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Many cases involving an alleged fraud typically rise and fall on the reliance element of the cause of action. Sometimes, the issue before the court is the state of mind of the alleged fraudster. While at other times, the issue concerns whether the defendant made a misrepresentation of material fact. In today’s Fraud Notes, we examine Cohen Bros. Realty Corp. v. Mapes , 2020 N.Y. Slip Op. 01440 (1st Dept. Mar. 3, 2020) ( here ), a case involving the state of mind element of a fraud claim, and Goldberg v. Torim , 2020 N.Y. Slip Op. 01561 (1st Dept. Mar. 5, 2020) ( here ), a case involving the falsity element of a fraud cause of action. A Refresher on Fraud To state a cause of action for fraud, a plaintiff must allege “a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.” Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559 (2009); Braddock v. Braddock , 60 A.D.3d 86 (1st Dept.), appeal withdrawn , 12 N.Y.3d 780 (1st Dept. 2009). The allegations must be stated with particularity to satisfy CPLR 3016(b). Eurycleia , 12 N.Y.3d at 559. Thus, the plaintiff must provide sufficient facts to support a “reasonable inference” that the allegations of fraud are true. Id . at 559-60. Conclusory allegations will not suffice. Id . Neither will allegations based on information and belief. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). Although, CPLR 3016 (b) provides that “the circumstances constituting the shall be stated in detail,” the New York Court of Appeals has “cautioned that section 3016 (b) should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” Pludeman v. Northern Leasing, Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (internal quotation marks and citations omitted). Thus, where the facts “are peculiarly within the knowledge of the party charged with the fraud,” and “it would work a potentially unnecessary injustice to dismiss a case at an early stage where any pleading deficiency might be cured later in the proceedings,” dismissal should be denied. Id . at 491-92 (internal quotation marks and citations omitted). See also CPC Intl. v. McKesson Corp. , 70 N.Y.2d 268, 285-286 (1987). Finally, though a fraud must be pleaded with particularity, where the state of mind of the defendant is concerned, a plaintiff may plead it generally, “particularly at the prediscovery stage,” because the “plaintiff lacks access to the very discovery materials which would illuminate a defendant’s state of mind.” Oster v. Kirschner , 77 A.D.3d 51, 55-56 (1st Dept. 2010). As the Oster court observed, “ articipants in a fraud do not affirmatively declare to the world that they are engaged in the perpetration of a fraud”; rather, “intent to commit fraud is to be divined from surrounding circumstances.” Id. at 55-56 (citing Eurycleia , supra ). Cohen Brothers Realty Corp. v. Mapes Cohen Brothers was brought by eleven limited liability companies, two limited partnerships and one corporation, Cohen Brothers Realty Corp. (“Cohen Brothers”), as their managing agent, to recover damages resulting from, inter alia , the alleged fraudulent activities by the corporation’s former Vice President/Director of Construction, Ryan John Mapes (“Mapes”), and unnamed construction contractors/sub-contractors. In particular, plaintiffs alleged that defendants falsely created and used fraudulent, forged and bogus invoices, purchase orders and/or construction contract forms to falsify liabilities and/or inflate the prices that plaintiffs were charged for work performed – or even charged for work that was never performed. Cohen Brothers provided management services to plaintiffs including, but not limited to, overseeing construction activities, using independent contractors and sub-contractors, of interior tenant spaces and common areas of the buildings under their management. On most occasions, these construction services were outsourced to certain contractors and sub-contractors (collectively, the “Contractors”), who were required to be selected using a sealed bid process. Plaintiffs retained Italco Data & Electric Inc. also known as, Italco Data & Electric Co. (“Italco”), R & A Painting, Ltd. (“R & A”), and D & K General Contractor Corp., City Maintenance Corp., and Millennium Star Electric, Inc. (collectively “D & K”) as Contractors and/or as subcontractors for renovations in plaintiffs’ buildings. At some point in 2016, Cohen Brothers’ chief operating officer, Steven M. Cherniak (“Cherniak”), noticed that Mapes had bypassed plaintiffs’ established bid practices in awarding contracts to R & A, D & K, and Italco. In July 2017, Cherniak decided to investigate. Cherniak found a copy of a purchase order issued to R & A in the amount of $5,000. The signature of Charles S. Cohen (“Cohen”), Cohen Brothers’ president and CEO, was taped over the purchase order’s signature block. Behind the doctored purchase order, Cherniak found eight photocopies of a legitimate purchase order issued to R & A in the amount of $13,500, which Cherniak determined was the original for the copied signature block. Thereafter, Cherniak located numerous purchase orders issued to D & K, Millennium, R & A, and Italco to which Cohen’s bogus signature had been affixed. Plaintiffs asserted eight causes of action. The first four were asserted against Mapes, sounding in breach of his employment contract, breach of the duty of good faith and fair dealing, breach of fiduciary duty, and breach of the duty of loyalty. The fifth to eighth causes of action were asserted against all defendants. Relevant to the appeal and this article, plaintiffs alleged in the fifth cause of action that defendants committed fraud by generating false, forged, or inflated purchase orders. Plaintiffs claimed that defendants misrepresented the work that plaintiffs actually needed, the work that defendants actually performed, and how much such work would cost. It was alleged that the Contractors shared with Mapes the monies that plaintiffs paid them. Plaintiffs alleged that they reasonably relied on the purchase orders so generated because of the trust they vested in Mapes as their director of construction. In its answer, Italco asserted four counterclaims, sounding in breach of contract, account stated, unjust enrichment, and quantum meruit, alleging, in sum, that Italco had performed valid work for plaintiffs, had issued invoices to which plaintiffs never objected, and had not been fully paid. R & A served an answer, generally denying plaintiffs’ allegations and asserting numerous affirmative defenses, including accord and satisfaction and lack of particularity. Italco moved to dismiss the complaint for lack of particularity. Italco also moved for summary judgment on its counterclaims, including account stated. R & A moved to dismiss the complaint for failure to state a claim and lack of specificity. On July 20, 2018, the motion court (Lebovits, J.) granted R & A’s motion to dismiss the complaint as against it. On September 26, 2018, the motion court granted Italco’s motion as against all plaintiffs except Cohen Brothers. The First Department unanimously reversed the decision and order dismissing the claims against R &A, and unanimously reversed the decision and order entered in favor of Italco on the causes of action for fraud and unjust enrichment. The Court held that, at the pre-discovery phase of the proceedings, plaintiffs had alleged circumstantial evidence of the alleged fraud. Slip Op. at *3. In particular, the Court found that “plaintiffs sufficiently pleaded fraud causes of action with the information available to them in a pre-discovery posture.” Id. (citing Houbigant, Inc. v Deloitte & Touche , 303 A.D.2d 92, 98-100 (1st Dept. 2003). “They alleged,” among other things, that defendants “create and present for payment to plaintiffs of false, forged or inflated purchase orders; that defendants ‘knew that the work described on the bogus purchase orders or invoices and other contract forms was either falsely stated, overcharged or not provided.…’” Id. Such allegations sufficed, concluded the Court, especially since plaintiffs could “amplify their pleadings” after discovery, at which time “defendants renew their motions.” Id. “But at this stage,” said the Court, “plaintiffs should be allowed to probe defendants’ knowledge of the alleged fraudulent scheme.” Id. Goldberg v. Torim here).=">here)."> Goldberg arose from a purported real estate transaction between plaintiff, David Goldberg (“Goldberg”), and defendant, Shloime Torim (“Torim”). In February 2017, Torim allegedly called Goldberg about a property the latter should buy for $500,000 to resell at a later date. According to Goldberg, Torim assured him that he would be able to flip the property for a ten percent return within a year. Goldberg alleged that Torim called him in early August 2017 and told him that the property sold for $700,000 and that he was going to send Goldberg a check. Goldberg complained that he only received a check for $525,000 instead of the full $700,000. Goldberg insisted that Torim send him the remaining $175,000 from the sale of the property. Goldberg sued Torim for breach of fiduciary duty, conversion and fraud. Torim moved to dismiss the complaint. Relevant to the appeal and this article, the motion court dismissed the fraud claim. The motion court dismissed the fraud cause of action because Goldberg failed to allege a material misrepresentation of fact. The motion court found that “the complaint contends that defendant did what he said he would do. Defendant took plaintiff’s money to buy the property, sold the property and sent plaintiff a portion of the proceeds.” The motion court explained that “ his is not a case where plaintiff was lured into sending defendant $500,000 and then the money disappeared.” Instead, plaintiff received $525,000 from the sale – a profit of $25,000 within 6 months. “The complaint simply does not establish a fraudulent scheme to steal plaintiff’s money,” concluded the motion court. Rather, “ t suggests a disagreement about how much of the proceeds plaintiff is owed.” In fact, the complaint alleges that defendant suggested that plaintiff might make a return of ten percent in a year; plaintiff did not say that defendant guaranteed the return. Simply put, defendant predicted the property would make plaintiff some money and that induced plaintiff to invest. That prediction (which was not a representation of a fact) turned out to be true – plaintiff made five percent in six months. This Court is unable to find that there was any misrepresentations or justifiable reliance by plaintiff based on his complaint. The First Department affirmed. Like the motion court, the First Department found that Goldberg alleged, “essentially, that defendant did precisely what he represented he would do, specifically that he would be purchasing real estate that would turn a 10% profit to plaintiff within a year.” Slip Op. at *1. The Court noted that the “complaint devoid of any allegation that defendant represented how much, in addition to the 10%, if any, defendant agreed to remit to plaintiff after the sale.” Id.  “As such,” concluded the Court, “plaintiff has alleged no material misrepresentation, justifiable reliance or damages.” Id. (citing Connaughton v. Chipotle Mexican Grill, Inc. , 29 N.Y.3d 137, 142-143 (2017); Eurycleia Partners , 12 N.Y.3d at 559). Takeaway Cohen Bros. serves as an important reminder that demonstrating actual knowledge is not necessary to satisfy the scienter element of a fraud claim. It can be done circumstantially. As the Oster court observed, no one admits that they knowingly perpetrated a fraud. For this reason, the courts look at the surrounding circumstances to divine a defendant’s intent to deceive. Goldberg also serves as a reminder that to withstand dismissal, a plaintiff pleading fraud must allege falsity. Though such a lesson should not require reinforcement, cases like Goldberg show otherwise. After all, without falsity, there can be no cause of action for fraud.

In a prior post ( here ), this Blog discussed Barrett v. Grenda , 2017 NY Slip Op. 07031 (4th Dept. Oct. 6, 2017), a case in which the court dismissed a breach of contract claim because the plaintiff failed to identify the provision of an agreement alleged to have been breached. In NFA Group v. Lotus Research, Inc. , 2020 N.Y. Slip Op. 01356 (2d Dept. Feb. 26, 2020) ( here ), the Appellate Division, Second Department affirmed the dismissal of a breach of contract action for the same reason: “the complaint failed to specify the provisions of the parties’ agreement that were allegedly breached.” Slip Op. at *1. It is axiomatic that a plaintiff alleging a breach of contract must identify “the provisions of the contract upon which the claim is based.” Copeland v. Weyerhaeuser Co. , 124 A.D.2d 998 (4th Dept. 1986), lv. dismissed , 69 N.Y.2d 944 (1987); see also Marino v. Vunk , 39 A.D.3d 339, 340 (1st Dept. 2007); Valley Cadillac Corp. v. Dick , 238 A.D.2d 894 (4th Dept. 1997); Matter of Sud v. Sud , 211 A.D.2d 423, 424 (1st Dept. 1995). He/she must “set forth the terms of the agreement upon which liability is predicated, either by express reference or by attaching a copy of the contract.” Chrysler Capital Corp. v. Hilltop Egg Farms , 129 A.D.2d 927, 928 (3d Dept. 1987). The failure to comply with the foregoing principles will result in dismissal. NFA Group involved a license agreement pursuant to which the plaintiff, NFA Group, a/k/a Buyrrm (“NFA”), agreed to grant licenses to the defendant, Lotus Research, Inc. (“Lotus”), subject to a fee, for the use of plaintiff’s technology. Plaintiff alleged that defendant did not fulfill the agreement and breached the contract. In particular, NFA alleged that “ laintiff and defendant(s) entered into an agreement for work, labor, services, goods, and lease”; “Plaintiff duly performed all conditions on its part to be performed”; and “Defendant(s) has not performed leaving a balance due in the agreement in the specific sum $164,997.00”. Defendant moved to dismiss the complaint. The motion court granted the motion. The motion court held that the allegations in the complaint were vague and speculative and insufficient to support a claim for breach of contract. The reason, said the motion court, the complaint failed to allege “a specific provision of the contract was breached.” Slip Op. at **2-3, quoting Gianelli v. RE/MAX of New York , 144 A.D.3d 861 (2d Dept. 2016). The court explained that “although the contract between the parties consists of over twenty pages,” NFA failed to “point[ ] to any specific provision of the contract that was allegedly breached.” Id . at *3 (citing Four Cees Jewely Inc. v. 1537 Realty LLC , 11 Misc. 3d 1056(A) (Sup. Ct., N.Y. County 2005). Such a failure was fatal to plaintiff’s claim.  As noted, the Second Department affirmed, holding that “the complaint failed to specify the provisions of the parties’ agreement that were allegedly breached.” Slip Op at *1. Takeaway As a general matter, to allege a breach of contract, a plaintiff must plead (and prove) the following: (1) the existence of an enforceable agreement; (2) performance by plaintiff; (3) the defendant breached the agreement; and, (4) the plaintiff sustained damages as a direct result of the defendant’s breach. JP Morgan Chase v. J.H. Elec. of N.Y., Inc. , 69 A.D.3d 802, 803 (2d Dept. 2010). Material to any breach of contract claim is the provision(s) upon which the claim is based. After all, if the plaintiff cannot identify the terms of the agreement alleged to have been breached, s/he cannot prove that the defendant breached the agreement. Plaintiff in NFA Group learned this lesson the hard way.

In general, statutes of limitation govern the time in which a cause of action must be interposed after accrual.  [This BLOG has previously addressed Statute of Limitations issues < HERE =">HERE"> and < HERE =">HERE"> .]  Article 2 of the CPLR addresses statute of limitations issues in New York.  Section 201 of the CPLR provides that “ n action … must be commenced within the time specified in this article unless a different time is prescribed by law or a shorter time is prescribed by written agreement.  No court shall extend the time limited by law for the commencement of an action.” Prior to the enactment of the statutes of limitation “there was no fixed time for the bringing of an action ersonal actions were merely confined to the joint lifetimes of the parties.”  Flanagan v. Mount Eden General Hospital , 24 N.Y.2d 427, 429) (1969).  “The Statute of Limitations was enacted to afford protection to defendants against defending stale claims after a reasonable period of time had elapsed during which a person of ordinary diligence would bring an action. The statutes embody an important policy of giving repose to human affairs.”  Flanagan , 24 N.Y.2d at 429 (citation omitted).   It has been stated that “the primary purpose of Statutes of Limitation is to relieve defendants of the necessity of investigating and preparing a defense where the action is commenced against them after the expiration of the statutory period because the law presumes that by that time evidence has been lost, memories have faded and witnesses have disappeared.”  Connell v. Hayden , 83 A.D.2d 30 (2 nd Dep’t 1981).  The Connell Court further stated that: These policies are briefly reviewed in Note: Federal Rule of Civil Procedure 15(c): Relation Back of Amendments (57 Minnesota L.Rev. 83, 84–85), as follows: “First, the primary purpose of the statute is to compel the exercise of a right of action within a reasonable time so that a defendant will have a fair opportunity to prepare an adequate defense. Otherwise, the belated institution of an action might prejudice defendant’s preparation of evidence. Such prejudice would commonly result, for example, where critical evidence is lost or where the facts have been obscured by the passage of time or faulty memories. The death or removal from the jurisdiction of witnesses is a further problem. Second, the statute relieves the defendant from the otherwise endless psychological fear of litigation based upon events in the distant past. Third, it frees the judicial system from stale claims which make resolution of fact issues both difficult and arbitrary. Fourth, the courts are relieved of the additional caseload which would result if old causes of action were permitted, thus promoting efficient judicial administration. Finally, a limitations period avoids the disruptive effect of unsettled claims upon commercial intercourse. For example, creditors may more accurately determine a person’s financial status if his former outstanding debts have been extinguished by the running of the statute of limitations.” Connell , 83 A.D.2d at 40 – 41. Some of the problems that Statutes of Limitation are designed to address, however, may be ameliorated by § 17-101 of New York’s General Obligations Law , which provides that “ 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.” In New York the Statute of Limitations for actions on, inter alia , a contract, a note secured by a mortgage or a mortgage, is six years.  CPLR 213 .  If, however, a debtor, inter alia , acknowledges a debt under certain circumstances, a “stale” claim relating to such debt may be revived.  “There are two ways in which the statute of limitations may be tolled. One involves part payment of the debt and the other a signed acknowledgment.  Erdheim v. Gelfman , 303 A.D.2d 714, 714 - 15 (2 nd Dep’t 2003).  As to the former, the Erdheim Court, quoting Lew Morris Demolition Co. v. Board of Educ. , 40 N.Y.2d 516, 521 (1976), stated that tolling may occur if “payment of a portion of an admitted debt, made and accepted as such, accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder.”  Erdheim , 303 A.D.2d at 715.  As to the latter, the Erdheim Court, again quoting Lew Morris , stated that “ s to a written acknowledgment, pursuant to General Obligations Law § 17-101, the statute of limitations will be tolled by a signed written acknowledgment of an existing debt which contains nothing inconsistent with an intention on the part of the debtor to pay it.”  Erdheim , 303 A.D.2d at 715.   In order for a writing to satisfy the requirements of GOL § 17-101, it “must be signed and recognize an existing debt and must contain nothing inconsistent with an intention on the part of the debtor to pay it.”  Yadegar v. Deutsche Bank Nat. Trust Co. , 164 A.D.3d 945 (2 nd Dep’t 2018). In Erdheim , plaintiff, a lawyer, sued defendant client for legal fees.  Plaintiff missed the six-year statute of limitations to interpose a cause of action for account stated and quantum meruit (both six years).  However, plaintiff and defendant had a conversation prior to the running of the statute of limitations in which defendant acknowledged the debt.  Plaintiff urged, inter alia , that a written transcription of that conversation was a sufficient writing under GOL § 17-101 to toll the statute of limitations.  The Erdheim Court disagreed and stated: Assuming that the subject discussion included an admission of a debt by the defendant and that the transcription was signed by him within the required period, the only thing he has thereby acknowledged is that the 1991 discussion took place and that the transcript is a true representation of the tape of that discussion. The fact that in 1991 the defendant believed he might owe the plaintiff some unagreed-upon amount of money after their debts were adjusted, does not show that at the time he signed the transcript he still believed a debt existed. Erdheim , 303 A.D.2d at 715 - 16. In Yadegar , the Court found that a letter accompanying a “short sale” request was not sufficient under GOL § 17-101 because same was not an “unqualified acknowledgement of the debt sufficient to reset the statute of limitations” because “plaintiff’s letter, while arguably acknowledging the existence of the mortgage, disclaimed any intent to pay it with the plaintiff’s own funds.”  Yadegar , 164 A.D.3d at 948. In Banco Do Brasil, S.A. v. State of Antigua and Barbuda , 268 A.D.2d 75 (1 st Dep’t 2000), the plaintiff sued defendant for breach of a loan agreement more than 6 years after default.  “The IAS court denied defendants' motion to dismiss and concluded that the six-year Statute of Limitations was revived under General Obligations Law § 17–101, because the 1997 letter constituted a plain admission of indebtedness and nothing in the letter was inconsistent with a clear intent to repay the loan.  Banco Do Brasil , 268 A.D.2d at 77.  In so doing, the First Department stated: In its entirety, such letter refers to the parties' 1981 loan agreement and then "confirms" four "balances", namely, the original loan amount, accrued interest, past due interest, and, adding up the first three balances, the "total amount". Even if this recital of a repayment obligation that is current and increasing with time is something less than a new promise to pay a past due debt, it clearly conveys and is consistent with an intention to pay, which is all that need be shown in order to satisfy section 17-101 GEN. OBLIG. Banco Do Brasil , 268 A.D.2d at 77 (citations omitted). Nationstar Mortgage, LLC v. Dorsin In Nationstar Mortgage, LLC v. Dorsin , decided by the Appellate Division, Second Department, on February 26, 2020, the Court addressed General Obligations Law § 17–101.  In Dorsin , defendant borrowed money from lender and secured the obligation with a mortgage on real property.  In October of 2009, as a result of borrower’s default, lender commenced action to foreclose the mortgage (the “First Action”) at which the debt was deemed accelerated.  The acceleration commenced the running of the statute of limitations.   The First Foreclosure Action was dismissed, without prejudice, on February 25, 2015.  Lender commenced another foreclosure action on October 29, 2015 (the “Second Foreclosure Action”).   In her answer, borrower interposed a counterclaim to cancel and discharge the mortgage, of record, pursuant to RPAPL 1501(4).  [A topic previously treated by this BLOG < HERE =">HERE"> ].  Lender moved for summary judgment (which was granted) and borrower cross-moved for summary judgment dismissing the complaint as time barred and under RPAPL 1501(4) (which was denied).  The Second Department reversed. The Dorsin Court noted that the Second Action was commenced more than 6 years after the underlying debt was accelerated.  Lender, however, contended that “defendant’s execution of a Home Affordable Modification Trial Period Plan (hereinafter the Plan) after commencement of the , as well as payments made pursuant to that Plan, served to renew the running of the statute of limitations, thus making this action timely, as it was commenced less than six years after the Plan was executed and the payments made.”  The Dorsin Court reiterated that “ n order to demonstrate that the statute of limitations has been renewed by a partial payment, it must be shown that the payment was accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder.”  (Citations and internal quotation marks omitted.) In determining that lender failed to satisfy the requirements of GOL § 17–101, the Dorsin Court found: While the writing arguably acknowledged the existence of indebtedness, the defendant merely agreed to make three trial payments so as to receive a permanent modification offer. Any intention to repay the debt was conditioned on the parties reaching a permanent modification agreement, which condition did not occur. Under these circumstances, it cannot be said that the writing contained nothing inconsistent with an intention on the part of the debtor to pay the debt.  Indeed, the defendant represented in the Plan that he was unable to afford the mortgage payments. (Citations and internal quotation marks omitted.)

Forum non conveniens is a common law doctrine in which a court may dismiss an action because adjudication of the matter is more appropriate in another forum. In New York, the doctrine can be found in CPLR § 327(a). Under this section, a court may stay or dismiss an action if it finds “that in the interest of substantial justice the action should be heard in another forum.” CPLR § 327(a). The party seeking dismissal bears the burden of establishing that New York is not the proper forum for the action. In considering a forum non conveniens motion, New York courts consider a number of factors, including the burden on New York courts, the potential hardship to the defendant, the unavailability of an alternative forum, whether both parties are nonresidents, whether the transaction out of which the cause of action arose occurred primarily in a foreign jurisdiction, the location of potential witnesses and documents, and the potential applicability of foreign law. No one factor is controlling. In New York, the seminal case discussing the doctrine is Islamic Republic of Iran v. Pahlavi , 62 N.Y.2d 474 (1984), cert. denied , 469 U.S. 1108 (1985). In Pahlavi , the plaintiffs alleged that the Shah of Iran and his wife misappropriated, embezzled or converted $35 billion dollars in Iranian funds. Id. at 477. The plaintiff alleged that New York was the proper forum for the action because the funds were deposited into New York banks and there was no alternate forum to litigate the claims. The defendants moved to dismiss the complaint alleging that it raised nonjusticiable political questions, that the court lacked personal jurisdiction due to defective service of process on them and that the complaint should be dismissed on forum non conveniens grounds. Special Term granted defendants’ motion based on forum non conveniens , concluding that the parties had no connection with New York other than a claim that the Shah had deposited funds in New York banks, a claim which it found insufficient under the circumstances to justify the court in retaining jurisdiction. A divided Appellate Division, First Department, affirmed. In dissent, Justice Fein argued that jurisdiction should be assumed because no other forum was available to plaintiff. The Court of Appeals affirmed the dismissal, holding that the plaintiff failed to establish “a substantial nexus between this State and plaintiff’s cause of the action.” Id. at 483. In so holding, the Court set forth a non-exhaustive list of factors (discussed above) that the lower courts could consider when confronted with a motion to dismiss on forum non conveniens grounds. Id. at 479. In applying the factors, the Court said that the ruling should rest on justice, fairness, and convenience. Id. Notably, however, the availability of an alternative forum, though a pertinent factor, is not a precondition to dismissal. Id. at 481. The foregoing principles were at issue in Al Rushaid Parker Drilling Ltd. v. Byrne Modular Buildings L.L.C ., 2020 N.Y. Slip Op. 01277 (1st Dept. Feb. 25, 2020) ( here ), decided by the Appellate Division, First Department on February 25, 2020.  Rushaid involved an alleged bribe in connection with a construction project. Al Rushaid Parker Drilling Ltd. (“ARPD”) entered into a contract with the Saudi national oil company to carry out a construction project in Saudi Arabia. One of ARPD’s vendors for the project was the predecessor in interest of defendant Byrne Modular Buildings L.L.C. (“Byrne”), a United Arab Emirates (“UAE”) company. Plaintiffs alleged that Byrne bribed certain of ARPD’s employees to act against ARPD’s interests in connection with the project. Plaintiffs further alleged that Byrne’s bribery of the faithless employees was facilitated by defendant Pictet & Cie (“Pictet”), a Swiss private bank. Pictet allegedly opened an account for a British Virgin Islands (“BVI”) entity created by the faithless employees, and Byrne wired funds from its UAE bank account to the BVI entity’s account with Pictet in Switzerland. These funds were transmitted through a correspondent bank in New York. The appeal concerned two actions commenced by ARPD against Byrne (the “Byrne Action”) and against Pictet and nine individuals affiliated with it (the “Pictet Action”). In an earlier appeal in the Pictet Action, the New York Court of Appeals determined that the transfer of the funds constituting the bribes at issue through a New York correspondent bank subjected Pictet and its affiliated individual co-defendants to personal jurisdiction in New York for purposes of that action See Rushaid v. Pictet & Cie , 28 N.Y.3d 316 (2016). In doing so, the Court of Appeals declined to address Pictet’s alternative argument that the action should be dismissed pursuant to the forum non conveniens doctrine even if personal jurisdiction existed. The Court observed that, upon remittitur, “Supreme Court should address the matter forum non conveniens> forum non conveniens> in the first instance.” Id. at 332. In each of the subject actions, the motion court granted the motions to dismiss on forum non conveniens grounds (CPLR § 327(a)) on the condition that the defendant or defendants stipulate to accept service of process and waive any statute of limitations defense if sued in the alternative forum ( i.e. , Switzerland in the Pictet Action, and the UAE in the Byrne Action).  The First Department held that the motion court properly found: (1) none of the parties to either action is a New York citizen or resident or (if an entity) is formed under New York law or has its principal place of business in New York; (2) the alleged conduct at issue primarily occurred in the UAE, Saudi Arabia, and Switzerland, with the only New York connection being the presence of the bribery funds at a nonparty New York correspondent bank while en route from the UAE to Switzerland; (3) the bulk of the relevant documentary evidence is located in the UAE, Saudi Arabia, Switzerland and BVI, and most witnesses are located outside New York and beyond New York’s subpoena power; (4) there is a likelihood that foreign substantive law will govern; (5) there are alternative fora available (Switzerland and the UAE) with greater connection to the subject matter; and (6) in the Pictet Action, Switzerland has an interest in regulating the conduct of a bank operating within its borders. Slip Op. at *2. “In view of these considerations,” concluded the Court, “it cannot be said that Supreme Court improvidently exercised its broad discretion in granting the motions for forum non conveniens dismissal, still less that its discretion was abused.” Id. According, the Court refused “to disturb the motion court’s discretionary determination that New York is not a convenient forum in cases where the sole connection to New York was the passage of wired funds through a correspondent bank in the state.” Id. (citations omitted). Takeaway The forum non conveniens doctrine permits a court to dismiss an action when “in the interest of substantial justice the action should be heard in another forum.” CPLR § 327(a). It is based upon “justice, fairness and convenience” ( Pahlavi , 62 N.Y.2d at 479), in which the party challenging the forum bears the burden of demonstrating that the action would be better adjudicated elsewhere. It is a flexible doctrine that is based upon the facts and circumstances of each case. Only “when it plainly appears that New York is an inconvenient forum and that another is available which will best serve the ends of justice and the convenience of the parties” should a case be dismissed on forum non conveniens grounds. Silver v. Great Am. Ins. Co. , 29 N.Y.2d 356, 361 (1972). As shown in Rushaid , the defendants were able to satisfy the burden reflected in the principles discussed above.

In very general terms, fraudulent conveyance statutes are designed to protect creditors from situations where a debtor transfers its assets or property to a creditor’s detriment.  Sometimes such transfers are made with actual intent to defraud.  Other times, transfers may be deemed to be constructively fraudulent regardless of the actual intent of the debtor/transferor. In Sarfati v. Palazzolo , 2020 N.Y. Slip Op. 30432(U) (Sup. Ct., N.Y. County Feb. 7, 2020) ( here ), Justice Nancy M. Bannon of the Supreme Court, New York County, granted in part and denied in part a motion for summary judgment to set aside the transfer of real property and interests in various companies by defendant, Frank Palazzolo (“Frank”), to his wife, defendant Mary Palazzolo (“Mary”), to the detriment of plaintiff, Mark Sarfati (“Sarfati”), and future creditors. To put Sarfati in context, we examine the current law in New York – i.e. , the Debtor and Creditor Law (the “DCL”) – and New York’s recently enacted version of the Uniform Voidable Transactions Act (“NYUVTA”), which will replace the DCL on April 4, 2020. A Primer on Fraudulent Conveyance Claims Under Existing Law and the NYUVTA At present, the DCL governs fraudulent conveyances.  For example, DCL § 273 (conveyances by insolvent) provides that conveyances that render a debtor insolvent that are made without fair consideration, are fraudulent as to creditors regardless of intent;  DCL § 273-a (conveyances by defendants) provides that a conveyance made without fair consideration by a defendant in an action for money damages is fraudulent as to the plaintiff in that action, regardless of intent, if the defendant fails to satisfy a resulting judgment in the action; DCL § 274 (conveyance to defendants in a business or transaction) provides that conveyances made without fair consideration in a business or transaction for which the capital remaining after the conveyance is unreasonably small, are fraudulent as to creditors regardless of intent; DCL § 275 (conveyance by defendants to the detriment of current and future creditors) provides that conveyances and obligations incurred without fair consideration when the debtor intends or believes that he/she will incur debts beyond his/her ability to pay as they mature, are fraudulent as to both present and future creditors; and, DCL § 276 (conveyance made with intent) provides that conveyances made with actual intent to “hinder, delay, or defraud either present or future creditors, fraudulent as to both present and future creditors.” To set aside a conveyance or obligation incurred under DCL §§ 273, 273-a, 274 and 275, the plaintiff must establish that the conveyance or obligation incurred was made without “fair consideration”. Under DCL § 272, “ air consideration … is not only a matter of whether the amount given for the transferred property was a ‘fair equivalent’ or not ‘disproportionately small’ ... but whether the transaction made in good faith.” Sardis v. Frankel , 113 A.D.3d 135, 141-142 (1st Dept. 2014).  “Good faith is required of both the transferor and the transferee, and it is lacking when there is a failure to deal honestly, fairly, and openly.” Matter of CIT Group/Commercial Servs., Inc. v. 160-09 Jamaica Ave. Ltd. Partnership , 25 A.D.3d 301, 303 (1st Dept. 2006) (quoting Berner Trucking v. Brown , 281 A.D.2d 924, 925 (4th Dept. 2001)). A claim under DCL § 275 requires, in addition to the conveyance and unfair consideration elements discussed, an element of intent or belief that insolvency will result. Wall Street Assocs. v. Brodsky , 257 AD 2d 526, 529 (1st Dept. 1999) (citation omitted). DCL § 276, unlike Sections 273 and 275, concerns actual fraud, as opposed to constructive fraud, and does not require proof of unfair consideration or insolvency. Id. Because it is difficult to prove actual intent, the plaintiff may rely on “badges of fraud” to raise and inference of fraud, i.e. , circumstances so commonly associated with fraudulent transfers “that their presence gives rise to an inference of intent.” Id. (internal quotation marks and citations omitted). Among such circumstances are: a close relationship between the parties to the alleged fraudulent transaction; a questionable transfer not in the usual course of business; inadequacy of the consideration; the transferor’s knowledge of the creditor’s claim and the inability to pay it; and retention of control of the property by the transferor after the conveyance. Id. “Depending on the context, badges of fraud will vary in significance, though the presence of multiple indicia will increase the strength of the inference.” MFS/Sun Life Trust v. Van Dusen Airport Servs ., 910 F. Supp. 913, 935 (S.D.N.Y. 1995); see also Gafco, Inc. v. H.D.S. Mercantile Corp. , 47 Misc.2d 661, 664 (Sup. Ct., N.Y. County 1965) (noting, “ lthough ‘badges of fraud’ are not conclusive and are more or less strong or weak according to their nature and the number occurring in the same case, a concurrence of several badges will always make out a strong case”) (internal quotation marks and citations omitted). A conveyance made with actual intent to defraud is fraudulent regardless of whether the debtor receives fair consideration. MFS/Sun Life Trust , 910 F. Supp. at 934 (citation omitted). Effective April 4, 2020, the foregoing rules will change. here).=">here)."> Under New York’s version of the UVTA, which Governor Cuomo signed into law on December 6, 2019, the State has joined the vast majority of jurisdictions to have adopted the UVTA in whole or in part. Thus, as to transfers made and obligations incurred after the effective date ( i.e. , April 4, 2020), New York law will be more aligned with the fraudulent transfer laws of most states in the country, as well as with the federal Bankruptcy Code. The changes to the current law are many. Because the changes are too numerous to address in this post, we examine only some of the more substantive changes below. Section 278: Extinguishment of Claim for Relief The NYUVTA materially changes the statute of limitations for a creditor to bring an action. Under current law, a creditor has six years to commence a constructive fraudulent conveyance action. Under the NYUVTA, a creditor has only four years to bring a claim to avoid a constructive transfer. Similarly, the period within which to bring a claim following the discovery of actual fraud is reduced to one year from two years. These changes bring New York more in line with the majority of other states and closer to the look-back periods in the Bankruptcy Code. In addition, the statute of limitations under the NYUVTA appears to be one of repose. Under existing law, the statute of limitations for claims under the DCL is governed by the CPLR and subject to waiver (for example, with regard to affirmative defenses) and tolling. By contrast, under Section 278 of the NYUVTA, the claim for relief “is extinguished” unless the creditor brings the action within the applicable time period. Section 274(b): Insider Avoidance Claim Another material change to the law is the creation of an insider avoidance claim similar to an insider preference on an antecedent debt voidable under the Bankruptcy Code. Under Section 274(b) of the NYUVTA, “ transfer made by a debtor is voidable as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.” A claim under this section must be brought within one year of the transfer. Notably, the NYUVTA does not shift the burden of proving insolvency – the creditor must prove insolvency, as well as each element required for an insider avoidance claim, by a preponderance of the evidence. By contrast, in the bankruptcy context, the debtor’s insolvency is presumed. Section 272(b): Reasonably Equivalent Value Instead of Fair Consideration The NYUVTA replaces “fair consideration” and the “good faith” element of a constructive fraudulent conveyance claim under the DCL with “reasonably equivalent value.” See also NYUVTA § 273(a)(2) and § 274. The term “reasonably equivalent value” is found in the Bankruptcy Code. Under the Bankruptcy Code, reasonably equivalent value means “the debtor has received value that is substantially comparable to the worth of the transferred property.” United States v. Loftis , 607 F.3d 173, 177 (5th Cir. 2010) (quoting BFP v. Resolution Tr. Corp. , 511 U.S. 531, 548 (1994) (interpreting the same term in the Bankruptcy Code)); see also 28 U.S.C. § 3303(b) and § 3304(b). “Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise made otherwise than in the ordinary course of the promisor’s business to furnish support to the debtor or another person.” 28 U.S.C. § 3303(a). Intent is not a consideration under this provision. Section 273(b): Actual Fraud Like DCL § 276, NYUVTA § 273(a) provides for setting aside transfers or obligations incurred where the defendant or debtor intends to “hinder, delay, or defraud”. NYUVTA § 273(a)(1). Where “badges of fraud” were often identified by the courts under the DCL, Section 273(b) of the NYUVTA enumerates 11 non-exclusive “badges of fraud” that courts may consider in determining intent. These factors include whether the transfer was made to an insider, whether the transfer was concealed, whether the debtor was subject to suit, and whether the debtor absconded. Section 276(b): Presumption of Insolvency Unlike the DCL, the NYUVTA presumes insolvency where the debtor is generally not paying the debtor’s debts as they become due other than as a result of a bona fide dispute. NYUVTA § 271(b). The presumption imposes on the party against which the presumption is directed the burden of proving that the nonexistence of insolvency is more probable than its existence. Id. However, like the DCL, the NYUVTA considers a debtor or defendant to be insolvent where a transfer leaves the debtor or defendant with unreasonably small capital, or where the debtor or defendant intended or had reason to believe he/she was about to incur debts beyond his/her ability to pay as they become due. NYUVTA § 273(a)(2)(i) and (ii). Section 276-A: Attorney’s Fees Under existing law, a creditor can obtain attorney’s fees upon a finding of intent to defraud under Section 276-a. By contrast, under the NYUVTA, a creditor may recover reasonable attorney’s fees, without regard to intent to defraud, as an “additional amount required to satisfy the creditors’ claim.” The fees are to be fixed at trial and “without regard … to any agreement … between the creditor …, and his or her attorney with respect to the compensation of such attorney.” NYUVTA § 276-A. Section 276: Available Remedies Section 276 of the NYUVTA enumerates a non-exhaustive list of remedies available to a creditor under the statute. Among the remedies available are: avoidance of the transfer, attachment, and subject to the “applicable principles of equity and in accordance with applicable rules of civil procedure,” “injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property”, the “appointment of a receiver to take charge of the asset transferred or of other property of the transferee”, and “any other relief the circumstances may require.” Section 279: Choice of Law Whose law governs is often a hotly contested issue. Section 279(b) of the NYUVTA brings clarity to the issue. Under this section, a claim for relief is “governed by the local law of the jurisdiction in which the debtor is located when the transfer is made or the obligation is incurred.” When the debtor is a corporation, Section 279(a) provides that the governing law will be its place of business, if it only has one, or its chief executive office, if there is more than one place of business. Today’s Post: Sarfati v. Palazzolo When the NYUVTA becomes effective in April 2020, this Blog will examine the cases decided thereunder. However, we believe our readers will remain interested in our examination of cases decided under the DCL until such time as there are no longer any reported cases issued thereunder. As a result, we will continue to write about cases involving conveyances, transfers and/or obligations incurred under the DCL and examine the new cases arising under the NYUVTA. This brings us to Sarfati v. Palazzo . As noted, Sarfati involved an action under the DCL to enforce a $1,786,100.17 judgment against Frank. Sarfati obtained the judgment on February 11, 2015. On July 8, 2016, Sarfati commenced the action against both defendants under DCL §§ 273, 273-a, 274, 275, and 276. He did so following Frank’s deposition on April 7, 2016, in which he testified that in 2009 he signed an “Assignment of Notes, Loans, Collateral, and/or Ownership Interests” (the “Assignment”) to his wife. Pursuant to the Assignment, for “$10 consideration,” Frank conveyed all of his interest in two New York real properties, one in East Quogue, New York and the other in Bedford, New York (together, the “Properties”) and his ownership interest in six companies listed in the Assignment: (i) F&M Funding LLC, (ii) Ridgeview Holdings LLC, (iii) Palazzolo Plaza Corp.; (iv) Millie Holdings LLC; (v) BAB Group I, LLC and (vi) BAB Group II, LLC (together, the “Companies”).  Frank testified that, in executing the Assignment, he “made a conscious effort” to “put everything in wife’s name” so that he would not have to “worry about assets” if a judgment were entered against him. Frank also testified that he annually updates the “schedule of assets” attached to the Assignment. The schedule of assets attached to the Assignment set forth the names of the Properties and the Companies in which Frank had some interest that he subsequently conveyed to Mary; however, the Assignment did not specify the exact percentage of interests Frank conveyed to Mary when any conveyance was made, or the value of the assets conveyed. In the complaint, Sarfati asserted eight causes of action. In the first cause of action, Sarfati sought a money judgment directly against Mary in the amount of $1,786,100.17, plus statutory interest from February 11, 2015. The second cause of action sought a declaration that Frank is “the owner” of the Properties, the Companies, and a condominium located in White Plains, New York (the “Condominium”) “and that those assets subject to execution” to satisfy the judgment. The third, fourth, fifth, sixth, and seventh causes of action all sought to set aside “any transfer to Mary of Frank’s interest” in the Properties, the Companies, and the Condominium under DCL § 273 (third), DCL § 273-a (fourth), DCL § 274 (fifth), DCL § 275 (sixth), and DCL § 276 (seventh). The eighth cause of action sought an award of attorney’s fees under DCL § 276-a in an amount to be determined at a hearing. Sarfati moved for summary judgment on the complaint. The Court granted in part and denied in part the motion. We examine the Court’s decision as to the third through eighth causes of action. The Court’s Decision The held that issues of fact prevented summary judgment on the third, fourth, fifth and sixth causes of action. The Court noted that although Sarfati showed that the conveyances at issue were made without fair consideration and with bad faith – Frank testified that he transferred the assets to his wife for $10.00 in order to evade future creditors – he did not prove the other elements of DCL §§ 273, 273-a, 274 and 275. Slip Op. at **7-9. In that regard, the Court found that Sarfati did not prove that “Frank made any specific conveyance to Mary (i) while insolvent or that the conveyance complained of rendered him insolvent, (ii) while Frank was a party to a litigation with the plaintiff or after the judgment was docketed against him, (iii) while Frank engaged in or was about to engage in a business transaction for which his remaining property would constitute unreasonably small capital or (iv) at a time Frank ‘intended or believed’ he would incur debts beyond his ability to pay as they matured.” Slip Op at *9. The Court granted Sarfati’s motion for summary judgment on the seventh cause of action to set aside “any conveyance” by Frank to Mary under DCL § 276 but limited the holding to those assets conveyed in the Assignment. Id. at **9, 11. The Court found that Sarfati adduced sufficient evidence to show that Frank conveyed to Mary with actual intent to defraud future creditors ownership interests in the Properties and the Companies listed in the Assignment. The Court noted that Frank admitted under oath “that he conveyed these assets to Mary specifically so that future creditors could not enforce any judgments.” Slip Op. at **9-10. Notably, observed the Court, Mary did “not submit any affidavit in opposition to th motion, and thus fail to dispute that this was the intent of the assignment.” Id. at *10.  “Frank’s admissions under oath,” concluded the Court, were “sufficient to establish the defendants’ ‘actual intent to defraud’ creditors as to the assets conveyed in the assignment.” Id. (citation omitted). In granting summary judgment on the seventh cause of action, the Court did so only as to liability. The Court explained that the Assignment and Frank’s deposition testimony only established that Frank owned at least some percentage interest in the Properties and the Companies prior to conveying them to Mary. The assignment did not, however, “specify the value or precise percentage ownership interests Frank conveyed to Mary via the assignment that to be set aside in accordance with DCL § 276.” Id.  “As such,” held the Court, “summary judgment on the seventh cause of action is granted as to liability only, and the plaintiff may establish at trial what specific percentage interests in the assets contained in the assignment were by Frank to Mary and the value thereof.” Id. at **10-11. As to the eighth cause of action, the Court granted the motion because Sarfati “established actual intent to defraud”. Id. at *11. Under DCL § 276-a, therefore, Sarfati was “entitled to attorneys’ fees” the amount of which was to be “fixed at trial.” Matter of Setters v. AI Props. Devs. (USA) Corp. , 139 A.D.3d 492, 494 (1st Dept. 2016). Takeaway The facts in Sarfati are notable because they illustrate how a creditor can obtain relief whether under existing law or under the NYUVTA. Given the absence of particularity with regard to the assets and property subject to the Assignment, it appears likely that a court would also deny summary judgment under the NYUVTA. Similarly, given the evidence showing that Frank intended to defraud future creditors by conveying to Mary ownership interest in the Properties and the Companies listed in the Assignment, it appears likely that a court would grant summary judgment under the NYUVTA.

People text and e-mail all day and every day.  When communicating from a personal smart phone, a privately-owned personal computer or over a personal e-mail network, concerns over privacy are minimized.  However, folks do a fair share of their personal business while at work -- often utilizing their work e-mail systems, smart phones and personal computers for same.  While convenient, such practices could present problems as an employer may be permitted to have access to information transmitted over the employers email systems and/or contained on a company issued smart phone or computer, and such access may operate to waive certain privileges otherwise afforded by law. Such issues were raised in In re: Asia Global Crossing, Ltd. , 322 B.R. 247 (Bankr. S.D.N.Y. 2005).   In Asia , the “main question raised by the current motion is whether an employee’s use of the company e-mail system to communicate with his personal attorney destroys the attorney-client, work product or joint defense privileges in the e-mails where the employee and his former employer’s trustee have become adversaries.”  Asia , 322 B.R. at 251.   In describing the attorney-client privilege (under Federal law), the Asia Court stated that “a client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client, between the client and the client's lawyer (or certain representatives of the client and the lawyer).”  Asia , 322 B.R. at 255 (citations, internal quotation marks and brackets omitted).  “The privilege must be narrowly construed. It stands in derogation of the public's right to every man's evidence, and as an obstacle to the investigation of the truth.”  Asia , 322 B.R. at 255 (citations and internal quotation marks omitted).  Citing CPLR § 4548 , the Asia Court noted that “a privileged communication does not lose its privileged character for the sole reason that it was sent by e-mail or because persons necessary for the delivery or facilitation of the e-mail may have access to its content.”  Asia , 322 B.R. at 256.   The Asia Court further noted that typically “e-mail communications between agents of a corporation regarding the corporation's business are protected from disclosure to third parties outside the corporation t is reasonable in those circumstances for the sender to assume that the recipient will hold the communication in confidence.”  Asia , 322 B.R. at 256 (citation omitted).  In Asia , however, the individuals asserting privilege “used the employer's e-mail system to communicate with their personal attorney, and the communications apparently concerned actual or potential disputes with the employer, the owner of the e-mail system.”  Asia , 322 B.R. at 256. After generally discussing the right of privacy and the expectation of privacy in the workplace, the Asia Court set forth the following factors to consider when analyzing an employee's expectation of privacy in his computer files and e-mail: (1) does the corporation maintain a policy banning personal or other objectionable use, (2) does the company monitor the use of the employee's computer or e-mail, (3) do third parties have a right of access to the computer or e-mails, and (4) did the corporation notify the employee, or was the employee aware, of the use and monitoring policies? Asia , 322 B.R. at 257 (citations and footnote omitted).  The Asia Court assumed that the e-mails in question were privileged and that the employees intended them to be confidential and, therefore, “the question of privilege comes down to whether the intent to communicate in confidence was objectively reasonable.”  Asia , 322 B.R. at 258.  The Asia Court determined that the employer had access to the e-mails because they were on its server.  Asia , 322 B.R. at 259.  However, the Court held that because of a “disputed or incomplete factual record’’ the Court was prevented from deciding “as a matter of law that a waiver of any privilege occurred.”  Asia , 322 B.R. at 251.  Among other things, the Court could not determine if employer sufficiently put employees on notice that they could not use the company e-mail systems for personal use and/or that the employer was monitoring the e-mail system.  Asia , 322 B.R. at 259 - 261. On February 11, 2020, the Supreme Court of the State of New York, New York County, decided Rad v. IAC/INTERACTIVECORP , in which the court was faced with issues like those addressed by the Asia Court.  The plaintiffs in Rad were executives of Tinder.  Some of the plaintiffs and a non-party, moved for a protective order “to prevent the disclosure of their allegedly privileged and confidential communications with their personal attorneys …, which they transmitted on Tinder email systems while they were employed by Tinder.”  “Because the allegedly privileged communications reside on Defendants’ electronic communications systems, Defendants are in possession of them, and Movants move for an order clawing them back and preventing Defendants from using them in litigation.” The Rad court stated that “ n Peerenboom v. Marvel Entertainment, LLC , the Appellate Division, First Department, endorsed application of the four factors set forth in In Re Asia Global Crossing, Ltd , < supra > supra> to determine whether a party waives attorney-client privilege by sending the communications through its employer’s email system.”  The Rad court then analyzed the relevant electronic communication policies of the defendants and found that the policies “strictly limited” employees’ personal use of the email system, advised that  employees “should have no expectation of privacy” and that the employers “had the right to monitor” its employees’ use of the systems. Such admonitions were also incorporated into the employee handbook. Applying the four factors in Asia , the Rad court concluded that the movants “could not have had a reasonable expectation that their communications with their personal attorneys, sent and received on Defendants’ electronic communications systems, would be confidential.”  Thus, the court denied the motion for a protective order. TAKEAWAY Employees should be mindful of employer electronic communication policies if they intend to use employer e-mail systems for personal use.  A better practice, however, would be to avoid using such systems for personal use for communications of any sensitivity.

In today’s Fraud Notes, we look at two fraud cases involving real estate: Lash v. Schleider , 2020 N.Y. Slip Op. 30406(U) (Sup. Ct., N.Y. County Feb. 11, 2020) ( here ); and Goff v. Parker , 2020 N.Y. Slip Op. 30396(U) (Sup. Ct., Suffolk County Feb. 10, 2020) ( here ). Lash v. Schleider Lash arose from a contract between plaintiffs, Lori Lash, Robert Lash, and Goldsholle, LLC (“Goldsholle”), and the moving defendants, Jeffrey Schleider (“Schleider”) and Miron Properties, LLC (“Miron”), to list plaintiffs’ Manhattan Avenue, Brooklyn, New York (the “Property”) for sale. In or about August 2014, Schleider and Miron listed the Property for $4,995,000. Defendant, 977 Manhattan Avenue LLC (“977”), made an offer to purchase the Property for $5 million, which plaintiffs accepted. Thereafter, due to alleged deficiencies in the Property, 977 reduced its offer by approximately $1 million. In September 2014, plaintiffs contracted to sell the Property to 977 for $4.1 million upon the advice of Schleider and Miron. On the February 9, 2015 closing date, Goldsholle, defendant Manhattan Group Properties, LLC (“MGP”) and 977 executed an assignment of contract of sale, pursuant to which 977 assigned its interest in the Property to MGP. In connection with the assignment, unbeknownst to plaintiffs, MGP paid $700,000 to 977 in addition to the $4.1 million purchase price. Plaintiffs alleged that Schleider and Miron, conspiring with MGP, had falsely advised plaintiffs that $4.1 million was the best price available. Plaintiffs further alleged that the moving defendants, in return for the alleged “flip,” retained Schleider and Miron as the exclusive broker for the sale of condominiums to be developed at the Property. In 2016, Miron was acquired by defendant Citi Habitats, a division of the Corcoran Group, Inc. (“Corcoran”), which is owned and operated by defendant NRT LLC (“NRT”). On January 4, 2019, plaintiffs commenced the action against Schleider, Miron, Citi Habitats, Corcoran, NRT, MGP and B&B Global Development Corp. (“B&B”) and filed the original complaint on February 5, 2019. On March 6, 2019, MGP and B&B moved to dismiss the original complaint as against them. On April 22, 2019, plaintiffs filed an amended complaint. Pursuant to an order and stipulation by the parties, on May 8, 2019, plaintiffs filed and served a second amended complaint (the “SAC”), adding 977 as a defendant. MGP and B&B elected to apply their previously filed motion to dismiss to the SAC. In their fraud claim, plaintiffs alleged that defendants knowingly misrepresented material aspects as to the sale of the Property by inducing plaintiffs to sell the Property to 977 for $4,100,000 when Defendants intended to and did immediately “flip” the Property and/or the contract concerning the Property to MGP and/or defendant B&B for $4,800,000. Plaintiffs argued that the contract price for the Property was a “material fact” and that defendant Schleider misrepresented that $4.1 million was “the best offer possible.” The Court held that plaintiffs failed to plead facts with the requisite particularity that MGP and B&B were responsible for Schleider’s alleged false statements regarding the quality of the offer. The Court explained that “ ssertions that Schleider – who was plaintiffs’ property broker – ‘conspired’ or acted ‘on behalf of and in concert’ with MGP and B&B conclusory and entitled to zero weight.”  Slip Op. at *4. Finally, the Court rejected plaintiffs’ attempt to demonstrate scienter by the purchase of the Property after the allegedly false statements were made, stating that “MGP and B&B’s later purchase of the Property for $4.8 million insufficient to infer their knowledge of the falsity of statements made five months earlier.” Consequently, the Court dismissed the fraud cause of action as against MGP and B&B. Goff v. Parker Goff arose in connection with a proposed joint venture to develop land in which defendant agreed to pay any and all of the outstanding tax liabilities, as well as any forthcoming tax liabilities, related to the parcels of land involved in the venture. Plaintiff alleged that after defendant represented that such outstanding tax liabilities were paid, he presented to her what he represented to be promissory notes, which plaintiff needed to sign to ensure that she would repay half the money defendant paid towards the tax liabilities. Instead, the documents given to plaintiff were deed which conveyed the land to defendant. Plaintiff maintained that because she trusted defendant, she did not read the papers that defendant presented to her.  She also alleged that defendant forged her signature. Defendant moved for summary judgment to dismiss the complaint, arguing that plaintiff had full knowledge of what she was doing and signed over title to the subject parcels. The Court agreed with defendant and dismissed the fraud claim. The Court held that defendant met his burden of showing that plaintiff transferred ownership of the subject properties without the taint of fraud. Slip Op. at *4 (citation omitted). The Court explained that plaintiff admitted that she signed the deeds that conveyed her interest in the subject parcels to defendant, and as such, there were no issues as to whether the deeds were duly executed. Id . (citations omitted). The Court further explained that since plaintiff admitted that she failed to read the deeds before signing them, she could not establish justifiable reliance on any of the alleged false statements which led her to do so. Id . at *5. The Court rejected plaintiff’s argument that she failed to read the documents because she trusted the defendant, noting that such an excuse was not a valid reason for failing to read the documents before signing them. Id . (citations omitted). Finally, the Court held that even if defendant misrepresented what the documents were, she was precluded from asserting that her signature was fraudulently procured because she did not read the documents. Id . (citation omitted). Takeaway A plaintiff alleging fraud must do so with particularity. Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 558 (2009). This means that the plaintiff must provide sufficient facts to support a “reasonable inference” that the allegations of fraud are true. Id . at 559-60. Conclusory allegations will not suffice. Id . Neither will allegations based on information and belief. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). In addition, a plaintiff claiming fraud must allege facts “from which it is possible to infer defendant knowledge of the falsity of statements” when they were made. MP Cool Invs. Ltd. v. Forkosh , 142 A.D.3d 286 (1st Dept.), lv denied , 28 N.Y.3d 911(2016). In other words, the plaintiff must satisfy the scienter element of the claim. In Lash , the Court held that plaintiffs failed to satisfy the foregoing requirements. In Ambac Assur. v. Countrywide , 31 N.Y.3d 569, 579 (2018), the Court of Appeals described the justifiable reliance requirement as a “‘fundamental precept’ of a fraud cause of action.” As such, a “plaintiff must allege facts to support the claim that it justifiably relied on the alleged misrepresentations.” ACA Fin. Guar. Corp. v. Goldman, Sachs & Co. , 25 N.Y.3d 1043, 1044 (2015); see also id. at 1051 (Read, J., dissenting on other grounds) (describing the justifiable reliance requirement as “our venerable rule”). Whether a plaintiff justifiably relied on a misrepresentation or omission is “always nettlesome” because it requires a fact-intensive analysis. DDJ Mgt., LLC v. Rhone Group L.L.C. , 15 N.Y.3d 147, 155 (2010) (internal quotation marks omitted). As the Court of Appeals observed, “ o two cases are alike ….” Id. For this reason, the courts look to whether the plaintiff exercised “ordinary intelligence” in ascertaining “the truth or the real quality of the subject of the representation.” Curran, Cooney, Penney v. Young & Koomans , 183 A.D.2d 742, 743) (2d Dept. 1992). In Goff , plaintiff failed to satisfy the justifiable reliance element of a fraud claim.

Elder financial exploitation is a significant problem. Everyone reading this article may be affected in some way. Our family, friends, neighbors, colleagues, and/or customers may fall victim to financial exploitation. All of us are at risk of being financially abused and/or exploited as we grow older. Seniors are Particularly Vulnerable to Financial Abuse and Exploitation Research indicates that as seniors grow older, they become too trusting and fail to recognize false or misleading claims, suspicious intentions and evidence of risky behavior. One study of senior adults found that many exhibited risky behaviors, such as believing deceptive and misleading advertisements and buying falsely advertised products ( here ). Other researchers have found that older persons possess a “doubt deficit,” in which false and misleading claims fail to trigger doubt in the listener ( here ). Such persons are often unable to detect the intentions of others, including those with the intent to deceive. As a result, the inability to doubt “provide a compelling rationale why highly knowledgeable and intelligent older people are often susceptible to deception and fraud.” ( Id. ) As readers might expect, cognitive impairment and diminished financial capacity play a role in senior’s vulnerability to scams. Cognitive impairment can be caused by disease, such as dementia, or by the aging process. When impairment occurs because of aging, seniors lose or experience a decline in important skills, such as comprehension, problem-solving and learning. When a senior loses these skills, it can be more difficult to manage money and make financial decisions. Financial capacity, on the other hand, concerns the ability “to manage money and financial assets in ways that meet a person’s needs and which are consistent with his/her values and self-interest.” See Naomi Karp & Ryan Wilson, AARP Public Policy Institute, Protecting Older Investors: The Challenge of Diminished Capacity (2011) (internal quotation marks and citation omitted) ( here ). A decline in financial capacity can materially impair a person’s financial judgment and render him/her unable to understand the consequences of an investment decision. see="see" Stephen Deane,="Stephen Deane," “ Elder="“Elder" Financial="Financial" Exploitation,="Exploitation," Why="Why" It="It" is="is" Concern,="Concern," What="What" Regulators are="Regulators are" Doing="Doing" About="About" It,="It," and="and" Looking="Looking" Ahead ”,="Ahead”," U.S.="U.S." Securities="Securities" Exchange Commission,="Exchange Commission," Office="Office" Investor="Investor" Advocate="Advocate" (June="(June" 2018)="2018)" ( here).=">here)."> The Financial Costs of Elder Financial Abuse and Exploitation are Staggering As the incidence of financial exploitation and abuse increases, so do the costs to its victims. An oft-cited study by the MetLife Mature Market Institute, the National Committee for the Prevention of Elder Abuse, and the Center for Gerontology at Virginia Polytechnic Institute and State University, titled “Broken Trust: Elders, Family & Finances,” estimates that about one million seniors lose approximately $2.6 billion annually from financial exploitation and abuse. ( Here .) In 2011, MetLife updated its estimate to at least $2.9 billion. Other, more recent studies estimate the losses to exceed $36 billion a year, 12 times the MetLife estimate. The Many Forms of Financial Abuse and Exploitation of the Elderly The financial exploitation and abuse of seniors and vulnerable persons come in many forms. The most common involves, among others: (a) investment fraud ( e.g. , churning, unauthorized trading, unsuitable investing, over-concentrating an investor’s portfolio in a single type of investment or industry segment, and misrepresenting the risk or potential returns of an investment product for the purpose of generating high commissions), (b) insurance fraud ( e.g. , selling unneeded or too costly insurance, the unauthorized trading of life insurance policies, and annuity fraud), (c) acts of dishonestly by trusted persons ( e.g. , fraud, misappropriating assets, falsification of records, forgery, and unauthorized check-writing), (d) email scams ( e.g. , “phishing” to induce the recipient into providing passwords and other personal and financial information), and (e) lottery fraud ( e.g. , inducing the person to transfer or pay money to collect unclaimed prizes from lottery or sweepstakes organizers. In today’s post, we highlight annuity and investment fraud. Annuity Fraud An annuity is a contract between a buyer (a/k/a an annuitant) and an insurance company that requires the insurance company to make guaranteed periodic payments to the buyer once he/she reaches retirement and requests the payments. Annuities can be fixed or variable. Annuitants are typically charged fees and commissions when they purchase an annuity. One such charge is the “surrender charge”. A surrender charge is a sales charge the annuitant must pay if he/she sells or withdraws money from a variable annuity during the “surrender period” – the period after the annuity is purchased ( e.g. , typically six to eight years). As one would expect, surrender charges reduce the value of, and the return on, the investment underlying the variable annuity. Annuities can be complex. For this reason, scammers target vulnerable seniors, especially those with some type of cognitive impairment or diminished financial capacity. They do so by, among other ways, employing high-pressure sales and marketing tactics to induce the buyer to purchase an annuity – e.g. , promising a large, up-front cash bonus for purchasing the annuity; making misrepresentations or omissions about the structure, terms, fees and charges, and risks involved with buying an annuity; investing the annuity in high risk and unsuitable mutual funds, leaving the purchaser exposed to stock market losses without their knowledge or consent; and engaging in annuity switching – i.e. , recommending the switch from one annuity to another one, causing the annuitant to pay significant withdrawal fees to remove their money from the existing annuity. Annuity switching can be especially egregious when the recommendation to switch occurs immediately prior to maturity. In today’s post, we examine an SEC enforcement action against a broker and financial adviser who financially exploited his elder customers and clients into buying an allegedly “safe” investment with a “guaranteed minimum” return. Securities and Exchange Commission v. Edward E. Matthes , 2:20-cv-00125-LA (E.D. Wis. filed Jan. 28, 2020) ( here ). As discussed below, the SEC charged Edward E. Matthes (“Matthes”), a former Wisconsin-based registered representative and investment adviser, with defrauding 26 of his mostly elderly retail brokerage customers and investment advisory clients out of approximately $2.4 million by, among other ways, inducing them to sell quality annuities for a fictitious investment. Securities and Exchange Commission v. Edward E. Matthes According to the SEC complaint ( here ), between April 2013 and March 2019, Matthes allegedly misappropriated approximately $2.4 million from 26 of his customers and clients, most of whom were elderly and lacked investing experience. Many of the victims, said the SEC, had been customers and clients of Matthes for several years and trusted him to manage their money and investments. Starting in 2013, Matthes allegedly began telling certain of his brokerage customers that he had a new investment opportunity that would generate a higher return than certain variable annuity contracts he previously had sold them. Matthes purportedly described the investment opportunity as a safe “fixed investment” that would earn a guaranteed minimum annual yield of 4% and could possibly provide higher returns in the future. The SEC claimed that Matthes provided his customers with few additional details regarding the investment opportunity and did not provide them with any documentation. In reality, alleged the SEC, the fixed investment did not exist and Matthes used all of the funds he raised for his own personal use and to make Ponzi-like payments to certain customers. Relying on Matthes’ representations, said the SEC, 15 customers sold or authorized Matthes to sell, in part or whole, the securities underlying their variable annuities and received the proceeds, minus surrender fees and other charges, directly from the annuity provider. According to the SEC, several of these customers held their variable annuities in tax-advantaged retirement accounts. In addition, Matthes allegedly convinced eight of his brokerage customers to withdraw money from their personal savings accounts for investment in the fictitious fixed investment. According to the SEC, the money for these transfers came from, among other things, life insurance proceeds, inheritance proceeds, house sales, and land sales. In 2018, Matthes allegedly made false statements to three of his investment advisory clients, all of whom were also brokerage customers, in order to convince them to sell securities from their managed portfolios with a third-party investment adviser and transfer the proceeds to him for investment in the fictitious fixed investment. The SEC alleged that at the time of the transfers, the clients relied upon Matthes for investment advice. Matthes allegedly made other false statements to many of his customers and clients regarding the purported fixed investment, including telling them that: the fixed investment had “no risk” and was “guaranteed never to lose money,” was “a bright spot in the investment landscape” and would be held in a “new” or “more safe and secure account” with the broker-dealer. According to the SEC, Matthes used the majority of the approximately $2.4 million that he misappropriated, including approximately $2.17 million between October 2014 and March 2019, for personal expenses, including his credit card payments, mortgage payments, car payments, child support, luxury items and gifts, and home renovation expenses. In order to keep his scheme alive, said the SEC, Matthes used approximately $170,000 to make Ponzi-like payments to certain of his customers. In March 2019, the scheme allegedly came undone. According to the SEC, one of Matthes’ customers complained to FINRA about an account statement that appeared to be fake. After FINRA contacted the broker-dealer with whom Matthes worked, the firm conducted an internal review. Based upon its review, the firm allegedly concluded that Matthes had diverted customer and client funds to his personal bank account and created fictitious account statements for multiple customers and clients. The broker-dealer terminated Matthes’ employment on March 12, 2019. The SEC filed its complaint in the United States District Court for the Eastern District of Wisconsin. The SEC charged Matthes with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Without admitting or denying the allegations in the complaint, Matthes consented to the entry of a judgment that permanently enjoins him from violating the provisions charged in the complaint and orders him to pay disgorgement, prejudgment interest, and penalties in amounts to be determined by the court at a later date. The settlement is subject to court approval.

In New York State, money judgments are valid for 20 years.  CPLR § 211(b) .  Money judgments recorded in the county in which real property is located remain liens on that real property for only 10 years.  CPLR § 5203(a) .  The CPLR, however, permits a judgment creditor to obtain a “renewal judgment,” which would operate to extend the lien of a money judgment on real property for an additional 10-year period.  CPLR § 5014 .  Thus, CPLR § 5014 presently provides, in pertinent part: Except as permitted by section 15-102 of the general obligations law, an action upon a money judgment entered in a court of the state may only be maintained between the original parties to the judgment where: 1. ten years have elapsed since the first docketing of the judgment; * * * An action may be commenced under subdivision one of this section during the year prior to the expiration of ten years since the first docketing of the judgment. The judgment in such action shall be designated a renewal judgment and shall be so docketed by the clerk. The lien of a renewal judgment shall take effect upon the expiration of ten years from the first docketing of the original judgment.   (Emphasis supplied.) Prior to 1986 (before the italicized language above was added by the Legislature), CPLR § 5014 “was understood to preclude judgment creditors from bringing an action for a new lien until after the first 10–year period had elapsed, which necessarily created a ‘lien gap’ ( see Brookhaven Mem. Hosp. v. Hoppe , 65 Misc.2d 1000, 319 N.Y.S.2d 564 <1971> ), allowing other judgment creditors to ‘slip in with priority’ ( see Siegel, Practice Commentaries, McKinney’s Cons. Laws of N.Y., Book 7B, CPLR C5014:2).”  Gletzer v. Harris , 51 A.D.3d 196, 200 (1 st Dep’t 2008) , aff’d , 12 N.Y.3d 468 (2009) .  The “lien gap” problem was “solve ” when an amendment to CPLR § 5014 was promulgated in which the above-italicized language was added to CPLR § 5014.  Gletzer , 51 A.D.3d at 200. The plaintiff in Gletzer moved for a renewal judgment pursuant to CPLR § 5014 one day before his original lien expired and requested that, inter alia , supreme court grant the motion and issue a renewal judgment, nunc pro tunc , as of the expiration date of the original lien. Gletzer , 51 A.D.3d at 198.  Supreme court granted the renewal judgment, nunc pro tunc , several years later.  However, in the “lien gap” period – the time between the expiration of the original lien and the time that the renewal judgment was entered – two mortgage companies recorded mortgages against the property of Gletzer’s judgment debtor.  Gletzer , 51 A.D.3d at 199.  Supreme court also denied mortgagees’ motion for the vacatur of the nunc pro tunc treatment of the renewal judgment.  Gletzer , 51 A.D.3d at 199.  The appeals of Glatzer’s judgment debtor and the mortgagees were consolidated.  As to the CPLR § 5014 issues, the Appellate Division noted that the intent of the amendment to CPLR § 5014 was “to eliminate the rule of Brookhaven, < supra. > supra.> by giving judgment creditors the opportunity to take action to renew their lien early enough to avoid a lien gap.”  Gletzer , 51 A.D.3d at 201.  However, the Court noted that “there is no indication, or any reason to believe, that it intended to preclude any possibility of even a brief lien gap, under all circumstances, or to protect the judgment creditor from the priority otherwise enjoyed by an intervening recorded lien.”  Gletzer , 51 A.D.3d at 199.  Indeed, the Appellate Division, held that mortgagees were entitled to rely on the results of lien searches conducted during the lien gap period in making their lending decisions.  Gletzer , 51 A.D.3d at 205.   Thus, the Gletzer Appellate Division, inter alia , modified supreme court’s judgment “so as to deem the 1991 judgment to be renewed as of March 1, 2005, the date the renewal judgment was granted….”  Gletzer , 51 A.D.3d at 206.  The Appellate Division’s Order was affirmed by the Court of Appeals, which noted that the Appellate Division “concluded that the plain language of the statute does not eliminate all lien gaps t was meant solely to provide a diligent creditor one year to reapply for an extension of the lien to avoid a gap.”  Gletzer , 12 N.Y.3d at 472.  In so doing, the Court of Appeals specifically rejected the notion of nunc pro tunc treatment of renewal judgments that would otherwise result in a lien gap.  Gletzer , 12 N.Y.3d at 475 – 76.  The Court of Appeals stated: We thus conclude that those seeking to secure any interest in real property must be able to rely upon a public record to furnish full and complete information of any conveyances, liens or encumbrances affecting such property. They should not be penalized for failing to unearth an expired lien or not investigating the prospect that it might be subject to a pending renewal request. Additionally, nunc pro tunc treatment under these circumstances would be inimical to our State's commitment to record notice based upon the certainty of a docketing system that alerts potential purchasers and lienholders to encumbrances upon real property. Gletzer , 12 N.Y.3d at 477. The Supreme Court of the State of New York, Westchester County, in Wilmington Sav. Fund Socy., FSB v. John (February 11, 2020), addressed the issue under CPLR § 5014 of “when does the lien of the renewal judgment become effective.”  The plaintiff in Wilmington filed a motion for summary judgment in lieu of complaint in which it sought a renewal judgment, nunc pro tunc.   The Wilmington court found that the plaintiff “made a prima facie showing of its entitlement to a renewal judgment by offering evidentiary proof that it was the original judgment creditor’s assignee, and that no part of the judgment has ever been satisfied.”  (Citation omitted.) Consistent with, and relying on, Gletzer , the Wilmington court reiterated that the renewal judgment is not entitled to retroactive application.  The Wilmington court, in addressing the Gletzer Courts’ analyses of when the renewal judgment takes effect, stated: In reversing the motion court, the First Department deemed Gletzer's renewal judgment "entered as of the date the relief was granted" ( Gletzer v Harris , 51 AD3d at 206). Upon further appeal, the Court of Appeals, in answering the question as to whether a lien from a renewal judgment secured pursuant to CPLR 5014 for a second 10-year period takes effect nunc pro tunc on the expiration date of the original lien, held:  Because CPLR 5014 does not provide for a renewal judgment to have retroactive effect to the original lien's expiration date and because nunc pro tunc treatment is inappropriate where, as here, additional lenders relying on the public record acquired rights in the property, we hold that the renewal lien becomes effective when granted by Supreme Court ( Gletzer v Harris , 12 NY3d at 470).  (Emphasis in original.)   The Wilmington court recognized that at the time the decision and order on the renewal judgment motion uploaded to NYSCEF, it “has not yet been submitted by the plaintiff to the Westchester County Clerk for entry.” Further, the renewal judgment is not “accessible by the public” “until the judgment is entered and docketed (which is done simultaneously) by the Westchester County Clerk.”  Accordingly, until “the renewal judgment is entered and docketed by the County Clerk” “any potential lender searching the records in Westchester County” “would have notice only of the already expired and not renewed … judgment.” Thus, “the court that the plaintiff is entitled to a renewal judgment which lien shall be effective as of the date such renewal judgment is entered and docketed by the Westchester County Clerk

On February 6, 2020, Justice Jennifer G. Schecter of the Supreme Court, New York County issued a decision in which she ruled, among other things, that Kesha Rose Sebert (better known by her stage name as Kesha) defamed Lukasz Gottwald (“Gottwald”), the music producer known as Dr. Luke, and Kesha’s former producer, when she claimed, in a text message to Lady Gaga, that he had raped Katy Perry. Gottwald v. Sebert , 2020 N.Y. Slip Op. 30347(U) (Sup. Ct., N.Y. County Feb. 6, 2020) ( here ). The Court also ruled that Kesha had to pay nearly $374,000 in interest on royalty payments that she delayed paying to Gottwald’s company. Background In October 2014, the parties sued each other in separate jurisdictions. Kesha sued Gottwald in California (the “California Action”), alleging, among other things, sexual assault, sexual harassment, gender violence and unfair competition in violation of California law. Gottwald sued Kesha in New York County. After the California court determined that the forum selection clauses in the governing contracts mandated proceeding in New York, Kesha withdrew the California Action. Plaintiffs (Gottwald, Kasz Money, Inc. (“KMI”), and Prescription Songs, LLC (“Prescription”)) filed their first amended complaint in December 2014. In July 2015, Kesha filed counterclaims against plaintiffs and Sony Music (“Sony”), which plaintiffs and Sony moved to dismiss. In September 2015, Kesha moved for a preliminary injunction, seeking an order permitting her to make music without plaintiffs and releasing her from her agreements with them. About a month later, Kesha amended her counterclaims to include, among other causes of actions, claims that she had previously brought in the California Action. Plaintiffs and Sony moved to dismiss. In February 2016, after oral argument, the court denied Kesha’s preliminary injunction motion. By order dated April 6, 2016, the Court dismissed all but one of Kesha’s counterclaims. In January 2017, plaintiffs moved for leave to file a second amended complaint and Kesha moved for leave to file amended counterclaims. The Court granted plaintiffs’ motion without opposition. On March 20, 2017, the Court denied Kesha’s motion, holding that her proposed amended counterclaims lacked merit. The Court held that Kesha had failed to perform under the KMI Agreement – the written agreement that Kesha and KMI executed on September 26, 2005 – and that it was not legally impossible for her to perform under her contracts with plaintiffs. The Appellate Division, First Department affirmed. 161 A.D.3d 679 (1st Dept. 2018). On August 31, 2018, the Court granted plaintiffs’ motion to file a third amended complaint (“TAC”), holding that a reasonable finder of fact could conclude that “the California complaint was a sham maliciously filed solely to defame plaintiffs.” Slip Op. at *9. The First Department affirmed. 172 A.D.3d 445 (1st Dept. 2019). The TAC contained four causes of action: (1) defamation related to Kesha’s assertions that Gottwald sexually assaulted her, (2) defamation related to a statement that Kesha made to Lady Gaga that Gottwald raped Katy Perry, (3) breach of the KMI Agreement, and (4) breach of the Prescription Agreement – the agreement governing the rights of Prescription, a limited liability company controlled by Gottwald, to publish Kesha’s music. Kesha answered the TAC and asserted 39 affirmative defenses in addition to her remaining counterclaim. Following discovery, both parties moved for partial summary judgment. Today’s post examines the requirement to pay interest under CPLR § 5001 and the fraudulent inducement affirmative defense – one of the 39 affirmative defenses asserted by Kesha. The Court’s Decision Plaintiffs alleged that the KMI Agreement entitled them to unpaid royalties due within 45 days of Kesha’s receipt of certain ancillary income and unpaid tour receipts payable within 30 days of the end of the applicable tour cycle. They claimed that Kesha owed them interest on her delayed royalty payment. Kesha did not dispute that she failed to pay any royalties to plaintiffs between January 1, 2012, and December 31, 2016. On August 7, 2017 – well beyond the deadlines set forth in the parties’ contract and after the New York action had been commenced – Kesha paid plaintiffs $1,302,043.41 in royalties. Plaintiffs accepted the payment but expressly reserved “the right to seek an award of prejudgment interest on the entire amount Kesha withheld for years.” Plaintiffs sought summary judgment on the interest due for the belated payment. They claimed that Kesha owed them $373,671.88 in interest on $1,302,043.41 in royalties. Kesha did not dispute the calculation of the interest. Instead, she claimed that because there was no finding of breach, there was no predicate for an interest award. She maintained that the payments were simply a “good-faith gesture to resolve a dispute without troubling the Court.” The Court rejected Kesha’s arguments. The Court held that the tender of payment after the litigation commenced did not defeat plaintiffs’ statutory right to prejudgment interest under CPLR 5001: By making the August 2017 payments for commissions “as of 12.31.16,” Kesha conceded that she owed those amounts. In fact, even now, she does not dispute that the KMI Agreement entitles plaintiffs to those sums and that she paid late. Nor does she show that plaintiffs’ timeframes and interest calculations are incorrect or otherwise challenge them. Her arguments that the parties modified the time for payment despite the absence of any written agreement and that there was an ongoing waiver of timely payment by plaintiffs is not countenanced by the KMI Agreement, which contains no oral-modification and no-waiver  provisions. Plaintiffs have proven that they were entitled to the over $1.3 million that Kesha paid belatedly after this lawsuit was commenced and there is no legal basis for absolving her of paying statutory prejudgment interest on that amount. Slip Op. at **27-28 (citations omitted). “Because plaintiffs demonstrated that Kesha breached the KMI Agreement by not timely making payment,” concluded the Court, “prejudgment interest on the delinquency is mandatory.” In addition to the foregoing, plaintiffs moved for summary judgment on Kesha’s fraudulent inducement affirmative defense to their breach of contract claim. As explained by the Court, Kesha claimed that she was fraudulently induced to enter into the KMI Agreement based on Gottwald’s alleged promise to renegotiate the contract if her first album was successful. The Court held that the claim was “not viable because a fraud claim cannot be predicated on a promise of future performance.” Slip Op. at *30 (citing New York Univ. v. Continental Ins. Co. , 87 N.Y.2d 308, 318 (1995); Wyle Inc. v. ITT Corp. , 130 A.D.3d 438, 439 (1st Dept. 2015). Notably, observed the Court, “Kesha not claim that Gottwald misrepresented any then-present facts.” Id. (citing TIAA Global Invs., LLC v. One Astoria Sq. LLC , 127 A.D.3d 75, 87 (1st Dept. 2015). Even if the fraud claim was based upon an insincere promise to engage in future conduct, Justice Schecter found that the affirmative defense was not viable. The reason, said the Court, was Kesha’s failure to allege scienter – i.e. , the failure “‘to plead specific facts from which it may be reasonably inferred that the defendant did not intend to keep the promise when it was made.’” Slip Op. at *30 (quoting Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 72 (1st Dept. 2017). Additionally, the Court ruled that the fraudulent inducement affirmative defense could not survive because the KMI Agreement contained a merger clause. Slip Op. at *31. A merger clause is a provision in a contract that declares the writing to be the complete and final agreement between the parties. The Court also held that the anti-reliance language within the merger clause further precluded Kesha’s fraudulent inducement affirmative defense. In order for a party to disclaim reliance on extra-contractual representations, an agreement must contain language that makes it clear that the parties are not relying on such representations. The following is an example of a common anti-reliance provision: Each of the Parties acknowledges that no other party, nor any agent or attorney of any other party, has made any promise, representation, or warranty whatsoever, and acknowledges that the Party has not executed or authorized the execution of this Agreement in reliance upon any such promise, representation or warranty, that is not expressly contained herein. Courts will enforce anti-reliance language that identifies the specific information on which a party has relied and which forecloses reliance on other information. Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 320 (1959) (finding that the plaintiff purchaser of a building could not assert that it was relying on oral representations made by the seller outside of a contract in which the plaintiff had specifically agreed in writing not to rely on such representations). See also Laxer v Edelman , 75 A.D.3d 584, 585–86 (2d Dept. 2010) (holding a fraudulent inducement claim concerning flooding and mold issues in the building was barred by merger clause that disclaimed reliance on any statements by defendants regarding the condition of premises). In holding that the anti-reliance provision in the KMI Agreement sufficed to preclude the fraudulent inducement claim, Justice Schecter found that “the KMI Agreement set[] forth that no one ‘made any promise, representation or warranty whatsoever, express or implied, oral or written, not contained’ in the contract itself and that ‘all understandings and agreements’ between the parties were merged into the contract ‘which fully and completely expresse[] their agreement.’” Slip Op. at *31. Therefore, concluded the Court, Kesha “could not reasonably rely on any promise of future performance that was made before the agreement was signed but not included in the final contract.” Id. (citing Schron v. Troutman Sanders LLP , 20 N.Y.3d 430, 436 (2013); see also Matter of Primex Intl. Corp. v Wal-Mart Stores, Inc. , 89 N.Y.2d 594, 599-600 (1997); Pate v. BNY Mellon-Alcentra Mezzanine III, LP , 163 AD3d 429, 430 (1st Dept. 2018)). Takeaway Gottwald underscores the effect of a merger clause and a no additional representations clause. While the merger clause at issue seems to be too general to be enforceable ( i.e. , it did not identify the specific representations and communications being integrated into the KMI Agreement), the no additional representations clause underscored the parties’ agreement to be bound only by the terms of the KMI Agreement. The lesson of Gottwald , therefore, is that parties to an agreement should carefully negotiate and consider the language of their merger clause, and not rely on boilerplate language. In that regard, they should specify the representations and matters being merged or integrated into the agreement. If the parties intend complete integration, then they should ensure that the merger clause clearly articulates their intention. And, if they include anti-reliance language in the merger clause, such language should be specific and identify the representations and matters to be included or excluded.

Readers of this Blog know that we like to write about fraud cases. After all, a fraud can be perpetrated in so many contexts. Indeed, the circumstances upon which one can deceive another are limited only by the imagination of the wrongdoer. Sometimes, there are too many reported decisions for us to examine in the depth to which our readers have become accustomed. For this reason, we have created the “Fraud Notes” post in which we will examine multiple decisions addressing fraud claims that we think our readers will find interesting or instructive. In today’s “Fraud Notes” post, we examine two cases involving allegations of fraud and/or fraudulent inducement: Yuen v. Branigan , 2020 N.Y. Slip Op. 30280(U) (Sup. Ct., N.Y. County Jan. 28, 2020) ( here ), and Maddali v. Annamaneni , 2019 N.Y. Slip Op. 33860(U) (Sup. Ct., Bronx County Dec. 23, 2019) ( here ). Yuen v. Branigan Yuen arose out of a dispute between plaintiff William Yuen (“Yuen”) and defendants Pangea Capital Management LP (“Pangea”) and Mark Branigan (“Branigan”) over their business relationship and the compensation/remuneration allegedly due and owing from that relationship. In February 2008, Branigan founded Pangea, a hedge fund that conducted trades for outside investors. In or before July 2009, Branigan allegedly induced Yuen to join Pangea as its “Head of Trading” and falsely represented that Pangea had over $40 million in assets under management, and that it possessed a proprietary algorithm that would generate advantageous trade recommendations for its customers. Relying on these misrepresentations and in consideration of the offer to become a partner and Head of Trading, Yuen agreed to join the company, pursuant to which he would receive a compensation package that included a monthly payment of $15,000 for a minimum of three years, plus an additional sum based upon the amount of assets under management, as well as a 10% equity stake in Pangea. The parties did not sign any paperwork to memorialize their understanding. After Yuen joined Pangea, he allegedly discovered that Branigan had inflated the amount of assets under management at Pangea, and instead of $40 million, Pangea only had $4 million. Also, Yuen purportedly learned that Branigan had mischaracterized the quality and capability of the trading algorithm. In June 2010, Branigan purportedly terminated Yuen’s employment, and instructed Yuen to return all of Pangea’s equipment and files. Yuen claimed that he was “deprived of reimbursement of work-related expenses, agreed-to compensation of a minimum of $450,000 in monthly payments and an equitable stake of no less than $1,000,000.” In January 2013, Yuen commenced the action by serving a summons with notice. Following discovery, defendants moved for summary judgment to dismiss, among other claims, the fraudulent inducement cause of action. Defendants argued that summary judgment was appropriate because Yuen was not damaged by the alleged misrepresentation about the assets Pangea had under management. Defendants contended that Yuen received $15,000 per month as required under the agreements even though the assets under management were significantly less than represented. Therefore, defendants argued, pursuant to Connaughton v. Chipotle Mexican Grill Inc. , 29 N.Y.3d 137, 143 (2017), Yuen could not show any actual damages resulting from the alleged fraud.   In Connaughton , the Court of Appeals explained that damages incurred by fraud should compensate the plaintiff “for what lost because of the fraud,” not “what might have gained.” 29 N.Y.3d at 142. Under the out-of-pocket rule, “‘ he true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong.’” Lama Holding Co. v. Smith Barney , 88 N.Y.2d 413, 421 (1996) (quoting Reno v. Bull , 226 N.Y. 546, 553 (1919)). Thus, held the Court, a plaintiff alleging fraud cannot recover damages “based on the loss of a contractual bargain,” which the Court explained are “completely undeterminable and speculative.” Connaughton , 29 N.Y.3d at 142-43 (quoting Dress Shirt Sales v. Hotel Martinique Assoc. , 12 N.Y.2d 339, 344 (1963)). Yuen did not address Connaughton in his opposition to defendants’ motion. Slip Op. at *10. The Court found “Plaintiff’s contention unpersuasive in light of Connaughton .…” Id. (noting that Connaughton involved a plaintiff, who, like Yuen, claimed that he would not have taken the employment offer by the defendant had he known of certain concealed facts prior to his employment (citing Connaughton , 29 N.Y.3d at 141-142)). Accordingly, the Court granted the motion to dismiss the fraudulent inducement cause of action. Maddali v. Annamaneni Maddali involved an alleged fraudulent scheme whereby defendants falsely promised to transfer the interests in six pharmacies to plaintiffs while concealing the fact they never intended to transfer the ownership interests in those pharmacies. Beginning in 2002, plaintiffs, Venkateshwara Maddali (“VenkatM”) and Srinivas Maddali (“SrinivasM”), entered into a partnership with defendant, Ravinder Annamaneni (“RavA”), to open a number of pharmacies. SrinivasM and RavA are members of a close-knit community of Indian Americans from the same area in India. In time, plaintiff, Ravi Maddali (“RaviM”), VenkatM’s son and a New York licensed dentist and investor, invested in pharmacies established by VenkatM and RavA. In late 2013, RavA and SrinivasM for himself, and as representative of VenkatM and RaviM, discussed revising the ownership structure of the initial six pharmacies in which VenkatM and RaviM held an interest. The agreement called for RavA to assume nominal ownership of the six pharmacies and to continue to share profits with VenkatM and RaviM, and at some point RavA would transfer those interests to SrinivasM. RavA was to purchase the interests of VenkatM and RaviM in each of the six pharmacies with loans ranging from $150,000 to $400,000 per pharmacy. VenkatM and RaviM would not receive a salary or share in profits in 2013, instead they would receive the “purchase price.” Notwithstanding their agreement, starting in 2014, VenkatM, RaviM, RavA, Padmaja Annamaneni (“PadA”), his wife, and their agents, continued to split profits in the same proportion as prior to the transfer, despite the change in record ownership; the six pharmacies continued to operate as in the past with respect to salaries and bonuses paid to the owners, including to VenkatM and RaviM. In addition to obtaining control of the six pharmacies, RavA took control of the additional pharmacies in which SrinivasM held an economic interest. Plaintiffs alleged that, with intent to defraud them, RavA had sales contracts and supporting documents prepared which provided for the transfer of each of the pharmacies but did not contain the material terms of the agreement to which the parties had previously agreed. Plaintiffs claimed that neither VenkatM, nor RaviM, received copies of the sales contracts they signed or of the closing statements. Plaintiffs further alleged that in December 2013, RavA transferred VenkatM and RaviM’s ownership interests in the pharmacies to himself, as well as to PadA, and his associates, and refused to fulfill his commitment to transfer the appropriate interest in those pharmacies to SrinivasM. Defendants moved to dismiss, among other claims, the fraud and fraudulent inducement causes of action. The Court denied the motion as to those claims. To state a claim for fraud and fraudulent inducement, a plaintiff must allege “a material representation , known to be false, made with the intention of inducing reliance, upon which the victim actually relies, consequentially sustaining a detriment.” Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Wise Metals Group, LLC , 19 A.D.3d 273, 275, (1st Dept. 2005); Tsinias Enterprises Ltd. v. Taza Grocery, Inc. , 172 A.D.3d 1271, 1273 (2d Dept. 2019). Notably, “ n expression or prediction as to some future event, known by the author to be false or made despite the anticipation that the event will not occur, is deemed a statement of a material existing fact, sufficient to support a fraud action.” Channel Master Corp. v Aluminium Ltd. Sales , 4 N.Y.2d 403, 407 (1958). A plaintiff alleging fraud or fraudulent inducement must satisfy each element in order to prevail, whether it be on a motion or at trial. Menaco v. New York Univ. Med. Ctr. , 213 A.D.2d 167 (1st Dept. 1995). The failure to satisfy any one element will result in the dismissal of the action. Gregor v. Rossi , 120 A.D.3d 447 (1st Dept. 2014). In addition, the plaintiff’s allegations must be stated with particularity. Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 558 (2009). Thus, the plaintiff must provide sufficient facts to support a “reasonable inference” that the allegations of fraud are true. Id . at 559-60. Conclusory allegations will not suffice. Id . Neither will allegations based on information and belief. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). Although, CPLR § 3016(b) provides that “the circumstances constituting the shall be stated in detail,” the New York Court of Appeals has “cautioned that section 3016 (b) should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” Pludeman v. Northern Leasing, Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (internal quotation marks and citations omitted). Thus, where the facts “are peculiarly within the knowledge of the party charged with the fraud,” and “it would work a potentially unnecessary injustice to dismiss a case at an early stage where any pleading deficiency might be cured later in the proceedings,” dismissal should be denied. Id . at 491-92 (internal quotation marks and citations omitted). In denying the motion to dismiss the fraud causes of action, the Court noted that “Plaintiffs have stated both of the fraud claims by alleging, with sufficient detail, that Rav A created a fraudulent scheme to deprive VenkatM and RaviM of their ownership interests in the pharmacies by refusing to fulfill his material representation that he would transfer the shares to SrinivasM; that plaintiffs reasonably relied upon RavA’s misrepresentations; and, that they suffered damages as a result.” Slip Op. at **8-9. The issue on which the Court focused its decision involved the duplication of claims doctrine – that is, whether plaintiffs’ fraud claims duplicated their contract claim. Under the duplication of claims doctrine, New York courts will not permit fraud-based claims to survive a motion to dismiss when the claims arise from a breach of contract. Indeed, courts routinely dismiss fraud-based claims where “ he existence of a valid and enforceable written contract govern a particular subject matter” and the recovery sought arises out of the same facts and circumstances. Clark-Fitzpatrick v. Long Is. , 70 N.Y.2d 382 (1987). However, where “a legal duty independent of the contract itself has been violated<,> ” or where the misrepresentation is “collateral or extraneous to the terms of the parties’ agreement,” a fraud-based claim can stand side-by-side with “a simple breach of contract” claim.  Dormitory Auth. v. Samson Constr. Co. , 30 N.Y.3d 704 (2018) (citation omitted). See also McKernin v. Fanny Farmer Candy Shops, Inc. , 176 A.D.2d 233, 234 (2d Dept. 1991). What constitutes “a legal duty independent of a contract” is not a question easily answered.  Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 56 (1st Dept. 2017) (referring to the question as a “recurring” one). In trying to answer the question, the courts make the distinction between a misrepresentation of intention and a misrepresentation of present fact. Id . at 63. See also Demetre v. HMS Holdings Corp. , 127 A.D.3d 493, 494 (1st Dept. 2015) (common law fraud is duplicative of breach of contract where the only misrepresentation alleged concerns an “intent to perform the contractual obligations at the time they were made.”). The former will result in dismissal, while the latter will not. Gosmile, Inc. v. Levine , 81 A.D.3d 77 (1st Dept. 2010). Applying the foregoing principles, the Court found that the alleged promises to transfer the interests in the pharmacies were collateral to the sale agreements and, therefore, did not duplicate plaintiffs’ contract claim: In the First Amended Complaint plaintiffs allege that RavA induced plaintiffs to transfer their ownership interests to him by promising that he would transfer VenkatM and RaviM’s ownership interests to SrinivasM, and that he would continue to pay to plaintiffs their share of the profits in six pharmacies. In the Complaint of the consolidated action, it is alleged that, in furtherance of the fraud, defendants have refused to acknowledge SrinivasM’s interest in all of the pharmacies, and to pay the sums to which he is entitled. The court finds that the promises were collateral to the sale agreements, and the alleged misrepresentations constitute fraudulent inducement, which is a breach of duty distinct from the breach of contract claim and is not duplicative. Slip Op. at *9 (citing Deerfield Communications Corp. v. Chesebrough-Ponds, Inc. , 68 N.Y.2d 954 (1986)). Takeaway As noted above, a plaintiff alleging fraud can recover only the actual pecuniary loss sustained as a result of the misrepresentation or omission, i.e. , the plaintiff’s out-of-pocket damages. The damages recoverable under the rule are intended to compensate plaintiffs for what they lost because of the fraud, not for what they might have gained. See Lama Holding , 88 N.Y.2d at 421. Yuen reinforces the out-of-pocket damages rule, making it clear that a plaintiff cannot recover what he/she might have gained had he/she not been defrauded. As the Court of Appeals explained, such damages are “completely undeterminable and speculative.” Connaughton , 29 N.Y.3d at 142-43. The duplication of claims doctrine preserves the distinction between claims sounding in contract and those sounding in tort and protects defendants from disproportionate damages awards that a judgment in tort may impose. Maddali shows that promises related to matters outside the four corners of the contract at issue will suffice to establish an independent duty or a misrepresentation “collateral or extraneous to the terms of the parties’ agreement.” Dormitory Auth. , supra .

On numerous occasions, this Blog has addressed issues surrounding certain notice obligations imposed on mortgage lenders foreclosing on residential property.  For example, section 1303 of the Real Property Actions and Proceedings Law (“RPAPL”) requires that, under certain circumstances relating to residential property, a foreclosing mortgagee must send statutory notice to the mortgagor and tenants advising them, among other things, that they are in danger of losing their home and how to avoid foreclosure rescue scams. Similarly, RPAPL 1304 requires that at least ninety days prior to commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes (a “Home Loan”)), a lender must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that provide free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter. In “ Appellate Division Second Department Tells Foreclosing Residential Lender to “SHOW ME THE EVIDENCE ,” this Blog discussed M&T Bank v. Joseph , 152 A.D.3d 579, 58 N.Y.S.3d 150 (2017) , in which the Second Department reversed the grant of summary judgment because lender failed to strictly comply with the requirements of RPAPL 1304.  In “The Second Department Reverses Another Grant of Summary Judgment to a Foreclosing Lender on a Home Loan Due to the Insufficiency of Proof of Mailing Statutorily Required Notices to the Borrower,” this Blog discussed Bank of New York v. Zavolunov , 157 A.D.3d 754 (2 nd Dep’t 2018), where the Court again reversed summary judgment due to inadequate proof of mailing RPAPL 1304 notices. There have been countless cases dealing with various issues surrounding compliance with RPAPL 1303 and 1304 issues.  See, e.g., U.S. Bank National Association v. Sims , 162 A.D.3d 825 (2 nd Dep’t 2018) (addressing RPAPL 1303 and 1304); M&T Bank v. Biordi , 176 A.D.3d 1194 (2 nd Dep’t 2019) (finding that lender failed to prove compliance with RPAPL 1304). On January 29, 2020, the Supreme Court of the State of New York, Appellate Division, Second Department, in Charles Schwab Bank v. Winitch , decided an interesting, and slightly different, RPAPL 1304  case .  The lender in Winitch commenced a foreclosure action against husband and wife borrowers.  In response to lender’s motion for summary judgment, the borrowers cross-moved for summary judgment based on lender’s alleged non-compliance with RPAPL 1304.  Supreme court denied borrower’s cross-motion and granted lender’s motion, which resulted in the entry of a judgment of foreclosure and sale.  Borrowers appealed. The Second Department determined that lender established “prima facie, its strict compliance with RPAPL 1304” as to husband.  A bank employee with personal knowledge swore out an affidavit averring that she mailed the 90-day notice by first-class and certified mail to husband as required by statute.   However, the lender failed to meet its burden with respect to wife.  Nonetheless, the Court agreed with lender that wife was “not entitled to receive notice pursuant to RPAPL 1304 since she is not a named borrower under the Home Equity Credit Line Agreement…, which was executed by only.”  Both husband and wife were mortgagors under the related credit line mortgage because they both owned the subject property.  In making a critical distinction in the application of RPAPL 1303 and 1304, the Winitch Court stated: Unlike RPAPL 1303, RPAPL 1304 refers specifically to the "borrower"—not the "mortgagor." Here, the subject credit line mortgage, which was signed by both and , as mortgagors, contained the following provision: "If Mortgagor signs this Security Instrument but does not sign an evidence of debt, Mortgagor does so only to mortgage Mortgagor's interest in the Property to secure payment of the Secured Debt and Mortgagor does not agree to be personally liable on the Secured Debt." The Court found that wife “could not be deemed a ‘borrower’ for the purpose of RPAPL 1304” and, therefore, was not required to be served with a an RPAPL 1304 notice.  The language of the mortgage at issue in Winitch was important in the Court reaching its decision as it made clear that wife was not a borrower. The Winitch Court did state that wife was entitled to a RPAPL 1303 notice as a mortgagor, but no challenge was made by defendants to the sufficiency of that notice.  The failure to establish proper service of an RPAPL 1304 notice on wife was not being an impediment to the issuance of a judgment of foreclosure and sale and, the Court affirmed same. Bank of New York Mellon v. Forman , 176 A.D.3d 663 (2 nd Dep’t 2019), is a similar case recently decided by the Second Department in which a slightly different result was reached.  In Forman , like in Winitch , husband and wife executed a mortgage, but only husband executed the note.  Like in Winitch , Forman was defended the lender’s foreclosure action by arguing that wife was not served with the requisite RPAPL 1304 notice.  As one would expect, lender argued that since wife did not execute the promissory note, such notice was not required.  Unlike Winitch , however, the Second Department in Foreman agreed with Wife “under the circumstances of this case.”  While the Forman husband  “was the only ‘borrower’ in the note which is secured by the mortgage,” wife was referred to as a “borrower” throughout the mortgage and she was “designated as ‘Borrower’ under her signature on the signature page of the mortgage instrument.”  Forman , 176 A.D.3d at 665. Because wife was deemed a borrower, lender was obligated to serve her with proper notice under RPAPL 1304, and, in the absence thereof, the mortgage foreclosure complaint was dismissed. In response to the lenders argument that wife was not a maker on the note, the Forman Court stated: While contends that this standard mortgage form mischaracterizes the defendant as a borrower, any ambiguities in the language of the document must be construed against the plaintiff, as the plaintiff is the party who supplied the document (see generally Computer Assoc. Intl., Inc. v U.S. Balloon Mfg. Co., Inc., 10 AD3d 699, 700). Forman , 176 A.D.3d at 665.