In the Matter of the Appeal by Earle Asphalt Company

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Title:
In the Matter of the Appeal by Earle Asphalt Company
Date:
March 20, 2009
Publication:
Governmental Affairs UPDATE
Author(s):
Stuart M. Lederman, James L. Lott, Jr., John M. Pellecchia, Mary Kathryn Roberts
Area(s) of Practice:
Governmental Affairs

The New Jersey Supreme Court recently issued its decision in In the Matter of the Appeal by Earle Asphalt Company, a case involving a contractor's contribution to a county political party committee. In June 2007, Walter Earle II, president of Earle Asphalt Company, contributed $1,500 to the Monmouth County Republican Campaign. After being advised by counsel that his contribution might violate the State's pay-to-play laws, Earle requested a refund of his contribution. Earle did not receive the refund, however, until August 1, 2007, 41 days after the contribution was made. Thereafter, Earle Asphalt Company submitted a bid to the New Jersey Department of Transportation for a roadwork contract for a section of I-95. Despite submitting the lowest bid, the company was disqualified from award of the contract because of Earle's $1,500 contribution.

At issue in the case was one of the myriad of the State's pay-to-play laws, Chapter 51 of the Campaign Contributions and Expenditure Reporting Act (N.J.S.A. 19:44A-20.13), which prohibits any State agency from awarding a contract with a value of over $17,500 to a business entity that has contributed more than $300 during the preceding 18 months to the Governor, a candidate for Governor or any State or county political party committee. In affirming the decision of the Appellate Court, the Supreme Court upheld the constitutionality of Chapter 51 reasoning that the State's interest in ensuring the integrity of the negotiation and award of State contracts justified the limitation on political contributions.

The Supreme Court also held that the plain language of the safe harbor provision of Chapter 51, which provides that a business entity that inadvertently makes a contribution but requests and receives full reimbursement within 30 days would not subsequently be disqualified from receiving State contracts, requires actual receipt of the full reimbursement within the statutory period. Distinguishing between the mere request for reimbursement and the actual receipt of same, the Court held that while Earle requested the refund within the 30 day period, Earle Asphalt was not entitled to the exemption from disqualification because he did not receive the reimbursement until after the 30 day period had expired.

This case demonstrates the harsh consequences that can result from contributions made in violation of the State's pay-to-play laws. Because of Earle's contribution, Earle Asphalt was ineligible to receive a state contract for at least 18 months. Therefore, if you are considering making a political contribution, it is essential that you first review the relevant pay-to-play laws that govern the award of public contracts. In addition, in light of the Supreme Court's decision in Earle Asphalt Company, it is particularly important that you are aware that in the case of an inadvertent disqualifying contribution, the safe harbor provision of Chapter 51 requires actual receipt of reimbursement within the 30 day period. As always, in the event that you are unsure of the consequences of a political contribution, you should seek the advice of legal counsel in the government affairs group at Riker Danzig.

Also, keep in mind that a number of counties, local municipalities and cities have adopted their own pay-to-play ordinances that differ in many respects from the State statutes. The Secretary of State's office maintains a list of several of the ordinances, but it is not complete. See http://www.state.nj.us/state/secretary/ordinance.html. It is critical to business entities doing business with any level of government to be aware of the ramifications of the State and local pay-to-play provisions.

Summary of Executive Orders # 117 and # 118

Governor Corzine recently issued two new Executive Orders that impact pay-to-play regulation. Effective November 15, 2008, Executive Order #117 (EO #117) and Executive Order #118 (EO #118) have wide-ranging impact for certain political contributions in excess of $300 made by those who contract with the State. A bill codifying EO #117 and EO #118 is currently being drafted by the Legislature and it is anticipated that it will be introduced in the coming weeks.

EO #117 changes the pay-to-play law as it applies to political contributions made by State contractors. It expands the scope of Chapter 51's pay-to-play ban by broadening the definition of the term "business entity" to include officers, partners, principals, members and any person that owns or controls 10% or more of stock; the spouse or civil union partner and any resident child. The restriction, however, does not apply to contributions made by spouses, civil union partners or resident children if they are made to candidates for whom the spouse, civil union partner or resident child is entitled to vote. EO #117 also expands the universe of prohibited contributions to include a candidate for or holder of the office of Governor and Lieutenant Governor, as well as any State, county, or municipal political party committee or legislative leadership committees.

EO #118 addresses the "redeveloper loophole." Under EO #118, redevelopers are disqualified from State redevelopment agreements if political contributions are made by the business entity or its subsidiaries, or various third party intermediaries, including partners, members, officers, and their spouses/civil union partners or resident children. As with EO #117, this restriction does not apply in the case of a contribution made to candidates for whom the spouse, civil union partner or resident child is entitled to vote. EO #118 also prohibits nearly every possible contribution that a State redeveloper might make to any candidate or elected official at any level of State or local government. It broadly defines banned prohibited political contributions as those made to a candidate committee or election fund of candidate or holder of the office of Governor or Lieutenant Governor, a State, county, or municipal political party committee or legislative leadership committee, as well as any State, legislative, county, or municipal candidate or officeholder in the legislative district, county, or municipality where the redevelopment agreement is situated.

Contributions made without due consideration of these changes in the law can result in the loss of government contracts, a future inability to contract with government entities, as well as civil penalties, in addition to public relations difficulties. In the event that you are unsure of the consequences of a political contribution by you, your spouse or your company, you should seek the advice of legal counsel in the government affairs group at Riker Danzig.

Filing Deadline for Annual Pay-to-Play Disclosure

As a general reminder, those business entities that have received $50,000 or more in New Jersey State and local government contracts in a calendar year must file the Business Entity Annual Statement (Form BE) electronically with the New Jersey Election Law Enforcement Commission (ELEC) to report contract information and reportable contributions it has made. The due date for the 2008 annual disclosure report is March 30, 2009. The form and instructions can be accessed on ELEC's website at https://wwwnet1.state.nj.us/lpd/elec/ptp/Form.aspx.