BY JODI SOKOLOWSKI
Buffalo Law Journal

Hodgson Russ LLP has agreed to pay $50,000 to the Attorney General's Office in response to a statewide investigation over improper employment arrangements with school districts and various Boards of Cooperative Educational Services.

Attorney General Andrew Cuomo announced Thursday that the ongoing investigation found that public school districts or BOCES classified lawyers as employees, instead of independent contractors, so that they could be eligible for state pension funds and the district or BOCES could get a higher reimbursement rate.

"We believe this is just the tip of the iceberg. This is chronic widespread corruption and fraud," Cuomo said. "It's death by a thousand cuts, and in the end, taxpayers bleed millions of dollars."

Cuomo said that lawyers working for law firms must have an "office, desk and telephone" in order to be classified by a school district or BOCES as an employee, even if it's part-time. Otherwise, they must be considered an independent contractor. The attorneys connected to the investigation were listed as labor-relations specialists on school payrolls.

The settlement with Hodgson Russ ends all agreements they had with five BOCES, covering 112 school districts in Western New York, in which their lawyers were improperly listed as employees.

The Attorney General's Office said that Hodgson Russ has fully cooperated with the investigation.

"As a result of this assurance, we will, without admitting any wrongdoing, discontinue the practice of permitting our attorneys to be placed on the payrolls of any BOCES and the Attorney General will terminate his investigation of that practice," said a statement from Gary Schober, president and CEO of the Buffalo-based law firm.

Schober said the firm will continue working with BOCES as independent contractors.

Hodgson Russ allowed five BOCES to list its attorneys as employees, even though they were serving as outside legal counsel. The deal allowed school districts to receive reimbursement from the state for a portion of the cost of the lawyers even though they did not qualify for this aid.

The five BOCES included the Cattaraugus-Allegany-Erie-Wyoming BOCES in Olean, Erie 1 BOCES in West Seneca, Erie 2 BOCES in Angola, Orleans-Niagara BOCES in Medina and Monroe 2 BOCES in Spencerport.

The Attorney General's Office also announced a $50,000 settlement with Albany attorney Maureen Harris, which rescinds the pension benefits and $30,000 salary she received from Hamilton-Fulton-Montgomery BOCES while at Girvin & Ferlazzo PC.

The AG added that, unlike the Girvin firm, none of the Hodgson lawyers received public pension benefits as a result of their employment agreements.

"Although they were listed on payrolls, Hodgson Russ did not request and did not receive any state pension or other benefits," AG special counsel Ellen Biben said. "Hodgson Russ lawyers were paid an hourly wage for only hours that they actually worked."

Schober said the firm did not benefit, nor did taxpayers suffer, from its lawyers being classified as employees rather than independent contractors.

"It actually cost us money, because our overhead was higher (and) we had to engage in more elaborate accounting practices," he said Thursday.

Cuomo said there is no excuse for lawyers to not know the law, because defining titles is a "well-known, well-litigated area that arises in business and households."

Schober defended the firm's classification practices, saying the law, such as the tax code, "provides opportunities for people to structure transactions in certain ways in order to enhance benefits from the government."

"It is appropriate and legal, (but because) the attorney general doesn't like the arrangements, we are more than willing to change them. It never really mattered much to us," he said.

The Attorney General's Office said it is continuing its investigation by reviewing employment practices at all school districts across the state and all 37 BOCES.

A day earlier, state Comptroller Thomas DiNapoli revoked state retirement-system membership for Niagara Falls attorney Maria Massaro and two other lawyers and an accountant from elsewhere in the state as part of DiNapoli's ongoing review of the New York State and Local Retirement System.

A review determined that the Niagara Falls City School District incorrectly classified Maria Massaro as an employee rather than an independent contractor.