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By:   Jeffrey M. Haber On September 25, 2025, the Securities and Exchange Commission (“SEC”) announced ( here ) that it charged the co-founders of Retail Ecommerce Ventures LLC (“REV”), and REV’s Chief Operating Officer (collectively, “Defendants”), with conducting a series of fraudulent securities offerings, misusing investor funds, and making Ponzi-like payments to investors. According to the SEC’s  complaint , REV’s primary business was purchasing distressed retail companies with name brand recognition and converting them into e-commerce only businesses, and serving as the holding company and manager of the REV retailer brands.  From approximately April 2020 through November 2022, Defendants raised approximately $112 million from hundreds of investors through fraudulent offerings involving eight REV portfolio companies: Brahms LLC; Dress Barn Online, Inc.; Franklin Mint Online, LLC; Linens ‘N Things Online, Inc.; Modell’s Sporting Goods Online, Inc.; Pier 1 Imports Online, Inc.; RadioShack Online, LLC; and Stein Mart Online, Inc. (collectively, the “REV Retailer Brands”).   In the complaint, the SEC alleged that Defendants sold securities in the form of unsecured notes promising up to 25% annualized returns, as well as equity (membership units) with a monthly preferential dividend as high as 2.083%. The purported purpose of the offerings was to raise capital to acquire the predecessor of and raise additional operating capital for each particular REV Retailer Brand. According to the SEC, the co-founder defendants made material misstatements in connection with these offerings about the success and profitability of REV’s business model and the REV Retailer Brands, as well as the safety of investors’ investments. The SEC further alleged that Defendants transferred at least $5.9 million in investor proceeds directly between portfolio companies, contrary to the written and oral representations made to investors about the use of proceeds; that at least $5.9 million of the returns distributed to investors were, in reality, Ponzi-like payments funded by other investors; and that defendants misappropriated approximately $16.1 million in investor funds for the co-founder defendants’ personal use. The SEC filed its complaint in the U.S. District Court for the Southern District of Florida. The SEC charged the co-founder defendants with violations of Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. The SEC also charged a company officer with violations of Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) thereunder. Finally, the SEC charged the same defendant with aiding and abetting the co-founder defendants’ violations of Section 17(a)(2) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder.  The SEC seeks permanent injunctions, civil penalties, and officer-and-director bars as to each defendant. In addition, the SEC seeks disgorgement and prejudgment interest as to the co-founder defendants.   ________________________________ 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. Securities and Exchange Commission v. Lopez, et al. , Case 1:25-cv-24356 (S.D. Fla.).

By:  Jeffrey M. Haber On November 18, 2025, the Securities and Exchange Commission (“SEC” or “Commission”) announced that, on October 16, 2025, it charged Joshua Wander (“Defendant A”), Steven Pasko (“Defendant B”), and two companies that they founded, co-managed, and controlled—777 Partners LLC and 600 Partners LLC—with defrauding investors while raising approximately $237 million. The Commission also charged Damien Alfalla (“Defendant C”), the companies’ former Chief Financial Officer, for his role in the alleged fraud. According to the SEC’s complaint , between January 2021 and May 2024, Defendants misled investors about the companies’ financial condition, and fraudulently induced investments in a $237 million preferred equity offering, by falsely representing that the companies were earning, and would continue to earn, substantial positive net income sufficient to pay investors a 10% annual dividend. In fact, as alleged by the SEC, the companies were in a severe and worsening liquidity crisis and had no realistic prospects of earning net income sufficient to pay the dividend. According to the SEC, Defendants A and C misused a credit facility, resulting in a $300 million overdraw that damaged the companies’ financial prospects. As alleged, these Defendants made false and misleading representations to investors about the companies’ prospects and ability to pay dividends, while concealing the $300 million overdraw and its causes. The SEC further alleged that Defendant B signed all investor subscription agreements, which incorporated false and misleading representations about the companies’ financial prospects, even though he allegedly knew or should have known of the credit facility overdraw and its negative effects on the companies’ financial prospects. As alleged, Defendant A also misled investors when he represented that the proceeds of the offering would be used for general corporate purposes, when, in fact, said the SEC, Defendant A caused the companies to divert approximately $33 million of investor funds to himself and Defendant B personally. By March 2023, the alleged scheme began to unravel. One of the firm’s lenders confronted Defendant A about allegations of double-pledged assets. Defendant A allegedly claimed (falsely) that there had been an error caused by 777 Partners’ antiquated computer system. A few days later, Defendant A again allegedly assured the lender (falsely), among other things, that the double-pledging had been inadvertent. The SEC alleged these representations and assurances were false. In October 2024, the High Court in London issued a winding-up order, formally declaring 777 Partners bankrupt. According to the SEC, 777 Partners still owes its lenders hundreds of millions of dollars. The SEC filed its complaint in the U.S. District Court for the Southern District of New York. In the complaint, the SEC charged Defendant A, 777 Partners, and 600 Partners with violating Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933 (the “Securities Act”). The SEC charged Defendant C with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 17(a)(1) and 17(a)(3) of the Securities Act. The SEC charged Defendant B with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act. The SEC seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties. In parallel actions, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Defendants A and C on the same day as the SEC action. The U.S. Attorney charged Defendant A with conspiracy to commit wire fraud, wire fraud, conspiracy to commit securities fraud, and securities fraud. Defendant C previously pled guilty to an information before U.S. District Judge Arun Subramanian on October 14, 2025, in connection with his participation in the alleged fraudulent scheme at 777 Partners. Defendant C is cooperating with the government. “As alleged, used his investment firm, 777 Partners, to cheat private lenders and investors out of hundreds of millions of dollars by pledging assets that his firm did not own, falsifying bank statements, and making other material misrepresentations about 777’s financial condition,” said U.S. Attorney Jay Clayton. “When financial firms lie to their lenders, they do not merely breach contracts. They undermine the integrity and stability of our credit markets and our financial system more broadly.” FBI Assistant Director in Charge Christopher G. Raia also commented on the charges: “ and , the cofounder and CFO respectively of the 777 Partners investment firm, allegedly stole more than $500 million from his company’s lenders and investors through fabricated lies of success and doctored financial records. The defendants’ alleged deceit targeted the wallets of his trusting stakeholders to obfuscate the failing fiscal ventures of the business.” Takeaway As discussed, the alleged scheme to defraud involved raising $237 million through a preferred equity offering while concealing a severe liquidity crisis and misusing a $300 million credit facility. Such a large-scale alleged fraud demonstrates how complex financial structures can be exploited to mislead investors and lenders. The complexity of the alleged fraud also underscores the multiple layers of purported deception. Defendants allegedly falsified financial statements, misrepresented dividend sustainability, and diverted $33 million for personal use. Additionally, the alleged scheme highlights the problem of internal financial governance failures that are not readily discernible to investors. The involvement of, and apparent manual override by, top executives—including the co-founder and CFO—highlights systemic governance breakdowns that can occur in an alleged complex scheme to defraud. ____________________________________ 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. It must be remembered that an indictment merely alleges that crimes have been committed. Like all defendants, defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

By:  Jeffrey M. Haber Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b‑5 promulgated thereunder prohibit trading securities on the basis of material nonpublic information through any deceptive device, scheme, or act. Insider trading liability arises under either the classical theory, where corporate insiders owe duties to shareholders, or the misappropriation theory, where those entrusted with confidential information owe duties to the information’s source. In today’s article, we examine an SEC enforcement action against a biostatistician and his company for insider trading involving C4 Therapeutics, Inc., a clinical-stage biopharmaceutical company, under the misappropriation theory of liability. A Primer on Insider Trading Section 10(b) of the Exchange Act makes it “unlawful for any person ... o use or employ, in connection with the purchase or sale of any security<,> ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe.” Rule 10b-5, which implements Section 10(b), prohibits the use of “any device, scheme, or artifice to defraud” or “any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person ... in connection with the purchase or sale of any security.” “Insider trading—unlawful trading in securities based on material non-public information—is well established as a violation of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.” “There are two theories of insider trading<.> ”  First, “ nder the classical theory of insider trading, a corporate insider is prohibited from trading shares of that corporation based on material non-public information in violation of the duty of trust and confidence insiders owe to shareholders.”  “A second theory, grounded in misappropriation, targets persons who are not corporate insiders but to whom material non-public information has been entrusted in confidence and who breach a fiduciary duty to the source of the information to gain personal profit in the securities market.”  “The core difference between the two theories is the source of the duty. Under the classical theory, the duty is owed to the corporation; under the misappropriation theory, the duty is owed to the source of the information.” “Under both theories, the fiduciary duty of trust and confidence requires the person who knows material nonpublic information either to abstain from trading on the information or to make a disclosure before trading.”   With respect to the classical theory, “ n insider can avoid liability by disclosing the relevant information publicly so that she is not at a trading advantage over the corporation's shareholders.” As for the misappropriation theory, “  misappropriator can avoid liability by disclosing” to her source “the fact that she will be trading on confidential information ...; by doing so, the misappropriator is no longer deceiving her source, and thus she is not violating § 10(b).” “Both theories extend liability to ‘tippees’: a person who did not themselves owe a duty to anyone but traded based on an insider tip from someone else.”   “A tippee is liable only if (1) the tipper themselves breached a duty by tipping, and (2) the tippee knew or should have known of that breach.” The test for whether the tipper breached a duty by tipping “is whether the personally will benefit, directly or indirectly, from his disclosure” of confidential information to the tippee.   The United States Supreme Court has “defined personal benefit broadly.” In Dirks , the Court identified numerous examples of personal benefits that prove the tipper’s breach. These include: a “pecuniary gain,” a “reputational benefit that will translate into future earning,” a “relationship between the insider and the recipient that suggests a  quid pro quo  from the latter,” the tipper’s “intention to benefit the particular recipient,” and a “gift of confidential information to a trading relative or friend” where “ he tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.”   As the foregoing examples show, the tipper’s personal benefit need not be pecuniary in nature. While the insider who personally benefits from disclosing confidential information breaches their duty, “the insider who discloses for a legitimate corporate purpose does not.” Under both theories of liability, scienter is required.   Scienter is “a mental state embracing intent to deceive, manipulate, or defraud.”  “In every insider trading case, at the moment of tipping or trading, just as in securities fraud cases across the board, the unlawful actor must know or be reckless in not knowing that conduct deceptive.” Pursuant to the misappropriation theory, to prove liability, a plaintiff must “establish (1) that the defendant possessed material, nonpublic information; (2) which he had a duty to keep confidential; and (3) that the defendant breached his duty by acting on or revealing the information in question.” Insider trading claims are subject to Rule 9(b) of the Federal Rules of Civil Procedure, which requires that circumstances constituting fraud be stated “with particularity.”  “But because insider tips are typically passed on in secret, Rule 9(b) is somewhat relaxed, allowing plaintiff to plead certain facts on information and belief.”   Specifically, plaintiffs may plead facts that imply the content and circumstances of an insider tip if those facts are peculiarly within the knowledge of defendant or the tipper.  Nevertheless, “ hile the rule is relaxed as to matters peculiarly within the adverse parties’ knowledge, [] allegations must then be accompanied by a statement of the facts upon which the belief is founded.” With the foregoing legal principles in mind, we examine Securities and Exchange Commission v. Hong (John) Wang and Precision Clinical Consulting, LLC , No. 26-civ-10140 (D. Mass. filed Jan. 14, 2026). Securities and Exchange Commission v. Hong (John) Wang and Precision Clinical Consulting, LLC The SEC announced the enforcement action on January 14, 2026. In the press release, the SEC stated that it charged New Jersey resident Hong (John) Wang (“Defendant”) and his company, Precision Clinical Consulting LLC (“Precision” and, collectively with Wang, the “Defendants”), with insider trading in the stock of C4 Therapeutics, Inc. (“C4”), a clinical stage biopharmaceutical company headquartered in Watertown, Massachusetts. According to the SEC’s complaint , filed in the U.S. District Court of Massachusetts, Defendant allegedly became aware of positive clinical trial results for C4’s flagship multiple myeloma and non-Hodgkin lymphoma drug while he was performing biostatistical consulting work for the company and had access to the drug’s clinical trial data. The complaint alleged that Defendant’s consulting contract required him, among other things, to conduct biostatistical analysis on the clinical trial data related to this drug. The SEC alleged that Defendant purchased C4 shares between November 20, 2023 and December 12, 2023, while aware of material nonpublic information relating to the clinical trial. The SEC further alleged that after C4 announced positive results concerning one of its cancer-treating drugs on December 12, 2023, Defendant made $489,739 in realized and unrealized profits from his position. The SEC maintained that Defendant purchased the C4 shares through four separate brokerage accounts, one of which was held in Precision’s name. The SEC charged Defendants with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks disgorgement plus prejudgment interest thereon against Defendants, and permanent injunctive relief and civil penalties against Defendant. In a parallel action, on January 14, 2026, the U.S. Attorney’s Office for the District of Massachusetts announced criminal charges against Defendant. In that regard, Defendant was charged in an indictment with three counts of securities fraud. Takeaway The misappropriation theory of insider trading targets individuals who are not corporate insiders but who obtain confidential, material information through a relationship of trust. Under this theory, liability arises when a person entrusted with such information—like Defendant, who allegedly accessed confidential clinical‑trial data through his biostatistics consulting work—breaches a duty owed to the source by secretly trading on that information for personal gain. As discussed, defendant’s consulting role required him to maintain the confidentiality of C4’s drug‑trial results, yet he allegedly exploited this access by purchasing shares before the positive data became public. Defendant’s actions, if proven, demonstrate the core basis of the misappropriation theory: using material, non-public information while concealing the intent to trade from the information’s source. The SEC’s enforcement action, along with the parallel criminal charges, highlights how alleged violations of the misappropriation theory can lead to material consequences, reinforcing the duty of professionals and consultants to safeguard confidential information and abstain from trading on it. ___________________________________ 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. 15 U.S.C. § 78j. 17 C.F.R. § 240.10b-5. S.E.C. v. Obus , 693 F.3d 276, 284 (2d Cir. 2012);  In re Nat’l Instruments Corp. Sec. Litig.,  No. 23 Civ. 10488 (DLC), 2024 WL 4108011, at *5 (S.D.N.Y. Sept. 6, 2024) (quoting  United States v. Chow , 993 F.3d 125, 136 (2d Cir. 2021));  United States v. Cusimano , 123 F.3d 83, 87 (2d Cir. 1997) (citing  United States v. O’Hagan , 521 U.S. 642, 650-52 (1997)). United States v. Rajaratnam , 719 F.3d 139, 158 (2d Cir. 2013);  see also  S.E.C. v. Watson , 659 F. Supp. 3d 409, 415 (S.D.N.Y. 2023). Obus , 693 F.3d at 284. Id. Watson , 659 F. Supp. 3d at 415. S.E.C. v. One or More Unknown Traders in Sec. of Onyx Pharms., Inc. , No. 13 Civ. 4645 (JPO), 2014 WL 5026153, at *5 (S.D.N.Y. Sept. 29, 2014) (citing  Dirks v. SEC , 463 U.S. 646, 654 (1983) (classical theory), and  O’Hagan , 521 U.S. at 655 (misappropriation theory));  see also  Chow , 993 F.3d at 137. Onyx,  2014 WL 5026153, at *5 (citing  Dirks,  463 U.S. at 654). Id. Watson , 659 F. Supp. 3d at 415 (citing Dirks,  463 U.S. at 660). Id. (citing id. at 660 & n.19). Id. (citing id. at 662);  see also  United States v. Martoma , 894 F.3d 64, 73-74 (2d Cir. 2017). Martoma , 894 F.3d at 73. Dirks , 463 U.S. at 663-64. Watson , 659 F. Supp. 3d at 415 (citing Salman v. United States , 580 U.S. 39 (2016)). Martoma , 894 F.3d at 416;  United States v. Pinto-Thomaz , 352 F. Supp. 3d 287, 298 (S.D.N.Y. 2018) (a personal benefit is “grounded in using company information for personal advantage, as opposed to a corporate or otherwise permissible purpose (such as whistleblowing)”). See  Obus , 693 F.3d at 286;  see also United States v. Newman,  No. 12 Cr. 121 (RJS), 2013 WL 1943342, at *2 (S.D.N.Y. May 7, 2013). Id. at 286 (quoting  Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 & n.12 (1976)). Id. Veleron Holding, B.V. v. Morgan Stanley , 117 F. Supp. 3d 404, 430 (S.D.N.Y. 2015) (quoting  S.E.C. v. Lyon , 605 F. Supp. 2d 531, 541 (S.D.N.Y. 2009). S.E.C. v. One or More Unknown Traders in Sec. of Onyx Pharm., Inc. , 296 F.R.D. 241, 248 (S.D.N.Y. 2013). Sec. & Exch. Comm’n v. Yin,  No. 17-CV-972 (JPO), 2018 WL 1582649, at *2 (S.D.N.Y. Mar. 27, 2018). Onyx,  26 F.R.D. at 248. Yin,  2018 WL 1582649, at *2 (quoting  Segal v. Gordon , 467 F.2d 602, 608 (2d Cir. 1972)). It must be remembered that the details contained in the charging document are allegations only. Defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

By:  Jeffrey M. Haber As we have noted in prior articles, New York has a “long and strong public policy favoring arbitration”. Indeed, New York “favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties.” “Therefore, New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to arbitration.”   “Nonetheless, ‘ ike contract rights generally, a right to arbitration may be modified, waived or abandoned.’” “Accordingly, a litigant may not compel arbitration when its use of the courts is ‘clearly inconsistent with later claim that the parties were obligated to settle their differences by arbitration.’” “The crucial question ... is what degree of participation by the defendant in the action will create a waiver of a right to stay the action.” “In the absence of unreasonable delay, so long as the defendant’s actions are consistent with an assertion of the right to arbitrate, there is no waiver.” “However, where the defendant’s participation in the lawsuit manifests an affirmative acceptance of the judicial forum, with whatever advantages it may offer in the particular case, his actions are then inconsistent with a later claim that only the arbitral forum is satisfactory.” Further, “ ot every foray into the courthouse effects a waiver of the right to arbitrate.... here urgent need to preserve the status quo requires some immediate action which cannot await the appointment of arbitrators, waiver will not occur.” In Tomaselli v. Malagese , 2025 N.Y. Slip Op. 05399 (4th Dept. Oct. 3, 2025 ( here ), the Appellate Division, Fourth Department, addressed the foregoing principles. Tomaselli stemmed from an arbitration award for nonpayment of services, confirmed after plaintiff commenced an action in Supreme Court on those same issues. Plaintiff commenced the action seeking damages for breach of contract based upon defendants’ alleged failure to pay for architectural services rendered by plaintiff. Although plaintiff subsequently moved to compel arbitration pursuant to the purported contract following nearly two years of litigation, plaintiff withdrew that motion after defendants voluntarily agreed to resolve the dispute by arbitration. Following an arbitration proceeding before an arbitrator selected by the parties, the arbitrator rendered an award in favor of plaintiff. Supreme Court granted plaintiff’s motion to confirm the arbitration award and denied defendants’ cross-motion to vacate the arbitration award. Defendant appealed. The Fourth Department affirmed. Defendants contended that they were entitled to vacatur of the arbitration award on the ground that the arbitrator lacked authority to conduct the arbitration because plaintiff had previously waived the right to arbitrate by commencing the action. The Court held that “defendants waived their challenge to the arbitration award.” The Court explained that “ laintiff’s commencement of the action and participation in the litigation for nearly two years ‘in effect g ve[ defendants] a choice of forums’ by which they could either ‘insist on arbitration or ignore arbitration and litigate.’”   “Defendants,” said the Court, “cannot have things both ways by agreeing to and fully participating in arbitration instead of litigation while thereafter resisting the arbitration award on the ground that very commencement of court action waived .” “Indeed,” explained the Court, “where, as here, a party participates in an arbitration proceeding, without availing of all reasonable judicial remedies, . . . not . . . allowed thereafter to upset the remedy emanating from that alternative dispute resolution forum.” The Court also rejected defendants’ “forum-hedging” strategy, stating: “Defendants made a strategic and knowing decision to proceed with case in the arbitral forum and cannot now seek to cancel the outcome of the very arbitration in which voluntarily and fully participated because allowing such unilateral advantage and forum-hedging would undermine arbitration principles and policies.” Takeaway New York law strongly favors arbitration as a preferred method of dispute resolution. However, this form of dispute resolution is not without limits—it can be waived if a party engages in litigation in a manner inconsistent with arbitration. In Tomaselli , plaintiff initiated a lawsuit and participated in litigation for nearly two years before moving to compel arbitration. Although defendants agreed to arbitrate, they nevertheless attempted to vacate the arbitration award, arguing that plaintiff had waived the right to arbitrate by initially suing. The Court rejected this argument, emphasizing that defendants had voluntarily chosen to arbitrate and fully participated in the process. Their attempt to challenge the award post-arbitration was deemed, among other things, “forum-hedging,” which undermines the integrity of arbitration. The Court’s ruling reinforces the principle that parties cannot exploit both litigation and arbitration forums to gain a strategic advantage. Once a party elects to arbitrate and participates fully, they are bound by the outcome and cannot later claim the process was invalid due to prior litigation conduct. Stated differently, as the Court noted, the party cannot have it both ways. ____________________________ 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. Matter of Smith Barney Shearson v. Sacharow , 91 N.Y.2d 39, 49 (1997); see also Stark v. Molod Spitz DeSantis & Stark ,  P.C. , 9 N.Y.3d 59, 66 (2007). Stark , 9 N.Y.3d at 66. Smith Barney , 91 N.Y.2d at 49-50 (citations and internal quotation marks omitted); Stark , 9 N.Y.3d at 66. Stark , 9 N.Y.3d at 66 (quoting Sherrill v. Grayco Bldrs. , 64 N.Y.2d 261, 272 (1985)). Id. (quoting Flores v Lower E. Side Serv. Ctr., Inc. , 4 N.Y.3d 363, 372 (2005) (citations and internal quotation marks omitted) (assuming arbitration clause in contract applied to dispute, party seeking its benefit did not assert arbitration as defense in answer or move to compel, electing instead to participate in litigation for 16 months through discovery and filing of note of issue)). Stark , 9 N.Y.3d at 66 (quoting De Sapio v. Kohlmeyer , 35 N.Y.2d 402, 405 (1974) (internal quotation marks omitted)); see also Singer v. Jefferies & Co. , 78 N.Y.2d 76, 85 (1991) (under the Federal Arbitration Act, moving to dismiss before moving to compel arbitration “should not be considered a waiver unless the opposing party demonstrates prejudice”). Id. (quoting id. ). Id. at 66-67 (quoting id. ). Id. at 67 (quoting Sherrill , 64 N.Y.2d at 273, citing Preiss/Breismeister Architects v Westin Hotel Co.-Plaza Hotel Div. , 56 N.Y.2d 787, 789 (1982)). The Court noted that defendants raised this argument for the first time on appeal and failed to preserve the argument because they did not raise it in opposition to the motion to confirm or in support of the cross-motion to vacate. Slip Op. at *1. (citations omitted). Nevertheless, as discussed, the Court considered the argument and rejected it. Id. at *2. Id. (citation and internal quotation marks omitted). Id. (citations and internal quotation marks omitted). Id. (citation and internal quotation marks omitted). Id. (citations and internal quotation marks omitted).

By:  Jeffrey M. Haber In Allen v. Fidelity Brokerage Servs. LLC , 2025 N.Y. Slip Op. 34169(U) (Sup. Ct., N.Y. County Oct. 30, 2025), plaintiff, the representative of her son’s estate, sought to vacate a FINRA arbitration award after claims alleging negligent oversight of speculative options trading were denied. The arbitration panel imposed $25,000 in sanctions for violating FINRA Rule 12209 by filing a parallel court action. Plaintiff argued the panel exceeded its authority and manifestly disregarded FINRA Rule 2360 by ignoring unrebutted expert testimony. The motion court rejected these arguments, emphasizing the narrow grounds for vacating arbitration awards and confirming the panel’s authority to sanction rule violations. The award was upheld, reinforcing arbitration finality and compliance with FINRA rules. Allen arose after William Tyler Allen passed away in September 2021. His mother, acting as fiduciary of his estate, initiated a FINRA arbitration in August 2022, alleging that the respondent brokerage firms failed to properly assess the suitability of speculative options trading in the decedent’s account in violation of FINRA Rule 2360 , which plaintiff claimed contributed to the decedent taking his own life. Plaintiff later filed the action in September 2023, arguing that the FINRA arbitration could not adequately address wrongful death claims. In April 2025, the arbitration panel conducted a hearing at which the parties introduced documentary and testimonial evidence. Relevant to the motion before the court, plaintiff introduced the testimony of her proposed expert regarding the application of Rule 2360. While defendants introduced their own experts, as well as fact and witness testimony going to Rule 2360, they did not introduce expert testimony relating to Rule 2360. Following the close of proceedings, the arbitration panel issued an award, denying plaintiff’s claims and awarding sanctions against plaintiff in the form of $25,000 of attorneys’ fees for violating FINRA rules (the “Award”). The basis for this portion of the Award was that during the course of the arbitration, defendants had sought an order from the arbitration panel directing plaintiff to withdraw the court action as a violation of FINRA Rule 12209 (which bars the bringing of court proceedings that would resolve any matters raised in arbitration), with sanctions to be awarded if plaintiff failed to dismiss the action. The arbitration panel granted the motion for sanctions in a non-final order. The Award confirmed the sanctions and awarded defendants a combined $25,000 for their legal fees in the proceeding. Plaintiff moved to vacate the Award, and defendants cross-moved to confirm the Award. Pursuant to CPLR 7511(b)(1)(iii) , an arbitration award may be vacated if “an arbitrator, or agency or person making the award exceeded his power.” An arbitration award may also be vacated under federal law pursuant to the “severely limited doctrine” of manifest disregard, meaning that the award “exhibits a manifest disregard of law.” But the judicial review of arbitration awards is “extremely limited.” Plaintiff raised two main issues with the Award as a basis for vacatur. First, she argued that the arbitration panel exceeded its authority by issuing sanctions for bringing the action and by directing her to drop the court action. Second, Plaintiff argued that the arbitration panel manifestly disregarded the law by failing to accept unrebutted expert testimony regarding Rule 2360 provided by plaintiff in the arbitration. Defendants opposed the motion to vacate and separately (although largely for similar reasons) cross-moved to confirm the Award. The motion court denied plaintiff’s motion and granted defendants’ cross-motions to confirm the Award. Addressing the first point raised by plaintiff – whether the arbitration panel exceeded its power in imposing sanctions or ordering plaintiff to drop the court proceeding – the motion court held that the panel did not do so. Plaintiff argued that because federal courts lack the discretionary authority under the Federal Arbitration Act (“FAA”) to dismiss a case subject to arbitration, the arbitration panel could not tell her to drop a case or be subject to sanctions pursuant to FINRA Rule 12209. Plaintiff also argued that by issuing such an order, the arbitration panel became biased against her when she failed to comply. The motion court rejected the arguments. The motion court found that “it apparent that Plaintiff in fact violated FINRA Rule 12209, and that the arbitration panel was therefore empowered to issue sanctions in response to such a violation.” Any “‘limitation of an arbitrator’s power must be contained, explicitly or by reference, in the arbitration clause itself’ in order for a court to find that an arbitration panel exceeded their power,” said the motion court. Accordingly, concluded the motion court, “ he Arbitration Panel was clearly allowed to issue sanctions for the rule violation here,” especially since “Plaintiff not establish[ ] that directing her to cure the violation or to face sanctions as a result violated any explicit or referenced power held by the arbitration panel.” Turning to the second argument – whether the arbitration panel manifestly disregarded FINRA Rule 2360 – the motion court held that it did not do so. Plaintiff argued that the arbitration panel manifestly disregarded FINRA Rule 2360 because defendants did not provide expert testimony to match that provided by plaintiff. To vacate an award on the grounds of manifest disregard of the law, “a court must find both (1) that 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.” The motion court rejected plaintiff’s argument that, because defendants did not provide expert testimony on Rule 2360, the conclusion of their witness regarding the application of Rule 2360 to the facts of the matter, would have required the arbitration panel to adopt those conclusions. “Such a reasoning,” said the motion court, “is not supported by the case law, nor is it sufficient to meet the heavy burden required to vacate an arbitration award.” “Because Defendants provided testimony and facts to support their position that they had complied with the FINRA rule in question,” concluded the motion court, “it cannot be said that the arbitration panel must have ignored FINRA Rule 2360 altogether.” Finally, the motion court addressed defendants’ cross-motion to confirm the Award. A court is required to confirm an arbitration award unless it is vacated or modified pursuant to one of the grounds listed in CPLR 7511(b). Because plaintiff did not meet “her heavy burden in establishing that the Award should be vacated,” the motion court held that it must confirm the Award. Takeaway Allen underscores several important principles concerning arbitration and the awards that are issued in them. First, judicial review of arbitration awards is extremely limited under both New York law and the FAA. Courts will only vacate an award if the petitioner can satisfy any of the enumerated bases under Section 10 of the FAA and CPLR 7511(b) or acted with manifest disregard of the law, a doctrine that, as the Allen court reiterated, is applied narrowly. Under that doctrine, even errors or misinterpretations of law are insufficient grounds for vacatur. Second, Allen reinforces the authority of arbitrators to enforce the alternative dispute resolution organization’s rules. As discussed, the Allen court confirmed that arbitrators have the authority to impose sanctions—including attorneys’ fees—when such rules are violated, provided that the arbitration agreement does not expressly limit this power. In Allen , the rule at issue was Rule 12209, which prohibits parties from pursuing parallel court actions on issues already before an arbitration panel. Third, Allen highlights the informality of arbitral proceedings. As shown in the background discussion of the case, arbitrators exercise broad discretion in accepting and weighing evidence. Thus, as discussed, the absence of opposing expert evidence did not compel the arbitration panel to adopt plaintiff’s interpretation of Rule 2360. Fourth, the decision illustrates that courts will confirm arbitration awards unless statutory grounds for vacatur are met. This promotes finality and efficiency in arbitration, thereby showing litigants that vacating an adverse award is an uphill battle. _______________________________ 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. In Rule 2360 , FINRA established a regulatory framework for the conduct of member firms involved in options trading. The rule governs all aspects of options activity, including account approvals, supervision, position limits, reporting, disclosures, and settlement.   Defendants challenged the witness’s admission as an expert, and the arbitration panel reserved decision on the matter and permitted the witness to testify. On many occasions, this Blog has examined the grounds upon which an arbitration award may be vacated under the FAA, CPLR 7511(b), and the manifest disregard of the law doctrine. To find such articles, please see the Blog tile on our website and search for “FAA”, “CPLR 7511”, “vacatur”, and “manifest disregard of the law” or any other issue that may be of interest to you. Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 480 (2006). Id. at 479. We have examined the vacatur of arbitral awards under CPLR 7511(b)(1)(iii) on numerous occasions. E.g. , Scope of Court Proceedings Limited By Parties’ Agreement , Arbitration Award Confirmed in the Absence of Proof That Arbitrator Exceeded His Authority , Court Finds Performance of an Accounting Within the Scope of the Arbitrator’s Authority , First Department Finds Arbitrator Exceeded Authority By Awarding Relief Not Demanded , and Fourth Department Vacates Portion of Arbitral Award Because Arbitrator Exceeded His Authority . We have examined the vacatur of arbitral awards under the manifest disregard of the law doctrine on numerous occasions. E.g. , Manifest Disregard of The Law and Class Arbitrations , Manifest Disregard of the Law and the Arbitrability of Class Claims , Fourth Department Rejects Violation of Public Policy and Manifest Disregard of the Law as Bases To Vacate Arbitral Award , Saying One Thing When You Mean Another , and Irrationality, Manifest Disregard of The Law and The Contractual Obligation to Arbitrate Disputes . See Smith v. Spizzirri , 601 U.S. 472, 477 (2024). Slip Op. at *3. Id. , quoting Brown & Williamson Tobacco Corp. v. Chesley , 7 A.D.3d 368, 372 (1st Dept. 2004). Id. Id. at *3-*4. Wien , at 481. Slip Op. at *4. Id. , citing Transparent Value, LLC v. Johnson , 93 A.D.3d 599, 601 (1st Dept. 2012) (holding that even an error or misunderstanding of the relevant law is not sufficient to support vacatur). Matter of Bernstein Family Ltd. P’ship v. Sovereign Partners, L.P. , 66 A.D.3d 1, 3 (1st Dept. 2009). Slip Op. at *4-*5.

By:  Jeffrey M. Haber In Badme v. AECOM , 2025 N.Y. Slip Op. 06640, (1st Dept. Dec. 02, 2025), plaintiff sued for age discrimination after termination, arguing the arbitration clause in his employment contract expired when the contract ended. The motion court held that the arbitration agreement remained enforceable, citing the contract’s broad arbitration clause and survival clause. The Appellate Division, First Department, affirmed, emphasizing that the contract’s broad arbitration provision required the parties to arbitrate the dispute, though it held that it was up to the arbitrator —not the motion court—to resolve whether the expiration of the employment term within the contract affected the enforceability of the arbitration provision. Plaintiff was employed by defendant, a publicly traded, multinational infrastructure consulting firm that conducts business nationwide. Plaintiff alleged that he was demoted and subsequently fired by defendant because of his age. Plaintiff brought suit against defendant for age discrimination and retaliation pursuant to the New York State Human Rights Law, New York State Labor Law, and New York City Human Rights Law. The employment agreement contained an arbitration provision in which the parties agreed that “any dispute arising out of or relating to Agreement or the formation, breach, termination or validity thereof, be settled by binding arbitration by a panel of three arbitrators in accordance with the employment arbitration rules of the ”. Plaintiff argued that the foregoing arbitration clause expired when the employment agreement was terminated on December 31, 2022. Defendant moved to compel arbitration and to stay the action pending arbitration. The motion court granted the motion. As an initial matter, the motion court held that the parties had entered an enforceable arbitration agreement that contained a clear and unmistakable intent to delegate questions of arbitrability to the AAA. Since the parties agreed that the AAA rules governed, said the motion court, “questions concerning the scope and validity of the arbitration agreement, including issues of arbitrability, reserved for the arbitrators”. The motion court rejected plaintiff’s argument that the arbitration clause expired when the employment agreement was terminated on December 31, 2022, at which time plaintiff became an employee at will. The motion court held that this argument was contrary to rulings by the First Department, in which the Court directed the lower courts to “treat an agreement containing an arbitration clause as if there were two separate agreements – the substantive agreement between the parties, and the agreement to arbitration”. The motion court noted that the “survival” clause in the employment agreement manifested the parties’ intent that the arbitration provision would survive the termination of the agreement. That clause provided: The rights and obligations of the parties under the provisions of this Agreement that relate to post-termination obligations shall survive and remain binding and enforceable, notwithstanding the expiration of the term of this Agreement, the termination of Executive's employment with the Company for any reason or any settlement of the financial rights and obligations arising from Executive's employment hereunder, to the extent necessary to preserve the intended benefits of such provisions.   Therefore, concluded the motion court, “considering the above survival clause, and there being no clear manifestation to the contrary, the arbitration clause survived the termination of the Employment Contract.” “Because the dispute arose from the Employment Contract,” said the motion court, “the arbitration clause triggered” and “Defendant’s motion to compel arbitration is granted.” On appeal, the First Department unanimously affirmed. The Court found the “arbitration provision in the employment agreement between plaintiff and defendant” to be “broad” “requiring ‘all disputes arising out of or relating to the agreement’ to be referred to arbitration under AAA rules.” Under the AAA’s rule, noted the Court, the arbitration tribunal is “authorize … to rule on its own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” “Accordingly,” said the Court, “the issue as to whether the expiration of the employment term affects the enforceability of the arbitration provision is one of arbitrability, which is for the arbitrators to determine.” However, the Court held that “ hile the motion court properly recognized the effect of the broad arbitration provision and granted the motion to compel on that basis, the court should not have addressed the merits” – i.e. , whether the expiration of the employment term affected the enforceability of the arbitration provision. The Court found that the “complaint assert at least some claims that plainly within the scope of the employment agreement and would be subject to arbitration if the arbitrators determine that the arbitration obligation was not entirely extinguished by the expiration of the employment term.” Accordingly, the Court held that the motion “court properly stayed th action in its entirety pending the determination by the arbitrators on the arbitrability issues.” Takeaway Badme underscores that arbitration agreements can survive the termination of a contract, unless expressly negated. One reason is because courts treat an arbitration clause as a separate agreement from the substantive contract. As such, the enforceability of the arbitration agreement does not automatically end when the terms of the contract expire. Badme also reinforces the principle that where parties clearly and unambiguously delegate questions of arbitrability to an arbitral form, such as the American Arbitration Association, arbitrators—not the courts—decide whether the arbitration obligation continues post-termination. As shown in Badme , broad arbitration provisions, coupled with AAA rules granting arbitrators authority over jurisdictional issues, reinforce this principle. Additionally, as in Badme , survival clauses in contracts strongly indicate the parties’ intent for arbitration obligations to continue beyond termination. ________________________________ 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 examined the issue of who decides arbitrability in numerous articles, including: Who Decides Whether A Binding Agreement to Arbitrate Exists? First Department Tackles This Threshold Question ; Who Decides “Gateway” Issues of Arbitrability? The Second Department Weighs In ; Who Decides Arbitrability? It Depends on The Agreement ; Gatekeepers of Arbitrability: Fraud, Mistake, and the Absence of Consideration ;  The Arbitrator, Not The Court, Decides Questions of Contract Validity ; and Who Decides Arbitrability? It Depends on The Agreement – Revisited. To find additional articles related to the arbitration, visit the “ Blog ” tile on our  website  and enter the search term “arbitration” or any other related search term in the “search” box. See Anima Group, LLC v. Emerald Expositions, LLC, 191 A.D.3d 572 (1st Dept. 2021). Flintlock Const. Services, LLC v. Weiss , 122 A.D.3d 51, 54 (1st Dept. 2014). O’Neill v. Krebs Communications Corp. , 16 A.D.3d 144, 144 (1st Dept. 2005) (citing Matter of Weinrott (Carp.) , 32 N.Y.2d 190 (1973)). Primex Int’l Corp. v. Wal-Mart Stores, Inc. , 89 N.Y.2d 594, 601-02 (1997). Slip Op. at *1. Id. (citing Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s , 66 A.D.3d 495, 496 (1st Dept. 2009),  aff’d , 14 N.Y.3d 850 (2010),  cert denied , 562 US 962 (2010)). Id.  (citing Life Receivables , 66 A.D.3d at 496;  Schindler v. Cellco P’ship , 200 A.D.3d 505, 506 (1st Dept. 2021);  Remco Maintenance, LLC v. CC Mgt. & Consulting, Inc. , 85 A.D.3d 477, 480 (1st Dept. 2011)). Id. (citing L&R Exploration Venture v. Grynberg , 22 A.D.3d 221, 222 (1st Dept. 2005),  lv. denied , 6 N.Y.3d 749 (2005);  Fairfield Towers Condominium. Assn. v. Fishman , 1 A.D.3d 252 (1st Dept. 2003)). Id. Id. (citing County Glass & Metal Installers, Inc. v. Pavarini McGovern, LLC , 65 A.D.3d 940, 940-941 (1st Dept. 2009)).

By: Jeffrey M. Haber In New York, foreign business entities – e.g. , corporations, limited liability companies, and partnerships authorized to do business in another jurisdiction or country – are required to register to do business with the Secretary of State. The failure to receive such authority deprives the foreign entity of the ability to affirmatively access the courts of New York and subjects any action commenced by the foreign entity to dismissal. The purpose of the registration requirement is to regulate foreign companies that are conducting business within New York State so that they are not doing business under more advantageous terms than “those allowed a corporation of this State.” When applying BCL § 1312(a), the subject of today’s article, the relevant inquiry is whether the foreign entity is “doing business” in the State. The test of doing business in New York for the purpose of BCL § 1312(a) “is not the same as that for jurisdictional purposes.” “Both raise constitutional questions, but the latter involves the due process clause while the former involves the interstate commerce clause.” In construing statutes which license foreign corporations to do business within New York State, the courts try to avoid any interference by the State with interstate commerce. Whether a company is “doing business” in New York “depends upon the particular facts of each case with inquiry into the type of business activities being conducted.” Moreover, “whether was doing business in New York” is determined by looking “at the time the action was commenced.” Notably, “not all business activity engaged in by a foreign corporation constitutes doing business in New York.” A foreign corporation is permitted to transact “some kinds of business within the state without procuring a certificate” authorizing it to conduct business in New York. In order for a foreign corporation to be doing business in New York within the context of BCL § 1312, “the intrastate activity of the foreign corporation be permanent, continuous, and regular.” The entity’s activities cannot be “merely casual or occasional.…” New York courts consider a number of factors, both quantitative and qualitative, when considering the entity’s activity in the State. Among the factors the courts consider are: (a) whether the entity maintains a physical presence or has employees located within the State; (b) the frequency and regularity of activities within the State; and (c) the volume and nature of the activities within the State. Merely entering into a single contract, engaging in an isolated piece of business, or engaging in an occasional undertaking will not suffice to invoke application of BCL § 1312. Similarly, “the solicitation of business and facilitation of the sale and delivery of merchandise incidental to business in interstate and/or international commerce is typically not the type of activity that constitutes doing business in the state within the contemplation of section 1312 (a).” However, regularly and continuously entering the State to solicit, complete and manage sales to customers in New York may constitute doing business in the State. The party seeking dismissal under BCL § 1312(a) must show that the business activities within the State were so systematic and regular as to manifest continuity of activity. Absent sufficient evidence to establish that a plaintiff is doing business in the State, “the presumption is that the plaintiff is doing business in its State of incorporation … and not in New York.” Finally, if the foreign business entity is found to have been continuously and regularly conducting business in the State, the courts often refrain from dismissing the action. Instead, the courts conditionally grant the dismissal motion and provide the plaintiff with a reasonable time period to cure its deficiency under BCL § 1320. In Forethought Life Ins. Co. v. 1442, LLC , 2025 N.Y. Slip Op. 07285 (2d Dept. Dec. 24, 2025), the Appellate Division, Second Department considered the foregoing principles in affirming the denial of a motion to dismiss on BCL § 1312(a) grounds. Forethought Life was commenced by Forethought Life Insurance Company on September 12, 2022, an Indiana corporation, to foreclose upon a mortgage Extension and Modification Agreement and associated loan documents executed by defendant Rochel Miriam Kassirer, as the sole member of 1442 LLC, on February 5, 2020. On May 22, 2023, defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(3), arguing that plaintiff lacked legal capacity to sue. Plaintiff opposed the motion on several grounds, most notably that plaintiff was authorized to do business in New York pursuant to Section 590(1)(e) of the Banking Law. Plaintiff argued that it was registered with DFS and that such registration authorized it to service mortgage loans in the State of New York. The motion court denied the motion. The motion court found that plaintiff was “registered with DFS as an ‘exempt mortgage loan servicer.’” That filing, said the motion court, “allow Plaintiff to service loans within the state.” Accordingly, concluded the motion court, plaintiff “appear authorized to do business in New York.” Defendants appealed.   The Appellate Division, Second Department, unanimously affirmed, focusing on the requirement that the intrastate activity of the foreign corporation be permanent, continuous, and regular, rather than whether registration with the DFS sufficed to satisfy the BCL. The Court found that “ he defendants failed to establish, prima facie, that the plaintiff ‘conducted continuous activities in New York essential to its corporate business.’” “Therefore,” held the Court, “the presumption that the plaintiff does business not in New York but in its State of incorporation has not been overcome.” Takeaway Under BCL § 1312(a), a foreign corporation must register to do business in New York if its activities in the state are permanent, continuous, and regular. If it fails to register, it lacks capacity to sue in New York courts. However, the burden is on the defendant to prove that the plaintiff’s business activities in New York are so systematic and regular as to constitute “doing business” under the statute. Occasional or incidental activities, or activities related to interstate commerce, do not meet this threshold. If the defendant cannot show continuous and essential intrastate activity, the presumption remains that the plaintiff conducts business in its state of incorporation, not New York. In Forethought Life , the Court held that defendants failed to overcome this presumption. Registration with the DFS as an exempt mortgage loan servicer, by itself, did not demonstrate continuous business activity in New York. Therefore, plaintiff retained capacity to sue. _________________________________ 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. See , e.g. , BCL § 1312(a). This Blog examined BCL § 1312(a) in numerous articles, including: Foreign Corporation Not Engaged in Continuous and Systemic Business in New York Not Barred Under BCL § 1312(a) From Bringing Action , Failure to Demonstrate that Foreign Company Had Engaged in Systemic and Regular Activity in New York Results in Denial of Dismissal Motion Under BCL § 1312(a) , Fraud and The Alleged Failure to Register Under BCL § 1312(a) , and Dismissal of Complaint With Prejudice Due To Violation of BCL § 1312 Modified To Allow Unregistered Foreign Corporation To Register With The State . The legal discussion that appears in this article is reprinted from the foregoing articles. See United Envtl. Techniques, Inc. v. State Dept. of Health , 88 N.Y.2d 824, 825 (1996). Von Arx, A.G. v. Breitenstein , 52 A.D.2d 1049, 1050 (4th Dept. 1976); see also Central Care Solutions, LLC v. Grand Great Neck, LLC , 219 AD3d 1482, 1485 (2d Dept. 2023); National Lighting Co. v. Bridge Metal Indus., LLC , 601 F. Supp. 2d 556, 566 (S.D.N.Y. 2009) (additional citation omitted). Great White Whale Adver., Inc. v. First Festival Prods. , 81 A.D.2d 704, 706 (3d Dept. 1981). Id. Id. (citations omitted). Id. Remsen Partners, Ltd. v. Southern Mgmt. Corp. , No. 01 Civ. 4427, 2004 WL 2210254, at *3 (S.D.N.Y. 2004) (citation and internal quotation marks omitted) (alteration in original). Netherlands Shipmortgage Corp. v. Madias , 717 F.2d 731, 735-36 (2d Cir. 1983). Globaltex Group, Ltd. v. Trends Sportswear, Ltd. , No. 09-CV-235, 2009 WL 1270002, at *3 (E.D.N.Y. May 6, 2009) (quoting Int’l Fuel & Iron v. Donner Steel , 242 N.Y. 224, 229 (1926)). Manney v. Intergroove Tontrager Vertriebs GMBH , No. 10 Civ. 4493, 2011 WL 6026507, at *8 (E.D.N.Y. Nov. 30, 2011) (quoting Netherlands Shipmortgage , 717 F.2d at 736) (alteration in original)). United Arab Shipping Co. (S.A.G.) v. Al-Hashim , 176 A.D.2d 569, 570 (1st Dept. 1991); see also Maro Leather Co. v Aerolineas Argentinas , 161 Misc. 2d 920, 923 (Sup. Ct., App. Term 1st Dept. 1994); Schwarz Supply Source v. Redi Bag USA, LLC , 64 A.D.3d 696, 696-97 (2d Dept. 2009). Netherlands Shipmortgage , 717 F.2d at 738. Uribe v. Merchants Bank of New York , 266 A.D.2d 21, 21 (1st Dept. 1999). G.P. Exports v. Tribeca Design , 147 A.D.3d 655, 656 (1st Dept. 2017). United Arab Shipping , 176 A.D.2d at 570. Netherlands Shipmortgage , 717 F.2d at 738; Von Arx , 52 A.D.2d at 1049; Airline Exch., Inc. v. Bag , 266 A.D.2d 414, 415 (2d Dept. 1999); 8430985 Canada Inc. v. United Realty Advisors LP , 148 A.D.3d 428 (1st Dept. 2017). Digital Ctr., S.L. v. Apple Indus., Inc. , 94 A.D.3d 571, 572 (1st Dept. 2012) (citation omitted). Highfill, Inc. v. Bruce & Iris, Inc. , 50 A.D.3d 742, 744 (2d Dept. 2008). JPMorgan Chase Bank, N.A. v. Didato , 185 A.D.3d 801, 802-803 (2d Dept. 2020); Maro Leather , 161 Misc. 2d at 923. Cadle Co. v. Hoffman , 237 A.D.2d 555 (2d Dept. 1997); JPMorgan Chase , 185 A.D.3d at 803; Airline Exch. , 266 A.D.2d at 415. Tri-Term. Corp. v. CITC Indus., Inc. , 78 A.D.2d 609 (1st Dept. 1980). E.g. , Showcase Limousine, Inc. v. Carey , 269 A.D.2d 133, 134 (1st Dept. 2000), mod in part , 273 A.D.2d 20 (1st Dept. 2000); Uribe , 266 A.D.2d at 22 (noting that the failure of the plaintiff to register with the State may be cured prior to the resolution of the action); Credit Suisse Int’l v. URBI, Desarrollos Urbanos, S.A.B. de C.V. , 41 Misc. 3d 601, 604 (Sup. Ct., N.Y. County 2013) (ordering plaintiff to comply with BCL § 1312 within 60 days or face dismissal of its complaint). Section 590(2)(b)(1) of the Banking Law prohibits corporations (and others) from engaging in the business of servicing mortgage loans unless they have first registered with DFS or, if an organization is an “exempt organization,” as defined in Section 590(1)(e) of the Banking Law. Plaintiff maintained that it was an exempt organization under the Banking Law. Slip Op. at *1 (citing JPMorgan Chase , 185 A.D.3d at 803 (alteration and internal quotation marks omitted)). Id. (citing id. ; Construction Specialties v. Hartford Ins. Co. , 97 A.D.2d 808, 808 (2d Dept. 1983)).

By: Jonathan H. Freiberger In today’s BLOG article, we again discuss 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 alsoCounsel Financial II LLC v. Bortnick, 214 A.D.3d 1388, 1390 (4 th Dep’t 2023). As provided for in the statute, the procedural device is available when the suit is upon “an instrument for the payment of money only….” Kitchen Winners NY, Inc. v. Triptow, 226 A.D.3d 989, 990-91 (2 nd Dep’t 2024) (citations and internal quotation marks omitted). “Under the stringent requirement that the action be based upon an instrument for the payment of money only, 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.” Counsel Financial II LLC v. Bortnick, 214 A.D.3d 1388, 1390 (4 th Dep’t 2023) (citations and internal quotation marks omitted). Conversely, an instrument does not qualify if outside proof is needed, other than “simple proof of nonpayment or a mere de minimis deviation from the face of the document.” Kitchen Winners, 226 A.D.3d at 991 (citations, internal quotation marks and brackets omitted). For example, a guaranty generally qualifies for treatment under CPLR 3213 as an instrument for the payment of money only. See, e.g., Pearl River Campus, LLC v. ReadyScrip, LLC, 240 A.D.3d 610, 611 (2 nd Dep’t 2025); Museum Building Holdings, LLC v. Schreiber, 236 A.D.3d 526, 527 (1 st Dep’t 2025). In Pearl River, which involved a guaranty of a lease agreement, the Court found that CPRL 3213 relief was unavailable because “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.” Pearl River. 240 A.D.3d at 611-12 (citation and internal quotation marks omitted). The Pearl River Court noted that “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.” Id. at 612. Against this backdrop, we discuss NGS Med. Mgt. LLC v. Kornitzer , a case decided on December 3, 2025, by the Supreme Court of the State of New York, Kings County. The defendants in NGS are members of an entity that owns medical imaging practices (the “Imaging Business”). The defendants’ Imaging Business purchased an existing imaging practice owned by the plaintiff (the “Subject Business”). The Subject Business consisted of two interrelated parts: (1) an imaging office; and (2) a management services company. The sale was reflected in an asset purchase agreement. The sale transaction also involved entering into a lease agreement for the space from which the Subject Business operated. The landlord was an entity owned by one of the principals of the plaintiff. Part of the purchase price for the Subject Business was paid by a promissory note by which the defendants promised to pay the plaintiff $500,000.00. Upon the defendants’ alleged default, the plaintiff commenced an action to enforce the note by moving for summary judgment in lieu of complaint. In opposition to the motion, the defendants argued, inter alia , that the note and asset purchase agreement were “inextricably intertwined” and that the note was delivered as part of the consideration for the purchase of the Subject Business, which, due to alleged fraud, left the Subject Business without value. The court denied the plaintiff’s motion and converted the matter to a plenary action. While the court found that the plaintiff met its prima facie burden “by demonstrating the existence of the note, executed and delivered by the defendants, containing an unequivocal and unconditional obligation to repay, and the failure by defendants to pay in accordance with the terms of the note (citations omitted), the defendants “raised issues of fact as to whether they had valid defenses to the note, including failure of consideration” (citations omitted). The court stated that while “generally the breach of a related contract cannot defeat a motion for summary judgment on an instrument for money only, that rule does not apply where the contract and instrument are intertwined.” (Citation and internal quotation marks omitted.) As explained by the court, “where the note and the contract are inextricably intertwined as part of the same transaction, a breach of the related contract may create a defense to payment on the note.” (Citation and internal quotation marks omitted.) Thus, the court found that: Here, the note was executed and delivered contemporaneously with the and represented partial consideration for the integrated business purchased by defendants. The specifically referred to the note, and a copy of the note was attached thereto. Further and significantly, the note did not include any waiver of the right to an offset for counterclaims. Thus, defendants' defense on the was sufficiently intertwined with plaintiff's action to recover on the note. In addition, the court found that the defendants stated a valid defense of fraud in the inducement, which, if proved, could result in an inability to enforce the note. 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 of articles addressing summary judgment in lieu of complaint pursuant to CPLR 3213. To find such articles, please see the BLOG tile on our website and type “CPLR 3213” into the “search” box. Some of the background facts discussed herein was obtained from the underlying court records available on the NYSCEF system.

By: Jeffrey M. Haber In Minihane v. Brown , 2026 N.Y. Slip Op. 01505 (2d Dept. Mar. 18, 2026), the Appellate Division, Second Department, addressed when the statute of limitations begins to run on a demand promissory note. The defendant borrowed $19,000 pursuant to a note that provided repayment was due only upon written demand, which could be made no earlier than January 1, 2015. Although the lender did not make a demand until September 2023, the borrower argued that the six‑year statute of limitations for breach of contract began running on the earliest permissible demand date, which had long since expired. The motion court rejected that argument, and the Second Department affirmed. The Court held that, under the plain terms of the note, repayment was conditioned on a demand, and the lender had no enforceable right to payment until such demand was made. Accordingly, the breach of contract cause of action accrued, and the statute of limitations began to run, only upon the actual demand for payment. Defendant borrowed $19,000 from his wife’s mother (plaintiff) on August 21, 2014, and executed a promissory note agreeing to pay back the money upon written request “no sooner than January 1, 20215” (“Promissory Note”). The Promissory Note did not include the payment of interest. On September 11, 2023, Plaintiff requested that the money be paid back. Defendant did not respond to plaintiff’s demand. On November 1, 2023, plaintiff filed a motion for summary judgment in lieu of complaint for repayment of the loan. On December 22, 2023, defendant opposed plaintiff’s motion and cross-moved, pursuant to CPLR 3211(a)(5), to dismiss the action in its entirety because the action was commenced after the expiration of the applicable statute of limitations. Defendant argued: (1) the face of the Promissory Note set January 1, 2015, as the date plaintiff could first demand payment; (2) as a demand note, the time to commence an action to enforce the Promissory Note began to run on January 1, 2015; (3) accounting for the “COVID toll,” resulting from the pandemic, [1] the six-year statute of limitations expired on August 17, 2021; and (4) plaintiff’s action was filed two years after the expiration of the statute of limitations. On March 4, 2024, the motion court granted plaintiff’s motion and denied defendant’s cross-motion. The motion court held that the statute of limitations began to run upon demand. The judgment was signed on March 14, 2024, and entered on March 26, 2024.  A party may move for judgment dismissing one or more causes of action asserted against it on the ground that the cause of action may not be maintained because of the applicable statute of limitations. [2]  “To dismiss a cause of action pursuant to CPLR 3211(a)(5) on the ground that it is barred by the Statute of Limitations, a defendant bears the initial burden of establishing prima facie that the time in which to sue has expired.” [3]  If a defendant satisfies its initial burden of establishing that the time in which to commence the action has expired, the burden then shifts to the plaintiff to raise a question of fact as to whether the statute of limitations was tolled or whether the plaintiff commenced the action before the expiration of the statute of limitations. [4]   A cause of action to recover on a promissory note has a six-year statute of limitations. [5]  “As a general principle, the statute of limitations begins to run when a cause of action accrues, that is, ‘when all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain relief in court.’” [6]  Generally, “where ‘the claim is for payment of a sum of money allegedly owed pursuant to a contract, the cause of action accrues when the [party making the claim] possesses a legal right to demand payment.’” [7]  However, “‘when the right to final payment is subject to a condition, the obligation to pay arises and the cause of action accrues, only when the condition has been fulfilled.’” [8]  “A cause of action to recover on a note which is payable in full at one time accrues at the time it becomes due.” [9] The Second Department affirmed. The Court held that “under the specific terms of the promissory note at issue, repayment was not due until the plaintiff requested repayment, and the plaintiff was not entitled to obtain relief in court until she made such a request.” [10]  Thus, concluded the Court, “the statute of limitations did not begin to run until September 11, 2023, and this action was timely.” [11]   Takeaway A demand promissory note is a written agreement in which a borrower acknowledges a debt and promises to repay a specified sum of money, but only upon the lender’s affirmative demand for payment. Unlike a traditional promissory note that contains a fixed maturity date or a schedule of installment payments, a demand promissory note leaves the timing of repayment entirely within the lender’s control. The borrower’s obligation to pay does not arise automatically with the passage of time; rather, it is triggered only when the lender makes a clear demand, often in writing, in accordance with the terms of the note. Until that demand is made, the lender generally has no right to sue for nonpayment. This structure is commonly used in informal lending arrangements, such as loans between family members or closely held businesses, where flexibility is desired. From a legal standpoint, demand promissory notes carry important statute of limitations implications because, in many jurisdictions, such as New York, the limitations period begins to run only when a demand for payment is actually made. In Minihane , the Court rejected the defendant’s argument that the statute of limitations began to run on the earliest date the plaintiff could have demanded repayment under the Promissory Note. Instead, the Court focused on the plain language of the Promissory Note, which made repayment due only upon written request. Because no demand was made until September 11, 2023, the plaintiff had no enforceable right to payment, and therefore no accrued cause of action, before that date. As a result, the six‑year statute of limitations applicable to promissory notes did not begin to run until the demand was made, rendering the action timely. The decision also underscores the burden-shifting framework applicable to statute of limitations defenses under CPLR 3211(a)(5). While a defendant bears the initial burden of establishing that the time to sue has expired, that burden cannot be met where no earlier demand was made. In such circumstances, the defendant cannot rely on hypothetical or permissible demand dates to establish accrual. From a practical standpoint, Minihane  highlights the importance of the drafting and analysis of promissory notes. For lenders, demand notes can preserve enforceability for extended periods, as delay in making a demand postpones accrual of the claim. For borrowers, the absence of a demand may mean that a statute of limitations defense is unavailable, even many years after execution of the note. For litigators, Minihane  serves as a reminder that an accrual analysis must be grounded in the language of the contract at issue. ___________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions and not on matters handled by the firm. [1] The “COVID toll” refers to a series of executive orders issued by then‑Governor Andrew Cuomo in response to the COVID‑19 pandemic that temporarily stopped the running of statutes of limitations and other litigation deadlines statewide. This tolling was extended multiple times through successive executive orders and ultimately remained in effect from March 20, 2020 through November 3, 2020, a total of 228 days. New York courts have uniformly held that these orders created a toll, not a suspension. A toll stops the clock entirely, excluding the toll period from the statute of limitations calculation, rather than merely granting a grace period for claims that would have expired during the emergency. As a result, all civil causes of action governed by a limitation period, regardless of when they accrued, were extended by 228 days, unless the statute of limitations expired before March 20, 2020. [2] CPLR 3211(a)(5). [3] Savarese v. Shatz , 273 A.D.2d 219, 220 (2d Dept. 2000). [4] Elia v. Perla , 150 A.D.3d 962 (2d Dept. 2017). [5] See  CPLR 213(2);  Carpenito v. Linksman , 197 A.D.3d 553, 554 (2d Dept. 2021). [6] Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co. , 18 N.Y.3d 765, 770 (2012) (citation omitted), quoting  Aetna Life & Cas. Co. v. Nelson , 67 N.Y.2d 169, 175 (1986). [7] Id. , quoting  Minskoff Grant Realty & Mgt. Corp. v. 211 Mgr. Corp. , 71 A.D.3d 843, 845 (2d Dept. 2010). It should be noted that under General Obligations Law § 17-101, a party can revive a claim for non-payment notwithstanding the statute of limitations. Under this section, “[a]n acknowledgment or promise contained in a writing signed by the party to be charged thereby is the only competent evidence of a new or continuing contract whereby to take an action out of the operation of the provisions of limitations of time for commencing actions under the civil practice law and rules other than an action for the recovery of real property. This section does not alter the effect of a payment of principal or interest.” A “writing, in order to constitute an acknowledgment, must recognize [the] existing debt and must contain nothing inconsistent with an intention on the part of the debtor to pay it.” Lew Morris Demolition Co. v. Board of Educ. of City of N.Y. , 40 N.Y.2d 516, 521 (1976);  see also Pugni v. Giannini , 163 A.D.3d 1018, 1019-1020 (2d Dept. 2018).  [8] Id. , quoting  John J. Kassner & Co. v. City of New York , 46 N.Y.2d 544, 550 (1979). [9] Morrison v. Zaglool , 88 A.D.3d 856, 858 (2d Dept. 2011). “However, with respect to a note payable in installments, … , there are separate causes of action for each installment accrued, and the statute of limitations begins to run on the date each installment becomes due and is defaulted upon, unless the debt is accelerated.” Sce v. Ach , 56 AD3d 457, 458 (2d Dept. 2008) (citations omitted). [10] Slip Op. at *1. [11] Id. , citing Hahn Automotive , 18 N.Y.3d at 770-772; Morrison , 88 A.D.3d at 858.

By Jonathan H. Freiberger On March 17, 2026, the Appellate Division, First Department, decided HSBC  Bank USA, N.A. v. Nicholas , a mortgage foreclosure action that addresses many of the issues raised in our prior BLOG articles. HSBC  involves the Foreclosure Abuse Prevention Act  (“FAPA”), and the statute of limitations in foreclosure actions. By way of brief background, FAPA went into effect in December of 2022, and “represents the Legislature’s response to litigation strategies and certain legal principles that distorted the operation of the statute of limitations in foreclosure actions.” Genovese v. Nationstar Mortgage LLC , 223 A.D.3d 37, 41 (1 st  Dep’t 2023) (citation omitted). Thus, inter alia , FAPA’s provisions were designed to prevent lenders from circumventing statute of limitations problems in residential mortgage foreclosure actions by the simple expedient of accelerating and deaccelerating loans to restart the running of statutes of limitations. FAPA applies retroactively. See, e.g ., Van Dyke v. U.S. Bank, N.A . , 2025 WL 3272341 (Court of Appeals 2025). Further, a mortgage foreclosure action is governed by a six-year statute of limitations. CPLR 213(4) ; see also  Anglestone Real Estate Venture Partners Corp. v. Bank of New York Melon , 221 A.D.3d 943, 946 (2nd Dep’t 2023). When mortgage payments are payable in installments, the six-year period runs from each missed payment, but, upon acceleration, the statute of limitations begins to run anew on the entire accelerated debt. Anglestone, 221 A.D.3d at 946; see also Mills v. Deutsche Bank Nat. Trust , 235 A.D.3d 740 (2nd Dep’t 2025). Acceleration can be accomplished by making a demand for payment of the full amount due under the subject loan due to a default or by the commencement of a foreclosure action in which the lender demands payment of all sums due under the mortgage. Caprotti v. Deutsche Bank National Trust Co. , 220 A.D.3d 1126, 1127 (3rd Dep’t 2023); GMAT Legal Title Trust 2014-1 v. Kator , 213 A.D.3d 915, 916 (2nd Dep’t 2023). HSBC BANK HSBC commenced a mortgage foreclosure action in 2008, which accelerated the loan (the “First Foreclosure Action”). The First Foreclosure Action was discontinued, without prejudice, pursuant to a stipulation by which the parties agreed that any claims one party had against the other would be tolled until June 1, 2013 (the “Stipulation”). A subsequent foreclosure action was commenced in 2018 (the “Second Foreclosure Action”). In response to HSBC’s motion for summary judgment in the Second Foreclosure Action, the borrower cross-moved to dismiss arguing that the Second Foreclosure Action was time-barred under FAPA. The motion court denied HSBC’s motion and granted the borrower’s cross-motion. The motion court found that FAPA was applicable and the voluntary discontinuance did not deaccelerate the loan and reset the applicable limitations period. For technical reasons beyond the scope of this article, the motion court also found the Stipulation was invalid and did not toll the statute of limitation. HSBC appealed. The First Department reversed; holding that Stipulation tolled the statute of limitations, notwithstanding FAPA. The Court reiterated that FAPA’s application was retroactive. Nonetheless, the Court found that the Stipulation was compliant with, and enforceable under, CPLR 2104  and operated to toll the applicable limitations period. The Court also found that the Stipulation, which was signed by counsel, did not have to be signed by the parties themselves pursuant to GOL § 17-105(1)  because “GOL § 17-105(5)(b) provides that ‘[t]his section does not change the requirements or the effect with respect to the accrual of a cause of action, nor the time limited for commencement of an action based upon . . . a stipulation made in an action or proceeding.’” Therefore, the Stipulation did not have to comply with GOL § 17-105(1). The Court also found that CPLR 3217 , which was also amended by FAPA, did not impact its decision. In so doing, the Court stated: CPLR 3217, also amended by FAPA, now provides, in relevant part, that “the voluntary discontinuance” of a mortgage foreclosure action “on . . . stipulation . . . shall not, in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action . . . unless expressly prescribed by statute” (CPLR 3217[e]). However, the Senate Sponsor’s Memorandum in Support clarifies that FAPA does not prevent parties from agreeing to extend the limitations period for a foreclosure action; rather, it identifies General Obligations Law § 17-105 as “the exclusive means” to do so (see Senate Sponsor’s Mem in Support of 2022 NY Senate Bill S5473D). The Sponsor’s Memo repeatedly warned of lenders’ “unilateral” acts, including lenders’ “unilateral ability to toll or extend the time prescribed by law to commence an action”; their ability to “unilaterally manipulate” the limitation period; and their ability to effect a “unilateral ‘de-acceleration’” (id.). And it explained that a “bare stipulation of discontinuance or a lender’s unilateral decision to revoke its demand for full payment is not a method prescribed by the Legislature for waiving, extending, or modifying the statute of limitations” (id.). This language suggests that the Legislature did not intend to abrogate the ability of parties to extend the statute of limitations by explicit agreement, even if the stipulation also voluntarily discontinued the action. After reiterating why FAPA does not violate a lender’s substantive and procedural due process rights and that the retroactive application of FAPA does not constitute a regulatory taking, the Court held that: Simply put, despite FAPA’s retroactive application, the parties’ 2011 stipulation in which they expressly agreed to toll the limitations period to June 1, 2013 effectively tolled the limitations period to that date. Plaintiff’s commencement of this action on February 16, 2018, less than six years later, was thus timely.  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 Jonathan H. Freiberger Last Week in our BLOG article: “ Just When You Thought It Could Not Get More Unanimous, The Court of Appeals Determines that FAPA’s Retroactive Application Does Not Violate the Due Process or Contract Clauses of the United States Constitution or the Right to Substantive and Procedural Due Process Under the New York Constitution – Part 1 ,” we discussed FAPA and the New York Court of Appeals’ decision in Van Dyke v. U.S. Bank, N. A. , in which the Court determined that retroactive application of FAPA passes constitutional muster under the Constitution of the United States. We also promised a sequel – and here it is. Today we will discuss Van Dyke’s  sister case, Article 13 LLC v. Ponce De Leon Fed. Bank . ARTICLE 13 LLC Certified Questions Article 13 LLC  arrived at the door of the New York Court of Appeals from the United States Court of Appeals for the Second Circuit ( Art. 13 LLC v. Ponce De Leon Fed. Bank,  132 F.4th 586, 594 (2d Cir.2025 ) ) on the following two certified question: “1. Whether, or to what extent does, Section 7 of the Foreclosure Abuse Prevention Act, codified at N.Y. C.P.L.R. § 213(4)(b) , apply to foreclosure actions commenced before the statute's enactment.” “2. Whether FAPA's retroactive application violates the right to substantive and procedural due process under the New York Constitution, N.Y. Const., art. I, § 6 . ” (Hyperlink added.) Underlying Facts Borrower purchased a property in Brooklyn, New York, that was subject to a first mortgage. At or around the time of the purchase, borrower borrowed additional funds and delivered a second mortgage to the lender. The first and second mortgages were consolidated into a single consolidated mortgage on the property (the “Senior Mortgage”). The same day that the consolidated loan transaction occurred, the borrower borrowed additional funds from the consolidated loan lender, who took a second mortgage on the property (the “Junior Mortgage”). Thereafter, the Senior Mortgage was sold. Central Mortgage Company (“CMC”) was the servicer until July of 2008. In 2007, the borrower defaulted on the consolidated loan and, later that year, CMC commenced a foreclosure action (the “First Foreclosure Action”) in its own name against the borrower, in which it identified itself as the holder of the consolidated loan. Ten years later, in 2017, CMC’s motion to discontinue the First Foreclosure Action was granted.  In 2020, Article 13 LLC acquired the Junior Mortgage and brought a quiet title action pursuant to RPAPL 1501(4) in the United States District Court for the Eastern District of New York in which it sought to cancel and discharge the Senior Mortgage as time barred. Both parties moved for summary judgment. The lender, among other things, argued that CMC’s acceleration of the Senior Mortgage was invalid. Both motions were denied by the district court, which held, in part, that: there was a disputed issue of material fact regarding whether CMC had standing to bring the [First] Foreclosure Action as a "holder" of the Consolidated Note. Article 13 LLC v. Ponce de Leon Fed. Bank , No. 20-CV-3553 (HG), 2022 WL 17977493, at 7, 9 (E.D.N.Y. Dec. 28, 2022). That genuine dispute related to material facts because, if CMC lacked standing, the [First] Foreclosure Action was invalid to accelerate the debt, and the statute of limitations on the Senior Mortgage did not begin to run with CMC's initiation of the Foreclosure Action. (Hyperlink added.) FAPA was enacted two days after the district court’s decision. Section 7 of FAPA, which is codified at CPLR 231(4)(b), provides: In any action seeking cancellation and discharge of record of an instrument described under subdivision four of section fifteen hundred one of the real property actions and proceedings law, a defendant shall be estopped from asserting that the period allowed by the applicable statute of limitation for the commencement of an action upon the instrument has not expired because the instrument was not validly accelerated prior to, or by way of commencement of a prior action, unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated. Section 10 of FAPA provides that the law "shall apply to all actions commenced on [a mortgage] in which a final judgment of foreclosure and sale has not been enforced.” After FAPA’s enactment, Article 13 LLC moved for reconsideration “arguing that FAPA was an intervening change in controlling law” and, therefore, Section 7 of FAPA applied and operated to estop the lender from challenging the validity of CMC’s acceleration. The district court agreed and held that FAPA’s retroactive application “estopped [the Senior Mortgage Lender] from bringing a defense against the quiet title action based on the invalidity of a prior acceleration of the mortgage debt.” Accordingly, summary judgment was granted to Article 13 LLC.  The Senior Mortgage lender appealed to the Second Circuit. The Second Circuit articulated the issues related to New York law raised by the Senior Mortgage lender as “(1) whether FAPA applies retroactively as a matter of statutory construction, and (2) whether its retroactive application would violate substantive and procedural due process rights guaranteed by the N.Y. Constitution. After reviewing the issues, the Second Circuit certified the referenced questions to the Court of Appeals. Legal Analysis The Court of Appeals’ analysis tracks that which was discussed in last week’s BLOG. Retroactivity The Court of Appeals found that the “plain language” of FAPA Sections 7 and 10 supports retroactivity. Accordingly, it framed the “real issue” as being one of timing: “ how does FAPA apply to pending or future foreclosure actions when a previous foreclosure action was dismissed for some reason other than ‘an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated?’” Although legislation is presumed to apply prospectively, retroactive application, according to the Court of Appeals , is appropriate where “(1) the legislature has made a specific pronouncement with respect to retroactive effect or conveyed a sense of urgency, (2) the statute was designed to rewrite an unintended judicial interpretation and (3) the statute reaffirms a legislative judgment about what the law in question should be.” (Citation and internal quotation marks omitted). Simply stated, the Court of Appeals found all three factors applicable and, therefore: even if a prior foreclosure action was commenced by another party not in possession of the underlying note, and that action was discontinued without an express determination by the court that the instrument was not validly accelerated, the six-year statute of limitations accrued on the date that action was commenced and continued to run from that date, tollable only as provided for under FAPA. Violation of New York State Constitution Substantive Due Process Having found retroactivity appropriate “in some circumstances,” the Court of Appeals moved on to the question of whether the retroactive application of FAPA violates both procedural and substantive due process rights afforded by the New York State Constitution. The Court of Appeals found that it did not. Substantive due process is implicated when vested rights are “taken away or impaired.” (Citation omitted.) The Court of Appeals’ discussion focused on the lender’s lack of diligence being the true issue and, when observed in that light, “FAPA Section 7 does not deprive the noteholder of the ability to protect its property interest.” The Court of Appeals also noted that even if a protectable interest was impaired by FAPA, “the legislature may impair legally cognizable interests without running afoul of substantive due process” if “a rational legislative purpose” exists. (Citations and internal quotation marks omitted.) Based on prior abuses of borrowers by financial institutions, the Court of Appeals found that the FAPA legislation was rationally based. Procedural Due Process The Court of Appeals a lso found that the lender’s procedural due process rights were not impacted. The lender argued that “that because FAPA Section 7 modified the event that triggers the limitations period, our Court must therefore provide a reasonable time in which to file foreclosure actions that would be timely but for FAPA's application.” (Citation, internal quotation marks and brackets omitted.) The Court of Appeals rejected the lender’s argument finding that “FAPA did not alter the six-year statute of limitations whatsoever; the successive holders of the note and mortgage have had the full six-year limitations period in which to discontinue an improperly commenced foreclosure action and commence a new one lacking the prior infirmity.” 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: Jonathan H. Freiberger As readers of this BLOG know, we frequently write about issues relating to mortgage foreclosure. [1]  We have also written numerous articles relating to the recently enacted FAPA . See, e.g.,  [ here ], [ here ], [ here ], [ here ] and [ here ]. Today’s BLOG article relates to Wilmington Trust, N.A. v. Farkas , and Bayview Loan Servicing, LLC v. Dalal , cases decided by the Appellate Division, First Department, on November 21, 2024, and November 19, 2024, respectively. [2] FARKAS The lender in Farkas  commenced a foreclosure action in 2008 in which, by the complaint, it elected to accelerate the loan. [3]  The 2008 action was voluntarily dismissed in 2013. A new action was commenced to foreclose the same mortgage in 2022. The Court found that the voluntary discontinuance of the 2008 action did not operate to deaccelerate the loan because FAPA “provides that the voluntary discontinuance of such an action “shall not, in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action.” The Court also found that a 2014 “de-acceleration letter” did not operate to de-accelerate the loan because of FAPA’s addition of CPLR 203(h) , prevents a party from “unilaterally” resetting the statute of limitations. [4] The Court also found that the lender’s argument that FAPA should not be applied retroactively, is contrary to its decision in Genovese  and the Third Department’s recent decision in U.S. Bank N.A. v Lynch  (a case this BLOG addressed [ here ]). According to the plain language of FAPA, it “applies to pending suits ‘in which a final judgment of foreclosure and sale has not been enforced’” and was enacted, inter alia , to curtail ability of lenders “to manipulate the limitations period [which practice] was ‘to the clear detriment of New York homeowners,’ and [because] ‘[n]o other civil plaintiff in this state is extended such unilateral and unfettered powers’ to restart the limitation period.” ( Quoting  the Senate Mem in Support of 2022 NY Senate Bill S5473D.) Accordingly: retroactive application of FAPA is supported by a legitimate legislative purpose furthered by rational means. These facts, together with the Legislature’s statement that FAPA was remedial and meant to clarify existing law, warrant FAPA’s application to pending actions. [Citation and internal quotation marks omitted.] Similarly, the Court also found that retroactive application of FAPA is consistent with due process as the legislation was “remedial” in nature and furthered a “rational legislative purpose” that “allow FAPA to “meet the test of due process.” (Citation and internal quotation marks omitted.) The Court also rejected the lender’s separation of powers argument and its argument that FAPA’s application “would violate the Contracts Clause of the Federal Constitution.” DALAL [5] In 2009, the lender commenced an action to foreclose a mortgage and, in the complaint, elected to accelerate the loan balance. In 2014, the lender sent the borrower a “de-acceleration” letter. In 2015, the motion court granted the lender’s motion to discontinue the 2009 action. A new action to foreclose the same mortgage was commenced in 2016. The motion court denied the borrower’s motion for summary judgment dismissing the complaint on statute of limitations grounds because the “de-acceleration” letter raised factual questions as to whether the loan was de-accelerated. The borrower renewed its motion for summary judgment after the passage of FAPA arguing that the new CPLR 203(h) warranted the granting of the motion. The Court agreed and, in so doing, rejected the lender’s argument that CPLR 203(h) does not apply retroactively and that, even if it does, the statute violates due process, the contract clause of the New York and United States Constitutions, and the United States Constitution’s Takings Clause.”. For reasons like those stated in Farkas , Genovese  and Lynch , the Court held that FAPA was to be applied retroactively. The Court held that CPLR 203(h) did not violate due process due to its remedial nature in curtailing “abusive and unlawful litigation tactics” of lenders. (Citation and internal quotation marks omitted.) Thus, retroactive application of CPLR 203(h) serves a legitimate legislative purpose furthered by rational means.” (Citation and internal quotation marks omitted.) As to the lender’s “contract rights” arguments, the Court stated: In addition, although plaintiff asserts that it has a contractual or property right to de-accelerate a loan, plaintiff has not identified a contract provision giving it this right. Accordingly, retroactive application of CPLR 203(h) does not significantly affect contractual or property rights so as to raise heightened concerns. Plaintiff also points to no contract provision in its loan documents that CPLR 203(h) purportedly impairs such that the statute violates the contracts clauses of the New York and United States Constitutions. [Citation and internal quotation marks omitted.] Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1]  Eds. Note: this BLOG has written numerous articles addressing all aspects of residential mortgage foreclosure. To find BLOG articles related to mortgage foreclosure, visit the “ Blog ” tile on our website  and enter “foreclosure” (or any related topic of interest) in the “search” box. [2]  Eds. Note: On December 19, 2023, the Appellate Division, First Department, in Genovese v. Nationstar Mortgage LLC , 223 A.D.3d 37 (2023), held that FAPA is to be applied retroactively. However, the First Department could not consider the lender’s “constitutional challenges to the retroactive application of FAPA under the Contract and Due Process Clauses of the Federal Constitution because defendant did not notify the Attorney General of those challenges ( see  CPLR 1012 [b]).” Genovese , 223 A.D.3d at 45. This Blog wrote about Genovese [ here ]. [3]  Eds. Note: this BLOG has written numerous articles addressing all aspects of loan acceleration. To find BLOG articles related to loan acceleration, visit the “ Blog ” tile on our website  and enter “accelerate” (or any related topic of interest) in the “search” box. [4]  Even without FAPA, the Court indicated that the 2022 action would have been time barred because the purported de-acceleration occurred after the statute of limitations expired and, accordingly, such “expiration would have foreclosed plaintiff from revoking acceleration of the loan.” ( Citing   Fed. Nat. Mort. Ass’n v. Rosenberg , 180 A.D.3d 401, 402 (1 st  Dep’t 2020).) [5]  The facts of Dalal  as recited herein are simplified for editorial purposes.