Does New York's Martin Act Conflict With California's Blue Sky Law?

Allen Matkins
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A recent dispute between plaintiffs domiciled in California and defendants domiciled in New York caused U.S. District Court Judge Arthur D. Spatt to ponder whether to apply New York's Martin Act or California's Corporate Securities Law of 1968.  He asked the parties to brief the question, but to no avail:

The Court expressly asked the parties to brief the issue as to what happens to the Plaintiffs' statutory securities fraud claims due to the apparent conflict of law. The Plaintiffs skirted the issue entirely, and the Defendants conclusorily stated that there is a conflict of law, and that New York law must apply. However, the Defendants did not offer a solution as to what happens to the Plaintiffs' claims as a result of the conflict.

Hatteras Enters. v. Forsythe Cosmetic Grp., Ltd., 2018 U.S. Dist. LEXIS 68792.

Undertaking his own analysis, Judge Spatt concluded that "there is no conflict between California and New York's blue sky laws because 'New York has no interest in precluding claims like those brought by the plaintiff . . . .'" (quoting Fed. Hous. Fin. Agency v. Deutsche Bank AG, 903 F. Supp. 2d 285 (S.D. N.Y. 2012).  Accordingly he applied California law.  Although the defendants had argued for New York law, they nonetheless won a dismissal under the California statute (Corp. Code § 25401) because the plaintiffs had insufficiently alleged fraudulent misrepresentations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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