By: Jeffrey M. Haber Under New York law, an action based upon fraud must be commenced within six years of the date the cause of action accrued, or within two years of the time the plaintiff discovered or could have discovered the fraud with reasonable diligence, whichever is greater. 1 The cause of action accrues when “every element of the claim, including injury, can truthfully be alleged”, 2 “even though the injured party may be ignorant of the existence of the wrong or injury.” 3 Determining when accrual occurs is not easy and often contested. So too is the determination of when the plaintiff discovered or could have discovered the fraud.  In New York, “plaintiffs will be held to have discovered the fraud when it is established that they were possessed of knowledge of facts from which it could be reasonably inferred, that is, inferred from facts which indicate the alleged fraud.” 4 “ ere suspicion will not constitute a sufficient substitute” for knowledge of the fraud. 5 “Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion and the question should be left to the trier of the facts.” 6 Moreover, where the circumstances suggest to a person of ordinary intelligence the probability that s/he has been defrauded, a duty of inquiry arises, and if s/he fails to undertake that inquiry when it would have developed the truth and shuts his/her eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him/her. 7 The test as to when fraud should with reasonable diligence have been discovered is an objective one. 8 Thus, while it is true that New York courts will not grant a motion to dismiss a fraud claim where the plaintiff’s knowledge is disputed, courts will dismiss a fraud claim when the alleged facts establish that a duty of inquiry existed and that an inquiry was not pursued. 9 “The burden of establishing that the fraud could not have been discovered before the two-year period prior to the commencement of the action rests on the plaintiff, who seeks the benefit of the exception.” 10 here=">here" >here.=">here."> In Mizrahi v. YMZ Realty LLC , 2022 N.Y. Slip Op. 01741 (1st Dept. Mar. 15, 2022) ( here ), the Appellate Division, First Department, dismissed plaintiff’s fraud claims as time-barred because plaintiff was on inquiry notice of said claims. Mizrahi involved the sale of property by two brothers. The brothers held an interest in Cornelia Commercial Holding Corp. (“CCHC”). Pursuant to their agreement, plaintiff would be CCHC’s sole shareholder of record, while defendant would have a 40% beneficial ownership interest in CCHC, such that in the event that CCHC was sold, the net proceeds would be divided 60% to plaintiff and 40% to defendant. Plaintiff alleged that in 2013, defendant approached plaintiff with a potential purchaser for the commercial unit owned by CCHC. The purchase price for the unit was $13 million. To effectuate the sale, and at the instruction of defendant, the parties entered into a stock purchase agreement in February 2013, whereby plaintiff transferred his 100% stock ownership interest in CCHC to defendant’s newly formed entity, defendant YMZ Realty (“YMZ”), in exchange for $6 million, 60% of plaintiff’s equity share based on the anticipated $13 million sale proceeds. CCHC’s stock was sold in April 2013 for $16.5 million. The sale was recorded on New York City’s online “Automated City Register Information System” (“ACRIS”). Plaintiff alleged that he did not know that the ultimate sale was for $3.5 million more than was contemplated by the parties’ stock purchase agreement. Plaintiff maintained that defendant defrauded him and concealed the fraud until May 2019, when plaintiff’s accountant received a notice from the New York State Department of Taxation and Finance, Income/Franchise Tax Field Audit Bureau, concerning a 2013 audit. Plaintiff commenced the action seeking damages for, inter alia , fraud. The motion court dismissed the action on the ground that it was barred by the statute of limitations. The court held that the “sale price was always a matter of public record on ACRIS.” The court noted that plaintiff “could have, in minutes from the comfort of his home, verified the sale price on the ACRIS website.” However, explained the court, plaintiff “took no measures whatsoever to verify the sale price within six years.” “The most minimal efforts would have revealed the alleged fraud,” concluded the motion court.  The motion court also noted that plaintiff failed to take any action to protect himself or ascertain the truthfulness of the represented sales price. The court explained that plaintiff never asked to see the contract of sale or the closing statement to verify the final price. “Had his brother refused to share that information,” observed the court, “surely plaintiff would have had reason to know something was amiss.” “Because plaintiff, with reasonable diligence, could have easily discovered any fraud,” the motion court dismissed his fraud claim as time barred. On appeal, the First Department agreed. The Court held that the ACRIS report showed that the property was sold on April 10, 2013, for $16.5 million, not $13 million, as represented in the stock purchase agreement. As a result, said the Court, “publicly available information was sufficient to put him on inquiry notice of possible fraud.” 11 The Court explained that plaintiff “fail to assert, and plaintiff not dispute, that the alleged fraud could have been discovered with due diligence, such that the two-year discovery rule tolling causes of action for fraud would not apply.” 12 The Court also held that the motion court correctly dismissed the remaining claims in the complaint. “Absent a fraud toll, plaintiff’s remaining claims for aiding and abetting fraud, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and unjust enrichment — are also time-barred,” said the Court. 13 Takeaway Mizrahi highlights the need for litigants to act on facts and circumstances from which it could be reasonably inferred that they were the victims of a fraud. The failure to bring suit when the facts suggest fraud will result in dismissal. This is especially true when, as in Mizrahi , the facts are publicly available, and some degree of diligence would reveal the truth. Thus, even though the discovery rule allows the victim of fraud to bring suit when the very nature of the fraud prevents him/her from knowing that he/she was defrauded, or when the defendant conceals those facts from the victim of fraud, the courthouse doors will, nevertheless, close on the litigant who sits on his/her rights.  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 CPLR § 213(8). See also Sargiss v. Magarelli , 12 N.Y.3d 527, 532 (2009); Carbon Capital Mgmt., LLC v. Am. Express Co. , 88 A.D.3d 933, 939 (2d Dept. 2011). Carbon Capital Mgmt. , 88 A.D.3d at 939 (citation and alterations omitted). Schmidt v. Merchants Despatch Transp. Co. , 270 N.Y. 287, 300 (1936). Erbe v. Lincoln Rochester Trust Co. , 3 N.Y.2d 321, 326 (1957). Id. Trepuk v. Frank , 44 N.Y.2d 723, 725 (1978). Gutkin v. Siegal , 85 A.D.3d 687, 688 (1st Dept. 2011).   Id. (citation and internal quotation marks omitted). See Shalik v. Hewlett Assocs., L.P. , 93 A.D.3d 777, 778 (2d Dept. 2012).  Celestin v. Simpson , 153 A.D. 3d 656, 657 (2d Dept. 2017). Slip Op. at *1. Id. (citation omitted). Id. (citations omitted).

By: Jeffrey M. Haber A recurring theme in fraud jurisprudence is the dismissal of fraud claims that duplicate breach of contract claims. As we have noted, a fraud claim will not survive a dismissal motion when there is “a valid and enforceable written contract govern a particular subject matter” and the recovery sought arises out of the same facts and circumstances. 1 There are exceptions to this rule, such as where “a legal duty independent of the contract itself has been violated<,> ” or where the misrepresentation is “collateral or extraneous to the terms of the parties’ agreement”. 2 The exceptions, however, often prove difficult to demonstrate.  here,=">here," >here=">here" and="and" >here.=">here."> In Tecchia v. Bellati , 2022 N.Y. Slip Op. 01524 (1st Dept. Mar. 10, 2022) ( here ), the Appellate Division, First Department reversed the dismissal of a fraud claim on the grounds that it did not duplicate plaintiffs’ breach of contract claim.  Tecchia involved a contract between Plaintiffs, Sara Tecchia and 5N Wooster LLC, and Defendant Canova, Inc. d/b/a Minimal USA to supply custom kitchen furnishings and millwork for renovations to Tecchia’s apartment in SoHo, New York (the “Project”).  In 2012, Tecchia began the renovation process for the apartment. She visited the Minimal USA showroom in mid-2012, where she was shown numerous catalogs and products that she understood were manufactured by Minimal USA and not Minimal Cucine. Since 2012, Minimal USA has been the exclusive distributor for Minimal Cucine products in the United States pursuant to a Distribution Agreement. Tecchia believed that Minimal USA was an Italian company, Minimal Cucine, that provided custom-made home solutions and that it was represented in New York City by Minimal USA. Tecchia maintained that defendant, Bartolomeo Bellati, president of Minimal USA, told her he would provide “Minimal products” for the Project. Tecchia hired Minimal USA within a week of the initial meeting. Pursuant to the contract by and between Minimal USA and Tecchia, Minimal USA agreed to sell, among other things, to Tecchia “ ustom furniture and millwork made in Italy” (the “Contract”). In particular, the Contract concerned the design and manufacture of custom goods, including a custom-built kitchen, customized shower, custom built master beds and guest beds, closets, doors, vanity, and plumbing and bath appliances.  In September 2013, Tecchia hired a contractor to provide construction management services for the Project. During the Project, Tecchia claimed that items installed by Defendants were defective and needed replacement. Tecchia terminated the Contract with Minimal USA in or around February 2015. Plaintiffs commenced the action alleging that Defendants breached the Contract by failing to provide Minimal Cucine products, failing to properly install the products, and failing to complete the job in a timely manner. Plaintiff asserted claims for (1) breach of contract against Minimal USA, (2) breach of contract against Minimal USA, and (3) fraud. Defendants asserted counterclaims for (1) breach of contract, and (2) delay damages.  Defendants moved for summary judgment as to their first counterclaim for breach of contract and for dismissal of the complaint. Supreme Court granted the motion ( here ). Supreme Court held that Plaintiffs failed to show evidence of damages that flowed from the alleged breach of the Contract. In particular, the court found that there was no breach of the Contract because there was nothing in the Contract that required Defendants to provide Minimal Cucine products – that is, the Contract did not expressly identify or provide for such products to be used/installed in the Project. Moreover, there could be no breach because Defendants supplied products that were available to satisfy Tecchia’s custom requirements. Supreme Court also held that the fraud claim was duplicative of the breach of contract claim. The court explained that the agreement between the parties contained a future promise for the delivery of custom millwork pursuant to the express terms of the Contract. The claim that Tecchia paid for millwork by the wrong manufacturer, said the court, was both belied by the Contract, which is with Minimal USA and does not provide for Minimal Cucine products, and her deposition testimony where she indicated a lack of appreciation of the difference between Minimal USA and Minimal Cucine products. Accordingly, concluded the court, the fraud claim duplicated plaintiffs’ contract claim. On appeal, the First Department reversed the dismissal of the fraud claim. The Court held that “ he motion court should not have dismissed the cause of action for fraud as duplicative of the contract claims.” The Court explained that the Contract between Minimal USA and Tecchia did not require Minimal USA to provide Minimal Cucine products. In fact, noted the Court, “the contract ambiguous in that regard”. Therefore, defendants’ alleged misrepresentation that they would provide Minimal Cucine products was separate and apart from the Contract. Further, explained the Court, “in light of Tecchia’s deposition testimony, in which she stated that defendant Bartolomeo Bellati told her that Minimal USA would provide her with products made by Minimal Cucine, defendants have failed to sustain their burden of demonstrating that there are no issues of material facts with respect to fraud.”  Takeaway As we have noted, 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. In Tecchia , plaintiff sufficiently demonstrated that the alleged misstatement was separate from the terms of the Contract, at least for purposes of defeating the motion for summary judgment. Thus, in contrast to many of the cases we have examined, Tecchia stands as an example of a pre-contract misstatement of material fact that does not duplicate the plaintiff’s breach of contract claim. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.  Footnotes Clark-Fitzpatrick v. Long Is. , 70 N.Y.2d 382 (1987). Dormitory Auth. v. Samson Constr. Co. , 30 N.Y.3d 704 (2018) (citation omitted). Slip Op. at *2. Id. at *1. Id. at *2 (citing, Deerfield Communications Corp. v. Chesebrough-Ponds, Inc. , 68 N.Y.2d 954, 956 (1986)).

By Jonathan H. Freiberger In general terms, venue is the place where the trial of an action will take place.  Venue issues in New York practice are governed by Article 5 of the CPLR . [Eds. Note: this BLOG has previously written about Article 5 of the CPLR < here =">here"> and < here =">here"> .]  As indicated in our prior articles, the plaintiff, as the party bringing the proceeding, generally gets to choose, in the first instance, venue.  Plaintiffs, however, do not always choose a proper venue (“Improper Venue Selection”).  In such instances, a defendant has an opportunity to change the Improper Venue Selection to a proper one.  See CPLR 510(1) .  Other times, although venue is proper, a defendant (or even a plaintiff) may seek a change based on considerations such as the convenience of witnesses and/or potential prejudice to a party should the action proceed in the venue chosen by the plaintiff (a “Discretionary Change”).  See CPLR 510(2) and (3) . According to CPLR 503(a) , “ xcept where otherwise prescribed by law, the place of trial shall be in the county in which one of the parties resided when it was commenced;  the county in which a substantial part of the events or omissions giving rise to the claim occurred;  or, if none of the parties then resided in the state, in any county designated by the plaintiff party resident in more than one county shall be deemed a resident of each such county.” 1 On March 9, 2022, the Appellate Division, Second Department, decided Fisch v. Davidson , which presented “the issue of whether sheltering in place in a seasonal home creates a sufficient degree of permanence to establish residency at that location” to satisfy the “residence” requirements of the venue provisions of the CPLR.  The plaintiff in Fisch was the husband and the defendant was the wife. An abridged version of the basic facts as summarized by the Court follow.  In the mid-1980s husband and wife moved to New Jersey after graduating law school.  In the late 1990s, the parties rented a “pied-a-terre” in Manhattan and then purchased an apartment on the Upper West Side in Manhattan.  After a while, the parties began spending more time in Manhattan and less time in New Jersey.  Their tax returns began to reflect their residence was New York City and the couple paid New York City income tax.  In the midst of expanding their Upper West Side apartment, the parties separated and husband began renting his own apartment in Manhattan.  The New Jersey house was sold in 2020.  In 2012, the parties purchased a house in Southampton that was primarily used on summer weekends.   During the COVID-19 pandemic, wife and the parties’ pregnant daughter “retreated” to the Southampton house due to the daughter’s immunocompromised status, but also continued to spend time in the New York City apartment. In 2020, the husband commenced a divorce proceeding in supreme court Suffolk County.  Thereafter, the wife moved, pursuant to CPLR 510 and 511 , to change venue to New York County, where she alleged both parties resided. Supreme court denied the wife’s motion to change venue to New York County finding that she was a resident of Suffolk County (CPLR 503(a) and 510(1)) and because the wife “failed to demonstrate that the convenience of the material witnesses and the ends of justice would be promoted by the change” (CPLR 510(3)).  The Second Department reversed.  In so doing, the Court noted that while the CPLR and its predecessor statutes base venue on where the parties “resided” at the commencement of the action, the term “resided” is not defined therein.  Accordingly, the Court recognized that courts have looked to the “common-law definition of ‘resided’” and analyzed numerous cases addressing that definition.  Among other cases, the Second Department looked at “the leading Court of Appeal case on the issue of the meaning of ‘resided,’” Yaniveth R. v. LTD Realty Co. , 27 N.Y.3d 186 (2016), and stated: In doing so, the Court of Appeals yaniveth> yaniveth> reviewed, among other things, venue cases interpreting CPLR 503(a) and its predecessor, and synthesized from them the following definition of "residence": residence means living in a particular locality, even if a person does not intend to make that place a fixed and permanent home, i.e., a domicile.  A person's “residence” entails something more than temporary or physical presence, with some degree of permanence and an intention to remain. Thus, although it is true that a person may have more than one residence, to consider a place as such, he or she must stay there for some length of time and have the bona fide intent to retain the place as a residence with at least some degree of permanence. (Citations, internal quotation marks, ellipses and brackets omitted.) After recognizing that the “case presents two issues relating to the parties' residence: (1) whether the parties' seasonal use of the Southampton house on weekends prior to March 2020 made them residents of Suffolk County; and (2) whether the defendant's retreat to the Southampton house at the outset of the COVID-19 pandemic made her a resident of Suffolk County, Second Department concluded that “neither of these things made the parties residents of Suffolk County.”  The Court stated: The clearly established that the parties primarily resided in New York County. The submitted, among other things, copies of: the parties' income tax returns, listing their address in New York County as their residence and reflecting their payment of New York City income taxes; the 's voter registration showing that she was registered to vote in New York County; the ’s driver license listing her address in New York County; motor vehicle records showing that the parties' cars were all registered in New York City or were in the process of having the registration transferred from New Jersey to New York City; an email from the to the parties' art insurance carrier stating that the parties did not have any intention of adding any art to the Southampton house; and bank statements listing the apartment and the 's Manhattan office as the parties' addresses. Thus, the Court found that the pre-pandemic primarily weekend use of the Southampton house was insufficient to establish residency in Suffolk County.  The Court further found that “contrary to the Supreme Court's conclusion, the time the defendant spent in the Southampton house in 2020 during the COVID-19 pandemic was not enough to make her a resident of Suffolk County.” As to the COVID-19 timeframe, the Court stated: Here, although the retreated to the Southampton house in March 2020, it is undisputed that the planned only to stay there temporarily to assist her immunocompromised daughter and newborn grandchild when the COVID-19 pandemic was at its zenith in New York City. Under the circumstances of this case, the did not have the bona fide intent to retain Suffolk County as a residence with at least some degree of permanency. (Citations, internal quotation marks, ellipses and brackets omitted.) Because the Court determined that supreme court should have granted the wife’s motion pursuant to CPLR 510 and 511, it did not reach the issue of whether a discretionary change of venue was warranted under CPLR 510(3). 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. Notwithstanding the general provision of CPLR 503(a), courts will enforce venue provisions in contracts.  See CPLR 501 ; Casale v. Sheepshead Nursing & Rehab. Center , 131 A.D.3d 436, 437 (2 nd Dep’t 2015).  Further, Article 5 of the CPLR contains venue provisions for specific types of cases.  S ee CPLR 504 , 505 , 506 , 507 , 508 and 509 .

By: Jeffrey M. Haber In April 2021, this Blog examined the doctrines of frustration of purpose and impossibility of performance in the context of Covid-19 ( here ). In particular, we examined 1877 Webster Ave. Inc. v. Tremont Ctr., LLC , 2021 N.Y. Slip Op. 21113 (Sup. Ct., Bronx County Mar. 29, 2021), a case involving a commercial lease for space that was to be used as a night club and “for no other purpose”. The plaintiff commenced the action seeking a declaration that the purpose of the lease had been frustrated by the COVID-19 pandemic and sought, among other things, rescission of the lease based upon impossibility of performance. The Supreme Court denied the motion to dismiss, holding that the plaintiff adequately pleaded frustration and impossibility of performance due to the pandemic and the Governor’s executive orders. The court found that the plaintiff sufficiently alleged that the Covid-19 pandemic and the Governor’s executive orders prevented it from exclusively operating the space as a night club as required by the lease. As such, the existence of the Covid pandemic and the executive orders “completely frustrated the purpose of the parties’ lease as both parties understood, and that without the ability to operate the nightclub, the lease and the guarantee ma e ‘little sense’”.  The Supreme Court further held that the plaintiff sufficiently alleged impossibility of performance. The plaintiff claimed that due to the pandemic and the Governor’s executive orders, it was impossible to perform under the lease. Since a nightclub was not an essential business under the Governor’s executive orders, the plaintiff claimed that it could not conduct its business as contemplated by the lease. The Court held that there were genuine issues of material fact concerning the foregoing: “The parties’ conflicting arguments regarding their abilities to anticipate or guard against the Covid pandemic that resulted in the Governor’s executive orders shutting down Plaintiff’s business also create a genuine issue of fact.”  Today, we examine Valentino U.S.A., Inc. v. 693 Fifth Owner LLC , 2022 N.Y. Slip Op. 01431 (1st Dept. Mar. 8, 2022) ( here ), a case that also involved a commercial lease and issues of performance due to the pandemic.  Valentino involved a 15-year lease that the parties executed in May 2013. The lease provided that the space would be used by the plaintiff to operate a luxury boutique for customers to, among other things, view and sample its merchandise. When the pandemic started, the plaintiff’s operations ceased as New York was shut down to address the health crises. Once the Covid-related restrictions imposed by the Governor were lifted, the plaintiff claimed that it was unable to generate the same type of in-boutique retail sales, or associated services, that it did before the onset of the pandemic. As a consequence, the plaintiff notified the defendant that it would be vacating and surrendering the premises by the end of the year. Defendant rejected the plaintiff’s surrender. Plaintiff commenced the action for declaratory and injunctive relief, seeking, inter alia , a declaration that the pandemic, together with resulting governmental orders and mandatory closures, had frustrated the purpose of the lease and/or made it impossible to perform thereunder. Defendant moved to dismiss. The Supreme Court granted the motion. On appeal, the Appellate Division, First Department affirmed. “As an initial matter,” the Court held that the “doctrine of frustration of purpose inapplicable” to the case at hand. 1 Under the doctrine, the purpose of the contract must be so completely frustrated – that is, “the basis of the contract …, as both parties understood, without it, the transaction would have made little sense.” 2 In other words, the purpose of the contract must be completely thwarted. 3 The Court concluded that the frustration of purpose doctrine was “not implicated by temporary governmental restrictions on in-person operations, the parties’ respective duties were to pay rent in exchange for occupying the leased premises.” 4 The Court explained that plaintiff was, in fact, “open for curbside retail services as of June 4, 2020 and services by appointment as of June 22, 2020,” thereby undermining its argument that the purpose of the lease had been frustrated. 5 The Court also held that the doctrine of impossibility was inapplicable to the case at hand. 6 Impossibility “excuses a party’s performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible”. 7 The “impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract.” 8 The Court held that while the pandemic was, and continued to be, “‘disruptive for many businesses,’” it “did not render plaintiff’s performance impossible, even if its ability to provide a luxury experience was rendered more difficult because the leased premises were not destroyed.” 9 Takeaway As we noted in our April 2021 article, businesses will be impacted by the pandemic for years to come. From a legal perspective, there are many issues to consider. Among them is the performance of a contract, such as a lease. In Valentino , the courts ruled that the pandemic did not frustrate the purpose of the parties’ lease agreement, nor did it make performance thereunder impossible. To be sure, the pandemic negatively affected Valentino’s business, but to the courts, it did not completely thwart the very reason for the lease. 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 Slip Op. at *1. Crown IT Servs., Inc. v. Koval-Olsen , 11 A.D.3d 263, 265 (1st Dept. 2004). See also Restatement (Second) of Contracts § 265 (1981). Slip Op. at *1 (citing Crown , 11 A.D.3d at 265). Id. Id. (citing Center for Specialty Care, Inc. v. CSC Acquisition I, LLC , 185 AD3d 34, 42 (1st Dept. 2020)). Id. Kel Kim Corp. v. Central Mkts. , 70 N.Y.2d 900, 902 (1987). See also Warner v. Kaplan , 71 A.D.3d 1 (1st Dept. 2009). Id. Id. (quoting 558 Seventh Ave. Corp. v. Times Sq. Photo Inc. , 194 A.D.3d 561, 562 (1st Dept.), appeal dismissed , 37 N.Y.3d 1040 (2021)).

By: Jeffrey M. Haber A common theme in commercial litigation is the assertion of a breach of contract claim and a fraudulent inducement claim. As readers of this Blog know, where both claims are asserted, more times than not, the fraud claim is dismissed under the duplication of claims doctrine. Stated simply, the doctrine provides that a fraud claim cannot stand side-by-side with a breach of contract claim when there is “a valid and enforceable written contract govern a particular subject matter” and the recovery sought arises out of the same facts and circumstances. 1 However, where “a legal duty independent of the contract itself has been violated<,> ” or where the misrepresentation is “collateral or extraneous to the terms of the parties’ agreement,” a fraudulent inducement claim can be litigated with “a simple breach of contract” claim. 2 Today, we examine two cases issued from the Appellate Division, First Department, in which the duplication of claims doctrine served as a basis for the dismissal of the plaintiffs’ fraud claims. Land ‘N Sea Inc. v. Thread Counsel , 2022 N.Y. Slip Op. 01394 (1st Dept. Mar. 3, 2022) ( here ), and Inspirit Dev. & Constr., LLC v. GMF 157 LP , 2022 N.Y. Slip Op. 01390 (1st Dept. Mar. 3, 2022) ( here ). Land ‘N Sea Inc. v. Thread Counsel Land ‘N Sea involved a contract between Land ‘N Sea Inc. and Thread Counsel d/b/a Laws of Motion in connection with the manufacture of hospital gowns during the early stages of the COVID-19 pandemic. Defendant is a clothing supplier that contracted to supply a large volume of hospital gowns to New York State during the COVID-19 pandemic. Defendant hired plaintiff to manufacture the gowns using fabric supplied by defendant. The terms of the parties’ agreement were reflected in a series of purchase orders.  Plaintiff claimed that defendants, including Carly Bigi (“Officer”), the CEO of defendant Laws of Motion, misrepresented to plaintiff the protective level of the surgical gowns that Laws of Motion contracted to supply to New York State. Plaintiff claimed that defendant told New York State that Laws of Motion would provide the State with “Level 3 Surgical Gowns,” but that Laws of Motion had Land ‘N Sea manufacture “Class 1 non-surgical gowns” using the lower grade fabric provided by defendants. After the gowns were manufactured by plaintiff and ultimately rejected by New York State because the gowns were not of the protective level defendant had offered to the State, defendants failed to pay plaintiff’s invoices aggregating in excess of $1 million. Following discovery, plaintiff filed an amended complaint, alleging that both defendants had fraudulently induced plaintiff to enter the contract for the manufacture of the hospital gowns. Defendants moved to dismiss. The motion court held that the there was nothing in the allegations of the amended complaint that rose to the level of a claim of fraud against the Officer who, at all relevant times, was simply acting as a corporate officer of the corporate defendant. The motion court determined that plaintiff merely alleged corporate status without more as the basis for the fraudulent inducement claim against the Officer. 3 The motion court also held that no basis existed to assert the fraudulent inducement claim against the corporate defendant: “Plaintiff’s fraud claims are based on the same facts as its breach of contract cause of action and plaintiff seeks the same damages on its fraud and breach of contract claims.” 4 On appeal, the First Department affirmed. The Court held that the motion court correctly dismissed the fraudulent inducement claim against defendants. As to the cause of action against the Officer, the Court noted that corporate officers may be held liable for fraud only if they participated in it. However, said the Court, the facts alleged in the complaint did not support the claim that the Officer misrepresented or omitted material facts with the intent to induce plaintiff to enter into purchase orders for surgical gowns that the Officer knew would not meet the State of New York’s required standards.  As to the cause of action for fraudulent inducement against the corporate defendant, the Court held that plaintiff failed to allege any duty separate from the one asserted in the contract claim. Further, explained the Court, the damages that plaintiff sought in the fraudulent inducement cause of action were the same as the ones it sought in the breach of contract cause of action. Under such circumstances, the fraud claim duplicated the breach of contract claim. Inspirit Dev. & Constr., LLC v. GMF 157 LP Inspirit arose from plaintiff’s work as general contractor for the renovation of a luxury residential condominium apartment located in New York City. Defendant owned the apartment.  Plaintiff allegedly performed the work poorly and failed to meet, among other things, the agreed-upon budget and/or schedule, and failed to remedy the cited deficiencies with its work. In addition, plaintiff’s President allegedly made knowingly false written certifications to defendant, claiming that plaintiff incurred costs and made payments to subcontractors that in fact had not been made. As a result of the alleged issues with plaintiff and its President, defendant terminated its contract with plaintiff. Plaintiff filed suit claiming, among other things, breach of contract, quantum meruit, and unjust enrichment. Plaintiff also asserted claims against defendant’s representatives for negligence and tortious interference. Defendant filed counterclaims against plaintiff for breach of contract and a third-party claim against defendant’s president (“Officer”) for fraud. The parties each moved to dismiss all the claims except the parties’ competing breach of contract claims. The motion court granted the motion to dismiss plaintiff’s claims for quantum meruit, unjust enrichment, and negligence, denied the motion to dismiss plaintiff’s tortious interference claims and granted the individual defendant’s motion to dismiss the fraud claim against him. On appeal, the First Department held that the motion court correctly dismissed the negligence claim against defendant’s representatives on the grounds that the claim sought to enforce the contract between the parties. Quoting the Court of Appeals’ decision in Dormitory Authority of the State of N.Y. v. Samson Construction Co. , the Court noted that plaintiff failed to identify a legal duty independent of the contract that had been violated: “ simple breach of contract is not to be considered a tort unless a legal duty independent of the contract … has been violated … Merely charging a breach of a duty of due care … does not, without more, transform a … breach of contract into a tort claim”. 5 The Court explained that plaintiff’s alleged damages were the same as its contract damages; that is, plaintiff was “essentially seeking enforcement of bargain”. 6 This was especially true, noted the Court, since plaintiff’s “injury … was not personal injury or property damage; there was no abrupt, cataclysmic occurrence”. 7 Moreover, the Court held that defendant’s representatives did not owe a duty to plaintiff as non-signatories to the contract between the primary parties: “Polizzotto LLC — which contracted with — owes no duty to plaintiff, a nonparty to that contract, and plaintiff has not shown that any of the exceptions to that rule applies.” 8 As to the third-party fraud claim, the Court held that the motion correctly dismissed the complaint. The Court explained that the “the only fraud charged relate to an alleged breach of contract”. 9 In this regard, the Court noted that “ he invoices and certifications on which fraud claim based were clearly contemplated by the contract.” 10 For this reason, concluded the Court, the fraud claim did “not allege breach of a duty independent from the parties’ agreement[]”. 11 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. What constitutes “a legal duty independent of a contract” is not a question easily answered. 12 In trying to answer the question, the courts make the distinction between a misrepresentation of intention and a misrepresentation of present fact . 13 The former will result in dismissal, while the latter will not. 14 The courts also look to the damages sought to ascertain if they are the same. 15 In Land ‘N Sea and Inspirit , the plaintiffs could not demonstrate any exception to the doctrine. In each case, the courts found that plaintiffs merely alleged a breach of contract claim dressed up in the garb of a fraud cause of action. 16 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. Clark-Fitzpatrick v. Long Is. , 70 N.Y.2d 382 (1987). Dormitory Auth. v. Samson Constr. Co. , 30 N.Y.3d 704 (2018) (citation omitted). Citing, Worthy v. New York City Hous. Auth. , 21 A.D.3d 284, 288 (1st Dept. 2005) (noting, to attach individual liability on a corporate officer, “something more than the mere status of corporate officer must exist”) (citing, Michaels v. Lispenard Holding Corp. , 11 A.D.2d 12, 14 (1st Dept. 1960)).  Citing, Cronos Grp. Ltd. v. XComIP, LLC , 156 A.D.3d 54, 62-63 (1st Dept. 2017). Slip Op. at *2 (quoting, Dormitory Auth. of the State of N.Y. v. Samson Constr. Co. , 30 N.Y.3d 704, 711 (2018) (internal quotation marks and some emendations omitted). Id. (quoting, Sommer v. Federal Signal Corp. , 79 N.Y.2d 540, 552 (1992)). Id. (quoting, Sommer , 79 N.Y.2d at 552). Id. at *1-*2 (citing, Church v. Callanan Indus. , 99 N.Y.2d 104, 111 (2002)). Id. at *2 (quoting, Matter of Soames v. 2LS Consulting Eng’g D.P.C. , 187 A.D.3d 490, 491 (1st Dept. 2020)). Id. Id. at *3 (citations omitted). Cronos Grp. , 156 A.D.3d at 56 (referring to the question as a “recurring” one). Id. at 63. Gosmile, Inc. v. Levine , 81 A.D.3d 77 (1st Dept. 2010). Mosaic Caribe, Ltd. v. AllSettled Group, Inc. , 117 AD3d 421, 422-423 (1st Dept. 2014) (a fraud claim was insufficient as “duplicative of the breach of contract claim” because it sought “the same damages as the breach of contract claim”). Songbird Jet Ltd., Inc. v. Amax Inc. , 581 F. Supp. 912, 924 (S.D.N.Y. 1984).

By Jonathan H. Freiberger As indicated in our previous articles regarding RPAPL 881, Real property owners or lessees (“Owners”) often find that their real property is in need of improvement and/or repair (the “Work”).  [Eds. Note:  this Blog has discussed RPAPL 881 < here =">here"> and < here =">here"> .]  Sometimes, the Work requires access to adjoining property (a “Neighbor”).  In many instances, a Neighbor graciously permits access to the Owner’s contractors so that the Work can be performed.  In such instances, the parties can informally reach an appropriate resolution should a problem arise. Sometimes, a Neighbor may voluntarily permit the Work to be performed, but only after a formal license/access agreement is negotiated and executed.  Access agreements can address many issues including, but not limited to: time and day restrictions for the Work; appropriate indemnification and hold harmless provisions; insurance requirements; requiring the Owner’s insurance policies to name the Neighbor as an additional insured; requiring prompt repair of damage to the Neighbor’s property, and the like. However, when neither informal nor formal cooperation is forthcoming from a Neighbor, an RPAPL 881 permits an Owner to obtain a license from the court.  RPAPL §881 provides: When an owner or lessee seeks to make improvements or repairs to real property so situated that such improvements or repairs cannot be made by the owner or lessee without entering the premises of an adjoining owner or his lessee, and permission so to enter has been refused, the owner or lessee seeking to make such improvements or repairs may commence a special proceeding for a license so to enter pursuant to article four of the civil practice law and rules. The petition and affidavits, if any, shall state the facts making such entry necessary and the date or dates on which entry is sought. Such license shall be granted by the court in an appropriate case upon such terms as justice requires. The licensee shall be liable to the adjoining owner or his lessee for actual damages occurring as a result of the entry. On February 15, 2022, the Appellate Division, First Department, decided Matter of Panasia Estates, Inc v. 29 W. 19 Condominium , in which the Court had the occasion to address license fees and reimbursable expenses in RPAPL 881 cases.  The facts of Panasia are typical.  Petitioner is a building owner that sought to add two stories of commercial office space.  Respondent 1 owns a neighboring building.  Respondent 2 is an individual unit owner in Respondent 1’s building, which unit has a 1,730 square foot terrace abutting petitioner’s building.  Respondent 3 is the owner of another neighboring building. Petitioner’s attempts to obtain voluntary access to the Respondents’ property were unsuccessful.  Petitioner commenced a proceeding under RPAPL 881 and, after a hearing, the court issued an order granting the license to conduct a pre-construction survey and install the overhead and roof protections, flashing, and outrigger and netting system, and to swing scaffolding and directing: petitioner, inter alia, to pay a monthly license fee of $3,000 to , increasing to $4,000 after 12 months and $7,000 after 24 months, for interference with the use of their terrace; a monthly license fee of $1,000 to the nonparty first-floor unit owner of , increasing to $1,250 after 12 months and $2,000 after 24 months, for interference with the use of his terrace; and a monthly license fee of $1,200 to , increasing to $1,600 after 12 months and $3,200 after 24 months, to be split among three residential tenants with roof access and the commercial tenant; to reimburse $10,000 for attorneys' fees and $3,500 for engineering fees and $15,278.36 for attorneys' fees and $40,500 for engineering fees; to post a bond in the amount of $1,000,000; and to provide proof that respondents have been added as additional insureds on "the relevant insurance policy." Petitioner appealed.   The First Department rejected Petitioner’s contention that license fees, attorney’s fees and engineering and design fees are not awardable under RPAPL 881 and do not come within the “upon such terms as justice requires” language of the statute.   The Court reiterated that “because the respondent to an 881 petition has not sought out the intrusion and does not derive any benefit from it equity requires that the owner compelled to grant access should not have to bear any costs resulting from the access."  (Citation, internal quotation marks, internal brackets and ellipses omitted.) The Court also reiterated that the assessment of license fees is appropriate "where the granted license will entail substantial interference with the use and enjoyment of the neighboring property during the license period, thus decreasing the value of the property during that time."  (Citations, internal quotation marks and internal brackets omitted.)  Similarly, compulsory licensors are also entitled to reimbursement of reasonable attorney’s fees and engineering fees because “a property owner compelled to grant a license should not be put in a position of either having to incur the costs of a design professional to ensure petitioner's work will not endanger his property or having to grant access without being able to conduct a meaningful review of petitioner's plans."  (Citations, internal quotation marks and internal brackets omitted.)   The Court also rejected Petitioner’s argument that awarding attorney’s fees is inconsistent with the “American rule” because “ here the respondent in an RPAPL 881 proceeding has not refused access but rather seeks reasonable terms for access, attorneys' fees, including those incurred in opposing the petition, are not an incident of litigation but rather part of the process of negotiating a license agreement.”  (Citation omitted.) In describing special considerations in RPAPL 881 cases, the Court stated: Unlike in other types of litigation, respondents in a special proceeding pursuant to RPAPL 881 are not accused of any wrongful conduct but are haled into court by a petitioner seeking access to their properties solely for its own benefit. That access can be extremely invasive: RPAPL 881 is designed to strike a balance between the petitioner's interest in improving its property and the harm to the adjoining property owner's enjoyment of its property. Notwithstanding the Courts view that, in principle, the Respondents are entitled to the fees awarded by the supreme court, the order below was modified.  Respondent 3 was not entitled to the $40,500 in “anticipated” engineering fees, but, like the other Respondents, are entitled to reimbursement of engineering fees “incurred”.  The same was the case for attorney’s fees.  As to the escalating license fees, the Court rejected same and stated that “ nsofar as the purpose of a license fee is to compensate for loss of enjoyment and diminution in value due to loss of use, the license fee escalations imposed on petitioner appear to be punitive and, therefore, unwarranted.”  The Court granted the license for 24 months and directed Petitioner to “timely commence the project and proceed diligently.”  Finally, the Court remanded the case so that supreme court can “specify the applicable insurance, including policy limits, that petitioner is required to procure in favor of respondents.” 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 Arbitration is an alternative dispute resolution mechanism that enables parties to resolve disputes without going to court. Arbitration is similar to a trial without the formalities. It is an adversarial proceeding where the parties can call witnesses and present evidence to a neutral arbitrator or panel of arbitrators. The rules of discovery and evidence are relaxed to make it a shorter and more cost-efficient process. Often, the parties select the arbitrator or panel of arbitrators. Arbitration can be binding, in which the arbitrator renders a decision that can be enforced by the courts, or non-binding, in which the arbitrator renders an advisory opinion that the parties can accept or reject. In New York, arbitration, like other alternative dispute resolution mechanisms, is valid and enforceable. 1 Like many jurisdictions, New York has a strong public policy that favors arbitration. In fact, arbitration is not only favored, but encouraged “as an effective and expeditious means of resolving disputes between willing parties desirous of avoiding the expense and delay frequently attendant to the judicial process.” 2 Because of the strong public policy favoring arbitration, courts give considerable deference to arbitrators and their awards. 3 In fact, judicial review of arbitration awards is severely limited in New York. 4 As this Blog previously noted, setting aside arbitral awards is difficult. Grounds For The Review Of Arbitral Awards Upon receiving a motion to confirm an arbitration award, New York courts must confirm the award unless the movant satisfies one of the statutory reasons for modification or vacatur provided by New York Civil Practice Law and Rules Section 7511. 5 The grounds for modification or vacatur under CPLR 7511 are limited.  These include: (1) “corruption, fraud, or misconduct in procuring the award”; (2) partiality of the arbitrator; (3) the arbitrator exceeded his power or imperfectly executed it; (4) failure to follow the procedures of Article 75 of the CPLR. 6 Only when the record demonstrates one of the foregoing will a New York court vacate or modify an award under the CPLR. In today’s article, we examine, among other things, partiality of the arbitrator and the arbitrator exceeding his/her authority. Partiality of the Arbitrator : CPLR § 7511(b)(1)(ii) permits vacatur or modification when the arbitrator was biased or maintained an undisclosed personal relationship to one of the parties, resulting in a prejudiced decision. 7 The mere inference of impartiality, however, is insufficient to warrant interference with the arbitrator’s award; the evidence must be stronger; it must be clear and convincing. 8 The Arbitrator Exceeded His Power or Imperfectly Executed It : Under CPLR § 7511(b)(1)(iii), a movant can vacate or modify an arbitral award when the arbitrator exceeded his or her authority under the arbitration agreement . To succeed under CPLR § 7511(b)(1)(iii), the movant must demonstrate that the arbitration agreement limited the arbitrator’s authority to act, and the arbitrator subsequently violated that limitation. 9 The same is true with regard to arbitration mandated by statute. Vacatur will be warranted where the arbitrator fails to follow the standards and requirements of the subject statute. 10 Absent an agreement or statute, however, as long as an arbitrator addresses the issue(s) submitted for resolution, vacatur will not be granted, unless the award is completely irrational – that is, the resulting award goes beyond the issues before the arbitrator. 11 In addition to exceeding one’s authority, an award will be vacated when the decision is irrational or is violative of a public policy. 12 In essence, the court must conclude, without any fact-finding or legal analysis, that arbitration of the matter is prohibited by law. 13 The foregoing issues were considered by the Appellate Division, First Department in Matter of Finkelstein v. Finkelstein , 2022 N.Y. Slip Op. 01268 (1st Dept. Mar. 1, 2022) ( here ). Matter of Finkelstein v. Finkelstein Finkelstein involved a dispute between siblings concerning, among other things, the ownership of a portfolio of properties (the “Properties”) that was owned by the parties’ deceased father. The matter was adjudicated before the Beth Din ( i.e. , a Jewish tribunal composed of three Rabbis responsible for matters of religious law and the settlement of civil disputes). The parties agreed that they would resolve any dispute concerning the father’s assets, in particular, the beneficial ownership and control of the Properties, by arbitration before the Beth Din. The parties further agreed that the Beth Din’s decision would be final and binding. On May 6, 2020, the Beth Din issued an award in which it resolved the dispute over ownership of the Properties. On January 6, 2021, the Beth Din clarified its decision, awarding the Properties to the trusts for the pro rata benefit of the parties ( e.g. , the children). Petitioners moved to confirm the award and respondents moved to vacate it. In seeking vacatur, Respondents argued, among other things: the Beth Din’s determination was invalid because it concerned the distribution of assets under testamentary instruments which the Beth Din has no authority to determine; one of the three arbitrators had an undisclosed involvement in the underlying transactions and, therefore, tainted the proceedings; the clarified award made substantive modifications to the original award and, therefore, was invalid under CPLR § 7509; and to the extent that the clarified award was based on trusts it deprived respondents of their rights under CPLR § 7506 because the trust instruments were not presented to the Beth Din. The motion court confirmed the award. First, the motion court held that the Beth Din did not exceed its authority or violate public policy. Respondents argued that under longstanding case law, the Beth Din’s award must be vacated. Respondents reasoned that the Beth Din did not have the authority to determine matters concerning the distribution of property under testamentary instruments, yet that is what it did by referring to the parents’ wills and the manner in which their property was to be distributed to the parties under those wills. Petitioners responded that the Beth Din could not have determined the distribution of the Properties under a will because the Properties were transferred inter vivos into the trusts prior to the passing of the parents and that references to the wills were merely to determine the parents’ wishes under Rabbinical law. Petitioners also claimed that the clarification made it plain that the Beth Din awarded the Properties back to the trusts for the pro rata benefit of the father’s children. The motion court noted that father’s wills were only an issue because the parties agreed to respect their parents’ wishes as reflected in their Halachic wills. This agreement, said the motion court, “present an interesting intersection of Rabbinical law and secular law”. Under Rabbinical law the distribution of assets that are not owned by an individual because they were transferred to trusts or other legal entities (pursuant to secular law) may be determined by evaluating the intent of the individual from his/her Halachic will. Moreover, the motion court noted that the Beth Din’s clarification made clear that it was awarding the Properties back to the trusts for the pro rata benefit of the parties, as reflected by the parents’ wishes in their Halachic wills. The Beth Din was not resolving the distribution of estate assets. Second, the motion court held that there was no arbitrator bias even though one of the Rabbis on the panel had previously assisted in the preparation of one of the father’s wills and that, even if there were bias, the claim was waived. The motion court found that respondents failed to submit any evidence that the Rabbi’s participation in drafting the will had any effect upon his ability to be a neutral arbitrator. Instead, said the motion court, respondents simply concluded that the Rabbi had a vested interest in seeing that the will was the pivotal document relied upon by the Beth Din in reaching its determination. Notably, the motion court held that “respondents waived any discernable objection they had in Rabbi[] … sitting on the Beth Din since by their own admission they knew he was connected to the New York Will in some manner at the outset of the arbitration process but nevertheless failed to raise their objection during the arbitration and continued to participate.” (Citations omitted.) The motion court rejected respondents’ assertion that they did not find out the extent of the Rabbi’s connection to the will until the second to last arbitration session. The motion court explained that “even if sufficient to meet their burden (and it is not since they were on notice at the outset of the process) not supported by the details of what they learned at this second to last session that has now caused them so much concern.” Thus, concluded the motion court, respondents failed to establish by clear and convincing proof bias on the part of the Rabbi “much less the entire Beth Din panel.” Third, the motion court held that the clarification in the second award did not include any new findings or grant any relief different from the initial award. The motion court explained that respondents did not identify any relief in the clarification that was not in the initial award. In fact, noted the motion court, respondents agreed in the arbitration agreement that the Beth Din was authorized to resolve disputes as to beneficial ownership and control of the properties regardless of the record owner. Moreover, “and most significantly”, said the motion court, respondents did not “deny that the properties that were in dispute and detailed in the clarification were held in the trusts created by father.” Indeed, observed the motion court, respondents signed an agreement which acknowledged that the properties were held in trusts and gave the Beth Din authority to determine the parents’ wishes based on their will made pursuant to Jewish law. In addition, noted the motion court, respondents did not object to the list of properties and trusts provided by petitioners to the Beth Din and respondents in furtherance of facilitating the clarification. “Therefore, because the clarification did not include any new findings nor did it grant any relief different from the initial award and because not dispute that the properties were held in the trusts identified in the clarification; the clarification was not a modification subject to CPLR §§ 7509 & 7511(c) and their rights under CPLR § 7506 were not violated. On appeal, the Appellate Division, First Department affirmed. On the issue of clarification versus modification, the Court agreed with the motion court that the award was clarified, not modified. Even if the first award was modified, the Court held that respondents failed to show any prejudice. 14 The Court explained that “ oth the original award and the clarified award have the same bottom-line result: instead of belonging exclusively to , certain properties are to be shared pro rata by all of the children of .” 15 Regarding arbitrator bias, the Court found that respondents waived the argument. 16 The Court explained that “‘ f a party goes forward with arbitration, having actual knowledge of the arbitrator’s bias, or of facts that reasonably should have prompted further … inquiry, may not later claim bias based upon the failure to disclose such facts.’” 17 The Court also rejected respondents’ argument that the Rabbi failed to disclose his involvement with the will. The Court noted that a witness who had no financial interest in the arbitration or the proceeding and who knew both petitioner and respondent submitted an affirmation saying that the arbitrator disclosed such involvement before the arbitration began. The Court also noted that respondents admitted that all of the parties had general knowledge that the arbitrator was involved with the parents’ estate, “which was sufficient to trigger further inquiry before the arbitration took place.” 18 Footnotes 1. Westinghouse v. New York City Tr. Auth. , 82 N.Y.2d 47, 54 (1993). 2. Id. 3. Tullett Prebon v. BGC Fin. , 111 A.D.3d 480, 482 (1st Dept. 2013). 4. Id. 5. Bernstein Family Ltd. P’ship v. Sovereign Partners , 66 A.D.3d 1, 7-8 (1st Dept. 2009). 6. CPLR 7511(b)(1)(i)-(iv). 7. Matter of J. P. Stevens & Co. (Rytex Corp.) , 34 N.Y.2d 123, 129-130 (1974). 8. Matter of Provenzano , 28 A.D.2d 528 (1st Dept. 1967), aff’d , J.D.H. Rest. Inc. v. New York State Liquor Auth. , 21 N.Y.2d 846 (1968). 9. New York City Tr. Auth. v. Transport Workers’ Union of Am. Local 100, AFL-CIO , 6 N.Y.3d 332 (2005). 10. Forest River, Inc. v. Stewart , 34 A.D.3d 474, 474 (2d Dept. 2006). 11. Rochester City Sch. Dist. v. Rochester Teachers Ass’n , 41 N.Y.2d 578, 583 (1977). 12. See Board of Education of the Dover Union Free Sch. Dist. v. Dover-Wingdale Teachers Ass’n , 61 N.Y.2d 913 (1984); Matter of City of Johnstown , 99 N.Y.2d 273, 278 (2002). 13. Matter of New York City Tr. Auth. , 6 N.Y.3d at 284. 14. Slip Op. at *1 (citing, Matter of Meisels v. Uhr , 79 N.Y.2d 526, 535 (1992)). 15. Id. 16. Id. at *1-*2 (citing, Matter of J. P. Stevens & Co. (Rytex Corp.) , 34 N.Y.2d at 129; and Matter of Namdar (Mirzoeff) , 161 A.D.2d 348, 349 (1st Dept. 1990), lv. denied , 77 N.Y.2d 802 (1991), cert. denied , 501 U.S. 1251 (1991)). 17. Id. at *2 (quoting, Matter of J. P. Stevens & Co. (Rytex Corp.) , 34 N.Y.2d at 129).   18. Id. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

In drafting a contract, it is very common for the parties to include a choice of law provision. These provisions typically provide that a particular state’s law will apply regardless of conflict of laws principles. Questions arise as to which law to apply when a dispute takes place in a state that is different than the one in the contract.  Today we examine Morplay Management Inc. v. Castro , 2022 N.Y. Slip Op. 30467(U) (Sup. Ct., Feb. 7, 2022) ( here ), in which the Court was asked to decide whether the law of New York should apply as required in the parties’ contract or the law of Florida where the parties worked and resided and where the contract was entered. Are Choice of Law Provisions Enforceable? Generally, courts will enforce a choice-of-law provision so long as the chosen law bears a reasonable relationship to the parties or the transaction. 1 Including such a provision “demonstrates the parties’ intent that courts not conduct a conflict-of-laws analysis … unless the parties expressly indicate otherwise”. 2 An exception exists “where the chosen law violates some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal”. 3 “The party seeking to invoke the exception bears a heavy burden of proving that application of the chosen law would be offensive to a fundamental public policy of this State”. 4 “Although possess the power to set aside agreements on this basis, usual and most important function is to enforce contracts rather than invalidate them on the pretext of public policy, unless they clearly contravene public right or the public welfare”. 5 Against the foregoing legal principles, the Morplay Court held that the law of New York should apply as required in the parties’ contract. Morplay Management Inc. v. Castro The parties entered into a management agreement on September 19, 2018, pursuant to which plaintiff would “use its resources, contacts, expertise, and commercially reasonable efforts to promote, develop, enhance, and guide career … and to achieve career goals”. In exchange, defendant, a wardrobe stylist, agreed to pay plaintiff a 20% commission on any earnings derived from services”. The agreement was for an initial term of two years, automatically extended for an additional three years if defendant met certain monetary or social media goals during the initial term, and thereafter from month to month until one party gave notice that it was terminating the agreement. Further, defendant acknowledged that plaintiff was “not an employment agent, theatrical agent, or licensed artists’ manager, and that ha not promised to procure employment or engagements for ”. Although the contract was entered in Miami, Florida, the agreement provided that New York law would govern any dispute under the terms of the contract. Plaintiff alleged that during the term of the agreement it introduced defendant to at least 20 potential new clients, many of whom retained defendant to provide stylist services. Plaintiff also alleged that it provided a project manager for defendant, as well as other logistical and administrative support for her business. Plaintiff did not directly book clients for defendant. Instead, plaintiff made introductions to potential clients which defendant then engaged herself. Plaintiff contended that, because of its services, Defendant now earns over $500,000 per year.  In January 2020, defendant stopped paying commissions and, on May 7, 2020, repudiated the agreement, stating that it was unenforceable. Plaintiff contended that the agreement remains in effect and has continued promoting defendant as a wardrobe stylist. Defendant moved to dismiss, arguing, among other things, that the Court should ignore or invalidate the choice of law provision in the agreement on the grounds that plaintiff chose New York law to avoid application of Florida’s prohibition on operating an unlicensed talent agency. As an initial matter, the Court held that defendant could not ignore the law of the jurisdiction ( e.g. , New York) set forth in the agreement, noting that she “freely chose to have New York law govern this dispute.” And, as explained by the Court, “‘ reedom of contract prevails in an arm’s length transaction between sophisticated parties … and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain’”. 6 The Court found that there were no “countervailing public policy concerns”. Indeed, noted the Court, defendant did “not identify a true conflict that would counter New York’s strong interest in enforcing the choice of law provision.” The reason, explained the Court, was because “both Florida and New York provide for statutory licensing schemes for management, talent, or employment agents … and both states either refuse to enforce contracts or void contracts ab initio with unlicensed individuals or entities under certain circumstances”. Accordingly, concluded the Court, New York law would apply as set forth in the choice of law provision of the agreement. Having determined that New York law governed the outcome of the dispute, the Court turned to plaintiff’s claims. In moving to dismiss, defendant argued that the agreement was unenforceable because it violated New York law; namely, the statutory requirement that employment agencies be licensed. The Court found that there were issues of fact that could not be determined on a motion to dismiss. The Court explained that the record did not indicate whether plaintiff ever obtained a license, or was required to obtain a license, under New York law. Defendant maintained that Plaintiff was required to do so. Plaintiff asserted that the statute did not apply to it because it is not an agency covered by the law, notwithstanding the fact that it helped procure at least 20 new clients for defendant, including some of Plaintiff’s other clients, which defendant would not otherwise have been able to procure for herself. Accordingly, the Court held that “a question of fact exists as to whether services fall within the ambit of the statute or not”. Takeaway It has long been held that absent a violation of law or some transgression of public policy people are free to enter contracts, making whatever agreement they wish no matter how unwise they may seem to others. 7 Consequently, when a contract dispute arises, it is the court’s role to enforce the agreement rather than reform it. 8 In order to enforce the agreement, the court must construe it in accordance with the intent of the parties, the best evidence of which is the very contract itself and the terms contained therein. 9 Thus, “when the parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms”. 10 In Morplay , the parties provided for a choice of law provision in their agreement. There was no dispute that the agreement reflected the parties’ intent. Since the choice of law provision did not violate public policy, under principles of contract interpretation, the Court held that it was enforceable. Footnotes Welsbach Elec. Corp. v. MasTec N. Am., Inc. , 7 N.Y.3d 624, 629 (2006). Ministers & Missionaries Benefit Bd. v. Snow , 26 N.Y.3d 466, 468 (2015), rearg. denied , 26 N.Y.3d 1136 (2016). Brown & Brown, Inc. v. Johnson , 25 N.Y.3d 364, 368 (2015) (internal citations and quotation marks omitted). Id. (internal citations and quotation marks omitted). 159 MP Corp. v. Redbridge Bedford, LLC , 33 N.Y.3d 353, 361 (internal quotation marks and citations omitted), rearg. denied , 33 N.Y.3d 1136 (2019). Oppenheimer & Co., Inc. v. Oppenheim, Appel, Dixon & Co. , 86 N.Y.2d 685, 695 (1995). Rowe v. Great Atlantic & Pacific Tea Co., Inc. , 46 N.Y.2d 62, 67-68 (1978). Grace v. Nappa , 46 N.Y.2d 560, 565 (1979).  Greenfield v. Philles Records, Inc. , 98 N.Y.2d 562, 569 (2002). Vermont Teddy Bear Co., Inc. v. 583 Madison Realty Co. , 1 N.Y.3d 470, 475 (2004) (internal quotation marks omitted).

By Jonathan H. Freiberger Just when you thought that there is nothing left to write about on RPAPL 1304 notices, a new case is decided with an interesting twist. Followers of this Blog know that we frequently address issues involving residential mortgage foreclosure.  Decisions involving the pre-foreclosure requirements of RPAPL 1304 are frequently rendered by the Appellate Courts in New York and, accordingly, are analyzed in this Blog’s articles.  See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .  By way of background and as previously noted in our Blog: RPAPL 1304 requires that at least ninety days prior to commencing legal action against a borrower with respect to certain loans, 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 provide 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.  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 many cases in which a borrower challenges compliance with RPAPL 1304, an issue often decided by the court is whether the required notice was properly mailed.  [Eds. Note: this issue was addressed, inter alia , < here =">here"> .]   There is a “common law rule … that a letter properly stamped, addressed, and mailed is presumed to have been delivered.”  5421 Sylvan Ave. Associates Corp. v. New York City Conciliation and Appeals Board , 100 A.D.2d 812, 813 (1 st Dep’t 1984); see also, Trusts & Guarantee Co. v. Barnhardt , 270 N.Y. 350, 352 (1936).  “The presumption is founded upon the probability that the officers of the government will do their duty, and the usual course of business”  ( News Syndicate Co., Inc. v. Gatti Paper Stock Corp. , 256 N.Y. 211, 214 (1931) (internal quotation marks omitted)), and may “be created by either proof of actual mailing or proof of a standard office practice or procedure designed to ensure that items are properly addressed and mailed” ( Progressive Casualty Ins. Co. v. Infinite Ortho Products, Inc. , 127 A.D.3d 1050, 1051 (2 nd Dep’t 2015) (citations and internal quotation marks omitted)). “A mere allegation of non-receipt is not sufficient to rebut this presumption of receipt.”  5421 Sylvan , 100 A.D.2d at 813.  “In addition to a claim of no receipt, there must be a showing that routine office practice was not followed or was so careless that it would be unreasonable to assume that the notice was mailed.”  Nassau Ins. Co. v. Murray , 46 N.Y.2d 828, 829 - 830 (1978) (citation omitted). The Appellate Division, Second Department, rejected lender’s attempt to avail itself of the presumption of mailing in Wilmington Savings Fund Society, FSB v. Kutch , decided on February 16, 2022.  Borrower, Kutch, in Wilmington, defaulted under a $900,000 loan from lender secured by a mortgage on real property.    Lender commenced a mortgage foreclosure action in which it alleged, inter alia , that it complied with the notice requirements of RPAPL 1304.  Kutch denied this allegation and asserted a “lack of standing” defense, among others.   Thereafter, in 2013 lender’s motion for summary judgment was denied but, later that year, upon reargument, the motion was granted.  On Kutch’s related appeal, the Second Department reversed < here =">here"> and held that lender failed to prove compliance with RPAPL 1304.  The Court found that the moving affidavit from lender’s vice president, in which she averred that based upon her review of business records maintained in the ordinary course “the RPAPL 1304 notice was mailed to the borrower ‘by registered or certified and first class mail’ on December 4, 2009,” was “unsubstantiated and conclusory”.  The Court concluded, therefore, that such statements “were insufficient to establish” compliance with RPAPL 1304 and, upon reargument, supreme court should have adhered to its initial decision. Thereafter, Kutch moved for summary judgment dismissing the complaint for lender’s failure to comply with RPAPL 1304, which motion was denied.  Kutch then moved for reargument and lender cross-moved, inter alia , “for leave to renew those branches of its prior motion which were for summary judgment on the complaint insofar as asserted against the defendant, to strike her answer, and for an order of reference ….”  Supreme court denied Kutch’s motion and granted lender’s cross-motion.  Subsequently, supreme court, inter alia , issued a judgment of foreclosure and sale and directed the sale of the property.  Kutch appealed.  The Second Department found that lender failed to demonstrate that it complied with the mailing requirements of RPAPL 1304.  The Court found that the “’Affidavit of Mailing’” from lender’s “authorized signer” was inadequate because he “did not attest to personal knowledge of the actual mailings state that he had personal knowledge of a standard office mailing procedure designed to ensure that items are properly addressed and mailed.”  (Citations and internal quotation marks omitted.)  The records annexed to the affidavit demonstrated mailing by certified mail, but not regular mail.  The affidavit, which merely averred mailing by regular mail, was insufficient because “it is the business record itself, not the foundational affidavit, that serves as proof of the matter asserted.”  (Citations and internal quotation marks omitted.)  “Without business records proving the matter asserted, "unsubstantiated and conclusory" statement, by itself, was insufficient to establish that the RPAPL 1304 notice was mailed to the defendant by first-class mail.”  (Citations and internal quotation marks omitted.) The Court rejected lender’s argument regarding the presumption of mailing and stated: The plaintiff's reliance on the "long-standing common-law presumption" that "a letter or notice that is properly stamped, addressed, and mailed is presumed to be received by the addressee," is unavailing. Without proof that the letter or notice was, in fact, "properly stamped, addressed, and mailed," there can be no presumption that the mailing was received by the addressee.  In another interesting note, defendant Allison Quinn was not named as a “borrower” on the note but was named as a “borrower” on the mortgage.  Quinn, however, defaulted in appearing.  The Court found that lender was required to comply with RPAPL 1304 with respect to Quinn “because she was a borrower for purposes of RPAPL 1304”  (citation omitted), but nonetheless found that Kutch did not have standing to contest lender’s “compliance with the notice requirements of RPAPL 1304 with respect to Quinn inasmuch as that claim is personal to Quinn, and thus may be raised, if at all, only by Quinn."  (Citations and internal quotation marks and brackets omitted.)  The Court further found that, since compliance with RPAPL 1304 is not a jurisdictional defect, lender was not required to prove compliance as to Quinn because she never raised it as a defense.  Additionally, because a notice of appeal was never filed on Quinn’s behalf, she “is not a party to this appeal.”  Thus, supreme court properly denied Kutch’s motion to the extent that it sought summary judgment dismissing the complaint as to Quinn. Finally, the Court found that lender established that it had standing to bring the action. 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 When someone speaks of a dispute resolution clause, lawyers most likely think the speaker is referring to an arbitration clause. But, as discussed in Innovative Concepts & Design, LLC v. AL Infinity, LLC , 2022 N.Y. Slip Op. 01122 (1st Dept. Feb. 22, 2022) ( here ), a dispute resolution clause can be something completely different. It can place dispute resolution in the hands of one of the parties to a contract. Such clauses are binding and enforced by the courts. 1 Innovative Concepts concerned a licensing dispute between plaintiff Innovative Concepts and Design, LLC and AL Infinity, LLC. Plaintiff manufactures and sells audio equipment, and defendant is the owner of the Altec Lansing brand of audio equipment and associated trademarks. In 2016, defendant entered into a licensing agreement with plaintiff that gave plaintiff the exclusive right to manufacture and sell specified products using the trademarks. The products were described as DJ Pro Audio Speakers and Turntables including, among other products, Trolley & Tailgate Speakers and Bluetooth and Wi-Fi DJ Speakers. The complaint alleged that at the time plaintiff entered into the agreement, it was aware that another company, Sakar, also had a license with defendant to sell certain types of speakers, namely small, hand-held speakers. Plaintiff’s license agreement included a dispute resolution clause, in which plaintiff acknowledged that “due to the nature of the industry, precise definition of products is sometimes not possible”; provided defendant with the “sole and absolute discretion” to resolve disputes as to whether a particular product fell within the license of one licensee or another; and further provided that defendant’s determination would be “conclusive and binding on all parties.”  According to the complaint, in 2017 and 2018, plaintiff became aware that Sakar was marketing products that plaintiff believed were covered by its exclusive license. Plaintiff raised this issue with defendant, but ultimately defendant, under its contractual authority to resolve licensing disputes, found in all instances that the products did not infringe upon plaintiff’s exclusive license. In resolving the dispute, defendant’s determination set out the minimum dimensions for licensed products permissible for plaintiff’s license and maximum dimensions permissible for the Sakar license. Plaintiff commenced the action for breach of contract and fraud, alleging that although defendant had granted it an exclusive license to sell certain speakers, it had entered into a conflicting license agreement with Sakar where it also granted Sakar many of the same exclusive rights. Defendant moved to dismiss the complaint pursuant to CPLR § 3211(a)(1) and (7), arguing that the dispute resolution provision in the parties’ agreement gave it the right to resolve the scope of the license dispute, in its absolute and sole discretion, and that the fraud claim was duplicative of the contract claim. The motion court dismissed both claims, concluding that they were barred by the dispute resolution clause, and noting that plaintiff had not alleged that defendant’s discretion was exercised in bad faith to enrich itself at the expense of plaintiff. Plaintiff moved for renewal based on purported newly discovered evidence and leave to amend the complaint to assert new causes of action for unjust enrichment and breach of the implied covenant of good faith and fair dealing. That motion was denied. The Appellate Division, First Department agreed with the motion court that plaintiff’s breach of contract claim was barred by the dispute resolution clause in the parties’ licensing agreement. Notwithstanding, the Court addressed the merits of the claim – that defendant issued conflicting exclusive license agreements to plaintiff and Sakar. The Court found that the licenses were not conflicting on their face. The Court noted that the parties’ agreement specifically contemplated the possibility that the precise definition of products was not always possible. For that reason, the agreement provided defendant with the sole responsibility to resolve disputes over such definitions. Consequently, defendant could not have breached the agreement because “defendant simply exercised the authority given to it under the agreement”. 2 The Court also held that plaintiff’s fraud claim was precluded by the dispute resolution clause and otherwise duplicative of the contract claim. 3 In the complaint, plaintiff essentially alleged that defendant misrepresented that the agreement with Sakar did not compete with the agreement between the parties. Takeaway The dispute resolution clause at issue in Innovative Concepts was a bargained-for provision in the license agreement between the parties. That provision provided for an exclusive process for resolving product definition disputes between plaintiff, defendant, and other licensees of defendant. Such a provision is enforceable even when, as in Innovative Concepts , the party authorized to resolve the dispute is itself a party to the dispute. As the courts in Innovative Concepts made clear, albeit tacitly, the courts will enforce clear and unambiguous agreements according to their terms.  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. Seeking Valhalla Trust v. Deane , 182 A.D.3d 457 (1st Dept. 2020) (citation omitted). See also Yonkers Contracting Co., Inc. v. Port Auth. Trans-Hudson Corp. , 208 A.D.2d 63, 766-67 (2d Dept. 1995) (noting, “public policy is not violated by an alternate dispute resolution provision that authorizes an employee of a party to a contract dispute (even where such employee is personally involved in the dispute) to make conclusive, final, and binding decisions on all questions arising under the contract.”), aff’d , 87 N.Y.2d 927 (1996). Slip Op. at *2 (citing, Seeking Valhalla Trust , 182 A.D.3d at 458).  Id. (citations omitted).

By:  Jeffrey M. Haber Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 21F to the Securities Exchange Act of 1934 (“Exchange Act”), establishing the Securities and Exchange Commission’s whistleblower program. Among other things, Section 21 authorizes the SEC to make monetary awards to individuals who voluntarily provide original information that leads to successful SEC enforcement actions resulting in monetary sanctions exceeding $1 million. Awards must be made in an amount equal to 10%-30% of the monetary sanctions collected. Since the program’s inception, the Commission has awarded more than $1.2 billion to 245 individuals whose information assisted the Commission in bringing successful enforcement actions. Under Section 21F(b) of the Exchange Act and Rule 21F-11 promulgated thereunder, a whistleblower who obtains an award based on a covered action also may be eligible for an award based on monetary sanctions that are collected in an action brought by other statutorily identified authorities, such as the IRS. The SEC is proposing two amendments to its whistleblower program rules. The first proposed amendment addresses instances when a whistleblower from the SEC’s program receives an award from another, non-SEC, whistleblower program. The second affirms the Commission’s authority to consider the dollar amount of a potential award for the limited purpose of increasing an award, but not to lower an award. The first proposed amendment would allow the Commission to make an award for a related action that might otherwise be covered by another whistleblower program even when the other whistleblower program has the more direct or relevant connection to the related action. Under the proposed amendment, the SEC intends to apply the following approaches: Comparability : if a claimant files a related-action award application, and the alternative award program is not comparable to the SEC’s whistleblower program, because the statutory award range is more limited, awards are subject to an award cap, or the other award program is discretionary and not mandatory, the Commission would treat the non-SEC action as “related” for purposes of the Commission’s award program, regardless of whether the alternative award program has a more direct or relevant connection to the action. The Commission also would make an award on a potential related action without regard to which program had the more direct and relevant connection to the action if the maximum award that the Commission could pay on the action would not exceed $5 million. Whistleblower Choice : a whistleblower would be given the option to decide whether to receive a related-action award from the Commission or the authority administering the other award program. The whistleblower would not be required to select which program to receive the award from until both programs had determined the award amount they would pay.  Offset Approach : The Commission would determine the award percentage it would pay on the related action but offset from the Commission’s total award payment by the dollar amount the whistleblower received for the related action from the other award program.  Topping Off Approach : The Commission would have the discretion to increase the award on the SEC covered action (up to 30 percent) if the Commission concludes that the other whistleblower program’s award for the related action was inadequate for any reason. Under the Comparability or Whistleblower Choice approach, the whistleblower would be required to make an irrevocable waiver of any claim to an award from the other whistleblower award program. The second proposed amendment would affirm the Commission’s authority to consider the dollar amount of a potential award for the limited purpose of increasing the award amount.  In 2020, the SEC added language to Rule 21F-6, stating that the Commission has discretion to consider the dollar amount of a potential award when making an award determination. The proposed changes would affirm the Commission’s authority to consider the dollar amount of a potential award for the limited purpose of increasing the award amount, but would eliminate the Commission’s authority to consider the dollar amount of a potential award for the purpose of decreasing an award. Commenting on the proposed amendments, SEC Chair Gary Gensler said: “These amendments, if adopted, would help ensure that whistleblowers are both incentivized and appropriately rewarded for their efforts in reporting potential violations of the law to the Commission. The first proposed rule change is designed to ensure that a whistleblower is not disadvantaged by another whistleblower program that would not give them as high an award as the SEC would offer. Under the second proposed rule change, the SEC could consider the dollar amounts of potential awards only to increase the whistleblower’s award. This would give whistleblowers additional comfort knowing that the SEC could consider the dollar amount of the award only in such cases.” The public comment period for the proposed rules will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer. A copy of the announcement of the proposed amendments can be found here . A copy of the fact sheet discussing the proposed amendments can be found here . A copy of the proposing release can be found here .  here)=">here)" and="and" SEC’s="SEC’s" >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.

By Jonathan H. Freiberger On February 16, 2022, the Appellate Division, Second Department, decided Bank of New York Mellon Trust Company v. Lee , a mortgage foreclosure action that was dismissed, as abandoned, pursuant to CPLR 3215(c) due to lender’s failure to take any “proceedings toward entry of a default judgment within a year after the defendant’s default.”  [Eds. Note: This Blog previously has discussed CPLR 3215(c) < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . By way of brief background, and as set forth in one of our prior Blogs, Rule 3215(c) of the New York Civil Practice Law and Rules provides, in pertinent part, that: If the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed….  (Emphasis added.) Courts have noted that the language of CPLR 3215(c) is mandatory in the first instance unless plaintiff demonstrates “sufficient cause” for the failure to timely “take proceedings for the entry of judgment]”.  ( See, e.g., US Bank v. Onuoha (2 nd Dep’t June 27, 2018); Wells Fargo Bank v. Cafasso (2 nd Dep’t February 28, 2018). The Cafasso Court (quoting Giglio v. NTIMP, Inc. , 86 A.D.3d 301 (2 nd Dep’t 2011)), noted that “sufficient cause” “‘requir both a reasonable excuse for the delay in timely moving for a default judgment, plus a demonstration that the cause of action is potentially meritorious.’”  The “reasonableness” of an excuse is within the sound discretion of the motion court. ( See, e.g., Onuoha and Cafasso .)  Finally, a default judgment need not be obtained within one year, as long as proceedings to obtain a default judgment have been initiated.  ( See Bank of America v. Lucido (2 nd Dep’t July 11, 2018).)  In mortgage foreclosure actions, the preliminary step of moving for an order of reference is deemed to be a sufficient “proceeding” toward the entry of judgment to satisfy the one-year time frame of CPLR 3215(c).  ( See, e.g., Deutsche Bank v. Delisser (2 nd Dep’t May 16, 2018); Lucido .) Lender in Bank of New York commenced a mortgage foreclosure action in October of 2013 and a few days later filed a supplemental summons and amended complaint. Borrower failed to answer the amended complaint or otherwise appear in the action.  Borrower appealed supreme court’s denial of her motion to dismiss the complaint as abandoned pursuant to CPLR 3215(c).  According to the Second Department’s decision, supreme court erroneously held that borrower’s failure to move to vacate her default precluded her from seeking dismissal of the complaint pursuant to CPLR 3215(c). After concluding that there was no dispute that lender failed to take any “proceedings toward entry of a default judgment within a year after the 's default,” the Court rejected lender’s assertion that it had “a reasonable excuse for its failure to timely seek a default judgment.”  In so doing, the Court stated: In opposition to 's motion, failed to demonstrate a reasonable excuse for its failure to timely seek a default judgment. did not file a request for judicial intervention seeking a foreclosure settlement conference until December 28, 2015, approximately 22 months after 's default. Even after the matter was released from the foreclosure settlement part on March 14, 2016, took no steps toward obtaining a default judgment before moved to dismiss the complaint as abandoned in March 2018.  Contrary to 's contention, it failed to demonstrate a reasonable excuse for its delay based on its opposition to a motion to implead it in a separate action by the homeowners association for the premises to foreclose on a lien for unpaid common charges. Since that motion was made after the one-year statutory deadline had already passed, 's claim that it needed to oppose the motion before seeking a default judgment herein was legally insufficient to justify 's failure to take proceedings for entry of a default judgment within one year after ’s default. Since failed to demonstrate a reasonable excuse for its delay in seeking a default judgment, we need not consider whether it had a potentially meritorious cause of action. TAKEAWAY Bank of New York once again highlights the importance of taking prompt steps to secure a default against a defendant. 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.