In re Abrams

160 Misc. 2d 824, 611 N.Y.S.2d 422, 1994 N.Y. Misc. LEXIS 129
CourtNew York Supreme Court
DecidedApril 11, 1994
StatusPublished

This text of 160 Misc. 2d 824 (In re Abrams) is published on Counsel Stack Legal Research, covering New York Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Abrams, 160 Misc. 2d 824, 611 N.Y.S.2d 422, 1994 N.Y. Misc. LEXIS 129 (N.Y. Super. Ct. 1994).

Opinion

OPINION OF THE COURT

David B. Saxe, J.

The respondents in a preaction investigative proceeding initiated by the Attorney-General under General Business Law §§ 354 and 355 move by order to show cause to quash a subpoena served upon their former accountant, Alfred Scherzer (Scherzer), by the Attorney-General pursuant to General Business Law § 352.

In November 1993, the Attorney-General applied to this court for an order pursuant to General Business Law § 354 directing the respondents to appear for examination in connection with an investigation by the Attorney-General into the offer and sale of real estate securities with regard to two cooperative apartment corporations in Brooklyn.

Section 354 provides in pertinent part that: "Whenever the attorney-general has determined to commence an action under this article, he may present to any justice of the supreme court, before beginning such action, an application in writing for an order directing the person or persons mentioned in the application to appear before the justice of the supreme court or referee designated in such order and answer such questions as may be put to them or to any of them, or to produce such papers, documents and books concerning the alleged fraudulent practices to which the action which he has determined to bring relates, and it shall be the duty of the justice of the supreme court to whom such application for the order is made to grant such application.”

Pursuant to further provision of section 354, the Attorney-General sought and was granted certain preliminary injunc[826]*826tive relief concerning activities of the subject cooperative corporations.

On January 13, 1994, the Attorney-General issued a subpoena, pursuant to General Business Law § 352 calling for the examination of Scherzer, who had provided accounting services to respondent in the past concerning one of the cooperative corporations. Scherzer is not named as a respondent in the section 354 proceedings.

Pursuant to General Business Law § 352 (2): "[t]he attorney-general, his deputy of [sic] other officer designated by him is empowered to subpoena witnesses, compel their attendance, examine them under oath before him or a magistrate, a court of record or a judge or justice thereof and require the production of any books or papers which he deems relevant or material to the inquiry. Such power of subpoena and examination shall not abate or terminate by reason of any action or proceeding brought by the attorney-general under this article.”

The respondents argue that the Attorney-General may not conduct "private” examinations by way of subpoenas issued pursuant to General Business Law § 352 (2) of witnesses testifying to matters involving an ongoing investigation once that investigation has proceeded to the point of an application under section 354 for court-supervised examinations; rather, respondents assert, the Attorney-General is constrained to conduct all related examinations from that time on only upon proper notice to all interested parties within the context of the section 354 proceedings.

The respondents also complain that the subpoena was served with inadequate notice under CPLR 3106 (b), and that the scope of documents to be produced pursuant to the subpoena is overly broad, unlimited in time, and intended only for purposes of harassment.

It has been determined that examinations conducted, pursuant to section 354, must comport with the requirements of that section, and so the Attorney-General cannot conduct examinations under this section without judicial supervision (Matter of First Energy Leasing Corp. v Attorney-General of State of N. Y., 68 NY2d 59). In First Energy, the Court rejected the Attorney-General’s argument that his powers to subpoena under section 352 (2) permitted unsupervised examinations in the context of a section 354 proceeding, both because section 352 (2) had never been invoked as a basis for [827]*827the subpoenas on any notice or order to appear, and because "the Legislature, in granting to the Attorney-General the extraordinary enforcement powers under section 354, found it appropriate to give the subjects of those proceedings the added protection of judicial supervision” (supra, at 64).

It is clear that the Attorney-General could not invoke the broad investigative and subpoena powers of section 352 (2) to conduct unsupervised examinations of the respondents, the "subjects” of the present section 354 proceeding under Matter of First Energy Leasing (supra). However, that case does not address the Attorney-General’s right to subpoena and privately examine witnesses not named in or bound by the section 354 proceedings, whose testimony nevertheless relates to those proceedings.

The Attorney-General has been granted investigative powers under General Business Law article 23-A (the Martin Act), which are extremely broad, so as to effectuate the purposes of the Act (Matter of First Energy Leasing Corp. v Attorney-General of State of N. Y., supra, at 64). The power to subpoena witnesses for in-house examination, by the explicit language of section 352 (2), survives the commencement of "any action or proceeding.”

The language of section 352 (2) presupposes that someone, some witness, remains amenable to subpoena, and available for in-house examination as part of the Attorney-General’s ongoing investigation, even after the public investigation pursuant to section 354 begins. If that witness cannot be one of the named subjects of the public examination, because of the "added protection” afforded to such witnesses under section 354 (see, Matter of First Energy Leasing Corp. v Attorney-General of State of N. Y., supra), then, logically, it can only be a nonparty witness whose testimony is expected to aid in and add to the investigation. To bar the Attorney-General’s free access to such witnesses would be to vitiate the express instruction contained in section 352 (2).

In actions involving identical statutory language in section 343 of General Business Law article 22 (commonly known as the Donnelly Act), the courts have ruled consistently that the Attorney-General’s subpoena power is not affected by the commencement of a civil action stemming from the investigation, but continues as long as the investigation continues (see, Matter of Grandview Dairy v Lefkowitz, 76 AD2d 776; State of New York v Mobil Oil Corp., 40 AD2d 369, affd 33 NY2d 627). [828]*828And while General Business Law § 354 contains those "extraordinary” powers and "added protections” (Matter of First Energy Leasing Corp. v Attorney-General of State of N. Y., supra, at 64) which did not apply in Donnelly Act cases, there is nothing which would indicate any intention on the part of the courts, or the Legislature, to completely negate the explicit language of section 352 (2), or to create the anomaly whereby the Attorney-General would have greater powers of investigation and subpoena after a civil action was commenced in court than he had prior to commencement of such an action, while an investigation was still proceeding under section 354.

It is the determination of this court that the Attorney-General may continue to investigate a respondent’s affairs by the means contained in General Business Law § 352 (2) even after the commencement of a section 354 preaction examination proceeding, as long as the respondents actually subject to the section 354 order are afforded the protections of the section.

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Related

State v. Mobil Oil Corp.
301 N.E.2d 550 (New York Court of Appeals, 1973)
People v. DeValdor
234 A.D. 50 (Appellate Division of the Supreme Court of New York, 1931)
First Energy Leasing Corp. v. Attorney-General
496 N.E.2d 875 (New York Court of Appeals, 1986)
State v. Mobil Oil Corp.
40 A.D.2d 369 (Appellate Division of the Supreme Court of New York, 1973)
Grandview Dairy, Inc. v. Lefkowitz
76 A.D.2d 776 (Appellate Division of the Supreme Court of New York, 1980)
American Dental Cooperative, Inc. v. Attorney-General
127 A.D.2d 274 (Appellate Division of the Supreme Court of New York, 1987)
Abrams v. Thompson
150 A.D.2d 679 (Appellate Division of the Supreme Court of New York, 1989)
All-Waste Systems, Inc. v. Abrams
155 A.D.2d 401 (Appellate Division of the Supreme Court of New York, 1989)

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Bluebook (online)
160 Misc. 2d 824, 611 N.Y.S.2d 422, 1994 N.Y. Misc. LEXIS 129, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-abrams-nysupct-1994.