Opinion
610827/18
07-08-2019
John VENDITTO, Petitioner, v. Joseph SALADINO, Joseph D. Muscarella, Anthony Macagnone, Rebecca M. Alesia, Michele M. Johnson, Louis Imbroto, Thomas B. Hand, in their Official Capacities as Supervisor and Members of The Town Board of Oyster Bay and The Town of Oyster Bay, Respondents.
Brafman & Associates, P.C., Attorneys for Petitioner, 767 3rd Avenue, Floor 26, New York, NY 10017, (212) 750-7800 Jkirshner@braflaw.com, Lawrence Iason, Esq., Morvillo Abramowitz Grand Iason & Anello PC, Attorneys for Respondents, 565 5th Avenue, New York, NY 10017 (212) 880-9420, liason@maglaw.com
Brafman & Associates, P.C., Attorneys for Petitioner, 767 3rd Avenue, Floor 26, New York, NY 10017, (212) 750-7800
Jkirshner@braflaw.com, Lawrence Iason, Esq., Morvillo Abramowitz Grand Iason & Anello PC, Attorneys for Respondents, 565 5th Avenue, New York, NY 10017 (212) 880-9420, liason@maglaw.com
Randy Sue Marber, J.
Papers Submitted:
Order to Show Cause x
Affirmation in Opposition x
Affirmation in Reply x
Verified Answer x
In this special proceeding, the application by the Petitioner, JOHN VENDITTO (hereinafter "Venditto"), seeking an Order, pursuant to Article 78 of the CPLR, against the Respondents, JOSEPH SALADINO ("Supervisor Saladino"), JOSEPH D. MUSCARELLA ("Muscarella"), ANTHONY MACAGNONE ("Macagnone"), REBECCA M. ALESIA ("Alesia"), MICHELE M. JOHNSON ("Johnson"), LOUIS IMBROTO ("Imbroto"), THOMAS B. HAND ("Hand"), in their official capacities as Supervisor and Members of The Town Board of Oyster Bay (the "Town Board") and THE TOWN OF OYSTER BAY (the "Town"), for the following relief:
i. Declaring the action of the Town Board's denial of Petitioner's request for representation at the Town's expense in the action entitled United States Securities and Exchange Commission v. Town of Oyster Bay and John Venditto (the "SEC Action") to be arbitrary, capricious and unlawful in violation of the Town Code, Town Law, and the Public Officer's Law;
ii. Reversing, annulling and setting aside the determination and Resolution No. 441-2018 of the Town Board insofar as it fails to provide for the Town's payment of counsel fees of Petitioner's choosing and such counsel's reasonable attorneys' fees and litigation expenses; and
iii. Ordering the Town Board to provide for the retention of Petitioner's counsel, and to pay said counsel's reasonable attorneys' fees and expenses incurred in the defense of the SEC Action.
In this Article 78 proceeding, the Petitioner seeks to annul the determination of the Town Board on June 26, 2018, which denied Petitioner's request to defend him in the SEC Action.
Facts
John Venditto is the former duly elected Supervisor of the Town of Oyster Bay (the "Town"), having served in that position from January 1998 until his resignation on January 4, 2017 (See Petition at ¶ 1). The Respondent, Supervisor Saladino, is the duly elected Supervisor of the Town, having served in that position from January 31, 2017 to the present date, and is sued herein in his official capacity as Town Supervisor (Id. at ¶ 2).
SEC Action
On November 21, 2017, the United States Securities and Exchange Commission (the "SEC") commenced the SEC Action in the United States District Court, Eastern District of New York, against the Town and Venditto alleging that they committed civil securities fraud between January 2010 and December 2016 in violation of the Securities Act of 1933 and the Securities and Exchange Act of 1934 (See SEC Action Complaint, annexed to Petition as Exhibit "1").
By letter dated November 29, 2017, counsel for Venditto timely tendered the SEC Complaint to the Office of the Town Attorney for the Town and requested that he be provided with a defense (See Tender Letter dated 11/29/17, annexed to Petition as Exhibit "6").
The SEC complaint alleges that Venditto, in concert with the Oyster Bay Town Attorney, Deputy Town Attorney, and the Town Board failed to disclose to the investing public information relating to the Town's indirect guarantee of private bank loans for one of the Town's concessionaires (Id. ; see also Petition at ¶ 5).
It is undisputed that during the time period of the alleged fraudulent conduct (January 2010 through December 2016), Venditto was the Town Supervisor.
A parallel criminal proceeding was also pending at the time the SEC Action was filed. Several of the criminal charges mirrored the securities fraud allegations in the SEC Action.
In February 2018, the presiding District Court Judge in the SEC Action issued an Order staying the civil suit during the pendency of the parallel criminal proceedings. Following a twelve-week criminal trial, on May 24, 2018, Venditto was acquitted of all criminal charges, including all counts charging him with securities fraud (See Petition at ¶¶ 9-10).
Town Attorney's Recommendations & Resolution No. 441-2018
Following Venditto's acquittal of the criminal charges, the Town Attorney issued an Inter-Departmental Memo in anticipation of the June 26, 2018 Town Board vote on the issue of Petitioner's request for a taxpayer-funded defense (the "Memorandum"). The Memorandum was issued on June 21, 2018, a mere five (5) days prior to the Town Board's vote, which provided, in pertinent part, as follows:
[The Office of the Town Attorney] engaged in an inquiry and review of the facts and circumstances of the case, and arrived at the following conclusions:
1) As a former elected official of the Town, Mr. Venditto was and is an "employee" as such term is defined by Town Code § 22-1;
2) Town Code § 22-2 provides, in mandatory language, that the Town "shall provide for the defense of the employee in any civil action or proceeding in any state or federal court arising out of any alleged act or omission which occurred or is alleged in the complaint to have occurred while the employee was exercising or performing, or, in good faith, purporting to exercise or perform his powers and duties within the scope of his public employment."
3) Mr. Venditto complied with the conditions precedent to the Town providing him a defense, namely by delivering a copy of the SEC's civil Complaint to the Town Attorney within ten (10) days of having been served therewith.
4) Given the complexity of the matter, the Office of the Town Attorney cannot provide Mr. Venditto's defense through "in house" counsel.
5) Under these circumstances, Town Code § 22-3 provides that Mr. Venditto is entitled to representation by counsel of his choosing and that such counsel's reasonable attorneys' fees and litigation expenses shall be paid by the Town upon approval of the Town Attorney and audit by the Comptroller.
(See Memorandum, dated 06/21/18, annexed to Petition as Exhibit "2").
At the Town Board meeting held on June 26, 2018, Resolution No. 441-2018 essentially adopted the foregoing recommendations by the Town Attorney, and also included the following:
WHEREAS, by memorandum dated June 21, 2018, Joseph Nocella, Town Attorney, and Matthew M. Rozea, Deputy Town Attorney, have recommended to the Town Board, following a review of the facts and law, that the Town retain the law firm of Brafman & Associates, P.C. to provide the defense for Mr. Venditto solely in connection with the SEC's civil action,
* * *
RESOLVED, That the Office of the Comptroller is hereby authorized and directed to make payment, in an amount not to exceed $50,000.00, for expenses incurred (including reasonable disbursements) in connection with the legal services to be rendered beginning May 24, 2018, with funds to be drawn from Account No. [omitted] upon submission of a duly certified claim, after audit.
(Resolution No. 441-2018, annexed to Petition as Exhibit "3")
Despite the foregoing inquiry, assessment and recommendations by the Town Attorney, Resolution No. 441-2018 was not adopted by the Town Board, having failed by a vote of 4 to 1, with one abstention and one recusal (See Resolution No. 441-2018, Petition at Exhibit "3"). The instant special proceeding followed.
Supervisor Saladino and Council members Johnson, Imbroto and Hand voted no, Councilman Muscarella voted yes, Councilman Macagnone abstained, and Councilwoman Alesia recused.
Oral argument was held on the record before this Court on January 15, 2019 and February 4, 2019. When the attorneys appeared on January 15, 2019, the Court inquired as to what events occurred, if any, between the Town Attorney's Memorandum of June 21, 2018 and the vote at the Town Board meeting on June 26, 2018 as the transcript of proceedings was not submitted by either party. At that time, counsel for the Town agreed to procure and submit the minutes of the June 26, 2018 Town Board meeting and oral argument was adjourned to February 4, 2019.
Minutes of June 26, 2018 Town Board Meeting
The minutes of the June 26, 2018 Town Board meeting were annexed to the Affirmation of Lawrence Iason, Esq., counsel for the Respondents, dated January 29, 2019 as NYSECF Doc. No. 21.
Preliminarily, it is noted that the minutes do not reflect any open discussion amongst the members of the Town Board concerning Resolution No. 441-2018 before the vote was taken (See Minutes of Town Board Meeting on 06/26/18, at pp. 24-27). Rather, as reflected by the minutes, and averred by counsel for the Town at oral argument, any such discussion and/or decision relating to Venditto's request for a Town-funded defense occurred in Executive Session. The minutes of the June 26th meeting that are now part of the record before this Court, were broken down into three separate sessions or calendars: (i) "Special Presentation" at 7:17 p.m.; (ii) "Regular Meeting" at 7:28 p.m.; and (iii) the "Action Calendar" at 8:11 p.m. (Id. ). The minutes of the "Regular Meeting" reflect that Supervisor Saladino called for an Executive Session after which a motion was made by Councilman Muscarella "to go into Executive Session for the purpose of the discussion on the SEC and concessionaire litigation" (Id. at p. 3). Executive Session began at 7: 28 p.m. and ended at 7:48 p.m. (Id. ). When the proceedings resumed, a motion was made to close the Executive Session with "no action" having been taken (Id. ).
The minutes of the "Action Calendar" from the June 26, 2018 Town Board meeting, as relating to Resolution No. 441-2018, reflect that a public comment was read into the record by Town resident, Robert Ripp, and additional comments were made by two other Town residents, Mr. Adelman and Kevin McKenna. In sum, Mr. Ripp is a resident that had lodged certain ethics complaints against Venditto involving alleged additional unethical behavior by Venditto that came to light during the parallel criminal proceedings (See Minutes of Town Board Meeting on 06/26/18, at pp. 7-8, NYSECF Doc. No. 21). Mr. Ripp urged the Town Board to review his ethics complaint against Venditto and "take no action on the vote to indemnify Mr. Venditto until after Town of Oyster Bay Ethics Board makes their final determination on [his] complaint." (Id. at p. 8). Mr. Adelman agreed that there should be some indemnification for Venditto in the SEC Action, but objected to the hourly rate of $850.00 for Venditto's choice of counsel. Lastly, Mr. McKenna asked that the Town Board "not vote on this at all, to await the criminal proceedings in Nassau County and the outcome of the SCC [sic ] charges." (Id. at pp. 23-24). Mr. McKenna continued, "[y]ou have the ability to delay the whole thing, put it off. A vote against it is going to just trigger a lawsuit, which legal experts say the Town and the public is going to lose, so I urge the Board to table the matter and not vote on it and let Mr. Venditto wait." (Id. at p. 24).
No further comments were made by the public, and as previously noted, no comments were made by any members of the Board before the vote was taken.
In seeking annulment of the Town Board's determination, the Petitioner argues that Town Code § 22 providing for the Town's duty to defend is to be construed broadly. Relying upon Dreyer v. City of Saratoga Springs, 43 AD3d 586, 588 [3d Dept. 2007], the Petitioner asserts that "[i]f the allegations of the complaint suggest that any of the conduct asserted falls reasonably within the scope of employment, the duty to provide a defense is triggered since the duty to defend is extremely broad " The Petitioner further claims that mere allegations of an intentional wrong does not absolve the municipality of its obligation to defend an employee where it is otherwise clear that the employee acted within the scope of his or her employment. Thus, the Petitioner posits that the Town's position is arbitrary, capricious and unlawful unless Venditto's conduct as alleged in the SEC Complaint is entirely void of a connection to his duties as Supervisor or "wholly personal" — a claim which is not supported by the allegations of the SEC Complaint.
The Petitioner characterizes the alleged corruption by Venditto as "background allegations" that are only a part of the SEC Complaint. The Petitioner further points out that there are six claims for relief in the SEC Complaint, three of which merely allege that Venditto is legally responsible for the actions of the Town solely due to his position as the Town Supervisor. Insofar as such claims do not allege any intentional wrongdoing on the part of Venditto and the premise of liability is that he knew or recklessly disregarded the Town's purported improper conduct, the Petitioner urges that he cannot be said to have been acting outside the scope of his duty or employment.
In opposing the Petition, the Town chiefly relies upon certain allegations in the SEC Complaint that Venditto acted "knowingly" or "recklessly" to obscure the loan guarantees, and was in a "corrupt relationship" with the concessionaire in which he, his friends, and his family allegedly received free limousine service, free or discounted meals, free use of private office space, and other personal benefits from the Town concessionaire (See SEC Complaint at ¶ 22, annexed to Petition as Exhibit "1"). The Town does not dispute the Petitioner's compliance with Town Code § 22-4 by timely tendering a copy of the SEC Complaint to the Town Attorney. The Town also does not dispute the Petitioner's allegation that the Town Attorney made recommendations based upon an inquiry into the facts after Venditto's acquittal in the parallel criminal proceedings; and further, that at the June 26, 2018 Board meeting, the Town Board did not pass Resolution 441-2018 despite having considered the Resolution which incorporated the Town Attorney's recommendations.
The Town agrees with the Petitioner's view concerning the standard to be employed when determining whether an employee was acting within the scope of his or her employment. In this regard, the Town contends that it is a factual question to be determined based upon the allegations in the complaint — here, the SEC Complaint. The Town also relies upon the same rule of law from Dreyer cited by the Petitioner thus agreeing that if the allegations in the SEC Complaint "suggest that any of the conduct asserted falls reasonably within the scope of employment, the duty to provide a defense is triggered " The Town further acknowledges that the "determining factor is the conduct charged by the injured party, not what the actual conduct may have in fact been."
Inasmuch as the Town's Verified Answer admits the allegations contained in paragraphs "11" through "14" of the Petition, the Town also concedes that on June 21, 2018, the Office of the Town Attorney issued the Memorandum to the Memorandum Docket in anticipation of the June 26, 2018 Town Board vote on the issue of Petitioner's request to have counsel retained to defend him in the SEC Action at the Town's expense; that the Memorandum contained the recommendations and conclusions of the Town Attorney upon a review of the facts and circumstances of the case; that Resolution No. 441-2018 adopted the recommendations of the Town Attorney and was presented to the Town Board for a vote on June 26, 2018; and that Resolution No. 441-2018 was not adopted by the Town.
Legal Analysis
CPLR § 7803(3) authorizes a special proceeding in order to challenge the determination of a municipal body on the basis that such determination "was affected by an error of law or was arbitrary and capricious " The arbitrary and capricious test chiefly relates to whether a particular action should have been taken or is justified and whether the administrative action is without foundation in fact.
"An action is arbitrary and capricious when it is taken without sound basis in reason or regard to the facts" ( Manning ex rel. Suffolk County Ct. Employees Ass'n v. New York State Unified Ct. Sys., 153 AD3d 623, 624 [2d Dept. 2017] ).
It is undisputed that under the Town Code, the duty to defend is triggered only where the party seeking a defense "was exercising or performing, or, in good faith, purporting to exercise or perform his powers and duties within the scope of his public employment."
The duty to defend is broader than the duty to indemnify and it is triggered if the civil complaint includes allegations that the employee was acting within the scope of his or her employment at the time of the alleged wrongdoing ( Bonilla v. Town of Hempstead , 131 AD3d 1166 [2d Dept. 2015] ). If the allegations of the complaint suggest any of the conduct asserted falls reasonably within the scope of employment, the duty to provide a defense is triggered since the duty to defend is extremely broad and exists regardless of how baseless the complaint may be (Id. ).
Moreover, "regardless of the allegations of the complaint, a public entity must also defend if an objective investigation reveals that the alleged wrongful act was committed in the course of employment" ( Merrill v. County of Broome, 244 AD2d 590, 592 [3d Dept. 1997], citing Matter of Polak v. City of Schenectady , 181 AD2d 233, 236 [3d Dept. 1992] ; Beare v. Byrne , 103 AD2d 814, 815 [3d Dept. 1984], aff'd. 67 NY2d 922 [1986] ; 1995 Opns.Atty.Gen. 1010; 1992 Atty.Gen. [Inf.Opns.] 1031 ).
The language of the Town Code is similar to Public Officers Law § 18 (3)(a), applicable to the defense and indemnification of officers and employees of "public entities" which includes, inter alia , a county, city, town or village . Public Officers Law § 18 (3)(a) directs that "the public entity shall provide for the defense of the employee in any civil action or proceeding, state or federal, arising out of any alleged act or omission which occurred or allegedly occurred while the employee was acting within the scope of his public employment or duties." (See Public Officers Law, Section 18, Defense and indemnification of officers and employees of public entities, subdivision [3][a] ).
While counsel for the Respondents cited Public Officers law § 17 (2)(a), such provision is applicable to the defense and indemnification of "state officers and employees" and is thus inapplicable to the instant matter.
The statute imposes a two-part test to be applied. The first part of the test requires a review of the complaint in the action against the employee to determine if it is alleged that the public employee committed a wrongful act within the scope of his public employment. In reviewing the complaint, "[t]he determining factor is the conduct charged by the injured party, not what the actual conduct may in fact have been." International Paper Co. v. Continental Cas. Co. , 35 NY2d 322, 325-326 [1974]. The second part of the test requires an investigation to ascertain whether the alleged act or omission did in fact occur while the employee was acting within the scope of his public employment or duties (Matter of Polak v. City of Schenectady , 181 AD2d 233 [3d Dept. 1992] ).
At the outset, here, it is undisputed that the Petitioner complied with all conditions precedent under the Town Code. The only issue presented here is whether the allegations of the SEC Complaint are "wholly unrelated" to the scope of Venditto's duties or employment as the Town Supervisor such that the alleged conduct is deemed to be outside the scope of his employment. Based upon the entirety of the record presented, and particularly the four corners of the SEC Complaint, the Court finds that the Town is obligated to defend its former Supervisor in the SEC Action.
While the SEC Complaint does not explicitly allege that the charged conduct occurred "within the scope of employment", the very nature of the conduct alleged necessarily arises out of the exercise or performance of his official duties. The Town merely relies on certain allegations of corrupt conduct and purported personal benefits in support of its claim that it owes no duty to defend. The Town further asserts that, inasmuch as such allegations are incorporated by reference into every count of the SEC Complaint, the pleading is permeated by allegations of intentional wrongdoing by Venditto. The Court wholly disagrees. Rather, several of the facts asserted allege conduct that falls reasonably within the scope of Petitioner's duties thus triggering the Town's duty to defend. Inasmuch as the governing law dictates that if the allegations of the complaint "suggest any of the conduct asserted falls reasonably within the scope of employment, the duty to provide a defense is triggered". Indeed, counsel for the Respondents acknowledged at oral argument that even if a single claim is deemed to fall within the scope of Petitioner's employment, then the Town has the duty to defend all claims asserted in the SEC Action.
By way of example, the SEC Complaint is replete with allegations asserting that Venditto "knew, or recklessly disregarded" the improper conduct of other Town officials. The knowledge that the SEC claims Venditto should have possessed could only have been procured in his capacity and part of his official duties as the Supervisor of the Town.
Further, the Town is a named defendant in the SEC Action and many of the allegations in the SEC Complaint assert that Venditto and the Town acted together. Specifically, the First and Second Claim for Relief allege that "the Town and Venditto directly or indirectly, singly or in concert", violated certain provisions of the Securities Act (See SEC Complaint at ¶¶ 188-192). While the Town was provided with a taxpayer-funded defense, the Petitioner was denied the same right despite the allegations that the parties acted in concert.
The Third Claim for Relief is solely asserted against the Town, not Venditto.
The Court further finds that the Fourth Claim for Relief, based on a theory of respondeat superior , also triggers the Town's duty to defend. In this claim, the SEC alleges that "Venditto controlled the Town [and] is liable as a control person for the Town's violations of Section 10(b) of the Exchange Act and Rule 10(b)-5 thereunder" (See SEC Complaint at ¶198). The allegations do not assert any intentional wrongdoing on the part of Venditto himself. The Court thus finds that Venditto's alleged legal responsibility for the actions of the Town as a "control person", as asserted in the SEC Complaint, necessarily only arises out of his official duties and position as the Town's Supervisor.
Moreover, the Court interprets the Town Code to be broader and more expansive than the the Public Officers Law § 18 (3)(a), as the duty to defend is also triggered where the employee "was exercising or performing, or, in good faith, purporting to exercise or perform his powers and duties within the scope of his public employment ." (Town Code § 22-2 [emphasis supplied] ). By adding the phrase "or, in good faith, purporting to exercise or perform ", the Town Code also includes a subjective standard in determining whether the alleged conduct was within the scope of his public employment. To this end, the SEC Complaint details numerous meetings at Venditto's office with Town and Nassau County executives where Venditto is alleged to have made lawful attempts to finance the loans from which the SEC's securities fraud claims arise (See SEC Complaint at ¶ 43, p. 13). Specifically, it is alleged that "Venditto hosted a meeting with Outside Counsel 1, Outside Counsel 2, and others at his offices to try to figure out a lawful way for the Town to guarantee the Concessionaire's financing. " (Id. [emphasis supplied] ). The SEC Complaint further alleges that Outside Counsel 1 "expressed concerns about the guarantee structure"; that the group (including Venditto) "discussed the issue for approximately an hour and explored possible structures designed to address Outside Counsel 1's concerns"; and that "[a]t the conclusion of the meeting, Venditto directed Outside Counsel 2 to find a way to help the Concessionaire obtain financing." (Id. at ¶ 45). Based on a review of the foregoing allegations, even if the Town disagreed that the SEC Complaint cannot be objectively read to allege conduct within the scope of Venditto's employment, the Town's duty to defend would still be triggered by the SEC's claims that Venditto attempted to lawfully secure financing for the subject loans.
The Town's duty to defend is further evidenced by the Town Attorney's fact-based inquiry following which a recommendation was made that the Town is legally obligated to pay for Petitioner's defense. While counsel for the Town correctly contended at oral argument that the Town Attorney cannot bind the Board, the Memorandum clearly represents evidence that an independent investigation and review was done concerning the Town's legal duty to defend. The record is devoid of any evidence tending to show the grounds upon which the Town Board's determination was based. The Court is puzzled by the lack of evidence on this issue, particularly since the Board's determination ran afoul of the Town Attorney's recommendations and conclusions following a fact-based inquiry and legal analysis.
As a final point, the Town urges the Court not to consider Venditto's acquittal of the parallel criminal charges when making its determination, arguing that it is outside the record and notably outside the four corners of the SEC Complaint which is controlling here. The Court disagrees. The timing of the proceedings is noteworthy on this point. The SEC Complaint was originally tendered to the Town Attorney in November 2017. The Town Attorney's fact-based inquiry, however, and the Town Board's ultimate determination, were not made until June 2018. The Court need not make assumptions to arrive at the conclusion that the issue was tabled from November 2017 until June 2018 due to the pendency of the parallel criminal proceedings. The District Court Judge issued an Order staying the SEC Action pending the outcome of the criminal case; the acquittal was in May 2018; and the Town Attorney's review and assessment immediately followed in June 2018 in anticipation of the Town Board's vote on the issue. Indeed, if the verdict was "guilty" or a guilty plea had been taken on any of the parallel criminal charges that mirrored the SEC's civil claims, the Town would certainly be seeking to rely on such guilty verdict or plea to support its determination to deny Venditto a defense. As such, the Court finds it reasonable for Petitioner to rely on his acquittal in support of the instant application.
Accordingly, it is hereby
ORDERED , that the Petition to annul the determination of the Respondent, dated June 26, 2018, is GRANTED , and the Town of Oyster Bay must provide the Petitioner, JOHN VENDITTO, with a defense in the SEC Action in accordance with the Town Code.
This constitutes the decision and order of the Court.