To be argued by:
ROBERT K. WEILER
Time Requested: 20 minutes
STATE OF NEW YORK
COURT OF APPEALS
IN THE MATTER OF THE APPLICATION OF
WL, LLC,
Respondent-Appellant,
v.
THE DEPARTMENT OF ECONOMIC DEVELOPMENT
(a/k/a "Empire State Development"),
THE DEPARTMENT OF TAXATION AND FINANCE,
THE EMPIRE ZONE DESIGNATION B O ~ ,
DENNIS M. MULLIN, as the 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,
Appellant-Respondent.
B W F FOR RESPONDENT-APPELLANT,
WL, LLC
BOUSQUET HOLSTEIN PLLC
Formerly known as Green & Seifter, Attorneys, PLLC
Robert K. Weiler, Esq.
Philip S. Bousquet, Esq.
Cecelia R.S. Cannon, Esq.
110 W. Fayette Street, Suite 900
Syracuse, New York 13202-1387
Dated: January 28,2013
STATE OF NEW YORK
COURT OF APPEALS
IN THE MATTER OF THE APPLICATION OF
WL, LLC,
Respondent-Appellant,
V.
THE DEPARTMENT OF ECONOMIC DEVELOPMENT
(alkla "Empire State Development"),
THE DEPARTMENT OF TAXATION AND FINANCE,
THE EMPIRE ZONE DESIGNATION BOARD,
DENNIS M. MULLIN, as the Commissioner of the Department of
Economic Development, JAMIE WOODWARD, as the Acting
Commissioner of the Department of Taxation and Fiance, and
MARIO MUSOLINO, as the Chair or Chair-delegate of the
Empire Zone Designation Board,
Appellant-Respondent.
RULE 500.l(f) DISCLOSURE STATEMENT
Pursuant to the Rules of the Court of Appeals §500.1(f), the undersigned WL, LLC,
hereby certifies that WL, LLC does not have any subsidiaries or parent entities. With respect to
affiliates, the members and owners of WL, LLC have a controlling interest in several other
entities; however these entities do not have any ownership interest in WL, LLC and WL, LLC
does not have any ownership interest in any such entity.
Dated: ~anuar-y s, 20 13
Bousquet Holstein PLLC. 110 West Fayette Sheet, Suite 900. Syiacuse, New York 13202. (315) 422-1391
..
TABLE OF CONTENTS
QUESTIONS PRESENTED .......................................................................................................... vi
JURISDICTIONAL STATEMENT ................................................................................................ 1
PRELIMINARY STATEMENT ..................................................................................................... 1
STATEMENT OF FACTS . .. ... ........ .... .. .... ... ... .... .... ... ... ............... ....... .. .......... ... .... ......... ............... .3
PROCEDURAL BACKGROUND .......... ...... .... .............. ... ... ... ... ............ ... .............. ............ ....... ... 7
PART I: WL'S ARGUMENT AS APPELLANT .......................................................................... 1 1
POINT I - THE THIRD DEPARTMENT APPLIED AN INCORRECT LEGAL
STANDARD IN REVIEWING THE REGULATION ............................................... 1 1
POINT I1 - THE REGULATION OMITTING YEAR 2000 INVESTMENTS WAS
INCONSISTENT WITH THE ENABLING STATUTE GML SECTION 959 ......... 14
A. The use of the word "total" in GML Section 959(a)(v)(6) clearly required
the DED to include all investments of WL following certification in 2000 .......... 15
B. The "at least three" language did not permit review of less than WL's total
economic returns ... ... . .. . .. ... ... . ... .... .... ... ... ... ... ...... ...... ... ............. ... ....... .... ..... ... ........ 16
C. The Third Department erred in finding that WL was not part of the Empire
Zone Program when it made its year 2000 investments ........................................ 18
i. The Empire Zone Program was merely a new name for the
Economic Development Zone Program ..................................................... 18
. .
11. The Third Department's finding that the 2000 Amendment changed
the criteria for certification is incorrect ..................................................... 22
D. Although the legislature could have expressly provided in the 2009
Amendments that the DED measure the investment and remuneration for
tax years following 2001 only, it simply did not do so. ........................................ 22
POINT I11 - EVEN UNDER A RATIONALITY REVIEW, THE REGULATION MUST
BE OVERTURNED . ... ... . .. ... ....... .... ........... ..... .... ........ ... ... ... ... ....... ...................... ..... 24
A. WL's investments from 2000 should have been included because they were made
after the Empire Zone Program allegedly "replaced" the Economic Development
Zone Program .. ... ... ... ... ... ... .... .... ... . ... .... .. . ... ... ... ... .. ... ......... ... ... ............... ... ....... .... .25
PART 11. WL's ARGUMENT AS RESPONDENT .................................................................... 27
POINT IV - BOTH THE THIRD AND FOURTH DEPARTMENT CORRECTLY
DECIDED THAT THE RETROACTIVE AMENDMENTS TO GML
SECTION 959 VIOLATED DUE PROCESS ........................................................... 27
A. The Third Department correctly found that the Certification under GML
.............................. Section 959 was a property interest protected by due process 27
B. Based on the existence of a property right, the Third Department correctly
determined that retroactive application of the 2009 Amendments was a . .
violation of due process. ........................................................................................ 29
1. The changes to the decertification criteria were not reasonably
foreseeable. ................................................................................................ 29
. .
11. The period of retroactivity weighs in favor of a violation of due
process. ...................................................................................................... 32
...
in. The state had no legitimate purpose for the retroactive application
................................................................................. of the decertification .34
CONCLUSION .............................................................................................................................. 36
TABLE OF AUTHORITIES
Cases
......................................................... Andre v . City ofNew York. 47 A.D.3d 605 (2d Dep't 2008) 27
Auerbach v . Bd . of Educ . of City Sch . Dist . of City ofNY, 86 N.Y.2d 198 (1995) ........................ 15
Beaumont Co . v . State, 125 Misc.2d 87 (Sup . Ct.. New York Cnty . 1984) .................................. 30
Blalock v . Olney. 17 A.D.3d 842 (3rd Dep't 2005) ........................................................................ 16
Brunette v . Time Warner Entm't Co.. L.P.. 32 A.D.3d 1170 (4th Dep't 2006) .............................. 27
Chase Partners. LLC v . Inc . Vill . of Rockville Ctr . et al.,
....................................................................................... 43 A.D.3d 1049 (2d Dep't 2007) 16
$ .............................................................. . Chrisley v Morin. 126 A.D.2d 977 (4th Dep't 1987) 2 8 34
Daily Star v . Bd . of Tr . of the Vill . of Cooperstown.
164 A.D.2d 531 (3rdDep't 1991) ...................................................................................... 11
.............................................. Gable Transp.. Inc . v . State. 29 A.D.3d 1125 (3rd Dep't 2006) 2 8 34
Gen . Electric Corp . v . State Div . of Tax Appeals. Tax Appeals Tribunal. et al.,
2 N.Y.3d 249 (2004) .................................................................................................... 12. 13
In re Matthew L.. 65 A.D.3d 3 15 (2d Dep't 2009) ......................................................................... 23
James Square Assoc . LP et al . v . Dennis Mullen. as Comm'r of N . Y. State Dep't
ofEcon . Dev., 91 A.D.3d 164 (4thDep't 2011) .......... 10, 20. 21.27.29. 30.32. 33. 35. 36
Knickerbocker Vill . Tenants Ass'n v . Calogero. 13 Misc.3d 755
. . .......................................................................................................... @.Y. Sup Ct 2006) 23
Kurcsics v . Merchants Mutual Ins . Co., 49 N.Y.2d 45 1 (1980) .............................................. 1 1, 12
Litod Paper Stock Corp . v . City ofNew York, 154 A.D.2d 280 (1st Dep't 1989) ......................... 30
. . .............................. . . Majewski v Broadalbin-Perth Cent Sch Dist et al., 91 N.Y.2d 577 (1998) 35
Matter of Replan v . Dep't of Hous . Pres . & Dev . of the
City ofNew York, 70 N.Y.2d 451 (1986) .................................................................... 29-36
Memphis Light. Gas. and Water Div . et a1 . v . Craft et al.. 436 U.S. 1 (1978) ........................ 27. 28
.............................................................. Mrozinski v . St . John, 304 A.D.2d 950 (3rd Dep't 2003) 27
Murtha v . Leonard. 210 A.D.2d 41 1. 620 N.Y.S.2d 101 (2d Dep't 1994) .............................. 12. 13
Pajak v . Pajak. 56 N.Y . 2d 394 (1982) .......................................................................................... 23
........................................................ . St . Clair Nation v City ofnew York, 14 N.Y.3d 452 (2010) 34
Weed et a1 . v . Tucker. 19 N. Y. 422 (1859) ..................................................................................... 23
Weingarten v . Bd . of Tr . of N.Y. City TeacherslRet., 98 N.Y.2d 575 (2002) .................... 12.14, 28
West 90s/West 100s Neighborhood Coal . Inc . v . Surles,
205 A.D.2d 461 (1st Dep't 1994) ................................................................................. 12, 13
............................................................... WL. LLCv . DepltofEcon . Dev.. 19N.Y.3d 1021 (2012) 9
WL. LLC v . Dep't of Econ . Dev.. 20 N.Y.3d 853 (2012) ............................................................. 1. 9
3 WZ. LLC v . Dep't of Econ . Dev.. 97 A.D.3d 24
(3rd Dep't 2012) .................................................. 1. 6. 8. 9. 11-14. 16.20. 22. 26. 27. 29-36
Statutes and Legislative Materials .
N.Y. C.P.L.R. Article 78 ................................................................................................. 7 9, 11. 12
N.Y. C.P.L.R. $5602 .................................................................................................................... 1, 9
.................................................................................................................... N.Y. C.P.L.R. $5514 1, 9
N.Y. Gen . Mun . Law §955 .................................................................................................. 3 18, 19
N.Y. Gen . Mun . Law $956 ...................................................................................................... 1 8 19
N.Y. Gen . Mun . Law $957 ...................................................................................................... 1 19
N.Y. Gen . Mun . Law §958 ............................................................................................................ 19
N.Y. Gen . Mun . Law $959 ............................................... 7, 8, 11, 12, 14.17, 19, 24, 27.30, 33, 36
N.Y. Gen . Mun . Law §959(a) .................................................................................................. 19, 28
N.Y. Gen . Mun . Law $959(a)(v)(5) ............................................................................. 4 19, 23, 34
N.Y. Gen . Mun . Law §959(a)(v)(6) ................................................... 2 4-9 . 12-15, 19, 21-25, 31
N.Y. Gen . Mun . Law $959(w) ............................................................................... 1 1 4 , 16, 17, 19
N.Y. Gen . Mun . Law $960 ............................................................................................................ 19
N.Y. Gen . Mun . Law $961 ............................................................................................................ 19
N.Y. Gen . Mun . Law $962 ............................................................................................................ 19
N.Y. Gen . Mun . Law $963 ............................................................................................................ 19
N.Y. Gen . Mun . Law $964 ............................................................................................................ 19
N.Y. Gen . Mun . Law $965 ............................................................................................................ 19
N.Y. Gen . Mun . Law $966 ............................................................................................................ 19
N.Y. Gen . Mun . Law $967 ............................................................................................................ 19
N.Y. Gen . Mun . Law $968 ............................................................................................................ 19
............................................................................................................ N.Y. Gen . Mun . Law $969 19
N.Y. Public Svc Law $66 .............................................................................................................. I9
N.Y. Real Prop . Tax Law $186-a .................................................................................................. 19
..................................................................................................... N.Y. Real Prop . Tax Law 52 10 19
N.Y. Real Prop . Tax Law $485 ..................................................................................................... 19
N.Y. Real Prop . Tax Law $606 ..................................................................................................... I9
N.Y.RealPropTaxLaw $1119 ..................................................................................................... 19
N.Y. Real TaxLaw $1456 ............................................................................................................. 19
N.Y. RealTax Law $1511 ............................................................................................................. 19
5 NYCRR $11.9(c) .......................................................................................................... 5 8, 11, 17
Laws of 1986 (Ch 686, $1) ...................................................................................................... 18, 19
Laws of 2000 (Ch 63, Part GG, $58-14) .............................................................................. 18-20
....................................................................................... Laws of 2010 (Ch 57, Part R, $1 et seq.) 32
2000 NY Assembly Bill A1 1006 ................................................................................................... 25
2009 NY Senate-Assembly Bill S57-B, A 157-B ......................................................................... 33
Secondarv Source
Merriam-Webster Dictionary. http://www.merriam-webster.com/dictionarv/total
(accessed January 23. 2013) .............................................................................................. 15
QUESTIONS PRESENTED
1. Did the Supreme Court, Appellate Division, Third Judicial Department (the "Third
Department") err in applying the arbitrary and capricious standard in reviewing the validity of
the challenged regulation, rather than performing an independent de novo review to determine
whether the challenged regulation was consistent with the statute, General Municipal Law
Section 959(a)(v)(6), and not an error of law?
a: Yes, the Third Department erred in applying the arbitiary and capricious standard and
should have reviewed the challenged regulation and statute de novo to ascertain whether the
challenged regulation was consistent with the statute and not an error of law, as required by cases
of this ~~~. Court.
2. Did the Third Department err in interpreting the requirements of General Municipal Law
Section 959(a)(v)(6) to allow the Department of Economic Development to exclude, WL, LLC's
investments in the year 2000 in the applicable Empire Zone even though General Municipal Law
Section 959(a)(v)(6) required the Department of Economic Development to compare WL, LLC's
"total" investment in its facility and remuneration of employees to the "total" tax benefits
refunded to WL, LLC?
a: Yes, the Third Department erred in refusing to require the Department of Economic
Development to consider WL, LLC's "total" investments.
3. Did the Third Department err in interpreting the "at least three business annual reports"
language in General Municipal Law Section 959(w) to permit the Department of Economic
Development to refuse to consider investments made by WL, LLC during the year 2000?
m: Yes, the Third Department erred in its interpretation of Section 959(w).
4. Did the Third Department err in upholding the Department of Economic Development's
interpretation that the year 2000 amendments, as defined in Part GG of Section 63 of the 2000
Session Laws, created a new Empire Zone Program rather than merely continuing the then-
existing program?
m: Yes, the Third Department applied the wrong legal standard and otherwise
misinterpreted the challenged regulation and statute and incorrectly upheld the Department of
Economic Development's interpretation that the amendments in the year 2000 created a new
Empire Zone program rather than merely continue the then-existing program.
5. Did the Third Department err in refusing to declare the challenged regulation to be invalid?
w: Yes, the Third Department erred in refusing to declare the challenged regulation to be
invalid.
vii
6. Did the Thiid Department err in refusing to issue all appropriate orders to direct the
Department of Economic Development to issue to WL the retention certificate as required by
law?
m: Yes, the Third Department erred in refusing to issue all appropriate orders to direct the
Deparhnent of Economic Development to issue to WL the retention certificate as required by
law.
7. Did the Third Department correctly determine that, even if the decertification of WL, LLC
was otherwise proper, it was impermissible to retroactively apply the applicable 2009
amendments to the General Municipal Law?
m. Yes, the Third Department correctly determined that the applicable 2009 amendments
to the General Municipal Law could not be retroactively applied and this portion of the Opinion
and Order of the Third Department entered May 3,2012 should be affirmed.
8. Other than as set forth in Question 7, should the Order and Opinion of the Thiid Department
be reversed?
m: Yes, other than affirming the declaration of the Thiid Department that the applicable
2009 amendments to the General Municipal Law cannot be retroactively applied, the Opinion
and Order should be reversed, and WL, LLC should be granted the relief requested in this brief.
JURISDICTIONAL STATEMENT
Appellant WL, LLC ("WL") appeals from an Opinion and Order of the Appellate
Division, Third Department, entered May 3, 2012 (the "Opinion and Order"). This Court has
jurisdiction of this appeal pursuant to CPLR Section 5602(a) and CPLR Section 5514, having
granted WL leave to appeal. ~ ~ . 4 4 9 ; ' WL, LLC v. Dep't of Econ. Dev. et al., 20 N.Y.3d 853
(2012).
By Notice of Appeal dated June 11, 2012, Respondents-Defendants-Appellants the
Department of Economic Development ("DED"), the Department of Taxation and Finance
("DTF"), the Empire Zone Designation Board (the "EZDB"), the Commissioner of the DED (the
"Commissioner"), the Commissioner of the DTF, and the Chair of the Board (collectively, the
"State") filed an appeal as of right to this Court. R.431. Pursuant to the schedule directed by this
Court in a letter dated November 30, 2012, this brief shall serve both as WL's opening brief on
its appeal and as its responsive brief to the State's appeal. Each of the issues raised in this brief
has been preserved for review as referenced in the Opinion and Order and otherwise in the
Record as described in the Procedural History section of this brief. The Opinion and Order is set
forth in the record at R.436-446 and is reported as WL, LLC v. Department of Economic
Development, 97 A.D.3d 24 (3rd Dep't 2012).
PRELIMINARY STATEMENT
WL is requesting this Court to determine that a statutory mandate to calculate "total"
investments does not permit the DED to make this calculation with less than all investments.
Notwithstanding the apparent simplicity of this mandate, the DED ignored the plain meaning of
' WL accepts and adopts the Record on Appeal submitted by the Attorney General. References to the Record on
Appeal of the Attorney General shall be to "R.-". References to WL's Supplemental Record on Appeal shall be
"SR.- ". The numbering of the Supplemental Record on Appeal begins where the numbering of the State's
Record on Appeal ended.
the word "total" in General Municipal Law, Section 959(a)(v)(6) in order to revoke WL's
Certificate of Eligibility for Empire Zone benefits. WL's certification was revoked based solely
on DED's erroneous calculation, notwithstanding WL's compliance in all respects with
requirements for certification.
General Municipal Law, Section 959(a)(v)(6), added in 2009, permitted the DED to
decertify a business which had been previously certified to receive Empire Zone benefits if the
business did not provide "total" investments in its facility and remuneration to employees greater
than the tax benefits the business received. This is commonly known as the "1:1 benefit-cost
test."
Notwithstanding the statutory mandate to use total investments and remuneration, the
DED promulgated a regulation restricting the DED's calculations to years beginning in 2001, the
year ajeu the DED certified WL under the Empire Zones program. Relying on this regulation,
DED then disregarded the investment of $1,667,759 made by WL in 2000 and revoked WL's
certification for failing the 1:1 benefit-cost test. It is undisputed that WL would have "passed"
the 1:l benefit-cost test by more than a 4:l margin if WL's "total"' investment was counted, as is
clearly required by the statute.
The Third Department found that the DED's regulation and the DED's consequent
calculations using less than all of WL's investments and remuneration, were not irrational,
despite the clear statutory mandate to use "total" investments and remuneration. In doing so, the
Third Department erroneously applied an "arbitrary and capricious" standard of review to uphold
the DED's regulation, and DED's reliance on that regulation, to decertify m.
The Opinion and Order defies the "common sense" meaning of "total," and is contrary to
applicable law. WL satisfied the test established by the statute but nevertheless lost. For all of
the reasons set forth in this brief, this result should be overturned, and WL's certification
continued.
Part I of the argument in this Brief addresses WL's appeal on the 1:l benefit-cost test.
Part I1 addresses the alternative challenge raised by WL and responds to the Appellate Brief filed
by the State. WL challenged the State's position that the applicable decertification statute and
regulations should be applied retroactively. The Third Department held that the State violated
due process by requiring retroactive revocation of Empire Zone certifications, and the State
appealed. The Order and Opinion should be affirmed to the extent that it held that decertification
by the DED cannot be retroactively applied.
STATEMENT OF FACTS
Contrary to the assertion of the State, the Empire Zones Program (the "Program") was
first enacted in 1986 under the name "Economic Development Zones Program". R.150, R.272.
Its purpose was to stimulate economic investment in distressed areas throughout New York
State. R.150, R.272. Although it has been amended many times, the Program has been in
continual existence since 1986. R.15 1. The Program is codified in Article 18-B of the General
Municipal Law. N.Y. Gen. Mun. Law 5955 (the "GML"); See Point II(C)(i), inza for detailed
discussion.
WL was certified under the Economic Development Zones Program effective May 9,
2000. R.99. WL's certification was evidenced by a Certificate of Eligibility bearing the label
"Economic Development Zones Program" (the "Certificate"). R.99.
The State has conceded that WL's Empire Zone certification was effective May 9, 2000.
R.277, R.349. The State has also acknowledged that the Certificate is the evidence of WL's
Empire Zones certification, notwithstanding that the Certificate bears the legend "Economic
Development Zones Program". State Br. at 17, citing R.99; see also R.349. It is undisputed that
despite the name change of the Program, WL remained continuously certified from 2000
forward. 12.72, R.240.
On or about June 9, 2000, WL acquired commercial real estate and improvements
thereon located at 217 South Salina Street, in the City of Syracuse, New York 13202, a seven-
story building with commercial and government tenants and first floor retail establishments (the
"Facility"). R.72. The Facility is centrally located in the economically distressed downtown
Syracuse and in the City of Syracuse Empire Zone. R.72.
As a duly certified Empire Zone enterprise, WL conducted its operations (securing leases
for the Facility, and maintaining and improving the Facility) continuously from June of 2000 to
the present day. R.72-73. The benefits under the Program have been and continue to be a
significant, investment-based expectation of WL, and WL acquired the Facility in anticipation of
and reliance on these benefits. R.73.
On April 7, 2009, Article 18-B was amended to require the DED to review all zone-
certified businesses to determine whether their certifications should be revoked pursuant to two
new decertification grounds (the "2009 Amendments"). R.74. The new decertification grounds
are colloquially known as the "shirt-changer" test (set forth in GML Section 959(a)(v)(5)) and
the "1:l benefit-cost" test (set forth in GML Section 959(a)(v)(6)). R.157, R.273. The 1:l
benefit-cost test, which is the only ground for decertification sought by the Commissioner, states
as follows:
"(6) 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
has refunded to it. "
GML §959(a)(v)(6) (emphasis added).
On April 15, 2009, Respondent the DTF issued a memorandum alternatively designated
"TSB-M-09(5)Cn and "TSB-M-09(4)In (the "2009 DTF Memo"). R.74-75. The 2009 DTF
Memo retroactively eliminated certain Empire Zone tax credits, stating that such credits -
although earned by activity and transactions during the 2008 tax year - would not he allowed to
taxpayers that could not present an "Empire Zone retention certificate" with their 2008 tax
returns. R.132-133.
On May 29, 2009, the DED issued regulations relating to the 2009 law changes. R.75.
These regulations provide, in part, that for the purposes of the 1:l benefit-cost test under GML
Section 959(a)(v)(6), the DED's review would be limited to years 2001 to 2007. 5 NYCRR
51 1.9(c) (the "Regulation"). The Regulation also provides that, "[tlhe effective date of
decertification pursuant to this Section 11.9(c) shall be January 1,2008." Id.
The DED sent WL a letter dated May 18,2009 (the "May Letter") which stated,
"Based on our initial review of your business, it appears your
business does not meet the qualifications for continued
certification.
You do not have to do anything in response to this letter. We will
be sending you additional information by no later than June 19'
that will provide further details on our findings and explaining the
process for appealing any decisions regarding this matter."
R.341 (emphasis added).
The May Letter did not even specify the statutory grounds upon which the DED believed
WL would be decertified - the shirt-changer ground or the 1:l benefit-cost test. R.341. The
May Letter also lulled WL into believing that there would be a future opportunity to present
evidence in support of continued certification after more details were provided. R.341. No such
details were provided. R.77.
Instead, WL received a letter dated June 29, 2009 informing WL that it had been
decertified (the "June Letter"). R.342. The June Letter parroted the statutory language of GML
Section 959(a)(v)(6) but did not give any findings of fact or reasons specific to WL. R.342. The
DED's June Letter purported to make the decertification retroactively effective by stating, "[tlhe
effective date of revocation will be January 1,2008." R.342.
The DED never provided any details or factual basis relating to its reasons for
decertification (R.77), nor did the DED's letters offer WL any opportunity to be heard. The State
unveiled the DED's calculation of WL's 1:l benefit-cost test for thefirst time in response to the
Petition, in the Affidavit of Randall Coburn, sworn to on September 29, 2010 (the "Coburn
Affidavit"). R.378. Until the submission of the Coburn Affidavit, WL had never received any
calculations from any Respondent showing how the DED or the EZDB concluded that WL failed
the 1:l benefit-cost test. R.378.
The DED deliberately chose to exclude from the calculation any information regarding
year 2000, limiting DED's calculation to information from WL's 2001 to 2007 business annual
reports ("BARS"), R.277, R.349, R.356-359. The EZDB upheld the DED's calculation. R.145.
The DED and the EZDB therefore ignored the statutory mandate to evaluate WL's "total"
investment and the information presented by WL. It is undisputed that, when the year 2000
investment is included, WL's total investment and wages paid in the Zone was at least
$2,027,298.00. R.439-R.440; WL, LLC, 97 A.D.3d at 28. By the State's own calculations, WL's
tax benefits were only $473,366.26. R.359. This results in a ratio of more than 4:1, well over
that needed for continued certification.
The uncontroverted evidence is that WL's total investment as a certified business
exceeded the total tax benefits claimed by WL when the year 2000 investments and tax benefits
are included.
WL duly appealed to the EZDB on August 26,2009. R.79. At a meeting held on March
11, 2010, that lasted a mere ten minutes, EZDB affirmed WL's decertification as part of a batch
of 91 appeals, without any discussion of the merits of WL's (or any other) appeal. R.79-84. The
video of the meeting and the documents submitted with the Coburn Affidavit make it abundantly
clear that in affirming the DED's Determination, the EZDB accepted without question or
discussion the DED's recommendations to affirm his own decertification decision. R.79-84. The
EZDB's decision was communicated to WL by letter dated March 24,2010. R.145.
Thereafter, WL duly commenced this hybrid Article 78 and declaratory judgment action.
PROCEDURALBACKGROUND
WL commenced this hybrid Article 78 and declaratory judgment action in Supreme
Court, Albany County by the filing of a Notice of Petition, Summons, and Verified
Petition/Complaint. R.62-98. The gravamen of the Verified Petitionlcomplaint was to
challenge the revocation of WL's Certificate of Eligibility for the Empire Zone Program (the
"Certificate") under GML 5959 ("GML 959").
WL's First Cause of Action challenged WL's decertification, inter alia, as affected by an
error of law. R.85-86. The error of law identified was that the regulations applied by the DED
in the decertification process omitted the year 2000 from consideration in the calculation of the
1:l benefit-cost test under GML Section 959(a)(v)(6), and therefore, the DED did not properly
apply the statute. R.75, R.85-86.
In its Eleventh Cause of Action, WL sought a declaration that 5 N.Y.C.R.R. Section
11.9(c) (the "Regulation"), the regulation omitting the year 2000 from consideration in the
calculation of the test under GML Section 959(a)(v)(6), was invalid, null and void as inconsistent
with its enabling statute, GML Section 959. R.75, R.94-96.
In its Seventh through Tenth Causes of Action, WL sought declarations that, even if the
revocation of its Certificate was valid, revocation could not be applied retroactively for, among
other reasons, the regulations requiring retroactive application were invalid as inconsistent with
the enabling statute and violated due process of law. R.92-94.
By Decision and Order dated December 1,2010, the Special Term, Hon. Henry F Zwack
presiding, dismissed WL's Verified PetitionIComplaint in its entirety. R.18-22. WL duly
appealed the entirety of the Special Term's Decision and Order to the Third Department. R.3-10.
On appeal, by an Opinion and Order dated May 3, 2012 (the "Order"), the Third Department
found that the retroactive decertification of WL to January 1, 2008 was a violation of due
process, but upheld the denial of all other relief requested by WL. R.436-446; WL, LLC, 97
A.D.3d at 34.
Specifically, the Third Department considered and rejected WL's argument that the State
was required to consider WL's investments from the year 2000 in performing the calculation
under GML Section 959(a)(v)(6) for decertification. R.439-R.441; WZ, LLC, 97 A.D.3d at 28-
* The Verified PetitioniComplaint set forth procedural due process challenges in the Second through Sixth Cause of
Action. R.87-92. WL argued before the Third Department that the determinations by DED and the Empire Zone
Designation Board violated WL's procedural due process rights. The Thiird Department erroneously found that WL
had received due process because it had received adequate notice and a fair opportunity to make its arguments.
R0.441-443; WZ, LLC, 97 A.D.3d at 29-31. The Third Department also noted that the State did not dispute that if
the year 2000 is included, WL is entitled to certification. R.439. WL, LZC, 97 A.D.3d at 28. Because of this
finding, upon a holding by this Court that the year 2000 should have been included, this Court should enter an order
directing WL's continued certification and issuance to WL of an Empire Zone Retention Certification without the
necessity of any further proceedings. Accordingly, due process is no longer a concern. However, WL reserves the
right to raise additional due process objections if circumstances warrant.
30. The Third Department addressed WL's argument that the Regulation omitting the year 2000
was inconsistent with the Regulation's statute, but chose to review the Regulation only under the
arbitrary and capricious standard under Article 78, rejecting WL's request that the Regulation be
reviewed as inconsistent with GML Section 959(a)(v)(6) and therefore constituted an error of
law. R.439-440; WL, LLC, 97 A.D.3d at 28-30. The Third Department summarily affirmed
without discussion that portion of the Special Term decision dismissing WL's declaratory
judgment cause of action raising the same arguments. R.446 WL, LLC, 97 A.D.3d at 34. The
question of the appropriate standard of review for the challenge to the Regulation as inconsistent
with its enabling statute and as an error of law is therefore preserved for this Court, as is the
substantive question of whether or not the Regulation is in fact inconsistent with the enabling
statute. The question as to whether the DED improperly revoked the certification and denied
issuance of a retention certificate is also preserved for review.
The State filed an appeal as of right to this Court. R.43 1. The State's appeal, as briefed, is
limited to challenging the retroactivity portions of the Order. Brief for Respondents-Defendants-
Appellants, dated September 25,2012 (the "State Br.").
WL filed a cross-appeal as of right with this Court, which appeal was subsequently
dismissed for lack of a substantial constitutional question. WL, LLC v. Dep't of Econ. Dev. et al,
19 N.Y.3d 1021 (2012). WL then filed a motion for leave to appeal pursuant to CPLR Sections
5602 and 5514, which motion was granted by this Court. SR.449. WL, LLC v. Dep't of Econ.
Dev. et al., 20 N.Y.3d at 853.
The present appeal is one of several cases before this Court challenging revocations of
Empire Zone certificates of eligibility under the 2009 Amendments. In particular, this Court is
currently reviewing the Appellate Division, Fourth Department's (the "Fourth Department")
decision in James Square Associates LP et al. v. Dennis Mullen, as Commissioner of New York
State Department of Economic Development et al., 91 A.D.3d 164 (4th Dep't 201 I), CA 11-
00673 and CA 11-00675 ("James Square'?. The question of the retroactive application of the
decertifications under the 2009 Amendments has been extensively briefed in James Squu~e. As
indicated inza, WL is adopting and incorporating by reference arguments made by the
respondents in James Square.
PART I:
WL'S ARGUMENT AS APPELLANT
POINT I
THE THIRD DEPARTMENT APPLIED AN INCORRECT
LEGAL STANDARD IN REVIEWING THE REGULATION
The Third Department applied the incorrect legal standard in reviewing the challenge by
WL to the Regulation implementing the 1 : 1 benefit-cost test, 5 N.Y.C.R.R. Section 11.9(c).
Based on the face of the statute, the DED should not have revoked WL's certification and should
have issued WL a retention certificate.
The DED and the EZDB both relied on the Regulation in omitting the year 2000. The
Regulation provided that the DED could consider only business annual reports or BARS for the
years 2001 and after. WL's decertification resulted solely from the State's decision to omit
investments and remuneration paid in the year 2000 from the calculation of the 1:l benefit-cost
test. It is undisputed that if WL's investments from 2000 are included, WL easily passes the
test. R.439; WL, LLC, 97 A.D.3d at 28.
WL challenged the validity of the Regulation in this hybrid proceeding, seeking both
Article 78 relief and a declaratory judgment that the Regulation was inconsistent with its
enabling statute, GML Section 959. R.94-95, R.96-97. WL commenced a hybrid action in order
to challenge both the validity of the underlying Regulation and the action taken by the DED in
denying relief.
An interpretation contained in a regulation may be challenged within an Article 78
proceeding under the "error of law" standard (Daily Star v. Bd of Trustees of the Village of
Cooperstown, 164 A.D.2d 531, 533 (3rd Dep't 1991)) or it may be challenged through a
declaratory judgment action (Kurcsics v. Merchants Mutual Ins. Co., 49 N.Y.2d 451, 455, 458-
459 (1980) (granting declaratory judgment interpreting provision of no-fault law in a manner
contrary to the relevant regulations)). Here, WL did both. R.94-97.
In affirming Special Term, the Third Department erroneously limited its review to the
Article 78 arbitrary and capricious standard, stating that "since this is a CPLR Article 78
mandamus proceeding, this Court is limited to determining whether DED's decision restricting
its review to the 2001-2007 time period is arbitrary and capricious and without a rational basis."
R.440; WL, LLC, 97 A.D.3d at 30. By reviewing the omission of the year 2000 only under the
arbitrary and capricious standard, the Third Department incorrectly ignored the challenge to the
validity of the Regulation and applied the wrong standard of review.
Under the correct standard of review for the validity of the Regulation, the Third
Department was required to undertake a two-step analysis. First, the Third Department was
required to analyze whether the Regulation was consistent with the enabling statute, GML
Section 959(a)(v)(6). Only if the Third Department found the Regulation consistent with the
GML Section 959(a)(v)(6) should the court have considered whether the Regulation is arbitrary
and capricious and without a rational basis. Weingarten et al. v. Bd of Tr. of the New York City
Teachers' Retirement Sys. et al., 98 N.Y.2d 575, 579-580 (2002) ("Weingarten"); see General
Electric Corp. v. State Div. of Tax Appeals, Tax Appeals Tribunal, et al., 2 N.Y.3d 249, 254-255
(2004); Murtha v. Leonard, 210 A.D.2d 41 1 (2d Dep't 1994); West 90sMest 100s Neighborhood
Coalition, Inc. v. Surles, 205 A.D.2d 461 (1st Dep't 1994).
As amended by the 2009 Amendments, GML Section 959 instructed the State to review
WL"s "economic returns" provided to the State in the form of "total" employee remuneration
paid and investments made in the Zone. GML §959(a)(v)(6); GML §959(w). WL was subject to
decertification if the total economic returns WL provided were less than the total tax benefits it
had received. If the investments by WL in the year 2000 are counted, WL would have easily
passed the 1:1 benefit-cost test. R.439, WL, LLC, 97 A.D.3d at 28. The central question is,
therefore, whether the Regulation's omission of years prior to 2001 from the calculation of this
test is consistent with GML Section 959(a)(v)(6)'s instruction that "total" investments and
remuneration be counted. This question - which hinges on the meaning of the word "totaln- is a
question of law subject to de novo review by this Court. Weingarten, 98 N.Y.2d 575, 579-580
(2002).
In Weingarten, this Court refused to defer to an agency's interpretation of the word
"salary," stating that "determining the intended statutory meaning of 'salary' in this case does not
require 'knowledge and understanding of underlying operational practices or entail[] an
evaluation of factual data and inferences to be drawn therefrom' " 98 N.Y.2d at 580. Similar to
the word "salary" in Weingarten, the word "total" as used in GML Section 959(a)(v)(6) is a
common term that can be interpreted by a court and requires a simple mathematical computation
of comparing the investment and wages against the tax benefits. R.443, WL, LLC, 97 A.D.3d at
31. No special expertise is required to understand the meaning of "total". Accordingly, the
Third Department's application of arbitrary and capricious standard and the deference it accorded
to the DED's interpretation embodied in the Regulation was erroneous. Weingarten, 98 N.Y.2d at
580; General Electric Corp. v. State Div. of Tux Appeals, Tux Appeals Tribunal, et al., 2 N.Y.3d
at 249, 254-255; Murtha v. Leonard, 210 A.D.2d 411 (2d Dep't 1994); West 90s/West 100s
Neighborhood Coalition, Inc. v. Surles, 205 A.D.2d 461 (1st Dep't 1994).
Stated another way, the question presented in this case is one "of pure statutory reading
and analysis, dependent only on accurate apprehension of legislative intent" and accordingly the
agency's interpretation of the statute as embodied in the Regulation is not entitled to any
deference. Weingarten., 98 N.Y.2d at 575, 579-580. This Court should review de novo the
question of whether or not the Regulation is consistent with the enabling statute, without
providing any deference to the DED's interpretation of GML Section 959(a)(v)(6) and the
applicable legislative history.
POINT I1
THE REGULATION OMITTING YEAR 2000 INVESTMENTS WAS
LNCONSISTENT WITH THE ENABLTNG STATUTE, GML SECTION 959
The Regulation promulgated by the DED is invalid because it ignores the word "total" in
GML Section 959(a)(v)(6) and therefore artificially limits the inquiry only to the years 2001 and
after. GML Section 959(a)(v)(6) did not grant any discretion to DED to determine or limit the
meaning of the word "total". GML Section 959(a)(v)(6) requires that "total" investments and
remuneration be considered. Since the DED and the EZDB's decisions to decertify WL were
based on this Regulation, the decertification should be overturned.
The Third Department's holding that the Regulation was not arbitrary or capricious and
was not in excess of the agency's authority was based on two erroneous fmdings. R.441; WL,
LLC, 97 A.D.3d at 30. First, the Third Department erroneously found that the DED was rational
in holding that the statute permitted review of less than the total investments and remuneration,
based on language in GML Section 959(w) requiring the DED to base the 1 : 1 benefit-cost test on
"at least three business annual reports." R.440-441; WL, LLC, 97 A.D.3d at 29. Second, the
Third Department further erroneously found that the Empire Zone Program was a new program
created in 2000, and that 2001 was the first full taxable year after the creation of the program.
R.440-441; WL, LLC, 97 A.D.3d at 29-30. Although not stated explicitly, the Third Department
apparently determined that including only investments and remuneration fiom the year 2001
forward would therefore satisfy the instruction in GML Section 959(a)(v)(6) to calculate "total"
remuneration and investment. These fmdings were erroneous and conflict with the plain
language of GML Section 959(a)(v)(6).
A. The use of the word "total" in GML Section 959(a)(v)(6) clearly required
the DED to include all investments of WL following certification in 2000.
Under well-established principles of statutory interpretation, this Court should adopt the
plain meaning of the word "total." Auerbuch v. Board of Educ. of City School Dist. of City o f
NY, 86 N.Y.2d 198,204 (1995). Here, the obvious meaning of the word "total" is "comprising or
constituting a whole; entire." htt~://www.merriam-webster.com/diction~. Accordingly,
the instruction in GML Section 959(a)(v)(6) to calculate WL's economic returns to the state in
the form of "total" investments and remuneration must be read to mean the whole of WL's
investments and remuneration paid into the Zone during its period of certification. Any
calculation that ignored part of the period of certification would be in conflict with GML Section
959(a)(v)(6), since the calculation would fail to include investments and remuneration paid
during that period and would therefore be incomplete.
Notwithstanding the plain meaning of the statute, the Third Department held that it was
permissible to exclude from the calculation of the 1:l benefit-cost test WL's $1,667,769
investment made in June, 2000. The Third Department's finding requires a determination that the
DED had statutory authority to utilize a period other than the entire period of certification for the
purpose of applying the 1:l benefit-cost test. Because the DED's exclusion of the year 2000
from WL's cost-benefit calculation is contrary to the statute, the order of the Third Department
must be reversed.
B. The "at least three" language did not permit review of less than WL's total
economic returns
The Third Department found that GML Section 959(w) "implicitly authorize[d] a limited
review of the BARs filed by a program participant." R.440; WL, LLC, 97 A.D.3d at 29. It based
this finding on the statute's direction that the calculation of the 1:l benefit-cost test by the DED
"shall be based on data contained in at least three business annual reports". R.440; GML
§959(w).
The DED's and Third Department's interpretation of the "at least three" language creates
an internal inconsistency in GML Section 959 and lacks any plausible support in statutory
construction. As set forth above, the word "total" must be given its plain meaning of "consisting
of the whole" or the "entire". Point I1 A, supra. Accordingly, GML Section 959(a)(v)(6) clearly
requires that all economic returns from all years be considered. Doing so would require
reviewing all the BARS submitted by an enterprise, since each BAR only reported the
investments and remuneration from that year. R. 101 -1 19. Permitting the State to review only
three BARS when an enterprise had filed more than three would allow the State to ignore some
of the economic returns provided by the enterprise, in conflict with the mandate in GML Section
959(a)(v)(6) that the "total" remuneration and investment should be considered. Under well-
established principles of statutory construction, interpretations of statutes which create internal
inconsistencies are to be avoided. See Blalock v. Olney, 17 A.D.3d 842 (3rd Dep't 2005); Chase
Partners, LLC v. Inc. Village of Rockville Centre et al., 43 A.D.3d 1049, 1052 (2d Dep't 2007).
When interpreted correctly, however, the instruction in GML Section 959(w) that the
review be "based on data contained in at least three business annual reports" is entirely consistent
with the "total" language in GML Section 959(a)(v)(6). The better, internally consistent,
interpretation of the "at least three" language is that it prevents the DED from applying the 1:l
benefit-cost test to businesses which had been certified for fewer than three years. In other
words, GML Section 959(w) created an exception to the 1:l benefit-cost test for newly formed
business that had not yet had the opportunity to provide the benefits anticipated and required by
the legislature in enacting the 1: 1 benefit-cost test. The language was not created to allow the
DED to review any three years the DED happened to select for review.
The DED apparently also accepted the view advocated by WL of the "at least three"
language of GML Section 959(w) at the time it adopted the Regulation. The Regulation
provides, "The DED shall revoke the certification of a business enterprise upon a fmding that. . .
a business enterprise that has submitted at least three years of business annual reports has failed
to provide economic retums to the State . . .greater [in] value than the tax benefits". 5 NYCRR
$1 1.9(c)(2) (emphasis added). The phrase "that has submitted at least three years of business
annual reports" modifies "business enterprise", thereby limiting the applicability of the 1:l
benefit-cost test to those businesses which had been certified for at least three years. This
interpretation is consistent with the statutory provision that provides a separate test for
calculating the "cost-benefit analysis" for businesses certified after 2009. See GML §957(p)
(adopted three year period for new certifications as part of 2009 Amendments).
The Third Department was aware of 5 NYCRR Section 11.9(~)(2), since the court cited it
in a footnote as the basis for the Empire Zone Designation Board's denial of WL's appeal.
R.441; WL, LLC, 97 A.D.3d at 30. Yet, the Third Department nevertheless misinterpreted the "at
least three" language in GML Section 959(w) as permitting the State to review less than all of
WL's economic retums, in conflict with the instruction that the "total" economic returns should
be considered. The Third Department should have found that GML Section 959 required
consideration of all of WL's investments and remuneration from and after the date of certification
in 2000 and declared the Regulation invalid as inconsistent with its enabling statute. Failing to
do so was reversible error.
C. The Third Department erred in finding that WL was not part of the Empire
Zone Program when it made its year 2000 investments
The Third Department also based its holding on the erroneous fmding that WL's year
"2000 BAR was filed while participating in the [Economic Development Zone ~ r o ~ r a m ] ~ " rather
than the Empire Zone Program. R.437, R.440-R.441; WL, LLC, 97 A.D.3d at 26. The Third
Department accepted DED's argument that Part GG, Section 63 of the 2000 Session Laws (the
"2000 Amendments" or "Part GG") created a new "program", incorrectly reviewing and
accepting this argument using an "arbitrary and capricious" standard of review. R.440; WL,
LLC, 97 A.D.3d at 29. As set forth supra, the correct standard of review was de novo. See Point
I, supra. For the reasons set forth below, this determination was patently incorrect.
i. The Empire Zone Program was mereljr a new name for the Economic
Development Zone Program
The Empire Zone Program, originally named the "Economic Development Zone
Program" was enacted in 1986 and was embodied in the General Municipal Law as Article 18-B
in GML Section 955 et seq. 1986 Session Laws, Ch. 686, $1, page no.1609-1624, enacting
GML Article 18-B. The stated purpose of Article 18-B was "to offer special incentives and
assistance that will promote the development of new businesses, the expansion of existing
business and development of human resources within these economically improverished areas ..."
GML 5956. To carry out these purposes, Article 18-B created a comprehensive allocation of
responsibilities among the Commissioner of Economic Development, other State agencies,
The Third Department characterizes the former name of the program as the "Economic Zone Development
Program". It was actually the "Economic Development Zone Program," but the name difference is of no
consequence.
counties, and municipalties, and provided for the certification of businesses in these distressed
areas ("Zones").
Central to this process are the detailed provisions for certification of Zone businesses,
which WL undisputedly satisfied in obtaining and retaining its certification until the DED's
erroneous decertification. See GML $959. Important benefits and incentives available to Zone-
certified businesses were identified in Article 18-B but were codified elsewhere, including in the
Tax Law, the Real Property Tax Law, and the Public Service Law. See 1986 Session Laws, Ch.
686, $1, enacting GML $966 (listing provisions of Tax Law, Real Property Tax Law, and Public
Service Law in which the benefits of certification were codified ).
Although various amendments have been made to the Program over the years, this
codification scheme remains the same today. The administration and existence of the Program is
governed by Article 18-B of the General Municipal Law, while the primary benefits available to
Program participants are codified in other laws such as the Tax Law and the Real Property Law.
See e.g. GML $5955-969; N.Y. Real Property Tax law $485-e; N.Y. Tax Law $3 186-a, 210,
606,1119, and 1456,151 1; N.Y. Public Service Law 566.
The "Economic Development Zones Program" became known as the "Empire Zones
Program" effective May 16, 2000, with the enactment of Part GG directing that "[tlhe term
'economic development zone' is hereby changed to 'empire zone' wherever the term 'economic
development zone' appears in the consolidated or unconsolidated laws of this state." Laws of
2000 (Ch 63, Part GG, $15), reproduced at R. 159.
The State and the Third Department misconstrued the 2000 Amendments as a repeal of
the Economic Development Zones Program and a simultaneous replacement of a new one, the
Empire Zones Program. R.437, R.449, WL, LLC, 97 A.D.3d at 26, 29-30. Yet, nowhere in the
2000 Amendments is any mention made of repealing the Economic Development Zones Program
as enacted in Article 18-B. Indeed, the 2000 Amendments did not make any amendments
whatsoever to Article 18-B of the GML, other than directing that the phrase "economic
development zone" be changed to "empire zone" wherever it appeared. 2000 Session Laws, Part
GG, 515. There were no changes to the administration of the Program, to the duties and
responsibilities of State agencies (including the DED), to the standards for qualification for
certification or decertification, or to any other standard or requirement for certification as an
empire zone enterprise. Id. The amendments by Part GG added nothing to Article 18-B that
could conceivably be deemed to alter eligibility or requirements for certification or create a
"new" program.
Instead, the 2000 Amendments merely created additional tax incentives for which zone-
certified business could qualify: the QEZE Credit for Real Property Taxes and the QEZE Tax
Reduction Credit, which changes were codified in the Tax Law. 2000 Session Laws, Chapter 63,
Part GG, $52-7. In addition, other portions of the Tax Law were amended to create and enable
the QEZE sales tax exemption. 2000 Session Laws, Chapter 63, Part GG, $58-14.
The Third Department's interpretation that the name change terminated one program and
enacted a whole new one is unsupportable and error as a matter of law. In fact, the Third
Department's own holding is internally inconsistent with other portions of its opinion and the
opinion of the Fourth Department in James Square. The Third Department contradicted its own
analysis later in its opinion, stating that "the program had been in existence in one form or
another for over 25 years, and petitioner had been a certified participant in it since 2000." R.444;
WL, LLC, 97 A.D.3d at 32. Thus, the Third Department itself acknowledged that the Empire
Zone Program was simply a continuation of the Economic Development Zone Program under a
different name.
Additionally, the Fourth Department in James Square, also reached this conclusion,
finding that "In 1986, the legislature enacted the Empire Zone Act[.]" James Square Assoc. LP
et al. v. Mullen et aL, 91 AD3d 164, 166 (4th Dep't 2011). Finally, the State's own actions belie
its contention that the 2000 Amendment created a new program. In its Answer to the Verified
Petitionlcomplaint admitted that: "Despite the name change of the Program, Petitioner remained
continuously certified from 2000 forward." R.72, R.240. WL's certificate of eligibility issued by
the DED and effective May 9, 2000 (R.349) bears the words "Economic Development Zones
Program". R.99. DED never issued a replacement certificate or required WL to re-apply for a
new certification following the 2000 Amendments, but has at all times acted in conformity with
the understanding that this Economic Development Zone Program certificate made WL an
Empire Zone certified business. See, e.g. State Br. at 17 (citing to the certificate of eligibility in
the record for the date of WL's Empire Zone certification).
As the Third Department itself acknowledged, the Empire Zone Program was simply a
new name chosen in 2000 for an ongoing program which had formerly been known as the
Economic Development Zone Program. In light of the simple wording of the legislation, the
admissions of the State, and the clear evidence in the record, the Third Department erred in
distinguishing between the Empire Zone Program and the Economic Development Zone
Program. Because there was no new program, there was no basis for the DED to disregard WL's
year 2000 investments. The Third Department's erroneous holding that GML Section
959(a)(v)(6) permitted the State to disregard WL's year 2000 investments based on this
unsupported distinction should be overturned.
. .
11. The Third Department'sflnding that the ZOO0 Amendmenf changed the criteria
for certiJication is incorrect.
The Third Department also justified its rational basis analysis by finding that the 2000
Amendments changed the certification criteria:
"For example, the EZP [Empire Zones Program] has criteria as
embodied in these amendments that must be satisfied for
certification to be granted that were not required of entities when
participating in the EZDP [Economic Development Zones
Program], and the tax benefits and credits it awards have been
significantly enhanced over those offered by the EZDP (see L.
2000, ch. 63, $1 pt. GG §16[2])."
R.441., WL, LLC, 97 A.D.3d at 29-30.
This statement is inaccurate. The 2000 Amendments made no change in the criteria for
certification, which are contained in Article 18-B. The section of the Amendments cited by the
Third Department, Part GG, Section 16[2], merely sets forth the first taxable year in which Zone-
certified businesses (including WL) would be allowed to qualify for two new tax benefits added
by the 2000 Amendments. The provisions of GG referenced by subdivision 2 of Section 16 do
not address the requirements for certification, nor does any other provision of the 2000
Amendments. In fact, it is undisputed that WL was not required to obtain a new certification in
order to qualify for benefits under the 2000 Amendments. See, e.g. State Br. at 17 (citing to the
certificate of eligibility in the record for the date of WL's Empire Zone certification).
Accordmgly, the Third Department was incorrect in finding that the 2000 Amendments changed
the criteria for certification.
D. Although the legislature could have expressly provided in the 2009
Amendments that the DED measure the investment and remuneration for
tax years following 2001 only, it simply did not do so.
By use of the word "total," GML Section 959(a)(v)(6) does not permit a temporal
limitation on investments, remunerations or benefits to the years 2001 and after. The legislature
knew how to include a temporal limitation when it chose, and in fact did so with respect to the
"shirt-changer test" enacted at the same time as the 1:l benefit-cost test as part of the 2009
Amendments. The legislature provided that the "shirt changer test" applied only to those
business which were 'Ifirst certzjiedpursuant to this article prior to thejrst day of August, two
thousand two." GML §959(a)(v)(5) (emphasis added). In contrast, the 1:1 benefit-cost test
simply stated that total economic returns should be counted, without limiting it to any particular
period.
The inclusion of specific years in GML Section 959(a)(v)(5), juxtaposed against the
omission of such a restriction in GML Section 959(a)(v)(6), requires that GML Section
959(a)(v)(6) be construed as not containing any such restriction. Pajak v. Pajak, 56 N.Y.2d 394,
396-397 (1982) (failure of legislature to include defense to divorce on ground of cruel and
inhuman treatment, when defenses were provided for other grounds, evidenced intent not to
allow defense); In re Matthew L., 65 A.D.3d 315, 321 (2d Dep't 2009) ("The failure of the
Legislature to include such a restriction, when it has otherwise done so under other
circumstances within the same statute, should be construed as indicating that the exclusion was
intentional");
The Third Department erred by supplying a restriction the legislature omitted and finding
that GML Section 959(a)(v)(6) restricted the economic returns to be considered to only those
from 2001 forward. Knickerbocker Village Tenants Ass'n v. Calogero, 13 Misc.3d 755, 761,
(N.Y. Sup. Ct. 2006), citing Weed et al. v. Tucker, 19 N.Y. 422 (1859). Nothing in the statute
permits limiting the investments and retums made after January 1, 2001. Accordingly, the
Regulation which omits consideration of year 2000 investments is inconsistent with the enabling
statute and is therefore invalid. WL's decertification pursuant to that Regulation should therefore
be overturned.
POINT I11
EVEN UNDER A RATIONALITY R E W W ,
THE REGULATION MUST BE OVERTURNED
As set forth above, under this Court's precedent the Third Department should have first
conducted a de novo review of the Regulation to determine if it was inconsistent with its
enabling statute GML Section 959. Under that standard, no deference would be accorded to the
agency's interpretation as set forth in the Regulation, and the Regulation is clearly invalid.
However, even if a "rationality" or "arbitrary and capricious" standard of review is
applied to the Regulation, the Regulation still must be found invalid. Application of an arbitrary
and capricious/rational basis test should not permit the agency to misread the legislative
enactments and rewrite history. The 2009 Amendments are clear. The word "total" is not
ambiguous. There is no reasonable reading of the law and the facts in this case that would
permit the DED to make up a restriction that does not exist in GML Section 959(a)(v)(6) to
allow an agency to read the word "total" to somehow mean less than "total". See Point 11, supra.
In addition, the DED cannot rationally be permitted to create an artificial distinction
between the "Economic Development Zone Program" and the "Empire Zone Program" where no
distinction exists and where there was no new requirement for certification under the so-called
"new" program. See Point II(C)(i), supra. For all the reasons set forth in Point I and Point 11,
there was also no rational basis to omit from consideration the economic returns provided to the
State by WL in the year 2000. Therefore, even under the rationality test, the Third Department
should be reversed and WL's decertification overturned.
A. WL's investments from 2000 should have been included because they were
made after the Empire Zone Program allegedly "replaced" the Economic
Development Zone Program.
Even assuming arguendo that the Third Department was correct in distinguishing
between the Empire Zone Program and the Economic Development Zone Program on a rational
basis standard, the Third Department still erred in finding that GML Section 959(a)(v)(6)
permitted the exclusion of WL's investments from the year 2000. The Third Department's
finding that WL's year 2000 investments were made while WL was part of the Economic
Development Zone Program is flatly contradicted by the record:
First, the standard form BAR submitted by WL for the year 2000 bears the label "Empire
Zones Program" in the top left corner. R . IOI .~ This legend on a form promulgated by the State
and used by WL is sufficient on its own to demonstrate that WL's year 2000 investments were
made while WL was part of the Empire Zone Program and, therefore, for purposes of the 1:l
benefit-cost test must be included as part of WL's "total" investments and remuneration paid.
In addition, the date of WL's investment as compared with the date of the "enactment" of
the Empire Zone Program demonstrates that WL's investments were made while WL was Empire
Zone certified. The legislation which the Third Department interpreted as creating the Empire
Zone Program was enacted on May 15, 2000. History of N.Y. Assembly Bill A-11006,
http://assembly.state.ny.us/leg/ (select 99-00 from the drop down menu; search for A-11006;
select A11006; then select "actions") (last visited January 16, 2013).' Under the DED's theory,
the Empire Zone Program replaced the Economic Development Zone Program. R.437, R.441;
WL, LLC, 97 A.D.3d at 26,29-30. It is undisputed that WL's investment was made in June 2000,
4 The original 2000 BAR did not contain the approximately $1,667,759 investment in the facility made in the year
2000. (R.lO1). That BAR was later amended to include the $$1,667,759 investment. (R.120).
The applicable portion of Bill A-1 1006 was contained in 2000 N.Y. Session Laws, Chapter 63, Part GG, which is
reproduced in the Record at R159.
subsequent to the date that the Empire Zone Program "replaced" the Economic Development
Zone Program. R.349. It is also undisputed that WL's investment was made after the date of its
certification in May 2000. R.349. Therefore, the Third Department's finding that WL's year
2000 investments were not made as part of the Empire Zone Program is erroneous.
Thus, even if this Court finds that the Empire Zone Program was in fact a "new"
program, WL should nevertheless qualify because its investment was made subsequent to
enactment of the 2000 ~mendments .~ The failure to include these investments from the year
2000 therefore lacked a rational basis.
For all of the aforementioned reasons, the Third Department's Opinion and Order should
be reversed except to extent set forth in Point 11 of this brief.
The State argued before the Third Department that the omission of years prior to 2001 was not arbitrary because
the time fiame was uniformly applied to more than 8000 companies. R.257. The fact that the State made the same
error repeatedly does not make it any less of an error. Moreover, it creates no practical impediment to invalidating
the Regulation. First, several of the 8000 companies have already received their retention certificates. Second, the
task involved would at worst affect only those business who were certified before 2001 and whose certification was
revoked solely based on the 1 :1 benefit-cost test. There was nothing in the record that stated how many businesses
would actually be affected by this determination. Moreover, as the Thud Department indicated, the 1:l benefit-cost
test is a mere mathematical computation that could easily be performed. WZ, LZC, 97 A.D.3d at 31. The alleged
burden subtly suggested by the State is vastly overstated.
PART I1
WL's ARGUMENT AS RESPONDENT
POINT IV
BOTH THE THIRD AND FOURTH DEPARTMENT
CORRECTLY DECIDED THAT THE RETROACTIVE
AMENDMENTS TO GML SECTION 959 VIOLATED DUE
PROCESS
WL should not have been decertified because it passed the 1:1 benefit-cost test.
However, in the event that the Court finds that the Regulation was consistent with GML Section
959 and the State was permitted to omit the year 2000 from consideration, WL's decertification
still should not have been applied retroactively to Janusuy 1, 2008 because, as the Third
Department found in WL, LLC and the Fourth Department found in James Square, retroactive
application of GML Section 959 violates due process. 7.
A. The Third Department correctly found that the Certification under GML
Section 959 was a property interest protected by due process.
The Third Department correctly recognized that WL was defendmg its property interest
in WL's "certification as a participant in this program - and not the attendant tax benefits and
credits[.]" R.443; WL, LLC, 97 A.D.3d at 32. The State does not dispute this holding in its brief,
and therefore the Third Department's holding on this issue is final. Andre v. City of New York,
47 A.D.3d 605 (2d Dep't 2008); Brunelte v. Time Warner Entertainment Co., L.P., 32 A.D.3d
1170 (4th Dep't 2006); Mrozinski v. St. John, 304 A.D.2d 950,95 1 (3rd Dep't 2003).
The Third Department's holding that WL had a property interest in its Empire Zone
certificate is consistent with GML Section 959 and governing case law. WL's Certificate
constitutes a property interest because WL had a legitimate claim of entitlement to it. Memphis
' In response to the appeal to this Court by the State, the James Square Respondents ably briefed many of the issues
that are raised by the State on this appeal. WL will therefore cite to the "James Square Brief' where appropriate
rather than rehashing arguments that are already before the Court.
Light, Gas, and Water Div. et al. v. Craj? et al., 436 U.S. 1, 10 (1978). A legitimate claim of
entitlement arises when a benefit may only be removed for cause. See Id. Here, WL's Certificate
entitled it to special benefits. R.99; R.151-152. Moreover, a careful reading of GML Section
959(a) establishes that WL's Empire Zone Certification may only be removed for cause.
GML Section 959(a) sets forth various grounds pursuant to which Appellant's
certification could be revoked. GML §959(a). Each of the reasons for revocation set forth in
GML Section 959(a) (both those that were added by the 2009 amendments and those that were
already in existence at that time) involve failures to abide by the requirements of the program or
the requirements of other provisions of New York Law. See GML §959(a). They are thus
properly characterized as "cause." Under standard principles of statutory interpretation, the list of
reasons for decertification in GML Section 959 are deemed to be the only reasons for
decertification, and therefore WL's Certificate may only be removed for cause. See Weingarten
v. Bd of Tr. of iV Y. City Teachers'Retirement Sys., 98 N.Y.2d 575,583 (2002).
Therefore, WL's Certificate rises to the level of a legitimate claim of entitlement and, as
the Third Department correctly found, is a properfy interest. Memphis Light, Gas, and Water
Div. et al., 436 U.S. at 10. The Third Department's holding in this case is consistent with prior
Appellate Division cases. See, e.g. Gable Transport, Inc. v. State, 29 A.D.3d 1125 (3rd Dep't
2006) (a trucking company had a property interest in a "grandfather rights certificate" which
permitted overweight operation of a vehicle.) Chrisley v. Morin et al., 126 A.D.2d 977 (4th
Dep't 1987) (a business owner had a constitutionally protected property interest in her
certification as a Women's Business Enterprise, which granted her to more favorable
consideration when competing for government contracts.)
B. Based on the existence of a property right, the Third Department correctly
determined that retroactive application of the 2009 Amendments was a
violation of due process.
In light of the Third Department's correct holding that the relevant property interest was
WL's Empire Zone certificate, this Court should uphold the Third Department's retroactivity
holding.
The Third Department found the due process standard required the court to consider
whether "the prejudice that results from the taking of its property is outweighed by the public
purpose sought to be served by such governmental action." R.444, WL, LLC, 97 A.D.3d at 33.
In applying this analysis the Third Department (as did the Fourth Department in James Square)
applied the three part test in Matter of Replan v. Department of Housing Preservation &
Development ofihe City of New York, 70 N.Y.2d 451 (1986) ("Replan"). Under Replan, the
courts apply a balancing test, considering (1) whether the taxpayer was forewarned of the change
and the reasonableness of the taxpayer's reliance on the prior law, (2) the length of the period of
retroactivity, and (3) the public purpose served by retroactive application. Replan, 70 N.Y.2d at
451. Each of these factors weighs in favor of upholding both the Third and the Fourth
Department regarding retroactivity.
z. The changes to the decertzjication criteria were not reasonably foreseeable.
The Third Department correctly found that the enactment of retroactivity provisions was
not reasonably foreseeable. The legislature did not remove or revoke any benefit granted by
GML Section 959 or applicable law. Instead, the 2009 Amendments were designed to create
new standards for revoking the Empire Zone certifications. There is no allegation in either
James Square or WL that there was any notification prior to January 1,2008 that the State would
introduce legislation that would provide for revoking a property right to a certification. In fact,
the Third Department found on the undisputed record that WL had complied with all elements of
GML Section 959 and had every right to assume that it was entitled to the benefits thereunder.
R.444; WL, LLC, 97 A.D.3d at 32-33. This is similar to the determination in James Square, 91
A.D.3d at 173-174.
The State in its brief does not directly address this finding, but instead asserts that WL
was aware that the Empire Zone Program could he amended at any time. State Br. at 35-38. The
State paints with too broad a brush. In virtually all cases the legislature has the power to change
its own laws. Claiming that a holder of a property right cannot rely on a law merely because the
theoretical possibility of a change existed would mean that reliance would virtually never be
justified. This broad interpretation would effectively eviscerate the standard set forth by this
Court in Replan.
Moreover, the correct question is whether or not WL was sufficiently "forewarned" of the
particular change in question such that WL could have changed its behavior had it chosen to do
so. See James Square, 91 A.D.3d at 173; Litod Paper Stock Corp. v. City ofNew York, 154
A.D.2d 280 (1st Dep't 1989) ("The constitutionality of such a tax turns primarily on whether the
taxpayer could have reasonably foreseen the enactment and, if he could have anticipated the tax,
whether the taxpayer would have altered his behavior"); Beaumont Co. v. State, 125 Misc.2d 87,
89 (Sup. Ct., New York Cnty. 1984)(where the effective date of particular legislation was after
the date the legislation has been introduced, though earlier than the date the legislation was
passed, the taxpayer was "forewarned" since it had notice of the content of the legislation).
The State obliquely argues that WL was forewarned of the particular changes by referring
to legislative hearings in which officials discussed the need to amend the Empire Zone Program,
citing to the transcript of budget hearings that were not included in the record on appeal. State
Br. at 40. However, there is no indication in the budget hearing transcript - or anywhere else in
the record - that WL was forewarned that the State intended to omit the year 2000 investments
from consideration of the economic returns provided by WL to the State. As set forth supra, WL
would have no reason to expect its investment from June 2000 to be omitted from consideration
even after the 2009 Amendments were enacted, since the Regulation omitting the year 2000 was
not consistent with GML Section 959(a)(v)(6).
The State also seeks to argue that there was no actual reliance by WL in the present case,
and that therefore this factor weighs against finding retroactive application violative of due
process. State Br. at 40-41. If actual reliance is required as the State seeks, then it would be
possible for the statute, Regulation and decertifications to be constitutional as to some businesses
and unconstitutional to others. That clearly cannot be the case.
In any case, here WL did in fact actually rely on its certification, by investing in the Zone
and undertaking ongoing business operations there. To suggest that there is no actual reliance is
to ignore that WL was induced to invest and operate in the Zone by the promise that, so long as it
abided by the rules of the program, it would be entitled to benefits derived from the certificate.
As the Third Department found, WL already "had made decisions in its business that entitled it
to certain tax benefits and credits" by the time the legislation was passed making WL's
decertification retroactive. R.444; WL, LLC, 97 A.D.3d at 33. As the Third Department also
found, WL "had fully complied with all of the laws then in place for program certification."
R.444; WL, LLC, 97 A.D.3d at 332. WL's right to the certificate for 2008 therefore became
"sufficiently certain . . . prior to the enactment of the new legislation." Replan, 70 N.Y.2d at
493. This is a significant factor weighing against allowing WL's decertification to be retroactive.
Id.
As the Fourth Department found in James Square, the reasonableness of the period of
retroactivity must be considered in light of notice and reliance. James Square, 91 A.D.3d at 173.
At the time the Empire Zone Amendments were passed in 2009 and 2010, the tax year for 2008
had long since closed. Moreover, the January 1,2008 effective date was prior to the date that
the original legislation was first introduced in January of 2009. History of 2009 NY Senate-
Assembly Bill S57-B, A 157-B, http://public.leginfo.state.ny.us/menugetf.cgi (select 2009 from
the right drop down menu; select Bill No. from the Iefi drop down menu; check "Summary";
search for S57B) (last visited January 26,2013).~ As stated by the Fourth Department, "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." James Square, 91 A.D.3d at 173 (internal
citations and quotations omitted).
In light of the nature of the property interest at stake, the reliance on the continued
certification and the lack of notice, the retroactive period is excessive and weighs in favor of
upholding both the Third and Fourth Department's orders regarding retroactivity.
Moreover, although not necessary to support the ruling of either the Third or Fourth
Department, WL asserts that this Court should fmd that in light of the fact that GML Section 959
created a property right, any period of retroactivity is too long since the property right was
created as part of a legislatively created process that led to a certification. As the Third
Department correctly found, the legislature did not in fact take any action to revoke or modify
tax benefits, but instead created the standard by which property rights (i.e. the certification) can
be revoked. R.443; WL,LLC, 97 A.D.3d at 32. The element of taxation is attached to the
property rights. Therefore, in this unique circumstance, revocation would be akin to revoking a
license or other state created property right retroactively. R.443; WL,LLC, 97 A.D.3d at 32,
9 The applicable portion of Bill S-57B was contained in 2009 N.Y. Session Laws, Chapter 57.
33
citing Matter of Gable Transport, Inc. v. State, 29 A.D.3d at 1125 and Chrisley v. Morin et al.,
126 A.D.2d at 977. In such a circumstance, the purpose of grounds for decertification or
revocation generally is to regulate future conduct. See, e.g. St. Clair Nation v. City of New York,
14 N.Y.3d 452, 457-458 (2010) (law setting out disqualification guidelines was intended to
regulate future eligibility to engage in a profession). Therefore, any period of retroactivity, if
any, should be quite limited.
The State's analogy of the 2009 Amendments to tax legislation is, thus, inapt. This is a
situation in which the legislature created a statewide program to promote investment in New
York. Both the Third and Fourth Departments relied on Replan because this was the "tool"
created by this Court to address retroactivity. However, contrary to the State's characterization,
GML Section 959(a)(v)(5) and (6) are not retroactive tax legislation. Tne amendments were the
termination of property rights for persons and entities that followed the law in good faith in
obtaining certifications. Both the Third and Fourth Departments clearly understood the
fundamental unfairness of retroactive termination and correctly ruled it a violation of due
process. The Court need not address the precise period by which a statute may retroactively
terminate a property right, if at all. The point here is whether the period of retroactivity is 16
months or 32 months, it is too long by any reasonable standard, and the 2009 andlor 2010
Amendments calling for retroactive application were properly set aside by both the Third and
Fourth Departments.
iii. The State had no legitimate purpose for the retroactive application of the
decertification
The third Replan factor is whether a legitimate public purpose exists for the retroactive
application of the 2009 Amendments. This factor also weighs in favor of upholding the both the
Third and Fourth Departments' holding that the retroactive decertification of WL was
unconstitutional.
Notably, under Replan the focus of this factor is on the reason for the retroactive
application, not the reason for the legislation as a whole. Replan, 70 N.Y.2d at 457. The State
therefore misses the point when it emphasizes that the purpose of the legislation was to correct
"long-documented abuses" by Zone-certified businesses. State Br. at 44. First, it is important to
note that there was no finding that any of the parties to either James Square or WL were
improperly certified or in any way abused the system. In any case, the retroactive application of
decertification would do nothing to correct any "abuses" that had already occurred. The Third
Department correctly recognized this, saying, "it is difficult to understand how making this
statute retroactive could act to address problems in the EZP that may exist or, more importantly,
what 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." R.445;
WL, LLC, 97 A.D.3d at 33.
Nor does the State's classification of the 2009 Amendments as "remedial" determine the
issue of retroactivity. See State Br. at 45. "Classifying a statute as remedial does not
automatically overcome the strong presumption of prospectivity since the term may broadly
encompass any attempt to "supply some defect or abridge some superfluity in the former law[.]"
Majewski v. Broadalbin-Perth Cent. Sch. Dist. et al., 91 N.Y.2d 577, 584 (1998) (internal
quotations omitted). Accordingly, the goal of correcting abuses does not justify retroactive
decertification.
The State's second cited purpose, that of raising revenue, is also insufficient to justify
retroactive application, as both the Third Department in this case and the Fourth Department in
James Square found. R.445; WL, LLC, 97 A.D.3d at 33; James Square, 933 N.Y.S.2d at 492. If
the need to raise additional revenue were a sufficient justification for retroactive application, in
nearly every case this factor would tip so decidedly in the State's favor as to render it
meaningless. The State's need for revenue must be considered in light of the equities of
retroactive application. Replan, 70 N.Y.2d at 456. The budget crisis faced by the State, while
lamentable, is not the fault of the parties to the James Square or WL cases. Allowing the State to
unilaterally and retroactively change the "deal" it had made with Empire Zone businesses
because it has now decided that it does not like the terms previously agreed to is decidedly
inequitable to all Empire Zone certified businesses.
Accordingly, this factor also weighs in favor of upholding the Appellate Division's
holding on retroactivity.
For all of the aforementioned reasons, the Third Department Opinion and Order should
be affirmed to the extent that it found that the 2009 Amendments could be applied only
prospectively.
CONCLUSION
WL requests the Court to: (1) reverse the Opinion and Order and declare the Regulation
invalid to the extent that it prohibited the DED &om considering investment and remuneration by
WL during the year 2000 following WL's certification under Article 18-B of the GML; and (2)
declare that based on the undisputed record, if the information fiom the year 2000 is included,
WL passed the 1:l cost-benefit test, and enter an order and judgment granting mandamus
directing the appropriate court, agency or officer to issue the retention certificate required under
GML Section 959 (or to direct the appropriate court to issue an order of mandamus directing the
DED or appropriate officer to issue the retention certificate) or otherwise enter all appropriate
orders and judgments necessary to grant WL the relief requested in its Verified
Petitionlcomplaint; (3) affirm the Opinion and Order to the extent it declared that the 2009
Amendment can only be prospectively applied; and (4) granting such other and further relief as
the Court deems just, equitable and proper to provide WL complete relief.
Dated: January 28,2013 BOUS/QUET,HOLSTEIN PLLC
Philip S. Bousquet, E&.
Cecelia R. S. Cannon, Esq.
Attorneys for WL, LLC
Office and P.O. Address
110 West Fayette Street
One Lincoln Center, Suite 900
Syracuse, New York 13202
Tel:(315) 422-1391
Fax:(3 15) 422-3549