text:
    In the Matter of the Department of Environmental Protection of the City of New York, Respondent-Movant, and Environmental Defense Fund, Inc., Intervenor-Respondent, v Department of Environmental Conservation of the State of New York et al., Appellants, and Central Hudson Gas & Electric Corporation, Inc., et al., Intervenors-Appellants.
    Decided September 8, 1987

      POINTS OF COUNSEL

      David Simon, Gerald A. Novack and Carol D. Quackenbos for Central Hudson Gas & Electric Corporation, Inc., intervenor-appellant.

      Michael A. Wilcken for Consolidated Edison Company of New York, Inc., intervenor-appellant.

      Peter L. Zimroth, Corporation Counsel (Nicole A. Gordon, Leonard Koerner and Stephen J. McGrath of counsel), for respondent-movant.

      James T. B. Tripp and Michael Herz for intervenor-respondent.
   OPINION OF THE COURT

Per Curiam.

The City of New York moved in this court to hold Central Hudson Gas and Electric Corporation and two of its officers in criminal and civil contempt for willful disobedience of a partial stay order issued by a Judge of this court in connection with a contemporaneously pending motion for leave to appeal. The motion is granted only to the extent of holding Central Hudson in criminal contempt.

Central Hudson owns and operates the Danskammer generating plant and, together with Consolidated Edison, owns and operates the Roseton generating facility. Both facilities are located in Orange County. In 1983, Central Hudson wished to convert Units 3 and 4 of its Danskammer facility from oil to coal firing. It filed an application and draft environmental impact statement with the State Department of Environmental Conservation (D.E.C.) seeking to modify its air quality certificate and to gain approval for the conversion plan. On June 19, 1985, the State Commissioner approved the conversion plan on condition that lower sulfur content oil be used at the nearby Roseton facility.

The Department of Environmental Protection of the City of New York (the City), whose water supply is affected by acid deposition from the Danskammer and Roseton facilities, started a proceeding to annul the State Commissioner’s determination. The Environmental Defense Fund, Inc. (E.D.F.) intervened and joined the City, and Central Hudson and ConEd intervened and joined the State. On transfer to the Appellate Division, the State Commissioner’s determination was unanimously annulled on November 13, 1986 (120 AD2d 166).

Shortly after the Appellate Division’s decision was made but before an order was entered, the parties engaged in settlement negotiations and the prevailing City and E.D.F. continued to forego submission of an order for entry by that court while settlement negotiations were pursued. In early April, the City learned that the State D.E.C. had, without notice to parties, issued a "Certificate of Operation” dated February 27, 1987 which authorized the burning of coal at Danskammer, and that Central Hudson had been burning coal pursuant to this certificate since March. By its own terms, this "Certificate to Operate” was predicated on the Commissioner’s determination of June 19, 1985, despite the annulment of that determination by the Appellate Division (120 AD2d 166, supra).

The City then quickly proposed an order to effectuate the Appellate Division’s decision. The order was entered by that court on April 7, 1987 and it formally nullified the express predicate for the February "Certificate of Operation”. The Attorney-General on behalf of D.E.C. submitted an affidavit of intention to move for leave to appeal, triggering an automatic stay pursuant to CPLR 5519 (a) (1), a provision designed for the benefit of State and municipal litigants, which also inured to the benefit of the private litigant Central Hudson.

On April 8, 1987, the City presented an order to show cause to a Judge of this court, seeking to vacate the automatic stay. On the same day Central Hudson, represented by the law firm of Whiteman, Osterman and Hanna, moved in opposition to the vacatur and presented its own order to show cause for an independent interim stay of enforcement of the Appellate Division order pursuant to CPLR 5519 (c).

On April 9, 1987, the Judge to whom the proposed orders were presented convened a hearing, with counsel for all parties participating. On April 10, 1987, the Judge issued an order vacating the automatic stay; he simultaneously rejected the Central Hudson order to show cause and, instead, prepared and signed an order to show cause granting only partial stay relief to Central Hudson. This order contained the following provision: "ordered that, pending determination by this Court of the motions for said stay, for vacatur of CPLR 5519 (a) (1) stay vacated by separate order to show cause signed simultaneously herewith, and for leave to appeal by respondents and intervenors-respondents, said intervenors-respondents are granted a stay of the Appellate Division order to the extent only that they may continue plant conversion construe tion pursuant to the original license issued by the Department of Environmental Conservation, noting especially that this interim partial stay pending the disposition of all motions in this Court shall not authorize the actual burning of coal fuel pursuant to licenses or authorizations rendered subsequent to the Appellate Division’s annulment of the determination affecting the original license” (emphasis added).

On April 14, 1987, Philip Gitlen, an attorney with the firm representing Central Hudson, informed the Assistant Attorney-General and the Assistant Corporation Counsel that he did not interpret the partial stay order as prohibiting the burning of coal at Danskammer, that he so informed his client, and that Central Hudson was continuing to burn coal. To support this interpretation, Mr. Gitlen alluded to and gave critical weight to questions and comments made during the in-chambers hearing of April 9, 1987. In a letter dated April 16, 1987, the Assistant Attorney-General, Central Hudson’s own corespondent in this matter, advised Mr. Gitlen that he disagreed with Mr. Gitlen’s interpretation since, in his view, the order by its own terms clearly prohibited the continued burning of coal at Danskammer. The Assistant Attorney-General urged Central Hudson, in writing, to cease burning coal immediately.

The City, in turn, responded to these events by making an additional motion seeking: (1) to hold Central Hudson and two of its officers in civil and criminal contempt of an order of this court; (2) the imposition of a fine of $1.6 million plus $1.6 million per month for each month Central Hudson failed to comply with the partial stay order; and (3) weekly verification that Central Hudson was not burning coal at the Danskammer plant.

On April 23, 1987, this court denied the predicate motions for leave to appeal and dismissed the stay motions as academic (69 NY2d 921), rendering the Appellate Division decision final. This court also concluded that the City’s allegations of contemptuous conduct were sufficient to require independent factual inquiry and ordered the parties to present evidence at a hearing before the Honorable Joseph F. Gagliardi, Justice of the Supreme Court and Administrative Judge of the Ninth Judicial District.

Shortly after this facet of the matter was referred to Justice Gagliardi for hearing and report, the parties settled all remaining aspects of the underlying proceeding pertaining to the merits of the controversy. They also attempted to settle the contempt component by withdrawal of the motion and by termination of the reference. We directed that the reference be completed so that a full record could be developed as to whether withdrawal was warranted.

Justice Gagliardi’s comprehensive report contained two findings and a comment on the fine to be imposed in the event that a finding of criminal contempt was made. The first finding was that Central Hudson, as represented by its attorneys, "was not acting upon a good faith interpretation of the partial stay order when it continued to burn coal at Danskammer Unit 4 from April 10 through April 26, 1987”. The second finding was that "[t]he City did not suffer any damages as a result of the continued coal burning at Danskammer Unit 4 from April 10 through April 26, 1987”. Finally, Justice Gagliardi appropriately left to this court the issue of the fine amount in the event we found Central Hudson’s conduct to be a criminal contempt. We confirm the findings and conclude that Central Hudson willfully disobeyed a lawful order of this court. Consequently, it must be held in criminal contempt and the fine is fixed in the amount of $250, the maximum permitted by law (Judiciary Law § 751 [1]).

This court’s power to punish for civil and criminal contempt is found respectively in Judiciary Law § 753 (A) (3) and § 750 (A) (3). Although the same act may be punishable as both a civil and a criminal contempt, the two types of contempt serve separate and distinct purposes. A civil contempt is one where the rights of an individual have been harmed by the contemnor’s failure to obey a court order (People ex rel. Munsell v Court of Oyer & Terminer, 101 NY 245). Any penalty imposed is designed not to punish but, rather, to compensate the injured private party or to coerce compliance with the court’s mandate or both (State of New York v Unique Ideas, 44 NY2d 345). A criminal contempt, on the other hand, involves an offense against judicial authority and is utilized to protect the integrity of the judicial process and to compel respect for its mandates (King v Barnes, 113 NY 476). Unlike civil contempt, the aim in a criminal contempt proceeding is solely to punish the contemnor for disobeying a court order, the penalty imposed being punitive rather than compensatory (State of New York v Unique Ideas, 44 NY2d 345, supra).

In keeping with a civil contempt’s distinct purpose, it must be established that the rights of a party to the litigation have been prejudiced (Judiciary Law § 753 [A]; Matter of McCormick v Axelrod, 59 NY2d 574). In a criminal contempt proceeding, no such showing is needed since the right of the private parties to the litigation is not the controlling factor. A key distinguishing element between civil and criminal contempt is the degree of willfulness of the subject conduct. To be found guilty of criminal contempt, the contemnor usually must be shown to have violated the order with a higher degree of willfulness than is required in a civil contempt proceeding (supra, at 583).

Despite these distinctions, the two categories of contempt share some common elements. To sustain a finding of either civil or criminal contempt based on an alleged violation of a court order it is necessary to establish that a lawful order of the court clearly expressing an unequivocal mandate was in effect (supra, at 583). It must also appear with reasonable certainty that the order has been disobeyed (Pereira v Pereira, 35 NY2d 301, 308). Of course, the party charged must have had knowledge of the court’s order (Matter of McCormick v Axelrod, 59 NY2d 574, 583, supra; see also, People ex rel. Stearns v Marr, 181 NY 463, 470).

Although the City sought to have Central Hudson held in both civil and criminal contempt, the underlying dispute between the parties has been settled and the City has requested withdrawal of the contempt motion in its entirety. We are satisfied that the City’s concession that no calculable monetary damages were suffered, coupled with Justice Gagliardi’s confirmation of this fact, effectively disposes of the civil contempt allegations. There is no longer any vitality or purpose to further consideration of the civil contempt charge.

We are likewise satisfied that the motion may be withdrawn in its entirety with respect to individual respondents, the corporate officers.

In contrast, we cannot accept the parties’ private resolution in the matter with respect to the very serious charge of criminal contempt by the utility itself. Allegations of willful disobedience of a proper judicial order strike at the core of the judicial process and implicate weighty public and institutional concerns regarding the integrity of and respect for judicial orders. Based on Justice Gagliardi’s findings and compelling jurisprudential principles, we reject the parties’ request for withdrawal of the criminal contempt motion as to Central Hudson.

On the merits, the record supports the finding that Central Hudson was not acting in good faith when it continued to burn coal after having received notice from its own counsel of the partial stay order. We conclude that Central Hudson acted with the requisite willfulness needed to sustain the extraordinary sanction of a criminal contempt.

As with all charges of criminal contempt, the court must look first to the order which Central Hudson is alleged to have disobeyed and then apply the legal principles to the fact findings. To determine whether or not there was a willful violation, Central Hudson’s conduct and the conduct of its legal representatives must be examined in light of the express terms of the order (Ketchum v Edwards, 153 NY 534). If the terms of an order are vague and indefinite as to whether or not a particular action by a party is required or. prohibited, then of course that cannot be the basis of a criminal contempt (Pereira v Pereira, 35 NY2d 301, 308, supra). Where the order alleged to have been disobeyed is capable of a construction consistent with the innocence of the party, there likewise should be no adjudication of contempt (Ketchum v Edwards, 153 NY 534, supra). "Guilt arises only where the authority of the court is flouted” (Matter of Spector v Allen, 281 NY 251, 260).

In its papers in opposition to the contempt charges, Central Hudson concedes that it continued to burn coal after having been informed of the partial stay order. Central Hudson’s defense is that the partial stay order did not order stoppage of coal burning. To support its interpretation, Central Hudson argues that the partial stay does not prohibit the burning of coal at Danskammer Unit 4, but was meant only to clarify for any other court faced with a challenge to the subsequent permit that the order does not independently authorize the burning of coal. Central Hudson urges that this interpretation is not only consistent with the express terms of the stay, but is also consistent with the April 9, 1987 in-chambers discussion between the parties and the Judge who issued the order. As an alternative argument, Central Hudson contends that it should not be found in contempt because Central Hudson relied on counsel’s interpretation of the partial stay order and counsel’s advice to continue to burn coal. These arguments are unavailing.

When the Appellate Division order was entered on April 7, 1987, Central Hudson was left without authority to continue construction or to burn coal at Danskammer. This is so because the order annulled the State Commissioner’s primary authorization of June 19, 1985. Thus, everything based on this determination, including the February 27, 1987 operating permit, fell with that judicial annulment. The only way Central Hudson could lawfully continue any phase of the Danskammer project was to obtain stay relief from the Court of Appeals. The key order to show cause signed on April 10, 1987 permitted only plant conversion construction to continue and specifically stated that it did not authorize the burning of coal. There was thus no longer any agency or judicial authorization to burn coal. Its argument now that it was relying on a selective part of the in-chambers hypothetical questioning at the motion hearing is unavailing because it is customarily and professionally understood that no such reliance is permissible, and because its own counsel conceded before Justice Gagliardi that there was an express advisement that statements made at that time were merely exploratory and should not be construed as rulings (see, Referee’s Report, May 29, 1987, at 85). Based on the evidence adduced at the hearing before Justice Gagliardi, all of the participants understood what the competing goals of the parties were: the City wanted to stop coal burning and the utility wanted at least to continue its conversion construction project. The signed order to show cause expressly reflected that dichotomy.

Central Hudson had actual notice of the order granting only partial relief, i.e., continuation of construction, since the terms of the order were promptly communicated orally and in writing to its attorneys, Mr. Gitlen and to his associate Philip Dixon. The client cannot successfully argue that it is shielded from contempt by reliance on its lawyer’s advice in this case, because that would allow judicial orders to be too easily evaded and disobeyed.

Under these circumstances, Central Hudson put itself in violation of a clear mandate of this court when it continued to burn coal at Unit 4. In effect, Central Hudson sought a whole loaf of relief and, when granted only a half, took the rest by a calculated misinterpretation of the subject order.

Accordingly, the application to withdraw the motion for contempt is granted to the extent only of approving the withdrawal of the civil contempt aspect; the motion for criminal contempt is granted, with costs, only as against Central Hudson which is fined the statutory maximum of $250 (Judiciary Law § 751 [1]).

Chief Judge Wachtler and Judges Simons, Kaye, Alexander, Titone, Hancock, Jr., and Bellacosa concur in Per Curiam opinion.

Application to withdraw the motion for contempt granted, etc.


source: Caselaw Access Project

author: Hancock, Jr., J.

license: Public Domain

text:
    S. William Green et al., as Executors of the Estate of Louis A. Green, Deceased, et al., Plaintiffs, and Cecil R. Borg et al., as Trustees under the Will of Myron Borg, Jr., Deceased, et al., Appellants, v Santa Fe Industries, Inc., et al., Respondents.
    Argued June 3,1987;
    decided September 15, 1987

      POINTS OF COUNSEL

      Sidney Bender, Aaron Lewittes, Janine L. Bender and Syma S. Levine for appellants.

      William R. Glendon, Guy C. Quinlan and Diane Boenig Cavanaugh for respondents.
   OPINION OF THE COURT

Hancock, Jr., J.

Plaintiffs, formerly minority stockholders of Kirby Lumber Corp., have brought this action for damages against Santa Fe Industries and two of its subsidiaries — Santa Fe Resources and Kirby Lumber Corporation — arising out of a Delaware short-form, freeze-out merger (Delaware Corporation Law § 253) by which Kirby became a wholly owned subsidiary of Santa Fe Industries. Plaintiffs’ appeal — from a dismissal of their complaint on a motion for summary judgment — presents the following questions: (1) whether the action is barred by the operation of res judicata or collateral estoppel because a similar action in Federal court resulted in dismissal on the merits (Green v Santa Fe Indus., 576 F Supp 269 (Duffy, J.), affd 742 F2d 1434, cert denied 469 US 917); (2) assuming that the action is not so barred, whether the actions of defendants as shown in the complaint and supporting papers could constitute a basis for recovery either for violations of the antifraud provisions of New York’s Martin Act (General Business Law § 352-c) or for breach of the majority stockholders’ fiduciary obligations to the minority under Delaware law.

We hold that plaintiffs’ action is not barred by the prior dismissal of the Greens’ Federal court action and that the courts below erred in dismissing the complaint on that ground; we hold, however, that plaintiffs have shown no basis for recovery under the Martin Act or Delaware common law, and that summary judgment dismissing the complaint should, therefore, have been granted for that reason. Accordingly, the order of the Appellate Division should be affirmed on that ground.

Procedural History and Facts as Shown In the Complaint and Supporting Papers

In 1974 Santa Fe Resources, Inc., a wholly owned subsidiary of Sante Fe Industries, Inc., owned 95% of the stock of Kirby. Pursuant to Delaware Corporation Law § 253, Santa Fe effected a short-form merger as a result of which Kirby became a wholly owned subsidiary of Santa Fe. In compliance with the Delaware short-form merger statute, Santa Fe notified minority stockholders the day after the merger became effective, advised them of their right to an appraisal (Delaware Corporation Law §§ 253, 262), and offered them $150 per share in cash for their stock based on an appraisal performed by Morgan Stanley. Some minority stockholders, including the Borgs, although dissatisfied with the terms, accepted the offer. Others demanded appraisal. The findings of a court-appointed appraiser that the asset value of Kirby was $456 per share and the fair price per share was $254.40 at the time of the merger were upheld against subsequent challenges by the stockholders and the surviving corporation (Bell v Kirby Lbr. Corp., 395 A2d 730 [Del Ch 1978], affd 413 A2d 137 [Del 1980]).

The Greens (former stockholders in Kirby and nonappealing plaintiffs in this action) brought an action in Federal District Court, alleging that the freeze-out merger was violative of section 10 (b) of the Securities and Exchange Act of 1934 (15 USC § 78j [b]) and rule 10b-5 of the Securities and Exchange Commission (17 CFR 240.10b-5), and that Santa Fe, as the majority stockholder, breached its fiduciary obligation to the minority stockholders by offering them an unfairly low price for their shares, in violation of Delaware common law. District Court held that the complaint failed to state a cause of action under Federal securities law, and declined to exercise pendent jurisdiction to adjudicate the State law claim (391 F Supp 849 [SD NY]).

The second Circuit Court of Appeals reversed and reinstated the complaint (533 F2d 1283), holding that where a complaint alleges, "in connection with a Delaware short-form mérger, that the majority has committed a breach of its fiduciary duty to deal fairly with minority shareholders by effecting the merger without any justifiable business purpose”, plaintiffs state a cause of action "under Rule 10b-5” (id., at 1291). The Supreme Court reversed (430 US 462) on the ground that "the transaction, if carried out as alleged in the complaint, was neither deceptive nor manipulative and, therefore, did not violate § 10(b) of the Act or Rule 10b-5.” (Id., at 474.)

Following the Supreme Court’s decision, the Greens amended their complaint, keeping the Delaware common-law claim and replacing the Federal cause of action with allegations that acts done in furtherance of the merger violated section 352-c of the Martin Act (General Business Law § 352-c). The Borgs, who had been aware of the Greens’ efforts at least from the 1976 decision of the Second Circuit, made no motion to intervene but did move, in 1979 and in 1980, for class certification. Both motions were denied (82 FRD 688; 88 FRD 575). On defendants’ motion for summary judgment dismissing the amended complaint, District Court held that plaintiffs failed to state a cause of action for breach of fiduciary obligations under Delaware law and found it unnecessary to address the Martin Act claims (576 F Supp 269 [SD NY], supra). The Second Circuit affirmed, without opinion (742 F2d 1434 [2d Cir], reh denied No. 83-9072 [May 25, 1984], supra), and the Supreme Court denied certiorari (469 US 917). The Second Circuit subsequently denied a motion for recall of the mandate (No. 83-9072 [Nov. 1, 1984], supra).

Plaintiffs — then both the Greens and the Borgs — brought this action in Supreme Court in 1977, alleging that the sole purpose of the merger was to freeze out public stockholders in Kirby at $150 per share, "a deliberately undervalued price, unilaterally determined by Santa Fe * * * which knew from their own appraisals that the fair market value of the net assets and the stock was at least $772 per share” and that defendants, in an attempt to deter the minority stockholders from exercising their appraisal rights, mailed an informational package which contained, among other things, an appraisal by Morgan Stanley valuing the stock at $125 per share, but omitted certain material facts. This conduct, plaintiffs contend, was fraudulent, and in violation of General Business Law §§ 339-a and 352-c. As a second cause of action plaintiffs assert that by freezing out the minority "at an unconscionably low price” of $150 per share, "as against a fair value of at least $772, thereby misappropriating their beneficiaries’ property”, defendants "breached their fiduciary obligation to the minority stockholders” under Delaware common law.

This State action lay dormant until the unsuccessful termination of the Green litigation when the Second Circuit, in 1983, affirmed the dismissal of the amended complaint which had been filed in Federal court after the reversal by the Supreme Court. Plaintiffs then moved, and defendants cross-moved, for summary judgment. Special Term denied plaintiffs’ motion and granted defendants’ cross motion for summary judgment and dismissed the complaint, finding that the Borgs were in privity with the Greens during the Greens’ unsuccessful action in Federal court, and that because the Green and Borg claims were identical, the dismissal of the Greens’ action operated as a complete bar. The Appellate Division affirmed, without opinion (118 AD2d 1054), and leave to appeal was granted by our court (68 NY2d 612).

I

We first address defendants’ contention that plaintiffs’ claim was properly dismissed as barred by res judicata or collateral estoppel. Defendants rely on the final dismissal of the Greens’ Federal court action in which the Greens, as minority shareholders in Kirby, made claims identical in legal theory to those plaintiffs assert here. Since the Borgs were not parties to the Federal litigation, the question of whether they should be precluded by its unsuccessful outcome turns on whether they can be said to have been in privity with the Greens. We think it is clear that the Borgs were not in privity.

Preliminarily, we observe that the District Court granted summary judgment to defendants and dismissed the Greens’ Federal court action holding, as a matter of Delaware law, that the Greens had no claim for a breach of fiduciary duty on the part of the majority stockholders (Green v Santa Fe Indus., 576 F Supp 269 [SD NY, Duffy, J.], supra). Without a showing of such breach of duty, the court held that there could be no claim under the Martin Act and declined to discuss that issue further (id., at 270). Thus, the dismissal of the Greens’ action involved the resolution of no factual issues, and it cannot be claimed that the Borgs are barred in their New York action under the principles of collateral estoppel from relitigating specific factual issues. If the Borgs are to be precluded at all, it can only be because their claim is barred under the principles of res judicata based on the dismissal on the law of the Greens’ action.

It is fundamental that a judgment in a prior action is binding not only on the parties to that action, but on those in privity with them (see, Commissioners of State Ins. Fund v Low, 3 NY2d 590, 595; Matter of Shea, 309 NY 605, 616; 5 Weinstein-Korn-Miller, NY Civ Prac j| 5011.32, at 50-192). Generally, to establish privity the connection between the parties must be such that the interests of the nonparty can be said to have been represented in the prior proceeding (see, Israel v Wood Dolson Co., 1 NY2d 116, 118-120; Restatement [Second] of Judgments §§ 41, 42; 5 Weinstein-Korn-Miller, NY Civ Prac [j 5011.32). Thus, there can be privity to make a legal determination in a declaratory judgment action brought by a union binding in a subsequent action by a member (see, Weisz v Levitt, 59 AD2d 1002); to cause a judgment against an insured to have binding effect in a subsequent action against his liability insurer (see, Hinchey v Sellers, 7 NY2d 287, 295; Baldwin v Brooks, 83 AD2d 85, 87-89; Fadden v Cambridge Mut. Fire Ins. Co., 51 Misc 2d 858 [Cooke, J.], affd 27 AD2d 487); to make a judgment in an action brought by a trustee in bankruptcy a bar in a subsequent action by a creditor (see, Stissing Natl. Bank v Kaplan, 28 AD2d 1159, 1160); or to make a dismissal on the merits of a shareholders’ derivative action binding on other shareholders as members of a represented class so as to preclude them from bringing a similar action (see, Parkoff v General Tel. & Elecs. Corp., 53 NY2d 412, 415). Here, the Borgs cannot be said to have been barred as members of a class of shareholders. The Greens sued in their own behalf — not in a stockholders’ derivative action — and attempts at class certification were denied (82 FRD 688, 88 FRD 575, supra). The only relationship between the Greens and the Borgs was that they owned separate blocks of stock in the same company. It is obvious, then, that privity of the traditional sort is not involved.

In addition to the conventional privity found in the foregoing cases, courts have also precluded parties from raising claims previously litigated when the party to be precluded can be said to have controlled the conduct of the prior action to further his own interests (see, 5 Weinstein-Korn-Miller, NY Civ Prac If 5011.33). It is this sort of privity which defendants assert here, relying principally on Watts v Swiss Bank Corp. (27 NY2d 270). Defendants contend that the Borgs, who were aware of the Greens’ lawsuit, at least from the date of the Second Circuit decision in 1976, were deeply involved in the Federal action, and that they monitored the proceedings and received reports from the Greens’ counsel (now the Borgs’ attorneys in this action) who, defendants claim, also represented the Borgs’ interests in the Federal court action in which they were not parties.

For several reasons, we reject defendants’ argument. First, Watts v Swiss Bank Corp. (27 NY2d 270, supra) is inapposite. There, both actions — the French action which was completed first and the New York action in which the French action was sought to be made binding — involved claims to the identical property, the proceeds of a joint bank account. Further, not only were the attorneys in the French and New York actions the same, but there was a practical identity of parties. Indeed, except for the substitution of Rose Lanari’s legatees as defendants in the French action and of the executor of her estate in the New York action, the opposing parties were at all times the same.

In this case, as contrasted with Watts, the claims asserted and the interests represented by the Borgs, are not in all respects identical to those in the Green Federal court action. Although the theories of recovery were the same for both the Greens and the Borgs, the stock was separately owned and the claims discrete. In addition, although counsel was the same for both the Greens and the Borgs, there is no indication that the prior action "was managed as [the Borgs] thought it should be” (Watts v Swiss Bank Corp., supra, at 278).

Moreover, even if it could be shown that during the Green litigation the Borgs were "not merely standing on the sidelines” (defendants’ brief, at 65), the fact that applying res judicata here would result in imposing the Federal legal determination in a State court would be a consideration pointing against a finding of privity (see, Restatement [Second] of Judgments § 28, comment b; § 29, comment i). Claim preclusion, if applied, would not only foreclose the Borgs from presenting their theory in a different forum; it would prevent our court from considering the applicable rule and performing our function as a court of law (Restatement [Second] of Judgments § 28, comment b; § 29, comment i).

In any event, whether the Borgs were in privity with the Greens in the Federal litigation is a question of fact, which would preclude summary judgment (see, Watts v Swiss Bank Corp., supra, at 277).

II

We turn to the merits of plaintiffs’ claims. From the complaint and the submissions on the cross motions, it appears that plaintiffs’ claims are predicated on the following alleged facts: that without prior notice to plaintiffs or the other stockholders, Forest Products, Inc., a subsidiary of Santa Fe, was merged into Kirby and the minority stockholders of Kirby were frozen out of the surviving corporation; that the merger did not have a corporate purpose but was consummated solely to freeze out the minority stockholders; that the cash freeze-out price of $150 per share was "a deliberately undervalued price, unilaterally determined by Santa Fe * * * which knew from their own appraisals that the fair market value of the net assets and the stock was at least $772 per share”; and that, in an effort to lull the minority stockholders into accepting their offer of $150 per share, the defendants mailed an information statement to plaintiffs and the other minority stockholders which omitted material facts. Among the claimed "material omissions” are the following: that in June 1974, Morgan Stanley had suggested to Santa Fe that it offer the minority stockholders between $175 and $200 per share; that Santa Fe "conceded that they had never seen a more thorough appraisal (than that of W.D. Davis of Appraisal Associates [valuing the market value of Kirby’s assets at $320,000,000])”; that Kirby’s management had made expansion plans which "would 'promote phenomenal growth in the company’s annual operating income’ ” within the next five years; and that Kirby had realized "great capital appreciation” in its land and stumpage.

Initially, the question whether plaintiffs have stated a basis for recovery for defendants’ alleged violation of the Martin Act is decided by our holding today in CPC Intl. v McKesson Corp. (70 NY2d 268) that there is no implied private action for fraudulent acts under section 352-c of the General Business Law. For that reason, defendants’ motion for summary judgment was properly granted as to this cause of action, and we need not reach the other Martin Act issues raised by the parties.

Whether plaintiffs’ second cause of action for breach of a fiduciary duty was, likewise, properly dismissed, depends on an analysis of Delaware law. As noted, Supreme Court, in granting summary judgment, and the Appellate Division in its affirmance, held that plaintiffs’ claim was entirely precluded by the prior dismissal of the Green Federal court action. In effect, this grant of summary judgment based upon the Green dismissal is an adoption by our lower courts of the legal conclusion reached by the Federal courts in their grant of summary judgment and dismissal of the Greens’ Federal court action that there was no breach of fiduciary duty under Delaware law (Green v Santa Fe Indus., 576 F Supp 269, supra). Based upon an independent analysis, we reach the same conclusion as District Judge Duffy — that plaintiffs have no claim against Santa Fe under Delaware common law.

At the time of the merger in 1974, under Delaware law, a parent corporation, which owned 90% or more of the stock of a subsidiary, could merge with that subsidiary without advance notice or consent of the minority stockholders upon approval by the parent’s board of directors (see, Delaware Corporation Law §§ 253, 262; see also, Santa Fe Indus, v Green, 430 US 462, 465, supra). No corporate purpose was statutorily required for a short-form merger, rather the very purpose of such mergers was to "provide the parent corporation with a means of eliminating the minority shareholder’s interest in the enterprise” (Stauffer v Standard Brands, 41 Del Ch 7, 9-10, 187 A2d 78, 80 [Del 1962]). Upon approval of the merger, the parent corporation was required to make payment in cash to the minority for their stock (see, Delaware Corporation Law § 253 [a]; Santa Fe Indus. v Green, supra). If a minority stockholder was dissatisfied with the offer made by the parent corporation for his shares, he had the right to have a court-appointed appraiser determine the fair value and the right to receive a decree from the Delaware Court of Chancery ordering the surviving corporation to pay for his shares at the resulting appraised value (see, Delaware Corporation Law § 253 [a]; § 262; Santa Fe Indus, v Green, supra, at 465-466).

It is not disputed that the merger here was in all respects permissible under the Delaware Corporation Law. Plaintiffs assert no statutory violation. They contend, however, despite defendants’ compliance with the statute, that under case law existing at the time of the merger in 1974, an allegation that the majority effected the merger solely for the purpose of freezing out the minority and without any business purpose was, without more, a sufficient basis for a claim of breach of fiduciary duty. Plaintiffs base their claim on the so-called "business purpose” rule established by three Delaware decisions (Singer v Magnavox Co., 380 A2d 969 [Del 1977]; Tanzer v International Gen. Indus., 379 A2d 1121 [Del 1977]; Roland Intl. Corp. v Najjar, 407 A2d 1032 [Del 1979]) which stated the law in Delaware until expressly overruled by the Delaware Supreme Court on February 1, 1983 (Weinberger v UOP, Inc., 457 A2d 701 [Del 1983]). Judge Duffy, it is noted, refused to apply the Singer-Tanzer-Roland "business purpose” rule which the Weinberger court had rejected. Instead, he applied the previously existing Delaware rule as stated in Stauffer v Standard Brands (41 Del Ch 7, 187 A2d 78, supra) and Greene & Co. v Schenley Indus. (281 A2d 30 [Del Ch 1971]) which, he noted, the Weinberger court had expressly readopted and under which "no corporate purpose is required under Delaware’s short-form merger statute, and * * * minority shareholders are limited to an appraisal remedy” (Green v Sante Fe Indus., 576 F Supp 269, 270-271, supra). For reasons which follow, we agree.

Plaintiffs argue, pointing to language in the Weinberger opinion, that because the merger took place in 1974 their claim should be governed by Singer-Tanzer-Roland and not, as held by Judge Duffy, by the prior cases of Stauffer and Greene & Co. We disagree. The "savings clause” language in the Weinberger opinion on which plaintiffs rely is as follows: "Obviously, there are other litigants, like the plaintiff, who abjured an appraisal and whose rights to challenge the element of fair value must be preserved. Accordingly, the quasi-appraisal remedy we grant the plaintiff here will apply only to * * * (4) any case challenging a cash-out merger, the effective date of which is on or before February 1, 1983” (457 A2d, at 714).

Plaintiffs, construing the language of the Weinberger opinion literally, contend that they should have the benefit of the Singer-Tanzer-Roland rule because the merger was prior to the February 1, 1983 cut-off date. We do not believe the Delaware Supreme Court had such intention. We interpret the savings clause language in the Weinberger opinion as intended only to benefit those plaintiffs "who abjured an appraisal” in reliance on the so-called "business purpose” rule first adopted by Singer in 1977. Because the rule was not in existence at the time of the Kirby-Forest Products merger, plaintiffs could not have given up their appraisal rights in reliance on that rule. We agree with Judge Duffy’s reasoning that: "[a]lthough the Weinberger court, appeared to limit the reach of its holding to all mergers effected before 1983, the policy considerations behind the court’s decision to allow certain plaintiffs to continue to seek remedies other than appraisal would not be promoted by a blind application of the court’s provision for retroactive relief. Further, plaintiffs would reap a windfall that the Delaware Supreme Court could not have intended” (576 F Supp 269, 271, supra).

Plaintiffs argue, nevertheless, that even without the benefit of the Singer-Tanzer-Roland "business purpose” rule, they have presented a sufficient basis for denial of summary judgment under the prior Delaware decisions (Stauffer v Standard Brands, supra; Greene & Co. v Schenley Indus., supra) as interpreted in the more recent decisions of the Delaware Supreme Court (see, Weinberger v UOP, Inc., supra; Rabkin v Hunt Chem. Corp., 498 A2d 1099 [Del 1985]). Again, we disagree.

As we read the post-Weinberger Delaware case law, in the event of a properly conducted cash-out merger (Delaware Corporation Law § 253) — even one effected solely for the purpose of freezing out the minority stockholders — the minority has no claim beyond its statutory right to seek an appraisal of its shares absent a demonstration of "fraud or blatant overreaching” (Greene & Co. v Schenley Indus., supra, at 35). The rationale for limiting minority stockholders to their appraisal rights in the ordinary case, a Delaware court has noted, is "the policy of the courts * * * to permit contracting corporations to take advantage of statutory devices for corporate consolidation furnished by legislative act” (Bruce v Bruce Co., 40 Del Ch 80, 82, 174 A2d 29, 30 [1961]), and "reasons for a merger or the business necessity behind it are not matters for judicial determination” (40 Del Ch, at 82, 174 A2d, at 30). In its most recent pronouncement on the rights of minority stockholders after a freeze-out merger, however, the Delaware Supreme Court in Rabkin v Hunt Chem. Corp. (supra, at 1104), emphasized that while in Weinberger it abrogated Singer, Tanzer and Roland in favor of the prior rule in Stauffer and Greene & Co., it did not intend any limitation on the historic powers of the Chancellor to grant appropriate equitable relief. Quoting the Weinberger opinion, the court observed that the appraisal remedy " 'may not be adequate in certain cases, particularly where fraud, misrepresentation, self-dealing, deliberate waste of corporate assets, or gross and palpable overreaching are involved’ ” (Rabkin v Hunt Chem. Corp., supra, at 1104). Thus, we must apply the rule in Stauffer and Greene & Co. in light of the caveats expressed in Weinberger and Rabkin.

Upon examination of the complaint, affidavits and other documents in the record, including the excerpts from the examination before trial of plaintiff Cecil R. Borg, we conclude that there is no such demonstration of "fraud or blatant overreaching” as would bring the case within the exception to the general rule making the statutory appraisal proceeding plaintiffs’ exclusive remedy. There is no claim of any misrepresentation or false statement or any specific conduct which could constitute actual fraud. Plaintiffs were provided with the appraisal of the asset value of the corporation and copies of the Morgan Stanley appraisal of the stock as being worth $125 per share. Plaintiffs consulted their attorneys and immediately formed their own conclusions that the Morgan Stanley appraisal and the $150 per share offer were unreasonable and that the appraisal was wrong because it gave far too little weight to the asset value of $320,000,000. Moreover, it appears that plaintiffs’ decision not to seek an appraisal was based on their judgment that to do so would be too costly and time-consuming rather than on any misleading or deceptive conduct or on any withholding of information by defendants.

Rabkin v Hunt Chem. Corp. (supra) relied on by plaintiffs, is readily distinguished. There, Olin Corporation bought 63.4% of the stock in Hunt for $25 per share and agreed with the seller to pay $25 per share for the rest of the stock if Olin acquired the remainder within a year. The defendants waited one year and one day from the date of the contract and then, as majority stockholders, froze out the minority, offering only $20 per share. The claim in Rabkin was not that the $20 per share being offered following the cash-out merger was unreasonably low, but that the minority shareholders were deprived of "the $25 per share guaranteed by the one year commitment, which they claim was unfairly denied them by [defendant’s] manipulations” (id., at 1105). Indeed, the Delaware Supreme Court specifically noted that "plaintiffs are not arguing questions of valuation which are the traditional subjects of an appraisal” (id., at 1105). The court also observed that a claim of breach of faith and conflict of interest was lodged against individual officers and directors who had acted in dual capacities as directors of both the parent and the subsidiary corporation, and that "[t]hese are issues which an appraisal cannot address and at this juncture are matters that cannot be resolved by a motion to dismiss” (id., at 1106).

Here, in contrast to Rabkin, all of the actions with which defendant corporations are charged relate to price; there are no claims asserted against individual defendants based on dual representation; and it cannot be said that the "defendants are charged with bad faith which goes beyond issues of 'mere inadequacy of price’. Cole v National Cash Credit Association, Del. Ch., 156 A. 183, 187-88 [1931]” (id., at 1107). In short, in Rabkin there was good reason to deny the dismissal motion addressed to plaintiffs’ complaint because it appeared from the allegations that appraisal might not be an adequate remedy. Here, on analysis not only of plaintiffs’ complaint but of the factual material submitted to Supreme Court on the motion for summary judgment, it appears that an appraisal, if plaintiffs had sought one, would have completely obviated their objections to the unreasonably low offer.

Nor does anything in Weinberger call for a different result. As in Rabkin the complaint was based, in large measure, on the breach of faith of directors acting in a dual capacity and, again, like Rabkin and unlike the case at bar, there were specific allegations of fraud, including the claim that a critical memorandum prepared by two directors of UOP, the merged company from which plaintiffs were frozen out, had been deliberately withheld from the other UOP directors and given exclusively to Signal, one of the defendants and the majority stockholder of UOP.

In sum, this is a case involving one issue, the price of Kirby stock. To be sure, there are conclusory allegations of fraud and overreaching. But the record shows that plaintiffs had the necessary information on which they could and did make an informed judgment as to the fairness of the offer, that after consulting their lawyers and others they decided to forego their appraisal rights and accept the offered price, and that their acceptance of the offer at that price was not made in reliance on any deception or omission on the part of defendants but was, on the contrary, the result of an informed judgment that resorting to an appraisal proceeding would be too costly and time-consuming.

Because we conclude that the order should be affirmed, questions pertaining to the denial of plaintiffs’ motions for class action certification are academic.

The order should, therefore, be affirmed with costs.

Chief Judge Wachtler and Judges Simons, Alexander, Titone and Bellacosa concur; Judge Kaye taking no part.

Order affirmed, with costs.

      . The action was commenced by S. William Green, Evelyn Green and Cynthia Colin as executors of the estate of Louis A. Green, deceased, and Evelyn Green (the Greens) and Cecil R. Borg, and Janette Dean, trustees under the will of Myron Borg, Jr., and Cecil R. Borg, individually (the Borgs).
      Special Term dismissed the complaint of all plaintiffs and the Appellate Division affirmed. Only the Borgs have appealed from the Appellate Division order.

      . For the purpose of this opinion, the name Santa Fe will be used to refer to both Santa Fe Industries and its wholly owned subsidiary Santa Fe Resources, which actually held 95% of Kirby’s stock.

      . Santa Fe Resources, Inc. transferred its Kirby stock and cash to a newly formed subsidiary corporation, Forest Products, Inc., in exchange for 100% of Forest Products stock. Forest Products was then merged into Kirby, with Kirby the surviving corporation. The cash transferred from Santa Fe Resources was used to buy out the minority stockholders.

      . Since only the Borgs are before the court on this appeal (see, n 1, supra), "plaintiffs” will be used to refer only to the Borgs.

      . The Morgan Stanley appraisal assigned the asset value a 5% weight in determining the fair value of a share of Kirby stock. In Bell v Kirby Lbr. Corp. (413 A2d 137, 147 [Del]), the Delaware Supreme Court stated "we are satisfied that the Morgan Stanley appraisal is the product of an orderly and logical deductive process in accordance with approved methodology properly accepted by the Appraiser and the Vice-Chancellor.”

      . The emphasis which the Delaware court placed on the withholding of this memorandum from the other UOP directors is evident from the following excerpt in the Weinberger opinion:
      "The Arledge-Chitiea report speaks for itself in supporting the Chancellor’s finding that a price of up to $24 was a 'good investment’ for Signal. It shows that a return on the investment at $21 would be 15.7% versus 15.5% at $24 per share. * * *
      "Certainly, this was a matter of material significance to UOP and its shareholders. Since the study was prepared by two UOP directors, using UOP information for the exclusive benefit of Signal, and nothing whatever was done to disclose it to the outside UOP directors or the minority shareholders, a question of breach of fiduciary duty arises. This problem occurs because there were common Signal-UOP directors participating, at least to some extent, in the UOP board’s decision-making processes without full disclosure of the conflicts they faced.” (Weinberger v UOP, Inc., 457 A2d 701, 709 [Del].)


text:
    Richard O. Loengard, Jr., et al., Plaintiffs, v Santa Fe Industries, Inc., et al., Defendants.
    Argued June 3, 1987;
    decided September 15, 1987

      POINTS OF COUNSEL

      Sidney Bender, Aaron Lewittes, Janine L. Bender and Syma S. Levine for plaintiffs.

      William R. Glendon, Guy C. Quinlan and Diane Boenig Cavanaugh for defendants.
   OPINION OF THE COURT

Hancock, Jr., J.

Plaintiffs were minority stockholders in Kirby Lumber Corp. on July 31, 1974 when Santa Fe Resources effected a Delaware short-form, freeze-out merger (Delaware Corporation Law § 253) as a result of which Kirby became a wholly owned subsidiary of Santa Fe Industries, Inc. (a detailed statement of the facts and procedural history of this case is set forth in Green v Santa Fe Indus., 70 NY2d 244 [decided herewith]). After unsuccessful motions for class certification in the Green litigation (Green v Santa Fe Indus., 391 F Supp 849 [SD NY 1975] , affd in part and revd in part 533 F2d 1283 [2d Cir 1976] , revd 430 US 462 [1977], on remand Green v Santa Fe Indus., 562 F2d 4 [2d Cir 1977], 82 FRD 688 [SD NY 1979], 88 FRD 575 [SD NY 1980], 576 F Supp 269 [SD NY 1983], affd mem 742 F2d 1434 [2d Cir], cert denied 469 US 917 [1984]), and after their motion to intervene was denied (CV 82-7298 [SD NY]), plaintiffs brought a diversity action in Federal District Court on November 29, 1982, alleging that the conduct of Santa Fe constituted fraud under the Martin Act (General Business Law § 352-c), and alleging a breach of fiduciary duty under Delaware law. Taking into account the tolling of the Statute of Limitations between September 10, 1974, when the Greens commenced their action, and June 7, 1979, when class action status was denied, this action was begun more than three years but less than six years after the effective date of the merger.

The District Court held that the breach of fiduciary duty claim was governed by the three-year limitation (CPLR 214 [4]) and, therefore, time barred. It held that the Martin Act claim was governed by the six-year limitation (CPLR 213 [1]) and timely. (Loengard v Santa Fe Indus., 573 F Supp 1355 [SD NY]). Subsequently, the District Court found that no Martin Act claim was stated (Loengard v Santa Fe Indus., 639 F Supp 673 [SD NY]), and dismissed the complaint.

On Loengard’s appeal, the United States Court of Appeals for the Second Circuit certified to us the following questions:

"1. Where defendant fiduciaries in a Delaware short-form 'cash-out’ merger unilaterally fix a value of and pay to minority stockholders $150 per share, where the defendants are collaterally estopped from challenging the determination in Bell v. Kirby Lumber Corp., 413 A.2d 137 (Del. 1980) that the asset value was $456 per share, and the fair value of the shares was $254.40 per share, and where material acts were done in New York State in furtherance of the merger, was actionable fraud committed under New York’s Martin Act (N.Y. Gen. Bus. Law § 352-c)?”
"2. Whether New York State’s six-year statute of limitations . (N.Y. Civ. Prac. Law § 213 (1) or (2)) governs a claim for unjust enrichment from a breach of fiduciary obligation, arising out of a freeze-out merger transaction where the majority fiduciary forcibly purchases the minority’s shares at a unilaterally determined and substantially undervalued price without prior notice?”

We answer the first certified question in the negative. The question is determined by our holding in CPC Intl. v McKesson Corp. (70 NY2d 268 [decided herewith]) that no private cause of action is implied for violations of the anti-fraud provisions of the Martin Act (see, Green v Santa Fe Indus., 70 NY2d 244, supra).

We answer the second certified question in the affirmative. We have held that the choice of the applicable Statute of Limitations depends on the substantive remedy which the plaintiff seeks (see, Sears, Roebuck & Co. v Enco Assocs., 43 NY2d 389, 394-395; Matter of Paver & Wildfoerster [Catholic High School Assn.], 38 NY2d 669, 672; 1 Weinstein-KornMiller, NY Civ Prac j[ 213.01). Here, the nature of the relief sought is equitable. A claim based on a breach of the fiduciary obligation owed by the majority shareholders to the minority in forcing the minority to sell their shares in a freeze-out merger at a substantially undervalued price is essentially equitable in nature (see, Green v Santa Fe Indus., 70 NY2d 244, 259, supra; Rabkin v Hunt Chem. Corp., 498 A2d 1099, 1104-1108 [Del 1985]; Weinberger v UOP, Inc., 457 A2d 701, 714 [Del 1983]; Cole v National Cash Credit Assn., 18 Del Ch 47, 156 A 183, 187 [1931]; see generally,. 3 Fletcher, Cyclopedia Corporations § 852 [perm ed]). At the root of such a claim is the contention that the defendant, by taking advantage of its majority status, has unfairly placed the minority in the position of having to choose between two options — accepting the offer or resorting to statutory appraisal — neither of which it wants (see, Cole v National Cash Credit Assn., supra, 156 A, at 187-188). In the ordinary case of a freeze-out merger conducted in accordance with the statute, the statutory right of appraisal is, in the absence of a showing of fraud or blatant overreaching, the minority’s exclusive remedy (see, e.g., Green v Santa Fe Indus., 576 F Supp 269, affd 742 F2d 1434, cert denied 469 US 917, supra; Stauffer v Standard Brands, 41 Del Ch 7, 187 A2d 78 [1962]). In the exceptional case, where upon a showing of fraud, misrepresentation or self-dealing the appraisal remedy is held not to be adequate (see, e.g., Rabkin v Hunt Chem. Corp., supra; Weinberger v UOP, Inc., supra, at 714), the minority may seek relief from a court of equity. We note that the relief demanded in the complaint here — the restoration of the minority to their status as full stockholders, or, alternatively, a determination of the fair value of their shares and an order directing defendants to pay that value for them — is equitable in nature and that a legal remedy would not be adequate.

Thus, we conclude that the claim based on the breach of fiduciary duty described in the second certified question is an equitable claim governed by the six-year Statute of Limitations (CPLR 213 [1]; see, Scheuer v Scheuer, 308 NY 447; Augustine v Szwed, 77 AD2d 298 [Simons, J.]; Dolmetta v Uintah Natl. Corp., 712 F2d 15 [2d Cir]; 1 Weinstein-KornMiller, NY Civ Prac If 213.01, at 2-129; Siegel, NY Prac § 36 [1978]).

Chief Judge Wachtler and Judges Simons, Alexander, Titone and Bellacosa concur; Judge Kaye taking no part.

Following certification of questions by the United States Court of Appeals for the Second Circuit and acceptance of the questions by this court pursuant to section 500.17 (22 NYCRR 500.17) of the Rules of Practice of the New York State Court of Appeals, and after hearing arguments by counsel for the parties and consideration of the briefs and record submitted, certified question No. 1 answered in the negative and certified question No. 2 answered in the affirmative.

       The Delaware Supreme Court in Weinberger v UOP, Inc. (457 A2d 701, 714) expressly noted the availability of equitable relief when the appraisal remedy is inadequate stating: "While a plaintifFs monetary remedy ordinarily should be confined to the more liberalized appraisal proceeding herein established, we do not intend any limitation on the historic powers of the Chancellor to grant such other relief as the facts of a particular case may dictate. The appraisal remedy we approve may not be adequate in certain cases, particularly where fraud, misrepresentation, self-dealing, deliberate waste of corporate assets, or gross and palpable overreaching are involved. Cole v National Cash Credit Association, Del. Ch., 156 A 183, 187 (1931). Under such circumstances, the Chancellor’s powers are complete to fashion any form of equitable and monetary relief as may be appropriate, including rescissory damages.”


text:
    CPC International Inc., Appellant, v McKesson Corporation et al., Defendants, and Morgan Stanley & Co., Inc., et al., Respondents.
    Argued June 3,1987;
    decided September 15, 1987

      POINTS OF COUNSEL

      Stephen Rackow Kaye, Claire P. Gutekunst, Mary C. Mone and William S. Wells for appellant.

      Moses Silverman, Arthur L. Liman, Stuart Robinowitz, Abby L. Jennis and Jeffrey J. Wild for McKesson Corporation and others, defendants.

      Lewis B. Kaden, Lisa A. Huestis and Timothy J. Mayopoulos for Morgan Stanley & Co., Incorporated, respondent.
   OPINION OF THE COURT

Hancock, Jr., J.

This action arises from defendant McKesson’s sale of the stock of its wholly owned subsidiary, C.F. Mueller Corporation, a leading producer of pasta, to plaintiff CPC International. Plaintiff has sued McKesson Corporation, Morgan Stanley, McKesson’s investment advisor, and individual defendants Blattman, Merrick and Brounstein, former Mueller and McKesson employees, on a complaint containing causes of action for damages based on breach of warranty, violations of the Martin Act (General Business Law § 352-c), violations of section 17 (a) of the Securities Act of 1933 (15 USC § 77q), and common-law fraud. Supreme Court granted defendants’ motion to dismiss the cause of action based on section 17 (a) of the Securities Act and granted the motions of Morgan Stanley and the individual defendants to dismiss the common-law fraud action as to them. It denied defendants’ motion to dismiss the Martin Act claim and denied the motions of Blattman and Merrick, residents of California and Connecticut, respectively, to dismiss the complaint against them upon the ground that the court lacked personal jurisdiction.

The Appellate Division modified and granted the motions to dismiss in their entirety with the exception of the causes of action alleging breach of warranty and common-law fraud against McKesson. The Appellate Division added that it agreed with Supreme Court’s denial of Blattman’s and Merrick’s motions to dismiss for lack of personal jurisdiction.

This appeal presents four questions: (1) whether plaintiff has a cause of action for violations of section 352-c of the Martin Act; (2) whether plaintiff has a cause of action for violations of section 17 (a) of the Securities Act of 1933; (3) whether plaintiff has stated a cause of action against Morgan Stanley and the individual defendants based on common-law fraud; and (4) whether Supreme Court has personal jurisdiction over defendants Blattman and Merrick for this action.

The Complaint

The crux of plaintiff’s complaint is that the defendants deliberately and fraudulently prepared false projections of revenues, operating expenses and profits of Mueller and intentionally withheld other accurate projections for the purpose of selling Mueller for more than it was worth. Plaintiff alleges that, as part of a review of Mueller’s expected economic performance in early June 1983, Mueller’s executives made a presentation to McKesson’s executives predicting a sharp decline in Mueller’s profitability; that following this prediction the individual defendants and others attended a conference on June 27 and 28, 1983 at the New York offices of Morgan Stanley to formulate a program for the sale of Mueller at an inflated price; that at McKesson’s and Blattman’s direction defendants Merrick and Brounstein, a Mueller vice-president, and others, from June 30, 1983 through July 1, 1983, created fictitious projections overstating Mueller’s business prospects which they knew were at odds with the unfavorable projections of future business prepared by Mueller’s executives approximately two weeks earlier; that Morgan Stanley knowingly incorporated such fictitious projections into a confidential addendum to a memorandum offering Mueller to interested buyers; that Morgan Stanley distributed the offering memorandum and the confidential addendum containing these overstated projections in soliciting bids from CPC and others for purchase of the Mueller stock; that although the offering memorandum prepared by Morgan Stanley contained a disclaimer of any express or implied warranties, it also contained the statement, "Morgan Stanley believe[s] that the financial and other information contained herein is accurate”; that the confidential addendum prepared by Morgan Stanley stated that the projections were "based on estimates of Mueller’s management, which in the opinion of management, are reasonable in light of historical results and present trends”; that the defendants concealed from plaintiff the facts that the projections incorporated in the confidential memorandum had been especially prepared for use by Morgan Stanley and McKesson in selling the Mueller stock and that these projections were unwarranted and contrary to management’s earlier authentic projections; that plaintiff submitted its successful bid for the stock of Mueller in reliance on the projections distributed by Morgan Stanley which McKesson had warranted in the purchase and sale agreement to be authentic and to have been made in good faith in the ordinary course of business using the assumptions of market growth, market share and product share set forth in the contract; and that as a result, on December 1, 1983, CPC purchased Mueller for an amount $61,300,000 higher than its actual fair market value.

The Holdings

For reasons which will appear, the court holds in part I that there is no implied private cause of action for violations of the antifraud provisions of the Martin Act (General Business Law § 352-c); in part II that there is no implied private cause of action under section 17 (a) of the Securities Act of 1933 (15 USC § 77q); and in part III that plaintiff has sufficiently pleaded a cause of action for common-law fraud. Additionally, in part IV, we reject Blattman and Merrick’s argument that we should affirm the dismissal of the complaint as to them on the alternative ground that New York courts do not have personal jurisdiction. The order of the Appellate Division should be modified accordingly.

I

General Business Law § 352-c prohibits various fraudulent and deceitful practices in the distribution, exchange, sale and purchase of securities. This provision is part of the Martin Act, New York’s version of the blue sky laws which, in various forms, have been enacted by every State in the country. In all the other States, except one, the Legislature has expressly recognized a private civil action for violations of the corresponding provision. Under the Martin Act, however, no private action has been expressly authorized. A majority of this court now holds that there is no cause of action impliedly created under section 352-c.

The rules for determining when a violation of a statutory provision gives rise to an implied private cause of action for damages have evolved in the decisional law of this State over more than 100 years. (See, e.g., Atkin v Hill, Darlington & Grimm, 12 NY2d 940; Pine Grove Poultry Farm v Newton ByProducts. Mfg. Co., 248 NY 293; Abounader v Strohmeyer & Arpe Co., 243 NY 458; and Willy v Mulledy, 78 NY 310; contrast with Carpenter v City of Plattsburgh, 66 NY2d 791; Stoganovic v Dinolfo, 61 NY2d 812; Drinkhouse v Parka Corp., 3 NY2d 82; Steitz v City of Beacon, 295 NY 51; see also, Restatement [Second] of Torts §§ 286, 874A, comments h, i.)

Recently, in Burns Jackson Miller Summit & Spitzer v Lindner (59 NY2d 314), we held that a violation of the Taylor Law did not give rise to an independent cause of action not expressly granted, because such would be inconsistent with that statute’s purpose, legislative history, and underlying scheme. We explained that: "Whether a private cause of action was intended will turn in the first instance on whether the plaintiff is 'one of the class for whose especial benefit the statute was enacted’ [citations omitted]. But the inquiry does not ** * * end there * * * Important also are what indications there are in the statute or its legislative history of an intent to create (or conversely to deny) such a remedy and, most importantly, the consistency of doing so with the purposes underlying the legislative scheme [citations omitted]” (supra, at 325). In short, a private cause of action is implied where it can be shown that plaintiff belongs to the class of legislatively intended beneficiaries and that a right of action would be "clearly in furtherance of the legislative purpose” (supra, at 329).

The majority of this court holds that an implied private action is not consistent with the legislative scheme underlying the Martin Act and, specifically, section 352-c; that the specific purpose of the statute was to create a statutory mechanism in which the Attorney-General would have broad regulatory and remedial powers to prevent fraudulent securities practices by investigating and intervening at the first indication of possible securities fraud on the public and, thereafter, if appropriate, to commence civil or criminal prosecution; and that consistency of purpose with the statute includes consistency with this enforcement mechanism (see, General Business Law §§ 352, 353, 353-a, 354, 358; Kaufmann, Practice Commentaries, McKinney’s Cons Laws of NY, Book 19, General Business Law art 23-A, at 19-20).

Judge Simons and I have a different view. We believe that the underlying purpose of section 352-c is not to grant various powers to the Attorney-General. Rather, as we see it, the ultimate aim to be achieved by the statute is the deterrence of fraudulent practices in the offering and sale of securities and the protection of investors damaged by such practices (see, People v Lexington Sixty-First Assocs., 38 NY2d 588, 595; Mem of Attorney-General in support of L 1955, ch 553, 1955 NY Legis, at 133; Report of Special Committee Appointed by Governor to Provide Proper Supervision and Regulation in Connection with Securities Offered to Public for Investment, 1920 NY Legis Doc No. 81). Accordingly, we would hold that an implied private cause of action furthers that broader statutory purpose and, therefore, comports with the rule stated in Burns Jackson (see, 2 Loss, Securities Regulation, at 941-942; 3 Loss, at 1631 [2d ed 1961]; Prosser and Keeton, Torts § 4, at 25 [5th ed]; Restatement [Second] of Torts §§ 286, 874A, comments h, i).

Inasmuch as the court does now decide that the particular purpose of section 352-c is the creation of an enforcement mechanism within which a private action is not implied, further elaboration of our respective positions on the application of settled rules to this specific statute is unnecessary.

Notwithstanding these differences, the court unanimously recognizes that there are reasons which suggest that the Legislature consider the merits of a statutorily expressed cause of action. By reducing the expectancy of reaping illicit profits from fraudulent securities practices, a private cause of action would act as a further deterrent (see, Fratt v Robinson, 203 F2d 627, 632 [9th Cir]; Mem of Attorney-General in support of L 1955, ch 533, 1955 NY Legis Ann, at 133; Committee Bill Mem in support of L 1982, ch 146; 3 Loss, Securities Regulation, at 1631 [2d ed 1961]; see also, Comment, Action Under State Law: Florida’s Blue Sky and Common Law Alternatives to Rule 10b-5 for Relief in Securities Fraud, 32 U Fla L Rev 636, 640, n 32). A statutory cause of action in State court could add a remedy for defrauded investors in those cases where none exists in common-law fraud, and where the Federal courts have denied any relief under Federal law (see, e.g., Ernst & Ernst v Hochfelder, 425 US 185; Blue Chip Stamps v Manor Drug Stores, 421 US 723; In re Washington Pub. Power Supply Sys. Sec. Litig., 823 F2d 1349 [9th Cir]; Landry v All Am. Assur. Co., 688 F2d 381; see also, Comment, Proof of Fault in Actions for Securities Fraud: A Cloud in Pennsylvania’s Blue Sky, 46 U Pitt L Rev 1083; Cherner, Considering the State Court as a Forum for Securities Actions, 9 Cumb L Rev 663). Moreover, a statutory cause of action would be consistent with the blue sky laws of the other States which, except for Rhode Island, all expressly provide for some form of civil liability (see, 6 Loss, Securities Regulation, at 3814 [1969 Supp]; see also, 70 Pa Stat Annot § 1-101 et seq. [1972]).

II

To determine if plaintiff has a cause of action for alleged violations of section 17 (a) of the Securities Act of 1933 (15 USC § 77q), we must first decide whether under Federal law a private cause of action exists. The statute itself does not expressly create one and, therefore, as with plaintiff’s Martin Act claim, if a private cause of action does exist, it must be implied.

In discussing whether section 17 (a) gives rise to a private cause of action we note, at the outset, that the Supreme Court has not yet ruled on this question (see, Bateman Eichler, Hill Richards v Berner, 472 US 299, 304, n 9; Herman & MacLean v Huddleston, 459 US 375, 378, n 2; Teamsters v Daniel, 439 US 551, 557, n 9; Blue Chip Stamps v Manor Drug Stores, 421 US 723, 733-734, n 6, supra) and that the decisions of the lower Federal courts are divided.

Until the late 1970’s, the prevailing view was that a private cause of action existed. The Second, Fourth, Seventh, and Ninth Circuit Courts of Appeals so held (see, Stephenson v Calpine Conifers II, 652 F2d 808, 815 [9th Cir]; Lincoln Natl. Bank v Herber, 604 F2d 1038, 1040, n 2 [7th Cir]; Kirshner v United States, 603 F2d 234, 241 [2d Cir], cert denied sub nom. Goldberg v Kirshner, 444 US 995; Daniel v International Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers, 561 F2d 1223, 1244-1246 [7th Cir]; Newman v Prior, 518 F2d 97, 99 [4th Cir]). At the root of most of these decisions was the assumption that section 17 (a) was nearly identical to section 10 (b) of the Securities Exchange Act of 1934 (15 USC § 78j [b]). Based on that assumption, the courts concluded that since the Supreme Court had recognized the existence of an implied private cause of action under section 10 (b) (see, Blue Chip Stamps v Manor Drug Stores, 421 US 723, 730, supra; Superintendent of Ins. v Bankers Life & Cas. Co., 404 US 6, 13, n 9), "there seemed little practical point in denying the existence of [a private] action under § 17” (Securities & Exch. Commn. v Texas Gulf Sulphur Co., 401 F2d 833, 867 [Friendly, J., concurring]; see, e.g., Stephenson v Calpine Conifers II, supra, at 815; Kirshner v United States, supra, at 241; Daniel v International Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers, supra, at 1245-1246).

In view of recent decisions of the Supreme Court, many courts have now recognized that section 17 (a) and section 10 (b) are not nearly identical as previously assumed and that, therefore, the premise of the earlier cases — that if there is a private cause of action under section 10 (b) there must be a cause of action under section 17 (a) — has been vitiated (see, e.g, Landry v All Am. Assur. Co., 688 F2d 381, 384-385 [5th Cir], supra; Ackerman v Clinical Data [1985-1986 Transfer Binder] Fed Sec L Rep [CCH] If 92,207 [US Dist Ct Mass]; Kimmel v Peterson, 565 F Supp 476, 483-485 [ED Pa]; Mann v Oppenheimer & Co. [1986-1987 Transfer Binder] Fed Sec L Rep [CCH] j[ 93,005 [Del]). In addition, the Ninth Circuit recently overruled its prior decisions in Mosher v Kane (784 F2d 1385) and Stephenson v Calpine Conifers II (supra) and held that there is no private cause of action under section 17 (a) (see, In re Washington Pub. Power Supply Sys. Sec. Litig., 823 F2d 1349, supra) and three other circuits have indicated that their prior decisions holding that there is a private cause of action are now open to reexamination (see, Teamsters Local 282 Pension Trust Fund v Angelos, 762 F2d 522, 530-531 [7th Cir]; Yoder v Orthomolecular Nutrition Inst., 751 F2d 555, 559, n 3 [2d Cir]; Securities & Exch. Commn. v American Realty Trust, 586 F2d 1001, 1006 [4th Cir]).

With this background, we turn to an analysis of section 17 (a), applying the four-part test established by the Supreme Court in Cort v Ash (422 US 66) to determine whether there is an implied cause of action under a Federal statute. The Cort v Ash four-part test follows: "First, is the plaintiff 'one of the class for whose especial benefit the statute was enacted,’ * * * that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? * * * Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? * * * And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?” (422 US 66, 78, supra.)

As to the first Cort v Ash inquiry — whether plaintiff is " 'one of the class for whose especial benefit the statute was enacted’ ” — we note that there is a split of authority even among those courts that hold there is no private cause of action (compare, Kimmel v Peterson, 565 F Supp 476, 486, supra; and Hill v Der, 521 F Supp 1370, 1376 [D Del]; with Landry v All Am. Assur. Co., 688 F2d 381, 389, supra; and Ackerman v Clinical Data, supra). We agree with the reasoning of the courts which hold that section 17 (a) was intended to protect investors and that it did not "merely represents a general censure of fraudulent practices” (Landry v All Am. Assur. Co., supra, at 389). Indeed, we note that the Supreme Court, after reviewing the legislative history of the Securities Act of 1933, characterized its main purpose as " 'protecting] the investing public and honest business’ ” (United States v Naftalin, 441 US 768, 775, quoting S Rep No. 47, 73d Cong, 1st Sess 1 [1933]). Finally, any suggestion that Congress in enacting the Securities Act of 1933 and, thereby, establishing this intricate legislative mechanism for controlling the securities business, could have only intended to provide a means for censuring fraudulent practices — with no thought of providing sanctions or remedies — is dispelled by the express provisions for civil actions for violations in sections 11 and 12 of the Securities Act of 1933 (15 USC §§ 77k, 111).

A more difficult analytical problem is presented by the second Cort v Ash inquiry: whether there is "any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one” under section 17 (a). The legislative history and the structure of the Securities Act of 1933, however, require us to conclude that Congress did not intend to do so.

We find the legislative history of section 17 (a) particularly persuasive. There are explicit indications that it was not intended to create a private cause of action. The House Committee report specified sections 11 and 12, but not section 17 (a), as the sections creating and defining the civil liabilities under the Securities Act (see, HR Rep No. 85, 73d Cong, 1st Sess 9-10; see also, Landry v All Am. Assur. Co., supra, at 389, n 34; Securities & Exch. Commn. v Texas Gulf Sulphur Co., 401 F2d 833, 867 [2d Cir, Friendly, J., concurring]). The report explained that the reason for limiting the civil remedies was that "[t]o impose greater responsibility * * * would unnecessarily restrain the conscientious administration of honest business with no compensating advantage to the public” (HR Rep No. 85, 73d Cong, 1st Sess 9-10; see, Citizens State Bank v Continental Assur. Co., 598 F Supp 1111, 1115 [WD Wis]). Additionally, Senator Fletcher and Commissioner Landis of the Federal Trade Commission, both of whom were deeply involved with the Securities Acts, stated unequivocally that section 17 (a) was not designed to create civil liability (see, 3 Loss, Securities Regulation, at 1784-1785 [2d ed 1961], quoting Landis, Liability Sections of Securities Acts, 18 Am Accountant 330, 331 [1933] ["The suggestion has been made on occasion that civil liabilities arise also from a violation of Section 17 * * * But a reading of this section in the light of the entire Act leaves no doubt but that violations of its provisions give rise only to a liability to be restrained by injunctive action or if wilfully done, to a liability to be punished criminally.”]; Citizens State Bank v Continental Assur. Co., 598 F Supp 1111, 1115, supra, quoting 78 Cong Rec 8711-8712 [1934]; ["It is to be noted that enforcement of the provisions of the new subsection is left to injunction, stop order, and criminal prosecution. No civil liability attaches for any violation thereof’]).

Moreover, the structure of the Securities Act of 1933, when analyzed, confirms our conclusion that Congress did not intend to provide a private cause of action under section 17 (a). The Securities Act contains express civil remedies (see, §§ 11, 12 [15 USC §§ 77k, 77/]) and, from the inclusion of these remedies in specific sections, it can be logically inferred that if Congress had intended that there also should be a private cause of action under section 17 (a), it would have said so (see, Passenger Corp. v Passengers Assn., 414 US 453, 458; but see, Howing Co. v Nationwide Corp., 826 F2d 1470 [6th Cir]).

Plaintiff argues, however, that it follows from the Supreme Court’s decision in Herman & MacLean v Huddleston (459 US 375, supra) — holding that the availability of an express remedy under section 11 of the 1933 Act does not preclude defrauded purchasers of registered securities from maintaining an action under section 10 (b) of the 1934 Act — that the existence of express remedies in sections 11 and 12 should similarly not preclude a finding that Congress intended an implied civil remedy under section 17 (a). A review of Herman & MacLean v Huddleston (supra) and a comparison of section 17 (a) with sections 11 and 12 and with section 10 (b), leads us to the opposite conclusion.

In Herman & MacLean v Huddleston (supra, at 381-383), the Supreme Court noted that while section 10 (b) and section 11 have some overlap, they "address different types of wrongdoing” and "a § 10 (b) plaintiff carries a heavier burden than a § 11 plaintiff”. It concluded that since section 11 and section 10 (b) have different purposes and describe different substantive wrongs, it could not logically be inferred that by providing for express civil remedies in one section Congress must have intended to exclude such remedies under the other section. This reason for not drawing the inference under the accepted canon of construction (see, e.g., McKinney’s Cons Laws of NY, Book 1, Statutes § 240 ["where a law expressly describes a particular act, thing or person to which it shall apply, an irrefutable inference must be drawn that what is omitted or not included was intended to be omitted or excluded”]) does not exist when comparing section 17 (a) with sections 11 and 12. Section 17 (a) and section 12 (2) address the same substantive wrongs. The chief differences between the two sections are procedural: section 17 (a) lacks certain procedural protections which are present in section 12 (2) (see, 3 Loss, Securities Regulation, at 1785 [2d ed 1961]; see, Hill v Der, 521 F Supp 1370, 1376-1377, supra; Mann v Oppenheimer & Co. [1986-1987 Transfer Binder] Fed Sec L Rep [CCH] [f 93,005, supra). It is unlikely that Congress would have created express causes of action with specific procedural requirements under sections 11 and 12 and, at the same time, have intended to imply, without procedural requirements, a cause of action under section 17 (a) covering the same conduct (see, Passenger Corp. v Passengers Assn., 414 US 453, 458, supra).

Plaintiff also argues that because Congress made an extensive overhaul of the securities laws in 1975 and left intact the rule from a nearly unanimous line of judicial decisions permitting plaintiffs to sue under section 17 (a), that by its silence, it approved the rule (see, Herman & MacLean v Huddleston, supra, at 384-386). Again, we disagree.

When Congress amended the securities laws in 1975 there were at least 11 recent cases precluding a cause of action under section 17 (a). Indeed, in a 1975 opinion, while reserving decision on whether there is • a private cause of action under section 17 (a), the Supreme Court noted this split of authority (see, Blue Chip Stamps v Manor Drug Stores, 421 US 723, 733-734, n 6, supra, citing, inter alia, 3 Loss, Securities Regulation, at 1785 [2d ed 1961]). Thus, because the question was clearly unresolved in 1975, it cannot be said that Congress’s failure to negate private causes of action when amending the securities law should be taken as its acceptance of the decisions permitting them (cf., Howing Co. v Nationwide Corp., supra). In sum, from express statements in the legislative history and from the structure of the statute, we find both explicit and implicit indications that Congress intended not to imply a private cause of action under section 17 (a).

Likewise, the third Cort v Ash factor — whether implying a private cause of action would be consistent with the underlying purposes of the legislative scheme — suggests that no cause of action was intended. Because Congress has explicitly given express civil remedies in Other parts of the statute with precise procedural requirements and safeguards, it would be anomalous to find that Congress intended, at the same time, to grant a civil remedy under section 17 (a) which has no such procedural protections, thereby encouraging plaintiffs to bypass the other sections (see, Landry v All Am. Assur. Co., supra, at 390).

Finally, under the fourth Cort v Ash factor, a private cause of action will not be implied under a Federal statute for matters traditionally relegated solely to State courts. Although this prohibition clearly does not apply to matters within the scope of section 17 (a), application of the second and third factors is, nevertheless, sufficient to compel the result reached here (see, In re Washington Pub. Power Supply Sys. Sec. Litig., supra).

Since we agree with the Appellate Division that there is no cognizable civil cause of action under section 17 (a), questions pertaining to whether the actions alleged constitute a violation of that statute need not be addressed.

Ill

We now turn to plaintiff’s claim for common-law fraud against Morgan Stanley and the individual defendants. Applying the rule that on a motion to dismiss (CPLR 3211 [a] [7]), "the allegations of a complaint, supplemented by a plaintiffs additional submissions, if any, must be given their most favorable intendment” (Arrington v New York Times Co., 55 NY2d 433, 442; see, Jered Constr. Corp. v New York City Tr. Auth., 22 NY2d 187, 194 ["It is almost impossible to state in detail the circumstances constituting a fraud where those circumstances are peculiarly within the knowledge of the party against whom the (fraud) is being asserted”]; see also, Rovello v Orofino Realty Co., 40 NY2d 633, 636), we conclude that a valid cause of action for common-law fraud is stated.

In order to state a cause of action for common-law fraud, it is sufficient for plaintiff to allege that "defendant knowingly uttered a falsehood intending to deprive the plaintiff of a benefit and that the plaintiff was thereby deceived and damaged” (Channel Master Corp. v Aluminum Ltd. Sales, 4 NY2d 403, 406-407).

Concededly, the complaint alleges that Morgan Stanley and the individual defendants knowingly participated in the preparation and distribution of projections which materially misrepresented Mueller’s financial condition. The dispute centers on (1) whether plaintiff reasonably relied on these projections or whether, on the other hand, plaintiff relied solely on the contractual warranties made by McKesson in the purchase and sale agreement, and (2) if plaintiff relied only on the contractual warranties given by McKesson, whether that fact absolves the other defendants from liability. Morgan Stanley and the individual defendants argue, and the lower courts agree, that the complaint and the evidentiary submissions show that plaintiff, in contracting to purchase Mueller, relied solely on the warranties, and that the contractual warranties were not contemplated at the time of Morgan Stanley’s and the individual defendants’ participation in the preparation and distribution of the false financial projections. Thus, the Appellate Division determined that these defendants, "like other agents, can be held liable for aiding and abetting their principal in the commission of a fraud, but not when the fraud committed is different from the one they may have believed they were participating in” (120 AD2d 221, 230). We disagree.

The complaint includes allegations that the defendants knowingly engaged in a scheme to provide "substantial assistance” to McKesson in presenting an "enhanced financial picture” of Mueller in order to "raise the price that McKesson would ultimately receive for the Mueller stock”; that in furtherance of this scheme, Morgan Stanley and the individual defendants prepared and distributed a set of false and fictitious financial projections to plaintiff and others; that these projections, while including a disclaimer of warranties, also stated that "Morgan Stanley believe[s] that the financial and other information contained herein is accurate” and that the projections were "based on estimates of Mueller’s management, which in the opinion of management, are reasonable in light of historical results and present trends”, and that these financial projections became the subject of contractual warranties in the purchase and sale agreement.

Given its "most favorable intendment”, the complaint, read as a whole, describes a scheme — involving all the defendants — devised and executed for the specific purpose of defrauding the prospective purchaser by selling it the Mueller stock for more than it was worth. Whether the giving of the contractual warranties was part of this scheme, as plaintiff claims, is a factual question which cannot be determined at the pleading stage. Moreover, even if the warranties were not contemplated as part of the original fraudulent scheme, but given solely as a result of McKesson’s unilateral decision, Morgan Stanley and the individual defendants, as parties to the underlying fraudulent conspiracy, could, nonetheless, be liable for McKesson’s independent actions done in furtherance of it (see, Dewey v Moyer, 72 NY 70, 80).

Finally, we reject the contention that the financial projections were mere opinions which could not be the basis for common-law fraud (120 AD2d 221, 230, supra). Plaintiff alleges that defendants made the projections knowing that they were false and unreasonable and that they were not based on Mueller’s actual financial condition. Thus, as alleged in the complaint, the projections of Mueller’s expected financial performance constitute "material existing fact[s], sufficient to support a fraud action” (see, Channel Master Corp. v Aluminum Ltd. Sales, 4 NY2d 403, 407, supra; Cristallina S. A. v Christie, Manson & Woods Intl., 117 AD2d 284, 294-295; Chase Manhattan Bank v Perla, 65 AD2d 207, 210-211; see also, Prosser and Keeton, Torts § 109 [5th ed 1984]).

IV

We find no merit in the argument of defendants Blattman and Merrick that their motions to dismiss for lack of personal jurisdiction (CPLR 3211 [a] [8]) should have been granted. In the complaint, defendants Blattman and Merrick are charged with tortious actions which, if established, would constitute common-law fraud. Some of the acts giving rise to these causes of action took place at the offices of defendant Morgan Stanley in New York City. Because the lawsuit against defendants is based on the tortious acts they allegedly committed within the State, personal jurisdiction was acquired over them under CPLR 302 (a) (2) by service of process outside the State (see, Kramer v Vogl, 17 NY2d 27, 31; 1 Weinstein-Korn-Miller, NY Civ Prac If 302.13, at 3-142.7 — 3-142.8). It is unnecessary to decide whether personal jurisdiction was also acquired under CPLR 302 (a) (1).

We reject defendants’ contentions that, because all the acts within the State were committed while they were on the business of their respective employers, the acts did not subject them to personal jurisdiction under the "fiduciary shield doctrine”. This doctrine, which has been applied as an equitable rule in some Federal courts (see, e.g., CutCo Indus. v Naughton, 806 F2d 361 [2d Cir]; Marine Midland Bank v Miller, 664 F2d 899 [2d Cir]; Wilshire Oil Co. v Riffe, 409 F2d 1277 [10th Cir]; Koenig, Personal Jurisdiction and the Corporate Employee: Minimum Contacts Meet the Fiduciary Shield, 38 Stan L Rev 813, 819-828) and by some of our appellate divisions (see, Kreutter v McFadden Oil Corp., 122 AD2d 614 [4th Dept], lv granted 69 NY2d 606; Sheldon v Kimberly-Clark Corp., 105 AD2d 273 [2d Dept]; but see, Hasbro Bradley v Coopers & Lybrand, 121 AD2d 870, 871 [1st Dept]; and Laurenzano v Goldman, 96 AD2d 852, 853 [2d Dept] [both rejecting application of the rule]) has the effect of insulating an individual defendant from personal jurisdiction when the actions on which jurisdiction is based are solely for the benefit of his corporate employer. The rule, however, has been rejected by the Supreme Court as a basis for attacking the constitutional validity of properly acquired long-arm jurisdiction (see, Colder v Jones, 465 US 783; Keeton v Hustler Mag., 465 US 770; Koenig, op. cit, at 821-823), and has met with some disfavor (see, McLaughlin, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, C302:3, at 44, 1987 Cum Ann Pocket Part).

This court has not adopted the fiduciary shield doctrine as the law in this State. We note that when the doctrine is applied, it is on the basis of the particular facts of the case and in consideration of the equities (see, Marine Midland Bank v Miller, supra, at 902-903). Whether we would find the rule applicable in other circumstances we do not now decide. Suffice to say, we find it inapplicable, where, as here, there is jurisdiction over defendants under CPLR 302 (a) (2). We are aware of no decision applying the rule when long-arm jurisdiction over a defendant is predicated on a statute permitting jurisdiction on the basis of a tortious act committed within the State (see, Koenig, op. cit., at 823-828), and we observe that the equitable considerations underlying the doctrine (see, Marine Midland Bank v Miller, supra, at 902, 903) would not favor its application in such case.

The order of the Appellate Division should be modified, with costs, in accordance herewith, and, as modified, affirmed.

Order insofar as appealed from modified, with costs to plaintiff, by reinstating the cause of action for common-law fraud as against defendant Morgan Stanley & Co., Incorporated and the individual defendants, and, as so modified, affirmed. Opinion by Judge Hancock, Jr. Chief Judge Wachtler and Judges Simons, Alexander, Titone and Bellacosa concur; Judges Simons and Hancock, Jr., dissenting in part and voting to further modify by reinstating the cause of action alleging violations of section 352-c of the Martin Act for reasons incorporated in part "I” of the opinion; Judge Kaye taking no part.

      . Plaintiff has also sued McKesson’s wholly owned subsidiary Corporation of America which held the Mueller stock and was, along with McKesson Corporation, one of the selling parties. For the purpose of this opinion the name McKesson will be used to refer to both McKesson Corporation and Corporation of America.

      . The order appealed from is final as to Morgan Stanley and the individual defendants since the action was finally determined as to them, and because they are separate and distinct entities from McKesson (see, We’re Assocs. Co. v Cohen Stracher & Bloom, 65 NY2d 148, 149). Therefore, only Morgan Stanley and the individual defendants are respondents before us on this appeal.

      . Section 352-c (1), in pertinent part, prohibits and makes it illegal for any persons, agent, or employee to engage in
      "(a) Any fraud, deception, concealment, suppression, false pretense or fictitious or pretended purchase or sale;
      "(b) Any promise or representation as to the future which is beyond reasonablé expectation or unwarranted by existing circumstances;
      "(c) Any representation or statement which is false, where the person who made such representation or statement: (i) knew the truth; or (ii) with reasonable effort could have known the truth; or (iii) made no reasonable effort to ascertain the truth; or (iv) did not have knowledge concerning the representation or statement made; * * * to induce or promote the * * * sale * * * of any security]”.

        . Section 17 (a) of the Securities Act of 1933 provides:
      "(a) It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly—
      "(1) to employ any device, scheme, or artifice to defraud, or "(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
      "(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.”

      . In Ernst & Ernst v Hochfelder (425 US 185, 201) the Supreme Court held there is a scienter requirement for a 10 (b) cause of action. In Aaron v SEC (446 US 680) the Supreme Court held that in a SEC injunctive suit, there is a scienter requirement under rule 10b-5 (17 CFR 240.10b-5) but that there is no scienter requirement under section 17 (a) (2) or (3). In Blue Chip Stamps v Manor Drug Stores (421 US 723) the Supreme Court held that only purchasers or sellers have standing under 10 (b). In contrast section 17 (a) covers both the "offer” and "sale” of securities (see, Ackerman v Clinical Data [1985-1986 Transer Binder] Fed Sec L Rep [CCH] [J 92,207 [US Dist Ct Mass]; Kimmel v Peterson, 565 F Supp 476, 484 [ED Pa]).

      . See, Greater Iowa Corp. v McLendon, 378 F2d 783 (8th Cir) (interpreted as holding no private § 17 [a] action exists in Shull v Dain, Kalman & Quail, 561 F2d 152, 155 [8th Cir], cert denied 434 US 1086; Architectural League v Bartos, 404 F Supp 304, 313 [SD NY]; Welch Foods v Goldman, Sachs & Co., 398 F Supp 1393, 1399-1401 [SD NY]; Reid v Mann, 381 F Supp 525, 526-528 [ND 111]; Ferland v Orange Groves, 377 F Supp 690, 706-707 [MD Fla]; Cowsar v Regional Recreations, 65 FRD 394, 398 [MD La]; Hardy v Sanson, 356 F Supp 1034, 1038 [ND Ga]; Dyer v Eastern Trust & Banking Co., 336 F Supp 890, 903-905 [D Me]; Emmi v First-Manufacturers Natl. Bank, 336 F Supp 629, 635 [D Me]; Trussell v United Underwriters, 228 F Supp 757, 766-769 [D Colo]; see also, Gilbert v Nixon, 429 F2d 348, 353, n 4 [10th Cir] [noting the District Court’s ruling that there was no cause of action under § 17 (a) was not appealed]).