The People by Eric T. Schneiderman,, Respondent,v.Credit Suisse Securities (USA) LLC,, et al., Appellants.BriefN.Y.March 21, 2018No. APL-2017-00056 To be argued by: STEVEN C. WU 30 minutes requested Supreme Court, New York County, Index No. 451802/12 • First Department No. 864-16 State of New York Court of Appeals PEOPLE OF THE STATE OF NEW YORK, by ERIC T. SCHNEIDERMAN, Attorney General of the State of New York, Plaintiff-Respondent, -against- CREDIT SUISSE SECURITIES (USA) LLC, f/k/a “CREDIT SUISSE FIRST BOSTON LLC”, DLJ MORTGAGE CAPITAL, INC., CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORPORATION, ASSET BACKED SECURITIES CORPORATION and CREDIT SUISSE MORTGAGE ACCEPTANCE CORPORATION, Defendants-Appellants. BRIEF AND ADDENDUM FOR RESPONDENT BARBARA D. UNDERWOOD Solicitor General STEVEN C. WU Deputy Solicitor General ANDREW W. AMEND Senior Assistant Solicitor General of Counsel ERIC T. SCHNEIDERMAN Attorney General State of New York Attorney for Respondent 120 Broadway New York, NY 10271 (212) 416-8022 (212) 416-8962 (facsimile) Dated: October 3, 2017 i TABLE OF CONTENTS Page TABLE OF AUTHORITIES ............................................................ iv PRELIMINARY STATEMENT ........................................................ 1 QUESTIONS PRESENTED ............................................................ 4 STATEMENT OF THE CASE ......................................................... 5 A. Statutory Background ..................................................... 5 1. The Martin Act ......................................................... 5 2. Executive Law § 63(12)............................................. 7 B. Defendants’ Fraudulent Conduct in the Creation and Sale of Residential Mortgage-Backed Securities .......................................................................... 9 C. The Attorney General’s Enforcement Action Alleging Investor Fraud ................................................. 14 1. Supreme Court’s denial of defendants’ motion to dismiss ................................................................ 15 2. The First Department’s affirmance of Supreme Court’s order ........................................... 16 ARGUMENT .................................................................................. 18 POINT I A SIX-YEAR LIMITATIONS PERIOD APPLIES TO INVESTOR FRAUD CLAIMS BY THE ATTORNEY GENERAL UNDER THE MARTIN ACT AND EXECUTIVE LAW § 63(12) ................................. 18 ii TABLE OF CONTENTS (cont'd) Page A. The Martin Act and § 63(12) Target Fraud That Was Unlawful Long Before the Enactment of These Statutes. .............................................................. 20 1. The Martin Act incorporates preexisting standards of investor fraud. ................................... 21 2. Executive Law § 63(12) also incorporates preexisting standards of fraud. .............................. 26 B. The Preexisting Wrong of Fraud Targeted by the Martin Act and § 63(12) Is Not Limited to Common-Law Fraud. ..................................................... 29 1. Scienter was not an essential element to obtain equitable relief under preexisting standards for fraud. ................................................ 30 2. Neither reliance nor damages was an essential element of liability under preexisting law in an action for equitable relief for fraud, particularly in a suit brought by a government enforcer. ................................................................... 33 3. The Martin Act and § 63(12) apply to the same types of misrepresentations recognized by preexisting decisional law. ..................................... 40 4. Defendants’ attempts to narrow the scope of fraud remediable in equity are meritless. .............. 47 C. The History and Purpose of New York’s Six-Year Statutes of Limitations Support Their Application to Fraud Claims Brought under the Martin Act and § 63(12). ................................................................... 51 iii TABLE OF CONTENTS (cont'd) Page 1. C.P.L.R. 213(1)’s origin as a limitations period for cases in equity supports its application to claims invoking equitable principles. ..................... 52 2. Alternatively, C.P.L.R. 213(8)’s origins as a limitations period for claims seeking equitable relief for fraud would also support its application here. ..................................................... 56 3. Important underlying policies reinforce the propriety of a six-year limitations period............... 58 D. This Court’s Decision in Gaidon II Does Not Compel the Application of a Three-Year Statute of Limitations Here. ........................................................... 61 1. Gaidon II involved claims brought under a broader statute that, unlike the statutes at issue here, was deliberately drafted to expand preexisting standards of liability. .......................... 62 2. Gaidon II did not hold that common-law fraud is the only relevant antecedent for determining the statute of limitations for claims under the Martin Act and § 63(12).......................................... 66 POINT II EVEN IF THIS COURT WERE TO ACCEPT DEFENDANTS’ INCORRECT THEORY, IT SHOULD PERMIT THIS CASE TO GO FORWARD BECAUSE THE COMPLAINT ADEQUATELY ALLEGES ALL THE ELEMENTS OF COMMON-LAW FRAUD ............................. 70 POINT III EXECUTIVE LAW § 63(12) PROVIDES AN INDEPENDENT CAUSE OF ACTION FOR FRAUD ..................................................... 73 CONCLUSION ............................................................................... 76 iv TABLE OF AUTHORITIES Cases Page(s) Adams v. Gillig, 199 N.Y. 314 (1910) ................................................................... 67 Aetna Life & Cas. Co. v. Nelson, 67 N.Y.2d 169 (1986) ................................................................. 19 Albany Motor Inn & Rest. v. Watkins, 85 A.D.2d 797 (3d Dep’t 1981) ................................................... 32 Allstate Ins. Co. v. Stein, 1 N.Y.3d 416 (2004) ................................................................... 69 Amalfitano v. Rosenberg, 12 N.Y.3d 8 (2009) ..................................................................... 55 Andresen v. Maryland, 427 U.S. 463 (1976) .................................................................... 58 Assured Guar. (UK) Ltd. v. J.P. Morgan Inv. Mgt. Inc., 18 N.Y.3d 341 (2011) ................................................................. 74 Bank v. Board of Educ. of City of N.Y., 305 N.Y. 119 (1953) ................................................................... 43 Bloomquist v. Farson, 222 N.Y. 375 (1918) ........................................................... passim Brown v. Lockwood, 76 A.D.2d 721 (2d Dep’t 1980) ................................................... 50 Buttles v. Smith, 281 N.Y. 226 (1939) ................................................................... 56 Campaign for Fiscal Equity v. State of New York, 100 N.Y.2d 893 (2003) ............................................................... 67 v TABLE OF AUTHORITIES (cont’d) Cases Page(s) Campaign for Fiscal Equity v. State of New York, 86 N.Y.2d 307 (1995) ................................................................... 9 Canadian Agency, Ltd. v. Assets Realization Co., 165 A.D. 96 (1st Dep’t 1914) ...................................................... 48 Central Bank of Denver, N.A. v. First Interstate Bank of Denver, 511 U.S. 164 (1994) .................................................................... 36 Commercial Credit Corp. v. Third & Lafayette Sts. Garage, Inc., 226 A.D. 235 (4th Dep’t 1929) ............................................. 23, 34 Commonwealth of Pennsylvania ex rel. Corbett v. Citizens Alliance for Better Neighborhoods, Inc., 983 A.2d 1274 (Pa. Commw. Ct. 2009) ...................................... 60 CPC Intl. Inc. v. McKesson Corp., 70 N.Y.2d 268 (1987) ................................................................... 5 D’Angelo v. Hastings Oldsmobile, 89 A.D.2d 785 (4th Dep’t 1982) ................................................. 34 D.C.K. Enters. v. United States, 45 Fed. Cl. 280 (1999) ................................................................ 33 Del Vecchio v. Nassau County, 118 A.D.2d 615 (2d Dep’t 1986) ........................................... 50, 51 Detrick v. Aetna Cas. & Sur. Co., 261 Iowa 1246 (1968) ................................................................. 30 Downey v. Finucane, 205 N.Y. 251 (1912) ................................................................... 43 Dress Shirt Sales v. Hotel Martinique Assoc., 12 N.Y.2d 339 (1963) ................................................................. 34 vi TABLE OF AUTHORITIES (cont’d) Cases Page(s) Dunham v. Ottinger, 243 N.Y. 423 (1926) ................................................................... 21 Estados Unidos Mexicanos v. DeCoster, 229 F.3d 332 (1st Cir. 2000) ...................................................... 39 Federal Housing Fin. Agency v. Nomura Holding Am., Inc., Docket Nos. 15-1872-cv(L), 15-1874-cv(CON), 2017 WL 4293322 (2d Cir. Sept. 28, 2017) ................................ 50 F.T.C. v. R.F. Keppel & Bro., 291 U.S. 304 (1934) .................................................................... 63 F.T.C. v. Sperry & Hutchinson Co., 405 U.S. 233 (1972) .................................................................... 63 Gabelli v. S.E.C., 568 U.S. 442 (2013) .................................................................... 38 Gaidon v. Guardian Life Ins. Co. of Am., 96 N.Y.2d 201 (2001) ......................................................... passim Haebler v. Crawford, 258 N.Y. 130 (1932) ................................................................... 48 Hammond v. Pennock, 61 N.Y. 145 (1874) ................................................... 22, 31, 35, 48 Hartnett v. New York City Tr. Auth., 86 N.Y.2d 438 (1995) ................................................................. 19 Hearn 45 St. Corp. v. Jano, 283 N.Y. 139 (1940) ................................................................... 56 Hopkins v. Lincoln Trust Co., 233 N.Y. 213 (1922) ................................................................... 57 vii TABLE OF AUTHORITIES (cont’d) Cases Page(s) Jack Kelly Partners LLC v. Zegelstein, 140 A.D.3d 79 (1st Dep’t 2016) .................................................. 32 Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619 (1981) ...................................................................... 30 Junius Constr. Corp. v. Cohen, 257 N.Y. 393 (1931) ................................................................... 43 Karlin v. IVF Am., 93 N.Y.2d 282 (1999) ................................................................. 64 Kilbourn v. Sunderland, 130 U.S. 505 (1889) .............................................................. 22, 30 Kokesh v. S.E.C., 137 S. Ct. 1635 (2017) ................................................................ 59 Krinsky v. Title Guar. & Trust Co., 163 Misc. 833 (App. Term 1st Dep’t 1937) .......................... 34, 35 List v. Fashion Park, Inc., 340 F.2d 457 (2d Cir. 1965) ....................................................... 37 Loengard v. Santa Fe Indus. Inc., 70 N.Y.2d 262 (1987) ................................................................. 66 Matter of Badem Bldgs. v. Abrams, 70 N.Y.2d 45 (1987) ............................................................. 24, 31 Matter of Ottinger v. State Civ. Serv. Commn., 240 N.Y. 435 (1925) ................................................................... 24 Matter of People v. American Motor Club, 179 A.D.2d 277 (1st Dep’t 1992) .......................................... 74, 75 viii TABLE OF AUTHORITIES (cont’d) Cases Page(s) Matter of People v. Frink Am., 2 A.D.3d 1379 (4th Dep’t 2003) ................................................. 75 Matter of People v. Telehublink Corp., 301 A.D.2d 1006 (3d Dep’t 2003) ............................................... 75 Matter of People v. Trump Entrepreneur Initiative LLC, 137 A.D.3d 409 (1st Dep’t 2016) .................................... 17, 75, 76 McCann v. Hy-Vee, Inc., 663 F.3d 926 (7th Cir. 2011) ................................................ 37, 38 Melcher v. Greenberg Traurig, LLP, 23 N.Y.3d 10 (2014) ................................................. 51, 55, 68, 69 Moore v. Crawford, 130 U.S. 122 (1889) .................................................................... 46 N.L.R.B. v. Amax Coal Co., 453 U.S. 322 (1981) .................................................................... 26 Orr v. Kinderhill Corp., 991 F.2d 31 (2d Cir 1993) .......................................................... 69 Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20 (1995) ................................................................... 64 People v. Apple Health & Sports Clubs, 206 A.D.2d 266 (1st Dep’t 1994) ................................................ 74 People v. Apple Health & Sports Clubs, Ltd., 80 N.Y.2d 803 (1992) ................................................................... 8 People v. Barclays Capital Inc., 47 Misc. 3d 862 (Sup. Ct. N.Y. County 2015) ............................ 47 ix TABLE OF AUTHORITIES (cont’d) Cases Page(s) People v. Charles Schwab & Co., Inc., 109 A.D.3d 445 (1st Dep’t 2013) .......................................... 42, 75 People v. Coventry First LLC, 13 N.Y.3d 108 (2009) ................................................................... 8 People v. Coventry First LLC, 52 A.D.3d 345 (1st Dep’t 2008) ............................................ 74, 75 People v. Federated Radio Corp., 244 N.Y. 33 (1926) ............................................................. passim People v. General Elec. Co., 302 A.D.2d 314 (1st Dep’t 2003) ................................................ 74 People v. Grasso, 11 N.Y.3d 64 (2008) ................................................................... 58 People v. Greenberg, 95 A.D.3d 474 (1st Dep’t 2012) .................................................. 74 People v. Greenberg, 27 N.Y.3d 490 (2016) ................................................. 6, 38, 54, 74 People v. Helena VIP Personal Introductions Servs. of N.Y., 199 A.D.2d 186 (1st Dep’t 1993) ................................................ 74 People v. Lexington Sixty-First Assoc., 38 N.Y.2d 588 (1976) ................................................................. 54 People v. Minuse, 273 A.D. 457 (1st Dep’t 1948) .................................................... 56 People v. Tellier, 7 Misc. 2d 43 (Sup. Ct. N.Y. County 1956) ................................ 54 x TABLE OF AUTHORITIES (cont’d) Cases Page(s) People v. World Interactive Gaming Corp., 185 Misc. 2d 852 (Sup. Ct. N.Y. County 1999) .......................... 42 Purdue Pharma L.P. v. Kentucky, 704 F.3d 208 (2d Cir. 2013) ....................................................... 40 Reno v. Bull, 226 N.Y. 546 (1919) ................................................................... 21 Rush v. Oppenheimer & Co., 650 F. Supp. 682 (S.D.N.Y. 1986) .............................................. 33 S.E.C. v. Blavin, 760 F.2d 706 (6th Cir. 1985) ................................................ 38, 39 S.E.C. v. Capital Gains Research Bur., Inc., 375 U.S. 180 (1963) ........................................................ 23, 30, 32 S.E.C. v. Morgan Keegan & Co., 678 F.3d 1233 (11th Cir. 2012) ............................................ 36, 38 S.E.C. v. Rana Research, Inc., 8 F.3d 1358 (9th Cir. 1993) ............................................ 36, 37, 38 S.E.C. v. Rind, 991 F.2d 1486 (9th Cir. 1993) .............................................. 37, 38 Seneca Wire & Mfg. Co. v. Leach & Co., 247 N.Y. 1 (1928) ................................................................. 22, 49 Shepard Co. v. Taylor Publ. Co., 234 N.Y. 465 (1923) ................................................................... 18 Sheridan Drive-In, Inc. v. State of New York, 16 A.D.2d 400 (4th Dep’t 1962) ................................................. 44 Shields v. State of Texas, 27 S.W.3d 267 (Tex. App. 2000) ................................................. 60 xi TABLE OF AUTHORITIES (cont’d) Cases Page(s) Slaney v. Westwood Auto, 366 Mass. 688 (1975) ................................................................. 63 State of Connecticut v. Lombardo Bros. Mason Constructors, Inc., 307 Conn. 412 (2012) ................................................................. 60 State of Maryland v. Mayor & City Council of Baltimore, 296 Md. 67 (1983) ...................................................................... 60 State of New Hampshire v. Lake Winnipesaukee Resort, LLC, 159 N.H. 42 (2009) ..................................................................... 60 State of New York by Abrams v. General Motors Corp., 547 F. Supp. 703 (S.D.N.Y. 1982) .............................................. 39 State of New York v. Bronxville Glen I Assoc., 181 A.D.2d 516 (1st Dep’t 1992) ...................................... 2, 15, 52 State of New York v. Cortelle Corp., 38 N.Y.2d 83 (1975) ........................................................... passim State of New York v. Rachmani Corp., 71 N.Y.2d 718 (1988) ........................................................... 28, 45 State of New York v. Wolowitz, 96 A.D.2d 47 (2d Dep’t 1983) ....................................................... 7 State of New York v. Daicel Chem. Indus., Ltd., 42 A.D.3d 301 (1st Dep’t 2007) .................................................. 65 State v. McLeod, 2006 N.Y. Slip Op. 50942(U) (Sup. Ct. N.Y. County Feb. 9, 2006) .......................................... 60 Stevenson Equip. v. Chemig Constr. Corp., 170 A.D.2d 769 (3d Dep’t 1991) ................................................. 45 xii TABLE OF AUTHORITIES (cont’d) Cases Page(s) United States v. Vilar, 729 F.3d 62 (2d Cir. 2013) ................................................... 36, 37 Laws New York C.P.L.R. 213 .................................................................................... 57 Code of Civ. Pro. § 382 (1876) ........................................................ 57 Executive Law § 63 ................................................................................... 7, 55, 73 § 175 ........................................................................................... 73 General Business Law § 342 ........................................................................................... 73 § 349 ..................................................................................... 63, 73 § 352 ............................................................................................. 5 § 352-c .......................................................................................... 5 § 353 ......................................................................................... 5, 6 Rev. Stat. of N.Y., vol. 2 (3d ed. 1848) ..................................... 53, 56 Other States Alaska Stat. § 09.10.120 ................................................................. 60 Ariz. Rev. Stat. § 12-510 ................................................................. 60 Del. Code Ann. tit. 6, § 73-503 ....................................................... 60 Fla. Stat. Ann. § 517.191 ................................................................ 60 Haw. Rev. Stat. Ann. § 657-1.5 ...................................................... 60 Miss. Code Ann. § 15-1-51 .............................................................. 60 xiii TABLE OF AUTHORITIES (cont’d) Laws Page(s) N.J. Stat. Ann. § 2A:14-1.2 ............................................................ 60 Or. Rev. Stat. § 12.250 ................................................................... 60 Tenn. Code Ann. § 28-1-113 ........................................................... 60 Federal Securities Litigation Uniform Standards Act, Pub. L. No. 105-353, 112 Stat. 3227 (1998)............................... 61 28 U.S.C. § 2462 ............................................................................. 59 Session Laws Ch. 379, 1848 N.Y. Laws 497 ................................................... 53, 57 Ch. 438, 1849 N.Y. Laws 613 ................................................... 53, 57 Ch. 480, 1920 N.Y. Laws 1245 ....................................................... 57 Ch. 553, 1955 N.Y. Laws 1255 ................................................... 6, 24 Ch. 592, 1956 N.Y. Laws 1336 ................................................... 8, 26 Ch. 666, 1965 N.Y. Laws 1678 .................................................... 9, 27 Miscellaneous Authorities Ambrose V. McCall, Comments on the Martin Act, 3 Brook. L. Rev. 190 (1933) .............................................. 21, 23, 25 Harry Shulman, Civil Liability and the Securities Act, 43 Yale L.J. 227 (1933) .............................................................. 49 J. Cyril O’Connor, Power of a Court of Equity to Ascertain and Award Permanent Damages in Lieu of Injunction, 9 St. John’s L. Rev. 395 (1935) ............................... 54 xiv TABLE OF AUTHORITIES (cont’d) Miscellaneous Authorities Page(s) J. Pomeroy, A Treatise on Equity Jurisprudence, vol. 3 (5th ed. 1941) .................................................................... 30 Joseph Story, Commentaries on Equity Jurisprudence, vol. 1 (6th ed. 1853) .................................................. 20, 22, 31, 41 Letter from Assn. of the Bar of the City of N.Y. to Hon. Sol Corbin (June 18, 1965), reprinted in Bill Jacket for ch. 666 (1965) ................................. 27 Liability for Misrepresentations in Corporate Prospectuses, 40 Yale L.J. 987 (1931) .................................. 21, 49 Mem. of Deputy Att’y Gen. Sally Quillian Yates for Assistant Att’y Gen., Antitrust Div., et al. (Sept. 9, 2015), available at https://justice.gov/archives/dag/file/769036/download .............. 59 Mem. of the State Dep’t of Law to the Governor (Apr. 7, 1955), reprinted in Bill Jacket for ch. 553 (1955) ............................. 6, 24 Mildred V. Coe & Lewis W. Morse, Chronology of the Development of the David Dudley Field Code, 27 Cornell L. Rev. 238 (1942) .................................................... 53 60A N.Y. Jur. 2d Fraud and Deceit § 92 ........................................ 44 Report of the Commissioners on Practice and Pleadings, vol. 1 (1848) ................................................................................ 57 Report of the Special Comm. Appointed by the Governor to Provide Proper Supervision & Regulation in Connection with Sec. Offered to the Public for Investment, 1920 N.Y. Legis. Doc. No. 81 ..................................................... 25 Restatement (First) of Torts § 529 (1938) ...................................... 44 Restatement (Second) of Torts § 551 (1977) .................................. 44 xv TABLE OF AUTHORITIES (cont’d) Miscellaneous Authorities Page(s) Sponsor’s Mem. (Jan. 5, 1965), reprinted in Bill Jacket for ch. 666 (1965) ................................ 28 State Dep’t of Law Mem., reprinted in 1956 N.Y.S. Legislative Annual 92 ....................... 27 Temporary Commn. on the Courts, Second Preliminary Report of the Advisory Comm. on Practice and Procedure, 1958 N.Y. Legis. Doc. No. 13 ............................. 53, 57 U.S. Sec. & Exch. Commn., Fast Answers: Mortgage-Backed Securities (July 2010), https://www.sec.gov/fast-answers/answersmortgage securitieshtm.html....................................................................... 9 William A. Lovett, State Deceptive Practice Legislation, 46 Tul. L. Rev. 724 (1972) .......................................................... 63 PRELIMINARY STATEMENT The Attorney General brings this enforcement action under the Martin Act (General Business Law article 23-a) and Executive Law § 63(12) to seek redress for defendants’ fraud in the creation and sale of residential mortgage-backed securities (RMBS) leading up to the financial crisis.1 Defendants moved to dismiss the Attorney General’s claims on the ground that they were untimely. Supreme Court, New York County (Friedman, J.) denied the motion to dismiss, and the Appellate Division, First Department affirmed. This Court should affirm as well. As detailed in the complaint, defendants falsely assured investors that they had carefully evaluated the quality of the mortgage loans in their RMBS to ensure that the loans complied with the applicable underwriting guidelines, and that borrowers were able and willing to make the mortgage payments that provided 1 Defendants are Credit Suisse Securities (USA) LLC, f/k/a “Credit Suisse First Boston LLC,” DLJ Mortgage Capital, Inc., Credit Suisse First Boston Mortgage Securities Corporation, Asset Backed Securities Corporation, and Credit Suisse Mortgage Acceptance Corporation. 2 the income stream for their securities. In reality, defendants took a variety of steps to promote, rather than prevent, the inclusion of loans they knew were deeply problematic. The courts below correctly rejected defendants’ argument that the Attorney General’s claims are untimely. As this Court and the lower courts have squarely held, the Attorney General’s fraud claims under the Martin Act and § 63(12) are subject to a six-year statute of limitations because they “seek essentially to redress wrongs previously known to the law.” State of New York v. Cortelle Corp., 38 N.Y.2d 83, 89 (1975); see also State of New York v. Bronxville Glen I Assoc., 181 A.D.2d 516, 516 (1st Dep’t 1992). These statutes’ incorporation of preexisting liability forecloses the application of C.P.L.R. 214(2)’s three-year limitations period for liabilities created by statute. Defendants’ contrary argument relies on the untenable assertion that the Martin Act and § 63(12) made unlawful what was previously permissible. But investor fraud was widely understood to be an actionable wrong long before the Martin Act’s passage in 1921. And it was well established that equitable relief was available 3 for investor fraud even without proof of scienter or the other elements necessary to obtain money damages under the common law. In enacting the Martin Act and later § 63(12), the Legislature codified the availability of equitable remedies to combat investor fraud and authorized the Attorney General to pursue those remedies. In doing so, the Legislature expressly intended to incorporate the full breadth of fraudulent conduct recognized at both law and equity and to give the Attorney General standing and additional remedies to address these wrongs. These statutes thus did not create new liability for purposes of C.P.L.R. 214(2). Contrary to defendants’ arguments, this Court’s decision in Gaidon v. Guardian Life Insurance Co. of America, 96 N.Y.2d 201 (2001) (“Gaidon II”), does not compel a different conclusion. Gaidon II applied C.P.L.R. 214(2) to a private damages claim under General Business Law § 349(h). Unlike the Martin Act and Executive Law § 63(12)—which expressly target “fraud” and incorporate well- established understandings of that term—General Business Law § 349 bars “deceptive practices,” a new concept encompassing a broader range of conduct than that previously condemned by 4 decisional law. This Court’s holding in Gaidon II thus does not control the limitations period for the fraud statutes at issue here. QUESTIONS PRESENTED 1. Does a six-year statute of limitations apply to investor- fraud claims asserted by the Attorney General under the Martin Act and Executive Law § 63(12), when those statutes target wrongs that were already condemned by prior decisional law? 2. If this Court were to accept defendants’ theory that proof of common-law fraud is necessary to invoke a six-year statute of limitations under the Martin Act and Executive Law § 63(12), would the complaint in this case survive in any event because it adequately alleges all the elements of common-law fraud? The courts below answered both questions in the affirmative. 5 STATEMENT OF THE CASE A. Statutory Background The Attorney General brought this action under the Martin Act and Executive Law § 63(12), which are two of the State’s most important tools for ensuring the integrity of the securities markets and protecting investors from fraudulent and illegal practices. 1. The Martin Act The Martin Act was enacted in 1921 “to prevent all kinds of fraud in connection with the sale of securities and commodities and to defeat all unsubstantial and visionary schemes in relation thereto whereby the public is fraudulently exploited.” People v. Federated Radio Corp., 244 N.Y. 33, 38 (1926). The statute gives the Attorney General exclusive “regulatory and remedial powers to prevent fraudulent securities practices by investigating and intervening at the first indication of possible securities fraud on the public and, thereafter, if appropriate, to commence civil or criminal prosecution.” CPC Intl. Inc. v. McKesson Corp., 70 N.Y.2d 268, 277 (1987); see General Business Law (GBL) §§ 352, 352-c, 353. In civil enforcement actions brought under the Martin Act, the Attorney 6 General may seek a broad range of equitable remedies, including an injunction, restitution, and disgorgement, as well as damages. See GBL § 353; People v. Greenberg, 27 N.Y.3d 490, cert. denied sub. nom. Greenberg v. New York, 137 S. Ct. 591 (2016). As originally enacted, the Martin Act contained no definition of the fraudulent practices covered by the statute. Instead, as this Court explained shortly after the Martin Act’s enactment, the Legislature intended to incorporate preexisting understandings of fraud derived from “other sources,” including the well-established liability for “equitable fraud” (as distinct from “actual or intentional or legal fraud”), which allowed courts to award equitable relief for material misrepresentations made without scienter. Federated Radio, 244 N.Y. at 38, 41. The Legislature later amended GBL § 352 to “bring[ ] it clearly within the holding of the Federated Radio case” by clarifying that the “fraudulent practices” covered by the Martin Act include “any deception, misrepresentation, concealment, suppression, fraud, false pretense or false promise.” Mem. of the State Dep’t of Law to the Governor (Apr. 7, 1955), reprinted in Bill Jacket for ch. 553 (1955) at 11; Ch. 553, § 1, 1955 N.Y. Laws 1255, 1256. 7 2. Executive Law § 63(12) Like the Martin Act, Executive Law § 63(12) confers on the Attorney General a “mandate . . . from the Legislature to protect the public from deceptive, misleading, fraudulent and otherwise illegal business practices.” State of New York v. Wolowitz, 96 A.D.2d 47, 57 (2d Dep’t 1983). Unlike the Martin Act, Executive Law § 63(12) is not limited to the securities market, but covers the “carrying on, conducting or transact[ing] [of] business” more broadly. Executive Law § 63(12); see Wolowitz, 96 A.D.2d at 59-60. Under § 63(12), the Attorney General may bring a special proceeding seeking an injunction, restitution, damages, and other relief against any person who engages in “repeated fraudulent or illegal acts” or “persistent fraud or illegality”2 in business activities. Executive Law § 63(12). Like the Martin Act, § 63(12) is enforceable 2 Executive Law § 63(12) defines “repeated” fraud to include “repetition of any separate and distinct fraudulent . . . act” and fraudulent “conduct which affects more than one person.” The statute defines “persistent” fraud to include “continuance or carrying on of any fraudulent . . . act or conduct.” The “illegality” prohibited by § 63(12) could be a violation of a federal, state, or local statute or regulation, not necessarily involving fraud. 8 only by the Attorney General, who is empowered to conduct investigations and prosecute civil enforcement actions. People v. Coventry First LLC, 13 N.Y.3d 108, 114 (2009); People v. Apple Health & Sports Clubs, Ltd., 80 N.Y.2d 803, 807 (1992); Cortelle, 38 N.Y.2d at 85. This Court has recognized that the Legislature intended § 63(12) to “incorporate[ ] already existing standards applied to fraudulent behavior always recognized as such,” rather than to invent a new species of liability. Cortelle, 38 N.Y.2d at 87. Thus, like the Martin Act, § 63(12) as originally enacted provided no definition of the term “fraud,” and thereby necessarily incorporated the well-established understanding of fraud both under the common law and in equity. See Ch. 592, § 1, 1956 N.Y. Laws 1336, 1336. And like the Martin Act, § 63(12) was later amended to clarify the Legislature’s intent to incorporate into the statute the well- settled understanding of fraud at law and in equity. Under that definition, fraud includes “any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, 9 false pretense, false promise or unconscionable contractual provisions.” Ch. 666, § 1, 1965 N.Y. Laws 1678, 1678. B. Defendants’ Fraudulent Conduct in the Creation and Sale of Residential Mortgage- Backed Securities This action arises out of material misrepresentations made by defendants in connection with their creation and sale of RMBS in 2006 and 2007. (Appendix (A.) 44-45 [¶ 2].) The following allegations of the Attorney General’s complaint must be accepted as true for purposes of defendants’ motion to dismiss the complaint. Campaign for Fiscal Equity v. State of New York, 86 N.Y.2d 307, 318 (1995). RMBS are securities created by pooling large numbers of mortgage loans into trusts and selling certificates to investors with a promise of a share of the stream of income generated by repayment of the mortgages.3 (A. 44 [¶ 1].) Defendants are affiliated corporate entities that had various roles in transactions to securitize mortgage loans into RMBS. In different securitizations, they served (1) as 3 See generally U.S. Sec. & Exch. Commn., Fast Answers: Mortgage-Backed Securities (July 2010), https://www.sec.gov/fast- answers/answersmortgagesecuritieshtm.html. 10 “sponsors” of the transactions, by purchasing mortgage loans from third-party originators (i.e., loan issuers) and structuring transactions to securitize the loans; (2) as “depositors,” by receiving the pooled loans and issuing certificates; or (3) as “underwriters,” by offering the certificates for sale to the investing public. (A. 47 [¶¶ 8-10], 48 [¶ 14].) Because RMBS generate income for investors from the ongoing payments made on the thousands of pooled individual mortgage loans, the quality of those underlying loans—that is, the likelihood that the borrowers will continue to repay the loans during the life of the security—substantially affects the risk associated with the security. (See A. 44 [¶ 1], A. 48-49 [¶ 15-16].) Defendants’ offering materials and other statements to investors misrepresented both the overall quality of the loans underlying the securities and their own efforts to ensure that these loans were as represented. Defendants repeatedly and consistently conveyed to investors that the loans in their securities had been originated in accordance with applicable underwriting guidelines, which defendants represented were “primarily intended to assess the value of the 11 mortgaged property and . . . the applicant’s . . . ability to repay.” (A. 58-59 [¶ 40].) Defendants also represented in marketing materials that their “philosophy” was to “purchase/originate loans that demonstrate[d] a borrower’s ability and willingness to repay debt.” (A. 59-60 [¶ 42].) But defendants’ representations about their due diligence, their loans’ adherence to underwriting guidelines, and borrowers’ ability to repay were false. (A. 60 [¶ 43].) As the Attorney General’s complaint details, defendants increased loan volume regardless of loan quality to further their objective of securitizing as many loans as possible. (See A. 52-55 [¶¶ 23-31].) Thus, defendants’ due-diligence reviews of loans were superficial and inadequate. (A. 60-61 [¶¶ 44-46].) Instead of identifying and eliminating loans that were unlikely to be repaid from the pools provided by originators, due-diligence review routinely gave way to defendants’ overriding efforts to bring in an ever- increasing volume of loans for securitization and to their desire to maintain good relationships with originators, which were the sources of the loans they securitized. (A. 60-62 [¶¶ 44-48]; see also A. 52-55 [¶¶ 23-31], 67-71 [¶¶ 59-66].) 12 Indeed, with respect to one significant and particularly high- risk category of loans—namely, “stated-income” loans, for which the applicant could state his income on the loan application without supplying supporting documentation (A. 59 [¶ 41])—defendants abandoned the most basic inquiry into the borrowers’ stated income. Instead, defendants simply accepted on faith the borrower’s representations about income, which in many cases were facially suspicious and proved to be false or exaggerated. (A. 63-64 [¶¶ 50-52].) And, even when defendants’ inadequate due diligence did identify problem loans, defendants routinely overlooked or “waived” in large numbers of these loans into the pools anyway. (A. 64-65 [¶¶ 53-55].) Defendants knew that many of the loans they were purchasing for securitization were fundamentally flawed in that they had been issued to borrowers who were either unable or unwilling to make the required monthly payments; the loans were unlikely to be repaid and therefore unlikely to generate income for investors. Defendants monitored and ranked originators through “watch lists” and “score cards” (A. 49-50 [¶ 18]), and acknowledged 13 in internal e-mails particularly severe deficiencies in loans from a number of originators with whom they regularly did business (A. 50 [¶ 19], 53-55 [¶¶ 28-31], 68-71 [¶¶ 60, 62-63, 66]). Yet, while they recognized internally the fundamental problems with their loan sources, defendants continued to represent to investors that their RMBS contained high-quality, income-generating loans that complied with applicable underwriting guidelines. (A. 58-59 [¶ 40].) Defendants also falsely represented in marketing materials that they were able to “influence” originators (i.e., the original lenders) so that the originators would use “appropriate origination practices” to identify good borrowers and thus generate good loans. (A. 67-68 [¶ 59].) Defendants, in fact, did not seek to influence originators’ loan-issuing practices, but instead sought to appease originators in an effort to ensure that the flow of loans would continue. (A. 67-68 [¶ 59].) Thus, defendants granted originators incentives that were volume-based and not tied to the performance of the underlying loans (A. 70 [¶ 65]), as well as exceptions to key components of underwriting guidelines (A. 70- 71 [¶ 66]; see also A. 68-69 [¶ 61]). 14 As a result of defendants’ misrepresentations regarding loan quality and due diligence, investors were deceived about defendants’ efforts to ensure the quality of the loans underlying their RMBS, and about the viability of the loans themselves. The loans underlying these RMBS were subsequently subject to extraordinary rates of delinquency, and investors suffered tremendous losses. Moreover, the credit ratings of these securities have been drastically downgraded, often from investment grade to “junk bond” status, further harming investors. (A. 51-52 [¶¶ 21-22].) C. The Attorney General’s Enforcement Action Alleging Investor Fraud The Attorney General commenced this action in November 2012, alleging that defendants’ misrepresentations regarding their RMBS constituted securities fraud in violation of the Martin Act and repeated or persistent fraud or illegality in the carrying on of business in violation of § 63(12). (A. 73 [¶¶ 73-76].) The complaint seeks injunctive relief, an accounting, disgorgement of ill-gotten gains, damages, and attorneys’ fees and costs. (A. 73-74.) 15 1. Supreme Court’s denial of defendants’ motion to dismiss Defendants moved to dismiss the complaint on various grounds, including that the Attorney General’s claims were time- barred and that the allegations failed to state a cause of action. In a decision and order dated December 24, 2014, Supreme Court (Friedman, J.) denied the motion. (A. 24-40.) The court first held that the Attorney General’s claims were timely, rejecting defendants’ assertion that the claims were subject to C.P.L.R. 214(2)’s three- year statute of limitations for claims based on liabilities “created or imposed by statute.” (A. 27 (quotation marks omitted).) The court concluded that the claim instead was subject to a six-year statute of limitations under either C.P.L.R. 213(1)’s residual limitations period or, alternatively, under C.P.L.R. 213(8)’s provision for fraud actions. (A. 26-27.) In so holding, the court relied on “substantial authority” holding that a six-year limitations period governed fraud actions by the Attorney General—including this Court’s decision in Cortelle, which applied C.P.L.R. 213(1) to fraud claims under Executive Law § 63(12); and the First Department’s decision in State of New York 16 v. Bronxville Glen I Assoc., 181 A.D.2d 516 (1st Dep’t 1992), which applied C.P.L.R. 213(8) to fraud claims under the Martin Act. (A. 28-29.) Applying these authorities, the court determined that the Attorney General’s complaint alleged that defendants “made false representations in order to induce investors to purchase their securities”—claims that would constitute “classic, longstanding common-law tort of investor fraud”—and thus are subject to a six- year statute of limitations.4 (A. 34.) 2. The First Department’s affirmance of Supreme Court’s order Defendants appealed to the First Department solely on the ground that the Attorney General’s fraud claims were subject to a three-year limitations period and were accordingly untimely. Like Supreme Court, the First Department rejected defendants’ statute- of-limitations argument and affirmed the decision below. (A. 2-8.) 4 Supreme Court also rejected defendants’ challenge to the adequacy of the Attorney General’s allegations, holding that they stated a claim of fraud with particularity under the heightened pleading standard of C.P.L.R. 3106(b). (A. 34.) Defendants did not challenge that ruling on appeal to the First Department and do not do so here. 17 Relying on Cortelle and Bronxville, as well as its recent decision in Matter of People v. Trump Entrepreneur Initiative LLC, 137 A.D.3d 409 (1st Dep’t 2016), the First Department held that fraud claims by the Attorney General under the Martin Act and § 63(12) are subject to a six-year limitations period because those statutes did not invent new liability, but rather provided “additional remedies for recognized wrongs which pre-existed the statute[s].” (A. 6 (quotation marks and emphasis omitted)). The First Department further held that the Attorney General’s claims plainly targeted preexisting wrongs by alleging “that Credit Suisse made false representations in order to induce investors to purchase” RMBS. (A. 4.) The Court concluded that these allegations sufficed not only to state claims under the Martin Act and § 63(12), but also to establish “the elements of common-law fraud, including scienter or intent, reliance, and damages.” (A. 8.) Two members of the panel dissented. They would have found that the complaint did not allege the elements of a common-law fraud claim for damages, and that in the absence of those elements, the Attorney General’s claims would be seeking to impose a new form 18 of liability created by statute, and thus subject to the three-year limitations period of C.P.L.R. 214(2). (A. 9-22 (Andrias, J., dissenting).) ARGUMENT POINT I A SIX-YEAR LIMITATIONS PERIOD APPLIES TO INVESTOR FRAUD CLAIMS BY THE ATTORNEY GENERAL UNDER THE MARTIN ACT AND EXECUTIVE LAW § 63(12) The courts below correctly held that the Attorney General’s investor fraud claims under the Martin Act and Executive Law § 63(12) are governed by a six-year limitations period, not the three-year period prescribed by C.P.L.R. 214(2) for actions to enforce a liability “created or imposed by statute.” This Court should accordingly affirm the decision below and reject defendants’ attempt to dismiss the Attorney General’s claims as untimely. This Court has long recognized that C.P.L.R. 214(2)’s three- year limitations period does not “automatically apply to all causes of action in which a statutory remedy is sought.” Gaidon II, 96 N.Y.2d at 208. Instead, it applies only when a statute gives rise to liability that “would not exist but for the statute,” Shepard Co. v. Taylor Publ. Co., 234 N.Y. 465, 468 (1923) (per curiam) (discussing 19 predecessor statute)—i.e., when there has been “a governmental statutory denouncement of a human action heretofore undenounced,” Hartnett v. New York City Tr. Auth., 86 N.Y.2d 438, 444 (1995) (quotation marks omitted). C.P.L.R. 214(2) is thus triggered only when a statute targets acts “that were never previously condemned by decisional law” and thus “were never legally cognizable” before the statute’s enactment. Gaidon II, 96 N.Y.2d at 209-10 (emphases added). By contrast, if a statute “merely codifies or implements an existing liability,” C.P.L.R. 214(2) is inapplicable. Aetna Life & Cas. Co. v. Nelson, 67 N.Y.2d 169, 174 (1986). As the courts below correctly recognized, these well-established principles defeat defendants’ attempt here to apply C.P.L.R. 214(2)’s three-year limitations period to the Attorney General’s fraud claims. The Legislature’s enactment of the Martin Act and § 63(12) did not “‘make’ unlawful,” Cortelle, 38 N.Y.2d at 85, investor fraud of the type that the Attorney General alleges here. Rather, such fraud was widely understood to be unlawful even before the Martin Act was enacted in 1921. This Court has already held that the Martin Act’s use of the term “fraud” was intended to reference this preexisting 20 liability, see Federated Radio, 244 N.Y. at 38, and that § 63(12) likewise “incorporates already existing standards applied to fraudulent behavior always recognized as such,” Cortelle, 38 N.Y.2d at 85. Indeed, on the basis of this interpretation of § 63(12), this Court squarely held in Cortelle that a six-year rather than three- year limitations period applies to the Attorney General’s fraud claims under that statute. See id. at 89. This Court should reaffirm that holding here for both § 63(12) and the Martin Act. A. The Martin Act and § 63(12) Target Fraud That Was Unlawful Long Before the Enactment of These Statutes. The Martin Act and § 63(12) authorize the Attorney General to pursue securities and business “fraud,” and the Attorney General has invoked those statutes here to seek remedies for defendants’ fraud against RMBS investors. Neither statute made such investor fraud unlawful for the first time. To the contrary, fraud is one of the oldest forms of misconduct recognized by the law. See, e.g., 1 Joseph Story, Commentaries on Equity Jurisprudence § 186, at 218-19 (6th ed. 1853) (discussing ancient Roman commentaries on fraud). And 21 fraud against investors was a well-recognized and actionable wrong before the adoption of the Martin Act in 1921 or § 63(12) in 1956. 1. The Martin Act incorporates preexisting standards of investor fraud. By the end of World War I in 1918, it was “a matter of general knowledge that dishonest members of the business of dealing in securities” had been “pursu[ing] fraudulent practices whereby the rights of their customers were violated and on occasions the public widely victimized.” Dunham v. Ottinger, 243 N.Y. 423, 431 (1926); see also Ambrose V. McCall, Comments on the Martin Act, 3 Brook. L. Rev. 190, 192 (1933). Private lawsuits were a familiar remedy against such fraudulent conduct. Victims of such frauds had two main avenues of relief. See generally Note, Liability for Misrepresentations in Corporate Prospectuses, 40 Yale L.J. 987, 987-88 (1931) (citing cases from New York and elsewhere). They could file private damages actions for common-law fraud, which required proof of scienter, reliance, and damages. See, e.g., Reno v. Bull, 226 N.Y. 546, 552 (1919). Or they could pursue equitable relief for material misrepresentations without the additional proof required to establish 22 common-law fraud, since at equity fraud traditionally had “a more extensive signification than at law,” Kilbourn v. Sunderland, 130 U.S. 505, 515 (1889); see, e.g., Bloomquist v. Farson, 222 N.Y. 375, 380 (1918) (equitable relief warranted provided that “the proof establishes misrepresentations and that these are material”). Thus, well before the Martin Act was enacted, it was widely understood that courts had the power to award not only damages for knowing fraud, but also equitable relief for material misrepresentations. “In equity, the right to relief is derived from the suppression or misrepresentation of a material fact, though there be no intent to defraud.” Hammond v. Pennock, 61 N.Y. 145, 152 (1874); see also Seneca Wire & Mfg. Co. v. Leach & Co., 247 N.Y. 1, 8 (1928) (“Innocent misrepresentation is sufficient.”); Story, supra, § 187, at 219-20 (equity jurisdiction extends beyond “positive, actual fraud, where there is an intention to commit a cheat or deceit upon another to his injury,” and includes “the large class of implied or constructive frauds”). And equitable relief was available even without proof that the plaintiff “had suffered pecuniary loss by 23 reason of defendant’s fraud.” Commercial Credit Corp. v. Third & Lafayette Sts. Garage, Inc., 226 A.D. 235, 239 (4th Dep’t 1929). It was the full breadth of fraudulent conduct recognized at both law and equity that the Legislature intended the Martin Act to incorporate.5 The Act gave the Attorney General jurisdiction to police investor fraud that was “as broad as the equitable jurisdiction of the court[s].” McCall, supra, at 199. But the Act did not thereby create any new liability for fraud. As this Court explained in its seminal Federated Radio decision in 1926, just five years after the Martin Act took effect, the statue did not contain its own definition of “fraud” and “fraudulent practices.” 244 N.Y. at 38. Rather, it derived the meaning and substance of these well-known phrases from “other sources”—including prior cases imposing liability for “equitable fraud,” as distinct from “actual or intentional or legal fraud.” Id. at 38, 41. As this Court recognized, this preexisting 5 Similarly, Congress enacted the Investment Advisers Act of 1940 to prevent fraudulent practices by investment advisers against the backdrop of the judicially developed principle that “[f]raud has a broader meaning in equity (than at law).” S.E.C. v. Capital Gains Research Bur., Inc., 375 U.S. 180, 193 (1963) (quotation marks omitted). 24 understanding of “equitable fraud” included fraud committed without scienter or the other elements necessary to obtain damages under the common law—i.e., fraud “not originating in any actual evil design or contrivance to perpetrate fraud or injury upon others.” Id. at 33, 38-39; see also Matter of Badem Bldgs. v. Abrams, 70 N.Y.2d 45, 54 (1987) (noting that in Federated Radio, the Court had held that the Martin Act “was broad enough to encompass ‘equitable fraud’”).6 The Martin Act thus did not “create or impose” new liability warranting a shortened limitations period under C.P.L.R. 214(2). Cortelle, 38 N.Y.2d at 85. The legislative history of the Martin Act reinforces this conclusion. New York enacted the Martin Act at the same time that many other States were enacting their own “Blue Sky” laws to address investor fraud. See Matter of Ottinger v. State Civ. Serv. 6 The Legislature later confirmed its intent to incorporate this standard into the Martin Act by specifically defining “fraudulent practices” to include “any deception, misrepresentation, concealment, suppression, fraud, false pretense or false promise,” Ch. 553, § 1, 1955 N.Y. Laws 1255, 1256, so as to bring the statute “clearly within the holding of the Federated Radio case,” Mem. of the State Dep’t of Law to the Governor (Apr. 7, 1955), reprinted in Bill Jacket for ch. 553 (1955), at 11. 25 Commn., 240 N.Y. 435, 438 (1925). Other States’ laws created new obligations that had never before been imposed on securities markets, including securities dealer licensing requirements or registration and approval requirements for securities before sale. See McCall, supra, at 193-94. New York, however, eschewed such “experimental legislation.” Report of the Special Comm. Appointed by the Governor to Provide Proper Supervision & Regulation in Connection with Securities Offered to the Public for Investment, 1920 N.Y. Legis. Doc. No. 81 at 8. Instead, it adopted a proposal that simply vested the Attorney General with “jurisdiction over commercial frauds” and gave him authority to investigate and ferret out “fraudulent practices”—i.e., fraud already recognized as such. Id. at 12-13. The Legislature’s explicit and considered judgment to incorporate existing standards of fraud liability into the Martin Act forecloses application of C.P.L.R. 214(2)’s three-year limitations period. 26 2. Executive Law § 63(12) also incorporates preexisting standards of fraud. As with the Martin Act, the text and history of § 63(12) demonstrate that the Legislature intended that statute to “incorporate[ ] already existing standards applied to fraudulent behavior always recognized as such,” rather than to invent new liability. Cortelle, 38 N.Y.2d at 87. The original version of the statute referred to “fraud” but, like the original version of the Martin Act, provided no separate definition of that term, thereby expressing the Legislature’s intention to incorporate the well- established meaning of fraud both under the common law and in equity. See Ch. 592, § 1, 1956 N.Y. Laws 1336, 1336; see also N.L.R.B. v. Amax Coal Co., 453 U.S. 322, 329 (1981) (“Where Congress uses terms that have accumulated settled meaning under either equity or the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms.”). The legislative history of § 63(12) confirms that the statute’s purpose was to confer authority on the Attorney General to pursue preexisting fraud liability, rather than to create a new species of 27 liability never before recognized. In his memorandum in support of the legislation enacting § 63(12), the Attorney General cited various familiar types of frauds that the legislation would better enable him to target, such as “bait” advertising promoting products or discounts that were not actually available or were not capable of generating promised returns. State Dep’t of Law Mem., reprinted in 1956 N.Y.S. Legislative Annual 92, 92-93. And when the Legislature proposed amending § 63(12) in 1965 to clarify the misconduct subject to the statute, the New York City Bar Association advised the Governor that such an amendment was unnecessary because the term “fraud” in § 63(12) already incorporated the “interpretive background” of existing case law, which gave the term “fraud” as wide a definition as the proposed definition. Letter from Assn. of the Bar of the City of N.Y. to Hon. Sol Corbin (June 18, 1965), reprinted in Bill Jacket for ch. 666 (1965), at 5-6. That amendment, which was ultimately passed, defined “fraud” under § 63(12) as “any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretense, false promise or unconscionable contractual provisions.” Ch. 666, § 1, 28 1965 N.Y. Laws 1678, 1678. That definition did not expand the well- settled understanding of fraud at law and in equity. To the contrary, the sole purpose of the amendment was to clarify that “the meaning of the words ‘fraud’ and ‘fraudulent’ as used” in § 63(12) “equate[d]” with the meaning of fraud and fraudulent in “the provisions of the Martin Act.” Sponsor’s Mem. (Jan. 5, 1965), reprinted in Bill Jacket for ch. 666 (1965), at 2. The result was that the definition of fraud that was added to § 63(12) was “virtually identical” to the definition in the Martin Act, which was itself intended to codify Federated Radio’s explanation that the use of the term “fraud” in a statute encompassed all forms of fraud previously recognized at law and in equity. State of New York v. Rachmani Corp., 71 N.Y.2d 718, 721 n.1 (1988). As this Court has already held, because § 63(12)’s definition of fraud thus “seek[s] essentially to redress wrongs previously known to the law,” it does not create a new liability, and the Attorney General’s claims under that statute are subject to a six-year rather than three-year statute of limitations. Cortelle, 38 N.Y.2d at 89. 29 B. The Preexisting Wrong of Fraud Targeted by the Martin Act and § 63(12) Is Not Limited to Common-Law Fraud. Defendants’ principal argument on appeal is that the Martin Act and § 63(12) create new liability—and thus trigger C.P.L.R. 214(2)’s three-year limitations period—because these statutes authorize relief without proof of all the elements necessary to establish common-law fraud. See Br. for Defendants-Appellants (Def. Br.) at 24. The fundamental error in this argument is defendants’ assumption that common-law fraud is the only type of fraud that was judicially recognized prior to the enactment of these statutes. It is not. The cause of action for common-law fraud serves a unique function in enabling injured individuals to seek an award of damages. But conduct has long been deemed fraudulent—and therefore actionable—even where a private party would not be able to obtain an award of individual damages. In particular, long before the enactment of the Martin Act and § 63(12), it was well established that equitable relief was available for a broader category of fraudulent activities than would support a 30 damages award under the common law.7 In light of this decisional law, the absence of scienter and other elements of common-law damages claims as prerequisites to establishing liability under the Martin Act and § 63(12) does not change the fact that these statutes target a well-understood and preexisting category of wrongful fraud, rather than a new species of liability created for the first time by statute. 1. Scienter was not an essential element to obtain equitable relief under preexisting standards for fraud. As discussed above, equitable relief has long been available for fraud even in the absence of scienter. Indeed, one of the hallmarks of fraud at equity is that courts may award equitable relief for “[m]aterial misrepresentations” whether or not “originating in any actual evil design or contrivance to perpetuate fraud or 7 See, e.g., Capital Gains Research Bur., Inc., 375 U.S. at 193 (“Fraud has a broader meaning in equity (than at law).” (quotation marks omitted)); Kilbourn, 130 U.S. at 515 (“[F]raud has in equity a more extensive signification than at law.”); Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 625 (1981) (equitable relief available for “‘instances of fraudulent misrepresentations which do not exist in the law’” (quoting 3 J. Pomeroy, A Treatise on Equity Jurisprudence 421 (5th ed. 1941)); Detrick v. Aetna Cas. & Sur. Co., 261 Iowa 1246, 1257 (1968) (same). 31 injury upon others.” Federated Radio, 244 N.Y. at 38-39, 41; see also Hammond, 61 N.Y. at 152 (equitable relief available “though there be no intent to defraud.”); Bloomquist, 222 N.Y. at 380 (equitable relief available despite absence of any proof of “intentional misstatements”); Story, supra, § 193, at 225 (for equitable fraud, “[w]hether the party, thus misrepresenting a material fact, knew it to be false . . . is wholly immaterial”). Indeed, it is because the Martin Act incorporated the preexisting liability for fraud at equity that courts held that scienter was not a necessary element for Martin Act claims. See Federated Radio, 244 N.Y. at 38-39, 41; see also Badem Bldgs., 70 N.Y.2d at 54 (Martin Act encompasses “‘equitable fraud’ for which ‘scienter’ is not needed”). The Martin Act thus borrowed this feature from prior decisional law. Fraud liability without proof of scienter is not unique to § 63(12) and the Martin Act. Statutes authorizing fraud suits by the Securities and Exchange Commission (SEC), the federal agency charged with enforcement of federal securities laws, likewise permit liability without proof of scienter because those statutes similarly address the broader category of fraud that was remediable in 32 equity. Thus, the United States Supreme Court has held that proof of “intent to injure and actual injury” are not required to sustain a claim by the SEC for equitable relief under the Investment Advisers Act of 1940. Capital Gains Research Bur., Inc., 375 U.S. at 195. As the Court explained, Congress was no doubt aware when it enacted the statute of the judicially developed principle that “[f]raud has a broader meaning in equity (than at law)” and that, at equity, “intention to defraud or to misrepresent is not a necessary element.” Id. at 193, 195 (quotation marks omitted). Courts today have continued to apply the broader conception of fraud in equity to modern-day actions seeking equitable relief for material misrepresentations without proof of scienter. For example, in a breach-of-contract case arising from a commercial lease, the First Department recently held that “proof of scienter is not necessary and even an innocent misrepresentation is sufficient for rescission.” Jack Kelly Partners LLC v. Zegelstein, 140 A.D.3d 79, 85 (1st Dep’t), lv. dismissed, 28 N.Y.3d 1103 (2016). Multiple other cases in New York and elsewhere are to the same effect. See, e.g., Albany Motor Inn & Rest. v. Watkins, 85 A.D.2d 797, 798 (3d Dep’t 33 1981) (“An action for rescission of a contract based on fraud, unlike a cause of action for damages on the same ground, does not require that scienter either be pleaded or proved.”); D.C.K. Enters. v. United States, 45 Fed. Cl. 280, 285 (1999) (“[T]here is no scienter requirement associated with a claim for breach of contract by misrepresentation.”); Rush v. Oppenheimer & Co., 650 F. Supp. 682, 683 (S.D.N.Y. 1986) (mem.) (“[S]cienter is not necessary to make a contract induced by a misrepresentation voidable . . . .”). Thus, the absence of a scienter requirement under the Martin Act and § 63(12) carries forward preexisting understandings of judicially cognizable fraud, and does not amount to a statutory innovation creating new liability within the meaning of C.P.L.R. 214(2). 2. Neither reliance nor damages was an essential element of liability under preexisting law in an action for equitable relief for fraud, particularly in a suit brought by a government enforcer. Defendants also claim (Br. at 35-38) that the Martin Act and § 63(12) created new liability by authorizing the Attorney General to pursue investor fraud claims without proof of reliance by private 34 investors or pecuniary loss to those investors. But decisional law outside of the statutes at issue already provided that proof of such elements was not required to obtain equitable relief for fraud, particularly in a suit by a government enforcer. The New York courts have long held that, in an action “for equitable rescission based on fraud,” “unlike a cause of action in damages on the same ground, proof of . . . pecuniary loss is not needed.” D’Angelo v. Hastings Oldsmobile, 89 A.D.2d 785, 785 (4th Dep’t 1982), aff’d, 59 N.Y.2d 773 (1983); see also Commercial Credit Corp., 226 A.D. at 239 (canvassing broad authority for same principle as of 1929); Krinsky v. Title Guar. & Trust Co., 163 Misc. 833, 839 (App. Term 1st Dep’t 1937) (“It is well settled that in an action based upon rescission for misrepresentations a plaintiff is not bound to show that pecuniary loss resulted from the misrepresentations.” (emphasis omitted)); compare Dress Shirt Sales v. Hotel Martinique Assoc., 12 N.Y.2d 339, 343 (1963) (“In contrast to an action for rescission, in an action for damages for fraud actual pecuniary loss must be shown.”). Rather, “[i]n equity, the right to relief is derived from the suppression or misrepresentation 35 of a material fact,” Hammond, 61 N.Y. at 152, and equitable relief is available where “the proof establishes misrepresentations and . . . these are material, influencing the bargain.”8 Bloomquist, 222 N.Y. at 380. Defendants’ argument also fails because both reliance and damages are relevant to establish a plaintiff’s standing and remedies—i.e., to establish who can sue and for what—not to resolve whether a defendant’s conduct was “wrongful prior and independent of” a statute. Cortelle, 38 N.Y.2d at 87. Thus, if the Martin Act and § 63(12) had modified preexisting rules about pleading reliance and damages such a change would at most expand the Attorney General’s standing to sue and remedial options, without expanding the types of wrongs that are judicially 8 To the extent any proof of injury is required, courts have not required plaintiffs to show pecuniary loss or establish that they would not have entered into a transaction had they known the truth. Instead, courts have found it sufficient that the “plaintiff received something different from what she contracted for and that she might not have accepted the same had the facts not been misrepresented to her.” Krinsky, 163 Misc. at 839; see also id. at 840 (“We cannot assume from what was done in ignorance of the misrepresentation what would have been done if the misrepresentation had been detected.” (quotation marks and emphasis omitted)). 36 cognizable. As this Court held in Cortelle, such statutory expansions of standing or remedies do not create new statutory liability for purposes of C.P.L.R. 214(2). Id. at 85-86, 88. Federal courts have expressly recognized that reliance is a procedural requirement that tests private parties’ standing to sue, not an essential element of fraud liability. As the U.S. Supreme Court has explained, the issue of “the scope of conduct prohibited” is separate and distinct from the “elements of the . . . private liability scheme,” including “whether there is a reliance requirement.” Central Bank of Denver, N.A. v. First Interstate Bank of Denver, 511 U.S. 164, 172-73 (1994). Reliance thus is not part of “the conduct necessary to constitute” a claim of fraud, S.E.C. v. Rana Research, Inc., 8 F.3d 1358, 1364 (9th Cir. 1993), because “a private plaintiff’s ‘reliance’ does not bear on the determination of whether the securities laws were violated, only whether that private plaintiff may recover damages,” S.E.C. v. Morgan Keegan & Co., 678 F.3d 1233, 1244 (11th Cir. 2012) (per curiam). See also United States v. Vilar, 729 F.3d 62, 88 (2d Cir. 2013) (explaining that government is not required to prove reliance in action under Rule 10b-5 because 37 “reliance is relevant only to the identification of the private persons entitled to bring suit”). In other words, reliance as a required element goes toward “identifying who has standing to enforce the antifraud laws.” Rana Research, 8 F.3d at 1364. Similarly, economic loss—i.e., individual injury—”relate[s] to who (other than the government) may bring suit and not to the conduct prohibited” under federal securities law. Vilar, 729 F.3d at 75. Proof of reliance and individual economic loss in a private plaintiff’s fraud suit is thus necessary because it demonstrates that the plaintiff has standing to sue to recover damages sought for personal losses. See List v. Fashion Park, Inc., 340 F.2d 457, 462 (2d Cir. 1965) (proof of reliance “certif[ies] that the conduct of the defendant actually caused the plaintiff’s injury”); see McCann v. Hy- Vee, Inc., 663 F.3d 926, 931 (7th Cir. 2011) (“[A]lthough the SEC doesn’t have to prove reliance on a misrepresentation, a private party would have to, as otherwise he would have suffered no injury.”); S.E.C. v. Rind, 991 F.2d 1486, 1490 (2d Cir. 1993) (proof of economic loss goes toward “how much the individual lost as a result of the illegal conduct and whether that injury can be reasonably 38 quantified”). By contrast, government enforcers are generally not subject to similar standing rules, and have accordingly not been required to prove reliance or damages in the same way that private parties are. For example, under federal law, the SEC is not required to plead or prove individual reliance or damages in securities-fraud suits. See Morgan Keegan, 678 F.3d at 1244; McCann, 663 F.3d at 931; S.E.C. v. Blavin, 760 F.2d 706, 711, 713 (6th Cir. 1985) (per curiam); Rana Research, 8 F.3d at 1363 n.4. The absence of an individual-reliance and economic-loss requirement in government enforcement actions reflects the critically different purpose and effect of such actions. In an enforcement action, the government “root[s] . . . out” and prosecutes fraud to uphold the law and benefit injured victims, not “to recover its [own] loss.” Gabelli v. S.E.C., 568 U.S. 442, 450 (2013). For example, the equitable relief of disgorgement seeks to “deprive the wrongdoer of his or her unlawful profits and thereby eliminate the incentive for violating the securities laws.” Rind, 991 F.2d at 1490; see also Greenberg, 27 N.Y.3d at 497-98 (holding that “disgorgement is an available remedy under the Martin Act and the Executive Law” to 39 “require[ ] the return of wrongfully obtained profits” (quotation marks omitted)); Blavin, 760 F.2d at 713 (“The purpose of disgorgement is to force a defendant to give up the amount by which he was unjustly enriched rather than to compensate the victims of fraud.” (quotation marks omitted)). The absence of any need for a government enforcer to prove reliance or damages is not a statutory innovation; to the contrary, it borrows from the long-standing “exception to the normal rules of standing applied to private citizens” that the government has long been able to invoke at common law under the parens patriae doctrine. Estados Unidos Mexicanos v. DeCoster, 229 F.3d 332, 335 (1st Cir. 2000); cf. State of New York by Abrams v. General Motors Corp., 547 F. Supp. 703, 706-07 (S.D.N.Y. 1982) (finding State was real party in interest in action where “focus [was] on obtaining wide-ranging injunctive relief designed to vindicate the State’s quasi-sovereign interest”). Thus, even without a statute authorizing enforcement, the government has generally been able to pursue a quasi-sovereign enforcement action without being required to “demonstrate standing through a representative injury nor obtain 40 certification of a class in order to recover on behalf of individuals,” Purdue Pharma L.P. v. Kentucky, 704 F.3d 208, 217 (2d Cir. 2013) (quotation marks omitted). Statutes authorizing the government to bring actions without demonstrating private-party reliance or damages thus simply continue this tradition of recognizing the special nature of and relief sought by government enforcement actions. Such statutes accordingly do not create a new statutory liability for purposes of C.P.L.R. 214(2). See Cortelle, 38 N.Y.2d at 85, 89. 3. The Martin Act and § 63(12) apply to the same types of misrepresentations recognized by preexisting decisional law. Defendants argue that the Martin Act and Executive Law § 63(12) “set[ ] a much lower bar than the standard imposed in common-law fraud for what constitutes actionable ‘falsity’” because the statutes impose liability for misrepresentations that only have a “tendency to deceive.” Def. Br. at 29. Defendants rely on this Court’s decision in Federated Radio to support this argument (id. at 29-30), citing the decision’s language that the Martin Act encompasses all acts “which do by their tendency . . . deceive or mislead,” 244 N.Y. at 38-39. 41 But Federated Radio directly rebuts defendants’ assertion that this standard was created by the Martin Act. To the contrary, this Court explicitly recognized that the Legislature had derived this standard from “other sources,” including the preexisting definition of fraud in equity. Id.; see also id. at 41 (explaining that conduct actionable under the Martin Act is the same as that “on which an action might be maintained in equity to rescind a consummated transaction”). As this Court recognized, courts of equity had long recognized fraud as encompassing “any cunning, deception, or artifice, used to circumvent, cheat, or deceive another,” language that parallels the scope of fraud covered by the Martin Act and § 63(12). Story, supra, §§ 185-86 at 218-19. The “capacity to deceive” language used by this Court in Federated Radio thus proves the very point that defendants contest—namely, that the scope of fraud under the Martin Act borrowed from prior law and did not represent a statutory innovation. Defendants also assert (Def. Br. at 31) that the Martin Act and § 63(12) depart from preexisting understandings of fraud by expanding liability for nondisclosure. As a threshold matter, this 42 argument has no bearing on this case because the Attorney General’s allegations here rely both on outright misrepresentations and on omissions that render defendants’ representations materially false or misleading—for example, telling investors that they carefully reviewed loans for compliance with underwriting guidelines, when in fact they did no such thing. Because defendants do not dispute that outright misrepresentations have long served as a basis for fraud liability, this Court need not decide whether the Martin Act expanded fraud liability for nondisclosure, and if so what statute of limitations might apply to a claim that relied solely on omissions.9 9 Two other Attorney General enforcement actions cited by defendants (Def. Br. at 32) also involved affirmative misrepresentations rather than omissions alone. In People v. Charles Schwab & Co., the Appellate Division held that the Attorney General stated a Martin Act claim by alleging that a broker-dealer had misled customers by representing a particular security as a highly liquid investment, when in fact there was a substantial risk that the security would become illiquid. 109 A.D.3d 445, 448 (1st Dep’t 2013). Likewise, in People v. World Interactive Gaming Corp., the Attorney General alleged that a casino had misrepresented to investors the percentage of the funds that would be “used to pay [the casino’s] commissions, salaries, and consulting fees.” 185 Misc. 2d 852, 864 (Sup. Ct. N.Y. County 1999). 43 In any event, defendants are mistaken in asserting that fraud by omission became actionable only with the enactment of the Martin Act or § 63(12). To the contrary, equitable relief had long been available for fraud committed through material omissions as well as affirmative misrepresentations. For instance, in Downey v. Finucane, this Court affirmed a judgment awarding damages for fraud on the ground that defendants’ corporate prospectus was misleading, even though defendants claimed “there was no specific allegation of fact which [was] proved to be false.” 205 N.Y. 251, 264 (1912). Likewise, in Junius Construction Corp. v. Cohen, this Court held that a seller’s disclosure of two projected streets that might affect land sold without disclosing a third projected street was an actionable misrepresentation sufficient to support a claim for fraud relief in equity. 257 N.Y. 393, 400 (1931). Additionally, in both law and equity, “[s]ilence may . . . constitute fraud where one of two parties to a contract has notice that the other . . . is acting upon a mistaken belief as to a material fact.” Bank v. Board of Educ. of City of N.Y., 305 N.Y. 119, 133-34 (1953) (quotation marks omitted). The common law also imposes 44 liability for a “‘statement in a business transaction which, while stating the truth so far as it goes, the maker knows or believes to be materially misleading because of his failure to state a qualifying matter.’” Sheridan Drive-In, Inc. v. State of New York, 16 A.D.2d 400 (4th Dep’t 1962) (quoting Restatement (First) of Torts § 529 (1938))). And it imposes liability on a party who fails to disclose material facts and “uses artifice, wiles, or deceptive conduct to throw the other party off his or her guard and lull him or her into a false sense of security.” 60A N.Y. Jur. 2d Fraud and Deceit § 92. See generally Restatement (Second) of Torts § 551 (1977) (setting forth circumstances under which there may be common law liability for nondisclosure). Contrary to defendants’ assertion (Def. Br. at 31), none of these cases required that the plaintiff establish a “duty to disclose” arising from some formal legal duty to speak—such as might arise from a fiduciary relationship or a statutory disclosure mandate— before recognizing fraud liability based on material omissions. Rather, courts exercising their equity jurisdiction have inferred a duty to speak from the circumstances of a particular case or to avoid 45 a manifest injustice. The standard for establishing such a duty is not a demanding one. Thus, courts have held that “where one party possesses superior knowledge, not readily available to the other, and knows that the other is acting on the basis of mistaken knowledge, there is a duty to disclose that information,” even in an arms-length commercial transaction. Stevenson Equip. v. Chemig Constr. Corp., 170 A.D.2d 769, 771 (3d Dep’t 1991) (quotation marks omitted), aff’d on op. below, 79 N.Y.2d 989 (1992). Case law interpreting the Martin Act and § 63(12) adheres to these well-established principles. Thus, in Rachmani Corp., the absence of an express statutory disclosure obligation for a particular fact did not prevent this Court from determining that defendants— who were accused of withholding material information from tenants during the cooperative conversion of an apartment building—“were obliged, in their communications to tenants, to advise them of all material facts.” 71 N.Y.2d at 728. Defendants’ assertion that the Martin Act and § 63(12) deviate from preexisting standards for finding fraud by omission is thus simply incorrect. 46 Finally, defendants assert (Def. Br. at 33) that the Martin Act breaks with traditional legal principles by authorizing fraud liability for “statements or omissions not tied to any specific investment decision” or a “specific securities transaction.” As with defendants’ arguments about fraud by omission, this Court need not reach this question here because the misrepresentations alleged in the Attorney General’s complaint do relate to specific investment decisions—namely, investors’ purchase of defendants’ RMBS. Defendants’ argument fails in any event. They have cited no case supporting their assertion that prior decisional law limited equitable relief for investor fraud to material misrepresentations concerning the sale or purchase of a particular security. To the contrary, the traditional conception of equitable fraud swept broadly to include “all acts, omissions and concealments . . . by which an undue and unconscientious advantage is taken of another.” Moore v. Crawford, 130 U.S. 122, 128 (1889) (quotation marks omitted)). While there may be disputes in particular cases over whether specific misrepresentations give rise to liability, nothing about this flexible standard supports defendants’ attempt to impose 47 categorical restrictions on the types of misrepresentations that may support equitable relief in securities cases.10 4. Defendants’ attempts to narrow the scope of fraud remediable in equity are meritless. Defendants finally argue (Def. Br. at 42-46) that the Martin Act and § 63(12) depart even from preexisting standards for fraud in equity because equitable relief for such fraud is limited to situations where the parties have some sort of “special relationship” (such as a fiduciary relationship) and does not extend to “arm’s- length dealings” in securities. There is no basis for this artificially limited conception of the scope of the courts’ equitable powers. 10 Contrary to defendants’ characterization (Def. Br. at 33), the trial court decision in People v. Barclays Capital Inc., 47 Misc. 3d 862 (Sup. Ct. N.Y. County 2015), did not effect a sweeping expansion of fraud liability under the Martin Act. That decision rejected the argument that the Martin Act did not cover “misrepresentations about the platform or venue through which securities are traded,” based on the court’s finding that “the choice of trading platform can have a significant impact on the outcome of the trade.” Id. at 869-70. Thus, far from upholding Martin Act liability divorced from any securities transaction, Barclays instead reflected the common-sense judgment that a broad range of misrepresentations may affect the sale or purchase of securities, and are thus covered by the flexible standard for equitable fraud that the Martin Act borrowed from prior decisional law. 48 Indeed, this Court in Hammond specifically held that the rationale for equitable rescission for fraud depended not on any fiduciary or “special relationship” between transacting parties, but rather on the fact that one party’s material misrepresentation itself “operates as a surprise and imposition upon the opposite party to the contract.” 61 N.Y. at 152. And this Court adhered to this principle in Bloomquist, which involved an arms’ length business relationship between bond sellers and investors—similar to the relationships at issue in this proceeding. In that case, this Court affirmed an award of rescission to the investors based on material misstatements contained in the defendants’ bond prospectus even though “there was no actual fraud or intent to deceive.” 222 N.Y. at 378; see also Canadian Agency, Ltd. v. Assets Realization Co., 165 A.D. 96, 102-11 (1st Dep’t 1914) (granting equitable rescission of stock purchase in absence of scienter). As Bloomquist demonstrates, courts regularly granted equitable relief for fraud in the context of securities transactions specifically despite the absence of any special or fiduciary relationship in these arm’s-length dealings. See, e.g., Haebler v. 49 Crawford, 258 N.Y. 130, 133, 135-36 (1932) (investor entitled to rescission of stock subscription induced by material misrepresentation); Seneca Wire & Mfg. Co., 247 N.Y. at 4-5, 7-8 (investor made out prima facie case of rescission for fraud by showing false representations by seller that purchased securities would be and were listed on New York Stock Exchange). As one commentator observed in 1931, “the equitable claim for rescission of a contract” had “developed a specialized sphere of application in the field of misrepresentations intended to induce the purchase of corporate securities” in the years leading up to and immediately following passage of the Martin Act. Liability for Misrepresentations, supra, 40 Yale L.J. at 987. Likewise, as another commentator observed, the federal Securities Act of 1933—which allowed investors to obtain equitable relief based on a material misstatement without proof of scienter or damages—also derived from principles of rescission under which, “as in warranty, it is said that the seller’s wrong is sufficiently established when it is shown that he made a false representation about a material fact.” Harry Shulman, Civil Liability and the Securities Act, 43 Yale L.J. 227, 231 (1933); see 50 also Federal Housing Fin. Agency v. Nomura Holding Am., Inc., Docket Nos. 15-1872-cv(L), 15-1874-cv(CON), 2017 WL 4293322, at *34-37 (2d Cir. Sept. 28, 2017) (holding Seventh Amendment jury- trial requirement inapplicable to cause of action under § 12 of Securities Act based on analogy to claim for equitable rescission). Two Second Department decisions cited by defendants (Br. at 45) do not hold otherwise. While those cases did require the plaintiffs to prove the existence of a fiduciary or confidential relationship, they did so because the plaintiffs there were seeking to “recover damages for fraud,” Brown v. Lockwood, 76 A.D.2d 721, 724 (2d Dep’t 1980) (emphasis added); Del Vecchio v. Nassau County, 118 A.D.2d 615, 615 (2d Dep’t 1986) (same). And the facts of those cases bear no resemblance to the allegations here: in Brown, the defendant’s allegedly fraudulent conduct consisted of the failure to fulfill a promise, a class of conduct that traditionally has been held not to constitute fraud, whether in law or in equity, unless made with scienter or in breach of a fiduciary duty, see 76 A.D.2d at 733-34; and in Del Vecchio, the plaintiff’s fraud claim failed based on the court’s finding that defendants had made “no 51 representations, false or otherwise,” that caused injury, 118 A.D.2d at 618. Defendants are thus wrong to assert that the Martin Act and § 63(12) exceed the scope of fraud in equity as recognized by prior decisional law. To the contrary, both statutes expressly borrowed from traditional principles of equitable fraud to define the wrongdoing that the Attorney General was entitled to pursue. C.P.L.R. 214(2)’s three-year statute of limitations is inapplicable under such circumstances. C. The History and Purpose of New York’s Six-Year Statutes of Limitations Support Their Application to Fraud Claims Brought under the Martin Act and § 63(12). In Cortelle, this Court applied C.P.L.R. 213(1)’s residual six- year statute of limitations for “an action for which no limitation is specifically prescribed by law” to fraud claims by the Attorney General under § 63(12). 38 N.Y.2d at 89. See also Melcher v. Greenberg Traurig, LLP, 23 N.Y.3d 10, 15 (2014) (applying C.P.L.R. 213(1) to claim for attorney deceit under Judiciary Law § 487). The same limitations period should apply to fraud claims by the Attorney 52 General under the Martin Act. The history and purpose of C.P.L.R. 213(1) demonstrate that the Legislature intended to apply its six- year statute of limitations to the very types of actions seeking equitable relief against fraud that the Martin Act and § 63(12) authorize the Attorney General to pursue. In the alternative, this Court may also apply C.P.L.R. 213(8)’s six-year statute of limitations for “an action based upon fraud” to the Attorney General’s claims— as the First Department did in State of New York v. Bronxville Glen I Associates, 181 A.D.2d 516, 516 (1st Dep’t 1992)—based on that provision’s origins as a limitations period for fraud actions brought in the courts of equity.11 1. C.P.L.R. 213(1)’s origin as a limitations period for cases in equity supports its application to claims invoking equitable principles. The statute of limitations currently codified at C.P.L.R. 213(1) originated in the nineteenth century in the Revised Statutes, which set forth a ten-year limitations period for “commencing suits in 11 Because both provisions apply a six-year limitations period, this Court need not resolve whether one statute is more suitable than the other for the causes of action at issue here. 53 the courts of equity.” 2 Rev. Stat. of N.Y., pt. III, ch. IV, tit. II, art. 4, § 52, at 399 (3d ed. 1848). When “courts of equity” were abolished upon the merger of law and equity in 1848, the Field Code replaced the procedural provisions of the Revised Statutes. See Mildred V. Coe & Lewis W. Morse, Chronology of the Development of the David Dudley Field Code, 27 Cornell L. Rev. 238, 241-42 (1942). The Field Code retained the Revised Statutes’ ten-year statute of limitations for suits brought in equity, but revised the language to provide that it would apply more generally to “[a]n action for relief, not hereinbefore provided for,” see Ch. 379, sec. 77, 1848 N.Y. Laws 497, 513. C.P.L.R. 213(1) largely preserves that language today.12 12 See Temporary Commn. on the Courts, Second Preliminary Report of the Advisory Comm. on Practice and Procedure, 1958 N.Y. Legis. Doc. No. 13, at 67 (explaining that proposed C.P.L.R. “residual” limitations period “is adapted from section 53 of the civil practice act” and “is generally applicable to . . . equity actions”); id. at 543 n.140 (explaining that section 53 of the Civil Practice Act was “derived without change in substance from section 388 of the Code of Civil Procedure,” which “in turn was derived in substance from section 97 of the Field Code”); see also Ch. 438, 1849 N.Y. Laws 613, 636 (re-codifying sec. 71 of 1848 Field Code at sec. 97). 54 The application of that limitations period to claims under the Martin Act and § 63(12) is in accord with the principal forms of relief authorized by those statutes, which are “essentially equitable” in nature, People v. Tellier, 7 Misc. 2d 43, 55 (Sup. Ct. N.Y. County 1956) (quotation marks omitted). Under the Martin Act, the Attorney General may seek injunctive relief, restitution, or disgorgement—all of which are classic equitable remedies.13 See Greenberg, 27 N.Y.3d at 497-98. Likewise, Executive Law § 63(12) empowers the Attorney General to seek relief that is primarily equitable in nature, including an injunction against fraudulent 13 To be sure, the Attorney General may also seek damages in an action under the Martin Act as an incident to the primary equitable relief that he is authorized to pursue. This power to seek damages is consistent with the well-established rule that, once equitable jurisdiction is invoked, a court may grant any other relief that it deems appropriate. See People v. Lexington Sixty-First Assoc., 38 N.Y.2d 588, 599 (1976) (“Once a court of equity has jurisdiction of a cause, it has the power to dispose of all matters at issue and grant complete relief.”); J. Cyril O’Connor, Power of a Court of Equity to Ascertain and Award Permanent Damages in Lieu of Injunction, 9 St. John’s L. Rev. 395, 397-98 (1935) (“Equity has always had the power, in suits where the plaintiff was seeking injunctive relief, besides granting such injunction, to ascertain and award damages for injuries received to the time of trial, as incidental to the main relief sought.”). 55 activity and restitution. Executive Law § 63(12). And the relief sought by the Attorney General in this case is also “essentially equitable” nature: the complaint seeks an injunction, an accounting, disgorgement, and restitution. (A. 73-74.) Accordingly, here, as in Cortelle, the application of C.P.L.R. 213(1)’s six-year limitations period is appropriate. Further reinforcing this conclusion, this Court has repeatedly applied C.P.L.R. 213(1)’s statute of limitations to statutory claims sounding in fraud or deceit but having decisional-law antecedents other than common-law damages actions for fraud. For instance, after recognizing that Judiciary Law § 487’s statutory remedy for attorney deceit did “not derive from common-law fraud,” Amalfitano v. Rosenberg, 12 N.Y.3d 8, 12, 14 (2009), this Court held that C.P.L.R. 213(1) nonetheless applied to § 487 claims because that statute codified a distinct source of preexisting “liability for attorney deceit” not drawn from common-law fraud, Melcher, 23 N.Y.3d at 15. This Court has also repeatedly applied C.P.L.R. 213(1)’s statutory predecessor to claims under article 10 of the Debtor and Creditor Law where a creditor challenged a debtor’s conveyance of assets 56 based on principles of constructive fraud. See Hearn 45 St. Corp. v. Jano, 283 N.Y. 139, 141, 143-44 (1940); Buttles v. Smith, 281 N.Y. 226, 236-37 (1939); see also People v. Minuse, 273 A.D. 457, 460 (1st Dep’t 1948) (applying same limitations period to action seeking injunctive relief under Martin Act). These precedents further support applying C.P.L.R. 213(1) to the Attorney General’s fraud claims under the Martin Act and § 63(12). 2. Alternatively, C.P.L.R. 213(8)’s origins as a limitations period for claims seeking equitable relief for fraud would also support its application here. Alternatively, the application of C.P.L.R. 213(8) also would be appropriate. Like C.P.L.R. 213(1), the limitations period in C.P.L.R. 213(8) also derives from the Revised Statutes, under which “suits in courts of equity” based specifically on fraud were subject to a six-year statute of limitations from the time of the discovery of the facts constituting the fraud. 2 Rev. Stat. of N.Y., pt. III, ch. IV, tit. II, art. 4, § 51, at 398-99. The Legislature did not consistently apply this statute of limitations to common-law 57 fraud until 1920,14 when it amended the provision to apply a six- year limitations period to “any case of fraud, whether the remedy is equitable or legal.” Hopkins v. Lincoln Trust Co., 233 N.Y. 213, 215 (1922); see also Ch. 480, 1920 N.Y. Laws 1245, 1245. But throughout this period, the Legislature never wavered from its original intent to apply the six-year limitations period to actions seeking equitable relief for fraud. This statute of limitations ultimately became today’s six-year limitations period for “an action based upon fraud,” whether sounding in law or in equity.15 C.P.L.R. 213(8). As this history 14 In 1848, the Field Code first made the six-year statute of limitations for fraud suits in the courts of equity applicable to all “action[s] for relief, on the ground of fraud,” Ch. 379, sec. 71(6), 1848 N.Y. Laws 497, 512, “whether of legal or equitable cognizance,” 1 Report of the Commissioners on Practice and Pleadings 103 (1848); see also id. (noting that this provision was essentially “[t]he same as 2 R.S., 3d ed., 399, sec. 51”). However, from 1849 to 1920, the statute of limitations for actions based on fraud was again narrowed to apply only to cases that had been cognizable in equity. See Ch. 438, sec. 91, 1849 N.Y. Laws 613, 635; see also Code of Civ. Pro. § 382 (1876). 15 See 1958 Advisory Comm. Second Report, supra, at 68 (noting proposed C.P.L.R. fraud limitations period “is adapted from section 48(5) of the civil practice act”); id. at 533 (explaining that section 48 of the Civil Practice Act “was derived from section 382 of 58 demonstrates, C.P.L.R. 213(8)’s six-year statute of limitations was originally intended to apply to actions seeking equitable relief for fraud. The Attorney General’s fraud claims under the Martin Act and § 63(12) fall comfortably within that category. 3. Important underlying policies reinforce the propriety of a six-year limitations period. A six-year limitations period furthers the critical public interest served by the Attorney General’s pursuit of fraud claims to “protect[ ] the integrity of the marketplace.” People v. Grasso, 11 N.Y.3d 64, 69 n.4 (2008). Investor fraud cases are often complex, requiring considerable time and effort to investigate. As the U.S. Supreme Court remarked over forty years ago, financial frauds are often complex schemes that can be revealed “only by piecing together many bits of evidence” that, “[l]ike a jigsaw puzzle,” come together to form a “whole picture” only through the careful assembly of “many pieces of evidence that, taken singly, would show comparatively little.” Andresen v. Maryland, 427 U.S. 463, 480 n.10 the Code of Civil Procedure,” which “in turn was derived in substance from section 91 of the Field Code of 1848”). 59 (1976) (quotation marks omitted). That observation remains apt today, when determining responsibility for corporate fraud means that “investigators often must reconstruct what happened based on a painstaking review of corporate documents, which can number in the millions, and which may be difficult to collect due to legal restrictions.”16 A six-year limitations period gives the Attorney General an appropriate period of time to identify wrongdoers and pursue equitable remedies to stop ongoing fraud or deter future fraud. The importance of ensuring that the government has sufficient time to investigate and remedy investor frauds is reflected in other laws on sovereign enforcement actions for investor fraud. The SEC is not subject to any statute of limitations when it seeks equitable relief “to enforce federal securities laws,” and it has five years to seek penalties and fines. See Kokesh v. S.E.C., 137 S. Ct. 1635, 1641-42 (2017) (citing 28 U.S.C. § 2462). And a number of jurisdictions either 16 Memorandum of Deputy Att’y Gen. Sally Quillian Yates for Assistant Att’y Gen., Antitrust Div., et al., at 2 (Sept. 9, 2015), available at https://justice.gov/archives/dag/file/769036/download. 60 impose no limitations period on actions brought by the State,17 or apply limitations periods considerably longer than three years.18 “[G]iven New York’s unique role as a global financial center,” a six- year limitations period for actions brought under the Martin Act and § 63(12) supports the Attorney General’s enforcement authority and his ability to safeguard the honesty and efficacy of the securities markets. State v. McLeod, 2006 N.Y. Slip Op. 50942(U), at *22 (Sup. Ct. N.Y. County Feb. 9, 2006). Furthermore, there is no merit to defendants’ suggestion (see Def. Br. at 53-55) that the scope of the Attorney General’s investigatory 17 See, e.g., Ariz. Rev. Stat. § 12-510; State of Connecticut v. Lombardo Bros. Mason Constructors, Inc., 307 Conn. 412, 426-38 (2012); Haw. Rev. Stat. Ann. § 657-1.5; State of Maryland v. Mayor & City Council of Baltimore, 296 Md. 67, 78 (1983); Miss. Code Ann. § 15-1-51; State of New Hampshire v. Lake Winnipesaukee Resort, LLC, 159 N.H. 42, 49 (2009); Or. Rev. Stat. § 12.250; Commonwealth of Pennsylvania ex rel. Corbett v. Citizens Alliance for Better Neighborhoods, Inc., 983 A.2d 1274, 1278 (Pa. Commw. Ct. 2009); Tenn. Code Ann. § 28-1-113; Shields v. State of Texas, 27 S.W.3d 267, 275 (Tex. App. 2000). 18 See, e.g., Alaska Stat. § 09.10.120(a) (six years); Del. Code Ann. tit. 6, § 73-503 (five years); Fla. Stat. Ann. § 517.191(7) (eight years); N.J. Stat. Ann. § 2A:14-1.2 (ten years). 61 and enforcement powers under the Martin Act and Executive Law § 63(12) renders it unfair to participants in New York’s securities industry to face a six-year limitations period for claims under those statutes. Contrary to defendants’ suggestion, there is nothing unfair about requiring them to answer claims by the Attorney General filed in the same limitations period applicable to claims by private litigants based on the same conduct.19 D. This Court’s Decision in Gaidon II Does Not Compel the Application of a Three-Year Statute of Limitations Here. Contrary to defendants’ arguments, neither the holding nor the reasoning of this Court’s decision in Gaidon II mandates application of C.P.L.R. 214(2)’s three-year limitations period here. Gaidon II concerned a different statute, different plaintiffs, and a 19 Indeed, it is the private bar, and not state Attorneys General, that Congress has identified as a source of potential abuse warranting legislative restriction. See Securities Litigation Uniform Standards Act, Pub. L. No. 105-353, 112 Stat. 3227 (1998) (restricting private plaintiffs while expressly preserving state regulators’ enforcement authority, 15 U.S.C. § 78bb(f)(4)). This is so despite a long history of state Blue Sky Laws like the Martin Act that do not require proof of all the elements of a common-law damages action for fraud. 62 different form of wrongdoing. In that case, this Court held that C.P.L.R. 214(2) applied to damages claims brought under GBL § 349(h) by private plaintiffs who had not even alleged a misstatement. The case did not address investor fraud claims for equitable relief brought by the Attorney General under the Martin Act and § 63(12). And its reasoning does not support subjecting such claims to the three-year limitations period of C.P.L.R. 214(2). 1. Gaidon II involved claims brought under a broader statute that, unlike the statutes at issue here, was deliberately drafted to expand preexisting standards of liability. Defendants’ assertion that Gaidon II controls the limitations issue here overlooks crucial differences between the statutes at issue in that case and this one. Specifically, Gaidon II concerned only GBL § 349, a different statute from the Martin Act and Executive Law § 63(12), and one whose text and history demonstrate the Legislature’s attempt to protect consumers from a broader range of conduct never before condemned by decisional law. Unlike the Martin Act and § 63(12), GBL § 349 nowhere uses the word “fraud,” and thus cannot be read as merely incorporating 63 existing definitions of that well-established term. See supra at 23-28. Instead, GBL § 349 defines a new species of actionable conduct known as “[d]eceptive acts or practices.” GBL § 349(a). The Legislature’s choice of that phrase was meaningful: it derives from federal consumer-protection legislation that, long before GBL § 349 was enacted, had been interpreted to target conduct beyond the “‘fixed and unyielding categories’” of conduct previously condemned by decisional law, and to encompass a broader range of conduct. F.T.C. v. Sperry & Hutchinson Co., 405 U.S. 233, 243 (1972) (quoting F.T.C. v. R.F. Keppel & Bro., 291 U.S. 304, 310 (1934)). When States began adopting analogous statutes in the 1960s and 1970s, they incorporated the same language regarding “deceptive acts or practices” in order to broaden consumer- protection liability beyond “traditional criminal or civil fraud.” William A. Lovett, State Deceptive Practice Legislation, 46 Tul. L. Rev. 724, 732 (1972); see, e.g., Slaney v. Westwood Auto, 366 Mass. 688, 693 (1975) (analogous statute “created new substantive rights . . . not limited by traditional tort and contract law requirements” (quotation marks omitted)). New York followed this course, 64 employing identical language to the federal statute with the intent of broadening liability under state law, as Congress had done under federal law. See Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 26 (1995) (noting that GBL § 349 is modeled on federal law). GBL § 349 was thus intended to reach a broad range of “ever-changing types of false and deceptive business practices”—i.e., new forms of wrongful conduct beyond the traditional categories of fraud, Karlin v. IVF Am., 93 N.Y.2d 282, 291 (1999) (quotation marks omitted). On the basis of the “‘critically different’” nature of the wrongs targeted by GBL § 349, this Court in Gaidon II held that a three- year limitations period applied to private claims under GBL § 349(h), and rejected the plaintiffs’ and Attorney General’s argument (as amicus) that this Court should apply the six-year statute of limitations to private GBL § 349(h) claims that it had applied to the Attorney General’s § 63(12) claims in Cortelle. 96 N.Y.2d at 209. In doing so, however, the Court did not overrule Cortelle or its holding on the limitations period for § 63(12). To the contrary, the Court effectively distinguished GBL § 349 from § 63(12) 65 by noting that GBL § 349 “encompasses a significantly wider range of deceptive business practices that were never previously condemned by decisional law.” 96 N.Y.2d at 210. Indeed, to emphasize the breadth of GBL § 349’s departure from prior decisional law, this Court noted that it was “not merely the absence of scienter that distinguishes a violation of section 349,” id. at 209-10, but rather the Legislature’s deliberate effort to reach a broader category of business practices that the common law had not previously addressed. Because this Court thus flatly rejected the attempt of the parties and the Attorney General to equate GBL § 349 to § 63(12), Gaidon II’s ruling on the statute of limitations for private GBL § 349(h) claims has no application to the Attorney General’s fraud claims under § 63(12) and the Martin Act.20 20 The First Department’s decision in State of New York v. Daicel Chemical Industries, Ltd. is also inapposite. See 42 A.D.3d 301 (1st Dep’t 2007) (cited in Def. Br. at 10). Daicel did not involve claims of fraud under the Martin Act or § 63(12). Rather, Daicel involved a claim under the “illegality” rather than “fraud” prong of § 63(12)—namely, unlawful price-fixing in violation of the Donnelly Act, GBL § 340 et seq. 66 2. Gaidon II did not hold that common-law fraud is the only relevant antecedent for determining the statute of limitations for claims under the Martin Act and § 63(12). Defendants also misread Gaidon II as holding that damages actions for common-law fraud are the only antecedents relevant to determining whether the Martin Act and § 63(12) create new liability for purposes of C.P.L.R. 214(2). Br. at 42. To be sure, Gaidon II did not expressly address fraud in equity, and focused only on the distinction between the deceptive acts and practices addressed by GBL § 349 and the narrower category of frauds that would support a private damages award under a common-law fraud theory. But common-law fraud arguably was the only antecedent that could have applied to that case, which was a private suit principally seeking damages rather than (as here) an Attorney General enforcement action principally for equitable relief. It made sense for this Court to focus solely on common-law fraud in determining the relevant limitations period given that “the choice of the applicable Statute of Limitations depends on the substantive remedy which the plaintiff seeks.” Loengard v. Santa Fe Indus. Inc., 70 N.Y.2d 262, 266 (1987). By contrast, in Cortelle, when discussing 67 an Attorney General suit for equitable relief under § 63(12) rather than a private suit for damages under GBL § 349(h), this Court expressly recognized that the antecedents to § 63(12) encompassed both common-law fraud and fraud at equity. See 38 N.Y.2d at 87 (citing Adams v. Gillig, 199 N.Y. 314, 321-322 (1910) (common-law fraud), and Bloomquist, 222 N.Y. 375 (1918) (equitable fraud)). Moreover, because the Gaidon II plaintiffs never argued for the application of C.P.L.R. 213(1)’s residual six-year limitations period, which has traditionally applied to actions for equitable relief (see supra at 52-56), this Court had no reason to address the Attorney General’s argument in an amicus brief that claims under GBL § 349 are “equitable in nature” and accordingly “could fit within” C.P.L.R. 213(1)’s statute of limitations. Br. at 42 (quotation marks omitted). This Court’s silence on this issue does not constitute a holding on this point. Cf. Campaign for Fiscal Equity v. State of New York, 100 N.Y.2d 893, 907-08 (2003) (declining to adopt legal standard requested by “some amici” where plaintiffs made “no such request”). 68 Accordingly, Gaidon II’s comparison of the damages actions asserted there under GBL § 349(h) to damages actions for fraud at common law reflected the particular claims presented in that case. It did not, as defendants claim (Br. at 20-21), amount to a holding that common-law damages claims are the only antecedents that courts may consider in determining whether a statute creates a new type of fraud liability. Indeed, such an interpretation cannot be reconciled with this Court’s recent decision in Melcher, which expressly identified preexisting liability other than common-law fraud to hold that Judiciary Law § 487’s statutory remedy for attorney deceit was subject to C.P.L.R. 213(1)’s six-year statute of limitations rather than C.P.L.R. 214(2)’s three-year statute of limitations. See 23 N.Y.3d at 15. Defendants’ argument to the contrary implausibly treats Gaidon II as having worked a dramatic but unannounced narrowing of this Court’s well-settled test for determining whether a statutory claim triggers C.P.L.R. 214(2). As this Court explained in Cortelle, the governing standard is whether a statutory claim addresses wrongs not recognized “in the common or decisional law,” 38 N.Y.2d 69 at 86 (emphasis added). Gaidon II adhered to this description of the relevant test by resting its holding on the conclusion that defendants’ alleged conduct was “never previously condemned by decisional law.” Gaidon II, 96 N.Y.2d at 210 (emphasis added). Defendants’ interpretation of Gaidon II would reduce this test to common-law fraud alone and declare the “decisional law” recognizing fraud in equity to be irrelevant. No case before or after Gaidon II supports such a reading of that decision. To the contrary, in Melcher and other case law after Gaidon II, this Court has recognized that precedents in equity and at law alike remain relevant in determining whether C.P.L.R. 214(2) applies to a statutory claim. See Allstate Ins. Co. v. Stein, 1 N.Y.3d 416, 422 (2004) (insurance regulation addressing insurer’s subrogation rights did not create new liability because “[s]ubrogation is a venerable equitable doctrine”); see also Melcher, 23 N.Y.3d at 15 (citing Orr v. Kinderhill Corp., 991 F.2d 31 (2d Cir 1993)). These precedents dispose of defendants’ reading of Gaidon II. 70 POINT II EVEN IF THIS COURT WERE TO ACCEPT DEFENDANTS’ INCORRECT THEORY, IT SHOULD PERMIT THIS CASE TO GO FORWARD BECAUSE THE COMPLAINT ADEQUATELY ALLEGES ALL THE ELEMENTS OF COMMON-LAW FRAUD Even if this Court were to conclude, contrary to the arguments above, that the Martin Act and § 63(12) create new liability by authorizing the Attorney General to pursue relief for fraud without proving all the elements of common-law fraud, it should nonetheless affirm the decision below. As the Appellate Division correctly held in the alternative, the Attorney General’s complaint adequately alleged “the elements of common-law fraud, including scienter or intent, reliance, and damages.” (A. 8.) These allegations would “invok[e] a six-year statute of limitations” even under defendants’ incorrect theory. (A. 8.) As defendants concede, a § 63(12) claim would “be subject to the six-year limitations period . . . if the Attorney General seeks to base liability on common-law fraud.” Def. Br. at 51 n.13. The same would be true of the Martin Act, which, like § 63(12), unquestionably incorporates liability for “actual or intentional or legal fraud,” Federated Radio, 244 N.Y. at 41. Because defendants do not 71 meaningfully dispute the adequacy of the Attorney General’s allegations of scienter, reliance, and damages here, the complaint here would survive dismissal even if this Court were to conclude that such allegations were necessary to invoke a six-year limitations period.21 Defendants argue that the Attorney General may not rely on these allegations because they are “extraneous” to the Attorney General’s arguments here. Def. Br. at 40. But they are not at all extraneous under defendants’ statute-of-limitations theory, which would make allegations of the elements of common-law fraud essential for the Attorney General to obtain relief for a full six years under the Martin Act and § 63(12). See id. at 24. The complaint’s allegations of these elements are thus hardly “extraneous” if this Court accepts defendants’ theory. And consideration of these allegations would be consistent with this Court’s prior statute-of- 21 Although defendants assert in a footnote that the Attorney General’s allegations of reliance and scienter are insufficient (Def. Br. at 42 n.8), they make no attempt to develop these points, which are in any event refuted by the trial court’s decision (see A. 35-37), including its appendices identifying pertinent allegations of scienter and reliance (see A. 41-43). 72 limitations cases, which have referenced the plaintiff’s specific claims and allegations in determining the appropriate limitations period. See Cortelle, 38 N.Y.2d at 87 (holding that Attorney General’s claims reference preexisting liability even though § 63(12) might impose “new liability” in other cases); Gaidon II, 96 N.Y.2d at 210 (holding that C.P.L.R. 214(2)’s limitations period “applies to the instant General Business Law § 349 claims”). Thus, even if this Court were to hold that the Attorney General must establish the elements of common-law fraud to invoke a six-year limitations period for Martin Act and § 63(12) fraud claims, it should affirm the decision below because the complaint here adequately pleads those elements. 73 POINT III EXECUTIVE LAW § 63(12) PROVIDES AN INDEPENDENT CAUSE OF ACTION FOR FRAUD Defendants repeatedly question whether Executive Law § 63(12) provides a standalone cause of action for fraud, rather than merely authorizing the Attorney General to pursue fraud claims under other statutes. Def. Br. at 46-48. This Court need not address the issue to decide the statute-of-limitations question presented in this appeal, as defendants concede. See Def. Br. at 48. Because defendants have raised the issue, however, we explain briefly why § 63(12) creates a standalone cause of action for fraud. First, on its face, § 63(12) contains all of the elements of a distinct cause of action: it (a) identifies the misconduct that triggers liability; (b) authorizes the Attorney General to commence “an action or proceeding” to obtain relief for that misconduct; and (c) specifies relief that the Attorney General may obtain. Executive Law § 63(12). Numerous other statutory provisions with equivalent structures give the Attorney General (or other parties) the ability to bring a standalone cause of action. See, e.g., Executive Law § 175(2) (fraudulent charitable solicitations); GBL §§ 342 (antitrust), 349(b) 74 (deceptive business practices). In particular, the language of § 63(12) parallels that of the Martin Act, which indisputably authorizes the Attorney General to bring a standalone cause of action for fraud. See Assured Guar. (UK) Ltd. v. J.P. Morgan Inv. Mgt. Inc., 18 N.Y.3d 341, 350 (2011). Second, decades of controlling precedent recognize that § 63(12) provides the Attorney General with an independent cause of action for fraud. For example, this Court recently explained that § 63(12) empowers the Attorney General “to sue for violation of the[ ] statute[ ].” Greenberg, 21 N.Y.3d at 446. And in Cortelle, this Court specifically upheld the Attorney General’s authority to bring a freestanding fraud claim under § 63(12), “reinstating” that claim after the lower court had improperly dismissed it. 38 N.Y.2d at 90.22 22 The lower courts have also routinely upheld independent fraud claims brought by the Attorney General under § 63(12). See, e.g., People v. Greenberg, 95 A.D.3d 474, 475 (1st Dep’t 2012), aff’d, 21 N.Y.3d 439 (2013); People v. Coventry First LLC, 52 A.D.3d 345, 346 (1st Dep’t 2008), aff’d 13 N.Y.3d 108 (2009); People v. General Elec. Co., 302 A.D.2d 314, 314 (1st Dep’t 2003); People v. Apple Health & Sports Clubs, 206 A.D.2d 266, 267 (1st Dep’t 1994); People v. Helena VIP Personal Introductions Servs. of N.Y., 199 A.D.2d 186, 186 (1st Dep’t 1993); Matter of People v. American Motor Club, 179 A.D.2d 277, 282 75 Finally, courts have repeatedly addressed the scope of fraud liability under § 63(12)—a question that would be irrelevant if, as defendants suggest, § 63(12) does not provide a standalone cause of action for fraud at all. See, e.g., Coventry First, 52 A.D.3d at 346 (elements of common-law fraud “need not be alleged” for § 63(12) claim); American Motor Club, 179 A.D.2d at 283 (“scienter is not required and false promises are sufficient” for § 63(12) claim). Contrary to defendants’ assertion (Def. Br. at 46-48), there is no division of authority on this question. All of the cases cited by defendants relied on a single First Department decision, People v. Charles Schwab & Co., Inc., 109 A.D.3d 445 (1st Dep’t 2013), that the First Department recently recognized was “a patent judicial mistake” that did “not comport with prevailing authority.” Trump Entrepreneur Initiative, 137 A.D.3d at 417-18 (quotation marks omitted).23 As the First Department has now correctly held, “the (1st Dep’t 1992); see also Matter of People v. Telehublink Corp., 301 A.D.2d 1006, 1008 (3d Dep’t 2003). 23 The one cited case that predated Charles Schwab—Matter of People v. Frink America, 2 A.D.3d 1379 (4th Dep’t 2003)—was not a fraud claim under § 63(12) at all, but rather an illegality claim “seek[ing] injunctive relief for a violation of Labor Law article 6.” Id. at 1381. 76 Attorney General is, in fact, authorized to bring a cause of action for fraud under Executive Law § 63(12).” Id. at 418. CONCLUSION For all of these reasons, the decision below rejecting defendant’s challenge to the complaint should be affirmed. Dated: New York, NY October 3, 2017 BARBARA D. UNDERWOOD Solicitor General STEVEN C. WU Deputy Solicitor General ANDREW W. AMEND Senior Assistant Solicitor General of Counsel Respectfully submitted, ERIC T. SCHNEIDERMAN Attorney General State of New York Attorney for Respondent By: . . ANDREW W. AMEND Senior Assistant Solicitor General 120 Broadway, 25th Floor New York, NY 10271 (212) 416-8022 Reproduced on Recycled Paper AFFIRMATION OF COMPLIANCE Pursuant to the Rules of Practice of the New York Court of Appeals (22 N.Y.C.R.R.) § 500.13(c)(1), Andrew W. Amend, an attorney in the Office of the Attorney General of the State of New York, hereby affirms that according to the word count feature of the word processing program used to prepare this brief, the brief contains 12,685 words, which complies with the limitations stated in § 500.13(c)(1). ______________________________ Andrew W. Amend Addendum TABLE OF CONTENTS PAGE i 2 Rev. Stat., ch. IV (3d ed. 1846) ........................................................................... ADD 1 1 Report of the Commissioners on Practice and Pleadings, tit. II, ch. I-IV (1848) ................................................................................. ADD 11 1 Joseph Story, Commentaries on Equity Jurisprudence, ch. VI (6th ed. 1853) ............................................................................................ ADD 42 2 Laws of the State of New York, ch. IV, tit. II (1876) ........................... ADD 57 Governor’s Message to the Legislature Transmitting Report of the Special Comm. Appointed by the Governor to Provide Proper Supervision & Regulation in Connection with Sec. Offered to the Public for Investment, 1920 N.Y. Legis. Doc. No. 81 .............................. ADD 64 Ambrose V. McCall, Comments on the Martin Act, 3 Brook. L. Rev. 190 (1933) ...................................................................... ADD 85 J. Cyril O’Connor, Power of a Court of Equity to Ascertain and Award Permanent Damages in Lieu of Injunction, 9 St. John’s L. Rev. 395 (1935) ................................................................ ADD 99 3 J. Pomeroy, A Treatise on Equity Jurisprudence (5th ed. 1941) ....... ADD 105 Mildred V. Coe and Lewis W. Morse, Chronology of the Development of the David Dudley Field Code, 27 Cornell L. Rev. 238 (1942) ........... ADD 114 Temporary Commission on the Courts, Second Preliminary Report of the Advisory Committee on Practice and Procedure, 1958 N.Y. Legis. Doc. No. 13 .................................................................. ADD 122 2 Rev. Stat., ch. IV (3d ed. 1846) (ADD 1 - ADD 10) 390 [PART III. iim 5 10®* Whenever such term or session shnll be held at any place rrautaiui so appointed by the governor, all process shall be returned and all to persons held to appear at such place, as if such term or session was •PPW* neld at the place where by law the same was to have been held. [See. 3 of same chapter.] §107. In cose any court shall not be formed at the place so appointed, by five o’clock in the afternoon of the first day of the term or session, the same may be adjourned to the next day by the same officer, and in like manner and with the same effect os pro¬ vided by law,in case the place of holding such court had not been altered. [Sec. 4of tame chapter*] Coutta may, §108. If at any time during any sossion or term of the aforesaid * courts, or either of them, it shall oe deemed by the said court im- 1"««* proper or inexpedient, by reason of war, pestilence, or other public calamity, or the danger thereof, that the said term or session should be continued at the place where the same is then holding, the said court may, by order entered in their minutes, adjourn the session of said court, to be hoklcn at such other times and places os they may direct; and the'said adjourned sessions shall be taken as a part and continuance of the said term; and all proceedings in the said court may bo continued at said ndjourned times and places, and be of the force and effect as if said court had continued its * session at the place it was holden before said adjournment [Sec. 6 of same chapter.] Court* bow adjourned for winter CHAPTER IV. Of actions, and the limes of commencing them. [Paswd 10th December, 1828, and took effort lit January, 183Q.J TITLE 1. Of actions, end their general divisions. 2. Or the time of commeedeg actions. TITLE I. Of actions, and their general divisions, See.1. Actions enumerated, Included in this ohapter. 2. Eight of action not merged by any felony. taeai SECTION 1. The actions included within the provisions of this dSdS" m Chapter, are, either, iid* ehif>t«r. i. Such os relate to real estate: 2. Those which may be brought for the recovery of any debt or demand, or for the recovery of damages only ; 3. Those which may be brought for penalties or forfeitures: d. Suits in courts of equity. r*i»iir n*u g 2. The right of action of any person injured by any felony, *“**• **ÿ shidl not, in any case, be merged m such felony, or be in any raan- ffected thereby.1ner a (1) 1 R. L. p. «9, J JO. ADD 1 mCHAV, nr.] AND THE TIME OF COMMENCING THEM. TITLE II. Of the time of commencing actions. Aar.1. Of (he time of commencing action! relating (o real property. 2, Of the time of commencing action! for the recovory of any debt <}r de¬ mand, or fbr damagea only. 3. Of tho lime of commencing action! for ponaltiea and forfeiture!. 4. General provliiohi concerning the commencement of mill, and the penom and eaaci excepted from the operation of the preceding Article! of this Title. 1 B. Of the presumption of payment ariling from tho lapse of time. 8. Of the time or commencing Hits In courts of equity. ARTICLE FIRST. Of the time of commencing actions relating to real property. SEC. 1, Limitations of certain suits by (he people. 2. Last lection not to extend to suits for franchises, Ac. sntoci of lands by patents, when to sue. its when to be brought after patents declared void. fi. Limitation of private suits for real property. (1. Also of avowries and cognixnnocs. 7. What necessary to render entry on lands a clal 8. Owner of land deemed to be possessed unless adverse possession, Ac. What premises deemed adversely held under written title. 10. Acta whieh In inch case constitute adverse possession. 11, What premises deemed adversely held without claim of tlllo. 12, Acts which in such case constitute adverse possession. 13. Possession at tenant when to bn that of landlord. 14. Limitation of saire faciason former fines. IB. Casting of descent not to alTcet right to land. 16. Exceptions of persons under certain disabilities. 17. Effect of death of person under disability. S 1. The people of this state will not sue or implead any person Suits wise.* for, or in respect to, any lands, tenements or hereditaments, or for !?> m?iSSjlE the issues or profits thereof, by reason of any right or title of the said people to the same, unless. i. Such right or title shall have accrued within twenty years before anysuit, or other proceeding, for thesameshall becommenced: or unless, 2. The said people, or those from whom they claim, shall have rpwo j received the rents and profits of such real estate, or of some part thereof, within the said space of twenty years.1 <5 2. The last preceding section shall not extend to any suit or La*, prosecution for, or in respect to, any liberties or franchises.1 qiisuoed. 2 3. No action shall be brought for, or in respect to. any lands, Grumes or tenements or hereditaments, by any person claiming Dy virtue oflht'1*"' any letters patent, or grants from the people of this statcj unless the snme might have been commenced by the people of this stntc, ns herein specified, in case such patent or grant had not been issued or made,1 <5 4. When letters patent, or grants, of any lands or tenements, emu «#«ÿ shall have been issued or made by the people of this state, and the EuSSlMSa. same shall be declared void by tho judgment or decree of some competent court, rendered upon a suggestion of concealment, or wrongful detaining, or defective title, in such case,an action for the recovery of the premises so conveyed, may be brought, either by the people of this state, or by nny subsequent patentee or grantee of the same premises, his heirs or assigns, within twenty years after such judgment or decree was rendered ; W not after that period.1 5o. No action for the recovery of any lands, tenements or Mvu««otu--p*«r 3. Or 4, Sa 0. (DlRÿp.184,11. ADD 2 [FAST 111.392 TIME OF COMMESC1NO AOTIOHS TmRÿ hereditaments, or for tbc recovery of the possession thereof, shall be s mu,<£. maintained, unless it appear that the plaintiff, hisancestor, predecessor U?ioSbw« or grantor, was seised or possessed of the premises in question, within ■gtfjj;A f- twenty years before the commencement of such action.1 Afamiw S No avowry or cognizance of title to real estate, or to any rent# or services, shall be valid, unless it appear that the person making the avowry, or the person in whose right the cognizance is made, or the ancestor, predecessor or grantor of such person, was seised or possessed of the premises in question, within twenty years before the committing the act, in defence of which such avowry or cognizance is made.1 »7. No entry upon valid as a claim, unless an action be commenced thereupon within one yenr after the making of such entry, and within twenty years from the time when the Tight to make such entry, descended or accrued.1 real estate shall be deemed sufficient or omwt or <5 8. In every action for the recovery of real estate, or the pos-td session thereof, the person establishing a legal title to the premises, shall be presumed to have been possessed thereof, within the lime required by law: and the occupation of such premises by any other person,shall be deemed to havebeen under, and in subordination to, the legal title, unless it appear that such premises have been held and possessed adversely to such legal title, for twenty years before the commencement of such action. wrtuw tma. cja|m 0f exclusive of any other right, founding such claim upon some written instrument, as being a conveyance j «n- «MI time of war. ATOK or re¬ newal of Judgment. Pefendon g 36. Whenever the commencement of any suit shall be stayed by an injunction of any court of cauity, the time during which such injunction shall be in force, shall not be deemed any portion of the time in tins Chapter limited, for the commencement of such Butt pretool* ■dby bi* ‘unction, suit (1) 1 R. L. p. 188, $6. ADD 7 CHAP. IV.] C0NCEKN1NQ THE COMMENCEMENT OP SUITS, etc. 397 §37. Whenever the commencement of any suit shall be prevented, ART, «, by reason of any privilege of any member of cither house of the w by legislature of this state, or of any member of either house of the congress of the United States, the lime during which the same shall have been so prevented, shall not be deemed any portion of the time limited for the commencement of any suit for the recovery of any debt, demand, or damages only.1 §38. No notion for the recovery of any debt, demand, or damnges ommeireo- only, or for the recovery of any penalty or forfeiture, shall be deemedSot to nave been commenced within the meaning of this Chapter, unless HWeod, «» it appear, l. That the first process or proceeding therein was duly served upon the defendants, or some one of them: or, 2. That a capias ad respondendum, was issued .within the lime required by law, to the sheriff of the county in which the defendants or one of them, usually resided, or last resided, in good faith and with intent to bo actually served ; and that such writ was duly returned: a. If a corporation be defendant, that the first process was in like manner issued to the sheriff of the county, in which such corporation was located by law, or in which the place of transacting its business was situated, with the intent to be actually served; and that such process ms duly returned. §39. When a suit Bhnll be alleged by a plaintiff to have been whn. shall be put in issue by the defendant, it shall be competent lor the r 1 defendant to prove, on the trial, that the process issued by the plaintiff was not issued with the intent, or in the manner required DY lnw ; or that it was issued to the sheriff of one county, when the znin*117' plaintiff knew, or had renson to believe, that the defendant was in another county, and could have becu arrested; or that any means whatever were used by the plaintiff, or his attorney, to prevent the service of the writ, or to keep the defendant in ignorance of the issuing thereof. §40. Upon any such matter beingestablished,or upon its appearing wh«t pro¬ in any other way, that any process was issued without any intent T.f' that it should bo served, such process shall not bo deemed the commencement of a suit, within the meaning of any of the provisions of this Chapter. § 41. No person shnll avnil himself of any disability enumerated DIUWIIUM. in this Title, unless such disability existed at the time his right of action, or of entry, accrued. §42. Where there shall be two or more such disabilities existing Twowmon at the time the right of action or of entry accrued, the limitations dl,,b,HUc*- herein prescribed shall not attach, until all such disabilities be remov 1 1 §43. The provisions of this Title shall not extend to any action r.imiuti«i». which is or shall be limited by any statute, to be brought within a shorter time than is herein prescribed *, but such action shall be brought within the time limited by such statute. §44. None of the provisions of this Chapter shall apply to suits outiin min ■gainst directors or stockholders of any monied corporations, to SELISeJSSccover uny penally or forfeiture imposed,or to enforce any liability 1 (l) 1B. L. p. 128, $S,1 ADD 8 [PART III. ruyi created by the second Title of the eighteenth Chapter of the First— Part of the Revised Statutes j but all such suits shall be brought ■within six yenrs after the discovery, by the aggrieved party, of the facts upon which such penalty or forfeiture attached, or by which such liability was created.1 ciiatini $ 46. The provisions of the preceding Articles of this Title, shallHStS,*e. not apply to any actionscommenced, nor to any cases where the right fflvjrouw of action shall have accrued, or the right of entry shnll exist, before « UTLJKM. 5 the time when thisCliapter takes effect as a law; but the same shall remain subject to the laws now in force. ARTICLE FIFTH. 398 TIME OP COMMENCING BDITS IN EQUITY. Of the presumption of payment arising from the lapse of time. SEC. 40. Certain former Judgment*, when presumed paid. 47. Future Judgment* when to bedeemed Mtlsfled. Instrument* when to be deemed paid. I*U § 46. The presumption of payment shall apply to all judgmentsn£r ji**’ of a court of record in this state, rendered before the third day of H wild.188 April, one thousand eight hundred and twenty-one, and to all i« do. us such judgments rendered before tins Chapter shall take effect os a law, in the same manner as such presumption applies to sealed instruments. within the United States, shall be presumed to be paid and satisfied. after the expiration of twenty years from the time of the signing and filing such judgment or decree ; but in any suit at law or in equity, in which the party against whom such judgment or decree was rendered, or his heirs or personal representatives, shall be a party, such presumption may be repelled by proof of payment, or of written acknowledgment of indebtedness, madewithin twenty years, of some part of the amount recovered by such judgment or decree; in all other cases, it shall be conclusive. 48. After the expiration of twenty years from the time a right of action shall accrue upon any sealed Instrument, for the payment of money, such right snail be presumed to have been extinguished by payment ; but such presumption may be repelled by proof of payment of some part, or by proof of a written acknowledgment of such right of action within that period. Seated In. ARTICLE SIXTH. Of (he time of commencing suite in courts of equity. SEE. 49. Certain limitation* at taw, to apply to chancery. 00. Not to extend to caiee of exclueive equity Jurisdiction.61. Bill* for relief from fraud, to be tiled In ux yean.62. All other blue to be died in ten year*. 63. Exception* of perton* under dtmbiiiUei. jwtatieSm. 3 49. Whenever there is a concurrent jurisdiction in the courtsof common law, and in courts of equity, of any cause of action, the provisions of this Title limiting a time for the commencement of a suit for such cause of action, in a court of common law, shall apply to oil suits hereafter tohe brought for the same cause, in the court of chancery. §50. But the lost section shall not extend to suitsover the sub¬ ject matter of which a court of equity lias peculiar and exclusive (1) Lew* of 1885, p. 419, $2 end 3. ADD 9 309CHAP. V.] jurisdiction, and which subject matter is not cognizable in the TITLE >. courts of common law. 51. Bills for relief, on the around of fraud, shall be filed within nei|»r six years after the discovery, by the aggrieved party, of the facts ™ constituting such fraud, and not after that time. §52. Buis for relief, in case of the existence of a trust not cognizable by the courts of common law, and in all other cases not heroin provided for, shall be filed within ten years after the cause 1 30511 thereof shall accrue, and not after. 3 53, But if the person entitled to file any bill specified in the Et»punn* two last sections, be, at the time of discovering the facts consli- um&da*. tuting such fraud, or at the time the cause for filing such bill shall blUlk* accrue, under any of the disabilities in the first and second Articles of this Title enumerated, the time during which such disability ' shell continue, shall be excepted from the limitations contained in the two last sections, in the same manner and with the like effect, as such time is herein excepted from the limitations prescribed for commencing actions at law j and in case of the death of the person so entitled, during such disability, or before the expiration of the time herein limited for filing such bills, the same may be filed by the heirs or representatives of such person, as the case may require, within the same time as allowed in the said first and second Arti¬ cles for commencing actions at law in the like cases. OP SUITS RELATING TO REAL PROPERTY. from other CHAPTER V. Of suits relating to real property. [Paneil 10th December, 1828, and took effect let January, 1830.] TITU 1. Or the action of ejeetment. 2, Proceedings to compel the determination of claims to real property in certain cates. 3. Of the partition o| lands owned by several persons. 4. Of the writ of nuisance. B. Of waste. 8. Of trespass on lands. 7. General provisions concerning actions relating to real property. 8. Proceedings to discover the death of persons, upon whose live particular estate may depend. s any TITLE I. Of the action of ejectment. See.1. Action retained in tho eases In which It Is now allowed. 2. Other cases in which it may bo brought. 3. Who to be plaintim In the notion. 4. Who to bo defendants. 0, How commenced) real claimants to be ptaintlflk. 6. Fictitious parties, demises, dee, abolished. 7. Contents of declaration. 8. Premises claimed, how to be described. 0. Undivided shares whonclaimed to be stated. 10. Interest of plaintiff to be stated. 11, Several counts and several plaintllR may bo Joined.12. Notice to bo subjoined to declaration) its contents. 13. Declaration, die. how served when premises are occupied. 14. flow served if premises are not occupied. IS. When spociol order of court ncaessary for rulo to plead. t*0»! ADD 10 1 Report of the Commissioners on Practice and Pleadings, tit. II, ch. I-IV (1848) (ADD 11 - ADD 41) 92 from the defender the estate of Belhidrurn, and to pay for the same the sum of <£80,000 1 “ Whether the pursuer was induced by the misrepresenta¬ tion of the defender, in regard to said estate, to enter into the said agreementf’— (5 Murray’s Rep., 166.) TITLE II. Of I'se time «t commencing civil adions CHAT; i r. I. Atilt NS, IN GENE* KL. II. ACTION* FOB THE RECOVERY OF REAL PROPERTY. III. ACTIONS, OTHER THAN FOR THE RECOVERY OF REAL PROPERTY. IV. GENERAL PROVISIONS. This title, and the chapters enumerated under it, coi respond, both in subject and arrangement, with the title of the revised statutes, “ of the time of commencing actions.” (2 R. S. Zi ed.t 391-399.) Their introduction in this place is rendered necessary, by the fact, that the existing limitations of actions, (with the exception of those relating to real property,) depend upon the distinctions between actions at law and suits inequity, ami between the several forms of actions at law. To carry into effect, therefore, the abolition of those distinctions, it be¬ comes nec< ssary to revise tbe statute of limitations, and to adapt it to the substance, instead of the form, of the remedy. In the performance of this part of our duty, we have supposed that clearness of arrangement required, that the existing statute of limitations, instead of being amended by disjointed provi¬ sions, calculated rather to perplex than to aid the reader,should be embodied in an entire form, and in a natural and consecu¬ tive order. This has been done, by proposing to repeal all the provisions of the existing statute, excepting those relating to actions for the recovery of real property. These are retained, by a general provision, in section €8; they being of considera¬ ble length, and there being no alteration in them, which ren¬ dered it necessary to transcribe them in the present act. ADD 11 93 la examining this subject, many important changes, both in its general policy anil in its details, have suggested themselves to our minds, some of which we have proposed, and others of which, in the further progress of our labors, we may deem it expedient to submit for the consideration of the legislature. For the present, we have mainly confined ourselves to a mere revision of the existing statute of limitations, with such changes of phraseology, as seemed to be rendered necessary, by a due regard to simplicity of style, and by the judicial con¬ structions given to portions of it, calculated to render its pro¬ visions more clear and explicit. CHAPTER I. THE Tl'iE Of COMMENCING ACTIONS IN GENERAL. BBCTK’ . 68. Repeal of exiting limitations. 67. Time for commencing civil actions. § 66 The provisions contained in the second, third, fourth, fifth and sixth articles of the chapter of the re¬ vised statutes, entitled “ of actions and the times of com¬ mencing them,” are repealed, and the provisions of this title are substituted in their stead. This title shall not extend to actions already commenced, or to cases where the right of action has already accrued -, but the statutes now in force shall be applicable to such cases, accord- *ug to the subject of the action, and without regard to the form. The provisions proposed to be repealed by this section, are contained in 2 R. 5., 3d ed., 393— 399; and are entitled, u ofthe time of commencing actions for the recovery of any debt or demand, or for damages only,” — “ of the time of commencingactions for penalties and forfeitures,” — “ general provisionsconcerning the commencement of suits, and the persons and ADD 12 94 cases excepted from the operation of the preceding articles of this title,” — “of the presumption of payment, arising from the .lapse of time;” and “ of the time of commencing suits in courts of equity.” These subjects are all embraced in the third and fourth chapters of this title; to the several sections of which are appended explanatory notes, shewing in what respects the existing statutes have been adhered to, or departed from, and, where the latter course has been adopted, the reasons which have rendered alterations necessary. The concluding sentence of section 66 is designed to pro¬ tect actions already commenced, or causes of action which have accrued, from the operation of this act, and is, in this respect, similar to the provision contained in 2 R. S. 3d ed. 398, sec. 45. The qualification has, however, been added, that “ the statutes now in force shall be applicable to such cases, accord¬ ing to the subject of the action, and without regard to the form ;” for the purpose of rendering the saving clause consistent with the enforcement of a remedy in causes of action already ac¬ crued, without regard to the distinctions now existing between cases of legal and equitable cognizance, or between the several forms of actions at law. § 67. The civil actions embraced within section 66, can only be commenced within the periods prescribed in this title, after the cause of action shall have accrued, except where, in special cases, a different limitation is prescribed by statute. Similar in form to 2 R. S., 3d ed., 397, rec. 43. ADD 13 95 CHAPTER II. THE TIME OF COMMENCING ACTIONS FOR THE RECOVERY OF REAL PROPERTY. SECTION 68. Limitation of action!for the recovery of real property. § 68. The provisions of the Revised Statutes, contain¬ ed in the article entitled “ Of the time of commencing actions relating to real property,” shall, until otherwise provided by statute, continue in force, and be applicable to actions for the recovery of real property. The provisionsproposed to be continued in force, are contain¬ ed in 2 R, S. 3d ed. 391—393, see. 1—16. CHAPTER III. THE TIME OF COMMENCING ACTIONS, OTHER THAN FOR THE RECOVERY OF REAL PROPERTY. SECTION 60. Period!oflimitation, preacribed, 70. Within twenty yeari. 7J. Within six yean. 72. Within three yean. 73. Within two yean, 74. Within one year. 75. When cause of action accrued, in an action upon a currentaccount. 76. Actionsfor penalties, be., by any person who will sue, when to be brought. 77. Actions for relief, not before provided for. 78. Actions by the people, subject to thesame limitation. § 69. The periods prescribed in section 67, for the commencement of actions other than for the recovery of real property, shall be as follows : § 70. Within twenty years : 1. An action upon a judgment or decree of any court of the United States, or of any state or territory within the United States. ADD 14 96 2. An action upon a sealed instrument for the payment of money. This provision, as far as it goes, is founded on 2 R. S, 3d ed. 398, sec. 46— 4S. fiy those sections it was provided, th.it “ presumption of payment should apply to all judgments of a eourl of record in this state rendered before the third of April, 1821, and to all such judgments rendered before the chapter containing the provisions took effect as a law, in the same man¬ ner as the presumption applicable to sealed instruments;” (sec. 46; ) that “ every judgment anil decree thereafter rendered in any court of this state, or of the United States, or of any other state or territory within the United States, should be presumed to have been paid and satisfied, after the expiration of twenty years from the time of the signing and filing of the judgment; but that in a suit at law or in equity, in which the party against whom the judgment or decree was rendered, or his heirs or per¬ sonal representatives, should be a party, the presumption might be repelled by proof of payment, or of written acknowledgment of indebtedness, made within twenty years, of some part of the amount recovered by the judgment or decree; and that in all other cases it should be conclusive (see. 47 ;) and that after the expiration of twenty years from the time a right of action should accrue upon a sealed instrument for the payment of mo¬ ney, it should be presumed to have been extinguished by pay¬ ment; but that the presumption might be repelled by proof of payment of some part, or by proof of a written acknowledg¬ ment of the right of action within that period. (See. 4S.) The section proposed differs from the existing statutes, in two important particulars. First, it makes the lapse of twenty years an absolute bar, instead of a presumption of payment merely; and secondly, it excludes from the limitation, an action upon a judgment or de¬ cree of a court of this state, so as to conform it to the abolition of an action in any court of this state, upon such a judgment. The propriety of the last of these changes is obvious, if the principle of abolishing actions upon judgments of the courts of his state be adopted. ADD 15 97 The first involves only the' expediency of making the lapse of twenty years an absolute bar, instead of leaving it as at pre¬ sent, a mere presumption of payment. At common law, there was a presumption that a judgment debt, as well as debts of every other description, had been paid, after the lapse of twenty years, unless the creditor could show something to the contrary, to take the case out of the general rule. ( Opinion of Chancellor Walworth,in' Miller v. Smith's edrs, 16 Wend. 431.) The existing provisions, above refer¬ red to, merely declared the common law rule in this respect, by providing that the presumption of payment should apply to the cases enumerated in them. There seems to be no good reason, why the limitation of actions of this nature should not be as fixed and certain as in other cases— saving, of course,the rights of the plaintiff, either as respects disabilities to sue, or a revival of the debt by a new promise,as hereafter provided. The English Commissioners on the Practice and Proceedings of the Superior Courts ofCommon Law, in their Third Report, (p. 15,16,) take this view of the subject, and recommend, in relation to actions on judgments, as well as on bouds and other deeds, (to which latter, as well as to actions on judgments there is no fix¬ ed legal limitation, but merely a presumption of payment,) that such limitation should be established. In referring to the sub¬ ject of the statute of limitations, they say:— “ This appears tobe, in one respect, materially defective. Actions on simple contracts are subjected by statute, to an express limitation of six years. But with respect to bonds and other deeds, judg¬ ments and other mattejs of record, no statute of limitation ex¬ ists. There is, consequently, no -lapse of time, however long, which can be pleaded as a bar to the right of action upon them. But when a bond has been given, ox a judgment has been in existence as much as twenty years, and no proof is given that interest has been paid, or the debt acknowledged within that period, nor any other circumstance shown, tending to rebut the supposition of payment, it has been thought reasonable in prac¬ tice, to establish the rule that payment must be presumed. When, therefore, the bond or record is of that age, and no di¬ rect evidence can be given of payment, the course is, neverthe¬ less, to plead that it has been paid, and to rely upon the pre- fp. & ?.] 7 ADD 16 98 sumption. This is, however, an inconvenient substitute for a positive limitation. The shortest period for presumption, not being fixed by any absolute rule of law, is subject to variation; for, in some cases, less than twenty years has been held to be sufficient, when other circumstances existed, however slight, to fortify the presumption. “ This uncertainty is objectionable, and it would be better that parties holding such securities, should know precisely for what period they may forbear to enforce them, without afford¬ ing any material ground for the presumption of payment. Be¬ sides, it has been truly stated, ‘that the law of limitation is a wise and beneficial law, and designed not merely to raise a pre¬ sumption of payment of a just debt, from lapse of time, but to afford security against stale demands, after the true state of the transaction may have been forgotten, or become incapable of explanation, by the death or removal of witnesses.’ ( By Sto¬ ry,J., in Bell v. Morrison, 1 Peters’ U. P. Rep. 360.) There are many cases, therefore, in which a jury may be satisfied that payment on a bond or judgment twenty years old has not in fact been made, when nevertheless, according to the true spirit of the law of limitation, the plaintiff ought not to be allowed to recover Yet in such cases the jury are bound, under a plea of payment, to find the same in his favor. For these and other reasons, we think it right to recommend the establishment, by statute, of a positive bar; and the period of twenty years seems that which is best adapted to the case, both because it is alrea¬ dy recognized in practice, and because an analogy is thus pre¬ served to the law of limitation, in matters which concern the realty.” An additional reason for making the lapse of twenty years an absolute limitation, and not a mere presumption, is afforded by the existing statute, (2 R. S. 3d ed. 398, sec,47,) which makes the presumption conclusive, unless repelled by payment, or a written acknowledgment within the twenty years. ADD 17 99 § 71. Within six years: 1. An action upon a contract, obligation or liability, express or implied; excepting a sealed instrument for the payment of money. This is a substitute for the provision contained in 2 R. S. 3d ed. 394, sec. 18, by which the limitation of six years is extend¬ ed to “ all actions of debt founded upon any contract, obliga¬ tion or liability not under seal, excepting such as are brought upon the judgment or decree of some court of the United States, or of this or some other state;” to u all actions upon judgments rendered in any court, not being a court of record;” to ** all ac¬ tions of debt for arrearages of rent not reserved by some instru¬ ment under seal;” and to “ all actions of account, assumpsit or on the case, founded on any contract or liability, express or implied.” The exception as to judgments, iB rendered unnecessary by the provision contained in section 70. The existing law is also changed, by bringing all cases ari¬ sing on contract, excepting on judgments and on sealed in-- struments other than for the payment of money, within the li¬ mitation of six years. 2. An action upon a liability created by statute, other than a penalty or forfeiture. This provision is new, and is intended to legalize a distinc¬ tion, just in itself, and sustained by the weight of authority, upon the construction of the existing statutes, (although somewhat obscured by a discrepancy in the cases,) between a liability in the nature of a contract, created by statute, and a penalty or forfeiture. In order to render the object of this provision more clear, it must be taken in connection with the second subdivi¬ sion of section 72, which applies the limitation of three years to “ actions upon a statute, for a penalty or forfeiture, where the action is given to the party aggrieved, or to such party and the people of thisstate,” — with the second subdivision of section ADD 18 ICO 73, which includes within the two years’ limitation, c; an action upon a statute for a forfeiture or penalty to the people of this state,” and with the provision contained in section “6, that “ an action upon a statute for a penalty or forfeiture, given in whole or in pa:‘. to any person who will prosecute for the same, must be commenced within one year after the commission of the of¬ fence; and if the action be not commenced within the year, by a private party, it may be commenced within two years thereafter, in behalf of the people of this state, by the attorney general, or the district attorney of the county where the offence was committed.” The sections of the Revised Statutes on this subject are con¬ tained in 2 R. S. 3d ed. sec. 29, 30, 31, which provide that, “ actions upon a statute for any forfeiture or penalty, to the people of this state, shall be commenced within two years {sec. 29;) that “ actions upon a statute for a forfeiture or penally, given in whole or in part to any person who will prosecute for the same, shall be commenced within one year after the offence shall have been committed; and that if it be not commenced within that time, by a private citizen pt shallbe commenced with¬ in two years after that year ended, in behalf of the people of this state, by the attorney-general, or the district attorney of the county where the offence was committed; (sec. 30;) and that “ actions upon a statute for a forfeiture or cause, the bene¬ fit and suit whereof is limited to the parly aggrieved, or to such party anJ the people of this state, shall be commenced within three years after the offence committed, or the cause of action accrued.” {Sec.31.) It will be observed, that, in their general character, the pro¬ posed provisions are similar to those contained in the Revised Statutes, except that in the provision corresponding to section 31, in the Revised Statutes, the word tc penalty” is substituted for the word u cause,” so as to make this provision conforma¬ ble to the others, in which the limitation of actions for penal¬ ties and forfeitures is prescribed. The difference in phrase¬ ology in the former statutes has given rise to much discussion, and to very contradictory constructions, by the courts, of the ADD 19 101 terms used ; which it seems expedient to determine, by a legis¬ lative declaration on the subject. For example, in the case of Van Hook v, Whitlock,7 Paige, 379— 381, Chancellor Walworth regarded the provision of theRevised Statutes, which applied to actions “ for any penalty orcause,” as extending to actions other than for penalties or for¬ feitures’, such as actions against the.stockholders of a corpora¬ tion to charge them individually for its debts, upon a dissolu¬ tion of the company; on the -ground, that such actions were founded solely upon a statutory liability. In the same case, in the court of errors, on appeal, (26 Wend.51— 63,) Chief Jus¬tice Nelson discussed the question, and expressed an opposite opinion; deeming that it ought not to be construed as extend¬ ing beyond fines and penalties or forfeitures. But the point was not decided, the result of the cause having turned upon other questions. More recently, the supreme court, in Freeland v. M’Cul- lough, 1 Denio, 421— 424, agreed with Chancellor Walworthin his construction, and held the section applicable to the class of cases referred to by him ; and this case, or one in which a similar principle was held, has, as we are informed, been since reversed by the court of appeals ; thus interpreting the statute according to the views expressed by Chief Justice Nelson. The conflict of opinion, thus existing, seems to render fur¬ ther legislation necessary ; and the question therefore presents itself, which is the proper rule! We are disposed to recom¬ mend it, in accordance with the views of Chief Justice Nel¬ son. He deprecates the extension of the three years limitation in the section of the Revised Statutes referred to, beyond ac¬ tions for penalties and forfeitures, because it would have the effect of presenting “ a short bar of three years to every action and cause of action arising out of and founded upon any statu¬ tory regulation, such as suits against heirs, executors and ad¬ ministrators, the president and other officers of corporations under the general banking law, besides many others that might be enumerated.” (26 Wend. 53.) The distinction between the two classes of case9, is broad and distinct, and it would seem, that the limitation applicable to each should be equally ADD 20 102 so. There is good reason for a short limitation to actions on penalties and forfeitures, because they are disfavored in the law ; but no reason seems to exist, why a liability for a debt created by statute, and which in most cases is founded on as strong an equity, as where it results from the direct agreement of the party, should stand upon a different footing from the latter, as respects the period within which it should be en¬ forced. 3. An action for trespass upon real property. The same as 2 R. S., 3d ed., 394, sec. IS, subdiv. & ; ex¬ cepting the substitution of the words “ real property,” in place of “ lands.” 4, An action for taking, detaining or injuring any goods or chattels, including actions for the specific reco¬ very of personal property. The same as 2 R. S., 3d ed., 394, sec. IS, subdiv. 6 ; ex¬ cepting that the words “ including actions for the specific re¬ covery of personal property,” are substituted in place of “ in¬ cluding actions of replevin.” This change of phraseology is rendered necessary, by the provision proposing to abolish the existing forms of action. 5. An action for criminal conversation, or for any other injury to the person or rights of another, not here¬ inafter enumerated. The same as 2 R. S., 3d ed., 394, sec, 18, subdiv. 7 ; ex¬ cepting that actions for libels have been taken out of the six years limitation, and, as will be seen by section 73, transferred to the class which are within the two years limitation. The propriety of this change is confidently submitted to the legis¬ lature. Where the action involves, as cases of libel and slan¬ der and the like, generally do, mere feeling, rather than a sub¬ stantial question of rights— or, at all events, where a long de¬lay in bringing the action affords pretty certain evidence that ADD 21 103 the party has sustained but little injury from the act complain¬ ed of, there is no reason for allowing it to be brought at a period so long after the accruing of the cause of action. 6. An action for relief, on the ground of fraud ; the cause of action in such case not to be deemed to have accrued, until the discovery by the aggrieved party, of the facts constituting the fraud. The same as 2 R. S., 3d ed., 399, sec. 51 ; except that, to conform it to the uniform coarse of proceedings in cases, whe¬ ther of legal or equitable cognizance, as proposed by this act, the word “ actions” has been substituted for “ bills for relief.” § 72. Within three years : 1. An action against a sheriff or coroner, upon a lia¬ bility incurred by the doing of an act in his official ca¬ pacity, and in virtue of his office, or 1 y the omission of an official duty; including the non-payment of money collected upon an execution. But this section shall not apply to an action for an escape. This provision is intended to embrace the class of cases in¬ cluded in 2 R. S., 3d ed., 394, sec. 22 ; by which ts application. The observation of every man of intelligence will attest the fact, that of all species of evidence, none is more dangerous, and none more calculated to lead to irremediable perjury, than that which relates to the admissions of a party. And if to this we add the unthinking prejudice, which, in the minds of many, at¬ taches itself to the defence of the statute of limitations— a pre¬judice to which it is to be regretted, the courts have at times, given too decided a sanction— it will scarcely be matter of sur¬prise, that an act, designed to protect from fraud,'should have been permitted to become the passive instrument, at least, of injustice. One of the most eminent jurists of our country, (Mr. Green- leaf,) in his treatise upon the law ofevidence, (Green). Ey, 233,) remarks: “ With respect to all verbal admissions, it may be observed, that they ought to be received with great caution. The evi¬ dence, consisting as it does in the mere repetition of oral state¬ ments, is subject to much imperfection and mistake; the party himself either being misinformed, or not having clearly ex¬ pressed his own meaning, or the witness having misunderstood him. It frequently happens, also, that the witness, by unin¬ tentionally altering a few of the expressions really used, gives an effect to the statement, completely at variance with what the party did actually say.’* ADD 37 119 To the same effect, a1JO, Mr. Justice Sutherland, in Malin v. Malin, 1 Wend. 662, remarks: . Bur- gott, 19 Johns. R. 457, 462. HeinOnline -1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed., rev., corr., enl.) 212 1853 ADD 43 CH. VL] as fraud in obtaining a will, whether of personal estate, or real estate, the proper remedy is exclusively veste d 213ACTUAL FRAUD. this judgment the defendants have appealed. The question is one of considerable importance. The same objection of fraud, founded upon the same facts, was made in the Ecclesiastical Court upon the application for probate. It did not, however, prevail. . This,' then, is, in substance, an attempt to review the proceedings in that Court ; for a sufficient case of imposition and fraud praotised on the testator would have been a ground for refusing the probate. There are, undoubtedly, cases, where fraud being proved, this Court has declared the party committing the fraud a trustee for the person against whom the fraud was practised ; but none of these oases appear to me to go so far as the present. The case of Seagrave v. ICirwan has no very close application to the question now before the Court. The Chancellor of Ireland, Sir Anthony Hart, de* elared the executor a trustee, as to the residue, for the next of bin. But in that case the testator never intended that the executor should take any benefit under the will. The rule, which then prevailed, that the executor was entitled to the residue, unless otherwise disposed of, except where a legacy was bequeathed to him by the will, was a rule of interpretation or construction. The learned judge considered that it was the duty of the executor who prepared the will, and who waa a gentleman of the bar, to have informed the testator that such was the rule. He was not allowed to profit from this omission, and was therefore decreed to be a trustee for the next ofkin. The Ecclesiastical Court had no authority to order this. They had no power to do what the justice of the case re¬ quired. So, in Kennell v. Abbott, (4 Tea. SOS.) There, a fraud had been practised, and the question was one of intention. The testatrix intended the legacy for her husband. The legatee had fraudulently assumed that character. The Master of the Rolls, Sir Pepper Arden, came to the conclusion that the character he had so assumed was the only motive for the gift. The law, therefore, he said, would not permit him to avail himself of the testatrix’s bounty. In the case of Marriot v. Marriot, which is mentioned in Strange (p. 666,) and also in Chief Baron Gilbert’s Reports (p. 203; see p. 200,) it dees not appear what was the nature of the imputed fraud. The cause was compromised, and the judg¬ ment, according to the report in Gilbert, was written by the learned judge, but not delivered. He says that a court of equity may, according to the Teal intention of the teatator, declare a trust upon a will, although it be not contained in the will itself, in these three cases. First, in the case of a notorious fraud upon a legatee; as if the drawer of a will should insert his own name instead of the name of the legatee, no doubt he would be a trustee for the real legatee. Secondly, where the words imply a trust for the relations, as in the case of a specific devise to the executors, and HeinOnline — 1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed,, rev,, corr., enl.) 213 1853 ADD 44 [CH. VI. ia other Courts; in wills of personal estate in the Ecclesiastical Courts ;1 and in wills of real estates in 214 EQUITY JURISPRUDENCE. no disposition of the residue. Thirdly, in the case of a legatee promising the testator to stand as a trustee for another, And nobody, he adds, has thought that declaring a trust in these cases is an infringement upon the ecclesiastical jurisdiction. These are the only positions laid down in the intended judgment, which are applicable to the present question. They do not admit of dispute, but are very distinguishable from the case now under consideration. It is sufficient to observe that in none of these instances would the Ecclesiastical Court be competent to afford relief. The same remarks will apply to the case, also, of Kennell v. Abbott, which I have already mentioned. But in Plume v, Beale (1 P. Wins, 188,) where a legacy was introduced by forgery, Lord Chancellor Cow- per refused to interfere, saying it might have been proved in the Eccle¬ siastical Court, with a particular reservation as to that legacy. There the interference of the court of equity was unnecessary. The question might have been settled by the Ecclesiastical Court. In the case of Barnsley v. Powell (1 Ves. sen. p. 284,) Lord Hardwleke says, that fraud in making or obtaining a will must he inquired into and deter¬ mined by the Ecclesiastical Court, but that fraud in procuring a will to be established in that Court — fraud, not upon the testator, but uponthe person disinherited thereby, might be the subject of inquiry in this Court. Fraud, he says, in obtaining the will, infects the whole, but the case of a will in which the probate has been obtained by fraud upon the next of kin, is of another consideration; and Lord Apstey, in the cash of Meadows ti. The Duchess of Kingston (Amb. 762,) recognizes this distinction. But the case which has the closest resemblance to this is Kerrich v. Bransby, decided in the House of Lords (7 Bro. P. C. 457.) It was alleged in that case, that the will had been obtained by fraud and imposition practised on the testatOT ; and the Chancellor, Lord Mac¬ clesfield, was of that opinion, and pronounced a decree, the effect of which was to deprive the legatee of all benefit under it. It is true, that the prayer of the bill was, that the will might be cancelled; but the decree did not do more than direct the legatee to account for the testator’s personal estate, and that what should appear to be in his hands should be paid over to the plaintiff, and that, if necessary, the plaintiff should be at liberty to use the legatee’s name to get in the debts or other personal estate of the testator ; in substance declaring him a trustee for the plaintiff. But this judgment was reversed on appeal in the House of Lords. It was suggested at the bar, upon the argument in the present 1 See Gould v. Gould, 3 Story, R. 537. HeinOnline -- 1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed., rev., corr, enl.) 214 1853 ADD 45 215CH. VI.] the Courts of Common Law.1 But there are many cases, in which fraud is utterly irremediable at law;, ACTUAL FRAUD. case, that the decree might perhaps have been reversed on the merits. That, however, has not been the understanding of the profession, and Lord Hardwicke, who probably was acquainted with the history of the case, expressly slates in Barnsley v. Powel, that it was decided on the question of jurisdiction. Lord Eldon also, in Ex parte Fearon (5 Ves. 633 ; see p. 647,) observes that it was determined in Kerrich v. Bransby, that this Court could not take any cognizanoe of wills of personal estate, as to matters of fraud. I am of opinion, therefore, as well on authority as on principle, that the demurrer was proper, and ought to have been sus¬ tained.” Again in Price t>. Dewhurst, 4 Mylne & Craig, R. 76, 80, 81; Lord Cottenham said : . “ The first question which ocours is, how can this Court,, in administering a testator’s property, take any notice of a will of whioh no probate has been obtained from the Ecclesiastical Court of this country! This Court knows nothing of any will of personalty, except Buch as the Ecolesiastical Court has, by the probate, adjudged to be the last will.” The same question occurred before the Supreme Court of the U. S. in the case of Gaines and wife v. Chew and others, 2 Howard, S. Ct. R. 619, 645, 646. In that case, Mr. Justice McLean in delivering the opinion of the Court said: — “ In cases of fraud, equity has a concur¬rent jnrisdiction with a court of law, but in regard to a will charged to have been obtained through fraud, this rule does not hold. It may be diffi¬ cult to assign any very satisfactory reason for this exception. That exclu¬ sive jurisdiction over the probate of wills ie vested in another tribunal, is the only one that, can be given. By art. 1637 of the Civil Code, it is de¬ clared that ‘no testament can have effect unless it has been preaented to the judge,’ &o. And in Clappier et cd. v.Banks, 11 Louis Rep. 593, it is held, that a will alleged to be lost or destroyed and whioh has never been proved, cannot be set up as evidence of title, in an aotion of revendication. In Armstrong v. Administrators of Kosciusko, 12 Wheat. 169, this court held, that an action for a legacy could not be sustained under a will which had not been proved in this conntry before a oonrt of probate, though it may have been effective, as a will, in the foreign country where it was made. In Tarver v. Tarver et al., 9 Peters, 180, one of the objects of the 1 1Fonbl. Eq. R. 1, ch. 2, § 3, note (u) ; 3 Black. Comm. 451; Webb v. Cleverden, 2 Atk. 424; Kerrich v. Bransby, 3 Bro. Pari. Cas. 358; S. C, 7 Bro. Pari. Cas. byTomlins, p, 437 ; Bonnet v. Wade, 2 Atk. 324 ; Andrews v. Paris, 2 Bro. Pari. Cas. 476 ; Jeremy Eq. Jurisd. B. 3, Pt. 2, ch. 4, § 5, p. 488, 489 ; Pemberton t>. Pemberton. 19 Ves. 297 ; 1 Hoven- den on Frauds, Introd. 17; Cooper, Eq. PI. 126. HeinOnline - 1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed., rev., corr . enl.) 215 1853 ADD 46 216 [CH. VI. and Courts of Equity, in relieving against it, often go, not only beyond, but even contrary to, the rules EQUITY JURISPRUDENCE. bill being to set aside the probate of a will, the court said, 1 the bill cannot be sustained for the purpose of avoiding the probate. That should have been done, if at all, by an appeal from the Court of Probate, according to the provisions of the law of Alabama.’* The American decisions on this subject have followed the English authorities. And a deliberate consider* ation of the question leads us to say, that both the general and local law require the will of 1813 to he proved, before any title can be set up under it. But this result does not authorize a negative answer to the second point. We think, under the circumstances, that the complainants are en¬ titled to full and explicit answers from the defendants in regard to the above wills. These answers being obtained may be used as evidence before the Court of Probate to establish the will of 1813 and revoke that of 1811. In order that the complainants may have the means of making, if they shall see fit, a formal application to the Probate Court, for the proof of the last will and the revocation of the first, having the answers of the executors, jurisdiction as to this matter may be sustained. And, indeed, circumstances may arise, on this part of the case, which shall require a more definite and efficient action by the Circuit Court. For if the Probate Court shall refuse to take jurisdiction, from a defect of power to bring the parties before it, lapse of time, or in any other ground, and there shall be ho remedy in the higher courts of the state, it may become the duty of the Circuit Court, having the parties before it, to require them to go before the Court of Probates, and consent to the proof of the will of 1713, and the revocation of that of 1811. And should this procedure fail to procure the requisite action on both wills, it will be a matter for grave consideration, whether the inherent powers of a court of chancery may not afford a remedy where the right is clear, by establishing the will of 1813. In the case of Barnesly «. Powell, I Ves. sen. 119, 284, 287, above cited, Lord Hardwieke decreed that the defendant should consent, in the Eccle¬ siastical Court, to the revocation of the will in controversy and the granting of administration, &c. If the emergencies of the case shall require such a course as above indicated, it will not be without the sanction of Louisiana law. The twenty-first article of the Civil Code declares that, ‘In civil matters, where there is no express law, the judge is bound to proceed and •In Trexler v. Miller, 6 Iredell Eq, R. 248, it was held that a Court of Equity has no power to fill up a blank in a will, or to restore a bequest, alleged to have been originally in the will, but fraudulently obliterated before the probate. The Court must take the will as it is certified from the Probate Court. HeinOnline - 1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed., rev., corr . enl.) 216 1853 ADD 47 217CH. VL] of law.1 And, with the exception of wills, as above stated, Courts of Equity may be said to possess a gene- ACTUAL FRAUD. decide according to equity. To decide equitably,-an appeal is to be made to natural law and reason, or received usages where positive law is silent’ This view seemed to be necessary to show on what ground and for what purpose jurisdiction may be exercised in reference to the will of 1813, though it has not been admitted to probate." See also Gengell v. Horne, 9 Simons, R. 539, 548 ; Smith v. Spencer,1 Tounge & Coll. N. R. 75; Tucker v. Phipps, 3 Atk. R. 360; Tremblestown v. Lloyd, 1 Bligh, (N.S.) R. 439; Cann v, Cann, 1 P. Will. 733; Dalaton v. Coatsworth,1 P. Will. 733; Hampden ». Hampden, cited 1 P. Will, 733 ; S. C.1 Bro. Pari. Cas. 250 ; Jones v. Jones, 3 Meriv. R. 161; S. C. 7 Price, R. 663; Bennett v. Wade, 3 Atk. R. 264 ; Webb v. Claverden, 2 Atk. 424 ; Mitf. Eq. PI. by Jeremy, 257; Belt’s Supplt to Vesey, 74, 143; Ridgway v. Roberts, 4 Hare, R. 116; Ryves v.-Duke of Wellington, 9 Beavan, R. 599; Gould u. Gould, 3 Story, R. 516. I use the qualified language of the text, though broader language is often used by elementary writers, who assert that Courts of Equity have jurisdiction to relieve against all frauds, except in cases of wills. (See Cooper on Eq. PL 125 ; 1Hoven- den on Frauds, Introd. p. 17.) Lord Hardwicke, in Chesterfield ». Jans¬ sen,- 2 Ves. 155, said:— “This Court has an undoubted jurisdiction torelieve against every species of fraud." Yet there are some cases of fraud, in which Equity does not ordinarily grant relief; as in warranties, misrepresentations, and frauds on the sale of personal property ; but leaves the parties to their remedy at law. So also in cases of deoeitful letters of credit. See Russell v. Clark’s Ex’rs 7 Cranch, 89. But Lord Eldon has intimated, that in such cases relief might also be had in Equity ; Evans v. Bicknell, 6 Ves. 182 ; and Mr. Chancellor Kent has affirmed the same doctrine ; Bacon v. Bronson, 7 Johns. Ch. 201. In Hardwick v. Forbes’s Admr’a, (1 Bibb, Ky. R. 212,) the Court said :— “ It is a wellsettled Tide of law, that wherever a matter respects personal chattels, and lies merely in damages, the remedy is at law only, and for these reasons ; 1st. because Courts of law are as adequate as a Court of Chancery, to grant complete and effectual reparation to the party injured ; 2d. because the ascertainment of damages is peculiarly the province of a jury.” And the Conrt farther suggested, that the same principle applied to % ratable deduction for fraud in like oases. But that a Court of Equity might pro¬ perly interfere in such cases, to set aside and vacate the whole contract, at the instance of a party injured, in a case of tuppressio vert, or ntggestio falsi; not entering into the point of damages. Bee Waters v. Mattinglay, 1 Bibb, R. 244. Blackwell v. Oldham, 4 Dana. 195. 11 Garth v. Cotton, 8 Atk. 755; Man v. Ward, 2 Atk. 228; Tren- cbard v. Wanley, 2 P, Will. 167. EQ. JUB.— VOL. I. 19 HeinOnline -- 1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed., rev., corn , enl.) 217 1 853 ADD 48 [CH. VI. ral, and perhaps a universal, concurrent jurisdiction ■with Courts of Law in cases of fraud, cognizable in the latter; and exclusive jurisdiction in cases of fraud be¬ yond the reach of the Courts of Law.1 § 185. The jurisdiction in matters of fraud is pro¬ bably coeval with the existence of the Court of Chan¬ cery ; and it is equally probable, that, in the early history of that Court, it was principally exercised in matters of fraud, not remediable at law.3 Its present active jurisdiction took its rise in a great measure from the abolition of the Court of Star Chamber, in the reign of Charles the First ;3 in which Court the plaintiff was not only relieved, but the defendant was punished for his fraudulent conduct So that the interposition of Chancery before that period was generally unnecessary.4 § 186. It is not easy to give a definition of fraud in the extensive signification in which that term is used in Courts of Equity ; and it has been said, that these Courts have, very wisely, never laid down as a general proposition,ÿ what shall constitute fraud,® or any general rule, beyond which they will not go upon the ground of fraud, lest other means of avoiding the Equity of the Courts should be found out® Fraud is even more 218 EQUITY JURISPRUDENCE. l Colt v. Wollaston, 2 P. Will, 150; Stent v. Bailis, 2 P. Will. 220 ; Blight «.Eynor,1 Burr. 396; Chesterfield u. Janssen, 2 Ves. 155; Ferson v. Sanger, Daveis, 259; Evans u. Bicknell, 6 Yes. 132; Warner v. Daniels, 1 Wood & Min. 9 4 Inst. 84. 3 Slat. 10 Car. 1, ch. 10. 4 Fonbl. Eg. B. 1, ch. 2, $ 12; 1 Madd. Ch. Pr. 89. 5 Mortlock v. Buller, 10 Ves. 306. s Lawley t>. Hooper, 3 Atk. 279. — Lord Hardwicke, in his Letter toLord Kames, of the 30th of Jane, 1759, (Parke’s Hist, of Chan. p. 508,) says: “As to relief against frauds, no invariable rules can be established. Fraud is infinite ; and were a Court of Equity once to lay down rules, how 112. HeinOnline -1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed., rev., corr., enl.) 218 1853 ADD 49 219CH. VL] odious than force ; and Cicero has well remarked ; Cum auiem duobus modis, id est, aut vi, aut fraude, fiat injuria ; fraus, quasi vulpeculce, vis, leonis videtur. Utnmque ho- mine oliemsmum; sed fraus odio digna majore?- Pothier says that the term fraud is applied to every artifice made use of by one person for the purpose of deceiving •another.9 On appeUe Dol toute esplce $artifice, dord quelqu’un se sert pour en iromper un autre? Servius, in the Roman Law, defined it thus : Dolum malum machir nationem quondam aUerius dedpienda causa, cum cdiud simulator, et aliud agitur. To this definition Labeo justly took exception, because a party might be cir¬ cumvented by a thing done without simulation; and, on the other hand, without fraud, one thing might be done, and another thing be pretended. And therefore he defined Fraud to be any cunning, deception, or arti¬ fice, used to circumvent, cheat, or deceive another. Dolum malum esse omnem calUditatem, fallaciam, rmchma- tionem ad circumveniendum, fallendum, decipiendum alterum, adkibitam. And this is pronounced in the Digest to be the true definition. Labeonis Deftnitio vera est.* § 187. This definition is, beyond doubt, sufficiently descriptive of what may be called positive, actual fraud, ACTUAL FRAUD. 'far they would go, and no farther, in extending their relief against it, or to define strictly the species or evidence of it, the jurisdiction would be cramped, and perpetually eluded by new schemes, which the fertility of man’s invention would contrive.” See also 1 Doinat, Civil Law, B. 1, tit. 18, $ 3, art. 1. 1Cic. de Offic. Lib. 1, ch. 13. *1 Pothier on Oblig. by Evans. Pt. 1, ch. 1, § 1, art 3, n. 28, p. 18. * Pothier, Traitd dee. Oblig. Pt. 1, ch. 1, n. 28. *Dig. Lib. 4, tit. 3, 1. 1, §2; Id. Lib. 9, tit. 14, L7, $ 9. See also 1 Domat, Civ. Law, B. 1, tit. 18, § 3, n. 1. See also 1Bell, Comm. B. 2, ch. 7, $ 2, art. 173; Le Neve v. Le Neve, 8 Atk. 654 j S. C. 1 Ves. 64; Ambler, 446. HeinOnline -- 1 Joseph Story. Commentaries on Equity Jurisprudence, as Administered m England and America (6th ed., rev., corr. enl.) 219 1853 ADD 50 [CH. VL ’where there is an intention to commit a cheat or deceit upon another to his injury.1 But it can hardly be said to include the large class of implied or constructive frauds, which are within the remedial jurisdiction of a Court of Equity. Fraud, indeed, in the sense of a Court of Equity, properly includes all acts, omissions, and con¬ cealments, which involve a breach of legal or equitable* duty, trust, or confidence, justly reposed, and are inju¬ rious to another, or by which an undue and uncon- scientious advantage is taken of another.2 And Courts of Equity will not only interfere in cases of fraud to set aside acts done; but they will also, if acts have by fraud been prevented from being done by the parties, inter¬ fere, and treat the case exactly as if the acts had been done.3 § 188. Lord Hardwicke, in a celebrated case,4 after remarking, that a Court of Equity has an undoubted jurisdiction to relieve against every species of fraud, proceeded to give the following enumeration of the different kinds of frauds. First ; Fraud, which is dolus mains, may be actual, arising from facts and circum¬ stances of imposition, which is the plainest case. Se¬ condly ; It may be apparent from the intrinsic nature and subject of the bargain itself; such as no man in his senses, and not under delusion, would make on the one hand, and as no honest and fair man would accept 220 EQUITY JURISPRUDENCE. 1 Mr. Jeremy has defined fraud to he a device, by means of which one party has taken an unconacientious advantage of the otheT. Jeremy on Eq, Juried. B. 3, Ft. 2, p. 358. * See 1 Fonbl. Eq. B. 1, ch. 2, § 3, note (r) ; Chesterfield v. Janssen, 2 Yes. 155, 158. 3 Middleton v. Middleton, 1 Jac. & Walk. 96 ; Lord Waltham’s case, cited 11 Ves. 638. 4 Chesterfield v. Janssen, 2 Ves. 156. HeinOnline -- 1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed., rev,, com, enl.) 220 1853 ADD 51 221CH. VI.] on the other; which are inequitable and unconsoien- tious bargains, and of such even the Common Law has taken notice.1 Thirdly ; Fraud, which may be pre¬ sumed from the circumstances and condition of the parties contracting; and this goes farther than the rule of law, which is, that it must be proved, not presumed. But it is wisely established in the Court of Chancery, to prevent taking surreptitious advantage of the weak¬ ness or necessity of another, which knowingly to do is equally against conscience, as to take advantage of his ignorance. Fourthly ; Fraud, which may be col¬ lected and inferred, in the consideration of a Court of Equity, from the nature and circumstances of the trans¬ action, as being an imposition and deceit on other per¬ sons, not parties to the fraudulent agreement. Fifthly ; Fraud in what are called catching bargains with heiTS, reversioners, or expectants, in the life of the parents, which indeed seems to fall under one or more of the preceding heads. § 189. Fraud, then, being so various in its nature, and so extensive in its application to human concerns, it would be difficult to enumerate all the instances in which Courts of Equity will grant relief under this head. It will be sufficient, if we here collect some of the more marked classes of cases, in which the prin¬ ciples which regulate the action of Courts of Equity are fully developed, and from which analogies may be drawn to guide us in the investigation of other and novel circumstances. § 190. Before, however, proceeding to these subjects, it may be proper to observe, that Courts of Equity do ACTUAL FBAUD. , l See Jamea v. Morgan, I Lev. 111. 19* HeinOnlme -- 1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed., rev,, corn., enl.) 221 1853 ADD 52 [CH. VI. not restrict themselves by. the same rigid rules as Courts of Law do, in the investigation of fraud, and in the evidence and proofs required to establish it. It is equally a rule in Courts of Law and Courts of Equity, that fraud is not to be presumed ; but it must be esta¬ blished by proofs.1 Circumstances of mere suspicion, leading to no certain results, will not, in either of these Courts, be deemed a sufficient ground to establish fraud.2 On the other hand, neither of these Courts insists upon positive and express proofs of fraud; but each deduces them from circumstances affording strong presumptions. But Courts of Equity will act upon circumstances, as presumptions of fraud, where Courts of Law would not deem them satisfactory proofs,* In other words, Courts of Equity will grant relief upon the ground of fraud,1 established by presumptive evidence, which evidence Courts of Law would not always deem sufficient proof to justify a verdict at law. It is in this sense that the remark of Lord Hardwicke is to be understood, when he said, that “fraud may be presumed from the circum¬ stances and condition of the parties contracting ; and this goes farther than the rule of law, which is, that fraud must be proved, not presumed.’M And Lord Eldon 222 EQUITY JURISPBUDENCE. 1 In 10 Coke, R. 56, it is laid down, that covin shall never be intended or presumed in at law, if it be expressly averred : Qui odiosa et inhonesta non sunt in lege prasumenda, et, in facto, quod se habit ad bonum et malum, magis de bono, quara de malo, pr*sumendum eat. And this is in conformity to the rale of the civil law. Dolum ex indiciis perspicnia pro- bari cOnvenit. Cod. Lib. 2, tit. 21,1. 0. ® Trenehard v. Wanley, 2 P. Will. 160 ; Townsend «. Lowfield, I Ves, 35; 3 Atk. 534; Walker v.Symonds, 3 Swanst. R. 01; Bath and Mon¬ tague's Case, 3 Ch. Caa. 85 ; 1 Madd. Ch. Pr. 208 ; 1 Fonbl. Eq. B. 1, ch.il, V8. 3 See Warner t.Daniels, 1 Wood. & Min. 103. * Chesterfield v. Janssen, 2 Yea. 155, 156. HeinOnline -1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed., rev., corr., enl.) 222 1853 ADD 53 223CH. VI#| has illustrated the same proposition by remarking, that a Court of Equity will, as it ought, in many cases order an instrument to be delivered up, as unduly obtained, which a jury would not be justified in impeaching by the rules of law, which require fraud to be proved, and are not satisfied, though it may be strongly presumed.1 § 191. One of the largest classes of cases, in which Courts of Equity are accustomed to grant relief, is where there has been a misrepresentation, or suggestio falsi.* It is said, indeed, to be a very old head of Equity, that, if a representation is made to another person, going to deal in a matter of interest, upon the faith of that representation, the former shall make that representation good, if he knows it to be false.3 To justify, however, an interposition in such cases, it is not only necessary to establish the fact of misrepresent* ation; but that it is in a matter of substance, or import¬ ant to the interests of the other party, and that it actually does mislead him.4 For, if the misrepresent¬ ation was of a trifling or immaterial thing ; or if the other party did not trust to it, or was not misled by it ; or if it was vague and inconclusive in its own nature ; or if it was upon a matter of opinion or fact, equally open to the inquiries of both parties, and in regard to which neither could be presumed to trust the other ; in these and the like cases there is no reason for a Court ACTUAL FRAUD 1 Fnllager v. Clark, IS Yea. 483. a Broderick v. Broderick, 1 P..Will. 240; Jarris v. Duke, 1 Vern. 20; Evans v. Bioknell, 0 Ves. 173, 182. s Evans e. Bicknell, 0 Ves. 173. 182. 4 Neville v. Wilkinson, 1Bro. Ch. R. 546 ; Turner v. Harvey, Jacob, Rep.178; 1Fonbl. Eq, B. 1, ch. 9, $ 8; Small r. Atwood, 1 Younge, R. 407, 461; S. C. in Appeal, 6 Clark & Finnell. 233, 395; Hough v.Rich¬ ardson, 3 Story, R. 659. HeinOnline -- 1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed., rev,, con\, enl.) 223 1853 ADD 54 [CH. VI. of Equity to interfere to grant relief upon the ground of fraud.1 § 192* Where the party intentionally, or by design, misrepresents a material fact, or produces a false im¬ pression,3 in order to mislead another,8 or to entrap or cheat him, or to obtain an undue advantage of him; in every such case there is a positive fraud in the truest sense of the terms.4 There is an evil act with an evil intent j dolum malum ad circumveniendim. And the misrepresentation may be as well by deeds or acts, as by words j by artifices to mislead,6 as well as by positive assertions.8 The Civil Law has well expressed this, when it says : Dob mob pactum fit, quotiens circumscribendi alterius causd, aliud agitur, et aUiid agi siimMur.7 And again : Dohm malum & se abesse prcestere venditor debet, qui non tantum in eo est, qvd fcdr lendi causd obscurd bquitvr, sed eUam, qui imidiosÿ obscurt dissimulat,8 The case here put falls directly within one of the species of frauds enumerated by Lord Hard- 224 EQUITY JURISPRUDENCE. i See 1 Domat, B. 1, tit. 18, § 3, art 2; Trower v. Newcdme, 3 Meriv. R. 704; 2 Kent, Comm. Lect. 39, p. 484, (2d edit.) ; Atwood v. Small, 6 Clack & Finnell. 233, 233; S, C. Small r, Atwood, in Conit of Exche¬ quer, 1 Younge, R. 407. a See Laidlaw v. Organ, 2 Wheaton, R. 178, 195; Pidcock v. Bishop, 3 B. & Cressw. 605 ; Smith t>. The Bank of Scotland, 1 Dow, Pari, R. 72 ; Evans v. Bicknell, 6 Ves. 173, 182. 3 See The State v. Holloway,8 Blackf. 45. 4 Atwood v. Small, 6 Clark & Finnell. R. 232, 233; S. C. in Court of Exchequer, 1Younge, R. 407; Taylor v. Ashton, 11 Meea. & Welsh. 401; Warner v. Daniels, 1 Wood. St Min. 103. 6 See Chisolm t>. Gadsden, 1Strobh. 220. e 3 Black. Comm. 165; 2 Kent, Comm. Lect. 39 ; p. 484, (2d edit.) ; Laidlaw »• Organ, 2 Wheaton, 195;1 Dow, Pail. R. 272. 7 Dig. Lib. 2, tit. 14, l. 7, $ 9. s Dig, Lib, 18, tit, 1,1. 43, § 2 ; Pothier de Vente, n. 234, 237,238. HeinOnline -- 1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed., rev., corr., enl.) 224 1853 ADD 55 225CH. YL] wicke, to wit. fraud arising from facts and circum¬ stances of imposition.1 § 193. Whether the party, thus misrepresenting material fact, knew it to be false, or made the asser¬ tion without knowing, whether it were true or false, is wholly immaterial ; a for the affirmation of what one does not know or- believe to be true is equally, in morals and law, as unjustifiable as the affirmation of what is known to be positively false.3 And even if th*e party innocently misrepresents a material fact by mistake, it is equally conclusive, for it operates as a surprise and imposition upon the other party.4 ACTUAL FRAUD. a 1 Chesterfield v. Janssen, 2 Yes. 155, — In Neville u.Wilkinson,1Bro.Ch. R. 640, the Lord Chancellor (Thnrlow) sold : “It has been said, here ia no evidence of actual fraud on R.; but only a combination to defraud him. A Court of Justice would make itself ridiculous, if it permitted such a distinction. Misrepresentation of circumstances is admitted, and there is positively a deception.” Andhe added : “ If a man, upon atreaty for any contract, will make a false representation, by means of which he pats the party bargaining under a mistake upon the terms of the bargain, it is a fraud. It misleads the parties contracting, on the subject of the contract.” 8 See Wright v. Snowe, 2 Da Gex & Smale, 321. Ainslie v. Mendlyoott, 9 Ves. 21; Graves D. White, Freem. R. 57. See also Pearson v. Morgan, 2 Bro. Ch, R. 389; Foster ». Charles, 6 Bing. R. 390 ; S. C. 7 Bing. R. 105 ; Taylor v. Ashton, 11 Mees. & Welsh. 401 ; Smith ». Mitchell, 6 Georgia, R. 458; Hazard v. Irwin, 18 Pick. 85. See also Doggett v. Emerson, 3 Story, C. C. 733 ; Hough V. Richardson, Id. 691; Mason v. Crosby, 1 Wood. Sc Minot, 352; Smith v. Babcock, 2 Id. 240 ; Hammatt ». Emerson, 27 Maine, 308. 4 See Pearson v. Morgan, 2 Bro. Ch. R. 389; Borrows v. Locke, 10 Ves. 475 ; De Manville t>. Compton, 1 Ves. fit B. 355 ; Ex parte Carr, •3 Ves. & B. Ill ; 1 Marsh, on Insnr. B. 1, ch. 10, § 1; Carpenter v. American Ins. Co. 1 Story, R. 57. In Pearson ». Morgan, 2 Bro. Ch. R. 385, 388, the case was, that A, being interested in an estate in fee, which was charged with £8,000, in favor of B, was applied to by C, who was about to lend money to B, to know if the £8,000 was still a subsist¬ ing charge on the estate. A stated that it was, and C lent his money to B accordingly; it appearing afterwards that the charge had been 3 HeinOnline -1 Joseph Story, Commentaries on Equity Jurisprudence, as Administered in England and America (6th ed , rev., corr , enl.) 225 1853 ADD 56 2 Laws of the State of New York, ch. IV, tit. II (1876) (ADD 57 - ADD 63) LAWS or Tire STATE OF NEW YOEK, PASSED AT TMS NINETY-NINTH SESSION OF TUT LEGISLATURE. BEGUN JANUARY FOURTH AND ENDED MAY TllIUU, I<7«, IN TUB CITY OF ALBANY, VOL. II. '**- i tf$L f\ :criÿ8ioj ALBANY : CHARLES YANjBENTHUY8EN It SONS, PUBLISHERS. 1876. ADD 57 TTTTfl NEW REYISION OF THE STATUTES OF THH STATE OF NEW YORK THE CODE OF REMEDIAL JUSTICE. LAWS OF 1876, CHAPTERS 448 & 449. ADD 58 §§372-375. TITLE§372. For the purpose of constituting an diverse possession, by a M. w|mtperson claiming title, not foundod upon a written instrument,’or a coiisututas judgment or decree, land is deemed to have been possessed and occu- lu pied in either of the Mowing cases, and no othere: 1. Where it has been protected by a substantial inclosure. 2. Where it has boon usually cultivated or improved. § 373. Where the relation of landlord and tenant has existed between n«i« auy persons, the possession of the tenant is deemed the possession JSJa of the landlord, until the expiration of twenty years after the ter- nimruottn* munition of the tenancy; or, where there has been no written lease, JoiSSon. until the expiration of twenty years after the last payment of rent; notwithstanding that the tenant lias acquired another title, or has claimed to hold adversely to ills landlord. But this presumption shall • not bo made, after the periods proscribed in this section. § 374. Tho light of a person to the possession of real property is not nipht "<* impaired or affected, by a descent bring cast, in consequence of the JlSn y dentil of a person in possession of the property, “«• § 375. If a porsou, who might maintain an action to recover real Onriyinai*. property, or the possession thereof, or make an entry, or interpose a Jiu'ioli80** defence or counterclaim, founded on the title to real property, or to{Jv™dmo route or services out of the same, is, when his title first descends, or menco 'no. his cause of action or right of entry first accrues, either: Uo°- 1. Within the ago of twenty-one years; or, 2. Insane*, or, 3. Imprisoned on a criminal charge, or in execution upon conviction of a criminal offence, for a term less than for life; The time of such a disability is not a part of the time, limited in this title, for commencing the action, or making the entry, or inter¬ posing the defence or counterclaim; except that the time so limited can¬ not be extended more than ten years, after the disability after tbe death of the person so disabled. LIMITATIONS.CHAP. IV.] tton of Uord ceases, or TITLE II. AcUom other than for the recovery of real property. 0. When satisfaction of judgment presumed. 377. KlTcct of return of execution. 878. ICow presumption raised. Limitation of 380. Other periods 381. Within twenty years.. Within six yenra. , Within three year*. 384. Within two years. 386. Within one yen?. 380. When cause of action accrues on a current account. Action for penalty, etc., by any person who will sue. 888. Actlmra not before provided for, 380. Actions hy the people subject to the same limitations. 390. Action against a non-resident, upon a demand barred by the law of residence. SOI. When person liable, etc., dies without the State. SScriOK 37 action to redeem from a mortgage. of limitation. 379. 383 «88. 387. his 69 ADD 59 LIMITATIONS§8 376-382. TSMSIT [CHAIVIV. 392. Cause of action accruing between the death of a testator or Intestate, and tha grant of letters. 3D3. No limitation of action on bank notes, etc. 304. Actio,* against directors, etc., of banks. Acknowledgment or now premise must be in writing. Exceptions, as to porsons under disabilities. 307. Defence or counterclaim. 300. 300. tJfncSan or § 376. A final judgment or decree for a . of monoy, or directingjudgment tlic payment of a sum of monoy, heretofore or hereafter rendered, in presume,u a (.olll.fc 0f rCcord within the United States, or olsewhero, or in a snrro- gate's court of the Stuto, is presumed to ho paid and satisfied, after the expiration of twenty years from tha time, when the party recovering it was first entitled to a mandate to enforce it. This presumption is conclusive ; oxcept us against a person, who, within t.venty years from that time, makes a payinont or acknowledges an indebtedness of some part of tho amount recovered by the judgment or decree ; o" his heir or personal representative ; or a person whom ho otherwise represents. Such an acknowledgment must bo in writing, and signed by tho person to bo charged thereby. § 377. If the proof of payment, under tho last section, consists of mtiun. tho return of an execution partly satisfied, the adverse party may show, in full avoidance of tho effect thereof, that tho alleged partiul satisfaction did not proceed from a payment nmdo, or a salo of prop¬ erty claimed, by him, or by a person whom ho represents. How pro- 8 378. A person may avail himself of the presumption crentcd by rnP*oa.0“ tho lust section but one, under an allegation that tho action was not commenced, or that tho was not tukou, within tha time therein limited. or'ncuonu, 8 370. An action to redeem real property from a mortgage, with or roMuem without an account of rents mid profits, niny bo maintained by the morttjngo, mortgagor, or thoso claiming under him, against tho mort.gaguo in possession, or those claiming under him, unless ha or they have con¬ tinuously maintained nn adverse possession of the mortgaged premises, for twenty yenrs after tho breach of a condition of tho mortgage, or the nou-raililment of a covenant therein contained. oilier ncri- 8 380. The following actions must bo commenced within tho follow- Itiiiioii. ing periods, uftui tho cause of action has accrued. wiiiitu 8 381. With*.• twenty years:ycmiy An action UIMMI a scaled Instrument. But where the action is brought for broach of a covenant of seizin, or against incumbrances, the cause of action is deemed to have accrued upon an eviction, and not before. § 382. Within six years: 1. An action to recover damages for breach of a contract, express or implied; except a judgment or scaled instrument. 2. An action to recover upon a liability created by stntnto; except a ponaity or forfeitnro. 3. An action to rccovar damages for an injury to property, or ft per¬ sonal injury; except in a enso where a different period IH expressly prescribed in this chapter. 4. An action to recover a chattel. 5. An action to procure a judgment, other than for a Bum of money, on tho ground of fraud, in a case which, on the thirty-lirst day of De¬ cember, eighteen hundred and forty-six, was cognizable by (ho court of clia iccry. The cuuse of action, in such a case, to not dcunied to ororEffectrotu _ exuc Within six years. 70 ADD 60 §9 S88-880.LIMITATIONS.CHAP. IV.] Tm.ni. have accrued, until the discovery, by the plaintiff, or the person under whom he claims, of the facts constituting the fraud. 6. An action to establish a will. Whore the will has been lost, con¬ cealed, or destroyed, the cause of action is not doomed to have accrued, until the discovery, by the plaiutiff, or the person under whom he claims, of the facts upon which its validity deponds. 7. An action upon a judgment or decree, rendered in a court not of record, except a surrogates court of the State. The cause of actiou, in such a cose, is deemed to have accrued, when ilnal judgment was rendered. ra,tivi§ 883. Within three years: turoo" 1. An action against a sheriff, coronor, constable, or other officer, for yean, tlio non-payment of money collected npoti an execution. 2. An actiou against a constable, upon any other liability incurred by him, by doing nn act in bis official capacity, or by the omission of nn official duty; except an escape. 8. An action upon a statute, for a penalty or forfeiture, where the action is given ta the person aggrieved, or to that person and tho peo¬ ple of the State; except where the statute imposing it prescribes a different limitation. 4. An action against an executor, administrator, or receiver, or ngainst the trustee of an insolvent debtor, appointed, as prescribed by law, in a special proceeding iustitntod in a court or before a judge, brought to recover a chattel, or damnges for taking, detaining, or lujuriug personal property, by the defendant, cr tho person whom ho represents. § 384. Within two yoars: 1. An action to recover damnges for libel, slaudor, assault, battery, or fatso imprisonment,. 2. An action npon a statute, for a forfeiture or penalty to the people of the Stuto. § 385. Within one year: 1. An action ngainst a sheriff or coroner, upon a liability incurred by him, by doing an net. in Ids official capacity, or by tho omission of official duty; except tlio non-payment of money collected upon an execution. 2. An action ngainst any other officer, for the escape of a prisoner, arrested or imprisoned by virtuo of a civil mandate. 8 38(1. In an action brought to recover a balance duo upon a mutual, open, and current account, whore there lmvc been reciprocal demands action »«• liotween tlio parties, tlio cause of actiou is doomed to have accrued from the time of the Inst item, proved in the account, on cither side. 8 387. An action upon a statute for * penalty or forfeiture, givon .uium forwholly or partly to any porsou who will prosecute for the same, must bo commenced within one year after the commission of the offence ; mnoswho and if tho action is not commenced within tho ycur by a private poiv " kU0‘ sou, it- may he commenced within two years thereafter, in behalf of the people of llie State, by tlio Attorney-General, or the district-attor¬ ney of the county where tlio offence was committed. 8 388. An notion, the limitation of which is not specially prescribed Amom not in this or tlio last title, must bo commenced within ten years after the waoarir.0 cause of action accrues. 8 389. The limitations, prescribed in this title, apply aliko to actions brought, in the itanio of the peoplo of the State, or for their benefit., and *ui.jort iu to nctions by private persons. un> «intH* Wllhtu two yo*m Within ono yoar. an rniM rurrii notiirimt. nn a ni UraitaltaH*. 71 ADD 61 [CHAP. IV.§3 aoo-nno. LIMITATIONS. Titr.BJ. 3 SOW- Where a cause of action, which does not involve the title to » or possession of real property within tho State, accrnes against a por- 3«nt”ipfli> B0I,i w'10 >3 not then a resident of theState, an action cannot be brought a licmnmi thoroon in a court of the State, against him or his person:*! represeuta- ttm niw'iif tive, after the expiration of tho time, limited, by thi laws of his resi¬ dence, for bringing a liko action, excopt by a resident of the State, uud in one of the iolluwitig cases: 1. Where the causo of action originally accrued in favor of a resi¬ dent of the State. 2. Where, before tho expiration of the time so limited, tho person, in whoso favor it originally accrued, was or became a resident of the Stato ; or tho causo of action was assigned to, and thereafter continu¬ ously owned by, a resident of tho State. ■wl’cniw. 3 39L If a person, against whom a canoe of notion exists, dios witli- out the State, the time which elapses between his death, and tho oxpira- sin!o ul 11,0 l’0’1 eighteen moutliB nftcr tho issuing, within the State, of letterstestamentary or letters of administration, is not a part of the time limited for tho commencement of an action for tho same cause, against his executor or administrator. Selimw 8 For the purposo of computing tho time, within which an cruhiff lie- action m uBt bo commenced in a court of the State, by an executor or fi'A'iTh ilrS administrator, to recover personal property, taken after tho death of a ((•unitor or testator or intestate, and bofore tho issuing of lot,tors testamentary or smiths letters of administration ; or to recover damages for taking, detaining, jmuaof or injuring persona] property within the same period; tho letters are deemed to have boon issnod, immediately after the death of tho tes¬ tator or intestate. Blit whnro nu action is barred by this section, any of tho next of kin, legatees, or creditors, who, at the time of the trans¬ action upon which it might hnvo been founded, was within tho nge of twenty-one years, or insane, or imprisoned on a criminal chuvgc, may, within live years after the cessation of such a disability, maintain an notion to recover damages by reason thereof : in which lie may recover such sum, or the value of such property, ns lie would have received upon tho Hunt distribution of the estate, if an action lmrl been season¬ ably commenced by the executor or administrator. No iimita- 3 Him, This chapter does not affect nn action to enforce the paymentlion nil"0' a bill, note, or other evidence of debt, issued by-a moneyed corpora- biuik notes, ti011) ol. issued or put in circulation as money. 3 304. This chapter does not affect nu action against a director or stockholder of a moneyed corporation, or banking association, to recover a penalty or forfeiture imposed, or to enforce a liability created by Jaw ; but. such an action must bo brought within six yearsafter tho discovory, bjr the nggrioved party, or the facts upon which tho penalty or for¬ feiture attached, or the liability was created. ■Acknowi. 3 395. An acknowledgment nr promise, contained in a writing signed»owprom.r l'y l'10 l»urty to bo charged thereby, is the only competent evidence of j»o mini so a now or continuing contract, whereby to take a case out of tho opera-a wr i nif. t;0I1 0f t.liia title. But this section does not alter the effect of a pay¬ ment of principal or interest. Evrc|iUim» 3 $1(1. If a person, entitled to maintain an net,ion specified in this "mmiimier except for a penalty or forfeiture, or against a sheriff or othavrtUni»iii> officer for an escape, is, at the timo when the cause of action accrues, either: 1. Within the nge of twenty-one years; or, 2. Insane; or, hto n*iU (ICllCQ. Act Innmm tu-njritln reclou. oto., of bank 4. 72 ADD 62 §8 397-300.LIMITATIONS.CHAT. IT.] 3. Imprisonod on a criminal charge, or in execution upon conviction of a criminal offence, for a term loss than for life; The time of such a disability is not a part of the time, limited in this title for commencing the action ; except that tlio time so limited cannot be extended more than live years by any such disability, except infancy; or, in any cose, more than one year after tho disability § 307. AcaiiBe ol' action, upon which an action caunot bo maintained, m os prescribed in this title, cannot bo effectually interposed os a defence oiuim. or counterclaim, TITLES. ceases. TITLE III. Qcntral pi'ovisions. SECTION 308. 'When action deemed to ho commenced. 390. Attempt to commence notion in a court of record. 400. Id.; in a court not of record. 401. lCxceptlon, when defendant is without the State. 102. III. j whoa a parson, entitled, etc., dies before limitation expires. 403. Id. ; when a person liable, etc., dies within the Stale. 404. In suits by aliens, time of disability in 40fl. Provision where judgment has been reversed. 408. Stay by injunction, etc., to bo deducted, 407. Certain actions by a principal, for misconduct of an agent, etc. 408. Disability must exist when right accrues. 400, If several disabilities, no limitation until all removed, 410. Provision when tho action cannot bo maintained without a demand. 411. Provision In case of submission to arbitration. 419, Provision when action is discontinued, cte., after answer. 413. flow objection taken, under tills chapter. 414. Citscs to which this chanter applies. 415. Mode of computing periods of limitation. case of war tu be deducted. 8 308. An action i$ commenced against a defendant, within the When no- melining of any provision of this act> which limits the timo for com- meucing an action, when the summons is served on him; or, except i» whoro ho is not a resident of tho State, on a co-defendant who is a ",cnci 1 joint, contractor, or otherwise united in inti erest with him. 8 309. An nttempt to commence an action, in a court of record, is AUompttn equivalent to tho commencement thereof against each defendant, m'umtTns within tho meaning of each provision of this act, which limitB tho time cmm of for commencing an action, when tho summons is delivered, with the ii'i.cnt that it shall be actually served, to the sheriff, or, where the i iicviff is a party, to a coroner of the county, in which that defendant or one of two or move co-defendants, who are joint contractors, or other¬ wise united in interest with him, resides or last resided; or, if the defendant is a corporation, to a like oiiiccr of the county, in which it is established by law, or wherein its general business is or was last, trans¬ acted, or wherein it keeps or last kept., an office for the transaction of business. But in order to eiititlo a plaintiff to the benefit of this sec¬ tion, the delivery of the summons to an officer must be followed, within sixty days after tho expiration of the timo limited for the actual com¬ mencement of tho nation, by personal service thereof upon tho defend¬ ant sought to be charged, or by the first publication of the summons, record. 73 ADD 63 Governor's Message to the Legislature Transmitting Report of the Special Comm. Appointed by the Governor to Provide Proper Supervision & Regulation in Connection with Sec. Offered to the Public for Investment, 1920 N.Y. Legis. Doc. No. 81 (ADD 64 - ADD 84) No. 81Legislative Document STATE OF NEW YORK GOVERNOR'S MESSAGE TO THE LEGISLATURE TRANSMITTING REPORT > OF TUB : Special Committee Appointed by the Governor to Provide Proper Supervis¬ ion and Regulation in Connection with Securities Offered to the Public for Investment fP / < "r /1; : ; : ! m f ! I { ALBANY 1. B* LYON COMPANY, PRINTERS l ADD 64 I > i f 1' STATE OF NEW YORK EXECUTIVE CUAMBEB, ! IALBERT, April1, 1920 • ITa the Legislature: At tbe last session, of the Legislature there was presented a bill providing for certain publicity and State regulation in connection with securities offered to the public for investment While the bill failed of enactment, it suggested a need for such legislation in this State and on September 25th of last year, I re* quested Mr. A. Barton Hepburn, Mr. Charles H. Sabin, Mr: Wil¬ liam H. Porter, Mr. William H. Reraick, Mr. Alfred J. Johnson, Mr. John J. Pulleyn, Mr. John Godfrey Saxe, Mr. George V. McLaughlin, Mr. Laurence McGuire, Mr. James J. Hoey, Mr. . Mortimer L. Schiff, and "Mr, Edwin C. Vogel to serve on a com¬ mittee to study the matter and suggest romedial legislation. The Commission gave of its time during the fall of last year and recently submitted its report. The report comes to me in two forma; one representing the eonclnskura of the majority of the committee and one representing those of the minority. I am transmitting to your honorable bodies with this message, both reports for such study and action ae you see fit in the premises. I am unable to make specific recommendations myself as I am without any definite knowledge of this subject but I feel very strongly that the investing pnblic should be protected by all tba safeguards that the State can throw around tho business of offering securities to the public without unnecessary or undue in¬ terference with proper and legitimate business enterprises, ! t I / i II (•Signed) ALFRED E. SMITH. ; i 1 ADD 65 L I f r MAJORITY REPQRT !To the Governor of (he Stale of New York: YOUR ExcuixEirCT.— On September 26, 1016, you addressed-to Mr; A* Barton Hepburn, Mr. Gharlea Tÿ. Sabin, Mr, William H. Porter, Mr. William H. Remick, Me. Alfred J. Johnson, Mr. John Pulleyn, Mr. John Godfrey Saxe, Mr, George Y, Mc¬ Laughlin, Mr. Laurence McGuire, Mr. James J, Hoey, Mr. Mortimer 1« Sehiff, and Mr. Edwin C. Vogel, the following letter: > •• i • 1 t: "A bill was presented at the lust Session of the Legisla¬ ture providing for certain publicity as to practices in con¬ nection with securities offered to the public for investment. This bill failed to pass but its introduction suggests to my mind that possibly there was need of such legislation in this State. Mew York is today the financial center of the world And is being looked to by other States for leadership in financial matters. I have concluded to appoint ft Committee of nion promi¬ nent in National, State and private banking, a* well as mem¬ bers of the legal profession, and representatives of the in¬ vesting public, to make a study of this subject and report to me before .Tanuary the first, the result of such study together with a draft of such legislation as the Committee may deem necessary, To my mind there should bo a proper supervision of the issuance of new securities and a prevention of tho evil of issuing and offering for sale to tit* investing public, of worth¬ less securities and securities of doubtful value. I have appointed you a member of such Committee. Will you communicate with the other members of the Committee, a list of whom is herewith enclosed, and arrange for u pre¬ liminary meeting! Thanking yon in advance for any interest yon may bo kind enough to take in this matter, I am," i 1 5 1: : i ; I ; ; ! t 1 i \ i- I i ADD 66 . 4 fi All of these gentlemen complied with your request. We met on September 2% 1919, and duly organized by electing Mr. Hep* bum as Chairmen and Mr. Thomas F. Woodlock as Secretary. We requested ymm Excellency to assign Hon. Robert 0. Cam¬ ming, Chairmen of the Legislative Bill Drafting Commission, to aid ns in our deliberation*. You complied withtliis request, and the Omttiiiifali- has been greatly aided in its labors by Mr. Cura- ming’s co-operation. Wo provided ourselves with the laws of the States in which statutes have been enacted on this subject. Out secretary pro* pared an abstract of these laws and furnished a copy to each member. We corresponded with the officials of the various States having legislation of this character, seeking suggestions drat might be of value to us. We also corresponded with the clearing houses, various exchanges in the country, the Standard Statistics Com¬ pany, Poor’s Manual, Moody’s Manual, and various other organi¬ zations having to do with securities and supplying the public with information in relation thereto, asking for specific suggestions as to desirable regulation. Wb held hearings and were addressed by representatives of the Investment Bankers Association of America,' Private Bankers , Association of the State of Hew York, the former Capital Issues Committee appointed by the Cnitcd States Government, and various other organisations and individuals familiar with the subject Hon. Edward Swann, the District Attorney for Hew York County, has established a Bureau of Commercial Fraud* in Ms office, and has placed the same in charge of Hon. John T. Dooling, and Hun. Edwin Pi Kikea, his deputies. Judge Swann and Mr. Dooling both appeared before the Committee and gave valuable information. Your Committee has held a number of executive sessions, and has actively, diligently and fully considered this problem in all its i ! i f ADD 67 if i i 7 CLASSES OF ALLEGED FRAUD The evils, which have been suggested to us, arise out of trans¬ actions which axe readily divisible into two classes; vis: 1. The initial issuance of securities to the public in this or some othor State, which arc oither worthless or have so little value that those purchasing them at the prices for which tliey aro offered immediately sustain a severe loss. 2. The negotiation and sale by swindlers of worthless securities to individuals. i; f T I \ iPROPOSED LEGISLATIONA great variety of possible legislation has been suggested to your Committee to meet these complaints. These forma of legis¬ lation readily group themselves into three classes: T. The normal and usual method of dealing with fraud of any kind is by conferring jurisdiction upon State officials to supervise commercial transactions and to investigate frauds, and by a thorough revision of our penal laws. IL The next form of legislation relates specifically to the issuance of securities; and for this, two eoparate remedies have presented themselves for consideration: (a) A system of registering or licensing all securities to be offered to tha public, by requiring those offering the securities to file with some public official specific information as a condition precedent to permitting any one to deal io such securities in this State; (A) A system of verified statistical detail, by requiring those offering tho securities to file with some public official elaborate statistical detail ns a condition precedent to the offer of the security to the public; and imposing on tho por- sons verifying the statement both a civil and criminal lia¬ bility to the public. III. The last form of proposed legislation relates to tho direct negotiation of securities by crooked vendors to indi¬ viduals, and suggests ss a remedy that each and every person who deale in securities shall first be licensed by some state official. / \ l i ' I . I 1 ■ t. j t ! i . {r ■ ! ADD 68 a FUNDAMENTAL CONSIDERATIONS In approaching these various complaints and proposed legist tion to remedy their causes, we are mindful of the principle which your Excellency enunciated both in your inaugural message and in your letter appointing ue that “ New York if today the finan¬ cial center of the world” and that “In framing lavra and 5n ad¬ ministering government, it Is therefore of prime importance that legitimate business should be safeguarded, protected and encour¬ aged, to the end that we maintain OUT financial, commercial and industrial supremacy.” New York State, as such financial center, cannot afford to adopt experimental legislation of the character adopted in opr Western States. Experience ha* demonstrated the unwisdom of'plaoing drastic regulations upon enterprise as a whole merely in an endeavor to exclude a modicum of possible fraud. While all restrictive legis¬ lation necessarily and properly imposes certain burdens, it is in¬ dispensable, in the interest of this financial community, that din Stats should preserve as much freedom aa possible for business enterprises. In adopting any legislation which frankly will tend to restrict legitimate business in die hope of preventing fraud, New York State must proceed intelligently end should not adopt any legis¬ lation in which the restriction upon business is out of proportion to the benefit which might thereby be attained. Secondly, your Committee suggests that the question is not the narrow question of whether the State should restrict a single busi¬ ness, familiarly known as that of “ investment brokers ” in order tft afford a certain amount of protection to those who are engaged in purchasing securities The question is much broader than that. It involves the question of how far the Empire State should encourage or discourage capital, during this grave period of reconstruction, in entering into the numerous legitimate ven¬ tures which will help to bring the world back to times of pros¬ perity for rich and poor alike. 'The war, and conditions which have arisen out of the war, have added heavy burdens which have seriously discouraged the I v •• <ÿ V| - I ) ADD 69 j-j id femployment of capital to development; and we, therefore, must meet the question: In how farie New York State willing to add a further burden of new legislation? Thirdly, your Committee deems it necessary to distinguish sharply between the various classes of losses. A large proportion of losses result from ignorance, and another large proportion of, losses result from the Cupidity of people who engage in specula¬ tion seeking abnormal gains. The only losses with which we are concerned at this moment are the losses which are occasioned by fraud. It is impossible by legislation to abolish ignorance or eliminate cupidity. Moreover, experience lias demonstrated that no matter what statutory bar* may be erected, men will continue to lose their money not only by unwise investments and extravagant speculation, but that the ingenuity of the crook can never be wholly circumvented by statute. In this connection we, may point to the experience whieh has been had under the “Blue Sky” laws of the Western States, where we have been reliably informed that crooks obtain licenses and hove employed these licenses asa certificate of the State that they are agents of the State; that they are honest and reliable; and that whatever they say must be true because the State has certified that it is true. i ! ' ? : ; RECOMMENDATIONS AS TO PROPOSED LEGISLA¬ TION , ■ With this statement of fundamental principles, as to which there can be no disagreement, we will proceed to discuss the various proposed forms of legislation: I. RaowTitATtoK oa Ltcawstna OF SECUHITIFA Your Committee is unanimous that legislation of this char¬ acter is unwise in that it does not protect the unwary investor against fraudulent securities and at the same time is unduly re¬ strictive of legitimate enterprise. The Committee is advised that it ha* proven ineffective in the States in which the experi¬ ment has been tried. r- ; i is ; * ADD 70 10s II. FIUNO or STATISTICAL D*TA*L, WITH CIVIL AND CRIMINAL « KMPONSXBUJTT THUMITOR. The suggestion as to legislation requiring the filing of elaborate statistical data as to all securities which are offered to the public in this State cornea partly from the “ Blue Sky ” laws of our Western States and partly from the British Companies Act. It i» urged as being "legitimate publicity”; but this is a flagrant misnomer. No one contend* or thinks of contending that mere publicity as such is objectionable; but the difficulty arise* the very moment that it is attempted to work out the statistical de¬ tails which are to he required. In other words, New York State, in drafting any law, is compelled to face the dilemma, that either it must prevent the issuance of securities by demanding elaborate statistical data to an impractical degree, or it must enact a law which does not prevent the issuance of securities, in which ease the law i* virtually worthless. While, theoretically, we all believe that a statute which merely enforces" publicity ” might have some beneficial effect, nevertbe-. less, a careful study of any law which haa been enacted, or any bill which haa been proposed, absolutely convinces u» that pro¬ visions of this character place an unwarranted handicap on legitimate financial transactions to a degree that would be intol¬ erable. „ It would act na a prohibition or deterrent to responsible, re¬ putable dealers; it Would not restrict the activities of those with¬ out scruple or regard for their spoken or written woTd. The individual who proposes to lead hie money to assist a legitimate security will hesitate or abandon the project, if he it confronted by the necessity of elaborate statistical data which he is called upon to verify and lor which he will be held eirilly'snd criminally responsible The unscrupulous individual, who- pro¬ poses to issue a worthless security, will not hesitate at the mere filing with a publio official of any statement even though be knew* it to he untrue The honest and the careful dealer is placed in shackles, whereas the crook and the careless man it virtually unhampered. Moreover, a New York law will not, of itself, prevent the offering of either legitimate or illegitimate securities to the eiti- ) a. * ADD 71 1 li :zcns of this- State through the medium of the United States mail by dealers maintaining no offices in this State. The difficulty is two-fold: first, that legislation of thia char¬ acter » more effeotivo against tho legitimate dealer than it is against the crook; and, second, that every attempt to assist legiti¬ mate business by striking out restrictions, tends to make the law more ineffective against the crook; and conversely, that every added restriction against the crook, applies with double and treble force, against the legitimate dealer. III. LICKNSIHO OF DEM-BRS IN Sacuurms. There are many thousands of dealers ini securities in the State of New York and it is, of course, ohviona that it would be a dis¬ tinct hardship to require each and every one of them to be 1iconsod in order to conduct his legitimate business. "We are advised that our courts have repoatodly declared that to justify the State in interposing its authority in behalf of the public, by enacting a licensing statute, it must appear that the interest of tho public generally demands such interference, end that tho remedy is not worse than the disease. The objection to a law of this character ie that every citixen should be free to enter into any legitimate business that ho sees fit; and that, to require a licensing system and to confer power upon some State official to grant or to withhold a license, is on abrogation of individual rights find liberties, is un-American in principle, and has been frequently denounced by the courts. To make any such law effective, the power must be conferred upon some State official to reject applications. This moat bo upon some " tost ” of character and fitness. A very largo pro¬ portion of those deplin'g in securities between the issuing house and tho public aro bright young men, frequently college gradu¬ ates, just entering npon their business life. We are not prepared to recommend that these large numbers of our citizens should bo subject to the ipse dixit of a State official, as to his liberty to enter the business of a dealer in securities. Moreover, upon all the information which we have received, the experience of the Western K'ntca, where “ Blue Sky ” licens¬ ing statutes have been enacted, baa demonstrated that the crook, * *m$ i i t i $ •I !iii?. ADD 72 * 1 12 can obtain bis license quite as readily as the honest mss; and that be frequently employ* his license aa the certificate of the State that bis acts are honest and his statements are true There are those who urge that the British Companies Aet, which provides for a system of verified statistical detail, imposing responsibility on the persons verifying the statement, has worked welL England, however, is a country with a single financial centre, whereas New York State is one State of a union, and can neither legislate as to the issuance of securities in other State*, nor afford to drive capital into other Staten Conditions in England are otherwise wholly different from conditiona in the United Staten For instance, the bond salesman, of whom we have thousands, and who conducts a large business between the investment banker and the public, is unknown in England. Moreover, we bare received many reports to the effect that the British Companies Am has not succeeded in preventing fraudulent dealings in securities. There is probably no market in tha world where highly speculative securities are more common than in London. There are also those who urge that the licensing features of our insurance and banking statutes have worked well. These statutes, however, apply to a comparatively small number of in¬ dividuals and cannot be fairly cited as a precedent for the licens¬ ing of the many thousands who ate engaged in the investment businws in New York. With the consideration of the three classes of legislation hereto¬ fore enumerated, we have disponed of the various firms of so- called“ Blue Sky ” legislation. We novr proceed to consider the ' foTma of legislation which are familiar to the citisen* of New York and which have placed the statutes of the Empire State upon a high plane among the laws of the World. IV. STATS Sttreavreioir awn INYSSTIOATKW. First and foremost of these, it has been urged that the Banking Deportment should have jurisdiction over commercial trans¬ actions, and that the Attorney-General should have similar juris¬ diction, These departments should he fully empowered to in¬ vestigate sue)), transactions and should be under the duty, on I i \ I \ ? & *\ V t ADD 73 I 13 complaint of any citizen, to investigate any transaction of which complaint is made. The Legislators should also provide that the Attorney-General should have in his department one or more special deputies whose sole business should be to familiarize themselves with commercial transactions of this character of all kinds and descriptions, and who would be in a position to investi¬ gate all dealings in securities, and, wherever they should find that . there was evidence of fraudulent practices, to immediately bring the same to the attention of the proper prosecuting district attor¬ ney and to furnish him with the full evidence obtained upon such investigation, We favor this remedy, and we urgently recommend it to Your Excellency, We are convinced that if you consider this subject with the same fullness that we have, you will lie convinced, as we are, that this does not unduly burden the legitimate security dealer but give? the community an adequate, full and complete remedy against the crooked security dealer. If the Bonking Department and the Attorney-General are given jurisdiction over commercial frauds, they can pursue whom they will with their investigation, and they can obtain more in¬ formation in respect to the issuance ami negotiation of securities than any one could Be required to give under any statute which has been enacted or contemplated. Moreover, if this broad jurisdiction be conferred upon these two departments, the deputies in charge aro bound to Iwcome ac¬ quainted with the individuals in the State who arc engaged in the negotiation of securities, and from time to time they can readily signal out- the crook or the unscrupulous dealer. We believe that if this practical, common sense remedy is adopted by the Legislature, it will lie a matter of only a short period of time Before the exisleuco of commercial frauds in this State will have practically disappeared. V. AMKXDMRWTS TO Tire PBKAI, LAW. We are advised that there are many amendments to the Penal Law which can he made to further protect the public against com- ‘cÿnereial frauds. -We have examined certain of these proposed sir.tntes, but we are faced with tin* difficulty that of the twelve W. i!m 5 * 1 * * fj: ;! ; ; : ADD 74 14 ‘ member* of this Commission only three are members of the Bar, and that thisis obviously ft matter which should bo determined by a Commission of those expert in Bus criminal law. * We are strongly of the opinion that our Penal statutes should be fortified in every possible way. We also suggest that, if the legislature will enact a statute conferring the jurisdiction which we have stated Upon the Bank¬ ing Department and tho Attorney-General and will make an ap¬ propriation which will enable them to investigate commercial frauds in the State of New York, that they will readily discover wherein our penal statutes are strong and whdrein they are weak, and that such experts can readily suggest penal legidation which will finally and completely stamp out stock frauds in theState of New York, We do not, however, advise that wo wait for this practical experience; and we take *8 liberty of suggesting to Your Excellency that you appoint ft commission of lawyers; on whieh the various district attorneys are represented, to fully examine and revise tho penal laws of this State, with a view to fully and effectively punishing unscrupulous dealers and pro¬ moters and making sneh provisions as to the keeping of records and documents as to make a fraud readily discoverable and the swindler speedily convicted* ■-m %ÿ CONCLUSION. ■ Wo believe that We artt recommending the only practical and common-sense solution of the problem Which you have submitted to us. No formula of words, no mathematical computations dependent on automatic operation can make an efficient trap to catch tho crooked dealer. Whftt is needed is ft fiftxitto, Virile fraud-hunting State machinery driven not by statute hut by human intelligence and human activity. The promoter and vendor of spurious stock* does not operate along conventional lines — nor can he be persuaded to do so byany statute which wo might recommend, or the Legislature might enact Qn the contrary, during tho interim periods of legislative ADD 75 k 15 action,, he could he counted on to abandon certain line* which might be marked aa legally dangerous and adopt new lines that would be safe until a future Legislature should discover and pick up the trail of dishonesty. Common sense dictates that the State shall not place its de¬ pendence on legal traps composed of words, which, no matter how well chosen, are notoriously easy of evasion, The Committee held its final session on December 22d, and on a- roll call, the undersigned eight members voted in favor of this report and Mr. Hepburn, Mr. McLaughlin, Hr. McGwire and Mr. Hocy voted in favor of a minority report which they will submit to you. Tours respectfully, JOHN ,T. PULLEYN, . CHARLES H. SABIN, WILLIAM H. PORTER, WILLIAM H. REMICK, ALFRED I. JOHNSON, JOHN GODFREY SAXE, MORTIMER L. SCHIFF, EDWIN C. VOGEL. 1iin i i § im- m i. 1 m.11 ADD 76 MINORITY REPORT IDicB«*E* 22, 1918, HON, AUSBD E. SMITH, Qovtmer, Stott of New York, Albany, N. Tu YOON EXCELLENCY.— OB September 25th JOB addressed aletter to several men reading as follows: "A bill was presented at the last Session of the Legis¬ lature providing for certain publicity as to prices in con¬ nection with securities offered to the public for investment, This bill failed to pass but its introduction suggests to lay mind that possibly there waa need of such legislation in this State. "Hew York is today the financial center of the world and ia being looked to by other States for leadership in financial matters. “ I have concluded to appoint a Committee of men prom¬ inent in National, State and private banking, aa well at members of the legal profession, and representatives of the investing public, to make a study of this subject and repent to mo before January the first, the result of such study together with a draft of such legislation as the Committee may deem necessary. "To my mind there should be a proper supervision of the issuance of new securities and a prevention of the evil of issuing and offering for sale to the investing public, of worth¬ less securities and securities of doubtful value. “I have appointed yon a member of such Committee Will you communicate with the other members of the Com? mittee, a list of whom 1b herewith enclosed, and arrange for A preliminary meeting! "Thanking you in advance for any interest you may be kind enough to take in this matter, I am," II:I : i pn 2 i ADD 77 18 You addressed said letter to the following named men: Charles H. Sahiu, Guaranty Trust Company; William H. Por¬ ter, J. P. Morgan St Company; William. N. Remick, Remick, Hodges & Companyÿ Alfred J. Johnson, Anderson, Bruns St Company; John J. Phlleyn, Emigrant Industrial Savings Bank; Hon. John Godfrey Saxe, 30 Broad street, New York City; George V. McLaughlin, Department of Superintendent of Banks; Laurence MoGuire, Beal Estate Board of New York; James J, Hoey, Continental Insurance Company; Mortimer L. Schiff, Kuhn, Loeb Si Company; Edwin C. Vogel, Arthur Lipper & Company; A. Barton Hepburn, Chase National Bank. All of the shore named men complied with your request and mot at the Bankers Cltfh on Septemlicr 29th and organized by electing A, Barton Hepburn, Chairman, and Thomas F. Wood- lock, of the American International Corporation, Secretary. The Committee requested yonr Excellency to assign Mr. Robert C. Gumming, Chairman of Legislative Bill Drafting Com- mimicn, to aid the Committee in their deliberations and especially in drafting any tentative legislation which, they might suggest. You complied with this request and we were greatly aided in our labors by the continual presence and co-operation of Mr. Gum¬ ming; Necessity far Legislation. Thirty of the States of our Union have enacted laws covering the subject matter mentioned in your letter.' The British Com¬ panies Act deals with the same subject in Great Britain. The Committee provided itself with ihe laws of these various States, an abstract of which was made under the direction of Secretary Woodlook and furnished to each member. We corresponded, through our secretary, with the officials of the various States, having legislation of this character in regard to the efficiency of the same, seeking suggestions which might be of value in the Committee’s deliberations. We also corresponded with clearing houses, various exchanges in the country, The Standard Statistics Company, Poor's Manuals, Moody’s Manual, and various other organizations hav- ADD 78 § a '1% ing to do with securities Mid supplying the public with inform:* tion in relation thereto, asking for specific suggestions ns to de¬ sirable IcgUiotivo regulation. Wo bold, bearing* and were ad- dresaw! by representatives of the Investment Hunkers Assoein- tion, Private Bankets Association, tfe Capital Issue* Committee appointed by the United Stotts Government ontl varions other organizations and individuate familiar with the subject under consideration. Judge Swann, District Attorney of Hew York, has established a Bureau of Commercial Fraud* la hi* office and hits placed the same in chorgo of two of his dejmfieS. Judge Swann came before tha Committee and discussed fit* subject at length giving ns much vnlUalde information. He also very kihdly Sent JC& John % Pooling, one of his deputies lit charge of liis Bureau of Com¬ mercial Frnmls, who went into great detail as to the frauds that were being committed and the difficulties of properly dealing with the offenders. Both Judge Bwann and Mr. John T, Dooling strongly recommend a system of personal licenses to dealers in securities, urging that the same was necessary to enable them to properly prosecute offenders. As the result of such investiga¬ tion and study, rsinforeed by personal experience, the under¬ signed members of the Committee are of the opinion that legis¬ lation is necessary and may be made helpful to the public inter¬ est, extremely difficult though it he to enact regulation, which means restraint, without at tha same time interfering with legiti¬ mate business undertakings. Onr conclusion a* to the desirability of legislation is JortflM. by the fact that thirty-twb State* of ottr Union as well as foreign countries, have already attempted to regulate the issuance and flotation of securities by legislative enactment. Tit* Bank Com¬ missioner of Pennsylvania has recommended legislation upon this subject. I ! I * t r ! * |Underlying Principle*. (1) Require a personal license front vendors of ututHin in outer Is exclude person* of known had charaeien (?) Publicity ond responsibility., 129 N. Y. 252, 27Q, 29 N. E. 302 (1891); O'Reilly v. N. Y. EL R. R. Co., 148 N. Y. 347, 357, 42 N. E. 1063 (1896). •Laws of N. Y. (1913) 2491 (amendments to constitution). This section provides the methods for ascertaining the value of property rights, in making compensation in condemnation proceedings. Prior to the instant amendment it vided for two methods: (1) by a jury, and (2) by not less than three commissioners appointed by a court of record, as shall be prescribed by law. The amendment of 1913 added another method: (3) by the Supreme Court, with or without a jury, but not by a referee. (Since that time a fourth method was added, but is not material here.) pro ADD 100 NOTES AND COMMENT 397 It is necessary, in order to understand the problem, to point out the general powers of the Supreme Court, as far as its equity juris¬ diction is concerned, and to see how its power differs in regard to this particular class of cases. The cases falling within this class are those in which the defendant, who is sought to be enjoined, is one which has the power to condemn the property interests involved. Equity has always had the power, in suits where the plaintiff was seeking injunctive relief, besides granting such injunction, to ascertain and award damages for injuries received to the time of trial, as incidental to the main relief sought* These cases were those in which the damages awarded were for injuries received up to the time of trial, and equity granted such monetary relief on the ground that, having the parties before it, it could retain the suit to give full relief and to make it unnecessary for either party to resort to another tribunal.® As has been well said by Lord Nottingham in an old English case— that when a court of chancery has oncegained possession of a cause, if" it can determine the whole matter, it will not be the handmaid of other courts, "nor beget a suit to be ended elsewhere." ® There is another group of cases in which the court denied the injunction sought, as inequitable and unjust, and where an award of damages would adequately compensate the injured party. In such instances the court fixed the sum as past and future damages and offered the defendant the alternative of paying the same or accepting the injunction.7 But these were suits to abate a nuisance, for waste, or for trespass. Gale On Easements8 states the rule for this type of cases— "Where a legal right has been established the plaintiff is prima fade entitled to an injunction. And in cases of con- ‘10 R. C. L. 371— “Thus on granting an injunction for * * * any cause, acourt of equity may, when necessary to do complete justice between the parties, ascertain and award damages, as incidental to the main relief sought*; Taylor v. Fla. E. C R. Co., 54 Fla. 635, 45 So. 574 (1907); January v. January, 7 T. B. Mon. (Ky.) 532, 18 Am. Dec. 211 (1828) ; Lynch v. M. E. R. Co.; 129 N. Y. 274, 29 N. E. 315 (1891); Price v. Oakfield, 87 Wis. 536, 58 N. W. 1039 (1894). “ Lynch v. M. E. R. Co- supra note 4.8Parker v. Doe, 2 Ch. Cases 201. 8Galway v. M. E. R. Co., 128 N. Y. 132, 28 N. E. 479 (1891); Pappenheim v. M. E. R. CO., 128 N. Y. 436, 28 N. E. 518 (1891) ; Amerman v. Deane, 132 N. Y. 355, 30 N. E. 741 (1892) ; McClure v. Leaycroft, 183 N. Y. 36, 75 N. E. 961 (1904) ; Forstman v. Joray Holding Corp., 244 N. Y. 22, 154 N. E 652 (1926) ; Haber v. Paramount Ice Corp., 239 App. Div. 324, 267 N. Y. Supp. 349 (2d Dept 1933) ; Goldbacher v. Eggers, 38 Misc. 36, 76 N. Y. Supp. 88 (1902), aff’d, 82 App. Div. 637, 84 N. Y. Supp. 1127 (1st Dept 1903), 179 N. Y. 551, 71 N. E. 1131 (1904) ; Raymond v. Transit Dev. Co., 65 Misc. 70, 119 N, Y. Supp. 655 (1908), aff’d, 134 App. Div. 981. 119 N. Y. Supp. 955 (2d Dept 1909) ; Robb v. Rubel Brothers, 107 Misc. 33, 176 N. Y. Supp. 462 ‘GALE ON EASEMENTS (9th ed. 1916) 531. ADD 101 398 ST. JOHN'S LAW REVIEW tinuing actionable nuisance the jurisdiction to award damages ought only to be exercised under very exceptional circum¬ stances. Damages may be given in substitution for an injunc¬ tion where the following requirements exist, vie:— where theinjury to the plaintiff’s legal right is small, is capable of being estimated in money, can be adequately compensated by a small money payment, and where the case is one in which i— j ....— . — ... wÿ.v. t wouldbe oppressive to the defendant to grant an injunction.” Although the usual remedy in equity is a decree requiring a defendant to do or refrain from doing a certain thing, and although a party generally has the right to a trial by jury of the facts upon which a money judgment is based, the courts of equity have, from early times, retained the above classes of cases and have fixed the damages without a jury, as incidental to the main relief sought® The Supreme Court of New York State, therefore, inherited, and still retains, this jurisdiction, by virtue of that provision in the constitution of 1846 which vested in it all the powers of law and equity existing prior thereto,10 except those which were expressly destroyed or inhibited by that same constitution. This brings us to the last group of cases in which lies the instant suit As has been stated above, the courts of equity, in laying down the principles by which to govern this class of cases, have stated frequently that in effect the suit was a substitute for a condemnation proceeding.11 This is the point of departure, because the constitu¬ tion provides certain particular rights for the benefit of property owners in condemnation proceedings. The constitution of 1846, which gave the Supreme Court the wide powers above referred to, expressly excepted the methods of fixing the value of property rights in con¬ demnation proceedings, and declared that such owners had the abso¬ lute and undeniable right1® to have the value of their property determined (1) by a jury, and (2) by not less than three commis¬ sioners appointed by a court of record 18 The reason why the courts have declared these cases to be substitutes for condemnation proceedings is apparent. A defendant having the power to condemn property for its lawful ptmposes, upon being enjoined from interfering with the property rights of the plaintiff, would undoubtedly exercise its right by condemning such rights. The injunction, then, would be a vain decree, because the •Lee v. Alston, 1 Ves. 78; Gorth v. Cotton, 1 Vesey Sr. 528; Armstrong wGiJchrist, ZJohns. Cas. 424 (N. Y. 1801) ; Watson v. Hunter, 5 Johns. Ch. 10 CONST, OF N. Y. (1846) art. VI, §§1 et seq. n American Bank Note Co. v. N. Y. EL R. R. Co., O’Reilly v. N. Y. El. R. R. Co, both supra note 2; the instant case, Cox v. N. Y. C. R. R. Co, supra note 1; Sperh v. M. E. R. Co, 137 N. Y. 155, 32 N. E. 1050 (1893).u Ascher v. South Shore Traction Co;, 144 App. Div. 234, 128 N. Y. Supp. 1044 (2d Dept 1911).n CONST, OF N. Y. (1846) art I, §7. ADD 102 NOTES AND COMMENT 399 plaintiff would lose his property interests in any event and will receive instead the fair and reasonable value of them. But equity will not make a vain decree.14 In place of that, equity moulded its relief to suit the need there¬ for by ascertaining the value of the plaintiff's rights and offering to the defendant the alternative of paying to the plaintiff the sum set in extinguishment of his rights or accepting the injunction. The first and most important case in which this was done was Henderson v. N.Y.Central R.R. Co.1* In that case the defendant railroad usurped the plaintiff's fee in the street and damaged his easements as an abut¬ ting owner, by laying a track and maintaining a railroad. The court awarded the plaintiff damages for past injuries and a further sum for the permanent damage, provided the plaintiff tendered a deed of his rights to the defendant; if the plaintiff did so the defendant was compelled to pay for the fee damage or be enjoined. The court’s power in that case to grant such relief has been questioned by some,1® but the decision has been followed in so many cases as to become unshakeable in our law.17 In Story v. N. Y. El. R. R. Co,18 the court followed the Henderson case, but there, instead of awarding damages, an injunction was granted, to be suspended for a reason¬ able time for the defendant to acquire the plaintiff’s easements. In Eggers v. Manhattan R. Co.19 the court, in awarding damages, expressly states that such relief was merely a matter of favor to the defendant and was in the discretion of the court The cases hold that the measure of fee damages is the same as that in a condemnation proceeding.*9 The court, however, has never attempted to ascertain and award u Saperstein v. Mechanics and Farmers Savings Bank, 228 N. Y. 2S7, 126 N. E. 708 (1920), “78 N. Y. 423 (1879). This case was the second appeal of a suit com¬ menced in 1853 entitled Williams v. N. Y. C. R. R. Co., 16 N. Y. 97, and substantially followed and agreed with that earlier appeal. “ Note (1893) 20 L. R. A. 752. The writer there states that the subse¬quent cases have never attempted to justify the Henderson case. He also states that the Henderson case was not decided on American precedent, but drew its authorities from English cases, which in turn depended upon an English statute— Lord Cairn's Act, 21 and 22 Viet (1858). This Act gaveChancery the power, where it already had the power to enjoin or to decree specific performance, to award damages, in its discretion either in addition to, or in substitution of, the injunction. The effect of the Henderson case, accord¬ ing to the note, was to incorporate Lord Cairn’s Act into New York juris- prudence. ” Story v. N. Y. El R. R. Co., 90 N. Y. 122 (1882) ; Glover v. ManhattanR. Co., 19 Jones & S. 1 (51 N. Y. Super. Ct 1884) ; N. Y. Naf1 Exch. Bank v. M, E. R. Co., 21 Jones & S. 511 (53 N. Y. Super. Ct 1886), afPd, 108 N. Y. 660, 15 N. E. 445 (1886) ; Pappenheim V. M. E. R. Co., supra note 7; Eggers v. Manhattan R. Co., 27 Abb. N. C. 463 (N. Y. 1891) ; Bernheimer v. Manhattan R. Co., 26 Abb. N. C. 88 (N. Y. 1890). ” Supra note 17.” Supra note 17.“Bernheimer v. Manhattan R. Co., st v Co. v. N, Y. El R. R Co., supra note 2. ( pra note 17; American Bank Note ADD 103 ST. JOHN’S LAW REVIEW400 the permanent damages as of right, having before them at all times the constitutional limitation on their power so to do.21 Indeed it has been stated many times that the Supreme Court, without a jury, had no power to force a plaintiff to accept such damages. In Peck v. Schenectady 22 it was said that the court could not compel an abutter who owns the fee in the street to accept damages assessed by it in lieu of an injunction sought by him to restrain the construction of a railroad in the street, since that would in effect deprive him of his right to have his compensation determined by one of the modes pre¬ scribed in the constitution. And in Ascher v. South Share Traction Co.3* it was said that the plaintiff, without his consent, could not be deprived of his constitutional right. The conditional injunction method, however, was not in violation of the constitution, Article I, Section 7, because although the court might fix the terms on which it will suspend the injunction, the prop¬ erty owner is under no obligation to accept those damages, but may demand their assessment in the manner prescribed.24 It is obvious, then, that the Supreme Court, if guided by the above principles in the instant case of Cox v. N. Y. C. R. R. Co.m exceeded its powers. And that brings our problem to the constitu¬ tional amendment referred to above.29 By that amendment the Supreme Court, in condemnation pro¬ ceedings, was given the power, with or without a jury, to ascertain the compensation due the property owner. The question resolves itself, therefore, into this:— Does this amendment increase the powerof equity to the extent necessary to sustain the instant case? Fortu¬ nately the answer is fairly apparent In the Matter of New York 31 the court construed this provision and declared that in condemnation proceedings it is governed by the same rules as were applied by the Commissioners in condemnation prior to the adoption of the amend¬ ment to the constitution and the resulting legislation. The conclusion is almost inescapable that this amendment enlarged the powers of the Supreme Court until they are as full as those of the Commissioners. The case at hand still further construes this constitutional power, and declares that equity is no longer disabled from determining the value of the property to be condemned. This reasoning is consonant with the obvious intent of the framers of the amendment, which was to create a means by which the court could give full relief in an action where both parties were before the court. This being true we may say that equity now has the power which formerly it lacked, to fix 11 Galway v. M. E. R. Co., supra note 7. »67 App. Div. 359, 73 N. Y. Supp. 794 (3d Dept. 1901), aff’d, 170 N. Y. 298, 63 N. E. 357 (1901). »144 App. Div. 234, 128 N. Y. Supp. 1044 (2d Dept. 1911). “ Sponenbttrg v. Gloversville, 96 App. Div. 157, 89 N. Y. Supp. 19 (3d P»5’«pro note 1. *Supra note 3. ” 197 App. Div. 431, 189 N. Y. Supp. 642 (1st Dept 1921). ADD 104 3 J. Pomeroy, A Treatise on Equity Jurisprudence (5th ed. 1941) (ADD 105 - ADD 113) A TREATISE ON EQUITY JURISPRUDENCE AS ADMINISTERED IN THE UN ETED STATES OF AMERICA ADAPTED FOB ALL THE STATES AND TO THE UNION OF LEGAL AND EQUITABLE REMEDIES UNDER THE REFORMED PROCEDURE BY JOHN NORTON POMEROY, LL.D. FIFTH EDITION BY SPENCER W. SYMONS IN FIVE VOLUMES VOLUME III BANCROFT-WHITNEY COMPANY SAN FRANCISCO THE LAWYERS CO-OPERATIVE PUBLISHING COMPANY ROCHESTER, N. Y. 1941 ADD 105 Entered according to act of Congress in the years 1881, 1882, and 1883, by JOHN NORTON POMEBOY, In the office of the Librarian of Congress, at Washington. Entered according to act of Congress in the year 1892, by ANNIE B. POMEBOY, In the office of the Librarian of Congress, at Washington. COPYRIGHT, 1905, BY CABTEB P. POMEROY, HARRIET H. THOMPSON, AND JOHN NOBTON POMEBOY, JH. COPYRIGHT, 1918, BY HARRIET H. THOMPSON, JOHN NORTON POMEROY, JR., CHRISTINE M. BROOKE, AND HARRIET II. POMEROY. COPYRIGHT, 1941, BY ANNE POMEROY SCHIBMEB, HARRIET POMEROY SOLTAN, CHRISTINE M. BROOKE, AND HARRIET P. THACHER. SAN EBANCISCO True EII.MEB BBOTHEBS ELECTROTYPE COMPANY TYPQGBAPHEES AND STEBKOTVPERS ADD 106 Sec. Ill] ACTUAL FRAUD. SECTION HI. ACTUAL FRAUD. INTRODUCTORY. Objects and Purposes. Description— Essential Elements. Four Forms and Classes of Fraud in Equity. Nature of Actual Fraud. §872. 873. 874. 875. MISREPRESENTATIONS. 876. Essential Elements. 877. I, The Form'— An Affirmation of Fact.877a. Misrepresentations of Law. 877b.-Illustrations. 877c. Statement of Intention or .Promise. 877d, Promise with Intent not to Perform. S77e. Representations as to Future or Continent Events. 878. Misrepresentations of Matter of Opinion. 878a.-Qualifications and Modification of Rule. 878b.-Opinion Stated as Existing Fact-— Value. 878c.-• Statements as to Cost. 879. II. The Purpose for Which the Representation is Made. 880. Presumption of the Design to Induce Action. 881. False Prospectuses, Reports, Circulars, and the Like. 882. III. Untruth of the Statement. 883. IV. The Intention, Knowledge, or Belief of the Party Making the Statement. 884. The Knowledge and Fraudulent Intention Requisites at Law. 884a. What Representations are Knowingly False. 884b.-Effect of Belief in Truth. 884c.-Effect of Negligence. 884d.-Effect of Statutory Provisions. 885. Knowledge or Intention Requisite in Equity. 886. Forms of Fraudulent Misrepresentations in Equity — Inten¬tional Misstatements. 887. -Definite Assertions not Based on Knowledge. 888. -Innocent Misstatements. 888a.-Duty to Know Facts; Forgetfulness. 889. Requisites of a Misrepresentation as a Defense to the Specifio Enforcement of Contracts in Equity. 890. V. Effect of the Representation on the Party to Whom It is Made— His Reliance upon It. HI Equity Jnr,— -14 V 417 ADD 107 [Pt. II, Ch. IllEQUITY JURISPRUDENCE. § 891. The Party Must be Justified in Relying on the Representation. 892. When He is or is not Justified in Relying. 893. Information or Means of Obtaining Information Possessed by the Party Receiving the Representation. 894. Knowledge Possessed by the Same Party— Patent Defects. 895. When the Knowledge or Information Must be Proved, and not Presumed. 895a. Effect of Partial or Cursory Examination. 896. Words of General Cantion. 896a. Application of Rules to Particular Matters. 897. Prompt Disaffirmance Necessary; Waiver. 898. VI. Materiality of the Misrepresentation. 898a. Necessity for Pecuniary Injury or Damage. 899. Effects of a Misrepresentation. FRAUDULENT CONCEALMENTS. 900. Generally. 901. Duty to Disclose. 901a. Affirmatively Suppressing Truth; Partial Disclosure. 902. When Duty to Disclose Exists. 903, Concealments by a Vendee. 904. Concealments by a Vendor. 905. Non-disclosure of Facts a Defense to the Specifio Enforcement of Contracts in Equity. 906. Concealments by Buyers on Credit. 907. Contracts and Transactions Essentially Fiduciary. LIABILITY OF PRINCIPAL FOR AGENTS FRAUD. 908. Generally. 909. Circumstances in Which Principal is Liable. JURISDICTION OF EQUITY IN CASES OF FRAUD. 910. Generally ; Remedies. 911. Fundamental Principles of the Jurisdiction. 912. The English Doctrine. 913. Exception— Fraudulent Wills.914. The American Doctiine. 914a.-Illustrations. 915. Incidents of the Jurisdiction and Relief. 916. Plaintiff Particeps Doll— Ratification. 917. -Promptness— Delay through Ignorance of the Fraud. 918. Persons against Whom Relief is Granted. 919. Particular Instances of Jurisdiction. 919a.-Judgments. 418 ADD 108 §872Sec, III] § 919b.--Necessity that Fraud be Extrinsic or Collateral.919c, — ■— Awards. 919d.-Fraudulent Bequests— Fraudulent Probate. 919e. --Preventing Acts for the Benefit of Another; SuppressingInstruments. 919f.-- Preventing Redemption from Judicial Sale. 920, -Appointments under Powers. 920a.-Marital Rights. 920b. — — Trusts.921. The Statute of Frauds not an Instrument of Frand. ACTUAL FRAUD— INTRODUCTORY. INTRODUCTORY. §872. Objects and Purposes. — Fraud, in some of itsphases, has long been an occasion for the exercise of juris¬ diction both at law and in equity. The various reliefs on the ground of fraud which are possible from the nature of the legal and the equitable modes of procedure and reme¬ dies are the following; At law: 1. The affirmative relief of rescission, whereby the defrauded party is permitted to rescind the contract Of other transaction, or, more accurately, to treat it as re¬ scinded,—to restore himself thereby to his original posi¬ tion of right, and by means of an appropriate action to recover back the money or other property of which he had been deprived, or which he had parted with; 2. The affirma¬ tive relief whereby the defrauded party suffers the transac¬ tion to stand, and by action recovers pecuniary damages as compensation for the injury sustained by him from the deceit; 3. Defensive relief, whereby the party sets up the frand as a defense, and thereby defeats any action brought to enforce the apparent fraudulent obligation. In equity: 1. The affirmative relief of cancellation, whereby the defrauded party procures an instrument, ob¬ ligation, transaction, or other matter affecting his rights and liabilities to be set aside and annulled, and himself to be restored to his original position of right, and as a conse¬ quence to re-establish his title, or to recover possession and 419 ADD 109 §873 [Pt. II, Ch. IllEQUITY JURISPRUDENCE. enjoyment of property; 2. The affirmative relief of refor¬ mation by which a written instrument is corrected, and perhaps re-executed, when, through fraud of the other party, it failed to express the real relations which existed between the two parties; 3. The affirmative relief of a pe¬ cuniary recovery where the liability arose from the fraud of the other party, and no cancellation is necessary as the foundation of the recovery; 4. Defensive relief, whereby the fraud is set up by way of defense to defeat any suit brought to enforce an apparent obligation or liability. In the discussions of the present and the following sec¬ tions, I propose, in the first place, to describe the nature of fraud in equity, actual and constructive, to explain the essential elements entering into the conception of it, to de¬ fine its kinds and classes, to enumerate its most important instances, and to show the various forms which it ordi¬ narily assumes in the affairs of mankind. In the second place, I shall describe the equitable jurisdiction Occasioned by fraud, define its extent and limits, explain the principles which regulate its exercise, and enumerate the important instances of its exercise, and the various reliefsÿ affirma¬ tive and defensive, which are thereby granted. This discussion deals with fraud in equity, and will only refer incidentally, and by way of illustration, to fraud at law. Whatever amounts to fraud, according to the legal conception, is also fraud in the equitable conception; but the converse of this statement is not true. The equitable theory of fraud is much more comprehensive than that of the law, and contains elements entirely different from any which enter into the legal notion. § 873. Description — Essential Elements. — It is utterlyimpossible to formulate any single statement which shall accurately define the equitable conception of fraud, and which shall contain all of the elements which enter into that conception; these elements are so various, so differ- 420 ADD 110 Sec. in] §873ACTUAL FRAUD-INTRODUCTORY. ent under the different circumstances of equitable cogni¬ zance, so destitute of any common bond of unity, that they cannot be brought within any general formula. To at¬ tempt such a definition would therefore be not only use¬ less, but actually misleading. It has been shown in a for¬ mer chapter (§55) that the jurisdiction of chancery was originally rested upon two fundamental notions, equity and conscience, or good faith. The first of these embraced all cases where a party, acting according to the rules of the law, and not doing anything contrary to conscience or good faith, might obtain an undue advantage over another, which, though strictly legal, equity would not permit him to retain. The second (see § 56) embraced all those cases where a party, although perhaps still keeping within the limits of the strict law, so as to be sustained by the law courts, had committed some unconscientious act or breach of good faith, and had thereby obtained an undue ad¬ vantage over another, which advantage, even though legal, equity would not suffer him to retain. The relief given by equity in all cases of fraud is plainly referable to this second head of the original jurisdiction. Every fraud, in its most general and fundamental conception, consists in obtaining an undue advantage by means of some act or omission which is unconscientious or a violation of good faith in the broad meaning given to the term by equity,— the bona fides of the Roman law.1 Furthermore, it is a necessary part of this conception that the act or omission itself, by which the undue ad¬ vantage is obtained, should be willful; in other words, 1. Odell v. Co*, 151 Cal. 70, 90 P, an absence of all information or bene- 194 j Allen v. United States Fidelity fit of facts which would render the St Guaranty Co. 209 III. 234, 109 N. transaction vmeonaeientioua.” “Bad E. 1035 (quoting the text). A definition pf good faith is: “An Warfield Natural Gas Co, v. Allen, honest intention to abstain from tak- 248 Ky, 040, 59 S, W. (2d) 534, 91 ing any uneonseientious advantage of A. L. S. 890, quoting Bouvier’s Law another, even through the forms and Dictionary. technicalities of law, together with faith” is, of course, the antithesis, 421 ADD 111 §873 [Pt. II, Cli. IllEQUITY JURISPRUDENCE. should be knowingly and intentionally done by the party; but it is not essential in the equitable notion, although it is in the legal, that there should be a knowledge of and an intention to obtain the undue advantage which results (see § 885). The willfulness of the act or omission is the element which distinguishes fraud from other matters by which an undue advantage may be obtained so as to fur¬ nish an occasion for the equitable jurisdiction. Thus it has been shown (§823) that in accident an occurrence ex¬ ternal to the parties happens without any intent or other mental condition, and an undue advantage thereby accrues to one of them. In mistake there is indeed a mental con¬ dition or conviction of the understanding (see §839), but it wholly results from ignorance or misapprehension, and prevents the free action of the will; there is, therefore, a complete absence of willfulness or intention in the true and legal meaning of those terms. In all phases of fraud, on the other hand, there is a mental condition, a conviction of the understanding, a free operation of the will, and an intention to do or omit the very act by which the undue advantage is obtained. The following description is perhaps as complete and accurate as can be given so as to embrace all the varie¬ ties recognized by equity: Fraud in equity includes all willful or intentional acts, omissions, and concealments which involve a breach of either legal or equitable duty, trust, or confidence, and are injurious to another, or by which an undue or unconscientious advantage over another is obtained.® 2. Stewart v. Wyoming Cattle Rancho Co. 128 TJ. S. 383, 32 L. ed. 439, 9 S. Ct. 101;. Eliason v. Wil- born, 335 111. 352, 167 N. E. 101, 68 A. L. E. 350, affirmed in 281 U. S. 457, 74 U ed. 962, 50 S. Ct. 382; Leach v. Central Trnst Co. 203 Iowa, 1060, 213 N. W. 777, 57 A. L. R. 1165; Salter v. Aviation Salvage Co. 129 Mias. 217, 01 So. 340, 26 A. L. R. 987 ; Gierth v. Fidelity Trust Co. 93 N. J. Eq. 163, 115 A. 397, 18 A. L. R. 978 (citing the text) ; People v. Man- euso, 255 N. Y. 463, 175 N. E. 177, 76 A. L. B. 514, 527 (arguendo) ; Russell v. Industrial Transp. Co. 113 422 ADD 112 §874Sec. Ill] § 874. Four Forma and Classes of Fraud in Equity.— Inthe leading and celebrated case of Earl of Chesterfield v. ACTUAL FRAUD— INTRODUCTORY. Tex. 441, 251 S. W. 1034, 258 S. W. 462, 51 A. L. B. 1. This general statement, to which 1 have added the necessary terms "will¬ ful or intentional,” is given, slightly varied, by Mr. Fonblanquo, 1 Fon- blanque’s Equity, bk. 1, e. 2, sec. 3j adopted by Judge Story: 1 Story's Eq. JUT., see. 187; and by Mr. Ken: Kerr on Fraud and Mistake, 42. It is plain that the definitions sometimes given by text-writers and judges, in which ‘‘artifice," “trick,” “subter- fngo,” “circumvention,” “cunning,” and like terms are employed as neces¬ sary ingredients of fraud, are inac¬ curate and misleading when applied to the equitable conception, and ore not even appropriate in describing fraud at law. It would also be very improper to include “an intent to de¬ ceive” as one of the essential ele¬ ments of fraud in equity. In some jurisdictions the statutes define “actual fraud” and “construc¬ tive fraud.” These definitions em¬ brace both fraud in equity and at law. Thus the Civil Code of California (§ 1572), states that "actual fraud. . , consists in any of the following acts, committed by a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract: 1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be tTue; 2. The positive assertion, in a manner not warranted by the infor¬ mation of the person making it, of that which is not true, though he be¬ lieves it’ to be true; 3. The suppres¬ sion of that which is true, by one having knowledge or belief of the fact; 4. A promise made without any intention of performing it; or, 5. Any other act fitted to deceive.” Harding v. Robinson, 175 Cal. 534, 166 P. 808; Lawrence v. Gayetty, 78 Cal. 120, 20 P. 382, 12 Am. St. Rep. 29; Newman v. Smith, 77 Cal. 22, 18 P. 791; Benning v. Nevie, 50 Cal. App. 192, 204 P. 800; Bacon v. Soule, 19 Cal. App. 428, 120 P, 384; Edmunds v. Southern Pac. Co. 18 Cal. App. 532, 123 P. 811 (settlement and re¬ lease of claim for personal injury). See 12 Cal. JUT., Fraud and Deceit, p. 707,!3. “Constructive fraud consists: 1. In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claim¬ ing under him; or, 2. In any snob act or omission as the law specially de¬ clares to be fraudulent, without re¬ spect to actual fraud.” Cal. Civ. Codo, J 1573, subd. lj Estate of John¬ son, 134 Cal. 662, 60 P. 847 (but holding that fraud was not shown); De Bairoa v. Barlin, 40 Cal. App. 665, 190 P. 188 (misrepresentation by vendor of frontage of lot) ; Rundell v. McDonald, 41 Cal. App. 175, 182 P. 450; Denohy v. Stewart, 41 CaL App. 88, 181 P. 839; Lillie v. An¬ drews, 24 Cal. App. 10, 139 P. 1081; Teioh v. San Jose etc. Bank of Sav¬ ings, 8 Cal. App, 397, 97 P. 107 (where oquitable mortgagee bought property at tax sale contrary to stipu¬ lation between parties). See 12 Cal. Jur., Fraud and Deceit, p. 710, 5 5. These codes give a further and somewhat different definition of fraud 423 ADD 113 Mildred V. Coe and Lewis W. Morse, Chronology of the Development of the David Dudley Field Code, 27 Cornell L. Rev. 238 (1942) (ADD 114 - ADD 121) CHRONOLOGY OF THE DEVELOPMENT OF THE DAVID DUDLEY FIELD CODE MILDRED V. COE LEWIS W. MORSE Stimulated by inquiries for a comprehensive list of .sources which would outline the preliminary steps by which the New York Code of Procedure was evolved, the authors undertook the study which is summarized herein. Investigation reveals a general lack of knowledge, a widespread uncer¬ tainty, and a total lack of any guide to the actions of the New York State Commissioners on Practice and Pleadings (1847-1850), and the New York State Commissioners of the Code (1847-1865). Descriptive help is wanting in the bound volumes. Nowhere is there a chronological statement of the steps in this evolution. Relatively few people seem to have gone to the trouble required in identifying these steps. In the belief that such a statement will prove useful to any person who desires to make a critical study of this process, we have worked out what we believe to be a correct and orderly enumeration of the actions of these com¬ missions. Despite this care there may be inaccuracies or omissions in the list which we here present. We shall appreciate any suggestions which any reader cares to make. I. NEW YORK STATE COMMISSIONERS ON PRACTICE AND PLEADINGS 1847-1850 The 1846 New York State Constitution directed that the whole body of the law of the State of New York be reduced to a written and systematic code and that there be a revision of the rules, practice and pleadings, forms and proceedings of the courts of record of the state. Article VI, Section 24, of the 1846 Constitution provided: “The Legislature at its first session after the adoption of this Consti¬ tution, shall provide for the appointment of three commissioners, whose duty it shall be to revise, reform, simplify, and abridge the rules and practice, pleadings, forms, and proceedings of the courts of record of tins State, and to report thereon to the Legislature, subject to their adop¬ tion and modification from time to time.” Chapter 59 of the 1847 Laws of New York (adopted April 8, 1847) was passed pursuant to the direction contained in the 1846 Constitution. This law appointed Arphaxed Loomis, Nicholas Hill, Jr., and David Graham as 238 ADD 114 DEVELOPMENT OF FIELD CODE 2391942] commissioners, styled “commissioners on practice and pleadings/’ Their duties -were to provide: for the abolition of the forms of actions and pleadings in cases at common law which were in use at that time; for a uniform course of proceeding in all cases whether legal or equitable; for the abandonment of all Latin and other foreign tongues, so far as deemed practicable, and of any form and proceeding not necessary to ascertain or preserve the rights of the parties. The term of office of these commissioners was to be until February 1, 1849. A provision was included for the filling of any vacancy should a commissioner die, be removed from office, resign, or refuse to serve. On September 20, 1847, Nicholas Hill, Jr., tendered his resignation to the legislature as a commissioner on pleading and practice. His formal resigna¬ tion1 revealed that his resignation was based upon the fact that his associates desired to abolish the whole of the then present practice and rules of pro¬ ceedings in courts of record, and to constitute a system entirely new. Mr. Hill stated that he could not co-operate with them consistently with his sense of duty “in recommending a change so purely experimental, so sudden and general, and at the same time so perilous as [he believed] it to be.” He went on to say that he felt that the true mode of accomplishing the objects for which the Commission was designed, as he interpreted the language and in¬ tent of Article VI, Section 24, of the 1846 New York State Constitution, was not to destroy the then present system of practice and pleadings but to subject it to a free and thorough, though discriminating, process of revision and amendment and to retain such parts of it as experience had proved to be really useful, rejecting or reforming the rest. On September 29, 1847, David Dudley Field, of New York City, was appointed by joint resolution of the legislature a commissioner on practice and pleadings in place of Nicholas Hill, Jr„resigned.2 Professor Oliver L. McCaskill, now of the College of Law of the Univer¬ sity of Illinois, has made the following interesting suggestions to the writers: “The problem as to why Nicholas Hill, Jr. resigned may lead readers to the question, did David Dudley Field have a different concept of the problem from Hill, and did the new commissioners go ahead and do what Hill said Loomis and Graham wanted to do? The answer to this question necessarily involves interpretation, and interpretation which there has been controversy. You may want to keep dear of some over con- resignation js contained in_1847 N. Y. ASSEMBLY JOURNAL at p. *The joint resolution effeding the appointment is found in volume 2 of the 1847LAWS OF NEW Yosts at p. 744. 1482, ADD 115 [Vol.27CORNELL LAW QUARTERLY240 troversial interpretation, or you may want to note the fact that there is difference of opinion as to whether the code of 1848 was a revolution in practice and pleadings, or whether it was practically what Hill said he wanted. “Sec. 62 of the first report, abolishing the distinctions between the actions, and between actions and suits, and establishing one form of civil action, looks revolutionary, but put section 143 right beside it, and give effect to both, and you have only a slight modification in your law rules as to remedies which may be joined in one suit, with no provi¬ sion for union of what were forme posedly, one of the great defects was the inability to join claims of diverse natures between the same parties. At common law any number of claims falling under one form of action could be joined. Enlarge the scope of the form of action and you enlarged the number of claims which could be joined. ■ assumpsit are beautiful examples of the breadth of single action. Supposedly, a single form of action should reach out and take in every known form of remedy, and not only,provide a single uniform pro¬ cedure for all, but permit all to be joined in one suit. Section 143 effec¬ tually prevented this, and set up partitions within the single form of ac¬ tion not unlike the partitions which existed before. Not by any stretch of the imagination can sec. 143 include any equitable remedy. Secs. 97- 99 apply the equity rules cm joinder of parties, supposedly to all types of claims, but they can have no application to cases where there is but one plaintiff and one defendant They probably provide adequately for all joinders in equity cases, and do not subject the commissioners to the cri¬ ticism aimed at them by Comstock, J., in N. Y. & N. H. R. R. Co. v. Schuyler, 17 N. Y. 592, but they do not bridge the gap between legal and equitable remedies. There was no attempt to do this. The com¬ plete report was made December 31, 1849. The counterclaim section of the complete report contained a clause: ‘The defendant may set forth by answer as many defenses and counterclaims as he may have, whether they be such as have been heretofore denominated legal or equitable or They must each be separately stated’. By amendment of the code in 1852, this counterclaim section of the final report was adopted, and immediately after it came an amendment of section 143, expressly pro¬ viding for a joinder of legal and equitable remedies in one suit, under the limitations there prescribed. (See Laws of N. Y. 1852, p. 655, of which I think you should make specific mention. This was an important step in code procedure. It also caused a lot of confusion and debate). Ejectment, replevin, and other ‘special proceedings', kept some remedies out of the one form of civil action almost from the beginning, and the number of these grew in later years. “The one form of civil action, with or without the attending concept of abolishing distinctions between actions and suits, and between the forms of actions at law, was a co-ordinating ideal, easy to grasp and accept as an ideal. It was a welcome contrast to a rigid adherence to common riy legal and equitable remedies. Sup- of the many actions and suits system Case and forms of both. ADD 116 DEVELOPMENT OF FIELD CODE 2411942] traditionalism. But, to be effective, it was necessary to be geared as a control over machinery with many diversified functions. It could not remain an elusive ideal with as many hidden meanings and conflicting authorities as a modem New Deal administrative board, and accomplish anything more than such hoards. In these early days of code procedure ' ' with great ideals. Some wished to feel their way wished to cast tradition to the winds. Compromises men were carefully, were inevitable, and it is always difficult to chart the course of a compro¬ mise. The first report of the Commissioners, though it laid down the framework of the new reform, was never intended to be a completed work. It was a beginning, which was to be polished by a later full report, the result more study and perspective. But by the time the full report was ready, an immunity had already been built up against the curative effects of this new deal idealism, ana most of the full report was ‘placed on file’. With only a sketchy framework with which to proceed, the ability of judges and lawyers to guide themselves by one fixed star to be given a trial. They had always wanted signs in the shape of prece¬ dents and forms. They had been materialistic, accustomed to be led by the hand. Were they capable of surviving in a spiritual world, guided only by a balanced rationalism pointing to a star none too bright? This was the challenge. It is for history to record whether the challenge has been met.” was The New York Assembly passed a resolution September 18, 1847, directing that the Commissioners on Practice and Pleadings report “the progress, if any, made in the discharge of their duty, and at what time they will probably be able’ to report the result of their doings for the consideration of the Legislature.” On Septemher 25, 1847, the Commissioners on Practice and Pleadings submitted a progress report to the Assembly in answer to the resolution of the Assembly. This report is Assembly Document No. 202, dated September • 25, 1847, and has 17 pages. The commissioners reorganized upon the appointment of David Dudley Field to their membership and went to work in earnest On February 29, 1848, the commissionera reported to the New York Legislature its first in¬ stalment of the Code of Procedure. This report was printed at Albany, New York, in 1848, by Charles Van Benthuysen, Public Printer, and is known the First Report of the Commissioners on Practice and Pleadings— Code ofProcedure. It contains 275 pages plus a page of errata and amendments, plus amendments dated March 31, 1848, and 31 single pages, plus a Supple¬ ment to the Code of Procedure known as Temporary Act in 20 pages, re¬ lating to the determination of existing suits. The New York legislature on April 12, 1848, enacted, with very little as ADD 117 242 CORNELL LAW QUARTERLY [Vol.27 change, the Code of Procedure. This is Chapter 379 of the 1848 Laws of New York, passed at the 71st session of the legislature. It went into effect July 1, 1848, and constituted the practice act of the State of New York for nearly thirty years. This is known as the "Field Code.” Amendments to the Code of Procedure were passed at the next session of the legislature on April 11, 1849, and are contained in Chapter 439 of the 1849 Laws of New York, 72nd session of the legislature. It was, however, but an instalment of the whole work which was contemplated, and the remainder of the work of the Commissioners of Practice and Pleadings was reported from time to time in additional reports as follows: Second Report (dated January 29, 1848) of the Commissioners on Practice and Pleadings— Code of Procedure. Printed in Albany, New York in 1849,by Weed, Parsons & Co., Public Printers. Pp. 48. The New York Senate by resolution of January 11, 1849, requested the commissioners to inform the Senate how soon and to what extent they would be able to make a report of their proceedings to the legislature and whether more time would be required to complete their work. The commissioners made a progress report, dated January 13, 1849, which was printed as 1849 New York Senate Document No. 6. Third Report (dated January 30, 1849) of the Commissioners on Practice and Headings— Code of Procedure. Printed in Albany, New York, 1849,by Weed, Parsons & Co., Public Printers. Pp. 144. Fourth Report (dated January 30, 1849) Code of Criminal Procedure. Pp. bod, 263. On December 31, 1849, the Commissioners on Practice and Headings sub¬ mitted to the New York legislature their complete and final reports of a Code of Civil Procedure and of a Code of Criminal Procedure, together with two special accounts in connection with them. These are found in the 1850 New York Assembly documents as follows:—Code of Civil Procedure (dated December 31, 1849) Final Report Pub- * lished in Albany, 1850, by Weed, Parsons & Co., Public Printers. Pp. xcvi, 791. 1850 New York Assembly Document No. 16. Dissent of David Graham, one of the Commissioners on Practice and Pleadings, from certain portions of the Code of Civil Procedure as was re¬ ported complete by the Commissioners, December 31, 1849. Published in Albany, 1850, by Weed, Parsons & Co., Public Printers. Pp. 24. 1850 New York Assembly Document No. 17. Code of Criminal Procedure (dated December 31, 1849) Final Report Published in Albany, 1850, by Weed, Parsons & Co., Public Printers. Pp. liii, 486. 1850 New York Assembly Document No. 18. ADD 118 DEVELOPMENT OF FIELD CODE1942] Drafts of two special acts, which were reported in connection with the Codes of Civil and Criminal Procedure by the Commissioners on Practice and Readings, are found in 1850 Assembly Document No. 19, dated January 2,1850. These were: 1. An act to create a city judge in the city of New York. 2. An act to repeal certain portions of the revised and other statutes. The only part of the work of the Commissioners on Practice and Readings which was accepted by the New York legislature was the Code of Procedure, known as the “Field Code," which was adopted by the legislature in Chapter 379 of the 1848 New York Laws, and amended in Chapter 139 of 1849 New York Laws. As mentioned above, this code of procedure constituted the New York practice act for nearly three decades. 243 II. NEW YORK STATE COMMISSIONERS OF THE CODE 1847-1865 The 1846 New York State Constitution, which had established the New York Commissioners of Practice and Pleadings, also made a provision for the establishing of the New York Commissioners of the Code. Article I, Section 17, of the 1846 Constitution provided: “Such parts of the common law, and of the acts of the Legislature of the colony of New York, as together did form the law of the said colony, on the nineteenth day of April, one thousand seven hundred and seventy- five, and the resolutions of the Congress of the said colony, and of the Convention of the State of New York, in force on the twentieth day of April, one thousand seven hundred and seventy seven, which have not since expired, or been repealed or altered; and such acts of the Legisla¬ ture,of this state as are now in force, shall be and continue the law of this state, subject to such alterations as the Legislature shall make con¬ cerning the same. But all such parts of the common law, and such of the said acts, or parts thereof, as are repugnant to this Constitution, are hereby abrogated ; and the Legislature, at its first session after the adop¬ tion of this Constitution, shall appoint three commissioners, whose duty it shall be to reduce into a written and systematic code the whole body of the law of this state, or so much and such parts thereof as to the said commissioners shall seem practicable and expedient. And the said commissioners shall specify such alterations and amendments therein as they shall deem proper, and they shall at all times make reports of their proceedings to the Legislature, when called upon to do so; and the Legis¬ lature shall pass laws regulating the tenure of office, the filling of va¬ cancies therein, and the compensation of the said commissioners; and shall also provide for the publication of the said code, prior to its being presented to the Legislature for adoption.” ADD 119 [VoL 27 Chapter 59 of the 1847 Laws of New York (adopted April 8, 1847) was passed pursuant to the direction contained in the 1846 New York State Con¬ stitution. Section 1 of Chapter 59 appointed Reuben H. Walworth, Alvah Worden, and John A. Collier as commissioners, styled "commissioners of the code.” Their duties were set forth in Article I, Section 17 of the Constitu¬ tion, as set forth above. The term of office for these commissioners was two years from the passage of this act By Chapter 289 of the Laws of 1847, Anthony L. Robertson was appointed as commissioner of the code in place of Reuben H. Walworth, who declined to serve. Seth C. Hawley -was appointed a commissioner in place of John A. Collier resigned.3 The term of office of the first commissioners of the code having expired, the 1849 Laws of New York, Chapter 312, appointed John C. Spencer, Alvah Worden, and Seth C. Hawley as commissioners of the code to perform the duties specified in the seventeenth section of Article I of the 1846 New York State Constitution. Their term of office was two years from the passage of this act, which was April 8, 1849. In 1850, the sections of the Laws of 1849 which had continued the commis¬ sioners of the code were repealed.* In 1855, an attempt was made in the New York Senate to recreate the office of the commissioners of the code to enable them to complete their work. A vote was taken on April 11, 1855, and the bill did not pass. In 1857, David Dudley Field, William Curtiss Noyes, and Alexander W. Bradford, were appointed commissioners to prepare a civil code, as was re¬ quired under the seventeenth section of Article I of the 1846 Constitution.5 This law required these commissioners to reduce into a written and system¬ atic code the whole body of the law of the State of New York, or so much and such parts of it as should seem practicable and expedient, excepting such portions of the law as had already been reported upon by the commissioners of practice and pleadings, or were embraced within the scope of their reports. The commissioners were required to divide their work into three portions: one containing the political code, another the civil code, and a third the penal code. The political code was to embrace the laws respecting the government of the state, its civil polity, the functions of its public officers, and the political rights and duties of its citizens; the civil code must embrace the laws of personal rights and relations of property, and of obligations; the penal code must define all the crimes for which persons can be punished and tile punish- 244 CORNELL LAW QUARTERLY 3The concurrent resolution of the 1848 legislature which effected the Hawley appoint¬ ment is found at pp. 579-580 of the 1848 LAWS OP NEW YORK. *1850 LAWS OP NEW YORK, C. 281. April 10, 1850. *1857 LAWS OP NEW YORX, C. 266, p. 62. ADD 120 1942] DEVELOPMENT OF FIELD CODE 24S ment for the same. No portion of eithter of the codes should embrace the courts of justice* the functions or duties of judicial officers, or any provisions concerning actions or special proceedings, civil or criminal, or the law of evi¬ dence. The term of office for these commissioners was five years, and they were to receive no compensation. The commissioners were required to re¬ port to the legislature at the next annual session a general analysis of the codes projected by them, and the progress made by them therein, and at each succeeding annual session the progress made to that time. In 1862, the term of office of the commissioners of the code was extended to April 1, 1865« The General Analysis, their first report, was reported to the New York Legislature in 1858, but was never printed due to the fact that the New York Senate failed to concur on a resolution passed by the Assembly. The following reports were published: March 10, 1859 April 10, 1860 March 30, 1861 Political code, 1st draft Albany, Weed, Par¬ sons. Pp. xlviii, 389. Political code, reported complete. Albany, Weed, Parsons, 1860. Pp. xlvii, 607. Book of forms. Albany, Weed, Parsons, 1865,1867. Pp. 272. Draft of civil code which relates to the estates of deceased persons. Albany, Weed, Parsons. xviii, 166. Code, 1st draft. Albany, Weed, Parsons, 1862. Pp. x, 412, ci. Penal Code, 1st draft Albany, Weed, Par¬ sons, 1864. Pp. Iv, 285. Penal Code, reported complete. Albany, Weed, Parsons, 1865. Pp. Ixiv, 406, dxvii. Civil Code, reported complete. Albany, Weed, Parsons. Pp. cxii, 776. 1861 ftApril 5, 1862 April 2, 1864 February 13, 1865 February 13, 1865 »1862 LAWS or NEW YORK, C. 460, p. 859. ADD 121 Temporary Commission on the Courts, Second Preliminary Report of the Advisory Committee on Practice and Procedure, 1958 N.Y. Legis. Doc. No. 13 (ADD 122 - ADD 131) ;||**ieUtive Document (1958) No. U STATE OF NEW YORK■ i 1958 REPORT of the TEMPORARY COMMISSION ON THE COURTS to THE GOVERNOR and THE LEGISLATURE of the STATE OF NEW YORK *: 9 II f SECOND PRELIMINARY IfEPORT of the ADVISORY COMMITTEE ON PRACTICE AND PROCEDURE f ■ ; l t l , i i- i February 15, 1958 LIBRARY OF THF NEW YORK LAW INSTITUTE 120 BROADWAY ADD 122i 1 if .'unit M .'(V.M'ATU K DKAK'P hr- tunnntt'uet’tl within (pi iparx of It r I tu j first mlitbit la i tijtirrr it . hut such n prrsoti iHut within Ihr t,n ‘pars ,icJ.nawl- atrH's tins, hulthh'dtir.xs in n wifupi xii/ned hit him. ur innkcx a pmininil of some port of llin uhunnit hf Ihr jndi/mcnl must ha ; i'/ia 'fnU&mu# ■tUdioiuf ■■ m tut U« llit; in au;/ CIJIIII muttl pirrhiKthtt irrnifiid it tin action, ffijiiinst : /. .1 iv action ftii' nthirh tin limit,wax' itff law. Notes Hi is provision is adapted from rsi?eti< - period, somall nnyr referred 1ft a§ aapt'licahlf rt» .viloh <<>!’ NotesNotes Tilts sididivision is adapted iiuin sections 4+ and 4"» ol' the civ; pVitefiet* act.. The sod ion hast liven repast in the form of a statute «( limitation nilhor than a presumption. This makes unnecessary Ilf final .M'titencc of section 44. S'(‘V(;t'ai substantive rlmriires ftrp made. The present t\v«nty-y >1 .N fi!) ‘ÿnil i < lied upon, in rruilil with i t iisdwtdt diinii m i kn «. i. ihicuvercd them. Noies 1 ins provision is derived from subdivision S of section 4S of tin- <•» »i |iniotii-o ach which embodies ,i six vcar period, / t . Actions lo lir commenced within three year*; for iipit-paytnenl of money eollecletl on executions for penally created hy statute: attains! director or stockholder of moneyed corporation or lunik- in ft association: hy cor jioralioii for wastes to recover chattels for injury lo property; for per- sonal injury; for violation of right of privacy; to annul a marriage on the ground of fraud. VKo foUou'hit) net ions must In commenced wilkin ihrcfi nears: t. Alt action against a, sheriff., ronnn r. constable, nr other officer far tin itaii-pmim* el iif urnnr a collectnl upon fin ■ xciruluii’. iNoies This provision is text willy the sumo ns subdivision 1 of section r» of the civil practice net. 2. JM action 1a n earer upon a liahililij. penalU) nr forfeiture crnitnl or imposed hi/ stnhtUi f.rrrpt nk prodded in sections »44? a"'1 '<-io: Nolen This provision is derived from solid i vision '1 of section 4S of the ■ - 1 v i I practice net. which proscribes a six-year period; subdivision 3 ADD 126 i $ ! ■*;: :;:i.I f NEW YORK STATUTES OF LIMITATION : :ÿ ! i f I } 1 I :: i. [4ÿ8] ! ADD 127: I I I SurroRTiNO STUDIES532 Comment Section 47-b was added in 1950,119 effective April 18, 1950, after a study made by the Law Revision Commission on the request of the Comptroller of the state of New York.120 The purpose of ths station was to make a twenty-year period (formerly governing actions on sealed instruments) applicable to bonds of the type# defined. No change is recommended. Section 48. Actions to be commenced within six years. The following actions must be commenced within six years after the cause of .action has accrued: 1. An action upon a contract obligation or liability- express or implied, except a judgment and except as provided by sec* tion forty-seven and section forty-seven-a. . f 2. An action to recover upon « liability created by statntÿf except a penalty or forfeiture. 3. An action to recover damages for a personal injury, eneak in a case, where a different period is expressly prescribed this article. *„•' 4. An action to recover a chattel. 5. An action to procure a judgment on the ground of fraud. 2 Tlio cause of action in such a case is not deemed to have accrued until the discovery by the plaintiff, or the person under whose he claims, of the facts constituting the fraud. R. An action to establish a will. Where the will has bt»«J| , lost, concealed or destroyed, the cause of action is not deemed? to have accrued until the discovery by the plaintiff or t#§| person under whom he claims of the facts upon which Mg ' validity depends. 7. An action upon a judgment rendered in a court not of f record, except where such judgment shall have been docketed .* in a county clerk’s office of this state upon a transcript filed* therein pursuant to law. The cause of action in such a CBM lt'| deemed to have accrued when final judgment was rendered.* Jyl 3. An action, legal or equitable, by or on behalf of a corpOT®*,| tion against a director, officer nr stockholder, or a fonaM|| director, officer or stockholder, if such action is for an aceou»t#| tug, or to procure judgment on the ground of fraud, or «9 recover a penalty or forfeiture imposed or to enforce a liabttMgM created by common law or by statute unless such action iftOtCS | i I i1li; it 4 M: •V.Y. Laws iar.0, c. T3-i. N.Y. Law Rev. (’omiu'n Rep. IDS (1050). Until 1941 prescribed a twcuty-year period on sealed instruments. The Comp***) pointed out some unexpected results of the 1941 statutory reductic* M six year period. Considerable amounts of bonded indebtedness of th* id and of its municipalities were outstanding and more were to be issued) neighboring state* sueli instruments (as sealed instrumental were governed a twenty-year period. If the governing period were six years there migtt difficulty in marketing the securities. After study of flic prohlem til* i Revision Commission recommended the enactment of section 47 b. s *1 ADD 128 533STATUTES OP LIMITATION- 0 recover damages for waste or for an injury to property or fer an accounting in connection therewith in which ease such K&ion shall be subject to the provisions of subdivision seven of||tion forty-nine, ' ■ Comment. jftlon 48 provides for a six-year period Of limitation in eight 1» of actious. In the main, section 48 was derived from section if the Code of Civil Procedure, This in turn was derived In juice from section 91 of the Field Code of 1848. The Code till Procedure and the Field Code similarly provided for a six- period in the cases enumerated in the Subdivisions of this |line with the general approach made in this study, it is sug- •d that the present six-year period be reduced to a five-year Od. This is a comparatively small reduction, and a good caseIf be made in favor of a more substantial reduction, Suhdivi- H2 of section 48 (action to recover upon a liability created by pel, should be transposed to section 49, prescribing a three- j period.1*1 Many of the cases involving liability created by gte give rise to tort claims and it is therefore desirable (the applicable period shall be that of the more common types |rt claims specified in section 49. Subdivision 3 of section 48 jes a six-year period applicable to an action to reeover damages a personal injury, except in the case where a different period spressly prescribed in the article on limitations. Negligence ims, however, are governed by a three-year statute under section I). It is suggested that these provisions be consolidated under Tee-year period, except as otherwise provided in the article on tations.122 See comment on section 49. abdivision 4 of section 48, making a six-year period applie- jh to an action to reeover a chattel, should also be trans- !d to section 49, thereby making the action subject to a three- I period of limitation. The result of the transposition would o make a three-year period applicable to both an action to recover lattel and an action to reeover damages for injury to property. re is little justification for the present disparity in the applicable Subdivision 5 affects an action to procure a judgment on the Bund of fraud. The section provides that in such a case the p«e of action is not deemed to have accrued until the discoverypthe frand. It is suggested that the section be amended to cover »t merely actions for fraud but also actions on the ground of •For application ot the six-year period uries based on liability created by Transp. Co.. 270 BT.Y. 267, 200 N.E. 824 (1930). English Limitation Act, 1939, prescribed a six-year period in respect ‘personal injury actions. The period was reduced to three years in 1954 •respect to actions for damages tor negligence, nuisance, or breach of duty. jnilntion Act, 1939, 2 4 3 Qeo. 0, c. 21, as amended by the Law Reform St, 1954, 2 & 3 Elix. 2, c. 30, §2. in an action to recover for per* statute, see Schmidt v. Merchants The ADD 129 SUPPORTING STUDIES534 mistake. In both instances it is intended that the cause of actioa t shall be deemed to have accrued on discovery. Subdivision 6, concerning au action to establish a will, is sound) and no suggestion for its amendment is made. Subdivision 7 of section 48 prescribes a six-year period it- respect to an action upon a judgment rendered in a court not of record, except where such judgment is docketed in a county clerk*! office upon a transcript filed therein. As noted in the comment on section 44, it is suggested that actions upon a judgment, whether rendered in a court of record or not of record shall be subject to a ten-year period of limitation. The suggested amendment respecting dnration of a judgment would make the provision of subdivision 7 unnecessary. It is suggested that subdivision 8 be amended by adding thereto- provisions indicating the accrual date of actions brought on ih» ground of fraud or to recover a penalty or forfeiture or to enfohe* a liability.123 In each instance the accrual date should be discovery date. This accords with the general limitation in respetl to actions for fraud 124 and with the specific provision of subdirisitt 4 of section 49 respecting actions against directors of a money** corporation. It is further suggested that the provision of subdivision 8 *f section 48 affecting an action to recover damages for waste or fit* injury to property, with the cross-reference to subdivisions section 49, be deleted. The reference is needless and the three>j||tj statute should spell out the types of action specifically. .SAVJ'Section 49. Actions to be commenced within three ] The following actions must be commenced within three y*g| after the cause of action has accrued: 1. An action against a sheriff, coroner, constable or officer for the non-payment of money collected upon, execution. 2. An action against a constable upon any other li incurred by him by doing au act in his official capacity* of fc) the omission of an official duty; except an escape. 3. An action upon a statute for a penalty or forfeiture wkH the action is given to the person aggrieved or to that pens and the people of the state, except where the statute import* it prescribes a different limitation. 4. An action against a director or stockholder of a money* corporation, or banking association, to recover a penalty!_jj ,a For consideration of this uspeet of lhe statutes of limitation, me Mij Law Rev. Comm'n Rep. 143, 140 (1042). The Law Revision Comtntwfj 9 <1943>J1I urn. L. Rev, li <*-.y proposals were not adopted. N.Y. Law Rev. Comm’n Rep. Praahker, New York Practice 38 (3d ed. 1054) ; Note, 58 Col (1050). ‘“In Myer v. Myer, 2T1 App. Div. 405, 475-70, 0« N.Y.3.2d 83, wr Dep’t 104«), ajf'd, 200 N.Y. 970, 73 N.F,.2d 502 (1947), the court stated': the accrual date in an action on fraud under subdivision 8 is determtai the discovery date. .m ADD 130 STATUTES OP LIMITATIOK m h wholly or partly to anyperson who will prosecute for the same f must be commenced within one year after the commission of |t the offense, and if the action is not commenced within the year # by a private person, it may be commenced within two yearst thereafter in behalf of the people of the state by the attorncy-; general or the district attorney of the county where the offense was committed. ...! a: I lBt8. fc!Be alternative one- or two-year provisions prescribed in the «tion appearsound and no suggestion for amendment is here made.I Section 88. Limitation where none specially prescribed.P An action, the limitation of which is not specifically prescribed l.. m this article, must be commenced within tea years after the|; camie of action accrues. pBection 58 provides fora residuary limitation period of ten years after the cause of action accrues.140 The prevision is generally applicable to equity actions where no period is expressly prescribed. Where a party has a choice of two remedies— one at lair, and the Per in equity— and the legal remedy is complete and adequate,Sere is legal and not equitable jurisdiction and the law periodGf limitation governs. Where there is no remedy at law or such pmedy is inadequate, the patty hap an equity action and the mtduary period would be applicable absent s particular provision. Be criteria by which the courts determine the nature, availability, Sr adequacy of remedies for the purpose of implementation of the appropriate period of limitation ana not always clearly defined. f It is suggested that the residuary ten-year period be reduced torfive-year period. The present ten-year period seems unnecessarily bng. Governing residuary periods in other jurisdictions are from ;wo to ten years.141 **Section 53 1» derived without change in whetaiu* twinMe oil C3va Prooednre. This la tern *•» halved In tt section 38S of the tion of this eectlou, 10«, 2C6 mm1 >1 i il c u to wan i i ton «7 of the Field Code of 1848. Par farther eonaideral it Camody-Wait, Cyelapedi* of Sew York Practice, 98,28« {« £ ffif iui>VArS&ei srsil fc *)*.)S0 (1*83) (10 years); S.C. Coda has. 1722 (1942) (8 year*) ; U Sut. Ann. 137-21.1 "(Sapp. 1988) (6 yam); Kim. Gen. fttal. Ann. -900 (1949) (8yearn); Mont. Bov. Code. Ann. §93-2013 (1947) (S yaara) , a. Stat. Ana. til 18, »98 (Bnpp. 195« ) (5 yoar#) ; Col. Coda Civ. Proe. (Sup, 1988) (4 ream}; To*. Ray- 01*; Stat. Ann. art. 3ft«8 (Sapp. (4 yaara) j Cola Sev. Stat. Ana. »87-1-8 (1968) (8 years) y Wash. Rev. 4.18430 (1986) (Byaara).S’, ADD 131