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By: Jeffrey M. Haber The Custody Rule provides that “it is a fraudulent, deceptive, or manipulative act, practice or course of business within the meaning of section 206(4) of the Act … for to have custody of client funds or securities unless” the adviser implements an enumerated set of requirements to prevent loss, misuse, or misappropriation of those funds and securities. The purpose of the Custody Rule is to protect investment advisory clients from, among other things, the loss, misuse, or misappropriation of their funds and securities. Under the rule, an investment adviser has custody if it holds, directly or indirectly, client funds or securities, or if it has the ability to obtain possession of those funds and securities. Custody is defined to include, among other things, “ ny arrangement … under which authorized or permitted to withdraw client funds or securities maintained with a custodian upon instruction to the custodian” and “ ny capacity (such as … trustee of a trust) that gives supervised person legal ownership of or access to client funds or securities.” A “related person” is defined as any person, directly or indirectly, controlling or controlled by the adviser, and any person that is under common control with the adviser. Under the Custody Rule, an investment adviser who has custody of client funds and securities must, among other things: (i) ensure that a qualified custodian maintains the client funds and securities; (ii) notify the client in writing of accounts opened by the adviser at a qualified custodian on the client’s behalf; (iii) have a reasonable basis for believing that the qualified custodian sends account statements at least quarterly to clients; and (iv) ensure that client funds and securities are verified by actual examination each year by an independent public accountant pursuant to a written agreement at a time chosen by the accountant without prior notice or announcement to the adviser ( i.e. , the “surprise examination” requirement). The written agreement with the accountant must provide for the first examination to occur within six months of becoming subject to the requirement and require, among other things, that the accountant file a Form ADV-E with the SEC within 120 days of the date chosen by the accountant to perform the examination, which states that the accountant has examined the client funds and securities and describes the nature and extent of the examination. Today, we examine In the Matter of Munakata Associates LLC ( here ), an administrative action that was settled in anticipation of the institution of enforcement proceedings involving the alleged violation of the Custody Rule. According to the SEC, from at least 2018 to 2024 (the “Relevant Period”), respondent’s president, sole principal, and chief compliance officer (the “Munakata’s President”) served as a co-trustee of two trusts that were advisory clients of Munakata. The trust agreements granted each co-trustee “broad investment and other powers under the trust agreement and applicable law to enter into transactions and to trade, buy, sell, sell short or otherwise acquire, receive, deliver, assign, endorse for transfer, hold or dispose of all manner of securities, futures, currencies and commodities …” as well as “broad powers under the trust agreements and applicable law to engage in borrowing and other loan and credit transactions ….” The trust agreements further stated that each co-trustee could act independently. As a result, respondent had access to and/or the ability to obtain possession of trust funds and securities without the consent of the respective co-trustees. During the Relevant Period, said the SEC, Munakata’s President had signatory authority on four client accounts. Pursuant to this authority, explained the SEC, Munakata’s President had the same ability to instruct the broker about the delivery of the accounts’ funds and securities as did the beneficial owner of the account. Thus, said the SEC, respondent had access to and/or the ability to obtain possession of client funds and securities. During the Relevant Period, said the SEC, Munakata’s President acted as an authorized agent with power of attorney on five client accounts. Pursuant to the power of attorney, explained the SEC, Munakata’s President had “the power to place orders in an account, request disbursements and make inquiries concerning the account such as obtaining account balances” as well as the power “to make gifts or other transfers of … money or other property from account during lifetime, without restriction, to any one or more persons, including the agent himself or herself .” (Orig’l emphasis). Thus, said the SEC, respondent had access to and/or the ability to obtain possession of client funds and securities. As a result, said the SEC, during the Relevant Period, respondent had custody of client funds and securities under the Custody Rule. Accordingly, noted the SEC, respondent was required to obtain surprise examinations in accordance with Rule 206(4)-2(a)(4) during the Relevant Period. According to the SEC, at no time during the Relevant Period, however, did respondent arrange for the required surprise examinations for the client accounts. As a result, the SEC alleged that, during the Relevant Period, respondent violated Section 206(4) of the Investment Advisers Act and Rule 206(4)-2 thereunder. Without admitting or denying the findings in the SEC’s order instituting cease-and-desist proceedings ( here ), respondent agreed to cease and desist from committing or causing any violations and any future violations of Section 206(4) of the Advisers Act and Rule 206(4)-2 thereunder, and to pay a civil penalty in the amount of $50,000. Takeaway: Over recent years, the SEC has actively enforced the Custody Rule: In September 2022, the SEC resolved nine enforcement proceedings alleging violations of the Custody Rule and associated requirements for amending Form ADV to provide accurate information about fund audits. In September 2023, the SEC resolved five additional enforcement proceedings arising out of the Custody Rule. In December 2023, the SEC settled charges with an investment adviser who allegedly failed, among other things, to conduct surprise examinations of its client funds or securities. In August 2024, the SEC settled charges against an investment advisory firm for failing to deliver required audited financial statements in a timely manner and failing to promptly file an annual updating amendment to its Form ADV. In September 2024, the SEC settled charges against a Florida-based (former) registered investment adviser for a private fund that primarily invested in crypto assets, for failing to comply with requirements related to the safeguarding of client assets, including crypto assets being offered and sold as securities. Munakata stands as another recent example of the SEC’s active enforcement of, and commitment to, enforcing the Custody Rule. Munakata also underscores the SEC’s emphasis on compliance even in the absence of client loss. As discussed, there was no allegation of investor loss in Munakata . ____________________________________________ 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. Rule 206(4)-2(a). Rule 206(4)-2(d)(2). Id. Rule 206(4)-2(d)(7). Rule 206(4)-2(a)(1) – (4). Rule 206(4)-2(a)(4).

By: Jeffrey M. Haber This Blog has written frequently about the substance and scope of general releases. In New York, “a valid release constitutes a complete bar to an action on a claim which is the subject of the release.” If “the language of a release is clear and unambiguous, the signing of a release is a ‘jural act’ binding on the parties.” For this reason, “ release should never be converted into a starting point for … litigation except under circumstances and under rules which would render any other result a grave injustice.” “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 to show that there has been fraud, duress or some other fact which will be sufficient to void the release.’”   “A plaintiff seeking to invalidate a release due to fraudulent inducement 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.’” 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.”  Id . (citation omitted). “Were this not the case,” observed the Court of Appeals, “no party could ever settle a fraud claim with any finality.”  Id . “‘A party may move for judgment dismissing one or more causes of action asserted against on the ground that … the cause of action may not be maintained because of … release.’” “In resolving a motion to dismiss pursuant to CPLR 3211(a)(5), ‘the plaintiff’s allegations are to be treated as true, all inferences that reasonably flow therefrom are to be resolved in his or her favor.’” In Schneier v. Clermont York Assoc., LLC , 2025 N.Y. Slip Op. 04498 (2d Dept. July 30, 2025) ( here ), the foregoing principles were before the Appellate Division, Second Department. Schneier involved a putative class action brought on behalf of “opt out members of” a prior class action, entitled Gerard v. Clermont York Assoc. LLC , commenced in the Supreme Court, New York County, under Index No. 101150/10 (the “prior class action”), against defendant, inter alia , to recover damages for certain rent overcharges. The prior class action was settled by an agreement dated May 20, 2019 (the “settlement agreement”). Plaintiff was a member of the prior class. The settlement agreement was approved by the Supreme Court by judgment dated August 26, 2020, and contained a general release barring every class member “who not timely and properly opt out” of the settlement agreement from asserting “all … claims[ or] causes of action … of any nature whatsoever … arising at any time on or before entry of the that are based upon or related to, or arise out of, in whole or in part, the facts, transactions, events, occurrences, acts, or failures to act that were or could have been alleged” in the prior class action by a class member. The settlement agreement further provided that a class member could opt out of the settlement by sending a written request for exclusion from the settlement by first-class mail postmarked by a certain date. In Schneier , Plaintiff moved, inter alia , pursuant to Article 9 of the Civil Practice Law and Rules (“CPLR”) for class certification and, in effect, pursuant to CPLR 3126 to impose discovery sanctions. Defendant opposed the motion and cross-moved pursuant to CPLR 3211(a) to dismiss the complaint as barred by the release. In an order entered April 1, 2024, the Supreme Court denied plaintiff’s motion and granted defendant’s cross-motion. Plaintiff appealed. The Second Department affirmed. The Court held that defendant “met its initial burden of establishing that the instant action was barred by the release.” The Court found that, “in support of its cross-motion, the defendant submitted,” inter alia , evidence sufficient to support dismissal of the action. This evidence included “the settlement agreement containing the release, which, by its terms, barred the action against defendant for those class members in the prior class action who did not opt out of the settlement in the manner required by the settlement agreement” and “evidence that the plaintiff, who was a class member, received the requisite notice of the settlement agreement and its opt out provision but failed to opt out of the settlement in the manner required by the settlement agreement.” The Court noted that “ n opposition, the plaintiff failed to show that there been fraud, duress, or some other circumstance that would be sufficient to set aside the release.” The Court rejected plaintiff’s argument that she was relieved of the settlement agreement’s opt-out provision by the Governor’s executive orders during the pandemic: “Contrary to the plaintiff’s contention, she was not relieved of the opt out requirements of the settlement agreement by virtue of the toll provided by Executive Order (A. Cuomo) No. 202.8 (9 NYCRR 8.202.8) and the subsequent orders extending that order, issued by the Governor in response to the COVID-19 public health crisis.” Accordingly, concluded the Court, “the Supreme Court properly granted the defendant’s motion pursuant to CPLR 3211(a) to dismiss the complaint as barred by the release.” Takeaway A “release is … a species of contract” that “is governed by the same principles of law applicable to other contracts.” Therefore, in the absence of duress, illegality, fraud, or mutual mistake, a release will not be set aside. In Schneier , the release language at issue was expansive and released “all … claims[ or] causes of action … of any nature whatsoever … arising at any time on or before entry of the that are based upon or related to, or arise out of, in whole or in part, the facts, transactions, events, occurrences, acts, or failures to act that were or could have been alleged” in the prior class action by a class member. For the Second Department (and the Supreme Court), such language was broad enough to cover the claims asserted in plaintiff’s complaint. Since the release barred the action, and plaintiff failed to plead fraud, duress, mistake, or illegality, the Second Department affirmed dismissal of the complaint. ________________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. We have written numerous articles addressing releases and their bar on subsequent actions involving the released subject matter. To find such articles, please see the  BLOG  tile on our  website  and search for “release”, “general release”, or any other commercial litigation issue that may be of interest you. Global Minerals & Metals Corp. v. Holme , 35 A.D.3d 93, 98 (1st Dept. 2006). Booth v. 3669 Delaware, Inc. , 92 N.Y.2d 934, 935 (1998) (quoting Mangini v. McClurg , 24 N.Y.2d 556, 563 (1969)). See also Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V. , 17 N.Y.3d 269, 276 (2011). Id. (internal quotation omitted). Centro Empresarial Cempresa , 17 N.Y.3d at 276 (“A release may be invalidated, however, for any of the traditional bases for setting aside written agreements, namely, duress, illegality, fraud, or mutual mistake”) (internal quotation marks and citation omitted) (quoting  Fleming v. Ponziani , 24 N.Y.2d 105, 111 (1969)). Id. (quoting  Global Mins. & Metals Corp. v. Holme , 35 A.D.3d 93, 98 (1st Dept. 2006)). Davin v. Plymouth Rock Assur. Co. of N.Y. , 227 A.D.3d 862, 863 (2d Dept. 2024) (quoting CPLR 3211(a)(5)). Id. at 863-864 (quoting Sacchetti-Virga v. Bonilla , 158 A.D.3d 783, 784 (2d Dept. 2018)). Slip Op. at *2. Id. Id. (citations omitted). Id. (citations omitted). Id. (citations omitted) Id. Schuman v. Gallet, Dreyer & Berkey, L.L.P. , 180 Misc. 2d 485, 487 (Sup. Ct., N.Y. County 1999), aff’d , 280 A.D.2d 310 (1st Dept. 2001). See also Ivasyuk v. Raglan , 197 A.D.3d 635, 636 (2d Dept. 2021). Toledo v. W. Farms Neighborhood Hous. Dev. Fund Co., Inc. , 34 A.D.3d 228, 229 (1st Dept. 2006).

By: Jonathan H. Freiberger Today’s BLOG deals with the “Relation Back Doctrine” (the “Doctrine”) , which, inter alia , “allows a claim asserted against a defendant in an amended filing to relate back to claims previously asserted against a codefendant for Statute of Limitations purposes where the two defendants are “‘united in interest.’” Buran v. Coupal , 87 N.Y.2d 173, 177 (1995) (citation omitted). The Doctrine was codified by the CPLR. See, e.g., CPLR 203(b), (c), (e) and (f) . As explained by the Court of Appeals, the “doctrine enables a plaintiff to correct a pleading error by adding either a new claim or a new party after the statutory limitations period has expired thus gives courts the sound judicial discretion to identify cases that justify relaxation of limitations strictures to facilitate decisions on the merits if the correction will not cause undue prejudice to the plaintiff's adversary.” Id. at 177-178 (citations, internal quotation marks, and ellipses omitted). Under the Doctrine, claims against a later added party would relate back to the commencement date of the action if: “(1) both claims arose out of the same conduct, transaction or occurrence; (2) the new party is united in interest with the original defendant, and by reason of that relationship can be charged with such notice of the institution of the action that they will not be prejudiced in maintaining their defense on the merits; and (3) the new party knew or should have known that, but for an excusable mistake by the plaintiff as to the identity of the proper parties, the action would have been brought against as well.” Nemeth v. K-Tooling , 40 N.Y.3d 405, 411 (2023) (citations, internal quotation marks and brackets omitted); see also O’Halloran v. Metropolitan Transp. Authority , 154 A.D.3d 83, 86-87 (1 st Dep’t 2017). A “more relaxed” standard is recognized in the application of the Doctrine when a party seeks to add a new claim against an existing party as opposed to adding a new party to an existing action. O’Halloran , 154 A.D.3d at 86. In such circumstances, “the relevant considerations are simply (1) whether the original complaint gave the defendant notice of the transactions or occurrences at issue and (2) whether there would be undue prejudice to the defendant if the amendment and relation back are permitted.” Id . at 87 (citations omitted). On July 30, 2025, the Appellate Division, Second Department, had occasion to address the Doctrine in U.S. Bank National Association v. 1702 Dean, LLC , a mortgage foreclosure action. The facts of U.S. Bank are somewhat tortured and will be simplified herein for editorial purposes. In 2006, the borrower executed a note in the amount of $600,000 and secured her repayment obligations with a mortgage on residential property located in Brooklyn, New York. Upon the borrower’s death, the mortgaged premises was transferred to Gerald, one of the borrower’s sole surviving heirs. The lender commenced a foreclosure action against Gerald in 2010. In the complaint, the “Block” number in the tax map designation was incorrectly listed, and that error was carried over to the filed notice of pendency. Gerald defaulted in appearing and, in 2013, the lender’s motion for a default judgment and for the appointment of a referee to compute was granted. Later in 2013, Gerald conveyed the property to an unrelated LLC. Thereafter, a second and a third notice of pendency were filed, which, again, contained incorrect “Block” numbers. A judgment of foreclosure and sale was issued in February of 2017. In April of 2017, a fourth notice of pendency was filed, which contained, for the first time, a proper property description. In November of 2017, the lender withdrew the judgment of foreclosure and sale. The LLC moved to intervene in the action in July of 2018, and, in October of 2018, the lender moved for leave to file a supplemental summons and amended complaint to add the LLC as a necessary party. Both motions were granted by the trial court. The supplemental summons and amended complaint were filed by the lender along with a notice of pendency containing a proper property description. “The LLC interposed an answer in which it asserted various affirmative defenses, including that the action was barred by the statute of limitations and that it was not bound by any proceedings in the action because the notice of pendency was not properly indexed against the premises.” The lender moved for summary judgment against the LLC, and the LLC cross-moved for summary judgment dismissing the amended complaint as time-barred. In support of its cross-motion, the sole member of the LLC submitted an affidavit in which he averred that “the LLC obtained its interest in the premises pursuant to the deed dated February 13, 2015, which was recorded on March 11, 2015, that no notice of pendency was filed against the premises at that time, and that he was not on notice of this foreclosure action when the LLC acquired the premises.” The lender opposed the cross-motion by arguing that the action was timely commenced against the LLC by virtue of the Doctrine. Both motions were denied. The LLC appealed. The Second Department reversed. The Court found that the LLC met its initial burden of demonstrating that the amended complaint was filed outside the six-year statute of limitations period for foreclosure actions and, in opposition, the lender failed to meet its burden of demonstrating the applicability of the Doctrine. In addition to the legal issues previously discussed herein, the Court noted that the “linchpin of the relation-back doctrine is whether the new defendant had notice within the applicable limitations period. (Citations and internal quotation marks omitted.) The Court noted compliance with the first “prong” of the Doctrine’s test because the claim arose from the same conduct, transaction or occurrence. As to the second “prong,” however, the Court found that Gerald and the LLC were not united in interest. “Here, a judgment of foreclosure and sale would not similarly affect Gerald and the LLC, as Gerald no longer has an interest in the premises, while the LLC would have its interest in the premises foreclosed. Moreover, any claim of identical interests is undermined by Gerald's default in appearing or answering the complaint.” (Citations, internal quotation marks, and ellipses omitted.) Compliance with the third “prong” was missing as well because the “failure to name the LLC as a defendant in the original complaint was not a mistake on the plaintiff's part of which the LLC could have been aware, as there would have been no reason to name the LLC when the action was commenced since the LLC had no interest in the premises at that time.” Further, and “most importantly” there was no showing that the LLC had actual notice of the action prior to the expiration of the statute of limitations. While the LLC acquired its interest in the property prior to the expiration of the statute of limitations, “the notices of pendency filed before the LLC acquired the premises did not, in fact, provide constructive notice of the action as they were indexed against the wrong block and, thus, the wrong property.” (Citation omitted.) Further, the sole member of the LLC averred that he did not have actual notice of the pendency of the action. Finally, the Court noted that while the LLC may have been chargeable with notice of the lender’s recorded mortgage, “the recording of the mortgage did not provide actual notice of the foreclosure action, as required under the relation-back doctrine.” (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. This BLOG has previously addressed the “Relation Back Doctrine.” See, e.g., < here =">here"> and < here =">here"> . 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, issue that may be of interest you. This BLOG has written numerous articles addressing notices of pendency. To find such articles, please see the BLOG tile on our website and type “notice of pendency” into the “search” box. Simply stated, a notice of pendency (or lis pendens) is a provisional remedy governed by Article 65 of the CPLR. The purpose of a notice of pendency is to put defendants and the world on constructive notice of the full scope of the rights claimed by plaintiff to defendant’s real property. Sjogren v. Land Assoc., LLC , 223 A.D.3d 963, 965 (3 rd Dep’t 2024). This BLOG has written numerous articles on Referee’s in mortgage foreclosure actions. See. e.g. , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . This BLOG has written numerous articles addressing statute of limitations issues in residential mortgage foreclosure actions. To find such articles, please see the BLOG tile on our website and type “statute of limitations mortgage foreclosure” into the “search” box.

By: Jeffrey M. Haber This Blog has written about Ponzi schemes on numerous occasions. A Ponzi scheme is a type of investment fraud where returns to earlier investors are paid using investment capital from new or existing investors, rather than from legitimate profits earned through the enterprise’s business activities. Ponzi schemes persist by exploiting trust, promising high returns with little risk, and using money from new or existing investors to pay “profits” to earlier ones. Blog tile=">Blog tile" on="on" our  website=">website" search="search" for="for" “Ponzi="“Ponzi" schemes”="schemes”" or="or" any="any" action="action" issue="issue" that="that" may="may" be="be" interest="interest" to="to" you.="you."> The Securities and Exchange Commission (“SEC”) has intensified its crackdown on Ponzi schemes and Pyramid schemes, focusing on enhanced enforcement, investor education, and transparency. Despite the SEC’s efforts, promoters of Ponzi schemes continue to find ways to perpetrate their fraud. In today’s article, we examine an enforcement action brought by the SEC against Edwin Emmett Lickiss (“defendant”), a former investment adviser located in the Bay Area of California. Between 1998 and September 2024, defendant was a financial advisor who owned and operated Foundation Financial Group, a firm that provided investment services to investors in the Northern District of California, Idaho, and throughout the United States. Defendant was a registered broker until 2014, when the Financial Industry Regulatory Authority suspended his broker’s license. Despite the suspension and loss of his broker’s license, defendant allegedly continued to solicit and obtain investments from investors until around September 2024. As part of his scheme, defendant allegedly represented to investors that he would invest their funds in government bonds and other bonds. To induce his victims to invest their money with him, defendant allegedly claimed that he had exclusive access to bonds that paid very high rates of return, including rates in excess of 20 percent. Defendant allegedly described the bonds as safe, secure, and tax-free, and is alleged to have falsely claimed, among other things, that the bonds could be redeemed at any time. Though the bonds allegedly paid interest on a monthly basis, defendant advised investors to roll them over. To convince investors that he had invested their funds as promised, defendant allegedly gave investors fraudulent promissory notes that included the terms of the bond investments and purported to track investors’ total investment in the bonds. According to the SEC, defendant fraudulently offered and sold to investors approximately $12.7 million in promissory notes, which purported to pay interest rates of between 9 and 32 percent per annum. Defendant also allegedly made payments to investors, some of whom were repaid in full, to lull them into believing that they were receiving a return on their investment. Defendant allegedly described the payments as interest that had accrued on the bonds, when, in fact, the payments were allegedly made with funds defendant obtained from subsequent investors. Instead of investing the funds as promised, defendant allegedly used investors’ funds to pay earlier investors, as in a Ponzi scheme, and for his personal use, including cash withdrawals, home renovations, travel, and car, mortgage, and personal credit card payments. In all, defendant allegedly obtained at least $9.5 million from no fewer than 50 investors. The SEC filed its complaint ( here ) in the U.S. District Court for the Northern District of California. In the complaint, the SEC charged defendant with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks permanent injunctive relief, including conduct-based injunctions against defendant, disgorgement with prejudgment interest, and a civil penalty. In a parallel action, the U.S. Attorney’s Office for the Northern District of California announced that a federal grand jury indicted defendant, on one count of wire fraud and one count of money laundering in connection with the alleged fraudulent scheme ( here ). _______________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By:  Jeffrey M. Haber As readers know from past articles, CPLR § 7511 (b) sets forth the statutory grounds for vacating an arbitration award. Under that section, a court may vacate an award if the rights of the movant were prejudiced by: (1) corruption, fraud or misconduct in procuring the award; (2) partiality of the arbitrator; (3) the arbitrator exceeding or imperfectly executing his/her power; or (4) the arbitrator failing to follow the procedure of Article 75. With respect to whether an arbitrator exceeded or imperfectly executed his/her power, an award will not be overturned unless the award violates a strong public policy, is totally irrational, or exceeds a specifically enumerated limitation on the arbitrator’s power. In general, the grounds for vacating an arbitration award are narrowly construed. It will be upheld even when the arbitrator makes errors of law and/or fact. As noted by the Court of Appeals, the courts are not to assume the role of overseer of the arbitration and mold an award to its sense of justice. An arbitration award violates strong public policy “only where court can conclude, without engaging in any extended fact-finding or legal analysis, that a law prohibits the particular matters to be decided by arbitration, or where the award itself violates a well-defined constitutional, statutory, or common law of this state.” An award will be found to violate public policy only where such policy prohibits, in the absolute sense, particular matters being decided or certain relief being granted by the arbitrator.  Vacatur on public policy grounds is exercised sparingly in order to preserve the parties’ choice of a nonjudicial forum to the greatest extent possible. Additionally, “ n arbitration award may be vacated on the ground that the arbitrator exceeded his or her power where the ‘award … is irrational or clearly exceeds a specifically enumerated limitation on the arbitrator's power.’” “An arbitrator’s award is irrational ‘where there is no proof whatever to justify the award.” “A party seeking to overturn an arbitration award bears a heavy burden and must establish a ground for vacatur by clear and convincing evidence.” In Matter of Centurion Cos., Inc. v. Bowne Tech Constr. Corp. , 2025 N.Y. Slip Op. 04246 (2d Dept. July 23, 2025) ( here ), the Appellate Division, Second Department reversed, in part, a judgment entered by the Supreme Court confirming an arbitration award on the grounds that “there was no proof whatever to justify” the award. Centurion Companies involved, among other things, the renovation of real property located in West Nyack, N.Y. that was to be used as a new self-storage facility (the “project”). Petitioner, Centurion Companies, Inc. (“Centurion”), and respondent, Bowne Tech Construction Corp. (“Bowne”), entered into an agreement with regard to the project pursuant to which Bowne agreed to perform certain steel work for the project in exchange for $840,000 (the “subcontract”). Over one year later, Bowne filed a notice of mechanic’s lien against the subject property in the sum of $261,200, the amount allegedly owed to it for its work on the project pursuant to the terms of a change order increasing the subcontract price by $150,000. On May 25, 2022, Centurion served upon Bowne a notice of demand for arbitration in accordance with the subcontract, challenging the validity of Bowne’s $261,200 claim for unpaid construction work and seeking its own damages based on Bowne’s alleged noncompliance with the subcontract. In an arbitration award dated March 22, 2023, the arbitrator denied Bowne’s claim and awarded Centurion damages in the principal sum of $156,790, including $91,250 in delay damages. Subsequently, Centurion commenced a special proceeding pursuant to CPLR Article 75 to confirm the arbitration award. Bowne opposed the petition and cross-moved to vacate or modify the arbitration award. In an order dated July 17, 2023, the Supreme Court, inter alia , granted the petition, confirmed the arbitration award, denied Bowne’s cross-motion, and directed the entry of a judgment in favor of Centurion and against Bowne in the principal sum of $156,790. A judgment dated August 7, 2023, was entered upon the order in favor of Centurion and against Bowne in the principal sum of $156,790. Bowne appealed. The Court held that “Supreme Court erred in granting that branch of Centurion’s petition which was to confirm so much of the arbitration award as determined that Centurion entitled to $91,250 for delay damages, and in denying that branch of Bowne’s cross-motion which was to vacate that portion of the arbitration award.” The Court found that “ his portion of the arbitration award was irrational because there was no proof whatever to justify it.” The Court explained that “when claims are made for damages for delay, a plaintiff must show that the defendant was responsible for the delay, that the delay caused a delay in the completion of the contract (eliminating overlapping or duplication of delays), and that the plaintiff suffered damages as a result of the delay.” The record, said the Court, showed that Centurion had acknowledged that the project site was not ready for Bowne to begin work until December 2020 “due to its own delays”. The Court further found that “ here was no evidence presented to show that Centurion suffered any damage as a result of any alleged further delay by Bowne.” The Court also held that the was no “rational basis for using a figure for damages for delay of $1,000 per day.” “Under the circumstances presented,” concluded the Court, “the arbitrator’s determination that Centurion is entitled to $91,250 for delay damages was clearly irrational and contrary to public policy.” However, held the Court, “Supreme Court properly denied that branch of Bowne’s cross-motion which was to modify the arbitration award.” Bowne contended that the arbitrator should have offset the damages awarded to Centurion by $84,000. That challenge, noted the Court, was “a challenge to the arbitrator’s legal and factual conclusions rather than to the arbitrator’s arithmetic.” “As such,” concluded the Court, “it is not a proper ground for modification.” Finally, the Court rejected Bowne’s contention that the award should be vacated because the arbitrator improperly applied the law ( i.e. , manifestly disregarded the law) “relevant to the subcontract’s no-oral-modification clause.” The Court explained that “the subcontract expressly provided that change orders must be signed by both parties, as well as the owner of the property, in order to be enforceable, and the evidence demonstrated that only Bowne signed the subject change order.” “Under such circumstances,” concluded the Court, “the arbitrator’s determination that the change order was unenforceable was not irrational.” Takeaway In New York, arbitration, like other alternative dispute resolution mechanisms, is valid and enforceable. Like many jurisdictions, New York has a strong public policy that favors arbitration. In fact, arbitration is not only favored but encouraged as an effective and expeditious means of resolving disputes between willing parties desirous of avoiding the expense and delay frequently attendant to the judicial process. Because of the strong public policy favoring arbitration, courts give considerable deference to arbitrators and their awards. In fact, judicial review of arbitration awards is severely limited in New York.  As this Blog previously noted, setting aside an arbitral award is difficult. Although courts typically defer to arbitrators’ decisions, even when there are factual or legal errors, Centurian reaffirms that such deference has limits—specifically when an award is irrational ( i.e. , the award is unsupported by any evidence). Centurian also illustrates that an award violating public policy—such as awarding damages without proof—can be vacated. However, as the legal discussion above makes clear, this ground for vacatur is applied sparingly to preserve the integrity of arbitration as an alternative dispute resolution mechanism. Centurian further highlights the boundaries of CPLR 7511(c)(1)—the provision that permits modification of an arbitral award. As discussed, the Court rejected Bowne’s attempt to modify the award because Bowne’s request went beyond a mathematical error. The Court made clear that legal or factual disagreements with the arbitrator’s conclusions are not valid grounds for modification under CPLR 7511(c). ____________________________________ 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. This Blog has written dozens of articles addressing numerous aspects of arbitration and arbitration awards. To find such articles, please visit the  Blog  tile on our  website  and search for any arbitration issue that may be of interest to you. Matter of Silverman (Benmor Coats) , 61 N.Y.2d 299 (1984); Matter of Kowaleski (New York State Dept. of Correctional Servs.) , 16 N.Y.3d 85, 90 (2010); Frankel v. Sardis , 76 A.D.3d 136, 139 (1st Dept. 2010). Frankel , 76 A.D.3d at 139-140. Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 479-480 (2006) (citing, Matter of Sprinzen (Nomberg) , 46 N.Y.2d 623, 629 (1979)). Wein & Malkin , 6 N.Y.3d at 480. Matter of Reddy v. Schaffer , 123 A.D.3d 935, 937 (2d Dept. 2014). Sprinzen , 46 N.Y.2d at 631. Matter of Neirs-Folkes, Inc. (Drake Ins. Co. of N.Y.) , 75 A.D.2d 787 (1st Dept. 1980). Sprinzen , 46 N.Y.2d at 630. Matter of CEO Bus. Brokers, Inc. v. 1431 Utica Ave. Corp. , 187 A.D.3d 1185, 1186 (2d Dept. 2020) (internal quotation marks omitted) (quoting  Matter of Quality Bldg. Constr., LLC v. Jagiello Constr. Corp. , 125 A.D.3d 973, 973 (2d Dept. 2015));  see also Matter of Douglas Elliman of LI, LLC v. O’Callaghan , 220 A.D.3d 945, 946 (2d Dept. 2023). Matter of Briscoe Protective, LLC v. North Fork Surgery Ctr., LLC , 215 A.D.3d 956, 957 (2d Dept. 2023) (internal quotation marks omitted) (quoting  Matter of J-K Apparel Sales Co., Inc. v. Esposito , 189 A.D.3d 1045, 1046 (2d Dept. 2020));  see also Matter of CEO Bus. Brokers , 187 A.D.3d at 1186. Kotlyar v. Khlebopros , 176 A.D.3d 793, 795 (2d Dept. 2019). Slip Op. at *3. Id. Id. (citations omitted). Id. (citations omitted). Id. According to the Court, “ he project was substantially completed seven months later in July 2021”. Id. Id. Id. Id. (citations omitted). Id. Id. Bowne was moving under CPLR 7511(c). Under that rule, the court must modify an arbitration award if “there was a miscalculation of figures.” CPLR 7511(c)(1). Id. (citations omitted). On July 23, 2025, this Blog examined the manifest disregard of the law doctrine ( here ). Id. Bowne contended that Supreme Court erred in denying that branch of its cross-motion which was to vacate so much of the arbitration award as denied its claim for $261,200 in unpaid construction work. Id. Id. Id.

By: Jonathan H. Freiberger Folks enter into brokerage agreements all the time. The most familiar situation involving brokerage agreements are those related to the sale of real property. Litigation over brokerage agreements often involves the payment of commissions. In general, “to prevail on a cause of action to recover a commission, the broker must establish (1) that it is duly licensed, (2) that it had contract, express or implied, with the party to be charged with paying the commission, and (3) that it was the procuring cause of the sale.” Blooming Home Realty, LLC v. Infinity Holdings Northeast, LLC, 228 A.D.3d 815, 816 (2 nd Dep’t 2024) (citations, internal quotation marks and brackets omitted). However, a broker with an “exclusive right to sell” is entitled to a commission even if the seller “alone were responsible for the sale” because under such circumstances, the broker “need not show that it was the procuring cause of the sale.” Id . (citations and internal quotation marks omitted). On July 23, 2025, the Appellate Division, Second Department, decided Angelic Real Estate, LLC v. Aurora Properties, LLC , a case that gave the Court “the opportunity to examine the law of brokerage agreements granting an ‘exclusive right to sell,’ as well as the application of such agreements outside the context of transactions involving the sale or lease of real property.” The plaintiff in Angelic had contended “that it had an exclusive agreement to secure certain financing on behalf of the defendant and that it was entitled to a commission even though it was not the procuring cause of a loan the defendant ultimately obtained.” The Second Department, however, disagreed. The parties to Angelic entered into an agreement pursuant to which the plaintiff, a licensed real estate broker specializing in obtaining financing for commercial properties, was to secure financing on the defendant’s behalf. The agreement “stated that the defendant was engaging the plaintiff ‘exclusively’ to obtain debt financing for multiple office buildings located in Tennessee.” The agreement, dated June 8, 2020, also provided that if term sheet(s) were not procured from lenders by June 20, 2020, the agreement remained “in place but shall become non-exclusive with regards to any lenders not already approached and engaged by the plaintiff. (Bracket omitted.) The agreement had a 120-day term. If the defendant agreed on financing terms, the plaintiff was to be paid a fee at closing. The agreement also contained a provision providing that plaintiff was not entitled to a fee if Mountain Commerce Bank (“MCB”) provided a term sheet on or before June 30, 2020. “On August 21, 2020, the defendant obtained a $16,750,000 loan commitment from MCB. The plaintiff allegedly informed the defendant that if MCB entered into a terms sheet before the expiration of the agreement and after the exclusion period, i.e., June 30, 2020, the plaintiff would be entitled to a fee under the agreement. The defendant subsequently closed on the loan with MCB and did not tender a fee to the plaintiff.” The plaintiff commenced an action to recover a brokerage fee and moved for summary judgment arguing that: the plaintiff had the exclusive right to secure debt financing for the defendant; because the agreement was “exclusive,” it was entitled to a fee as long as financing was secured during the life of the agreement regardless of whether it was the procuring cause;  the exclusion period for MCB expired two months prior to the defendant’s term sheet with MCB. The defendant cross-moved for summary judgment contending that: the agreement did not provide that the plaintiff was entitled to a fee if the defendant independently negotiated its own terms; and there is no dispute that the plaintiff was not the procuring cause of the loan. The trial court denied the plaintiff’s motion and granted the defendant’s cross-motion finding that although the exclusion provision expired on June 30, 2020, “given the lack of clear exclusivity in the agreement, the plaintiff was not entitled to receive a fee for a loan negotiated and secured solely by the defendant.” The Second Department affirmed. The Court noted that although a broker seeking a commission “is normally required to make a showing that it was the procuring cause of the transaction,” “there is a distinction between brokerage agreements granting an exclusive agency and those conferring an exclusive right to sell, the latter of which permits a broker to recover a commission even if it was not the procuring cause of the transaction.” (Citations omitted.) The Court then explained the distinction between an exclusive agency agreement and an exclusive right to sell. Thus, “pursuant to an exclusive agency agreement, if the owner finds its own buyer, then no commission is due to the broker.” (Citation omitted.) Put another way, “where a broker has been granted an exclusive agency, the seller cannot employ another broker, but would not be precluded from itself making the sale without becoming liable to the broker for a commission." (Citations, internal quotation marks and brackets omitted.) However, if a broker has been granted an exclusive right to sell, the broker would be entitled to a commission even if the owner were solely responsible for the sale.” The Court explained that exclusive rights to sell has been found where, inter alia , there is “clear and express” language in an agreement that: (1) a commission was owed “regardless of whether the broker was the procuring cause of the transaction”; (2) “the owner was precluded from independently negotiating a sale”; or (3) "inquiries or offers were required to be referred to the broker.” (Numerous citations omitted.) The Court noted that an exclusive right to sell may not be found even though the preamble of an agreement provided that the broker was given an “exclusive right to sell.” In one such example provided by the Court, the phrase “exclusive right to sell” was undefined and the agreement contained a provision requiring the broker to obtain a “ready, willing and able” buyer, which “was deemed clearly inconsistent with any entitlement to a commission upon an independent sale by the owner." (Citations and internal quotation marks omitted.)   The Court, quoting Morpheus Capital Advisors LLC v UBS AG , 23 N.Y.3d 528, 535 (2014), stated that “‘a contract giving rise to an exclusive right of sale must clearly and expressly provide that a commission is due upon sale by the owner or exclude the owner from independently negotiating a sale’” because “‘requiring an affirmative and unequivocal statement to establish a broker's exclusive right to sell is consistent with the general principle that an owner's freedom to dispose of her own property should not be infringed upon by mere implication.’” The Court also noted that the Court of Appeals “made clear” that “the rule requiring a clear statement to confer an exclusive right of sale is not limited to real estate brokerage agreements” and that it “saw ‘no reason to apply a different rule to brokerage contracts concerning the sale of financial instruments in the investment banking context,’ noting that, ‘in both cases, the governing principles arise from the law of agency and contract, not from the law of real property.’” (Quoting Morpheus , 25 N.Y.3d at 536 (internal brackets omitted). In holding for the defendant, the Court stated: Applying these principles here, the defendant established its prima facie entitlement to judgment as a matter of law dismissing the complaint. Initially, it is undisputed that the plaintiff did not secure a lender or loan with conforming terms on behalf of the defendant before June 20, 2020. Further, the defendant demonstrated that the plaintiff was not entitled to a commission for the loan the defendant independently obtained from MCB in August 2020. The agreement did not clearly and expressly provide the plaintiff with the exclusive right to deal or negotiate on the defendant's behalf. The defendant also demonstrated that the plaintiff was not the procuring cause of the loan from MCB. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By:   Jeffrey M. Haber In Light & Wonder, Inc. v. Mohawk Gaming Enters. LLC , 2025 N.Y. Slip Op. 51070(U) (Sup. Ct., N.Y. County July 2, 2025 ( here ), the Supreme Court, New York County, Commercial Division, upheld an arbitrator’s class certification award. The decision centered on whether the arbitrator exceeded his authority or manifestly disregarded the law by certifying a class without individually analyzing the arbitration clauses of absent class members. Light & Wonder argued that the arbitrator violated U.S. Supreme Court precedents ( Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. , 559 U.S. 662 (2010) and Lamps Plus, Inc. v. Varela , 587 U.S. 176 (2019)), which emphasize that consent for class arbitration must be explicit. However, the court found these cases did not address class certification involving absent class members, and thus did not provide “well-defined, explicit, and clearly applicable” law to bind the arbitrator. The motion court concluded that the arbitrator acted within his authority and followed the AAA rules, and that minor contract variations did not preclude class treatment. Thus, Light & Wonder’s motion to vacate the award was denied. The Applicable Law Under Section 10(a) of the Federal Arbitration Act (“FAA”), a court will vacate an arbitral award for the following reasons: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators . . . ; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing, or in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior by which the rights of any party have been prejudiced; or (4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. Apart from Section 10(a) of the FAA, courts have vacated arbitral awards when an arbitrator manifestly disregards the law. Importantly, the doctrine does not apply to the facts. Application of the doctrine is limited. It is a doctrine of last resort. It requires more than a simple error in law or a failure by the arbitrators to understand or apply it; and, it is more than an erroneous interpretation of the law. The doctrine is “limited to the rare occurrences of apparent egregious impropriety on the part of the arbitrators.” To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case. Essentially, the movant must show that the arbitrator “willfully flouted the governing law by refusing to apply it.” The petitioner bears a heavy burden when invoking the doctrine. As one district court observed, the manifest disregard standard is so difficult to satisfy that it “will be of little solace to those parties who, having willingly chosen to submit to inarticulated arbitration, are mystified by the result; for a party seeking vacatur on the basis of manifest disregard of the law ‘must clear a high hurdle.’” Light & Wonder, Inc. v. Mohawk Gaming Enters. LLC Background Light & Wonder concerned the lease by plaintiffs Light & Wonder, Inc. (f/k/a Scientific Games Corporation) and LNW Gaming, Inc. (f/k/a SG Gaming, Inc.) (together, “LNW”) of automatic card shufflers to defendant Mohawk Gaming Enterprises LLC (“Mohawk”), which used them in its casino. On November 9, 2020, Mohawk filed a class arbitration claim with the American Arbitration Association (“AAA”) alleging antitrust violations against LNW on behalf of itself and all other similarly situated consumers. Among other things, plaintiffs alleged that LNW charged consumers ( i.e. , casinos) supracompetitive prices for inferior products. Mohawk maintained that the agreement with LNW allowed its claims to be brought in arbitration as a class action. In this regard, the arbitration clause provided: “The parties agree that any and all controversies, disputes or claims of any nature arising directly or indirectly out of or in connection with this Agreement (including without limitation claims relating to the validity performance, breach, and/or termination of this Agreement) shall be submitted to binding arbitration for final resolution.” On February 8, 2022, the Arbitrator issued a Partial, Final Clause Construction Award regarding the threshold issue of class arbitrability (the “Clause Construction Award”). After examining the applicable U.S. Supreme Court jurisprudence on the matter, the Arbitrator concluded that the language of the arbitration clause was “exceedingly broad” and permitted class arbitration. On February 11, 2022, LNW petitioned the court to vacate the Clause Construction Award. Mohawk filed a cross-motion to confirm the Award on March 11, 2022. The motion court denied LNW’s petition and granted Mohawk’s cross-motion. The motion court’s decision was affirmed on appeal by the Appellate Division, First Department. Two years after the Arbitrator issued the Clause Construction Award, Mohawk moved for class certification. Mohawk sought to certify a class that consisted of All persons and entities that directly purchased or leased automatic card shufflers within the United States, its territories and the District of Columbia from any Respondent or any predecessor, subsidiary or affiliate thereof, at any time between April 1, 2009 and December 31, 2022, and that agreed in writing to arbitrate disputes arising from such purchases or leases under the rules of the . Two months later, LNW filed its opposition to Mohawk’s class certification motion. LNW argued that it had not agreed to resolve the claims of absent putative class members through class arbitration, invoking the standard articulated in Lamps Plus to support its position. LNW also argued, citing examples, that many of the absent class members’ arbitration clauses did not include the same “strikingly broad” language included in the Mohawk Agreement, and thus those absent class members would not have contemplated class arbitration under the Lamps Plus standard. Finally, LNW argued that the Arbitrator was required to “undertake a clause-by-clause analysis to determine whether the absent class members’ agreements permit[] classwide arbitration,” and upon such a review, LNW said, it would be apparent that the absent class members did not agree to be part of a class. LNW maintained that at no point following the conclusion of briefing on the motion did the Arbitrator request for review each contract signed by a putative absent class members. Instead, said LNW, on December 9, 2024, the Arbitrator issued an award certifying a proposed opt-out class that substantially adopted Mohawk’s proposed class definition (the “Class Determination Award”). In the Class Determination Award, the Arbitrator first analyzed Mohawk’s motion pursuant to the factors set forth in Rules 4(a) and (b) of the AAA’s Supplementary Rules for Class Certification (the “AAA Rule 4 Factors”). Applying the AAA Rule 4 Factors, the Arbitrator determined that Mohawk had established numerosity of the class, questions of law or fact that were common to the class, typicality of the claims or defenses of the class, adequacy of class representation, adequacy of class counsel, and the superiority of class arbitration to other available methods for the fair and efficient adjudication of the controversy. The Arbitrator then addressed the AAA Rule 4 Factor requiring a showing that each class member had entered into an agreement containing a “substantially similar” arbitration clause as compared to the one contained in the agreement signed by the class representative. On this point, the Arbitrator concluded that Mohawk had met this requirement because (1) each class member had agreed to adopt the AAA Arbitration Rules, thus consenting to AAA-administered arbitration, (2) the arbitration clauses signed by all proposed class members encompassed claims in Mohawk’s arbitration demand and covered the same period of time, and (3) “ here ha been nothing brought to the Arbitrator’s attention suggesting that anything in any of the class clauses directly preclude class arbitration.” In reaching this conclusion, the Arbitrator expressly rejected LNW’s reliance on Lamps Plus , observing that its “holding related to the class representative and his arbitration agreement—it had nothing to do with absent class members.” The Arbitrator reasoned that “absent class members are in a different position and have certain unique safeguards the class representative and do not,” including, among others, opportunities to opt-out. The Arbitrator also posited that “if one were to turn long-accepted doctrine on its head and require analysis, for example, of 100,000 arbitration contracts of absent class members, that would either grind the process to a complete halt or would render it so unwieldy and expensive as to be completely ineffective.” Finally, pointing to the example arbitration clauses supplied by LNW, the Arbitrator concluded that the “ arrow differences” between them provided “no basis for decertifying the class.” The Arbitrator continued, “absent class members are fine with adopting the language of the majority and, if not, they are fully protected by the option to opt out of the class.” On December 10, 2024, following the issuance of the Class Determination Award, proceedings were stayed for 30 days “to permit the parties to move a court of competent jurisdiction to confirm or vacate the Class Determination Award.” LNW filed a petition to vacate the Class Determination Award on January 9, 2025. LNW sought to vacate the Class Determination Award primarily on the basis that the Arbitrator erroneously certified a class of all LNW customers with arbitration clauses in their licensing agreements with LNW without reviewing whether those agreements contained a consent to arbitrate on a class basis. LNW maintained that the Arbitrator should have engaged in an analysis guided by the United States Supreme Court’s decisions in Stolt-Nielsen and Lamps Plus to assess whether absent class members consented to arbitration. Had he done so, LNW argued, the Arbitrator would not have found an evidentiary basis to conclude that LNW and each absent class member agreed to class proceedings. Given the Arbitrator’s failure to follow Lamps Plus and its progeny and to analyze the arbitration clauses in the contracts of absent class members, LNW argued that there were three bases under which the motion court should vacate the Class Determination Award: (1) the Arbitrator exceeded his contractual authority by imposing his own policy justifications for class-wide arbitration instead of interpreting the relevant absent class members’ agreements; (2) by failing to follow Stolt-Nielsen and Lamps Plus , the Arbitrator disregarded well-established law governing class arbitration; and (3) the Arbitrator was required, but failed, to consider the absent class members’ contracts in order to determine whether class certification was appropriate under the AAA Rule 4 Factors. In response, Mohawk argued that LNW could not demonstrate that the Arbitrator’s analysis of the AAA Rule 4 Factors, which included his rejection of the applicability of Lamps Plus and its progeny, was erroneous because nothing in those cases ever considered the issue of absent class members in its analysis or otherwise suggested that their holdings applied at the class certification stage. Mohawk separately asserted that none of the grounds for vacatur advanced by LNW under Section 10(a)(4) of the FAA had merit. The Motion Court’s Decision The motion court denied LNW’s motion to vacate and granted Mohawk’s cross-motion to confirm the Class Determination Award. The motion court concluded that LNW failed to establish any grounds to vacate the Class Determination Award. As an initial matter, the motion court held that there was “no basis to conclude … that the Arbitrator manifestly disregarded the law in rendering the Class Determination Award.” After presenting “ thorough review of” Stolt-Nielsen and Lamps Plus , the motion court reasoned that “it not so clear … applied to the Arbitrator’s class certification analysis.” “ hen construed together,” said the motion court, these decisions “establish that (1) consent to submit a dispute to class arbitration must be discerned from the plain terms of the parties’ arbitration agreement, and (2) such consent cannot be presumed from the arbitration agreement’s silence or ambiguity on the issue.” “But critically,” said the motion court, “neither Stolt-Nielsen nor Lamps Plus addressed or otherwise extended the issue of consent to class arbitration in the context of certifying a class for arbitration.” “Recognizing this silence,” explained the motion court, “the Arbitrator grappled with LNW’s contention that the legal principles in Lamps Plus should be interpreted as governing his analysis at the class certification stage. He, in turn, clearly laid out his reasoning for why they did not, including a review of the central holdings in Lamps Plus , policy arguments, and an analysis of analogous case law and arbitration awards.” Noting that “ easonable minds certainly differ as to whether the Arbitrator’s determination was the correct conclusion to draw from the holdings of Stolt-Nielsen and Lamps Plus ,” the motion court found that there was nothing in the record to conclude “that his analysis and conclusion ignored ‘well defined, explicit, and clearly applicable’ case law so as to constitute a manifest disregard of the law.” On the law, the motion court concluded that “given Stolt-Nielsen and Lamps Plus’s silence on the issue of class certification, there was a notable lack of clearly defined and explicitly applicable law to guide the Arbitrator’s class certification analysis.” “Therefore,” concluded the motion court, “the Arbitrator’s decision not to follow Lamps Plus and progeny as part of his class-certification analysis not a basis to vacate the … Class Determination Award.” Turning to whether the Arbitrator exceeded his authority under the FAA or manifestly disregarded any contracts in granting class certification, the motion court held that “he did not”. Looking at the record, the motion court concluded that “ here plainly no basis to conclude he exceeded his authority under the Mohawk Agreement, the AAA Rules, or the other absent class members’ agreements.” Finally, the motion court held that the fact “ hat the Arbitrator did not consider each of the absent class members’ contracts to assess whether they also contemplated class arbitration not alter this conclusion or otherwise warrant a determination that the Arbitrator manifestly disregarded contract.” The motion court agreed with the Arbitrator that AAA Rule 4(a)(6) only required that “each class member has entered into an agreement containing an arbitration clause which is substantially similar to that signed by the class representative(s) and each of the other class members.” Applying the rule, the motion court found that there was nothing improper with the Arbitrator “considering the examples submitted by LNW” and finding that “the differences” between the agreements “that had been identified were ‘narrow’ and did not preclude certification.” “ othing in the Arbitrator’s analysis,” concluded the motion court, ‘contradict an express and unambiguous term of contract’ or ‘depart from the terms of agreement’ so that it was ‘not even arguably derived from the contract.’” __________________________________ 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. 9 U.S.C. § 10(a)(1)-(4). Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S , 333 F.3d 383, 388 (2d Cir. 2003); Goldman v. Architectural Iron Co. , 306 F.3d 1214, 1216 (2d Cir. 2002) (citing, DiRussa v. Dean Witter Reynolds Inc. , 121 F.3d 818, 821 (2d Cir. 1997)). See also Matter of Daesang Corp. v. NutraSweet , 167 A.D.3d 1, 15-16 (1st Dept. 2018) (citing, Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 480-81 (2006)), lv. denied , 32 N.Y.3d 915 (2019)). Wein , 6 N.Y.3d at 483. Matter of Arbitration No. AAA13-161-0511-85 Under Grain Arbitration Rules , 867 F.2d 130, 133 (2d Cir. 1989). Duferco , 333 F.3d at 389. Id. Daesang , 167 A.D.3d 1, 15-16. Wallace v. Buttar , 378 F3d 182, 189 (2d Cir. 2004) (quoting, Banco de Seguros del Estado v. Mutual Mar. Off., Inc. , 344 F.3d 255, 263 (2d Cir 2003)). See also Wien , 6 N.Y.3d at 480-81 (footnotes omitted). Westerbeke Corp. v. Daihatsu Motor Co. , 304 F.3d 200, 217 (2d Cir. 2002). Goldman Sachs Execution & Clearing, L.P. v. Official Unsecured Creditors’ Comm. of Bayou Grp. , 758 F. Supp. 2d 222, 225 (S.D.N.Y. 2010). Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. , 559 U.S. 662 (2010), Oxford Health Plans LLC v. Sutter , 569 U.S. 564 (2013), and Lamps Plus, Inc. v. Varela , 587 U.S. 176 (2019). Matter of Scientific Games Corp. v. Mohawk Gaming Enters. LLC , 217 A.D.3d 556 (1st Dept. 2023). This Blog examined the motion court’s decision and the First Department’s affirmance, here . Citing Phillips Petroleum Co. v. Shutts , 472 U.S. 797, 810-11 (1985). Slip Op. at *3. Id. at *4. Id. at *5. Id. Id. Id. (citations omitted) Id. (citation omitted). Id. Id. Id. at *6. Id. Id. Id. Id. (citations omitted).

By: Jeffrey M. Haber Forum non conveniens is a common law doctrine in which a court may dismiss an action where another forum would be better suited to adjudicate the matter. In New York, the doctrine is codified in CPLR 327(a). Under this section, a court may “stay or dismiss action in whole or in part on any conditions that may be just” if it finds that “in the interest of substantial justice the action should be heard in another forum.” The doctrine reflects the basic principle that the “courts need not entertain causes of action lacking a substantial nexus with New York.” The party seeking dismissal bears a heavy burden of establishing that New York is not the proper forum for the action. In considering a forum non conveniens motion, New York courts consider a number of factors, including the burden on New York courts, the potential hardship to the defendant, the unavailability of an alternative forum, whether both parties are nonresidents, whether the transaction out of which the cause of action arose occurred primarily in a foreign jurisdiction, the location of potential witnesses and documents, and the potential applicability of foreign law. No one factor is controlling. Nonetheless, where the foregoing factors establish that New York is an inconvenient forum, “ orum non conveniens relief should be granted.” On July 14, 2025, Justice Margaret Chan of the New York Supreme Court, Commercial Division, issued a decision and order in Korea Inv. & Sec. Co., Ltd. v Seabury Capital Group LLC , 2025 N.Y. Slip Op. 51098(U) (Sup. Ct., N.Y. County July 14, 2025) ( here ), dismissing plaintiffs’ complaint on forum non conveniens grounds. As discussed below, the court found that “all of the key misrepresentations and transactional details and logistics perpetuating defendants’ fraud occurred in Singapore, Hong Kong, and/or Korea.” Background In or around May 2019, Seokwon Jang (“Jang”), a resident of South Korea acting in his capacity as a director for RiverTweed Co., Ltd. (“RiverTweed”), a company incorporated in South Korea with its principal place of business in Seoul, approached Arumdree Asset Management Co., Ltd. (“Arumdree”) about a multinational investment project involving certain trade receivables held by Agritrade International Pte Ltd. (“AIPL”), a Singaporean commodities company (the “Project”). Jang’s outreach resulted in Arumdree visiting Singapore to explore the Project. While in Singapore, Arumdree met with Robert C. M. Lin (“Lin”), a United States national, who at the time was residing and working in Hong Kong. Lin served as the President and Chief Executive Officer (“CEO”) of (1) Seabury Trade Finance Exchange LLC (“Seabury Trade”), a holding company organized under the laws of Delaware and a wholly owned subsidiary of the New York-based Seabury Capital LLC (“Seabury Capital”), and (2) Seabury TFX (HK) Limited (“Seabury Hong Kong”), a Hong Kong-based operating company in which Seabury Trade holds an interest. Lin invited Arumdree to AIPL’s office to meet with AIPL’s representatives and customers. It was during the visit that Lin, Jang, and AIPL’s then-Chief Operating Officer (“COO”), Fong Nang Seng (“Fong”), allegedly represented to Arumdree that the Project would be a great investment opportunity with Lin in charge of managing any such investment. Following Arumdree’s visit, Jang sent Arumdree AIPL’s 2018 Consolidated Financial Statements, which indicated that AIPL had more than $113 million in net assets as of 2018 and would be able to pay its debts when due. Jang later forwarded an email from Lin attaching 70 documents that related to AIPL’s past transactions with another purported customer. On May 21, 2019, and June 20, 2019, respectively, plaintiff subscribed to the following two notes offered by Seabury Trade Capital SPC (“SPC”), a Cayman Island-based segregated portfolio company: (1) the Series 2019-2 USD 20,000,000 Secured Fixed Rate Notes due 2020 (the “SPC2 Note”), and (2) the Series 2019-3 USD 19,540,000 Secured Fixed Rate Note due 2020 (the “SPC3 Note”, and together with the SPC2 Note, the “Notes”). Concurrent with the Notes, plaintiff executed a corresponding subscription agreement on behalf of Arumdree AI Private Investment Trust No. 7 and Arumdree AI Private Investment Trust No. 9 (the “Trust Fund”) (the “Subscription Agreement”). The Subscription Agreement, and “any non-contractual obligations arising out of or in connection with” the agreement, was governed by English law. The Project was structured as follows: (1) plaintiff would transfer $39,540,000 of the Trust Fund’s money to SPC; (2) using a platform hosted by Seabury Hong Kong, SPC would use the proceeds from the Notes to purchase AIPL’s trade receivables (the “Purchased Receivables”), which would then entitle SPC to payments from certain AIPL customers (the “Approved Debtors”); (3) Seabury Hong Kong would manage the Purchased Receivables by requesting and reviewing necessary documents from AIPL and the Approved Debtors; and (4) on or before the Notes’ maturity dates, SPC would pay back the Trust Fund the full purchase price of the Notes, with interest. As a purported protection for any investment in the Project, AIPL’s then-CEO, Ng Xinwei (“Ng”), guaranteed payment, on demand, of the full amount of all obligations or indebtedness owed from AIPL. The Project was also allegedly backed by certain trade credit policies insuring the Purchased Receivables. The policies were underwritten by Hong Kong-based insurance companies, with SPC listed as the “loss payee”. In the initial months following plaintiff’s subscription to the Notes, there was no indication of an issue with AIPL and, by all accounts, the Trust Fund’s investment was proceeding as originally contemplated. That allegedly changed on January 16, 2020, when AIPL applied for a moratorium under Section 211B of Singapore’s Companies Act. Soon after, AIPL was placed under judicial management at the request of creditors, with Ernst & Young LLP (“E&Y”) appointed as judicial manager. On August 7, 2020, E&Y filed its judicial manager report with the Singapore High Court. The report identified numerous irregularities and conflicts of interest underlying AIPL’s business and accounting practices. The report also revealed that AIPL had been experiencing severe liquidity problems for years and had been attempting to procure loans from banks and other financial institutions using forged documents and false information. According to plaintiff, the Project was an extension of AIPL’s alleged fraud because it was able to use the ill-gotten gains from the Trust Fund to pay off its mounting debts and/or shield its wrongdoing. Subsequent criminal investigations into AIPL and its executives seemingly corroborated and expanded upon this alleged revelation of fraudulent conduct. AIPL was ultimately wound up by court order on September 21, 2020. Three years later, on August 17, 2023, Arumdree emailed Lin to inquire about (1) the measures being taken against the Approved Debtors to recover the Purchased Receivables, and (2) the lack of proceedings against AIPL and the Approved Debtors for fraudulent conspiracy. Lin responded on August 25, 2023, stating that, outside of demand notices served on the Approved Debtors, no other actions were taken against them. Lin further represented that there were no plans to commence proceedings against AIPL or the Approved Debtors. Two months later, on October 16, 2023, Arumdree instructed Seabury to withdraw and return the remaining funds in SPC’s account. On December 19, 2023, Seabury transferred to the Trust Fund $43,644.05 from the SPC2 Note’s account and $316,409.941 from the SPC3 Note’s account. According to plaintiff, the Project was the product of a scheme to defraud, which defendants carried out through an intricate web of connections and cross-directorships. As alleged, Lin and Jang were in constant communication with Fong while attempting to solicit the Trust Fund’s investment in the Project. Plaintiff alleged that these three individuals discussed specific terms of the Project, such as deal structure, interest rates, insurance policies, payment dates, and the amount of the notes to be sold. In addition to these individuals, plaintiff alleged that Margaret L. Chan (“Chan”) – a California resident based out of Los Angeles who is the President and COO of Seabury Capital, a board member of various affiliates of the New York-based Seabury Capital Group LLC (“Seabury Group”) and its subsidiary Seabury Capital, a Vice-Chairman of Seabury Hong Kong, and a director of SPC – was “actively involved” in structuring the Project and gave directions regarding its funding. Plaintiff noted that RiverTweed and Seabridge Trade, a Singapore-incorporated company, were paid a commission from Seabury Hong Kong for arranging the Project. Plaintiff commenced the action on June 21, 2024, asserting claims under New York law for conspiracy to commit fraud, fraudulent inducement, fraudulent misrepresentation, and breach of fiduciary duty. Both the Seabury defendants and RiverTweed defendants moved to dismiss the complaint primarily on the basis of forum non conveniens. In support, defendants contended that every factor of the forum non conveniens analysis favored dismissal: (1) the transactions alleged in the complaint all occurred abroad and largely involved foreign parties; (2) New York lacked an interest in the action given that Singapore was the epicenter of AIPL’s alleged fraud; (3) key documents and essential witnesses were located outside of New York and outside of the court’s subpoena power; and (4) Singapore was an adequate alternative forum to New York that is fully capable of resolving plaintiff’s claims. Plaintiff opposed the motions. To start, plaintiff maintained that New York had the strongest nexus to the case because New York was the “control tower” of the alleged fraudulent scheme, meaning that it was “likely” that key witnesses and documentary evidence would be located in New York. Plaintiff also contended that defendants failed to identify an adequate alternative forum because litigating this case in Singapore or Korea would result in piecemeal litigation, and there was no guarantee that a Singaporean or Korean court would exercise jurisdiction over all defendants. Plaintiff maintained that defendants would not suffer any hardship by litigating in New York because they were either financial companies or corporate officers with ample resources to bring witnesses to New York. Plaintiff concluded by arguing that, because the alleged fraud involved New York companies, New York had an interest in adjudicating the dispute. The Court’s Decision The court granted the motions. The court found that “each of the forum non conveniens factors weigh in favor of dismissal.” ”To start,” said the court, “nearly all of parties in this action are located outside of New York, with most located outside the United States.” The court noted that plaintiff was a Korean trustee of certain private equity funds regulated by Korean law and “the vast majority of defendants based in South Korea, California, Hong Kong, the Cayman Islands, and/or Singapore.” “This readily apparent pervasiveness of foreign residents,” concluded the court was “‘entitled to … substantial weight’” and “plainly militate in favor of dismissal of th action.” The court rejected plaintiff’s argument that because “three of the named defendants purportedly based in New York”, New York was the proper forum. The court found that, as alleged, “none of appear to have played a meaningful role in the alleged fraudulent scheme.” “Further supporting dismissal on forum non conveniens ground,” concluded the court, was “the fact that the scheme alleged in the Complaint occurred primarily in foreign jurisdictions.” The court noted that “ ccording to the Complaint, defendants conspired to induce plaintiff to subscribe to the Notes without disclosing the dire financial condition of … AIPL and the fraudulent nature of the Project…. Yet, as alleged, none of the key aspects of the Project or defendants’ fraudulent scheme took place in New York.” The court rejected plaintiff’s contention that New York was the “control tower” for the alleged fraudulent scheme. The court found plaintiff’s allegations to be conclusory and insufficient to “establish the requisite nexus to New York necessary to survive forum non conveniens dismissal.” “As a consequence of strong foreign nexus,” said the court, “it is likely that the majority of material witnesses, relevant documents, and other evidence in support of plaintiff's claims and defendants’ defenses are located outside of the United States.” “For instance,” explained the court, “all of the key misrepresentations and transactional details and logistics perpetuating defendants’ fraud occurred in Singapore, Hong Kong, and/or Korea. And many of the relevant details regarding the fraud perpetrated by AIPL and defendants were only revealed from documents disclosed during court proceedings and criminal investigations that took place in Singapore.” For these reasons, said the court, “the bulk of relevant documentary evidence will be located in Singapore and Hong Kong, and key witnesses will be also located in those countries (and thus outside of the court’s subpoena power). “Consequently,” explained the court, “even assuming, as plaintiff argue , some witnesses or documents may be in New York, litigating th action would almost certainly impose substantial burdens on defendants and nonparty witnesses so as to decidedly tip the scales in favor of dismissal.” “Finally,” said the court, “although New York law does not require that the parties … identify an adequate alternative forum to support forum non conveniens dismissal, such a forum exists in Singapore and further support dismissal of the case.” The court explained that “many of the claims in the Complaint directly flow from conduct and transactions that originated out of Singapore.” Though plaintiff expressed doubt that a Singaporean court could exercise personal jurisdiction over all defendants, the court held that the nexus emanating from plaintiff’s claims to Singapore was strong and could not be overcome by speculation. Moreover, observed the court, the fact that the Singaporean legal system is primarily derived from the English system and incorporates English common law further supported the conclusion that Singapore was an adequate alternative forum for the dispute. “Because case law in New York suggests that type of language used in the Subscription Agreement’s choice-of-law provision is generally to be construed broadly to reach tort claims,” the court concluded that “all of plaintiff’s claims should be governed by English law and not, as asserted, New York law.” Therefore, said the court, “a court in Singapore would be more than capable of overseeing the parties’ dispute given its familiarity with English common law and the English legal system.” Takeaway Korea Inv. & Sec. reaffirms the principle that the burden on plaintiffs to withstand a motion to dismiss on forum non conveniens grounds is high. Plaintiffs must demonstrate a substantial connection or nexus to New York sufficient to overcome a forum non conveniens motion. Vague or conclusory allegations that New York is the “hub”, “nerve center”, or the “control tower” of the wrongful misconduct will not suffice. Plaintiffs must come forward with facts and evidence demonstrating a substantial nexus to the state. Korea Inv. & Sec. shows that even if some defendants are based in, or have ties to, New York, that alone is insufficient to overcome a forum non conveniens challenge if the facts and circumstances are substantially centered elsewhere. Korea Inv. & Sec. also underscores the importance of witness location, document availability, and the burden on courts and parties. If these factors favor a foreign jurisdiction, New York courts are more likely to dismiss an action in favor of the more convenient forum. Finally, Korea Inv. & Sec. shows that a forum selection clause can play an important role in the court’s consideration of the factors necessary to decide a forum non conveniens motion. In Korea Inv. & Sec. , the forum selection clause at issue evinced an intention by the parties to have their disputes (in contract and tort) governed by English law. As such, a court in Singapore was more than capable of managing the parties’ dispute given its familiarity with English common law and the English legal system. As noted by the court in Korea Inv. & Sec. , New York courts regularly dismiss actions that may require the interpretation of foreign laws, especially where, as in Korea Inv. & Sec. , a more convenient forum exists, and dismissal would avoid an “inordinate burden upon New York's courts.” ______________________________________ 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. This Blog has examined the forum non conveniens doctrine, here , here , and here . CPLR 327(a);  National Bank & Trust Co. of N. Am. v. Banco De Vizcaya , 72 N.Y.2d 1005, 1007 (1988). See Martin v. Mieth , 35 N.Y.2d 414, 418 (1974). Bank Hapoalim (Switzerland) Ltd. v. Banca Intesa S.p.A. , 26 A.D.3d 286, 287 (1st Dept. 2006). Id. See also Fekah v. Baker Hughes Inc. , 176 A.D.3d 527, 529 (1st Dept. 2019). Bank Hapoalim , 26 A.D.3d at 287. Silver v. Great Am. Ins. Co. , 29 N.Y.2d 356, 361 (1972). Slip Op. at *5. Id. Id. Id. (quoting Wyser-Pratte Mgt. Co., Inc. v. Babcock Borsig AG. , 23 A.D.3d 269, 270 (1st Dept. 2005)). Id. Id. (citations omitted). Id. Id. at *5-*6 (record citations omitted). For example, the Notes were offered by a Cayman Island issuer, SPC. Id. at *6. Key meetings took place in Singapore and involved individuals from Korea, Singapore, and Hong Kong. Id. The terms and structure of the Project occurred between alleged co-conspirators who reside in Korea, Hong Kong, Singapore, and California. Finally, plaintiff only learned about defendants’ alleged fraudulent scheme because it came to light through bankruptcy proceedings and a criminal investigation in Singapore. Id. “Taken together,” said the court, “these allegations establish that this case has no meaningful connection to New York. Rather, plaintiff’s claims exhibit a ‘strong foreign nexus’ that is ‘largely attributable to plaintiff’s sophisticated business dealings abroad.’” Id. (citing Wyser-Pratt Mgt. , 23 A.D.3d at 270). Id. Id. (citations omitted). Id. at *7. Id. Id. (citations omitted). Id. (citation omitted). Id. Id. at *7-*8 (citations omitted). Id. at *8. Id. (citations omitted). Id. (citations omitted). Tilleke & Gibbins Intl., Ltd. v. Baker & McKenzie , 302 A.D.2d 328, 329 (1st Dept. 2003).

By: Jonathan H. Freiberger Appearing in an action may give rise to a waiver of a litigant’s right to challenge the court’s jurisdiction over the litigant. As explained in prior blog articles, it is axiomatic that a “plaintiff appears merely by bringing it.” Deutsche Bank Nat. Trust Co. v. Hall , 185 A.D.3d 1006, 1007 (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. CPLR 320(a) , which sets forth, inter alia, how a defendant can appear in an action, provides that “ 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.” See also Deutsche Bank , 185 A.D.3d at 1007-8 (describing the ways in which a defendant appears and the pitfalls of failing to do so). An appearance pursuant to CPLR 320(a) is a formal appearance. New York courts, however, also recognize “informal appearances.” An informal appearance occurs “by actively litigating the action before the court.” Bank of New York Mellon v. Taylor , 230 A.D.3d 457, 458 (2 nd Dep’t 2024) (citations and internal quotation marks 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) based on a plaintiff’s failure to seek a default judgment within a year of default. See, e.g., OneWest Bank, FSB v. Villafana , 231 A.D.3d 845, 847-48 (2 nd Dep’t 2024); Bank of New York , 230 A.D.3d 457, 458-49 (2 nd Dep’t 2024). Depending on the circumstances, a plaintiff or a defendant may argue that an informal appearance has been made in an action. A plaintiff may argue that an informal appearance has been made to obtain jurisdiction over a defendant, and a defendant may argue that an informal appearance has been made to avoid a default. CPLR 317 permits a defendant to appear in, and defend, an action within one year after obtaining knowledge of the entry of a judgment: (1) if the summons was not personally delivered to the defendant or an agent for service designated by CPLR 318 ; (2) if the defendant did not appear; (3) if the court finds that the defendant did not have actual notice of the action in time to defend; and, (4) if the defendant has a meritorious defense. Whether the defendant appeared in an action for the purpose of availing itself of CPLR 317 was an issue decided on July 16, 2025, by the Appellate Division, Second Department, in Chondrite Asset Trust v. 34 Dr. Corp . , a mortgage foreclosure action. The borrower in Chondrite borrowed almost $350,000 from the lender and secured its repayment obligations with a mortgage on real property located in Nassau County. The lender commenced a foreclosure action and served the borrower with process through the New York Secretary of State. The borrower failed to answer the complaint. Despite failing to interpose an answer to the complaint, the lender and borrower entered into two stipulations adjourning the lender’s motion for leave to enter a default judgment and for an order of reference. Subsequently, the court issued an order of reference. When the lender moved to confirm the referee’s report as to the amount due to it and for a judgment of foreclosure and sale, the borrower cross-moved pursuant to CPLR 317 and 5015(a)(1) to vacate the default in answering the complaint, and pursuant to CPLR 3012(d) for leave to serve a late answer. The motion court granted the lender’s motion, denied the borrower’s cross-motion and, inter alia , issued a judgment of foreclosure and sale . The Second Department affirmed. As to CPLR 317, the Court found that the borrower “appeared in the action” by executing the two stipulations and noting that CPLR 317 is only applicable when a defendant does not appear. In addition. The Court found that the borrower failed to establish that it did not receive actual notice of the summons in time to defend the action. As to CPLR 5015 , the Court stated: “A defendant seeking to vacate a default in answering a complaint on the basis of excusable default ( see CPLR 5015 <1> ) and to compel the plaintiff to accept an untimely answer ( see CPLR 3012 ) must show both a reasonable excuse for the default and the existence of a potentially meritorious defense” ( Deutsche Bank Natl. Trust Co. v. Benitez , `, 893, 118 N.Y.S.3d 173; see Wilmington Sav. Fund Socy., FSB v. Cabadiana , 230 A.D.3d 831, 832, 217 N.Y.S.3d 638). Here, was not entitled to relief pursuant to CPLR 5015(a)(1) and 3012(d), as it failed to demonstrate a reasonable excuse for its default ( see Wilmington Sav. Fund Socy., FSB v. Cabadiana , 230 A.D.3d at 832, 217 N.Y.S.3d 638; Bank of N.Y. v. Krausz , 144 A.D.3d 718, 41 N.Y.S.3d 84). 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 . This BLOG has written numerous articles relating to formal and informal appearances ( see, e.g ., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , and < here =">here"> . The introduction to today’s article is based on some of those articles. This BLOG has addressed CPLR 3215(c) numerous times. To find one of our numerous BLOG articles related to CPLR 3215(c), visit the “ Blog ” tile on our website and enter “3215(c)” in the “search” box. 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 issue that may be of interest to you. This BLOG has addressed CPLR 5015 numerous times. To find one of our BLOG articles related to CPLR 5015, visit the “ Blog ” tile on our website and enter “5015” in the “search” box.

By:  Jeffrey M. Haber A Ponzi scheme is an investment scam that induces people to invest money in a business or investment vehicle with promises of high returns and minimal risk. Rather than earning profits through actual investments or legitimate business operations, the scheme functions by paying early investors with money contributed by new or repeat participants. The name of the fraud comes from Charles Ponzi, who infamously ran such a scheme in the early 1900s. A Ponzi scheme depends on a steady flow of new money; once the stream of money slows down or stops, the fraud collapses. At the heart of a Ponzi scheme is fraud and deceit. The promoter of the scheme claims to have access to exclusive investment opportunities or proprietary financial strategies, often shrouded in vague or complex explanations. These assertions are unsupported by verifiable evidence but presented with assurances to inspire trust and induce investment. To maintain the illusion of legitimacy, early investors receive returns—sometimes referred to as “phantom profits” or “fictitious profits”—which are, in fact, funds provided by new or repeat investors. The “success” of the scheme, therefore, depends upon the influx money from new investors and the reinvestment of money by existing investors. The success of a Ponzi scheme depends on victim referrals and the “credibility” of the promoter. Promoters often use fake account statements, falsified performance data, and positive (but staged or scripted) testimonials to build trust. Little to no actual income is generated by the promoter. Thus, when the pool of new investors dries up or too many people request withdrawals at once, the fraud becomes unsustainable and eventually falls apart—leaving most investors, particularly later investors, with significant losses. The consequences of Ponzi schemes can be devastating. Victims often lose their homes or businesses, life savings, retirement funds, or borrowed money. The psychological toll can be severe, as victims may feel betrayed, ashamed, or financially ruined, especially when the Ponzi scheme is based on an affinity fraud. Affinity fraud is a type of fraud that exploits the personal and social bonds within a specific group or community. In cases involving affinity fraud, the fraudster targets groups based on shared identity—such as family, religious affiliations, cultural backgrounds, professions, or social circles—and uses that shared identity to build trust. The fraudster may be a respected member of the group or pose as one, which lowers suspicion and increases the likelihood of participation by leaders and members of the community or group. When affinity fraud and Ponzi schemes intersect, the result can be devastating. People typically trust investment opportunities that come from within their familial, social, or religious network, and once a few members of the community begin receiving profits and returns (funded by new or existing investors), word-of-mouth spreads the scheme further. Unwitting participants often become the scheme’s best accelerant, drawing in other members of the community who assume that if the investment is profitable for a friend or fellow community member, then it must be one worth investing in. Even when doubts arise, victims of affinity-based Ponzi schemes are often hesitant or reluctant to report the fraud. Concerns about embarrassing the group, damaging relationships, or implicating a community leader can delay exposure, giving the fraud more time to spread—and cause more financial harm. Today, we examine SEC v. Edwin Brant Frost IV, et al. , Case 1:25-cv-03826-MLB (N.D. Ga.) ( here ), an enforcement action involving an alleged Ponzi scheme, originally based on affinity fraud, that was perpetrated by defendants Edwin Brant Frost IV (“Frost”) and First Liberty Building & Loan, LLC (“First Liberty”). According to the SEC, between 2014 and June 2025, defendants raised at least $140 million from approximately 300 investors through the sale of loan participation agreements and promissory notes which offered annual returns of 8% to 18%. The SEC alleged that defendants represented to investors that their funds would be used to make short-term small business loans at relatively high interest rates (“Bridge Loans”). Defendants allegedly represented that these Bridge Loans and interest thereon would be repaid by borrowers via loans issued by the Small Business Administration (“SBA”) or other commercial loans, which defendants claimed they would help broker. Initially, said the SEC, defendants solicited and sold these investments to friends and family in the form of either loan participation agreements or promissory notes . These agreements and notes offered investors the opportunity to make an investment that would be pooled with other investor funds and then lent to specific borrowers. The SEC alleged that beginning in 2024, defendants started a more widespread public solicitation of potential investors, advertising the opportunity to invest in promissory notes through radio advertising, internet podcasts, and the First Liberty website. All the investments, whether offered as a loan participation agreement or a promissory note , alleged the SEC, were purportedly to fund Bridge Loans. The SEC alleged that defendants did not, however, use investor funds as represented. According to the SEC, while some investor funds were used to make Bridge Loans, those loans did not perform as represented. Of the Bridge Loans defendants actually made, only a few had been paid in full, claimed the SEC. Most Bridge Loans ultimately defaulted and ceased making interest payments , said the SEC. Notwithstanding, defendants allegedly continued to make interest payments to investors on the defaulted loans. Since at least 2021, defendants allegedly had to use funds raised from new investors to make those interest payments. Most, if not all, of the funds raised through the publicly advertised offering, alleged the SEC, were either misappropriated or used to make Ponzi-style payments to existing investors. For example, said the SEC, defendant used investor funds to make payments to himself and members of his family and used investor funds to pay for the operations of affiliated companies that he controlled. As recently as May 24, 2025, alleged the SEC, defendant withdrew $100,000 of investor funds for his personal use. In addition to not using investor funds as represented, i.e. , to make Bridge Loans, the SEC alleged that defendants made other misrepresentations when soliciting new investments. Specifically, said the SEC, defendant knowingly misrepresented the success of the Bridge Loan program to investors. According to the SEC, defendant told some potential investors that First Liberty had only one Bridge Loan default. Defendant also allegedly told other potential investors that very few loans had defaulted. In reality, said the SEC, a significant portion of the Bridge Loans issued by First Liberty were in default when defendant allegedly made those statements. Commenting on the complaint, Justin C. Jeffries, Associate Director of Enforcement for the SEC’s Atlanta Regional Office, stated: “The promise of a high rate of return on an investment is a red flag that should make all potential investors think twice or maybe even three times before investing their money. Unfortunately, we’ve seen this movie before – bad actors luring investors with promises of seemingly over-generous returns – and it does not end well.” The SEC filed its complaint ( here ) in the U.S. District Court for the Northern District of Georgia. The SEC charged defendants with violating the antifraud provisions of the federal securities laws and named five entities that defendant controlled as relief defendants. The SEC seeks emergency relief, including an order freezing assets , appointing a receiver over the entities, and granting an accounting and expedited discovery. The SEC also seeks permanent injunctions and civil penalties against the defendants, a conduct-based injunction against defendant, and disgorgement of ill-gotten gains with prejudgment interest against defendants and relief defendants. Without admitting or denying the allegations in the complaint, defendants and relief defendants consented to the SEC’s requested emergency and permanent relief, with monetary remedies to be determined by the court at a later date.  ___________________________________ 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. Ponzi promised clients a 50% profit within 45 days or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the U.S. as a form of arbitrage. Wikipedia, Charles Ponzi ( here ); see also SEC, Investor.gov, Ponzi Schemes ( here ). In reality, Ponzi was paying earlier investors using the investment funds of later investors. Wikipedia, Charles Ponzi. Although Ponzi did not invent this type of investment fraud , it became so identified with him that it is now referred to as a “Ponzi scheme”. Id. Ponzi’s fraud ran for over a year before it collapsed, costing investors $20 million. Id. See  SEC Spotlight, “SEC Enforcement Actions Against Ponzi Schemes” ( here ). See  SEC General Resources on Ponzi schemes ( here ). Chen, James, Investopedia, Ponzi Scheme: Definition, Examples, and Origins (Updated Jan. 26, 2025) ( here ). Bar Lev, Eldad, Main Implications and Reactions For The Ponzi Schemes’ Victims (“ Main Implications ”), 99 Journal of Public Administration, Finance and Law (Issue 24/2022), at 100 ( here ).    Id. at 100-101. Main Implications , at 101. This Blog has examined Ponzi schemes and affinity fraud on numerous occasions. To find the articles related to Ponzi schemes and affinity fraud, visit the “ Blog ” tile on our website and enter “Ponzi scheme” and “Affinity Fraud” in the “search” box. SEC, Investor.gov, Affinity Fraud ( here ); see also Rasure, Erika, Investopedia, Affinity Fraud: What It is, How It Works, Example (“ Affinity Fraud ”) (Nov. 26, 2021) ( here ). Affinity Fraud . Id. see also Investor.gov, Affinity Fraud. Id. see also Investor.gov, Affinity Fraud. Main Implications , at 101. According to the SEC, defendant used investor funds to make over $2.4 million in credit card payments, pay more than $335,000 to a rare coin dealer, and pay $230,000 on family vacations. Readers can obtain more information about the action through the news media, e.g. , here .

By: Jonathan H. Freiberger Today’s article relates to summary judgment in lieu of complaint pursuant to CPLR 3213 , which provides, in relevant part: When an action is based upon an instrument for the payment of money only or upon any judgment, the plaintiff may serve with the summons a notice of motion for summary judgment and the supporting papers in lieu of a complaint. The summons served with such motion papers shall require the defendant to submit answering papers on the motion within the time provided in the notice of motion…. If the motion is denied, the moving and answering papers shall be deemed the complaint and answer, respectively, unless the court orders otherwise…. CPLR 3213 is a procedural device that “is intended to provide a speedy and effective means of securing a judgment on claims presumptively meritorious. In the actions to which it applies, a formal complaint is superfluous, and even the delay incident upon waiting for an answer and then moving for summary judgment is needless.” Interman Industrial Products, LTD v. R.S.M. Electron Power, Inc . , 37 N.Y.2d 151, 154 (1975) (citation and internal quotation marks omitted); see also Counsel Financial II LLC v. Bortnick , 214 A.D.3d 1388, 1390 (4 th Dep’t 2023). As expressly stated in the statute, a litigant can benefit from the streamlined procedures of CPLR 3213 if the instrument sued upon is for the payment of money only. Counsel Financial ,214 A.D.3d at 1390. “A document comes within CPLR 3213 if a prima facie case would be made out by the instrument and a failure to make the payments called for by its terms.” Weissman v. Sinorm Deli, Inc. , 88 N.Y.2d 437, 444 (1996) (quoting Interman , supra ) (some citations and internal quotation marks omitted). The Weissman Court noted that the “prototypical example of an instrument within the ambit of the statute 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.” Id . (citation omitted). It is also “well established that an unconditional guarantee … is an instrument for the payment of money only within the meaning of CPLR 3213.” European American Bank & Trust Co. v. Schirripa , 108 A.D.2d 684, 684 (1 st Dep’t 1985). Other types of instruments may fall within the purview of CPLR 3213. Where resort to extrinsic evidence is necessary to establish the amounts due on an instrument, accelerated judgment pursuant to CPLR 3213 is “inappropriate”. Tradition North America, Inc. v. Sweeney , 133 A.D.3d 53, 54 (1 st Dep’t 1987) (promissory notes); see also PDL Biopharma, Inc. v. Wohlstadter , 147 A.D.3d 494, 495 (1 st Dep’t 2017). Another interesting issue was addressed in Tradition . Because the repayment of the subject notes was tied to bonuses to which the maker may have been entitled under an employment agreement, the Court held that the notes should not be considered instruments for the payment of money only because the notes could be satisfied by “performing work for his employer”. Id . These issues were addressed by the Appellate Division, Second Department, on July 9, 2025, in Pearl River Campus, LLC v. Readyscrip, LLC . The plaintiff in Pearl River sought recovery pursuant to CPLR 3213 on a guaranty of a lease agreement. With its motion, the plaintiff provided a copy of the lease, two amendments to the lease, and the guaranty. The guaranty, like most guaranties, provided that “the defendant ‘absolutely and unconditionally guarantees to the plaintiff the timely payment of all amounts that Tenant may at any time owe under the Lease, or any extensions, renewals, or modifications of the Lease.’" (Internal brackets omitted.) The plaintiff also submitted an affidavit averring to the tenant’s default and the amounts allegedly due. After discussing relevant case law along the lines previously discussed, the Court, in finding that the motion court “properly denied” the motion for summary judgment in lieu of complaint, stated: To meet its prima facie burden on a motion for summary judgment in lieu of complaint, a plaintiff must prove the existence of the guaranty, the underlying debt and the guarantor's failure to perform under the guaranty. Here, a determination of the defendant's obligations to the plaintiff under the guaranty requires review of outside proof that goes well beyond a mere de minimis deviation from the face of the guaranty. In order to determine the existence and amount of the underlying debt asserted by the plaintiff, the Supreme Court would have been required to examine material outside the lease agreement and make calculations that were not shown by the plaintiff in the affidavit of its operations manager or supporting documents. Since outside proof beyond simple proof of nonpayment was required to determine the defendant's obligation to the plaintiff, the court properly determined that relief pursuant to CPLR 3213 was unavailable. 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. 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, issue that may be of interest you.

By:  Jeffrey M. Haber In Wilburger v. Ava Labs, Inc. , 2025 N.Y. Slip Op. 51072(U) (Sup. Ct., N.Y. County July 3, 2025) ( here ), plaintiff sued defendant for breach of contract, unjust enrichment, and fraudulent inducement related to unpaid compensation for services rendered under an Independent Contractor Agreement. Plaintiff alleged that he worked over 2,300 hours between 2019 and 2023, including tasks beyond the scope of the agreement, and was promised payment in AVAX cryptocurrency tokens. After initially receiving 100,000 AVAX tokens, plaintiff claimed he was owed an additional 150,000 tokens, based on various agreements and assurances by defendant’s executives. Thereafter, plaintiff signed two additional agreements with defendant, which, according to plaintiff, included conditions for receiving the tokens and treated receipt of the tokens as options rather than earned compensation. Plaintiff claimed that he was misled into signing these agreements based on repeated assurances that the foregoing terms were legal formalities and that the tokens had already been earned. The court found plaintiff’s allegations sufficiently detailed to support a fraudulent inducement claim and denied defendant’s motion to dismiss the fraudulent inducement claim with respect to the agreements. In so holding, the court permitted plaintiff to rely on parol evidence to support his claim because there was no disclaimer in the agreements that negated his allegations of reliance. Background Facts Plaintiff brought the action defendant, asserting claims in connection defendant’s purported failure to compensate plaintiff for services rendered pursuant to an independent contractor agreement. Defendant is a New York City-based company that offers an open-source framework to businesses for developing decentralized finance applications and blockchain solutions through its platform known as Avalanche. To facilitate development on this framework, defendant uses a cryptocurrency token called AVAX as its basic unit of account. To build its branding and corporate identity, defendant Labs contracted with plaintiff in 2019 pursuant to an Independent Contractor Agreement (the “ICA”). Plaintiff agreed to render services to defendant in exchange for a lump sum payment of $3,800.00 at the end of the engagement and/or “a mutually agreed upon fixed lump sum payment” for any “extra requests” deemed “out of the scope of” the ICA’s enumerated services. Upon termination of the ICA, defendant was obligated to pay, within 30 days, all amounts due and owing to plaintiff for services actually performed. Between 2019 and 2023, Wilburger devoted more than 2,300 hours to expand defendant’s community outreach and provided, at defendant’s request, an array of services that were outside scope of the ICA. In exchange for the additional services, defendant agreed to compensate plaintiff with AVAX tokens. An initial compensation of AVAX tokens occurred in or around April 2020, when defendant, via one of its subsidiaries, offered plaintiff the right to acquire 100,000 AVAX tokens at a rate of $0.33 per token through a contract dated April 12, 2020 (the “April 12 Agreement”). The next month, on May 20, 2020, plaintiff wired $33,000 USD Coin (“USDC”) and received 100,000 AVAX tokens in return. Plaintiff alleged that beyond this transfer, defendant used a series of agreements and amendments to deprive him of an additional 150,000 AVAX tokens purportedly due and owing to him. Initially, on May 15, 2020, defendant, via one of its subsidiaries, granted plaintiff the right to acquire 100,000 AVAX tokens at a rate of $0.50 per token. This amount was increased to 150,000 AVAX tokens. A few days later, on May 19, 2020, plaintiff was presented with an agreement titled “Proposed Changes to your Consultant Agreement,” which amended the ICA (the “May 19 Amendment”). Under the May 19 Amendment, Section 3 of Exhibit A of the ICA would be amended to provide that plaintiff would “be granted a one-time right to purchase 150,000 AVA Mainnet tokens.” Section 3 of Exhibit A was further amended to state that plaintiff's tokens would “vest in 25% of the Restricted Tokens after 12 months of continuous service, and the balance vest in equal monthly installments over the next 36 months of continuous service.” Plaintiff maintained that, notwithstanding the inclusion of the terms “right to purchase” and “continuous service” in the May 19 Amendment, he was assured by defendant that he had already earned the 150,000 AVAX tokens and that, according to defendant’s Chief Operating Officer (“COO”), the inclusion of the term “continuous service” was “just legalese” and “largely irrelevant”. Based on the representations, plaintiff signed the May 19 Amendment. On June 7, 2020, after plaintiff received his compensation of 100,000 AVAX tokens, defendant allegedly agreed, via chat communication between Wilburger and the COO, that plaintiff would—through “a discount of 33% on the current sale” of AVAX tokens and a $17,000 USDC “credit” to “top off” plaintiff’s initial $33,000 USDC investment—be entitled to 150,000 AVAX tokens that would “unlock[] at the investor schedule.” In that same communication, the COO also indicated that defendant would offer plaintiff “an additional 90k tokens on top of the contract,” which would “unlock[] at the employee 4 year vesting schedule.” Defendant then purportedly later agreed, again via chat communication, to increase the additional 90,000 AVAX tokens to 100,000 AVAX tokens. Hence, plaintiff averred, defendant, through the COO, had reiterated that it was granting him 150,000 AVAX tokens, with 50,000 AVAX tokens still outstanding, and confirmed that plaintiff would receive an additional 100,000 AVAX tokens in compensation for his services. In other words, plaintiff maintained that he was promised a total of 250,00 AVAX tokens from defendant and, to date, he had received only 100,000 of them. Plaintiff alleged that he was repeatedly assured by defendant’s Chief Executive Office (“CEO”), its Head of Strategy and Operations, and additional personnel, that his acquisition of the outstanding 150,000 AVAX tokens “had been conclusively secured” in exchange for plaintiff’s professional contributions and USDC payments. Yet, by September 16, 2020, according to plaintiff, defendant had still not transferred to plaintiff the remaining 150,000 AVAX tokens that were promised by the COO. Instead, said plaintiff, defendant presented plaintiff with a document titled the Antarctica, Inc. 2020 Equity Incentive Plan (the “Antarctica Agreement”). Under the terms of the Antarctica Agreement, defendant, through Antarctica, would grant plaintiff the option to acquire 150,000 AVAX tokens. This option would “vest with respect to one-forty-eighth (1/48th) of the covered Shares on the 12-month anniversary of the Vesting Commencement Date and then as to an additional one-forty-eighth (1/48th) of the covered Shares on each subsequent month thereafter for the next forty-seven months.” Like the May 19 Amendment, plaintiff’s option to purchase AVAX tokens was subject to his “continuous service”. Upon receiving the Antarctica Agreement, plaintiff allegedly expressed various concerns, including the fact that the 150,000 AVAX tokens that he was still owed were now seemingly being converted into an option. In response to these alleged concerns, defendant purportedly told plaintiff that (1) plaintiff had already earned the 150,000 AVAX tokens “with labor,” (2) there would be no need for plaintiff to purchase the AVAX tokens, and (3) the Antarctica Agreement was nothing more than a recordkeeping formality. Although he continued to have questions about the Antarctica Agreement, plaintiff signed the agreement on September 21, 2020, purportedly under pressure from defendant. On October 28, 2023, defendant terminated the ICA without cause. Yet, despite its repeated assurances, claimed plaintiff, defendant has, to date, never issued any of the remaining 150,000 AVAX tokens purportedly owed to plaintiff. Hence, plaintiff maintained, defendant had failed to pay him all amounts due and owing under the ICA for services actually performed. Plaintiff further maintained that defendant’s failure to issue the remaining 150,000 prevented him from earning valuable “staking” rewards in an amount of at least 69,650 AVAX tokens. The Court’s Ruling Plaintiff brought the lawsuit, alleging, breach of contract, unjust enrichment and fraudulent inducement. Defendant moved to dismiss the fraud claim – e.g. , misrepresentations by defendant that induced him to sign the May 19 Amendment and Antarctica Agreement. The court denied in part and granted in part the motion. Noting that the complaint was “not a model of clarity,” the court held that “all of the required elements of a fraudulent inducement claim are present.” The court found that, although plaintiff “apparently recognized that the terms of were at odds with unconditional promise to compensate him with the remaining 150,000 AVAX tokens he was owed …. … repeatedly assured that all of his AVAX tokens were already earned and that the May 19 Amendment and Antarctica Agreement were nothing more than mere formalities that had no actual bearing on his earned compensation.” “Thus,” explained the court, “relying on assurances, executed these two agreements.” “Eventually,” further explained the court, defendant “terminated contractual relationship under the ICA and, contrary to its prior representations, used the May 19 Amendment and the Antarctica Agreement as a basis to deny compensating with his remaining 150,000 AVAX tokens.” “Consequently,” concluded the  court, “as alleged, repeated assurances proved to be false. [Eds. Note: Under CPLR 3016 (b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”   To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. Put another way, the complaint must identify the “who, what, where, when and how” of the alleged fraud. Notwithstanding, in Pludeman v.Northern Leasing Systems, Inc. , the Court of Appeals held that CPLR 3016(b) “should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” Therefore, at the pleading stage, a complaint need only “allege the basic facts to establish the elements of the cause of action.” Thus, as noted, a plaintiff will satisfy CPLR 3016(b) when the facts permit a “reasonable inference” of the alleged misconduct. ] The court rejected defendant’s argument that plaintiff’s “fraudulent inducement claim must be dismissed because he … failed to establish justifiable reliance.” Defendant argued that plaintiff improperly relied on the extra-contractual statements and assurances to contradict the express terms of the May 19 Amendment and Antarctica Agreement. Under New York law, a party is generally not permitted to introduce extrinsic evidence to vary or add to the terms of a contract. However, “where the complaint states a cause of action for fraud, the parol evidence rule is not a bar to showing the fraud” unless the agreement between the parties expressly disclaims reliance on the particular misrepresentation underlying the fraud claim. Against the foregoing principles, the court found that defendant “fail to identify any specific disclaimer of reliance on the at-issue alleged misrepresentations made by .”. “For this reason,” explained the court, “there no basis at the pleading stage to conclude that, as a matter of law, it was unreasonable for to rely on extra-contractual misrepresentations to support his fraudulent inducement claim in connection with his execution of the May 19 Amendment and Antarctica Agreement.” [Eds. Note: In New York, a party’s disclaimer of reliance cannot preclude a fraudulent inducement claim unless: (1) the disclaimer is specific to the fact alleged to be misrepresented or omitted; and (2) the alleged misrepresentation or omission does not concern facts peculiarly within the knowledge of the non-moving party. “Accordingly, only where a written contract contains a specific disclaimer of responsibility for extraneous representations, that is, a provision that the parties are not bound by or relying upon representations or omissions as to the specific matter, is a plaintiff precluded from later claiming fraud on the ground of a prior misrepresentation as to the specific matter.” ] Notwithstanding the foregoing ruling, the court reached a “a different conclusion … with respect to other purported claim … that he was fraudulently induced to transfer $50,000 USDC in exchange for a promise to transfer 150,000 AVAX tokens.” “As a preliminary matter,” noted the court, “although the Complaint does reference transfer of $50,000 USDC …, he failed to plead any facts, let alone with specificity, suggesting that this transfer was the product of fraud or even the basis of a fraud claim.” “Therefore,” concluded the court, “even if were asserting this particular claim as part of his Third Cause of Action, it was not pleaded with any sufficient amount of particularity to survive a motion to dismiss.” _________________________________ 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. To state a claim for fraudulent inducement, a plaintiff must allege “(1) a misrepresentation or an omission of material fact which was false and known to be false by the defendant, (2) the misrepresentation was made for the purpose of inducing the plaintiff to rely upon it, (3) justifiable reliance of the plaintiff on the misrepresentation or material omission, and (4) injury.” CANBE Props., LLC v. Curatola , 227 A.D.3d 654, 656 (2d Dept. 2024). Slip Op. at *5. Id. Id. Pludeman v. Northern Leasing Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (citation omitted). Id. at 491 (internal quotation marks and citation omitted). Id. at 492. Id. Slip Op. at *5-*6. Id. at *6. See generally NAB Constr. Corp. v. Consolidated Edison Co. of NY, Inc. , 222 A.D.2d 381, 381 (1st Dept. 1995). See Danann Realty Corp v. Harris , 5 N.Y.2d 317, 320 (1959); International Bus. Machs. Corp. v. GlobalFoundries US Inc. , 204 A.D.3d 441, 442 (1st Dept. 2022) (permitting use of parol evidence to establish fraudulent inducement claim where “the various contracts’ merger clauses general, vague, and merely omnibus statements”); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Wise Metals Group, LLC , 19 A.D.3d 273, 275 (1st Dept. 2005) (holding that “only where the parties expressly disclaim reliance on the particular misrepresentations is extrinsic evidence barred” for purposes of a fraudulent inducement claim). Slip Op. at *6. Id. (citations omitted). Basis Yield Alpha Fund v. Goldman Sachs Group, Inc. , 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty , 5 N.Y.2d at 323; MBIA Ins. Corp. v. Merrill Lynch , 81 A.D.3d 419 (1st Dept. 2011). Basis Yield , 115 A.D.3d at 137. Slip Op. at *7. Id. Id. (citation omitted). The court noted that “even assuming the allegations underlying specific theory of fraud was sufficiently particular, the claim would still be dismissed as currently framed because, as aptly note , ‘a mere failure to perform’ a promise is ‘insufficient to sustain a cause of action alleging fraud.”” Id. (citing Cavalry Invs., LLC v. Household Automotive Fin. Corp. , 8 A.D.3d 317, 318 (2d Dept. 2004)).