qualifies as one for the payment of money only. See,  e.g. ,="3213. See, e.g.," here,  here and  here.=">here."> Most cases under CPLR § 3213 involve promissory notes – the type of negotiable instrument for which there is little or no debate over whether it constitutes an instrument for the payment of money only. 1 Some cases involve commercial instruments, such as a guarantee of debt, which fall within the scope of CPLR § 3213. Other cases involve agreements between the parties. These cases show that an agreement can be an instrument for the payment of money only when it “contains an unconditional promise to pay a sum certain over a stated period of time”. 2   Where, however, the agreement “requires something in addition to defendant’s explicit promise to pay a sum of money, CPLR 3213 is unavailable.” 3 In other words, “a document comes within CPLR 3213 if a prima facie case would be made out by the instrument and a failure to make the payments called for by its terms”. 4 An instrument will “not qualify if outside proof is needed, other than simple proof of nonpayment or a similar de minimis deviation from the face of the document.” 5 In Insitro, Inc. v. Cellaria, Inc. , 2022 N.Y. Slip Op. 30902(U) (Sup. Ct., N.Y. County Mar. 14, 2022) ( here ), the court was asked to consider whether a settlement agreement constituted an instrument for the payment of money only. As discussed below, the court held that it was such an instrument. Plaintiff moved for summary judgment in lieu of complaint based on defendant’s failure to make certain payments under an amended settlement agreement that the parties had executed in settlement of their previous litigation. The amended agreement was executed to set up a payment schedule pursuant to which defendant was to make certain scheduled payments over a truncated period ( i.e. , between August 3, 2021, and December 10, 2021). Defendant agreed that each missed payment would accrue a $500 late fee for each day that defendant failed to make payment. In addition, for each payment due during or after October 2021 that was not timely made, defendant would accrue an additional payment of 25% of the sum of the missed payment. Defendant made the first scheduled payment and defaulted on the others. Plaintiff sought judgment by filing a motion for summary judgment in lieu of complaint. Defendant did not oppose the motion. The court granted the motion, holding that the amended settlement agreement was an instrument for the payment of money only. The court explained that amended settlement agreement contained an unconditional commitment by defendant to make certain installment payments to plaintiff over a certain period of time. As set forth in the affidavit accompanying the motion, defendant failed to make those payments, leading to further charges and late fees. Accordingly, the court directed judgment be entered in plaintiff’s favor. Takeaway CPLR § 3213 provides for accelerated judgment and does so at the outset of the litigation. There are no pleadings, and there is no discovery when a movant seeks summary judgment under CPLR § 3213.  To obtain judgement as a matter of law pursuant to CPLR § 3213, the movant must demonstrate that its “action is based upon an instrument for the payment of money only or upon any judgment.” When the former is involved, the movant must demonstrate that the other party executed an instrument that contains an unequivocal and unconditional promise to pay the party upon demand or at a definite time and the party failed to pay according to the terms of the instrument. In Insitro , the court found that the amended settlement agreement was such an instrument. 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 Weissman v. Sinorm Deli , 88 N.Y.2d 437, 444 (1996) (noting, a negotiable instrument for the payment of money is the “prototypical example of an instrument within the ambit of the statute”). Bloom v. Lugli , 81 A.D.3d 579, 580 (2d Dept. 2011) (citations omitted). Weissman , 88 N.Y.2d at 444. Id. Id.

By: Jeffrey M. Haber Affinity fraud is a type of securities fraud in which the promoter of the fraud preys upon members of an identifiable group, such as a religious or ethnic community, the elderly, or a professional group. The promoter of an affinity fraud frequently is – or pretends to be – a member or a good friend of the group. The promoter often enlists respected members of the community or religious leaders from within the group to disseminate information about the scheme by convincing them that a fraudulent investment is legitimate and in their best interests.  Affinity frauds exploit the trust and friendship that exist in a group of people who have something in common. Because of the tight-knit structure of the group, it can be difficult for regulators or law enforcement officials to detect an affinity fraud. Victims often fail to notify authorities or pursue their legal remedies and instead try to work things out within the group. This is particularly true where the promoters have used respected community or religious leaders to convince others to join the investment. Many affinity frauds involve Ponzi schemes. In a Ponzi scheme, the operator creates an investment program in which “profits” are paid to earlier investors with money taken from later investors. The “profits” are, therefore, fictitious instead of returns on investment. Ultimately, Ponzi schemes collapse under their own weight (because the supply of new money stops), taking investors, many of whom are the later ones in the scheme, down with them. Unfortunately, as is often the case, the promoter of the scheme steals the investor’s money for personal use.  Many Ponzi schemes share common characteristics. These include, among others: high returns with little or no risk –  i.e. , “guaranteed” investment opportunities; overly consistent returns –  i.e. , investments that consistently generate positive returns regardless of overall market conditions; unregistered investments –  i.e. , investments that are not registered with the SEC or with state regulators; unlicensed sellers –  i.e. , investment professionals and firms that are not licensed or registered with state and federal regulators; secretive, complex strategies –  i.e. , investment strategies that are locked away in a black box or are the operator’s “secret sauce”; and difficulty receiving payments –  i.e. , difficulty cashing out or obtaining redemptions. See,  e.g. ,  here,  here and  here.=">here."> Shutting down Ponzi schemes and holding the operators accountable for such frauds is an important part of the enforcement mission of the Securities and Exchange Commission (“SEC” or the “Commission”). Recently, in SEC v. Beasley ( here ), the SEC brought an emergency action against several Las Vegas-area individuals and companies behind an alleged $450 million dollar Ponzi scheme involving purported personal injury settlements. As discussed below, the SEC charged certain defendants with violations of the antifraud provisions of the federal securities laws , certain individual defendants with acting as unregistered brokers, and all defendants with engaging in an unregistered securities offering.  The SEC announced the action on April 15, 2021 ( here ). According to the SEC, Matthew Beasley, an attorney, and Jeffrey Judd and Christopher Humphries falsely told hundreds of investors, including many in their church community, that they would earn 12.5 percent quarterly returns by making purportedly risk-free investments in J&J Consulting Services, Inc. (a Nevada corporation), J&J Consulting Services, Inc. (an Alaska corporation), and J and J Purchasing LLC, companies that Judd allegedly controlled. The SEC claimed that Beasley and Judd created a litigation financing business to supposedly advance funds to tort plaintiffs who had reached settlements with insurance companies. According to the SEC, none of the $449 million raised from investors was used for this purpose. The alleged perpetrators instead used investor money to purchase luxury homes, cars, boats, and a private jet for themselves and paid fictitious returns to keep the Ponzi scheme going.  According to the SEC, on March 3, 2022, Beasley confessed to an FBI negotiator that the litigation funding business was a Ponzi scheme. E.g.,="(E.g.," here=">here" and="and" >here.)=">here.)" As="As" reported="reported" by="by" Bloomberg,="Bloomberg," “When="“When" arrived="arrived" at="at" Beasley="Beasley" brandished="brandished" pistol="pistol" shot="shot" him="him" twice.”="twice.”" Thereafter,="Thereafter," despite="despite" his="his" injuries,="injuries," “locked="“locked" himself="himself" inside="inside" home="home" for="for" nearly="nearly" four="four" hours”="hours”" “repeatedly="“repeatedly" confessed”="confessed”" an="an" negotiator="negotiator" that="that" so-called="so-called" investments="investments" were="were" part="part" Ponzi="Ponzi" scheme.="scheme."> Commenting on the action, Tanya Beard, Acting Director of the SEC’s Salt Lake Regional Office, said the following: “As alleged in our complaint, Beasley, Judd, and others enriched themselves through lies and deception, using their religious and community networks to fleece investors out of hundreds of millions of dollars after promising them a nearly 50 percent annual increase on their initial investment”.  The SEC filed its complaint ( here ) in the United States District Court for the District of Nevada. The SEC sought and obtained an asset freeze against Beasley and the other defendants to prevent any further dissipation of investor funds. The SEC is seeking permanent injunctions and disgorgement of ill-gotten gains plus interest and penalties. Takeaway Shutting down Ponzi schemes and holding the operators accountable for such frauds is an important part of the SEC’s enforcement mission. Ponzi schemes are notorious for promising guaranteed returns with little or no risk of loss. As alleged in Beasley , no risk, no loss investing is exactly what defendants promised.  As also alleged in Beasley , Ponzi scheme operators perpetrate their fraud on communities in which they are a part of. For this reason, many Ponzi schemes involve an affinity fraud. The SEC has a long history of commencing enforcement proceedings against affinity fraud promoters. In this regard, the SEC has investigated and taken quick action against affinity frauds that have targeted a wide spectrum of groups. here.=">here."> Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger Personal guaranties are contracts of suretyship pursuant to which “one party as surety binds himself to the second party as creditor to pay a debt contracted by a third party either immediately upon default of the third party or after attempts to effect collection from the third party have failed.”  General Phoenix Corp. v. Cabot , 300 N.Y. 87, 92 (1949).  As to when the surety’s obligation arises: hether a surety is a guarantor of payment or a guarantor of collection depends upon the intention of the parties as expressed in the surety contract. If he binds himself to pay immediately upon default of the debtor, he becomes a guarantor of payment; if he binds himself to pay only after all attempts to obtain payment from the debtor have failed, he becomes a guarantor of collection. Federal Deposit Ins. Corp. v. Schwartz , 78 A.D.2d 867 (2 nd Dep’t 1980) ( quoting General Phoenix, supra , at 92). Lenders and landlords, among others, typically request personal guarantees as a form of security in a host of commercial and personal transactions, such as bank loans and leases.  In many such instances, the guarantors are “private” or uncompensated.  For example, a loan or lease may be guaranteed by a principal of a business borrower or commercial tenant and a personal loan or residential lease may be guaranteed by a parent.   Traditionally, guarantees have been “interpreted in the strictest manner guarantor’s obligation cannot be altered without its consent; if the original note is modified without its consent, a guarantor is relieved of its obligation.”  White Rose Food v. Saleh , 99 N.Y.2d 589, 591 (2003) (citations omitted); see also Lo-Ho LLC v. Batista , 62 A.D.3d 558 (1 st Dep’t 2009) (holding same in the context of a “private guarantor” under a commercial lease).  “ Strictissimi juris, ” or the strict construction of a surety obligation, has traditionally been applied in New York, and continues as to uncompensated sureties, but is not so rigidly applied in the context of compensated sureties.  In this regard, the Court of Appeals has stated that: Though it was the early rule in New York that a surety obligation is strictissimi juris, and the surety is discharged by any alteration of the contract whether material or not, and whether it is or is not to the surety’s injury, we have declined to apply the rule to compensated sureties in the context of construction contracts (… see also 23 Lord, Williston on Contracts § 61:5 <4th ed.> <“(t)he corporate compensated surety is not favored with the solicitude shown the private, uncompensated surety”> ). In such a case, discharging the surety is inappropriate where the purported alteration cannot be said to affect the surety adversely or to have any effect whatever upon the contract or the defendant’s obligation. It is incumbent on the surety seeking to be discharged to demonstrate that an obligee’s act has so prejudiced it that its obligation is impaired. Mount Vernon City School Dist. V. Nova Cas. Co . , 19 N.Y.3d 28, 36 (2012) (some citations, internal quotation marks, ellipses and internal brackets omitted). On April 12, 2022, the Appellate Division, First Department, decided Paganini v. 40 West 127 th Street, LLC , and addressed the principles discussed herein.  The plaintiff in Paganini brought an action against her residential landlord seeking, inter alia , a declaration that the premises she occupied was subject to New York’s rent stabilization laws.    Landlord commenced a third-party action against guarantors of tenants’ obligations under the lease.  Landlord asserted that “the guaranties apply because they provided they would ‘remain and continue in full force and effect as to any renewal, change or extension of the Lease’ and the guaranties ‘will not be affected by any change in the Lease, whatsoever’ even if the guarantors were not parties to these changes.”  Supreme court granted guarantors’ motion to dismiss the third-party complaint and landlord appealed. The First Department unanimously affirmed the dismissal and stated:  … because a guaranty must be construed strictly by its terms, a guarantor's obligations under the lease, and all extensions or renewals simply means a guarantor is responsible for the tenants' obligations during the initial term of the lease or during the term of the lease as expressly extended or renewed. In this case, no express extension or renewal of the original lease ever took place. In fact, there was no option to renew or extend included in the December 2018 lease. The 2018 lease therefore effectively expired on August 31, 2019. Moreover, the subsequent two new leases gave no indication that they were "renewal" leases, and the 2020 lease added a new provision relating to early termination, under which maintains it is entitled to damages under the guaranties. Under the circumstances, interpreting the guaranties in the strictest manner, we agree with the trial court that the lease signed in 2020 was not an extension of the 2018 lease that would permit to recover from … guarantors. 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 Mandatory arbitration has been around for a long time. It is a mechanism used by, among others, businesses to require consumers to arbitrate their disputes rather than litigate their claims in a court of law. Although in theory a consumer can opt-out of the arbitration requirement, in reality to do so would mean that he or she would not obtain the product or service. For example, a person cannot buy something online, subscribe to a service, or join a club or organization without agreeing to the provider’s “terms of service” – terms that typically include mandatory arbitration requirements or other conditions precedent to a claim. here.=">here."> A mandatory arbitration clause, much like any negotiated arbitration provision, typically specifies the arbitration provider (such as, JAMS or the AAA), the location for the arbitration, and the rules that will be applied in arbitration (such as the Commercial Rules of the AAA). In addition, as seen more recently, a mandatory arbitration clause will prohibit the individual from bringing his/her claim as a class action.  The use of mandatory arbitration agreements can be traced to the U.S. Supreme Court’s endorsement of arbitration and its interpretation of the Federal Arbitration Act (“FAA”). For example, in AT&T Mobility v. Concepcion , the Court held, in a 5-4 ruling, that corporations could ban individuals from enforcing their rights through a class action even when the individual’s claims were too small and more suitable for class treatment. 1 In Epic Systems Corp. v. Lewis , a majority of the Court (again, in a 5-4 decision) held that the FAA required the courts “to enforce arbitration agreements according to their terms” and that as such employers could require employees to submit all work-related disputes to individual arbitration, as opposed to class or collective litigation. 2 In Lobel v. CCAP Auto Lease, Ltd. , a court in the commercial division of the New York Supreme Court in Westchester County dismissed a consumer class action on the grounds that the arbitration clause at issue required individual arbitration, notwithstanding the prohibition of mandatory arbitration under GBL § 399-c. Lobel v. CCAP Auto Lease, Ltd. , 2022 N.Y. Slip Op. 50256(U) (Sup. Ct., Westchester County Apr. 8, 2022) ( here ). As discussed below, both New York state and federal courts have held that the FAA preempts GBL § 399-c. The Primary Principles at Issue in Lobel Federal law strongly favors the enforcement of arbitration agreements. The U.S. Supreme Court has described the FAA as being “designed to promote arbitration,” “embod national policy favoring arbitration,” and reflecting “a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.” 3 As with the FAA, New York also has a “long and strong public policy” favoring the enforcement of arbitration agreements. 4 The FAA provides that agreements to arbitrate are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 5 When an agreement to arbitrate falls within the scope of the FAA, federal law, not state law, “governs issue” of arbitrability.” 6 This is critical when, as in Lobel , a state law ( e.g. , GBL § 399-c) is inconsistent with federal law. Under New York law, mandatory arbitration agreements in consumer transactions are prohibited. 7 In that regard, GBL § 399-c provides, in relevant part, that “ o written contract for the sale or purchase of consumer goods … to which a consumer is a party, shall contain a mandatory arbitration clause …. The provisions of a mandatory arbitration clause shall be null and void.” 8 Notwithstanding, both state and federal courts in New York have held that GBL § 399-c is preempted by the FAA. 9 Lobel v. CCAP Auto Lease, Ltd. Plaintiff alleged that on or about July 31, 2018, he entered into a lease agreement (the “Lease”) with Chrysler to lease a 2018 Jeep Grand Cherokee for a 36-month term ending on July 21, 2021. The Lease provided for a total monthly payment of $539.97, which included payment for plaintiff’s proportionate share of the New York State sales tax due thereunder.  On or about June 22, 2021, plaintiff executed a one-month Lease Extension Authorization, which extended the Lease to August 30, 2021. Plaintiff alleged that Chrysler improperly added to the $539.97 monthly payment a charge of $45.22 for New York State sales tax – a tax amount that he had already paid at the outset of the Lease.  On or about August 3, 2021, plaintiff executed a two-month Lease Extension Authorization by which the Lease was further extended to October 30, 2021. Plaintiff alleged that once again Chrysler added to the $539.97 monthly payment an additional monthly charge of $45.22 for New York State sales taxes that had already been paid.  Relevant to the court’s decision, the Lease contained a broad arbitration clause . In pertinent part, the clause provided that “ANY AND ALL CLAIMS BE RESOLVED BY INDIVIDUAL ARBITRATION AND NOT IN COURT” if one of the parties “REQUESTS ARBITRATION.”  The arbitration clause also provided that by signing the Lease, plaintiff would be waiving “ALL RIGHTS TO PROCEED IN A CLASS ACTION OR CLASS ARBITRATION.” Based upon the foregoing allegations, plaintiff asserted claims for unjust enrichment and for violation of GBL § 349. Plaintiff brought the action in his individual capacity and on behalf of similarly situated consumers who: (1) leased motor vehicles from Defendants; (2) “rolled” the sales tax associated with their lease transactions into the monthly lease payments that they made thereafter; (3) extended the vehicles’ lease terms at the end of their respective original terms; and (4) have been charged sales tax in connection with their lease extensions on the same portions of their monthly lease payments which already reflect prior sales tax that had been charged, such that they paid a purported “tax upon a tax”. Defendants moved to compel a non-class arbitration pursuant to CPLR § 7503(a).  Defendants argued that the FAA applied and that under the FAA the arbitration clause in the Lease was valid, irrevocable, and enforceable. Since the FAA governed the issue, defendants claimed that the FAA pre-empted any state law provision, such as GBL § 399-c, that was inconsistent with the agreement’s enforceability.  Defendants also claimed that plaintiff’s two causes of action fell within the scope of the arbitration, since the sales tax charged under the Lease arose out of or was related to the Lease. Defendants further argued that, as a matter of contract interpretation, plaintiff was prohibited from pursuing class-wide arbitration as the arbitration clause unambiguously provided that “any and all claims be resolved by individual arbitration,” and that plaintiff “waive all rights to proceed in a class action or class arbitration”.  In opposition, plaintiff argued that sales taxes, and a vendor’s duty to collect such taxes, arise out of New York State tax statutes, and not private contracts. As such, the FAA did not apply because the dispute involved intrastate commerce. And, because only intrastate activity was at issue, the FAA did not preempt New York law, and the Lease’s arbitration provision was null and void pursuant to GBL § 399-c. Plaintiff further argued that defendants’ motion should be denied because they did not meet their burden of proving a clear and unequivocal agreement to arbitrate claims for the imposition of an unauthorized “tax upon a tax”. Plaintiff maintained that defendants did not show that plaintiff’s claims fell within the scope of the Lease because they did not arise out of or relate to the “Vehicle, the Lease” or “any claim based on or arising from an alleged tort”.  The motion court granted the motion. As an initial matter, the court found that plaintiff failed to avail himself of the opt-out opportunity allowed under the Lease: “It is … undisputed that notwithstanding the provision in of the Lease that expressly stated Plaintiff’s ‘right to opt out of arbitration . . . within 30 days after execution of the Lease,’ Plaintiff never notified Defendants that he was exercising his right to opt out of arbitration, neither during the 30-day opt out period or at any time thereafter.” Turning to the question of whether federal or state law applied, the court concluded that the FAA governed the dispute. The court explained that plaintiff, a New York resident, had acknowledged in the complaint that he obtained lease financing from a Delaware corporation and that defendants actively participated in interstate commerce by providing financing for automobile dealers and consumers throughout the United States. Such allegations, concluded the court, were sufficient to show the existence of interstate commerce. Since the FAA applied, the court held that it pre-empted application of GBL § 399-c. Next, the court held that the arbitration clause in the Lease was valid and enforceable. Looking at the language of the clause, the court found it to be “unambiguous” and “broad” such that any reasonable person would understand that they agreed to binding arbitration over any claim, dispute or controversy.  The court also held that whether the dispute should be arbitrated was for the arbitrator to decide. The court explained that since the arbitration clause incorporated the rules of the AAA, it was for the arbitrator to determine issues of arbitrability. Under Rule 9 of the Consumer Arbitration Rules and Mediation Procedures of the AAA, noted the court, “ he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.”   here.=">here."> The court noted that even if the parties did not incorporate the rules of the AAA, and the court was required to decide the issue of arbitrability, it would compel arbitration: “it is equally clear that the two related causes of action in the Complaint are entirely grounded in allegations concerning the sales tax charged under the Lease, and thus ‘arise out of’ the Lease.” The court rejected plaintiff’s contention that because the complaint focused on the collection of New York State sales taxes, the two causes of action did not “aris out of or relate[] to the Vehicle th Lease”. “A plain reading of the Complaint,” said the court, “reflects that its two related causes of action challenge the terms and conditions of the Lease, namely what amount of sales tax, if any, should be assessed against Plaintiff and others who have extended their respective leases, and thus those claims fall within the scope of the Lease’s broad arbitration clause.”   As a final matter, the court rejected plaintiff’s argument that the non-signatory defendants should be compelled to defend themselves in court. The court held that “ efendants are entitled to enforce of the Lease pursuant to the doctrine of equitable estoppel.” Under New York law, courts will “estop a signatory from avoiding arbitration with a nonsignatory” where “the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed”. In other words, said the court, “Plaintiff cannot have it both ways such that he cannot, on the one hand, seek to hold the nonsignatory liable pursuant to duties imposed by the agreement, which contains the arbitration provision, but, on the other hand, deny the arbitration’s applicability because the defendant is a nonsignatory’”. (Citations and internal quotation marks omitted).  here,=">here," and="and" >here.=">here."> Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. References 563 U.S. 333 (2011). 138 S. Ct. 1612 (2018). AT&T , 563 U.S. at 345-46 (citations omitted). E.g. , American Intl. Specialty Lines Ins. Co. v. Allied Capital Corp. , 35 N.Y.3d 64, 70 (2020). 9 U.S.C. § 2. Blimpie Intl., Inc. v. D’Elia , 277 A.D.2d 69, 70 (1st Dept. 2000) (quoting, Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24 (1983)). See also N.J.R. Assoc., L.P. v. Tausend , 19 N.Y.3d 597, 601-02 (2012). GBL § 399-c. GBL § 399-c(2). See , e.g. , Marino v. Salzman , 51 Misc. 3d 131 , 2016 N.Y. Slip Op. 50410 (App. Term, 2d Dept., 9th & 10th Jud Dists. 2016); Andersen v. Walmart Stores, Inc. , 2017 WL 661188, at *8 (W.D.N.Y. 2017).

By: Jeffrey M. Haber Over the years, this Blog has examined numerous cases (indeed, too many to link to) in which the plaintiff claims to have been fraudulently induced to enter into a contract with the defendant. Most of the cases were dismissed because the plaintiff failed to allege a misrepresentation of present fact, as opposed to a misrepresentation of future intent to perform under the contract. Today, we examine, International Business Machines Corp. v. GlobalFoundries U.S. Inc. , 2022 N.Y. Slip Op. 02341 (1st Dept. Apr. 7, 2022) ( here ), a case in which the plaintiff successfully alleged a claim of fraudulent inducement in the context of a breach of contract case. From 2013 to June 2015, International Business Machines Corporation (“IBM”) and GlobalFoundries U.S. Inc. (“GlobalFoundries”) engaged in discussions concerning a collaborative venture whereby IBM would transfer its microelectronics business, including technology, engineers, and employees, to GlobalFoundries, along with $1.5 billion, and GlobalFoundries would develop and manufacture IBM’s high performance semiconductor chips (“HP chips”) used in high performance computer servers and mainframes. On July 1, 2015, IBM and GlobalFoundries entered into numerous agreements to consummate the transaction. IBM paid $750 million to GlobalFoundries in connection therewith.  Within three months, GlobalFoundries notified IBM that it did not intend to develop, manufacture, or supply one type of HP chip contemplated by the agreements. The parties continued to work together to address the issue. Notwithstanding, IBM paid GlobalFoundries the second and third monetary installments owed under the contracts in December 2016 and December 2017.  In 2018, GlobalFoundries told IBM it would no longer proceed with developing the replacement type HP chips. IBM claimed that on numerous occasions, and to induce it to enter into the contemplated transaction, GlobalFoundries told IBM that it had made a strategic decision and financial commitment to expand its presence, capacity, and investment in high performance semiconductor technology and chips. IBM alleged that those statements were false when made, and that without those assurances it would not have entered into the various contracts with GlobalFoundries. GlobalFoundries moved to dismiss the fraudulent inducement cause of action. The motion court granted the motion. The Appellate Division, First Department unanimously reversed.  The Court held that IBM stated a cause of action for fraudulent inducement “in alleging that GlobalFoundries knowingly made material misrepresentations of present fact about its business plan and financial commitment that were untrue when made, and that IBM would not have entered into the agreements with GlobalFoundries had it not been for those misrepresentations.” 1 To state a claim for fraudulent inducement, a plaintiff must allege “a knowing misrepresentation of material present fact, which is intended to deceive another party and induce that party to act on it, resulting in injury.” 2 In the context of a contract case, the plaintiff must allege misrepresentations of present fact, not merely misrepresentations of future intent to perform under the contract, in order to present a viable claim. 3 Therefore, “to recover damages for tort in a contract matter, it is necessary that the plaintiff plead and prove a breach of duty distinct from, or in addition to, the breach of contract.” 4 The Court also held that the alleged misrepresentations of present fact were collateral to the agreements and induced IBM to enter into them. 5 A misrepresentation of present fact is collateral to a contract when the representation does not concern the terms of the parties’ agreement or a party’s performance obligations thereunder. 6 Since the alleged misrepresentations were collateral to the parties’ agreements, the Court held that IBM’s fraudulent inducement claim did not duplicate its breach of contract claim. 7 The Court found that “the fraud claim not based upon promised performance of an obligation of GlobalFoundries under the contracts.” 8 Moreover, the Court found that there was no duplication because IBM sought separate and distinct damages for each claim. 9 Fraud damages are meant to redress a different harm than damages for breach of contract. The latter damages are meant to restore the nonbreaching party to as good a position as it would have been in had the contract been performed; the former damages are meant to indemnify losses suffered as a result of the fraud. 10 Thus, where all the damages are remedied through the contract claim, the fraud claim is duplicative and must be dismissed. Finally, the Court held that the merger clauses and disclaimer provisions in the parties’ agreements did not preclude the introduction of parol evidence and, therefore, bar the fraudulent inducement claim.  As to the former, the Court held that the “merger clauses general, vague, and merely omnibus statements that the written instrument embodies the whole agreement between the parties.” Boilerplate merger clauses are given little weight by the courts. Only where the parties specify the agreements and matters being merged or integrated into their agreement will the courts preclude the introduction of parol evidence and bar the fraudulent inducement claim.  As to the latter, the Court held that although the disclaimer provisions were “more specific regarding representation and warranty subject matters covered by each agreement, none of the disclaimers could reasonably be interpreted to address representations about GlobalFoundries’s business plan and strategies.” 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. “Accordingly, only where a written contract contains a specific disclaimer of responsibility for extraneous representations, that is, a provision that the parties are not bound by or relying upon representations or omissions as to the specific matter, is a plaintiff precluded from later claiming fraud on the ground of a prior misrepresentation as to the specific matter.”  Takeaway International Business Machines is a good example of misrepresentations that were deemed to be collateral to the parties’ contract. As noted, the alleged misrepresentations concerned GlobalFoundries’ business plan and financial commitment to the transaction. They did not concern GlobalFoundries’ performance under the various agreements with IBM. Since the alleged misrepresentations were collateral to the various agreements, IBM’s fraud claim did not duplicate its breach of contract claim. Perhaps most interesting about International Business Machines is the Court’s ruling with regard to the merger clauses in the various agreements. In many cases, we have seen the courts apply general, boilerplate merger clauses to bar a plaintiff’s fraudulent inducement claim. The First Department in International Business Machines seems to be reminding the lower courts that New York jurisprudence requires some degree of specificity as to what is being merged into an agreement. Whether this reminder will result in a more consistent application of the specificity requirement, however, remains to be seen.      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 Slip Op. at *1 (citing, Wyle Inc. v. ITT Corp. , 130 A.D.3d 438, 438-439 (1st Dept. 2015)). GoSmile, Inc. v. Levine , 81 A.D.3d 77, 81 (1st Dept. 2010), lv. dismissed , 17 N.Y.3d 782 (2011). Id. Non-Linear Trading Co. v. Braddis Assoc. , 243 A.D.2d 107, 118 (1st Dept. 1998) (internal quotation marks omitted). Slip Op. at *1 (citing, Deerfield Communications Corp. v. Chesebrough-Ponds, Inc. , 68 N.Y.2d 954, 956 (1986), and Laduzinski v. Alvarez & Marsal Taxand LLC , 132 A.D.3d 164, 168-169 (1st Dept. 2015)). New York Univ. v. Continental Ins. Co. , 87 N.Y.2d 308, 316 (1985) (citation omitted); Orix Credit Alliance v. Hable Co. , 256 A.D.2d 114, 115 (1st Dept. 1998). Slip Op. at *1. Id. Id. (citing, Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 67-68 (1st Dept. 2017)). MBIA Ins. Corp. v. Credit Suisse Sec. (USA) LLC , 165 A.D.3d 108, 114 (1st Dept. 2018); Mañas v. VMS Assoc., LLC , 53 A.D.3d 451, 454 (1st Dept. 2008). MBIA , 165 A.D.3d at 114. Slip Op. at *1-*2 (citing, Danann Realty Corp. v. Harris , 5 N.Y.2d 317, 320 (1959), and Laduzinski , 132 A.D.3d at 169). See Hobart v. Schuler , 55 N.Y.2d 1023, 1024 (1982) (deeming merger clause to be insufficient to bar parol evidence of fraudulent misrepresentation where clause stated “all representations, warranties, understandings and agreements between the parties are set forth in the agreement”); LibertyPointe Bank v. 75 E. 125th St., LLC , 95 A.D.3d 706, 706 (1st Dept. 2012) (concluding that merger clause was insufficient to bar claim for fraudulent inducement where it failed to reference particular misrepresentations allegedly made by former president). See also Danann Realty , 5 N.Y.2d at 320-21; Laduzinski , 132 A.D.3d at 169. Slip Op. at *2. Basis Yield Alpha Fund (Master) v. Goldman Sachs Group, Inc. , 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty , 5 N.Y.2d at 323. Id .

By Jonathan H. Freiberger As noted in several of this Blog’s previous articles < here =">here"> , < here =">here"> and < here =">here"> , when an individual or entity borrows money from a lender, the repayment obligation is typically evidenced by a promissory note.  To secure the borrower’s repayment obligations, lenders generally request some form of collateral.  When the collateral is an interest in real property, the borrower generally delivers a mortgage to the lender. RPAPL 1301 , which addresses circumstances under which a lender can commence a mortgage foreclosure action, provides:  1.  Where final judgment for the plaintiff has been rendered in an action to recover any part of the mortgage debt, an action shall not be commenced or maintained to foreclose the mortgage, unless an execution against the property of the defendant has been issued upon the judgment to the sheriff of the county where he resides, if he resides within the state, or if he resides without the state, to the sheriff of the county where the judgment-roll is filed; and has been returned wholly or partly unsatisfied. 2.  The complaint shall state whether any other action has been brought to recover any part of the mortgage debt, and, if so, whether any part has been collected. 3.  While the action is pending or after final judgment for the plaintiff therein, no other action shall be commenced or maintained to recover any part of the mortgage debt, without leave of the court in which the former action was brought. Thus, upon a borrower’s default, among the remedies available to the lender, is an action at law on the promissory note (i.e., sue the borrower for the money owed) or an action in equity to foreclose the mortgage.  A lender cannot simultaneously do both.  Accordingly, if a lender sues on the note and obtains a judgment, it must demonstrate that its efforts to execute on the judgment were unsuccessful before it can commence a foreclosure action.  RPAPL 1301(1); Sabbatini v. Galati , 14 A.D.3d 547 (2 nd Dep’t 2005) (foreclosure action dismissed where lender docketed a money judgment against borrower, but never attempted to execute on the judgment).  Nor can a lender simultaneously maintain multiple foreclosure actions.  RPAPL 1301(3).   RPAPL 1301 “is the embodiment of the equitable principle that once a remedy at law has been resorted to, it must be exercised to exhaustion before a remedy in equity, such as foreclosure, may be sought.  The purpose of RPAPL 1301 is to avoid multiple suits to recover the same mortgage debt and confine the proceedings to collect the mortgage debt to one court and one action.”  Valley Savings Bank v. Rose , 228 A.D.2d 666, 667 (2 nd Dep’t 1996) (citations and internal quotation marks omitted); see also Bank of America v. Ali , 202 A.D.3d 726 (2 nd Dep’t 2022). Courts have held that “RPAPL 1301(3) should be strictly construed since it is in derogation of a plaintiff's common-law right to pursue the alternate remedies of foreclosure and recovery of the mortgage debt at the same time.”  Bank of America , 202 A.D.3d at *3 (citation and internal quotation marks omitted).  However, this “strict” construction rule is not without limits.  For example, the First and Second Departments have held that “although the first actions were not formally discontinued, the effective abandonment of those actions was a ‘de facto discontinuance’ that militated against dismissal of the second action pursuant to RPAPL 1301(3).”  Bank of America , 202 A.D.3d at *3 (emphasis in original) (citing to U.S. Bank N.A. v. Chait , 178 A.D.3d 448 448–449 (1 st Dep’t 2019); U.S. Bank Trust, N.A. v. Humphrey , 173 A.D.3d 811, 812 (2 nd Dep’t 2019); Old Republic Natl. Tit. Ins. Co. v. Conlin , 129 A.D.3d 804, 805 (2 nd Dep’t 2015); see also this Blog < here =">here"> . On April 6, 2022, the Appellate Division, Second Department, decided two cases addressing RPAPL 1301. HSBC Bank USA v. Kading In 2003, defendant in Kading borrowed $600,000 from lender and secured his repayment obligations with a mortgage on real property in Staten Island, New York.  Borrower subsequently executed two loan modifications.  After a default, lender commenced a mortgage foreclosure action in 2010 (the “2010 Action”).  In 2014, borrower executed another loan modification, but defaulted again in January of 2015.  The 2010 Action was marked “DISPOSED – PROCEED BY MOTION.”  In September of 2015, Lender commenced a new foreclosure action in January of 2016 and, in its complaint, alleged that it “intended the 2010 ction to be discontinued.”  In April 2018, supreme court issued an order directing dismissal of the 2010 Action due to inactivity.  Lender moved for summary judgment and borrower cross-moved for summary judgment dismissing the action pursuant to RPAPL 1301(3).  Supreme court granted borrower’s cross-motion and lender’s motion was denied as academic.   On lender’s appeal, the Second Department reversed and stated: Here, the plaintiff failed to seek leave of court to commence this action while the 2010 action was still pending. However, the 2010 action had previously been marked disposed, and no further action occurred in the 2010 action until the administrative dismissal on April 9, 2018. Additionally, by the time the defendants cross-moved in this action for summary judgment dismissing the complaint insofar as asserted against them, the 2010 action had already been dismissed for nearly six months. Thus, the defendants were not prejudiced by having to defend against more than one action, and the plaintiff's failure to strictly comply with RPAPL 1301(3) should have been disregarded as a mere irregularity.  (Citations omitted.) The Kading matter was remitted to supreme court for a determination of lender’s summary judgment motion. U.S. Bank Trust, N.A. v. Biggs   Borrower defaulted in his repayment obligations under a promissory note secured by a mortgage on real property.  Accordingly, in 2016, plaintiff’s assignor (the “Assignor”) commenced an action to foreclose the mortgage.  Assignor moved for summary judgment and borrower cross-moved for summary judgment dismissing the complaint.  Thereafter, Assignor withdrew its motion and moved for leave to discontinue the action, without prejudice, and to cancel the notice of pendency.  In an August 2017 order, supreme court granted Assignor’s motion to voluntarily discontinue and in a September 2017 order supreme court discontinued the action and cancelled the notice of pendency. Both orders were affirmed on borrower’s appeals.  The loan was assigned to plaintiff (the “Assignment”). Two months prior to the order discontinuing the first action, and after the Assignment, plaintiff commenced an action to foreclose the mortgage due to a new default.  Lender moved for summary judgment and borrower cross-moved for summary judgment dismissing the complaint pursuant to RPAPL 1301(3) “arguing that the plaintiff commenced the instant action while the prior action was pending.”  Borrower appealed supreme court’s denial of his cross-motion.  The Second Department affirmed, stating that:  Here, in the order dated September 28, 2017, the Supreme Court, upon granting 's motion, inter alia, for leave to voluntarily discontinue the prior action, discontinued the prior action and cancelled the notice of pendency. Consequently, the prior action was not pending at the time the plaintiff commenced the instant action in July 2018, and thus, the commencement of the instant action was not in violation of RPAPL 1301(3). 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 prior articles, we examined the motion for summary judgment in lieu of complaint under CPLR § 3213. See , e.g. , here and here . As explained below, summary judgment in lieu of complaint is available for an instrument for the payment of money only.  Today, we examine Sanghvi Diamonds LLC v. Agadjani , 2022 N.Y. Slip Op. 30738(U) (Sup. Ct., N.Y. County Mar. 8, 2022) ( here ), and Deutsche Bank Luxembourg S.A. v. Lehner , 2022 N.Y. Slip Op. 30739(U) (Sup. Ct., N.Y. County Mar. 8, 2022) ( here ). Both cases involved the guarantee of a debt. Only one was found to be an instrument for the payment of money only. CPLR § 3213: A Primer Under CPLR § 3213, a motion for summary judgment in lieu of complaint may be served by a plaintiff “when an action is based upon an instrument for the payment of money only.” As noted by the Court of Appeals, this requirement is a “stringent” one. 1 “CPLR 3213 is generally used to enforce ‘some variety of commercial paper in which the party to be charged has formally and explicitly acknowledged an indebtedness,’ so that a ‘prima facie case would be made out by the instrument and a failure to make the payments called for by its terms.’” 2 Accordingly, to prevail on a motion for summary judgment in lieu of complaint, the plaintiff must provide proof of a written agreement for money only, and the defendant’s failure to pay in accordance with its terms. 3 “The prototypical example of an instrument within the ambit of is of course a negotiable instrument for the payment of money – an unconditional promise to pay a sum certain, signed by the maker and due on demand or at a definite time.” 4 “An unconditional guaranty is an instrument for the payment of money only within the meaning of CPLR 3213.” 5 “CPLR 3213 is available ‘where a right to payment can be ascertained from the face of a document.’” 6 It “is not available where there are other issues and considerations presented by the writing,” for example “if the liabilities and obligations can only be ascertained by resort to evidence outside the instrument, or if more than simple proof of nonpayment or a de minimis deviation from the face of the document is involved.” 7 To demonstrate entitlement to summary judgment in lieu of complaint based on a personal guaranty, the plaintiff must show: (1) the existence of a guaranty, (2) the underlying debt, and (3) the guarantor’s failure to perform under the guaranty. 8 Once the plaintiff has done so, “the burden shifts to the defendant to establish, by admissible evidence, the existence of a triable issue with respect to a bona fide defense.” 9 Sanghvi Diamonds LLC v. Agadjani Sanghvi Diamonds involved a business arrangement with TraxNYC whereby Sanghvi Diamonds agreed to sell diamonds to TraxNYC on a periodic basis. To secure the parties’ business arrangement, the founder and president of TraxNYC executed an unconditional personal guarantee.  The parties’ arrangement was accomplished using a three-step process. The first step involved a request for a specific quantity and quality of diamonds for inspection and potential purchase. The second step involved the delivery of the requested diamonds. The delivery, inspection, and acceptance of diamonds by TraxNYC would be memorialized in a series of memoranda bearing sequence numbers that set forth the diamonds that were kept by TraxNYC and the diamonds, if any, that were returned to Sanghvi Diamonds. The third step involved invoicing the transaction.  According to Sanghvi Diamonds, TraxNYC never objected to, or otherwise contested, the invoices issued to it by Sanghvi Diamonds. Nor did TraxNYC return any of the diamonds that it received from Sanghvi Diamonds. Shortly after the parties’ business arrangement began, however, TraxNYC fell behind on its payment obligations and, eventually, stopped making payments on the invoices. As a result, Sanghvi Diamonds declined to provide any additional diamonds to TraxNYC and undertook to obtain full payment from TraxNYC for the diamonds it previously accepted and maintained.  Following multiple attempts to collect the money it was owed, Sanghvi Diamonds sent a formal payment demand to TraxNYC for the full amount of the then unpaid invoices. In response, TraxNYC made an initial installment payment. Thereafter, TraxNYC made six additional monthly installment payments. Beginning in February 2021, however, TraxNYC stopped remitting monthly installment payments.  Plaintiff moved for summary judgment in lieu of complaint under CPLR § 3213 against the guarantor. The motion court denied the motion. The motion court held that the amount of the underlying debt could not be established without resorting to evidence outside of the guaranty and the underlying documentation. 10 The court explained that “on its face” the guaranty did “not establish the amount of Defendant’s indebtedness” and did not “refer to any underlying agreement that would conclusively establish Defendant’s – or TraxNYC’s – obligations to Plaintiff.” 11 The court rejected plaintiff’s attempt “to establish the amount due under the Guaranty by submitting approximately 1,000 pages of ‘Memorandums’ and ‘Invoices’ …, along with some evidence about the parties ‘course of dealing.’” 12 The court explained that the memoranda (which it found to be consignment agreements) 13 did “not set out terms for payment, or even for sale.” 14 In short, the memoranda were “not the kind of simple, direct proof of indebtedness conducive to CPLR 3213 treatment.” 15 As to the invoices, the motion court found numerous issues of fact preventing the grant of summary judgment. For instance, there was a question of fact as to whether defendant received the invoices. 16 And, since the invoices were unsigned, there were questions as whether the invoices were enforceable under the Statute of Frauds and, if so, whether for each transaction an oral or implied contract for sale existed. 17 In short, observed the court, “this is hardly the kind of ‘de minimis’ undertaking for establishing indebtedness envisioned by CPLR 3213.” 18 Deutsche Bank Luxembourg S.A. v Lehner Plaintiff and Borrower entered into a loan agreement on April 24, 2020, which was to mature and be fully due and payable on December 31, 2020 – approximately eight-months from the execution of the loan agreement. The purpose of the loan agreement was to provide Borrower “liquidity for investment purposes with the Lender and general liquidity needs for professional activities.”  On that same date, Guarantor executed a personal guaranty in favor of plaintiff regarding Borrower’s obligations under the loan agreement. Under the guaranty, Guarantor “irrevocably and unconditionally” guaranteed Borrower’s payment and performance obligations, both present and future, and “unconditionally and expressly waive ... all defenses, counterclaims, rights of setoff, any requirement that first proceed against Borrower ....”. Defendant also agreed to pay to plaintiff all damages arising from Borrower’s default, including reasonable attorneys’ fees and disbursements. Borrower drew down the full amount of the loan facility and then defaulted on his payment obligations by failing to repay the principal amount plus interest by December 31, 2020. Plaintiff notified both Borrower and Guarantor of Borrower’s default on January 5, 2021, by sending both a default notice and payment demand letter. Ten days later, Plaintiff sent another default notice and payment demand letter to both parties. On February 2, 2021, Borrower partially satisfied his obligations under the loan agreement. Plaintiff responded by sending both Borrower and Guarantor a letter informing them that Borrower’s payment was only in partial satisfaction of Borrower’s obligations under the loan agreement, and that full payment of the outstanding balance was required. Borrower failed to make any follow-up payments necessary to satisfy the payment obligations under the loan agreement. Thereafter, plaintiff sent a fourth letter solely to Guarantor informing defendant that Borrower had failed to make full payment of the outstanding balance. Plaintiff requested payment in full pursuant to the Guaranty Agreement “without undue delay, but in any event no later than 15 April 2021.” Guarantor did not pay the amounts demanded. Plaintiff brought the action seeking summary judgment in lieu of complaint against Guarantor. In support of the motion, plaintiff submitted copies of the underlying loan agreement, the Guaranty Agreement, and the four letters notifying Guarantor of Borrower’s default and defendant’s obligations as Guarantor.  The motion court granted plaintiff’s motion. The court held that plaintiff had “established a prima facie case for summary judgment” by demonstrating “that Borrower executed and delivered the Loan Agreement, which is an instrument for the payment of money only, and that Defendant executed and delivered the Guaranty Agreement, which obligate Defendant to satisfy Borrower’s default to payment of money only.” 19 The court also found that plaintiff “demonstrated that the Loan Agreement matured no later than December 31, 2020, that Borrower defaulted on his payment obligations under the Loan Agreement, and that Defendant is now liable for Borrower’s default.”  Under the foregoing facts, as well as defendant’s non-opposition to the relief requested, the motion court granted plaintiff’s motion.  Takeaway CPLR § 3213 provides for accelerated judgment and does so at the outset of the litigation. There are no pleadings, and there is no discovery when a movant seeks summary judgment under CPLR § 3213.  As noted, to obtain judgement as a matter of law pursuant to CPLR § 3213, the movant must demonstrate that its “action is based upon an instrument for the payment of money only or upon any judgment.” When the former is involved, the movant must demonstrate that the other party executed an instrument that contains an unequivocal and unconditional promise to pay the party upon demand or at a definite time and the party failed to pay according to the terms of the instrument.  An action on a promissory note is an action for payment of money only. So too is an action on a guarantee, as in Sanghvi Diamonds and Deutsche Bank . The instrument and evidence of failure to make payments in accordance with its terms constitute a prima facie case for summary judgment. Only where a defendant can raise questions of fact that the note or guarantee is not an instrument for the payment of money, as in Sanghvi Diamonds , will the court deny a motion for summary judgment under CPLR § 3213.  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 Weissman v. Sinorm Deli , 88 N.Y.2d 437, 444 (1996). PDL Biopharma, Inc. v. Wohlstadter , 147 A.D.3d 494, 494 (1st Dept. 2017) (quoting, Interman Indus. Prods. v. R.S.M Electron Power , 37 N.Y.2d 151, 154-155 (1975)). SCP (Bermuda) Inc. v. Bermudatel Ltd ., 224 A.D.2d 214, 216 (1st Dept. 1996). Id. at 444. Cooperatieve Centrale Raiffeisen Boerenleenbank, B.A. v. Navarro , 25 N.Y.3d 485, 492 (2015). Boland v. Indah Kiat Fin. (IV) Mauritius Ltd. , 291 A.D.2d 342,343 (1st Dept. 2002) (quoting, Matas v. Alpargatas S.A.I.C. , 274 A.D.2d 327, 328 (1st Dept. 2000)). Kerin v. Kaufman , 296 A.D.2d 336, 337 (1st Dept. 2002) (citing, Weissman , 88 N.Y.2d at 437). See , e.g. , Davimos v. Halle , 35 A.D.3d 270, 272 (1st Dept. 2006). Cutter Bayview Cleaners, Inc. v. Spotless Shirts, Inc. , 57 A.D.3d 708, 710 (2d Dept. 2008) (internal quotations and citations omitted). Slip Op. at *2 (citing, Kerin , 296 A.D.2d at 337).   Id. at *3 (citing, Weissman , 88 N.Y.2d at 444). Id. Id. Id. Id. Id. Id. at *3-*4. Id. at *4. Slip Op. at *5.

By:  Jeffrey M. Haber The Securities and Exchange Commission (“SEC”) has frequently brought enforcement actions against those who trade upon material, non-public information. Many of these actions show that insider trading extends beyond the employees of the subject company. In those enforcement actions, an employee of the company shares material, non-public information with a third party, typically a family member or friend, who thereafter trades on the information or shares the information with another third party (again, typically a family member or friend) who traded on the information. For those who are involved in an insider trading situation, the consequences of an investigation can be devastating. The courts have made clear that non-employees can be criminally liable for using or trading on material, nonpublic information (whether as a tippee or as a trader) just as employees can be criminally liable for disseminating material, non-public information to a third party (if they expect the recipient of the information to trade on it). Thus, it is not uncommon for an employee’s loved ones to be caught up in a situation in which they not only suffer harm to their reputation and standing in the community, but incur economic loss and perhaps serve some jail time. So, what is insider trading? Insider trading generally refers to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information. An insider can include officers, directors, major stockholders, and employees of an entity whose securities are publicly traded. In general, an insider must not trade for personal gain in the securities of that entity if that person possesses material, nonpublic information about the entity. In addition, an insider who is aware of material, nonpublic information must not disclose such information to family, friends, business or social acquaintances, employees, or independent contractors of the entity (unless such employees or independent contractors have a position within the entity giving them a right and need to know), and other third parties. An insider is responsible for ensuring that his or her family complies with insider trading laws. An insider may make trades in the market or discuss material information only after the material information has been made public. Nonpublic information about a company is information that is not known to the investing public. It may include, among other things, strategic plans; negotiations concerning potential mergers, acquisitions, or dispositions; material new contracts (or the loss of a material contract); financial developments, projections, or prospects; a change in control or a significant change in management; future stock splits, the payment of dividends or changes thereto; and financial results. Information about a company is considered nonpublic until it is transmitted to the public in a manner that is intended to reach the market through recognized channels of distribution and the public has a reasonable opportunity to digest the information. Recognized channels of distribution include, among others, SEC filings (such as annual or interim reports and prospectuses), press releases, and financial news publications, such as The Wall Street Journal. Nonpublic information is considered to be material if it might reasonably be expected to affect the market value of the securities and/or influence investor decisions to buy, sell or hold securities. When in doubt, one should act as though the information is material. After all, it is better to be safe than sorry. In today’s article, we examine SEC v. Sure, et al ., 3:22-cv-01967 (N.D. Cal.). Sure concerns insider trading charges against three software engineers employed at Twilio, Inc., a San Francisco-based cloud computing communications company, and four family members and friends for allegedly generating more than $1 million in collective profits by insider trading ahead of the company’s positive first quarter 2020 earnings announcement on May 6, 2020. According to the SEC’s complaint ( here ), defendants Hari Sure, Lokesh Lagudu, and Chotu Pulagam were software engineers at Twilio. All were friends who had access to various databases relevant to the company’s reporting of revenue. As alleged, around March 2020, defendants learned through the databases that Twilio’s customers had increased their usage of the company’s products and services in response to health measures taken in light of the Covid-19 pandemic and concluded in a joint chat that Twilio’s stock price would “rise for sure.” The SEC alleged that despite receiving a company policy that prohibited them from insider trading, Sure, Lagudu and Chotu Pulagam knowingly tipped off, or used the brokerage accounts of, their family and close friends – Dileep Kamujula, Sai Nekkalapudi, Abhishek Dharmapurikar, and Chetan Pulagam – to trade Twilio options and stock in advance of the company’s May 6, 2020 earnings announcement while in possession of the confidential information concerning customer usage. According to the SEC, the scheme generated more than $1 million in illegal trading profits. “We allege that this insider trading ring took advantage of valuable revenue information related to the pandemic at a San Francisco tech company,” said Monique C. Winkler, Acting Regional Director of the SEC’s San Francisco Regional Office. “We are holding these alleged tippers and tippees accountable for their roles in the scheme.” The SEC filed its complaint in the Northern District of California. Each defendant is charged with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the SEC action, the U.S. Attorney’s Office for the Northern District of California announced criminal charges against Dileep Kamujula ( here ). “The charges in this indictment relate to a scheme to profit on the confidential information of a San Francisco-based public company to gain an illegal edge in the stock market,” said U.S. Attorney Hinds. “This Office will continue to aggressively pursue this type of securities fraud because it threatens the integrity of the markets and hurts everyone who plays by the rules.” “Insider trading is not a game - it’s a federal crime,” said Acting Special Agent in Charge Stone. “This investigation should be a forceful disincentive for those tempted to commit any type of securities fraud. The FBI and our partners will take decisive action against those who seek to illegally exploit material nonpublic corporate information for their own gain.” The SEC’s press release announcing the enforcement action can be found here . _______________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.