State v. Danny's Franchise Systems, Inc.

• Decision Date: 22 June 1987
• Citation: 517 N.Y.S.2d 157,131 A.D.2d 746
• Parties: STATE of New York, Respondent, v. DANNY'S FRANCHISE SYSTEMS, INC., et al., Appellants.
• Court: New York Supreme Court — Appellate Division

Page 157

517 N.Y.S.2d 157

131 A.D.2d 746

STATE of New York, Respondent, v. DANNY'S FRANCHISE SYSTEMS, INC., et al., Appellants.

Supreme Court, Appellate Division,

Second Department.

June 22, 1987.

Snow, Becker, Kroll, Klaris & Krauss, P.C., New York City (Paul C. Kurland and

Joan M. Secofsky, of counsel), for appellants Danny's Franchise Systems, Inc., Daniel Lieberman and RDL Cheese, Inc.

Taylor, McCullough, Goldberger & Geoghegan, White Plains (Charles A. Bradley, of counsel), for appellant Matlin.

Robert Abrams, Atty. Gen., New York (Orestes J. Mihaly and William H. Mohr, of counsel), for respondent.

Before MANGANO, J.P., and NIEHOFF, SPATT and HARWOOD, JJ.

MEMORANDUM BY THE COURT.

In an action, inter alia, to enjoin a violation of the provisions of the Franchise Sales Act (General Business Law article 33), the defendants appeal from an order of the Supreme Court, Westchester County (Gurahian, J.), entered October 7, 1986, which denied their respective motions to dismiss the complaint on the ground that the action is barred by the Statute of Limitations.

ORDERED that the order is affirmed, with one bill of costs payable by the defendants appearing separately and filing separate briefs.

The Attorney-General commenced the instant action on or about January 13, 1986. The complaint alleges that the defendants engaged in numerous instances of misconduct which were in violation of the Franchise Sales Act (General Business Law § 680, et seq.) and the regulations promulgated thereunder (13 NYCRR part 200). There is no dispute that the acts complained of occurred more than three and less than six years prior to the commencement of the action.

The defendants moved to dismiss the complaint, contending that the action was barred by the three-year Statute of Limitations for actions to "recover upon a liability, penalty or forfeiture created or imposed by statute" (CPLR 214). The Attorney-General argued that the action is governed by the six-year Statute of Limitations for actions based on fraud (CPLR 213). The Supreme Court, Westchester County, held that the six-year Statute of Limitations applied. We agree.

CPLR 214(2) only governs liabilities which would not exist but for a statute (Aetna Life & Cas Co. v. Nelson, 67 N.Y.2d 169, 501 N.Y.S.2d 313, 492 N.E.2d 386; State of New York v. Cortelle Corp., 38 N.Y.2d 83, 378 N.Y.S.2d 654, 341 N.E.2d 223). Furthermore, it does not apply to liabilities existing at common law which have been recognized or implemented by statute (State of New York v. Cortelle Corp., supra ).

In State of New York v. Cortelle Corp., supra, the Court of Appeals considered whether an action by the Attorney-General pursuant to Business Corporation Law § 1101 and Executive Law § 63 was barred by the three-year Statute of Limitations. The court held that it was not barred, because those statutes "did not 'make' unlawful the alleged fraudulent practices, but only provided standing in the Attorney-General to seek redress and additional remedies for recognized wrongs which pre-existed the statutes" (State of New York v. Cortelle Corp., supra at 85, 378 N.Y.S.2d 654, 341 N.E.2d 223).

In Loengard v. Santa Fe Indus., 573 F.Supp. 1355, the United States District Court for the Southern District of New York, dealt directly with whether the Martin Act (General Business Law § 352 et seq.) was governed by the three-year Statute of Limitation provided in CPLR 214(2). The court, in inferring what this State's highest court would rule to be its law, cited Cortelle Corp. and found that "the evident basis for plaintiffs' first claim is fraud. Fraud existed at common law and is not a liability created by statute; a six-year statute of limitations therefore should be applied to the Martin Act claims" (Loengard v. Santa Fe Indus., supra, at 1359).

The Franchise Sales Act (General Business Law...