Council for Owner Occupied Housing v. Abrams, 72 N.Y.2d 553 (1988)
The Attorney General’s authority under the Martin Act (General Business Law Article 23-A) is primarily a disclosure statute, and regulations promulgated under it cannot exceed the scope of ensuring adequate disclosure to potential investors; the Attorney General cannot use the Act to enforce building repairs or preempt other regulatory agencies.
Summary
The Council for Owner Occupied Housing and several cooperative housing sponsors challenged a regulation (13 NYCRR 18.3(hh)(3)) promulgated by the New York Attorney General under the Martin Act. This regulation required sponsors of cooperative conversions to guarantee the cure of all building violations before closing. The plaintiffs argued, and the lower courts agreed, that the regulation exceeded the Attorney General’s statutory authority. The Court of Appeals affirmed, holding that the Martin Act is a disclosure statute, not an enforcement statute, and the regulation improperly expanded the Attorney General’s powers beyond requiring adequate disclosure to potential investors.
Facts
The Attorney General of New York promulgated 13 NYCRR 18.3(hh)(3), which mandated that sponsors of cooperative conversions include in their offering plans a guarantee to cure all building violations of record (excluding those caused by tenants) and eliminate all dangerous conditions known to the sponsor before closing. The Council for Owner Occupied Housing and several cooperative sponsors initiated a declaratory judgment action, contending this regulation exceeded the Attorney General’s authority under the Martin Act. The plaintiffs argued the rule improperly established enforcement measures beyond the scope of the statute.
Procedural History
The trial court ruled in favor of the plaintiffs, declaring the regulation invalid. The Appellate Division affirmed the trial court’s decision. The Attorney General appealed to the New York Court of Appeals. The Court of Appeals granted leave to appeal.
Issue(s)
Whether the Attorney General, under the authority granted by section 352-e of the General Business Law (the Martin Act), exceeded his authority by promulgating a regulation that requires sponsors of cooperative conversions to guarantee the cure of all building violations before closing.
Holding
No, because section 352-e of the General Business Law is a disclosure statute designed to protect the public from fraudulent exploitation in the sale of real estate securities, and the regulation in question goes beyond that purpose by requiring not only disclosure of violations but also a representation that they will be cured, which is not authorized by the statute.
Court’s Reasoning
The Court of Appeals held that the Martin Act, specifically section 352-e, is primarily a disclosure statute intended to protect the public from fraud in the sale of real estate securities. While the Attorney General has broad authority to require detailed offering plans to provide potential investors with an adequate basis for judgment, this authority does not extend to imposing substantive obligations on sponsors to repair buildings or correct violations. The Court emphasized that “section 352-e is not, in any sense, an omnibus enforcement statute.”
The Court reasoned that the regulation at issue (13 NYCRR 18.3(hh)(3)) exceeded the Attorney General’s authority because it required sponsors to guarantee the cure of violations, which effectively granted the Attorney General extensive powers to enjoin sales and prosecute code violations—powers not explicitly delegated by the legislature. “Nothing in the statute authorizes the Attorney-General to require repair of a building, correction of statutory violations, or elimination of undefined conditions he finds ‘dangerous or hazardous’.”
The Court rejected the Attorney General’s argument that the Martin Act should be construed broadly to protect the public and that he possesses licensing authority over cooperative conversions. The Court stated that the absence of substantive provisions in section 352-e indicates that the Legislature did not intend to confer such powers on the Attorney-General. The Court cited the principle that an executive official may not extend delegated power or exercise lawmaking power vested solely in the Legislature by adopting remedial measures that exceed the authority granted by the enabling statute. The Court affirmed the lower court’s decision, finding that the regulation improperly expanded the Attorney General’s authority beyond the scope of the Martin Act.