26 N.Y.3d 495 (2015)

Under the Martin Act and Executive Law § 63(12), the Attorney General may seek permanent injunctive relief upon showing a reasonable likelihood of a continuing violation, and disgorgement of ill-gotten gains is also an available remedy.

Summary

The New York Court of Appeals considered whether the Attorney General could seek equitable relief, specifically permanent injunctive relief and disgorgement, under the Martin Act and Executive Law § 63(12). The court held that the Attorney General could pursue permanent injunctive relief upon demonstrating a reasonable likelihood of a continuing violation and that disgorgement is an available remedy. The court rejected the defendants’ arguments that irreparable harm needed to be shown for injunctive relief and that disgorgement was not authorized or was preempted by federal law. The case clarified the standards for obtaining equitable remedies in actions brought by the Attorney General to combat fraud in securities offerings.

Facts

The Attorney General brought an action against former officers of American International Group, Inc. (AIG) under the Martin Act (General Business Law art 23-A) and Executive Law § 63(12). The defendants moved for summary judgment, arguing that equitable relief was not warranted on the facts, that disgorgement was not a remedy under the Martin Act or Executive Law § 63(12), and that disgorgement was preempted by federal law. The Supreme Court denied the motion, and the Appellate Division affirmed. The defendants appealed to the Court of Appeals, which had previously considered a related appeal involving the same case.

Procedural History

The Attorney General initiated the action. The Supreme Court denied the defendants’ motion for summary judgment. The Appellate Division affirmed the Supreme Court’s decision. The Court of Appeals granted the defendants leave to appeal and certified a question regarding the propriety of the lower court’s order.

Issue(s)

1. Whether the Attorney General must show irreparable harm to obtain a permanent injunction under the Martin Act and Executive Law § 63(12).

2. Whether disgorgement is an available remedy under the Martin Act and Executive Law § 63(12).

Holding

1. No, because the requirement of irreparable harm does not apply to permanent injunctions under these statutes.

2. Yes, because the Martin Act contains a broad residual relief clause, and disgorgement is an appropriate remedy in such cases.

Court’s Reasoning

The Court of Appeals first addressed the standard for obtaining a permanent injunction, holding that the Attorney General does not need to show irreparable harm, unlike in the case of a preliminary injunction. The court reasoned that the focus of the Martin Act and Executive Law § 63(12) is preventing fraud and defeating exploitation, and the standards of the public interest, not private litigation, measure the need for injunctive relief. The court distinguished the current case from precedent on preliminary injunctions, which incorporate the CPLR’s irreparable harm requirement, whereas permanent injunctions do not.

The court then addressed the availability of disgorgement as a remedy. The court emphasized the broad, residual relief clause in the Martin Act. The court noted that disgorgement requires the return of wrongfully obtained profits and is an equitable remedy that is distinct from restitution. The court found no merit in the arguments that disgorgement was barred by the Supremacy Clause or was waived by the Attorney General.

The court referenced the prior decision that had already addressed the issue of whether equitable relief was available in the first instance. In this appeal, the Court of Appeals affirmed that equitable relief was available, and issues of fact prevented summary judgment.

Practical Implications

This decision clarifies the Attorney General’s ability to seek equitable remedies, like injunctions and disgorgement, in cases of securities fraud under the Martin Act and Executive Law § 63(12). The ruling reinforces the broad authority granted to the Attorney General to protect the public and deter fraudulent practices. Attorneys litigating cases under the Martin Act should understand that permanent injunctive relief does not require a showing of irreparable harm. Furthermore, this case supports the availability of disgorgement as a potential remedy in securities fraud cases, even if not explicitly mentioned, provided the recovery is limited to the defendants’ unjust gains. This also has implications for the analysis of cases where the Attorney General seeks civil penalties or other equitable relief.