We are concerned, on these cross appeals, with remedies. This action was instituted by the Attorney-General under the Martin Act, set forth in article 23-A of the General Business Law, and under subdivision 12 of section 63 of the Executive Law, principally for injunctive and other relief against promoters of a concededly illegal scheme for the co-operative conversion of a rent-stabilized apartment house in New York City.
The building, situate at 150 East 61st Street in a fashionable "East Side" area of Manhattan, contains 131 apartments, exclusive of that of the superintendent. Having been completed in 1961, it was subject to control of rent increases and evictions under the Rent Stabilization Law (Administrative Code of the City of New York, § YY51-3.0), but, once owned as a co-operative, said law would no longer be applicable. On July 18, 1969, defendant Lexington Sixty-First Associates, a New York limited partnership whose general partners are defendants Bresciani and Denihan, acquired an option to
On December 30, 1970, Lexington, as sponsor, filed with the Attorney-General, pursuant to section 352-e of the General Business Law, a plan for the conversion of 150 East 61st Street into a co-operative, offering shares of 150 East Tenants Corp., the co-operative corporation, to the tenants and others. The purchase price was listed at $8,826,105 and the profit to the sponsor was estimated at $3,157,075. The plan indicated that approximately 125 tenants in the building then held apartments pursuant to written leases and that since April, 1970 the property was managed by Manhattan East Apt./Hotels, the principals of which were also Bresciani and Denihan.
The offering plan, promulgated purportedly in accord with the "Rent Stabilization Law of 1969 and the Code of the Rent Stabilization Association" (see Administrative Code, § YY51-6.0, subd c, par , cl [a]), stated it would not be declared effective and would be abandoned by the sponsor unless, within 18 months from the date of presentation thereof, 35% of the tenants in occupancy would have signed purchase agreements to acquire shares allocated to apartments without discriminatory repurchase agreements or other discriminatory inducements. Annexed thereto and made a part thereof was a copy of section 61 of the Code of the Rent Stabilization Association of New York City, Inc., which embraces a similar provision. A second amendment to the plan, dated June 24, 1971, recited that 55 tenants, being more than 35% of those in occupancy, had executed purchase agreements and declared the plan effective. The closing between the sponsor and the co-operative corporation took place on August 2, 1971.
Following an investigation, which revealed an elaborate course of conduct, starting months before the plan was filed and conceived with the obviously fraudulent design of meeting the 35% requirement, the Attorney-General commenced this action, alleging five causes for violations of the Martin Act, together with one pursuant to subdivision 12 of section 63 of the Executive Law, and praying for various forms of remedy. Special Term deemed plaintiff's motion for a temporary injunction and related relief as one seeking summary judgment and gave the parties an opportunity to submit additional papers.
The order and judgment entered thereon provided: (1) that nonpurchasing tenants occupying the building, who had not agreed to vacate pursuant to a settlement of summary proceedings, shall continue to occupy their apartments as rent stabilized tenants; (2) that owners of shares in the co-operative who resided in the building before a declaration of effectiveness was filed and agreed to purchase shares after said declaration was filed shall be offered rescission; (3) that all owners of shares in the co-operative, including those purchasing tenants whose purchases were not rescinded as above provided,
On appeal, the Appellate Division, in the exercise of discretion and the interest of justice, modified the Supreme Court order and judgment by directing: (1) that all stipulations signed by nonpurchasing tenants in settlement of eviction proceedings be vacated and enforcement thereof be permanently enjoined; (2) that all current shareholders be offered rescission for a stated period; (3) that the apartments of all nonpurchasing tenants and of all shareholders shall become subject to the Rent Stabilization Law; and (4) that tenants who vacated their apartments after the declaration of effectiveness of the offering plan be deemed to have abandoned their claim so as not to have the right to return to tenancy as rent stabilized tenants.
Under section 353 of the General Business Law, whenever the Attorney-General shall believe from evidence satisfactory to him that any person, partnership, corporation, company, trust or association has engaged in or is about to engage in any practice or transaction referred to in a previous section of said law and declared to be fraudulent practices, he may bring an action, against such an entity and any other persons theretofore concerned or in any way participating or about to participate in such fraudulent practices, to enjoin such entity or other persons from continuing or engaging in such fraudulent practices or doing an act in furtherance thereof. It is further provided that, should the Attorney-General believe from such evidence that such an entity actually has or is engaged in any such fraudulent practice, he may include in such action an application to enjoin permanently such entity and such other persons as may have been or may be concerned with or in any way participating in such fraudulent practice from selling or offering for sale to the public within this State, as principal, broker, agent or otherwise, any securities issued or to be issued. Although in a Martin Act suit the Attorney-General has been held to enjoy a nonreviewable discretion as to what remedies to seek, having been "given the personal discretion to decide upon the remedies which he wishes to employ" (People v Bunge Corp., 25 N.Y.2d 91, 100), section 353 also specifically states that in such an action "an
Section 353-a of the General Business Law provides: "In any action brought by the attorney-general as provided in this article, the court at any stage of the proceedings may appoint a receiver of any and all property derived by the defendant or defendants or any of them by means of any such fraudulent practices, including also all property with which such property has been mingled if such property can not be identified in kind because of such commingling, together with any or all books of account and papers relating to the same" (emphasis supplied). The appointment of such a limited receiver (Burns v Maguire, 255 App Div 552, 555, affd 280 N.Y. 700; Elfast v Lamb, 111 F.2d 434, 436-437) is, as statutorily expressed, a matter of judicial discretion (see 49 NY Jur, Receivers, § 14; 7A Weinstein-Korn-Miller, NY Civ Prac, par 6401.05), not reviewable by the Court of Appeals (Dawson v Parsons, 137 N.Y. 605; Ostrander v Weber, 114 N.Y. 95, 103; Cohen and Karger, Powers of the New York Court of Appeals, pp 603-604).
Special Term decreed that the sponsor, the managing agent and the individual defendants be "enjoined from directly or indirectly engaging in or sponsoring further cooperative or condominium offerings for a period of five years from the date of the order [sic] entered herein, but may move, after having been enjoined from said activity for a period of two years, for suspension of the remaining period", which decretal portion of the order and judgment was not interfered with by the Appellate Division. Section 353 of the General Business Law provides that the Attorney-General may include, in the action brought by him in the name and on behalf of the People of the State of New York, an application to enjoin permanently those entities specified therein from selling or offering for sale to the public within this State in whatsoever capacity any securities issued or to be issued. Subdivision 3 of section 359-g, subdivision 4 before renumbering (see L 1975, ch 154, § 2, eff June 3, 1975), entitled "Modification or dissolution of a permanent injunction", states in part: "Any person against whom an injunction has been granted under the provisions of this article may apply to the supreme court at any time after five years from the date such permanent injunction became effective, upon at least sixty days notice to the attorney-general, for an order dissolving such injunction or modifying the same
In the action by the Attorney-General, a permanent injunction, if applied for, may or may not be granted but, if such relief is awarded, the injunction initially, under the language of the statute, should be perpetual, however different the rule might be as to a "permanent" injunction in another context. This legislative intent is apparent from the employment of the words "enjoin permanently" in section 353, in referring to the Attorney-General's application, and subdivision 3 of section 359-g which prescribes the five-year period antedating an application for modification or dissolution. This legislative design can also be gleaned from the New York State Legislative Annual for 1963, during which year the subdivision was first enacted (L 1963, ch 953, eff April 30, 1963), in which Annual (pp 107-108) it is stated: "Under the present law permanent injunctions are granted for a variety of reasons, some of them non-criminal in nature, often upon consent of the individual involved who may not realize that in agreeing to entry of the injunction he is forever barred from returning to the business. Sometimes in the future conditions may change so that no good reason might then exist why the injunction should continue. * * * Martin Act injunctions are granted, not as punishment to the individual but as a protection to the public from one who has shown his unfitness to engage in the securities business. * * * This will give the Attorney General a reasonable time to look into the background of the applicant and make a thorough investigation of the applicant's occupation during the years he was restrained from operating in the securities business. After a long absence, time for reasonable investigation should not injure the applicant. * * * In short, this bill sets up reasonable rules to enable the Courts to intelligently determine whether a person who has already been found unsuitable to engage in dealing in securities should again be permitted to engage in a field where so many innocent victims have lost tremendous sums to tricky or insolvent operators." In conformity with the language of section 353, the injunction should also apply to "any securities issued or to be issued." The judgmental provision, that the specified defendants be permitted to move for suspension of the enjoinment after two years, contravenes the statute.
Special Term decreed that nonpurchasing tenants who agreed to quit the premises pursuant to stipulations in settlement
Regarding tenants who vacated the apartment house after the declaration of effectiveness, Special Term decreed: "that
Accordingly, the order appealed from should be modified: by providing that defendants Lexington Sixty-First Associates, Arthur Bresciani, Benjamin J. Denihan and Manhattan East Apt./Hotels be enjoined permanently from selling or offering for sale to the public within this State, as principal, broker, agent, or otherwise, any securities issued or to be issued, without prejudice to the right to apply for modification or dissolution of said permanent injunction, at any time after five years from the date such permanent injunction becomes effective, pursuant to subdivision 3 of section 359-g of the General Business Law, or within such period as may be
Order modified, with costs to plaintiff against defendants filing briefs herein, in accordance with the opinion herein and, as so modified, affirmed.