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An attorney requests an advisory opinion regarding the legality of a contract to engage in lobbying for a contingent fee, entered into before the effective date of the Lobbying Law, for lobbying services that are to be performed after the effective date of the Lobbying Law. Specifically, Administrative Code Sec. 3-218, which went into effect December 1, 1986, prohibits contingency fee lobbying. It is the opinion of the attorney that it is a violation of the "Contract Clause" of the Federal Constitution for this provision to bar contingent fee lobbying performed after the law's effective date because a retainer agreement was entered into prior to that date, and would thus nullify an existing contract which when made, comported with all applicable laws and regulations.

Does the prohibition on lobbying for a contingent fee as stated in Administrative Code Sec. 3-218, apply to lobbying agreements for work to be performed after the above section's effective date where such agreements were entered into before that date?

New York City Administrative Code Sec. 3-218 was enacted in 1986 as part of the New York City Lobbying Law (Local Law 14 of 1986) and became effective on December 1, 1986. Section 3-218 states that:

No client shall retain or employ any lobbyist for compensation, the rate or amount of which compensation in whole or in part is contingent or dependent upon the passage or defeat of any legislative bill or the approval or veto of any legislation by the mayor, or the approval or disapproval of any resolution by the board of estimate, or the adoption or rejection of any rule or regulation having the force and effect of law, or the outcome of any rate making proceeding by an agency, or any other determination of an agency where efforts by a lobbyist to influence such determination are subject to the jurisdiction of the City Clerk, and no person shall accept such a retainer or employment.

The language of 3-218 prohibits the employment or retention of a lobbyist on a contingent fee basis as of December 1, 1986. The legislative history of Sec. 3-218 supports a conclusion that the provision was intended to apply to all contingent fee arrangements for lobbying services to be performed after December 1, 1986, whether entered into prior to or after that date. The Lobbying Law was not designed to prohibit only entering into an agreement for contingent fee lobbying--it prohibits the practice. The Mayor described the law's purpose in his testimony supporting the bill before the City Council Committee on Standards and Ethics as follows:

Contingent fees will be prohibited. Few practices are more harmful to the integrity of government than the practice of lobbying on a contingent fee basis, which creates the impression of government being for sale.

Transcript of Mayor's testimony, May 13, 1986, p.13. The Mayor reiterated this statement during a June 6, 1986 hearing held by him on the lobbying bill stating that "the new law would prohibit contingent fee arrangements." Transcript of Mayor's Testimony, June 6, 1986, page 3.

An interpretation of Sec 3-218 which does not make that provision applicable to contingent fee agreements entered into before December 1, 1986 would allow agreements providing for multi-year contingent fee lobbying to continue in effect well beyond December 1, 1986. Such a construction of the law would be unreasonable and directly contrary to the statute's purpose. In interpreting a statute, it is a well settled principle that a presumption always exists "that no unjust or unreasonable result was intended by the legislature and the statute must be construed consonant with that presumption." Zappone V. Home Insurance Co., 55 N.Y.2d 131, 137 (1982). See also Matter of Pell v. Coveney, 37 N.Y.2nd 494, 496 (1975) where the Court of Appeals stated, "it is fundamental that a statute must be read with the legislative goal in mind, so that controversies generated by ambiguities or gaps in the law may be resolved in accordance with the legislative scheme." Therefore, Section 3-218 should be construed as barring all contingent fee contracts as of December 1, 1986.

In view of the fact that Section 3-218 applies to contracts entered into prior to its effective date, the question whether that section violates "the Contract Clause" of the Constitution (Art. I Sec.10 of the United States Constitution), which prohibits the enactment of laws impairing the obligation of contracts, should be addressed. The threshold inquiry in making such a determination is whether the ban on contingent fee lobbying in fact operates as a substantial impairment of a contractual relationship. Judicial decisions in this area indicate that the existence of prior regulation in the field, especially on the same subject matter, weakens any argument that a law substantially impairs the contractual obligations of the parties. See Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400, 413-415 (1983) ; Methodist Hospital of Brooklyn v. State Insurance Fund, 102 A.D. 2d 367, 381-382 (1st Dept. 1984), aff'd on other grounds 64 N.Y. 2d 365 (1985). Lobbying has been regulated by the City since the enactment of Local Law No. 79 of 1972 (former Administrative Code Sec.N51.0 et seq.). The State of New York had regulated State legislative lobbyists since 1906 and has specifically barred contingent fee arrangements by lobbyists with respect to legislation, rulemaking and ratemaking. L. 1906, ch. 321; L. 1977, ch 937; L. 1981, ch. 1040 (as amended). Congressional lobbying has been regulated since 1946. 2 U.S.C. Sec. 261 et seq. Lobbying by any agent of a foreign principal before Congress for a contingent fee is specifically prohibited. 22 U.S.C. sec 618. Furthermore, many other jurisdictions prohibit contingency fee lobbying. e.g., Cal. Government Code Sec. 86205, subd. f (Deering 1987 supp.); Pa. Stat. Ann. tit. 46 Sec.148.7 a (Purdon 1987 supp.); I11. Ann. Stat. ch. 63 sec.178 (Smith-Hurd 1987 supp.); Tex. Government Code Ann. Sec. 305.022 (Vernon 1987 pamphlet). As noted above, such a national regulatory pattern is pertinent to the issue of whether a law operates as a substantial impairment of contract. Energy Reserves Group, Inc. v. Kansas Power and Light Co., supra at 413 n. 15. Since lobbying has been subject to regulation on the local, state and federal levels for many years, persons engaged in lobbying have no reasonable expectation that such activity will be immune from further regulation.

Even if Sec. 3-218 were viewed as constituting a substantial impairment of contractual interests, it would nevertheless be constitutional because it meets the two pronged test established by the United States Supreme Court for reviewing laws which impair contractual obligations. Under that two part test, a statute which substantially impairs an obligation of a contract will be upheld if (1) it has a significant and legitimate public purpose and (2) the manner in which the law adjusts the rights and responsibilities of the contracting parties is based upon reasonable conditions and is of a character appropriate to its public purpose. See Keystone Bituminous Coal Association v. DeBenedictis, 480 U.S. 804., 107 S. Ct. 1232, 1251-1253 (1987); Energy Reserves Group, Inc. v. Kansas Power and Light Co., supra at 410-413. Crane Neck Association, Inc. v. New York City/Long Island County Services Group, 61 N.Y. 2d. 154, 167 (1984), cert. den. 469 U.S. 804. except in situations where customary for courts to defer to legislative judgment as to the "necessity and reasonableness" of the impairment. United States Trust Co. v. New Jersey, 431 U.S. 1, 22-23, 25-26 (1976); See also Keystone Bituminous Coal Association v. DeBenedictis, supra, 107 S. Ct. at 1253. Section 3-218 satisfies the two part test. Specifically, Section 3-218 was enacted because the City Council and the Mayor recognized that contingent fee lobbying can undermine integrity and confidence in government. A prohibition against contingent fee lobbying constitutes a valid exercise of legislative authority.

In applying the second part of the test, section 3-218 is narrowly drawn to address the contingent fee problem; it does not restrict lobbying but only the manner by which lobbyists are compensated. Furthermore, the City Council did not make the provision effective immediately but provided that it would take effect five months after its enactment. Thus, those parties who may have entered into contingent fee agreements prior to the adoption of the law were afforded a sufficient opportunity to establish alternative methods of payment for lobbying services, and those who may have entered into these agreements subsequent to the law's adoption but before its effective date had notice of the law's provisions. The Courts have recognized that the establishment of a "grace period" between the enactment of a statute and its effective date is a factor which militates against a finding that provision violates the Contract Clause. See Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 247, 249 n. 23, 250 (1978); Garris v. Hanover Insurance Co., 630 F2d 1001, 1007-1008 (4th Cir. 1980).

It is the determination of the City Clerk that Administrative Code Section 3-218 prohibits all lobbying contracts for a contingent fee performed on or after December 1, 1986 regardless of when the contract to perform those services was entered into.

CARLOS CUEVAS City Clerk and Clerk of the Council
TIMOTHY J. McFARLAND Assistant Counsel

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