A LONG HISTORY OF PUBLIC CORRUPTION SCANDALS IN NEW YORK
As such things go in New York City, the scandal centering on James L. Marcus, the Commissioner of Department of Water Supply, Gas, and Electricity, which came to light in December 1967 fell into the middle range. It was certainly not the first public corruption scandal. That dubious distinction belongs to Willem Verhulst, the first Provisional Director of the New Amsterdam colony who was removed from office in the spring of 1626 on an accusation that he and his wife had misappropriated funds and cheated the Indians when New Amsterdam was not quite a year old. (1) The Marcus scandal also certainly lacked the bizarreness that was attributed to Edward Hyde, Lord Cornbury, the Colonial Governor of New York from 1702 to 1708, who was reputed to have not only pocketed 1,500 [pounds sterling] allocated for fortifying the Narrows but to have strolled the walls of the Battery wearing a dress. (2) Nor did the Marcus scandal involve the largest amount of graft. That title was presumably and hopefully, retired by the Tweed Ring, which is reputed to have stolen as much as $200,000,000 (3) in 1860's and 1870's dollars. (4)
The Marcus scandal did not bring down a mayor in the way that massive Tammany Hall corruption forced Mayor Jimmy Walker to take a permanent European vacation in September 1932 (5) or in the manner that the conviction of James J. Moran (6) lead to the resignation of Mayor William O'Dwyer on September 2, 1950. (7) Indeed, Governor Lindsay's biographer states that "[i]n the long run, the Marcus scandal did not tarnish the Lindsay administration. Lindsay himself was above reproach on the issue of honesty and integrity." (8)
THE MARCUS SCANDAL
What the Marcus scandal did do that none of its predecessors had done was to create a legal doctrine that has been consistently extended by the New York courts as a deterrent to corruption and illegality in public contracting.
This is not to say that the Marcus scandal was without interest aside from its legal progeny. It lead to the jailing of a City Commissioner (Marcus), as well as a member of the Luchese Crime Family (Antonio "Tony Ducks" Corallo), Henry Fried, the corrupt contractor who owned S.T. Grand, Inc., several other corrupt contractors, a corrupt lawyer, the head of a union, and, most significantly, Carmine G. DeSapio, the former head of the legendary Tammany Hall. (9) Yet another scheme using Marcus's office lead to the conviction of the former Law Chairman of the New York County Republican party. (10)
James L. Marcus was a self-made man in the sense that he made it all up. Marcus's only real "qualifications" for high public office were that he had married the daughter of the former Governor of Connecticut and had developed a friendship with John Lindsay, a rising politician. (11) No one bothered to check Marcus's claims as to his background before he was appointed as the Commissioner of the Department of Water Supply, Gas, and Electricity and later, after a municipal reorganization, the Commissioner of the new Environmental Protection Administration. (12) However, Marcus had not only lost money on "shady business deals," but he also owed money to Corallo, a Luchese crime family loanshark. (13)
A solution to Marcus's problems was arranged and Marcus issued an $850,000 emergency contract to clean the Jerome Park Reservoir to S.T. Grand, a company whose principal was Henry Fried. (14) Fried paid $40,000 to Corallo, who in turn applied it towards Marcus's debt. (15) The misuse of Marcus's authority worked so well that the principal perpetrators decided to add-in Carmine DeSapio, the former chief of Tammany Hall, and to extort money from the Consolidated Edison Company. (16) On December 12, 1967, Marcus, who was under investigation, suddenly resigned and a week later Marcus, Corallo, Fried, and others were arrested. (17)
The Marcus scandal has had a continuing effect on the law in New York because Fried and S.T. Grand, despite having been convicted of conspiracy to use the telephone in an interstate conspiracy with intent to violate the New York bribery laws, (18) could not leave bad enough alone. Instead, S.T. Grand sued for the $148,736.78 contract balance as if it had obtained the contract legally. (19)
S.T. Grand was less guilty of chutzpah than now seems to be the case because the New York law was, and is, far more forgiving of dishonest and corrupt commercial behavior in the private sector than when public money was at stake.
PRIVATE SECTOR CIVIL COMMERCIAL BRIBERY CASES IN NEW YORK
The line of cases dealing with commercial bribery begins with the 1908 decision of the Appellate Division, First Department in Sirkin v. Fourteenth Street Store, (20) which, more than a half century later, was explicitly adopted by the Court of Appeals in McConnell v. Commonwealth Pictures Corp. (21) In Sirkin, the plaintiff entered into a five percent kickback agreement with the defendant's purchasing agent. (22) Plaintiff sued for the $1,555.81 purchase price of the goods, which the defendant had received and for which the defendant had refused to pay. (23) The trial court (24) and Appellate Term (25) held that, while the kickback arrangement was unenforceable as against public policy, since the goods had been delivered, the defendant could not retain them and decline to pay. (26)
The First Department concluded that the kickback arrangement was in violation of the Penal Code and the common law. (27) The Court then went on to address
[t]he question ... presented now for the first time as to whether ... the court may refuse its aid to the party obtaining the contract for the purchase or sale of property, or for work, in violation of the statute, upon the same ground that it leaves a party to a contract which is void as against public policy, or offends against good morals, where it finds him. (28) The Sirkin court went on to hold that
nothing will be more effective in stopping the growth and spread of this corrupting and now criminal custom than a decision that the courts will refuse their aid to a guilty vendor or vendee, or to any one who has obtained a contract by secretly bribing the servant, agent or employee of another to purchase or sell property or to place the contract with him. If the court should lend its aid to the enforcement of this contract, induced by a five per cent bribe of the purchase price of the goods, then to-morrow [sic] it may be called upon to enforce a contract induced by a bribe of twenty-five per cent or even fifty per cent of the purchase price, and it would thereby be indirectly compelling a master or employer to reimburse a party for moneys expended in bribing his servant, agent or employee in violation of the law. (29) The Sirkin court refused to separate out the corruptly influenced portion of the contract, thereby aiding in the enforcement of the contract, instead remanding for a new trial for the defendant to prove the corrupt arrangement. (30) The decision left the defendant in possession of the goods but did not address what would happen if the defendant had already paid for the goods.
It would be a half century before the New York Court of Appeals would be willing to go even as far as Sirkin. Instead, the Court of Appeals issued a series of decisions, which had the effect of restricting the recovery available to the victims of private sector corruption and making it more difficult to prove the facts necessary to support such a recovery. In 1914, in Schank v. Schuchman, plaintiffs had purchased wagons from defendant. (31) Payment for the wagons was contingent upon approval by plaintiffs inspectors, who were bribed by the defendants to issue certificates of approval in exchange for alleged commissions. (32) Thus, there had been corruption in the performance, rather than the initiation, of the contract. Plaintiff discovered the corruption after the wagons' useful life was over and sought to void the entire transaction and recover all sums paid. (33) The Court of Appeals refused to order restitution since the plaintiffs had retained the services and could not show "some disparity between the value and the price." (34)
In 1918, in Merchants' Line v. Baltimore & Ohio R.R. Co., (35) the Court of Appeals refused to void an agreement which had been tainted by an ineffectual bribe because "there is no evidence to indicate that the employe[e] bribed by plaintiff had a thing to do with the making of the contract or that he influenced in any way the execution thereof." (36) The Court commented that "the plaintiffs representatives were lacking in sagacity as well as good morals and were thereby led into an attempt to corrupt the wrong man." (37)
While the Court of Appeals seemed not to be willing to consider forfeiture of a contract because of illegal conduct standing alone, it did impose some penalty for bribery. In Donemar, Inc. v. Molloy, (38) the Court held that, where a contractor bribes an employee, the contract amount "is loaded by the amount of the bribe," and the victim can at least recover the amount of the bribe, although "It]he law does not go so far as to nullify the entire transaction where the vendor has received and used the merchandise." (39) The Donemar rule has since been applied by courts at all levels in other situations, including those where it is impractical to undo the original transaction. (40)
In 1944, the Court of Appeals placed yet another obstacle in the path of a victim attempting to recover from private sector contract corruption. In Hornstein v. Paramount Pictures, (41) stockholders sued derivatively to recover from the directors of the corporation sums paid to corrupt labor union officials to avoid a strike. There appeared to have been no dispute that the payments were coerced. (42) The Court of Appeals held:
In that view, we are not ready to impute to section 380 of the Penal Law [prohibiting payments to union officials to avoid strikes]...
Civil forfeiture as a remedy for corruption in public and private contracting in New York.
|Author:||Woods, John P.|
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COPYRIGHT GALE, Cengage Learning. All rights reserved.
COPYRIGHT GALE, Cengage Learning. All rights reserved.