By Jonathan H. Freiberger A commercial lease can be a valuable asset for a business.  Accordingly, a tenant must be mindful of its rights in the face of a default/cure notice from a landlord.  Generally, a tenant that wants to retain its lease and disputes a curable default, or cannot remedy a curable default within the contractual cure period, should consider obtaining a Yellowstone injunction.  Yellowstone="Yellowstone" injunctions="injunctions" here,=">here," and="and" >here.=">here."> The “purpose of a Yellowstone injunction is to allow a tenant confronted by a threat of termination of the lease to obtain a stay tolling the running of the cure period so that, after a determination of the merits, the tenant may cure the defect and avoid a forfeiture of the leasehold.”  Empire State Bldg. Assocs. V. Trump Empire State Partners , 245 A.D.2d 225, 227 (1 st Dep’t 1997) (citations omitted).  “In order to obtain a Yellowstone injunction, the commercial tenant must demonstrate that: (1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises.” Id. , at 227-28 (citations omitted). Yellowstone injunctions got their name from First National Stores, Inc. v. Yellowstone Shopping Center, Inc. , 21 N.Y.2d 630 (1968).  The landlord in Yellowstone was ordered by the fire department to install sprinklers in tenant’s space but there was a disagreement as to whether under the lease landlord or tenant was responsible for same.  After unsuccessfully obtaining compliance from tenant, landlord sent a default notice with a ten-day notice to cure.  The tenant did not cure and, instead, commenced a declaratory judgment action to determine responsibility for the installation of the sprinklers.  Tenant also brought an order to show cause for a preliminary injunction, without seeking a stay, that was returnable after the expiration of the cure period.  Before the return date of the OSC, and after the expiration of the cure period, the landlord terminated the lease. The Second Department in Yellowstone determined that tenant was responsible to install the sprinklers, but that the lease should not have been terminated because of tenant’s good faith in bringing the declaratory judgment action.  The Court of Appeals reversed, holding that once tenant’s leasehold interest was terminated, it could not be revived.  The tenant should have obtained a temporary restraining order to “preserve[] the status quo” prior to the end of the cure period – absent which, the Court was powerless to revive the lease post-termination. Yellowstone , 21 N.Y.2d at 637. On February 7, 2023, the First Department, in Elite Wine & Spirits LLC v. Michelangelo Preservation LLC , affirmed supreme court’s grant of a Yellowstone injunction to plaintiff, tenant.  According to the Court, the “issue elite> elite> is whether the record supports Supreme Court’s finding that tenant engaged in good-faith efforts to remedy the defaults alleged by defendant-landlord, so as to support application of the extended cure period provided for in the subject lease.”  The Court agreed with supreme court and affirmed its “exercise[] discretion in granting tenant’s Yellowstone application. The landlord in Elite issued a 20-day notice to cure as to nine alleged defaults – seven of which were resolved. Tenant disputed the remaining two – a cracked sidewalk and an entrance step in violation of the Americans with Disabilities Act (the “ADA”).  Thereafter, landlord issued a second notice of default describing the crack and ADA issues “in greater detail” and adding that the sidewalk had been raised in a dangerous manner and, accordingly, a slab had to be removed and replaced.  In response, tenant advised that: the crack had been repaired; the raised sidewalk was caused by Con Edison (who should fix same); and, as to the ADA issue, there was insufficient room to install a permanent ramp because Con Edison equipment was in the way so instead, it “acquired a custom-made ‘removable ADA ramp,’ and placed a ‘notice on the window advising patrons of the availability of’ the ramp.” In response, landlord issued a third and “final notice of default” claiming that the crack repair was improper, the raised slab was tenant’s responsibility notwithstanding its potential claim against Con Edison and the movable ramp was not ADA compliant.  The final notice further stated that tenant had previously received the "required" 20-day period to cure alleged defaults as provided under the lease. Landlord nonetheless expressly gave tenant an additional 10 days to cure the alleged defaults.”  The purported 10-day cure period passed, and landlord did nothing for two and one-half months at which time a “Notice of Cancellation” was issued due to the alleged failure to cure the crack, slab and ADA issues and advising that the lease would be cancelled in 10 days. Prior to the termination date, tenant commenced an action seeking declaratory relief and in which it sought, by order to show cause, a Yellowstone injunction staying the cancellation of the lease.  Hearings were held, after which supreme court issued a preliminary injunction finding that “tenant timely addressed all nine defaults alleged in the first notice, immediately remedying seven. The court stated that in the second notice, landlord clarified the nature of the alleged defaults on the remaining sidewalk and step issues. By April 17, 2019, tenant attempted to cure by constructing a removable ramp and filling in a sidewalk crack. The court credited tenant's explanation that it did not immediately repair the raised slab, believing that this was the responsibility of Con Edison.”  Supreme court further noted that tenant "was consistently responsive to Landlord's requests and made good faith efforts to comply with same that the lease itself provides for an indefinite period to cure where tenant is making good faith efforts to remedy the default….”  Supreme court, therefore, “held that tenant satisfied the requirements for a Yellowstone injunction.” In affirming, the First Department stated that: The lease provides an indefinite cure period where the alleged default cannot reasonably be remedied within the base 20-day cure period and tenant has demonstrated a good faith effort to remedy the default. Supreme Court found, after holding a three-day hearing, that issues of fact exist as to the nature of the alleged defaults and the effectiveness of tenant's efforts to remedy them. These open questions include the repair of the raised slab and the feasibility of construction of a permanent ramp, as well as the suitability of the removable ramp to alternatively satisfy ADA requirements. While landlord disputes the effectiveness of tenant's efforts, this merely generates issues of fact that Supreme Court properly declined to resolve within the context of the Yellowstone application.  The Court also rejected landlord’s claim that tenant’s Yellowstone application was outside 20-day cure period of the original notice because “ andlord's argument ignores the lease's provision for an extended cure period, and landlord itself extended the cure periods in its successive and distinct default notices.”  (Citations omitted.) Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By:  Jeffrey M. Haber Previously, this Blog has examined the doctrine of res judicata ( here and  here ). Under the doctrine, a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter. The doctrine applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation. The rationale underlying the doctrine is that a party who has been given a full and fair opportunity to litigate a claim should not be allowed to do so again. 1 New York has adopted a transactional approach in deciding res judicata issues. 2 Under this approach, once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy. 3 “Res judicata is designed to provide finality in the resolution of disputes to assure that parties may not be vexed by further litigation.” 4 “The policy against relitigation of adjudicated disputes is strong enough generally to bar a second action even where further investigation of the law or facts indicates that the controversy has been erroneously decided, whether due to oversight by the parties or error by the courts.” 5 As the Court of Appeals noted, “ onsiderations of judicial economy as well as fairness to the parties mandate, at some point, an end to litigation.” 6 In Condor Capital Corp. v. CALS Invs., LLC , 2023 N.Y. Slip Op. 00629 (1st Dept. Feb. 7, 2023) ( here ), the Appellate Division, First Department addressed the foregoing issues, finding that there were issues of fact as to whether the earlier filed action was dismissed on the merits.  Condor Capital involved an alleged breach of contract. Plaintiff claimed it suffered damages by reason of Defendants’ breach of the parties’ Portfolio Purchase Agreement (the “Agreement”), wherein Plaintiff sold its loan portfolio to Defendant, CALS Investors, LLC (“CALS”) in November of 2015. The transaction closed in February 2016. In May of 2017, Plaintiff commenced an action against CALS for breach of contract, based on, inter alia , on the improper calculation of certain targets and for inflated servicing fees, and for breach of the implied covenant of good faith and fair dealing based on the inflated servicing fees. Defendant moved to dismiss. The motion court granted the motion by order dated June 7, 2018. On January 2, 2019, Plaintiff commenced an action against CALS, as well as its loan servicer. Plaintiff later amended the complaint on May 30, 2019. Plaintiff asserted causes of action for, inter alia : breach of contract. Defendants moved to dismiss the Amended Complaint.  On March 11, 2020, the motion court granted Defendants’ motion. The dismissal was based upon Plaintiff’s failure to plead a breach of contract cause of action. The motion court also dismissed as duplicative the claims for breach of the implied covenant of good faith and fair dealing and negligence in servicing and administering the loan portfolio. The motion court’s order did not state whether Plaintiff’s claims were dismissed with prejudice, or on the merits. On July 30, 2020, Plaintiff filed a motion for leave to file a Second Amended Complaint in an effort to address the insufficiency of the First Amended Complaint and to incorporate into its pleading the theories that the motion court declined to consider in ruling on Defendants’ motion to dismiss. On February 8, 2021, the motion court denied Plaintiff’s motion because there was no pleading before the court to amend ( i.e. , since the court dismissed the First Amended Complaint, Plaintiff could not amend that pleading). On April 20, 2021, Plaintiff filed a new action against Defendants. The complaint, which largely tracked the proposed Second Amended Complaint that the motion court declined to accept sought $5 million in damages for breach of contract.  CALS moved to dismiss on res judicata grounds. CALS argued, among other things, that the complaint realleged the same claims, allegations and theories that the motion court previously dismissed as insufficient, and simply restyled the previously dismissed negligence claim as a breach of contract claim. Defendant also sought dismissal because even if res judicata did not apply, the allegations based on the indemnification provisions of the Agreement were insufficient to state a claim for breach of contract.  On February 8, 2022, the motion court dismissed the claims as barred by the res judicata doctrine, holding “ his case must be dismissed with prejudice because the Court … already determined that no cause of action lies with respect to damages accruing for mismanagement under the … Agreement”. On Appeal, the First Department reversed. The Court held that “Defendants did not establish that plaintiff’s newly asserted breach of contract claim barred by the doctrine of res judicata following dismissal of plaintiff’s prior action for failure to plead a cause of action”. 7 The Court noted that “ n the prior action, the motion court dismissed the complaint in its entirety, but declined to consider theories raised by plaintiff in opposition to defendants’ motion to dismiss”. 8 “Accordingly,” said the Court, “it not clear that the dismissal of the prior action was on the merits and with prejudice, and that plaintiff … barred from bringing an action asserting the proposed claim based on alleged violation of other contract provisions”. 9 Takeaway When a prior complaint is dismissed on the pleadings for failure to state a cause of action, without any indication that the dismissal is intended to be with prejudice or on the merits, the doctrine of res judicata does not bar the timely commencement of the second action purporting to correct the pleading deficiency. 10 In other words, when, as in Condor Capital , the prior action is dismissed solely for defects in the pleading, the present action is not barred by the doctrine of res judicata. Footnotes S ee O’Connell v. Corcoran , 1 N.Y.3d 179, 184-185 (2003); Gramatan Home Invs. Corp. v. Lopez , 46 N.Y.2d 481, 485 (1979)). Matter of Reilly v. Reid , 45 N.Y.2d 24 (1978). O’Brien v. City of Syracuse , 54 N.Y.2d 353, 357 (1981) (citation omitted). See Matter of Reilly , 45 N.Y.2d at 28 (citations omitted). Id. (citations omitted). Id. Slip Op. at *1 (citations omitted). Id. Id. Komolov v. Segal , 96 A.D.3d 513, 513 (1st Dept. 2012); Hodge v. Hotel Empls. & Rest. Empls. Union Local 100 of AFL-CIO , 269 A.D.2d 330 (1st Dept. 2000). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber We have often written about the SEC’s whistleblower program and, in particular, the success of the program with respect to detecting and preventing violations of the federal securities laws. The success of the program depends, in large part, on the ability of would-be whistleblowers to have the freedom to report wrongdoing without fear of reprisal. Taking steps to impede a departing employee from sharing information with the SEC impairs this free flow of information to the Commission. To ensure the freedom to communicate, the SEC has cracked down on companies that use severance agreements and other types of employment contracts to silence and discourage employees from reporting wrongdoing to the Commission. Seehere, here, here, and here. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) to combat illegal and fraudulent conduct on Wall Street and promote compliance with the federal securities and commodities laws. The Dodd-Frank Act contains whistleblower provisions that authorize the Commission to pay substantial cash rewards to whistleblowers that voluntarily provide the SEC with information about securities fraud and other violations of the securities laws, including the Foreign Corrupt Practices Act. To fulfill the purpose of the Dodd-Frank Act, the Commission adopted Rule 21F-17,1 which provides in relevant part: (a) No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications. Despite being effective for more than 11 years, many companies have ignored the mandate of Rule 21F-17. In this regard, they have used severance agreements and other types of employment contracts to silence and discourage employees from reporting violations of the securities laws to the Commission. That was the case in In the Matter of Activision Blizzard, Inc., Securities Exchange Act of 1934 Release No. 96796 (Feb. 3, 2023) (here). As a regular part of its business, Activision Blizzard, Inc. (“Respondent”), a video game development and publishing company, enters into separation agreements with employees when they end their employment with the company.2 As of 2016, Respondent’s separation agreement included a clause requiring departing employees to notify the company of any requests from an administrative agency in connection with a report or complaint. Specifically, the separation agreement stated, in part: Nothing in this Separation Agreement shall prohibit . . . disclosures that are truthful representations in connection with a report or complaint to an administrative agency (but only if I notify the Company of a disclosure obligation or request within one business day after I learn of it and permit the Company to take all steps it deems to be appropriate to prevent or limit the required disclosure). Between 2016 and 2021, in the ordinary course of Respondent’s business, a significant number of departing employees signed separation agreements that contained the foregoing notification clause. Most, but not all, of the separation agreements executed between 2016 and 2021 also contained an additional clause stating, “Nothing in this Release prevents me from … giving truthful testimony, or truthfully responding to a valid subpoena, or communicating or filing a charge with government or regulatory entities (such as the Equal Employment Opportunity Commission, National Labor Relations Board, Department of Labor, or Securities and Exchange Commission.)” The SEC maintained that, notwithstanding the additional clause, the language found in the separation agreements, requiring Respondent to be notified about the disclosure obligation or request, undermined the purpose of Section 21F and Rule 21F-17(a).3 The SEC noted that it was unaware of any specific instances in which a former employee was prevented from communicating with the SEC’s staff about potential violations of securities laws or in which Respondent took action to enforce the notification clause or otherwise prevented such communications. In early 2022, Respondent revised its separation agreement templates and removed the notification clause. In addition, the SEC charged Respondent with failing to maintain adequate disclosure controls related to complaints of workplace misconduct. Rule 13a-15(a) requires issuers that have a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (“Exchange Act’) to maintain disclosure controls and procedures. Rule 13a-15(e) defines disclosure controls and procedures to be “controls and other procedures … that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.” The rule explains that disclosure controls and procedures include those “designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management … to allow timely decisions regarding required disclosure.” Disclosure controls and procedures “are intended to cover a broader range of information than is covered by an issuer’s internal controls related to financial reporting” and “should capture information that is relevant to an assessment of the need to disclose developments and risks that pertain to the issuer’s businesses.”4 If an Exchange Act registrant fails to implement and maintain disclosure controls and procedures as required, its management may not have adequate information to assess whether the disclosures it makes to investors are fulsome, accurate, and not misleading by omission. Respondent made risk factor disclosures pertaining to its workforce in its annual reports on Form 10-K for the fiscal years ended December 31, 2017 through December 31, 2020. Those risk factor disclosures each included a heading stating, “If we do not continue to attract, retain, and motivate skilled personnel, we will be unable to effectively conduct our business.” Following the heading, the company stated: Our success depends to a significant extent on our ability to identify, attract, hire, retain, motivate, and utilize the abilities of qualified personnel, particularly personnel with the specialized skills needed to create and sell the high-quality, well-received content upon which our business is substantially dependent. Our industry is generally characterized by a high level of employee mobility, competitive compensation programs, and aggressive recruiting among competitors for employees with technical, marketing, sales, engineering, product development, creative, and/or management skills. We may have difficulties in attracting and retaining skilled personnel or may incur significant costs to do so. If we are unable to attract additional qualified employees or retain and utilize the services of key personnel, it could have a negative impact on our business. Additionally, each of the company’s quarterly reports on Form 10-Q filed between May 2018 and August 2021 included the following disclosure: The company cautions that a number of important factors could cause Activision Blizzard, Inc.’s actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to . . . maintenance of relationships with key personnel… including the ability to attract, retain, and develop key personnel and developers that can create high-quality titles, products, and services. Though Respondent disclosed the risk factors described above related to its workforce and how its ability to attract, retain, and motivate skilled personnel might materially impact its business, according to the SEC, Respondent lacked controls and procedures designed to ensure that it captured and assessed – from a disclosure perspective – certain information related to these risk factors. This included lacking controls and procedures among its separate business units designed to collect or analyze employee complaints of workplace misconduct. As a result, said the SEC, complaints related to workplace misconduct were not collected and analyzed for disclosure purposes. Additionally, noted the SEC, Respondent required that individual business unit leaders report certain categories of potentially material information to the company’s Disclosure Committee. However, those categories did not include information relevant to Respondent’s ability to retain employees, such as employee complaints or incidents of workplace misconduct. As a result, concluded the SEC, such information often was not accessible to the company’s management and disclosure personnel, and was not assessed from a disclosure perspective. By lacking sufficient information to understand the volume and substance of employee complaints of workplace misconduct, explained the SEC, Respondent’s management was unable to assess related risks to the company’s business, whether material issues existed that warranted disclosure to investors, or whether the disclosures it made to investors in connection with these risks were fulsome and accurate. Between May 2020 and May 2022, Respondent implemented several company-wide structural changes and policies that enhanced the manner in which employee complaints were required to be documented, maintained, and communicated to the company’s senior management and disclosure personnel. The SEC instituted cease and-desist proceedings against Respondent. Without admitting or denying the SEC’s findings, Respondent agreed to a cease-and-desist order (here) and a penalty of $35 million. Commenting on the order and settlement, Jason Burt, Director of the SEC’s Denver Regional Office, stated: “The SEC’s order finds that Activision Blizzard failed to implement necessary controls to collect and review employee complaints about workplace misconduct, which left it without the means to determine whether larger issues existed that needed to be disclosed to investors.” With regard to the severance agreements, he stated: “Moreover, taking action to impede former employees from communicating directly with the Commission staff about a possible securities law violation is not only bad corporate governance, it is illegal.”A copy of the press release announcing the proceeding and settlement can be found here. Footnotes Rule 21F-17 became effective on August 12, 2011. A separation agreement is a contract between a former employer and employee documenting the rights and responsibilities of both parties incidental to the employee’s departure. Securities Whistleblower Incentives and Protections Adopting Release, Release No. 34-63434 (June 13, 2011). Certification of Disclosure in Companies’ Quarterly & Annual Reports Final Rule Adopting Release, Release No. 33-8124 (Aug. 29, 2002). 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 This Blog frequently addresses issues related to mortgage foreclosure actions, generally, and issues of standing, specifically.  Much of the background of this article was taken from a prior article: “ Appellate Division, Second Department, Validates Mortgage Foreclosure Defendants’ Cries of ‘Leave me Allonge ’”.  As to the issues relating to the standing of a lender to commence a foreclosure action, this Blog has noted that, in general, a foreclosing mortgagee makes out its prima facie case by producing the “mortgage, the unpaid note, and evidence of default.”  Deutsche Bank Nat. Trust Co. v. Abdan , 131 A.D.3d 1001, 1002 (2 nd Dep’t 2015).  When standing is raised as a defense, the lender must also prove its standing to obtain relief from the court.  Nationstar Mortgage, LLC v. LaPorte , 162 A.D.3d 784, 785 (2 nd Dep’t 2018).  The lender in a mortgage foreclosure action establishes its standing by demonstrating that it “is the holder or assignee of the underlying note at the time the action is commenced.”  Nationstar , 162 A.D.3d at 785.  A “holder” is “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.”  N.Y.U.C.C 1-201 <21> ; Deutsche Bank Nat. Trust Co. v. Brewton , 142 A.D.3d at 684 (2 nd Dep’t 2016).  A written assignment of the note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation.  Brewton , 142 A.D.3d at 684 (citation omitted).  The mortgage, because it is merely security for the maker’s obligation to repay the underlying debt, passes with the debt as an inseparable incident when the note is assigned.  Brewton, 142 A.D.3d at 684 (citation omitted) .   Where, however, a note is “neither indorsed in blank nor specifically indorsed” to the person in physical possession of the note, that person cannot be “the lawful holder thereof for purposes of enforcing it.”  McCormack v. Maloney , 160 A.D.3d 1098, 1100 (3 rd Dep’t 2018) (citations omitted).  Therefore, such a person would not, inter alia , have standing to commence a mortgage foreclosure action.  McCormack , 160 A.D.3d at 1100 (citations omitted). Section 3-202 of New York’s Uniform Commercial Code governs the “negotiation” of a negotiable instrument, which is the “transfer of an instrument in such form that the transferee becomes the holder.”  UCC § 3-202(1) .  “If the instrument is payable to order it is negotiated by delivery with any necessary indorsement; if payable to bearer it is negotiated by delivery.” UCC § 3-202(1) .    "Holder status is established where the plaintiff possesses a note that, on its face or by allonge, contains an indorsement in blank or bears a special indorsement payable to the order of the plaintiff.”  Wells Fargo Bank, NA v. Ostiguy , 127 A.D.3d 1375, 1376 (3 rd Dep’t 2015) (citations omitted).  An allonge is an additional piece of paper “so firmly affixed as to become a part thereof.”  NY UCC § 3-202(2) ; U.S. Bank National Assoc. v. Moulton , 179 A.D.3d 734 (2 nd 2020).  An allonge may be needed where “there is insufficient space on the itself for the endorsements; as long as the allonge remains firmly affixed to the note, it becomes part of the note.”  Id. (citation omitted).  In “Leave Me Allonge,” we discussed Moulton , a case analyzing the sufficiency of an endorsement.  Today’s Blog involves US Bank National Ass’n. v. Okoye-Oyibo , decided on February 1, 2023, a case in which, inter alia , the affixation requirement of an allonge was the subject of the decision.  UCC § 3-202(2).   The lender in Okoye-Oyibo commenced a mortgage foreclosure action in which the borrower asserted a lack of standing defense, among others.  Supreme court denied the lender’s motion for, inter alia , summary judgment “on the complaint insofar as asserted against the and dismissing her affirmative defenses and counterclaims.”  Lender appealed.  Among other things, the Second Department modified supreme court’s order by granting lender summary judgment dismissing borrower’s affirmative defenses except for standing and failure to comply with conditions precedent.   As to standing, the Court held that it was not demonstrated by the lender that the allonge in question was “firmly affixed” to the note, and stated: Here, the plaintiff failed to establish, prima facie, the defendant's default or the plaintiff's standing to commence the action. A plaintiff may demonstrate its standing in a foreclosure action through proof that it was in possession of the subject note endorsed in blank, or the subject note and a firmly affixed allonge endorsed in blank, at the time of commencement of the action. Although the plaintiff attached to the complaint copies of the note and a chain of purported allonges ending with an undated purported allonge endorsed in blank, the plaintiff did not demonstrate that the purported allonges, which were on pieces of paper completely separate from the note, were “so firmly affixed thereto as to become a part thereof," as required by UCC 3-202(2) ( see Raymond James Bank, NA v Guzzetti , 202 AD3d <841,> 843 <(2 nd dep’t 2022)> nd dep’t 2022)>; Wells Fargo Bank, N.A. v Maleno-Fowler , 194 AD3d 1094, 1095 <(2 nd dep’t 2014)> nd dep’t 2014)>; Citimortgage, Inc. v Ustick , 188 AD3d 793, 795 <(2 nd dep’t 2020)> nd dep’t 2020)>). None of the pieces of paper in the record comprising the note or the allonges bore any markings of having ever been attached to one another.  In addition, the Okoye-Oyibo Court found that lender failed to prove that it was in possession of the note prior to the commencement of the action and that borrower defaulted.  In support of its motion for summary judgment, the lender relied on an affidavit of a “foreclosure specialist” employed by its servicer in which the affiant “failed to identify the records upon which she relied in making the statements, and the failed to submit copies of the records themselves.”  (Citations and internal quotation marks omitted).  Similarly, the Court found that the lender failed to prove that it complied with the notice requirements of RPAPL 1304 because the affiant failed to attest that she was familiar with the standard office mailing procedures of … the third-party vendor that apparently sent the RPAPL 1304 notices on behalf of the .”  okoye-oyibo court.> okoye-oyibo court.> 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 New York law, a party’s termination of a contract is ineffective when the contract provides for notice and an opportunity to cure, and notice was not provided. 1 As explained by the First Department:  Our case law is clear that a party’s termination is ineffective where the relevant contract provides for a notice to cure and notice is not provided …This approach gives effect to the principle that, generally, where contracting parties agree on a termination procedure, the procedure will be enforced as written…. 2 “There are limited circumstances where despite being contractually required, notice to cure is not necessary, such as where the other party expressly repudiates the contract or abandons performance.” 3 “ otice to cure is not required where the breach by the other party is impossible to cure, or so substantial that it ‘undermines the entire contractual relationship such that it cannot be cured’”. 4 In Hudson Valley Window Cleaning, Inc. v. Rotron Inc. , 2023 N.Y. Slip Op. 00395 (1st Dept. Jan. 31, 2023) ( here ), the foregoing issues were before the Appellate Division, First Department. Hudson Valley involved a rate and service agreement pursuant to which Plaintiff agreed to provide cleaning services at one of Defendant’s facilities (the “Agreement”). The Agreement contained a requested statement of work for janitorial service, which detailed the work to be performed by Plaintiff pursuant to the Agreement (the “SOW”).  The Agreement also contained a notice and cure provision (“Notice and Cure Provision”), which provided, in pertinent part, that Defendant could “terminate the contract with 60 days written notice for nonperformance”. In such event, Defendant was required to “first notify in writing describing the problem” and, “ f after 30 days of the notice, the problem ha not been corrected,” the parties agreed that the Agreement “may be terminated”. According to Defendant, Plaintiff frequently failed to fully perform under the terms of the Agreement. On numerous occasions, Defendant allegedly advised Plaintiff of instances where Plaintiff failed to perform services in accordance with the Agreement. Despite being put on notice of Plaintiff’s poor performance, Plaintiff allegedly continued to provide the same quality of substandard services.  Following a telephone call between the parties during which Plaintiff was put on notice of being terminated, Defendant notified Plaintiff in writing, on July 20, 2021, of its intent to terminate the Agreement. In pertinent part, Defendant advised Plaintiff that its “service falling short of … expectations on all aspects of the SOW” and warned that “ f the service does not improve in its entirety in the next thirty days; our agreement will be considered null and void”. Defendant explained that its letter “shall serve as Notice of Intent to Terminate pursuant to the Agreement”. Plaintiff rejected the termination notice letter. Plaintiff allegedly failed to cure the defects in its service. On August 26, 2021, approximately one week after service had ceased completely, Defendant issued a “Termination Letter”.  On September 10, 2021, Plaintiff commenced the action by filing a summons and complaint (the “Complaint”). On December 9, 2021, Defendant filed a verified answer with affirmative defenses and counterclaims (the “Answer”). On December 29, 2021, Plaintiff filed a reply to counterclaims with affirmative defenses.  On March 9, 2022, Plaintiff filed a motion for summary judgment and to dismiss Defendant’s counterclaims. On July 27, 2022, the motion court denied plaintiff’s motion on the issue of liability on its claims and for summary judgment dismissing Defendant’s counterclaims. The motion court found that the Notice and Cure Provision was ambiguous, and that discovery was required to “give clarity” to the provision. Plaintiff appealed. The First Department modified the motion court’s order to grant plaintiff’s motion to dismiss defendant’s unjust enrichment counterclaim, 5 and otherwise affirmed the order. The Court found that “whether defendant provided the requisite notice to cure and whether plaintiff complied issues of fact”. 6 The Court explained that the July 20 notice of intent letter “was not a ‘positive and unequivocal’ termination of the contract, since it recognized that plaintiff could cure and the contract could continue”. 7 The Court also found issues of fact as to whether (a) “plaintiff previously abandoned performance,” thereby “obviating the need for a notice of termination” 8 and (b) “plaintiff failed to cure, so that defendant then had a contractual right to terminate, but merely provided the erroneous date of termination”. 9 Takeaway In holding that the were issues of fact as to whether the July 20th notice of intent letter was a “positive and unequivocal” termination of the Agreement, the Court relied on Princes Point LLC v. Muss Dev. L.L.C. , 30 N.Y.3d 127, 133 (2017). In Princess Point , the Court of Appeals explained that “the expression of intent not to perform … must be ‘positive and unequivocal.’” In Husdon Valley , as explained by the First Department, the notice of intent letter did not meet this standard because “it recognized that plaintiff could cure and the contract could continue” as if there were no issues. 10 The First Department’s decision is also interesting because of the way it treated the issue of abandonment. “A contract will be treated as abandoned when one party acts in a manner inconsistent with the existence of the contract and the other party acquiesces in that behavior.” 11 In other words, “the refusal of one party to perform his contract amounts to an abandonment of it, leaving the other party to his choice of remedies, but his assent to abandonment dissolves the contract so that he can neither sue for a breach nor compel specific performance.” 12 “To establish abandonment of a contract by conduct, it must be shown that the conduct is mutual, positive, unequivocal, and inconsistent with the intent to be bound”. 13 “Generally, a finding of an abandonment will be based upon clear, affirmative conduct by at least one of the parties that is entirely at odds with the contract.” 14 In Savitsky, the plaintiff, the contract vendee of real property, was said to have evinced an intent to abandon the contract by her failure to take any steps to preserve her rights to purchase the property once she became aware of the owner’s impending sale of the subject property to a third party. Thus, the seller took affirmative steps contrary to the contract, and the purchaser failed to object. 15 In Steven Strong Dev. Corp. v Washington Med. Assoc., 303 A.D.2d 878 (3d Dept. 2003), a real estate developer, years after entering into an agreement to develop real property, conceded, in writing, the failure of the project and affirmatively waived the developer’s fee. Its own action in writing that letter was an affirmative step inconsistent with enforcing its rights under the agreement, therefore constituting an abandonment. In Hudson Valley , the First Department held that there here were issues of fact as to whether Plaintiff took affirmative steps inconsistent with its contract with Defendant. After all, it rejected the notice of intent to terminate and continued to perform under the Agreement. Footnotes E.g. , East Empire Construction, Inc. v. Borough Construction Grp., LLC , 200 A.D.3d 1 (1st Dept. 2021); Kleinberg Electric, Inc. v. E-J Electric Installation Co. , 111 A.D.3d 410 (1st Dept. 2013). East Empire , 200 A.D.3d at 5. Id. at 6 (citations omitted). Id. The Court held that “plaintiff’s motion to dismiss defendant’s counterclaim for unjust enrichment should have been granted, as the services were governed by a contract”. Slip Op. at *2. Unjust enrichment is a quasi-contractual claim that is “imposed by law where there has been no agreement or expression of assent, by word or act, on the part of either party involved. The law creates it . . . to assure a just and equitable result.” Bradkin v Leverton , 26 N.Y.2d 192, 196 (1970). Under New York law, “the existence of a valid and enforceable agreement governing a particular subject matter of the dispute ordinarily precludes recovery in quasi contract for events arising out of the same subject matter”. Clark-Fitzpatrick, Inc. v. Long Island R. Co. , 70 N.Y.2d 382, 388 (1987). Id. at *1. Id. (citing, Princes Point LLC v. Muss Dev. L.L.C. , 30 N.Y.3d 127, 133 (2017)). Id. (citing, 34-06 73, LLC v. Seneca Ins. Co. , 39 N.Y.3d 44, 52 (2022); and Kleinberg Elec. , 111 A.D.3d at 411.), Id. (citing, G.B. Kent & Sons v. Helena Rubinstein, Inc. , 47 N.Y.2d 561, 564-565 (1979); and New Image Constr., Inc. v TDR Enters. Inc. , 74 A.D.3d 680, 681 (1st Dept. 2010)). Id. Savitsky v. Sukenik , 240 A.D.2d 557, 559 (2d Dept. 1997) (quoting, 91 N.Y. Jur.2d, Real Property Sales and Exchanges § 146). Id. EMF Gen. Contr. Corp. v. Bisbee , 6 A.D.3d 45, 49-50 (1st Dept. 2004). Id. Savitsky , 240 A.D.2d at 559. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber Parties to commercial transactions are no doubt familiar with “term sheets”, “letters of intent”, “memoranda of understanding” and “agreements in principle”. As the parties to these documents know, they outline the fundamental terms of the transaction being negotiated. “Term sheets”, “letters of intent”, “memoranda of understanding” and “agreements in principle” may constitute an enforceable agreement if the writing includes all the essential terms of an agreement. 1 This is so even if “the parties intended to negotiate a ‘fuller agreement’”. 2 Thus, if the informal writing contains the necessary elements of an enforceable contract, e.g. , an offer, acceptance, consideration, mutual assent and intent to be bound, courts will enforce the writing as if it was a formal, written agreement. 3 However, a term sheet, letter of intent or a memorandum of understanding will be rendered ineffective where material terms are left for future negotiation, or the writing expressly reserves the right not to be bound until a more formal agreement is signed. 4 In Claim Recovery Group LLC v. Markel Corp. , 2023 N.Y. Slip Op. 00371 (1st Dept. Jan. 26, 2023) ( here ), the Appellate Division, First Department held that the term sheet at issue was enforceable because it contained all the salient terms of the parties’ agreement and was specifically made binding by the very language used therein. In early 2019, defendant Markel Corporation (“Markel”), an insurance conglomerate, was facing millions of dollars in exposure as a result of two wildfires in California. Markel possessed subrogation claims against two utilities, Pacific Gas & Electric Company (“PG&E”) and Southern California Edison, but when PG&E filed for bankruptcy in January 2019, a question arose as to whether Markel would realize the full value of those subrogation claims. To remove the uncertainty and to secure the cash needed for its claims, Markel looked to sell its claims on the secondary market. Fulcrum Credit Partners LLC (“Fulcrum”), assignor and predecessor-in interest to Plaintiff, Claim Recovery Group LLC (“Plaintiff”), approached Markel in late January 2019 about purchasing Markel’s claims. After preliminary discussions and due diligence, Fulcrum decided to make an offer, and sent Markel a term sheet, setting out the terms on which it proposed to purchase certain of Markel’s subrogation claims. After negotiation, the parties reached mutually acceptable terms. The agreed-upon terms were reduced to a term sheet, which Markel signed on March 25, 2019 (“Term Sheet”). The Term Sheet included terms such as “proposed transaction,” “potential transaction,” “potential sale” and “resulting transaction”, as well as conditional and aspirational language concerning what the terms of the proposed transaction “would” or “will” be. The Term Sheet summarized the terms of a “potential” and “proposed transaction” whose consummation would be “subject to … negotiation and execution of a Proceeds Agreement.” Notwithstanding, the foregoing language, the Term Sheet expressly stated that “ he Parties intend to be legally bound to this transaction once this Term Sheet is mutually executed.”  The parties did not execute a Proceeds Agreement. The motion court granted defendant’s motion for summary judgment dismissing the complaint and denied plaintiff’s motion for summary judgment dismissing the affirmative defenses and in favor of its claim for breach of contract. The motion court held that the Term Sheet was “ambiguous” as to whether the parties intended to be bound and, therefore, was not an enforceable contract. The motion court observed that the document was “entitled Term Sheet, not contract” and emphasized that it summarized “the terms and conditions of a proposed transaction” rather than an actual transaction. The motion court also noted that the Term Sheet used prospective language regarding what the proposed transaction “will” look like. Based on the foregoing, the motion court concluded that “it is clear that the term sheet was not the vehicle to transfer the interest.” The motion court reinforced this conclusion by noting that the phrase “potential transaction” appeared in the Term Sheet, including in the standstill provision whose existence would not make sense “if the parties already had an agreement set in stone.” The motion court further noted that post-execution negotiations showed “that the parties were negotiating … in an effort to close” the Proceeds Agreement. Among other things, the motion court observed that the parties’ communications were not consistent with the conclusion that a “deal was already in place”. Instead, explained the motion court, the negotiation supported the view that “the term sheet did not create a contract.” On appeal, the First Department modified the motion court’s order to deny defendant’s motion and grant plaintiff’s motion insofar as it sought summary judgment on the issue of whether the Term Sheet constituted an enforceable agreement, and remanded the matter for further proceedings on the issues of breach and damages, including the viability of the affirmative defenses. The remainder of the motion court’s order was otherwise affirmed. The Court held that the Terms Sheet was an enforceable contract. 5 The Court found that the Term Sheet “unambiguously provide that ‘ he Parties intend to be legally bound to this transaction once this Term Sheet is mutually executed.’” 6 The Court explained that although the Term Sheet stated that it was drafted as a proposal, it “became legally binding once mutually executed and, as stated on the term sheet, ‘ ccepted and greed’”. 7 The Court further explained that the Term Sheet “included all material terms, including identification of the buyer and seller, description of the claims to be sold, and a formula for calculation of the purchase price”. 8 The Court was unpersuaded by the Term Sheet’s references to a “proposed” or “potential” transaction or “any resulting transaction”. 9 Such references did not “undermine this interpretation”, said the Court. 10 The Court, therefore, rejected Defendants’ argument that the use of the “subject to” language in the Term Sheet – that is, the transaction would be “subject to” completion of satisfactory due diligence and negotiation and execution of a purchase and sale agreement – was dispositive. 11 Further, the Court rejected the argument that the parties’ post-execution negotiation of certain terms negated the enforceability of the Term Sheet because “those terms were clearly agreed upon in the term sheet”. 12 “Nor”, said the Court, “was the term sheet rendered unenforceable ‘simply because certain nonmaterial terms were left for future negotiation’”. 13 Takeaway Claim Recovery highlights the importance of the language used in a term sheet. As discussed, a term sheet will be deemed enforceable when the term sheet includes all the salient terms of the transaction and “unambiguously provides that ‘ he Parties intend to be legally bound to transaction once Term Sheet is mutually executed’”. 14 In our discussion of McGowan v. Clarion Partners, LLC , 188 A.D.3d 497 (1st Dept. 2020), lv. denied , 37 N.Y.3d 903 (2021) ( here ), which the Court found was inapposite, we discussed ways in which parties can protect themselves from the unintended enforcement of a term sheet. Among other things, we said that “the parties should consider using language that expressly imposes a duty to negotiate a final agreement in good faith”. They should also: (a) make clear that neither subsequent communications nor a course of conduct will give rise to an enforceable agreement before they sign the contemplated definitive agreement; “(b) identify material contingencies and conditions precedent for completing the contemplated transaction, such as obtaining financing and required permits or consents, and completing of due diligence; and (c) “state that neither party is relying on, or is entitled to rely on, the term sheet or letter of intent for any purpose”. As we noted, business owners/corporate executive should proceed with caution when drafting term sheets or letters of intent and in their course of conduct surrounding the negotiation of a final agreement to ensure that they are not later bound to their non-binding term sheet or letter of intent. The foregoing was true then and, as made clear in Claim Recovery , it remains true now. Footnotes Sullivan v. Ruvoldt , 16 Civ. 583, 2017 WL 1157150 at *6 (S.D.N.Y. Mar. 27, 2017). Conopco, Inc. v. Wathne Ltd. , 190 A.D.2d 587, 588 (1st Dept. 1993) Stonehill Capital Mgt. LLC v. Bank of the W. , 28 N.Y.3d 439, 451-454 (2016). Bed Bath & Beyond Inc. v. IBEX Constr., LLC , 52 A.D.3d 413, 414 (1st Dept. 2008); Emigrant Bank v. UBS Real Estate Sec., Inc. , 49 A.D.3d 382, 383-384 (1st Dept. 2008). Slip Op. at *1. Id. Id. (citing, Netherlands Ins. Co. v. Endurance Am. Specialty Ins. Co. , 157 A.D.3d 468, 468-469 (1st Dept. 2018); Hajdu-Nemeth v. Zachariou , 309 A.D.2d 578, 578 (1st Dept. 2003)). Id. (citing, Twenty 6 Realty Partners Inc. v. GSS N3 LLC , 192 A.D.3d 463, 464 (1st Dept. 2021); Deephaven Distressed Opportunities Tradings, Ltd. v. 3V Capital Master Fund Ltd. , 2011 N.Y. Slip Op. 34007 , *3, *9 (Sup. Ct., N.Y. County 2011], aff’d , 100 A.D.3d 505, 505-506 (1st Dept. 2012)). Id. Id. Id. (citations omitted). Id. (citing, Trolman v. Trolman, Glaser & Lichtman, P.C. , 114 A.D.3d 617, 618 (1st Dept. 2014), lv. denied , 23 N.Y.3d 905 (2014)). Id. at *1-*2 (quoting, Sustainable PTE Ltd. V. Peak Venture Partners LLC , 150 A.D.3d 554, 555 (1st Dept. 2017)). Id. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger Regular readers of this Blog know that we spend a good deal of time writing about mortgage foreclosure.  The anticipated conclusion of a mortgage foreclosure action is a foreclosure sale.  The judicial sale is also the hoped-for conclusion of other types of proceedings – such as mechanic’s lien foreclosures and condominium lien foreclosures. Once conducted, there are mechanisms to set aside judicial sales when warranted.  “ ven after a judicial sale to a good faith purchaser” a court can exercise its “inherent power over a sale made pursuant to its judgment or decree to ensure that it is not made the instrument of injustice.”  Altshuler Shaham Provident Funds, Ltd. v. GML Tower LLC , 129 A.D.3d 1439, 1442 (4 th Dep’t 2015) (citations and internal quotation marks omitted).  See also , Nationstar Mortgage, LLC. V. Crute , 187 A.D.3d 1028, 1029 (2 nd Dep’t 2020) (citations and internal quotation marks omitted).  However, such “power should be exercised sparingly and with great caution, a court of equity may set aside its own judicial sale upon grounds otherwise insufficient to confer an absolute legal right to a resale in order to relieve of oppressive or unfair conduct.”  Id . (citations and internal quotation marks omitted). Court’s may exercise their discretion where “fraud, mistake, exploitive overreaching, misconduct, irregularity or collusion casts suspicion on the fairness of the sale.”  Id . (citations and internal quotation marks omitted).  See also Emigrant Mortgage Co., Inc. v. Hartman , 173 A.D.3d 975, 976 (2 nd Dep’t 2019) (citations omitted); Nationstar Mortgage, 187 A.D.3d at 1030.  Courts may also exercise their inherent powers based on sufficiency of price, but only when “the price is so inadequate as to shock the conscience.”  Polish Nat. Alliance of Brooklyn, U.S.A. v. White Eagle Hall Co., Inc. , 98 A.D.2d 400, 407 (citations omitted) (“This rule rests on sound public policy criteria because in most instances the market value of the property will exceed the winning bid and to upset sales based on mere inadequacy of price would discourage bidding and unduly frustrate the rights of mortgagees to enforce their contracts.”).  See also Altshuler , 129 A.D.3d at 1442.   In addition to the court’s inherent powers, there are statutory bases for setting aside a judicial sale.  Among them are CPLR 2003 and RPAPL 231(6) .  CPLR 2003 provides that “ t any time within one year after a sale made pursuant to a judgment or order, but not thereafter, the court, upon such terms as may be just, may set the sale aside for a failure to comply with the requirements of the civil practice law and rules as to the notice, time or manner of such sale, if a substantial right of a party was prejudiced by the defect….”  Similarly, RPAPL 231(6) provides that “ t any time within one year after the sale, but not thereafter, the court, upon such terms as may be just, may set the sale aside for failure to comply with the provisions of this section as to the notice, time or manner of such sale if a substantial right of a party was prejudiced by the defect.” The Court in Board of Managers of the 442 St. Marks Avenue Condo. v. Milord , decided on January 25, 2023, addressed a challenge to a judicial sale.  The defendant, unit owner/mortgagor, borrowed a sum of money which was secured by a mortgage (the “Mortgage”) on his condominium unit.  Subsequently, plaintiff, condominium board (the “Board” or “Plaintiff”), recorded a lien for unpaid common charges and related fees.  The Board commenced an action to foreclose its lien. Supreme court entered a judgment of foreclosure and sale pursuant to which the condominium unit was sold for $490,000.  A $49,000 deposit was delivered to the referee at the sale by the high bidder (the “Buyer”).  The Buyer’s title search in anticipation of closing revealed the existence of the Mortgage.  The Buyer intervened in the action and sought the vacatur of the sale and the return of the deposit.  Buyer argued that the failure to disclose the existence of the Mortgage “violated principals of equity in addition to the Auction Rules of Kings County.”  Supreme court set aside the sale but directed that the deposit be delivered to the Board.  Buyer appealed so much of supreme court’s order as directed that the deposit be delivered to the Board.  The Second Department reversed.  The Court found that “ y setting aside the subject sale, the Supreme Court, in effect, determined that the Board's failure to disclose the senior mortgage held by cast suspicion on the fairness of the sale.”  (Citations and internal quotation marks omitted.)  Accordingly, supreme court should have directed that the deposit be returned to the Buyer.  The deposit should not have been delivered to the Board because the Buyer had a “lawful excuse for refusing to perform the contract.”  (Citations and internal quotation marks omitted.) Finally, as to the Board’s claim that the sale should not be vacated due to the Buyer’s unilateral mistake, the Court stated: The plaintiff's contention that the intervenor's belief that it had purchased the property free from the senior mortgage was the result of the intervenor's own unilateral mistake is without merit, as the record shows that the plaintiff failed to disclose the existence of the senior mortgage in the complaint, the judgment of foreclosure of sale, or the terms of sale ( see SRP 2012-4, LLC v Darkwah , 198 AD3d at 939-940). Likewise, the plaintiff's claim that the intervenor failed to exercise due diligence is without merit since, inter alia, "' he rule that a buyer must protect himself against undisclosed defects does not apply in all strictness to a purchaser at a judicial sale'" ( id. at 940, quoting Lane v Chantilly Corp. , 251 NY 435, 438). A sale of property "'in the haste and confusion of an auction room is not governed by the strict rules applicable to formal contracts made with deliberation after ample opportunity to investigate and inquire'" ( SRP 2012-4, LLC v Darkwah , 198 AD3d at 940, quoting Sohns v Beavis , 200 NY 268, 271-272). Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber The faithless servant doctrine 1 provides that an employee who is faithless in the performance of their duties ( i.e. , breaches their duty of loyalty to the employer) is not entitled to recover either salary or commission. 2  While the language of the rule may imply a broad application, courts generally apply the rule relatively narrowly. 3 Courts will usually hold an employee liable under the faithless servant doctrine only if the employee has usurped a corporate opportunity or actively stolen from the employer. 4  That was the scenario in Nichtberger v. Paramount Painting Group, LLC, 2023 N.Y. Slip Op. 30200(U) (Sup. Ct., N.Y. County Jan. 19, 2023) ( here ). Nichtberger involved an action to recover monies allegedly owed to Plaintiff by the Corporate Defendants for breach of contract, as well as for damages to Plaintiff by the Individual Defendants for fraudulent business practices and stealing Plaintiff’s personal property. In November 2009, L&L Painting Company, Inc. (“L&L”) and Plaintiff agreed to form Paramount Painting Group, LLC (“PPG”). Pursuant to the agreement, Plaintiff received an “advanced loan from PPG’s future profits” in the amount of $500,000. Plaintiff was also made President of PPG, with a salary of $208,000 per year. In addition to his salary, Plaintiff maintained that he had a verbal agreement with Defendants to compensate him an extra $50,000 per year, thereby bringing his guaranteed salary to approximately $250,000 per year. The parties also agreed to a bonus plan, whereby Plaintiff would receive 50% of the first $3 million in net profits that PPG achieved, and 25% of the net profits generated in excess of $4 million. In the latter part of 2012, Plaintiff claimed that PPG had not paid any bonus money or profit-share that was due to him pursuant to the 2009 agreement. In addition, although PPG continued paying Plaintiff’s $4,000 weekly salary, it allegedly stopped paying the additional $50,000 supplement after the first year in breach of the parties’ oral agreement.  According to Plaintiff, the yearly breaches of the oral and written agreements crippled his financial condition and prevented him from servicing his outstanding debts. Consequently, Plaintiff informed the Individual Defendants about his dire financial situation, and pleaded with them to honor the agreement to pay the additional $50,000 in salary and the earned bonuses. Defendants allegedly refused. Plaintiff maintained that Defendants reported false net income figures to him in order to withhold bonus payments that would have been due to him. As Plaintiff became more and more suspicious of Defendants’ alleged fraudulent accounting practices, Plaintiff began bringing to Defendants’ attention discrepancies in the profit and loss statements that the Corporate Defendants provided to him. Defendants were allegedly unwilling to correct the discrepancies. In March 2019, Plaintiff resigned from PPG. After Plaintiff’s resignation, Defendants allegedly induced Plaintiff’s customers to continue working with PPG, which Defendants were purportedly able to do from files they had taken from Plaintiff’s personal office. Plaintiff alleged that Defendants did not pay him for any of the work done for his former clients. Between 2010 to March 2019, Plaintiff had purchased and acquired numerous pieces of artwork, memorabilia and various other items, many which had a unique and personal value to Plaintiff. These “Chattel” were property of and owned by Plaintiff and were all stored and/or displayed in Plaintiff’s personal office at PPG. Plaintiff maintained that one or more of the Individual Defendants and/or their agents broke into Plaintiff’s office and stole all the Chattel. On June 23, 2021, Plaintiff pled guilty to Grand Larceny in the Second Degree in connection with the theft of approximately $1.4 million from PPG, which he obtained by diverting checks made payable to PPG into a separate checking account he controlled. Pursuant to the plea agreement, Plaintiff received no jail sentence. Instead, he received a conditional discharge and an order to pay $1,436,072.56 in restitution to PPG in the form of a $500,000 bank check and a $936,072.56 confession of judgment. Plaintiff sued Defendants, alleging breach of contract, fraud, replevin 5 and conversion. Defendants moved to dismiss. The motion court granted in part and denied in part the motion. The court granted that part of Defendants’ motion to dismiss Plaintiff’s claims for compensation in the form of salary, bonus and/or profit sharing. As noted by the court, in a prior lawsuit brought by PPG to recover the money that Plaintiff had stolen, the court held that Plaintiff was not entitled to recover any compensation under the faithless servant doctrine. The court explained that “‘ongoing and pervasive’ misconduct of a ‘wayward and unruly agent’ like that of an employee who embezzles money from his employer, forfeits all compensation after the first faithless act”. 6 Therefore, concluded the court, “ iven admission to systematically diverting checks to himself over many years, he has forfeited all compensation”. 7 Moreover, said the court, Plaintiff’s claim to $50,000 a year based upon the parties’ alleged verbal agreement violated the statute of frauds and the merger clause in the 2009 agreement, which required all modifications to be in writing. 8 Further, the court dismissed the fraud claim on the ground that it duplicated Plaintiff’s breach of contract claim. 9 Finally, the court denied the motion with regard to the replevin and conversion claims. The court held that “ egardless of whether the faithless servant doctrine applie with equal force to property purchased with the compensation, there questions of fact as to whether or not Plaintiff actually did use money stolen from Defendants or his (now forfeited) compensation to purchase the artwork etc., that plaintiff kept in his office”. 10 Takeaway The faithless servant doctrine, also known as equitable forfeiture, is based on agency principles, and has been applied to brokers, salaried employees, attorneys, arts and entertainment representatives, and executors of estates. The courts have applied the doctrine to a wide variety of misconduct, including, but not limited to, conflicts of interest, stealing money or goods, and secretly starting a competing business. Any act that can give rise to a claim for breach of fiduciary duty will trigger the doctrine.  In Nitchberger the doctrine was easily applied as Plaintiff admitted to stealing money from PPG in his plea agreement. Accordingly, under the doctrine, he was not entitled to the salary and compensation that he sought.  Footnotes This Blog examined the faithless servant doctrine  here ,  here  and  here . See Feiger v. Iral Jewelry , 41 NY2d 928, 928 (1977). See , e.g. , W. Elec. Co. v. Brenner , 41 N.Y.2d 291, 295 (1977); Maritime Fish Prods., Inc. v. World-Wide Fish Prods., Inc. , 100 A.D.2d 81, 88 (1st Dept. 1984). See Visual Arts Found., Inc. v. Egnasko , 91 A.D.3d 578, 579 (1st Dept. 2012); Soam Corp. v. Trane Co. , 202 A.D.2d 162, 162 (1st Dept. 1994) (employee promoted competitor’s products over employer’s); Phansalkar v. Andersen Weinroth & Co., L.P. , 344 F.3d 184, 203 (2d Cir. 2003) (employee usurped corporate opportunity). In a replevin action, the plaintiff seeks the return of property, not money damages. Genger v. Genger , 2016 N.Y. Slip Op. 30602 (Sup. Ct., N.Y. County 2016) (“The objective of replevin is recovery of the property, and the alternative relief or remedy is ‘fixation of its value.’”) (citations omitted). A replevin action can arise in a number of situations, such as where two or more parties claim a right to possess personal property, but only one has a superior right to that property, or where the property was lawfully withheld but was not released to the person having the greater right to the property. To prevail in a replevin action, therefore, the plaintiff must establish that the defendant is in possession of property to which the plaintiff claims a superior right. Nissan Motor Acceptance Corp. v. Scialpi , 94 A.D.3d 1067 (2d Dept. 2012). This Blog wrote about replevin here . Slip Op. at *2 (quoting, Cheryl & Co v. Krueger , 536 F. Supp. 3d 182, 213 (S.D. Ohio 2021) (citationsomitted), and citing, In re Blumenthal , 32 A.D.2d 767, 768 (1st Dept. 2006)). Id. Id. Id. Under the duplication doctrine, a fraud claim cannot stand side-by-side with a breach of contract claim when there is “a valid and enforceable written contract govern a particular subject matter” and the recovery sought arises out of the same facts and circumstances. Clark-Fitzpatrick v. Long Is. , 70 N.Y.2d 382 (1987). However, where “a legal duty independent of the contract itself has been violated<,> ” or where the misrepresentation is “collateral or extraneous to the terms of the parties’ agreement,” a fraudulent inducement claim can be litigated with “a simple breach of contract” claim. Dormitory Auth. v. Samson Constr. Co. , 30 N.Y.3d 704 (2018) (citation omitted). Slip Op. at *3. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber Typically, when a plaintiff claims to have been defrauded, he/she typically argues that the defendant made an affirmative misrepresentation of fact. Fraud does not, however, always concern an affirmative statement. Sometimes a person can perpetrate a fraud through the omission of a material fact.  Where fraud by omission is claimed, the plaintiff must allege that the defendant had a duty to disclose the omitted fact. A duty to disclose arises when (1) the defendant speaks on the subject, in which case he/she must speak truthfully and completely about the matter; 1 (2) there is a fiduciary relationship between the plaintiff and defendant; 2 or (3) the defendant possesses “special facts” about the matter not known by the plaintiff. 3 A fraud by omission claim is not sustainable where information allegedly withheld is ascertainable through publicly available sources. 4  Nor is an omission case sustainable where the omitted information could have been discovered by the plaintiff through the exercise of ordinary intelligence. 5 Both of the foregoing circumstances will negate application of the special facts doctrine. Finally, as in a fraud by misrepresentation case, the plaintiff must satisfy the other elements of the claim – namely, intent to defraud, justifiable reliance and injury. And the plaintiff must do so with particularity. 6 e.g.,  here=">here" and="and" here.=">here."> The foregoing principles were examined by the Appellate Division, First Department in HOV Servs., Inc. v. ASG Tech. Grp., Inc. , 2023 N.Y. Slip Op. 00237 (1st Dept. Jan. 19, 2023) ( here ).  HOV involved a software license dispute between two companies, Defendant ASG Technologies Group, Inc. (“ASG”) and Plaintiff HOV Services, Inc. (“HOV”). In 2005, the parties entered into a master Software License Agreement (the “2005 SLA”), which granted HOV a license to use ASG’s software to provide Application Service Provider (“ASP”) services to its customers, pursuant to the license terms set forth in the 2005 SLA and in any amendments thereto (each such amendment was designated an “Exhibit”). The parties subsequently amended the 2005 SLA in 2015 and 2018, by “Exhibit D” and “Exhibit E”, respectively. Pursuant to Exhibit D, HOV licensed the ASG software for a three-year term ( e.g. , September 30, 2015 through September 29, 2018). Pursuant to Exhibit E, HOV licensed the ASG software for a five-year term ( e.g. , September 30, 2018 through September 29, 2023). Each Exhibit included an express, ongoing contractual obligation for HOV to refrain from using ASG’s software to provide ASP services to ASG’s current customers (the parties referred to these provisions as the “Overlapping Customer Prohibitions”). Several months before the Exhibit D license term was set to expire, ASG contacted HOV to initiate discussions about entering a new software license agreement – what would later become Exhibit E. HOV did not respond to ASG. As alleged, at the time of ASG’s overtures, and unknown to ASG at the time, HOV was in the process of developing competing software and migrating off of ASG’s software, including efforts that were accelerated by HOV’s reverse-engineering of the software. HOV allegedly hoped to complete its migration before the Exhibit D license expired, which would have obviated its need to renew the licenses. In late August and early September 2018, HOV contacted ASG to discuss a renewed license agreement – as alleged, HOV did not complete its migration. Following negotiations among the parties’ executives, HOV ultimately agreed to the terms of Exhibit E. In reliance on HOV’s execution of Exhibit E and promise to both pay for and abide by the stated license rights, ASG allegedly provided HOV with license keys to enable use of the software during the Exhibit E license term. HOV allegedly used the license keys and continued using the software during the Exhibit E license term. Following litigation in the Southern District of New York, HOV filed a complaint in the Supreme Court, New York County, asserting breach of contract, breach of the implied covenant of good faith and fair dealing in connection with the negotiation of the Exhibit E renewal, fraudulent inducement, violation of New York General Business Law (GBL) § 349, and a declaratory judgment.  ASG moved to dismiss certain of HOV’s causes of actions and affirmative defenses. Thereafter, the parties each filed a motion for partial summary judgment. On January 27, 2022, the motion court granted in part and denied in part each motion. With respect to ASG’s motions, the motion court dismissed HOV’s causes of action for fraudulent inducement and violation of GBL § 349; dismissed HOV’s defense of waiver and HOV’s defense of equitable estoppel as to Exhibit D; and excluded HOV’s purported reverse-engineering expert.  The First Department affirmed the dismissal of the fraudulent inducement claim, among others. We address the fraudulent inducement claim and its dismissal. The Court held that “Plaintiff’s fraudulent inducement claim and fraud defense to enforcement of the overlapping customer restrictions were properly dismissed”. 7 The Court found that HOV failed to allege a duty to disclose the existence of overlapping customers. 8 The Court explained that “ lthough issues of fact exist regarding defendant’s knowledge of the existence of overlapping customers, plaintiff’s claim must nonetheless fail because it is premised on an alleged omission and the parties were not in a fiduciary relationship” requiring disclosure of same. 9 The Court also found that in addition to the absence of a fiduciary relationship, there was no ”contractual duty to provide a customer list” to HOV. 10 The Court also rejected HOV’s “reliance on the ‘special facts’ doctrine”, finding that “plaintiff was equally capable of discovering the existence of overlapping customers”. 11 Takeaway Where a party alleges fraud (or fraudulent inducement) based on an omission of information, rather than an affirmative misrepresentation, a special relationship ( e.g. , a fiduciary relationship) is required to state a claim. However, in the absence of a special relationship, a party may still allege fraud where there are special facts such that one party had superior knowledge of certain information, not readily available to the other party. In HOV , there no was fiduciary relationship between HOV and ASG, as the parties dealt with each other at arm’s length in a commercial transaction. The special facts doctrine was also unavailable to HOV because the information alleged to be withheld ( i.e. , the existence of overlapping customers) could be discovered by HOV with reasonable diligence. With no duty to disclose, HOV could not withstand the challenge to its fraudulent inducement claim.  Footnotes Bank of Am., N.A. v. Bear Stearns Asset Mgmt. , 969 F. Supp. 2d 339, 351 (S.D.N.Y. 2013). Balanced Return Fund Ltd. v. Royal Bank of Canada , 138 A.D.3d 542, 542 (1st Dept. 2016). Pramer S.C.A. v. Abaplus Int’l Corp. , 76 A.D.3d 89, 99 (1st Dept. 2010). “The ‘special facts’ doctrine holds that ‘absent a fiduciary relationship between parties, there is nonetheless a duty to disclose when one party’s superior knowledge of essential facts renders a transaction without disclosure inherently unfair.’” Greenman-Pedersen, Inc. v. Berryman & Henigar, Inc. , 130 A.D.3d 514, 516 (1st Dept. 2015), lv. denied , 29 N.Y.3d 913 (2017) (quoting, Pramer , 76 A.D.3d at 99). Northern Group Inc. v. Merrill Lynch, Pierce, Fenner & Smith Inc. , 135 A.D.3d 414 (1st Dept. 2016). Black v. Chittenden , 69 N.Y.2d 665, 669 (1986); Schumaker v. Mather , 133 N.Y. 590, 596 (1892). CPLR § 3016(b). Slip Op. at *2. Id. Id. (citing, Cobalt Partners, L.P. v. GSC Capital Corp. , 97 A.D.3d 35, 42 (1st Dept. 2012)). Id. Id. (citing, Silver Point Capital Fund, L.P. v. Riviera Resources, Inc. , 198 A.D.3d 432, 433 (1st Dept. 2021); Jana L. v. W. 129th St. Realty Corp. , 22 A.D.3d 274, 277-278 (1st Dept. 2005)). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By:  Jeffrey M. Haber In prior articles we have examined Ponzi Schemes and affinity fraud. E.g. , here . We do so again today. Affinity fraud occurs when 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 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.  On January 17, 2023, U.S. Attorney’s Office, Eastern District of North Carolina, announced ( here ) that a 56-year-old man was arrested upon the unsealing of a 23-count indictment in connection with an investment scheme to defraud. If convicted, Defendant faces up to twenty years in prison per count and potential fines. According to the indictment, 1 Defendant, a native of India and a member of the Indian-American community in Cary, North Carolina, 2 fraudulently induced at least 12 victims or sets of victims into giving him funds under the false pretense that he would be investing their money in a legitimate real estate development in the Orange County, North Carolina area. In some instances, the money represented his victims’ life savings. Defendant allegedly used the funds from these victims to pay back earlier investors who believed that he was returning their original investment and legitimate capital gains.  As further alleged in the indictment, Defendant typically contacted the victims telephonically or in person to describe a local real-estate investment opportunity. Defendant allegedly leveraged his employment with the town of Chapel Hill to convince victims that he had insider knowledge of development plans with respect to the purported real estate. 3 The indictment alleges that  Defendant would then request a specific amount of money within a short timeframe, sometimes the same day, to facilitate closing the transaction. Defendant allegedly promised a return of the principal investment plus a profit within a few months and sometimes ask his victims not to discuss the transaction with other members of the community or reference a non-disclosure agreement. “Our investigation shows abused the trust and confidence placed in him by fellow Indian-American community members. He promised to invest their money in property.  Instead, used the funds to pay back other people he swindled as part of his scheme; now, multiple victims are left without their much-needed savings,” said Michael C. Scherck, FBI Acting Special Agent-in-Charge. “Fraud can have an immediate and direct impact on people and communities, and the FBI remains determined to bring those who commit it to justice.” Defendant was indicted on 17 counts of Wire Fraud in violation of 18 U.S.C. § 1943 and 6 counts of Conducting Transactions in Criminally Derived Property in violation of 18 U.S.C. § 1957.  The government’s papers can be found on Pacer.gov by searching for Case No. 5:22-cr-00347-BO-BM. Footnotes An indictment is merely an accusation. The defendant is presumed innocent until proven guilty. According to the News & Observer, Defendant “previously served as vice president and president of the Triangle Area Telugu Association, and as a former board member with the Hindu Society of North Carolina” ( here ). According to the News & Observer, “ who was hired in 2000 as Chapel Hill’s traffic engineer, abruptly resigned as the town’s traffic engineering manager on Nov. 1, 2021, after filing for Chapter 7 bankruptcy that October” ( 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: Jeffrey M. Haber The statute of frauds provides that “ contract for the . . . the sale, of any real property, or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his lawful agent thereunto authorized by writing.” 1 “To satisfy the statue of frauds, a memorandum evidencing a contract and subscribed by the party to be charged must designate the parties, identify and describe the subject matter, and state all of the essential terms of a complete agreement.” 2 The memorandum may be informal – it can be a series of emails – and therefore in compliance with the statute of frauds “where it identifies the parties, describes the subject property, recites all essential terms of a complete agreement.” 3 “If the contract does not contain all the necessary terms, the law presumes that the parties have not reached an agreement as to such terms and, therefore the agreement is fatally flawed and unenforceable.” 4 In that instance, or if “it is necessary to resort to parol evidence to ascertain what was agreed to, the remedy of specific performance is not available.” 5 Notably, an agreement as to price only is insufficient to create an enforceable real estate contract. 6 Instead, the agreement must also include “those terms customarily encountered in transactions of this nature, such as … the time and terms of payment, the required financing, the closing date, the quality of title to be conveyed, the risk of loss during the sale period, adjustments for taxes and utilities, etc.” 7 In Levinson v. 77 Perry Realty Corp. , 2023 N.Y. Slip Op. 00160 (1st Dept. Jan. 12, 2023) ( here ), the Appellate Division, First Department addressed the foregoing issues and held that the alleged agreement violated the statute of frauds. here=">here" and="and" >here.=">here."> Levinson involved a dispute between the owners of shares in a cooperative building and the board of directors (the “Board”) of the corporation (“Corporation”).  Plaintiffs owned two apartments (collectively the “Apartments”) in the cooperative apartment building owned by defendant (“Co-op”). Plaintiffs planned to combine the Apartments into a duplex and renovate the roof space above the Apartments. The roof space was valued at $ 98,000 or 104 shares of stock in the Co-op. Plaintiffs offered more than $127,000 to the Corporation for 122 shares of stock allocated to the roof space. Plaintiffs claimed that the Board accepted their offer via email through the Corporation’s managing agent.  Plaintiffs maintained that all material terms of the transaction were set forth in the e-mail exchange, including: a) price; b) allocation of shares of stock; c) plaintiffs’ agreement to obtain approval from the New York City Landmarks Preservation Commission; d) plaintiffs’ agreement to file the appropriate documents with the New York City Department of Buildings; and e) plaintiffs’ agreement to amend the certificate of occupancy for the building. After the e-mail exchange with the managing agent, defendant emailed the Corporation’s shareholders to explain the basis for its agreement to sell the roof space to plaintiffs.  In December 2013, the members of the Board who allegedly agreed to the sale of the roof space lost their bid for re-election. Shortly thereafter, the newly constituted Board refused to provide plaintiffs with a formal contract for the roof space and advised plaintiffs that defendant would not be moving forward with the sale.  Thereafter, plaintiffs commenced the action to enforce their purported contractual rights to purchase the roof space. Among other causes of action, plaintiffs alleged that the Board breached the contract that was formed by the parties’ emails. The motion court denied plaintiffs’ motion for summary judgment on their breach of contract and specific performance claims and granted defendant’s motion for summary judgment dismissing the breach of contract and specific performance claims.  On appeal, the First Department unanimously affirmed the motion court’s order. The Court held that the email exchange relied upon by plaintiffs “did not contain all material terms of the contract to satisfy the statute of frauds”. 8 Although the email exchange included the price and the “specific number of shares being issued to plaintiffs”, it did not include any other terms, such as “financing, terms of payment, or a closing date”, explained the Court. 9 “Moreover,” said the Court, the “communications that followed indicated that the parties were negotiating additional material terms concerning the sale of the roof space, including additional maintenance fees, responsibility for maintaining the roof deck, and other issues surrounding aspects of the roof structure”. 10 Finally, the Court found that “the parties’ communications show that they anticipated entering into a formal contract and that the board would not make a final decision on the sale until the annual shareholders’ meeting”. 11 The Court concluded that “ he totality of the parties’ communications thus show that the early emails relied upon by plaintiff did not constitute a binding contract”. 12 Takeaway The emails relied upon by the plaintiffs in Levinson to establish the alleged agreement to  purchase the roof space were insufficient to satisfy the statute of frauds, as they left for future negotiations essential terms of the contemplated contract, such as “financing, terms of payment, a closing date”, as well as “additional maintenance fees, responsibility for maintaining the roof deck, and other issues surrounding aspects of the roof structure”. 13 The “essential terms” that courts look for in determining whether informal writings, like email exchanges, are enforceable “include those terms customarily encountered in transactions of this nature”, 14 such as “the purchase price, the time and terms of payment, the required financing, the closing date, the quality of title to be conveyed, the risk of loss during the sale period, adjustments for taxes and utilities, etc.” 15 As noted, the email exchange in Levinson did not include any of these terms. And, since the parties in Levinson expressly anticipated the execution of a formal contract, which would include more terms of the transaction, there was no binding contract between the parties sufficient to satisfy the statute of frauds. Footnotes New York General Obligations Law § 5-703(2). Nesbitt v. Penalver , 40 A.D.3d 596, 598 (2d Dept. 2007) (citation and quotation omitted). O’Brien v. West , 199 A.D.2d 369, 370 (2d Dept. 1993). 3-32 Warren’s Weed New York Property § 32.10. Nesbitt , 40 A.D.3d at 598 (citation and internal quotation marks omitted). See , e.g. , DeMartin v. Farina , 205 A.D.2d 659, 660 (2d Dept. 1994) (quotation omitted). Nesbitt , 40 A.D.3d at 598 (citation and internal quotation marks omitted). Slip Op. at *1 (citing, Argent Acquisitions, LLC v. First Church of Religious Science , 118 A.D.3d 441, 444-445 (1st Dept 2014)). Id. Id. Id. Id. at *1-*2 (citation omitted). Id. at *1. O’Brien, 199 A.D.2d at 370. Saul v. Vidokle , 151 A.D.3d 780, 781 (2d Dept. 2017). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger As the Court of Appeals has explained it, “ ummary judgment permits a party to show, by affidavit or other evidence, that there is no material issue of fact to be tried, and that judgment may be directed as a matter of law, thereby avoiding needless litigation cost and delay. Where appropriate, summary judgment is a great benefit both to the parties and to the overburdened New York State trial courts.”  Brill v. City of New York , 2 N.Y.3d 648, 651 (2004) (citation omitted).  The same Court, recognizing the efficiency that summary judgment brings to litigation, stated that “ ince New York established its summary judgment procedure in 1921, summary judgment has proven a valuable, practical tool for resolving cases that involve only questions of law.”  Brill , 2 N.Y.3d at 650-51 (citation omitted). The “timing” of a summary judgment motion is significant because it “may resolve the entire case.”  Brill , 2 N.Y.3d at 651.  In this regard, the Brill Court noted that, originally, the only timing requirement for a summary judgment motion was that it be made prior to joinder of issue.  The “court system[] request ” a change from the New York State Legislature, however, because “the absence of an outside time limit for filing such motions became problematic, particularly when they were made on the eve of trial.  Eleventh-hour summary judgment motions, sometimes used as a dilatory tactic, left inadequate time for reply or proper court consideration, and prejudiced litigants who had already devoted substantial resources to readying themselves for trial.”  Id . Thus, the Legislature amended CPLR 3212 to provide that: (a) Time; kind of action. Any party may move for summary judgment in any action, after issue has been joined; provided however, that the court may set a date after which no such motion may be made, such date being no earlier than thirty days after the filing of the note of issue. If no such date is set by the court, such motion shall be made no later than one hundred twenty days after the filing of the note of issue, except with leave of court on good cause shown. “‘Good cause … requires a satisfactory explanation for the untimeliness-rather than simply permitting meritorious, nonprejudicial filings, however tardy.’”  Fafona v. 41 West 34 th Street, LLC , 71 A.D.3d 445, 448 (1 st Dep’t 2010) (quoting from Brill ).  “ erfunctory claim of law office failure” are insufficient to “excuse a late motion, no matter how meritorious.”  Id; compare, Panzavecchia v. County of Nassau , 2022 WL 17660482 (2 nd Dep’t December 14, 2022) (recognizing the need for good cause but finding that “ ignificant outstanding discovery may, in certain circumstances, constitute good cause for a delay in making a motion for summary judgment.”) In Miceli v. State Farm Mut. Auto. Ins. Co. , 3 N.Y.3d 725 (2004), the Court reversed supreme court’s granting of an untimely summary judgment motion and reiterated that “if the merit of the motion itself constituted good cause, the statutory deadline would be circumvented and the practice of delaying such motions until the eve of trial encouraged.”  The Miceli Court also warned litigants of the importance of meeting deadlines by reiterating that “we made clear in Brill, and underscore here, statutory time frames — like court-ordered time frames — are not options, they are requirements, to be taken seriously by the parties. Too many pages of the Reports, and hours of the courts, are taken up with deadlines that are simply ignored.”  Miceli , 3 N.Y.3d at 726 – 27 (citation omitted). On January 12, 2023, the Appellate Division, First Department, decided Miral, Inc. v. Kovac Media Group, Inc. , in which in unanimously affirming the denial of an untimely summary judgment motion, stated:   Defendants' summary judgment motions were untimely, as they were filed two months after the court-ordered deadline expired, with no explanation for the delay in filing until defendants submitted their replies. Nor did the explanations offered by counsel rise to the level of "good cause." First, the calendaring error on which counsel blames the late filing amounts to no more than law office failure, which is an insufficient basis for a finding of good cause where a party has filed a late summary judgment motion. Second, counsel asserts that he was unaware of the court-ordered 60-day deadline because of a purported glitch in the New York State Courts Electronic Filing system. However, the relevant deadline was set forth in a compliance conference order in 2018 and, as counsel concedes, the NYSCEF glitch affected only documents filed during a period of time in 2019. Defendants' counsel should at any rate have been aware that there would be an order issued after the January 16, 2019 compliance conference, and should have taken care to file the motions within the applicable deadline after that order was issued. We decline to consider defendants' arguments regarding the impact of the COVID-19 pandemic and any tolling provisions because they were raised for the first time on appeal. TAKEAWAY Court and statutory deadlines should not be ignored. This is made plain by, among other things, the denial of meritorious summary judgment motions based solely on the fact that they were not timely made. 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.