Vermeer Owners, Inc. v. Guterman, 78 N.Y.2d 1114 (1991)
There is no private right of action under the Martin Act (General Business Law § 352-e) for allegedly fraudulent real estate syndication offerings; plaintiffs asserting fraud related to apartment house conversions must prove reliance on the misrepresentation to their detriment.
Summary
Vermeer Owners, Inc., representing apartment building tenants, sued the sponsors of the building’s conversion to cooperative ownership, alleging fraud, unconscionability, and breach of fiduciary duty. The plaintiffs claimed misrepresentations in the offering plan violated the Martin Act. The New York Court of Appeals affirmed the lower courts’ dismissal, holding that the Martin Act does not provide a private right of action for real estate syndication offerings. Furthermore, the plaintiffs failed to prove they relied on the alleged misrepresentations to their detriment, a necessary element of a common-law fraud claim. The court emphasized that while sponsors have a high duty of fair dealing, the plaintiffs still had to prove reliance to succeed on their fraud claim.
Facts
City Partners and Guterman were the sponsors of an apartment building’s conversion to cooperative ownership. Vermeer Owners, Inc., representing the tenants, alleged that the offering plan contained false statements regarding the lease transaction. Specifically, the tenants asserted that the sponsors misrepresented material facts within the offering plan related to the conversion. The tenants claimed the misrepresentations constituted fraud, unconscionability, and breach of fiduciary duty.
Procedural History
The trial court dismissed the plaintiffs’ complaint. The Appellate Division affirmed the dismissal. The New York Court of Appeals granted leave to appeal and affirmed the Appellate Division’s order, upholding the dismissal of all claims.
Issue(s)
1. Whether a private right of action exists under the Martin Act (General Business Law § 352-e) for violations related to real estate syndication offerings.
2. Whether the plaintiffs presented sufficient evidence to support a claim of common-law fraud against the sponsors of the apartment building conversion.
Holding
1. No, because an implied private cause of action is not consistent with the legislative scheme underlying the Martin Act.
2. No, because the plaintiffs failed to prove that they relied on the alleged misrepresentations in the offering plan to their detriment, a necessary element of a common-law fraud claim.
Court’s Reasoning
The Court of Appeals reasoned that its prior decision in CPC Intl. v McKesson Corp., which held that the Martin Act does not create a private right of action, was controlling. The Court rejected the argument that the specific section of the Martin Act violated (General Business Law § 352-e, addressing real estate syndication offerings) distinguished the case from CPC, which involved § 352-c (addressing general fraudulent acts in securities sales). The court stated that the underlying rationale in CPC, that