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Another Appellate Court Permits Condominium Purchasers To Bring Fraud and Contract Claims Against Sponsor A Ganfer & Shore Client Advisory for August 2008 Ganfer & Shore, LLP (New York, NY)

The Martin Act, which authorizes the Attorney General to regulate securities transactions, including cooperative and condominium sales by sponsors, does not preclude private individuals from bringing common-law fraud or breach of contract claims arising from such sales.Caboara v. Babylon Cove Development, LLC, 2008 WL 2747188, 2008 N.Y. Slip Op. 6281 (App. Div. 2d Dept July 15, 2008).
This case arose when several purchasers of units in a townhouse condominium sued the Sponsor for fraud and breach of contract, based on an alleged misrepresentation in the offering plan.The Sponsor argued that plaintiffs allegations, if true, would establish a Martin Act violation within the Attorney Generals jurisdiction and therefore the claims were pre-empted.A lower court accepted this argument and dismissed the case, but the Appellate Division reversed this ruling and reinstated the claims.It reasoned that while the Martin Act was designed to deter fraudulent practices in the sale of securities and authorizes the Attorney General to redress such practices, nothing in the statute abridged private rights of action for common-law fraud or breach of contract.
The rule that private plaintiffs may bring fraud and breach of contract claims arising from cooperative or condominium offerings, so long as they satisfy the traditional elements for pleading these claims, was previously recognized by the Appellate Division, First Department, whose jurisdiction includes Manhattan and the Bronx.(Please see the November 2007 issue of this Client Advisory.)This new decision by the Appellate Division, Second Department, which covers Brooklyn, Queens, Staten Island, and several other counties, brings uniformity to this area of the law.

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