The gist of the Attorney General's action was that Messrs. Greenberg and Smith had participated in causing AIG to enter into a sham transaction with General Reinsurance Corporation (“GenRe”) in which AIG purported to reinsure GenRe on certain insurance contracts. The complaint asserted that the transaction transferred no real risk from GenRe to AIG and, therefore, should not have been treated as an insurance transaction on AIG's books and that the transaction's sole purpose was to increase the insurance reserves shown on AIG's financial statements, thereby creating the impression of a healthy insurance business and bolstering AIG's stock price. The transaction was the subject of a federal criminal case in which Messrs. Greenberg and Smith were identified as alleged coconspirators but were not defendants (see, United States v. Ferguson, 676 F.3d 260 (2d Cir. 2011)).

In 2013, in People v. Greenberg, 21 N.Y.3d 439 (2013), the New York Court of Appeals rejected the defendants' argument “that no basis exist[ed] for granting equitable relief . . . [because] all such relief that could possibly be awarded has already been obtained in litigation brought by the Securities and Exchange Commission (SEC), which [the defendants] settled in 2009.”

In addition, the defendants had requested in that appeal that the New York Court of Appeals determine, as a matter of law, that equitable relief was unavailable in this case under the Martin Act. Specifically, the defendants had argued that the Attorney General had no “ability to ask for disgorgement” because there had been no “illegal gain[],” and the state could not demonstrate “some danger of continuing violation,” the showing the defendants asserted was necessary to obtain injunctive relief under the Act.

The Court said then that it could not say as a matter of law “that no equitable relief may be awarded” and it concluded that it was necessary for the lower courts to determine, in the first instance, whether the injunction sought by the Attorney General – a lifetime ban on the defendants' participation in the securities industry and service as an officer or director of a public company – “would be a justifiable exercise of a court's discretion.”

The Court also concluded that the “availability” of any other equitable relief sought by the Attorney General – i.e., disgorgement – initially had to be decided by the lower courts.

One month later, the defendants again moved for summary judgment dismissing the complaint against them. The defendants primarily argued that the equitable relief sought was not warranted on the facts of this case; disgorgement was not an authorized remedy under the Martin Act or Executive Law § 63(12); and disgorgement was preempted by federal law.

The trial court rejected those arguments and denied the defendants' motion, and an intermediate appellate court affirmed.

The dispute again reached the New York Court of Appeals.

The Court of Appeals Decision

The Court affirmed, again holding that the Attorney General's claims against Messrs. Greenberg and Smith properly withstood summary judgment and, therefore, should proceed to trial.

In its decision, the court first concluded that the Attorney General could obtain permanent injunctive relief under the Martin Act and Executive Law § 63(12) upon a showing of a reasonable likelihood of a continuing violation based on the totality of the circumstances.

“This is not a 'run of the mill' action for an injunction, but rather one authorized by remedial legislation, brought by the Attorney General on behalf of the People of the State and for the purposes of preventing fraud and defeating exploitation,” the Court said, adding that the standards “of the public interest not the requirements of private litigation measure the propriety and need for injunctive relief.” Therefore, the Court rejected the defendants' argument that the Attorney General had to show irreparable harm to obtain a permanent injunction. It added that questions of fact existed regarding the propriety of the permanent injunctive relief sought, which precluded summary judgment.

The Court next concluded that disgorgement was an available remedy under the Martin Act and the Executive Law. It observed that the Martin Act contains a “broad, residual relief clause,” providing courts with the authority, in any action brought under the Act, to “grant such other and further relief as may be proper” (General Business Law § 353-a) – and it declared that courts are not limited to the remedies specified under either of these statutes.

Disgorgement, the Court said, “merely requires the return of wrongfully obtained profits [and] does not result in any actual economic penalty.” Therefore, it stated, in an “appropriate case,” disgorgement may be an available “equitable remedy distinct from restitution” under New York's anti-fraud legislation.

Next, the Court rejected the contention that relief was barred under the Supremacy Clause or that it was waived by the Attorney General.

Finally, the Court said that, as with the Attorney General's claim for an injunction, issues of fact existed that prevented it from concluding, as a matter of law, that disgorgement was unwarranted.

The case is People of State of New York v. Greenberg, No. 90 (N.Y. June 2, 2016). Attorneys involved include: David Boies, for appellant Greenberg; Vincent A. Sama, for appellant Smith; Barbara D. Underwood, for respondent; AARP; North American Securities Administrators Association, Inc.; Chamber of Commerce of the United States of America et al., amici curiae.