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2003-3: Program Participants Are Liable for Principal Committee Repayment Obligations & Repayment Obligation Precludes Payments for Subsequent Election

Thursday, November 13, 2003

Re: Administrative Code §3-703(1)(c), 3-710(2); Campaign Finance Board Rules 1-02, 5-01(f), 5-03(c), 5-03(d), 5-03(e); Op. No. 2003-3.

The Questions Presented

The New York City Campaign Finance Board (the "Board") has determined to issue an advisory opinion on the following questions:

  1. Does an obligation to repay public funds received by a participating candidate's principal committee pursuant to the New York City Campaign Finance Act (New York City Administrative Code §3-701, et. seq.) (the "Act") extend to the candidate, or rest solely with the principal committee?

  2. If the liability extends to the candidate, does an outstanding obligation to repay public funds from a prior election cycle affect the eligibility of a candidate's principal committee for a current election to receive public funds?

Question One: Whether the Candidate is Liable for a Repayment Obligation

Administrative Code §3-710(2) provides for cases in which repayment of public funds must be made.1 It has been argued2 that only a political committee, and not the candidate, is obligated to return public funds, based upon portions of the text of Section 3-710(2) that refer only to the principal committee. While there are individual provisions that could yield this result, the Board cannot look at these provisions in a vacuum, and rejects the argument in light of the common sense interpretation of the Act to effectuate its purposes, and the Board's longstanding interpretation of the Act. This longstanding interpretation, which is entitled to deference, has been articulated, implemented, and confirmed by the Board's Rules; past practice and the language of the Board certification form to which the candidate agrees; and court decisions. All of these factors lead the Board to conclude that a candidate may be liable for public funds repayments owed to the Board.

Common Sense Interpretation of the Act to Effectuate its Purposes

The participating candidate, not the candidate's committee, is the ultimate beneficiary of the receipt of public matching funds, and it would be extraordinary to conclude that the candidate is absolved of responsibility for managing the campaign (and protecting, as necessary, against ending a campaign in debt to the taxpayers), leaving an empty shell to take responsibility for legal obligations to the City of New York.3 The proposed construction would make a mockery of the law and undermine the Campaign Finance Program, which at public expense gives benefits to candidates in return for which candidates and their committees submit themselves voluntarily to certain obligations. Indeed, to interpret §3-710(2) as applying only to the committee would frustrate the intent of the provision, because committees often are terminated following an election (but before issuance of the final audit report). To adopt this legal interpretation would perversely encourage candidates to terminate their principal committees after an election and after payment of outstanding liabilities, thereby leaving the Board with no recourse to recoup public funds upon ultimate conclusion of the post-election audit.

Longstanding Interpretation by the Board Entitled to Deference

It is black letter law that the interpretation of a statute by the agency charged with its implementation is entitled to great deference. Tommy and Tine Inc. v. Department of Consumer Affairs of the City of New York, 464 N.Y.S.2d 132 (1st Dep't 1983).

The Board's Rules. Consistent with a common sense approach, the definition of the term "participant" in Board Rule 1-02 provides, in pertinent part, that: "except as otherwise provided in these Rules, 'participant' and 'prospective participant' include the candidate, and the principal committee authorized by the candidate." Rules 5-03(c), (d), and (e) require a participant to return public funds to the Board in the event of an overpayment, failure to document qualified expenditures, and unspent campaign funds, respectively. The relevant portions of these rules have been in effect since 1991, and the term "participant" as referred to in these rules includes both the candidate and the principal committee. See also p. 5 below, "Court Decisions." Thus, pursuant to the Board's Rules, an obligation to repay public funds received by a participating candidate's principal committee extends to the candidate.

Past Practice and the Board Certification Form. To limit liability for public funds repayments from a prior election to a principal committee would be inconsistent with the Board's longstanding past practices as well as its Rules. The Board has considered the candidate, treasurer, and principal committee jointly and severally liable for any such repayment due. The Board's certification form evidences both this past practice and the undertaking made by candidates when they join the Program. Administrative Code §3-703(1)(c) provides that, to be eligible to receive public funds, candidates must, among other things, file "a written certification in such form as may be prescribed by the campaign finance board.." (Emphasis added.) The 2001 certification form required that the candidate "indicate his or her agreement to each paragraph by" placing his or her initials next to each of a list of numbered paragraphs. One such paragraph states, in pertinent part, that "I further understand that I, the principal committee I designate for the 2001 elections, and the treasurer of that 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."4 (The form requires the treasurer to indicate his or her agreement to a parallel provision by placing his or her initials next to that paragraph.) The certification form for the 1997 regular elections, February 1999 special elections, February 2001 special elections, 2001 regular elections, November 2002 special elections, February 2003 special elections, and 2003 regular elections contained similar language.

Court Decisions. Restriction of liability to the candidate's principal committee is also inconsistent with the courts' treatment of the Board's authority pursuant to Administrative Code §3-710(2). Courts in enforcement actions under the Act which the Board has litigated to judgment have held the defendants, including candidates and principal committees, among others, jointly and severally liable.5 Thus, the courts have upheld the Board's interpretation that candidates, among others, are jointly and severally liable for public funds repayment obligations (as well as penalties) from prior elections.

Question Two: Whether an Obligation to Repay Public Funds from a Prior
Election Affects Eligibility for Payment in a Subsequent Election

Rule 5-01(f) provides that:

The Board shall determine whether public funds shall not be paid to a participant for reasons that include, but are not limited to:

(3) if the participant is required to repay public funds previously received.

As discussed above, a candidate may be considered liable for a public funds repayment obligation from a prior election cycle, and the term "participant" means, first and foremost, the candidate. See also Rule 1-02. Thus, pursuant to Rule 5-01(f)(3), the Board may deny public funds payments to a candidate who owes public funds from a prior election cycle. The relevant portion of this rule has been in effect since 1992. This outcome is supported by public policy - particularly the Board mandates to protect the integrity of the Public Fund and to insure that public tax dollars are properly used - which strongly militates against providing public funds to a candidate who has not satisfied an obligation to repay public funds from a prior election.

* * *

For the foregoing reasons, the Board concludes that: (1) a candidate participating in the Program is liable for repayment obligations of the candidate's principal committee; and (2) a participating candidate's obligation to repay public funds from a previous election precludes payments to that candidate's principal committee for a subsequent election.6


1Administrative Code §3-710(2) provides that:
(a) If the board determines that any payment to the principal committee of a participating candidate from the fund was in excess of the payments which such candidate was eligible to receive.such committee shall pay to the board an amount equal to the amount of excess payments.

(b) If the board determines that any payment made to a principal committee of a participating candidate from the fund was used for purposes other than qualified campaign expenditures.such committee shall pay to the board an amount equal to such disqualified amount.

(c) If the total of contributions, other receipts, and payments from the fund received by a participating candidate and his or her principal committee exceed the total campaign expenditures of such candidate and committee.such candidate and committee shall use such excess funds to reimburse the fund for payments received.

2 This argument was recently advanced by counsel on behalf of the 2003 campaigns of Kendall Stewart and Roberto Lizardo.

3 Holding a candidate liable for the obligations of his or her principal committee may be viewed as analogous to holding principals of a corporation liable for corporate obligations by "piercing the corporate veil." In New York corporate governance jurisprudence, courts will look behind corporate limited liability if (i) the corporation owners exercise complete domination of the corporation in respect to the transaction at issue in the litigation; and (ii) such domination was used to commit fraud or wrong against the plaintiff which resulted in the plaintiff's injury. Morris v. New York State Department of Taxation and Finance, 82 N.Y.2d 135 (1993); New York Association for Retarded Children, Inc. v. Keator, 199 A.D.2d 921, 922 (3rd Dep't 1993) (quoting 13 N.Y.Jur.2d, Business Relationships, §26, at 289). Candidates plainly exercise complete authority over their political committees, which they have established and authorized. See also Walkovszky v. Carlton, 18 N.Y.2d 414 (1966); Back v. Nuro Trans. Corp., 62 A.D.2d 942 (1st Dep't 1978); Boyle v. Judy Cab Corp., 203 N.Y.S.2d 309 (S.Ct. Kings Cty., 1960). Additionally, there is a sufficient nexus between the candidate's actions and the use or misuse of funds as a public policy matter to warrant an accounting by the candidate in this instance. Thus, as when individuals are held responsible for the actions - and liabilities - of corporate entities over which they exercise domination, candidates are held responsible for the actions - and liabilities - of their authorized political committees. In a sense, as with Rome, "all roads lead to the candidate."

4Administrative Code §3-711(1) provides that "any participating candidate whose principal committee fails to file in a timely manner a statement or record required to be filed by this chapter or the rules of the board in implementation thereof or who violates any other provision of this chapter or rule promulgated thereunder, and any principal committee treasurer or any other agent of a participating candidate who commits such a violation or infraction, shall be subject to a civil penalty in an amount not in excess of ten thousand dollars."

5 See, e.g., New York City Campaign Finance Board v. Christopher R. Lynn, et al., Index No. 405097/01 (Sup. Ct. N.Y. County May 21, 2002); New York City Campaign Finance Board v. Una Clarke, et al., Index No. 402487/01 (Sup. Ct. N.Y. County Dec. 6, 2002); New York City Campaign Finance Board v. Sergio Villaverde, et al., Index No. 405076/01 (Sup. Ct. N.Y. County Jan. 29, 2003). Many other actions have resulted in settlements prior to judgment with the candidates paying the underlying debt.

6 In extraordinary situations, when the candidate's liability to repay public funds from a previous election has been determined by the Board shortly before a payment date for a subsequent election, the Board has permitted candidates to place funds in escrow or enter into an agreed upon payment plan for amounts due pending resolution of possible legal challenges. This has occurred in a handful of cases, during a two-year election cycle, and is unlikely to occur in the usual four-year election cycle.

7 Board member Alan N. Rechstchaffen, a recent appointment, did not participate in the deliberations on or vote on this advisory opinion.