Professional Documents
Culture Documents
Petitioners,
AFFIRMATION OF
- against - MITRA HORMOZI
Respondent.
Mitra Hormozi, an attorney duly admitted to practice in the courts of the State of New
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 Enterprises LLC 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
served on Respondent on August 25, 2009. A copy of the subpoena and the affidavit of service
3. The 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 OAG has been
501(c)(3) corporation registered with the State of New York and doing business as "Soundview
Healthcare Network" ("Soundview"). In the course of its investigation, OAG has developed
extensive evidence of potential violations of the New York Not-For-Profit Corporation Law by
Soundview and various of its officers and directors, including but not limited to Pedro Espada,
Jr., a New York State Senator, who is also the President and Chief Executive Officer of
Soundview.
entered into contracts with a for-profit company owned and controlled exclusively by Mr. Espada
contract allowed Mr. Espada effectively to siphon off and otherwise divert money from
Soundview for Mr. Espada's own personal and political benefit. Documentary 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
were dispatched to work on Mr. Espada's campaign, all in direct violation of the not-for-profit
laws.!
6. Moreover, notwithstanding how the monies were used, it appears that the contract
between Soundview and Espada Management Company is itself improper. Pursuant to the
contract, Espada Management Company was and is paid almost $400,000.00 per year to provide
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
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. GAG 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 of
whom still work for Soundview-pleaded guilty to diverting Sound view monies and grants to
pay campaign expenses for Mr. Espada. The legal fees of these convicted employees were paid
by Soundview, which may also be a violation of the not-for-profit law, and is currently under
investigation by GAG.
8. In connection with its investigation, GAG 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
RELEVANT FACTS
9. The subpoena duces tecum was issued pursuant to New York Executive Law
section 63(12), New York Not-For-Profit Corporation Law section 112(b), and New York
4
11. New York Not-For-Profit Corporation Law section 112 provides that OAG may
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, GAG 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:
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
(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.,
147' A.D.2d 143, 146 (2d Dep't 1989); Pavillion A/?ency Inc. v. Spit:::.er, 9 Misc. 3d 626 (Sup. Ct.
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 New York State Senator, is the President and
Officer.
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.
16. Espada Management Company was formed in mid-2007. (See Exhibit C.) Its
address is the same as Soundview's, i.e., 731 White Plains Road, Bronx, New 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.
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. the 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:
"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
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
Expansion was a wholly-owned for-profit company, all profits, if any, earned by Expansion
further reveals, among other things, that: (i) Espada Management Company took over at least one
pharmacy), thereby earning at least another $2,010.00 per month that previously had been paid to
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
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
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
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,
Management Company was paid over $341,000.00 from Soundview in 2008. (See excerpts of
4
2008 General Ledger attached hereto as Exhibit F. )
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 paid for purchasing its own supplies) (id. at p. 9). In
indicate that Espada Management Company's salary and wage costs were only approximptely
$180,00.00 in 2008, i.e., only fifty three percent (53%) of the total fees paid to Espada
5
Management Company by Soundview that year. This does not include monies paid to Espada
J Because OAG believes that revealing witnesses' names at this time would compromise its on
going investigation, OAG respectfully requests that, if the Court believes the individuals'
identities are necessary for the Court to rule on this motion to compel, OAG should be permitted
to provide that information to the Court ill camera. See, e.g., Matter ofAm. 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 Soundview
in 2008 for "maintenance services" was $384,988.02. Of that amount, the General Ledger
reflects 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
10
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
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
from Espada Management Company's payroll company, which reveal the following quarterly
necessary. GAG is happy to provide them to the Court for ill call/era review.
II
Quarter No. of Reported Average
employees 6 salaries/wages salaries/wages
per employee
Q12008 15 $30,816 $2,054
Q22008 14 $50,487 $3,606
Q32008 14 $59,765 $4,269
Q42008 15 $40,291 $2,686
Q12009 16 $35,779 $2,236
Q22009 13 $34,274 $2,636
Q32009 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 Company's salary and wage
26. For example, Pedro G. Espada's salary and wages from Espada Management
Company almost doubled in the months leading up to the election. The 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
() This number includes ill.!. employees reported as working at Espada Management Company in
the relevant quarter. regardless of whether they worked for only a few weeks or for the entire
12
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
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).
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.
13
Espada's campaign, then GAG 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
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
officer or director, or a family member of either-it appears that they may have violated, among
other fiduciary obligations, the duty of loyalty and the duty of obedience.
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
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
14
(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
We refer you to, inter alia, the plain language of New York Estates, Powers and
Trusts Law section 8-1.4(i) and New York Executive Law section 63(12), both of
which vest the Office of the New York State Attorney General ("OAG") with
broad authority to issue investigatory subpoenas such as these....
Abundant case law supports a broad reading of this statutory language. See, e.g.,
American Dental Cooperative, Inc. v. Attomey Gen. of 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 the
provisions in the Public Officers Law relating to the Freedom of Information Law
("FOIL") and note that you may invoke its protections in the letter accompanying
your clients' productions.
(See Letter from AAG Darcy M. Goddard to Richard St. Paul, counsel to Espada Management
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
15
of other documents relevant to the subpoena is on going and [sic] will be provided
expeditiously upon receipt and review." (See Letter from Richard S1. 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
organization governed by New York's Not-For-Profit Law, and Espada Management Company.
Respondent should be compelled 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 application has been made for any of the relief sought herein.
16
WHEREFORE, for the reasons stated herein, the Court should grant the Attorney
General's motion to compel Respondent to comply fully with the subpoena duces tecum served
~/~
Mi tra Hormozi
17