Court Opinion

ID: 5843778
Source: CourtListenerOpinion
Date Created: 2022-01-12 23:39:17.464879+00
Date Added: 2024-06-11T08:43:51.559112
License: Public Domain

Silverman, J. (dissenting).
I would reverse the order appealed from and grant defendants’ motion to dismiss the complaint. The complaint purports to rest on three grounds, violation of subdivision (a) of section 17 of the Securities Act of 1933 (US Code, tit 15, § 77q, subd [a]), and section 352-c of the General Business Law, and common-law fraud. The complaint fails to state a violation of subdivision (a) of section 17 of the Securities Act of 1933 because it fails to allege, as the statute appears to require, that the defendants’ misconduct was "in the offer or sale of any securities.” (See Barnes v Peat, Marwick, Mitchell & Co., 69 Misc 2d 1068, mod on other grounds 42 AD2d 15.) For the same reason the complaint is insufficient under section 352-c of the General Business Law. (Herdegen v Paine, Webber, Jackson & Curtis, 31 Misc 2d 104; Jones Mem. Trust v Tsai Inv. Servs., 367 F Supp 491, 498.) I also think the claim based on common-law fraud is insufficient for these reasons: 1. Despite plaintiff’s efforts to disguise the nature of the claim, it is clear that the claim is one for "fraud on the market” and not common-law fraud. Thus plaintiff’s brief says: "The present complaint is framed to squarely present the defendants’ indirect as well as direct participation in the sales and/or purchases they induced in an omissions and fraud on the market case.” While a claim based on fraud on the market should be recognized, it does not constitute common-law fraud. It may, and I think it does, constitute violation of the Federal securities statutes (particularly Securities Act of 1934, § 10, subd [b] [US Code, tit 15, § 78j, subd (b)]), but plaintiff presumably does not meet the requirements of that statute. 2. This insufficiency as common-law fraud is illustrated in various ways: Defendants particularly argue the lack of allegation of reliance by plaintiff on defendants’ purported misrepresentations. Indeed, there is no allegation that plaintiff ever saw or knew of the substance of the alleged misrepresentations. At most, plaintiff alleges: "reliance upon the truthfulness of the aforementioned reports as well as the integrity of the market and the market climate for Guardian shares which defendants generated in said period and plaintiff and such other similarly situated purchasers would not have made their purchases of Guardian shares if the defendants’ acts and omissions and objectives complained of had been disclosed.” CPLR 3016 (subd [b]) requires that in an action based upon fraud "the circumstances constituting the wrong shall be stated in detail.” (But see Lanzi v Brooks, 43 NY2d 778.) There is no reason why plaintiff cannot say "I saw these statements and relied on them,” instead of the rather evasive statement quoted. And in view of the quotation from plaintiff’s brief above, it is clear that this evasiveness is not inartful pleading but quite the contrary. Other portions of the complaint indicate this is not truly an action for common-law fraud. Thus, instead of alleging knowledge of falsity, an essential element of common-law fraud, plaintiff alleges that defendants "knew the truth, or with reasonable effort could have known the truth, or made no reasonable effort to ascertain the truth.” This may be negligence. It is not fraud. Again the complaint relies not really on misrepresentations but rather on omissions—failure to disclose. Absent a confidential relationship, omissions do not give rise to a-cause of action of common-law fraud.