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This Blog has previously written about the equitable estoppel doctrine in the context of the statute of limitations ( here ). See General Stencils v. Chiappa , 18 N.Y.2d 125, 128 (1966); Zumpano v. Quinn , 6 N.Y.3d 666, 674 (2006); Matter of Steyer , 70 N.Y.2d 990, 993 (1988). The doctrine has also been used as a basis to reject a jurisdictional defense. Matre v. Erie County Pub. Adm’r. , 283 A.D.2d 1025, 1026 (4th Dept. 2001) (applied to personal jurisdiction and statute of limitations defenses); Brown v. Snell , 57 N.Y. 286, 303 (1874) (court applied the doctrine to prevent the defendant from asserting lack of jurisdiction). While the circumstances under which the doctrine is asserted may differ, the analysis of the doctrine remains the same: a plaintiff seeking to apply the doctrine of equitable estoppel must establish that the defendant’s actions prevented him/her from taking action and that he/she justifiably relied on the defendant to his/her detriment. “The purpose of equitable estoppel is to preclude a person from asserting a right after having led another to form the reasonable belief that the right would not be asserted, and loss or prejudice to the other would result if the right were asserted.” Matter of Shondel J. v. Mark D. , 7 N.Y.3d 320, 326 (2006). In Shondel J. , the Court of Appeals observed, the doctrine is applied “as a matter of fairness.” Id . Courts apply the defense “to prevent someone from enforcing rights that would work injustice on the person against whom enforcement is sought and who, while justifiably relying on the opposing party’s actions, has been misled into a detrimental change of position.” Id . See also Nassau Trust Co. v. Montrose Concrete Prods. Corp. , 56 N.Y.2d 175, 184 (1982). Application of the doctrine requires only reliance and prejudice; it does not require the “existence of fraud or an intent to deceive.” Rodriguez v. Morales , 200 A.D.2d 406, 407 (1st Dept. 1994). Whether the doctrine applies “rests largely on the facts and circumstances of the particular case.” Ayer v. Board of Educ. , 69 Misc. 2d 696, 699 (Sup. Ct. Monroe County 1973) (citation omitted). In Homeward Residential, Inc. v Thompson Hine, LLP , the court addressed the foregoing principles, affirming the dismissal of an action on personal jurisdiction grounds. Homeward Residential, Inc. v Thompson Hine, LLP , 2019 N.Y. Slip Op. 03542 (1st Dept. May 7, 2019) ( here ). In doing do, the court rejected the plaintiff’s equitable estoppel defense that its attorneys relied on the defendant’s filings as a foreign partnership with the New York Department of State (“DOS”), which identified a New York address as the Defendant’s “Principal Executive Office,” and on a complaint filed by the defendant in an unrelated action in which it alleged that its principal place of business was in New York. Homeward Residential arose out of legal work performed by the defendant for the plaintiff in connection with a lawsuit pending in a federal court in Georgia. Plaintiff serviced home mortgage loans and hired the defendant to represent it in a lawsuit brought by a property owner. Plaintiff claimed that the defendant failed to timely assert a claim relating to punitive damages resulting in a $3 million punitive damages judgment awarded against it. Plaintiff contended that had the defendant provided proper representation, it would have cited to a Georgia statute that limited punitive damages to $250,000. The defendant moved to dismiss for lack of personal jurisdiction, arguing that the court did not possess general jurisdiction or specific jurisdiction over it. The defendant maintained that it is a limited liability partnership organized under the laws of Ohio and its principal place of business is in Cleveland, Ohio. The defendant argued that New York had no connection to the underlying lawsuit that occurred in Georgia, and that none of its New York-based attorneys were involved in the Georgia action. The defendant also noted that it registered with the Department of State as a foreign limited liability partnership. The plaintiff argued in opposition that it found information about the defendant on the DOS website, which showed that the defendant had changed its principal place of business from Cleveland to New York City. The plaintiff also pointed to a filing in another litigation based in New York in which the defendant asserted that its principal place of business is in New York City. The motion court granted the motion to dismiss. ( Here .)   The court held that there was no general or specific jurisdiction over the defendant – it found that the defendant was incorporated in Ohio and maintained its principal place of business in Ohio. The Court rejected the plaintiff’s equitable estoppel defense that the defendant held itself out to be a New York entity because of the information filed with the DOS: Here, plaintiffs purported reliance on these DOS printouts to support its equitable estoppel argument is simply unreasonable. The fact is that New York had nothing to do with the parties’ relationship. Plaintiff is not based in New York. Defendant represented plaintiff in a lawsuit in Georgia. Plaintiff does not even contend that any of defendant’s lawyers based in New York did anything in connection with the Georgia trial. And, in reply, defendant submits check vouchers in connection with the Georgia action that purportedly show that payments were made to defendant in Cleveland. The Court observes that the term ‘Principal Executive Office’ appears to relate primarily to issues of venue; it is not a synonym for principal place of business. Moreover, defendant argues that it means its principal office within New York state; that claim is supported by the current registration form for foreign LLPs created by DOS the third box asks the entity to list “the address of the principal office of the foreign limited liability partnership in New York state”. It is not defendant’s fault if the DOS extrapolates from that form to put on its website something that may not be accurate. Orig’l emphasis; citations omitted. The motion court went on to say that “to arrive at plaintiff’s conclusion,” “one would have to selectively rely on information that supports plaintiff’s position to the exclusion of everything else.” That is not how the equitable estoppel doctrine works said the court: “Equitable estoppel cannot apply where plaintiff cherry-picks which information to rely on and which facts to ignore.” The plaintiff appealed. The Appellate Division, First Department, “unanimously affirmed, with costs.” The Court found that the defendant had “demonstrated that there no basis for asserting specific or general personal jurisdiction over it in New York because it is a limited liability partnership formed in Ohio, with a principal place of business in Ohio, and it rendered legal services to plaintiff in Georgia and Ohio only, not in New York.” Slip Op. at *1. The Court further found that the plaintiff was aware of facts, which had it conducted an investigation would have revealed that the defendant was not at home in New York. As such, the equitable estoppel doctrine was not available to it: However, defendant presented evidence showing that any search for public information would disclose that it is an Ohio-based law firm, with its principal place of business in Cleveland, and, moreover, that plaintiff was aware of this, as it had dealt with the firm in Georgia and Ohio only and sent payments to the Cleveland office. Defendant also showed that it did not affirmatively misrepresent its place of business in its DOS filings, which disclose that it is a foreign limited liability corporation and provide its Cleveland address for service of process. Plaintiff’s “timely awareness of the facts requiring to make further inquiry” and failure to make such inquiry before bringing suit in New York render equitable estoppel inappropriate as a matter of law. Id . at **1-2 (citation omitted). Takeaway Homeward Residential is an interesting case because of the approach taken by the plaintiff to demonstrate personal jurisdiction. Instead of trying to affirmatively show that the defendant had sufficient contacts in New York to establish specific jurisdiction, the plaintiff “claim that defendant equitably estopped from arguing about personal jurisdiction.” (Orig’l emphasis.) To the motion court, if it were to adopt such an approach, it would have “require the ourt to block out all other information showing the reality: that defendant is based in Ohio and that plaintiff is aware of that fact given the parties’ prior relationship in Georgia.” As the motion court concluded, since “the principle of equitable estoppel relies on fairness,” “it would be inherently unfair for defendant to be subject to general jurisdiction in New York because plaintiff relied exclusively on its own interpretation of information compiled by a third-party over which defendant had no control.” Or, as the First Department observed, a plaintiff cannot avail itself of the doctrine if it is aware of information that calls into question its reliance and fails to investigate further.

On April 29, 2019, the Securities and Exchange Commission (“SEC”) announced ( here ) that it filed charges against a New York City man for continuing a previously charged ticket resale scheme, in which investors were falsely promised that their funds would be used for the purchase and resale of tickets to Broadway shows and a sporting event. According to the SEC, at least 12 investors were defrauded out of approximately $2.7 million as a result of the scam. According to the SEC’s complaint ( here ), James Siniscalchi (“Siniscalchi”), Chief Compliance Officer of a company that claimed to have special access to profitable and highly sought-after event tickets (“Entertainment Company”), knowingly misused investor money to benefit himself and his extended family. The SEC alleged that Siniscalchi and his business partners rebranded businesses formerly run by his cousin, Joseph Meli (“Meli”), who settled fraud charges with the SEC ( here ) and pleaded guilty to securities fraud in a parallel criminal action ( here ), and that this rebranding was done with Meli’s knowledge and assistance. Following Meli’s arrest, Siniscalchi and his business partners allegedly raised approximately $2.7 million net from investors. According to the SEC, investors were promised that their money would be used only to purchase tickets on the secondary market to events such as the Broadway shows Harry Potter and the Cursed Child, Hello Dolly, and Bruce Springsteen on Broadway, and a professional boxing match between Floyd Mayweather Jr. and Conor McGregor. In actuality, alleged the SEC, Siniscalchi misused investor funds to benefit himself, Meli, and his family. The SEC alleged that Siniscalchi took steps to conceal from investors Meli’s involvement given the widely publicized civil and criminal cases that were then pending against Meli. To hide Meli’s role in the alleged fraud, Siniscalchi purportedly instructed staff not to include Meli on emails to investors, and referred to Meli as “Keyser Soze,” in reference to a fictional movie character from the movie The Usual Suspects who secretly operated as a crime kingpin. “As alleged in our complaint, investors were lured in with promises of big profits, but Siniscalchi really just took over his cousin’s fraudulent scheme to steal money,” said Paul Levenson, Director of the SEC’s Boston Regional Office. The SEC filed its complaint in the U.S. District Court for the Southern District of New York. The Commission charged Siniscalchi with violating the antifraud provisions of the federal securities laws and sought a permanent injunction from future violations, disgorgement of allegedly ill-gotten gains, with interest, and financial penalties. In addition to the SEC, the U.S. Attorney’s Office for the Southern District of New York filed criminal charges against Siniscalchi and Meli ( here ). In that regard, Siniscalchi and Meli were charged with securities fraud, wire fraud, and conspiracy to commit securities and wire fraud, stemming from their participation in the alleged fraudulent ticket investment scheme. U.S. Attorney Geoffrey S. Berman said: “As alleged, Joseph Meli and James Siniscalchi engaged in a scheme to defraud investors by lying about purported access to blocks of Broadway tickets.  As alleged, the acting was all done by the defendants, who posed as legitimate businessmen but appropriated the money they said would be invested in theatre tickets.” If convicted, the conspiracy count carries a maximum sentence of five years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense; the securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million, or twice the gross gain or loss from the offense; and the wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. The SEC action, SEC v. James Siniscalchi , Case 1:19-cv-03792 (S.D.N.Y. Apr. 29, 2019), can be found here . The DOJ action, U.S. v. Meli et al. , 19 MAG 4079 (S.D.N.Y.), can be found here .

In Siwiec v. United Rest. Group Inc. , 2019 N.Y. Slip Op. 31152(U) (Sup. Ct. Kings County Apr. 11, 2019) ( here ), the Court reminds litigants that if they want to bring a fraud claim along with a contract claim, they must allege misrepresentations that are collateral or extraneous to the contract. Siwiec involved a dispute over the management of a restaurant. According to the complaint, the parties met in May 2016, when Defendant, Christian Vega (“Vega”), the Chairman and Chief Executive Officer of Defendant, United Restaurant Group, Inc. (“URG”), allegedly approached Plaintiffs about entering into a partnership whereby Defendants would manage a soon-to-be-opened restaurant in Brooklyn. Vega purportedly represented that he and URG owned and operated several successful restaurants in New York City. On June 9, 2016, Plaintiff, El Sotano and URG executed an “Operating Agreement” pursuant to which URG would be an operating partner and help run and manage the restaurant. Plaintiffs claimed that Defendants were not successful restaurateurs. According to the complaint, Defendants were engaged in a stock-swapping, pyramid-type scheme in which Defendants (and others associated with them) would approach restauranteurs and propose a partnership, equity, or management relationship. Defendants would then allegedly use the relationship with the restauranteur as a basis to enter into a new one with another restauranteur to create the impression that Defendants were successfully managing multiple restaurants. Plaintiff commenced the action alleging numerous causes of action, including breach of contract and fraud. Defendants counterclaimed alleging, among other things, breach of contract, conversion, unjust enrichment and fraud. Plaintiff moved to dismiss the counterclaims, contending that Defendants failed to set forth the elements of each claim and that the fraud claim was duplicative of the contract claim.  The Court sustained the breach of contract and conversion claims. Breach of Contract To succeed on a breach of contract claim, the plaintiff must establish the existence of a contract, the plaintiff’s performance, the defendant’s breach and resulting damages. Harris v. Seward Park Housing Corp. , 79 A.D.3d 425 (1st Dept. 2010). In addition, the plaintiff must identify the specific provision of the contract alleged to have been breached. Gianelli v. RE/MAX of New York , 144 A.D.3d 861 (2d Dept. 2016). The Court held that Defendants satisfied the foregoing requirements. In particular, the Court found that Defendants properly identified the provisions of the operating agreement that were “were allegedly violated by the plaintiff.” Slip Op. at *3. The Court rejected Plaintiffs’ argument that merely “listing the titles of the alleged breached sections of the contract, without the text of those sections and without incorporating an attached copy of the agreement,” left the Court without sufficient information “as to what essential terms of the Operating Agreement at issue allegedly breached by Plaintiffs.” Id . (internal quotation marks omitted). In doing so, the Court noted that “there is no requirement the text of a contractual provision must be included within a pleading.” Id . Accordingly, the Court denied the motion to dismiss the breach of contract counterclaim. Conversion To allege a claim for conversion, the plaintiff must show the legal right to an identifiable item(s) and that the other party had exercised unauthorized control and ownership over the item(s). Fiorenti v. Central Emergency Physicians, PLLC , 305 A.D.2d 453 (2d Dept. 2003). Further, a conversion does not occur until the owner makes a demand for the return of the property and the one in possession refuses to do so. Matter of Asch , 164 A.D.3d 787 (2d Dept. 2018). According to Defendants, Plaintiff entered the restaurant and removed various items, including, but not limited to, furniture, antique decor, custom made items, place settings, imported crystal, and other equipment. Defendants claimed to have purchased the items in question. Defendants also alleged that their prior attorney demanded the return of the items. The Court found that Defendants had stated a claim for conversion. Slip Op. at **3-4. Fraud To succeed on a claim of fraud, the plaintiff must demonstrate that there was a material misrepresentation of fact, made with knowledge of the falsity, the intent to induce reliance, reliance upon the misrepresentation and damages. Cruciata v. O'Donnell & Mclaughlin, Esqs , 149 A.D.3d 1034 (2d Dept. 2017). These elements must each be supported by factual allegations containing details constituting the wrong alleged. JPMorgan Chase Bank, N.A. v. Hall , 122 A.D.3d 576 (2d Dept. 2014). Moreover, where a fraud claim is alleged along with a breach of contract claim, the misrepresentations must be collateral or extraneous to the terms of the parties’ agreement. McKernin v. Fanny Farmer Candy Shops Inc. , 176 A.D.2d 233(2d Dept. 1991). The Court found that the “fraud allegations essentially further elaborations of the breach of contract counterclaim.” Consequently, the Court granted the motion to dismiss the fraud counterclaim. Takeaway Siwiec serves a reminder to litigants who allege both a contract claim and fraud claim in the same pleading that the two can stand side-by-side as long as the subject misrepresentations are collateral or extraneous to the terms of the contract. One way to do so is to allege a misrepresentation of present fact. First Bank of Ams. v. Motor Car Funding , 257 A.D.2d 287, 292 (1st Dept. 1999), citing Deerfield Commc’ns Corp. v. Chesebrough-Ponds, Inc. , 68 N.Y.2d 954, 956 (1986). Another way is to allege a breach of duty separate from, or in addition to, a breach of the contract. Id . at 291. In any event, merely elaborating on the contract claim, as in Siwiec , is insufficient to withstand a motion to dismiss.

This Blog has strived to highlight cases and issues that may be of interest to our readers. Sometimes, however, a case involves so many issues it is hard to isolate one or two for discussion purposes. Such is the case with RKA Film Fin., LLC v. Kavanaugh , 2019 N.Y. Slip Op. 03302 (1st Dept. Apr. 30, 2019) ( here ). RKA Film involved allegations of fraud, fraudulent inducement and negligent misrepresentation in connection with a series of loans that RKA Film Financing, LLC (“RKA”) issued to Relativity Media, LLC (“Relativity”) during the period between June 2014 and March 2015. While it would be easy to write that the case was dismissed for failure to plead fraud with particularity, that would not really give the reader a taste of the issues involved. RKA Film covers more turf than a typical CPLR § 3016(b) dismissal; it addresses issues such as group pleading, puffery and opinion, causation, duplication of claims and justifiable reliance. Legal Principles Involved rka film, there are many.  while we do not want to bore our readers with legalese, we find it helpful to include a discussion of the legal principles involved to aid the reader’s experience with the article.> rka film, there are many.  while we do not want to bore our readers with legalese, we find it helpful to include a discussion of the legal principles involved to aid the reader’s experience with the article.> Pleading Fraud with Particularity To state a claim for fraud/fraudulent inducement, “there must be a knowing misrepresentation of material present fact, which is intended to deceive another party and induce that party to act on it, resulting in injury.” GoSmile, Inc. v. Levine , 81 A.D.3d 77, 81 (1st Dept. 2010), lv. dismissed , 17 N.Y.3d 782 (2011). See also Wyle Inc. v. ITT Corp. , 130 A.D.3d 438, 439–41 (1st Dept. 2015); MBIA Ins. Corp. v. Countrywide Home Loans, Inc. , 87 A.D.3d 287, 294 (1st Dept. 2011). A plaintiff alleging fraud must satisfy each element in order to prevail, whether it be on a motion or at trial. Menaco v. New York Univ. Med. Ctr. , 213 A.D.2d 167 (1st Dept. 1995). The failure to satisfy any one element will result in the dismissal of the action. Gregor v. Rossi , 120 A.D.3d 447 (1st Dept. 2014). In addition, the plaintiff’s allegations must be stated with particularity. Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 558 (2009). Thus, the plaintiff must provide sufficient facts to support a “reasonable inference” that the allegations of fraud are true. Id . at 559-60. Conclusory allegations will not suffice. Id . Neither will allegations based on information and belief. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). Although, CPLR § 3016(b) provides that “the circumstances constituting the shall be stated in detail,” the New York Court of Appeals has “cautioned that section 3016 (b) should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” Pludeman v. Northern Leasing, Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (internal quotation marks and citations omitted). Thus, where the facts “are peculiarly within the knowledge of the party charged with the fraud,” and “it would work a potentially unnecessary injustice to dismiss a case at an early stage where any pleading deficiency might be cured later in the proceedings,” dismissal should be denied. Id . at 491-92 (internal quotation marks and citations omitted). Group Pleading It is not uncommon for practitioners to group multiple defendants together in a complaint when they are alleged to have collectively committed the wrong complained of. This form of pleading, commonly known as “group pleading,” runs afoul of the particularity requirement of CPLR § 3016(b). Thus, a complaint will be dismissed on particularity grounds if the plaintiff group pleads the alleged fraud against multiple defendants. See , e.g. , Jonas v. National Life Ins. Co. , 147 A.D.3d 610, 612 (1st Dept. 2017); MP Cool Invs. Ltd. v. Forkosh , 142 A.D.3d 286, 291 (1st Dept.), lv. denied , 28 N.Y.3d 911 (2016); Aetna Cas. & Sur. Co v. Merchants Mut. Ins. Co. , 84 A.D.2d 736 (1st Dept. 1981).   Puffery/Opinions One of the issues that courts have to address when deciding the viability of a fraud claim is whether the subject statement contains hyperbole or concrete facts. The former, which are not actionable, includes puffery, optimism, future expectations, and opinion, while the latter, which are actionable, includes statements of present or historical fact. Sometimes, the line between these types of statements is blurred or non-existent. Other times, the line is easy to discern.  While determining the difference is difficult enough, the task becomes more complicated when the representation at issue contains both present facts and hyperbole. Statements couched in terms of “belief” or “expectation” are not actionable because they are “mere puff” or statements of opinion or exaggeration that no reasonable person would take seriously. They are not concrete and measurable statements. In contrast, a misrepresentation is a false statement of present or historical fact. It is actionable because it is capable of objective verification. E.g. , White v. Davidson , 150 A.D.3d 610, 611 (1st Dept. 2017). Causation and Damages The causation element has two components: transaction causation and loss causation. “To establish causation, plaintiff must show both that defendant’s misrepresentation induced plaintiff to engage in the transaction in question (transaction causation) and that the misrepresentations directly caused the loss about which plaintiff complains (loss causation).” Laub v. Faessel , 297 A.D.2d 28, 31 (1st Dept. 2002). Transaction Causation “Transaction causation means that the violations in question caused the to engage in the transaction in question.” AUSA Life Ins. Co. v. Ernst & Young , 206 F.3d 202, 209 (2d Cir.2000) (citation and internal quotation marks omitted). The term is often used by the courts synonymously with “but for” causation. Moore v. PaineWebber, Inc. , 189 F.3d 165, 172 (2d Cir.1999) (“To show transaction causation, the plaintiffs must demonstrate that but for the defendant’s wrongful acts, the plaintiffs would not have entered into the transactions that resulted in their losses.”) (citation omitted) (emphasis in original). Loss Causation The loss causation requirement is synonymous with the proximate cause concept found in other tort causes of action. Laub , 297 A.D.2d at 31 (“ oss causation is the fundamental core of the common-law concept of proximate cause”) (citations omitted). Thus, loss causation is “the causal link between the alleged misconduct and the economic harm ultimately suffered by plaintiff.” Fin. Guar. Ins. Co. v. Putnam Advisory Co. , 783 F.3d 395, 402 (2d Cir. 2015). Whether the plaintiff satisfies the loss causation element requires a fact intensive analysis, making a decision on a motion to dismiss generally inappropriate. See Metro. Life Ins. Co. v. Morgan Stanley , 2013 WL 3724938, at *18 (Sup. Ct. N.Y. County June 8, 2013) (holding proximate cause was not an appropriate issue on a motion to dismiss); see also Schroeder v. Pinterest Inc. , 133 A.D.3d 12, 26 n.7 (1st Dept. 2015) (noting that “issues of proximate cause are for the trier of fact….”). Justifiable Reliance In Ambac Assur. v. Countrywide , 31 N.Y.3d 569, 579 (2018), the Court of Appeals described the justifiable reliance requirement as a “‘fundamental precept’ of a fraud cause of action.” As such, a “plaintiff must allege facts to support the claim that it justifiably relied on the alleged misrepresentations.” ACA Fin. Guar. Corp. v. Goldman, Sachs & Co. , 25 N.Y.3d 1043, 1044 (2015); see also id . at 1051 (Read, J., dissenting on other grounds) (describing the justifiable reliance requirement as “our venerable rule”). Whether a plaintiff justifiably relied on a misrepresentation or omission is “always nettlesome” because it requires a fact-intensive analysis. DDJ Mgt., LLC v. Rhone Group L.L.C. , 15 N.Y.3d 147, 155 (2010) (internal quotation marks omitted). As the Court of Appeals observed, “ o two cases are alike ….” Id . For this reason, the courts look to whether the plaintiff exercised “ordinary intelligence” in ascertaining “the truth or the real quality of the subject of the representation.” Curran, Cooney, Penney v. Young & Koomans , 183 A.D.2d 742, 743) (2d Dept. 1992). Sophisticated parties have a heightened responsibility. They must use due diligence and take affirmative steps to protect themselves from misrepresentations by employing whatever means of verification are available at the time. If they fail to do so, their complaint will be dismissed. See, e.g. , HSH Nordbank AG v. UBS AG , 95 A.D.3d 185, 194-95 (1st Dept. 2012). Accord , Ashland Inc. v. Morgan Stanley & Co. , 652 F.3d 333, 337-38 (2d Cir. 2011) (“An investor may not justifiably rely on a misrepresentation if, through minimal diligence, the investor should have discovered the truth.”) (internal quotation marks and citation omitted). RKA Film Financial, LLC v. Kavanaugh Background As noted, the action arose out of a series of loans that RKA issued to Relativity. RKA alleged that it made the loans to provide Relativity with funding for print and advertising (“P&A”) expenses related to the release of major motion picture films by special purpose entities (“Film SPEs”). RKA alleged that, in 2012, certain of the defendants associated with Relativity realized that the company was in financial trouble and needed additional capital to survive. They developed a plan to market a P&A credit facility (“P&A Facility”) for Relativity’s Film SPEs. RKA contended that, between April 2014 and April 2015, Defendants repeatedly and incorrectly marketed the P&A Facility to RKA, leading it to believe that its loans would be used only for P&A expenses. In June 2014, RKA agreed to loan $58.5 million for the P&A expenses of certain Relativity films. The Funding Agreement, dated June 30, 2014, memorialized the investment terms. Defendants were not parties to the Funding Agreement. Nevertheless, RKA alleged that some, but not all, of Defendants’ misrepresentations were memorialized therein. In August 2014, RKA increased its loan by $22.5 million based on additional misrepresentations that Defendants allegedly made to RKA through emails and telephone calls. Between September 2014 and March 2015, Defendants drew $73.6 million from the P&A Facility, purportedly for four yet unreleased films (“Unreleased Films”). In February and April of 2015, Defendants allegedly stated to RKA that the Unreleased Films would be released later that year, that RKA’s money was safe and accounted for, and that Relativity was financially sound. RKA alleged that Defendants’ statements were materially false. On April 1, 2015, one of the defendants allegedly told RKA that the P&A funds were not earmarked, allocated, or used for P&A expenses. In an April 13, 2015 telephone call with RKA, one of the defendants allegedly admitted that Relativity used the funds for improper purposes. RKA filed its first complaint on July 24, 2015. RKA filed a second amended complaint (“SAC”) on February 2, 2017, alleging fraud, fraudulent inducement and negligent misrepresentation. RKA sought damages in excess of $110 million, plus fees. Defendants moved to dismiss the SAC for failure to state a claim. The motion court granted Defendants’ motions. RKA appealed. The First Department’s Decision The First Department affirmed. As an initial matter, the Court found that RKA impermissibly lumped most of the defendants “together with the others against whom specific acts had been pleaded.” Slip Op. at *1. As such, RKA failed to plead fraud with particularity as against those defendants. Turning to some of the statements alleged to be false, the Court determined that they were non-actionable expressions of opinion: he facts alleged in the SAC do not support a claim of fraud against Colbeck Capital Management, LLC (Colbeck) or David Aho. Aho’s alleged statement that plaintiff’s investment was “low risk,” was a non-actionable expression of hope, and his presentation of slides prepared by Relativity is insufficient to impute representations within the slides to him personally. Id . (Citations omitted.) With regard to transaction causation, the Court found that RKA failed to satisfy this element because it “had already invested in Relativity” before the alleged misrepresentations were made: The alleged misrepresentations attributed to defendants Ramon Wilson, Andrew Matthews, and Greg Shamo, officers of Relativity, are similarly insufficient to give rise to a fraud claim. The alleged misrepresentations attributed to these defendants were made after plaintiff had already invested in Relativity, precluding a conclusion that they induced plaintiff to engage in the transaction. To the extent plaintiff claims that these defendants’ misrepresentations caused it to abstain from taking legal action, plaintiff has not demonstrated that it sustained damages as a result of such forbearance, an essential element of its claim. Id. at *2. (Citations omitted.) As to loss causation, the Court held that “any misrepresentations made after plaintiff had already invested the funds are insufficient to give rise to fraud as there was no nexus between the alleged statements and plaintiff’s losses.” Id . Finally, addressing the justifiable reliance element of RKA’s fraud claim, the Court agreed with the motion court, finding that RKA could not have justifiably relied on the misrepresentations regarding Relativity’s financial health. The Court observed that as a sophisticated investor, RKA “did not demonstrate that it fulfilled its affirmative obligation to verify the nature and quality of its investment.” Id . Takeaway As readers of this Blog know, in this section of the article, we often try to tie together the principles of law with the facts and holding of the case on which we are writing. Some cases lend themselves to an extensive treatment, while others do not. RKA is different in that it is not necessarily the holding or the facts of the case that piqued our interest (although we found both interesting nonetheless). Instead, it was the number of elements of a fraud claim, and the issues related thereto, that we found notable. For this reason, we expect that RKA will be cited for the many the legal principles it discusses in the fraud context, in addition to the usual reasons a litigant may cite to a case.

On April 25, 2019, the Securities and Exchange Commission (“SEC”) announced ( here ) that it had charged Indianapolis-based Celadon Group Inc. (“Celadon”), a truckload freight transportation provider, with an accounting fraud that allowed it to avoid disclosing substantial losses and misrepresent its financial condition. The SEC alleged ( here ) that, between mid-2016 and April 2017, Celadon avoided recognizing at least $20 million in impairment charges and losses – almost two-thirds of its 2016 pre-tax income – by selling and buying used trucks at inflated prices from third parties.  According to the complaint, as a result of the alleged scheme, Celadon overstated its pre-tax and net income and earnings per share in its annual report for the period ending June 30, 2016, and in its subsequent public filings for the first two fiscal quarters of 2017. The SEC’s case against Celadon is the latest in a line of actions brought against companies or their executives for committing accounting fraud, by entering into sham agreements with third-parties, suppliers or customers. See SEC v. Tangoe, Inc. et al. , 3:18-cv-01479 (D. Conn. 2018); SEC v. Axesstel, Inc., et al. , 3:18-cv-01486-L-AGS (S.D. Cal. 2018); SEC v. Bhushan Dandawate, No. 18-cv-4927 (N.D. Ill., 2018); SEC v. Quadrant 4 System Corp., et al. , No. 17-cv-4883 (N.D. Ill., 2017). The Basics of the Alleged Fraud Celadon owned more than 1500 tractor trucks – the front of a “tractor trailer” containing the engine. These trucks required costly maintenance. As a consequence, the company developed a cost-containment strategy, which involved, in part, Celadon continuously refreshing its fleet – newer trucks cost less to maintain. In mid-2016, the “net book value” for many of its trucks – i.e. , the value Celadon had attributed to the trucks in its internal bookkeeping – greatly exceeded the amount the trucks could have actually been sold for in the open market. Therefore, alleged the SEC, if Celadon sold these trucks for less than its net book value, Celadon would have had to recognize the shortfall as a loss on its financial statements. Given the hundreds of trucks involved, Celadon’s resulting losses either through sale or by adjusting net book values to fair values (also known as “impairment charges”) would have been significant. To avoid having to recognize such charges, claimed the SEC, Celadon orchestrated a fraudulent scheme. According to the complaint, Celadon found a truck dealer (“Party A”) to buy hundreds of used trucks at the inflated net book values. In some cases, the company sold the trucks for even more than the already inflated book values in order to claim a profit from the sales. In some cases, the value that Celadon was carrying on its books for a truck was more than double what it could have actually received in the open market. Celadon sold many of its trucks to Party A for prices substantially in excess of their fair value. Consequently, the price Celadon paid Party A for the newer trucks was similarly inflated – in certain instances approximately triple their fair value. In several instances, said the SEC, Party A purchased trucks with the express purpose of selling them to Celadon. Between June and October of 2016, Celadon sold more than 900 trucks to Party A and purchased more than 600 trucks from Party A. The prices in these transactions were at least $20 million more than the trucks were worth. According to the SEC, by failing to recognize impairment charges on its trucks, Celadon materially overstated the value of its assets and, by extension, materially overstated its income before income taxes, net income and earnings per share in various public filings between 2016 and 2017. The Alleged Violations and Relief Sought The SEC charged Celadon with fraud and with reporting, books and records, and internal control violations. Celadon admitted to those violations and agreed to a permanent injunction and to remediate the material weaknesses in its internal control over financial reporting. Celadon agreed to pay $7 million in disgorgement, which the SEC will consider to be satisfied by Celadon’s payment of restitution in a criminal matter brought by the Department of Justice ( here ). In that matter, Celadon entered into a deferred prosecution agreement, pursuant to which the company agreed to pay $42.2 million in restitution. The settlement with the SEC is subject to court approval. SEC v. Celadon Group, Inc. , Case 1:19-cv-01659-RLY-MJD (S.D. Ind. 2019).

Proper service of process is necessary before the court can acquire personal jurisdiction over the defendant to a lawsuit.  If service of process is not properly effectuated the court is “…without personal jurisdiction over the defendant, and all subsequent proceedings are thereby rendered null and void.”    Citimortgage, Inc. v. Twersky , 153 A.D.3d 1230 (2 nd Dep’t 2017) (citations and internal quotation marks omitted).  CPLR 308 sets forth several methods by which service of process may be effectuated on an individual.  CPLR 308(1) permits service to be made by personally delivering the summons to the defendant.  Pursuant to CPLR 308(2) service can be made by delivering the summons to ” a person of suitable age and discretion at the actual place of business, dwelling place or usual place of abode of the person to be served and by either mailing the summons to the person to be served at his or her last known residence or by mailing the summons by first class mail to the person to be served at his or her actual place of business….”  Pursuant to CPLR 308(3), an agent designated under CPLR 318 can be served with the summons on behalf of the defendant.  In the event that “service under one and two cannot be made with due diligence,” CPLR 308(4) permits service to be made “by affixing the summons to the door of either the actual place of business, dwelling place or usual place of abode within the state of the person to be served and by either mailing the summons to such person at his or her last known residence or by mailing the summons by first class mail to the person to be served at his or her actual place of business….”  Service on an individual pursuant to CPLR 308(5) is the subject of this Blog and will be discussed further herein. “Service of process must be made in strict compliance with statutory methods for effecting personal service upon a natural person pursuant to CPLR 308.”   Washington Mut. Bank v. Murphy , 127 A.D.3d 1167, 1174 (2 nd Dep’t 2015) (citations and internal quotation marks omitted).  Even if a defendant becomes aware of a pending litigation it “will not affect the absence of jurisdiction over him or her where service of process is not effectuated in compliance with CPLR 308.”  Washington Mut. , 127 A.D.3d at 1174 (citations omitted).  Indeed, where service of process is not properly effectuated, a defendant may move to dismiss a complaint on the ground that “the court has not jurisdiction of the person of the defendant.”  CPLR 3211(a)(8); Washington Mut. , 127 A.D.3d at 1174. Section 308 of the CPLR, which permits the court to direct an alternative method of service, provides: Personal service upon a natural person shall be made by any of the following methods:                                     *          *          * in such manner as the court, upon motion without notice, directs, if service is impracticable under paragraphs one, two and four of this section. Service by publication is often directed by the court as a means of alternative service.  However, more creative methods of alternative service have been ordered.  For example, in Baidoo v. Blood-Dzraku , 48 Misc.3d 309 (Sup. Ct. N.Y. County 2015), plaintiff was unsuccessful in obtaining a business or home address for the defendant to serve a summons and complaint notwithstanding diligent efforts and, therefore, the Court found that plaintiff “met her burden of demonstrating that it would be impracticable to attempt to serve defendant .”  See Baidoo , 48 Misc.3d at 312.  The Baidoo Court having determined that plaintiff established a basis for relief under CPLR 308(5), analyzed whether plaintiff demonstrated that the proposed alternative method of service “is one that the court can endorse as being reasonably calculated to apprise defendant that he is being sued for divorce.”  See Baidoo , 48 Misc.3d at 312. In Baidoo , the court permitted service of divorce papers through the defendant’s Facebook account after submitting proof verifying that the Facebook account through which service was to be made indeed belonged to the defendant.  See Baidoo , 48 Misc.3d at 314 - 315.   Because plaintiff had neither other physical addresses nor e-mail addresses for defendant, and because service by publication was thought to provide no actual notice at all, Facebook service only was deemed to be adequate.  See Baidoo , 48 Misc.3d at 315 - 316.   Jean v. Csencsits , decided by the Supreme Court of the State of New York, Appellate Division, Second Department on April 24, 2019, addressed issues related to alternative service of process.   The plaintiff in Jean was the buyer under a contract for the sale of real property who sued the seller for specific performance after he failed to show up at a “time of the essence” closing.  Plaintiff unsuccessfully attempted to personally serve defendant at the San Diego, California, address provided on the contract of sale. The court then granted plaintiff’s ex parte application for an alternative method of service pursuant to CPLR 308(5), although the case does not indicate what method of service was directed.  Service was effectuated pursuant to the court’s order, but defendant failed to answer or appear and, accordingly, the court granted plaintiff’s motion to enter a default judgment and scheduled an inquest to calculate damages. The Jean seller’s motion to vacate the default judgment was denied by supreme court and an appeal ensued.  The Second Department affirmed and, in so doing, held that defendant, seller, was properly served pursuant to CPLR 308(5) due to the impracticality of service pursuant to CPLR 308(1), (2) or (4).  The Court noted that the “impracticality standard does not require the applicant to satisfy the more stringent standard of due diligence under CPLR 308(4) nor make an actual showing that service has been attempted pursuant to CPLR 308(1), (2) and (4).” Citations omitted.  “Once the practicality standard is satisfied, due process requires that the method of service be reasonably calculated, under all the circumstances, to apprise the defendant of the action.”  (Citations and internal quotation marks omitted.)  In Jean , the Court determined that the service on the defendant was impractical and that the alternative method of service directed by supreme court was “reasonably calculated to apprise the seller of the of the action under the circumstances of the case.” The Court also rejected defendants argument to vacate the default judgment pursuant to CPLR 317 , which provides, inter alia , that: A person served with a summons other than by personal delivery to him or to his agent for service designated under rule 318 , within or without the state, who does not appear may be allowed to defend the action within one year after he obtains knowledge of entry of the judgment, but in no event more than five years after such entry, upon a finding of the court that he did not personally receive notice of the summons in time to defend and has a meritorious defense…. The Court found that defendant failed to demonstrate that “he did not receive actual notice of the summons and complaint in time to defend the action.”  Citations omitted.

This Blog has written about cases in which the plaintiff claims to have been defrauded but fails to allege with particularity the elements of the claim. As readers of this Blog know, the element that most often spells failure for the plaintiff is reasonable reliance – that is, reliance on the alleged misrepresentation or omission. Today’s article looks at another case in which the plaintiff alleged reliance on alleged misrepresentations but failed to assert facts showing that such reliance was justified – that is, the plaintiff used the means available to discover the true nature of the transactions being challenged.   In Rubin v. Sabharwal , 2019 N.Y. Slip Op. 02975 (1st Dept. Apr. 23, 2019) ( here ), the Appellate Division, First Department, affirmed the dismissal of a fraudulent inducement claim on the grounds that the plaintiff,  Shelley Rubin (“Rubin”), failed to allege sufficient facts to establish reasonable reliance,   i.e. , Rubin failed to allege facts showing that she diligently inquired into the true value of the property at issue. Justifiable Reliance is a “Fundamental Precept” of a Fraud Claim In Ambac Assurance Corp. v. Countrywide Home Loans, Inc. , 31 N.Y.3d 569 (2018), the New York Court of Appeals emphasized the importance of the justifiable reliance element, noting that it is a “fundamental precept” of a fraud claim and is critical to the success of such a claim. As such, the justifiable reliance requirement is considered to be a necessary tool to weed out fraud claims by plaintiffs who “are lax in protecting themselves”. See ACA Fin. Guar. Corp. v. Goldman, Sachs & Co. , 25 N.Y.3d 1043, 1051 (2015) (Read, J., dissenting on other grounds). In assessing whether the plaintiff’s reliance was justified, the courts look to see whether the plaintiff’s reliance on the alleged misrepresentation was reasonable. Epifani v. Johnson , 65 A.D.3d 224, 230 (2d Dept. 2009). As stated by the Court of Appeals more than one hundred years ago, this means the plaintiff must exercise “ordinary intelligence” in ascertaining “the truth or the real quality of the subject of the representation.” Schumaker v. Mather , 133 N.Y. 590, 596 (1892); see also ACA Fin. Guar. , 25 N.Y.3d at 1044; DDJ Mgt., LLC v. Rhone Group L.L.C. , 15 N.Y.3d 147, 154 (2010). Thus, “where the circumstances are such as to suggest to a person of ordinary intelligence the probability that he has been defrauded, a duty of inquiry arises, and if he omits that inquiry when it would have developed the truth, and shuts his eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him.” Gutkin v. Siegal , 85 A.D.3d 687, 688 (1st Dept. 2011) (citation and internal quotation marks omitted). Determining whether a plaintiff justifiably relied on a misrepresentation or omission, however, is “always nettlesome” because it is so fact-intensive. DDJ Mgt. , 15 N.Y.3d at 155 (2010) (internal quotation marks omitted). Courts look at whether the plaintiff should have discovered the alleged fraud objectively. Prestandrea v. Stein , 262 A.D.2d 621, 622 (2d Dept. 1999); Gorelick v. Vorhand , 83 A.D.3d 893, 894 (2d Dept. 2011). Mere suspicion will not suffice as a substitute for knowledge of the fraudulent act. Erbe v. Lincoln Rochester Trust Co. , 3 N.Y.2d 321, 326 (1957).  Rubin v. Sabharwal Background Rubin arose from a series of 80 transactions occurring over a five-year period during which Rubin, the co-founder and co-chair of a museum specializing in Himalayan and Indian art, purchased hundreds of pieces of jewelry for approximately $18.1 million from Defendant, Nisha Sabharwal (“Sabharwal”). Rubin claimed that, among other things, she was fraudulently induced to purchase the jewelry. Defendants moved to dismiss the complaint, arguing, inter alia , that Rubin failed to allege the elements of a fraud claim with any specificity. The motion court agreed. ( Here .)   [Ed Note: To plead fraud with particularity, a plaintiff must provide sufficient facts to support a “reasonable inference” that the allegations of fraud are true. Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559-60 (2009). Conclusory allegations will not suffice. Id . Neither will allegations based on information and belief. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). Although, CPLR § 3016(b) provides that “the circumstances constituting the shall be stated in detail,” the New York Court of Appeals has “cautioned that section 3016 (b) should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” Pludeman v. Northern Leasing, Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (internal quotation marks and citations omitted). Thus, where the facts “are peculiarly within the knowledge of the party charged with the fraud,” and “it would work a potentially unnecessary injustice to dismiss a case at an early stage where any pleading deficiency might be cured later in the proceedings,” dismissal should be denied. Id . at 491-92 (internal quotation marks and citations omitted). See also CPC Intl. v. McKesson Corp. , 70 N.Y.2d 268, 285-286 (1987).] The motion court noted that Rubin did not provide any facts to reasonably support the inference that there was fraudulent conduct in all 80 of the transactions. Even as to the 10 transactions highlighted in the complaint, the motion court observed that the complaint contained only conclusory allegations of an alleged fraud.   The motion court further noted that the alleged misrepresentations ( e.g. , “that pieces of jewelry were from the ‘same set’ as ones in a magazine, that the jewelry has ‘significance,’ that the jewelry came from a ‘friend or family's’ collection, and that the pieces were ‘museum quality’ or ‘generational’”) were of a general nature ( i.e. , opinion or puffery) and, therefore, insufficiently specific to establish fraudulent inducement. Rubin appealed. The First Department’s Decision The First Department unanimously affirmed, holding that Rubin’s “claims for fraudulent inducement, fraud, and conspiracy to commit fraud were properly dismissed.” Slip Op. at *1. In particular, the Court held that “Plaintiff failed to assert sufficient facts to establish reasonable reliance and that she exercised due diligence to determine the value of the” jewelry that she purchased from Sabharwal.’ Id .  The Court explained that Rubin, “ s the co-founder and co-chair of a museum specializing, in part, in Indian art, … had the means to conduct an appraisal of the jewelry prior to purchasing , and yet … took no steps to verify the alleged  misrepresentations.” Id . “Moreover,” observed the Court, “plaintiff had the wherewithal to conduct an appraisal several years after the first transaction when she wanted to sell some of the items and verify the authenticity of the jewelry” but failed to do so. Id . In fact, “Plaintiff could have discovered the truth had she conducted an inquiry into the value of the property during the many transactions at issue in this case.” Id . Rubin’s failure to use the means available to discover the true nature of the transactions by the exercise of ordinary intelligence, negated any allegation of justifiable reliance on the alleged misrepresentations. Id . Finally, the Court held that the alleged misrepresentations – “that the items were of ‘museum quality,’ of ‘highest quality,’ and ‘generational’ – were nonactionable opinion and puffery. Id . (citations omitted). Takeaway As the Court explained in Rubin , a plaintiff cannot shut his/her eyes to the possibility that they may be the victim of a fraud. The plaintiff must take some action to show that the fraud was hidden or could not be discovered in the absence of extraordinary efforts. The Rubin Court determined that, in that case, extraordinary efforts were not necessary. Instead, Plaintiff could have sent the jewelry for appraisal before purchasing the items or at any time thereafter. After all, there were approximately 80 transactions over a five-year period. While the fraud seems egregious, Rubin stands for the proposition that to do nothing will not suffice to demonstrate justifiable reliance.

In Sotheby’s, Inc. v. Chowaiki , 2019 N.Y. Slip Op. 30970(U) (Sup. Ct. N.Y. County Apr. 4, 2019) ( here ), Justice Andrea Masley of the New York Supreme Court, Commercial Division, issued an opinion addressing the question “whether a guarantor remains bound by a guarantee whose underlying contract has since been modified without notice to the guarantor.” As discussed below, the Court held that a guarantor is bound by his/her guaranty notwithstanding modifications to the underlying agreement when he/she agrees to be so bound even when the agreement is amended or modified in the future. Applicable Legal Principles “A guaranty is a promise to fulfill the obligations of another party.” Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A., “Rabobank International,” N.Y. Branch v. Navarro , 25 N.Y.3d 485, 492 (2015) (citation omitted). See also 63 N.Y. Jur. 2d, Guaranty and Suretyship §§ 2, 89.  Like other contracts, a guaranty is subject to ordinary principles of contract construction. Id .  Under those principles, “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.” Id . at 493, quoting Greenfield v. Philles Records , 98 N.Y.2d 562, 569 (2002). The obligations of a guarantor or surety are construed strictissimi juris (that is, the obligations undertaken by the guarantor are to be strictly applied). People v. Stuyvesant Ins. Co. , 98 Misc. 2d 210, 214 (Sup. Ct. Bronx County 1979). “Thus, after the intention of the parties is ascertained by the ordinary rules of construction, the principle of strictissimi juris applies, and the court must protect the surety against a liability which is not strictly within the terms of the contract.” Id . See also General Phoenix Corp. v. Cabot , 300 N.Y. 87, 92 (1949); Argyle v. Plunkett , 226 N.Y. 306, 310 (1919). Moreover, “ guarantor is bound by an anticipatory agreement in his undertaking that he will not be relieved of liability by a modification of the principal contract.” Banque Worms v. Andre Cafe, Ltd. , 183 A.D.2d 494 (1st Dept. 1992). Thus, a guarantor is not relieved of his obligations where the written guaranty allows for changes in the terms of the guaranty and expressly waives notice to the guarantor of those changes. Rose Food v. Saleh , 292 A.D.2d 377, 378 (2d Dept. 2002). Sotheby’s, Inc. v. Chowaiki Background Defendant, Luba Mosionzhnik (Mosionzhnik”), was an officer and 25% shareholder of the Chowaiki Mosionzhnik Gallery Ltd. (the “Gallery”). On October 20, 2008, she was terminated from the Gallery’s employment. Third-party defendant, David E.R. Dangoor (“Dangoor”), and Defendant, Ezra Chowaiki (“Chowaiki”), purchased her shares giving Dangoor a 62.5% share in the Gallery. Prior to the purchase, Dangoor owned 50% and Chowaiki owned 25% of the Gallery. In December 2008, Dangoor and Chowaiki incorporated Chowaiki & Co. Fine Art Ltd. (“New Gallery”). Plaintiff, Sotheby’s Inc. (“Sotheby’s”), the international auction house that engages in art auction, private sales, and art-related financing, and the Gallery entered into a Purchase Agreement, dated March 26, 2008, whereby the parties agreed that the Gallery would purchase a Henri Matisse painting, titled “Titine Trovato in Dress and Hat” (the “Painting”), on Sotheby’s behalf for $12 million. Sotheby’s agreed to offer the Painting for sale from the date of purchase until September 10, 2008 (“Offering Period”) for $20 million, with a minimum net price of $15 million. If the Painting remained unsold at the end of the Offering Period, Sotheby’s would try to sell the Painting at Sotheby’s Impressionist and Modern Art auction in November 2008 for a mutually agreed upon reserve price. Sotheby’s and the Gallery agreed to split either the Net Profit or the Net Loss equally. If there was a Net Loss, the Gallery agreed to reimburse Sotheby’s for half of the Net Loss within 5 business days of receipt of an accounting from Sotheby’s. If the Painting was not sold, then Sotheby’s and the Gallery would mutually agree to its disposition. In further consideration for Sotheby’s entering into the Purchase Agreement, Chowaiki and Mosionzhnik each signed a guaranty (the “Guaranty”). Among other things, Mosionzhnik and Chowaiki guaranteed the performance obligations under the Purchase Agreement “regardless of any amendment, waiver or forbearance by Sotheby’s with respect to th Agreement.” The Painting did not sell during the Offering Period, leading the parties to amend the Purchase Agreement. On October 28, 2008, eight days after Mosionzhnik’s shares were transferred to Dangoor and Chowaiki, Sotheby’s and the Gallery amended the Purchase Agreement (“First Amendment”) without releasing Mosionzhnik from her obligations under the Guaranty. The First Amendment lowered the reserve price for the Painting to $9.5 million. If a Net Loss occurred, the Gallery agreed to pay Sotheby’s in two equal installments on June 30, 2009 and December 15, 2009. Sotheby’s further agreed to reduce the Interest Rate if the Gallery chose to consign additional property to be offered for sale at the auctions in May and November 2009. The Purchase Agreement was to remain in full force and effect. Only Chowaiki executed the First Amendment. The Painting was sold at a loss on May 10, 2012 for $4.75 million. On September 7, 2012, Sotheby’s entered into an Amendment and Forbearance Agreement (“Second Amendment”) with the New Gallery. The Second Amendment also referenced the Purchase Agreement and the First Amendment. In total, under the agreements, defendants allegedly owed Sotheby’s $3.625 million, plus 50% of the Interest due (the “Chowaiki Net Loss”). Having to split the Net Loss, the New Gallery agreed to pay Sotheby’s $100,000 and, notwithstanding anything set forth in the Purchase Agreement or First Amendment, agreed to also pay Sotheby’s in installments of $300,000 beginning on June 30, 2012 and each successive December 31 and June 30 thereafter until Sotheby’s received $3.625 million and 50% of the interest accruing on the $12 million amount (as reduced by the payments received). Upon any default, the outstanding Chowaiki Net Loss became immediately due and payable. Despite the “previous guarantees remaining in full force and effect, Chowaiki signed an additional guaranty (“Second Guaranty”). Defendants made $2.1 million in payments to Sotheby’s through December 31, 2016. However, since that date, they stopped doing so. As of the filing of the compliant, there was a balance of $2,969,180.00, exclusive of interest, due and owing. Sotheby’s brought suit in November 2017. Mosionzhnik initiated a third-party action against Dangoor in March 2018 and amended her third-party complaint in May 2018. Dangoor moved to dismiss the third-party complaint. Among other things, Dangoor maintained that under the Guaranty, Mosionzhnik was responsible for the outstanding balance due, regardless of whether there were amendments to the Purchase Agreement. The Court agreed. The Court’s Decision The Court held that Mosionzhnik, as a guarantor, remained bound by her guarantee because the underlying Purchase Agreement contained language in which she agreed to be bound even if the agreement were amended or modified in the future. Slip Op. at *5. In fact, “ sing strictissimi juris , the black and white language of the Guaranty leaves Mosionzhnik unconditionally and irrevocably personally liable for the obligations of the Gallery regardless of any future amendments.” Id . The Court also addressed the issue of whether Mosionzhnik’s termination from, and the sale of her shares in, the Gallery extinguished her responsibility for payment under the Guaranty. The Court held that those events did not relieve Mosionzhnik of her obligations under the Guaranty. The Court explained that the determination of the issue depended on “whether the changes in the entity ‘have the effect of creating a principal with a new identity and one of the debts of which the guarantor never intended to guarantee when he executed the agreement.’” Slip Op. at *6, quoting Fehr Bros., Inc. v. Scheinman , 121A.D.2d 13,18 (1st Dept. 1986) (citations omitted). In making that determination, the Court said that it would consider “whether the changes in the entity, the debts of which, are guaranteed significantly alter the business dealings between the debtor and the creditor and the nature of the guarantor’s undertaking, in particular the degree of risk the guarantor is obligated to assume.” Id ., quoting Fehr Bros. , 121 A.D.2d at 19. “A change in the name of a corporation, without changing the legal status or business nature,” noted the Court, “does not create a new entity.” Id . quoting Fehr Bros. , 121 A.D.2d at 20. Against this legal analysis, the Court concluded that Mosionzhnik remained liable under the Guaranty: Against this legal analysis, the Court concluded that Mosionzhnik remained liable under the Guaranty: The Gallery changed its name to the New Gallery but is treated as the same entity by Sotheby’s. The Second Amendment made by Sotheby's refers to the previous agreements and acknowledges the name change. The shares of the New Gallery are held by two of three of the same shareholders, and it conducts the same business. Further, the New Gallery did not take on new debt in its dealings with Sotheby’s. The New Gallery is liable for the same debts that Mosionszhnik guaranteed, the Second Amendment simply states the sale price, the Net Loss owed, and the payment schedule. Mosionzhnik knew that she was liable for the debts of the Gallery in regards to the Painting. Id . at **6-7. Accordingly, the Court granted Dangoor’s motion to dismiss the third-party complaint. Takeaway Under New York law, a surety is not discharged from its obligation unless its undertaking has been altered without its consent. However, as Sotheby’s shows, a surety will not be discharged from its obligations if the surety agrees in advance to remain liable in the event of amendments or modifications to the underlying contract.

The Second Department has held that “ o state a cause of action to recover damages for legal malpractice, a plaintiff must allege that the attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession, and that the breach of this duty proximately caused the plaintiff to sustain actual and ascertainable damages.”  Board of Managers of Bay Club v. Borah, Goldstein, Schwartz, Altschuller & Nahins, P.C. , 97 A.D.3d 612, 613 (2 nd Dep’t 2012) (citations and internal quotation marks omitted).  Many times, plaintiffs that sue their attorney because they are aggrieved by the conduct of the attorney assert numerous causes of action in their complaint. Sometimes duplicative causes of action are dismissed and sometimes they survive.  For example, in Cherry Hill Market Corp. v. Cozen O’Connor P.C. , 118 A.D.3d 514 (1 st Dep’t 2014), the First Department agreed with supreme court that two causes of action sounding in common-law negligence and breach of fiduciary duty were properly treated as legal malpractice causes of action, and were appropriately dismissed due to “insufficient allegations as to proximate cause.”  Cherry Hill , 118 A.D.3d at 514.  Nonetheless, the Cherry Hill Court reversed the dismissal, as duplicative, of an additional breach of fiduciary duty claim based on the averment that the law firm “either collected and/or billed plaintiffs for excessive and/or unearned fees.”  Cherry Hill , 118 A.D.3d at 514.  In so doing, the Cherry Hill Court, found that the fiduciary duty claim was not based on the same facts as the malpractice claim and that a fiduciary duty breach could be based on the charging of excessive legal fees. The plaintiff in Postiglione v. Castro , 119 A.D.3d 920 (2 nd Dep’t 2014), brought an action sounding in negligence, legal malpractice, fraud, breach of contract and conversion against his former attorney.  Among other things, supreme court dismissed the contract and fraud claims as duplicative of the dismissed, time-barred, legal malpractice claim.  In reversing supreme court, the Second Department recognized that “where a cause of action alleging breach of contract or fraud arises from the same facts as a legal malpractice cause of action and does not allege distinct damages, the breach of contract or fraud cause of action must be dismissed as duplicative of the legal malpractice cause of action.”  Postiglione , 119 A.D.3d at 922 (citations omitted).  However, the Postiglione Court held that the breach of contract cause of action was not duplicative of the legal malpractice cause of action, and should not have been dismissed, because the claim was not based on the quality of the legal representation, and, instead, resulted from over billing and allegations of pilfered escrow money in violation of the parties’ retainer agreement.  Similar analyses were made by the First Department in Ullmann-Schneider v. Lacher & Lovell-Taylor, P.C. , 121 A.D.3d 415 (2014).  There, the Court affirmed the motion court’s finding that plaintiff’s breach of contract claim against its former law firm, in which it was alleged that defendant over billed and performed unnecessary services, was not duplicative of plaintiff’s legal malpractice claim.  The Court reasoned that the contract claim “does not speak to the quality of defendants’ work.”  Ullmann , 121 A.D.3d at 416.  See also , Johnson v. Proskauer Rose LLP , 129 A.D.3d 59 (1 st Dep’t 2015) (holding that an excessive fee claim and an unjust enrichment claim were not duplicative of a malpractice claim because “the former is stated regardless of the quality of the work performed, so long as a plaintiff can reasonably allege that the fee bore no rational relationship to the product delivered” and the latter, “which is predicated on the excessiveness of the … fee also properly survived the motion to dismiss”). The Appellate Division, First Department addressed these issues most recently in  Cascardo v. Dratel (April 18, 2019).  There, plaintiff asserted claims against her former law firm sounding in legal malpractice, fraud, excessive legal fees and breach of fiduciary duty.   Supreme court denied defendant’s motion to dismiss the fraud, excessive legal fees and breach of fiduciary duty claims.  On appeal, the First Department sustained the excessive fee cause of action and dismissed the fraud and fiduciary duty claims as being “subsumed in the excessive attorney fees claim….”  As to the excessive legal fee claim, the Court stated that: The claim for excessive legal fees (and the related discussion in the complaint of defendants' alleged breach of fiduciary duty based on the alleged overcharges) was correctly sustained. Plaintiff alleged that " fee bore no rational relationship to the product delivered," and detailed that, in exchange for the $25,000 fee, defendants produced only a draft complaint that was essentially identical to the one that she had presented to them. This claim is not duplicative of the legal malpractice claim, as plaintiff's complaints regarding the over billing were not a direct challenge to the quality of the work but instead a claim that the fee paid bore no rational relationship to the work performed. To the extent that the motion court read the pro se complaint as alleging a separate cause of action for breach of fiduciary duty, these allegations are subsumed in the cause of action for excessive attorney fees.  (Citations omitted.) TAKEAWAY The distinction between fraud and contract claims in which excessive fees are alleged and legal malpractice claims is significant for a number of reasons.  Legal malpractice actions are governed by a three-year statute of limitations. Contract, fraud claims and breach of fiduciary duty (in this context) claims are governed by a longer six-year statute of limitations.  Under circumstances where a malpractice action is time-barred, a plaintiff may still be able to assert an excessive fee claim under a contract, fraud and/or breach of fiduciary duty theory.

As every lawyer knows, the practice of law requires compliance with various deadlines. Some are court ordered, while others are statutory. To be sure, there are many practitioners who do not sweat the time constraints imposed by a deadline. Indeed, “ oo many pages of the Reports, and hours of the courts, are taken up with deadlines that are simply ignored.” Miceli v. State Farm Mut. Auto Ins. Co. , 3 N.Y.3d 725, 727 (2014). However, most lawyers likely wake up in the middle of the night worrying about whether they can meet a court-ordered or statutory deadline. In New York’s Civil Practice Law and Rules (“CPLR”), there are many deadlines that require compliance. In addition to the CPLR, there are deadlines in the rules of the judge before whom a case is pending that require compliance by litigants. In Appleyard v. Tigges , 2019 N.Y. Slip Op. 02820 (1st Dept. Apr. 16, 2019) (here), the Appellate Division, First Department, addressed the deadlines set by the CPLR and the judge before whom the case was pending for filing a motion for summary judgment, concluding that the motion court’s denial of such a motion on compliance grounds was proper. Appleyard was originally assigned to Justice Stanley Green of the Supreme Court, Bronx County, on July 1, 2015. On October 24, 2016, Justice Green signed a so-ordered stipulation setting February 16, 2017 as the date for a compliance conference before Justice Douglas E. McKeon. Plaintiff filed her note of issue on December 16, 2016. Justice Green’s individual rules required that motions for summary judgment be filed within 120 days of the filing of the note of issue, which would have made the deadline for filing such a motion April 17, 2017. On December 31, 2016, Justice Green retired from the bench. The action was administratively reassigned to Justice Wilma Guzman on January 7, 2017. Justice Guzman’s rules require that “a motion for summary judgment shall be made no later than sixty (60) days after the filing of the Note of Issue, except with leave of court on good cause shown.” Thus, under Justice Guzman’s individual rules, in the absence of a showing of good cause, the deadline for filing a motion for summary judgment was 60 days after the filing of the note of issue or February 14, 2017. Defendants’ counsel averred that on February 10, 2017, he first learned of the reassignment of the case to Justice Guzman when a scheduling clerk in his office consulted the court system’s e-Courts electronic calendar to confirm the previously scheduled February 16, 2017 conference. Counsel acknowledged that shortly thereafter, he reviewed Justice Guzman’s individual rules and noted the requirement that summary judgment motions be made within 60 days of the filing of the note of issue. On March 29, 2017, approximately 43 days after the February 14 deadline, defendants filed a motion for summary judgment and, “if necessary,” to extend the deadline to file same. Citing Brill v. City of New York , 2 N.Y.3d 648, 652 (2004), the motion court denied both motions as untimely, reasoning that defendants were aware of the reassignment of the matter to the motion court prior to the February 14 deadline, yet failed to move for an extension of time to file the motion for summary judgment prior to that date. In Brill , the Court of Appeals addressed the question of what constitutes “good cause” in determining whether to consider untimely motions for summary judgment. The Court held that “good cause” under CPLR 3212 (a) required “a satisfactory explanation for the untimeliness” rather than a statement that the motion is meritorious and nonprejudicial.  2 N.Y.3d at 651. The Court explained that “ o excuse at all, or a perfunctory excuse, cannot be ‘good cause.’” Id . The First Department affirmed, holding that the motions were untimely. In so holding, the Court emphasized the importance of complying with court-ordered and statutory deadlines, noting that “‘statutory time frames — like court-ordered time frames . . . are not options, they are requirements, to be taken seriously by the parties.” Id. , quoting Miceli , 3 N.Y.3d at 726 (internal citation omitted). With the emphasis on compliance, the Court concluded that “defendants’ motions for summary judgment and alternatively an extension of time were properly denied.” Id . at *2.  Aside from the deadline itself, the Court noted that defendants conceded their awareness of the reassignment of the action to Justice Guzman and the 60-day filing period provision in her rules in advance of the filing deadline. Id . Nevertheless, noted the Court, “they waited 47 days after learning of Justice Guzman’s timeliness rule and 43 days after the expiration of her statutorily authorized 60-day filing period to seek leave of court for additional time to file their motions….” Id . Such actions, the Court held, rendered “their motions untimely.” Id . Moreover, the Court held that defendants did not establish “good cause for their belated filing.” Id . The Court rejected defendants’ argument that good cause was demonstrated by the filing of their motions within 120 days after the note of issue was filed, noting that defendants failed “to comply with the court’s own deadline.” Id. , citing Giudice v. Green 292 Madison, LLC , 50 A.D.3d 506, 506 (1st Dept. 2008) (good cause not found where the parties failed to file their summary judgment motions by the court-imposed deadline, even if they were filed within the statutory 120-day period). Accordingly, the Court held that “Defendants’ failure to inform themselves of the identity of the new judge and her part rules not constitute good cause for failing to adhere to them.” Id . Takeaway Appleyard serves as good reminder that compliance with deadlines, whether court-ordered or statutory, is mandatory, not optional. As Appleyard demonstrates, practitioners who fail to comply with deadlines do so at their own peril.   Appleyard is also a reminder that to demonstrate good cause, one must provide a satisfactory explanation for the delay in brining the motion. As the plaintiff in Appleyard learned, failing to meet the deadline with knowledge that one is violating that deadline is not sufficient.

In Deutsche Bank National Trust Co. v. Flagstar Capital Markets , the New York Court of Appeals held that an agreement to “delay the commencement” of the statute of limitations “was inconsistent with New York law and public policy.” ( Here .) Thus, although parties may agree after a cause of action has accrued to extend the statute of limitations, they may not do so before their agreement. John J. Kassner & Co. v City of New York , 46 N.Y.2d 544, 550, 551 (1979). Since the parties to a contract cannot extend the statute of limitations, they can, however, shorten it. Kassner , 46 N.Y.2d at 551. “Such an agreement does not conflict with public policy but, in fact, ‘more effectively secures the end sought to be attained by the statute of limitations.’” Id. , quoting Ripley v. Aetna Ins. Co. , 30 N.Y. 136, 163 (1864). “Thus, an agreement which modifies the Statute of Limitations by specifying a shorter, but reasonable, period within which to commence an action is enforceable provided it is in writing.” Id . (citations omitted). Often, insurance contracts contain provisions that shorten the statute of limitations for a breach of the policy. Under New York law, the statute of limitations applicable to a breach of contract cause of action is ordinarily six years. CPLR § 213(2). The statute of limitations on a breach of insurance contract cause of action generally starts to run on the date that coverage is disclaimed by the insurer ( see Ely—Cruikshank Co. v. Bank of Montreal , 81 N.Y.2d 399, 402 (1993)); however, the parties to an insurance contract may agree that accrual of the claim runs from the date of the underlying loss as opposed to the date of the disclaimer of coverage. Mercedes-Benz Fin. Servs. USA, LLC v. Allstate Ins. Co. , 162 AD3d 1183, 1184-85 (2018). If the parties agree to change the accrual date to the date of loss, they must express their intention through distinct language. Generic “date of loss” language, as opposed to “inception of loss” or other similarly specific terms of art, is insufficient to evince such an intent. Id . On April 11, 2019, the Supreme Court, Appellate Division, Third Department, addressed these issues in affirming the dismissal of a contract claim arising under an insurance policy. Anderson v. Allstate Ins. Co. , 2019 N.Y. Slip Op. 02768 (3d Dept. Apr. 11, 2019) ( here ). As discussed below, the Court found the language in the subject insurance policy sufficient to shorten the statute of limitations thereby making the plaintiff’s contract claim untimely. Anderson v. Allstate Ins. Co. Background Plaintiff, Nicole Anderson (“Anderson”), owns a multiunit residential building in the City of Troy, Rensselaer County that she used for rental income. As owner and landlord of the premises, Anderson obtained an insurance policy from defendant James Mylod, through defendant Jim Mylod Insurance Depot Agency (collectively, “Mylod”), as an agent of defendant, Allstate Insurance Company (“Allstate”). In 2013, Mylod transferred its book of business to defendant Michael Slovak (“Slovak”). Anderson renewed her insurance policy through Slovak. In the fall of 2014, while the building was undergoing renovations, it was burglarized, resulting in the furnace, hot water heater, plumbing fixtures and copper piping being stolen, and numerous other physical damages being sustained to the interior of the premises. Thereafter, Anderson filed a claim with Allstate seeking coverage for the damages sustained to the building. On September 18, 2014, Allstate denied the claim citing Anderson’s lack of coverage for theft and water damage. Anderson commenced the action against defendants on October 19, 2016, alleging, as relevant to the appeal, that Allstate breached the parties’ insurance contract. In lieu of answering, Allstate moved to dismiss the complaint, claiming that the action was not timely commenced within the 24-month time limitation provided for in the parties’ insurance policy. Mylod and Slovak each separately moved to dismiss the complaint for failure to state a cause of action. The motion court denied Mylod’s and Slovak’s motions, but granted Allstate’s motion, finding that Anderson’s breach of contract cause of action against Allstate had not been timely commenced. Anderson appealed. The Third Department’s Decision The Third Department affirmed. The Court found that the relevant language in the insurance policy contained specific and distinct language that shortened the statute of limitations to 24 months “after inception of loss.” Slip Op. at *1. Thus, “although the date of the underlying burglary s not specifically set forth in the record,” the Court held that “the date of the underlying loss” “clearly occurred prior” to the date Allstate disclaimed coverage on September 18, 2014. Id . Accordingly, since Anderson did not file her summons with notice until October 19, 2016, her lawsuit was untimely; it “was unquestionably commenced beyond the applicable 24-month limitations period provided for in the contract.” Id . The Court also rejected Anderson’s contention that Allstate should have been estopped from asserting that the statute of limitations had run. According to Anderson, Allstate did not provide her with a copy of the policy, despite numerous requests. As a result, she was “unaware of the applicable limitations period provided for therein.” Id . In rejecting the argument, the Court observed that “Allstate did, in fact, provide her with a sample copy of the insurance policy that was in effect on the purported date of loss.” Id . That sample included the relevant statute of limitations language. “Moreover,” said the Court, “even assuming that Allstate failed to timely provide a copy of the subject insurance policy, such conduct, standing alone, fail to establish that Allstate willfully withheld disclosure of same, nor it demonstrate any affirmative deception, fraud or misrepresentations by Allstate intended to prevent plaintiff from filing suit or otherwise ‘justifiably lull[] into inactivity.’” Id . (citations omitted).   here.=">here."> Takeaway Anderson serves a good reminder that before bringing a claim arising under a contract, practitioners should check the fine print to be sure that there are no statute of limitations provisions that shorten the time within which to bring an action.

There are numerous ways in which a defendant can respond to a summons and complaint.  Among other options, a defendant can interpose an answer or move to dismiss some or all of the complaint.  The time to respond to the complaint depends on, among other things, the manner of service of process ( see, e.g. , CPLR 308 ; CPLR 320 ).  CPLR 3211(f) , which grants an automatic extension of time to interpose an answer to a complaint in the event that a motion to dismiss is made, provides that the “ ervice of a notice of motion under subdivision (a) or (b) before service of a pleading responsive to the cause of action or defense sought to be dismissed extends the time to serve the pleading until ten days after service of notice of entry of the order.” In the event that notice of entry of an order deciding a motion to dismiss pursuant to CPLR 3211(a) or (b) is not served, a defendant’s time to answer the complaint does not begin to run.  The Supreme Court, Appellate Division, Second Department recently addressed this issue in JBBNY, LLC v. Dedvukaj , decided on April 10, 2019. JBBNY Defendants Victor and Violeta Dedvukaj (collectively, “Dedvukaj”) were served with process in a mortgage foreclosure.  In response, Dedvukaj moved to dismiss the complaint pursuant to CPLR 3211(a), which motion was denied by order dated June 24, 2015 (the “June Order”).  On August 11, 2015, plaintiff served notice of entry of the June Order, by mail, on the attorney for another defendant, but not Dedvukaj.  As this was a NYSCEF case, promptly upon the mail service, plaintiff electronically filed the notice of entry of the June Order, with proof of mailing.  Accordingly, a NYSCEF “confirmation notice” was sent to Dedvukaj’s counsel.  There is no dispute that notice of entry of the June Order was not served on Dedvukaj or their counsel.  In October of 2015, Dedvukaj served an answer with counterclaims, which was rejected as “untimely” by plaintiff.  Thereafter, plaintiff moved for, inter alia , a default judgment against Dedvukaj and for an order of reference.  Dedvukaj cross-moved for a default judgment against plaintiff for failure to answer their counterclaims.  Supreme Court granted plaintiff’s motion, denied Dedvukaj’s motion and entered a judgment of foreclosure and sale.  Dedvukaj appealed. The Second Department reversed, holding that “ ontrary to the determination of the Supreme Court, since the plaintiff never served the Dedvukaj defendants with notice of entry of the denying their motion to dismiss the complaint, their answer was timely served, as their time to answer never started to run.”  (Citations omitted.)  In so holding, the Second Department analyzed 22 NYCRR 202.5-b , the relevant e-filing rules, and stated: Pursuant to 22 NYCRR 202.5-b, the court rule governing electronic filing for the Supreme Court, a party may serve an interlocutory document upon another party by filing the document electronically: "Upon receipt of interlocutory document, the NYSCEF site shall automatically transmit electronic notification to all e-mail service addresses in such action . . . . Except as provided otherwise in subdivision (h)(2) of this section, the electronic transmission of the notification shall constitute service of the document on the e-mail service addresses identified therein" (22 NYCRR 202.5-b <2> ). Subdivision (h)(2), which appears in a subsection entitled "Entry of Orders and Judgments and Notice of Entry," provides, in relevant part: " party may serve electronically by filing them with the NYSCEF site and thus causing transmission by the site of notification of receipt of the documents, which shall constitute service . . . by the filer. In the alternative, a party may serve a copy of the order or judgment and written notice of its entry in hard copy by any method set forth in CPLR 2103(b)(1) to (6). If service is made in hard copy by any such method and a copy of the order or judgment and notice of its entry and proof of such hard copy service are thereafter filed with the NYSCEF site, transmission by NYSCEF of notification of receipt of those documents shall not constitute additional service of the notice of entry on the parties to whom the notification is sent" (22 NYCRR 202.5-b <2> ). According to the Second Department, the “plain language” of E-filing rules compelled the conclusion that Dedvukaj could not be deemed to have been served with notice of entry of the June Order by virtue of their receiving the E-file confirmation receipt of plaintiff’s service of the June Order on the other defendant.  Therefore, Dedvukaj did not default in answering the complaint and “Supreme Court should have granted that branch of their first cross-motion which was to compel the plaintiff to accept their answer.”  (Citation omitted.)