Individual Liability of Condominium Sponsor's Principals

The case arose out of sponsor's development of a 25-story building. Once the sponsor's control of the condominium board ended, the board brought an action seeking damages for alleged construction defects and mismanagement of the condominium during the sponsor control period. In addition to a breach of contract claim against the sponsor, the board alleged that the sponsor and its principals had committed fraud in the offering plan by misrepresenting the condominium's operating expenses and projected common charges. The board also allege that sponsor members of the initial sponsor-controlled board had breached their fiduciary duty by understating common charges and keeping them low until the sponsor sold nearly all of the units. The complaint alleged that the sponsor members acted to benefit themselves and the sponsor by inducing purchasers to buy units at prices reflecting the artificially low common charges — charges the condominium board raised by 65% once most of the units had been sold.

The individual defendants sought to have the fraud and breach of fiduciary duty claims against them dismissed. With respect to the fraud claim, they argued that the act of signing the offering plan's certification on behalf of the sponsor could not serve as a basis for personal liability. In particular, they argued that because the Martin Act required the sponsor certification, any misrepresentation with respect to the certification was pre-empted by the Martin Act. With respect to the breach of fiduciary duty claim, the individual defendants argued that they could not be held liable for actions taken as board members absent "independent tortious acts taken on behalf of the board." Supreme Court rejected these arguments and denied the motion to dismiss.