By: Jeffrey M. Haber As readers of this Blog know, pleading and proving fraud is not easy. The law reporters (not to mention the pages of this Blog) are bursting with cases in which the courts have dismissed fraud actions due to pleading and proof deficiencies. Moskowitz v. Fischer , 2022 N.Y. Slip Op. 50385(U) (Sup. Ct., Suffolk County May 3, 2022) ( here ), is a recent example of this occurrence. To plead a viable cause of action for fraud, a plaintiff must allege that the defendant made a misrepresentation or omission of a material existing fact, which was false and known to be false by the defendant when made, for the purpose of inducing the plaintiff’s reliance thereon; that the plaintiff justifiably relied on such misrepresentation or omission; and that the plaintiff was injured thereby. 1 One of the more “nettlesome” elements of a fraud claim is justifiable reliance. 2 Whether a plaintiff justifiably relied on a misrepresentation or omission is a fact-intensive inquiry. 3 As the New York Court of Appeals observed, “ o two cases are alike ….” For this reason, the courts look to whether the plaintiff had the “means available to him for discovering, ‘by the exercise of ordinary intelligence,’ the true nature of a transaction he is about to enter into” and whether he made “use of those means”. 4 If the plaintiff does not do so, “he will not be heard to complain that he was induced to enter into the transaction by misrepresentations.” 5 After all, a plaintiff cannot claim justifiable reliance on a misrepresentation when he or she could have discovered the truth with reasonable diligence. 6 Whether a plaintiff exercised diligence in ascertaining the truth should not be determined by hindsight. As the Court of Appeals explained, when “a plaintiff has taken reasonable steps to protect itself against deception, it should not be denied recovery merely because hindsight suggests that it might have been possible to detect the fraud when it occurred.” 7 Sophisticated parties have a heightened duty to use the means available to them to verify the truth of the information upon which they rely and to use their sophistication to conduct due diligence. 8 A sophisticated plaintiff cannot establish justifiable reliance on an alleged misrepresentation if the plaintiff failed to make use of the means of verification that were available to him. 9 Thus, to sustain a claim of fraud, sophisticated parties must have discharged their own affirmative duty to exercise ordinary intelligence and conduct an independent appraisal of the risks they are assuming. 10 Moskowitz v. Fischer Moskowitz involved the amendment of a tax return for Quogue Street Development, LLC (“QSD”), a company formed by plaintiff, nonparty Timothy Stevens, and a third party to acquire and develop real property in Quogue, New York. Plaintiff owns a 50% interest in QSD, and Stevens owns a 10% interest in the company. In addition to his capital contribution, plaintiff loaned QSD $1,042,487.11 upon its formation. Stevens personally guaranteed repayment of the loan. QSD defaulted on the loan by failing to pay the principal and interest when they came due in July 2013. The property was sold at auction on or about November 18, 2015, and the loan remains unpaid.  Following the foregoing events, Stevens and defendant William Fischer amended QSD’s 2014 tax return by converting plaintiff’s loan to equity, thereby eliminating Stevens’ obligation to repay the loan under the guarantee. According to plaintiff, Fischer did not consult with plaintiff before amending the tax return, nor did Fischer send plaintiff a copy of the amended return or an amended K-1 reflecting the change.  QSD’s 2015 tax returns, which were prepared by Fischer in July 2016, were consistent with the amended 2014 tax return, showing the loan as an equity contribution. Plaintiff contended that he did not discover the change until he received his 2015 K-1 on July 7, 2016. Plaintiff maintained that he immediately telephoned Fischer and asked him, “Why did my equity number increase by over a million?” Fischer allegedly replied, “ is exactly the same as last year's K-1.” Plaintiff alleged that he “took Fischer at his word.” Defendants prepared and filed QSD’s 2016 tax return in September 2017. The 2016 return was consistent with the 2015 return, showing the loan as an equity contribution. Moreover, because the 2016 return was QSD’s final tax return, plaintiff’s equity was reflected as a loss. Plaintiff included the loss on his personal tax return for 2016, which he filed in September 2017, relying on the 2016 K-1 prepared by defendants.  In June 2019, QSD retained Grassi & Co. to represent it in connection with an IRS audit of its 2016 tax return. By letter dated August 20, 2019, Grassi & Co. advised plaintiff that the IRS was auditing QSD’s 2016 tax return. The IRS has sought documents related to the amended 2014 tax return that converted plaintiff’s loan to equity.  Plaintiff filed suit, claiming that defendants wrongfully amended QSD’s 2014 tax return in order to wipe out his loan; the amendment was done without his knowledge or consent; defendants intentionally concealed the amendment from him; and defendants were trying to convince the IRS to ratify the change. Plaintiff asserted causes of action for fraud, accounting malpractice, aiding and abetting a breach of fiduciary duty, and negligent misrepresentation. Defendants moved to dismiss the complaint, inter alia , as untimely and for failure to state a cause of action. The Court granted the motion. Regarding the fraud cause of action, plaintiff alleged that Fischer knowingly made a material misrepresentation of fact when he told him that his equity in QSD in 2015 was “exactly the same as last year’s” and that Fischer made a material omission of fact at the same time by failing to tell plaintiff that his equity in QSD had been “wrongfully amended” in 2014. Defendants claimed, inter alia , that plaintiff failed to demonstrate that he justifiably relied on the alleged misrepresentation and omission. The Court held that “plaintiff ha failed to state a cause of action for fraud.” 11 The Court found that “plaintiff was on inquiry notice of the alleged fraud when he received his 2015 K-1 on July 7, 2016, and telephoned Fischer, asking him, ‘Why did my equity number increase by over a million?’” 12 The Court noted that “ lthough his suspicions were aroused, the plaintiff took Fischer’s reply, which was not false, at face value and made no further inquiry into or attempt to investigate the matter.” 13 The Court reasoned that “plaintiff a sophisticated businessman who employed his own accountant to prepare his personal tax returns.” 14 As such, plaintiff had the means to verify Fischer’s statement, but took no action. 15 “ nder these circumstances,” explained the Court, “plaintiff’s reliance on Fischer’s statement was unreasonable as a matter of law.” 16 Finally, because the Court held that plaintiff failed to satisfy the justifiable reliance element of the fraud claim, it also held that the negligent misrepresentation claim should fall for the same reason. 17 Takeaway A plaintiff suing for fraud (and particularly a sophisticated plaintiff, such as the plaintiff in Moskowitz ) must establish that it “has taken reasonable steps to protect itself against deception.” 18 Typically, this means that a plaintiff claiming to have been fraudulently induced to take some type of action must allege that, before entering into the transaction, the plaintiff availed himself or herself of the opportunity to verify the defendant’s representations through some sort of prophylactic action. As shown in Moskowitz , despite having suspicions that something was amiss with the amended tax return, plaintiff failed to inquire further even though he had the means to do so. Such a failure, said the Court, was fatal to plaintiff’s fraud and negligent misrepresentation claims. ___________________________ 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. Footnotes Lama Holding Co. v. Smith Barney , 88 N.Y.2d 413, 421 (1996); see also New York Univ. v. Continental Ins. Co. , 87 N.Y.2d 308, 318 (1995). DDJ Mgt., LLC v. Rhone Group L.L.C. , 15 N.Y.3d 147, 155 (2010) (internal quotation marks omitted). Id. 88 Blue Corp. v. Reiss Plaza Assoc. , 183 A.D.2d 662, 664 (1st Dept. 1992) (internal citations omitted). Id. (internal quotation marks omitted). KNK Enters. Inc. v Harriman Enters., Inc. , 33 A.D.3d 872 (2d Dept. 2006). DDJ Mgt. , 15 N.Y.3d at 154. McGuire Children, LLC v. Huntress , 24 Misc. 3d 1202 , at *12 (Sup. Ct., Erie County), aff’d , 83A.D.3d 1418 (4th Dept. 2011). Id. Id.  Slip Op. at *3. Id. Id. Id. Id. Id. Id. To recover damages for negligent representation, a plaintiff must demonstrate, inter alia , that he or she was justified in relying on the information supplied and, as a consequence, suffered damages. See Goldman v. Strough Real Estate , 2 A.D.3d 677, 678 (2d Dept. 2003). DDJ Mgt. , 15 N.Y.3d at 154.

By: Jeffrey M. Haber On May 6, 2022, the Securities and Exchange Commission (“SEC” or the “Commission”) announced (here) the filing of fraud charges against MCC International Corp. (“MCC”), which does business as Mining Capital Coin Corp., its founders Luiz Carlos Capuci, Jr. (“Capuci”) and Emerson Souza Pires (“Pires”), and two other entities controlled by Capuci, CPTLCoin Corp. (“CPTLCoin”) and Bitchain Exchanges (“Bitchain”), in connection with the unregistered offerings and fraudulent sales of investment plans called mining packages to thousands of investors. According to the SEC’s complaint (here), Defendants MCC, Capuci, and Pires allegedly received in excess of $8.1 million from the sale of the mining packages and $3.2 million in initiation fees. On April 21, 2022, the United States District Court for the Southern District of Florida issued a temporary restraining order against all defendants and an order freezing defendants’ assets, among other relief. 1 networks use the process to confirm new transactions.2it is a critical component of a blockchain ledger’s maintenance and development.3>1 networks use the process to confirm new transactions.2it is a critical component of a blockchain ledger’s maintenance and development.3> According to the SEC, since at least January 2018, MCC, Capuci, and Pires sold mining packages to tens of thousands of investors worldwide and promised daily returns of 1 percent, paid weekly, for a period of up to 52 weeks. MCC also allegedly represented that the weekly profits were a result of “profit sharing” and that MCC earned profits from its operations involving cryptocurrency mining, trading stocks and foreign exchange, and trading cryptocurrency on digital asset trading platforms through the use of arbitrage trading and semi-automatic robotic trading. The SEC also alleged that, in its early days, investors were promised returns in Bitcoin, but later defendants required investors to withdraw their investments in tokens called Capital Coin (“CPTL”), which was MCC’s own token. In addition, the SEC alleged that investors were required to redeem their CPTL on Bitchain, a fake crypto asset trading platform Capuci created and managed. However, when investors tried to liquidate their CPTL on Bitchain before their one-year memberships expired, they encountered purported errors that stymied their efforts and were required to either buy another mining package or forfeit their investments. “As the complaint alleges, Capuci and Pires took every opportunity to extract more money from unsuspecting investors on false promises of outlandish returns and used investor funds raised from this fraudulent scheme to fund a lavish lifestyle, including purchasing Lamborghinis, yachts, and real estate,” said A. Kristina Littman, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit. “The restraining order and asset freeze helps preserve investor assets and puts a stop to the defendants’ alleged ongoing fraudulent enterprise.” The SEC’s complaint charges defendants with violating the registration and anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 (“Exchange Act”), and Capuci and Pires with control person liability on behalf of MCC under the Exchange Act. The SEC seeks injunctions against future securities law violations, disgorgement, civil penalties, and officer and director bars against Capuci and Pires. 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 Hong, Euny, “How Does Bitcoin Mining Work?”, Investopedia (Updated May 5, 2022) (here). Id. Id.

By: Jeffrey M. Haber Commercial transactions very often involve parties from different states and/or different countries. One party can be domiciled in New York, for example, while the other can be incorporated or headquartered in Delaware or London. When a dispute arises between such geographically diverse parties, questions concerning the jurisdiction of a court over the parties often get litigated. This was the situation in Kingstown Capital Management L.P. v. CPI Property Group, S.A. , 2022 N.Y. Slip Op. 03064 (1st Dept. May 5, 2022) ( here ). Kingstown="Kingstown" Capital="Capital" come="come" from="from" decisions="decisions" motion="motion" court="court" ( here)=">here)" and="and" First="First" Department.="Department."> Kingstown Capital concerned the alleged takeover of nonparty ORCO, a Luxembourg-based real estate development company. In September 2012, plaintiff, an investment advisor, acquired a substantial interest in ORCO. Beginning in the following month, defendant Radovan Vitek, a Czech Republic citizen, who resided in, among other places, the Czech Republic, Switzerland, and the United Kingdom, gained control of more than 90 percent of ORCO through a series of corrupt transactions. Thereafter, Vitek took control of ORCO’s most valuable assets, including certain real estate owned by ORCO’s then-subsidiary, ORCO Germany, now defendant CPI Property Group (“CPIPG”), a company formed under the laws of Luxembourg, and sold the assets at below-market value to entities secretly controlled by him.  Vitek also arranged for the shares in ORCO Germany to be issued for improper purposes, thereby diluting the interests held by Kingstown and others, and forcing them to sell their shares in ORCO at a substantial loss. Through additional corrupt transactions, which involved lying and defrauding his business partners, Vitek seized control of CPIPG and ORCO, and diverted more than a billion dollars in assets to entities he controlled. In December 2013, a Luxembourg financial regulator launched an investigation into defendants, and on December 8, 2017, concluded that defendants had acted unlawfully. In 2019, the full report detailing its investigation and findings was made public. On April 10, 2019, plaintiffs commenced an action against defendants in the United States District Court for the Southern District of New York, alleging violations of the Federal Racketeer Influenced and Corrupt Organizations Act and various New York laws. As a result, CPIPG, at Vitek’s direction, published a series of press releases in English on its website and distributed them through a nonparty German newswire service which, according to its website, uses nonparty Bloomberg, based in New York, as an outlet for distributing press releases. The press releases, which were published by Bloomberg, were alleged to include defamatory statements. Plaintiffs claimed to have been injured “in their trade and community standing” as a result of the press releases. Defendants moved to dismiss pursuant to CPLR §§ 3211(a)(7) (failure to state a claim) and (8) (lack of personal jurisdiction). Defendants denied that the court had personal jurisdiction over them because they were neither domiciled in New York nor had a physical presence in the state. Defendants maintained, among other things, that: (1) CPIPG is headquartered in and organized under the laws of Luxembourg, that all of its assets are located outside of the United States, and that its shares are traded on the Frankfurt stock exchange; (2) they did not transact or solicit any business in New York; and (3) neither the press release that CPIPG posted on its website in Europe nor the use of a German newswire, which globally distributes its press materials, constitutes a sufficient basis for jurisdiction, 1 even if CPIPG intended to have the press releases ultimately reach a New York audience; and (4) any contact with New York bondholders was not directly related to the allegedly defamatory statements, which were a response to the SDNY action. In response, plaintiffs argued that the court’s personal jurisdiction over defendants was obtained through: (1) their targeted “campaign” of communications toward the New York bond market to solicit investors like plaintiffs; (2) the publication of a series of English-language press releases targeted at New York; and (3) the use of a newswire service that promised to publish the statement with Bloomberg in New York, which they expressly intended would be published in New York. Plaintiff maintained that Defendants’ conduct was a deliberate attempt to reach a New York audience with their communications. Plaintiffs further maintained that the defamatory statements were used to enhance defendants’ financing efforts targeted at New York, and thus, the defamation arose from defendants’ contact with New York. Plaintiffs denied that the SDNY action constituted the sole basis of defendants’ contact with the State and contended that the dismissal of the SDNY action did not impact the court’s jurisdiction. To the extent that there was an issue of fact concerning personal jurisdiction, plaintiffs sought jurisdictional discovery, by which they sought the disclosure of communications soliciting and reassuring investors in New York, and evidence of the retention of New York agents, public relations professionals, and legal counsel to draft the press releases and the existence of New York investors in CPIPG. The motion court granted defendants’ motion to dismiss for lack of personal jurisdiction. Pursuant to CPLR § 3211(a)(8), a cause of action may be dismissed on the ground that the court lacks personal jurisdiction over the defendant. If jurisdiction is challenged, the plaintiff bears the burden of establishing such jurisdiction over the defendant. 2 Jurisdiction is a threshold issue, which must be determined before other defenses in a motion to dismiss. 3 The court may exercise personal jurisdiction over a non-domiciliary who, in person or through an agent, transacts business within the state or contracts to supply services in the state. The motion court held that the dissemination of information through a press release was insufficient to confer jurisdiction: “That CPIPG relied on a German newswire to send press releases to Bloomberg in New York with the intention that they would be distributed specifically to a New York audience, even if true, does not constitute transacting business within the state, as the material is accessible to a global audience.” 4 Moreover, said the motion court, “the content of the press releases, although concerning New York litigation, not of sole importance to New Yorkers, as allegations of fraud against a Luxembourg company with assets mainly in Europe would likely interest global investors.”  The motion court rejected plaintiffs’ argument that distribution of the press releases in English supported an inference that they were targeted to a New York audience only: “That the press releases were distributed solely in English does not support an inference that they were targeted solely at a New York audience as English is spoken throughout the world.” The motion court also rejected plaintiffs’ argument that CPIPG’s prior solicitation of investors in New York, as well as the investment in ORCO by Kingstown and other New York entities, sufficed to confer jurisdiction. The motion court reasoned that in both instances, defendants failed to demonstrate that such activities were accompanied by New York-based business transactions. The motion court further held that the any harm that may have resulted in New York due to defendants’ allegedly defamatory statements was insufficient to confer personal jurisdiction, as “ efamation claims are accorded separate treatment to reflect the state’s policy of preventing disproportionate restrictions on freedom of expression” and “cannot form the basis for ‘tortious act’ jurisdiction.” 5 Finally, the motion court denied plaintiffs’ request to conduct jurisdictional discovery. The motion court found plaintiffs’ belief that defendants retained agents or other professionals in New York to be “speculative and undermined by their allegations that the press releases were published using a German newswire”. More significantly, the motion court held that because plaintiffs failed offer any affidavits or other evidence supporting their request, they failed to make a “sufficient start” for jurisdictional discovery. 6 On appeal, the Appellate Division, First Department affirmed. The Court held that “ laintiffs failed to establish personal jurisdiction over defendants under CPLR 302(a)(1), New York’s long-arm statute, as they did not show that defendants engaged in purposeful activities in New York, conducted or transacted business in this state, or availed themselves of the benefits of New York law.” 7 Like the motion court, the Court rejected the dissemination of the press releases by Bloomberg to be sufficient to confer personal jurisdiction over defendants: What plaintiffs describe as a press “campaign” was a single press release, which was distributed to a German newswire service, DGAP; in turn, DGAP distributed the press release to its 20 or so international outlets, including Bloomberg. Plaintiffs maintain that defendants intended the press release to reach a New York audience because they knew that, by using DGAP to distribute the press releases, Bloomberg would publish the press release in New York County. However, placing allegedly defamatory content on the internet and making it accessible to the public does not constitute the transaction of business in New York, even when it is likely that the material will be read by New Yorkers. 8 Further, the Court held that “plaintiffs failed to demonstrate an articulable nexus between defendants’ New York activities and the cause of action for defamation.” 9 The Court explained that “ eyond an allegation in the federal action that several phone calls and emails were exchanged and a meeting held in New York in anticipation of a deal (which was ultimately consummated in Europe),” there was “nothing in the record” to suggest “that defendants conceived, drafted, published, or distributed the press release in this state.” 10 Finally, the Court held that “ iscovery on the jurisdictional issue not warranted because plaintiffs failed to make a ‘sufficient start’ in demonstrating the existence of long-arm jurisdiction over defendants.” 11 Takeaway CPLR §§ 302(a)(2) and (3), which permit jurisdiction over tortious acts committed in New York and those committed outside New York that cause injuries in the state, respectively, explicitly exempt causes of action for defamation from their scope. However, when a person makes a defamatory statement without the state that causes injury to the plaintiff within the state, jurisdiction may be acquired under CPLR § 302(a)(1), even though CPLR § 302(a)(3) – which explicitly concerns jurisdiction as to out-of-state tortious acts that cause in-state injury – excludes defamation cases from its scope. To determine the existence of jurisdiction under CPLR § 302(a)(1), a court must decide (1) whether the defendant “transacts any business” in New York and, if so, (2) whether the cause of action “aris from” such a business transaction. 12 “A suit will be deemed to have arisen out of a party’s activities in New York if there is an articulable nexus, or a substantial relationship, between the claim asserted and the actions that occurred in New York.” 13 New York courts define “transact business” as purposeful activity — “‘some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.’” 14 New York courts do not interpret “transact business” to include mere defamatory utterances sent into the state. Although CPLR § 302(a)(1) does not exclude defamation from its coverage, New York courts construe “transacts any business within the state” more narrowly in defamation cases than they do in the context of other sorts of litigation. 15 In non-defamation cases, “proof of one transaction,” or a “single act,” “is sufficient to invoke jurisdiction, even though the defendant never enters New York.” 16 In defamation cases, however, the “single act” of uttering a defamation, no matter how loudly, is not a “transact business” that may provide the foundation for personal jurisdiction. 17 “In other words, when the defamatory publication itself constitutes the alleged ‘transact business’ for the purposes of section 302(a)(1), more than the distribution of a libelous statement must be made within the state to establish long-arm jurisdiction over the person distributing it.” 18 The posting of defamatory material on a website accessible in New York does not, without more, constitute “transact business” in New York for the purposes of conferring jurisdiction over an out-of-state defendant. 19 As the Court held in Kingstown Capital , the same is true with regard to a press release that is transmitted worldwide.  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. Defendants further argued that the German newswire, which distributes press releases to nearly 20 global media publishers, not only Bloomberg, and the press releases were republished electronically in every global market. Arroyo v. Mountain School , 68 A.D.3d 603 (1st Dept. 2009). 342 E. 67 Realty LLC v. Jacobs , 106 A.D.3d 610, 611 (1st Dept. 2013); Howard v. Spitalnik , 68 A.D.2d 803 (1st Dept. 1979). Citing, Best Van Lines, Inc. v Walker , 490 F.3d 239, 250 (2d Cir. 2007) (posting of defamatory material on website accessible in New York does not, without more, constitute transacting business in New York for purposes of New York’s long-arm statute). Citing, SPCA of Upstate New York, Inc. v. Am. Working Collie Ass’n , 18 N.Y.3d 400, 404 (2012) (citing, CPLR §§ 302(a)(2) and (3)). SNS Bank, N. V. v. Citibank, N.A. , 7 A.D.3d 352, 354 (1st Dept. 2004); McBride v. KPMG Int’l , 135 A.D.3d 576, 577 (1st Dept. 2016) Warck-Meister v. Diana Lowenstein Fine Arts , 7 A.D.3d 351, 352 (1st Dept. 2004). Slip Op. at *1 (citations omitted). Slip Op. at *1 (citations omitted). Id. (citation omitted). Id. (citation omitted). Id. at *1-*2 (citing, Concotilli v. Brown , 168 A.D.3d 426, 426 (1st Dept. 2019). See Deutsche Bank Sec., Inc. v. Montana Bd. of Invs. , 7 N.Y.3d 65, 71 (2006). Henderson v. INS , 157 F.3d 106, 123 (2d Cir.1998) (internal quotation marks omitted); accord Deutsche Bank , 7 N.Y.3d at 71. McKee Elec. Co. v. Rauland-Borg Corp. , 20 N.Y.2d 377, 382 (1967) (quoting, Hanson v. Denckla , 357 U.S. 235, 253 (1958)). Best Van Lines , 490 F.3d at 248. Deutsche Bank , 7 N.Y.3d at 7 (internal quotation marks omitted). Best Van Lines , 490 F.3d at 248. Id. Id. at 250.

By Jonathan H. Freiberger The readers of this Blog know that we frequently discuss numerous aspects of residential mortgage litigation.  S ee, e.g., < here =">here"> and the articles linked therein.  A related subtopic that gets much attention in this Blog is the pre-foreclosure notice requirements of RPAPL 1304 .  See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . Briefly, and as noted in prior Blog articles, RPAPL 1304 requires that at least ninety days before commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a lender must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that offer free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter.  One purpose of RPAPL 1304 is to enable defaulted borrowers to “benefit from the information provided in the notice and the 90–day period during which the parties could attempt to work out the default without imminent threat of a foreclosure action, in an effort to further the ultimate goal of reducing the number of foreclosures”.  CIT Bank N.A. v. Schiffman , 36 N.Y.3d 550, 555 (2021) (citation and internal quotation marks omitted). The failure of a lender to comply with RPAPL 1304 will result in the dismissal of a foreclosure complaint ( see, e.g., U.S. Bank N.A. v. Beymer , 161 A.D.3d 543 (1 st Dep’t 2018)) when the issue is raised as an affirmative defense by the borrower ( see, e.g., One West Bank, FSB v. Rosenberg , 189 A.D.3d 1600, 1602-3 (2 nd Dep’t 2020) (citation omitted)).  Indeed, “proper service of the notice containing the statutorily mandated content is a condition precedent to the commencement of a foreclosure action.”  U.S. Bank N.A. v. Taormina , 187 A.D.3d 1095, 1096 (2 nd Dep’t 2020) (citations omitted).  When failure to comply with RPAPL 1304 is raised as an affirmative defense, the foreclosing lender must demonstrate its compliance with the statute as part of its prima facie case.  Bank of America, N.A. v. Wheatly , 158 A.D.3d 736 (2 nd Dep’t 2018) (citations omitted).   In our October 1, 2021, blog article we discussed Wells Fargo Bank, N.A. v. Yapkowitz , 199 A.D.3d 126 (2 nd Dep’t 2021), a case in which the Court dismissed lender’s complaint and held that a joint notice in one envelope addressed to two borrowers residing at the same address did not satisfy the requirements of RPAPL 1304.  In our December 17, 2021, blog article we discussed Bank of America, N.A. v. Kessler , 202 A.D.3d 10 (2 nd Dep’t 2021), in which the Court dismissed lender’s complaint for failure to comply with CPLR 1304 because it included material in addition to the RPAPL 1304 notice in the envelope in which the RPAPL 1304 notice was mailed. On May 4, 2022, the Second Department decided several cases in which lenders’ complaints were dismissed due to failure to comply with RPAPL 1304; two of which address the issues decided by Yapkowitz and/or Kessler . HSBC Bank USA, N.A. v. DiBenedetti In 2007, Cheryl DiBenedetti (“Cheryl”) delivered a $900,000.00 note to lender, the repayment obligation for which was secured by a mortgage on real property.  The mortgage was executed by Cheryl and Denis DiBenedetti (“Denis” and together with Cheryl, “Borrowers”).  As the Court highlighted “Denis … was identified as a "borrower" on both the first page of the mortgage, and below his signature.”  Lender commenced a foreclosure action in which Borrowers asserted a defense based on lender’s failure to comply with RPAPL 1304.   Lender’s initial motion for summary judgment on the complaint and to strike Borrowers’ answer was denied by supreme court, which found that “ failed to establish that it complied with RPAPL 1304.”  Lender renewed its summary judgment motion and, this time, submitted a copy of the RPAPL 1304 notice, which the Court described as follows: The notice, which was addressed to both Cheryl DiBenedetti and Denis DiBenedetti, stated, among other things, that " his communication is an attempt to collect a debt and any information obtained will be used for that purpose. However, if you have received a discharge of this debt in bankruptcy or are currently in a bankruptcy case, this notice is not intended as an attempt to collect a debt and, this company has a security interest in the property and will only exercise its rights as against the property. Supreme court granted lender’s motion to renew and, upon renewal, vacated its prior order. Later, supreme court confirmed the referee’s report and issued a judgment of foreclosure and sale.   The Appellate Division reversed and held that, upon renewal, supreme court should have adhered to its original decision and dismissed the complaint because lender “failed to establish, prima facie, that it strictly complied with RPAPL 1304, since additional material was sent in the same envelope as the 90-day notice required by RPAPL 1304, and a single notice was jointly addressed to both .”  (Citations omitted.)  Significantly, the Court found that Denis was indeed a “borrower” under RPAPL 1304 and, therefore, entitled to notice thereunder.  Thus, Lender’s argument to the contrary notwithstanding, the Court held that “although Denis DiBenedetti did not sign the note, he is considered a "borrower" within the meaning of RPAPL 1304 because he was identified as such, both on the first page of the mortgage and beneath his signature”. US Bank National Association v. Drakakis Borrower in Drakakis appealed from orders in which the supreme court granted lender summary judgment on its complaint and struck borrower’s answer, denied borrower’s cross-motion for summary judgment dismissing the complaint for failure to comply with RPAPL 1304 and appointed a referee to compute.  On appeal, the Second Department reversed and denied lender’s motion and granted borrower’s cross-motion dismissing the complaint.  In so doing, the Court stated: Here, in support of its motion for summary judgment, the plaintiff failed to establish, prima facie, its compliance with the "separate envelope" mandate of RPAPL 1304(2) since the RPAPL 1304 notice submitted with its motion included, in addition to the statutorily prescribed language, a document titled "Consumer Notice Pursuant to 15 U.S.C. Section 1692(G)". In support of his cross motion, the defendant Christos Drakakis demonstrated, prima facie, that the plaintiff failed to comply with the "separate envelope" mandate of RPAPL 1304(2). In opposition to the cross motion, the plaintiff failed to raise a triable issue of fact.  (Citations omitted.) Takeaway Compliance with the requirements of RPAPL 1304 is critical for lenders.  Similarly, it is equally critical that borrowers preserve such defenses in their answer.  Both DiBenedetti and Drakakis have 2014 index numbers and were dismissed by the Second Department in 2022 due to the failure of both lenders to comply with RPAPL 1304. 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 As a general matter, a fraud claim is not duplicative of a contract claim where the plaintiff alleges misrepresentations of fact, as opposed to misrepresentations of a future intent to perform. In IS Chrystie Mgt. LLC v. ADP, LLC , 2022 N.Y. Slip Op. 02950 (1st Dept. May 3, 2022) ( here ), this general principle of law was one of the issues before the Court. In particular, the First Department was asked to determine whether post-contractual misrepresentations were collateral to the contractual obligations of the parties. As discussed below, the Court ruled that they were separate and apart from the contractual duties set forth in the parties’ agreement.  IS Chrystie Mgt. LLC v. ADP, LLC ADP arose out of a Master Services Agreement (“MSA”) pursuant to which ADP provided certain payroll processing services to plaintiff IS Chrystie Management LLC (“ISC”). ISC alleged that ADP willfully breached the MSA and, as a result, sustained $747,442.75 in direct and consequential damages. ISC also asserted a fraud claim. The motion court dismissed the claim without prejudice to replead after ISC developed sufficient facts in discovery to support the claim. 1 The court did so on the ground that ISC failed to demonstrate that ADP had a duty collateral to its contractual obligations that would form a basis for a gross negligence or fraud claim. In other words, the motion court found that the breach of contract claim, and fraud claim were duplicative. 2 As noted by the motion court, since the limitation of liability provision did not apply to willful, criminal or fraudulent misconduct, if ISC prevailed on its breach of contract claim, “there’s no limitation of liability and entitled to recover all of the damages that seek .” Following extensive discovery, ISC moved to amend its complaint to reinstate its tort claims. 3 ISC alleged that ADP made misrepresentations regarding the (i) implementation of a benefits accrual policy; (ii) creation of a “spread of hours” setup; (iii) calculation of a commuter tax; and (iv) calculation of a residency tax.  ADP maintained that the foregoing were services encompassed by the MSA. In particular, ADP argued that the services in question concerned payroll processing services that ADP provided pursuant to the MSA. ADP also argued that any damages ISC may have sustained by reason of the alleged fraud were the same damages it was pursuing on its breach of contract claim. Finally, ADP contended that ISC did not allege a breach of any duty collateral to or independent of the MSA because the relationship between the parties was purely contractual.  The motion court denied the motion to amend, holding that ISC “failed to demonstrate that ADP had a duty beyond its contractual duties that would form a basis for a tort claim for gross negligence or fraud”. As it did on the motion to dismiss, the motion court found that ISC could “argue at trial that ADP’s breach of contract was willful, including the impact any such willful misconduct has on plaintiff’s right to recover the damages it seeks.” On appeal, the Appellate Division, First Department modified the motion court’s order and reinstated ISC’s fraud claim. The Court held that ISC’s fraud claim was not duplicative of the contract claim. 4 The Court found that “ nlike Cronos Group Ltd. v XComIP, LLC (156 AD3d 54 <1st dept 2017> ),” on which both parties relied but reached different conclusions as to what the court held, “this not a case where ‘the only fraud alleged’ was the defendant’s ‘unkept promise to perform certain of its preexisting obligations under the parties’ contract’ ( id. at 64).” 5 “Rather,” said the Court, “plaintiff alleges, ‘Whenever ADP’s services for Plaintiff[] proved to be deficient, ADP would purport to deal with the problem and then misrepresent to Plaintiff[] that the problem had been fixed, when … it had not.” 6 Such an allegation, explained the Court, was a misrepresentation of present fact that was collateral to the MSA and, therefore, involved a separate duty. 7 [Ed. Note: In Cronos , the parties entered a contract governing the transmission of customer calls on the other party’s network. 8 During the term of the contract, plaintiff learned that fraudulent calls had gone from its network to defendant’s network, thereby generating charges to plaintiff under the contract. 9 When plaintiff advised defendant of the situation, defendant assured plaintiff that the charges would be reversed. 10 However, defendant did not reverse the charges. Plaintiff alleged that defendant’s assurances were fraudulently made. 11 The Court held that plaintiff’s fraud claim “falls short under the principle that a fraud claim is not stated by allegations that simply duplicate, in the facts alleged and damages sought, a claim for breach of contract, enhanced only by conclusory allegations that the pleader’s adversary made a promise while harboring the concealed intent not to perform it.” 12 According to the Court, the only fraud alleged by plaintiff was defendant’s “unkept promise to perform certain of its preexisting obligations under the parties’ contract … for which seeks exactly the same damages as are sought under the rubric of the claim for breach of contract.” 13 In fact, noted the Court, “it is clear from the complaint itself that understood ’s assurances to be promises of future conduct.”14 The Court explained that the fraud claim “adds to the contract cause of action only the allegation that gave insincere oral assurances that would perform the very same act (reversal of the charges for the fraudulent calls) that contends, in the contract claim, that was already contractually obligated to perform under the parties’ written agreement.” 15 The Court concluded that “the allegedly false promise at issue in the fraud claim was … a promise to perform under the parties’ contract, not any promise collateral or extraneous to that contract.” 16 ]  The Court also held that the damages sought by the fraud claim were not entirely the same as those of the breach of contract claim. 17 As it explained during oral argument on defendant’s CPLR 3211 motion to dismiss, defendant’s substandard performance under the parties’ contract resulted in plaintiff’s overpaying its employees. If defendant had admitted that its system was not working, plaintiff “would have terminated … wouldn’t have … overpaid employees for that period of time post the supposed fix.” Plaintiff does not seek this item under its contract damages. 18 Takeaway A fraud claim, which arises from the same facts, seeks identical damages and does not allege a breach of any duty collateral to or independent of the parties’ agreement, is duplicative of a contract claim. Often the fraud claim is asserted in connection with pre-contractual representations. Sometimes, however, a fraud claim will be asserted in connection with post-contractual representations, as in IS Chrystie Mgt. In either circumstance, the issue to be determined is whether the misrepresentation is one of an existing fact or a naked promise of future performance ( i.e. , a promise to perform under the contract without an accompanying undisclosed intention to break that promise when it comes time to perform). As the Court in IS Chrystie Mgt. made clear, whether the representation is made before or after the contract is entered is not dispositive. 19 IS Chrystie Mgt. also shows that the courts look to the damages sought to ascertain whether they are the same. If they are, then the fraud claim will be dismissed. In IS Chrystie Mgt. , plaintiff successfully alleged damages that were somewhat different. 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 In the complaint, ISC asserted two additional causes of action: (i) gross negligence; and (ii) breach of the implied covenant of good faith and fair dealing. A fraud claim will be deemed duplicative of a breach of contract claim where (1) the fraud claim arises out of the same facts as the breach of contract claim; (2) the fraud claim seeks the same damages as the breach of contract claim; and (3) the fraud claim fails to identify a duty collateral to or independent of the contract. If one or more of the foregoing factors is missing, the fraud claim will be deemed sufficiently separate to stand on its own. Jo Ann Homes at Bellmore, Inc. v. Dworetz , 25 N.Y.2d 112, 119 (1969); Strasser v. Prudential Sec., Inc., 218 A.D.2d 526 (1st Dept. 1995). ISC also moved for summary judgment, as did ADP. ADP’s motion was based on the limitation on liability provisions in the MSA. The MSA contained two clauses governing damages. The first clause, Section 6A entitled “Limit on Monetary Damages”, capped direct damages pursuant to a defined formula. The provision did not apply to “ADP’s willful, criminal or fraudulent misconduct.” The second clause, Section 6B entitled “No Consequential Damages”, barred consequential damages without any stated exception. The Court denied summary judgment based on issues of fact related to, inter alia , whether ADP’s conduct qualified as “willful misconduct” and the impact of any such misconduct on the application of the two damages clauses. Slip Op. at *1 (citing, BML Props. Ltd. v. China Constr. Am. Inc. , 174 A.D.3d 419 (1st Dept. 2019)).   Id Id. Id. (quoting, Wyle Inc. v. ITT Corp. , 130 A.D.3d 438, 440-441 (1st Dept. 2015) (emphasis and internal quotation marks omitted)). 156 A.D.3d at 57. Id. at 58-59. Id. Id. at 62. Id. Id. at 64. Id. at 70. Id. at 64-65. Id. at 65. Slip Op. at *1 (citing, MBIA Ins. Corp. v. Credit Suisse Sec. (USA) LLC , 165 A.D.3d 108, 114 (1st Dept. 2018)). Id. We have previously written about the application of the doctrine to pre-contractual representations ( e.g. , here and here ) and post-contractual representations ( e.g. , here ).

By: Jeffrey M. Haber In Wilsey v. 7203 Rawson Rd., LLC , 2022 N.Y. Slip Op. 02905 (4th Dept. Apr. 29, 2022) ( here ), the Appellate Division, Fourth Department considered principles of law familiar to readers of this Blog; namely, breach of contract and fraudulent misrepresentation.   As we have noted in prior articles ( e.g. , here ), “ he essential elements of a cause of action to recover damages for breach of contract are the existence of a contract, the plaintiff’s performance pursuant to the contract, the defendant’s breach of its contractual obligations, and damages resulting from the breach.” 1 Under New York law, “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.” 2 It is the court’s function to determine whether a contract is clear and unambiguous on its face, i.e. , “whether the agreement on its face is reasonably susceptible of more than one interpretation ….” 3 To state a claim for fraud, a plaintiff must allege a material misrepresentation of fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages. 4 The allegations must be stated with particularity to satisfy CPLR § 3016(b). 5 Thus, the plaintiff must provide sufficient facts to support a “reasonable inference” that the allegations of fraud are true. 6 Conclusory allegations will not suffice. 7 Neither will allegations based on information and belief. 8 Although, CPLR § 3016(b) provides that “the circumstances constituting the shall be stated in detail,” the New York Court of Appeals has “cautioned that section 3016 (b) should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” 9 Thus, where the facts “are peculiarly within the knowledge of the party charged with the fraud,” and “it would work a potentially unnecessary injustice to dismiss a case at an early stage where any pleading deficiency might be cured later in the proceedings,” dismissal should be denied. 10 Wilsey v. 7203 Rawson Rd., LLC Background On October 11, 2017, plaintiffs entered into a Lot Reservation Agreement (the “Reservation Agreement) with RSM Development Co., LLC (“RSM”), whereby they paid RSM a $5,000.00 deposit to reserve property that they intended to build upon. The Reservation Agreement provided, among other things, that if plaintiffs failed “to sign a contract for new construction with” RSM by November 12, 2017, RSM would “return the deposit and be free to re-sell or reserve the with a different buyer.” The agreement was silent about the return of the deposit after plaintiffs entered into a purchase contract for the property.  On February 12, 2018, plaintiffs entered into a purchase and sale agreement with 7203 Rawson Rd., LLC to purchase the property at issue and construct a house thereon (the “Purchase Contract”) and paid 7203 Rawson a deposit in the amount of $20,000.00. Attached to the Purchase Contract was an addendum that specified certain changes / options for the construction. Pursuant thereto, plaintiffs paid 7203 Rawson a construction draw of $40,000. Notably, the transaction contemplated by the Purchase Contract was contingent on the “sale and transfer” of property in Honeoye Falls (Mendon), New York. Plaintiffs were unable to sell that property. As a result, on December 5, 2018, they cancelled the Purchase Contract. Thereafter, plaintiffs demanded return of all deposits paid to defendants ( e.g. , the $5,000.00 deposit on the Reservation Agreement, the $20,000.00 deposit and $40,000.00 construction draw deposit on the Purchase Contract). Defendants returned the $20,000.00 deposit on the Purchase Contract but, based on an alleged oral modification of the agreements, declined to return the $5,000.00 deposit on the Reservation Agreement, and the $40,000.00 construction draw under the Purchase Contract. Defendants maintained that plaintiffs agreed that RSM would return the construction draw paid to RSM when the property was under contract with a new buyer.  Plaintiffs alleged that the Purchase Contract prohibited oral modification. They further alleged that defendants falsely and fraudulently claimed that they had completed the changes / options contemplated in the addendum to the Purchase Contract.  Plaintiffs filed suit, asserting three causes of action against defendants: (1) breach of contract for refusal to return the $5,000.00 deposit under the Reservation Agreement; (2) breach of contract as to the $40,000.00 deposit under the Purchase Contract; and (3) fraudulent misrepresentation for falsely claiming that custom changes / options had been completed, justifying retention of the $40,000.00 deposit for a construction draw.  Following some discovery, plaintiffs moved for summary judgment. The motion court granted the motion without decision. Defendants appealed. The Appellate Division, Fourth Department unanimously modified the decision by denying the motion in its entirety. The Court’s Ruling The Court held that plaintiffs failed to satisfy their burden of proving “that their interpretation of the relevant contracts the only reasonable interpretation thereof.” 11 Under settled summary judgment principles, noted the Court, “the moving party has the burden of establishing that its construction of the is the only construction can fairly be placed thereon.” 12 “Here,” concluded the Court, “plaintiffs did not meet their initial burden on those parts of the motion seeking summary judgment on the first and second causes of action” because plaintiffs “failed to submit sufficient evidence to establish that their interpretation of the relevant contracts is the only reasonable interpretation thereof.” 13 Under New York law, where “ambiguity or equivocation exists and the extrinsic evidence presents a question of credibility or a choice among reasonable inferences, the case should not be resolved by way of summary judgment.” 14 The Court also held that summary judgment should not have been granted as to the fraudulent misrepresentation claim. 15 First, the Court found that plaintiffs failed to allege a duty collateral to the agreements at issue. Rather, said the Court, plaintiffs were complaining about alleged misrepresentations that related to the performance under the contracts: “On this record, we conclude that, far from being collateral to the contract, the purported misrepresentation was directly related to a specific provision of the contract.” 16  Second, the Court held, without explanation, that plaintiffs failed to comply with CPLR § 3016 (b), which provides that plaintiffs alleging fraud must do so with particularity. 17 E.g.,="E.g.," here,=">here," >here=">here" and="and" >here.=">here."> Takeaway Wilsey is interesting for a couple of reasons.  First, there is no mention of the duplication doctrine. As we have seen in other cases, fraud claims that are alleged to be nothing more than a failure to perform contractual obligations are dismissed under the duplication doctrine. Indeed, New York courts will not permit a fraud-based claim to survive a motion to dismiss when the claim arises from a breach of contract. Accordingly, courts routinely dismiss fraud claims where “ he existence of a valid and enforceable written contract govern a particular subject matter” and the recovery sought arises out of the same facts and circumstances. 18 Duplication could have been a basis for the Court’s ruling in Wilsey . Second, Wilsey is interesting because of the interplay between the initial burden a movant bears on summary judgment and the proof required in a breach contract action to satisfy that burden. “To grant summary judgment, it must clearly appear that no material and triable issue of fact is presented.” 19 Summary judgment will not be granted “where there is any doubt as to the existence of a factual issue or where the existence of a factual issue is arguable.” 20 On summary judgment, “facts must be viewed ‘in the light most favorable to the non-moving party’”. 21 Importantly, the movant must make a prima facie showing of entitlement to judgment as a matter of law, “tendering sufficient evidence to demonstrate the absence of any material issues of fact.” 22 In a breach of contract action, to satisfy the initial burden on summary judgment, the movant must demonstrate with sufficient evidence (in admissible form) that its interpretation of the contract is the only reasonable interpretation thereof. In other words, the moving party must establish that its construction of the contract is the only construction that can fairly be placed thereon. 23 The failure to do so will result in denial of the motion. In Wilsey , plaintiffs were unable to satisfy their initial burden. 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 Carione v. Hickey , 133 A.D.3d 811, 811 (2d Dept. 2015), lv. denied , 27 N.Y.3d 909 (2016) (internal quotation marks omitted). Greenfield v. Philles Records , 98 N.Y.2d 562, 569 (2002). Nancy Rose Stormer, P.C. v. County of Oneida , 66 A.D.3d 1449, 1450 (4th Dept. 2009). Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 558 (2009). Id. Id. at 559-60. Id. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). Pludeman v. Northern Leasing, Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (internal quotation marks and citations omitted). Id. at 491-92 (internal quotation marks and citations omitted).   Slip Op. at *2. Id. (quoting Nancy Rose Stormer , 66 A.D.3d at 1450 (internal quotation marks omitted) (additional citations omitted). Id. Mohawk Val. Water Auth. v. State of New York , 159 A.D.3d 1548, 1550 (4th Dept. 2018) (citation and internal quotation marks omitted). Slip Op. at *2. Preston v. Northside Collision-Dewitt, LLC , 158 A.D.3d 1127, 1128 (4th Dept. 2018) (internal quotation marks omitted). Slip Op. at *2 (citing Maki v. Bassett Healthcare, 85 A.D.3d 1366, 1369-1370 (3d Dept. 2011), appeal dismissed , 17 N.Y.3d 870 (2011), lv. denied in part and dismissed in part , 18 N.Y.3d 870 (2012). Clark-Fitzpatrick v. Long Is. , 70 N.Y.2d 382 (1987). Glick & Dolleck v. Tri-Pac Export Corp. , 22 N.Y.2d 439, 441 (1968). Forrest v. Jewish Guild for the Blind , 3 N.Y.3d 295, 315 (2004) (citing, Glick , 22 N.Y.2d at 441). Vega v. Restani Constr. Corp. , 18 N.Y.3d 499, 503 (2012) (quoting, Ortiz v. Varsity Holdings, LLC , 18 N.Y.3d 335, 339 (2011)). Alvarez v. Prospect Hosp. , 68 N.Y.2d 320, 324 (1986).

By Jonathan H. Freiberger Statute of limitations issues frequently arises in mortgage foreclosure actions.  This Blog has written extensively on a variety of issues related to mortgage foreclosure, including those related specifically to limitations periods ( see, e.g., < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .   In this Blog article entitled: “ Revive a Time-Barred Claim Using § 17-101 of New York’s General Obligations Law ” addressed situations where certain writings acknowledging a mortgage debt, that comply with General Obligations Law § 17-101 , can operate to revive an otherwise time-barred foreclosure claim.  There, we also discussed the general purpose of statutes of limitations, noting that: “The Statute of Limitations was enacted to afford protection to defendants against defending stale claims after a reasonable period of time had elapsed during which a person of ordinary diligence would bring an action. The statutes embody an important policy of giving repose to human affairs.” Flanagan > >, 24 N.Y.2d <427> at 429 <1969> (citation omitted). It has been stated that “the primary purpose of Statutes of Limitation is to relieve defendants of the necessity of investigating and preparing a defense where the action is commenced against them after the expiration of the statutory period because the law presumes that by that time evidence has been lost, memories have faded and witnesses have disappeared.”  Connell v. Hayden , 83 A.D.2d 30 (2 nd Dep’t 1981).  As to the limitations period relevant to mortgage foreclosure actions, we have previously written that: An action to foreclose a mortgage is governed by a six-year statute of limitations.  CPLR 213(4) .  See also , Fed. Nat. Mort. Assoc. v. Schmitt , 172 A.D.3d 1324, 1325 (2 nd Dep’t 2019).  When a mortgage is payable in installments, “separate causes of action accrue for each installment that is not paid and the statute of limitations begins to run on the date each installment becomes due.”  HSBC Bank USA, N.A. v. Gold , 171 A.D.3d 1029, 1030 (2 nd Dep’t 2019).  Most mortgages, however, provide that a mortgagee may accelerate the entire debt in the event of, inter alia , a payment default by a mortgagor. Thus, “the terms of the mortgage may contain an acceleration clause that gives the lender the option to demand due the entire balance of principal and interest upon the occurrence of certain events delineated in the mortgage.”  Bank of New York Mellon v. Dieudonne , 171 A.D.3d 34, 37 (2 nd Dep’t 2019) (citations and internal quotation marks omitted).  Once the mortgagee’s election to accelerate is properly made, “the borrower’s right and obligation to make monthly installments ceased and all sums became immediately due and payable.”  The statute of limitations begins to run anew on the entire debt upon acceleration.  HSBC , 171 A.D.3d at 1030 (citations omitted). “ o dismiss an action pursuant to CPLR 3211(a)(5) on the ground that it is time-barred by the applicable statute of limitations, a defendant bears the initial burden of demonstrating, prima facie, that the time within which to commence the action has expired.”  Gurecki v. Gurecki , 189 A.D.3d 1729, 1731 (3 rd Dep’t 2020) (citations internal quotation marks and brackets omitted).  “If the defendant satisfies this burden, the burden shifts to the plaintiff to raise a question of fact as to whether the statute of limitations was tolled or otherwise inapplicable.”  Gurecki , 189 A.D.3d at 1731 (citation and internal quotation marks omitted). Section 17-101 of the GOL can provide a statutory basis to revive the limitations period to foreclose a mortgage in the face of a qualifying writing.  Similarly, the “common-law, partial payment exception to the statute of limitations …, if proven, has the effect of extending or renewing the statute of limitations period” when qualifying partial payments are made to lender.  McNeary v. Charlebois , 169 A.D.3d 1295, 1296 (3 rd Dep’t 2019) (citations omitted).  According to this exception, a “debtor’s partial payment toward a mortgage debt may renew the statute of limitations in a foreclosure action if the creditor “show that there was a payment by the debtor or the debtor’s agent of an admitted debt, made and accepted as such, accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remaining balance.”  Wells Fargo Bank N.A. v. Grover , 165 A.D.3d 1541, 1542 (3 rd Dep’t 2018) (citations and internal quotation marks omitted). In 1998, the Gurecki plaintiff (“lender”) sold property to a family member and took a note secured by a mortgage on the property to evidence the repayment obligation.  The note, which did not require periodic payments, came due in 2008 and borrower defaulted.  The mortgage was not recorded until April 2017.  In May of 2017, borrower sold the property to a third-party (“buyer”), who obtained a mortgage from the Bank of Greene County (“bank”).  The title report issued in conjunction with the sale to purchaser failed to turn out the belatedly recorded mortgage.  Lender commenced a foreclosure action and named borrower, buyer and bank as defendants.  Buyer and bank moved to dismiss the complaint as against them asserting , inter alia , a statute of limitations defense.  Supreme court denied the motion and buyer and bank appealed.  The Third Department reversed. To support a “partial payment exception” argument Lender averred that borrower “made payments, in varying amounts, on fourteen occasions over an eight-year period.  Twelve of the payments were made before the expiration of statute of limitations and two were made after. As to first twelve payments, the Gurecki Court stated they were “mere naked payments of money without anything to show on what account, or for what reason, the money was paid, and, thus, they are insufficient to raise an issue of fact as to whether the statute of limitations was tolled.”  Gurecki , 189 A.D.3d at 1731 (citations and internal quotation marks omitted).  As to the last two payments, however, lender averred they were “accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder” sufficient to satisfy the requirements of the “partial payment exception.” Gurecki , 189 A.D.3d at 1731. The Gurecki Court found the exception inapplicable to the buyer and bank and, in so doing, made a distinction focusing on the timing of the payments: owever, the tolling or revival effect of partial payments differs as between the payor – – and subsequent purchasers – buyer and bank ( see General Obligations Law § 17–107 <2> ). To that end, as relevant here, a qualifying partial payment that is made before the expiration of the statute of limitations will renew the statute of limitations against any subsequent purchaser. In contrast, a qualifying partial payment that is made after the expiration of the statute of limitations will only revive the statute of limitations as to a subsequent purchaser who did not give value or who had actual notice of the making of the payment ( see General Obligations Law § 17–107<2> ; <2d par> ). Here, even assuming that the 2016 payments met the test set forth in Lew Morris Demolition Co. v. Board of Educ. of City of N.Y ., 40 N.Y.2d at 521, 387 N.Y.S.2d 409, 355 N.E.2d 369 <1976> , at the time that they were made the statute of limitations had expired. Given that the record is clear that are purchasers for value and put forth no evidence that had actual notice of the 2016 payments, the payments did not have the effect of reviving the statute of limitations as to . Gurecki , 189 A.D.3d at 1732 (some citations and footnote omitted; emphasis in original). The Fourth Department, on April 22, 2022, addressed these issues in Citibank, N.A. v. Gifford . There, borrowers, Thomas and Marlene, executed a noted secured by a mortgage on their residence.  Thomas executed a modification agreement twenty years later.  Lender commenced a mortgage foreclosure action and moved for summary judgment.  Borrower cross-moved for summary judgment on statute of limitations grounds .  Supreme court granted lender’s motion as against Thomas and denied it as against Marlene and granted the cross-motion to the extent that it sought dismissal as against Marlene.  The Fourth Department modified the order to the extent of denying the cross-motion as to Marlene and granting lender’s motion in its entirety.  After discussing the issues previously set forth in this article, the Court stated: Here, even assuming, arguendo, that met their initial burden on their cross motion, we conclude that established in opposition that the common-law, partial payment exception to the statute of limitations had the effect of extending or renewing the statute of limitations period with respect to Thomas…. The partial payment exception requires proof that there was a payment of a portion of an admitted debt, made and accepted as such, accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder.  If the exception is established, the statute of limitations begins to run anew from the date of the partial payment. For 's action to have been timely commenced, a qualifying partial payment must have been made on or after April 18, 2013. Here, 's submissions demonstrated that a payment in the amount of the monthly payment required under the terms of the 2011 Agreement was made on or about May 1, 2017. Indeed, lender's submissions showed that it received multiple payments in that amount between April 2013 and May 2017, and did not dispute that such payments had been made. Further, inasmuch as also established that the partial payment exception applied to Marlene …, we agree with 's contention on its appeal that the court erred in granting the cross motion insofar as it sought summary judgment dismissing the complaint against Marlene …. took title to the property in question as husband and wife without any restriction, and they thereupon became tenants by the entirety. In an estate by the entirety the husband and wife are each seized of the entire estate, per tout et non per my . Each owns, not an undivided part, but the whole estate. Thus, any payments made by Thomas … that inured to Marlene<'s> … benefit were implicitly authorized by Marlene … and worked to renew the statute of limitations as to both .  (Citations, ellipses, internal quotation marks and brackets omitted; emphasis in original.) 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 New York courts favor the enforcement of forum selection clauses. They do so because they provide certainty and predictability in the resolution of disputes.  here=">here" and="and" >here.=">here."> A forum selection clause is “prima facie valid and enforceable unless it is shown by the challenging party to be unreasonable, unjust, in contravention of public policy, invalid due to fraud or overreaching.” Because a forum selection clause is “prima facie valid and enforceable”, New York courts do not hesitate to dismiss actions that were brought in violation of the agreed upon forum. “ he party asserting the applicability of the forum selection clause has the burden of establishing that the forum selection clause applies.”  In Massoumi v. Ganju , 2022 N.Y. Slip Op. 02760 (1st Dept. Apr. 26, 2022) ( here ), the Appellate Division, First Department reversed the dismissal of the action because the forum selection clauses at issue did not govern the dispute and was alleged to have been procured by fraud.   Plaintiff is the co-founder, former Chief Executive Officer (“CEO”) and board member of non-party Zocdoc, Inc. (“Zocdoc”), a Delaware corporation with its principal place of business in New York. In September 2020, plaintiff commenced the action against defendants Oliver Kharraz, Nikhil Ganju (Zocdoc co-founders and officers), and Netta Samroengraja, alleging fraud and conspiracy to commit fraud. Plaintiff sought damages and declaratory relief that, inter alia , he should be restored to his former executive and board member positions. He also sought to invalidate Amendment No. 4 to Zocdoc’s bylaws, proposed in his absence, which purported to make the Court of Chancery of the State of Delaware the exclusive forum for issues governed by the internal affairs doctrine. In November of 2015, Zocdoc’s board of directors voted to remove plaintiff as CEO. At the same meeting, the board voted to adopt a number of corporate actions, including an amendment to the company’s bylaws that made Delaware the exclusive forum for lawsuits that concerned the company’s internal affairs. After being approved by the board, the forum selection bylaw amendment was submitted for stockholder consent and ratification. In October 2018, plaintiff made a shareholder inspection demand under Section 220 of the Delaware General Corporation Law (“DGCL”) to review certain non-public details about Zocdoc’s business (the “Demand”). In connection with the Demand, plaintiff signed a Confidentiality and Non-Disclosure Agreement (“NDA”), as a stockholder, to inspect Zocdoc’s books and records. The NDA required that a demanding stockholder who wished to file a claim based on “Confidential Inspection Material” must do so in Delaware.  Under the NDA, the following information was excluded from the definition of “Confidential Inspection Material”: a) information generally available to the public; (b) information that was available to the demanding stockholder on a non-confidential basis prior to its disclosure by the company; and/or (c) information that was in the demanding stockholder’s possession prior to its disclosure by the company.  As noted, plaintiff brought suit in connection with his removal from the company, claiming, among other things, fraud. In particular, plaintiff alleged that defendants lied to him about the purpose and agenda of the November 2015 board meeting and concealed the meeting’s true purpose from him. Plaintiff claimed that had he known the truth, he would have taken majority control of Zocdoc’s Class B common shares and protected his position with the company. Defendants moved to dismiss the action pursuant to CPLR § 3211(a)(1) and (7), arguing that the forum selection clauses in the NDA and Amendment No. 4 to the bylaws required the plaintiff to bring his claims in Delaware, and, in any event, plaintiff failed to state a claim upon which relief could be granted. Plaintiff opposed the motion. The motion court granted the motion to the extent of “dismissing the complaint without prejudice to refiling the action in Delaware.” The First Department reversed, vacated the judgment issued in connection with the motion court’s decision and order, reinstated the complaint, and denied the defendants’ motion. The Court held that “defendants failed to meet their burden of establishing that the forum selection clause in the NDA applie to th action.” The Court found that “ he complaint not based on, not rely on, and not incorporate Confidential Inspection Material.” The Court explained that the “crux of the complaint concern actions taken in November 2015 — three years before the NDA — of which plaintiff ha personal knowledge.” Under the NDA, said the Court, “Confidential Inspection Material not include information that plaintiff already possessed prior to signing the NDA.” Moreover, held the Court, “Confidential Inspection Material not include public information.” The Court noted that plaintiff “specifically cite to public information to support allegation that nonparty Zocdoc, Inc. ha lost value since defendants ousted him as CEO and chairman of the board, thus reducing the value of his Zocdoc shares.” The Court rejected the argument that Zocdoc’s current bylaws may constitute Confidential Inspection Material, noting that the focus of the complaint was “on the amendments that were passed in November 2015 … which … part of the non-confidential record on appeal.” With regard to the forum selection clause in the amendment to the bylaws ( i.e. , Amendment No. 4), the Court held that the internal affairs doctrine did not warrant dismissal of the claims.  Under 8 Del. C. § 115, a corporation’s “bylaws may require … that any or all internal corporate claims shall be brought solely and exclusively in any or all of the courts ”. When they do, Delaware courts (and the courts of New York) require litigation concerning the corporation’s internal affairs to be brought in a Delaware court as such a provision is valid and enforceable to the same extent as other contractual forum-selection clauses.   The internal affairs doctrine governs claims that, among other things, “are based upon a violation of a duty by a current or former director or officer or stockholder,” or “as to which confers jurisdiction upon the Court of Chancery.” “Matters falling within the scope of the … include … the election or appointment of directors and officers, the adoption of by-laws, … the holding of directors’ and shareholders’ meetings, … by-law amendments<.> ”  The Court found that based upon the allegations in the complaint, Amendment No. 4 was not valid. The Court explained that “plaintiff ha set forth sufficient allegations that the amendment was part of the fraud perpetrated upon him.” Under New York law, fraud vitiates the entire agreement, including a forum selection clause found therein. The same is true under Delaware law, where the courts have held that “the use of deception as a means by which to conduct a Delaware corporation’s affairs” is prohibited.  Finally, the Court rejected the defendants’ contention that Amendment No. 4 was valid because Zocdoc’s shareholders ratified it. Since the fraudulent acts rendered the amendment void, said the Court, it could not “be cured by shareholder approval.” In other words, said the Court, “ f an action is ‘the product of fraud,’ it is void.”  Takeaway Massoumi highlights the distinction between acts that are void and voidable. As noted by the Court, acts of fraud are void. And, in the corporate context, such acts cannot be ratified by shareholder vote and approval. The distinction between void and voidable acts was an issue in Klaasen v. Allegro Dev. Corp. , cited herein. There, the Delaware Supreme Court, in an en banc decision, held that board action carried out by means of deception is per se void, not voidable. In doing so, the Court made the distinction between void and voidable acts, corrected past cases that blurred the distinction, and partially overruled two other cases.  New York takes the same approach. In DeSola Group v. Coors Brewing Co. , the First Department held that fraudulent acts vitiate an agreement in its entirety: “Even assuming the Agreement is applicable, the forum selection clause contained therein is unenforceable since the record is replete with allegations indicating that the entire Agreement was permeated with fraud…. Since plaintiff’s allegations of fraud pervading the entire Agreement would render the entire Agreement void, the forum selection clause contained therein is unenforceable.”  The takeaway, therefore, is the importance of the distinction between void and voidable acts. As shown in Massoumi , acts that are the result of alleged fraudulent behavior are void and not subject to equitable defenses (such as acquiescence and ratification). 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 Brodsky v. Match.com LLC , 2009 WL 3490277, at *4 (S.D.N.Y. Oct. 28, 2009). Boss v. Am. Express Fin. Advisors, Inc. , 6 N.Y.3d 242, 246 (2006). Premium Risk Grp. v. Legion Ins. Co. , 294 A.D.2d 345, 346 (2d Dept. 2002). Creative Mobile Techs., LLC v. Smart Modular Techs., Inc. , 97 A.D.3d 626, 627 (2d Dept. 2012); British W. Indies Guar. Tr. Co. v. Banque Internationale a Luxembourg , 172 A.D.2d 234, 234 (1st Dept. 1991). U.S. Immigration Fund LLC v. Litowitz , 2019 WL 1421377, at *6 (Sup. Ct., N.Y. County Mar. 29, 2019), aff’d as modified , 2020 N.Y. Slip Op. 02533 (1st Dept. 2020).  The factual discussion of Massoumi comes from the Court’s decision and the briefing of the parties before the motion court and the First Department.  Slip Op. at *1 (citing, DeSola Grp. v. Coors Brewing Co. , 199 A.D.2d 141 (1st Dept. 1993)). Id. Id. Id. Id. at *2. Id. Boilermakers Local 154 Ret. Fund v. Chevron Corp. , 73 A.3d 934 (Del. Ch. 2013). See also Hemg Inc. v. Aspen Univ. , 2013 WL 5958388, at *2-3 (Sup. Ct., N.Y. County Nov. 4, 2013). 8 Del. C. § 115. Restatement (Second), Conflict Of Laws § 302, cmt. a. Slip Op. at *2.  Id. (citing, DeSola , 199 A.D.2d at 141). Amazing Home Care Servs., LLC v. Applied Underwriters Captive Risk Assur. Co. Inc. , 191 A.D.3d 516, 518 (1st Dept 2021). See also DeSola , 199 A.D.2d at 141-142. Klaasen v. Allegro Dev. Corp. , 106 A.3d 1035, 1046 (Del. 2014). See also Bäcker v. Palisades Growth Capital II , 246 A.3d 81, 106 (Del. 2021) (noting that board actions tainted by deception are invalid); Hockessin Cmty. Ctr., Inc. v. Swift , 59 A.3d 437, 458 (Del. Ch. 2012) (actions taken by a board or director that were “obtained through trickery or misrepresentation” are invalid). Slip Op. at *2 (quoting, Nevins v. Bryan , 885 A2d 233, 245 (Del. Ch. 2005), aff’d , 884 A.2d 512 (Del. 2005)). Id. (citing, Nevin , 885 A.2d at 253 n.77). DeSola Group v. Coors Brewing Co. , 199 A.D.2d 141, 141-142 (1993).

By:  Jeffrey M. Haber Since inception of this Blog, we have written about many types of fraud, such as affinity fraud, common law fraud, fraud in the inducement, fraudulent concealment, and securities fraud.  Until today, we have not directly examined fraud in the execution. 1 Fraud in the execution, or fraud in the factum, arises where a party did not know the nature or the contents of the document being signed, or the consequences of signing it, and was nonetheless misled into executing it. 2 As one might expect, the failure to read the document before signing “prevents from establishing justifiable reliance, an essential element of fraud in the execution.” 3 In other words, absent some impairment ( e.g. , “the signer is illiterate, blind, or not a speaker of the language in which the document is written”), 4 a plaintiff cannot justifiably rely on another’s representation that the words used in the document means something other than what they plainly state. 5 Importantly, the signer who claims to have some impairment, must be free of negligence. 6 This means that disability by itself does not automatically excuse the signer from making a reasonable effort to learn the contents of the document being signed. 7 “The cases consistently hold that a person” with a disability or an inability to speak and/or read the English language “must make a reasonable effort to have the document read to him.” 8 With the foregoing principles in mind, we examine Paredes v. Vorhand , recently decided by the Appellate Division, Fourth Department ( here ). 9 Paredes arose from an alleged installment purchase contract concerning real property located in Buffalo, New York (the “Property”). Plaintiff contended that he entered a “lease to own” transaction through an “installment land contract” involving the Property (the “Contract”).  According to the complaint, plaintiff is from Puerto Rico and lacks a fluency in the English language. The Contract identified Hermann Vorhand as the seller of the Property. Defendant maintained, however, that Hermann was not the owner of the Property; instead, the Property was owned by defendant. Plaintiff signed the Contract, but the seller did not.  Plaintiff became a tenant of the Property in July 2014. Plaintiff maintained that he made 62 monthly payments pursuant to the Contract. The rent was collected by defendant International Realty of WNY, LLC, a property management company that leases and collects rents for residential real properties, including the Property.  Defendants denied the validity of the Contract and, upon demand for a warranty deed to the Property, refused to provide same. Thereafter, plaintiff commenced the action.  In the complaint, plaintiff asserted claims for specific performance ( i.e. , breach of contract), fraudulent inducement, fraud in the execution, unjust enrichment, and wrongful eviction. Defendants moved to dismiss. With regard to the fraud claims, defendants argued that plaintiff failed to plead fraud with particularity under CPLR § 3016(b) and satisfy the justifiable reliance element of the fraud claims. Plaintiff opposed the motion and filed a cross motion for summary judgment, which defendants opposed. The motion court denied the motion and cross motion without decision. Defendants appealed. The Fourth Department modified the motion court’s order with respect to the fraud in the execution claim. In a pithy decision and order, the Court agreed with defendants that the motion court erred in not dismissing the fraud in the execution cause of action. 10 The Court held that plaintiff failed to challenge the validity of the Contract, which is the essence of fraud in the execution claim: “the complaint fails to state a cause of action for fraud in the execution because it does not allege that plaintiff was induced to sign anything other than the installment land contract that he now seeks to enforce.” 11 Without such an allegation, the Court said that plaintiff was not induced “to sign something entirely different than what thought was signing.” 12 Takeaway Fraud in the execution generally concerns an attack upon the very existence of a contract from its inception. In effect, the allegation is that from the beginning there was no legal contract. The challenge is focused on the facts occurring at the time of the alleged execution of the agreement, upon which the validity of the agreement depends. For example, the claim would be that the signatory signed an instrument different from that which he was told or understood it to be. 13 In Paredes , plaintiff could not meet this burden because he was relying on the existence of the Contract for his breach of contract and fraud in the inducement claims. Fraud in the execution is different than fraud in the inducement. In the latter, the fraud is based on facts occurring prior or subsequent to the execution of a contract which tend to demonstrate that an agreement, valid on its face and properly executed, is to be limited or avoided. In Paredes , the Court affirmed the denial of the motion to dismiss the fraud in the inducement cause of action. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. References In the article, “Second Department Finds Release Binding Despite Plaintiff’s Claim About Not Understanding The English Language” ( here ), this Blog discussed the principle of impairment ( i.e. , an inability to speak and/or read the English language for one reason or another) in the context of the enforcement of a release.  Fleming v. Ponziani , 24 N.Y.2d 105, 111 (1969); Gilbert v. Rothschild , 280 N.Y. 66, 71-72 (1939). Sorenson v. Bridge Capital Corp. , 52 A.D.3d 265, 266 (1st Dept. 2008), lv. dismissed , 12 N.Y.3d 748 (2009). Anderson v. Dinkes & Schwitzer, P.C. , 150 A.D.3d 805, 806 (2d Dept. 2017). Countrywide Home Loans, Inc. v. Gibson , 157 A.D.3d 853, 856 (2d Dept. 2018); see also Ackerman v. Ackerman , 120 A.D.3d 1279, 1280 (2d Dept. 2014); Dasz, Inc. v. Meritocracy Ventures, Ltd. , 108 A.D.3d 1084, 1084-1085 (4th Dept. 2013); Sorenson , 52 A.D.3d at 266. See also Pimpinello v. Swift & Co. , 253 N.Y. 159, 163 (1930) (holding, “ f the signer is illiterate, or blind, or ignorant of the alien language of the writing, and the contents thereof are misread or misrepresented to him by the other party, or even by a stranger, unless the signer be negligent, the writing is void”). Sofio v. Hughes , 162 A.D.2d 518, 520 (2d Dept. 1990). Id. Id. (citing, Albany Med. Center Hosp. v. Armlin , 146 A.D.2d 866, 867 (3d Dept. 1989), and Brian Wallach Agency v. Bank of N.Y. , 75 A.D.2d 878, 879 (2d Dept. 1980)). Paredes v. Vorhand , 2022 N.Y. Slip Op. 02732 (4th Dept. Apr. 22, 2022). Slip Op. at *1. Id. Id. (quoting, ABR Wholesalers, Inc. v. King , 172 A.D.3d 1929, 1930 (4th Dept. 2019)).  Under New York law, “ party to a writing is presumed to have read and understood the document which he signed.” Marine Midland Bank v. Idar Gem Distribs. , 133 A.D.2d 525, 526 (4th Dept. 1987).

By Jonathan H. Freiberger The readers of this Blog know that we frequently discuss numerous aspects of residential mortgage litigation.  S ee, e.g., < here =">here"> and the articles linked therein.  A related subtopic that gets much attention in this Blog is the pre-foreclosure notice requirements of RPAPL 1304 .  See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . Briefly, and as noted in prior Blog articles, RPAPL 1304 requires that at least ninety days before commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a lender must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that offer free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter.  One purpose of RPAPL 1304 is to enable defaulted borrowers to “benefit from the information provided in the notice and the 90–day period during which the parties could attempt to work out the default without imminent threat of a foreclosure action, in an effort to further the ultimate goal of reducing the number of foreclosures”.  CIT Bank N.A. v. Schiffman , 36 N.Y.3d 550, 555 (2021) (citation and internal quotation marks omitted). The failure of a lender to comply with RPAPL 1304 will result in the dismissal of a foreclosure complaint ( see, e.g., U.S. Bank N.A. v. Beymer , 161 A.D.3d 543 (1 st Dep’t 2018)) when the issue is raised as an affirmative defense by the borrower ( see, e.g., One West Bank, FSB v. Rosenberg , 189 A.D.3d 1600, 1602-3 (2 nd Dep’t 2020) (citation omitted)).  Indeed, “proper service of the notice containing the statutorily mandated content is a condition precedent to the commencement of a foreclosure action.”  U.S. Bank N.A. v. Taormina , 187 A.D.3d 1095, 1096 (2 nd Dep’t 2020) (citations omitted).  When failure to comply with RPAPL 1304 is raised as an affirmative defense, the foreclosing lender must demonstrate its compliance with the statute as part of its prima facie case.  Bank of America, N.A. v. Wheatly , 158 A.D.3d 736 (2 nd Dep’t 2018) (citations omitted).   As specifically relates to this article, RPAPL 1304 sets forth the precise text of the pre-foreclosure notice that must be sent to a borrower, which requires the lender to, inter alia , advise the borrower that “ s of ____, your loan is ____ days and ____ dollars in default.”  Whether an alleged inaccuracy in the dollar amount of the default “filled-in” on the RPAPL 1304 notice sent to the borrower provided a defense to a mortgage foreclosure action, was one of the issues decided on April 20, 2022, by the Appellate Division, Second Department, in Emigrant Bank v. Cohen . The facts of Emigrant are typical.  Emigrant Mortgage Corp. (“EMC”) loaned borrower $2.1 million secured by a mortgage on real property in Brookville, New York.  Emigrant Bank (“Plaintiff”), successor by merger with Emigrant Savings Bank-Long Island (“ESB-LI”), commenced a foreclosure action after borrower’s default.  Borrower answered the complaint and asserted affirmative defenses, including lack of standing and failure to comply with the requirements of RPAPL 1304.  Plaintiff moved for summary judgment on its complaint, to strike borrower’s answer and for an order of reference.  Among other things, Plaintiff annexed to its moving papers a copy of the RPAPL 1304 notice which “identified the default amount as $64,862.12 over 57 days.”  Supreme court granted the motion, finding that Plaintiff had standing to commence the action and that the RPAPL 1304 notices were proper.  Borrower appealed.  The Second Department affirmed supreme court on the RPAPL 1304 issues but reversed on the issue of standing. RPAPL 1304 As to the RPAPL 1304 notice, borrower argued that the proper mailing was not established, and that the inaccuracy of the default amount rendered the notice defective.  The Court disagreed with borrower on both counts.  Issues related to proof of proper mailing and business records are discussed in the Emigrant decision and in numerous prior Blog articles linked herein. On appeal, borrower disputed the accuracy of the amount allegedly due because “a $10,636.81 monthly obligation which is overdue by 57 days cannot possibly amount to $64,862.12.”  Borrower argued, therefore, that “an alleged inaccuracy in the default amount set forth in the plaintiffs RPAPL 1304 notice warrants denial of the plaintiff’s motion for summary judgment, as an inaccuracy represents a lack of strict compliance with the requirements of the statute.”  The Second Department described this issue as one “of first appellate impression,” and promptly rejected same.  In so doing, the Court concluded that “strict compliance with RPAPL 1304 is satisfied so long as the duration and an amount of the default is contained in the notice, and that any continuing dispute over the specific amount is an issue that must await the parties' later litigation.” In reaching its conclusion, the Court noted that while the RPAPL 1304 notice is a “condition precedent to the commencement of” certain mortgage foreclosure litigations, the “notice is not jurisdictional and does not represent the litigation itself.”  (Citations omitted.)  Stated differently, “the notice provides homeowners with required and useful ‘information’ to protect their interests, but is not ‘adjudicative’ in nature since there is no litigation between the parties during its statutory 90-day period.”  The adjudication of the amounts due occurs, as noted by the Court, after the order of reference “when a referee hears and reports on the amount due under the note and when the court thereafter entertains a motion for a judgment of foreclosure and sale using the referee’s sum or other sum in a judgment.”  (Citations omitted.)   The Court acknowledged its prior recognition that “there must be strict compliance with the mandates of RPAPL 1304”, but found that “where RPAPL 1304 requires that homeowner to be informed of the duration and dollar amount of a mortgage-related default, and the creditor provides a notice that includes the number of days of the default, a dollar amount of claimed arrears, and the cure date, the plaintiff has met its burden of demonstrating strict compliance with the statute.”  (Citations omitted.)  Explaining its decision, the Court stated: The language of RPAPL 1304 necessarily requires the creditor to unilaterally determine the default amount that it believes due at that snapshot in time, and advise the homeowner of that sum and of other rights and warnings. No provision of the statute, which has otherwise been written with great legislative detail, care, and precision, requires that there be any breakdown about how the default amount is mathematically computed. The statute does not infuse into the notice procedure an adjudicative mechanism or penalty in the event that the homeowner takes issue with the amount of the identified default sum. The sum, once set forth in the notice, will necessarily change with time. It may be discussed and negotiated with the mortgagee post-notice, consistent with the statute's public policy purpose of helping the mortgagor bridge the communication gap to potentially avoid a foreclosure litigation and retain the home. Here, the plaintiff satisfied the requirements of RPAPL 1304 by advising in the RPAPL 1304 notice of the number of days of the default and the sum claimed then to be due. If this Court were to accept 's argument that an RP APL 1304 notice is rendered defective because of an alleged inaccuracy in the stated default amount, then we would elevate it from a notice statute to one which determines the merits of the dispute and, at the same time, eviscerate the purpose of the provisions of RPAPL 1321. This is not to say that an RPAPL 1304 notice survives scrutiny if it is actually defective on its face.  Where an RPAPL 1304 notice fails to reflect information mandated by the statute, including but not limited to the duration and an amount of the default, the statute will not have been strictly complied with and the notice will not be valid.   Citations omitted. Standing This Blog has also addressed the issue of standing in mortgage foreclosure actions.  See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> .  As previously noted in this Blog’s articles, where “a plaintiff’s standing to commence a foreclosure action is placed in issue by the defendant, it is incumbent upon the plaintiff to prove its standing to be entitled to relief.”  Wells Fargo Bank, N.A. v. Arias , 121 A.D.3d 973, 973-74 (2 nd Dep’t 2014) (citation and internal quotation marks omitted).  A lender establishes standing in a foreclosure action “by demonstrating that, when the action was commenced, it was either the holder or the assignee of the underlying note.”  U.S. Bank National Association v. Seeley , 177 A.D.3d 933, 935 (2 nd Dep’t 2019) (citations omitted).  The Emigrant Court explained that “ tanding in residential mortgage foreclosure actions may be established any of three ways: (1) where the plaintiff is the original lender in direct privity with the defendant; (2) where the plaintiff is a holder in physical possession of the note prior to the commencement of the action, with an allonge or indorsement in blank or special indorsement to the plaintiff; or (3) when the note underlying an action was assigned to the plaintiff prior to the date of commencement of the action.”  (Citations and internal quotation marks omitted.) In Emigrant , the Court found that Plaintiff failed to establish standing because “ he plaintiff is not the original lender he subject note, though attached to the complaint, bears no indorsement.”  Additionally, “the plaintiff failed to produce evidence in admissible form as part of its prima facie case that the note was assigned to it prior to the date of commencement of the action.”  In this regard, the Court stated: while the plaintiff submitted the assignment of the mortgage from the originator, EMC, to its assignee, ESB-LI, "together with the bond or note or obligation described in said mortgage," the record contains no evidence in admissible form that the note was ever further assigned from ESB-LI to the plaintiff  The certificate of merger showing that ESB-LI merged into the plaintiff does not demonstrate that the plaintiff is the holder of the subject note. It was submitted to the Supreme Court for the first time in the plaintiff's reply papers, and therefore, could not be considered as part of the plaintiff's initial prima facie proof of standing. Procedure aside, the certificate of merger and related documents submitted by the plaintiff indicate that ESB-LI transferred its assets to one or more institutions including Emigrant Bank …, which fails to adequately track the subject note and mortgage specifically to the plaintiff. Citations and internal quotation marks omitted, emphasis in original. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber Under well-settled principles, summary judgment in lieu of complaint is available for an instrument for the payment of money only. In considering such a motion, the courts will look at the four corners of the instrument sued upon in determining whether the instrument qualifies as one for the payment of money only. See,  e.g. ,="3213. See, e.g.," here,  here and  here.=">here."> Most cases under CPLR § 3213 involve promissory notes – the type of negotiable instrument for which there is little or no debate over whether it constitutes an instrument for the payment of money only. 1 Some cases involve commercial instruments, such as a guarantee of debt, which fall within the scope of CPLR § 3213. Other cases involve agreements between the parties. These cases show that an agreement can be an instrument for the payment of money only when it “contains an unconditional promise to pay a sum certain over a stated period of time”. 2   Where, however, the agreement “requires something in addition to defendant’s explicit promise to pay a sum of money, CPLR 3213 is unavailable.” 3 In other words, “a document comes within CPLR 3213 if a prima facie case would be made out by the instrument and a failure to make the payments called for by its terms”. 4 An instrument will “not qualify if outside proof is needed, other than simple proof of nonpayment or a similar de minimis deviation from the face of the document.” 5 In Insitro, Inc. v. Cellaria, Inc. , 2022 N.Y. Slip Op. 30902(U) (Sup. Ct., N.Y. County Mar. 14, 2022) ( here ), the court was asked to consider whether a settlement agreement constituted an instrument for the payment of money only. As discussed below, the court held that it was such an instrument. Plaintiff moved for summary judgment in lieu of complaint based on defendant’s failure to make certain payments under an amended settlement agreement that the parties had executed in settlement of their previous litigation. The amended agreement was executed to set up a payment schedule pursuant to which defendant was to make certain scheduled payments over a truncated period ( i.e. , between August 3, 2021, and December 10, 2021). Defendant agreed that each missed payment would accrue a $500 late fee for each day that defendant failed to make payment. In addition, for each payment due during or after October 2021 that was not timely made, defendant would accrue an additional payment of 25% of the sum of the missed payment. Defendant made the first scheduled payment and defaulted on the others. Plaintiff sought judgment by filing a motion for summary judgment in lieu of complaint. Defendant did not oppose the motion. The court granted the motion, holding that the amended settlement agreement was an instrument for the payment of money only. The court explained that amended settlement agreement contained an unconditional commitment by defendant to make certain installment payments to plaintiff over a certain period of time. As set forth in the affidavit accompanying the motion, defendant failed to make those payments, leading to further charges and late fees. Accordingly, the court directed judgment be entered in plaintiff’s favor. Takeaway CPLR § 3213 provides for accelerated judgment and does so at the outset of the litigation. There are no pleadings, and there is no discovery when a movant seeks summary judgment under CPLR § 3213.  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. In Insitro , the court found that the amended settlement agreement was such an instrument. 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 Weissman v. Sinorm Deli , 88 N.Y.2d 437, 444 (1996) (noting, a negotiable instrument for the payment of money is the “prototypical example of an instrument within the ambit of the statute”). Bloom v. Lugli , 81 A.D.3d 579, 580 (2d Dept. 2011) (citations omitted). Weissman , 88 N.Y.2d at 444. Id. Id.

By: Jeffrey M. Haber Affinity fraud is a type of securities fraud in which the promoter of the fraud preys upon members of an identifiable group, such as a religious or ethnic community, the elderly, or a professional group. The promoter of an affinity fraud frequently is – or pretends to be – a member or a good friend of the group. The promoter often enlists respected members of the community or religious leaders from within the group to disseminate information about the scheme by convincing them that a fraudulent investment is legitimate and in their best interests. Affinity frauds exploit the trust and friendship that exist in a group of people who have something in common. Because of the tight-knit structure of the group, it can be difficult for regulators or law enforcement officials to detect an affinity fraud. Victims often fail to notify authorities or pursue their legal remedies and instead try to work things out within the group. This is particularly true where the promoters have used respected community or religious leaders to convince others to join the investment. Many affinity frauds involve Ponzi schemes. In a Ponzi scheme, the operator creates an investment program in which “profits” are paid to earlier investors with money taken from later investors. The “profits” are, therefore, fictitious instead of returns on investment. Ultimately, Ponzi schemes collapse under their own weight (because the supply of new money stops), taking investors, many of whom are the later ones in the scheme, down with them. Unfortunately, as is often the case, the promoter of the scheme steals the investor’s money for personal use. Many Ponzi schemes share common characteristics. These include, among others: high returns with little or no risk – i.e., “guaranteed” investment opportunities; overly consistent returns – i.e., investments that consistently generate positive returns regardless of overall market conditions; unregistered investments – i.e., investments that are not registered with the SEC or with state regulators; unlicensed sellers – i.e., investment professionals and firms that are not licensed or registered with state and federal regulators; secretive, complex strategies – i.e., investment strategies that are locked away in a black box or are the operator’s “secret sauce”; and difficulty receiving payments – i.e., difficulty cashing out or obtaining redemptions. See, e.g., here, here and here.=">here."> Shutting down Ponzi schemes and holding the operators accountable for such frauds is an important part of the enforcement mission of the Securities and Exchange Commission (“SEC” or the “Commission”). Recently, in SEC v. Beasley (here), the SEC brought an emergency action against several Las Vegas-area individuals and companies behind an alleged $450 million dollar Ponzi scheme involving purported personal injury settlements. As discussed below, the SEC charged certain defendants with violations of the antifraud provisions of the federal securities laws, certain individual defendants with acting as unregistered brokers, and all defendants with engaging in an unregistered securities offering. The SEC announced the action on April 15, 2021 (here). According to the SEC, Matthew Beasley, an attorney, and Jeffrey Judd and Christopher Humphries falsely told hundreds of investors, including many in their church community, that they would earn 12.5 percent quarterly returns by making purportedly risk-free investments in J&J Consulting Services, Inc. (a Nevada corporation), J&J Consulting Services, Inc. (an Alaska corporation), and J and J Purchasing LLC, companies that Judd allegedly controlled. The SEC claimed that Beasley and Judd created a litigation financing business to supposedly advance funds to tort plaintiffs who had reached settlements with insurance companies. According to the SEC, none of the $449 million raised from investors was used for this purpose. The alleged perpetrators instead used investor money to purchase luxury homes, cars, boats, and a private jet for themselves and paid fictitious returns to keep the Ponzi scheme going. According to the SEC, on March 3, 2022, Beasley confessed to an FBI negotiator that the litigation funding business was a Ponzi scheme. E.g.,="(E.g.," here=">here" and="and" >here.)=">here.)" As="As" reported="reported" by="by" Bloomberg,="Bloomberg," “When="“When" arrived="arrived" at="at" Beasley="Beasley" brandished="brandished" pistol="pistol" shot="shot" him="him" twice.”="twice.”" Thereafter,="Thereafter," despite="despite" his="his" injuries,="injuries," “locked="“locked" himself="himself" inside="inside" home="home" for="for" nearly="nearly" four="four" hours”="hours”" “repeatedly="“repeatedly" confessed”="confessed”" an="an" negotiator="negotiator" that="that" so-called="so-called" investments="investments" were="were" part="part" Ponzi="Ponzi" scheme.="scheme."> Commenting on the action, Tanya Beard, Acting Director of the SEC’s Salt Lake Regional Office, said the following: “As alleged in our complaint, Beasley, Judd, and others enriched themselves through lies and deception, using their religious and community networks to fleece investors out of hundreds of millions of dollars after promising them a nearly 50 percent annual increase on their initial investment”. The SEC filed its complaint (here) in the United States District Court for the District of Nevada. The SEC sought and obtained an asset freeze against Beasley and the other defendants to prevent any further dissipation of investor funds. The SEC is seeking permanent injunctions and disgorgement of ill-gotten gains plus interest and penalties. Takeaway Shutting down Ponzi schemes and holding the operators accountable for such frauds is an important part of the SEC’s enforcement mission. Ponzi schemes are notorious for promising guaranteed returns with little or no risk of loss. As alleged in Beasley, no risk, no loss investing is exactly what defendants promised. As also alleged in Beasley, Ponzi scheme operators perpetrate their fraud on communities in which they are a part of. For this reason, many Ponzi schemes involve an affinity fraud. The SEC has a long history of commencing enforcement proceedings against affinity fraud promoters. In this regard, the SEC has investigated and taken quick action against affinity frauds that have targeted a wide spectrum of groups. here.=">here."> Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.