People v. Michael Glenn Realty Corp.

• Citation: 106 Misc.2d 46,431 N.Y.S.2d 285
• Parties: , Blue Sky L. Rep. P 71,628 In the Matter of PEOPLE of the State of New York, Petitioner, v. MICHAEL GLENN REALTY CORPORATION, Lawrence Stoff and Sheldon Siegel, Respondents.
• Decision Date: 21 July 1980
• Court: New York Supreme Court

Page 285

431 N.Y.S.2d 285

106 Misc.2d 46, Blue Sky L. Rep. P 71,628

In the Matter of PEOPLE of the State of New York, Petitioner, v. MICHAEL GLENN REALTY CORPORATION, Lawrence Stoff and Sheldon Siegel, Respondents.

Supreme Court, Special Term, New York County, Part I.

July 21, 1980.

Robert Abrams, Atty. Gen. by Mark Tipperman, Louis Sherman, Asst. Attys. Gen., New York City, for petitioner.

Robert Projansky, New York City, for respondents.

RICHARD W. WALLACH, Justice:

This motion is brought by the Attorney General of the State of New York seeking a preliminary injunction barring the respondents from selling "cooperative interests" in 137 West Broadway, New York, New York and from evicting any persons currently residing in the premises. This motion and the petition upon which the action is based are brought by the Attorney General pursuant to Article 23-A of the General Business Law (hereinafter "Martin Act") which prohibits the public offering or sale of securities, including cooperative interests in realty, in the absence of a prospectus filed with the Department of Law of the State of New York.

Respondents have cross-moved to dismiss the petition on the grounds that it fails to state a cause of action, because the Attorney General has failed to show any proof of a public sale or offering of cooperative interests in realty.

For purposes of injunctive relief under the Martin Act, because it is remedial in nature, the Attorney General need only show prima facie that the respondents' actions fell within the purview of the Act and that, as such, they violated the Act (People v. Tellier, 7 Misc.2d 43, 155 N.Y.S.2d 245).

The purpose of the Martin Act is to protect the public from fraudulent practices. The Act throughout refers to "public offerings" and although private offerings are not explicitly exempt, on the familiar principle of "expressio unius est exclusio alterius" the Martin Act is not intended to regulate private offerings. "Since the statute makes it unlawful to sell securities to 'the public' without first having filed a registration statement, the words cannot be elided from the statute as surplusage and must be considered as being there for the purpose of describing or limiting to whom sales are made or offered. Giving it its natural and ordinary, popular meaning, the phrase 'the public' includes all of the people and is not exclusive of a portion of the population" (Carmody-Wait, New York Practice § 138:10, People v. Ruthven, 160 Misc. 112, 288 N.Y.S. 631).

To maintain the action the Attorney General must show that the respondents' actions constituted a public offering before the court may consider the merits of a preliminary injunction requested in accordance with the Martin Act provisions. Although the New York statute was enacted in 1960, as to "public offering", there has been "no decisional legal interpretation of these words" (Ledgebrook v. Lefkowitz, 77 Misc.2d 867, 871, 354 N.Y.S.2d 318, 322) and courts frequently refer, by analogy, to federal case law on this issue.

The distinction between public and private offerings is considered in SEC v. Ralston Purina, 346 U.S. 119, 127, 73 S.Ct. 981, 985, 97 L.Ed.2d 1494, wherein the U.S. Supreme Court stated, "The focus of inquiry should be on the need of the offerees for the protections afforded by registration". Thus, if the offerees were in need of the Act's protection and they did not have access to information in the absence of a filed prospectus, the offering would be deemed a public one. The Attorney General has not demonstrated here that the offerees were in need of the Martin Act's protection, or that they did not have access to necessary information in the absence of a filed prospectus. At all relevant times the offerees were represented by legal counsel, and they have voiced no complaints concerning the offering.

In determining whether an offer is public or private, courts have often rested upon four major factors (Ledgebrook v. Lefkowitz, supra): (1) number of offerees and their relationship to each other and to the issuer, (2) number of units offered, (3) size of the offering and (4) the manner of offering (type and extent of advertising).

The Martin Act and the courts have explicitly recognized the significance of the number of offerees. § 352-g of the Martin Act entitled "Exemptions" states, "The Attorney General, upon application, may exempt from the provisions of § 352-e . . . any offerings of securities (1) made to persons not exceeding forty in number . . .". The United States District Court for the Southern District of New York noted that "while numbers (of offerees) might not be decisive, (citations omitted) they are obviously relevant in applying the legislative purpose 'to exempt isolated transactions from the onerous burdens of registration requirements' " ...