Defendants move pursuant to rule 3211 (subd. [a], par. 7) of the Civil Practice Law and Rules for dismissal of the second cause of action for insufficiency. The first cause is based on common-law fraud. In the second cause it is alleged and charged that the acts, subject of the first cause, constitute a violation of subdivision 2 of section 12 of the Securities Act of 1933 (U. S. Code, tit. 15, § 111, subd. 2) which reads as follows: “ Any person who— * * * (2) offers or sells a security (whether or not exempted by the provisions of section 77c of this title, other than paragraph (2) of subsection (a) of said section), by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.”
The complaint involves three transactions of purchase of securities. No objection is raised to the first cause of action yet defendant urges as to the second cause that there is no allegation of representation as to a material fact or failure to state a material fact necessary to remove the misleading character of any statement, that plaintiff has not alleged that there was failure to timely discover the truth despite due diligence, and that the allegation of damage is defective.
The statute was enacted to protect persons in a position of inequality and in a relationship with the broker akin to a fiduciary relationship. The phrase therein that “ an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements in the light of the circumstances under which they were made, not misleading” should be liberally construed. With respect to at least two of
The motion is granted and pursuant to request plaintiff may serve an amended complaint within 10 days from service of a copy of this order with notice of entry.