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By Jonathan H. Freiberger This BLOG has written numerous times on issues related to statutes of limitation in mortgage foreclosure actions.  See, e.g.,  [ here ], [ here ], [ here ], [ here ], [ here ], [ here ], [ here ], [ here ] and [ here ].   As previously described in this BLOG an action to foreclose a mortgage is governed by a six-year statute of limitations.  CPLR 213(4) .  See also   Fed. Nat. Mort. Assoc. v. Schmitt , 172 A.D.3d 1324, 1325 (2 nd  Dep’t 2019).  When a mortgage is payable in installments, “separate causes of action accrue for each installment that is not paid and the statute of limitations begins to run on the date each installment becomes due.”  HSBC Bank USA, N.A. v. Gold , 171 A.D.3d 1029, 1030 (2 nd Dep’t 2019).  Most mortgages, however, provide that a mortgagee may accelerate the entire debt in the event of, inter alia , a payment or other default by a mortgagor. Thus, “the terms of the mortgage may contain an acceleration clause that gives the lender the option to demand due the entire balance of principal and interest upon the occurrence of certain events delineated in the mortgage.”  Bank of New York Mellon v. Dieudonne , 171 A.D.3d 34, 37 (2 nd  Dep’t 2019) (citations and internal quotation marks omitted).  Once the mortgagee’s election to accelerate is properly made, “the borrower’s right and obligation to make monthly installments ceased and all sums became immediately due and payable.”  The statute of limitations begins to run anew on the entire debt upon acceleration.  Gold , 171 A.D.3d at 1030 (citations omitted). A defendant moving to dismiss a complaint pursuant to CPLR 3211(a)(5) on statute of limitations grounds has the burden of establishing “prima facie, that the time in which to commence the action has expired.”  Wells Fargo Bank, N.A. v. Islam , 193 A.D.3d 1016, 1017 (2 nd  Dep’t 2021) (citations and internal quotation marks omitted).  If the defendant satisfies the burden “the burden shifts to the plaintiff to raise a question of fact as to whether the statute of limitations was tolled or otherwise inapplicable, or whether the plaintiff actually commenced the action within the applicable limitations period.”  Id.  at 2017 – 18 (citations and internal quotation marks omitted). The Foreclosure Abuse Prevention Act  (“FAPA”), which went into effect on December 30, 2022, was enacted to, inter alia ,  curtail certain practices of lenders designed to avoid statute of limitations issues by accelerating and deaccelerating loans to start the running of statutes of limitations anew.  [Eds. Note: This BLOG addressed FAPA [ here ] and [ here ].]  Indeed, FAPA amended CPLR 3217  to include a new subdivision (e) [1] , which provides: In any action on an instrument described under subdivision four of section two hundred thirteen of this chapter, the voluntary discontinuance of such action, whether on motion, order, stipulation or by notice, shall not, in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action and to interpose a claim, unless expressly prescribed by statute.   It is CPLR 3217(e) that was at issue in HSBC Bank USA, N.A. v. Corrales , decided by the Appellate Division, Second Department, on February 21, 2024.  The borrower in Corrales  delivered a mortgage on real property to secure a $600,000.00 loan.  In 2009, the lender commenced an action to foreclose the loan, which action was voluntarily discontinued in 2014.  The lender commenced a new action in 2016.  The borrower moved to dismiss the new action, as time-barred, pursuant to CPLR 3211 (a)(5).  The lender cross-moved for summary judgment.  The borrower appealed from the motion court’s denial of the borrower’s motion and the granting of the lender’s cross-motion. The Second Department reversed, granted the borrower’s motion and dismissed the complaint as time-barred.  The Court found that the borrower “demonstrated that the six-year statute of limitations began to run on the entire debt in May 2009, when the [first foreclosure] action was commenced and the [lender] elected to call due the entire amount secured by the mortgage [and she also] demonstrated that the instant action was commenced in April 2016, more than six years later.”  (Citations omitted.)  Finally, evidence that the prior foreclosure action was voluntarily discontinued in 2014 was also submitted. In response, the lender, relying on Freedom Mortgage Corp. v. Engel , 37 N.Y.3d 1 (2021), [2] argued that the voluntary discontinuance of the prior action deaccelerated the loan and, accordingly, the new action was timely.  Relying on FAPA, which added CPLR 3217(e), the Court rejected the lender’s argument.  Thus, the Court held that “the voluntary discontinuance of the 2009 action did not in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action and to interpose a claim.”  (Citations and internal quotation marks omitted.) The Court also rejected another argument made by the lender regarding deacceleration, and stated: Moreover, any claim by the [lender] that by mailing certain mortgage statements to the [borrower] subsequent to the discontinuance of the [prior] action, the mortgage debt was de-accelerated, is without merit. Pursuant to CPLR 203 (h), part of the recently enacted Foreclosure Abuse Prevention Act, "[o]nce a cause of action upon an instrument described in [ CPLR 213 (4)] has accrued, no party may, in form or effect, unilaterally waive, postpone, cancel, toll, revive, or reset the accrual thereof, or otherwise purport to effect a unilateral extension of the limitations period prescribed by law to commence an action and to interpose the claim, unless expressly prescribed by statute."  (Hyperlinks added.)   Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] [Eds. Note: This BLOG addressed other aspects of CPLR 3217 [ here ], [ here ] and [ here ].] [2] [Eds. Note: this BLOG discussed Engel  [ here ], [ here ], and [ here ].]  It should be noted that Engel  was “legislatively overruled” by certain provisions of FAPA.   Bank of America v. Kessler , 39 N.Y.3d 317, n. 3 (2023).

By: Jonathan H. Freiberger Today’s article revisits statute of limitations issues and FAPA [1] in residential mortgage foreclosure actions [2] . Briefly stated, a mortgage foreclosure action is governed by a six-year statute of limitations. CPLR 213(4) ; see also Anglestone Real Estate Venture Partners Corp. v. Bank of New York Melon , 221 A.D.3d 943, 946 (2 nd  Dep’t 2023). When mortgage payments are payable in installments, the six-year period runs from each missed payment, but, upon acceleration, the statute of limitations begins to run anew on the entire accelerated debt. Anglestone , 221 A.D.3d at 946; see also Mills v. Deutsche Bank Nat. Trust , 235 A.D.3d 740 (2 nd  Dep’t 2025). Acceleration can be accomplished by making a demand for payment of the full amount due under the subject loan due to a default or by the commencement of a foreclosure action in which the lender demands payment of all sums due under the mortgage. Caprotti v. Deutsche Bank National Trust Co. , 220 A.D.3d 1126, 1127 (2 nd Dep’t 2023); GMAT Legal Title Trust 2014-1 v. Kator , 213 A.D.3d 915, 916 (2 nd  Dep’t 2023). The Foreclosure Abuse Prevention Act (“FAPA”), “represents the Legislature’s response to litigation strategies and certain legal principles that distorted the operation of the statute of limitations in foreclosure actions.” Genovese v. Nationstar Mortgage LLC , 223 A.D.3d 37, 41 (1 st  Dep’t 2023) (citation omitted). [3] Among other statutory provisions, FAPA created CPLR 213(4)(a), which provides that “[i]n any action on an instrument described under this subdivision, if the statute of limitations is raised as a defense, and if that defense is based on a claim that the instrument at issue was accelerated prior to, or by way of commencement of a prior action, a plaintiff shall be estopped from asserting that the instrument was not validly accelerated, unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated.” See also Kator , 213 A.D.3d at 916-17. Today’s BLOG relates to Deutsche Bank National Trust Co. v. DiGiorgio , a case decided by the Appellate Division, Second Department, on April 16, 2025. The lender in DiGiorgio , at this time One West, commenced an action in 2009 to foreclose a mortgage (the “First Action”). The First Action was voluntarily discontinued in 2016 by court order. In 2018, a new action was commenced by the lender, this time plaintiff, Deutsche Bank, to foreclose the same mortgage and in which the lender claimed new defaults (the “Present Action”). The lender moved for summary judgment and the borrower cross-moved for summary judgment dismissing the complaint on statute of limitations grounds. The lender appeals from the denial of the lender’s motion and the granting of the borrower’s motion. After discussing the law on statutes of limitation in foreclosure actions, the Court determined that the lender’s claims were time barred because the borrower demonstrated that the “six-year statute of limitations began to run in October 2009 when [the lender] commenced the [First Action] and elected in the complaint to call due the entire amount secured by the mortgage” (citation omitted) and that the Present Action was commenced more than six years after the First Action. Relying on CPLR 213(4)(a) and Kator , supra , the Court rejected the lender’s argument that the loan was not accelerated because One West lacked standing to commence the First Action. The Court found that the lender was estopped from making its argument that there was no prior acceleration because the First Action “was not dismissed based upon an expressed judicial determination that the instrument was not validly accelerated”. The Court also rejected the lender’s argument that One West’s voluntary discontinuance of the First Action “served to revoke the acceleration and reset the statute of limitations.” The Court noted that “FAPA amended CPLR 3217 , governing the voluntary discontinuance of an action, by adding a new paragraph (e), which provides that 'in any action on an instrument described under [CPLR 213(4)], the voluntary discontinuance of such action, whether on motion, order, stipulation or by notice, shall not, in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action and to interpose a claim, unless expressly prescribed by statute.’” (Citation, internal quotation marks and brackets omitted, hyperlink added.) The Court further noted that “even prior to the enactment of FAPA, the discontinuance of the 2009 action would not have been effective to reset the statute of limitations because the discontinuance did not occur during the six-year limitations period.” (Citation omitted.) [4] Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] This BLOG has written numerous of articles addressing FAPA and statutes of limitation in residential mortgage foreclosure actions. To find such articles, please see the BLOG  tile on our website  and type “statute of limitations mortgage foreclosure”, “FAPA” or any other issue related to mortgage foreclosure into the “search” box. For a concise explanation of the inter relationship between the statute of limitations, acceleration and the Foreclosure Abuse Prevention Act (“FAPA”) see, e.g., [ here ]. [2] This BLOG has written dozens of articles addressing all aspects of residential mortgage foreclosure. To find such articles, please see the BLOG  tile on our website  and search for any foreclosure, or other commercial litigation, issue that may be of interest you. [3] This Blog wrote about Genovese  [ here ]. [4] The Court also rejected the lender’s challenge to the constitutionality of the retroactive application of FAPA. This BLOG addressed the retroactive application of FAPA on numerous occasions. See, e.g., [ here ], [ here ] and [ here ].

By: Jonathan H. Freiberger Seasoned attorneys will get the reference in the title of this article to one of Maxwell Smart’s catch phrases from “Get Smart”, but most of the younger folks might not. [1]  In any event, the phrase seems prescient in light of a nuanced FAPA related change to CPLR 205 . As stated in prior BLOG articles, when a applicable statute of limitations expires during the pendency of an action, under certain circumstances, CPLR 205(a) permits the plaintiff to commence a new action if the original action is dismissed but was timely commenced. [2] CPLR 205(a) provides: If an action is timely commenced and is terminated in any other manner than by a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits, the plaintiff … may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months after the termination provided that the new action would have been timely commenced at the time of commencement of the prior action and that service upon defendant is effected within such six-month period. Where a dismissal is one for neglect to prosecute the action made pursuant to rule thirty-two hundred sixteen of this chapter or otherwise, the judge shall set forth on the record the specific conduct constituting the neglect, which conduct shall demonstrate a general pattern of delay in proceeding with the litigation. [Emphasis added.] At the end of 2022, the Foreclosure Abuse Prevention Act (“FAPA”) went into effect. [3] FAPA amends certain provisions of the CPLR and other statutes to the extent they relate to, inter alia , residential mortgage foreclosure actions. [4] Among other things, FAPA’s provisions were designed to prevent lenders from circumventing statute of limitations problems in residential mortgage foreclosure actions by the simple expedient of accelerating and deaccelerating loans to restart the running of statutes of limitations. As part of FAPA, the Legislature enacted CPLR 205-A , [5] which addresses issues similar to those in CPLR 205(a), but specifically in the context of certain residential mortgage foreclosure actions. CPLR 205-A provides: If an action upon an instrument described under subdivision four of section two hundred thirteen of this article is timely commenced and is terminated in any manner other than a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for any form of neglect, including, but not limited to those specified in subdivision three of section thirty-one hundred twenty-six, section thirty-two hundred fifteen, rule thirty-two hundred sixteen and rule thirty-four hundred four of this chapter, for violation of any court rules or individual part rules, for failure to comply with any court scheduling orders, or by default due to nonappearance for conference or at a calendar call, or by failure to timely submit any order or judgment, or upon a final judgment upon the merits, the original plaintiff … may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months following the termination, provided that the new action would have been timely commenced within the applicable limitations period prescribed by law at the time of the commencement of the prior action and that service upon the original defendant is completed within such six-month period. For purposes of this subdivision: 1. a successor in interest or an assignee of the original plaintiff shall not be permitted to commence the new action, unless pleading and proving that such assignee is acting on behalf of the original plaintiff; and 2. in no event shall the original plaintiff receive more than one six-month extension. [Emphasis supplied.] One subtle difference between CPLR 205(a) and 205-A (as indicated in the italicized language) is that CPLR 205-A requires service of process to be completed  before a plaintiff receives the benefits of the statute. This issue was decisive in Deutsche Bank Nat. Trust Co. v. Zak , decided by the Appellate Division, Second Department, on February 19, 2025. The lender in Zak  commenced a mortgage foreclosure action on September 25, 2009. A second action was commenced on August 19, 2015, to foreclose the same mortgage. In 2017, the 2009 action was dismissed pursuant to CPLR 3216  for failure to prosecute. On July 17, 2018, the motion court granted the borrowers’ cross-motion to dismiss the complaint in the 2015 action due to the lender’s failure to comply with RPAPL 1304. [6] A new foreclosure action was commenced by the lender on December 14, 2018. Borrower 1 was served personally ( CPLR 308(1) ) on December 28, 2018. Borrower 2 was served on January 7, 2019, by delivering the summons and complaint to someone of suitable age and discretion ( CPLR 308(2) ) and the related affidavit of service was filed on January 9, 2019. Pursuant to CPLR 308(2), service was completed on January 19, 2018, ten days after the filing of the affidavit of service related to borrower 2. In their answer to the 2018 action, the borrowers asserted a counterclaim to discharge the mortgage of record pursuant to RPAPL 1501(4) . [7] The lender moved to dismiss the counterclaim and the borrowers cross-moved for summary judgment on the counterclaim and on statute of limitations grounds. Not persuaded by the lender’s argument that the 2018 action was timely commenced pursuant to CPLR 205(a), the motion court denied the lender’s motion and granted the borrowers’ cross-motion. The lender appealed. The Court modified the motion court’s order and determined that the 2018 action was timely commenced as to borrower 1, but not borrower 2. After explaining the differences between CPLR 205(a) and 205-A, the Court reiterated that a crucial distinction between the two provisions is that with respect to CPLR 205-A, service of process must be completed  within the relevant six-month period. As to the relevant time periods, the Court explained that “the mortgage debt was first accelerated, and the statute of limitations began to run, when the [lender] commenced the [2009] action on September 25, 2009. Thus, the statute of limitations expired six years later on September 25, 2015. The [2015] action was timely commenced on August 19, 2015, and the instant action was commenced on December 14, 2018, more than three years after the statute of limitations expired.” (Citation omitted.) [8] The Court explained why the lender could proceed against borrower 1, but with respect to borrower 2, the lender “missed it by that much”: Under the standard set forth in either CPLR 205(a) or CPLR 205-a, the action was timely insofar as asserted against [borrower 1]. Initially, contrary to the Supreme Court's determination, a dismissal for failure to comply with RPAPL 1304 did not constitute a dismissal on the merits for the purposes of CPLR 205(a) and 205-a because the dismissal of a complaint for the failure to satisfy a condition precedent to suit is not a 'final judgment upon the merits' for the purposes of CPLR 205(a). Under CPLR 205(a) or 205-a, the six-month period to recommence the action ran from the date of entry of the order dismissing the [2015] action, which was July 17, 2018. [Borrower 1] was served personally on December 28, 2018, and service was effected and completed on that day pursuant to CPLR 308(1). Thus, the instant action was timely recommenced pursuant to either CPLR 205(a) or 205-a insofar as asserted against [borrower 1]…. With respect to [borrower 2], service was effected on January 7, 2019, pursuant to CPLR 308(2), which was within six months after the termination of the [2015] action. However, the affidavit of service was not filed until January 9, 2019, and service was thus completed 10 days later on January 19, 2019 (see CPLR 308[2]), which was 2 days after the six-month deadline to recommence the foreclosure action under CPLR 205-a. [Citations, internal quotation marks and brackets omitted.] It should be noted that the motion practice before the motion court occurred prior to the enactment of FAPA but FAPA is to be retroactively. Thus, the Court also found that the lender’s challenge to the retroactive application of FAPA to be “without merit”. [9] Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] For the younger folks who missed out on some good television when there were only 5 channels to watch, follow the YouTube link  to a relevant “Get Smart” clip. [2] The purpose of CPLR 205(a) is briefly discussed [ here ] in a prior BLOG article. [3] This BLOG has addressed issues related to FAPA. To find such articles please see the BLOG  tile on our website  and type “FAPA” in the “search” box. [4] This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG  tile on our website  and search for any foreclosure, or other commercial litigation, issues that may be of interest you. [5] This Blog has written about CPLR 205 and the new 205-A. See, e.g., [ here ], [ here ] and [ here ]. [6] This BLOG has written numerous articles about RPAPL 1304. To find such articles, visit the “ BLOG ” tile on our website  and enter “1304” in the “search” box. [7] This BLOG has addressed issues related to RPAPL 1501(4). To find such articles please see the BLOG  tile on our website  and type “1501(4)” in the “search” box. [8] This BLOG has written numerous articles about acceleration and deacceleration of residential mortgages. To find such articles, visit the “ Blog ” tile on our website  and enter “accelerate,” “acceleration,” “deaccelerate” and/or “deacceleration” in the “search” box. [9] This BLOG has written about the retroactive application of FAPA. See, e.g., [ here ], [ here ] and [ here ].

By: Jonathan H. Freiberger Last Week in our BLOG article: “ It’s Unanimous – The Fourth Department Joins the Other Departments and Confirms the Retroactive Application of FAPA ,” we again discussed FAPA and noted that on November 25, 2025, the New York Court of Appeals decided two cases: Article 13 LLC v. Ponce De Leon Fed. Bank , and Van Dyke v. U.S. Bank, N. A. , in which the Court determined that retroactive application of FAPA’s provisions passes constitutional muster under the United States and New York Constitutions. [1] Today we will discuss Van Dyke  and next week we will discuss Article 13 LLC . FAPA The Foreclosure Abuse Prevention Act  (“FAPA”), which went into effect in December of 2022, “represents the Legislature’s response to litigation strategies and certain legal principles that distorted the operation of the statute of limitations in foreclosure actions.” Genovese v. Nationstar Mortgage LLC , 223 A.D.3d 37, 41 (1 st Dep’t 2023) (citation omitted). Thus, inter alia , FAPA’s provisions were designed to prevent lenders from circumventing statute of limitations problems in residential mortgage foreclosure actions by the simple expedient of accelerating and de-accelerating loans to restart the running of statutes of limitations. One of the main purposes of FAPA was to overrule the Court of Appeals decision in Freedom Mortgage Corp. v. Engel , 37 N.Y.3d 1 (2021), in which the Court held that if a lender accelerates a loan by the service of a foreclosure complaint, the lender’s discontinuance of that action is an “affirmative act” sufficient to de-accelerate the loan. As is relevant to today’s discussion, “[s]ections 4 and 8 of FAPA overrule components of FAPA.” Van Dyke  at *3. Section 4 of FAPA prevents a party from unilaterally resetting the statute of limitations on, inter alia , a residential mortgage note once the limitations period has accrued. Section 8 prevents a lender from resetting the limitations period to sue on, inter alia , a residential mortgage note by the voluntary discontinuance of a foreclosure action. Finally, “section 7 of FAPA estops a noteholder in a successive foreclosure action from challenging the validity of a loan acceleration made ‘prior to, or by way of commencement of’ a prior foreclosure action, unless the court in the prior action expressly determined, based on a timely raised defense, that the acceleration was invalid.” Id . Finally, section 10 of FAPA “provides that FAPA ‘shall take effect immediately and shall apply to all actions commenced on[, as relevant here, a residential mortgage loan agreement,] in which a final judgment of foreclosure and sale has not been enforced.’” Van Dyke In 2009, borrower (the plaintiff herein) defaulted on a loan secured by a mortgage and later that year the present lender’s (U.S. Bank) predecessor (BONY Mellon) commenced a foreclosure action (the “2009 Foreclosure Action”). In its complaint in the 2009 Foreclosure Action, the plaintiff lender (BONY Mellon) purported to accelerate the loan and alleged that it was the holder of the subject note or was authorized by the holder to commence the 2009 Foreclosure Action. The borrower asserted a lack of standing defense in its answer. The facts suggest that the lender in the 2009 Foreclosure Action (BONY Mellon) was not assigned the underlying promissory note until after that Action was commenced. Nonetheless, the 2009 Foreclosure Action was pending for more than ten years, during which time the underlying note and mortgage were assigned by BONY Mellon to U.S. Bank. The motion court denied the parties’ subsequent cross-motions for summary judgment on the issue of BONY Mellon’s standing to commence the 2009 Foreclosure Action due to the existence of fact issues related to BONY Mellon’s possession of the note at the commencement of that action. The parties’ cross-appeals were affirmed by the Appellate Division in 2020. In 2022, the 2009 Foreclosure Action was discontinued by a “So Ordered” stipulation that stated: “‘based upon’ Supreme Court's affirmed order denying summary judgment on the issue of [BONY]Mellon's standing, [BONY]Mellon had ‘failed to demonstrate that it had standing to commence the action.’” (Internal brackets omitted.) Further, the “stipulation did not address or purport to revoke [BONY] Mellon's purported acceleration of the loan.” In 2022, after the voluntary dismissal of the 2009 Foreclosure Action, the lender (U.S. Bank) commenced a new foreclosure action (the “2022 Foreclosure Action”) and, pursuant to RPAPL 1501(4), the borrower commenced the subject quiet title action (the “Quiet Title Action”). [2]  In the complaint in the Quiet Title Action, the borrower alleges that the lender (U.S. Bank) accelerated the underlying loan more than six years earlier and, therefore, any action on the note and mortgage would be time-barred. The lender (U.S. Bank) moved to dismiss arguing that the loan was not validly accelerated in the 2009 Foreclosure Action and the borrower cross-moved for summary judgment. During the pendency of both motions, FAPA was enacted and the parties submitted supplemental briefing on the issue. The motion court issued orders resolving the motions in the borrower’s favor. First, the court held that, pursuant to section 7 of FAPA, the lender is estopped from challenging the validity of BONY Mellon’s acceleration of the loan by the complaint in the 2009 Foreclosure Action and, accordingly, the limitations period in which to sue on the underlying obligation has expired. Additionally, the court rejected the challenge to the retroactive application of FAPA. The Appellate Division unanimously affirmed, and leave was granted to appeal to the Court of Appeals. The Court of Appeals affirmed. First, the Court determined that sections 4, 7 and 8 of FAPA apply retroactively. The Court noted that retroactive application of statutes is not favored absent clear intent by the Legislature. Van Dyke  at *5. Here, the Court found clear intent for the retroactive application of FAPA based on the legislative history and FAPA’s plain text. [3] Next, the Court discussed its rejection of the lender’s argument that retroactive application of FAPA would violate its substantive and procedural due process rights under the United States constitution. As to the substantive due process challenge, the Court recognized that “legislation can implicate substantive due process where it takes away or impairs vested rights in respect to transactions or considerations already past, and where its retroactive application lacks an adequate rational basis. [Lender]'s substantive due process challenge raises both issues.” (Citations, internal quotation marks and ellipses omitted.) The lender articulated two vested property rights: (1) its property interest in the mortgage; and, (2) its interest in prosecuting the 2022 Foreclosure Action which, the lender argues, “was timely under the pre-FAPA laws in effect when the action was brought.” The lender’s arguments were rejected by the Court. As to the property interested in the mortgage, the Court noted that “it is the six-year statute of limitations, not FAPA itself, that has extinguished that interest.” Similarly, the estoppel bar of FAPA’s section 7 does not unconstitutionally impair any property rights in the mortgage. The Court further rejected the lender’s argument that FAPA sections 4 and 8 infringe on its property interest because “but for FAPA, the filing of [BONY] Mellon's 2009 foreclosure complaint did not trigger the limitations period in the first place, on the theory that under pre-FAPA law, the discontinuance of Mellon's 2009 action rendered Mellon's acceleration a ‘legal nullity.’” The lender argued that “retroactively giving that ‘nullity’ legal effect, FAPA has extinguished [lender]'s property interest.” The Court stated that such a position is not supported by case law; “certainly not in a manner capable of conferring a vested right.” In rejecting a claimed vested right in prosecuting the 2022 Foreclosure Action, the Court stated that “assuming, without deciding, that a party may have a vested right in a timely commenced cause of action, [the lender] has not established as a legal matter that the 2022 [F]oreclosure [A]ction was timely brought under well-settled pre-FAPA law, and thus has not shouldered its ultimate burden of demonstrating FAPA's constitutional invalidity as applied here.” (Citations, internal quotation marks and brackets omitted.) Due process, according to the Court, also requires that retroactive application be supported by “a legitimate legislative purpose furthered by rational means.” (Citations and internal quotation marks omitted.) The Court recognized that there was a rational basis for applying FAPA’s relevant provisions to the action based on the abusive litigation practices employed by lenders prior to FAPA’s enactment. Also, to the extent that FAPA clarifies or alters the application of the six-year statute of limitations, retroactive application “rationally advances the strong public policy favoring finality, predictability, fairness and repose in human affairs.” (Citations and internal quotation marks omitted.) The lender further argued that its procedural due process rights under the United States Constitution were adversely impacted because when the Legislature’s shortens applicable limitation periods, the parties must be afforded “a reasonable grace period in which to bring claims that were timely under the old limitations period but are untimely under the new limitations period.” (Citation omitted.) The Court rejected this argument and noted that FAPA “did not shorten the limitations period, [therefore,] procedural due process does not demand a reasonable grace period before FAPA's relevant provisions take effect.” The Court also rejected the lender’s challenge based on the Contract Clause of the United States Constitution, which prohibits a state law from operating “as a substantial impairment of a contractual relationship.” (Citations and internal quotation marks omitted.) With respect to a Contract Clause analysis, the Court stated that the: initial inquiry contains three components: whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial. Even where all three components are satisfied, the Contract Clause is not violated if the impairment has a significant and legitimate public purpose, and if the adjustment of the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation's adoption. Furthermore, unless the State itself is a contracting party, as is customary in reviewing economic and social regulation, courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure. [Citations, internal quotation marks and brackets omitted.] Here, the Court concluded that even if the lender’s contractual rights were substantially impaired, the “necessity and reasonableness” of the provisions address questionable litigation practices and advance strong public policy considerations. Thus, the Court held that there are no Contract Clause violations.   Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG  tile on our website  and search for any foreclosure, or other commercial litigation, topics that may be of interest you. As relates to today’s article, type “FAPA,” “statute of limitations,” “Engel,” “acceleration,” “quiet title” or “1501(4)” into the “search” box. [2]  This BLOG has written numerous of articles addressing RPAPL 1501(4). To find such articles, please see the BLOG  tile on our website  and type “1501(4)” into the “search” box. [3] The Court based its discussion of the law in Article 13 LLC . Accordingly, the issue of retroactivity will be discussed in more depth in next Friday’s BLOG article.

Under Limited Liability Company Law §  609(a), a member or manager of a limited liability company is not personally liable for the LLC’s debts, obligations, or liabilities solely by reason of being a member or acting in that capacity. Applying this rule, the courts in 27-21 27th St. Sponsors, LLC v. Kanta , 2026 N.Y. Slip Op. 01273 (1st Dept. Mar. 05, 2026), held that a minority member of an LLC could not be sued individually for the LLC’s obligations, as the operating agreement likewise disclaimed member liability. The courts further found the promissory note at issue was criminally usurious on its face: its capped $306,000 return on an $850,000 principal reflected a 36% interest rate, exceeding New York’s civil and criminal usury limits. Because a criminally usurious instrument is void ab initio, both the note and the minority member’s guarantee were unenforceable. Equitable claims, including unjust enrichment, were also dismissed as precluded. 27-21 27th St.  arose out of plaintiff’s investment in the construction of a condominium building via a convertible promissory note (the “Note”) given by defendant KST2 Properties, LLC (“KST2”) and guaranteed by defendant Kenneth Tolley (“KT”) and defendant Janos Kanta (“JK”) (“Defendants”). The latter was the managing member, and the former the minority member, of KST2 at the time the Note was given.  The Note provided that it would accrue interest at “the highest rate permissible by law per annum, accruing monthly in a separate capital account created by [plaintiff], and payable during the term in a maximum capped payment of [$306,000.00].” The same cap applied to the guarantee. The Note further provided that it was subject “to the express condition that at no time shall [KST2] be required to pay interest at a rate which may be deemed usurious, and if any interest charged hereunder is deemed to be in excess of the maximum legal rate, then the interest rate hereunder shall immediately be reduced to the maximum legal rate.” Plaintiff commenced the action to recover under the Note and guarantee, as well as recover its share of the profits of the sale of the condominium building, and a declaratory judgment that it was a member of KST2.  The first and fourth causes of action asserted against Defendants arose out of the KST2 operating agreement. Generally, “a member of a limited liability company . . . is [not] liable for any debts, obligations or liabilities of the limited liability company or each other, whether arising in tort, contract or otherwise, solely by reason of being such member, manager or agent or acting (or omitting to act) in such capacities or participating (as an employee, consultant, contractor or otherwise) in the conduct of the business of the limited liability company.” [1]  Similar to the LLCL, the KST2 operating agreement provided that “no Member shall be personally liable for any debt, losses or obligations of the Company by virtue of being a Member.” In the fourth cause of action, plaintiff sought to enforce KST2’s obligation to distribute the profits of the condominium sale. The motion court held that with respect to the first cause of action for a declaratory judgment, it was properly brought against the company, rather than against the members directly, such as KT.  Thus, plaintiff’s claim against KT was improper.  Turning to the sixth cause of action for breach of the guarantee, the motion court addressed KT’s argument that the Note was usurious. KT argued that, as a guarantor of the Note, [2]  the Note’s maximum accrued interest of $306,000.00 on the principal amount of $850,000 over one year, which into an interest rate of 36%, well in excess of the civil and criminal usury rates of 16% and 25%, respectively. [3]   Under New York law, usury applies to a “loan or forbearance of any money, goods or things in action.” [4]   “[I]t must appear that the real purpose of the transaction was, on the one side, to lend money at usurious interest reserved in some form by the contract and, on the other side, to borrow upon the usurious terms dictated by the lender.” [5]  Notably, “[t]he court will not assume that the parties entered into an unlawful agreement.” [6]  “[W]hen the terms of the agreement are in issue, and the evidence is conflicting, the lender is entitled to a presumption that he did not make a loan at a usurious rate” [7] However, “[i]f usury can be gleaned from the face of an instrument, intent will be implied and usury will be found as a matter of law.” [8]   The motion court held that the Note was criminally usurious on its face. The motion court explained that the Note provided that interest would accrue at “the highest rate permissible by law per annum . . . payable during the term in a maximum capped payment of [$306,000.00].” The highest rate permissible by law, noted the motion court, is 16%, as set by the General Obligations Law and the Banking Law. Interest of 16% on the $850,000 principal yields interest of $136,000, rather than the maximum capped payment of $306,000.  The motion court rejected plaintiff’s argument that because $306,000 was merely the maximum payment of interest possible, the reference to the maximum allowable legal rate acted as a savings clause, effectively preventing any usurious interest rate from actually applying. The motion court also rejected plaintiff’s argument that a provision of the Note, in effect, acted to reform the Note if KST2 was ever charged a usurious rate of interest. In rejecting the arguments, the motion court held that such language did not preserve an agreement that was usurious on its face. [9]   The motion court also rejected plaintiff’s argument that because KST2 drafted the language at issue, plaintiff should be relieved of the consequences of lending at usurious rates. [10]   Moreover, the motion court rejected plaintiff’s argument that KT owed plaintiff a fiduciary duty as a member of KST2. The motion court explained that plaintiff did not join KST2 until several months after the Note and guarantee were executed. Thus, the transaction was at arm’s length and did not give rise to equitable estoppel. [11] Further, the motion court dismissed the eleventh cause of action seeking relief for unjust enrichment. Plaintiff claimed that KT had been unjustly enriched at plaintiff’s expense by the failure to repay under the guarantee and to receive its share of the profits from the sale of the condominium. The motion court noted that those obligations were covered by the Note and the KST2 operating agreement, respectively. Given “[t]he existence of a valid and enforceable written contract governing a particular subject matter,” explained the motion court, plaintiff’s was precluded from “recovery in quasi contract for events arising out of the same subject matter.” [12]   Finally, noted the motion court, plaintiff could not recover in quasi contract because a lender that has charged criminally usurious interest may not recover on an equitable claim such as unjust enrichment. [13]   On appeal, the Appellate Division, First Department, unanimously affirmed. The Court held that “the motion court properly dismissed the first and fourth claims for declaratory relief and breach of the operating agreement against [KT] individually.” [14]  First, said the Court, KT “was not properly named in the cause of action for a declaration that plaintiff is a member of KST2 because ‘[a] member of a limited liability company is not a proper party to proceedings by or against a limited liability company, except where the object is to enforce a member's right against or liability to the limited liability company.’” [15]   The Court found “[p]laintiff’s attempt to hold [KT] personally liable for KST2’s acts unavailing because ‘[n]either a member of a limited liability company, a manager of a limited liability company managed by a manager or managers nor an agent of a limited liability company . . . is liable for any debts, obligations or liabilities of the limited liability company or each other.’” [16]   The Court further found that “nothing in the operating agreement suggest[ed] that [KT] intended to be personally liable for KST2’s acts.” [17] Pointing to the operating agreement, the Court noted that the agreement expressly disclaimed the liability of members “for any debt, losses or obligations” of KST2, consistent with LLCL § 609(a), except to the extent of members’ individual capital contribution. [18]  “This language, said the Court, “negate[d] any inference of liability arising from [KT’s] having signed the operating agreement in his individual capacity for anything other than a claim related to his capital contribution, warranting dismissal of the fourth cause of action as against him.” [19] The Court also held that the “motion court properly found that because the promissory note was civilly and criminally usurious on its face, it, and by extension [KT’s] guarantee, were void ab initio.” [20]  The Court noted that “[a]lthough corporations and their guarantors may not raise the defense of civil usury, that prohibition [did] not apply to criminal usury.” [21]   The Court held that the motion court “correctly determined that the $306,000 maximum return reflected an interest rate of 36%, well above the civil and criminal usury rates of 16% and 25%, respectively.” [22]  “Based on the language in the [N]ote,” said the Court, the motion “court properly rejected plaintiff’s contention that the [N]ote was enforceable because the $306,000 was intended to be a return on a preferred equity investment rather than interest, as the conversion to an equity interest would not preclude the application of the usury laws.” [23] The Court further held that the motion court “properly found that a usurious interest rate [could not] be salvaged by language providing that the intent is to collect the highest legal maximum interest rate.” [24]   “Because an instrument seeking a criminally usurious interest rate is void,” concluded the Court, “the guarantee [was], too.” [25]   Addressing plaintiff’s argument that it was KST2’s managing member and personnel who drafted the note, the Court held that “a note with a usurious interest rate is void, irrespective of which party drafted it.” [26]  Although the Court has recognized a limited exception to the foregoing rule where “[a] borrower, who, because of a fiduciary or other like relationship of trust with the lender, is under a duty to speak and . . . fails to disclose the illegality of the rate of interest he proposes,” [27]  the Court held that plaintiff failed “to plead facts sufficient for this exception to apply, as the usurious note was not signed by [KT], and there [were] no allegations that [KT] participated in its drafting or proposed the interest rate.” [28] Finally, the Court held that “the motion court properly dismissed the unjust enrichment claim as precluded by the parties’ written agreements.” [29] The Court explained that “an equitable claim is not available to resuscitate an agreement found to be void based on criminal usury.” [30] Takeaway 27-21 27th St.  reinforces the protection from liability afforded to LLC members under New York law. Section 609(a) of the LLCL establishes that members and managers are not personally liable for the debts or obligations of the LLC merely because of their status, and the courts in 27-21 27th St.  applied that rule strictly. The operating agreement for KST2 mirrored this statutory protection, and nothing in the agreement suggested that the minority member assumed personal liability for the Note. Consequently, both the motion court and the First Department held that defendant could not be sued individually for obligations arising from KST2’s contracts or its internal profit‑distribution duties. 27-21 27th St.  also reaffirms the law on usury. The Note’s capped $306,000 return on an $850,000 investment translated to an interest rate of 36%, making the note criminally usurious on its face. Under New York law, a criminally usurious instrument is void ab initio, and because the guarantee stands or falls with the note, the minority member’s guarantee was void as well. The motion court and the First Department rejected plaintiff’s arguments that savings‑clause language or the characterization of the investment as “preferred equity” could salvage the agreement. Finally, 27-21 27th St.  underscores that equitable claims cannot be used to revive rights under a void usurious contract. Because valid written agreements governed the parties’ relationship, and because usury bars equitable recovery, the unjust‑enrichment claim failed. ______________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions and not on matters handled by the firm. _______________________________ [1] Limited Liability Company Law (“LLCL”) § 609(a). [2]  A guarantor of the note may raise the usury defense belonging to the principal debtor. Fred Schutzman Co. v. Park Slope Advanced Med., PLLC , 128 A.D.3d 1007, 1008 (2d Dept. 2015). [3] General Obligations Law (“GOL”) § 5-501; Banking Law § 14-a; Penal Law § 190.40). [4] GOL § 5-501; Donatelli v. Siskind , 170 A.D.2d 433, 434 (2d Dept. 1991). [5] Donatelli , 170 A.D.2d at 434. [6] Giventer v. Arnow , 37 N.Y.2d 305, 309 (1975). [7] Id. [8] Blue Wolf Capital Fund II, L.P. v. American Stevedoring Inc. , 105 A.D.3d 178, 183 (1st Dept. 2013). [9] Bakhash v. Winston , 134 A.D.3d 468, 469 (1st Dept. 2015); Simsbury Fund, Inc. v. New St. Louis Assocs. , 204 A.D.2d 182, 182 (1st Dept. 1994). [10] Bakhash , 134 A.D.3d at 469. [11] Kingsize Entertainment, LLC v. Martino , 155 A.D.3d 856, 857 (2d Dept. 2017). [12] Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co. , 70 N.Y.2d 382, 388 (1987). [13] Blue Wolf Capital , 105 A.D.3d at 184. [14] Slip Op. at *1. [15] Id.  (citing LLCL § 610). [16] Id.  (quoting LLCL § 609(a). [17] Id. [18] Id. [19] Id. [20] Id.  (citing Blue Wolf Capital , 105 A.D.3d at 183). [21] Id.  (citing GOL § 5-521(1), (3)). [22] Id.  (citing GOL § 5-501(2); Banking Law § 14-a(1); Penal Law § 190.40). [23] Id.  (citing Adar Bays, LLC v. GeneSYS ID, Inc. , 37 N.Y.3d 320337 (2021)). [24] Id.  (citing Bakhash v .Winston , 134 A.D.3d 468, 469 (1st Dept. 2015)). [25] Id.  (citing Blue Wolf Capital Fund , 105 A.D.3d at 184). [26] Id.  (citing Bakhash , 134 A.D.3d at 469). [27] Pemper v. Reifer , 264 A.D.2d 625, 626 (1st Dept. 1999). [28] Id. [29] Id. [30] Id.  (citing  Blue Wolf Capital , 105 A.D.3d at 184;  Sorenson v. Winston & Strawn, LLP , 162 A.D.3d 593, 593 (1st Dept. 2018)).

By: Jeffrey M. Haber Financial exploitation of seniors and vulnerable adults is a significant problem.¹ It is considered by many to be an insidious non-violent form of elder abuse in the United States. While a landmark MetLife study initially estimated that older Americans lose roughly $2.6 to $2.9 billion each year to financial exploitation, more recent research suggests that the cost may be materially higher, potentially exceeding $36 billion annually . These numbers, whether at the low end of the range or the high end, reflect not only a financial loss of assets but also an emotional harm inflicted on victims and their families. Financial exploitation occurs when an individual – often someone in a position of trust – misappropriates, misuses, or steals the assets of a senior or otherwise vulnerable person. This can happen without the victim’s knowledge, or under circumstances where they do not fully understand or consent to the transactions being conducted. According to a study by the New York State Office of Children and Family Services , an estimated five million older adults and vulnerable Americans experience some form of financial exploitation every year, highlighting how pervasive and underreported this issue truly is. In the investment context, the forms of exploitation are varied but often share a common theme: the pursuit of high commissions or personal gain by unethical financial professionals. Among the most prevalent abuses are churning (excessive trading to generate fees), unauthorized transactions, unsuitable investment recommendations, improper portfolio concentration in high-risk products, misappropriation of assets, and misrepresentations about an investment’s risk, characteristics, or likely returns. These tactics often deplete accounts, expose seniors and vulnerable adults to outsized risks, or leave them financially devastated at a stage of life when recovery is challenging at best. A major reason for this vulnerability lies in the trust that seniors place in the professionals on whom they rely. Many older adults are unfamiliar with the complexities of financial markets or investment products. They often place significant trust in stockbrokers, financial advisors, investment advisers, and insurance agents – individuals who are supposed to act in their best interests. This trust, coupled with a reluctance to question what they do not understand, creates opportunities for abuse by those who exploit their authority or clients’ good faith. Because many seniors may not recognize exploitation immediately – or may feel embarrassed or intimidated about reporting it – prevention often depends on attentive, proactive involvement from family members, friends, and other trusted individuals. Regular oversight, open communication, and periodic review of financial statements can serve as early-warning tools to spot problems before significant harm occurs. In addition to the oversight of friends and family, regulatory oversight plays an important role in the protection of seniors and vulnerable adults from financial elder abuse.² On January 30, 2026, the Securities and Exchange Commission announced that it filed a settled action against a Georgia resident (“Defendant”) for allegedly breaching his fiduciary duties to an elderly investment advisory client³ and misappropriating more than $9.8 million of the client’s assets. Defendant agreed to pay more than $13 million to settle the charges. According to the complaint filed by the SEC in the United States District Court for the Northern District of Georgia, in March 2022, Defendant began misappropriating the client’s assets as well as assets from the estate of the client’s recently deceased sister. The SEC alleged that in February 2023, Defendant, without the client’s knowledge or consent, opened a brokerage account for one of the client’s trusts and transferred more than $9 million in securities from the client’s other accounts.⁴ While establishing the new brokerage account, Defendant allegedly took several steps to conceal his continuing misappropriation of assets, including authorizing the use of check writing from the account, setting up the log-in credentials for the account so that he could access and control the account, and creating an e-mail account to electronically impersonate the client.  As alleged, Defendant then misappropriated the client’s funds for his own benefit, including building a multi-million-dollar residence, purchasing vehicles, and buying vacation homes. The SEC charged Defendant with violating Section 17(a)(1) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5(a) and (c) thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.⁵ Without denying the SEC’s allegations, Defendant agreed to the entry of a final judgment, subject to court approval, in which he agreed to be permanently enjoined from violating the charged provisions of the federal securities laws and from participating in the issuance, purchase, offer, or sale of any security, except for purchases or sales of securities listed on national exchanges in his own personal accounts, and to pay $9,025,424.89 in disgorgement with prejudgment interest of $1,029,626.64 and a civil penalty of $3,000,000. ____________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. ¹We have written about enforcement actions and litigations involving the exploitation of seniors and vulnerable adults on numerous occasions, including: SEC Receives Temporary Restraining to Halt the Financial Exploitation and Abuse Of Seniors ; Enforcement News: SEC Charges Broker with Scheme to Defraud Mostly Elderly Retail Brokerage Customers and Investment Advisory Clients ; Enforcement News: SEC Seeks Emergency Relief Against Investment Adviser Targeting Senior Investors “in a Classic Ponzi Scheme” ; First Department Sustains Undue Influence and Unjust Enrichment Claims in Financial Exploitation Case ; and Enforcement News: Ponzi-Like Scheme, Elder Financial Exploitation and Affinity Fraud. ²We wrote about regulatory efforts to protect seniors and vulnerable adults in the following articles: Bipartisan Legislation Introduced to Protect Seniors from Financial Abuse and Exploitation ; The SEC Approves FINRA’s New Rules to Address the Financial Exploitation and Abuse of Seniors ; and FINRA Submits New Rule for SEC Approval to Protect Seniors and Other Vulnerable Adults from Financial Exploitation and Fraud . ³According to the SEC, the client suffered from significant health issues and depended almost entirely on Defendant for both financial and personal needs, including paying bills, arranging a caretaker, purchasing groceries and household supplies, and managing his mail. ⁴The SEC claimed that Defendant allegedly obtained signatory authority over the client’s primary bank account and then misappropriated another $8.94 million. ⁵The Financial Industry Regulatory Authority barred Defendant in December 2025, for failing to produce documents and information requested in its investigation.

By: Jeffrey M. Haber As readers of this Blog know, affinity fraud and Ponzi schemes often intersect because each reinforces the weaknesses of the other, creating a powerful and deceptive form of financial exploitation.¹ Affinity fraud is a form of financial deception that exploits the trust and social cohesion within a close‑knit group. These groups may be defined by shared religious beliefs, cultural or ethnic identity, professional affiliations, or community networks. The fraud typically begins when an individual – often someone who appears to be a respected or long‑standing member of the community – presents an investment or financial opportunity that seems credible precisely because it comes from a familiar source. The perpetrator leverages the group’s internal bonds to build legitimacy, frequently encouraging early participants to recommend the opportunity to others. Because recommendations circulate through trusted personal relationships, skepticism is limited, and formal due diligence is often bypassed. The fraudster may reinforce the illusion of success by reporting fictious returns or by making small initial payments to early investors, thereby strengthening confidence in the scheme. As the fraud spreads within the group, participants invest not only their financial resources but also their interpersonal trust. Eventually, however, the scheme collapses – often when it becomes impossible to attract additional funds. The resulting losses extend beyond financial harm. Communities experience strained relationships, diminished trust, and, in some cases, long‑lasting reputational damage. In essence, affinity fraud is particularly pernicious because it preys not on financial naïveté alone, but on trust – that is, trust with those on whom people share an identity, values, or history. A Ponzi scheme typically begins with an investment enterprise that purports to offer unusually stable and inflated returns. The promoter, who often embodies a veneer of expertise and professional legitimacy, positions the investment as a “can’t lose” opportunity. The investment strategy is often framed in abstract or proprietary terms, discouraging scrutiny while appealing to individuals who fear missing out on access to high‑yield financial vehicles. In its early stages, the scheme functions as represented, primarily because its obligations remain limited. Initial investors receive the returns they were promised, not through legitimate asset appreciation, but through the redirection of funds supplied by newly recruited participants. These early “returns” and payments play a critical role: they serve as evidence of the promoter’s competence and create validation. Investors often respond by increasing their contributions or by introducing additional participants, amplifying the scheme’s growth through emergent network effects rather than through genuine investment performance. Over time, the fragility of the scheme becomes increasingly pronounced. Because it lacks a legitimate economic foundation, its survival depends entirely on the continuous and accelerating inflow of capital. Even minor disruptions, such as the slowdown in recruitment, an increase in withdrawal requests, or the emergence of external regulatory attention, can destabilize the scheme. Once incoming funds no longer exceed or at least match outgoing obligations, the scheme’s financial obligations become unsustainable. The collapse is typically abrupt: promised payments cease, liquidity evaporates, and the underlying deception comes to light. The aftermath of a Ponzi scheme extends beyond financial loss. Victims frequently report long‑term erosion of trust in financial intermediaries, regulatory institutions, and social networks associated with the promoter. For many, the most acute harm arises not merely from monetary depletion but from the psychological dissonance created by having relied on assurances that, in retrospect, appear implausible. In today’s article, we examine SEC v. Likhtenstein, Case No. 1:25-cv-05412 (E.D.N.Y.), an enforcement action that the SEC brought against Marat Likhtenstein (“Defendant”) for perpetrating a Ponzi-like scheme primarily targeting the Russian American Jewish community. According to the SEC, from at least April 2017 through June 2024, Defendant, while acting as an investment adviser, solicited, recommended, and sold self-issued investments in the form of promissory notes that raised more than $4.1 million from at least 15 advisory clients. The SEC alleged that Defendant falsely told his clients, many of whom were elderly², that if they purchased promissory notes from him through his “side business,” they would earn extraordinary interest rates through investments in highly lucrative business opportunities and deals. However, said the SEC, Defendant did not actually invest the investors’ funds. Instead, he allegedly misappropriated their funds by making $940,000 in Ponzi-like payments to other investors and by spending almost $3.2 million on his personal expenses. The SEC filed its complaint in the U.S. District Court for the Eastern District of New York. The SEC charged Defendant with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, as well as Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC sought a final judgment ordering Defendant to pay disgorgement, prejudgment interest, and civil penalties, as well as enjoining him from violating the charged provisions and imposing conduct-based injunctions. Defendant, without admitting or denying the allegations, consented to a bifurcated settlement, agreeing to the injunctive relief, with monetary relief to be determined at a later date. On February 4, 2026, the Court entered the consent judgment.³ _________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. ¹Previously, we examined SEC enforcement actions involving affinity fraud and Ponzi schemes in numerous articles, including: Enforcement News: SEC Brings Emergency Action Against Alleged Perpetrators of an Affinity Fraud and a Ponzi Scheme ; Enforcement News: The Intersection of Affinity Fraud and a Ponzi Scheme ; Enforcement News: A Double Shot of Ponzi Schemes with a Dose of Affinity Fraud ; Enforcement News: SEC Files Complaint in Connection with a $300 Million Ponzi Scheme and Affinity Fraud ; and Enforcement News: Affinity Fraud and Ponzi Schemes in the News Again . ²This Blog has examined financial elder abuse on numerous occasions. See, e.g.,   SEC Receives Temporary Restraining to Halt the Financial Exploitation and Abuse of Seniors , and Enforcement News: Ponzi-Like Scheme, Elder Financial Exploitation and Affinity Fraud. To find the articles related to financial elder abuse or financial exploitation of seniors, visit the “Blog” tile on our website and enter “financial elder abuse” in the “search” box. ³ECF Dkt. No. 8.

By: Jonathan H. Freiberger This BLOG has written numerous articles addressing statutes of limitation.¹ Today’s article discusses Mark v. Trimarco , a case decided by the Appellate Division, Second Department, on February 4, 2026, in which the plaintiff unsuccessfully attempted to breathe new life into an otherwise expired limitations period to sue on a promissory note. The statute of limitations on a promissory note is six years. CPLR 213(2) ; see also Carpenito v. Linksman , 197 A.D.3d 553, 554 (2 nd Dep’t 2021). However, an expired statute of limitations can be revived in numerous ways. As noted in this BLOG’s article “Revive a Time-Barred Claim Using §17-101 of New York’s General Obligations Law,” “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). This problem may be ameliorated by General Obligations Law §17-101, 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….” Invocation of GOL §17-101, requires “a signed writing which validly acknowledges the debt.” Mosab Const. Corp v. Prospect Park Yeshiva, Inc. , 124 A.D.3d 732, 733 (2 nd Dep’t 2015) (citations and internal quotation marks omitted). “To constitute an acknowledgement, a writing 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.” Karpa Realty Group, LLC v. Deutsche Bank Nat. Trust Co. , 164 A.D.3d 886, 888 (2 nd Dep’t 2018) (citations and internal quotation marks omitted). Signatures can be added to a writing manually or electronically. As to the latter, the New York State Technology Law addresses circumstances where one can be bound by “electronic signatures.” Thus, the conclusion that an email can be deemed a signed writing: is buttressed by reference to the New York State Technology Law, former article 1, “Electronic Signatures and Records Act,” which was enacted by the Legislature in 2002. In the accompanying statement of legislative intent, the Legislature stated in part: “ This act is intended to support and encourage electronic commerce and electronic government by allowing people to use electronic signatures and electronic records in lieu of handwritten signatures and paper documents” (L 2002, ch 314, § 1). Section 302(3) of this statute states that an “‘lectronic signature’ shall mean an electronic sound, symbol, or process, attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the record.” Section 304(2) of the statute states that “an electronic signature may be used by a person in lieu of a signature affixed by hand he use of an electronic signature shall have the same validity and effect as the use of a signature affixed by hand.” Forcelli v. Gelco Corp. , 109 A.D.3d 244, 250-251 (2 nd Dep’t 2013).² Another way that a statute of limitations can be renewed is “by partial payment of principal or interest which has the effect of an acknowledgement or new promise to pay under the note.” Aldridge v. LNG Enterprises, Inc. , 220 A.D.3d 1178, 1179 (4th Dep’t 2023) (citations, internal quotation marks, brackets and ellipses omitted). The prior discussion leads back to Mark. In 2007, the defendant in Mark delivered a promissory note to the plaintiff promising to pay $75,000 the following year. In 2017, the plaintiff commenced an action to collect on the promissory note. As one would expect, the defendant raised a statute of limitations defense. At a non-jury trial: the plaintiff introduced into evidence an email sent by the defendant to the plaintiff in June 2013 and two checks that the plaintiff testified were partial payments made by the defendant to the plaintiff after the limitations period had ended. The email sent by the defendant included his full name, the name of his business, and the business’s web address. The defendant testified that he did not sign the email and that his name and other information were included in the email automatically. He further testified that he made the two payments to the plaintiff to cover dermatological services for which the defendant was never billed and because the plaintiff was experiencing financial difficulties. The two checks did not include a notation or cover letter stating that they were to be used to pay the debt owed on the note. At the close of evidence, the plaintiff argued that the email and the partial payments served to extend and revive the statute of limitations. The trial court dismissed the complaint because the plaintiff’s claims were time barred and the plaintiff appealed. In affirming the trial court, the Second Department found that while the emails in question “included the defendant’s full name, the name of his business, and the business’s web address, the defendant testified that he ‘didn’t sign’ the email and that the closing was an ‘automatic’ message that ‘comes up’ on his computer.” Based on the testimony, the Court concluded that “the defendant did not intend to sign the email, and thus, the email did not serve to revive the statute of limitations.” (Relying on Forcelli and the New York State Technology Law.) The Court, in finding that the plaintiff’s “partial payment” position was unavailing, stated: Here, the two checks did not contain a memo, notation, or cover letter indicating that the defendant intended for them to constitute partial payments under the note. Moreover, the defendant testified that he sent the plaintiff the checks to help the plaintiff financially and to reimburse the plaintiff for dermatology services rendered. Thus, the checks were not accompanied by circumstances amounting to an absolute and unqualified acknowledgment of the sum due under the note from which a promise to pay the remainder may be inferred. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. ¹ To find such articles, please see the BLOG tile on our website and type “statute of limitations” into the “search” box. ² This BLOG has written numerous articles addressing email signatures and discussing Forcelli. To find such articles, please see the BLOG tile on our website and type “Forcelli” into the “search” box.

By:  Jeffrey M. Haber The doctrine of frustration of purpose is narrowly applied.¹ “In order to invoke the doctrine of frustration of purpose, the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense.”² In other words, the doctrine will not apply “unless the frustration is substantial.”³ However, “frustration of purpose … is not available where the event which prevented performance was foreseeable and provision could have been made for its occurrence”.⁴ The doctrine of impossibility “excuses a party’s performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible.”⁵ The “impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract.”⁶ The doctrines of frustration and impossibility of performance were recently examined by the Appellate Division, First Department in Gad v. CCC NFP, Inc. , 2026 N.Y. Slip Op. 00470 (1st Dept. Feb. 03, 2026). Gad involved an agreement to provide a venue for plaintiff’s son’s bar mitzvah celebration. Plaintiff entered into an agreement with defendant, CCC NFP, Inc. d/b/a Classic Car Club (“defendant”), to reserve an event space to host his son’s bar mitzvah celebration at the Classic Car Club at 1 Pier 76 in New York City (the “venue”). Defendant operates the venue. Plaintiff claimed that defendant breached the agreement by failing to provide plaintiff with the venue, and that he was damaged in the amount of $52,218.75. In its answer, defendant denied the allegations and asserted numerous affirmative defenses. Plaintiff moved, pursuant to CPLR 3212, for an order granting partial summary judgment on its breach of contract claim or, in the alternative, on its unjust enrichment claim, and an order granting plaintiff damages in the amount of $52,218.75, together with statutory interest at the rate of 9% from May 17, 2020. Plaintiff contended that he performed under the contract to secure the venue by tendering to defendant a check in the amount of $27,218.75 (“Deposit 1”) accompanied by a $25,000.00 cash payment (“Deposit 2”). According to plaintiff, defendant did not dispute that plaintiff performed under the contract and that defendant breached the agreement by failing to provide the venue or return the deposits. Plaintiff alleged that in light of the COVID-19 restrictions on in-person gatherings, defendant attempted to reschedule the bar mitzvah celebration, but plaintiff refused, and, therefore, did not sign an addendum to the contract. Plaintiff argued that, despite a provision in the contract that Deposit 1 was non-refundable, defendant was not entitled to retain Deposit 1 because it did not perform under the contract. Plaintiff further argued that defendant could only retain Deposit 1 if it provided plaintiff with the venue on the event date and plaintiff chose not to use the venue, or if plaintiff terminated the contract prior to the event date despite defendant’s ability to perform. In addition, plaintiff argued that the essential purpose of the contract — to hold a large party to celebrate his son’s bar mitzvah at the venue with 160 guests — was frustrated by the COVID-19 pandemic and the ensuing Executive Orders limiting in-person gatherings. According to plaintiff, given the uncertainties and limitations on in-person gatherings imposed by the COVID-19 Executive Orders and that the bar mitzvah celebration required extensive studying of the specific holy scripture that corresponded to the bar mitzvah date, rescheduling the event to a later date was not possible. Since defendant could not perform under the contract, argued plaintiff, defendant could neither retain Deposit 1 nor claim that it had incurred any expenses with respect to the bar mitzvah celebration. Plaintiff also contended that the contract did not provide that Deposit 2 was non-refundable and, as such, defendant was required to return Deposit 2, regardless of its obligations with respect to Deposit 1. In opposition, defendant argued that the motion must be denied because Deposit 1 was, pursuant to the contract, non-refundable. In that regard, the contract provided, in pertinent part, that “ deposit in the amount of $27,218.75 shall be paid by Licensee to Licensor at the time of the signing of this Agreement and before Friday, December 20, 2019. This payment is not refundable.” Defendant disputed plaintiff’s allegations that the two deposits were made at the same time on December 19, 2019. Defendant maintained that the contract only required a single deposit to be made on December 20, 2019, in the amount of $27,218.75, and that plaintiff failed to provide any proof of payment of Deposit 2. According to defendant, plaintiff’s documentary evidence was not confirmation of receipt of a $25,000.00 cash deposit. Hence, defendant maintained that there was a material issue of fact with respect to the $25,000.00 deposit allegedly paid in cash. Addressing plaintiff’s argument that Deposit 1 could not be retained for lack of consideration, defendant argued that consideration was provided because, in exchange for Deposit 1, defendant agreed, to the exclusion of other clientele, to reserve and hold exclusive for plaintiff the May 17, 2020, event date, maintained in-house staff to serve clientele, and incurred expenses in drafting the contract, the proposed addendum sent to plaintiff, and its efforts to reschedule the event. In addition, it contended that whether the contract was frustrated created a material issue of fact because plaintiff contemplated rescheduling the event to a new date. Defendant argued that the deposits were non-refundable for the additional reason that the contract lacked a force majeure provision. In reply, plaintiff maintained that while defendant did not dispute that he paid Deposit 1 as required under the contract, defendant failed to state with certainty that Deposit 2 was not paid. According to plaintiff, defendant’s argument that Deposit 2 was not documented in its books and records did not create an issue of fact because defendant acknowledged that its representative emailed other employees in defendant’s business about the cash payment. As such, plaintiff claimed that defendant’s contention that the email concerning Deposit 2 pertained to commissions was meritless because defendant did not point to any portion of the contract that required plaintiff to pay defendant such amount, but rather, the contract specifically provided that plaintiff was to pay a deposit of $25,000.00 for the venue. Plaintiff contended that he received no benefit from defendant reserving and holding the event date to the exclusion of other potential customers, nor did defendant suffer any detriment in doing so. Plaintiff further noted that maintaining in-house staff to serve customers was not consideration in exchange for Deposit 1 as defendant did not maintain its in-house staff solely for the bar mitzvah celebration he intended to hold at the venue. In addition, plaintiff contended that both the costs that defendant allegedly incurred with respect to drafting the contract is an ordinary cost of doing business and by no means consideration in exchange for Deposit 1, and that the expenses associated with the proposed addendum to the contract cannot be considered consideration since the efforts to reschedule the event did not arise at the time of contract. The motion court granted plaintiff’s motion. The motion court held that plaintiff established its prima facie entitlement to summary judgment on its breach of contract claim. The motion court observed that there was no dispute that defendant failed to provide the venue as required under the agreement. With respect to defendant’s reliance on the frustration of purpose doctrine, the motion court accepted plaintiff’s position that the COVID‑19 restrictions on in‑person gatherings frustrated the purpose of the contract. The motion court reasoned that, without access to the venue in which the celebration was to be held, the contract would have been devoid of meaning to the parties. Although acknowledging that the First Department has generally rejected the invocation of the COVID‑19 pandemic as a basis for applying the frustration of purpose doctrine⁷, the motion court found that the unique facts of the case warranted a different outcome. In particular, the motion court noted that, given the nature of a bar mitzvah celebration, plaintiff could not reasonably be expected to wait until the end of the pandemic to hold the event.⁸ The motion court found defendant’s arguments in opposition – e.g., that it was entitled to keep Deposit 1 because the contract included a non-refundable clause; that the contract did not include a force majeure provision; and that consideration was provided in exchange for plaintiff’s deposit when it agreed to the exclusion of other clientele to reserve and hold exclusive for plaintiff the May 17, 2020, event date, in addition to maintaining in-house staff to serve event clientele – to be unavailing. In the context of a bargained-for-exchange, said the motion court, the word non-refundable could not be construed as a license to not perform under a contract and to still retain an advance payment. The motion court noted that defendant did not provide the venue for the bar mitzvah celebration for which it entered into a contract with plaintiff, plaintiff neither agreed to a new date nor signed the addendum amending the event date, and plaintiff demanded a refund of the deposits. Therefore, the non-refundable clause did not bar plaintiff’s breach of contract claim. The motion court also found defendant’s contention that it was entitled to retain Deposit 1 as the contract lacked a force majeure provision to be unpersuasive. The motion court explained that a party’s performance under a contract may be excused even in the absence of an express provision addressing the specific event that rendered performance impossible. The motion court determined that, although the contract did not contain a force majeure clause, the government shutdown orders prevented defendant from providing the venue on May 17, 2020, as required by the agreement. The court further found unavailing defendant’s argument that it had furnished consideration for Deposit 1 by reserving the venue and maintaining in‑house staff for event services. Given the government shutdown orders restricting in‑person gatherings, the motion court concluded that defendant failed to demonstrate that it maintained staff specifically for plaintiff’s bar mitzvah celebration, particularly when defendant knew it could not make the venue available on the scheduled event date. Accordingly, the motion court held that the absence of a force majeure provision did not entitle defendant to retain Deposit 1. The motion court also rejected defendant’s assertion that the parties had agreed to reschedule the event. Relying on the contract’s modification clause, providing that “his Agreement shall not be modified except by written instrument subscribed by both parties,” the motion court held that, because defendant did not produce a written modification executed by both sides, its claim of a rescheduled event was without merit. On the foregoing basis, the motion court granted plaintiff’s motion with regard to his first cause of action for breach of contract. On appeal, the Appellate Division, First Department, unanimously affirmed. The Court held that “plaintiff established prima facie that the purpose of the contract was frustrated by the COVID-19 pandemic and the executive orders issued in response to the pandemic, which prohibited non-essential gatherings of individuals of any size for any reason’ and was eventually extended through May 28, 2020.”⁹ The Court explained that “ because the bargained-for exchange between the parties was intended to secure the timing of the event, the purpose of the contract was entirely frustrated by the COVID-19 pandemic and subsequent executive orders, and plaintiff was completely deprived of the benefit of his bargain.”¹⁰ Moreover, said the Court, “although the doctrine of frustration of purpose is not available when the event that prevented performance was foreseeable, the COVID-19 pandemic and eventual prohibition on social gatherings were unforeseeable at the time the parties entered into the contract on December 18, 2019.”¹¹ The Court noted that “n opposition, defendant failed to raise an issue of fact concerning its performance under the contract or plaintiff’s payment.”¹² In holding that the doctrine of impossibility of performance applied, the Court made a point of distinguishing Gad from its prior jurisprudence in which it “rejected the COVID-19 pandemic as grounds for a finding of frustration of purpose or impossibility.”¹³ In those actions, explained the Court, “the agreement’s purpose was not totally defeated, but was only partially defeated.”¹⁴ Takeaway The doctrines of frustration of purpose and impossibility apply only in narrow circumstances – namely, when an unforeseeable event completely defeats the contract’s essential purpose or renders performance objectively impossible. In Gad , both the motion court and the First Department held that the COVID‑19 pandemic and the Executive Orders prohibiting all non‑essential gatherings completely undermined the parties’ agreement to hold a bar mitzvah celebration on a specific date at a specific venue. Because the timing and location of the celebration were central to the bargain, plaintiff was entirely deprived of the benefit of the contract when the venue could not host the event. Importantly, Gad is distinguishable from the First Department’s prior pandemic‑related decisions, where the Court rejected frustration‑of‑purpose and impossibility claims on the ground that the agreements’ purposes were only partially, not totally, impeded. In those prior cases, performance remained possible in modified form, or the underlying contractual objective could still be achieved. By contrast, in Gad , the Executive Orders barred the very event the contract contemplated, and the contract’s purpose – securing the specific date for the bar mitzvah celebration – was entirely defeated. Thus, unlike the earlier cases, Gad presented the rare circumstance where frustration of purpose and impossibility applied. ________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. ¹ Jack Kelly Partners LLC v. Zegelstein , 140 A.D.3d 79, 85 (1st Dept. 2016), lv. dismissed , 28 N.Y.3d 1103 (2016). ² Warner v. Kaplan , 71 A.D.3d 1, 6 (1st Dept. 2009) (internal quotation marks omitted), lv. denied , 14 N.Y.3d 706 (2010). ³ Rockland Dev. Assoc. v. Richlou Auto Body, Inc. , 173 A.D.2d 690, 691 (1991). ⁴ Warner , 71 A.D.3d at 6 (internal quotation marks omitted). ⁵ Id. at 5. ⁶ Id. ⁷ See Pentagon Fed. Credit Union v. Popovic , 217A.D.3d 480, 481 (1st Dept. 2023). ⁸ See Kay v. Events , 2021 N.Y. Misc. LEXIS 36371, **4-5 (Sup. Ct., Kings County 2021). ⁹Slip Op. at *1, citing Executive Order (A. Cuomo) Nos. 202.10, 202.31 (9 N.Y.C.R.R. 8.202.10, 8.202.31). ¹⁰ Id. , citing Kay v. Heavenly Events & Catering Corp. , 241 A.D.3d 1305, 1306 (2d Dept. 2025). ¹¹ Id. , citing id. at 1308. ¹² Id. ¹³ Id. ¹⁴ Id. , citing Pentagon Fed. Credit Union v. Popovic , 217 A.D.3d 480, 481 (1st Dept. 2023).

By:  Jeffrey M. Haber Liability for aiding and abetting a fraud is distinct from liability for committing the underlying fraud itself. This theory of liability recognizes that a defendant may substantially contribute to fraudulent misconduct without personally making any misrepresentation/omission or directly deceiving the plaintiff. Thus, instead of requiring proof that the defendant was the maker of a false statement or omission, an aiding‑and‑abetting theory turns on whether the defendant had actual knowledge of the primary wrongdoing and provided substantial assistance that helped bring about the fraudulent result.¹ Actual knowledge is a demanding standard: it requires awareness of the underlying fraud itself, not merely suspicion, negligence, or a failure to inquire. While such knowledge may be inferred from circumstantial evidence², it cannot rest on generalized allegations of wrongdoing or the mere fact that a defendant was involved in the events surrounding the fraud. Similarly, “substantial assistance” requires more than peripheral involvement or routine professional services. It encompasses conduct that affirmatively furthers or enables the fraud to succeed³, such as facilitating transactions integral to the scheme, helping to conceal or disguise the misconduct, or failing to act when a duty to do so exists and the omission effectively allows the fraud to proceed. The doctrine also incorporates a proximate‑cause component: the assistance must be sufficiently connected to the plaintiff’s harm to render the defendant’s participation meaningful rather than incidental. Taken together, these elements ensure that aiding‑and‑abetting liability attaches only when a defendant knowingly participates in and plays a substantial role in the accomplishment of the underlying fraud. A defendant may therefore be held liable even if they were not the originator of the fraudulent statements or omissions and did not interact directly with the plaintiff, so long as their informed actions, or deliberate inaction, helped the primary wrongdoer carry out the fraudulent scheme. The foregoing principles were considered by the Appellate Division, Second Department, in Chin v. Pacific 10, LLC , 2026 N.Y. Slip Op. 00343 (2d Dept. Jan. 28, 2026), in which the Court addressed whether allegations concerning a defendant’s role in concealing structural defects and submitting incomplete or misleading filings to municipal authorities were sufficient to state a claim for aiding and abetting fraud. Chin arose from plaintiffs’ 2018 purchase of a Brooklyn townhouse from defendant Pacific 10, LLC (“Pacific 10”). Pacific 10 is allegedly owned by defendant Frank Tehrani (“Frank”). Prior to the closing of the purchase transaction, the townhouse underwent substantial renovation. In connection with the renovations, Frank’s brother, defendant Bahram Tehrani (“Bahram”), doing business as BTE Design Services, through his business, made certain filings with the New York City Department of Buildings (“DOB”). Plaintiffs alleged that in 2019, during an extensive renovation of an adjacent property, they discovered structural deficiencies in the subject property concealed within the walls, including the removal of a load-bearing wall without sufficient reinforcement on the affected lot line walls. Plaintiffs commenced the action against Pacific 10, Frank, and Bahram, inter alia, to recover damages for fraud. Relevant to the appeal, plaintiffs alleged that Bahram conducted a gut renovation of the property. It further alleged that, acting in conjunction with the other defendants, Bahram omitted certain information, including all structural work, from his submissions to the DOB, and Bahram submitted false, misleading, or purposefully incomplete certifications to the DOB in order to obtain a final certificate of occupancy without a proper inspection and to intentionally conceal the true condition of the property from plaintiffs. Plaintiffs alleged that Bahram aided and abetted the other defendants in defrauding them. Bahram moved to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7) or, in the alternative, for summary judgment dismissing the complaint as against him. The motion court denied the motion. Bahram appealed. The Second Department affirmed. The Court held that, as to the first element of the claim, plaintiffs “sufficiently alleged an underlying fraud to actively conceal structural deficiencies and damage in the renovations from the plaintiffs, which were not readily discoverable by the plaintiffs in fulfilling their responsibilities imposed by the doctrine of caveat emptor.”⁴ The Court further held that plaintiffs “sufficiently alleged Bahram’s knowledge of and substantial assistance in achievement of the fraud.”⁵ The Court explained that, according to plaintiffs, Bahram, among other things, “submit misleading, purposefully incomplete, or false documents with the DOB, as one of the steps to conceal the structurally defective work from the plaintiffs.”⁶ Such allegations were sufficient to withstand the motion to dismiss and, alternatively, the motion for summary judgment.⁷ Takeaway In Chin, the Court concluded that the complaint sufficiently alleged each element of an aiding and abetting fraud cause of action. Although the Court did not dissect the claim in detail, the Court’s factual recitation makes clear why the cause of action survived dismissal. As noted, the complaint alleged an underlying fraud – the deliberate concealment of serious structural defects in the townhouse sold to plaintiffs. It further alleged that the defendant responsible for the DOB submissions knowingly omitted all structural work from the filings associated with the renovation, conduct from which actual knowledge could reasonably be inferred given his role and proximity to the construction activity. And it described how his submission of allegedly false, misleading, or intentionally incomplete certifications to the DOB facilitated the issuance of a certificate of occupancy and concealed the property’s true condition, thereby substantially assisting the fraudulent scheme by enabling the sale to proceed without disclosure. Taken together, these allegations plausibly portrayed defendant as providing affirmative and substantial assistance that allowed the fraud to succeed while masking the defects from both the DOB and plaintiffs. The Court’s decision, therefore, reinforces several important principles. First, a defendant may substantially assist a fraud even without interacting with the plaintiffs, negotiating the transaction, or making direct misrepresentations. By allegedly submitting misleading regulatory filings that represented the property as structurally sound, defendant supplied the mechanism through which the fraud was carried out. Second, material omissions and concealment can constitute substantial assistance. As noted, plaintiffs alleged that the DOB filings excluded all structural work, thereby obscuring the defects. The Court implicitly recognized that such concealment could advance the alleged fraud by preventing detection and securing the regulatory approvals necessary for the transaction. Third, although not expressly discussed, the allegations logically linked defendant’s alleged conduct to plaintiffs’ harm: by helping secure a certificate of occupancy and concealing structural defects, defendant’s participation was a substantial factor in leading plaintiffs to purchase the townhouse. More broadly, Chin underscores the practical reach of aiding‑and‑abetting liability under New York law. The doctrine is sufficiently flexible to capture the role of participants whose conduct materially contributes to the execution of a fraud. It confirms that a defendant need not have made direct misrepresentations to the plaintiff; that actual knowledge may be inferred from circumstantial evidence, including the nature and proximity of the defendant’s role; and that incomplete or misleading filings with regulatory authorities can constitute substantial assistance when they conceal wrongdoing or enable a fraudulent transaction to proceed. _____________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. ¹ “To plead a cause of action to recover damages for aiding and abetting fraud, the complaint must allege the existence of an underlying fraud, knowledge of the fraud by the aider and abettor, and substantial assistance by the aider and abettor in the achievement of the fraud.” Winkler v. Battery Trading, Inc., 89 AD3d 1016, 1017 (2d Dept. 2011); seeSchiano v. Harsanyi, 230 A.D.3d 820, 821 (2d Dept. 2024). ²See Houbigant, Inc. v. Deloitte & Touche, 303 A.D.2d 92, 98- 99 (1st Dept. 2003); DaPuzzo v. Reznick Fedder & Silverman, 14 A.D.3d 302, 303 (1st Dept. 2005). ³ To plead substantial assistance, plaintiffs must allege that the defendant (1) affirmatively assisted, helped conceal, or by virtue of failing to act when required to do so enabled the fraud to proceed, and (2) the defendant’s actions as an aider/abettor proximately caused the harm on which the primary liability is predicated. Stanfield Offshore Leveraged Assets, Ltd. v. Metro. Life Ins. Co., 64 A.D.3d 472, 476 (1st Dept. 2009). ⁴Slip Op. at *2, citing Razdolskaya v. Lyubarsky, 160 A.D.3d 994, 996-997 (2d Dept. 2018); Schooley v. Mannion, 241 A.D.2d 677, 678 (3d Dept. 1997). This Blog wrote about the caveat emptor doctrine on many occasions, including: Fraudulent Concealment and the Caveat Emptor Doctrine ; Publicly Available Information, Justifiable Reliance and The Caveat Emptor Doctrine ; and Caveat Emptor, Disclaimer Clauses and Buying Property “As Is” . ⁵ Id. ⁶ Id. ⁷Id.

By:  Jeffrey M. Haber As readers of this Blog know, a “cause of action to recover damages for fraudulent misrepresentation requires a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.” When addressing the element of justifiable reliance, the “general rule” is that “if the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations.” Where, however, matters are within the “peculiar knowledge” of the seller, “as is” and “no reliance” clauses in the parties’ agreement will not save a defendant from claims of fraudulent misrepresentations. When dealing with real estate transactions, fraudulent misrepresentation claims “must be analyzed within the doctrine of caveat emptor.” “New York adheres to the doctrine of caveat emptor and imposes no liability on a seller for failing to disclose information regarding the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment.”   However, where affirmative conduct “on the part of the seller rises to the level of active concealment, a seller may have a duty to disclose information concerning the property,” but the conduct must be “more than mere silence.” “To maintain a cause of action to recover damages for active concealment, the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his responsibilities fixed by the doctrine of caveat emptor.” In the Bartlett Plaza, LLC v. Jose , 2025 N.Y. Slip Op. 05662 (2d Dept. Oct. 15, 2025) ( here ), the  Appellate Division, Second Department, affirmed the dismissal of a fraud claim where the buyer of real property sued the sellers and their agent, alleging misrepresentations about a tenant’s occupancy. The Court dismissed the claim, ruling the buyer failed to exercise due diligence and could not prove justifiable reliance. Plaintiff commenced the action seeking damages for fraud and breach of contract relating to its purchase of defendants’ commercial property on Bartlett Street in Brooklyn (the “Property”). The Property was advertised for sale by the sellers through a listing by defendant, The Corcoran Group Inc., a/k/a The Corcoran Group (“Corcoran”), their real estate agent. The listing indicated that the Property housed an active two-bay auto mechanic garage, but that the premises could be “delivered vacant” or that the “tenants willing to sign short term lease with new owners”. On February 5, 2020, the sellers entered into a Contract of Sale with plaintiff, wherein the sellers agreed to sell the property to plaintiff for $4,000,000. The parties also executed a Rider to the Contract of Sale (the “Rider”) and a “Post-Closing Possession Agreement (“PCPA”), which set forth additional terms relating to delivery of the property following the closing. At the time the parties executed the Contract of Sale, Rider and PCPA, the Property was occupied by an auto repair shop doing business as Robel & Sons Auto Repair, Corp. (“Robel”), of which plaintiff was aware. The sellers did not own or control the business. It was owned by a third-party named Robel De La Cruz, Jr. (“De La Cruz”). Plaintiff and defendants closed title on January 21, 2021. Robel remained in possession of the auto repair shop throughout the Holdover Period as defined in the PCPA ( e.g. , January 21, 2021 through April 21, 2021) and through the Outside Date, also defined in the PCPA ( e.g. , May 21, 2021), resulting in the escrow funds being released to plaintiff in accordance with the PCPA. The Property remained occupied by Robel at the time plaintiff started the action on October 27, 2021. Plaintiff commenced the action, inter alia , to recover damages for fraud, breach of contract, and negligence, alleging that, despite the terms of the contract and the assurances of the sellers and their listing agent, that (a) the sellers were the sole occupants of the Property, (b) the Property was not occupied by any third-party tenant, and (c) the Property would be delivered vacant, the Property was occupied at the time of closing by Robel pursuant to a multiyear lease. With respect to the fraud claim, plaintiff alleged that “ hortly after Closing, contrary to the representations made by Defendants, Plaintiff discovered that Defendants were not actually in possession of the Premises;” that “Defendant represented on numerous occasions that no tenants occupied the Premises and that Defendants were in sole possession of the space;” that “Defendants’ representations were knowingly false, as was in possession and operating a business from the garage space in the Premises;” that “ s a result of Plaintiffs reliance of Defendants’ intentional misrepresentations, Plaintiff was forced to negotiate with to gain possession of the Premises” and that “ n order to remove , Plaintiff was forced to pay $350,000.00 for his move”.  In their answer, the sellers interposed various affirmative defenses in addition to counterclaims for a judgment declaring that they fully performed under the agreements and for an award of contractual attorneys’ fees as a prevailing party. Additionally, the sellers asserted a crossclaim against Corcoran and the other defendant for indemnification and contribution. The sellers subsequently brought a motion for summary judgment, maintaining that plaintiff was aware, or should have been aware using due diligence, that a tenant occupied the Property when plaintiff executed the Contract of Sale and PCPA and when it closed title, and that all of the sellers’ contractual payment obligations under the PCPA were satisfied either through direct payments or by reason of the release of the escrow funds as “liquidated damages” on the Outside Date. Corcoran cross-moved for summary judgment, claiming that it did not owe a duty to plaintiff. In support of its motion for summary judgment, the sellers submitted an affidavit in which it was averred, among other things, that between December 2019 and before the commencement of the Covid-19 pandemic, they met with plaintiff’s principal on multiple occasions at the Property; that during these meetings the parties walked through the Property, including in and out of the auto repair shop; that De La Cruz was present during many of those walk-throughs; that De La Cruz was the Property’s longstanding tenant; that the sellers planned to relocate De La Cruz when the sellers acquired a new property; and that the sellers needed weeks or months following a closing on the Properly to relocate De La Cruz in a new location. The sellers also submitted a copy of the listing, indicating that a “tenant” existed on the Property. The motion court held that the sellers’ submissions established that no misrepresentations were made to plaintiff with respect to De La Cruz. The motion court went on to say that plaintiff failed to allege reasonable reliance on any misrepresentation, holding that “ s a matter of law, a sophisticated plaintiff cannot establish that it entered into an arm’s length transaction in justifiable reliance on alleged misrepresentations if that plaintiff failed to make use of the means of verification that were available to it”. The motion court explained that “Plaintiff not allege that it made an inquiry or took steps to ascertain who owned Robel, nor it submit proof that the alleged misrepresentation as to possession was a matter peculiarly within the knowledge or that there were no means readily available by which plaintiff could have determined its truth.” “Thus,” concluded the motion court, “under the circumstances, even if there was a misrepresentation by the as to possession or ownership of Robel, plaintiff failed to show that its reliance on the alleged misrepresentation was justifiable.” “As a result,’ concluded the motion court, “that part of the motion for dismissal of plaintiff’s first cause of action for fraud is granted.” On appeal, the Second Department affirmed. The Court held that “the sellers demonstrated their prima facie entitlement to judgment as a matter of law dismissing the first cause of action, alleging fraud, … against them by establishing that even if there was a material misrepresentation, any reliance thereon was unreasonable, since the plaintiff had the means available to it of knowing, by the exercise of ordinary intelligence, the existence and status of the third-party tenant.” The Court also held that the motion court “properly granted that branch of Corcoran’s cross-motion which was for summary judgment dismissing the complaint … against it.” The Court found that “Corcoran demonstrated, prima facie, that it did not actively conceal the third-party tenant’s existence and status and did not thwart the plaintiff’s efforts to fulfill its responsibilities fixed by the doctrine of caveat emptor .” Takeaway A successful claim for fraudulent misrepresentation requires proof of a false statement or omission made knowingly to induce reliance, justifiable reliance by the plaintiff, and resulting injury. With regard to the reliance element, it must be justifiable. The courts have consistently held that if the facts are not exclusively within the defendant’s knowledge and the plaintiff had the means to uncover the truth through reasonable diligence, then the plaintiff cannot later claim to have been misled. This principle was central to the Court’s decision in Bartlett Plaza. As discussed, the buyer alleged fraud, claiming the sellers and their real estate agent misrepresented that the property would be delivered vacant, while in fact, it was occupied by a third-party tenant operating an auto repair shop. The Court found that plaintiff had ample opportunity to discover the tenant’s presence through site visits and contract documents, which referenced the tenant. Plaintiff’s failure to investigate undermined its claim of justifiable reliance. The decision also underscores the point that New York courts continue to adhere strictly to the doctrine of caveat emptor in arm’s-length real estate transactions. This means that buyers are expected to conduct their own due diligence and cannot later claim fraud if they fail to investigate reasonably discoverable facts. Additionally, the Court reaffirmed the principle that active concealment, not mere silence, is required to impose a duty on the seller to disclose information. Since the sellers and agent did not actively prevent plaintiff from discovering the tenant’s occupancy, and the plaintiff failed to exercise due diligence, the Court affirmed the dismissal of the fraud claims. Further, the ruling makes clear that a buyer’s reliance on a seller’s representations is not justifiable if the buyer had access to information that would have revealed the truth through ordinary intelligence or reasonable inquiry. In Bartlett Plaza , the buyer had walked through the property, observed the tenant, and had access to documents referencing the tenant’s presence, yet failed to investigate further. Ultimately, Bartlett Plaza reinforces the importance of due diligence in real estate transactions and illustrates how courts apply the doctrine of caveat emptor to assess the reasonableness of a buyer’s reliance on seller representations. ___________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. R. Vig Props. v. Rahimzada , 213 A.D.3d 871, 872 (2d Dept. 2023) (citations and internal quotation marks omitted). We have examined the element of justifiable reliance in numerous articles. Here are some of the more recent articles for your review : Fraud Notes: First Department Talks About Misrepresentations of Fact and Justifiable Reliance ; Failure To Read Relevant Documents Prevents Claim Of Justifiable Reliance ; Publicly Available Information, Justifiable Reliance and The Caveat Emptor Doctrine ; Fraudulent Inducement: Exculpatory Clauses, Representations and Warranties, and Justifiable Reliance ; and Fraud Notes: Justifiable Reliance, Particularity and Duplication . To read additional articles in which we examined fraud causes of action, please see the BLOG tile on our website and search for any fraud, or other commercial litigation, issue that may be of interest you. Danann Realty v. Harri s , 5 N.Y.2d 317, 322 (1959) (citations and internal quotation marks omitted). TIAA Global Investments, LLC v. One Astoria Square LLC , 127 A.D.3d 75, 87 (1st Dept. 2015) (citing Danann , 5 N.Y.2d at 322). 98 Gates Avenue Corp. v. Bryan , 225 A.D.3d 647, 649 (2d Dept. 2024) (citation omitted). Id. (citations and internal quotation marks omitted). Id. at 649-50 (citations and internal quotation marks omitted). Razdolskaya v. Lyubarsky , 160 A.D.3d 994, 996 (2d Dept. 2018). Slip Op. at *2. Id. Id. (citing R. Vig Props. , 213 A.D.3d 8at 73;  Schottland v. Brown Harris Stevens Brooklyn, LLC , 107 A.D.3d 684, 686 (2d Dept. 2013); Glazer v. LoPreste , 278 A.D.2d 198, 199 (2d Dept. 2000)).

By: Jonathan H. Freiberger Today’s article addresses M & T Bank v. Givens , a case decided on October 15, 2025, by the Appellate Division, Second Department. Givens addresses three issues encountered in mortgage foreclosure actions: motions for extensions of time pursuant to CPLR 2004 , the 90-day requirement to conduct foreclosure sales pursuant to RPAPL 1351(1) and the tolling of interest due to a lender’s delays in prosecuting its foreclosure action. CPLR 2004 CPLR 2004 provides that “ xcept where otherwise expressly prescribed by law, the court may extend the time fixed by any statute, rule or order for doing any act, upon such terms as may be just and upon good cause shown, whether the application for extension is made before or after the expiration of the time fixed.” “CPLR 2004 vests the trial court with discretion to extend the time to perform any act” and, when considering a motion made pursuant to that provision, “the court may properly consider factors such as the length of the delay, whether the opposing party has been prejudiced by the delay, the reason given for the delay, whether the moving party was in default before seeking the extension, and, if so, the presence or absence of an affidavit of merit.” Tewari v. Tsoutsouras , 75 N.Y.2d 1, 11-12 (1989) (citations omitted); see also Nationstar Mortgage, LLC v. Dunn , 230 A.D.3d 1327, 1330 (2 nd Dep’t 2024). RPAPL 1351(1) In this BLOG’s article “ RPAPL 1351(1) Requires a Foreclosure Sale to Occur Within Ninety Days of the Date of the Judgment of Foreclosure and Sale ,” we, for the first time, discussed RPAPL 1351(1)’s requirement that judgments of foreclosure and sale direct that foreclosure sales occur within ninety days of the judgment. As discussed in the article, in order to vacate a judgment of foreclosure and sale and/or set aside a sale because a sale did not occur within 90 days pursuant to RPAPL 1351(1), a borrower would have to show that “the delay of the foreclosure sale prejudiced a substantial right.” Wells Fargo Bank, N.A. v. Singh , 204 A.D.3d 732, 734 (2 nd Dep’t 2022); see also Bank of New York Mellon v. Adam P10tch, LLC , 226 A.D.3d 497, 498 (1 st Dep’t 2024). The same is true if the statutorily required “ninety day” language is omitted from a judgment of foreclosure and sale. Wells Fargo Bank, N.A. v. Malik , 203 A.D.3d 1110, 1112 (2 nd Dep’t 2022) (“since the defendant does not allege that any substantial right of his was prejudiced by the omission of the statutory language from the judgment of foreclosure and sale, the Supreme Court properly declined to vacate the notice of sale on that ground”). Tolling of Interest In prior BLOG articles, we discussed the court’s power to toll the accrual of interest in mortgage foreclosure actions. We noted that the calculation of interest is an important component of the of the sums due to the lender. CPLR 5001(a) provides, in relevant part, that “in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court’s discretion.” See also U.S. Bank, N.A. v. Peralta , 191 A.D.3d 924, 925-26 (2 nd Dep’t 2021);. Wells Fargo Bank, N.A. v. Daniel , 231 A.D.3d 899, 901 (2 nd Dep’t 2024) (citations omitted). In that regard, a “foreclosure action is equitable in nature and triggers the equitable powers of the court.” U.S. Bank Nat. Ass’n v. Williams , 121 A.D.3d 1098, 1101-02 (2 nd Dep’t 2014) (numerous citations and internal quotation marks omitted); see also Wells Fargo , 231 A.D.3d at 901. Once invoked, the Court’s equity powers are “as broad as equity and justice require.” Deutsche Bank National Trust Co. v. Armstrong , 218 A.D.3d 738, 739 (2 nd Dep’t 2023) (citations and internal quotation marks omitted). The court, in exercising its discretion, “is governed by the particular facts in each case.” U.S. Bank , 191 A.D.3d at 926 (citations omitted). A court’s authority can be used to toll interest in, inter alia , foreclosure actions, where the lender’s conduct “is deemed wrongful” or where there has been “unexplained delay” in the prosecution of the action. Wells Fargo , 231 A.D.3d at 901 (citations and internal quotation marks omitted); see also Deutsche Bank Trust Company Americas v. Knights , 231 A.D.3d 1016, 1018 (2 nd Dep’t 2024). M & T Bank v. Givens In 2016, lender commenced a foreclosure action against borrower. A judgment of foreclosure and sale was issued in November of 2019, directing, inter alia , the sale of the subject property within 90 days. While the sale was scheduled to occur within the requisite timeframe, it was postponed at the lender’s request. In June of 2022, the lender moved pursuant to CPLR 2004 to extend the time to conduct the sale. The borrower opposed the motion and cross-moved to toll the accrual of interest from the end of the 90-day period to the sale date. The motion court extended lender’s time to conduct a foreclosure sale and denied the borrower’s cross-motion. The borrower appealed. The Second Department modified the motion court’s order by tolling the accrual of interest. The Court let stand that portion of the motion court’s order extending the lender’s time to conduct a foreclosure sale. As to the latter, the Court found that that the motion court “providently exercised its discretion” in granting the lender’s motion pursuant to CPLR 2004 as the lender “demonstrated that the delay was largely attributable to, among other things, the COVID-19 pandemic.” (Citations, internal quotation marks, brackets and ellipses omitted.) the Court also found that the borrower failed to demonstrate and prejudice from the delay. (Citations omitted). As to the tolling of the accrual of interest, after discussing authorities like those cited supra , the Court stated: Here, contrary to the 's contention, the Supreme Court improvidently exercised its discretion in denying the 's cross-motion to toll the accrual of interest on the subject mortgage loan. The asserted that the COVID-19 pandemic impacted its ability to proceed with the sale of the property. However, the pandemic-related stays on foreclosure sales did not go into effect until after the expiration of the 90-day deadline to conduct the sale of the property and the failed to adequately explain its failure to conduct the sale within that 90-day period. Under the circumstances presented, the court should have granted the 's cross-motion to the extent of tolling the accrual of interest on the subject mortgage loan after February 17, 2020 . Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosure, or other commercial litigation, issue that may be of interest you. This BLOG has previously addressed RPAPL 1351(1). See, e.g ., < here =">here"> and < here =">here"> . This BLOG has previously addressed the issue of the Court’s discretion to toll the accrual of interest due to a lender in foreclosure actions. See, e.g. , < here =">here"> and < here =">here"> .