Dunham v. Ottinger
| Decision Date | 16 November 1926 |
| Citation | 243 N.Y. 423,154 N.E. 298 |
| Parties | DUNHAM v. OTTINGER, Atty. Gen. |
| Court | New York Court of Appeals Court of Appeals |
OPINION TEXT STARTS HERE
Action by Ernest F. Dunham against Albert Ottinger, individually and as Attorney General of the State of New York. From a judgment of the Special Term of the Supreme Court (127 Misc. Rep. 683, 217 N. Y. S. 565), dismissing the plaintiff's complaint on a constitutional question, plaintiff appeals.
Affirmed.
Appeal from Supreme Court, Trial Term, Albany County.
Joseph W. Spencer, of New York City, for appellant.
Albert Ottinger, Atty. Gen. (Keyes Winter, of New York City, Amos Moscrip, of Albany, George A. Lewis, of New York City, and Borden Mills, of Albany, of counsel), for respondent.
Louis Marshall and James Marshall, both of New York City, amici curiae.
The plaintiff, who is a stockbroker engaged in selling various kinds of negotiable securities, has brought this action to restrain the defendant, as Attorney General of the state, from examining him and his books under a subpoena and order which had been issued under the provisions of article 23-A of the General Business Law (), sometimes known as the Martin Law, and popularly described as the ‘Blue Sky Law.’ The demand for this relief is based on the theory that the statute is unconstitutional and void, and this question of its validityis the one which is presented to us upon this appeal, rendering it necessary to summarize as briefly as possible the provisions which are material to the inquiry. For the purpose of presenting what seems a somewhat more logical view of the purposes of the statute, I shall summarize various provisions in a somewhat different order than they are found in the statute.
The statute is entitled ‘Fraudulent Practices in Respect to Stocks, Bonds, and Other Securities, and Commodities.’ By section 353 it is provided:
‘Whenever the Attorney General shall believe from evidence satisfactory to him that any person, partnership, * * * has engaged in, is engaged or is about to engage in any of the practices or transactions heretofore referred to as and declared to be fraudulent practices, he may bring an action in the name and on behalf of the people of the state of New York against such person, partnership * * * and any other person or persons heretofore concerned in or in any way participating in or about to participate in such fraudulent practices, to enjoin such person, partnership, * * * and such other person or persons from continuing such fraudulent practices or engaging therein or doing any act or acts in furtherance thereof.’
Section 352 defines the fraudulent practices referred to in the foregoing section as, amongst other things, ‘any device, scheme or artifice to defraud or for obtaining money or property by means of any false pretense, representation or promise,’ ‘fictitious or pretended purchases or sales of securities or commodities,’ and ‘any practice or transaction or course of business relating to the purchase or sale of securities or commodities which is fraudulent or in violation of law, and which has operated or which would operate as a fraud upon the purchaser.’
Then by section 352 it is provided that, ‘whenever it shall appear to the Attorney General, either upon complaint or otherwise, that in the advertisement, purchase or sale within this state for future delivery of any commodity * * * or that in the issuance, sale, promotion, negotiation, advertisement or distribution within this state, of any stocks, bonds, notes, evidences of interest or indebtedness or other securities or negotiable documents of title, * * * any person, partnership, * * * shall have employed, or employs, or is about to employ’ any of the fraudulent devices and practices above described, or ‘he believes it to be in the public interest that an investigation be made, he may in his discretion’ require such person or partnership to file a statement in writing under oath ‘as to all the facts and circumstances concerning the subject-matter which he believes it is to the public interest to investigate,’ and also by subpoena and order may compel and order such person to attend and be examined before him or a magistrate or court, and also produce any books or papers for examination ‘which he deems relevant or material to the inquiry.’ If a person so subpoenaed or ordered refuses without ‘reasonable cause’ to obey the command of the subpoena or to be sworn, examined, and interrogated, or to produce the book or paper required, he is made guilty of a misdemeanor.
In addition to these civil proceedings provision is made for the institution by the Attorney General of criminal proceedings for any ‘violation of the laws of this state, applicable to or in respect of the practices or transactions which in this article are referred to as fraudulent practices.’ Section 358.
The statute safeguards the proceeding of examination or production of books by providing that any officer who participates in it who shall disclose to any person other than the Attorney General the name of any witness examined or any other information shall be guilty of a misdemeanor; also that, if any person shall ask to be excused from testifying or producing a book or paper on the ground ‘that the testimony or evidence, documentary or otherwise, required of him may tend to incriminate him or to convict him of a crime or to subject him to a penalty or forfeiture, and shall notwithstanding be directed by the court, referee, magistrate or officer conducting the inquiry to testify or to produce such book, paper or document, he must none the less comply with such direction but in such event he shall not thereafter be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter or thing concerning which he may testify or produce evidence, documentary or otherwise, pursuant thereto and no testimony so given or produced shall be received against him upon any criminal action, suit or proceeding, investigation, inquisition or inquiry.’ Section 359.
Many objections are urged to the validity of the law. But, eliminating those which do not seem to require serious consideration, there are left as the more important ones the claims that the statute--
(1) Confers upon the Attorney General judicial powers, and therefore is in violation of the provisions of our Constitution which confer such powers solely upon the courts.
(2) Denies to a person subjected to subpoena or order the benefit of that due process of law which is conferred by the federal and state Constitutions and subjects him to unreasonable and unlawful ‘search and seizure.’
(3) Compels a person to be a witness against himself for purposes of a criminal prosecution because he is not protected from the effects of the evidence which he may give by any proper provision for immunity.
I am not able to see that the statute when fairly interpreted furnishes a basis upon which may be successfully rested any of these contentions and some pertinent general considerations may properly be taken into account in passing upon them. It is a matter of general knowledge that dishonest members of the business of dealing in securities such as are described in the statute have been accustomed to pursue fraudulent practices whereby the rights of their customers were violated and on occasions the public widely victimized. Of course, it was not only the privilege but the duty of the Legislature if possible to prevent these fraudulent practices. This was not only a duty which it owed to the public but incidentally it was for the benefit of those honestly carrying on this business and who were more or less discredited by the evil practices of a comparatively small number that the latter should be punished and stopped. In the attempt to discharge this obligation the Legislature adopted various laws such as those making it a criminal offense for a broker to ‘bucket’ a customer's orders or to unlawfully pledge or use his securities and now, in addition, has enacted the statute which is before us. Honest brokers as well as intended victims are interested in its enforcement if constitutional and limited by an administration which is reasonable and fair.
Its 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. He is also given the power through appropriate procedure to institute criminal prosecutions against such a person. And while the language of the statute confers upon him a permissive privilege to do these things there is no doubt that it imposes upon him the mandatory duty to perform them and thus protect the public. But the attempt to discharge the duty in a given case without any adequate and accurate knowledge of the facts might result either in an ineffective and abortive attempt or in the unjust prosecution of persons who were guilty of no offense or violation. Therefore, the Attorney General as an administrative official charged with the duty of enforcing the statute is given the power to secure from a person whom he suspects of violation of the statute by means of questionnaire, oral examination, and inspection of books, under conditions of absolute secrecy, the information which will enable him to determine whether the foundation does exist for further proceedings, and which information subject to the immunity hereinafter to be referred to, may be utilized in the prosecution authorized by the statute. And it is in the light of such features as these that we come to a consideration of the objections which have been mentioned.
[1] I find no bestowal upon the Attorney General of any of those judicial powers...
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