e

In the Matter of the Application of FRIENDS OF JOE LAZAR, JOSEPH LAZAR AND AARON BIDERMAN Petitioners, -againstNEW YORK CITY CAMPAIGN FINANCE BOARD, Respondent. For a Judgment Pursuant to Article 78 of the CPLR

PETITIONERS MEMORANDUM OF LAW IN SUPPORT OF THE VERIFIED PETITION

Laurence D. Laufer GENOVA BURNS GIANTOMASI WEBSTER LLC 115 Broadway, 15* F1. New York, New York 10006 (212) 566 -7188 Attorney for Petitioners

M Y 2 9 2013

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TABLE OF CONTENTS

PRELIMINARY STATEMENT ........................................................................... STATEMENT OF FACTS .................................................................................. ARGUMENT ..................................................................................................

2
9

1. The CFB Determination was arbitrary, capricious and an abuse of discretion because the CFB failed to conduct an adjudication consistent with the procedures of Charter $1046 as required by Administrative Code $53-710(4) and 3-710.5(ii)(a). .................................. 9 2. The CFB Determination was arbitrary, capricious and an abuse of discretion because the CFB improperly placed the burden of proof on the candidate and the Committee absent any actual evidence of cooperation in alleged third party expenditures. ............................. .15
3. The CFB Determination was arbitrary, capricious and an abuse of discretion because Respondent disregarded Petitioners evidence refuting the allegations of violation. ..........20 CONCLUSION ...............................................................................................
22

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TABLE OF AUTHORITIES

Cases
Arizona Free Enterprise v. Bennett, 131 S.Ct. 2806 (2011) .................................................................................... Buckley v. Valeo, 424 U.S. 1 (1976) ......................................................................................... Citizens United v. FEC, 558 U.S. 310 (2010) ...................................................................................... Colorado Republican Federal Campaign Petitioners v. FEC, 518 U.S. 604 (1996) ...................................................................................... Davison v. Klass, 280 N.Y. 252 (1939) 19 19 19

19 14 .19

.....................................................................................

FEC v. Wisconsin Right to Life, Inc., 55 1 U.S. 449 (2007) ..................................................................................... Foley v. Bratton, 92 N.Y.2d 781 (1999) ....................................................................................

15

Freedman v. Maryland, 380 U.S. 51 (1965) ....................................................................................... 19 Healy v. James, 408 U.S. 169 (1972) ...................................................................................... Jefpaul Garage Cow. v Presbyterian Hosp., 61 N.Y.2d 442 (1984) .................................................................................... Pel1 v. Bd. of Ed. Union Free Sch. Dist., 34 N.Y .2d 222 (1974) ................................................................................... Philadelphia Newspapers, Inc. v. Hepps, 475 U.S. 767 (1986) ......................................................................................
S. & E. Motor Hire Corp. v. New York Indem. Co., 255 N.Y. 69 (1930) ......................................................................................
-

19 14 .20 19 .14

Schaffer v. Weast, 546 U.S. 49 (2005) ....................................................................................... 19

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Speiser v . Randall. 357 U.S. 513 (1958) ...................................................................................... Waters v . Churchill. 511 U.S. 661 (1994) ......................................................................................

19 19

Other Authorities
3-710.5((ii)(a). ..........................................................................................

passim
18

Admin. Code $3-702(21) ................................................................................... Admin. Code 3-702(8) ................................................................................ Admin . Code 3-708(5) ..................................................................................... Admin . Code 3-710(4) ...................................................................................... Admin . Code 3-710.5(ii)(a) ............................................................................... Administrative Code 3-703(l)(d)

15, 20
18 9 18 17

........................................................................

Charter 1046(c)(2) ...........................................................................

14, 16, 18, 20 3 16

1

N.Y.C. Administrative Code $53-710(4) ................................................................. New York City Charter 1046(c)(2)...................................................................... NYC Administrative Code $83-701 .......................................................................

Rules
CFB Rule 7-02(f)....................................................................................... passim 16

Rule 7-02(c) ...................................................................................................

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PRELIMINARY STATEMENT
Petitioners Joseph Lazar, Aaron Biderman, and the Friends of Joseph Lazar (the Petitioners) challenge a determination by Respondent Campaign Finance Board (CFB) as arbitrary, capricious and an abuse of discretion. Mr. Lazar ran for New York City Council in a special election in March 2010. He participated in the New York City campaign finance program, administered by Respondent, and the Petitioners qualified for and received public matching funds. After the election, Respondent conducted an audit. The audit raised questions, which Petitioners addressed. The CFB subsequently issued a notice of alleged violations, recommended penalties and recommended public funds repayments. After Petitioners responded to that notice, the CFB inexplicably failed to initiate and conduct an adjudication in the manner required by the New York City Campaign Finance Act (NYC Administrative Code $53-701, et seq.). Petitioners never waived their right to such an adjudication. The CFB nonetheless proceeded to make findings of violation, assess $144,374 in civil penalties, and demand repayment of $92,400 in public matching funds after an informal hearing. In this proceeding, Respondent CFB required Petitioners to refute allegations that expenditures by other entities were coordinated.

Thus, Respondent improperly reversed the

burden of proof regarding such allegations contrary to New York City Charter provisions for adjudications and the requirements of the New York City Campaign Finance Act. Respondent also disregarded Petitioners evidence refuting the allegations.

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For these reasons, Petitioners seek a declaration that the challenged CFB determination was arbitrary, capricious and an abuse of discretion, and therefore null, void and inoperative.

STATEMENT OF FACTS

Joseph Lazar was an unsuccessful first-time candidate for New York City Council in a special election held in March 2010. Mr. Lazar authorized the Friends of Joe Lazar (the Committee) as his campaign committee for that election. Aaron Biderman, Mr. Lazars son-in-law, is the treasurer of the Committee. Mr. Lazar participated in the voluntary New York City Campaign Finance Program. The Petitioners qualified for and received $92,400 in public matching funds for expenditure in the special election. The contribution limit in the special election was $1,375. The

expenditure limit was $168,000. The Campaign Finance Board (CFB) conducted a post-election audit of the Petitioners. The final audit report reflects the following CFB actions against the candidate and the Committee (collectively, the CFB Determination)(hereinafter Final Audit Report)(see Exhibit A to the Verified Petition):
0

A finding that certain literature, advertisements, goods and services were unreported inkind contributions, which the CFB valued at $10,100. The CFB added that amount to its expenditure limit calculation and assessed a $500 penalty.

A finding that the Petitioners had exceeded the expenditure limit by $41,291.33, inclusive of unreported in-kind contributions the CFB valued at $10,100, as described

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above, and unreported expenditures of $31,822.20, as described below. The CFB assessed a $123,874 penalty.
0

A finding that the Petitioners received unreported non-independent expenditures from the United New York Democratic Club, Inc. and the Friends of Dov Hikind, totaling $31,822.20. The CFB added that amount to its expenditure limit calculation and also assessed two additional $10,000 penalties, totaling $20,000. A finding that the three foregoing violations constitute a fundamental breach of the Candidates Certification, see Final Audit Report at 22 (Feb. 11, 2013), for which the CFB required the return of all $92,400 in public funds previously received.

As a result of these findings, the CFB claims against Mr. Lazar, the Committee, and Mr. Biderman total $144,374 in penalties and $92,400 in public Funds repayments, for a total of $236,774 in asserted liabilities to the CFB. See Letter from Julius The CFB initially issued a draft audit report on June 6, 2011. Peele to Aaron Biderman (June 16, 20ll)(hereinafter Draft Audit Report)(see Exhibit B to the Verified Petition). Petitioners responded by letter, dated September 21, 2011. By letter dated May 4, 2012, the CFB issued a Notice of Alleged Violations, Recommended Penalties, and Recommended Public Funds Repayment (the Notice)(see Exhibit C to the Verified Petition). The Notice included a notice response form (Response Form), which included an opportunity to request a hearing before the Campaign Finance Board or before an Administrative Law Judge. This Response Form is the only means the CFB provided for the candidate and the Committee to waive their right to a Charter $1046 adjudication before an

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See N.Y.C. Administrative Code $83-710(4) and 3-710.5((ii)(a)); Administrative Law Judge. CFB Rule 7-02(f). Petitioners retained an attorney. From the issuance of the Notice on May 4, 2012 through the ultimate conduct of an informal hearing on January 10, 2013, CFB staff was aware that Petitioners attorney had not previously practiced before the Board. See,

x,Email from

Danny Frost to Aurora Cassirer (May 22, 2012); Email from Aurora Cassirer to Danny Frost (Dec. 29, 2012); Email from Danny Frost to Aurora Cassirer (Dec. 31, 2012) (see Exhibit D to the Verified Petition). Petitioners contacted CFB counsel and obtained extensions of the deadline for submitting a response to the Notice. See Email from Aurora Cassirer to Danny Frost (June 11, 2012); Email from Aurora Cassirer to Danny Frost (July 5, 2012) (see Exhibit D to the Verified Petition). Petitioners responded by letter of July 23, 2012, meeting the See Letter from Aurora Cassirer to Hilary Weisman extended deadline granted by CFB staff. (July 23, 2012)(see Exhibit E to the Verified Petition). By responding in a timely manner, Petitioners met the terms stated in the Notice for preserving their right to respond and their right to a hearing. See Letter from CFB to the Petitioners (May 4, 2012), at page 2, enclosing Response Form at page 1 (see Exhibit C to the Verified Petition). The July 23, 2012 submission did not include a completed Response Form. The Notice and the Response Form did not indicate the kind of hearing that would be conducted in the event the Response Form was not completed and returned to the CFB. CFB staff never indicated to Petitioners that the CFB staff had chosen not to initiate a Charter $1046 adjudication as required by Administrative Code $$3-710(4) and 3-710.5((ii)(a)); CFB Rule 702(f) *

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Thus, neither the candidate nor the Committee (nor their attorney) indicated to the CFB that they had waived their right to have an Administrative Law Judge conduct the required Charter $1046 adjudication. Although no waiver had been obtained, the CFB nonetheless failed to commence the Charter $1046 adjudication. Since no waiver had been obtained, the CFBs failure to commence the required adjudication violated the candidates and the Committees right to an adjudication pursuant to Administrative Code $3-710(4) and 3710.5((ii)(a) and CFB Rule 7-02(f)(2).

& Letter from Peggy Willens to

Laurence Laufer

(Apr. 8, 2013)(see Exhibit N to the Verified Petition); Letter from Laurence Laufer to Peggy Willens (Mar. 4, 2013)(see Exhibit M to the Verified Petition). Instead, CFB staff placed Petitioners (referenced as the Lazar campaign) on the Board meeting calendar for an informal hearing before the Board.

& Email from Danny

Frost to Aurora Cassirer (Oct. 3, 2012)(see Exhibit F to the Verified Petition). In unilaterally choosing to schedule the Lazar campaign for an informal hearing, rather than commencing an adjudication in the manner required by CFB Rule 7-02(f), CFB staff effectively treated Petitioners as though they had waived their right to have an Administrative Law Judge conduct the required Charter $1046 adjudication, when they had not. In effect, the CFB waived the conduct of a Charter $1046 adjudication in this case, exercising a prerogative that the NYC Campaign Finance Act affords only to the candidate and the Committee, not the CFB. In preparation for the informal hearing, CFB staff attorneys submitted a memorandum to the Board outlining their final recommendations for findings of violation, penalties and public funds repayment. See Memorandum from Associate and General Counsel to the Board to the Campaign Finance Board (Dec. 5 , 2012) (see Exhibit G to the Verified Petition).

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Petitioners presented a memorandum to the Board at the informal hearing. See Memorandum from Aurora Cassirer to Members of the Campaign Finance Board (Jan. 10, 2013) (see Exhibit

H to the Verified Petition). In addition to other arguments, Petitioners January 10, 2013
memorandum maintained that the evidence CFB staff had presented did not create a plausible inference that the Petitioners had committed a violation, that the evidence was not substantial, and that there was no rational basis for assessing penalties or for finding that violations had been committed. At the informal hearing, CFB attorney Danny Frost objected to Petitioners offering of the memorandum as too late, citing to CFB Rule 1-02(~)(2).See Transcript of Proceedings at 7-9, In the Matter of the New York Campaign Finance Board (Jan. 10, 2013)(hereinafter Transcript) (see Exhibit I to the Verified Petition). The rule he referenced is non-existent. Since no reference is made to Petitioners January 10, 2013 memorandum in either the Final Board Determination or Final Audit Report, there is no record of whether the Board gave it any consideration. At the informal hearing Petitioners described the completeness of the Petitioners prior submissions regarding the first allegation of violation, pertaining to alleged in-kind contributions. Petitioners also drew attention to the CFB staffs full reliance on a press report appearing in the City Hall News as the factual basis for finding non-independent expenditures, despite the Petitioners prior submission of two sworn affidavits in refutation of that press report. She asked how do we prove a negative? See Transcript at 14-16; see also Draft Audit Report; Chris Bragg, Hikind M a y Have Helped Favored Council Candidate Skirt

Campaign Finance

Laws, CITY HALL NEWS, Apr.

6

28,

2011,

available

at

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http ://www .cityandstateny .com/hikind-may-have-helped-favored-council-candidate-s~rtcampaign-finance-laws/ (hereinafter Chris Bragg, CITYHALLNEWS )(see Exhibit J to the Verified Petition). Mr. Frost contended the burden of proof was on the Lazar campaign, citing CFB Rule See Transcript at 27. He maintained that there were two factors, shared space and 1-08(f). common payee, that justified imposing this burden on the Lazar campaign to prove that the expenditures by the United New York Democratic Club, Inc. and the Friends of Dov Hikind were not coordinated. In response to Board member Changs question, Mr. Frost indicated that CFB staff did not speak with vendors in this case and instead relied on CFB Rule 1-08(f) See Transcript at 34-35. Mr. Frost also to shift the burden of proof to the Petitioners. indicated that the City Hall News press report was the only evidence CFB staff had obtained that flyers had been produced by the firm C.C. Design, a consultant reported by the Friends of Dov Hikind. See Transcript at 37-38. Thus, it is apparent that the CFB placed heavy reliance on the City Hall News article. That article details several alleged expenditures that are consistent with independent expenditures by Friends of Dov Hikind and United New York Democratic Club, Inc. The article, however, speculates that the expenditures were not independent, but rather coordinated with the Lazar campaign. Further, the article inaccurately suggests that the Lazar campaign would have the burden of proving the absence of coordination (But there is little evidence to suggest there was any separation between Hikinds club and Lazars campaign, which would See Chris Bragg, CITYHALLNEWS. The CFB prove their efforts were not coordinated). -

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Draft Audit Report, issued six weeks after the City Hall News article was published, followed the approach to burden of proof indicated in that article. See Draft Audit Report at 16-19. Following the public meeting, the Board entered into an executive session. The

transcript is void of any evidence that the Board properly entered the executive session under the Open Meetings Law (OML) by clearly stating the statutory basis for entering the See Transcript at 85, 87. However, the executive session and taking a vote of the Board. Board deliberated in executive session with CFB staff in attendance. Although some Board members had appeared skeptical of the CFB staffs contentions during the informal hearing,

see Transcript at 34-39, upon return to public session, the Board adopted the CFB staff
recommendations for findings of violation, proposed penalties, and public funds repayment without change. See Transcript at 86-88. After receiving the CFBs Final Board Determination and Final Audit Report on February 11, 2013, the Petitioners requested the Board to rescind and withdraw its findings of violation, assessment of penalties, and claim for public funds repayment due to the Boards error in failing to initiate and conduct a Charter $1046 adjudication as required by Administrative Code $83-710(4) and 3-710.5((ii)(a). See Letter from Laurence Laufer to Amy Loprest (Feb. 22, 2013) (see Exhibit K to the Verified Petition). On March 1, 2013, the CFB executive director denied this request and claimed that the Petitioners had elected to waive See its right to appear before an Administrative Law Judge in a more formal proceeding. Letter from Amy Loprest to Laurence Laufer (Mar. 1, 2013) (see Exhibit L to the Verified Petition). The Petitioners then made a Freedom of Information Law request seeking records that the CFB had initiated an adjudication pursuant to CFB Rule 7-02(f)(2) subsequent to its

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receipt of Petitioners July 23, 2012 response or had received a waiver from the Petitioners of See Letter from Laurence Laufer to its right to appear before an Administrative Law Judge. Peggy Willens (Mar. 4, 2013) (see Exhibit M to the Verified Petition). By letter dated April 8, 2013, the CFB conceded it had no record of initiating Charter $1046 adjudication or of receiving a waiver from the Petitioners. See Letter from Peggy Willens to Laurence Laufer (Apr. 8, 2013) (see Exhibit N to the Verified Petition).

ARGUMENT
1. The CFB Determination was arbitrary, capricious and an abuse of discretion because the CFB failed to conduct an adjudication consistent with the procedures of Charter $1046 as required by Administrative Code $3-710(4) and 3-710.5(ii)(a).
New York City Administrative Code $3-710.5(ii)(a) requires that: Alleged violations and proposed penalties shall be subject to resolution by adjudication before the board consistent with the procedures of [New York City Charter $10461, unless such procedures are waived by the candidate or principal committee....The board shall issue a final determination within thirty days after the conclusion of the adjudication proceeding. See also Admin. Code $3-710(4) (similarly requiring Charter $1046 adjudication for public funds repayment claims). CFB Rule 7-02(f) implements these Administrative Code

requirements for Charter $ 1046 adjudications. The requirements of Charter $1046 adjudications were added to the NYC Campaign See City of New York, Local Law No. 34 (2007)(see Exhibit P to the Finance Act in 2007. Verified Petition)
~

Through these amendments, the City Council sought to encourage

Separately, the Petitioners exhausted its remaining administrative remedy of a CFB Rule 5-02(a) petition. & Letter from Laurence Laufer to Amy Loprest (Mar. 4, 2013); Letter from Sue Ellen Dodell to Laurence Laufer (Mar. 14, 2013)(see Exhibit 0 to the Verified Petition).

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participation in the matching funds program and fairness for participating candidates. The new law was adopted: in order to ensure that the Boards conduct of hearings conforms with the due process protections afforded by the Citywide Administrative Procedure Act (CAPA) as codified in chapter 45 of the Charter [and to] ... require that all repayment claims must be adjudicated before the Board in accordance with CAPA, unless the candidate waives the conduct of a formal hearing. The proposed bill would ensure the Boards compliance with CAPA by creating a necessary firewall between the investigative and adjudicatory powers and functions of the Boards staff and requiring that such divisions of the Boards staff must be separate and no staff member of the Board shall perform both investigative and adjudicatory tasks or functions. City of New York, Local Law No. 34 (2007) Report of the Government Affairs Division at 14 (June 21, 2007); see generally id. at 13-18 (see Exhibit P to the Verified Petition).

New York City Charter $1046 states: Adjudication. Where an agency is authorized to conduct an adjudication, it shall act, at a minimum, in accordance with the provisions set forth below. The parking violations bureau shall not be subject to the requirements of this section. a. Notice. All parties shall be given reasonable notice of such hearing, which shall include:

1. a statement of the nature of the proceeding and the time and place it will be held, if applicable;
2. a statement of the legal authority and jurisdiction under which the hearing is to be held, and a reference to the particular sections of the law and rules involved; and

3. a short and plain statement of the matters to be adjudicated, including reference to the particular sections of law and rule involved. b. Notice of agency procedures. Agencies shall adopt rules governing agency procedures for adjudications and appeals. Agencies shall make a copy of any such rule available, upon request, to any party who has received notice of violation of the laws, rules or orders enforced by the agency.

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c. Hearing.
1.

All parties shall be afforded an opportunity for a hearing within a reasonable time. At the hearing the parties shall be afforded due process of law, including the opportunity to be represented by counsel, to issue subpoenas or request that a subpoena be issued, to call witnesses, to cross-examine opposing witnesses and to present oral and written arguments on the law and facts. Adherence to formal rules of evidence is not required. No ex parte communications relating to other than ministerial matters regarding a proceeding shall be received by a hearing officer, including internal agency directives not published as rules. Findings of fact shall be based exclusively on the record of the proceeding as a whole. Except as otherwise provided for by state or local law, the party commencing the adjudication shall have the burden of proof. The hearing shall be transcribed or recorded and a copy of the transcript or record, or any part thereof, shall be made available to any party to the hearing upon request therefor. A typed or recorded copy of such transcript shall be provided upon request for a reasonable cost.

2.

3.

d. Informal disposition. Unless precluded by law, informal disposition may be made of any matter which is the subject of adjudication by methods of alternative dispute resolution, stipulation, agreed settlement, or consent order. e. Hearing officer. Except as otherwise provided for by this charter the person presiding at a hearing shall be assigned solely to adjudicative and related duties. Except as otherwise provided for by the rules of the agency or by order of the mayor issued in accordance with subdivisions two and three of section one thousand forty-eight, such hearing officer shall make final findings of fact and shall not make any fmal decision, determination, or order, but shall only recommend such, and shall forward such recommendation and the record of the adjudication to the agency, who may adopt, reject or modify any such recommended decision, determination or order. f. Recommendation or decision. Any recommended decision, final decision, determination or order shall be in writing, or stated in the record if the parties are present, and shall include findings of fact and conclusions of law. A copy of any written recommended decision, final decision, determination, or order shall be delivered or mailed forthwith to each party. CFB Rule 7-02(f) is its rule for adjudications, adopted pursuant to Charter 1046(b), quoted above. This rule specifies:
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Designation of administrative law judge to act as hearing officer Notice requirements for commencing adjudication Deadline for submitting a response to the notice Provision for list of witnesses in advance of hearing Respondents opportunity to request subpoenas be issued and call witnesses to testify under oath Prohibition against ex parte communications Opportunity to submit written comments on hearing officer recommendation. The CFB has conceded it failed to commence a Charter $1046 adjudication pursuant to Rule 7See Letter from Peggy Willens to Laurence Laufer (Apr. 8, 2013). The informal 02(f). January 10, 2013 hearing did not adhere to any of the Rule 7-02(f) requirements referenced above. The Response Form issued by the CFB on May 4,2012 with the Notice designated an administrative law judge to act as hearing officer, pursuant to Rule 7-02(f)(l). The Notice was deficient, however, since it did not inform the candidate and the Committee that an adjudication would be conducted absent a candidate or Committee waiver, as required by CFB Rule 7-02(~)(3). Together with the Notice, the CFB provided instructions entitled Frequently Asked Questions About Hearings on Penalty and Payment Matters. See Letter from CFB to the Petitioners (May 4, 2012), enclosing Frequently Asked Questions About Hearings on Penalty and Payment Matters (hereinafter FAQs)(see Exhibit C to the Verified Petition). The FAQs appear designed to encourage campaigns to choose an informal hearing before the Board rather than the formal hearing before an Administrative Law Judge that is required by 12
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Administrative Code @3-710.5(ii)(a) and 3-710(4).

For example, the FAQs describe an

informal hearing before the Board as generally short, with procedures that are simple and informal for which an attorney is not necessary, and with a decision by the Board typically rendered shortly after the hearing. See FAQs at 1. In contrast, the FAQs describe the hearing before an Administrative Law Judge as commencing at a later point in time and as potentially having sessions spread over several weeks, with procedures [that] can be complex and more formal, for which an attorney is highly recommended, and with a much longer timeframe for rendering a decision. See FAQs at 2, Notably, the FAQs do not address burden of proof and do not suggest there is a difference between the two kinds of hearings in terms of who carries the burden of proof. The FAQs state that a hearing before an administrative law judge would be subject to Office of Administrative Trials and Hearings (OATH) rules,

%20Rules% 2009-21-09vjchttp://www. nyc.gov/html/oath/downloads/pdf/OATH April%208 lO.pdf, and would be held at OATH. See FAQs at 4. The OATH rules of inter alia, ex parte communications, service of the petition, answer, docketing practice address, -of the case, settlement conferences, discovery, pre-trial motions, subpoenas, and evidence at the hearing. See OATH Rules of Practice 581-14, 1-23, 1-24, 1-25, 1-31, 1-33, 1-34, 143(see Exhibit Q to the Verified Petition). The CFB proceeding in this case did not adhere to these or any other OATH rules, most especially because the proceeding was not before an administrative law judge. Thus, the January 10, 2013 informal hearing was a sharp departure

* For example, contrary to the CAPA and the OATH Rules of Practice, CFB staff attorney Frost indicated there would be no sworn testimony at the hearing and discouraged the bringing of non-party witnesses. See Email from Danny Frost to Aurora Cassirer (Dec. 31, 2012)(see Exhibit D to the Verified Petition).
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from the procedure for adjudications under Charter $1046, CFB Rule 7-02(f), and the OATH rules of practice. Although CFB staff initially contended that the Petitioners had elected to waive its right to appear before an Administrative Law Judge in a more formal proceeding, see Letter from Amy Loprest to Laurence Laufer (Mar. 1, 2013)(see Exhibit L to the Verified Petition), the CFB response to Petitioners subsequent FOIL request laid bare that the Petitioners did not waive its right to a Charter $1046 adjudication. See Letter from Peggy Willens to Laurence Laufer (Apr. 8, 2013) (see Exhibit N to the Verified Petition). Despite the lack of waiver, the CFB chose to commence the wrong proceeding - one that did not meet the requirements of Charter $1046, CFB Rule 7-02(f) or the OATH Rules of Practice. Furthermore, the CFB Notice, FAQs and Response Form omit any reference to burden of proof, and do not make any distinction between who carries the burden of proof in each of the two different kinds of hearings. The CFBs failure to warn that the candidate and the Committee would have the burden of proof in an informal hearing before the Board, in stark contrast to the Charter 1046(c)(2) direction that the CFB would have the burden of proof in an adjudication, is a material omission. This material gap in the CFBs notice negated

Petitioners ability to knowingly waive their due process rights. A waiver is the voluntary abandonment or relinquishment of a known right. It is essentially a matter of intent which must be proved. Jefpaul Garage Corp. v Presbyterian Hosp., 61 N.Y.2d 442, 446 (1984) (citations omitted); see also S. & E. Motor Hire Corp. v. New York Indem. Co., 255 N.Y. 69, 72 (1930) (waiver ordinarily must be predicated upon full knowledge of all the facts upon which the existence of the right depends). The waiver must be intentional and clear. See 14
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Davison v. Klass, 280 N.Y. 252, 261 (1939). In this case, Petitioners gave no waiver and, due to material omission in the CFB notice, no waiver may be implied. The CFB first attempted to induce Petitioners to choose an informal hearing, by waiving their right to an adjudication, without any notice of the adverse consequence that choice would have had on burden of proof. When that tactic failed, the CFB staff simply ignored that Petitioners had not chosen an informal hearing before the Board. The CFBs unilateral decision to commence the wrong proceeding violated Petitioners due process rights , as set forth in Administrative Code 3-710(4) and 3-710.5((ii)(a). The CFBs failure to conduct the required adjudication was arbitrary, capricious and an abuse of discretion. Foley v. Bratton, 92 N.Y.2d 781 (1999).

2. The CFB Determination was arbitrary, capricious and an abuse of discretion because the CFB improperly placed the burden of proof on the candidate and the Committee absent any actual evidence of cooperation in alleged third party expenditures.

The CFB Determination was that the candidate and the Committee violated the Act by receiving unreported in-kind contributions, including in the form of coordinated expenditures that were not made independently of the candidate or Petitioners. The Final Audit Report and Final Board determination, however, are devoid of reference to evidence that Lazar, his political committee, or any agent thereof actually authorized, requested, suggested, fostered or cooperated in any expenditure by Friends of Dov Hikind or United New York Democratic Club, Inc. Absent such evidence, a third party expenditure is independent and the finding of violation must fail as a matter of law. See 15
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Admin. Code 3-702(8) (the term independent of the candidate or his or her agents or political committee authorized by such candidate pursuant to section 14-112 of the New York state election law shall mean that the candidate or his or her agents or political committee so authorized did not authorize, request, suggest, foster or cooperate in any such activity). At most, the CFB Determination rests on a foundation of circumstantial evidence of overlaps, which suggest nothing more than possible opportunity for coordination regarding one or more expenditures. Absent altogether from the Board Determination is reference to any act of actual coordination. Thus, the question of burden of proof is critical. Indeed, in this case burden of proof was decisive. Under New York City Charter 1046(c)(2) the party commencing the

adjudication shall have the burden of proof.

Pursuant to Rule 7-02(c), the CFB commenced a

proceeding against the candidate and the Committee, but then ignored Charter 1046(c)(2) (and the other Charter provisions for a CAPA adjudication, as discussed above) and instead imposed the burden of proof on the candidate and the Committee. Specifically, the Final Board Determination states: [tlhe Campaign failed to rebut the presumption that expenditures made by Friends of Dov Hikind and by United NY were nonSee Final Board Determination at 2 (Jan. 10, 2013 [sic] backdated and not independent. released until February 11, 2013 with the Final Audit Report)(see Exhibit A to the Verified Petition). Likewise, the Final Audit Report states that the Campaign was required to

demonstrate that [each] transaction in question is independent of the Campaign by addressing the applicability of each of the factors in Rule 1-08(f)(l)

....

See Final Audit Report at 18

(Feb. 11, 2013) (emphasis in original). As noted above, at the informal hearing, CFB staff

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attorney Frost also advised the Board that the burden of proof was on the Petitioners, citing CFB Rule 1-08(f).
See Transcript at 27.

CFB Rule 1-08(f)(l) sets forth factors the CFB uses in determining whether an expenditure is independent. None of these factors, including common payee (factor (v)) and shared space3 (factor (vi)), by itself or in combination, however, purports to subject candidates and committees to the burden of proving that an expenditure was independent. The Final Board Determination and Final Audit Report also cite to CFB Advisory Opinion No. 2009-7 (Aug. 6 , 2009), which asserts each campaign bears the burden of demonstrating that any third party activity conducted on the campaigns behalf is indeed independent. See Final Audit Report at 17 (Feb. 11, 2013); Final Board Determination at 2 (Jan. 10, 2013). The advisory opinion cites but one provision of the Act as authority for the above-quoted statement, Administrative Code 3-703(l)(d). See Advisory Opinion No. 2009-7 (fn. 18). Administrative Code 3-703(l)(d) requires a participating candidate to: obtain and furnish to the campaign finance board and his or her principal committee or authorized committees must obtain and furnish to the board any information it may request relating to his or her campaign expenditures or contributions and furnish such documentation and other proof of compliance with this chapter as may be requested by such board.. .. Administrative Code 3-703(1)(d) therefore merely describes a duty to respond to CFB requests for information and to furnish documents and other proof of compliance. In no way does this provision purport to address burden of proof, let alone purport to shift that burden by

These two circumstances are referenced in the Final Board Determination at p. 2 and the Final Audit Report at p. 17.

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requiring a candidate or committee to disprove an allegation of violation or rebut a presumption of violation. To shift the burden of proof to a respondent in an administrative proceeding merely on the basis of an allegation of violation, as the CFB. advisory opinion purports to do, would turn prosecutor into judge, which of course is fundamentally at odds with American justice and due process. CFB Advisory Opinion No. 2009-7 rationalizes that the CFB is not privy to communications between campaigns and third parties, such that information about whether coordination occurred is uniquely within the campaigns possession. This contention,

however, makes no logical sense. Information about whether coordination occurred would also, invariably, be within the possession of the third party making the expenditure and, potentially, within the possession of other persons and entities familiar with communications or other circumstances resulting in the expenditure. The CFBs means of gathering evidence are See, hardly as circumscribed as Advisory Opinion No. 2009-7 suggests. -

s, Admin. Code

3-708(5) (granting the Board investigatory powers , including the power to subpoena witnesses and records). It is unclear why the CFB chose to resort to burden-shifting in the first instance, without first attempting through other means and sources to timely gather actual prima facie evidence of violation sufficient to justify requiring the candidate and Petitioners to refute inferences that might be fairly drawn from that evidence. The NYC Campaign Finance Act contains only one rebuttable presumption. See Admin. Code 3-702(21) (definition of campaign expenditure). Neither Admin. Code 53703(l)(d) nor 3-702(8) (defining contribution and independent expenditure) purports to create a rebuttable presumption or to impose a burden of refuting an allegation of coordination.

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Indeed, by subjecting allegations of violation to CAPA adjudication, the Act makes clear that the burden of proof remains with the CFB.
See Admin. Code 3-710.5(ii)(a); Charter

1046(c)(2). Neither the Act nor public policy nor logic lends any support to the CFBs decision to impose a burden of proof for an informal hearing that is the very opposite of the burden that would apply in a CAPA adjudication before an Administrative Law Judge. The CFBs choice to reverse the Charter 1046(c)(2) burden of proof therefore also violates the Admin. Code @3-710.5(ii)(a) and 3-710(4) provisions requiring a CAPA adjudication. Furthermore, the First Amendment safeguards independent expenditures from See Buckley v. Valeo, 424 U.S. 1, 51 (1976). The CFBs imposition government restraints. -

of the burden of proof on respondents in an administrative proceeding operates like a prior

restraint or contribution limit cap on legitimate independent expenditures. See Citizens United v. FEC, 558 U.S. 310, 334 (2010); Colorado Republican Federal Campaign Petitioners v. FEC, 518 U.S. 604, 621 (1996) ([aln agencys simply calling an independent expenditure a coordinated expenditure cannot (for constitutional purposes) make it one). The CFB

imposes burdens on independent expenditures that would not withstand strict scrutiny under the See Arizona Free Enterprise v. Bennett, 131 S.Ct. 2806, 2817 (2011); First Amendment. Citizens United v. FEC, supra at 340; FEC v. Wisconsin Right to Life, Inc., 551 U.S. 449, 464-466 (2007). Indeed, the U.S. Supreme Court has repeatedly rejected imposing burdens of persuasion or proof on respondents in matters involving conduct that implicates the First See, Amendment. -

x,Schaffer v. Weast, 546 U.S. 49 (2005); Waters v.

Churchill, 511

U.S. 661 (1994); Philadelphia Newspapers, Inc. v. Hepps, 475 U.S. 767 (1986); Healy v.

James, 408 U.S. 169 (1972); Freedman v. Maryland, 380 U.S. 51 (1965); Speiser v. Randall,
357 U.S. 513 (1958).

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.
In unilaterally choosing to forego the CAPA adjudication required by the NYC
Campaign Finance Act, the CFB effectively and erroneously reversed the burden of proof the 2007 local law amendment contemplated would apply in administrative proceedings to determine whether violations of the Campaign Finance Act had occurred. This CFB choice of procedure improperly yielded findings of violation without any actual evidence of coordination.
This kind of burden-shifting tactic is especially egregious where, as here, the independence

of expenditures are at issue precisely because independent expenditures are protected from governmental constraints under the First Amendment.

3. The CFB Determination was arbitrary, capricious and an abuse of discretion because Respondent disregarded Petitioners evidence refuting the allegations of violation.
As noted above, the CFB improperly assigned the burden of proof on Petitioners. The Board then arbitrarily disregarded the evidence Petitioners submitted to refute the allegations of violation. An agency action is arbitrary when taken without sound basis in reason and is generally taken without regard to the facts. See Pel1 v. Bd. of Ed. Union Free Sch. Dist., 34 N.Y.2d 222, 231 (1974). As such, rationality is the focus in determining whether an action is arbitrary and capricious or an abuse of discretion. Id. Pursuant to Charter 1046(c)(2), as noted above, the party commencing the adjudication has the burden of proof. But at the informal hearing, CFB staff failed to produce any evidence indicating that Petitioners had in fact authorized, requested, suggested, fostered or cooperated in any expenditures made by the United New York Democratic Club, Inc. or by See Admin. Code 3-702(8). In a proper adjudication, therefore, the Friends of Dov Hikind. the CFB allegations would have been unsustainable for want of evidence. But in the informal 20

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proceeding chosen unilaterally by the CFB, the CFB allegations were sustained without modification by the Board, reflecting the Boards capricious disregard for evidence submitted by Petitioners that was more than ample to refute the alleged violations.

In a detailed affidavit, the candidate attested that his campaign had no knowledge of any
activity resulting from expenditures made by the United New York Democratic Club, Inc. and the Friends of Dov Hikind that were at issue, and did not authorize those expenditures. See Letter from Aurora Cassirer to Hilary Weisman, enclosing Affidavit of Joe Lazar (July 23, 2012)(see Exhibit E to the Verified Petition). Mr. Lazars affidavit also addressed each of the factors set forth in CFB Rule 1-08(f), and the questions the Draft Audit Report had posed regarding these expenditures. Finally, the affidavit addressed the allegation that other

expenditures were in-kind contributions attesting that these were for activities performed either by Petitioners paid consultant Maviz or by the campaign manager, or, in the case of four election-day workers identified only by first name, unknown to the campaign. Id. Mr. Lazars affidavit, together with the exhibits it referenced, presented a complete defense to the allegations of violations. Petitioners also presented an affidavit from Rivka Sender, the treasurer of the Friends of Dov Hikind, corroborating that none of its expenditures in question were made on behalf of Friends of Joe Lazar. See id. (enclosing affidavit of Rivka Sender (July 23, 2012)). At the informal hearing, the Board apparently disregarded Petitioners sworn submissions and, as noted above, there is no record that the Board gave Petitioners January
10, 2013 memorandum any consideration. The Boards complete disregard for Petitioners

evidence is manifest in the Final Board Determination, which makes no reference to any evidence submitted by Petitioners. This disregard for Petitioners evidence is also clear in the 21
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.
Dated: May 29, 2013 Respectfully Submitted,

115 Broadway, Sui New York, NY 10006 (212) 566-7188 Attorney for Petitioners

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Index No. SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK FRIENDS OF JOE LAZAR, JOSEPH LAZAR AND AARON BIDERMAN Petitioners, -againstNEW YORK CITY CAMPAIGN FINANCE BOARD, Respondent.

PETITIONERS MEMORANDUM OF LAW IN SUPPORT OF THE VERIFIED PETITION GENOVA BURNS GIANTOMASI WEBSTER LLC Attorneys for Plaintiffs Trinity Centre 115 Broadway, 15* Floor New York, NY 10006 Laurence D. Laufer Tel: 212-566-7 188

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