LLC-Loophole Case Settled Out of Court

A state lawsuit that would have sanctioned a defeated Assembly candidate for taking contributions from limited-liability corporations has been settled out of court.

In details announced Sept. 9, Independence Party candidate Shirley Patterson, who lost a special election in Brooklyn’s 43rd District to Working Families Party candidate Diana Richardson in May, agreed to pay $10,000 in “excess contribution forfeiture” to the state Board of Elections.  

Risa Sugarman, the Board of Elections’ independent enforcement counsel, filed the suit in July. It accused Patterson’s campaign of taking LLC contributions that were over the legal maximum—in an Assembly race, $4,100 from an individual—and not in the donor’s “true name.” The suit alleged four illegal contributions, including $5,000 that developer Kevin Maloney had supposedly channeled through two LLCs.

Without formally admitting wrongdoing, Patterson and her campaign treasurer conceded that her campaign had accepted contributions “that exceeded the individual contribution limits” under state election rules. It also agreed that it “knew, or should have known” that the money came from a source other than the LLC her campaign committee listed in its financial-disclosure statements. 

The settlement averted an open-court confrontation over the legality of political contributions given through the “LLC loophole.” While Sugarman contended that LLC contributions Patterson took violated state election law, a 1996 ruling by the Board of Elections held that LLCs should be treated as legal “individuals,” much like the “corporations are people” standard, and allowed to contribute as much as $150,000 a year to political campaigns in the state. Landlords, who commonly set up separate LLCs for individual properties, have taken great advantage of this “LLC loophole,” giving the maximum from numerous separate LLCs. Leonard Litwin of Glenwood Management has donated more than $1 million to Gov. Andrew Cuomo by exploiting that loophole.

Sugarman’s suit, however, did not challenge Patterson for the contributions she received from Glenwood LLCs.