Supreme Court of the State of New

8/14/2019 Supreme Court of the State of New

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SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YORK

THE PEOPLE OF THE STATE OF NEW YORK,BY ANDREW M. CUOMO, ATTORNEYGENERAL OF THE STATE OF NEW YORK, Index No.: ---..../10

Petitioners,AFFIRMATION OF

- against - MITRA HORMOZI

SOUNDVIEW MANAGEMENT Date filed: January 13,2010ENTERPRISES LLC

Respondent.

Mitra Hormozi, an attorney duly admitted to practice in the courts of the State of New

York, affirms the following statements to be true under penalties of perjury:

INTRODUCTION AND SUlVIMARY OF ARGUMENT

1. I am the Special Deputy Chief of Staff in the office of Andrew M. Cuomo,

Attorney General of the State of New York.

2. I am familiar with the facts and circumstances of this case and submit this

affirmation in support of the Attorney General's motion under CPLR 2308(b) to compel

Respondent Soundview Management EnterprisesLLC

to comply with a subpoena duces tecum

issllcd and served by the Office of the New York State Attorney General ("OAG") pursuant to

Ncw York Executivc Law section 63(12), Ncw York Not-For-Profit Corporation Law scction

112(b). and New York Estates, Powers and Trusts Law section 8-1.4(i). The subpoena was


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served on Respondent on August 25, 2009. A copy of the subpoena and the affidavit of service

are attached hereto as Exhibits A and B respectively.

3. Th e facts set forth in this affinnation are based on my personal knowledge and on

information contained in OAG's files and are believed to be true and correct.

4. As set forth in detail below, for approximately nine (9) months OA G has been

conducting an investigation of Comprehensive Community Development Corp., a tax-exempt

501(c)(3) corporation registered with the State of Ne w York and doing business as "Soundview

Healthcare Network" ("Soundview"). In the course of its investigation, OA G has developed

extensive evidence of potential violations of the Ne w York Not-For-Profit Corporation Law by

Soundview and various of its officers and directors, including but not limited to Pedro Espada,

Jr., a Ne w York State Senator, wh o is also the President an d Chief Executive Officer of

Soundview.

5. Th e evidence reveals, for example, that Soundview, a not-for-profit corporation,

entered into contracts with a for-profit company owned and controlled exclusively by Mr. Espada

called Soundview Management Enterprises, LLC ("Espada Management Company"). This

contract allowed Mr. Espada effectively to siphon of f and otherwise divert money from

Soundview for Mr. Espada's ow n personal and political benefit. Documentar y evidence

indicates that a significant portion of the funds paid by Soundview to Espada Management

Company were Llsed to pay Mr. Espada's campaign expenses including printing, campaign office

rent, and personnel costs. It also appears that Sound view directly, or indirectly through Espada

Management Company, paid expenses relating to Mr. Espada's campaign and paid workers who

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were dispatched to work on Mr. Espada's campaign, all in direct violation of the not-for-profit

laws.!

6. Moreover, notwi thstanding how the monies were used, it appears that the contract

between Soundview and Espada Management Company is itsel f improper. Pursuant to the

contract, Espada Management Company was and is paid almost $400,000.00 per year to provide

maintenance services to Soundview. But Board minutes produced by Soundview provide no

valid justification for awarding Mr. Espada's privately owned company such a lucrative

contract-especially where, prior to the contract being executed, maintenance services were

provided by an entity wholly owned by Soundview. It thus appears that the Mr. Espada (as

President of Soundview) and the Soundview Board members violated their fiduciary duties by

approving an d entering into such a contract in the first place.

7. GA G is investigating claims of labor law violations at Espada Management

Company and has uncovered evidence that Espada Management Company engages in myriad

labor law violations designed to further enhance the company's profits at the expense of its

employees. GA G is also investigating possible tax liability issues concerning Mr. Espada and the

associated companies.

1 These types of improprieties are similar to cel1ain illegal acts that tainted at least one of Mr.Espada's earlier campaigns for public office. In 2005, four (4) Soundview employees-three ofwhom still work for Soundview-pleaded guilty to diverting Sound view monies and grants topay campaign expenses for Mr. Espada. The legal fees of these convicted employees were paidby Soundview, which may also be a violation of the not-for-profit law, and is currently underinvestigation by GAG.


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8. In connection with its investigation, GA G issued and served a subpoena on

Espada Management Company on August 25, 2009 (see Ex. A hereto). Espada Management

Company has refused to comply in any meaningful way with OAG's subpoena, thereby

necessitating this motion to compel.

RELEVANT FACTS

'OAG's Legal Authority to Issue the Subpoena

9. The subpoena duces tecum was issued pursuant to New York Executive La w

section 63(12), New York Not-For-Profit Corporation La w section 112(b), and New York

Estates, Powers and Trusts Law section 8-1.4(i).

10. Executive La w Section 63(12) provides:

Whenever any person shall engage in re peated fraudulent orillegal acts or otherwise demonstrate persistent fraud or illegalityin the carrying on, conducting or transaction of business, theattorney general may apply, . . . for an order enjoining thecontinuance of such business activity or of any fraudulent orillegal acts, directing restitution an d damages . . . and the courtmay award the relief applied for or so much thereof as it maydeem proper. The word "fraud" or "fraudulent" as used hereinshall include any device, scheme or artifice to defraud an dany deception, misrepresentation, concealmen t, suppression,false pretense, false promi se or unconscionable contractualprovisions . . . .

In connection with any such application, the attorneygeneral is authorized to take proof and make a determination of therelevant facts an d to issue subpoenas in accordance with thecivil practice law and rules. Such authorization shall not abate orterminate by reason of any action or proceeding br ought by theattorney general under this section.

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11. New York Not-For-Profit Corporation Law section 112 provides that OAG may

bring an action or special proceeding against a charitable organization to enforce the

requirements of New York State's Not-For-Profit laws, see NY Not-For-Profit Corp. Law

S112(a), and that, in connection with any such action or special proceeding, GA G may "take

proof and issue subpoenas in accordance with the civil practice law and rules," id. at 112(b)(6).

12. Finally, New York Estates, Powers and Trusts Law section 8-1.4(i) provides:

The attorney general may investigate transactions and relationships of

trustees for the purpose of determining whether or not property held for charitablepurposes has been and is being properly administered. The attorney general, hisor her assistants, deputies or such other officers as may be designated by him orher, are empowered to subpoena any trustee, agent, fiduciary, beneficiary,institution, association or corporation or other witness, examine any such witnessunder oath and, for this purpose, administer the necessary oaths, and require theproduction of any books or papers which they deem relevant to the inquiry.

13. OAG's authority to issue subpoenas and take testimony under these statutes has

been broadly construed. In construing section 63(12), for example, courts have held that "the

Attorney General enjoys a presumption that he is acting in good faith and must show only that

the materials sought bear a reasonable relation to the subject matter under investigation and to the

public purpose to be achieved." Anheuser-Busch, Inc. v. Abrams, 71 N.Y.2d 327,331-32 (1988)

(citations and quotation marks omitted). Indeed, a subpoena issued by the Attorney General

pursuant to Executive Law 62(13) "should be limited or quashed only where the information

sought is 'utterly ilTelevant to any proper inquiry'" Abrams v. Thompso!l, 150 A.D.2d 679, 680

(2d Dep't 1989) (citatio"ns omitted); Ahrams v. ThnrwllY Food Market & Shopping C('lller, Inc.,

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147' A.D.2d 143, 146 (2d Dep't 1989); Pavillion A/?ency Inc. v. Spit:::.er, 9 Misc. 3d 626 (Sup. Ct.

Ne w York Co. 2005).

Background of OAG's Investigation

14. OAG is conducting an investigation of Comprehensive Community Development

Corp., a tax-exempt 501(c)(3) corporation registered with the State of New York and subject to,

among other things, the provisions of the New York Not-For-Profit Corporation Law.

Comprehensive Community Development Corp. does business under the name "Soundview

Healthcare Network" ("Soundview"). Soundview's main office is located at 731 White Plains

Road, Bronx, New York 10473. Soundview also operates three other satellite clinics located in

the Bronx.2

Pedro Espada, Jr. ("Mr. Espada"), a Ne w York State Senator, is the President and

Chief Executive Officer of Soundview. Kenneth Brennan is Soundview's Chief Financial

Officer.

15. OAG's investigation of Soundview involves, among other issues, possible

violations by Soundview's Board of Directors and various officers of their fiduciary obligations

to Soundview, including but not limited to the duty of care, the duty of loyalty, and the duty of

obedience.

OAG's Factual Predicate for the Subpoena to Espada Management Company

16. Espada Manageme nt Company was formed in mid-2007. (See Exhibit C.) Its

address is the same as Soundview's, i.e., 731 White Plains Road, Bronx, Ne w York 10473, and

2 A fourth satellite location, Jessica Guzman Medical Center (located at 616 Castle Hill Avenue,Bronx, New York 10472), was closed in or around March 2009.

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witnesses have told GAG that the offices for Espada Management Company are located within

the SOLlndview clinic. Mr. Espada is the sole principal of Espada Management Company.

17. Pursuant to a contract dated January 15,2008 (attached hereto as Exhibit D),

Soundview agreed to have Espada Management Company provide janitorial services for

Soundview's main office and satellite locations beginning on February 1,2008. th e contract

provides (see Ex. D at para. 3.1): "As compensation to [Espada Management Company] for

Basic Janitorial Services provided under this Agreement, [Soundview] shall pay [Espada

Management Company] an additional monthly fee (the "Additional Management Fee") as listed

on Schedule A upon fifteen (15) days from receipt of invoice." Attached to the contract-which

is one of only two documents produced by Espada Management Company in response to the

sUbpoena-are two pages marked "Schedule A-Basic Management Fee." The first shows only

the figure $1,000. (Id. at p. 10.) The second (id. at p. 12) shows the following table:

Soundview Health Center731 White Plains RoadBronx, New York 10473

$9,000.00

Burnside Medical Center165 E. Burnside AvenueBronx, New York 10473

$6,000.00

Castle Hi II Medical Center616 Castle Hill AvenueBronx, New York 10473

$4,000.00

DiaJlo Medical Center1760 Westchester AvenueBronx, New York 10472

$7,000.00

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Delany Sisters Health Center $7,000.00821-7 East 233rd Street

Bronx, New York 10466

"Basic Janitorial Services" are defined in Exhibit A of the contract to include mopping, dusting,

vacuuming, buffing/waxing, janitorial (including hauling of trash), and monthly interior window

washing. (Id. at 8.) The contract also shows that additional fees might be paid by Soundview to

Espada Management Company in exchange for "Optional Services," such as painting or

purchasing supplies. (Id. at 9.)

18. Thus, Soundview agreed by contract in early 2008 to pay Espada Management

Company at least $33,000.00 per month, or $396,000.00 per year, for janitorial services. The

only reference to the market cost of janitorial services in the Board minutes produced by

Soundview is in the minutes dated January 31,2005 (see Ex. Eat p. 1), which reflect that the

market cost of janitorial services as of that date was allegedly $270,000.00 per year. At that

point, Soundview was using a wholly-owned affiliate called Community Expansion

Development Corporation ("Expansion") to provide maintenance services (id. at p. 2); because

Expansion was a wholly-owned for-profit company, all profits, if any, earned by Expansion

would have been retained by Soundview.

19. Analysis of Expansion's and Espada Management Company's bank records

further reveals, among other things, that: (i ) Espada Management Company took over at least one

of Expansion's other maintenance service contracts (related to a separately owned on-site

pharmacy), thereby earning at least another $2,010.00 per month that previously had been paid to

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Expansion; (ii) Espada Management Company apparently started providing janitorial services to

additional companies that might otherwise have been serviced by Expansion (which appears to

have ceased operating altogether); (iii) Espada Management Company cashed several checks

made out to Expansion (under the name "CEDC" or "Community Expansion Development

Corporation"); and (iv) Espada Management Company, rather than Expansion or Soundview,

collects "rents" or "usage fees" from the Pharmacy and from people and entities, such as Weight

Watchers, that utilize Soundview's facilities for weekly or monthly meetings. In other words,

evidence collected to date indicates that revenues that should properly belong to Soundview are

being given to Espada Management Company.

20. Board minutes produced by Soundview fail to provide any information that

explain: (i) why the purported costs of maintenance services rose from $270,000.00 annual1y in

2005 to $396,000.00 annually in 2008; (ii) why the contract for maintenance services was taken

away from Expansion, a wholly-owned affiliate of Soundview, and given to outside vendor

Espada Management Company, a private company of which Mr. Espada is a principal; (iii) how

such a move, i.e., from essentially in-house services to a private outside vendor, would save

money for, or in any way benefit, Soundview; or (iv) why Espada Management Company is now

receiving monies, by contract or by "rent" collection, that previously went to Expansion or

Soundview (directly or through the wholly-owned Expansion).

21. Moreover, a former employee of Expansion, and later Espada Management

Company, informs OAG that there was no change to the business from the time it was known as

Expansion to the time it became known as Espada Management Company, other than a "change

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of name.") The other change, of course, was in ownership; while Expansion was wholly owned

by Soundview-such that the profits of Expansion, if any, would belong to the charity-Espada

Management Company is privately owned. The profits of Espada Management Company, if any,

would belong to Espada Management Company's principal, i.e., Mr. Espada.

12. According to the 2008 General Ledger produced by Soundview, Espada

Management Company was paid over $341,000.00 from Soundview in 2008. (See excerpts of

2008 General Ledger attached hereto as Exhibit F. 4 )

23. Documents produced by Soundview indicate that Espada Management Company

pays no rental or lease fees to Soundview (see Ex. D at para. 2.4)), and that its contract with

Soundview provides that Soundview will provide supplies to Espada Management Company (or

that Espada Management Company will be pa id for purchasing its own supplies) (id. at p. 9). In

addition, documents subpoenaed from Espada Management Company's payroll company

indicate that Espada Management Company's salary and wage costs were only approximptely

$180,00.00 in 2008, i.e., only fifty three percen t (53%) of the total fees paid to Espada

Management Company by Soundview that year. 5 This does not include monies paid to Espada

J Because OA G believes that revealing witnesses' names at this time would compromise its on-going investigation, OA G respectfully requests that, if the Court believes the individuals'identities are necessary for the Court to rule on this motion to compel, OA G should be permittedto provide that information to the Court ill camera. See, e.g., Matter of Am. Dental Coop., Inc. v.,\ttorney Gell. ( ~ l the State of N. Y., 127 A.D.2d 274, 280 ( l st Dep't 1987).

.. According to the General Ledger produced by Soundview, the total amount paid by Soundviewin 2008 for "maintenance services" was $384,988.02. Of that amount, the General Ledgerreflects that $29,000.00 was paid to Expansion in January 2008. (See general/y Ex. F. )

These documents contain names and social security numbers of individual employees. If

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Management Company by other entities, such as the on-site pharmacy, utilizing its services. If

those monies are counted, as well, then Espada Management Company's salary and wage

expenses as compared to its revenue are significantly lower still. It is unclear what, if any,

additional, legitimate costs Espada Management Company might incur as would justify an

additional approximately $160,000.00 per year in fees charged to Soundview.

24. Based on documentary evidence and witness testimony, it also appears that

Espada Management Company was used as a conduit of funds from Soundview to Mr. Espada's

campaign. For example, we are informed by witnesses that Espada Management Company paid

at least some of the salary and wage costs incurred in connection with Mr. Espada's campaign,

and Espada Management Company's bank records show numerous payments made directly by

Espada Management Company for or on behalf of the campaign. GAG has found no public

disclosure of this by Espada Management Company or Mr. Espada, whether on campaign

disclosure reports or elsewhere.

25. The witnesses' testimony appears to be corroborated by documents subpoenaed

from Espada Management Company's payroll company, which reveal the following quarterly

trends in Espada Management Company's salary and wage costs:

necessary. GAG is happy to provide them to the Court for ill call/era review.

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Quarter No. ofemployees 6

Reportedsalaries/wages

Averagesalaries/wages

per employeeQ12008 15 $30,816 $2,054Q22008 14 $50,487 $3,606Q32008 14 $59,765 $4,269Q42008 15 $40,291 $2,686Q12009 16 $35,779 $2,236Q22009 13 $34,274 $2,636Q32009 18 $36,577 $2,032

Thus, documents indicate that Espada Management Company's salary and wage costs spiked

dramatically in the months leading up to the 2008 general election in which Mr. Espada was

elected to the New York State Senate. This is so despite the fact that the number of workers

remained basically constant both before and after the election; instead, certain key employees

who are believed to have worked on the campaign, such as Mr. Espada's son Pedro G. Espada,

were hired or paid more during those months. Espada Management C ompany's salary and wage

costs went down immediately and significantly following the election.

26. For example, Pedro G. Espada's salary and wages from Espada Management

Company almost doubled in the months leading up to the election. Th e quarterly breakdown of

his salary and wages is as follows: Ql, $9,920.00; Q2, $15,190.00; Q3, $17,825.00; and Q4,

$7,905.00. During that same time, Pedro G. Espada was paid $106,719 .00 by Soundview. He

was reported by both entities as working full-time (or more). Pedro G. Espada stopped appearing

on the Espada Management Company's payroll immediately post-election.

() This number includes ill.!. employees reported as working at Espada Management Company inthe relevant quarter. regardless of whether they worked for only a few weeks or for the entire

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27. Espada Management Company was not disclosed as a contributor of funds or

services to Mr. Espada's campaign: indeed, Mr. Espada did not even form a campaign committee

for the 2008 election, and thus filed no campaign disclosures at all. Although Mr. Espada's

political action committee, Espada for the People, filed four disclosure reports in 2008, none

disclose that Espada Management Company made significant monetary and in-kind contributions

to Mr. Espada's campaign.

28. To the extent that Espada Management Company, by disguising and failing to

disclose its contributions to Mr. Espada's campaign, sought to evade the campaign finance laws

(laws both limiting contributions and requiring disclosure), Espada Management Company and

its principals, officers, and directors may be liable for, among other things, violations of the

Election Law or common law fraud. See, e.g., Election Law 14-114 (setting forth campaign

contribution limits); Election Law 14-120 (requiring that campaign contributions be under the

true name of contributor): see also Election Law 14-126(4) (criminalizing knowing evasion of

campaign contribution limitations); Penal Law 175.l0 (falsifying business records in the first

degree); see also id. at 175.05(2) and (3) (falsifying business records in the second degree).

29. In addition, Soundview is a not-for-profit 501(c)(3) tax-exempt charitable

organization that is prohibited by federal law (and its own Certificate of Incorporation, attached

hereto as Exhibit G) from engaging in any political activities. See 26 U.S.c. 50l(c)(3). If it is

determined that Soundview, or any of its officers, directors, or employees while being paid by

. S(mndview for services rendered to Soundview, engaged in any political activities for Mr.

quurter.

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Espada's campaign, then GA G may bring an action or special proceeding under the Not-For

Profit Laws to, inter alia, "annul the corporate existence or dissolve [Soundview for acting]

beyond its capacity or power" or "procure a judgment removing a director of a corporation for

cause." NY Not-For-Profit Corp. Law 111(a)(1) & (4). GAG may also seek to have

Soundview's 501(c)(3) tax exempt status revoked.

30. Finally, because the officers and directors of Soundview are obligated to act at all

times in the best interest of Soundview, and to avoid all transactions that are not fair and

reasonable to Soundview-especially those transactions that provide personal benefits to an

officer or director, or a family member of either- i t appears that they may have violated, among

other fiduciary obligations, the duty of loyalty and the duty of obedience.

Espada Management Company's Refusal to Comply with the Subpoena

31. The Subpoena was served on August 25, 2009. (See Ex. A. ) A second copy,

attached hereto as Exhibit H, was served, with counsel's consent, by a facsimile sent to counsel

on August 18, 1009. Espada Management Company thereafter retained new counsel, who agreed

on September 9,2009, to produce the first set of responsive documents on or before September

11,1009. (See Letter from AAG Darcy M. Goddard to Richard St. Paul, counsel to Espada

Management Company, dated September 9,2009, attached hereto as Exhibit I. )

31. Instead, on September 11,2009, counsel for Espada Management Company sent

one document-i .e . , the janitorial services contract-from Espada Management Company that

was respollsi ve to the Subpoena, stating:

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Please be further advised that my client makes these docu ments availablevoluntalily and in the spirit of cooperation; Despite a prima facie review of said

subpoena with cause to believe that i ssuing the subpoena of such documents as itrelates to the above one or more entities is outside the scope of the legaljurisdiction of your office as provided by applicable laws.

(See Letter from Richard St. Paul, counsel to Espada Management Company, to AAG Darcy M.

Goddard, dated September 11,2009, attached hereto as Exhibit J.) Counsel also expressed

concern as to the supposed confidentiality of some unidentified responsive documents. (See id.)

33. By telephone, and by letter dated September 14, 2009, OAG advised counsel for

Espada Management Company as follows:

We refer you to, inter alia, the plain language of New York Estates, Powers andTrusts Law section 8-1.4(i) and New York Executive Law section 63(12), both ofwhich vest the Office of the New York State Attorney General ("OAG") withbroad authority to issue investigatory subpoen as such as these . . . .

Abundant case law supports a broad reading of this statutory language. See, e.g.,American Dental Cooperative, Inc. v. Attomey Gen. o f New York, 127 A.D.2d 274(1st Dep't 1987); Abrams v. Thompson, 150 A.D.2d 679 (2d Dep't 1989);

Pavillion Agency Inc. v. Spitzer, 9 Misc. 3d 626 (Sup. C.t. New York Co. 2005).

. . . To the extent your clients have confidentiality concerns, we refer you to theprovisions in the Public Officers Law relating to the Freedom of Information Law("FOIL") and note that you may invoke its protections in the letter accompanyingyour clients' productions.

(See Letter from AAG Darcy M. Goddard to Richard St. Paul, counsel to Espada Management

Company, dated September 14, 2009, attached hereto as Exhibit K.)

34. On September 23,2009, counsel for Espada Management Company produced one

additional document: a Dcpal1mcnt of Labor filing made by Espada Management Company for

thc quarter cnding June 30, 2009. Counsel's covcr letter stated, "Please be advised that a search

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of other documents relevant to the subpoena is on going an d [sic] will be provided

expeditiously upon receipt an d review." (See Letter from RichardS1.

Paul, counsel to Espada

Management Company, to AAG Darcy M. Goddard, dated September 21,2009, attached hereto

as Exhibit L. )

35. To date, more than three (3) months later, no further documents have been

produced, and telephone calls and letters from GAG to counsel for Espada Management

Company, both from AAG Goddard and from Chief of Staff Steven M. Cohen, have gone

unanswered.

CONCLUSION

36. Based on the foregoing, and on additional information collected by GAG in the

course of its investigation, Espada Management Company's refusal to comply with the Subpoena

is without any basis, legal or factual. The Subpoena (i) was validly served, (ii) is explicitly

authorized by the relevant statutes under which it was issued, and (iii) seeks documents and

information directly relevant to GAG's investigation both of Soundview, a 501(c)(3) charitable

organization governed by New York's Not-For-Profit Law, and Espada Management Company.

Respondent should be compell ed to comply fully with the Subpoena. See, e.g., Thompson, 150

A.D.2d 679,680; Thruway Food Market & Shopping Center, Inc., 147 A.D.2d 143, 146.

37. Pursuant to CPLR 2308(b), Petitioners also request costs of $50.00 and a penalty

or $50.00.

38. No previous applicat ion has been made for any of the relief sought herein.

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WHEREFORE, for the reasons stated herein, the Court should grant the Attorney

General's motion to compel Respondentto

comply fully withthe

subpoena duces tecum served

on August 25, 2009.

Dated: January 13,2010 )New York, New York ~ / ~

i tra Hormozi

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