Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: June 24, 2018

Court Refuses to Dissolve LLC, Holding That Members’ Disputes Were Insufficient to Justify Dissolution

On June 11, 2018, Justice Dufficy of the Queens County Commercial Division issued a decision in Matter of Kassab v. Kasab, 2018 NY Slip Op. 50934(U), refusing to dissolve an LLC despite the many disputes between the members, explaining:

A court may order the dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement. The statute does not define the term reasonably practicable. In determining whether a limited liability company should be dissolved, pursuant to Section 702, the court must first examine the limited liability company’s operating agreement to determine, in light of the circumstances presented, whether it is or is not reasonably practicable for the limited liability company to continue to carry on its business in conformity with the operating agreement, and not whether it is impossible. The petitioner seeking judicial dissolution must either show that the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved, or that continuing the entity is financially unfeasible. If the general nature of the business purpose is ultimately vague, the evidence must make it clear that the purpose of the company is no longer being fulfilled to necessitate dissolution.

Disputes between members are not sufficient to warrant the exercise of judicial discretion to dissolve an LLC that is operated in a manner within the contemplation of it purposes and objectives as defined in its articles of organization and/or operating agreement. It is only where discord and disputes by and among the members are shown to be inimical to achieving the purpose of the LLC will dissolution under the not reasonably practicable standard imposed by LLC § 702 be considered by the court to be an available remedy to the petitioner.

Here, accepting as true the facts alleged in the petition/complaint and according the petitioner the benefit of every favorable inference the petitioner has failed to state a cause of action for judicial dissolution of the LLC, pursuant to Limited Liability Company Law § 702, based on his allegations of oppressive conduct and the respondent’s efforts to exclude him from the management of the LLC which are alleged to have occurred in the years since the filing of the first unsuccessful petition to dissolve Mall.

Mall’s Operating Agreement, dated March 13, 2001, and signed by both Nissim and Avraham, states that its purpose is “engaging in any lawful act or activity for which limited liabilities companies may be formed under the LLCL and engaging in any and all activities necessary or incidental to the foregoing.” Nissim and Avraham did not execute a subsequent Operating Agreement. As a result of the Corner dissolution proceeding, that portion of the parking lot that exists on Corner’s two adjoining lots has been closed and said properties are to be sold.

Mall continues to hold a license to operate a parking lot. Contrary to the petitioner’s allegations, this Court did not find that Mall’s property, Lot 24, is completely inaccessible from the street. A portion of Mall’s real property abuts the public sidewalk, but does not currently have a curb cut or driveway that would allow vehicles to enter said property from the street. However, the absence of a curb cut or driveway on Lot 24 is not determinative here, as the petitioner does not claim that Mall was formed for the purpose of operating a parking lot/flea market on its property, or that Mall is required to continue to operate such a business. It is undisputed that Mall is a real estate holding company and that it owns a unimproved parcel of real property (Block 10101, Lot 24). Petitioner does not allege that Mall is unable to pay its expenses related to the ownership of its real property, and, therefore, it continues to be a viable real estate holding company. Petitioner’s allegations, thus, are insufficient to demonstrate that the management of Mall is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved or that continuing the entity is financially unfeasible.

The Court further finds that the petitioner’s allegations are insufficient to demonstrate that the discord and disputes between himself and Avraham are inimical to achieving Mall’s purpose. The fact that Avraham has excluded Nissim from participating in the operation of Mall, and that in the past they have had different views regarding business opportunities related to the real property owned by Corner and Mall, is insufficient to warrant a dissolution of the subject limited liability company. Accordingly, that branch of respondent’s motion which seeks to dismiss the petition for judicial dissolution of Mall, on the grounds of failure to state a cause of action, is granted.

(Internal quotations and citations omitted) (emphasis added).

This decision relates to a significant part of our practice: business divorce (a break-up between the owners of a closely-held business). Indeed, Schlam Stone & Dolan partner Jeffrey M. Eilender and associate Lee J. Rubin were contributors to the recently-released 2017 Supplement to Litigating the Business Divorce by Kurt Heyman and Melissa Donimirski. Contact Jeffrey Eilender at or Schlam Stone & Dolan partner John Lundin at if you or a client have questions regarding a business divorce.

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Posted: June 23, 2018

Answer Stricken as Sanction for Spoliation of Evidence

On June 8, 2018, Justice Masley of the New York County Commercial Division issued a decision in Kamco Supply Corp. v. Nastasi & Associates, Inc., 2018 NY Slip Op. 31200(U), striking an answer as a sanction for spoliation of evidence, explaining:

A party seeking spoliation sanctions must show that: (1) the party having control over the evidence possess an obligation to preserve it at the time of its destruction; (2) the evidence was destroyed with a culpable state of mind; and (3) the destroyed evidence was relevant to the party’s claim or defense such that the trier of fact could find that the evidence Would support that claim or defense.

Here, the Nastasi Defendants had control over the evidence, and the culpable state of mind of the Nastasi Defendants can be inferred by the fact that they never responded or attempted to comply with this court’s October 6, 2015 order prior to the destruction of N&A books and records in December 2015, despite having received the order with notice of entry and Kamco’s related discovery demands in October and early-November 2015; indeed, Nastasi was a co-trustee of the Family Trust that rented office space to, and evicted, N&A, purportedly leading to the destruction of all business records of the Nastasi Defendants, which the Nastasi Defendants totally failed to preserve. Additionally, the destroyed evidence is plainly relevant in that it would establish the putative class and the extent of damages, if any; Kamco and other similarly situated beneficiaries sustained.

Accordingly, the answer of the Nastasi Defendants is stricken.

(Internal quotations and citations omitted) (emphasis added).

A big part of complex commercial litigation is giving, receiving and evaluating evidence (this is called “discovery”). This decision discusses the problem of litigants not performing their discovery obligations and what can happen to them if they do not. Contact Schlam Stone & Dolan partner John Lundin at if you or a client has a question regarding discovery obligations (and what to do if a litigant is not honoring those obligations).

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Posted: June 22, 2018

Statute of Frauds Exception for Contract to Pay Lawyer for Negotiating Sale of Business Does Not Require Attorney-Client Relationship

On June 12, 2018, Justice Ostrager of the New York County Commercial Division issued a decision in Wiesen v. Potter, 2018 NY Slip Op. 31197(U), holding that the exception to the statute of frauds for contracts to pay a lawyer to negotiate the sale of a business does not require an attorney-client relationship, explaining:

To the extent that no written agreement can be found in the email communications between the parties, Wiesen asserts that an oral agreement was formed with Stoller on a January 25, 2012 telephone call. Defendants argue that such an oral agreement is barred by the Statute of Frauds. In particular, New York General Obligations Law§ 5-701(a)(IO) provides that every agreement is void unless it or some memorandum thereof be in writing in case of a contract to pay compensations for services rendered in negotiating sale of business, but that provisions shall not apply to a contract to pay compensation to an attorney at law.

Here, it is undisputed that Wiesen is an attorney admitted to practice in New York. The weight of precedent establishes that it makes no difference whether Wiesen has recently practiced law or whether he was acting in his capacity as an attorney for purposes of this sale of shares transaction. The New York Court of Appeals has declined to construe this exemption narrowly and has thus held that an attorney need not enjoy the attorney-client relationship with the parties from whom he seeks compensation in order to avail himself of the statutory exemption of § 5-701(a)(10). Absent some indication from the New York courts or legislature that a functional rather than literal interpretations is to be applied, we decline to read the words attorney at law to cover some members of the New York bar and not others. Thus, while Wiesen was not acting in his capacity as an attorney for purposes of the purported sale of shares transaction, his alleged oral agreement is, nevertheless, not barred by the Statute of Frauds. Therefore, Defendant Stoller’s motion to dismiss Plaintiff’s breach of contract claim is denied.

(Internal quotations and citations omitted).

Contract law–usually straightforward–has traps for the unwary, like the requirement that some contracts be in writing (the statute of frauds). And as this decision shows, sometimes there are ways to escape from those traps. Contact Schlam Stone & Dolan partner John Lundin at if you or a client face a situation where you are unsure how to enforce rights you believe you have under an oral contract.

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Posted: June 21, 2018

Fraud Claim Dismissed as Duplicative of Contract Claim

On June 5, 2018, Justice Sherwood of the New York County Commercial Division issued a decision in Board of Managers of 250 Bowery Condominium v. 250 VE LLC, 2018 NY Slip Op. 31168(U), dismissing a fraud claim as duplicative of a breach of contract claim, explaining:

Sponsor Defendants also move to dismiss the fifth cause of action alleging fraud and fraudulent inducement as against them. Plaintiff opposes the motion. To establish a fraud-based cause of action, the plaintiff must demonstrate a representation of a material existing fact, falsity, scienter, deception and injury. The false representation relied upon must relate to a past or existing fact, or something equivalent theret.

Sponsor Defendants argue that the fraud-based cause of action should be dismissed because it is duplicative of the breach of contract cause of action. A cause of action for fraud may be dismissed as duplicative of a cause of action for breach of contract when they both arise out of the same facts and allege the same damages. New York courts have held that fraud claims against
condominium sponsors and their members based on breaches of an offering plan and false certifications must be dismissed as duplicative of breach of contract claims.

Here, plaintiffs fraud-based cause of action against Sponsor Defendants arises from purported breaches of the Offering Plan and the certification. Moreover, the damages sought by plaintiff for the fraud claims are indistinguishable from those sought in the breach of contract claim. Plaintiff asserts that it does not merely allege that Sponsor Defendants were not sincere when they promised to perform under their respective contracts. Rather, plaintiff alleges that Sponsor Defendants made specific representations, in the offering plan, through other marketing materials and media, with the intent of inducing plaintiff unit owners to purchase their apartments without knowledge of the hidden and dangerous defects in the building.

However, plaintiff makes no argument as to how its fraud damages are different from its breach of contract damages claim. Therefore, plaintiffs fraud-based cause of action must be dismissed as duplicative of its breach of contract cause of action.

(Internal quotations and citations omitted).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements such as the rule discussed here that a fraud claim cannot be based on a breach of contract. Contact Schlam Stone & Dolan partner John Lundin at if you or a client have a question regarding a fraud-based claim.

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Posted: June 20, 2018

Borrowing Statute Applies When Contract Provides That it Will be Enforced According to New York Law

On June 12, 2018, the Court of Appeals issued a decision in 2138747 Ontario, Inc. v. Samsung C&T Corp., 2018 NY Slip Op. 04274, holding that when a contract provides that it will be enforced according to New York law, the New York borrowing statute will be used to determine the appropriate statute of limitations, explaining:

CPLR 202 provides:

An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply.

In other words, when a nonresident sues on a cause of action accruing outside New York, CPLR 202 requires the cause of action to be timely under the limitation periods of both New York and the jurisdiction where the cause of action accrued. The parties agree that plaintiff’s claims asserted on behalf of SkyPower accrued in Ontario. Application of the borrowing statute would therefore require plaintiff’s action to be timely under Ontario’s two-year statute of limitations. Plaintiff contends, however, that the NDA’s broad contractual choice-of-law provision encompasses a choice of New York’s procedural law, including New York’s general six-year statute of limitations in CPLR 213 (2), to the exclusion of CPLR 202, which plaintiff equates to a statutory choice-of-law directive of the kind that we held should not be applied in Ministers and Missionaries Benefit Board v Snow (26 NY3d 466 [2015].

. . .

Contractual choice of law provisions typically apply to only substantive issues and statutes of limitations are considered procedural because they are deemed as pertaining to the remedy rather than the right. Here, however, the parties agree with the Appellate Division’s determination that the contract should be interpreted as reflecting the parties’ intent to apply both the substantive and procedural law of New York State to their disputes.

CPLR 202 is an abiding part of New York’s procedural law. CPLR 202 is a reenactment, without substantive change, of section 13 of the Civil Practice Act which in turn substantially reenacted section 390-a of the Code of Civil Procedure, added in 1902 (L 1902, ch 193). Earlier iterations of the borrowing statute predate the substantive choice-of-law interest analysis test used in tort cases and the grouping of contacts or center of gravity approach used in contract cases.

It is undisputed that had the NDA’s choice-of-law provision incorporated only New York substantive law and contained a New York forum selection clause, New York would apply its own procedural law as the law of the forum, including CPLR 202. Indeed, where the Court has held that parties have opted into New York procedural law in the past, it has suggested that CPLR 202 may apply. Thus, in Matter of Smith Barney, Harris Upham & Co. v Luckie (85 NY2d 193 [1995]), which involved contractual choice of law provisions similar to that at issue here, the Court remitted to the Appellate Division for a determination regarding statute of limitations issues and instructed the Appellate Division to consider, among other things, the applicability of the borrowing statute in making that determination.

Plaintiff argues that because the contract in this case specified that it would be enforced according to New York law, the parties intended to apply New York’s procedural law except for its statutory choice-of-law provisions, which, plaintiff alleges, includes CPLR 202. We conclude, however, that the mere addition of the word enforced to the NDA’s choice-of-law provision does not demonstrate the intent of the contracting parties to apply solely New York’s six-year statute of limitations in CPLR 213(2) to the exclusion of CPLR 202. Rather, the parties have agreed that the use of the word enforced evinces the parties’ intent to apply New York’s procedural law. CPLR 202 is part of that procedural law, and the statute therefore applies here.

(Internal quotations and citations omitted).

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. And the particular issue here–the rule in CPLR 202 that the statute of limitations used by a New York court sometimes is the statute of limitations of another state (or even country)–is an issue our clients, which are located all over the world, sometimes face. Contact Schlam Stone & Dolan partner John Lundin at if you or a client have questions regarding which statute of limitations applies to an action brought by a non-New York litigant.

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Posted: June 19, 2018

Veil Piercing Claims Should Have Been Dismissed

On June 12, 2018, the First Department issued a decision in Shawmut Woodworking & Supply, Inc. v. ASICS America Corp., 2018 NY Slip Op. 04291, holding that veil piercing claims should have been dismissed, explaining:

There is no basis in the complaint and supporting materials for applying the doctrine of piercing the corporate veil, which indeed plaintiff did not rely on. The complaint does not allege that ASICS and Windsor had any corporate relationship or overlapping ownership. It does not allege that Windsor was a dummy corporation or that ASICS had complete control over Windsor and used that control to perpetrate a fraud or wrong against plaintiff.

To the extent plaintiff relies on agency principles to hold ASICS liable on the contract with Windsor, the complaint fails to allege actual or apparent agency. It does not allege that ASICS actually authorized Windsor to enter into the contract on behalf of ASICS. To the contrary, the master retail agreement between ASICS and Windsor makes clear that Windsor was an independent contractor, did not have the authority to bind ASICS, and was not authorized to act as ASICS’s agent, and that ASICS would not assume Windsor’s liabilities.

Nor does the complaint allege that plaintiff relied on any representations or conduct by ASICS that would give rise to the appearance and belief that Windsor possessed authority to enter into the contract on ASICS’s behalf.

(Internal quotations and citations omitted).

An issue that is not uncommon in commercial litigation is how do you collect on a judgment when the counter-party to your contract or the business that defrauded you has no assets. In certain circumstances, discussed in this decision, you can attempt to pierce the corporate veil and recover from a business’s owner or operators. Contact Schlam Stone & Dolan partner John Lundin at if you or a client have a question regarding whether you can seek to hold a business’s owner or operators liable for the business’s debts.

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Posted: June 18, 2018

Inducing a Client to Switch Lawyers Cannot be Basis of Tortious Interference Claim

On June 6, 2018, Justice Ostrager of the New York County Commercial Division issued a decision in Gorayeb & Associates, P.C. v. Toledo, 2018 NY Slip Op. 31153(U), holding that inducing a client to switch lawyers cannot be the basis for a claim of tortious interference with contract, explaining:

Plaintiff Gorayeb law firm is entitled to a judgment of liability on the first cause of action for tortious interference with prospective economic relations based on proof that defendant intentionally interfered with the law firm’s business relations with clients by persuading some clients to discharge Gorayeb and retain Zaremba, causing financial injury to Gorayeb. The law firm’s request for judgment on the second cause of action for tortious interference with contract is denied. An essential element is the defendant’s intentional procuring of a breach of a contract between Gorayeb and a third party, that contract being the retainer agreement between Gorayeb and the client. However, as a party always has a right to discharge his counsel, the client’s decision to change counsel does not constitute a breach of contract.

(Internal citations omitted).

In this decision, the defendant was found liable for interfering with a law firm’s business by persuading some of its clients to discharge the firm, but the court dismissed the very similar claim that the defendant caused the clients to breach their contracts with the law firm. This is because a client always has a right to terminate a law firm, so the dismissal of the firm was not a breach of the client’s contract with the law firm. Contact Schlam Stone & Dolan partner John Lundin at if you or a client have a question regarding a competitor improperly interfering with a business relationship.

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Posted: June 17, 2018

Transcripts and Videos of Arguments in the Court of Appeals for June 2018 Now Available

On May 19, 2018, we noted a case of interest from the oral arguments before the Court of Appeals in June 2018:

  1. Ambac Assurance Corporation v. Countrywide Home Loans (No. 79) (argued Wednesday, June 6, 2018) (“Fraud–Fraud in Inducement–Alleged fraudulent inducement to issue financial guaranty insurance policies for residential mortgage-backed securitizations–elements to establish cause of action for fraudulent inducement–justifiable reliance–applicability of Insurance Law § 3105; recovery of claims payments made by insurer–contractual repurchase protocol; recovery of attorneys’ fees; summary judgment.”) See the transcript and the video.

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Posted: June 16, 2018

Court Dismisses Claim, Enforcing No Damages for Delay Clause

On June 5, 2018, Justice Sherwood of the New York County Commercial Division issued a decision in Sciame Construction, LLC v. Trustees of Columbia University in the City of N.Y., 2018 NY Slip Op. 31167(U), dismissing a claim based on a construction contract’s no damages for delay clause, explaining:

With respect to the third cause of action, entitled “Extra Work,” that claim is barred only to the extent that it seeks delay damages on behalf of Sciame’s subcontractors Di Fama and Permasteelisa. Columbia contends that the claims of Di Fama and Permasteelisa are delay claims, barred by the agreement’s “no damages for delay” clause, and that Sciame fails to allege any basis for an exception to enforcing such a clause. Sciame asserts that these claims were submitted to Columbia, which discussed and negotiated the claims with Sciame, and the claims were carried on Sciame’s cost reports that were reviewed by Columbia.

In Article 10.2.4 of the General Conditions, the parties clearly agreed that all extensions of time granted by Columbia “shall be in lieu of and in liquidation of any claims for compensation of delay damages against [Columbia], except for recovery of the Contractor’s Reimbursable Expenses, resulting from the extension of time”. That clause provided that the time extension and Reimbursable Expenses “shall be the sole remedy” for any delay, hindrance or obstruction in the performance of the work, or loss of productivity, or other similar claims. Such “no damage for delay” clauses are routinely upheld. There are four recognized exceptions to the enforcement of such clauses where: (i) delays are caused by the contracting party’s willful or bad faith, malicious or grossly negligent conduct; (ii) uncontemplated delays; (iii) delays so unreasonable that they constitute intentional abandonment of the contract; and (iv) delays caused by a fundamental breach of a contractual obligation. Delays are not considered uncontemplated if they were reasonably foreseeable, are mentioned in the contract, or arise from the contractor’s work during its performance. The party seeking to enforce these exceptions bears a heavy burden” of proof.

Columbia has submitted a letter dated April 25, 2014, from Di Fama to Sciame referring to its claims for delay, inefficiencies, and nonproductive work in the amount of $344,872.00. Columbia also submitted a claim by Permasteelisa to Sciame from August 2, 2013, seeking an extension of time, and money compensation for delays and loss of productivity, totaling $597,067.00. Even Sciame’s September 28, 2015, change order log, showing change order amounts, contracts, and contractors, indicates that Di Fama and Permasteelisa were making claims for delays. This is sufficient to demonstrate that these claims from these two subcontractors are delay damages, which are barred under Article 10.2.4. Sciame fails to carry its heavy burden. It fails to show any basis for the application of an exception to the “no damage for delay” clause. Therefore, to the extent that the third cause of action is seeking such delay damages regarding amounts sought by Di Fama and Permasteelisa, such claims are dismissed. The remainder of the third cause of action, which seeks payment for extra work approved by change orders for other subcontractors, however, shall continue.

(Internal quotations and citations omitted).

One of the reasons parties often choose to have their contracts governed by New York law is that courts generally enforce agreements as written. Contact Schlam Stone & Dolan partner John Lundin at if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.

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Posted: June 15, 2018

Martin Act Claims are Subject to Three-Year Statute of Limitations

On June 12, 2018, the Court of Appeals issued a decision in People v. Credit Suisse Sec. (USA) LLC, 2018 NY Slip Op. 04272, holding that Martin Act claims have a three year statute of limitations, explaining:

The first issue before us is whether Martin Act claims are governed by CPLR 214(2), imposing a three-year statute of limitations, or the six-year limitations period in CPLR 213(1) or 213(8). CPLR 214(2) generally imposes a three-year limitation period for “an action to recover upon a liability, penalty or forfeiture created or imposed by statute.” “An action based upon fraud” receives a six-year statute of limitations pursuant to CPLR 213(8). CPLR 213(1) is a residuary provision applicable to “an action for which no limitation is specifically prescribed by law.”

The test for determining the applicability of CPLR 214(2) is well-settled. As explained in Gaidon II:

CPLR 214(2) does not automatically apply to all causes of action in which a statutory remedy is sought, but only where liability would not exist but for a statute. Thus, CPLR 214(2) does not apply to liabilities existing at common law which have been recognized or implemented by statute. When this is the case, the Statute of Limitations for the statutory claim is that for the common-law cause of action which the statute codified or implemented.

When interpreting CPLR 214(2), we have contrasted (1) claims which, although provided for in a statute, merely codify or implement an existing common-law liability with (2) claims which, although akin to common-law causes, would not exist but for the statute in which case CPLR 214(2) applies. For example, we recently held that CPLR 214(2) applies to disputes against a self-insurer with respect to the payment of No-Fault benefits, noting that the obligation to make such payments would not exist but for the No-Fault Law itself.

The Martin Act, codified at General Business Law article 23-A, authorizes the Attorney General to investigate and enjoin fraudulent practices in the marketing of stocks, bonds and other securities within or from New York State. Expansive definitions of the fraudulent practices covered by the article appear in General Business Law §§ 352 and 352-c but prohibitions against fraud, misrepresentation and material omission are found throughout the statutory scheme. Section 353 grants the Attorney General broad authority to investigate, to secure a permanent injunction against any person or entity that has engaged in fraudulent practices and to obtain restitution of money or property wrongfully obtained. Despite the scope and detail of the statutory scheme, there is no provision stating the applicable statute of limitations and, although the Martin Act is nearly a century old, we have never had occasion to consider the issue.

To determine whether the Martin Act creates liabilities that did not exist at common law within the meaning of CPLR 214(2), we start with the statutory scheme — which has evolved significantly over time. The initial version of the Martin Act was adopted in 1921. Five years later, we decided People v Federated Radio Corp. (244 NY 33, 38-39 [1926]), concluding the terms fraud and fraudulent practices — which were not yet defined — should be given a wide meaning so as to include all acts, although not originating in any actual evil design or contrivance to perpetrate fraud or injury upon others, which do by their tendency to deceive or mislead the purchasing public come within the purpose of the law.” After noting that the Penal Law prohibited certain fraudulent practices involving the flotation of worthless securities, we stated:

If the intent of the defendants in engaging in the practice complained of is to sell securities which are in fact worthless or worth substantially less than the asking price, intentional misstatements, as in an action at law to recover damages for fraud and deceit . . . need not be alleged. Material misrepresentations intended to influence the bargain, on which an action might be maintained in equity to rescind a consummated transaction are enough

The Attorney General significantly relies on Federated Radio in asserting that the Martin Act merely codified liabilities existing at common law.

Of course, there have been many material alterations to the Martin Act since 1926, all of which broaden its reach. The statute was amended to incorporate concepts found in the federal Blue Sky statutes, which imposed registration requirements on sellers of securities — requirements unknown to the common law. In 1955, the Martin Act was amended to define fraudulent practices to include any deception, misrepresentation, concealment, suppression, fraud, false pretense or false promise. At the same time, a new section 352-c was added permitting the Attorney General to seek criminal sanctions for conduct violating the Martin Act. Section 352-c, while echoing the new fraudulent practices language, also clarified that the act prohibits any promise or representation as to the future which is beyond reasonable expectation or unwarranted by existing circumstances as well as any representation or statement which is false, where the person who made such representation or statement: (i) knew the truth; or (ii) with reasonable effort could have known the truth; or (iii) made no reasonable effort to ascertain the truth; or (iv) did not have knowledge concerning the representation or statement made.

The definition of fraudulent practices was expanded again in 1959 when the Legislature added General Business Law § 359-e imposing new registration requirements on dealers and brokers. Section 359-e(14)(l) provides: A violation of this subdivision shall constitute a fraudulent practice as that term is used in this article and a specific reference to section 359-e was added to section 352. In 1960, the law was amended to add section 352-e creating registration and disclosure requirements specifically relating to the sale of security interests in cooperative apartments and condominiums — a provision that has spawned civil enforcement actions by the Attorney General under section 353. We have recognized that section 352-e dramatically altered the common-law rule.

In Rachmani Corp. (71 NY2d 718), an action arising from alleged violations of section 352-e brought under the antifraud provisions of the Martin Act, we addressed what constituted a material omission sufficient to support an injunction under section 353 and Executive Law § 63(12). We answered that question by looking, not to our own common law, but to decisions of the federal courts construing federal securities laws, which are referenced in the Martin Act. We adopted the federal objective test, concluding that an omitted fact is material for purposes of liability under the Martin Act if there is a substantial likelihood that a reasonable investor would consider it important in light of the total mix of information available. We also reaffirmed that the Attorney General need not prove scienter or intentional fraud in a Martin Act enforcement proceeding. It is undisputed that the Attorney General need not prove reliance on the part of any investor.

We have repeatedly held that the Martin Act does not create a private right of action in favor of parties injured by prohibited fraudulent practices and that 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. The premise of such a holding is, of course, that the Martin Act covers some fraudulent practices not prohibited elsewhere in statutory or common law. That the Martin Act expands upon, rather than codifies, the common law of fraud was further reinforced by our decision in Assured Guaranty, in which we held that the Martin Act does not preempt common law causes of action possessed by injured parties, except where predicated on violations of the Martin Act itself or its implementing regulations.

In sum, the Martin Act imposes numerous obligations — or liabilities — that did not exist at common law, justifying the imposition of a three-year statute of limitations under CPLR 214(2). The broad definition of fraudulent practices, as repeatedly amended by the Legislature and interpreted by the courts, encompasses wrongs not cognizable under the common law and dispenses, among other things, with any requirement that the Attorney General prove scienter or justifiable reliance on the part of investors. In this respect, the Martin Act is comparable to a claim brought under General Business Law § 349(h), the statute prohibiting deceptive practices in consumer-oriented marketing and sales, which we addressed in Gaidon II. To be sure, there are distinctions between the Martin Act and General Business Law § 349. Unlike the Martin Act, and in addition to permitting enforcement by the Attorney General, the Legislature specifically authorized a private right of action under section 349 by adding subsection (h) permitting suit by parties injured by deceptive practices. Moreover, the term “deceptive practices” has never been defined by the Legislature. But the term deceptive practices has been interpreted broadly to encompass wrongful conduct not previously actionable on a common law fraud. In Gaidon II, we held that a General Business Law § 349 action is governed by CPLR 214(2), emphasizing the distinctions between such a claim and common law fraud, including that section 349 broadly covers deceptive practices, not just fraudulent marketing and sales practices previously condemned by the courts. The same principles apply here with respect to fraudulent practices claims under the Martin Act. We therefore conclude the three-year statute of limitations in CPLR 241(2) — applicable to a liability, penalty or forfeiture created or imposed by statute — governs Martin Act claims.

(Internal quotations and citations omitted).

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at if you or a client have questions regarding whether a claim is barred by the statute of limitations.

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