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: Jonathan H. Freiberger Today’s article addresses a property owner’s right to cancel a recorded mortgage pursuant to RPAPL 1501(4) and whether a mortgagee is “is entitled to recover sums expended to preserve and maintain an allegedly abandoned property under equitable and quasi-contractual theories.” As discussed in prior articles, mortgages on real property are frequently delivered to lenders to stand as security for the repayment obligations evidenced by a promissory note. A recorded mortgage, however, is an encumbrance on real property. Accordingly, if it is possible to cancel a recorded mortgage it is likely in the interest of the mortgagor and/or property owner to do so. RPAPL 1501(4) provides a mechanism to cancel a mortgage of record in situations where the six-year statute of limitations for the commencement of an action to foreclose such mortgage has expired. On April 9, 2025, the Appellate Division, Second Department, in a lengthy opinion, decided Auquilla v. Villa , a case that addressed some interesting issues related to RPAPL 1501(4) and a mortgagee’s right to collect sums expended to preserve and maintain “an allegedly abandoned property.” The facts of Auqulla, which have been simplified for editorial purposes are set forth herein. In 2005, the borrower delivered a note to the lender and the repayment obligations were secured by a mortgage on real property located in Ossining, New York (the “Property”). “By bargain and sale deed dated March 8, 2006, the borrower retained a one-third interest in the premises for herself and conveyed the remaining interest to the plaintiffs, Miguel Auquilla and Hilda Guzman (hereinafter together the owners), as tenants in common.” In 2010, after the borrower and the owners defaulted in their repayment obligations, the lender commenced a mortgage foreclosure action (the “First Action”). The First Action was dismissed in 2013 pursuant to CPLR 3216 for neglect to prosecute. In 2014, the lender commenced a new foreclosure action against the borrower and the owners (the “Second Action”). The owners answered but the borrower defaulted. Subsequently, the motion court granted the owners’ motion on their cross-claim for a declaration that “the owners had sole title to the roperty” – a holding that was not challenged on appeal. Subsequently, the lender was granted summary judgment by an order that directed it to move for a judgment of foreclosure and sale within three months, but the Second Action was dismissed when the lender failed to comply with the order. The Owners’ Claims Under RPAPL 1501(4) and The Lender’s “Mortgagee in Possession” Claim Thereafter, the owners commenced an action against the borrower and the lender to, inter alia , cancel and discharge the mortgage of record pursuant to RPAPL 1501(4) (the “Third Action”). “The interposed an answer by which it asserted, inter alia, counterclaims alleging unjust enrichment, to recover in quantum meruit, and for the imposition of an equitable lien and an equitable mortgage against the roperty. The claimed, among other things, that the owners abandoned the roperty and, as a result, the was ‘forced to protect its interest in the roperty for the duration of the default.’ The alleged that it advanced funds for the payment of property taxes, property insurance, property preservation fees, and other charges and costs, and sought to recover those funds.” (Internal bracket omitted.) The owners moved for summary judgment on their claims under RPAPL 1501(4) and to dismiss the lender’s counterclaims and the lender cross-moved to dismiss the complaint. The motion court granted the owner’s motion for summary judgment as related to RPAPL 1501(4) and denied the lender’s cross-motion but declined to dismiss the lender’s counterclaims. Both the lender and the owners appealed. The Second Department, after discussing issues related to the applicable statute of limitations , found that the lender’s claim was time-barred, and, thus, the owners’ motion for summary judgment on their RPAPL 1501(4) claim was properly granted, because: the record reveals, and the does not dispute, that an action to foreclose the mortgage was commenced in 2010 by the and the complaint therein was dismissed for neglect to prosecute. The commencement of the ction accelerated the debt and the limitations clock began to run at that time. Although the also commenced an action to foreclose the mortgage in 2014, the ction was also dismissed. As the instant action was commenced more than six years after the acceleration of the debt in the ction, and any new action to foreclose the mortgage is time-barred, the owners are entitled to cancellation of the mortgage. The Court also rejected the Lender’s argument that the statute of limitations failed to run against it because it was a “mortgagee in possession of the roperty.” Quoting LaPlacav. Schell , 68 A.D.3d 1478, 1479 (3 rd Dep’t 2009), the Court noted that the statute of limitations does not run against a mortgagee in possession on the theory that “‘the mortgagor's acquiescence to that possession is a continuing acknowledgment of the debt.’” Whether a mortgagee is a “mortgagee in possession” for statute of limitations tolling purposes “requires an analysis of whether the mortgagee took full possession of the property pursuant to an agreement with the mortgagor.” (Citation and internal quotation marks omitted.) Taking possession “means acquiring the benefits of possession, including the value of use, rents, and profits, as well as assuming all the legal duties and obligations that flow from possession.” (Citation and internal quotation marks omitted.) Here, while the loan documents permitted the lender to enter the Property if abandoned, it was not required to do so. The Court found that the lender did not have full possession of the Property. The Court noted that the lender’s own property inspection reports indicated that the Property was “owner occupied” and that the Property “was in good overall condition”. Further, no evidence was submitted that the lender ever “entered the roperty to maintain it or to make repairs.” The Court also found that paying property taxes and insurance “alone is insufficient to establish the mortgagee’s status as a mortgagee in possession.” The Lender’s Quasi Contract Counterclaims The Court also rejected the Lender’s counterclaims that it was entitled to recoup the funds it expended “to preserve and maintain the roperty after the owners allegedly abandoned it.” The Court recognized that “a quasi-contractual obligation is one imposed by law where there has been no agreement or expression of assent, by word or act, on the part of either party involved. The law creates it, regardless of the intention of the parties, to assure a just and equitable result.” (Citation and internal quotation marks omitted.) The lender argued that because the written agreement is between the lender and the borrower, there is no written agreement with the owners and, accordingly, quasi-contractual theories of recovery are available to it. This argument was rejected by the Court when it found that “the mortgage agreement, which encumbered the property before the owners took possession and included some terms contained in the note for purposes of, inter alia, events of default, governs this dispute.” The finding that the mortgage controls the dispute was “fatal to the counterclaims sounding in quasi contract.” The Court noted that “ ince it is undisputed that the mortgage agreement governed the 's right to pay the costs associated with the maintenance of the property after the owners allegedly abandoned it and failed to keep their promise to pay property taxes, the 's recourse was to proceed pursuant to its rights as contained within the mortgage agreement and, thus, the was precluded from recovering on its unjust enrichment and quantum meruit counterclaims.” (Citations omitted.) In establishing a definitive rule related to this issue in light of the lender’s “novel” theory, the Court stated: The mortgagee's theory that the mortgage agreement does not govern the dispute since it was executed by the borrower and not by the owners is a novel one in this Court, but is ultimately unpersuasive. Although this Court has not explicitly recognized such a rule in this context, we now hold that there can be no quasi contract claim by a mortgagee against a third-party nonsignatory owner of property encumbered by a mortgage, the terms of which covers the subject matter of the dispute. The Court of Appeals has stated that " t is impermissible . . . to seek damages in an action sounding in quasi contract where the suing party has fully performed on a valid written agreement, the existence of which is undisputed, and the scope of which clearly covers the dispute between the parties" ( Clark-Fitzpatrick, Inc. v Long Is. R.R. Co. , 70 NY2d at 389). Although the Court of Appeals has not considered whether that rule applies to nonsignatories of a mortgage agreement, it is nonetheless well settled that a contract cannot be implied in fact where there is an express contract covering the subject matter involved. The Court went on to fully analyze this issue. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. This BLOG has written numerous articles addressing RPAPL 1501(4). To find such articles, please see the BLOG tile on our website and type “RPAPL 1501(4)” into the “search” box. This BLOG has written dozens of articles addressing statute of limitations issues in residential mortgage foreclosure actions. To find such articles, To find such articles, please see the BLOG tile on our website and type “statute of limitations 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 =">here"> . This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosure, or other commercial litigation, issue that may be of interest you. This BLOG has written numerous articles addressing unjust enrichment, quantum meruit and quasi-contract theories. To find such articles, please see the BLOG tile on our website and type any or all of those terms into the “search” box. The Court also analyzed and rejected the lender’s claim that it was entitled to an equitable mortgage on the Property as well as an equitable lien.

By: Jeffrey M. Haber On April 3, 2025, the Appellate Division, First Department considered an appeal of the dismissal of a complaint involving the disputed authenticity of a painting (the “Work”) by the deceased artist Cy Twombly (“Twombly”). In Grosso v. Cy Twombly Found. , 2025 N.Y. Slip Op. 02007 (Apr. 03, 2025) ( here ), the Court unanimously affirmed the motion court’s dismissal of a complaint brought by the child of a parent who purchased works of art, including the Work, from Twombly in the 1960s. As discussed below, the Court held that, among other things, the motion court did not have personal jurisdiction over defendant and that plaintiff could not assert his fraud and negligent misrepresentation claims against defendant because they were time-barred. The Rules Governing the Exercise of Personal Jurisdiction New York courts may exercise general jurisdiction over a defendant under the United States Constitution or under CPLR 301 if the defendant is domiciled in the state or has “continuous and systematic” contacts with New York which are substantial enough to render the defendant at home in New York. Activities undertaken by an individual defendant in the state on behalf of a corporate entity do not confer personal jurisdiction over the individual defendant. A court may exercise general jurisdiction over a defendant under an alter ego theory, where there is complete domination to commit fraud or a wrong against plaintiff. “Factors to be considered” in making the determination include: the disregard of corporate formalities; inadequate capitalization; intermingling of funds; overlap in ownership, officers, directors and personnel; common office space or telephone numbers; the degree of discretion demonstrated by the allegedly dominated corporation; whether dealings between the entities are at arm’s length; whether the corporations are treated as independent profit centers; and the payment or guaranty of the corporation's debts by the dominating entity. “No one factor is dispositive.” Courts may also exercise jurisdiction over a non-domiciliary if it has long-arm jurisdiction over the defendant under CPLR 302 ( i.e. , specific jurisdiction) and the exercise of such jurisdiction comports with due process. For a court to exercise jurisdiction under CPLR 302 (a) (1), the “attachment to New York must be (1) purposeful; and (2) there must be a substantial relationship between the New York transaction of business and the claim asserted.” “Purposeful activities are defined as those with which a defendant, through volitional acts, avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” A court can exercise jurisdiction even in the absence of physical presence if “the defendant on his own initiative ... project himself into this state to engage in a sustained and substantial transaction of business.” Where the defendant acts through an agent, the “plaintiff must convince the court that engaged in purposeful activities in th State in relation to transaction for the benefit of and with the knowledge and consent of and that exercised some control over .” A court may exercise personal jurisdiction if a defendant commits a tortious act outside the state which causes injury to person or property in the state, other than a cause of action for defamation of character arising from the act, if he “(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.” To challenge the court’s jurisdiction over the person, the defendant must make a motion pursuant to CPLR 3211(a)(8 ). CPLR 3211(a)(8) authorizes dismissal of “one or more causes of action asserted ... on the ground that ... the court has not jurisdiction of the person of the defendant.” “On a motion pursuant to CPLR 3211 (a) (8) to dismiss for lack of personal jurisdiction, the party asserting jurisdiction has the burden of demonstrating satisfaction of statutory and due process prerequisites.” A plaintiff meets this burden by presenting affidavits and relevant documents. Rules Governing the Statute of Limitations for Fraud and Fraud-Based Claims A party seeking dismissal of a pleading on statute of limitations grounds must make a motion pursuant to CPLR 3211(a)(5). Under this provision of the CPLR, “a defendant must establish, prima facie, that the time within which to sue has expired.” “Once that showing has been made, the burden shifts to the plaintiff to raise a question of fact as to whether the statute of limitations has been tolled, an exception to the limitations period is applicable, or the plaintiff actually commenced the action within the applicable limitations period.” Under New York law, an action based upon fraud must be commenced within six years of the date the cause of action accrued, or within two years of the time the plaintiff discovered or could have discovered the fraud with reasonable diligence, whichever is greater. The cause of action accrues when “every element of the claim, including injury, can truthfully be alleged”, “even though the injured party may be ignorant of the existence of the wrong or injury.” Determining when accrual occurs is not easy and often contested. So too is the determination of when the plaintiff discovered or could have discovered the fraud. In New York, “plaintiffs will be held to have discovered the fraud when it is established that they were possessed of knowledge of facts from which it could be reasonably inferred, that is, inferred from facts which indicate the alleged fraud.” “ ere suspicion will not constitute a sufficient substitute” for knowledge of the fraud. “Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion and the question should be left to the trier of the facts.” Moreover, where the circumstances suggest to a person of ordinary intelligence the probability that s/he has been defrauded, a duty of inquiry arises, and if s/he fails to undertake that inquiry when it would have developed the truth and shuts his/her eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him/her. The test as to when fraud should with reasonable diligence have been discovered is an objective one. Thus, while it is true that New York courts will not grant a motion to dismiss a fraud claim where the plaintiff’s knowledge is disputed, courts will dismiss a fraud claim when the alleged facts establish that a duty of inquiry existed and that an inquiry was not pursued. “The burden of establishing that the fraud could not have been discovered before the two-year period prior to the commencement of the action rests on the plaintiff, who seeks the benefit of the exception.” Grosso v. Cy Twombly Foundation In 2011, defendant, a private foundation formed in 2005 with the aim of fostering the study and preservation of Twombly’s works, confirmed in writing (signed by the Foundation’s President, defendant Nicola Del Roscio (“Del Roscio”)) “that the Work would be included in a publication intended to be part of a comprehensive catalogue of Twombly’s works of art (the “Catalogue RaisonnÉ”). The Catalogue RaisonnÉ was published in 2013 without including the Work. Plaintiff consigned the Work to Phillips Auctioneers LLC (“Phillips”) and received a $1.5 million advance against proceeds from Phillips pursuant to written agreements. In January 2019, Phillips and plaintiff signed an addendum to the Agreement reaffirming the terms of the sale and recording the accrual of interest as of January 2019. Phillips scheduled the Work for sale at an auction in 2019 and contacted the Foundation about the Work prior to the sale. Plaintiff alleged that defendants made false statements to Phillips about the Work and plaintiff. Plaintiff eventually discovered that defendants communicated to Phillips through defendant David Baum (“Baum”) that “there was no doubt” that the Work was a fake and was aware of this fact when he consigned the Work to Phillips.” Baum also informed Phillips that “the Foundation had been shown this work before, and that there is a specific reason why the work is not in the catalogue RaisonnÉ.” In an action involving plaintiff and Phillips, Baum testified that “Cy Twombly himself declared the work to be fake.” Plaintiff alleged that the Foundation claimed that the Work was a fake because a “Gian Piero Grosso” believed to be plaintiff’s father, submitted the Work for authentication (“Submission”) through a Vienna gallery and Twombly reviewed the Work and declared it to be inauthentic. The Foundation also had in its possession an envelope (in which the Submission was kept) which had the handwritten inscription “falso dice Cy” which translates in English to “false says Cy”. The Foundation believed this to be proof that Twombly himself reviewed the Submission and declared the Work to be inauthentic. Plaintiff challenged these claims and alleged that the Foundation’s statements to Phillips were demonstrably false because ‘Gian Piero Grosso’ was not plaintiff’s father, the handwriting on the envelope is of an unknown person and not Twombly and Twombly saw the Work in-person at Grosso’s residence and never communicated that the Work was a fake or in any way indicated that he was not the creator of the Work. Plaintiff alleged that through their actions and false statements , defendants “intended to convince Phillips that the Work was not authentic, sought to impermissibly interfere with Mr. Grosso’s business relationship and Agreement with Phillips and induced Phillips into withdrawing the Work from sale.” Plaintiff further alleged that defendants procured a criminal record evidencing a conviction of a ‘Pier Franco Grosso’ in Italy and shared it with Phillips claiming it to be a criminal record for Grosso. Plaintiff claimed that due to defendants’ false statements and actions, the Work was not sold and plaintiff in March 2020 was publicly branded as having owned and fraudulently consigned a fake artwork to Phillips. Plaintiff filed the action against defendants on July 11, 2022, alleging the following causes of action: (i) tortious interference with business relationships (Count I); (ii) defamation (Count II); (iii) prima facie tort (Count III); (iv) fraud (Count IV); (v) injurious falsehood (Count V); (vi) product disparagement (Count VI); and (vii) negligent misrepresentation (against the Foundation in the alternative) (Count VII). Baum and the Foundation moved pursuant to CPLR 3211(a)(1), (5) and (7) to dismiss the complaint in its entirety. Del Roscio moved pursuant to CPLR 3211(a)(8) to dismiss the complaint against him in its entirety, and in the alternative pursuant to CPLR 3211(a)(1)(5) and (7) if the motion court determined that it had jurisdiction over him. The motion court granted the motions ( here ). Regarding personal jurisdiction , the motion court found that, under CPLR 301, Del Roscio was “not domiciled in New York and not have continuous or systematic contacts with New York which would render him at home in New York.” The motion court explained that “ e does not regularly conduct business on behalf of the Foundation from New York and in any event, activities undertaken on behalf of the Foundation would not confer personal jurisdiction over Del Roscio.” The motion court rejected plaintiff’s contention that the motion court acquired “general jurisdiction over Del Roscio by virtue of the Foundation’s general presence in New York.” The motion court also rejected plaintiff’s alter ego theory for exercising jurisdiction. “None of factors exist here,” said the motion court. The motion court found plaintiff’s assertions that Del Roscio was the “key decision maker”, “an integral part of the day-to-day activities of the Foundation”, “the primary individual associated with the Foundation or who provides information about whether an artwork attributed to will be included in any of catalogues raisonne” to be conclusory and an insufficient basis upon which the motion court could find that Del Roscio was the Foundation’s alter ego. Further, the motion court found that plaintiff “failed to allege much less demonstrate that Del Roscio used the Foundation’s corporate form to perpetuate fraud on plaintiff.” The motion court also held that it did not have jurisdiction over Del Roscio under CPLR 302(a) (1) because the authentication of the Work, which was the only act by Del Roscio that had a substantial relationship with the claims in the action was performed in Italy. The motion court rejected plaintiff’s argument “that Del Roscio projected himself into the State through telephone calls and emails with Baum and other employees of the Foundation.” Finally, the motion court held that plaintiff failed to satisfy the requirements of CPLR 302(a)(3). The motion court found that Del Roscio did not regularly conduct or solicit business (on his account) or derive substantial revenue from goods used or consumed or services rendered in New York. The motion court concluded that “Del Roscio’s business contacts with New York limited to his role as the President of the Foundation.” Turning to the statute of limitations , the motion court held that plaintiff was on notice of the alleged misrepresentations more than two years before he commenced the action: “ also does not contest the fact that it knew that the Catalogue RaisonnÉ was published in 2013 without including the Work.” The motion court rejected plaintiff’s contention that his claims were timely because “he believed that the Catalogue RaisonnÉ could be supplemented in the future.” “Even if believed that the Catalogue RaisonnÉ could be supplemented in due course,” said the motion court, “it was incumbent upon him to exercise reasonable diligence and inquire of the Foundation when the Catalogue RaisonnÉ would be supplemented to include the Work.” “Despite his knowledge of the significance of being included in a Catalogue RaisonnÉ for an artwork’s authenticity and consequent[ ] marketability,” reasoned the motion court, “ made no effort to contact the Foundation and inquire about the inclusion of the Work in any forthcoming … catalogue RaisonnÉs.” Accordingly, the motion court held that plaintiff was inquiry notice of the alleged fraud . On appeal, the First Department affirmed. The Court held that the motion court “properly found that defendant Del Roscio, the president of defendant Cy Twombly Foundation, was not individually subject to either general or specific jurisdiction in New York.” The Court found that the “record indicate that Del Roscio live in Italy, perform his work for the Foundation from Italy, and ha not visited New York since 2020.” The Court found that plaintiff’s allegations were speculative, and affirmed the motion court’s refusal to give “weight to plaintiff’s speculation that Del Roscio must have conducted business in New York and possibly attended Twombly exhibitions in New York.” Moreover, the Court found that plaintiff ignored the rule that “a nondomiciliary ‘does not subject himself, individually, to the CPLR 301 jurisdiction of our courts … unless he is doing business in our State individually,’ as opposed to the business he is conducting on behalf of a corporation.” The Court also found “Plaintiff’s conclusory assertions that Del Roscio subject to general jurisdiction in New York as the Foundation’s alter ego” to be “unavailing”. Further, the Court held that the motion court “properly dismissed the claims against the Foundation and Baum on the basis that each claim was time-barred and/or failed to state a cause of action.” The Court noted that “ oth the fraud and negligent misrepresentation claims were based on defendants’ purported false authentication of the work in 2011 and defendants’ failure to include it in the Catalogue RaisonnÉ in 2013.” The Court further noted that “Plaintiff not dispute that he knew in 2013 —nine years before this case was filed — that the relevant volume of the Catalogue RaisonnÉ was published without including the ork, which was contrary to defendants’ alleged promise.” Thus, concluded the Court, “plaintiff’s claims were untimely when he brought them in 2022 because he was at least on inquiry notice of defendants’ purported fraud and misrepresentations, which is when the statute of limitations began to run.” ________________________________ 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. Daimler AG v. Bauman , 571 U.S. 117, 126, 134, 139; IMAX Corp. v. Essel Group , 154 A.D.3d 464, 465-466 (1st Dept. 2017). IMAX , 154 A.D.3d at 466 (internal citation omitted). Matter of Morris v. New York State Dept. of Taxation and Fin. , 82 N.Y.2d 135 (1993). Fantazia Intern. Corp. v. CPL Furs New York, Inc. , 67 A.D.3d 511, 512 (1st Dept. 2009). Id. D & R Glob. Selections, S.L. v. Bodega Olegario Falcon Pineiro , 29 N.Y.3d 292 (2017). Silverman v. Minify, LLC , 2016 N.Y. Slip Op. 30046 (U) *5 (Sup. Ct., N.Y. County 2016) C. Mahendra (N.Y.), LLC v. Nat’l Gold & Diamond Ctr., Inc. , 125 AD3d 454, 457 (1st Dept. 2015) (internal quotations and citations omitted). Silverman , 2016 N.Y. Slip Op. 30046 (U) *8 (internal quotations and citations omitted). Coast to Coast Energy, Inc. v. Gasarch , 149 A.D.3d 485, 486-487 (1st Dept. 2017) (internal quotation marks and citation omitted). CPLR 302(a)(3). Matter of James v. iFinex Inc. , 185 A.D.3d 22, 28-29 (1st Dept. 2020) (citation omitted). Coast to Coast Energy , 149 A.D.3d at 486. Flintlock Constr. Servs., LLC v. Rubin, Fiorella & Friedman, LLP , 188 A.D.3d 530, 531 (1st Dept. 2020) (citations omitted). Id. CPLR § 213(8). See also Sargiss v. Magarelli , 12 N.Y.3d 527, 532 (2009); Carbon Capital Mgmt., LLC v. Am. Express Co. , 88 A.D.3d 933, 939 (2d Dept. 2011). Carbon Capital Mgmt. , 88 A.D.3d at 939 (citation and alterations omitted). Schmidt v. Merchants Despatch Transp. Co. , 270 N.Y. 287, 300 (1936). Erbe v. Lincoln Rochester Trust Co. , 3 N.Y.2d 321, 326 (1957). Id. Trepuk v. Frank , 44 N.Y.2d 723, 725 (1978). Gutkin v. Siegal , 85 A.D.3d 687, 688 (1st Dept. 2011).  Id. (citation and internal quotation marks omitted). See Shalik v. Hewlett Assocs., L.P. , 93 A.D.3d 777, 778 (2d Dept. 2012). Celestin v. Simpson , 153 A.D. 3d 656, 657 (2d Dept. 2017). Phillips filed a complaint against plaintiff, alleging, among other things, breach of contract and fraud arising out of plaintiff’s consignment of the Work to Phillips. Slip Op. at *1 (citations omitted). Id. at *1-*2 (quoting Laufer v. Ostrow , 55 N.Y.2d 305, 313 (1982)). Id. at *2. Id. Id. Id. Id. (citing Aozora Bank, Ltd. v. Credit Suisse Group , 144 A.D.3d 437, 438-439 (1st Dept. 2016), lv. denied , 28 N.Y.3d 914 (2017)).

By: Jonathan H. Freiberger The term “venue” in the context of litigation refers to the location where the trial will take place. In general, and as previously described in prior articles, Venue, which is governed by Article 5 of the CPLR , is initially chosen by the plaintiff at the commencement of the action. Sometimes an improper venue is chosen by the plaintiff. In such circumstances, the defendant can move to change venue to a proper venue. CPLR 510(1) ; see also Kidd v. 22-11 Realty, LLC , 142 A.D.3d 499, 489 (2 nd Dep’t 2016); Beli v. Lacqua , 212 A.D.3d 701 (2 nd Dep’t 2023). Under other circumstances, the venue chosen by the plaintiff may be correct, but a different venue may be more convenient. Today’s article will focus on some issues related to the discretionary change of venue pursuant to CPLR 510(3) , which provides that “ he court, upon motion, may change the place of trial of an action where … the convenience of material witnesses and the ends of justice will be promoted by the change.”  Motions pursuant to CPLR 510(3) “are addressed to the sound discretion of the trial court and, absent an improvident exercise of that discretion, the trial court’s order will not be disturbed on appeal.” Raghavendra v. Stober , 171 A.D.3d 814, 816 (2 nd Dep’t 2018) (citations omitted); see also Aldridge v. Governing Body of Jehovah’s Witnesses , 204 A.D.3d 1469, 1470 (4 th Dep’t 2022). In cases where plaintiff’s initial choice of venue is proper, a discretionary change of venue based on the convenience of witnesses, pursuant to CPLR 510(3), will be granted “only after there has been a detailed evidentiary showing that the convenience of nonparty witnesses would in fact be served by the granting of such relief.”  O’Brien v. Vassar Bros. Hosp. , 207 A.D.2d 169 (2 nd Dep’t 1995); see also Barresi v. Halls Boat, LLC , 217 A.D.3d 437 (1 st Dep’t 2023). The O’Brien Court “review … the caselaw decided with reference to CPLR 510(3) and its antecedents that there is a general consensus among appellate courts as to the existence, if not as to the absolute rigidity and inexorability, of four criteria which should be established by the movant in order to demonstrate his or her entitlement to relief pursuant to CPLR 510(3).” O’Brien , 207 A.D.2d at 172. The O’Brien criteria are as follows: (1) “the affidavit in support of a motion under this section must contain the names, addresses and occupations of the prospective witnesses”; (2) “a party seeking a change of venue for the convenience of witnesses is also required to disclose the facts to which the proposed witnesses will testify at the trial, so that the court may judge whether the proposed evidence of the witnesses is necessary and material”; (3) “the moving party must show that the witnesses for whose convenience a change of venue is sought are in fact willing to testify”; and, (4) “there must be a showing as to how the witnesses in question would in fact be inconvenienced in the event a change of venue were not granted.” O’Brien , 207 A.D.2d at 172–73 (citations, internal quotation marks and ellipses omitted); see also Jacobs v. Banks Shapiro Gettinger Waldinger & Brennan, LLP , 9 A.D.3d 299 (1 st Dep’t 2004); Corner of Walnut LLC v. Tompkins Ins. Agencies, Inc. , 225 A.D.3d 465 (1 st Dep’t 2024). The absence of affidavits, and/or detail in submitted affidavits, satisfying the O’Brien criteria for changing venue is fatal to a discretionary motion under CPLR 501(3). 10 Two Trees Lane LLC v. Mahoney , 192 A.D.3d 468, 469-70 (1 st Dep’t 2021). In Barresi , supra , for example, the Court determined that the defendant failed to meet its burden of demonstrating that a change of venue was warranted because the affidavits of potential witnesses “merely set forth brief and vague descriptions of the witnesses’ proposed testimony were insufficient to show that the testimony would be material and relevant to the issue of defendant's liability and damages. Barresi , 217 A.D.3d at 438 (citations omitted). In Jacobs, supra , the motion was denied because defendants failed to “indicate that they had contacted the nonparty witnesses, much less identify the specific inconveniences which might be incurred by the witnesses, and such inadequacies render defendants' moving papers insufficient as a matter of law.” Jacobs , 9 A.D.3d at 300 (citations omitted). On April 3, 2025, the Appellate Division, First Department, in Nir v. Wakeford , unanimously reversed the grant of defendant’s motion to change venue. Nir , an action based on a sexual assault and brought under the Adult Survivors Act (CPLR 214-j) , was properly brought in New York County, the county of the plaintiff’s residence. CPLR 503(a) . The defendant moved to change venue based on the convenience of witnesses. In support of his motion to change venue, the defendant argued that because the assault occurred in Suffolk County “most material witnesses will be located there.” Four such material witnesses identified by defendant’s counsel allegedly lived and worked in Suffolk County. The Court noted that counsel “contacted only two of those witnesses directly, and he failed to show that the two witnesses who were not contacted would be inconvenienced.” (Citations omitted.) In addressing the proof submitted by the parties in support of, and in opposition too, the motion, the Court stated: As to one of the witnesses whom counsel contacted, he failed to assert that the witness stated he would be inconvenienced by having to testify in New York County. As to the other witness who was contacted, a detective in Suffolk County, defendant’s counsel averred that the witness stated he would be inconvenienced by having to testify in New York County. In opposition, plaintiff’s counsel averred that she spoke to the detective, who denied ever making that statement and, instead, told her that, while it would be easier to testify in Suffolk County, it would not be a burden to testify in New York County. The mere fact that the courthouse is in a different county does not give rise to a presumption that a witness will be inconvenienced. Contrary to defendant’s contention, the fact that the witnesses are police officers does not negate the argument that distance alone is insufficient to justify a change of venue. 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 several articles about venue. See, e.g., < here =">here"> ,< here =">here"> and < here =">here"> .

By: Jeffrey M. Haber In Idi v. Sela , 2025 N.Y. Slip Op. 01890 (1st Dept. Apr. 1, 2025) ( here ), the Appellate Division, First Department addressed an issue of contract interpretation that this Blog often examines: enforcing written agreements that are complete, clear, and unambiguous on their face. Under New York law, written agreements are construed in accordance with the parties’ intent . “The best evidence of what parties to a written agreement intend is what they say in their writing.” As such, “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.” “Courts may not ‘by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.’” “‘Whether an agreement is ambiguous is a question of law for the courts … Ambiguity is determined by looking within the four corners of the document, not to outside sources.’” “The entire contract must be reviewed and ‘ articular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby. Form should not prevail over substance and a sensible meaning of words should be sought.’” “Where the language chosen by the parties has ‘a definite and precise meaning,’ there is no ambiguity.” Evidence outside the four corners of the agreement – parol evidence – is admissible only if a court finds an ambiguity in the contract. As a general rule, extrinsic evidence is inadmissible to alter or add a provision to a written agreement. This rule gives “stability to commercial transactions by safeguarding against fraudulent claims , perjury, death of witnesses … infirmity of memory … the fear that the jury will improperly evaluate the extrinsic evidence.” Idi v. Sela Overview Idi involved a dispute arising from a business partnership and real estate transactions between two close friends. As discussed below, plaintiff accused defendant of financial wrongdoing and other wrongful activities in the conduct of the two businesses and the sale of the subject property. The parties initially agreed to arbitrate their dispute on February 8, 2016, pursuant to a private agreement to arbitrate , and thereafter filed statements of claim with the arbitrators on July 1, 2016. Neither party was given the opportunity to file an answer to the other’s claims or to assert affirmative defenses . During the arbitration, the parties conducted and completed discovery, which included document exchanges, documents subpoenaed from third parties, depositions and the exchange of expert reports. In connection with the exchange of discovery, defendant put plaintiff on notice that he would be relying on a statute of limitations defense . Thereafter, the parties agreed to move the matter to court. Pursuant to the parties’ stipulation, the parties agreed that the court proceeding would be limited in scope by the arbitration agreement , the statements of claim, and any prior rulings of the arbitrators. On October 22, 2022, plaintiff filed a motion for summary judgment seeking judgment on both his claims and defendant’s counterclaims and affirmative defenses. Plaintiff argued that defendant’s counterclaims and affirmative defenses should be summarily dismissed because defendant failed to assert the affirmative defenses in the arbitration. Plaintiff also argued that defendant’s second counterclaim was beyond the scope of the arbitration and the stipulation. Also on February 22, 2023, defendant filed a cross-motion for summary judgment, as well as his opposition to plaintiff’s motion, seeking dismissal of each cause of action in plaintiff’s complaint. Defendant argued that dismissal was warranted because, inter alia , the statute of limitations applicable to plaintiff’s claims had expired, thereby barring all of plaintiff’s claims. The motion court granted defendant’s cross-motion for summary judgment , dismissing plaintiff’s complaint based primarily on statute of limitations grounds. The motion court also denied plaintiff’s summary judgment motion in its entirety. Facts The parties were equal owners in two entities, including 1961 7th Avenue, Inc. (“1961 Inc.”), which acquired a property that it sold in February 2011. Following the February 2011 sale, the parties had a dispute over distribution of the proceeds of the sale, causing plaintiff to allegedly make repeated requests for access to the books and records of their companies. The parties did not speak for the next four years until the Internal Revenue Service contacted plaintiff about an audit of 1961 Inc., which prompted plaintiff to call defendant. In February 2016, the parties agreed to submit their disputes concerning the operation and sale of the property to arbitration before two lawyers. Both parties submitted statements of claim in June 2016. No applicable arbitral rules required the parties to file answers or responses to the statements of claims, which were deemed denied. During discovery, in July and October 2016, defendant objected to document requests to the extent they sought “information relating to claims for which the applicable statute of limitations has expired” and “without waiver” of his objections.  In 2022, the parties moved their dispute to court pursuant to a stipulation in which they agreed that the complaint and answer in the action would be “limited in scope” by the arbitration agreement, the statements of claim, and any prior rulings of the arbitrators. Further, the parties agreed that “the claims and counterclaims interposed shall be deemed filed as of the date they were filed in the arbitration,” except to the extent they exceeded the scope of the claims asserted in the arbitration . Plaintiff filed a complaint asserting claims for an equitable accounting, breach of fiduciary duty , unjust enrichment, fraud (based on misrepresentations concerning use of construction loan proceeds), and constructive trust. Defendant answered, asserting affirmative defenses, including that the claims were barred by the statute of limitations , and counterclaims related to plaintiff’s position that he was not required to pay a proportionate share of any tax liability. After completion of discovery, the parties moved for summary judgment; defendant argued that plaintiff’s claims were barred by the applicable three-year statute of limitations.  The First Department’s Ruling The Court unanimously modified the motion court’s order by denying defendant’s motion for summary judgment and reinstating plaintiff’s complaint, with the exception of plaintiff’s fourth cause of action for fraud . The Court held that “if defendant truly believed plaintiff’s claims were time-barred,” he should have “made an application to the court to determine the threshold statute of limitations issue within 20 days of the commencement of the arbitration,” before participating in the arbitration. The Court found that “ efendant never made such an application.” “Nonetheless,” said the Court, “defendant could have still raised this defense for the arbitrators to decide in their ‘sole discretion’” The Court explained that “ hile defendant had stated in discovery responses during the arbitration that he objected to producing documents related to claims that may be time-barred, he never asserted a statute of limitations defense in his statement of claim or sought any ruling or stipulation from the arbitrators on the issue during the ensuing six years.” “Thus,” concluded the Court, “according to the reasonably plain language of the parties’ agreement, there was no statute of limitations issue within the scope of issues to be litigated in court.” Apart from the plain language of the stipulation, the Court found that defendant waived the statute of limitations defense before the arbitrators. Having done so, the Court held that “defendant should not be able to have it decided by the court now.” Moreover, noted the Court, “it would be unfair to allow defendant to raise the defense at this late date when the parties have spent considerable time and money on discovery, including extensive accountants’ reports, and the case is now trial ready.” Regarding the fourth cause of action for fraud, the Court held that the claim did not fall within the scope of the parties’ agreement for moving the dispute to court: nder the stipulation taking the matter out of arbitration, the parties agreed that the scope of this action would be limited to the statements of claim from arbitration, the arbitration agreement, and any prior rulings or stipulations in the arbitration . Plaintiff’s statement of claim made no independent claim of actual fraud , nor does plaintiff point to language in the statement of claim, the arbitration agreement, or any other ruling or stipulation that would form the basis of an independent fraud cause of action. Thus, plaintiff is precluded from asserting an independent fraud claim in this action. ________________________________ 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. Greenfield v. Philles Records , 98 N.Y2d 562, 569 (2002) (internal quotation marks and citation omitted). Id. This Blog has frequently written about cases in which the courts have underscored the point that words in a contract have meaning. See , e.g. , here , here , here , here , and here . Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P. , 13 N.Y.3d 398, 404 (2009) (quoting Reiss v. Financial Performance Corp. , 97 N.Y.2d 195, 199 (2001)). Id. at 404 (quoting Kass v. Kass , 91 N.Y.2d 554, 566 (1998)). Id. at 404 (quoting Atwater & Co. v. Panama R.R. Co. , 246 N.Y. 519, 524 (1927)). Id. at 404 (quoting Greenfield , 98 N.Y.2d at 569). W.W.W. Assoc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990) (internal quotation marks and citation omitted).  Slip Op. at *1-*2 (citing CPLR 7503(b), (c)). Id. at *2. Id. (citing CPLR 7502(b)). Id. Id. Id. Id. (citing Matter of Tilbury Fabrics v. Stillwater, Inc. , 56 N.Y.2d 624, 626 (1982) (statute of limitations defense waived by failure to raise it in a motion to stay arbitration or before the arbitrators); Matter of Jewish Ctr. of Forest Hills W., Inc. v. Goldberg , 160 A.D.3d 644, 645-646 (2d Dept. 2018)). Id. (citing Cseh v. New York City Tr. Auth. , 240 A.D.2d 270, 271-272 (1st Dept. 1997)).  Id.

By: Jeffrey M. Haber Arbitration is an alternative to a court proceeding. It is an adversarial proceeding in which the parties can call witnesses and present evidence to a neutral arbitrator or panel of arbitrators. The rules of discovery and evidence are relaxed to make it a more cost-efficient process. Typically, arbitrations are conducted by a private firm in which an attorney or retired judge, selected by the parties, presides over the proceeding. Arbitration can be binding, in which the arbitrator renders (or the panel of arbitrators render) a decision that can be enforced by the courts, or non-binding, in which the arbitrator renders (or the panel of arbitrators render) an advisory opinion that the parties can accept or reject. In short, arbitration is similar to a trial without the formalities. Generally, whether a claim is subject to arbitration is a decision for the court, not the arbitrator. Thus, in the initial instance, the court will “determine in general terms whether the parties have agreed that the subject matter under dispute should be submitted to arbitration.” Once it appears that there is a “reasonable relationship between the subject matter of the dispute and the general subject matter of the underlying contract, the court’s inquiry is ended.” In making this determination, courts look to the parties’ agreement to arbitrate . Courts will enforce an agreement to arbitrate , and will not take the issue of arbitrability away from the arbitrator when the parties specifically provide as such: hen the parties’ agreement specifically incorporates by reference the AAA rules, which provide that “ he tribunal shall have the power to rule on its own jurisdiction, including objections with respect to the existence, scope or validity of the arbitration agreement,” and employs language referring “all disputes” to arbitration, courts will “leave the question of arbitrability to the arbitrators.” This approach reflects the “overarching principle of law ‘that arbitration is a matter of contract’” and that “courts must rigorously enforce arbitration agreements according to their terms.” New York “favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties …. Therefore, New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to jurisdiction.” In short, “the first question in any arbitration dispute must be: What have these parties agreed to?” And, the answer to that question is governed by state contract-law principles, provided that those rules do not expressly or covertly discriminate against agreements to arbitrate. Notably, parties may agree to have an arbitrator decide not only the merits of a dispute, but also “‘gateway questions of arbitrability,’ ‘such as whether their agreement to arbitrate covers a particular controversy or whether one party should be relieved from the agreement due to the wrongful conduct of another party.’” The United States Supreme Court has repeatedly “explained that an ‘agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the … court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other.’” Thus, before enforcing a provision that delegates arbitrability issues to an arbitrator, the court must first assess whether the delegation provision is itself valid. In undertaking that analysis, the court must be mindful that a delegation provision is severable from the remainder of the arbitration provision and contract in which it appears. Therefore, unless a party “challenge the delegation provision specifically,” the court must enforce it according to its terms, which in the case of a comprehensive delegation provision will mean leaving any challenge to the enforceability of the arbitration agreement or contract more generally for the arbitrator. “One type of direct challenge that must be resolved by a court is a claim that the parties did not in fact agree to delegate arbitrability issues, which may arise from a broader challenge to the formation of the underlying contract.” In contrast, challenges that go solely to the enforceability of other provisions of the contract, and do not relate to the severable delegation provision, such as whether the moving party was fraudulently induced to enter the agreement, cannot be considered by the court. A party trying to avoid an arbitration clause must therefore show that the arbitration clause itself, not the overall agreement, was procured through fraud or is otherwise unenforceable. On March 27, 2025, the Appellate Division , First Department, issued a decision in Mouli v. Stern , 2025 N.Y. Slip Op. 01872 (1st Dept. Mar. 27, 2025 ( here ), in which the Court affirmed the grant of a motion to compel arbitration on the grounds that the parties’ agreement to arbitrate permitted the arbitrator to determine the arbitrability of the matter instead of the court. Mouli involved investments by plaintiff in projects developed by defendant. In particular, in 2015, plaintiff invested $2.9 million in JDS Miami River LLC in support of defendant’s real estate project in Miami, Florida. In 2018, defendant asked plaintiff to convert his “interest in JDS Miami River LLC into an equivalent interest in 340 Flatbush Sponsor Members LLC, another project being developed by defendant, now known as Brooklyn Tower. On November 28, 2018, “ n consideration for continued investment in projects, executed a personal guaranty to benefit ... for the amount of original investment in JDS Miami River LLC.” Plaintiff demanded payment. Defendant allegedly admitted owing plaintiff the money but nonetheless failed to pay him. Plaintiff moved pursuant to CPLR 3213 for summary judgment in lieu of complaint. Relying on an assignment agreement between plaintiff and JDS Principal 9DKB Parent 2 LLC and 340 Flatbush Sponsor Members LLC, dated March 13, 2023, defendant moved to compel arbitration of the dispute based on the arbitration provision in that agreement. Under the Assignment Agreement, plaintiff agreed to transfer his interest in JDS Flatbush to JDS Principal in exchange for payment of $3,300,000.00. Among other things, the Assignment Agreement contained a broad arbitration clause , which required that “ ny dispute, controversy or claim related to this Agreement, , the Operating Agreement, the Project and/or any other property or project to which any Releasor and/or Releasee was involved or associated with including, but not limited to, the parties’ compliance or noncompliance with or the breach of any of the foregoing documents” be settled by Arbitration “administered by the American Arbitration Association under its Commercial Arbitration Rules.” Plaintiff challenged whether the parties intended to arbitrate issues under the guaranty. In addition, plaintiff contended that the assignment agreement was fraudulently induced . The motion court granted defendant’s motion, finding that the “arbitrators must determine the arbitrability of the dispute between and under this broad arbitration provision which may benefit and extend to the guaranty.” On appeal, the First Department unanimously affirmed. The Court held that the motion court “properly granted defendant’s motion to compel arbitration and for a stay of this action, as the parties delegated issues of arbitrability to the arbitrator.” The Court explained that the “parties’ assignment agreement contain a broad arbitration provision incorporating the rules of the American Arbitration Association and expressly provid that the threshold issue of arbitrability with respect to the repayment of funds at issue would be decided by the arbitrator.” Accordingly, because the parties “explicitly incorporate rules that empower the arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties’ intent to delegate such issues to an arbitrator.” The Court rejected plaintiff’s argument that the guaranty and assignment were different agreements. The Court explained that plaintiff “entered the assignment agreement to recover the funds that were owed to him under a separate guaranty. Accordingly, plaintiff’s arguments that the assignment agreement existed entirely independently from the guaranty agreement and that these agreements were not ‘inextricably interwoven’ are unavailing.” The Court also rejected plaintiff’s contention that the motion to compel arbitration should have been denied because plaintiff was fraudulently induced to enter the assignment agreement. The Court held that “ s plaintiff’s assertions of fraudulent inducement relate to the assignment agreement’s other substantive provisions rather than the arbitration clause itself, Supreme Court properly declined to address this issue.” Takeaway Like many jurisdictions, New York “favors and encourages arbitration” because it “conserv the time and resources of the courts and the contracting parties.”   And, because “arbitration is a matter of contract,” the “courts rigorously enforce arbitration agreements according to their terms.” Consequently, the courts will rarely interfere with the parties’ agreement to submit their dispute to arbitration ( i.e. , stay an arbitration), and will enforce their decision to abide by the rules of the governing forum, including having the arbitrator decide issues of arbitrability. Mouli stands as another reminder that the foregoing principles are clear and unambiguous and that the courts will “leave the question of arbitrability to the arbitrators” when the parties agree that the arbitrator or panel of arbitrators will “have the power to rule on its own jurisdiction, including objections with respect to the existence, scope or validity of the arbitration agreement.” _________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. See Primex Int’l Corp. v. Wal-Mart Stores, Inc. , 89 N.Y.2d 594, 598 (1997) (affirming trial court ruling that “whether there is a clear, unequivocal and extant agreement to arbitrate the claims , is for the court and not the arbitrator to determine.”); S mith Barney Shearson Inc. v . Sacharow, 91 N.Y.2d 39, 45-46 (1997) (noting “well-settled proposition that the question of arbitrability is an issue generally for judicial determination in the first instance.”) (citing cases); Matter of Nationwide Gen. Ins. Co. v Investors Ins. Co. of Am. , 37 N.Y.2d 91, 96 (1975). Matter of Nationwide Gen. Ins. Co. , 37 N.Y.2d at 96. Id. Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s, 66 A.D.3d 495, 495 (1st Dept. 2009) (quoting Smith Barney , 91 N.Y. at 47). Monarch Consulting, Inc. v. National Union Fire Ins. , 26 N.Y.3d 659, 675 (2016) (quoting American Express Co. v. Italian Colors Restaurant , 133 S.Ct. 2304, 2309 (2013)). Life Receivables , 66 A.D.3d at 495. Wu v. Uber Tech., Inc. , — NY3d —, 2024 NY Slip Op 05869, *5 (2024) (citing Coinbase, Inc. v. Suski , 602 U.S. 143, 150-151 (2024)). Id. (citations omitted). Henry Schein, Inc. v. Archer & White Sales, Inc. , 586 U.S. 63, 67-68 (2019) (quoting Rent-A-Center, West, Inc. v. Jackson , 561 U.S. 63, 68-69 (2010)); see also Howsam v. Dean Witter Reynolds, Inc. , 537 U.S. 79, 84 (2002); Revis v. Schwartz , 38 N.Y.3d 939, 940 (2022). Henry Schein , 586 U.S. at 68 (quoting Rent-A-Center , 561 U.S. at 70. Wu , 2024 NY Slip Op 05869, *7 (citing Coinbase , 602 U.S. at 149). Id. (citations omitted). Id. (quoting Rent-A-Center , 561 U.S. at 72). Id. (citations omitted). Id. (citing Rent-A-Center , 561 U.S. at 71-72 (instructing that the FAA “operates on the specific ‘written provision’ to ‘settle by arbitration a controversy’ that the party seeks to enforce.”)). Id. Slip Op. at *1. Id. Id. (internal quotation marks and citations omitted). Id. Id. (quoting Rinaolo v. Berke , 188 A.D.2d 297, 297 (1st Dept. 1992)). Id. (citing Matter of Weinrott (Carp) , 32 N.Y.2d 190, 197-199 (1973)). Life Receivables , 66 A.D.3d at 495.  Monarch Consulting , 26 N.Y.3d at 675. Id. Life Receivables , 66 A.D.3d at 495 (citations and internal quotation marks omitted).

By: Jonathan H. Freiberger There are certain categories of individuals and entities that are required to be named as defendants in mortgage foreclosure actions and the failure to name such “necessary defendants” can have serious implications. New York’s Real Property Actions and Proceedings Law § 1311 , which sets forth such “necessary defendants,” provides: Each of the following persons, whose interest is claimed to be subject and subordinate to the plaintiff's lien, shall be made a party defendant to the action : 1. Every person having an estate or interest in possession, or otherwise, in the property as tenant in fee, for life, by the curtesy, or for years, and every person entitled to the reversion, remainder, or inheritance of the real property, or of any interest therein or undivided share thereof, after the determination of a particular estate therein. 2. Every person having a right of dower or an inchoate right of dower in the real property or any part or share thereof. 3. Every person having any lien or incumbrance upon the real property which is claimed to be subject and subordinate to the lien of the plaintiff. 4. Where the mortgage is upon any of the public utilities regulated by the public service law, the public service commission. The Second Department, in Polish Nat. Alliance of Brooklyn, U.S.A. v. White Eagle Hall Co., Inc. , 98 A.D.2d 400 (1983), explained that “RPAPL 1311 codifies the equitable principle that persons holding title to the premises or acquiring any right to or lien on the property subsequent to the mortgage should be made defendants in the foreclosure action.” Id . at 403 (citations omitted). The Polish Nat. Court further noted that the “rationale for joinder of these interests derives from the underlying objective of foreclosure actions — to extinguish the rights of redemption of all those who have a subordinate interest in the property and to vest complete title in the purchaser at the judicial sale. Id . at 404 (citations omitted); see also 71-21 Loubet, LLC v. Bank of America, N.A. , 208 A.D.3d 736, 739 (2 nd Dep’t 2022). When a necessary party is not named as a defendant in a foreclosure action “that party’s rights unaffected by the judgment and sale, and the foreclosure sale may be considered void as to the omitted party.” 71-21 Loubet , 208 A.D.3d at 404 (citations and internal quotation marks omitted). The omission of a necessary party was devastating to the lender in Deutsche Bank Nat. Trust co. v. Ennis , a case decided by the Appellate Division, Second Department, on March 26, 2025. The borrower in Ennis borrowed money from the lender and secured the repayment obligation with a mortgage on real property (the “Property”). The borrower subsequently transferred the ownership of the Property to Bennett. Thereafter, the lender commenced a foreclosure action. While the borrower and others were named as defendants, Bennett was not. In May of 2018, the Property was sold to the lender at public auction pursuant to a judgment of foreclosure and sale and conveyed to the lender by referee’s deed. The lender served Bennett with a copy of the summons and complaint in September of 2018. The plaintiff then moved to “amend the caption to add Bennett as a defendant and CPLR=">CPLR" 306–b="306–b"> to validate the late service upon her nunc pro tunc”, which motion was granted in January of 2019 without opposition. (Hyperlink added.) In October of 2019, the lender conveyed the Property to MHL (a non-party) by “special warranty deed”. In January 2020, Bennett moved to, inter alia , vacate the judgment of foreclosure and sale, set aside the foreclosure sale, vacate the referee’s deed and the special warranty deed, and dismiss the action as abandoned pursuant to CPLR 3215(c) , which requires a court to dismiss the complaint as abandoned, absent good cause shown, when the plaintiff fails to take steps within one year to enter a default against the defendant. Bennett’s motion was granted by the motion court and MHL appealed. Relying on law along the lines set forth herein, the Second Department affirmed and found that “Bennett’s rights were unaffected by the sale of the roperty, that the sale was void and the resulting referee's deed to the plaintiff and the special warranty deed to MHL were invalid. Contrary to MHL's contention, the doctrine of laches cannot be used to defeat an application to vacate a judgment that was issued in the absence of personal jurisdiction.” (Citations omitted.) The Court also rejected MHL’s argument that Bennett’s motion should have been denied because it was a bona fide purchaser for value because such an argument is unavailable where “the purchaser fails to use due diligence in examining the title he or she is chargeable, as a matter of law, with notice of the facts which a proper inquiry would have disclosed.” (Citations and internal quotation marks omitted.) The Court also noted that if a conveyance is void “it conveys nothing, and a subsequent bona fide purchaser or bona fide encumbrancer for value receives nothing.” (Citations and internal quotation marks omitted.) Also unsuccessful were MHL’s arguments in opposition to Bennett’s claim that the action should be dismissed pursuant to CPLR 3215(c). In Ennis , the lender’s motion to amend the caption and serve Bennett nunc pro tunc was granted and Bennett was so served. Bennett never appeared but the lender failed to move for a default judgment against her. Accordingly, the Court found that the action was abandoned as against Bennett. 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, issues that may be of interest you. This Blog has written about CPLR 306-b. See, e.g., < here =">here"> ,< here =">here"> , < here =">here"> , and < here =">here"> . This BLOG has written numerous articles about CPLR 3215(c). To find such articles, visit the “ BLOG ” tile on our website and enter “3215(c)” in the “search” box.

By: Jeffrey M. Haber An investment company is a company that issues securities and primarily invests in securities. Among the securities laws applicable to investment companies, is the Investment Company Act (“ICA”). Congress enacted the ICA to provide for the registration and regulation of investment companies to protect investors from purchasing securities without the benefit of certain information about the securities, the investment company, and its management. An investment company registered with the Commission pursuant to the ICA is known as a registered investment company. A mutual fund is a type of registered investment company that pools money from many investors and invests the money in some combination of stocks, bonds, short-term money-market instruments, and/or other assets. The securities and other assets owned by a mutual fund are known collectively as its portfolio. A mutual fund’s portfolio is managed by a Commission-registered investment adviser . A mutual fund’s investment adviser owes a fiduciary duty to its client, the fund. This duty includes an affirmative duty of utmost good faith and a duty to act in the best interest of its client, as well as an obligation to provide full and fair disclosure of all material facts and to employ reasonable care. Each mutual fund share represents an investor’s proportionate ownership of the mutual fund’s portfolio and of the income and capital gains the portfolio generates. Investors in a mutual fund are also referred to as shareholders. Under the ICA, mutual funds must disclose to the investing public information about itself and its objectives. The ICA requires that a mutual fund file with the Commission a registration statement containing information that the Commission “prescribe as necessary or appropriate in the public interest or for the protection of investors.” Such information includes a recital of the mutual fund’s policies, including “a recital of all investment policies of the registrant … which are changeable only if authorized by shareholder vote” and “a recital of all policies of the registrant … in respect of matters which the registrant deems matters of fundamental policy.” Pursuant to Section 5(b) of the ICA, a registered investment company that classifies itself as a management company under Section 4(3) of the ICA, must disclose whether it is a “diversified company” or “non-diversified company.” A “diversified company” must comply with certain specific requirements, including for example that it must maintain 75% of its total assets in cash, Government securities, securities of other investment companies , and securities of other issuers limited in respect to any one issuer to an amount no greater in value than 5% of the value of the total assets of the management company, and not more than 10% of the outstanding voting shares of the issuer. Pursuant to Section 13(a)(c) of the ICA, no mutual fund shall, “unless authorized by the vote of a majority of its outstanding voting securities … deviate from its policy in respect of concentration of investments in any particular industry or group of industries as recited in its registration statement, deviate from any investment policy which is changeable only if authorized by shareholder vote, or deviate from any policy recited in its registration statement” that it deems, under Section 8(b)(3) of the ICA, “matters of fundamental policy.” Registered investment companies are governed by a board of directors , who are also referred to as trustees when the registered investment company is organized as a trust. As in any company, independent directors play a critical role in overseeing a fund’s operations and protecting the interests of a fund’s investors. For this reason, the ICA requires that a mutual fund have a board of directors with no more than 60% of the board being “interested persons” of the fund. In relevant part, Section 2(a)(19)(A)(i) of the ICA, defines an “interested person” as an affiliated person of the registered investment company, which, under Investment Company Act Section 2(a)(3) <15 u.s.c. § 80a-2(a)(3)> , includes any person directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities. On March 17, 2025, the Securities and Exchange Commission announced ( here ) that it filed charges ( here ) against an investment adviser and his investment advisory firm, Upright Financial Corp. (“UFC”), for, among other things, allegedly investing more than 25 percent of the Upright Growth Fund’s (”Fund”) assets in a single company over multiple years, causing losses of $1.6 million. We examine the SEC’s allegations below. SEC v. Chiueh and Upright Financial Corp. In the 1990s, defendant founded both UFC, an investment adviser registered with the Commission, and Upright Investments Trust (“Upright Trust”), a registered investment company of which the Fund is a series. Beginning at its inception in 1998, and for more than two decades later, the Fund had a disclosed fundamental policy that it would not invest more than 25% of its total assets in one industry (“Concentration Policy”). In November 2021, the Commission issued a settled order that found that defendants violated the Concentration Policy between July 2017 and June 2020 by concentrating more than 25% of the Fund’s total assets in one industry, including the semiconductor industry (the “2021 Order”). In doing so, the SEC claimed that defendants committed fraud and breached their fiduciary duties to the Fund (among other securities law violations). According to the SEC, despite defendants’ commitment under the settlement to take and adopt corrective measures to cease the conduct that formed the basis of the 2021 Order, defendants allegedly continued their misconduct unabated. From at least November 24, 2021, through September 29, 2023, defendants allegedly continued to invest more than 25% of the Fund’s total assets in a single company. After September 29, 2023, said the SEC, defendants continued to violate the Fund’s Concentration Policy by investing more than 25% of the Fund’s assets in the semiconductor industry through at least June 23, 2024. The SEC alleged that defendants’ conduct harmed the Fund and its investors. According to the SEC, by waiting nearly two years to reduce the Fund’s holdings below the 25% limit and then continuing to over concentrate the Fund in the semiconductor industry, defendants allegedly caused losses of approximately $1.6 million. The SEC alleged that defendants collected advisory fees of approximately $100,000 on the Fund’s assets that exceeded the 25% limit. In addition to the alleged violation of the Concentration Policy, the SEC alleged that defendants engaged in other instances of misconduct with respect to the Upright Trust’s board of trustees (“Board”), in violation of the ICA. First, defendant allegedly operated the Board without the required number of independent trustees and then allegedly misrepresented in the Fund’s filings with the SEC that one trustee was independent when that trustee was not. Second, defendants allegedly failed to provide or withheld key information from the Board, including (i) information reasonably necessary for the Board to evaluate the terms of Upright’s advisory contract, which was not put to a vote as required and which defendant allegedly misrepresented in the Fund’s filings with the SEC, and (ii) allegedly misleading the Board about defendants’ past securities law violations and the 2021 Order. Third, defendants allegedly hired an accountant to audit each series of the Upright Trust, including the Fund, without the required Board vote. Commenting on the filing, Corey Schuster, Chief of the Division of Enforcement’s Asset Management Unit, stated: “As alleged, the defendants not only ran the fund contrary to its fundamental investment policies, but they actively misled investors and the fund’s board about their conduct. Undeterred by their prior SEC settlement involving these very same issues, we allege that the defendants repeatedly violated fundamental rules designed to protect investors in mutual funds.” The SEC’s complaint ( here ), filed in the United States District Court for the District of New Jersey, charges defendants with violating antifraud and other provisions of the federal securities laws, including provisions of the ICA and the Investment Advisers Act. The SEC seeks permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties. __________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. See Investment Company Act Section 1(b) <15 u.s.c. § 80a-1(b)> . ICA Section 8(a) <15 u.s.c. § 80a-8(a)> . ICA Sections 8(b)(2) and (b)(3) <15 u.s.c. §§ 80a-8(b)(2) and 80a-8(b)(3)> . ICA Section 8(b)(3) <15 u.s.c. § 80a-8(b)(3)> . ICA Section 13(a)(3) <15 u.s.c. § 80a-13(a)(3)> . Section 8(b)(1) of the ICA requires that a registered investment company file a registration statement with the Commission that includes a recital of the company’s policies, including, among other things, whether it is a diversified or non-diversified fund and to the extent it engages in concentrating investments in a particular industry or group of industries. See ICA Section 8(b)(1) <15 u.s.c. § 80a-8(b)(1)> . ICA Section 10(a) <15 u.s.c. § 80a-10(a)> . ICA Section 2(a)(19)(A)(i) <15 u.s.c. § 80a-2(a)(19)(a)(i)> . The Fund is a series of Upright Trust that operates as an open-end, management investment company, otherwise known as a mutual fund. The Fund is and was, listed on NASDAQ under the ticker symbol UPUPX. The Fund’s shares were continuously offered and sold to investors, primarily retail investors. As of December 31, 2024, the Fund held net assets of approximately $22.9 million. See Upright Financial Corp. and David Yow Shang Chiueh , A.P. File No. 3-20664 (Nov. 24, 2021) ( here ).

By: Jonathan H. Freiberger Today’s article relates to CPLR 321(c) , a topic we have addressed before < here =">here"> and < here =">here"> . As previously discussed in this BLOG, once an attorney appears and becomes the attorney of record, the client is free to change counsel by filing with the clerk, a substitution of counsel stipulation, which must also be served on “the attorneys for all parties in the action or, if a party appears without an attorney, to the party.” CPLR 321(b)(1). Additionally, an attorney of record “may withdraw or be changed by order of the court in which the action is pending, upon motion on such notice to the client of the withdrawing attorney, to the attorneys of all other parties in the action or, if a party appears without an attorney, to the party, and to any other person, as the court may direct.” CPLR 321(b)(2).  Sometimes, however, an attorney, after appearing, dies, becomes incapacitated or is suspended. In such circumstances, CPLR 321(c) is applicable and provides: If an attorney dies, becomes physically or mentally incapacitated, or is removed, suspended or otherwise becomes disabled at any time before judgment, no further proceeding shall be taken in the action against the party for whom he appeared, without leave of the court, until thirty days after notice to appoint another attorney has been served upon that party either personally or in such manner as the court directs. CPLR 321(c) “protects client by automatically staying action from the date of the disabling event.”  Wells Fargo Bank, N.A. v. Kurian , 197 A.D.3d 173, 176 (2 nd Dep’t 2021) (citations omitted). The provision’s “command … is straightforward” and “automatically stays” a lawsuit upon an occurrence that falls within its purview and until such time as the conditions to the continuation of the lawsuit are satisfied. Moray v. Koven & Krause, Esqs. , 15 N.Y.3d 384, 388-89 (2010) (citations omitted). “The obvious purpose of the stay is to vest the party who has lost counsel with a reasonable opportunity to obtain new counsel before further proceedings are taken and thereby avoid prejudice that might conceivably arise from the absence of counsel in the interim.” Wells Fargo, 197 A.D.3d at 176 . (Citations omitted.); see also Moray 15 N.Y.3d at 389. “During the stay imposed by CPLR 321(c), no proceedings against the party will have any adverse effect” ( JPMorgan Chase Bank, Nat. Ass’n v. Simonsen , 208 A.D.3d 1167, 1169 (2 nd Dep’t 2022) (citations, internal quotation marks and brackets omitted)), and “ rders or judgments that are rendered in violation of the stay provisions of CPLR 321(c) must be vacated” ( Wells Fargo, 197 A.D.3d at 176 (citations omitted)); see also Galletta v. Yip , 271 A.D.2d 486 (2 nd Dep’t 2000). It is up to opposing counsel to “bring the stay to an end by serving a notice on the affected party to appoint new counsel within 30 days.” Simonsen, 208 A.D.3d at 1169. The application of CPLR 321(c) was the issue decided by the Appellate Division, Second Department, on March 19, 2025, in HSBC Bank USA v. McGrath . McGrath was a mortgage foreclosure action commenced in 2014 by the lender upon the borrower’s default. Although the borrower retained counsel to defend the action, shortly after being retained he was suspended from the practice of law for two years commencing on October 28, 2014. Several months later, in February of 2015, the lender “mailed a notice to appoint another attorney.” Thereafter, in March of 2016, the motion court granted the lender’s unopposed motion for summary judgment and the appointment of a referee to compute. When the lender moved in June of 2018 to confirm the referee’s report and for a judgment of foreclosure and sale, the borrower, with new counsel, cross-moved pursuant to CPLR 321(c) to vacate the order granting the lender summary judgment. The motion court granted the lender’s motion, denied the borrower’s cross-motion and issued a judgment of foreclosure and sale directing the sale of the property. On the Borrower’s appeal, the Second Department reversed. In its decision, the Court discussed the law on CPLR 321(c) as articulated herein. Quoting Wells Fargo , supra , the McGrath Court noted that: “There are actually two ways in which a CPLR 321(c) stay may be lifted. One way is if the party that lost its counsel retains new counsel at its own initiative, or otherwise communicates an intention to proceed pro se” ( Wells Fargo Bank, N.A. v Kurian , 197 AD3d at 177). “The second way is by means of the above-described notice procedure pursuant to CPLR 321(c)” ( id. ). The Court then determined that neither method for lifting the stay was employed by the lender before proceeding with the foreclosure. Thus, the Court stated: Here, the did not serve with the notice to appoint either personally or in such manner as the court directed (CPLR 321 ). It is undisputed that no attempt was made to personally serve the required notice, nor is it alleged that the Supreme Court directed that service of the notice be made in some other manner. Moreover, it is undisputed that did not communicate an intention to proceed pro se. Therefore, the automatic stay was not lifted until opposed the plaintiff’s motion to confirm the referee’s report and for a judgment of foreclosure and sale and cross-moved to vacate the summary judgment order in September 2018. (Citations, internal quotation marks and brackets omitted.) The mailing of the 321(c) notice on the borrower was not deemed to be personal “service” as required by 321(c) and, accordingly, the borrower’s cross-motion to vacate should have been granted. 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 addressed formal and informal appearances by counsel. See, e.g., < here =">here"> , < here =">here"> and < here =">here"> . This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and, in the “search” box, type any topic related to foreclosure, or other commercial litigation issues, that may be of interest you.