Extortion by the "Council Minority"?

 The following is GA's opinion.  I expect Not-Stempler will weigh in later at his convenience.

Here it is.

4 members of the CIty Council went outside the bounds of their authority to 'negotiate' on behalf of the City an "Agreement" with the HUMC buyer, HoldCo.  According the the 'Council Minority' member presenting this agreement, Beth Mason,  it was reached in discussions on Saturday into the wee hours of Sunday morning.

A stipulation of the agreement reached was putting one member of the "Council Minority' on the hospital board.

Note the HoldCo letter NEVER refers to any "Council Minority" but refers to the 4 officials individually, offering the board seat to "one of you four".    In doing so, HoldCo makes it clear that the "offer" is to four members of the City Council on the eve of deciding the fate of a business deal; remember, HoldCo had by that time already invested MILLIONS (in legal fees alone) in buying the hospital.  It was under this kind of duress, that these 4 officials stepped outside of their legal authority to represent the City  to negotiate VOTES in exchange for.... stuff.

Exactly what Mike Russo said on his FBI surveillance tape: "You do for me, I  do for you".

It so happens most of the stuff was already part of the formal, legal and binding agreement made by the proper authority, the Hoboken Municipal Hospital Authority.

Except for the Board set.

What does a hospital board do?

It makes decisions on how the hospital spends it's money, and it authorizes new hires.  In other word, it has fiduciary powers.

The "Council minority" calls their negotiation an agreement. GA calls it extortion. 

On the EVE of the vote, the 'Council Minority' goes to the Buyer, 'negotiating' an exchange: OUR votes for fiduciary control over YOUR hospital.

And, what a coincidence: part of the 'negotiation'  straight from HoldCo's letter: "We endorse YOUR ideas about developing sports medicine care..."

Hmmmm... does anyone happen to know if a member of the "Council minority"  might be a physical therapist who would benefit from a sports medicine program?  Particularly after one of the "Council Minority" has a seat on the board with hiring authority?

I would like Not-Stempler to throw in his 2 cents (at his billing rate that would be a nanosecond).

Seriously.  Something about the terms of this non-binding agreement, its circumvention of the legal process, the 4 Council members misrepresentation to the Buyer as 'negotiators' and most of all, the swapping of VOTES for a BOARD SEAT  stinks to high  hell.

Was it extortion?

(Update, 10:50 am)
GA had a quick chat with Not-Stempler who is very busy with real clients.

As usual, he spouted a lot of legal mumbo-jumbo which I'll refrain from butchering. If he has time  he'll share his opinion.


  1. was it extortion? on the surface, it could be viewed that way. but in the end, it's a moot point: the council minority has no authority to function and negotiate as a separate legal entity on behalf of the city, so their "agreement" is non-binding, not legally recognized, and basically a load of face-saving horse manure.

  2. JAM, I'd say that any elected official misrepresenting his/her authority (in this case as representatives of the City) in a public-private business transaction and doing so for their own personal gain IS a serious offense.

    In this case, the business had already invested millions of dollars and had a lot to lose if they didn't 'work with' the 'negotiators'- in this case the entity calling themselves 'the Council Minority'.

    I am pretty sure if the deal fell through HoldCo would be suing 'the Council Minority'. In fact, they probably recorded their conversations with the 'negotiators' and it wouldn't surprise me if they turned them over to the FBI.

  3. I will leave it for someone with legal training to comment whether this evident trade of votes for a board seat is legally questionable.

    Any single board member is not likely to have much ability to change the business decisions of the hospital in a direct way. My concern would be more that it is an invitation to meddle and leak in inappropriate ways. It does seem possible to me that Holdco may not realize the degree to which agreeing to this extortion (and I agree with you it is morally that, regardless of what it is legally) could prove damaging. Or maybe they simply figure it is a cost of doing business that will last as long as a single term on the board; they may even feel that offering some patronage-style tidbits is worth the cost.

    I will hasten to add that I think it is a good thing to have board members (regardless the business) who are independent and not afraid to work on the basis of their conscience, something I think is sorely lacking in general in American board rooms. Let's just say I'm skeptical that such will be the end result in this circumstance.

    And of course I could be wrong; perhaps Holdco will back away from appointing the designee of the "four," that they will (surprise!) find some reason they have no choice but to renege. Now THAT would be fun to observe!

  4. My best guess would be that HoldCo had no intention of ever appointing any of the 4 on their board, that the letter was very painstakingly drafted by an attorney in anticipation of potential litigation should the vote not go their way OR the actions of these 4 derail the sale.

    Again, HoldCo's invested large amounts of $ into this sale and it makes sense for them to recoup damages should their attorneys see cause for such a claim.

    Don't expect to see any of those 4 on their board. More likely, expect 1 or 2 (hopefully 3) to be riding that van to Newark.

  5. In the eyes of a council minority the solicitation of a bribe is synonymous with negotiation.

    If they did not request that the board seat in their own name they would have been fine, but in this case I most definitely think it fits into the category of extortion, and HoldCo's knowing that it was completely unenforceable does not change that.

  6. HUMC Holdco has the right to have whomever they wish on their board. They also have the right to tell the minority to go jump in a lake and not offer any of the 4 of them a seat. I hope they do exactly that. Not one of those 4 has the integrity or intellectual capacity to serve on any corporate board.

  7. Red, that may be true. But without repeating everything I've already said here, the manner and circumstance under which this "offer" was procured by these elected officials may be worse than merely unethical.

    Now, check out H411 to see the "commercial" HoldCo was threatened with during the 'negotiation' as though having to persuade these 4 nincompoops to vote for the deal wasn't enough. The nasty (and painfully idiotic) Mason commercial was one of their negotiating tools to get the board seat "offer".

  8. Mason traded her vote and dropping her referendum for the board seat. That referendum could have been a deal killer since it would loop in the even-if-I'm-indicted voting bloc and could have soured Holdcos investors once and for all.

    It sounds like a very serious breach of ethics at a minimum. I want to hear Holdco's side of the story. They damn well better not be thinking about giving a board seat to the cancer twins.

  9. Aside from the low-quality reading experience, a particular reason I stay away from 411 is that my computer hard drive clicks away like a banshee every (rare) time I visit, and it takes forever to load - clearly something nefarious I'd rather not think about too much. (Anyone else have this experience?) But I was curious to see what is referenced here and I did in fact learn something quite interesting, though perhaps (OK, without a doubt) not what 411 intended.

    Mr. K. (or whoever!) posts a letter that he somehow feels supports the great victory of the "minority," dated November 1 and addressed to Mayor Zimmer and the four "minority" council members. The gist of the letter is that the Holdco attorneys felt it necessary a clarification be made about the October 30 letter sent to the four "minority" members.

    The clarification is in two parts. Part one is that it should not have read the appointment was of a "board member" but rather to the Hospital's "advisory Board of Trustees." Part two, and what is critical, is what happens next. The letter continues that while "the functions of the Board of Trustees remain as outlined in Sunday's letter," it "will operate in an advisory capacity only, and will not hold any governance or managerial rights under Delaware law or the terms of the LLC agreement."

    It's not really about the phrase "Board of Directors" instead of "Board of Trustees." I believe those phrases are interchangeable. (Not-Stempler can clarify that.) The point isn't that terminology, but rather the further clarification that the Board is advisory rather than governing. That's the real action in the November 1 letter. (Not-Stempler can clarify that, too.)

    Folks, I believe we're done here. The "minority" appointment is worth nothing or next to it (ditto the appointee of the Mayor, for what it's worth). Did the "minority" realize that? I have my doubts. (I have little doubt that this would not be news to members of the hospital authority and the Mayor, however.)

    Looking more carefully at the October 30 letter it is now more evident to me how carefully the language was crafted (with the exception of the slip of "directors" for "trustees") - so carefully that it was decided a follow-up might be a good idea, or just maybe that was planned all along.

    In the end, I read the November 1 follow-up letter like this: "Oh did we not make it entirely clear to someone who might not be familiar with the ins and outs of Delaware law and LLC legal structure that this board position has no power? SO SORRY! Really we are. Well, I'm glad it's clear now, aren't you? (Suckers!!)"

    It is more than a little reminiscent of the way the same crew (and Giacchi) were snookered regarding the budget process. To quote Councilor Mello, "bush league." Indeed!


Post a Comment