A shareholder’s derivative action is a lawsuit “brought in the right of a … corporation to procure a judgment in its favor, by a holder of shares or of voting trust certificates of the corporation or of a beneficial interest in such shares or certificates.” Marx v. Akers , 88 N.Y.2d 189, 193 (1996) (quoting Business Corporation Law § 626 (a)). Derivative claims against corporate officers and directors belong to the corporation itself. Auerbach v. Bennett , 47 N.Y.2d 619, 631 (1979). See also Aronson v. Lewis , 473 A.2d 805, 811 (Del. 1984) (“The nature of the action is two-fold. First, it is the equivalent of a suit by the shareholders to compel the corporation to sue. Second, it is a suit by the corporation, asserted by the shareholders on its behalf, against those liable to it.”). In New York, as in most jurisdictions, a derivative plaintiff must be a shareholder of the company “at the time of bringing the action,” and at the time of the alleged wrongdoing. See , e.g. , BCL § 626(b); Pessin v. Chris-Craft Indus. , 181 A.D.2d 66, 70 (1st Dept. 1992).  See also Lewis v. Anderson , 477 A.2d 1040, 1049 (Del. 1984). “ plaintiff who ceases to be a shareholder, whether by reason of a merger or for any other reason, loses standing” to sue derivatively. Lewis , 477 A.2d at 1049. Accordingly, courts have focused on the plaintiff’s stock ownership during both points in time, and in particular at the time of the alleged misconduct. In New York, the contemporaneous ownership rule is “strictly enforced.” Honzawa Holding Co. v. Hiro Enter . USA, 291 A.D.2d 318, 318 (1st Dept. 2002). To satisfy the requirement, the plaintiff must have owned stock in the corporation “throughout the course of the activities that constitute the primary basis of the complaint.” In re Bank of New York Deriv. Litig. , 320 F.3d 291, 298 (2d Cir. 2003). “This is not to say that a plaintiff must have owned stock in the company during the entire course of all relevant events. It does mean, however, that a proper plaintiff must have acquired his or her stock in the corporation before the core of the allegedly wrongful conduct transpired.” Id. “ ailure to satisfy the . . . contemporaneous ownership requirement of § 626(b) is such a fundamental lack of capacity that it results in failure to state a cause of action.” Roy v. Vayntrub , 15 Misc. 3d 1127(A), 2007 N.Y. Slip Op. 50868(U) (Sup. Ct., Nassau County 2007), at *6 (citing Barr v. Wackman , 36 N.Y.2d 371 (1975)). For this reason, courts require the plaintiff to plead contemporaneous ownership with particularity rather than through boilerplate assertions. See , e.g. , In re Computer Sciences Corp. Deriv. Litig. , 2007 WL 1321715, at *15 (C.D. Cal. Mar. 26, 2007) (“ eneral allegation insufficient to allege contemporaneous ownership during the period in which the questioned transactions occurred.”). In Sebrow v. Sebrow , 2020 NY Slip Op. 20269 (Sup. Ct., Bronx County Oct. 16, 2020) ( here ), the court addressed the standing of a derivative plaintiff seeking relief on behalf of a family-owned corporation and found that the plaintiff failed to satisfy the standing requirements for bringing a derivative action. Sebrow arose out of alleged malfeasance and misconduct of Zvi Sebrow (“Zvi” or “defendant”) with respect to Worbes Corporation (“Worbes”), a family-owned corporation. In January 1997, Abraham Sebrow (“Abraham”), Joseph Sebrow (“Joseph”), Zvi, and David Sebrow (“David”) signed a stockholders’ agreement for Worbes, Worbes Leasing Corporation (“WLC”) and S & S Soap Co., Inc., all of which are family businesses. Pursuant to the stockholders’ agreement, Abraham, Joseph, Zvi, and David each owned twenty-five (25) shares of Worbes. Prior to their deaths, Abraham and Joseph transferred their shares to their children, the defendant and David respectively, through their testamentary dispositions. Through the testamentary dispositions, Zvi and David became the owner of fifty (50) shares of Worbes. In May 2017, David passed away. Although he had executed a will, he never made a testamentary disposition of his shares in Worbes to his issue, or to any other person with the defendant’s consent. Following David’s death, Zvi became the sole shareholder of Worbes. He has never allowed any third party to become a shareholder of Worbes. Defendant moved to dismiss the complaint under CPLR §§ 3211(a)(1) and (a)(7) due to plaintiff’s lack of legal capacity to bring the lawsuit as a shareholder of Worbes and for failure to state a claim. In support of the motion, defendant submitted, among other things, the stockholders’ agreement. The Court granted the motion due to plaintiff’s lack of capacity to sue. The Court found that the language of the stockholder’s agreement governed the resolution of the matter. Pursuant to the agreement, no stockholder of the family businesses could “sell, transfer, assign, mortgage, hypothecate his shares” to any third-party “without the unanimous consent of all the other stockholders”. Slip Op. at *3. However, a stockholder of the companies could “make a testamentary disposition of his shares to his issue”, which would be subject “to the terms and conditions contained in th agreement.” Id. at *4. Thus, said the Court, “unless David made a testamentary disposition of his shares to his issue, or the defendant consented to David’s transfer of his shares in Worbes to his wife, such transfer or disposition of the shares in Worbes shall be a nullity and unenforceable.” Id. The Court found that there was no such transfer. Under David’s will, his residuary estate, both real and personal property, was bequeathed to plaintiff, his wife. Id. Thus, “David had not made a testamentary disposition of his shares in Worbes to his issue, and the defendant ha not consented to any third party becoming a shareholder of Worbes.” Id. The Court noted that “ ven if th Court accept David’s Will and Testament as true, there no evidence that David made a testamentary disposition of his shares to his issue or obtained a consent from the defendant.” Id. “Therefore,” concluded the Court, “after David’s death, as of the date of th motion, the defendant remain as the sole shareholder of Worbes, and the plaintiff not a shareholder of Worbes.” Id. Takeaway New York courts have long required plaintiffs bringing a derivative action to have a stake in the company on whose behalf the action is commenced.  After all, if the plaintiff is not a shareholder of the company, then he/she has no right to vindicate the company’s rights and obtain a judgment on its behalf. In Sebrow , the Court reinforced this rule. Sebrow also highlights the importance of documentary evidence in moving to dismiss a complaint. Under CPLR § 3211(a), a party may make a motion to dismiss on the “ground that . . . a defense is founded upon documentary evidence.” To qualify as “documentary,” the content of the document must be “essentially undeniable and …, assuming the verity of and the validity of its execution, will itself support the ground on which the motion is based.” Amsterdam Hospitality Grp., LLC v. Marshall-Alan Assocs., Inc. , 120 A.D.3d 431, 432 (1st Dept. 2014) (quoting David D. Siegel, Practice Commentaries, McKinney’s Cons. Laws of N.Y., Book 7B, C.P.L.R. C3211:10 at 22). Materials that qualify as “documentary evidence” include judicial records, such as judgments and orders, as well as documents reflecting out-of-court transactions, such as contracts, deeds, wills, and mortgages. Fontanetta v. Doe , 73 A.D.3d 78, 84-85 (2d Dept. 2010) (citation omitted).  In Sebrow , dismissal was warranted because the documentary evidence ( e.g. , the stockholder’s agreement) “utterly refute plaintiff’s factual allegations” ( Goshen v. Mutual Life Ins. Co. of N.Y. , 98 N.Y.2d 314, 326 (2002)), and “conclusively establishe a defense to the asserted claims as a matter of law.” Weil, Gotshal & Manges, LLP v. Fashion Boutique of Short Hills, Inc. , 10 A.D.3d 267, 270-71 (1st Dept. 2004). (internal quotation marks omitted).

Every now and then, we come across a legal principle that we do not frequently write about. One such principle is replevin. A plaintiff brings an action in replevin to recover personal property that was wrongfully taken or withheld. Pivar v. Graduate School of Figurative Art , 290 A.D.2d 212, 212 (1st Dept. 2002) (citations omitted). In a replevin action, the plaintiff seeks the return of property, not money damages. Genger v. Genger , 2016 N.Y. Slip Op. 30602 (Sup. Ct., N.Y. County 2016) (“The objective of replevin is recovery of the property, and the alternative relief or remedy is ‘fixation of its value.’”) (citations omitted). A claim to recover property is generally governed by the law of the jurisdiction in which the property is located. See Garrison Special Opportunities Fund LP v. Fidelity Nat’l Card Servs., Inc. , 130 A.D.3d 546, 548 (1st Dept. 2015). A replevin action can arise in a number of situations, such as where two or more parties claim a right to possess personal property, but only one has a superior right to that property, or where the property was lawfully withheld but was not released to the person having the greater right to the property. In the commercial context, replevin actions are often asserted by a creditor seeking to recover collateral when a debtor defaults on a secured loan.  Sometimes, a replevin action will be brought against a party acting in good faith for coming into possession of personal property that was stolen – e.g. , a good-faith purchaser for value. In that instance, the true owner must make a demand for return of the property and the person in possession of it must refuse to return it. Solomon R. Guggenheim Found v. Lubell , 77 N.Y.2d 311, 317-18 (1991). Until demand is made and refused, possession of the stolen property by the good-faith purchaser for value is not considered wrongful. Id. at 318. An example of this type of replevin action is where a plaintiff, such as an art gallery, seeks to recover stolen artwork in the possession of an innocent third-party. Id. at 314-315. To prevail in a replevin action, the plaintiff must establish that the defendant is in possession of property to which the plaintiff claims a superior right. Nissan Motor Acceptance Corp. v. Scialpi , 94 A.D.3d 1067 (2d Dept. 2012). That someone other than the plaintiff is the true owner of the property is no defense to a replevin action: “the plaintiff need only establish a superior possessory right in the chattel to that of the defendant.” G & S Quality v. Bank of China , 233 A.D.2d 215, 216 (1st Dept. 1996); see also Pivar , 290 A.D.2d at 212. In today’s article, we examine Melrose Credit Union v. Matatov , 2020 N.Y. Slip Op. 05897 (2d Dept. Oct. 21, 2020) (here), an action for, inter alia , replevin and recovery under a promissory note. Melrose Credit Union involved a balloon promissory note in the sum of $1,200,000 that Sipro Matatov (“Matatov”) and Shell Express Cab Corp. executed in plaintiff’s favor, along with a related security agreement in plaintiff’s favor. Plaintiff claimed that Matatov and defendant, Michael, Adam, Jesse Express Cab Corp., also known as Michael Adam Jesse Express Cab Corp., executed a separate balloon promissory note in the sum of $1,200,000 in plaintiff’s favor, along with a related security agreement in plaintiff’s favor. Plaintiff alleged that, under the terms of the notes, defendants were required to make 35 successive monthly payments of principal and interest, to be followed by a final balloon payment on the maturity date of each of the loans. Plaintiff further alleged that defendants defaulted under the terms of the notes by failing to pay the balances of the loans on the maturity date. Plaintiff brought the action, inter alia , for replevin and to recover money due on the promissory notes. The first and eighth causes of action asserted in the complaint sought to recover damages for breach of contract. In that regard, plaintiff sought to recover, among other things, the outstanding principal balance of $1,105,000 with respect to each of the notes. The fourth and eleventh causes of action asserted in the complaint were for replevin. In this regard, plaintiff sought immediate possession of the collateral pledged in the security agreements. Defendants interposed a verified answer in which they generally denied certain factual allegations in the complaint. However, they did not assert any affirmative defenses. Plaintiff subsequently moved for, among other relief, summary judgment on the first, fourth, eighth, and eleventh causes of action. Defendants opposed plaintiff’s motion. On July 26, 2017, the motion court, inter alia , denied those branches of plaintiff’s motion. Thereafter, plaintiff moved for, among other relief, leave to reargue those branches of its prior motion which were for summary judgment on the first, fourth, eighth, and eleventh causes of action. On October 30, 2017, the motion court, inter alia , granted reargument and, upon reargument, adhered to its original determination in the July 26, 2017 order, denying those branches of plaintiff’s motion. Plaintiff appealed. The Appellate Division, Second Department reversed. With regard to the replevin causes of action, the Court held that “plaintiff established, prima facie, that the defendants were in default under the terms of the respective notes and that, under the terms of the respective security agreements, it was entitled to take immediate possession of the collateral pledged therein.” Slip Op. at *3 (citations omitted). The Court rejected defendants’ argument that there were triable issues of fact. Id. As noted by the Court in its recitation of the facts, “defendants conceded that ‘there no dispute as to the fact that loan documents were signed and money was transferred’ … they had failed to make the final balloon payments in accordance with the terms of the respective notes.” Id. at *2. With regard to the causes of action to collect on the promissory note, the Court held that “plaintiff established, prima facie, its entitlement to summary judgment on the first and eighth causes of action by establishing the existence of each promissory note executed by the respective defendants, and by demonstrating that the defendants defaulted by failing to make the final balloon payment on the maturity date of each of the loans.” Slip Op. at *2 (citations omitted); See also Bethpage Fed. Credit Union v. Luzzi , 177 A.D.3d 944, 945 (2d Dept. 2019) (“To establish a prima facie case in an action to recover on a promissory note, the plaintiff must submit the note, along with evidence of the defendants’ failure to make payments on the note according to its terms.”) (citations omitted). The Court rejected defendants’ argument that there were triable issues of fact; namely, whether plaintiff established that it sent a timely notice of default to the defendants, and whether plaintiff and defendants agreed to oral modifications of the two notes and the two security agreements. Slip Op. at *2. First, the Court said that the unambiguous language of the notes demonstrated that notice was not required to be sent: “Although the notes provide that the holder “may send written notice” of a default …, there nothing in the notes or the security agreements that required the plaintiff to do so before it was entitled to enforce the note upon the defendants’ defaults.” Id. (orig’l emphasis) (citation omitted). Second, the Court said that there was insufficient evidence showing that the parties orally agreed to modify the terms of the notes: “Regardless of whether the notes or security agreements contained a clause prohibiting oral modifications, and regardless of the applicability of General Obligations Law §§ 15-301 or 5-1103, … defendants provided no … description of the alleged oral modifications … such as when, where, or by whom the alleged oral modifications were made.” Id. at *3. In fact, noted the Court, defendants “failed to even allege that the plaintiff had agreed to a new maturity date for the two loans or to the amount of the allegedly new monthly payments.” Id. At most, held the Court, the evidence showed that there was “a mere agreement to agree which too indefinite to be enforceable.…” Id. (citations omitted). Takeaway A plaintiff asserting a cause of action sounding in replevin must establish that the defendant is in possession of property to which the plaintiff claims a superior right. In Melrose Credit Union , the Court found that plaintiff made its prima facie showing of entitlement to the replevin of the collateral that was secured by the notes and security agreements – that is, plaintiff demonstrated that it lawfully held the notes and security, defendants defaulted thereunder by virtue of their nonpayment, defendants were in possession of the collateral, and plaintiff had a right to possession and delivery of the collateral under the terms of the agreements.  A promissory note is enforceable under traditional principles of contract law. As such, “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms … courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.” Beinstein v. Navani , 131 A.D.3d 401, 405 (1st Dept. 2015) (citations and internal quotation marks omitted). In Melrose Credit Union , the Court applied the plain and unambiguous meaning of the notes in rejecting defendants’ “contention that written notice of default was a condition precedent to commencing or maintaining action.” Slip Op. at *2.

We have noted in prior posts that vacating an arbitration award is very difficult. See , e.g. , here and here . There are a number of bases upon which a movant can seek to vacate an arbitral award. See , e.g. , CPLR § 7511(b). Two such bases are the arbitrator exceeded his/her authority and the arbitrator manifestly disregarded the law. Under CPLR § 7511 (b) (1) (iii) – vacatur on the basis that the arbitrator exceeded his/her power or so imperfectly executed it – a court will vacate an award “only where the [] award violates a strong public policy, is irrational or clearly exceeds a specifically enumerated limitation on the arbitrator’s power.” Matter of New York City Tr. Auth. v. Transport Workers Union of Am., Local 100, AFL-CIO , 6 N.Y.3d 332, 336 (2005); accord Matter of Falzone v. New York Cent. Mut. Fire Ins. Co. , 15 N.Y.3d 530, 534 (2010).  The United States Supreme Court has made it clear that “ t is not enough . . . to show that the panel committed an error—or even a serious error.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. , 559 U.S. 662, 671 (2010) (internal citations and quotation marks omitted). Instead, vacatur is appropriate only “when an arbitrator strays from interpretation and application of the agreement and effectively dispenses his own brand of industrial justice.…” Id. Thus, “as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, a court’s conviction that the arbitrator has committed serious error in resolving the disputed issue does not suffice to overturn his decision.” Jock v. Sterling Jewelers Inc. , 646 F.3d 113, 122 (2d Cir. 2011) (quoting ReliaStar Life Ins. Co. of N.Y. v. EMC Nat’l Life Co. , 564 F.3d 81, 86 (2d Cir. 2009)). Apart from the grounds enumerated in CPLR § 7511 (b), courts have vacated arbitral awards when an arbitrator manifestly disregards the law. Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S , 333 F.3d 383, 388 (2d Cir. 2003); Goldman v. Architectural Iron Co. , 306 F.3d 1214, 1216 (2d Cir. 2002) (citing DiRussa v. Dean Witter Reynolds Inc. , 121 F.3d 818, 821 (2d Cir. 1997)). See also Matter of Daesang Corp. v. NutraSweet , 167 A.D.3d 1, 15-16 (1st Dept. 2018), lv. denied , 32 N.Y.3d 915 (2019) (citing Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 480-81 (2006)). Importantly, the doctrine does not apply to the facts. Wein , 6 N.Y.3d at 483. Application of the doctrine is limited. Matter of Arbitration No. AAA13-161-0511-85 Under Grain Arbitration Rules , 867 F.2d 130, 133 (2d Cir. 1989). It is a doctrine of last resort. Duferco , 333 F.3d at 389. It requires more than a simple error in law or a failure by the arbitrators to understand or apply it; and it is more than an erroneous interpretation of the law. Id. The doctrine is “limited to the rare occurrences of apparent egregious impropriety on the part of the arbitrators.” Daesang , 167 A.D.3d at 15-16. To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case. Zurich Am. Ins. Co. v Team Tankers A.S. , 811 F.3d 584, 589 (2d Cir. 2016); Wallace v. Buttar , 378 F3d 182, 189 (2d Cir. 2004) (quoting Banco de Seguros del Estado v. Mutual Mar. Off., Inc. , 344 F.3d 255, 263 (2d Cir 2003)). See also Wien , 6 N.Y.3d at 480-81 (footnotes omitted). The petitioner bears a heavy burden when invoking the doctrine. As one district court observed, the manifest disregard standard is so difficult to satisfy that it “will be of little solace to those parties who, having willingly chosen to submit to inarticulated arbitration, are mystified by the result; for a party seeking vacatur on the basis of manifest disregard of the law ‘must clear a high hurdle.’” Goldman Sachs Execution & Clearing, L.P. v. Official Unsecured Creditors’ Comm. of Bayou Grp. , 758 F. Supp. 2d 222, 225 (S.D.N.Y. 2010). In Fava v. Morgan Stanley Smith Barney, Inc. , 2020 N.Y. Slip Op 33358(U) (Sup. Ct., N.Y. County Oct. 9, 2020) ( here ), the foregoing principles were examined by the Court. Fava v. Morgan Stanley Smith Barney, Inc.  Background Fava involved an arbitration conducted before the Financial Industry Regulatory Authority (“FINRA”).  Fava was employed by Morgan Stanley Smith Barney, Inc. (“MS” or “Morgan Stanley”) as a financial advisor from about October 2007 through October 2011. A dispute arose between the parties regarding Fava’s repayment of certain promissory notes issued by Morgan Stanley during his employment (the “Notes”). In January 2012, Morgan Stanley initiated an arbitration against Fava related to those monies. The arbitrators ruled in Morgan Stanley’s favor, awarding it approximately $450,000.  In July 2013, the parties entered into a Settlement Agreement giving Fava about three years to pay the monies due without compromising his license, in exchange for certain promises in favor of MS, such as a non-disparagement clause and the exchange of mutual releases. The Settlement Agreement included a forum selection clause that provided for dispute resolution in the “the state and federal courts of the State of New York.”  Fava paid approximately $120,000 under the Settlement Agreement and failed to make any other payments due. MS then commenced an arbitration before FINRA to recover the balance of the payments, claiming Fava had breached the Settlement Agreement, or alternatively, that MS was entitled to an award based on quantum meruit. Fava moved to dismiss the arbitration, relying on the forum selection clause in the Settlement Agreement. FINRA denied the motion without stating its reasoning and proceeded with a hearing. Fava fully participated in the arbitration, engaging in discovery and even moving to disqualify counsel, while consistently maintaining his objection to the arbitration throughout the proceedings.  In the April 2020, FINRA issued an award (the “Award”). Pursuant to the Award, Fava was required to pay Morgan Stanley $449,697.00, plus interest, attorney’s fees, and filing fees. Relying on the forum selection clause in the Settlement Agreement, Fava sought to vacate the Award, claiming that FINRA exceeded its authority when it proceeded with the arbitration over his objection.  The Court rejected Fava’s arguments. The Court held that although Fava claimed the arbitrators “exceeded their authority” in issuing the Award, in reality, he was “really” arguing “no valid agreement to arbitrate exist .” Slip Op. at *2 (citing Barclays Capital Inc. v. Leventhal , 2017 WL 7732816, 2017 N.Y. Slip Op. 51982(U) (Sup. Ct., N.Y. County July 25, 2017)). The Court found the language of CPLR § 7511(b)(2)(ii) supportive of the foregoing, noting that vacatur is appropriate only where the party seeking vacatur “neither participated in the arbitration nor was served with a notice of intention to arbitrate” and where there was no valid agreement to arbitrate. Id. at *3. The Court held that Fava did not satisfy the foregoing statutory requirements:  The record here establishes that Fava participated in the arbitration to the fullest extent, despite his objection to FINRA’s jurisdiction. Fava had the option under CPLR § 7503 to “apply to stay arbitration on the ground that a valid agreement was not made”, but he chose not to pursue that option. Having charted his course, Fava cannot now argue that FINRA exceeded its authority by proceeding with the hearing when no valid arbitration agreement existed. Id. The Court also held that because the arbitrators did not state their reasons for issuing the Award, the Court could not determine whether “(1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case.” Id. at *4.  Thus, the Court rejected Fava’s application to vacate the Award on manifest disregard of the law grounds. Takeaway In denying the motion to vacate the Award, the Fava Court explained that the result was “compelled by both the law and equity”, even though the “result may be harsh”  and may “result in Fava’s loss of his license.” Slip Op. at *4. To the Court, the Award did “little more than compel Fava to pay the amount he agreed to pay seven years ago plus prejudgment interest.” Id. Aside from the foregoing, the Court also made it clear that parties seeking relief should, as the saying goes, “Say what you mean, mean what you say.”

In keeping with this BLOG’s efforts to keep abreast of court practices and procedures promulgated to address COVID-19 concerns, practitioners should be aware of new foreclosure sale scheduling rules. By way of background, on July 24, 2020, Chief Administrative Judge Lawrence K. Marks issued Administrative Order 157/20 (“AO 157/20”) < HERE =">HERE"> , which became effective on July 27, 2020 and established certain “procedures and protocols apply to the conduct of residential and commercial foreclosure matters before the New York State courts….”  As to foreclosure sales, AO 157/20 provided: 7. Auctions: a. Continued Suspension of Auctions: No auction or sale of property in any residential or commercial foreclosure matter shall be scheduled to occur prior to October 15, 2020. b. Assessment of Auction Practices: Prior to September 1 ,2020, the appropriate administrative judge for civil matters in each judicial district shall develop appropriate procedures and protocols for the safe and healthful conduct of such auctions within their districts in light of the COVID-19 pandemic. In furtherance of AO 157/20, on September 24, 2020, Andrew A. Crecca, District Administrative Judge, Suffolk County, issued “Administrative Order of the Administrative Judge of Suffolk County – Order No. 98-20” (“AO 98-20”) < HERE =">HERE"> , which establishes the “process will be used for scheduling and conducting foreclosure auctions in Suffolk County.” Pursuant to AO 98-20: 1. “In order to schedule a foreclosure sale, Court-appointed Referees in foreclosure matters must contact the Court Fiduciary Office via e-mail at SuffAuctions@nycourts.gov with the proposed details of the foreclosure sale (including the title of action and its index number, the town where the auction is to take place and the requested date and time for the auction) and the Fiduciary Office will either confirm the proposed date, time and place or ask the Referee to re-schedule the sale to prevent multiple auctions from taking place simultaneously at one location.”; and, 2. “The Referees must ensure that any requirements in effect at the time of the sale regarding social distancing and face coverings are complied with by all participants in the foreclosure auction. The Referees shall also ensure that post-sale paperwork and any other interactions relating to the foreclosure sale take place outdoors to the fullest extent possible and, whether these interactions take place outside or inside the Town Hall, the Referees must enforce any requirements in effect at the time regarding social distancing and face coverings. Should a Referee believe the situation to be unsafe or if there is non-compliance with safety protocols, the Referee may, in his/her discretion, cancel or postpone the auction.” This BLOG was advised that on or about October 15, 2020, the Suffolk County Court Fiduciary Office sent an e-mail to all approved foreclosure Referees advising of the new foreclosure sale procedures. The “Request For Foreclosure Auction Date” fillable form can be found at 10 th Judicial District – Suffolk County website < HERE =">HERE"> and a copy of the form can be found < HERE =">HERE"> as well.

In order for the conduct of business to proceed in an orderly fashion, folks need to be confident that, in general, the contracts that they enter into, particularly when “the parties set down their agreements in a clear, complete document” will “be enforced according to terms”.  159 MP Corp. v. Redbridge Bedford, LLC , 33 N.Y.3d 353, 358 (2019) (citations and internal quotation marks omitted).  This is consistent with the notion that “ n New York, agreements negotiated at arm’s length by sophisticated, counseled parties are generally enforced according to their plain language pursuant to our strong public policy favoring freedom of contract.”  159 MP Corp ., 33 N.Y.3d at 356.  Rules regarding the certainty of contracts have “special import in the context of real property transactions, where commercial certainty is a paramount concern….”  159 MP Corp ., 33 N.Y.3d at 360 (citation omitted). One of the several exceptions to the general rule regarding the strict enforcement of contracts is reformation, a cause of action by which a party seeks to alter the terms of a written contract based on “mutual mistake or fraud.”  Chimart Assoc. v. Paul , 66 N.Y.2d 570, 573 (1986).  As the Chimart Court stated: In the proper circumstances, mutual mistake or fraud may furnish the basis for reforming a written agreement. Indeed, the concepts are closely related. In a case of mutual mistake, the parties have reached an oral agreement and, unknown to either, the signed writing does not express that agreement  In a case of fraud, the parties have reached agreement and, unknown to one party but known to the other (who has misled the first), the subsequent writing does not properly express that agreement. Chimart , 66 N.Y.2d at 573 (citations omitted).  “Reformation is not granted for the purpose of alleviating a hard or oppressive bargain, but rather to restate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties.”  George Baker Management Corp. v. Acme Quilting Co., Inc. , 46 N.Y.2d 211, 219 (1978) (citations omitted).  The equitable “doctrine” of reformation was necessary “because an action at law afforded no real relief against an instrument secured by fraud or as a result of mutual mistake.”  George Baker , 46 N.Y.2d at 219 (citations omitted). In order to overcome the presumption of the enforceability of a contract as written, “proof of mutual mistake must be of the highest order, and must show clearly and beyond doubt that there has been a mutual mistake and must show with equal clarity and certainty the exact and precise form and import that the instrument ought to be made to assume, in order that it may express and effectuate what was really intended by the parties.”  Asset Management & Capital Co., Inc. v. Nugent , 85 A.D. 3d 947, 948 (2 nd Dep’t 2011) (citations, internal quotation marks, brackets and ellipses omitted).  Put another way, the party seeking reformation “has to show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties.”  George Baker , 46 N.Y.2d at 219 (citations omitted).  On October 14, 2020, the Appellate Division, Second Department, decided Investors Savings Bank v. Cover , a mortgage foreclosure action.  The mortgagors in Investors executed a promissory note and mortgage on certain real property, which was described in the mortgage in two different ways – by lot and block number on a filed map and by a metes and bounds description.  Plaintiff, lender, asserted two causes of action.  The first cause of action sounded in mortgage foreclosure and the second sought to reform the mortgage “to correct an alleged error in the metes and bounds description of the property.”  Supreme court granted lender’s motion for summary judgment and appointed a referee to compute.  The borrowers appealed.   On appeal, the Second Department found that plaintiff was entitled to summary judgment on foreclosure cause of action in the complaint.  The Court, however, dismissed the reformation cause of action as time-barred.  The Court held that a “cause of action seeking reformation of an instrument on the ground of mistake is governed by the six-year statute of limitations pursuant to CPLR 213(6) , which begins to run on the date the mistake was made.  (Citation omitted; hyperlink added.)  Since the mortgage with the erroneous metes and bounds description was executed in 2008, more than six years prior to the commencement of the action, it was time-barred.  The Court also found that the lender, “does not claim that the cause of action was commenced within two years of discovery of the alleged error and, therefore, was timely under CPLR 203(g)(1) ” (citations omitted; hyperlink added), which provides: Time computed from actual or imputed discovery of facts.  Except as provided in article two of the uniform commercial code or in section two hundred fourteen-a of this chapter, where the time within which an action must be commenced is computed from the time when facts were discovered or from the time when facts could with reasonable diligence have been discovered, or from either of such times, the action must be commenced within two years after such actual or imputed discovery or within the period otherwise provided, computed from the time the cause of action accrued, whichever is longer.

Attorneys are often asked whether an agreement that is not formally reduced to writing or not in writing at all is enforceable. Most will say that the answer depends on the surrounding facts and circumstances.  Since the question often arises in the context of a contract dispute, it is helpful to examine the legal principles that guide the determination of contract enforceability. The elements of a cause of action for breach of contract are (1) the formation of an agreement, (2) performance of the agreement by one party, (3) breach by the other party, and (4) damages. E.g. , Furia v. Furia , 116 A.D.2d 694 (2d Dept. 1986). All the elements must be pleaded to avoid dismissal. See Bonamii v. Straight Arrow Publs. , 133 A.D.2d 585 (1st Dept. 1987).  With regard to the first element of a breach of contract claim ( i.e. , the formation of a contract), the plaintiff must establish an offer, acceptance of the offer, consideration, mutual assent and an intent to be bound. 22 N.Y. Jur. 2d, Contracts Section 9.  “An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” Restatement (Second) of Contracts § 24. Acceptance of an offer is effective if it clearly, unambiguously and unequivocally complies with the terms of the offer. King v. King , 208 A.D.2d 1143, 1143-1144 (3d Dept. 1994) (citing 21 N.Y. Jur. 2d, Contracts § 53 at 470 (1982), and 2 Williston on Contracts § 6:10 at 68 (4th ed. 1990)).  “ o constitute consideration, a performance or a return promise must be bargained for.” See Restatement (Second) of Contracts §71. Thus, the plaintiff must demonstrate some performance or a return promise that was bargained for by the defendant’s promise to fulfill the terms of the agreement. Kolchins v. Evolution Markets, Inc. , 128 A.D.3d 47, 59-60 (1st Dept. 2015). Mutual assent requires an agreement as to the essential terms and conditions of the agreement, and intent to be bound requires that such assent be sufficiently definite to assure that the parties are truly in agreement with respect to all material terms. Joseph Martin, Jr., Delicatessen v. Schumacher , 52 N.Y.2d 105, 109 (1981); Matter of Express Indus. & Term. Corp. v. New York State Dept. of Transp. , 93 N.Y.2d 584, 589 (1999). A “mere agreement to agree, in which a material term is left for future negotiations, is unenforceable.” Joseph Martin, Jr., Delicatessen , 52 N.Y.2d at 109. If the alleged contract “is not reasonably certain in its material terms, there can be no legally enforceable contract.” Edelman v. Poster , 72 A.D.3d 182, 184 (1st Dept. 2010).  In addition, under the doctrine of definiteness, the court must be able to determine what, in fact, the parties agreed to in order to enforce a contract. Matter of 166 Mamaroneck Ave. Corp. v. 151 E. Post Rd. Corp. , 78 N.Y.2d 88, 91 (1991); Korff v. Corbett , 18 A.D.3d 248, 250 (1st Dept. 2005) (agreement language indicated meeting of minds, refers to consideration, specifies amount clearly agreed to). Application of the doctrine has not been applied rigidly. As the Court of Appeals noted, “ ontracting parties are often imprecise in their use of language, which is, after all, fluid and often susceptible to different and equally plausible interpretations. Imperfect expression does not necessarily indicate that the parties to an agreement did not intend to form a binding contract. A strict application of the definiteness doctrine could actually defeat the underlying expectations of the contracting parties.” Matter of 166 Mamaroneck Ave. Corp. , 78 N.Y.2d at 91 (citation omitted). Thus, “where it is clear from the language of an agreement that the parties intended to be bound and there exists an objective method for supplying a missing term, the court should endeavor to hold the parties to their bargain.” Id. (citing 1 Williston, Contracts § 46, at 152-153 (3d ed)). “Striking down a contract as indefinite and in essence meaningless ‘is at best a last resort.’” Id. (quoting Cohen & Son v. Lurie Woolen Co. , 232 N.Y. 112, 114)). Finally, where the agreement is not in writing, the agreement must satisfy the statute of frauds. In New York, the statute of frauds is found in General Obligations Law § 5-701 through 5-705. These provisions require a signed writing for certain types of agreements, including, but not limited to: (1) agreements that by their terms are “not to be performed within one year from the making thereof”; (2) the conveyance of real property; (3) contracts for the payment of finder’s fees; (4) agreements for “goods sold at public auction”; (5) contracts to pay compensation for services rendered in negotiating a business opportunity; and (6) modifications to written agreements which state that they cannot be changed orally. Notably, “ artial performance of an alleged oral contract will be deemed sufficient to take such contract out of the statute of frauds only if it can be demonstrated that the acts constituting partial performance are unequivocally referable to said contract.” Bowers v. Hurley , 134 A.D.3d 1191, 1193 (3d Dept. 2015) (citations and quotation marks omitted). On October 13, 2020, the Appellate Division, First Department issued two decisions that addressed one or more of the foregoing principles. Weisenfeld v. Iskander , 2020 N.Y. Slip Op. 05710 (1st Dept. Oct. 13, 2020), and Streit v. Bombart , 2020 N.Y. Slip Op. 05706 (1st Dept. Oct. 13, 2020). Weisenfeld v. Iskander Weisenfeld claimed that during the course of a dinner meeting, her father, Kenneth Stark (“Stark”), an attorney (now deceased), entered into an agreement with defendants Iskander and Bishay, his clients, whereby Stark was promised the right to receive 20% of all income, profits, and gains earned by the general partner of a real estate partnership that he was going to create for his client, defendant Iskay Limited Partnership (“Iskay”). The promise was evidenced by handwritten notes the three initialed. The Notes had two sections. The upper section outlined partnership financial and other business terms (the proposed payment waterfall) relating to Iskay. The lower section, appearing below a  line drawn in the middle of the page, had the subject heading “Mngmt” (management), and consisted of three separately numbered items: (1) “6 % of rents collected-1/6 to me,” referring to rental income the as yet unidentified general partner would be receiving for managing and operating the buildings; (2) “10% of construction ... $10,000 ... ,” referring to additional monies sought by Stark that he would bill the partnership, in the guise of legal fees, in the event there was other than “CPC” (Community Preservation Corp.) construction activity undertaken and supervised by the partnership management; and (3) “20% of GP inc to me”. There was no definition for the term “inc” or “20% of GP inc” in the notes. Stark, Iskander, and Bishay initialed the notes on March 22, 1994.  The Notes did not refer to any consideration or other promise by Stark for the benefit of Iskander, Bishay, or the “GP.” They did not include the words “agree” or “agreement”, and there was no proof that the original copy of the notes were ever delivered to Iskander or Bishay. Weisenfeld claimed, based on conversations that she says she had with her father, that the consideration provided by Stark consisted of his agreement to help find investors to provide the equity necessary to buy the properties contemplated. There was no written documentation of such a promise. Weisenfeld also asserted that the words “20% of GP inc to me” meant that she was entitled to 20% of the taxable income realized by the general partner, over all the years involved.  The motion court found that the notes did not indicate a present intent to be bound. The court explained that there was nothing in the notes “to show the parties agreed to the material terms, including the identity of the party or parties to be bound.” The court further noted that the notes were “too vague to ascertain what was promised” and, therefore, the alleged agreement “fail for lack of definiteness.” The First Department affirmed, holding the notes were too indefinite to create an enforceable agreement. Slip Op. at *1 (“At issue are the terms of the handwritten notes taken at the initial meeting, plaintiff claiming that one of the provisions therein, under the heading ‘Mgmt’ and stating ‘20% of G P inc to me,’ entitled Stark, and later his assignees, to 20% of the proceeds of the sale of the buildings to which the general partner would be entitled. The handwritten notes at issue are too indefinite to enforce as sought by plaintiff.”) (citing Glanzer v. Keilin & Bloom , 281 A.D.2d 371, 372 (1st Dept. 2001)). The Court also found that “ he alleged agreement … fail for a lack of consideration.” Slip Op. at *1 (quoting ACE Fire Underwriters Ins. Co. v. ITT Indus., Inc. , 84 A.D.3d 688, 689 (1st Dept. 2011)). The Court explained that “Plaintiff’s claim that her father told her that he would help locate other investors as part of the agreement inadmissible hearsay.…” Since “she offer no other admissible evidence to support her assertions,” she could not demonstrate the exchange of consideration. Id. (citing Candela v. City of New York , 8 AD3d 45, 47 (1st Dept. 2004)). Streit v. Bombart In Streit , plaintiff sought a declaration that an enforceable oral agreement existed with nonparty Louis Bombart (“Bombart”) pursuant to which plaintiff would acquire Bombart’s 75% interest in Tiny Fiesta LLC (“Tiny Fiesta”), which allegedly owned and managed an apartment building in the Bronx, New York. In exchange, plaintiff allegedly agreed, among other things, to refinance or buy out the mortgage on the property, which was held by defendant Madison Realty Capital Advisors, LLC (“Madison”).  Plaintiff alleged that, pursuant to the oral agreement, he spent five months attempting to work out a deal with Madison for the refinancing or buyout of the mortgage, only to be told, in October 2015, that Madison had decided not to enter into any deal with plaintiff and to deal instead with Bombart, who held the other 25% interest in Tiny Fiesta.  During the next few months, plaintiff tried to get Bombart to memorialize in writing the terms of their alleged oral agreement, which, the complaint alleged, required plaintiff, in exchange for Bombart’s 75% interest, to pay $8 million in addition to paying off the mortgage and liens on the property. Bombart died in June 2016 without signing the agreement. In probate proceedings in Florida, Bombart’s interest was treated as part of his estate, and was sold, with the court’s approval, to Jonathan Bombart. The First Department held that the “complaint and supporting materials fail to allege the existence of an enforceable oral agreement, because the terms of the agreement not definite.” Slip Op. at *1 (citation omitted). The Court explained that the “consideration owed to described inconsistently, and the arrangement between plaintiff and described in emails among plaintiff, and Madison in different ways, including a partnership to own and manage the property.” Id. Moreover, said the Court, the agreement was uneneforceable because it violated the statute of frauds: “In any event, as the complaint makes clear that Tiny Fiesta’s only significant asset was the real property and income generated from it, pursuant to the statute of frauds, the agreement between plaintiff and was required to be in writing.” Slip Op. at *1 (citing General Obligations Law § 5-703 (1); Bergman v. Krausz , 19 A.D.3d 186 (1st Dept. 2005); Pritsker v. Kazan , 132 A.D.2d 507 (1st Dept. 1987)). The Court also rejected plaintiff’s “reliance on the doctrine of part performance in an attempt to evade the statute of frauds.” Id . (citation omitted). The Court found that plaintiff failed to allege any “conduct on his part that was unequivocally referable to the alleged oral agreement, i.e. , conduct that was ‘permitted or induced by , such as possession of the premises, payment of rent or significant improvements to the premises.’” Id. ( Yenom Corp. v. 155 Wooster St. Inc., 33 A.D.3d 67, 72 (1st Dept. 2006)). Instead, observed the Court, “ e allege only that he engaged in months of fruitless negotiations with Madison and placed an unspecified amount of money in escrow to fund legal costs.” Id. Takeaway Although the definiteness doctrine is not to be rigidly applied, Weisenfeld and Streit show that courts do not give too much flexibility lest it renders the doctrine meaningless. There must be a showing indicating the parties intended to enter into an agreement and be bound by its terms. See , e.g. , Joseph Martin, Jr., Delicatessen , 52 N.Y.2d at 110 (stating that there are two ways in which the requirement of definiteness can be satisfied in the absence of an explicit contract term: (1) an agreement could contain “a methodology for determining the within the four corners of the writing (such as notes, emails and texts); or (2) an agreement could “invite[] recourse to an objective extrinsic event, condition or standard on which the amount was made to depend.”). In addition, both Weisenfeld and Streit show the consequences of not establishing the exchange of consideration. To do so, these cases show that the allegations and/or proof must be consistent and admissible.

As we have noted, the financial exploitation of seniors is a significant problem ( e.g. , here , here , here , here , and here ). For many regulators, it is a top priority. here.=">here."> FINRA is one such regulator. To help combat the financial exploitation of seniors, FINRA enacted Rule 2165 (“Financial Exploitation of Specified Adults”) ( here ). Among other things, the rule permits a member firm to place a temporary hold on the disbursement of funds or securities from the account of a senior or vulnerable adult customer when the member reasonably believes that financial exploitation may be, is likely to be, or is occurring. here=">here" and="and" >here.=">here."> In August 2019, FINRA commenced an assessment of the effectiveness and efficiency of the rules and administrative processes that were intended to protect senior investors from financial exploitation. According to FINRA, the assessment indicated that FINRA’s efforts to protect seniors have been helpful and effective, but those efforts could be improved. Accordingly, the review suggested some additional tools, guidance and rule changes that could be used to enhance the fight against the financial exploitation of seniors. Based on the feedback FINRA received during the review, the regulatory agency is proposing amendments to Rule 2165 to extend the hold period and to allow temporary holds on securities transactions ( here ). As noted, Rule 2165 permits a member firm to place a temporary hold on a disbursement of funds or securities from the account of a “specified adult” customer when the firm reasonably believes that financial exploitation of that adult has occurred, is occurring, has been attempted or will be attempted.  According to FINRA, temporary holds on disbursements have played a critical role in providing member firms a way to respond to suspicions of financial exploitation before the customer loses money. FINRA’s review found Rule 2165 to be an effective tool in the fight against financial exploitation. However, it also found that an extension of the hold period and the placement of temporary holds on transactions would be appropriate and beneficial. The proposed changes to Rule 2165 will provide member firms with an additional 30 business days to hold the disbursement of funds if the member firm reports suspicious activity to a state agency or a court of competent jurisdiction. Currently, the rule provides that the hold period may be terminated or extended by a state agency or a court of competent jurisdiction. In FINRA’s review, respondents indicated that the current hold period was insufficient to investigate whether a senior customer was the victim of financial exploitation. Approximately 53 percent of respondents participating in the review stated that they had been unable to resolve a matter within the 25-business day period. Approximately 35 percent indicated that it took on average 26-50 days to resolve the matter and approximately 59 percent of respondents indicated that it took on average 51-100 days to resolve the matter.  In addition to the foregoing, the proposed amendments will allow member firms to place a hold on securities transactions when there is a reasonable belief that the customer is being financially exploited. Currently, the rule does not apply to transactions in securities, though it does allow member firms to stop funds or securities from leaving a customer’s account. Nevertheless, some member firms have included in their customer agreements the ability to place holds on transactions in securities, as well as disbursements of funds or securities, when financial exploitation is suspected. Approximately 25 percent of respondents indicated that their customer agreements currently permit placing temporary holds on transactions when financial exploitation is suspected. FINRA also explained that the proposed changes to the rule would enable greater collaboration and interaction with authorities or regulators on a local, state or national level. Interestingly, FINRA declined to extend Rule 2165 to situations where a firm has a reasonable belief that the customer has an impairment, such as diminished capacity, that renders the individual unable to protect his or her own interests, even though there is no evidence of financial exploitation. FINRA explained that such a situation was beyond the purview of rulemaking: “ ather than rulemaking, FINRA is summarizing the information obtained about member firms’ procedures and practices in this area in this Notice to assist other member firms and investors.” Instead, FINRA identified a number of red flags that indicate diminished capacity or cognitive decline. Notably, some member firms indicated that their customer agreements provide that the firm may place a temporary hold on transactions in securities or disbursements of funds or securities when the firm suspects a customer is suffering from cognitive decline or diminished capacity. Finally, FINRA noted that it considered various alternatives to the proposed rule amendments. First, FINRA considered proposing different hold period extensions, ranging from no extension to an extension of up to 75 business days. FINRA also considered not extending Rule 2165 to transactions, but rather keeping the temporary hold option only for disbursements. Ultimately, FINRA settled on the proposed amendments because they struck “an appropriate balance between regulatory burden, investor protection and investor choice.” Anyone wishing to submit comments to the proposed amendments must do so by December 4, 2020.

“Pursuant to the doctrine of respondeat superior, an employer can be held vicariously liable for torts committed by an employee acting within the scope of employment.”  Horvath v. L&B Gardens, Inc. , 89 A.D.3d 803 (2 nd Dep’t 2011) (citations omitted).  “An act is considered to be within the scope of employment if it is performed while the employee is engaged generally in the business of his employer, or if his act may be reasonably said to be necessary or incidental to such employment.”  Holmes v. Gary Goldberg & Co., Inc. , 40 A.D.3d 1033, 1034 (2 nd Dep’t 2007) (citations and internal quotation marks omitted).  “While … vicarious liability does not arise from acts that are committed for the employee's personal motives unrelated to the furtherance of the employer's business, those acts which the employer could reasonably have foreseen are within the scope of the employment and thus give rise to liability under the doctrine of respondeat superior, even where those acts constitute an intentional tort or a crime.”  Id (citations omitted).  Liability may occur “when the “employee acts negligently or intentionally, so long as the tortious conduct is generally foreseeable and a natural incident of the employment.”  Judith M. v. Sisters of Hope Charity Hosp. , 93 N.Y.2d 932, 933 (1999) (citations omitted).  Where an “employee for purposes of his own departs from the line of his duty so that for the time being his acts constitute an abandonment of his service, the master is not liable.”  Judith M. , 93 N.Y.2d at 933 (citations and internal quotation marks omitted). While the doctrine of respondeat superior was originally applied narrowly, the scope of its application has expanded due to “social policy” because, inter alia , “the escalation of employee-produced injury, concern that the average innocent victim, when relegated to the pursuit of his claim against the employee, most often will face a defendant too impecunious to meet the claim, and that modern economic devices, such as cost accounting and insurance coverage, permit most employers to spread the impact of such costs.”  Riviello v. Waldron , 47 N.Y.2d 297 (1979) (citations omitted).   An analysis of the particular facts and circumstances of a case are important to the application of the respondeat superior doctrine because “while clearly intended to cover an act undertaken at the explicit direction of the employer, hardly a debatable proposition, it also encompasses the far more elastic idea of liability for any act which can fairly and reasonably be deemed to be an ordinary and natural incident or attribute of that act.  Riviello , 47 N.Y.2d at 303 (citation and internal quotation marks omitted). On October 2, 2020, the Appellate Division, Fourth Department, decided Votsis v. ADP, LLC. The facts, which the Court accepted as true for the purpose of deciding the motion to dismiss pursuant to CPLR 3211(a)(7), set forth herein were alleged in the complaint and summarized by the Court.  The corporate defendant in Votsis was ADP, LLC, the payroll service company.  ADP’s district manager (“Employee”) solicited plaintiffs, restaurant and its owner, to purchase ADP’s payroll services.  Plaintiff provided Employee with business and financial records to enable ADP to prepare a price quote.  For reasons not fully explained in the Votsis decision, a few days after Employee solicited plaintiff restaurant’s business, he posted the following on the restaurant’s Facebook page (which quote was taken from the amended complaint as found in the record on appeal (available on the e-courts website)): Stay away from this place. There are possible multiple health code violations and department of labor violations, possible money laundering and fraud - They use old and expired ingredients and treat their employees like animals and don't pay them for the hours they work.  An Employee is about to be evicted from their home because of the lack of wages paid. Multiple complaints have been filed with the DOL and Department of Health. Elizabeth Votsis is the owner and has been previously charged with fraud.  Do not support this business and force them out of the East Rochester community. All of the few "positive" reviews on Google, FB and Yelp are fake and created by the owners. The negative reviews are on point with the failure of this establishment." <(the “statements”)> Plaintiff sued Employee and ADP for damages resulting from the Statements.  Four causes of action were asserted against ADP:  defamation (under the theory of respondeat superior); intentional infliction of emotional distress; breach of fiduciary duty; and, negligent supervision, hiring, retention and training.  Supreme court dismissed all causes of action that were asserted against ADP.  Plaintiff appealed.   The Fourth Department modified supreme court’s order by reinstating the defamation cause of action against ADP on a respondeat superior theory.  In finding that plaintiff’s complaint adequately plead a defamation cause of action against ADP, the Fourth Department stated: … plaintiffs’ amended complaint explicitly alleged that “Polit was acting within the scope of his employment as a district manager employed by … ADP when he published the defamatory statements against plaintiffs.” Assuming, arguendo, that this assertion alone is too conclusory to state a cause of action against ADP premised on respondeat superior liability, we conclude that plaintiffs sufficiently pleaded the existence of respondeat superior liability through other allegations, including, among other things, that Polit visited Crave for the sole purpose of soliciting plaintiffs to enter into a payroll service agreement with ADP, that Polit represented himself as ADP’s district manager and requested Crave’s business and payroll records in order to provide Crave with a quote for ADP’s services, that the post was based on Polit’s review of those records, that ADP encouraged Polit to use social media in connection with his sales work, that Polit published the post during regular business hours, and that ADP was aware of Polit’s use of Facebook and authorized his conduct. Furthermore, we conclude that, with respect to ADP, plaintiffs sufficiently alleged the other necessary elements of their first cause of action (see generally Rinaldi v Holt, Rinehart & Winston, 42 NY2d 369, 379 <1977> , rearg denied 42 NY2d 1015 <1977> , cert denied 434 US 969 <1977> ; D’Amico v Correctional Med. Care, Inc., 120 AD3d 956, 962 <4th dept 2014> ; Zetes v Stephens, 108 AD3d 1014, 1018-1019 <4th dept 2013> ).  Votsis (some citations and internal quotation marks and brackets). TAKEAWAY Employers should be mindful of potential responsibility for the acts of their employees under the theory of respondeat superior.  Employees should be careful about what they post to social media and how such posts may impact their employers and their jobs.

Arbitration is an alternative form of dispute resolution where the parties voluntarily agree that a neutral, private person will resolve any legal disputes between them, instead of a judge or jury in a court of law. Rent-A-Ctr., W, Inc. v. Jackson , 561 U.S. 63, 67 (2010) (noting that “arbitration is a matter of contract”); Matter of Long Is. Power Auth. Hurricane Sandy Litig. , 165 A.D.3d 1138, 1141 (2d Dept. 2018). In business and commercial transactions, arbitration is the preferred means of resolving disputes. It is encouraged and recognized as the public policy of the State of New York. Matter of Smith Barney Shearson v. Sacharow , 91 N.Y.2d 39, 49 (1997) (citations and quotation marks omitted); Stark v. Molod Spitz DeSantis & Stark, P.C. , 9 N.Y.3d 59, 66 (2007) (internal citation omitted). For this reason, “New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to arbitration.” Stark , 9 N.Y.3d at 66 (internal quotation marks and citation omitted). Since arbitration is a “creature of contract” ( Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc. , 252 F.3d 218, 224 (2d Cir. 2001)), only signatories to a contract containing an arbitration agreement can be compelled to arbitrate. TBA Global, LLC v. Fidus Partners, LLC , 132 A.D.3d 195, 202 (1st Dept. 2015). Consequently, “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” AT&T Techs., Inc. v. Communications Workers of Am. , 475 U.S. 643, 648 (1986) (quoting Steelworkers v. Warrior & Gulf Nav. Co. , 363 U.S. 574, 582 (1960)). For this reason, “a party will not be compelled to arbitrate and, thereby, to surrender the right to resort to the courts, absent evidence which affirmatively establishes that the parties expressly agreed to arbitrate their disputes. The agreement must be clear, explicit and unequivocal and must not depend upon implication or subtlety.” Waldron v. Goddess , 61 N.Y.2d 181, 183-84 (1984); see also Matter of Trump (Refco Props ., 194 A.D.2d 70, 74 (1st Dept. 1993).  In determining whether to compel arbitration, Courts consider three threshold questions: (i) whether the parties made a valid agreement to arbitrate, (ii) whether, if such an agreement was made, it has been complied with, and (iii) whether the claim sought to be arbitrated would be barred by a limitation of time had it been asserted in a court of the State. Matter of Rockland County , 51 N.Y.2d 1, 6-7 (1980). The second inquiry includes the question of whether there has been compliance with any condition precedent. Id. at 7.  Not surprisingly, whether the parties are bound by an arbitration agreement and whether they agreed to submit their dispute to arbitration are hotly contested questions.  Today, we examine Cenni v. Cenni , 2020 N.Y. Slip Op. 33221(U) (Sup. Ct., N.Y. County Sept. 30, 2020) ( here ), a case in which the Court was asked to decide whether a claim for equitable relief fell within the scope of the parties’ agreement to arbitrate. As discussed below, the Court held that such claims were included within the agreement to arbitrate. Adrian Cenni (“ACenni”) brought suit seeking a declaration that he is the managing member of the Atrium Companies, a group of limited liability companies and one corporation, each of which is governed by an Amended and Restated Operating Agreement. ACenni co-owns the Atrium Companies with Rebecca L. Cenni (“RCenni”), his former spouse. All operating agreements contained an arbitration provision mandating arbitration of all claims “arising ... with respect to” the agreements. In pertinent part, each operating agreement provided: “Any claim, controversy or dispute arising between the parties with respect to this Agreement (a ‘Dispute’), to the maximum extent allowed by applicable law, shall be submitted to and finally resolved by, binding arbitration .... Notwithstanding any other provision of this Section, any Dispute in which a party seeks equitable relief may be brought in any court having jurisdiction.”   In 2016, the parties had a dispute concerning the enforceability of a management contract ACenni had entered into on behalf of the Atrium Companies. In a 2017 arbitration of that dispute, RCenni alleged that ACenni attempted to bind the Atrium Companies in unauthorized service agreements with his wholly owned U.S. Virgin Islands company. The arbitrator ruled in RCenni’s favor, finding that ACenni did not have the authority to enter into the subject service agreements. On March 21, 2018, the arbitrator issued a final award, holding that, among other things, ACenni lacked “authority to make or enter into any contract, agreement or other arrangement with a counterparty in which he ha a direct or indirect ownership interest without the approval of ”; ACenni was properly “removed as the Atrium Companies’ ‘President – Operations’”; and ACenni had no authority to run the Atrium Companies’ day-to-day operations. On November 15, 2018, the arbitration award was confirmed and later affirmed on appeal. Cenni v. Cenni , 180 A.D.3d 509 (1st Dept. 2020). ACenni brought the action against RCenni and the Atrium Companies seeking, inter alia , a declaratory judgment and injunctive relief against all defendants in connection with his rights as a managing member of the Atrium Companies.  RCenni moved to compel arbitration, arguing that the arbitration clause in the operating agreements mandated arbitration of those claims.  In response, ACenni argued that he was primarily seeking equitable relief to establish his rights, duties, and responsibilities in the Atrium Companies. He argued that money damages would not be an adequate remedy to address those issues, his ability to obtain information about the companies, his ability to participate in the management of the companies, and his ability to vote and have a voice over company business. Therefore, argued ACenni, the clause in the arbitration agreement permitting the parties to bring a claim for equitable relief in court controlled.  The Court agreed with RCenni, noting that “the dispute involve the application of a provision of the operating agreement” and, therefore, fell within the “broad” scope of the arbitration provision. Slip Op. at *7-*8.   The Court rejected ACenni’s argument that the last sentence of the arbitration provision – “ otwithstanding any other provision of this Section, any Dispute in which a party seeks equitable relief may be brought in any court having jurisdiction” – was “a carve out of, or an exception to, the arbitration clause in the Operating Agreements.” Id. at *8. Relying on the Court’s prior decision in which the same argument was asserted and rejected and Baldwin Tech. Co., Inc. v. Printers’ Serv. Inc. , 2016 WL 354914, 2016 U.S. Dist. LEXIS 10086 (S.D.N.Y. Jan. 27, 2016), the Court held that the clause was not an exception or carve out to arbitration: Here, the parties are signatories to an agreement with a broad arbitration provision, requiring the parties to submit any controversy under the operating agreement to arbitration. ACenni’s claims for the restoration of his managerial duties require an interpretation of the terms of that operating agreement. The provision permitting the parties to bring a claim for equitable relief in the courts does not undermine this mechanism under the operating agreement in any way. That provision does not prohibit the parties from arbitrating claims for equitable relief, but, instead, permits the parties to bring such claims in a court of law. It does not function as an exception. Slip Op. at *9. In the prior action, ACenni “offered th same argument … to oppose the confirmation of the March 21, 2018 final award.” Id. at *8. In the Court’s decision confirming that award, it “found” the “argument” to be “meritless.” Id. The Court explained that “the use of the word ‘may’ in the provision provide the parties with a choice ‘to pursue equitable relief in court or in arbitration; it not, as incorrectly assert , a “carve out” and it not deprive the AAA of jurisdiction to arbitrate any dispute as mandated’ by the broad language of the clause.” Id. (citation to record omitted). In Baldwin Tech. , the court held that “where a contract has both a broad arbitration clause and a clause permitting the parties to seek injunctive relief before a court, courts … have construed the latter clauses as permitting the parties to seek ‘injunctive relief … in aid of arbitration, rather than … transforming arbitrable claims into nonarbitrable ones depending on the form of relief prayed.’” Baldwin Tech. , 2016 WL 354914, at *4, 2016 U.S. Dist. LEXIS 10086, at *9, n. 4.   Accordingly, the Court granted the motion to compel arbitration of the claims asserted in the complaint, concluding that such a result was consistent with the intent of the parties as reflected in their agreement to arbitrate: It would not be consistent with the parties' intentions as set forth in their broad agreement to arbitrate, or with the case law in New York, favoring arbitration, if this court were to deny arbitration on the ground that ACenni is seeking a directive to be restored to his managerial responsibilities. It is plain from the circumstances of this case that arbitration is the most fit and appropriate tribunal to determine what role, responsibilities and duties ACenni is entitled to under the operating agreement. Slip Op. at *9 (citing Sutphin Retail One, LLC v. Sutphin Airtrain Realty, LLC , 143 A.D.3d 972, 974 (2d Dept. 2016) (“Therefore, the appropriate inquiry is whether the dispute is governed by the arbitration agreement and not whether the arbitrator has the authority to award the specific relief sought by the plaintiff in the complaint”)). Takeaway In Cenni , the parties were signatories to an agreement with a broad arbitration provision, requiring them to submit any controversy under the operating agreement to arbitration. Slip Op. at *9. Significantly, both agreed that the arbitration provision represented “a valid agreement” to arbitrate. Slip Op. at *7. As such, the issue before the Court was whether the dispute fell within the scope of that agreement. Applying traditional rules of contract interpretation ( e.g. , Landmark Ventures, Inc. v. H5 Tech., Inc. , 152 A.D.3d 657, 658 (2d Dept. 2017); W.W.W. Assoc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990)), the Court held that the dispute was arbitrable.  Cenni is also notable for its reliance on Baldwin Tech. In Baldwin Tech. , as noted, the court held that an arbitration agreement that provides the parties with the right to obtain an injunction or other equitable relief in a court of law does not transform arbitrable claims into nonarbitrable ones. Such a provision “is merely declaratory of existing legal rights.” Erving v. Virginia Squires Basketball Club , 468 F.2d 1064, 1067 (2d Cir. 1972). To hold otherwise, concluded the Baldwin Tech. court, would be inimical to accepted principles of contract construction and the strong public policy in favor of arbitration. Remy Amerique, Inc. v. Touzet Distribution, S.A.R.L. , 816 F. Supp. 213, 218 (S.D.N.Y. 1993); see also WMT Inv’rs, LLC v. Visionwall Corp. , 2010 WL 2720607, at *4 (S.D.N.Y. June 28, 2010) (“ f there is a reading of the various agreements that permits the arbitration clause to govern, the Court will choose it.”).

Under New York law, a party commences a civil action by filing a summons and complaint. Generally speaking, these documents set forth the claims that are being asserted against the defendant(s). Typically, though not required in all instances, the plaintiff will verify the complaint. “A verification is a statement under oath that the pleading is true to the knowledge of the deponent .…” CPLR § 3020 (a). The verification makes the pleading sworn and, therefore, is the equivalent of an affidavit and may be used for the same purposes. CPLR § 105(u) (“A ‘verified pleading’ may be utilized as an affidavit whenever the latter is required”). Once a pleading is verified, all pleadings thereafter must be verified. A complaint can be verified by the plaintiff or by counsel. CPLR § 3020 (d). However, when the pleading is verified by counsel pursuant to CPLR 3020 (d) (3), and not by someone with personal knowledge of the facts, the pleading is insufficient for evidentiary purposes. See McKenna v. Solomon , 255 A.D.2d 496 (2d Dept. 1998); Peterson v. Scandurra Trucking Co. , 226 A.D.2d 691, 692 (2d Dept. 1996). The reason: the affirmation of an attorney which does not contain evidentiary facts from one having personal knowledge is insufficient to establish the merits of a claim. See Zuckerman v. City of New York , 49 N.Y.2d 557, 563 (1980). The impact of a verified pleading on a motion for summary judgment was recently considered by the court in Marinelli v. RPZL, LLC , 2020 N.Y. Slip Op. 33185(U) (Sup. Ct., N.Y. County Sept. 23, 2020) (here). There, the Court denied a motion for summary judgment on the grounds that, inter alia , the verified complaint, which served as an affidavit, conflicted with defendants’ affidavits such that issues of fact were raised and could not be resolved.  Marinelli arose from an investment by plaintiff, Gina Marinelli (“Marinelli”), in defendant, RPZL, LLC (“RPZL”), a company that provides hair extensions and hair styling services. Defendants Lisa Richards (“Richards”) and Monica Thornton (“Thornton”) own RPZL. According to plaintiff, Richards and Thornton approached Marinelli about investing in RPZL. Plaintiff alleged that Richards and Thornton made material misrepresentations about the company’s technology and their plans to open locations across the nation: to wit, (i) RPZL had original patent, pending technology on a machine and process that could bond hair extensions to hair without damaging the hair, (ii) had secured a natural hair source that could provide RPZL with inexpensive and high-quality natural hair, and (iii) was raising additional capital to open up new store locations nation-wide. Plaintiff further alleged that Richards and Thornton promised her a paid role in the company and a spot on RPZL’s advisory board in exchange for her investing $100,000. On December 4, 2014, plaintiff made a $100,000 investment in RPZL pursuant to which the parties signed a promissory note for that amount with a maturity date of December 4, 2017. The next day, the parties entered a side letter agreement that provided: (i) plaintiff would have the sole discretion as to whether the promissory note would convert to an equity interest or become due in full at maturity, (ii) plaintiff would act as a consultant for RPZL, (iii) plaintiff would have a position on RPZL’s advisory board, and (iv) in exchange for her role as a consultant, the principal would be increased by 15% to $115,000 and plaintiff would receive compensation in the form of a 15% payment of the principal amount on each anniversary of the promissory note until the time of its conversion. Plaintiff claimed that she never received any payments despite performing work for RPZL. On December 5, 2017, plaintiff elected to call for the repayment of the promissory note. No payment was made, even after multiple demands. Thereafter, plaintiff filed suit. In her complaint, plaintiff alleged four causes of action. The first cause of action, asserted against RPZL, claimed breach of contract under the promissory note. The second cause of action, asserted against all defendants, alleged fraudulent misrepresentation based upon, inter alia , defendants’ claims regarding RPZL’s patent-pending technology and natural hair source. The third cause of action, asserted against RPZL, claimed a violation of Labor Law § 198(1-a) based upon RPZL’s failure to pay plaintiff’s salary. The fourth cause of action, asserted against all defendants, claimed unjust enrichment based upon RPZL’s failure to pay plaintiff any salary or wages.  Defendants answered the complaint, offering general denials and affirmative defenses, including that plaintiff was not employed by RPZL. Discovery was conducted and the note of issue was filed on November 15, 2019. Defendants moved for partial summary judgment dismissing the second, third, and fourth causes of action. The Court denied the motion. On a motion for summary judgment, the moving party must make a prima facie showing that it is entitled to judgment as a matter of law by submitting evidentiary proof in admissible form sufficient to establish the absence of any material, triable issues of fact. See CPLR § 3212(b); Jacobsen v. New York City Health & Hosps. Corp. , 22 N.Y.3d 824 (2014); Alvarez v. Prospect Hosp. , 68 N.Y.2d 320 (1986); Zuckerman , supra . Once the movant meets this burden, it becomes incumbent upon the party opposing the motion to come forward with proof in admissible form to raise a triable issue of fact. See Alvarez , supra ; Zuckerman , supra . However, if the movant fails to meet this burden and establish its claim or defense sufficiently to warrant a court directing judgment in its favor as a matter of law ( see id. ; O’Halloran v. City of New York , 78 A.D.3d 536 (1st Dept. 2010)), the motion must be denied regardless of the sufficiency of the opposing papers. See Winegrad v. New York Univ. Medical Center , 64 N.Y.2d 851 (1985). This is because “summary judgment is a drastic remedy, the procedural equivalent of a trial. It should not be granted if there is any doubt about the issue.” Bronx-Lebanon Hosp. Ctr. v. Mount Eden Ctr. , 161 A.D.2d at 480 (1st Dept. 1990) (quoting Nesbitt v. Nimmich , 34 A.D.2d 958, 959 (2d Dept. 1970)). In support of their motion, defendants submitted, inter alia , the affidavits of the individual defendants, who both averred that plaintiff was aware that (i) RPZL did not have an advisory board in place at the time she entered into the promissory note, but rather hoped to create one, (ii) that there was not any patent-pending technology on a machine and process that could bond hair extensions to hair without damaging the hair, but that RPZL was contracting with a third-party to try and develop this kind of technology, and (iii) RPZL directly manufactured its own hair extensions, and therefore was not seeking any outside hair sources. Richards further averred that plaintiff was never an employee or consultant for RPZL, and therefore no W-2 or 1099 forms were ever issued to her. On the fraudulent inducement claim, the Court held that because the individual defendants’ affidavits conflicted with the verified allegations in the complaint, summary judgment was inappropriate: The defendants contend that the affidavits of Lisa Richards and Monica Thornton demonstrate that the plaintiff was aware that RPZL did not have an advisory board, patent-pending technology, or an outside hair source, and that the defendants never made any representations otherwise. However, in opposition, the plaintiff argues that these affidavits merely offer conclusory denials of her allegations, and thus only create a triable issue of fact as to whether Richards and Thornton made the alleged misrepresentations to the plaintiff. As it is well settled that a verified pleading is the equivalent of a responsive affidavit for the purposes of a motion for summary judgment, ( see Travis v Allstate Ins. Co. , 280 AD2d 394 <1st dept. 2001> ; CPLR 105 ) and a triable issue of fact cannot be resolved on conflicting affidavits, the portion of the defendant’s motion seeking summary judgment on the second cause of action is denied. See Brunetti v Musallam , 11 AD3d 280 (1st Dept. 2004). Slip Op. at *3. As to the Labor Law claims, the Court found that the individual defendants’ affidavits conflicted with, inter alia , the verified complaint necessitating denial of the motion: The defendants contend that they are entitled to dismissal of this claim as the affidavits of Lisa Richards and Monica Thornton demonstrate that the plaintiff was never an employee of RPZL. The affidavits aver that the plaintiff was not hired as an employee of RPZL and never received a W-2 or 1099 from the company. However, the plaintiff alleges in both her verified complaint and her affidavit in opposition to the instant motion, that she reported to Richards and Thornton daily, five days a week, from December 2014 to June 2015, and on a weekly basis thereafter. She further claims that she aided the company on legal matters, brand marketing, sourcing clients, creating promotions, performing market research, and assisting with onboarding employees. The plaintiff also submits a number of email chains where either Richards or Thornton discuss with the plaintiff her work for RPZL. These submissions raise a triable issue of fact as to the defendants exercised a sufficient degree of control over the plaintiff, such that she is an employee under the Labor Law. Id. at *4 (citation omitted). Takeaway When making a motion for summary judgment, the moving party must make a prima facie showing that it is entitled to judgment as a matter of law. It can do so by submitting evidentiary proof in admissible form sufficient to establish the absence of any material, triable issues of fact. Such proof includes an affidavit of a party or someone with knowledge of the facts and circumstances relevant to the claims and defenses, authenticated documentary proof, or by a pleading verified by the party to the action that sufficiently details the facts and the basis for the relief sought. In Marinelli , plaintiff’s verified complaint constituted such proof.

Whistleblowers often risk career and reputation to report fraud or other illegal conduct. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) to, among other things, promote compliance with the federal securities laws. The Dodd-Frank Act contains whistleblower provisions that authorize the Securities and Exchange Commission (“SEC” or “Commission”) to pay cash rewards to whistleblowers who voluntarily provide the SEC with timely and credible information about securities fraud and other violations of the securities laws, including the Foreign Corrupt Practices Act. The Dodd-Frank Act enables the SEC to pay an award to any individual, or group of individuals, who provide “original information” about a violation of the federal securities laws. Both U.S. citizens and foreign nationals may file whistleblower claims and receive a reward. To be “original”, the information must be unknown to the SEC and derived from the whistleblower’s independent knowledge or analysis. Whistleblowers who provide “original information” that the SEC uses in furtherance of an enforcement action can recover a reward of between 10% – 30% of the total amount of money collected by the SEC when the monetary sanctions exceed $1 million.  As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose information that could reveal a whistleblower’s identity. here )=">here)" and="and" SEC’s="SEC’s" >here).=">here).">  On September 30, 2020, the SEC announced that it awarded almost $5 million to four whistleblowers who submitted tips under the SEC’s whistleblower program. Each of the whistleblowers provided material information that alerted the Commission to the alleged violation of the securities laws and resulted in successful enforcement action . For the fiscal year, the SEC made 39 individual awards of approximately $175 million to whistleblowers under the program, more than in any prior fiscal year.  In the first order ( here ), the SEC awarded a whistleblower nearly $2.9 million for alerting the Commission to hard-to-detect violations.  According to the SEC, the whistleblower provided critical information and supporting evidence that conserved the agency’s time and resources. In the second order ( here ), the SEC awarded a whistleblower, a former company insider, more than $1.7 million. According to the SEC, the whistleblower provided extensive and ongoing assistance to the SEC’s investigative team over the course of the investigation. In the third order ( here ), the SEC awarded two whistleblowers nearly $400,000 for jointly providing a tip and giving continuing assistance during the course of the investigation, including meeting with staff and providing detailed information that helped them understand key documents and identify witnesses. According to the SEC, the whistleblowers also internally reported their concerns and suffered personal hardships as a result of the reporting. “Today marks the end of a record-setting year for the whistleblower program. We’ve made significant strides to further streamline and accelerate the evaluation of claims under the rules, substantially increasing the rate at which whistleblower claims are evaluated and awards are issued,” said Stephanie Avakian, Director of the Division of Enforcement. “We remain committed to rewarding the valuable contributions of whistleblowers in a timely and efficient manner.” “The awards issued in the last month demonstrate the variety and breadth of tips received from whistleblowers,” added Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  “Award recipients in the last month include company outsiders who provided independent analysis, international whistleblowers who shone a light on hard to detect overseas conduct, and company insiders who provided critical information and substantial assistance that helped the Commission better protect investors and the marketplace. And today, the four individuals awarded each provided the tip that sparked the opening of the case.” The SEC has awarded almost $562 million to 106 individuals since issuing its first award in 2012. All whistleblower awards are paid from an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. Under the program, no money is taken or withheld from investors harmed by the violations of law to pay whistleblower awards.

In looking at the causes of action asserted in Kocak v. Dargin , 2020 N.Y. Slip Op. 33121(U) (Sup. Ct., N.Y. County Sept. 23, 2020) ( here ), one could walk away with the impression that the claims are disparate and lacking cohesion – breach of fiduciary, fraudulent transfers and corporate dissolution. However, when the facts and evidence in Kocak are considered, a common theme emerges: the alleged actions taken by the majority shareholder of the corporation oppressed the rights of the minority. Each of those actions, according to the Court, supported summary judgment on each of the aforesaid claims.   Kocak v. Dargin Background Kocak concerned a restaurant, known as Sahara’s Turkish Cuisine (“Sahara’s”), which plaintiff purchased in 2001. Beginning in 2007, plaintiff operated the restaurant through Baba’s Restaurant Inc. (“Baba’s”), an entity of which plaintiff was the sole owner. Plaintiff’s brother managed the restaurant.  In 2012, plaintiff agreed to sell 75% of his shares in Baba’s to defendant for $281,250.00, to be paid in installments, in accordance with the terms of a Stock Transfer Agreement. On the same day, the parties also entered into an employment agreement whereby plaintiff agreed to be an employee of Baba’s and to provide services as the Marketing and Business Development Manager in return for a net monthly salary of $2,500.00. Both the Stock Transfer Agreement and the employment agreement contained merger clauses providing that the agreements represented the parties’ entire understanding with respect to the subject matter contained therein and could be modified, amended or terminated only by a written instrument executed by the parties or their respective successors or assigns.  Following execution of the Stock Transfer Agreement, defendant assumed responsibility for operating Sahara’s on behalf of Baba’s, assumed the role of manager, was made a cosignatory (along with plaintiff) of the bank account that served as Baba’s operating account, and was added as a signatory to the lease that Baba’s had with its landlord, Daniela Sarraf (“Sarraf”).  Thereafter, a First Amendment of Lease, dated February 8, 2012 was entered into between Baba’s and Sarraf. Both plaintiff and defendant signed the Lease Amendment on behalf of Baba’s. Under the Lease Amendment, the lease term was extended for ten years, until December 31, 2021.  In 2014, defendant formed Munzur LLC (“Munzur”), which he co-owned with his sister, Feliz Dargin.  On or about September 14, 2014, a Lease Agreement was entered into between Sarraf as landlord and Munzur as tenant, for the New York City location where the restaurant opereated. Feliz Dargin signed the Lease Agreement on behalf of Munzur. In 2015, defendant opened a bank account in the name of Munzur, to serve as the operating account for the restaurant. Plaintiff was not made a signatory to the Munzur account. Defendant began depositing revenues and other monies from the operations of the restaurant into the Munzur account. In or around September or October, 2015, defendant ceased making such deposits into Baba’s bank account. In or around September or October 2015, defendant began operating Sahara’s entirely through Munzur and paid distributions from Munzur to himself and Feliz Dargin beginning in 2016.  In 2017, defendant formed Rojava LLC (“Rojava”), of which he was the sole owner. Thereafter, defendant amended the lease, and bank accounts to the exclusion of plaintiff. Following execution of the Stock Transfer Agreement in 2012, plaintiff had not been paid any distribution from the profits of the restaurant (whether operated through Baba’s, Munzur, or Rojava). Plaintiff filed the action on April 18, 2016, alleging causes of action for: 1) breach of fiducuary duty; 2) fraudulent conveyance pursuant to DCL § 274; 3) fraudulent conveyance pursuant to DCL § 276; and 4) violations of New York Labor Law § 191. Issue was joined by the service of an Answer, dated June 20, 2016, containing counterclaims: 1) alleging unjust enrichment; and 2) seeking a declaratory judgment that plaintiff was no longer an owner of the subject property.  By order, dated February 3, 2017, plaintiff added Baba’s as a party defendant. Plaintiff filed a Note of Issue on January 10, 2020, and thereafter filed a motion for partial summary judgment on the issue of liability on his first, second and third causes of action and seeking statutory dissolution pursuant to BCL § 1104-a.  On August 21, 2020, defendants cross-moved for summary judgment on their counterclaims and dismissal of plaintiff’s complaint. The Court’s Decision Breach of Fiduciary Duty The Court held that plaintiff established a breach of fiduciary.  “ he elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant’s misconduct.” Palmetto Partners, L.P. v. AJW Qualified Partners, LLC , 83 A.D.3d 804, 807 (2d Dept. 2011). In a close corporation, the majority shareholders owe a fiduciary duty to the minority shareholders. O’Neill v. Warburg, Pincus & Co. , 39 A.D.3d 281, 282 (1st Dept. 2007); Gjuraj v. Uplift Elevator Corp. , 110 A.D.3d 540, 541 (1st Dept. 2013).  The Court found that following the execution of the Stock Transfer Agreement, defendant, as Baba’s majority shareholder, owed plaintiff fiduciary duties. Slip Op. at *4. The Court explained that the evidence demonstrated that defendant breached his fiduciary duty to plaintiff: it undisputed that defendants transferred the assets of Baba’s to Munzur, LLC and subsequently to Rojava, LLC without paying any consideration to plaintiff, removed all funds from the Baba’s bank account to bank accounts controlled by Dargin and his family and ceased all distributions to plaintiff.  Slip Op. at *4-*5. “As such,” concluded the Court, “plaintiff has established a prima facie entitlement to summary judgment on his Breach of Fiduciary Duties claim.” Id. at *5. Debtor & Creditor Law Claims The Court held that plaintiff established entitlement to summary judgment on his DCL claims. Purusant to Debtor and Creditor Law § 273, “every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration.” “When a transfer is made without fair consideration, a presumption of insolvency and fraudulent transfer arises, and the burden shifts to the transferee to rebut that presumption.” Battlefield Freedom Wash, LLC v. Song Yan Zhuo , 148 A.D.3d 969, 971 (2d Dept. 2017).  Pursuant to DCL § 276 “every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors.” To demonstrate a violation of DCL § 276, a plaintiff may “rely on ‘badges of fraud.’” Wall Street Assocs. v. Brodsky , 257 A.D.2d 526, 529 (1st Dept. 1999). Badges of fraud include a “close relationship between the parties to the alleged fraudulent transaction; a questionable transfer not in the usual course of business; inadequacy of the consideration; the transferor’s knowledge of the creditor’s claim and the inability to pay it; and retention of control of the property by the transferor after the conveyance.” Id. at 529.  The Court found that defendant had transferred all of Baba’s assets to entities controlled by him and his family without consideration, with full knowledge that plaintiff had claims against Baba’s for 25% of its assets and compensation arising from plaintiff’s employment contract. As a result, plaintiff “established a prima facie entitlement to summary judgment on his DCL claims.…” Slip Op. at *5.  Involuntary Dissolution Business Corporation Law § 1104-a permits involuntary dissolution of a corporation when the controlling shareholders are found guilty of “oppressive action” toward the minority. Oppression arises when “those in control” of the corporation “have acted in such a manner as to defeat those expectations of the minority stockholders which formed the basis of participation in the venture.” In re Kemp & Beatley, Inc. , 64 N.Y.2d 63, 74 (1984). Situations where the petitioner is “frozen out” or “squeezed out” are precisely the type of oppressive situations” that BCL § 1104-a is designed to address. In re Wiedy’s Furniture Clearance Center Co. , 108 A.D.2d 81, 84 (3d Dep’t 1985); In re Rambusch , 143 A.D.2d 605, 606 (1st Dept. 1988); In re Dissolution of Pickwick Realty , 246 A.D.2d 863, 866 (3d Dept. 1998) (finding that the lower court’s ordering of dissolution following its consideration of, inter alia , the “shareholders’ attempt at voiding petitioner’s shares” was “proper in the totality of these circumstances and fully necessary to protect petitioner’s interest”).  The Court found that defendant’s actions frustrated plaintiff’s “reasonable expectations of remaining a shareholder of the entity operating the restaurant and to share in the profits of the business.” Slip Op. at *6. The Court explained that the record showed that defendant “diverted the property and assets of Baba’s Restaurant within the meaning of BCL § 1104-a(a)(2).” Id. (“It is undisputed that Dargin transferred, assigned, or otherwise diverted, for no consideration, all the assets of Baba’s and that he denies that Kocak has any ownership of the disputed shares.”). As such, the Court concluded that plaintiff satisfied BCL § 1104- a(a)(2). Id. (citing Matter of Verdeschi , 63 A.D.3d 1084, 1085 (2d Dept. 2009). Accordingly, the Court granted summary judgment on this claim.