| Matter of J-P Group, LLC v New York State Dept. of EconomicDev. |
| 2012 NY Slip Op 00634 [91 AD3d 1363] |
| January 31, 2012 |
| Appellate Division, Fourth Department |
| In the Matter of J-P Group, LLC, Respondent, v New YorkState Department of Economic Development et al., Appellants, et al., Respondent. |
Appeal from a judgment (denominated order) of the Supreme Court, Erie County (Joseph R.Glownia, J.), entered August 25, 2010 in a proceeding pursuant to CPLR article 78. Thejudgment, inter alia, granted the petition to annul the determination of respondent New YorkState Department of Economic Development revoking petitioner's certification as a qualifiedEmpire Zone enterprise.
It is hereby ordered that the judgment so appealed from is unanimously modified on thelaw by vacating the first and third through seventh decretal paragraphs and as modified thejudgment is affirmed without costs.
Memorandum: Petitioner owns and manages commercial rental properties within anEmpire Zone and was certified as a qualified Empire Zone enterprise effective March 19, 2002(see General Municipal Law 955 et seq.). In April 2009, the Legislature amended GeneralMunicipal Law 959 (a) to revise the eligibility for businesses receiving Empire Zone benefits(see L 2009, ch 57, part S-1, 3) and, by the same legislation, amended numerous sections of theTax Law that provided tax credits to businesses receiving those benefits (see L 2009, ch 57, partS-1, 11-22). Sections 11 through 17 of that legislation stated that "[a]ny carry over of a creditfrom prior taxable years will not be allowed if an [E]mpire zone retention certificate is not issuedpursuant to [General Municipal Law 959 (w)] to the [E]mpire zone enterprise [that] is the basisof the credit," and sections 18 through 22 contained similar provisions. The subject amendmentswere to "take effect immediately," with the exception of, inter alia, the Tax Law amendments insections 11 through 22 of the legislation, which were to "apply to taxable years beginning on andafter January 1, 2008" (L 2009, ch 57, part S-1, 44 [a]).
On June 29, 2009, respondent New York State Department of Economic Development(DED) revoked petitioner's certification as a qualified Empire Zone enterprise retroactive toJanuary 1, 2008 on the ground that petitioner "failed to provide economic returns to the [S]tate inthe form of total remuneration to its employees (i.e. wages and benefits) and investments in itsfacility greater in value to the tax benefits [petitioner] used and had refunded to it" (GeneralMunicipal Law 959 [a] [v] [6]). Petitioner appealed to respondent Empire Zones DesignationBoard (EZDB), but the EZDB upheld the revocation of petitioner's certification. Petitioner thencommenced this CPLR article 78 proceeding seeking, inter alia, to annul the determinationrevoking its certification as a qualified Empire Zone enterprise and reinstating its certification assuch an enterprise. Supreme Court granted the petition in its entirety, and it declared that, interalia, the amendments to General Municipal Law 959 (a) are not retroactive, that the emergencyregulations promulgated by the DED Commissioner pursuant to General Municipal Law 959were null and void inasmuch as they were improperly filed and otherwise defective, and that therevocation of petitioner's Empire Zone certification was arbitrary and capricious and thus nulland void.
We note at the outset that the court erred in granting declaratory relief inasmuch aspetitioner did not seek such relief in this CPLR article 78 proceeding. We agree with the court,however, to the extent that it determined that the amendments to General Municipal Law 959 areprospective only (see James Sq. Assoc. LP v Mullen, 91 AD3d 164 [2011]).Although the Legislature intended that the subject amendments were to apply retroactively, wehave recently held that such "retroactive application . . . violates [a party's] due process rights"(id. at 172).
We agree with respondents, however, that the court erred in determining that there was norational basis for the determination to revoke petitioner's Empire Zone certification. "It is wellestablished that [j]udicial review of an administrative determination is limited to whether theadministrative action is arbitrary and capricious or lacks a rational basis . . . Such a determinationis entitled to great deference . . . , and [a] reviewing court may not substitute its own judgmentfor that of the agency" (Matter of Walker v State Univ. of N.Y. [Upstate Med. Univ.], 19 AD3d1058, 1059 [2005], lv denied 5 NY3d 713 [2005] [internal quotation marks omitted]).
General Municipal Law 959 (a) (v) (6) authorized the DED Commissioner to promulgateemergency regulations governing "the decertification by the [C]ommissioner . . . of businessenterprises for benefits referred to in [section 966] with respect to an [E]mpire zone . . . upon afinding [that] . . . the business enterprise has failed to provide economic returns to the [S]tate inthe form of total remuneration to its employees (i.e. wages and benefits) and investments in itsfacility greater in value to the tax benefits the business enterprise used and had refunded to it."Thus, businesses producing less than $1 in actual wages and benefits and investments for every$1 in State tax incentives (hereafter, 1:1 cost-benefit test) were to be decertified from theprogram. The emergency regulation promulgated pursuant to General Municipal Law 959 (a) (v)(6) is set forth in part in 5 NYCRR 11.9 (c) (2), which provides that the DED Commissioner"shall revoke the certification of a business enterprise upon a finding that . . . a businessenterprise that has submitted at least three years of business annual reports has failed to provideeconomic returns to the [S]tate in the form of total remuneration to its employees (i.e., wages andbenefits) and investments in its facility that add to a greater value than the tax benefits thebusiness enterprise used and had refunded to it." That regulation further provides that "a businessenterprise that has submitted at least three years of business annual reports shall have failed [the1:1 cost-benefit test] if the sum of . . . all wages and benefits paid to all employees of thebusiness enterprise in the zone . . . and . . . the value of capital investments in the zone, asindicated in the business enterprise's business annual reports submitted and reporting for any ofthe years from and including [2001] through and including . . . [2007], does not exceed the totalamount of [S]tate tax benefits the business enterprise used and had refunded to it or its members,partners or shareholders under the [E]mpire zones program as indicated in the business annualreports submitted and reporting for any of the years from and including [2001] through andincluding [2007] ."
Here, the revocation of petitioner's Empire Zone certification had a rational basis basedon the business annual reports that petitioner submitted to respondents. Those reports establishthat petitioner has a cost-benefit ratio of .9 for the years 2002 through 2007 and thus producedless than $1 in actual wages and benefits and investments for every $1 in State tax incentives itreceived. The data contained in the schedule that petitioner submitted to the EZDB onadministrative appeal indicates that petitioner had an even lower cost-benefit ratio of .795.Respondents, albeit tersely, relied on petitioner's data in revoking its Empire Zone certificationinasmuch as the EZDB upheld the determination by the DED revoking petitioner's certificationon the ground that it "failed to provide economic returns to the [S]tate in the form of totalremuneration to its employees (i.e. wages and benefits) and investments in its facility greater invalue to the tax benefits [that petitioner] used and had refunded to it." The language used by theDED and upheld by the EZDB is consistent with the language of General Municipal Law 959 (a)(v) (6), and those respondents thereby concluded that petitioner failed the 1:1 cost-benefit test.Contrary to petitioner's contention, respondents were not required to rely only on the businessannual reports for the three years during the 2002-2007 period in which petitioner passed the 1:1cost-benefit test. General Municipal Law 959 (w) requires that decertification "be based upon ananalysis of data contained in at least three business annual reports filed by the businessenterprise" (emphasis added), and the emergency regulations promulgated by the DEDCommissioner pursuant to section 959 condition decertification upon an analysis of a data set tobe derived from "the business annual reports submitted and reporting for any of the years fromand including [2001] through and including [2007]" (5 NYCRR 11.9 [c] [2] [emphasis added]).Contrary to petitioner's further contention, we conclude that it was not entitled to a hearingconcerning the revocation of its Empire Zone certification (see 5 NYCRR 11.9 [c], [d]). Wetherefore modify the judgment by vacating the first decretal paragraph, which granted the petitionin its entirety, the fifth and sixth decretal paragraphs, which determined that the revocation ofpetitioner's Empire Zone certification was arbitrary and capricious and thus null and void, and theseventh decretal paragraph, which required respondents to take any actions necessary to ensurepetitioner is deemed certified as a qualified Empire Zone enterprise continuously from itsoriginal date of certification.
Respondents further contend that, because the petition did not allege that the emergencyregulations and the subsequent 2009 amendments promulgated by the DED Commissionerpursuant to General Municipal Law 959 and set forth in 5 NYCRR 11.9 were defective andimproperly filed seriatim, the court should not have reached that issue (see generally Matter ofTown of Rye v New York State Bd. of Real Prop. Servs., 10 NY3d 793, 795 [2008]; Matter ofViolet Realty, Inc. v City of Buffalo Planning Bd., 20 AD3d 901, 903 [2005], lv denied 5 NY3d713 [2005]). Even assuming, arguendo, that the court did not err in reaching that issue becausethe papers submitted by both parties specifically addressed it (see Matter of Mathis v New YorkState Dept. of Correctional Servs. [appeal No. 2], 81 AD3d 1435, 1436 [2011]; Matter of Roth vSyracuse Hous. Auth., 270 AD2d 909 [2000], lv denied 95 NY2d 756 [2000]), we conclude thatthe court erred in determining that the emergency regulations and amendments promulgated bythe DED Commissioner pursuant to General Municipal Law 959 were null and void asimproperly filed and otherwise defective (see 5 NYCRR 11.9). Here, the substantiverequirements for filing of an emergency regulation were sufficiently met (see StateAdministrative Procedure Act 202 [6] [d]; [8]; see also Matter of Industrial Liaison Comm. ofNiagara Falls Area Chamber of Commerce v Williams, 72 NY2d 137, 144-145 [1988]; Matter ofGioia v Lynch, 306 AD2d 280 [2003], lv denied 100 NY2d 514 [2003]). In any event, theimproper filing of the 2009 amendments to the subject regulations would be of no consequenceto petitioner inasmuch as petitioner was decertified as an Empire Zone business on June 29,2009, before the amendments were filed (cf. Matter of NRG Energy, Inc. v Crotty, 18 AD3d 916,919 [2005]). We therefore further modify the judgment by vacating the third and fourth decretalparagraphs, which determined that the emergency regulations promulgated by respondentspursuant to General Municipal Law 959 were improperly filed and otherwise defective and thusthat they were null and void.
Present Smith, J.P., Fahey, Carni, Sconiers and Gorski, JJ.