February 09, 2012
With its December 2011 decision in Assured Guaranty (UK) Ltd.
v. J.P. Morgan Investment Management, Inc., New York’s Court
of Appeals resolved a major unsettled issue in the State’s
securities law—whether the Martin Act, New York’s "blue sky"
statute, preempts private common-law tort claims stemming from
securities transactions. Assured Guaranty involved
negligence and breach of fiduciary duty claims asserted against an
investment manager for investing funds in mortgage-backed
securities. The trial court dismissed the claims as preempted by
the Martin Act. The Appellate Division, First Department, reversed.
In its unanimous opinion, the Court of Appeals held that, as a
general rule, the Martin Act does not preclude a private litigant
from asserting a nonfraud common-law cause of action.
Lisa Catalano, Associate Professor of Clinical Education and
Director of the Law School’s
Securities Arbitration Clinic, spoke to Law School
Communications Director Lori Herz about Catalano's work in the
Assured Guaranty case and how she and the Clinic’s
Christine Lazaro, wove it into the curriculum.
LH: How did you get involved in this
LC: I co-authored an amicus curiae brief submitted to the Court of
Appeals by the Public Investors Arbitration Bar Association’s
amicus brief committee, which I chair. PIABA is a national,
non-profit, voluntary, public bar association with a membership of
over 450 attorneys who devote a significant portion of their
practices to representing public investors in disputes against
brokerage firms, brokers and financial advisors. PIABA’s members
are involved in promoting the interests of public investors in
securities and commodities arbitration. The mission of PIABA is to
promote the interests of public investors and endeavor to make
securities and commodities arbitration as just and fair as
systematically possible by creating a level playing field for the
LH: What is the significance of this no-preemption
LC: Had the Court of Appeals reached a contrary ruling, the defense
bar might have argued that investors should be left only with
federal securities fraud, common law fraud and breach of contract
claims. Fraud claims are difficult to pursue because investors must
prove intent to defraud and loss resulting from the fraudulent
conduct. Also, a contrary ruling would have left a mammoth loophole
for brokers because investors could be denied recovery relating to
claims such as garden variety gross negligence, negligent
misrepresentation and breach of fiduciary duty. In instances where
the Attorney General’s office did not pursue individuals guilty of
this kind of misconduct, they would potentially get away with it
unscathed. The Assured Guaranty decision will not only affect
investors in New York, but nationwide as well because many
brokerage firms include a New York choice of law provision in their
pre-dispute arbitration agreements with
LH: How and when did you bring Assured Guaranty to your
students in the Law School’s Securities Arbitration
LC: I had been following this case since it went up on appeal in
Spring 2011 and I discussed the case in class as it progressed. I
then arranged a trip to Albany once oral argument was scheduled.
The response from the students was very enthusiastic. One student
in the class, Ross Kartez ’12, wrote a paper on the
LH: Why was it a good fit for the students as clinic
participants and lawyers-in-training?
LC: My colleague Christine Lazaro made this great observation: Law
students spend a considerable amount of time reading appellate
decisions as part of their legal education. Clinics give students
the opportunity to work on cases from their first stages, before
they are even close to becoming a text book case. This experience
connected the work students do in the Securities Arbitration Clinic
with the cases they read about in their text books. It demonstrated
how the types of cases they are working on may become a case that
future students read about.
LH: You added an experiential learning component by taking
your students to hear oral argument on the case in the Court of
Appeals. What was the students’ reaction and how do you think the
Court experience enhanced their understanding of the matter and the
legal advocacy involved?
LC: One lesson that we repeatedly impart on our students is the
value of preparation. One of my goals was to put our motto of
“preparation, preparation, preparation” into a real world context.
I also wanted the students to witness first-hand the power of
effective (and, perhaps, not so effective) advocacy skills in the
context of a case with issues that overlap with their own cases in
the Clinic. Another goal was to expose the students to the
appellate process and how a case may ultimately culminate. Based on
their very positive reactions during and after the visit to the
Court of Appeals, I believe all of these goals were accomplished.
They had an amazing experience.