Sopher v. Abrams

• Decision Date: 30 August 1982
• Docket Number: No. 82-CV-568.,82-CV-568.
• Citation: 554 F. Supp. 532
• Parties: Jacob I. SOPHER and J.I. Sopher & Co., Inc., Plaintiffs, v. Robert ABRAMS, as Attorney General of the State of New York, Defendant.
• Court: U.S. District Court — Northern District of New York

554 F. Supp. 532

Jacob I. SOPHER and J.I. Sopher & Co., Inc., Plaintiffs, v. Robert ABRAMS, as Attorney General of the State of New York, Defendant.

No. 82-CV-568.

United States District Court, N.D. New York.

August 30, 1982.

Stroock & Stroock & Lavan, Richenthal, Abrams & Moss, Sp. Counsel, New York City, Joseph A. Martino, Sp. Counsel, Clifton Park, for plaintiffs; Joseph L. Forstadt, William J. Robbins, Fred Hodara, Arthur Richenthal, New York City, of counsel.

Robert Abrams, Atty. Gen., New York City, pro se; Joel Graber, James M. Morrissey, Asst. Attys. Gen., New York City, of counsel.

MEMORANDUM-DECISION and ORDER

MINER, District Judge.

I

In this action plaintiffs, Jacob I. Sopher and J.I. Sopher & Co., Inc., seek to permanently enjoin defendant Robert Abrams, Attorney General of the State of New York, from requiring disclosure, in documents distributed to the public in connection with the offering and sale of real estate securities, of the fact that the Attorney General has commenced a civil proceeding against plaintiffs. The complaint is predicated upon 42 U.S.C. § 1983 and jurisdiction is conferred by 28 U.S.C. §§ 1343(a)(3) and (a)(4). Before this Court is plaintiffs' application for a preliminary injunction. Fed.R.Civ.P. 65(a).¹

II

Plaintiff J.I. Sopher & Co., Inc. (hereinafter "Sopher")² has been a licensed real estate brokerage firm since 1965, engaging in brokerage relating primarily to the rental of apartments. Sopher is presently located at 425 East 61st Street, New York, New York, where an "Exhibition Hall of Apartments" is maintained. This exhibition contains a display of models, pictures and other information regarding rental apartments in various buildings throughout New York City. (Affidavit of Jacob I. Sopher, ¶ 3). Prospective tenants visit the Exhibition Hall, discuss their rental requirements with a licensed real estate broker or salesperson, and, if they so desire, are escorted to various apartments. If and when an apartment is leased through Sopher's efforts, the tenant is charged a broker's fee pursuant to a written agreement. Id. at ¶ 4.

In addition to its activities as a broker of rental apartments, Sopher frequently has acted as the selling agent or managing agent in connection with the conversion of apartment buildings to cooperative ownership. Such conversions are regulated by the Attorney General pursuant to the Martin Act, New York General Business Law § 352 et seq.

On March 3, 1982, the Attorney General commenced a proceeding in the Supreme Court, New York County, entitled State v. Jacob I. Sopher and J.I. Sopher & Co., Inc. (Index No. 40812/82). The petition, consisting of twelve causes of action, involves claims that Sopher fraudulently collected improper commissions upon the rental of certain apartments, including those buildings which it managed, in violation of New York Executive Law § 63(12). The petition seeks injunctive relief and restitution of those brokerage fees allegedly improperly collected by Sopher.

Since the commencement of the state court proceeding against Sopher, the Attorney General has required that the pendency of that proceeding be disclosed in all offering plans for cooperative conversions in which Sopher is designated as the selling or managing agent.³ The Attorney General alleges that, with respect to all offering plans submitted for filing prior to March 31, 1982, such disclosure has been required pursuant to regulations codified in Title 13, New York Code of Rules and Regulations ("NYCRR"), Part 17. The Attorney General further alleges that, with respect to offering plans submitted after March 31, 1982, such disclosure has been required pursuant to newly issued regulations which are codified in 13 NYCRR, Part 18.

Sopher alleges that the disclosure requirement of 13 NYCRR § 17.2(b)(xx) is unconstitutional on its face under the Equal Protection Clause of the fourteenth amendment in that the regulation requires disclosure of only pending or "existing lawsuits" and does not require the disclosure of lawsuits which have been adjudicated. Therefore, Sopher contends, the regulation lacks a "rational basis" enabling it to withstand a fourteenth amendment challenge. Sopher further alleges that the Attorney General has selectively and discriminatorily enforced the disclosure requirement against Sopher, in violation of the Equal Protection Clause, and that the Attorney General, by requiring disclosure of the state court proceedings, is attempting to force Sopher to settle that lawsuit, in violation of the Due Process Clause of the fourteenth amendment.

III

In this Court a party seeking a preliminary injunction must make a clear showing of "(a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief." Sperry International Trade, Inc. v. Government of Israel, 670 F.2d 8, 11 (2d Cir.1982); Warner Bros., Inc. v. Gay Toys, Inc., 658 F.2d 76, 78-79 (2d Cir.1981). A preliminary injunction is an "extraordinary and drastic remedy which should not be routinely granted" except upon a clear showing that the movant has carried its heavy burden. Buffalo Forge Co. v. Ampco-Pittsburgh Corp., 638 F.2d 568, 569 (2d Cir.1981); Beech-Nut, Inc. v. Warner Lambert Co., 480 F.2d 801, 803 (2d Cir.1973). Moreover, where granting a preliminary injunction would adversely affect the "public interest for whose impairment, even temporarily, an injunction bond cannot compensate, the court may in the public interest withhold relief until a final determination of the rights of the parties, though the postponement may be burdensome to the plaintiff." Yakus v. United States, 321 U.S. 414, 440, 64 S.Ct. 660, 674, 88 L.Ed. 834 (1944); New York Pathological and X-Ray Laboratories, Inc. v. Immigration and Naturalization Service, 523 F.2d 79, 81 (2d Cir.1975). This court believes that plaintiffs' application for a preliminary injunction should be denied, since, regardless of whether irreparable harm has been demonstrated, plaintiffs have failed to meet the burden of demonstrating the last prong of this Circuit's preliminary injunction test.⁴

IV

The Equal Protection Clause commands that "all persons similarly circumstanced shall be treated alike." F.S. Royster Guano Co. v. Virginia, 253 U.S. 412, 415, 40 S.Ct. 560, 561, 64 L.Ed. 989 (1920). However, "the Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same." Tigner v. Texas, 310 U.S. 141, 147, 60 S.Ct. 879, 882, 84 L.Ed. 1124 (1940). The initial discretion to determine classifications resides with state legislatures and they "must have substantial latitude to establish classifications that roughly approximate the nature of the problem perceived, that accommodate competing concerns both public and private, and that account for limitations on the practical ability of the State to remedy every ill." Plyler v. Doe, ___ U.S. ___ at ___, 102 S.Ct. 2382 at 2394, 72 L.Ed.2d 786 (1982). Therefore, in applying the Equal Protection Clause "to most forms of state action, we ... seek only the assurance that the classification at issue bears some fair relationship to a legitimate public purpose." Id.

The standard of review, then, for state economic regulations such as those involved here,⁵ is whether there is a "rational basis" for the classification in question. Vance v. Bradley, 440 U.S. 93, 97, 99 S.Ct. 939, 942, 59 L.Ed.2d 171 (1979); New Orleans v. Dukes, 427 U.S. 297, 303, 96 S.Ct. 2513, 2516, 49 L.Ed.2d 511 (1976). This rational basis test requires that legislative action be rationally related to the accomplishment of a legitimate state purpose. First, the challenged legislation must have a legitimate public purpose based on promotion of the public welfare, health or safety. See, e.g., Rinaldi v. Yaeger, 384 U.S. 305, 309-10, 86 S.Ct. 1497, 1499, 16 L.Ed.2d 577 (1966). Second, the act taken must bear a rational relation to the end it seeks to further. "Put another way, a statutory classification such as this should not be overturned unless the varying treatment of different groups or persons is so unrelated to the achievement of any combination of legitimate purposes that we can only conclude that the legislature's actions were irrational." Barry v. Barchi, 443 U.S. 55, 67, 99 S.Ct. 2642, 2650, 61 L.Ed.2d 365 (1979), quoting Vance v. Bradley, supra, 440 U.S. at 97, 99 S.Ct. at 942. See, e.g., Griswold v. Connecticut, 381 U.S. 479, 505-07, 85 S.Ct. 1678, 1693, 14 L.Ed.2d 510 (1965) (White, J., concurring).⁶

Here, plaintiffs' Equal Protection Clause challenge involves certain Martin Act regulations. The Martin Act, New York General Business Law § 352 et seq, originally promulgated in 1921, is a "Blue Sky Law" whose purpose is to prevent all types of fraud in connection with the sale of securities and commodities and to defeat economically unsubstantial and visionary schemes in relation to sales whereby the public is fraudulently exploited. See, e.g., Charles H. Greenthal & Co., Inc. v. Lefkowitz, 32 N.Y.2d 457, 346 N.Y.S.2d 234, 299 N.E.2d 657 (1973). The Act is not directed primarily to the punishment of the offender or the regulation of private offerings, but rather to the protection of the public to a greater degree than the protection provided by an action for fraud. People v. Michael Glenn Realty Corp., 106 Misc.2d 46, 431 N.Y.S.2d 285 (N.Y.Sup.Ct.1980). Since the statute is considered remedial, rather than penal, in nature, it has generally been liberally construed. People v. Lexington Sixty-First Associates, 38 N.Y.2d 588, 381 N.Y.S.2d 836, 345 N.E.2d 307 (1976).

Section 352-e(1)(a) of the Act prohibits any person or association from offering for sale to the public securities consisting "primarily of participation interests or investments in...