Summary
holding that GBL § 349 does not apply to securities transactions
Summary of this case from Prickett v. N.Y. Life Ins. Co.Opinion
November 13, 1998
Appeal from the Supreme Court, Erie County, Whelan, J. — Summary Judgment.
Present — Pine, J. P., Hayes, Wisner and Boehm, JJ.
Order unanimously modified on the law and as modified affirmed with costs to plaintiffs in accordance with the following Memorandum: Plaintiffs are owners of shares of preferred stock of defendant Triad Manufacturing Group, Inc. (Triad), a defunct company. The officers and directors of Triad are defendants Terry King, Thomas Becze and Peter M. Kanter. Nine of the plaintiffs subscribed to an offering of the stock pursuant to a "Private Placement Memorandum". The other two plaintiffs received their shares before the offering in satisfaction of previous investments or loans made by them to Triad.
Plaintiffs commenced this action against Triad, its officers, directors and attorney, alleging causes of action for conversion, fraudulent misrepresentation, conspiracy, breach of fiduciary duty, violation of section 5 of the Securities Act of 1933 ( 15 U.S.C. § 77e) and violation of General Business Law § 349. Supreme Court granted the motions of Kanter and Triad's attorney for summary judgment dismissing the complaint against them. Plaintiffs appeal from that part of the order that dismissed the complaint against Kanter.
In addition, plaintiffs have abandoned their appeal from that part of the order dismissing their first cause of action for conversion by failing to brief that issue ( see, Ciesinski v. Town of Aurora, 202 A.D.2d 984).
Plaintiffs' third cause of action alleging conspiracy was properly dismissed because "New York does not recognize a substantive tort of conspiracy" ( MBF Clearing Corp. v. Shine, 212 A.D.2d 478; see, Kjar v. Jordan, 217 A.D.2d 981).
The court erred, however, in dismissing the second and fourth causes of action, for fraud and breach of fiduciary duty ( see, DeRossi v. Rubinstein, 233 A.D.2d 220, 221). Although Kanter met his initial burden on the motion, plaintiffs submitted admissible evidence sufficient to establish the existence of material questions of fact precluding summary judgment dismissing those causes of action ( see, Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324). We reject Kanter's contention that plaintiffs are collaterally estopped from litigating their fraud cause of action by our recent decision in Smith v. Gross, Shuman, Brizdle Gilfillan ( 249 A.D.2d 893). The doctrine of collateral estoppel is inapplicable because the issues in the present case were not raised or decided in the prior action ( see, Kaufman v. Eli Lilly Co., 65 N.Y.2d 449, 455; Ryan v. New York Tel. Co., 62 N.Y.2d 494, 500).
The court further erred in dismissing the sixth cause of action, alleging a violation of section 5 of the Securities Act of 1933. That section makes it unlawful for any person, directly or indirectly, to sell securities through the mail or in interstate commerce unless a registration statement for such security has been filed with the Securities and Exchange Commission ( see, 15 U.S.C. § 77e). Section 4 of the Act, however, contains a number of exemptions that enable an issuer to avoid the registration requirement ( see, 15 U.S.C. § 77d). Kanter failed to meet his initial burden of coming forward with admissible evidence establishing that the preferred stock placement qualified for an exemption from registration ( see, 15 U.S.C. § 77d; cf., Wright v. National Warranty Co., 953 F.2d 256, 259).
Finally, the court properly dismissed the seventh cause of action, alleging a violation of General Business Law § 349. Kanter's alleged conduct does not fall within the consumer-oriented ambit of that statute ( see, Morris v. Gilbert, 649 F. Supp. 1491, 1497; see also, Yaeger v. National Westminster Bank, 130 B.R. 656, 689, affd 962 F.2d 1). Section 349 "was designed to protect consumers from various forms of consumer fraud and deception" ( Quail Ridge Assocs. v. Chemical Bank, 162 A.D.2d 917, 920, lv dismissed 76 N.Y.2d 936), and "[p]rivate contract disputes, unique to the parties * * * would not fall within the ambit of the statute" ( Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 25; see, New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 321). Further, "securities are purchased as investments, not as goods to be `consumed' or `used'" ( Morris v. Gilbert, supra, at 1497).