On Dec. 20, 2011, New York’s highest court held that the Martin Act (General Business Law art 23-A)—New York’s “blue sky” law—does not preempt a plaintiff’s common-law causes of action for breach of fiduciary duty and gross negligence regarding the alleged mismanagement of an entity’s portfolio, as long as such claims are not predicated solely on a violation of the Act (or its implementing regulations) and would exist separate from the Act. (See Assured Guaranty (U.K.) Ltd. v. J.P. Morgan Inv. Management Inc., ___ N.E. 2d ___, 2011 WL 6338898 (N.Y.), 2011 N.Y. Slip Op. 09162.)
The plaintiff, Assured Guaranty (UK) Ltd., was the third-party beneficiary of an investment management agreement between defendant J.P. Morgan Investment Management Inc. and an entity whose obligations plaintiff guaranteed. The plaintiff alleged that the assets were mismanaged due to:
The court concluded 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 an injured investor may bring a common-law claim (for fraud or otherwise) that is not entirely dependent on the Martin Act for its viability.” Id. at *4.