The New York Court of Appeals held yesterday that the New York Blue Sky Law (Martin Act) does not preempt common law claims involving securities. In Assured Guaranty (UK) Ltd. v. J. P. Morgan Investment Management Inc., the state high court ruled that the statute did not preempt the plaintiff's causes of action for breach of fiduciary duty and gross negligence arising from the defendant's management of an investment portfolio. The decision appears to have settled a long-standing question concerning the viability of common law securities claims by private litigants under New York law.
Although the defendant contended that the Martin Act vests the Attorney General with exclusive authority over fraudulent securities and investment practices, the state high court reasoned that the plain text of the statute, while granting the Attorney General investigatory and enforcement powers and prescribing various penalties, does not expressly mention or otherwise contemplate the elimination of common law claims. Moreover, nothing in either the original conception of the Martin Act in 1921 or any of the subsequent amendments demonstrates a "clear and specific" legislative mandate to abolish preexisting common law claims that private parties would otherwise possess in the securities field.
The state high court rejected the defendant's argument that the court's previous decisions in CPC International, Inc. v. McKesson Corp. (N.Y. 1987) and Kerusa Co. v. W10Z/515 Real Estate L.P. (N.Y. 2009) settled the issue in favor of preemption. Rather, these decisions stand for the proposition 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. But, the state high court noted, an injured investor may bring a common law claim, either for fraud or otherwise, that is not entirely dependent on the Martin Act for its viability. Mere overlap between the common law and the Martin Act is not enough to extinguish common law remedies.