NYS High Court Allows Private Lawsuits Despite Martin Act
The New York State Court of Appeals has ruled that the Martin Act, which authorizes the State Attorney General to bring fraud-based securities enforcement actions, does not preempt private, common-law, non-fraud claims alleging breach of fiduciary duty and gross negligence. The Court distinguished prior cases that precluded private rights of action under the Martin Act by explaining that the absence of a private right of action does not require preemption of all common law tort claims, especially in the absence of any proven legislative intent. The Court also rejected defendantâ€™s policy arguments because, according to the Court, both the Martin Act and private actions further the same goal: â€œcombating fraud and deception in securities transactions.â€
OUR TAKE: The Courtâ€™s reasoning implies that only the Attorney General may bring fraud claims, so that private plaintiffs are limited to tort claims alleging breach of duty. This will likely have implications on the amount of damages that a private plaintiff could collect.