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PEOPLE STATE NEW YORK v. BUNGE CORPORATION (07/01/69)

COURT OF APPEALS OF NEW YORK 1969.NY.42342 <http://www.versuslaw.com>; 250 N.E.2d 204; 25 N.Y.2d 91 decided: July 1, 1969. THE PEOPLE OF THE STATE OF NEW YORK, PLAINTIFF,v.BUNGE CORPORATION, WALTER CHARLES KLEIN AND RICHARD D. FORTI, DEFENDANTS; IN THE MATTER OF MANUFACTURERS HANOVER TRUST COMPANY ET AL., APPELLANTS, V. LOUIS J. LEFKOWITZ, AS ATTORNEY-GENERAL OF THE STATE OF NEW YORK, ET AL., RESPONDENTS; IN THE MATTER OF INSURANCE COMPANY OF NORTH AMERICA ET AL., APPELLANTS, V. LOUIS J. LEFKOWITZ, AS ATTORNEY-GENERAL OF THE STATE OF NEW YORK, ET AL., RESPONDENTS Matter of Manufacturers Hanover Trust Co. v. Lefkowitz, 29 A.D.2d 845, affirmed. Counsel Covington Hardee, G. Clark Cummings, Leonard P. Gaines and Kendor P. Jones for Manufacturers Hanover Trust Company and others, appellants. Anthony F. Phillips, Joseph M. Callahan, Mark F. Hughes, George B. Warburton and Louis A. Craco for Insurance Company of North America and others, appellants. Counsel Philip C. Scott and Marc J. Luxemburg for Bunge Corporation and others, respondents. Counsel Louis J. Lefkowitz, Attorney-General (Samuel A. Hirshowitz, Meyer H. Mencher and Charles J. McDonough of counsel), for Attorney-General, respondent. Jasen, J. Chief Judge Fuld and Judges Burke, Scileppi, Bergan and Breitel concur. Author: Jasen


Matter of Manufacturers Hanover Trust Co. v. Lefkowitz, Jasen, J. Chief Judge Fuld and Judges Burke, Scileppi, Bergan and Breitel concur.

Author: Jasen

 This appeal brings up for review a construction of article 23-A of the General Business Law, popularly known as the Martin Act. These companion proceedings had their genesis in the well-known salad oil scandal in which Anthony De Angelis and his corporate vehicle, Allied Crude Vegetable Oil Refining Corporation (Allied), were involved. The scandal became known to the public in November, 1963, and resulted in more than $200,000,000 in losses to investors and financial institutions.

After an extended three-year investigation, the Attorney-General brought an action under article 23-A of the General Business Law against Bunge Corporation (Bunge), its president Walter Charles Klein, and one of its vice-presidents Richard D. Forti.

Briefly stated, the Attorney-General's complaint alleged that in 1962 the defendants learned that Allied was missing millions of dollars worth of vegetable oils pledged to Bunge and others through warehouse receipts; that Allied was insolvent; that as members of the New York Produce Exchange the defendants were under a duty to disclose this knowledge to the exchange and to the public generally, but such disclosure was not made; that the defendants used this knowledge to manipulate the market in soybean oil futures, thereby making a profit of $1,500,000; and that, by concealing their knowledge, Allied was permitted to continue its fraudulent practices for 14 additional months and increase its outstanding fraudulent warehouse receipts from $8,000,000 to $82,000,000.

The complaint was served, but not filed, on February 14, 1967. The first public announcement of the action was made by the Attorney-General in a press release on March 13, 1967. On the same date, the action was terminated by the filing of the pleadings therein and a consent judgment agreed to between the Attorney-General and the defendants, wherein it was stipulated not only that the defendants denied the factual allegations of the complaint, but also that the consent judgment would not be deemed an acknowledgment of any violation of law. The defendants, on the other hand, agreed they would not thereafter commit any of the fraudulent acts or ignore the duties to the public, enumerated in the complaint. In addition, the defendants agreed to severally pay $2,000 as costs in the action.

The Attorney-General's complaint contained 12 causes of action, the first 11 of which were brought under the Martin Act. The twelfth cause of action was brought pursuant to section (subd. 12) of the Executive Law and is not pertinent to the present proceeding. The consent judgment related only to the first cause of action, and the second through twelfth causes of action were discontinued under the terms of the consent judgment.

After the Attorney-General's action was terminated, appellants, a bank and the insurance companies who will have to bear many of the losses generated by De Angelis' swindle, sought to vacate the consent judgment, reopen the action, and appoint, under section 353-a of the General Business Law, a receiver for that portion of the property of Bunge which had been obtained through the fraudulent practices with which Bunge was charged.

Alternatively, the appellants requested the court issue an order in the nature of mandamus, pursuant to CPLR article 78, directing the Attorney-General to apply for a receiver. In addition, appellants requested the court direct the Attorney-General to assist appellants in establishing any claim they might have to the property of Bunge and to make available to appellants the evidence gathered in the course of the Attorney-General's investigation.

Special Term dismissed the article 78 petitions and the motions to reopen and intervene, and the Appellate Division unanimously affirmed.

In denying the motions and dismissing the petition, the courts below held that the Attorney-General's exercise of authority in prosecuting a Martin Act action was not subject to judicial review, and that the Attorney-General's sole control of such action excluded the effort by appellants to secure the appointment of a Martin Act receiver in the action which had been concluded by the consent judgment. With all of these conclusions we agree.

We have long recognized that, when a statute authorizes the Attorney-General to institute a suit, the exercise of such authority is not subject to judicial review. (People v. Ballard, 134 N. Y. 269, 293.) Appellants do not contend that the Attorney-General's discretion to commence an action pursuant to statute is subject to judicial review, but argue that, the action having been instituted, the exercise of discretion in its disposition is subject to judicial review. We cannot agree that the Legislature intended to grant the courts the authority to judicially review the Attorney-General's exercise of discretion in dealing with a Martin Act violation. Implicit in any authority to commence an action is power over its disposition by discontinuance or otherwise. In our view, in the absence of a clear expression by the Legislature to the contrary (e.g., General Business Law, ยง 399-n), the discretion of the Attorney-General in maintaining or discontinuing an action may not be made the subject of inquiry by the courts.

Indeed the Legislature, in enacting section 63 (subd. 15) of the Executive Law, dealing with the Attorney-General's authority in conducting actions such as here under the Martin Act, has clearly defined the Attorney-General's responsibility as follows: "15. In any case where the attorney-general has authority to institute a civil action or proceeding in connection with the enforcement of a law of this state, in lieu thereof he may accept an assurance of discontinuance of any act or practice in violation of such law from any person engaged or who has engaged in such act or practice".

To sustain appellants' contention would require this court to sanction a remedy inconsistent with the expressed intent of the Legislature.

The appellants further contend that, although the Attorney-General is the State's chief law officer, he is, insofar as the Martin Act is concerned, an administrative officer and his activities are subject to judicial review in an article 78 proceeding to ...


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