New York Law Review

Tag: Attorney General

  • People v. Coventry First LLC, 13 N.Y.3d 108 (2009): State Enforcement Actions & Arbitration Agreements

    People v. Coventry First LLC, 13 N.Y.3d 108 (2009)

    A private arbitration agreement between a business and its customers does not prevent the New York Attorney General from pursuing victim-specific judicial relief in an enforcement action on behalf of those customers.

    Summary

    The New York Attorney General sued Coventry First, a life settlement provider, alleging fraudulent and anticompetitive conduct including bid-rigging and concealed commissions paid to brokers. Coventry First sought to compel arbitration based on arbitration clauses in contracts with individual policy sellers. The New York Court of Appeals held that the arbitration agreements did not bar the Attorney General from pursuing victim-specific relief, aligning with the principle that government agencies are not bound by private arbitration agreements when acting in the public interest. The court also found the Attorney General sufficiently pleaded a cause of action for inducement of breach of fiduciary duty.

    Facts

    Coventry First, a life settlement provider, was accused of engaging in fraudulent practices within the life settlement industry. These practices included paying concealed commissions to life settlement brokers to steer clients towards accepting Coventry First’s bids, even when higher bids from competitors were available. The Attorney General also alleged Coventry First falsified documents and operated a scheme that allowed brokers to determine how much of the purchase price they would keep and how much they would pass on to the policy seller. The State commenced an enforcement action seeking damages and injunctive relief.

    Procedural History

    The Attorney General of New York commenced an enforcement action against Coventry First in Supreme Court. Coventry First moved to dismiss and compel arbitration based on clauses in their contracts with policy sellers. The Supreme Court denied the motion to compel arbitration. The Appellate Division reinstated a common-law fraud cause of action and otherwise affirmed the Supreme Court’s order. The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether an arbitration agreement between a life settlement provider and individual policy sellers bars the New York Attorney General from pursuing victim-specific relief in an enforcement action.
    2. Whether the Attorney General sufficiently pleaded a cause of action for inducement of breach of fiduciary duty against Coventry First.

    Holding

    1. No, because the Attorney General’s statutory duty to protect the public interest cannot be limited by a private arbitration agreement they did not join; the Attorney General is authorized to seek both injunctive and victim-specific relief.
    2. Yes, because the Attorney General’s allegations sufficiently stated a claim that the defendants knew that the life settlement brokers’ conduct constituted a breach of fiduciary duty.

    Court’s Reasoning

    The Court of Appeals relied heavily on the Supreme Court’s decision in EEOC v. Waffle House, Inc., which established that a government agency is not bound by private arbitration agreements when pursuing enforcement actions in the public interest. The Court reasoned that New York’s Attorney General, like the EEOC, has a statutory duty to protect the public from fraud and illegality and should not be limited by agreements they did not enter into. “Such an arrangement between private parties cannot alter the Attorney General’s statutory role or the remedies that he is empowered to seek.”

    Regarding the inducement of breach of fiduciary duty claim, the Court found that life settlement brokers hold themselves out as experts who will obtain the highest possible price for their clients’ policies, creating a fiduciary duty. The Court also noted the Attorney General presented evidence that Coventry First was aware of these fiduciary duties. The court cited a Life Insurance Settlement Association White Paper stating “the life settlement broker ‘has a fiduciary role to represent the seller by law . . . the bottom line is that the broker’s job is to fully represent the interests of the policy seller.’”

  • People v. Grasso, 11 N.Y.3d 64 (2008): Attorney General’s Authority to Sue for Excessive Executive Compensation in Not-For-Profit Corporations

    11 N.Y.3d 64 (2008)

    The Attorney General’s authority to bring claims against officers and directors of not-for-profit corporations is limited to the specific causes of action authorized by the Not-For-Profit Corporation Law (N-PCL), and the Attorney General cannot circumvent the statutory scheme by asserting common-law claims that would lower the burden of proof or eliminate statutory defenses.

    Summary

    This case concerns the Attorney General’s attempt to recover allegedly excessive compensation paid to Richard Grasso, the former Chairman and CEO of the New York Stock Exchange (NYSE), a not-for-profit corporation at the time. The Attorney General brought several causes of action, some based directly on the N-PCL and others grounded in common-law theories of unjust enrichment and breach of fiduciary duty. The Court of Appeals held that the Attorney General could only pursue the statutory claims because the common-law claims impermissibly lowered the burden of proof and bypassed the protections afforded to directors and officers under the N-PCL, effectively undermining the legislative intent behind the statute’s carefully constructed enforcement scheme.

    Facts

    Richard Grasso served as Chairman and CEO of the NYSE from 1995 until 2003. During his tenure, his compensation, including bonuses, significantly increased. In 2003, the NYSE approved a compensation package for Grasso totaling $187.5 million. The Attorney General alleged that the compensation was excessive, unreasonable, and not commensurate with Grasso’s services. The Attorney General claimed that the Compensation Committee, hand-picked by Grasso, ignored a benchmark system and provided inaccurate information to the Board regarding Grasso’s compensation.

    Procedural History

    The Attorney General brought suit against Grasso, alleging eight causes of action, including statutory claims under N-PCL 720(a) and (b) and non-statutory claims based on common-law principles. Grasso moved to dismiss the non-statutory claims for lack of authority. Supreme Court denied the motion, finding the Attorney General had standing under the parens patriae doctrine. The Appellate Division reversed, dismissing the non-statutory claims. The Court of Appeals affirmed the Appellate Division’s decision.

    Issue(s)

    Whether the Attorney General can maintain non-statutory causes of action against the former Chairman and CEO of a not-for-profit corporation, premised on the same underlying facts as statutory claims, when those non-statutory claims would circumvent the fault-based requirements and protections afforded by the N-PCL.

    Holding

    No, because the Attorney General cannot circumvent the legislative scheme of the N-PCL by asserting common-law claims that would lower the burden of proof required for the statutory claims or eliminate defenses, such as the business judgment rule, that the Legislature intended to provide to directors and officers of not-for-profit corporations.

    Court’s Reasoning

    The Court emphasized that while the N-PCL grants the Attorney General broad powers to oversee public corporations, this power is not unlimited. The Legislature created a comprehensive enforcement scheme with specific provisions allowing the Attorney General to bring actions against individual directors or officers for particular misconduct, such as unlawful transfers of corporate assets or breach of fiduciary duty, but these actions require a showing of fault or bad faith. The statute also affords officers and directors the protections of the business judgment rule. The Court reasoned that the Attorney General’s non-statutory claims—for a constructive trust, payment had and received, restitution of benefit awards, and improper loans—were an attempt to circumvent these statutory requirements by crafting causes of action with a lower burden of proof. For example, the claims for constructive trust and payment had and received sought the same relief as the statutory claims but lacked any element of knowledge or bad faith, effectively imposing strict liability. Similarly, the claim regarding improper loans sought to bypass the business judgment defense. The Court stated, “Although the Executive must have flexibility in enforcing statutes, it must do so while maintaining the integrity of calculated legislative policy judgments. That balance falters where, as here, the Executive seeks to create a remedial device incompatible with the particular statute it enforces.” By attempting to impose liability based solely on the size of Grasso’s compensation package, without proving the fault or bad faith required by the N-PCL, the Attorney General was overstepping the bounds of their authority and infringing on the Legislature’s policy-making role. The Court noted that it “has consistently held that a private right of action may not be implied from a statute where it is ‘incompatible with the enforcement mechanism chosen by the Legislature’.”

  • People v. Romero, 91 N.Y.2d 750 (1998): Limits on Attorney General’s Power to Criminally Prosecute Unlawful Practice of Law

    People v. Romero, 91 N.Y.2d 750 (1998)

    Judiciary Law § 476-a(1), which authorizes the Attorney General to maintain an “action” against those engaged in the unlawful practice of law, refers only to civil actions, not criminal prosecutions, unless explicitly authorized by statute.

    Summary

    The New York Court of Appeals addressed whether the Attorney General had the authority under Judiciary Law § 476-a(1) to criminally prosecute an individual for the unlawful practice of law and petit larceny. The defendant, an attorney licensed in Honduras, was granted permission to practice law pro hac vice in New York. After this permission expired, he accepted payment from a woman to represent her in a divorce, but he did not actually provide legal representation. The Attorney General secured an indictment and conviction. The Court of Appeals reversed, holding that § 476-a(1) only authorizes civil actions, and the Attorney General lacks general prosecutorial power without explicit statutory authorization.

    Facts

    Defendant, an attorney in Honduras, was admitted to practice law pro hac vice in New York for a specific project. After his pro hac vice admission expired, a woman approached him seeking representation in her divorce. The defendant accepted $750 from the woman and prepared divorce documents, listing her as a “pro se plaintiff.” The woman later discovered that “pro se” meant she was not represented by an attorney, despite paying the defendant for legal services.

    Procedural History

    The Attorney General presented the matter to a Grand Jury, which indicted the defendant for offering a false instrument for filing (later dismissed), unauthorized practice of law, and petit larceny. The trial court denied the defendant’s motion to dismiss, asserting that Judiciary Law § 476-a authorized the prosecution. The jury convicted the defendant of unlawful practice of law and petit larceny. The Appellate Division affirmed the conviction, arguing that Executive Law § 63(3) provided an alternative basis for the Attorney General’s authority. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether Judiciary Law § 476-a confers prosecutorial authority on the Attorney-General to bring criminal charges against an individual allegedly engaged in the unauthorized practice of law?

    Holding

    No, because the word “action” in Judiciary Law § 476-a(1) refers only to civil actions, and the Attorney General lacks general prosecutorial power without explicit statutory authorization.

    Court’s Reasoning

    The Court of Appeals began by noting that the Appellate Division’s reliance on Executive Law § 63(3) was not properly before the court because it was not ruled upon in the criminal court action. The court emphasized that District Attorneys have plenary prosecutorial power, but the Attorney General only has such power when specifically authorized by statute, citing Della Pietra v. State of New York, 71 N.Y.2d 792, 797. The Attorney General argued that Judiciary Law § 476-a, which allows the Attorney General to “maintain an action” against those unlawfully practicing law, includes criminal prosecution. The court disagreed, stating that the word “action” as used in the statute, only encompasses a civil action.

    The Court reasoned that Judiciary Law § 476-a(2) allows bar associations to maintain “such an action,” and interpreting “action” to include criminal prosecution would give bar associations the power to prosecute crimes, which is traditionally a state power. The Court stated, “To read the word ‘action’ in section 476-a (1) to encompass a criminal action would mean that a Bar association could prosecute crimes, and, as a corollary matter, could also convene Grand Juries and issue subpoenas. Such a conclusion would be contrary to the fundamental principle that the power to prosecute crimes is traditionally a power of the State as sovereign.”

    Furthermore, Judiciary Law § 476-b mandates a civil remedy, an injunction, for successful actions under § 476-a. This injunction is a civil action additional to any criminal sanctions. The legislative history of § 476-a, derived from the Civil Practice Act § 1221-a, supports its civil nature, as there was no need to specify it as civil within the Civil Practice Act. The Court emphasized that several other statutes specifically authorize the Attorney General to prosecute crimes, but Judiciary Law § 476-a lacks such specific authorization. Therefore, the Attorney General was limited to a civil prosecution in this case.

  • Matter of Parkchester Apts. Co. v. Lefkowitz, 47 N.Y.2d 815 (1979): Interpreting ‘Not Later Than’ in Statutes

    Matter of Parkchester Apts. Co. v. Lefkowitz, 47 N.Y.2d 815 (1979)

    When a statute requires a public official to act “not later than” a specified time, the provision is generally mandatory, especially when the purpose is to protect private parties from unreasonable delay and the official retains power to act further.

    Summary

    Parkchester Apartments Co. sought review of an Attorney General’s determination regarding rent increases. The central issue was whether the Attorney General’s action, taken after the 30-day period specified in General Business Law § 352-e(2), was valid. The Court of Appeals affirmed the Appellate Division’s order, holding that the 30-day limit was mandatory in this case because it was intended to protect property owners from unreasonable delays by the Attorney General, and the Attorney General retained the power to take further action even after the 30-day period. The court emphasized that the statute’s remedial objectives and the protection of property owners weighed in favor of a mandatory interpretation.

    Facts

    Parkchester Apartments Co. filed a submission with the Attorney General concerning proposed rent increases. General Business Law § 352-e(2) required the Attorney General to act on such filings “not later than thirty days after…filing.” The Attorney General acted after this 30-day period. Parkchester argued that the Attorney General’s action was therefore invalid.

    Procedural History

    The case reached the Appellate Division, which ruled in favor of Parkchester. The Attorney General appealed to the New York Court of Appeals. The Court of Appeals affirmed the Appellate Division’s order, agreeing that the Attorney General’s action was untimely and invalid.

    Issue(s)

    Whether the statutory requirement in General Business Law § 352-e(2) that the Attorney General act “not later than thirty days after…filing” is a mandatory or directory requirement.

    Holding

    No, because where the Attorney-General is not foreclosed by filing from further action protective of the public interests and the purpose of the time limitation is to protect the property owner against unreasonable delay, the statute is properly construed to be mandatory, rather than directory.

    Court’s Reasoning

    The Court of Appeals reasoned that the interpretation of the phrase “not later than” depends on the statute’s objectives. While it can be directory in some contexts, it is mandatory when the statute aims to protect a specific party from unreasonable delay and the public official retains the power to act even after the deadline. The court distinguished this case from situations where the time limit is primarily for the agency’s internal efficiency or to protect the public interest, noting, “although the phrase ‘not later than’ may, when viewed against the remedial objectives of the statute in which the phrase appears, be construed to be directory only… where, as here, the Attorney-General is not foreclosed by filing from further action protective of the public interests and the purpose of the time limitation is to protect the property owner against unreasonable delay, the statute is properly construed to be mandatory, rather than directory.” The court found that the 30-day limit in General Business Law § 352-e(2) was intended to protect property owners like Parkchester from potential delays by the Attorney General, thus making the time limit mandatory. The court cited Matter of Whalen v Lefkowitz, 36 NY2d 75, 78 in support of this reasoning.

  • In re Doe, 49 N.Y.2d 764 (1980): Specificity Required for Attorney General Superseder Orders

    In re Doe, 49 N.Y.2d 764 (1980)

    An executive order directing the Attorney General to supersede a local district attorney must specify the criminal actions or proceedings with sufficient clarity, but referencing a numbered file of a pending investigation satisfies this requirement.

    Summary

    This case addresses the level of specificity required in an executive order authorizing the Attorney General to supersede a local district attorney’s authority in a criminal investigation. The Governor issued an executive order directing the Attorney General to manage proceedings related to a specific file in the Special State Prosecutor’s office. A witness, Jane Doe, subpoenaed to testify before the grand jury, refused to answer certain questions, arguing the executive order was too vague. The New York Court of Appeals held that referencing a specific, numbered file in the executive order satisfied the specificity requirement of Executive Law § 63(2), and the witness was required to answer the questions, assuming they were relevant to the file’s contents.

    Facts

    The Governor issued Executive Order No. 78, directing the Attorney General to manage proceedings before a grand jury in Albany County concerning matters related to Special Prosecutor’s File Number NY 9-41. The order superseded the Albany County District Attorney in these proceedings. Jane Doe, familiar with the facts underlying the Albany County investigation due to prior testimony, was subpoenaed to testify before the Grand Jury. Granted transactional immunity, she answered some questions but refused to answer others.

    Procedural History

    The special prosecutor sought a court order compelling Doe to answer the questions or be held in contempt. Doe cross-moved to quash the subpoena or compel disclosure of documents. Special Term ordered Doe to answer the questions. The Appellate Division affirmed this order, rejecting Doe’s argument that the executive order was too vague. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether Executive Order No. 78 satisfied the specificity requirement of Executive Law § 63(2) by referencing a numbered file of a pending investigation, thus requiring the witness to answer questions related to the subject matter of that file.

    Holding

    Yes, because the reference to a specific, numbered file in the executive order adequately informed the Attorney General of the scope of their authority in superseding the local District Attorney, satisfying the specificity requirement of Executive Law § 63(2).

    Court’s Reasoning

    The Court reasoned that Executive Law § 63(2) requires a degree of specificity in defining the scope of the Attorney General’s authority when superseding a local district attorney. This ensures the Attorney General’s authority is not boundless and extends only to matters set forth in the Governor’s order. Referencing a numbered file of a pending investigation adequately informs the Attorney General of the scope of their anticipated duties. The Court clarified that while the file’s contents may change, the Attorney General’s authority is limited to matters related to the file’s subject matter at the time the executive order was issued. The Court emphasized that the Attorney General’s authority is not immune from scrutiny and can be challenged in court and is under the Governor’s constant control. The Court further noted that a witness is not entitled to be fully informed of the scope of an investigation but can refuse to answer irrelevant questions, with the court available to resolve disputes about relevance. As Judge Jasen wrote: “The successful prosecution of crime would be intolerably impeded if a District Attorney could be compelled to divulge, before he is ready, the nature of an investigation by the grand jury or the name of the person or persons suspected.”

  • Matter of Shapiro, 42 N.Y.2d 884 (1977): Limits on Attorney General’s Subpoena Power in Investigations

    Matter of Shapiro, 42 N.Y.2d 884 (1977)

    The Attorney General’s power to issue subpoenas in investigations is not unlimited and requires a showing of some factual basis to support the subpoena; minimal, equivocal documentary proof, without other evidence to support suspicion of illegality, is insufficient to sustain a subpoena.

    Summary

    This case addresses the scope of the New York Attorney General’s authority to issue subpoenas during investigations into illegal business practices and the unlawful practice of law. The Court of Appeals affirmed the quashing of a subpoena issued to Shapiro, holding that the Attorney General failed to demonstrate a sufficient factual predicate to support the subpoena. The court emphasized that while the Attorney General has broad investigatory powers, these powers are not without limits and must be based on more than mere suspicion derived from ambiguous advertising and form letters.

    Facts

    The Attorney General initiated an investigation into Shapiro based on a piece of advertising copy and a form letter sent by Shapiro to lawyers engaged in general practice. The Attorney General interpreted these documents as an offer to engage in activities prohibited by subdivision 1 of section 495 of the Judiciary Law, which concerns the unlawful practice of law by corporations and associations. There was no evidence of third-party complaints or any other evidence to support the Attorney General’s suspicion of illegal activity beyond the advertising copy and form letter.

    Procedural History

    The Attorney General issued a subpoena to Shapiro as part of the investigation. Shapiro challenged the subpoena. The lower court initially ruled in favor of the Attorney General. Shapiro appealed to the Appellate Division, which reversed the lower court’s decision and quashed the subpoena. The Attorney General then appealed to the New York Court of Appeals.

    Issue(s)

    Whether the Attorney General demonstrated a sufficient factual basis to support the issuance of a subpoena to Shapiro in connection with an investigation into the alleged unlawful practice of law.

    Holding

    No, because the minimal, equivocal documentary proof offered by the Attorney General, without any other evidence to support a suspicion of illegality, was insufficient to sustain the subpoena.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division’s decision, holding that the Attorney General’s broad authority to conduct investigations and issue subpoenas under subdivision 12 of section 63 of the Executive Law is not without limits. The court cited Myerson v Lentini Bros. Moving & Stor. Co., 33 NY2d 250, 258, emphasizing that “there must be some factual basis shown to support the subpoena.” The court found that the advertising copy and form letter were too equivocal to justify the Attorney General’s suspicion of illegal activity. The court stated, “The texts of both the advertisement and the form letter are too equivocal; read as the Attorney-General would read them they can be said to constitute an offer to engage in activities prohibited by subdivision 1 of section 495 of the Judiciary Law.” The court concluded that an “arbitrary resolution of the equivocality in a manner adverse to petitioner” was not a sufficient basis for the subpoena. Because there was no other supporting proof, the subpoena was properly quashed. The court explicitly did not address Shapiro’s argument that the subpoena was overbroad.