Search Results

By: Jonathan H. Freiberger A significant part of the amounts due to a lender in a mortgage foreclosure action is interest on the outstanding principal. Sometimes the actions (or inaction) of a lender can result in significant reductions in the amount of interest awarded to it in a foreclosure action. In prior BLOG articles, we discussed the court’s power to toll the accrual of interest in mortgage foreclosure actions. CPLR 5001(a)  provides, in relevant part, that “in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court’s discretion.” See also U.S. Bank, N.A. v. Peralta , 191 A.D.3d 924, 925-26 (2nd Dept. 2021);. Wells Fargo Bank, N.A. v. Daniel , 231 A.D.3d 899, 901 (2 nd  Dept. 2024); M&T Bank v. Givens , 242 A.D.3d 974, 976 (2nd Dept. 2025). In that regard, a “foreclosure action is equitable in nature and triggers the equitable powers of the court.” U.S. Bank Nat. Ass’n v. Williams , 121 A.D.3d 1098, 1101-02 (2nd Dept. 2014) (numerous citations and internal quotation marks omitted); see also Wells Fargo , 231 A.D.3d at 901; M&T Bank , 242 A.D.3d at 796. Once invoked, the Court’s equity powers are “as broad as equity and justice require.” Deutsche Bank National Trust Co. v. Armstrong , 218 A.D.3d 738, 739 (2nd Dept. 2023) (citations and internal quotation marks omitted). The court, in exercising its discretion, “is governed by the particular facts in each case.” U.S. Bank , 191 A.D.3d at 926 (citations omitted). A court’s authority can be used to toll interest in, inter alia , foreclosure actions, where the lender’s conduct “is deemed wrongful” or where there has been “unexplained delay” in the prosecution of the action. Wells Fargo , 231 A.D.3d at 901 (citations and internal quotation marks omitted); see also Deutsche Bank Trust Company Americas v. Knights , 231 A.D.3d 1016, 1018 (2nd Dept. 2024); Wells Fargo Bank, N.A. v. Doran , 244 A.D.3d 1275 (2nd Dept. 2025). As the Second Department noted, “a plaintiff should not benefit financially, in the form of accrued interest, from an unexplained delay in the prosecution of a mortgage foreclosure action caused by its predecessor in interest.” Wells Fargo , 231 A.D.3d at 901. On April 1, 2026, the Appellate Division, Second Department, decided two cases in which the interest awarded to foreclosing lenders was substantially reduced due to delays in prosecuting the underlying foreclosure actions. HSBC Bank USA, N.A. v. Eherenthal [1] In 2009, HSBC commenced a mortgage foreclosure action. In 2015, HSBC moved for, and was granted, summary judgment. The borrower appealed and the Second Department reversed, finding that HSBC failed to establish standing due to discrepancies in HSBC’s name. HSBC moved for summary judgment again and the motion court denied the motion, holding that a trial was necessary to address the discrepancy in the lender’s name. Trial was held in 2019 and 2021, after which the referee submitted a report finding that the lender adequately demonstrated standing. However, due to the history of the matter, in which HSBC was afforded numerous opportunities to establish standing, the referee recommended that one and a half years of interest be tolled. The borrower opposed HSBC’s motion to confirm the referee’s report and cross-moved to toll all interest to HSBC from the commencement of the litigation. The motion court granted HSBC’s motion and denied the borrower’s cross-motion. On appeal, the Court found that the referee properly determined that HSBC had standing to commence the action. However, the Second Department found that interest should be tolled for a longer period than recommended by the referee. Thus, after explaining the law along the lines set forth herein, the Court stated: Here, the defendants are correct that [HSBC’s] changing theory of the case was responsible for much of the delay in this matter. While the referee recommended, and the Supreme Court directed, that the accrual of interest be tolled from February 14, 2018, … to August 19, 2019, … we find that the accrual of interest should be tolled from August 20, 2015, when [HSBC] first moved, among other things, for summary judgment on the complaint insofar as asserted against the [borrower] and for an order of reference based on submission of prior affidavits and affirmations [addressing the standing issue], to August 19, 2019 [the date the trial was ordered to be held]. Greenpoint Mortgage Funding, Inc. v. McFarlane In October of 2007, the lender commenced an action to foreclose a mortgage. In November of 2011, the complaint was dismissed. In January of 2018, an order was issued restoring the case to the calendar and directing the lender to move for an order of reference within 90 days. In September of 2022, the lender moved for a default judgment and for an order of reference, which motion was granted in October of 2022. In January of 2023, the lender moved to confirm the referee’s report and for a judgment of foreclosure and sale. The borrower opposed the motion urging that interest should be tolled from November 2011 to September 2022, “due to the plaintiff's delay in moving for a judgment of foreclosure and sale.” Thus, the defendant argued that the “‘[the lender] did not move for an order of reference until September 13, 2022,’ which was not within the 90 days directed by the Supreme Court in the January 31, 2018 order.” The lender’s motion was granted and the borrower’s cross-motion was denied. On appeal, however, the Second Department found that the referee’s report was properly confirmed. However, the Court held that the borrower’s cross-motion should have been granted and stated: Here, the [lender] failed to explain its six-year delay in moving to restore the action to the active calendar, and further failed to explain its four-year delay in moving for leave to enter a default judgment against the [borrower] and for an order of reference after the action was restored to the active calendar. Under the circumstances of this case, since the [borrower] was prejudiced by these unexplained delays, during which time interest had been accruing, the interest on the note should have been tolled from November 1, 2011, to September 13, 2022. [Citation omitted.] Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] The recited facts are abridged for editorial purposes.

By: Jeffrey M. Haber New York limits judicial intrusion into arbitration awards, reflecting the core principles of finality, deference to arbitrators’ rulings, and the narrow grounds for vacatur under CPLR 7511. In Shell NA LNG LLC v. Venture Global Calcasieu Pass, LLC , 2026 N.Y. Slip Op. 50385(U) (Sup. Ct., N.Y. County Mar. 2, 2026), the Supreme Court reinforced those principles by denying post‑award discovery sought under CPLR 408. Shell attempted to relitigate discovery requests the arbitral tribunal had already considered and rejected, arguing that further disclosure was needed to support a claim of fraud or misconduct. The motion court held that CPLR 408 discovery in a vacatur proceeding was rare and context‑specific, and it could not be used to second‑guess an arbitral tribunal’s discovery decisions based on speculation. Absent clear and convincing evidence demonstrating fraud that could not have been uncovered during an arbitration, the motion court made clear that courts will not permit post‑award discovery or disturb the award’s confirmation. Shell NA LNG LLC v. Venture Global Calcasieu Pass, LLC Petitioner, Shell NA LNG LLC (“Shell”), and Respondent Venture Global Calcasieu Pass, LLC (U.S.A.) (“VGCP”) entered into an Amended and Restated LNG Sales and Purchase Agreement on April 4, 2018 (the “SPA”), pursuant to which VGCP agreed to make available, and Shell agreed to purchase, an annual quantity of liquefied natural gas (“LNG”) from VGCP’s Calcasieu Pass Facility (the “Facility”). The SPA specified in detail when the parties’ respective obligations would commence. Although Shell proposed a date certain during negotiations, VGCP resisted, and the parties instead agreed to a complex timing mechanism that relied on a negotiated definition of “commercial operations” and three overlapping commencement date selection windows (the “Commercial Operation Date” or “COD”). While the definition of COD encompassed multiple elements, the SPA anticipated and required that the Facility begin producing LNG before COD occurred and that VGCP could sell such LNG to other purchasers before making it available to Shell under the agreement. Only once the Facility achieved certain performance milestones, among other conditions, would COD occur and trigger Shell’s rights to LNG under the SPA. On May 11, 2023, Shell commenced arbitration against VGCP alleging that VGCP breached the SPA by failing or refusing to declare COD as of October 24, 2022, and to thereafter commence sales to Shell under the SPA’s terms. Notably, Russia’s invasion of Ukraine in March 2022 and the concomitant impact on the LNG market had allowed VGCP to sell the Facility’s pre-COD production at a significantly higher price than that at which it was obligated to sell to Shell once COD had been achieved, thus making the timing of COD an economically meaningful matter for both parties. Ultimately, VGCP announced that the Facility achieved COD on April 15, 2025. The arbitration lasted more than two years and was overseen by three commercial arbitrators selected by Shell and VGCP. The proceeding involved extensive pre-hearing document production totaling many thousands of pages, an interim measures application, two rounds of merits briefing, a two-week evidentiary hearing featuring 26 witnesses (15 presented by Shell), two rounds of post-hearing briefing, and closing arguments. Among the many witnesses called during the evidentiary hearing was an independent engineer retained by VGCP to provide monthly reports on the Facility’s progress (the “Independent Engineer”). The Independent Engineer, whom the Tribunal found to be “honest and credible,” testified (consistent with VGCP’s position) that declaring COD in October 2022, as Shell urged, would have been premature. This testimony aligned with the reports produced by the Independent Engineer during that period. Relying on this testimony as purported evidence of “written communications [ . . . ] reflecting VGCP’s considerations about whether or when to declare COD,” Shell made a mid-hearing discovery application seeking allegedly undisclosed communications between VGCP and the Independent Engineer during the period from January 1, 2022, to September 1, 2022. After receiving written submissions, the Tribunal afforded the parties an opportunity to address the application in person. In the end, the Tribunal unanimously concluded, based on the extensive record presented, that VGCP had not breached the SPA by failing or refusing to declare COD on October 24, 2022 (the “Award”). Following approval by the ICC International Court of Arbitration on July 31, 2025, the Award was rendered on August 7, 2025. Shell moved to vacate the Award on the grounds that VGCP procured it through fraud or misconduct. Specifically, Shell alleged that VGCP’s counsel deliberately misled the Tribunal regarding the existence of communications that were the subject of Shell’s discovery applications. Shell also sought leave to conduct discovery to identify any communications between VGCP and the Independent Engineer from January 1, 2022, to September 1, 2022, relating to the status of the Facility and COD—“in other words,” as the motion court put it, “essentially the same discovery requested during the evidentiary hearing, which the Tribunal denied.” [1] The Motion for Discovery Unlike in a plenary action, where discovery is available as of right, CPLR 408 provides that in a special proceeding, “[l]eave of court shall be required for disclosure except for a notice [to admit].” CPLR 408 does not distinguish among the various types of special proceedings when it comes to the availability of discovery. As noted by the motion court, “context matters.” [2] While some courts have exercised discretion to permit discovery in post-arbitration proceedings, [3]  noted the motion court, “it does appear (from the paucity of authority cited by the parties) that doing so is relatively rare, perhaps due in part to the courts’ generally deferential role in reviewing arbitral awards.” [4]  In any event, said the motion court, “requests for leave to take discovery in a special proceeding must be decided based on the particular facts and circumstances.” [5] In considering the motion, the motion court found that “Shell’s request for CPLR 408 discovery suffer[ed] from the additional complication that it [sought] essentially the same supplemental discovery it repeatedly but unsuccessfully sought from the Tribunal during the evidentiary hearing.” [6]  Thus, concluded the motion court, “its request essentially require[d] the Court to second-guess the arbitrators’ determinations with respect to the scope of discovery, something courts are understandably reluctant to do.” [7]   The motion court noted that “[d]eference to the Tribunal’s discovery rulings [was] particularly appropriate in this case given the circumstances in which the issue was presented.” [8]  The motion court explained that the arbitrators themselves witnessed the direct and cross-examination of the Independent Engineer, as well as the “careful” statements of VGCP’s counsel on which Shell now focuses much attention. Thus[,] the arbitrators were in a far better position than this Court to assess whether, in light of the extensive discovery process they themselves oversaw, on balance there was a need for additional discovery in the midst of the evidentiary hearing or any concerns about the credibility of VGCP’s reputable counsel.[ [9] ] In holding that post-arbitration discovery was not warranted, the motion court rejected Shell’s reliance on  Eletson Holdings, Inc v. Levona Holdings Ltd . [10]  In Eletson , the court permitted post-arbitration discovery only after subsequent bankruptcy proceedings revealed previously undisclosed materials, despite an earlier application for those materials having been rejected during the arbitration. [11]  Notably, the court initially refused to permit any further discovery, holding that the respondent had already been afforded a full opportunity to present its case and was not entitled to “a second bite at the apple.” [12]   In Shell , Shell’s sole support for its motion consisted of the hearing transcript itself, “amplified by conclusory and speculative accusations of misrepresentation by VGCP’s counsel.” [13]  “To the extent Shell sought to test opposing counsel’s representations,” said the motion court, “it was afforded ample opportunity by the Tribunal to do so …, but the Tribunal was not persuaded.” [14] “Ultimately,” said the motion court, “Shell now seeks a  third  bite at the apple—making an essentially identical application to this Court in the hope of obtaining a different outcome and using it to relitigate the arbitration. That is not a persuasive basis for seeking post-arbitration discovery.” [15] In conclusion, the motion court rejected Shell’s request by emphasizing that CPLR 7511 does not permit discovery that would effectively second‑guess the arbitral tribunal’s considered discovery rulings, particularly where the alleged need for discovery rested on speculation rather than facts external to the arbitration record: To be sure, there is some tension between respecting the Tribunal’s discovery decisions and the otherwise reasonable instinct to give a petitioner latitude to develop the evidentiary basis of its contentions. But that tension is of Shell’s own creation. To grant Shell’s discovery request would be to permit the very discovery rejected by the Tribunal on the speculative basis that perhaps the Tribunal did not accurately assess the risk that relevant documents were being withheld. As described in greater detail below, that is exactly the type of judicial second-guessing that is not permitted in a proceeding under CPLR 7511. By contrast, the few cases that have permitted discovery in aid of a petition to vacate an arbitration award have focused on allowing the petitioner to develop challenges based on facts external to the panel’s decision on the merits.[ [16] ] The Petition to Vacate Under New York law, “[a]n arbitration award must be upheld when the arbitrator offer[s] even a barely colorable justification for the outcome reached[;] an arbitrator’s award should not be vacated for errors of law and fact committed by the arbitrator and the courts should not assume the role of overseers to mold the award to conform to their sense of justice.” [17]  Accordingly, “a court may vacate an arbitration award only if it violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator's power.” [18]  “A party moving to vacate an arbitration award has the burden of proof, and the showing required to avoid confirmation is very high.” [19]  Simply put, “an arbitrator’s rulings, unlike a trial court’s, are largely unreviewable.” [20]   The grounds for vacating an arbitration award are limited and set forth in the Federal Arbitration Act (9 U.S.C. § 10) and in CPLR 7511. Relevant to Shell  is CPLR 7511(b)(1)(i), which permits a court to vacate an award upon a finding that it was procured by “corruption, fraud or misconduct.” [21] A party claiming fraudulent procurement of an arbitration award must establish: first, that fraud occurred in the arbitration, which must be proven by clear and convincing evidence; second, that the fraud could not have been discovered through the exercise of due diligence before or during the arbitration; and third, that the fraud materially related to an issue in arbitration. [22] While the discovery of new evidence is not generally grounds for vacatur, [23] purposeful concealment or lack of candor “does constitute the type of misconduct that [may warrant] further proceedings before the arbitrator.” [24]   Shell moved to vacate the Award on the ground that VGCP’s counsel procured the Award by concealing evidence from the Tribunal. Specifically, Shell contended that VGCP’s counsel misled the Tribunal about the existence of purported written communications that may have occurred between VGCP and the Independent Engineer. Based on the record before the motion court, the motion court “concludes[d] that Shell [did] not [meet] its burden to establish grounds for vacating the Award.” [25] The motion court explained that “Shell’s claim of fraud or misconduct rest[ed] on the assertions that (a) the Independent Engineer purportedly confirmed the existence of written communications between VGCP and the Independent Engineer, in or around fall 2022, reflecting consideration by VGCP about whether and when to declare the occurrence of the Terminal’s Commercial Operation Date, following which (b) VGCP’s counsel misrepresented that no such written communications existed.” [26]  “However,” said the motion court, “the record simply [did] not support those contentions.” [27]  The motion court found that “[w]hile the Independent Engineer’s testimony suggest[ed] that VGCP may have offered commentary or made observations about the Independent Engineer’s monthly reports, it did not establish—let alone by clear and convincing evidence—that there were unproduced written communications reflecting VGCP’s consideration about whether and when to declare COD.” [28]  “Based on the testimony, which [was] equivocal at best,” said the motion court, “any suggestion to the contrary [was] conjecture.” [29] Speaking to the scienter element of fraud, the motion court found that “the representations of VGCP’s counsel [did] not establish by clear and convincing evidence that VGCP’s counsel knowingly made misrepresentations to the Tribunal as to whether responsive documents had been withheld from production.” [30] The motion court explained that “VGCP’s counsel forthrightly explained that he had not conducted a new document review during the arbitration hearing in response to Shell’s demands, but that he was unaware of any responsive and unprivileged documents that were withheld from production.” [31]  As noted above, said the motion court, “the Tribunal vetted the issue during the hearing and concluded that there were no grounds to require additional discovery proceedings.” [32]  “In sum,” concluded the motion court, “Shell’s suggestion that VGCP’s counsel made misrepresentations to the Tribunal [was] pure speculation.” [33]   The motion court also addressed the materiality element of the claimed fraud, finding that Shell did not establish “that the speculated written communications between the Independent Engineer and VGCP would have been material to any issue in the arbitration.” [34]  “The Independent Engineer’s testimony constituted only one of several independent bases supporting the Tribunal’s conclusions as to the central question of whether the Facility achieved COD as of October 2022,” noted the motion court. [35]  “Thus,” concluded the motion court, “it [was] far from clear—and indeed a stretch—that disclosure of any particular correspondence between the Independent Engineer and VGCP, added to the extensive record that already existed, would have altered the record in any meaningful way.” [36] Takeaway Shell  reaffirms arbitration finality and judicial restraint in post‑award proceedings. First, it underscores that discovery under CPLR 408 in a vacatur proceeding is the rare exception, not the rule, and is especially disfavored when it seeks materials that the arbitral tribunal has already considered and rejected. Courts will not use CPLR 408 to second‑guess an arbitrator’s procedural or discovery rulings, particularly where the arbitrators were best positioned to assess credibility, completeness of production, and the need for additional disclosure during the arbitral hearing itself. As the motion court noted, a court’s role under CPLR 7511 is deferential, not supervisory. Second, Shell  underscores the difficulties vacating an award for fraud under CPLR 7511. Speculation about undisclosed documents, disagreements with counsel’s representations, or post-hoc dissatisfaction with the arbitral record will not suffice. Fraud must be proven by clear and convincing evidence, must concern facts that could not have been discovered with due diligence during the arbitration, and must be material to the award. Absent concrete, external evidence of misconduct, courts will not permit discovery or reopen the merits under the guise of a vacatur application. _______________________________ Jeffrey M. Haber  is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions and not on matters handled by the firm. [1] Slip Op. at *3. [2] Id. [3] See ,  e.g. ,  TCR Sports Broadcasting Holding, LLP v. WN Partner, LLC , 2015 WL 6746689, at 4 (Sup. Ct., N.Y. County 2015) (trial court noted that it had permitted limited discovery into alleged arbitrator partiality), aff’d on other grounds, 153 A.D.3d 140 (1st Dept. 2017); Frere v. Orthofix, Inc., 2000 WL 1789641, at 4 (S.D.N.Y. 2000) (noting that “discovery in a post-arbitration judicial proceeding [is available in] limited circumstances, where relevant and necessary to the determination of an issue raised by such an application.”). [4] Slip Op. at *3. [5] Id. [6] Id. [7] Id.  (citing Matter of Merrill Lynch, Pierce, Fenner & Smith , 198 A.D.2d 181, 181 (1st Dept. 1993) (declining to reconsider arbitrators’ denial of a document request);  Doscher v. Sea Port Grp. Sec., LLC , 2017 WL 6061653, at 5 n.4 (S.D.N.Y. 2017) (denying discovery in a vacatur proceeding because the respondent “was given the opportunity to obtain [most, if not all, of the discovery it now seeks] during the arbitration proceedings”);  TCR Sports Broadcasting Holding, LLP v. WN Partner, LLC, 67 Misc. 3d 1242 (A), at 29-32 (Sup. Ct., N.Y. County 2019) (noting that “arbitrators have substantial discretion in regulating the scope of discovery” and declining to second-guess that judgment), aff’d, 187 A.D.3d 623 (1st Dept. 2020), aff’d in part and modified in part on unrelated grounds, 40 N.Y.3d 71 (2023); Kellner v. Amazon, 2023 WL 2230288, at 4 (2d Cir. 2023) (“arbitrator’s decision to exercise [their] authority [to compel discovery] in a manner different than requested by [the petitioner] is not grounds for vacatur”)). [8] Id. [9] Id. [10] 2024 WL 4100555 (S.D.N.Y. 2024). [11] Id.  at *22. [12] See Eletson Holdings, Inc. v. Levona Holdings Ltd. , 2024 WL 246367, at *2 (S.D.N.Y. 2024). [13] Slip Op. at *3. [14] Id. [15] Id.  (orig’l emphasis) (citing Sorrentino v. Weinman , 50 A.D.3d 305 , 305 (1st Dept. 2008) (“petitioner raised the arguments that respondents [ . . . ] failed to produce material information, which the arbitration panel rejected, and there exists no basis to disturb the panel’s determination”);  TCR Sports Broadcasting , 67 Misc. 3d 1242(A), at 31 (“[t]he record shows that the [arbitrators] considered the [applicants’] various discovery requests and rejected them in a formal, reasoned order”);  Panzer v. Epstein , 2023 WL 4149526, at 2 (Sup. Ct., N.Y. County 2023) (refusing to preempt arbitrators’ rejection of adjournment request to digest disclosure; “[a]rbitrators are properly given broad discretion with respect to procedural matters such as the scope of discovery”); Kellner, 2023 WL 2230288, at 5 (denying motion to vacate discovery ruling because “[t]he arbitrator held a hearing in which both parties presented their arguments regarding [the petitioner’s] remaining three discovery requests, and she ultimately sustained [the respondent’s] objections, providing a reasoned basis for that decision”)). [16] Id.  (citing TCR Sports Broadcasting , 2015 WL 6746689, at *4 (noting that the court allowed limited discovery into the arbitrators’ alleged partiality and conflicts of interest)). [17] Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471 , 479-80 (2006). [18] In re Falzone (New York Cent. Mut. Fire Ins. Co.) , 15 N.Y.3d 530, 534 (2010). [19] U.S. Elecs., Inc v. Sirius Satellite Radio, Inc. , 17 N.Y.3d 912 , 915 (2011) (citation omitted). [20] Falzone , 15 N.Y.3d, at 534. [21] See also  9 USC § 10(a)(1) (“corruption, fraud, or undue means”). [22] Imgest Finance Establishment v. Shearson Lehman Hutton, Inc. , 172 A.D.2d 291, 291 (1st Dept. 1991);  Odeon Capital Group LLC v. Ackerman , 864 F.3d 191, 194 (2d Cir. 2017). [23] See Matter of Central Gen. Hosp. v. Hanover Ins. Co. , 49 N.Y.2d 950, 951 (1980) (affirming arbitration award despite subsequent emergence of new evidence even though the evidence may have resulted in a different outcome). [24] See Matter of Science Dev. Corp. (Schonberger) , 156 A.D.2d 253, 254 (1st Dept. 1989) (affirming vacatur where respondent concealed important evidence). [25] Slip Op. at *5. [26] Id. [27] Id. [28] Id. [29] Id. [30] Id. [31] Id. [32] Id. [33] Id. [34] Id. [35] Id. [36] Id.  (citation omitted).

By: Jeffrey M. Haber New York has a unique mechanism—summary judgment in lieu of complaint—that allows a party to recover money upon the default of an instrument for the payment of only. Under this mechanism, which is found in CPLR 3213, a party must make the motion for summary judgment before filing a complaint. The purpose of CPLR 3213 “is to provide an accelerated procedure where liability for a certain sum is clearly established by the instrument itself.” [1]  In such a circumstance, CPLR 3213 can be used when “a formal complaint is superfluous and … the delay incident upon waiting for an answer and then moving for summary judgment is needless.” [2] “The prototypical example of an instrument within the ambit of [CPLR 3213] is of course a negotiable instrument for the payment of money – an unconditional promise to pay a sum certain, signed by the maker and due on demand or at a definite time.” [3]  Generally, CPLR 3213 is used to enforce “some variety of commercial paper in which the party to be charged has formally and explicitly acknowledged an indebtedness,” so that “a prima facie case would be made out by the instrument and a failure to make the payments called for by its terms.” [4]   A promissory note may qualify as such an instrument, [5]  so long as the plaintiff submits proof of the existence of the note and of the defendant’s failure to make payment. [6] Such proof must be in admissible form sufficient to establish the absence of any material, triable issues of fact. [7]    While CPLR 3213 provides an accelerated method to recover sums due under an instrument for the payment of money only or a judgment, some plaintiffs do not always avail themselves of the device. Main St. Merchant Servs. Inc. v Victorian Rest. & Tavern, LLC , 2025 N.Y. Slip Op. 34664(U) (Sup. Ct., Kings County Dec. 04, 2025), is an example of such a situation. Main Street Merchant  arose out of a contractual dispute between the parties, pursuant to two Purchase and Sale of Future Receivables Agreements (“Agreement l” and “Agreement 2,” respectively, and collectively the “Agreements”). On March 19, 2024, pursuant to Agreement 1, plaintiff agreed to buy all rights of the Company Defendants’ future receivables. [8]  The future receivables covered by Agreement 1 had a face value of $94,430. The purchase amount for those receivables was $71,000. On June 27, 2024, pursuant to Agreement 2, plaintiff agreed to buy all rights of the Company Defendants' future receivables. The future receivables covered by Agreement 2 had a face value of $58,758. The purchase amount for those receivables was $42,000. Under both Agreement 1 and Agreement 2, August R. Cipully a/k/a August Cipully (“Guarantor”) agreed to guarantee any and all amounts owed to plaintiff from the Company Defendants. On September 30, 2024, plaintiff filed its complaint, asserting causes of action for breach of contract, breach of the personal guarantee, and unjust enrichment. Plaintiff further asserted that it was entitled to its attorney’s fees in pursuing collection of the amounts owed. On October 28, 2024, defendants answered the complaint. On November 14, 2024, plaintiff moved for summary judgment pursuant to CPLR 3212. In support of its motion, plaintiff argued that it remitted the purchase price for the future receivables to defendants as agreed upon and fully complied with its obligations and duties under the Agreements. Plaintiff stated that while defendants initially met their obligations under Agreement 1, on September 9, 2024, and September 16, 2024, defendants violated the terms of Agreement 1. Plaintiff further stated that while defendants initially met their obligations under Agreement 2, on August 1, 2024, and September 5, 2024, defendants violated the terms of Agreement 2. Under both Agreements, plaintiff alleged that defendants interfered with plaintiff’s right or ability to collect the Initial Daily Installments set forth in the Agreements by allowing plaintiff to receive four (4) or more rejected ACH transactions by defendants’ bank. In opposition, defendants argued the following: (1) plaintiff failed to lay a foundation for records purportedly reflecting defendants’ payment history and default, (2) plaintiff failed to offer evidence to prove its performance ( i.e. , that any amount was actually paid); (3) plaintiff failed to address the fundamental issue regarding what, if any, of the monies in the account from which plaintiff had been drafting remittances constituted actionable “business sales receivables” vis-a-vis the contract; ( 4) plaintiff failed to present evidence to support the allegation that plaintiff is entitled to the default fee; and (5) plaintiff failed to distinguish between the breach of contract claim and the unjust enrichment claim. The motion court granted plaintiff’s motion. The motion court found that plaintiff “met its initial burden and prima facie entitlement to summary judgment by submitting copies of the executed Agreements, proof that [p]laintiff performed, and proof that [d]efendants failed to perform resulting in [p]laintiff’s damages.” The motion court also found that the affidavit submitted by plaintiff’s Director of Risk Management constituted further evidence supporting plaintiff’s motion. The motion court explained that the affidavit was based upon personal knowledge and demonstrated that the Director of Risk Management had “access to [p]laintiff’s business records, which [were] kept and maintained in the ordinary course of regularly conducted business activity, including the business records for, and relating to, the [d]efendants.” [9]  These records included “the executed Agreements, proof of funding, and the remittance history.” [10]  “Because Plaintiff met its initial prima facie burden, by producing the executed Agreements, proof of funding, and proof of [d]efendants’ default under the terms of the Agreements,” said the motion court, “the burden shifted to, and it became incumbent upon [d]efendants to make an ‘evidentiary showing that there exist[ed] genuine, triable issues of fact.’” [11]  The motion court held that defendants “failed to raise a triable issue of fact relative to both [p]laintiff’s and [d]efendants’ alleged performance of their respective obligations under the Agreements.” [12] Regarding the default fee, which the parties provided for as liquidated damages in the Agreements, the motion court held that “the default fees [were] neither unconscionable, nor contrary to public policy and [were] therefore enforceable.” [13]   Takeaway CPLR 3213 provides an expedited procedure for the recovery of money based on an “instrument for the payment of money only,” such as promissory notes or unconditional guarantees. Instead of filing a complaint, the plaintiff serves a summons and a motion for summary judgment together, allowing the court to decide the case quickly when liability is clear from the instrument itself. This mechanism avoids the delays of pleadings and answers, making it attractive for straightforward monetary claims. However, CPLR 3213 comes with strict service requirements. The combined summons and motion must be served in the same manner as a summons. The return date must comply with CPLR 320(a), giving defendants the same time to appear as if served with a complaint—usually 20 or 30 days depending on the method of service. These service requirements can be challenging when defendants are out of state, evasive, or corporate entities with unclear registered agents. Any defect in service can invalidate the motion entirely, creating significant risk. For this reason, plaintiffs often choose CPLR 3212 after filing a complaint, which provides more flexibility and time to cure service issues without jeopardizing the case. Main St. Merchant Servs. Inc. v. Victorian Rest. & Tavern, LLC  illustrates this dynamic. In Main St. Merchant , plaintiff filed a complaint and later moved for summary judgment under CPLR 3212. The motion court granted the motion, finding that plaintiff met its prima facie burden by submitting executed agreements, proof of funding, and evidence of defendants’ default. Defendants failed to raise any triable issues of fact, and the motion court upheld the enforceability of the default fee as liquidated damages. This outcome underscores that while CPLR 3213 offers an accelerated process, CPLR 3212 can be a safer route when service or anticipated defenses pose challenges. ________________________________________ 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. [1]   G.O.V. Jewelry, Inc. v. United Parcel Serv. , 181 A.D.2d 517, 517 (1st Dept. 1992). [2]   Interman Indus. Products, Ltd. v. R.S.M. Electron Power, Inc. , 37 N.Y.2d 151, 154 (1975) (citations and internal quotation marks omitted). [3]   Weissman , 88 N.Y.2d at 443-44 (citations, internal quotation marks and footnote omitted). [4]   Interman Indus. Prods., Ltd. ,   37 N.Y.2d at 154-155 (1975). [5]  “An unconditional guaranty is an instrument for the payment of money only within the meaning of CPLR 3213.” Cooperatieve Centrale Raiffeisen Boerenleenbank, B.A. v. Navarro , 25 N.Y.3d 485, 492 (2015). [6]   See Bonds Fin’l, Inc. v. Kestrel Techs., LLC , 48 A.D.3d 230 (1st Dept. 2008); Seaman-Andwall Corp. v. Wright Machine Corp. , 31 A.D.2d 136 (1st Dept. 1968). [7]   See CPLR § 3212(b); Jacobsen v. New York City Health & Hosps. Corp. , 22 N.Y.3d 824 (2014); Alvarez v. Prospect Hosp. , 68 N.Y.2d 320 (1986); Zuckerman v. City of New York , 49 N.Y.2d 557 (1980). [8] The Company Defendants are: Victorian Restaurant and Tavern, LLC, The Waverly Restaurant, LLC, K.T. Baxter’s, LLC. [9]  Slip Op. at *3. [10]   Id. [11]   Id. (citation omitted). [12]   Id. [13]   Id.

By: Jonathan H. Freiberger This BLOG has previously addressed the issue of a defendant’s appearance in an action – both formal and informal. [1] In that regard, we have noted that it makes sense that a “plaintiff appears in an action merely by bringing it.” Deutsche Bank Nat. Trust Co. v. Hall , 185 A.D.3d 1006 (2 nd  Dep’t 2020) (citation and internal quotation marks omitted). Once served with process, a defendant must appear in an action to avoid a default. Section 320(a) of New York’s Civil Practice Law and Rules  (the “CPLR”), which sets forth,  inter alia,  the manner in which a defendant can appear in an action, provides that “[t]he defendant appears by serving an answer or a notice of appearance, or by making a motion which has the effect of extending the time to answer.” An appearance pursuant to CPLR §320(a) is a formal appearance in the action. New York courts also recognize “informal appearances.” To constitute an informal appearance, a defendant must have engaged in “meaningful participation in the merits of the case.” Kurlander v. Willie , 45 A.D.3d 1006, 1007 (3 rd  Dep’t 2007) (citation omitted). An appearance, whether formal or informal, can have a significant impact on litigation. Among other things, an appearance could: preclude the entry of a default judgment by plaintiff; operate to preclude a defendant from interposing a defense of lack personal jurisdiction; and, preclude a defendant from having a complaint dismissed pursuant to CPLR 3215(c) v based on a plaintiff’s failure to seek a default judgment within a year of default. [2] Depending on the circumstances, a plaintiff or a defendant may argue that a defendant has “informally appeared” in an action. Some residential mortgage foreclosure actions [3] are subject to mandatory settlement conferences. See, e.g.,   CPLR 3408(a)(1) and 22 NYCRR 202.12-a(b)(l) . However, a defendant’s participation in settlement conferences does not constitute either a formal or an informal appearance because the defendant does “not actively litigate the action before the Supreme Court or participate in the action on the merits.” Wells Fargo Bank, N.A. v. Martinez , 181 A.D.3d 470, 471 (1 st  Dep’t 2020) (citations, internal quotation marks and brackets omitted); see also US Bank Nat. Ass’n v. Kail , 189 A.D.3d 1652, 1654-55 (2 nd  Dep’t 2020) (same, relying on Martinez ); PennyMac Corp. v. Weinberg , 203 A.D.3d 1061, 1063 (2 nd  Dep’t 2022). Against this backdrop, we discuss HSBC Bank USA, N.A. v. Saris , a case decided on December 24, 2025 by the Appellate Division, Second Department. According to the Court, the “issue on appeal, an issue of first impression for this Court, is whether a party’s attendance at a mandatory settlement conference pursuant to CPLR 3408 constitutes an appearance by a party for the purposes of CPLR 3215(g) , which provides, among other things, that a party who has appeared in an action is entitled to at least five days' notice of an application for leave to enter a default judgment.” The facts of HSBC Bank  are simple. In 2014, the lender commenced a foreclosure action and a mandatory settlement conference attended by the borrower was conducted thereafter. The borrower, however, neither filed a notice of appearance, interposed an answer nor made any motion operating to extend the defendant’s time to answer. The lender’s unopposed motion for a default judgment was granted. A judgment of foreclosure and sale was subsequently entered, and the subject property was sold to the lender at public auction after the borrower’s motion to stay the sale was denied by the motion court. The motion court also denied the borrower’s subsequent motion pursuant to CPLR 5015(a) (1) and (4) [4]  to vacate the motion court’s prior orders resulting in the default judgment and the sale of the subject property. The borrower appeals. The Second Department affirmed. Specifically, as to CPLR 5015(a)(4), the Court noted that any defendant that has appeared in an action is entitled to at least five days’ notice of an application for leave to enter a default judgment pursuant to CPLR 3215(g)(1) . The Court further stated that “the failure to provide a defendant who has appeared in an action with the notice required by CPLR 3215(g)(1), like the failure to provide proper notice of other kinds of motions, is a jurisdictional defect that deprives the court of the authority to entertain a motion for leave to enter a default judgment." (Citations, internal quotation marks and brackets omitted.) The Court rejected the borrower’s argument under CPLR 5015(a)(4) that the lender’s failure to provide at least five days’ notice of its application for a default judgment because his appearance at the mandatory settlement conference constituted an appearance was a jurisdictional defect. [5] In this regard, the Court stated that “neither the plain language of CPLR 3215(g)(1) nor its legislative history supports the defendants' contention that attendance at a mandatory settlement conference pursuant to CPLR 3408 constitutes an appearance in an action for the purpose of the notice requirements of CPLR 3215(g)(1).” The Court explained that while the term “appear” or “appearance” is not defined in CPLR 3215, there is also nothing that indicates that those terms should be treated differently than they are elsewhere in the CPLR. The Court also noted that there “appears to be no prior case law from this Court, our sister courts, or the Court of Appeals defining what constitutes an appearance for the purpose of triggering the five-day notice requirement of CPLR 3215.” The Court did note that it has routinely held that attendance at a mandatory settlement conference "does not constitute active litigation of the action or participation in the action on the merits." (Citation and internal quotation marks omitted.) Thus, the Court stated: Accordingly, this Court's own case law interpreting the meaning and scope of the word appear under subdivision (c) of CPLR 3215, together with similar determinations by our sister courts, informs our view that the word appear for the purpose of triggering the notice requirement under subdivision (g) of CPLR 3215 should be defined by the scope of the word as determined by decisional law relating to subdivision (c) of CPLR 3215. Concomitantly, our determination that attendance at a mandatory settlement conference pursuant to CPLR 3408, alone, does not constitute an appearance in the action is wholly consistent with this Court's case law on the related issue of personal jurisdiction. A defendant does not waive the defense of lack of personal jurisdiction merely by attending a mandatory settlement conference. [Citation omitted.] Thus, the Court held that the borrower’s attendance at the mandatory settlement conference did not constitute an appearance that triggered the five days’ notice provision of CPLR 3215()(1) and, therefore, the motion court’s rejection of the borrower’s arguments was proper. 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. [1]  This BLOG has written numerous of articles addressing CPLR 3215(c). To find such articles, please see the BLOG  tile on our website  and type “CPLR 3215(c)” into the “search” box. [2]  This BLOG has written numerous of articles addressing formal and informal appearances. To find such articles, please see the BLOG  tile on our website  and type “informal appearance” or “CPLR 320(a)” into the “search” box. [3]  This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG  tile on our website  and search for any foreclosure, or other commercial litigation, topics that may be of interest you. [4] CPLR 5015(a)(1) and (a)(4) permit a court to vacate a judgment based on excusable default and lack of jurisdiction, respectively. [5]  The Court also rejected the borrower’s excusable default argument under CPLR 5015(a)(1), because the borrower’s claim of incapacitation was unsupported by medical or other evidence.

By:  Jeffrey M. Haber It is well settled that a “valid release constitutes a complete bar to an action on a claim which is the subject of the release.” [1]  “[A] release that, by its terms, extinguishes liability on any and all claims arising in connection with specified matters is deemed to encompass claims of fraud relating to those matters, even if the release does not specifically refer to fraud and was not granted in settlement of an actually asserted fraud claim.” [2] A party may move to dismiss a pleading, pursuant to CPLR Rule 3211(a)(5), where the language of a release clearly and unambiguously covers the subject matter of the action. [3]  In that case, “the signing of a release is a ‘jural act’ binding on the parties.” [4]  However, a release may be invalidated for any of “the traditional bases for setting aside written agreements, namely, duress, illegality, fraud, or mutual mistake.” [5] Although a defendant has the initial burden of establishing that it has been released from any claims, a signed release “shifts the burden of going forward . . . to the [plaintiff] to show that there has been fraud, duress or some other fact which will be sufficient to void the release.” [6]   When fraud is the basis of the motion, the party seeking to invalidate a release must “establish the basic elements of fraud, namely a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury.” [7]  The mere nondisclosure of potential future transactions (which had not been finalized) or financial upside is not sufficient. [8]  “[A] party that releases a fraud claim may later challenge that release as fraudulently induced only if it can identify a separate fraud from the subject of the release.” [9]  As the Court of Appeals observed, “[w]ere this not the case, [then] no party could ever settle a fraud claim with any finality.” [10] In Crane v. WP Strategic Holdings, LLC , 2025 N.Y Slip Op. 52064(U) (Sup. Ct., Albany County Sept. 10, 2025), the court dismissed a complaint, holding the action was barred by a broad, unconditional release the parties signed after arm’s-length negotiations with independent counsel. [11]  As discussed below, the release expressly covered all claims, known or unknown, including those related to ownership and future sales. Plaintiff failed to demonstrate that the alleged nondisclosure of a pending sale constituted a separate fraud sufficient to undo the enforceability of the release. In February 2024, plaintiffs entered into discussions with the managing member of WP Strategic Holdings, LLC (“WP”) to partner together for the purchase of a Delaware corporation known as Crane Special Papers North America, Inc. (“CSPNA”). [12]  Plaintiffs each contributed $300,000 towards the acquisition, with the funds deposited into an escrow account maintained by the parties’ transactional counsel. In exchange for their contribution of capital, each plaintiff would receive 10% of CSPNA’s stock. On March 14, 2024, the parties closed the transaction (“Closing”). During the Closing, WP allegedly informed plaintiffs that, to facilitate the expeditious purchase of CSPNA’s stock, the stock purchase agreement memorializing the transaction would show WP as the purchaser of the stock. Defendants allegedly represented that the parties would later document the fact that each plaintiff was the 10% owner of CSPNA’s stock. Plaintiffs alleged that, in reliance on the statements and representations defendants made during the Closing, plaintiffs authorized the release of the $600,000 held in escrow for the purchase of the CSPNA shares. Plaintiffs alleged that, a few days later, in response to an inquiry from counsel regarding the allocation of the CSPNA shares, WP’s managing member acknowledged in writing that plaintiffs’ investment resulted in a 20% ownership interest in CSPNA. Notwithstanding, said plaintiffs, defendants failed to deliver their stock certificates. Plaintiffs alleged that unbeknownst to them, on March 6, 2024, and prior to the Closing, WP was negotiating with Perfect Cube LLC d/b/a Decree Company of Raleigh, North Carolina (“Decree”) to sell CSPNA to Decree for approximately $9,750,000.” On May 17, 2024, Decree and WP executed a letter of intent (“LOI”) for the transaction. After signing the LOI, defendants allegedly changed their position with respect to plaintiffs’ ownership interests in CSPNA. On May 28, 2024, after plaintiffs inquired about the lack of documentation, defendant allegedly informed plaintiffs that the parties “had different views on, among other things, their ownership interests in [CSPNA] and that their short- and long-term goals were no longer aligned.” WP offered to return the $600,000 in capital contributed by plaintiffs, together with an additional $60,000 “to address any inconvenience.” Plaintiffs agreed to defendant’s proposal because the amount offered was allegedly close to the amount they had been led to believe was the value of CSPNA ( e.g. , $3 million). However, defendants allegedly did not inform plaintiffs that WP had already entered into the LOI on May 17, 2024, to sell the stock of CSPNA for $9,750,000. Plaintiffs maintained that they would have been entitled to $975,000 of that amount as 10% shareholders. On June 3, 2024, WP presented plaintiffs with a proposed Agreement and Mutual Release (the “Release”), which defendants allegedly insisted plaintiffs sign as a condition of receiving $330,000 each. Plaintiffs shared the proposed Release with their counsel. After several rounds of revisions, plaintiffs, WP, CSPNA, and WP’s managing member signed the Release. As a result, each plaintiff received $330,000. The Release provided that plaintiffs would release, among others, WP’s managing member, CSPNA, and WP, “jointly and severally, from any and all claims, rights, causes of action, suits, debts, dues, units, shares, stock, interests, sums of money, . . . , and all liability and obligations for the same, in law or in equity, whether contingent or fixed, known or unknown, . . . that [plaintiffs] ever had, now have, or hereafter . . . may have . . . by reason of any matter, cause or thing, from the beginning of the world until the date of this [Release].” Plaintiffs affirmatively represented that they “entered into th[e] [Release] of their own free will and accord, [had] received independent legal counsel and review of th[e] [Release], and they [had] not been promised any additional future consideration with respect to the transactions contemplated by th[e] [Release].” Plaintiffs further acknowledged the unconditional nature of the Release and expressly recognized the prospect that WP “could sell the CSPNA Shares at any time in the future” without accounting to plaintiffs for the profits. About one month later, on July 3, 2024, Decree acquired CSPNA through a merger for a purchase price of $9,750,000. In January 2025, Decree’s principal supplied plaintiffs with documents showing that WP’s managing member had been negotiating the sale of CSPNA to Decree in March 2024. Plaintiffs commenced the action on March 26, 2025, alleging that defendants breached their agreement “to issue stock certificates and documentation . . . to evidence [plaintiffs’] collective 20% ownership of the [CSPNA] stock . . . , as previously agreed upon [with WP’s managing member], because they were actively negotiating and preparing to sell the stock” to Decree. Plaintiffs further alleged that defendants failed to inform them that defendants “had been negotiating with Decree . . . or that [defendants] had entered into the [LOI].” “Plaintiffs alleged that defendants violated their fiduciary duties to plaintiffs by deliberately withholding information regarding the LOI. Plaintiffs sought to set aside the Release as the product of fraud, arguing that they would not have signed the Release if they had known that defendants “negotiated a sale of [CSPNA] for [$9.75 million].” Plaintiffs also sought to recover 20% of the $9.75 million paid by Decree for CSPNA, together with interest and punitive damages, under theories sounding in fraud, breach of fiduciary duty, unjust enrichment, constructive trust, and breach of contract. Defendants moved to dismiss the complaint under CPLR 3211 (a) (1), (5) and (7), arguing that all of plaintiffs’ causes of action were foreclosed by the clear and unambiguous language of the Release, which was negotiated and signed by commercial parties represented by counsel. The motion court granted the motion. [13] The motion court held that “defendants [had] demonstrated,  prima facie , that plaintiffs’ claims [were] barred by the Release.” [14] The motion court explained that “following the parties’ inability to agree on the terms by which plaintiffs would acquire an interest in CSPNA, plaintiffs ‘knowingly and voluntarily’ released defendants from any liabilities or obligations, ‘whether contingent or fixed, known or unknown,’ for ‘shares, stock, interests [or] sums of money.’” [15] “Thus,” said the motion court, “the Release encompasse[d] unknown fraud claims, thereby precluding a claim of fraudulent inducement ‘unless the release was itself induced by a separate fraud.’” [16] The motion court found that “[n]o such separate fraud ha[d] been identified.” [17]  “The claim of fraudulent inducement” said the motion court, was “based on defendants’ alleged fiduciary concealment of information concerning the LOI and the potential sale of CSPNA to Decree…, but this [was] just an extension of plaintiffs’ over-arching complaint: that defendants refused to accord them the rights and privileges attendant to an ownership interest in CSPNA, notwithstanding [WP’s] express promises of the same.” [18]  “In essence,” concluded the motion court, plaintiffs were “‘asking to be relieved of the release on the ground that they did not realize the true value of the claims they were giving up.’” [19]   The motion court further held that even if plaintiffs had adequately identified a separate fraud, their claim that they were fraudulently induced to sign the release would still fail. [20]  The motion court found that plaintiffs failed to allege justifiable reliance on the alleged fraud. [21]   The motion court explained that plaintiffs were “sophisticated businesspeople who were represented by their own separate counsel at pertinent times …, including during arm’s-length negotiations with defendants’ counsel over the terms of the Release.” [22]  The motion court said that plaintiffs were on notice that the parties’ “short- and long-term goals were no longer aligned.” [23]  “In fact,” noted the motion court, “defendants’ suspicious and ‘unresponsive nature after the March 14, 2024, Zoom Meeting,’ led one of plaintiffs’ advisors to recommend that they accept defendants’ settlement proposal because he believed that “[defendants’ were] being untruthful.” [24] The motion court concluded that “[d]espite all of the[ ] red flags, settlement negotiations conducted at arm’s length through separate counsel, and a proposed Release that recognized WP’s right to sell CSPNA shares ‘at any time’ without accounting to plaintiffs…, plaintiffs made no inquiry concerning the value of their claimed interest in CSPNA or the reasons for defendants’ ‘abrupt[]’ change in position.” [25]  “Plaintiffs did not inquire about the status of CSPNA’s business, the prospects for a sale of CSPNA’s stock, or the value of their claimed 20% ownership interest,” said the motion court. [26]  “Instead,” noted the motion court, “plaintiffs ‘knowingly and voluntarily’ executed the Release based on their ‘belief’ that the $660,000 they would receive from defendants was ‘relatively close’ to the market value of the interest they claimed in CSPNA. In so doing, plaintiffs disregarded overt conduct on the part of defendants clearly evincing a breakdown in the relationship and an adversarial posture, including a clear statement that defendants no longer viewed the parties’ interests as being aligned.” [27] Accordingly, the motion court dismissed the complaint, concluding that plaintiffs failed “to conduct any  diligence as to the value of their released claims,” thereby “conclusively defeat[ing] the allegation that they reasonably and justifiably relied upon defendants’ silence regarding the non-binding LOI and other information bearing on the value of their claimed interest in CSPNA.” [28] Takeaway Crane  reinforces critical principles with regard to the enforceability of releases. First, courts will enforce broad releases, including the release of known and unknown fraud claims, when the release is clear and unambiguous. Second, to void a release, a party must show a separate fraud, not just nondisclosure of facts tied to the released dispute. Finally, when trying to negate the force and effect of a release based on fraud, the party opposing the motion must demonstrate the elements of a fraud claim, including the exercise of justifiable reliance. __________________________ 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. [1] Centro Empresarial Cempresa S.A. v AmÉrica MÓvil, S.A.B. de C.V. , 17 N.Y.3d 269, 276 (2011); Global Mins. & Metals Corp. v. Holme , 35 A.D.3d 93, 98 (1st Dept. 2006). [2] Centro Empresarial Cempresa S.A. v. América Móvil, S.A.B. de C.V. , 76 A.D.3d 310, 319 (1st Dept. 2010), aff’d , 17 N.Y.3d 269, 276 (2011). [3] Centro , 17 N.Y.3d at 276; Luxury Travel Coach v. 4020 Assoc., Inc. , 241 A.D.2d 443, 443 (2d Dept. 1997). [4] Booth v. 3669 Delaware , 92 N.Y.2d 934, 935 (1998), quoting Mangini v. McClurg , 24 N.Y.2d 556, 563 (1969). [5] Centro , 17 N.Y.3d at 276. [6] Id. , quoting Fleming v. Ponziani , 24 N.Y.2d 105, 111 (1969). [7] Id. , quoting Global Mins. , 35 A.D.3d at 98. [8] Chadha v. Wahedna , 206 A.D.3d 523, 524 (1st Dept. 2022). [9] Centro , 17 N.Y.3d at 276, citing Centro , 76 A.D.3d at 318; see also   Bellefonte Re Ins. Co. v. Argonaut Ins. Co. , 757 F.2.d 523, 527-528 (2d Cir. 1985); Avnet, Inc. v. Deloitte Consulting LLP , 187 A.D.3d 430, 431 (1st Dept. 2020). [10] Id. [11] Over the years, this Blog  has examined numerous cases involving the enforceability of releases. Among the articles examining releases are: Releases and Fraudulent Inducement , General Release That Was Entered Because of Defendant’s Fraudulent Misrepresentations Held Not To Be Enforceable , and Release in Settlement Agreement Bars Class Action To Recover Damages For Certain Rent Overcharges . [12] The factual discussion comes from the motion court’s decision and the allegations in plaintiffs’ complaint. [13] Plaintiffs appealed the motion court’s order. [14] Slip Op. at *4. [15] Id. [16] Id. , quoting Centro , 17 N.Y.3d at 277. [17] Id. [18] Id.  (record citations omitted). [19] Id. , quoting Centro , 17 N.Y.3d at 277 (internal quotation marks omitted). [20] Id.  at *5. [21] Id. [22] Id.  (record citations omitted). [23] Id.  at *6. [24] Id. [25] Id.  (record citation omitted). [26] Id.  (citations and footnote omitted). [27] Id.  (record citation omitted). [28] Id.  at *7 (footnote omitted).

By: Jeffrey M. Haber   In today’s article, we examine the elements and heightened pleading requirements for fraudulent inducement claims under New York law, with a focus on the justifiable reliance element. As discussed, plaintiffs must allege that they relied on the alleged misrepresentation and that such reliance was justifiable. The First Department’s decision in Lee v. Chin demonstrates that justifiable reliance is often dispositive, particularly when documentary evidence or contract terms contradict the alleged misrepresentation. Lee  also demonstrates how a merger clause and pre‑execution communications can defeat an allegation of reliance as a matter of law. A Primer on Fraudulent Inducement To maintain a claim of fraudulent inducement, “it must be demonstrated that there was a false representation, made for the purpose of inducing another to act on it, and that the party to whom the representation was made justifiably relied on it and was damaged.” [1]   To withstand a motion to dismiss, a plaintiff alleging fraudulent inducement must provide the details regarding the alleged fraudulent statements, including the dates, times, and persons involved. [2]  Although this standard should not be interpreted so strictly that otherwise valid causes of action are dismissed, it nevertheless requires that the circumstances constituting the fraud be stated in sufficient detail to inform a defendant with respect to the wrongdoing complained of. [3] Absent that specificity, a plaintiff’s fraud claim cannot satisfy the heightened pleading standard imposed by CPLR 3016(b) and must be dismissed. [4] In addition, a claim for fraud must be based on a misrepresentation of a present fact, and not a prediction about the future. [5]  Thus, a fraud claim may not be supported by allegations that simply evidence a plaintiff’s disappointment that a promised future benefit did not materialize. [6]  Opinions of value, future performance, or expectations are inactionable puffery and cannot support a cause of action for fraud. [7]   “A defendant’s knowledge of an allegedly false representation is another element of a fraud claim that must be established.” [8]  Courts routinely dismiss fraud claims where the plaintiff’s “allegations of scienter are not pleaded with the requisite particularity, but are conclusory, failing to set forth facts from which scienter may be inferred.” [9]  Indeed, the Court of Appeals has held that a “single allegation of scienter, without additional detail concerning the facts constituting the alleged fraud, is insufficient under the special pleading standards required under CPLR 3016(b), and, consequently, the cause of action should [be] dismissed.” [10]   Moreover, the “[p]laintiff must show not only that he actually relied on the misrepresentations, but also that such reliance was reasonable.” [11] “Where a party has the means to discover the true nature of the transaction by the exercise of ordinary intelligence, and fails to make use of those means, he cannot claim justifiable reliance on defendant's misrepresentations.” [12]  In situations where the plaintiff has the ability to discover the true nature of the transaction through a writing showing the representation to be false and fails to make use of those means, as in Lee , courts have held that there is no justifiable reliance. As the First Department has long concluded: “a party claiming fraudulent inducement cannot be said to have justifiably relied on a representation when that very representation is negated by the terms of a contract executed by the allegedly defrauded party.” [13]   Lee v. Chin Lee  concerned an agreement in which plaintiff agreed to lease a condominium unit located on Worth Street in New York City (the “Apartment”) from defendant. On September 23, 2020, plaintiff, as tenant, and defendant, as landlord, entered into a lease agreement (the “Lease”) for the Apartment. The parties negotiated the Lease via email. Days before the parties executed the Lease, the real estate brokers involved in the transaction communicated to plaintiff that defendant “was ready to move forward with” the lease proposal – a 54-month rent schedule identified therein. The brokers also said that they would “send [plaintiff] the lease.” The Lease provided for a term that included three extension periods, with the last renewal option expiring on April 30, 2024. The term of the Lease began on October 18, 2020, and was to end on October 17, 2021.   The Lease contained a merger clause that stated the tenant was presumed to have read the Lease, that the tenant admitted that all agreements between the parties were contained in the Lease, and that any agreements made before the Lease was signed were not enforceable. Approximately one and one-half months before plaintiff’s final extension was set to expire, plaintiff commenced the action for reformation of the Lease, declaratory judgment, and fraudulent inducement. Plaintiff alleged that the Lease did not represent the agreed-upon deal between the parties, and that the true intent of the parties was reflected in an email exchange that occurred prior to the Lease being signed on September 23, 2020. In support of plaintiff’s fraudulent inducement claim, plaintiff alleged that defendant, through the real estate brokers, made a material misrepresentation by failing to disclose that the signed Lease did not contain a fourth lease extension option. Defendant moved to dismiss plaintiff’s causes of action for a declaratory judgment (second cause of action) and fraudulent inducement (third cause of action). The motion court denied the motion. The First Department unanimously reversed, granting defendant’s motion. In a short decision, the Court held that “[p]laintiff failed to adequately plead a cause of action for fraudulent inducement.” [14]  After recounting the basic facts of the case, the Court found that one of the emails in the exchange before execution of the Lease “indicate[d] that plaintiff reviewed and proposed revisions to draft riders which plainly stated an April 2024 end date.” [15]  As a result, plaintiff could not have relied on the alleged misrepresentation. Moreover, the Court found that “the final lease and rider refute[d] plaintiff’s allegations of any facts that were ‘unknown to one party but known to the other (who has misled the first),’ to support his fraudulent inducement claim.” [16]   As to the cause of action for a declaratory judgment, which sought a declaration that the Lease was void because it purported to terminate in April 2024 instead of April 2025, the Court held that plaintiff failed to state a cause of action. [17]  The Court explained that the Lease’s merger clause expressly barred any prior agreements. [18]  “Absent any evidence of fraud, and in light of the merger clause,” the Court concluded that “there [was] no cause of action for any declaratory relief stating that the [L]ease would expire in April 2025 rather than April 2024. [19]   Takeaway The central takeaway from Lee  is that fraudulent inducement claims will not survive a motion to dismiss where the alleged misrepresentation is contradicted by the documents the plaintiff reviewed and ultimately signed. The First Department made clear that a plaintiff cannot plead reliance on a misstatement or omission when contemporaneous emails, draft riders, or the final agreement itself disclose the very fact said to have been misrepresented. As the First Department has repeatedly held: “a party claiming fraudulent inducement cannot be said to have justifiably relied on a representation when that very representation is negated by the terms of a contract executed by the allegedly defrauded party.” [20] Equally significant is the Court’s reaffirmation that merger clauses matter. The Lease’s merger clause barred reliance on prior negotiations or emails and foreclosed an effort to recast the deal through fraud allegations. Absent well‑pleaded, particularized facts showing fraud, courts will enforce the contract as written, and fraudulent inducement cannot be used to rewrite an unfavorable agreement or resurrect superseded negotiations. ___________________________________________ Jeffrey M. Haber  is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions and not on matters handled by the firm. [1] Perrotti v. Becker, Glynn, Melamed & Muffly LLP , 82 A.D.3d 495, 498 (1st Dept. 2011), citing Lama Holding Co. v. Smith Barney , 88 N.Y.2d 413, 421 (1996). [2] Morales v. AMS Mortg. Servs. Inc. , 69 A.D.3d 691, 692 (2d Dept. 2010); Eastman Kodak Co. v. Roopak Enters., Ltd. , 202 A.D.2d 220, 222 (1st Dept. 1994). [3] Gomez-Jimenez v. New York Law School , 36 Misc. 3d 230, 253 (Sup. Ct., N.Y. County 2012), aff’d , 103 A.D.3d 13 (1st Dept. 2012) (internal quotation marks and citation omitted). [4] See Stanley Agency, Inc. v. Behind the Bench, Inc. , 23 Misc. 3d 1107(A), 2009 WL 975790, at *13 (Sup. Ct. Kings County 2009). [5] See Shlang v. Bear’s Estates Dev. of Smallwood, N.Y., Inc. , 194 A.D.2d 914, 915 (3d Dept. 1993). [6] Satler v. Merlis , 252 A.D.2d 551, 552 (2d Dept. 1998); Tutak v. Tutak , 123 A.D.2d 758, 760 (2d Dept. 1986). [7] See Sidamonidze v. Kay , 304 A.D.2d 415, 416 (1st Dept. 2003); Sheth v. New York Life Ins. Co. , 273 A.D.2d 72, 74 (1st Dept. 2000). [8] Waterscape Resort LLC v. McGovern , 107 A.D.3d 571, 572 (1st Dept. 2013) (citing Eurycleia Partners, LP v Seward & Kissel, LLP , 12 N.Y.3d 553, 559 (2009)). [9] Giant Grp., Ltd. v. Arthur Andersen LLP , 2 A.D.3d 189, 190 (1st Dept. 2003); LaSalle Nat’l Bank v. Ernst & Young, LLP , 285 A.D.2d 101, 109-10 (1st Dept. 2001); Ozelkan v. Tyree Bros. Envtl. Servs., Inc. , 29 A.D.3d 877, 878-79 (2d Dept. 2006). [10] Credit Alliance Corp. v. Arthur Andersen & Co. , 65 N.Y.2d 536, 554 (1985). [11] Stuart Silver Assocs. , 245 A.D.2d at 98-99; Perrotti , 82 A.D.3d at 498 (dismissing plaintiff’s fraudulent inducement claim where “under any interpretation of the proposed pleading, it is impossible to conclude that plaintiff, a sophisticated investor, reasonably relied on [the defendants'] alleged representations.”). [12] Id.  (citing 88 Blue Corp. v. Reiss Plaza Assocs. , 183 A.D.2d 662, 664 (1st Dept. 1992)). [13] Perrotti , 82 A.D.3d at 498; see also HSH Nordbank AG v. UBS AG , 95 A.D.3d 185, 188 (1st Dept. 2012). [14] Slip Op. at *1. [15] Id. [16] Id. (quoting Chimart Assoc. v. Paul , 66 N.Y.2d 570, 573 (1986)). [17] Id. [18] Id.  A merger clause is a provision in a contract that declares the writing to be the complete and final agreement between the parties. Merger clauses are typically found at the end of a contract or agreement, among other “boilerplate” provisions, and, as such, are often neglected or ignored during negotiations. Boilerplate merger clauses are generally given little weight by the courts. However, when the merger clause evidences a negotiation by the parties, courts accord such clauses more weight in determining the parties’ intent. [19] Id.  (citing New York First Ave. CVS v. Wellington Tower Assoc. , 299 A.D.2d 205, 206 (1st Dept. 2002), lv. denied , 100 N.Y.2d 505 (2003)). [20] Perrotti , 82 A.D.3d at 498; see also HSH Nordbank AG v. UBS AG , 95 A.D.3d 185, 188 (1st Dept. 2012).

By:  Jeffrey M. Haber As a general matter, when a contract fails to conform to the agreement between the parties due to the mutual mistake of the parties, however induced, or of the mistake of one party and fraud of the other, a court will reform the contract to make it conform to the actual agreement between the parties. [1]  The mutual mistake must be material ( i.e. , it must involve a “fundamental assumption” of the contract). [2]  However, it does not mean that the mistake would have caused the parties not to enter into the contract had they known of it. [3] Rather, a material mistake is one which “vitally” affects a fact or facts on the basis of which the parties contracted. [4]   Reformation is an equitable form of relief. [5]  The purpose of reformation is not to “alleviat[e] a hard or oppressive bargain, but rather to restate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties.” [6]   The burden is high to obtain contract reformation. The party demanding it “‘must establish his right to such relief by clear, positive and convincing evidence.’” [7]  Therefore, the party seeking reformation must “show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties.” [8]  Only by satisfying this burden can the party seeking reformation “overcome the heavy presumption” that the contract embodies the parties’ true intent. [9] In Romano v. Kelly , 2026 N.Y. Slip Op. 00042 (3d Dept. Jan. 8, 2026), the Appellate Division, Third Department, affirmed Supreme Court’s order partially reforming the parties’ settlement agreement to eliminate references limiting the conveyance of the subject property to the “second floor,” holding that plaintiff clearly and convincingly established a mutual mistake ( i.e. , a scrivener’s error) and that the parties’ true intent was to transfer sole ownership of the entire property to the plaintiff. Plaintiff and defendant were unmarried partners for more than 25 years. Over the course of their relationship, plaintiff and defendant resided together, possessed joint funds and accounts, and maintained common real property. Specifically, the parties acquired four parcels of real property during their relationship, utilizing one parcel as a residence and the other three as rental properties. As relevant to the appeal, in 2013, the parties bought a piece of real property located in the City of Watervliet, Albany County (the “Watervliet property”). The Watervliet property was a duplex with a first and second floor unit and, unlike the other three parcels, was titled in both parties’ names. In 2022, the parties separated, and plaintiff brought an action against defendant seeking, among other things, partition of the various pieces of real property, including the Watervliet property. The parties ultimately settled and signed a settlement agreement authored by plaintiff’s counsel in December 2023. The primary dispute in the appeal arose from the terms of the settlement agreement; specifically, with respect to the extent of the parties’ ownership of the Watervliet property. The express terms of the settlement agreement purportedly provided plaintiff with, in pertinent part, the “exclusive use and occupancy” of the second-floor unit of the Watervliet property. The agreement further required defendant to sign a warranty deed that conveyed “all of his right, title and interest in and to” the second floor of the Watervliet property and that he would “relinquish any future rental payments, pro-rate any current or due rent as of signing . . . and turn over to [plaintiff] any security deposit for the property.” However, plaintiff claimed that the parties had intended to convey the entire Watervliet property and that inclusion of the second-floor reference, where she was residing after the separation and at the time of the settlement agreement, was the product of a scrivener’s error. Plaintiff learned of the error after defendant collected rents from the tenant located in the first-floor unit of the Watervliet property for the first two months of 2024. Plaintiff contacted defendant through counsel, disputing defendant’s right to do so and asserting that an addendum to the settlement agreement was necessary to reflect the parties’ true intent that she be the sole owner of the entire Watervliet property. Defendant refused that request and proposed that plaintiff pay him further monies for the remainder of the property. Plaintiff then moved, by order to show cause, for reformation of the settlement agreement and further sought counsel fees in connection with the order. Defendant opposed plaintiff’s order to show cause and cross-moved for enforcement of the settlement agreement, asserting that plaintiff had violated a provision in the agreement requiring her to deposit $20,000 in a 529 educational savings account for the parties’ children. Defendant also sought an award of counsel fees pursuant to a clause in the agreement allowing for such fees in the event of a party’s default or breach. Supreme Court partially granted plaintiff’s motion and, in relevant part, reformed the agreement, eliminating the reference to the “2nd floor” of the Watervliet property in the settlement agreement. The court also partially granted defendant’s cross-motion ordering plaintiff to fully fund the educational account. However, the court denied both parties’ requests for counsel fees. Defendant appealed. The Third Department affirmed. The Court held that the language of the settlement agreement belied defendant’s contention that the parties intended defendant to have the second floor as reflected by the references to the second floor throughout the agreement and that he would not have surrendered the entire property “without any consideration.” The Court found “that defendant’s assertions [were] flatly contradicted by the language of the agreement itself.” [10]  “As to the numerous references to the second floor,” said the Court, “the context of those references within the first few mentions of the Watervliet property is revealing.” [11] “Specifically, the first reference, which identifie[d] plaintiff’s current address, omit[ted] the appropriate reference to the second floor.” [12]  “More importantly,” noted the Court, “the second reference mistakenly state[d] that the parties were the joint owners of only the second floor of the Watervliet property, which [was] indicative that the prevailing use of the second-floor qualifier [was] in error.” [13]   The Court also looked at “the manner of conveyance provided in the settlement agreement, which”, it said, “further controvert[ed] defendant’s suggestion of the parties’ intent to only convey the second floor.” [14]  The Court explained that the “agreement specifically provided that defendant would provide a warranty deed, as well as any other documents necessary, that effectuated a transfer of ‘sole ownership.’” [15] According to defendant, “this language should be disregarded as the transfer of the first floor of the Watervliet property could be accomplished by executing a warranty deed that established a ‘Tenants in Common’ arrangement.” [16]  The Court held that “[r]egardless of whether such an arrangement was feasible, the implication that it was intended by the parties [was] not supported by the record when one considers that there is no mention of it anywhere in the agreement; to the contrary, as noted by Supreme Court, it is directly controverted by the aforementioned ‘sole ownership’ language with respect to the contemplated transfer.” [17] The Court also held that “the language in the settlement agreement concerning [defendant’s] obligation to remove any encumbrances on the Watervliet property” belied his contentions. [18]  The Court found, as did Supreme Court, that “Defendant agreed to satisfy any liens or mortgages on the property … would provide no benefit to defendant if he were maintaining ownership of the first floor.” [19]  Moreover, said the Court, “the agreement indicate[d] that defendant would ‘relinquish any future rental payments, pro-rate any current or due rent’ as of the date of signing ‘and turn over to [plaintiff] any security deposit for the property.’” [20]  “That language,” said the Court, was “particularly notable inasmuch as plaintiff did not reside in the property pursuant to a rental agreement, rendering that provision meaningless if the parties solely intended to transfer the second floor.” [21]   Regarding defendant’s contention that he “would not have transferred the Watervliet property without consideration,” the Court noted that “the parties elected to proceed without the benefit of any property valuations and, as noted by Supreme Court, defendant agreed to execute the appropriate affidavit for a no-consideration transfer.” [22]   “Finally, and perhaps most significant,” concluded the Court, “the settlement agreement purport[ed] to articulate the parties’ rights to the four properties that they collectively amassed during their relationship, and defendant fail[ed] to provide any reasonable explanation as to why the parties would omit any reference to the first floor of the Watervliet property as part of their intent to transfer sole ownership of that floor to defendant.” [23]  “To the contrary,” explained the Court, “there [was] no indication that defendant would receive sole ownership in the first floor of the Watervliet property by virtue of any language in the agreement when, prior to the agreement, he only possessed a joint ownership interest, which would remain the case if the language in the agreement were to remain unchanged.” [24]  “Rather,” said the Court, “in order to effectuate defendant’s suggested intent, it would require some action on the part of plaintiff with respect to her remaining interest in the first floor and, as is the case with defendant’s proposal for a tenancy in common, that [was] not contemplated by any language contained within the four corners of the document, nor indicated in any other proof.” [25]   In conclusion, the Court held that “defendant’s suggestion that the references to the second floor were intentional [was] belied by the context of the agreement, and the record provide[d] ample support for Supreme Court’s determination that plaintiff clearly and convincingly established the need for reformation of the agreement.” [26] Takeaway Romano  underscores both the power and limits of contract reformation under New York law, and serves as a reminder that courts will correct drafting errors—but only when the proof is clear and convincing. Reformation remains an equitable remedy, available not to rescue a party from a bad deal, but to ensure that a written agreement accurately reflects the agreement the parties actually made. Romano  illustrates that mutual mistake does not require proof that the parties would have refused to contract had the error been known. Instead, the mistake must concern a material and fundamental assumption underlying the agreement. In Romano , the alleged error – a scrivener’s error limiting a real‑property conveyance to a single floor rather than the entire parcel – went to the heart of the settlement, making it the type of mistake that could justify equitable relief when clearly established. Critically, the Third Department reaffirmed that the burden on a party seeking reformation is exceptionally high. The movant must prove, by clear, positive, and convincing evidence, not only that a mistake occurred but exactly what the parties had actually agreed upon. The “heavy presumption” that a signed writing reflects the parties’ true intent remains firmly in place, and reformation is only appropriate when that presumption is overcome with compelling proof. What makes Romano  notable is that plaintiff succeeded largely through the four corners of the agreement itself, not through extrinsic testimony or post-agreement explanations. The Court relied heavily on the terms of the settlement agreement – such as references implying joint ownership of only a “second floor,” the requirement that defendant deliver a warranty deed conveying “sole ownership,” and provisions addressing liens, rents, and security deposits that made no practical sense unless the entire property was being transferred. Romano  therefore reinforces the principle that a court may find clear and convincing proof of mutual mistake from the text and structure of the agreement alone, when the document contradicts the interpretation urged by the resisting party. The Court also rejected a common argument in reformation cases advanced by the resisting party: the party would never have agreed to the transaction “without consideration.” The Court’s decision confirms that courts will look to what the parties actually did and agreed to do, not what one party later claims would have been economically irrational. In Romano , the fact that the parties knowingly proceeded without formal valuations and contemplated a no‑consideration conveyance undermined that objection to reformation. Finally, Romano  reinforces the point that reformation is fundamentally about intent. The Court was unpersuaded by defendant’s post‑settlement conduct ( e.g. , collecting rent) or bargaining positions taken after the mistake was uncovered. Once the record established that the written agreement failed to express the mutual intent at the time of contracting, equity required that it be corrected, regardless of the strategic advantage one party sought to extract afterward. ______________________________ 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. [1]   Janowitz v. 25-30 120th St. , 75 A.D.2d 203, 214 (2d Dept. 1980). [2]   Id. (quoting 13 Williston, Contracts [3d ed], § 1544). See also True v. True , 63 A.D.3d 1145, 1147 (2d Dept. 2009). [3]   Id. [4]   Id. (citing 13 Williston, Contracts [3d ed], § 1544, at 96). [5]  In prior articles, this Blog has examined cases involving the reformation of contracts: Reformation of Contracts ; Contract Reformation: Mutual Mistake or A Scrivener’s Error ; and First Department Reminds Practitioners that “proofreading is an essential, indispensable tool in the drafting of contracts.” [6]   George Backer Mgt. Corp. v. Acme Quilting Co. , 46 N.Y.2d 211, 219 (1978). [7]   Schultz v. 400 Coop. Corp. , 292 A.D.2d 16, 19 (1st Dept. 2002) (quoting, Amend v. Hurley , 293 N.Y. 587, 595 (1944)). See also   Sunnyview Farm, LLC v. Levy Leverage, LLC , 223 A.D.3d 955, 960 (3d Dept. 2024). [8]   Id. See also   Hilgreen v. Pollard Excavating, Inc. ,  210 A.D.3d 1344, 1347 (3d Dept. 2022); Hilgreen v. Pollard Excavating, Inc. , 193 A.D.3d 1134, 1137 (3d Dept 2021),  appeal dismissed , 37 N.Y.3d 1002 (2021);  Tompkins Fin. Corp. v. John M. Floyd & Assoc., Inc. , 144 A.D.3d 1252, 1256 (3d Dept. 2016).  [9]   Id. [10] Slip Op. at *3. [11]   Id. [12]   Id. [13]   Id. [14]   Id. [15]   Id. [16]   Id. [17]   Id. [18]   Id. [19]   Id. [20]   Id. [21]   Id. [22]   Id. at 3- 4. [23]   Id. at *4. [24]   Id. [25]   Id. [26]   Id. (citations omitted).

By:  Jeffrey M. Haber In Cantor Fitzgerald & Co. v. PEI Global Partners Holdings LLC , 2026 N.Y. Slip Op. 00080 (1st Dept. Jan. 13, 2026), the Appellate Division, First Department, affirmed the dismissal of a complaint under CPLR 3211(a)(5) based on res judicata. The plaintiff, an investment bank, sued PEI Global Partners Holdings LLC for tortious interference, unfair competition, and unjust enrichment, alleging the same facts previously raised in consolidated FINRA arbitrations against former employees and their newly acquired broker-dealer. Although defendant was not a party to the prior arbitration, the Court found privity because the former employees wholly owned the defendant and the broker-dealer, shared a common purpose, and were represented by the same counsel. Applying a flexible privity analysis, the Court held that functional representation existed, giving the defendant a “vicarious day in court.” Thus, the prior arbitration award barred the subsequent action under res judicata. [1] 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. [2]  The doctrine applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation. [3]  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. [4]   New York has adopted a transactional approach in deciding res judicata issues. [5]  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. [6]   “Res judicata is designed to provide finality in the resolution of disputes to assure that parties may not be vexed by further litigation.” [7] “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.” [8]  As the Court of Appeals noted, “[c]onsiderations of judicial economy as well as fairness to the parties mandate, at some point, an end to litigation.” [9]   The doctrine of res judicata applies to prior arbitration proceedings, [10] as well as prior determinations by state appellate and federal courts. [11]   In New York, the Civil Practice Law and Rules (“CPLR”) specifically recognizes res judicata as a basis for dismissal. [12]  Res judicata is also an affirmative defense under the CPLR. [13]   Pursuant to CPLR 3211(a)(5), a party may seek dismissal of a cause of action based upon the doctrine of res judicata. [14]  To prevail, the moving party must show: “(1) a final judgment on the merits, (2) identity or privity of parties, and (3) identity of claims in the two actions.” [15]   To establish privity with regard to non-parties, [16]  as in Cantor Fitzgerald , “the connection between the parties must be such that the interests of the nonparty can be said to have been represented in the prior proceeding.” [17] Although relationship alone is not sufficient to support preclusion, “[privity] includes those who are successors to a property interest, those who control an action although not formal parties to it, and those whose interests are represented by a party to the action.” [18]  The party asserting the conclusive effect of a prior judgment has the burden to establish it. [19]   In Cantor Fitzgerald , plaintiff brought an action against defendant seeking, inter alia , damages for tortious interference with prospective business relations. Defendant moved, pre-answer, to dismiss the complaint in its entirety on the grounds that, among other things, the claim was barred by the doctrine of res judicata based on a prior consolidated FINRA arbitration. In early September 2021, non-parties Kevin Phillips, John Bills, Schuyler Fabian, and Adil Sener (collectively, the “PEI Bankers”) resigned from their employment with plaintiff, an investment banking firm, and together founded defendant, PEI Global Partners Holdings LLC, which they controlled and in which they collectively held 100% of the equity. On November 5, 2021, plaintiff commenced separate arbitrations before FINRA against each of the PEI Bankers. On February 10, 2022, plaintiff commenced a fifth FINRA arbitration against PEI Global Partners LLC (“PEI Broker-Dealer”), a FINRA-licensed broker-dealer that was wholly owned by the defendant. These five arbitrations were administratively consolidated and constitute the “Prior Proceeding.” Defendant was not a party to the Prior Proceeding. There was no dispute that it could not be involuntarily made a party to the arbitrations as it was not a FINRA member and had no agreement consenting to FINRA’s jurisdiction.  In the Prior Proceeding, plaintiff alleged that the PEI Bankers devised a scheme to leave  plaintiff’s employ and form a competing firm, taking with them plaintiff’s employees and its existing and prospective clients. Plaintiff alleged, inter alia , that the PEI Bankers and PEI Broker-Dealer accomplished this scheme by, among other things: (i) soliciting and/or enticing plaintiff’s existing and/or prospective clients, in breach of the non-solicitation and non-compete provisions of the PEI Bankers’ employment agreements; (ii) directing and inducing other of the plaintiff’s employees to breach their own employment agreements by soliciting clients on the PEI Bankers’ behalf, transferring pending work from plaintiff to the PEI Bankers, and resigning from plaintiff’s employ to join the PEI Bankers’ competing business; and (iii) stealing plaintiff’s proprietary work product to engage and service plaintiff’s clients. Plaintiff’s claims against the PEI Bankers in the Prior Proceeding included claims against each individual for breach of the non-solicitation provisions in their employment agreements and breach of forgivable loan agreements they executed with plaintiff, claims against PEI Bankers Phillips and Bills for breach of their employment agreements by competing with plaintiff through PEI Broker-Dealer, a claim against Phillips alone for tortious interference with the plaintiff’s employee contracts and a claim against each PEI Banker for tortious interference with prospective business relations and contracts based on purportedly tortious conduct undertaken by them through the defendant herein. Plaintiff’s claims against PEI Broker-Dealer in the Prior Proceeding were for unfair competition, aiding and abetting breach of fiduciary duty, tortious interference with plaintiff’s employee contracts, tortious interference with prospective business prospects, and unjust enrichment.  The FINRA arbitration panel issued its award on October 30, 2023, finding each of the PEI Bankers liable to plaintiff in the exact amount of the unforgiven balance owed on their respective forgivable loan agreements. As to the remainder of the claims against the PEI Bankers, the panel expressly denied “[a]ny and all claims for relief not specifically addressed herein.” The panel also denied plaintiff’s claim against the PEI Broker-Dealer and the PEI Bankers’ counterclaim for declaratory relief, i.e. , a declaration that the plaintiff breached the agreements and constructively terminated the PEI Bankers, was denied.   Plaintiff commenced the action on March 8, 2024, against defendant, PEI Global Partners Holdings LLC, asserting four causes of action: (1) tortious interference with prospective business relations, (2) tortious interference with contractual relations, (3) unfair competition, and (4) unjust enrichment, pleading the same facts previously alleged in the Prior Proceeding regarding the PEI Bankers’ purported scheme to steal plaintiff’s business. Plaintiff alleged that defendant, through the PEI Bankers and PEI Broker-Dealer, solicited plaintiff’s existing and prospective clients, induced plaintiff’s clients and employees to breach their contracts with plaintiff, and stole plaintiff’s proprietary work product. Defendant moved to dismiss the complaint. The motion court granted the motion. The motion court held that, based upon defendant’s submissions, “including the pleadings in the Prior Proceeding, and the FINRA panel’s final arbitration award,” defendant “demonstrated that there was a final judgment on the merits, there [was] identity or privity of parties, and identity of claims in the two actions.” The motion court explained that a “[c]omparison of the complaint [in the action] with the pleadings in the Prior Proceeding reveal[ed] that the Prior Proceeding involved the same claims and underlying facts” that were alleged in the action. Looking at whether there was privity between plaintiff and defendant (a non-party to the Prior Proceeding), the motion court concluded that there was privity: “while the defendant was not a party to the Prior Proceeding, it is in privity with both the Broker-Dealer, which it wholly owns, and the PEI Bankers, which wholly own the PEI Broker-Dealer.” “Thus,” concluded the motion court, “defendant was in privity with PEI Banker and PEI Broker-Dealer so as to have had “functional representation” in the Prior Proceeding.” Plaintiff appealed and the First Department affirmed. The Court found that the “individual bankers who were respondents in the arbitration [were] defendant’s principals and hold 100% of its equity.” [20] “Moreover,” said the Court, “all arbitration respondents, including the entity respondent, were aligned with defendant by common purpose and were represented by the same counsel in the arbitration as defendant is here.” [21]  Accordingly, the Court held that the motion court “properly dismissed the complaint on the ground of res judicata because defendant was in privity with the arbitration respondents.” [22]   Takeaway As discussed, the First Department affirmed dismissal of plaintiff’s complaint under CPLR 3211(a)(5) based on res judicata. Plaintiff sued PEI Global for tortious interference and related claims, alleging facts previously raised in a consolidated FINRA arbitration against former employees and their broker-dealer. Although PEI Global was not a party to the prior arbitration, the court found privity because the former employees wholly owned PEI Global and the broker-dealer, shared a common purpose, and used the same counsel. Applying New York’s transactional approach and flexible privity analysis, the Court held that functional representation existed, giving PEI Global a “vicarious day in court.” Thus, the prior arbitration award barred the subsequent action. Cantor Fitzgerald  highlights three important principles. First, courts apply a flexible privity analysis, recognizing functional representation when ownership, common purpose, and shared counsel exist. Second, New York’s transactional approach to res judicata bars all claims arising from the same transaction once a final judgment is reached, regardless of differing legal theories or remedies. Finally, arbitration awards have preclusive effect, meaning entities with functional representation in arbitration may be bound by its outcome even if not formally involved. __________________________________ 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. [1] Previously, this Blog has examined the doctrine of res judicata ( here , here , here and  here ). [2]   Simmons v. Trans Express Inc. , 37 N.Y.3d 107, 111 (2021) (internal quotation marks omitted); see also Watts v. Swiss Bank Corp. , 27 N.Y.2d 270, 277 (1970); Gregg v. Lan Zhen Chen , 220 A.D.3d 697, 698 (2d Dept. 2023); Bayer v. City of New York , 115 A.D.3d 897, 898 (2d Dept. 2014). [3]   Jacobson Dev. Group, LLC v. Grossman , 198 A.D.3d 956, 959 (2d Dept. 2021) (internal quotation marks omitted); Gregg , 220 A.D.3d at 698. [4]   See 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)). [5]   Matter of Reilly v. Reid , 45 N.Y.2d 24 (1978). [6]   O’Brien v. City of Syracuse , 54 N.Y.2d 353, 357 (1981) (citation omitted). [7]   See Matter of Reilly , 45 N.Y.2d at 28 (citations omitted). [8]   Id. (citations omitted). [9]   Id. [10]   Mahler v. Campagna , 60 A.D.3d 1009 (2d Dept. 2009); see also Rembrandt Ind. v. Hodges Intl. , 38 N.Y.2d 502, 504 (1976); Lopez v. Parke Rose Mgt. Sys. , 138 A.D.2d 575, 577 (2d Dept. 1988) [11]   Milone v. City University of New York , 153 A.D.3d 807, 808-809 (2d Dept. 2017); see also Emmons v. Broome County , 180 A.D.3d 1213 (3d Dept. 2020). [12]   See CPLR § 3211(a)(5). [13]   See CPLR § 3018(b). [14]   See Ciafone v. City of New York , 227 A.D.3d 946, 946 (2d Dept. 2024). [15]   Paramount Pictures Corp. v. Allianz Risk Transfer AG , 31 N.Y.3d 64, 73 (2018) (citing cases). [16]  “The identity requirement is a ‘linchpin of res judicata.’” Gulf LNG Energy, LLC v. Eni S.p.A. , 232 A.D.3d 183, 190 (1st Dept. 2024),  lv denied , 44 N.Y.3d 902 (2025). [17]   Green v. Santa Fe Indus. , 70 N.Y.2d 244, 253 (1987); see also   D’Arata v. New York Cent. Mut. Fire Ins. Co. , 76 N.Y.2d 659, 664 (1990). [18]   Watts v. Swiss Bank Corp. , 27 N.Y.2d 270, 277 (1970). [19]   Id. at 275. [20]  Slip Op. at *1. [21]   Id. [22]   Id. (citing Green,  70 N.Y.2d at 253).

By: Jonathan H. Freiberger Artificial Intelligence (“AI”) and Generative Artificial Intelligence (“GenAI”) are all the rage these days. While AI and GenAI can be useful tools, caution is necessary when using such tools. Today we will discuss Deutsche Bank National Trust Co. v. Letennier , a case decided by the Appellate Division, Third Department, on January 8, 2026. The Court described the decision as the “ first appellate-level case in New York addressing sanctions for the misuse of GenAI.” [1] Deutsche Bank  is a mortgage foreclosure action [2]  commenced in 2018. The borrower, in his answer, asserted numerous affirmative defenses, including lack of standing. The lender and borrower moved for summary judgment and the motion court granted the lender’s motion and denied the borrower’s cross motion. The order was affirmed on the borrower’s appeal. Thereafter, the borrower filed numerous motions, both before and after a judgment of foreclosure and sale was issued. One of the motions was deemed to be frivolous and the motion court warned the borrower about the issuance of monetary sanctions if frivolous conduct continued. Subsequent motion practice by the borrower resulted in a finding by the motion court that the borrower was “a vexatious litigant that must bring future motions by order to show cause, and awarding costs and legal fees to [the lender] for [the borrower]'s frivolous conduct.” Additional motions for previously sought relief were filed by the borrower and appeals from the denial of those motions are the subject of Deutsche Bank. While the Court noted that “[i]nitially, the merits of this appeal are unremarkable in nature” it went on to state that the appeal becomes “unconventional” because the borrower’s “opening brief cites six cases which do not exist” and which the lender’s counsel identified as “possibly being the product of artificial intelligence.” The lender moved for sanctions against the borrower and its counsel. In response, [the borrower] claimed the nonexistent cases were citation or formatting errors that he would correct in his reply brief and then opposed the motion for sanctions with more fake cases and interpretations for existing cases that are at best strenuously attenuated, and at worst entirely inapposite.” The borrower subsequently included more fake cases and “false legal propositions” in letters to the Court. The Court added: In examining the propriety of defendant's previously filed papers, more nonexistent cases were discovered in a motion that granted affirmative relief to defendant. Defense counsel reluctantly conceded during oral argument that he used AI in the preparation of his papers and, although he told the Court that he checked his papers, the filings themselves demonstrate otherwise. In total, defendant's five filings during this appeal include no less than 23 fabricated cases, as well as many other blatant misrepresentations of fact or law from actual cases. The Court explained that “ generative artificial intelligence … represents a new paradigm for the legal profession, one which is not inherently improper, but rather has the potential to offer benefits to attorneys and the public – particularly in promoting access to justice, saving costs for clients and assisting courts with efficient and accurate administration of justice.” (Citations and footnote omitted.) The Court then cautioned that “attorneys and litigants must be aware of the dangers that GenAI presents to the legal profession [including] AI “hallucinations,” which occur when an AI database generates incorrect or misleading sources of information due to a “variety of factors, including insufficient training data, incorrect assumptions made by the model, or biases in the data used to train the model.” (Citations and internal quotation marks omitted.) The Court then noted that other courts “throughout the country which have been confronted with AI-generated authorities have concluded that filing papers containing hallucinated cases and fabricated legal authorities may be sanctionable….” (Citations omitted.) The Court recognized that sanctions can be awarded against a party or attorney for engaging in frivolous conduct under 22 NYCRR 130-1.1  and “that rule 3.3 of the Rules of Professional Conduct  provides that ‘[a] lawyer shall not knowingly ... make a false statement of fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer’”. (Hyperlinks added.) In determining that sanctions were appropriate against counsel for GenAI related conduct, the Court found, inter alia : Here, defendant submitted at least 23 fabricated legal authorities across five filings during the pendency of this appeal. He has also misrepresented the holdings of several real cases as being dispositive in his favor – when they were not. It is axiomatic that submission of fabricated legal authorities is completely without merit in law and therefore constitutes frivolous conduct. It cannot be said that fabricated legal authorities constitute “existing law” so as to provide a nonfrivolous ground for extending, modifying or reversing existing law…. Where we are most troubled is that more than half of the fake cases offered by defendant came after he was on notice of such issue, whereby his reliance on fabricated legal authorities grew more prolific as this appeal proceeded – despite it being apparent to him that such conduct lacked a legal basis. Rather than taking remedial measures or expressing remorse, defense counsel essentially doubled down during oral argument on his reliance of fake legal authorities as not germane to the appeal. [Citations, internal quotation marks and footnotes omitted.] After analyzing other AI sanction cases the Court assessed a sanction in the amount of $5,000.00 against the borrower’s counsel for the “misuse of GenAI”.  The Court added that “ attorneys and litigants are not prohibited from using GenAI to assist with the preparation of court submissions. The issue arises when attorneys and staff are not sufficiently trained on the dangers of such technology, and instead erroneously rely on it without human oversight.” The Court also found that the appeal was frivolous and assessed a $2,500.00 sanction against the borrower and an additional $2,500.00 sanction against the borrower’s attorney. 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. [1]  The Court, relying on United States v. Google LLC , 2025 WL 2523010, at 9, 2025 U.S. Dist LEXIS 170459 at 52-53, explained that “‘ GenAI is a subfield of AI “that uses machine-learning techniques to generate new data, including text, images, sound, code, and other media.’” Deutsche Bank  at n. 5. [2]  This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosure, or other commercial litigation, topics that may be of interest you.

By:  Jeffrey M. Haber In Alphasense, Inc. v. Financial Tech. Partners LP , 2026 N.Y. Slip Op. 00185 (1st Dept. Jan. 15, 2026), the Appellate Division, First Department, considered whether Plaintiffs validly terminated an advisory agreement with Defendants under a “Key Man” provision. Plaintiffs alleged that Defendants’ managing partner, critical to the engagement, gradually stopped participating in essential advisory work, including investor meetings, introductions, and fundraising support, leading to termination in 2022. Defendants moved to dismiss, arguing the managing partner never ceased leading the team, that sporadic absences were insufficient to trigger the “Key Man” provision, and that Plaintiffs waived termination rights through continued performance and a 2015 amendment. Both the motion court and the First Department rejected these arguments, finding the provision ambiguous and fact-dependent, requiring further development. Applicable Legal Principles Declaratory Judgment CPLR 3001 provides that the “court may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed.” The “primary purpose of declaratory judgments is to adjudicate the parties’ rights before a wrong actually occurs in the hope that later litigation will be unnecessary.” [1]   A “declaratory judgment does not entail coercive relief, but only provides a declaration of rights between parties … [i]n other words, the declaration in the judgment itself cannot be executed upon so as to compel a party to perform an act.” [2]   Moreover, “where a full and adequate remedy is already provided by another well-known form of action,” declaratory relief is improper. [3]   Waiver “A party to an agreement who believes it has been breached may elect to continue to perform the agreement and give notice to the other side rather than terminate it.” [4]  When “performance is continued and such timely notice is given, the nonbreaching party does not waive the right to sue for the alleged breach.” [5]   “However, by choosing not to terminate the contract at the time of the breach, the nonbreaching party surrenders his or her right to terminate later based on that breach.” [6]   In National Westminster Bank, U.S.A. v. Ross , [7]  the court explained the waiver of contractual breaches as follows: It is well-established that where a party to an agreement has actual knowledge of another party's breach and continues to perform under and accepts the benefits of the contract, such continuing performance constitutes a waiver of the breach. It is equally well-settled that a party to an agreement who believes it has been breached may elect to continue to perform the agreement rather than terminate it, and later sue for breach; this is true, however, only where notice of the breach has been given to the other side. [8] Alphasense, Inc. v. Financial Tech. Partners LP Alphasense  arose from a dispute between Plaintiffs, AlphaSense, Inc., AlphaSense OY, and AlphaSense, LLC (collectively “AlphaSense” or “Plaintiffs”), and Defendants, Financial Technology Partners LP and FTP Securities LLC (collectively “FTP” or “Defendants”), regarding an engagement for financial advisory services.   Plaintiffs engaged Defendants as their financial and strategic advisors pursuant to an Engagement Letter dated January 23, 2015, as later amended on October 9, 2015 (the “Agreement”). Plaintiffs alleged that, at the time they negotiated the Engagement Letter, they received express assurances from the managing partner at FTP that he would be personally and directly involved in the business relationship for the entirety of its duration. Accordingly, Plaintiffs negotiated for a “Key Man Termination” provision in the Engagement Letter (“Key Man Provision”) that allowed for the termination of the Agreement if the managing partner ceased his active involvement.  Plaintiffs alleged that the managing partner’s promised level of involvement receded shortly after the Agreement was signed, with minimal participation in the Company’s capital-raising efforts.  Plaintiffs further alleged that from 2015 onwards, the managing partner did not attend any investor meetings in connection with the capital raising, and that Plaintiffs relied on their own resources for investor introductions and capital raising. Despite the managing partner’s alleged lack of involvement, Plaintiffs allegedly paid FTP approximately $22.4 million in fees since 2015. On October 13, 2022, Plaintiffs terminated the Agreement by sending a letter to Defendants pursuant to the Key Man Provision. Plaintiffs alleged that the termination became effective on November 12, 2022, with Defendants’ entitlement to any additional fees for the eighteen months ending on May 12, 2024 (the “Tail Period”). [9]  Defendants had not provided services to Plaintiffs since receiving the termination letter. Defendants did not formally respond to the termination notice until sixteen (16) months after receipt, on February 12, 2024, at which time they insisted that “the Engagement Letter remain[ed] in full force and effect.” Defendants also asserted that Plaintiffs owed fees on post-termination transactions plus accrued interest of $1,620,968.78. Plaintiffs claimed that they timely paid the post-transaction fees and no interest was owed. Plaintiffs commenced the action on April 9, 2024. Pursuant to CPLR 3001, Plaintiffs sought a declaratory judgment that (1) the Key Man Termination was valid and enforceable, (2) FTP’s entitlement to fees expired at the end of the eighteen-month Tail Period as provided for in the Engagement Letter, (3) the Tail Period began to run thirty (30) days after Plaintiffs provided FTP with written notice of termination, and (4) no interest was owed to FTP.   On May 31, 2024, Defendants filed a motion to dismiss the complaint for failure to state a cause of action pursuant to CPLR 3211(a)(7). Defendants argued that the complaint failed to allege facts showing that the Key Man Provision was triggered. They contended that Plaintiffs did not plausibly allege that the managing partner stopped leading or co‑leading the FTP team, as required under the Agreement. Instead, Plaintiffs identified only isolated instances in which the managing partner did not attend certain investor meetings or did not personally make introductions. According to Defendants, occasional absences could not reasonably be equated with a cessation of leadership. Defendants maintained that “leading” or “co‑leading” referred to providing strategic guidance, oversight, and high‑level direction, not personally performing every task. Delegation, they argued, was consistent with active leadership. Defendants further emphasized that the engagement was co‑led by another senior colleague, TW. They asserted that Plaintiffs’ failure to address TW’s leadership role undermined their theory that the managing partner’s participation fell below the contractual threshold. Plaintiffs’ argument, in Defendants’ view, ignored the collaborative leadership structure contemplated by the parties. Defendants also asserted that Plaintiffs improperly relied on pre-contract statements concerning the managing partner’s promised level of personal involvement. Because the Engagement Letter contained a merger clause, Defendants argued that such extracontractual statements could not impose obligations not found in the Agreement. If Plaintiffs believed that attendance at investor meetings or ongoing direct involvement was essential, they should have bargained for those terms expressly rather than seeking to retroactively add requirements through litigation, said Defendants. Defendants further argued that Plaintiffs’ own timeline showed that any alleged termination right arose in 2015, when the managing partner supposedly ceased active participation. Plaintiffs nevertheless continued to perform under the Agreement for seven years, paid substantial fees, and accepted services without significant objection. Defendants claimed that this prolonged performance constituted a waiver of any termination rights and triggered the doctrine of election of remedies. They also contended that the Agreement’s no‑waiver clause did not preclude waiver arising from a course of conduct, noting that Plaintiffs continued to interact with the managing partner as late as 2021. Defendants also maintained that Plaintiffs ratified the Engagement Letter by executing an October 2015 amendment that reaffirmed the Agreement in full, including the Key Man Provision. Combined with continued performance for years, Defendants argued that the amendment confirmed Plaintiffs’ intent to relinquish termination rights based on earlier alleged breaches. Plaintiffs countered that the complaint adequately alleged that the Key Man Provision was triggered by the managing partner’s sustained lack of involvement. They identified multiple deficiencies: he provided no meaningful guidance, made no investor introductions, attended no investor meetings, offered no feedback on their pitch, and contributed minimal input to their fundraising efforts. In Plaintiffs’ view, these allegations showed a significant and ongoing decline in his role, not isolated absences. Plaintiffs rejected Defendants’ suggestion that the managing partner may have been “leading behind the scenes,” arguing that this theory was speculative and contradicted their detailed factual allegations. They also clarified that they were not alleging a discrete triggering event in 2015 but rather a gradual decline from 2015 to 2022. Defendants’ Termination Response Letter, they argued, did not conclusively refute these allegations. On waiver, Plaintiffs pointed to the Agreement’s no‑waiver clause requiring any waiver to be in a signed writing, which did not exist. They also noted that the Agreement permitted termination “at any time” upon cessation of active leadership, making their 2022 termination timely in light of the alleged gradual decline. Plaintiffs rejected Defendants’ election‑of‑remedies theory, asserting they were simply exercising an express contractual right, not rescinding the Agreement. Finally, Plaintiffs argued that the 2015 amendment could not ratify future misconduct, particularly where the alleged decline occurred largely after that amendment. The motion court denied the motion. The motion court held that Plaintiffs sufficiently presented justiciable controversies sufficient to invoke the motion court’s power to render a declaratory judgment.  The motion court found that Plaintiffs adequately alleged facts supporting their claim that the Key Man Provision in the Engagement Letter was triggered by the managing partner’s gradual cessation of involvement with the FTP team responsible for providing financial advisory services to Plaintiffs. The motion court emphasized that the provision’s language was inherently subjective, and Defendants’ competing interpretation, as well as their dispute over whether and when the provision may have been triggered, underscored the existence of a justiciable controversy appropriate for declaratory judgment. The motion court further determined that, irrespective of any pre‑contractual statements or negotiations, it could not adjudicate the parties’ respective rights or the validity of Plaintiffs’ alleged termination of the Agreement at the pre-answer stage of the action. Such issues required a factual record inappropriate for resolution on a motion to dismiss. The motion court also rejected Defendants’ arguments based on waiver, election of remedies, and ratification. Although Defendants asserted that Plaintiffs forfeited any right to invoke the Key Man Provision by continuing to perform under the Agreement for roughly seven years after the managing partner allegedly ceased his active involvement, the motion court concluded that these arguments raised factual questions unsuited for dismissal under CPLR 3211(a)(7). Waiver, the motion court noted, “should not be lightly presumed” and generally requires a clear, intentional relinquishment of a known contractual right—an inquiry typically reserved for the trier of fact. Defendants’ waiver theory relied on the premise that the Key Man Provision could be triggered only by a discrete event in 2015, after which Plaintiffs were obligated to terminate immediately or forever lose the right. The motion court rejected this construction, observing that Defendants identified no contractual language imposing a singular triggering moment. In contrast, said the motion court, the complaint alleged a steady decline in the managing partner’s involvement from 2015 through 2022, providing a plausible basis for concluding that the provision was triggered at some point during that multi‑year period. Finally, the motion court found no clear evidence of Plaintiffs’ intent to waive their rights, particularly given the Agreement’s express no‑waiver clause requiring any waiver to be in writing. This same clause, noted the motion court, undermined Defendants’ ratification argument, as the alleged conduct triggering the Key Man Provision occurred after the parties’ 2015 amendment and could independently give rise to termination rights. The Appellate Division, First Department, affirmed. The Court held that the motion “court properly determined that the [Key Man] provision was open to interpretation and it was not appropriate to dismiss the complaint based only on the pleadings.” [10]   Regarding the declaratory judgment cause of action, the Court held that Plaintiffs adequately stated a claim “based on allegations that defendants’ managing partner ‘ceas[ed] his role of actively leading or co-leading the team providing the advisory services’ to plaintiffs.” [11]  The Court explained that the complaint alleged “that the managing partner … failed to provide guidance or meaningful support, was absent from investor meetings, and offered no more than minimal input on fundraising efforts.” [12]  These allegations, “made in the context of the other specific allegations,” said the Court, were “not conclusory and [were] relevant to the overall claim that the managing partner failed to lead or co-lead the team triggering the ‘key man’ provision.” [13] The Court rejected Defendants’ argument that under the plain language of the Agreement Plaintiffs were required to specifically allege the precise moment that the managing partner ceased to actively lead or co-lead the team. [14]  “As the motion court correctly determined,” concluded the Court, “the ‘key man’ provision, on its face, fail[ed] to resolve plaintiff’s declaratory judgment claim.” [15]   _________________________________ 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. [1] Klostermann v. Cuomo , 61 N.Y.2d 525, 538 (1984) (internal quotation marks omitted; emphasis added) (citations omitted). See also   Gaul v. New York State Dep’t of Env’t Conservation , 25 Misc. 3d 679, 688 (Sup. Ct., Suffolk County), judgment entered sub nom. , Gaul v. The New York State Dep’t of Env’t Conservation  (Sup. Ct., Suffolk County 2009). [2] Morgenthau v. Erlbaum , 59 N.Y.2d 143, 148 (1983). [3] Automated Ticket Systems, Ltd. v. Quinn , 90 A.D.2d 738, 739 (1st Dept. 1982) (internal quotation marks and citation omitted), aff’d , 58 N.Y.2d 949 (1983). [4] Albany Medical College v. Lobel , 296 A.D.2d 701, 702 (3d Dept. 2002) (citations, internal quotation marks and ellipses omitted, emphasis added). [5] Id . at 702-03 (citations omitted). [6] Id . (Citations, internal quotation marks and brackets omitted.) [7] 130 B.R. 656 (S.D.N.Y. 1991), affd. sub nom. ,  Yaeger v. National Westminster , 962 F.2d 1 (2d Cir. 1992). [8] Id.  at 675 (applying New York law) (citations omitted). [9] The Agreement defined the “Tail Period” as “eighteen (18) months from the end of the Notice Period in the case of a Key Man Termination.” [10] Slip Op. at *1 (citations omitted). [11] Id. [12] Id. [13] Id. [14] Id. [15] Id.

By:  Jeffrey M. Haber In BH 336 Partners LLC v. Sentinel Real Estate Corp. , 2026 N.Y. Slip Op. 00305 (1st Dept. Jan. 22, 2026), the Appellate Division, First Department, modified an order denying in part a motion to dismiss a complaint containing fraud and fraudulent‑inducement claims arising from Plaintiffs’ purchases of five Manhattan buildings. Plaintiffs alleged that Defendants orchestrated an illegal deregulation scheme that inflated property values through fraudulent individual apartment improvements and misrepresentations about rent‑regulation status. The motion court denied dismissal, finding the claims were not time-barred, standing, justifiable reliance, scienter, and particularity adequately pleaded, and holding the disclaimer in the purchase agreement was too general. On appeal, the First Department modified the order, dismissing the claims by most Plaintiffs as time-barred because a 2019 complaint filed by the New York Attorney General placed them on inquiry notice of the alleged fraud. However, the Court upheld standing for the remaining Plaintiffs, finding broad assignment language and surrounding circumstances permitted a factfinder to infer that the fraud claims were transferred. The Court also rejected the disclaimer argument. BH 336 Partners  is an action alleging fraud and fraudulent inducement in connection with a series of real estate transactions.   Plaintiffs alleged that Defendants defrauded them in connection with their purchase of five Manhattan apartment buildings (the “Properties”) between April 2016 and August 2017. [1]   The Complaint alleged that Sentinel and its affiliates fraudulently induced Plaintiffs to purchase the Properties by concealing an unlawful deregulation scheme. According to Plaintiffs, Sentinel directed Newcastle to supervise the illegal deregulation of rent‑regulated units. Newcastle allegedly engaged favored contractors to perform apartment renovations and intentionally inflated the costs of these improvements to justify removing units from rent regulation. Plaintiffs contended that this scheme produced artificially inflated valuations for the Properties at the time of sale. Plaintiffs further asserted that Defendants misrepresented the legal status of the apartment units, DHCR registrations, Individual Apartment Improvements (“IAIs”), rent rolls, and lease documentation. They alleged that Sentinel representatives relied on DHCR rent roll reports and provided leases and riders that were fraudulent because they falsely characterized illegally deregulated units as free‑market apartments. Plaintiffs maintained that they justifiably relied on these representations and would not have purchased the Properties had the true regulatory status been disclosed. Plaintiffs alleged that Defendants knowingly made these misstatements, intending that Plaintiffs would rely on them. Between 2015 and 2017, Heritage entered into purchase contracts with the Seller Defendants, later assigning the contracts to Plaintiffs at closing. Assignments were executed by Aryeh and, for one property, by Charles M. Yasskey. After the closings, all Seller Defendants were voluntarily dissolved. Plaintiffs claimed they first learned of Sentinel’s deregulation scheme in March 2023, when the New York Attorney General (“AG”) and DHCR notified them that various units must be re‑regulated. The AG’s earlier investigation resulted in a July 11, 2022 Assurance of Discontinuance, which made detailed findings regarding the deregulation practices; Plaintiffs incorporated those findings into their Complaint. They also referenced a separate AG civil enforcement action against former Newcastle Head of Operations, David Drumheller, who allegedly received contractor kickbacks to support inflated renovation costs. Plaintiffs commenced the action on August 9, 2023, asserting claims for fraud and fraudulent inducement, including rescission. Defendants moved to dismiss, arguing lack of standing, statute of limitations, contractual reliance disclaimers, and failure to state a claim. The Moving Defendants argued that all Plaintiffs except 113 West lacked standing because only 113 West directly purchased a Property; the remaining Plaintiffs received assignments of Heritage’s purchase contracts. These Defendants contended that the assignee Plaintiffs could not assert fraud or fraudulent‑inducement claims because they were not the original purchasers and the assignments did not expressly transfer tort claims. Plaintiffs countered that privity was unnecessary for a fraudulent‑misrepresentation claim and that they effectively purchased the Properties directly, as the purchase contracts included express riders acknowledging that the Seller Defendants permitted assignment to related entities. A defendant moving for dismissal for lack of standing bears the burden of making a prima facie showing that the plaintiff lacks standing. [2]  A plaintiff needs “only to raise a triable issue of fact as to its standing” to defeat such a motion, without needing to affirmatively establish its standing. [3]   In New York, fraud claims are freely assignable, although the right to assert such claims does not automatically transfer with the conveyed contract. [4] To effectuate the assignment of fraud claims, there must be “some explicit language evidencing the parties’ intent to transfer broad and unlimited rights and claims.” [5] The “[l]ack of privity is not a viable defense to a fraud claim.” [6] The motion court held that Defendants failed to satisfy their burden of showing that the assignee Plaintiffs lacked standing. The motion court explained that the parties to the purchase contracts specifically contemplated assignment in each agreement’s respective Seller’s Rider. In fact, noted the motion court, the assignments were broadly worded to convey “all . . . right, title and interest” of the purchasers in the respective purchase contracts. Moreover, noted the motion court, the assignments were made between closely related entities, with the same person signing on behalf of the purchaser-assignors and the assignees. The Moving Defendants next argued that Plaintiffs’ claims were time-barred with respect to three of the five Properties: 845 West 180 Street, 220 Wadsworth Avenue, and 643 West 171st Street. These Defendants maintained that under either the six-year accrual part of the statute or the discovery rule, Plaintiffs’ fraud claims were time-barred. In New York, the statute of limitations for fraud is “the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it.” [7]  “ On a motion to dismiss a fraud claim based on the two-year discovery rule, a defendant must make a prima facie case that a plaintiff was on inquiry notice of its fraud claims more than two years before it commenced the action. [8] Should the movant make its prima facie case, “[t]he burden then shifts to the plaintiff to establish that even if it had exercised reasonable diligence, it could not have discovered the basis for its claims before that date.” [9]  This is a “mixed question of law and fact, and, where it does not conclusively appear that a plaintiff had knowledge of facts from which the alleged fraud might be reasonably inferred, the cause of action should not be disposed of summarily on statute of limitations grounds.” [10]   The inquiry as to whether a plaintiff could have discovered the alleged fraud with reasonable diligence “turns on whether the plaintiff was possessed of knowledge of facts from which [the fraud] could be reasonably inferred.” [11] A duty of inquiry arises “where the circumstances are such as to suggest to a person of ordinary intelligence the probability” that they have been defrauded. [12]  Should the party “[omit] that inquiry when it would have developed the truth, and shuts [its] eyes to the facts which call for investigation, knowledge of the fraud will be imputed to” the party. [13] “[P]ublic reports and lawsuits of alleged fraud are sufficient to put a plaintiff on inquiry notice of fraud.” [14]   The motion court held that under the six-year portion of the statute of limitations, the fraud claims as to the three Properties in questions were barred: “As the sale of the three Properties closed between April and September 2016, the motion court held that the fraud claims related to those sales accrued outside of the six-year statute of limitations.” Regarding the discovery rule, the motion court held that there were issues of fact as to whether the Drumheller complaint placed Plaintiffs on inquiry notice as to fraud claims arising out of their purchase of 845 West 180th Street, 220 Wadsworth Avenue, and 643 West 171st Street. The Moving Defendants argued that Plaintiffs were on notice of any alleged fraud at the Properties in June 2019, when the AG’s office emailed their counsel a copy of the Drumheller complaint. According to the Moving Defendants, the Drumheller complaint “specifically discusse[d] [properties] including 336 Fort Washington Avenue” and outlined the fraudulent deregulation scheme that formed the basis of Plaintiffs’ allegations in the action. In holding that there were issues of fact, the motion court distinguished the allegations in the Drumheller complaint with those in the action. In that regard, the motion court found that the  allegations in the Drumheller complaint focused solely on the misconduct of Drumheller and certain Newcastle employees, specifically that they accepted kickbacks from favored contractors in exchange for inflating renovation costs. Nothing in that complaint, noted the motion court, alleged or suggested that Drumheller acted at the direction of senior personnel at Newcastle, Sentinel, or any affiliated entity, nor that Sentinel or its affiliates orchestrated or participated in the scheme. The single reference to Sentinel, said the motion court, merely noted that many buildings managed by Newcastle were “or [had] been owned by single purpose entities controlled by others, including Sentinel,” a statement that did not imply Sentinel’s involvement or knowledge. The motion court went on to say that the Drumheller complaint repeatedly emphasized that the misconduct benefitted Drumheller personally, not Newcastle, Sentinel, or the Sentinel‑controlled entities that owned the buildings, including the Seller Defendants. Accordingly, concluded the motion court, the thrust of the Drumheller complaint was fundamentally different from the fraud claims asserted in the action. The Moving Defendants also maintained that the Complaint failed to state a cause of action for fraud because Plaintiffs disclaimed reliance on extracontractual representations, or, in the alternative failed adequately to plead justifiable reliance.  The motion court denied the motion  on the basis of disclaimer. The motion court found that the disclaimer in the purchase contracts was general, not specific. [15]  The motion court, therefore, rejected the Moving Defendants’ claim that the disclaimer disclaimed any alleged misrepresentations about the rent regulation status of units. Even if the disclaimer was sufficiently specific, said the motion court, the misrepresentations alleged by Plaintiff “concern[ed] facts peculiarly within” Defendants’ knowledge, namely the scheme whereby Sentinel-affiliated entities deregulated certain units at the Properties and their concealment thereof. [16]   Finally, the motion court held that the Complaint adequately pleaded justifiable reliance and due diligence, crediting allegations that Plaintiffs conducted lease audits and had no reason to suspect fraudulent IAI adjustments. The Moving Defendants contended that Plaintiffs failed to plead reliance, scienter, material misstatements, or particularity, arguing that they neither performed diligence nor alleged Defendants’ knowledge or involvement in any misconduct. The motion court, however, found scienter sufficiently alleged: the pleaded facts – Sentinel’s value‑enhancement strategy, Newcastle’s renovation oversight, inflated IAI costs, deregulation of units, and subsequent sales – supported an inference of the Moving Defendants’ actual knowledge. The motion court also rejected the arguments that only omissions were alleged or that the Complaint lacked particularity, noting its identification of specific Sentinel representatives, the documents provided (DHCR rent rolls, leases, riders), and the timing of events (during due diligence), among other things. On appeal, the Appellate Division, First Department, modified the order, on the law, to dismiss all claims against Defendant as time-barred, except for those asserted by EZ Wadsworth Partners LLC and BH 336 Partners LLC, and otherwise affirmed. The Court held that the motion court erred in finding issues of fact with regard to the Moving Defendants’ motion dismiss on statute of limitations grounds. The Court explained that the “time-barred plaintiffs” could not “rely on their lack of awareness of the fraud to take advantage of the two-year discovery period under CPLR 213(8), as they were placed on inquiry notice no later than June 20, 2019, when the Office of the New York Attorney General forwarded their attorneys a copy of a complaint in People v David Drumheller.” [17] The Court noted that the “complaint alleged that David Drumheller, an employee of Newcastle, along with contractors and other Newcastle employees, artificially inflated the renovation costs of various units in apartment buildings throughout New York City owned by Sentinel affiliates.” [18]  “[T]hat complaint,” said the Court, alleged that “Drumheller did so to fraudulently deregulate the units.” [19]  Thus, held the Court, “[a]lthough the complaint mentioned only one of the buildings plaintiffs purchased in passing, the complaint otherwise stated that Newcastle managed 2,500 apartments; that Drumheller was critical to Newcastle’s practice of deregulating rent-stabilized units; and that Drumheller caused hundreds of such units to be fraudulently deregulated.” [20] Accordingly, concluded the Court, “plaintiffs’ awareness of the possibility of the fraudulent scheme involving buildings they purchased from Sentinel-controlled entities placed on plaintiffs a duty to investigate the fraud, even if plaintiffs had no reason at the time to believe that Sentinel or Newcastle was involved.” [21]  “Plaintiffs did not engage in such an investigation,” said the Court. [22]   Regarding the assignment, the Court held that the motion court “was correct in holding that defendants did not meet their burden on a motion to dismiss to establish that the remaining plaintiffs lacked standing.” [23]  “As the Supreme Court found, the parties to the original purchase contracts specifically contemplated that the assignment would be a part of the transaction, and the assignments were broadly worded to convey ‘all . . . right, title and interest’ of the purchasers in the respective purchase contracts.” [24]  As such, said the Court, “[a] factfinder could find the requisite intent to transfer fraud claims under these circumstances.” [25]   The Court noted that “[i]n the presence of sufficiently broad assignment language, courts are permitted to assess the circumstances of the surrounding assignment to discern if the parties intended to transfer fraud claims.” [26] This holistic approach, said the Court, was consistent with the approach of other courts. [27] The Court cited to Banque Arabe Et Internationale v. Md. Nat. Bank , 57 F.3d 146, 151-153 (2d Cir. 1995), as an example. [28]  In Banque Arabe , the Second Circuit held that a recitation in an assignment agreement transferring “all of [the predecessor party’s] rights, title and interest” in a “transaction” was sufficient to transfer a fraud claim upon analyzing the underlying circumstances. The Court also distinguished the case from other actions with similarly broad assignment language in which the Court found that the fraud claims had not been assigned. [29]  The Court explained that those “cases did not involve a situation like here, where it [was] alleged that the original purchasers were, in effect, the same as the assignee plaintiffs, with the same person signing on behalf of the purchaser-assignors and the assignees.” [30] “Instead,” said the Court, the other cases dealt “with the post-facto assignment of rights under a contract entered into between the assignee and a third party, where the intention of the assignor would be more difficult to discern.” [31] Finally, the Court held that Plaintiffs “did not disclaim reliance based on the general disclaimer included in the contract, which made no mention ‘to the particular type of fact misrepresented or undisclosed,’ which were ‘peculiarly within the seller’s knowledge.’” [32] Takeaways BH 336 Partners  offers several important lessons for parties litigating fraud claims. First, it reaffirms that standing to assert fraud may pass through assignment when the assignment language is broad, and the surrounding circumstances indicate an intent to transfer all rights. Thus, where related entities orchestrate a transaction, and the same individuals sign on both sides, a factfinder may reasonably infer an intent to assign fraud claims. Second, BH 336 Partners  underscores the difficulties overcoming the application of the statute of limitations in the face of publicly available information in fraud cases. While fraud claims may be brought within six years of accrual or two years from discovery, the two‑year discovery rule is triggered once a plaintiff is placed on inquiry notice. The AG’s 2019 complaint, sent to Plaintiffs’ counsel in 2019, was deemed sufficient to alert Plaintiffs to the possibility of fraud, even though the complaint did not directly implicate the exact Properties at issue in BH 336 Partners . Finally, BH 336 Partners  illustrates that general contractual disclaimers do not bar fraud claims where the alleged misrepresentations concern facts peculiarly within the seller’s knowledge. In BH 336 Partners , because Defendants allegedly orchestrated a concealed deregulation scheme, Plaintiffs could not have discovered the truth through ordinary diligence, and the generic disclaimer found in the purchase contracts lacked the specificity required to defeat reliance as a matter of law. ______________________________ 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. [1] Plaintiffs, BH 336 Partners LLC, EZ Wadsworth Associates LLC, 220 MMM Partners LLC, LIV Hudson Heights LLC, 643 Bar Partners LLC, 113 West LLC (“113 West”), 2576 Flatbush Ave Realty LLC, and Roe Gem II LLC, are entities owned and controlled by non‑party Michael Aryeh and his company, Heritage Realty LLC (“Heritage”). Defendant Sentinel Real Estate Corporation (“Sentinel”) is a real estate investment company affiliated with the other defendants, including the single‑purpose entities that owned the Properties prior to the sales (the “Seller Defendants”) and defendant Newcastle Realty Services, LLC (“Newcastle”), the Properties’ managing agent during that period. Defendant GRF, a Delaware corporation affiliated with Sentinel, served as manager for 854 West 180 Limited Partnership. [2] DLJ Mtge. Capital v. Mahadeo , 166 A.D.3d 512, 513 (1st Dept. 2018). [3] Id. , citing Deutsche Bank Trust Co. Ams. v. Vitellas , 131 A.D.3d 52, 59-60 (2d Dept. 2015). [4] SureFire Dividend Capture, LP v. Industrial & Commercial Bank of China Fin. Servs. LLC , 216 A.D.3d 584 (1st Dept. 2023), quoting Commonwealth of Pa. Pub. Sch. Employees’ Retirement Sys. V. Morgan Stanley & Co., Inc. , 25 N.Y.3d 543, 545 (2014). [5] Commonwealth of Pa. Pub. Sch. Employees’ Retirement Sys. , 25 N.Y.3d at 545. [6] Shafran v. Kule , 159 A.D. 2d 263, 264 (1st Dept. 1990); see also   Ramsarup v. Rutgers Casualty Ins. Co. , 98 A.D.3d 494, 495 (2d Dept. 2012). [7] CPLR 213(8). [8] Epiphany Community Nursery Sch. v. Levey , 171 A.D.3d 1, 7 (1st Dept. 2019). [9] Id. [10] Berman v. Holland & Knight, LLP , 156 A.D.3d 429, 430 (1st Dept. 2017) (internal quotation and citation omitted). [11] Norddeutsche Landesbank Girozentrale v. Tilton , 149 A.D.3d 152, 164 (1st Dept. 2017) (quotations omitted). [12] Id. , quoting Gutkin v. Siegal , 85 A.D. 3d 687, 688 (1st Dept. 2011). [13] Id. [14] Aozora Bank, Ltd. v. Deutsche Bank Sec. Inc. , 137 A.D.3d 685, 689 (1st Dept. 2016), citing CIGFG Assur. N. Am., Inc. v. Credit Suisse Sec. (USA) LLC , 128 A.D.3d 607, 608 (1st Dept. 2015). [15] Loreley Fin. (Jersey) No. 3 Ltd. v. Citigroup Global Mkts. Inc. , 119 A.D.3d 136, 143 (1st Dept. 2014). [16] Id. ; see also Steinhardt Group, Inc. v. Citicorp , 272 A.D.2d 255, 257 (1st Dept. 2000). [17] Slip Op. at *1. [18] Id. [19] Id. [20] Id. [21] Id. [22] Id.  (citations omitted). [23] Id. [24] Id. [25] Id. [26] Id.  (citation omitted) [27] Id. [28] Id. [29] Id.  (citing cases). [30] Id. [31] Id. [32] Id. , quoting Basis Yield Alpha Fund [Master] v. Goldman Sachs Group, Inc. , 115 A.D.3d 128, 137 (1st Dept. 2014).

By:  Jeffrey M. Haber To pierce the corporate veil under New York law, a plaintiff must satisfy a two‑part test and plead specific, non‑conclusory facts supporting each element. First, the plaintiff must show that the individual exercised complete domination and control over the corporation with respect to the specific transaction at issue. Second, even if domination exists, the plaintiff must show that the domination was used to commit a fraud, injustice, or other wrongful act that caused the plaintiff’s injury. In Borini v. Inform Studios, Inc. , 2026 N.Y. Slip Op. 00309 (1st Dept. Jan 27, 2026), which we examine in today’s article, plaintiffs did not satisfy either prong of the test. Borini  concerned a written contract between Inform Studio, Inc. (“Inform”) and plaintiffs for the renovation of plaintiffs’ cooperative apartment unit (the “Project”). [1]  The contract was executed on November 15, 2017, and required Inform to achieve substantial completion within one year of the January 12, 2018 commencement date of the Project. After work began, a burst pipe elsewhere in the building caused damage to plaintiffs’ apartment, resulting in Project delays. On August 6, 2018, the cooperative board (the “Board”) directed that the Project be stopped and denied Inform further access to the premises. The Board asserted that plaintiffs had exceeded the time period permitted under an alteration agreement between plaintiffs and the Board. Inform was not a party to that agreement. Access to the unit remained restricted for more than one year while plaintiffs and the Board litigated the issue in New York County Supreme Court. On August 22, 2019, the court issued a mandatory injunction requiring the Board to allow the Project to proceed. Following the injunction, Inform and plaintiffs discussed resuming work. Inform requested payment of its outstanding contract balance and reimbursement of certain delay-related costs, including storage fees, extended labor expenses, and subcontractor remobilization costs. The parties submitted these issues to mediation, and on November 19, 2019, executed a post‑mediation agreement (“PMA”) resolving them, including plaintiffs’ agreement to pay the identified amounts. The PMA contemplated a March 1, 2020 restart date. Before that date, New York City suspended nonessential construction due to the Covid‑19 pandemic. Inform regained access to the apartment on July 28, 2020, and continued work until achieving substantial completion on January 28, 2021. Inform thereafter performed punch-list work and closed out the Project. On October 19, 2021, plaintiffs obtained a Department of Buildings “Letter of Completion,” based on certifications submitted by their design professionals. Nearly two years later, plaintiffs commenced the action against Inform alleging breach of contract. Plaintiffs also named Patrick Eck, a licensed contractor and principal of Inform, and two additional entities in which Eck is a principle, Inform Studios Installer, Inc. (“Installer”) and Block-Studio, Inc. (“Block”). Neither Eck, Installer nor Block were signatories to the contract. Defendants Eck, Installer, and Block moved to dismiss plaintiffs’ complaint. The motion court denied the motion. The Appellate Division, First Department, unanimously reversed. The Governing Law It is well settled that a corporation only acts through its officers, directors and owners. Thus, these individuals are generally not liable for the debts incurred by the corporation. However, when an officer, director or owner abuses the corporate form to perpetrate a wrong or injustice against a third party, courts will intervene on behalf of the third party to hold the corporate actor personally liable. [2]   “Generally, a plaintiff seeking to pierce the corporate veil must show that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff’s injury.” [3]   Importantly, it is not enough for the plaintiff to demonstrate that the officer, director, or owner dominated and controlled the corporate entity. [4] The plaintiff must show that the officer, director or member used the corporation for his/her personal benefit and the corporation was nothing more than an “alter ego” or instrumentality of the officer or member. [5]  Conclusory allegations of domination and control are insufficient. [6]  So too are allegations asserted on information and belief which amount to nothing more than a restatement of legal elements. [7]  The plaintiff must demonstrate that there was a unity of interest and control between the defendant and the entity such that they are indistinguishable. While application of the doctrine depends on the facts and circumstances of each case, [8]  several factors have emerged in determining whether the plaintiff has made the requisite showing. These factors include, among others: (1) the failure to adhere to corporate formalities; (2) inadequate capitalization (that is, the corporation or LLC does not have sufficient funds to operate); (3) a commingling of assets; (4) one person or a small group of closely related people were in complete control of the corporation or LLC; and (5) use of corporate funds for personal benefit. [9]  No one factor controls the consideration. [10]   Courts recognize, however, “that with respect to small, privately-held corporations, ‘the trappings of sophisticated corporate life are rarely present,’” and, therefore, they “must avoid an over-rigid ‘preoccupation with questions of structure, financial and accounting sophistication or dividend policy or history.’” [11]   In addition to the foregoing factors, a plaintiff must establish a causal connection between the domination and control of the corporate entity and the injury complained of. [12] The injury complained of must lead to inequity, fraud or malfeasance. [13]  It does not include a simple breach of contract claim. [14]   The First Department’s Decision The Court held that plaintiffs failed “to allege that Eck ‘exercised complete domination’ [over the] defendant corporations with respect to the transactions at issue and that ‘such domination was used to commit a fraud or wrong against [plaintiffs] which resulted in [their] injury.’” [15]  The Court found that the “complaint contain[ed] only conclusory allegations, reciting several factors supporting veil piercing, made solely upon plaintiffs’ ‘information and belief.’” [16]   In so holding, the Court noted that “[a]lthough the record show[ed] that the corporate defendants [were] connected” because “they share[d] a common address and a common principal,” plaintiffs nevertheless “failed to show complete domination and control.” [17]  “Plaintiffs’ proffered evidence,” said the Court, “demonstrated that Eck was a licensed contractor who acted on behalf of the corporate defendants” and “‘by definition, a corporation acts through its officers and directors.’” [18]  “Thus,” concluded the Court, “allegations and proof that Eck, a principal for all the corporate defendants, dealt with plaintiffs and represented the corporations are insufficient to pierce Inform’s corporate veil.” [19]   “Moreover,” the Court held that “the complaint lack[ed] any allegations that Eck perpetrated ‘a wrong or injustice’ against plaintiffs.” [20]  “Therefore,” concluded the Court, “plaintiffs’ breach of contract claim, without more, [did] not warrant piercing the corporate veil.” [21] To underscore its holding, the Court explained that plaintiffs did “not raise[ ] claims for fraud or similar wrongdoing, nor [did] plaintiffs allege[ ] that Installer and Block were not legitimate subcontractor businesses, that they were created for the improper purpose of preventing plaintiffs from enforcing the contract, or that corporate funds were diverted to those entities to render Inform judgment proof.” [22]  “Under these circumstances,” concluded the Court, “plaintiffs failed to state a claim for breach of contract as against Installer, Block, and Eck,” and “‘the hope that something will turn up in discovery [was] an insufficient basis to deny the motion to dismiss.’” [23] Takeaway In Borini , plaintiffs sued Inform for delays and alleged defects in a renovation project. Plaintiffs also tried to sue Inform’s owner and two related companies, even though none of them signed the renovation contract. To do that, plaintiffs attempted to pierce the corporate veil. As discussed, Borini shows how difficult it is under New York law to hold a business owner personally liable for their company’s obligations. The First Department rejected plaintiffs’ claims and dismissed the case against all non‑contracting defendants. The Court held that plaintiffs failed to allege any facts showing that the owner misused the corporation or engaged in wrongdoing that would justify personal liability. Simply alleging that the owner managed the companies, shared an address among them, or communicated directly with plaintiffs was not enough. Corporations act through their officers and directors; however, that alone does not create personal exposure. Most importantly, plaintiffs alleged only a simple breach of contract, nothing more. The Court made clear that a contract dispute, without more, is not grounds for piercing the corporate veil. There must be evidence of fraud, misuse of corporate assets, or other inequitable conduct. None was present in Borini . The Court also rejected the notion that plaintiffs could proceed to discovery “just to see what turns up,” reiterating that specific allegations of wrongdoing must be made at the outset. _______________________________ 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. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions and not on matters handled by the firm. [1] The background facts come from the briefing on appeal. [2] TNS Holdings v. MKI Sec. Corp. , 92 N.Y.2d 335, 340 (1998) (the corporate veil may be pierced to impose liability for corporate wrongs upon persons who have “misused the corporate form for [their] personal ends.”);  Matter of Morris v. New York State Dept. of Taxation & Fin. , 82 N.Y.2d 135, 142 (1993) (the corporate veil may be pierced where the owners have “abused the privilege of doing business in the corporate form” by “perpetrat[ing] a wrong or injustice . . . such that a court in equity will intervene.”);  Tap Holdings, LLC v. Orix Fin. Corp. , 109 A.D.3d 167, 174 (1st Dept. 2013) (citation omitted). [3] Conason v. Megan Holding, LLC , 25 N.Y.3d 1, 18 (2015) (internal quotation marks omitted);  TNS Holdings , 92 N.Y.2d at 339. [4] Matter of Morris , 82 N.Y.2d at 141-142;  TNS Holdings , 92 N.Y.2d at 339. [5] TNS Holdings , 92 N.Y.2d at 339. [6] East Hampton Union Free School Dist. v. Sandpebble Bldrs., Inc. , 16 N.Y.3d 775, 776 (2011) (noting that at the pleading stage, “a plaintiff must do more than merely allege that [the defendant] engaged in improper acts or acted in ‘bad faith’ while representing the corporation”). [7] See 501 Fifth Ave. Co. LLC v. Alvona LLC. , 110 A.D.3d 494 (1st Dept. 2013); see also Cortlandt St. Recovery Corp. v. Bonderman , 226 A.D.3d 103, 104 [(1st Dept. 2024), aff’d ,  — N.Y.3d —, 2025 N.Y. Slip Op. 07078 (2025); Albstein v. Elany Contracting Corp. , 30 A.D.3d 210, 210 (1st Dept. 2006). [8] Ledy v. Wilson , 38 A.D.3d 214, 214 (1st Dept. 2007). [9] Shisgal v. Brown , 21 A.D.3d 845, 848 (1st Dept. 2005) (internal citation omitted). [10] Tap Holdings , 109 A.D.3d at 174 (citation omitted). [11] Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc. , 98 F.3d 13, 18 (2d Cir. 1996) (quoting  Wm. Wrigley Jr. Co. v. Waters , 890 F.2d 594, 601 (2d Cir. 1989) (applying New York law)).  Accord ,  Leslie, Semple & Garrison, Inc. v. Gavit & Co., Inc. , 81 A.D.2d 950, 951 (3d Dept. 1981) (recognizing that it is often difficult and impractical for small closely-held corporations to comport with the typical corporate formalities).  See also Bahar v. Schwartzreich , 204 A.D.2d 441, 443 (2d Dept. 1994);  Bullard v. Bullard , 185 A.D.2d 411, 413 (3d Dept. 1992). [12] Matter of Morris , 82 N.Y.2d at 141;  Guptill Holding Corp. v. State of N.Y. , 33 A.D.2d 362, 365 (3d Dept. 1970) (noting that an element of veil piercing is “an injury proximately caused by said wrong”) (citation omitted);  East Hampton Union Free School Dist. , 66 A.D.3d at 132 (noting that the plaintiff must articulate conduct by the individual that creates a nexus between it and the “transactions or occurrences” alleged in the complaint). [13] TNS Holdings , 92 N.Y.2d 339. [14] Brandsway Hosp., LLC. v. Delshah Cap. LLC , 216 A.D.3d 486, 487 (1st Dept. 2023 ); Kahan Jewelry Corp. v. Coin Dealer of 47th St. Inc. , 173 A.D.3d 568, 569 (1st Dept. 2019); Skanska USA Bldg. Inc. v. Atl. Yards B2 Owner, LLC , 146 A.D.3d 1, 12 (1st Dept. 2016), aff'd , 31 N.Y.3d 1002 (2018). [15] Slip Op. at *1 (quoting Matter of Morris , 82 N.Y.2d at 141). [16] Id.  (citations omitted). [17] Id.  (citing Sass v. TMT Restoration Consultants Ltd. , 100 A.D.3d 443, 443 (1st Dept. 2012); Fantazia Intl. Corp. v. CPL Furs N.Y., Inc. , 67 A.D.3d 511, 512 (1st Dept. 2009)). [18] Id.  (citing East Hampton Union Free School Dist. , 16 N.Y.3d at 776. [19] Id.  (citing J. Carey Smith 2019 Irrevocable Trust v. 11 W. 12 Realty LLC , 240 A.D.3d 432, 433 (1st Dept. 2025); Springut Law PC v. Rates Tech. Inc. , 157 A.D.3d 645, 646 (1st Dept. 2018)). [20] Id.  (citing Matter of Morris , 82 N.Y.2d at 142). [21] Id.  (citing Skanska , 146 A.D.3d at 12). [22] Id.  (citing World Wide Packaging, LLC v. Cargo Cosmetics, LLC , 193 A.D.3d 442, 442-443 (1st Dept. 2021)). [23] Id.  (citations omitted).