Lawsuit challenges loophole on LLC campaign donations

A lawsuit filed Tuesday is seeking to close a loophole that allows companies to effectively give unlimited campaign donations to candidates in New York.

Watchdog groups, joined by current and former state legislators, filed the suit in State Supreme Court here in an attempt to rein in corporations' use of subsidiaries to essentially ignore campaign donation limits.

The litigants want to reverse a 1996 ruling by the state Board of Elections that treats limited liability companies, or LLCs, as individual donors rather than as corporations. The distinction is important: Individuals can give up to $150,000 to political campaigns each election cycle, while companies are limited to $5,000. Plus, because companies can create as many LLCs as they want, critics say companies face virtually no contribution limits.

For example, Leonard Litwin, the New Hyde Park-based developer, and dozens of companies associated with him gave about $1 million to Gov. Andrew M. Cuomo's 2014 campaign and $2 million to other candidates in the state, according to campaign finance data.

The suit was filed by a coalition including the Brennan Center for Justice at New York University Law School, Sen. Daniel L. Squadron (D-Brooklyn), Sen. Liz Krueger (D-Manhattan) and Assemb. Brian Kavanagh (D-Manhattan).

The group says it is "common sense" that LLCs should be treated as companies, not individuals.

A limited liability company "bears virtually none of the characteristics of individual people acting in the political arena," the group said in the lawsuit. "An LLC cannot vote. It holds no political views separate from those of its 'members.' And it has none of the 'associational rights' of the sort that individuals routinely exercise in the world of politics -- for example, the right to form or join a political party."

A Board of Elections spokesman said the agency was reviewing the lawsuit and would not comment further.

In April, the Brennan Center asked the state elections board to overturn the 1996 ruling that LLCs should be treated as individuals. Notably, the Federal Election Commission treats LLCs as companies.

But the state board was deadlocked, 2-2, with Democrats voting to overturn and Republicans favoring the current interpretation. The deadlock meant no action was taken.

The critics said a lawsuit was their only recourse.

"This was a clear misinterpretation of the law. It shouldn't be allowed to stand because it is undermining our state's election system," said Lawrence Norden, deputy director of the Brennan Center. "This is a very simple, common-sense question: What are LLCs? Are they individuals or are they more like corporations?"

One of the litigants is Maureen Koetz, a Republican who lost to former Assembly Speaker Sheldon Silver (D-Manhattan) in November 2014 -- two months before he was arrested on federal corruption charges.