Offering Plan Certifications and the Evolution of Sponsor Liability
By Adam Leitman Bailey and John Desiderio
The Martin Act (General Business Law [“GBL”] §352[1][a]) requires sponsor developers of newly constructed condominiums and cooperative apartments to file an offering statement with the attorney general which discloses such information as is prescribed by the Attorney General in rules and regulations adopted under GBL §352-3(6)) “as will afford potential…purchasers…an adequate basis upon which to found their judgment and shall not omit any material fact or contain any untrue statement of a material fact.” Kerusa Co. LLC v/ W10Z/515 Real Estate Limited Partnership, 12 NY3d 236, 243 (2009) (Emphasis added).
The attorney general’s regulations detail the content and format of the offering plans and filings, “including the word-for-word representation that must be made in the certification to be sworn by the sponsor and the sponsor’s principals in the offering plan [13 NYCRR 20.4[b]).” (Emphasis added).This article will examine the evolving nature of New York court opinions, over more than two decades, which have construed and applied the “word-for-word” sponsor certification; first, from being applied in accordance with the plain language of the statute, but then becoming almost a bullet proof shield against allegations of common law fraud, to finally, more recently being a shortcut to sponsor’s and sponsor principals’ liability.The evolving analysis and application of the certification can be seen occurring in court opinions issued over three periods of time: (a) the 1990’s, when courts read and applied the “word-for-word” sponsor certification as written and held sponsors to their sworn certifications that their offering plans contained no “untrue statement of a material fact,” (b) the early 2000’s to approximately 2016, when courts became concerned whether plaintiffs’ private common-law fraud actions, based on sponsor alleged sponsor offering plan misrepresentations, were barred, if the complained of activity was deemed to fall under the Attorney General’s exclusive Martin Act enforcement authority; and the period since 2016, where the courts appear to have renewed their original “word-for-word” reading of sponsors’ certifications, holding them to the sworn truth of their offering plan representations.The opinions issued in this last period now provide a sure ground for plaintiffs’ standing to sue sponsors and their principals, and not be barred from doing so, by either Martin Act or “alter ego” corporate shield considerations.
The Sponsor and Sponsor Principals’ Certification
13 NYCRR 20.4(b) prescribes that the sponsor and sponsor’s principals (in their capacity as principals) certify that “we” (a) have read the entire offering plan, (b) have investigated the facts set forth in the offering plan and the underlying facts, (c) have exercised due diligence to form a basis for their certification, and (d) that “we jointly and severally certify that the offering plan does, and that the documents submitted hereafter by us which amend or supplement the offering plan will:
(1) set forth the detailed terms of the transaction and be complete, current, and accurate;(2) afford potential investors, purchasers and participants an adequate basis upon which to found their judgment;(3) not omit any material fact;(4) not contain any untrue statement of a material fact;(5) not contain any fraud, deception, concealment, suppression, false pretense or fictitious or pretended purchase or sale;(6) not contain any promise or representation as to the future which is beyond reasonable expectation or unwarranted by existing circumstances;” and, perhaps most significantly:(7) not contain any representation or statement which is false, where I/we (i) knew the truth; (ii) with reasonable effort could have known the truth; (iii) made no reasonable effort to ascertain the truth, or (iv) did not have knowledge concerning the representation or statement made.” (Emphasis added)The sponsor and sponsor principals must also certify that their certification is made under penalty of perjury for the benefit of all persons to whom their offer is made, and that they understand that violations are subject to the civil and criminal penalties of the GBL and the Penal Law. (Emphasis added)
Cases Prior to ‘Kerusa’
The earliest recorded case, which construes the Sponsor and Sponsor Principal’s Certification is Residential Board of Managers of Zeckendorf Towers v. Union Square-14th Street Associates, 190 AD2d 636 (1st Dept. 1993), where the First Department held that “the IAS Court did not err in…not [dismissing the complaint] as against defendant Zeckendorf, where the complaint alleges that Zeckendorf, in both his individual capacity and as president of defendant Gilrin Holding Corp., signed the Certification of Sponsor, thereby knowingly and intentionally advancing the alleged misrepresentations in the offering plan.” (Emphasis added).
The Second Department soon reached a similar result in Zanani v. Savad, 228 AD2d 584 (2d Dept. 1996).In Zanani, the motion court was held to have erred in denying summary judgment dismissing the individual defendant’s affirmative defense that they “could not be held personally liable as they were acting in their capacities as officers of the corporate defendants.”The Second Department held that the “certification of the offering plan, submitted by the plaintiff, demonstrates that the individual defendants executed the certification in their individual capacities,” and that “By doing so, the individual defendants thereby knowingly and intentionally advanced the alleged misrepresentations of the offering, and thus, can be held personally liable.” (citing Zeckendorf , supra ).The First Department also held, in an Attorney General prosecution, State of New York v. Sonifer Realty Corp., Kenneth K. W. Ma, Individually and as President of Sonifer Realty Corp., 212 AD2d 366 (1st Dept. 1995), (on February 2, 1995) that “the IAS Court did not abuse its discretion in declining to dismiss the action against defendant-appellant, the president of the corporate sponsor,…since he participated in the alleged fraudulent practice by signing the certificate to the offering plan, and is therefore subject to liability as a principal.”However, a month later, on March 9, 1995, in Whitehall Tenants Corp. v. Estate of Robert S. Olnick, 213 Ad2d 200 (1st Dept. 1995), without either citing or discussing the Sponsor and Sponsor Principal’s Certification, the First Department held that, while private plaintiffs are not foreclosed from alleging a cause of action for common-law fraud, “private plaintiffs will not be permitted through artful pleading to press any claim based on the sort of wrong given over to the Attorney-General under the Martin Act.” (Emphasis added).The court explained that “[w]ithout evidence of reliance by its shareholders…or intent to defraud by the sponsor…plaintiff is endeavoring to vindicate its shareholders for information withheld or misrepresented by the sponsor, which is exactly what the Martin Act commits exclusively to the Attorney General.” (Emphasis added)Thereafter, as noted in Kramer v. W10Z/514 Real Estate Limited Partnership, 44 AD3d 457, 458 (1st Dept. 2007), a First Department panel (headed by the same presiding justice who had presided in Whitehall ) explained (again without either citing or discussing the Sponsor and Sponsor Principal’s Certification) that Whitehall was “the apparent progenitor” of a “line of authority” which had held, despite the holding in in Zeckendorf, supra (see Kramer, 44 AD3d, at 458), that private party claims of fraud against a sponsor who allegedly knowingly and intentionally advanced a misrepresentation in the offering plan” by executing the sponsor and sponsor principals certification, were “barred by the Martin Act.”The Kramer court noted that the “reasoning of Whitehall Tenant Corp., however, [had] been extended to cases in which there [was] no legitimate reason to question at the pleading stage the ability of the plaintiff to prove all of the essential elements of common law fraud.”The court cited as exemplars of such “line of authority,” to name a few, Thompson v. Parkchester Apartments Corp., 249 AD2d 68 (1st Dept. 1998) (Thompson I ) (held: “In order to establish a viable independent claim for deception and false representation, plaintiff must plead,…, a unique set of circumstances whose remedy is not already available to the Attorney General”); Thompson v. Parkchester Apartments Corp., 271 AD2d 311 (1st Dept. 2000) (Thompson II ); and 15 East 11th Apartment Corp. v. Elghanayan, 220 AD2d 295 (1st Dept 1995.Thus, the Kramer court opined:
[T]he decisions of this Court after W’hitehall Tenants Corp.’ appear to regard as an example of “artful pleading” first decried in ‘Whitehall Tenants Corp.’ every claim of common-law fraud arising out of conduct that could have been the basis for an action by the attorney general. Certainly none of those decisions suggest a principled basis for identifying those claims of common-law fraud that would be regarded as impermissible ploys.
(Emphasis added)
Cases in the Period Following the ‘Kerusa’ Decision
In Kerusa, supra, the Court of Appeals overruled Kramer explaining that the plaintiff’s complaint was based on defendants’ failure to disclose various construction and design defects in the offering plan amendments, while representing that there were no “material changes of facts or circumstances affecting the property or the offering” when, in fact, problems arising during construction had alerted sponsor to the existence of major defects, which were otherwise ignored or inadequately remedied.
Kerusa expressly noted that the court was not deciding whether “the alleged misrepresentations of an item of information that the Martin Act or the Attorney General’s implementing regulations require to be disclosed would support a cause of action for fraud, so long as the elements of common law fraud are pleaded.” (Emphasis added). The question left open in Kerusa, whether misrepresentations of items of information, which either the Martin Act or the Attorney General’s implementing regulations require, would support a cause of action for fraud “so long as the elements of common law fraud are pleaded,” was answered by the Court in Assured Guaranty (UK) LTD v. J.P. Morgan Investment Management Inc., 18 NY3d 141 (2011) (“Assured Guaranty COA”).In Assured Guaranty COA, the Court of Appeals clearly held that “an injured investor may bring a common-law claim (for fraud or otherwise) that is not entirely dependent on the Martin Act for its viability,” and that “[m]ere overlap between the common law and the Martin Act is not enough to extinguish common-law remedies.” (Emphasis added). Nevertheless, despite the clear signal given by the Court of Appeals in Kerusa and Assured Guaranty COA that the hurdles, which the Thompson (I), Thompson (II), and Elghanayan “line of authority” had established, were no longer applicable, some courts did not quite get the message and continued to adhere to the Thompson line.Hamlet On Olde Oyster Bay Home Owners Association, Inc. v. Holiday Organization, Inc., 65 AD3d 1284 (2d Dept. 2009), decided seven months after Kerusa, held, that “Supreme Court properly granted that branch of the Holiday defendants’ motion which was to dismiss the causes of action alleging fraudulent inducement and negligent misrepresentation insofar as asserted against them.”The court explained:
These claims were based upon the alleged unrealistic budget projections included in the offering plan. The budget projections were included in the offering plan as required under the Martin Act, and the Attorney General’s implementing regulations. As such, they cannot be the basis for the causes of action alleging common-law fraudulent inducement and/or negligent representation asserted against the sponsor, its members and principals. (citing Kerusa)
(Interior citations omitted).
The court further ruled that “[t]he certifications in the offering plans executed by these defendants were pursuant to the Attorney General’s implementing regulations, and, as such, may not be the basis of private causes of action against them.” (Emphasis added).In Board of Managers of 184 Thompson Street Condominium v. 184 Thompsson Street Owner LLC, 106 AD3d 542 (1st Dept. 2013), the court ruled that:
The motion court correctly determined that the Non-Sponsors may not be held individually liable for any of plaintiff’s claims premised solely on alleged violations of the offering plan and certifications. The statements made by defendants in the certification and the plan were mandated by the Martin Act.” [citing Kerusa.], and plaintiff does not posit any basis of liability outside of that statute, nor assert that the Non-Sponsors are liable under an alter-ego or other veil-piercing theory.
(Emphasis added).
The court, in Sutton Apartments Corporation v. Bradhurst 100 Development LLC, 107 AD3d 646 (1st Dept. 2013), recognized that “the Martin Act does not preclude…fraud claims, which allege affirmative misrepresentations as opposed to omissions of information required by the Act, [but] plaintiffs failed to plead those claims with sufficient particularity to permit an inference of fraud,” and “failed to allege facts sufficient to support piercing the corporate veil to reach [the sponsor defendants] or the individual defendants.” (internal citations omitted). The court affirmed the dismissal of plaintiffs’ claims without any reference to or discussion of the sponsor principal and sponsor principal’s certification.(Emphasis added).In 20 Pine Street Homeowners Association v. 20 Pine Street LLC, 199 AD3d 733 (2013), the First Department, again without referencing or discussing the sponsor and sponsor principals’ certification, ruled that “claims against Sponsor’s Principals were properly dismissed. Other than conclusory statements that Sponsor’s Principals dominated and controlled Sponsor and each other, plaintiffs failed to allege particularized facts to warrant piercing the corporate veil so as to allow the claims against the principals to continue.” (Emphasis added)In this interim period after the Kerusa decision, roughly between 2009 and 2016, the First Department veered from its seemingly blanket dismissal of construction fraud claims, on grounds of Martin Act preemption, in Bhandari v. Ismael Leyva Architects, P.C., 84 AD3d 607 (1st Dept. 2011), a case involving the requisite certification the Martin Act requires from architects and engineers. See 13 NYCRR 20.4(c) and Assured Guaranty COA, supra. In Bhandari, the First Department noted that plaintiff’s claims were not preempted by the Martin Act, because “plaintiffs allege not that defendant omitted to disclose information required under the Martin Act but that it affirmatively misrepresented, as part of the offering plan, a material fact about the condominium, i.e., the floor dimensions of certain units, including the one they purchased.” (Emphasis added). The First Department here relied on its own holding in the Assured Guaranty case, 80 Ad3d 82, 86 (1st Dept 2007), which the Court of Appeals later affirmed in Assured Guaranty COA, supra. Bhandari thus stands as precedent for plaintiff condominium owners suing a sponsor’s architect, not only for fraud, but also for contract based on the architect’s representations and certifications in the offering plan. See Bridge Street Homeowners Association v. Brick Condominium Developers, LLC, 856 NYS2d 496 (Sup.Ct., Kings Co., 2008), and Assured Guaranty COA, supra. Nevertheless, despite holding in Bhandari that plaintiffs had alleged a cause of action for fraud against the architect, the court also held that plaintiffs lacked standing to sue the architect for negligent misrepresentation “because plaintiffs [did] not allege that [the architect] knew they were prospective buyers who would likely rely on its misrepresentations, or indeed that defendant knew of their existence.” (citing Sykes v. RFD Third Avenue 1 Associates, LLC, 15 NY3d 370 (2010). However, in Bhandari, the court failed to take into account whether the Sykes decision was distinguishable, because the engineer in Sykes, unlike the architect in Bhandari, had not annexed a report to the offering plan which was incorporated into the purchase agreement and which certified it was “for the benefit of all persons to whom [sponsor’s] offer is made.” See Bridge Street, supra.
The Most Recent Cases
In Board of Managers of 45 East 22nd Street Condominium v. 45 East 22nd Street Property LLC, 246 AD3d 655 (1st Dept. 2026), which, as of July 2026, is the latest case to do so, the First Department held that the requisite Martin Act Sponsor and Sponsor’s Principal Certification should be construed to mean what it plainly says.
The sponsor’s principal, who was alleged to have known of the condominium building’s need for repairs, “including its purportedly systematic lack of firestopping and other safety and construction defects which sponsor was obligated to repair,” had “nevertheless directed the sponsor to affirmatively certify in the offering plan that the building was free from defects and was not in need of repairs, and swore to the truth of the sponsor’s representations in the sponsor’s certification.” (Emphasis added).In affirming the denial of defendants’ motion to dismiss plaintiff’s fraudulent inducement claim against the sponsor’s principal, the court held that the above allegations were “sufficient to permit a reasonable inference of the alleged conduct, especially as discovery may reveal the defendants knew about the defects.” The court added, as well, that the sponsor’s principal “can be held liable for the alleged fraud without recourse to piercing the corporate veil, so long as plaintiff can establish that he personally participated in it.” (Emphasis added)In 45 East 22nd Street Condominium, the First Department followed its more recent decisions in Board of Managers of 570 Broome Condominium v. Soho Broome Condos LLC, 231 AD3d 424 (1st Dept. 2024), Board of Managers of the Walton Condominium v. 264 H2O Borrower, LLC, 180 AD3d 622 (1st Dept. 2020), and Board of Managers of the South Star v. WSA Equities, LLC, 140 AD3d 405 (1st Dept. 2016).In 570 Broome Condominium, the Court affirmed denial of defendants’ motion to dismiss the condominium’s fraud in the inducement claim against the sponsor’s principals because “Plaintiff alleged specific ‘affirmative misrepresentations, not omissions,” by defendants, “who are principals of the sponsor, and, who signed the certification in the offering plan.”The court emphasized that “[c]ontrary to defendants’ contention, the allegations set forth a scheme independent of the Martin Act disclosure requirements,” and, in addition, that “the allegations do not require piercing the corporate veil, as they are based on the affirmative representations by the individual defendants concerning the accuracy of the common charges and operating budget, which plaintiff asserts defendants knew to be false at the time.” (Emphasis added)The First Department held, similarly, in Walton Condominium (“The fraud cause of action is based on affirmative representations, not omissions,” and the “principals of the sponsor, and who signed the certification in the offering plan, could be held liable.” emphasis added) (citing Sonofer, supra), and in South Star v. WSA Equities (“to the extent [the fraud claim] is based on defendants’ affirmative misrepresentations,…[t]he motion court correctly sustained the fraud claim as against the individual defendants. ‘[A] corporate officer who participates in the commission of a tort may be held individually liable…regardless of whether the corporate veil is pierced,’” citing Peguero v. 601 Realty Corp., 58 AD3d 556, 558 [1st Dept. 2009]), while ignoring 184 Thompson, supra, Sutton Apartments, supra, and 20 Pine Street, supra (each of which was decided in 2013). (Emphasis added).
Conclusion
The above survey of First and Second Department cases, spanning from 1993 to February 2026, shows that New York appellate courts, particularly those of the First Department, have construed and applied the Sponsor and Sponsor Principal’s Certifications, mandated by the Martin Act and Attorney General implementing regulations, in varying conflicting ways over a nearly three-decade period.
The court decisions in the 1990’s, for the most part, were not hesitant to construe the certification as written—holding a sponsor and/or its principals liable for allegedly making knowingly false representations in the offering plan, and falsely certifying them as true, when “made under penalty of perjury”—without any consideration or qualms about whether holding sponsors to their sworn certification somehow conflicted with the attorney general’s Martin Act enforcement powers. During much of the early 2000’s to 2016, the majority of decisions took a decidedly anti-plaintiff bent—seemingly without any principled basis for doing so (as a highly respected presiding Justice made clear in Kramer, supra ). How and why this two-decade shift occurred and why it took two Court of Appeals decisions to clarify the law, and why erroneously based rulings persisted nonetheless, until the courts suddenly decided to once again construe the certifications as written, cannot be determined from anything stated in the latest opinions. Nevertheless, sponsor and condominium attorneys need to be aware of the chronological development of the law in this area. Sponsors need to know that their sworn certifications are no longer mere boilerplate, and condominium attorneys need to know that, when circumstances require them to represent clients against sponsors, the Sponsor Certification and Sponsor Principals’ Certification is the first place to consider in asserting their clients’ rights.It is clear too that there are at least three panels of the First Department which have repudiated 184 Thompson, supra, Sutton Apartments, supra, and 20 Pine Street, supra, by holding that the corporate veil is no longer a shield against allegations from which it may be inferred that sponsors and individual sponsor principal defendants either knew or approved of affirmative false misrepresentations in the offering plan—which such defendants knew to be false when signing the sponsor and/or the sponsor principals’ certifications.
Adam Leitman Bailey is a partner of Adam Leitman Bailey, P.C. John M. Desiderio is a partner and chair of the firm’s real estate litigation group. Full disclosure: Adam Leitman Bailey, P.C. litigated a number of the cases decided by the Court of Appeals and Appellate Divisions.
Read the article at the New York Law Journal here.