Opinion
90 Civ. 4391 (CSH)
January 3, 2002
MEMORANDUM OPINION AND ORDER
This protracted litigation has at its center the plaintiffs claim that the defendants' administration of the Senior Citizens Rent Increase Exemption program ("SCRIE") deprives her of property in violation of her Fifth and Fourteenth Amendment rights to due process. Previous opinions of the Court of Appeals and this Court dealt with an earlier system employed by the defendants. This Opinion considers the modified procedures which are currently in place. Defendants and plaintiff have filed cross-motions for summary judgment, the former seeking a determination that the new procedures do not violate due process, the latter requesting the opposite finding. For the reasons discussed below, plaintiffs motion is granted in part, and defendant's motion is granted in all other respects.
BACKGROUND
Plaintiff Barbara Kraebel d/b/a Barklee Realty Company ("Kraebel" or "Plaintiff") brought this case almost twelve years ago to challenge the allegedly burdensome and snail-paced process established by the defendants to refund landlords a commodity known as "Excess SCRIE." The SCRIE system and the procedural history of this case were explained thoroughly in the Second Circuit's opinion in Kraebel v. New York City Dep't of Housing Preservation, 959 F.2d 395 (2d Cir. 1992), this Court's opinions in this case: 1993 WL 51090 (S.D.N.Y. Feb. 23, 1993), 1994 WL 132239 (S.D.N.Y. April 14, 1994), and 1995 WL 412417 (S.D.N.Y. July 12, 1995), and this Court's opinion in the companion case, Blecher v. Dep't of Housing Preservation and Dev., 1995 WL 412394 (S.D.N.Y. July 11, 1995). This Opinion assumes the reader's familiarity with those earlier ones.
The Blecher case was settled in 2000.
Excess SCRIE
This action arises out of a New York statutory scheme applicable to real property owners (hereinafter "owners" or "landlords") who rent premises to seniors. Many of the core facts underlying this case are undisputed. Under New York law, landlords whose senior citizen tenants qualify for an exemption from payment of rent increases under the SCRIE program are entitled to reimbursement for the loss of the rent increases by means of a dollar for dollar reduction in their real estate taxes represented by Tax Abatement Certificates ("TACs"). If the TACs for a given year exceed the amount of real estate taxes due by the owner for that year, the owner is entitled to a cash refund of the amount by which the TACs exceed the real estate tax bill. These cash payments are known as "Excess SCRIE".
History of This Litigation
At all relevant times, plaintiff was the owner of an apartment building in Manhattan with SCRIE-eligible tenants (the "Property"). The Second Circuit held that Kraebel's entitlement to Excess SCRIE payments constitutes a property interest subject to due process protections. See Kraebel, 959 F.2d at 404. In that decision, the court, inter alia, reversed Judge Lowe's dismissal of Kraebel's due process claim and noted that the plaintiff's property interest — the right to Excess SCRIE — was "of greater significance than is present in most other due process cases." Id. at 405. In evaluating the claim upon remand, this Court was instructed to bear in mind "the deference appropriately accorded by courts to executive agencies regarding practicalities encountered by those agencies in administering legislative programs" and "determine whether the burdens and delays imposed by the city" in refunding Excess SCRIE "were reasonable." Id. at 406.
This case was transferred to the docket of the undersigned after remand.
In the years since the case was remanded, progress towards resolution has been slowed by several motions, by improvements in the SCRIE program which prompted submissions by the parties regarding the continued viability of plaintiffs case, disputes over discovery and the exploration of settlement. In 1998, plaintiff accepted an offer of judgment under Fed.R.Civ.P. 68 in the amount of $5,325.05 which settled plaintiffs claim for monetary damages. With discovery completed, settlement talks concerning declaratory and injunctive relief exhausted, and the improvements to the SCRIE program well established, the parties now make cross-motions for summary judgment.
Old Svstem
The process by which the city refunds Excess SCRIE has changed significantly during the pendency of this case. The system in effect when Kraebel brought her claim and the Second Circuit addressed it was far more cumbersome and time-consuming than the present one. The old system worked as follows. After an eligible senior citizen tenant applied for and received from defendant New York City Department of Housing Preservation and Development ("HPD") an order exempting the tenant from rent increases, the tenant submitted the order to the landlord. These orders doubled as Tax Abatement Certificates ("TACs") representing the dollar amount of the rent increase for which the landlord was entitled to receive a tax abatement. After receiving the paper TAG from the tenant, the landlord was then required to submit it to defendant New York City Department of Finance ("DOF") to obtain credit against the property's real estate taxes. If the SCRIE tax abatements exceeded the amount of real estate taxes due on the property, the landlord had to fill out and submit to HPD a lengthy application in order to obtain the Excess SCRIE cash refund payment to which the landlord was entitled. These applications could only be made once a year. The landlord was required to attach to the application the paper TACs as well as various documents including copies of leases of the SCRIE tenants, a monthly breakdown of rents and abatements with respect to all SCRIE tenants, and records of real estate tax payments. After receiving the application and supporting documentation from the owner, HPD audited it to verify the amount of the reimbursement before issuing an Excess SCRIE payment. HPD frequently took many months or more than a year to refund Excess SCRIE after receiving an application. See Plaintiff's Memorandum of Law in Opposition ("P1. Mem.") at pp. 2-3.
New System
Beginning in 1994 the SCRIE program underwent computerization and was considerably streamlined. Now, much of the process happens automatically. Gone are the paper TACs. Gone are the lengthy applications. Gone is the necessity of the landlord acting as middleman. Instead, approximately one month after the New York City Department for the Aging ("DFTA") determines that a tenant is eligible to receive SCRIE benefits for a specified period of time, it transfers TAGs electronically by computer directly to DOF, which maintains a computerized account storing SCRIE credits and debits for each affected property (the "SCRIE Account"). Affidavit of Donald Martensen dated March 7, 2000 ("Martensen Aff.") at ¶¶ 7-8; Affidavit of Donna Tessitore dated March 7, 2000 ("Tessitore Aff.") at ¶ 29. After DOF confirms to DFTA that it has received the credits, DFTA sends a confirmation notice to the landlord, informing the landlord of its posting on the Property's real estate tax account. Tessitore Aff. at ¶¶ 6, 10. According to DOF, on a quarterly basis coinciding with DOF's billing process for real estate taxes, DOF applies the credit balances from the owner's SCRIE Account to its property tax database (called the "Fairtax" system) to offset real estate taxes for the property at issue. Martensen Aff. at ¶ 10. The credits are applied in the following order: (1) to offset any property taxes due for the next tax period, (2) to offset any past due real estate taxes and (3) to offset potential SCRIE debit adjustments transmitted by DFTA. Martensen Aff. at ¶ 10.
In 1992, DFTA took over the SCRIE eligibility determination role from HPD.
The transfer of TACs occurs on a monthly basis except for June and November because in late May and late October DFTA must concentrate upon the process of transferring "the tax abatement credits that the landlord is entitled to receive for all tenants who hold a valid SCRIE exemption during the upcoming six month tax period." Tessitore Aff. at ¶ 23. Those credits and debits that would have been transmitted in June and November are transmitted the following month.
Under present procedures, a landlord may now apply at any time during the year for payment of Excess SCRIE. The current application is a one-page one-sided form which requires no supporting documentation. The form requires a landlord to indicate the amount she wants refunded or credited to real estate tax, the landlord's name and other information, the property's identification, and an affirmation by the landlord that all of the statements are true, that she has never applied for the Excess SCRIE sought therein, that she is not in tax arrears in any other property she owns, and acknowledging that the application is subject to audit. Reply Affidavit of Peter J. Lempin dated September 27, 2000 ("Lempin Reply") at ¶ 5 Ex. A. To expedite the process, pre-payment audits have been eliminated. DFTA now audits requests for Excess SCRIE after the applications have been processed. Reply Affidavit of Donna Tessitore dated September 27, 2000 ("Tessitore Reply") at ¶ 20. The typical duration from receipt of the application to payment of Excess SCRIE is presently about six to eight weeks. Affidavit of Peter J. Lempin dated March 7, 2000 ("Lempin Aff.") at ¶ 16.
After Excess SCRIE has been paid, DFTA staff audit applications to ensure that SCRIE tax abatements and SCRIE tenant approvals are not improperly taken or granted. If DFTA determines that SCRIE tax credits are undeserved on a particular property, DFTA automatically recoups the amount by sending DOF a tax abatement debit. Upon posting such a debit, DOF confirms that the owner's SCRIE Account has been debited accordingly. Debits are also made by DOF to an owner's SCRIE account or issued to DOF by DFTA in other circumstances, including an increase in the tax rate for the property or a decrease in the tenant's rent.
When plaintiff first brought this case, she claimed that the defendants' procedures required plaintiff to "maintain complicated rent records for SCRIE tenants, to make complex filings in order to obtain Excess SCRIE, to suffer unreasonable delays in obtaining Excess SCRIE, and to be subject to onerous audits." P1. Mem. at p. 3. Now Kraebel acknowledges that the process for obtaining refunds of Excess SCRIE has become faster and easier in many respects and that the changes implemented by the defendants "addressed many of Plaintiff's due process objections to the processing and payment of Excess SCRIE." Id. at p. 5. Nonetheless, in these cross-motions Kraebel raises a number of new issues about the current procedures and she also persists in her claim that the old procedures violated her right to due process.
DISCUSSION
I. Motion to Add Barklee 147 LLC as Party Plaintiff
As a preliminary matter, the Court must address plaintiffs motion to add Barklee 146 LLC (the "LLC") as a party plaintiff. The stated reason for the motion is that in 1998 plaintiff sold the Property which is the subject of this lawsuit to the LLC, a limited liability company of which Kraebel is the sole member and manager. Defendants do not object to the motion.
Without argument or explanation, plaintiff rests her motion upon Fed.R.Civ.P. 21 which is captioned "Misjoinder and Non-Joinder of Parties". Rule 21 provides in pertinent part that: "Parties may be dropped or added by order of the court on motion of any party or of its own initiative at any stage of the action and on such terms as are just." Plaintiffs reliance on that rule is mistaken because it does not apply to the circumstances at hand. The sale of the Property to another entity does not result in a "misjoinder" or "non-joinder" of the original plaintiff. Instead, that situation is addressed by Fed.R.Civ.P. 25(c) which deals with substitution of parties when there is a transfer of interest. In relevant part, that provision instructs that:
In case of any transfer of interest, the action may be continued by or against the original party, unless the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.
Although, inexplicably, neither party refers to it, Rule 25(c) is clearly the relevant provision here.
Rule 25(c) makes plain that when a transfer of interest occurs the case continues seamlessly making substitution unnecessary. The rule "permits automatic continuation of a lawsuit against an original corporate party." State Bank of India v. Chalasani, 92 F.3d 1300, 1312 (2d Cir. 1996) (citing Luxliner P.L. Export, Co. V. RDI/Luxliner, Inc., 13 F.3d 69, 72 (3d Cir. 1993)). See also ELCA Enterprises, Inc. v. Sisco Equip. Rental Sales, Inc., 53 F.3d 186, 191 (8th Cir. 1995) (citation omitted) (Rule 25(c) is "designed to allow an action to continue unabated when an interest in a lawsuit changes hands. . . ."). As one commentator has noted:
The most significant feature of Rule 25(c) is that it does not require that anything be done after an interest has been transferred. The action may be continued by or against the original party, and the judgment will be binding on his successor in interest even though he is not named. An order of joinder is merely a discretionary determination by the trial court that the transferee's presence would facilitate the conduct of the litigation.
Wright, Miller Kane, Federal Practice Procedure: Civil 2d, § 1958 (1986) (emphasis added) (footnotes omitted).
As discussed below, the only claim remaining in the case is plaintiffs claim for equitable relief. The original plaintiff can press that claim just as forcefully and readily as its successor in interest could. Substitution is therefore unnecessary and neither party suggests otherwise. Plaintiff does not offer any justification for substitution. She merely states that the interest in the Property has been transferred without explaining how the new owner's presence would facilitate the litigation. Because the original plaintiff can continue to press for the equitable relief sought in this case despite the transfer of interest and because neither defendants nor plaintiff have offered a sound justification for doing so, I decline to add or substitute the LLC as a party plaintiff.
This case was initially brought by Barbara Kraebel as the owner of Barklee Realty Company, a sole proprietorship. Kraebel has always actedpro se in this case. Kraebel's pro se status is acceptable because sole proprietorships may proceed pro se in federal court. See Lowery v. Hoffman, 188 F.R.D. 651, 653-54 (M.D.Ala. 1999) (sole proprietorship may be represented by its owner). As noted, Barklee Realty Company transferred title to the Property in 1998 to the LLC, a New York limited liability company. I have declined to add or substitute the LLC as a plaintiff, but I note that if it were to be substituted, the LLC, as a liability company, would not be allowed to proceed pro se. In re ICLNDS Notes Acquisition, LLC, 259 B.R. 289, 294 (Bankr. N.D.Ohio 2001) (limited liability company, which is a hybrid between a partnership and a corporation, may appear in court only through an attorney). This rule may not pose a problem in this case because Kraebel was educated, and at one time practiced, as a attorney. However, assuming dubitante Barklee 147 LLC were to become a plaintiff at any time in the future, Kraebel would have to file an appearance and submit evidence showing that she is a licensed attorney in good standing in the State of New York in order to represent it.
II. Summary Judgment Cross-Motions
Summary judgment may be granted in favor of the moving party "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also D'Amico v. City of New York, 132 F.3d 145. 149 (2d Cir.), cert. denied, 524 U.S. 911 (1998). In considering such a motion the court must "view the evidence in the light most favorable to the party against whom summary judgment is sought and must draw all reasonable inferences in his favor." L.B. Foster Co. v. America Piles, Inc., 138 F.3d 81, 87 (2d Cir. 1998) (citing Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986)). In determining whether to grant a motion for summary judgment, the court "cannot try issues of fact; it can only determine whether there are issues to be tried." American Mfrs. Mut. Ins. Co. V. American Broadcasting Paramount Theatres, Inc., 388 F.2d 272, 279 (2d Cir. 1967).
The party "seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying . . . [what] it believes demonstrate[s] the absence of a genuine issue of material fact." Celotex Corp. V. Catrett, 477 U.S. 317, 323 (1986). Once such a showing is made, the party opposing the motion must come forward with "specific facts showing that there is a genuine issue for trial." Rule 56(e). In so doing, the "non-moving party may not rely on conclusory allegations or unsubstantiated speculation." Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998). Moreover, while the party resisting summary judgment must show a dispute of fact, it must also be a material fact in light of the substantive law. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). However, "[t]he mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient" to defeat a properly supported motion for summary judgment. Anderson, id. at 252. Instead, the nonmovant must offer "concrete evidence from which a reasonable juror could return a verdict in his favor." Id. at 256. Summary judgment should only be granted if no rational factfinder could rule in favor of the non-moving party. Heilweil v. Mount Sinai Hospital, 32 F.3d 718, 721 (2d Cir. 1994).
A. Declaration that the Old Procedures Violated Due Process
Given the reforms that have been implemented by the defendants, plaintiff no longer complains of constitutionally unacceptable delays and burdens in the process of obtaining Excess SCRIE. Paradoxically, even though plaintiff acknowledges that the present application process is no longer time-consuming or unduly burdensome, she continues to seek a declaration that the old procedures — the ones that were in effect when she brought this case — violate due process. This request is denied.
Because plaintiff accepted the defendants' offer of judgment, monetary damages have dropped out of the case and the only relief that plaintiff seeks in connection with the old procedures is a declaratory judgment. In evaluating plaintiff's due process challenge with respect to equitable as opposed to monetary relief, this Court must look to the SCRIE procedures as they now stand. It is well-settled that if"a defendant has discontinued challenged activities . . ., the case is moot if there is no reasonable expectation that the wrong will be repeated." Hudson v. Robinson, 678 F.2d 462, 465 (3d Cir. 1982) (citing United States v. W T Grant Co., 345 U.S. 629 632 (1953)); see United States v. Phosphate Export Ass'n, 393 U.S. 199, 203 (1968) ("A case might become moot if subsequent events made it absolutely clear that the allegedly wrongful behavior could not reasonably be expected to occur."). Moreover, declaratory relief ""like all other forms of equitable relief, should be granted only as a matter of judicial discretion, exercised in the public interest.'" Hospital Association of New York State, Inc. v. Toia, 577 F.2d 790, 798 (2d Cir. 1978) (quoting Eccles v. Peoples Bank, 333 U.S. 426, 431 (1948)).
The undisputed fact that the changes in the original procedures have operated for a number of years renders the suggestion that the defendants will someday revert back to the document-intensive, non-computerized and more time-consuming process for issuing Excess SCRIE payments pure speculation. Plaintiff points to the fact that the new procedures have not been implemented by regulation in arguing that an injunction is necessary to prevent resurrection of the old ways. However, the test for mootness does not involve ensuring that the changed procedures have been codified. The defendants have explained that the procedures were implemented with considerable forethought, effort and cost by the city agencies involved. Affidavit of Michael S. Rabin dated September 27, 2000 ("Rabin Aff.") at ¶¶ 21-34. Most of the changes are attributable to the development of an integrated computer program which was many years in development. Id. Over the last eight years the Excess SCRIE application process and the transmission of TAGs has become increasingly streamlined and there has been no sign that the defendants' commitment to making the process more efficient has wavered. Indeed, to revert to the old ways would require abandonment of the computer system that took many years and a great deal of money to implement.
Plaintiff does not offer any evidence raising an inference that the defendants will ever bring the old procedures back. Obviously there is not any absolute guarantee that the new procedures will be followed indefinitely, but plaintiffs argument amounts to nothing more than conjecture. Because the objectionable aspects of the old procedures are no longer present and there is no reasonable basis for believing that they will recur, the due process claim challenging them is moot and, in any event, a declaration that the earlier, stale procedures were unconstitutional would be a waste of judicial resources and serve no useful purpose. Cf. Hospital Assoc. of New York State, 577 F.2d at 798 (affirming district court's refusal to grant declaratory relief concerning challenged methodology that had been revised); Kellogg v. Shoemaker, 46 F.3d 503, 506 n. 3 (6th Cir. 1995) ("It is apparent that the changes in the parole procedure rendered the plaintiffs' challenges to the original procedures moot."); Preston v. Gutierrez, No. 90-6029-CV-SJ-6, 1993 WL 280819, * 5 (W.D.Mo. July 23, 1993) ("It is true that amendment of regulations or promulgation of new regulations providing relief requested can moot cases challenging those regulations. Where intervening events have completely eradicated the effects of the alleged violation, those events may moot an issue.") (citation omitted).
Assuming for the sake of argument that the defendants were to resuscitate the old procedures or make changes in the current procedures which render the process of obtaining Excess SCRIE more burdensome or slow, plaintiff could bring another suit challenging the procedures then in existence. However, I will neither make a declaration as to the constitutionality of the old procedures nor issue an injunction, as plaintiff requests, preventing the defendants from making the current procedures any more burdensome, given the pure speculativeness of plaintiff's concern that they might do so.
B. New Procedures
Plaintiff also seeks injunctive and declaratory relief with respect to several aspects of the current SCRIE procedures. Every procedural due process challenge involves two inquiries: (1) whether the plaintiff has a property right at stake; and (2) if so, what process is due when deprivation of that property is at risk. See Kraebel, 959 F.2d at 404. The Second Circuit has already answered the first question in the affirmative: "Since Kraebel is entitled by state law to receive those excess amounts, we conclude that she has a property interest in the excess SCRIE payments which she claims." Id.
The seminal case of Matthews v. Eldridge, 424 U.S. 319 (1976), outlined the factors a court should balance in answering the second question:
First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.Id. at 335. This balancing test provides useful guidance in determining whether the procedures established by the city to process Excess SCRIE refunds comport with the requirements of due process. However, many of the cases applying it are not analogous, given that plaintiff's "claim is somewhat unusual because it is not couched, as are many of the reported cases, in terms of whether she is entitled to a hearing before the termination of a benefit she has been receiving or before denial of a benefit to which she is only arguably entitled." 959 F.2d at 405. Particularly in light of the unusual nature of plaintiffs claim and the significance of her property interest, the Court will evaluate plaintiffs contentions mindful that the ""flexible' nature of the due process inquiry calls for "such procedural protections as the particular situation demands.'" Id. at 406 (quoting Matthews, 424 U.S. at 334).
1. Inadequate Documentation of SCRIE Charges Against Tax Account
Kraebel argues that the defendants fail to clearly and adequately document the debiting of TACs against her real estate tax account. In particular, plaintiff complains about two instances in which defendants downwardly adjusted the TACs already posted to her SCRIE Account without properly notifying her. Plaintiff argues that she was furnished no notice of(l) DFTA's September 1999 debit of TACs from her SCRIE Account in the amount of $47.52 and (2) two November 1999 $16.79 deductions by DOF of TACs from her SCRIE Account which were applied to her real estate tax bill.
As for the first debit, DFTA explains that it resulted from a $3.96 decrease in the monthly rent for one of plaintiffs tenants, Leslie Benjamin, which correspondingly reduced the tenant's SCRIE benefits and the plaintiffs tax abatement. Defendants report that plaintiff herself notified DFTA of the rent reduction in a letter she submitted to DFTA in June of 1999. Tessitore Reply at ¶¶ 24-20. Kraebel does not dispute this assertion. After receipt of the letter, DFTA processed the adjustment.
As for the second set of debits, DOF asserts that the two $16.79 deductions were attributable to an increase in plaintiff's real estate tax bill for the fiscal 1999-2000 year. DOF explains that plaintiffs July 1, 1999 through June 30, 2000 tax bill which was sent in June of 1999 contained a notice that advised her that the bill was calculated using the current tax rates, but that in November DOF would send "adjusted tax bill coupons computed with the new 1999/2000 rates". Lempin Reply at ¶ 17. Because plaintiffs real estate taxes were increased by $16.79 for the third and fourth quarters of that fiscal year, DOF applied TACs in that amount to her real estate tax account to reduce her tax liabilty. However, DOF did not send plaintiff the promised recalculated real estate tax bill because it determined that she had sufficient credits to abate the tax liability and therefore a revised bill would be unnecessary. Id. at ¶ 18.
Defendants argue that their system furnishes plaintiff, as it does all owners, with ample tools to ascertain both the fact of and the reason for the adjustments and that separate notification of such adjustments is therefore unnecessary. For instance, DFTA sends out "Confirmation Notices" to owners after it receives confirmation by DOF that a debit or credit electronically transmitted to DOF has been applied to the owner's SCRIE Account. In fact, defendants assert that they sent Kraebel a Confirmation Notice in October 1999 reporting that TACs attributed to tenant Leslie Benjamin in the total amount of $47.52 were debited to her real estate tax account at DOF on September 28, 1999. Tessitore Reply at ¶ 31 Ex. F. Kraebel denies receiving that document.
Moreover, about three times yearly, DOF issues landlords a "SCRIE Statement of Account" which reports the SCRIE transaction activity for each affected property. The SCRIE Statement of Account is a summary of the SCRIE tax abatements credits or debits the landlord has been granted on a particular property for the reporting period, the source of those abatements, and the application of credits to the property taxes owed. Martensen Aff. at ¶ 20. It also reports the balance of the remaining SCRIE TAGs that have not yet been applied. Id. at ¶ 21. Each transaction in the SCRIE Statement of Account is accompanied by the tenant application number which enables the landlord to trace the credits or debits by DOF to the source of the credits or debits transmitted by DFTA.
In addition to these documents, a landlord who wants to obtain up-to-date information on the tax abatement credits and debits that have been transmitted by DFTA and applied by DOF may also access and review their SCRIE Accounts on-line on public computer terminals at DOF facilities and via the internet. Martensen Aff. at ¶¶ 14-15; Lempin Reply at ¶ 4. Finally, landlords may at any time request a copy of a "TAC Detail Report" for the property. This report provides the date and amount of all of the tax abatement credits and debits transmitted for a certain period of time as well as the name of the tenant who is the source of the debit or credit. Tessitore Reply at ¶¶ 16-17.
Plaintiff does not dispute the general availability of this information. She does, however, dispute having received a Notice of Confirmation as to the debiting of the TACs attributable to Leslie Benjamin's rent. Plaintiff also insists that the information the defendants provide is too difficult and confusing to comprehend readily, and that the burden should not be on a landlord to wade through the reports to ascertain, through incomprehensible reference numbers, whence the debits came. Plaintiff suggests that in order to comply with due process, the defendants should "advise owners of each change in [the SCRIE] accounts with an explanation of the reason in writing and in English so that the owner can readily incorporate this information into its records or dispute it in an informed way." Plaintiffs Reply Memorandum at p. 8.
The amount of paper devoted to the debate over the outer boundaries of procedural due process in various contexts has required the felling of innumerable trees. But it is common ground that the linchpin of due process is notice. See D'Amato v. United States Parole Commission, 837 F.2d 72, 77 (2d Cir. 1988) ("It is well-established that written notice is a minimum requirement for due process."). Notice must be "`reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.'" Weinstein v. Albright, 261 F.3d 127, 134 (2d Cir. 2001) (quoting Mullane v. Central Hanover Bank Trust Co., 339 U.S. 306, 314 (1950)). Notice is constitutionally sufficient only if it affords the affected person adequate information to knowledgeably contest the action. See D'Amato, 837 F.2d at 77 ("Due process requires notice in order to give a parolee an opportunity to contest or explain matters relating to the charged offense."); Cf. Jordan v. Benefits Review Board of the U.S. Dep't of Labor, 876 F.2d 1455, 1459 (11th Cir. 1989) ("The question is not whether a particular individual failed to understand the notice but whether the notice is reasonably calculated to apprise intended recipients, as a whole, of their rights.").
It follows from these principles that landlords affected by the SCRIE program have, at a minimum, the right to be notified after TACs posted to their SCRIE Accounts have been subsequently removed and why. In this regard, DFTA sends a Confirmation Notice when tax abatement debits are transmitted to DOF for posting, and DOF provides owners with a periodic Statement of Account which reports the SCRIE tax abatement activity for the property. These documents furnish the date of the transaction, the tenant to which the TAGs are attributable (in the Confirmation Notice only) and the amount of the TAGs. This information goes part of the way toward giving the landlord a basis on which to challenge an allegedly erroneous debit. However, one major piece of the puzzle is missing — the reason for the debit. It cannot fairly be said that a landlord has the means to challenge a debit as improvidently taken unless he or she knows why the defendants took it.
Defendants maintain that because each TAG transaction is furnished an identification number and a tenant application number, a landlord may trace the transaction back to the source — i.e., the tenant and period of time giving rise to the TAC. However, there are several problems with this approach. First, the tracing method is not self-evident. Indeed, this Court is unable fully to understand the defendants' explanation of how to trace the source from the identification number. Second, it is not apparent that landlords are furnished clear instructions concerning what the reference numbers mean and how to track them. Finally, even if a landlord can manage to trace the debit to its tenant source, that does not tell her the reason for the debit. Knowing that a debit is attributable to the SCRIE application of a particular tenant for a specified period falls short of apprising a landlord that the debit is the result of an alleged reduction in the fuel surcharge for that tenant.
While I am not and never have been a landlord, my difficulties in comprehending this aspect of the procedure are probative of the sufficiency of the information conveyed by the notice.
Another problem with the defendants' approach is the fact that DOF does not furnish landlords notice of the actual amount of mid-year tax increases and concomitant deductions from the SCRIE Account if it determines that the owner has sufficient TAGs to cover the tax increase. Even though DOF did furnish Kraebel and other real property taxpayers prior notice that their 1999-2000 tax bill was subject to increase after the new rates had been determined, it did not complete the circle and provide, as assured, a new tax bill once it had the information to do so. Without such notice, landlords are left to assume, as Kraebel did, that a particular debit appearing on their next Statement of Account is attributable to a tax increase. Defendants seem to argue that plaintiff had sufficient notice because she knew the reason for the debits. That is a fair point. Kraebel did say in her moving papers that she "believed" based on reviewing her files that the November 1999 debits resulted from an increase in her taxes and that the September 1999 debit resulted from tenant Benjamin's decrease in fuel surcharge. Affirmation of Barbara Kraebel dated May 26, 2000 at ¶ 37. But the fact that Kraebel correctly guessed the reason for the debits on those occasions does not release the defendants from their obligation to furnish adequate notice. Forcing a landlord to make an assumption about a key detail is almost by definition not affording notice.
The defendants do not offer any justification for failing to provide property owner/landlords with an explanation for the debits. Even the simplest explanation to the landlord would go a long way toward reducing the possibility of an erroneous debit because it would furnish the landlord ready and prompt knowledge with which to challenge the transaction, if so inclined. The defendants do not attempt to argue that it will be too costly or time-consuming to generate an explanation or to furnish all affected taxpayers with notice of the actual amount of tax increases and corresponding SCRIE deductions. Considering the importance of plaintiffs property interest in Excess SCRIE, the contribution that an explanation would make in decreasing the risk of the defendants erroneously depriving plaintiff that interest, and the defendants' failure to indicate that this additional procedural safeguard would substantially increase their administrative burden, the Court holds that the defendants' failure to provide that element of notice violates the plaintiffs due process rights. Within 90 days of the date of this Opinion, defendants are directed to submit a proposal to the Court of a redesigned Confirmation Notice and a tax increase notice for affected landlords, containing a format consistent with this Opinion advising landlords of the reasons for SCRIE debits.
2. Post-Payment Audit
When plaintiff first brought this case, the defendants conducted pre-payment audits of Excess SCRIE applications. As one can well imagine, this process considerably delayed the process of refunding Excess SCRIE. Since February 1994, however, DFTA has been conducting post-payment audits. The audit process no longer holds up payment of Excess SCRIE. Instead, post-payment audits occasionally result in a determination that the amount of Excess SCRIE refunded was too high and a concomitant reversal of all or part of the refund in the SCRIE Account. Rather than eliminate the plaintiffs concerns, however, this change has only redirected their focus. Plaintiff now insists that DFTA's ability to reverse Excess SCRIE refunds after audit violates her right to due process. In her view, Excess SCRIE is the owner's property and cannot be recouped once issued without the owner's consent. More specifically, plaintiff takes issue with the fact that DFTA's ability to perform audits and reverse Excess SCRIE is not subject to any statute of limitations and may be done even when the reversal was the result of the tenant's ineligibility for SCRIE, not the landlord's mistake.
Plaintiff has previously unsuccessfully tried to bring the audit process into this lawsuit. This Court has repeatedly refused to grant plaintiff discovery on the subject of audits on the ground that the matter was outside the scope of the core issues in this lawsuit. See Order dated June 11, 1996 (at depositions "plaintiffs should only inquire into the current delays and backlogs associated with the distribution of tax abatement credits and excess SCRIE, and the burdensome nature of the SCRIE application process"); Order dated March 24, 1997 ("[T]his litigation is not a vehicle for the expression of plaintiffs' dissatisfaction with any and all imperfections that they may perceive in the present bureaucratic system. Nor may discovery go so far afield."); Order dated November 17, 1997 (Pitman, M.J.). Although it might be said that some of Kraebel's other complaints also fall close to the relevancy line, there can be no doubt that her challenges to the audit system cross that line, as this Court has previously noted. Accordingly, I will not consider plaintiffs argument that the post-payment audits violate due process.
Even if I were to consider her audit challenge, however, I do not find her position persuasive. Given the speed with which defendants currently process Excess SCRIE applications, DFTA must be afforded an avenue to review more systematically the accuracy of Excess SCRIE refunds. If Excess SCRIE were found to have been refunded in error, out of fairness and sound fiscal policy DFTA must be able to recoup it. Kraebel argues that if errors are found, DFTA should not be able to correct them by making deductions from an owner's SCRIE Account. But plaintiffs argument goes too far. Landlords are entitled only to refunds of properly granted tax abatement credits over and above the amount of their real estate taxes. It would be absurd to suggest that a landlord has a property interest in erroneously granted tax abatement credits, whomever the fault is attributed to. Accordingly, there cannot be a constitutional deprivation when defendants recoup wrongly granted TAGs by deducting them from the owner's SCRIE Account even after they have been issued to the owner as Excess SCRIE.
It is significant that owners are afforded notice of audit determinations. If an owner believes a determination to be incorrect, she may challenge it both at the agency level and in the New York State Supreme Court pursuant to Article 78 of the N.Y.C.P.L.R. Given the fact that an owner has no legitimate property interest in wrongly granted Excess SCRIE, notice and an opportunity to be heard after the SCRIE reversal occurs are adequate procedural safeguards under the circumstances.
Plaintiff also argues that failing to make the audits subject to a statute of limitations unduly burdens owners because the lack of a deadline requires them to maintain their SCRIE paperwork indefinitely in order to be able to confirm the accuracy of any reversal of Excess S CRIB. There is some logical force to that argument. However, plaintiff has offered no evidence that in practice DFTA takes an unreasonably long time to complete post-refund audits. Plaintiff has been subject to only one audit. In September of 1994, DFTA issued plaintiff a determination that she had improperly received tax abatements of $168.32 for the period January 11, 1992 through December 31, 1993. Plaintiff did not challenge the determination. Even plaintiff does not argue that two years is an excessively lengthy period of time to maintain records.
In addition, plaintiff maintains that due process does not permit DFTA to reverse a property owner's SCRIE Account based on an audit that has determined that a tenant was not eligible for SCRIE. In plaintiffs view, the owner should not have to pursue the tenant for rent that the owner was improperly prevented from collecting in the first place because information on the tenant's SCRIE application was incorrect. Once again, however, despite whatever surface appeal that argument may have, there is no evidence that a tenant error was the reason for plaintiffs 1994 audit determination. In any event, plaintiff has not persuasively shown that when a tenant is retroactively determined ineligible for SCRIE, the landlord continues to have a property interest in the improperly granted Excess SCRIE as quid pro quo for the rent differential which she would no longer be prevented from collecting. Plaintiff has not pointed to any provision in New York law creating such a property interest. Cf. Kraebel, 959 F.2d at 404 ("Property interests * * * are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law.").
The constitutionality of post-payment audit determinations resulting in the reversal of Excess SCRIE refunds is not an issue in this case, and I therefore decline to consider plaintiffs challenge to that practice. Were I to consider it as part of this case, plaintiff has failed to present an issue of fact demonstrating that DFTA's post-payment audits violate due process.
3. Untimely Transfer of TACs
Kraebel's next argument relates to the interplay between the transfer of authorized TACs by DFTA and the issuance of the yearly property tax bill by DOF. This argument requires some background explanation. DFTA typically approves tenant applications for SCRIE eligibility for one- or two-year periods. As relevant here, in an Owner Approval Order dated December 17, 1999, DFTA approved SCRIE credits for plaintiffs tenant Dorothy Counts in the amount of $84.41 per month for the one-year period from November 1, 1999 to October 31, 2000. Supplemental Affirmation of Barbara Kraebel dated June 26, 2000 ("Kraebel Supp. Aff.") at Ex. D. In another Owner Approval Order dated April 10, 2000, DFTA approved SCRIE credits in the amount of $186.10 per month for tenant Leslie Benjamin for the two-year period from January 1, 2000 to December 31, 2001. Kraebel Supp. Aff. at Ex. F. Notwithstanding preapproval of the SCRIE credits, at the time it issues the Approval Orders DFTA does not transfer all of the credits represented by the orders for the entire period covered. According to DFTA, it transfers tax abatement credits each month, and twice a year it transfers all of the credits authorized for the semi-annual real estate tax period about to begin. Tessitore Reply at ¶¶ 7-9.
DFTA does not say whether it transfers monthly all of the TACs for a tenant for the approved period or just those applicable to that month.
For its part' DOF issues real estate tax bills on an annual basis prior to the commencement of each fiscal year. For reasons which are not relevant here, some taxpayers pay their tax bill on a semi-annual basis and some, like Kraebel, pay on a quarterly basis. Kraebel was issued her July 2000-June 2001 real estate tax bill in June of 2000. Kraebel Supp. Aff. at Ex. A. Despite the fact that her quarterly payments were not due until July and October of 2000 and January and April of 2001, DOF immediately deducted $921.96 worth of TACs from the Property's SCRIE Account. This was enough to satisfy, together with other abatements, the Property's entire yearly tax bill. At the time DOF applied TACs to the 2000-2001 tax bill, DFTA had only transferred TACs for tenant Benjamin through December 31, 2000, and for tenant Counts through October 31, 2000. Nonetheless, the total amount of TACs transferred was $1,454.78 — more than enough abatements to justify the $921.96 deduction for real estate taxes. See Tessitore Reply at ¶¶ 11-12.
In her supplemental papers, Kraebel argues that DFTA does not transfer TAGs for an upcoming tax year in time to have them applied to her real estate taxes for that year. Kraebel concedes that prior to about June of 2000 the transfers were timely. She submits, however, that the defendants have changed their procedures so as to make the current TAG transfers untimely. Kraebel initially claimed that when her yearly tax bill was issued in June of 2000, none of the tax abatement credits authorized for the July 2000-June 2001 period had been transferred by DFTA into her SCRIE Account. In her reply papers, however, plaintiff concedes that she was partially wrong. Plaintiff now explains that she was not aware at the time she filed her supplemental papers that most of the TACs had been transferred prior to issuance of the real estate bill. The only then-authorized TACs that were not yet transferred were those attributable to tenant Leslie Benjamin from January through June 2001. Notwithstanding the fact that more than enough TACs were transferred to justify DOF's deduction of $921.96 at the beginning of the fiscal year, however, Kraebel apparently continues to argue that the defendants' failure to transfer all of the authorized TACs was constitutionally deficient.
It is difficult to comprehend from plaintiffs argument precisely how the timing of the transfer of TACs is supposed to have violated due process. Kraebel seems to suggest that if all the TACs are not transferred at the time the tax bill is issued, DOF will necessarily apply the balance of TACs from earlier transfers to the tax bill. In doing so, DOF would be forced to diminish the universe of TACs that would otherwise be available to plaintiff at that time as Excess SCRIE. Kraebel also argues that unless all the pre-approved TACs for the tax period are transferred simultaneously upon issuance of the tax bill, property owners will have difficulty knowing how much Excess SCRIE they are owed. Plaintiffs Supplemental Memorandum in Opposition at p. 5.
Both of these contentions are without merit.
DFTA's failure to transfer all of the authorized TACs for the period covered by the tax bill becomes constitutionally problematic only if the amount of TACs it transfers is less than the amount of TACs DOF deducts upon issuance of the bill. If the amount transferred is less than the tax bill, plaintiff's entitlement to Excess SCRIE is placed at risk because DOF must necessarily deduct from her existing store of TACs — TACs that would have been otherwise eligible for reimbursement as Excess SCRIE.
But that is not what occurred here, nor has plaintiff shown that there is a possibility of it happening in the future. To be sure, upon issuance of the 2000-2001 tax bill DFTA had not yet transferred all of the TACs approved for Leslie Benjamin for that fiscal year. However, the total amount it did transfer for that period, $1,454.78, exceeded the amount of TACs DOF deducted to reduce her tax liability to zero, $921.96. Having acknowledged in her reply papers that DETA transferred most of the TACs already approved, plaintiffs only rejoinder is that DFTA's failure to transfer TACs for the entire period covered by the real estate tax bill violates New York's Real Property Tax Law ("RPTL"). Whether or not defendants have violated state procedural law in the timing of the transfers is not at issue in this case. Plaintiffs federal claim is that the defendants' procedures violate due process. The defendants' failure to adhere to state law, even if shown (and I express no view on the point) does not rise to a federal constitutional level.
Kraebel's argument that DFTA's failure to transfer all of the TACs for a particular tax period violates due process because it hampers an owner's ability to determine the amount of Excess SCRIE owed also fails to persuade. It is undisputed that plaintiffs tax bill informed her that her tax liability was zero. It is also undisputed that plaintiff could have readily determined what her SCRIE Account balance was at that time by requesting her TAG Detail Report, viewing her SCRIE Account online or reviewing her next SCRIE Statement of Account. Moreover, it cannot be contested that plaintiff was informed that she was owed $186.10 TACs per month from January through June 2001 based on the Approval Order for Leslie Benjamin. All of this information, incontrovertibly available, was more than adequate for Kraebel to determine how much Excess SCRIE she could apply for and when, even though DFTA had not yet transferred the remaining TAC's for Leslie Benjamin.
DFTA staunchly maintains that it has made no recent changes that have affected the timing of the transfer of tax abatement credits. The department avers that it continues to transfer all of the authorized tax abatement credits attributable to a particular tenant for the semi-annual real estate period before the commencement of the period. Tessitore Reply at ¶ 9. That is exactly what happened with respect to plaintiffs 2000-2001 tax bill. Plaintiff has not shown that the timing of the transfers and deductions by defendants affected her entitlement to Excess SCRIE in any way. Accordingly, this claim must fail.
Although it does not affect my conclusion, I note that DFTA has not explained why it does not simply transfer all of the TACs for a particular tenant for the pre-determined time period at the time they are approved, as RPTL § 467-b appears to require, instead of doing so in piecemeal fashion.
4. Use of Excess SCRIE to Pre-pay Future Taxes
Kraebel's next argument is closely related to the foregoing. Kraebel contends that DOE's use of Excess SCRIE to pre-pay her tax bill without her consent violates due process. Assuming without deciding that such conduct by DOE would rise to the level of a constitutional due process violation, plaintiff has offered no evidence to show that it occurred. Kraebel points to the statement on the back of the SCRIE Statement of Account in which DOF represents that "[w]hile preparing for the annual billing process, DOF will take available SCRIE account credit balances and apply them to balances due for the next fiscal year tax periods." Kraebel Supp. Aff. at Ex. J-2. This is precisely what happened with Kraebel's 2000-2001 tax bill. DOF applied TACs in her account to reduce the liability on her yearly tax bill. But, as detailed above, DOF did not have to use Excess SCRIE resulting from TACs issued during fiscal 1999-2000. Instead, the available SCRIE Account credit balance included TACs for periods coinciding with the 2000-2001 tax bill that were transferred just before issuance of the bill. This is exactly what DFTA represents that it always does — transfers TACs just before DOF issues its semi-annual tax bill. Tessitore Reply at ¶¶ 8-9. Kraebel has offered no evidence to cast doubt upon the accuracy of this statement.
Because Kraebel has not shown that DOE has used Excess SCRIE to pre-pay her real estate taxes or that there is a likelihood of that occurring in the future, plaintiff has not demonstrated a violation of her due process rights.
5. Pre-payment Discount
Kraebel's remaining complaint has to do with DOF's refusal to apply a 2% discount for pre-payment of real estate taxes to owners whose property tax installments are offset in advance through SCRIE tax abatement credits. On the back of the 2000-2001 real estate tax bill, DOE reported that it would "apply a 2% annualized rate to all advanced payments for the 2d 3rd and 4th Quarters or 2nd Half installments, provided all prior installments were paid." Kraebel Supp. Aff. at Ex. A-S. DOE did not include any discount when it applied the SCRIE abatements to reduce plaintiff's tax liability. Plaintiff contends that because her second, third and fourth quarterly payments that year were all offset in advance, she should have received the discount.
DOF responds that the "prepayment discount, which is authorized by New York City Charter § 1519(3), is only available for cash payments of real estate taxes." Defendant's Reply Memorandum at p. 14. According to Peter Lempin, the Deputy Commissioner for Taxpayer Assistance, Planning and Payment Operations in the DOF, the restriction of this discount to cash pre-payments is "implicit" in the City Charter. Lempin Reply at ¶ 24. Because TACs are not the equivalent of cash and do not bring an infusion of money into the city treasury, in DOF's view they do not qualify for the pre-payment discount. Id. at ¶ 25.
While I note that defendants do not offer support for Lempin's statement that the cash nature of the pre-payments is implicit in the grant of the discount, I decline to wade into the morass of this argument. The applicability of a pre-payment discount to non-cash real estate tax payments brings us too far afield from the core issue in this case — whether or not the current system for processing SCRIE applications and transfers deprives Kraebel of her constitutionally protected property interest in Excess SCRIE without due process of law. DOF's interpretation of the City Charter's prepayment discount as applied to SCRIE tax abatements has little to do with Kraebel's entitlement to Excess SCRIE and even less to do with whether she receives Excess SCRIE in a prompt and fair manner. Kraebel has not shown, or even argued, that her underlying property interest in Excess SCRIE extends to the prepayment discount, and this Court has neither mandate nor inclination to delve into that subject. Accordingly, I reject plaintiff's contention that DOF's refusal to extend the pre-payment discount to SCRIE offsets is constitutionally infirm.
CONCLUSION
In accordance with the foregoing discussion, the Court concludes that plaintiff has demonstrated the absence of a disputed issue of fact as to whether the defendants' failure to furnish adequate notice of the reasons for debits to her SCRIE Account violates due process. As for the remainder of plaintiff's contentions that the defendants' SCRIE system violates due process, I conclude that plaintiff has failed to demonstrate the existence of a disputed issue of fact preventing summary judgment in defendants' favor dismissing her claims.
Defendants are directed to submit a proposal to the Court within ninety (90) days of the date of this Opinion of a redesigned Confirmation Notice and tax increase notice or other form of notice furnishing the reasons for debits from SCRIE Accounts, consistent with this Opinion. Plaintiff may respond within twenty (20) days thereafter. Defendants may file a reply, if so advised, within ten (10) days thereafter.
Plaintiffs motion to add Barklee 147 LLC as a plaintiff under Fed.R.Civ.P. 21 is denied.
It is SO ORDERED.