Matter of First Energy Leasing Corp., 64 N.Y.2d 61 (1984)

When the Attorney General examines witnesses under General Business Law §§ 354 and 355 (Martin Act), the examination must occur before a Justice of the Supreme Court or a designated Referee.

Summary

This case concerns the scope of the New York Attorney General’s powers under the Martin Act (General Business Law art 23-A), specifically regarding witness examinations. The Attorney General sought to examine witnesses in an alleged fraudulent tax shelter scheme. The appellants argued that the examinations must be conducted before a Justice of the Supreme Court or a designated Referee, as specified in General Business Law §§ 354 and 355. The Court of Appeals held that when the Attorney General proceeds under §§ 354 and 355, witness examinations must be conducted before a Justice or Referee, rejecting the argument that broader powers under § 352 override these specific requirements.

Facts

The Attorney General obtained an ex parte order under General Business Law § 354 to examine 59 parties, including First Energy Leasing Corporation and its president, James Marci, regarding an alleged fraudulent tax shelter scheme involving energy management systems. The order directed the parties to appear before “a Justice of this [Supreme] Court.” The appellants refused to submit to examination unless a Justice or Referee was present and moved to compel such presence.

Procedural History

Special Term denied the appellants’ motion to compel the Attorney General to conduct the examination before a Justice of the Supreme Court or a designated Referee. The Appellate Division affirmed this decision without opinion. The Court of Appeals granted leave to appeal.

Issue(s)

Whether, when the Attorney General conducts an examination of witnesses pursuant to General Business Law §§ 354 and 355, the examination must be conducted before a Justice of the Supreme Court or a designated Referee.

Holding

Yes, because General Business Law §§ 354 and 355 explicitly require that witness examinations be conducted before a Justice of the Supreme Court or a designated Referee when the Attorney General proceeds under those sections.

Court’s Reasoning

The Court focused on the plain language of General Business Law §§ 354 and 355, which mandate that witness examinations be conducted before a Justice of the Supreme Court or a designated Referee. The court rejected the Attorney General’s argument that the broad investigatory powers granted under § 352 override these specific requirements. The court emphasized that the Attorney General initiated the proceedings under § 354, not § 352. The court stated that the last sentence of section 352(2) safeguards the investigative “power of subpoena and examination” granted to the Attorney-General under section 352 and does not create new powers or expand existing powers granted under section 354. The court stated that “[s]uch power of subpoena and examination [granted under section 352] shall not abate or terminate by reason of any action or proceeding brought by the attorney-general under this article”. The Court acknowledged that the Martin Act should be liberally construed to give effect to its remedial purpose, but it found no basis to ignore the clear statutory language of §§ 354 and 355. The court noted the significant substantive and procedural differences between § 352 and §§ 354 and 355, namely that section 354 allows for ex-parte temporary restraining orders. The Court found that “the Legislature, in granting to the Attorney-General the extraordinary enforcement powers under section 354, found it appropriate to give the subjects of those proceedings the added protection of judicial supervision.” The court also held that the timing of filing witness transcripts is left to the court to determine in its discretion.