OPINION AND ORDER
This action involves defendants' alleged scheme to rig the
bidding process at public stamp auctions held in New York,
Maryland and California (collectively, the "States"). The
States, by their Attorneys General, claim that defendants'
conduct deprived sellers, auction houses and others of the
benefits of a competitive market-place, thereby violating
federal antitrust law as well as various state statutes.
Defendants John Apfelbaum, Lewis Berg, Davitt Felder, Davitt
Felder, Inc. and Earl P.L. Apfelbaum, Inc. (the "defendants")
move pursuant to Rule 12(b) of the Federal Rules of Civil
Procedure to dismiss certain claims brought by New York and
Maryland for failure to state a claim upon which relief can be
granted. For the reasons stated below, the motion is denied.
I. MOTION TO DISMISS STANDARD
Dismissal of a complaint for failure to state a claim pursuant
to Rule 12(b)(6) is proper only where "`it appears beyond doubt
that the plaintiff can prove no set of facts in support of [its]
claim that would entitle [it] to relief.'" ICOM Holding, Inc.
v. MCI Worldcom, Inc., 238 F.3d 219, 221 (2d Cir. 2001)
(quoting Harris v. City of New York, 186 F.3d 243, 247 (2d
Cir. 1999)). "At the Rule 12(b)(6) stage, `[t]he issue is not
whether a plaintiff is likely to prevail ultimately, but whether
the claimant is entitled to offer evidence to support the
claims. Indeed it may appear on the face of the pleading that a
recovery is very remote and unlikely but that is not the test.'"
Sims v. Artuz, 230 F.3d 14, 20 (2d Cir. 2000) (quoting Chance
v. Armstrong, 143 F.3d 698, 701 (2d Cir. 1998) (quotation marks
omitted)). The task of the court in ruling on a Rule 12(b)(6)
motion is "merely to assess the legal feasibility of the
complaint, not to assay the weight of the evidence which might
be offered in support thereof." Sims, 230 F.3d at 20 (quoting
Ryder Energy Distrib. Corp. v. Merrill Lynch Commodities,
Inc., 748 F.2d 774, 779 (2d Cir. 1984)).
In deciding a Rule 12(b)(6) motion, the court must accept as
true all material facts alleged in the complaint and draw all
reasonable inferences in the nonmoving party's favor.*fn1
See ICOM Holding, 238 F.3d at 221; Harris v. City of New
York, 186 F.3d 243, 247 (2d Cir. 1999). However, "bald
assertions and conclusions of law will not suffice" to defeat
even the liberal standard applied to a Rule 12(b)(6) motion.
Tarshis v. Riese Org., 211 F.3d 30, 35 (2d Cir. 2000).
Postage stamp dealing has become a profitable business in the
United States.*fn2 See Amended Complaint ("Compl."), Ex. A
to 12/14/01 Affirmation of James A. Mitchell, counsel for
defendants John Apfelbaum and Earl P.L. Afpelbaum, Inc.
("Mitchell Aff."), ¶ 1. Many stamp dealers purchase their
merchandise at auctions, which are held on a regular basis at
auction houses in New York, Maryland, California and elsewhere
throughout the United States, as well as abroad. See id. ¶ 2.
At these auctions, sellers and auctioneers rely on the
competitive bidding process to obtain the best prices for the
stamps offered. See id. ¶ 4. A large majority of sellers at
these auctions are individuals, many of whom are elderly or one
time participants in the auction market and have neither the
means nor the information to detect collusive bidding. See id
According to the Complaint, defendants conspired for at least
seventeen years to rig bids at public stamp auctions. See id.
1 3; Plaintiff States' Memorandum in Opposition to Motion of
Defendants John Appelbaum, Lewis Berg, Davitt Felder, Davitt
Felder, Inc. and Earl P.L. Apfelbaum, Inc., to Dismiss the
Third, Fourth and Fifth Claims for Relief in the Amended
Complaint ("Pl.Opp.") at 2. Defendants, who referred to
themselves as "the Ring", conducted their own secret bidding
sessions prior to the actual public auctions. Id. ¶¶ 3-4. At
the secret session, the highest bidder for a particular lot of
stamps agreed to bid up to that price at the public auction and
the losing bidders agreed to refrain from bidding on that
particular lot. See id. ¶ 3. The losers were compensated for
refraining based on an elaborate payoff scheme whereby the
"winning" Ring member's profits were divided among the Ring.
See id. ¶ 5. As a result of defendants' scheme, there was less
competition at the public auction, sellers received lower
prices, and auction houses received reduced commissions. See
id. ¶ 3.
III. THE COMPLAINT
The States filed a complaint against defendants on July 23,
2001 and filed the Amended Complaint on August 21, 2001. See
Memorandum of Law in Support of Defendants' Motion to Dismiss
the Third, Fourth and Fifth Claims for Relief in the Amended
Complaint ("Def.Mem.") at 2. The Complaint includes seven causes
of action. In the first claim, the States allege that defendants
violated section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1.
See Compl. ¶¶ 75-78. In the second claim, New York alleges that
defendants violated New York's antitrust statute, the Donnelly
Act, N.Y. Gen. Bus. Law §§ 340 et seq. See Compl. 81. These
first two claims seek recovery on behalf of stamp collectors
residing in plaintiffs' respective states. See id. ¶¶ 79, 85.
In the third and fourth claims, New York alleges that defendants
engaged in fraudulent and illegal conduct in violation of N.Y.
Exec. Law § 63(12) and engaged in deceptive acts and practices
in violation of N.Y. Gen. Bus. Law § 349. See Compl. ¶¶ 86-88,
90-94. Under both of these claims, New York seeks to recover for
all injuries caused by defendants' fraudulent and deceptive
conduct. See id ¶¶ 89, 95. In the fifth claim, Maryland alleges
that defendants violated the Maryland Antitrust Act, Md.Code
Ann., Com. Law §§ 11-201 et seq., and seeks to recover losses
suffered by all persons and entities injured by defendants'
conduct as well as civil penalties pursuant to Md.Code
Ann., Com. Law § 11-209. See Compl. ¶¶ 96-101. In the sixth and
seventh claims, California alleges that defendants violated
California's antitrust statute, Cal. Bus. & Prof.Code §§ 16720
et seq., and the California Unfair Competition Act., Cal. Bus. &
Prof.Code § 17200 et seq. See Compl. ¶¶ 1102-106, 108-110.
California only seeks to recover damages for its own citizens.
See 2/5/02 Letter from David Weinstein, Assistant Attorney
General of New York ("2/5/02 Ltr.").
Defendants move pursuant to Rule 12(b)(6) to dismiss the
third, fourth and fifth claims for relief.*fn3 First, they
argue that the third and fourth claims must be dismissed because
the New York statutes upon which these claims are based were not
intended to address antitrust violations. See Def. Mem. at 15.
Second, defendants assert that the third claim must be
dismissed because New York may not use N.Y. Exec. Law § 63(12)
to seek damages not available under the Donnelly Act. See id.
at 13-14. Third, they argue that the third and fifth claims
must be dismissed because neither New York's nor Maryland's
antitrust statute authorizes the Attorney General to bring a
damages action on behalf of non-residents of the state. See
id. at 12. Fourth, defendants contend that, even if state law
permits the Attorney General to sue for antitrust injuries
incurred by non-residents, these claims are preempted by federal
law. See id. at 5.
A. May New York Rely on N.Y. Exec. Law § 63(12) and N.Y.
Gen. Bus. Law § 349 to Address Antitrust Violations?
Defendants argue that neither N.Y. Exec. Law § 63(12) nor N.Y.
Gen. Bus. Law § 439 were intended to address antitrust
violations. See id. at 15. They claim that these provisions
were enacted as "consumer protection legislation" focused on
"the regulation of deceptive advertising and sales practices"
that injure consumers. Id.
1. N.Y. Exec. Law § 63(12)
Section 63(12) of the Executive Law of New York provides, in
Whenever any person shall engage in repeated
fraudulent or illegal acts or otherwise demonstrate
persistent fraud or illegality in the carrying on,
conducting or transaction of business, the attorney
general may apply, in the name of the people of the
state of New York, to the supreme court of the state
of New York, on notice of five days, for an order
enjoining the continuance of such business activity
or of any fraudulent or illegal acts, directing
restitution and damages. . . .
N.Y. Exec. Law § 63(12). As an initial matter, defendants' claim
that section 63(12) is limited to consumer protection actions is
simply incorrect. The New York
Attorney General has repeatedly used section 63(12) to secure
relief for persons who are not consumers in cases that are not
consumer protection actions. See, e.g., People by Vacco v. Mid
Hudson Med. Group, P.C., 877 F. Supp. 143, 144, 146-47 (S.D.N.Y.
1995) (action on behalf of hearing impaired New Yorkers harmed
by discrimination in the provision of medical services); People
v. Lexington Sixty-First Assocs., 38 N.Y.2d 588, 381 N.Y.S.2d 836,
345 N.E.2d 307 (1976) (action on behalf of tenants and
investors harmed by illegal scheme for cooperative conversion);
State v. Fashion Place Assocs., 224 A.D.2d 280, 638 N.Y.S.2d 26,
28 (1st Dep't 1996) (action on behalf of tenants harmed by
defendant's denial of rent-stabilized leases and
misrepresentations to tenants); People by Abrams v. Hamilton,
125 A.D.2d 1000, 511 N.Y.S.2d 190 (4th Dep't 1986) (action on
behalf of female employees harmed by sex discrimination);
People ex rel. Vacco v. World Interactive Gaming Corp.,
185 Misc.2d 852, 714 N.Y.S.2d 844, 853 (N.Y.Sup. 1999) (action on
behalf of investors harmed by securities law violations).
Defendants' argument that only the Donnelly Act should be used
to address antitrust violations also lacks support. Defendants
have identified no statutory language or case law that precludes
plaintiffs from seeking relief for antitrust violations through
section 63(12). See Wiener v. Abrams, 119 Misc.2d 970,
464 N.Y.S.2d 919, 921 (N.Y.Sup. 1983) (declining to dismiss section
63(12) claim grounded on violations of the Rent Stabilization
Law ("RSL") where there was no indication that the RSL, or the
administrative body established by that law, was to be the
"exclusive" means of resolving landlord-tenant disputes arising
thereunder). Meanwhile, courts have held that section 63(12)
should be "construed quite broadly" to apply "to all business
activity accompanied by repeated acts of illegality." People v.
MacDonald, 69 Misc.2d 456, 330 N.Y.S.2d 85, 88 (N.Y.Sup. 1972).
"Violations of State laws, as well as violations of Federal laws
or regulations, can constitute fraud or illegality within the
meaning of Section 63." State v. Stevens, 130 Misc.2d 790,
497 N.Y.S.2d 812, 813 (N.Y.Sup. 1985). See also State v. Citibank,
N.A., 537 F. Supp. 1192, 1195 (S.D.N.Y. 1982) (upholding section
63(12) claim alleging repeated illegal business practices
grounded on violations of federal Electronic Funds Transfer
Act); World Interactive Gaming Corp., 714 N.Y.S.2d at 848
("Any conduct which violates state or federal law or regulation
is actionable under [section 63(12)].").
Indeed, the New York Attorney General has often used section
63(12) to remedy antitrust violations. See Federal Trade
Commission v. Mylan Laboratories, Inc., 62 F. Supp.2d 25, 49-52
(D.C. 1999) (New York Attorney General brought action under N.Y.
Exec. Law § 63(12) based on allegation of antitrust violations);
American Dental Cooperative, Inc. v. Attorney General of the
State of New York, 127 A.D.2d 274, 514 N.Y.S.2d 228, 231 (1987)
(holding that N.Y. Gen. Bus. Law § 343 and N.Y. Exec. Law §
63(12) gives the Attorney General "broad" authority to
investigate allegations that dental product dealers "combined or
conspired to eliminate discount and mail order competition in
violation of the law."); People by Lefkowitz v. Calogero,
78 Misc.2d 953, 358 N.Y.S.2d 790, 794-95 (N.Y.Sup. 1974) (enjoining
"tying violations" pursuant to section 63(12)), aff'd as
modified, 47 A.D.2d 741, 365 N.Y.S.2d 548 (1st Dep't 1975).
1. Section 349 of New York's General Business Law
Section 349 of New York General Business Law makes unlawful
"[d]eceptive acts or practices in the conduct of any business,
trade or commerce or in the
furnishing of any service in this state." N.Y. Gen. Bus. Law §
349(a). Pursuant to section 349(g), the Attorney General is
authorized to obtain restitution for "all deceptive acts or
practices declared to be unlawful, whether or not subject to any
other law of this state." N.Y. Gen. Bus. Law § 349(g). As
indicated by the statute's "expansive" language, section 349 was
intended to be broadly applicable, extending far beyond the
reach of common law fraud. Blue Cross and Blue Shield of New
Jersey, Inc. v. Philip Morris, Inc., 178 F. Supp.2d 198
(E.D.N.Y. 2001) (Weinstein, J.) (no page references available)
(upholding claim under section 349 that tobacco companies
engaged in scheme to distort public knowledge concerning risks
of smoking); Gaidon v. Guardian Life Ins. Co. of Am.,
94 N.Y.2d 330, 704 N.Y.S.2d 177, 182, 725 N.E.2d 598 (1999) ("In
contrast to common-law fraud, General Business Law § 349 is a
creature of statute based on broad consumer-protection
concerns."); Karlin v. IVF Am., 93 N.Y.2d 282, 690 N.Y.S.2d 495,
498, 712 N.E.2d 662 (1999) ("The reach of th[is] statut[e]
`provide[s] needed authority to cope with the numerous,
ever-changing types of false and deceptive business practices
which plague consumers in our State'.") (quoting N.Y. Dept. of
Law, Mem. to Governor, 1963 N.Y.Legis.Ann., at 105). The statute
applies to virtually "all economic activity," Karlin, 690
N.Y.S.2d at 498, 712 N.E.2d 662, and may be invoked regardless
of whether the allegedly deceptive activity is covered by other
laws, see Blue Cross and Blue Shield of New Jersey,
178 F. Supp.2d 198 (no page references available); Riordan v.
Nationwide Mut. Fire Ins. Co., 756 F. Supp. 732, 740 (S.D.N.Y.
To state a claim under section 349, a plaintiff must allege,
among other things, that "defendants engaged in a
consumer-oriented act." Eon Labs Mfrg., Inc. v. Watson
Pharmaceuticals, Inc., 164 F. Supp.2d 350, 364 (S.D.N.Y. 2001);
see also Stutman v. Chem. Bank, 95 N.Y.2d 24, 29, 709 N.Y.S.2d 892,
731 N.E.2d 608 (2000). This requirement, however, has been
construed liberally. A defendant engages in "consumer-oriented"
activity if his actions cause any "consumer injury or harm to
the public interest." Securitron Magnalock Corp. v. Schnabolk,
65 F.3d 256, 264 (2d Cir. 1995). The "critical question", then,
"is whether the matter affects the public interest in New York,
not whether the suit is brought by a consumer. . . ." Id.
Based on this standard, courts have found sufficient allegations
of injury to the public interest where plaintiffs plead repeated
acts of deception directed at a broad group of individuals. See
In re Methyl Tertiary Butyl Ether Prod. Liability Litig.,
175 F. Supp.2d 593, 631 (S.D.N.Y. 2001) (holding that defendants'
alleged contamination of wells owned by plaintiffs was
"sufficiently consumer-oriented to state a claim under" section
349); The City of New York v. Coastal Oil New York, Inc., No.
96 Civ. 8667, 1998 WL 82927, at *7 (S.D.N.Y. Feb. 25, 1998)
(holding that contract bidder's alleged "scheme" that "distorted
the market for fuel oil" affected the "public at large, and
plaintiffs in particular."); Riordan, 756 F. Supp. at 739
(holding that insureds' allegations that insurer engaged in
illegal claims settlement practices "set forth precisely such
allegations of injury to the public at large as are required to
sustain their claim under the General Business Law."), aff'd in
relevant part, 977 F.2d 47 (2d Cir. 1992).
In the instant case, New York alleges that defendants engaged
in a scheme to manipulate public stamp auctions. See Compl.
¶¶ 3-6. The Complaint alleges that this activity undermined New
interest in an "honest marketplace in which economic activity is
conducted in a competitive manner," and caused injury to
numerous "marketplace participants" who "rely on the competitive
bidding process to obtain the best prices for the stamps
offered." Id. ¶¶ 3, 7. Injured parties included, among others,
unsophisticated individual sellers, such as the elderly and
one-time participants. See id. ¶¶ 2, 7. These allegations are
sufficient to allege misconduct affecting the public interest so
as to come within the purview of section 349.
The collusive activity alleged in this action also falls
within section 439's definition of "deceptive acts or
practices". In large measure, New York courts have interpreted
section 439 by looking to the definition of deceptive acts and
practices under section 5 of the Federal Trade Commission Act
("FTC Act"), 15 U.S.C. § 45. See U-Neek, Inc. v. Wal-Mart
Stores, Inc., 147 F. Supp.2d 158, 176 (S.D.N.Y. 2001); Genesco
Enter., a Div. of Lymutt Indus. Inc. v. Koch, 593 F. Supp. 743
(S.D.N.Y. 1984); Gaidon, 704 N.Y.S.2d at 178, 725 N.E.2d 598;
Oswego Laborers' Local 214 Pension Fund v. Marine Midland
Bank, 85 N.Y.2d 20, 623 N.Y.S.2d 529, 532, 647 N.E.2d 741
(1995) (Kaye, C.J.). It is well-established that the government
may use the FTC Act to enforce antitrust laws. See
Times-Picayune Publ'g Co. v. United States, 345 U.S. 594, 609,
73 S.Ct. 872, 97 L.Ed. 1277 (1953) (finding that section 5 of
the FTC Act "registers violations of the Clayton and Sherman
Acts"); FTC v. Motion Picture Adver. Servs. Co., Inc.,
344 U.S. 392, 395, 73 S.Ct. 361, 97 L.Ed. 426 (1953) (holding that
conduct prohibited by Sherman Act automatically violates section
5 of the FTC Act); United States v. St. Regis Paper,
285 F.2d 607, 610 n. 4 (2d Cir. 1960) ("[A]ny violation of the Sherman
and Clayton Acts [is] also a violation of § 5 of the Federal
Trade Commission Act"); In re Antibiotic Antitrust Actions,
333 F. Supp. 317, 320 (S.D.N.Y. 1971). The antitrust violations
alleged in the Complaint constitute the kind of deceptive acts
and practices contemplated by section 349.
B. The New York Attorney General's Authority to Use
Executive Law Section 63(12) to Seek Restitution for
Defendants argue that section 63(12) of the Executive Law may
not be used to recover restitution for alleged antitrust
violations because such damages are not recoverable under the
Donnelly Act.*fn4 See Def. Mem. at 13. Defendants are
wrong. The damages available under the Donnelly Act are
irrelevant when proceeding under section 63(12) because New York
courts have consistently held that restitution sought pursuant
to section 63(12) is available for misconduct covered by other
laws which do not provide for restitution. See, e.g., Concert
Connection, Ltd., 629 N.Y.S.2d at 256 (directing restitution
pursuant to section 63(12) for violation of "ticket scalping"
prohibition of Arts and Cultural Affairs law article 25, even
though article 25 does not itself afford this remedy); People
v. American Motor Club, Inc., 179 A.D.2d 277, 582 N.Y.S.2d 688,
692 (1st Dep't 1992) (directing restitution pursuant to section
63(12) for violation of Insurance Law § 2117, which does not
itself provide for restitution). As explained in American Motor
Club, it is irrelevant that
the statute allegedly violated "does not have restitution as a
remedy" where the cause of action alleges that the statutory
violation "constituted repeated and consistent illegality under
Executive Law § 63(12), pursuant to which restitution is a
permitted remedy." 179 A.D.2d 277, 582 N.Y.S.2d at 692.
A. The Authority of the States to Seek Relief for
Non-Residents Under New York and Maryland Law
Defendants contend that the statutes relied on by New York and
Maryland do not permit those States to recover antitrust
injuries on behalf of non-residents. Plaintiffs contend that the
respective state laws permit recovery for out-of-state victims
of antitrust violations that occurred within that State's
1. New York Law
Defendants argue that New York may not sue on behalf of
non-residents because the Donnelly Act does not permit such
suits. See Def. Mem. at 12-14. To the contrary, courts have
consistently held that section 63(12) authorizes the New York
Attorney General to recover for nonresidents injured by
wrongdoing that occurred in New York. See In re DeFelice,
77 B.R. 376, 380 (Bankr.D.Conn. 1987) ("New York does not and need
not limit its interest in consumer protection to its citizens.
New York's quasi-sovereign interest is served whenever the
perpetrators of consumer fraud within its borders are brought to
justice regardless of whether their victims happen to be
citizens.") (holding that New York Attorney General could
maintain dischargeability action on behalf of debtor's consumer
creditors, regardless of their residency); People by Vacco v.
Lipsitz, 174 Misc.2d 571, 663 N.Y.S.2d 468, 474 (N.Y.Sup. 1997)
("[The] Attorney General has clear authority to seek to restrain
illegal business practices by a local business in relation to
both in-state and out-of-state residents. . . .") (holding that
the court would consider complaints of out-of-state residents
regarding defendant's allegedly deceptive and false practices in
selling magazines through email over Internet); State by Abrams
v. Camera Warehouse, Inc., 130 Misc.2d 498, 496 N.Y.S.2d 659,
660 (N.Y.Sup. 1985) (holding that Attorney General could seek
restitution for improper credit card surcharges imposed on
Aware of the overwhelming authority against them, defendants
insist that the cases cited above are not applicable in this
case because they all "concern claims of false advertising or
other fraudulent selling practices." Def. Mem. at 16. This
distinction is irrelevant because none of these cases turn on
the means by which the injury was inflicted. Rather, they rely
on the plain language of section 63(12) which does not bar
recovery for out-of-state residents. As the court in Camera
[T]he plain meaning of the language of Executive Law
§ 63(12) indicates that the Legislature intended that
all consumers be protected from illegal practices
regardless of their residency and that the Attorney
General of this State [is] mandated to take necessary
action as provided in the statute to protect all of
496 N.Y.S.2d at 660.