Court Opinion

ID: 5751463
Source: CourtListenerOpinion
Date Created: 2022-01-12 16:57:57.158829+00
Date Added: 2024-06-11T08:41:13.394561
License: Public Domain

Valente, J. (dissenting).
I dissent and would reverse the judgment herein—obtained in a proceeding brought pursuant to subdivision 12 of section 63 of the Executive Law — enjoining appellants from engaging in certain allegedly fraudulent practices in the direct sale of home-cleaning units in the State. I would order a new trial on the ground that the evidence does not sustain the judgment.
The petition of the Attorney-General, in seeking an injunction, charges the individual and corporate respondents with fraudulent practices in the use of a so-called referral plan in the sale of vacuum cleaners to the public. Under such referral plan, also denominated as the “ Owner Recommendation Program ”, the purchaser of the Compact unit agrees with the seller to give the seller leads to other persons, and in consideration the purchaser receives a fee to be applied as a credit to the contract price of the purchased article. If the purchaser arranges an appointment for a salesman to demonstrate the product to another person and the demonstration results in a sale, the purchaser receives a credit of $25 from the company. In some instances the customers are offered $12.50 for arranging four demonstrations even if no sale results. The referral plan is used by the manufacturer of the product as a substitute for conventional advertising. Apparently, no statute or case law prohibits the use of the referral method. The instant case is predicated upon fraudulent practices in the methods used in operating the plan.
In support of his case, the Attorney-General called some 30 to 35 purchasers to testify as to the acts of fraud employed by salesmen in inducing purchase contracts. In summary, the deceptive practices included misrepresentations that the purchase contracts were revocable, misrepresentations as to the nature of the conditional sales contracts that were signed, and the gaining of admission into the homes of prospective purchasers by offering $5 for the demonstration of an undisclosed article.
Since the judgment is directed against all of the respondents, there must initially be some identification of the spheres of their activities in order properly to assess the weight of the evidence against them. Compact Associates, Inc., a New Jersey corporation, which has a distributor’s franchise to sell the vacuum *135cleaners in the metropolitan New York area, was not named as a respondent in this proceeding. This New Jersey corporation purchases the vacuum cleaners from a California corporation, and sells them to respondents Compact Associates, Inc., a New York corporation (hereinafter “ Compact Associates”), Compact Island, Inc., Compact Nassau, Inc., Compact Hempstead, Inc., and Richmond Agency, Inc. Appellant, Capital Discount Corp., is a finance company in New Jersey, which factors the conditional sales contracts resulting from the sales of units by the other appellant companies. Hyman Sindelman and Nathan Eisenberg own and operate Capital Discount Corp. and are also officers and stockholders of Compact Associates. Appellant Lokos is connected with Compact Nassau and Compact Hempstead; and appellant Chavis is a salesman.
Appellants called no witnesses at the trial. Appellant, Eisenberg, however, was called as a witness by the Attorney-General, and he gave testimony as to the make up and relationship of the various corporate respondents.
In aid of his case, the Attorney-General offered the testimony of Robert Bechtol, a representative of the Better Business Bureau. He testified that the bureau had received less than 100 complaints over a period of years relating to the sale of Compact units. He further testified that the complaints were called to the attention of the various Compact companies who replied to them; and that he, Bechtol, had met with Eisenberg and Sindelman to discuss the complaints and to see what could be done to prevent abuses. It was Bechtol’s testimony that these meetings were generally followed by desirable results, but that the problems would arise again at some later time. According to Bechtol, respondents Eisenberg and Sindelman stressed their inability to control the activities of some salesmen, and also that certain salesmen were discharged following complaints.
Finally, the Attorney-General called one Danger, a member of the New York Bar, to give testimony as to his experience as the attorney for Compact Associates and Compact Island in connection with the collection of claims upon default of purchasers.
The sweeping injunction ordered herein was granted pursuant to the provisions of article 5 (§ 63, subd. 12) of the Executive Law. That section permits the Attorney-General to apply for an injunction enjoining “ the continuance of such business activity or of any fraudulent or illegal acts ” whenever it appears that any person is engaged “ in repeated fraudulent or illegal acts ” or otherwise demonstrates “ persistent fraud or illegality in the carrying on, conducting or transaction of *136business The gravamen of this section is the element of “ persistent ” fraud. Isolated, single acts of fraud are not subject to correction under this statute.
However, it is well established that where a charge of fraud is made it must be established by clear and convincing proof. (Manchel v. Kasdan, 286 App. Div. 483, 484, affd. 1 N Y 2d 734; 24 N. Y. Jur., Fraud and Deceit, § 284.) Fraud will not be presumed, it must be proven by a fair preponderance of the credible evidence. (Chemical Corn. Exch. Bank v. Wassung, 8 A D 2d 788, affd. 7 N Y 2d 337.) Where the charge is “ persistent ” fraud, the burden of establishing the fraud is not diminished.
As I analyze the testimony in this case, it appears that the most the Attorney-General has established is that an inference may be drawn that there is a likelihood that fraud was practiced in some of the sales of the Compact outfits. A likelihood or surmise, however, is no substitute for a compelling inference that defendants engaged in ‘‘persistent” fraud.
As to respondent Capital Discount, the theory upon which it has been enjoined is that it ivas knowingly purchasing conditional sales contracts procured by fraud. Its knowledge is inferred from the fact that Eisenberg and Sindelman were its officers. But the evidence does not establish the predicate of that inference, i.e., that either Sindelman or Eisenberg made or procured any fraudulent sales, or transferred any contract to Capital Discount with knowledge that it was procured by fraud. Further proof is necessary if Capital Discount is to be enjoined.
There is testimony that salesmen in certain instances did promise, cajole and even misrepresent in order to make a sale. But such evidence did not lead to the necessary conclusion that the conduct demonstrated ‘ ‘ persistent fraud or illegality in the carrying on, conducting or transaction of business ”, nor did it prove that such conduct was countenanced or induced by the respondents, Eisenberg and Sindelman.
Moreover, although respondent Compact Associates has also been enjoined by the judgment herein, the record fails to disclose a single conditional sales contract which was executed by that company. Nor did any of the witnesses testify that he bought from that firm. The testimony of the witness Eisenberg was to the effect that the subdistributor appellants were separate and distinct entities hiring their own salesmen. There was no evidence introduced to contradict this assertion. Consequently, there is no basis for ignoring the separate corporate entities.
*137Similarly, no pattern of fraud was proven against Compact Hempstead—(evidence of one sale)—or against Compact Nassau— (evidence of three sales). As to the appellant, Harry Lotos, the testimony was that he was the president of Compact Nassau and was connected with Compact Hempstead; but there is no evidence indicating that he had any knowledge of the circumstances of the few sales complained of. As to Richmond Agency, which did business in Staten Island, there is no evidence of any sale by that firm. Moreover, that company went out of business before the trial. As to appellant Chavis, a salesman, there was proof of only one sale by him.
There was, however, testimony as to an appreciable number of alleged fraudulent sales by salesmen of Compact Island, Inc. That evidence might just be enough to support the injunction against Compact Island. Since, in my opinion, there must be a remand for a new trial as to all the other appellants, the new trial should also include Compact Island, Inc. The findings made by the trial court do not distinguish the respondents and give no reliable guidance as to conclusions as to the responsibility of the various parties. It is impossible to tell just what weight the trier of the facts gave to the testimony regarding Compact Island.
Moreover, the entire evidence as to complaints must be considered in the light of the uncontradicted testimony of Eisenberg that Compact Associates sold between 15,000 to 20,000 Compact units since 1956 and that 4,000 units were sold in 1963. The comparatively small incidence of complaints as against the large volume of business is not indicative of wholesale fraud; particularly since the representative of the Better Business Bureau testified as to the co-operation given by Eisenberg and Sindelman when complaints were brought to their attention.
Upon the foregoing analysis of the testimony, it is apparent that the record does not support the findings by the trial court or the judgment entered thereon. The palpable insufficiency of the evidence as to all respondents except Compact Island, Inc. requires that there be, at least, a new trial.
Rabin, McNally and Steuer, JJ., concur in Per Curiam-, Valente, J., dissents in opinion in which Breitel, J. P., concurs.
Judgment modified by dismissing the complaint against Capital Discount Corp., and striking the third, fourth, fifth, and sixth ordering paragraphs. Findings of fact are not approved and new findings substituted. Judgment as so modified affirmed, without costs. Settle order on notice.