author: Chief Judge Wachtler. Alexander, J.

text:
    The People of the State of New York, by Robert Abrams, as Attorney-General of the State of New York, Respondent, v Two Wheel Corp., Doing Business as Honda-Yamaha of Mineola, et al., Appellants.
    Argued March 21,1988;
    decided April 28, 1988

      POINTS OF COUNSEL

      Allen J. Rothman and Jessel Rothman for appellants.
    I. The decision of the court below should be reversed because it erroneously found that section 396-r applies to electric generators. (Finger Lakes Racing Assn. v New York State Racing & Wagering Bd., 58 AD2d 285, 45 NY2d 471.) II. Even if section 396-r applies to generator sales, the court below erred in affirming the Supreme Court’s judgment against Two Wheel. (Matter of State of New York v ITM, Inc., 52 Misc 2d 39; Jones v Star Credit Corp., 59 Mise 2d 189; Von Lehn v Astor Art

      Galleries, 86 Misc 2d 1; Matter of Albano v Kirby, 36 NY2d 526; Motor Vehicle Acc. Indent. Corp. v Eisenberg, 18 NY2d 1; Matter of Meyer, 209 NY 386; Surace v Danna, 248 NY 18; United States v Harriss, 347 US 612; Lanzetta v New Jersey, 306 US 451; United States v Matthews, 787 F2d 38.) III. Assuming the court affirms that Two Wheel violated section 396-r, it should modify the judgment below with respect to the method of restitution.

      Robert Abrams, Attorney-General (Elizabeth Bradford and O. Peter Sherwood of counsel), for respondent.
    I. Electric generators are consumer goods within the meaning of the statute. (We’re Assocs. Co. v Cohen, Stracher & Bloom, 65 NY2d 148.) II. The Attorney-General made out a prima facie case that appellants’ price increases were unconscionably excessive as a matter of law. III. Appellants were not entitled to a hearing on their purported cost justifications. (State of New York v Princess Prestige Co., 42 NY2d 104; State of New York v Daro Chartours, 72 AD2d 872; Matter of Lefkowitz v McMillen, 57 AD2d 979, 42 NY2d 807; State of New York v Management Transition Resources, 115 Misc 2d 489; Matter of State of New York v Waterfine Water Conditioning Co., 87 Misc 2d 18; Matter of State of New York v Scottish-American Assn., 52 AD2d 528, 39 NY2d 1033; Matter of State of New York v Hotel Waldorf-Astoria Corp., 67 Misc 2d 90.) IV. General Business Law § 396-r does not violate the Due Process Clause of the Fifth Amendment. (Grayned v City of Rockford, 408 US 104; United States v National Dairy Corp., 372 US 29; Matter of State of New York v Strong Oil Co., 105 Misc 2d 803, 87 AD2d 374; Hoffman Estates v Flipside, Hoffman Estates, 455 US 489; Cotton States Mut. Ins. Co. v Anderson, 749 F2d 663; Planned Parenthood v State of Ariz., 718 F2d 938; Exxon Corp. v Busbee, 644 F2d 1030, cert denied sub nom. Exxon Corp. v Georgia Assn. of Petroleum Retailers, 454 US 932; Old Dearborn Co. v Seagram Corp., 299 US 183; Bandini Co. v Superior Ct., 284 US 8.) V. The restitution mechanism created by the judgment is lawful and equitable. (State of New York v Midland Equities, 117 Misc 2d 203; Matter of State of New York v Bevis Indus., 63 Misc 2d 1088; State of New York v Bel Fior Hotel, 95 Misc 2d 901.)
   OPINION OF THE COURT

Chief Judge Wachtler.

This appeal requires us to consider several aspects of New York’s price-gouging statute (General Business Law § 396-r), which prohibits merchants from charging unconscionably excessive prices for essential consumer goods during disruptions in the market caused by such forces as strikes, power failures, weather conditions and other emergencies.

Respondent Two Wheel Corp., through its division, Honda-Yamaha of Mineóla, is a retailer of portable electric generators; respondent Morris Zegarek is president of the corporation. The Attorney-General initiated this proceeding pursuant to the enforcement powers granted by General Business Law § 396-r (4) and Executive Law § 63 (12), alleging that respondents violated the price-gouging prohibition following Hurricane Gloria, which left much of Long Island without electrical power between September 27 and October 8, 1985.

The petition charged that, beginning on September 26, in anticipation of the storm, and continuing through October 5, respondents sold approximately 100 generators at inflated prices ranging from 4% to 67% over the "base prices” for those models. Respondents did not deny either the sales or the price disparities. They argued, however, that generator sales were not governed by the price-gouging statute. In addition, they contended that the price increases were justified by increased freight and labor costs and various business risks associated with the sales, such as the possibility that customers might cancel their orders if power were restored before the generators were delivered, leaving respondents with a large inventory.

Supreme Court denied respondents’ request for a hearing, concluding that no factual issues had been raised, and granted the relief sought in the petition. In pertinent part, respondents were ordered to pay a civil penalty of $5,000, to make restitution to 13 consumers who had submitted affidavits in support of the petition, and to establish a $20,000 restitution fund for other consumers who purchased generators from respondents during the period for any amount exceeding the base price. The Appellate Division affirmed (128 AD2d 507) and we granted leave. We affirm, but for reasons which differ from those given by the trial court and the Appellate Division.

The substance of the price-gouging prohibition is found in subdivision (2) of General Business Law § 396-r: "During any abnormal disruption of the market for consumer goods and services vital and necessary for the health, safety and welfare of consumers, resulting from stress of weather, convulsion of nature, failure or shortage of electric power or other source of energy * * * no merchant shall sell or offer to sell any such consumer goods or services for an amount which represents an unconscionably excessive price.” Consumer goods and services are defined as "those used, bought or rendered primarily for personal, family or household purposes”.

At the outset, we note that respondents’ argument that the statute is void for vagueness was not raised in their answer to the petition or in any other submission to the trial court. Accordingly, that argument is not preserved for our review (see, e.g., Matter of Barbara C., 64 NY2d 866).

Respondents also argue, however, as they did in the lower courts, that electric generators are not vital and necessary for the health, safety and welfare of consumers and, therefore, the price-gouging prohibition does not apply to the sales in question. We cannot agree. The affidavits in support of the petition illustrate that, for many consumers, electrical power is a necessity, not a mere convenience. For example, one consumer bought a generator from respondents to power a nebulizer to treat her 41A-year-old son who suffers from chronic asthma. Others suffered from health problems that made it difficult for them to venture out repeatedly to buy fresh food or ice. Electricity to power their refrigerators and freezers was necessary within the meaning of the statute.

Furthermore, the statute provides its own evidence that electricity is considered by the Legislature to be essential: "failure or shortage of electric power” is prominent among the calamities that trigger the price-gouging prohibition. If a power failure or shortage is the cause of a market disruption, the purchase of a generator is precisely the kind of transaction that the statute was designed to regulate. The situation is ripe for overreaching by the merchant, who enjoys a temporary imbalance in bargaining power by virtue of an abnormal level of demand, in terms of both the number of consumers who desire the item and the sense of urgency that increases that desire. We agree with the lower courts that these generator sales were within the reach df the statute.

Respondents also contend that the prices charged were not unconscionably excessive. They note that, for some of the sales during the period, the sales price exceeded the base price by less than 5%; for others the differential fell between 5 and 15%. In fact, in the vast majority of the sales, the prices were inflated by less than 30%. In only five sales, according to the Attorney-General’s figures, did the disparity reach as high as 60%. Even if some of the prices can be considered unconscionably excessive, they claim, others are clearly not, and they should not be required to make restitution to all consumers who were charged more than the base price.

To support their argument, respondents point to General Business Law § 396-r (3), which provides in essence that evidence of a "gross disparity” between the sales price at the time of the market disruption and the price charged before the disruption is prima facie proof of price gouging. From this provision and case law applying the unconscionability standard of the Uniform Commercial Code (UCC 2-302), respondents argue that the Legislature intended the price-gouging statute to apply only to extremely large price increases and that, accordingly, the majority of their sales did not offend the price-gouging prohibition.

Respondents’ argument places undue emphasis on the "gross disparity” language of subdivision (3), treating it as a definition of price gouging. But the provision is procedural rather than definitional; it simply establishes a means of providing presumptive evidence that the merchant has engaged in price gouging. A showing of a gross disparity in prices, coupled with proof that the disparity is not attributable to supplier costs, raises a presumption that the merchant used the leverage provided by the market disruption to extract a higher price. The use of such leverage is what defines price gouging, not some arbitrarily drawn line of excessiveness.

Furthermore, the term "unconscionably excessive” does not limit the statute’s prohibition to "extremely large price increases”, as respondents would have it. The doctrine of unconscionability, as developed in the common law of contracts and in the application of UCC 2-302, has both substantive and procedural aspects (see, e.g., Leff, Unconscionability and the Code — The Emperor’s New Clause, 115 U Pa L Rev 485; Eddy, On the "Essential” Purposes of Limited Remedies: The Metaphysics of UCC Section 2-719 (2), 65 Cal L Rev 28, 42-50). Respondents’ argument focuses solely on the substantive aspect, which considers whether one or more contract terms are unreasonably favorable to one party (Industralease Automated & Scientific Equip. Corp. v R. M. E. Enters., 58 AD2d 482, 489, n 4; see, Jones v Star Credit Corp., 59 Misc 2d 189 [excessive price]; Henningsen v Bloomfield Motors, 32 NJ 358, 161 A2d 69 [disclaimer of warranty]; American Home Improvement v Maclver, 105 NH 435, 201 A2d 886 [excessive price]). The procedural aspect, on the other hand, looks to the contract formation process, with emphasis on such factors as inequality of bargaining power, the use of deceptive or high-pressure sales techniques, and confusing or hidden language in the written agreement (State of New York v Wolowitz, 96 AD2d 47, 67; see, Williams v Walker-Thomas Furniture Co., 350 F2d 445, 449). Thus, a price may be unconscionably excessive because, substantively, the amount of the excess is unconscionably extreme, or because, procedurally, the excess was obtained through unconscionable means, or because of a combination of both factors (see, State of New York v Wolowitz, 96 AD2d 47, 68, supra).

Here, the Attorney-General’s prima facie case established, at least presumptively, that respondents’ price increases were attributable solely to their use of the bargaining advantage created by the natural disaster — that is, through means that are " 'unconscionable according to the mores and business practices of the time and place’ ” (Mandel v Liebman, 303 NY 88, 96), because General Business Law § 396-r defines the mores governing this business setting and excises the use of such advantage from the repertoire of legitimate business practices. Furthermore, in this case, where the sales occurred over a relatively short period of time and were associated with a single market disruption, the presumption that the excess was unconscionably obtained, though established through proof of gross disparities, extends as well to the sales marked by lesser increases. The evidence, including the deposition testimony of two of respondents’ employees, makes the inference inescapable that all of the price increases were tainted by respondents’ use of the superior bargaining position attributable to the power outage.

We do not mean to say that all price increases are prohibited during periods of abnormal market disruptions. The statute itself places the burden upon the Attorney-General to establish that the increases are not attributable to additional costs imposed by suppliers. And we agree with respondents that the merchant may avoid liability under the statute through proof that other costs explain the increases. But we also agree with the lower courts that respondents’ conclusory assertions in this regard were insufficient to raise a triable issue of fact, because they failed to demonstrate to what extent those costs justified the price increases.

Respondents claimed, for example, that their freight charges were three times higher than normal during the period in question, but they did not address whether the shipments were similar in size. Thus, they failed to explain how the increase aifected their cost per generator and gave the court no basis to evaluate their claim of cost justification. In short, respondents’ submissions, even if true, did not rebut the inference that the price increases were attributable to respondents’ use of the leverage provided by the market disruption and were therefore unconscionably excessive. Thus, the lower courts properly granted summary judgment in favor of the Attorney-General and ordered restitution to all consumers who paid in excess of the base price.

Finally, we reject respondents’ argument that a Receiver, rather than the Attorney-General, should administer the restitutionary fund and evaluate the consumer status of those who seek restitution. Although there may be instances where the appointment of a Receiver or a Referee would be warranted, the fashioning of a mechanism for the administration of a restitutionary fund is a matter appropriately left to the trial court’s discretion and there is no abuse of discretion in this instance.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Alexander, J.

(dissenting). While I agree with the majority that electric generators qualify as consumer goods within the meaning of the price-gouging statute (General Business Law § 396-r), I cannot accept the sweep of its conclusion that the Attorney-General, in establishing that certain sales of generators during the disruption period were unconscionably excessive, has established prima facie that every challenged generator sale made by respondent during the disruption period that was above the predisruption price was unconscionably excessive, and hence that every consumer charged any amount above the predisruption price may be refunded the amount of the particular overcharge. I therefore respectfully dissent.

As noted by the majority, approximately 100 generators were sold during the disruption period. Of these, some 29 generators were sold at price increases of 10% or less; approximately 20 sales were at increases of 20% or less; some 29 sales involved increases of 30% or less; while about 19 generators were sold at increases of 50% or less. Only five sales involved increases above 50%.

General Business Law § 396-r (2) provides in pertinent part that "[d]uring any abnormal disruption of the market for consumer goods and services * * * resulting from stress of weather * * * no merchant shall sell or offer to sell any such consumer goods or services for an amount which represents an unconscionably excessive price”. Respondent does not dispute that it raised the price of many of its generators from the predisruption price during the period in question, but argues that its prices cannot all be said to be unconscionably excessive. The majority concludes, however, that once the Attorney-General has made out a prima facie case with respect to one such sale, all sales of generators during the disruption period — sold at an amount above the predisruption price — constitute price gouging within the meaning of the statute. Indeed, in the view of the majority, because "the sales occurred over a relatively short period of time and were associated with a single market disruption, the presumption that the excess was unconscionably obtained * * * extends as well to the sales marked by lesser increases.” (Majority opn, at 699.) I believe this conclusion misreads the statute and impermissibly dilutes the Attorney-General’s burden in such a proceeding (General Business Law § 396-r [4]).

Section 396-r does not proscribe a pattern of conduct of price gouging, nor does it authorize that evidence of one unconscionable transaction may supply the basis for a finding that all transactions within a given period were unconscionable. The statute explicitly defines what constitutes prima facie evidence of an unconscionably excessive price — which is what a merchant is prohibited from charging: "Whether a price is unconscionably excessive is a question of law for the court. Evidence that (a) the amount charged represents a gross disparity between the price of the goods or services which were the subject of the transaction and their value measured by the price at which such consumer goods or services were sold or offered for sale by the merchant in the usual course of business immediately prior to the onset of the abnormal disruption of the market or (b) the amount charged grossly exceeded the price at which the same or similar goods or services were readily obtainable by other consumers in the trade area, and, in addition, that (c) the amount charged by the merchant was not attributable to additional costs imposed by its suppliers, shall constitute prima facie proof of a violation of this section” (General Business Law § 396-r [3] [emphasis added]). The statute thus imposes upon the Attorney-General the burden of establishing, as a matter of law, the unconscionability of a particular price with respect to a single transaction. To permit the Attorney-General to use prima facie evidence of price gouging on one occasion as evidence of price gouging with respect to all transactions occurring during the disruption period, is to impermissibly dilute the burden that the statute imposes upon the Attorney-General. Extended to its logical extreme, the majority’s holding allows the Attorney-General to establish — on the strength of one generator sold at an unconscionably excessive price — that respondent had engaged in price gouging during the course of several weeks with respect to each generator sold above the predisruption price no matter how insignificant the increase despite the statutory requirement that the increase result in a "gross disparity”. The statute clearly does not permit such a result; rather it mandates that the Attorney-General establish prima facie evidence on a transaction-by-transaction basis that the statute was violated by a given sale at an "unconscionably excessive price”. Any other interpretation impermissibly places the burden on respondent to justify any and all increases in prices notwithstanding that such prices have never been assessed individually and determined to be unconscionable in violation of the statute.

As the majority concedes, not "all price increases are prohibited during periods of abnormal market disruptions.” (Majority opn, at 700.) Only "unconscionably excessive prices” are prohibited, and the statute prescribes precisely what evidence constitutes an "unconscionably excessive price”. Those factors identified by the majority as ordinarily taken into account in determining the unconscionability of a contract such as inequality of bargaining power, the use of deceptive sales techniques or confusing language in a written agreement (see, State of New York v Wolowitz, 96 AD2d 47) — are not relevant under the statute. Thus, the majority’s premise that unconscionability has both procedural and substantive qualities in the context of the UCC and common-law contract actions is inapposite here. The statute neither requires that such factors be established nor recognizes their relevance to the definition of an unconscionably excessive price. Neither does the statute, in defining what is unconscionably excessive and therefore prohibited, address such factors as the time span over which the sales occurred, and whether they are associated with a single market disruption. Indeed, the Legislature has already struck the balance in favor of the consumer by eliminating the necessity of demonstrating unequal bargaining power, or deceptive sales tactics. So long as there is a "gross disparity” in price and the increase is not attributable to supplier costs, the Attorney-General has made out a prima facie case.

The majority’s conclusion in this respect leads it inexorably to the conclusion that any consumer who purchased a generator above the predisruption price during the period in question may be refunded any amount paid above the predisruption price. In my view, this is an unwarranted expansion of the relief authorized by the statute. Section 396-r (4) authorizes the Attorney-General to apply for an order of restitution only for "aggrieved consumers”. Just as the statute does not permit a finding of unconscionability with respect to a series of transactions based upon evidence relating only to one transaction, it does not authorize sweeping restitution to all consumers who purchased above a predisruption price — whatever the amount of that overcharge might have been. The statute authorizes restitution only to "aggrieved consumers”, i.e., those consumers who were charged an unconscionably excessive price. Especially is this so where as here, the Legislature has provided for the assessment of civil penalties "not to exceed five thousand dollars”, the imposition of which are ordinarily commensurate with the severity and number of violations (see, General Business Law § 396-r [4]).

Because Supreme Court impermissibly failed to assess the evidence presented by the Attorney-General in his petition and supporting papers on a transaction-by-transaction basis, I would reverse the order of the Appellate Division and remit the matter to Supreme Court for the appropriate assessment.

Judges Simons, Kaye, Titone and Bellacosa concur with Chief Judge Wachtler; Judge Alexander dissents and votes to reverse in a separate opinion in which Judge Hancock, Jr., concurs.

Order affirmed, with costs.

      . For most models, the base price identified by the Attorney-General was the price charged by respondents for sales immediately preceding the hurricane. These prices closely tracked the manufacturer’s suggested retail prices. Accordingly, if there were no recent sales of a particular model, the manufacturer’s suggested retail price was used as the base price.

      . Subdivision 3 provides as follows: "Whether a price is unconscionably excessive is a question of law for the court. Evidence that * * * the amount charged represents a gross disparity between the price of the goods or services which were the subject of the transaction and their value measured by the price at which such consumer goods or services were sold or offered for sale by the merchant in the usual course of business immediately prior to the onset of the abnormal disruption of the market * * * and, in addition, that * * * the amount charged by the merchant was not attributable to additional costs imposed by its suppliers, shall constitute prima facie proof of a violation of this section”.

       I agree with the majority’s conclusion that a merchant may avoid liability under the statute by establishing that increased costs — attributable to sources other than increased supplier costs — caused the increase in the price to the consumer. Neither do I have any dispute with the majority’s conclusion that on these papers, respondent has not raised issues of fact with respect to increased nonsupplier costs such as would warrant a hearing.


source: Caselaw Access Project

author: Per Curiam.

license: Public Domain

text:
    The People of the State of New York, Respondent, v Johnny Rivera, Appellant. The People of the State of New York, Respondent, v Louis Montana, Appellant.
    Argued March 23, 1988;
    decided May 31, 1988

      POINTS OF COUNSEL

      Joel Atlas and Philip L. Weinstein for appellant in the first above-entitled action.
    Defense counsel’s failure to move for a Huntley hearing or request any jury charges pertaining to appellant’s statements constituted ineffective representation, where there were several strong grounds for suppression and the statements constituted the entire case against appellant. (McMann v Richardson, 397 US 759; People v Droz, 39 NY2d 457; People v Jenkins, 68 NY2d 896; People v LaBree, 34 NY2d 257; People v Bennett, 29 NY2d 462; Cuyler v Sullivan, 446 US 335; People v Rodriguez, 94 AD2d 805; People v Brugman, 111 AD2d 562; People v Morris, 100 AD2d 630, 64 NY2d 803; People v De Mauro, 48 NY2d 892.)

      Paul T. Gentile, District Attorney of Bronx County (Lawrence B. La Raus and Susan L. Valle of counsel), for respondent in the first above-entitled action.
    I. Appellant’s guilt was proven beyond a reasonable doubt by overwhelming evidence. II. Appellant was afforded effective assistance of counsel where appellant’s trial counsel, as a matter of trial strategy, chose not to challenge appellant’s out-of-court statements and affirmatively used the statements at trial in arguing appellant’s nonparticipation in the crimes. (People v Baldi, 54 NY2d 137; Strickland v Washington, 466 US 668; People v Jones, 55 NY2d 771; People v Shannon, 92 AD2d 554; People v Chevalier, 92 AD2d 944; People v LaBree, 34 NY2d 257; People v Droz, 39 NY2d 457; People v Jackson, 52 NY2d 1027; People v Aiken, 45 NY2d 394; Trapnell v United States, 725 F2d 149.)

      George Grun and John F. Middlemiss, Jr., for appellant in the second above-entitled action.
    By failing to move to suppress any evidence obtained by the stop, search, seizure, arrest and questioning of defendant even though there were reasonable arguments to support suppression of all of the evidence admitted against defendant at trial; and by offering into evidence at trial an ill-advised stipulation which informed the jury that defendant was on parole; defense counsel failed to provide appellant with effective representation. Appellant’s conviction must be reversed and the case remanded for a new trial. (People v Aiken, 45 NY2d 394; People v Bennett, 29 NY2d 462; People v Baldi, 54 NY2d 137; People v Jackson, 52 NY2d 1027; People v Shannon, 92 AD2d 554; People v Saunders, 54 AD2d 938; People v Droz, 39 NY2d 457; People v Howard, 50 NY2d 583; Brinegar v United States, 338 US 160; People v Corrado, 22 NY2d 308.)

      Patrick Henry, District Attorney of Suffolk County (John J. Andrews of counsel), for respondent in the second above-entitled action.
    The failure of trial counsel to request a Dunaway hearing did not result in the denial of appellant’s right to effective assistance of counsel. (Strickland v Washington, 466 US 668; Trapnell v United States, 725 F2d 149; United States v Cronic, 466 US 648; People v Craft, 123 AD2d 481, 69 NY2d 745; People v Wiley, 120 AD2d 66; People v Smith, 115 AD2d 304; People v Ferguson, 114 AD2d 226; People v Lebron, 114 AD2d 859; People v Worthy, 112 AD2d 454; People v Davis, 112 AD2d 310.)
   OPINION OF THE COURT

Per Curiam.

In these two cases, defendants contend that they were denied effective assistance of counsel. In People v Rivera, defendant was charged with robbery and murder. At trial, the main evidence connecting him to the crimes was his written and videotaped station house confessions, in which he admitted to being a lookout while his friend robbed and killed the victim. Rivera was convicted of felony murder and sentenced to an indeterminate term of 20 years to life. The Appellate Division modified the judgment by reducing defendant’s sentence. At trial, Rivera testified that he confessed only after invoking his right to counsel, but before obtaining an attorney, because the police detective told him "it would take too long and make matters worse,” and because the detective promised to help him by speaking to the District Attorney if he confessed. Based on this, Rivera contends that he was denied effective assistance of counsel, in that his attorney failed to either move for suppression of the confessions or to request a voluntariness charge.

In People v Montana, defendant was convicted of burglary, attempted burglary and possession of burglar’s tools and the Appellate Division affirmed. Defendant contends that his attorney’s failure to move for suppression of physical evidence and statements following an allegedly illegal stop, search and arrest denied him effective assistance of counsel. Further, defendant contends that he was denied effective representation when his attorney entered into a stipulation with the prosecution because the stipulation indicated he was on parole, thereby creating prejudice in the jury’s mind.

The right to effective assistance of counsel is guaranteed by the Federal and State Constitutions (US Const 6th Amend; NY Const, art I, § 6). However, what constitutes effective assistance is not and cannot be fixed with precision, but varies according to the particular circumstances of each case (see, People v Droz, 39 NY2d 457). A convicted defendant, with the benefit of hindsight, often can point out where he or she thinks trial counsel went awry. "But trial tactics which terminate unsuccessfully do not automatically indicate ineffectiveness. So long as the evidence, the law, and the circumstances of a particular case, viewed in totality and as of the time of the representation, reveal that the attorney provided meaningful representation, the constitutional requirement will have been met” (People v Baldi, 54 NY2d 137, 146-147). A contention of ineffective assistance of trial counsel requires proof of less than meaningful representation, rather than simple disagreement with strategies and tactics (People v Benn, 68 NY2d 941).

It is for this reason that a showing that counsel failed to make a particular pretrial motion generally does not, by itself, establish ineffective assistance of counsel (People v De Mauro, 48 NY2d 892). Many reasons can account for a lawyer’s failure to so move: an attorney might, for example, be motivated by strategy or by a reasonable conclusion, based on the facts known at the time, that there is no colorable basis for a hearing. By the same token, an attorney may fail to make proper inquiry of the factual basis for a hearing or may make erroneous legal judgments about the viability of a request for a hearing. To prevail on a claim of ineffective assistance of counsel, it is incumbent on defendant to demonstrate the absence of strategic or other legitimate explanations for counsel’s failure to request a particular hearing. Absent such a showing, it will be presumed that counsel acted in a competent manner and exercised professional judgment in not pursuing a hearing.

In Montana and Rivera, each defendant has raised a claim of ineffective assistance of counsel based predominantly on counsel’s failure to seek a pretrial hearing. Relying on evidence adduced at trial, each defendant has asserted that counsel neglected to make suppression claims that were, at the least, colorable. Noticeably missing, however, is a showing that there was no legitimate reason for not pursuing these "colorable” claims, and conversely that the claims were not asserted for illegitimate reasons. For example, in Rivera, defendant made no showing that his attorney failed to make proper inquiry or indeed that he (defendant) had even informed his attorney of the relevant facts prior to trial. Similarly, in Montana, defendant made no showing that counsel’s failure to seek a suppression hearing was not premised on strategy. Thus, this court is asked to decide the claims of ineffective assistance of counsel by resorting to supposition and conjecture rather than a thorough evaluation of each claim based on a complete record (CPL 440.10). In the rare case, it might be possible from the trial record alone to reject all legitimate explanations for counsel’s failure to pursue a colorable suppression issue, but neither Rivera nor Montana is such a case.

Accordingly, the order of the Appellate Division should be affirmed in each case.

Chief Judge Wachtler and Judges Simons, Kaye, Alexander, Titone, Hancock, Jr., and Bellacosa concur in Per Curiam opinion.

In each case: Order affirmed.


author: Chief Judge Wachtler.

text:
    The People of the State of New York, Appellant, v Christopher Love, Respondent.
    Argued April 22, 1988;
    decided May 31, 1988

      POINTS OF COUNSEL

      Howard R. Relin, District Attorney (Robert Mastrocola of counsel), for appellant.
    The trial court erred in refusing to sentence defendant as. a second felony offender. (People v Basilicato, 64 NY2d 103; People v Graham, 55 NY2d 144; People ex rel. New York Cent. & Hudson Riv. R. R. Co. v Woodbury, 208 NY 421; People v Edwards, 59 AD2d 787; People v Orr, 57 AD2d 578; People v Abbott, 113 Misc 2d 766; People v Woodman, 94 Misc 2d 266, 73 AD2d 847; People v Kennedy, 128 Misc 2d 937.)

      James S. Bartlow for respondent.
    Any period of incarceration resulting from an unconstitutionally obtained conviction cannot be used to extend the 10-year period under Penal Law § 70.06. (Matter of Roballo v Smith, 99 AD2d 5; People v Mobil Oil Corp., 48 NY2d 192; Matter of Doyle, 180 App Div 398; Matter of Holzworth, 166 App Div 150, 215 NY 700; People v Harris, 61 NY2d 9; United States ex rel. Laskey v LaValle, 472 F2d 960; Burgett v Texas, 389 US 109; United States v Tucker, 404 US 443; People v Ryan, 274 NY 149; People ex rel. Westchester Fire Ins. Co. v Davenport, 91 NY 574.)
   OPINION OF THE COURT

Chief Judge Wachtler.

The defendant has been convicted of robbery and related offenses, and based on his record of prior convictions, was originally sentenced as a second felony offender. On the defendant’s application, however, the trial court resentenced him as a first felony offender, concluding that he is not a second felony offender within the meaning of the applicable statutes. The Appellate Division affirmed and the prosecutor appeals. We affirm.

The question presented is whether the defendant, convicted of the robbery and related offenses in 1982, should be sentenced as a second felony offender based on a prior 1968 conviction, when this can only be done by taking into account the fact that the defendant was incarcerated in 1972 on another conviction which concededly was obtained in violation of his constitutional rights.

The appeal turns on the interpretation of three related statutory provisions. The Penal Law provides that a prior felony conviction cannot serve as a predicate for enhanced punishment if the sentence was imposed more than 10 years before the commission of the felony on which the defendant presently stands convicted (Penal Law § 70.06 [1] [b] [iv]). This would disqualify the 1968 conviction. But there is an exception, on which the People rely, which applies when the defendant has been incarcerated "for any reason between the time of commission of the previous felony and the time of commission of the present felony”, in which case the period of incarceration "shall be excluded” in calculating the 10-year period (Penal Law § 70.06 [1] [b] [v]). The defendant, on the other hand, relies on a section of the CPL which provides that a previous conviction obtained in violation of a defendant’s Federal constitutional rights "must not be counted in determining whether the defendant has been subjected to a predicate felony conviction” (CPL 400.21 [7] [b]).

The defendant has a record of three felony convictions.

In 1968 he was convicted of grand larceny and sentenced to three years in prison. He was released on January 12, 1971.

In 1972 he pleaded guilty to assault and was again sentenced to prison. He served 3 years and 71 days before being released on September 26, 1975.

In the present case the defendant was convicted of robbery and related offenses in 1982 for an incident that occurred on January 9 of that year. Based on his 1972 assault conviction he was sentenced to an extended term of imprisonment mandated for second felony offenders (see, Penal Law § 70.06 [2], [4]). The defendant moved to vacate this sentence on the ground that the 1972 conviction had been obtained in violation of his right to counsel because his attorney suffered from a conflict of interest and did not adequately advise or represent him. The trial court granted the motion and ordered that the defendant be resentenced.

Prior to the resentencing the People filed another information charging the defendant with being a second felony offender based on his 1968 conviction for grand larceny. The prosecutor recognized that more than 10 years had elapsed between the time the defendant was released from prison on that conviction and the time he committed his latest offense, so that facially the 1968 conviction would not qualify as a "predicate felony conviction” (Penal Law § 70.06 [1] [b] [iv]). The People claimed, however, that the time the defendant was incarcerated on the 1972 conviction for assault should be excluded from this calculation pursuant to Penal Law § 70.06 (1) (b) (v), and with this time deducted the present offense was committed within 10 years of the defendant’s release from prison on the 1968 conviction. The People conceded that the 1972 conviction had been obtained unconstitutionally and thus pursuant to CPL 400.21 (7) (b) could not serve as the predicate felony conviction. It was urged, however, that the prison term the defendant served on that conviction could not be "ignored” and should toll the running of the 10-year period on the 1968 conviction because the Penal Law "expressly” provides that "any period of time” the defendant was "incarcerated for any reason between the time of commission of the previous felony and the time of the commission of the present felony” shall be excluded in calculating the 10-year period (Penal Law § 70.06 [1] [b] [v]).

The defendant opposed this application claiming that both the 1968 and 1972 convictions had been unconstitutionally obtained. He also argued that as a matter of constitutional law and statutory proscription the People were precluded from using the unconstitutionally obtained 1972 conviction to enhance punishment directly, as a predicate conviction, or indirectly by having it give extended life to the prior 1968 conviction.

The court found that the 1968 conviction was constitutional although the 1972 conviction was not. The court concluded, however, that the 10-year period had expired on the 1968 conviction and rejected the People’s argument that "any incarceration, legal or illegal, tolls the statute.” The court noted that "[i]t is clear that if the 1972 conviction were the only felony conviction of the Defendant, he would not be treated as a predicate felon. It is illogical that an unconstitutionally obtained conviction may not be used to establish predicate felon status, but may be used to obtain the same result by virtue of the tolling provisions of 70.06 (1) (b) (v). The legislature could not have intended such an irrational application.” Thus the defendant was resentenced as a first felony offender.

The Appellate Division affirmed and held: "Reading CPL 400.21 (7) (b) in harmony with Penal Law § 70.06 (1) (b) (v) requires that any period during which defendant was incarcerated by virtue of an unconstitutionally obtained conviction shall not be used to toll the 10-year period of the second felony offender sentencing statute.” (129 AD2d 258, 261.)

On this appeal the prosecutor contends that the courts below erred in reading the statutes "in conjunction” because they ignored the "critical distinction between a conviction and a sentence imposed thereon.” He urges that the statutory prohibition against using an unconstitutionally obtained "previous conviction” is only applicable in selecting or designating the "predicate felony conviction”, which in this case is the lawfully obtained 1968 conviction. In the prosecutor’s view, this prohibition does not expressly apply and should not be applied in making the separate determination as to whether the 10-year limitations period has run on the predicate felony, or has been extended by an intervening period of incarceration. He suggests that the purpose behind the statute excluding periods of incarceration from the 10-year limitations period is to "require a felon to show that he can function in society in a crime-free manner for a period of ten years”, and that it is therefore irrelevant whether the sentence which removed him from society during this period was lawfully or unlawfully imposed.

The Supreme Court has held that a conviction obtained in violation of the defendant’s constitutional right to counsel cannot be used to enhance punishment for a subsequent conviction because then "the accused in effect suffers anew from the deprivation of that Sixth Amendment right” (Burgett v Texas, 389 US 109, 115; United States v Tucker, 404 US 443). The basic principle is reflected and more broadly stated in CPL 400.21 (7) (b), which provides: "A previous conviction in this or any other jurisdiction which was obtained in violation of the rights of the defendant under the applicable provisions of the constitution of the United States must not be counted in determining whether the defendant has been subjected to a predicate felony conviction” (see also, People v Harris, 61 NY2d 9, 16).

The People argue that no constitutional rights are implicated here because the predicate felony conviction on which they rely is the 1968 conviction which was found to be constitutionally obtained. We need not decide whether the constitutional rule would also apply when, as here, the unconstitutionally obtained conviction is used only to extend the life of a prior felony conviction which was constitutionally obtained, because in our view the statutes of this State preclude the People from using the invalid 1972 conviction in this manner.

Contrary to the People’s contention, a "predicate felony conviction” and the 10-year period with its exception for periods of incarceration are not independent concepts which should be separately considered and evaluated. In fact the limitations period and the exception are simply "criteria” which the Legislature has prescribed must be used in determining whether a prior conviction qualifies as a "predicate felony conviction” for the purpose of imposing additional punishment for a current conviction (see, Penal Law § 70.06 [1] [b]). Most of the factors that must be taken into account in making this determination are found in Penal Law § 70.06 (1) (b), which defines a "predicate felony offense” and lists the "criteria”. However, an additional factor is found in CPL 400.21 (7) (b), where the Legislature has provided that a "previous conviction” which was unconstitutionally obtained "must not be counted in determining whether the defendant has been subjected to a predicate felony conviction”. Notably the statute does not simply say, as the People suggest, that such a conviction may not serve as the "predicate felony conviction”, but more broadly states that it shall not be "counted” in making the determination as to whether a prior conviction meets this standard.

Thus the various statutes provide an integrated legislative scheme, and all of the factors must be considered together to determine whether a prior conviction should be treated as a "predicate felony offense”. Reading the statutes in that light, it is clear that the 1968 conviction does not qualify because the 10-year limitation period had run when the defendant committed the current offenses, and it cannot be extended by taking into account the incarceration on the 1972 conviction since that conviction was unconstitutionally obtained. In short, when the statute says that incarceration "for any reason” extends the limitations period, it contemplates at least that the defendant has not been imprisoned without reason or unconstitutionally.

The legislative history does not indicate a contrary intent as the People suggest; in fact, on this point it is silent. To the extent that the statutory scheme reveals the Legislature’s purpose, it appears that the Legislature intended that a person convicted of a crime should not be treated as a repeat offender for an old conviction or simply because in the last 10 years he was unconstitutionally convicted and deprived of his liberty.

Accordingly the order of the Appellate Division should be affirmed.

Judges Simons, Kaye, Alexander, Titone, Hancock, Jr., and Bellacosa concur.

Order affirmed.


author: Hancock, Jr., J.

text:
    State of New York, Respondent, v Rachmani Corporation et al., Appellants, et al., Defendant.
    Argued March 21, 1988;
    decided June 2, 1988

      POINTS OF COUNSEL

      Donald S. Snider, Gerald M. Levine and Randall T. Sims for appellants.
    I. There has never been a statutory or legal requirement that information already fully and fairly disclosed in an offering plan has to be disclosed again. Knowledge of such disclosures is conclusively imputed to the investor. (East End Owners Corp. v Roc-East End Assocs., 128 AD2d 366; Zobrist v Coal-X, Inc., 708 F2d 1511; Spielman v General Host Corp., 402 F Supp 190, 538 F2d 39; Frigitemp Corp. v Financial Dynamics Fund, 524 F2d 275; Gulf & W. Indus. v Great Atl. & Pac. Tea Co., 356 F Supp 1066, 476 F2d 687; Data Probe Acquisition Corp. v Datatab, Inc., 772 F2d 1, 465 US 1052; Colonial Lincoln-Mercury v Musgrave, 749 F2d 1092; Kaplan v Vornado, Inc., 341 F Supp 212.) II. The trial court incorrectly applied the applicable legal principle governing alleged omissions. (Gilbert v Nixon, 429 F2d 348.) III. The trial court misapplied the applicable legal principle on the issue of materiality by improperly eliminating the Attorney-General’s burden of proving that the "omission” was material. (People v Lexington Sixty-First Assocs., 38 NY2d 588; TSC Indus. v
      Northway, Inc., 426 US 438; Securities & Exch. Commn. v Paro, 468 F Supp 635; Gilbert v Nixon, 429 F2d 348.) IV. Having erroneously granted the Attorney-General’s motion to amend the complaint at the conclusion of the evidence, the trial court should have dismissed the complaint as amended because of the Attorney-General’s failure to sustain his burden of proving the "omission” was material. (East Asiatic Co. v Corash, 34 AD2d 432; Jackson v Oppenheim, 533 F2d 826; Affiliated Ute Citizens v United States, 406 US 128; Huddleston v Herman & McLean, 640 F2d 534; Farmers’ Loan & Trust Co. v Siefke, 144 NY 354; Matter of Grossman v Rankin, 43 NY2d 493; Caruso, Rinella, Battaglia Co. v New York Cent. R. R. Co., 222 App Div 371; Syracuse Reduction & Mfg. Co. v City of Syracuse, 172 App Div 224.)

      Robert Abrams, Attorney-General (Peter W. LaVigne, O. Peter Sherwood and Donna Miller of counsel), for respondent.
    I. Under the provisions of the Martin Act it is clear that defendants’ letter of July 3, 1980 was false and misleading in failing to disclose that the plan could not be declared effective until agreements to purchase had been obtained for 40.5% of the units at the premises. (Matter of Whalen v Lefkowitz, 36 NY2d 75; Apfelberg v East 56th Plaza, 78 AD2d 606; Matter of Ottinger v State Civ. Serv. Commn., 240 NY 435; People v Lexington Sixty-First Assocs., 38 NY2d 588; People v Federated Radio Corp., 244 NY 33; People v Smith Co., 230 App Div 268; People v Concord Fabrics, 83 Misc 2d 120, 50 AD2d 787; People v Haynes, 2 Misc 2d 983; People v Mintzer, 16 NY2d 1051; People v Essner, 124 Misc 2d 830.) II. Defendants failed to disclose and omitted material facts from their July 3, 1980 letter. (All Seasons Resorts v Abrams, 68 NY2d 81; Matter of Gardner v Lefkowitz, 97 Misc 2d 806; East End Owners Corp. v Roc-East End Assocs., 128 AD2d 366; Spielman v General Host Corp., 402 F Supp 190, 538 F2d 39; Frigitemp Corp. v Financial Dynamics Fund, 524 F2d 275; TSC Indus. v Northway, Inc., 426 US 438; Securities & Exch. Commn. v Galaxy Foods, 417 F Supp 1225; Brynes v Faulkner, Dawkins & Sullivan, 550 F2d 1303; Securities & Exch. Commn. v Paro, 468 F Supp 635; Spatz v Borenstein, 513 F Supp 571.)
   OPINION OF THE COURT

Hancock, Jr., J.

On defendants’ appeal in an enforcement action brought by the Attorney-General under the antifraud provisions of the Martin Act we must decide whether the failure to mention an unsatisfied precondition to a cooperative conversion of an apartment house constituted fraud which justified the issuance of an injunction under General Business Law § 353 and Executive Law § 63 (12). Because the omitted information had previously been furnished in the original offering plan and, in any event, would not have been a significant factor in the purchase decision of a reasonable tenant, we conclude that the omission did not constitute actionable fraud. The order of the Appellate Division should, therefore, be reversed, the injunction vacated, and the complaint dismissed.

I

The Attorney-General commenced this action for an injunction pursuant to General Business Law § 353 and Executive Law § 63 (12) based on allegedly fraudulent acts committed during the eviction-type cooperative conversion of Gramercy Park Towers, a 328-unit apartment at 205 Third Avenue, New York City. The defendants are the selling agent, Rachmani Corporation, and its president, Jay Rachmani. The action arises from the July 3, 1980 notice delivered by defendants to the tenants two days before the deadline for the exercise of their rights to purchase their apartments at the "insider price”. The claim of fraud concerns information pertaining to the terms and conditions of the offering plan for the cooperative conversion, specifically two conditions for the effectuation of the plan: the requirement that for the plan to be effective as an eviction-type conversion, 35% of the eligible tenants must have subscribed prior to July 6, 1980; and an unrelated requirement, imposed by the mortgagee, that 40.5% of the apartments be sold prior to June 26, 1981.

Defendants, in the July 3, 1980 notice, advised the tenants, as they were required to do by statute, that the 35% precondition had been met. There was no mention in this notice of the then unmet 40.5% condition, however, and it is the omission of this allegedly material information on which the Attorney-General’s claim of fraud is based. To explain the Attorney-General’s action, we first summarize the relevant details of the plan and the critical events leading up to July 6, 1980, the cutoff date for the rights of tenants to purchase at the insider price.

The terms and conditions of the proposed conversion had been described in an offering plan (see, General Business Law §§ 352-e, 352-eeee) which was accepted for filing by the Attorney-General and distributed to the tenants on December 26, 1979. Thereafter, as a result of protracted negotiations with the sponsors, the tenants — who had formed a tenants’ association and hired counsel — succeeded in obtaining certain favorable revisions in the plan including a reduction in the price per share offered to tenants. These revisions were the subject of four amendments to the plan, the last one of which was filed on May 30, 1980.

The plan, as amended, contained the following pertinent provisions:

(1) The condition that 35% of the tenants subscribe. The plan provided — as mandated by section YY51-6.0 (c) (9) (a) of the Administrative Code of the City of New York and section 61 (4) of the Code of the Rent Stabilization Association of New York City, Inc. (Rent Stabilization Code) — that it could be effected as an eviction-type conversion only if 35% of the nonexempt tenants (occupying 93 of the apartments) subscribed to purchase agreements prior to June 26, 1981. In an amendment to the plan, the sponsors agreed to change the proposed conversion to the noneviction type if this 35% requirement was not met by July 6, 1980; if the 35% was achieved prior to June 26, 1981, the conversion would still be effective, but the nonpurchasing tenants could not be evicted. The 35% condition was satisfied prior to the July 6, 1980 deadline, and the tenants were so advised in the July 3 notice.

(2) The insider price option. Until July 6, 1980, the tenants could purchase shares at the insider price. After July 6, 1980 —assuming that the conversion was ultimately sanctioned as an eviction plan — the tenants would have to buy at the higher outsider price or face eviction at the end of their leases.

(3) The condition that 40.5% of the apartments be sold. The plan also required that 40.5% of the apartments be sold on or before June 26, 1981. This condition — which is at the root of the Attorney-General’s complaint — was separate from and unrelated to the 35% precondition. The 40.5% requirement was not mandated by statute and had nothing to do with the protection of the tenants or with the plan’s approval as an eviction-type rather than a noneviction-type conversion. It was imposed by the mortgagee, solely for its protection, as a condition for its consent to any cooperative conversion of the building. The mortgagee could modify or waive the requirement entirely and the 132 apartments (40.5%) could be sold to tenants and nontenants alike.

(4) Return of tenants’ moneys if plan abandoned. If the plan was not declared effective within the time limits set forth, it would be deemed abandoned and "all monies would be returned to the purchasers, in full, with interest, if any”.

By July 1, 1980, only five days prior to the deadline for insider purchases and satisfaction of the 35% requirement, fewer than 10 tenants had signed up as subscribers. At a meeting that night, the negotiating committee announced to the tenants’ association that it had attained the best deal available and that each tenant should do as he or she saw fit. By the night of July 3, 96 valid subscriptions from tenants had been secured, and the sponsors had thus exceeded the 35% requirement (93 subscriptions) for an eviction plan.

Immediately thereafter, defendants, as mandated by Rent Stabilization Code § 61 (8), delivered the following letter to each tenant:

"July 3, 1980
"Dear Tenant:

"On behalf of the Sponsor, 19th Street Associates, and the Apartment Corporation, 205 Third Avenue Owners’, Inc., please be advised that this letter is formal notice to you, as per the requirement of paragraph 8 of Section 61 of Rent Stabilization Code, that 35% of tenants in occupancy at the time of presentation of the Plan, have subscribed to purchase shares allocated to their apartmnets [sic].

"An Amendment to the Plan will be filed shortly, disclosing the names of all purchasers, the apartments sold and the purchase price of each apartment.”

No reference was made to the 40.5% requirement imposed by the mortgagee. Nor was any mention of this requirement made in other communications to the tenants, including the various amendments to the original plan and a letter to all tenants dated June 30, 1980 reminding them that the period during which they could purchase at the insider price expired on July 6, 1980.

In his complaint, the Attorney-General alleges that defendants defrauded the tenants by stating falsely in the July 3 letter that the requisite 35% of the tenants had agreed to purchase apartments. The trial court found, however, that more than 35% of the tenants had, in fact, signed valid subscriptions on July 3 and that, therefore, the notice did not contain any false statement. The Attorney-General was permitted to amend his complaint to conform to the proof and to include the contention that the July 3 notice omitted material information, i.e., that the plan also contained the 40.5% condition imposed by the mortgagee and that this level of subscriptions had not been reached as of July 3, 1980. Based on this omission alone, the trial court found that defendants had committed fraud under the Martin Act, stating: "By failing to call attention to the 40.5% requirement in the interim communications and particularly in the July 3, letter, the defendants the Rachmani Corporation and Jay Rachmani violated the fraud and good faith requirements of the Martin Act. Many tenants reasonably assumed, on reading the July 3 letter, that all of the conditions precedent to declaration of effectiveness of the eviction plan had been attained and were thereby induced to subscribe to the cooperative conversion plan.”

The court imposed an injunction on defendants pursuant to General Business Law § 353 (2) and, upon its further finding that defendants’ conduct constituted persistent fraud, it based its injunction on Executive Law § 63 (12), as well. The Appellate Division (one Justice dissenting) affirmed for the reasons set forth in the trial court’s decision, and the appeal is before us by leave of that court. We now reverse.

II

The Attorney-General’s claim of fraudulent practices under the Martin Act is not based on any intentionally misleading conduct, misrepresentation, or misstatement by defendants. Nor is it claimed that any statement was untrue. Indeed, the Attorney-General does not now dispute the trial court’s findings that more than 93 of the nonexempt tenants had then signed purchase agreements on July 3 and that, therefore, the statement in the letter that the 35% condition had been satisfied was true.

Instead, the Attorney-General’s claim is founded entirely on defendants’ failure to make reference to the fact that, although on July 3, 1980 the 35% requirement had been met, the sponsor still had to sell 132 apartments (40.5%) prior to June 26, 1981 to secure the mortgagee’s consent. As previously noted, unlike the notification in the July 3 letter concerning the 35% precondition which was called for by Rent Stabilization Code § 61 (8), there was no statutory requirement that the tenants be given any information with respect to the sponsors’ progress in meeting the 40.5% precondition. Nevertheless, the Attorney-General points out that in the early hours of July 4, 1980 when the July 3 notice was circulated, only 96 apartments had been sold. He argues that defendants’ failure to refer to the 132-apartment (40.5%) requirement and the fact that it had not yet been met constituted the omission of material information needed for the tenants to make their judgment (General Business Law § 352-e [1] [b]) and, as such, a fraudulent practice under General Business Law § 352-c (1) (a).

The lower courts held that, given the liberal construction to be accorded the Martin Act, an omission as well as a concealment or suppression of information may be actionable as a fraudulent practice (see, General Business Law § 352-c [1] [a]; People v Federated Radio Corp., 244 NY 33, 38-39). This is not disputed (see, People v Rosano, 69 AD2d 643, 661, affd 50 NY2d 1013; cf., TSC Indus. v Northway, Inc., 426 US 438, 444). We turn then to the question of what would constitute a material omission which would be actionable under the Martin Act. Because there is nothing in the statute or case law specifically addressing materiality of an omission under the Martin Act, we find it appropriate to consider the decisions of the United States Supreme Court and other Federal courts construing the Federal securities laws. To be sure, the provisions of the State and Federal statutes are not identical. But the remedial purposes of the statutes are the same (see, Matter of Gardner v Lefkowitz, 97 Misc 2d 806, 812), and General Business Law § 352-e (1) (a), we note, makes specific reference to the Federal Securities Act of 1933 (see, All Seasons Resorts v Abrams, 68 NY2d 81, 87). Accordingly, we turn to the Federal authorities.

The now accepted standard for materiality of an omission in cases involving the Federal securities statutes was articulated by the Supreme Court in TSC Indus. v North way, Inc. (426 US 438, supra) and recently reaffirmed in Basic Inc. v Levinson (485 US —, 99 L Ed 2d 194). It is this: "An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote * * * It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix’ of information made available.” (426 US, at 449, supra [emphasis added].) (See also, Data Probe Acquisition Corp. v Datatab, Inc., 722 F2d 1, 5-6 [2d Cir], cert denied 465 US 1052 ["The disclosure required by the Act is not a rite of confession or exercise in common law pleading. What is required is the disclosure of material objective factual matters”]; Spielman v General Host Corp., 402 F Supp 190 [SD NY], affd 538 F2d 39 [2d Cir].) In assessing the importance of an omission in its effect on the deliberations and the decision of the offeree and whether the omitted fact would have significantly altered the "total mix” of information available, Federal courts have held that a reasonable investor is presumed to have knowledge of information that has already been disclosed or is readily available (see, Colonial Lincoln-Mercury v Musgrave, 749 F2d 1092, 1099 [4th Cir]; Frigitemp Corp. v Financial Dynamics Fund, 524 F2d 275, 282 [2d Cir]).

We believe that the objective test for materiality of an omission as articulated by the Federal courts construing Federal securities laws is equally appropriate in determining liability in this action and, accordingly, we adopt it for that purpose (cf., All Seasons Resorts v Abrams, supra, at 88).

Ill

We come then to an application of the objective test in the circumstances here, taking into account that the "total mix” of information already in the hands of tenants on July 4, 1980, would have included disclosure of the mortgagee’s 40.5% requirement as set forth in the original offering plan. We conclude, as a matter of law, that an addition to the July 3 notice reminding tenants of that requirement and advising them that it had not yet been met would not "have assumed actual significance in the deliberations of [a] reasonable [tenant]” (TSC Indus. v Northway, Inc., supra, at 449). The immediate question facing tenants on July 4 and 5 was what to do before their rights to buy at the reduced insider price expired on July 6. The July 3 notice advised them — truthfully—that the required 35% of the tenants had subscribed. They would then have realized that the plan, if it was to became effective at all, would be one where tenants could be evicted if they did not purchase.

The original offering plan had been distributed on December 26, 1979 and a reasonable tenant would be presumed to have had knowledge of its contents (see, Data Probe Acquisition Corp. v Datatab, Inc., supra; Spielman v General Host Corp., 538 F2d, supra, at 41). Thus, the tenant was bound to know not only about the existence of the mortgagee’s requirement that 132 (40.5%) of apartments be sold, but also that the sponsors had almost a full year to achieve that number of apartment sales, that they could do so by selling apartments not only to tenants but to outsiders, as well, and that a purchasing tenant’s money would be returned if the conversion did not take place. Under these circumstances, for a reasonable tenant who desired to remain in the building and could finance the purchase of his apartment, the fact that the sponsors on July 3 had not yet succeeded in satisfying the 40.5% precondition would have had little or no bearing on the question of whether to purchase at the insider price.

Moreover, while defendants, in carrying out the cooperative conversion, were obliged, in their communications to tenants, to advise them of all material facts, "there is no requirement that information already adequately disclosed be spoonfed to them” (Spielman v General Host Corp., 402 F Supp 190, 206 [SD NY, Weinfeld, J.], affd 538 F2d 39 [2d Cir], supra). Indeed, some courts have noted that including what is unnecessary and extraneous as well as omitting what is material may result in misleading the offeree (see, Data Probe Acquisition Corp. v Datatab, Inc., supra, at 5; Spielman v General Host Corp., 402 F Supp, supra, at 203). Here, as defendants point out, it is possible that a gratuitous "reminder” about the then unmet 40.5% condition in the July 3 notice could have been regarded as an effort by defendants — who presumably knew that the eviction-type conversion would eventually be authorized — to mislead the tenants and to induce them not to exercise their "insider rights” by July 6 so that the sponsors could thereafter exact from them the higher outsiders’ price.

Accordingly, the order should be reversed, with costs, the injunction vacated and the complaint dismissed.

Chief Judge Wachtler and Judges Simons, Kaye, Alexander, Titone and Bellacosa concur.

Order reversed, etc.

      . Because we hold that fraud has not been established — either as defined in the Martin Act (General Business Law § 352-c [1] [a]) or under the virtually identical language in Executive Law § 63 (12) (see, n 5, infra) — we need not address the further requirement for an injunction under Executive Law § 63 (12): that the fraud be persistent.

      . The conversion proceeded under the then applicable provisions requiring that for an eviction plan to be declared effective, 35% of the tenants in occupancy had to agree to purchase their apartments within 18 months from the date of presentation of the plan to the tenants (see, General Business Law § 352-eeee; Administrative Code of City of New York § YY516.0 [c] [9] [a]; Code of Rent Stabilization Association of New York City, Inc. § 61). The statutes have since been amended to require that 51% of the tenants in occupancy subscribe within 15 months for an eviction plan to be effective (see, General Business Law § 352-eeee [1] [c]; [2] [a], [d]).

      . The sponsors of the project, "19th Street Associates”, are not parties. The action has been dismissed against another defendant, an employee of the agent, Dallas Peltz. There is no cross appeal from this dismissal by the Attorney-General.

      . Section 61 (8) of the code, as it was in July 1980, provided: "When the 35 percent requirement, provided in 4 (a) above, has been met the owner will promptly notify all occupants and shall file a copy of the notice with the Department of Housing Preservation and Development along with an affidavit indicating the total number of apartments involved in computing the 35 percent and the names and apartments of the purchasing tenants.”

      . The 40.5% requirement, however, was the subject of a letter addressed to the Attorney-General dated January 8, 1980 from Errol A. Brett, Esq., attorney for the tenants’ committee. Mr. Brett, in the letter, requested that the Attorney-General direct a sponsor to state whether the mortgagee bank will modify or waive the 40.5% precondition. A copy of this letter was distributed to every tenant in the building.

      . We agree with the holding of the lower courts that to establish liability for fraudulent practices in an enforcement proceeding under the Martin Act, the Attorney-General need not allege or prove either scienter or intentional fraud (see, People v Lexington Sixty-First Assocs., 38 NY2d 588, 595; People v Federated Radio Corp., 244 NY 33, 38-39; Mihaly & Kaufmann, Practice Commentary, McKinney’s Cons Laws of NY, Book, 19, General Business Law art 23-A, at 17-19).


text:
    William L. McGowan et al., Respondents, v Karen S. Burstein et al., Constituting the Civil Service Commission of the State of New York, Appellants.
    Argued April 21, 1988;
    decided June 2, 1988

      POINTS OF COUNSEL

      Robert Abrams, Attorney-General (O. Peter Sherwood, Peter H. Schiff and Daniel M. Smirlock of counsel), for appellants.
    I. Zone scoring per se does not violate the merit and fitness requirement of article V, § 6 of the New York Constitution. (Berkman v City of New York, 812 F2d 52; Kirkland v New York State Dept. of Correctional Servs., 711 F2d 1117, cert denied sub nom. Althiser v New York State Dept. of Correctional Servs., 465 US 1005; Guardians Assn. v Civil Serv. Commn., 630 F2d 79; People ex rel. Sweet v Lyman, 157 NY 368; Matter of Altman v Lang, 44 Misc 2d 751, 23 AD2d 820, 17 NY2d 464; Matter of Sloat v Board of Examiners, 274 NY 367; Matter of Katz v Hoberman, 28 NY2d 530; Matter of Grossman v Rankin, 43 NY2d 493; People ex rel. Schau v McWilliams, 185 NY 92; Matter of Firshein v Reavy, 263 App Div 490, 289 NY 712.) II. Zone scoring is necessary to achieve compliance with title VII of the Federal Civil Rights Act of 1964. (Griggs v Duke Power Co., 401 US 424; Connecticut v Teal, 457 US 440; Bushey v New York State Civ. Serv. Commn., 733 F2d 220; Kirkland v New York State Dept. of Correctional Servs., 374 F Supp 1361, 520 F2d 420, 531 F2d 5, 429 US 823, 1124, 482 F Supp 1179, 628 F2d 796, cert denied sub nom. Fitzpatrick v Kirkland, 450 US 980; Kirkland v New York State Dept. of Correctional Servs., 711 F2d 1117, cert denied sub nom. Althiser v New York State Dept. of Correctional Servs., 465 US 1005.) III. Zone scoring does not violate 4 NYCRR 67.1 (b) and (c). (People ex rel. Knowles v Smith, 54 NY2d 259; Matter of Sun Beach Real Estate Dev. Corp. v Anderson, 98 AD2d 367, 62 NY2d 965.) IV. The relief ordered by the court below is an impermissible judicial intrusion on the operations of the civil service system. (Matter of Firshein v Reavy, 262 App Div 490, 289 NY 712; Matter of New York State Inspection, Sec. & Law Enforcement Employees v Cuomo, 64 NY2d 233.)

      Jeffrey R. Armstrong and Marjorie E. Karowe for respondents.
    I. Zone scoring competitive exams violates the New York State Constitution. (Hale v Worstell, 185 NY 247; Matter of Burke v Axelrod, 90 AD2d 577; Matter of Fink v Finegan, 270 NY 256; Matter of Young v Trussel, 42 Misc 2d 108; People ex rel. Crummey v Palmer, 152 NY 217; Matter of Montero v Lum, 68 NY2d 253; Matter of Holcombe v Gusty, 51 AD2d 868; Matter of Cassidy v Municipal Civ. Serv. Commn., 37 NY2d 526; Palmer v Board of Educ., 276 NY 222, 682.) II. Zone scoring violates Civil Service Law § 61 and civil service regulations. (Matter of Jackson v Poston, 40 AD2d 19; Matter of Wipfler v Klebes, 284 NY 248; Matter of Corwin v Farrell, 303 NY 61; Matter of Sikich v Hughes, 274 App Div 675; Amico v Erie County Legislature, 36 AD2d 415; Matter of Ruddy v Connelie, 61 AD2d 372; People ex rel. Schau v McWilliams, 185 NY 93.) III. Affirmative action requirements are not in conflict with State competitive exam regulations. (Guardians Assn. v Civil Serv. Commn., 630 F2d 79, 452 US 940.)

      Peter L. Zimroth, Corporation Counsel (Elizabeth Dvorkin and Edward F. X. Hart of counsel), for City of New York, amicus curiae.

    Because zone scoring can be used in a manner that is consistent with the State constitutional requirement of merit and fitness selection, it is constitutional per se. (City Council v Taxpayers for Vincent, 466 US 789; People v Ferber, 57 NY2d 256; Matter of Fay, 44 NY2d 137, appeal dismissed sub nom. Buck v Hunter, 439 US 1059; Matter of Sontag v Bronstein, 33 NY2d 197; Matter of Bridgman v Kern, 257 App Div 420, 282 NY 375; Matter of Oback v Nadel, 57 NY2d 620; Matter of Acosta v Lang, 13 NY2d 1079; Teamsters v United States, 431 US 324; Association Against Discrimination in Employment v City of Bridgeport, 647 F2d 256, 455 US 988; Dothard v Rowlinson, 433 US 321.)
   OPINION OF THE COURT

Chief Judge Wachtler.

Article V, § 6 of our State Constitution requires that, as far as practicable, the merit and fitness of candidates for appointments and promotions in the civil service be ascertained by competitive examination. The primary question presented by this appeal is whether, consistent with this constitutional requirement, such examinations may be subject to zone scoring, a grading method which assigns a single grade to a range of raw scores. The letter grades A-F or a pass/fail grading system are familiar, but extreme, illustrations. A more subtle example is the practice of rounding scores in the range from 88.6% to 88.9%, for instance, up to 89%.

Plaintiffs, representatives of a large number of the State’s public employees, claim that the practice renders examinations scored in such a manner noncompetitive and therefore unconstitutional. We note at the outset, because it is critical to our analysis, that the attack is a facial one.

Supreme Court denied the parties’ cross motions for summary judgment, but granted plaintiffs’ alternative request for a preliminary injunction. The court concluded that defendants had apparently employed zone scoring in a manner that allowed subjective factors other than merit and fitness to enter the selection process, in violation of the Constitution. The court therefore enjoined defendants from using the technique without prior court approval or consent of the plaintiffs, together with a demonstration of the justification for its use.

The Appellate Division, with two Justices dissenting, found the practice "presumptively unconstitutional” and modified by granting summary judgment in plaintiffs’ favor and declaring that zone scoring violates the State Constitution and certain of defendants’ regulations (130 AD2d 123, 127). We now reverse.

Preliminarily, we note our agreement with the courts below that zone scoring poses a threat to the competitive examination process that serves as the foundation of the merit system. The use of overly broad zones could negate the competitiveness of the test, allow too much room for the subjective judgments of appointing authorities and invite personal and political influence into the selection process. Any practice with such potential must be approached with skepticism.

However, the broadside nature of plaintiffs’ challenge bears emphasis. Plaintiffs are not challenging zone scoring as' applied to any particular civil service examination; nor do they limit their challenge to the use of overbroad zones or allege a specific instance of favoritism resulting from the practice. Instead, they seek a declaration that zone scoring is per se violative of the State Constitution and ask that the practice be permanently enjoined. To sustain their challenge, as so framed, plaintiffs must demonstrate that zone scoring in any degree and in every conceivable application would be unconstitutional. They have not carried this burden.

Article V, § 6, the constitutional basis for the challenge, provides as follows: "Appointments and promotions in the civil service of the state * * * shall be made according to merit and fitness to be ascertained, as far as practicable, by examination which, as far as practicable, shall be competitive”. New York was the first State to constitutionalize the merit and fitness requirement, a reflection of our citizens’ insistence that competence, rather than cronyism, should determine civil service appointments (see, Hale v Worstell, 185 NY 247, 251; see also, Matter of Montero v Lum, 68 NY2d 253, 258).

The Department of Civil Service, which the defendant Commissioners oversee, is the agency charged with the task of implementing the merit system (Civil Service Law §§ 5, 6). The Department must determine what knowledge, skills and abilities are required for a given position, assess whether the relevant attributes can be measured by a competitive examination and, if so, develop, administer and grade a test from which those characteristics may be discerned. In addition, as defendants point out, care must be taken that success on the examination does not depend on factors that are unrelated to the candidate’s fitness for the position, not only because fitness is the object of the merit system, but also because such factors may discriminate among equally qualified candidates along ethnic, racial or sexual lines, in violation of the State Human Rights Law (Executive Law § 296) and the Federal Civil Rights Act of 1964 (42 USC § 2000e et seq.). The complex, highly technical, and sometimes even competing nature of these functions justifies considerable judicial deference to the Commission’s greater ability to assess whether, to what extent, and in what manner merit and fitness should be measured by competitive examinations (see, Matter of Grossman v Rankin, 43 NY2d 493; People ex rel. Moriarity v Creelman, 206 NY 570, 575; People ex rel. Schau v McWilliams, 185 NY 92, 98-99)

It appears that defendants zone score exams rarely, and then primarily when the use of strict rank ordering would, in their view, overemphasize certain skills and preclude adequate consideration of other necessary attributes. For example, the position being tested for may require a variety of testable skills, but it may also require, in equal or greater measure, oral communication skills, the ability to interact with others, or some other characteristic which cannot be readily and reliably measured by a written examination. In this and similar situations, defendants assert, the Constitution permits a grading system such as zone scoring which discounts marginal and perhaps statistically insignificant degrees of success on the written examination, when necessary to accommodate adequate consideration of other relevant criteria. We agree that the Constitution does not mandate an absolute prohibition of such testing and grading techniques.

The competitive examination is favored by the Constitution because it provides, presumably, an objective and verifiable measurement of the candidates’ merit (Matter of Fink v Finegan, 270 NY 356, 363). We acknowledged in Matter of Cassidy v Municipal Civ. Serv. Commn. (37 NY2d 526), however, that examination scores are often unable to reflect all aspects of a candidate’s fitness for a position and, for that reason, that it was desirable and constitutionally permissible for the appointing authority to be given room to consider the unmeasurable traits necessary for fulfillment of the duties. On that basis, we upheld, against a constitutional challenge, Civil Service Law § 61, which permits the appointment of any 1 of 3 persons with the highest standing on the eligibility list.

Implicit in that decision and in the constitutional language is the understanding that competitiveness is not a constitutional end in itself. Merit selection is the overarching constitutional goal and command; the competitive examination is the preferred means of compliance, but it is not a coequal — and certainly not a competing — goal. It would be perverse to sanctify rank ordering of exam scores in a quest to maximize competitiveness if, as a result, other considerations relevant to merit and fitness are discounted or swept aside (see, Matter of Sloat v Board of Examiners, 274 NY 367, 373).

It is no answer to suggest, as plaintiffs do, that in those rare cases where certain necessary attributes cannot be assessed by a written examination, then the position should not be included in the competitive class. The constitutional preference for competitive examinations, on which plaintiffs hinge much of their argument, provides sufficient reason to shun such an all or nothing approach. That preference commends a middle ground which incorporates both competitive testing and consideration of untestable attributes, where both are necessary for a complete evaluation of merit and fitness (Matter of Fink v Finegan, supra, at 362). Such flexibility provides an incentive for defendants to include a doubtful position in the constitutionally favored competitive class.

We hold, therefore, that article V, § 6 of the New York Constitution does not require a blanket prohibition of the use of zone scoring in competitive civil service examinations. As the issue is now framed, it would be inappropriate for us to speculate as to what standards should govern the use of zone scoring. Those considerations are best measured against specific facts, such as the breadth of the zones used, the justification for their use advanced by the Department of Civil Service, the qualifications required for the position in issue, and the extent to which a particular selection process, viewed as a whole, may lack objectivity and invite consideration of impermissible factors. This facial challenge does not provide us with the necessary background to render such an assessment.

As for plaintiffs’ claim that zone scoring violates defendants’ own requirement that "the relative order of scores [be] maintained” (4 NYCRR 67.1 [b], [c]), we note only that defendants, quite obviously, interpret their regulations, including the cited ones, as allowing for zone scoring. In light of the numerous other adjustments to raw scores plainly contemplated by the regulations, some of which can result in inversion of the relative rank order (see, e.g., 4 NYCRR 67.1 [f]), it is clear that the regulations do not make rank order inviolate. Thus, defendants’ interpretation is neither irrational nor arbitrary and should be upheld (see, Matter of Howard v Wyman, 28 NY2d 434, 438).

Accordingly, the order of the Appellate Division should be reversed, with costs, plaintiffs’ motion for summary judgment denied, defendants’ motion for summary judgment granted, and judgment granted in favor of defendants declaring that defendants’ use of the zone scoring technique on competitive civil service examinations is not per se violative of NY Constitution, article V, § 6 or 4 NYCRR 67.1 (b) and (c).

Judges Simons, Kaye, Alexander, Titone, Hancock, Jr., and Bellacosa concur.

Order reversed, with costs, plaintiffs’ motion for summary judgment denied, defendants’ motion for summary judgment granted and judgment granted in favor of defendants in accordance with the opinion herein.