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In re Madison County Industrial Development Agency

Supreme Court of New York, Third Department

June 29, 2017


          Calendar Date: April 26, 2017

          Hodgson Russ, LLP, Buffalo (Charles W. Malcomb of counsel), for appellants.

          Eric T. Schneiderman, Attorney General, Albany (Robert M. Goldfarb of counsel), for respondents.

          Kehoe Law Office, Troy (Peter R. Kehoe of counsel), for County of Chautauqua Industrial Development Agency and others, amici curiae.

          Before: McCarthy, J.P., Egan Jr., Rose, Devine and Mulvey, JJ.


          EGAN JR., J.

         Appeal from a judgment of the Supreme Court (Young, J.), entered April 5, 2016 in Albany County, which, among other things, dismissed petitioners' application, in a proceeding pursuant to CPLR article 78, to review a determination of respondents refusing to recognize petitioner Madison Grant Facilitation Corporation as a subsidiary of petitioner Madison County Industrial Development Agency and requiring petitioner

         Madison Grant Facilitation Corporation to file separate budget, annual and audit reports.

         In January 2013, petitioner Madison County Industrial Development Agency (hereinafter MCIDA), an industrial development agency (hereinafter IDA) formed pursuant to General Municipal Law article 18-A, was notified by the Empire State Development Corporation that it had been awarded a grant of up to $96, 000 to assist Ciotti Enterprises in constructing and operating a new construction and demolition materials recycling facility. Attached to the notification letter was a standard form contract providing, in relevant part, that if Ciotti failed to complete the project or disposed of any equipment without approval, MCIDA would be required to repay some or all of the grant funds; additionally, if Ciotti transferred any machinery or equipment - paid for with grant funds - out of state, MCIDA also would be subject to a penalty amounting to 50% of the grant funds. In an admitted effort to shield itself from liability arising out of its acceptance and use of such funds, MCIDA incorporated petitioner Madison Grant Facilitation Corporation (hereinafter Madison Grant) as a local development corporation (see Public Authorities Law § 2) pursuant to N-PCL 1411. Madison Grant was formed as a subsidiary of MCIDA - with MCIDA as Madison Grant's sole member.

         By letter dated July 3, 2013, respondent State of New York Authorities Budget Office (hereinafter ABO) advised MCIDA that, as "a local authority, " Madison Grant would be required to file an annual budget, a multi-year financial plan, an annual report, an annual independent audit and reports related to Madison Grant's procurement contracts and investments. In response, MCIDA asked that ABO treat Madison Grant as a subsidiary of MCIDA and permit the two entities to file consolidated financial reports. By letter dated August 9, 2013, ABO indicated that it would take MCIDA's request under advisement and indicated that Madison Grant's first annual report must be filed through the Public Authorities Report Information System (hereinafter PARIS) by March 31, 2014 and that its 2014 budget report had to be filed in PARIS by November 1, 2013. ABO advised that a definitive response would be forthcoming in advance of the foregoing deadlines and identified its two primary concerns relative to MCIDA's request - namely, whether IDAs were authorized to form subsidiaries in the first instance and, more to the point, whether permitting Madison Grant to file consolidated reports would "result in a loss of transparency and accountability" given that local development corporations were required to file certain information in PARIS regarding, among other things, grant and loan recipients that would only be captured if Madison Grant filed its own annual reports.

         When the anticipated response from ABO was not forthcoming, MCIDA advised ABO, by letter dated March 13, 2015, that it had filed consolidated financial reports with Madison Grant. ABO, in turn, advised MCIDA by letter dated April 13, 2015 that it had secured a formal opinion from the Attorney General, who had concluded that the creation of Madison Grant as a subsidiary of MCIDA was not authorized. For that reason, ABO explained, it was viewing Madison Grant as "a local development corporation with [MCIDA] as its sole member, " thereby subjecting Madison Grant to the reporting requirements set forth in the Public Authorities Law and compelling Madison Grant to file separate financial reports in PARIS.

         Petitioners thereafter commenced this CPLR article 78 proceeding in August 2015 seeking, among other things, to annul ABO's determination and, more specifically, to obtain a directive that ABO recognize Madison Grant as an authorized subsidiary of MCIDA and permit the filing of consolidated financial reports. Respondents answered and raised objections in point of law - contending that the proceeding was untimely and that the petition failed to state a cause of action. Supreme Court, in a well-reasoned decision, thereafter dismissed petitioners' application - finding, among other things, that MCIDA lacked the statutory authority to form a subsidiary. Petitioners now appeal.

         "Where, as here, petitioners challenge an administrative determination made where a hearing is not required, appellate review is limited to whether the determination lacks a rational basis and is, thus, arbitrary and capricious" (Matter of Fuller v New York State Dept. of Health, 127 A.D.3d 1447, 1448 [2015] [internal quotation marks, brackets, ellipsis and citations omitted]). An agency's determination will be deemed to be arbitrary and capricious, in turn, when such determination lacks a sound basis in reason or is reached without regard to the facts (see id. at 1448). If, however, the administrative determination under review "has a rational basis, it will be sustained, even if a different result would not be unreasonable, " as it is not the role of this Court to "substitute [its] judgment for that of the agency responsible for making the determination" (id. [internal quotation marks and citations omitted]).

         An IDA or agency (see General Municipal Law § 854 [1]) is "a corporate governmental agency, constituting a public benefit corporation" (General Municipal Law § 856 [2]). "As a creature of the Legislature, an agency is clothed with those powers expressly conferred by its authorizing statute, as well as those required by necessary implication" (Matter of Acevedo v New York State Dept. of Motor Vehs., ___ N.Y.3d ___, ___, 2017 NY Slip Op 03690, *7 [2017] [internal quotation marks and citation omitted]; see Abiele Contr. v New York City School Constr. Auth., 91 N.Y.2d 1, 10 [1997]; Matter of Flynn v State Ethics Commn., Dept. of State, State of N.Y., 87 N.Y.2d 199, 202 [1995]). The purpose of an IDA is to, among other things, "promote, develop, encourage and assist in the acquiring, constructing, reconstructing, improving, maintaining, equipping and furnishing industrial, manufacturing, warehousing, commercial, research and recreation facilities" (General Municipal Law § 858). To that end, IDAs such as MCIDA are granted 17 express powers, including - insofar as is relevant here - the power "[t]o accept gifts, grants, loans... or contributions... and to use any such [funds] for any of its corporate purposes" (General Municipal Law § 858 [11]), as well as the power "[t]o do all things necessary or convenient to carry out its purposes and exercise the powers expressly given in [General Municipal Law title 18-A]" (General Municipal Law § 858 ...

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