When a person releases another from claims or the threat of claims, he/she is giving up the right to sue the other in connection with the subject of the release. Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V. , 17 N.Y.3d 269, 276 (2011) (“Generally, a valid release constitutes a complete bar to an action on a claim which is the subject of the release.”). A release effectively eliminates all claims against another that are possessed by the party giving the release. It does not matter whether the releasor knew of the claims at the time that he/she gave the release.  A release is generally ineffective as a bar against a claim that arises after the date the release is given. However, a plaintiff will not be barred from bringing a claim that falls within the scope of a release when he/she can demonstrate that the release was procured by fraud, duress or some other wrongdoing. Centro Empresarial Cempresa , 17 N.Y.3d at 276; Fleming v. Ponziani , 24 N.Y.2d 105, 111 (1969). Where a party “releases a fraud claim”, he/she “may later challenge that release as fraudulently induced only if can identify a separate fraud from the subject of the release.” Centro Empresarial Cempresa , 17 N.Y.3d at 276 (citing Bellefonte Re Ins. Co. v. Argonaut Ins. Co. , 757 F.2d 523 (2d Cir. 1985)).  The foregoing principles were highlighted in Schorsch v. Luxor Capital Partners, LP , 2021 N.Y. Slip Op. 50698(U) (Sup. Ct., N.Y. County July 26, 2021) ( here ). Schorsch involved a transaction pursuant to which Apollo Global Management LLC (“Apollo”) agreed to purchase the wholesale distribution business of RCS Capital Corporation (“RCAP”) and take a majority stake in AR Capital, LLC (“AR Capital”). At the time, RCAP needed an infusion of capital to meet its obligations. It formed a special committee to address RCAP’s capital needs (the “Special Committee”). While the transaction was being negotiated, Centerbridge Capital Partners II, LP (“Centerbridge”) proposed its own transaction. That proposal involved: (i) a potential $300-$350 million investment in convertible stock; and (ii) a reworking of RCAP’s management arrangement because RCAP was managed by RCS Capital Management, LLC, which was controlled by plaintiff Nicholas S. Schorsch (“Schorsch”), and (iii) a surrender of Schorsch’s Voting B shares (the “Centerbridge Transaction”). The Centerbridge Transaction also contemplated that the Series B preferred stock issued by defendant Luxor Capital Partners, LP (“Luxor”) would be repaid and the Series C convertible preferred stock, also held by Luxor, would be converted into common stock.  At some point, the Special Committee elected to end negotiations with Apollo. However, the Special Committee continued to explore potential deals with Apollo.  Although the Special Committee was generally of the view that the deal with Centerbridge was superior, it involved the surrender of control by Schorsch, who indicated that he was not willing to relinquish such control. Schorsch also believed that the Centerbridge Transaction was dilutive to existing shareholders.  Ultimately, RCAP decided to consummate a modified transaction with Apollo — i.e. , without Apollo acquiring an interest in AR Capital. In connection with the transaction, the parties executed a number of documents ( e.g. , the agreement between Apollo and AR Capital, the agreement between Apollo and the ARC principals, and the agreement between Apollo and RCAP (the “Transaction Documents”)), which included a broad release of claims (the “Release”). Pursuant to the Release, the releasing parties agreed to release each other from all claims arising out of or related to the transactions contemplated by the Transaction Documents. Following the Apollo Transaction, RCAP went bankrupt, and the creditor trust brought a claim in Delaware against Schorsch and his affiliates alleging, among other things, claims for breach of fiduciary duty (the “Delaware Action”). The factual allegations that form the basis for the claim in the Delaware Action concerned, among other things, RCAP’s negotiation with Apollo to the exclusion of Centerbridge. Although the Delaware court did not reach the issue of whether the claims asserted therein were barred by the Release, the Motion Court concluded that “the bringing of the Delaware lawsuit state a claim for breach of the Release” because it concerned a released claim. Slip Op. at *3.  The Motion Court rejected defendants’ contention that plaintiffs waived their rights under the Release, stating that there was nothing in the record before it to support the claim of a knowing or voluntary waiver.  Similarly, the Court found that defendants did not “in any way” rely on, and were not “otherwise prejudiced by”, “any conduct of the plaintiffs with respect to the Release.” Id.   Finally, the Court found that the creditor trust did not in any way change its position or discontinue the lawsuit when the plaintiffs asserted the Release in the Delaware Action. Thus, concluded the Court, plaintiffs stated a viable claim for breach of the Release.  Takeaway A “release is … a species of contract” that “is governed by the same principles of law applicable to other contracts.” Schuman v. Gallet, Dreyer & Berkey, L.L.P. , 180 Misc. 2d 485, 487 (N.Y. Co. 1999), aff’d , 280 A.D.2d 310 (1st Dept. 2001). Therefore, in the absence of duress, illegality, fraud, or mutual mistake, a release will not be set aside. Toledo v. W. Farms Neighborhood Hous. Dev. Fund Co., Inc. , 34 A.D.3d 228, 229 (1st Dept. 2006). In Schorsch , the parties broadly released all claims as against the other concerning: “(i) the Transaction Documents and the transactions contemplated by the Transaction Documents, (ii) any breach, non-performance, action or failure to act under any of the Transaction Documents, (iii) the Amended Purchase Agreement and the transactions contemplated thereby, (iv) the events leading to the termination of the Transaction Agreement and the Guaranty Agreement and the execution of the Amended Purchase Agreement, (v) any deliberations or negotiations in connection with the Transaction Documents, and (vi) any SEC filings, public filings, periodic reports, press releases, proxy statements or other statements issued, made available or filed relating, directly or indirectly, to the transactions contemplated by the Transaction Documents.” The release language was expansive and released “any and all … claims” whether “known or unknown” against any of the released parties. Such language was, as the Court noted, broad enough to cover the breach of the Release claim that plaintiffs asserted.

“The attorney-client privilege shields from disclosure any confidential communications between an attorney and his or her client made for the purpose of obtaining or facilitating legal advice in the course of a professional relationship.” Ambac Assur. Corp. v. Countrywide Home Loans, Inc. , 27 N.Y.3d 616, 623 (2016). The privilege “fosters the open dialogue between lawyer and client that is deemed essential to effective representation.” Spectrum Sys. Intl. Corp. v. Chemical Bank , 78 N.Y.2d 371, 377 (1991)). “It exists to ensure that one seeking legal advice will be able to confide fully and freely in his attorney, secure in the knowledge that his confidences will not later be exposed to public view to his embarrassment or legal detriment .” Matter of Priest v. Hennessy , 51 N.Y.2d 62, 67-68 (1980). Although the privilege serves an important function – the open and candid dialogue between attorney and client – there exists an “ bvious tension” between the privilege and the policy of New York State that favors liberal discovery. Ambac , 27 N.Y.3d at 624 (citing Spectrum , 78 N.Y.2d at 376-377); see also CPLR § 3101(a)(1) (requiring “full disclosure of all matter material and necessary in the prosecution or defense of an action”). Because the privilege shields from disclosure “material and necessary” information “and therefore ‘constitutes an “obstacle” to the truth-finding process,’” courts narrowly construe its application. Ambac , 27 N.Y.3d at 624 (quoting Matter of Jacqueline F. , 47 N.Y.2d 215, 219 (1979)); Spectrum , 78 N.Y.2d at 377. For this reason, “ he party asserting the privilege bears the burden of establishing its entitlement to protection by showing that the communication at issue was between an attorney and a client ‘for the purpose of facilitating the rendition of legal advice or services, in the course of a professional relationship,’ that the communication is predominantly of a legal character, that the communication was confidential and that the privilege was not waived.” Ambac , 27 N.Y.3d at 624. (quoting Rossi v. Blue Cross & Blue Shield of Greater N.Y. , 73 N.Y.2d 588, 593-594 (1989)). Sometimes, a party possessing the privilege can waive its protection by affirmatively making the subject matter of the privileged communication an issue in a litigation. This is called “at-issue” waiver or “subject matter waiver”. Deutsche Bank Trust Co. of Ams. v Tri- Links Inv. Trust , 43 A.D.3d 56, 64 (1st Dept. 2007) (holding, subject matter waiver of a privilege occurs when “a party affirmatively places the subject matter of its own privileged communication at issue in litigation, so that invasion of the privilege is required to determine the validity of a claim or defense of the party asserting the privilege, and application of the privilege would deprive the adversary of vital information.”).  Notably, the fact that privileged communications may contain information “relevant” to issues the parties are litigating will not, without more, place the contents of the privileged communication itself “at issue.” See Long Is. Light. Co. v. Allianz Underwriters Ins. Co. , 301 A.D.2d 23, 33 (1st Dept. 2002); see also Veras Inv. Partners, LLC v. Akin Gump Strauss Hauer & Feld LLP , 52 A.D.3d 370, 372 (1st Dept. 2008). Rather, “at issue” waiver occurs “when the party has asserted a claim or defense that he intends to prove by use of the privileged materials.” North Riv. Ins. Co. v. Columbia Cas. Co. , 1995 WL 5792, *6, 1995 U.S. Dist. LEXIS 53, *17 (S.D.N.Y. 1995) (citations omitted); see also Manufacturers & Traders Trust Co. v. Servotronics, Inc. , 132 A.D.2d 392, 397 (1987) (no “at issue” waiver where the party asserting privilege “does not need the privileged documents to sustain its cause of action”). An example of an affirmative act that constitutes a subject matter waiver of the privilege is the affirmative defense of a party’s “reliance upon the advice of counsel.” Village Bd. of Vil. of Pleasantville v. Rattner , 130 A.D.2d 654, 655 (2d Dept. 1987). “Moreover, selective disclosure is not permitted as a party may not rely on the protection of the privilege regarding damaging communications while disclosing other self-serving communications.” Id. ; see also Orco Bank v. Proteinas Del Pacifico , 179 A.D.2d 390, 390 (2d Dept. 1992) (attorney-client privilege was waived by client’s “selective disclosure” of legal advice).  This Blog examined subject matter waiver here . Whether the attorney-client privilege was waived by a party to a litigation was the subject of U.S. Bank Nat’l Assn. v. Lightstone Holdings LLC , 2021 N.Y. Slip Op. 04537 (1st Dept. July 22, 2021) (here). U.S. Bank arose from a $7.4 billion loan from defendant Wachovia Bank, NA (succeeded by Wells Fargo) and nonparties Bear Stearns and Bank of America (the “Original Lenders”) to affiliates of defendants Lightstone Holdings LLC (“Lightstone”) and David Lichtenstein (“Lichtenstein”), entered into for the purpose of purchasing Extended Stay Hotels (“ESH”), a real-estate investment trust that held a portfolio of over 600 hotel properties. Of the $7.4 billion, $4.1 billion consisted of a “Senior Loan,” which was secured by mortgages on the hotel chain’s properties, and the remaining $3.3 billion consisted of 10 tranched mezzanine or “Junior Loans” (the “ESH Transaction”). The Original Lenders acted as the senior and junior lenders on the aggregate loan. Lightstone and Lichtenstein (the “Guarantors”) extended a $100 million capped guaranty for payment on the loans (the “Guaranty Cap”). After the closing, the Original Lenders securitized their interests in the Senior Loan in a commercial mortgage-backed security trust, receiving in return certificates representing their interests in the Trust entity. Ultimately, the trust certificates were sold to other investors. Plaintiff was the special servicer to the Trustee, acting on behalf of the present holders of the certificates, and, therefore, acted on behalf of the current senior lender holders (the “Senior Lender”). The junior loans were sold to various entities, including, as relevant to the appeal, defendants Line Trust, Deuce, Wachovia and Ashford (the “Junior Lenders”). On June 15, 2009, the borrowers filed for bankruptcy. The senior lender recovered the gross amount of $4,149,414,854.32, and the junior lenders were essentially wiped out. The Junior Lenders sued the Guarantors, which actions were ultimately settled with the Guarantors paying the Junior Lenders certain amounts. In the action before the First Department, plaintiff (as “Senior Lender”) sought to claw back settlement payments received by the remaining Junior Lender defendants in the action, alleging it had priority over them pursuant to the Intercreditor Agreement (the “ICA”), the document governing the relationship between the lenders in their respective capacities as debtholders under the senior and junior loans. Nonparty respondent Cadwalader Wickersham & Taft, LLP (“Cadwalader”) represented the Original Lenders in the ESH Transaction and drafted the ICA. At the bench trial, the Junior Lenders relied on the testimony of the two Cadwalader attorneys who drafted the ICA, as well as Tony Fineman (“Fineman”), Wachovia’s (as one of the Original Lenders) primary contact with respect to the ESH Transaction. The witnesses testified as to the meaning and intent of certain provisions of the ICA. At that time, and at various times prior to trial, plaintiff sought the production of Cadwalader documents that were protected by the attorney-client privilege. Plaintiff contended, as it did on appeal, that the Junior Lenders’ reliance on counsel’s testimony as to the meaning and intent of the ICA resulted in a subject matter waiver, requiring the production of privileged documents on the same topic. Supreme Court denied plaintiff’s request and after the bench trial, dismissed the claims against the Junior Lenders, finding that the evidence established, by a preponderance of the evidence, that the parties intended to give priority over the Guaranty Cap to the Junior Lenders. On appeal, plaintiff asked the Court to remand the matter for a new trial on the basis that it was entitled to the privileged Cadwalader documents. The First Department declined to do so and affirmed Supreme Court’s findings. The Court held that Ashford, Line Trust, and Deuce, as Junior Lenders, were not the holders of the privilege with Cadwalader. Rather, said the Court, the Original Lenders were the holders of the privilege. Slip Op. at *2. Thus, concluded the Court, “they did not place the ‘subject matter of its own privileged communication at issue in litigation.’” Deutsche Bank Trust Co. of Ams. , 43 A.D.3d at 64. “Since they are not using their attorney-client privilege as a sword,” observed the Court, “it cannot be said that plaintiff is deprived of ‘vital information’ necessary to ‘determine the validity of a claim or defense of the party asserting the privilege.’” Id. (citing id. ). The Court also held that Wachovia, who was also a Junior Lender defendant in the action, was “the holder of the privilege since it was also an Original Lender.” Id. The Court found that Wachovia also relied on the testimony of the two Cadwalader attorneys concerning the Original Lenders’ intent with respect to the ICA. “In this regard,” said the Court, “the trial court correctly held, after the deposition testimony of Fineman was read into the record, that the privilege, as held by Wachovia ha been waived with respect to communications/documents between Fineman (acting on behalf of Wachovia) and counsel concerning the relevant provisions of the ICA.” Slip Op. at *2-*3. The Court found “unavailing” “ laintiff’s contention that Wachovia’s reliance on counsel’s testimony was enough to constitute a waiver as to all documents.” Slip Op. at *3. “Wachovia was not the only party that was represented by Cadwalader with respect to the original ESH Transaction,” said the Court. The Court noted that “Bear Stearns and Bank of America equal holders of the privilege since Cadwalader represented all the Original Lenders.” Id. In fact, said the Court, “in at least one statement on the record, Cadwalader’s counsel averred that Bank of America, a nonparty, would not consent to a waiver of any privilege.” Accordingly, the Court held that “Wachovia could not unilaterally waive any privilege on behalf of the other privilege holders.” Id. (citations omitted). In sum, the Court said: To hold otherwise threatens the sanctity of the attorney-client privilege and would permit the unauthorized waiver of such without the consent of the actual party that possesses the privilege. Plaintiff's position that the documents were necessary and relevant to the issue of the parties' intent ignores the well-protected rights afforded privileged communications. Id. (citation omitted).

Sometimes during the course of litigation, through no fault of a litigant, his, her or their attorney becomes physically, mentally or legally incapable of representing the client.  In such circumstances, being forced to proceed without the attorney could be prejudicial.  CPLR 321(c) , which addresses such circumstances, provides: Death, removal or disability of attorney.  If an attorney dies, becomes physically or mentally incapacitated, or is removed, suspended or otherwise becomes disabled at any time before judgment, no further proceeding shall be taken in the action against the party for whom he appeared, without leave of the court, until thirty days after notice to appoint another attorney has been served upon that party either personally or in such manner as the court directs. In Wells Fargo Bank, N.A. v. Kurian , decided by the Second Department on July 21, 2021, the Court, faced with a “factual posture” of first impression in the Department, found that the defendant waived the protective stay afforded by CPLR 321(c).  The facts of Wells Fargo are simple and “typical of many residential mortgage foreclosure actions in New York”.  Wells Fargo commenced a mortgage foreclosure action after defendant borrower allegedly failed to make payments on the underlying note.  Defendant appeared by counsel and interposed an answer with counterclaims.  Eight months later, however, defendant’s counsel was suspended from the practice of law.  The suspension triggered the automatic stay provisions of CPLR 321(c), although “ ccording to the plaintiff, the defendant failed to notify the parties or the Supreme Court of her attorney’s suspension from the practice of law.” One year after the suspension, and without serving a “notice to appoint another attorney” as required by CPLR 321(c), plaintiff moved for summary judgment and for an order of reference.  Six days after plaintiff made the motion, but prior to its return date, new counsel appeared for defendant, opposed the motion and cross-moved to dismiss the complaint.  Supreme court issued an order granting plaintiff’s motion and denying defendant’s cross-motion.  Defendant filed a pro se notice of appeal, but the appeal was never perfected.  About a year and a half later, a third attorney appeared for defendant.  Thereafter, the court granted plaintiff’s “unopposed motion” and issued a judgment of foreclosure and sale directing the sale of the subject property. Nine months after the judgment of foreclosure and sale: the defendant moved by order to show cause, inter alia, to stay the foreclosure sale and to vacate the order and judgment of foreclosure and sale. The defendant argued that since the automatic stay of CPLR 321(c) was in effect on the date that the plaintiff filed its initial motion, inter alia, for summary judgment and for an order of reference, the motion was invalid, and any orders predicated upon those papers were null and void.  Defendant appealed the denial of her motion. The Second Department affirmed supreme court’s order.  The Court recognized that in certain circumstances when a litigant loses counsel “CPLR 321(c) protects the client by automatically staying the action from the date of the disabling event” because the “obvious purpose of the stay is to vest the party who has lost counsel with a reasonable opportunity to obtain new counsel before further proceedings are taken and thereby avoid prejudice that might conceivably arise from the absence of counsel in the interim.”  (Citations omitted.)  Citing numerous cases, the Court noted that “ rders or judgments that are rendered in violation of the stay provisions of CPLR 321(c) must be vacated.”   As to the stay, the Court explained: The express language of CPLR 321(c) sets no particular time limit to the stay of proceedings that is automatically triggered by a qualifying event. Of course, the shield of a stay should not be used as an indefinite sword against any continuation of the action. CPLR 321(c) therefore provides any adversary party with a mechanism for lifting a stay—by serving a notice upon the nonrepresented party to obtain a new attorney. The notice is to be served personally or in such other manner as the court directs ( see CPLR 321 ). Once the notice contemplated by CPLR 321(c) is properly served, the automatic stay of the action remains in effect for another 30 days, but is then lifted upon the expiration of that period. Thus, there are actually two ways in which a CPLR 321(c) stay may be lifted. One way is if the party that lost its counsel retains new counsel at its own initiative, or otherwise communicates an intention to proceed pro se. The second way is by means of the above-described notice procedure pursuant to CPLR 321(c). (Some citations omitted.) Although the Wells Fargo plaintiff’s counsel moved for summary judgment before the automatic stay of CPLR 321(c) was lifted, defendant’s “new counsel formally appeared in the action six days after the plaintiff's summary judgment motion was filed, submitted papers in opposition to that motion, and cross-moved to dismiss the complaint insofar as asserted against the defendant, all within the original or adjusted briefing schedule he defendant's opposition papers and cross motion were considered by the Supreme Court on the merits.”  Accordingly, the protections of CPLR 321(c) were “no longer necessary or relevant” as the “appearance and activities of the defendant’s new counsel operated, in effect, as a waiver of the protections otherwise afforded to the defendant….”  (Citation omitted.)   In finding that defendant’s conduct constituted a waiver, the Court held: … that even in the absence of service of a notice to appoint new counsel upon the unrepresented party as procedurally required by CPLR 321(c), a continuing stay under the statute may be waived by the unrepresented party's affirmative conduct of retaining new counsel, effective as of the time that new counsel formally appears in an action. Here, since the defendant's waiver of the stay occurred before her opposition papers were due in response to the plaintiff's motion, inter alia, for summary judgment and for an order of reference, the fact that the plaintiff filed its motion on an earlier date, when the stay was still in effect, is of no moment. Further, in regards to the suspension of the original attorney of record, the defendant's opposition papers and cross motion did not include any argument, at that time, that the motion before the Supreme Court violated the stay provisions of CPLR 321(c), further bolstering our conclusion that any issue regarding the existence of a stay had been waived. (Citation omitted.)

In today’s installment of Enforcement News, we examine an enforcement action brought by the Securities and Exchange Commission (“SEC” or the “Commission”) in the Southern District of New York against Aron Govil, the controlling shareholder and officer of two publicy traded companies – Cemtrex Inc. (“Cemtrex”) and Telidyne Inc. (“Telidyne”). According to the SEC, Govil committed a series of fraudulent activities, including scalping and the misappropriation of investor funds. To settle the action, Govil agreed to pay in excess of $1.2 million in disgorgement and penalties. What Is Scalping? Scalping refers to the purchase and sale of securities through arbitrage trading, as well as through the manipulation of the market. In the former scenario, traders buy and sell securities “quickly, usually within seconds, using higher levels of leverage to place larger-sized trades in the hopes of achieving greater profits from minuscule price changes.” Chen, James, Scalper, Investopedia (Updated Mar. 18, 2021) (here). In the latter scenario, a person is committing a fraud. Illegal scalping occurs when a person: (i) purchases shares of a security for his/her own account prior to recommending or touting that security to others; (ii) does not disclose in the recommendation or tout the full details of his/her ownership of the shares and his/her plans to sell the security at issue; and (iii) sells his/her shares following the dissemination of the recommendation or tout, which inflates the share price and trading volume of the security. What Is Misappropriation? Misappropriation is essentially a theft of money or assets. It occurs when a person uses another person’s money without authorization. Misappropriation of funds mirrors the crime of embezzlement, which is a crime committed by a person having a relationship of trust or fiduciary duty to another person and who steals that person’s money or property for his/her own personal gain. Both the SEC and FINRA have numerous rules governing how corporate actors and financial professionals must act to safeguard and protect the handling of investor and customers monies. SEC v. Govil On July 19, 2021, the SEC announced (here) that it reached an agreement to settle charges against Aron Govil (“Govil”) for his violation of the federal securities in the fraud of investors of Cemtrex and Telidyne. According to the complaint filed by the SEC (here), Govil misappropriated over $7 million of Cemtrex investor funds between April 2016 and January 2018 to finance his personal business ventures and to pay his personal expenses. The alleged misappropriation of funds occurred in connection with two offerings made by Cemtrex, in which Govil represented to investors that the proceeds of the offering would be used for various corporate purposes, including new product development and acquisitions, as well as repaying outstanding debt and other general corporate purposes. The SEC also alleged that Govil engaged in scalping – secretly selling Cemtrex stock while paying stock promoters to recommend that retail investors buy the company’s stock – and insider trading. In one instance, Govil allegedly paid a stock promoter to recommend Cemtrex stock by using the account of a defunct construction company Govil owned. The promoter only disclosed receiving a fee from that company, not Govil or Cemtrex. In another instance, Govil allegedly paid a promoter to recommend Cemtrex stock by transferring approximately 200,000 shares of Cemtrex common stock from a Govil Nominee Entity as a charitable contribution. In total, the SEC claimed that Govil obtained proceeds of more than $360,000 in connection with his illegal trading. The SEC said that Govil did not file any of the required disclosures with the SEC in connection with his Cemtrex trading (e.g., the Forms 4 and 5 required by Section 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 16a-3 promulgated thereunder). The SEC further alleged that Govil, while serving as Telidyne’s chief executive officer, made material misrepresentations to investors regarding the company’s products. According to the SEC’s complaint, between at least April 2019 and May 2020, Govil falsely told investors that Telidyne, which purported to be a developer of mobile phone applications or “apps,” had developed the “Teli App,” which allowed users to transact business in cryptocurrencies from their mobile phones, and also had started work on an app to detect COVID-19. The SEC claimed that these statements were false because the Teli App did not have the stated cryptocurrency functionality and Telidyne had not started work on the COVID-19 detection app. Commenting on the charges and settlement, Richard R. Best, Director of the SEC’s New York Regional Office, stated: “Govil allegedly flooded the market with paid-for buy recommendations for Cemtrex stock and made false claims about Telidyne’s development of mobile apps that would facilitate cryptocurrency transactions and help combat the coronavirus.” Importantly, Best reminded investors to be “wary of online recommendations from unverified sources that appear to capitalize on the latest market trends and seem too good to be true.” The SEC charged Govil with violations of the antifraud provisions of the federal securities laws, as well as violations of Section 16(a) of the Exchange Act, which requires corporate officers, directors, and major shareholders to disclose their transactions in their company’s stock. The SEC sought injunctive relief, an officer and director bar, a penny stock bar, disgorgement plus prejudgment interest, and civil penalties. Without admitting or denying the allegations, Govil consented to the entry of a final judgment that enjoins him from violating the charged provisions; imposes officer and director and penny stock bars; imposes, in connection with certain violations, disgorgement in the amount of $626,782, plus prejudgment interest thereon in the amount of $76,693.95; and imposes a civil penalty in the amount of $620,000. The judgment also provides for the court to order, upon motion of the Commission, additional disgorgement with prejudgment interest and/or penalty against Govil, if deemed appropriate. The proposed settlement is subject to court approval.

Commercial contracts often include a liquidated damages clause that provides for the payment of a predetermined amount of damages in the event of a breach by one of the parties. Such clauses are often found in contracts for the sale of real property, commercial leases, and construction contracts. Given the consequences of liquidated damages clauses, it is important to understand when and how such a clause will be enforced. What are Liquidated Damages? A liquidated damages clause specifies a predetermined amount of damages owed by a party in breach of a contract. The amount is determined by the parties at the time they execute the agreement and is intended to be their best estimate of the damages that would be incurred in the event of a breach of the agreement. Truck Rent-A-Ctr. v. Puritan Farms 2nd , 41 N.Y.2d 420, 424 (1977) (Liquidated damages are “an estimate, made by the parties at the time they enter into their agreement, of the extent of the injury that would be sustained as a result of breach of the agreement.”). here,  here,=">here," and  here.=">here."> Are Liquidated Damages Clauses Enforceable? Unconscionability Like any provision in a contract, a liquidated damages clause is unenforceable when it is unconscionable. Gillman v. Chase Manhattan Bank , 73 N.Y.2d 1, 10 (1988). An unconscionable contract is one that “‘is so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be unenforcible according to its literal terms.’” Id. (quoting Mandel v. Liebman , 303 N.Y. 88, 94 (1951) (citing 1 Corbin on Contracts, § 128, p. 400)). “The doctrine, which is rooted in equitable principles, is a flexible one and the concept of unconscionability is intended to be sensitive to the realities and nuances of the bargaining process.” Id. (quoting Matter of State of New York v Avco Fin. Serv. , 50 N.Y.2d 383, 389-390 (1980)) (internal quotation marks omitted). “A determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made — i.e., some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” Id. (quoting Williams v Walker-Thomas Furniture Co. , 350 F.2d 445, 449 (D.C. Cir. 1965) (internal quotation marks omitted) and citing Avco Fin. Serv. , 50 N.Y.2d at 389). “The procedural element of unconscionability requires an examination of the contract formation process and the alleged lack of meaningful choice.” Gillman , 73 N.Y.2d at 10-11. Among the factors considered by the courts are “the size and commercial setting of the transaction …, whether deceptive or high-pressured tactics were employed, the use of fine print in the contract, the experience and education of the party claiming unconscionability, and whether there was disparity in bargaining power.” Id. at 73. N.Y.2d at 11 (citations omitted). Substantively, unconscionability requires and examination of the substance of the bargain “to determine whether the terms were unreasonably favorable to the party against whom unconscionability is urged. Id. at 73. N.Y.2d at 12 (citations omitted). Typically, the terms of the contract are so outrageous as to be deemed substantively unconscionable.  Examples of substantively unreasonable contractual provisions include, but are not limited to, inflated prices, unfair termination clauses, unfair limitations on consequential damages and improper disclaimers of warranty. State v. Wolowitz , 96 A.D.2d 47, 67-68 (2d Dept. 1983). In determining the conscionability of a contract, no one factor is weighted over another; “each case must be decided on its own facts.” Id. at 68. (citing Matter of Friedman , 64 A.D.2d 70, 85 (2d Dept. 1978).  In general, “procedural and substantive unconscionability operate on a ‘sliding scale’; the more questionable the meaningfulness of choice, the less imbalance in a contract’s terms should be tolerated and vice versa.” Id. (citation omitted). “While there may be extreme cases where a contractual term is so outrageous and oppressive as to warrant a finding of unconscionability irrespective of the contract formation process …, such cases are the exception.” Id. (citation omitted). Generally, the party claiming unconscionability must show both a lack of a meaningful choice and the presence of contractual terms that unreasonably favor one party over the other. Id. (citing Avco Fin. Serv. , supra).  Notwithstanding the foregoing, courts are reminded that contracts “essentially involve[] a bargained-for exchange between the parties” and “ bsent some violation of law or transgression of a strong public policy, the parties to a contract are basically free to make whatever agreement they wish, no matter how unwise it might appear to a third party.” Id. (citing Rowe v. Great Atlantic & Pacific Tea Co. , 46 N.Y.2d 62, 67-68 (1978)). “The doctrine of unconscionability, with its emphasis on the contract-making process, is really an expression of, rather than an exception to, this principle. By focusing on the manner in which a contract is entered into and the status of the parties, the doctrine is designed to insure freedom of contract and not to negate it.” State , 96 A.D.2d at 68. Whether a contract or a clause therein is unconscionable is generally an issue of fact requiring a hearing and the presentation of evidence. Wilson Trading Corp. v. David Ferguson, Ltd. , 23 N.Y.2d 398, 403 (1968). Thus, if it appears from the record that unconscionability may exist, and the issue is not free from doubt, then the court must hold a hearing where the parties may present evidence with regard to the circumstances of the signing of the contract, and the disputed terms’ setting, purpose and effect. State , 96 A.D.2d at 60 (citations omitted). A Penalty If the predetermined amount of damages “is manifestly disproportionate to the actual” harm suffered, courts will not enforce the provision on the grounds that it is a penalty instead of an estimate of actual damages. J.R. Stevenson Corp. v. Westchester Cty. , 113 A.D.2d 918, 920 (2d Dept. 1985) (“If the amount stipulated in the liquidated damage clause is manifestly disproportionate to the actual damage, then its purpose is not to ‘provide fair compensation but to secure performance by the compulsion of the very disproportion,’” and the clause is unenforceable) (quoting Truck Rent-A-Ctr. , 41 N.Y.2d at 424). Whether a contractual provision is “an enforceable liquidation of damages or an unenforceable penalty is a question of law, giving due consideration to the nature of the contract and the circumstances.” 172 Van Duzer Realty Corp. v. Globe Alumni Student Assistance Ass’n, Inc. , 24 N.Y.3d 528, 536 (2014). The burden is on the party seeking to avoid liquidated damages to show that the stated liquidated damages are, in fact, a penalty. P.J. Carlin Constr. Co. v. City of New York , 59 A.D.2d 847 (1st Dept. 1977); Wechsler v. Hunt Health Sys. , 330 F. Supp. 2d 383, 413 (S.D.N.Y. 2004). Other than unconscionability, a liquidated damages clause is unenforceable in two circumstances: (1) if the damages flowing from a breach of the contract were easily ascertainable at the time of execution; or (2) if the damages fixed were “conspicuously disproportionate” to the probable losses. Truck Rent-A-Center , 41 N.Y.2d at 425 (explaining that the “actual loss incapable or difficult of precise estimation” and the amount liquidated must bear “a reasonable proportion to the probable loss.”); JMD Holding Corp. v. Cong. Fin. Corp. , 4 N.Y.3d 373, 380 (2005). New York courts often strike liquidated damage clauses when they fail to meet the foregoing. See , e.g. , Sina Drug Corp. v. Mohyuddin , 122 A.D.3d 444, 445 (1st Dept. 2014) (holding that liquidated damages clause providing that defendants would pay $1 million if they refused to indemnify plaintiffs was an unenforceable penalty); Motichka v. Cody , 5 A.D.3d 185, 187 (1st Dept. 2004) (holding that a provision requiring payment of $1,000 per day if defendant failed to pay within 60 days was an unenforceable penalty, since damages were easily ascertainable by calculating interest accrued from time of breach); LeRoy v. Sayers , 217 A.D.2d 63, 69-70 (1st Dept. 1995) (invalidating lease term in which tenant forfeited $63,500 in deposits regardless of whether tenant terminated agreement with several months’ notice). “Where the court has sustained a liquidated damages clause the measure of damages for a breach will be the sum in the clause, no more, no less. If the clause is rejected as being a penalty, the recovery is limited to actual damages proven.” Brecher v. Laikin , 430 F. Supp. 103, 106 (S.D.N.Y. 1977) (citations omitted). Against the foregoing legal discussion, we examine Rome Gas, Inc. v. Fastrac Props. I, LLC , 2021 N.Y. Slip Op. 04451 (4th Dept. July 16, 2021) ( here ). Rome involved a liquidated damages clause in a real estate purchase agreement (“REPA”) that was claimed to be unconscionable. Rome Gas, Inc. v. Fastrac Props. I, LLC In Rome , Plaintiff claimed that defendant breached the REPA and, as a consequence, sought specific performance and monetary damages.  The REPA contained a liquidated damages provision, which stated in part: “In the event the Agreement is not closed due to the fault of the Seller < i.e. , defendant> i.e., defendant>, the money paid in escrow shall be returned to the Purchaser < i.e. , plaintiff> i.e., plaintiff>. In such event neither party shall have any further claim against the other.” Plaintiff appealed from an order that granted defendant’s motion for summary judgment limiting damages on the first cause of action to the amount paid in escrow pursuant to the liquidated damages provision and dismissing the second and third causes of action in their entirety. Plaintiff claimed that the liquidated damages clause was unconscionable and therefore unenforceable. The Appellate Division, Fourth Department rejected plaintiff’s contention.  The Court found that the REPA was not procedurally unconscionable given that it was “entered into by sophisticated entities as part of a normal commercial transaction, there no evidence of deceptive or high-pressure tactics, agreement contain ‘fine print,’ and there was no disparity in bargaining power.” Slip Op. at *1 (internal quotation marks omitted) (quoting Mazursky Grp., Inc. v. 953 Realty Corp. , 166 A.D.3d 432, 433 (1st Dept. 2018)). The Court also rejected plaintiff’s contention that the REPA was procedurally unconscionable because plaintiff “was not initially represented by counsel.” Id. The Court noted that once plaintiff retained counsel, plaintiff “never objected to the liquidated damages provision” even though plaintiff “sought to amend various … provisions of the REPA.”  The Court also found that in “ onsidering the context, the purpose and the effect of the provision,” it was not “substantively unconscionable.” Id. (citations omitted).  Takeaway Liquidated damages clauses are frequently challenged as a penalty by one party against another. Rome shows, however, that the doctrine of unconscionability can be used as an additional basis upon which a party can challenge the enforceability of a liquidated damages clause.

Summary judgment is a procedural device permitting a litigant to seek judgment without a trial in circumstances where all issues in a case can be decided by a judge as a matter of law.  The rules related to motions for summary judgment can be found in CPLR 3212 .  The Court of Appeals has described the virtues of summary judgment as follows: Since New York established its summary judgment procedure in 1921, summary judgment has proven a valuable, practical tool for resolving cases that involve only questions of law.  Summary judgment permits a party to show, by affidavit or other evidence, that there is no material issue of fact to be tried, and that judgment may be directed as a matter of law, thereby avoiding needless litigation cost and delay. Where appropriate, summary judgment is a great benefit both to the parties and to the overburdened New York State trial courts. Brill v. City of New York , 2 N.Y.3d 648, 650-51 (2004) (citations omitted).  Similarly, “ ince summary judgment is the equivalent of a trial, it has been a cornerstone of New York jurisprudence that the proponent of a motion for summary judgment must demonstrate that there are no material issues of fact in dispute, and that it is entitled to judgment as a matter of law ( Winegrad v. New York Univ. Med. Ctr. , 64 N.Y.2d 851, 853, 487 N.Y.S.2d 316, 476 N.E.2d 642 <1985> ).”  Ostrov v. Rozbruch , 91 A.D.3d 147, 152 (1 st Dep’t 2012) (hyperlink supplied).   Despite the burden that a movant must meet on a summary judgment motion, such motions are frequently made due to the efficiencies recognized by the Brill Court, among others.  Accordingly, it is prudent to preserve the right to make a summary judgment motion.  Similarly, a summary judgment motion should be made if possible and meritorious.   Against this backdrop, we take a look at One West Bank, FSB v. Bernstein , decided on July 14, 2021, by the Appellate Division, Second Department.  Significant to a discussion of One West , is the requirement in CPLR 3212(a), that “ ny party may move for summary judgment in any action, after issue is joined ….”  (Emphasis supplied.) The One West facts are simple.  In December 2010, plaintiff commenced an action to foreclose a mortgage “that was given by defendants’ predecessor in interest.”  “By stipulation dated January 15, 2011, defendants agreed to submit to the jurisdiction of the court, and agreed that they would not submit an answer to the complaint or make a pre-answer motion to dismiss.”  Supreme court denied lender’s motion for an order of reference “on the ground that the plaintiff was not in possession of the most current note and mortgage at the time of the commencement of the action.”  Thereafter, defendants “moved for summary judgment dismissing the complaint, arguing that the fact that the plaintiff lacked standing to commence the action was now law of the case.”  [Editor’s Note -- this BLOG has addressed the issue of “standing” in residential mortgage foreclosure actions, inter alia , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .]  Supreme court denied the motion because “issue was never joined.” The Second Department affirmed the denial of defendant’s summary judgment motion and, in so doing, stated: Where, as here, the defendants have not served an answer before moving for summary judgment, issue has not been joined and the defendants are precluded from seeking summary judgment ( see JBBNY, LLC v. Begum , 156 A.D.3d 769, 67 N.Y.S.3d 284). The requirement that a motion for summary judgment may not be made before issue is joined ( see CPLR 3212 ), “is strictly adhered to” ( City of Rochester v. Chiarella , 65 N.Y.2d 92, 101, 490 N.Y.S.2d 174, 479 N.E.2d 810). Therefore, summary judgment was not warranted ( see Cremosa Food Co., LLC v. Amella , 164 A.D.3d 1300, 81 N.Y.S.3d 749).  (Hyperlinks added.) The defendants also argued that the complaint should be dismissed pursuant to CPLR 3215(c) , which encourages the prompt entry of default judgments, because plaintiff failed to “take proceedings for the entry of judgment within one year after the default.”  [Editor’s Note -- this BLOG has addressed CPLR 3215(c) < here =">here"> , < here =">here"> and < here =">here"> .]  In rejecting defendants’ argument, the Second Department stated: The defendants’ contention that the complaint must be dismissed pursuant to CPLR 3215(c) is without merit. A defendant may waive the right to seek dismissal pursuant to CPLR 3215(c) by serving an answer or taking “any other steps which may be viewed as a formal or informal appearance” ( Myers v. Slutsky , 139 A.D.2d 709, 711, 527 N.Y.S.2d 464; see De Lourdes Torres v. Jones , 26 N.Y.3d 742, 772, 27 N.Y.S.3d 468, 47 N.E.3d 747). Here, the defendants appeared in this action by stipulating to the jurisdiction of the court, and waived all defenses that they might have had, including their right to dismissal upon the plaintiff's failure to timely seek a default judgment under CPLR 3215(c), by stipulating that they would not serve an answer or make a pre-answer motion to dismiss and adhering to those terms ( see De Lourdes Torres v. Jones, 26 N.Y.3d at 772, 27 N.Y.S.3d 468, 47 N.E.3d 747).  (Hyperlinks added.) [Editor’s Note -- this BLOG has addressed informal appearances < here =">here"> and, as to formal appearances, the same article, noted that “< s=">s"> ection 320(a) of New York’s Civil Practice Law and Rules …, which sets forth, inter alia, the manner in which a defendant can appear in an action, provides that ‘ he defendant appears by serving an answer or a notice of appearance, or by making a motion which has the effect of extending the time to answer.’”]   TAKEAWAY It is not clear from One West why defendants executed the subject stipulation, pursuant to which they seem to have given up valuable and perhaps dispositive rights.  Litigants should be careful when entering into stipulations that may impact their rights in a litigation.  This is particularly so early on in litigation before all the relevant facts have had a chance to develop.  And so the time honored maxim goes – “be careful what you wish stip for”.

An investment adviser is a fiduciary, and as such is held to the highest standard of conduct and must act in the best interest of its client. SEC v. Capital Gains Research Bureau, Inc. , 375 U.S. 180, 194 (1963). This means, among other things, that an investment adviser has an affirmative duty of utmost good faith and full and fair disclosure of all material facts. Transamerica Mortgage Advisors, Inc. v. Lewis , 444 U.S. 11, 17 (1979). In broad terms, an investment adviser owes its client the duty of care, loyalty and candor.  The duty of loyalty requires an investment adviser to put his/her client’s interests first. An investment adviser must not favor his/her own interests over those of a client or unfairly favor one client over another. In seeking to meet this duty, an adviser must make full and fair disclosure to its clients of all material facts relating to the relationship. Additionally, an investment adviser must seek to avoid conflicts of interest with its clients, and, at a minimum, make full and fair disclosure of all material conflicts of interest that could affect the advisory relationship. The disclosure must be clear and detailed enough for a client to make a reasonably informed decision to consent to such practices, strategies or conflicts or reject them. An adviser disclosing that it “may” have a conflict is not adequate disclosure when the conflict actually exists.  On July 13, 2021, the Securities and Exchange Commission (“SEC” or “Commission”) announced ( here ) that TIAA-CREF Individual & Institutional Services LLC (“TC Services”), a subsidiary of Teachers Insurance and Annuity Association of America (“TIAA”), agreed to pay $97 million to settle charges of inaccurate and misleading statements and a failure to adequately disclose conflicts of interest to thousands of participants in TIAA record-kept employer-sponsored retirement plans (“ESPs”). According to the SEC, the $97 million will be distributed to investors affected by the alleged misconduct and settles both the SEC’s enforcement action and a parallel action brought by the New York Attorney General ( here ). According to the SEC’s order ( here ), during a six-year period, TC Services and its Wealth Management Advisers (“WMAs”) failed to adequately disclose the full nature and extent of their conflicts of interest in recommending to clients that they roll over their retirement assets into a managed account program called “Portfolio Advisor.” According to the SEC, respondent created positive incentives and negative pressures to prioritize the rollover of ESP assets into the Portfolio Advisor over lower cost alternatives for rollover-eligible ESP participants who were receiving advisory services as part of the financial planning process respondent offered. Those incentives and pressures allegedly included: (i) an incentive compensation plan that paid WMAs more in variable compensation when they signed clients up for the Portfolio Advisor program than for some alternatives; and (ii) negative consequences for failure to meet related targets, including the placement of some WMAs on performance improvement plans and the threat of termination of employment. Respondent also allegedly trained WMAs to use the rollover process to discover areas of vulnerability for these clients, called “pain points,” to “create pain” by helping clients “self-realize” the financial vulnerability, and then to recommend Portfolio Advisor as the solution to their problem. The SEC said that respondent and WMAs also made misleading statements to clients regarding the nature of the services provided by respondent and the WMAs’ role with respect to the client in the rollover recommendation process. Respondent and the WMAs allegedly represented to some clients that the firm and WMAs were “fiduciaries” and that they provided “objective” and “non-commissioned” investment advice when recommending rollovers to Portfolio Advisor. These statements were misleading, the SEC claimed, because respondent compensated WMAs more for rolling over assets into Portfolio Advisor than some alternatives; WMAs commonly presented managed accounts as the only option for a rollover and frequently did not present alternative options as required by respondent’s policies and procedures; WMAs were sometimes trained to avoid discussing fees associated with the rollover recommendation; and respondent did not treat or review rollover recommendations to Portfolio Advisor under a fiduciary standard. Moreover, the SEC found that TC Services failed to adequately disclose compensation practices that incentivized the firm and its WMAs to recommend Portfolio Advisor for reasons other than a client’s particular investment needs.  According to the SEC, TC Services trained its WMAs to make, and its WMAs made, representations that they offered “objective” and “non-commissioned” advice, “put the client first,” and acted in the client’s best interest while holding themselves out as fiduciaries.  This was misleading, claimed the SEC, because TC Services’ financial incentives for WMAs rendered their advice non-objective and TC Services did not ensure that WMA’s recommendations were, in fact, in the best interest of its clients.  According to the SEC, TC Services simultaneously applied continual pressure to compel WMAs to prioritize the rollover of ESP assets into Portfolio Advisor over lower cost alternatives.   Finally, the SEC found that TC Services failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act in connection with rollover recommendations.  “Rollovers of ESPs are of paramount importance to investors seeking financial security in retirement, and advisers acting in a fiduciary capacity need to provide their clients with complete and accurate disclosure so that they may make fully informed investment decisions,” said Melissa Hodgman, Acting Director of the SEC Enforcement Division. “Investment advisers must clearly and accurately disclose their conflicts of interest. Here, TC Services’ disclosures and misleading statements downplayed and obscured financial incentives that created conflicts between it and its WMAs on one hand and its clients on the other,” said Adam S. Aderton, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. In the order, the SEC found that respondent willfully violated Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the SEC’s findings, respondent agreed to cease and desist from committing or causing any future violations of these provisions, be censured, and pay disgorgement, prejudgment interest, and a civil penalty totaling $97 million. The settlement, as noted, will be distributed to investors through a Fair Fund ( i.e. , a fund created under the Sarbanes-Oxley Act of 2002 for the benefit of investors who were harmed by the violation of the securities laws).

A recurring theme in the jurisprudence concerning claims of fraud and breach of contract is duplication – that is, whether the fraud claim duplicates the breach of contract claim. It is well settled that “ cause of action to recover damages for fraud will not lie where the only fraud claimed arises from the breach of a contract.” Gorman v. Fowkes , 97 A.D.3d 726, 727 (2d Dept. 2012); see also Selinger Enters., Inc. v. Cassuto , 50 A.D.3d 766, 768 (2d Dept. 2008); Tiffany at Westbury Condominium v. Marelli Dev. Corp. , 40 A.D.3d 1073, 1076 (2d Dept. 2007). “Mere unfulfilled promissory statements as to what will be done in the future are not actionable as fraud and the injured party’s remedy is to sue for breach of contract.” Brown v. Lockwood , 76 A.D.2d 721, 731 (2d Dept. 1980) (citation omitted). However, if the plaintiff alleges a misrepresentation of “present facts that collateral to the contract and served as an inducement to enter into the contract, a cause of action alleging fraudulent inducement is not duplicative of a breach of contract cause of action.” Did-it.com, LLC v. Halo Group, Inc. , 174 A.D.3d 682, 683 (2d Dept. 2019). Did-it.com="Did-it.com" here.=">here."> In Emby Hosiery Corp. v. Tawil , 2021 N.Y. Slip Op. 04214 (2d Dept. July 7, 2021) ( here ), the Appellate Division, Second Department, affirmed the denial of a motion to dismiss the plaintiff’s fraudulent inducement claim, holding that the claim contained misrepresentations of present fact that were collateral to the contract before it and, therefore, was not duplicative of the breach of contract cause of action.   Emby arose from the failure by defendants to pay for products they had ordered from plaintiff, an importer and distributor of goods. In addition to alleging breach of contract ( i.e. , the failure to pay), plaintiff alleged that the individual defendants induced it to continue selling and shipping products to the corporate defendants by misrepresenting to plaintiff that the corporate defendants would pay their debts to plaintiff. Thereafter, defendants stopped payment on checks previously tendered to plaintiff and allegedly gave false statements to various credit card companies so that the companies would reverse payments made to plaintiff.  Plaintiff filed suit, asserting the following causes of action: an account stated against the corporate defendants as the first cause of action; breach of contract as the second cause of action; implied and/or quasi contract against the corporate defendants as the third cause of action; unjust enrichment against the corporate defendants as the fourth cause of action; fraud as the fifth cause of action; and defamation as the sixth cause of action. Defendants moved to dismiss the complaint. The individual defendants moved to dismiss the complaint in its entirety and the corporate defendants moved to dismiss the third, fourth, fifth, and sixth causes of action. The motion court denied the motions to dismiss. Defendants’ appealed. The Second Department affirmed. Among other things, defendants argued that since the facts and circumstances supporting the fraud claim were the same as the breach of contract claim, the former claim was duplicative of the latter one. The Court rejected that argument, noting that “ lthough both causes of action based on the same facts, the plaintiff’s fraud cause of action” was based on a misrepresentation that was collateral to the contract, “ i.e. , that the defendants would pay the plaintiff all of the monies owed with respect to prior orders despite knowing that the corporate defendants’ bank accounts did not have sufficient funds to cover those costs.” Slip Op. at *2. Thus, concluded the Court, “the fraud cause of action not duplicative of the breach of contract cause of action.” Id. The Court also held that plaintiff alleged sufficient facts to pierce the corporate veil necessary to allege wrongdoing on the part of the individual defendants. Id. at *2-*3. “To survive a motion to dismiss the complaint, a party seeking to pierce the corporate veil must allege facts that, if proved, establish that the party against whom the doctrine is asserted (1) exercised complete domination over the corporation with respect to the transaction at issue, and (2) through such domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against the plaintiff such that a court in equity will intervene.” Olivieri Constr. Corp. v. WN Weaver St., LLC , 144 A.D.3d 765, 767 (2d Dept. 2016) (citations omitted). Finally, the Court held that plaintiff adequately alleged that the individual defendants, as officers of the corporate defendants, were liable for the alleged fraud by participating in or having knowledge of the misrepresentations that were made to plaintiff. Id. at *3 (citations omitted): “The plaintiff alleged specific misrepresentations, intentionally made by the individual defendants in the context of purchasing more goods from the plaintiff despite outstanding balances owed to the plaintiff, and that the plaintiff relied upon that misrepresentation to its detriment.” Id. Takeaway As this Blog has noted previously, New York courts will not permit a fraudulent inducement claim to survive a motion to dismiss when the claim arises from a breach of contract. Indeed, courts routinely dismiss a fraudulent inducement claim where “ he existence of a valid and enforceable written contract govern a particular subject matter.” Clark-Fitzpatrick v. Long Is. , 70 N.Y.2d 382 (1987). However, where, as in Emby , “a legal duty independent of the contract itself has been violated<,> ” or where the misrepresentation is “collateral or extraneous to the terms of the parties’ agreement,” a fraudulent inducement claim can stand side-by-side with “a simple breach of contract” claim.  Dormitory Auth. v. Samson Constr. Co. , 30 N.Y.3d 704 (2018) (citation omitted). Emby is interesting because the Court did not address whether the damages sought by the fraud claim were the same as those sought by the breach of contract claim. See also Did-it.com , supra . In the First Department, the Court has dismissed fraud claims in which the damages sought by the fraud claim are the same as those sought by the breach of contract claim. This is so even where the plaintiff successfully demonstrates that the alleged misrepresentation is collateral to the contract at issue. E.g. , Salamone v. EIP Global Fund LLC , 2021 N.Y. Slip Op. 2372 (1st Dept. 2021). This Blog wrote about this scenario here , here , and here . Whether there is a split between the Departments, or the facts underlying the decisions in the Second Department did not lend themselves to examination of the damages sought, is unclear. This Blog will continue to examine the duplication of claims doctrine in the two Departments to see if there is, in fact, a split between them.

Editor's Note: This article has been edited to make corrections. Courts are frequently faced with the need to adapt to changing technology.  This Blog < here =">here"> previously addressed the case of Forcelli v. Gelco Corp. , 109 A.D.3d 244 (2 nd Dep’t 2013), in which the Second Department found that emails could satisfy the “subscribed” writing requirement of CPLR 2104 .  Among other things, this Blog summarized the Forcelli Court’s analysis of the “subscription” requirement of CPLR 2104 as follows: As to the “subscription” requirement, the Forcelli Court noted that while e-mails cannot be signed in the traditional sense, “the lack of ‘subscription’ in the form of a handwritten signature has not prevented other courts from concluding that an e-mail message, which is otherwise valid as a stipulation between parties, can be enforced pursuant to CPLR 2104.”  Forcelli , 109 A.D.3d at 248.  In reaching its decision, the Forcelli Court also recognized the “widespread use of e-mail” and how “unreasonable” it would be to determine that, due to the absence of a traditional signature, an e-mail could not conform to CPLR 2104.  The Court also noted that the adjuster purposely added her name at the end of the e-mail and that it was not automatically generated by the e-mail software. Forcelli , 109 A.D.3d at 251.  (Emphasis supplied.) On July 8, 2021, the First Department decided Philadelphia Insurance Indemnity Co. v. Kendall , in which the holding in supreme court, which relied on Forcelli, was “clarif .”  Now, in the First Department at least, 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.”  Put another way, a “prepopulated” name on the address block of an email is sufficient to satisfy the subscription requirement of CPLR 2104, which 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…. The plaintiff in Kendall was involved in an automobile accident while driving her employer’s car.  Kendall accepted the full policy amount ($25,000) from the other driver’s insurance and made a claim against her employer’s $1,000,000 Supplementary Underinsured Motorist (“SUM”) policy written by appellant, Philadelphia.  The SUM claim was arbitrated before the American Arbitration Association and a hearing was held on August 15, 2019.  Settlement was frequently discussed by the parties “ efore, during, and after the arbitration hearing.”   On September 16, 2019, the arbitrator rendered a decision awarding Kendall $975,000 and a copy of the decision was sent to all counsel.  However, none of the counsel received the decision.  Accordingly, the parties continued to negotiate a settlement.  A settlement in the amount of $400,000 was reached on September 19, 2019, and: n that day, respondent's counsel emailed petitioner's counsel: "Confirmed - we are settled for 400K." Below this appeared "Sincerely," followed by counsel's name and contact information. Shortly thereafter, petitioner's counsel emailed in reply, attaching a general release, styled a "Release and Trust Agreement," and saying, "Get it signed quickly before any decision comes in, wouldn't want your client reneging." Respondent's counsel answered, "Thank you. Will try to get her in asap." This email concluded with the same valediction, name, and contact information as had respondent's counsel's earlier email.   Subsequently, but before the “Release and Trust Agreement” was executed by Kendall, her counsel received the arbitrator’s decision and advised Philadelphia’s counsel that Kendall demanded payment of $975,000 and would not execute the settlement documents. As a result, Philadelphia commenced a special proceeding to enforce the parties’ settlement and to vacate the award of the arbitrator.  Supreme court, relying on Forcelli , denied the relief sought by Philadelphia “finding that it did not appear that respondent's attorney had subscribed his email for purposes of CPLR 2104 by retyping his name in addition to his prepopulated contact information block.”  In addition, supreme court found that “Kendall's failure to sign the release was a necessary occurrence to finalize the settlement, and that this fact was recognized by Philadelphia's counsel's email in which she urged that Kendall's counsel get her to sign the release quickly, lest she "reneg ."   In reversing supreme court, the First Department held that: this distinction between prepopulated and retyped signatures in emails reflects a needless formality that does not reflect how law is commonly practiced today. lt is not the signoff that indicates whether the parties intended to reach a settlement via email, but rather the fact that the email was sent. Since 1999, New York State has joined other states in allowing, in most contexts, parties to accept electronic signatures in place of "wet ink" signatures. Section 304(2) of New York's Electronic Signatures and Records Act (ESRA) provides: "unless specifically provided otherwise by law, an electronic signature may be used by a person in lieu of a signature affixed by hand. The use of an electronic signature shall have the same validity and effect as the use of a signature affixed by hand." Moreover, the statutory definition of what constitutes an "electronic signature" is extremely broad under the ESRA, and includes any "electronic sound, symbol, or process, attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the record" (State Technology Law § 302 ). We find that if 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. This rule avoids unnecessary delay caused by burden-shifting "swearing contests over whether an individual typed their name or it was generated automatically by their email account" (Princeton Indus. Prods., Inc. v Precision Metals Corp., 120 F Supp 3d 812, 820 ). Addressing concerns that the “ubiquity and ease” of emailing may “undercut its intentionality,” the First Department stated: It is fair to say that most email users have on occasion sent emails that they did not mean to transmit, or that they regretted soon after transmission. However, here we are considering a specific subcategory of email on a subject freighted with ethical obligations. A lawyer has ethical obligations to communicate all settlement offers to a client and to counsel the client on the consequences of settlement. New York's Rules of Professional Conduct (22 NYCRR 1200.0) rule 1.2(a) states that " lawyer shall abide by a client's decision whether to settle a matter." Rule 1.4(a)(iii) requires a lawyer to "promptly inform the client of ... material developments in the matter including settlement or plea offers." These ethical obligations help to ensure that an attorney considers their authority before communicating settlement offers and acceptances to opponents, whatever the mode of communication.  (Footnote omitted.) The Court also, made plain that its holding is not meant to suggest that “every email purporting to settle a dispute will be unassailable evidence of a binding settlement.”  First, because “hacking” is a problem, such emails will have to be authenticated.  Second, settlement emails must set forth all material terms of the subject settlement.  In this regard, the Court rejected Kendall’s argument that the “settlement was conditioned on signing the release”; the Court finding that the return of a signed release was a “ministerial condition precedent to payment”. Takeaway In the context of legal settlements, business and personal affairs and otherwise, it is important to exercise caution before hitting “send” on an email.

Today’s Blog relates to extensions of time to serve a defendant under CPLR 306-b, a topic previously addressed by this Blog < HERE =">HERE"> and < HERE =">HERE"> .  The background discussion in today’s Blog was taken from one of the linked prior Blogs.   Under the present “commencement by filing” system, an action (or proceeding) (collectively, an “Action”) is commenced by filing (CPLR 304(a))the initiatory paper(s) with the “clerk of the court in the county in which the ction … is brought or any other person designated by the clerk of the court for that purpose (CPLR 304(c)).  Once an Action is commenced, the plaintiff (or petitioner) (collectively, a “Plaintiff”) must effectuate service of process pursuant to the parameters of CPLR 306-b , which provides: Service of the summons and complaint, summons with notice, third-party summons and complaint, or petition with a notice of petition or order to show cause shall be made within one hundred twenty days after the commencement of the ction, provided that in an ction, except a proceeding commenced under the election law, where the applicable statute of limitations is four months or less, service shall be made not later than fifteen days after the date on which the applicable statute of limitations expires.  If service is not made upon a defendant within the time provided in this section, the court, upon motion, shall dismiss the action without prejudice as to that defendant, or upon good cause shown or in the interest of justice, extend the time for service. Among other things, CPLR 306-b provides that, in general, service of process on a defendant (or respondent) (collectively, a “Defendant”) must be effectuated within 120 days of the commencement of an Action.  The Court of Appeals in Leader v. Maroney, Ponzini & Spencer , 97 N.Y.2d 95 (2001), explained the history of CPLR 306-b. According to Leader , “ s originally enacted in 1992, CPLR 306-b transformed New York from a commencement-by-service to a commencement-by-filing jurisdiction.”  Leader , 97 N.Y.2d at 100 (citation omitted).  Plaintiffs were “considerabl benefit ” by “making the act of filing the point at which a claim is interposed for Statute of Limitations purposes.”  Leader , 97 N.Y.2d at 100 (citation omitted).  Under the old statute, a Plaintiff was afforded 120 days to effectuate service of process and the Action would be “deemed dismissed” if service was not timely made.  Leader , 97 N.Y.2d at 100 (citation omitted).  “The plaintiff was free to commence a new ction and serve process within a second 120-day period from the date of the automatic dismissal, even if the Statute of Limitations had expired.”  Leader , 97 N.Y.2d at 100 (citation omitted).  For a variety of reasons, the “deemed dismissed” provisions of the old statute were considered “unnecessarily harsh” and were amended to provide that if service of process is not made within the 120-day period after the commencement of the Action, an unserved Defendant can move for the dismissal, without prejudice, or the court could extend Plaintiff’s time to serve a Defendant “upon good cause shown or in the interest of justice.”  Leader , 97 N.Y.2d at 101 (citing CPLR 306-b). The Leader Court, in a trio of cases, was called upon to determine the circumstances under which a Plaintiff would be permitted to avail itself of the extension provisions of CPLR 306-b.  Importantly, the Leader Court made clear that, under CPLR 306-b, “good cause” and “the interest of justice” are “two separate standards by which to measure an application for an extension of time to serve” a Defendant if service is not made within 120 days of the commencement of an Action.   Good Cause “To establish good cause, a plaintiff must demonstrate reasonable diligence in attempting service.”  Bumpus v. New York City Tr. Auth. , 66 A.D.3d 26, 31 (2 nd Dep’t 2009) (citing Leader ).  “Good cause will not exist where a plaintiff fails to make any effort at service or fails to make at least a reasonably diligent effort at service.”  Bumpus , 66 A.D.3d at 31 (citations omitted).  Where “good cause” is not established, “courts must consider the ‘interest of justice’ standard of CPLR 306-b.”  Bumpus , 66 A.D.3d at 32 (citations omitted). Interest of Justice To satisfy the “interest of justice” standard, a court must “careful ” analyze “the factual setting of the case and … balance … the competing interests presented by the parties.”  Leader , 97 N.Y.2d at 105.  Significantly, the Leader Court made clear that to satisfy the “interest of justice” standard, “a plaintiff need not establish reasonably diligent efforts at service as a threshold matter,” although it may consider plaintiff’s efforts to serve a defendant as one of many factors in its analysis.  Leader , 97 N.Y.2d at 105.  In determining whether the “interest of justice” compels the granting of the extension, the court may consider “any other factor in making its determination, including expiration of the Statute of Limitations, the meritorious nature of the cause of action, the length of delay in service, the promptness of a plaintiff’s request for the extension of time, and prejudice to defendant.”  Leader , 97 N.Y.2d at 105-6 (footnote omitted).  The “interest of justice” standard is broader than that of “good cause” and is meant to “‘accommodate late service that might be due to mistake, confusion or oversight, so long as there is no prejudice to the defendant.’”  Nationstar Mortgage, LLC v. Wilson , 176 A.D.3d 1087 (2 nd Dep’t 2019) (quoting Leader ). JPMorgan Chase Bank, NA v. Gluck In deciding JPMorgan Chase Bank, NA v. Gluck on June 23, 2021, the Second Department had occasion to address several issues under CPLR 306-b.  JPMorgan was a mortgage foreclosure action commenced against Gluck in May of 2011.  Shortly after the commencement of the action, Gluck transferred his interest in the subject property to Landau.  Subsequently, Gluck moved to dismiss the complaint pursuant to CPLR 306-b and, in December of 2013, supreme court granted Gluck’s motion because “plaintiff failed to establish due diligence in attempting to serve Gluck via the personal service method in CPLR 308(1) or the “leave and mail” method in CPLR 308(2), and thus, … service pursuant to the “nail and mail” method in CPLR 308(4) was not authorized.”   In August of 2014, eight months after the order dismissing the action, Landau transferred his interest in the property back to Gluck.  In September of 2018, supreme court “denied … plaintiff’s motion to serve a supplemental summons on Gluck, without prejudice to the plaintiff commencing a new action against Gluck or moving to extend the time to serve Gluck.”  Thereafter, based on supreme court’s prior decision, plaintiff moved pursuant to CPLR 306-b to extend the time to serve Gluck in the pending action alleging good cause because “it promptly moved for the extension after being directed to do so by the .”  Supreme court denied the motion “holding that the court had already dismissed the action insofar as asserted against Gluck for lack of personal jurisdiction.”   On plaintiff’s appeal, the Second Department affirmed, but for different reasons.  The Court rejected supreme court’s denial of the motion “because the complaint had already been dismissed insofar as asserted against Gluck,” and, in so doing, stated: his Court recently "reject the view that motion pursuant to CPLR 306-b to extend the time for service, made in a pending action but after the Supreme Court issued an order granting a motion to dismiss based on lack of personal jurisdiction, should denied without consideration of its merits" (State of New York Mtge. Agency v Braun , 182 AD3d 63, 64). An action is deemed pending until there is a final judgment (see CPLR 5011; State of New York Mtge. Agency v Braun, 182 AD3d at 68; Cooke-Garrett v Hoque , 109 AD3d 457, 457). Here, no judgment has been entered. "Inasmuch as no judgment was entered dismissing the action, the action was pending when the plaintiff moved to extend the time to serve with process" ( U.S. Bank NA. v Saintus , 153 AD3d 1380, 1382; see State of New York Mtge. Agency v Braun, 182 AD3d at 69). Accordingly, the Supreme Court erred in denying the plaintiff's motion without consideration of the merits (see State of New York Mtge. Agency v Braun, 182 AD3d at 67-69).  (Hyperlinks added, brackets in original.) After explaining the “good cause” and “interest of justice” standards along the lines set forth supra , the Court found that plaintiff satisfied neither standard and stated: Here, when the Supreme Court granted Gluck's motion to dismiss the complaint insofar as asserted against him for lack of personal jurisdiction-in 2013-the court specifically stated that the plaintiff had failed to exercise diligence in attempting to serve Gluck pursuant to CPLR 308(1) and CPLR 308(2). The plaintiff fails to dispute that conclusion on appeal, and thus, the plaintiff has failed to demonstrate good cause within the meaning of CPLR 306-b.  Nor has the plaintiff demonstrated that an extension of time is warranted in the interest of justice. supra, in leader, 97 n.y.2d at 105-106).> supra, in leader, 97 n.y.2d at 105-106).> Here, in view of the more than five-year delay of the plaintiff in seeking this extension of time, and the lack of any excuse for the delay, the extension is not warranted in the interest of justice (see Slate v Schiavone Cons tr. Co. , 4 NY3d 816; Rodriguez v Consolidated Edison Co. of NY., Inc. , 163 AD3d 734, 736).  (Hyperlinks and bracketed language added.)

The Securities Exchange Act of 1934 (“Exchange Act”) governs the way in which the nation’s securities markets and its brokers and dealers operate. Under the Exchange Act, most “brokers” and “dealers” must register with the Securities and Exchange Commission (“SEC” or the “Commission”) and join a “self-regulatory organization,” or SRO. Section 15(a)(1) of the Exchange Act, 15 U.S.C. §78o(a). Under Section 3(a)(4)(A) of the Exchange Act, 15 U.S.C. §78c(a)(4)(A), a broker is defined as a person or entity that regularly: (i) participates in the solicitation, negotiation, or execution of securities transactions, (ii) receives transaction-based compensation contingent on the value or success of securities transactions or (iii) handles investor funds or securities. Apart from the foregoing, individuals and businesses need to register as a broker when, among other things, they act as “finders” – e.g., they find investors or customers for, making referrals to, or splitting commissions with registered broker-dealers, investment companies (or mutual funds, including hedge funds) or other securities intermediaries; they find investment banking clients for registered broker-dealers; they act as “placement agents” for private placements of securities; they provide support services to registered broker-dealers; they act as “independent contractors,” but are not “associated persons” of a broker-dealer; and they are otherwise engaged in the business of effecting or facilitating securities transactions. Unlike a broker, who acts as agent, a dealer acts as principal. Section 3(a)(5)(A) of the Exchange Act defines a “dealer” as a person or entity that (i) holds himself/herself out as being willing to buy and sell securities on a continuous basis or (ii) originates securities that they buy and sell. Individuals who buy and sell securities for themselves generally are considered traders and not dealers. The SEC considers the regulatory regime applicable to broker-dealers to be a cornerstone of the U.S. federal securities laws because it provides important safeguards to investors and market participants. Among other things, registered broker-dealers must (a) satisfy comprehensive recordkeeping, reporting, and supervisory obligations, and (b) pass inspection and examination by the SEC and SRO. In addition, broker-dealers must address conflicts of interest and implement policies and procedures that are reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules, including, without limitation, safeguarding customer information and preventing identity theft. On June 29, 2021, the SEC announced (here) that Neovest Inc. (“Neovest”), a provider of an order and execution management system (“OEMS”) that facilitates electronic trading, had agreed to pay a $2.75 million penalty for its failure to register as a broker-dealer in violation of the federal securities laws. This is the SEC’s first case charging an OEMS provider for operating as an unregistered broker-dealer. According to the SEC’s order (here), Neovest, a subsidiary of JPMorgan Chase & Co., operates an OEMS that allows customers to route orders for stocks and options to more than 360 customer-selected destination brokers for execution. The OEMS had been Neovest’s primary product. The SEC found that prior to being acquired by JPMorgan Chase, Neovest engaged in this activity through its registered broker-dealer, Neovest Trading Inc. The SEC also found that although Neovest withdrew its broker-dealer registration after it was acquired, it continued to operate the OEMS as an unregistered broker-dealer by, among other things, participating in the order-taking and order-routing process and soliciting customers and destination brokers through the firm’s website and direct outreach at industry conferences and trade shows. Neovest played a role in determining the routing options that were available to its customers by entering into agreements with the destination brokers. According to the SEC, in exchange for its OEMS services, Neovest also continued to receive transaction-based compensation by having payments from destination brokers redirected to J.P. Morgan Securities LLC, a registered broker-dealer, which then transferred the proceeds to Neovest. The SEC further found that Neovest’s failure to register as a broker-dealer deprived its customers of protections associated with registration, including inspections and examinations by the SEC and the requirement to establish policies and procedures to safeguard customer information. As detailed in the SEC’s order, during the period that Neovest failed to register, the firm replicated a database containing customer authentication information, including user names and passwords, to one of its most active customers and failed to exercise any supervision over the customer’s use of the database. “According to the SEC’s order, Neovest circumvented the regulatory regime that grants broker-dealers the privilege of operating in our markets,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “Today’s charges underscore the SEC’s commitment to securing the important investor protections that flow from broker-dealer registration.” By its order, the SEC censured Neovest and found that it willfully violated Section 15(a) of the Exchange Act. Without admitting or denying the SEC’s findings, Neovest consented to the order and agreed to cease and desist from committing or causing any violations and any future violations of Section 15(a) of the Exchange Act, and to pay a $2.75 million penalty.

“It is a fundamental principle of our jurisprudence that the power of a court to declare the law only arises out of, and is limited to, determining the rights of persons which are actually controverted in a particular case pending before the tribunal.”  Matter of Darcy M. , ___ A.D.3d ___ *1 (2 nd Dep’t June 9, 2021) (quoting Matter of Hearst Corp. v. Clyne , 50 N.Y.2d 707, 713 (1980)) (internal quotation marks omitted).  Courts cannot issue “advisory opinions”.  Matter of Darcy , at *1.  Accordingly, courts are forbidden “to pass on academic, hypothetical, moot, or otherwise abstract questions….”  Matter of Hearst , 50 N.Y.2d at 713.  This principle “is founded both in constitutional separation-of-powers doctrine, and in methodological strictures which inhere in the decisional process of a common-law judiciary.”  Id ., at 713 – 14.  Typically, the doctrine of mootness is invoked where a change in circumstances prevents a court from rendering a decision that would effectively determine an actual controversy.”  Quinn v. 20 East Clinton, LLC , 193 A.D.3d 893, 894 (2 nd Dep’t 2021) (citations and internal quotation marks omitted). In many cases, circumstances change during the course of litigation.  Generally, courts are precluded “from considering questions which, although once live, have become moot by passage of time or change in circumstances.”  Id ., at 714.  In this regard, “an appeal will be considered moot unless the rights of the parties will be directly affected by the determination of the appeal and the interest of the parties is an immediate consequence of the judgment.”  Matter of Darcy , at *1. There are exceptions to the application of the mootness doctrine that permit “a court to pass on moot issues.”  Quinn , 193 A.D.3d at 895.  The exception applies where there is: “(1) a likelihood of repetition, either between the parties or among other members of the public; (2) a phenomenon typically evading review; and (3) a showing of significant or important questions not previously passed on, i.e., substantial and novel issues.”  Id. (citations and internal quotation marks omitted). The parties in Quinn were owners of adjacent property.  The defendant’s property contained a 170-year-old residence that was undergoing extensive interior and exterior renovations.  During the renovations, defendant’s contractors frequently entered plaintiff’s property without permission and much debris from the construction found its way to plaintiff’s property.  After informal efforts to resolve defendant’s encroachments failed, plaintiff commenced action and moved for, inter alia , injunctive relief enjoining defendant “and its contractors from performing any further construction work on the subject premises or, in the alternative, … convert the motion to a proceeding pursuant to RPAPL 881.”  Id . at 894.  [This blog has written about RPAPL 881 < here =">here"> and < here =">here"> , which permits an adjoining property owner or lessee to commence action against a neighbor to obtain a limited license to enter the neighbor’s property to make improvements to owner’s property if voluntary consent is refused.]  By the time that Quinn’s action was commenced, the renovation work was completed and, accordingly, defendant opposed the motion on the ground that it was academic.  Supreme court agreed with defendant and denied the motion.  The Second Department in Quinn , affirmed.  In so doing the Court stated: Here, that branch of the plaintiff's motion which was to preliminarily enjoin from any further construction work was rendered academic by completion of the project.  Enjoining further construction work where no further construction work is needed, or planned, would have no practical effect on the parties.  In reaching this determination, we note that the plaintiff, despite alleging that the defendants were, inter alia, trespassing and injuring her property, took no legal action to enforce her rights, enjoin the work, or preserve the status quo until after the work was nearly complete. Quinn , 193 A.D.3d at 894-95 (citations omitted).  The Court also found that none of the exceptions to the application of the mootness doctrine were applicable in Quinn . On June 17, 2021, the Appellate Division, Fourth Department, decided Matter of Sportsmen’s Tavern LLC v. New York State Liq. Auth. , which analyzed the mootness doctrine.  The petitioner in Sportsman’s commenced a “hybrid CPLR article 78 and declaratory judgment action challenging COVID-19 pandemic-related guidance issued by respondent-defendant New York State Liquor Authority (SLA).”  The guidance “which Sportsmen's was required to abide by pursuant to certain executive orders, prohibited advertised and ticketed main-draw music shows at licensed bars or restaurants and restricted live music at such establishments to only that which was incidental to the dining experience and not the draw itself.”  Supreme court “declared that the guidance constituted an unlawful content-based restriction, both facially and as applied, under the First Amendment of the United States Constitution and corresponding provisions of the New York State Constitution; declared that the guidance was arbitrary, capricious, and an abuse of discretion; and permanently enjoined SLA from enforcing the guidance.”  The Fourth Department dismissed SLA’s appeal as moot “ lthough neither party contend that the appeal should be dismissed” because "mootness is a doctrine related to subject matter jurisdiction and thus must be considered by the court sua sponte. "  (Citation and internal quotation marks omitted.) Discussing caselaw akin to that which is referenced supra , the Court recognized that “an appeal is moot unless an adjudication of the merits will result in immediate and practical consequences to the parties.”  (Citations, internal quotation marks and brackets omitted.)  The Court reasoned that “due to recent easing of pandemic-related restrictions, the prohibitions challenged in this case are no longer in effect the rights of the parties cannot be affected by the determination of this appeal and it is therefore moot." In finding that the exceptions to the application of the mootness doctrine were inapplicable to the appeal, the Court stated: We conclude that the exception to the mootness doctrine does not apply here. In our view, although the issue of the lawfulness of the prior challenged guidance implemented as part of the extraordinary response to the COVID-19 pandemic is substantial and novel, that issue is not likely to recur.  Moreover, the issue is not of the type that typically evades review. Indeed, as the parties have acknowledged, the guidance at issue here prohibiting advertised and ticketed main-draw music shows has been reviewed on the merits by at least two other courts.  In any event, under the circumstances of this case, we would decline to invoke the mootness exception. (Citations and internal quotation marks omitted, emphasis in original.)