Report: City Has Secret Quota System For Small Business Fines

The New York City Department of Consumer Affairs has secretly ordered agents to dole out a minimum number of fines to small businesses, while also pressuring judges to rule in favor of the city during the appeals process, the Daily News claims in an exclusive report.

The paper reports that documents they have obtained and whisteblowers in the agency reveal disturbing practices, in which inspectors are ordered to fine one in four businesses they visit, administrative law judges are pressured to side with the city, and whopping fines are disproportionately smothering minority-owned and outerborough businesses.

The News reports:

Agency inspectors are tracked each month by the number of citations they write. They are urged to “keep numbers high,” and most are expected to maintain a “25% threshold,” the documents show. That means they should produce an average of one violation for every four businesses they inspect.

… The News also interviewed more than a half-dozen Consumer Affairs Department employees, who shed light on the city’s clandestine cash cow.

“I was recently given a bad evaluation for not meeting my 25% quota,” one angry inspector told The News. “They want us to look for anything to go after a business.”

The businesses include bodegas, catering halls, discount stores, gas stations and hair-braiding shops. Some have been forced out of business due to staggering violations that often cost owners tens of thousands of dollars.

“Instead of protecting consumers, the entire agency has been turned into a piggy bank for the city,” a high-ranking Consumer Affairs Department official disgusted with the agency’s actions said. “And the people being victimized the most are immigrant businesses that can’t afford good lawyers.”

Even the agency’s judicial process, in which a business owner can challenge a fine at a hearing, has been tainted by the drive for more revenue, the employees claim. Top brass routinely pressure administrative law judges presiding at those hearings to rule in the city’s favor. And agency bosses have have edited judges’ opinions before they were issued, according to documents and emails obtained by The News.

If the judges, who are supposed to be impartial, resist the pressure, they say, they get overruled by superiors, who must sign off on any rulings. At least two of those judges recently filed formal complaints with the city Department of Investigation over the actions of their supervisors.

The paper also noted that whatever pressure may or may not exist on administrative judges, the number of successful appeals has certainly seen a sharp decline.

The number of violations that business owners were able to get dismissed at impartial hearings has steadily plummeted, from nearly 13% in 2009 to less than 5% last year. “We’re going after places like hair-weave salons that the department doesn’t even license for not having a customer refund policy posted on their walls,” one inspector said. “We never used to do that.”

In response to the newspaper’s investigation, the Department of Consumer Affairs denied the existence of any such quota or pressure on judges.

The paper also cited several examples of devastating fines placed on small businesses for relatively minor infractions. One involved a $14,000 fine doles out to a 99-cent store. The inspector found 14 plastic, brightly colored toy dart guns, and deemed them in violation of the law since the barrels were not capped. He was fined $1,000 per 65-cent gun.

Another involved a bodega with an unlicensed sidewalk fruit stand. The stand’s owner admitted to operating without a license since it was revoked in 2010, and agreed to pay a fine. But the city argued that he should pay a $100 fine – for each of the 939 days that had passed since his license was revoked. That’s $93,900.

Public Advocate Bill de Blasio has slammed the agency in the wake of the report.

“Before an inspector even walks through the door, the fix is in. City Hall is out to squeeze small businesses any way it can. We see it every day with nuisance fines that can literally kill a business. To find out that even the appeals process is rigged against business owners is completely outrageous. This is government at its worst—and this needs to end now,” de Blasio said in a press release.

De Blasio previously commissioned his own study, which found that the number of city fines against small business had nearly doubled – a 70 percent jump – from 2002, when Mayor Michael Bloomberg took office, to 2012. Fines totaled $4 million in 2002, but by 2012 they had reached $14 million. Moreover, the report found, inspections spiked in the outerboroughs even while they plummeted by 14 percent in Manhattan.

The public advocate has sent a letter to DCA Commissioner Jonathan Mintz and Bloomberg, criticizing the heavy handed fines and promising a renewed inquiry into DCA’s practices in light of the report.

You can read the full letter below:

Hon. Michael Bloomberg
City Hall
New York, NY 10007

Jonathan Mintz
Commissioner
Department of Consumer Affairs
City of New York
42 Broadway
New York, NY 10004

Dear Mayor Bloomberg and Commissioner Mintz:

I was appalled to read this morning in the New York Daily News about allegations that the Department of Consumer Affairs (DCA) has secretly been using a quota system to increase fine revenue from small businesses.^[1] According to multiple sources and documents cited in the article, for several years, DCA inspectors have been instructed to fine at least 25 percent of the businesses they inspect, and top city officials have pressured administrative law judges into ruling against small business owners when they contest these quota-driven fines. This shameful pattern of behavior, if true, represents an astonishing breach of public trust and abuse of power.

The allegations are in direct conflict with what DCA has repeatedly told the public about its guidelines for enforcement personnel. DCA has always maintained that no quotas exist, despite the dramatic increase in fines during the Bloomberg Administration. In 2012, pursuant to an investigation into the increase in citywide fine revenues, I personally asked DCA for a variety of information regarding agency fining practices. Specifically, I asked whether DCA places any quotas, goals, guides or other numerical markers on the number of violations issued. DCA responded to my inquiry on August 9, 2012, stating: “DCA does not place or impose on its enforcement personnel any quotas or numerical markers when issuing notices of violation.” According to the Daily News, by this time, DCA’s quota program was in full force.

As you know, following repeated requests, our office was forced to bring litigation to compel the disclosure of the information my office sought from DCA. The information obtained from that lawsuit showed a dramatic increase in fines, which my office published in a report titled “Borough Bias: How the Bloomberg Administration Drains Outer Borough Businesses.” If the Daily News’ allegations prove to be true, DCA’s failure to provide my office with documents showing the existence of a quota system is a violation of the New York City Charter and the terms of our settlement agreement.

If there is any truth to the allegations laid out in today’s Daily News article, immediate changes need to be made at DCA – changes that cannot wait until a new administration takes over in 2014. The full scope of the DCA’s quota system and the improper influence of the adjudication process must come to light. Therefore, pursuant to the authority granted to my office under Section 24 of the Charter of the City of New York, I hereby request the following information:

• I renew my request to know whether the DCA places any quotas, goals, guides or other numerical markers on the number of violations issued, or revenue generated, by each DCA inspector and seek any and all documents describing such practices.
• The total number of hearings conducted by DCA each year from Fiscal Year (“FY”) 2002 through FY 2013 (to date).
• The total number of administrative hearings in which all violations were ultimately discarded from FY 2002 though FY 2013 (to date).
• Any and all communications between the Director of Adjudication at DCA and Administrative Law Judges from FY 2002 through the present.
• Any and all communications between the Director of Adjudication and other DCA personnel regarding ongoing adjudication proceedings from FY 2002 though the present.
• Any and all communications between DCA personnel and Administrative Law Judges concerning adjudication proceedings from FY 2002 through the present.

Please provide a response to the data requests no later than 5 p.m. on July 1, 2013, and a response to the communications requests on a rolling basis, beginning no later than 5 p.m. on July 1, 2013. If you have any questions regarding this request, please contact my General Counsel, Steven Newmark, at 212-669-7200 or snewmark@pubadvocate.nyc.gov. Thank you very much for your anticipated prompt response.

Sincerely,
Bill de Blasio
Public Advocate for the City of New York