To Be Your Partner’s Keeper

Is your business partner using the firm’s account to make political contributions?  Is he or someone else making personal contributions?  How can these activities affect your business?    

Under pay-to-play law, a company may find itself ineligible for a government contract due to contributions made from the personal account of a principal, shareholder, officer, or other person directly or indirectly (e.g., spouse) connected with the company.  Perhaps paradoxically, however, there are instances where a contribution exceeding $300 drawn from a firm’s business account will not result in an ineligibility determination.

This is due to the incorporation of the concept of “reportable contribution” from campaign finance law.  Thus, in the case of a partnership or a limited liability company, the New Jersey Department of Treasury has stated in Q&A 89 on its website that a contribution drawn upon the firm’s account may be allocated as contributions by individuals, who may – or may not – be covered by the pay-to-play limits.

Now comes a New Jersey Supreme Court decision, albeit outside the pay-to-play context, that conversely seeks to bar political contributions from a law firm’s partnership account but not contributions from a partner’s personal account:  In the Matter of Philip N. Boggia, Judge of the Municipal Court (D-118-08) .  Specifically, the Court would prohibit attorneys who practice law with part-time municipal judges from making contributions from the law firm’s business account because such contributions “create an appearance of political involvement [by the judge] that must be avoided.” 

The decision does not reference campaign finance law categories, but rather focuses on appearances in an effort to safeguard judicial integrity.  Could this mode of analysis have resonance for future interpretations of pay-to-play laws – a focus on the appearance that a contribution threatens the integrity of government procurement determinations, especially under laws with anti-circumvention provisions to guard against indirect violations?  Time will tell.

More immediately, the decision underscores the need for company policies that protect against principals, partners, officers and employees making monetary contributions from a firm account or using firm resources to make in-kind contributions.  In addition, most policies should detail restrictions against and/or compliance review procedures for the making of personal contributions.  Finally, the decision is a reminder that a company policy is only as good as its enforcement.