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People v. Thain

March 18, 2009


The opinion of the court was delivered by: Bernard J. Fried, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

This petition was brought by the Attorney General of the State of New York pursuant to CPLR § 2308(b) to compel compliance with his subpoena dated January 27, 2009, issued to John A. Thain, former C.E.O. of Merrill Lynch & Co., Inc. The Attorney General issued the subpoena to Thain under the authority of the Martin Act, Gen. Bus. Law § 352 et seq., and Executive Law § 63(12), as part of his investigation into the timing, propriety, and disclosure of $3.6 billion in bonus payments made by Merrill Lynch on the eve of its merger with Bank of American Corporation. Thain refused to answer certain questions during his February 19, 2009 deposition, and the Attorney General brought this petition seeking an Order directing Thain to answer his questions.

Pursuant to a so-ordered Stipulation dated February 23, 2009, Thain has now complied with the subpoena; he answered the questions at a February 24, 2009 deposition. Pursuant to the February 23 Stipulation, however, the parties agreed that Thain's testimony would remain confidential pending my decision on the proposed motion to intervene in this action by Bank of America and Merrill Lynch (collectively, for ease of reference, the "intervenors"), which I authorized. The intervenors have now filed that motion for leave to intervene, pursuant to CPLR §§ 1012(a)(2) and 1013, and oral argument took place on March 13, 2009.

The Attorney General's Authority Under the Martin Act

The Martin Act states that the Attorney General, whenever it appears that any person has engaged in fraudulent practices or "he believes it to be in the public interest that an investigation be made, [] may in his discretion" commence an investigation. Gen. Bus. Law § 352(1). The Attorney General may "require such other data and information as he may deem relevant and may make such special and independent investigations as he may deem necessary in connection with the matter." Id. To that end, he is "empowered to subpoena witnesses, compel their attendance, examine them under oath... and require the production of any books or papers which he deems relevant or material to the inquiry." Id. § 352(2).

In conducting his investigation, "the Attorney-General acts as an executive official performing an administrative duty." Carlisle v. Bennett, 268 NY 212, 217 (1935). Consequently, the Attorney General's "discretion must be exercised within bounds circumscribed by a reasonable relation to the subject-matter under investigation and to the public purpose to be achieved." Id. Moreover, "the witness subp naed has the right to secure an adjudication as to whether that limit has been exceeded." Id.

But "once the Attorney General [has] invoked its investigatory power, the presumption is that it did so in good faith, and [i]s therefore not required to demonstrate probable cause or disclose the details of the pending investigation." Pavillion Agency, Inc. v. Spitzer, 9 Misc 3d 626, 631 (Sup. Ct. 2005) (quoting Amer. Dental Co-op., Inc. v. Attorney Gen. of State of NY, 127 AD2d 274 (1st Dept. 1987) (rejecting challenge to Attorney General's Donnelly Act subpoena issued pursuant to Gen. Bus. Law § 343)). "[A]ll that the Attorney General need show in support of his subpoena in the face of a motion to quash is his authority, the relevance of the items sought, and some factual basis for his investigation." Amer. Dental, 127 AD2d at 280.

Section 63(12) of the Executive Law directs that "[t]he attorney-general shall... apply... for an order enjoining" repeated acts of fraud or illegality "in the carrying on, conducting or transaction of business," and authorizes him, "[i]n connection with any such application,... to take proof and make a determination of the relevant facts and to issue subpoenas in accordance with the civil practice law and rules."

There is no dispute that the Attorney General has the authority to conduct this investigation. (Oral Arg. Trans. at 5-6 (Mar. 13, 2009).) The information he is seeking about employee bonuses is unquestionably related to the subject matter under investigation and the public purpose to be achieved. Therefore, it is within his Martin Act authority

In any case, the intervenors do not challenge the scope of his investigation. (Trans. at 6.) The intervenors have limited their challenge to a single legal issue: "whether or not disclosures regarding certain employee compensation information should be kept confidential." (Intervenors' Br. at 18; see also Trans. at 6.)

Intervention as of Right Under CPLR § 1012(a)(2)

The intervenors claim that they have a right to intervene in this action, under CPLR § 1012(a)(2), in order to seek an order preventing the Attorney General from publicly disclosing the names of the Merrill Lynch employees who received certain bonus amounts in December 2008. The intervenors claim that this information is private and a trade secret.

CPLR § 1012(a)(2) provides that a person is "permitted to intervene in any action... [w]hen the representation of the person's interest by the parties is or may be inadequate and the person is or may be bound by the judgment."

"Whether a movant will be bound by the judgment within the meaning of [CPLR § 1012(a)(2)] is determined by its res judicata effect.'" Tyrone G. v. Fifi N., 189 AD2d 8, 17 (1st Dept. 1993) (quoting Vantage Petroleum v. Bd. of Assessment Review, 61 NY2d 695, 698 (1984)).

The intervenors argue that they will be "bound" by any ruling on the Attorney General's petition because they will not have "any effective remedy to prevent [sic] their legitimate interest in maintaining the confidentiality of their employees' compensation amounts." (Intervenors' Br. at 17; see also Trans. at 48.)

The intervenors' argument goes beyond the meaning of "bound" under section 1012(a)(2). The Attorney General filed this petition to enforce his subpoena issued to Thain. The action before me is not a plenary action seeking a final judgment. In fact, the intervenors conceded at oral argument that there will be no final judgment in this action that could bind ...

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