In the Matter of J-P Group, LLC, Respondent,v.New York State Department of Economic Development, et al., Appellants, et al., Respondent.BriefN.Y.April 23, 2013To be Argued by: JENNIFER C. PERSICO, ESQ. (Time Requested: 20 Minutes) Court of Appeals of the State of New York In the Matter of the Application of J-P GROUP, LLC, Petitioner-Respondent, – against – NEW YORK STATE DEPARTMENT OF ECONOMIC DEVELOPMENT, EMPIRE STATE DEVELOPMENT CORPORATION, COMMISSIONER OF ECONOMIC DEVELOPMENT, DENNIS MULLEN, EMPIRE ZONE DESIGNATION BOARD, Respondents-Appellants. BRIEF FOR PETITIONER-RESPONDENT MOSEY PERSICO, LLP Attorneys for Petitioner-Respondent J-P Group, LLC 625 Delaware Avenue, Suite 304 Buffalo, New York 14202 Telephone: (716) 882-4890 Facsimile: (716) 882-5240 Of Counsel: Shannon M. Heneghan, Esq. Jennifer C. Persico, Esq. August 15, 2012 TABLE OF CONTENTS Table of Authorities ………………………………………………………… ii Corporate Disclosure Statement ……………………………………………. 1 Preliminary Statement ………………………………………………………. 2 Statement of the Case ……………………………………………………….. 3 Decisions Below …………………………………………………………….. 8 Issue Presented …………………………………………………………….. 9 Argument …………………………………………………………………... 10 The Retroactive Application of the 2009 Amendments Of General Municipal Law Violates Respondents Due Process A. Respondent Properly Relied Upon The Empire Zone Certification And Appellant Cannot Demonstrate Respondent Was Forewarned Of A Change In General Municipal Law ………………………………. 14 B. The Retroactivity Period is Excessive …………………………….. 19 C. The Amendments Do Not Serve As Valid Public Purpose ………… 23 Conclusion ………………………………………………………………….. 26 (i) TABLE OF AUTHORITIES CASES: Astoria Fed. Savings & Loan Ass’n v. State of New York, 222 A.D.2d 36 (2d Dept. 1996) ………………………….. 22 Canisius College v. United States of America, 799 F.2d 18 (2d Cir. 1986) ………………………………. 21 Chrisly d/b/a Lynde Enterprises v. Morin et al., 126 A.D.2d 977 (4 th Dept. 1987) …………………………. 17 Chrysler Properties, Inc. v. Morris, et al., 23 N.Y.2d 515, 522 (1969) ……………………………….. 11, 13, 20, 25 Hague Corporation v. Empire Zone Designation Board, 947 N.Y.S.2d 622 (3 rd Dept. 2012) ……………….……… 14, 16 Holly S. Clarendon Trust v. State Tax Comm., 43 N.Y.2d 933, 935 (1978) ……………………………….. 16, 21, 25 J-P Group v. New York State Department of Economic Development, et al., 91 A.D.3d 1363, 1364 (2012). …………………………… 2, 8, 17 Jacobus v. Colgate 217 N.Y. 235 (1916), …………………………………………… 12 James Square Associates LP et al. v. Mullen et al., 91 A.D.3d 164 (4 th Dept.) (2011) …………………………….. 8, 12, 16, 20, 23 James Square Associates LP et al. v. Mullen et al., Index No.: 09-06192 ……………………………………………. 5 Morris Builders v. Empire Zone Designation Board, 95 A.D.3d 1381 (3 rd Dept. 2012) ………………………………. 14, 16, 21 Neuner v. Weyant, 63 A.D.2d 290, 300 ………………………………………….….. 13, 24 (ii) People v Brooklyn Garden Apartments, Inc., 283 N.Y. 373 (1940) ………………………………………….… 20 Replan v. Department of Hous. Preservation and Dev. Of City of New York et al., 70, N.Y.2d 451, 456 (1897) …………………………11, 13, 15, 18, 19, 20, 24 Tate & Lyle, Inc. v Commissioner of Internal Revenue, 87 F.3d 99 (3d Cir. 1996) ……………………………………. … 21 United States v. Hudson, 299 U.S. 498 (1937) ………………………………………….… 13 Welch v. Henry, 305 U.S. 134 (1938) …………………………………………….. 12 WL, LLC v. Department of Economic Development, 97 A.D.3d 24 (3 rd Dept. 2012) …………………………………… 14, 16, 24 STATE STATUES: C.P.L.R. Article 78 ………………………………………………………… 2, 7, 8 GENERAL MUNICIPAL LAW Article 18-B ……………………………………………………… 12 §956 …………………………………………………………… 4, 10, 11, 23 §957(e) …………………………………………………………… 3 §959 ……………………………………………………… ...2, 4, 5, 8, 14, 19 §959(a) …………………………………………………………. .. 5 §959(a)(v)(5) …………………………………………………….. 12 §959(a)(v)(6) …………………………………………………….. 7, 12 TAX LAW §618 ……………………………………………………………… 16 L. 2009, ch. 57, Part S-1 §44 ………………………………………………………………... 12 (iii) L. 2010, ch. 57, Part R §1 ………………………………………………………………… 6, 20 MISCELLANEOUS Office of the State Comptroller-Division of Local Government and School Accountability, The Effectiveness of Empire Zones: Follow-up Report, 2007-MS-2(2007) available at: www.ocs.state.ny.us/localgov/audits/swr/empiresones.pdf ........... 18, 19 Joint Budget Hearing of the Assembly Ways and Means Committee and the Senate Finance Committee on the Economic Development and Taxes Budget for Fiscal Year 2008-09 (attached as an addendum to Appellants Brief) …………………………………………………… 17, 18 Assessing the Empire Zones Program, April 2004, Report 3-2005 Available at: www.osc.state.ny.us/reports.empirezone2-2005.pdf .. 18 (iv) 1 CORPORATE DISCLOSURE STATEMENT PURSUANT TO COURT OF APPEALS RULES 500.1(C) J-P Group, LLC does not hold any direct or indirect interests in subsidiaries nor have a holding/parent company. It is affiliated with 2468 group, Inc. and 8246 Group, Inc. 2 PRELIMINARY STATEMENT Petitioner/Respondent, J-P GROUP, LLC (hereinafter “Respondent”) brought an Article 78 proceeding pursuant to the CPLR seeking an order annulling the Appellants’/Respondents’ (hereinafter “Appellants”) revocation of the certification of Petitioner as an Empire Zone certified business and reinstating its certification as an Empire Zone certified business. The case was heard by the Hon. Joseph R. Glownia, who ultimately granted J-P Group, LLC’s request executing an Order on August 25, 2010 granting the Article 78 Petition in all respects. (R.7-9). Appellants appealed that decision and the Appellant Division Fourth Department issued a decision affirming the decision in part in that the amendments to General Municipal Law §959 are prospective only. ( 562). See, Matter of J-P Group v New York State Department of Economic Development et al., 91 A.D.3d 1363,1364 (2012). Appellants now appeal to this Court to reverse that part of decision of the Appellate Division, Fourth Department. 3 STATEMENT OF THE CASE Respondent is a limited liability company with its principle place of business located in Buffalo, New York. Appellant, New York State Department of Economic Development, is a New York State agency charged with the oversight of economic development in New York State; Appellant, Commissioner of the Department of Economic Development, Dennis Mullen (acting) is the head of the New York State Department of Economic Development and is charged with implementing the laws, policies and procedures relative to economic development in New York State; Respondent, Empire Zone Designation Board, is the Board charged with administering the Empire Zone Program in New York State pursuant to General Municipal Law §957(e). In order to promote the development of new businesses, the expansion of existing businesses, and the development of human resources within certain areas characterized by persistent and pervasive poverty and high unemployment, the New York State Legislature declared a public policy of the State “to target for these areas extraordinary economic and human resource development programs in order to stimulate private investment, private business development and job creation. It is the public policy of the state to offer special incentives and assistance...It is further declared that it is the public policy of the state to achieve 4 these goals through the mutual cooperation of all levels of state and local government and the business community.” See, General Municipal Law §956. The New York State Legislature effectuated that policy by creating Empire Zones within the State and providing qualified business enterprises various tax benefits in return for creating and maintaining jobs and investing capital in those Empire Zones. Businesses qualified as Empire Zone Business Enterprises, through an application process wherein the Department of Economic Development for the State of New York reviewed the applicants’ proposed job creation and/or investment plan in the Empire Zone versus the total tax benefit to the enterprise. The original qualification criteria did not utilize any specific ratio of job creation and/or investment versus tax benefit to the businesses. Respondent was certified as a Qualified Empire Zone Enterprise (“QEZE”) in accordance with previously enacted General Municipal Law §959 on March 19, 2002. (R. at 13-14, 31). The primary purpose behind Respondent’s business is to own and manage commercial rental properties within these Empire Zones areas as designated by New York State. Respondent was further approved to receive sales and use tax exemptions on purchases of certain property and services effective on August 1, 2002. (R. at 33). Pursuant to the requirements of the applicable legislation, as a QEZE, Respondent was required to submit a Business Annual Report every year setting forth business information, employment numbers, capital investment and 5 tax benefits. Respondent timely submitted the reports each year since its certification in 2002 and remained a certified business. (R. at 13-15). On April 7, 2009, the Legislature enacted amendments to General Municipal Law §959. The 2009 amendments were part of complex legislation aimed at attempting to balance the 2009-2010 New York State Budget. In relevant part, these amendments imposed additional standards that had to be met in order for a business to retain certification to participate in the program and remain eligible for its tax benefits. These standards were not part of the prior legislation and therefore Respondent was not required to meet these standards in past years. Notably, in 2005, the Legislature amended this same statute but the amendments only applied to new applicants to the program as opposed to current certified participants. Following a decision by the Onondaga Supreme Court in June of 2010 in James Square Associates LP et al. v Mullen et al., Index No. 09-06792 (R. at 541- 549), the Legislature again amended the relevant statutes of the General Municipal Law providing in part that it is the intent of the Legislature to clarify and confirm that the amendments made in 2009 are intended to be effective for the taxable year commencing on or after January 1, 2008. In addition, the Legislature further added the following language to General Municipal Law §959(a) “with respect to any business whose certification has been revoked pursuant to subparagraph five or six of this paragraph…that revocation 6 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…”. See, L. 2010, ch. 57, Part R. §1. In the instant case, on or about June 29, 2009, Respondent received correspondence from Empire State Development indicating that the Commissioner of the Department of Economic Development (“DED”) was revoking its certification as an Empire Zone Certified Business. The above correspondence indicated that if Respondent “appeals its revocation determination, as set forth below, the revocation shall not be implemented unless the Empire Zone Designation Board renders a decision to uphold the Commissioner’s determination”. (R. at 49-50). On or about July 15, 2009, Respondent appealed to the Empire Zone Designation Board. (R. at 52). On or about August 20, 2009, Respondent sent correspondence directly to Dennis Mullen, Acting Commissioner of the DED, requesting that he re-certify Respondent in accordance with its history of meeting all applicable requirements of the Empire Zone, including the employment test. Thereafter, on or about August 25, 2009, Respondent submitted correspondence and additional documentation in support of its appeal and in accordance with the prescribed procedures. (R. at 54-72). 7 On March 24, 2010, Empire State Development, through the Empire Zone Designation Board, issued a response to the Respondent’s appeal of the Notice of Revocation dated June 29, 2009. The March 24 th correspondence more specifically stated as follows: “Please be advised that pursuant to Chapter 57 of the Laws of 2009, the Empire Zones Designation Board (EZDB) is charged with the responsibility of hearing such appeals. On march 11, 2010, the EZDB met to complete its review of your appeal and determined that your appeal failed to provide sufficient evidence to demonstrate that the Commissioner’s finding, which resulted in revocation of your business certification under General Municipal Law §959(a)(v)(6) was in error. The EZDB then unanimously passed Resolution 3 of 2010, upholding the revocation of J-P Group for failing to provide economic returns in the form of wages (including fringe benefits) and capital investments greater than the tax benefits the business was receiving.” (R. at 74). Respondent filed an Article 78 by way of order to show cause on April 26, 2010 alleging that Appellants’ revocation of its certification as a QEZE was made in violation of lawful procedure, was affected by an error of law, arbitrary and capricious, an abuse of discretion, and in violation of Respondent’s constitutional rights. Further, Respondent argued that the rules relied upon by Appellants in revoking Respondent’s certification were in violation of the State Administrative Procedures Act and therefore null and void. (R. at 10-75). 8 DECISIONS BELOW Supreme Court Justice Joseph R. Glownia granted Respondents’ Article 78 in its entirety. More specifically, the Court ordered that the 2009 amendments were not retroactive; the rules and regulations promulgated by Respondents were improperly filed seriatim and were defective; the decertification of [Respondent] was arbitrary and capricious and the decertification was declared to be null and void. In addition, Judge Glownia held that the amendments are not to be applied retroactive. (R. at 7-9). On appeal, the Appellate Division, Fourth Department affirmed that part of the Trial Court’s Order that held that the amendments to General Municipal Law §959 are prospective only. (R. at 562). The Fourth Department followed its holding in James Square Associates LP et al. v. Mullen et al., 91 A.D.3d 1363, 1354 (2011), in its decision in the instant case. Matter of J-P Group v. New York State Department of Economic Development et al., 91 A.D.3d 1363, 1364 (2012). 9 ISSUE PRESENTED 1. WHETHER THE APRIL, 2009 AMENDMENT PROVIDING FOR THE DE-CERTIFICATION OF THE EMPIRE ZONE PARTICIPANTS WERE TO BE APPLIED PROSPECTIVELY. A. Yes, the lower courts properly held that the April, 2009 amendments were to be applied prospectively from the April 7, 2009 enactment date of those amendments. 10 ARGUMENT THE RETROACTIVE APPLICATION OF THE 2009 AMENDMENTS VIOLATES THE DUE PROCESS CLAUSE The Fourth Department properly held in this case as well as in James Square, supra, that the retroactive application of the amendments to General Municipal Law to previously certified Empire Zone businesses violates due process rights. The primary purpose of the Empire Zone program was to stimulate economic growth through a variety of tax incentives designed to attract new business to New York and to invite existing businesses to expand and create jobs. The history of New York General Municipal Law §956 found that within the state, there are areas characterized by persistent and pervasive poverty, high unemployment, limited new job creation, dependence on public assistance, dilapidated and abandoned industrial and commercial facilities and a shrinking tax base. These severe conditions require state government to target these areas with extraordinary economic and human resource development programs in order to stimulate private investment, private business development and job creation. The Legislature intended to offer special incentives and assistance to promote the development of new businesses, the expansion of existing businesses, and the development of human resources within these economically impoverished areas. 11 The Legislature declared that it is the public policy of the state to achieve these goals through mutual cooperation with government and the business community. See, General Municipal Law §956. To permit the application of the amendments to the General Municipal Law in a retroactive fashion would be in direct contradiction to the Legislatures statement of findings and declaration. Respondent has been a certified business operating in the Empire Zone since 2002 (R. at 30-32). Prior to June of 2009, Respondent was never informed or put on notice that it was not providing sufficient wages and/or investment in the zone. Only after the Legislature changed the rules of the game through the April of 2009 amendments did Respondent receive notice from Appellants indicating that its Empire Zone certification was to be revoked. (R. at 48). In fact, not only did the amendments change the standard to be applied, those new standards were applicable to the prior year and the tax and other financial consequences therefrom to be applied retroactively to 2008. This Court has held that “we have all been raised in a legal tradition which finds retroactive legislation distasteful.” Matter of Chrysler Properties, Inc. v Morris, et al. 23 NY2d 515,522 (1969). “Whether the retroactive application of a tax statute is harsh and oppressive is a question of degree requiring a balance of the equities.” Matter of Replan v Department of Hous. Preservation and Dev. of City of New York et al., 70 N.Y.2d 451 456 (1987)(citations omitted). Those 12 circumstances where retroactive application of a statute is permissible are held to a high standard and the time period must be short and must not be as harsh as to violate constitutional rights. See, Welch v Henry, 305 U.S. 134 (1938). Further, the general rule is that statutes are to be construed as prospective only and it takes a clear expression from the Legislature to justify a retroactive application. See, Jacobus v Colgate, 217 N.Y. 235 (1916). In the instant case, there is no clear indication in the 2009 amendments that the Legislature intended retroactive application. In fact, pursuant to Article 18-B of the General Municipal Law the 2009 amendments were to take effect immediately. See, Chapter 57, Part S-1, §44. In James Square, supra, the Honorable John C. Cherundolo opined that: “the 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. The 2009 amendments, as originally introduced to the Legislature in the Governor’s 2009-2010 Budget Bill, actually included specific language providing that the new criteria laid out in §§959(a)(v)(5) and 959(a)(v)(6) was to be applied retroactively back to January 1, 2008. However, the Legislature removed this language from these provisions before the amendments were signed into law. As plaintiffs point out, even Governor Patterson acknowledged the absence of retroactive language in these provisions as his Budget Bill for 2010-2011 contains the same retroactive language originally in the proposed 2009-2010 Budget Bill in an attempt to rectify the fact that the Legislature did not previously provide for retroactive decertification from the Empire Zone Program.” 13 (R. at 546-547). It is clear that the intent of the Legislature was that these amendments are prospective and not to be applied retroactively. {quote abt judge changing legislature intent} In Replan, supra, this Court held that in order to balance the equities of whether the retroactive application of a tax statute is in violation of due process, several factors must be considered. First is the taxpayer’s forewarning of a change in the legislation and the reasonableness of his reliance on the old law. Replan v. Department of Hous. Preservation and Dev. of City of New York et al., 70 N.Y.2d 451, 456 (1987) citing Matter of Chrysler Props. V Morris, 23 N.Y. 2d 515,521; Matter of Neuner v Weyant, 63 A.D.2d 290, 300, supra; see also, United States v Hudson, 299 U.S. 498. A Court’s inquiry should focus on whether the taxpayer’s reliance on the old law has been justified under all the circumstances of the case and whether those expectations as to taxation would cause a taxpayer to be unreasonably disappointed. Id. at 456 (citations omitted). This Court further opined that the strength of the taxpayer’s claim to the benefit may be significant if he has obtained a sufficient right to the money prior to the new legislation. Secondly, the length of the retroactive period is a factor in determining whether a retroactive tax statute is proper. Courts have found that excessive periods of time unconstitutionally deprive taxpayers of a vested right. The final 14 factor to be considered is whether the retroactive application serves a valid public purpose that outweighs the harshness of a retroactive statute. Id. at 456-457. In the instant case, applying the facts to those factors set forth by this Court the decision by the Fourth Department that retroactive application was prohibited and in violation of due process, as well as the decisions of Third Department in Matter of Hague Corporation v Empire Zone Designation Board, 947 N.Y.S.2d 622 (3 rd . Dept 2012) and Matter of Morris Builders v Empire Zone Designation Board, 95 A.D.3d 1381(3 rd Dept. 2012) and Matter of WL, LLC v Department of Economic Development, 97 A.D.3d 24 (3 rd . Dept, 2012), are proper and should be affirmed. A. Respondent properly relied upon the Empire Zone Certification And Appellant Cannot Demonstrate Respondent Was Forewarned Of A Change In General Municipal Law Respondent was certified as a Qualified Empire Zone Enterprise in accordance with the previously enacted General Municipal Law §959 as of March 19, 2002. Respondent was further qualified and approved to receive sales and use tax exemptions on the purchase of certain property and services to be used or consumed within the Empire Zones. (R. at 31-33). Respondent properly relied upon these certifications to conduct and plan the operation of its business. In determining whether a retroactive is permissible, the first factor to be considered is whether the taxpayer was forewarned of a change in the legislation 15 and whether his reliance on the old law was reasonable. See, Replan, supra, at 487. Respondent has been certified since 2002 and during its time of certification fully complied with the rules and regulations then in place to continue receiving its certification and the resultant exemptions attached thereto. Not until June of 2009 did Respondent receive any notice from Appellants that there may be an issue going forward with certification. At that point, Respondent had been operating its business in keeping with the certification requirements under the existing law. These same laws were amended in 2005 and those amendments were only applicable to new participants, not to current certificate holders. Thus, Respondents reliance on the pre-amendment laws was proper. The 2009 amendments imposed new standards on Respondent and others similarly situated that were to be applied to the operation of Respondents’ business. Appellants’ argue that Respondents should have applied the 2009 standards to its business plan in 2008. Appellants’ argument is without merit. By fully complying with the existing laws, Respondents received certification benefits since 2002 and there was no reason for Respondent to believe that it would not continue to enjoy those benefits as long as it continued to operate its business in compliance with the existing law. In the most recent cases from the Third Department regarding challenges by decertified Empire Zone participants, the Court opined that petitioners could not 16 have anticipated that the program rules regarding certification would be changed and had every reason to assume that it would continue to enjoy the benefits of certification so long as they continued to comply with the existing provisions in the law. See, Matter of Hague Corporation v Empire Zone Designation Board, 947 N.Y.S.2d 622 (3 rd Dept. 2012) and Matter of Morris Builders v Empire Zone Designation Board, 95 A.D.3d 1381(3 rd Dept. 2012) and Matter of WL, LLC v Department of Economic Development, 97 A.D.3d 24 (3 rd . Dept. 2012). In Holly S. Clarendon Trust, 43 N.Y.2d 933 (1978), relied upon by the Third Department in support of its recent decisions, this Court held Section 618 of the Tax Law unconstitutional as it applied retroactively to 1972 income tax liability of plaintiff, while retroactivity provisions, if for a short period of time, are generally valid, the lack of a persuasive reason for the retroactivity given its potentially harsh effects offends constitutional limits especially when the tax exerts significant influence on personal or business transactions. Id. at 935-936. In the instant case, the retroactive application of these amendments exerts significant influence on Respondents business as to deprive it of earned tax benefits. In James Square Associates LP v. Mullen et al, 91 A.D.3d 164 (4 th Dept. 2011) and the instant case, the Fourth Department opined that those petitioners did not have any warning that the criteria for certification of Empire Zones’ businesses were going to change prior to 2009 and were induced to conduct their business in a 17 particular way in reliance upon the Empire Zones’ tax credits. Matter of J-P Group v New York State Department of Economic Development et al., 91 A.D.3d 1363, (4 th Dept. 2012), see also Chrisly d/b/a Lynde Enterprises v. Morin et al., 126 A.D.2d 977 (4 th Dept. 1987). [petitioner did not receive notice that her certification was in jeopardy prior to her decertification]. Appellants attempt to make up for the failure to put Respondent on notice of a change in the law by pointing to the Joint Budget Hearing of the Assembly Ways and Means Committee and the Senate Finance Committee on the Economic Development and Taxes of Fiscal Year 2008-09 (hereinafter “Joint Budget Hearing”) and by Comptroller reports from 2004 and 2007. See, Appellants Brief at 30-31. At the Joint Budget Hearing, Chairman Foye of the Empire State Development Corporation indicated that letters were sent to certain certified businesses in January of 2008, Respondent was not one of those businesses who received correspondence in 2008 regarding decertification. (R. at A10). The first notice Respondent received was not until June of 2009. Thus, it was not reasonably foreseeable to this Respondent that the laws it relied upon in the operation of its business since 2002 would change. Further, even the elected government officials running the hearing were unable to obtain the list of companies who received correspondence, so it is impossible to 18 believe that Respondent would have been privy to that information. See, Joint Budget Hearing at 78-83. Appellants also point to reports issued by the New York State Office of the Comptroller in 2004-2007. See, Appellants’ Brief at 30-31. Both of these reports highlight that the fundamental flaws in the Program are the lack of reliable data and that evidence of the Program’s success has remained elusive. See, Assessing the Empire Zones Program, April 2004, Report 3-2005 at page 1, available at www.osc.state.ny.us/reports.empirezone3-2005.pdf. The report further indicated that the local zone and state oversight boards are unclear as to their own responsibilities in administering the Program so that there is no consistently reliable data throughout the state. A general review of this report and demonstrates that the concern of the Comptroller’s office was the lack of data collected and available by local and State Empire Zone offices. The Comptroller’s report of 2007 referenced by Appellants found that Zone office made only limited progress implementing the recommendations of the Comptroller’s 004 Report and that Zone offices failed to receive criteria from Appellants on performance assessment to be reviewed. See, Office of the State Comptroller-Division of Local Government and School Accountability, The Effectiveness of Empire Zones: Follow-up Report, 2007-MS-2(2007) available at www.osc.state.ny.us/reports/empirezones.pdf at page 6 and 21. Thus, these reports 19 in no way demonstrate that this Respondent was on notice of a future change in the standards to be met to remain certified. Based on the aforementioned and the record before this Court, Respondent submits that the Fourth Department was correct in affirming the lower court as to the first factor to be considered under Replan, supra. More specifically, Respondent properly relied upon the existing statutory requirements and did not have notice that such a drastic change to the standards of General Municipal Law would be forthcoming. B. The Retroactivity Period is Excessive The second factor to be considered is the length of the retroactive period. Excessively long periods have been held unconstitutional. See, Replan v. Department of Hous. Preservation and Dev. of City of New York et al., 70 N.Y.2d 451 (1987). In the instant case, the period of retroactivity combined with the harsh and oppressive nature of the retroactive application led the Fourth Department to hold that the retroactive application of the 2009 amendments violates Respondents’ due process rights. On April 7, 2009 the Legislature enacted amendments to General Municipal Law§959 as part of legislation aimed at attempting to balance the New York State budget. Those amendments imposed additional standards on businesses certified as Empire Zone. In August of 2010, the Legislature again amended the relevant 20 statutes in an attempt to clarify that the 2009 amendments were effective for the taxable year of 2008. See, L. 2010, ch. 57, Part R, § 1. The time period at issue in the instant case is at a minimum approximately 16 months and at the outset, 32 months from January 2008 to the August 2010 amendments. Either time period is excessive given that the amendments changed the standard to be met by Respondent to continue its eligibility as a certified business. Respondent was notified of decertification in June of 2009, well after the taxable year for 2008 came to an end. As such, Respondent had already been induced to conduct its business in such a way in 2008 as to comply with the then existing requirements to obtain the tax benefits. By the time of the first amendments in April of 2009, Respondent had obtained a sufficiently certain right to the benefits. In Replan v. Department of Hous. Preservation and Dev. of City of New York et al., 70 N.Y.2d 451 (1987), this Court opined that the strength of the taxpayer’s claim to the benefit may be significant if he has obtained a sufficiently certain right to the money prior to the enactment of the new legislation. Id. at 488, citing, Matter of Chrysler Properties, Inc. v Morris, 23 N.Y.2d 515 (1968); see also, People v Brooklyn Garden Apartments, Inc., 283 N.Y. 373 (1940) [exemptions from taxation which have induced action in reliance thereon, may not be invalidated by subsequent legislation]. 21 Respondent continuously maintained its eligibility for certification since 2002, including during the year of 2008, based on the standards set forth in the then existing laws. Respondent was further induced by Appellants to operate its business in such a way in specified disadvantaged areas in reliance upon the Empire Zones’ tax credits. See, James Square, supra. The retroactive application of these amendments constitutes an unlawful taking of Respondents’ property thereby violating its right to due process. Matter of Morris Builders v Empire Zone Designation Board, 95 A.D.3d 1381 (3 rd Dept. 2012); see also Holly S. Clarendon Trust, supra. Appellants rely on various cases in support of their argument that the period of time was not excessive as to be harsh and oppressive but each case is distinguishable from the facts in the instant case. For example, Tate & Lyle, Inc. v Commissioner of Internal Revenue, 87 F.3d 99 (3d Cir. 1996) dealt with the retroactive application of a regulation, not a statute which is distinguishable from this case. In fact, the Third Circuit made that distinction in its opinion. Id. at 107. In Canisius College v United States of America, 799 F.2d 18 (2d Cir. 1986), the college did not have a vested right in the FICA taxes that would be impaired by retroactive application of the provision that merely ratified past action of the defendant. In the instant case, Respondent operated its business in 2008 to earn the 22 tax benefit in compliance with the existing standard and as such, had a vested interest and earned the benefit before the enactment of the new standard. Appellants also rely on Astoria Fed. Savings & Loan Ass’n v State of New York, 222 A.D.2d 36 (2d Dept. 1996). The plaintiff in Astoria, supra, did not claim its exemption immediately but rather waited 7 years before attempting to receive a refund of the monies paid to the defendant over time as a matter of course. The Second Department held that there was no detrimental reliance, justifiable or otherwise by that plaintiff on an exemption, unlike the facts in this case. Here, Respondent was claiming benefits immediately upon receipt of its certification in 2002 and continued to plan for and operate its business with the expectation that it would receive the statutory benefits. To apply these benefits retroactively would be so harsh and oppressive as to transgress constitutional limitations by depriving Respondent of benefits earned prior to the enactment of the amendments. Respondent did not merely rely on a benefit from a tax statue but conducted its business as to conform to the standard set forth in the statutes. It would have been impossible for Respondent to conduct its business in 2008 to a standard not yet even designed. As such, the period of retroactivity is excessive and the application back to January of 2008 is harsh and oppressive as set forth above and a violation of Respondents’ due process rights. 23 C. The Amendments Do Not Serve a Valid Public Purpose Appellants argue that the amendments to the General Municipal Law serve a valid public purpose in attempting to correct long documented abuse by Program participants and to provide New York State with approximately $90 million in savings for the year 2009-2010. See, Appellants’ Brief at 35. However, Appellants have failed to offer a valid public purpose that outweighs the prejudice Respondent will suffer should these amendments be applied retroactively. As the Court is aware, the primary purpose of the Empire Zone Program was to stimulate economic growth through a variety of tax incentives designed to attract new business to New York and to invite existing businesses to expand and create jobs. The Legislature planned to achieve these goals through mutual cooperation between the government and the business community. Respondent and others similarly situated were invited to invest in disadvantaged areas characterized by persistent and pervasive poverty, high unemployment, and limited new job creation, a dependence on public assistance, abandoned industrial and commercial facilities and shrinking tax bases. In exchange for those investments, Respondent was promised special incentives and assistance. See General Municipal Law §956. Appellants designated the standards to be met by Respondent in the operation of its business for Respondent to remain certified. 24 Appellants now argue that long term abuses by Program participants constitutes a valid public purpose to amend the statute and take away benefits previously earned by Respondent. However, at no time has Respondent been informed by Appellants that there was any misconduct or abuse of the Program by this Respondent. Appellants have failed to identify what legitimate public purpose is served by retroactive application of the 2009 amendments. The Fourth Department has held that “this is not a situation in which evasive measures taken after introduction of a bill but before enactment might frustrate the purpose of the legislation.” Further, Respondent was powerless to alter the conduct of its business for the tax year that ended before the amendments were introduced in 2009. James Square, supra at 174 citing Matter of Neuner v. Weyant, 63 A.D.2d 290, 302, 408 N.Y.S.2d 89 (1978), appeal dismissed, 48 N.Y.2d 975, 425 N.Y.S.2d 1030 (1979) and Replan Dev., 70 N.Y.2d at 456. Retroactive application of the 2009 amendments would deprive Respondent of tax credits and benefits legitimately earned and while it may generate additional revenue for the state, this alone cannot justify the governmental appropriation of private property. Matter of WL, LLC v. Department of Economic Development, 97 A.D.3d 24 (3 rd Dept. 2012). Judge Kavanagh of the Third Department also wrote that “it is difficult to understand how making this statute retroactive could act to 25 address problems in the EZP that may exist, or more importantly, how that objective could possibly be served by severely penalizing an entity that has faithfully complied with the requirements of the program and legitimately earned its tax credits.” Id. at 24. The absence of a persuasive reason for retroactivity, with its potentially harsh effects, offends constitutional limits, especially when the tax imposed will exert significant influence on personal or business transactions as in the instant case by depriving Respondent of earned benefits. See, Holly S. Clarendon Trust v. State Tax Comm. 43 N.Y.2d 933, 935 (1978) and Matter of Chrysler Properties, Inc. v. Morris, et al, 23 N.Y.2d 515, 522 (1969). There is no valid public purpose in applying these amendments in a retroactive fashion which outweighs the significant prejudice suffered by Respondent and others similarly situated. 26 CONCLUSION In light of the facts and circumstances herein, Respondent respectfully submits that allowing the amendments to be applied retroactive to 2008 would be harsh and oppressive and violate Respondent’s due process rights. The Fourth Department’s decision that the April of 2009 amendments are to be applied prospective only should be affirmed by this Court. Dated: August 15, 2012 Buffalo, New York Respectfully Submitted, Mosey Persico, LLP By: _________________________ Shannon M. Heneghan, Esq. Attorneys for Petitioner-Respondent 625 Delaware Avenue, Suite 304 Buffalo, New York 14221 (716) 882-4890 26 CONCLUSION In light of the facts and circumstances herein, Respondent respectfully submits that allowing the amendments to be applied retroactive to 2008 would be harsh and oppressive and violate Respondent’s due process rights. The Fourth Department’s decision that the April of 2009 amendments are to be applied prospective only should be affirmed by this Court. Dated: August 15, 2012 Buffalo, New York Respectfully Submitted, Mosey Persico, LLP By: _________________________ Shannon M. Heneghan, Esq. Attorneys for Petitioner-Respondent 625 Delaware Avenue, Suite 304 Buffalo, New York 14221 (716) 882-4890