On May 24, 2017, a New York appeals court dismissed construction defect claims against a condominium sponsor's managing members and principals. The plaintiff Board of Managers sought to hold these individual defendants personally liable for the corporate sponsor's breach of contract. But in Board of Managers of 125 North 10th Condominium v. 125North10, 150 A.D.3d 1065 (2d Dept. 2017), the court extended to a sponsor's principals and members the rule which precludes claims against sponsors based on their alleged violations of the offering plan, merely by reason of those individuals' certification of the offering plan in accordance with the requirements of the Martin Act.

That rule, reiterated in 2009 by the Court of Appeals in Kerusa Co. v. W10Z/515 Real Estate Ltd. Partnership, 12 N.Y.3d 236, 244 (2009), states that “'[t]he Attorney General bears sole responsibility for implementing and enforcing the Martin Act' [citation omitted]; there is no private right of action under the statute.” The court went on to hold that “a purchaser of a condominium apartment may not bring a claim for common-law fraud against the building's sponsor when the fraud is predicated solely on alleged material omissions from the offering plan amendments mandated by the Martin Act.” Id. at 239

The Court of Appeals concluded that the plaintiff had no common-law claim for fraud, as distinct from a claim under the Martin Act which only the Attorney General may bring, because plaintiff's pleading failed to allege active concealment unrelated to alleged omissions from Martin Act disclosures. Id. at 245-46.