Opinion
Index #: 2017EF1271
05-09-2019
3649 ERIE, LLC, Plaintiff, v. SHOPPINGTOWN MALL, NY, LLC, Defendant.
APPEARANCES: FOR PLAINTIFF: WHITEMAN, OSTERMAN & HANNA Jon E. Crain, Esq., of Counsel Christopher M. McDonald, Esq., of Counsel FOR DEFENDANTS: BROWN, DUKE & FOGEL Michael A. Fogel, Esq., of Counsel Patrick D. Donnelly, Esq., of Counsel
NYSCEF DOC. NO. 112
DECISION & ORDER
RJI #: 33-17-2593 APPEARANCES: FOR PLAINTIFF: WHITEMAN, OSTERMAN & HANNA Jon E. Crain, Esq., of Counsel Christopher M. McDonald, Esq., of Counsel FOR DEFENDANTS: BROWN, DUKE & FOGEL Michael A. Fogel, Esq., of Counsel Patrick D. Donnelly, Esq., of Counsel PARIS, J.
Plaintiff, 3649 Erie, LLC, and Defendant, Shoppingtown Mall, NY, LLC, along with Sears & Roebuck & Company are the combined owners of the property commonly known and designated as the Shoppingtown Mall location in the Town of DeWitt in Onondaga County. The parties are also the successors in interest to a certain Construction, Operation, and Reciprocal Easement Agreement ("Agreement") executed in 1995 by Syracuse Mall Associates, Macy Department Stores and Sears & Roebuck &Company concerning the parties' rights and obligations as to the ownership and operation of the Mall.
Pertinent to said Agreement is Article 33 entitled "Taxes and Other Charges" which provides as follows:
33.1 Payment of Taxes: Each Party shall promptly pay prior to delinquency all real estate taxes, special assessments, water charges, sewer rents and service charges and other like municipal charges ("Taxes"), levied against its Site.
33.2 Contest of Taxes: Each Party may, in good faith, at its own cost, by appropriate proceedings contest the validity, applicability and/or the amount of any Taxes. Nothing in this Article requires a Party to pay any Taxes as long as it contests the validity, applicability or the amount thereof in good faith and so long as it does not allow the affected Site to be placed in imminent jeopardy of foreclosure as a result of its non-payment.
As a result of Defendant's failure to pay real estate taxes for tax years 2015 and 2016, assessed against its portion of the Mall property, Plaintiff notified Defendant of its default and demanded in writing that Defendant cure this default. Despite assurances and representations that the tax delinquency would be cured, Defendant failed to satisfy the unpaid taxes.
Due to the continued failure of Defendant to comply with the real estate tax provisions of the Agreement, Plaintiff commenced this action by the filing of is Summons and Complaint on March 24, 2017 seeking relief on a breach of contract cause of action. Thereafter, Defendant interposed an Answer asserting various affirmative defenses, primarily that it was not in breach of the Agreement as it has contested the applicable taxes in good faith.
Subsequent to pretrial disclosure proceedings and motion practice, this matter came on to be tried before the Court. During the course of this Bench Trial, the Court has had the unique opportunity to weigh all of the various exhibits received as well as to assess and evaluate the demeanor and credibility of each of the witnesses that testified. Based on this unique opportunity, and the entire record before it, the Court hereby renders its Decision and Order.
Based on the uncontroverted evidence, the parties are two of the three owners of the Mall property. Plaintiff acquired its interest in the Macy's parcel in 2015. Defendant acquired its interest in the major parcel of the property in 2013 by purchasing it at a distressed auction for approximately $14 million dollars. Uncontroverted evidence also shows that the parties are successors in interest to the Agreement and that the Agreement is valid and binding upon them.
The uncontroverted evidence also establishes that Defendant has paid no real estate taxes on the Mall property since 2015, which taxes now total in excess of $9.7 million dollars. The evidence further discloses that Onondaga County has reimbursed the Town of DeWitt for this sum and holds the tax sale certificates which it intends to execute upon thereby placing the entire Mall property (including Plaintiff's parcel) in imminent jeopardy of foreclosure.
Finally, based on the entire record before the Court the actions of Defendant totally lack any semblance of good faith in dealing with its obligation to pay real estate taxes on the Mall property.
Plaintiff sustained its burden of proof to show ownership, validity of the Agreement and the tax delinquency of Defendant. It also has proven that there is imminent jeopardy of the loss of its property due to nonpayment of real estate taxes by Defendant.
Donald Weber, the Director of Real Property Tax Services for the County of Onondaga, testified that the unpaid real estate taxes for the Mall property for the period 2015 to 2019 total $9,744,515.02. He further testified that the County reimbursed the Town of DeWitt for these unpaid taxes and holds the tax sale certificates for this sum. Director Weber also testified that Defendant had been served with a redemption notice in April 2019 advising Defendant that if Defendant did not pay this amount by October 2019 it would lose the property. According to Director Weber, Defendant, since the receipt of the notice of redemption, had made no arrangement to satisfy this obligation nor had Defendant sought to enter into any payment plan to do so. In a nutshell, his testimony was if Defendant did not pay, it would lose the property.
This imminent jeopardy of loss was also established by Defendant's own witness, County Executive J. Ryan McMahon. Mr. McMahon (whose testimony relating to Defendant's alleged good faith will be subsequently addressed in this Decision) testified that it is the County's intent to take the property by foreclosure of the tax delinquency should the County and Defendant not come to a comprehensive resolution. According to the County Executive, resolution did not look promising as Defendant's offer regarding delinquent taxes is unacceptable to the County and Defendant has never responded to the other components of the County's comprehensive proposal.
Defendant has based its defense to Plaintiff's breach of contract cause of action on the premise that pursuant to Article 33.2 of the Agreement it has contested the validity, applicability and/or the amount of any taxes in good faith. Therefore, Defendant has maintained that, at least as between the parties to this lawsuit, and their reciprocal obligations, it was excused from paying the taxes as it was acting in good faith.
Defendant, in its Answer to Plaintiff's Complaint, pled the affirmative defense of good faith. Therefore, it was Defendant's burden to prove that its actions in contesting the validity, applicability and/or the amount of any taxes was in good faith to avoid any finding of a breach of the Agreement on its part by this Court.
Defendant, as hereinafter detailed, despite the efforts of counsel, has dismally failed to meet this burden of proof.
According to the evidence, when Defendant purchased its parcel, the prior owner and the Town of DeWitt were engaged in tax certiorari litigation. This pending litigation was known to Defendant and was settled in 2014 after Defendant's purchase. Due to Defendant's lack of due diligence, it was not allowed to intervene in said litigation and was subject to the results thereof.
The result was a reduction of the tax assessment against the property by the Town of DeWitt and a refund of taxes paid by the prior owner, a portion of which went to Defendant.
Pursuant to Real Property Tax Law §727, where a tax assessment is successfully challenged and resolved by court order there is, with limited exceptions, a three year moratorium on tax assessment challenges by the taxpayer. Defendant was subject to this moratorium which covered the tax years of 2014-2015, 2015-2016, and 2016-2017.
Despite this statutory bar to tax assessment proceedings, Defendant grieved its real estate taxes for each of those periods by filing Petitions challenging its assessment. In each of those successive proceedings, Defendant did not plead any exceptions set forth in Real Property Tax Law §727 so as to allow it to infringe on the moratorium. Each of these successive Petitions was dismissed by the Honorable Donald A. Greenwood on the basis of the RPL §727 moratorium. Defendant appealed Justice Greenwood's dismissal Orders on tax years 2014-2015 and 2015-2016, and the Appellate Division of the Fourth Department affirmed each dismissal. Defendant did not bother to appeal Justice Greenwood's dismissal Order as to the 2016-2017 tax year. These respective court decisions finalized any challenge Defendant made to its tax liability for those periods resulting in a tax liability in excess of $7 million dollars which Defendant ignored and never paid.
Not only has Defendant failed and refused to pay this legally resolved tax liability, but also, through these baseless court proceedings, has caused the local taxpayers to incur legal fees to address the court challenges and has caused the expenditure of valuable judicial time and resources on both the local and appellate level.
How this conduct on Defendant's part evidences good faith mystifies the Court.
The Court notes that Defendant has grieved its taxes for the tax years 2017-2018 and 2018-2019 which would fall outside of the RPTL §727 moratorium period. However, the Court takes notice of the Town of DeWitt attorney's rebuttal testimony that as the Petitioner in said challenges, Defendant has not moved those cases towards any conclusion, has not paid any of the taxes billed to Defendant for those periods, and has not engaged in or replied to any attempts to negotiate a resolution despite being approached by the Town.
By calling as a witness Onondaga County Executive J. Ryan McMahon, Defendant attempted to provide evidence of its good faith in contesting its tax liability. What this testimony actually revealed was that despite the County's efforts to assist Defendant in resolving this dire circumstance, Defendant has remained steadfast in failing to propose any acceptable resolution leading to a feeling of disappointment and frustration as time runs out on Defendant to save the Mall from foreclosure.
Mr. McMahon testified as to two meetings with Defendant's CEO Steven Maksin and other representatives of Defendant in October 2018 and March 2019 lasting approximately thirty to sixty minutes each. Neither meeting was fruitful. In an effort to preserve and revitalize the Mall, the County was prepared to offer a comprehensive resolution to resolve Defendant's $9.7 million dollar tax obligation including, among other things, a compromise on the outstanding taxes due, and a PILOT program going forward in return for Defendant's payment of the compromised amount, a capital reinvestment in the property by Defendant, as well as a new development plan for the Mall. The response by Defendant was only a payment of $1 million dollars over a ten year period.
The second meeting with Defendant's CEO and other representatives resulted only in an offer of $3 million dollars over ten years. This offer by Defendant contained no mention of any capital reinvestment in the Mall by Defendant or any redevelopment plan. This was unacceptable to the County.
Based on the lack of any acceptable response to the County's comprehensive plan, Mr. McMahon testified that it was the County's intent to foreclose on the property as by January 1, 2020 the real estate taxes unpaid by Defendant would approach $12 million dollars.
How this testimony shows any good faith on Defendant's part is another mystery to the Court as no further meetings were scheduled and no other offers were tendered by the Defendant.
Defendant also attempted to establish it's good faith efforts by the testimony of its CEO Steven Maksin. Mr. Maksin acknowledged that Defendant paid $14 million dollars for the Mall property in 20213 at a distressed auction , is bound by the Agreement, and has not paid any of the $9.7 million dollars in outstanding taxes. He lamented that the taxes were too high but acknowledged that Defendant knew of the assessment when it purchased the property at the distressed auction.
While Defendant's CEO testified that the high taxes made it difficult to attract mall tenants, he admitted that CAM (common area maintenance) charges contained in mall leases included a component charging each tenant a proportionate share of real estate taxes. Those charges were collected, but there was no testimony by Mr. Maksin about what Defendant did with this money collected from the mall tenants. It certainly was not used to pay any of the real estate taxes for which it was collected.
Yet another mystery as to Defendant's good faith.
The gist of CEO Maksin's testimony was that only after the tax delinquency is settled with the County can a redevelopment and reinvestment plan be forthcoming from Defendant. In this regard, as nothing acceptable has been offered by Defendant to the County, it appears that time is running out and the County will foreclose on the Mall.
Such a foreclosure will extinguish Plaintiff's title to its Mall parcel through no fault of its own, but rather due to the actions of Defendant.
Based on the record before the Court, the actions of Defendant in contesting the validity, applicability and/or the amounts of its real estate taxes cannot be deemed to be in good faith. Rather, the proof has shown Defendant's conduct is based on a strategy rooted in obstinance and bad faith. It appears that Defendant bought the property at a distressed price, got a refund from its previous owner's tax certiorari action, refused to pay any subsequent taxes despite collecting tax allotments from its tenants, and has resisted the good faith efforts of both the Town of DeWitt and the County of Onondaga to help it save this valuable community asset.
Time has run out for Defendant as the County will shortly foreclose and take the property for back taxes thereby extinguishing not only Defendant's ownership in the Mall property, but also the ownership interest of the Plaintiff.
Even, assuming arguendo, that Defendant was acting in good faith, which it has utterly failed to prove, good faith at this stage would no longer be a defense to Plaintiff's breach of contract claim as it has been conclusively shown that the property is in imminent jeopardy of foreclosure.
As testified by County Executive McMahon, it is time to stop the bleeding of the County taxpayers who have so far footed the bill for Defendant's brazen failure to pay its taxes.
By reason of the foregoing, and based on the entire record before the Court, Plaintiff is entitled to its requested relief based on Defendant's unjustified breach of the parties' Agreement. Therefore, it is hereby ORDERED, ADJUDGED AND DECREED that Defendant pay, within fourteen (14) days of the date of this DECISION AND ORDER, the outstanding real estate taxes in the amount of $9,744,515.02, or such other amount as is necessary to prevent the foreclosure of the affected site due to the non-payment of said delinquent real estate taxes.
ENTER
/s/_________
ANTHONY J. PARIS
JUSTICE OF SUPREME COURT DATED: May 9, 2019
Syracuse, New York