People v. Federated Radio Corp.

• Decision Date: 04 December 1926
• Citation: 244 N.Y. 33,154 N.E. 655
• Parties: PEOPLE v. FEDERATED RADIO CORPORATION et al.
• Court: New York Court of Appeals Court of Appeals

244 N.Y. 33

154 N.E. 655

PEOPLE

v.FEDERATED RADIO CORPORATION et al.

Court of Appeals of New York.

Dec. 4, 1926.

Action by the People against the Federated Radio Corporation and others. From an order of Appellate Division (216 App. Div. 250, 214 N. Y. S. 670), affirming an order of Special Term, denying a motion for judgment on the pleadings, defendants appeal. On certified questions.

Affirmed, and questions answered.Appeal from Supreme Court, Appellate Division, Second department.

Albert Stickney, George Gordon Battle, and Henry E. Kelley, all of New York City, for appellants.

Albert Ottinger, Atty. Gen. (William H. Milholland and Keyes Winter, both of New York City, of counsel), for respondent.

POUND, J.

On motion for judgment on the pleadings, on the ground that the complaint does not state facts sufficient to constitute a cause of action against the appellants, the Special Term denied the motion, and the Appellate Division affirmed, and certified the following questions to this court:

‘(1) Does the definition of fraudulent practices contained in section 352 of article 23-a of the General Business Law of New York, known as the Martin Act, include the sale or sales of securities or commodities by means of concealment or misrepresentation of material facts, where such concealment or misrepresentation is not intentional, viz. in a case of implied fraud, as distinguished from a case of intentional fraud?

‘(2) Does the said Martin Act authorize suit by the Attorney General for injunction against persons engaged in the sale of securities or commodities through concealment or misrepresentation of material facts, where such concealment or misrepresentation was not intentional, viz. in a case of implied fraud, as distinguished from a case of intentional fraud?

‘(3) If either question (1) or (2) be answered in the affirmative, do the provisions of the Martin Act deprive the defendants of their property without due process of law, in violation of the Constitution of the state of New York?

‘(4) If either question (1) or (2) be answered in the affirmative, do the provisions of the Martin Act deprive the defendants of their property without due process of law, in violation of the Constitution of the United States?

‘(5) Does the complaint state facts to constitute a cause of action against the defendants?’

The action is brought by the Attorney General under article 23-a of the General Business Law (Laws 1921, c. 649, as amended), which is known as the Martin Act or the Blue Sky Law, to restrain the appellants, doing business under the firm name and style of Carden, Green & Co., from engaging in alleged fraudulent practices in violation of the act in relation to the sale of the stock of the defendant corporations and for a receiver.

The primary purpose of the law is remedial in its character. It provides (section 352) for the investigation by the Attorney General of the fraudulent practices therein enumerated in respect to the sale of bonds, stocks, and other securities and commodities, and authorizeshim (section 353) to bring suit to enjoin persons and corporations from engaging therein and (section 353-a) to obtain the appointment of a receiver to take title to all property derived by defendants by means of such fraudulent practices and liquidate the same for the benefit of persons intervening in the action and establishing an interest in the property. The Attorney General may also prosecute (section 358) every person ‘charged with the commission of an indictable offense in 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 359-g of the act is penal in its character. It (subdivision 1) makes disobedience to any order or judgment granted pursuant to the provisions of the act a misdemeanor, and it (subdivision 2) makes a violation of ‘any of the provisions of this article’ a misdemeanor. But crimes are not created by implication, and the act does not prohibit fraudulent practices. It merely provides a procedure to prevent them.

While certain practices are declared by the act to be fraudulent, the definition of a fraudulent practice goes no further than to say that a fraud or a violation of law which would operate as a fraud is a fraudulent practice, which may be enjoined, and we must gather from other sources the meaning of the word ‘fraud.’ In a broad sense, the term includes all deceitful practices contrary to the plain rules of common honesty.

The purpose of the law is to prevent all kinds of fraud in connection with the sale of securities and commodities and to defeat all unsubstantial and visionary schemes in relation thereto whereby the public is fraudulently exploited. Hall v. Geiger-Jones Co., 242 U. S. 539, 37 S. Ct. 217, 61 L. Ed. 480, L. R. A. 1917F, 514, Ann. Cas. 1917C, 643. The words ‘fraud’ and ‘fraudulent practice,’ in this connection, should therefore be given a wide meaning, so as to include all acts, although not originating in any actual evil design or contrivance to perpetrate fraud or injury upon others, which do by their tendency to deceive or mislead the purchasing public come within the purpose of the law.

Penal Law, § 421 (amended by Laws 1921, c. 520), provides as follows:

‘Sec. 421. Untrue and Misleading Advertisements. Any person, firm, corporation or association, or agent or employee thereof who, with intent to sell or in any wise dispose of merchandise, real estate, securities, service, or anything offered by such person, firm, corporation, or association, or agent or employee thereof, directly or indirectly, to the public for sale or distribution, or with intent to increase the consumption thereof, or to induce the public in any manner to enter into any obligation relating thereto, or to acquire title thereto, or an interest therein, makes, publishes, disseminates, circulates, or places...