Opinion
25280/10.
Decided January 18, 2011.
The attorneys for Plaintiff are Guy H. Mitchell, Harlem Regional Office, Assistant Attorney General in charge.
Attn on record for plaintiff is David Scott, Esq., for Plaintiff Roberto G. Lebron, Assistant Attorney General of Counsel.
This is a special proceeding brought by the Attorney General of the State of New York for a judgment, inter alia, permanently enjoining the respondents from violating General Business Law §§ 349 and 350. The respondents did not oppose the petition brought by the Attorney General.
From December, 1987 through February, 2009, respondent Gagnon Bus Company, Inc. provided school bus transportation services to students attending Bronx High School of Science, Hunter College High School, and Lehman College High School of American Studies. From December 1995 through February, 2009, respondent Bronx Science Bus Service, Inc. and respondent Hunter Express Bus Service, Inc. also provided school bus transportation services to students attending those three high schools. All three companies (collectively referred to herein as the Gagnon companies) had their principal place of business at 20-39 129th Street, College Point, New York. Respondent Thomas Guida, who served as the President of the Gagnon Bus Company, managed the daily operations of the Gagnon companies in addition to the daily operations of respondent Bronx Science Express, Inc., a corporation which he organized to provide school bus transportation to students attending the three aforementioned high schools.
The respondent bus companies advertised extensively through pamphlets and flyers and through the website www.bronxsciencebus.com. The respondent bus companies made representations concerning the use of new school buses and the provision of "safe, injury-free, reliable, and affordable transportation for Queen's students." Although the respondents made these representations, respondent Bronx Science Express had encountered financial difficulties, and the respondent bus companies had experienced vandalism and mechanical problems. Although marketing materials represented that fees would be used to purchase new buses for the 2009-2010 school year, the respondents used these funds to pay business expenses of the prior year. The students received poor service when buses broke down.
The respondent bus companies contracted to provide school bus transportation service for approximately 500 students during the 2008-2009 and 2009-2010 school years. The respondent bus companies entered into standard contracts with each of their customers promising "to provide school bus service, unless otherwise stated, on all days of official school attendance" to and from each school for the entire school year.
The respondent bus companies usually charged over $ 2,000 per student, and they collected "up front" fees totaling approximately $1,056,565 for transportation services the respondents promised to provide for the 2008-2009 and 2009-2010 school years. The respondent bus companies offered discounts if consumers registered and paid a required up front fee early for the following school year, and, thus, by late 2008, they had collected fees for both the 2008-2009 and 2009-2010 school years. However, the respondent bus companies discontinued services in February, 2009 without providing refunds.
On February 15, 2009, the respondents sent customers whose children attended Hunter College High School a notice informing them of a discontinuance of service. The respondents also sent customers whose children used the services of respondent Bronx Science Bus Service a notice of discontinuance because the company's bus fleet had been "victimized by arsonists." However, the New York City Fire Department discovered that fire had destroyed only seven of approximately fifteen to twenty school buses. The respondents broke promises of refunds made to their customers, and the Office of the Attorney General received 269 complaints from consumers who had paid respondents to transport their children to school. The respondents closed their office, disconnected their telephone, and did not respond to consumers who contacted them.
The standards applied to the determination of a motion for summary judgment are applicable to special proceedings. ( See, CPLR 409[b]; Port of New York Authority v 62 Cortlandt St. Realty Co., 18 NY2d 250; Karr v Black , 55 AD3d 82 ; People ex rel. Spitzer v Applied Card Systems, Inc., 27 AD3d 104; Mega Personal Lines Inc. v Halton, 297 AD2d 428.) "A summary judgment motion should not be granted merely because the party against whom judgment is sought failed to submit papers in opposition to the motion ***." ( Liberty Taxi Management, Inc. v Gincherman , 32 AD3d 276 , 277; Vermont Teddy Bear Co., Inc. v 1-800 Beargram Co., 373 F3d 241.) Thus, even though the respondents did not submit opposition to the petition brought by the Attorney General, the court must still determine if he has established a prima facie cause of action. ( See, Vermont Teddy Bear Co., Inc. v 1-800 Beargram Co., supra.) Moreover, as with a motion for summary judgment, the respondents had no duty to submit evidentiary proof in opposition unless and until the petitioner first carried his burden of showing an entitlement to judgment. ( See, Roman v Hudson Telegraph Associates, 15 AD3d 227.)
Executive Law § 63, "General Duties," provides in relevant part: "The attorney general shall: *** 12. Whenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business, the attorney general may apply, in the name of the people of the state of New York, to the supreme court of the state of New York, on notice of five days, for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts, [and] directing restitution and damages ***." ( See, State v Princess Prestige Co., Inc., 42 NY2d 104; State v Fashion Place Associates, 224 AD2d 280; New York v Feldman, 210 F Supp 2d 294.) "Executive Law § 63 (12) *** provides a right of action to petitioner where a person engages in repeated fraudulent or illegal acts or otherwise demonstrates persistent fraud or illegality in the carrying on of business ***." ( State v Ford Motor Co., 136 AD2d 154, 158, affd, 74 NY2d 495.) Insofar as repeated conduct is concerned, the Attorney General need only demonstrate that the respondent committed a number of separate and distinct fraudulent or illegal acts which affect more than one individual. ( See, Executive Law § 63; State of New York v Wolowitz, 96 AD2d 47.) In the case at bar, the Attorney General demonstrated that he has a prima facie cause of action based on Executive Law § 63(12) because of the false promises and false pretenses of the respondents concerning their ability to provide transportation services. The court notes that proof of the elements of common law fraud are not required under Executive Law § 63(12). ( See, State v Ford Motor Co., supra; Lefkowitz v. Bull Inv. Group, Inc., 46 AD2d 25.) "Under § 63(12), the test for fraud is whether the targeted act has the capacity or tendency to deceive, or creates an atmosphere conducive to fraud ***." ( People ex rel. Spitzer v General Electric Co., Inc., 302 AD2d 314; People ex rel. Spitzer v Applied Card Systems, Inc., 27 AD3d 104.)
General Business Law § 349, "Deceptive acts and practices unlawful," provides in relevant part: "(a) Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful." ( See, Meachum v Outdoor World Corp., 235 AD2d 462.) The statute is broad in scope. ( See, Karlin v IVF Am., 93 NY2d 282.) Proof of a prima facie case under General Business Law § 349 requires "a showing that defendant is engaging in an act or practice that is deceptive or misleading in a material way and that plaintiff has been injured by reason thereof * * *." ( Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 25.) "[A] claim for deceptive business practices under General Business Law § 349 or for false advertising under General Business Law § 350 requires proof of a causal connection between some injury to plaintiffs and some misrepresentation made by defendants * * *." ( Small v Lorillard Tobacco Co., 252 AD2d 1, 15, affd 94 NY2d 43.) The test for deceptive acts and practices is an objective one, i.e., whether the defendant made representations or omissions which were "likely to mislead a reasonable consumer acting reasonably under the circumstances." ( Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, supra, 26.) General Business Law § 349 contemplates actionable conduct that does not necessarily rise to the level of fraud. ( See, Gaidon v Guardian Life Ins. Co. of Am., 94 NY2d 330, 343; New York Univ. v Continental Ins. Co., 87 NY2d 308, 319). "Intent to defraud and justifiable reliance by the plaintiff are not elements of the statutory claim ***." ( Small v Lorillard Tobacco Co., Inc., 94 NY2d 43, 55; see, Stutman v Chemical Bank, 95 NY2d 24.) In the case at bar, the Attorney established a prima facie cause of action based on General Business Law § 349 by submitting proof that respondents made misrepresentations to the public concerning their ability to provide transportation services, collected fees for such transportation services, and then subsequently failed to provide them.
General Business Law § 350, "False advertising unlawful," provides: "False advertising in the conduct of any business, trade or commerce or in the furnishing of any service in this state is hereby declared unlawful." ( See, Koch v Acker, Merrall Condit Co. , 73 AD3d 661.) In order to establish a prima facie case under General Business Law § 350, "a plaintiff must demonstrate that the advertisement (1) had an impact on consumers at large, (2) was deceptive or misleading in a material way, and (3) resulted in injury ***." ( Andre Strishak Associates, P.C. v Hewlett Packard Co., 300 AD2d 608, 609.) In the case at bar, the Attorney General successfully carried this burden through the submission of proof that the respondents made false advertisements to the public concerning their ability to provide transportation services, collected fees on the promise of doing so, and then failed to provide the services.
Accordingly, that branch of the petition which seeks a judgment permanently enjoining the respondents from engaging in the fraudulent and illegal acts charged therein is granted. ( See, Executive Law § 63; General Business Law § 349[b]; State v Princess Prestige Co., Inc., supra; State v Maiorano, 189 AD2d 766.)
That branch of the petition which seeks a judgment directing the respondents to render an accounting to the Attorney General is granted. The respondents shall render their accounting in compliance with the terms to be fixed in the order to be entered hereon. ( See, People by Abrams v 21st Century Leisure Spa Intern. Ltd., 153 Misc 2d 938.)
That branch of the petition which seeks a judgment directing the respondents to pay restitution and damages is granted on the issue of liability. A hearing shall be held at a date, time, and place to be fixed in the order to be entered hereon concerning the amount of restitution and damages and concerning the possible creation of a restitution fund with provisions for identification, notification, and distribution. ( See, Executive Law § 63; General Business Law § 349[b]; State v Princess Prestige Co., Inc., supra; People ex rel. Spitzer v General Electric Co., Inc., 302 AD2d 314; State v Maiorano, supra; People by Abrams v 21st Century Leisure Spa Intern. Ltd., supra.)
That branch of the petition which seeks a judgment imposing civil penalties upon the respondents pursuant to General Business Law § 350-d is granted on the issue of liability. A hearing on the amount of the civil penalties shall be held at a date, time, and place to be fixed in the order to be entered hereon. ( See, People v Allied Marketing Group, Inc., 220 AD2d 370.)
That branch of the petition which seeks discretionary costs against the respondents pursuant to CPLR 8303(a)(6) is granted on the issue of liability. A hearing on the proper amount of discretionary costs shall be held at a date, time, and place to be fixed in the order to be entered hereon. ( See, People v Wilco Energy Corp., 284 AD2d 469.)
Submit order.