By Jonathan H. Freiberger A significant part of commercial business dealings involves the drafting and interpretation of contracts. Accordingly, when disputes arise amongst businesspeople, interpretation of the agreements governing the parties’ relationship becomes a critical aspect of commercial litigation. Rules of contract interpretation, therefore, are a frequent topic addressed in this BLOG. See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . “The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties’ intent.” Greenfield v. Phillies Records, Inc. , 98 N.Y.2d 562, 569 (2002) (citations omitted). “‘The best evidence of what parties to a written agreement intend is what they say in their writing.’” Camuso v. Brooklyn Portfolio, LLC , 164 A.D.3d 739, 741-42 (2 nd Dep’t 2018) ( quoting Slamow v. Del Col , 79 N.Y.2d 1016, 1018 (1992). Accordingly, “when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms vidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing.” W.W.W. Associates, Inc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990) (citations omitted). Such a rule “imparts stability to commercial transactions by safeguarding against fraudulent claims, perjury, death of witnesses, infirmity of memory and the fear that the jury will improperly evaluate the extrinsic evidence.” Id . (citations, internal quotation marks, ellipses and brackets omitted). Further, contracts must be interpreted “as a harmonious and integrated whole so as to give effect to its purpose and intent, and must be construed in a manner which gives effect to each and every part, so as not to render any provision meaningless or without force or effect.” HTRF Ventures, LLC v. Permasteelisa North America Corp. , 190 A.D.3d 603, 607 (1 st Dep’t 2021) (citation and internal quotation marks omitted). Thus, “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.” Vermont Teddy Bear Co., Inc. v. 538 Madison Realty Co. , 1 N.Y.3d 470, 475 (2004) (citation and internal quotation marks omitted). Put another way, “courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to include.” Id . (citation and internal quotation marks omitted). This is particularly so where an agreement “is negotiated between sophisticated, counseled business people negotiating at arm’s length.” Global Reinsurance Corp. of America v. Century Indemnity Co. , 30 N.Y.3d 508, 518-19 (2017) (citation and internal quotation marks omitted). On June 6,2024, the Appellate Division, First Department, decided 195 B Owner LLC v. Anthropologie , a landlord/tenant matter that involved the interpretation of the “taking” provision of a commercial lease in light of the COVID-19 pandemic. The petitioner in 195 B Owner was the landlord and the respondent was the tenant under a commercial lease that, inter alia , permitted the tenant to utilize the subject premises “solely as and for the operation of a high-quality retail store selling (and displaying)” goods.” The lease contained a “taking” clause, which, in the event of a temporary taking, permitted a reduction in rent payments and a suspension of lease obligations. The lease defined a “taking” as “occurring when a ‘ enant is denied or deprived of either the use, occupancy and/or enjoyment of the and/or the ability to operate its business thereon or therefrom by action or decree of any lawful power or authority.’” As a result of the COVID 19 pandemic Executive Orders requiring non-essential businesses to “reduce their in-person workforce at any work locations by 100% no later than March 22 at 8 p.m.” (bracket omitted), the tenant closed its store and did not operate as a retail store from March 22, 2020, to June 22, 2020. After the tenant stopped paying rent, the landlord commenced a commercial nonpayment proceeding in New York City Civil Court seeking almost $500,000 in unpaid rent and a warrant of eviction. The Civil Court, inter alia , denied the landlord’s motion for summary judgment finding that there was a taking under the “clear[] and unambiguous[]” “taking” language of the lease in light of the COVID-19 Executive Orders. On appeal, the Appellate Term reversed the Civil Court’s order finding that the record was insufficiently developed to determine if a “taking” had occurred because it was unclear whether the tenant was deprived of all use or occupancy of the space.” On the tenant’s appeal to the First Department, the Court reversed the Appellate Term Order for substantially the same reasons articulated by the Civil Court. After discussing caselaw similar to that which is discussed herein, the Court found that a “taking” occurred. Thus, the Court stated: Affording the words of the lease their plain meaning, a “taking” occurs under the lease in one of two ways: either when the tenant is deprived of “the use, occupancy and/or enjoyment” of the premises, “and/or” when it is deprived of “the ability to operate its business thereon or therefrom.” The phrase “and/or” is commonly used in contracts to reflect “both or either” of a set of conditions or items. Because the Tenant could not operate its business, the Court found a “taking” occurred. Rejecting the landlord’s assertion that such an interpretation would be “absurd, commercially unreasonable or contrary to the reasonable expectations of the parties,” the Court determined that such an interpretation “gives effect to the contract negotiated by sophisticated parties who allocated the risk of a government shutdown of tenant's business operations at the premises to the landlord.” (Citation omitted.) The Court also rejected the landlord’s claim that tenant’s continued use of the Premises to store goods demonstrated that it continued to “operate” its business during the pandemic. In this regard, the Court stated: since the lease describes storage use as only “ancillary” to tenant's “operation of a high-end retail store” selling goods, and only permits storage and office use “together with” the operation of a retail store. Since the Executive Order denied and deprived tenant of its ability to operate its retail store business on the premises, it resulted in a taking under the lease. The Landlord also argued that “retail” also encompasses online transactions. This argument was rejected as well because the subject lease “specifically provides that use of the premises is “solely” limited to “operation of a retail store,” which plainly refers to a brick-and-mortar store located in the premises.” Finally, the Court remanded the case for a calculation of damages reasoning that “ the use of the premises for storage does not negate the finding of a ‘taking’ under the lease, such use might nonetheless factor into damages as the taking provision provides, in relevant part, that ‘the Rent due shall be reduced proportionately by the square footage of the Leased Space which is so affected,’ indicating that some apportionment might be called for.” Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be, and should not be taken as, legal advice.

By: Jeffrey M. Haber To state a cause of action for fraud, a plaintiff must allege “a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.” 1 The allegations must be stated with particularity to satisfy CPLR 3016(b). 2 Thus, the plaintiff must provide sufficient facts to support a “reasonable inference” that the allegations of fraud are true. 3 Conclusory allegations will not suffice. 4 Neither will allegations based on information and belief. 5 Although, CPLR 3016 (b) provides that “the circumstances constituting the shall be stated in detail,” the New York Court of Appeals has “cautioned that section 3016 (b) should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” 6 Thus, where the facts “are peculiarly within the knowledge of the party charged with the fraud,” and “it would work a potentially unnecessary injustice to dismiss a case at an early stage where any pleading deficiency might be cured later in the proceedings,” dismissal should be denied. 7 Finally, though a fraud must be pleaded with particularity , where the state of mind of the defendant is concerned, a plaintiff may plead it generally, “particularly at the prediscovery stage,” because the “plaintiff lacks access to the very discovery materials which would illuminate a defendant’s state of mind.”8 As the First Department observed, “ articipants in a fraud do not affirmatively declare to the world that they are engaged in the perpetration of a fraud”; rather, “intent to commit fraud is to be divined from surrounding circumstances.” 9 In today’s Fraud Notes , we examine the foregoing, in particular the scienter element of the claim. Cimen v. HQ Capital Real Estate L.P. , 2024 N.Y. Slip Op. 02888 (1st Dept. May 28, 2024) 10 Cimen arose from defendants’ solicitation of plaintiffs to invest in a limited partnership in certain properties located in Brooklyn, New York. Defendants moved to dismiss, arguing that plaintiffs failed to plead viable claims based on fraud, gross negligence, and breach of fiduciary duty. The motion court granted the motion and the Appellate Division, First Department affirmed. Plaintiffs’ principal allegations of fraud concerned alleged projections and estimates contained in defendants’ Investment Memorandum with respect to (a) renovation rates of apartments in the properties; (b) market rental rates of three-bedroom apartments in the vicinity; and (c) the projected annual vacancy losses.  The motion court held that plaintiffs failed to adequately allege that the foregoing projections were based on actionable factual misrepresentations, or that they did not reflect the views of defendants, with the requisite particularity to sustain a claim for fraud or misrepresentation. Turning to plaintiffs’ claims based on the projected renovation rates, plaintiffs alleged that the Investment Memorandum “falsely stated that an annual turnover rate of 23 apartments per year was in line with the ‘portfolio’s historical natural turnover rate.’” The allegation was based on the fact that “a maximum of only 65 apartments would be available from 2015 through 2018 to effectuate the contemplated” renovations. This was due, in part, to certain apartments being subject to the Home Written Agreement. Plaintiffs noted that “the Investment Memorandum … projected that 92% of the available apartments would be vacated and renovated during such period.” Plaintiffs alleged that, based on the foregoing, defendants “had no reasonable reason to believe that such number would be vacated and renovated.” In rejecting the allegation, the motion court noted that the Investment Memorandum disclosed that the 52 apartment units subject to the Home Written Agreement would not be “candidates for the upgrade strategies” until the program’s expiration in 2018. The motion court held that plaintiffs failed to allege why defendants’ projections, with that disclosure, constituted a misstatement of present fact or lacked a reasonable basis. The motion court concluded that the “challenged statements were ‘not actionable because such projections merely statements of prediction or expectation.’” 11 The motion court also found that “the only support for Plaintiffs’ allegations based on the vacancy loss projections the fact that the actual vacancy losses were higher than those projected.” “This, too,” concluded the motion court, was “insufficient to sustain claims as neither the Amended Complaint nor Plaintiffs’ opposition contain allegations that Defendants knowingly made factual misstatements at the time they were made.” Regarding market rental rates, the motion court found that the allegation was “not based on any alleged arithmetical error but on the fact that the Investment Memorandum utilized apartments which were not representative of the true state of the market.” Such allegations, concluded the motion court, “amount to a disagreement with Defendants’ business judgment and insufficient to sustain a claim based on fraud or misrepresentation.” 12 Further, the motion court held that plaintiffs failed to adequately allege scienter. The motion court found that plaintiffs’ scienter allegations were based on information and belief without any “statement of facts upon which belief based.” 13 As noted, the First Department affirmed. The Court found that the statements concerning vacancy losses were nothing more than “expressions of hope for the future,” which, it held, “do not constitute actionable representations of fact.” 14 The Court explained that a “party does not make an actionable representation of fact when predicting a future event with no knowledge of whether or not the event may occur.” 15 “Thus,” concluded the Court, “to the extent the first and second causes of action (fraud and negligent misrepresentation) were based on the investment memoranda’s understatement of the expected vacancy losses, they were properly dismissed.” The Court also held that plaintiffs failed to adequately allege scienter. 16 The Court noted that “ lthough scienter is the element of fraud that is ‘most likely to be within the sole knowledge of the defendant and least amenable to direct proof, plaintiff is still required to allege facts from which it is possible to infer defendants’ knowledge of the falsity of their statements when they were made.’” 17 The Court found that “ laintiffs allege no such facts; instead, they merely allege , ‘Upon information and belief, HQ either knew that statements . . . were false or made such statements with reckless disregard for determining the truth thereof.’” 18 “An allegation made ‘on information and belief … is insufficient to state claim,’” said the Court. 19 The Court also found plaintiffs’ motive allegations to be insufficient to support their scienter allegations: “an allegation of ‘pecuniary incentive is insufficient to plead scienter.’” 20 The Court rejected plaintiffs’ fraud-by-hindsight allegations as a basis to support their claim of scienter: “To the extent that plaintiffs rely on the fact that the portfolio performed much worse than expected, that is insufficient.” 21 The Court also rejected plaintiffs’ attempt to use gross negligence or recklessness as a basis to support the scienter requirement: Relying on DaPuzzo v Reznick Fedder & Silverman (14 AD3d 302 <1st dept 2005> ), plaintiffs contend that it is sufficient to plead gross negligence or recklessness. However, DaPuzzo said, “In a fraud case against an auditor, a showing of gross negligence or recklessness will permit the trier of fact to draw the inference that a fraud was perpetrated” (id.). HQ is not an auditor. None of the cases in which we have cited DaPuzzo have extended its statement about gross negligence/recklessness to non-auditors. Furthermore, the allegations in DaPuzzo were more indicative of fraud than the ones in the instant action. 22 Chongqing Huansong Indus. (Group) Co. Ltd. v. Kinderhook Indus. LLC , 2024 N.Y. Slip Op. 02887 (1st Dept. May 28, 2024) 23 In Chongqing , plaintiffs, sued Defendant Kinderhook Industries, LLC and its affiliates (collectively, “Kinderhook”) and Defendant Richard Godfrey (“Godfrey”) to recover approximately $60 million allegedly owed to them by non-party Performance Powersports Group, LLC (“PPG”), which Kinderhook acquired from Godfrey in a leveraged buyout of Godfrey’s PPG shares in October of 2021. Plaintiffs sued Kinderhook and PPG in federal court for breach of contract. PPG filed for bankruptcy protection and obtained a discharge of its debts to plaintiffs. Thereafter, plaintiffs sued Kinderhook and Godfrey in New York state court for, inter alia , fraud.  Plaintiffs alleged that Godfrey falsely assured them that Kinderhook would ensure that PPG would honor its debts to plaintiffs. Plaintiffs maintained that the statements were false because PPG was cash poor due to the capital requirements of the leveraged buyout through which Kinderhook acquired control over PPG. Plaintiffs argued that defendants knew that the buyout had depleted PPG’s resources, such that the company could never pay back plaintiffs. They also alleged that defendants knew that Kinderhook had no intention of covering PPG’s contractual obligations.  Defendants moved to dismiss. The motion court granted the motion, holding that plaintiffs failed to plead scienter. The First Department affirmed. The Court held that “the complaint not plead facts sufficient to permit a reasonable inference that the alleged misrepresentations by defendants were made with knowing falsity.”24 The Court explained that “ he allegations of defendants’ attempts to perform on their assurances that all past and future debts of the distributor would be paid by offering payment proposals and making substantial partial payments, including approximately $18 million between October 20, 2021, and November 23, 2021, and $22 million between December 1, 2021, and January 12, 2022, not permit a reasonable inference that defendants knowingly made false representations.” 25 “Given the failure to adequately plead scienter,” concluded the Court, “ claims were properly dismissed.” 26 Footnotes Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559 (2009); Braddock v. Braddock , 60 A.D.3d 86 (1st Dept.), appeal withdrawn , 12 N.Y.3d 780 (1st Dept. 2009). Id. at 559. Id. at 559-60. Id. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). Pludeman v. Northern Leasing, Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (internal quotation marks and citations omitted). Id. at 491-92 (internal quotation marks and citations omitted). See also CPC Intl. v. McKesson Corp. , 70 N.Y.2d 268, 285-286 (1987). Oster v. Kirschner , 77 A.D.3d 51, 55-56 (1st Dept. 2010). Id. at 55-56 (citing Eurycleia , supra). Cimen can be found here . Citing ESBE Holdings, Inc. v. Vanquish Acquisition Partners, LLC , 50 A.D.3d 397, 398 (1st Dept. 2008) (internal citation omitted). Citing Olkey v. Hyperion 1999 Term Tr. Inc. , 98 F.3d 2, 7-8 (2d Cir. 1996). Quoting Bd. of Managers of Beacon Tower Condominium v. 85 Adams St., LLC , 136 A.D.3d 680, 686 (2d Dept. 2016). Slip Op. at *1. Id. (quoting Albert Apt. Corp. v. Corbo Co. , 182 A.D.2d 500, 501 (1st Dept. 1992), lv. dismissed , 80 N.Y.2d 924 (1992)). Id. Id. (quoting MP Cool Invs. Ltd. v. Forkosh , 142 A.D.3d 286, 292 (1st Dept. 2016) (brackets and internal quotation marks omitted), lv. denied , 28 N.Y.3d 911 (2016)). Id. Id. (quoting Elmrock Opportunity Master Fund I, L.P. v. Citicorp N. Am., Inc. , 155 A.D.3d 411, 412 (1st Dept. 2017)). Id. (quoting Jonas v. National Life Ins. Co. , 147 A.D.3d 610, 612 (1st Dept. 2017) (internal quotation marks omitted)). Id. (citing MP Cool , 142 A.D.3d at 292 (“Although the company may not have performed as plaintiff expected, this does not support a reasonable inference that defendants knew that (the company) would fall short of its business projections.”)). Id. at *1-*2. Chongqing can be found here . Slip Op. at *1 (citing Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 72 (1st Dept. 2017); FNF Touring LLC v. Transform Am. Corp. , 111 A.D.3d 401, 402 (1st Dept. 2013)). Id. The Court agreed with Godrey, who argued that scienter could not be inferred after substantial partial performance . Id. 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.

By Jonathan H. Freiberger A notice of pendency, also known as lis pendens , is a provisional remedy available to litigants seeking a judgment that affects title to real property. 5303 Realty Corp. v. O&Y Equity Corp. , 64 N.Y.2d 313 (1984). 1 The rules concerning notices of pendency are found in Article 65 of the CPLR. As the name suggests, a notice of pendency puts the world on constructive notice that an action has been commenced that may affect the title to the property and, accordingly, “ person whose conveyance or incumbrance is recorded after the filing of the notice is bound by all proceedings taken in the action after such filing to the same extent as a party.” CPLR § 6501 . The notice of pendency is a powerful tool because “the statutory scheme permits a party to effectively retard the alienability of real property without any prior judicial review.” 5303 Realty , 64 N.Y.2d at 320. Also, while CPLR § 6514 permits a litigant to move to cancel a notice of pendency, the “court’s scope of review is circumscribed” and “the likelihood of success on the merits is irrelevant to determining the validity of the notice of pendency.” Id . “To counterbalance the ease with which a party may hinder another’s right to transfer property” the law requires “strict compliance with the statutory procedural requirements.” Id. (citing Israelson v. Bradley , 308 N.Y. 511 (1955)). The ability to file a notice of pendency is deemed to be “an extraordinary privilege” and if “the terms imposed are not met, the privilege is at an end.” Id . Among other requirements, a notice of pendency “is effective only if, within thirty days after filing, a summons is served on the defendant.” CPLR § 6512 ; see also , NYCTL 1999-1 Trust v. Chalom , 47 A.D.3d 779 (2nd Dep’t 2008) (finding a notice of pendency invalid when summons not served within 30 days). Similarly, a notice of pendency is valid for three years from the date of filing and “ efore expiration of a period or extended period, the court, upon motion … for good cause shown, may grant an extension for a like additional period.” CPLR § 6513 . Courts have noted that any request for an extension “must be prior to the expiration of the prior notice” and that this is an “exacting rule” and a “notice of pendency that has expired without extension is a nullity.” Matter of Sakow , 97 N.Y.2d 436, 442 (2002) (citations omitted). Failure to follow the rules regarding notices of pendency could yield harsh results, but for good reason. The New York Court of Appeals has held that “an expired or cancelled notice of pendency may not be refiled on the same cause of action or claim.” Id . at 443. This is known as the “no second chance” rule. There is an exception to the “no second chance” rule relating to mortgage foreclosure actions. Section 1331 of the Real Property Actions and Proceedings Law (“RPAPL”) requires that “at least twenty days before a final judgment directing a sale is rendered, shall file in the clerk’s office of each county where the mortgaged property is situated a notice of the pendency of the action, which shall specify, in addition to other particulars required by law, the date of the mortgage, the parties thereto and the time and place of recording.” In light of RPAPL § 1331, in certain circumstances, strict application of the “no second chance” rule would prevent the entry of a judgment of foreclosure and sale in a mortgage foreclosure action. Accordingly, CPLR 6516 (a), which was enacted to address this conundrum, allows the filing of successive notices of pendency to permit compliance with RPAPL 1331 “notwithstanding that a previously filed notice of pendency in such action or in a previous foreclosure action has expired pursuant to section 6513 of this article or has become ineffective….” See U.S. Bank Trust v. Green-Stevenson , 208 A.D.3d 1202, 1203-04 (2 nd Dep’t 2022); Bank of America, N.A. v. Kennedy , 171 A.D.3d 1285, 1286-87 (3 rd Dep’t 2019). Otherwise, CPLR 6516(c) codified the common law “no second chance rule.” Id . at 1286. Against this backdrop, on May 22, 2024, the Second Department decided Mallek v. Felmine . The plaintiff in Mallek was the contract vendee for the sale of real property who commenced an action solely to recover his down payment. Plaintiff moved to extend the time to serve a notice of pendency that was filed and the defendant, contract vendor, cross-moved to cancel same. The motion court granted plaintiff’s motion and denied defendant’s cross-motion. On defendant’s appeal, the Second Department reversed and, in so doing, stated: Pursuant to CPLR 6501, " notice of pendency may be filed only when 'the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property'" ( Delidimitropoulos v Karantinidis , 142 AD3d 1038, 1039, quoting CPLR 6501). "When the court entertains a motion to cancel a notice of pendency in its inherent power to analyze whether the pleading complies with CPLR 6501, it neither assesses the likelihood of success on the merits nor considers material beyond the pleading itself; 'the court's analysis is to be limited to the pleading's face'" ( Nastasi v Nastasi , 26 AD3d 32, 36, quoting 5303 Realty Corp. v O & Y Equity Corp. , 64 NY2d 313, 321). Here, the complaint, on its face, only asserts causes of action to recover monetary damages and does not seek relief that would affect the title to, or the possession, use, or enjoyment of, the property. As the judgment demanded by the plaintiffs would not affect the title to, or the possession, use, or enjoyment of, the property, the Supreme Court should have granted the defendant's cross-motion to cancel the notice of pendency and denied the plaintiffs' motion to extend the time to serve the notice of pendency on the defendant as academic ( see Delidimitropoulos v Karantinidis , 142 AD3d at 1039; DeCaro v East of E., LLC , 95 AD3d 1163, 1164). (Hyperlinks added). Had the Mallek plaintiff sued for specific performance of the real estate contract, for example, the subject of the action would have affected title to real property and a notice of pendency would have been proper. 2 See, e.g. , Malekan v. 701-709 Chester St, LLC , 139 A.D.3d 913, 914 (2 nd Dep’t 2016); Nina Penina, Inc. v. Njoku , 30 A.D.3d 193, 194 (1 st Dep’t 2006). Footnotes Eds. Note: the background for this article was taken largely from a previous BLOG article related to notices of pendency. Eds. Note: this BLOG has addressed issues related to specific performance of real estate contracts on numerous occasions. See, e.g. , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . Jonathan H. Freiber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be, and should not be taken as, legal advice.

By: Jeffrey M. Haber This Blog has posted numerous articles concerning vacatur of an arbitration award under Article 75 of the Civil Practice Law and Rules (“CPLR”). E.g. , here , here , and here . On occasion, we have posted articles concerning vacatur under the Federal Arbitration Action (“FAA”). Today, we revisit vacatur under the FAA through our examination of Matter of Patel v. Macy’s Inc. , 2024 N.Y. Slip Op. 02782 (1st Dept. May 21, 2024) ( here ). Patel involved a petition to vacate an arbitration award (the “Award”) denying petitioner’s claims that respondents discriminated against him based upon his race and national origin and retaliated against him for engaging in protected activity in violation of New York City Human Rights Law (“NYCHRL”). In denying the claims, the arbitrator concluded that there was insufficient evidence to prove that discrimination was one of the motivating factors supporting petitioner’s termination. He also found insufficient evidence of disparate treatment and discriminatory animus.   Petitioner moved to vacate the Award. Respondents filed a counterclaim to confirm the Award. The motion court denied petitioner’s motion and granted respondents’ motion to confirm the Award.  Petitioner appealed, claiming that the arbitrator manifestly disregarded the law with respect to his claims for, inter alia , discrimination and retaliation, and in so doing exceeded his authority. The Appellate Division, First Department affirmed. It is well settled that “courts may vacate an arbitrator’s decision ‘only in very unusual circumstances.’” 1 These circumstances are generally found in Section 10 of the FAA.  Under Section 10 of the FAA, an arbitration award may be vacated: (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 2 The grounds set forth above are the exclusive bases for seeking to vacate an arbitral award under the FAA. 3 “A party seeking to vacate an award pursuant to 9 USC § 10(a)(4) ‘bears a heavy burden. t is not enough … to show that the committed an error—or even a serious error.’” 4 Courts “‘consistently accord[] the narrowest of readings’ to this provision of law.” 5 Thus, “ court’s ‘inquiry under § 10(a)(4) … focuses on whether the arbitrator[] had the power, based on the parties’ submissions or the arbitration agreement , to reach a certain issue, not whether the arbitrator[] correctly decided that issue.” 6 Additionally, an “arbitration award may … be vacated under the FAA if it exhibited a ‘manifest disregard’ of the law.” 7 The manifest disregard of law doctrine is, however, is a ‘severely limited’ doctrine. 8 “It is a doctrine of last resort limited to the rare occurrences of apparent ‘egregious impropriety’ on the part of the arbitrators, ‘where none of the provisions of the FAA apply.’” 9 The Second Circuit has indicated that the doctrine requires “more than a simple error in law or a failure by the arbitrators to understand or apply it; and, it is more than an erroneous interpretation of the law.” 10 “The showing required to avoid summary confirmation of an arbitration award is<, therefore,> high, and a party moving to vacate the award has the burden of proof.” 11 To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case. 12  “The arbitrators’ interpretation of the issues and the scope of their authority is accorded substantial deference,” and as such, courts “will not overturn the decision unless there is no support at all justifying the decision.” 13 here.=">here." This="This" vacatur="vacatur" under="under" Section="Section" FAA="FAA" >here=">here" and="and"> Against the foregoing principles, the First Department affirmed. The Court rejected “Petitioner’s arguments to the effect that the arbitrator did not give sufficient weight to certain evidence ….” 14 The Court found that the “arbitrator analyzed the evidence submitted during the hearing in a detailed award and applied the proper standard in assessing petitioner’s claims of employment discrimination and retaliation under , including its mandate to construe its protections as liberally as reasonably possible to accomplish its broad and remedial purposes.” 15 “This analysis,” said the Court, “meets the requirement that there be at least ‘a barely colorable justification for the outcome reached.’” 16 The Court further held that vacatur was not “warranted based on the arbitrator’s omission of the ‘cat’s paw’ theory of discrimination from his discussion.” 17 “Even if that theory were clearly applicable,” said the Court, “ here no explicit evidence in the record that … the arbitrator[] believed that applied,” or “any deliberateness or willfulness exhibited within the award that show the arbitrator<’s> intent to flout the law.” 18 “In any event,” noted the Court, “the arbitrator found that petitioner’s immediate supervisor exhibited no discriminatory or retaliatory animus, which consistent with his implicit rejection of petitioner’s cat’s paw theory premised on such animus.” 19 The Court also held that “Petitioner’s arguments as to his retaliation claim … fail to meet the high bar for vacatur.” 20 The Court explained that “ lthough there was evidence from which the arbitrator could have concluded that petitioner intended to assert a protected right in an internal complaint, the arbitrator concluded that respondents ‘did not understand’ petitioner’s complaints to be protected activity, and, even assuming this conclusion was erroneous, there no evidence that the arbitrator deliberately ‘refused to apply’ a legal principle ‘or ignored it altogether.” 21 Finally, the Court rejected petitioner’s arguments that the arbitrator’s credibility determinations were erroneous and, therefore, a basis for vacatur: “To the extent petitioner asserts that the arbitrator should have credited his testimony, rather than that of respondents’ witnesses, his ‘disagreements with the arbitrator’s credibility determinations … not provide a sufficient basis for overturning the award.’” 22 Takeaway The First Department’s analysis in Matter of Patel underscores the difficulties a party faces trying to vacate an arbitration award on any of the enumerated grounds under the FAA and the manifest disregard of the law doctrine. The result is not surprising. In order to promote the arbitral forum and its benefits, judicial review of an arbitration award is limited. For this reason, the FAA not only establishes a high hurdle for vacatur, but through judicial interpretation makes that hurdle very difficult to overcome. Thus, so long as the arbitrator acts within the scope of his/her contractually delegated authority, his/her interpretation of the parties’ contract, including the law and facts related thereto, will prevail even if the court has a better one. Footnotes Oxford Health Plans LLC v. Sutter , 569 U.S. 564, 568 (2013) (citations omitted). 9 U.S.C. § 10(a). 9 U.S.C. § 10; Hall St. Assocs., L.L.C. v. Mattel, Inc. , 552 U.S. 576, 586 (2008). Matter of Nexia Health Techs., Inc. v. Miratech, Inc. , 176 A.D.3d 589, 591 (1st Dept. 2019) (citing Oxford Health Plans , 569 U.S. at 569). This Blog wrote about Nexia Health here . Salus Capital Partners, LLC v. Moser , 289 F. Supp. 3d 468, 477 (S.D.N.Y. 2018). Id. at 477 (quoting DiRussa v. Dean Witter Reynolds Inc. , 121 F.3d 818, 824 (2d Cir. 1997)); see also Matter of Nexia Health Techs. , 176 A.D.3d at 591. McQueen-Starling v. UnitedHealth Grp., Inc. , 654 F. Supp. 2d 154, 161 (S.D.N.Y. 2009). Matter of Arbitration No. AAA13-161-0511-85 Under Grain Arbitration Rules , 867 F.2d 130, 133 (2d Cir. 1989). Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S , 333 F.3d 383, 389 (2d Cir. 2003). Duferco , 333 F3d at 389. The Second Circuit has clarified, in light of Hall Street Assocs. , supra , that it regards the doctrine of manifest disregard of the law as “a judicial gloss on the specific grounds for vacatur enumerated in section 10 of the FAA,” rather than as “a ground for vacatur entirely separate from those enumerated in the FAA.” Stolt-Nielsen SA v. AnimalFeeds Intl. Corp. , 548 F.3d 85, 94 (2d Cir. 2008], rev’d on other grounds , 559 U.S. 662 (2010)). Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp. , 103 F.3d 9, 12 (2d Cir. 1997) (internal citations omitted). Wallace v. Buttar , 378 F.3d 182, 189 (2d Cir. 2004) (quoting Banco de Seguros del Estado v. Mutual Mar. Off., Inc. , 344 F.3d 255, 263 (2d Cir. 2003)). Roffler v. Spear, Leeds & Kellogg , 13 A.D.3d 308, 310 (1st Dept. 2004) (internal citations omitted) (emphasis added). Slip Op. at *1 (citing Matter of Daesang Corp. v. NutraSweet Co. , 167 A.D.3d 1, 20 (1st Dept. 2018), lv. denied , 32 N.Y.3d 915 (2019)). Id. (citing Albunio v. City of New York , 16 N.Y.3d 472, 477-478 (2011)). Id. (quoting Matter of Daesang , 167 A.D.3d at 19 (quoting Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 479 (2006)) (internal quotation marks omitted). Id. Under the cat’s paw theory, “an employee is fired or subjected to some other adverse employment action by a supervisor who himself has no discriminatory motive, but who has been manipulated by a subordinate who does have such a motive and intended to bring about the adverse employment action….” Vasquez v. Empress Ambulance Serv. , 835 F.3d 267, 272 (2d Cir. 2016). Id. (quoting Wien , 6 N.Y.3d at 484) (internal quotation marks omitted). Id. (citing Vasquez , 835 F.3d at 272). Id. Id. at *1-*2 (quoting Wien , 6 N.Y.3d at 481). Id. at *2 (quoting Matter of Jackson v. Main St. Am. Group. , 210 A.D.3d 501, 501 (1st Dept. 2022)). 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.

By: Jeffrey M. Haber When parties enter into a contract, each assumes that the language in their agreement accurately memorializes their understandings and intentions. For this reason, when a dispute arises, the courts in New York look to the intent of the parties as expressed by the language they chose to put into their writing. 1 A clear, complete document will be enforced according to its terms. 2 When the parties have a dispute over the meaning of their contract, the court first asks if the contract contains any ambiguity. 3 Since New York is a textual jurisdiction (where the courts look to the agreement itself to determine the meaning of the agreement), whether there is ambiguity “is determined by looking within the four corners of the document, not to outside sources.” 4 Thus, courts will examine the parties’ intentions as set forth in the agreement and seek to afford the language an interpretation that is sensible, practical, fair, and reasonable. 5 A contract is not ambiguous if, on its face, it is definite and precise and reasonably susceptible to only one meaning. 6 The “parties cannot create ambiguity from whole cloth where none exists, because provisions are not ambiguous merely because the parties interpret them differently.” 7 Ambiguity exists if the agreement, “read as a whole, fails to disclose its purpose and the parties’ intent …, or when specific language is ‘susceptible of two reasonable interpretations.’” 8 An agreement is unambiguous and should be enforced on its plain terms “if the language it uses has ‘a definite and precise meaning, unattended by danger of misconception …, and concerning which there is no reasonable basis for a difference of opinion.’” 9 “Whether or not a writing is ambiguous is a question of law to be resolved by the courts.” 10 “ xtrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face.” 11 This rule is especially applicable where the parties are commercially sophisticated and their contract contains a merger clause. 12 Finally, since a “contractual provision that is clear on its face must be enforced according to the plain meaning of its terms,” 13 courts may not “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.” 14 This is especially so “in commercial contracts negotiated at arm’s length by sophisticated, counseled business people.” 15 In Mulacek v. ExxonMobil Corp. , 2024 N.Y. Slip Op. 02724 (May 16, 2024) ( here ), the New York Court of Appeals addressed these fundamental principles of contract interpretation. In doing so, the Court held that the language of the agreement before it was clear and unambiguous and, as a result, barred plaintiff from bringing the action. The plaintiffs in Mulacek were shareholders of InterOil Corporation, a Canadian oil and gas company. Defendants acquired InterOil by paying its shareholders a fee per share and agreeing to make a Contingent Resource Payment (“CRP”) based on an independent appraisal of the volume of resources in certain wells located in Papua New Guinea and calculated pursuant to a formula set forth in a CRP Agreement.  Under the CRP Agreement, InterOil’s shareholders, such as plaintiffs, became “Holders” of receipts evincing their entitlement to a CRP. The CRP Agreement defined Holders of more than 25% of the receipts as “Required Holders” and empowered a “Holder Committee” to act as the Holders’ agent in certain circumstances. The CRP Agreement, in addition to providing for a determination of the volume of resources by an independent appraiser, set forth covenants that defendants would, among other things, ensure that the volume of resources was determined consistent with the procedures set forth in a separate agreement. Section 8.05 provided that those covenants were “in favor of and for the benefit of the Holders.” At the same time, Section 8.05 provided that the Holders had “no rights” under the CRP Agreement, except as “expressly set forth” therein. The sentence that immediately followed provided that “only the Required Holders or the Holder Committee (with Required Holder approval) have the right, on behalf of all Holders, by virtue of or under any provision of this Agreement, to institute any action or proceeding … with respect to this Agreement, and no individual Holder or other group of Holders be entitled to exercise such rights.” Plaintiffs commenced the action alleging that defendants breached the covenants, thereby devaluing the CRP. Defendants moved to dismiss the complaint pursuant to, inter alia , CPLR 3211 (a) (1) and (3) on the ground that, under Section 8.05, only the Required Holders—which plaintiffs were not—and the Holder Committee had standing to commence an action to enforce the covenants. Plaintiffs countered that Section 8.05 was a “no-class-action” clause that barred them only from commencing an action “on behalf of all Holders” but preserved their right to commence an action on their own behalf. Supreme Court granted the motion and dismissed the complaint, and the Appellate Division affirmed. 16 The Court of Appeals affirmed. The Court held that “ ontrary to plaintiffs’ contention, Section 8.05 unambiguously bar them from commencing an action on their own behalf to enforce their third-party beneficiary rights under the Agreement.” 17 The Court explained that “Section 8.05 negate any right of the Holders except as ‘expressly set forth’ therein, and it expressly set[] forth the right of the Required Holders or the Holder Committee to commence certain types of actions or proceedings.” 18 “Nothing in Section 8.05 expressly set[] forth a right of the Holders to commence an action on their own behalf or otherwise,” said the Court. 19 Thus, held the Court, “ he Agreement … ‘explicitly negate ’ any right of plaintiffs to commence an action on their own behalf to enforce the covenants.” 20 The Court also foreclosed any reading that would inject ambiguity into the CRP Agreement. In that regard, the Court held that “ o the extent that any other provisions in the Agreement could be read to imply such a right, Section 8.05’s restrictions on the right to sue prevail ‘ otwithstanding anything to the contrary in th Agreement.’” 21 Finally, the Court noted that “the final sentence of Section 8.05 establishe that enforcement of the covenants ‘ ubject to’ those restrictions.” 22 Takeaway Mulacek underscores the fundamental principle of contract interpretation – i.e. , contracts are to be construed pursuant to the parties’ intention . As the Court explained almost two decades ago, “ he best evidence of what the parties … intend is what they say in their writing.” 23 When the parties’ writing is clear and unambiguous on its face – that is, the terms are reasonably susceptible to only one meaning – it should be enforced according to the plain meaning of those words.  In Mulacek , the Court made clear that, in the context of the underlying transaction, the terms of the agreement were clear and unambiguous. In that regard, the CRP Agreement expressly provided that the right to commence litigation to enforce the covenants in the agreement rested only with the Required Holders or the Holder Committee. As the Court found, “ othing in Section 8.05 expressly set[] forth a right of the Holders to commence an action on their own behalf or otherwise.” 24 In short, Mulacek is a reminder that contracts that say what they mean, mean what they say. Footnotes Ashwood Capital, Inc. v. OTG Mgt., Inc. , 99 A.D.3d 1 (1st Dept. 2012). Id. at 7. Id. Kass v. Kass , 91 N.Y.2d 554, 566 (1998). Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P. , 13 N.Y.3d 398, 404 (2009); Abiele Contr. v. New York City School Constr. Auth. , 91 N.Y.2d 1, 9-10 (1997); Brown Bros. Elec. Contr. v. Beam Constr. Corp. , 41 N.Y.2d 397, 400 (1977). White v. Continental Cas. Co. , 9 N.Y.3d 264, 267 (2007). Universal Am. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. , 25 N.Y.3d 675, 680 (2015) (citation and internal quotation marks omitted). Ellington v. EMI Music, Inc. , 24 N.Y.3d 239, 244 (2014). Greenfield v. Philles Records , 98 N.Y.2d 562, 569 (2002); see also Quadrant Structured Prods. Co., Ltd. v. Vertin , 23 N.Y.3d 549, 559-560 (2014). WWW Assocs., Inc. v Giancontieri , 77 N.Y.2d 157, 162 (1990). Id. at 163. Schron v. Troutman Sanders LLP , 20 N.Y.3d 430, 436 (2013) (“where a contract contains a merger clause, a court is obliged to require full application of the parol evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing.”) (citation and quotation marks omitted). Bank of N.Y. Mellon v. WMC Mortg., LLC , 136 A.D.3d 1, 6 (1st Dept. 2015) (citation omitted). Id. (citations omitted). Id. 216 A.D.3d 114, 117-118, 123 (1st Dept. 2023). Slip Op. at *1. Id. Id. Id. (citing Mendel v. Henry Phipps Plaza W., Inc. , 6 N.Y.3d 783, 786-787 (2006)). Id. Id. Slamow v. Del Col , 79 N.Y.2d 1016, 1018 (1992). Slip Op. at *1. 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.

By Jonathan H. Freiberger Today’s BLOG article touches on two areas of the law on which we have previously written – account stated 1 and duplication. 2 “An account stated is an agreement between parties to an account based on prior transactions between them with respect to the correctness of the account items and balance due.” Accent Collections, Inc. v. Cappelli Enterprises, Inc. , 94 A.D.3d 1026 (2 nd Dep’t 2012) (Citations and internal quotation marks omitted.) See also Whiteman, Osterman & Hanna, LLP v. Oppitz , 105 A.D.3d 1162, 1163 (3 rd Dep’t 2013).  “To establish its prima facie entitlement to judgment as a matter of law to recover on an account stated, a plaintiff must show that the defendant received the plaintiff’s account statements for payment and retained these statements for a reasonable period of time without objection.” Cach, LLC v. Aspir , 137 A.D.3d 1065, 1066 (2 nd Dep’t 2016) (citation omitted). “An account stated assumes the existence of some indebtedness between the parties, or an express agreement to treat a statement of debt as an account stated.” Simplex Grinnell v. Ultimate Realty, LLC , 38 A.D.3d 600, 600 (2 nd Dep’t 2007). Accordingly, “an account stated cannot be made the instrument to create liability when none existed….” Gurney, Becker & Bourne, Inc. v. Benderson Development Co., Inc. , 47 N.Y.2d 995, 996 (1979). An account stated cause of action “cannot be utilized simply as another means to attempt to collect under a disputed contract.” Simplex Grinnell , 38 A.D.3d at 600 (citations omitted); see also Ross v. Sherman , 57 A.D.3d 758, 759 (2 nd Dep’t 2008). “In the case of existing indebtedness, the agreement may be implied as well as express.” Cach, LLC , 137 A.D.3d at 1066 (citations omitted). Implied agreements may be found where “a defendant retains bills without objecting to them within a reasonable period of time, or makes partial payment on the account.” Id . (citations omitted). 3 On May 14, 2024, the Appellate Division, First Department, decided Aronson Mayefsky & Sloan, LLP v. Praeger , a case solidifying the First Department’s position on whether account stated causes of action are duplicative of breach of contract causes of action. The First Department’s ruling holds that they are not. At the outset the Court noted that while “it has long been the rule that a plaintiff may simultaneously assert both an account stated claim and a breach of contract claim arising from the same relationship, there have been some recent decisions from the First Department that have suggested that an account stated claim is duplicative of a breach of contract claim. (Citations omitted.) Considering the articulated inconsistency, the purpose of the Aronson decision “is to make clear that the rule in the First Department is that an account stated claim is an independent cause of action that is not duplicative of a claim for breach of contract.” (Citations omitted.) The plaintiffs in Aronson are law firms that represented the defendant in a divorce proceeding pursuant to retainer agreements. The plaintiffs rendered monthly bills. When the defendant stopped making payments, the plaintiffs continued to represent the defendant for four months before moving to withdraw as counsel. After being relieved, the plaintiffs sued the defendant for unpaid legal fees, asserting claims for account stated and breach of their respective retainer agreements. The plaintiffs moved for summary judgment on their respective account stated cause of action and the defendant cross-moved to dismiss same. The motion court granted the Plaintiffs’ motion and the defendant appealed. After discussing the law on account stated, the Court recognized that it “has issued numerous decisions where granted summary judgment to attorneys on their claim for an account stated based on their clients having received and retained invoices for professional services rendered, and having failed to object within a reasonable time” “despite the fact that there was a retainer agreement entered into by the parties that could have been the basis for a breach of contract claim.” (Citations omitted.) The Court noted a “very narrow” exception to the rule that account stated and breach of contract claims can peacefully coexist in a complaint “where the plaintiff is attempting to use a claim for an account stated simply as another means to attempt to collect under a disputed contract.” (Citations and internal quotation marks omitted.) The Court noted that in such cases the resort to the exception was not based on duplication, but, rather, the account stated claim was “not … sustainable … because a contractual relationship had not been established whereby the defendant agreed to pay for the services or goods provided by plaintiff.” After listing numerous cases from the First Department in which account stated claims were dismissed as duplicative, the Court explained that the inconsistencies have caused “confusion in the trial courts as to whether an account stated claim can be asserted simultaneously with a breach of contract claim.” In holding that they can, the Court stated: herefore, this Court wants to make clear that an account stated is an independent cause of action that can be asserted simultaneously with a breach of contract claim and that an account stated claim should not be dismissed as duplicative of a breach of contract claim. This case falls squarely within our well-established precedent that an attorney can be granted summary judgment on an account stated claim based on the defendant's receipt and retention of a plaintiff law firm's invoices seeking payment for professional services rendered, without objection within a reasonable time, even where there is a retainer agreement. As a result, the court properly granted summary judgment to plaintiffs on their account stated claims.  (Citations omitted.) Footnotes This BLOG has previously written on account stated < here =">here"> , < here =">here"> and < here =">here"> . This BLOG frequently addresses issues related to duplication of claims. See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> . For the full scope of BLOG articles related to the duplication doctrine search for “duplication” in the “ Blog ” tile on the home page of Freiberger Haber’s website. A more fulsome discussion of account stated causes of action can be found in one of our prior BLOG articles . Jonathan H. Freiber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be, and should not be taken as, legal advice.

By: Jeffrey M. Haber As readers of this Blog know, on December 6, 2019, the State of New York joined the vast majority of jurisdictions to adopt the Uniform Voidable Transaction Act (“UVTA”) in whole or in part. The New York version of the UVTA became effective on April 4, 2020. The UVTA governs fraudulent transfers. Although it has been four years since the effective date of the UVTA, there remain scores of cases in the court system that were filed under the former Debtor Creditor Law (“DCL”). Today we examine one of them: Patterson Belknap Webb & Tyler LLP v. Marcus & Cinelli LLP , 2024 N.Y. Slip Op. 02670 (1st Dept. May 14, 2024) ( here ). The Former DCL The former DCL set forth a comprehensive regime that governed fraudulent conveyances. For example, DCL § 273 (conveyances by insolvent) provided that conveyances that render a debtor insolvent and that were made without fair consideration, were fraudulent as to creditors regardless of intent;  DCL § 273-a (conveyances by defendants) provided that a conveyance made without fair consideration by a defendant in an action for money damages was fraudulent as to the plaintiff in that action, regardless of intent, if the defendant failed to satisfy a resulting judgment in the action; DCL § 274 (conveyance to defendants in a business or transaction) provided that conveyances made without fair consideration in a business or transaction for which the capital remaining after the conveyance was unreasonably small, were fraudulent as to creditors regardless of intent; DCL § 275 (conveyance by defendants to the detriment of current and future creditors) provided that conveyances and obligations incurred without fair consideration when the debtor intended or believed that he/she would incur debts beyond his/her ability to pay as they matured, were fraudulent as to both present and future creditors; and DCL § 276 (conveyance made with intent) provided that conveyances made with actual intent to “hinder, delay, or defraud either present or future creditors, fraudulent as to both present and future creditors.” To set aside a conveyance or obligation incurred under former DCL §§ 273, 273-a, 274 and 275, the plaintiff had to establish that the conveyance or obligation incurred was made without “fair consideration”. Under DCL § 272, “ air consideration … not only a matter of whether the amount given for the transferred property was a ‘fair equivalent’ or not ‘disproportionately small’ … but whether the transaction made in good faith.” 1 “Good faith required of both the transferor and the transferee, and it is lacking when there is a failure to deal honestly, fairly, and openly.” 2 A claim under former DCL § 275 required, in addition to the conveyance and unfair consideration elements discussed above, an element of intent or belief that insolvency would result. 3 Former DCL § 276, unlike Sections 273 and 275, concerned actual fraud, as opposed to constructive fraud, and did not require proof of unfair consideration or insolvency. Because intent to defraud is difficult to prove, the plaintiff could rely on “badges of fraud” to raise and inference of fraud, i.e. , circumstances so commonly associated with fraudulent transfers “that their presence gives rise to an inference of intent.” 4 Among such circumstances are: a close relationship between the parties to the alleged fraudulent transaction; a questionable transfer not in the usual course of business; inadequacy of the consideration; the transferor’s knowledge of the creditor’s claim and the inability to pay it; and retention of control of the property by the transferor after the conveyance. 5 “Depending on the context, badges of fraud will vary in significance, though the presence of multiple indicia will increase the strength of the inference.” 6 A conveyance made with actual intent to defraud is fraudulent regardless of whether the debtor receives fair consideration. 7 The former DCL also provided that a creditor could obtain damages against persons who participated in a fraudulent transfer as “transferees” or as beneficiaries of the conveyances – i.e. , one who otherwise benefits from the conveyance. 8 A person’s status as a transferee could be established by the exercise of “dominion or control” over the property in question. 9 Patterson Belknap Webb & Tyler LLP v. Marcus & Cinelli LLP Patterson Belknap involved the enforcement of a judgment against non-party Barbara Stewart (“Stewart”), a former client of the plaintiff.  In 2013, plaintiff obtained a judgment against Stewart for more than $2 million arising from legal services rendered. That same year, plaintiff served Stewart with a restraining notice prohibiting her from selling or transferring any property until the judgment was satisfied. According to the allegations in the complaint, defendants, attorneys who later represented Stewart, knew about the restraining notice, yet in 2016 facilitated a sale of her personal property, a diamond ring, at a private auction that yielded nearly $3 million. Plaintiff alleged that defendants paid some of Stewart’s debts with the proceeds of the sale and deposited the rest of the funds into an IOLA and escrow account, later using the funds to make various payments on Stewart’s behalf, including some payments to themselves. Plaintiff’s judgment against Stewart has never been paid.  Plaintiff commenced the action against defendants, interposing causes of action for violations of former DCL §§ 273, 273-a, 274, 275, and 276 (first, second, and third causes of action). Plaintiffs also interposed a cause of action against defendants David P. Marcus (“Marcus”) and the law firm of Marcus and Cinelli LLP (the “Firm”) for civil contempt (fifth cause of action). Defendants moved to dismiss the former DCL causes of action, claiming, among other things, that they were not transferees or beneficiaries of the sale proceeds. In doing so, defendants argued that they never exercised dominion or control over the funds they held in trust for Stewart. Defendants insisted that the funds, which were solely controlled by Stewart, were used to satisfy debts owed to defendants for their legal work. The motion court denied the branches of the motion that sought to dismiss the former DCL causes of action. The Appellate Division, First Department modified the order with respect to the first cause of action in so far as it relied on former DCL §§ 273 and 274, and otherwise affirmed the motion court’s order. As an initial matter, the Court held that there were issues of facts as to whether defendants were beneficiaries of the alleged transfer of property to their IOLA account : “At this stage of the litigation, it has not been established that defendants did not benefit from the alleged transfer.”10  The Court held that “defendants failed to establish that they were entitled to dismissal of the constructive fraud claims under Debtor and Creditor Law §§ 273-a and 275, as defendants cannot establish at this stage that the allegedly fraudulent transfers to them were made in good faith, either by the transferor (Stewart) or the transferees (defendants).” 11 However, the Court found that plaintiff’s allegations of insolvency and inadequate capitalization were too conclusory to support its fraudulent conveyance claims under former DCL §§ 273 and 274. 12 “Among other deficiencies,” explained the Court, “the complaint contain no allegations about the ‘present fair salable value’ (Debtor and Creditor Law § 271<1> ) of the Bermuda estate or about Stewart’s financial condition in December 2017, the date of the second transfer.” 13 Accordingly, the Court “dismiss so much of the first cause of action as relie on Debtor and Creditor Law §§ 273 and 274.” 14 Moreover, the Court held that plaintiff pleaded its actual fraud claim “with sufficient particularity to survive a motion to dismiss, as the complaint sufficiently allege ‘badges of fraud’ with respect to Stewart’s intent to defraud plaintiff.” 15 Finally, the Court rejected defendants’ argument that the former DCL claims should be dismissed because the complaint failed to allege their intent to defraud. “That the complaint does not set forth allegations regarding the transferee’s intent,” said the Court, “does not compel dismissal, because at the pleading stage, only the intent of the transferor is relevant; the intent of the transferee is not.” 16 Footnotes Sardis v. Frankel , 113 A.D.3d 135, 141-142 (1st Dept. 2014). Matter of CIT Group/Commercial Servs., Inc. v. 160-09 Jamaica Ave. Ltd. Partnership , 25 A.D.3d 301, 303 (1st Dept. 2006) (quoting Berner Trucking v. Brown , 281 A.D.2d 924, 925 (4th Dept. 2001)). Wall Street Assocs. v. Brodsky , 257 A.D.2d 526, 529 (1st Dept. 1999) (citation omitted). Id. (internal quotation marks and citations omitted). Id. MFS/Sun Life Trust v. Van Dusen Airport Servs. , 910 F. Supp. 913, 935 (S.D.N.Y. 1995); see also Gafco, Inc. v. H.D.S. Mercantile Corp. , 47 Misc. 2d 661, 664 (Sup. Ct., N.Y. County 1965) (noting, “ lthough ‘badges of fraud’ are not conclusive and are more or less strong or weak according to their nature and the number occurring in the same case, a concurrence of several badges will always make out a strong case”) (internal quotation marks and citations omitted). MFS/Sun Life Trust , 910 F. Supp. at 934 (citation omitted). See FDIC v. Porco , 75 N.Y.2d 840, 842 (1990) (per curiam). Id. Slip Op. at *1. Id. at *1-*2 (citing former DCL § 272(a); and Sardis, 113 A.D.3d at 142-143). Id. at *2 (citing Eagle Eye Collection Corp. v. Shariff , 190 A.D.3d 600, 602 (1st Dept. 2021); Wildman & Bernhardt Constr. v. BPM Assoc. , 273 A.D.2d 38, 38-39 (1st Dept. 2000)). Id. at *2-*3. Id. at *3. Id. (citing Wall St. Assoc. , 257 A.D.2d at 529). The Court did not identify the badges of fraud on which it relied. Id. (citing McCormack Family Charitable Found. v. Fidelity Brokerage Servs., LLC , Index No. 655270/2018, 2020 WL 2542089, *5 (Sup. Ct., N.Y. County, May 19, 2020), aff’d in part, appeal dismissed in part , 195 A.D.3d 420 (1st Dept. 2021), lv. denied , 31 N.Y.3d 912 (2021)). 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.

By: Jeffrey M. Haber In Cline v. Grodin , 2024 N.Y. Slip Op. 02586 (1st Dept. May 9, 2024) ( here ), the Appellate Division, First Department was asked to consider whether an agreement involving a limited partnership permitted the general partner to employ and compensate others, including the limited partners, to run the day-to-day business operations of the limited partnership. As discussed below, the Court answered the question in the affirmative. Cline involved Alcova Capital Management, LP (“ACM” or the “Partnership”), a limited partnership organized and existing under the laws of the State of Delaware, with offices in New York. ACM is an asset management company that provides customized credit solutions for middle-market commercial real estate owners and developers. ACM was initially governed by a written limited partnership agreement dated August 16, 2016 (the “2016 Agreement”). Alcova Capital Management GP LLC (“ACMGP”) is ACM’s sole general partner.    In early 2019, the parties agreed to amend the 2016 Agreement (the “Agreement”). The Agreement contained a number of provisions governing the operation of the Partnership. For example, Section 5.1 of the Agreement permitted ACMGP, as the general partner, to “make all day-to-day business decisions of the Partnership, conduct (or cause to be conducted under its supervision) the day-to-day business and affairs of the Partnership and carry out and implement the day-to-day affairs of the Partnership.” Section 5.2 gave ACMGP “full, exclusive, and complete discretion, power and authority, …, to delegate the management, control, administration and operation of the business and affairs of the Partnership or the custody of the Partnership’s assets for all purposes stated in th Agreement.” Section 9.2 expressly permitted ACMGP to contract with limited partners and affiliates for the performance of services to ACM. On October 31, 2022, plaintiff commenced the action, alleging five causes of action, including (a) breach of contract (second cause of action) and (b) breach of fiduciary duty (third cause of action). In the second cause of action, plaintiff contended that ACMGP breached the Agreement by retaining and compensating the individual defendants for their services in running the business. In the third cause of action, plaintiff alleged that ACMGP breached its fiduciary duty to him by compensating the individual defendants from the Partnership’s assets to perform work that ACMGP was required to perform at no cost to the Partnership under the terms of the Agreement. Defendants moved to dismiss the complaint, pursuant to CPLR 3211(a)(1) and (7) for failure to state a claim, and based upon documentary evidence. The motion court granted the motion, ruling that the Agreement “utterly refute the claims that are in this complaint in every regard.” On appeal, the Court unanimously affirmed. The First Department held that “ he court properly dismissed the second cause of action for breach of a written limited partnership agreement and the third cause of action for breach of fiduciary duty.” The Court found that the “plain terms” of “the amended limited partnership agreement permitted the general partner to contract for services with the limited partners.” Thus, plaintiff’s allegation that “the amended limited partnership agreement prohibited the individual defendants from being hired by defendant general partner to manage the day-to-day operations of the limited partnership, and from getting paid out of the limited partnership's proceeds” was contracted by the terms of the Agreement. The Court also held that the motion court correctly dismissed the third cause of action for breach of fiduciary duty because it, like the breach of contract claim, was “based entirely on plaintiff’s allegations that the amended limited partnership agreement prohibited the individual defendants from being hired by defendant general partner to manage the day-to-day operations of the limited partnership, and from getting paid out of the limited partnership's proceeds.” Thus, though not explicitly stated, the Court concluded that the claim was duplicative of the breach of contract claim. ____________________________ 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. The factual discussion comes from the argument before the motion court and the parties’ briefing on appeal. The motion court heard oral argument on the motion and following said argument granted the motion to dismiss. Slip Op. at *1. Id. (citing Picone/WDF, JV v. City of New York , 193 A.D.3d 433, 434 (1st Dept. 2021); Alden Global Value Recovery Master Fund, L.P. v. KeyBank N.A. , 159 A.D.3d 618, 625-626 (1st Dept. 2018)). Under New York law, a written agreement that is clear and unambiguous on its face must be enforced according to the plain meaning of its terms, and extrinsic evidence of the parties’ intent may be considered only if the agreement is ambiguous. See , e.g. , W.W.W. Assoc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990). “The best evidence of what parties to a written agreement intend is what they say in their writing.” Slamow v. Del Col , 79 N.Y.2d 1016, 1018 (1992). Id. Slip Op. at *1. Celle v. Barclays Bank P.L.C. , 48 A.D.3d 301, 302 (1st Dept. 2008) (“The breach of fiduciary duty claim was properly dismissed as the agreement cover the precise subject matter of the alleged fiduciary duty.”) (internal quotation marks and citation omitted).

By: Jeffrey M. Haber On May 3, 2024, the Securities and Exchange Commission (“SEC” or “Commission”) announced ( here ) that it charged audit firm BF Borgers CPA PC and its owner, Benjamin F. Borgers (together, “Respondents”), 1 with deliberate and systemic failures to comply with Public Company Accounting Oversight Board (“PCAOB”) standards in its audits and reviews incorporated in more than 1,500 SEC filings from January 2021 through June 2023. The SEC also charged Respondents with falsely representing to their clients that the firm’s work would comply with PCAOB standards; fabricating audit documentation to make it appear that the firm’s work complied with PCAOB standards; and falsely stating in audit reports included in more than 500 public company SEC filings that the firm’s audits complied with PCAOB standards. 2 To settle the charges, Respondents agreed to pay a civil penalty totaling $14 million. Both Respondents also agreed to permanent suspensions from appearing and practicing before the Commission as accountants, effective immediately. 3 In its order ( here ), the SEC found 4 that, among other things, Respondents failed to adequately supervise and review the work of the team performing the audits and reviews; did not properly prepare and maintain audit documentation, known as “workpapers;” and failed to obtain engagement quality reviews, without which an audit firm may not issue an audit report. According to the SEC, of 369 BF Borgers clients whose public filings from January 2021 through June 2023 incorporated BF Borgers’s audits and reviews, at least 75 percent of the filings incorporated BF Borgers’s audits and reviews that did not comply with PCAOB standards. The SEC further found that the individual Respondent directed BF Borgers staff to copy workpapers from previous engagements for their clients, changing only the relevant dates, and then passed them off as workpapers for the current audit period. As a result, the SEC found, BF Borgers’s workpapers falsely documented work that had not been performed. Among other things, the workpapers regularly documented purported planning meetings – required to discuss a client’s business and consider any potential risk areas – that never occurred and falsely represented that the individual Respondent, as the partner in charge of the engagement, and an engagement quality reviewer had reviewed and approved the work. Finally, the SEC found that Respondents engaged in improper professional conduct and violated, and caused violations of, the antifraud, recordkeeping, and other provisions of the federal securities laws.  Without admitting or denying the SEC’s findings as to each of them, both Respondents consented to an order, effective immediately, pursuant to which they are ordered to pay civil penalties and are denied the privilege of appearing or practicing before the Commission as an accountant, as discussed above. In addition, they are censured and must cease and desist from committing or causing violations of the relevant provisions of the federal securities laws. Commenting on the charges and settlement, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated:  Ben Borgers and his audit firm, BF Borgers, were responsible for one of the largest wholesale failures by gatekeepers in our financial markets. As a result of their fraudulent conduct, they not only put investors and markets at risk by causing public companies to incorporate noncompliant audits and reviews into more than 1,500 filings with the Commission, but also undermined trust and confidence in our markets. Because investors rely on the audited financial statements of public companies when making their investment decisions, the accountants and accounting firms that audit those statements play a critical role in our financial markets. Borgers and his firm completely abandoned that role, but thanks to the painstaking work of the SEC staff, Borgers and his sham audit mill have been permanently shut down. Footnotes In 2023, Audit Analytics, a research firm, listed BF Borgers as the eighth-largest auditing firm, with 187 SEC registrant clients ( here ). Many of the 500 companies are small-cap stocks that trade over the counter. As reported by Politico ( here ), “ he SEC’s settlement marks the latest run-in with regulators for BF Borgers, which previously faced disciplinary action from Colorado officials. Last month, Canada’s audit regulator terminated BF Borgers’s registration in the country < here =">here"> .” As noted in the SEC’s order, Respondents consented to order “without admitting or denying the findings herein, except as to the Commission’s jurisdiction over them and the subject matter of the[ ] proceedings.” 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.

By: Jeffrey M. Haber In Nosegbe v. Charles , 2024 N.Y. Slip Op. 02406 (4th Dept. May 3, 2024) ( here ), the Appellate Division, Fourth Department affirmed the dismissal of a fraud claim because the plaintiff failed to identify the statement claimed to be false. The Court also reinstated a claim that the motion court dismissed on the grounds that, inter alia , the text message on which the lower court relied was not documentary evidence within the meaning of CPLR 3211(a)(1). We examine Nosegbe below. Plaintiff is a dentist who operated a dental practice named Fayetteville Family Dentistry PLLC (“FFD”). 1 At some point, plaintiff engaged the services of two management companies to convert FFD into a new practice, Family Smiles Dentistry PLLC (“FSD”). Disagreements arose, leading plaintiff to commence an action against FSD, the two management companies and their principals. While the first action was pending, plaintiff commenced the action before the Court against defendants, who are the former or current principals of FSD.  Plaintiff alleged in sum and substance that defendants improperly removed her name from the PLLC application for FSD and then misappropriated her property, patient list, business telephone number, and federal tax identification number. Defendants filed a pre-answer motion to dismiss pursuant to CPLR 3211 or, in the alternative, to add FSD as a necessary party or to consolidate the action with the first action.  The motion court granted the motion insofar as it sought dismissal of the complaint and thus did not address defendants’ requests for alternative relief. Plaintiff appealed. The Fourth Department modified the motion court’s order by denying the motion to the extent that it sought to dismiss the second and fourth causes of action and reinstating those causes of action, and, as modified, affirmed the order. The Court held that the motion court correctly dismissed plaintiff’s fraud claim (the first cause of action). After reciting the elements of a fraud claim, 2 the Court found that “there no allegations of any material misrepresentation made by either defendant to plaintiff, let alone any misrepresentation that defendants knew was false or that was meant to induce reliance.” 3 The Court explained that “it not appear that plaintiff ever conversed with either defendant about anything until after the events that alleged as the basis of the first cause of action.” 4 Accordingly, the Court “conclude that the court properly granted defendants’ motion with respect to the first cause of action.” 5 The Court also held that the motion court erred in dismissing plaintiff’s second and fourth causes of action pursuant to CPLR 3211(a)(1). 6 CPLR 3211(a)(1) permits a court to dismiss a cause of action where it is conclusively refuted by documentary evidence . Documents such as text messages “do not meet the requirements for documentary evidence” to support a CPLR 3211(a)(1) motion. 7 “To be considered documentary, evidence must be unambiguous and of undisputed authenticity, that is, it must be essentially unassailable.” 8 The Court found that the text messages used by defendants did not rise to the level of documentary evidence: “the text messages not even identify the person who communicating with plaintiff. The names and numbers are redacted.” 9 “Moreover,” noted the Court, “the text messages not ‘conclusively establish[ ] a defense as a matter of law’ with respect to the fourth cause of action.” 10 Accordingly, to the extent the motion court granted the motion to dismiss the second and fourth causes of action on CPLR 3211(a)(1) grounds, the Court modified the order. Footnotes Plaintiff filed the action pro se. “The elements of a cause of action for fraud require a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff<,> and damages.” Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559 (2009). Slip Op. at *1. Id. Id. Id. at *2-*3. Id. at *3 (citations omitted). Bath & Twenty, LLC v. Federal Sav. Bank , 198 A.D.3d 855, 855-856 (2d Dept. 2021); see Eisner v. Cusumano Constr., Inc. , 132 A.D.3d 940, 942 (2d Dept. 2015); Fontanetta v. John Doe 1 , 73 A.D.3d 78, 86 (2d Dept. 2010). Slip Op. at *3. Id. (quoting Goshen v Mutual Life Ins. Co. of N.Y. , 98 N.Y.2d 314, 326 (2002); and citing, among other cases, Lots 4 Less Stores, Inc. v. Integrated Props., Inc. , 152 A.D.3d 1181, 1183 (4th Dept. 2017)). 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.

By Jonathan H. Freiberger There are two “components and constitutional predicates of personal jurisdiction.”  Keane v. Kamin , 94 N.Y.2d 263, 265 (1999). “One component involves service of process, which implicates due process requirements of notice and opportunity to be heard.” Keane , 94 N.Y.2d at 265 (citations omitted). 1 The law is clear that a “court lacks personal jurisdiction over a defendant who is not properly served with process.” Everbank v. Kelly , 203 A.D.3d 138, 142 (2 nd Dep’t 2022) (citations omitted); see also Castillo-Florez v. Charlecius , 220 A.D.3d 1, 2 (2 nd Dep’t 2023) (same). “When it is determined that process was ineffective, all subsequent proceedings are rendered null and void as to that party.” Everbank , 203 A.D.3d at 143 (citations omitted); see also Federal Nat. Mort. Ass’n v. Smith, 219 A.D.3d 938, 941-42 (2 nd Dep’t 2023) (citations and internal quotation marks omitted). “‘Service of process upon a natural person must be made in strict compliance with the methods of service set forth in CPLR 308 .’” Federal Nat. Mort. Ass’n v. Smith , 219 A.D.3d 938, 941-42 (2 nd Dep’t 2023) ( quoting Everbank , supra ) (some citations omitted, hyperlink added); see also Castillo-Florez , 220 A.D.3d at 2 (citations omitted). When a judgment or order is issued against a party that has not been properly served with process, it will be vacated. Generally, to vacate a default, the moving party must demonstrate a “reasonable excuse for the default and a meritorious defense to the action.” Liu v. Chang , 2024 WL 1915013 (1 st Dep’t May 2, 2024); see also Wells Fargo Bank, N.A. v. Senenfelder , 225 A.D.3d 728 (2 nd Dep’t 2024) 2 . CPLR 5015 (a) provides several bases upon which a party may move to vacate a judgment or order. One such basis, related to today’s article, is found in CPLR 5015(a)(4), which provides, in pertinent part, that “ he court which rendered a judgment or order may relieve a party from it upon such terms as may be just, on motion of any interested person with such notice as the court may direct, upon the ground of … lack of jurisdiction to render the judgment or order.”  See Bank of America v. Lewis , 190 A.D.3d 910 , 910-11 (2 nd Dep’t 2021). The Second Department has held that, pursuant to CPLR 5015(a)(4), a “default must be vacated once the movant demonstrates a lack of personal jurisdiction, and the movant is relieved of any obligation to demonstrate a reasonable excuse for the default and a potentially meritorious defense.” Wells Fargo Bank, N.A. v. Spaulding , 177 A.D.3d 817, 818 (2019) (citations omitted) (emphasis added). See also Rabinowitz v. Rabinowitz , 137 A.D.3d 884 , 885 (2 nd Dep’t 2016) (citations and internal quotation marks omitted).  A “process server’s affidavit of service gives rise to a presumption of proper service.”  Deutsche Bank National Trust Co. v. Stolzberg , 165 A.D.3d 624, 625 (2 nd Dep’t 2018) (citations and internal quotation marks omitted). “To be entitled to vacatur of a default judgment under CPLR 5015(a)(4), a defendant must overcome the presumption raised by the process server’s affidavit of service.” Lewis, 190 A.D.3d. at 911 (citations and internal quotation marks omitted). Further, while “ are and unsubstantiated denials are insufficient to rebut the presumption,” “a sworn denial containing a detailed and specific contradiction of the allegations in the process server’s affidavit will defeat the presumption of proper service.” Stolzberg, 165 A.D.3d at 625 (citations, internal quotation marks and brackets omitted). For example, the Second Department, in Castillo-Florez , held that the defendant’s sworn affidavit “in which he, inter alia , denied receipt of service, denied residing at the address at the time service allegedly was made, and set forth the location of his address at the time of service,” was sufficient to rebut the presumption of service. Castillo-Florez , 220 A.D.3d at 14 (citations omitted); see also Lewis , 190 A.D.3d at 915 (finding the presumption rebutted where defendant averred that he did not reside at the service address and annexed to his affidavit copies of tax records indicating he lived elsewhere).  On May 1, 2024, the Appellate Division, Second Department, addressed service of process issues in 115 Essex Street, LLC v. Tenth Ward, LLC . 115 Essex was a breach of contract action in which the defendant defaulted in responding to the complaint. The motion court granted plaintiff’s motion for leave to enter a default judgment pursuant to CPLR 3215 . 3 Thereafter the defendant moved pursuant to, inter alia , CPLR 5015(a) to vacate the default judgment. The motion court denied the motion. On the defendant’s motion for reargument, the motion court granted the motion but adhered to its original decision.  On the defendant’s appeal, the Second Department reversed and, in so doing, the Court noted that when “a defendant seeking to vacate a default judgment raises a jurisdictional objection pursuant to CPLR 5015(a)(4), the court is required to resolve the jurisdictional question before determining whether it is appropriate to grant a discretionary vacatur of the default under CPLR 5015(a)(1).” (Citations and internal quotation marks omitted.) After discussing available relief under CPLR 5015(a)(4), the Court recognized that the “failure to serve process in an action leaves the court without personal jurisdiction over the defendant, and all subsequent proceedings are thereby rendered null and void.” (Citations and internal quotation marks omitted.) The Court, in explaining its rationale for reversing the motion court, stated: Here, the Supreme Court erred in determining the defendant's motion, inter alia, pursuant to CPLR 5015(a) and 317 to vacate the judgment insofar as entered against him without first conducting a hearing, as the defendant demonstrated his entitlement to a hearing on the issue of service. The process server's affidavit of service established, prima facie, that the defendant was served pursuant to CPLR 308(2) by delivery of the summons and complaint to "John Doe, Worker," a person of suitable age and discretion at the defendant's actual place of business, and by mailing a copy of the summons and complaint to the defendant at his actual place of business. However, the defendant successfully rebutted the process server's affidavit through his specific averments, inter alia, denying receipt of service, asserting that his actual place of business is not "opened to the general public," that he "did not have employees working for " at the time of service and was "the only one working there," and by pointing to significant discrepancies between the process server's physical description of John Doe and the defendant's actual physical appearance. Accordingly, we remit the matter to the Supreme Court, Kings County, for a hearing to determine whether the defendant was properly served with process and for a new determination thereafter of the defendant's motion, inter alia, pursuant to CPLR 5015(a) and 317 to vacate the judgment insofar as entered against him. Footnotes Eds. Note: this BLOG has addressed various issues related to service of process, inter alia , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . Eds. Note: this BLOG has addressed default judgments, inter alia , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . Eds. Note: this BLOG has addressed various issues under CPLR 3215, inter alia , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber On December 22, 2020, the Securities and Exchange Commission (the “SEC” or the “Commission”) adopted significant amendments to Rule 206(4)-1 promulgated under the Investment Advisers Act of 1940 (the “Amended Marketing Rule”). Rule 206(4)-1 governs marketing by Commission-registered investment advisers.1 Among other things, the Amended Marketing Rule states that it is unlawful for registered investment advisers, directly or indirectly, to disseminate any advertisement that includes:2 • any untrue statement of a material fact, or omits to state a material fact necessary in order to make the statement made, in light of the circumstances under which it was made, not misleading;3 • any material statement of fact that the adviser does not have a reasonable basis for believing it will be able to substantiate upon demand by the Commission;4 • any endorsement, and prohibits an adviser from providing compensation (other than de minimis compensation), directly or indirectly, for an endorsement, unless the adviser has a written agreement with any person giving an endorsement that describes the scope of the agreed-upon activities and the terms of compensation for those activities;5 • any presentation of gross performance, unless the advertisement also presents net performance: (i) with at least equal prominence to, and in a format designed to facilitate comparison with, the gross performance; and (ii) calculated over the same time period, and using the same type of return and methodology, as the gross performance;6 or • any hypothetical performance,7 unless the registered investment adviser “(i) adopts and implements policies and procedures reasonably designed to ensure that the hypothetical performance is relevant to the likely financial situation and investment objectives of the intended audience of the advertisement; (ii) provides sufficient information to enable the intended audience to understand the criteria used and assumptions made in calculating such hypothetical performance; and (iii) provides . . . sufficient information to enable the intended audience to understand the risks and limitations of using such hypothetical performance in making investment decisions ….”8 On April 12, 2024, the SEC announced (here) that it settled charges against five registered investment advisers for violating the Amended Marketing Rule. All five firms – GeaSphere LLC, Bradesco Global Advisors Inc., Credicorp Capital Advisors LLC, InSight Securities Inc., and Monex Asset Management Inc. – agreed to settle the SEC’s charges and to pay $200,000 in combined penalties. In the SEC’s orders,9 the Commission found that the five firms advertised hypothetical performance to the general public on their websites without adopting and implementing policies and procedures reasonably designed to ensure that the hypothetical performance was relevant to the likely financial situation and investment objectives of each advertisement’s intended audience, as required by the Amended Marketing Rule. Four of the five firms – Bradesco, Credicorp, InSight, and Monex – received reduced penalties because of the corrective steps they undertook in advance of being contacted by the SEC staff. The SEC also found that GeaSphere violated other regulatory requirements, including by making false and misleading statements in advertisements, advertising misleading model performance, being unable to substantiate performance shown in its advertisements, and failing to enter into written agreements with people it compensated for endorsements. In addition, the SEC found that GeaSphere committed recordkeeping and compliance violations and made misleading statements about its performance to a registered investment company client and that the misleading statements were included in the client’s prospectus filed with the Commission. “The Marketing Rule’s provisions are crucial to protecting investors from misleading advertising claims,” said Corey Schuster, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Today’s actions show that we will continue to employ targeted initiatives to ensure that investment advisers fully comply with their obligations under the rule. They also serve as a reminder of the benefits to firms that take corrective steps before being contacted by Commission staff.” Without admitting or denying the SEC’s findings, all of the firms consented to the entry of orders finding that they violated the Advisers Act and ordering them to be censured, cease and desist from violating the charged provisions, and comply with certain undertakings. GeaSphere agreed to pay a civil penalty of $100,000. Bradesco, Credicorp, InSight, and Monex agreed to pay civil penalties ranging from $20,000 to $30,000, which reflected certain corrective steps taken by each of these firms prior to being contacted by the Commission staff. This is the second set of cases that the Commission has brought as part of an ongoing targeted sweep concerning Amended Marketing Rule violations after charging nine advisory firms in September 2023 (here). Footnotes See Investment Adviser Marketing, Release No. IA-5653 (Dec. 22, 2020) (effective May 4, 2021). The Amended Marketing Rule defines an “advertisement,” in pertinent part, to include “ny direct or indirect communication an investment adviser makes . . . to one or more persons if the communication includes hypothetical performance, that offers the investment adviser’s investment advisory services with regard to securities to prospective clients … or offers new investment advisory services with regard to securities to current clients.” Rule 206(4)-1(e)(1). Rule 206(4)-1(a)(1). Rule 206(4)-1(a)(2). Rule 206(4)-1(b). Rule 206(4)-1(d)(1). “Hypothetical performance” is defined as “performance results that were not actually achieved by any portfolio of the investment adviser” and includes, but is not limited to, performance that is backtested by the application of a strategy to data from prior time periods when the strategy was not actually used during those time periods. Rule 206(4)-1(e)(8)(i)(B). Rule 206(4)-1(d)(6). The five orders can be found here, here, here, here, and here. 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.