Cross appeals from a judgment of the Supreme Court, New York County (Edward H. Lehner, J.), entered May 4, 2007, dismissing respondent's counterclaim for penalties as against petitioner Kenneth Brennan, and granting the petition to the extent of annulling certain individual violations and the penalties imposed therefor.
The opinion of the court was delivered by: Saxe, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Peter Tom, J.P., David B. Saxe, Milton L. Williams, James M. Catterson and Karla Moskowitz, JJ.
This article 78 proceeding raises the issue of whether penalties may be properly assessed by respondent New York City Campaign Finance Board against a candidate and the campaign treasurer as well as the campaign committee itself for various violations of the New York City campaign finance laws. Supreme Court held that penalties for certain violations could properly be imposed on the campaign committee only and that penalties for other violations could be imposed on the candidate as well, but that the treasurer could be liable for penalties only if he personally engaged in the rule violations. We disagree and, for the reasons that follow, reverse and reinstate in its entirety the determination of respondent Board.
A candidate, having chosen to participate in New York City's campaign finance program, must agree to abide by the program's requirements under the New York City Campaign Finance Act (Administrative Code of City of NY § 3-701 et seq.) and the rules enacted by the Campaign Finance Board pursuant to the Act (Rules of City of NY [52 RCNY] § 1-01 et seq.), which include filing obligations and limitations on spending and contributions. Having opted to participate, a candidate must comply with all the program's requirements even if the candidate ultimately fails to qualify for or accept public funds under the program (Administrative Code of City of NY § 3-703).
On March 26, 2001, petitioner Pedro Espada, Jr. opted to participate in the New York City campaign finance program as a candidate for Bronx Borough President in the 2001 elections. He submitted the required candidate certification form designating Espada 2001 as his principal committee and petitioner Kenneth Brennan as treasurer of the committee. In the certification, both Espada and Brennan acknowledged that they understood that "failure to abide by the requirements of the Act or Rules may result in the imposition of such penalties as are provided in Section 3-711 of the Act and other applicable law or rules," and that the candidate, the treasurer and the principal committee "may be jointly and severally liable for the repayment of public funds and/or civil penalties pursuant to Sections 3-710 and 3-711 of the Act." The Espada campaign applied formally for matching funds on July 31, 2001 by submitting a disclosure statement.
The Campaign Finance Board conducted a pre-election audit of the Espada 2001 campaign and found indications of a number of campaign finance law violations. Among these were: (1) A large number of individual contributions received by the campaign were from employees of Soundview Health Care Network, a not-for-profit corporation owned and operated by petitioner Espada; the Board asked for documentation establishing that these contributions were made out of the employees' personal funds and the employees received no reimbursement from Soundview. (2) Expenses related to a van covered with campaign posters for Espada had not been reported in petitioners' statements. (3) Expenses relating to a purported newsletter entitled "The Bronx-New York Tribune," which was owned by the candidate and appeared to amount to campaign literature, were not documented in petitioners' submissions. (4) Expenditures for joint campaign activities featuring both Espada and his son, an incumbent City Council member running for re-election, such as the use of a poster and flyer supporting both candidates, were not addressed in petitioners' submissions to the Board.
On August 16, 2001, the Board voted provisionally to deny the campaign $173,000 in matching funds. It directed the campaign to provide additional information and documentation responsive to the above-cited concerns. After a hearing on August 30, 2001, the Board concluded that the campaign's "undisclosed use of corporate contributions and repeated failures to provide full disclosure" reflected a lack of compliance, and payment of matching funds was denied*fn1. Espada lost the 2001 primary election.
On June 9, 2003, the Board issued a draft report of its post-election audit, setting forth a number of problems, including the committee's acceptance of excess aggregate contributions from the candidate in a variety of forms, including loans that were not repaid and in-kind contributions from entities controlled by the candidate, and information that employees of Soundview, a business owned by the candidate, who were reported to have made cash campaign contributions, had been reimbursed by their employer for their purported contributions.
Before the Board proceeded with the remaining steps in issuing the final audit report, a criminal prosecution was brought, on January 16, 2004, against a number of Soundview employees, some of whom had official roles in the campaign, charging a scheme to defraud as well as grand larceny. Ultimately, three Soundview senior managers pleaded guilty to the scheme to defraud stemming from Soundview's use, for the benefit of the campaign, of governmental funds that Soundview had received for its WIC and HIV programs; a fourth Soundview manager pleaded guilty to grand larceny in the third degree. In addition, two other Soundview ...