Commercial Division Blog

Posted: May 5, 2021 / Categories Commercial, Fraud/Misrepresentation, Securities

Misrepresentations Causing Investor Not to Sell a Security (Holder Claims) Not Actionable Under New York Law

On April 22, 2021, the First Department issued a decision in Feinberg v. Marathon Patent Group Inc., 2021 NY Slip Op. 02452, holding that holder claims are not actionable under New York law, explaining:

We also find that the court correctly dismissed the state law claims for common-law fraud and negligent misrepresentation, which are "holder" claims based on alleged fraudulent and/or negligent misrepresentations that caused plaintiff Feinberg to refrain from selling shares of defendants' stock. We conclude that New York law is the proper law to apply based on the interests analysis. Under our precedents, holder claims violate the out-of-pocket rule governing damages recoverable for fraud, and are not actionable. Were we to apply California law, we would find that the holder claims fail to meet the heightened pleading requirements California courts have imposed on such claims.

(Internal quotations and citations omitted).

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