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In rejecting a foreign corporation’s assertion that the New York State Attorney General can seek damages and restitution only on behalf of injured New Yorkers, an appellate panel in Albany held last week that the interests of residents of the state were implicated when a firm operating out of Canada used a New York address to perpetuate a telemarketing scheme. The Appellate Division, 3rd Department, holding in People v. Telehublink, 92287, is a major victory for Attorney General Eliot Spitzer in that it arms his consumer frauds bureau with the legal firepower to aggressively pursue out-of-state wrongdoers. “New York has a vital interest in ‘securing an honest marketplace in which to transact business’ and this interest was threatened when Telehublink used a New York address to complete the deceptive transactions at issue here,” wrote Justice Thomas E. Mercure, quoting a 1982 Southern District federal opinion in State v. General Motors. The Southern District decision stemmed from a suit brought by then-Attorney General Robert Abrams and resulted in a ruling that the state’s interest in maintaining an “honest marketplace” provided it with parens patriae standing to pursue a claim against an auto manufacturer. The Telehublink matter was one of several actions Spitzer initiated against Canadian firms that the state accused in various civil actions of orchestrating international credit card scams. The defendants immediately questioned the attorney general’s jurisdiction and challenged his authority. Last week’s unanimous decision suggests that the long arm of the attorney general extends beyond New York’s borders. Telehublink is incorporated in Delaware, maintains its principal offices in Massachusetts and solicited customers through a telemarketing center in Montreal. Its parent company was run by entrepreneur and jewelry magnate David B. Cornstein, whom Mayor Michael R. Bloomberg just reappointed as chairman of the Off-Track Betting Corp. Cornstein, who is also chairman of the state Olympic Games Commission, has never been implicated in any way in the Telehublink scheme. Spitzer alleges that Telehublink’s telemarketers contacted prospective customers and offered them a pre-approved credit card for an advance fee of about $220. However, instead of receiving credit, customers were sent discount coupons, a merchandise catalog card and other promotional items. The attorney general went after Telehublink and obtained a permanent injunction from Albany Supreme Court Justice Joseph C. Teresi. Justice Teresi barred Telehublink from doing business with New York consumers before posting a $500,000 performance bond. He also ordered the company to “make full monetary restitution to all aggrieved consumers known and unknown,” but deferred judgment on Spitzer’s motion for civil penalties until it could be determined precisely how many consumers were due restitution. On appeal, Telehublink pointed to an affidavit by its chief executive officer asserting that the company dealt with outside telemarketers who acted independently. The company also disputed its alleged role as a “loan broker” as defined under General Obligations Law � 5-531, arguing that it did not receive an advance fee for securing credit. Justice Mercure dismissed that argument as an “unsubstantiated, self-serving assertion.” NON-RESIDENT VICTIMS But from a consumer and governmental standpoint, the major issue was whether the attorney general could seek damages, restitution and civil penalties on behalf of victims who do not live in New York. The 3rd Department said Telehublink misconstrued the intent of General Business Law and Executive Law, which empower the attorney general to take action when the interests of New Yorkers are threatened, and made clear that the attorney general’s reach is long. “Contrary to Telehublink’s argument … those statutes do not limit [the attorney general's] authority to seek relief on behalf of parties injured by conduct in New York merely because those parties are nonresidents,” Justice Mercure wrote in an opinion shared by Justices Karen K. Peters, Edward O. Spain, Robert S. Rose and John A. Lahtinen. On a related matter, the court remitted to the supreme court the question of whether Jacques Dion, general manager of Telehublink’s Canadian office, can be held liable for the company’s deceptive sales practices. The court said the attorney general has yet to establish that Dion was an officer or director, or that he was involved in the alleged fraudulent and illegal activities. Assistant Attorney General Mark D. Fleischer, who argued for the state, said the case has important implications in an era of global and electronic commerce. “We think this is a very good decision which clarifies our ability and the attorney general’s authority to obtain restitution for consumers nationwide who are victimized by consumer frauds that take place in New York State,” Fleischer said. Andrew Cove of Cove & Associates in Hollywood, Fla., appeared for Telehublink. David C. Rowley of Cooper, Erving & Savage in Albany represented Dion. Cove was not immediately available for comment.

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