N.Y. General Business Law § 689: Action by the department of law

§ 689. Action by the department of law. 1. Whenever the department

shall believe from evidence satisfactory to it that any person has

engaged in or is engaged in or is about to engage in any practice or

transaction heretofore referred to as and declared to be an unlawful or

a fraudulent practice, it may bring an action in the name and on behalf

of the people of the state of New York against such person and any other

person theretofore concerned in or in any way participating in such

unlawful or fraudulent practice, to enjoin such person or persons from

continuing such unlawful and fraudulent practice or engaging therein or

doing any act or acts in furtherance thereof or, if the department

should believe from such evidence that such person actually has or is

engaged in any such unlawful or fraudulent practice, it may include in

such action an application to enjoin permanently such person and such

other person as may have been or may be concerned with or in any way

participating in such unlawful or fraudulent practice, from selling or

offering for sale within or from this state as franchisor, franchise

sales agent, franchise salesman, or a principal thereof, any franchise

offered or to be offered or sold, or from continuing any such practice.

In said action an order or a judgment may be entered awarding the relief

applied for or so much thereof as the court may deem proper. Upon a

showing by the department in its application for a permanent injunction

hereunder that the defendant named in the action or an officer thereof

has refused to be sworn or to be examined or to answer a material

question or to produce a book or paper relevant to the inquiry when duly

ordered to do so by the officer or judge duly conducting an inquiry into

the subject matter forming the basis of the application for such

injunction, such refusal shall be prima facie proof that such defendant

is or has engaged in an unlawful or fraudulent practice as set forth in

such application and a permanent injunction may issue from the supreme

court without further showing by the department. In an action brought

under this section the court may award to the plaintiff a sum not in

excess of ten thousand dollars for each defendant as an additional

allowance.

2. Upon a showing by the department, in an application for an

injunction, that any person engaged in the offer or sale of a franchise

in this state has ever been convicted by a court of competent

jurisdiction in any state or county of any felony or of any other

criminal offense by any such court, whether or not constituting a

felony, involving franchises, securities or subdivided land, the supreme

court after a hearing may issue a permanent injunction awarding the

relief applied for, or so much thereof as the court may deem proper,

against such person shown to have been so convicted, in the form and

manner provided for in subdivision one of this section in the case of

one who actually has or is engaged in any unlawful or fraudulent

practice.

3. If a franchise is offered or sold within the state of New York by a

non-resident person and such non-resident person has not filed pursuant

to laws heretofore or hereafter existing the designation of a person

upon whom process against him or it may be served or the designation of

the secretary of state as such person, pursuant to section thirteen

hundred four of the business corporation law or other laws heretofore or

hereafter existing, or in lieu thereof, an instrument in writing duly

acknowledged and filed in the office of the secretary of state

designating the secretary of state as the person upon whom may be served

any subpoena, subpoena duces tecum or other process directed to such

non-resident person and issued in any investigation, examination or

proceeding pending or about to be instituted under and pursuant to the

provisions of this article, the department may serve a notice upon such

non-resident person by mailing the same in a securely sealed postpaid

wrapper addressed to such non-resident person at its or his last known

place of business or residence, and may in such notice require that such

non-resident person furnish a written statement under oath, as required

in said notice, giving the information therein specified relating to the

franchise offered, to be offered or sold in the state of New York by

such non-resident person or, in the alternative, that such non-resident

person shall appear within a reasonable time from the date of mailing

such notice at a designated place within this state for examination and

shall produce at the time and place of such examination such books and

papers of such non-resident person as may be designated in such notice.

If such non-resident person shall fail to appear pursuant thereto or

to produce the books and papers required thereby to be produced, or

shall refuse to submit to examination or to answer any proper question,

the proof of such failure or refusal shall constitute prima facie

evidence that the offer or sale of a franchise by such non-resident

person constitutes a fraudulent practice and may in the discretion of

the court be treated as a sufficient basis for a permanent injunction

against the continuance of such fraudulent practice.

4. In any action brought by the department as provided in this

article, the court at any stage of the proceedings may appoint a

receiver of any and all property derived by the defendant or defendants

or any of them by means of any such unlawful or fraudulent practice,

including also all property with which such property has been commingled

if such property cannot be identified in kind because of such

commingling, together with any or all books of account and papers

relating to the same. The judgment entered in such action may provide

that such receiver shall take title to any or all such property and

books of account and papers relating to the same and liquidate such

property or any part thereof for the benefit of all persons intervening

in the said action and establishing an interest in such property. The

judgment may also provide that all such property, the title to or

interest in which has not been established in such action by intervenors

or otherwise by due process to be in a person or persons other than

defendant or defendants, shall be returned to the defendant or

defendants as their interest may appear. Such receiver shall be subject

to all the duties of receivers in civil actions as far as practicable

except that such provisions relating to commissions or compensation of

receivers shall not be applicable to receivers appointed pursuant to

this section, but such commissions or compensations shall be fixed by

the court in any amount which it may determine to be just and equitable.

In any action brought by the department as provided in this article the

court may grant such other and further relief as may be proper.

5. Whenever the department has determined to commence an action under

this article, it may present to any justice of the supreme court, before

beginning such action, an application in writing for an order directing

the person or persons mentioned in the application to appear before the

justice of the supreme court or referee designated in such order and

answer such questions as may be put to them or to any of them, or to

produce such papers, documents and books concerning the alleged unlawful

or fraudulent practices to which the action which the department has

determined to bring relates, and it shall be the duty of the justice of

the supreme court to whom such application for the order is made to

grant such application. The application for such order may simply show

upon information and belief that the testimony of such person or persons

is material and necessary. The provisions of the civil practice law and

rules, relating to an application for an order for the examination of

witnesses before the commencement of an action and the method of

proceeding on such examination, shall not apply except as herein

prescribed. The order shall be granted by the justice of the supreme

court to whom the application has been made with such preliminary

injunction or stay as may appear to such justice to be proper and

expedient and shall specify the time when and place where the witnesses

are required to appear. The justice or referee may adjourn such

examination from time to time and witnesses must attend accordingly. The

testimony of each witness must be subscribed by him and must be filed in

the office of the clerk of the county in which such order for

examination is filed.

6. The order for such examination must be signed by the justice making

it, and service of a copy thereof with an endorsement by the department

to the effect that the person named therein is required to appear and be

examined at the time and place before the justice and referee specified

in such endorsement, shall be sufficient notice for the attendance of

witnesses. Such endorsement may contain a clause requiring such person

to produce at such examination all books, papers and documents in his

possession or under his control relating to the subject of such

examination. The order shall be served upon the person named in the

endorsement aforesaid by delivering to and leaving with it or him a

certified copy thereof, endorsed as above provided, subject to the

payment of witness fees and mileage as and when provided to be paid by

paragraph (b) of subdivision four of section six hundred eighty-eight of

this article in connection with attendance pursuant to subpoenas

authorized to be issued under said section. Service of such an order may

also be served under section six hundred eighty-six of this article in

cases falling thereunder.

7. The referee appointed as provided in this article possesses all the

powers and is subject to all the duties of a referee appointed in a

civil action, so far as practicable, and may punish for contempt a

witness duly served with the papers as prescribed in this article for

non-attendance or refusal to be sworn or to testify or to produce books,

papers and documents according to the direction of the endorsement

aforesaid in the same manner and to the same extent as a referee to

hear, try and determine an issue of fact or law.

8. Any person against whom a permanent injunction has been granted

under the provisions of this article may apply to the supreme court at

any time upon at least sixty days notice to the department for an order

dissolving such injunction or modifying the same upon such terms and

conditions as the court deems necessary or desirable. Such application

for dissolution or modification of such injunction shall contain a

recitation of the facts and circumstances which caused the granting of

the injunction; the occupation and employment of the person making the

application and his financial remuneration therefrom since the time the

injunction was granted; his net worth at the time of the application and

the source thereof; together with any other facts bearing upon the

reasonableness of the application and the character of the applicant as

may enable the court to issue an order that will properly dispose of

such application in the interest of justice. A copy of such application

together with copies of any other papers in support thereof shall be

served upon the department at least sixty days prior to the return date

thereof. In addition thereto the applicant shall file with the court a

good and sufficient surety bond in the sum of one thousand dollars

guaranteeing that he will pay all costs and expenses of an investigation

by the department of such applicant and the statements and claims

alleged in the application together with any further investigation which

the department may deem necessary or desirable to determine whether it

should consent to the application, oppose the same, or make such other

recommendations to the court as in its opinion are desirable to be

included in any modification of such injunction. Should it appear in the

course of such investigation by the department that said sum is not

sufficient, the department may apply to the court by usual notice of

motion or order to show cause for an increase in the amount of security

or further surety bond necessary to fully pay all of the costs of the

investigation and the court may require such further bond as the

situation requires to fully pay the costs and expenses of the

investigation. Upon the completion of such investigation, the department

may file an answer to such application setting forth such facts as are

pertinent to the determination by the court of the matter before it and

whether said injunction should be dissolved, modified or continued in

whole or in part and what conditions, if any, shall be attached to any

dissolution or modification of said injunction. After a hearing upon

such application and after any further investigation, proof or testimony

which the court may desire has been offered, or at any adjourned dates

thereof, the court may make a final order dissolving the permanent

injunction or modifying the same upon such terms and conditions as in

its opinion are just and desirable, or in its discretion may deny the

application. Such order shall contain a direction that the applicant pay

to the department the costs and expenses of the investigation in

connection with the proceeding, and any judgment entered thereon may be

enforced directly against the surety on the bond. The court shall grant

no temporary or other relief from the injunction in force pending a

final determination of such application. No application under this

subdivision shall be entertained:

(a) in any case where the applicant has been convicted of a felony or

a crime that would be a felony if committed in the state of New York

since the issuance of the injunction, nor

(b) in any case where the injunction was granted incident to a felony,

or the applicant has been convicted at any time of any felony involving

franchises which are the subject matter of this article. Nor shall

anything contained in this subdivision be construed to deny to or

interfere with the power of the department to bring any other action or

proceeding, civil or criminal, against the applicant at any time.

9. The provisions of the civil practice law and rules shall apply to

all actions brought under this article except as herein otherwise

provided.