By: Jeffrey M. Haber As a general matter, indemnity is defined to encompass a duty to make good on any loss, damage, or liability incurred by another. Therefore, when a person agrees to indemnify another, he or she agrees to hold the other person harmless for some loss or damage.  Indemnification “may be based upon an express contract,” though it is “more commonly” implied “based upon the law’s notion of what is fair and proper as between the parties.” 1 Where the right to indemnification is based upon a written agreement, the specific language of the contract controls. 2 Under the well-settled rules of contract interpretation, courts must construe contracts so as to give full meaning and effect to all their material provisions. 3 A contract should not be construed so as to render any portion of it meaningless. 4 In addition, a contract should be read as a whole and, whenever possible, interpreted to give effect to its general purpose. 5 Therefore, under the foregoing rules, the promise to indemnify should not be found unless it can be clearly implied from the language and purpose of the entire agreement and the surrounding facts and circumstances. 6 The foregoing principles were examined in Cohen v. Trump Organization LLC , 2022 N.Y. Slip Op. 06421 (1st Dept. Nov. 15, 2022) ( here ). In Cohen , the issue before the Court was whether Plaintiff, Michael D. Cohen (“Plaintiff”), was entitled to indemnification from his former employer, Defendant, Trump Organization LLC (the “Trump Organization” or “Defendant”), for the legal fees and expenses he incurred in connection with the lawsuits and investigations targeting the former President’s campaign and business dealings. Plaintiff maintained that Defendant promised to cover those legal expenses but reneged after it became clear that Plaintiff would cooperate in the ongoing investigations, leaving him with “millions of dollars” in unpaid legal bills. Plaintiff’s claim for indemnification was based upon both oral and written agreements. In that regard, Plaintiff asserted a claim for breach of contract based on alleged oral commitments from the Trump Organization, as well as the Trump Organization’s written Operating Agreement. The motion court held that the alleged oral agreements were unenforceable because the operating agreement contained a “no oral modification” clause. Under New York law, “where a contract contains a ‘no oral modification’ clause, that clause will be enforceable”. 7 The motion court noted that the operating Agreement “was in effect … at all times relevant to claims for indemnification”. The only evidence of the oral agreements, said the motion court, was Plaintiff’s testimony about the alleged promises between the parties. Since “the only proof of an alleged agreement to deviate from a written contract the oral exchanges between the parties, the writing control ”. 8 Therefore, concluded the motion court, because the alleged oral agreements were unenforceable, the court had to look to the operating agreement to determine the scope of Defendant’s duty to indemnify Plaintiff. Under Section 7.2 of the operating agreement, Defendant agreed to indemnify employees of the Trump Organization under specified conditions. In pertinent part, the section provided:  ach person (an “Indemnified Person”) who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed claim, action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative (“Proceeding”), or any appeal in a Proceeding, or any inquiry or investigation that could lead to a Proceeding, by reason of the fact that he is the Member, or he, she or it was or is the legal representative of or a manager, director, officer, partner, venture, proprietor, trustee, employee, agent or similar functionary of the Company or of the Member, shall be indemnified by the Company against judgments, penalties (including excise and similar taxes and punitive damages), fines, settlements, and reasonable costs and expenses (including, without limitation, attorneys’ fees) actually incurred by such Indemnified Person in connection with a Proceeding …. In addition, Section 7.3 of the agreement provided that the right to indemnification under Section 7.2 would “continue as to a person who has ceased to serve in the capacity which initially entitled such person to indemnity”. As to legal expenses related to the search warrants executed as part of the criminal investigation against Plaintiff, the motion court held that Defendant had not obligation to indemnify under Section 7.2. The court found that the fees related to the search warrants were bound up in the criminal investigation against Plaintiff. The motion court held that Section 7.2 did not allow for indemnification in connection with the Mueller Investigation. The motion court found that Plaintiff did not become “involved in” the investigation “by reason of the fact that he . . . was . . . employee” of the Trump Organization. 9 Here, the tether from the Mueller Investigation to the Trump Organization – as opposed to former President Trump, the Trump campaign, or other Trump ventures – is too tenuous to support indemnification under section 7.2. Based on the record before the Court, the subject matter of the various investigations appears to relate mainly, if not entirely, to former President Trump personally, or the Trump campaign, or to the Trump Foundation. The motion court noted that Plaintiff failed to “tender evidence showing that his involvement in the Mueller Investigation relate directly to his capacity as a Trump Organization employee, rather than his role more generally in the Trump orbit.” “It is not enough to argue,” said the motion court, “that but for his employment at the Trump Organization, Plaintiff would not have known some of the information that made him a target – and, later, a cooperator – in the investigation.” The motion court found that such “reasoning sweeps too broadly, permitting corporate indemnification even where it is not tied to actions on behalf of the corporation.” Consequently, the motion court concluded that the “Operating Agreement only compels Defendant to indemnify Plaintiff with regard to the business of the Trump Organization. And Plaintiff has not tendered evidence to show this connection.” Finally, the motion court held that the “reasoning above also foreclose Plaintiff’s claim for indemnification in connection with the five Congressional Investigations.” The court observed that since Plaintiff confessed that his testimony before Congress was perjurious, Plaintiff was not entitled to the reimbursement of legal fees in connection therewith. 10 And, since Plaintiff’s involvement in these investigations was not entwined with his service to the Trump Organization, indemnification was unavailable.  On appeal, the Appellate Division, First Department unanimously modified the motion court’s holding related Plaintiff’s first cause of action for breach of the contractual indemnification provision of the operating agreement – i.e. , Plaintiff’s request for the indemnification of outstanding legal fees incurred in connection with the Special Counsel and Congressional hearings, New York State Attorney General, and Manhattan District Attorney proceedings, and the proceeding related to FBI search warrants.  The Court held that Plaintiff’s “claim for outstanding legal fees incurred in connection with the Special Counsel and Congressional hearings and New York State Attorney General and Manhattan District Attorney proceedings should not have been dismissed based on the finding that those fees were not, as a matter of law, incurred by reason of the fact that he had been an employee of defendant.” 11 The Court disagreed with the motion court’s “strict[ ] the indemnification provision and conclu that plaintiff did not become involved in the investigations by reason of the fact that he was an employee of the Trump Organization, since ‘the tether’ from those investigations to the Trump Organization, as opposed to former President Trump, the Trump campaign, or other Trump ventures, too tenuous to support indemnification under section 7.2.” 12 The Court found “that, given the record evidence showing that the proceedings at issue concern , among other things, the activities of the Trump Organization, material issues of fact exist as to whether plaintiff ha established the ‘nexus or causal connection’ between the proceedings and his corporate capacity sufficient to give rise to the section 7.2 indemnification obligation for the fees incurred”. 13 The Court further held that the motion court correctly rejected Defendant’s other arguments for dismissing the claim for indemnification under Section 7.2. “Likewise”, said the Court, “claims for legal fees incurred in connection with the proceeding related to FBI search warrants used in the April 9, 2018, raids should not have been dismissed since there issues of fact as to whether the fees were incurred in reviewing the materials for privilege and confidentiality concerns of the Trump Organization and its executives.” 14 Finally, the Court held that “ ssues of fact … preclude summary dismissal of the indemnification claim based on defendant’s alleged oral agreements.” 15 Plaintiff claimed that Defendant made oral commitments to indemnify him for fees incurred in connection with the Special Counsel and Congressional proceedings that were separate and distinct from Section 7.2 of the operating agreement. The Court agreed with Plaintiff that the oral agreements modified Section 7.2 of the operating agreement and, therefore, “would apply regardless of the applicability of section 7.2”. 16 Takeaway Contractual indemnification “requires a clear expression or implication, from the language and purpose of the agreement as well as the surrounding facts and circumstances, of an intention to indemnify.” 17 Customary rules of contract interpretation are used to determine an intent to indemnify. In Cohen , the language of the operating agreement was critical to the finding that there were issues of fact precluding dismissal of Plaintiff’s claim for indemnification. In particular, the Court focused on, among other things, the “by reason of” clause of Section 7.2 of the operating agreement. As discussed, that clause served as a precondition for indemnification – it required a nexus between the underlying proceedings and the employee acting in his or her capacity as employee before indemnification would be made.  Cohen is also instructive in its refusal to interpret a contract provision too broadly or too narrowly. In the former, the Court did not read Section 7.2 so broadly as to ensnare any promise to indemnify within its ambit. As discussed, oral promises that were separate from the written obligation could stand alone as agreements that could be breached. Similarly, the Court cautioned against reading Section 7.2 to narrowly to exclude activities that could fall within that provision’s reach.  Footnotes Mas v. Two Bridges Assocs. , 75 N.Y.2d 680, 690 (1990) (internal citations omitted). Roldan v. New York Univ. , 81 A.D.3d 625, 628 (2d Dept. 2011). Beal Sav. Bank v. Sommer , 8 N.Y.3d 318, 323 (2007). Id. Id. (citing, Matter of Westmoreland Coal Co. v. Entech, Inc. , 100 N.Y.2d 352, 358 (2003)). See Roldan , 81 A.D.3d at 628 (citing, Hooper Assoc. v. AGS Computers , 74 N.Y.2d 487, 491-492 (1989)); 905 5th Assoc., Inc. v. Weintraub , 85 A.D.3d 667, 668 (1st Dept. 2011) (indemnification provisions “must be strictly construed so as to avoid reading unintended duties into them”). Israel v. Chabra , 12 N.Y.3d 158, 163 (2009) (citing, N.Y. Gen. Obligations Law §15-301(1)). Rose v. Spa Realty Assocs. , 42 N.Y.2d 338, 343 (1977); Eujoy Realty Corp. v. Van Wagner Communications, LLC , 22 N.Y.3d 413, 425 (2013). 546-552 W. 146th St. LLC v Arfa , 99 A.D.3d 117, 122 (1st Dept 2012) (where “a party is under no legal duty to indemnify, a contract assuming that obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed”). See N.Y. LLC Law §420 (prohibiting indemnification to any person “if a judgment … adverse to such … person establishes (a) that his … acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated<.> ”); see also Operating Agreement § 7.2 (requiring “such Indemnified Person acted in good faith”). Slip Op. at *1. Id. Homestore, Inc. v. Tafeen , 888 A.2d 204, 213-214 (Del. 2005); see Crossroads ABL LLC v. Canaras Capital Mgt., LLC , 105 A.D.3d 645 (1st Dept. 2013); Schlossberg v. Schwartz , 43 Misc. 3d 1224(A), 2014 N.Y. Slip Op. 50760(U), *13 (Sup. Ct., Nassau County 2014)). Slip Op. at *1-*2. Id. at *2. Id. Martins v. Little 40 Worth Assocs., Inc. , 72 A.D.3d 483, 484 (1st Dept. 2010) (quoting, Drzewinski v. Atlantic Scaffold & Ladder Co. , 70 N.Y.2d 774, 777 (1987)). 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, in “ The New York Court of Appeals Addresses the Issue of When a Mechanic’s Lien Can Be Placed on a Landlord’s Property By A Contractor Performing Work For A Tenant ,” quoting John P. Kane Co. v. Kinney , 12 Bedell 69 (1903), explained the purpose of a mechanic’s lien as follows: The object and purpose of mechanics’ lien law was to protect a person who, with the consent of the of the owner of real property, enhanced its value by furnishing materials or performing labor in its improvement, by giving him an interest therein to the extent of the value of such material or labor.  The filing of the notice of lien is the statutory method prescribed by which the party entitled thereto perfects his inchoate right to that interest. Section 3 of New York’s Lien Law , which describes who is entitled to a lien, provides: A contractor, subcontractor, laborer, materialman who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner thereof, or of his agent, contractor or subcontractor …, shall have a lien for the principal and interest, of the value, or the agreed price, of such labor …, or materials upon the real property improved or to be improved and upon such improvement, from the time of filing a notice of such lien as prescribed in this chapter…. “Lien Law § 3 should be liberally construed to secure the purpose for which it was intended, namely the protection of that class of people who perform services or supply the material for the improvement of realty….”  Claudio Perfetto, Inc., v. Waste Management of New York, LLC , 274 A.D.2d 389, 390 (2 nd Dep’t 2000) (citations omitted) (finding, however, that “mere acceptance of construction debris or waste does not constitute an “improvement” as that term is defined in Lien Law § 2(4).) Mechanic’s liens are valid only when the labor or materials supplied for the project result in permanent improvements thereto.  Section 2(4) of the Lien Law provides: The term “improvement,” when used in this chapter, includes the demolition, erection, alteration or repair of any structure upon, connected with, or beneath the surface of, any real property and any work done upon such property or materials furnished for its permanent improvement … and shall also include the reasonable rental value for the period of actual use of machinery, tools and equipment … in connection with the demolition, erection, alteration or repair of any real property…. What constitutes a “permanent improvement” to real property is an issue that is ripe for litigation. On November 3, 2022, the Appellate Division, First Department, decided Matter of W 54-7 LLC v. Intersystem S&S Corp. The respondent in W 54-7 was a subcontractor that supplied scaffolding and a sidewalk shed for “permanent repair work to the façade” of a building that was being prosecuted by the owner’s general contractor.  The subcontractor filed a mechanic’s lien when it was not paid by the contractor.  Petitioner, the building owner, successfully brought a special proceeding to vacate and discharge the mechanic’s lien and the respondent, subcontractor, appealed. The First Department affirmed the supreme court’s order discharging the mechanic’s lien finding that “the scaffold and sidewalk shed that respondent installed at the premises were temporary structures, not for the ‘permanent improvement’ of real property within the meaning of Lien Law § 2(4).”  The Court noted that the contract between the subcontractor and the contractor “expressly contemplated the eventual removal of the scaffold and sidewalk shed”. Thus, the Court held that “ lthough arguably permanent repair work to the façade of the premises necessitated the construction of the scaffold and sidewalk shed for the safety of the public ( see NY City Building Code § BC 3314.1), the structures themselves affected no permanent change to the building. The project therefore falls outside the scope of labor and materials protected under the Lien Law ( see Lien Law § 2<4> .)”  (Some 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 Jonathan H. Freiberger As discussed in prior Blog articles, property owners sometimes require access to a neighbor’s property to make repairs to their own property. Neighbors can amicably (with legal counsel or not) arrange for the requested access, which, in many cases, will involve a formal written access agreement. Neighbors are not always neighborly, however, and refuse voluntary access.  In such cases, the party requiring access can seek court ordered access pursuant to section 881 of the Real Property Actions and Proceedings Law (“RPAPL”).  here,=">here," >here=">here" and="and" >here.=">here.">   RPAPL 881 provides: When an owner or lessee seeks to make improvements or repairs to real property so situated that such improvements or repairs cannot be made by the owner or lessee without entering the premises of an adjoining owner or his lessee, and permission so to enter has been refused, the owner or lessee seeking to make such improvements or repairs may commence a special proceeding for a license so to enter pursuant to article four of the civil practice law and rules. The petition and affidavits, if any, shall state the facts making such entry necessary and the date or dates on which entry is sought. Such license shall be granted by the court in an appropriate case upon such terms as justice requires. The licensee shall be liable to the adjoining owner or his lessee for actual damages occurring as a result of the entry. Our March 4, 2022 Blog article, entitled: “ The First Department Addresses Reimbursable Fees Awardable Under RPAPL 881 ”, addressed issues relating to the reimbursement of certain costs and fees to neighbors burdened by court ordered access to their property when RPAPL 881 petitions are granted.  On October 27, 2022, however, the Appellate Division, First Department, decided Matter of 419 BR Partners LLC v. Zabar , in which the Court addressed fee shifting in cases where the respondent in a RPAPL 881 proceeding successfully opposes the petitioner’s application. The facts of 419 BR are typical.    The petitioner in 419 BR brought an RPAPL 881 proceeding after failing to obtain consensual access to a neighbor’s property “to perform renovations and expansion of the existing building.”  Petitioner moved by order to show cause to perform certain work related to the project.  In support of its motion, petitioner submitted, inter alia , an affidavit from its professional engineer indicating that the proposed plans for the project were safe and would cause “minimal intrusion” to the neighbor, respondents.  In opposition to petitioner’s application, respondents urged, inter alia , that the proposed work was unsafe in many respects and violated Building Code.  Respondents also: refuted petitioner’s claim that access was refused as the parties were engaged in negotiations and, accordingly, the proceeding was premature; that the element of necessity has not been established; and, that the failure to name a 50% owner of the respondents’ property in the proceeding required dismissal of the petition.  Respondents also counterclaimed for, inter alia , an order: declaring the rights of the parties; declaring that the proposed plans do not adequately protect respondents’ property; preliminarily restraining and enjoining petitioner from performing work that did not comply with the Building Code; and, awarding to it legal and engineering fees pursuant to RPAPL 881. Supreme court described RPAPL 881 as follows: RPAPL 881 is a statute that stands in derogation of the existing common law regarding trespass and, thus, should be read narrowly. In determining whether or not to grant a license pursuant to RPAPL 881, courts generally apply a standard of reasonableness. Moreover, courts are required to balance the interests of the parties and should issue a license when necessary, under reasonable conditions, and where the inconvenience to the adjacent property owner is relatively slight compared to the hardship of his neighbor if the license is refused.  The court then proceeded to dismiss the petition on the ground that it was procedurally improper because the proceeding was not commenced against all owners of the neighboring property. Supreme court added that had it reached the merits of the claim it would have denied the petition because: Case law is clear that before it can grant a license pursuant to RPAPL 881, it is critical that the court be apprised of the exact nature, timing and extent of the work requiring the license. Upon considering the affidavit of , this court finds persuasive that petitioner fails to establish that the plans relied upon in this proceeding adequately reflect the construction work it intends to perform on the adjoining property and that said plans address respondents' concerns regarding, among other things, the impact said construction will have on the foundation and roof of said property. Thus, this court cannot determine, based on the plans petitioner submitted, and given the subsequent changes to the same, whether the work petitioner intends to perform will result in only a slight inconvenience to respondents. Moreover, petitioner's claim that respondents have refused access is also belied by the papers in opposition to the petition, which demonstrate respondents' attempt to negotiate the terms of the agreement and seek clarification from petitioner regarding its construction plans.  In addition, respondents sought legal and engineering fees as part of their counterclaims, a claim that supreme denied.  In so doing, supreme court stated: While it is well-settled that, a property owner compelled to grant a license should not be put in a position of either having to incur the costs of a design professional to ensure petitioner's work will not endanger his property, or having to grant access without being able to conduct a meaningful review of petitioner's plans, if a respondent is successful in opposing an 881 petition and no license is granted then that respondent would not be entitled to attorneys' fees for successfully opposing the petition.  Respondents appealed to the First Department, the denial of its claim for reimbursement of engineering and attorney’s fees.  The First Department affirmed supreme court’s order.  In so doing, the Court reiterated that attorney’s fees are only recoverable by a prevailing party in litigation when “authorized by statute, agreement, or court rule” and “ o such statute, agreement, or rule exists here”.  This is the “American Rule” on recovery of legal fees.  [Eds. Note: this Blog recently discussed the recovery of attorney’s fees and the “American Rule” < here =">here"> .]   The Court also explained that there was no statutory basis for the recovery of attorney’s fees under RPAPL 881 because “the statute does not authorize an award of fees where, as here, the neighboring property owner successfully defends against the RPAPL proceeding and the court does not grant the license sought” and, accordingly, “ n the absence of any statutory authority permitting the court to grant such fees where no license has been issued, an award of legal and professional fees is not authorized.” 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 It is well settled that the scope of judicial review of an arbitration proceeding is very limited. An arbitration award will be confirmed as long as the arbitrator “offer even a barely colorable justification for the outcome reached”. 1 If any plausible basis exists for the arbitrator’s decision, a court will confirm the award. 2 Because of the significant degree of deference afforded to arbitration awards, vacatur will not be obtained when the bases for such relief are errors of law and fact committed by the arbitrator. 3 Only where the award violates a strong public policy, is totally irrational, or exceeds a specifically enumerated limitation on the arbitrator’s power will a court vacate the decision of an arbitrator. 4 On November 1, 2022, the Appellate Division, First Department decided Matter of Cavanagh v. Hayes , 2022 N.Y. Slip Op. 06081 (1st Dept. Nov. 1, 2022) ( here ). Cavanagh involved a special proceeding brought by petitioner, pursuant to CPLR § 7511(b)(1)(iii), to vacate an arbitration award that petitioner claimed was so imperfectly executed that a final and definitive award on the subject matter was not made. The dispute revolved around the ownership of F&J Realty Inc. (“F&J Realty” or the “Company”). The parties each owned fifty percent (50%) of the Company’s stock. F&J Realty’s only asset was property located in New York City. On November 7, 2010, the parties entered into a shareholder agreement (the “Agreement”) with regard to the operation of F&J Realty. The Agreement recognized that from time-to-time, it would be necessary for the parties to make capital improvements to the Property. In Section 4 of the Agreement, the parties agreed that any contributions made would be repaid before any distributions were made to the shareholders.  On May 26, 2020, petitioner commenced a plenary action against respondents, alleging, among other things, an improper partition of F&J Realty, and seeking an accounting of the Company. Respondents served an answer with counterclaims, alleging, among other things, that petitioner breached the Agreement by not contributing working capital to F&J Realty. Thereafter, respondent filed a motion to compel petitioner to make working capital contributions to F&J Realty as required under the Agreement. Petitioner cross-moved to compel arbitration pursuant to the Agreement. The motion court denied petitioner’s motion and ordered the parties to arbitrate. The demand for arbitration identified the following areas of dispute: 1) whether an accounting of F&J Realty should be awarded; 2) whether petitioner should contribute his proportionate share of the carrying costs for the Property pursuant to the Agreement; and 3) whether petitioner should contribute his proportionate share of working capital. Respondent sought $300,000.00 as reimbursement of his loans and/or contributions of working capital and/or carrying costs to F&J Realty. Prior to the arbitration, respondent submitted, among other documents, the report of Patrick A. Wrenn CPA, and a chart he prepared detailing all deposits made to F&J Realty’s bank account during the period December 7, 2018, through September 3, 2021. Based on his review of the bank statements and deposited checks, Wrenn found that respondent had deposited a substantial sum of money into F&J Realty and that petitioner had not deposited any funds during the period in question. The arbitrator held a hearing in September 2021, during which all proofs were submitted, and testimony was taken of the parties and respondent’s expert witness, Patrick A. Wrenn, CPA. Petitioner did not proffer an expert for testimony at the hearing, and did not offer any documents in rebuttal.  After having considered all evidence submitted, testimony taken, and post-hearing briefs submitted, the arbitrator issued a written opinion, whereby he awarded respondent $103,272.86, which was to be paid upon the dissolution of F&J Realty. In so ruling, the arbitrator determined that respondent had made all necessary contributions to F&J Realty in order to keep it operating and that, pursuant to Section 4 of the Agreement, he was entitled to be paid back those contributions once F&J Realty dissolved.  Petitioner sought to vacate the award, claiming that, among other things, the arbitrator exceeded his authority by disregarding the issues raised in the demand for arbitration and by basing his award on issues not that were not raised therein. The motion court confirmed the award. The motion court held that award was not irrational, imperfect or beyond the scope of the arbitrator’s authority. The motion court found that the arbitrator did what was requested in the demand for arbitration – i.e. , that he conduct an accounting by resolving the parties’ competing contentions about their net liabilities with respect to the Company. By doing so, said the motion court, the arbitrator found, based upon the evidence presented and the credibility of the parties, petitioner owed respondent $103,272.86, plus interest, with payment to be made upon dissolution of the corporation. On appeal, the First Department affirmed. The Court held that the motion court “properly confirmed the arbitration award”, finding that “it not irrational or beyond the scope of the arbitrator’s authority”. 5 The Court rejected petitioner’s argument that the arbitrator exceeded his authority by performing an accounting of the Company as such was necessary to satisfy the requirement in Section 4 of the Agreement that contributions were to be repaid before distributions: “Contrary to petitioner’s argument, the arbitrator conducted an accounting in resolving the parties’ dispute over their respective interest in respondent F & J Realty, Inc. (F & J Realty). Paragraph 4 of the shareholders agreement provides that contributions to F & J Realty made by either shareholder will be repaid before any distributions are made to the shareholders.” 6 The Court also held that the award was not irrational as it was “ ased on the shareholder agreement and an assessment of the evidence presented, including the testimony of Patrick A. Wren, a Certified Public Accountant, who reviewed the bank statements, copies of checks, and tax returns of F & J Realty, from December 7, 2018 through September 3, 2021.” 7 Takeaway Vacating an arbitration award is extremely difficult. As long as the arbitrator provides “even a barely colorable justification for the outcome reached,” the award will be confirmed. 8 The award in Cavanagh demonstrates this point. It was based upon a review of bank statements, checks, tax returns, an expert report and post-hearing briefs, as well as testimony under oath by the parties and the expert witness. The findings and the award of the arbitrator were, therefore, supported by the record and consistent with the demand for arbitration. Footnotes Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 479 (2006) (quoting, Matter of Andros Cia. Maritima, S.A. (Marc Rich & Co., A.G.) , 579 F.2.d 691, 704 (2d Cir. 1978)). Brown & Williamson Tobacco Corp. v. Chesley , 7 A.D.3d 368, 372 (1st Dept. 2004). Id. Matter of McIver-Morgan, Inc. v. Dal Piaz , 108 A.D.3d 47 (1st Dept. 2013). Slip Op. at *1 (citing, Elul Diamonds Co. Ltd. v. Z Kor Diamonds, Inc. , 50 A.D.3d 293 (1st Dept. 2008); and McIver-Morgan , 108 A.D.3d at 55). Id. Id. Wien , 6 N.Y.3d at 479. 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 On October 27, 2022, the New York Court of Appeals decided 34-06 73, LLC v. Seneca Ins. Co. , 2022 N.Y. Slip Op. 06029 (2022) (here), a case in which the Court determined the contours of CPLR § 203(f). In a unanimous decision, written by Judge Rivera, the Court held that plaintiffs’ initial complaint, alleging that defendant breached the insurance agreement between the parties, did not give defendant notice of a subsequently alleged reformation claim based upon mutual mistake as required under CPLR § 203(f).  Background Defendant issued plaintiffs a multi-million-dollar, written insurance policy covering several of plaintiffs’ vacant commercial properties. Among other things, the policy included a Protective Safeguards Endorsement (“PSE”) that required plaintiffs to, inter alia , maintain an automatic sprinkler device on the subject property. At the top of the page, the PSE stated: “THIS ENDORSEMENT CHANGES THE POLICY” and advised plaintiffs to “READ IT CAREFULLY”. It further stated that the PSE modified the commercial property coverage of the policy so that defendant would “not pay for loss or damage caused by or resulting from fire if, prior to the fire, the policyholder … new of any suspension or impairment in any protective safeguard … and failed to notify” defendant or otherwise “ ailed to maintain any protective safeguard … in complete working order.” Approximately one month after the policy went into effect, defendant’s agent conducted an inspection of the premises and issued a report to plaintiffs’ principal and sole owner advising him that there was no compliant sprinkler system on the premises and recommending that plaintiffs notify defendant of the system’s non-operability. A little more than four months later, there was a fire on the premises and plaintiffs requested payment under the policy for damages incurred. Defendant notified plaintiffs that it was denying the claim under the PSE because plaintiffs did not maintain a working sprinkler system. Thereafter, plaintiffs commenced the action against defendant for breach of contract, seeking over $2.4 million in damages based on defendant’s failure to cover the fire loss. In the complaint, plaintiffs made the following factual assertions: (1) defendant issued an insurance policy that provided property damage insurance on the covered property; (2) the fire on the premises “was a peril insured against under the Policy” which occurred “while the Policy was in full force and effect”; (3) plaintiffs complied “with all of the conditions precedent and subsequent pursuant to the terms of the subject policy”; and (4) defendant failed to indemnify plaintiffs for the property damage. In its answer, defendant admitted that it issued the referenced policy and had not made payment thereunder. Defendant raised several affirmative defenses, including one based on the PSE, asserting that, because plaintiffs failed to maintain the sprinkler system as required by the policy, they were not covered for the fire damage. Following discovery, plaintiffs moved to dismiss the affirmative defense concerning the PSE, arguing that defendant was aware that there was no functioning sprinkler system – as specifically noted in the inspection report – and thus waived its right to disclaim coverage based on the PSE because it neither followed up to confirm whether an operational system was installed nor cancelled the policy. Defendant cross-moved for summary judgment on its PSE-based affirmative defense. The trial court denied the motions, concluding there were triable issues of fact as to waiver and there was conflicting evidence as to whether the sprinkler system was operational at the time of the fire. At trial, for the first time, plaintiffs argued that the written policy did not reflect the parties’ agreement. Plaintiffs’ owner testified that he told his insurance broker that he did not want the policy to include a protective safeguard endorsement because the properties were vacant buildings or lots, and most did not have sprinklers. However, he admitted that he did not read the insurance policy. Defendant’s Vice President of Underwriting testified that an underwriting file disclosed during discovery did not contain documents referencing the PSE or the sprinkler system, that the premiums quoted for the Policy were for a non-sprinklered building, and that the inclusion of the PSE may have been a mistake. After plaintiffs rested, they orally moved to amend the complaint to conform the pleadings to the proof by adding a claim for reformation. The trial court reserved decision on the motion. At the charge conference, defendant opposed the proposed amendment, arguing that the reformation claim was time-barred and futile. The trial court granted plaintiffs’ motion, concluding that the claim related back to the complaint because it was “part of the whole thrust of the complaint originally” and the jury should decide whether the PSE’s inclusion resulted from a mutual mistake. Thus, in addition to charging the jury on the question of whether plaintiffs maintained a sprinkler system as required by the policy, the trial court also charged the jury on reformation, waiver, and estoppel. Although the jury rejected plaintiffs’ waiver and estoppel arguments and found that plaintiffs did not prove due diligence in maintaining an automatic sprinkler system on the premises at the time of the fire, the jury returned a verdict in favor of plaintiffs on the reformation claim, finding that plaintiffs established by clear and convincing evidence that the parties’ true agreement was a policy without a PSE and it was a mutual mistake to include the PSE in the policy. Defendant moved to set aside the reformation portion of the verdict pursuant to CPLR § 4404(a) and for judgment in defendant’s favor on the grounds that the reformation claim was untimely and, although plaintiffs did not formally move to amend pursuant to CPLR § 3025, the claim did not relate back to the original complaint. Defendant maintained that the complaint alleged only nonperformance and contained no indication that the contract failed to reflect the parties’ intent. Defendant also asserted surprise and prejudice because, had plaintiffs questioned the contract’s terms earlier, defendant would have deposed plaintiffs’ insurance broker and the underwriter (before the underwriter became unavailable years into the litigation).  The trial court denied the motion, reasoning that plaintiffs had relied on the same trial evidence to support the breach of contract and reformation claims, and that “reformation was a variation on the theory of breach of contract.” The trial court also noted that defendant failed to turn over the underwriting file until nearly five years after the complaint was filed and thus had no grounds to complain. The Appellate Division, First Department affirmed the judgment in the plaintiffs’ favor, holding that the trial court providently granted plaintiffs’ application to conform the pleadings to the trial evidence to assert a claim for reformation. 1 The Court concluded that the reformation claim was not barred by the statute of limitations because it related back to the complaint and the waiver and estoppel claims. 2 The Court also concluded that the PSE was “at the heart of the litigation from the outset and the same evidence” supporting plaintiffs’ waiver argument supported reformation. 3 The Court further concluded that defendant was not prejudiced since it had the underwriting file in its possession and failed to timely produce it. 4 The Court granted defendant leave to appeal and reversed the First Department’s order. The Court’s Holding As an initial matter, the Court noted that there was no dispute that the statute of limitations on the reformation claim had expired when plaintiffs sought to amend their complaint. Therefore, the resolution of the appeal turned on whether the claim related back to the original pleading.  To decide the relation back issue, the Court explained that to determine whether the reformation “claim asserted in amended pleading deemed to have been interposed at the time the claims in the original pleading were interposed”, it would have to determine whether the original complaint gave defendant “notice of the transactions, occurrences, or series of transactions or occurrences, to be proved pursuant to the amended pleading”. 5 Thus, explained the Court, “plaintiffs” reformation claim relate back to the original complaint – and is thus not barred by the statute of limitations – only if the complaint placed defendant on ‘notice of the transactions, occurrences, or series of transactions or occurrences, to be proved’ in support of that claim.” 6 In determining the notice issue, the Court held that the lower courts are to focus solely on the four corners of the original pleading:  As a threshold matter, Supreme Court and the Appellate Division should not have looked beyond the four corners of the original pleading to determine whether defendant was on notice of transactions or occurrences underlying plaintiffs' reformation claim. Section 203 (f) requires the court to determine solely whether a plaintiff’s or a defendant’s original pleading gives notice of the transactions or occurrences underlying the proposed amendment ( see CPLR 203 ). Whether the same trial evidence supports both the breach of contract and reformation claims or whether defendant here failed to produce the underwriting file in a timely fashion are irrelevant to the notice issue. Similarly, matters unearthed during discovery have no bearing on whether an untimely claim relates back under section 203 (f). 7 The Court noted that while “discovery might alert the moving party that it could or must amend the complaint or answer to protect its litigation position or prevent extinguishment of a claim as time-barred, … such discovery does not shed light on whether the original pleading provides notice of transactions or occurrences to be proved in support of a new claim for recovery.” 8 “While some of these observations might be relevant to consideration of prejudice under CPLR 3025,” said the Court, “they do not inform the analysis under CPLR 203(f).” 9 After discussing the pleading requirements for breach of contract 10 and reformation, 11 the Court turned its attention to whether plaintiffs’ original complaint gave defendant notice of the reformation claim. It concluded that plaintiffs “failed to give notice to defendant of the transactions or occurrences on which plaintiffs base their reformation claim.” 12 The Court explained that the initial complaint only referenced a breach of contract claim, which, the Court said, was evidenced by plaintiffs’ allegation that they complied “with all of the conditions precedent and subsequent pursuant to the terms of the subject policy.” 13 In their original complaint, plaintiffs reference a specific written policy which they identified as the parties’ agreement and which they allege defendant breached. The complaint further alleges that plaintiffs complied “with all of the conditions precedent and subsequent pursuant to the terms of the subject policy.” This latter allegation is fatal to plaintiffs’ assertion that the complaint provides notice of the transactions or occurrences to be proved in support of a reformation claim. In fact, if anything, it suggests the opposite because, by asserting total compliance, plaintiffs necessarily disclaimed any challenge to the policy’s terms, specifically the PSE. 14 The Court further explained that the timing of the claimed mistake did not support the reformation claim because the alleged mistake preceded the policy’s formation:  Moreover, plaintiffs based their allegation that the parties included the PSE by “mistake” on assertions at trial that Malik instructed his broker to exclude the sprinkler requirement before the parties finalized the written policy, and the lack of documentation for a PSE in the underwriting file. Therefore, the reformation claim, as advanced by plaintiffs, was based on a purported oral agreement negotiated by Malik with the broker that preceded the contract’s formation, whereas the breach of contract claim in the original complaint was based on the written policy which includes the PSE and with which plaintiffs alleged full compliance. 15 The Court concluded that “nothing in the stand-alone breach of contract claim put defendant on notice that there was a prior oral agreement that excluded the PSE and that the PSE’s inclusion in the written policy was a mistake.” 16 “Simply put,” said the Court, “‘the transactions or occurrences, or series of transactions or occurrences, to be proved pursuant to the amended pleading’ did not give notice of reformation because they are factually distinct and discordant from plaintiffs’ allegation of a breach of the written policy (CPLR 203 ).” 17 Finally, the Court cautioned the lower courts that determining the contours of CPLR 203(f) should be consistent with the Court’s liberal pleading standards: “To be clear, the transactions and occurrences underlying a breach of contract claim do not perforce give notice of the transactions or occurrences underlying a claim of reformation based on mutual mistake, and vice versa.” 18 Indeed, noted the Court, “an original pleading alleging that a party failed to perform in accordance with the written agreement might supply sufficient notice of the transactions or occurrences to be proved in support of reformation.” 19 However, said the Court, “ hat is not the case here, where plaintiffs’ complaint foreclosed a factual or inferential basis for such notice by unqualifiedly alleging that they ‘complied with all of the conditions precedent and subsequent pursuant to the terms of the subject policy,’ which the complaint referenced explicitly as the written policy.” 20 In the end, observed the Court, “ he complaint contained no alternate theory of recovery or factual allegations based on pre-formation transactions or occurrences. The complaint therefore put defendant on notice of transactions or occurrences related solely to the written policy and plaintiffs’ total compliance with that agreement’s terms, which include the PSE's sprinkler requirement.” Accordingly, the Court reversed the First Department’s order, denied plaintiffs’ motion to amend the complaint to include a reformation cause of action, and remitted the case to the trial court for entry of a judgment in accordance with its opinion. Footnotes 190 A.D.3d 628, 629 (1st Dept. 2021) (citing, CPLR § 3025(c)). Id. Id. Id. at 630. Slip Op. at *3. Id. Id. Id. Id. Id. , noting that to plead a cause of action for breach of contract, a plaintiff must allege that: (1) a contract exists ( see , e.g. , Mandarin Trading Ltd. V. Wildenstein , 16 N.Y.3d 173, 181-182 (2011); (2) plaintiff performed in accordance with the contract (see , e.g. , Pope v. Terre Haute Car & Mfg. Co. , 107 N.Y. 61, 65-66 (1887); (3) defendant breached its contractual obligations ( see Barker v. Time Warner Cable, Inc. , 83 AD3d 750, 751 (2d Dept. 2011); and (4) defendant’s breach resulted in damages ( see Biotronik A.G. v Conor Medsystems Ireland, Ltd. , 22 N.Y.3d 799, 805-806 (2014) (compensatory damages); Kronos, Inc. v. AVX Corp. , 81 N.Y.2d 90, 95 (1993) (nominal damages); Milan Music, Inc. v. Emmel Communications Booking, Inc. , 37 A.D.3d 206, 206 (1st Dept. 2007). Id. , noting that to plead reformation, a plaintiff must allege sufficient facts supporting a claim of mutual mistake, meaning that “the parties have reached an oral agreement and, unknown to either, the signed writing does not express that agreement”. Chimart Assoc. v. Paul , 66 N.Y.2d 570, 573 (1986). Given the “heavy presumption that a deliberately prepared and executed written instrument manifests the true intention of the parties, … he proponent of reformation must show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties”. Chimart , 66 N.Y.2d at 574 (cleaned up). Id. Id. (internal quotation marks omitted). Id. Id. Id. Id. Id. Id. 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.

Melville, NY October 28, 2022 – Freiberger Haber LLP is pleased to announce that co-founding partners, Jonathan H. Freiberger and Jeffrey M. Haber, have been named by Super Lawyers magazine to be among the top lawyers in the New York metropolitan area. This is Mr. Freiberger’s third, and Mr. Haber’s eleventh, consecutive year of selection. Both Messrs. Freiberger and Haber were recognized for their work in business and commercial litigation. Super Lawyers Magazine® is an affiliate of Thomson Reuters. It recognizes attorneys who have distinguished themselves by both a high degree of professional achievement and by peer recognition. Each year no more than 5 percent of lawyers are recognized as Super Lawyers by the magazine. The annual selection involves a survey of lawyers, independent research evaluation of candidates, and peer reviews within each practice area. The magazine publishes its lists nationwide, as well as in leading city and regional magazines and newspapers across the country. A description of the selection process can be found on the Super Lawyers website. About Freiberger Haber LLP Located in New York City and Melville, Long Island, Freiberger Haber LLP is dedicated to representing corporations, small businesses, partnerships and individuals in a broad range of complex business, securities, construction and commercial litigation matters. Founded by Jonathan H. Freiberger and Jeffrey M. Haber, Freiberger Haber applies more than 60 years of combined experience to deliver sophisticated and creative representation to its clients. The firm’s approach is results oriented and client-centric, providing clients with the sophisticated counsel expected from larger firms with the flexibility and agility of a small firm. ATTORNEY ADVERTISING. © 2022 Freiberger Haber LLP. The law firm responsible for this advertisement is Freiberger Haber LLP, 425 Broadhollow Road, Suite 416, Melville, New York 11747, (631) 282-8985. Prior results do not guarantee or predict a similar outcome with respect to any future matter. Contact Jeffrey M. Haber or Jonathan H. Freiberger Freiberger Haber LLP

By: Jeffrey M. Haber In past articles, we have examined a motion under CPLR § 3213 ( see , e.g. , here , here , here , and here ). CPLR § 3213 is a procedural mechanism that allows a party to make a motion for summary judgment before filing a complaint in actions based upon “an instrument for the payment of money only or a judgment.” The purpose of the statute “is to provide an accelerated procedure where liability for a certain sum is clearly established by the instrument itself.” 1 CPLR § 3213 is a device that “for the limited matters within its embrace, melded pleading and motion practice into one step, allowing a summary judgment motion to be made before issue was joined.” 2   The provision is “intended to provide a speedy and effective means of securing a judgment on claims presumptively meritorious … a formal complaint is superfluous and even the delay incident upon waiting for an answer and then moving for summary judgment is needless.” 3 “The prototypical example of an instrument within the ambit of is of course a negotiable instrument for the payment of money – an unconditional promise to pay a sum certain, signed by the maker and due on demand or at a definite time.” 4 Generally, CPLR § 3213 is used to enforce “some variety of commercial paper in which the party to be charged has formally and explicitly acknowledged an indebtedness,” so that “a prima facie case would be made out by the instrument and a failure to make the payments called for by its terms.” 5 A promissory note may qualify as such an instrument, 6 so long as the plaintiff submits proof of the existence of the note and of the defendant’s failure to make payment. 7 Such proof must be in admissible form sufficient to establish the absence of any material, triable issues of fact. 8 However, “ here the instrument requires something in addition to defendant’s explicit promise to pay a sum of money, CPLR 3213 is unavailable.” 9 A plaintiff’s prima facie proof “cannot be drawn from sources outside the agreement itself.” 10 Once the movant meets this burden, it becomes incumbent upon the party opposing the motion to come forward with proof in admissible form to raise a triable issue of fact. 11 On October 21, 2022, the Supreme Court, New York County (Lebovits, J.), decided Irwin Funding, LLC v. Dexter Young Cattle Feeding , 2022 N.Y. Slip Op. 51035(U) (Sup. Ct., N.Y. County Oct. 21, 2022) ( here ), a case involving a merchant cash advance agreement. As discussed below, the court held that the agreement did not fall within the scope of CPLR § 3213. Irwin involved an action to collect on sums allegedly owed under a merchant cash advance agreement and guarantee. Plaintiff, Irwin Funding, LLC, moved under CPLR § 3213 for summary judgment in lieu of complaint against defendants Dexter Young Cattle Feeding (“Merchant”) and Dexter Young individually (“Guarantor”). The court denied the motion, even though it was unopposed. The court held that the merchant cash advance agreement between plaintiff and Merchant was not an instrument for the payment of money only because “ t impose many performance obligations on Merchant, not merely an unconditional promise to pay money.” 12 The court found that “plaintiff’s stated basis for relief was not a failure by Merchant to pay money as promised. Rather, it was a breach of the non-monetary contractual requirement to give advance notice to plaintiff should the funds in Merchant’s account drop too low to cover plaintiff’s daily receivables withdrawals.” 13 Accordingly, said the court, “establishing plaintiff’s claim against Merchant would require proof beyond the instrument itself and simple proof of nonpayment.” 14 The court also held that “Guarantor’s guarantee not an instrument for the payment of money only.” 15 The court found that the guarantees at issue were “not unconditional, and Guarantor responsible both for payment and performance.” 16 Accordingly, said the court, “Plaintiff rely on CPLR 3213 to obtain judgment based on these guarantees.” 17 Takeaway As noted, to obtain judgement as a matter of law pursuant to CPLR § 3213, the movant must demonstrate that its “action is based upon an instrument for the payment of money only or upon any judgment.” When the former is involved, the movant must demonstrate that the other party executed an instrument that contains an unequivocal and unconditional promise to pay the party upon demand or at a definite time and the party failed to pay according to the terms of the instrument. The instrument and evidence of failure to make payments in accordance with terms of the subject instrument constitute a prima facie case for summary judgment. Only where a defendant can raise questions of fact that the agreement or guarantee is not an instrument for the payment of money, or where the instrument requires something in addition to the defendant’s explicit promise to pay a sum of money, as in Irwin , is CPLR § 3213 unavailable. Footnotes G.O.V. Jewelry, Inc. v. United Parcel Serv. , 181 A.D.2d 517, 517 (1st Dept. 1992). Weissman v. Sinorm Deli, Inc. , 88 N.Y.2d 437, 443 (1996).  Interman Indus. Products, Ltd. v. R.S.M. Electron Power, Inc. , 37 N.Y.2d 151, 154 (1975) (citations and internal quotation marks omitted). Weissman , 88 N.Y.2d at 443-44 (citations, internal quotation marks and footnote omitted). Interman Indus. Prods., Ltd. , 37 N.Y.2d at 154-155 (1975). “An unconditional guaranty is an instrument for the payment of money only within the meaning of CPLR 3213.” Cooperatieve Centrale Raiffeisen Boerenleenbank, B.A. v. Navarro , 25 N.Y.3d 485, 492 (2015). See Bonds Fin’l, Inc. v. Kestrel Techs., LLC , 48 A.D.3d 230 (1st Dept. 2008); Seaman-Andwall Corp. v. Wright Machine Corp. , 31 A.D.2d 136 (1st Dept. 1968). See CPLR § 3212(b); Jacobsen v. New York City Health & Hosps. Corp. , 22 N.Y.3d 824 (2014); Alvarez v. Prospect Hosp. , 68 N.Y.2d 320 (1986); Zuckerman v. City of New York , 49 N.Y.2d 557 (1980). Weissman , 88 N.Y.2d at 444. Rhee v. Meyers , 162 A.D.2d 397, 398 (1st Dept. 1990); see Ian Woodner Family Collection, Inc. v. Abaris Brooks, Ltd. , 284 A.D.2d 163 (1st Dept. 2001). See Alvarez v Prospect Hosp. , supra ; Zuckerman , supra . Slip Op. at *1. Id. at *1-*2. Id. at *2. Id. Id. 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: Jeffrey M. Haber Tasty Minstrel Games LLC (“TMG”) is a company, located in Utah, that produces board games.1 The best-known game released by TMG is Yokohama, a board game that takes place in the Meiji era of Japanese history. Another game that TMG produces is “Ponzi Scheme”. In Ponzi Scheme, players try to trick each other into funding fraudulent investments with the promise of extremely high returns. Like a real Ponzi scheme, the scheme works as long as new investors keep the scheme afloat. No doubt Ponzi Scheme, the game, is entertaining and fun to play with friends. But in real life, a Ponzi scheme is not a game. When the scheme collapses, people lose money. A Primer on a Ponzi Scheme In the early 20th century, Charles Ponzi invented the fraud that bears his name. Ponzi devised a scheme in which he convinced investors that they would receive a 40% to 50% return on their investment in International Postal Reply Coupons (IPRCs) within 90 days. Early investors received payouts as promised because Ponzi was using funds from later investors to give the promised payouts to earlier investors. The fraud continued to grow, as more and more investors, lured by stories of huge payouts, invested their money in IPRCs. Eventually, the scheme collapsed, but not before investors paid Ponzi several million dollars – which in the early 20th century was a significant amount of money. Present day Ponzi schemes operate in essentially the same way as their namesake. Early investors, lured by promises of huge payouts in a short amount of time, invest large sums of money in the investment the perpetrator is selling. The scammer may be offering investments in real estate, natural resources (i.e., oil or natural gas reserves), or any other type of investment the perpetrator can dream up. The hallmark of a successful Ponzi scheme is that early investors will receive their payouts as promised. Early investors spread their tales of success to unwittingly urge new investors to buy into the scam. Ponzi schemes may continue to grow for several months, or possibly several years, before new money dries up, and the scheme collapses. SEC v. National Realty Investment Advisors LLC On October 13, 2022, the Securities and Exchange Commission (“SEC”) announced (here) that it charged New Jersey-based National Realty Investment Advisors LLC (“NRIA”) and four of its former executives with running a Ponzi-like scheme that raised approximately $600 million from about 2,000 investors, including 382 retirees. In its complaint (here), the SEC alleged that beginning in 2018, NRIA and its executives raised funds by promising investors their money would be used to buy and develop real estate properties, which would generate profits through a fund that NRIA set up to invest in the projects. NRIA’s executives, four of whom were named in the complaint, solicited investors in a nationwide campaign promising returns of up to 20 percent. In reality, alleged the SEC, investor money was used to pay distributions to other investors, to fund an executive’s family’s personal and luxury purchases, and to pay reputation management firms to thwart investors’ due diligence of the executives. “In classic Ponzi fashion, these defendants allegedly told investors that they would be paid distributions from profits of their fund when, in reality, payments were being made from the investors’ own funds,” said Thomas P. Smith, Jr., Associate Regional Director of Enforcement in the SEC’s New York Regional Office. “What makes this behavior even more callous is that they allegedly took advantage of 382 retirees who had contributed more than $94 million in savings.” In addition, the SEC alleged that NRIA manipulated the real estate fund’s financial statements and the financial information in marketing material distributed to investors, intentionally disguising the misuse of investor funds and creating the false appearance that NRIA and the fund were generating more revenue than they actually were and that operations were successful. However, said the SEC, NRIA had little to no revenue, and it and the fund filed for Chapter 11 bankruptcy protection on June 7, 2022. The SEC filed its complaint in federal court in New Jersey (here). The SEC charged NRIA and the four former executives with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The complaint seeks injunctions against future violations of the antifraud provisions, disgorgement of ill-gotten gains plus prejudgment interest, penalties, and officer and director bars against the four executives, and names two additional persons as relief defendants. In June of this year, the New Jersey Bureau of Securities issued a cease and desist order to NRIA in connection with the alleged scheme (here). Commenting on the order, Matthew J. Platkin, Acting Attorney General, stated: “The fraudulent conduct identified by our Bureau of Securities in this case is striking. Today, we are taking action to stop their unlawful conduct and to put the public on notice. If an investment opportunity promising high guaranteed returns sounds too good to be true, it usually is.” “The conduct outlined in today’s filing is egregious. It’s the very kind of conduct that undermines public confidence in our financial institutions and – ultimately – in investing,” said Acting Bureau of Securities Director Amy G. Kopleton. “These respondents offered investors a securities opportunity that sounded too good to be true, and it was.” Takeaway If it sounds too good to be true, it probably is. Perpetrators of Ponzi schemes usually guarantee high returns in a short amount of time. Legitimate investments always involve risk, especially in a volatile economic environment, such as the one that investors are currently experiencing. Investors should beware of promoters who do not provide clear explanations of how the investment works, or who refuse to provide detailed information about the investment in writing. It is very important that investors understand the details of their investments and how their money will be used or invested. Additionally, promoters will try to rush investors into investing in the scheme. If a promoter is trying to rush an investor into investing with promises of huge returns “but only if you act now,” the best thing to do is walk away. See,="See," e.g.,="e.g.," here,=">here," >here=">here" and="and" >here.=">here."> Footnote Last summer, TMG advised people who purchased company stock that it was in “virtual bankruptcy”, leading to staff layoffs and a halt to game development. The company said that it does not expect to produce any new games for the next “two to three years”. 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 As discussed previously in this Blog < here =">here"> , the first question asked by a potential client when consulting about a new litigation matter is “can we sue them for our legal fees.”  Clients are often dismayed to learn that attorney’s fees are not generally recoverable in litigation under the “American Rule,” because “ n the United States, the prevailing litigant is ordinarily not entitled to collect a reasonable attorney fee from the loser.”  Alyeska Pipeline Services Co. v. Wilderness Society , 421 U.S. 240, 247 (1975) (providing a historical perspective on the awarding of attorneys’ fees in Federal Court litigation); see also , Mighty Midgets, Inc. v. Centennial Ins. Co. , 47 N.Y.2d 12, 21-22 (1979).  The “American Rule” “reflects a fundamental legislative policy decision that, save for particular exceptions or when parties have entered into a special agreement, it is undesirable to discourage submission of grievances to judicial determination and that, in providing freer and more equal access to the courts, the present system promotes democratic and libertarian principles.”  Mighty Midgets , 47 N.Y.2d at 22 (citations omitted).  On October 20, 2022, the New York Court of Appeals, in Sage Systems, Inc. v. Liss , reaffirmed the strength of the principles behind the “American Rule” regarding shifting of attorney’s fees in litigation.  The parties in Sage Systems were partners in a real estate matter and their partnership agreement provided, inter alia :  The Partnership and the other Partners shall be indemnified and held harmless by each Partner from and against any and all claims, demands, liabilities, costs, damages, expenses and causes of action of any nature whatsoever arising out of or incidental to any act performed by a Partner which is not performed in good faith or is not reasonably believed by such Partner to be in the best interests of the Partnership and within the scope of authority conferred upon such Partner under this Agreement, or which arises out of the fraud, bad faith, willful misconduct or negligence of such Partner. Decades after the entering into the partnership, defendant brought an unsuccessful dissolution proceeding.  Thereafter, plaintiff commenced the underlying action seeking to collect from defendant the attorney’s fees and costs expended in defending the dissolution proceeding.  Supreme court granted plaintiff’s motion for summary judgment and denied defendant's cross-motion for summary (in which defendant argued that “the partnership agreement did not provide for attorney's fees and did not apply to actions between the partners”).  In so doing, supreme court agreed with plaintiff that the broad indemnification clause in the partnership agreement covered legal fees.  Supreme court’s order was affirmed by the Appellate Division and the Court of Appeals granted leave to appeal. Plaintiff argued that “the indemnification provision's broad, unrestrictive language demonstrates the parties' clear intent to provide attorney's fees related to direct claims between them”, but the Court of Appeals disagreed.  The Court of Appeals explained: Under the American Rule, attorney's fees are incidents of litigation and a prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties, statute or court rule. The American Rule is intended to increase free access to the courts for those who would otherwise be discouraged from seeking judicial redress of wrongs for fear of having to pay a defendant's attorney's fees. The Rule was originally derived from federal legislation passed in 1853 which recognized that losing litigants were being unfairly saddled with exorbitant fees.  While the Court recognized that the American Rule is “straightforward”, it also recognized that “in the context of private agreements to avoid the Rule, courts have had to determine the intent of vague fee-shifting language and broad indemnification provisions that do not explicitly allow for the prevailing party in an action between contracting parties to collect attorney's fees.”  (Citating cases.)  The Court, however, criticized those cases that “presume that broadly worded indemnification provisions … are intended to cover attorney’s fees” because “they deviate from this Court’s exacting standard that the agreement must contain ‘unmistakably clear’ language of the parties’ intent to encompass such actions.”  (Citing Hooper Assoc. v. AGS Computers , 74 N.Y.2d 487, 492 (1989).) The subject indemnification provision, the Court noted, makes no mention of the recoupment of attorney’s fees.  Indeed, the Court found that “nothing in the provision nor the agreement as a whole makes ‘unmistakably clear’ that the partners intended to permit recovery for attorney's fees in an action between them on the contract.” (Citing Hooper , 74 N.Y.2d at 487.)  Finally, the Court advised that: Parties must determine how best to articulate their agreement to ensure their intentions are clear. However, inclusion of clear language stating that the prevailing party is entitled to recover attorney's fees in an action between the parties would avoid potential litigation on the issue. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey Haber In prior articles, we have talked about the importance of saying what you mean in a contract. ( E.g. , here and here .) When contracts are clear and unambiguous, the meaning ascribed to the words used therein will be enforced because they reflect the intent of the parties. Such was the case in Padron v. Granite Broadway Dev. LLC , 2022 N.Y. Slip Op. 05798 (1st Dept. Oct. 18, 2022). In Padron , plaintiff claimed that he sustained injuries when he slipped and fell on a watery condition on a stairwell landing while transporting steel handrails at a construction project. Defendant, Granite Broadway Development LLC (“Granite”), owned the property under construction and had retained Defendant, CNY Builders 1717 LLC’s (“CNY”), as the construction manager. Transcontinental Contracting, Inc. d/b/a Transcontinental Steel (“Transcontinental”), plaintiff’s employer, was the steelwork contractor. The watery condition was believed to be caused by a burst pipe of another contractor. Plaintiff sought damages for the injuries sustained from his fall based on Labor Law §§ 200, 240(1), and 241(6) and negligence. Following discovery, Granite and CNY moved for summary judgment, claiming that, inter alia , Transcontinental had a contractual obligation to indemnify them and summary judgment dismissing Transcontinental’s counterclaims for common-law indemnification and contribution against Granite. The motion court granted Granite’s motion for contractual indemnification against Transcontinental and summary judgment dismissing Transcontinental’s counterclaims for common-law indemnification and contribution against it and denied Transcontinental’s motion for summary judgment dismissing Granite and CNY’s contractual indemnification claims against it. On appeal, the Appellate Division, First Department modified the order to deny Granite’s motion for summary judgment on its contractual indemnification claim against Transcontinental, and otherwise affirmed. We examine the Court’s holding with regard to the contractual indemnification claim. The Court held that Granite was not entitled to summary judgment on its contractual indemnification claim against Transcontinental. 1 The contracts referred to were trade contracts that the parties signed. Those contracts provided that Transcontinental was to indemnify Granite and CNY to the fullest extent permitted by law.  In Paragraph 16.02 of the agreement, the “Trade Contractor” was required, “ o the fullest extent permitted by law” to “defend, indemnify and hold harmless, the Owner, Construction Manager and Additional Insureds from and against all claims … and/or liabilities arising out of the Trade Contractor’s Work provided that any such claim, damage, loss and/or expense is attributable to bodily injury ….”  In Paragraph 16.03 of the agreement, the “Trade Contractor” was required, “ o the fullest extent permitted by law” to “defend, indemnify and hold harmless the Owner, Construction Manager and Additional Insureds from and against all claims … and/or liabilities arising out of or in any way connected with or incidental to, the performance of the Work by Trade Contractor, its Subcontractors, suppliers, materialmen and/or vendors of any tier including anyone directly or indirectly employed by any of them and for whose acts they may be liable”. The First Department found that “ lthough plaintiff’s accident triggered the broadly worded provisions in paragraphs 16.02 and 16.03 of the agreement requiring Transcontinental to provide indemnification for all claims ‘arising out or in any way connected with or incidental to’ Transcontinental’s work, and refer to both the Construction Manager and the Owner, that provision not apply to Granite.” 2 The Court noted that the “Standard Trade Contract with Transcontinental, in Article 1, titled ‘Definitions’ subsection (k) define ‘Owner’ to ‘mean the persons or entities identified as the Owner on the cover page of th Agreement, and include any heir, legal representative, successor or assign of such specified Owner.’” 3 The Court went on to note that the “cover page of the Agreement only name ‘CNY Builders 1717 LLC’ and ‘Transcontinental Steel’”. 4 Thus, concluded the Court, “Granite not named on the cover page or otherwise identified as ‘Owner’ anywhere in the contract” and could not claim a contractual obligation to indemnify. 5 “Furthermore”, said the Court, “although Exhibit K annexed to the contract titled ‘Final Release and Waiver of Lien’ identified Granite as the ‘Owner’ and CNY as the ‘Construction Manager,’ it not identify Transcontinental as the ‘Trade Contractor’, and is unsigned and un-dated, creating an issue of fact as to whether the parties intended to be bound by its provisions.” 6 Takeaway Padron underscores the fundamental principle of contract interpretation – i.e. , contracts are to be construed pursuant to the parties’ intention. When the parties’ writing is clear and unambiguous on its face – that is, the terms are reasonably susceptible to only one meaning – it should be enforced according to the plain meaning of those words. In Padron , the Court concluded that the terms of the trade agreements were clear and unambiguous. The agreements did not apply to Granite because “Granite not named on the cover page or otherwise identified as ‘Owner’ anywhere in the contract”. Since the indemnification provisions under those agreements related to the obligations of the “Owner”, Granite could not claim contractual indemnification under those agreements. Footnotes Slip Op. at *1. Id. (citing, Tonking v. Port Auth. of N.Y. & N.J. , 3 N.Y.3d 486, 490 (2004); Nicholson v. Sabey Data Ctr. Props., LLC , 160 A.D.3d 587 (1st Dept. 2018); Crimi v. Neves Assoc. , 306 A.D.2d 152, 153 (1st Dept. 2003)). Id. at *1-*2. Id. at *2. Id. Id. (citing, Dwyer v. Cenral Park Studios, Inc. , 144 A.D.3d 552, at 552-553 (1st Dept. 2016)). 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 The voluntary payment doctrine bars recovery of payments voluntarily made with full knowledge of the facts, and in the absence of fraud or material mistake of fact or law. 1 Notably, there is a presumption that payments are voluntary. 2 Thus, to rebut the presumption, the plaintiff must show that he/she protested the payment. In order for a protest to be effective, it must be in writing and (with some exceptions, as discussed below) made at the time of payment. 3 The doctrine was first introduced in Lesster v. City of New York , 33 A.D. 350 (1st Dept. 1898). There, the Court recognized that “ voluntary payment of money under a claim of right cannot in general be recovered back.” “To warrant such recovery”, explained the Court, “there must be a compulsion, — actual, present, potential, — and the demand must be illegal.” Thus, “ n the absence of such compulsion a mere protest is not sufficient. The element of coercion is essential to the right.” From that discussion, the Court established the rule that forms the basis for the doctrine: “ f a party, with full knowledge of all the facts, voluntarily pays money in satisfaction of a demand made upon him, he cannot afterwards allege such payment to have been unjustly demanded, and recover back the money.” The plaintiff in Lesster was a property owner in New York City who paid real property taxes without knowing that the subject property had been condemned and acquired by the City for a street widening project. When the City refused to return the tax payment, Lesster sued and prevailed in light of the mistake. In Gimbel Brothers, Inc. v. Brook Shopping Centers, Inc. , 118 A.D.2d 532 (2d Dept. 1986), the plaintiff leased a retail store from the defendant. The lease was drafted when New York’s “Sunday Blue Laws” prohibited businesses from operating on Sunday. After the “Blue Laws” were declared unconstitutional, defendant started invoicing Gimbel Brothers $10.00 per week as a “Sunday charge”.  The charge was later increased to $825.00 and Gimbel Brothers paid a total of $19,800.00 in such charges before stopping payment. The lease did not provide for “Sunday charges”. Gimbel Brothers commenced suit against its landlord seeking, inter alia , a declaration that it could offset the previously made “Sunday charges” against future rents. Relying on the voluntary payment doctrine , the Court held that the “Sunday charges” should not be returned, stating: Indeed, we find that the weight of the evidence supports the conclusion that Gimbels was not operating under an actual mistake of law but, instead, made the subject payments voluntarily, as a matter of convenience, without having made any effort to learn what its legal obligations were….When a party intends to resort to litigation in order to resist paying an unjust demand, that party should take its position at the time of the demand, and litigate the issue before, rather than after, payment is made.  Gimbels displayed a marked lack of diligence in determining what its contractual rights were, and is therefore not entitled to the equitable relief of restitution. In Dillon v. U-A Columbia Cablevision , 100 N.Y.2d 525 (2003), plaintiff brought a putative class action lawsuit against her cable provider alleging that a $5 late fee/administrative fee was an impermissible penalty and that she would not have made the payments “had she known the true facts”.  Agreeing with “both lower courts that the voluntary payment doctrine bar plaintiff’s complaint,” the Court of Appeals found: Here, no fraud or mistake is alleged in that, according to the complaint, plaintiff knew she would be charged a $5 late fee if she did not make timely payment.  Alleged mischaracterization of a $5 late fee as an administrative fee does not overcome application of the voluntary payment doctrine. More recently, in Overbay, LLC v. Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. , 185 A.D.3d 707 (2d Dept. 2020), the Appellate Division, Second Department affirmed the dismissal of a complaint under the doctrine. Overbay owned property that it intended to develop.  The defendant was a lender that held a mortgage on the property. When Overbay defaulted under its loan, defendant commenced a mortgage foreclosure proceeding. The mortgage provided that the defendant was entitled to recoup its legal fees from Overbay in the event foreclosure proceedings were commenced. While the motion court granted the defendant’s motion for a judgment of foreclosure and sale, the quantum of legal fees to which the defendant was entitled had to be determined at a hearing. Prior to the hearing, Overbay exercised its right of redemption (the right to pay off the debt prior to the foreclosure sale). Overbay demanded a pay-off letter in order to “satisfy the judgment with the proceeds of a construction loan, upon which they had to close before the date of the hearing; the loan commitments would otherwise have expired by that point in time.” Ultimately, the defendant sent a payoff letter that included $82,561.92 in legal fees. The defendant delivered a satisfaction of mortgage to Overbay after Overbay paid, “without raising a contemporaneous objection” to the full sum demanded in the pay-off letter. Thereafter, Overbay commenced litigation seeking reimbursement of the attorney’s fees it paid. The Court held, inter alia , that the voluntary payment doctrine barred recovery by Overbay of the payment of attorney’s fees because such payment had not been contemporaneously protested at the time of payment. here,=">here," >here.=">here."> Last Thursday, the First Department decided Tantallon Austin Hotel, LLC v. Wilmington Trust, N.A. , 2022 N.Y. Slip Op. 05778 (1st Dept. Oct. 13, 2022) ( here ), wherein it reinstated a breach of contract claim on the basis that, among other things, there were issues of fact as to whether the voluntary payment doctrine applied.   tantallon.> tantallon.> Tantallon involved an overpayment of money paid by a borrower to pay off a mortgage. The borrower claimed that the lender refused to return the excess portion of the payment. Plaintiff entered into a loan agreement on March 1, 2017 with Morgan Stanley Bank, N.A. to refinance the hotel it runs (“the Loan Agreement”). Plaintiff gave Morgan Stanley a Deed of Trust that was secured by the hotel (the “Mortgage”). Thereafter, ownership of the Mortgage eventually passed to a trust (the “Trust”) pursuant to a pooling and servicing agreement dated May 1, 2017 (the “Pooling and Servicing Agreement” or “PSA”). Plaintiff was not a party to the PSA.  Due to the Covid-19 pandemic, the hotel experienced material financial pressures. Plaintiff missed an interest payment for the Mortgage, triggering a “Default” under the Mortgage.  In March 2021, Plaintiff sold the hotel (the “Sale”) so it could pay off the Mortgage and loan without entering into a liquidation, bankruptcy, or insolvency proceeding.  On or about the eve of the closing for the Sale (the “Closing”), Defendant gave Plaintiff two “Preliminary Payoff Quotes” that (i) listed the “Estimated” amounts required to pay off the Mortgage and (ii) represented that “All Overages Will Be Refunded.” Plaintiff paid the amounts identified to pay off the Mortgage ($120,972,935.96). The “Estimated” payoff amount included a charge of $1,030,000 as a “Liquidation Fee”. The Mortgage Loan had not been liquidated. Plaintiff maintained that it was not apparent that the “Liquidation Fee” was a charge included in the Loan Agreement that it signed. According to Plaintiff, time was of the essence with respect to the Closing. On March 15, 2021, Plaintiff advanced the “Estimated” fee to Defendant, which included the “Liquidation Fee”. When advancing those funds, Plaintiff allegedly relied on the written representations in the Preliminary Payoff Quotes that it was entitled to a reconciliation of any overpayment.  On April 5, 2021, three weeks after the payoff, Plaintiff’s attorney wrote a letter to Defendant Midland Loan Services requesting a refund of the “Liquidation Fee” on grounds that: (i) the Loan Agreement did not authorize a payment of 1% of the principal loan amount as a liquidation fee; and (ii) there had been no liquidation, restructuring, workout, insolvency or bankruptcy proceeding associated with Plaintiff paying off the Loan. The letter stated that although Plaintiff asserted its right to a refund of the “Liquidation Fee,” Plaintiff was not challenging any other component of its March 15, 2021 payoff payment.  Defendant declined to refund the “Liquidation Fee” based on the ground that the Loan Agreement and the PSA (to which Plaintiff was not a party) allowed for the payment of liquidation fees generally. Based on that refusal, Plaintiff commenced the action to recover its overpayment.  Defendants moved to dismiss the complaint, arguing, among other things, that Plaintiff was not entitled to a return of the Liquidation Fee it had paid to Defendant. The motion court granted the motion, holding that, among other things, the voluntary payment doctrine barred any recovery of the Liquidation Fee. The motion court found that the doctrine applied because Plaintiff paid the Liquidation Fee “without any contemporaneous objections or reservation of rights.” “If plaintiff had any fee-related doubts, questions, concerns or objections,” said the motion court, “it could and should have raised them at that time.” “Instead”, observed the motion court, “plaintiff paid in full and only later, on April 5, 2021, first objected to having paid the Liquidation Fee and requested a refund.” “By then”, concluded the motion court, “it was too late….” 4 Plaintiff appealed. The First Department modified the motion court’s order, on the law, to, inter alia , reinstate Plaintiff’s breach of contract claim against the Trust and to vacate the motion court’s declaration that Plaintiff was not entitled to a return of the liquidation fee. The Court otherwise affirmed the order. First, the Court held that “Plaintiff sufficiently stated a claim for breach of contract against the trust by alleging that the trust an assignee of the loan agreement and that it breached the agreement by charging, and then failing to reimburse, a liquidation fee that was never incurred.” 5 However, said the Court “plaintiff failed to state a cause of action for breach of contract against defendant Midland Loan Services given plaintiff’s concession that it enjoy no contractual relationship with Midland, as Midland could not have breached a contract to which it was not a party.” 6 Second, the Court held that there were issues of fact surrounding application of the voluntary payment doctrine that prevented dismissal of Plaintiff’s contract claim. The Court explained that since Plaintiff was not a party to the PSA, there were issues of fact as to its awareness “of the factors triggering a ‘liquidation fee,’ a penalty that was lumped in with various other costs and fees that plaintiff was required to pay in connection with defaulting on the loan.” 7 Moreover, said the Court, “the timing and circumstances of the sale, which required the loan to be fully paid off before the sale could go through, meant that time was of the essence, and thus plaintiff, even if it was aware that it was being charged an improper ‘liquidation fee,’ had a limited time to discern the issue before closing.” 8 Further, the Court pointed to “the disclaimer in the preliminary payoff quotes”, which “stated that all overages would be subject to a refund”, as a basis to modify the motion court’s order. 9 The Court concluded, stating: “Given that there remain factual issues whether plaintiff paid the liquidation fee with ‘full knowledge of the facts’ or that it ‘perceive that an improper demand for money’ before paying the amount due, the breach of contract claim should not have been dismissed based on this doctrine.” 10 [Ed. Note: although this article is devoted to the voluntary payment doctrine, the Court also ruled on the motion court’s order dismissing Plaintiff’s unjust enrichment claims as duplicative of Plaintiff’s breach of contract claims. 11 The Court explained that “ t this early stage of the litigation, the court should not have found that the unjust enrichment claim was duplicative, as there is no contract between plaintiff and Midland … and … the particular subject matter of the enrichment claim — namely, the liquidation fee — has not been established to be encompassed by plaintiff’s loan agreement.” 12 ] 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. References Dubrow v. Herman & Beinin , 157 A.D.3d 620 (1st Dept. 2018) (citation and quotation marks omitted). See 82 N.Y. Jur. 2d, Payment and Tender, § 82. See Nunner v. Newburgh City School Dist. , 92 A.D.2d 888 (2d Dept. 1983). Citations omitted. Slip Op. at *1. Id. (citing, Harris v. Seward Park Hous. Corp. , 79 A.D.3d 425, 426 (1st Dept. 2010)). Id. Id. at *1-*2. Id. at *2 (citing, 208-234 Falls St. v. New York Cent. R.R. Co. , 21 N.Y.2d 172, 179 (1967)). Id. (citations omitted). In New York, an unjust enrichment claim will not lie when it is duplicative of an independent contract or tort claim. See , e.g. , Corsello v. Verizon New York, Inc. , 18 N.Y.3d 777, 790-91 (2012); Clark-Fitzpatrick, Inc. v. Long Island R. Co. , 70 N.Y.2d 382, 389 (1987).    Id. (citations omitted).

By Jonathan H. Freiberger Municipalities generally require home improvement contractors to be licensed to perform work.  “Where a home improvement contractor is not properly licensed in the municipality where the work is performed at the time the work is performed, the contractor forfeits the right to recover for the work performed, both under the contract and on a quantum meruit basis.”  Brightside Home Improvements, Inc. v. Northeast Home Improvement Services , 208 A.D.3d 446, 449 (2 nd Dep’t 2022) (numerous citations omitted); see also, Forman Construction, Inc. v. P.D.F. Construction , 175 A.D.3d 1491, 1492 (2 nd Dep’t 2019).  Similarly, a “home improvement contractor who fails to possess and plead possession of a valid license as required by relevant laws may not commence an action to foreclose a mechanic's lien.”  J.D. Nicotra v. Manger , 64 A.D.3d 547, 547-48 (2 nd Dep’t 2009) (numerous citations omitted). Consistent with these principals, a home improvement contractor is required to plead its licensure in an action against a consumer.  Thus, CPLR 3015(e) provides: License to do business. Where the plaintiff's cause of action against a consumer arises from the plaintiff's conduct of a business which is required by state or local law to be licensed by the department of consumer affairs of the city of New York, the Suffolk county department of consumer affairs, the county of Rockland, the county of Putnam, the county of Westchester, or the Nassau county department of consumer affairs, the complaint shall allege, as part of the cause of action, that plaintiff was duly licensed at the time of services rendered and shall contain the name and number, if any, of such license and the governmental agency which issued such license. The failure of the plaintiff to comply with this subdivision will permit the defendant to move for dismissal pursuant to paragraph seven of subdivision (a) of rule thirty-two hundred eleven of this chapter. It has been noted that “the legislative intent to protect residential homeowners places the burden unequivocally on the contractor to ensure that the license requirements are strictly complied with.”  Michael D. Canuso Const., Inc. v. Rogers , 267 A.D.2d 218, 219 (2 nd Dep’t 1999) (citations omitted). An interesting case addressing these issues is Cunningham v. Nolte , 188 A.D.3d 806 (2 nd Dep’t 2020).  The parties in Cunningham were cohabitating and involved in an intimate relationship with one another for two years.  During their period of cohabitation, plaintiff performed extensive home improvement contracting work on the defendant's residence in Rockland County … in reliance on the defendant's promise that he would be reimbursed for the work following the impending sale of the residence.”  Cunningham , 188 A.D.3d at 807.  Plaintiff was not paid and, accordingly, sought to foreclose a mechanic's lien he had filed against the residence, to recover damages for breach of contract, to recover in quantum meruit, and to impose a constructive trust over the residence.”  Id.  Supreme court denied defendant’s motion to dismiss “the causes of action to foreclose a mechanic's lien, to recover damages for breach of contract, and to recover in quantum meruit.”  Id.   The Appellate Division modified and, in so doing, rejected plaintiff’s “contention that the licensing requirement of CPLR 3015(e) did not apply herein.”  Id. at 808.  The Court found that plaintiff engaged in home improvement contracting work without a Rockland County home improvement license.  Nor did the complaint allege that plaintiff possessed the required license.  Therefore, the Court held, “the causes of action to foreclose a mechanic's lien, to recover damages for breach of contract, and to recover in quantum meruit should have been dismissed pursuant to CPLR 3211 (a) (7).”  Id .  The Court did find that the complaint adequately stated a cause of action for a constructive trust over the residence and, therefore, defendant’s motion as to that claim was properly denied by supreme court. These issues are relevant to the October 11, 2022, decision of the Appellate Division, First Department, in Alpine Custom Floors, Inc. v. Yurcisin .  The defendants in Alpine were homeowners that entered into a home improvement contract with nonparty general contractor to perform restorative work to their property.  General contractor, in turn, subcontracted with plaintiff to perform a portion of the restorative work.  The general contractor was unlicensed but the plaintiff, subcontractor, was licensed.   Plaintiff, commenced action claiming that “it performed work at defendants' home and that, although the general contractor was unlicensed, it should be able to recover from defendants for the value of the services it rendered because it is licensed and because it performed some services for the homeowners at their request.”  The First Department unanimously affirmed supreme court’s grant of summary judgment in favor of the homeowners and, in so doing, noted that the evidence demonstrated “prima facie that the general contractor was unlicensed and that they did not contract directly with plaintiff for any of the work performed or agree to undertake any obligations to plaintiff.” In addition, Plaintiff failed to submit any contrary evidence. 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.