55 N.Y.2d 1015 (1982)
An injunction order issued pursuant to Section 354 of the General Business Law (the Martin Act) does not automatically expire upon the commencement of a plenary action under Section 353 of the same law.
Summary
This case addresses whether a preliminary injunction issued under Section 354 of New York’s Martin Act automatically terminates when the Attorney General commences a plenary action under Section 353. The Court of Appeals held that the injunction does not expire automatically. While the Attorney General will generally seek a new injunction in the plenary action, terminating the initial injunction immediately could create a gap in protection. The court affirmed the Appellate Division’s order without prejudice to the respondents’ right to apply for vacatur of the initial injunction.
Facts
The Attorney General of New York obtained a preliminary injunction against Curtis Katz and others under Section 354 of the General Business Law (the Martin Act). This injunction was related to alleged fraudulent practices in the sale of securities or commodities. Subsequently, the Attorney General commenced a plenary action against the same parties under Section 353 of the Martin Act, seeking a permanent injunction and other relief based on the same alleged fraudulent practices.
Procedural History
The Attorney General obtained a preliminary injunction from the Special Term. The Appellate Division reviewed the Special Term’s decision and affirmed. The case then went to the Court of Appeals, which affirmed the Appellate Division’s order. The Court of Appeals ruling was without prejudice to the respondents’ right to apply to the Special Term to vacate the initial injunction.
Issue(s)
Whether an injunction order issued pursuant to Section 354 of the General Business Law automatically expires eo instanti upon the commencement of a Section 353 plenary action.
Holding
No, because automatically terminating the Section 354 injunction upon commencement of the Section 353 action would be inconsistent with the purpose of the statute and potentially leave investors unprotected during the period before a new injunction could be obtained in the plenary action.
Court’s Reasoning
The Court of Appeals reasoned that while it is typical to seek a new injunction within the plenary action, an automatic termination of the Section 354 injunction upon the commencement of the Section 353 action would be problematic. The court stated, “It would, however, be inconsistent with the purpose of the statute to terminate the section 354 injunction at the moment the plenary action papers are served.” The court acknowledged the potential for conflicting orders but noted that the defendants are protected by their right to move for dissolution of the initial injunction once the plenary action begins. The court emphasized the discretion of the Appellate Division, stating that its order was “a discretionary decision outside our power of review.” The court further observed, “Those against whom a plenary action is begun are sufficiently protected against being whipsawed between two overlapping and possibly not entirely consistent orders by the right to move for dissolution of the section 354 order once the section 353 action has been begun.”