150924 Kellner-Spano Amicus Brief

8/20/2019 150924 Kellner-Spano Amicus Brief

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SUPREME COURT OF THE STATE OF N W YORK

COUNTY OF ALBANY

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BRENNAN CENTER FOR JUSTICE AT NYU

SCHOOL OF LAW; GERALD BENJAMIN; LIZ

KRUEGER; JOHN R. DUNNE; DANIEL L

SQUADRON; MAUREEN KEOTA; and BRIAN

KAVANAGH,

Petitioners,

For a Judgment Pursuant to Article 78 of the Civil

Practice Laws and Rules,

-Against-

N W YORK STATE BOARD OF ELECTIONS,

Respondent.

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PRELIMIN RY ST TEMENT

MICUS CURI E

BRIEF

Index No. 3579-15)

The New York State Board

of

Elections hereinafter the State Board) is comprised

of

four

commissioners, two co-chairs appointed by the Governor upon the recommendation

of

legislative leaders in each of the major political parties and two commissioners appointed by the

Governor upon the recommendation of the state committee chairs of each of the two major

political parties. Specifically, Co-Chair Douglas A Kellner and Commissioner Andrew

J.

Spano

were recommended by the Democratic legislative leaders and Democratic State Committee chair

respectively. Similarly, Co-Chair Peter S. Kosinski and Commissioner Gregory P. Peterson were

recommended by the Republican legislative leaders and Republican State Committee chair

respectively.

The issue before the Court concerns a request for the State Board to rescind and revise an

opinion, a motion by Co-Chair Kellner regarding that request, and a subsequent vote of the

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commissioners that resulted in a tie. Specifically, Co-Chair Kellner and Commissioner Spano

voted to rescind and revise a 1996 State Board opinion addressing the character and contribution

limit ofl imi ted liability companies (hereinafter LLCs). In contrast, Co-Chair Kosinski and

Commissioner Peterson voted against rescinding the opinion and revisiting the LLC issue.

Pursuant to Election Law § 3-100( 4) it takes an affirmative vote o three commissioners for any

official action o the state board. A motion that results in a tie vote creates a deadlocked board

and, by default, preserves the status quo. In such an instance, and when litigation is commenced,

it is not unprecedented for the four commissioners to file two competing sets o

papers with the

Court

see Matter

o

Cahill v Kellner,

121

AD3d 1160

[3rd

Dept 2014]).

With the consent o the Democratic commissioners, the Republican commissioners have

submitted an Answer and Objections in Point

o

Law in defense

o

the status quo. The

Democratic commissioners now seek, with the consent o all parties, to submit this Amicus

Curiae Brief in support

o

the petitioners application for relief.

ST NDING

By letter to the State Board dated April 9, 2015, petitioner Brennan Center for Justice at

NYU Law School (hereinafter the Brennan Center petitioners) and its attorney Emery Celli

Brinckerhoff Abady LLP requested that the State Board

1

rescind its 1996 Opinion on LLCs;

2) issue an opinion treating LLCs as either corporations or partnerships depending on the tax

status they select; and 3) clarify that no person may circumvent contribution limits and disclosure

requirements by donating money through multiple LLCs see Amicus Exhibit

1,

Letter to State

Board).

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Thereafter, at a State Board meeting on April 16, 2015, Co-Chair Kellner made a motion

to rescind the 1996 opinion and direct the staff

to

draft a new opinion regarding the nature of and

contribution limit for LLCs. Commissioner Spano seconded the motion and a vote was held.

Commissioners Kellner and Spano voted in favor of the motion and Commissioners Kosinski

and Peterson voted against the motion. This tie vote maintains the status quo with respect to

LLCs making political contributions and constitutes a determination

of

the State Board for

purposes of Article 78 review

see generally Matter of Tall Trees Cons

r

Corp. v Zoning

Bd of

Appeals

of

he Town

of

Huntington, 97 NY2d 86 [2001]; Matter ofMeyer v Bd

of

Trustees

of

he

New York City Fire Dept., 9 NY2d 139, 142 [1997]; Matter

of anfora

v

Bd

of

Trustees

of

he

Police Pension Fund of he Police Dept. of he City

of

New York, 60 NY2d 347, 352 [1983];

Matter of Winn v Rensselaer County Conditional Release Commn., 6 AD3d 929 [3rd Dept 2004];

Matter ofCollins v Kelly, 37 Misc 3d 377, 384 [Sup Ct, New York County 2011]).

There is no administrative appeal available at the State Board

contra Matter

of

Di Pietro

v State Ins. Fund, 206 AD2d 211 [4th Dept 1994]) and there is no option to file a complaint with

the State Board contra Seltzer v Orlando, 225 AD2d 456

[1st

Dept 1996]; Austin v Delligatti,

13

7 Misc

d

530 [Sup Ct, Nassau County 1987]). Therefore petitioners have exhausted their

administrative remedies and have standing to seek a court's review

of

the State Board's

determination

see Watergate

II

Apartments v Buffalo Sewer Auth.,

46 NY2d 52, 57 [1978]).

In addition, the petitioners have standing under the principles articulated by the Third

Department due to the great public interest that is involved in this matter see generally Matter

of

Hebel v West, 25

AD3d 172 [3rd Dept 2005]). The New York Election Law limits the amount

that candidates can receive in political contributions from each source and requires that

candidates report each contribution to promote transparency see Election Law, Article 14 ). Like

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the petitioners in Hebel, this case has appreciable public significance beyond the immediately

affected parties and raises

a

matter of obvious statewide concern due to the ability of

individuals to make numerous maximum contributions to candidates through the use

of

multiple

LLCs as permitted by the State Board opinion Id. at 176). This statewide concern is reflected in

the extensive media coverage

of

the LLC loophole over the last several years.

NON JUSTICIABLE QUESTION

The argument that this matter should be dismissed as non-justiciable because the remedy

sought would violate the separation

of

powers doctrine is not supported by the facts. This matter

is not one between the executive branch and the legislative branch with one branch attempting to

interfere with the other's lawful discharge

of

duties (Respondent Objections in Points

of

Law,

Point II, at 11 . The State Board is an administrative agency, not the Executive Branch, and

Article 78

of

the CPLR is exactly the right mechanism to use to seek court review

of

its

determinations

New York City Health

nd

Hospital Corp. v McBarnette, 84 NY2d 194, 204

[1994]).

The argument that the petitioners are attempting to leap frog the Legislature

(Respondent Objections in Points of Law, Point II, at 13) and have this Court substitute their

wisdom for that of the political branches of government Id. at 12) is ironic given that the 1996

opinion is not based on any provision in the Election Law. Despite the lack of statutory

authority, the State Board has, and continuous to have, the opinion that an LLC should be treated

as an individual for contribution purposes. The State Board's opinion could itself be

characterized as invading the prerogative of

the political branches

of

government as to whether

to ban or allow a commercial entity to make a political contribution. Thus, any argument that the

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petitioners seek to usurp the Legislature's prerogative by challenging the State Board's position

on LLCs is belied

by

the past action

of

the State Board.

ST TUTE OF LIMIT TIONS

The statute of limitations for a proceeding against an administrative agency is four

months (CPLR § 217[1 ]). The Brennan Center petitioners requested that the State Board rescind

and revisit its opinion on LLCs by letter dated April 9, 2015. On April 16, 2015, the State Board

met, a motion was made to grant the request, and the motion resulted in a tie vote which

constitutes a determination to affirm the opinion and maintains the status quo. Petitioners

thereafter commenced this Article 78 proceeding on July 14, 2015, less than 4 months after the

letter request and the State Board meeting. As a result, this Article 78 proceeding is timely and

not barred by the applicable statute of limitations.

The State Board's argument that the four-month statute of limitations expired four

months after the adoption of the 1996 opinion is without merit. The Brennan Center petitioners

requested that the State Board reconsider its opinion given the current and ongoing exploitation

of the

LLC

loophole in a way that is inconsistent with the legal nature of LLCs, the rescission

of the Federal Election Commission (hereinafter FEC) opinion upon which it is based, and the

overall scheme of the Election Law with respect to limiting contributions and promoting

transparency. Petitioners commenced this proceeding within four months of their request that the

State Board rescind and revisit its opinion see generally Matter

o

Rivera v Travis,

3

AD3d

942 [3rd Dept 2005] [petitioner requested a Parole Board ruling that certain regulations were

repealed by implication as a result of a statutory amendment]).


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NECESS RY P RTIES

The New York State Board of Elections is a party to this proceeding, and there is no

requirement that the individual commissioners comprising that entity also be named. The CPLR

commands that [p]ersons who ought to be parties

if

complete relief is to be accorded between

the persons who are parties to the action or might be inequitably affected by a judgment ... shall

be made plaintiffs or defendants (CPLR 1 1 [a]). CPLR 1023 specifies that [w]hen a

public officer, body, board, commission or other public agency may sue or be sued in its official

capacity, it may be designated by its official title, subject to the power of the court to require

names to be added. This statutory provision is expressly designed to encourage the use

of

the

official title without any mention

of

the officer individually thereby recognizing the intrinsic

character of the action and helping to eliminate concern with the problem of substitution see

Matter a Travel House v. Grezechowiak,

31AD2d74,

82 [4

1

h Dept 1968] quoting 2 Weinstein

Korn-Miller, NY Civ Prac 1023.01 [internal quotation marks omitted]). The State Board is

empowered to institute judicial proceedings see Election Law 3-102 [7]) and to be sued see

Election Law 16-100 et seq.).

As an entity, the New York State Board ofElections exists distinct from the four

commissioners who comprise its membership. Recognizing this distinction between members

and the entity, the court in Max v Ward (107 AD3d 1597, 1599

[ th

Dept 2013]) held that

although all of the commissioners of the Erie County Board ofElections were named parties, the

board itself, a necessary party, was notjoined

1

see also Mullen v Fucciollo,

153

AD2d

711

[2nd

Dept 1989] [upholding dismissal

of

a proceeding in which only one

of

two commissioners

of

the

Suffolk County was named because

of

the failure to join, as a necessary party, one

of

the two

The court nevertheless forgave the error.

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Commissioners constituting the Suffolk County Board

of

Elections or the Suffolk County Board

ofElections itself ' (emphasis added)]). The entity's failure to act is at issue, not the personal

conduct of any commissioner. In the instant matter the individual commissioners face no theory

of individual liability and as such are not indispensable parties under CPLR § 1001.

N TURE OF THE RELIEF SOUGHT

Co-Chair Kellner and Commissioner Spano rely on the facts as stated in the Verified

Petition and agree with the claim that the State Board's current position on LLCs is affected by

an error

of

law,

is

irrational and unreasonable, and therefore, is arbitrary and capricious. The

commissioners o not agree with the respondent's contention that the nature of the matter before

the Court is one seeking a writ of mandamus to compel (Objections in Point of Law, Point IV, at

16). A mandamus to compel proceeding is one in which a petitioner must have a clear legal

right to the relief demanded and there must exist a corresponding nondiscretionary duty on the

part

of

the administrative agency to grant that

relief

Matter

o

Scherbyn v Wayne-Finger Lakes

Bd o

Coop. Educ. Servs.,

77 NY2d 753, 757 [1991]). Petitioners have not pleaded a mandamus

to compel proceeding. Instead, petitioners have pleaded a mandamus to review proceeding

which is similar in nature to a certiorari proceeding in that both involve judicial review

of

an

administrative action involving the exercise

of

discretion id.).

However, in contrast to a certiorari proceeding where the administrative agency makes a

determination after a quasi-judicial hearing involving a full record, the mandamus to review

proceeding involves no quasi-judicial hearing by the administrative agency. Instead the

administrative agency must merely offer the petitioner a chance to be heard

id.).

Moreover, in

reviewing the agency's determination, the standard ofreview used by the court is dependent on

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whether a quasi-judicial hearing occurred.

f

such a hearing occurred, the standard of review is

whether the determination is supported by substantial evidence and the matter is properly

transferred to the Appellate Division (CPLR 7804[g]; compare Matter ofDubb Enters.

Inc

v

New York State Liq. Auth.,

187 AD2d 831 [3rd Dept 1992]). On the other hand, if there was

no

hearing but merely an administrative determination, the Supreme Court reviews the

determination as to whether it was made in violation of lawful procedure, was affected by an

error

of

law or was arbitrary and capricious or an abuse of discretion .. .. (CPLR 7803[3];

see

also Matter

of

Dubb,

at 832).

In this instance, the State Board's current position regarding the nature and contribution

limit

of

LLCs is based solely on a legal conclusion. No hearing occurred, no evidence was

submitted and the State Board did not make any findings of fact. Under these circumstances, it

would be both wrong and inappropriate to apply the substantial evidence test. The issue is

simply whether the [board] properly analyzed the law ...

Matter

of

New York Times

Co

v City

ofNew York Commn. on Human Rights, 4 NY2d345 [1977]; see also Matter ofScherbyn,

77

NY2d at 758). When an administrative agency construes a statute, a court reviews whether that

construction is irrational or unreasonable, rationality being the underlying basis for both the

arbitrary and capricious standard and the substantial evidence rule Matter ofJennings v New

York State

ff of

Mental Health, 9

NY2d 227, 239-240 [1997];

see also Matter

of

Howard v

Wyman,

28 NY2d 434, 438 [1971]).

DETERMIN TION BEFORE THE COURT

The nature of limited liability companies presents strictly an issue of statutory

construction. A separate chapter of New York Law titled the Limited Liability Company Law

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addresses the nature, rights and responsibilities

of

LLCs. This Court should look to these

statutes and the relevant common law they incorporate when determining whether the State

Board's opinion

is

affected by an error

oflaw

is irrational and unreasonable, and thereby, is

arbitrary and capricious.

Moreover, [i]t is the settled rule that judicial review of an administrative determination

is limited to the grounds invoked by the agency Matter o Scherbyn, 77 NY2d at 758). A

court is powerless to affirm the administrative action by substituting what it considers to be a

more adequate or proper basis

id.).

In this instance, the State Board based its 1996 Opinion on

two grounds. The first was an opinion by the Federal Election Commission The second was the

definition of limited liability company in the Limited Liability Company Law that had recently

been enacted and which created limited liability companies as separate and distinct business

organizations

see

Amicus Exhibit 2, New York State Board ofElections 1996 Opinion # 1

.

At the April 16, 2015 State Board meeting, Co-Chair Kosinski stated that his negative

vote on the motion was based on the fact that nothing had changed since adoption

of

the 1996

opinion and that it was the Legislature's prerogative and not the State Board's to change the law

on LLCs and political contributions. On the contrary, the Federal Election Commission reversed

its opinion shortly after the State Board relied upon it. Moreover, the Limited Liability

Company Law is now twenty-one years old and this body

of

law has been reviewed and

interpreted and

New

York courts have explored the nature

of

limited liability companies over the

course

of

two decades. Both

of

these facts warrant a reconsideration

of

the State Board's

opm10n.

The State Board 's argument that a change in its opinion would usurp the Legislature's

prerogative is disingenuous. The State Board has issued opinions, both formal and advisory, over


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the course of its existence. t has also, at its discretion, amended or changed its prior opinions

without a change in statute. Notably, a recent amendment to

the Election Law changes the

board's past practice into a mandate that the State Board issue opinions upon request (Election

Law§ 14-130[6]). t is simply incorrect that the State Board cannot revisit its own non

adjudicative opinions independent of any statutory changes that may occur

see generally Matter

ofJasonvNovello

2NY3d

107, 113-'114[2009]).

Finally, there is no basis for holding that the State Board has any particular expertise

regarding limited liability companies. The State Board is granted its powers and duties in New

York's Election Law. Neither the Election Law nor State Board

of

Elections regulations include

the term limited liability company or provide a basis for holding that LLCs are individuals for

the purpose ofmaking political contributions. Therefore the State Board's opinion is not entitled

to any deference by this Court see Matter ofHoward v Wyman, 28 NY2d 434 [1971 ]). This

Court's review is limited to the basis relied upon in the 1996 opinion and Co-Chair Kosinski's

statement that nothing has changed since the adoption of that opinion.

I

FIRST CAUSE OF ACTION: ARTICLE

78

MANDAMUS TO REVIEW

Commissioners Kellner and Spano support the Brennan Center petitioners' request for

relief in their first cause of action. Given the reversal of the Federal Election Commission

opinion and the nature and characteristics of limited liability companies, as provided in statute

and discussed in case law, the State Board's opinion is affected by an error

oflaw

so great that it

is irrational and unreasonable. As such the Board's determination is arbitrary and capricious and

petitioners request for relief should be granted.

A.

Background: State Board o Elections 996 Opinion 1

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Limited liability companies did not exist in New York before 1994

see

L 1994, ch 576,

§1). Less than two years after LLCs were first created in New York, the State Board issued

Opinion 1 of 1996. Admitting that LLCs have characteristics

of

corporations and partnerships

yet are not expliCitly either, the Board relied on the statutory definition of limited liability

companies and opinions

of

the Federal Election Commission to conclude that LLCs were

unincorporated associations and persons

see

Limited Liability Company Law § 102 [

m]

and

[w ]). The Board thus determined to treat LLCs for Election Law Article

14

purposes simply as

persons.

In the two decades since LLCs became authorized business entities in New York, our

courts, state agencies and federal agencies have gained experience defining LLCs in various

contexts.

B Nature

o

Limited Liability ompanies

Limited Liability Company Law § 102 [m] provides that the definition of an LLC as a

legal entity requires contextual analysis. The terms ' [l]imited liability company' and 'domestic

limited liability company' mean, unless the context otb rwise r

eq

uire , an unincorporated

organization

of

one or more persons having limited liability for the contractual obligations and

other liabilities of the business, other than a partnership or trust, formed and existing under this

chapter and the laws of this state (Limited Liability Company Law § 102 [

m]

[emphasis

added]).

A limited liability company combines the limited liability feature available to the

shareholders of a corporation

..

. with the pass-through income taxation available to the partners

I

of a general or limited partnership (16 NY Jur 2d, Business Relationships § 1995). Indeed,

LLCs are often referred to as pass through entities. Given their hybrid corporate-partnership


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nature, context determines the definition ofLLCs for many legal purposes (Limited Liability

Company aw§ 102 [m]).

C LLC Treatment In Various Legal Contexts

1 State Constitution Definition

o

Corporation Includes LLC

Section 4 ofArticle X of the NY State Constitution provides [t]he term corporations as

used in this section [relating to power of corporations to bring and be subject to suit], and in

'

section 1 [Corporations; formation of], 2 [Dues of corporations], 3 [Savings bank charters ... ]

shall be construed to include all associations and joint stock companies having any of the powers

or privi leges

of

corporations not possessed by individuals or

pa ner

hips (NY Const, art X, § 4)

[emphasis and parentheticals added]). In

Barklee Realty

Co.,

LL

v.

Pataki,

309 AD2d 310 [ st

Dept 2003], the court placed LLCs squarely within this definition of corporation for purposes

of analyzing an LLC's right to bring suit

Id.

at 313).

2. Criminal Liability Attachment o Membership Interests Derivative

Actions Court Representation Diversity Citizenship; Indenture;

Power

to

Sue

In defining LLCs for various legal purposes, courts have applied analogous reasoning as

the context requires see e.g., People

v.

Highgate LT Mgt., 69 AD3d 85 [3rd Dept 2009]). The

Highgate Court held although Penal Law section 20.20 is inapplicable here because the [LLC]

defendant is not a corporation, the long-standing analogous principles that have evolved through

case law remain dispositive Id. at 189).

n

JMM

Props.,

LL

v Erie Ins. Co.,

2013 WL 149457 [ND NY 2013] the Court held

criminal acts of a managing member may be imputed to the LLC, considering the New York

legislature's silence in that regard and considering the corporation-partnership hybrid nature of

the LLC

id.).

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The New York Court of Appeals held that members of a limited liability company

(LLC) may bring derivative suits on the LLC's behalf, even though there are no provisions

governing such suits in the Limited Liability Company Law

see Tzolis v Wolff, 10

NY3d 100,

102 [2008]). The justices in Tzolis reasoned that the derivative action must lie absent the express

statutory authorization existing in the corporate context, since the Legislature obviously did not

intend to give corporate fiduciaries a license to steal .. . Id. at 105).

Similar practical reasoning prevailed in the context of the law requiring corporations and

voluntary associations to appear by counsel in court proceedings. This rule has been applied to

the limited liability company, which is

a

hybrid entity, combining the corporate limitation on

personal liability with the operating and management flexibility

of

a partnership '

Ernest

Maryanna Jeremias Family Partnership, LP v. Sadykov,

48

Misc 3d 8 10 [App Term 2015],

quoting

People v. Highgate LT

Mgt.

,

69 AD3d at 187).

For purposes

of

federal diversity jurisdiction, LLCs are treated as partnerships, having

citizenship in each state in which a member is a citizen Handelsman

v.

Bedford

Vil

. Assocs.

L.P. ,

213 F3d 48

[2nd

Cir 2000];

Cosgrove v. Bartolotta,

l 50 F3d 729,

731

[ th Cir 1998]). The

Cosgrove

Court noted that the appellee

id.)

is neither a partnership nor a corporation, but a 'limited liability

company.' ... This animal is like a limited partnership; the principal

difference is that it need have no equivalent to a general partner, that is, an

owner who has unlimited personal liability for the debts of the firm ... Given

the resemblance between an LLC and a limited partnership, and what seems

to have crystallized as a principle that members of associations are citizens

for diversity purposes unless Congress provides otherwise ... we conclude

that the citizenship of an LLC for purposes of the diversity jurisdiction is

the citizenship

of

its members

In 2007, the Bankruptcy Court of the Southern District in New York, noting the hybrid

nature

of

LLCs, concluded that the term corporation as defined in the 1987 Indenture includes a

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limited liability company

In re Enron Creditors Recovery Corp,

3 70 BR 64 [Bankr SD NY

2007]).

3 Federal and State Taxation Purposes

There is

no

separate LLC tax status, and an LLC is not simply treated as an individual

person for tax purposes. For income tax purposes, since 1997, the IRS treats an LLC either as a

corporation, partnership, or as part

of

the owner 's tax return

see

http://www.irs, gov Businesses/Small-Businesses-&-Self-Employed/Single-Member-Limited

Liabili ty-Companies). Specifically, a domestic LLC with at least two members is classified as a

partnership for federal income tax purposes unless it.. .affirmatively elects to be treated as a

corporation. And an LLC with only one member is treated as an entity disregarded as separate

from its owner for income tax purposes .. . unless it ... affirmatively elects to be treated as a

corporation id.). New York follows the federal classification

see

http://www.tax.ny.gov/pdf/publications/multi/pub16.pdf).

4

Federal Election Commission

Prior to 1999, the Federal Election Commission ( FEC ) opined that LLCs would be

treated as generic persons for contribution purposes when this conclusion was supported by state

law

see

Amicus Exhibit 3, Federal Election Commission Advisory Opinions 1995-11 ).

Notably, after the IRS clarified its classification process for LLCs in 1997, the FEC changed

course and through formal rulemaking determined in 1999 that for purposes of federal campaign

contributions, LLCs should be treated in accordance with their chosen tax status

11

CFR 110.1

).

When an LLC selects a tax status, it reveals its true operational nature. The FEC thus treats an

LLC as it has chosen to be treated either as a corporation, partnership or in the case of a single

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member LLC composed of a natural person who has not made a corporate election, as such

natural person

id.).

D Legislative History o Contributions by Business Entities

A review

of

the legislative history surrounding political contributions by business

entities, indicates that until the progenitor ofElection Law § 14-116 was adopted all incorporated

and unincorporated forms of business entities were prohibited from making political

contributions.

The ban on contributions by corporations and joint-stock associations was enacted in

1965 as Election Law § 460

see

Amicus Exhibit 4, L 1965, ch

1031 .

Thereafter, in 1974, the

section number was changed to section 480 and a second subdivision was added to that section

which allowed corporations to make a total of five thousand dollars in political contributions in

any calendar year see Petitioners Exhibit 3, L 1974, ch 604).

Shortly thereafter, the State Board addressed whether an unincorporated trade association

could make political contributions. The Election Law was silent on this point. In Opinion 2

of

1974 the State Board determined that an unincorporated trade association was subject to the

$5,000 limit imposed by section 480 of the Election Law which, at the time and now, only refers

to corporations and joint-stock association

see

Amicus Exhibit 5, New York State Board

of

Elections 1974 Opinion #2).

Two years later, the State Board addressed whether partnerships can make political

contributions. At that time, the Election Law was silent as to that issue but Election Law § 482

did require that all contributions be made

in the true name of the contributor see Petitioners

Exhibit 3, L 1974, ch 604). The State Board relied on Election

aw§

482 and concluded that

partnerships can make political contributions but that they must be reported in the names of the

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members of the partnership see Amicus Exhibit 6, New York Board of Elections 1976 Opinion

#4). The State Board also required that the contributions must be allocated to each partner ....

due to the receipt limitations contained in Election

Law§

479

id.).

2

Both of these opinions illustrate that the State Board has grappled with whether business

entities can make political contributions, without the guidance

of

a specific statute, while

honoring the spirit of the Election Law with respect to limits and transparency. The State

Board s position on LLCs and political contributions veered widely from this approach and is,

therefore, an aberration.

E LLCs and the Election Law

Election Law§ 14-116 (1) prohibits corporations or

joint

stock association doing

business in this state, except a corporation or association organized or maintained for political

purposes only from making political expenditures or contributions. However, Election Law §

14-116 (2) lifts the prohibition for corporations, but not for joint-stock associations, with respect

to expenditures, including contributions, not otherwise prohibited by law, for political purposes

not to exceed five thousand dollars in the aggregate in any calendar year. Neither corporation

nor joint stock association are defined terms in the Election Law.

Election

Law

§ 14-120 provides that contributions must be made in the true name

of

the

contributor and addresses how partnerships

may

make contributions and how they are reported.

Specifically,

Notwithstanding subdivision one

of

this section, a partnership, as defined

in section ten

of

the partnership law, may be considered a separate entity for

the purposes of this section, and as such may make contributions in the

name of said partnership without attributing such contributions to the

individual members

of

the partnership provided that any such contribution

2

In

1992, the Election

Law

was amended to add a subdivision 2 to Election Law§ 14-120,

th

successor statute to

section 482. It is substantially similar to

th

State Board s 1976 Opinion 4 on partnerships except for at tribution

requirements

(L

1992, ch 79).

6


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made by a partnership to a candidate or to a political committee, shall not

exceed, twenty-five hundred dollars. In the event that such partnership

contribution to any such candidate or political committee exceeds twenty

five hundred dollars, the aggregate amount of such contribution shall be

attributed to each partner whose share

of

the contribution exceeds ninety

nine dollars

(Election

aw§

14-120[2]).

An LLC has corporate attributes (limited liability), attributes of a joint stock association

(being unincorporated), and partnership attributes (having pass through characteristics).

Therefore, it is not surprising that the statutory definition of LLC in the Limited Liability

Company Law defines the entity as an unincorporated organization unless the context

otherwise requires (Limited Liability Company aw§ 102[m]).

Today, given the flexibility in both the definition of corporation and joint stock

association in various contexts, and the flexibility in defining LLCs as context requires, the

State Board may well wish to heed the advice tendered in the practice commentaries to the

comis, but no less applicable to administrative agencies.

In the McKinney's practice commentary to the Limited Liability Company Law, Bruce

A. Rich observes [w ]here statutes that pre-exist the 1994 adoption of the LLC law

do

not

include LLCs in their lists of entities covered by those statutes, courts may seek to

do

equity by

reading LLCs into the list

of

covered entities by finding that an LLC has attributes similar to

those of one or more of the covered entities (Bruce A Rich, Practice Commentaries,

McKinney's Cons Laws ofNY, Book 32A, Limited Liability Company Law 1

C,

at 175).

Just as it has in the past, the State Board could reasonably: 1 apply Election Law § 14-

116 to LLCs, 2) apply Election

aw§

14-120(2) to LLCs, or 3) apply the FEC construct of

permitting the LLCs to self-classify as either a corporation or a partnership.

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II SECOND CAUSE OF ACTION: DECLARATORY JUDGMENT

In discussing the appropriateness o a declaratory judgment action the Court o Appeals

held that such a claim would lie where constitutional question is involved or the legality or

meaning of.a statute is in question and no question

o

fact is involved Dun Bradstreet v. City

o New York 276 NY 198, 206 [1937]). The remedy o declaratory judgment is available, not

only where the validity o a statute is in question, but also where its construction or its

application to an undisputed set o facts is in question Bunis v Conway (17 AD2d 207, 208

[4th

Dept 1962];

see also New York Foreign Trade Zone Operators

v

State Liq. Auth.,

285 NY 272,

278 [1941]).

A This Court Should Issue a Declaratory Judgment

Though courts are generally foreclosed from intervention in the election process when it

would not be otherwise available under the election law New York State Comm.

o

Independence Party

v

New York State

Bd. o

Elections,

87 AD3d 806, 810

[3rd

Dept 2011]), [a]

declaratory judgment action is an appropriate vehicle to establish and promulgate the rights

o

parties on a particular subject matter id.) Declaratory judgment proceedings in the electoral

context include claims to determine the rights o parties under state and local party rules

id.);

claims

o election commissioners implicating the bipartisan balance

o

a board

o

elections

Graziano v County o Albany, 3 NY3d 475 [2004]); claims challenging the legality o an

Executive Order to effectuate a voter registration program and create a task force consistent with

the Election Law Clark v Cuomo, 66 NY2d 185 [1985]); claims regarding the constitutionality

o the personal voter registration statute Siwek v Mahoney, 39 NY2d 159 [1976]); claims that

violations o Article

14

o the Election Law were committed by specific political committees

Cullinan v Ahern, 212 AD2d 1 3 [4th Dept 199 5]); and challenges to a ballot proposition for

18


19/21

failure

to

give proper notice (D Addario v McNab, 32 NY2d 84 [1973]). Similarly, a declaratory

judgment action is an appropriate means in this instance for determining the proper legal

definition o an LLC in the context o Article

14

o the Election Law.

A long history o misapplying the law cannot immunize an agency from a party seeking

declaratory relief. In Taub v Comm. on Professional Stds. (200 AD2d 7 4 [3rd Dept 1994 ]), the

court observed [t]he harm in this case being clearly ongoing, the instant proceeding is not time

barred Id at 78) A tolling period for continuing harm is recognized in certain cases

(see

Matter

o

Smith v Brown, 24 NY3d 981, 983 [2014]). Moreover, an alleged new harm based on

the application

o

an old rule has been held a sufficient basis for challenging the old rule.

In Rivera v Travis

23

AD3d 942

[3rd

Dept 2005]), the Board o Parole in 2003 was faced

with a demand by a parolee seeking a declaratory ruling that that three regulatory provisions

were repealed by implication owing to a statutory change in 1980. The Board o Parole failed to

act on the request, and the parolee sued seeking a declaratory judgment that there had been a

statutory repeal by implication twenty-five years before (id.). The case was decided on its merits

by the Appellate Division (id.). When the same general fact pattern and theory was asserted in

Purcell v Travis, the Appellate Division Third Department held challenges to the validity

o

regulations promulgated by the Parole Board decades before were timely because the

proceeding was brought within the four month limitations period by the denial by the Board o

[the parolee's] request for parole, which was based in part upon consideration

o

the guidelines

set forth in the challenged regulations

Parvis v Travis,

24 AD3d 824

[3rd

Dept 2005]).

While the Board o Elections first made a determination o its LLC policy at a fixed point

in time in the distant past, the agency makes a new determination involving new parties and

contributions, in the shadow o that policy, every time an unlawful LLC contribution is

19


20/21

countenanced or permitted. The various petitioners who hold public office or were candidates

for public office have a ripe interest in the proper treatment of LLC contributions t determine

the correctness of their own compliance regimen of abstaining from receiving LLC contributions

to their disadvantage. For these candidates, declaratory relief is necessary in that the on-going

misapplication

of the law harms them every time an improper LLC contribution is made or

received.

B Limited Liability Companies Should B Banned from Making Political

Contributions

Notwithstanding the declaratory relief sought by the Brennan Center petitioners, Co-

Chair Kellner and Commissioner Spano urge this Court to consider an alternative conclusion,

i.e., that LLCs may not make any political contributions whatsoever.

Election

aw§

14-116(1) imposes a ban on political contributions by corporations and

joint-stock associations, the business forms that preexisted LLCs. But subdivision two

of

the

statute carves out an exception only for corporations, indicating the Legislature s intent that

joint-stock associations are subject to a complete ban on political contributions. Given this ban,

and the Election Law s silence with respect to LLCs, it is reasonable to conclude that LLCs, like

joint-stock associations, are banned from giving political contributions unless a specific

exception to the ban is created in statute.

Similarly, the Election Law specifically addresses political contributions by partnerships

(Election Law 14-120[2]). This statute reflects the Legislature intent to allow political

contributions by certain other business entities. Limited Liability Companies have been in

existence in New York since 1994, yet no amendment of the Election Law has occurred to

provide for or authorize a political contribution by such an entity.

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21/21

Given the comprehensive campaign finance scheme in statute, which favors both limits

and transparency, it is a reasonable interpretation of the Election Law to conclude that the

Legislature intended to treat LLCs like joint-stock associations and did not intend to allow LLCs

to make political contributions at all.

ON LUSION

This Court should grant petitioners application in all respects or, in the alternative,

declare that limited liability companies are not permitted to make political contributions at all.

September 23, 2015

Albany, New York

2

Respectfully Submitted,

; ; w e ~ c O · ~

Kathleen O Keefe, E s q ~

Co-Counsel

New York State Board

of

Elections

40 North Pearl St., Suite 5

Albany, Y 12207-2729

T (518) 474-2063

F (518) 486-6627

Attorney or Douglas A Kellner and

Andrew Spano Commissioners

Documents

150924 Kellner-Spano Amicus Brief