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Decision No. 13,967

Appeal of LARRY LOMBARDO from action of the Board of Education of the Lynbrook Union Free School District and William Metkiff, Superintendent, regarding the retention of unexpended surplus funds.

Application of LARRY LOMBARDO for the removal of Alicemarie Bresnihan as President of the Board of Education of the Lynbrook Union Free School District, William Metkiff, as Superintendent, and Donald J. Slover, as Assistant Superintendent for Business.

Decision No. 13,967

(June 29, 1998)

Ehrlich, Frazer & Feldman, attorneys for respondents, Jacob S. Feldman & Laura A. Mongelli, Esqs., of counsel

MILLS, Commissioner--By petition dated and served September 19, 1996, petitioner appeals respondent board’s allegedly improper use of surplus funds, which he asserts should have been used to reduce the tax levy of the Lynbrook Union Free School District ("district") for the 1995-96 school year. Petitioner also seeks the removal from office of the superintendent, the assistant superintendent for business, and six members of the board of education. Petitioner did not, however, serve the petition on those school officers. By application dated and served October 9, 1996, petitioner seeks removal from office of the superintendent, the assistant superintendent for business, and the president of the board of education. Petitioner’s appeal and application have been consolidated for decision, and both must be dismissed.

On June 7, 1995, respondent board adopted a resolution to establish a liability reserve fund in the amount of $356,000 to cover its potential liability from litigation then pending against the district. The board voted to use a portion of the district’s unexpended operating funds from the 1994-95 school year to create the reserve fund. It appears, however, that instead of creating the reserve fund as directed by the board, district officials appropriated the $356,000 into the district’s budget and accrued the liability. The litigation for which the reserve fund was to be created was subsequently resolved in the district’s favor, and on June 12, 1996, the board transferred $222,000 of the $356,000 to its workers’ compensation self-insurance fund and the remaining $134,000 to its dental program self-insurance fund.

Petitioner contends that respondents improperly set aside funds to cover a potential litigation liability. He argues that by doing so instead of using those funds to reduce the tax levy for the 1995-96 school year, respondents violated Real Property Tax Law ("RPTL") "1318(1). Petitioner further contends that respondent board violated Education Law "3651 by failing to establish a reserve fund and separate bank account for the funds it intended to use in the event of an adverse determination in the pending litigation.

In addition, petitioner argues that respondents failed to act in a manner consistent with my decision in Application of Brennan, 35 Ed Dept Rep 214. That proceeding also sought the removal of the respondents herein, as well as of other members of the board of education of the district, for failure to comply with RPTL "1318. While the application in Brennan was dismissed, the decision stated that "[r]espondents should endeavor to be scrupulous in their future budgetary practices, as another violation of RPTL "1318 may well now be sufficient to warrant their removal from office." Asserting that respondents have again violated RPTL "1318, petitioner asks that they now be removed from office.

Respondents contend that they acted in accordance with generally accepted accounting principles and in compliance with RPTL "1318(1). Respondents further contend that the appeals should be dismissed as untimely. In addition, respondents Metkiff, Slover, and Bresnihan assert that they may not be removed from office because petitioner has failed to establish any wilful violation or neglect of duty on their part.

In his October 9, 1996 application for the individual respondents' removal from office, petitioner requested an interim order. That request was denied on November 21, 1996.

At the outset, I note that petitioner’s reply in his September 19, 1996 appeal was due to be served no later than October 22, 1996. The reply was first received in my Office of Counsel on November 11, 1996 at which time it was rejected because it lacked both a verification and an affidavit of service. A verified reply was received by my Office of Counsel on November 25, 1996 with an affidavit indicating service on respondents on or about October 30, 1996. Although petitioner failed to request an extension of time to reply in accordance with "276.3 of the Commissioner’s regulations, I will accept his reply in light of the fact that he is proceeding prose and because any delay was deminimis and resulted in no prejudice to respondents.

I will not, however, consider the papers submitted by petitioner as his memorandum of law in his first appeal. Those papers consist entirely of an affidavit with exhibits and do not constitute a memorandum of law. Furthermore, a memorandum of law may not be used to belatedly add new assertions which are not part of the pleadings (Appeal of Coombs, 34 Ed Dept Rep 253). Moreover, in accordance with "276.4 of the Commissioner’s regulations, petitioner’s memorandum was due to be served November 1, 1996 but was not served until November 19, 1996, and the submission is thus untimely. Because I will not consider petitioner’s "memorandum of law," I will also not consider respondents’ sur-reply to that "memorandum."

Respondents contend that this appeal and removal application are untimely. Pursuant to ""275.16 and 277.1 of the Commissioner’s regulations, appeals to the Commissioner of Education and applications for the removal of school officers must be commenced within 30 days of the making of the decision or the performance of the act complained of. Insofar as petitioner challenges respondents' actions in setting aside funds to cover a potential litigation liability, those actions took place in June 1995 and are clearly untimely as petitioner did not commence these proceedings until September 19, 1996 and October 9, 1996.

With regard to alleged violations of RPTL "1318(1), an appeal or removal application is timely if it is brought within the fiscal year during which unexpended surplus funds are improperly retained (Appeal of Astafan, 36 Ed Dept Rep 463; Application of Brennan, supra; Application of Morris, et al., 35 id. 193; Appeal of Markert and Bertrand, 31 id. 481). Petitioner did not bring these proceedings until after the end of the 1995-96 school year, the year during which he alleges respondents improperly retained the surplus funds. Accordingly, both proceedings must be dismissed as untimely.

Notwithstanding the dismissal of the appeal and removal application on procedural grounds, I will discuss the issues raised for the future guidance of the parties. It appears that respondent board acted properly on June 7, 1995 in voting to establish a liability reserve fund to cover a potential liability resulting from litigation then pending against the school district. Such a fund may be established pursuant to General Municipal Law "6-n. There is no requirement that a separate bank account be established for such a fund.

Notwithstanding the board’s action, it does not appear that the administrators responsible for setting up the reserve fund ever did so. Rather, it appears that they allocated the funds which were to go into the reserve fund as an accrued liability. There was, however, an insufficient basis upon which to allocate the funds as an accrued liability. The May 12, 1995 letter from respondent’s counsel, upon which the board’s action was premised, does not indicate that it was probable that the district would lose the pending litigation -- a condition necessary to the establishment of an accrued liability. Rather, that letter recommends the establishment of a reserve fund. Thus, it was improper to set aside the funds as an accrued liability instead of in a liability reserve fund.

If a reserve fund had been established, the board would have been acting within its authority to move those funds to its workers compensation and dental program self-insurance funds when the litigation for which the reserve fund was initially established was resolved in the district's favor and the reserve fund was no longer needed. (General Municipal Law "6-n[13]).

With respect to petitioner’s application for the removal of the district's superintendent, assistant superintendent for business, and board president, a school officer may be removed from office only if he or she "has been guilty of any wilful violation or neglect of duty under this chapter, or any other act pertaining to common schools..., or wilfully disobeying any decision, order, rule or regulation of the regents or of the commissioner of education." (Education Law "306[1]). A "wilful violation or neglect of duty" may be found only when there is "a purpose or intent to disregard a lawful duty or to violate a legal requirement" (Application of Kozak, 34 Ed Dept Rep 501; Matter of Felicio, et al., 19 id. 414; Matter of Winograd, et al., 17 id. 213; Matter of Trigilio and Iannotta, 14 id. 385).

Petitioner seeks the removal of respondent school officers for their alleged failure "to be scrupulous in their future budgetary practices" as suggested in my decision in Appeal of Brennan, supra. I note that the decision in that appeal was rendered November 20, 1995, which is after the date of respondents’ action in setting aside funds to cover the potential litigation liability. Accordingly, even if petitioner’s removal application had been brought in a timely manner, I could not find a wilful violation of my earlier decision based on those actions. While I am dismissing the petition and removal application for the reasons discussed herein, I note that had respondent administrators more scrupulously carried out the instructions of respondent board (by establishing a liability reserve fund rather than accruing a liability in anticipation of a negative outcome in pending litigation), the present controversy regarding the district's use of surplus funds may have been avoided. I, therefore, remind respondents to exercise care in their future budgetary practices.