A new decision of the Appellate Division, First Department (Board of Mgrs. of the Latitude Riverdale Condominium v 3585 Owner, LLC, 2021 NY Slip Op 06072 (1st Dep’t Decided Nov. 9, 2021), has triggered a discussion of the intersection between common law fraud claims and the New York State Martin Act …

The Martin Act

A so-called “blue sky law,” Article 23-A of New York’s General Business Law, commonly referred to as the Martin Act, is a statute that empowers New York’s Attorney General to prosecute a wide range of alleged securities-related offenses. Section 352-c prohibits “any person, partnership, corporation, company, trust or association, or any agent or employee thereof,” from engaging in a variety of fraudulent practices in connection with the “issuance, distribution, exchange, sale, negotiation or purchase within or from [New York] of any securities or commodities.” 123-A N.Y. Gen. Bus. Law §352-c. Unlike common law fraud, Section 352-c does not require the Attorney General to plead or prove that an alleged violator acted with scienter, and a number of other elements of common law fraud are not required.  See State v. Sonifer Realty Corp., 212 A.D.2d 366, 367 (1st Dept. 1995) (“[T]he fraudulent practices targeted by the statute need not constitute fraud in the classic common law sense, and reliance need not be shown in order to obtain relief.”) (citing People v. Royal Sec. Corp., 165 N.Y.S.2d 907, 909 (Sup. Ct. N.Y. County 1955)); People v. Barysh, 408 N.Y.S.2d 190, 193 (Sup. Ct. N.Y. County 1978) (holding that the Martin Act does not require reliance or scienter); Royal Sec. Corp., 165 N.Y.S.2d at 909 (scienter, reliance, and damages are not needed for Martin Act violation). A separate part of the Martin Act, Section 352-e, grants the Attorney General authority to regulate offers and sales of interests in cooperative and condominium apartment buildings. Among other things, Section 352-e and its corresponding regulations require the sponsors of cooperatives and condominiums to issue offering statements or prospectuses with specified disclosures about aspects of the project. See 23-A N.Y. Gen. Bus. Law §352-e.

The Martin Act does not provide for private causes of action based upon its violation. CPC International Inc. v. McKesson Corp., 370 N.Y.2d 268 (1987).   In many cases, however, plaintiffs would try to base their assertion of common law claims on the same conduct that was barred by the Martin Act, principally, omissions of material information as opposed to outright misrepresentations.  Defendants argued that those type of claims were “preempted” by the Martin Act because they were restricted strictly to enforcement by the Attorney General.  In Assured Guar. [UK] Ltd. v. J. P. Morgan Inv. Mgt. Inc., 18 NY3d 341, 353 [2011], the New York Court of Appeals ultimately decided this issue, ruling that common law claims of fraud could co-exist with Martin Act violations and enforcement so long as there was a basis for the claim independent of the Martin Act.  The law was nicely summarized by Justice Edmead in the decision in Board of Managers of The 369 Harman Street Condominium v. 369 Harman LLC, Donald Fellner, and Steven Novak, No. 450386/2018, 2018 WL 3972359 (N.Y.Sup.), 2018 N.Y. Slip Op. 32026(U) (Aug. 20 2018), as follows:

The Martin Act is a disclosure statute which is designed to protect the public from fraud in the sale of real estate securities, and the Attorney General is charged with enforcing its provisions and implementing regulations (see Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. Partnership, 12 NY3d 236, 243-44 [2009]; CPC Intl. v. McKesson Corp., 70 N.Y.2d 268, 276-77 [1987]). A private common-law cause of action for fraud may be brought by a plaintiff where its basis is distinct from the Martin Act and it “is not entirely dependent on the Martin Act for its viability” (Assured Guar. [UK] Ltd. v. J. P. Morgan Inv. Mgt. Inc., 18 NY3d 341, 353 [2011]). Thus, a plaintiff[‘]s claims are not preempted by the Martin Act where the plaintiff alleges “not that [the] defendant omitted to disclose information required under the Martin Act but that it affirmatively misrepresented, as part of the offering plan, a material fact about the condominium” (Bhandari v. Ismael Leyva Architects, P.C., 84 AD3d 607, 607 [1st Dept 2011]).

However, “a private litigant may not pursue a common-law cause of action where the claim is predicated solely on a violation of the Martin Act or its implementing regulations and would not exist but for the statute” (Assured Guar. [UK] Ltd., 18 NY3d at 353). Thus, there is no private right of action where the fraud alleged by plaintiff rely [sic] entirely upon alleged omissions in filings required by the Martin Act (Kerusa Co. LLC, 12 NY3d at 247; Berenger v. 261 W. LLC, 93 AD3d 175, 184 [1st Dept 2012]).

Fraud Based Upon Omissions

Cases after Assured have seemed to draw the line on whether the fraud claim is based simply upon “omissions” or affirmative misrepresentations, ruling that omissions (required to be disclosed by the Martin Act) could not form the sole basis of a common law fraud claim.  Language of this nature was repeated in the First Department’s recent decision in Board of Mgrs. of the Latitude Riverdale Condominium v 3585 Owner, LLC, 2021 NY Slip Op 06072 (1st Dep’t Decided Nov. 9, 2021): “The Board’s fraudulent inducement claim is not preempted by the Martin Act because it is based upon allegations of affirmative misrepresentations, not omissions (Von Ancken v 7 E. 14 L.L.C., 171 AD3d 440, 441 [2019]; see Board of Mgrs. of the S. Star v WSA Equities, LLC, 140 AD3d 405, 405 [1st Dept 2016]).”

This statement is correct on its face.  But common law fraud can in fact be based upon alleged material or misleading omissions, apart from any requirements of the Martin Act.  I have written often about the circumstances under which concealing or omitting information (as opposed to affirmatively misrepresenting facts) can form the basis of a fraud claim.  See, for example, “Concealing or Failing to Disclose Material Information: When is it Actionable in Fraud?”  Also, my Topic heading “Concealment or Omission” collects relevant case law on this point more broadly.  Thus, even “omissions” could form the basis of a common law fraud claim without depending upon the Martin Act.  The short-hand way courts quickly describe the law should not be interpreted to bar legitimate fraud claims based upon omissions that are recognized under existing principles of the common law.


There are many circumstances under which fraud claims can legitimately be based upon omissions or concealments rather than simply factual misrepresentations.  These existing common law claims – that have been traditionally recognized apart from any requirements of the Martin Act – should in fact be allowed to exist.  Short or inartful comments in court decisions should not otherwise be interpreted to bar such claims.