Opinion
87783
06-08-2020
CATHY YOUNG FOR SENATE and Louis J. Proto as the Treasurer of Cathy Young for Senate, Plaintiffs, v. NEW YORK STATE SENATE REPUBLICAN CAMPAIGN COMMITTEE and Dwight Evans, as the Treasurer of the New York State Senate Republican Campaign Committee, Defendants.
James R. Peluso, Esq., Dreyer Boyajian LLP, Attorneys for the Plaintiffs Jeffrey T. Buley, Esq., James Curran, Esq., Attorneys for the Defendants
James R. Peluso, Esq., Dreyer Boyajian LLP, Attorneys for the Plaintiffs
Jeffrey T. Buley, Esq., James Curran, Esq., Attorneys for the Defendants
Dennis E. Ward, J.
In this plenary action, the Plaintiff political committee, Cathy Young for Senate (hereinafter, "CYFS") and the treasurer of such committee, Louis J. Proto, seek a judgment for a sum of money that remains owing on a loan they claim was made to the Defendant committee. The Defendants are the New York State Senate Republican Campaign Committee (hereinafter, "SRCC") and the treasurer of said committee, J. Dwight Evans.
On or about October 30, 2014 during the campaign leading up to the 2014 general election, when all members of the New York State Senate were on the general election ballot, the sum of $150,000 was paid by CYFS to SRCC. On all relevant campaign finance reports, filed with the New York State Board of Elections (hereinafter, "SBOE") by both committees, as required by Article 14 of the New York State Election Law, such sum and payments made were always denominated as a loan and then as loan repayments.
After the 2014 general election, for which the funds were to be used for campaign purposes, SRCC made a payment to CYFS in the amount of $25,000, on or about March 13, 2015. Again, on or about April 29, 2015, SRCC paid an additional sum of $25,000 to CYFS. Both such payments were reported as loan repayments made (by SRCC) and as loan repayments received (by CYFS), in each committee's subsequently filed campaign finance reports. Since that time, no further payments from SRCC have been received by CYFS.
In this action, CYFS now seeks to recover the sum of $100,000 from SRCC, characterizing it as the remaining principal balance on the $150,000 loan made in October 2014. SRCC contends that either the funds were a contribution and that nothing is owed to CYFS, or that such a loan has since been converted to a contribution by operation of law. Alternatively, SRCC argues that there are at least questions of fact to be determined as to the actual nature of the transaction, because Senator Young was a principal on both sides of the transaction.
CYFS now moves for summary judgment on the $100,000 balance remaining on the loan. SRCC opposes such relief based upon the argument that outstanding questions of fact exist which preclude such relief at this time.
Argument of Plaintiff CYFS
CYFS relies upon the history of campaign finance filings with the New York State Board of Elections (hereinafter, "SBOE"), by both committees, as required by Election Law, Article 14. CYFS cites numerous examples of the acknowledgment by SRCC of the existence of the "loan", from its own filings with the Board, including:
1. the 27 day post-general report in 2014;
2. the January, 2015 (semi-annual) periodic report;
3. the July, 2015 (semi-annual) periodic report;
4. all subsequent filings with the SBOE through January, 2019, which likewise reported the $100,000 as the remaining balance on the October, 2014 loan of $150,000.
Similarly, CYFS consistently filed its own required campaign finance reports with the SBOE with each filing reporting the continuing existence of the October 2014 $150,000 loan. Later, the two $25,000 payments received were included as "loan repayments" received in March and April 2015. Thereafter, each required campaign finance report filed with the SBOE continued to include the remaining balance of $100,000 owed by the Defendant SRCC, as a loan.
CYFS claims that it also made other separate political contributions (not part of the $150,000) to the SRCC from 2007 through 2018. Those were always recorded differently in filings by CYFS and SRCC and were never listed as loans.
CYFS contends that this was a common practice of members of the Senate Republican caucus — i.e. a member's campaign committee contributing certain amounts and then loaning additional amounts to SRCC. Reference was made to similar actions by then State Senator (and Majority Leader) Dean Skelos and his own individual political committee. Plaintiff also notes that full repayment was made on the Skelos loan to SRCC, which was also made in October 2014, contemporaneously with the CYFS transaction that is at issue here.
Argument of Defendant SRCC
The Defendants do not dispute the contents of the actual campaign finance filings of both committees through the 2019 Periodic Report filed in January 2019.
However, the Defendants present several bases for the denial of the requested summary judgment:
1. that by operation of law, under Election Law § 14-114(6)(a), the failure to repay a loan before the passage of the general election converts any such loan made before the election into a contribution.
2. that the subject "loan" was not really a loan but was intended to be a contribution (or at least a loan that was not meant to be repaid).
3. that there is no written instrument memorializing the transaction as a loan, thus rendering it unenforceable under the statute of frauds.
4. that as a political committee authorized solely to support the candidacy of (then) Senator Cathy Young, such committee lacked the lawful capacity to contract with SRCC while Senator Young was the chair of SRCC.
5. that even if there had been a contract entered into between the two committees, because of the unique position of trust and confidence that Senator Young held in both committees, that any such contract is void and unenforceable.
1. Operation of Election Law § 14-114(6)(a) :
Election Law § 14-114 outlines the rules of limitations on contributions by political committees as well as by individual contributors. Election Law § 14-114(6) addresses the issue of loans being made to a candidate or an authorized political committee. Being in the campaign contribution section, the statute's obvious intent is to prevent a loan from being used by a contributor to circumvent the limitation on the amount of contributions to a candidate.
That section simply provides that if such a loan has not been repaid as of the date of election where the candidate is on the ballot, the loan "shall be deemed , to the extent not repaid, a contribution (emphasis added)" from either the lender or the guarantor. The intent of that section of the statute is to prevent a would-be contributor from disguising a contribution that exceeds the permitted amount by simply calling it a loan.
The Defendant SRCC would have such a provision terminate by operation of law a contractual obligation for the repayment of a loan by the candidate or committee receiving the funds. There is nothing in the statute from which one could infer that the legislature meant to impair the right to contract by extinguishing the obligation to be repaid for any person or entity lending such funds for campaign purposes, if it could even do so constitutionally (19th Street Assoc. v. State of New York , 79 NY2d 434 [1992] ).
This section was simply meant to be an element of limiting the amount of funds that can be received from one person or entity. The State Board of Elections' Campaign Finance Handbook, based upon its 1977 opinion (State Board of Elections 1977 Opinion No.10) , restates this proposition, recognizing it as a continuing obligation to be repaid as long as a balance on the loan remains.
For these reasons, the court rejects the Defendants' position that any legal contractual obligation for the repayment of a loan is abrogated by the passage of the election, under the provision of Election Law § 14-114(6)(a).
2. Claim That Loan Was Not Intended to be Paid Back:
An alternative theory advanced by SRCC is that even if the transaction were characterized as a loan, it nonetheless was never meant to be repaid. This theory would have the court allow a type of fraud on the voters. To accept this explanation would be to allow SRCC to benefit from a misrepresentation in sworn campaign finance filings with the SBOE at the expense of the voting public having been given incorrect information. Moreover, there is nothing in the record that gives any support to this theory other than the bare assertion made in litigation.
3. Statute of Frauds Issue :
Defendant also argues that because there was no memorialization in writing of the alleged contract to loan SRCC $150,000, such a loan would be in violation of the statute of frauds, as incorporated into General Obligation Law § 5-701 and therefore unenforceable. Here, since the repayment could have been made by the SRCC within one year, the statute of frauds is not applicable ( Cron v. Hargro Fabrics , 91 NY2d 362 [1998] ). Further, because the parties' agreement was partially performed, there is likewise no bar to its enforcement under statute of frauds ( Matter of Design Concepts Ltd. v. Walsh , 293 AD2d 605 [2nd Dept. 2002] ).
As for when payment on such a loan is due, if the agreement contains no specified time for repayment, the loan is payable upon demand ( ABKCO Music and Records, Inc. , 90 AD3d 402 [1st Dept. 2011], relying upon Bradford, Eldred & Cuba R.R. Co v. New York, Lake Erie & W.R.R. Co. , 123 NY 316, 326-327 [1890] ; Stein v. Anderson , 123 AD3d 1322 [3rd Dept. 2014] ).
4. Capacity of CYFS to Loan SRCC Money
SRCC also argues that as a political committee authorized only to support one candidate — here, Senator Young — that the lending of funds to SRCC is prohibited. This argument is a novel one for which this court is unable to find any guidance in the Election Law, the rules and regulations governing election matters (9 NYCRR, Parts 6200 — 6218), or in any case law.
The use of funds in a political committee's treasury is governed by the provisions of Election Law § 14-130, generally. The statute includes the general requirement that such funds "may be expended for any lawful purpose". The balance of that section focuses on the primary concern that funds raised as campaign funds should not be expended directly for the personal benefit of a candidate or the candidate's family or in any way to inure to their benefit, either directly or indirectly.
Political committees for various candidates routinely expend funds by contributions to other candidates' committees. This may include expenditures on behalf of other candidates, joint expenditures for campaign advertisement or literature or simply the purchase of tickets to a fundraiser. Unquestionably, these expenditures need to be reported as required generally by Election Law, Article 14 and applicable rules and regulations and are subject to limitations provided therein. There is, however, no explicit prohibition on any type of committee loaning money to another committee (be it a constituted, party or political committee).
The law contemplates the movement of funds between such committees, whether they are deemed contributions under Election Law § 14-100(9) or transfers under Election Law § 14-100(10). More recently, it even permits the disbursement of such funds to any of the committee types in the event of the death of a candidate (see , Election Law § 14-132[1][e] ).
There may be good public policy arguments to support prohibiting such contributions or loans from one candidate's authorized committee to another committee, rather than simply subjecting them to any applicable contribution limitation. However, such a prohibition is not one that the court can read into the existing law. The practice of one committee helping to fund another committee, whether they be political, constituted or party committees, is an accepted part of our electoral system.
If a political committee can contribute or transfer funds to another committee such as SRCC, it cannot be said that CYFS could not legally loan money to SRCC. In the absence of any specific statutory prohibition, the court must reject the claim of SRCC that CYFS lacked the capacity to loan funds to SRCC.
5. SRCC Decision Making
The complaint alleges that SRCC is a "constituted party committee". The Defendant correctly pleads that SRCC is not a "constituted committee" as defined in Election Law § 14-100 meaning a committee comprised of duly elected state or county committee members ( Election Law § 2-102, § 2-104 and § 2-106 ).
The Defendant properly responds that SRCC is a "party" committee as defined in Election Law § 14-100(2), with its reference to Election Law § 2-100 ( Shollenberger v. Malara , 30 Misc 3d 1239(A) [Supreme Court, Westchester County, 2008] ).
Election Law § 2-100 provides that a "party" committee includes:
1. the state committee comprised of elected committee members;
2. county committee (comprised of elected county committee members, and
3. such other committees as the party rules (as required by § 2-114) may provide.
(It should be noted that Election Law, Article 2, lumps together as "party committees" what Article 14 provides for separately as "constituted" and "party" committees. The discussion of the rationale for this distinction is not germane to the issues before this court).
Because the rules of the state committee of the New York State Republican Party provide for the existence of SRCC, it has been an accepted fact of political life that such a "committee", separate from the state party's constituted committee, has "party" committee status for purposes of campaign finance matters under Article 14. The same Republican Party rules provide for a similar committee for the Assembly. The state committee rules of the New York State Democratic Party likewise provide for such "party" campaign committees for both the Senate and the Assembly.
In campaign finance circles, this is a highly important status, since a party committee (as well as a constituted committee) is generally exempt from the campaign contribution limits imposed by Article 14 on candidates and their political committees. Election Law § 14-100(10) follows § 14-100(9) and defines the term "transfer" as the exchange of funds between a candidate (or the candidate's authorized political committee) and either a party or a constituted committee, and thus exempt from the definition of a "contribution". (See also , Election Law § 14-114[1] and [3] ). Here, because SRCC claims "party" committee status, the flow of funds between CYFS and SRCC is defined as a "transfer" and will not be deemed a "contribution" for limitation purposes, even with the trigger mechanism for a loan unpaid by election day.
This discussion as it relates to contribution limitation is not particularly germane to the issues before this court. However, the issue of the control of funds in such a committee's account is central to SRCC's theory that the $150,000 transaction here was improperly authorized. Of the two types of committees vested with the somewhat unlimited ability to fund candidates' campaigns, the constituted committees (the state and county committees) have elected members, elected officers and rules by which they govern themselves. (See, generally , Election Law, Article 2).
The decision-making authority for such committees is outlined in the party rules which govern the conduct of the elected officers. Party members not satisfied with spending procedures can resort to legal enforcement of the party rules (Matter of Casey v. Nuttall , 62 Misc 2d 386 [Sup. Ct., Rensselaer Co. 1970] ; Davis v. Sullivan County Democratic Comm. , 43 NY2d 964 [1978] ; Cullinan v. Ahern , 212 AD2d 103 [4th Dept.1995] ).
Moreover, any committee members or enrolled party voters who may be dissatisfied with how the committee is functioning have the ultimate authority to elect new committee members, approve different party rules and/or elect new party officers charged with following those party rules as well as the requirements of Article 14. This can all be done at the statutorily required election and biennial re-organization of such constituted committees, as provided for in Election Law, Article 2.
However, for these other "party" committees such as SRCC, the decision-making process is vague as is the actual identity of the individual(s) who are making the decisions to raise and expend money or to incur loan indebtedness.
Contrasting for a moment the standard candidate political committee (such as CYFS), the issue of who makes the decisions for expending funds in political committees is also vague. Practically speaking, candidates have a large say, but so do campaign managers, staff and even the treasurers. As with SRCC, there are generally no rules of operation for such a party committee and no identifiable committee officers with clearly defined legal authority.
At least with a candidate's political committee, however, there is the committee's identifiable candidate who has some public accountability and is generally aware of its actions or lack thereof. As a practical matter, such as with CYFS here, the decision and ultimate responsibility for decision-making and actions of the committee, will be with the candidate. (See, e.g. , Election Law, § 14-127 ). But most importantly, such committees are not vested with the shield of unlimited "transfers" of funds.
SRCC, as a special "party" committee, is not a committee with elected members or rules. A real question arises about what individuals are charged with oversight or who, if dissatisfied with a decision, have any legal recourse. Without any rules to enforce by mandamus under CPLR Article 78, and it being unclear who would have standing to compel Article 14 compliance under Election Law § 16-114, there appears to be a legal black hole, with no standards to enforce and probably no one authorized to do so anyway.
What the court is faced with in this case is the examination of the decision-making of a committee exempted from the general legal limitations on receipts and expenditures, with no legal definition of who has authority to make decisions, no requirement for rules that define its decision-making procedure, and no standard by which to judge those decisions.
There are no documents before the court nor were any filed with the SBOE that have the name of Senator Young on them in any official capacity. The affidavit of longtime SRCC staff member Judith Crane states that on August 5, 2013, Senator Young replaced State Senator Tom Libous, as "campaign chair" of the SRCC. There is no explanation of any formal procedure by which she assumed that position nor what formal legal authority that vested in her.
Interestingly, political committees and constituted committees of political parties have been held to be unincorporated associations. They are subject to court enforcement of their organizational rules. Whether a party committee such as SRCC is such an association is unclear, given the difficulty of identifying its members.
This court is unaware of any case law where the issue of the existence, decision-making authority or the liability of such a "party" committee, as SRCC claims is its status, has been addressed. Most decisional law has dealt with constituted or political committees.
SRCC argues that there is an ethical question based upon Senator Young being a principal exercising operational control on both ends of the transaction and which thereby raises questions of self-dealing. SRCC further contends that since the filing of the campaign finance reports detailing the transaction as a loan were done by SRCC's staff at Senator Young's direction, that somehow supports this theory.
An individual being a principal in both entities that are parties to a contract is commonplace in the commercial world. Transactions between an individual and another entity (such as a corporation, an LLC or an LLP), or between two of such entities, in which he/she may be a principal, are everyday occurrences. Without some other basis for a claim of impropriety, such a relationship in no way requires an ipso facto determination of impropriety.
Moreover, the court is not persuaded that the campaign chair of SRCC is the sole decider on the committee's accepting funds, electing to incur a loan obligation, or deciding which candidates' campaigns get how much funding. Indeed, political history and reality tells us that the majority (or minority) leader is likely the strongest voice on such a committee's decision. It is also likely that other state senators from the political party's caucus or staff members have significant input, as well.
As pointed out by CYFS, then-majority leader, Senator Dean Skelos, likewise "loaned" $150,000 to SRCC from his own political committee at the same time. That loan was paid back to the Skelos political committee in full, after having also been characterized in SRCC filings with the SBOE as a loan, as was the subject transaction with CYFS. There is nothing in the record that proves which individual(s), whether Senator Young or others, actually made the decision for SRCC to accept the $150,000, as either a contribution, a loan, or a loan not contemplated to be repaid.
The court is well aware of the political realities in state legislative campaigns of the high stakes game of spreading campaign funds across certain marginal or winnable legislative seats. The practice of accepting funds from political committees of those legislators deemed to be in "safe" seats and spreading it over more competitive district races is a practice common to both major political parties.
The fact is that such practice may obscure the real sources of funds used to support candidates through the use of such "party" committees. It also creates a gaping hole in the supposed limits on campaign contributions to individual legislative candidates (see , Election Law § 14-114 [1][b] and 9 NYCRR 6214).
But no statute gives this court any guidance as to who makes the decisions, who may object to those decisions and under what mechanism any such complaint could be made. The argument of SRCC would ask this court or a finder of fact to assume the authority to judge such political decision-making, for which there is no basis in law.
6. Estoppel
The court must address the question of the effect of the filings by SRCC with the SBOE. Immediately after the funds were received from CYFS, SRCC reported the transaction as a loan. Thereafter, it was so reported in all of SRCC's semi-annual (January and July) periodic reports filed from January 2015 through January 2019, as well as the 32-day pre-election filing and the 27-day post-election filing for the 2014 general election. The SRCC has consistently filed its statutorily required finance reports with the SBOE with an acknowledgment of the original amount of $150,000 as a loan from CYFS. Likewise, the two payments of $25,000 in 2015 were also denominated as loan repayments. The Defendant SRCC, or other interested parties who might have standing, are all well beyond the four-month statute of limitations to seek court assistance to compel the correction of such filings as provided by statute, if it felt that such filings were incorrect or incomplete ( Election Law § 16-114 ; Cullinan , 212 AD2d at 103.
This Court is unaware of any case law directly on point as to the binding effect of a prior representation made in a campaign finance report filed with the SBOE. The facts of this case require an analysis which is at least similar to the doctrine of judicial estoppel, otherwise known as "estoppel against an inconsistent position". That doctrine generally prohibits a party from asserting a position inconsistent with a position taken in a prior judicial proceeding (see generally , Secured Equities Invs. v. McFarland , 300 AD2d 1137 [4th Dept. 2002] [and cases cited therein] ); Matter of Costantino , 67 AD3d 1412 [4th Dept. 2009] ; Lorenzo v. Kahn , 100 AD3d 1480 [4th Dept. 2012] ).
It has been held that such estoppel against inconsistent positions applies also to prior administrative proceedings ( Missry v. Ehlich , 1 Misc 3d 723 (City Court of the City of NY, 2003) ; Matter of Bothwell v. Bernstein , 64 Misc 3d 1202(A) (Supreme Court, Cattaraugus County 2019).
Estoppel has also been applied in the context of a prior representation made in a grievance procedure under a public employment collective bargaining agreement ( Matter of Peck v. Board of Educ. of City of Buffalo , 66 AD2d 1005 [4th Dept. 1978] ).
In the present case, SRCC's contrary position to its present assertion that the $150,000 was not a loan, was not taken in a "prior judicial proceeding". Instead, the SRCC made such representations in sworn campaign finance reports filed with a state agency (the SBOE).
The concept of estoppel against a prior inconsistent position has been extended to representations made in filed federal and state income tax returns. ( Mahoney-Buntzman v. Buntzman , 12 NY3d 415, 422 (2009) ; Matter of Elmezzi , 124 AD3d 886 [2nd Dept. 2015] ).
Similarly, when information has been provided in documents filed with the State Department of Taxation and Finance, "tax estoppel" was held to preclude taking an inconsistent position in subsequent litigation ( Amalfi, Inc. v. 428 Co., Inc. , 153 AD3d 1610 [4th Dept. 2017] ).
Estoppel has also been applied based upon sworn statements submitted to the office of the State Attorney General in support of an application for the approval of a development project under the Martin Act ( Whiteman, Osterman & Hanna, LLP v. Preserve Assoc., LLC , 63 Misc 3d 585 [Sup. Ct. Albany County 2019] ).
The present case may arguably be closer to the doctrine of equitable estoppel, where other parties have relied upon the prior representation made, thereby precluding the inconsistent position in subsequent litigation ( Montefiore Med. Ctr. v. Crest Plaza, LLC , 24 Misc 3d 1201(A), affd , 83 AD3d 1016 [2nd Dept. 2011] ); see also , a discussion of "quasi-estoppel", in New York Tile Wholesale Corp. v. Thomas Fatato Reality Corp. 35 Misc 3d 1206(A) [Supreme Court, Kings Co. 2012], affd , 115 AD3d 829 [2nd Dept. 2014] ).
There could be no higher level of reliance than by the voting public in assessing the source and destination of campaign funds used to elect public officials as represented in the publicly available campaign finance reports. For sound public policy reasons, a litigant should not be able to assert a position contrary to a previous declaration made by a sworn filing with the SBOE, a governmental agency ( Mahoney-Buntzman , 12 NY3d at 422 ).
SRCC places considerable importance on the fact that only CYFS filed the "evidence of indebtedness" with the SBOE. The filing letter was from the treasurer of the CYFS political committee and stated that CYFS had made a "non-interest baring [sic] loan to SRCC in the amount of $150,000". Although the letter was undated, it was time stamped and received by the SBOE on July 7, 2015. SRCC notes that it was really only Senator Young's political committee that filed proof of the claimed indebtedness with the SBOE and that SRCC never actually did.
While perhaps nine months late, the CYFS treasurer (likely at the request of the SBOE for compliance with this often-ignored requirement of filing) did provide some "evidence of indebtedness" in compliance with Election Law § 14-102(1). While it may be sparse in its content, apparently the SBOE accepted it as being substantially in compliance. The filing met at least the basic requirement of Article 14 which is to provide information to the public on the source of campaign funds used in elections. To the extent that anyone (including SRCC) was dissatisfied with such filing over four years ago, apparently no effort was made to compel more complete compliance (See, e.g. , Election Law § 16-114 ).
The position taken by SRCC as to prior decision-making could leave open to question any transaction made by such an amorphous party committee after a leadership change. In the case of SRCC, a newly elected majority (or minority) leader or designated campaign chair could disavow any obligations incurred by the committee previously, claiming they were not properly authorized by the former leadership. Such a holding could jeopardize all those who have any business or financial relationships with such a party committee (See, e.g. , Xerox Corp v. Rinfret , 153 Misc 2d 310 ).
So long as SRCC remains the type of committee that has no committee rules and no clear definition of formal decision-making authority or leadership structure, it cannot be heard to say that prior decisions were made improperly. Any imposition of rules requiring more formality in such a party committee's decision making, is a function for the state legislature to address by statute or perhaps for the committee to address itself by implementing a set of rules of procedure for itself.
Under SRCC's non-existent formal organization and chain of command with no rules governing its decision-making, it cannot be said that the decisions supposedly made by Senator Young in her role as the campaign chair of SRCC were in any way improper or self-dealing. The filings of SRCC and CYFS with the SBOE stand on their own to support the proposition that the $150,000 payment was a loan.
For those reasons, this court holds that SRCC is estopped from characterizing the subject $150,000 transaction as a contribution rather than as a loan requiring repayment.
Conclusion:
CYFS has presented admissible evidence of the existence of a loan, along with evidence of at least partial repayment. When a party presents admissible evidence, which establishes a prima facie case of a loan, the opposing party must present some countervailing factual evidence. The Defendants have not done so.
If the opposing party does not present evidence to create a question of fact, the moving party is generally entitled to summary judgment ( Zuckerman v. City of New York , 49 NY2d 557 [1980] ; Alvarez v. Prospect Hosp. , 68 NY2d 320 [1986] ; ABKCO , 90 AD3d at 402 ).
There are no genuine issues of fact as to the existence of a loan from CYFS to SRCC, with a remaining principal balance of $100,000 due and owing upon the demand made by CYFS. The Plaintiffs' motion for summary judgment against the Defendants is, therefore, granted. The Plaintiff shall submit an order upon notice.