Sterling National Bank & Trust Co. of New York v. Federated Mortgage Investors, 26 N.Y.2d 195 (1970)

The Attorney General’s discretion in prosecuting and settling actions under the Martin Act (General Business Law Article 23-A) is broad and generally not subject to judicial review or private intervention, except to establish an interest in already sequestered property.

Summary

Following the “salad oil scandal,” the Attorney General brought an action against Bunge Corporation under the Martin Act, alleging insider trading. A consent judgment was reached, with Bunge neither admitting nor denying wrongdoing. Appellants, a bank and insurance companies who suffered losses, sought to vacate the judgment, reopen the action, and appoint a receiver for Bunge’s assets. The Court of Appeals held that the Attorney General’s discretion in handling Martin Act cases is generally not subject to judicial review, and private parties cannot intervene to pursue their own remedies within the Attorney General’s action.

Facts

Anthony De Angelis and Allied Crude Vegetable Oil Refining Corporation caused over $200 million in losses to investors. The Attorney General investigated and sued Bunge Corporation, alleging that Bunge knew Allied was missing millions in vegetable oils pledged as collateral and used this knowledge to manipulate soybean oil futures, profiting by $1.5 million. The complaint alleged that Bunge failed to disclose Allied’s fraud, allowing it to continue for 14 months and increase fraudulent warehouse receipts from $8 million to $82 million.

Procedural History

The Attorney General’s complaint was served but not filed, and a press release announced the action. Simultaneously, a consent judgment was filed, with Bunge denying the allegations but agreeing to refrain from fraudulent acts and paying $2,000 in costs. The appellants sought to vacate the consent judgment, reopen the action, and appoint a receiver. Special Term dismissed the motions, and the Appellate Division affirmed.

Issue(s)

1. Whether the Attorney General’s exercise of authority in prosecuting a Martin Act action is subject to judicial review.
2. Whether private parties can intervene in a Martin Act action to seek the appointment of a receiver for their own benefit.

Holding

1. No, because the Attorney General has broad discretion in handling Martin Act cases, and judicial review would be inconsistent with legislative intent.
2. No, because the primary purpose of a Martin Act suit is to enjoin fraudulent activity, and private intervention might jeopardize the Attorney General’s prosecutorial discretion.

Court’s Reasoning

The court reasoned that when a statute authorizes the Attorney General to institute a suit, the exercise of that authority is not subject to judicial review. Implicit in the power to commence an action is the power over its disposition. The Legislature, in enacting section 63(15) of the Executive Law, gives the Attorney General the authority to accept an assurance of discontinuance in lieu of a civil action. The court rejected the argument that the Attorney General is merely an administrative officer subject to judicial review, distinguishing cases like Dunham v. Ottinger, which dealt with the Attorney General’s investigative powers, not prosecutorial discretion.

The court emphasized that allowing private intervention to further individual aims might jeopardize the purpose of the Attorney General’s suit. The Martin Act allows intervention to prove ownership of already sequestered property. The court noted that the Attorney General represents the people of the State at large. The court emphasized that the complaint against Bunge alleged insider trading but not direct participation in De Angelis’s fraud, further justifying the denial of intervention. The court also cited confidentiality concerns regarding the Attorney General’s evidence, suggesting that turning it over to private litigants would be inappropriate. The court concluded that the appellants are free to commence their own suit against Bunge but cannot preempt the Attorney General’s discretion in prosecuting a Martin Act suit. The court held that the court cannot, sua sponte, appoint a receiver, because that would remove prosecutorial discretion from the hands of the Attorney-General.

As stated in the case, “[The Martin Act’s] general plan and scope seem to be perfectly plain. The Attorney-General as an executive official of the State is given the power by appropriate injunctive action to restrain any person who is engaged or who is about to engage in the business of selling the securities and commodities designated in the statute by means and aid of fraudulent methods and practices which likewise are therein defined.”