By Jonathan H. Freiberger There are two “components and constitutional predicates of personal jurisdiction.”  Keane v. Kamin , 94 N.Y.2d 263, 265 (1999).  “One component involves service of process, which implicates due process requirements of notice and opportunity to be heard.”  Id. (citations omitted).  Even though a defendant may be subject to the jurisdiction of the Court, dismissal may be sought “based on the claim that service was not properly effectuated.”  Id. (citations omitted).  “The other component of personal jurisdiction involves the power, or reach, of a court over a party, so as to enforce judicial decrees.”    Id. (citations omitted).   This requires a “constitutionally adequate connection between the defendant, the State and the action” ( Id. (citations omitted)) and is beyond the scope of this article.  In order for a court to exercise personal jurisdiction over a defendant in a litigation, among other things, defendant must be served with process (typically a summons).  In New York, service of process is usually performed by a process server and service is made pursuant to among others, CPLR Rules: 307 (State), 308 (natural person), 309 (infant, incompetent or conservatee), 310 (partnership), 310-a (limited partnership), 311 (corporation or governmental subdivision), 311-a (limited liability company) and 312 (court, board or commission), which govern how different individuals and entities may be served.  For example, under CPLR 308, personal service on an individual may be made by delivering the legal process: directly to the defendant (CPLR 308(1)); to someone of suitable age and discretion at the defendant’s “actual place of business, dwelling place or usual place of abode” and mailing a copy of the summons to the defendant’s last known residence or actual place of business (CPLR 308(2)); to an agent designated under CPLR 318 (CPLR 308(3)); and, where notwithstanding diligent, but unsuccessful, efforts to serve pursuant to CPLR 308(1) and (2), by affixing the process to the door at the defendant’s “actual place of business, dwelling place or usual place of abode within the state” and mailing a copy of the summons to the defendant at his/her/their actual place of business or last known residence (CPLR 308(4)).  The failure to serve process in “strict compliance” with the “statutory methods,” “leaves the court without personal jurisdiction over the defendant, and all subsequent proceedings are thereby rendered null and void.”  Nationstar Mortgage, LLC v. Gayle , 191 A.D.3d 1002 (2 nd Dep’t 2021) (citations omitted).  Accordingly, proof of proper service is of the utmost importance. Once service of process is made, the process server typically prepares an affidavit of service.  CPLR 306 sets forth the information that must be provided in an affidavit of service, which includes: the papers served, the person served and the date of service (CPLR 306(a)); and,  when service is made by delivering the summons to an individual, a description of the person to whom the papers were delivered including, among other things, sex, skin color, hair color, age, weight, height and any other identifying features.  In addition, if service is made pursuant to CPLR 308(4), the dates, addresses and times of attempted service must be specified.  This is so because in order to demonstrate diligence, the process server must attempt to make service on the defendant “at different times and on different days when the defendant could reasonably be expected to be home.”  Bank of America, N.A. v. Batson , 176 A.D.3d 771 (2 nd Dep’t 2019) (citations omitted).  A defendant can contest service of process on a motion to dismiss a complaint, inter alia , pursuant to CPLR  3211(a)(8) and/or CPLR 5015(a)(4).  On December 1, 2021, the Second Department decided three mortgage foreclosure actions addressing the sufficiency of service of process. Wells Fargo Bank, N.A. v. Enitan  In Wells Fargo Bank, N.A. v. Enitan , the borrower was purportedly served by “nail and mail” service pursuant to CPLR 308(4).  The court granted lender’s motion for a default judgment and for the appointment of a referee.  When the lender moved to confirm the referee’s report and for a judgment of foreclosure and sale, the borrower opposed the motion and cross-moved, inter alia , pursuant to CPLR 5015(a), to vacate the order granting a default judgment, and pursuant to CPLR 3211(a)(8), to dismiss the complaint for lack of personal jurisdiction over him.  The court granted lender’s motion and denied the cross-motion.  On appeal, the Second Department affirmed.  After discussing the relevant legal principals along the lines set forth supra , the Court stated: A process server's affidavit of service establishes a prima facie case as to the method of service and, therefore, gives rise to a presumption of proper service.  Although a defendant's sworn denial of receipt of service generally rebuts the presumption of proper service established by the process server's affidavit and necessitates an evidentiary hearing, no hearing is required where the defendant fails to swear to specific facts to rebut the statements in the process server's affidavits.   The sworn denial of receipt of service must be a detailed and specific contradiction of the allegations in the process server's affidavit. Here, the process server's affidavit of service, in which he attested that he attempted to serve the defendant on three prior occasions, constituted prima facie evidence of proper service pursuant to CPLR 308(4). In opposition and in support of his cross motion, the defendant's unsupported averment that he did not reside at the subject property at the time of service was insufficient to rebut the presumption of proper service created by the process server's affidavit. (Citations, internal quotation marks and brackets omitted.)  Bank of New York v. Dutan In Bank of New York v. Dutan , an order of reference was entered upon borrower’s loan default.  Borrower opposed lender’s motion to confirm the referee’s report and for a default judgment of foreclosure and sale and cross-moved, inter alia , “pursuant to CPLR 5015(a)(3) and (4) to vacate the order of reference, and thereupon pursuant to CPLR 3211(a) … (8) to dismiss the complaint insofar as asserted against him for lack of … personal jurisdiction.”  Supreme court granted lender’s motion and denied borrower’s cross-motion.  On appeal, the Second Department reversed. The Court noted that “ lthough a party moving to vacate a default must normally demonstrate a reasonable excuse and a meritorious defense, the movant is relieved of that obligation when lack of personal jurisdiction is asserted as the ground for vacatur."  (Citation omitted.)  Further, while the process server’s affidavit typically “constitutes a prima facie showing of proper service, … when a defendant submits a sworn denial of receipt of service containing specific facts to refute the statements in the affidavit of the process server, the prima facie showing is rebutted and the plaintiff must establish personal jurisdiction by a preponderance of the evidence at a hearing.”  (Citations omitted.)  Reversal was warranted because: the affidavit of service reflects that the defendant was served pursuant to CPLR 308(2)….  The affidavit of service sets forth a detailed description of the person of suitable age and discretion, and states that the person of suitable age and discretion represented to the process server that the mortgaged premises was the defendant's "dwelling house." The defendant rebutted the presumption of valid service by the submission of an affidavit in which he averred that the mortgaged premises was not his dwelling house or usual place of abode, and that his residence was located at a different specified address. He further averred that he had no knowledge of anyone being served on his behalf, and that he had not received a copy of the summons and complaint. Under these circumstances, a hearing on the issue of whether the defendant was properly served was warranted. (Citation omitted.)  Green Tree Servicing, LLC v. Frantzeskakis              In Green Tree Servicing, LLC v. Frantzeskakis , supreme court, after a traverse hearing (a hearing to determine whether service of process was properly made), granted borrower’s motion to dismiss the complaint pursuant to CPLR 3211(a)(8) for lack of personal jurisdiction.  On lender’s appeal, the Second Department reversed and held that: A minor discrepancy between the appearance of the person allegedly served and the description of the person served contained in the affidavit of service is generally insufficient to raise an issue of fact warranting a hearing. Further, the discrepancies must be substantiated by something more than a claim by the parties allegedly served that the descriptions of their appearances were incorrect. Here, notwithstanding alleged physical discrepancies, the process server averred that the person who answered the door, and on whom he served process, gave her name as Marina Frantzeskakis, and acknowledged she was the wife of the . The process server's affidavit of service constituted prima facie proof of proper service on the defendant via substituted service on his wife ( see CPLR 308<2> ). The affidavits submitted by the defendant failed to rebut the presumption of due service. The discrepancies alleged by the defendant between his wife's appearance and the description of the person served contained in the process server's affidavit were either too minor or insufficiently substantiated to warrant a hearing. Accordingly, a hearing to determine the validity of service of process was not warranted under the circumstances…. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber As readers of this Blog know, one of the elements of a fraud claim is reliance. In the typical case, the defendant makes a false or misleading statement directly to the plaintiff, which the plaintiff claims to rely on. In the less frequent case, the misrepresentation of fact is made to a third party that relied on the alleged fraudulent statement. The question is whether, in that circumstance, a plaintiff can state a fraud cause of action, despite the absence of direct reliance by the plaintiff on the alleged misrepresentation?  In Pasternack v. Laboratory Corp. of Am. Holdings , 27 N.Y.3d 817 (2016), the New York Court of Appeals held that third-party reliance does not satisfy the reliance element of a fraud claim unless the third party “acted as a conduit to relay the false statement to plaintiff, who then relied on the misrepresentation to his detriment.” 1 In other words, the alleged misrepresentation or omission does not need to be made directly to the plaintiff so long as the statement was made with the intent that it be communicated to the plaintiff by a third party and the plaintiff relied on the representation or omission to his or her detriment. here.=">here."> When the plaintiff alleges fraud, he or she must show that the misrepresentation or omission was the direct and proximate cause of the claimed losses. 2 In other words, a plaintiff must show causation. “To establish causation, plaintiff must show both that defendant’s misrepresentation induced plaintiff to engage in the transaction in question (transaction causation) and that the misrepresentations directly caused the loss about which plaintiff complains (loss causation).” 3 Transaction causation is often the easier of the two prongs to satisfy, while loss causation is typically more difficult. As noted by the Appellate Division, First Department in Laub : “ egardless of whether plaintiff could establish that he was induced by the alleged misrepresentations to follow recommendations on purchases of equities, plaintiff’s claims must fail because he has not alleged or produced any evidence that those misrepresentations directly and proximately caused his investment losses.” 4 As noted above, the loss causation prong demands a showing that the misrepresentation or omission directly and proximately caused the plaintiff to take action or no action at all. 5 As the Court of Appeals noted in Pasternack , “the tort of fraud is intended to protect a party from being induced to act or refrain from acting based on false representations.” 6 here,=">here," and="and" >here.=">here."> Finally, the plaintiff must allege that the misrepresentation or omission was more than, a promise of future intent to perform some act. He or she must show that the misrepresentation or omission is one of existing fact made to induce action or inaction on his or her part. 7 here,=">here," and="and" >here.=">here."> The foregoing principles were addressed in Buff v. Nemeth , 2021 N.Y. Slip Op. 32532(U) (Sup. Ct., N.Y. County Dec. 1, 2021) ( here ). Buff involved a dispute over the estate of defendant’s husband, Alfred M. Buff (“decedent”). According to plaintiff, defendant allegedly used her will to induce her late husband “to execute his own estate planning documents in a manner favorable to ” and detrimental to plaintiff and her brother.  Background Plaintiff is the decedent’s daughter. The decedent was married to defendant at the time of his death on July 4, 2018. According to plaintiff, in January 2013, defendant and the decedent met with an estate planning attorney. At that time, the decedent intended to provide for defendant in the manner in which she was accustomed during their marriage, with the remainder of the estate to pass to plaintiff and her brother. In July 2013, defendant executed a will containing a provision that “she would segregate assets and create a special account upon death to which she would add all sums received from , and that upon her death those sums would revert to” plaintiff and her brother.  In May 2018, the decedent executed a will, which provided defendant with an annual income of $80,000 and lifetime occupancy of the decedent’s Manhattan apartment. In addition, the decedent left an investment account to defendant, which held approximately $1.5 million. The account was jointly held by the decedent and defendant, even though defendant never contributed to the account. Plaintiff maintained that as a result of the “representation” defendant made in her 2013 will about segregating assets, the decedent did not move the money into the trust he had established. Defendant closed the joint investment account in September 2019. Plaintiff alleged that defendant did not assure her the money had been segregated as provided in defendant’s will. After defendant’s husband died, and during settlement discussions concerning estate proceedings to probate his will, plaintiff requested that defendant sign a document to bind her to the terms of her 2013 will. Defendant declined to do so, allegedly stating that she could devise her own will as she saw fit and was not contractually obligated to dispose of her husband’s or her own estate in any particular manner.  Plaintiff brought suit, claiming that, among other things, defendant executed her will in 2013 solely to induce the decedent to execute his will in a way most favorable to her. Plaintiff further claimed that defendant had no intention of keeping the alleged promise(s) made to her late husband that she would either create a special account to segregate his estate and/or pass along his estate to plaintiff and her brother upon her passing. Defendant moved to dismiss the complaint. The Court granted the motion. The Court’s Decision First, the Court observed that the alleged false statement was not made to plaintiff but, rather, to her father, the decedent. The Court said that even assuming the statement was made to the decedent with the intent that it be passed along to plaintiff, the fraud claim nevertheless failed to state a claim. The reason, said the Court, was because plaintiff “failed to allege that she relied on the misrepresentation to her detriment.” 8 The Court explained that plaintiff failed to plead loss causation in that the complaint did not “contain allegations of plaintiff’s action or inaction, i.e., what she did or would have done but for the fraud.” 9 Second, the Court found that the alleged misrepresentations were, “at most, promises of future intent rather than misrepresentations of existing fact made to induce action or inaction on her part.” 10 “Indeed,” said the Court, “plaintiff, as a potential beneficiary under defendant’s 2013 Will, enjoys only ‘only expectancy interests and not vested legal rights.’” 11 Thus, the Court dismissed the fraud claims. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. Footnotes Id. at 828. Friedman v. Anderson , 23 A.D.3d 163, 167 (1st Dept. 2005). Laub v. Faessel , 297 A.D.2d 28, 31 (1st Dept. 2002). Id. at 31. Vandashield Ltd v. Isaacson , 146 A.D.3d 552 (1st Dept. 2017). Pasternack , 27 N.Y.3d at 828.  Connaughton v. Chipotle Mexican Grill, Inc. , 135 A.D.3d 535, 537-38 (1st Dept. 2016), aff’d , 29 N.Y.3d 137 (2017) (holding that a fraud claim is not actionable where “the allegations at best suggest that” the “plaintiff might suffer injury” “depending on the future actions of ”). Slip Op. at *5. Id. Id. (citation and internal quotation marks omitted). Under New York law, “ o fulfill the element of misrepresentation of material fact , the party advancing the claim must allege a misrepresentation of present fact rather than of future intent.” Perella Weinberg Partners LLC v. Kramer , 153 A.D.3d 443, 449 (1st Dept. 2017) (citation omitted). “General allegations of lack of intent to perform are insufficient; rather, facts must be alleged establishing that the adverse party, at the time of making the promissory representation, never intended to honor the promise.” Id. (citation omitted).  Id. (citations omitted).

By Jonathan H. Freiberger A major concern raised by potential clients when deciding whether to commence litigation is whether they are entitled to recoup their legal fees if they prevail.  This issue was recently addressed in our BLOG article entitled: “ ’Can I Sue ‘Em For My Legal Fees?’ ,” in which we explained, inter alia , that: Clients are often dismayed to learn that attorney’s fees are not generally recoverable in litigation under the “American Rule,” because “ n the United States, the prevailing litigant is ordinarily not entitled to collect a reasonable attorney fee from the loser.”  Alyeska Pipeline Services Co. v. Wilderness Society , 421 U.S. 240, 247 (1975) (providing a historical perspective on the awarding of attorneys’ fees in Federal Court litigation); see also , Mighty Midgets, Inc. v. Centennial Ins. Co. , 47 N.Y.2d 12, 21-22 (1979).  The “American Rule” “reflects a fundamental legislative policy decision that, save for particular exceptions or when parties have entered into a special agreement, it is undesirable to discourage submission of grievances to judicial determination and that, in providing freer and more equal access to the courts, the present system promotes democratic and libertarian principles.”  Mighty Midgets , 47 N.Y.2d at 22 (citations omitted).   Thus, in general, legal fees and disbursements are deemed to be “incidents of litigation” and, therefore, unrecoverable in litigation.  A.G. Ship Maintenance Corp. v. Lezak , 69 N.Y.2d 1, 5 (1986) (citations omitted).  An exception, however, applies when “an award is authorized by agreement between the parties or by statute or court rule.”  Id. See also Hooper Assoc., Ltd. v. AGS Computers, Inc. , 74 N.Y.2d 487 (1989).  Accordingly, contracts frequently contain provisions permitting the collection of reasonable legal fees if, for example, a party defaults under the contract.  Such provisions are common in promissory notes and mortgages – an area of the law frequently covered by this BLOG.   Indeed, Courts routinely award lenders, “reasonable” legal fees and disbursements in cases where a promissory note or mortgage provides for same in the event of a default by a borrower.  See, e.g., Lupo v. Anna’s Lullaby Café, LLC , 189 A.D.3d 1205, 1208 (2 nd Dep’t 2020); Griffon V, LLC v. 11 East 36 th , LLC , 90 A.D.3d 705, 707 – 08 (2 nd Dep’t 2011); Cutter Bayview Cleaners, Inc. v. Spotless Shirts, Inc. , 57 A.D.3d 708, 710 (2 nd Dep’t 2008).  Legal fees in mortgage foreclosure actions are frequently requested and frequently awarded; often times, however, the amounts requested do not match the amounts awarded as legal fees as they are frequently reduced by Courts.   On December 1, 2021, the Appellate Division, Second Department, decided McCormick 110, LLC v. Gordon , a residential mortgage foreclosure action with a seemingly tortured history.    In 2006, defendants borrowed $400,000 from original lender and secured their repayment obligations with a mortgage on real property in Brooklyn.  Upon defendants’ default, original lender commenced a mortgage foreclosure action in 2013. During the pendency of the first action, the underlying note was assigned to plaintiff.  Plaintiff commenced its action in April of 2016, and the original action commenced by the original lender was discontinued by order of the court issued the following month granting the original lender’s motion for that relief. Plaintiff’s motion for summary judgment on the complaint and to strike defendants’ answer and for the appointment of a referee to compute was granted.  Plaintiff did not request that the referee calculate legal fees.  Plaintiff then moved for a judgment of foreclosure and sale in which it requested that the court, inter alia , award reasonable attorney’s fees pursuant to the terms of the mortgage.  In support of its attorney’s fees application, plaintiff submitted its invoices totaling $71,451.11.  While defendants opposed the motion for a judgement of foreclosure and sale, they “did not address the plaintiff's request for an award of attorney's fees.”  In its reply papers, plaintiff noted that "the Defendants' opposition papers fail to dispute in any manner the Plaintiff's request for an award of attorney's fees."  In the resulting order and judgment of foreclosure and sale, supreme court “confirmed the referee's report, directed the sale of the subject premises, and awarded the plaintiff $0 in attorney's fees.”   On the parties’ appeals, the Second Department held that plaintiff was entitled to its judgment.  However, the Court held that supreme court “improvidently exercised its discretion in denying the plaintiff’s unopposed request for an award of attorney’s fees and, in so holding, stated: A plaintiff in a foreclosure action may be entitled to attorneys' fees pursuant to the terms of the mortgage. However, an award of attorney's fees pursuant to such a contractual provision may only be enforced to the extent that the amount is reasonable and warranted for the services actually rendered. In determining reasonable compensation for an attorney, the court must consider such factors as the time, effort, and skill required; the difficulty of the questions presented; counsel's experience, ability, and reputation; the fee customarily charged in the locality; and the contingency or certainty of compensation. While a hearing is not required in all circumstances, the court must possess sufficient information upon which to make an informed assessment of the reasonable value of the legal services rendered.  Here, section 22 of the mortgage agreement at issue gave the plaintiff the right to collect "reasonable attorneys' fees" in any foreclosure action.  With its motion for a judgment of foreclosure and sale, the plaintiff submitted an affidavit from its attorney, stating that the plaintiff was entitled to $71,451 .11 in attorney's fees in this case.  In the affidavit, the attorney described his experience, and stated that his discounted billing rate of $175 per hour "is actually less than that of other attorneys prosecuting foreclosure actions in New York State."  The plaintiff further submitted its attorney's billing statements as evidence.  The defendants did not oppose the plaintiff's request for an award of attorney's fees.  Accordingly, the plaintiff should have been awarded attorney's fees in the sum of $71,451.11. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber On June 5, 2017, the U.S. Supreme Court held that claims for disgorgement imposed as a sanction for violation of the federal securities laws must be commenced within five years of the date the claim accrues. 1 In doing so, the Court concluded that disgorgement “in the securities enforcement context is a ‘penalty’ within the meaning of Section 2462” of the U.S. Code.  In concluding that disgorgement is a penalty, the Supreme Court looked at two factors. First, whether the payment had been imposed to redress a wrong to the public, or a wrong to an individual. The Court noted that a penalty is imposed to redress the former, not the latter. “This is because penal laws, strictly and properly, are those imposing punishment for an offense committed against the State.”  (Internal quotations omitted.) The Court also noted that disgorgement is more like a penalty because, as applied by the courts, it does not necessarily compensate the victims; disgorged profits are paid to the courts, and it is “within the court’s discretion to determine how and to whom the money will be distributed.” (Citation and internal quotation marks omitted.) Second, whether the payment was imposed to deter future wrongdoing by depriving violators of their ill-gotten gains. Apply those factors, the Supreme Court concluded that “ ecause disgorgement orders go beyond compensation, are intended to punish, and label defendants wrongdoers as a consequence of violating public laws, they represent a penalty .…” (Internal quotation marks and citation omitted.) Kokesh="Kokesh" here.=">here."> In J.P. Morgan Sec. Inc. v. Vigilant Ins. Co. , the New York Court of Appeals held that Kokesh did not apply to the dispute before it because the disgorgement was not punitive but compensatory and, therefore, was not a penalty. 2 J.P. Morgan involved a dispute between insured broker-dealers and certain excess insurers concerning the availability of coverage under a “wrongful act” liability policy for funds the insureds “disgorged’ as part of a settlement with the Securities and Exchange Commission (“SEC”). In concluding that the settlement payment in question was not excluded from insurance coverage as a “penalt imposed by law” under the policies at issue, the Court reversed the decision of the Appellate Division, First Department, which ruled to the contrary in reliance on Kokesh . 3 Factual Background As noted, the dispute concerned insurance which J.P. Morgan’s predecessor, The Bear Stearns Companies (the “Companies”), purchased from defendant Vigilant Insurance Company. The policy provided coverage for “wrongful acts” of the Companies and its subsidiaries. The Companies also purchased various excess insurance policies that followed the policy issued by Vigilant. The excess policies provided coverage for “loss” that the Companies became liable to pay in connection with any civil proceeding or governmental investigation into violations of laws or regulations. They defined “loss” as including various types of damages – including compensatory and punitive damages (“where insurable by law”) – but not “fines or penalties imposed by law.” In 2003, the SEC and other regulatory agencies began investigating Bear, Stearns & Co. Inc. and Bear, Stearns Securities Corporation – broker-dealers that processed and cleared trades for clients (collectively, “Bear Stearns”). The investigation concerned allegations that, between 1999 and 2003, Bear Stearns had facilitated “late trading” and deceptive “market timing” practices by its customers in connection with the purchase and sale of shares of mutual funds. 4 Bear Stearns notified its insurance carriers (the “Insurers”) of the pending investigation, but the Insurers effectively disclaimed coverage. Eventually, the SEC informed Bear Stearns that it intended to commence a civil action or administrative proceeding charging violations of the federal securities laws and that it would seek, among other things, $720 million in monetary sanctions. Although Bear Stearns disputed the proposed charges, in early 2006 it settled with the SEC. Pursuant to the settlement order, the SEC censured Bear Stearns and ordered it to cease and desist from any future securities law violations. Without admitting or denying the SEC’s findings, Bear Stearns agreed to disgorge $160 million and pay civil penalties of $90 million. Both payments were to be deposited into a Fair Fund 5 to compensate mutual fund investors allegedly harmed by the improper trading practices.  Further, “ o preserve the deterrent effect of the civil penalty,” the settlement order directed that the $90 million payment – but not the disgorgement payment – was ineligible to offset any sums owed by Bear Stearns to private litigants injured by the trading practices. Bear Stearns was also required to treat the $90 million payment as a penalty for tax purposes.  Following the settlement, Bear Stearns transferred the $160 million disgorgement and $90 million penalty payments to the SEC. Bear Stearns also eventually settled a series of class actions brought on behalf of injured private investors based on similar late trading and market timing allegations. Plaintiffs, Bear Stearns’ successor companies, subsequently commenced the action alleging that the Insurers breached the insurance contracts and seeking a declaration of coverage for the disgorgement payment, private settlement, and various other defense costs and expenses. The Insurers moved to dismiss the complaint arguing, among other things, that the disgorgement component of the SEC settlement was not insurable as a matter of public policy. The motion court denied the motions to dismiss, but the First Department reversed and granted the motions. 6 Bear Stearns appealed. The Court of Appeals reinstated the complaint, concluding that the Insurers were not entitled to dismissal because the disgorgement payment, allegedly “calculated in large measure on the profits of others,” was not clearly uninsurable as a matter of public policy. 7 Following additional motion practice, Bear Stearns moved for summary judgment, seeking dismissal of the Insurers’ various defenses to coverage and arguing that $140 million of the disgorgement payment represented disgorgement of its clients’ gains, as compared with Bear Stearns’ own revenue, and was an insurable “loss” under the policies. The Insurers opposed and cross-moved for summary judgment, arguing that the $140 million did not represent client gains and relying on various policy exclusions and public policy-based arguments against indemnification. The motion court denied the Insurers’ motions and granted summary judgment to Bear Stearns, concluding that the disgorgement of $140 million in client gains constituted an insurable loss. 8 The Insurers appealed. The First Department, among other things, reversed, denied Bear Stearns’ motion for summary judgment, and granted the Insurers’ motions for summary judgment, stating that Bear Stearns was not entitled to coverage for the SEC disgorgement payment. 9 Relying on Kokesh , the First Department determined that the relevant portion of the disgorgement payment was a “penalty” and, as such, was not an insurable loss under the language of the policies. 10 On remand, the motion court dismissed the complaint as to certain excess insurers and severed the remaining claims as to other insurers. The Court of Appeals granted leave to appeal as against four of the excess insurers. On appeal, Bear Stearns argued that the $140 million disgorgement for which it sought coverage was derived from estimates of client gain and investor harm and, therefore, the Insurers failed to meet their burden of establishing that the payment was not a covered loss because it was a “penalty imposed by law.” In a 6-1 decision written by Chief Judge DiFiore, the majority agreed, holding that the payment was not a penalty within the meaning of the policies. The Court’s Decision As an initial matter, the Court examined the insurance contracts as it would any other contract. 11 Thus, the Court looked to the specific language used in the policies, 12 and “interpreted according to common speech and consistent with the reasonable expectation of the average insured” at the time of contracting ( i.e. , in 2000), and construed any ambiguities against the Insurers and in favor of the insured. 13 Against the foregoing principles, the Court turned its attention to the policies at issue, noting that resolution of the dispute turned on the definition of “loss” thereunder. 14 The Court observed that under the policies, the Insurers agreed to pay the “loss” that Bear Stearns became legally obligated to pay as the result of any claim (defined as including any civil proceeding or governmental investigation) for any wrongful act, which encompassed any actual or alleged act, error, omission, misstatement, neglect, or breach of duty by Bear Stearns and its employees while providing services as a securities broker and dealer. 15 The Court noted that the policies defined “loss” to include compensatory damages, punitive damages where insurable by law, multiplied damages, judgments, settlements, costs, and expenses resulting from any claim.” 16 Further, said the Court, the term “loss” expressly encompassed “costs, charges and expenses or other damages incurred in connection with any investigation by any governmental body”, though “fines or penalties imposed by law” were excluded from the definition of “loss”. 17 The Court concluded that the Insurers had not met their burden of proving that in 2000, when the policies were purchased, the Companies understood the phrase “penalties imposed by law” to preclude coverage for the $140 million SEC disgorgement payment. 18 The Court examined the meaning of “penalty” and concluded that a “penalty” “is distinct from a compensatory remedy” – “a penalty is not measured by the losses caused by the wrongdoing.” 19 However, noted the Court, “where a sanction has both compensatory and punitive components, it should not be characterized as punitive in the context of interpreting insurance policies.” 20 Thus, said the Court, “a reasonable insured purchasing a wrongful act policy would expect an award or settlement payment that has compensatory purposes and is measured by an injured party’s losses and third-party gains to fall within its coverage grant and, concomitantly, not be deemed a penalty.” 21 The Court explained that “Bear Stearns demonstrated that the $140 million disgorgement payment was calculated based on wrongfully obtained profits as a measure of the harm or damages caused by the alleged wrongdoing that Bear Stearns was accused of facilitating.” 22 In contrast, noted the Court, the $90 million payment was denominated a “penalty” and “was not derived from any estimate of harm or gain flowing from the improper trading practices.” 23 This finding, reasoned the Court, was underscored by the SEC’s requirement that Bear Stearns treat the $90 million payment, but not the disgorgement, as a penalty for tax purposes. In addition, noted the Court, although the $90 million civil penalty funds were ineligible to be used to offset a private claim against Bear Stearns, the same was not true of the disgorgement payment. These factors, explained the Court, “must be taken together with the fact that the payment effectively constituted a measure of the investors’ losses.” 24 Notably, the Court held that Kokesh did not control the outcome in the case. The Court distinguished Kokesh on the ground that “the Supreme Court was not interpreting the term ‘penalty’ in an insurance contract (much less one governed by New York law).” 25 The Court noted that “the Supreme Court has since clarified that SEC-ordered disgorgement is not always properly characterized as a penalty insofar as the SEC may seek ‘disgorgement’ of a defendant’s net gain for compensatory purposes as ‘equitable relief’ in civil actions.” 26 “Moreover,” reasoned the Court, “ Kokesh – decided nearly two decades after the parties executed the relevant insurance contracts – could not have informed the parties’ understanding of the meaning of the term ‘penalty.’” 27 “Thus,” concluded the Court, “ Kokesh not mandate that the $140 million disgorgement payment be considered a ‘penalty imposed by law’ under the insurance policies at issue here.” 28 Accordingly, the Court held that the First Department erred in granting summary judgment to the Insurers. Judge Rivera dissented, arguing that “the majority’s conclusion that the disgorged funds recoverable from the insurers contrary to the insurance policy language and undermine both federal regulation of illegal conduct in the securities market and the SEC’s efforts to discourage future violations.” 29 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 Kokesh v. SEC , 581 US ___, 137 S.Ct. 1635 (2017). J.P. Morgan Sec. Inc. v. Vigilant Ins. Co. , 2021 N.Y. Slip Op. 06528 (Nov. 23, 2021) ( here ). J.P. Morgan Sec. Inc. v. Vigilant Ins. Co. , 166 A.D.3d 1 (1st Dept. 2018) ( here ). “Late trading is the practice of placing orders to buy, redeem or exchange mutual fund shares after the 4:00 p.m. close of trading, but receiving the price based on the net asset value set at the close of trading,” which practice “allows traders to obtain improper profits by using information obtained after the close of trading.” J.P. Morgan Sec. Inc. v. Vigilant Ins. Co. , 21 N.Y.3d 324, 330 n.1 (2013). Market timing is the “practice of frequent buying and selling of shares of the same mutual fund or the buying or selling of mutual fund shares to exploit inefficiencies in mutual fund pricing”; although this is “not per se improper, it can be deceptive if it induces a mutual fund to accept trades it otherwise would not accept under its own market timing policies.” Id. A Fair Fund is a fund established by the SEC to distribute disgorgements and penalties to defrauded investors. Congress created Fair Funds in the Sarbanes-Oxley Act of 2002. 91 A.D.3d 226 (1st Dept. 2011). 21 N.Y.3d 324, 336 (2013). 57 Misc. 3d 171, 179-183 (Sup. Ct., N.Y. County 2017). 166 A.D.3d 1 (1st Dept. 2018). Id. at 8. Slip Op. at *3 (“As we have often stated, insurance contracts are subject to the general rules of contract interpretation.”). Id. (citing Jin Ming Chen v. Insurance Co. of the State of Pa. , 36 N.Y.3d 133, 138 (2020); Roman Catholic Diocese of Brooklyn v. National Union Fire Ins. Co. of Pittsburgh, Pa. , 21 N.Y.3d 139, 148 (2013). Id. (citing ( Dean v. Tower Ins. Co. of N.Y. , 19 N.Y.3d 704, 708 (2012) (internal quotation marks and citation omitted). Id. Id. Id. at *3-*4. Id. at *4. Id. Id. Id. (citing Zurich Ins. Co. v. Shearson Lehman Hutton , 84 N.Y.2d 309, 312-313 (1994)). Id. at *4-*5. Id. at *6. Id. Id. Id. Id. at *7 (citing Liu v. SEC , ___ U.S. ___, 140 S. Ct. 1936, 1940 (2020) (footnote omitted). Id. Id. Id.

By: Jeffrey M. Haber What is Expungement and When is It Granted? Expungement is the process by which a brokerage firm or registered representative seeks to remove an adverse disclosure event from the Central Registration Depository (CRD®) system. The CRD is the securities industry’s online registration and licensing database. Information in the CRD is obtained through forms that brokerage firms, associated persons and regulators complete as part of the securities industry registration and licensing process. 1 The CRD includes information about criminal matters, regulatory disciplinary actions, civil judicial actions, and information relating to customer disputes, such as customer complaints, arbitration claims, and arbitration awards.  The public can access information in the CRD through BrokerCheck® ( here ) – a free tool (powered by FINRA) that provides investors with information regarding a broker’s employment history, regulatory actions, investment-related licensing information, arbitrations and complaints. 2 FINRA and other regulators depend on the CRD system as a critical source of regulatory information to help inform examinations, investigations, and disciplinary actions to protect investors and safeguard markets. Expungement is an extraordinary remedy that is awarded only under limited circumstances: (a) the claim, allegation or information is factually impossible or clearly erroneous; (b) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or (c) the claim, allegation or information is false. See FINRA Rule 2080 ( here ). If a party seeking expungement satisfies one of the foregoing grounds, then the record of the disclosure event will be expunged from the CRD – that is, it will be permanently deleted and will not be available to the investing public, regulators or prospective broker-dealer employers. Information about broker-customer disputes must be reported to the CRD regardless of whether the firm or the broker believes the allegations are false, irrelevant or malicious. There is no proof required before these disputes are reported. In addition, there is no regulatory review of the merits of a reported dispute before it is recorded in the CRD or disclosed through BrokerCheck. As noted by FINRA ( here ), the expungement framework seeks to balance the benefits of disclosing information about disclosure events to investors and regulators with the goal of protecting brokers from the publication of inaccurate allegations against them.  How To Get A Customer Disclosure Expunged Customer dispute information is expunged from the CRD system only after FINRA receives a court order to execute the expungement. In general, court orders compelling FINRA to expunge customer dispute information may result from one of two separate procedures: A firm or a broker may initiate a request for expungement in the arbitration forum administered by FINRA, often as part of adjudicating the dispute underlying the customer complaint. In this scenario, a panel of independent arbitrators decide whether to recommend expungement in the award. FINRA has no part in the decision. Even if the arbitration panel recommends expungement, the firm or broker must still obtain an order from a court of competent jurisdiction confirming the arbitration award, and then serve the confirmed award on FINRA.  A firm or a broker seeking expungement may initiate a proceeding directly in a court of competent jurisdiction, without first going through any arbitration proceeding. A court order confirming an arbitration award recommending expungement or compelling expungement is binding on FINRA. FINRA may oppose requests that a court confirm an arbitration award for expungement or requests for expungement initiated directly in court if it determines that such expungement is not meritorious, not consistent with its mission of investor protection, impairs the integrity of the CRD or adversely affects regulatory requirements.  FINRA Rule 2080 requires all directives to expunge customer dispute information from the CRD system to be confirmed by or ordered by a court of competent jurisdiction and requires the brokerage firm or associated person to name FINRA as a party in any judicial proceeding seeking confirmation of an arbitration award containing expungement relief. FINRA may, however, waive the requirement to name it as a party if it determines that the requested expungement relief is based on affirmative judicial or arbitral findings.  Expungement is Not Appropriate The Second Time Around When an arbitration panel or a court has issued an award or decision denying a broker’s expungement request, the broker may not request expungement in another arbitration case . Thus, if there has been a prior denial, the arbitration panel must deny the expungement request. Requests for Expungement Prior to the Conclusion of the Underlying Arbitration A broker may not file a request for expungement of customer dispute information arising from an underlying customer arbitration until the underlying customer arbitration has concluded. This means, for example, that if a firm requests expungement on behalf of an unnamed broker during an arbitration filed by a customer, the broker may not file a separate request to expunge the same customer dispute information in a new case while the underlying customer arbitration is ongoing. Additionally, the broker may not file an expungement request in a separate, expungement-only case while the underlying customer arbitration is ongoing, even if neither the broker nor the firm requests expungement of the customer dispute information in the underlying customer arbitration. Importance of Providing an Explanation for Recommending Expungement FINRA Rules 12805 ( here ) and 13805 ( here ) require arbitrators to provide a written explanation of the reasons for finding that one or more of the grounds for expungement apply to the facts of the case before them. FINRA instructs its arbitrators to provide an explanation that is complete, and supported by documentary or other evidence, and not a mere recitation of the Rule 2080 grounds or language provided in the expungement request.  Settlement Payments Relating to Expungement FINRA Rule 20813 ( here ) prohibits firms and registered representatives from conditioning settlement of a customer dispute on – or otherwise compensating a customer for – the customer’s agreement to consent to, or not to oppose, the firm’s or representative’s request to expunge such information from the CRD system.   Thus, arbitrators will consider whether the party seeking expungement: (a) contributed to the settlement; and (b) conditioned a settlement of the arbitration upon an agreement not to oppose the request for expungement. The latter scenario occurs in cases in which the customer does not participate in the expungement hearing, or the requesting party states that a customer has indicated that he or she will not oppose the expungement request. Martiak v. Financial Indus. Regulatory Authority, Inc. In Martiak , the foregoing rules were considered by the Court in confirming an arbitration award expunging a customer dispute from Petitioner’s record in the CRD system. Martiak v. Financial Indus. Regulatory Auth., Inc., (FINRA) , 2021 N.Y. Slip Op. 32297(U) (Sup. Ct., N.Y. County Oct. 26, 2021) ( here ). Petitioner commenced a special proceeding pursuant to Article 75 of the CPLR, seeking an order confirming the award issued in a FINRA arbitration, recommending the expungement of all references to the FINRA Arbitration contained in the CRD system for Petitioner.  CPLR § 7510 provides that “ he court shall confirm an award upon application of a party made within one year after its delivery to him, unless the award is vacated or modified upon a ground specified in section 7511.” The Appellate Division, First Department, in interpreting CPLR § 7510, gives “the word ‘shall’ its ordinary meaning” and directs the courts “to confirm an arbitration award if a timely application is made whenever the award is not vacated or modified under CPLR 7511.” 3 The Court found that Petitioner satisfied all the procedural requirements of CPLR § 7510. In that regard, the Court noted that Petitioner timely filed the application within one year of receipt of expungement the award. 4 Nominal Respondent, FINRA, had ample notice and made no motion to modify or vacate the expungement award and did not contest Petitioner’s efforts to have the award confirmed by the court. 5 In fact, FINRA granted Petitioner’s request for a waiver of the obligation to name and serve FINRA. 6 Accordingly, the Court granted the petition and ordered the expungement of the Occurrence from the CRD and BrokerCheck records. Takeaway Expungement is an “extraordinary remedy that arbitrators should recommend only under appropriate circumstances.” It involves a rigorous process in which claimants must present evidence that falls squarely within the boundaries of the three narrow grounds for expungement. Since the grounds upon which expungement may be granted are narrow, obtaining an expungement order is not easy. Indeed, statistics provided by FINRA show ( here ) that expungement is rarely granted: only 4% of the customer dispute disclosures in the CRD during the period 2015-2020 were expunged pursuant to a court order as of May 25, 2021. 7 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 In general, the information on the CRD is submitted by registered securities firms and regulatory authorities in response to questions on the Uniform Registration Forms, e.g. , Form U4 (the Uniform Application for Securities Industry Registration or Transfer) ( here ), Form U5 (the Uniform Termination Notice for Securities Industry Registration) ( here ), and Form U6. These forms are designed to elicit and collect administrative and disclosure information that is relevant to regulators in connection with their licensing and enforcement activities.  It is important to note that public investors cannot access the CRD system. However, most of the information submitted to CRD is made publicly available through BrokerCheck. Bernstein Family Ltd. P’ship v. Sovereign Partners, L.P. , 66 A.D.3d 1, 5 (1st Dept. 2009). Slip Op. at *2. Id. at *2-*3. As noted, FINRA Rule 2080(b) requires a party seeking expungement under Rule 2080(a) to name FINRA as an additional party and serve FINRA with all appropriate documents, unless FINRA waives this obligation upon request of the party.  During this same period, only 0.2% of registered persons industry-wide had a disclosure expunged ( here ).

By: Jeffrey M. Haber In past articles, we have discussed the necessity of pleading the “who”, “what”, “when” and “how” of an alleged fraud. See , e.g. , here . In many respects, the requirement to plead the “who”, “what”, “where”, and “how” of an alleged fraud, primarily relates to the first element of the claim – falsity. 1 In this regard, a plaintiff alleging fraud must allege the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. The failure to do so will result in dismissal of the claim, as in Inner Harbor Phase I, L.P. v. COR Inner Harbor Co., LLC , 2021 N.Y. Slip Op. 51083(U) (Sup. Ct., Onondaga County (Oct. 1, 2021) ( here ), the case that we examine today. Inner Harbor involved the failure to make payments under a note issued in connection with an investment made under the EB-5 Immigrant Investor Program, which was created by Congress to encourage job creation and capital investment by foreign investors. Pursuant to the EB-5 Program, foreign investors can invest in qualified projects in the United States and thereby become eligible to obtain a Green Card.  Various limited partners of Inner Harbor invested $4,000,000 in Inner Harbor for construction and development of the Hotel in accordance with the EB-5 Program. Inner Harbor used those funds to make loans to Defendant COR Inner Harbor Company LLC to finance the Hotel. COR was formed to carry out the Hotel Project and to own the Hotel after its development and construction.  Between July 2014 and August 2014, plaintiff advanced $4,000,000 to Mannion & Copani to be held in escrow pursuant to a written Escrow Agreement. Under the terms of the Escrow Agreement, the proceeds were to be released to COR upon execution and delivery of, among other things, a Promissory Note and Executed Addendum evidencing the Loan. Plaintiff is the holder of four Promissory Notes and five Executed Addenda, each evidencing loans made by it to COR for the Hotel. Between September 2014 and February 2015, contemporaneously with delivery of each Executed Addendum, Mannion & Copani released the stated amount from the proceeds it held in escrow. Some of the escrowed funds were released to COR and some of the escrowed funds were released to COR West Kirkpatrick Street Company LLC (“COR Kirkpatrick”). The Hotel was completed and opened for business in or about July 2016.  The Note and First Addendum became due and owing to plaintiff in September 2019. COR advised Inner Harbor that it did not have the ability to repay plaintiff the amount then due and sought an extension of the various loan maturity dates. To evaluate COR’s request, Inner Harbor sought information concerning COR’s financial condition. The information provided by COR demonstrated that COR transferred the proceeds of the loan to COR Kirkpatrick without consideration or obligation to repay. It also demonstrated that COR neither owned the Hotel nor held any interest in the Hotel.  By summons and complaint, plaintiff asserted the following: (1) first cause of action against COR, breach of contract for failure to pay any portion of the principal amounts owed in accordance with the Promissory Notes; (2) second cause of action against all defendants, fraud regarding COR’s interest in the Hotel; (3) third cause of action against Mannion & Copani, for disbursement of funds contrary to the escrow agreement; (4) fourth cause of action against all defendants, fraudulent conveyance ; and (5) fifth cause of action against all defendants, fraudulent conveyance. Defendants moved to dismiss plaintiff’s second, third, fourth and fifth causes of action pursuant to CPLR § 3211(a)(1)(5) and (7). We examine the motion with regard to the second cause of action for fraud. The Court dismissed the cause of action. As noted, to state a fraud claim, a plaintiff must allege a misrepresentation of a material fact, scienter, justifiable reliance and damages. 2 Each element must be pleaded with specificity under CPLR § 3016(b). The Court held that plaintiff failed to satisfy the pleading requirement as to the first element of the claim – falsity. The Court noted that “the entirety of plaintiff’s allegation” was found in only one paragraph of the complaint. 3 And, in that paragraph, plaintiff merely alleged: “ efendants made representations to laintiff regarding interest in the Hotel Project and the Hotel and the distribution of Proceeds.” 4 The Court explained that the allegation failed to include the “who”, “what”, “where” and “how of the alleged misrepresentation: “Wholly absent are any facts sufficiently specific as to the substance of any misrepresentation allegedly made, i.e. , the words used, when any misrepresentation was allegedly made or the identity of the person who allegedly made the misrepresentation.” 5 “Under these circumstances,” concluded the Court, the fraud cause of action had to be dismissed. 6 It is worth noting that since plaintiff did not satisfy the first element of the claim, the Court declined to address the remaining elements of the cause of action: “Devoid of essential facts concerning the alleged misrepresentation(s), this Court cannot begin to address the sufficiency with which plaintiff pled the additional elements of fraud, i.e. , scienter, justifiable reliance or injury.” 7 Takeaway When fraud is alleged, the plaintiff must plead the claim with particularity. Under CPLR § 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.” 8  To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. In other words, the complaint must identify the “who, what, where, when and how” of the alleged fraud. The Court of Appeals has explained, however, that CPLR § 3016(b) “should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” 9  Therefore, at the pleading stage, a complaint need only “allege the basic facts to establish the elements of the cause of action.” 10 Thus, as noted, a plaintiff will satisfy CPLR § 3016(b) when the facts permit a “reasonable inference” of the alleged misconduct. 11 The cases show (including those that we have examined in this Blog ( e.g. ,  here ,  here , and  here )), plaintiffs often have their fraud claim dismissed because they failed to plead sufficient facts to permit a “reasonable inference” that the fraud took place. As today’s discussion shows, factual allegations devoid of specificity will not suffice to satisfy CPLR § 3016(b). 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 In addition to falsity, the plaintiff must allege “knowledge of falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.” Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559 (2009) See n.1, supra . Slip Op. at *5. Id. Id. Id. (citations omitted). Id. Pludeman v. Northern Leasing Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (citation omitted). Id. (internal quotation marks and citation omitted). Id. at 492. Id.

By Jonathan H. Freiberger In this Blog’s article entitled: “ Revive a Time-Barred Claim Using § 17-101 of New York’s General Obligations Law ,” we discussed the general purpose of statutes of limitations, noting that: “The Statute of Limitations was enacted to afford protection to defendants against defending stale claims after a reasonable period of time had elapsed during which a person of ordinary diligence would bring an action. The statutes embody an important policy of giving repose to human affairs.” Flanagan , 24 N.Y.2d <427> at 429 <1969> (citation omitted). It has been stated that “the primary purpose of Statutes of Limitation is to relieve defendants of the necessity of investigating and preparing a defense where the action is commenced against them after the expiration of the statutory period because the law presumes that by that time evidence has been lost, memories have faded and witnesses have disappeared.”  Connell v. Hayden , 83 A.D.2d 30 (2 nd Dep’t 1981).  The Blog went on to specifically discuss how § 17-101 of the GOL can operate to revive “stale” claims where, under certain circumstances, the underlying debt is acknowledged in writing.  Thus, in order for a writing to satisfy the requirements of GOL § 17-101, it “must be signed and recognize an existing debt and must contain nothing inconsistent with an intention on the part of the debtor to pay it.”  Yadegar v. Deutsche Bank Nat. Trust Co. , 164 A.D.3d 945 (2 nd Dep’t 2018). This Blog frequently addresses legal issues related to mortgage foreclosures.  Section 17-105(1) of the GOL , permits the waiver of limitation periods in mortgage foreclosure actions, specifically.  Thus, § 17-105(1) provides: A waiver of the expiration of the time limited for commencement of an action to foreclose a mortgage of real property or a mortgage of a lease of real property, or a waiver of the time that has expired, or a promise not to plead the expiration of the time limited, or not to plead the time that has expired, or a promise to pay the mortgage debt, if made after the accrual of a right of action to foreclose the mortgage and made, either with or without consideration, by the express terms of a writing signed by the party to be charged is effective, subject to any conditions expressed in the writing, to make the time limited for commencement of the action run from the date of the waiver or promise.  If the waiver or promise specifies a shorter period of limitation than that otherwise applicable, the time limited shall be the period specified. Batavia Townhouses, Ltd. V. Council of Churches Housing Dev. Fund Co., Inc. , 189 A.D.3d 20, (4 th Dep’t 2020), is an action by mortgagor seeking a declaration that a mortgage was unenforceable pursuant to RPAPL § 1501(4) .  [Eds. Note: this Blog has treated RPAPL § 1501(4) < here =">here"> and < here =">here"> .]  Defendants/mortgagees defended the action by seeking to revive the expired statute of limitations.  The Court, which determined that GOL § 17-105(1) was the applicable provision under which to decide the matter after a thorough analysis of the import, applicability and history of the provision, found that the statute of limitations was not revived because “the financial statements submitted by defendant do not meet the requirements of subdivision (1) of section 17-105 because those documents merely list the mortgage as a liability and do not constitute an express promise to pay the mortgage debt.”  Batavia , 189 A.D.3d at 28 (citations omitted). Similarly, the Court in U.S. Bank Nat. Ass’n v. Caruana , 188 A.D.3d 511 (1 st Dep’t 2020), affirmed the dismissal of a mortgage foreclosure complaint as time-barred.  There, borrower filed for bankruptcy and, in his petition, checked a box in a statement of intention indicating that “the condominium would be retained and kept current”.  The Court found this insufficient to satisfy the requirements of, inter alia , GOL § 17-105(1) because the checking of the box “merely listed the mortgage debt at issue, neither expressly acknowledging the debt nor promising to pay it.”  Caruana , 188 A.D.3d at 511 (citations omitted). The Second Department, in National Loan Investors, L.P. v. Piscitello , 21 A.D.3d 537, 538 (2 nd Dep’t 2005), agreed with supreme court that borrower’s “defense to foreclosure was without merit.” Relying on GOL § 17-105(1), the Court found that “ ven if the commencement of this action was barred by the statute of limitations, the bankruptcy filing, in which he acknowledged the mortgage debt and promised to repay it within six months, sufficed to extend the statute of limitations.”  Piscitello , 21 A.D.3d at 358 (citations omitted). On November 17, 2021, the Appellate Division, Second Department, decided Federal National Mortgage Ass’n. V. Walter , a mortgage foreclosure action that was deemed time-barred after the unsuccessful attempt by lender’s assignee to invoke the savings provision of GOL § 17-105(1).  By way of brief background, in 2006, the borrower in Walter secured a $400,000.00 loan with a mortgage on real property.  Borrower defaulted in 2009 and lender commenced a foreclosure action later that year.  A judgment of foreclosure and sale was issued in December of 2009, but was vacated a year later due to improper service of process on borrower.  In March of 2014, a year after the mortgage was assigned to plaintiff by lender, borrower transferred the subject property to 1 Eleanor Corp. pursuant to a deed which provided that “1 Eleanor Corp. would assume and pay the mortgage debt on the subject property.”  The deed was executed by borrower only, and was “not executed by on behalf of 1 Eleanor Corp.” In September of 2016, lender’s assignee commenced a new foreclosure action against borrower and 1 Eleanor Corp.  Lender’s assignee moved for summary judgment and borrower and 1 Eleanor Corp. cross-moved for summary judgment dismissing the complaint as time-barred.  The Second Department affirmed the dismissal of complaint and rejected the argument of lender’s assignee that “the statute of limitations was extended pursuant to General Obligations Law § 17-105 by the deed transferring the subject property from to 1 Eleanor Corp.  The Court, stated: According to General Obligations Law § 17-105(1), "a promise to pay the mortgage debt, if made after the accrual of a right of action to foreclose the mortgage and made, either with or without consideration, by the express terms of a writing signed by the party to be charged is effective, subject to any conditions expressed in the writing, to make the time limited for commencement of the action run from the date of the waiver or promise." But a writing, in order to constitute an acknowledgment of a debt, must recognize an existing debt and contain nothing inconsistent with an intention on the part of the debtor to pay it. Here, although there is a deed between and 1 Eleanor Corp. that states an obligation by 1 Eleanor Corp. to pay the mortgage debt, since it was not executed by 1 Eleanor Corp., the deed does not satisfy General Obligations Law § 17-105 and does not serve to extend the statute of limitations. Therefore, the statute of limitations began to run when the 2009 action was commenced, and this action, commenced in September 2016, is time-barred by the six-year statute of limitations for mortgage foreclosure actions .  (Citations, internal quotation marks and internal brackets omitted.) Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber Earlier this month, we wrote about how courts enforce contracts that are clear and unambiguous. The title of the article, “ Contracts That Say What They Mean, Mean What They Say ”, aptly describes this fundamental principle of contract interpretation. After all, a contract that is clear and unambiguous on its face reflects the intent of the parties. 1 And, the courts will enforce the parties’ intent when it is plainly written in the agreement.  Courts will not, however, look to extrinsic evidence when the contract is unambiguous. 2 Such evidence cannot be used to create an ambiguity where the words of the parties’ agreement are otherwise clear. 3 A contract is unambiguous if, on its face, it is reasonably susceptible of only one meaning or interpretation. In determining whether a contract is ambiguous, the contract must be read so as to reconcile sections of the contract with each other “to give rational meaning to all provisions.” 4 In PCT Contracting Inc. v. Riggs Distler & Co., Inc. , the Appellate Division, First Department underscored the foregoing principles in dismissing a breach of contract claim because the relief sought was barred by a clear and unambiguous exclusive remedies provision in the subject agreement. PCT Contr. Inc. v. Riggs Distler & Co., Inc. , 2021 N.Y. Slip Op. 06328 (1st Dept. Nov. 16, 2021) ( here ). PCT Contracting involved a brokerage fee under an Asset Purchase Agreement (“APA”). Pursuant to the APA, Plaintiff agreed to sell certain of its assets, together with the transfer of certain of its liabilities, to Defendant for approximately $33 million.  The APA required Plaintiff to disclose all material contracts it had with brokers. The APA also provided that Defendant would pay the brokerage fees of the sole owner of HMC Strategic Advisors LLC. Plaintiff disclosed an executed brokerage contract with Madison One Clearing House (“Madison”), a broker involved in the transaction. Plaintiff did not, however, disclose an unsigned proposal it received from HMC because Plaintiff did not consider the proposal to be a binding contract. Defendant was aware of HMC’s existence and involvement in the transaction.  After the closing, HMC initiated an arbitration against Plaintiff in which the arbitrator found that HMC was entitled to recover a 4% brokerage fee from Plaintiff based on the term sheet. Accordingly, the arbitrator directed Plaintiff to pay HMC and its sole owner $1,950,000.00. Plaintiff and Defendant asserted claims and counterclaims against each other with respect to who was responsible for the $1,950,000.00 fee and certain related expenses of the arbitration.  Plaintiff sought summary judgment that Defendant was responsible for those sums. Defendant claimed that the arrangement with HMC was a non-disclosed material contract that should have been disclosed pursuant to the APA and Defendant was, therefore, not responsible for HMC’s fees. Defendant also claimed that Plaintiff’s breach of contract claim asserted against it should be dismissed as it was barred under the APA’s Exclusive Remedies clause, which provided in relevant part that the parties’ “sole and exclusive remedy with respect to any and all claims (other than claims arising from fraud, criminal activity or willful misconduct on the part of a party hereto …) … shall be pursuant to the indemnification provisions set forth in this Article VIII .” The motion court denied the parties’ respective motions for summary judgment. On appeal, the First Department held that the motion court should have granted Defendant’s motion for summary judgment as to Count I (seeking money damages) due to the exclusive remedies clause. The Court explained that the clause was clear and unambiguous and that, as such, “Plaintiff’s first cause of action, seeking damages for breach of contract,” had to “be dismissed .…” The Court found that Plaintiff’s allegations “regarding defendant’s failure to negotiate and pay a broker’s fee” did not rise to the level of fraud, criminal activity or willful misconduct “so as to allow plaintiff to pursue a remedy other than indemnification.” Takeaway Nearly two decades ago, the New York Court of Appeals explained that “ he best evidence of what the parties … intend is what they say in their writing.” 5 Thus, when the contract is clear and unambiguous (i.e., it says what it means) and is susceptible to only one meaning, it should be enforced according to the plain meaning of those words. That was the situation in PCT Contracting . 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 Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P. , 60 A.D.3d 61, 66 (1st Dept. 2008), aff’d , 13 N.Y.3d 398 (2009); Dreisinger v. Teglasi , 130 A.D.3d 524, 527 (1st Dept. 2015). Ashwood Capital, Inc. v. OTG Mgt., Inc. , 99 A.D.3d 1, 9 (1st Dept. 2012) (“ bsent a finding of ambiguity in the agreement … parol evidence inadmissible”).  Id. See Glencore Ltd. v. Degussa Engineered Carbons L.P. , 848 F. Supp. 2d 410, 433 (S.D.N.Y. 2012). Slamow v. Del Col , 79 N.Y.2d 1016, 1018 (1992)

By: Jeffrey M. Haber Arbitration is an alternative form of dispute resolution where the parties voluntarily agree that a neutral, private person will resolve any legal disputes between them, instead of a judge or jury in a court of law. 1 It is encouraged and recognized as the public policy of the State of New York. 2 Consequently, courts will interfere as little as possible with the agreement of consenting parties to submit their disputes to arbitration. 3 Generally, a court will vacate an arbitral award for the following reasons: the arbitrator violated the arbitration agreement; the arbitrator was not independent; the award was obtained by corruption, fraud, or undue means; and the arbitrator exceeded his/her powers – that is, the arbitrator ruled on matters that the parties did not consent to be heard in the arbitration agreement . Making a mistake in fact or law is not sufficient to vacate an award. An arbitrator’s decision will be upheld unless it is completely irrational or constitutes a manifest disregard of the law. As the U.S. Supreme Court noted, “as long as an honest arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, the fact that a court is convinced committed serious error does not suffice to overturn decision.” 4 In New York, CPLR § 7511(b) sets forth the grounds upon which a court can vacate an arbitral award.  Under CPLR § 7511, an arbitral award may be vacated: if the rights of a party were prejudiced by “(1) corruption, fraud, or misconduct in procuring the award, (2) partiality of a supposedly neutral arbitrator, (3) the arbitrator exceeding his powers so that no final and definite award was made, or (4) failure to follow procedures provided by CPLR article 75.” 5 New York courts apply these four grounds narrowly, declining more times than not to vacate arbitral awards. 6 In today’s article, we examine CPLR § 7511(b)(iii). Under CPLR § 7511(b)(iii), a court may vacate an arbitrator’s award where it finds that the rights of a party were prejudiced when “an arbitrator … exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made.” An arbitrator exceeds his or her power only where his or her award violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator’s power. 7 An award is “irrational” where “there is no proof whatever to justify the award”. 8 Where, however, “an arbitrator offer even a barely colorable justification for the outcome reached, the arbitration award must be upheld”.  9 While “courts are obligated to give deference to the decision of the arbitrator … even if the arbitrator misapplied the substantive law”, 10 an arbitrator can exceed his or her power when he or she “manifestly disregard ” the substantive law applicable to the parties’ dispute. 11 “To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrator[ ] knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrator[ ] was well defined, explicit, and clearly applicable to the case.” 12 The petitioner has the burden to establish that the arbitration award should be vacated. 13 In Matter of Gerber v. Goldberg Segalla LLP , 2021 N.Y. Slip Op. 06241 (4th Dept. Nov. 12, 2021) ( here ), the Appellate Division, Fourth Department considered the foregoing principles in affirming the confirmation of an arbitral award involving the departure of equity partners from their law firm. Petitioners are former equity partners of respondent law firm. In 2015, they executed a Partnership Agreement (“PA”), which contained a withdrawal provision providing that the withdrawal of an equity partner extinguished that partner’s interest in the partnership and his or her rights to receive a return of capital. The withdrawal provision further provided that, if a client wished to remain with the withdrawing partner, the withdrawing partner was required to reimburse respondent for all unpaid costs advanced and all unpaid services expended with respect to the matter. Upon their departure from respondent to begin a new practice, petitioners demanded arbitration, seeking rescission of the PA on the grounds that it was the product of the firm’s wrongful acts and that the withdrawal provision violated public policy. Following a hearing, the panel of arbitrators concluded that the PA was valid and enforceable and was consistent with controlling New York law and policy. Petitioners thereafter commenced a CPLR article 75 proceeding, seeking, inter alia , to vacate the arbitration award on the grounds that it violated public policy and disregarded the law. Supreme Court vacated the petition, confirmed the award and entered judgment in favor of respondent. Petitioners appealed. The Appellate Division, Fourth Department affirmed, holding that that arbitrator did not exceed his or her authority and did not manifestly disregard the law.  Petitioners argued that, because the withdrawal provision of the PA violated “the twin public policies” of attorney mobility and client choice, the award upholding that provision violated public policy and should be vacated. The Fourth Department “reject that contention and conclude that the arbitration award on its face not violate public policy …  i.e., it not ‘create[] an explicit conflict with other laws and their attendant policy concerns.’” 15 The Court also concluded that “the arbitration award not subject to vacatur on the ground that it was based on a ‘manifest disregard of the law.’” 16 Takeaway A court may vacate an arbitral award where strong and well-defined policy considerations embodied in constitutional, statutory or common law prohibit a particular matter from being decided or certain relief from being granted by an arbitrator. The public policy exception has its roots in common law, where it is well settled that a court will not enforce a contract that violates public policy A court, however, may not vacate an award on public policy grounds when vague or attenuated considerations of a general public interest are at stake. “Courts shed their cloak of noninterference where specific terms of the arbitration agreement violate a defined and discernible public policy.” 17 In Gerber , although not specifically stated, the provision in the PA at issue did not violate public policy because only vague considerations of a general public interest were at stake – e.g., attorney mobility and client choice.    “To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case.” 18 Although discussed by the Fourth Department, neither of those requirements was apparently present in Gerber . 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 Rent-A-Ctr., W, Inc. v. Jackson , 561 U.S. 63, 67 (2010) (noting that “arbitration is a matter of contract”). Matter of Smith Barney Shearson v. Sacharow , 91 N.Y.2d 39, 49 (1997) (citations and quotation marks omitted).  Id. at 49-50. (citations omitted). E. Associated Coal Corp. v. United Mine Workers of Am., Dist. 17 , 531 U.S. 57, 62 (2000) (internal quotation marks and citation omitted). Matra Bldg. Corp. v. Kucker , 2 A.D.3d 732 (2d Dept. 2003).   E.g. , Matter of Mercury Cas. Co. v. Healthmakers Med. Grp., P.C. , 67 A.D.3d 1017, 1017 (2d Dept. 2009). Matter of Falzone , 15 N.Y.3d 530, 534 (2010); Matter of New York City Tr. Auth. v. Transport Workers’ Union of Am., Local 100, AFL-CIO , 6 N.Y.3d 332, 336 (2005). Matter of Professional, Clerical, Tech., Empls. Assn. , 103 A.D.3d 1120, 1122 (4th Dept. 2013), lv. denied, 21 N.Y.3d 863 (2013) (internal quotation marks omitted). Id. (internal quotation marks omitted). Schiferle v. Capital Fence Co., Inc. , 155 A.D.3d 122, 125 (4th Dept. 2017). Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 479-80 (2006). Schiferle , 155 A.D.3d at 127 (internal quotation marks omitted). Caso v. Coffey , 41 N.Y.2d 153, 159 (1976). See Denburg v. Parker Chapin Flattau & Klimpl , 82 N.Y.2d 375, 380-81 (1993); Cohen v. Lord, Day & Lord , 75 N.Y.2d 95, 98 (1989) and Rule 5.6 (a)(1) of the Rules of Professional Conduct (22 N.Y.C.R.R. 1200.00). Slip Op. at *2 (citations and internal quotation marks omitted). Id. In the Matter of New York State Correctional Officers and Police Benevolent Ass’n, Inc. v. State , 94 N.Y.2d 321, 327 (1999). Wien , 6 N.Y.3d at 481 (internal quotation marks omitted).

By Jonathan H. Freiberger This Blog frequently writes about decisions related to residential mortgage foreclosure actions.  < Here =">Here" and="and" the="the" articles="articles" hyperlinked="hyperlinked" therein.="therein.">   One frequent topic that is always ripe for treatment is the repeated failure of lenders to demonstrate compliance with the requirements of RPAPL 1304 due to shortcomings in the evidence presented on their prima facie case.  Suffice it to say, on November 10, 2021, the Appellate Division, Second Department, decided two cases on this very issue. As summarized in prior Blog articles, RPAPL 1304 requires that at least ninety days prior to commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a lender must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that offer free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter.  One purpose of RPAPL 1304 is to enable defaulted borrowers to “benefit from the information provided in the notice and the 90–day period during which the parties could attempt to work out the default without imminent threat of a foreclosure action, in an effort to further the ultimate goal of reducing the number of foreclosures”.  CIT Bank, N.A. v. Schiffman , 36 N.Y.3d 550, 555 (2021) (citation and internal quotation marks omitted). “Strict compliance with RPAPL 1304 notice to the borrower or borrowers is a condition precedent to the commencement of a foreclosure action.”  Citibank, N.A. v. Conti-Scheurer , 172 A.D.3d 17, 20 (2 nd Dep’t 2019) (citations omitted).  Moreover, lender has the burden of establishing compliance with RPAPL 1304.  BAC Home Loans Servicing, L.P. v. Chertov , 165 A.D.3d 1214, 1215 (2 nd Dep’t 2018) (citations omitted). 2021-3 SFR Venture, LLC v. Schiavoni In 2006, lender loaned borrower $750,000 and the repayment obligation was secured by a mortgage. A mortgage foreclosure action was commenced in 2014. Among borrower’s defenses was lender’s failure “to comply with the notice requirements of RPAPL 1304”. Supreme court granted lender’s motion for summary judgment, to strike borrower’s answer and for an order of reference.  Thereafter, supreme court granted lender’s motion to confirm the referee’s report and for a judgment of foreclosure and sale.  On borrower’s appeal, the Second Department reversed because “plaintiff failed to establish, prima facie, that it strictly complied with the requirements of RPAPL 1304.”  (Citation omitted.)  The Court reiterated that while generally, a foreclosing lender establishes its prima facie entitlement to judgment “through the production of the mortgage, the unpaid note, and evidence of default, “where a defendant raises the issue of compliance with RPAPL 1304 as an affirmative defense, the is also required to make a prima facie showing of strict compliance with RPAPL 1304.” (Citation omitted.) In addressing lender’s evidentiary failures, the Court stated: In support of its motion, inter alia, for summary judgment on the complaint, submitted, among other things, the affidavit of Bethany White, Foreclosure Oversight Specialist for Roundpoint Mortgage Servicing Corporation …, loan servicer. However, White did not aver that she had personal knowledge of the purported mailings of the 90-day notice, or that she was familiar with the mailing practices and procedures of Roundpoint, which allegedly sent the notice.  Although submitted proof of mailing and tracking information for certified mailings of the 90-day notice, failed to submit proof of mailing of the notice by first-class mail. Moreover, White's affidavit failed to specify that the RPAPL 1304 notice was served in an envelope that was separate from any other mailing or notice ( see RPAPL 1304<2> . The record also otherwise did not demonstrate that the notice was sent in a separate envelope from any other mailing or notice.  (Some citations omitted.) In addition, the Court found that lender failed to establish a payment default. Although the affidavit of the representative of the loan servicer demonstrated knowledge of servicer’s record-keeping practices and procedures, “her conclusory assertion that defaulted on his obligations under the note was not substantiated by any business record establishing the alleged default.”  (Citation omitted.) U.S. Bank N.A. v. Krakoff The facts of Krakoff , as related to this article, are simple.  Borrower executed and delivered to lender a note in the amount of $600,000 secured by a mortgage.  Lender’s motion for summary judgment was granted and borrower’s cross-motion to dismiss the complaint as time-barred was denied.  Thereafter, borrower moved to confirm the referee’s report and for a judgment of foreclosure and sale, which motion was opposed by borrower, who alleged that lender failed to comply with RPAPL 1304.  Lender’s motion was granted and a sale of the property was directed.  As to borrower’s opposition, supreme court found “inter alia, that ‘ is now barred from raising allegations disputing compliance with RPAPL 1304.’" On borrower’s appeal, the Second Department reversed and stated: However, the Supreme Court erred in granting motion to confirm the referee's report and for a judgment of foreclosure and sale, because failed to establish that it complied with RPAPL 1304. Contrary to contention, failure to comply with RPAPL 1304 is a defense that may be raised at any time prior to the entry of judgment of foreclosure and sale and thus, properly raised it in opposition to motion to confirm the referee's report and for a judgment of foreclosure and sale. Strict compliance with RPAPL 1304 notice to the borrower or borrowers is a condition precedent to the commencement of a foreclosure action. RPAPL 1304 requires that the notice be sent by registered or certified mail, and also by first-class mail, to the last known address of the borrower ( see RPAPL 1304<2> ). Here, failed to establish that it complied with the requirements of RPAPL 1304. The affidavits of Armenia L. Harrell and La'Shana Farrow, both of whom are officers of Wells Fargo Bank, N.A. …, the servicing agent of , were insufficient to establish that complied with RPAPL 1304. Both Harrell and Farrow attested that they were familiar with Wells Fargo's records and record-keeping practices. Farrow averred, inter alia, that complied with RPAPL 1304 by mailing the required notices. The record indicates that the 90-day notices appear to have been mailed by ASC (America's Servicing Company). However, neither Harrell or Farrow attest that they personally mailed the notices or that they were familiar with the mailing practices and procedures of ASC. Therefore, they failed establish proof of standard office practice and procedures designed to ensure that items are properly addressed and mailed. Moreover, failed to send individually addressed notices to each borrower; rather, the 90-day notices were jointly addressed to .  (Some citations omitted.) Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In today’s article, we consider a case in which, as the title indicates, timing is everything. Before we discuss the case, let’s consider the following scenario.  The parties to a litigation reach a settlement in principle. They do so while a motion to dismiss the action (or a motion for summary judgment) is pending. Before the parties can execute the definitive agreement that memorializes their settlement, the court decides the motion and dismisses the action. Is there a settlement? In Rawald v. Dormitory Auth. of the State of N.Y. , 2021 N.Y. Slip Op. 06109 (1st Dept. Nov. 9, 2021) ( here ), the Appellate Division, First Department answered the question in the affirmative. The case arose out of an alleged agreement by which plaintiffs’ counsel and counsel for defendants Sea Crest Construction Corp. and Peter Scalamandre & Sons, Inc. (together, “Sea Crest”) agreed to settle the underlying personal injury action for $275,000. The settlement agreement was set forth in an email communication in which plaintiffs’ counsel stated, “This is to confirm settlement in the sum of $275,000. Please send release language and parties to be released.” At the bottom of the email was a signature block with counsel’s name, firm name, address and telephone number. Later that day, plaintiffs’ counsel sent a follow-up email, stating, “Please confirm we are settled.” Unlike the first email, this email did not contain the prepopulated signature block. Sea Crest’s counsel responded, “Confirmed. I’ll have release information to you ASAP.” The email was sent by counsel’s phone and included an automatically generated footer stating that it had been sent from an iPhone. Shortly after the parties agreed to settle plaintiffs’ claims, they learned that the motions for summary judgment that all defendants filed in the action had been granted and the action had been dismissed. Sea Crest then disavowed the settlement. Plaintiffs sought enforcement of the settlement agreement, which the motion court denied, finding that the settlement agreement did not contain all material terms of the settlement and had not been subscribed for purposes of CPLR § 2104. 1 The Appellate Division, First Department unanimously reversed. The Court held that the parties had an enforceable settlement agreement. 2 The Court found that the emails, which counsel exchanged, agreeing to the settlement complied with CPLR § 2104, in that they were “subscribed” within the meaning of the statute. 3 Relying on Matter of Philadelphia Ins. Indem. Co. v. Kendall , 197 A.D.3d 75, 80 (1st Dept. 2021), the Court explained that “the sender was identifiable and there was no contention that Sea Crest’s counsel did not send any of the emails intentionally.” 4 In Philadelphia Insurance , the First Department held that it is “the transmission of an email, and not whether an email ‘signature’ can be shown to be retyped, is what determines that a settlement stipulation has been subscribed for purposes of CPLR 2104.” 5   In other words, when “an attorney hits ‘send’ with the intent of relaying a settlement offer or acceptance, and their email account is identified in some way as their own, then it is unnecessary for them to type their own signature.” 6   According to the First Department, CPLR § 2104 demands no more. 7 here.=">here."> The Court also held that “ he emails … contained all material terms , since the sole issue was how much plaintiffs would accept in settlement of their claim.” 8 The Court found persuasive the fact that “in emails leading up to the settlement, … the other defendants were not interested in negotiating a settlement before Supreme Court’s decision on the summary judgment motions,” and had authorized Sea Crest’s attorney “to settle the action on Sea Crest’s behalf regardless of whether she later received contribution from the other defendants.” 9 Takeaway In New York, as in other jurisdictions, settlement agreements “are judicially favored, will not lightly be set aside,” and will be enforced “with rigor and without a searching examination into their substance.” 10 A court called upon to enforce a settlement must be satisfied that the agreement is “clear, final and the product of mutual accord.” 11 Thus, an out-of-court agreement settling an action is binding on each party to the agreement only if “it is in a writing subscribed by him or his attorney.” 12 “In addition, since settlement agreements are subject to the principles of contract law, for an enforceable agreement to exist, all material terms must be set forth” in that writing, “and there must be a manifestation of mutual assent.” 13 Correspondence between the parties or counsel “can qualify as an enforceable stipulation of settlement under CPLR 2104,” so long as that correspondence “set forth the material terms of the stipulation” and is a properly subscribed (i.e., signed) writing. 14 This principle also holds true where, as in Rawald , the correspondence is by email rather than traditional physical means. To meet the requirement of a subscribed writing in the context of email, “the party to be charged, or his or her agent,” must “type[ ] his or her name” at the end of the email “under circumstances manifesting an intent that the name be treated as a signature.” 15 As shown in Rawald , where the sender of the emails are identifiable and there is no contention that counsel sent the emails unintentionally, CPLR § 2104 is satisfied. In other words, when “an attorney hits ‘send’ with the intent of relaying a settlement offer or acceptance, and their email account is identified in some way as their own, then it is unnecessary for them to type their own signature.” 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. Footnotes A copy of the Supreme Court’s decision and order can be found here . Slip Op. at *1 (citing, Bonnette v. Long Is. Coll. Hosp. , 3 N.Y.3d 281, 286 (2004)). Id. Id. Philadelphia Ins. , 197 A.D.3d at 79-80. Id. at 80. CPLR § 2014 provides: “An agreement between parties or their attorneys relating to any matter in an action, other than one made between counsel in open court, is not binding upon a party unless it is in a writing subscribed by him or his attorney or reduced to the form of an order and entered….” Slip Op. at *1 (citing, Philadelphia Ins. , 197 A.D.3d at 81). Id. Forcelli v. Gelco Corp. , 109 A.D.3d 244, 247-248 (2d Dept. 2013) (internal quotation marks omitted). Id. CPLR § 2014. Forcelli , 109 A.D.3d at 248 (internal quotation marks omitted). Id. at 249; Philadelphia Ins. , 197 A.D.3d at 79. Forcelli , 109 A.D.3d at 251. Philadelphia Ins. , 197 A.D.3d at 80.

By: Jeffrey M. Haber The doctrines of res judicata and collateral estoppel embody related but distinct concepts. They both stand for the general proposition that a party to a litigation should have only one bite at the apple and should not be permitted to relitigate the same issue over and over again. Under the doctrine of res judicata, a final judgment on the merits of a claim precludes re-litigation of that claim by a party, and those in privity with that party. 1 This means that parties cannot relitigate the claim and all claims arising out of the same transaction, or series of transactions, even if based upon different theories or if seeking different remedies. It is a “transactional analysis” that the courts of New York apply to “preclude the litigation of matters that could have or should have been raised in a prior proceeding arising from the same ‘factual grouping.’” 2 Ultimately, the application of res judicata requires the claim sought to be resolved to have been “reasonably and plainly comprehended to be within the scope” of the prior dispute. 3 The doctrine of collateral estoppel prevents a party from relitigating an issue that was “raised, necessarily decided and material in the first action,” provided the party had a full and fair opportunity to litigate the issue. 4 Collateral estoppel is an equitable defense “grounded in the facts and realities of a particular litigation, rather than rigid rules.”5 The proponent of collateral estoppel has the burden of demonstrating “the identicality and decisiveness of the issue,” while the opponent has the burden of establishing “the absence of a full and fair opportunity to litigate the issue in prior action or proceeding.” 6 here.=">here."> These doctrines apply to prior arbitration proceedings, 7 as well as prior determinations by state appellate and federal courts. 8 In New York, the Civil Practice Law and Rules (“CPLR”) specifically recognizes res judicata and collateral estoppel as bases for dismissal. 9 Both concepts are also affirmative defenses under the CPLR. 10 Recently, Justice Francis Kahn, III had the opportunity to consider the foregoing principles in Denson v. Donald J. Trump for President, Inc. , 2021 N.Y. Slip Op. 32095(U) (Sup. Ct. N.Y. County Oct. 26, 2021) ( here ). Plaintiff commenced the action claiming, among other things, that she endured a hostile work environment, experienced sex discrimination, and faced retaliation related to her employment with Defendant, Donald J. Trump for President, Inc., a corporate entity formed to facilitate Donald J. Trump’s 2016 presidential campaign. Central to the action were the non-disclosure and non-disparagement provisions (“NDAs”) contained within the employment agreement that Plaintiff executed as a condition of her employment. Among other things, these provisions prohibited Plaintiff from disclosing, disseminating, or publishing any confidential information unfavorable to Donald J. Trump, his family, or his businesses. Further, the agreement provided that Plaintiff could not demean or disparage Trump, his family, or his businesses publicly. At the sole election of Defendant, any dispute arising under or relating to the NDAs was to be resolved by binding arbitration. Defendant filed a demand to arbitrate the issues of whether Plaintiff breached the NDAs and whether it was entitled to an award of damages. Defendant moved to compel arbitration, which Justice Arlene Bluth denied by order dated August 9, 2018. Justice Bluth found that the arbitration provision could not be interpreted to apply to Plaintiff’s affirmative state law claims arising out of her employment. While the motion was sub judice , Plaintiff commenced another action against Defendant in the United States District Court for the Southern District of New York, where she sought a declaration that the NDAs were void and unenforceable as against public policy. Plaintiff claimed that after she commenced the New York State action, Defendant retaliated against her by bringing an arbitration proceeding in which Defendant sought a determination of its claims that Plaintiff breached the NDAs through disclosure of confidential information and making disparaging statements in connection with the lawsuit. Defendant moved again to compel arbitration, this time in the SDNY, and to dismiss Plaintiff’s complaint. By order dated August 30, 2018, Judge Jesse M. Furman granted Defendant’s motion finding that the parties had agreed to proceed with binding arbitration and that the validity of the agreement was an issue to be resolved by the arbitrator. Judge Furman found that his determination was not inconsistent with Justice Bluth’s ruling since the federal court claims did not arise out of her employment, but out of the agreement. After arbitration, at which Plaintiff only tacitly participated, the arbitrator concluded, among other things, that the validity of the NDAs was an issue that was properly before him and found those provisions enforceable. Plaintiff moved to vacate that award, which Justice Bluth denied. 11 The Appellate Division, First Department reversed Justice Bluth’s order and vacated the arbitration award holding that it was “partly made in violation of public policy, and otherwise in excess of the arbitrator’s authority.” 12 In reaching its conclusion, the First Department reasoned as follows: By concluding that the allegations in the federal action are tantamount to disclosure of confidential information violative of the NDA, the arbitrator improperly punished plaintiff for availing herself of a judicial forum. Defendant is hard-pressed to explain how plaintiff could have pursued her rights without setting forth necessary factual statements for the federal court to consider. Thereafter, Plaintiff commenced a class action suit against Defendant in New York State Supreme Court which sought a declaratory judgment on behalf of all persons with an employment agreement with Defendants that the NDA contained therein was void. Plaintiff further sought an injunction prohibiting enforcement of the NDA. That action was removed to federal court. In that action, Judge Paul G. Gardephe denied Defendant’s motion to dismiss and granted Plaintiff’s motion for summary judgment to the extent that the NDAs within the employment agreement was declared invalid and unenforceable as to Plaintiff. Judge Gardephe held that neither the non-disclosure nor the non-disparagement clauses were sufficiently definite to be enforceable. Judge Gardephe declined to “Blue Pencil” or pare down the scope of the NDAs, stating: Moreover, the Campaign’s past efforts to enforce the non-disclosure and non-disparagement provisions demonstrate that it is not operating in good faith to protect what it has identified as legitimate interests. The evidence before the Court instead demonstrates that the Campaign has repeatedly sought to enforce the non-disclosure and non-disparagement provisions to suppress speech that it finds detrimental to its interests. While the motion before Judge Gardephe was sub judice , the state court granted Plaintiff’s motion to amend her complaint to include a cause of action for retaliation pursuant to Section 8-107(7) of New York City Human Rights Law based upon Defendant’s action in bringing the arbitration and attempting to enforce the award therein. Plaintiff moved for summary judgment on her retaliation cause of action on the basis that this claim had been determined as a matter of law in Plaintiff’s favor by the First Department and in the federal court. Justice Kahn denied the motion, holding that the doctrines of res judicata and collateral estoppel did not apply to her claim. Plaintiff argued that the First Department’s finding that “the arbitrator improperly punished Plaintiff for availing herself of a judicial forum” and Judge Gardephe’s notations that Defendant was “not operating in good faith to protect what it has identified as legitimate interests” and that Defendant “has repeatedly sought to enforce the non-disclosure and non-disparagement provisions to suppress speech that it finds detrimental to its interests” fell squarely within the parameters of the preclusion doctrines at issue. Justice Kahn rejected this argument. With respect to res judicata, the Court said that “it cannot by any measure be concluded that the substantive issues underlying Plaintiff’s New York City Human Rights Law §8-107<7> were comprehended to be within the scope of either proceeding.” 13 To that end, the Court explained that “neither court made a holding that Defendant violated each and every element under that statute.” 14 “In vacating the arbitration award,” said the Court, the First Department concluded that “the arbitrator, not Defendant, penalized Plaintiff for the allegations she made in the federal action.” 15 Indeed, said the Court, Plaintiff accused Defendant of using “the arbitration proceeding as a litigation tactic,” a factual argument “the Appellate Division expressly eschewed” because it would be “contrary to established law that a strong public policy justifying the vacatur of an arbitration award must be apparent from the face of the award, without extended factual inquiry.” 16 As to Judge Gardephe’s holding, the Court noted “that the NDAs were invalid and unenforceable as to Plaintiff because “the NDAs were not sufficiently definite.” 17 The Court said that the “comment that Defendant acted in ‘bad faith’ was, at most, dicta.” 18 Concerning collateral estoppel, the Court held that “neither the Appellate Division nor Judge Gardephe necessarily decided the issue of retaliation, either in whole or in part, when coming to their conclusions.” 19 “In any event,” concluded the Court, “the disparate nature of the prior proceedings and the matter before this Court demonstrates Defendant was not afforded a full and fair opportunity to litigate Plaintiff’s retaliation claim under New York City Human Rights Law §8-107<7> .” 20 Takeaway Res judicata and collateral estoppel address preclusion of issues and claims after judgment: res judicata precludes a party from asserting a claim that was litigated in a prior action, while collateral estoppel precludes relitigating an issue decided in a prior action. In Denson , Plaintiff was unable to demonstrate that the First Department and SDNY decisions precluded Defendants from defending against Plaintiff’s retaliation claim. With respect to res judicata, the substantive issues underlying Plaintiff’s New York City Human Rights Law §8-107<7> were not litigated in the prior state court and federal actions. And, with respect to collateral estoppel, Defendant was not afforded a full and fair opportunity to litigate Plaintiff’s retaliation claim under New York City Human Rights Law §8-107<7> in either court. Thus, the Court denied Plaintiff’s motion. 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. 1. E.g. , O’Brien v. City of Syracuse , 54 N.Y.2d 353,357 (1981). 2. Board of Managers of Windridge Condos. One v. Horn , 234 A.D.2d 249 (2d Dept. 1996). 3. Kim v. NRT New York LLC , _A.D.3d __ , 2021 N.Y. Slip Op. 05291 (1st Dept. 2021). 4. E.g. , Parker v. Blauvelt Volunteer Fire Co. , 93 N.Y.2d 343, 349 (1999). 5. Buechel v. Bain , 97 N.Y.2d 295, 303 (2001). 6. Ryan v. New York Tel Co. , 62 N.Y.2d 494, 501 (1984). 7. Mahler v. Campagna , 60 A.D.3d 1009 (2d Dept. 2009); see also Rembrandt Ind. v. Hodges Intl. , 38 N.Y.2d 502, 504 (1976); Lopez v. Parke Rose Mgt. Sys. , 138 A.D.2d 575, 577 (2d Dept. 1988) 8. Milone v City University of New York , 153 A.D.3d 807, 808-809 (2d Dept. 2017); see also Emmons v Broome County , 180 A.D.3d 1213 (3d Dept. 2020). 9. See CPLR § 3211(a)(5). 10. See CPLR § 3018(b). 11. Denson v. Donald J Trump for President, Inc. , __ Misc. 3d __ , 2019 N.Y. Slip Op. 30611(U) (Sup. Ct. NY County 2019). 12. Denson v. Donald J Trump for President, Inc. , 180 A.D.3d 446 (1st Dept. 2020). 13. Slip Op. at *3. 14. Id. 15. Id. at *3-*4. 16. Id. at *4. 17. Id. 18. Id. 19. Id. (citations omitted). 20. Id. (citations omitted).