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PETITIONER OBTAINED JUDGMENTS EXCEEDING $1 BILLION AGAINST RESPONDENTS STEMMING FROM THE 2008 FINANCIAL CRISES WHICH HAVE YET TO BE SATISFIED; PETITIONER BROUGHT THIS TURNOVER PROCEEDING IN 2023; THE CORPORATE VEIL-PIERCING CLAIM AND THE FRAUDULENT CONVEYANCE AND VOIDABLE TRANSACTIONS CAUSES OF ACTION PROPERLY SURVIVED THE MOTION TO DISMISS (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Higgitt, affirmed the denial of the motion to dismiss the corporate veil-piercing claim and the fraudulent conveyance and voidable transactions causes of action: The respondents have not satisfied a pair of judgments totaling more than $1 billion stemming from the 2008 financial crisis. The petitioner, UBS, commenced this turnover proceeding pursuant to CPLR 5225 in 2023:

… UBS alleged that, after it secured the first judgment, it discovered that [respodents] had conspired to frustrate UBS’s ability to recover against the judgment debtors. UBS alleged that [respondents], exercising complete domination over the judgment debtors and other related entities, transferred the debtors’ assets to themselves or other entities that they controlled in an effort to avoid paying UBS any of the obligations stemming from … the judgments. * * *

For pleading purposes, a party seeking to pierce the corporate veil does not have to satisfy the heightened pleading requirement imposed on one interposing a cause of action for fraud (see CPLR 3016); rather, the party must plead facts that would establish that the individual defendant’s domination of the corporation was used to perpetrate a wrong or injustice against the party, and the allegations of domination must be adorned with particularized allegations of consequent wrongs … .  Matter of UBS Sec. LLC v Dondero, 2026 NY Slip Op 05460, First Dept 9-24-26

Practice Point: Consult this opinion for insight into the pleading requirements for piercing the corporate veil and fraudulent conveyance and voidable transactions causes of action in the context of a (post-judgment) turnover proceeding pursuant to CPLR 5225.

 

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THE FEDERAL “ENDING FORCED ARBITRATION OF SEXUAL ASSAULT AND SEXUAL HARASSMENT ACT (EFAA)” PRECLUDED THE ENFORCEMENT OF A MANDATORY ARBITRATION CLAUSE IN A CONTRACT BETWEEN PLAINTIFF COLLEGE STUDENT AND HER SORORITY; THEREFORE PLAINTIFF COULD SUE THE SORORITY IN NEGLIGENCE FOR COMPELLING HER TO ATTEND A MIXER WHERE SHE WAS SEXUALLY ASSAULTED (SECOND DEPT). ​

The Second Department, reversing Supreme Court in a matter of first impression, in a full-fledged opinion by Justice Landicino, determined that the federal “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act” (EFAA) precluded arbitration in a negligence suit by a college student against her sorority. Plaintiff-student alleged she was compelled by her sorority to attend a mixer with a fraternity where she was sexually assaulted. The contract between plaintiff and the sorority included a mandatory arbitration clause:

This case presents an issue of first impression for this Court: whether the …. EFAA … can serve to prevent arbitration, notwithstanding an arbitration clause in a contract between the parties, of an action sounding in negligence against a party that did not commit the alleged sexual assault. We hold that it can, under the circumstances presented here.

… According to the complaint, the plaintiff attended SUNY Cortland and was a member of the [defendant] sorority … .. … [A] fraternity chapter, Pi Kappa Phi … , allegedly held a mixer event off campus … . According to the complaint, the plaintiff, as a member of the sorority, was “expected and obligated by [the] sorority to attend the mandatory mixer event to be hosted by the fraternity.” The fraternity purportedly provided alcohol and other intoxicating substances to the attendees at the mixer event, which caused the plaintiff to become impaired. Allegedly, while attending the mixer event, the plaintiff met a member of the fraternity (hereinafter the alleged abuser) who took the plaintiff to a nearby premises where he sexually assaulted her. * * *

The issue raised on this appeal is whether the plaintiff may invoke the EFAA to prevent arbitration of her claims where the sorority did not commit the alleged sexual assault. The plaintiff’s cause of action in this matter does not sound in sexual assault. Rather, the cause of action sounds in negligence based on the alleged failure of the sorority to supervise and protect its members at a function that the members were required to attend, which exposed the plaintiff to the sexual assault. The question is whether the EFAA can bar arbitration of a complaint sounding in negligence only. * * *

… [A]lthough the sorority contends that the plaintiff’s cause of action sounds in negligence as opposed to sexual assault, that distinction is immaterial here. The negligence cause of action is “related” to the sexual assault dispute alleged in the complaint, which is all that is required under the EFAA … . While the sorority is a third party that was not directly involved in the sexual assault, the negligence claim is nonetheless “related” to the sexual assault dispute inasmuch as the plaintiff contends that the sorority placed her in a dangerous circumstance that led to the sexual assault. There is a clear logical nexus between the cause of action alleged in the complaint and the alleged sexual assault, which places this matter squarely within the ambit of the EFAA. C.N. v Sigma Delta Tau Socy., 2026 NY Slip Op 05405, Second Dept 9-23-26

Practice Point: Here plaintiff student sued her sorority in negligence for compelling her to attend a mixer with a fraternity where she was sexually assaulted. Plaintiff’s contract with the sorority included a mandatory arbitration clause. The federal “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act” (EFAA) applied to these facts to preclude enforcement of the arbitration clause.

 

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THIS OPINION DEMONSTRATES HOW COURTS DEAL WITH INTERPRETING THE LANGUAGE OF A CONTRACT WHERE DICTIONARY DEFINITIONS OF A KEY WORD, HERE THE WORD “COMMIT,” SUPPORT THE OPPOSING POSITIONS OF THE PARTIES (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Renwick, over a detailed dissent, affirmed the lower court’s interpretation of the contract language and the related denial of plaintiff’s demand for prevailing-party attorney’s fees. The opinion turned on the definition of “commit” and is too detailed to fairly summarize here. The opinion should be consulted for insight into the interpretation of contract language where dictionary definitions support the opposing positions of the parties. Aurelius Capital Master Ltd. v Hertz Intl. Ltd., 2026 NY Slip Op 05369, First Dept 9-22-26

 

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PLAINTIFF-TEACHER WAS STRUCK IN THE BACK BY A BASKETBALL THAT BOUNCED OFF THE RIM DURING A RECESS-PERIOD BASKETBALL GAME; PLAINTIFF SUED THE COMPANY WHICH CONTRACTED WITH THE SCHOOL TO PROVIDE A BASKETBALL COACH FOR RECESS GAMES; NO “ESPINAL”EXCEPTIONS APPLIED SO PLAIINTIFF, AS A NON-PARTY, COULD NOT SUE UNDER THE CONTRACT; IN ADDITION, PLAINTIFF, BY STANDING 10 TO 12 FEET FROM THE BASKETBALL COURT, ASSUMED THE RISK OF BEING STRUCK BY A BASKETBALL (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiff-teacher’s action against the company hired by the school (Asphalt Green) to provide a basketball coach for school recess-periods should have been dismissed. Plaintiff was standing 10 to 12 feet from the basketball court when a basketball bounced off the rim and struck her in the back. Plaintiff was not a party to the contract between the school and Asphalt Green and none of the Espinal exceptions applied. In addition, plaintiff assumed the risk of being struck by a basketball:

A contracting party can assume a duty of care toward a third party where: 1) “the contracting party, in failing to exercise reasonable care in the performance of his duties, launches a force or instrument of harm”; 2) “the plaintiff detrimentally relies on the continued performance of the contracting party’s duties”; or 3) “the contracting party has entirely displaced the other party’s duty to maintain the premises safely” (Espinal, 98 NY2d at 140 [internal citations omitted]). However, none of these exceptions apply to this case.

The facts do not establish that defendants launched an instrument of harm. * * * A missed basketball shot that bounces off the rim isa frequent occurrence in basketball games. * * * There is no claim that this was anything other than a normal basketball game being played during recess. * * *

Under the primary assumption of risk doctrine, “one is deemed to have assumed, as a voluntary participant, spectator, or even bystander certain risks occasioned by athletic or recreational activity, and to the extent of such an assumption, any legally enforceable duty to reduce the risks of such activity is limited” … . Carrero-Santiago v Asphalt Green, Inc., 2026 NY Slip Op 05144, First Dept 8-27-26

Practice Point: Plaintiff-teacher was not a party to the contract between the school and the company which provided a recess basketball coach. Because no “Espinal” exceptions applied, plaintiff, who was struck by an errant basketball while supervising recess, could not sue under the contract.

Practice Point: Plaintiff-teacher, who was standing 10 to 12 feet from the basketball court while supervising recess, assumed the risk of being struck by a basketball.

 

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THE PRELIMINARY INJUNCTION SHOULD NOT HAVE BEEN GRANTED; THE “LIKELIHOOD OF SUCCESS” ELEMENT WAS NOT ADEQUATELY DEMONSTRATED BY ALLEGATIONS MADE BASED ON “INFORMATION AND BELIEF;” AND THE “IRREPARABLE HARM” ELEMENT WAS NOT DEMONSTRATED BECAUSE PLAINTIFF DID NOT EXPLAIN WHY THE INJURY COULD NOT BE ADEQUATELY ADDRESSED BY MONEY DAMAGES (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the criteria for a preliminary injunction were not met. The “likelihood of success” element was not demonstrated by allegations based upon “information and belief.” In addition plaintiff did not demonstrate the “irreparable harm” element because plaintiff failed to explain why money damages would not adequately compensate for the injury:

In an affidavit in support of the motion for a preliminary injunction, the plaintiff’s statements … were made only upon “information and belief,” and the plaintiff submitted no evidence … .

The plaintiff also failed to establish irreparable harm. To establish irreparable harm, the plaintiff must demonstrate an injury for which money damages are insufficient … . Here, the plaintiff attested in his affidavit that, if the defendant were permitted to enforce the agreement, the defendant would be entitled to 100% of the plaintiff’s business’s revenue and the business would inevitably cease operation. The plaintiff … failed to demonstrate that this injury could not be adequately compensated by money damages. Culp v Silverline Servs., Inc., 2026 NY Slip Op 05077, Second Dept 8-26-26

 

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IN THIS LABOR LAW ARTICLE 6 AND BREACH OF CONTRACT ACTION FOR UNPAID COMMISSIONS, PLAINTIFF, WHO SUED GAIA PRODUCE AS HIS EMPLOYER, SOUGHT TO AMEND THE COMPLAINT TO ADD ANOTHER PARTY AS HIS EMPLOYER; BASED UPON THE DEFINITION OF “EMPLOYER” IN THE LABOR LAW, THE PROPOSED AMENDMENT WAS PROPER AND SHOULD HAVE BEEN ALLOWED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff should have been allowed to amend the complaint to add a defendant, Nehoumovich. The suit against plaintiff’s employer, Gaia Produce, alleged the failure to pay commissions in violation of Labor Law article 6. Plaintiff alleged Nehoumovich was also plaintiff’s employer. Based on the definition of “employer” in the Labor Law, the Second Department held the proposed amendment was not palpably insufficient or patently devoid of merit:

“Article 6 of the Labor Law sets forth a comprehensive set of statutory provisions enacted to strengthen and clarify the rights of employees to the payment of wages” … . “Labor Law § 190(3) broadly defines an ’employer’ as ‘any person, corporation, limited liability company, or association employing any individual in any occupation, industry, trade, business or service'” … . “Under the ‘economic reality’ test, the relevant factors include whether the alleged employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records” … . The Supreme Court is “also free to consider any other factors it deems relevant to its assessment of the economic realities” … .

Here, the proposed amendment to add Nahoumovich as a defendant was not palpably insufficient or patently devoid of merit … . The proposed amended complaint alleged, inter alia, that Nahoumovich was “responsible for . . . hiring and firing,” that he “supervised [the] [p]laintiff,” “assign[ed] [the plaintiff] responsibilities concerning negotiating, pricing, and collecting,” that he “was involved in determining the terms and conditions of [the plaintiff’s] employment” and “how [the plaintiff’s] commissions were calculated,” and that he “overs[aw] commission reports.” The plaintiff further submitted a transcript of his own deposition testimony regarding those allegations, and that of Nahoumovich, who acknowledged, among other things, that he made certain hiring recommendations, supervised the plaintiff, provided the plaintiff with directives, and set up the commission structure. The fact that Nahoumovich did not sign the plaintiff’s paychecks is not dispositive … . Under the totality of the circumstances presented here, the plaintiff plausibly alleged that Nahoumovich was an “employer” within the meaning of Labor Law § 190(3) … . Sproule v Gaia Produce, LLC, 2026 NY Slip Op 04971, Second Dept 8-12-26

Practice Point: Consult this decision for insight into the criteria for determining whether a party is an “employer” within the meaning of the Labor Law in an action seeking unpaid commissions.

 

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ONCE THE PARTIES ENTERED A STIPULATION OF DISCONTINUANCE, SUPREME COURT WAS DIVESTED OF JURISDICTION; THEREFORE SUPREME COURT DID NOT HAVE JURISDICTION TO CONSIDER THE SUBSEQUENT MOTION TO VACATE THE STIPULATION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined Supreme Court had been divested of jurisdiction over the case when the parties entered a stipulation of discontinuance. Therefore Supreme Court did not have jurisdiction to consider the motion to vacate the stipulation of discontinuance:

“‘A motion must be addressed to a pending action'” … . A court lacks jurisdiction to entertain a motion after the action has been unequivocally terminated by the execution of an express, unconditional stipulation of discontinuance … “or actual entry of judgment in accordance with the terms of the settlement” … .

Here, the Supreme Court lacked jurisdiction to entertain the plaintiff’s motion, among other things, to vacate the stipulation of discontinuance and to restore the action to the court’s active calendar. The action was unconditionally discontinued by the stipulation of discontinuance executed by the plaintiff and the defendant and filed with the court, in which the plaintiff withdrew the complaint and discontinued all claims interposed in the action, and the stipulation was silent as to the court’s retention of jurisdiction for any purpose … . Accordingly, under the circumstances, the plaintiff’s requested relief was not available by way of a motion and could only be obtained by commencing a plenary action … . HSBC Bank USA, N.A. v Rini, 2026 NY Slip Op 04845, Second Dept 8-5-26

Practice Point: Here the parties entered a stipulation of discontinuance, thereby divesting the Supreme Court of jurisdiction over the case. Supreme Court therefore could not consider the subsequent motion to vacate the stipulation.

 

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PLAINTIFFS PROPERLY ALLOWED TO AMEND THE COMPLAINT TO ADD THE INSURER (WHICH PAID PLAINTIFFS FOR THEIR LOSSES) AS A PLAINTIFF UNDER THE RELATION-BACK DOCTRINE (AFTER THE STATUTE OF LIMITATIONS HAD RUN FOR AN INDEPENDENT SUBROGATION ACTION) (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Friedman, determined Supreme Court properly allowed plaintiffs to amend the complaint to add the insurer which paid plaintiffs’ losses as a plaintiff. The statute of limitations had passed for a separate subrogation action:

While an application to amend a pleading pursuant to CPLR 3025 lies within the court’s sound discretion, “there is no sound basis in law to grant amendment pursuant to CPLR 3025(c) to add an untimely claim” … . Thus, a pleading cannot be amended to assert a new claim for which the statute of limitations has expired unless the assertion of the new claim is deemed to relate back to an earlier operative pleading that was filed while the new claim still would have been timely (see id.). Whether a new claim relates back to the time of the filing of the earlier pleading is governed by CPLR 203(f), which provides:

“A claim asserted in an amended pleading is deemed to have been interposed at the time the claims in the original pleading were interposed, unless the original pleading does not give notice of the transactions, occurrences, or series of transactions or occurrences, to be proved pursuant to the amended pleading.”

In determining whether the original pleading provides the requisite notice of the transactions or occurrences underlying the proposed new claim, a court “should not . . . look[] beyond the four corners of the original pleading” … . * * *

… [T]he “transactions, occurrences, or series of transactions or occurrences” referenced in CPLR 203(f), and to be proved in support of the subrogation claim interposed in the proposed [amended complaint] — defendants’ management of the renovation project — are precisely the same “transactions, occurrences, or series of transactions or occurrences” alleged in the earlier complaints. As plaintiffs point out, the only effect of the assertion of the subrogation claim is to shift the claim for a portion of the damages allegedly caused by defendants’ alleged wrongdoing from the … plaintiffs to … their insurer. 217 Trust v VIR Constr., Inc, 2026 NY Slip Op 04824, First Dept 7-30-26

Practice Point: Here plaintiffs’ insurer, which paid plaintiffs for losses which are the subject of the complaint, was properly added to the complaint as a plaintiff, after the statute of limitations for a separate subrogation action had passed, pursuant to the relation-back doctrine.

 

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THE PARTIES IN THIS DIVORCE PROCEEDING ENTERED A LITIGATION FUNDING AGREEMENT IN WHICH DEFENDANT ADVANCED FUNDS TO PLAINTIFF IN RETURN FOR THE ASSIGNMENT OF PROCEEDS FROM THE DIVORCE CLAIM; DESPITE THE INCLUSION OF THE TERM “THIS IS NOT A LOAN” IN THE AGREEMENT, THE FIRST DEPARTMENT HELD THE AGREEMENT WAS IN FACT AN INVALID LOAN AT A USURIOUS 18.96% ANNUAL INTEREST RATE (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Michael, reversing (modifying) Supreme Court, determined the parties’ divorce-litigation funding agreement was a usurious loan, not an investment, and was therefore void and unenforceable:

The parties entered into a Purchase and Sale Agreement, dated May 23, 2018 (the PSA), wherein defendant agreed to advance approximately$200,000 to plaintiff to fund the legal costs of plaintiff’s pending divorce action. In return, plaintiff agreed to assign to defendant his right to receive any proceeds from the divorce claim up to the amount owed to defendant under the PSA. The “Proceeds” consisted of “the total recovery from the Claim” and the “Claim” was defined as plaintiff’s right, title, and interest in and to any amount granted to plaintiff in connection with his pending divorce action, any appeal or settlement with respect thereto, and any related action. * * *

The PSA clarified that “THIS IS NOT A LOAN” and was expressly contingent on plaintiff’s “successful” recovery on the Claim. It proclaimed that “[i]f there is no recovery on the Claim, nothing will be owed to [defendant].” Yet, several provisions of the PSA together with the Sweetheart Guaranty … , entitled defendant to recoup the money it advanced plus interest even if “there is no recovery on the Claim,” such as in the event of plaintiff’s death or reconciliation with his wife. * * *

Considering the totality of the circumstances … , we find that the parties’ PSA was in fact a loan. The only remaining question is whether the loan was usurious. A loan is usurious if the interest exceeds the maximum legal rate of 16% (see General Obligations Law § 5-501[1], [2]; Banking Law § 14-a[1]). It is undisputed that under the PSA, interest accrued at 18.96% annually, which exceeds the legal limit. Denemark v New Ch. Capital, Inc., 2026 NY Slip Op 04553, First Dept 7-23-26

Practice Point: Consult this opinion for insight into when an agreement constitutes a “loan” subject to the usury law rather than an “investment.”

 

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ALTHOUGH THE CONTRACT WAS BETWEEN SOPHISTICATED PARTIES, THE CLAUSE “THE OWNER AND ARCHITECT AGREE TO MUTUALLY WAIVE EACH OTHER [SIC] RIGHT TO SUE OR PLACE CLAIMS AGAINST EACH OTHER” WAS VOID AS AGAINST PUBLIC POLICY (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the contract clause “THE OWNER AND ARCHITECT AGREE TO MUTUALLY WAIVE EACH OTHER [sic] RIGHT TO SUE OR PLACE CLAIMS AGAINST EACH OTHER” was unenforceable as against public policy:

… [T]he waiver provision … purports to completely foreclose the possibility of any form of judicial or nonjudicial review. Although … the agreement was negotiated at arm’s length between sophisticated parties, freedom of contract is not merely an individual right, and enforcing the waiver provision has implications beyond the individual choices of the contracting parties … . In 159 MP Corp. v Redbridge Bedford, LLC (33 NY3d 353), the Court of Appeals upheld a waiver precluding the plaintiffs from commencing a declaratory judgment action. The Court of Appeals noted that “[c]ritically, the waiver clause at issue here does not preclude access to the courts but leaves available other judicial avenues through which plaintiffs may adjudicate their rights under the leases” … . The Court of Appeals specified that “the waiver does not impair plaintiffs’ ability to seek damages on breach of contract or tort theories” … .

Here, in contrast, the waiver provision precludes access to the courts and leaves no judicial or nonjudicial avenues through which the plaintiff may adjudicate his rights under the agreement. Thus, the waiver provision is void and unenforceable as against public policy … . Hochhauser v Urban Off. Architecture, PLLC, 2026 NY Slip Op 04491, Second Dept 7-22-26

Practice Point: A contract clause with waives all access to the courts is void as against public policy.​

 

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