Every now and then a litigant or counsel fails to meet a deadline or otherwise acts in an untimely manner.  Sometimes there is a reasonable excuse and sometimes there is not.  Several “saving” provisions in the CPLR are available to assist a litigant or counsel when deadlines are missed.  Some such provisions are as follows: CPLR 2005 provides that “ pon an application satisfying the requirements of subdivision (d) of section 3012 or subdivision (a) of rule 5015, the court shall not, as a matter of law, be precluded from exercising its discretion in the interests of justice to excuse delay or default resulting from law office failure.” CPLR 3012(d) provides that “ pon the application of a party, the court may extend the time to appear or plead, or compel the acceptance of a pleading untimely served, upon such terms as may be just and upon a showing of reasonable excuse for delay or default.” CPLR 5015(a) provides that the “court which rendered a judgment or order may relieve a party from it upon such terms as may be just, on motion of any interested person with such notice as the court may direct, upon the ground of: (1) excusable default, if such motion is made within one year after service of a copy of the judgment or order with written notice of its entry upon the moving party, or, if the moving party has entered the judgment or order, within one year after such entry….”  The key to availing one’s self of such provisions is the reasonableness of the excuse for the delay or default.  Indeed, there are many cases that analyze what constitutes “reasonable excuse” and/or excusable “law office failure.”  While in an article such as this, this BLOG would typically survey such cases, it will not do so today in order to illustrate the importance of avoiding forced reliance on the CPLR’s “savings” provisions. Instead, this BLOG will summarize the August 26, 2020 decision of the Appellate Division, Second Department, styled: SRP 2015-1, LLC v. Thomas , in which the Court affirmed the motion court’s denial of defendants’ motion for leave to serve a late answer after plaintiff rejected their untimely answer.   SRP 2015-1 was a mortgage foreclosure action commenced by the lender to foreclose on property owned by Thomas.  Apparently, after being served, Thomas contacted plaintiff’s counsel and entered into a stipulation pursuant to which Thomas’ time to answer the complaint was extended until May 20, 2016.  At the time, Thomas did not have an attorney.  Thomas retained an attorney on May 20, 2016, but counsel failed to serve Thomas’ answer until June 3, 2016, which plaintiff’s counsel rejected as untimely.  Thereafter, Thomas’ counsel moved for leave to serve a late answer and to compel plaintiff’s acceptance of same.  The motion was denied, and a judgment of foreclosure and sale was subsequently issued by the motion court. In affirming the motion court’s order, the Second Department in SRP 2015-1 first recited the general law on “reasonable excuse” and stated: To extend the time to answer the complaint and to compel the plaintiff to accept an untimely answer as timely, a defendant must provide a reasonable excuse for the delay and demonstrate a potentially meritorious defense to the action. The determination of what constitutes a reasonable excuse lies within the sound discretion of the Supreme Court. Law office failure may constitute a reasonable excuse ( see CPLR 2005). However, conclusory and unsubstantiated allegations of law office failure are not sufficient, and mere neglect is not a reasonable excuse.  (Some citations, internal quotation marks and brackets omitted.) The SRP 2015-1 Court then found that there was no reasonable excuse for missing the stipulated May 20, 2020 deadline (even though the answer was only served two weeks late).  The Court found that Thomas and counsel were guilty of “mere neglect” which was insufficient to rise to the level of a “reasonable excuse.”  (Citations and brackets omitted).  Specifically, the Court found that: the defendants neglected the case by failing, for unexplained reasons, to retain their attorney until the day their answer was due under the extension that the plaintiff had granted. Their attorney then neglected their case by failing to answer for another two weeks. Counsel failed to provide a detailed or substantiated explanation as to why he could not have arranged for the answer to be prepared and served on or immediately after May 20, 2016.  (Citations omitted.) The Court never decided the issue of whether Thomas had a meritorious defense because of its ruling on the issue of “reasonable excuse.” TAKEAWAY Litigants and counsel should not take for granted that adversaries and/or the court will always grant courtesies or extensions of time to file papers.

In our last post ( here ), we examined the Statute of Frauds – General Obligations Law § 5-701 through § 5-705 – in the context of employment at-will contracts. We noted that such contracts are capable of performance within one year – a requirement under GOL§ 5-701(a)(1). Cron v. Hargro Fabrics , 91 N.Y.2d 362, 367 (1998). As the Court of Appeals has explained, because an at-will employment relationship may be “freely terminated by either party at any time for any reason or even for no reason” ( Murphy v. American Home Prods. Corp. , 58 N.Y.2d 293, 300 (1983)), such a relationship “may usually be completed within a year and ordinarily would not require performance to extend beyond that time” ( Cron , 91. N.Y.2d at 367). For this reason, the Court of Appeals has held that employment at-will agreements “are without the proscription of the Statute of Frauds concerning one-year performance.” Cron , 91 N.Y.2d at 367 (citations omitted). What if the at-will employment agreement is breached? In that case, the courts consider the agreement to be “terminable within one year only breach by one of the parties.” D&N Boening v. Kirsch Beverages , 63 N.Y.2d 449, 456 (1984). As the Court of Appeals noted, “termination is not performance, but rather the destruction of the contract where there is no provision authorizing either of the parties to terminate as a matter of right.” Id. at 456-57; see also Zupan v. Blumberg , 2 N.Y.2d 547, 552 (1957) (“The possibility of such wrongful termination is not, of course, the same as the possibility of performance within the statutory period.”). The foregoing rules also apply to an oral agreement that forms a partnership or joint venture. F.S. Intertrade Off. Prods. V. Babina , 199 A.D.2d 95, 96 (1st Dept. 1993), lv denied , 83 N.Y.2d 757 (1994); Prince v O’Brien , 234 A.D.2d 12 (1st Dept. 1996); Rella v. McMahon , 169 A.D.2d 555 (1st Dept. 1991)). Like the oral employment agreement, an oral agreement to form a partnership or joint venture without a definite duration creates an at-will partnership or joint venture. As such, it may be dissolved, without liability for breach of contract, on a “moment’s notice”. Shandell v Katz , 95 A.D.2d 742, 743 (1st Dept. 1983); Alnwick v. European Micro Holdings, Inc. , 281 F. Supp. 2d 629, 644 (E.D.N.Y. 2003) (“Where ... there is no definite term of duration for the joint venture, it may be terminated at will”)). With the foregoing principles in mind, we examine Eiji Ichimura v. Elkon , 2020 N.Y. Slip Op. 32722(U) (Sup. Ct., N.Y. County Aug. 21, 2020) ( here ), a case involving, among other things, an oral at-will joint venture agreement. Eiji Ichimura is a world-renowned sushi chef. Ichimura alleged that he entered into an oral at-will employment relationship with defendants whereby he agreed to serve as the sushi chef at a restaurant to be operated by defendants in Manhattan. According to plaintiff, he gave defendants oral permission to use his name for the restaurant while he was working there. About four months later, Ichimura terminated his relationship with defendants. Thereafter, plaintiff brought suit.  In their answer, defendants denied the allegations and advanced five counterclaims: unjust enrichment, breach of employee loyalty, conversion, breach of contract, and defamation and disparagement of goods, based on alternative theories that plaintiff breached a joint venture agreement he had made with defendant Idan Elkon to open the restaurant, or that he breached his duty as an employee, and that in any event, he unjustly enriched himself by benefiting therefrom. Plaintiff moved for summary judgment, claiming, inter alia , that the Statute of Frauds barred the breach of contract counterclaim.  Defendants argued that the joint venture agreement could be performed within one year. They contended that the agreement was partly performed, thereby making the Statute of Frauds inapplicable to the parties’ agreement. Defendants claimed that plaintiff breached the oral agreement by failing to fully perform.  In reply, plaintiff maintained that the Statute of Frauds was applicable to their relationship. Plaintiff claimed, among other things, that the alleged oral joint venture agreement was not capable of being performed within one year because, according to Elkon’s sworn interrogatory responses, plaintiff had committed to run the kitchen and sushi bar and serve as head chef “for years to come ....” Plaintiff also maintained that the parties did not partially perform the agreement nor were their actions unequivocally referable to the agreement. Rather, plaintiff claimed, the execution of the lease and building out of space were preparatory for the operation of the restaurant.  The Court held that plaintiff “satisfie his burden of demonstrating that the counterclaim for breach of contract ha no factual or legal basis.…” Slip Op. at *5. The Court noted that the agreement had no definite term. “Thus,” reasoned the Court, “to the extent that the parties entered into a joint venture, it was at will, and plaintiff cannot be held liable for breaching it.” Id. “And,” said the Court, “even if the venture was not at will, the statute of frauds would bar a cause of action for breach of contract.” Id. (citing Massey v. Byrne , 112 A.D.3d 532, 533 (1st Dept. 2013) (absent evidence that parties’ oral agreement constituted joint venture or partnership, breach of contract claim barred by statute of frauds)).

Like most states in the country, New York is an “employment at will” state.  This means that if there is no written agreement between the employer and employee governing when the employer can fire the employee, the employer has the right to fire the employee at any time for any reason. Smalley v. Dreyfus Corp. , 10 N.Y.3d 55, 58 (2008). The Court of Appeals has “repeatedly refused to recognize exceptions to, or pathways around, these principles.” Id.   Thus, when an employee at will is fired, the employee has no legal recourse even when the termination is arbitrary, unfair or unreasonable. While the employee-at-will has no recourse with regard to his/her termination, he/she may have recourse to recover compensation that is fixed and earned but not paid prior to termination. This was the issue before the Appellate Division, Fourth Department in Bermel v. Vital Tech Dental Labs, Inc. , 2020 N.Y. Slip Op. 04666 (4th Dept. Aug. 20, 2020) ( here ).  In Bermel , plaintiff, an employee-at-will, sought, inter alia , payment of commissions that he allegedly earned from sales that occurred during the course of his employment with defendant. Plaintiff claimed that he was owed commission income for past sales, as well as sales “generated by on a future and ongoing basis including post-termination of employment.” Plaintiff alleged that defendant had promised to pay him those commissions pursuant to an oral employment agreement. Because Plaintiff alleged that he and Defendant had an oral employment agreement, the Court had to consider whether the Statute of Frauds barred the relief that Plaintiff sought. 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. The Statute of Frauds neither applies to an agreement that “appears by its terms to be capable of performance within the year; nor to cases in which the performance of the agreement depends upon a contingency which may or may not happen within the year.” North Shore Bottling Co. v. Schmidt & Sons , 22 N.Y.2d 171, 176 (1968) (citation omitted). Instead, it applies to “those contracts only which by their very terms have absolutely no possibility in fact and law of full performance within one year.” D&N Boening v. Kirsch Beverages , 63 N.Y.2d 449, 454 (1984). See also JNG Constr., Ltd. v. Roussopoulos , 135 A.D.3d 709, 710 (2d Dept. 2016) (quoting D & N Boening , 63 N.Y.2d at 454)). The Court of Appeals has repeatedly held that the courts should “analyze oral agreements to determine if … there might be any possible means of performance within one year.”  Id. at 455. Thus, wherever an agreement is susceptible of fulfillment within one year, “in whatever manner and however impractical,” the courts should find “the Statute to be inapplicable, a writing unnecessary, and the agreement not barred.” Id. However, oral agreements that are “terminable within one year only upon a breach by one of the parties” are unenforceable. Id. at 456. The reason: “termination is not performance, but rather the destruction of the contract where there is no provision authorizing either of the parties to terminate as a matter of right.” Id. at 456-57; see also Zupan v. Blumberg , 2 N.Y.2d 547, 552 (1957) (“The possibility of such wrongful termination is not, of course, the same as the possibility of performance within the statutory period.”). By contrast, “where one or both parties have … an explicit option to terminate their agreement within one year, that agreement is, by its own terms, capable of completion within that period and is not governed by the Statute.” Id. If an alleged agreement is found to fall within the scope of GOL § 5-701(a)(1) (or any other subsection of GOL § 5-701(a)), it is void “unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent. …” There is sufficient tangible evidence that a contract has been made if, inter alia : (i) there is admissible “electronic communication (including, without limitation, the recording of a telephone call or the tangible written text produced by computer retrieval) … sufficient to indicate that in such communication a contract was made between the parties”; (ii) “ he party against whom enforcement is sought admits in its pleading, testimony or otherwise in court that a contract was made”; or (iii) “ here is a note, memorandum or other writing sufficient to indicate that a contract has been made, signed by the party against whom enforcement is sought or by its authorized agent or broker.” Id. Email communications can satisfy the “writing” requirement. See Sassoon v. CDx Diagnostics , 172 A.D.3d 617 (1st Dept. May 28, 2019); Naldi v. Grunberg , 80 A.D.3d 1, 13 (1st Dept. 2010). The “writing” need not be a communication between the parties to the contract. It can be an internal communication by the party against whom enforcement is sought. See Int’l Trading & Sales, Inc. v. Philipp Bros. , 99 A.D.2d 983, 984 (1st Dept. 1984) (“If defendant has such a note or memorandum even though it be internal, that could satisfy the Statute of Frauds.”); Scura Partners Sec. LLC v Universal Stainless & Alloy Prods., Inc. , No. 653308/11, 2013 WL 1127733, at *6 (Sup. Ct. N.Y. Cty. Mar. 6, 2013) (permitting discovery to satisfy Statute of Frauds because the defendant “may have internal emails and memorandums which would confirm the existence of the agreement, and these documents are ‘peculiarly within the knowledge’ of .”). With these general principles in mind, the Bermel Court considered defendant’s contention that, even assuming arguendo that there was an oral employment agreement between plaintiff and defendant, such an oral agreement was void pursuant to General Obligations Law § 5-701(a). The Court rejected Defenant’s contention. In doing so, the Court held that “an at-will employment . . . is capable of being performed within one year despite the fact that compensation remains to be calculated beyond the one-year period.” Slip Op. at *1 (quoting Harrison v. Harrison , 57 A.D.3d 1406, 1408 (4th Dept. 2008) (internal quotation marks omitted)); see Hubbell v. T.J. Madden Constr. Co., Inc. , 32 A.D3d 1306, 1306 (4th Dept. 2006); American Credit Servs. v. Robinson Chrysler/Plymouth , 206 A.D.2d 918, 919 (4th Dept 1994). As such, the Court held that the motion court did not err in denying Defendant’s motion with respect to Plaintiff’s “claim for payment of commissions fixed and earned during the course of plaintiff’s employment with defendant.” Slip Op. at *1. However, the Court agreed with Defendant that the motion court erred in denying its motion with respect to Plaintiff’s claim for “‘commissions on sales to any accounts generated by on a future and ongoing basis including post-termination of employment,’ i.e. , the claim for commissions that would accrue subsequent to the termination of plaintiff’s employment.” Id. at *2. The Court noted that “ lthough ‘ n oral agreement that is terminable at will is capable of performance within one year and, therefore, does not come within the Statute of Frauds . . . <,> General Obligations Law § 5-701 (a) (1) bars enforcement of a promise to pay commissions that extends indefinitely, dependent solely on the acts of a third party and beyond the control of the defendant.’” Id. (quoting Murphy v. CNY Fire Emergency Servs. , 225 AD2d 1034, 1035 (4th Dept. 1996) (internal quotation marks omitted)). Thus, concluded the Court, the motion “court erred in denying defendant’s motion with respect to plaintiff’s claim for commissions accruing subsequent to the termination of plaintiff’s employment.…” Id. (citing Zupan v. Blumberg , 2 N.Y.2d 547, 550 (1957); Tamara Brokerage, Inc. v. Andreoli , 24 A.D.3d 536, 537 (2d Dept. 2005); Murphy , 225 A.D.2d at 1035). Takeaway The Statute of Frauds applies to void an oral agreement that by its terms cannot be performed within one year. An at-will employment is capable of being performed within one year despite the fact that compensation remains to be calculated beyond the one-year period. When the employment relationship is terminable within one year and the measure of compensation has become fixed and earned during that period, the sole obligation to calculate such compensation does not bring the agreement within the one-year proscription of the Statute of Frauds.  In Bermel , plaintiff alleged entitlement to commission income for sales that occurred during the course of plaintiff’s employment with defendant, as well as commissions that would accrue subsequent to the termination of plaintiff’s employment. Under prevailing New York law, only those commission that were fixed and earned during plaintiff’s employment were recoverable. As the Court observed, the Statute of Frauds is inapplicable to an employment at-will agreement in which compensation is fixed and earned.

On August 19, 2020, District Administrative Judge, Hon. Andrew A. Crecca, issued a Memorandum regarding the “Return to In-Person Operations in the 10 th Judicial District, Suffolk County – Phase 4.1” (the “Memo”) < HERE =">HERE"> .  According to the Memo, Phase 4.1 “builds upon our reopening efforts to date by providing for enhanced in-person operations in all courts throughout the District, the continued use of virtual technology where we have found it to be appropriate and preferred, and the commencement of civil and criminal jury trials.” Consistent with the prior Phase, Phase 4.1 “no more than 50% of the courtrooms in a courthouse will be used for in person proceedings at the same time, and occupancy of every courtroom in the District will be kept at or below 25% of its maximum capacity.”  Staffing levels in court buildings will not exceed 80%.  Social distancing will be maintained. Although the presiding Judge will have the final word on how matters will be heard, matters that are presumptively “in-person”, include: Supreme Court 1 : -- trials, evidentiary hearings, inquests, essential matters and appearances and conferences with one or more self-represented parties. County Court (Superior Criminal) —trials, evidentiary hearings, non-custodial arraignments, Waivers of indictment, pleas and sentences for defendants not in custody, motion arguments, treatment court and judicial diversion cases where the Judge determines that an appearance is necessary to protect the health and safety of a defendant, grand jury proceedings, instances where the defendant can not be located or communicated with and essential matters Family Court – evidentiary hearings, child support proceedings, permanency hearings, FCA Article 10 consents, admissions and surrenders and essential matters.  Surrogate’s Court – citations and orders to show cause, bench trials, evidentiary hearings, essential matters and appearances and conferences with one or more self-represented parties District Court Civil – bench trials, evidentiary hearings, small claims matters, out of custody arraignments on Town Code violations and essential matters. District Court Criminal – trials preliminary hearings, evidentiary hearings, appearance ticket arraignments, vehicle and traffic appearances, pleas and sentences for defendants at liberty, motion arguments, arraignments of defendants accused of violations of Article 31 of the Vehicle and Traffic law, treatment court where the Judge determines that an appearance is necessary to protect the health and safety of a defendant and essential matters. While the Memo lists specific matters that presumptively will be held virtually, anything not listed above presumptively will be held virtually. In addition, civil and criminal jury trials will commence on a pilot basis on September 8, 2020.  Operational considerations will be put in place to protect the health and safety of those in the courthouse, including those called for jury duty.  These protocols will include, but not be limited to, social distancing, the required wearing of face masks, enhanced cleaning services and access to sanitizing stations.  A push to resolve matters through settlement (civil) and pleas (criminal) will be made prior to scheduling a case for trial and again before jury selection. As to default judgments the Memo provides that: Please also be advised that continuing in Phase 4.1, default judgments shall not be granted where, pursuant to CPLR § 3215, the default occurred after March 16, 2020. Furthermore, no default judgment requiring the defendant's notice pursuant to CPLR § 3215(g) shall be granted, unless the application was heard prior to March 17, 2020 and, proper notice was given (10th Judicial District, Suffolk County's AO 45-20 < HERE =">HERE"> ). 1  This Blog has been advised by the Office of the Administrative Judge, that the reference to “Superior Civil” Court means Supreme Court and the reference to “Superior Criminal” court means County Courts.

On March 20, 2018, the United States Supreme Court decided Cyan, Inc. v. Beaver County Employees Retirement Fund , 138 S. Ct. 1061, 1069 (2018), in which it unanimously held that the Securities Litigation Uniform Standards Act of 1998 does not strip state courts of subject-matter jurisdiction over class actions involving claims exclusively brought under the Securities Act of 1933 (the “1933 Act”), and does not allow for the removal of those cases to federal court. This Blog wrote about the decision here .  Among the issues we discussed that could arise in the wake of the decision was the possibility that defendants would be subject to parallel securities litigation in state and federal court.  Following Cyan , researchers at Stanford Securities Litigation Analytics performed at study, at the request of the Professional Liability Underwriting Society, that tracked the number of parallel state court actions filed under the 1933 Act. According to the report, titled “State Section 11 Litigation in the Post-Cyan Environment” ( here ), “ n the year since Cyan was decided, 26 Section 11 cases have been filed in state courts, compared to 10 cases filed in the prior year.” Of those cases, “48% … have been filed in both federal and state courts—meaning 48% of defendants have faced litigation for the same alleged violations in both state and federal court simultaneously.” Id. In the three years prior to Cyan, defendants only faced parallel litigation in 16% of the cases. Id. The New York Experience On July 1, 2019, this Blog wrote about Hoffman v. AT&T Inc. , 2019 N.Y. Slip Op. 31811(U) (Sup. Ct. N.Y. County, June 21, 2019) ( here ). here.=">here."> Hoffman involved a motion, under CPLR § 2201, to stay a securities class action filed in state court, alleging claims under the 1933 Act, in favor of a parallel class action filed in federal court, alleging claims under the 1933 Act and the Securities Exchange Act of 1934 (the “Exchange Act”). As discussed in the article, the Hoffman court denied the motion, holding that a stay would be inimical to the first-filed rule, the establishment of the Commercial Division, and the U.S. Supreme Court’s decision in Cyan . Shortly after we published our article examining Hoffman , Justice Saliann Scarpulla of the Supreme Court, New York County, Commercial Division, decided a motion, under CPLR § 2201, to stay a securities class action alleging claims under the 1933 Act in favor of a parallel securities class action filed in federal court alleging claims under the 1933 Act and the Exchange Act. Matter of PPDAI Grp. Sec. Litig. , 2019 N.Y. Slip Op. 51075(U) (Sup. Ct., N.Y. County July 1, 2019) ( here ).  Like the Court in Hoffman , Justice Scarpulla, who cited to Hoffman , denied the motion.  However, unlike the Hoffman court, Justice Scarulla applied CPLR § 2201 in making her decision. Recently, Justice Andrea Masley of the Supreme Court, New York County, Commercial Division, was faced with a motion to stay an action arising under Section 11 of the 1933 Act. Convery v. Jumia Tech. AG , 2020 N.Y. Slip Op. 32639(U) (Sup. Ct., N.Y. County Aug. 7, 2020) ( here ). Like Justice Scarpulla, Justice Masley, who cited to and relied upon, inter alia , Matter of PPDAI Group , applied CPLR § 2201 in making her decision to deny the motion. Convery v Jumia Tech. AG Background Convery was filed as a putative class action under the 1933 Act, brought on behalf of the purchasers of American Depository Shares (“ADS”) of Jumia Technologies AG (“Jumia”) pursuant or traceable to the Registration Statement issued in connection with Jumia’s April 2019 initial public offering (“IPO”) of 15.525 million ADS (including the exercise of an over-allotment option) at $14.50 per share.  In a parallel securities class action, filed in the United States District Court for the Southern District of New York ( In re Jumia Technologies AG Securities Litigation , No. 19-cv-4397 (S.D.N.Y.) (Castel, J.)), a different plaintiff, Steven Strugala, asserted claims under the Exchange Act and the rules promulgated thereunder. Strugala alleged that Jumia’s share price fell 28% on May 10, 2019 from $33.11 per ADS to $24.50 per ADS, the day after Citron Research issued a report (the “Citron Report”) asserting that “Jumia is a Fraud” that “deserves immediate SEC attention”. In addition to Jumia, Struglia named as defendants Jumia’s Co-Chief Executive Officers and Chief Financial Officer (the “Management Board Defendants”). The state court action was filed on October 15, 2019, and amended on January 27, 2020. The federal court action was filed on May 14, 2010, and amended twice, on December 30, 2019 and March 13, 2020. In the state court complaint, Plaintiff asserted claims under Sections 11 & 15 of the 1933 Act. Like the original federal complaint, the state court complaint was brought against Jumia and the Management Board Defendants and relied upon the Citron Report for its allegations. However, besides naming a different class representative, Plaintiff added the seven underwriters participating in the IPO, as defendants (the “Underwriter Defendants”). The federal complaint was amended following consolidation and contested motions for appointment of lead plaintiffs and lead counsel. The amended complaint, brought by different plaintiffs, set forth the same allegations as those in the initial complaint, but enlarged the class period. Importantly, the plaintiffs asserted new claims under Sections 11 and 15 of the 1933 Act and named the Underwriter Defendants and eight members of Jumia’s supervisory board (the “Supervisory Board Defendants”), as parties.  In the amended state court complaint, Plaintiff added a claim under Section 12(a)(2) of the 1933 Act, added the Supervisory Board Defendants, Donald J. Puglisi (“Puglisi”), Jumia’s U.S. representative who signed the company’s allegedly false and misleading Registration Statement, and Ernst & Young, the accounting firm who issued an audit report alleged to be materially misleading in violation of international accounting standards, as defendants. Thereafter, the plaintiffs in the federal action filed a second amended complaint. The second amended complaint set forth the same allegations and claims as the amended federal complaint, but added Puglisi as a defendant. On April 3, 2020, the defendants in the federal action filed a pre-motion letter explaining the grounds for their proposed motion to dismiss the second amended complaint. Pursuant to an April 10, 2020 scheduling order, the district court judge permitted defendants to file the motion on June 1, 2020, with the briefing to be completed on August 21, 2020. Discovery was stayed pending further order of the court. Defendants moved, pursuant to CPLR § 2201, to stay all proceedings pending adjudication of the federal action. The Court’s Decision The Court analyzed the motion to stay the action through the lens of CPLR § 2201. Under CPLR § 2201, “ xcept where otherwise prescribed by law, the court … may grant a stay of proceedings …, upon such terms as may be just.” A motion pursuant to CPLR § 2201 to stay an action pending in favor of another action is directed to the sound discretion of the trial court. Dietz v. Linde Gas N. Am., LLC , 178 A.D.3d 469, 470 (1st Dept. 2019); Mook v. Homesafe Am., Inc. , 144 A.D.3d 1116, 1117 (2d Dept. 2016). In making the determination, a court may consider a number of factors, including: 1) which forum will offer a more complete disposition of the issues; 2) which forum has greater expertise in the type of matter; 3) which action was commenced first and the stage of the litigations; 4) whether there is substantial overlap between the issues raised in each court; 5) whether a stay will avert “duplication of effort and waste of judicial resources;” and 6) whether plaintiffs have demonstrated that they would be prejudiced by a stay. Asher v. Abbott Labs. , 307 A.D.2d 211, 211-212 (1st Dept.), lv. dismissed , 98 N.Y.2d 728 (2003). Applying the foregoing factors, the Court denied the motion to stay the state court action. The Court held that the first and fourth factors weighed in favor of Plaintiffs. Slip Op. at *5. The Court explained that “ lthough there is substantial overlap between the claims and the defendants, neither action completely dispose of all of the issues relating to the IPO.” Id.   The reason, noted the Court, was because the federal court had exclusive jurisdiction over the Exchange Act claims, but shared jurisdiction over the 1933 Act claims with the state court. Id. (“While both courts have jurisdiction over the 1933 Act claims, the federal court has exclusive jurisdiction over the claim brought under the 1934 Act, so it can only be disposed of there.”) (citing Cyan , 138 S.Ct. at 1078). The Court also noted that the state court action contained different parties and claims in that it “include claims against the accounting firm, and a claim under section 12(a)(2) of the 1933 Act for which rescission is available.” Id. (citation omitted). The Court concluded that “the difference in the relief sought militate against a stay.” Id. (citing Uni-Rty Corp. v. New York Guangdong Fin., Inc. , 117 A.D.3d 427, 429 (1st Dept. 2014)). The Court also found dispositive the different standard of review for the Exchange Act claims, noting that “the fraud claims in the federal action may be subject to heightened scrutiny.” Id. The Court held that the second factor weighed against a stay. Similar to the courts in Hoffman and PPDAI Grp. , the Court held that the federal court had no greater expertise in adjudicating the claims asserted in the state action, “including federal law as it pertains to securities cases.” Id. at *6 (quoting Labourers’ Pension Fund of Cent. and Eastern Canada v. CVS Health Corp. , 2020 WL 2857654, at *6 (Sup. Ct., N.Y. County June 1, 2020), and citing In re PPDAI Grp. Sec. Litig. , 2019 WL 2751278, at *5 (Sup Ct., N.Y. County 2019) (“the Commercial Division is a longstanding, specialized business court which deals exclusively with complex commercial litigation”); and Hoffman v. AT&T Inc. , 2019 WL 2578360, at *2 (Sup. Ct., N.Y. County 2019) (“ he liability issues in a 1933 Act case are, if anything, less complex than issues the Commercial Division resolves every week”)). The Court found the third factor to weigh against the grant of a stay. Slip Op. at *6. “Although the federal action was commenced first,” observed the Court, “it was not ‘first in time’ with respect to claims under the 1933 Act, which were first interposed in action – over two months before being added to the federal complaint by way of amendment.” Id. “Indeed,” said the Court, “it appears that at the time federal action was filed, plaintiff could not have sought 1933 Act damages because the ADSs price was still above the IPO offering price.” Id. (citations to the record omitted).  Moreover, said the Court, because discovery had been stayed in each case, the “first to file” factor was “not dispositive” and “not particularly meaningful.” Id. (citing Labourers’ Pension Fund , 2020 WL 2857654, at *7).  Further, noted the Court, “nothing of significance happened in the five months between the original filing of the federal action and , because the parties in the federal action were litigating over the appointment of lead plaintiffs and lead counsel.” Id. “And,” explained the Court, “although the federal action ha progressed slightly further with the partial briefing of a motion to dismiss, action would likely have been at a more advanced stage had defendants not disrupted the previously stipulated litigation schedule by filing this stay motion.” Id. The fifth factor, held the Court, weighed against a stay. The Court explained that because the two actions involved differing claims, “‘ he possibility or actuality of two trials of no importance.’” Id. at *7 (quoting Mt. McKinley Ins. Co. v. Coming, Inc. , 33 A.D.3d 51, 59 (1st Dept. 2006), and citing PPDAI Grp. , 2019 WL 2751278, at *6)). Further, said the Court, “‘ uplication of efforts or waste also not a concern because the parties and courts can cooperate as they do in so many other sophisticated securities cases.’” Id. (quoting Labourers’ Pension Fund , 2020 WL 2857654, at *3 (citation omitted)).  Finally, the Court found that “due to the differences between the parties named, remedies sought and standards of review, the plaintiff and the class might be prejudiced by a stay in pursuing action.” Id. Takeaway In this Blog’s takeaway of PPDAI Group , we said that the decision “may portend things to come in New York. While two decisions do not make a tidal wave of authority, they do indicate the current thinking of Commercial Division judges who will have to decide motions to stay 1933 Act claims under CPLR § 2201. And, that thinking points to the denial of motions to stay state court actions alleging claims under the 1933 Act in favor of parallel actions filed in federal court alleging claims under the 1933 Act and the Exchange Act.”  With the decisions in Labourers’ Pension Fund and Convery , the Commercial Division judges continue to deny motions to stay 1933 Act actions in favor of parallel federal court actions alleging claims under 1933 Act and the Exchange Act. Regardless of the reasons – such as parity with their federal court colleagues in handling complex securities matter or the dictates of the cases decided under CPLR § 2201 – the judges in the Commercial Division are increasingly denying motions to stay parallel securities actions. While these decisions do not constitute a tidal wave, they do constitute a trend that cannot be ignored.

Judicial protection of confidential information is often sought to shield highly sensitive information, trade secrets and financial information from the public. One way to achieve this objective is to obtain an order that seals the record from public view. In New York, the issue is governed by Section 4 of the Judiciary Law and Section 216.1(a) of the Uniform Rules for Trial Courts.  Section 4 of the Judiciary law provides that judicial proceedings “shall be public, and every citizen may freely attend the same.” There are exceptions, of course, such as those involving divorce, rape and criminal sexual acts. Id. But the presumption in favor of public access to court proceedings, both as a matter of constitutional law ( Richmond Newspapers v. Virginia , 448 U.S. 555 (1980) and “statutory imperative” ( Anonymous v. Anonymous , 158 A.D.2d 296, 297 (1st Dept. 1990)) is broad. Danco Lab, Ltd. v. Chemical Works of Gedeon Richter, Ltd. , 274 A.D.2d 1, 7 (1st Dept. 2000). After all, “the public needs to know that all who seek the court’s protection will be treated evenhandedly” ( Baidzar Arkun v. Farman-Farma , 2006 N.Y. Slip Op. 30724(U), at *2 (Sup. Ct., NY County 2006) (citation omitted)) and that judicial proceedings “are conducted efficiently, honestly and fairly.” Danco Lab , 274 A.D.2d at 7 (citations omitted).  Pursuant to the foregoing policy objectives, New York promulgated Section 216.1(a) of the Uniform Rules for Trial Courts (22 N.Y.C.R.R.). This section provides that “ xcept where otherwise provided by statute or rule, a court shall not enter an order in any action … sealing the court records, whether in whole or in part, except upon a written finding of good cause, which shall specify the grounds thereof. In determining whether good cause has been shown, the court shall consider the interests of the public as well as of the parties.” 22 N.Y.C.R.R. § 216.1 (a). Although the rule does not define “good cause,” “‘a standard that is difficult to define in absolute terms,’ a sealing order should rest on a ‘sound basis or legitimate need to take judicial action.’” Danco Lab , 274 A.D.2d at 8 (quoting Coopersmith v. Gold , 156 Misc. 2d 594, 606 (Sup. Ct., Rockland County 1992) (quoting In re Alexander Grant & Co. , 820 F.2d 352, 356 (11th Cir. 1987)). For this reason, the burden of proof is on the party seeking to seal the record. Mosallem v. Berenson , 76 A.D.3d 345, 348-349 (1st Dept. 2010) (citations omitted). Since the public’s right of access is not absolute ( Anonymous v. Anonymous , 263 A.D.2d 341, 297 (1st Dept. 2000); Danco Lab , 274 A.D.2d at 8), the determination of whether to seal the record “is best left to the sound discretion of the trial court, a discretion to be exercised in light of the relevant facts and circumstances of the particular case.” Matter of Crain Communications, Inc. v. Hughes , 135 A.D.2d 351, 351 (1st Dept. 1987) (citing Nixon v. Warner Communications, Inc. , 435 U.S. 589, 598-599 (1978)).  Notably, “ erely because some of the documents marked ‘confidential’ or ‘private’ ‘is not controlling on the court’s determination whether there is good cause to seal the record.’” Mosallem , 76 A.D.3d at 350 (quoting Eusini v. Pioneer Elecs. (USA), Inc. , 29 A.D.3d 623, 626 (2d Dept. 2006)). In the business context, courts have sealed records where trade secrets are involved or where the disclosure of documents “could threaten a business’s competitive advantage.” Mosallem , 76 A.D.3d at 350-351 (citations omitted). Additionally, courts have permitted the sealing of records where there is no articulable public interest in the documents and materials. See , e.g. , Dawson v. White & Case , 184 A.D.2d 246, 247 (1st Dept. 1992).  Applying the foregoing principles, Justice Andrea Masley of the New York Supreme Court, Commercial Division, granted numerous motions to seal and redact various sensitive, financial documents from the public record. North Star Debt Holdings, L.P. v. Serta Simmons Bedding, LLC , 2020 N.Y. Slip Op. 32584(U) (Sup. Ct., N.Y. County Aug. 4, 2020) ( here ). Although the motions were unopposed, the Court weighed the competing interests of the movants and the public and held that disclosure of the information “could threaten competitive advantage in the market going forward.” Slip Op. at *2.

Litigation can be a long and drawn out process.  As a result, parties sometimes die during the pendency of a lawsuit.  In such a case, CPLR § 1015 – Substitution Upon Death – is instructive and provides: (a) Generally.  If a party dies and the claim for or against him is not thereby extinguished the court shall order substitution of the proper parties. (b) Devolution of rights or liabilities on other parties.  Upon the death of one or more of the plaintiffs or defendants in an action in which the right sought to be enforced survives only to the surviving plaintiffs or against the surviving defendants, the action does not abate.  The death shall be noted on the record and the action shall proceed. The procedure for the substitution of a party, whether due to death or otherwise, is set forth in CPLR § 1021 and the extensions of time necessary to tend to the procedural steps involved with the substitution of a party are governed by CPLR § 1022 . Generally, “ he death of a party divests the court of jurisdiction to conduct proceedings in an action, the action is stayed as to him or her pending substitution of a legal representative, and any determination rendered without such a substitution is deemed a nullity.”  Stancu v. Hyang-Oh , 74 A.D.3d 1322, 1322 – 23 (2 nd Dep’t 2010) (citations omitted).  For example, in Danzig Fishman & Decea v. Morgan , 123 A.D.3d 968 (2 nd Dep’t 2014), plaintiff law firm sued a former client for unpaid legal fees.  Plaintiff’s unopposed motion for summary judgment was granted by the motion court after defendant’s death.  Once a representative of defendant’s estate was appointed, a motion to vacate the judgment was granted and, on plaintiff’s appeal, the Second Department affirmed.  Relying on, inter alia , Stancu , the Danzig Court found that the motion court’s grant of summary judgment to plaintiff “was a nullity, as it was after death and before the substitution of a legal representative.”  Danzig , 123 A.D.3d at 969. Sometimes, however, “where a party’s demise does not affect the merits of a case, there is no need for strict adherence to the requirement that the proceedings be stayed pending substitution.”  U.S. Bank National Assoc. v. Esses , 132 A.D.3d 847, 847 (citations omitted).  In Esses , property was owned by a grandfather and grandson as joint tenants with rights of survivorship.  When the grandfather, who was the obligor on the note and mortgage, defaulted, the lender commenced a foreclosure action.  Shortly thereafter, the grandfather died and the trial court stayed all proceedings.  The lender appealed.  The Second Department affirmed. The Court in Esses recognized that “ n the context of a mortgage foreclosure action, where a deceased made an absolute conveyance of all his or her interest in the mortgaged premises to another defendant, including his or her equity of redemption, and the plaintiff either discontinued the action as against the deceased defendant or elected not to seek a deficiency judgment against the deceased defendant’s estate, then the deceased defendant is not a necessary party to the action.”  Esses , 132 A.D.3d at 848 (citations omitted).  However, while the grandson, “as the surviving joint tenant, automatically inherited the subject property from , the plaintiff has neither moved to substitute a representative for estate as a defendant ( see CPLR 1021), discontinued the action insofar as asserted against , nor represented that it would not seek a deficiency judgment against estate.  Esses , 132 A.D.3d at 848 (some citations omitted).  Accordingly, the motion court‘s stay was affirmed. On August 12, 2020, the Second Department decided Nationstar Mortgage, LLC v. Azcona .  The lender in Azcona commenced a mortgage foreclosure action and the defendants were served with process in 2012 but failed to answer the complaint or appear in the action.  One of the defendants died in 2015 and, in 2016, the court entered a default judgment of foreclosure and sale.  In 2017, the remaining defendants moved pursuant to CPLR § 5015(a)(4) to vacate the default judgment because “ had died prior to its entry and, as such, the court was divested of jurisdiction until a legal representative was substituted for .”  The Second Department affirmed the denial of the motion.  In so doing, the Court recognized the general rule that the death of a party divests the court of jurisdiction and proceedings are stayed pending the appointment of a representative of the estate.  The court also noted that a stay is unnecessary when a party’s death “does not affect the merits of the case”.   The Azcona Court affirmed the denial of the vacatur motion.  The Court found that defendants, including the decedent, were properly served with process and defaulted three years prior to decedent’s death. Accordingly, ince defaulted in answering or appearing three years before his death, neither he nor any successor in interest was entitled to notice of the judgment of foreclosure or of the ensuing sale of the subject property.”  (Citations omitted.)  Therefore, the Court “agreed with the Supreme Court that Azcona’s death did not affect the merits of this action, and that there was no need to strictly adhere to the requirement for a stay pending substitution.” (Citations omitted.)

On August 10, 2020, the Securities and Exchange Commission (“SEC” or the “Commission”) announced (here) that Interactive Brokers LLC (“Interactive Brokers”) agreed to pay $11.5 million to settle charges it repeatedly failed to file Suspicious Activity Reports (“SARs”) for U.S. microcap securities trades it executed on behalf of its customers. In parallel actions, the Financial Industry Regulatory Authority (“FINRA”) and the Commodity Futures Trading Commission (“CFTC”) also announced settlements with Interactive Brokers (here and here) related to anti-money laundering (“AML”) failures in which the registered broker-dealer agreed to pay penalties of $15 million and $11.5 million, respectively, for a total of $38 million in penalties paid to the three agencies. Broker-dealers are required to file SARs for transactions suspected to involve fraud or a lack of an apparent lawful business purpose. In that regard, under Section 17(a) of the Securities Exchange Act and Rule 17a-8 promulgated thereunder, a registered broker-dealer is required to file a SAR when it knows, suspects, or has reason to suspect that certain transactions (1) involve funds derived from illegal activity, (2) involve the use of the broker-dealer to facilitate criminal activity, (3) are designed to evade any requirement of the Bank Secrecy Act (“BSA”), or (4) have no business or apparent lawful purpose. According to the SEC’s order (here), over a one-year period, Interactive Brokers failed to file more than 150 SARs to flag potential manipulation of microcap securities in its customers’ account, some of the trading accounting for a significant portion of the daily volume in certain of the microcap issuers. The SEC found that Interactive Brokers failed to recognize red flags concerning these transactions, failed to properly investigate suspicious activity as required by its written supervisory procedures, and failed to file SARs in a timely fashion even when suspicious transactions were flagged by compliance personnel. The SEC further found that Interactive Brokers violated the financial recordkeeping and reporting provisions of the federal securities laws and a related SEC rule. “SAR filings are an essential tool in assisting regulators and law enforcement to detect potential violations of the securities laws, particularly in the microcap space,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “Today’s multi-agency settlement reflects the seriousness we place on broker-dealers complying with their SAR reporting obligations and maintaining appropriate anti-money laundering controls.” The CFTC found that Interactive Brokers failed to ensure that its employees followed established policies and procedures with respect to supervision of customer accounts. The agency said that the firm also lacked a reasonably designed process for conducting investigations of account activity and making SAR determinations. According to the CFTC order (here), these failings contributed to the firm’s inability to maintain an adequate AML program. As a result, alleged the CFTC, Interactive Brokers employees failed to adequately investigate and identify signs of suspicious activity in accounts that, according to the firm’s own compliance procedures, should have prompted the filing of SARs with appropriate authorities. “Our regulatory regime requires certain intermediaries to monitor and report suspicious activity. These suspicious activity reports – or SARs – serve as key tools that we, together with our regulatory partners, use to identify fraud, manipulation, and other wrongdoing in our markets – often at the earliest stages,” said CFTC Director of Enforcement James McDonald. “This case marks the first time the CFTC has charged a violation of Regulation 42.2 and shows our commitment to ensuring these requirements are met.” FINRA found that Interactive Brokers failed to dedicate the resources necessary to meet its AML obligations. In particular, according to the Letter of Acceptance, Waiver and Consent (here), FINRA determined that Interactive Brokers failed to meet its AML obligations because of various shortcomings, such as: not reasonably surveilling customers’ wire transfers for money laundering concerns, including deposits into customers’ accounts from countries recognized as “high risk” by U.S. and international AML agencies; not reasonably investigating suspicious activity when it found it because it lacked sufficient personnel and a reasonably designed case management system; and failing to establish and implement policies, procedures, and internal controls reasonably designed to cause the reporting of suspicious transactions as required by the BSA. Jessica Hopper, FINRA Executive Vice President and Head of Enforcement, said, “Today’s action is a reminder that member firms must tailor their AML programs to the firms’ business model and customer base, and also dedicate resources to programs commensurate with their growth and business lines. FINRA will continue to take steps to ensure that firms comply with their obligation to monitor for, detect and report suspicious activity.” Without admitting or denying the SEC’s findings, Interactive Brokers agreed to be censured, to cease and desist, and to pay an $11.5 million penalty. In its settlements with FINRA and the CFTC, Interactive Brokers agreed to retain an independent compliance consultant and to disgorge certain profits in addition to the penalties assessed by those agencies.

In the past, we have written about many aspects of arbitration. Our articles have covered issues such as the duty to arbitrate, as well as the bases upon which to confirm or vacate an arbitral award. Rarely, if ever, have we examined a motion to stay a court proceeding pending the outcome of an arbitration. Today, in discussing CMBSW Grp., LLC v. Inverness Counsel, LLC, 2020 N.Y. Slip Op. 32525(U) (Sup. Ct., N.Y. County July 31, 2020) (here), we do so. Typically, a party will move to stay an arbitration because there is no valid agreement to arbitrate. CPLR § 7503(b). Courts will not require a party “to arbitrate unless has clearly consented to do so.” Matter of Chemoleum Corp. , 22 A.D.2d 865, 865 (1st Dept. 1964). The intention to arbitrate “must be clear and direct”. Matter of Marlene Indus. Corp. , 45 N.Y.2d 327, 334 (1978). “An agreement to arbitrate must be express, direct and unequivocal as to the issues or disputes to be submitted to arbitration.” Robert Stigwood Organization, Ltd. v. Atlantic Recording Corp., 83 A.D.2d 123, 126 (1st Dept. 1981) (citations omitted). Sometimes, as in CMBSW Grp., a party moves to stay a court proceeding pending the outcome of an arbitration to avoid the “risk of inconsistent adjudications, application of proof and potential waste of judicial resources.” Zonghetti v. Jeromack, 150 A.D.2d 561, 563 (2d Dept. 1989). Such risks occur because the issues in the arbitration are “inextricably interwoven” with the issues in the lawsuit (e.g., Berg v. Dimson, 151 A.D.2d 362, 363 (1st Dept. 1989); NAMA Holdings. LLC v. Greenberg Traurig, LLP, 62 A.D.3d 578, 579 (1st Dept. 2009)) or “there is such a commonality of parties and issues that the resolution of one proceeding will substantially determine the others.” C.B. Strain & Son, Inc. v. J. Baranello & Sons, 90 A.D.2d 924, 925 (3d Dept. 1982) (stay granted in interest of judicial economy because of overlapping issues and common questions of fact). CMBSW Grp. arose from a dispute between plaintiffs CMBSW Group, LLC (f/k/a the Solaris Group LLC), CMBSW Asset Management LLC (f/k/a Solaris Asset Management LLC), and CMBSW Advisors, LLC (f/k/a Solaris Advisors LLC) (collectively, “Plaintiffs”) and its former employee, Timothy Ghriskey (“Ghriskey”). The gravamen of the dispute concerned an allegation that Ghirskey secretly diverted Plaintiffs’ clients immediately before joining Inverness Counsel, LLC in January 2018. Pursuant to Ghriskey’s employment agreement, on August 7, 2019, Plaintiffs filed a statement of claim and demand for arbitration with the American Arbitration Association against Ghriskey (the “Arbitration”). In the Arbitration, Plaintiffs asserted four claims against Ghriskey: (i) breach of contract; (ii) breach of fiduciary duty; (iii) breach of the duty of loyalty; and (iv) unjust enrichment. Subsequently, on January 27, 2020, Plaintiffs commenced a court proceeding against Defendants alleging: (i) aiding and abetting the breach of fiduciary duty; (ii) tortious interference with contract; (iii) tortious interference with existing and prospective business relationships; and (iv) unfair competition . Defendants moved to stay the court proceeding pending completion of the Arbitration. Defendants argued that a stay was appropriate because (i) the same conduct formed the basis of the claims asserted in the Arbitration as in the court proceeding, (ii) Defendants’ liability in the court proceeding could not be established without proving claims in the Arbitration, namely, whether Ghriskey breached any contractual or fiduciary obligations to Plaintiffs, and (iii) Plaintiffs should be estopped from relitigating Ghriskey’s breach of contract and/or fiduciary duty in the court action. Plaintiffs opposed, arguing that the Arbitration would not resolve the claims in the court action against Defendants and the Arbitration and the lawsuit did not have a complete identity of parties, claims, and damages. The Court granted the motion, finding Plaintiffs’ argument to be “unavailing”. Slip Op. at *3. Finding support in Oxbow Calcining USA Inc. v. American Indus. Partners, 96 A.D.3d 646 (1st Dept. 2012), the Court held that “notwithstanding the lack of total identity of the parties, the rbitration could … dispose of or limit the issues to resolve in the action.” Id. at *4. In Oxbox, the Appellate Division, First Department held that a stay of the lawsuit pending arbitration was appropriate because the arbitration statement of claim and complaint contained overlapping factual allegations and sought the same damages. Oxbox, 96 A.D.3d at 652. The Court explained that, similar to Oxbox, “ he statement of claim in the Arbitration and the Complaint contain nearly identical factual allegations and the same damages – i.e., $10,000,000” and had “overlapping issues of law and common questions of fact.” Slip Op. at *4. In that regard, the Court noted that the underlying elements of Ghriskey’s breach of contract and breach of fiduciary duty claims in the Arbitration were the same as Plaintiffs’ claims for aiding and abetting the breach of fiduciary duty and tortious interference with contract against the Defendants. Id. “Further,” said the Court, “while Mr. Ghriskey’s purported breach of contract and/or breach of fiduciary duty are not dispositive elements of the Plaintiffs’ claims for tortious interference or unfair competition, the Plaintiffs acknowledge that the underlying factual findings are nonetheless relevant to the resolution of these claims.” Id. at *4-*5. “Thus,” concluded the Court, “the resolution of the Arbitration is likely to either limit or dispose of the issues in the present action.” Id. at *5. The Court also found “a significant risk of inconsistent findings of fact with respect to Mr. Ghriskey’s conduct should the Arbitration and action proceed concurrently.” Id. at *5. The Court reasoned that both the Arbitration and the lawsuit alleged “that Mr. Ghriskey conspired with the Defendants to steal the Plaintiffs’ clients and to commit various wrongful acts.…” Id. Finally, the Court rejected Plaintiff’s concerns about the application of collateral estoppel. Id. at *5. Plaintiffs argued “that any award in the Arbitration may have limited estoppel effects against the Defendants” because Plaintiffs would not have “a full and fair opportunity to litigate the issues determined in the arbitration proceeding.” Id. The Court held that “ hile a finding of wrongdoing by Mr. Ghriskey may not be preclusive as to all issues against the Defendants, ‘ ecause mutuality of parties is not required, a defendant may preclude a plaintiff from relitigating an issue resolved against that plaintiff in an earlier arbitration with a different defendant.’” Id. (quoting Bernard v. Proskauer Rose, LLP, 87 A.D.3d 412 (1st Dept. 2011) (explaining that arbitration awards may be given preclusive effect in a judicial action)). Takeaway CPLR § 2201 allows the court to grant a stay of proceedings “upon such terms as may be just.” Parties may invoke CPLR § 2201 based on another pending action or proceeding. As with motions to dismiss under CPLR § 3211(a)(4), the court has broad discretion when making this determination. In order to stay a proceeding, “it is necessary that there be sufficient identity as to both the parties and the causes of action asserted in the respective actions.” White Light v. On The Scene, 231 A.D.2d 90, 93 (1st Dept. 1997). Complete identity is not required; substantial identity will do. See Syncora Guar. Inc. v. J.P. Morgan Sec. LLC, 110 A.D.3d 87, 96 (1st Dept. 2013); White Light, 231 A.D.2d at 94 (“With respect to the subject of the actions, the relief sought must be the same or substantially the same.”) (citations and internal quotation marks omitted). But see Lessard Architectural Grp., Inc. P.C. v. X & Y Dev. Grp., LLC, 88 A.D.3d 768 (2d Dept. 2011) (noting that a stay “should not be granted … unless the other action presents complete identity of parties, causes of action, and relief sought”). Thus, as in CMBSW Grp., where the two proceedings involve substantially similar parties and overlapping subject matter and seek the same damages for substantially the same alleged injuries, a court may properly find that the actions are substantially similar for purposes of CPLR § 2201.

Generally, when a loan is made by a lender that is secured by real property, two of the documents delivered to the Lender by the borrower are a promissory note (which evidences the obligation to repay the borrowed sums) and a mortgage (which secures the obligation to repay the note by giving the lender a security interest in real property).  If a loan secured by a mortgage goes into default and the lender decides to protect its rights through litigation, a choice must be made whether to sue on the note and attempt to collect money damages, or foreclose on the mortgage and have the property sold at foreclosure to fully or partially satisfy the underlying obligation.  See, e.g., Wells Fargo Bank, N.A. v. Goans , 136 A.D.3d 709 (2 nd Dep’t 2016) (“Where a creditor holds both a debt instrument and a mortgage which is given to secure the debt, the creditor may elect either to sue at law to recover on the debt, or to sue in equity to foreclose on the mortgage”).  This choice, called an election of remedies, is mandated by section 1301 of the Real Property Actions and Proceedings Law (“RPAPL”), which provides: 1. Where final judgment for the plaintiff has been rendered in an action to recover any part of the mortgage debt, an action shall not be commenced or maintained to foreclose the mortgage, unless an execution against the property of the defendant has been issued upon the judgment to the sheriff of the county where he resides, if he resides within the state, or if he resides without the state, to the sheriff of the county where the judgment-roll is filed; and has been returned wholly or partly unsatisfied. 2. The complaint shall state whether any other action has been brought to recover any part of the mortgage debt, and, if so, whether any part has been collected. 3. While the action is pending or after final judgment for the plaintiff therein, no other action shall be commenced or maintained to recover any part of the mortgage debt, without leave of the court in which the former action was brought. This Blog has previously addressed RPAPL § 1301 < HERE =">HERE"> and < HERE =">HERE"> . The purpose of RPAPL § 1301 is to “shield the mortgagor from the expense and annoyance of two independent actions at the same time with reference to the same debt” and, “consistent with the legislative purpose of the statute to avoid inappropriate duplicative and vexatious litigation by the same party.”  Central Trust Co. v. Dann , 85 N.Y.2d 767, 772 (1995) (citations, internal quotation marks and emphasis omitted).  Because RPAPL § 1301 “is in derogation of a plaintiff’s common-law right to pursue the alternate remedies of foreclosure and recovery of the debt at the same time,” there is a judicial recognition that the statute “should be strictly construed.”  Old Republic Nat. Title Ins. Co. v. Conlin , 129 A.D.3d 804 (2 nd Dep’t 2015) (citations and internal quotation marks omitted).  In Old Republic , however, the Court permitted an action on a note to proceed despite the pendency of a foreclosure action because while the “foreclosure action was not formally discontinued, the effective abandonment of that action is a de facto discontinuance” which militates against dismissal of the present action pursuant to RPAPL 1301(3).”  Old Republic , 129 A.D.3d at 805 (citations omitted).  The Old Republic Court found that “ llowing the plaintiff to pursue this action on the note, which was commenced more than four years after the foreclosure action was effectively abandoned, is not inconsistent with the purpose of RPAPL 1301(3) ….” Id. In Stone Mountain Holdings, LLC v. Spitzer , decided by the Appellate Division, Second Department, on August 5, 2020 (“Stone Mountain II”), the Court affirmed the grant of leave to a lender pursuant to RPAPL § 1303 to commence an action on the underlying promissory note after a judgment of foreclosure and sale was issued in a prior foreclosure action.  While the facts relative to RPAPL § 1303 are set forth herein, the more convoluted and interesting facts of that case are set forth in an earlier opinion of the Second Department.  Stone Mountain Holdings, LLC v. Spitzer , 119 A.D.3d 548 (2014) (“Stone Mountain I”).  The Stone Mountain borrowers borrowed $3,000,000 on behalf of their company.  The loan was evidenced by a promissory note and was secured by unconditional personal guaranties from the owners of the company.  As additional security, one of the owners and his wife delivered to the lender a mortgage on their residence.   The borrowers defaulted on the loan in 2008, lender commenced a mortgage foreclosure action in 2009 and obtained a judgment of foreclosure and sale in the amount of $4,320,000 in 2010.  “However, rather than proceeding with the foreclosure sale of the … residence, the plaintiff agreed to forgo its right to foreclose on the residential mortgage in exchange for a partial payment of $100,000 against the judgment.”  Stone Mountain II at *1 (citation omitted).  “In the course of its attempts to collect the $4.22 million still owed, the plaintiff discovered that the judgment in its favor authorized only the foreclosure sale and did not authorize it to collect sums due but not satisfied by the sale of the mortgaged property.” Id .  Accordingly, lender sought leave to commence a new action against borrowers to collect the remaining debt because “after final judgment in its favor, a plaintiff may not commence another action to recover a mortgage debt without leave of court.”  Stone Mountain II at *2 (citing to RPAPL § 1303(3) and other cases). In granting leave to lender to pursue the remainder of the debt in excess of $4,000,000, the Court prevented the borrowers from obtaining a windfall and stated: Here, as we noted in our prior decision in this matter < stone mountain i > stone mountain i>, to prevent the plaintiff from seeking to collect the $4.22 million still owed to it would "create a windfall for the defendants by allowing them to obtain satisfaction of the judgment by paying roughly 3.3% of the principal sum borrowed and less than 2.4% of the judgment" (Stone Mtn. Holdings, LLC v Spitzer, 119 AD3d at 550). Accordingly, the Supreme Court providently exercised its discretion in granting the plaintiff's motion for leave to commence a new action to collect the remainder of the debt (see TD Bank, N.A. v 250 Jackson Ave., LLC, 137 AD3d 1006, 1007; see generally Valley Sav. Bank v Rose, 228 AD2d 666, 667). Stone Mountain II at *2

The elements of a cause of action for breach of contract are: (1) the existence of a contract between plaintiff and defendant; (2) performance by one party; (3) the other party’s failure to perform; and (4) damages resulting from such failure to perform. JP Morgan Chase v. J.H. Elec. of New York. Inc. , 69 A.D.3d 802, 803 (2d Dept. 2010). When a party breaches a contract, that breach may excuse the non-breaching party from further performance if the breach is so substantial that it defeats the parties’ objective in making the contract. Robert Cohn Assocs. Inc. v. Kosich , 63 A.D.3d 1388, 1389 (3d Dept. 2009). In such a case, the non-breaching party is discharged from performing any further obligations under the contract and may elect to terminate the contract and sue for damages. Casita. LP v. Maplewood Equity Partners (Offshore) Ltd. , 17 Misc. 3d 1137(A) (Sup. Ct., N.Y. County 2007). Sometimes, each party claims that the other breached the agreement first. Courts characterize this situation as the “battle of the breaches”. Boston Concessions Grp. v. Criterion Ctr. Corp. , 200 A.D.2d 543, 545 (1st Dept. 1994).  The battle of the breaches is typically inappropriate for summary determination because each party to the contract submits “conflicting affidavits and documentary evidence which cast the other party in the role of the primary contract offender.” Boston Concessions Grp. , 200 A.D.2d at 545. A material question of fact is, therefore, presented regarding the nature and extent of the breaches alleged, which cannot be determined in advance of trial.  In 20 St. Marks, LLC v. St. Marks NY LLC , 2020 N.Y Slip Op. 32512(U) (Sup. Ct., N.Y. County July 28, 2020) ( here ), the Court denied a motion for summary judgment because the record was laden with contested issues of fact that were better left for resolution at trial.   Marks involved a commercial lease dispute.  Plaintiff, a bar owner, entered into a commercial lease with defendants on December 26, 2017. Upon signing the lease, plaintiff tendered $154,000.00 to defendants, representing the first month’s rent (at $22,000 per month), and six months’ rent as security deposit (totaling $132,000 in security). Structural defects prevented the premises from opening to the public as planned by plaintiff. On February 20, 2019, plaintiff terminated the lease. Plaintiff contended that defendants breached the lease by failing to deliver possession of the premises by May 1, 2018, as required under the lease. Pursuant to the lease, plaintiff could, at its “sole option, elect to terminate th Lease” “if for any reason, Landlord unable to give possession to Tenant by May 1, 2018.” Slip Op. at *3. Upon termination, defendants were required to “promptly refund any pre-paid rent together with ’s Security Deposit.” Id. According to plaintiff, in an affidavit executed by one of its members, 14 months after signing the lease, defendants had yet to deliver possession of the premises. Defendants contended, through the affidavit of the premises’ property manager, that they gave plaintiff the keys to the premises immediately after signing the lease. According to defendants, plaintiff changed the locks, and in March 2018, had its engineer perform exploratory probing into the flooring. Id. at *5 (citing Pacific Coast Silks, LLC v. 247 Realty, LLC , 76 A.D.3d 167, 175 (1st Dept. 2010) (holding that the commercial tenant had been given possession of the premises when the keys had been delivered and accepted, and the tenant “actively cooperated in the process of readying the place for contemplated future business operations”)). In addition, and relevant to today’s article, defendants interposed a counterclaim, alleging that plaintiff breached the lease by failing to pay rent and abandoning the premises. Plaintiff responded by arguing that the keys were provided so that it could monitor “ efendants’ progress and so that laintiff could access the space with its own contractors and professionals so that laintiff could begin its construction immediately after efendants’ work was completed.” Id. (citation to the record omitted). Plaintiff maintained that it did not take possession of the premises by taking the keys; instead it was “a mere accommodation.…” Id. The Court found that based upon the record before it, “either party could be the primary contract offender.” Slip Op. at *6. As such, said the Court, “questions as to which party breached first … preclude summary disposition.” Id. (citation omitted). “Therefore,” concluded the Court, “plaintiff’s motion for summary judgment on its claims, and for dismissal of defendants’ counterclaim, sounding in breach of contract, must be denied.” Id. Plaintiff also asserted a claim for unjust enrichment. The Court held that the claim was barred because there was “a valid contract governing the subject matter” of the action and, therefore, “preclude recovery in quasi contract for event arising out of the same subject matter” as the contract. Id. at *6-*7 (citing Adelaide Prods., Inc. v. BKN Intl. AG , 38 A.D.3d 221, 225-226 (1st Dept. 2007) (internal quotation marks and citations omitted). “As such,” the Court denied “plaintiff’s motion for summary judgment on the cause of action, dismissed the cause of action pursuant to CPLR 3212(b). Id. at *7 (citing Abramovitz v. Paragon Sporting Goods Co., Inc. , 202 A.D.2d 206, 208 (1st Dept. 1994)). Takeaway Each party in Marks cast the other in the role of the offender. Thus, a material question of fact existed as to which party breached first. Since the Court’s role on summary judgment is not to determine the credibility of the affiants, summary judgment was denied.

Statutes of limitations limit the duration of a defendant’s liability for all types of alleged wrongdoing. Plaintiffs who do not prosecute their claims within the limitation period will find the courthouse doors closed to their causes of action. The United States Supreme Court has explained that the reason for such statutes is to free a defendant from stale claims. Statutes of limitation, like the equitable doctrine of laches, in their conclusive effects are designed to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared. The theory is that even if one has a just claim it is unjust not to put the adversary on notice to defend within the period of limitation and that the right to be free of stale claims in time comes to prevail over the right to prosecute them. Railroad Telegraphers v. Railway Express Agency , 321 U. S. 342, 348-49 (1944). In New York, the statute of limitations for a claim based on fraud is the greater of (a) six years from the date when the cause of action accrued or (b) two years from the time plaintiff discovered the fraud or could with reasonable diligence have discovered the fraud. CPLR § 213(8). The cause of action accrues when “every element of the claim, including injury, can truthfully be alleged” ( Carbon Capital Mgmt., LLC v. Am. Express Co. , 88 A.D.3d 933, 939 (2d Dept. 2011) (citation and alterations omitted)), “even though the injured party may be ignorant of the existence of the wrong or injury.” Schmidt v. Merchants Despatch Transp. Co. , 270 N.Y. 287, 300 (1936). The two-year discovery rule requires an inquiry into “whether a person of ordinary intelligence possessed knowledge of facts from which the fraud could be reasonably inferred.” Kaufman v. Cohen , 307 A.D.2d 113, 123 (1st Dept. 2003) (internal quotation marks and citation omitted); see also Erbe v. Lincoln Rochester Trust Co. , 3 N.Y.2d 321, 326 (1957). “ ere suspicion will not constitute a sufficient substitute” for knowledge of the fraud. Eberle , 3 N.Y.2d at 326. “Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion and the question should be left to the trier of the facts.” Trepuk v. Frank , 44 N.Y.2d 723, 725 (1978). Moreover, where the circumstances suggest to a person of ordinary intelligence the probability that he/she has been defrauded, a duty of inquiry arises, and if he/she fails to undertake that inquiry when he/she would have developed the truth, and shut his/her eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him/her. Gutkin v. Siegal , 85 A.D.3d 687, 688 (1st Dept. 2011).  The test as to when fraud should with reasonable diligence have been discovered is an objective one. Id. (citation and internal quotation marks omitted). Thus, courts will dismiss a fraud claim when the alleged facts establish that a duty of inquiry existed and that an inquiry was not pursued. See Shalik v. Hewlett Assocs., L.P. , 93 A.D.3d 777, 778 (2d Dept. 2012). “The burden of establishing that the fraud could not have been discovered before the two-year period prior to the commencement of the action rests on the plaintiff, who seeks the benefit of the exception.” Celestin v. Simpson , 153 A.D. 3d 656, 657 (2d Dept. 2017). In Sabourin v. Chodos , 2020 N.Y. Slip Op. 20186 (Sup. Ct., N.Y. County July 30, 2020) ( here ), the foregoing principles were considered by Justice Andrew Borrok in denying defendants’ motion to dismiss plaintiffs’ fraud claim. Background Sabourin concerned a lawyer’s alleged involvement in a complex fraud perpetrated by William Jack Frost (“Frost”), an investor in a fashion and lifestyle magazine known as Z!NK (founded in 2002), on its founders, Isabelle Sabourin (“Sabourin”) and Sheriff Ishak (“Ishak” and with Sabourin, “Z!NK’s Founders”). Although the alleged fraud dates back to 2008, the facts surrounding the lawyer’s involvement are claimed to have been unknown until discovery in an arbitration conducted in 2013-2014 (the “2013-14 Arbitration”).  In 2007, Frost agreed to invest $8 million in Z!NK Magazine in exchange for a 25% equity stake in a new joint venture known as I.T. Global Media, LLC (“ITGM”), which took ownership over Z!NK Magazine and its intellectual property rights. Up until the 2013-14 Arbitration, Z!NK’s Founders understood defendant, Adam Chodos (“Chodos”), to be Frost’s legal representative in the negotiations leading up to the transaction and later ITGM’s legal representative. Frost immediately defaulted on his initial funding obligation, causing Ishak to terminate the deal and remove him as a manager of the company. When Frost later came up with the initial payment, Ishak agreed to revive the deal. That payment was made by one of Frost’s companies, F4 Capital Management, LLC (“F4”). According to plaintiffs, Chodos obtained a portion of the payment from an undisclosed source and transferred that money into F4’s accounts from an account that he controlled. The source of the funds and Chodos’ involvement in the transfer were allegedly not disclosed to Z!NK’s Founders. In June 2008, Frost provided Z!NK’s Founders with a $6 million check drawn on an account in Frost’s father’s name. Frost claimed that his father was a majority equity holder and Chairman of the Board of Synovus Bank in Florida, and that ITGM could earn 1.5% more in interest with Synovus Bank than at any other bank. Z!NK’s Founders agreed to deposit the $6 million check into an account at Synovus Bank. Frost indicated that he would take care of opening the account and depositing the check. Frost allegedly later presented Ishak with forged account statements showing a balance of $6 million. In August 2008, when Sabourin sought to transfer funds from the Synovus Bank account to ITGM’s Commerce Bank account to cover operating expenses, Frost intervened, transferring $230,000 to ITGM’s Commerce Bank account. According to plaintiffs, they did not know that Frost did not transfer the money out of the account at Synovus Bank. Instead, Frost allegedly transferred the money out of his then wife’s account. In September 2008, when Ishak attempted to withdraw money from the Commerce Bank account for payroll, he allegedly learned that there were insufficient funds in the account and that he had been removed as an authorized person on the account. He then allegedly tried to access ITGM’s account at Synovus Bank only to learn that the Synovus Bank account did not exist. Z!NK’s Founders alleged that the foregoing was part of a scheme engineered by Frost and Chodos to wrest control of the Z!NK business and loot its assets. They alleged that, between 2008 and 2010, Frost, with substantial assistance from Chodos, engaged in a campaign of misrepresentations and forgeries in an attempt to take over Z!NK Magazine. On January 27, 2010, Z!NK’s Founders commenced a lawsuit against Frost and others. The complaint was amended on March 18, 2011. Before the commencement of discovery on August 19, 2011, the complaint was dismissed as to certain individuals. On September 13, 2012, the matter was referred to arbitration. Document production in the 2013-14 Arbitration occurred in August 2013 and testimony was taken in September 2013. Through the evidence and testimony adduced in the 2013-14 Arbitration, Z!NK’s Founders alleged that they learned, for the first time, the facts underlying what had transpired. They filed their summons and notice on February 26, 2015, less than two years after the testimony in September 2013. On April 1, 2014, the arbitrator awarded Z!NK’s Founders $56,400,000.00 against Frost. On February 23, 2015, Z!NK’s Founders entered judgment against Frost in the amount of $62,380,605.50. But by the time the judgment was entered, Frost had allegedly disappeared. According to plaintiffs, the documents and testimony adduced during the 2013-14 Arbitration revealed that Chodos had an undisclosed and unknown involvement in the fraud. Z!NK’s Founders alleged that the documentary and testimonial evidence was not known or otherwise available to Z!NK’s Founders concerning Chodos’ alleged participation in the fraud. With the information learned during the 2013-14 Arbitration, Z!NK’s Founders filed suit against Chodos, asserting causes of action for fraud, aiding and abetting fraud, unjust enrichment, aiding and abetting breach of fiduciary duty, civil conspiracy to commit conversion, and tortious interference with economic advantage. Plaintiffs sought damages of not less than $5 million. Chodos moved for summary judgment, arguing that the complaint should be dismissed because (i) the statute of limitations had run, (ii) he should not be held liable for his clients’ actions, and (iii) the damages were not ascertainable. The Court denied the motion in its entirety. The Court’s Decision The Court held that the Z!NK’s Founders did not know or have reason to know that Chodos was allegedly involved in the fraud prior to the 2013-14 Arbitration. Slip Op. at *7. The Court said that “Chodos fail to meet his burden of coming forward with evidence establishing ‘what the Z!NK Founders knew’ and ‘when they knew it,’ or that they could have, with reasonable diligence, discovered any such facts necessary to satisfy CPLR § 3016(b) to have brought an action against him previously.” Id. at *7-*8 (paraphrasing Howard Baker’s oft-quoted question: “What did the President know and when did he know it?”). “In fact,” continued the Court, “the evidence adduced in this case establishe that Z!NK’s Founders were cut-off from records that may have revealed Mr. Chodos’ involvement in the fraud because Mr. Frost literally purloined Z!NK’s business records which theft, based on testimony, was perhaps at the direction and upon advice from Mr. Chodos himself, making it impossible for them to have known the nature and extent of Mr. Chodos’ active participation in the scheme.” Id. at *8. Thus, explained the Court, “Z!NK’s Founders did not know, because they could not have known, about the … conduct by Mr. Chodos until it was disclosed either at the earliest during the document production in August 2013 or when Mr. Chodos and testified on September 18, 2013 during the 2013-14 Arbitration ( i.e. , in either case, well within the 2 year discovery rule as this action was commenced on February 26, 2015).…” Id. “In addition,” said the Court, “Mr. Frost’s former employee … testified that she worked for Mr. Frost as his executive assistant and office manager in 2007 and 2008, during which time she communicated with Mr. Chodos on a weekly and sometimes daily basis and that Mr. Frost took all of his direction from Mr. Chodos and never made any decisions without consulting with him.” Id. As she explained, “Mr. Frost ‘didn’t do anything without calling Adam ’ and, Mr. Chodos ‘was the right-hand man with everything. Whether it was money, business advice, anything, he was his guy.’” Id. at *8-*9. “Significantly,” explained the Court, “at some point in Mr. Frost’s absence, Mr. Chodos even took over the company.” Id. at *9. The Court concluded that “without any of this information learned during the 2013-14 Arbitration, the Z!NK Founders could not have known the detailed facts about Mr. Chodos’ involvement in Mr. Frost’s scheme.” Id. “Accordingly,” the Court held that “there issues of fact precluding summary judgment relating, among other things, to (i) the relationship of Messrs. Chodos and Frost; (ii) the likelihood that Mr. Chodos knew, should have known, or maybe played a role in assisting Mr. Frost in forging the documents or stealing all the business records; (iii) the reasons for the delay in the 2013-14 Arbitration and whether it really took Z!NK’s Founders until the 2013-14 Arbitration to have the facts to satisfy CPLR § 3016(b); and (iv) how Mr. Chodos’ alleged ethical breaches may have further altered Z!NK’s Founders’ ability to learn the facts.” Slip Op. at *9. Under such circumstances, the Court denied the motion for summary judgment. Takeaway Inquiry notice is an important component of the statute of limitations analysis. Courts look to whether the facts suggest to a person of ordinary intelligence the probability that he/she has been defrauded. If they do, a duty of inquiry arises. If the plaintiff fails to undertake that inquiry when he/she could have developed the truth and shut his/her eyes to the facts which call for investigation, knowledge of the fraud will be imputed to the plaintiff.  In Sabourin , the Court found that the facts were concealed from plaintiffs. As explained, plaintiffs “did not know, because they could not have known,” about defendant’s alleged conduct “until it was disclosed either at the earliest during the document production in August 2013 or when Mr. Chodos and testified on September 18, 2013 during the 2013-14 Arbitration.” Without such evidence, plaintiffs could not have been on inquiry notice of the alleged fraud. Since plaintiffs filed suit within two years of 2013-14 Arbitration, plaintiffs timely commenced their lawsuit.