Mastro DFS Contempt Motion

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF RICHMOND

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -In the Matter of the Application of JAMES THOMSON, MEGHAN THOMSON, JAMES REYES SALAZAR, BRANDON LINKER, and JAMES HART, Petitioners,

- against -

DATA AND FIELD SERVICES, INC., DAVID THOMAS, as the Treasurer of Debi Rose 4 City Council, BOARD OF ELECTIONS IN THE CITY OF NEW YORK, and NEW YORK STATE BOARD OF ELECTIONS, Respondents. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

x:::::::::::::::x

Index No. 080319/09

Special Election Part

Justice Giacobbe

PETITIONERS’ MEMORANDUM OF LAW IN SUPPORT OF THEIR MOTION TO

HOLD RESPONDENT DFS IN CONTEMPT OF THE STIPULATION OF SETTLEMENT AND ORDER, TO COMPEL DFS’S COMPLIANCE WITH THAT ORDER, AND TO COMPEL DFS’S DISCLOSURE OF CERTAIN DOCUMENTS

GIBSON, DUNN & CRUTCHER LLP 200 Park Avenue New York, New York 10166-0193 Telephone: (212) 351-4000 Facsimile: (212) 351-4035 – and – RALPH J. PORZIO 686 Forest Avenue Staten Island, New York 10310 Telephone: (718) 448-4000 Facsimile: (718) 876-9302 Attorneys for Petitioners

Dated: New York, New York September 9, 2010

TABLE OF CONTENTS

PRELIMINARY STATEMENT....................................................................................................................1

STATEMENT OF FACTS .............................................................................................................................5

A. Petitioners Brought This Special Proceeding Last Fall To Compel Respondents To Comply With State Election Law Disclosure Requirements .............5

B. Throughout This Special Proceeding DFS Has Willfully Disobeyed This Court’s Orders ........................................................................................................................6

C. In The Court-Ordered Settlement Of This Special Proceeding, DFS Agreed—And Was Ordered By This Court—To Implement Reforms To Ensure Its Complete Independence From The WFP.......................................................9

D. DFS Has Resisted Petitioners’ Efforts To Confirm DFS’s Compliance With Its Obligations Under The Order ......................................................................................11

E. At The June 1 Status Conference, DFS Finally Revealed The Identities Of Its New Board Members And Released The Two-Week-Old Kaye Report For The First Time, But It Has Since Failed To Turn Over The Documents This Court Ordered It To Produce To Petitioners ..................................................................14

F. The New DFS Website Belies DFS’s Counsel’s Claims That DFS Is Now “Independent” Of The WFP And Not Offering Its Valuable Voter Database To Its Candidate-Clients......................................................................................................17

G. DFS’s Counsel’s Subsequent Correspondence Has Only Reinforced That DFS Has Failed To Comply With This Court’s Order...................................................19

JURISDICTION AND STANDARD OF REVIEW...............................................................................20

A. This Court May Hold DFS In Contempt .........................................................................21

B. Alternatively, This Court May Impose Sanctions On DFS............................................24

C. In Addition To Imposing Contempt Sanctions On DFS, This Court May Also Compel DFS To Comply With Its Order................................................................25

D. Application To Compel DFS To Disclose Documents..................................................26

ARGUMENT...................................................................................................................................................26

I. DFS’S RESOLUTION TO RECONSTITUTE ITSELF AS A “TAXABLE, NONPROFIT CORPORATION” AND TO ADOPT A POLICY TO CHARGE

TABLE OF CONTENTS (Continued)

ONLY “ITS OWN COSTS” VIOLATES THE ORDER’S DIRECTIVE TO CHARGE FAIR MARKET VALUE “AS A FOR-PROFIT CORPORATION”.................28

II. DFS HAS VIOLATED THE ORDER BY CONTINUING TO OFFER ITS VALUABLE VOTER DATABASE TO ITS CLIENTS WITHOUT HAVING AN INDEPENDENT EXPERT ASSESS ITS FAIR MARKET VALUE AND THEN CHARGE THAT AMOUNT..........................................................................................................31

III. DFS HAS VIOLATED THE ORDER BY FAILING TO APPOINT A MAJORITY OF “INDEPENDENT” DIRECTORS TO ITS NEW BOARD ....................35

IV. DFS HAS VIOLATED THE ORDER BY FAILING TO TAKE STEPS SUFFICIENT TO “ESTABLISH MANAGEMENT, ADMINISTRATIVE, AND EMPLOYMENT STRUCTURES THAT ARE INDEPENDENT OF THE WFP” ..........36

V. PETITIONERS HAVE SUFFERED PREJUDICE AND HARM AS A RESULT OF DFS’S CONTEMPT, AND THIS COURT SHOULD THEREFORE HOLD DFS IN CONTEMPT OR, ALTERNATIVELY, IMPOSE SANCTIONS OVER ITS LITIGATION MISCONDUCT .............................................................................................37

VI. IN THE INTERIM, THIS COURT SHOULD ORDER DFS TO MAKE DOCUMENT DISCLOSURES CONCERNING ITS ALLEGED COMPLIANCE EFFORTS AND, IF NECESSARY, THEN HOLD AN EVIDENTIARY HEARING..........................................................................................................................................39

CONCLUSION...............................................................................................................................................41

PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT

DRAFT - 9/9/2010 - 1:44:57 PM

TABLE OF AUTHORITIES

Page(s)

288/98 W. End Tenants Corp. v. Mosesson, 144 A.D.2d 305, 534 N.Y.S.2d 178 (1st Dep’t 1988).............................................................................26

Abbey Funeral Dirs., Inc. v. Smith, 24 Misc. 2d 492, 204 N.Y.S.2d 439 (Sup. Ct. N.Y. Cnty. 1960), aff’d, 14 A.D.2d 837, 218 N.Y.S.2d 527 (1st Dep’t 1961), appeal denied, 11 N.Y.2d 642, 225 N.Y.S.2d 1026 (1962) ..................................................................................................................................................... 33, 34

Balkin v. Balkin, 43 A.D.3d 967, 842 N.Y.S.2d 523 (2d Dep’t 2007) ........................................................................ 26, 39

Bell v. White, 55 A.D.3d 1211, 867 N.Y.S.2d 729 (3d Dep’t 2008) .............................................................................23

Birch v. Carroll, 210 A.D.2d 119, 620 N.Y.S.2d 56 (1st Dep’t 1994)...............................................................................24

Callahan v. Carey, 12 N.Y.3d 496, 909 N.E.2d 1229 (2009) .................................................................................................28

Cambridge Assocs. v. Town of N. Salem, 228 A.D.2d 537, 644 N.Y.S.2d 775 (2d Dep’t 1996) .............................................................................21

Camelot of Staten Island, Inc. v. Metro. Mgmt., LLC, 56 A.D.3d 505, 867 N.Y.S.2d 208 (2d Dep’t 2008) ...............................................................................25

Campanella v. Campanella, 152 A.D.2d 190, 548 N.Y.S.2d 279 (2d Dep’t 1989) .............................................................................22

Chan v. Barry, 36 A.D.3d 579, 827 N.Y.S.2d 295 (2d Dep’t 2007) ...............................................................................22

Chernow v. Chernow, 51 A.D.3d 705, 857 N.Y.S.2d 721 (2d Dep’t 2008) ...............................................................................22

Children’s Village v. Greenburgh Eleven Teachers’ Union Federation of Teachers, 249 A.D.2d 435, 671 N.Y.S.2d 503 (2d Dep’t 1998) .............................................................................38

City Wide Sewer & Drain Serv. Corp. v. Carusone, 39 A.D.3d 687, 834 N.Y.S.2d 283 (2d Dep’t 2007) ...............................................................................40

Clifton Country Rd. Assocs. v. Vinciguerra, 225 A.D.2d 932, 639 N.Y.S.2d 175 (3d Dep’t 1996) ...................................................................... 25, 38

TABLE OF AUTHORITIES (Continued)

Page(s)

Coppola v. Stroker, 235 A.D.2d 536, 653 N.Y.S.2d 134 (2d Dep’t 1997) .............................................................................28

Cruz v. Brentwood Union Free Sch. Dist., -- A.D.3d ---, 897 N.Y.S.2d 499 (2d Dep’t 2010) ...................................................................................26

Davey v. Kelly, 57 A.D.3d 230, 869 N.Y.S.2d 37 (1st Dep’t 2008).................................................................................23

Diorio v. City of Peekskill Common Council, 13 A.D.3d 523, 787 N.Y.S.2d 72 (2d Dep’t 2004)..................................................................................23

Doubrovinskaya v. Dembitzer, 20 Misc. 3d 440, 858 N.Y.S.2d 874 (Sup. Ct. Kings Cnty. 2008).........................................................22

Glennon v. Mayo, 174 A.D.2d 600, 571 N.Y.S.2d 307 (2d Dep’t 1991) .............................................................................23

God’s Battalion of Prayer Pentagon’s Church, Inc. v. Miele Assocs., LLP, 6 N.Y.3d 371, 812 N.Y.S.2d 435 (2006) ..................................................................................................29

Gordon v. Janover, 121 A.D.2d 599, 503 N.Y.S.2d 860 (2d Dep’t 1986) .............................................................................23

HCE Assocs. v. 3000 Watermill Lane Realty Corp., 173 A.D.2d 774, 570 N.Y.S.2d 642 (2d Dep’t 1991) ...................................................................... 21, 37

IDT Corp. v. Tyco Group, 13 N.Y.3d 209, 918 N.E.2d 913 (2009) ...................................................................................................22

Ireland v. Wilenzik, 296 A.D.2d 771, 745 N.Y.S.2d 316 (3d Dep’t 2002) .............................................................................23

John A. Paige Jr. Contracting, Inc. v. Gush, 35 A.D.3d 991, 826 N.Y.S.2d 477 (3d Dep’t 2006) ...............................................................................32

Kennedy v. Town of Thompson, 99 A.D.2d 606, 471 N.Y.S.2d 714 (3d Dep’t 1984) ...............................................................................33

Levine v. Angsten, 6 A.D.3d 340, 775 N.Y.S.2d 518 (1st Dep’t 2004).................................................................................24

Matter of Fontana D’Oro Foods, Inc., 122 Misc. 2d 1091, 472 N.Y.S.2d 528 (Sup. Ct. Richmond Cnty. 1983).............................................21

Page(s)

Matter of Marc Rich & Co., A.G., 707 F.2d 663 (2d Cir. 1983) .......................................................................................................................24

McCormick v. Axelrod, 59 N.Y.2d 574, 453 N.E.2d 508 (1983) ...................................................................................................21

N.Y. State Nat’l Org. for Women v. Terry, 159 F.3d 86 (2d Cir. 1998) .........................................................................................................................38

Nigro v. Nigro, 44 A.D.3d 831, 843 N.Y.S.2d 664 (2d Dep’t 2007) ...............................................................................22

Odimgbe v. Dockery, 153 Misc. 2d 584, 582 N.Y.S.2d 909 (N.Y. Civ. Ct. 1992) ....................................................................24

Pappas v. Hooda Realty, Inc., 277 A.D.2d 437, 715 N.Y.S.2d 906 (2d Dep’t 2000) .............................................................................25

Ronnen v. Ajax Elec. Motor Corp., 88 N.Y.2d 582, 648 N.Y.S.2d 422 (1996) ......................................................................................... 29, 31

Rubackin v. Rubackin, 62 A.D.3d 11, 875 N.Y.S.2d 90 (2d Dep’t 2009)....................................................................................24

Seven Hanover Square Corp. v. Kaufman, 81 A.D.2d 789, 439 N.Y.S.2d 36 (1st Dep’t 1981).................................................................................40

SMD Capital Group LLC v. EPR Capital LLC, 45 A.D.3d 314, 846 N.Y.S.2d 89 (1st Dep’t 2007).................................................................................26

Teitelbaum Holdings, Ltd. v. Gold, 48 N.Y.2d 51, 421 N.Y.S.2d 556, 396 N.E.2d 1029 1979)....................................................................26

Then ex rel. Then v. N.Y.C. Transit Auth., 22 Misc. 3d 1129(A), 881 N.Y.S.2d 367, 2009 WL 565085 (Sup. Ct. Queens Cnty. Mar. 4, 2009) .....................................................................................................25

Various Tenants of 446-448 W. 167th St. v. N.Y.C. Dep’t of Housing, 153 Misc. 2d 221, 588 N.Y.S.2d 840 (1st Dep’t 1992).................................................................... 22, 37

Wolf v. Bergano, 263 A.D. 825, 31 N.Y.S.2d 309 (2d Dep’t 1941)....................................................................................22

Wolstencroft v. Sassower, 212 A.D.2d 598, 623 N.Y.S.2d 7 (2d Dep’t 1995)..................................................................................25

Page(s)

Statutes

N.Y. City Admin. Code § 3-703(1)(f)..............................................................................................................6

N.Y. City Admin. Code § 3-703(6)..................................................................................................................6

N.Y. CPLR § 408 ...............................................................................................................................................5

N.Y. Elec. Law § 14-104(1) ..............................................................................................................................6

N.Y. Jud. Law § 773 .........................................................................................................................................5

N.Y. Jud. Law § 753(A)(3)...................................................................................................................5, 21, 23

N.Y. Jud. Law § 756 ................................................................................................................................... 5, 21

Regulations

N.Y. Comp. Codes R. & Regs. tit. 22, § 130-1.1 .........................................................................................38

N.Y. Comp. Codes R. & Regs. tit. 22, § 130-1.1(a) ....................................................................................39

N.Y. Comp. Codes R. & Regs. tit. 22, § 130-1.1(c)(2).....................................................................5, 24, 25

N.Y. Comp. Codes R. & Regs. tit.22, § 130-1.1(c)(3)............................................................................ 5, 24

PRELIMINARY STATEMENT

This is a motion to hold Respondent Data and Field Services, Inc. (“DFS”) in contempt of

this Court’s February 23, 2010 Order (the “Order”) endorsing the parties’ settlement terms. Because

DFS is willfully violating this Court’s Order in multiple, material respects, Petitioners are now

compelled to seek contempt sanctions.

At its core, this court-ordered settlement compelled the Working Families Party (the

“WFP”) to sever its control over DFS, the separately-incorporated for-profit campaign services

company that the WFP created to further its corrupt scheme to evade State election laws and City

campaign finance laws. The scheme worked this way: The WFP endorsed particular local

candidates, who then hired DFS to run their campaigns. In turn, DFS, the WFP’s corporate puppet,

funneled vast resources into those campaigns while grossly undercharging those candidates for

DFS’s “Cadillac” services, in order to evade State and City disclosure, contribution and expenditure

laws. In the 2009 election cycle, the scheme proved to be remarkably effective, skewing the electoral

landscape by unfairly advantaging WFP-backed candidates in publicly-financed City races, and

making a mockery of our local campaign finance laws in the process. In short, the WFP’s corrupt

scheme was nothing short of an assault on our local democracy.

The Rose Campaign provided a textbook example of the WFP’s modus operandi. As a result

of this settlement, the Rose Campaign was forced to pay $13,525 more for DFS’s services—an

amount that pushed it over the legal expenditure limit for a publicly-financed campaign—including

additional amounts for key staff, get-out-the vote operations, canvassing expenses, and access to

DFS’s state-of-the-art voter database.

The most important parts of this court-ordered settlement, though, are the ones designed to

protect the integrity of our local democracy and its campaign finance system going forward—

namely, the requirements imposed on DFS that it “promptly implement reforms in its corporate

structure and corporate governance to ensure that it adheres to proper corporate formalities and

operates independently and not under the control of the Working Families Party.” Ex. A (Order) at

¶ 4.1 These court-ordered reforms include DFS’s obligations to: (i) “effectuate the appointment of

sufficient independent directors to constitute a majority of its Board of Directors” in order “to

implement procedures, best practices and by-laws intended to ensure that DFS . . . is operated

independently and not under the control of the WFP;” (ii) “establish management, administrative,

and employment structures that are independent and not controlled by the WFP;” (iii) have “an

independent expert” approved by Petitioners or the Court “conduct an evaluation of the actual fair

market value” of DFS’s state-of-the-art voter database and then charge that amount to its candidate-

clients accessing that valuable system; and (iv) “charge its candidate-clients (or their committees) fair

market value for the actual services provided by DFS as a for-profit corporation.” Id. at ¶ 4 (a), (b),

(e) & (f). But DFS has since either failed to comply with these court-ordered obligations,

consciously sought to evade them, or stated its intention to contravene them.

DFS has failed to comply with its court-ordered obligations in at least four material respects:

First, the DFS Board has announced its intention to violate the Order’s directive that DFS

“charge its candidate-clients (or their committees) fair market value for the actual services provided

by DFS as a for-profit corporation.” Id. at ¶ 4(e). In express contravention of that obligation, DFS

has resolved to reconstitute itself as a “taxable, nonprofit corporation” and adopted a “written policy

that it will not contract to charge a CFB-regulated campaign below DFS’s best estimate of its costs

of fulfilling its contract.” Ex. B (Report to the Governing Boards of the Working Families Party and

Data and Field Services, Inc., dated May 14, 2010 (“Kaye Report”)) at 14, 17; Ex. C (Letter from A.

Celli to R. Mastro, dated June 25, 2010) at 1 (admitting that DFS had adopted the recommendations

1 Unless otherwise stated, citations denominated as “Ex. __” refer to Exhibits to the Affirmation of Randy M. Mastro, dated September 9, 2010 (the “Mastro Aff.”), submitted in support of this Motion.

in the Kaye Report); Ex. D (www.workingfamiliesparty.org/kayereport/) (stating that “[t]he WFP

also endorsed the Kaye Report recommendations pertaining solely to DFS,” including the

recommendation that “DFS will reconstitute itself as a taxable, nonprofit corporation”). A “for-

profit corporation” necessarily charges at a profit, not “cost.” Therefore, DFS’s latest gambit is just

another way to unfairly advantage WFP-backed candidates by institutionalizing its charging of them

at “cost” for field services for which a “for-profit” corporation would necessarily charge more to

generate a customary profit margin. Hence, DFS’s stated intention directly contravenes the Order’s

directive that it charge fair market value “as a for-profit corporation.”

Second, DFS is seeking to evade its court-ordered obligations by continuing to offer its

candidate-clients its valuable voter database—once stored in a CRM software program called the

Voter Activation Network (the “VAN”)—through another CRM software program without first

retaining an independent expert to assess its fair market value and then charging that amount. See

Ex. A at ¶ 4(g). This transparent “shell game” of switching the CRM software program housing its

valuable voter database cannot relieve DFS of its court-ordered obligation to have an independent

assessment done and then charge its candidate-clients fair market value for such access.

Third, DFS has violated the Order by failing to constitute a new Board, a majority of whose

members are “independent” of the WFP, as that term is defined in the Order. Indeed, of the new

four-member DFS Board, one new director (Jeffrey Dupee) is concededly not “independent,”

having worked directly for the WFP over the past two years; and another new director (Ed Ott)

worked within the past two years for the New York City Central Labor Council, AFL-CIO, which

has contributed to the WFP, meaning he, too, does not qualify as an “independent” director under

the Order’s express terms.

Fourth, DFS has failed to take the steps necessary to comply with its court-ordered

obligation to “establish management, administrative, and employment structures that are

independent of the WFP.” That much is evident from the rubber-stamp reappointment of DFS

executive staff, including Michael Boland as DFS’s Executive Director; the office space DFS

continues to share with the WFP; the myriad representations on DFS’s new website belying any

notion of “independence” from the WFP; and the recent public admissions by a former employee,

paid by DFS but hired by the WFP, that he left his job disillusioned after being “encouraged by

higher-ups to falsify signatures and addresses on petitions supporting the left-wing party’s push to

repeal a state law that took rent regulation out of the city’s hands and gave it to the state.” Ex. E

(Sally Goldenberg, Working ‘Sham’-ilies, N.Y. Post, July 12, 2010). In other words, it is business as

usual for DFS as the WFP’s captive corporate shell.

As a result of this contumacious conduct, the WFP and DFS have denied all New York

voters—on whose behalf Petitioners have prosecuted this special proceeding—the protections

needed to prevent the WFP from corrupting future election cycles in this systematic way. Moreover,

there has been a willful contempt of this Court’s Order. And for that, the offending party must be

held accountable. The WFP and its corporate arm, DFS, obviously haven’t learned from their

mistakes. They have shown no remorse or contrition—only defiance of this Court’s Order. With a

new state election cycle looming this Fall, we should never forget what the WFP did last year, and

never let it happen again. Contempt sanctions are the only way to compel the WFP and DFS to

comply with their legal obligations. We therefore urge this Court immediately to impose severe

sanctions swiftly and decisively.2

2 That the WFP has reportedly escaped federal indictment is irrelevant to the sanction warranted for the misconduct here. Indeed, the WFP’s problems are far from over, as even it admitted in its recent press release on this subject. See Ex. F (WFP Statement, released on August 20, 2010) (“Of course, the NYC Campaign Finance Board, as part of the post-election audit process of campaigns that participate in the public campaign finance system, is auditing the campaigns that contracted for services with Data & Field Services in 2009.”).

Accordingly, Petitioners respectfully request that this Court issue an order: (1) holding

Respondent DFS in contempt of this Court’s Order, pursuant to Judiciary Law §§ 753(A)(3), 756

and 773, and imposing compounding monetary fines on DFS for each day of non-compliance, and

awarding Petitioners their costs and fees in prosecuting this special proceeding; (2) alternatively,

imposing sanctions on DFS for violating this Court’s Order, pursuant to N.Y. Comp. Codes R. &

Regs. tit. 22, § 130-1.1(c)(2); and (3) compelling DFS immediately to comply with all of its

obligations under this Court’s Order and, in the event DFS continues to fail to comply, taking the

steps necessary to coerce DFS’s compliance, including, if necessary, ordering the imprisonment of a

DFS corporate officer pursuant to Judiciary Law § 753(A). In the interim, the Court should require

DFS to make document disclosures, pursuant to CPLR § 408, concerning its alleged compliance

with the Order and, if necessary, then hold an evidentiary hearing to resolve this contempt motion.3

STATEMENT OF FACTS

A. Petitioners Brought This Special Proceeding Last Fall To Compel Respondents To Comply With State Election Law Disclosure Requirements

On October 23, 2009, Petitioners James Thomson, Meghan Thomson, James Reyes Salazar,

Brandon Linker and James Hart (collectively, “Petitioners”)—all registered Staten Island voters—

commenced this special proceeding against Respondents DFS and Debi Rose 4 City Council (the

“Rose Campaign”) (collectively, “Respondents”) to require the Rose Campaign to amend its public

filings under the State Election Law to make complete and accurate disclosure of the actual fair

market value of the full services it was receiving from DFS as the field services arm of the WFP and

to rebate any such amounts to DFS. The gravamen of the pleading was that the WFP endorsed

3 Petitioners also request that this Court order DFS to comply with the Court’s June 1 directive to produce copies of its new by-laws, new standard form contracts, and the DFS Board’s resolution adopting the recommendations contained in the Kaye Report or, alternatively, make those documents already submitted to the Court ex parte a matter of public record.

Rose’s candidacy and then funneled vast amounts of free in-kind services to the Rose Campaign

through DFS, in violation of local law contribution and expenditure limits imposed on campaigns

accepting public financing. See N.Y. City Admin. Code §§ 3-703(1)(f), 3-703(6). The Rose

Campaign, in turn, never reported those in-kind contributions in its required state and local public

filings, in violation of the State Election Law (as well as local law). See N.Y. Elec. Law § 14-104(1);

N.Y. City Admin. Code § 3-703(6).

To skirt local campaign finance laws, the WFP employed this same scheme in local races

throughout New York City in 2009, unfairly advantaging WFP-backed candidates and skewing the

level playing field those laws seek to ensure. As a result, WFP-backed candidate won surprising

victories in several local and citywide races. But the WFP’s scheme did not go unnoticed: As even

the WFP recently acknowledged, the New York City Campaign Finance Board currently “is auditing

the campaigns that contracted for services with Data & Field Services in 2009.” Ex. F.

B. Throughout This Special Proceeding DFS Has Willfully Disobeyed This Court’s Orders

Since the beginning of this special proceeding, DFS has repeatedly violated this Court’s

orders. See Mastro Aff. at ¶ 3. On October 26, 2009, three days after Petitioners commenced this

special proceeding, this Court first ordered DFS to produce documents in an amended order to

show cause (the “OTSC”). See Ex. G (Order to Show Cause, dated Oct. 26, 2009). The OTSC

required Respondents including DFS to produce all relevant documents outlined there to the Court

by 12:00 p.m. on October 29, 2009, yet DFS appealed to the Appellate Division, Second

Department, literally at the court-ordered deadline, and convinced a single Justice of the Appellate

Division to block DFS’s discovery obligations. See Ex. H (Affidavit of Attorney Alexander Rabb in

Support of Application for Review of Ex-Parte Order by Respondent Data and Field Services, Inc.,

dated Oct. 29, 2009) at ¶ 2.

The following day, on October 30, 2009, the parties appeared before this Court for a hearing

on the merits of Petitioners’ claims. At that time, this Court again ordered discovery, after which it

would conduct an evidentiary hearing on Petitioners’ application. When DFS again sought to evade

its discovery obligations and failed to make full disclosure, this Court rejected its objections and

ordered DFS to produce all relevant, non-privileged documents in response to Petitioners’ revised

documents requests on or before November 12 in time for a rescheduled evidentiary hearing on

November 16. Mastro Aff. at ¶ 4.

DFS again refused to produce any documents on November 12, attempting to justify its

outright disobedience of this Court’s second discovery order by claiming that Respondents’ filing of

a joint motion to dismiss the Verified Petition and other related motions on the day discovery was

due stayed the Court’s discovery order. Id. at ¶ 5.

Following extensive briefing of Respondents’ motions, this Court denied DFS’s motion to

dismiss and ordered DFS to produce its responsive documents “forthwith.” This was now the third

time the Court had ordered DFS to make its required disclosures. Id. at ¶ 6.

Then, on December 23, 2009, nearly two months after the date DFS was first ordered to

produce documents, Respondents jointly made a sparse production totaling barely 1,000 pages. At

the time, Respondents misrepresented to Petitioners and this Court that the production included all

responsive documents in their possession, custody or control. Id. at ¶ 7. That proved to be a bald-

faced lie.

Petitioners repeatedly requested that DFS rectify the obvious deficiencies in its production

and even served trial subpoenas on individual DFS and WFP officials to try to obtain them. But it

was not until January 14, 2010—the second day of trial when several DFS witnesses were literally

about to take the witness stand to testify—that DFS’s counsel finally handed Petitioners’ counsel

approximately 1,000 more pages of additional responsive documents. Id. at ¶ 8. DFS’s counsel’s

misrepresented to the Court at the time that “99%” of those documents were exact copies of

already-provided documents. That proved to be another bald-faced lie: upon review, more than

80% of those documents turned out to be newly produced. Ex. I (01/14/2010 Trial Tr.) at 155:1.

In the face of these repeated misrepresentations and inexcusable delays on DFS’s part, this

Court decided that same day that it would have to adjourn the evidentiary hearing and force DFS

first to make full disclosure. The Court denounced DFS’s misconduct in no uncertain terms:

The discovery process in this case has been outrageous to date. It’s been outrageous. We started this back in the fall sometime, and I have issued orders directing document production, directing discovery, and they haven’t been complied with. They just haven’t. . . . I am tired of the noncompliance with the discovery. I’m fed up with it and it’s going to end.

Id. at 155:5–155:20.

The Court then ordered Respondents to “meet with [their] clients, get their files, go through

those files and produce what has to be produced in time so that when we come back we’ll be able to

go forward without more delays,” setting a February 5, 2010 deadline as Respondents’ last chance

to complete their document production. Id. at 156:6–156:9. The Court warned DFS’s counsel to

make a complete and timely production, or else:

If we come back here on the next date to continue this proceeding and there’s discovery still outstanding, the likelihood is at that time I will have no choice but to look at it as willful. And if that’s the case, I will not hesitate one second to impose sanctions on the offending party.

Id. at 155:21–156:2.

On February 5, 2010, DFS produced more than 100,000 pages of previously unproduced

documents that were clearly required under the Court’s prior discovery orders, including a raft of

“smoking gun” e-mails, many of which plainly demonstrated the manipulation of expenses, the

intentional decision to withhold charges for certain personnel and services, and, most importantly,

the intentional attempt to mislead the New York City Campaign Finance Board (the “CFB”) during

the critical period prior to the primary election when questioned about the scope of services

provided by DFS to the Rose Campaign. Because of the sweeping scope of this new production—

and its damning contents—it was obvious that DFS’s prior discovery derelictions had been willful

and intended to cover up its own misconduct. Indeed, even this massive document dump seemed

designed for the same purpose—to try to bury its misdeeds in a mountain of paper and

hard-to-unlock electronic files. Petitioners therefore filed an “Application In Limine to Impose

Sanctions on Respondent[] DFS . . . [and] to Compel DFS to Disclose Metadata and Non-Privileged

Documents” on February 17, 2010 (“Petitioners’ Motion for Sanctions”).

It was only at that point that DFS, facing imminent sanctions and certain defeat at trial, felt

compelled to settle.

C. In The Court-Ordered Settlement Of This Special Proceeding, DFS Agreed—And Was Ordered By This Court—To Implement Reforms To Ensure Its Complete Independence From The WFP

Just before oral argument on Petitioners’ Motion for Sanctions and the recommencement of

trial, on February 23, 2010, the parties executed—and the Court so-ordered—the Stipulation of

Settlement and Order resolving this special proceeding (the “Order”). Mastro Aff. at ¶ 9. The

Order required, inter alia, that DFS “promptly”—defined elsewhere in that same documents as

meaning within 30 days4—“implement reforms in its corporate structure and corporate governance

to ensure that it adheres to proper corporate formalities and operates independently and not under

the control of the Working Families Party,” “including” but not limited to “the following”:5

4 The Order required the Rose Campaign to amend its public financial disclosure reports “promptly,” but “in any event within 30 days of the date of entry of” the Order. Ex. A at ¶ 2. Thus, the parties to the Order clearly intended the term “promptly,” as used elsewhere in the Order, to mean “within 30 days of the date of entry of” the Order. Id.

5 DFS was also required to implement other specific reforms, which are not detailed here because they are not at issue in this application. See id. at ¶ 4(c), (d).

“DFS shall effectuate the appointment of sufficient independent directors to constitute a

majority of its Board of Directors. They shall have a mandate to implement procedures,

best practices and by-laws intended to ensure that DFS is operated in a manner that

complies with all applicable state and local campaign finance laws, and is operated

independently and not under the control of the WFP;” Ex. A at ¶ 4(a).

“DFS shall establish management, administrative, and employment structures that are

independent of and not controlled by the WFP,” and “cause its payroll system, finance

record keeping, IT department, and its full-time administrative staff to be reviewed to

assure that they are independent of and not controlled by the WFP;” Id. at ¶ 4(b).

“DFS shall change its standard contract with candidate-clients or their committees to

provide express terms identifying,” among other things, the quantity and quality of the

services to be provided, the employee(s) providing those services, and, for canvassing

contracts, “the number of canvassing shifts that DFS agrees to provide;” Id. at ¶ 4(e).

“DFS shall charge its candidate-clients (or their committees) fair market value for the

actual services provided by DFS as a for-profit corporation;” Id. at ¶ 4(e).

“DFS shall not provide access to the VAN to its candidate-clients or their committees

unless it shall first have caused an independent expert,” approved by Petitioners or the

Court, “to conduct an evaluation of the actual fair market value of the VAN to its

candidate-clients (or their committees) for whom or which DFS provides services,” and,

thereafter, “charge its candidate-clients and their committees the amount determined by

the independent expert to be the actual fair market value of the VAN.” Id. at ¶ 4(g).

D. DFS Has Resisted Petitioners’ Efforts To Confirm DFS’s Compliance With Its Obligations Under The Order

On March 10, 2010, Petitioners sent a letter to DFS reminding it of its obligation to comply

with all provisions in the Order and “‘promptly implement’ all of these reforms by no later than

March 25, 2010.” Ex. J (Letter from R. Mastro to L. Mandelker & A. Rabb, dated Mar. 10, 2010) at

1–2. On March 16, 2010, DFS replied that it had complied with its obligation to issue a

“supplemental invoice for $8,525 to Debi Rose 4 City Council,” that “the search for and vetting (for

compliance with the Stipulation) of potential independent directors, law firms and certified public

accountancy firms is well under way, as is review of DFS’ practices and procedures,” and that DFS

would not offer any of its services to its candidate-clients—including access to the VAN—unless it

had first complied with the requirements of the Order. Ex. K (Letter from L. Mandelker to R.

Mastro, dated Mar. 16, 2010) at 1. However, DFS claimed that it was not required to meet any of its

reform obligations by March 25, 2010. See id.

On March 22, 2010, Petitioners wrote to DFS again, warning that Petitioners would not

accept DFS’s “delays” in “implementing these reforms,” DFS did so “at its own peril, and

[Petitioners] will not hesitate to return to court, if necessary,” to ensure compliance. Ex. L (First

Letter from R. Mastro to L. Mandelker, dated Mar. 22, 2010) at 1.

In that same letter, Petitioners also requested a copy of the invoice DFS issued to the Rose

Campaign pursuant to its obligations under the Order, and that DFS keep Petitioners apprised of its

progress in implementing the required reforms. See id. The same day, DFS’s counsel responded by

refusing to share a copy of the invoice that DFS claimed to have issued to the Rose Campaign in

compliance with the Order. See Ex. M (Letter from L. Mandelker to R. Mastro, dated Mar. 22, 2010)

at 1. The only reason DFS’s counsel proffered for this refusal was that “[t]he stipulation does not

require your clients to review, approve or even receive a copy of the invoice,” and “I am reluctant to

grant rights to your client de hors the stipulation.” Id.

Petitioners replied that same day that “it would be a gesture of good faith on your part to

provide the invoice confirming your client’s compliance.” Ex. N (Second Letter from R. Mastro to

L. Mandelker, dated Mar. 22, 2010) at 1. The following day, DFS’s counsel once again refused to

provide any copy of the invoice to Petitioners. Ex. O (Letter from L. Mandelker to R. Mastro, dated

Mar. 23, 2010) at 1.

On April 6, 2010, DFS’s counsel wrote to Petitioners purporting to confirm “that DFS is in

compliance with the Stipulation of Settlement and Order” but directly addressing only a few of

DFS’s obligations. Ex. P (Letter from A. Celli to R. Mastro, dated Apr. 6, 2010) at 1. Specifically,

DFS’s counsel claimed that: (a) “DFS has constituted a Board of Directors with a majority of

members who are ‘independent,’ as defined in paragraph 4(a) of the Stipulation”; (b) DFS has

“identified a certified public accounting firm and is in the final stages of formalizing the engagement

of that firm”; and (c) “DFS issued a supplemental invoice in the sum of $8,525 to” the Rose

Campaign. Id. While the letter did not expressly address the status of the new by-laws, it did

indicate that, “[w]ith respect to the other obligations set forth in the Stipulation—such as the

requirements to review and, if necessary, change structure, policies, practices, and procedures—DFS

staff has begun these reviews in earnest and will work with the Board and this firm to complete the

review and implement any necessary changes.” Id. DFS’s counsel further claimed that “a new

standard contract for DFS is currently in draft, and it awaits review, comment and adoption by the

Board and senior staff,” and that “DFS will not provide access to the VAN until and unless an

independent expert has conducted an evaluation of its fair market value, as required by paragraph

4(g).” Id.

On April 9, 2010, Petitioners’ counsel once again tried in vain to learn the specifics of DFS’s

purported compliance with its obligations under the Order. Specifically, Petitioners’ counsel wrote

to DFS’s counsel requesting that DFS “identify DFS’s newly-appointed Board members (and who,

among them, is supposedly ‘independent’),” and, “when [DFS] purports to be in compliance with its

other obligations under this court-ordered decree, . . . to apprise us—and the Court—of the

particulars of its purported compliance.” Ex. Q (Letter from R. Mastro to A. Celli, dated Apr. 9,

2010) at 1. DFS’s counsel never responded to these requests.

On May 6, 2010, Petitioners’ counsel, having received no response from DFS’s counsel, was

compelled to write to this Court seeking a status conference with all parties to determine whether

Respondents had complied with all of their obligations under the Order. See Ex. R (Letter from R.

Mastro to Hon. Anthony I. Giacobbe, dated May 6, 2010) at 1–2. In that letter, Petitioners’ counsel

briefly informed the Court of DFS’s refusal to provide Petitioners’ counsel with even the basic

information necessary to confirm compliance with the Order, including the names of the allegedly

“independent” Board members constituting a majority of the newly appointed DFS Board. See id. at

1. Petitioners’ counsel also informed the Court that, although DFS’s counsel had claimed on April 6

that “DFS ha[d already] constituted a Board of Directors with a majority of members who are

‘independent.’” Ex. P at 1. In that letter, Petitioners’ counsel advised that he was recently contacted

by an individual who said he had been “approached” about becoming a new DFS Board member.

This fact—combined with DFS’s refusal to provide the names of the allegedly “independent” DFS

Board members—cast doubt on DFS’s assertion in its earlier April 6, 2010 letter that DFS had

constituted an “independent” Board and was otherwise complying with the Order. Ex. R at 1.

On May 7, 2010, DFS wrote to the Court in response to Petitioners’ May 6 letter and

confirmed DFS’s refusal to cooperate with Petitioners’ reasonable requests for confirmation of

DFS’s compliance with the Order. See Ex. S (Letter from A. Celli to Hon. Anthony I. Giacobbe,

dated May 7, 2010) at 1–2. DFS’s counsel stated simply that DFS would not provide the names of

the allegedly “independent” Board members and other basic details needed to confirm DFS’s

compliance because “DFS is . . . not required to provide Petitioners with any of the information

[Petitioners] request,” and that any information DFS provided to Petitioners in its April 6 letter was

only “provided as a courtesy from incoming counsel.” Id. at 1–2. To try to explain why Petitioners’

counsel had been contacted by a prospective “independent” Board member after DFS claimed to

have constituted its Board, DFS’s counsel claimed only that DFS “sought additional board members

after April 6, 2010,” even though a majority of “independent” directors had already been appointed.

Id. at 1.

In response to this letter exchange, the Court then held a status conference on June 1, 2010.

E. At The June 1 Status Conference, DFS Finally Revealed The Identities Of Its New Board Members And Released The Two-Week-Old Kaye Report For The First Time, But It Has Since Failed To Turn Over The Documents This Court Ordered It To Produce To Petitioners

Only when it had to appear before this Court did DFS disclose for the first time the names

of its four newly appointed Board members—Ed Ott, Frances Fox Piven, James Pope and Jeffrey

Dupee—and laid out why, in its view, the first three of those members were “independent” within

the meaning of the Order. See Mastro Aff. at ¶ 28. (DFS’s counsel admitted that Jeffrey Dupree, a

paid computer programming consultant to the WFP, is not “independent,” but then erroneously

claimed that Ott, a recent top official with the New York City Central Labor Council, a past WFP

contributor, is. Id.) DFS’s counsel revealed that this new Board had met three times, adopted new

DFS by-laws, approved new DFS standard form contracts, and passed a resolution adopting the

recommendations contained in the Kaye Report—a review commissioned by the WFP and

conducted by former New York Court of Appeals Chief Judge Judith Kaye. That report was dated

May 14, 2010, see Ex. B, but not publicly released until more than two weeks later when the parties

appeared before this Court at the June 1 status conference. See Mastro Aff. at ¶ 14.

When Petitioners then asked DFS’s counsel to turn over certain confirming documents, he

declined, causing this Court to direct DFS to produce the requested documents to the Court and

Petitioners’ counsel. See id. at ¶ 39. DFS’s counsel eventually produced these documents to the

Court in camera but has never provided them to Petitioners. Id.6

During the conference, DFS’s counsel also detailed certain of the Kaye Report’s

recommendations that had been adopted by the DFS Board, see id. at ¶ 15, some of which clearly

conflict with DFS’s obligations under the Order. Specifically, DFS’s counsel confirmed that the

DFS Board adopted the Kaye Report’s recommendation that DFS reconstitute itself as a “taxable,

nonprofit corporation” and adopt a “written policy that it will not contract to charge a CFB-

regulated campaign below DFS’s best estimate of its costs of fulfilling its contract.” Ex. B at ¶¶ 1,

2(c); see also Ex. C (Letter from A. Celli to R. Mastro, dated June 25, 2010) at 1. The Kaye Report

reasoned that the DFS Board “might conclude that the nonprofit form is more consonant with

DFS’s goals and operations,” Ex. B at 14, despite the fact that the Order clearly requires that, going

forward, DFS “charge its candidate-clients (or their committees) fair market value for the actual

services provided by DFS as a for-profit corporation.” Ex. A at ¶ 4(e) (emphasis added). Thus, this

policy recommendation adopted by the DFS Board now purports to make it acceptable for DFS to

charge candidate-clients only enough to recoup its “costs” when contracting with “CFB-regulated

campaign[s].” Ex. B at 16–20.7

6 At the time of that submission to the Court, DFS’s counsel had to admit in a cover letter, dated June 18, 2010, that he earlier misspoke when he claimed the new DFS Board had approved new DFS by-laws. See Ex. NN at 2. In fact, a different board not constituted in conformity with the court-ordered settlement adopted the new DFS by-laws, and only after that was the new DFS Board constituted. See id.

7 In this regard, the Kaye Report effectively confirmed that Petitioners were right all along when they originally alleged in their pleading that DFS had been undercharging its candidate-clients and the WFP had been subsidizing DFS’s operating shortfall. As the Kaye Report found: “Although organized as a for-profit corporation, DFS acknowledges that it generally did not observe corporate formalities.” Ex. B at 8. Instead, “DFS generally has operated as an arm or division of WFP,” and the financial staff it shared with the WFP made “periodic reconciliations” between the respective accounts of WFP and DFS. Id. at 6, 8, 22. Obviously, those “reconciliations” were necessary to enable the WFP to cover DFS’s operating shortfalls.

Also during that conference, DFS attempted—but failed—to substantiate DFS’s compliance

with the Order’s mandate that DFS “establish management, administrative, and employment

structures that are independent of the WFP.” Ex. A at ¶ 4(a)–(b). DFS disclosed only one step

taken to establish new management structures at DFS—what it described as the “appointment” of

Michael Boland as its Executive Director. In truth, this was a re-appointment: Boland—a former

WFP employee—was also serving as the Executive Director of DFS when it was undercharging

WFP-backed campaigns. See Ex. EE (Edward-Isaac Dovere, “Who Took Over WFO Operations?”

City Hall News (Nov. 29, 2009)) (“Mike Boland, who identified himself as the director of Data &

Field Services”). Moreover, although DFS claimed to have taken minor symbolic steps to establish

its independence from the WFP—such as the establishment of a separate website, telephone

number, and letterhead—DFS’s counsel acknowledged that DFS continued to work out of the

WFP’s office in Brooklyn. Indeed, the Kaye Report even found that DFS continues to share

employees with the WFP. Ex. B at 20. In other words, it is business as usual at DFS—same

executive staff, and same shared office space and employees with the WFP. Id. at 22 (“DFS

operates out of the same office space in Brooklyn housing the WFP.”)

Finally, DFS’s counsel sought to assure the Court and Petitioners that DFS would not offer

its candidate-clients access to the Voter Activation Network (the “VAN”), Mastro Aff. at ¶ 17—

which necessarily includes its valuable voter database stored there—without first complying with its

obligation to “cause an independent expert to conduct an evaluation of the actual fair market value

of the VAN” and thereafter “charge its candidate-clients and their committees the amount

determined by the independent expert to be the actual fair market value of the VAN.” Ex. A at ¶

4(g). DFS’s counsel went further: he advised that DFS was not even planning to make its

state-of-the-art voter tracking system available to its candidate-clients. Mastro Aff. at ¶ 17. He

made no mention at that time, however, that DFS was intending to try to circumvent the Court’s

Order in this regard by moving its valuable voter database into a different but comparable software

system.

F. The New DFS Website Belies DFS’s Counsel’s Claims That DFS Is Now “Independent” Of The WFP And Not Offering Its Valuable Voter Database To Its Candidate-Clients

DFS’s new website contains striking evidence of DFS’s failure to comply with its obligations

under the Order.

For example, during the June 1 conference, DFS’s counsel informed the Court and

Petitioners in no uncertain terms that DFS is not licensing the VAN—including its valuable voter

database—to any of its candidate-clients and has no plans to do so in the future. Mastro Aff. at ¶

17; see also Ex. B at 13 (stating that DFS “currently has no plans to provide clients access to the

VAN”). Yet DFS’s new website includes “CRM database management and administration” among

DFS’s “List of Primary Services.” Ex. U (www.dataandfield.com/services). In other words, DFS is

continuing to offer its valuable voter database through some form of CRM software package, of

which the VAN is but one type. See, e.g., Ex. W (Ned Madden, “Voter Relationship Management:

The Constituent Is the Customer,” CRM Buyer (Mar. 31, 2008)) at 3–4, 5; Ex. X (A. Ross email to E.

Jenkins, dated Dec. 3, 2009) (confirming that the VAN is one type of CRM software package).

“CRM” stands for “customer relationship management” or “constituent relationship

management.” Ex. W at 2. It is simply a software system that displays data regarding customers—

or, in this case, constituents—in an organized and accessible manner. See id. The heart of that

system, though, remains DFS’s valuable voter database, meticulously collected and updated at

enormous expense. See Ex. Y (Affirmation of Martin E. Connor, dated March 9, 2010) at ¶ 8

(“Indeed, the VAN was particularly valuable in the case of the Rose Campaign because it already

contained within its data base the results of extensive voter canvassing and, in particular, canvassing

in Rose's district during her special election campaign, identifying thousands of voters pre-screened

and as likely voter targets for her. DFS’s failure to charge fair market value for VAN access

constituted another five-figure in-kind contribution to the Rose Campaign.”); Ex. Z (Supplemental

Affidavit of Jake Menges, dated March 9, 2010) at ¶ 7 (“In my expert opinion, DFS should have

charged the Rose Campaign at least $10,000 or more for VAN access” and that “DFS claimed to

have typically charged City Council campaigns $500.00 for early access and $1,000.00 for access to

the VAN, sums far below the actual value of the VAN.”). Thus, DFS is using the ruse of a new

software system housing this valuable voter database to try to evade having to charge its candidate-

clients fair market value for this package, as the court-ordered settlement clearly requires.

DFS’s new website also confirms that DFS remains very much under the control of the

WFP, and is anything but independent of the WFP. In addition to sharing the same offices at 2

Nevins Street in Brooklyn, compare Ex. GG (www.dataandfield.com/contact-us), with Ex. HH

(www.workingfamiliesparty.org/about/contact/); accord Ex. B at 8 (“DFS operates out of the same

office space in Brooklyn housing the WFP.”), DFS and the WFP use identical language on their

websites to describe the employees they seek and the benefits they offer. Compare Ex. II

(www.dataandfield.com/jobs-with-dfs), with Ex. JJ (www.workingfamiliesparty.org/jobs/); see also

Ex. B at 20 (confirming DFS and WFP share employees). The “Jobs” pages of DFS’s new website

and the WFP’s website mirror each other: they both recruit “dedicated, progressive individuals, who

share our passion for economic justice to work on exciting campaigns for universal health care,

green energy, and progressive taxation and to elect strong progressive candidates” and “fighting for

justice for working people,” and offer prospective employees “Full Health Benefits, Paid vacation /

Sick Days, Full Training Provided, [and] Work in a Friendly, Inspiring setting fighting for justice for

working people.” Compare Ex. II, with Ex. JJ. If DFS were truly independent of the WFP and truly

intended to work for non-WFP-backed campaigns, as they claimed they might at the June 1

conference, DFS would not be seeking the exact same employees as the WFP and would not already

know that these employees will work for candidate who share the exact same positions as the WFP.

A former DFS employee recently went public, exposing DFS’s continuing involvement in

the WFP’s corrupt schemes. That former DFS employee “was so disturbed by the [party’s] practices

that he walked out after only one week on the job.” Ex. E (Sally Goldenberg, “Working ‘Sham’-

ilies,” N.Y. Post (July 12, 2010)). Although he applied for a job with—and believed he had been

hired by—the WFP, he later learned that he was working for and would be paid by DFS. Id. The

former employee reported that he became disillusioned after being “encouraged by higher-ups to

falsify signatures and addresses on petitions supporting the left-wing party’s push to repeal a state

law that took rent regulation out of the city’s hands and gave it to the state.” Id.

G. DFS’s Counsel’s Subsequent Correspondence Has Only Reinforced That DFS Has Failed To Comply With This Court’s Order

Since the June 1 conference, DFS’s counsel has refused to provide Petitioners with copies of

any of the documents this Court directed DFS to produce, insisting Petitioners first have to consent

to an onerous and unnecessary protective order to hold them in strict confidence. See Ex. OO

(DFS’s Proposed Stipulation and Protective Order); see also Ex. NN (Letter from A. Celli to Hon.

Anthony I. Giacobbe, dated June 18, 2010) at 1–2. In blanket fashion, DFS’s counsel simply

characterized these few documents as “confidential and proprietary [in] nature,” Ex. NN at 1, even

though DFS touted the substance of what they supposedly say. E.g., Ex. C (Letter from A. Celli to

R. Mastro, dated June 25, 2010) at 1 (“As we explained during the Court conference on June 1,

2010, the Board passed a resolution on May 26, 2010 adopting all of the recommendations of the

Kaye Report.”); id. (further disclosing “that the Board adopted the resolution creating a ‘written

policy that it will not contract to charge a CFB-regulated campaign below DFS’s best estimate of its

costs of fulfilling the contract’”).

DFS’s June 18 letter also revealed for the first time that DFS established a separate “initial

‘organizing’ board” whose members “served on a short term basis to enact the by-laws and

commence new operations under the Stipulation.” Ex. NN at 2. At the June 1 conference, DFS’s

counsel made no mention whatsoever of this “initial ‘organizing’ board.” And its composition

remains a mystery to this day. Instead, DFS’s counsel simply stated that DFS had now appointed a

new Board with a majority of “independent” members, the new Board had met three times, and new

by-laws and the Kaye Report’ recommendations had been adopted, misleading the Court and

Petitioners into believing that the new DFS Board had adopted them when, in fact, that was done by

a separate, yet-to-be-revealed “initial ‘organizing board.’” Id.; see also Ex. MM (E-mail from E. Saylor

to R. Mastro, dated June 25, 2010).

Finally, in response to Petitioners’ counsel’s June 18 letter, DFS’s counsel confirmed that the

newly constituted DFS Board adopted the Kaye Report’s recommendation that DFS reconstitute

itself as a “taxable, nonprofit corporation” and adopt a “written policy that it will not contract to

charge a CFB-regulated campaign below DFS’s best estimate of its costs of fulfilling its contract.”

Ex. B at ¶¶ 1, 2(c); see also Ex. C (Letter from A. Celli to R. Mastro, dated June 25, 2010) at 1. DFS’s

counsel tried to rationalize the adoption of this policy by claiming “costs are the floor” of what DFS

will charge its candidate-clients. In other words, DFS’s counsel has now admitted that, at least in

some cases, DFS will charge its clients only enough to cover its costs, without charging any profit

margin, as a “for-profit corporation” necessarily would and the court-ordered settlement requires

DFS to do. Ex. C at 1; see also Ex. A at ¶ 4(e).

JURISDICTION AND STANDARD OF REVIEW

Petitioners have the right to seek to enforce the Order, and this Court has the inherent and

express authority to entertain such an application, including by the Order’s express terms. See Ex. A

at ¶ 9 (“This Court shall retain jurisdiction over this special proceeding to oversee, implement and

enforce the terms of this stipulation and order, and to render any further decisions required

hereunder.”); see also Cambridge Assocs. v. Town of N. Salem, 228 A.D.2d 537, 539, 644 N.Y.S.2d 775,

776 (2d Dep’t 1996) (where, as here, such language appears in the order incorporating a settlement

agreement, “the Supreme Court retain[s] jurisdiction over the matter.”); Matter of Fontana D’Oro

Foods, Inc., 122 Misc. 2d 1091, 1093, 472 N.Y.S.2d 528, 530 (Sup. Ct. Richmond Cnty. 1983) (same).

A. This Court May Hold DFS In Contempt

The New York Judiciary Law expressly provides for this Court to enter contempt orders and

to sanction parties for their “disobedience.” Under that New York law:

A court of record has power to punish, by fine and imprisonment, or either, a neglect or violation of duty, or other misconduct, by which a right or remedy of a party to a civil action or special proceeding, pending in the court may be defeated, impaired, impeded, or prejudiced, in any of the following cases: . . .

A party to the action or special proceeding, an attorney, counselor, or other person, for the non-payment of a sum of money [except where the CPLR provides for another collection mechanism]; or for any other disobedience to a lawful mandate of the court.

Judiciary Law § 753(A)(3) (emphasis added). In addition, an application for contempt may be made

by motion. See id. § 756 (“An application to punish for a contempt punishable civilly may be

commenced by notice of motion returnable before the court or judge authorized to punish for the

offense . . . .”).

To prove contempt, a party must simply show that:

a lawful order of the court, clearly expressing an unequivocal mandate, was in effect. It must appear, with reasonable certainty, that the order has been disobeyed. Moreover, the party to be held in contempt must have had knowledge of the court’s order, although it is not necessary that the order actually have been served upon the party. Finally, prejudice to the right of a party to the litigation must be demonstrated.

McCormick v. Axelrod, 59 N.Y.2d 574, 583, 453 N.E.2d 508, 512–13 (1983) (internal citations

omitted). A “so-ordered” stipulation constitutes a “lawful order of the court.” See HCE Assocs. v.

3000 Watermill Lane Realty Corp., 173 A.D.2d 774, 775, 570 N.Y.S.2d 642, 643 (2d Dep’t 1991)

(affirming relief granted, which “was to compel [defendant] to comply with a stipulation made in

open court”); Various Tenants of 446-448 W. 167th St. v. N.Y.C. Dep’t of Housing, 153 Misc. 2d 221, 588

N.Y.S.2d 840 (1st Dep’t 1992) (per curiam) (affirming the order adjudging respondent in civil

contempt for violating a so-ordered stipulation); Wolf v. Bergano, 263 A.D. 825, 825, 31 N.Y.S.2d 309,

310 (2d Dep’t 1941) (holding that plaintiff’s motion for contempt should have been granted for

defendants’ “failure to comply with a judgment in favor of the plaintiff, entered upon a stipulation

and consent of the defendants”).

In determining whether a “so-ordered” stipulation has been disobeyed, courts construe it as

a “binding, independent contract between the parties which must be strictly enforced.” Chernow v.

Chernow, 51 A.D.3d 705, 706, 857 N.Y.S.2d 721, 722 (2d Dep’t 2008). “Such stipulations are

governed by general contract principles.” Chan v. Barry, 36 A.D.3d 579, 579, 827 N.Y.S.2d 295, 296

(2d Dep’t 2007); see also Doubrovinskaya v. Dembitzer, 20 Misc. 3d 440, 443, 858 N.Y.S.2d 874, 877

(Sup. Ct. Kings Cnty. 2008) (“A stipulation of settlement is a contract, enforceable according to its

terms.”). The “strict enforcement of settlement agreements” is favored because it “not only serves

the interest of efficient dispute resolution but is also essential to the management of court calendars

and integrity of the litigation process.” IDT Corp. v. Tyco Group, 13 N.Y.3d 209, 213–14, 918 N.E.2d

913, 916 (2009) (internal brackets omitted); see also Nigro v. Nigro, 44 A.D.3d 831, 831, 843 N.Y.S.2d

664, 665 (2d Dep’t 2007) (“This is all the more so in the case of ‘open court’ stipulations within

CPLR 2104 . . . .”) (internal citation omitted).

Of note, in holding a party in contempt, “the court need not find willful or intentional

conduct on the part of the contemnor. Nor is the court required to find that the contemnor

benefited from his act of disobedience.” Campanella v. Campanella, 152 A.D.2d 190, 194, 548

N.Y.S.2d 279, 281 (2d Dep’t 1989). Indeed, “the mere act of disobedience, regardless of its motive,

is sufficient to sustain a finding of civil contempt if such disobedience defeats, impairs, impedes or

prejudices the rights of a party.” Gordon v. Janover, 121 A.D.2d 599, 600, 503 N.Y.S.2d 860, 862 (2d

Dep’t 1986) (internal quotation marks omitted).

With respect to the remedy to be imposed for DFS’s contempt, the Court may require the

offending party to make the aggrieved party whole for any “actual loss or injury.” Judiciary Law §

773; see also Gordon, 121 A.D.2d at 600, 503 N.Y.S.2d at 862 (“The court may, in an action to punish

for civil contempt . . . impose upon the offending party the other party’s reasonable costs and

expenses, including attorney’s fees.”); accord Glennon v. Mayo, 174 A.D.2d 600, 601, 571 N.Y.S.2d 307,

308–09 (2d Dep’t 1991); Davey v. Kelly, 57 A.D.3d 230, 230, 869 N.Y.S.2d 37, 38 (1st Dep’t 2008)

(affirming award of counsel fees and costs as remedy for contempt); Diorio v. City of Peekskill Common

Council, 13 A.D.3d 523, 523, 787 N.Y.S.2d 72, 73 (2d Dep’t 2004) (holding that, even where an

offending party’s belated compliance with an order was agreed to by the movant-petitioner, the trial

court still should have awarded petitioner “the amount of the petitioner’s attorney’s fee incurred on

the motion to hold the respondent in civil contempt, including the reasonable attorney’s fee incurred

in pursuing this appeal”). Even “[w]here it is not shown that such an actual loss or injury has been

caused, a fine may be imposed, not exceeding the amount of the complainant’s costs and expenses,

and two hundred and fifty dollars in addition thereto, and must be collected and paid, in like

manner. A corporation may be fined as prescribed in this section.” Judiciary Law § 773.

Furthermore, the Court may fashion a remedy sufficient to coerce the offending party to

cure itself of its contempt. Under Judiciary Law § 753(A), this includes both the imposition of

compounding monetary fines on a daily basis, see, e.g., Bell v. White, 55 A.D.3d 1211, 1214, 867

N.Y.S.2d 729, 732 (3d Dep’t 2008) (affirming order that “plaintiff [] pay defendants $100 per day for

every day of delay or failure to comply with [the court’s] current order”); Ireland v. Wilenzik, 296

A.D.2d 771, 773, 745 N.Y.S.2d 316, 318 (3d Dep’t 2002) (leaving undisturbed Supreme Court’s

order that contemnor “pay an additional $250 per day until the sanctions were paid”); Matter of Marc

Rich & Co., A.G., 707 F.2d 663, 670 (2d Cir. 1983) (holding, with respect to civil contempt, that “the

coercive fine of $50,000 per day did not constitute an abuse of the district court’s discretion”), as

well as an order of imprisonment of the contemnor. See, e.g., Rubackin v. Rubackin, 62 A.D.3d 11, 16,

875 N.Y.S.2d 90, 93 (2d Dep’t 2009) (holding that “imprisonment for civil contempt is ordered

where the defendant has refused to do an affirmative act required by the provisions of an order

which, either in form or substance, was mandating in its character. Imprisonment in such cases is

not inflicted as a punishment, but is intended to be remedial by coercing the defendant to do what

he had refused to do. The decree in such cases is that the defendant stand committed unless and

until he performs the affirmative act required by the court’s order.”); Odimgbe v. Dockery, 153 Misc. 2d

584, 588, 582 N.Y.S.2d 909, 913 (N.Y. Civ. Ct. 1992) (holding that “sanctions for civil contempt can

include indefinite imprisonment until the contemnor complies with the order” and ordering 20-day

imprisonment on contemnor in the case).

B. Alternatively, This Court May Impose Sanctions On DFS

This Court may also simply impose sanctions on DFS for violating its Order, pursuant to

New York’s general sanctions rule. See N.Y. Comp. Codes R. & Regs. tit. 22, § 130-1.1(c)(2) & (3)

(permitting the imposition of sanctions for “frivolous” conduct, meaning conduct “undertaken

primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure

another” or the “assert[ion of] material factual statements that are false”); Levine v. Angsten, 6 A.D.3d

340, 340, 775 N.Y.S.2d 518, 518 (1st Dep’t 2004) (affirming order imposing a $50-per-day sanction

for each day of noncompliance).

One type of frivolous conduct is the violation of a settlement agreement or the disobedience

of a court order. See, e.g., Birch v. Carroll, 210 A.D.2d 119, 120, 620 N.Y.S.2d 56, 57 (1st Dep’t 1994)

(affirming award of “costs to the plaintiff pursuant to 22 NYCRR part 130” because the defendants’

conduct “resulted in substantial expense to the plaintiff and delay in the parties’ performance under

the settlement agreement”); Clifton Country Rd. Assocs. v. Vinciguerra, 225 A.D.2d 932, 933, 639

N.Y.S.2d 175, 176 (3d Dep’t 1996) (holding that, even absent a finding of civil contempt, “costs,

including reasonable counsel fees, may be imposed where, as here, a party engages in conduct that ‘is

undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously

injure another’”) (quoting N.Y. Comp. Codes R. & Regs. tit. 22, § 130-1.1(c)(2)); see also Then ex rel.

Then v. N.Y.C. Transit Auth., 22 Misc. 3d 1129(A), 881 N.Y.S.2d 367, 2009 WL 565085, at *2 (Sup.

Ct. Queens Cnty. Mar. 4, 2009) (imposing sanctions, including “for the costs of the motion for

sanction,” where defendant violated the terms of a written stipulation).

C. In Addition To Imposing Contempt Sanctions On DFS, This Court May Also Compel DFS To Comply With Its Order

In any event, this Court also has the authority to grant Petitioners’ motion to compel DFS to

comply with the Order. See Camelot of Staten Island, Inc. v. Metro. Mgmt., LLC, 56 A.D.3d 505, 506,

867 N.Y.S.2d 208, 209–10 (2d Dep’t 2008); see also Pappas v. Hooda Realty, Inc., 277 A.D.2d 437, 438,

715 N.Y.S.2d 906, 906 (2d Dep’t 2000) (affirming with costs order which “granted the plaintiffs’

motion to compel specific performance of the terms of a stipulation of settlement”); Wolstencroft v.

Sassower, 212 A.D.2d 598, 598, 623 N.Y.S.2d 7, 8 (2d Dep’t 1995) (affirming order which “granted

the plaintiff’s motion to compel her compliance with a stipulation of settlement and imposed

sanctions,” as well as separate order which “held her in contempt based on its finding that she had

violated [the first] order”).

In the determination of whether to compel compliance, “[a] so-ordered stipulation, as a

contract, must be read as a whole, with every part interpreted with reference to the whole so as to

give effect to its general purpose.” Camelot of Staten Island, 56 A.D.3d at 505, 867 N.Y.S.2d at 209.

D. Application To Compel DFS To Disclose Documents

Under New York law, where, as here, a “so-ordered” stipulation so provides, the court

retains its supervisory power over the proceeding. See Teitelbaum Holdings, Ltd. v. Gold, 48 N.Y.2d 51,

56, 421 N.Y.S.2d 556, 558-59, 396 N.E.2d 1029, 1031 (1979). The Court’s powers in this regard

include the powers (i) to hold an evidentiary hearing (see 288/98 W. End Tenants Corp. v. Mosesson, 144

A.D.2d 305, 305, 534 N.Y.S.2d 178, 178 (1st Dep’t 1988)), and (ii) to compel disclosure. See SMD

Capital Group LLC v. EPR Capital LLC, 45 A.D.3d 314, 314-15, 846 N.Y.S.2d 89, 90 (1st Dep’t

2007).

Indeed, even where a “so-ordered” settlement agreement does not explicitly contemplate

such disclosure, a court in its supervisory role may order a party to disclose documents and other

materials relevant to ensuring that the party is complying with the order’s terms. See Balkin v. Balkin,

43 A.D.3d 967, 968, 842 N.Y.S.2d 523, 524 (2d Dep’t 2007) (affirming the grant of respondent’s

motions for enforcement of the parties’ settlement agreement and to compel production of

documents necessary to ensure compliance); see also Cruz v. Brentwood Union Free Sch. Dist., -- A.D.3d -

--, 897 N.Y.S.2d 499, 500 (2d Dep’t 2010) (holding that “supervision of disclosure is generally left to

the trial court’s broad discretion”).

ARGUMENT

DFS has violated this Court’s Order in at least four material respects, each of which,

standing alone, warrants the imposition of contempt sanctions here. Collectively, they compel it.

First, the DFS Board has violated the Order’s mandate that DFS “charge its

candidate-clients (or their committees) fair market value for the actual services provided by DFS as a

for-profit corporation” by resolving to reconstitute DFS as a “taxable, nonprofit corporation” and

adopting a “written policy that it will not contract to charge a CFB-regulated campaign below DFS’s

best estimate of its costs of fulfilling its contract,” per the Kaye Report’s recommendations. Ex. A

at ¶ 4(e); see also Ex. B at 17.

Second, DFS has violated the Order by offering its valuable voter database to current and

prospective clients without first retaining an independent expert to evaluate its fair market value.

Ex. A at ¶ 4(g).

Third, DFS has violated the Order’s mandate that DFS “operate[ ] independently and not

under the control of” the WFP by failing to appoint a majority of the members of its

newly-constituted Board who are “independent” of the WFP, as that term is defined in the Order.

Ex. A at ¶ 4(a).

Fourth, DFS has violated the Order by failing to take steps sufficient to “establish

management, administrative, and employment structures that are independent of and not controlled

by the WFP.” Ex. A at ¶ 4(a)–(b).

The fact of the matter is that DFS remains the captive corporate shell of the WFP. It has

flouted this Court’s orders long enough. Now, it must be held accountable for its misconduct and

made to live up to the benefit of its bargain. In the interim, it should be compelled to make

document disclosures concerning its alleged compliance with the court-ordered settlement, and if

necessary to decide this contempt motion, the Court should hold an evidentiary hearing. In any

event, the Court should enter an order holding DFS in contempt and imposing sanctions sufficient

to coerce DFS into complying.

DFS’S RESOLUTION TO RECONSTITUTE ITSELF AS A “TAXABLE, NONPROFIT CORPORATION” AND TO ADOPT A POLICY TO CHARGE ONLY “ITS OWN COSTS” VIOLATES THE ORDER’S

DIRECTIVE TO CHARGE FAIR MARKET VALUE “AS A FOR-PROFIT CORPORATION”

On May 26, 2010, the newly appointed DFS Board passed a resolution adopting all of the

recommendations of the Kaye Report, including the recommendations that DFS “reconstitute[e]

[itself] as a taxable, nonprofit corporation” and adopt a “written policy that it will not contract to

charge a CFB-regulated campaign below DFS’s best estimate of its costs of fulfilling its contract.”

Ex. B at 17; see also Ex. C (Letter from A. Celli to R. Mastro, dated June. 25, 2010) at 1. In doing so,

DFS resolved to transform itself from a for-profit corporation into a not-for-profit, and to charge at

least some of its clients no more than its own costs, which is obviously far below what a true for-

profit corporation would charge its candidate-clients because it would eliminate any profit margin

whatsoever. DFS’s adoption of these recommendations clearly violates the plain language of the

Order, which requires that “DFS shall charge its candidate-clients (or their committees) fair market

value for the actual services provided by DFS as a for-profit corporation.” Ex. A at ¶ 4(e) (emphasis

added). Thus, Petitioners respectfully request that this Court hold DFS in contempt and compel

DFS to comply with the express terms of the Order, regardless of its Board’s resolutions to the

contrary.

“A consent decree is in the nature of a contract, which [the Court] must interpret in light of

its plain language.” Callahan v. Carey, 12 N.Y.3d 496, 502, 909 N.E.2d 1229, 1233 (2009) (internal

citation and quotation marks omitted). “[P]rinciples of contract construction require that plain

language should be given effect, and that every provision should be deemed to have some meaning.”

Coppola v. Stroker, 235 A.D.2d 536, 537, 653 N.Y.S.2d 134, 135 (2d Dep’t 1997) (internal citation

omitted). Consequently, contracts may not be constructed as to “render a contractual provision

meaningless or without force or effect.” Ronnen v. Ajax Elec. Motor Corp., 88 N.Y.2d 582, 589, 648

N.Y.S.2d 422, 425 (1996).

By its plain language, the Order requires DFS to remain constituted “as a for-profit

corporation.” Ex. A at ¶ 4(e). Since its formation in 2007, DFS has been registered with the New

York Secretary of State as a for-profit corporation, yet “DFS acknowledges that it generally did not

observe corporate formalities.” Ex. B at 8. Rather—as Petitioners alleged in their Verified Petition,

and as DFS’s own documents and the Kaye Report prove—“DFS generally has operated as an arm

or division of WFP.” Id. at 6. In this role, DFS provided prohibited, coordinated support for WFP-

backed candidates without concern for its profitability, evidenced by the fact that “a shared financial

staff . . . serviced both DFS and WFP” and “the bookkeeping [ ] typically involved periodic

reconciliations” between the respective accounts of WFP and DFS. Id. at 22. To cure this public

deceit, Petitioners expressly included the term “as a for-profit corporation” in the Order to ensure

that DFS would finally become what it had always claimed to be: a true “for-profit corporation.”

Ex. A at ¶ 4(e). By resolving to reconstitute DFS as a “taxable, nonprofit corporation,” DFS has

chosen to ignore and render meaningless this essential provision of the Order, and has violated a

fundamental tenant of New York law that a party to an agreement may not “pick and choose which

provisions suit its purposes.” See God’s Battalion of Prayer Pentagon’s Church, Inc. v. Miele Assocs., LLP, 6

N.Y.3d 371, 374, 812 N.Y.S.2d 435, 437 (2006).8

8 Of note, taxable nonprofits are exceedingly rare. According to the Congressional Research Service, as of 2009, ACORN—a long-time affiliate of the WFP—was the only corporation in the United States that structured itself this way. See Ex. T (U.S. House of Rep. Committee on Oversight and Government Reform Ranking Member Staff Report, “Is ACORN Intentionally Structured As a Criminal Enterprise?” (July 23, 2009)) at 89. The Staff Report also cited Bruce Hopkins, the Director of the Nonprofit Law Center, who “explained that the ONLY reason a nonprofit would want a non-exempt status would be to conduct political activities without reporting them to the Internal Revenue Service.” Id. In other words, these latest machinations are simply a continuation of the WFP’s scheming to avoid its legal obligations.

The plain language of the Order also requires DFS to charge “fair market value . . . as a

for-profit corporation.” Ex. A at ¶ 4(e). In other words, it must charge more than just its “costs”; it

must also charge a customary profit margin, as any “for-profit corporation” would. The Order

could not be clearer: “DFS shall charge its candidate-clients (or their committees) fair market value

for the actual services provided by DFS as a for-profit corporation.” Id. (emphasis added). As even the

Kaye Report concedes, “[w]ith regard to a for-profit company, ‘[t]he fair market value of services for

which the Company bills its clients presumably contains a profit element above the out-of-pocket

and overhead costs to the Company for providing such services.’” Ex. B at 14 n.5 (quoting NYC

Campaign Finance Board, Advisory Opinion No. 2007-5 (Sept. 6, 2007)). Yet DFS has adopted a

policy to charge its clients as a “taxable, nonprofit corporation” and in a manner that expressly

excludes any intended profit margin. Ex. B at 14, 17.

The adoption of these recommendations, taken together, show that DFS has implemented a

plan to return to the illicit practices that necessitated this special proceeding—drastically under

charging WFP-backed candidates—in direct violation of the Order. Indeed, to charge at “cost”

gives its WFP-backed candidates an unfair advantage—and huge cost savings—over opponents

having to use the services of “for-profit” field operatives charging customary profit margins. See Ex.

Y (Affirmation of Martin E. Connor, dated March 9, 2010) at ¶ 9 (“[A] 20 percent mark up on costs

and an additional success fee would be commonly charged by a for-profit political consulting firm

providing field services to campaigns.”); Ex. Z (Supplemental Affidavit of Jake Menges, dated

March 9, 2010) at ¶ 10 (“In my expert opinion, DFS—a for-profit corporation registered as such

with the State of New York—should have charged the Rose Campaign a profit margin above the

costs of the services it provided to the Rose Campaign. In my experience, for-profit political

consulting firms typically charge client-candidates a profit margin of up to 20 percent and an

additional success fee on winning campaigns.”). To conclude otherwise would “render [this]

contractual provision meaningless [and] without force or effect,” denying Petitioners and all New

York voters the protections and benefits in this settlement in protecting our local democracy from

future abuses. See Ronnen, 88 N.Y.2d at 589, 648 N.Y.S.2d at 425. Accordingly, this Court should

hold DFS in contempt for resolving to become a “nonprofit” and charge some clients at “cost,”

impose compounding fines (and fees and costs) to coerce compliance, and order DFS to fully

comply with the settlement’s terms that it charge its candidate-clients “fair market value . . . as a for-

profit corporation.”

DFS HAS VIOLATED THE ORDER BY CONTINUING TO OFFER ITS VALUABLE VOTER DATABASE TO ITS CLIENTS WITHOUT HAVING AN INDEPENDENT EXPERT ASSESS ITS FAIR MARKET VALUE AND

THEN CHARGE THAT AMOUNT

DFS has violated the Order by continuing to offer its valuable voter database—once

provided through the VAN—to its candidate-clients through a different software package without

first securing a fair market valuation of the database by an independent expert. The Order clearly

states that:

DFS shall not provide access to the VAN to its candidate-clients or their committees unless it shall first have caused an independent expert to conduct an evaluation of the actual fair market value of the VAN to its candidate-clients (or their committees) for whom or which DFS provides services. . . . DFS shall charge its candidate-clients and their committees the amount determined by the independent expert to be the actual fair market value of the VAN.

Ex. A at ¶ 4(g).

DFS acknowledges that, to date, it has not secured a valuation of the VAN by an

independent expert. Its counsel claimed during the June 1 conference that DFS has no plans to

offer that state-of-the-art valuable voter database to its clients now or in the future. However,

DFS’s new website puts the lie to those claims, as DFS includes “CRM database management and

administration” as among the “List of Primary Services” it is currently offering to clients. See Ex. U

(www.dataandfield.com/services).

The Voter Activation Network—or “VAN”—is comprised of two components: (1) a

database of DFS’s valuable voter information, and (2) a CRM software program utilized to store,

organize, and access that information. The value of the VAN to DFS and its customers lies

predominantly in the vast compilation of valuable voter information, and this value is enhanced by

the functionality of the chosen CRM software program through which it is stored, organized and

accessed. See Ex. X (A. Ross email to E. Jenkins, dated Dec. 3, 2009) (describing the

comprehensiveness of the so-called “back-end” data and the VAN and non-VAN options on the

so-called “front-end”). Many different CRM software programs can duplicate the VAN software’s

capabilities. See, e.g., Ex. AA (www.microsoft.com/dynamics/en/us/default.aspx); Ex. BB

(www.frontrange.com/goldmine.aspx) (different examples of non-VAN CRM solutions available on

the market). Consequently, to allow DFS to offer its valuable voter database to its clients through a

CRM software system that only differs from the VAN in minor non-substantive ways would render

the Order’s independent assessment of its value meaningless: Through that transparent ruse, DFS

could continue to provide the valuable voter database portion of the VAN through a substantially

similar CRM management program while perpetually ignoring its obligation to determine and

charge its candidate-clients the actual fair market value of that extraordinary service. Obviously, that

would not be consistent with the requirements and intent of this court-ordered settlement.

Such a repackaging of the VAN system violates both the letter and spirit of the parties’

settlement. Indeed, it is a bad-faith attempt to get around the requirements of this Court’s Order.

Like any other contractual obligation, settlement obligations must be fulfilled so as to avoid

rendering the parties’ agreement meaningless. John A. Paige Jr. Contracting, Inc. v. Gush, 35 A.D.3d

991, 992, 826 N.Y.S.2d 477, 478 (3d Dep’t 2006) (although the parties’ settlement agreement did not

expressly mention the installation of utilities, the installation was nevertheless a material component

of the settlement; to determine otherwise “would render meaningless the ‘tolling’ clause” of the

settlement that related to delays caused by third-party utilities installers).

It is now apparent that DFS is continuing to offer its valuable voter database to its clients

through a CRM software package that is functionally equivalent to the VAN’s software component.

See, e.g., Ex. CC (Jack Douglas, “Election Campaigns Turn to CRM,” destination CRM.com (July 14,

2000)) (“[P]olitical campaigns are having increasing success using the same customer relationship

management (CRM) tools and techniques with voters that companies use with customers.”); Ex.

DD (Paul W. Taylor, “Political CRM,” Government Technology (Oct. 5, 2004)) (“Complex and

highly partisan CRM is being deployed by both major parties to help tip election results in their

favor, district by district, mobilizing their respective bases and wooing fickle swing voters.”). Hence,

even if DFS no longer uses the exact same VAN software system as the CRM platform through

which it compiles and accesses its valuable voter information, DFS is still obligated to have an

independent expert assessment done of its fair market value and charge its candidate-clients

accordingly, as expressly provided in the court-ordered settlement.

Under New York law, a party breaches a settlement agreement when its noncompliance

violates the agreement’s spirit and purpose. See Abbey Funeral Dirs., Inc. v. Smith, 24 Misc. 2d 492,

494, 204 N.Y.S.2d 439, 440-41 (Sup. Ct. N.Y. Cnty. 1960), aff’d, 14 A.D.2d 837, 218 N.Y.S.2d 527

(1st Dep’t 1961), appeal denied, 11 N.Y.2d 642, 225 N.Y.S.2d 1026 (1962); see also Kennedy v. Town of

Thompson, 99 A.D.2d 606, 607, 471 N.Y.S.2d 714, 715 (3d Dep’t 1984) (holding that defendant

breached the parties’ settlement agreement where “the result [of defendant’s purported technical

compliance] was to defeat the purpose of the stipulation to provide proper diversion of water away

from plaintiff’s property”). For example, in Abbey Funeral Directors, defendants bound themselves in

a settlement agreement to change their of-record name “Abbey Park Funeral Chapel,” because it

conflicted with the name of plaintiff funeral establishment, “The Abbey.” 24 Misc. 2d at 494, 204

N.Y.S.2d at 440–41. The court held that defendants’ subsequent use of the name “Abbey

Parkchester” was a “violation of the spirit, if not the letter, of the stipulation . . . . The substitution

of ‘Abbey Parkchester’ for ‘Abbey Park’ is a transparent evasion of the terms of the stipulation.” Id.

In this case, DFS’s actions amount to a similarly transparent evasion of the terms of the

parties’ settlement as memorialized in the Order. DFS apprised the Kaye Report’s authors that it

has no plans to offer its VAN database to any campaigns. Ex. B at 13. DFS’s counsel made

identical misrepresentations at the June 1 conference before this Court, stating that DFS no longer

provides its clients with access to the VAN or even to the database of information previously

housed there. However, DFS’s new website prominently advertises its voter database as “CRM

database management and administration” in its “List of Primary Services.” Ex. U

(www.dataandfield.com/services). As previously noted, the VAN is just one example of a CRM

software package and is easily replaced by another, functionally equivalent CRM software package.

Regardless of the CRM software package, however, the most valuable component of DFS’s state-of-

the-art voter database remains the same: its comprehensive, up-to-date voter information, stored,

organized and accessed there. Ex. X (A. Ross email to E. Jenkins, dated Dec. 3, 2009) (indicating

that all of the data acquisition and enhancement are part of the “back-end,” which means that it is

unaffected by whatever CRM shell, be it VAN or non-VAN, that is placed on the “front-end”).

Moreover, the current DFS website home page highlights DFS’s offering of the services of “an elite

team” of “IT professionals” —undoubtedly the same team as before. See Ex. V

(www.dataandfield.com/home).

These facts confirm that, contrary to its claims, DFS is actively marketing its valuable voter

database as one of its core services. DFS’s ongoing provision of this valuable voter database—

formerly accessed through a CSM software system known as the VAN, and now presumably

accessed through a different but similar CRM software package—is a transparent attempt to skirt its

requirements under this Court’s Order. In doing so, DFS has violated the plain language, purpose

and spirit of the Order. Accordingly, it should be held in contempt for this independent reason as

well and compelled to comply with its settlement obligations so that it cannot continue to

undercharge its candidate-clients for this valuable voter database in the upcoming Fall election cycle.

DFS HAS VIOLATED THE ORDER BY FAILING TO APPOINT A MAJORITY OF “INDEPENDENT” DIRECTORS TO ITS NEW BOARD

DFS has also violated this Court’s Order by failing to appoint a majority of independent

members to its new Board. The court-ordered settlement requires that most of DFS’s new Board of

Directors must be “independent,” which is expressly defined there to mean the following:

[F]or a period of at least two years prior to appointment, they have not themselves been: (i) employed by, a member of, or a contributor to the WFP; or (ii) employed by, a member of, or a contributor to any contributor to the WFP.

Ex. A at ¶ 4(a). DFS now has a new four-member Board, so at least three of them must qualify as

“independent” to satisfy the Order’s requirements. DFS acknowledges that new Board member

Jeffrey Dupee was employed by the WFP in the past two years as a computer programming

consultant and, therefore, is not “independent.” See also Ex. B at 12 (not including Mr. Dupee as

among the independent members). Although DFS claims otherwise, another new Board member,

Ed Ott, is also not “independent,” as that term is defined in the parties’ settlement. Within the past

two years, he served as the Executive Director of the New York City Central Labor Council, AFL-

CIO (“NYC CLC”) and, then, as a consultant there. See Ex. KK (Elizabeth Benjamin, “Central

Label Council Deadlocked on Citywide Races,” Daily News (Aug. 20, 2009)) (noting the “retirement

earlier this summer of [the NYC CLC’s] longtime executive director, Ed Ott, who is now working as

a consultant”). The NYC CLC has been a “contributor to the WFP.” See Ex. LL (WFP’s July 2006

Periodic Report to the N.Y.S. Board of Elections, Schedule C) at 12 (showing NYC CLC $250

contribution to the WFP on June 7, 2006). Accordingly, because Mr. Ott has been employed by the

NYC CLC within the past two years and the NYC CLC has been a contributor to the WFP, he is

not “independent” within the meaning of the Order. Thus, by appointing only two independent

members to its new four-member Board, DFS has violated the Order.

DFS HAS VIOLATED THE ORDER BY FAILING TO TAKE STEPS SUFFICIENT TO “ESTABLISH MANAGEMENT, ADMINISTRATIVE, AND EMPLOYMENT STRUCTURES THAT ARE INDEPENDENT OF

THE WFP”

Finally, there are numerous other indicia of lack of independence that, either alone or in

their aggregate, show that DFS has not fully “establish[ed] management, administrative, and

employment structures that are independent of and not controlled by the WFP.” Ex. A at ¶ 4(b).

For example, DFS has reappointed Mike Boland as its Executive Director. See page 16, supra.

However, Mr. Boland had already been director of DFS prior to entry of the Order, see Ex. EE

(Edward-Isaac Dovere, “Who Took Over WFO Operations?” City Hall News (Nov. 29, 2009))

(“Mike Boland, who identified himself as the director of Data & Field Services”), while

simultaneously serving as Canvass Staff Director and then Field Director for the WFP. See Ex. FF

(College Democrats of New York 2009 Convention Schedule) (identifying Boland as “WFP Field

Director”). Thus, he is clearly not independent of the WFP. Moreover, DFS and the WFP still

share offices at 2 Nevins Street in Brooklyn. Compare Ex. GG (www.dataandfield.com/contact-us),

with Ex. HH (www.workingfamiliesparty.org/about/contact/); see also Ex. B at 20 (“A uniform time

management system might enable the WFP and DFS to document the division of labor among

shared employees and allow for effective monitoring.”) (emphasis added). Thus, it is business as usual

at DFS, employing the same executive staff and continuing to share office space with the WFP.

In addition, DFS’s website identifies individuals it seeks to hire, using language that is

identical to that found on WFP’s website, and makes clear they will be working to elect candidates

who share the WFP’s political philosophy. See pages 18–19, supra. These concerted employment

efforts were recently exposed by a former employee who went public with his shocking experience

there. He originally applied to work for the WFP. Upon his hiring, he learned that he was, in fact,

being employed and paid by DFS. See Ex. E (Sally Goldenberg, “Working ‘Sham’-ilies,” N.Y. Post

(July 12, 2010)). Unwilling to commit the improprieties expected of him (including forging petition

signatures), he quit within a week.

In sum, this Court should hold DFS in contempt, based on any or all of the foregoing

violations of this Court’s Order, and this is especially so because DFS has failed to comply with this

Court’s orders throughout this special proceeding. See HCE Assocs., 173 A.D.2d at 775, 570

N.Y.S.2d at 643 (“[T]he defendant’s history of compliance with court orders is such that in the

interest of justice, the court’s exercise of discretion in compelling it to comply with the stipulation,

after hearing oral argument on the motion was provident”) (internal citation omitted).

PETITIONERS HAVE SUFFERED PREJUDICE AND HARM AS A RESULT OF DFS’S CONTEMPT, AND THIS COURT SHOULD

THEREFORE HOLD DFS IN CONTEMPT OR, ALTERNATIVELY, IMPOSE SANCTIONS OVER ITS LITIGATION MISCONDUCT

Petitioners are prejudiced by DFS’s noncompliance because (1) Petitioners are deprived of

the benefit of their bargain, as embodied in this Court’s Order; and (2) DFS’s noncompliance

effectively restores the harm that Petitioners and all New York voters suffered last Fall when the

WFP and DFS orchestrated their corrupt scheme to circumvent State election law and City

campaign finance law. See Various Tenants of 446-448 W. 167th St. v. N.Y.C. Dep’t of Housing, 153

Misc. 2d 221, 222, 588 N.Y.S.2d 840, 841 (1st Dep’t 1992) (per curiam) (With respect to the showing

of “prejudice,” it suffices that Petitioners’ “rights in the litigation were necessarily and significantly

impaired.”).

Upon finding DFS in contempt, the Court should award Petitioners the fees and costs they

incurred in connection with this special proceeding, including reasonable attorney’s fees. See

Judiciary Law § 773; see also Children’s Village v. Greenburgh Eleven Teachers’ Union Federation of Teachers,

249 A.D.2d 435, 435-36, 671 N.Y.S.2d 503, 504 (2d Dep’t 1998) (“[T]he attorney’s fees incurred by

the appellant in connection with the [respondent]’s [earlier] appeal from the order which held

[respondent] in contempt are a ‘direct product of the contempt proceeding’ and are therefore

recoverable”). Moreover, in addition to the $250 provided in Judiciary Law § 773, the Court should

impose compounding daily fines. See, e.g., N.Y. State Nat’l Org. for Women v. Terry, 159 F.3d 86, 90 (2d

Cir. 1998) (noting earlier affirmance of a “schedule of prospective coercive civil sanctions for future

violations,” providing, inter alia, that failure to comply with the order “shall subject him or her to

civil damages of $25,000 per day for the first violation . . . each successive violation of this Order

shall subject the contemnor to a civil contempt fine double that of the previous fine”); Ex. QQ, State

Farm Mut. Auto. Ins. Co. v. Cohan, No. CV 09-2990(JS)(WDW), 2010 WL 3000685, at *3 (E.D.N.Y.

July 28, 2010) (“Appropriate sanctions should include daily fines starting on July 31 in the amount of

$25,000 and doubling each day until the subpoenas are complied with, and payment to the plaintiff .

. . of all reasonable attorneys’ fees and costs associated with the unnecessarily protracted process of

obtaining compliance with the subpoenas.”).

Alternatively, this Court should award, as sanctions over DFS’s frivolous and deceitful

misconduct—including its noncompliance with the Court’s Order and its counsel’s repeated

misstatements to the Court and Petitioners at the June 1 hearing. Such sanctions would include, but

not be limited to fees and costs, including reasonable attorney’s fees to Petitioners under N.Y.

Comp. Codes R. & Regs. tit. 22, § 130-1.1. See Clifton Country Road, 225 A.D.2d at 933, 639 N.Y.S.2d

at 177 (holding that “an award of costs is appropriate” where the defendant “delayed for months” in

performing his obligations, and when he finally endeavored to do so, his actions still were “not in

compliance with this [c]ourt’s prior order”). Costs should be calculated as “actual expenses

reasonably incurred and reasonable attorney’s fees.” N.Y. Comp. Codes R. & Regs. tit. 22, § 130-

1.1(a).

In any event, the Court should enter an order compelling DFS to fully comply with both the

letter and spirit of the Order going forward.

IN THE INTERIM, THIS COURT SHOULD ORDER DFS TO MAKE DOCUMENT DISCLOSURES CONCERNING ITS ALLEGED

COMPLIANCE EFFORTS AND, IF NECESSARY, THEN HOLD AN EVIDENTIARY HEARING

In the interim, Petitioners respectfully request that this Court order DFS to make

comprehensive document disclosures concerning DFS’s alleged compliance with the Order. This

Court clearly possesses the power to issue such discovery orders so as to ensure that a party is in

compliance with a settlement order. See, e.g., Balkin v. Balkin, 43 A.D.3d 967, 968, 842 N.Y.S.2d 523,

524 (2d Dep’t 2007) (affirming order granting motion to compel production of documents necessary

to ensure compliance with the parties’ settlement agreement). Indeed, at the June 1 conference, this

Court already directed DFS to provide Petitioners with several such documents—namely, a copy of

DFS’s new by-laws, its new standard form contracts, and the DFS Board’s resolution adopting the

recommendations contained in the Kaye Report—which are essential to determine whether DFS

has complied with its obligations under the Order. See Mastro Aff. at ¶ 39. Petitioners are simply

requesting that this Court reaffirm that directive with respect to all documents concerning DFS’s

alleged compliance efforts.9

Unfortunately, as has been its modus operandi, DFS flouted this Court’s June 1 directive by

conditioning production of the requested documents on Petitioners’ agreement to unwarranted

confidentiality restrictions—a precondition never imposed by this Court. See Ex. OO (DFS’s

Proposed Stipulation and Protective Order); see also Ex. NN (Letter from A. Celli to Hon. Anthony

I. Giacobbe, dated June 18, 2010) at 1–2. DFS has proffered no basis for such Draconian

restrictions, except to assert, baselessly, that the Requested Documents are “confidential and

proprietary [in] nature.” Ex. NN at 1. Moreover, on numerous prior occasions, DFS also violated

this Court’s clear orders. See, e.g., supra, Statement of Facts, Section B (discussing the several orders

required before DFS produced relevant documents in its possession—a production not made until

the eve of trial). Therefore, to ensure DFS’s compliance with this Order, the Court should require

DFS—with no strings attached—to produce all documents responsive to Petitioners’ Document

Disclosure Demands, Ex. PP.10

Finally, in the event that this Court determines there are any factual disputes to be resolved

on this contempt motion, it should hold an evidentiary hearing. See, e.g., City Wide Sewer & Drain

Serv. Corp. v. Carusone, 39 A.D.3d 687, 688, 834 N.Y.S.2d 283, 284–85 (2d Dep’t 2007) (remanding

for “an evidentiary hearing on the issue of whether the defendant solicited the plaintiff’s customers,

thereby violating the court-ordered stipulation”); Seven Hanover Square Corp. v. Kaufman, 81 A.D.2d

9 Petitioners also request that this Court order DFS to comply with the Court’s June 1 directive to produce copies of its new by-laws, new standard form contracts, and the DFS Board’s resolution adopting the recommendations contained in the Kaye Report or, alternatively, make those documents already submitted to the Court ex parte a matter of public record.

10 For the convenience of the Court, Petitioners have provided a set of Document Disclosure Demands to which Petitioners respectfully request this Court direct DFS to respond and produce responsive documents. See Ex. PP.

789, 789, 439 N.Y.S.2d 36, 37 (1st Dep’t 1981) (“Enough has been shown [by movant for civil

contempt] so that the proceeding should not be dismissed on affidavits but an evidentiary hearing

should be held.”).

CONCLUSION

For all of the foregoing reasons, Petitioners respectfully request that this Court grant

Petitioners’ motion and hold DFS in contempt for violating this Court’s Order by: (1) resolving to

reconstitute itself as a “taxable, nonprofit corporation” and adopting “a written policy that it will not

contract to charge a CFB-regulated campaign below DFS’s best estimate of its costs of fulfilling its

contract”; (2) offering its database of voter-related information to its current and prospective clients

absent a fair market valuation of the database by an independent expert; (3) failing to appoint a

majority of “independent” members to its new Board; and (4) failing to implement sufficient

reforms to “establish management, administrative, and employment structures that are independent

of the WFP.” In light of DFS’s contempt, Petitioners also respectfully request that this Court

impose compounding daily fines starting at $250 until DFS fully cures itself of its contempt, award

Petitioners their fees and cost (including reasonable attorney’s fees) in bringing this special

proceeding, otherwise sanction DFS for its frivolous litigation practices, and compel DFS to comply

with all of its court-ordered obligations and, in the event DFS continues to fail to comply, taking the

steps necessary to coerce DFS’s compliance, including, if necessary, ordering the imprisonment of a

DFS corporate officer. In the interim, Petitioners respectfully request that this Court order DFS to

make document disclosures concerning its alleged compliance efforts and, if necessary, hold an

evidentiary hearing to decide this contempt motion. Finally, Petitioners respectfully request that this

Court grant such other and further relief as the Court deems just and proper.

Mastro DFS Contempt Motion

Documents

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