New York Court: Attorney General’s Determination Does Not Bar Common Law Claims Relating To The Same Dispute

In a significant decision, Justice Billings of the Supreme Court of the State of New York held that a determination by the New York State Attorney General's Office that putative co-op purchasers are not entitled to the return of their down payment in a dispute with the co-op sponsor does not immunize the co-op sponsor and related parties from common law claims in a plenary action related to the decision to purchase the co-op unit and the parties' agreement.

In Sapphire Investment Ventures, LLC v. Mark Hotel Sponsor LLC, et al. (Index No. 600905/2010), plaintiffs, who entered into a contract to purchase a luxury co-op unit, brought claims including fraudulent inducement, negligent misrepresentation, deceptive trade practices, breach of contract, and specific performance against the co-op sponsor, co-op corporation, and co-op developer.  The causes of action allege, among other things, the defendants' failure to disclose certain financing arrangements and other items which would have been material to the plaintiffs' decision to enter into the purchase agreement, and seek the return of the plaintiffs' substantial deposit, related damages, and equitable relief.  Plaintiffs commenced the litigation after first making an unsuccessful application to the Attorney General's Office for the return of their down payment, pursuant to the Attorney General's rules and regulations governing such matters.  The determination denying that application is the subject of a separate Article 78 proceeding.

In the decision, Justice Billings denied the defendants' motion to dismiss each of the claims on the grounds of res judicata, collateral estoppel, and documentary evidence.  The defendants had claimed that the Attorney General's determination barred the plenary action.  However, the Court held that the Attorney General's regulatory procedures fell short of being quasi-judicial in nature, thus rendering the preclusion doctrine inapplicable.  It further held that (1) the Attorney General had not decided the identical issues raised in the plenary action, (2) the Attorney General's regulations had not allowed plaintiffs to raise the claims at issue in the plenary action in their limited administrative application, and (3) the claims were not pre-empted by New York's Martin Act. 

The decision has far-reaching implications under New York law for parties receiving unfavorable administrative rulings based on proceedings which either have a narrow purview or do not employ quasi-judicial procedures.  

Morrison Cohen represented plaintiffs Sapphire Investment Ventures, LLC and Ruby Investment Ventures, Inc.

For a copy of the decision, please click here.