State v. Metz

• Decision Date: 05 February 1997
• Parties: STATE of New York, Plaintiff, v. James T. METZ, Jr., et al., Defendants.
• Court: New York Supreme Court

Page 989

654 N.Y.S.2d 989

171 Misc.2d 525

STATE of New York, Plaintiff, v. James T. METZ, Jr., et al., Defendants.

Supreme Court, New York County.

Feb. 5, 1997.

Smith, Buss & Jacobs, New York City (Jeffrey D. Buss, of counsel), for Peterson Petroleum of New Hampshire, Inc., and another, defendants.

Dennis C. Vacco, Attorney-General, New York City (Kenneth DeMario and Harvey Feldmeier, of counsel), for plaintiff.

Garcia & Stallone, Melville (Karl Zamurs, of counsel), for James T. Metz, Jr., defendant.

Mulholland, Minion & Roe, Williston Park (Margaret C. Reilly, of counsel), for Alicia H. Metz and others, defendants.

Pryor & Mandelup, L.L.P., Westbury (Eric J. Snyder, of counsel), for Huntington & Kildare, Inc., defendant.

DAVID B. SAXE, Justice.

The key question posed by the motions before the court, which appears to be one of first impression, is whether testimonial evidence properly--but unilaterally--obtained by the State Attorney General's office may serve as the basis for a summary judgment motion despite the CPLR's requirement that a person against whom deposition testimony is used must have been afforded the opportunity to be present or represented at the deposition (CPLR 3117[a][3] ). As discussed below, this court finds plaintiff may use such evidence as a shield but not as a sword (contrast CPLR 3117[a][1] and 4514 with 3117[a][3] ).

This is an action brought pursuant to the Martin Act (General Business Law [GBL] Article 23-A) with respect to two residential cooperatives, Maplewood Gardens Apartment Corporation ("Maplewood") and Rockville Tudor Apartment Corporation ("Rockville") in which many of the same individuals were involved. This litigation primarily involves Maplewood. Rockville was the subject of another action brought in this court (State of New York v. Alicia H. Metz, Index No. 404966/93).

The Attorney General's Office (the "AG") conducted an investigation into the issuance, sale and negotiation of securities (shares) of Maplewood and Rockville. In the course of discharging its statutory duties pursuant to GBL sections 352 and 354, the AG, on behalf of plaintiff, questioned under oath various individuals, some of whom are individual defendants in this action and some of whom are non-parties. As a result of its investigation and these examinations, the AG concluded that defendants, members of the Metz family and business entities associated with them, should be removed from the securities industry in New York and that Maplewood, Rockville and the families defrauded by defendants should be compensated.

To achieve this objective, plaintiff brought this action and the Rockville action. When plaintiff moved for summary judgment, defendants Peterson Petroleum of New Hampshire, Inc. and Two Lincoln Advisory Services, Inc., s/h/a Two Lincoln Advisory Corporation (collectively, "Lincoln" or "movants"), moved to preclude plaintiff from relying in a summary judgment motion upon certain depositions and documents (collectively, the "ex parte evidence") obtained by plaintiff pursuant to GBL §§ 352 and 354. Defendants Alicia H. Metz, Kathryn Metz and Lauren Metz Simon (collectively, the "Metzes") cross-move for the same relief sought by Lincoln, and to preclude plaintiff from using any evidence sought in the Metzes' outstanding discovery demands.

Contending that plaintiff is not acting in good faith, movants also seek the appointment of a special referee to help the parties negotiate the final stages of a settlement.

Plaintiff cross-moves for an order deeming movants' application their answer to its summary judgment motion and imposing sanctions pursuant to CPLR 2214 and 22 NYCRR subpart 130-1. Plaintiff's motion for summary judgment has been stayed pending decision of this motion.

The Martin Act was enacted in "an era of unprecedented industrialism [which] presented rare opportunities for the exploitation of nefarious schemes at the expense of an uninformed public" (People v. Federated Radio Corporation, 216 App.Div. 250, 251, 214 N.Y.S. 670 [2d Dept.1926], affd. 244 N.Y. 33, 154 N.E. 655 [1926] ) "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" (People v. Federated Radio Corporation, 244 N.Y. 33, 38, 154 N.E. 655 [1926], citing Hall v. Geiger-Jones Co., 242 U.S. 539, 37 S.Ct. 217, 61 L.Ed. 480 [1917] ). To further this goal, the Act "provides ( § 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 authorizes him ( § 353) to bring suit to enjoin persons and corporations from engaging therein and ( § 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" (People v. Federated Radio Corporation, 244 N.Y. 33, 37-38, 154 N.E. 655 [1926] ).

The material which movants seek to strike, pages 689 through 2405 of the appendix to the affidavit in support of plaintiff's summary judgment motion, comprises 17 excerpts from deposition transcripts (the "transcripts") and various documents (the "documentary evidence"). Simply put, movants contend that since the ex parte evidence is inadmissible at trial it cannot serve as the basis for an affirmative grant of summary judgment in plaintiff's favor. The case of Matter of Beiny [Wynyard], 129 A.D.2d 126, 517 N.Y.S.2d 474, rearg. den. sub nom. Matter of Beiny, 132 A.D.2d 190, 522 N.Y.S.2d 511, app. dism. 71 N.Y.2d 994, 529 N.Y.S.2d 277, 524 N.E.2d 879, on which Lincoln primarily relies, is not on point. In that case, the material sought to be suppressed had been clandestinely and improperly obtained, whereas here there is no question that plaintiff had the right to procure the ex parte evidence. Movants concede that the AG has the authority to obtain information ex parte in aid of its investigatory powers (GBL §§ 352 and 354), but argue it cannot abuse that authority to the derogation of the CPLR.

The right of cross-examination goes beyond the CPLR; it is fundamental to our system of justice. Were this case to go to trial plaintiff would have to put its witnesses on the stand for defendants to cross-examine them under oath if they wish. When deposition transcripts are used in a motion for summary judgment, they are used as a substitute for the witness (see Feldsberg v. Nitschke, 49 N.Y.2d 636, 644, 427 N.Y.S.2d 751, 404 N.E.2d 1293 [1980], rearg. den. 50 N.Y.2d 1059, 431 N.Y.S.2d 1031, 410 N.E.2d 760 [1980] ), which is why the CPLR provides that depositions must be conducted on notice so both parties can have the option of exercising their right to cross-examine witnesses (CPLR 3117[a][3] ). If a party is afforded the option of cross-examining a witness but chooses to not exercise it, it cannot later object to use of the testimony (see Berfond v. Home Lines Inc., 35 Misc.2d 348, 232 N.Y.S.2d 409 [App.Term, 1st Dept.1961] ). However, to allow plaintiff to use as the basis of its summary judgment motion testimony of witnesses whom defendants have not been given the right to cross-examine would give plaintiff an advantage that it would not have at trial. This cannot be permitted.

Summary judgment is a procedural device to accelerate judgment by eliminating the trial stage when the only issues to be resolved are questions of law, and it is the functional equivalent of a trial (S.J. Capelin Associates, Inc. v. Globe Manufacturing Corp., 34 N.Y.2d 338, 357 N.Y.S.2d 478, 313 N.E.2d 776 [1974] ). Thus, at the very minimum the evidence presented to the court on a summary judgment motion has to be evidence that would be admissible at trial (Zuckerman v. City of New York, 49 N.Y.2d 557, 562, 427 N.Y.S.2d 595, 404 N.E.2d 718 [1980] ). While the court may apply a lesser standard to a party opposing summary judgment by raising a question of fact, the proponent of the motion must be held to trial standards (Raybin v. Raybin, 15 A.D.2d 679, 224 N.Y.S.2d 165 [2d Dept.1962] ).

Plaintiff argues that the General Business Law provides it with an alternative method of obtaining testimony and since the ex parte evidence was properly obtained through a...