Austin R. Graff
Austin R. Graff ()

Every day there is another news story that a politician or government employee is being accused of criminal activity. Or there is a story about waste of taxpayer money. While the government employee or politician is (or is not) prosecuted, it is rare that we read that the government entity harmed by the misconduct has recovered the proceeds of the criminal activity or is in some way made whole after the corruption.

While commentators, reporters, and other politicians talk about the negative impact on the public when another story of corruption or waste of government money is reported, the taxpayers who are injured by the illegal activity or waste are ignored. Yet it is the taxpayers’ money that is wasted and lost in the schemes.

N.Y. General Municipal Law §51 authorizes a taxpayer to prosecute claims against “[a]ll officers, agents, commissioners and other persons acting, or who have acted, for and on behalf of any county, town, village or municipal corporation in this state … to prevent any illegal official act on the part of any such officers, agents, commissioners or other persons, or to prevent waste or injury to, or to restore and make good, any property, funds or estate of such county, town, village or municipal corporation.” General Municipal Law §51.

The statute has its limitations because the actors, the “officers, agents, commissioners and other persons” must have acted “for and on behalf of any county, town, village or municipal corporation.” Excluded from these government bodies are special improvement districts and other government entities and authorities that are not controlled, managed or overseen by a “county, town, village or municipal corporation.” The result of the foregoing exclusions is that in New York, there are thousands of government entities whose wrongdoing officers, agents, and commissioners are not subject to a taxpayer action.

The statute—General Municipal Law §51—”is in derogation of the common law, [and therefore] it is subject to the general rule that it is circumscribed and not amenable to judicial extension.” Duffy v. Longo, 207 A.D.2d 860, 863, 616 N.Y.S.2d 760, 761 (2d Dep’t 1994). Accordingly, only the New York State Legislature can extend the reach of the taxpayer lawsuits to all types of government entities.

In Samoles, et al. v. Town of Hempstead Sanitary District No. 7, Supreme Court, Nassau County, Index Number 607103/2015, Judge Lewis J. Lubell, J.S.C. held that special improvement districts are not the type of government entities that are subject to a private taxpayer right of action.

In Samoles, the taxpayers sought to recover monies from Commissioners, consultants, and attorneys who, it was alleged, committed illegal acts that caused waste and injury to the Sanitary District’s property. The taxpayers in Samoles sought to recover monies from consultants who were paid (and commissioners who approved), what the New York State Comptroller determined were illegal post-employment payments. See N.Y. State Comptroller Report 2014M-198.

Despite the fact that significant evidence of misconduct and waste of government money that would have met the standard of misconduct for liability pursuant to N.Y. General Municipal Law §51, were pled and documented, the Court found that the taxpayers of the special improvement district did not have standing to prosecute the Action. See Samoles v. Town of Hempstead Sanitary District No. 7, Supreme Court, Nassau County, Index Number 607103/2015, Docket Number 506.

To correct this gap in the statute, the New York State Legislature should amend N.Y. General Municipal Law §51 to add special improvement districts and all other agencies of government to the types of entities that are subject to taxpayer actions. N.Y. General Municipal Law §51 should not be limited to prosecutions by taxpayers of “count[ies], town[s], village[s] or municipal corporation[s].” N.Y. General Municipal Law §51.

Statute Should Be a Tool to Fight Corruption and Waste in Government. “[O]fficers, agents, commissioners [or] other persons” will oppose the amendment because they will say it could result in additional unnecessary litigation against government costing taxpayers more money than it will recover.

Personal liability is a major potential risk that all “officers, agents, commissioners and other persons” should be concerned about when seeking public office. Do government officials even consider the cost to taxpayers when there is a waste of government money? A taxpayer action in which the government official can be personally liable will change the culture of government.

N.Y. General Municipal Law §51 should be a tool in the toolbox for fighting against corruption in government. The taxpayer whose hard-earned money is wasted by government officials should have the mechanism to hold liable all government officials who commit illegal acts or cause waste or injury to a government entity, not only the taxpayers of “count[ies], town[s], village[s] or municipal corporation[s].” N.Y. General Municipal Law §51.

Current Safeguards Against Increases in Taxpayers Action That Lack Merit. The statute has built-in safeguards to protect the government entity. The New York State Legislature, when it adopted the statute, required taxpayers to post security to ensure that the money will be there if the government entity is awarded costs as a prerequisite to the prosecution of a N.Y. General Municipal Law §51 taxpayer action. See N.Y. General Municipal Law §51.

While the government entity is a necessary party, it does not have to take an active role in the litigation. Its counsel should monitor the litigation, but it should be a passive party because, like a derivative action where a shareholder brings claims against corporate officers for damaging a corporation, a N.Y. Municipal Law §51 taxpayer action is an action by the taxpayer (shareholder) against the “officers, agents, commissioners and other persons” (corporate officers) who have injured the government entity (corporation). N.Y. General Municipal Law §51. The government entity is the beneficiary of the taxpayer action and should be on the same side of the taxpayer, not opposing the action.

N.Y. Public Officer Law §18.4.(c) bars government entities from indemnifying and holding harmless employees and government officials prosecuted pursuant to N.Y. General Municipal Law §51. This limitation on indemnification protects local governments from paying for the defense costs of a N.Y. General Municipal Law §51 taxpayer action against those public officials and government employees who have committed acts that are either illegal or cause waste or injury to the property, funds or estate of government.

General Municipal Law §51 Recovery Is Turned Over to the Government Entity. Those that commit illegal acts or acts that cause waste or injury to the government entity should be held personally liable to compensate the government entity and restore the taxpayer funds.

An important component of N.Y. General Municipal Law §51 authorizes “taxpayers … to bring actions against officers … [to] restore and make good, any property, funds or estate” of the government entity. Herder v. Clifford, 252 N.Y. 141, 144 (1929). An expansion of the types of government entities that are subject to N.Y. General Municipal Law §51 liability will also expand the number of government officials and employees who will be subject to personal liability.

While criminal prosecution is a deterrent against illegal activities by government officials, not all acts of waste of a government entity’s property will fall within the criminal statutes. N.Y. General Municipal Law §51 fills the gap in the criminal law.

In Schulz v. Warren County Bd. of Supervisors, 179 A.D.2d 118, 121, 581 N.Y.S.2d 885, 887, fn. 2, (3d Dep’t 1992), the court held: “[i]n order to maintain a General Municipal Law §51 action, the proponent must (1) establish his taxpayer status, and (2) allege an official act which causes waste or injury, imperils the public interest or is calculated to work public injury or to produce some public mischief.”

The statute empowers taxpayers to protect government entities against criminal activity but criminality is not a necessary element for a prosecution of a N.Y. General Municipal Law §51 taxpayer action. The taxpayer action fills a void which the criminal statute cannot reach and where District Attorneys are powerless to protect taxpayers.

Conclusion

An expansion of N.Y. General Municipal Law §51 to include as potential targets all “officers, agents, commissioners and other persons” of all government entities in New York, whether they are special improvement districts or government agencies, will be a reform to curb corruption in government and curb a waste of government property.

The taxpayers should have a remedy against all corruption or waste of government property in any government entity in New York state. To limit the liability to only “count[ies], town[s], village[s] or municipal corporation[s]” does not take into consideration the current state of government in New York, where corruption or waste of government money and property is, unfortunately, somewhat unchecked and somewhat rampant.