State v. Metz

• Decision Date: 14 April 1998
• Citation: 671 N.Y.S.2d 79,241 A.D.2d 192
• Parties: , 1998 N.Y. Slip Op. 3356, 1998 N.Y. Slip Op. 3357 STATE of New York, Plaintiff-Appellant, v. Alicia H. METZ, et al., Defendants-Respondents, and Douglas C. Metz, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

Page 79

671 N.Y.S.2d 79

241 A.D.2d 192, 1998 N.Y. Slip Op. 3356,

1998 N.Y. Slip Op. 3357

STATE of New York, Plaintiff-Appellant, v. Alicia H. METZ, et al., Defendants-Respondents, and Douglas C. Metz, et al., Defendants.

Supreme Court, Appellate Division,

First Department.

April 14, 1998.

Gary R. Connor, New York City, of counsel (Harvey Feldmeier, on the brief, Dennis C. Vacco, attorney), for plaintiff-appellant.

Margaret C. Reilly, Willston Park, of counsel (Mulholland, Minion & Roe, attorneys), for defendants-respondents Alicia H. Metz, Lauren Metz and Kathryn Metz Simon.

Jeffrey D. Buss, New York City, of counsel (Smith, Buss & Jacobs, L.L.P., attorneys), for defendants-respondents Peterson Petroleum and Two Lincoln Advisory Services.

Karl Zamurs, Melville, of counsel (Michael Jenks, on the brief, Garcia & Stallone, attorneys), for defendant-respondent James T. Metz, Jr.

Before ROSENBERGER, J.P., and NARDELLI, WALLACH and ANDRIAS, JJ.

ANDRIAS, Justice.

In this Martin Act case involving alleged fraudulent statements made in connection with the sponsorship of two cooperative apartment complexes, the issue presented by the parties is whether the State may use, in support of its motion for partial summary judgment, certain depositions and documents previously obtained by it during its investigation pursuant to §§ 352 and 354 of the Act (General Business Law Article 23-A).

Based upon information brought to his attention regarding the cooperative conversion of two apartment complexes in Rockville Centre, New York, of which defendants James T. Metz, Jr. and Douglas C. Metz were the sponsors, the Attorney General initiated an investigation in 1990 pursuant to his powers under General Business Law § 352. The two complexes, Maplewood Gardens Apartment Corporation and Rockville Tudor Apartment Corporation, ¹ were owned and managed by corporations controlled by various members of the Metz family as was the corporation offering financing for the conversion.

The investigation focused upon, among other things, allegations of false statements made in the offering plan. General Business Law § 352(1) and (2) authorizes the Attorney General to investigate such allegations and to require the submission of "statement[s] in writing under oath" and "data and information" he deems relevant to his inquiry, as well as to subpoena witnesses, examine them under oath and require the production of documents. Failure to obey a subpoena, without reasonable cause, can result in a misdemeanor prosecution ( § 352[4] ).

In response to the Attorney General's initial inquiry into events surrounding the two cooperative conversions, Alicia H. Metz, the president of defendant Huntington and Kildare, Inc., which owned more than 80% of the unsold shares of the Maplewood Gardens Apartment Corporation as well as defendant Two Lincoln Advisory Services, and defendant Bechtoldt Corporation, the managing agent for the conversion, her father James T. Metz, Jr., one of the sponsors, and Howard Bodner, the attorney for the sponsors, testified and produced documents. At the beginning of each examination the witnesses were advised by an Assistant Attorney General that anything they said or any documents they produced could be used against them in a legal proceeding; they were also advised of their right to invoke their privilege against self-incrimination and that any willful misstatement could constitute perjury. Further, witnesses were informed that they could have an attorney present if they so chose. Each explicitly acknowledged that he or she understood their rights. In addition, witnesses who are not parties to this action, such as Robert Galluscio, an accountant for the Maplewood Gardens Apartment Corporation, testified under oath pursuant to subpoena and produced documents as requested. Shareholders of the cooperative corporations who had allegedly been defrauded also testified.

As the investigation progressed and he determined to commence this action to permanently enjoin defendants from offering or selling real estate securities, the Attorney General sought and obtained a Supreme Court order, pursuant to General Business Law § 354, directing James T. Metz, Jr., Douglas C. Metz, Maplewood Gardens Realty, Alicia H. Metz, Lawrence McGowan, the Bechtoldt Corporation, Huntington and Kildare, Inc., Peterson Petroleum of New Hampshire, Inc., Two Lincoln Advisory Corp and Howard Bodner to appear before a Justice or Referee on November 15, 1993 to testify and to produce documents. The order also enjoined them from further sales at the Maplewood Gardens cooperative, from conveying any interests in the premises to others and from spending funds of the cooperative (except with certain approvals from non-sponsor directors). Beginning in November 1993, testimony of various respondents was taken over the course of several months.

The Attorney General commenced this action on September 13, 1994, pursuant to General Business Law § 353, seeking, among other things, to permanently enjoin the defendants from engaging in the public offer of real estate securities within and from the State of New York and restitution and damages for injured shareholders of the two cooperatives.

Answers were submitted by all the defendants except defendant Cobble Ponds Farms, Inc. and generally assert various denials and raise affirmative defenses such as failure to name necessary parties, lack of sufficient information to answer the allegations and the Statute of Limitations.

On December 29, 1995, the State moved for partial summary judgment against most of the defendants on its first, second, third, fifth, sixth, seventh, eighth, ninth, tenth, eleventh, twelfth, fifteenth, sixteenth and twentieth causes of action, seeking a judgment permanently enjoining them from engaging in the public offer of real estate securities within and from the State of New York, the voiding of a $1,500,000 note entered into by defendant Alicia H. Metz on behalf of the Maplewood Gardens cooperative, an injunction enjoining the defendants from controlling or managing any cooperative interests in realty, a hearing on the issue of damages and restitution and severance of all other causes of action for trial.

Defendants Alicia H. Metz, Kathryn Metz and Lauren Metz Simon and defendants Peterson Petroleum of New Hampshire, Inc. and Two Lincoln Advisory Services, Inc., both of which are owned by Huntington & Kildare and neither of which conducted any discovery in the action, rather than opposing the motion on its merits, cross-moved separately to preclude the Attorney General from relying upon or submitting to the court pages 689 to 2405 of the appendix the State had annexed to its motion for partial summary judgment, which consisted of deposition testimony and documents obtained during the Attorney General's Martin Act investigation.

The defendants' rationale was that this matter would and should be settled and that, in the interests of judicial economy, the court and defense counsel should not have to read and analyze approximately 1800 pages of documents offered in support of the motion for partial summary judgment, which would, as a matter of law, be inadmissible to support a motion for summary judgment. They asserted that the documents constituted "ex parte depositions" and documents obtained in connection with those "depositions" and contended that absent compliance with the Civil Practice Law and Rules notice provisions and the right to cross-examine, the documents could not be used. Thus, it was argued, such material should be precluded from use by the State to support its summary judgment motion. In addition, the defendants sought a stay of the motion for partial summary judgment and the appointment of a referee to negotiate a settlement of the case. A temporary restraining order was issued tolling the defendants' time to answer the State's motion for partial summary judgment, even though the defendants had already defaulted in answering the State's motion.

In what it characterized as a case of first impression, the motion court, in permitting use of the documentary evidence but precluding the use of the deposition testimony, found, inter alia, that there is nothing in the Martin Act that provides that material obtained pursuant to General Business Law §§ 352 and 354 may be used as the basis of a summary judgment motion or even as trial evidence in lieu of CPLR-prescribed depositions. In addition to precluding the use of the Martin Act depositions, the court appointed a judicial hearing officer "to assist the parties in either mediating their differences or formulating a discovery plan" (171 Misc.2d 525, 530, 654 N.Y.S.2d 989).

We disagree and modify accordingly.

The State is entitled to have its summary judgment motion resolved on its merits. There is simply no provision in CPLR 3212, governing motions for summary judgment, for either defendants' cross-motions to preclude or the relief granted by the motion court. Furthermore, by focusing on the provision governing the use of depositions at trial and hearings (CPLR 3117), rather than on the provision enumerating the types of proof allowable in support of a motion for summary judgment (CPLR 3212[b] ), the court erroneously determined that the Martin Act depositions may not be used in support of a motion for summary judgment.

CPLR 3212(b) outlines the court's options when one or more of the parties makes a motion for summary judgment. It provides that, except where the court, when appropriate for the expeditious disposition of the controversy, orders an immediate trial of factual issues raised by the motion, the court has only two options: it shall grant the motion if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court in directing judgment in favor of any party as a matter of law; or, it shall deny the motion if any party shall show facts sufficient to...