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DISNEY WAS DEDUCTING ROYALTY PAYMENTS MADE BY AFFILIATES WHICH DID NOT PAY NEW YORK TAXES; THE TAX LAW WAS DESIGNED TO PLUG THAT “LOOPHOLE” AND THE DEDUCTIONS WERE PROPERLY DISALLOWED (THIRD DEPT).

The Third Department, in a full-fledged opinion by Justice Fisher, determined the Tax Law did not permit petitioner to deduct royalty payments made by affiliates organized under the law of foreign countries pursuant to intellectual-property licensing agreements. The opinion is too detailed and comprehensive to be fairly summarized here: Essentially, the petitioner was deemed to be taking advantage of a “loophole” to avoid paying franchise taxes which had been addressed and closed by the Tax Law:

At the hearing, the Department’s employees testified that petitioner was denied the royalty deduction because the foreign affiliates it had received payments from were not New York taxpayers. The ALJ [Administrative Law Judge] found that “[t]he addback and exclusion provisions contained in Tax Law [§ 208 former] (9) (o) work in tandem to ensure that royalty transactions between related members are taxed only once” and do “not escape taxation altogether.” In determining that petitioner’s interpretation of the statute effectively allowed it to avoid taxation on that income, which went against the Legislature’s intent in enacting the statute, the ALJ concluded that the Department’s interpretation of the statute was rational and therefore petitioner was not permitted to deduct royalty payments from its income. When the Tribunal affirmed the findings of the ALJ, it added that “the [L]egislature did not intend for a taxpayer to gain the benefit of the income exclusion . . . without the corresponding cost to a related member of the add back.”  Matter of Walt Disney Co. & Consol. Subsidiaries v Tax Appeals Trib. of the State of N.Y., 2022 NY Slip Op 05898, Third Dept 10-20-22

Practice Point: Disney was deducting royalty payments made by affiliates which did not pay New York taxes. The Third Department determined the Tax Law did not allow the deductions.

 

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NYC DEPARTMENT OF EDUCATION’S (DOE’S) DENIALS OF PETITIONERS’ APPLICATIONS FOR ADMISSION TO THE CITY’S SPECIALIZED HIGH SCHOOLS (SHS’S) WERE NOT ARBITRARY AND CAPRICIOUS (THIRD DEPT). ​

The Third Department, in a full-fledged opinion by Justice Clark, determined the NYC Department of Education’s (DOE’s) denials of petitioners’ applications for admission to NYC’s Specialized High Schools (SHS’s) were not arbitrary and capricious. The opinion includes a detailed history of the SHS’s and detailed explanations of the criteria for admission of students deemed to be disadvantaged within meaning of the SHS’s Discovery program. The petitioners were not disadvantaged students. It is difficult to discern the precise nature of the petitioners’ claims from the opinion, but it appears petitioners were questioning the propriety of the implementation of the Discovery program for disadvantaged students. Matter of C.K. v Tahoe, 2022 NY Slip Op 05899, Third Dept 10-20-22

Practice Point: In this Article 78 proceeding the petitioners were students who were denied admission to NYC’s Specialized High Schools (SHS’s), The petitioners, who were not disadvantaged within the meaning the SHS’s Discovery program, apparently questioned the propriety of the implementation of the Discovery program for disadvantaged students. The Third Department held that the Department of Education’s denials of the petitioners’ applications for admission were not arbitrary and capricious.

 

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THE TOWN BOARD OF APPEALS’ FAILURE TO ISSUE A DECISION ON PETITIONER’S APPLICATION FOR A SPECIAL EXCEPTION PERMIT AND AN AREA VARIANCE WITHIN THE 62 DAYS PRESCRIBED BY THE TOWN LAW WAS NOT A DENIAL BY DEFAULT; THEREFORE SUPREME COURT DID NOT HAVE SUBJECT MATTER JURISDICTION AND THE MATTER WAS NOT RIPE FOR REVIEW; SUPREME COURT SHOULD NOT HAVE ANNULLED THE “DEFAULT DENIAL” AND ORDERED THE TOWN TO ISSUE THE PERMIT AND VARIANCE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined: (1) the town Board of Appeals’ failure to issue a decision on petitioner’s application for a special exception permit and an area variance within the 62 days prescribed by the Town Law was not a denial of the application by default; (2) Supreme Court should not have treated the failure to issue a timely decision as a denial by default. which it then annulled, ordering the town to issue the permit and the variance; and (3) Supreme Court should not have denied the Board’s motion to vacate Supreme Court’s order and judgment (ordering the issuance of the permit and variance):

Pursuant to Town Law § 267-a(8), the Board must render a decision within 62 days after the close of the hearing. The Town Law also contains a default provision which provides that if the Board, in exercising its appellate jurisdiction, fails to render a decision within 62 days of the hearing, the application is deemed denied (see id. § 267-a[13][b]). …

A proceeding to annul a determination by an administrative body “should not be concluded in the petitioner’s favor merely upon the basis of a failure to answer the petition on the return date thereof, unless it appears that such failure to plead was intentional and that the administrative body has no intention to have the controversy determined on the merits” … . Here, there was no evidence demonstrating a deliberate default by the Board … .

Contrary to the petitioner’s contention, its application for a special exception permit was not denied by default. The Board’s failure to comply with the time period prescribed by Town Law § 267-a(8) only results in a denial by default when the Board exercises its appellate jurisdiction (see id. § 267-a[13][b]). The Board exercises its original jurisdiction in special exception cases … , and thus, there was no denial by default of the petitioner’s application for a special exception permit … . With no final determination having been rendered on the application for a special exception permit, that issue was not ripe for judicial review, and the Supreme Court lacked subject matter jurisdiction over that issue … . We note that ripeness “is a matter pertaining to subject matter jurisdiction which may be raised at any time, including sua sponte” … . Matter of 999 Hempstead Turnpike, LLC v Board of Appeals of the Town of Hempstead, 2022 NY Slip Op 04721, Second Dept 7-29-22

Practice Point: A town Board of Appeals’ failure to issue a decision on an application for a permit and an area variance within the 62 days prescribed by the Town Law is not a denial of the petition by default. Supreme Court, therefore, did not have subject matter jurisdiction over he purported “denial by default” and the matter was not ripe for review.

 

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IN A HYBRID ACTION SEEKING AN ANNULMENT PURSUANT TO ARTICLE 78 AND A DECLARATORY JUDGMENT (AND DAMAGES), THE BURDENS TO DEMONSTRATE STANDING ARE DIFFERENT; IN AN ARTICLE 78 THE PETITIONER MUST AFFIRMATIVELY DEMONSTRATE STANDING; AND IN A DECLARTORY-JUDGMENT/DAMAGES ACTION, THE RESPONDENT (DEFENDANT) MUST DEMONSTRATE PETITIONER DOES NOT HAVE STANDING AS A MATTER OF LAW TO WARRANT SUMMARY JUDGMENT (SECOND DEPT).

The Second Department, reversing Supreme Court, explained the different burdens of proof in an Article 78 proceeding and an action seeking declaratory relief and damages. In an Article 78 proceeding, the petitioner has to show standing as part of its prima facie case. In a declaratory judgment/damages action, the respondent (defendant) has to demonstrate the petitioner does not have standing as a matter of law to warrant summary judgment:

The Supreme Court erred in granting the respondents’ motion to dismiss the proceeding/action based on lack of standing. “‘In a hybrid proceeding and action, separate procedural rules apply to those causes of action which are asserted pursuant to CPLR article 78, on the one hand, and those to recover damages and for declaratory relief, on the other hand'” … . Generally, in an action to recover damages, “[o]n a defendant’s motion to dismiss the complaint based upon the plaintiff’s alleged lack of standing, the burden is on the moving defendant to establish, prima facie, the plaintiff’s lack of standing. To defeat a defendant’s motion, the plaintiff has no burden of establishing its standing as a matter of law; rather, the motion will be defeated if the plaintiff’s submissions raise a question of fact as to its standing” … . Within the context of a special proceeding pursuant to CPLR article 78, “[t]he petitioner ‘has the burden of establishing both an injury-in-fact and that the asserted injury is within the zone of interests sought to be protected by the statute alleged to have been violated'” … . Matter of Crown Castle NG E., LLC v City of Rye, 2022 NY Slip Op 04626, Second Dept 7-20-22

Practice Point: The burdens on the issue of standing are different in an Article 78 proceeding and a declaratory judgment/damages action. Here both were brought in a hybrid proceeding. The petitioner must demonstrate standing in the Article 78 proceeding. The respondent (defendant) must demonstrate petitioner does not have standing as a matter of law to warrant summary judgment in the declaratory judgment/damages action.

 

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DUE TO A CONTRACTOR’S ERROR, PETITIONER’S SWIMMING POOL WAS INSTALLED SIX FEET FROM THE PROPERTY LINE, VIOLATING THE 14-FOOT SETBACK REQUIREMENT; THE ZONING BOARD OF APPEALS PROPERLY DENIED THE PETITIONER’S APPLICATION FOR A VARIANCE; SUPREME COURT REVERSED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the zoning board of appeals (ZBA) properly took into the considerations the factors prescribed by the Town Law when it denied petitioner’s application for a setback variance. The setback requirement for a swimming was 14 feet. Due to an error made by the contractor, petitioner’s pool was installed six feet from the property line:

The record indicates that the ZBA considered the five factors set forth in Town Law § 267-b(3) and conducted the relevant balancing test to reach its determination. The ZBA found that the requested variance would produce an undesirable change in the character of the neighborhood because there was no evidence of any similarly located in-ground pools. The ZBA explained that approving a pool with such a small setback where there are no similar structures in the neighborhood would establish an unwarranted precedent for future development of the area, which could result in a detriment to nearby properties. The ZBA properly considered the possibility that granting the requested variance could set a negative precedent in the area … . Based on the property survey, the ZBA determined that the petitioner could have placed the pool in a conforming location. Moreover, the petitioner presented no evidence that the property could not be utilized without violating the zoning code. The ZBA determined that the requested variance was substantial because it asked for a 57% relaxation of the zoning code. Taking into account the rationale for the required setback, which was to protect the privacy and quiet enjoyment of adjacent residential properties, as well as the fact that the location of the pool was inconsistent with the nature and character of the surrounding area, and that the approval of the requested variance would establish an unwarranted precedent for future development of the area, the ZBA determined that granting the requested variance would have an adverse effect on the physical or environmental conditions in the neighborhood. Finally, the ZBA’s finding that the petitioner’s zoning violation, which was the result of the contractor’s error, was self-created is well founded … . Matter of Dutt v Bowers, 2022 NY Slip Op 04546, Second Dept 7-13-22

Practice Point: Due to a contractor’s error, the petitioner’s swimming pool was installed six feet from the properly line, violating the 14-foor setback requirement. The petitioner applied for a variance. The Zoning Board of Appeal properly considered all the factors prescribed the Town Law and denied the variance. Supreme Court granted the variance. The Second Department reversed.

 

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PETITIONER HELD HIMSELF OUT AS THE FINANCIAL DECISION-MAKER OF THE BUSINESS AND THE TAX TRIBUNAL PROPERLY FOUND PETITIONER WAS PERSONALLY LIABLE FOR UNPAID EMPLOYEE WITHHOLDING TAXES; THE TWO DISSENTERS ARGUED THAT PETITIONER WAS NOT THE FINANCIAL DECISION-MAKER AND WAS PUT IN CHARGE ONLY TO ALLOW THE BUSINESS TO BE CERTIFIED AS A MINORITY BUSINESS-ENTERPRISE; THE IRS IN A PARALLEL PROCEEDING HAD ABSOLVED PETITIONER OF LIABILITY (THIRD DEPT).

The Third Department, over a two-justice dissent, determent the Tax Tribunal properly found that petitioner was a “responsible person” such that he can be held personally liable for unpaid employee withholding taxes. According to the dissent, petitioner held himself out as the business’s (NECC’s) financial decision-maker as part of an agreement with the 51% shareholder, Anthony Nastasi (the actual financial decision-maker) in order that the business would be certified as a minority business-enterprise and be eligible for certain state contracts as a result. In a parallel proceeding brought against petitioner by the IRS, petitioner was absolved of liability:

Notwithstanding evidence that could support a contrary determination, it is undisputed that petitioner was president, the majority shareholder, had check signing authority, was involved in daily field operations and derived a substantial part of his income from NECC. Additionally, petitioner intentionally held himself out to third parties, as well as to the Division of Taxation itself, as the contact person and responsible person for New York taxes by signing state tax returns and checks accompanying the returns, executing a sales tax certificate of authority listing himself as the corporation’s responsible person, filling out the Division’s “Responsible Person Questionnaire,” and maintaining communication with the Department. Accordingly, respondent’s determination that petitioner is a responsible person has a rational basis, is supported by substantial evidence and must be upheld … . Matter of Black v New York State Tax Appeals Trib., 2022 NY Slip Op 04200, Third Dept 6-30-22

Practice Point: Even though there was evidence petitioner was put in charge of the business solely to allow it to be certified as a minority business enterprise, the Third Department upheld the Tax Tribunal’s determination that petitioner was a “responsible person” liable for unpaid employee withholding taxes. The two dissenters argued petitioner was not a “responsible person” and should be absolved of liability, which was the result in the parallel IRS proceeding. The result in this case was dictated by the standard for appellate review of an administrative determination. As long as there is evidence in the record which supports the Tax Tribunal’s ruling, the ruling will be deemed rational and upheld.

 

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THE DEPARTMENT OF HEALTH’S FAILURE TO CONSIDER THE FINANCIAL ASPECT OF PETITIONER’S APPLICATION TO DISPENSE MEDICAL MARIHUANA RENDERED ITS DETERMINATION ARBITRARY AND CAPRICIOUS (THIRD DEPT).

The Third Department, reversing the Commissioner of Health, determined the Commissioner’s failure to consider petitioner’s strong financial condition in connection with petitioner’s application to dispense medical marihuana products pursuant to the Public Health Law rendered the Commissioner’s determination arbitrary and capricious:

We agree with petitioner that the scoring methodology used by DOH [Department of Health] to assess the financial standing portion of petitioner’s application was arbitrary and capricious. “An [agency’s] action is arbitrary and capricious when it is taken without sound basis in reason or regard to the facts” … . * * *

To the extent that DOH failed to undertake the required financial review, its determination regarding the financial standing portion of petitioner’s application is arbitrary and capricious and must be annulled … . Matter of Hudson Health Extracts, LLC v Zucker, 2022 NY Slip Op 04207, Third Dept 6-30-22

Practice Point: Here the Public Health Law required an assessment of the financial condition of each applicant for a license to dispense medical marihuana. The failure to consider the petitioner’s financial condition, which was stronger than that of other applicants, rendered the Department of Health’s determination of petitioner’s eligibility arbitrary and capricious.

 

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THE NEW YORK CITY ADMINISTRATIVE CODE PROVISION WHICH PROHIBITS “COMPRESSION OF THE DIAPHRAGM” (BY KNEELING, SITTING OR STANDING ON A PERSON) WHEN EFFECTING AN ARREST IS NOT VOID FOR VAGUENESS (FIRST DEPT).

The First Department, reversing Supreme Court, determined the NYC Administrative Code provision prohibiting and criminalizing the use of certain methods of restraint in effecting an arrest was not void for vagueness.

Plaintiffs challenge Administrative Code § 10-181 as unconstitutionally vague and preempted by New York State law. This provision, which became effective July 15, 2020, makes it a criminal misdemeanor to use certain methods of restraint “in the course of effecting or attempting to effect an arrest” (Administrative Code § 10-181[a]). Specifically, the statute prohibits “restrain[ing] an individual in a manner that restricts the flow of air or blood by compressing the windpipe or the carotid arteries on each side of the neck [the chokehold ban], or sitting, kneeling, or standing on the chest or back in a manner that compresses the diaphragm [the diaphragm compression ban]” ,,, , …

The only language plaintiffs take issue with is “in a manner that compresses the diaphragm.” But the meaning of this language, even if “imprecise” or “open-ended,” is sufficiently definite “when measured by common understanding and practices” … . Police officers — the targets of the law — can be (and are) trained on the location and function of the diaphragm. And even plaintiffs have no difficulty understanding the meaning of the word “compress[]” when used in the context of the accompanying chokehold ban, which they do not challenge. That it may not be the most accurate word, from a medical standpoint, to describe what happens to the diaphragm when someone sits, kneels, or stands on it does not mean that it is incapable of being understood. Police Benevolent Assn. of the City of N.Y., Inc. v City of New York, 2022 NY Slip Op 03329 First Dept 5-19-22

Practice Point: The NYC Administrative Code provision which prohibits and criminalizes “compressing the diaphragm” by sitting, kneeling or standing on a person when effecting an arrest is not void for vagueness.

 

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PETITIONERS. RELATIVES OF PERSONS IN THE NYS DNA DATABASE, HAD STANDING TO CHALLENGE THE RESPONDENTS’ REGULATIONS ALLOWING THE RELEASE OF “FAMILIAL DNA MATCH” INFORMATION LINKING DNA FROM A CRIME SCENE TO A FAMILY, NOT AN INDIVIDUAL; THE REGULATIONS WERE BASED ON SOCIAL POLICY AND THEREFORE EXCEEDED THE REGULATORY POWERS OF THE RESPONDENT AGENCIES; TWO-JUSTICE DISSENT ARGUED THE PETITIONERS DID NOT HAVE STANDING TO CHALLENGE THE REGULATIONS (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Gische, reversing Supreme Court, over a full-fledged two-justice dissenting opinion, determined the respondent agencies exceeded their regulatory powers when they authorized the release of so-called “familial DNA” information to be used as a possible lead for identifying the perpetrator of a crime. In the absence of a DNA “match” or a “partial match” a “familial match” may indicate the perpetrator has a familial relationship with someone in the DNA database. A crucial threshold question was whether the petitioners, relatives of persons whose genetic profiles are in the New York State DNA database, had standing to contest the familial DNA regulations. The dissenters argued the petitioners did not have standing. The majority concluded the basis for the familial DNA regulations was primarily social policy, and therefore the regulations were legislative, rather than administrative, in nature:

Each petitioner’s brother has genetic information stored in the DNA databank. Neither petitioner has been asked or mandated to provide DNA for comparison. Because they are law abiding citizens, neither petitioner knows if they have been targeted for investigation as a result of a familial DNA search, but they harbor great concern and anxiety that they might be investigated for no other reason than that they share family genetics with a convicted criminal … . * * *

We are not required to determine whether respondents made a good or beneficial policy decision. The fact that the decisions respondents made are by their very nature policy driven, greatly favors a conclusion that they were made in excess of respondents’ authority. Matter of Stevens v New York State Div. of Criminal Justice Servs., 2022 NY Slip Op 03062, First Dept 5-5-22

Practice Point: Relatives of persons in the NYS DNA database had standing to challenge the regulations issued by the respondent agencies allowing the release of “familial DNA match” information linking DNA from a crime scene to a family, not an individual.

Practice Point: The “familial DNA match” regulations were deemed to be rooted in social policy, which is the realm of the legislature, and therefore the promulgation of the regulations exceeded the agencies’ powers.

 

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THE CITY COMMISSIONER ORDERED THE DEMOLITION OF A GRAIN ELEVATOR, A CITY LANDMARK, WHICH HAD BEEN DAMAGED BY WIND; SUPREME COURT PROPERLY ORDERED A HEARING ON WHETHER THE COMMISSIONER HAD A RATIONAL BASIS FOR ORDERING DEMOLITION BUT IMPROPERLY PROHIBITED THE PETITIONER FROM PRESENTING EVIDENCE THAT DEMOLITION WAS NOT NECESSARY; NEW HEARING ORDERED (FOURTH DEPT).

The Fourth Department, reversing Supreme Court and ordering another hearing, determined that the petitioner was entitled to present evidence at the hearing about the Buffalo Commissioner of the City’s Department of Permit and Inspections Services’ (Commissioner’s) ruling that a grain elevator, a City landmark, which was damaged by wind, must be demolished. Supreme Court had confined the hearing to whether the Commissioner had a rational basis for ordering demolition and did not allow the petitioner to submit evidence. Petitioner had submitted with the petition “an unsworn and unsigned expert affidavit from a licensed architect who opined that the Grain Elevator could be adequately repaired and did not need to be demolished:”

We agree with petitioner … that, while petitioner is not entitled to a de novo hearing on the Commissioner’s determination … , the court erred in refusing to consider petitioner’s proposed evidence inasmuch as it should have afforded petitioner the opportunity to submit ” ‘any competent and relevant proof . . . bearing on the triable issue here presented and showing that any of the underlying material on which the [Commissioner] based [his] determination has no basis in fact’ . . . , or that the determination was irrational or arbitrary”  … . Matter of Campaign for Buffalo History, Architecture & Culture, Inc. v City of Buffalo, 2022 NY Slip Op 02927, Fourth Dept 4-29-22

Practice Point: The City Commission ordered the demolition of a city landmark which had been damaged by wind. Petitioner opposed demolition. At the hearing to determine whether there was a rational basis for the Commissioner’s decision, the petitioner was entitled to present evidence demolition was not required. Because Supreme Court did not allow petitioner to present evidence, a new hearing was necessary.

 

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