Martinez 2001 v New York City Campaign Fin. Bd.

[*1] Martinez 2001 v New York City Campaign Fin. Bd. 2005 NY Slip Op 51454(U) [9 Misc 3d 1108(A)] Decided on August 11, 2005 Supreme Court, New York County Feinman, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on August 11, 2005
Supreme Court, New York County

MARTINEZ 2001 and MIGUEL MARTINEZ, Plaintiffs,

against

NEW YORK CITY CAMPAIGN FINANCE BOARD, Defendant.



101420/2005



For the Plaintiffs:For the Defendant:

Jerry H. Goldfeder, Esq.Sue Ellen Dodell, Esq.

225 BroadwayGeneral Counsel

New York NY 10007Beth A. Rotman, Esq

(212) 962-4600Associate Counsel.

40 Rector Street, 7th Fl.

New York NY 10006

Arthur W. Greig, Esq.(221) 306-7100

401 Broadway

New York NY 10013

(212) 941-0230

Paul G. Feinman, J.

Plaintiff Miguel Martinez is an elected member of the New York City Council from the Washington Heights neighborhood in upper Manhattan. Co-plaintiff "Martinez 2001" was the campaign committee which successfully helped elect him to the Council in 2001.[FN1] Defendant New York City Campaign Finance Board administers the "matching funds" program available to New York City candidates running for election to the offices of mayor, comptroller, public advocate, borough president, and member of the City Council.

Martinez participated in the matching funds program in 2001 and received public matching funds in the amount of $128,786 (Loprest Aff. ¶ 10). As described more fully below, [*2]the staff of the Finance Board, after its post-election audit which included requests for information and documentation from the campaign committee and scrutiny of the committee's responses, issued a draft report in November 2002, a formal request for more information in July 2003 and, on November 24, 2004, a "Notice of Alleged Violations, Proposed Penalties, and Opportunity to Respond" (hereinafter "the Notice") which set forth 17 alleged findings of improprieties and monetary penalties to be addressed by the Board at a meeting to which plaintiffs were invited to attend (Def. Aff. Ex. F). Plaintiffs requested further clarification of the violations, stating that the allegations were insufficiently articulated. However, dissatisfied with the Board's subsequent letter response in January 2005, plaintiffs commenced this action by order to show cause and the filing of a summons and verified complaint. They seek to enjoin defendant from taking any action with respect to the November 24, 2004 Notice and the January 2005 clarification, unless the Notice is amended to provide sufficient detail so that they can adequately respond. The Finance Board cross-moves to dismiss the action, based on lack of subject matter jurisdiction and failure to state a cause of action (CPLR 3211[a][2], [7]). For the reasons set forth below, plaintiffs' motion is granted and the defendant's cross motion to dismiss is denied.

The NYC Campaign Finance Board and its Procedures

The New York City Campaign Finance Board is charged with administering the New York City Campaign Finance Act (NYC Admin. Code §§ 3-701 to 3-716; NY City Charter ch. 46, §§ 1051-1052 and 1056, hereinafter "the Act") and the New York City Campaign Finance Board Rules (RCNY ch. 52, hereinafter "the Rules").[FN2] The Board is comprised of five members, two of whom are appointed by the Speaker of the City Council, two by the Mayor, and a Chair who is appointed by the Mayor after consultation with the Speaker (N.Y.C. Admin. Code § 3-708[1]). In addition to the Board members, there are staff members including an executive director and counsel, and legal and accounting staff whose duties include providing technical assistance to prospective and participating candidates so as to facilitate compliance with the requirements of the program (NYC Admin. Code § 3-708[4]).

As noted above, the Campaign Finance Board administers the matching funds program for candidates running for many New York City offices. The program is voluntary. Any candidate who chooses to participate in the matching funds program completes a Certification form as required under Rule 2-01 (NYC Admin. Code 3-703[1][c]).[FN3] The form requires the candidate to explicitly agree to abide by the Act and Rules and to agree that the candidate, his or her campaign committee, and the campaign's treasurer "may be jointly and severally liable for the [*3]repayment of public funds and/or civil penalties pursuant to Sections 3-710 and 3-711 of the Act."[FN4]

The Finance Board determines whether a candidate who wishes to participate in the program has "significant public support" so as to qualify for public funds. It makes its determination after auditing the candidate's documentation and verifying that his or her campaign committee has received a certain amount of money donated by a certain number of New York City residents as well as a certain amount of money donated by a certain number of residents in the candidate's City Council district (NYC Admin. Code § 3-703[2][a]).[FN5] Once a candidate has been found qualified to participate, the Finance Board requires him or her to comply with the detailed rules concerning campaign expenditures and contributions, report filing, and responding to requests for documentation and information to verify compliance with the program (NYC Admin. Code § 3-701, et seq.; see also Rules 3-02 to3-09). Based upon the candidate's documentation for each eligible contribution received, the Finance Board will provide public matching funds according to the formula set forth in the Administrative Code.[FN6] The funds must be spent on "qualified campaign expenditures" as set forth under section 3-704 of the NYC Admin. Code (see also Rule 1-08[g]). Expenditures must be documented. If a candidate cannot provide sufficient documentation of expenditures, the Finance Board will require him or her to repay the funds (NYC Admin. Code § 3-710[2][b]). The burden is on the participating candidate to maintain proper documentation and to prove compliance with the program's requirements (NYC Admin. Code § 3-703[1][d]; Rule 4-01).

The Finance Board is empowered to "investigate all matters relating to the performance of its functions and any other matter relating to the proper administration of [the Act] and . . . shall have the power to require the attendance and examine and take the testimony under oath of such persons as it shall deem necessary and to require the production of books, accounts, papers and other evidence relative to such investigation" (NYC Admin. Code §§ 3-708[5]; 3-710[1]). An investigation may include field investigations, desk and field audits, issuance of subpoenae, document requests and interrogatories, taking sworn testimony, and "other methods of information gathering" (Rule 7-01[f]). Where the Finance Board has reason to believe that a participating candidate has violated one or more rules, it will notify the candidate by mail so as to allow him or her to submit additional information (Rule 7-02[c]). Prior to a final finding of [*4]violation and determination of penalties, the participating candidate is notified and allowed to contest the finding and penalty before the Board, either in person or through the submission of further information, after which the Board renders a determination and assesses any penalties (Rule 7-02[c]). The Board may also hold a formal hearing which is conducted as provided in section 1046 of the New York City Charter ("CAPA"). "Alternatively, the Board or the City may commence a civil action in an appropriate court against any participant or any other person or entity." (Rule 7-02[f]). The Finance Board may fine a candidate up to $10,000 for each violation of the Act or Rules (NYC Admin. Code § 3-711).[FN7] In addition, the board "shall publicize, as it deems appropriate," the names of candidates who violate any of the provisions of the Act (NYC Admin. Code § 708-6; NYC Charter § 1052[a][6]).

Factual and Procedural Background

Following the conclusion of the 2001 election, the Finance Board commenced its audit of plaintiffs' campaign contributions and expenditures (Loprest Aff. ¶ 11). On November 20, 2002, a draft audit report of findings and management observations was issued, signed by Julius Peele, Director of Auditing and Accounting, based on the Finance Board staff's review of information reported and supplied by the campaign committee (Def. Aff. Ex. D). The draft report set forth six findings detailing categories of documents for which "corrective action" was needed, and provided recommendations for resolving the problems. These involved providing additional documentation of qualified expenditures, explanations to justify certain expenditures made in a prohibited time period following the destruction of the World Trade Center in September 2001, explanations as to how certain contributions were received, additional documentation of the use of subcontractors, and providing documentation for certain specific listed transactions, as well as for a particular bank account (Def. Aff. Ex. D, Draft Audit Report at 5-9, and exhibits). The draft audit report concluded that the Martinez campaign had, as of that point, failed to provide copies of various requested documents, including copies of canceled checks, invoices, and certain bank statements, and had not otherwise provided sufficient documentation to establish its compliance with the Act and Rules. It requested that the campaign committee provide the documentation and certain explanations of transactions and warned that if it failed to comply, it would ultimately be required to repay the entire amount of the public funds provided to it under the program.

The campaign committee provided additional documentation and information in March 2003. However, the Board found, as stated in a letter dated July 8, 2003 and signed by Julius Peele (hereinafter "the 2003 Peele letter"), that the committee's response had not sufficiently addressed the issues raised in the 2002 draft report (Ord. to Show Cause Ex. B; Def. Aff. Ex. E). This letter indicated that the campaign committee's responses would be its "final opportunity" to address the questions and problem areas and that open findings might be referred to the legal unit of the Finance Board (Id. at 6). It requested further clarification, information, and documentation as concerned the findings set forth in the 2002 draft audit. It also set forth a "new finding" that questioned payments to certain individuals and one particular company. The new finding, nearly [*5]two and a half pages, after paraphrasing pertinent sections of the Administrative Code and the corresponding Rules, listed and described certain documents and stated reasons for why they appeared not to comply with the strictures of the statute, including that certain documents seemed to be duplicates, that certain signatures seemed to differ or to be the same when they should have differed, and that certain addresses did not match. The new finding also asked for identification of a second endorser on certain checks and for further documentation to establish the campaign committee's position that the expenses reflected in the relevant documents were legitimate.

According to Martinez, there ensued an exchange of correspondence between himself, the campaign committee, and the Board staff in which the campaign committee "submitted a detailed response," after which the Board staff requested "copies of invoices, contracts and cancelled checks for" an "additional list of expenditures," to which the campaign committee responded in October 2003 (Ord. to Show Cause, Martinez Aff. ¶¶ 6-8). There were no further official communications between the Finance Board staff and the campaign committee until the Finance Board issued its "Notice of Alleged Violations, Proposed Penalties, and Opportunity to Respond," dated November 24, 2004 (Ord. to Show Cause, Ex. A).

The Notice, signed by the Finance Board's General Counsel, consists of a five-page letter containing 17 alleged violations with proposed monetary penalties, and 10 attached exhibits comprised of photocopies of various documents initially received from the campaign committee. Each of the alleged violations is briefly described and the first ten include nearly the same list of sections from the New York City Charter, the New York City Administrative Code, and the Rules.[FN8] The third and sixth bulleted paragraphs also refer to Finding F of the 2003 Peele letter and the ninth and eleventh bulleted paragraphs refer to the 2003 Peele letter in general. At issue in the instant action are the first 11 alleged findings, but not the remaining 6, which plaintiffs agree are now sufficiently clear (Ord. to Show Cause Ex. E, Letter Goldfeder to Rotman, Dec. 29, 2004 at 2, n.1).

The Notice also informed plaintiffs that they were invited to attend the December 15, 2004, meeting of the Finance Board which was being convened for the purpose of considering the alleged violations, at which they could proffer explanations or defenses. In the alternative, the campaign committee could respond in writing, or request an extension. The campaign committee requested an extension and the meeting was ultimately rescheduled for February 10, 2005 (Ord. to Show Cause Ex. C [Letter, Dec. 3, 2004, Dodell to Goldfeder], D [Letter, Dec. 7, 2004 Goldfeder to Dodell], E [Letter, Dec. 29, 2004 [Goldfeder to Rotman]). In the interim, by letter dated December 29, 2004, plaintiffs' counsel requested that the Notice be amended to assert more specific charges, stating that "[m]ost of the 'findings' are totally devoid of any specificity, making it impossible for my clients to respond," that the attached exhibits did not "shed any real light" on the allegations, and that the references "to multiple provisions of the Administrative Code, the New York City Charter and to a five-part section of Mr. Peele's July 8, 2004 letter" are "likewise obfuscatory" (Ord. to Show Cause, Ex. E [Letter Dec. 29, 2004, Goldfeder to Rotman]).

In response, the Board hand-delivered a letter signed by staff attorney Beth Rotman to [*6]plaintiffs' counsel dated January 13, 2005 (Def. Aff. Ex. G, Letter from Rotman to Goldfeder at 2) (hereinafter "Rotman letter"). The Rotman letter offered "some additional clarification" as concerns the first eight and the tenth alleged violations from the Notice, all of which concerned possible fraud and misrepresentation in the documents provided by the campaign.[FN9] The Rotman letter explained that the documents attached as exhibits to the Notice, "bear[] significant indicia of fraud and misrepresentation," because, "[i]n general," they "do not appear to be contemporaneous, authentic documents generated or signed by the parties presented as generating or signing them" (Ord. to Show Cause Ex. F, Letter, Rotman to Goldfeder, Jan. 13, 2005 at 2). The letter from the Board's counsel contained a non-exclusive list of 10 categories of fraudulent documents, among them documents which were purportedly created by different entities or individuals but which contain the same typographical errors or inconsistencies. The Board is contending that the documents appear to have been altered, appear to contain forged signatures, and/or are back-dated.

After receipt of the Rotman letter, plaintiffs' counsel telephoned Ms. Rotman to request that the Notice be redrafted so as to indicate by document which category applied, however he was informed within a matter of days that the Board "declined to specify its allegations any further" and "would not tell us which documents [it] had in mind regarding each of the ten points" (Ord. to Show Cause, Goldfeder Aff. ¶¶ 30-31). Subsequently, plaintiffs commenced this action by filing of a summons and complaint and the instant order to show cause.

Legal Analysis

To prevail on a motion for preliminary injunction, the party seeking injunctive relief must demonstrate a likelihood of success on the merits, that it will suffer irreparable injury if the relief is not granted, and that the equities balance in its favor (W.T. Grant Co. v Srogi, 52 NY2d 496, 517 [1981]). Defendant argues in its cross-motion that the court lacks subject matter jurisdiction and therefore plaintiffs cannot demonstrate a likelihood of success on the merits. Indeed, it is defendant's position that the complaint must be dismissed. It argues that the plaintiffs' action is premature and that they are unable to set forth allegations that would state a cause of action in mandamus.

Defendant argues that plaintiffs have improperly commenced this proceeding without exhausting the administrative process. It argues that as a New York City agency whose general powers are codified in Chapter 46 of the New York City Charter, it has been given exclusive original jurisdiction to administer the Campaign Finance Act (NYC Admin. Code § 3-708[3-11]). Therefore, it argues, plaintiffs may not seek court intervention where the agency's fact-finder, the five-member Board, has not heard plaintiffs' arguments and has not rendered a final determination. Defendant further argues that plaintiffs are free to seek redress in an Article 78 proceeding if they do not like the outcome of the hearing and, in the context of the Article 78 proceeding, can set forth their arguments concerning insufficient notice, lack of procedural due process, and any other issues. [*7]

An agency may be conferred with the exclusive original jurisdiction to administer a statutory regulatory program (Sohn v Calderon, 78 NY2d 755, 767 [1991]). In such an instance, a proceeding may not be brought to challenge an agency determination which is not final (Watergate II Apartments v Buffalo Sewer Auth., 46 NY2d 52, 57 [1978] ["hornbook law that one who objects to the act of an administrative agency must exhaust available administrative remedies before being permitted to litigate in a court of law"]; Frumoff v Wing, 239 AD2d 216, 217 [1st Dept. 1997] ["litigant who seeks to challenge a determination of an administrative agency must exhaust all possibilities of obtaining relief through administrative channels before appealing to the courts"]; see CPLR 7801[1]). As explained by the Court of Appeals, this doctrine "reliev[es] the court of the burden of deciding questions entrusted to an agency," and "prevents premature judicial interference with the administrators' efforts to develop. . . a co-ordinated, consistent and legally enforceable scheme of regulation" (Watergate II at 58). Accordingly, litigants who fail to exhaust the administrative process prior to commencement of a proceeding may not obtain Article 78 relief (Slater v Gallman, 38 NY2d 1, 3 [1975] ["failure to first pursue ( ) administrative remedies is, of course, fatal to (a) claim"]; Young Men's Christian Assn. v Rochester Pure Waters Dist., 37 NY2d 371, 375 [1975]).

Due process violations are also subject to the exhaustion of remedies doctrine ( Matter of Gonzalez v State Liq. Auth., 30 NY2d 108, 112 [1972] [where there was no specific objection on constitutional grounds made during the hearing to the introduction of subsequently suppressed evidence, the issue of admissibility of evidence was not available on judicial review]; Matter of Leogrande v State Liquor Auth. of the State of NY, 19 NY2d 418, 424-425 [1967] [failure to raise an objection on constitutional grounds at the hearing concerning evidence improperly obtained, results in its lack of preservation for trial; see also, People v Bryant, 39 AD2d 80, 81 [1st Dept.], aff'd 31 NY2d 744 [1972] [admissibility of evidence is not available on judicial review when not specifically objected to on constitutional grounds at the hearing, citing Matter of Gonzalez, supra]).

Here, however, where plaintiffs' request for further clarification was denied and they seek to compel the Finance Board to provide a redrafted Notice which more clearly articulates the charges and identifies the documents at issue by the categories as set forth in the Rotman letter, they in essence seek mandamus to compel, not mandamus to review. There need not be a final administrative determination in order for the court to entertain a petition seeking mandamus to compel (Matter of Hamptons Hosp. & Med. Ctr., Inc. v Moore, 52 NY2d 88, 96 [1981]; Matter of Ista Mgmt. Co. v Division of Hous. & Comm. Renewal, 139 Misc 2d 1 [Sup. Ct., NY County 1988]). The party seeking mandamus to compel must show a "clear legal right" to relief (Brusco v Braun, 84 NY2d 674, 679 [1994] [citations omitted]). Mandamus will lie where an individual has a legal right and the official whose duty it is to enforce the right has refused to perform the duty (Lisa v Board of Elec. of the City of NY, 83 AD2d 949, 950 [2d Dept. 1981]). The official's duty must be one that is "commanded to be performed by law and involving an exercise of discretion" (Matter of Hamptons Hosp., 52 NY2d at 96; CPLR 7803[1]).[FN10] [*8]

Plaintiffs' action turns on whether they have a clear legal right to the sort of notice that they seek and whether the Finance Board has the duty to provide such a notice. Notably, under the State Administrative Procedure Act which, concededly, does not govern the functioning of the Campaign Finance Board, a party has the right to request that the agency provide a more detailed notice, but does not have a right to seek court intervention upon the refusal of the agency to provide a more detailed notice (SAPA § 301[2]). Neither the Campaign Finance Board Rules nor the Act set forth specific procedures concerning notification other than that the Board may mail the participating candidate a notice of hearing, "specifying any violations of the Act or rules," and that prior to a final finding of violation and penalty, the participating candidate must be given an opportunity to contest the finding.

In the absence of a specific statutory notice provision, the controlling standard is that of procedural due process (Matter of 1133 Ave. of Ams. Corp. v Public Serv. Commn. of State of NY, 62 AD2d 787, 788 [3d Dept. 1978]). "It is axiomatic that due process precludes the deprivation of a person's substantial rights in an administrative proceeding because of uncharged misconduct . . . and it necessarily follows, therefore, that a respondent in such a proceeding is entitled to fair notice of the charges against him or her so that he or she may prepare and present an adequate defense and thereby have an opportunity to be heard" (Block v Ambach 73 NY2d 323, 332 [1989]). The charges need be only "reasonably specific, in light of all the relevant circumstances" so as to put the party on notice of the charges against him or her and to allow for the preparation of an adequate defense (Block at 333).

The notice should be "'tailored, in light of the decision to be made," to "the capacities and circumstances of those who are to be heard'" (Matter of 1133 Ave. of Ams. Corp., at 788 quoting Mathews v Eldridge, 424 U.S. 319, 348-349 [1976]; see also, Matter of Keyspan Energy Serv., Inc. v Public Serv. Commn. of State of NY, 295 AD2d 859 [3d Dept. 2002]). Thus, where a firefighter was charged with a pattern of excessive drinking and where the law required that the written notice set forth "the reasons" for the proposed discipline, and the notice alleged a deteriorating attendance record, a degenerating physical condition, lack of mental alertness, and an inability to initiate action, the charges were held to be sufficiently specific and there was no need to differentiate between incompetency and misconduct, as the latter were clearly articulated (Fitzgerald v Libous, 44 NY2d 660, 660-661 [1978]). Where a security guard's disciplinary notice charged him with use of abusive language, excessive use of force, possession of a noxious material, and carrying a concealed weapon, the notice was reasonably specific to apprise the respondent of the charges and to allow for preparation of an adequate defense (Murphy v County of Ulster, 218 AD2d 832, 833 [3rd Dept. 1995], lv denied 87 NY2d 804 [1995]). Where an ophthalmologist was charged with fraud and moral unfitness, and the law required that a statement of charges set forth the substance of the professional misconduct alleged, it was held that the notice's allegations that he performed either excessive medical procedures or particular procedures without adequate medical justification were sufficient to place petitioner on notice that he was being charged with fraudulent practices (Steckmeyer v State Board for Prof. Med. Conduct, 295 Ad2d 815 [3d Dept. 2002]).

However, where a notice alleged that the three respondents had issued bad checks, but [*9]made mention of only one specific check, it was improper for the hearing officer to revoke the respondents' real estate licenses based on the issuance of the other checks, given the lack of notice that all the checks were in issue (Whitbread-Nolan v Shaffer, 183 AD2d 610 [1st Dept. 1992]). Similarly, where a police officer who had arrested an individual for driving while intoxicated and was later found guilty of, among other charges, failing to read DWI refusal warnings and signing forms stating he had given the warnings, the matter was remitted to the administrative board for further proceedings because the notice referred only in general terms to violating department rules of conduct and failed to detail the charges for which he was found guilty (Tartaglione v Board of Commrs. of the Police Dept. of the Vill. of Briarcliff Manor, 301 AD2d 655, 657 [2d Dept. 2003], app. dismissed, 100 NY2d 534 [2003]; cf., Wagner v Kerik, 298 AD2d 322 [1st Dept. 2002] [fact that the notice to a police officer accused of excessive force stated that the altercation occurred at the site of the car stop when in fact it occurred at the precinct was held to be inconsequential]).

Plaintiffs claim to be confused by the differences in format and content among the three "charging" documents. The Notice describes the alleged charges, statutory references, and sets forth proposed penalties in a series of bulleted paragraphs. The Rotman letter does not refer to provisions in the law or the Rules, nor does it set forth proposed penalties. Rather, it alleges ten types of alleged fraud manifest in the documents, without referring to specific documents, and both the Rotman letter and the Notice refer to and incorporate findings from the 2003 Peele letter. The 2003 Peele letter, like the Notice, sets forth descriptions of the alleged violations and cites several sections of the Administrative Code and the Rules. Plaintiffs argue that neither the 2003 Peele letter nor the Notice clearly establishes whether all referenced sections of the Code and the Rules apply to each of the individuals, entities, or transactions described in any particular violation.[FN11] They contend that the charging instrument, that is, the Notice, requires plaintiffs to guess what is at issue in many of the alleged violations, and which violations pertain to which documents, and thus compromises their due process rights under the United States and New York State constitutions.

The desire for more specificity is based on plaintiffs' concern that 11 of the alleged violations contained in the Notice refer to section 3-711 of the Administrative Code, which concerns penalties and which, in subsection 3, allows for criminal punishment as a class A misdemeanor.[FN12] Plaintiffs argue that it is imperative that the charging instrument provide clear [*10]and fair notice of all the allegations in order for them to prepare and present an adequate defense as they might ultimately be faced with criminal proceedings. In particular, they argue that the charges of fraud are not sufficient pursuant to the pleading standard of CPLR 3016(b) which requires that "the circumstances constituting the wrong shall be stated in detail." Moreover, plaintiffs argue that their inability to adequately understand the charges may cause them to offer a less than adequate defense and thereby result in the imposition of fines and referral to the District Attorney's office. This, of course, would likely cause serious damage to Martinez's reputation among the voters of his district and the electorate in general (Ord. to Show Cause, Greig Aff. ¶¶ 5 et seq.). Implicit is the plaintiffs' concern that any penalties and findings of violations will become a part of the public record, and they therefore seek to have as specific a notice as possible in order to respond to and resolve the issues raised by the investigation of the Finance Board staff.

The Finance Board argues that this is an administrative proceeding, the notice need not be fit for a criminal trial, but must only inform plaintiffs of the documents or records that appear to be fraudulent so that they are on notice and may prepare an adequate defense, citing Block v Ambach, 73 NY2d at 10 ("administrative proceedings entail neither the dire consequences of criminal prosecutions nor the considerations of double jeopardy"; therefore "there is generally no need to import the strict requirements of the criminal law and criminal trials into administrative proceedings."). The Board also argues that in the notice for an administrative hearing, each element of the fraud charges need not be alleged, citing Steckmeyer v State Bd. for Prof. Med. Conduct, 295 AD2d 815, 817 (3d Dept. 2002). It contends also that the details of "the production and falsification" of the documents is "uniquely within the knowledge of" plaintiffs (Def. Memo of Law at 20, citing Houbigant, Inc. v Deloitte & Touche LLP, 303 AD2d 92, 98 [1st Dept. 2003]). In addition, the Board argues that if the Notice were to specify "each and every indicia of fraud apparently on the face of allegedly falsified documentation," such a "'roadmap'" would "invite plaintiffs to tailor their testimony or evidence to 'fix' the allegations of violation, instead of encouraging a full and fair description of how the suspect documentation was collected and/or created" (Def. Reply Memo of Law at 17).[FN13] Furthermore, the Finance Board states that the notice is not made public prior to the hearing, and it is not shared even at the hearing with anyone outside the campaign (Loprest Aff. in Reply ¶ 16).[FN14] It concedes that the hearing is open to the public and that the Board members vote in open session (Loprest Reply Aff. ¶¶ 10, 13). [*11]

The Board also states that the it has "absolutely no criminal jurisdiction" and has "absolutely no authority to levy criminal sanctions," and that the "pending proceeding is not criminal in nature" (Loprest Aff. ¶¶ 16, 19, emphasis in original). The section of the Act cited by plaintiffs states: The intentional or knowing furnishing of any false or fictitious evidence, books or information to the board. . . or the intentional or knowing violation of any other provision of this chapter shall be punishable as a class A misdemeanor in addition to any other penalty as may be provided under law. The board shall seek to recover any public funds obtained as a result of such conduct.

(NYC Admin. Code § 3-711[3]). The Board asserts that despite the reference to criminal punishment, it is not granted the jurisdiction to conduct criminal proceedings (Loprest Aff. ¶ 22). It notes that an agency's "referral powers" to the District Attorney's office are not the equivalent of commencing a criminal trial (Def. Reply Memo of Lw at 18 n. 10).

Plaintiffs also argue that they need a more detailed and clear notice of the allegations because of the nature of the "meeting" at which they must respond to contents of the Notice. They argue that unlike a formal hearing conducted pursuant to CAPA which would allow them to issue subpoenae, call witnesses, cross-examine opposing witnesses, and present oral and written arguments on the law and facts (see, NYC Charter § 1046[c]), the informal process employed by the Finance Board lacks these due process protections. They suggest that a comparison of the Notice with a charging instrument issued by the District Attorney's Office, the lawyer's Disciplinary Committee or the Judicial Conduct Commission, for instance, would show up the deficiencies of the Notice. They also argue speculatively that given the informal nature of the proceedings, defendant might bring forth new and additional charges at the hearing itself, contrary to Murray v Murphy, 24 NY2d 150, 156 (1969) (a petitioner should be able to "assume that the hearing will be limited to the charges as made") based on the statement in the Rotman letter that the "indicia of fraud and misrepresentation include but are not limited to" the ten categories articulated in the letter, and because the Notice includes the name of an entity never previously mentioned by the Board staff in its communications or queries.[FN15]

The Board contends that the informal hearing, which is a "non-adversarial proceeding over which the five-member Board presides" (Loprest Aff. in Reply ¶ 10), is "streamlined" and "flexible," and not an adjudication within the meaning of Charter § 1046 (Def. Reply Memo of [*12]Law at 19 n. 11; Loprest Reply Aff. ¶¶ 7, n. 1).[FN16] The Finance Board contends that in its 17 years of existence, it has never held a formal hearing pursuant to Campaign Finance Board Rule 7-02(f), and has apparently conducted all of its hearings pursuant to Rule 7-02( c). It concedes that the informal hearing provides no procedure for calling witnesses or for cross-examination, but attempts to offer assurance that campaign committees "may present any and all arguments they have. . . including claims that they do not understand the charges, that the Notice violated their due process rights, or that they need additional time and information to prepare," and may ask questions and challenge the factual underpinnings of the allegations, as well as respond to questions by the Board members (Loprest Reply Aff. ¶ 10). It also counters that in this matter there simply are no witnesses to be cross-examined because the allegations are derived from the documents provided by plaintiffs and which are the evidence (Def. Reply Memo of Law at 16-17). They further note that there is no requirement that the strict rules of common-law pleading or evidence be applied in an administrative hearing (Matter of Benjamin v State Liq. Auth., 13 NY2d 227, 231 [1963]).

With these principles in mind, the Court turns to a n analysis of the Notice and Supplemental Notice (Rotman Letter). As noted previously, at issue are the first 11 proposed violations contained in the "Notice." The first eight proposed violations and the tenth concern the alleged breach of certification for fraud and misrepresentation in connection with the campaign committee's accounting for and documenting of certain reported expenditures as detailed below. The ninth violation alleges a breach of certification as concerns certain of the campaign committee's written responses. The eleventh violation alleges suspected unaccounted-for coordinated activity.[FN17] The two-page Rotman letter, supplementing the Notice, offers further [*13]explanation of the alleged "patterns of fraud and misrepresentation" by listing ten categories or types of documents which evince possible fraud (Ord. to Show Cause, Ex. G). Although many of the documents contained in the various exhibits attached to the Notice seem to "fit" within at least one of the categories described in the Rotman letter, other categories described in the Rotman letter are not necessarily clear to the reader, such as, for instance, apparently forged signatures, or documents apparently created after the fact and altered so as to appear to have been made contemporaneously with the work done, or documents based on a sample form distributed only a year after the campaign occurred.[FN18]

Even where documents seem to "fit" within a particular category set forth in the Rotman letter, there is nothing in the Notice to indicate that other categories of fraud and misrepresentation might also be at issue, for which there is no notice. For example, the First Alleged Violation concerns four invoices comprising Exhibit 1. The Notice cites the previously described 12 statutes, laws, and rules. The Rotman letter describes a category of documents "purportedly created by different individuals or entities which contain identical typographical errors," and "documents purportedly created by different individuals or entities that appear in similar formats with similar errors or inconsistencies." Here, the four documents, purportedly from four different companies, all misspell the word "West" as "Wets" and place a period after the word "Street." While it thus appears likely that defendant alleges fraud of the type described in the two above-cited categories in the Rotman letter, it is unclear from the Notice whether there may be other categories of possible fraud also alleged by defendant which are not so apparent. For example, it is unclear whether these invoices might also be of the type "that appear not have originated with the purported sources listed on the invoices," or "that include significant discrepancies between the documentation supplied by the campaign to substantiate the transaction reported. . . and the information reported in the campaign's disclosure statements." [*14](Ord. to Show Cause Ex. G, Rotman Letter p. 2). Thus, while the Notice and the Rotman letter may alert plaintiffs to the allegedly problematic nature of certain documents, it does not sufficiently inform them of the allegations which they will need to address at the hearing. This is true in general for the First, Second, Fourth, Fifth, Sixth, Seventh, Eighth, and Tenth alleged violations.

The Notice provides sufficient specificity as concerns the Third Alleged Violation, which concerns two invoices from one particular company, dated August 20 and October 20, 2001, respectively, attached as Exhibit III. Here, the Notice refers to the written description contained in Finding F of the 2003 Peele Letter, which explains that the two invoices appear to be "photocopies of a single invoice which was altered to reflect different dates and amounts," and that the Board was unable to verify the existence of a corporation with the name listed on the invoice letterhead, and that the address on the letterhead differs from that provided by the campaign committee. In addition to the regularly cited statutes, laws, and rules, Finding F also refers to NYC Admin. Code § 3-704 and Rule 1-08(g)(1) which both state that public funds may be used only to further the candidate's election during the calendar year in which the election is held, and NYC Admin. Code § 3-740(2) and Rule 1-08(g)(2) which both state that public funds may not be used for expenditures in violation of any law, to pay the candidate, his or her spouse or relatives, or to any business entity in which the candidate or any relative has a 10% or greater ownership interest; for expenditures in excess of the fair market value; payments in cash; and expenditures for which records are not maintained or obtained. Finding F also refers to Rule 4-01(a) which requires the committee to obtain and furnish to the Board any information the Board may request relating to the expenditures or contributions and furnish such documentation and other proof as requested, and to NYC Admin Code § 3-711(3), which specifically refers to punishment as class A misdemeanor. As the Third Alleged Violation is sufficient, plaintiffs will be directed to respond to this allegation as it stands.

The Ninth and Eleventh alleged violations, which do not concern specific documents attached as exhibits to the Notice, are also insufficiently detailed. The Ninth Alleged Violation concerns the campaign committee's two written responses to the 2003 Poole letter. The Notice explains that the first response was not verified and its second response, which was verified, contained "material changes." In addition, it states that both responses contained "material omissions." In addition to citing the above-referenced laws, the Notice cites the 2003 Peele Letter, although not to any particular paragraph or section of the Letter. Defendant's argument that because two reports were prepared by plaintiffs, are in their possession, and can be compared for differences and for items not responded to, there is no need to provide further detail in the Notice, is not persuasive. The same types of descriptive categories that are set forth in the Rotman Letter should be provided to plaintiffs here, so that they can examine the reports and prepare their defenses and explanations based on more explicit criteria. Similarly, the Eleventh Alleged Violation alleges "unaccounted for coordinated activity" but fails to define the term which may or may not be "cooperated activity" as defined in Rule 2-02( c).[FN19] Although [*15]defendant argues that the allegation sufficiently puts plaintiffs on notice that the activities among the five individuals and entities are suspect and must be described and explained, the contents of the allegation are simply too broad and vague to allow for plaintiff to prepare a meaningful defense. The alleged violation mentions five specific entities and individuals and cites the failure of the campaign committee to explain the relationships among them. It also mentions Findings 2, 3, and 4 of the 2003 Peele letter. Finding 2 concerned expenditures made during a prohibited time period. Finding 3 concerns an instance where intermediary information apparently was not disclosed to the Board and requests an explanation as to how certain contributions were made. Finding 4 concerns the need for documentation concerning the use and payment of certain subcontractors. The entities mentioned in Findings 2-4 do not appear to be the same entities as the five named in this proposed violation, and it is unclear whether it is alleged that there is "coordinated activity" among the five named entities and among the entities and persons listed in Findings 2-4, or whether there are coordinated activities among different groups. Moreover, certain of the citations to various sections of the Act and Rules are ambiguous. For example, Rule 1-02 sets forth all of the definitions used in the Rules and, as a result, is meaningless. Rule 1-04(g) concerns all manner of in-kind contributions and includes as subsections, valuation, goods and services provided at a below market price, extensions of credit, forgiveness of debt, failure to report liability, multiple contributions from a single source, earmarked contributions, and joint contributions. It is simply unclear which part(s) of the Rule is relevant. So too, Rule 1-08(f), which is more than a page long and which concerns independent expenditures. Although the Finance Board argues that the campaign committee "naturally knows what activities or events it undertook with these parties" (Def. Reply Memo of Law at 16 n. 7), it fails to explain the basis from which it makes its allegation.[FN20]

Thus, after a careful examination of the contents of the Notice and its exhibits, the 2003 Peele letter, and the Rotman letter, the court finds that with the exception of the Third Alleged Violation, none of the violations have been sufficiently pleaded so as to provide sufficient notice to plaintiffs. Defendant is therefore compelled to restate the other ten alleged violations in issue in a clearer fashion consistent with due process and fundamental fairness.

In addition, defendant's suggestion that plaintiffs can always commence an Article 78 proceeding after the Board has conducted its hearing, and in that manner bring their arguments before the Court, is hardly a solution. The reality is that the Board will publicize any negative findings after its hearing, and even if the candidate were ultimately to be granted Article 78 [*16]relief, such relief would occur months after the negative publicity and possible vilification in the press and on television generated by the release to the media of the Board's determination. Such publicity would prove irreparably ruinous to any political career.

Plaintiffs have established that they are likely to be able to establish success on the merits of their case as concerns the entirety of the Notice. but for the Third Alleged Violation, which is the first prong they must satisfy in order to obtain a preliminary injunction. They also sufficiently establish that they will suffer irreparable injury if the relief is not granted, given that while the Notice is not a public document, the hearing is open, the Board will publish its findings, and any ultimate relief accorded by the courts following the commencement of an Article 78 proceeding will come too late to stave off the negative publicity. In an election year, the potential harm to an elected official's reputation and career of publicizing erroneously made findings can be irreparable. Adopting the Board's approach, any judicial relief, which would necessarily come well after the adverse findings, and well after any elections held , leaves the Court without a remedy that is meaningful to the political persons who are funded by the Board. because the harm loss of one's good name and standing in the community cannot be judicially undone. It is difficult to conceived of a more telling example of irreparable injury.

The third prong of the test for a preliminary injunction is a determination of the equities (W.T. Grant Co. v Srogi, 52 NY2d at 517). Defendant argues that as a "protector of the Public Fisc," it is required to establish that the public monies provided by it to qualifying candidates were used appropriately (Def. Memo of Law at 21). While defendant's mandate is of great importance to healthy politics in New York City, it does not mean that a participant loses his or her due process rights and must potentially suffer unneeded ruination of a career, both of which are also of importance to the health and politics of New York City. Fundamental constitutional principles of fairness and due process must always trump creatures of statute.

Neither plaintiffs nor defendant have addressed in their papers the issue of an undertaking being fixed pursuant to CPLR 6312 (b). Although defendant opposes the motion for a preliminary injunction, it does not argue in the alternative how the amount of an undertaking should be determined in the event that preliminary injunctive relief is granted. Thus, absent input from the parties the Court is unable to fix the amount of such undertaking without resort to sheer speculation as to the potential damages should it turn out this preliminary injunctive relief was improvidently granted. Of course, if so advised, the parties may agree to waive the posting of the bond. Accordingly, it is

ORDERED that the motion by plaintiffs for a preliminary injunction restraining defendant, its agents, servants, employees and all other persons acting under its jurisdiction, supervision and/or direction, from taking any action during the pendency of this action, with respect to the Notice and Supplementary Notice, as concerns plaintiffs 2001 election campaign only, is granted to the extent that of staying any hearing before the Board or other adjudication of the First, Second, and Fourth through Eleventh alleged violations. It is further

ORDERED that the motion by plaintiffs for a preliminary injunction is denied as to the Third alleged violation. It is further

ORDERED that the cross-motion to dismiss is denied. It is further [*17]

ORDERED that plaintiffs shall post an undertaking pursuant to CPLR 6312(b) in an amount to be determined upon the serving and filing of a motion by plaintiff to fix the bond amount within 15 (fifteen) days of entry of this Decision. Defendant may submit its position on the amount of the bond in the form of opposition or a cross-motion. Alternatively the parties may stipulate to the waiver of a bond or the amount and nature of the undertaking. It is further

ORDERED that defendant file and serve an Answer to the Verified Complaint within 20 days of service of a copy of this Order with notice of entry thereof.

This constitutes the Decision and Order of the Court.

Dated: August 11, 2005 ____________________________________

New York, New York J.S.C.

101420_2005_001 NYLJ Footnotes

Footnote 1:Martinez was re-elected in 2003 and is up for re-election in 2005.

Footnote 2:The City Council of New York City established public funding of local elections in 1988 with the New York City Campaign Finance Act (N.Y.C. Local Law 8 [1988]). The Campaign Finance Board and its general powers were codified in the New York City Charter in the same year (see NYC Charter ch. 46). Respondent has attached a copy of the Act, the relevant portion of the City Charter, and the Rules in effect in 2001 as Exhibits A and B of its Affirmation.

Footnote 3:Martinez and his campaign treasurer, Placido Rodriguez, signed a Certification for the 2001 election on June 1, 2001 (Def. Aff. Ex. C).

Footnote 4:See, however, the recent New York City Campaign Finance Board v Perez, NYLJ, May 16, 2005, p. 18, col. 3 (Sup. Ct., New York County [Lebedeff, J.]), which noted that the Act does not impose an obligation on the individual candidate to repay public funds for a failure of the campaign committee to file reports and accountings.

Footnote 5:In 2001, a City Council candidate was required to receive at least $5,000 in matchable contributions from New York residents and to receive at least $10 from at least 50 residents in the pertinent City Council district (NYC Admin. Code § 3-703[2][a][iv]).

Footnote 6:Private contributions of up to $250 from individual New York City residents are matched at a rate of four dollars in public funds for every dollar in private contributions, up to $1,000 in public funds per contributor (NYC Admin Code 3-703; 3-705[1],[2]).

Footnote 7:According to the Assistant Executive Director of the Campaign Finance Board, the "Board has seen a full range of campaign compliance and lack of compliance, from honest errors to fraud culminating in actions by prosecutorial authorities." (Loprest Aff. [in Reply] ¶ 5).

Footnote 8:The eleventh item refers to mostly different sections of the Charter, Administrative Code, and Rules, as more fully described below.

Footnote 9:The Rotman letter referred plaintiffs to the 2003 Peele letter for its "extremely detailed information," pertaining to the ninth and eleventh alleged violations which allege, respectively, fraud in connection with two reports submitted by the campaign, and suspected unaccounted-for activity among five specific persons and entities.

Footnote 10:While a duty may be mandatory, the manner in which it is performed may be discretionary and thus not subject to mandamus. For example, a court may require an agency to decide license applications but cannot order it to grant or deny any particular license (see, Klostermann v Cuomo, 61 NY2d 525, 539-540 [1984], citations omitted).

Footnote 11:As described more fully below, most of the laws referenced are general in nature and concern the powers of the Finance Board and the requirements by participating candidates to comply with the various reporting rules.

Footnote 12:Plaintiffs also argue that the structure of the Finance Board is problematic. They argue that the "very same agency audits, investigates, adjudicates and prosecutes"(Goldfeder Aff. In Further Supp. ¶ 4). However, the combination of investigatory, prosecutory and quasi-judicial functions in a single administrative agency does not violate due process (Matter of J. Beres & Sons Dairy, Inc. vBarber, 75 AD2d 930 [3d Dept. 1980], aff'd 52 NY2d 1026 [1981]; see also, Komyathy v Board of Educ., 75 Misc 2d 859, 865-866 [Sup. Ct., Dutchess County 1973]).

Footnote 13:Defendant speculates that at the time of the hearing, the Board members might modify or reject a staff recommendation as they have done in the past, or vote to assess or not to assess penalties, or give more time for the candidate to respond, or request that the Board staff pursue further investigation (Loprest Aff. in Reply ¶¶ 13-14).

Footnote 14:The charges in this case have been made public, allegedly by plaintiffs after commencement of this action (Loprest Aff. in Reply ¶ 6). See, e.g., The New York Law Journal, Feb. 7, 2005, page 1, which mentions the amount of the proposed fines, that plaintiffs are charged with fraud and misrepresentation, and their belief that the charges are insufficiently articulated to be properly defended.

Footnote 15:The Board states it is "under no obligation to raise all potential problems in the draft audit prior . . . ; rather, when appropriate, the Board may place a candidate on notice of any new or late-breaking matters in the notice of alleged violations and proposed penalties." (Def. Reply Memo of Lat at 16, n. 8; see Loprest Reply Aff. ¶ 8, n. 3, emphasis added). It does not state that no additional allegations would be raised at the time of the hearing.

Footnote 16:The New York City Charter defines "adjudication" as a "proceeding in which the legal rights, duties or privileges of named parties are required by law to be determined by an agency on a record and after an opportunity for a hearing." (NYC Charter ¶ 1041).

Footnote 17:Except as noted below, each of the proposed violations cites the same three provisions from the New York City Charter, the same seven from the New York City Administrative Code, and the same two Campaign Finance Board Rules. Section 1052(a)(5) of the City Charter concerns the power of the Board to investigate, take testimony, and require production of evidence. Section 1052(a)(8) concerns the power of the Board to promulgate rules concerning the form and timing in which contributions and expenditures are to be reported. Section 1052(a)(10) concerns the Board's power to carry out the purposes of the Act, including informing the Commissioner of Finance of the need for more funds to be made available. Section 3-703(1)(d) of the Administrative Code provides that a participating matching-funds candidate will obtain and furnish to the Board any information the Board may request concerning campaign expenditures or contributions and other proof of compliance. Section 3-703(1)(g) requires a participating candidate to maintain records of receipts and expenditures as required by the Board. Section 3-708(5) empower the Board to investigate and take testimony and require production of evidence. Section 3-708(8) empowers the Board to promulgate rules and regulations for the administration of the Act, including the form in which contributions and expenditures are to be reported. Section 3-708(11) allows the Board to take such "other actions" as necessary to carry out the purpose of the Act. Section 3-710(1) empowers the Board to audit and examine all matters relating to performance under the Act . Section 3-711 concerns penalties and contains three subsections, the first concerning assessment for failure to timely file any statement or record required or violation any other provision; the second allowing an excess penalty for expenditures which exceed the limits; the third addressing instances where there is "intentional or knowing furnishing of any false or fictitious evidence, books or information" or including of misrepresentations or falsifying or concealing evidence, which "shall be punishable as a class A misdemeanor." The two Board Rules generally cited are Rule 2-02, which sets forth a list of fundamental breaches of a participating candidate's obligations, including submission of fraudulent matchable contribution claims, use of public funds to make fraudulent campaign expenditures, and cooperation with another entity in receipt of alleged independent expenditures, and Rule 4-05 which empowers the Board to conduct desk and field audits before or after an election, and allows the use of random sampling of data.

Footnote 18:It must be emphasized that nothing stated in this decision should be read as an expression of a judicial finding concerning whether the documents at issue support the conclusions urged by the Board that they evidence fraud. That, as is made clear by the Act and the Rules is the province of the fact-finders at the ultimate hearing before the Board.

Footnote 19:"Cooperated activity" is defined in Rule 2-02( c) as: cooperation in alleged independent expenditures, whereby material or activity that directly or indirectly assists or benefits a participant's nomination or election, which is purported to be paid by independent expenditures, was in fact authorized, requested, fostered, or cooperated in by the candidate. The eleventh bulleted paragraph of the Notice cites Rule 2-02 in general.

Footnote 20:Plaintiffs argue that defendant's refusal to state what the discrepancies are, tends to show that rather than presuming errors were made, the Board staff has "already determined that these so-called unrevealed material discrepancies constituted nothing less than fraud and a criminal misdemeanor" (Goldfeder Aff. in Further Supp. at ¶ 12, citing the Loprest Aff. at ¶ 20).