Opinion
202850/02.
Decided December 3, 2002.
In this special proceeding petitioner 439 East 88 Owners Corporation seeks to compel respondent Tax Commission of the City of New York ("Tax Commission" or "Commission") to review the real estate tax assessment of a parcel of Manhattan real property petitioner owns, without requiring petitioner to disclose whether, in connection with the assessment, petitioner had any dealings with two individuals ("the indicted individuals") whom federal officials have identified as the masterminds of an extensive bribery scandal.
Petitioner now moves, pursuant to CPLR 6301, for a preliminary injunction restraining the Tax Commission from summarily confirming the subject assessment because of petitioner's refusal to make such disclosure. Respondents, the Tax Commission and the Commissioner of Finance of the City of New York, now move, pursuant to CPLR 3211(a)(7) and 7804(f), to dismiss so much of the petition as seeks to prohibit such disclosure. For the reasons set forth herein, petitioner's motion is granted and respondents' motion is denied.
I.e., respondents are not seeking to dismiss the instant proceeding to the extent that it is a garden-variety Real Property Tax Law ("RPTL") Article 7 special proceeding seeking a reduction in the subject tax assessment.
Factual Background
Petitioner owns the real property located at and known as 439 East 88th Street, New York, New York. For the July 1, 2002 to June 30, 2003 fiscal year, an assessor of the Property Division of the Finance Department appraised the value of the property at $1,030,500. On February 11, 2002, petitioner filed an Application for Correction of Assessed Value (Moving Exhibit A), claiming that the actual value of the property is $600,000.
On February 25, 2002, the United States Attorney for the Southern District of New York announced the arrests of 18 persons charged in connection with a scheme by which the indicted individuals, two former New York City assessors named Albert Schussler and Alan G. Edelstein, gave bribes to 16 then-current New York City assessors to reduce assessments. According to respondents (Brief at 3), "15 of the 16 indicted assessors have pled guilty to being part of a criminal enterprise which undervalued properties."
The various indictments are set forth (Newman Aff. Exhibit A) in United States of America v. Albert Schussler, et al., 02 Crim 190 (SDNY 2002). Respondents state (Brief at 7) that some 545 properties were "affected by the alleged bribery" and that the United States Attorney is continuing the investigation. Current New York City Mayor Michael Bloomberg described the conspiracy as "the largest and most financially damaging corruption scheme ever conducted within city government." Charles V. Bagli, "Trump Sues City, Saying Scheme by Assessors Hurt Condo Values," NY Times, Nov 8, 2002, Section B, at 1, col. 3. Prosecutors estimate that the scheme cost the city $40,000,000 a year in taxes, id. at 2, col. 1, prompting real estate operator Donald Trump, never one to mince words, to label the operation "perhaps the greatest bank robbery in the history of America," id. at 1, col. 3. Schussler was a city assessor from 1937 to 1967, when he left and, allegedly, began paying bribes to his former colleagues. See Wall Street Journal, www.homes.wsj.com/ propertyreport/newsbriefs/20020226-markon.html.
On or about May 25, 2002, the Tax Commission confirmed the original assessment of petitioner's property. On or about August 13, 2002, the Tax Commission mailed a newly drafted "Supplemental Application," set forth on a form denominated "TC152 2002" ("TC-152"), and related documents (Moving Exhibits B and C) to petitioner and to other real property owners. TC-152 asks the following two questions:
The Commission mailed the form to real property owners who submitted a total of some 11,300 applications, which covered approximately 34,000 properties. Respondents state (Brief at 8) that in 2001, the Commission received a total of 43,000 applications, which covered more than 129,000 properties.
1. With respect to the property . . . did the applicant, or any other individual or entity with an ownership interest and/or contract interest, or any individual or entity acting on applicant's behalf, engage or retain the services and/or representation of Albert Schussler or Alan G. Edelstein regarding the real property tax assessment . . .[?]
2. Did Albert Schussler or Alan G. Edelstein, on behalf of applicant or any individual or entity acting on applicant's behalf, negotiate, discuss, or communicate with any current or former [Department of] Finance employee regarding the assessment of the property for which an application was filed . . ., or did either of these individuals provide assessment information to Finance at any time regarding the assessment of the property . . .[?]
The instructions to TC-152 (Moving Exhibit B, Instructions, at 1) state that failure to answer the questions, which must be done under oath, will result in denial of a "merits review" of the claim and summary confirmation of the assessment.
As petitioner points out, the Commission's President (Aff. ¶ 19) states that submitting a TC-152 with affirmative answers will also produce this result.
Accompanying the TC-152 and its instructions was a "Supplemental Policy and Process Governing Treatment of Previously Deferred 2002 Assessment Review Applications." The Supplemental Policy statement commences with the following "Background Summary":
In view of the Federal indictment handed down in February [2002] charging current and former employees of the Department of Finance's Property Division, including assessors within the Manhattan Borough office, as well as supervisory personnel, with criminal conduct in connection with property tax assessments set and published by the Department of Finance, and the continuing criminal investigation in connection with same, the Tax Commission has, to date, deferred substantive administrative review in 2002 of formal applications posing claims of inequality or misclassification with respect to assessments of real property bearing tax class designations of two and four . . . and located in most Manhattan assessing districts, as well as a small number of such properties located in other boroughs.
The statement then says, inter alia, that the Commission will not provide a merits review of the applications challenging the assessments of 562 parcels "that may still be the focus of the" criminal investigation (these assessments will be summarily confirmed) (at 1); that the Commission will summarily confirm assessments "tainted by corruption" (at 2); that [a]pplications "otherwise eligible for substantive merits review by the Tax Commission will be subject to a supplemental process entailing the completion, execution and filing of" the TC-152 (at 2-3); that failure to submit a TC-152 will result in denial of a merits review and summary confirmation of the assessment at issue (at 3); and that whether the Commission will continue to impose this "supplemental process" in future years will depend upon ongoing developments in the criminal investigation (at 4).
On or about August 13, 2002, the Tax Commission also mailed petitioner notice that petitioner was eligible for review by the Tax Commission, but only if petitioner answered the TC-152 questions. Petitioner alleges (Moving Memorandum at 8), and respondents do not deny, that property owners that answer the questions affirmatively will automatically be denied a merits review.
Respondents state (Brief at 8; Aff. ¶ 17) that as of October 9, 2002, real property owners submitted some 3,600 completed TC-152s.
In In the Matter of Commerce Holding Corp. v. Board of Assessors of the Town of Babylon, 88 NY2d 724, 729-30 (1996), the Court of Appeals held that an assessment may not contravene the state Constitution Article 16, § 2's prohibition against assessing property at more than "full value," even to punish polluters claiming a reduction based on the contamination. The state Constitution does not expressly require a merits review of all real property tax assessments. However, denying one to punish the property owner may be a denial of procedural due process (see infra).
Thereafter, petitioner commenced the instant proceeding, seeking the following relief: 1. pursuant to CPLR 3001, a declaration that promulgation of the TC-152 and the requirement that it be submitted, i.e., the "supplemental process," is "invalid, illegal, and unconstitutional"; 2. a declaration that the Tax Commission must provide a merits review to petitioner; 3. a preliminary and permanent injunction against requiring property owners to disclose any relationship with the indicted individuals as a prerequisite for a merits review; 4. review and correction of the Tax Commission's final determination; and 5. pursuant to 42 U.S.C. § 1988, attorneys fees.
Statutory Framework of the Tax Commission
The state legislature has the duty to "provide for the supervision, review and equalization of assessments for purposes of taxation." NY Const. Article 16, § 2. At the local level, the New York City Charter ("Charter") established the Tax Commission. Charter, Chapter 7 ("Tax Appeals") § 153. The Charter imposes on the Tax Commission "the duty of reviewing and correcting all assessments of real property made" by the assessors, id. § 153(b), who are under the jurisdiction of the Department of Finance, Charter, Chapter 58 ("Department of Finance") § 1506.
"Clearly, this provision means that the State Legislature controls the review of real estate tax assessments." 749 Broadway Realty Corp. v. Boyland, 1 Misc2d 575, 578 (Sup Ct, NY County 1955) (Schreiber, J.), affd 1 AD2d 819 (1st Dept 1956), affd 3 NY2d 737 (1957).
An application for review of an assessment must be made by a "person or corporation claiming to be aggrieved by the assessed valuation" and must be verified. Charter § 163(b). The grounds for review of an assessment are that it is "excessive, unequal, or unlawful, or that the real property is misclassified." Id. § 163(c). An application for review "shall be on a form prescribed by the tax commission and shall contain a statement specifying the respect in which the assessment is excessive, unequal, or unlawful, or the respect in which the real property is misclassified, and the reduction in [valuation] sought." Id. § 163(d). As here relevant, the application must indicate "all income received or accrued and all expenses paid or incurred in the operation of the property, to be reported [depending upon how the books and records are maintained, whether a calendar or fiscal year are used, etc.]." Id. § 163(e). "The filing of an application in the manner and form hereinabove described shall be prerequisite to the review of a final determination of the tax commission. . . ." Id. § 163(f).
These adjectives are all terms of art defined in § 163(a).
The Tax Commission "may . . . act upon applications, compel the attendance of witnesses, administer oaths or affirmations and examine applications and other witnesses under oath." Id. § 164(a). Also, the Commission "shall make rules of practice for proceedings before" it. Id. Detailed rules of "practice and procedure" are set forth in 21 RCNY § 1-04.
The Commission determines a "final assessed valuation," which "may be the same as or less than the original assessment." Id. § 164(b); accord, NY City Admin Code § 11-225 ("The tax commission shall have power to remit or reduce a tax imposed upon real property where lawful cause therefor is shown or where such tax is found to be excessive or otherwise erroneous. . . ."). If the Tax Commission does not act upon an application by a specified time, "the assessment objected to shall be deemed to be the final determination of the tax commission." Id. § 165. A proceeding to review the Tax Commission's "final determination" "may be had as provided by law." Id. § 166. Discussion
Both sides agree that the "final assessed valuation" may not be more than the "original assessment."
I.e., by an RPTL Article 7 special proceeding.
Petitioner propounds seven distinct arguments against the validity of the "supplemental process": 1. that the "supplemental process" is ultra vires, because only the legislature has the power to institute such a requirement; 2. that the "supplemental process" violates the New York City Administrative Procedure Act, because it is subject thereto but was not instituted in compliance therewith; 3. that the "supplemental process" violates the substantive due process guaranteed by the 14th Amendment to the United States Constitution and Article 1, § 6 of the New York State Constitution, because it is arbitrary and capricious; 4. that the "supplemental process" violates the procedural due process guaranteed by the aforesaid constitutions, because it denies petitioner the right to a hearing; 5. that the "supplemental process" violates the separation of powers doctrine, because the process is "investigatory" whereas the Tax Commission is "adjudicative"; 6. that the "supplemental process" violates constitutional guarantees of Equal Protection, because The Tax Commission is imposing it only on owners of property located in Manhattan; and 7. that the "supplemental process" violates constitutional guarantees of the privilege against self-incrimination, because information obtained thereby could be used in criminal proceedings against the persons compelled to make disclosure.
Standards for Granting Relief
Before addressing these seven arguments seriatim, this court needs briefly to discuss the standards for granting a preliminary injunction and for granting permanent relief in this special proceeding.
Preliminary Relief
Generally speaking, the New York standard for granting a preliminary injunction is as follows: a movant must show (1) the likelihood of success on the merits; (2) irreparable injury absent the granting of a preliminary injunction; and (3) a balancing of the equities that favors the movant's position. Aetna Ins. Co. v. Capasso, 75 NY2d 860, 862 (1990); W.T. Grant v. Srogi, 52 NY2d 496, 517 (1981). However, this formula is not particularly apt for a case that sounds neither in tort nor contract, but, rather, seeks to delineate the power possessed by a municipal agency, which is a purely legal question.
In any event, there is no way to calculate the "injury" of not receiving a merits review of a real property tax assessment (thus the injury is irreparable), and property owners whom nobody has accused of illicit conduct should not be deprived of such a review by the agency whose sole mission is to provide such oversight (thus a balancing of the equities favors petitioner's position). The dispositive, and intricate, question here is who is likely to prevail on the merits, discussed at length herein.
Permanent Relief
Respondents raise (Brief at 9-10) the interesting issue of whether the instant proceeding should be viewed through the prism of an RPTL Article 7 proceeding or, as respondents contend, in the harsher light of a CPLR Article 78 special proceeding. Petitioner cites (Reply Brief at 9) to a plethora of cases for the proposition that the instant dispute is actually subject to declaratory judgment treatment, pursuant to CPLR 3001. On the other hand, CPLR Article 78 treatment is appropriate, as the gist of the instant proceeding is the extent of the Tax Commission's power (and certainly not just whether petitioner is entitled to a tax refund). Then again, assuming CPLR Article 78 treatment, the standard of review is not necessarily CPLR 7803(3)'s "arbitrary and capricious," as respondents argue (Brief at 10). Equally, if not more, compelling are 7803(1)'s "whether the body or officer failed to perform a duty enjoined upon it by law"; 7803(2)'s "whether the body or officer proceeded, is proceeding, or is about to proceed without or in excess of jurisdiction"; or 7803(3)'s "whether a determination . . . was affected by an error of law."
See generally, Matter of Pell v. Board of Education, 34 NY2d 222, 231 (1974) (the standard is whether administrative action "is without foundation in fact" or "without sound basis in reason"). Respondents cite (Brief at 12) Matter of Tomanio v. Board of Regents, 43 AD2d 643, 644 (3d Dept 1973) (upholding refusal to grant chiropractic license), affd 38 NY2d 724 (1975), to the effect that a court "may inquire only to whether the record shows facts which leave no possible scope for the reasonable exercise of discretion." Here, there was no hearing before an administrative agency, and thus no "record" for this court to review. Indeed, petitioner's complaint is exactly that: the agency has failed to grant a hearing.
In the final analysis, the particular procedural context, be it CPLR Article 78 or a declaratory judgment plenary action, is of no moment. The question before the court, set in the context of essentially agreed-upon facts, is one of pure law: may the Tax Commission impose its "supplemental process" on real property owners as a requirement to obtain a merits review of their tax assessments? This question is not based on an administrative record and is not subject to "arbitrary and capricious" jurisprudence.
Argument 1: Ultra Vires Activity
The only requirement for a Tax Commission merits review of a claimed over-assessment is "a statement specifying the respect in which the assessment is excessive" and "the reduction in [valuation] sought." See Charter § 163(d). That the statement shall be on a form prescribed by the Commission does not mean that the Commission has discretion to extend the areas of inquiry any further than they otherwise are. The purpose of the form is obviously to allow the commission to obtain such basic information as names, addresses, telephone numbers, and property locations, and to have a simple, unified way of gauging the application, not to broaden the scope of the inquiry. The mere fact that not every property owner in the City is being asked to go through the "supplemental process" demonstrates that the process is not just part of a "form."
Nor may the Commission "bootstrap" or increase its own jurisdiction by administrative fiat, i.e., by promulgating rules that enlarge its powers. In Sprague Realty Corp. v. Mills, 71 NYS2d 132, 134 (Sup Ct, NY County 1947) (Schreiber, J), the court stated that § 164
merely authorizes the Tax Commission to "make rules of practice * * * and such rules and regulations * * * to the end that the tax payers may have a hearing * * *." It does not authorize the Tax Commission to modify or enlarge the provisions of Section 163 of the New York City Charter, which provides that the application to correct an assessment "shall be made in writing under oath and shall specify clearly the objection thereto and the grounds for such objection." To interpret Section 164 of the New York City Charter, as urged by the respondents, would enable the Tax Commission to enlarge or modify the legal requirements of an application to correct assessments of real property in the City of New York without proper legislative sanction.
In Sprague the owner submitted estimates of income and expenses, and the Tax Commission sought to compel the owner to submit actual income and expense figures. The court found that this went beyond the requirement that the owner "specify clearly the objection [to the assessment] and the grounds for such objection." Id. In discussing Tax Law § 27, the court stated as follows:
The right to require an applicant to appear for examination does not authorize the taxing authorities, in lieu of such examination, to write to an applicant who filed a protest, for whatever additional information the assessor requests, and make the furnishing of such information a jurisdictional requirement. No such authority may be read into the section without specific legislative action.
Id. (emphasis added). Although the Sprague court found Tax Law § 27 to be inapplicable, because the property at issue was located in New York City, this does not vitiate the court's reasoning that an administrative agency may not require applicants to furnish materials beyond what is authorized by the agency's enabling legislation or other statutory enactment. The Tax Commission itself, in its TC-152 instructions (Moving Exhibit B), states that the form must be filed by owners "otherwise eligible for substantive merits review by the Tax Commission," and who are now to be "subject to a supplemental process." Indeed, Form TC-152 is a "Supplemental Application" with (see Moving Exhibit D) a "Supplemental Notice" addressed to owners of "Properties Otherwise Eligible for 2002 TC Review."
In opposition to the instant petition, respondents refer (Brief at 3) to their "Supplemental Process employing TC-152."
This Court would not quash a "supplemental" process or application if it were merely meant to fill in the inadvertent lacunae of the original process or application. However, here, both the history of the TC-152, and the information it requests, clearly demonstrate that the Tax Commission is going beyond what its enabling legislation empowers it to do. The information the Commission now seeks is far further afield from what it would need to review an assessment than the actual income and expense figures the Commission sought in Sprague.
It is interesting to note that in Sprague Justice Schreiber described the application that § 163 required as follows: "the application to correct an assessment 'shall be made in writing under oath and shall specify clearly the objection thereto and the grounds for such objection.'" 71 NYS2d at 134. As noted above, § 163(d) now provides that an application for review "shall be on a form prescribed by the tax commission and shall contain a statement specifying the respect in which the assessment is excessive, unequal, or unlawful, or the respect in which the real property is misclassified, and the reduction in [valuation] sought." Id. § 163(d). Thus, the most significant change is that the application shall now "be on a form prescribed by" the Commission. Surely, this is a matter of administrative convenience, and does not authorize the Commission to pose on the form any questions that it wants.
The statute speaks of a "form," and does not authorize a "supplemental" form, as respondents seek to require here.
Furthermore, although Charter § 163(d) provides that applications shall be on "a form prescribed by the Tax Commission," 21 RCNY § 1-04(c)(3) provides that "[t]he application forms prescribed by the Tax Commission are as follows: . . .," but does not indicate a Form TC-152. Similarly, 21 RCNY § 1-04(d)(2) prescribes the evidence that must be submitted in various types of cases and situations. All of this evidence bears on the value of the property; none of it bears on how the assessors arrived at their valuation.
In a footnote (Brief at 16, n. 3) respondents argue that Sprague "is no longer good law." Respondents cite to 41 Kew Gardens Rd. Assocs. v. Assessor of Queens County, 70 NY2d 325 (1987). Kew Gardens upheld the constitutionality of Local Law 63 of 1986, "which requires owners of income-producing property in New York City to furnish income and expense statements to the Commissioner of Finance in preparation for real property assessment." The court noted that these statements are "critical to whatever formula or methodology is employed for ultimately arriving at the tax due." Here, unlike in Kew Gardens, respondents "supplemental process" and "supplemental application" have been sanctioned only by administrative fiat, not by a Local Law. Furthermore, the information the Commission seeks is tangential at best and useless at worst (as petitioner vociferously argues, Reply Brief at 2 et seq.), for the purpose of determining the value of real property. As Judge Bellacosa stated, "Local Law No. 63, by its terms, requires the filing of information related solely to the operation of the income-producing property." Kew Gardens, 70 NY2d at 334. This can hardly be said of TC-152. Thus, Sprague's rule, that the Tax Commission cannot unilaterally impose, as a precondition for a merits review, a requirement that is not authorized by legislation, is still good law.
Neither Westlaw nor Lexis indicates any negative subsequent history for Sprague. That a case holds something based upon a statute does not make the case "no longer good law" merely because the legislature amends the statute; the holding may no longer be relevant to the current statute, and thus of limited use, but its interpretation of the former statute, and the reasons it reached that conclusion, are still valid.
This Court need not and does not reach the question of what particular legislation, by what particular body, might authorize use of respondents' "supplemental process."
Another instructive case is Acme Folding Box Co. Inc. v. Finance Admin., 67 AD2d 689 (2d Dept 1979). In Acme the property owner sought to commence a proceeding before the Tax Commission. The owner filed a petition that did not contain a Supreme Court index number but was otherwise timely and proper. The President of the Tax Commission had sua sponte adopted an index number requirement "strictly for the benefit of the workings of his office." Id. at 690. The court found the requirement "highly questionable." Acme thus stands for the proposition that the Tax Commission may not, simply for its own purposes, increase the requirements for review beyond those imposed by statute.
Respondents make much of the fact that denial of a Tax Commission merits review does not prevent judicial review pursuant to RPTL Article 7 (Brief at 4, 9, 16, 22-27). This argument is unavailing for at least three independent reasons. First, if the Commission does not have the power to impose the TC-152 requirement, the Commission may not do so, whether or not such requirement imposes a substantial burden on petitioner. Second, judicial review is neither as inexpensive nor as expedient as administrative review, and a loss of the latter can be a substantial burden. Third, under our system of law, the right to appeal a ruling does not vitiate the right to have a ruling. For example, the four Appellate Divisions may not refuse to rule on all trial court legal determinations simply because the Court of Appeals can correct any errors.
Petitioner states (Reply Brief at 5-6) that a merits review by the Tax Commission "is a relatively quick and economical way to attempt to secure reduction of a property's assessed valuation," whereas "judicial review is significantly more time-consuming and expensive." This comparison obviously rings true. Further, the burden now placed upon the courts will become even greater due to the recent property tax hikes. See Michael Cooper, "Mayor Signs [18.5%] Property Tax Increase Into Law," NY Times, Dec 3, 2002, Section B, at 4, col. 4.
Interestingly, skipping a merits review and going directly to an RPTL Article 7 proceeding apparently does not immunize a property owner from a TC-152-type inquiry. As part of such a proceeding, respondents seek similar information by way of proposed interrogatories. See Reply Brief, Appendix ("Respondents' Interrogatories Propounded to Petitioner").
Respondents argue (Brief at 14) that the Tax Commission has "discretion" to review assessments. This is belied by Charter § 153(b), charging the Tax Commission "with the duty of reviewing and correcting all assessments of real property." It is also belied by the Tax Commission President's own statement (Aff. ¶ 18) that "[t]he role of the Tax Commission is to administratively take a second look at an assessment set by [the Department of Finance]." Respondents rely on Charter § 164(a), which states that the Commission " may . . . act upon applications." Id. (emphasis added). The full text of the sentence is as follows:
The Commission does not indicate in what manner it has heretofore exercised such "discretion."
The argument being that if the Commission has discretion whether to grant hearings, it has discretion whether to condition hearings.
Between the fifteenth day of January and the twenty-fifth day of May, the tax commission may itself or by a commissioner or assessor thereunto authorized by the commission, act upon applications, compel the attendance of witnesses, administer oaths or affirmations and examine applicants and other witnesses under oath.
The gist of this section is that the Commission has discretion how to go about its business: whether to act itself or by an agent, whether or not to have live witnesses, etc. Obviously, the Commission cannot completely abdicate its sole responsibility, which is to review tax assessments, or act (or refuse to act) out of pique. That the Commission "may . . . act upon applications" does not give it the power to refuse to act unless it gets whatever it demands, authorized or not.
Furthermore, § 164(a) concludes as follows:
It [ i.e., the Commission] shall make rules of practice for proceedings before the tax commission, and such rules and regulations as may be appropriate and expedient to the end that the taxpayers may have a hearing in the borough in which they reside or in which their property is located, except that all applications with respect to property indicated on the tax maps by identification numbers shall be heard by the tax commission sitting as a body at its main office.
This sentence takes as a given that the Commission will hold a hearing, and addresses only the question of the location thereof.
Indeed, in Pacifica Foundation v. Lewisohn, 79 Misc2d 550 (Sup Ct, NY County 1974), Justice Arthur Blyn concluded that when a property owner seeks an exemption, which is analogous to the request for a lower assessment ( see generally, Charter §§ 163(a)(2)(a) and 163(a)(5)(a)), the Commission must hold a hearing. Justice Blyn relied on both the language quoted above, id. at 551-52, and his conclusion that to deny the exemption without a hearing would be a denial of due process, id. at 552.
Thus the "supplemental process" is ultra vires activity because the statutory framework, and the cases interpreting it, indicate that the Tax Commission does not have the authority to implement such a scheme.
Argument 2: City Administrative Procedure Act
As an adjudicative agency, the Tax Commission is subject to the strictures of the New York City Administrative Procedure Act ("CAPA"). See Charter, ch 45 § 1041(1), (2), § 1043(a), § 1046; see generally, 1700 York Assocs. v. Kaskel, 182 Misc2d 586, 592-595 (NY City Civ Ct, 1999) (Billings, J.) ("For a New York City agency's pronouncement to be a rule with the force and effect of law, it must be adopted in accordance with the rule-making requirements under the City Administrative Procedure Act.") (finding that New York City Department of Health's interpretation of law prohibiting the keeping of animals that are "wild, ferocious, fierce, dangerous or naturally inclined to do harm" as covering ferrets was a rule subject to CAPA). CAPA imposes its myriad notice, comment, hearing and publication requirements on "rulemaking." Charter § 1043(a).
Here, as in 1700 York, supra, the question is whether the subject agency has promulgated a "rule." CAPA § 1041(5) defines "rule," as here relevant, as follows:
"Rule" means the whole or part of any statement or communication of general applicability that (i) implements or applies law or policy, or (ii) prescribes the procedural requirements of an agency including an amendment, suspension, or repeal of any such statement or communication. a. Rule" shall include, but not be limited to, any statement or communication which prescribes (i) standards which, if violated, may result in a sanction or penalty;. . . .
b. "Rule" shall not include any . . . (ii) form, instruction, or statement or communication of general policy, which in itself has no legal effect but is merely explanatory;. . . .
The supplemental process is of "general applicability," even if not of "universal applicability," because it applies indiscriminately to a very large group of persons and entities. It implements and/or applies law and/or policy, in that it is a condition precedent to a merits review. Most obviously, it "prescribes the procedural requirements of an agency." It is also a "standar[d] which, if violated, may result in a sanction or penalty." It has a legal effect, to wit, automatic denial of a merits review for anyone who fails to submit a TC-152, and clearly "is not merely explanatory."
Furthermore, the Tax Commission's "supplemental process" would be right at home in 24 RCNY § 1-04, which presumably was promulgated with the benefit of CAPA, at least if done so after CAPA's effective date (sometime in or after 1988). For example, 24 RCNY §§ 1-04(d)(2)(ix) and (x) provide as follows:
(ix) Where the application is based upon a sale, the applicant shall submit a closing statement in sufficient detail so as to permit identification of the principals involved. The closing statement must clearly set forth the total consideration paid, whether by cash or assumption of liabilities. An affidavit shall also be submitted stating that the sale was an arms length transaction between unrelated parties, that it was made without economic duress and that it fairly represented existing market conditions. The total consideration paid (including but not limited to cash, all mortgages, and any assumption of other liabilities, such as unpaid taxes, if any, less amounts not attributable to the realty such as amounts paid for good will, fixtures or personalty) shall also be clearly set forth in said affidavit. (x) Where the application is based upon a claim of over valuation of a new building or an alteration of an existing improvement, the applicant shall submit contracts, cancelled checks or other available documentary evidence of the cost of construction or alteration. The applicant must also state if any exemption applications are pending or contemplated.
Even assuming the subject matter of the "supplemental process" to be a legitimate area of inquiry, it must be incorporated in "rules" such as those immediately above.
The First Department has broadly outlined CAPA as follows:
The rulemaking process is mandated when an agency establishes precepts that remove its discretion by dictating specific results in particular circumstances. "[O]nly a fixed, general principle to be applied by an administrative agency without regard to other facts and circumstances relevant to the regulatory scheme of the statute it administers constitutes a rule or regulation" that must be formally adopted. Rules are not required for "ad hoc decision making based on individual facts and circumstances" or for "interpretative statements and statements of general policy that are merely explanatory and have no legal effect."
DeJesus v. Roberts, 296 AD2d 307, 310 (1st Dept 2002) (citations omitted). These words apply to the Commission's "supplemental process," particularly, but not solely, because the Commission has "removed its discretion" and "dictated specific results." Furthermore, the "supplemental process" is not merely a "policy," as it has specific, immutable effects.
Respondents cite (Brief at 20) to Alca Indus., Inc. v. Delaney, 92 NY2d 775 (1999), in which the court drew a "distinction between ad hoc decision making based on individual facts and circumstances, and rulemaking, meaning 'any kind of legislative or quasi-legislative norm or prescription which establishes a pattern or course of conduct for the future.'" Id. at 778 (citation omitted). As between the two, respondents' "supplemental process" seems more akin to the latter, because it is based on a broad range of facts and circumstances, not just the situation of a particular property owner, and because it establishes a norm for future conduct.
This is so even though the Tax Commission might, as it states, discontinue its "supplemental process" at some point within the next year or two.
Thus, under the circumstances here presented ( i.e., without any notice, hearings, etc.), the Tax Commission's "supplemental process" violates CAPA.
Argument 3: Substantive Due Process
Petitioner's substantive due process argument (Moving Brief at 17-20) boils down to the claims that the Tax Commission did not have the power to impose its "supplemental process" (an argument that tracks, if not duplicates, the ultra vires argument), and that, in any event, use of the TC-152 is arbitrary and capricious because it has no reasonable, rational relationship to assessing the value of property. The former argument is certainly bolstered by Kahal Bnei Emunim and Talmud Torah Bnei Simon Israel v. Town of Fallsburg, 78 NY2d 194 (1991), in which the Court held that the taxing agency could not "conditio[n] entitlement to a mandatory property tax exemption upon the filing of an application." Id. at 203. Here, entitlement to a hearing cannot be conditioned upon the filing of a supplemental form adopted unilaterally. As stated in Kahal:
Indeed, an administrative agency may not promulgate a regulation that adds a requirement that does not exist under the statute. As we have only recently reiterated "'"[a]dministrative agencies can only promulgate rules to further the implementation of the law as it exists; they have no authority to create a rule out of harmony with the statute."'"
Id. at 204 (citations omitted). However, this court is not aware of authority for the proposition that an act that is ultra vires automatically constitutes a substantive due process violation.
Furthermore, petitioner's argument, sprinkled throughout its submissions, that answers to the TC-152 questions would be of absolutely no use to the Tax Commission in reviewing assessments, simply does not comport with common sense. If nothing else, such information might be useful to the Commission in allocating its resources, because the Commission might want to scrutinize more closely the assessments of properties owned by persons who used the "services" of the indicted individuals. As respondents state (Brief at 23), "it is reasonable and rational for the President of the Tax Commission to want to ascertain if an assessed value he is being asked to reduce was possibly secured through illegal conduct."
The President of the Tax Commission states (Aff. ¶ 16) that "tak[ing] into account whether a property may be presenting an assessed value which is tainted by bribery . . . is a rational ordering of priorities giv[en] the number of filings received."
Petitioner cites (Reply Brief at 3) to such cases as Metropolitan Life Ins. Co. v. Tax Comm. of the City of New York, 22 AD2d 870, 871 (1st Dept 1964) ("Petitioner must establish that the assessment is too high and, failing that, any error of the assessors is without import."), affd 16 NY2d 935 (1965); Blooming Grove Props., Inc. v. Bd. of Assessors of the Town of Blooming Grove, 34 AD2d 953, 953 (1970) ("whether or not a specific assessment is assailable is tested not by the formula used by the assessors but the fairness and reasonableness of their conclusion"); and Consolidated Edison of New York, Inc. v. State Board of Equalization and Assessment, 112 Misc2d 422, 423 (Sup Ct, Albany County, 1982) ("[T]he concern is with the assessment imposed and not the manner in which the assessment was determined. What the assessor did or failed to do is irrelevant."). What these cases stand for as a whole is that whether an assessment can be overturned in subsequent proceedings depends upon whether the final figure is correct, not on the manner in which the assessors arrived at it. This is a far cry from saying that this court can micro-manage the Tax Commission and tell it how to go about its business. "Interpretation of a statute by the agency charged with its enforcement is, as a general matter, given great weight and judicial deference so long as the interpretation is neither irrational, unreasonable, nor inconsistent with the governing statute." Matter of Moran Towing Transp. Co. v. New York State Tax Commn., 72 NY2d 166, 173 (1988). "Furthermore, an administrative agency's construction and interpretation of its own regulations and of the statute under which it functions is entitled to the greatest weight." Matter of Herzog v. Joy, 74 AD2d 372, 375 (1st Dept 1980), affd 53 NY2d 821 (1981). "Absent an arbitrary and capricious regulation or interpretation of said regulations, courts should defer to the agency." Tommy and Tina v. Department of Consumer Affairs of the City of New York, 95 AD2d 724, 724 (1983), affd 62 NY2d 671 (1984).
The new President of the Tax Commission states (Aff. ¶ 3) as follows:
In the exercise of my discretion . . . I deem it a fundamental fact to know what [the Department of Finance] really thought the assessed value of a particular property should be. . . . No rational process which seeks to confirm or reduce an assessment can proceed with any degree of confidence if the assessment under review may have been secured through bribery.
This Court will not second-guess such administrative expertise.
Petitioner's counsel vigorously and logically argues (Reply Aff. ¶ 5, passim) that why an assessment is low is irrelevant, because the Commission will simply affirm it if it is, whatever the reason therefor. However, the information may be very relevant for institutional purposes, such as resource allocation and, over time, self-examination.
In sum, the infirmity in respondent's "supplemental process" is not that no rational, reasonable Tax Commissioner would want to know the information requested. Indeed, probably just the opposite is true. The infirmity is that the governing statutes do not authorize the process, and interpretive case law prohibits it. However, this Court finds no substantive due process violation.
Argument 4: Procedural Due Process
Simply put, procedural due process protection prohibits the government from depriving a citizen of a liberty or property interest without providing notice and a hearing. Applying that rule to the instant situation is not so simple. The property interest here is either the tax money petitioner has already paid, and as to which it is seeking a refund, or the real property petitioner owns, which would have been subject to forfeiture if petitioner had not paid taxes on it. In either event, an RPTL Article 7 proceeding provides a reasonable post-deprivation hearing. Thus, imposition of a "supplemental process," by itself, is not constitutionally prohibited.
Section One of the Fourteenth Amendment to the Federal Constitution provides that a state may not "deprive any person of life, liberty, or property, without due process of law." See generally, Stuart v. Palmer, 74 NY 183, 190-191 (1878) ("'Due Process of law' is not confined to judicial proceedings, but extends to every case which may deprive a citizen of life, liberty, or property, whether the proceeding be judicial, administrative, or executive in its nature.").
However, as petitioner argues (Reply Brief at 4-5) the "supplemental process" itself must pass constitutional muster. Respondents state (Brief at 8-9) that the Tax Commission will "strik[e] a balance designed to permit review of those matters with no stated connection to the bribery ring, and to decline, in the exercise of its discretion, review where a nexus exists to Schussler or Edelstein having had an involvement in securing an assessment" (emphasis added). Petitioner points out (Reply brief at 5) that respondents' "position condemns any property owner to automatic forfeiture of the right to Tax Commission review if it answers questions 1 or 2 on Form TC-152 affirmatively, even if the subjects discussed with or services provided by Schussler and Edelstein were innocent" (emphasis added). This Court recoils at the notion that the government can deny a citizen a hearing because of guilt by association. The TC-152 questions clearly call for affirmative responses from some property owners completely innocent of bribery or other nefarious conduct. Also repugnant is the fact that these property owners would become persona non grata, "untouchables," because the City itself failed to root out corruption in its own midst. Respondents do not have the right to sweep up the innocent with the guilty. Thus, even assuming, arguendo, that this Court were to allow the Tax Commission to impose its "supplemental process" on property owners seeking a merits review, it would not allow the Commission to deny review solely on the basis of an affirmative or partly affirmative response to the questions as posed.
Conceptually, although they are related, it is one thing for the Tax Commission to institute its "supplemental process," which this court has found by itself to be an ultra vires act, and another for the Commission automatically to deny a merits review to anyone who refuses to comply with it.
According to the federal indictment (Respondents' Aff. Exhibit A), at least 16 then-employed New York City Department of Finance assessors took bribes arranged by two formerly-employed City assessors. These assessors represent nearly half of all those working in Manhattan. One of the indicted individuals (Edelstein) and 15 of the 16 assessors apparently have pleaded guilty. Id. at ¶¶ 5-6. It is a sad commentary on the state of the City that such corruption, conducted by current and former City employees and striking right at the heart of the social contract, could continue undetected for so long.
Argument 5: Investigation Rather Than Adjudication
An essential element of our law, one easily understood by laypersons, is that "the complainant, prosecutor, judge, jury, and executioner [cannot be] one and the same person." See In re Moore, AD2d, 747 NYS2d 529, 529 (2d Dept 2002) (imposing reciprocal discipline on attorney). Petitioner's 5th argument is, essentially, that the "supplemental process" is more appropriate to the state's power to police than its power to tax.
The two questions on TC-152 essentially ask whether the property owner had any dealings with the indicted individuals in connection with the assessment(s) at issue. The questions do not ask if anyone paid or received a bribe. As argued by respondents (Brief at 4-5), there is no indication in the record that the Commission plans on funneling this information to federal or state investigators. Nor is there any indication that the Tax Commission plans on using the answers for an improper purpose.
The former have accomplished much without it, and the latter may not accomplish anything with it. As respondents note (Brief at 28), the United States Attorney "uncovered the assessment scandal, secured guilty pleas, and continue[s] the investigation." The City was caught flat-footed; as Mayor Bloomberg stated, the bribery scheme, "has gone through six mayors [and] innumerable commissioners of finance. The bottom line is no one caught it until recently. We've got to make sure that doesn't happen again." www.nysscpa.org/home/2002/202/4week/article14.htm (website of the New York State Society of Certified Public Accountants, quoting the New York Post. The City's ignorance may have been fostered by the fact that one of its investigators passed on to her husband, a tax assessor, information about an inquiry into assessments. "While working for the City's Department of Investigation, [she] told her husband . . . about the corruption inquiry." Charles V. Bagli, "Manhattan Ex-Investigator Sentenced," NY Times, Oct. 31, 2002, Section B, at 6, col. 1.
Petitioner notes (Moving Exhibit C, at 1) the following introduction to the Tax Commission's Supplemental Policy and Process, supra:
Petitioner notes this statement in the context of petitioner's 7th argument (Moving Brief at 29), but it has equal relevance to the 5th argument.
In view of the Federal indictment handed down in February [2002] charging current and former employees of the Department of Finance's Property Division, including assessors within the Manhattan Borough office, as well as supervisory personnel, with criminal conduct in connection with property tax assessments set and published by the Department of Finance, and the continuing criminal investigation in connection with same,. . . .
Petitioner claims (Moving Brief at 29) that this demonstrates that "[t]he purpose of Form TC-152 is to assist in 'the continuing criminal investigation.'" However, "assist" does not appear in word or meaning, and there is no indication that respondents intend to use completed TC-152s to "assist" investigative or prosecutorial authorities. In In Re Chase Natl. Bank, 155 Misc 595 (Sup Ct, NY County 1935), the court upheld a books-and-records subpoena issued by the "Commissioner of Accounts," who stated that he needed the material for an investigation into the general practices and procedures of real property tax assessments. The court rejected a challenge by a property owner that the real purpose of the subpoena was to obtain information that would help defend against the owner's tax certiorari proceedings. "The good faith of the commissioner in conducting the inquiry must be assumed, at least in the absence of the clearest showing to the contrary." Id. at 599.
Thus, on the present record, the "supplemental process" is not infirm because it is investigatory or prosecutorial, rather than adjudicative.
Sixth Argument: Equal Protection
Petitioner claims that the Tax Commission's policy of requiring a TC-152 only from the owners of property located in certain areas of Manhattan, rather than from owners of property city-wide, denies constitutional equal protection to petitioner. This Court completely agrees with petitioner's eloquent disquisition to the effect that similarly situated taxpayers should be treated equally. However, assuming, arguendo, that the Tax Commission has the right to require the form, they may certainly require it only of persons who, for geographical or other reasons, are obviously more likely to provide relevant information on it. In any event, as a matter of common sense, the Tax Commission could satisfy petitioner's objection by the simple expedient of imposing the TC-152 requirement city-wide. This Court sees no reason to reach a conclusion that would result in such an empty, and wasteful, exercise.
Section One of the Fourteenth Amendment to the Federal Constitution provides that a state may not "deny to any person within its jurisdiction the equal protection of the laws."
Seventh Argument: Privilege Against Self-Incrimination
As pointed out by petitioner (Moving Brief at 30-31), citing to Bradley v. O'Hare, 2 AD2d 436, 440 (1st Dept 1956), "It has long been accepted that the barrier of possible incrimination may be raised not only against an admission of guilt, but it also may be asserted when there will be involved furnishing of a lead or link from which such evidence may be obtained." Responses to the TC-152 may indeed provide such a lead or link.
Respondents argue (Brief at 30) that petitioner may not use the privilege as a shield and a sword, i.e., seek affirmative relief but refuse to disclose information about matters petitioner has put in issue. However, petitioner is not seeking to use the privilege as both a shield and sword. Rather, petitioner is simply asserting the privilege as a shield; the "affirmative relief" petitioner is seeking is an injunction against having to disclose information, which is exactly what the privilege protects against. To the extent that petitioner is seeking a hearing, or at least a review, that is something to which all property owners are entitled.
They are not, to use an obvious example, suing for personal injuries, but refusing to waive the doctor-patient privilege that protects medical records.
Respondents also point out (Brief at 30-31 and cases cited therein) that the privilege is a personal one, and may not be asserted by or on behalf of corporate or other collective entities. However, as petitioner argues (Reply Brief at 22-23), any "incrimination" here would be of the individual whom the Tax Commission is compelling to respond to the TC-152. Such an individual's verified statement might incriminate him or her as to bribery or other unlawful activity. Thus, even assuming, arguendo, that this Court were to find that the Tax Commission's "supplemental process" suffered no other infirmities, it would find that real property owners should not be penalized for asserting the privilege in response to TC-152.
Summary
Sad to say, but the despicable acts out of which this case arose were not done to the City so much as by the City. It appears that rank corruption existed for years, if not decades, as former City employees passed bribes to current employees. The City's present reaction? To require that property owners, at least some of whose bottom lines suffered along with the City's coffers, establish their bona fides. As the saying goes, sometimes the best defense is a good offense, for publicity reasons, if nothing else.
This Court, however, does not question the good intentions of the Tax Commission, which has been placed in a difficult and somewhat awkward position, to say the least. Nevertheless, the Commission may not compel compliance with unauthorized requirements, make rules without complying with CAPA, impute guilt by association, or compel self-incrimination.
Conclusion
Thus, for the reasons set forth herein, it is hereby
ORDERED, that petitioner's motion for a preliminary injunction is granted and respondents' motion to dismiss that part of the petition that challenges use of what is referred to herein as the Commission's "supplemental process" is denied; and it is further
ORDERED, that respondent Tax Commission of the City of New York is hereby preliminarily enjoined from summarily confirming the real property tax assessment at issue herein, or any other real property tax assessment, notwithstanding that petitioner or any other property owner has not completed, executed and filed Tax Commission Form TC-152 or otherwise complied with the "supplemental process"; and it is further
ORDERED, that the parties shall adhere to the stipulation, covering the subject property and similarly situated properties, set forth in an order dated September 27, 2002, in light of which petitioner need not post an undertaking.
The agreed upon order states as follows: Pending the final resolution of this matter by this Court, it is hereby Ordered that: 1. Respondent Tax Commission of the City of New York is enjoined and restrained from summarily confirming the tax assessments for tax year 2002-2003 levied against any property owner in the Borough of Manhattan who has filed a timely Application for Correction of Assessed Value, which has not yet been acted upon by the Commission, notwithstanding that any such property owner has not completed, executed and filed Tax Commission Form TC-152; 2. Upon the final resolution of this matter by this Court, should the respondents prevail, all property owners referred to in the preceding paragraph shall have a period of three weeks from entry of final judgment by this Court, to complete, execute and file Form TC-152, and upon such filing, the Tax Commission shall review such property owners' Applications for Correction of Assessed Value as required by law. 3. Upon the final resolution of this matter by this Court, should Petitioner prevail, respondent Tax Commission shall review the timely filed Applications for Correction of Assessed Value of all property owners referred to in paragraph 1 above, as required by law.
This opinion constitutes the decision and order of the Court.