In the Matter of Hague Corporation, Respondent,v.Empire Zone Designation Board, et al., Appellants.BriefN.Y.April 23, 2013To be Argued by: MICHELLE L. MEROLA (Time Requested: 30 Minutes) Docket No. CA 08-02453 Albany County Clerk’s Index No. 4046/10 Court of Appeals of the State of New York IN THE MATTER OF THE APPLICATION BY THE HAGUE CORPORATION, Petitioner-Respondent, – against – EMPIRE ZONE DESIGNATION BOARD and NEW YORK STATE DEPARTMENT OF ECONOMIC DEVELOPMENT, Respondents-Appellants. For a Judgment Pursuant to Article 78 and Article 30 of the CPLR. BRIEF FOR PETITIONER-RESPONDENT Of Counsel: MICHELLE L. MEROLA, ESQ. CHRISTOPHER L. DOYLE, ESQ. HODGSON RUSS LLP Attorneys for Petitioner-Respondent 677 Broadway, Suite 301 Albany, New York 12207 Tel.: (518) 465-2333 Fax: (518) 465-1567 Date Completed: January 10, 2013 - i - 058613.00000 Business 10688903v2 CORPORATE DISCLOSURE STATEMENT Pursuant to 22 N.Y.C.R.R. § 500.1(f), Petitioner-Respondent the Hague Corporation states: 1. The Hague Corporation is a New York corporation with its principal place of business at 400 Andrews Street, Suite 500, Rochester, New York 14604. 2. The Hague Corporation has no corporate parent. 3. The Hague Corporation has no corporate subsidiaries. - ii - 058613.00000 Business 10688903v2 TABLE OF CONTENTS Page CORPORATE DISCLOSURE STATEMENT .......................................................... i TABLE OF AUTHORITIES .................................................................................... iv PRELIMINARY STATEMENT ............................................................................... 1 QUESTIONS PRESENTED ...................................................................................... 3 STATEMENT OF FACTS ........................................................................................ 5 Procedural History ........................................................................................... 5 The Empire Zones Program ............................................................................. 7 The Hague’s Empire Zone Certification ......................................................... 8 Amendments to the General Municipal Law ................................................... 8 Effective Date of the 2009 Amendments ........................................................ 9 Implementation of the 2009 Amendments .................................................... 11 The Senate’s Bill Rejecting Retroactivity ..................................................... 12 The Hague’s Decertification and Appeal ...................................................... 12 August 2010 Legislation ................................................................................ 14 ARGUMENT ........................................................................................................... 14 POINT I. The Period of Retroactivity Should be Measured from August 2010 ................................................................................. 14 - iii - 058613.00000 Business 10688903v2 A. The New Eligibility Requirements in the 2009 Amendments Were Intended to be Prospective ........................ 15 B. The 2010 Amendments Constitute New Legislation for Purposes of Calculating the Period of Retroactivity ................. 22 POINT II. Retroactive Application of the 2009 Amendments to January 1, 2008 Violates Due Process ........................................ 23 CONCLUSION ........................................................................................................ 33 - iv - TABLE OF AUTHORITIES Page(s) FEDERAL CASES United States v. Carlton, 512 U.S. 26 (1994) .................................................................................. 23, 24, 26 United States v. St. Paul, Minneapolis & Manitoba Ry. Co., 247 U.S. 310 (1918) ............................................................................................ 18 STATE CASES Chrisley v. Morin, 126 A.D.2d 977 (4th Dep’t 1987) ....................................................................... 26 James Square Assocs. LP v. Mullen, 91 A.D.3d 164 (4th Dep’t 2011) .............................................1, 24, 25, 26, 27, 31 Majewski v. Broadalbin-Perth Cent. Sch. Dist., 91 N.Y.2d 577 (1998) ....................................................................... 17, 18, 19, 21 Matter of Grand Jury Subpoena Duces Tecum [Museum of Modern Art], 93 N.Y.2d 729 (1999) ................................................................................... 17, 18 Matter of J-P Group, LLC v. N.Y. State Dep’t of Econ. Dev., 91 A.D.3d 1363 (4th Dep’t 2012) ......................................................................... 1 Matter of Morris Builders, LP v. Empire Zone Designation Bd., 95 A.D.3d 1381 (3d Dep’t 2012) ...................................................................... 1, 6 Matter of Replan Dev., Inc. v. Dep’t of Hous. Pres. & Dev. of the City of N.Y., 70 N.Y.2d 451 (1987) ................................................................................... 26, 27 Matter of Roosevelt Raceway, Inc. v. Monaghan, 9 N.Y.2d 293 (1961) ........................................................................................... 22 TABLE OF AUTHORITIES (cont.) Page(s) - v - 058613.00000 Business 10688903v2 Matter of WL, LLC v. Dep’t of Econ. Dev., 97 A.D.3d 24 (3d Dep’t 2012) ..................................... 1, 6, 14, 22, 25, 29, 30, 31 Morales v. Gross, 230 A.D.2d 7 (2d Dep’t 1997) ...................................................................... 15, 16 People v. Brooklyn Garden Apartments, Inc., 283 N.Y. 373 (1940) ........................................................................................... 30 People v. Korkala, 99 A.D.2d 161 (1st Dep’t 1984) ......................................................................... 18 People ex rel. N.Y.C. & H.R.R.R. v. Mealey, 224 N.Y. 187 (1918) ........................................................................................... 30 Woollcott v. Shubert, 217 N.Y. 212 (1916) ........................................................................................... 18 STATE STATUTES CPLR 3001 ................................................................................................................. 5 GML § 959(a) . .......................................................................................................... 9 GML § 959(a)(v)(6) ................................................................................... 5, 8, 10, 16 GML § 959(a)(v)(7) ................................................................................................. 14 GML § 959(a)(v)(7)(A) ........................................................................................... 11 GML § 959(w) ......................................................................................................... 13 GML § 966 ................................................................................................................. 8 Tax Law § 210 ......................................................................................................... 20 TABLE OF AUTHORITIES (cont.) Page(s) - vi - 058613.00000 Business 10688903v2 Tax Law § 606 ......................................................................................................... 20 Tax Law § 1456 ....................................................................................................... 20 Tax Law § 1511 ....................................................................................................... 20 L. 2005, Ch. 63 ......................................................................................................... 30 L. 2009, Ch. 57, Part S-1, §§ 11-22 ......................................................................... 20 L. 2009, Ch. 57, Part S-1, § 44 ...................................................................... 9, 16, 20 L. 2010, Ch. 57, Part R, § 1 ............................................................................... 14, 22 OTHER AUTHORITIES 2009 N.Y. Assembly Bill A00160 ..................................................................... 10, 17 2009 N.Y. Senate Bill S00060 .......................................................................... 10, 17 2009 N.Y. Senate Bill S05598B ........................................................................ 12, 19 Tax Department Memorandum http://www.tax.ny.gov/pdf/memos/multitax/m09_5c_4i.pdf ............................ 11 - 1 - 058613.00000 Business 10688903v2 PRELIMINARY STATEMENT The constitutionality of retroactive legislation — regardless of the period of measurement — can only be resolved in the context of other equitable factors such as notice and reliance to the affected parties. Here, the State of New York entered into a binding agreement with Petitioner-Respondent the Hague Corporation (the “Hague”) that it now seeks to retroactively revoke. The Third and Fourth Departments have held that the State’s actions, toward the Hague and other New York businesses, violate the Constitution. However, the State appealed the decisions rendered by those Courts in James Square Associates LP v. Mullen; Matter of J-P Group, LLC v. New York State Department of Economic Development; Matter of WL, LLC v. Department of Economic Development; and Matter of Morris Builders, LP v. Empire Zone Designation Board. And this appeal raises the same issues presented in those appeals. The Hague — the former Empire Zone Business at issue in this case — is a real estate development and property management firm. In 1995, the Hague received a Certificate of Eligibility for the City of Rochester Empire Zones Program and became eligible to receive benefits pursuant to the New York State - 2 - 058613.00000 Business 10688903v2 Empire Zones Act, which is codified at General Municipal Law § 955 et seq. In April 2009, as part of the 2009-2010 budget legislation, the Governor signed into law amendments to the Empire Zones Act. The 2009 amendments altered certain eligibility criteria and directed the Commissioner of the New York State Department of Economic Development (the “Commissioner” and the “DED”) to conduct a review of all business enterprises receiving benefits. On March 24, 2010, as a result of the DED review, the Commissioner revoked the certification of the Hague retroactive to January 1, 2008 on the grounds that it had not satisfied the so-called “one-to-one test.” Although the Hague disputed this finding of ineligibility below, in the instant appeal it merely argues that retroactive application of the revised eligibility criteria acts as an unconstitutional deprivation of its business certification without due process. Moreover, the Hague argues that any permissible period of retroactivity must be measured from August 2010. - 3 - 058613.00000 Business 10688903v2 QUESTIONS PRESENTED Question One: Did the Third Department err in holding that the period of retroactivity for the April 2009 amendments was to be measured from August 2010 rather than April 2009? Answer: No. The April 2009 amendments at issue do not demonstrate a clear legislative intent that they were to be applied retroactively. Rather, all indications are that the Legislature intended a prospective application. Thus, the subsequent August 2010 legislation was not a “clarification,” but instead a substantive act of legislation, in which for the first time the Legislature provided for retroactive application of the 2009 amendments. The period of retroactivity must therefore be measured from this date. Question Two: Does the retroactive application of the statute violate the Hague’s due process rights? Answer: Yes. Under New York State law, determining whether the retroactive application of a tax law offends the constitutional limitations requires a balancing of the equities. Due process is violated where, as here, a taxpayer has little forewarning of the change and reasonably relied on the benefits - 4 - 058613.00000 Business 10688903v2 conferred by the prior law — benefits that are sufficiently certain because they take the form of a certification. And the failure to articulate a sufficient public purpose for retroactivity exacerbates the constitutional infirmities. - 5 - 058613.00000 Business 10688903v2 STATEMENT OF FACTS Procedural History In the underlying action, the Hague sought an order that the March 24, 2010 determination to revoke its business certification pursuant to General Municipal Law (“GML”) § 959(a)(v)(6) was in excess of the Commissioner’s jurisdiction and affected by error of law, arbitrary and capricious, and an abuse of discretion and, therefore, was null and void and should be vacated. (R. 16-17). The Hague also requested an order in mandamus ordering the Empire Zone Designation Board to withdraw its March 24, 2010 determination revoking the Hague’s business certification pursuant to GML § 959(a)(v)(6). (Id.). In the alternative, the Hague sought a declaration from the Court under CPLR 3001 that: (a) the Hague was denied due process; (b) the Commissioner’s regulations were not promulgated in accordance with the State Administrative Procedure Act; (c) the Hague satisfies the one-to-one test for Empire Zone Certification; (d) the economic returns for the entire period of Hague certification (1995 to 2009) must be included for purposes of conducting the economic returns analysis; (e) the economic returns that were produced by the Hague’s lessee, Sutherland Global Services, Inc., must be included for purposes of - 6 - 058613.00000 Business 10688903v2 conducting the economic returns analysis; and (f) any determination revoking the Hague’s certification may not be retroactively effective. (Id.). The Hague’s Petition was denied by the Supreme Court in the Order and Judgment of the Honorable Thomas J. McNamara, dated April 11, 2011, and entered in the Albany County Clerk’s Office on April 25, 2011. (R. 9-15). The Hague appealed that decision to the Appellate Division of the Third Department, which issued a decision affirming in part and reversing in part. (R. 167-71). Specifically at issue here, the Court held that the retroactive application of the 2009 amendments violated due process. (R. 170-71). Based on the reasons set forth in Matter of WL, LLC and Matter of Morris Builders, LP, the Court held that the Legislature did not make the 2009 amendments retroactive until August 2010, when it enacted additional amendments to the Program and clarified that the 2009 amendments were intended to be retroactive. (R. 170); see also Matter of WL, LLC v. Dep’t of Econ. Dev., 97 A.D.3d 24, 33 (3d Dep’t 2012). This Court should affirm the decision of the Appellate Division for the Third Department. - 7 - 058613.00000 Business 10688903v2 The Empire Zones Program New York State’s Empire Zones Program (originally referred to as the Economic Development Zones Program) was created in 1986 to stimulate economic growth in distressed communities through a variety of tax incentives designed to attract new businesses and to incentivize existing businesses to expand and create more jobs. (R. 20; 39). So-called “Empire Zones” were designated in various cities, counties, and towns within New York State, including Rochester. (R. 20). A business located in an Empire Zone could apply to the State for certification under the program entitling it to certain benefits. For example, a regular corporation located in an Empire Zone may be eligible for Empire Zone credits against its New York State corporate franchise taxes. And with respect to flow-through entities like partnerships, LLCs, and S corporations, owners may be eligible to claim the Empire Zone credits when filing their personal returns. (Id.). In order for tax credits to be available, the business enterprise must qualify under certain tests in the Tax Law, and obtain a Certificate of Eligibility for the relevant City’s Empire Zones Program. (R. 21). The DED administers the certification process. (Id.). - 8 - 058613.00000 Business 10688903v2 The Hague’s Empire Zone Certification The Hague applied for certification as an Empire Zone business and received its Certificate of Eligibility for the City of Rochester Empire Zones Program, effective as of April 4, 1995. (R. 21; 39). The Certificate of Eligibility permits the Hague to access the benefits referred to in GML § 966 in connection with its facility located at 400 West Avenue in Rochester. (R. 21). Amendments to the General Municipal Law In 2009, the Commissioner conducted a review of all business enterprises with Certificates of Eligibility to determine whether those businesses would remain eligible to participate in the Economic Zones Program. (Id.). This review was mandated by amendments to the GML which became effective on April 7, 2009 (the “2009 Amendments”). The 2009 Amendments included new eligibility criteria for continued certification. One of the new provisions — known as the “one-to-one” test — required decertification upon a finding that “the business enterprise has failed to provide economic returns to the state in the form of total remuneration to its employees (i.e. wages and benefits) and investments in its facility greater in value to the tax benefits the business enterprise used and had refunded to it.” GML § 959(a)(v)(6) (emphasis added). Section 959(a) of the - 9 - 058613.00000 Business 10688903v2 amended statute authorizes the Commissioner to adopt, on an emergency basis, rules and regulations which, among other things, govern the criteria for continued eligibility and decertification. GML § 959(a). Effective Date of the 2009 Amendments The 2009 Amendments contain specific language regarding their effective date. In particular, Section 44 provides as follows: This act shall take effect immediately, provided, however, that: (a) sections eleven through twenty-two of this act shall apply to taxable years beginning on and after January 1, 2008; (b) sections thirty and thirty-one and sections thirty-four through forty-one of this act shall take effect on the first day of the sales tax quarter next commencing at least 60 days after this act becomes law; and provided further that any refund or credit allowed pursuant to the amendments made by section thirty-one of this act may not be paid for that quarter for at least two hundred seventy days after this act becomes law; (c) section thirty-three of this act shall take effect April 1, 2009; (d) section forty-two of this act shall take effect on January 1, 2012; and (e) the amendments to subdivision (u) of section 957 of the general municipal law made by section one of this act shall not affect the repeal of such subdivision and shall be deemed repealed therewith. L. 2009, Ch. 57, Part S-1, § 44 (reproduced at R. 116-41). In short, the 2009 Amendments specifically identify certain provisions that are to be deemed - 10 - 058613.00000 Business 10688903v2 retroactive to January 1, 2008. However, Section 3 of the 2009 Amendments, which contains the provision codified in GML § 959(a)(v)(6) creating the new “one-to-one” test, is subject only to the general “immediately effective” language (i.e., Section 3 of the 2009 Amendments is not subject to any other effective date). However, as initially introduced in the Legislature, the 2009 Amendments included specific language providing that the new criteria for decertifying a previously certified business would be retroactive to tax years beginning on or after January 1, 2008. Specifically, the legislation as initially introduced by the Governor in his Budget Bill in January 2009 provided that: With respect to any business enterprise decertified pursuant to subparagraph six of paragraph (II) of this subdivision, that decertification (1) will be effective for a taxable year beginning on or after January First, Two Thousand Eight and before January First, Two Thousand Nine and for subsequent taxable years for a business enterprise for which review is required to be conducted pursuant to subdivision (w) of this section in calendar year Two Thousand Nine . . . . 2009 N.Y. Assembly Bill A00160; 2009 N.Y. Senate Bill S00060. The Legislature, however, removed this retroactivity language from the 2009 Amendments as enacted, clearly demonstrating its intent that decertification not be - 11 - 058613.00000 Business 10688903v2 retroactive. In addition, the 2009 Amendments provide that the effective date of decertification be the earliest event constituting grounds for revoking certification. GML § 959(a)(v)(7)(A). Implementation of the 2009 Amendments On April 15, 2009, the date many 2008 tax returns were due, the New York State Department of Taxation and Finance (hereafter “Tax Department”) issued a memorandum setting forth guidance to taxpayers with respect to the Empire Zones Program. See http://www.tax.ny.gov/pdf/memos/ multitax/m09_5c_4i.pdf. The Tax Department memorandum stated — for the first time — that the new criteria for decertifying businesses would be retroactive to January 1, 2008. It also stated that no Empire Zone credits (new or carryover credits) could be claimed without an Empire Zone Retention Certificate. But, as of April 15, 2009, no retention certificates had been issued. Thus, all businesses were forced to pay their taxes without the benefit of the Empire Zone credits.1 Subsequently, on June 17, 2009, the DED issued new implementing regulations 1 The Tax Department assured these businesses that they could seek refunds if they later received retention certificates. - 12 - 058613.00000 Business 10688903v2 which also stated that the effective date of decertification would be January 1, 2008. (R. 93-96). The Senate’s Bill Rejecting Retroactivity Following the actions of the Tax Department and the DED, there was significant outrage from the business community regarding the economic impact of the retroactive denial of these tax benefits. As a result, on July 16, 2009, the New York State Senate responded by unanimously passing a Bill that clarified that the 2009 Amendments were not intended to be applied retroactively. 2009 N.Y. Senate Bill S05598B. Specifically, the Bill stated that the “effective date of decertification shall not be earlier than the first day of the business entity’s taxable year beginning on or after January First, Two Thousand Nine.” Id. The Bill, however, was not subsequently passed into law. The Hague’s Decertification and Appeal On June 29, 2009, the Hague (along with 93 other business enterprises) received a Notice of Revocation of Certification (“Notice”) from the Commissioner. (R. 23; 44-45). The Notice stated that the Hague’s certification was being revoked because it failed to provide economic returns to the State in the form of total remuneration to its employees and investments in its facility greater - 13 - 058613.00000 Business 10688903v2 in value than the tax benefits received by the corporation — in essence, that the Hague failed the “one-to-one” test. (R. 44-45). The Notice failed to set forth the method of calculation (i.e., amount of economic returns vs. amount of tax benefits). (Id.). Nor did it set forth the time frame utilized in assessing the economic returns. (Id.). Under GML § 959(w), a business enterprise may appeal the revocation determination by sending a written notice of intent to appeal to the Board within fifteen business days from the date of notification. GML § 959(w). In this case, on June 30, 2009 (within fifteen days of notice), the Hague served the Empire Zone Designation Board (“the Board”) with a notice of its intent to appeal the Commissioner’s determination. (R. 47). On August 27, 2009, the Hague provided a written submission to the Board setting forth an explanation of why its certification should continue and why the Commissioner’s decertification determination was in error. (R. 48-82). Thereafter, the Hague received a letter dated March 24, 2010 which gave final notice of the Board’s summary denial of its appeal. (R. 83). The March 24, 2010 letter states that the effective date of decertification is January 1, 2008. (Id.). - 14 - 058613.00000 Business 10688903v2 August 2010 Legislation In August 2010, in response to the Supreme Court’s decision in James Square Assocs. LP, the Legislature again amended the General Municipal Law to, among other things, “clarify” that the 2009 Amendments were intended to be effective for the taxable year commencing on or after January 1, 2008. See L. 2010, Ch. 57, Part R, § 1 (reproduced at R. 151-61). As a result, the following language was added to GML § 959(a): [W]ith respect to any business whose certification has been revoked pursuant to subparagraph five or six of this paragraph, that revocation . . . will be effective for a taxable year beginning on or after January first, two thousand eight and before January first, two thousand nine and for subsequent taxable years . . . . GML § 959(a)(v)(7). ARGUMENT POINT I. The Period of Retroactivity Should be Measured from August 2010 As the Third Department held, the actual period of retroactive application is not the 16 months measured from April 2009, but the 32 months measured from the adoption of the “clarification” in August 2010 back to January 2008. (R. 130); see also Matter of WL, LLC, 97 A.D.3d at 33. The 2009 - 15 - 058613.00000 Business 10688903v2 Amendments do not demonstrate a clear legislative intent that they were to be applied retroactively. Rather, all indications are that the Legislature intended a prospective application. Thus, the August 2010 legislation was not a “clarification,” but a substantive act of legislation, in which for the first time the Legislature provided for retroactive application of the 2009 Amendments. A. The New Eligibility Requirements in the 2009 Amendments Were Intended to be Prospective The general rule in New York is that statutes are presumptively prospective, absent an express legislative intent to the contrary. See, e.g., Morales v. Gross, 230 A.D.2d 7 (2d Dep’t 1997). In Morales, the Court stated: Analysis begins with the well-settled principle that statutes are presumptively prospective in their application absent express legislative intent to the contrary . . . . Indeed, the presumption against retroactive legislation is deeply rooted in our jurisprudence, and embodies a legal doctrine centuries older than our Republic. Elementary considerations of fairness dictate that individuals should have an opportunity to know what the law is and conform their conduct accordingly; settled expectations should not be lightly disrupted . . . . Significantly, the principle requiring a clear legislative expression that retroactive application was intended is an important one, since such a statement constitutes evidence that the Legislature has affirmatively assessed the potential for unfairness created - 16 - 058613.00000 Business 10688903v2 by retroactivity and concluded that it is an acceptable price to pay for the anticipated benefit. 230 A.D.2d at 9-10 (quotations and citations omitted). Here, there is no clear indication that the Legislature intended the decertifications under the 2009 Amendment to be retroactive when it adopted them in April 2009. As set out above, Chapter 57, Part S-1, § 44 lays out the specific dates that certain provisions of the 2009 Amendments were to take effect. For example, § 44(a) states that “sections eleven through twenty-two of this act shall apply to taxable years beginning on and after January 1, 2008.” L. 2009, Ch. 57, Part S-1, § 44(a) (reproduced at R. 116-41). And those provisions that were not specifically called out were subject to the general provision stating that “[t]his act shall take effect immediately . . . .” Id. Nowhere in Section 44 is a specific effective date expressly set forth for the provisions in Section 3, which contains the amendment at issue here — the one-to-one test codified at GML § 959(a)(v)(6). In the absence of an explicit effective date such as those set forth for other provisions of the law, the only reasonable interpretation is that the one-to-one test was to take effect upon the signing of the amendments into law by Governor Patterson — on April 7, 2009. - 17 - 058613.00000 Business 10688903v2 As the Supreme Court, Onondaga County noted in James Square Assocs. LP, “[t]he language and structure of the statute would likely be enough to find in favor of the plaintiffs, but the intent of the Legislature becomes even clearer when the legislative history of the 2009 amendments is given a closer look.” (R. at 148). The legislation as initially introduced by the Governor in his Budget Bill of January 2009 included specific language providing that the new criteria for decertifying a previously certified business would be retroactive to tax years beginning on or after January 1, 2008. (Id.); see also 2009 N.Y. Assembly Bill A00160; 2009 N.Y. Senate Bill S00060. However, the Legislature removed this language before the amendments were signed into law, yet retained express retroactivity language for other provisions in the 2009 Amendments. (R. 116-41). Contrary to the Appellants’ assertions, the failure to enact proposed statutory provisions is a significant factor to consider in discerning legislative intent.2 In Majewski v. Broadalbin-Perth Cent. Sch. Dist., 91 N.Y.2d 577 (1998), 2 The Appellants cite Matter of Grand Jury Subpoena Duces Tecum [Museum of Modern Art], 93 N.Y.2d 729, 738 (1999) for the proposition that legislative intent may be inferred from the omission of proposed substantive changes in the final legislative enactment only if it demonstrates a “clear mandate” from the Legislature. However, relying on Majewski, the case states that “[i]t is well settled that legislative intent may be inferred from the omission of proposed substantive changes in the final legislative enactment . . . .” In reaching its decision, the Court noted that the omitted language in - 18 - 058613.00000 Business 10688903v2 this Court considered whether the amendments to the Workers’ Compensation Law should be retroactively applied to pending actions. Like here, the amendments at issue stated that they were to take effect immediately. Majewski, 91 N.Y.2d at 582. Although this Court noted that the language “take effect immediately” contributed “little to our understanding of whether retroactive application was intended,” it did rely on the Legislature’s failure to enact proposed retroactivity language. This Court stated: Importantly, we note that the initial draft of the Act expressly provided that it would apply to “lawsuit[s] [that have] neither been settled nor reduced to judgment” by the date of its enactment . . . . That language does not appear in the enacted version. A court may examine changes made in proposed legislation to determine intent (see, United States v. St. Paul, Minneapolis & Manitoba Ry. Co., 247 U.S. 310, 318; Woollcott v. Shubert, supra, 217 N.Y. at 221; People v. Korkala, 99 A.D.2d 161, 166 [“rejection of a specific statutory provision is a significant consideration when divining legislative intent.”]) Here, such evidence is consistent with the strong presumption of prospective application in the absence of a clear statement concerning retroactivity. that case, coupled with the language of the statute, “demonstrate[s] a clear mandate from the Legislature.” The case does not stand for the proposition that the omitted language alone must provide the clear mandate. And, in the instant case, as explained herein, there are multiple factors that demonstrate a clear mandate from the Legislature to apply the 2009 Amendments prospectively. - 19 - 058613.00000 Business 10688903v2 91 N.Y.2d at 587 (emphasis and brackets in original). Thus, Majewski is directly on point. In this case, like in Majewski, the failure to enact proposed language on retroactivity is significant evidence of the Legislature’s intent. Moreover, another consideration that (while not dispositive) should be considered on the question of legislative intent is the July 16, 2009 New York State Senate Bill that clarified that the 2009 Amendments were not intended to be applied retroactively. 2009 N.Y. Senate Bill S05598B. That Bill — which passed unanimously — was passed by the same Senate that passed the 2009 Amendments. Thus, it too is evidence of the legislative intent to apply Section 3 of the 2009 Amendments prospectively. Thus, the Appellants’ arguments regarding legislative intent are severely undermined by: (1) the well-settled principle that statutes are presumptively prospective; (2) the 2009 Amendments’ use of express retroactivity language for certain provisions within the law; (3) the 2009 Amendments’ use of the language “shall be effective immediately” for the remaining provisions; (4) the proposed language on retroactivity for Section 3 that was deleted in the final - 20 - 058613.00000 Business 10688903v2 enactment; and (5) the Senate Bill clarifying that it had not in 2009 intended the new criteria to be applied retroactively. Despite all of these factors, the Appellants argue that a clear legislative intent can be inferred from the fact that a January 1, 2008 effective date is necessary to synchronize the timing of the 2009 Amendments with the portions that made corresponding changes to the Tax Law — tax provisions that expressly include an effective date of January 1, 2008. This argument, however, ignores the fact that the Tax Law sections at issue — sections 11 through 22 — apply only to “carry-over” credits. See Tax Law §§ 210, 606, 1456, 1511; L. 2009, Ch. 57, Part S-1, §§ 11-22; 44(a). In this case, the Hague does not seek a declaration that it is unconstitutional to prevent use of carry-over credits from prior tax years into tax year 2008. Instead, the Hague merely sought to use the tax credits that it had earned in 2008, and the instant lawsuit seeks a declaration that it is unconstitutional to deprive it of the use of those vested benefits on a retroactive basis. Thus, the amendments to the Tax Law regarding carry-over credits are a separate matter from the issues in this case that need not be synchronized and certainly do not support an argument that there is clear legislative intent. - 21 - 058613.00000 Business 10688903v2 The Appellants also argue that the Legislature’s intent could be inferred from the fact that retroactive application was necessary to meet revenue projections in the 2009-10 fiscal year. As support, Appellants cite to the 2009-10 Enacted Budget Financial Plan issued on April 28, 2009, after the 2009 Amendments were signed into law. (R. 111-15). Although post-enactment statements of the Governor may be examined in an analysis of legislative intent, this Court has held that such statements suffer from the same infirmities of statements and opinions of legislators uttered in debate, i.e., they represent individual views and are not competent aids to the court in discerning the construction intended by the collective legislative body. Majewski, 91 N.Y.2d at 586-87. In this case, the value of the statements derived from the Financial Plan is minimal. The Legislature neither adopted this document nor endorsed the Governor’s statements therein. Rather, the statements are a summary of the financial aspirations of the Governor and the Director of the Budget. This Court cannot infer a clear legislative intent from these statements. - 22 - 058613.00000 Business 10688903v2 B. The 2010 Amendments Constitute New Legislation for Purposes of Calculating the Period of Retroactivity In light of the foregoing factors, it is clear that the 2009 Amendments were not intended to be applied retroactively. However, the August 2010 Amendments do state a clear intention that the new eligibility criteria, including the one-to-one test, be applied retroactively to June 1, 2008. L. 2010, Ch. 57, Part R, § 1 (reproduced at R. 151-61). But, the August 2010 Amendments stand on their own and cannot correct the unambiguous prospectivity of the relevant 2009 Amendments. As this Court has correctly has noted, “[t]he Legislature has no power to declare, retroactively, that an existing statute shall receive a given construction when such construction is contrary to that which the statute would ordinarily have received.” See Matter of Roosevelt Raceway, Inc. v. Monaghan, 9 N.Y.2d 293, 304 (1961). This fundamental principle of statutory construction bolsters the Third Department’s conclusion in Matter of WL, LLC that the new eligibility requirements were not made retroactive until the passage of the new legislation in August 2010. 97 A.D.3d at 33. Therefore, the period of retroactivity should be measured from August 2010 to January 1, 2008. - 23 - 058613.00000 Business 10688903v2 POINT II. Retroactive Application of the 2009 Amendments to January 1, 2008 Violates Due Process Regardless of how the period is measured, the retroactive application of the 2009 Amendments violates due process. The time period of retroactivity is at a minimum 16 months and a maximum of 32 months. Either time period is excessive given that the amendments changed the standard to be met by the Hague to continue the vested right in its Empire Zone Business Certification. Here, the Appellants concede that the Third and Fourth Departments have held that the retroactive application of the statute’s decertification provisions violates due process. Nonetheless, they urge a different result here. Among the cases cited in support of this conclusion is the Supreme Court’s decision in United States v. Carlton, 512 U.S. 26 (1994). That case, as well as the others relied upon by the Appellants, is distinguishable for several reasons. First, the retroactive amendment to the tax law in Carlton was upheld by the Supreme Court as legitimate because the amendment was intended to correct a mistake in the original tax legislation. Carlton, 512 U.S. at 32. The Supreme Court emphasized that Congress acted promptly in proposing the amendment within a few months of the original enactment and, therefore, the modest retroactivity period of “slightly - 24 - 058613.00000 Business 10688903v2 greater than one year” was appropriate. Id. at 33. To compare, the 2009 Amendments are not meant to correct an error in the original legislation from 2000. Rather, the 2009 Amendments simply represent a change in policy and an effort by the New York State Legislature to address budgetary concerns. Retroactivity in this context is not supported by a legitimate, legislative purpose like the one in Carlton. And the Legislature here did not promptly propose a correcting amendment; the only thing promptly proposed (and ultimately passed by the Senate) was the 2009 bill confirming the intention that the decertifications were not to be given retroactive effect. In addition, Carlton and the other cases relied upon by the Appellants deal with the retroactive elimination of tax deductions that derive from general tax legislation. But, this is not a case simply about the retroactive application of a change in the tax laws. Instead, it is a case in which property interests have been awarded and subsequently denied on a retroactive basis. Both the Third and Fourth Departments have noted this distinction. For example, in James Square Assocs. LP, the Fourth Department stated that “[t]he 2009 Amendments at issue are not, strictly speaking, retroactive tax laws, i.e., they do not retroactively impose - 25 - 058613.00000 Business 10688903v2 a new tax or increase an existing tax.” 91 A.D.3d at 172-73. Likewise, in Matter of WL, LLC, the Third Department held that: We do agree with petitioner that making its decertification retroactive to 2008 and, as a result, depriving it of tax benefits and credits earned during the 2008 tax year, constitutes an unlawful taking of its property without due process of law. Contrary to respondents’ contention, it is petitioner’s certification as a participant in this program — and not the attendant tax benefits and credits — that are at issue in this proceeding and represent a property interest that is entitled to due process protection. 97 A.D.3d at 32. Here, the Hague’s property interest in the benefit is significant because the Empire Zone Business Certification created a sufficiently certain right, unlike promises of tax concessions that exist within general tax legislation that are available to all citizens. Under the statutory framework at issue here, the Hague had to apply for this benefit and, in so doing, prove its eligibility and entitlement to the tax benefits at issue. In that process, the Hague promised to (and did) engage in a series of commercial transactions — purchasing and developing property, leasing space, and hiring employees — in exchange for receipt of an Empire Zone Business Certification. (R. 25-26). The State, in turn, promised tax benefits in - 26 - 058613.00000 Business 10688903v2 reliance on the prospect of economic development in the impoverished areas. The application process, as well as the promises exchanged during that process, created a property interest (a vested right) that is fundamentally different from the tax benefits made available in Carlton. And the Appellants fail to address the New York State case law that is on point. Specifically, in Chrisley v. Morin, 126 A.D.2d 977, 978 (4th Dep’t 1987), the Fourth Department held that status as a Women’s Business Enterprise constituted a property interest which triggers the full protections of due process. The Hague’s Empire Zone Business Certification is analogous. Finally, most of the cases relied upon by the Appellants, including Carlton, deal with federal tax law and the retroactivity analysis used in that arena. Here, the tax issue stems not from federal law, but from New York State law. And the parties agree that the test to be applied under state law is that from Matter of Replan Dev., Inc. v. Dep’t of Hous. Pres. & Dev. of the City of N.Y., 70 N.Y.2d 451, 456 (1987), in which this Court set forth a balancing test to govern the constitutional limitations on retroactive application of a New York State tax law. The Fourth Department recently employed this balancing test in affirming the Onondaga County Supreme Court’s holding that the 2009 Amendments constituted - 27 - 058613.00000 Business 10688903v2 an unconstitutional taking of property. James Square Assocs. LP, 91 A.D.3d at 173-75. Specifically, in James Square Assocs. LP, the Fourth Department quoted and relied on the following analysis from Matter of Replan Dev., Inc.: In reaching the appropriate balance, several factors must be considered. First, and perhaps predominant, is the taxpayer’s forewarning of a change in the legislation and the reasonableness of his [or her] reliance on the old law. This inquiry focuses on whether the taxpayer’s reliance has been justified under all the circumstances of the case and whether his [or her] expectations as to taxation [have been] unreasonably disappointed. The strength of the taxpayers’ claim to the benefit may be significant if he [or she] has obtained a sufficiently certain right to the money prior to the enactment of the new legislation. Additionally, the length of the retroactive period often has been a crucial factor, and excessive periods have been held to unconstitutionally deprive taxpayers of a reasonable expectation that they will secure repose from the taxation of transactions which have, in all probability, been long forgotten. Finally, the public purpose for retroactive application is important because of the taxing authority’s legitimate concern that evasive measures taken after introduction of a bill but before enactment might frustrate the purpose of the legislation. Id. at 173 (quoting Matter of Replan Dev., Inc., 70 N.Y.2d at 456) (brackets and emphasis in original). - 28 - 058613.00000 Business 10688903v2 The Appellants argue that this test supports the conclusion that the retroactive effect of the 2009 Amendments satisfies due process. The Appellants are wrong. The time period at issue, measured from enactment of the 2009 Amendments, is approximately 16 months. If, however, the time period is measured from the August 2010 legislation that expressly provided for retroactivity, the time period is 32 months. Either period is excessive when considered in conjunction with the other factors, i.e., notice and reliance. Reliance is the most significant factor in this analysis and what makes this case different from those relied upon by the Appellants. The Hague has a much stronger claim of reliance than it would if it sought a continuing benefit under a recent amendment to a tax statute of general application. Here, the record demonstrates that the Hague made capital investments in the Empire Zone property in the amount of $5,076,388. (R. 25-41). Moreover, after adding wages and benefits, the Hague’s total remuneration to its employees and investments in its facility during the period of its certification was $5,366,273.00. (Id.). The Empire Zone benefits (a vested right) promised by the Appellants were the material inducement for the Hague’s continued investment in this property. And those - 29 - 058613.00000 Business 10688903v2 benefits were instrumental in attracting tenants to the Hague’s property and obtaining financing for these additional investments. (R. 30). The Appellants argue that the Hague’s reliance upon certification was misplaced because the Certificate of Eligibility warned the Hague that its eligibility would continue only “until terminated by operation of law or by action taken pursuant to such laws, rules and regulations as may be applicable.” (R. 43). However, the Hague never had any indication or expectation that its vested right to those benefits might be revoked retroactively. The Hague maintained its eligibility for tax credits throughout the tax year beginning January 1, 2008 pursuant to the criteria then in effect. At the time the Hague earned revenue in 2008 — and when it filed its tax returns for that year — it justifiably believed that the revenue would be offset at the owner level by the tax credits associated with its Empire Zone Business Certification. The application of the amended legislation to prior tax years is extremely unusual and was not anticipated. In fact, the 2009 Amendments did not reveal an intent to apply the law retroactively. And even when the Legislature first introduced additional certification criteria four years earlier, in 2005, it intended for the additional criteria to apply only to new entities seeking admission to the Empire Zones Program — not to entities already certified. Matter - 30 - 058613.00000 Business 10688903v2 of WL, LLC, 97 A.D.3d at 33 (citing L. 2005, Ch. 63, § 1 Part A, § 5 [Part W]; § 33). The Hague therefore had every right to rely on its Certificate of Eligibility. In addition, much of the Hague’s tax planning initiatives and budgeting relied upon its long-standing Empire Zone Business Certification and the associated tax benefits. The use of all revenue earned during that time frame was based on the assumption that some portion thereof would be offset by the tax credits guaranteed by the Empire Zone Business Certification. Under these circumstances, the tax credits “induced action in reliance thereon [and thus] . . . may not be invalidated by subsequent legislation.” People v. Brooklyn Garden Apartments, Inc., 283 N.Y. 373, 380 (1940) (citing People ex rel. N.Y.C. & H.R.R.R. Co. v. Mealey, 224 N.Y. 187, 196 (1918)). Finally, the Appellants argue that revenue generation is a legitimate public purpose that justifies the retroactive application of the 2009 Amendments. Although that might be true with respect to a tax statute of general application, here the Hague was induced to locate and improve its facility in an impoverished community. Thus, the Hague had a vested right in its business certification. The Hague’s reliance on tax benefits for the tax years ending in 2008 and 2009 is so - 31 - 058613.00000 Business 10688903v2 significant that it should not be undermined absent a more compelling threat to the public good. Indeed, in James Square Assocs. LP, the Fourth Department held that the State’s realization of additional revenue was insufficient to justify the inequity visited upon the plaintiffs when their Empire Zone Business Certifications were retroactively revoked. 91 A.D.3d at 174. Likewise, in Matter of WL, LLC, the Third Department held that generating additional revenue “standing alone cannot justify governmental appropriation of private property.” 97 A.D.3d at 33. Here too, that justification by the Appellants, balanced against the inequity to the Hague, is insufficient. However, in an effort to bolster its argument, the Appellants now argue that the 2009 Amendments were enacted to correct long-documented abuses by Empire Zones Program participants. But, in this case, there has been no allegation that the Hague was ineligible to participate under the criteria in existence prior to 2009 or that it abused the Program in any manner. In fact, it is undisputed that the Hague met the criteria for Program participation. Nor are there facts to support the suggestion that the 2009 Amendments were meant to correct supposed abuses of other Program participants. For example, this is not a situation in which the legislation foreclosed loopholes and/or conduct that was deemed to be - 32 - 058613.00000 Business 10688903v2 evasive or abusive. Rather, the legislation was adopted solely as part of a record overdue budget process and was only intended to raise revenue. Balancing the budget is not a valid public policy rationale for retroactivity. For these reasons, this Court must conclude that retroactive application of the 2009 Amendments offends constitutional limits, especially when the eliminated tax credits are ones which might assert significant influence on business transactions which occurred in the past. - 33 - 058613.00000 Business 10688903v2 CONCLUSION The Appellate Division for the Third Department correctly held that the period of retroactivity must be measured from August 2010 rather than April 2009, and that the decertification of the Hague may not be applied retroactively. Thus, the Third Department’s decision should be affirmed by this Court. Dated: Albany, New York January 10, 2013 HODGSON RUSS LLP Attorneys for Petitioner-Respondent By:________________________________ Michelle L. Merola Christopher L. Doyle Hodgson Russ LLP 677 Broadway, Suite 301 Albany, New York 12207