Common Law Fraud Survives the Martin Act

The New York Court of Appeals ruled today that New York’s securities anti-fraud statute known as the Martin Act does not preclude a private right of action for common law fraud. Assured Guaranty v. J.P. Morgan Investment Management Inc. The Court in its 1987 ruling in CPC International v. McKesson Corp held that the Martin Act did not create a new private right of action. 24 years later the Court clarifies that ruling by stating that although a new action was not created, all common law claims survived the passage of the statute. Although the Assured decision did not involve cooperative or condominiums, much of the Martin Act litigation has been aimed at sponsors of co-op and condo projects since the Act treats the interests sold as securities. Since the Act is a disclosure act it will be fascinating to follow the litigation that will follow Assured. Buyers will plead common law fraud claims based in large part no doubt on statements made in the Martin Act’s required offering plans. Of course the plaintiff will still be required to plead and prove the other elements of common law fraud including materiality and reliance. But as the Court ruled, “mere overlap between the common law and the martin Act is not enough to extinguish common-law remedies.“

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