By: Jeffrey M. Haber Arbitration is an alternative form of dispute resolution where the parties voluntarily agree that a neutral, private person will resolve any legal disputes between them, instead of a judge or jury in a court of law. 1 In business and commercial transactions, arbitration is the preferred means of resolving disputes. It is encouraged and recognized as the public policy of the State of New York. 2 For this reason, “New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to arbitration.” 3 Since arbitration is a “creature of contract”, 4 courts will enforce arbitration provisions as they would enforce contractual rights generally. 5 Even though parties have agreed to arbitrate their disputes, one or more parties may resist availing themselves of the arbitral forum. For this reason, an aggrieved party will file a motion to compel arbitration to force the resisting party to settle the dispute in the arbitral forum.  In P.S. Finance, LLC v. Eureka Woodworks, Inc. , 2023 N.Y. Slip Op. 00877 (2d Dept. Feb. 15, 2023) ( here ), the Appellate Division, Second Department was faced with a “novel” question: whether, upon reviewing an agreement and determining that an arbitration provision governs, a court should, sua sponte , direct the parties to arbitrate though neither party had requested such relief? As discussed below, the Court answered the question in the negative. P.S. Finance involved a litigation funder and the effects of the Deepwater Horizon oil spill on the hotel industry along the Gulf of Mexico. Defendant Eureka Woodworks, Inc. (“Eureka”) was in the business of designing and manufacturing beach furniture and wooden advertising displays. Following the oil spill from the Deepwater Horizon oil rig in April 2010, Eureka filed a claim for damages with the Gulf Coast Claims Facility (“GCCF”), alleging that its revenue and profits decreased due to the effects the oil spill had on the hotel industry along the Gulf of Mexico. The law firm defendants, as well as nonparty Watts Guerra, LLP (“Watts Guerra”), represented Eureka in connection with its claim with the GCCF. Plaintiff P.S. Finance, LLC (“PSF”) was a New York limited liability company engaged in the business of advancing funding to plaintiffs in litigation, including personal injury litigation and commercial claims. According to PSF, in exchange for the funds that PSF advanced to plaintiffs in litigation, the plaintiffs agreed to pay a portion of the potential proceeds of their litigation to PSF. However, if the plaintiffs did not recover money from their litigation, then the plaintiffs were not obligated to pay PSF. On March 14, 2012, PSF and Eureka entered into an agreement, entitled “Plaintiff’s Agreement to Pay Proceeds Contingent on Successful Settlement, Judgment or Verdict and Receipt of Proceeds: Agreement to Assign Proceeds” (the “Agreement to Pay”). Pursuant to the Agreement to Pay, PSF agreed to provide $120,250 to Eureka in connection with the Eureka’s claim with the GCCF and any other related actions or claims. Among other provisions, the Agreement to Pay included an arbitration provision. On April 2017, PSF commenced the action in the Supreme Court, Richmond County, against Eureka and the attorney defendants by summons and motion for summary judgment in lieu of complaint pursuant to CPLR § 3213. PSF alleged that, in exchange for $120,250, Eureka and the attorney defendants assigned to PSF a portion of the proceeds of Eureka’s claim with the GCCF, and despite Eureka and the attorney defendants receiving settlement funds from the GCCF, they failed to pay PSF its portion of the proceeds. PSF requested that the motion court grant PSF summary judgment on its causes of action based on breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty in handling trust funds.  On May 12, 2017, Eureka and the attorney defendants opposed PSF’s motion. In addition, the attorney defendants moved pursuant to CPLR § 3211(a)(8) to dismiss the action insofar as asserted against them for lack of personal jurisdiction, raising the same contentions as those raised in opposition to PSF’s motion for summary judgment in lieu of complaint. By order dated December 14, 2017, the motion court held that, inter alia , pursuant to the Agreement to Pay, it did not have jurisdiction over the matter, sua sponte directed the parties to arbitrate, directed dismissal of the action, and, in effect, denied, as academic, the attorney defendants’ motions.  On appeal, the Second Department reversed the portion of the motion court’s order directing the parties to arbitrate the dispute. In arguing for reversal, the attorney defendants noted that no party had sought arbitration at the time the motion court sua sponte directed arbitration. As such, the attorney defendants contended that the motion court’s sua sponte directive was improper. The attorney defendants further contended that PSF waived any potential right to arbitrate by commencing the action in court, and in any event, the attorney defendants were not bound by the arbitration provision in the Agreement to Pay.  Initially, the Court took issue with the motion court’s conclusion that the existence of the arbitration provision in the Agreement to Pay by itself divested it of jurisdiction over the matter: “contrary to the Supreme Court’s determination, ‘the mere existence of an arbitration clause in the contract not … authorize dismissal of the action. Only an arbitration and award would warrant such a dismissal.’” 6 The Court noted that “ here is no provision of the CPLR that requires a court to direct arbitration based upon the existence of what the court believes to be an applicable arbitration provision covering the subject matter of the action, absent a request from one of the parties to arbitrate.” 7 The Court also noted that under the Federal Arbitration Act (“FAA”), “there is no provision in the statute that requires a court to sua sponte enforce an arbitration provision.” 8 The Court explained that under United States Supreme Court jurisprudence, the FAA “does not mandate the arbitration of all claims, but merely the enforcement—upon the motion of one of the parties—of privately negotiated arbitration agreements.” 9 “Numerous federal courts considering the issue have also held that sua sponte directions to arbitrate are improper,” observed the Court. 10 Accordingly, the Court held “that a court should not direct arbitration absent a request from one of the parties to arbitrate.” 11 From a policy perspective, the Court held that courts should not be creating “special rules to promote arbitration.” 12 “In our view,” said the Court, “a policy favoring arbitration does not authorize courts to create special rules to promote arbitration.” 13 Having determined that the motion court erred in directing, sua sponte , the parties to arbitrate, the Court addressed the issue of whether plaintiff waived the right to compel arbitration. Since arbitration agreements are like any other agreement, 14 “a right to arbitration may be modified, waived or abandoned.” 15 “A litigant waives arbitration when its conduct is ‘clearly inconsistent with later claim that the parties were obligated to settle their differences by arbitration.’” 16 The Court found that, as against the attorney defendants, PSF waived its right to arbitrate through its conduct. 17 “First,” said the Court, “PSF chose to commence this action instead of seeking to enforce the arbitration provision in the Agreement to Pay.” 18 “Second,” said the Court, “PSF did not move to compel arbitration or even mention the arbitration provision of the Agreement to Pay in its papers in support of its motion for summary judgment in lieu of complaint.” 19 The same was true, noted the Court, when PSF moved to add an additional defendant to the action and made a second motion for summary judgment in lieu of complaint more than two months later. 20 “Indeed,” noted the Court, “up until the time the Supreme Court decided the parties’ motions and cross-motion, no party had ever requested or even mentioned arbitration.” 21 The Court rejected PSF’s contention that it did not waive the right to arbitrate because it resorted to litigation in order to seek protective relief and to preserve the status quo pending arbitration. 22 While acknowledging the law that “ ot every foray into the courthouse effects a waiver of the right to arbitrate,” 23 the Court found that PSF’s claim of urgency failed because it did not explain “why, after it commenced the action, did not then take any action to demand arbitration in response to the attorney defendants’ motion or the cross-motion or in the eight months before the Supreme Court made its sua sponte directive to arbitrate.” 24 “To the extent that PSF contends that waiver analysis should take into account the parties’ conduct after the Supreme Court’s sua sponte directive to arbitrate,” the Court “disagree .” 25 The Court held that “the parties’ subsequent conduct ha no bearing on the court’s determination to direct arbitration in December 2017.” 26 The Court explained that “PSF’s purported demand to arbitrate, made after the court’s directive, not change the fact that PSF had waived the right to arbitrate before the court’s directive.” 27 “Once waived,” said the Court, “the right to arbitrate cannot be regained.” 28 Takeaway P.S. Finance presented the Court with a novel issue: whether a court, on its own, can direct the parties to arbitrate their dispute in the absence of a motion to compel. As discussed, the Court held that the courts do not have such power. In our view, this issue was correctly decided. If the parties do not request arbitration, then the courts should not, on its own, force them to do so.  In addition, the Court’s decision brings the courts of New York in lockstep with those federal courts addressing the same issue. As noted, those courts held that a court should not direct arbitration absent a request from one of the parties to arbitrate. Footnotes Rent-A-Ctr., W, Inc. v. Jackson , 561 U.S. 63, 67 (2010) (noting that “arbitration is a matter of contract”). Matter of Smith Barney Shearson v. Sacharow , 91 N.Y.2d 39, 49 (1997) (citations and quotation marks omitted); Stark v. Molod Spitz DeSantis & Stark, P.C. , 9 N.Y.3d 59, 66 (2007) (internal citation omitted). Stark , 9 N.Y.3d at 66 (internal quotation marks and citation omitted). Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc. , 252 F.3d 218, 224 (2d Cir. 2001). Matter of Monarch Consulting, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA , 26 N.Y.3d 659, 665 (2016); Sablosky v. Gordon Co. , 73 N.Y.2d 133, 136 (1989). Slip Op. at *4 (quoting, BR Ambulance Serv. v. Nationwide Nassau Ambulance , 150 A.D.2d 745, 746 (2d Dept. 1989), and citing Lischinskaya v. Carnival Corp. , 56 A.D.3d 116, 122 (2d Dept. 2008) (rejecting contention that the jurisdiction of the court can be divested by a term of the contract between the parties)). Id. (citations omitted). Id. (footnote omitted). The FAA applies to any arbitration agreement evidencing a transaction involving interstate commerce ( see 9 U.S.C. § 2). The United States Supreme Court has interpreted the term “involving commerce” in the FAA as the functional equivalent of “affecting commerce” — words of art that ordinarily signal the broadest permissible exercise of Congress’ Commerce Clause power. Citizens Bank v. Alafabco, Inc. , 539 U.S. 52, 56 (2003). None of the parties argued that the FAA applied. Id. at *4-*5 (quoting, Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. 213, 219 (1985)). Id. at *5 (citations omitted). Id. Id. (citing, Morgan v. Sundance, Inc. , _____ US _____, _____, 142 S.Ct. 1708, 1713 (2022) (“a court may not devise novel rules to favor arbitration over litigation”)). Id. Id. (citations omitted). Id. (citations omitted). Id. (quoting, Cusimano v. Schnurr , 26 N.Y.3d 391, 400 (2015) (internal quotation marks omitted)). Id. Id.See also De Sapio v. Kohlmeyer , 35 N.Y.2d 402, 405 (1974) (“ he party who commences an action may generally be assumed to have waived any right it may have had to submit the issues to arbitration.”). Id. at *6. Id. Id. (citations omitted). Id. Id. (citing, Sherrill v. Grayco Bldrs. , 64 N.Y.2d 261, 273 (1985) (“ here urgent need to preserve the status quo requires some immediate action which cannot await the appointment of arbitrators, waiver will not occur”)). Id. (citing, Hyde v. Jewish Home Lifecare , 149 A.D.3d 674 (1st Dept. 2017) (finding, the defendant waived arbitration where, among other things, the defendant did not move to compel arbitration until approximately four months after the commencement of the plaintiff’s action)). Id. Id. (citations omitted). Id. Id. (quoting, Matter of Village of Bronxville v. Bronxville Police Taylor Act Comm. , 171 A.D.3d 932, 934 (2d Dept. 2019) (internal quotation marks omitted), and citing, Sherrill , 64 N.Y.2d at 274)). 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 Because there have been a number of appellate decisions interpreting RPAPL 1304 , this Blog has written frequently on that topic.  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"> and < here =">here"> .   By way of background, and as previously noted in the Blog, RPAPL 1304 requires that at least ninety days before commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a “lender, assignee or mortgage loan servicer” must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that offer free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter. In one such article we wrote about Wells Fargo Bank, N.A. v. Yapkowitz , 199 A.D.3d 126 (2 nd Dep’t 2021), in which the Court held that if there are more than one borrower, each one must receive a separate RPAPL 1304 notice because the “practice is insufficient to satisfy the requirements of RPAPL 1304, and that the plaintiff is required to mail a 90–day notice addressed to each borrower in separate envelopes as a condition precedent to commencing the foreclosure action.”  Yapkowitz , 199 A.D.3d at 128.  In our February 11, 2022, Blog article < here =">here"> , we discussed U.S. Bank National Ass’n v. Gordon , 202 A.D.3d 872 (2022), in which the Second Department held that the lender failed to strictly comply with the requirements of RPAPL 1304 because it failed to demonstrate that the 90-day notices it sent to the borrowers contained the requisite list of five housing counseling agencies serving the county in which the subject property is located.  Numerous subsequent cases (and Blog articles) have been decided (and written) that have strictly construed RPAPL 1304. Discussion of the strict interpretation of RPAPL 1304 was present in our December 17, 2021, article concerning the Second Department’s decision in Bank of America, N.A. v. Kessler , 202 A.D.3d 10 (2021), reversed , 2023 NY Slip Op 00804 (Feb. 14, 2023).  Kessler="Kessler" here,=">here," >here.=">here.">   The Second Department in Kessler , strictly interpreted RPAPL 1304 and dismissed a Complaint because lender included additional notices in the envelope with the required 1304 notices in contravention of RPAPL 1304(2)’s requirement that “ he notices required by this section shall be sent by the lender, assignee or mortgage loan servicer in a separate envelope from any other mailing or notice .”  (Emphasis added.)  Thus, the notice in Kessler contained short debt collection, bankruptcy and military personnel assistance language in addition to the required language of the RPAPL 1304 notice. The Second Department, in Kessler , held that “inclusion of any material in the separate envelope sent to the borrower under RPAPL 1304 that is not expressly delineated in these provisions constitutes a violation of the separate envelope requirement of RPAPL 1304(2) .”  Kessler, 202 A.D.3d 10 at 14.  In so doing, the Second Department adopted a “bright-line rule.”  Kessler, 202 A.D.3d 10 at 16.   On September 5, 2022, we wrote about Kessler in, “ Supreme Court, Suffolk County, Refuses Lender’s Request to Stay a Foreclosure Action Pending the Court of Appeals’ Decision in Bank of America, N.A. v. Kessler ” where we discussed JPMorgan Chase Bank, N.A. v. Sapienza , 76 Misc.3d. 1207(A) (Sup. Ct. Suffolk Co. August 30, 2022). There, lender included short debt collection and bankruptcy notices with its 1304 notice.  Lender had commenced a foreclosure action but sought a discretionary stay while awaiting the Court of Appeals’ decision in Kessler .  Lender argued, inter alia , that Kessler would likely be reversed and that additional notices such as those at issue in Kessler and Sapienza , would be permitted with 1304 notices.  Accordingly, supreme court should await guidance from the Court of Appeals on this issue.  Lender further argued that the Court’s strict interpretation  of 1304 reflected a significant departure from existing law.  Supreme court did not agree, found, among other things, that Kessler ’s strict interpretation of 1304 had ample support in the case-law and rejected the Sapienza lender’s position. On February 14, 2023, the Court of Appeals reversed Kessler .  In so doing, the Court held that “the inclusion of concise and relevant additional information void[] an otherwise proper notice to borrowers sent pursuant to § 1304, thus barring a subsequently filed foreclosure action.” The Court noted that “Section 1304 was enacted to address the pre-foreclosure lack of communication between borrower and lender, which often leads to needless foreclosure proceedings in cases where a foreclosure alternative might otherwise have been possible.”  (Citations and internal quotation marks omitted.)   Interpreting statutes, the Court said, should be done in a manner that “avoid an unreasonable or absurd application of the law.”  Citing to RPAPL 1304(1) and (2), the Court went on to indicate that the “operative statutory language here contains two requirements: (1) the notice "shall include" the specified language and information; and (2) the notice must be sent "in a separate envelope from any other mailing or notice".  “As to the first requirement, subdivision (1) does not say that the notice must state only the cautionary language set forth in the statute, but rather that the notice ‘shall include’ that language.”  (Emphasis in original.)  The “include” language, the Court noted, “suggests that more can be added to the notice”. Nor did the Court did not find that subdivision (2), addressing “any other mailing,” supported the strict rule espoused by the Appellate Division in Kessler .  Thus, the Court stated: The question then is the constraint imposed by the requirement that the envelope not contain "any other mailing or notice." The bright line rule adopted by the lower courts effectively defines "any other mailing or notice" as "any additional material or information whatsoever." Although it might be possible to read "other notice" as the lower courts did—such that any deviation from the statutory language, however minor, would void the notice—that interpretation would stand in great tension with "shall include," a phrase that contemplates the addition of something else. The statute must be given a sensible and practical over-all construction, which harmonizes all its interlocking provisions. Application of a bright line rule here would require the use of a highly constrained definition of "other," where it is more appropriately read to mean mailings or notices "of a different kind." Here, "other mailing or notice" more aptly refers other kinds of notices, such as pre-acceleration default notices, notices disclosing interest rate changes to borrowers with adjustable-rate mortgages (12 CFR 1026.20 ), monthly mortgage statements (12 CFR 1026.41), or notices disclosing to the borrower a transfer of the loan servicer (12 CFR 1024.33 ).  In the Court’s view a “bright-line rule would also lead to nonsensical results” because adding language such as "THIS IS EXTREMELY IMPORTANT, PLEASE PAY ATTENTION!" would be fatal to a 1304 notice. Additionally, the Court found that a bright-line rule would be inconsistent with the “remedial purpose” of RPAPL 1304 and, held that “accurate statements that further the underlying statutory purpose of providing information to borrowers that is or may become relevant to avoiding foreclosure do not constitute an ‘other notice.’"  In determining that the additional language about which the borrower in Kessler complained furthered the policies behind RPAPL 1304, the Court stated: Here, the additional two paragraphs are directly related to the notice's subject matter and further the statutory purpose by informing certain borrowers of additional protections they may have beyond those identified in the statutory notice language. The paragraphs relate to and supplement the statutory language as applied to two distinct groups of borrowers, and thus make most sense and are most helpful when read together with the notice. In addition, the paragraph relating to bankruptcy proceedings may be particularly useful to avoid confusing borrowers who are subject to the automatic stay in bankruptcy court and to avoid potential violation of such stays by the lender. The added language is specifically directed at that concern: it states that if the borrower is in bankruptcy, the section 1304 notice "is for information only and is not an attempt to collect the debt, a demand for payment, or an attempt to impose personal liability for that debt." It thus functions as both a protection for lenders and an explanation to borrowers of additional rights they may have. Moreover, a bright-line rule against any additional language in the same envelope could conflict with certain disclosure requirements under federal law .  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 February 14, 2023, the New York Court of Appeals decided State of New York v. Vayu, Inc. , 2023 N.Y. Slip Op. 00801 (Feb. 14, 2023) ( here ). Vayu addressed what it means to purposefully avail oneself of the privilege of conducting activities within New York by transacting business in the state. In a 5-1 decision, authored by Judge Michael J. Garcia, the Court held that Vayu, acting through its chief executive officer, repeatedly projected itself into New York over a two-year period through telephone calls and emails that created an ongoing business relationship with a New York State agency and visited New York in furtherance of that agreement. In so holding, the majority rejected the notion that “although a defendant’s initiation of contact with New York is a relevant factor in the purposeful availment analysis, it is not determinative”. The reason said the Court is because the courts must examine the nature and quality of the contacts and the relationship established as a result of such contacts.  Judge Jenny Rivera filed a lengthy dissent, stating that she would have affirmed the dismissal of the action on personal jurisdiction grounds. Judge Rivera concluded that the case involved nothing more than “a purchase by telephone and email of a product manufactured outside of New York, designed to specifications serving the needs of non-New Yorkers, and sent directly from the factory floor to Madagascar”. “On these facts”, Judge Rivera said, “defendant did not transact business within New York but merely entered a contract with a New York client for a product sent to and used in another country”. A Primer on Personal Jurisdiction Under CPLR § 302(a)(1) CPLR § 302(a)(1) provides for personal jurisdiction over a non-domiciliary who “transacts any business within the state or contracts anywhere to supply goods or services in the state.” To satisfy this rule, a plaintiff must show: (1) the defendant “transacts any business” in the state, or (2) defendant “contracts anywhere to supply goods or services” in the state. 1 The first prong of the rule requires an objective inquiry into whether “ non-domiciliary defendant<,> . . . ‘on own initiative<,> . . . project into this state to engage in a sustained and substantial transaction of business’”. 2 “ single transaction in New York, out of which the cause of action has arisen, may satisfy the requirement of the transaction of business provision”. 3 Significantly, “ he primary consideration is the quality of the non-domiciliary’s New York contacts”. 4 While a non-domiciliary need not physically “enter[ ] New York”, 5 its transactions will be deemed sufficiently purposeful only where “ defendant, through volitional acts, ‘avails itself of the privilege of conducting activities within the forum tate, thus invoking the benefits and protections of its laws’”. 6 “ urposeful availment occurs when the non-domiciliary ‘seeks out and initiates contact with New York, solicits business in New York, and establishes a continuing relationship’” with a New York-based party. 7 Notably, “the nature and purpose of a solitary business meeting conducted for a single day in New York may supply the minimum contacts necessary to subject a nonresident participant to the jurisdiction of courts”. 8 “ lthough determining what facts constitute ‘purposeful availment’ is an objective inquiry, it always requires a court to closely examine the defendant’s contacts for their quality”. 9 In addition to satisfying the requirements of CPLR § 302(a)(1), the plaintiff must establish that the “ xercise of personal jurisdiction under the long-arm statute … comport with federal constitutional due process requirements”. 10 The Court of Appeals has adopted a two-pronged analysis under the federal constitutional standard: Federal due process requires first that a defendant have minimum contacts with the forum state such that the defendant should reasonably anticipate being haled into court there, and second, that the prospect of having to defend a suit in New York comports with traditional notions of fair play and substantial justice. 11 Under the “minimum contacts” analysis, the court evaluates whether a defendant has purposefully availed itself of the privilege of conducting business within New York. 12 “The contacts must be the defendant’s own choice and not ‘random, isolated, or fortuitous’”. 13 Moreover, “it is the defendant’s conduct that must form the necessary connection with the forum State that is the basis for its jurisdiction over ”; “a defendant’s relationship with a plaintiff or third party, standing alone, is an insufficient basis for jurisdiction”. 14 “The ultimate burden of proving a basis for personal jurisdiction rests with the party asserting jurisdiction.” 15 Thus, where a defendant, as in Vayu , moves to dismiss an action for lack of personal jurisdiction pursuant to CPLR § 3211(a)(8), “the plaintiff must come forward with sufficient evidence, through affidavits and relevant documents, to prove the existence of jurisdiction”. 16 State of New York v Vayu, Inc. Vayu, Inc. is a Delaware corporation that is headquartered in Michigan. It designs and manufactures unmanned aerial vehicles (also known as “drones”). Vayu sold two UAVs to the State University of New York at Stony Brook (“SUNY Stoney Brook”) for delivery in Madagascar. Following a dispute regarding the operability of the UAVs, plaintiff commenced the action on behalf of SUNY Stony Brook, asserting, among other claims, breach of contract. In 2013, Vayu’s Chief Executive Officer, Daniel Pepper (“Pepper”), contacted Dr. Peter Small (“Small”), who was not yet affiliated with SUNY Stony Brook, about using UAVs to transport laboratory samples. It is unclear whether Small was in New York at the time. Two years later, in 2015, while working as a professor of medicine and director of the Global Health Institute at SUNY Stony Brook, Small contacted Pepper seeking a business relationship between Vayu and SUNY Stony Brook for the development and use of UAVs to deliver medical supplies to remote areas in underdeveloped countries. From 2015 through 2017, Pepper communicated with Small and other representatives of SUNY Stony Brook through telephone calls to SUNY Stony Brook phone numbers, emails to SUNY Stony Brook email addresses, and later through a face-to-face meeting in New York. These discussions concerned both the development of UAVs to be sold to SUNY Stony Brook, as well as broader partnership opportunities. In the summer of 2016, Vayu and SUNY Stony Brook worked together to submit a grant application to the United States Agency for International Development (“USAID”), in which Vayu described SUNY Stony Brook as a “partner” and identified Small as a key member of its “team”. The submission also outlined a two-year budget with SUNY Stony Brook receiving approximately $85,000 per year for costs such as travel, stipends, and technical support as part of an effort to supply 10 UAVs to Madagascar. USAID ultimately approved the grant proposal that included these representations. In September 2016, SUNY Stony Brook purchased two UAVs from Vayu for $25,000 each. Vayu sent an invoice to SUNY Stony Brook at a post office box located in New York, and Vayu accepted a wire payment from SUNY Stony Brook that originated in New York. Attached to the invoice was a note from a Vayu employee stating “ e can discuss down the line whether would like these shipped to NY, or on behalf to Madagascar”. The drones were later shipped directly to Madagascar from Michigan.  By November 2016, problems arose with the operation of the two UAVs. Vayu employees and SUNY Stony Brook representatives attempted to resolve the issues by telephone and email, and in September 2017, Pepper offered to meet Small in New York. At that meeting, Pepper and Small agreed to terms for moving forward, which were memorialized via email: SUNY Stony Brook would bear the cost of shipping the UAVs from Madagascar to Michigan; Vayu would provide replacement UAVs that met SUNY Stony Brook’s specifications; and Vayu would train one of SUNY Stony Brook’s employees to operate the UAVs. The parties also discussed an ongoing business relationship and future opportunities between Vayu and SUNY Stony Brook. In November 2017, SUNY Stony Brook returned the two UAVs to Vayu in Michigan. Vayu failed to replace them or provide a refund. The Court held that the foregoing facts demonstrated “a clear intent by Vayu to engage purposefully in business activities within the meaning of CPLR 302 (a) (1)”. The Court explained that “ or two years, Vayu projected itself into the State via calls and emails with Small and others at SUNY Stony Brook that resulted in the sale of two UAVs”. The Court found that the “content of the communications … show that Vayu purposefully sought to establish a substantial ongoing business relationship with SUNY Stony Brook.” The Court noted that “ ong-arm jurisdiction is appropriately exercised over commercial actors who have, as Vayu did here, us electronic and telephonic means to project themselves into New York to conduct business transactions” (internal quotation marks omitted). The Court further noted that “although being physically present in New York is not required, the fact that Pepper traveled to New York to meet with Small in furtherance of the ongoing business relationship significant”. The Court found that the communications in Vayu went beyond the sale of the two drones; they evinced “a continuing business relationship between Vayu and SUNY Stony Brook”. The Court rejected the notion that the case was similar to those where the plaintiff responded to a “passive website[]”, explaining that the interactions “involved an active dialogue between principals based on earlier personal contact”.  Importantly, the Court rejected the argument that a defendant’s initiation of contact with New York is the determinative factor, stating “although a defendant’s initiation of contact with New York is a relevant factor in the purposeful availment analysis, it is not determinative”.  Speaking to the dissent, the Court found that the arrangement between the parties was more than a unilateral plan that was conceived by Small. The Court noted that the email communications between the parties made it clear “that Pepper reached out to Small in December 2013 to discuss “the idea to use drones to transport lab samples”. “According to Pepper, that idea was ‘a shared vision’ between the two, specifically for ‘an affordable and autonomous, long-range . . . delivery drone that can address the needs of “last mile” rural healthcare delivery.’” The Court found that the sale of the drones to SUNY Stony Brook for use in Madagascar furthered that shared vision. In sum, as to the first prong of CPLR § 302(a)(1), the Court found that the interactions with New York exceeded the bare minimum.  The parties had a two-year business relationship when the principals met—at Pepper’s request—in New York in 2017. In the weeks that followed, the parties exchanged emails and calls, including an email from Pepper to Small memorializing the modified terms of the agreement with an assurance that “above all else, we want to figure out a solution and work together.” The meeting in New York, and the follow up communications, “designedly and materially forwarded the negotiation and performance of the contract for sale” of the UAVs ( Dulman v Potomac Baking Co. , 85 AD2d 676, 677 <2d dept 1981> ). Regarding the second prong of CPLR § 302(a)(1), requiring the cause of action to arise from a defendant’s relevant business transaction in the state, the Court held that plaintiff easily met it.  Plaintiff’s claims are based on the sale of the two UAVs, and Vayu’s contacts in New York were directly related to efforts to resolve the dispute over operability of the purchased UAVs. Thus, “ here is an articulable nexus or substantial relationship between defendant’s New York activities and the parties’ contract, defendant’s alleged breach thereof, and potential damages.” Finally, the Court held that the exercise of personal jurisdiction over Vayu satisfied constitutional due process. The Court found that “Vayu sought, negotiated, and then entered a contractual relationship with a New York State entity”. “Vayu furthered that relationship”, said the Court, “through numerous telephonic and email communications with SUNY Stony Brook and continued negotiations over terms of the deal when Vayu’s CEO visited New York and met with Small in 2017”. Moreover, noted the Court, “Vayu’s 2016 grant application to USAID, describing SUNY Stony Brook as a ‘partner’ and projecting a two-year budget for SUNY Stony Brook’s costs related to delivery of an additional 10 UAVs, further demonstrate Vayu’s understanding of this relationship with SUNY Stony Brook as ongoing and connected to New York”. Under such circumstances, concluded the Court, “Vayu should reasonably have anticipated being haled into court here”. Addressing the dissent, the Court argued that it misconstrued the nature of the agreement between the parties, noting that there were “voluminous contacts between Vayu and SUNY Stony Brook over a two-year period” and that such contacts “were not merely ‘responsive in nature’, but rather ongoing negotiations over the original terms and subsequent modification of a contractual relationship”.  The Court said that the dissent also mischaracterized the meeting in New York, which was not simply to ‘assuage’ concerns, but to modify the terms of their agreement and discuss ongoing collaboration. In fact, noted the Court, the new terms agreed upon were at issue in the lawsuit. “Likewise”, said the Court, “the refrain that the drones, which were intended for use in SUNY Stony Brook’s initiative to provide health solutions in developing countries, were for the ‘benefit and use of people’, confuse the concept of potential third-party beneficiaries of a commercial agreement with the long-arm jurisdictional inquiry into defendant’s activities in New York”. The fact that persons located in remote areas of Madagascar might benefit from delivery of much-needed medical supplies by SUNY Stony Brook’s drones, noted the Court, did not mean that SUNY Stony Brook itself would reap no benefit from the success of the program. The school could find success in an “enhanced … reputation” and an expanded “program to service other populations in need”. The dissent found that the lower court had no jurisdiction over Vayu. Judge Rivera argued that the parties’ discussions about, and preliminary steps toward, establishing a potential but unconsummated future business relationship was insufficient to satisfy CPLR § 302(a)(1). Judge Rivera explained that the lawsuit was based on a contract formed outside of New York for products manufactured in Michigan and sent directly to Madagascar for the benefit and use of its people. “This section of our long arm statute”, said Judge Rivera, “applies to those who transact business within New York and not to those, like defendant, who happen to conduct some business with a party located in New York”.  Judge Rivera argued that by its holding, the majority “adopt an overly broad reading and unconstitutional extension of CPLR 302 (a) (1)”.  Takeaway As noted, Judge Rivera argued that the majority “adopt an overly broad reading and unconstitutional extension of CPLR 302 (a) (1)”. Time will tell whether that assessment is accurate. However, in analyzing the facts and the law, it is hard to overlook some of the objections Judge Rivera had to the majority’s decision.  For example, the first prong of the rule requires an inquiry into whether the non-domiciliary projects itself into the state on its own initiative to engage in the transaction of business. Purposeful availment occurs when the non-domiciliary seeks out and initiates contact with New York, solicits business in New York, and establishes a continuing relationship with a New York-based party. The facts of Vayu show that it was plaintiff’s action that were the impetus for the transaction between SUNY Stony Brook and Vayu. As Judge Rivera noted, “ plaintiff’s actions cannot serve as the basis for personal jurisdiction over a defendant who merely responds to a business opportunity through common email and telephone communications”. The majority opinion gives little, if any, weight to this principle. Moreover, as Judge Rivera noted, Pepper’s visit to New York was part of an attempt to address complaints about performance of the drones that arose after the contract had been entered – that is, after the transaction had been completed. Indeed, the failure to perform was the crux of plaintiff’s breach of contract claim. Pepper did not enter New York to transact new business with the university or to modify the agreement.  Further, all business between Vayu and SUNY Stony Brook was conducted remotely. As Judge Rivera explained, both parties entered into an agreement with the understanding that they could perform their contractual obligations without Vayu or its drones entering New York. Finally, the negotiation between a non-domiciliary and a New York resident to create an ongoing business relationship is not typically sufficient to support a claim of personal jurisdiction when the negotiation is based on a previous transaction. As Judge Rivera noted, “ o communications on this subject occurred in New York or led to the formation of a contract in New York. As they did during the original transaction, the parties contemplated engaging in a business relationship focused on public health issues in Madagascar and other foreign nations”. Footnotes D & R Global Selections, S.L. v. Bodega Olegario Falcon Pineiro , 29 N.Y.3d 292, 297 (2017) (quoting, CPLR § 302(a)(1)). Id. at 298 (quoting, Paterno v. Laser Spine Inst. , 24 N.Y.3d 370, 377 (2014)). Longines-Wittnauer Watch Co. v. Barnes & Reinecke , 15 N.Y.2d 443, 456 (1965). D & R Global , 29 N.Y.3d at 298 (citing, Fischbarg v. Doucet , 9 N.Y.3d 375, 380 (2007)). Kreutter v. McFadden Oil Corp. , 71 N.Y.2d 460, 467 (1988). Fischbarg , 9 N.Y.3d at 380 (quoting, McKee Elec. Co. v. Rauland-Borg Corp. , 20 N.Y.2d 377, 382 (1967)). D & R Global , 29 N.Y.3d at 298 (quoting, Paterno , 24 N.Y.3d at 377). Presidential Realty Corp. v. Michael Sq. W., Ltd. , 44 N.Y.2d 672, 673 (1978). Licci v. Lebanese Can. Bank, SAL , 20 N.Y.3d 327, 338 (2012). Rushaid v. Pictet & Cie , 28 N.Y.3d 316, 330 (2016) (citing, LaMarca v. Pak-Mor Mfg. Co. , 95 N.Y.2d 210, 216 (2000)). D & R Global , 29 N.Y.3d at 300 (cleaned up). Id. ; Rushaid , 29 N.Y.3d at 331; LaMarca , 95 N.Y.2d at 217. Ford Motor Co. v. Montana Eighth Judicial Dist. Ct. , 141 S.Ct. 1017, 1025 (2021) (quoting, Keeton v. Hustler Magazine, Inc. , 465 U.S. 770, 774 (1984)). Walden v. Fiore , 571 U.S. 277, 285-286 (2014). Fanelli v. Latman , 202 A.D.3d 758, 759 (2d Dept. 2022) (citing, Fischbarg , 9 N.Y.3d 375, 381 n.5, and Aybar v. Aybar , 169 A.D.3d 137, 142 (2d Dept. 2019), aff’d , 37 N.Y.3d 274 (2021)). Fischbarg , 9 N.Y.3d at 381 n.5 (internal quotation marks omitted) (quoting, Vincent C. Alexander, Prac. Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C302:5). 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 As readers of this Blog know, to form a contract, the following elements must be present: an offer, acceptance of the offer, consideration, mutual assent (or a meeting of the minds) and an intent to be bound. Contracts are subject to the equitable remedy of rescission or reformation if entered under a mutual mistake. 1 To invoke the doctrine of mutual mistake, a party must present proof that the agreement, as expressed, does not represent a “meeting of the minds” between the parties in some material respect. 2 The mutual mistake must be substantial 3 and exist at the time the parties enter the contract. 4 To establish mutual mistake, the moving party must overcome a heavy presumption, and prove, by clear and convincing evidence, that the agreement did not express the intentions of either party. 5 When, as in Ralph Lauren Retail, Inc. v. 888 Madison LLC , 2023 N.Y. Slip Op. 00747 (1st Dept. Feb. 9, 2023) ( here ), “the parties have reached an oral agreement and, unknown to either, the signed writing does not express that agreement”, the court may reform the written agreement to correct the mistake. 6 In other words, “‘ here there is no mistake about the agreement and the only mistake alleged is in the reduction of that agreement to writing, such mistake of the scrivener, or of either party, no matter how it occurred, may be corrected.’” 7 Ralph Lauren involved a dispute concerning a renewal lease for the third and fourth floors of Ralph Lauren’s flagship store located at Madison Avenue and 72nd Street. Plaintiff, Ralph Lauren Retail, Inc., is the tenant of four floors in the building owned by defendant and of an adjacent townhouse, combined with those floors, that is also owned by defendant. Plaintiff, Ralph Lauren Corporation, is the tenant’s guarantor.  On November 30, 2006, plaintiffs and defendant extended the lease for those premises to August 31, 2027. The modification granted plaintiffs two options to renew the lease, each time for ten additional years. Plaintiffs could exercise their first renewal right until September 1, 2025. The parties subsequently modified the lease a second time. On December 1, 2020, during the height of the pandemic, the lease was modified a third time to extend the term by ten years to August 31, 2037. According to plaintiffs, the parties had orally agreed to keep the rent for two floors flat without extending the term of the lease. Plaintiffs alleged that they had unambiguously told defendant they would not extend the lease without more favorable rent provisions. Plaintiffs alleged that they erroneously drafted the modification because, during a significant change of their legal personnel, there was a communication error between their departing counsel (who had negotiated the modification) and their incoming counsel (who wrote it). Plaintiffs commenced the action seeking rescission or reformation of the third modification agreement, alleging that the modification agreement did not reflect the parties’ meeting of the minds and the terms of their actual agreement. Defendant moved to dismiss. The motion court denied the motion as to the first cause of action seeking recission based on mistake or, in the alternative, reformation to reflect the terms of any actual agreement. The motion court found that plaintiffs sufficiently alleged unilateral mistake resulting in defendant’s unjust enrichment, or mutual mistake on the ground that the third modification agreement as written did not reflect the parties’ meeting of the minds. The motion court granted the motion as to the third cause of action seeking rescission or reformation based upon fraudulent inducement. The motion court found that plaintiffs failed to allege any affirmative misrepresentation by defendant to support a claim of fraud. “At best”, said the motion court, “the Landlord did not advise counsel for Ralph Lauren (who had drafted the Agreement) that the Modification Agreement did not reflect any terms to which the parties had agreed”. The motion court noted that defendant had no legal duty (as opposed to a potential ethical one on which it declined to opine) to disclose that information to opposing counsel, particularly since plaintiffs’ executives who signed the lease modification agreement could have readily ascertained the contents of the two-page document by reading it. Further, the motion court held that plaintiffs did not satisfy the justifiable reliance element of a fraud claim. The motion court explained that plaintiffs were solely responsible for the conduct of their attorney who drafted the agreement and its executives who signed the agreement.  On appeal, the Appellate Division, First Department modified the motion court’s order to dismiss plaintiffs’ claim sounding in unilateral mistake; the Court otherwise affirmed the order. The Court held that plaintiffs failed to state a claim for unilateral mistake. However, said the Court, plaintiffs “pleaded facts sufficient to sustain a claim for rescission or reformation based on mutual mistake”. 8 The Court found that “ he allegations that the parties had orally agreed to modify the lease to keep the rent for the third and fourth floors of the premises flat for the remainder of the lease term without extending that term, and that the written agreement did not accurately reflect the oral agreement, sufficiently stated a claim”. 9 here.=">here."> Takeaway Reformation is an equitable form of relief that is designed to effectuate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties. 10 When a party seeks reformation, he or she “‘must establish right to such relief by clear, positive and convincing evidence.’” 11 Therefore, the party seeking reformation must “show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties.” 12 When a scrivener’s error is the basis for reformation, the party demanding reformation must prove “a prior agreement between parties, which when subsequently reduced to writing fails to accurately reflect the prior agreement.” 13 In Ralph Lauren , the oral agreement between the parties reflected the actual agreement between them and, as such, was considered to be the most persuasive evidence of the intention of the parties. 14 Under those circumstances, plaintiffs met their burden and stated a claim for reformation or rescission based on a mutual mistake. Footnotes Matter of Gould v. Board of Educ. of Sewanhaka Cent. High Sch. Dist. , 81 N.Y.2d 446, 453 (1993). E.g. , Zacharius v. Kensington Publ. Corp. , 167 A.D.3d 452, 454 (1st Dept. 2018); Jerome M. Eisenberg, Inc. v. Hall , 147 A.D.3d 602, 604 (1st Dept. 2017); Resort Sports Network Inc. v. PH Ventures III, LLC , 67 A.D.3d 132, 135 (1st Dept. 2009). Matter of Gould , 81 N.Y.2d at 453; Jerome M. Eisenberg , 147 A.D.3d at 604. Matter of New York Agency & other Assets of Bank of Credit & Commerce Intl. , 90 N.Y.2d 410, 424 (1997). Gunther v. Vilceus , 142 A.D.3d 639, 641 (2d Dept. 2016); US Bank Natl. Assn. v. Lieberman , 98 A.D.3d 422, 424 (1st Dept. 2012). Chimart Assocs. v. Paul , 66 N.Y.2d 570, 573 (1986). Harris v. Uhlendorf , 24 N.Y.2d 463, 467 (1969) (quoting, Born v. Schrenkeisen , 110 N.Y. 55, 59 (1888)). Slip Op. at *1. Id. (citations omitted). George Backer Mgt. Corp. v. Acme Quilting Co. , 46 N.Y.2d 211, 219 (1978). Schultz v. 400 Coop. Corp. , 292 A.D.2d 16, 19 (1st Dept. 2002) (quoting, Amend v. Hurley , 293 N.Y. 587, 595 (1944)). Id. US Bank , 98 A.D.3d at 424. Gulf Ins. Co. v Transatlantic Reins. Co. , 69 A.D.3d 71, 85 (1st Dept. 2009). 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 commercial lease can be a valuable asset for a business.  Accordingly, a tenant must be mindful of its rights in the face of a default/cure notice from a landlord.  Generally, a tenant that wants to retain its lease and disputes a curable default, or cannot remedy a curable default within the contractual cure period, should consider obtaining a Yellowstone injunction.  Yellowstone="Yellowstone" injunctions="injunctions" here,=">here," and="and" >here.=">here."> The “purpose of a Yellowstone injunction is to allow a tenant confronted by a threat of termination of the lease to obtain a stay tolling the running of the cure period so that, after a determination of the merits, the tenant may cure the defect and avoid a forfeiture of the leasehold.”  Empire State Bldg. Assocs. V. Trump Empire State Partners , 245 A.D.2d 225, 227 (1 st Dep’t 1997) (citations omitted).  “In order to obtain a Yellowstone injunction, the commercial tenant must demonstrate that: (1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises.” Id. , at 227-28 (citations omitted). Yellowstone injunctions got their name from First National Stores, Inc. v. Yellowstone Shopping Center, Inc. , 21 N.Y.2d 630 (1968).  The landlord in Yellowstone was ordered by the fire department to install sprinklers in tenant’s space but there was a disagreement as to whether under the lease landlord or tenant was responsible for same.  After unsuccessfully obtaining compliance from tenant, landlord sent a default notice with a ten-day notice to cure.  The tenant did not cure and, instead, commenced a declaratory judgment action to determine responsibility for the installation of the sprinklers.  Tenant also brought an order to show cause for a preliminary injunction, without seeking a stay, that was returnable after the expiration of the cure period.  Before the return date of the OSC, and after the expiration of the cure period, the landlord terminated the lease. The Second Department in Yellowstone determined that tenant was responsible to install the sprinklers, but that the lease should not have been terminated because of tenant’s good faith in bringing the declaratory judgment action.  The Court of Appeals reversed, holding that once tenant’s leasehold interest was terminated, it could not be revived.  The tenant should have obtained a temporary restraining order to “preserve[] the status quo” prior to the end of the cure period – absent which, the Court was powerless to revive the lease post-termination. Yellowstone , 21 N.Y.2d at 637. On February 7, 2023, the First Department, in Elite Wine & Spirits LLC v. Michelangelo Preservation LLC , affirmed supreme court’s grant of a Yellowstone injunction to plaintiff, tenant.  According to the Court, the “issue elite> elite> is whether the record supports Supreme Court’s finding that tenant engaged in good-faith efforts to remedy the defaults alleged by defendant-landlord, so as to support application of the extended cure period provided for in the subject lease.”  The Court agreed with supreme court and affirmed its “exercise[] discretion in granting tenant’s Yellowstone application. The landlord in Elite issued a 20-day notice to cure as to nine alleged defaults – seven of which were resolved. Tenant disputed the remaining two – a cracked sidewalk and an entrance step in violation of the Americans with Disabilities Act (the “ADA”).  Thereafter, landlord issued a second notice of default describing the crack and ADA issues “in greater detail” and adding that the sidewalk had been raised in a dangerous manner and, accordingly, a slab had to be removed and replaced.  In response, tenant advised that: the crack had been repaired; the raised sidewalk was caused by Con Edison (who should fix same); and, as to the ADA issue, there was insufficient room to install a permanent ramp because Con Edison equipment was in the way so instead, it “acquired a custom-made ‘removable ADA ramp,’ and placed a ‘notice on the window advising patrons of the availability of’ the ramp.” In response, landlord issued a third and “final notice of default” claiming that the crack repair was improper, the raised slab was tenant’s responsibility notwithstanding its potential claim against Con Edison and the movable ramp was not ADA compliant.  The final notice further stated that tenant had previously received the "required" 20-day period to cure alleged defaults as provided under the lease. Landlord nonetheless expressly gave tenant an additional 10 days to cure the alleged defaults.”  The purported 10-day cure period passed, and landlord did nothing for two and one-half months at which time a “Notice of Cancellation” was issued due to the alleged failure to cure the crack, slab and ADA issues and advising that the lease would be cancelled in 10 days. Prior to the termination date, tenant commenced an action seeking declaratory relief and in which it sought, by order to show cause, a Yellowstone injunction staying the cancellation of the lease.  Hearings were held, after which supreme court issued a preliminary injunction finding that “tenant timely addressed all nine defaults alleged in the first notice, immediately remedying seven. The court stated that in the second notice, landlord clarified the nature of the alleged defaults on the remaining sidewalk and step issues. By April 17, 2019, tenant attempted to cure by constructing a removable ramp and filling in a sidewalk crack. The court credited tenant's explanation that it did not immediately repair the raised slab, believing that this was the responsibility of Con Edison.”  Supreme court further noted that tenant "was consistently responsive to Landlord's requests and made good faith efforts to comply with same that the lease itself provides for an indefinite period to cure where tenant is making good faith efforts to remedy the default….”  Supreme court, therefore, “held that tenant satisfied the requirements for a Yellowstone injunction.” In affirming, the First Department stated that: The lease provides an indefinite cure period where the alleged default cannot reasonably be remedied within the base 20-day cure period and tenant has demonstrated a good faith effort to remedy the default. Supreme Court found, after holding a three-day hearing, that issues of fact exist as to the nature of the alleged defaults and the effectiveness of tenant's efforts to remedy them. These open questions include the repair of the raised slab and the feasibility of construction of a permanent ramp, as well as the suitability of the removable ramp to alternatively satisfy ADA requirements. While landlord disputes the effectiveness of tenant's efforts, this merely generates issues of fact that Supreme Court properly declined to resolve within the context of the Yellowstone application.  The Court also rejected landlord’s claim that tenant’s Yellowstone application was outside 20-day cure period of the original notice because “ andlord's argument ignores the lease's provision for an extended cure period, and landlord itself extended the cure periods in its successive and distinct default notices.”  (Citations omitted.) 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 Previously, this Blog has examined the doctrine of res judicata ( here and  here ). Under the doctrine, a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter. The doctrine applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation. The rationale underlying the doctrine is that a party who has been given a full and fair opportunity to litigate a claim should not be allowed to do so again. 1 New York has adopted a transactional approach in deciding res judicata issues. 2 Under this approach, once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy. 3 “Res judicata is designed to provide finality in the resolution of disputes to assure that parties may not be vexed by further litigation.” 4 “The policy against relitigation of adjudicated disputes is strong enough generally to bar a second action even where further investigation of the law or facts indicates that the controversy has been erroneously decided, whether due to oversight by the parties or error by the courts.” 5 As the Court of Appeals noted, “ onsiderations of judicial economy as well as fairness to the parties mandate, at some point, an end to litigation.” 6 In Condor Capital Corp. v. CALS Invs., LLC , 2023 N.Y. Slip Op. 00629 (1st Dept. Feb. 7, 2023) ( here ), the Appellate Division, First Department addressed the foregoing issues, finding that there were issues of fact as to whether the earlier filed action was dismissed on the merits.  Condor Capital involved an alleged breach of contract. Plaintiff claimed it suffered damages by reason of Defendants’ breach of the parties’ Portfolio Purchase Agreement (the “Agreement”), wherein Plaintiff sold its loan portfolio to Defendant, CALS Investors, LLC (“CALS”) in November of 2015. The transaction closed in February 2016. In May of 2017, Plaintiff commenced an action against CALS for breach of contract, based on, inter alia , on the improper calculation of certain targets and for inflated servicing fees, and for breach of the implied covenant of good faith and fair dealing based on the inflated servicing fees. Defendant moved to dismiss. The motion court granted the motion by order dated June 7, 2018. On January 2, 2019, Plaintiff commenced an action against CALS, as well as its loan servicer. Plaintiff later amended the complaint on May 30, 2019. Plaintiff asserted causes of action for, inter alia : breach of contract. Defendants moved to dismiss the Amended Complaint.  On March 11, 2020, the motion court granted Defendants’ motion. The dismissal was based upon Plaintiff’s failure to plead a breach of contract cause of action. The motion court also dismissed as duplicative the claims for breach of the implied covenant of good faith and fair dealing and negligence in servicing and administering the loan portfolio. The motion court’s order did not state whether Plaintiff’s claims were dismissed with prejudice, or on the merits. On July 30, 2020, Plaintiff filed a motion for leave to file a Second Amended Complaint in an effort to address the insufficiency of the First Amended Complaint and to incorporate into its pleading the theories that the motion court declined to consider in ruling on Defendants’ motion to dismiss. On February 8, 2021, the motion court denied Plaintiff’s motion because there was no pleading before the court to amend ( i.e. , since the court dismissed the First Amended Complaint, Plaintiff could not amend that pleading). On April 20, 2021, Plaintiff filed a new action against Defendants. The complaint, which largely tracked the proposed Second Amended Complaint that the motion court declined to accept sought $5 million in damages for breach of contract.  CALS moved to dismiss on res judicata grounds. CALS argued, among other things, that the complaint realleged the same claims, allegations and theories that the motion court previously dismissed as insufficient, and simply restyled the previously dismissed negligence claim as a breach of contract claim. Defendant also sought dismissal because even if res judicata did not apply, the allegations based on the indemnification provisions of the Agreement were insufficient to state a claim for breach of contract.  On February 8, 2022, the motion court dismissed the claims as barred by the res judicata doctrine, holding “ his case must be dismissed with prejudice because the Court … already determined that no cause of action lies with respect to damages accruing for mismanagement under the … Agreement”. On Appeal, the First Department reversed. The Court held that “Defendants did not establish that plaintiff’s newly asserted breach of contract claim barred by the doctrine of res judicata following dismissal of plaintiff’s prior action for failure to plead a cause of action”. 7 The Court noted that “ n the prior action, the motion court dismissed the complaint in its entirety, but declined to consider theories raised by plaintiff in opposition to defendants’ motion to dismiss”. 8 “Accordingly,” said the Court, “it not clear that the dismissal of the prior action was on the merits and with prejudice, and that plaintiff … barred from bringing an action asserting the proposed claim based on alleged violation of other contract provisions”. 9 Takeaway When a prior complaint is dismissed on the pleadings for failure to state a cause of action, without any indication that the dismissal is intended to be with prejudice or on the merits, the doctrine of res judicata does not bar the timely commencement of the second action purporting to correct the pleading deficiency. 10 In other words, when, as in Condor Capital , the prior action is dismissed solely for defects in the pleading, the present action is not barred by the doctrine of res judicata. Footnotes S ee O’Connell v. Corcoran , 1 N.Y.3d 179, 184-185 (2003); Gramatan Home Invs. Corp. v. Lopez , 46 N.Y.2d 481, 485 (1979)). Matter of Reilly v. Reid , 45 N.Y.2d 24 (1978). O’Brien v. City of Syracuse , 54 N.Y.2d 353, 357 (1981) (citation omitted). See Matter of Reilly , 45 N.Y.2d at 28 (citations omitted). Id. (citations omitted). Id. Slip Op. at *1 (citations omitted). Id. Id. Komolov v. Segal , 96 A.D.3d 513, 513 (1st Dept. 2012); Hodge v. Hotel Empls. & Rest. Empls. Union Local 100 of AFL-CIO , 269 A.D.2d 330 (1st Dept. 2000). 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 We have often written about the SEC’s whistleblower program and, in particular, the success of the program with respect to detecting and preventing violations of the federal securities laws. The success of the program depends, in large part, on the ability of would-be whistleblowers to have the freedom to report wrongdoing without fear of reprisal. Taking steps to impede a departing employee from sharing information with the SEC impairs this free flow of information to the Commission. To ensure the freedom to communicate, the SEC has cracked down on companies that use severance agreements and other types of employment contracts to silence and discourage employees from reporting wrongdoing to the Commission. Seehere, here, here, and here. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) to combat illegal and fraudulent conduct on Wall Street and promote compliance with the federal securities and commodities laws. The Dodd-Frank Act contains whistleblower provisions that authorize the Commission to pay substantial cash rewards to whistleblowers that voluntarily provide the SEC with information about securities fraud and other violations of the securities laws, including the Foreign Corrupt Practices Act. To fulfill the purpose of the Dodd-Frank Act, the Commission adopted Rule 21F-17,1 which provides in relevant part: (a) No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications. Despite being effective for more than 11 years, many companies have ignored the mandate of Rule 21F-17. In this regard, they have used severance agreements and other types of employment contracts to silence and discourage employees from reporting violations of the securities laws to the Commission. That was the case in In the Matter of Activision Blizzard, Inc., Securities Exchange Act of 1934 Release No. 96796 (Feb. 3, 2023) (here). As a regular part of its business, Activision Blizzard, Inc. (“Respondent”), a video game development and publishing company, enters into separation agreements with employees when they end their employment with the company.2 As of 2016, Respondent’s separation agreement included a clause requiring departing employees to notify the company of any requests from an administrative agency in connection with a report or complaint. Specifically, the separation agreement stated, in part: Nothing in this Separation Agreement shall prohibit . . . disclosures that are truthful representations in connection with a report or complaint to an administrative agency (but only if I notify the Company of a disclosure obligation or request within one business day after I learn of it and permit the Company to take all steps it deems to be appropriate to prevent or limit the required disclosure). Between 2016 and 2021, in the ordinary course of Respondent’s business, a significant number of departing employees signed separation agreements that contained the foregoing notification clause. Most, but not all, of the separation agreements executed between 2016 and 2021 also contained an additional clause stating, “Nothing in this Release prevents me from … giving truthful testimony, or truthfully responding to a valid subpoena, or communicating or filing a charge with government or regulatory entities (such as the Equal Employment Opportunity Commission, National Labor Relations Board, Department of Labor, or Securities and Exchange Commission.)” The SEC maintained that, notwithstanding the additional clause, the language found in the separation agreements, requiring Respondent to be notified about the disclosure obligation or request, undermined the purpose of Section 21F and Rule 21F-17(a).3 The SEC noted that it was unaware of any specific instances in which a former employee was prevented from communicating with the SEC’s staff about potential violations of securities laws or in which Respondent took action to enforce the notification clause or otherwise prevented such communications. In early 2022, Respondent revised its separation agreement templates and removed the notification clause. In addition, the SEC charged Respondent with failing to maintain adequate disclosure controls related to complaints of workplace misconduct. Rule 13a-15(a) requires issuers that have a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (“Exchange Act’) to maintain disclosure controls and procedures. Rule 13a-15(e) defines disclosure controls and procedures to be “controls and other procedures … that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.” The rule explains that disclosure controls and procedures include those “designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management … to allow timely decisions regarding required disclosure.” Disclosure controls and procedures “are intended to cover a broader range of information than is covered by an issuer’s internal controls related to financial reporting” and “should capture information that is relevant to an assessment of the need to disclose developments and risks that pertain to the issuer’s businesses.”4 If an Exchange Act registrant fails to implement and maintain disclosure controls and procedures as required, its management may not have adequate information to assess whether the disclosures it makes to investors are fulsome, accurate, and not misleading by omission. Respondent made risk factor disclosures pertaining to its workforce in its annual reports on Form 10-K for the fiscal years ended December 31, 2017 through December 31, 2020. Those risk factor disclosures each included a heading stating, “If we do not continue to attract, retain, and motivate skilled personnel, we will be unable to effectively conduct our business.” Following the heading, the company stated: Our success depends to a significant extent on our ability to identify, attract, hire, retain, motivate, and utilize the abilities of qualified personnel, particularly personnel with the specialized skills needed to create and sell the high-quality, well-received content upon which our business is substantially dependent. Our industry is generally characterized by a high level of employee mobility, competitive compensation programs, and aggressive recruiting among competitors for employees with technical, marketing, sales, engineering, product development, creative, and/or management skills. We may have difficulties in attracting and retaining skilled personnel or may incur significant costs to do so. If we are unable to attract additional qualified employees or retain and utilize the services of key personnel, it could have a negative impact on our business. Additionally, each of the company’s quarterly reports on Form 10-Q filed between May 2018 and August 2021 included the following disclosure: The company cautions that a number of important factors could cause Activision Blizzard, Inc.’s actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to . . . maintenance of relationships with key personnel… including the ability to attract, retain, and develop key personnel and developers that can create high-quality titles, products, and services. Though Respondent disclosed the risk factors described above related to its workforce and how its ability to attract, retain, and motivate skilled personnel might materially impact its business, according to the SEC, Respondent lacked controls and procedures designed to ensure that it captured and assessed – from a disclosure perspective – certain information related to these risk factors. This included lacking controls and procedures among its separate business units designed to collect or analyze employee complaints of workplace misconduct. As a result, said the SEC, complaints related to workplace misconduct were not collected and analyzed for disclosure purposes. Additionally, noted the SEC, Respondent required that individual business unit leaders report certain categories of potentially material information to the company’s Disclosure Committee. However, those categories did not include information relevant to Respondent’s ability to retain employees, such as employee complaints or incidents of workplace misconduct. As a result, concluded the SEC, such information often was not accessible to the company’s management and disclosure personnel, and was not assessed from a disclosure perspective. By lacking sufficient information to understand the volume and substance of employee complaints of workplace misconduct, explained the SEC, Respondent’s management was unable to assess related risks to the company’s business, whether material issues existed that warranted disclosure to investors, or whether the disclosures it made to investors in connection with these risks were fulsome and accurate. Between May 2020 and May 2022, Respondent implemented several company-wide structural changes and policies that enhanced the manner in which employee complaints were required to be documented, maintained, and communicated to the company’s senior management and disclosure personnel. The SEC instituted cease and-desist proceedings against Respondent. Without admitting or denying the SEC’s findings, Respondent agreed to a cease-and-desist order (here) and a penalty of $35 million. Commenting on the order and settlement, Jason Burt, Director of the SEC’s Denver Regional Office, stated: “The SEC’s order finds that Activision Blizzard failed to implement necessary controls to collect and review employee complaints about workplace misconduct, which left it without the means to determine whether larger issues existed that needed to be disclosed to investors.” With regard to the severance agreements, he stated: “Moreover, taking action to impede former employees from communicating directly with the Commission staff about a possible securities law violation is not only bad corporate governance, it is illegal.”A copy of the press release announcing the proceeding and settlement can be found here. Footnotes Rule 21F-17 became effective on August 12, 2011. A separation agreement is a contract between a former employer and employee documenting the rights and responsibilities of both parties incidental to the employee’s departure. Securities Whistleblower Incentives and Protections Adopting Release, Release No. 34-63434 (June 13, 2011). Certification of Disclosure in Companies’ Quarterly & Annual Reports Final Rule Adopting Release, Release No. 33-8124 (Aug. 29, 2002). 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 This Blog frequently addresses issues related to mortgage foreclosure actions, generally, and issues of standing, specifically.  Much of the background of this article was taken from a prior article: “ Appellate Division, Second Department, Validates Mortgage Foreclosure Defendants’ Cries of ‘Leave me Allonge ’”.  As to the issues relating to the standing of a lender to commence a foreclosure action, this Blog has noted that, in general, a foreclosing mortgagee makes out its prima facie case by producing the “mortgage, the unpaid note, and evidence of default.”  Deutsche Bank Nat. Trust Co. v. Abdan , 131 A.D.3d 1001, 1002 (2 nd Dep’t 2015).  When standing is raised as a defense, the lender must also prove its standing to obtain relief from the court.  Nationstar Mortgage, LLC v. LaPorte , 162 A.D.3d 784, 785 (2 nd Dep’t 2018).  The lender in a mortgage foreclosure action establishes its standing by demonstrating that it “is the holder or assignee of the underlying note at the time the action is commenced.”  Nationstar , 162 A.D.3d at 785.  A “holder” is “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.”  N.Y.U.C.C 1-201 <21> ; Deutsche Bank Nat. Trust Co. v. Brewton , 142 A.D.3d at 684 (2 nd Dep’t 2016).  A written assignment of the note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation.  Brewton , 142 A.D.3d at 684 (citation omitted).  The mortgage, because it is merely security for the maker’s obligation to repay the underlying debt, passes with the debt as an inseparable incident when the note is assigned.  Brewton, 142 A.D.3d at 684 (citation omitted) .   Where, however, a note is “neither indorsed in blank nor specifically indorsed” to the person in physical possession of the note, that person cannot be “the lawful holder thereof for purposes of enforcing it.”  McCormack v. Maloney , 160 A.D.3d 1098, 1100 (3 rd Dep’t 2018) (citations omitted).  Therefore, such a person would not, inter alia , have standing to commence a mortgage foreclosure action.  McCormack , 160 A.D.3d at 1100 (citations omitted). Section 3-202 of New York’s Uniform Commercial Code governs the “negotiation” of a negotiable instrument, which is the “transfer of an instrument in such form that the transferee becomes the holder.”  UCC § 3-202(1) .  “If the instrument is payable to order it is negotiated by delivery with any necessary indorsement; if payable to bearer it is negotiated by delivery.” UCC § 3-202(1) .    "Holder status is established where the plaintiff possesses a note that, on its face or by allonge, contains an indorsement in blank or bears a special indorsement payable to the order of the plaintiff.”  Wells Fargo Bank, NA v. Ostiguy , 127 A.D.3d 1375, 1376 (3 rd Dep’t 2015) (citations omitted).  An allonge is an additional piece of paper “so firmly affixed as to become a part thereof.”  NY UCC § 3-202(2) ; U.S. Bank National Assoc. v. Moulton , 179 A.D.3d 734 (2 nd 2020).  An allonge may be needed where “there is insufficient space on the itself for the endorsements; as long as the allonge remains firmly affixed to the note, it becomes part of the note.”  Id. (citation omitted).  In “Leave Me Allonge,” we discussed Moulton , a case analyzing the sufficiency of an endorsement.  Today’s Blog involves US Bank National Ass’n. v. Okoye-Oyibo , decided on February 1, 2023, a case in which, inter alia , the affixation requirement of an allonge was the subject of the decision.  UCC § 3-202(2).   The lender in Okoye-Oyibo commenced a mortgage foreclosure action in which the borrower asserted a lack of standing defense, among others.  Supreme court denied the lender’s motion for, inter alia , summary judgment “on the complaint insofar as asserted against the and dismissing her affirmative defenses and counterclaims.”  Lender appealed.  Among other things, the Second Department modified supreme court’s order by granting lender summary judgment dismissing borrower’s affirmative defenses except for standing and failure to comply with conditions precedent.   As to standing, the Court held that it was not demonstrated by the lender that the allonge in question was “firmly affixed” to the note, and stated: Here, the plaintiff failed to establish, prima facie, the defendant's default or the plaintiff's standing to commence the action. A plaintiff may demonstrate its standing in a foreclosure action through proof that it was in possession of the subject note endorsed in blank, or the subject note and a firmly affixed allonge endorsed in blank, at the time of commencement of the action. Although the plaintiff attached to the complaint copies of the note and a chain of purported allonges ending with an undated purported allonge endorsed in blank, the plaintiff did not demonstrate that the purported allonges, which were on pieces of paper completely separate from the note, were “so firmly affixed thereto as to become a part thereof," as required by UCC 3-202(2) ( see Raymond James Bank, NA v Guzzetti , 202 AD3d <841,> 843 <(2 nd dep’t 2022)> nd dep’t 2022)>; Wells Fargo Bank, N.A. v Maleno-Fowler , 194 AD3d 1094, 1095 <(2 nd dep’t 2014)> nd dep’t 2014)>; Citimortgage, Inc. v Ustick , 188 AD3d 793, 795 <(2 nd dep’t 2020)> nd dep’t 2020)>). None of the pieces of paper in the record comprising the note or the allonges bore any markings of having ever been attached to one another.  In addition, the Okoye-Oyibo Court found that lender failed to prove that it was in possession of the note prior to the commencement of the action and that borrower defaulted.  In support of its motion for summary judgment, the lender relied on an affidavit of a “foreclosure specialist” employed by its servicer in which the affiant “failed to identify the records upon which she relied in making the statements, and the failed to submit copies of the records themselves.”  (Citations and internal quotation marks omitted).  Similarly, the Court found that the lender failed to prove that it complied with the notice requirements of RPAPL 1304 because the affiant failed to attest that she was familiar with the standard office mailing procedures of … the third-party vendor that apparently sent the RPAPL 1304 notices on behalf of the .”  okoye-oyibo court.> okoye-oyibo court.> 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 Under New York law, a party’s termination of a contract is ineffective when the contract provides for notice and an opportunity to cure, and notice was not provided. 1 As explained by the First Department:  Our case law is clear that a party’s termination is ineffective where the relevant contract provides for a notice to cure and notice is not provided …This approach gives effect to the principle that, generally, where contracting parties agree on a termination procedure, the procedure will be enforced as written…. 2 “There are limited circumstances where despite being contractually required, notice to cure is not necessary, such as where the other party expressly repudiates the contract or abandons performance.” 3 “ otice to cure is not required where the breach by the other party is impossible to cure, or so substantial that it ‘undermines the entire contractual relationship such that it cannot be cured’”. 4 In Hudson Valley Window Cleaning, Inc. v. Rotron Inc. , 2023 N.Y. Slip Op. 00395 (1st Dept. Jan. 31, 2023) ( here ), the foregoing issues were before the Appellate Division, First Department. Hudson Valley involved a rate and service agreement pursuant to which Plaintiff agreed to provide cleaning services at one of Defendant’s facilities (the “Agreement”). The Agreement contained a requested statement of work for janitorial service, which detailed the work to be performed by Plaintiff pursuant to the Agreement (the “SOW”).  The Agreement also contained a notice and cure provision (“Notice and Cure Provision”), which provided, in pertinent part, that Defendant could “terminate the contract with 60 days written notice for nonperformance”. In such event, Defendant was required to “first notify in writing describing the problem” and, “ f after 30 days of the notice, the problem ha not been corrected,” the parties agreed that the Agreement “may be terminated”. According to Defendant, Plaintiff frequently failed to fully perform under the terms of the Agreement. On numerous occasions, Defendant allegedly advised Plaintiff of instances where Plaintiff failed to perform services in accordance with the Agreement. Despite being put on notice of Plaintiff’s poor performance, Plaintiff allegedly continued to provide the same quality of substandard services.  Following a telephone call between the parties during which Plaintiff was put on notice of being terminated, Defendant notified Plaintiff in writing, on July 20, 2021, of its intent to terminate the Agreement. In pertinent part, Defendant advised Plaintiff that its “service falling short of … expectations on all aspects of the SOW” and warned that “ f the service does not improve in its entirety in the next thirty days; our agreement will be considered null and void”. Defendant explained that its letter “shall serve as Notice of Intent to Terminate pursuant to the Agreement”. Plaintiff rejected the termination notice letter. Plaintiff allegedly failed to cure the defects in its service. On August 26, 2021, approximately one week after service had ceased completely, Defendant issued a “Termination Letter”.  On September 10, 2021, Plaintiff commenced the action by filing a summons and complaint (the “Complaint”). On December 9, 2021, Defendant filed a verified answer with affirmative defenses and counterclaims (the “Answer”). On December 29, 2021, Plaintiff filed a reply to counterclaims with affirmative defenses.  On March 9, 2022, Plaintiff filed a motion for summary judgment and to dismiss Defendant’s counterclaims. On July 27, 2022, the motion court denied plaintiff’s motion on the issue of liability on its claims and for summary judgment dismissing Defendant’s counterclaims. The motion court found that the Notice and Cure Provision was ambiguous, and that discovery was required to “give clarity” to the provision. Plaintiff appealed. The First Department modified the motion court’s order to grant plaintiff’s motion to dismiss defendant’s unjust enrichment counterclaim, 5 and otherwise affirmed the order. The Court found that “whether defendant provided the requisite notice to cure and whether plaintiff complied issues of fact”. 6 The Court explained that the July 20 notice of intent letter “was not a ‘positive and unequivocal’ termination of the contract, since it recognized that plaintiff could cure and the contract could continue”. 7 The Court also found issues of fact as to whether (a) “plaintiff previously abandoned performance,” thereby “obviating the need for a notice of termination” 8 and (b) “plaintiff failed to cure, so that defendant then had a contractual right to terminate, but merely provided the erroneous date of termination”. 9 Takeaway In holding that the were issues of fact as to whether the July 20th notice of intent letter was a “positive and unequivocal” termination of the Agreement, the Court relied on Princes Point LLC v. Muss Dev. L.L.C. , 30 N.Y.3d 127, 133 (2017). In Princess Point , the Court of Appeals explained that “the expression of intent not to perform … must be ‘positive and unequivocal.’” In Husdon Valley , as explained by the First Department, the notice of intent letter did not meet this standard because “it recognized that plaintiff could cure and the contract could continue” as if there were no issues. 10 The First Department’s decision is also interesting because of the way it treated the issue of abandonment. “A contract will be treated as abandoned when one party acts in a manner inconsistent with the existence of the contract and the other party acquiesces in that behavior.” 11 In other words, “the refusal of one party to perform his contract amounts to an abandonment of it, leaving the other party to his choice of remedies, but his assent to abandonment dissolves the contract so that he can neither sue for a breach nor compel specific performance.” 12 “To establish abandonment of a contract by conduct, it must be shown that the conduct is mutual, positive, unequivocal, and inconsistent with the intent to be bound”. 13 “Generally, a finding of an abandonment will be based upon clear, affirmative conduct by at least one of the parties that is entirely at odds with the contract.” 14 In Savitsky, the plaintiff, the contract vendee of real property, was said to have evinced an intent to abandon the contract by her failure to take any steps to preserve her rights to purchase the property once she became aware of the owner’s impending sale of the subject property to a third party. Thus, the seller took affirmative steps contrary to the contract, and the purchaser failed to object. 15 In Steven Strong Dev. Corp. v Washington Med. Assoc., 303 A.D.2d 878 (3d Dept. 2003), a real estate developer, years after entering into an agreement to develop real property, conceded, in writing, the failure of the project and affirmatively waived the developer’s fee. Its own action in writing that letter was an affirmative step inconsistent with enforcing its rights under the agreement, therefore constituting an abandonment. In Hudson Valley , the First Department held that there here were issues of fact as to whether Plaintiff took affirmative steps inconsistent with its contract with Defendant. After all, it rejected the notice of intent to terminate and continued to perform under the Agreement. Footnotes E.g. , East Empire Construction, Inc. v. Borough Construction Grp., LLC , 200 A.D.3d 1 (1st Dept. 2021); Kleinberg Electric, Inc. v. E-J Electric Installation Co. , 111 A.D.3d 410 (1st Dept. 2013). East Empire , 200 A.D.3d at 5. Id. at 6 (citations omitted). Id. The Court held that “plaintiff’s motion to dismiss defendant’s counterclaim for unjust enrichment should have been granted, as the services were governed by a contract”. Slip Op. at *2. Unjust enrichment is a quasi-contractual claim that is “imposed by law where there has been no agreement or expression of assent, by word or act, on the part of either party involved. The law creates it . . . to assure a just and equitable result.” Bradkin v Leverton , 26 N.Y.2d 192, 196 (1970). Under New York law, “the existence of a valid and enforceable agreement governing a particular subject matter of the dispute ordinarily precludes recovery in quasi contract for events arising out of the same subject matter”. Clark-Fitzpatrick, Inc. v. Long Island R. Co. , 70 N.Y.2d 382, 388 (1987). Id. at *1. Id. (citing, Princes Point LLC v. Muss Dev. L.L.C. , 30 N.Y.3d 127, 133 (2017)). Id. (citing, 34-06 73, LLC v. Seneca Ins. Co. , 39 N.Y.3d 44, 52 (2022); and Kleinberg Elec. , 111 A.D.3d at 411.), Id. (citing, G.B. Kent & Sons v. Helena Rubinstein, Inc. , 47 N.Y.2d 561, 564-565 (1979); and New Image Constr., Inc. v TDR Enters. Inc. , 74 A.D.3d 680, 681 (1st Dept. 2010)). Id. Savitsky v. Sukenik , 240 A.D.2d 557, 559 (2d Dept. 1997) (quoting, 91 N.Y. Jur.2d, Real Property Sales and Exchanges § 146). Id. EMF Gen. Contr. Corp. v. Bisbee , 6 A.D.3d 45, 49-50 (1st Dept. 2004). Id. Savitsky , 240 A.D.2d at 559. 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 Parties to commercial transactions are no doubt familiar with “term sheets”, “letters of intent”, “memoranda of understanding” and “agreements in principle”. As the parties to these documents know, they outline the fundamental terms of the transaction being negotiated. “Term sheets”, “letters of intent”, “memoranda of understanding” and “agreements in principle” may constitute an enforceable agreement if the writing includes all the essential terms of an agreement. 1 This is so even if “the parties intended to negotiate a ‘fuller agreement’”. 2 Thus, if the informal writing contains the necessary elements of an enforceable contract, e.g. , an offer, acceptance, consideration, mutual assent and intent to be bound, courts will enforce the writing as if it was a formal, written agreement. 3 However, a term sheet, letter of intent or a memorandum of understanding will be rendered ineffective where material terms are left for future negotiation, or the writing expressly reserves the right not to be bound until a more formal agreement is signed. 4 In Claim Recovery Group LLC v. Markel Corp. , 2023 N.Y. Slip Op. 00371 (1st Dept. Jan. 26, 2023) ( here ), the Appellate Division, First Department held that the term sheet at issue was enforceable because it contained all the salient terms of the parties’ agreement and was specifically made binding by the very language used therein. In early 2019, defendant Markel Corporation (“Markel”), an insurance conglomerate, was facing millions of dollars in exposure as a result of two wildfires in California. Markel possessed subrogation claims against two utilities, Pacific Gas & Electric Company (“PG&E”) and Southern California Edison, but when PG&E filed for bankruptcy in January 2019, a question arose as to whether Markel would realize the full value of those subrogation claims. To remove the uncertainty and to secure the cash needed for its claims, Markel looked to sell its claims on the secondary market. Fulcrum Credit Partners LLC (“Fulcrum”), assignor and predecessor-in interest to Plaintiff, Claim Recovery Group LLC (“Plaintiff”), approached Markel in late January 2019 about purchasing Markel’s claims. After preliminary discussions and due diligence, Fulcrum decided to make an offer, and sent Markel a term sheet, setting out the terms on which it proposed to purchase certain of Markel’s subrogation claims. After negotiation, the parties reached mutually acceptable terms. The agreed-upon terms were reduced to a term sheet, which Markel signed on March 25, 2019 (“Term Sheet”). The Term Sheet included terms such as “proposed transaction,” “potential transaction,” “potential sale” and “resulting transaction”, as well as conditional and aspirational language concerning what the terms of the proposed transaction “would” or “will” be. The Term Sheet summarized the terms of a “potential” and “proposed transaction” whose consummation would be “subject to … negotiation and execution of a Proceeds Agreement.” Notwithstanding, the foregoing language, the Term Sheet expressly stated that “ he Parties intend to be legally bound to this transaction once this Term Sheet is mutually executed.”  The parties did not execute a Proceeds Agreement. The motion court granted defendant’s motion for summary judgment dismissing the complaint and denied plaintiff’s motion for summary judgment dismissing the affirmative defenses and in favor of its claim for breach of contract. The motion court held that the Term Sheet was “ambiguous” as to whether the parties intended to be bound and, therefore, was not an enforceable contract. The motion court observed that the document was “entitled Term Sheet, not contract” and emphasized that it summarized “the terms and conditions of a proposed transaction” rather than an actual transaction. The motion court also noted that the Term Sheet used prospective language regarding what the proposed transaction “will” look like. Based on the foregoing, the motion court concluded that “it is clear that the term sheet was not the vehicle to transfer the interest.” The motion court reinforced this conclusion by noting that the phrase “potential transaction” appeared in the Term Sheet, including in the standstill provision whose existence would not make sense “if the parties already had an agreement set in stone.” The motion court further noted that post-execution negotiations showed “that the parties were negotiating … in an effort to close” the Proceeds Agreement. Among other things, the motion court observed that the parties’ communications were not consistent with the conclusion that a “deal was already in place”. Instead, explained the motion court, the negotiation supported the view that “the term sheet did not create a contract.” On appeal, the First Department modified the motion court’s order to deny defendant’s motion and grant plaintiff’s motion insofar as it sought summary judgment on the issue of whether the Term Sheet constituted an enforceable agreement, and remanded the matter for further proceedings on the issues of breach and damages, including the viability of the affirmative defenses. The remainder of the motion court’s order was otherwise affirmed. The Court held that the Terms Sheet was an enforceable contract. 5 The Court found that the Term Sheet “unambiguously provide that ‘ he Parties intend to be legally bound to this transaction once this Term Sheet is mutually executed.’” 6 The Court explained that although the Term Sheet stated that it was drafted as a proposal, it “became legally binding once mutually executed and, as stated on the term sheet, ‘ ccepted and greed’”. 7 The Court further explained that the Term Sheet “included all material terms, including identification of the buyer and seller, description of the claims to be sold, and a formula for calculation of the purchase price”. 8 The Court was unpersuaded by the Term Sheet’s references to a “proposed” or “potential” transaction or “any resulting transaction”. 9 Such references did not “undermine this interpretation”, said the Court. 10 The Court, therefore, rejected Defendants’ argument that the use of the “subject to” language in the Term Sheet – that is, the transaction would be “subject to” completion of satisfactory due diligence and negotiation and execution of a purchase and sale agreement – was dispositive. 11 Further, the Court rejected the argument that the parties’ post-execution negotiation of certain terms negated the enforceability of the Term Sheet because “those terms were clearly agreed upon in the term sheet”. 12 “Nor”, said the Court, “was the term sheet rendered unenforceable ‘simply because certain nonmaterial terms were left for future negotiation’”. 13 Takeaway Claim Recovery highlights the importance of the language used in a term sheet. As discussed, a term sheet will be deemed enforceable when the term sheet includes all the salient terms of the transaction and “unambiguously provides that ‘ he Parties intend to be legally bound to transaction once Term Sheet is mutually executed’”. 14 In our discussion of McGowan v. Clarion Partners, LLC , 188 A.D.3d 497 (1st Dept. 2020), lv. denied , 37 N.Y.3d 903 (2021) ( here ), which the Court found was inapposite, we discussed ways in which parties can protect themselves from the unintended enforcement of a term sheet. Among other things, we said that “the parties should consider using language that expressly imposes a duty to negotiate a final agreement in good faith”. They should also: (a) make clear that neither subsequent communications nor a course of conduct will give rise to an enforceable agreement before they sign the contemplated definitive agreement; “(b) identify material contingencies and conditions precedent for completing the contemplated transaction, such as obtaining financing and required permits or consents, and completing of due diligence; and (c) “state that neither party is relying on, or is entitled to rely on, the term sheet or letter of intent for any purpose”. As we noted, business owners/corporate executive should proceed with caution when drafting term sheets or letters of intent and in their course of conduct surrounding the negotiation of a final agreement to ensure that they are not later bound to their non-binding term sheet or letter of intent. The foregoing was true then and, as made clear in Claim Recovery , it remains true now. Footnotes Sullivan v. Ruvoldt , 16 Civ. 583, 2017 WL 1157150 at *6 (S.D.N.Y. Mar. 27, 2017). Conopco, Inc. v. Wathne Ltd. , 190 A.D.2d 587, 588 (1st Dept. 1993) Stonehill Capital Mgt. LLC v. Bank of the W. , 28 N.Y.3d 439, 451-454 (2016). Bed Bath & Beyond Inc. v. IBEX Constr., LLC , 52 A.D.3d 413, 414 (1st Dept. 2008); Emigrant Bank v. UBS Real Estate Sec., Inc. , 49 A.D.3d 382, 383-384 (1st Dept. 2008). Slip Op. at *1. Id. Id. (citing, Netherlands Ins. Co. v. Endurance Am. Specialty Ins. Co. , 157 A.D.3d 468, 468-469 (1st Dept. 2018); Hajdu-Nemeth v. Zachariou , 309 A.D.2d 578, 578 (1st Dept. 2003)). Id. (citing, Twenty 6 Realty Partners Inc. v. GSS N3 LLC , 192 A.D.3d 463, 464 (1st Dept. 2021); Deephaven Distressed Opportunities Tradings, Ltd. v. 3V Capital Master Fund Ltd. , 2011 N.Y. Slip Op. 34007 , *3, *9 (Sup. Ct., N.Y. County 2011], aff’d , 100 A.D.3d 505, 505-506 (1st Dept. 2012)). Id. Id. Id. (citations omitted). Id. (citing, Trolman v. Trolman, Glaser & Lichtman, P.C. , 114 A.D.3d 617, 618 (1st Dept. 2014), lv. denied , 23 N.Y.3d 905 (2014)). Id. at *1-*2 (quoting, Sustainable PTE Ltd. V. Peak Venture Partners LLC , 150 A.D.3d 554, 555 (1st Dept. 2017)). 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 Regular readers of this Blog know that we spend a good deal of time writing about mortgage foreclosure.  The anticipated conclusion of a mortgage foreclosure action is a foreclosure sale.  The judicial sale is also the hoped-for conclusion of other types of proceedings – such as mechanic’s lien foreclosures and condominium lien foreclosures. Once conducted, there are mechanisms to set aside judicial sales when warranted.  “ ven after a judicial sale to a good faith purchaser” a court can exercise its “inherent power over a sale made pursuant to its judgment or decree to ensure that it is not made the instrument of injustice.”  Altshuler Shaham Provident Funds, Ltd. v. GML Tower LLC , 129 A.D.3d 1439, 1442 (4 th Dep’t 2015) (citations and internal quotation marks omitted).  See also , Nationstar Mortgage, LLC. V. Crute , 187 A.D.3d 1028, 1029 (2 nd Dep’t 2020) (citations and internal quotation marks omitted).  However, such “power should be exercised sparingly and with great caution, a court of equity may set aside its own judicial sale upon grounds otherwise insufficient to confer an absolute legal right to a resale in order to relieve of oppressive or unfair conduct.”  Id . (citations and internal quotation marks omitted). Court’s may exercise their discretion where “fraud, mistake, exploitive overreaching, misconduct, irregularity or collusion casts suspicion on the fairness of the sale.”  Id . (citations and internal quotation marks omitted).  See also Emigrant Mortgage Co., Inc. v. Hartman , 173 A.D.3d 975, 976 (2 nd Dep’t 2019) (citations omitted); Nationstar Mortgage, 187 A.D.3d at 1030.  Courts may also exercise their inherent powers based on sufficiency of price, but only when “the price is so inadequate as to shock the conscience.”  Polish Nat. Alliance of Brooklyn, U.S.A. v. White Eagle Hall Co., Inc. , 98 A.D.2d 400, 407 (citations omitted) (“This rule rests on sound public policy criteria because in most instances the market value of the property will exceed the winning bid and to upset sales based on mere inadequacy of price would discourage bidding and unduly frustrate the rights of mortgagees to enforce their contracts.”).  See also Altshuler , 129 A.D.3d at 1442.   In addition to the court’s inherent powers, there are statutory bases for setting aside a judicial sale.  Among them are CPLR 2003 and RPAPL 231(6) .  CPLR 2003 provides that “ t any time within one year after a sale made pursuant to a judgment or order, but not thereafter, the court, upon such terms as may be just, may set the sale aside for a failure to comply with the requirements of the civil practice law and rules as to the notice, time or manner of such sale, if a substantial right of a party was prejudiced by the defect….”  Similarly, RPAPL 231(6) provides that “ t any time within one year after the sale, but not thereafter, the court, upon such terms as may be just, may set the sale aside for failure to comply with the provisions of this section as to the notice, time or manner of such sale if a substantial right of a party was prejudiced by the defect.” The Court in Board of Managers of the 442 St. Marks Avenue Condo. v. Milord , decided on January 25, 2023, addressed a challenge to a judicial sale.  The defendant, unit owner/mortgagor, borrowed a sum of money which was secured by a mortgage (the “Mortgage”) on his condominium unit.  Subsequently, plaintiff, condominium board (the “Board” or “Plaintiff”), recorded a lien for unpaid common charges and related fees.  The Board commenced an action to foreclose its lien. Supreme court entered a judgment of foreclosure and sale pursuant to which the condominium unit was sold for $490,000.  A $49,000 deposit was delivered to the referee at the sale by the high bidder (the “Buyer”).  The Buyer’s title search in anticipation of closing revealed the existence of the Mortgage.  The Buyer intervened in the action and sought the vacatur of the sale and the return of the deposit.  Buyer argued that the failure to disclose the existence of the Mortgage “violated principals of equity in addition to the Auction Rules of Kings County.”  Supreme court set aside the sale but directed that the deposit be delivered to the Board.  Buyer appealed so much of supreme court’s order as directed that the deposit be delivered to the Board.  The Second Department reversed.  The Court found that “ y setting aside the subject sale, the Supreme Court, in effect, determined that the Board's failure to disclose the senior mortgage held by cast suspicion on the fairness of the sale.”  (Citations and internal quotation marks omitted.)  Accordingly, supreme court should have directed that the deposit be returned to the Buyer.  The deposit should not have been delivered to the Board because the Buyer had a “lawful excuse for refusing to perform the contract.”  (Citations and internal quotation marks omitted.) Finally, as to the Board’s claim that the sale should not be vacated due to the Buyer’s unilateral mistake, the Court stated: The plaintiff's contention that the intervenor's belief that it had purchased the property free from the senior mortgage was the result of the intervenor's own unilateral mistake is without merit, as the record shows that the plaintiff failed to disclose the existence of the senior mortgage in the complaint, the judgment of foreclosure of sale, or the terms of sale ( see SRP 2012-4, LLC v Darkwah , 198 AD3d at 939-940). Likewise, the plaintiff's claim that the intervenor failed to exercise due diligence is without merit since, inter alia, "' he rule that a buyer must protect himself against undisclosed defects does not apply in all strictness to a purchaser at a judicial sale'" ( id. at 940, quoting Lane v Chantilly Corp. , 251 NY 435, 438). A sale of property "'in the haste and confusion of an auction room is not governed by the strict rules applicable to formal contracts made with deliberation after ample opportunity to investigate and inquire'" ( SRP 2012-4, LLC v Darkwah , 198 AD3d at 940, quoting Sohns v Beavis , 200 NY 268, 271-272). 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 The faithless servant doctrine 1 provides that an employee who is faithless in the performance of their duties ( i.e. , breaches their duty of loyalty to the employer) is not entitled to recover either salary or commission. 2  While the language of the rule may imply a broad application, courts generally apply the rule relatively narrowly. 3 Courts will usually hold an employee liable under the faithless servant doctrine only if the employee has usurped a corporate opportunity or actively stolen from the employer. 4  That was the scenario in Nichtberger v. Paramount Painting Group, LLC, 2023 N.Y. Slip Op. 30200(U) (Sup. Ct., N.Y. County Jan. 19, 2023) ( here ). Nichtberger involved an action to recover monies allegedly owed to Plaintiff by the Corporate Defendants for breach of contract, as well as for damages to Plaintiff by the Individual Defendants for fraudulent business practices and stealing Plaintiff’s personal property. In November 2009, L&L Painting Company, Inc. (“L&L”) and Plaintiff agreed to form Paramount Painting Group, LLC (“PPG”). Pursuant to the agreement, Plaintiff received an “advanced loan from PPG’s future profits” in the amount of $500,000. Plaintiff was also made President of PPG, with a salary of $208,000 per year. In addition to his salary, Plaintiff maintained that he had a verbal agreement with Defendants to compensate him an extra $50,000 per year, thereby bringing his guaranteed salary to approximately $250,000 per year. The parties also agreed to a bonus plan, whereby Plaintiff would receive 50% of the first $3 million in net profits that PPG achieved, and 25% of the net profits generated in excess of $4 million. In the latter part of 2012, Plaintiff claimed that PPG had not paid any bonus money or profit-share that was due to him pursuant to the 2009 agreement. In addition, although PPG continued paying Plaintiff’s $4,000 weekly salary, it allegedly stopped paying the additional $50,000 supplement after the first year in breach of the parties’ oral agreement.  According to Plaintiff, the yearly breaches of the oral and written agreements crippled his financial condition and prevented him from servicing his outstanding debts. Consequently, Plaintiff informed the Individual Defendants about his dire financial situation, and pleaded with them to honor the agreement to pay the additional $50,000 in salary and the earned bonuses. Defendants allegedly refused. Plaintiff maintained that Defendants reported false net income figures to him in order to withhold bonus payments that would have been due to him. As Plaintiff became more and more suspicious of Defendants’ alleged fraudulent accounting practices, Plaintiff began bringing to Defendants’ attention discrepancies in the profit and loss statements that the Corporate Defendants provided to him. Defendants were allegedly unwilling to correct the discrepancies. In March 2019, Plaintiff resigned from PPG. After Plaintiff’s resignation, Defendants allegedly induced Plaintiff’s customers to continue working with PPG, which Defendants were purportedly able to do from files they had taken from Plaintiff’s personal office. Plaintiff alleged that Defendants did not pay him for any of the work done for his former clients. Between 2010 to March 2019, Plaintiff had purchased and acquired numerous pieces of artwork, memorabilia and various other items, many which had a unique and personal value to Plaintiff. These “Chattel” were property of and owned by Plaintiff and were all stored and/or displayed in Plaintiff’s personal office at PPG. Plaintiff maintained that one or more of the Individual Defendants and/or their agents broke into Plaintiff’s office and stole all the Chattel. On June 23, 2021, Plaintiff pled guilty to Grand Larceny in the Second Degree in connection with the theft of approximately $1.4 million from PPG, which he obtained by diverting checks made payable to PPG into a separate checking account he controlled. Pursuant to the plea agreement, Plaintiff received no jail sentence. Instead, he received a conditional discharge and an order to pay $1,436,072.56 in restitution to PPG in the form of a $500,000 bank check and a $936,072.56 confession of judgment. Plaintiff sued Defendants, alleging breach of contract, fraud, replevin 5 and conversion. Defendants moved to dismiss. The motion court granted in part and denied in part the motion. The court granted that part of Defendants’ motion to dismiss Plaintiff’s claims for compensation in the form of salary, bonus and/or profit sharing. As noted by the court, in a prior lawsuit brought by PPG to recover the money that Plaintiff had stolen, the court held that Plaintiff was not entitled to recover any compensation under the faithless servant doctrine. The court explained that “‘ongoing and pervasive’ misconduct of a ‘wayward and unruly agent’ like that of an employee who embezzles money from his employer, forfeits all compensation after the first faithless act”. 6 Therefore, concluded the court, “ iven admission to systematically diverting checks to himself over many years, he has forfeited all compensation”. 7 Moreover, said the court, Plaintiff’s claim to $50,000 a year based upon the parties’ alleged verbal agreement violated the statute of frauds and the merger clause in the 2009 agreement, which required all modifications to be in writing. 8 Further, the court dismissed the fraud claim on the ground that it duplicated Plaintiff’s breach of contract claim. 9 Finally, the court denied the motion with regard to the replevin and conversion claims. The court held that “ egardless of whether the faithless servant doctrine applie with equal force to property purchased with the compensation, there questions of fact as to whether or not Plaintiff actually did use money stolen from Defendants or his (now forfeited) compensation to purchase the artwork etc., that plaintiff kept in his office”. 10 Takeaway The faithless servant doctrine, also known as equitable forfeiture, is based on agency principles, and has been applied to brokers, salaried employees, attorneys, arts and entertainment representatives, and executors of estates. The courts have applied the doctrine to a wide variety of misconduct, including, but not limited to, conflicts of interest, stealing money or goods, and secretly starting a competing business. Any act that can give rise to a claim for breach of fiduciary duty will trigger the doctrine.  In Nitchberger the doctrine was easily applied as Plaintiff admitted to stealing money from PPG in his plea agreement. Accordingly, under the doctrine, he was not entitled to the salary and compensation that he sought.  Footnotes This Blog examined the faithless servant doctrine  here ,  here  and  here . See Feiger v. Iral Jewelry , 41 NY2d 928, 928 (1977). See , e.g. , W. Elec. Co. v. Brenner , 41 N.Y.2d 291, 295 (1977); Maritime Fish Prods., Inc. v. World-Wide Fish Prods., Inc. , 100 A.D.2d 81, 88 (1st Dept. 1984). See Visual Arts Found., Inc. v. Egnasko , 91 A.D.3d 578, 579 (1st Dept. 2012); Soam Corp. v. Trane Co. , 202 A.D.2d 162, 162 (1st Dept. 1994) (employee promoted competitor’s products over employer’s); Phansalkar v. Andersen Weinroth & Co., L.P. , 344 F.3d 184, 203 (2d Cir. 2003) (employee usurped corporate opportunity). In a replevin action, the plaintiff seeks the return of property, not money damages. Genger v. Genger , 2016 N.Y. Slip Op. 30602 (Sup. Ct., N.Y. County 2016) (“The objective of replevin is recovery of the property, and the alternative relief or remedy is ‘fixation of its value.’”) (citations omitted). A replevin action can arise in a number of situations, such as where two or more parties claim a right to possess personal property, but only one has a superior right to that property, or where the property was lawfully withheld but was not released to the person having the greater right to the property. To prevail in a replevin action, therefore, the plaintiff must establish that the defendant is in possession of property to which the plaintiff claims a superior right. Nissan Motor Acceptance Corp. v. Scialpi , 94 A.D.3d 1067 (2d Dept. 2012). This Blog wrote about replevin here . Slip Op. at *2 (quoting, Cheryl & Co v. Krueger , 536 F. Supp. 3d 182, 213 (S.D. Ohio 2021) (citationsomitted), and citing, In re Blumenthal , 32 A.D.2d 767, 768 (1st Dept. 2006)). Id. Id. Id. Under the duplication doctrine, a fraud claim cannot stand side-by-side with a breach of contract claim when there is “a valid and enforceable written contract govern a particular subject matter” and the recovery sought arises out of the same facts and circumstances. Clark-Fitzpatrick v. Long Is. , 70 N.Y.2d 382 (1987). However, where “a legal duty independent of the contract itself has been violated<,> ” or where the misrepresentation is “collateral or extraneous to the terms of the parties’ agreement,” a fraudulent inducement claim can be litigated with “a simple breach of contract” claim. Dormitory Auth. v. Samson Constr. Co. , 30 N.Y.3d 704 (2018) (citation omitted). Slip Op. at *3. 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.