Court of Appeals
of the State of New York
In the Matter of the Application of
WL, LLC,
Petitioners-Plaintiffs-Respondents,
-AGAINST-
THE DEPARTMENT OF ECONOMIC DEVELOPMENT (A/K/A “EMPIRE STATE
DEVELOPMENT”), THE DEPARTMENT OF TAXATION AND FINANCE,THE EMPIRE ZONE
DESIGNATION BOARD, DENNIS M. MULLEN, AS COMMISSIONER OF THE DEPARTMENT OF
ECONOMIC DEVELOPMENT, JAMIE WOODWARD, AS THE ACTING COMMISSIONER OF THE
DEPARTMENT OF TAXATION AND FINANCE, AND MARIO MUSOLINO, AS THE CHAIR OR
CHAIR-DELEGATE OF THE EMPIRE ZONE DESIGNATION BOARD,
Respondents-Defendants-Appellants.
BRIEF FOR RESPONDENTS-DEFENDANTS-APPELLANTS
(In Reply on Respondents’ Appeal & In Response to Petitioner’s Cross-appeal)
BARBARA D. UNDERWOOD
Solicitor General
ANDREW D. BING
Deputy Solicitor General
OWEN DEMUTH
Assistant Solicitor General
of Counsel
ERIC T. SCHNEIDERMAN
Attorney General of the
State of New York
Attorney for Respondents-Defendants-
Appellants
The Capitol
Albany, New York 12224
Telephone: (518) 486-4087
Facsimile: (518) 473-8963
Dated: March 25, 2013
Reproduced on Recycled Paper
i
TABLE OF CONTENTS
PAGE
TABLE OF AUTHORITIES ............................................................................... iii
PRELIMINARY STATEMENT............................................................................1
THE FACTS AND THE PROCEEDINGS BELOW ............................................2
DED’s Promulgation of Emergency Regulations Pursuant to the
April 2009 Amendments.............................................................................2
Proceedings Before the Commissioner and the Board..............................3
The C.P.L.R. Article 78 Proceeding............................................................5
Decisions Below...........................................................................................8
ARGUMENT
POINT I RESPONDENTS’ DECERTIFICATION OF PETITIONER
COMPLIED WITH THE STATUTE AND HAD A RATIONAL
BASIS IN THE RECORD...............................................................10
A. The Commissioner’s Regulations are Consistent With
the April 29009 Amendments, Which Permit the
Commissioner to Decertify Petitioner Based on BARs
it Submitted Between 2001 and 2007.......................................10
B. Petitioner’s Decertification Was Supported By a
Rational Basis ............................................................................13
POINT II THE LEGISLATURE INTENDED THE APRIL 2009
AMENDMENTS TO APPLY TO DECERTIFIED
BUSINESSES AS OF JANUARY 1, 2008 .....................................17
POINT III THE LIMITED RETROACTIVE APPLICATION OF THE
APRIL 2009 AMENDMENTS DOES NOT VIOLATE THE
DUE PROCESS CLAUSE ..............................................................18
ii
Table of Contents (cont’d)
PAGE
ARGUMENT, POINT III (cont’d)
A. Petitioner’s Reliance On The Pre-April 2009 Version
of General Municipal Law § 959 Was Neither Reasonable
Nor Justifiable............................................................................19
B. The Retroactivity Period Was Not Excessive...........................22
C. The Amendments Serve Valid Public Purposes ......................24
CONCLUSION....................................................................................................26
ADDENDUM......................................................................................................A1
iii
TABLE OF AUTHORITIES
CASES PAGE
Canisius Coll. v. United States of Am.,
799 F.2d 18 (2d Cir. 1986), cert. denied, 481 U.S. 1014 (1987)...............23
Chrisley, Matter of v. Morin,
126 A.D.2d 977 (4th Dep’t 1987) ........................................................... 20n
Gable Transp., Inc. v. State of N.Y.,
29 A.D.3d 1125 (3d Dep’t 2006)............................................................. 20n
General Elec. Capital Corp., Matter of v. New York State Div.
of Tax Appeals,
2 N.Y.3d 249 (2004)...................................................................................12
Lacidem Realty Corp., Matter of v. Graves,
288 N.Y. 354 (1942)...................................................................................23
Milliken v. United States,
283 U.S. 15 (1931) .....................................................................................22
Moran Towing Corp., Matter of v. Urbach,
1 A.D.3d 722 (3d Dep’t 2003)....................................................................23
Nicholas, Matter of v. Kahn,
47 N.Y.2d 24 (1979)...................................................................................12
Peckham, Matter of v. Calogero,
12 N.Y.3d 424 (2009).................................................................................13
Pell, Matter of v. Board of Educ. of Union Free School Dist. No. 1
of Towns of Scarsdale & Mamaroneck, Westchester County,
34 N.Y.2d 222 (1974).................................................................................13
Replan Development, Inc., et al., Matter of v. Department of
Housing & Preservation and Development, et al. of
City of N.Y.,
70 N.Y.2d 451 (1987).........................................................................passim
iv
Table of Authorities (cont’d)
PAGE
CASES
Rocanova v. United States of Am.,
955 F.Supp. 27 (S.D.N.Y. 1996), aff’d, 109 F.3d 127
(2d Cir. 1997), cert. denied, 522 U.S. 821 (1997) .....................................25
Roosevelt Raceway, Inc., Matter of v. Monaghan,
9 N.Y.2d 293 (1961)............................................................................. 20-21
Salvati, Matter of v. Eimicke,
72 N.Y.2d 784 (1988).................................................................................13
United States v. Carlton,
512 U.S. 26 (1994) .............................................................................passim
Varrington Corp., Matter of v. City of New York Dept. of Finance,
85 N.Y.2d 28 (1995)...................................................................................19
Wooley, Matter of v. New York State Dept. of Correctional Servs.,
15 N.Y.3d 275 (2010).................................................................................13
NEW YORK CONSTITUTION
article XVI, § 1 ...............................................................................................20,21
STATE STATUTES
C.P.L.R.
article 78.................................................................................................5,13
General Municipal Law
§ 959 .....................................................................................................19,26
§ 959(a) ..............................................................................................2,21,24
§ 959(a)(v)(3) (former) ...............................................................................25
§ 959(a)(v)(6)......................................................................................passim
§ 959(w)..............................................................................................passim
v
Table of Authorities (cont’d)
PAGE
STATE STATUTES (cont’d)
L. 1986, ch. 686 ...................................................................................................15
L. 2000, ch. 63, part GG, § 2...............................................................................15
L. 2009, ch. 57, Part S-1
§ 3 ............................................................................................................2
Tax Law
articles 9-a, 22, 32, 33 ...............................................................................15
§§ 14-16.......................................................................................................15
§ 14(b) .......................................................................................................16
STATE RULES AND REGULATIONS
5 N.Y.C.R.R.
§ 11.9 ............................................................................................................3
§ 11.9(c)........................................................................................................7
§ 11.9(c)(2) ...................................................................................................3
§ 11.9(c)(2)(i)..............................................................................................14
§ 11.9(c)(2)(ii).............................................................................................14
PRELIMINARY STATEMENT
The opening brief of the State officials sued here explains that petitioner’s
due process rights were not violated by the 15-month period of retroactive
application of the April 2009 amendments to the Empire Zones Program. In
Point I of this brief, in response to petitioner’s cross-appeal, we explain that the
Third Department properly rejected petitioner’s claim that the Commissioner
should have considered petitioner’s 2000 Business Annual Report (BAR) in
determining whether petitioner satisfied the 1:1 benefit-cost requirement. The
Commissioner’s reliance on petitioner’s BARS submitted for tax years 2001
through 2007 was authorized by the April 2009 Program amendments, was
consistent with the Commissioner’s implementing regulations, and had a
rational basis in the record. Accordingly, the Commissioner properly excluded
petitioner’s BAR for 2000 from his analysis.
Points II and III of this brief serve as a reply to petitioner’s brief in
response to the State’s appeal. As we explain, the relevant period of
retroactivity for the April 2009 amendments is only 15 months, and neither this
period nor the 32-month span that the Third Department erroneously applied
violated petitioner’s due process rights.
2
THE FACTS AND THE PROCEEDINGS BELOW
In our main brief, we described the Empire Zones Program and the
statutes and proceedings that are relevant to the State’s appeal. Here, we begin
with a description of the facts and proceedings that are relevant to the issues
that petitioner raises in its cross-appeal.
DED’s Promulgation of Emergency Regulations Pursuant to the
April 2009 Amendments
As we explained in our main brief (State’s Main Br. at 11-12), the April
2009 Amendments to the Empire Zones Program directed the Commissioner to
“[c]onduct a review during [2009] of all business enterprises to determine
whether the business enterprises should be decertified pursuant to [General
Municipal Law § 959(a)(v)(5) and (6)]” (306). The Commissioner was directed to
analyze data “contained in at least three business annual reports [“BARs”] filed
by the business enterprise” when considering the business’ ability to meet the
1:1 benefit-cost criterion. Id.
Consistent with these provisions, the amendments also authorized DED to
adopt regulations pursuant to the amendments on an emergency basis,
“notwithstanding any provisions to the contrary in the state administrative
procedure act [“SAPA”]” (302). L. 2009, ch. 57, Part S-1 at § 3; see General
Municipal Law § 959(a). DED first adopted emergency regulations governing
3
the new Program eligibility criteria effective on May 25, 2009 (205-207). See
5 N.Y.C.R.R. § 11.9.
As relevant here, the DED regulations echoed the April 2009 amendments
providing that, effective January 1, 2008, “the Commissioner shall revoke the
certification of [a] business enterprise upon a finding that . . . a business
enterprise that has submitted at least three years of business annual reports has
failed to provide economic returns to the stat[e] in the form of total remuneration
to its employees (i.e., wages and benefits) and investments in its facility that
add to a greater value than the tax benefits the business enterprise used and
had refunded to it” (228) 5 N.Y.C.R.R. § 11.9(c)(2). The regulations specified
that the BARs considered would be those from the Program’s inception in 2001
through and including 2007. Id.
Proceedings Before the Commissioner and the Board
As directed by the April 2009 amendments to General Municipal Law
§ 959(w), the Commissioner conducted a review of petitioner’s program accounts
in 2009. This review, based upon BARs petitioner submitted for 2001 through
2007 (350-355), indicated that petitioner could not meet the 1:1 test because it
had received $473,366 in program tax credits and returned only $359,529 in the
form of wages and investments (349). In other words, for every dollar petitioner
received in program tax credits, it put 76 cents back into the community (349).
4
After the Commissioner completed his review, he revoked petitioner’s program
certification by letter dated June 29, 2009 (342-343).
The Commissioner’s letter informed petitioner that it “may appeal this
determination by sending a written notice of such appeal to [the Board] no later
than 15 business days from the date of this Notice of Revocation of Certification”
(id.).
Petitioner pursued an administrative appeal to the Board (344-348). The
Board met on March 11, 2010 to review and consider petitioner’s administrative
appeal (280-281). The Board considered petitioner’s BARs for 2001 through
2007, the documents petitioner submitted on administrative appeal and
information provided by DED staff, all of which indicated that petitioner did not
satisfy the 1:1 benefit-cost standard (279, 344-359).
The Board unanimously upheld the revocation of petitioner’s Program
certification in Resolution No. 3 of 2010 (281).1 The determination, which was
provided to petitioner on March 24, 2010, stated that the Board had reviewed
petitioner’s appeal and determined that the company had “failed to provide
sufficient evidence to demonstrate that the Commissioner’s finding which
1 The Board’s resolution is not in the Record on Appeal, but was attached to our
Third Department brief as an addendum. We have also attached it to this brief as
an addendum.
5
resulted in the revocation of [petitioner’s] business certification under General
Municipal Law § 959(a)(v)(6), was in error” (145). Accordingly, the Board
informed petitioner that it was upholding the Commissioner’s June 2009
revocation based on petitioner’s failure “to provide economic returns in the form
of wages (including fringe benefits) and capital investments greater than the tax
benefits the business was receiving” (145).
The C.P.L.R. Article 78 Proceeding
Petitioner commenced this hybrid C.P.L.R. article 78 proceeding/action for
declaratory judgment in July 2010. As relevant to its cross-appeal, petitioner
argued that its Program decertification was arbitrary and capricious, affected by
an error of law and in violation of lawful procedure (68-98). In this regard,
petitioner primarily asserted that respondents’ determination lacked a rational
basis in the record because respondents did not consider petitioner’s 2000 BAR,
filed when the prior Economic Development Zones Program was still in effect.
Petitioner argued that if the 2000 BAR had been considered, along with the
seven BARs (for the years 2001 through 2007) that respondents did consider,
petitioner would have satisfied the 1:1 benefit-cost test and accordingly been
entitled to maintain its Program certification (73-74, 85-88). Petitioner claimed
that DED’s exclusion of the 2000 BAR pursuant to its regulations was contrary
to General Municipal Law § 959(a)(v)(6), which required the Commissioner to
6
consider petitioner’s total investments (85-88, 94-95). Petitioner did not dispute
that it could not satisfy the 1:1 test based on its BARS from 2001 through 2007
(42).
Petitioner additionally complained that its substantive and procedural due
process rights had been violated because the Commissioner’s notice failed to give
it notice of the basis for revocation, and that the Board denied petitioner a
meaningful opportunity to be heard “because the [Board] members adopted [the
Commissioner’s] recommendation to affirm the decertification of Petitioner in a
batch of ninety-one businesses, without questioning, analyzing, or otherwise
evaluating [the Commissioner’s] recommendations as to Petitioner or any of the
ninety other businesses whose appeals were disposed of by [the Board] on March
11, 2010” (89).2
In their answering papers, respondents included an affidavit from Randal
Coburn, the Program’s director. Mr. Coburn disputed each of petitioner’s
complaints about its decertification, asserting that DED had performed exactly
as the April 2009 amendments directed, and that nothing in the General
2 The Third Department rejected petitioner’s procedural due process arguments
(442-443) and petitioner has not raised them in his brief to this Court. Instead,
petitioner relies on its main argument that its 2000 BAR entitled it to retain its
Program certification and states that “[a]ccordingly, due process is no longer a
concern” (Br. at 8 n. 2). Petitioner has thus abandoned any argument in support of
its cross-appeal that the proceedings before the Commissioner and the Board
violated petitioner’s due process rights.
7
Municipal Law required the agency, as petitioner argued, to consider its BAR for
2000. Mr. Coburn explained that “the Empire Zones Program replaced the
Economic Development Zones Program” (272). Coburn further explained that
since the Program’s “first taxable year was 2001 and the most recent data
available to DED was the 2007 BARs,” DED analyzed businesses’ eligibility
under the 1:1 benefit-cost standard based on a review of the businesses’ 2001-
2007 BARs (276-277). DED applied this “timeframe uniformly to more than
8,000 companies that were subject to this review,” including companies, like
petitioner, that were certified prior to 2001 (277). The timeframe was consistent
with DED’s regulations, see 5 N.Y.C.R.R. § 11.9(c), and the statute, which
authorized decertification so long as the Commissioner reviewed “at least three
[BARs]” (277, 306). Mr. Coburn stated that using the BARs petitioner submitted
from 2001 through 2007, petitioner did not satisfy the 1:1 benefit-cost test,
mandating revocation under the April 2009 amendments (278-279). Indeed,
these BARs revealed that petitioner had received $473,366 in Program tax
credits, but had returned only $359,529 in the form of wages and capital
investments (279).
Mr. Coburn further disputed petitioner’s arguments that it did not receive
sufficient notice from the Commissioner about the basis for the revocation. To
the contrary, the Commissioner’s June 29, 2009 letter specifically informed
8
petitioner that revocation would occur for its failure to meet the 1:1 benefit-cost
standard set forth in General Municipal Law § 959(a)(v)(6) (278-279, 342-343).
Moreover, Mr. Coburn defended the Board’s appeal process, explaining that the
Board had reviewed the BARs, information compiled by the Commissioner’s
staff, including a summary memo, whose purpose “was to provide the members
of the Board with basic information about the companies whose appeal was
before them” (280, 349). This and other information about each company was
transmitted to the Board several months before it met to decide petitioner’s
appeal (279-280). Although staff provided the information to assist the Board in
making its determination, Mr. Coburn emphasized that only the Board voted to
uphold the revocation, and no member was told or directed how to vote by DED
staff or anyone else (280).
Decisions Below
Supreme Court dismissed the petition/complaint (18-22). The court found
that respondents’ decertification of petitioner was rationally based on its BARs
for 2001 through 2007, and that nothing in the relevant statute required them to
consider petitioner’s 2000 BAR (20).
The Third Department affirmed the dismissal of every cause of action in
the petition and complaint but those that challenged the retroactive operation of
the April 2009 amendments. As relevant to petitioner’s cross-appeal, the court
9
held that the Commissioner’s regulation providing that decertification based on
petitioner’s BARs for 2001 through 2007 was not inconsistent with the April
2009 amendments, nor was the regulation irrational or arbitrary and capricious.
The court observed that the 2009 amendments did not require respondents to
“examine every BAR filed by an entity, whether for the [Empire Zones Program]
or its predecessor, the [Economic Development Zones Program]” (440). Rather,
“the amendments require only that the review include at least three BARs and,
as such, implicitly authorize a limited review of the BARs filed by a program
participant” (id.). Thus, the regulations did not go beyond the intent of the April
2009 amendments and were valid.3
3 The Third Department also found that petitioner had received sufficient notice
and a meaningful opportunity to be heard during proceedings before the
Commissioner and the Board (441-442). As we noted above, at note 2, in its cross-
appeal petitioner does not challenge this holding. And, as we explained in our
opening brief, the Third Department also held that the retroactive application of the
April 2009 amendments to January 1, 2008, was unconstitutional. We address the
retroactivity holding in our opening brief and in, reply, in Points II and III of this
brief.
10
ARGUMENT
POINT I
RESPONDENTS’ DECERTIFICATION OF PETITIONER
COMPLIED WITH THE STATUTE AND HAD A RATIONAL
BASIS IN THE RECORD
The crux of petitioner’s cross-appeal is that the decertification was affected
by an error of law and was arbitrary and capricious because the Board did not
take petitioner’s BAR for 2000 into account in determining total investment for
purposes of the 1:1 test. According to petitioner, had the Board counted the
investment specified on the 2000 BAR, petitioner would have satisfied the 1:1
benefit-cost standard because the 2000 BAR included its purchase of real estate
shortly after it received Program certification. For the reasons discussed below,
this argument lacks merit.
A. The Commissioner’s Regulations are Consistent With
the April 2009 Amendments, Which Permit the
Commissioner to Decertify Petitioner Based on BARs
It Submitted Between 2001 and 2007.
There is no basis for petitioner’s argument (Br. at 14-24) that the Board’s
reliance (based on the regulation) on the BARs from 2001-2007 is at odds with
General Municipal Law § 959(a)(v)(6). That section states the 1:1 test: “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
11
investments in its facility greater in value to the tax benefits the business
enterprise used and had refunded to it” (303). See General Municipal Law
§ 959(a)(v)(6) (emphasis added). Petitioner asserts that the word “total” modifies
both remuneration and investments and thus that the regulation and the Board
could not exclude the investments listed on its BAR for 2000 (Br. at 15).
Petitioner’s interpretation should be rejected. Whether “total” is meant to
include both wages and benefits, or to include both remuneration and
investments, there is no reason to think it includes either remuneration or
investments that occurred before the commencement of the new program. First,
as explained immediately below, DED’s regulation rationally included only BARs
filed under the new Empire Zones Program. Second, petitioner’s interpretation
conflicts with the plain language of General Municipal Law § 959(w), which
requires the Commissioner to review -- and base his decertification on -- “at least
three [BARs].” Id (emphasis added). Thus, the Third Department correctly held
that Legislature did not require that all available BARs be used in making the
determination under the 1:1 test; on the contrary, it specifically authorized the
determination to be based on fewer than all available BARs. Petitioner would
rewrite this language to require the Commissioner to review all BARs “from the
petitioner’s 2000 certification forward” (Br. at 15; see 44). But that is not what
the statute says, and petitioner’s strained construction would produce a conflict
12
within the statute that the Legislature could not have intended and which this
Court should avoid.
In light of the plain language of the statute, which limited the
Commissioner’s review to at least three BARs filed after the new Empire
Zones Program took effect, there is no merit to petitioner’s argument (Br. at
15) that the statute’s use of the word “total” means that the Commissioner is
required to consider investments paid under the old Economic Development
Zones Program. Consequently, the Court should reject petitioner’s
construction of General Municipal Law § 959(a)(v)(6).
Petitioner also mistakenly argues that the Third Department “applied an
incorrect legal standard in reviewing” the Commissioner’s regulations (Br. at 11-
12). In fact, the court specifically examined the regulations, mindful of this
Court’s precedent that “rules and regulations promulgated by administrative
agencies must be consistent with the enabling statutes enacted by the
Legislature” (440, citing Matter of General Elec. Capital Corp. v. New York State
Div. of Tax Appeals, 2 N.Y.3d 249, 254 (2004), and Matter of Nicholas v. Kahn,
47 N.Y.2d 24, 31 (1979)). It is apparent from the Third Department’s decision
that it considered this issue but correctly found that the regulation did not
conflict with or go beyond the statute (id.).
13
B. Petitioner’s Decertification Was Supported By a
Rational Basis.
The Third Department’s determination that the State’s revocation of
petitioner’s certificate of eligibility was not arbitrary and capricious is also well-
supported by the record. Because this C.P.L.R. article 78 proceeding is in the
nature of mandamus to review, this Court is limited to ascertaining whether the
determination is arbitrary and capricious or without a rational basis. See Matter
of Wooley v. New York State Dept. of Correctional Servs., 15 N.Y.3d 275, 280
(2010); see generally Matter of Pell v. Board of Educ. of Union Free School Dist.
No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 N.Y.2d 222,
231 (1974). In addition, the determination of an agency acting pursuant to its
authority and within its area of expertise is entitled to judicial deference. Matter
of Salvati v. Eimicke, 72 N.Y.2d 784, 791 (1988); see Matter of Peckham v.
Calogero, 12 N.Y.3d 424, 431 (2009). If the Court concludes “that the
determination is supported by a rational basis, [it] must sustain the
determination even if [this C]ourt concludes that it would have reached a
different result than the one reached by the agency.” Matter of Peckham, 12
N.Y.3d at 431.
Here, the Board’s March 2010 resolution and determination revoking
petitioner’s certification was rational because it was mandated by General
14
Municipal Law § 959(w), as amended in April 2009. As explained by Mr.
Coburn’s affidavit and submissions (279-280), the information submitted by staff
for the Board’s review and petitioner’s own data submitted on the administrative
appeal established that petitioner failed to satisfy the 1:1 test as set forth in the
regulations (228).4 See 5 N.Y.C.R.R. § 11.9(c)(2)(i), (ii). Accordingly, there was a
sufficient factual basis for the determination to decertify petitioner based on
each of petitioner’s BARs from 2001 through 2007, which detailed petitioner’s
wages, investments and tax benefit data for those years (279). Inasmuch as the
data contained in these BARs indicated that petitioner could not satisfy the 1:1
benefit-cost standard for those years -- a fact petitioner does not dispute (42) --
the revocation of petitioner’s Program certification was authorized by and
consistent with the 2009 amendments. See General Municipal Law § 959(w).
Accordingly, there was a rational basis for the administrative determination and
the courts below properly declined to disturb it.
Moreover, the regulatory requirement that only BARs from 2001 and after
be counted was rational because 2001 was the first full taxable year of the new
Empire Zones Program and, accordingly, the first year a BAR reflecting a
4 Apart from petitioner’s argument that the 2000 BAR should have been
considered, petitioner makes no claim that respondents miscalculated the benefit-
cost ratio in any of the other BARs.
15
company’s performance in the new Program would have been available.
Contrary to petitioner’s claims (Br. at 18-20), the old Economic Development
Zones Program was not the same as the Empire Zones Program. The statute
creating the Economic Development Zones Program set forth distinctly different
benefits and attendant eligibility criteria. Indeed, as petitioner recognized below
(151), the Empire Zones Program significantly enhanced the tax credits and
benefits available to participating businesses. Compare L. 1986, ch. 686 with L.
2000, ch. 63, part GG, § 2, (showing three additional tax credits that were
available under the Empire Zones Program but not under the previous Economic
Development Zones Program) (159).
Although a company that had previously been certified under the old
program could retain its certification for the Empire Zones Program, it was
required to pass employment tests created by the 2000 statute in order to qualify
for the new credits and benefits. For example, one credit available under the
Program (but not the Economic Development Zones Program) permitted
businesses that were certified as Qualified Empire Zone Enterprises to abate
personal or corporate taxes they would otherwise owe under articles 9-a, 22, 32,
or 33 of the Tax Law. See Tax Law §§ 14-16. However, the business’s eligibility
for the credit depended upon its ability to satisfy an “employment test,” which is
generally met if the business can demonstrate that its employee numbers in the
16
relevant tax year have equaled or exceeded its employee numbers from the five
immediately preceding taxable years. See Tax Law § 14(b). Accordingly, the
Third Department properly held that the Commissioner’s exclusion of
petitioner’s 2000 BAR was rational because 2001 “was a logical starting point to
review” petitioner’s performance in the Empire Zones Program (441).
Finally, petitioner argues that even if it was permissible as a general
matter to use only Program BARs from 2001 through 2007, in this case the
Commissioner should nonetheless have considered its 2000 BAR because the
investments reflected there occurred in June 2000, a few weeks after the
Empire Zone Program’s May 15, 2000 enactment (Br. at 25-26) This claim lacks
merit. That petitioner’s 2000 investments were made approximately one month
after the Empire Zones Program was enacted does not make the Commissioner’s
choice of a 2001 starting point irrational. 2001 was the Empire Zone Program’s
first full taxable year, and the Commissioner rationally chose this year as the
“logical starting point” for its analysis under the April 2009 amendments (441).
17
POINT II
THE LEGISLATURE INTENDED THE APRIL 2009
AMENDMENTS TO APPLY TO DECERTIFIED
BUSINESSES AS OF JANUARY 1, 2008
We explained in our main brief (State’s Main Br. at 24-30) that the
legislature intended the April 2009 amendments to apply to petitioner and other
Program participants beginning on January 1, 2008. Petitioner has not
developed a contrary argument and acknowledges that it did not do so in the
Third Department because it “assumed that the Fourth Department was correct”
in holding that the Legislature sufficiently stated its intent in the April 2009
amendments that they operate retroactively to January 1, 2008 (Br. at 32 n. 8).
Accordingly, we refer the Court to our argument in our main brief for the
explanation that the Third Department erred in holding that the Legislature’s
August 2010 clarifying amendment was the first statutory indication that the
April 2009 Program criteria were to be retroactively applied.
18
POINT III
THE LIMITED RETROACTIVE APPLICATION OF THE
APRIL 2009 AMENDMENTS DOES NOT VIOLATE THE
DUE PROCESS CLAUSE
The State officials’ main brief explained that retroactive application of the
April 2009 amendments did not deprive petitioner of a property interest without
due process (State’s Main Br. at 30-47). Petitioner’s claim, which concerns the
retroactive disallowance of tax credits, is properly analyzed under the standards
for retroactive amendment of tax statutes provided by United States v. Carlton,
512 U.S. 26 (1994), Matter of Replan Dev. v. Department of Hous. Preservation &
Dev. of City of N.Y., 70 N.Y.2d 451 (1987), and other cases. Both petitioner (Br.
at 29-36) and the Third Department (443) effectively acknowledge that the tax
cases govern here by basing their arguments on them. They are correct; it is the
standards of those cases that govern here.
Under those standards, the limited degree of retroactivity in this case was
permissible. Under Carlton and Replan, a tax statute may be amended
retroactively if there was no reasonable and justifiable reliance on the
unamended statute, if the period of retroactivity is not excessive, and if the
retroactive amendment serves a valid public purpose. All three criteria are
satisfied here. Petitioner could not reasonably or justifiably rely on its continued
Program participation, the period of retroactivity was not excessive, and the
19
amendments serve valid public purposes (State’s Main Br. at 38-50). See Matter
of Replan Dev., 70 N.Y.2d at 455-57.
A. Petitioner’s Reliance On The Pre-April 2009 Version
Of General Municipal Law § 959 Was Neither
Reasonable Nor Justifiable.
Petitioner’s argument that it “relied on its certification[ ] by investing in
the [Empire Zone] and undertaking business operations there” (Br. at 31), does
not establish that its reliance on the pre-April 2009 version of General Municipal
Law § 959 after January 1, 2008 barred retroactive decertification. As we noted
in our main brief (State’s Main Br. at 38-44), the United States Supreme Court
has held that “reliance alone is insufficient to establish a constitutional
violation” because “tax legislation is not a promise, and a taxpayer has no vested
right” in whatever credits, deductions, or other benefits may exist at any one
time in the tax law. Carlton, 512 U.S. at 33; see Matter of Varrington Corp. v.
City of New York Dep’t of Fin., 85 N.Y.2d 28, 33 (1995). The estate taxpayer in
Carlton not only lost the more than $2,500,000 in estate tax savings that it
claimed under the law that was retroactively amended, but also lost an
additional $600,000 in the transaction that it entered into while the law was in
effect in reliance on the law; even so, this degree of reliance did not establish a
due process violation. See 512 U.S. at 33-34.
20
As we explained in our main brief (State’s Main Br. at 36-38), an Empire
Zone program certification did not, as petitioner suggests (Br. at 26-28), entitle it
to greater protection than that accorded to other taxpayers who made
investments or otherwise detrimentally relied on statutory tax incentives that
were later retroactively revoked, like the taxpayers whose claim of reliance was
rejected in Carlton, 512 U.S. at 33-34, and Replan, 70 N.Y.2d at 457.5 Here,
program certification was simply a prerequisite to the right to claim the tax
benefits, and was explicitly subject to termination “by operation of law” (99).
Indeed, the New York Constitution required that the certification be terminable
by operation of law, and that taxpayers could have no claim for future benefits
no matter how great their reliance. It is settled that New York’s constitutional
restrictions on tax exemptions preclude taxpayers from claiming any vested
right in the continuation of tax credits, exemptions or beneficial rates. Under
article XVI, § 1, subject to narrow exceptions not relevant here, “[t]he power of
taxation shall never be surrendered, suspended or contracted away” and
“[e]xemptions may be altered or repealed.” N.Y. Const., art. XVI, § 1. As this
Court held in Matter of Roosevelt Raceway, Inc. v. Monaghan, 9 N.Y.2d 293, 307
5 In support of its claim of a vested right, petitioner mistakenly relies (Br. at 28, 34)
on two Appellate Division cases: Matter of Chrisley v. Morin, 126 A.D.2d 977 (4th
Dep’t 1987), and Gable Transp., Inc. v. State of N.Y., 29 A.D.3d 1125 (3d Dep’t
2006). Neither of these cases addresses the constitutionality of retroactive tax
legislation or a claim that a taxpayer had a vested right in a tax benefit.
21
(1961), under article XVI, § 1, “the State may not be said to have breached any
contract or agreement with Roosevelt to maintain its state tax at the level
provided for in 1956 for the reason that no one was empowered to enter into such
an agreement on behalf of the State” (emphasis added). The New York
Constitution adopted in 1938 made tax exemptions freely repealable, and
consequently petitioner has no vested right in the continuation of the Empire
Zone tax benefits. Thus, petitioner’s certification constituted no more of a
“promise” than the statutes involved in Replan, Carlton and other similar tax
cases.
Moreover, there was ample indication that the criteria for tax benefits
under the Empire Zone Program might be made more stringent. As we
explained earlier (State’s Main Brief at 19-20, 39-40), the Program had been
“under increasing scrutiny for several years with respect to its cost-effectiveness,
strategic focus and accountability” because many companies had “received more
in tax benefits than economic returns they [were] returning in the form of wages
paid to workers and capital investments in their facilities” (272) (affidavit of
Program Director Randal Coburn). Even before the April 2009 amendments,
General Municipal Law § 959(a) had provided notice that a decertification might
operate retroactively: the section provided that a decertification would take
effect on “the date determined to be the earliest event constituting grounds for
22
revoking certification” (303), which could of course be substantially prior to the
actual date of decertification. Thus, petitioner was forewarned that the statute
conferring the credits could be further amended and that it could have no vested
right in the tax credits.
Nor is retroactivity defeated by the fact that petitioner may not have
personally received advance notice of the April 2009 amendments. Even where a
retroactive tax amendment imposes a new liability on the taxpayer -- which the
April 2009 amendments to Program tax credits do not -- a taxpayer “‘should be
regarded as taking his chances of any increase in the tax burden which might
result from carrying out the established policy of taxation.’” Carlton, 512 U.S. at
34, quoting Milliken v. United States, 283 U.S. 15, 23 (1931).
B. The Retroactivity Period Was Not Excessive.
We have explained above and in our main brief that the period of
retroactivity should be measured between January 1, 2008 and the April 7, 2009
enactment date, and that this modest period was not excessive. Petitioner
complains that “whether the period of retroactivity is 16 months or 32 months it
is too long by any reasonable standard” (Br. at 34), but that claim ignores the
settled rule that even tax legislation that imposes new liabilities may
constitutionally be applied to the beginning of the year preceding the
23
legislation’s enactment, as in this case (see State’s Br. at 41-44 and cases cited
therein). Indeed, in Matter of Lacidem Realty Corp. v. Graves, 288 N.Y. 354
(1942), this Court upheld the retroactive application of the 1941 Tax Law
amendment back to January 1, 1940, the beginning of the year before the date of
enactment. See id. at 357.
Accordingly, the 15-month period of retroactivity at issue here is not
excessive under Replan. However, even if this Court agreed with petitioner that
the period of retroactivity must be measured from the enactment of the August
2010 amendments, the resulting retroactivity period of two years, eight months
and 11 days would still pass constitutional muster, for the reasons stated above
and in light of that amendment’s “curative purpose[s]” of correcting, as of
January 1, 2008, unanticipated costs incurred by the State in its administration
of the Program. Canisius Coll. v. United States of Am., 799 F.2d 18, 27 (2d Cir.
1986), cert. denied, 481 U.S. 1014 (1987); see United States v. Carlton, 512 U.S.
at 32 (upholding retroactive application of statute limiting estate tax deductions
because the amendment was rationally adopted in order to stem “a significant
and unanticipated revenue loss”); Matter of Moran Towing Corp. v. Urbach
1 A.D.3d 722, 724 (3d Dep’t 2003) (“when legislation is curative, retroactivity
may be liberally construed”). Accordingly, the 2009 amendments to General
24
Municipal Law § 959(a) and (w) are constitutional whether their period of
retroactivity is measured from April 2009 or August 2010.
C. The Amendments Serve Valid Public Purposes.
The April 2009 amendments had two valid public purposes, both
mistakenly discounted by petitioner and the Appellate Divisions. First, the
amendments were designed to remedy the failing Empire Zones Program by
enacting criteria that more accurately gauged a company’s performance and
entitlement to the resultant tax benefits. Second, the amendments were
designed to ameliorate the State’s fiscal crisis during 2009 and 2010. Both of
these purposes find support in the record and case law, as demonstrated in our
main brief on pages 44 through 47.
The Third Department disputed the legislative goals behind the
amendments by stating that “it is difficult to understand how making the statute
retroactive could act to address problems in the [Program or] by severely
penalizing an entity that has . . . legitimately earned its tax credits” (445).
However, the court failed to recognize that retroactive operation of the April
2009 amendments was necessary to recover expenditures that were earmarked
to fund a Program that had failed to make good on its promise to provide
additional jobs and capital investments in return for the credits offered. The
25
April 2009 amendments were made retroactive because the de minimis
requirements then in place, authorizing decertification where the business
“failed to create new employment or prevent a loss of employment in the empire
zone,” were not sufficient to make the Program cost-effective and its participants
accountable for the benefits they received. General Municipal Law former
§ 959(a)(v)(3). Petitioner has not disputed the State’s proof that the Program
was not meeting its overall goals of increasing job creation and investment
opportunities. Nor has petitioner disputed that the 1:1 benefit-cost standard
was a reasonable remedy for the Program’s deficiencies. Finally, apart from its
argument about the 2000 BAR, petitioner has not alleged that it could meet that
standard.
Moreover, the general cost-savings goals of the Program, which sought to
save the State some $90 million during the 2009-2010 fiscal year, provide a
separate valid public purpose for the statute’s retroactive operation. See
Carlton, 512 U.S. at 32 (the Legislature may rationally retroactively amend a
statute to stem “a significant and unanticipated revenue loss”); see Rocanova v.
United States of Am., 955 F. Supp. 27, 29-30 (S.D.N.Y. 1996), aff’d, 109 F.3d 127
(2d Cir.), cert. denied, 522 U.S. 821 (1997) (Congress’s intent in enacting a
retroactive amendment to the Internal Revenue Code -- “to raise revenue
without raising taxes or imposing a new tax” -- was “rational and reasonable”).
26
Accordingly, the limited retroactive application the April 2009 amendments was
constitutional.
CONCLUSION
The Third Department’s opinion and order should be reversed insofar as it
held that retroactive application of the April 2009 amendments to General
Municipal Law § 959 to January 1, 2008, violated petitioner’s due process rights,
and the petition/complaint should be dismissed in its entirety.
Dated: Albany, New York
March 25, 2013
Respectfully submitted,
ERIC T. SCHNEIDERMAN
Attorney General of the
State of New York
Attorney for Respondents-
Defendants-Appellants
By: _________________________
OWEN DEMUTH
Assistant Solicitor General
Office of the Attorney General
The Capitol
Albany, New York 12224
BARBARA D. UNDERWOOD (518) 486-4087
Solicitor General
ANDREW D. BING
Deputy Solicitor General
OWEN DEMUTH
Assistant Solicitor General
of Counsel
Reproduced on Recycled Paper
Al
RESOLUTION # ] OF 2010
WHEREAS, punuantlo Chapter 57 of the LaW5 of 2009 and tbe bylaw, orthc Empire
Zone Designation Board ("the Board"), the Board is authorized to review the written submiaions of
husineu.:s appealing the revOC1Jlion oftheir ccrtificatiolll by !he Conunissioncr ofEconomic
Development ithc "Commiaioncr") punuanllo GML §9S9(w);
, WHEREAS. pursuant to GML §9S9(w), busil1CSlCS If'PeaIU;g iMrcvocation oftheir
c~rtitiClltilJn by the Commissioner were requin:d 10 indicate to,\hct Board thallhcy woWd be
appealinll this dClCm1ination by SCilding a'wriltl2J notice to the 8oaI:d otsuch appeal no _Ihan
flltceo(l S) l;ltainesulaysliom thedllte oJthc CommiSliona's rcvoeaIioa DOtificllicm'uid Ihon
Ibllow,up within sbtly(60) days of the date,ofCollU1lissioner'lI~ocatiOJJ noiliic;atioil w'iiJl.I
wrinen submission explaining why their certiflCStiOD 5bo~dbe'COf1tinucd;
, WHEREAS, the Boan! bu receiVed and reviewed tho nolic:ca otappc;a1s, IDd. whero .
provided, wriuenSU1:Jmissions byb~in~ whose ccdilicaliOQ waI mokedby the Commillionc:r
bec:ausethcy failed to prov.idc economic retums 10 the state in ibcfonD oftotaJ rcmWlCrllioa to their
employees (i.e, waps and bcnetib) iII1d investments in lheirfacility,~ in Y~uo.lO the lax
bcnetill they used and had refunded 10 than pursuaollO GML §9S9(a-Xv)(6).
WHEREAS, underGML §959(w), the Board shall consider lhuxplanaaOn'prov1dcd by
lhe business enterprise. bUIsha!1 only reverse the detcrmination.to moke thebusiDCII .
enterprise's certification i rthcBoard UDlR1im~lL5I>, finds that there wu sufficient evidence
presented dcmonstnling lbaltbc Commissi~nlll"s fmding. with I'CIpee:tlo lubparasraPh lix: of
plll1lgnph (v) of subdivision (a)ofthinection. was in.enor;
'THEREFORE. BE IT RESOLVED, that the Bolll'd, a.ft1lrc:arClUl ~dcratioQ oftbc
documentation pn:scntcd by companic:s listed in Appeodix A ofthia~IDtiDll, hu determined that
such cocnplU1ics lisled in Appcodix A oflhis resolution have nolplOVided .ufficicnt eYidClX:e to
Uc:mOnAralC tnatthe Commissioner's liDding with regard 10 rcvoc:aboll uadcr GML §959EI)(v)(6)
WlJ,J in c:rror andlherefore the Commissioner's determination to~ke thoempilo ionca
certification of these linn. is upheld 'and the companic:s listed in Appendix A shall not hav~ their
c~ficalion reinstltc:d.
ADOPTED
ADD END U M
APPENDIX A
Resolution # 3 of 2010
Company Name
111-117 Busine•• Park Realty .Corp.
1256 Hertel Associate.. llC
1801 Sixth Avenue, LLG
201 Sawmill Rive' Road Dev. Co .
2301 Jerome Avenut' Realty Corp.
231 Hawthome Ave., LlC
299 Mueroie Corp.
3339 PaJt(, LLC .
350 Gerard Ave. Corp. .
390 Riverdale Avenue Corp.
4508. Salina Street Partnership
4~,LlC
579 So•.Broadway R'ealty
600 Erie Place, LLC .
600 Erie PlacePartnership II, LLC
728 East Realty Corp.
819 Yonkers Ave. Realty Cotp.
870 Nepperhan Avenue, LLC
Alan J. Byer GrantOr Trult
Alpha 2000, UC
Atom Holding', Ltd.
BCK propertl", LLC
BOG Gotham Plaza, LLC
Be~e.tl!" Corp.
BroadWay Arcade LlC
Bronx South Realty, L~C
Carpe Diem Realty 01 poughkeepsie, LLC
Clark Trading Corporation
ConAGG Recycling Real Estate; LLC
Coolidge Sailn8 street. LLC
Dan.DiMarino ,
Daniel G. Hickey & Robert W. Finn
Dunkirk power, LLC
DuRoss Realty Corp.
Elmira ABC Management, LLC
Erie BOOleYard Hydro Power, LP
Four Slar Realty Corp.
Gottlieb & Dettchman Realty, Jnc.
Greece Town Mall, LP. .
Gregory Beoblde
Hast Propeme. Co.
Hiawatha AssoC., LLC
James Square Assodates .
J-PGr~p, LLC
A2
"
Juno's Glass, LLC
Kelly-Duke, Inc
Laurel Street Associates
Macabe Family Development, LLC
Macabe Family Development, LLC.
Marie; & Scott Vranclch
Midland Realty Associates. Inc.
Miter Realty Corp.
Molly II, Inc.
Morris Builders, LP
New Hope Mills Manufacturing, Inc.
Office Building Associates, LLC
OHM. LLC
Orion DevelopmentRA L..LLC
Oswego Harbor Power, LLC
P.N.S., LLC
PAR-K Properties of Fulton, U:'C
Pascaler Enterprises, LLC
PDJ Simone Realty, L.P.
Persico Realty Corp.
Pioneer Fulton Shopping Center, LLC
PJ Associates. LP
Plainview Associates - Elmira, LLC ,
POTSDAM ASSOCIATES
Poughkeepsie Propertiee, LLC
Pur Energy I, LLC
q Ford Management, LLC
R &.M Associates, LLC
Rago Syraeuae Corp.
Regal Buick Properties, liC
Rojan Realty ,
S & T Bronx Realty, LLC
Saboy, LLC
Simone Development Co., LLC
Simone Development Company, LLC
Sixty Road Associates, L.P.
Skyway Properties, LlC
SL & D Properties, LLC
'South Fulton Corp.
The Hague Corporation
Third National Associates Group
Third National Associates, LLC
Toby Peck; LLC
Two Chickens Realty Coop. , LlC
Waterfront Associates. liC
Wl, LLC
Zeller Properties. LLC
A3