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Empire Gen Holdings, Inc. v. The Governor of State

Supreme Court of New York, Albany County

June 25, 2013

EMPIRE GEN HOLDINGS, INC. and Empire Generating Co., LLC, Plaintiffs,
v.
The GOVERNOR OF the STATE of New York, in his official capacity, and the State of New York, Defendants.

Page 985

[967 N.Y.S.2d 921] Hiscock & Barclay, LLP, David Burch, Jr., Esq., Syracuse, attorneys for plaintiffs.

Eric T. Schneiderman, Esq., Attorney General of the State of New York, Aaron Baldwin, Esq. AAG, Albany, attorneys for the defendants.

JOSEPH C. TERESI, J.

Page 986

Plaintiffs [1] commenced this declaratory judgement/ injunction action seeking a declaration that Tax Law §§ 33 and 34[2] are [967 N.Y.S.2d 922] UNCONSTITUTIONAL, AN INJUNCTION prohibiting their enforcement and attorney's fees. Prior to answering, Defendants claim that the complaint fails to state a cause of action and move to dismiss pursuant to CPLR 3211(a)(7). Plaintiffs opposed the motion. Because Defendants demonstrated their entitlement to dismissal, their motion is granted and the complaint is dismissed.

It is well established that this Court, when considering a motion to dismiss pursuant to CPLR 3211(a)(7), " must afford the complaint a liberal construction, accept the facts as alleged in the pleading as true, confer on the plaintiff[s] the benefit of every possible inference and determine whether the facts as alleged fit within any cognizable legal theory." ( Torok v. Moore's Flatwork & Foundations, LLC, 106 A.D.3d 1421, 966 N.Y.S.2d 572 [3d Dept. 2013], quoting Scheffield v. Vestal Parkway Plaza, LLC, 102 A.D.3d 992, 958 N.Y.S.2d 232 [3d Dept. 2013]; Simkin v. Blank, 19 N.Y.3d 46, 945 N.Y.S.2d 222, 968 N.E.2d 459 [2012] ). " [T]he dispositive inquiry is whether [Plaintiffs have] a cause of action and not whether one has been stated." ( Alaimo v. Town of Ft. Ann, 63 A.D.3d 1481, 1482, 883 N.Y.S.2d 321 [3d Dept. 2009], quoting IMS Engineers-Architects, P.C. v. State, 51 A.D.3d 1355, 858 N.Y.S.2d 486 [3d Dept. 2008] ).

Page 987

Here, accepting Plaintiffs' allegations outlined below as true, they have no cause of action that fits within a cognizable legal theory.

Prior to June 2004, BASF Corporation (hereinafter " BASF" ) owned a parcel of real property located in the City of Rensselaer, New York (hereinafter " South 40" ). The South 40, however, was polluted. Plaintiffs entered an agreement with BASF, whereby the South 40 would be remediated and redeveloped.

In June 2004, Plaintiffs, BASF and the New York State Department of Environmental Conservation (hereinafter " DEC" ) entered into a Brownfield Site Cleanup Agreement (hereinafter " BSCA" ). Such agreement obligated Plaintiffs and BASF to remediate the South 40, subject to DEC oversight and approval. In March 2008, DEC approved Plaintiffs' final engineering report of remediation. Upon such completion and approval, DEC issued a " Certificate of Completion" and Plaintiffs claimed a " site preparation [tax] credit." Such tax credit was received by Plaintiffs in tax year 2008, and is not at issue herein.

Plaintiffs then turned to redevelopment and its related tax credit. They built a 65 megawatt natural gas fired electric generating plant (hereinafter " the facility" ) on the South 40. The facility was placed into service in September 2010, at which time it began generating electricity. For such redevelopment project Plaintiffs claim they were due, for tax year 2010, a tax credit of $86,951,916 (hereinafter " full redevelopment tax credit" [3]). Defendants do not dispute the projects' completion, the amount of the full redevelopment tax credit or Plaintiffs' eventual entitlement to it.

[967 N.Y.S.2d 923] The Tax Credit Deferral Provisions, however, prohibited Plaintiffs from claiming the entire $86,951,916 in tax year 2010. Instead, the Tax Credit Deferral Provisions significantly reduced Plaintiffs' 2010 tax credit to $1,663,633 and deferred Plaintiffs' receipt of the balance of the full redevelopment tax credit to future years. Due to such delay, Plaintiffs' complaint seeks redress under multiple constitutional theories, each of which will be addressed separately.

Plaintiffs first and sixth causes of action set forth " Takings Clause" challenges, both of which fail to state a claim.

Page 988

" The Takings Clause prevents government actors from depriving private persons of vested property rights except for a public use and upon payment of just compensation." ( James Square Associates LP v. Mullen, 21 N.Y.3d 233, ___ N.Y.S.2d ___, ___ N.E.2d ___ [2013], quoting Landgraf v. USI Film Products, 511 U.S. 244, 114 S.Ct. 1483, 128 L.Ed.2d 229 [1994] [internal quotation marks omitted, emphasis added] ). " The determination of whether a property interest exists to support a taking claim is typically the threshold inquiry." ( Gazza v. New York State Dept. of Envtl. Conservation, 89 N.Y.2d 603, 614, 657 N.Y.S.2d 555, 679 N.E.2d 1035 [1997]; Preble Aggregate Inc. v. Town of Preble, 263 A.D.2d 849, 694 N.Y.S.2d 788 [3d Dept. 1999] ).

Here, because Plaintiffs had no " vested property right" to the tax credit they seek they have no Takings Clause cause of action. As set forth above, Plaintiffs challenge their delayed receipt of the full redevelopment tax credit. Tax Law § 21(3) establishes such credit and provides, in pertinent part, that it is " allowed for the taxable year in which such qualified tangible property is placed in service on a qualified site with respect to which a certificate of completion has been issued to the taxpayer." (Tax Law § 21 [3] ). The parties agree that the facility constitutes " qualified tangible property" and that the South 40 is a " qualified site," which received a " certificate of completion." ( Id. ). Nor do the parties dispute, as alleged in the complaint, that the facility was placed " in service" in September 2010. ( Id. ). Such undisputed facts establish that all of Tax Law § 21(3)'s elements were satisfied in September 2010; it was not until then that Plaintiffs right to their full redevelopment tax credit " vested."

By September 2010, however, Plaintiffs' full redevelopment tax credit had already been deferred. On August 11, 2010, the Tax Credit Deferral Provisions became effective " immediately." (L. 2010, ch. 57, pt. Y, § 1) Because Plaintiffs' Tax Law § 21(3)'s tangible property tax credit was deferred in August 2010, prior to its vesting, the credit was " nothing more than an expectancy interest... an insufficient basis upon which to find a takings clause violation." ( Novara ex rel. Jones v. Cantor Fitzgerald, LP, 20 A.D.3d 103, 108, 795 N.Y.S.2d 133 [3d Dept. 2005] ).

Similarly, because Plaintiffs' lacked a vested property right when the Tax Credit Deferral Provisions were enacted, they failed to state a substantive due process/anti-retroactivity causes of action.[4]

Page 989

" To establish a claim for violation of substantive due process, a party must establish a cognizable... vested property interest." ( Raynor v. Landmark Chrysler, 18 N.Y.3d 48, 59, 936 N.Y.S.2d 63, 959 N.E.2d 1011 [2011], quoting [967 N.Y.S.2d 924] Forti v. New York State Ethics Com'n, 75 N.Y.2d 596, 609, 555 N.Y.S.2d 235, 554 N.E.2d 876 [1990], quoting McKinney's Cons. Laws of N.Y., Book 1, Statutes § 51).

Here, even affording Plaintiffs the benefit of every possible favorable inference, they have no substantive due process/anti-retroactivity cause of action. As set forth above, the Tax Credit Deferral Provisions were passed and became effective in August 2010. Plaintiffs, however, were not entitled to claim the full redevelopment tax credit until September 2010, when the facility was " placed in service." (Tax Law § 21[3] ). Because the uncontested facts establish that Plaintiffs were not entitled to claim the full redevelopment tax credit prior to the Tax Credit Deferral Provisions' effective date, they failed to state a cognizable vested property interest entitled to due process protection against retroactive taxation. As such, Plaintiffs set forth no substantive due process cause of action.

Nor have Plaintiffs stated a Contracts Clause violation with their fifth cause of action.

" It is black letter law that absent some clear indication that the Legislature intends to bind the State contractually, a statute is presumed not to create private contractual or vested rights, but merely to declare a policy to be pursued until the Legislature shall ordain otherwise." ( Med. Soc. of State v. Sobol, 192 A.D.2d 78, 80, 600 N.Y.S.2d 177 [3d Dept. 1993] ). Similarly well settled, a " statute cannot be said to impair a contract that did not exist at the time of its enactment." ( Held v. State, Workers' Compensation Bd., 85 A.D.3d 35, 45, 921 N.Y.S.2d 674 [3d Dept. 2011], quoting Texaco, Inc. v. Short, 454 U.S. 516, 102 S.Ct. 781, 70 L.Ed.2d 738 [1982]; Consumers Union of U.S., Inc. v. State, 5 N.Y.3d 327, 359, 806 N.Y.S.2d 99, 840 N.E.2d 68 [2005] ).

Here, because Plaintiffs have no contract entitling them to the full redevelopment tax credit, they have no Contracts Clause cause of action based on its deferral. Plaintiffs assert that they contracted with Defendants for the full redevelopment tax credit by entering the BSCA, remediating the South 40, receiving their Certificate of Completion and by nearly placing the facility into service. While such events are uncontested, they do not clearly indicate the Legislature's intention to bind the State to paying the full redevelopment tax credit without deferral. Nor do the Brownfield Cleanup Program (Environmental Conservation Law Title 14) and its related tax credits (Tax Law §§ 21, 22 and 23) include such a clear

Page 990

indication. Moreover, " the New York Constitution provides that tax exemptions are freely repealable (N.Y. Const., art. XVI, § 1)." ( James Square Associates LP v. Mullen, supra). As such, Plaintiffs have no Contracts Clause cause of action.

Plaintiffs' third and eighth equal protection causes of action are likewise deficient.

Equal protection review " of differential taxation consequences is subject to the lowest level of judicial review, whether any rational basis supports the legislative choices." ( Daimlerchrysler Co., LLC v. Billet, 51 A.D.3d 1284, 1287, 858 N.Y.S.2d 836 [3d Dept. 2008], quoting Port Jefferson Health Care Facility v. Wing, 94 N.Y.2d 284, 704 N.Y.S.2d 897, 726 N.E.2d 449 [1999] ). " Unless a suspect class or fundamental right is involved, which is not the case here, classifications that create distinctions between similarly-situated individuals will be upheld if they are rationally related to a legitimate government interest." [967 N.Y.S.2d 925]( Walton v. New York State Dept. of Correctional Services, 13 N.Y.3d 475, 492, 893 N.Y.S.2d 453, 921 N.E.2d 145 [2009]; Trump v. Chu, 65 N.Y.2d 20, 489 N.Y.S.2d 455, 478 N.E.2d 971 [1985] ).

Here, Plaintiffs' claim that the Tax Credit Deferral Provisions' application to Brownfield redevelopment investors but not to film production credit (Tax Law § 24) investors does not set forth a viable equal protection challenge. First, because the brownfield redevelopment and film production credit investors are not similarly-situated groups, Plaintiffs " fail to state a cognizable equal protection claim." ( Walton v. New York State Dept. of Correctional Services, supra at 493, 893 N.Y.S.2d 453, 921 N.E.2d 145). Moreover, the Tax Credit Deferral Provisions did not apply solely to brownfield redevelopment investors, but rather applied to more than thirty separate tax credits. In addition, as outlined by Respondents, such distinction could have been rationally based upon differences between the structure of each credit, the commercial desirability of each credit or the fiscal impact on the state of each credit. Even viewing the Tax Credit Deferral Provisions' in a light most favorable to Plaintiffs, there is no reasonable view of such statute that negates the rational basis of this legislation. ( Trump v. Chu, 65 N.Y.2d 20, 28, 489 N.Y.S.2d 455, 478 N.E.2d 971 [1985]; Novara ex rel. Jones v. Cantor Fitzgerald, LP, 20 A.D.3d 103, 795 N.Y.S.2d 133 [3d Dept. 2005] ). As such, Plaintiffs have no equal protection cause of action.

Because Plaintiffs have no viable constitutional cause of action, as per the above, their injunction cause of action and 42 USC § 1983 damages demand are entirely unsupported.

Page 991

Accordingly, Defendants' motion is granted and the complaint is dismissed in its entirety. This Decision and Order is being returned to the attorneys for the Defendants. A copy of this Decision and Order and all other original papers submitted on this motion are being delivered to the Albany County Clerk for filing. The signing of this Decision and Order shall not constitute entry or filing under CPLR § 2220. Counsel is not relieved from the applicable provision of that section respecting filing, entry and notice of entry.

So Ordered.


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