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Parking Lots Owned by a Federal-Income-Tax-Exempt Charitable Organization Formed to Facilitate Commercial Development Were Not Entitled to a Charitable Exemption from Real Property Taxes—The Parking Lots Were “Used” to Increase Commerce Which Is Not a Charitable Use Under the Real Property Tax Law

The Court of Appeals, in a full-fledged opinion by Judge Pigott, over a two-judge dissent, determined that parking lots owned by “Greater Jamaica” were not entitled to a charitable exemption from real estate taxes.  “Greater Jamaica” is an organization formed for the purpose of facilitating Jamaica’s commercial development.  It is exempt from federal income taxation pursuant to 26 USC 501 (c) (3).  The NYC Department of Finance (DOF) revoked Greater Jamaica’s exemption from real estate taxes which the DOF had previously granted. Supreme Court upheld the revocation. The Appellate Division reversed Supreme Court. And the Court of Appeals reversed the Appellate Division. The Court of Appeals noted that the criteria for a charitable exemption under the IRS code is different from the criteria under Real Property Tax Law (RPTL) 420-a and, although a court may consider the IRS exemption in a RPTL 420-a proceeding, the IRS exemption is not determinative. The Court of Appeals concluded the parking lots were primarily used to facilitate the commercial growth of Jamaica, which was not a charitable purpose under the RPTL:

The City revoked the tax exemption on the ground that it was erroneously awarded in the first instance. It met its burden in this regard by demonstrating that the “use” of the parking facilities was not for “charitable” purposes but rather for economic development, and that the use of the parking facilities were not “incidental to another recognized charitable [*6]purpose.” Specifically, the City’s revocation letter explained that the City reached its determination after reviewing documents submitted to it by Greater Jamaica and case law from this Court. The City also explained why it believed that the status granted Greater Jamaica by the IRS had no bearing on the issue of “charitable use” of the parking facilities under section 420-a. The letter stated that although the parking facilities may have served “an important public purpose and support[ed] development of a community,” those factors did not qualify the facilities for a charitable exemption. Indeed, according to the City’s review of the ownership structure of the lots along with other documentation, it appeared that Jamaica First collected monies that exceeded the carrying, maintenance and depreciation charges attributable to the premises and that Jamaica First utilized those excess proceeds to fund other additional operations, such as the purchase of an additional parking lot. * * *

Although we do not disturb the Appellate Division’s holding that petitioners met the “organized or conducted exclusively for . . . charitable . . . purposes” prong of the tax exemption test, we part company with the Appellate Division relative to its holding that “petitioners demonstrated that the use of their public parking facilities was consistent with their exempt purpose, as expressly noted by the IRS in granting such operation tax exempt status” … . By so holding, the Appellate Division utilized the petitioners’ organizational status’ under Internal Revenue Code (26 USC) § 501 (c) (3) to support its holding that petitioners’ demonstrated that the use of the parking facilities was for an exempt purpose. This was error. …

… [T]he IRS’s definition of what constitutes an exempt “charitable” purpose is exceedingly broad, including, among other things, “the lessening of the burdens of [g]overnment” (26 CFR 1.501 [c] [3]-1 [d] [2]), while the second prong of section 420-a (1) (a) requires a court to review “the actual or physical use of the property when it exempts from taxation property ‘used exclusively for carrying out thereupon one or more’ exempt purposes” … . Thus, our analysis under section 420-a is concerned with the “use” of the parking facilities as a whole, and whether the facilities are “used exclusively for carrying out thereupon one or more of [section 420-a’s] purposes.” * * *

We disagree with petitioners’ assertion that the parking facilities are charitable in and of themselves because they fulfill the primary purpose of economic development. The economic benefit conveyed by below-market rate parking, however, inures to the benefit of private enterprise and cannot be said to further any charitable purpose. It lessens the burden of local businesses, obviating any need for them to make their own parking arrangements for prospective customers. The below-market rates that the facilities charge provide an incentive for the public to patronize those businesses, providing a dual benefit for local business and a benefit to prospective customers of those businesses. While these goals may be laudable, they are not charitable. Matter of Greater Jamaica Dev. Corp. v New York City Tax Commn., 2015 NY Slip Op 05620, CtApp 7-1-15

 

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Non-Resident Shareholders In an S Corporation Who Sold their Stock and Treated the Transaction as a “Deemed Asset Sale” Were Properly Assessed New York Income Tax on the New York-Source Aspects of the Sale

The Court of Appeals, in a full-fledged opinion by Judge Rivera, determined non-resident plaintiffs, shareholders in an S corporation who sold their stock and treated the transaction as a “deemed asset sale,” were properly assessed New York income taxes on the New York-source aspects of the sale pursuant to Tax Law 632. The court rejected the argument that the tax assessment violated Article 16 section 3 of the New York Constitution:

Based on the results of [an] audit, defendant New York State Department of Taxation and Finance assessed $167,000 in state income taxes on plaintiffs’ … transaction gains, relying on Tax Law § 632 (a) (2), which was amended in 2010 to provide, in relevant part, that “any gain recognized on [a] deemed asset sale for federal income tax purposes will be treated as New York source income.” Plaintiffs paid the taxes and thereafter demanded refunds, claiming that their corporate-derived income was obtained from the sale of … stock, which is considered intangible personal property and nontaxable.

After defendant rejected the refund demands, plaintiffs filed the instant declaratory judgment action against defendant and the Commissioner of the New York State Department of Taxation and Finance, challenging the tax as unconstitutional … . * * *

…. [T]here is no question that New York State’s Tax Law, including Tax Law § 632 (a) (2), as amended in 2010, contemplates the taxes that defendants assessed on the New York-source portion of plaintiffs’ deemed asset sale gains. * * *

Nothing changes the fact that plaintiffs sold something of value and reaped the benefits from that sale. Article 16, § 3 in no way supports plaintiffs’ attempts to avoid paying state taxes on those gains. Burton v New York State Dept. of Taxation & Fin., 2015 NY Slip Op 05624, CtApp 7-1-15

 

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Retroactive Application of Tax Law 632 Amendments, Which Clarified that Installment Payments Re: a Deemed Asset Sale Will Be Treated as New York-Source Income, Did Not Violate Plaintiffs’ Due Process Rights

The Court of Appeals, in a full-fledged opinion by Judge Stein, in an action raising many of the same income-tax-law issues raised in Burton v New York State Dept. of Taxation & Fin., 2015 NY Slip Op 05624, CtApp 7-1-15 (summarized directly above), determined plaintiffs’ due process rights were not violated by the retroactive application of Tax Law 632. The case concerned the taxation of installment payments re: a deemed asset sale of stock in an S corporation. The 2010 amendments of Tax Law 632 clarified that the installments will be treated as New York-source income and made the amendments retroactive for 3 1/2 years. The Court of Appeals determined: (1) plaintiffs’ interpretation of the prior law was not reasonable and therefore plaintiffs did not establish reliance on the prior law; (2) the length of the retroactive period was not excessive; and (3),  the amendment (correcting an error and preventing revenue loss) served a valid public purpose. The court explained the nature of the amendments and the analytical criteria for determining the validity of retroactive application:

Prior to its amendment, Tax Law § 632 mandated only that, as relevant here:

“In determining New York source income of a nonresident shareholder of an S corporation . . . there shall be included only the portion derived from or connected with New York sources of such shareholder’s pro rata share of items of S corporation income, loss and deduction entering into his federal adjusted gross income . . .”

The 2010 amendments clarified, among other things, that if the S corporation distributed an installment obligation under 26 USC § 453 (h) (1) (A) or made a deemed asset sale election under 26 USC § 338 (h) (10), “any gain recognized on the receipt of payments from the installment obligation . . . [or] on the deemed asset sale for federal income tax purposes will be treated as New York source income” (L 2010, ch 57, Part C § 2). The amendments were made retroactive to all taxable years beginning on or after January 1, 2007 — which represent those years for which the statute of limitations for seeking a refund or assessing additional tax was still open (L 2010, ch 57, Part C, § 4, amended L 2010, ch 312, Part B, § 1) — thus, effectively creating a 3½ year period of retroactivity. * * *

While “retroactive legislation does have to meet a burden not faced by legislation that has only future effects[,] . . . that burden is met simply by showing that the retroactive application of the legislation is itself justified by a rational legislative purpose” … . In analyzing whether a statute is harsh and oppressive — and, thus, arbitrary and irrational — this Court uses a balancing-of-equities test … :

“The important factors in determining whether a retroactive tax transgresses the constitutional limitation are (1) ‘the taxpayer’s forewarning of a change in the legislation and the reasonableness of . . . reliance on the old law,’ (2) ‘the length of the retroactive period,’ and (3) ‘the public purpose for retroactive application'” … . Caprio v New York State Dept. of Taxation & Fin., 2015 NY Slip Op 05625, CtApp 7-1-15

 

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Defense Counsel’s Failure to Object to the Prosecutor’s Mischaracterization of the Strength and Meaning of DNA Evidence Constituted Ineffective Assistance of Counsel

The Court of Appeals, in a full-fledged opinion by Judge Rivera, over a dissent, reversed the Appellate Divsion and determined defendant was not afforded effective assistance of counsel. In her summation, the prosecutor mischaracterized the strength and meaning of the DNA evidence. Defense counsel had effectively, through cross-examination, called into question the strength and meaning of the DNA evidence. But defense counsel did not object to the prosecutor’s unsubstantiated claims in her summation. The court concluded the failure to object could not be justified as a viable defense strategy and required reversal:

The People’s case was circumstantial because there were no eyewitnesses to the crime and no forensic evidence that clearly established defendant’s guilt. Other than testimony that placed defendant and others in the victim’s company around the time of her death, and defendant’s statement that he engaged in consensual sex with the victim, the People had no evidence that linked her to defendant. To meet the People’s burden of proof, the prosecutor relied heavily on the results of DNA testing to connect defendant to the murder. However, the DNA analysis was also circumstantial because it did not “match” defendant’s DNA to the DNA collected at the crime scene. Instead, the test only indicated that defendant could not be excluded from the pool of male DNA contributors, and the expert testimony provided no statistical comparison to measure the significance of those results.

Notwithstanding the known limitations of this DNA evidence and the indeterminate conclusions about the test results drawn by the People’s own experts, the prosecutor in summation misrepresented the DNA analysis, including arguing the evidence established that defendant’s DNA was at the crime scene and on a critical piece of evidence linked to the victim’s murder. In light of the powerful influence of DNA evidence on juries, the opportunity for juror confusion regarding the limited probative value of the DNA methodology employed in this case, and the qualified nature of the test results, defense counsel’s failure to object rendered him ineffective. People v Wright, 2015 NY Slip Op 05621, CtApp 7-1-15

 

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Proof of the Dog’s Emaciated Condition Supported Defendant’s Conviction of the Violation of Agriculture and Markets Law 353

The Court of Appeals determined the proof of the emaciated condition of defendant’s dog supported the defendant’s conviction for a violation of Agriculture and Markets Law 353 which prohibits depriving an animal of necessary sustenance. On appeal the defendant argued the trial court erred in refusing to instruct the jury that a conviction required proof of a mens rea, i.e., that defendant knowingly deprived or neglected the dog. The Court of Appeals did not address the defendant’s argument, finding that the proof of the dog’s condition alone supported the conviction.  People v Basile, 2015 NY Slip Op 05623, CtApp 7-1-15

 

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Police Vehicles Are Excluded from the Meaning of “Motor Vehicle” in the Insurance Law—Passenger-Police-Officer Injured In a Police Vehicle by an Uninsured/Underinsured Driver Is Not Covered Under the Uninsured/Underinsured Motorist Provision of the Police-Officer-Driver’s Personal Policy

The Court of Appeals, in a full-fledged opinion by Judge Abdus-Salaam, over a dissent, determined that a police vehicle is not a motor vehicle within the meaning of the Insurance Law. Therefore a police officer, who was injured in a police vehicle driven by another police officer, could not recover under the police-officer-driver’s uninsured/underinsured motorist coverage in the driver’s personal insurance policy:

… Insurance Law §§ 3420 (e) and 3420 (f) (1) do not directly define “motor vehicle” in so many words, but Insurance Law § 3420 (e) does refer to “a motor vehicle or a vehicle as defined in [VTL 388 (2)].” VTL 388 is the sole provision of VTL article 11, which governs civil liability for negligence in the operation of vehicles. VTL 388 (2) states, “As used in this section, ‘vehicle’ means a ‘motor vehicle’, as defined in [VTL 125], except fire and police vehicles,” and certain other vehicles not relevant here (see VTL 388 [2]).  * * *

… [B]ecause the liability insurance provision of Insurance Law § 3420 (e) had traditionally dovetailed with the coverage of VTL 388 and its predecessors, Insurance Law § 3420 (e) employed the phrase “of a motor vehicle or of a vehicle as defined in [VTL 388]” as an imprecise way of incorporating the limitations of VTL 388 into Insurance Law § 3420 (e). In other words, Insurance Law § 3420 (e) used VTL 388 (2) to redefine “motor vehicle” as exempting police vehicles from the automobile insurance sections of Insurance Law § 3420. Given that the uninsured motorist and SUM coverage sections of Insurance Law § 3420 had originated as outgrowths designed to simply fill the uninsured or underinsured motorist “gaps” in the compulsory insurance statute and Insurance Law § 3420 (e), rather than to expand the class of covered vehicles, the Court rightly decided that Insurance Law §§ (f) (1) and (f) (2) logically applied to the limited category of “motor vehicles” referenced in Insurance Law § 3420 (e), thus also excluding police vehicles. Since SUM coverage under Insurance Law § 3420 (f) (2) was just a variant of uninsured coverage under subsection (f) (1) of the same statute, the Court appropriately found that SUM coverage was likewise limited to non-police vehicles. Matter of State Farm Mut. Auto. Ins. Co. v Fitzgerald, 2015 NY Slip Op 05626, CtApp 7-1-15

 

In the Context of a Pre-Answer Motion to Dismiss, the Statute of Frauds Barred Actions Stemming from Advising Defendants in the Actual Negotiation of a Business Opportunity, But Did Not Bar Actions Stemming from Advising Defendants Whether to Negotiate a Business Opportunity

The Court of Appeals, in a full-fledged opinion by Judge Fahey, determined, in the context of a pre-answer motion to dismiss, the statute of frauds did not bar the causes of action which stemmed from plaintiff’s advising defendants whether to negotiate a business opportunity, as opposed to the causes of action stemming from plaintiff’s advising defendants in the actual negotiation of a business opportunity (which were barred by the statute of frauds).

Here we are specifically concerned with General Obligations Law § 5-701 (a) (10), which “appl[ies] to a contract implied in fact or in law to pay reasonable compensation” and which provides that “[e]very agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking . . . [i]s a contract to pay compensation for services rendered in . . . negotiating the purchase . . . of any real estate or interest therein, or of a business opportunity, business, its good will, inventory, fixtures or an interest therein . . . .” … . * * *

… [T]he allegations with respect [some of the projects] could be construed as seeking recovery for work performed so as to inform defendants whether to partake in certain business opportunities, that is, whether to negotiate. (emphasis added) To the extent the causes of action are based on such allegations, they are not barred by the statute of frauds.  JF Capital Advisors, LLC v Lightstone Group, LLC, 2015 NY Slip Op 05622, CtApp 7-1-15

 

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Local Law, Which Regulates the Conduct of Attorneys Who Regularly Engage in (Nonlegal) Activities Traditionally Performed by Debt Collectors, Not Preempted by the Judiciary Law

The Court of Appeals, over a two-judge dissent, answering a certified question from the Second Circuit, determined that New York City’s Local Law 15, which regulates debt-collection practices, including some debt-collection practices used by attorneys, was not preempted by the Judiciary Law. The Local Law only reaches attorneys who regularly engage in activities traditionally performed by debt collectors. The court found no conflict between the Local Law and the Judiciary Law (no “conflict” preemption). And the court found that the Judiciary Law does not evince an intent to preempt the field of regulating nonlegal services performed by attorneys (no “field” preemption):

Local Law 15, enacted in 2009, amended the debt collection legislation in several ways. Significantly, it expanded the definition of “debt collection agency” to “include a buyer of delinquent debt who seeks to collect such debt either directly or through the services of another by, including but not limited to, initiating or using legal processes or other means to collect or attempt to collect such debt” (Administrative Code of City of NY § 20-489 [a]). The amendments continued a limited exemption for attorneys or law firms that were “collecting a debt in such capacity on behalf of and in the name of a client solely through activities that may only be performed by a licensed attorney” (Administrative Code of City of NY § 20-489 [a][5]). The exemption, however, did not cover “any attorney-at-law or law firm or part thereof who regularly engages in activities traditionally performed by debt collectors, including, but not limited to, contacting a debtor through the mail or via telephone with the purpose of collecting a debt or other activities as determined by rule of the commissioner” (Administrative Code of City of NY § 20-489 [a][5]). * * *

Plaintiffs assert both conflict and field preemption in connection with the argument that Local Law 15 is preempted by the Judiciary Law. The Local Law, by its terms, governs the conduct of debt collection agencies. Although attorneys that are acting in a debt collecting capacity may fall within its penumbra, it does not purport to regulate attorneys as such. In fact, it clearly states that it does not pertain to attorneys who are engaged in the practice of law on behalf of a particular client. There is no express conflict between the broad authority accorded to the courts to regulate attorneys under the Judiciary Law and the licensing of individuals as attorneys who are engaged in debt collection activity falling outside of the practice of law and, thus, the Local Law does not impose an additional requirement for attorneys to practice law. Rather, the regulatory schemes can be seen as complementary to, and compatible with, one another. * * *

The courts’ authority to regulate attorney conduct does not evince an intent to preempt the field of regulating nonlegal services rendered by attorneys. “Intent to preempt the field may ‘be implied from the nature of the subject matter being regulated and the purpose and scope of the State legislative scheme, including the need for State-wide uniformity in a given area'” (People v Diack, 24 NY3d 674, 679 [2014] [citations omitted]). Although the courts may have preempted the field of regulating attorney misconduct, that authority does not extend to all nonlegal aspects of attorney behavior, which can be governed by both civil and criminal law, including regulatory proscriptions. To the extent that the courts have exercised some authority over nonlegal services provided by attorneys (see Rules of Professional Conduct 5.7), the regulation in that area is not “so detailed and comprehensive so as to imply that” the field has been preempted … . Eric M. Berman, P.C. v City of New York, 2015 NY Slip Op 05594, CtApp 6-30-15

 

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“Continuity” Element of a Criminal Enterprise Explained—Substantive Arguments Re: the Erroneous Use of “And” Instead of “Or” In the Jury Instructions and the “Ineffective Assistance” Stemming from the Failure to Object to the Instructions–the Majority Held the Error Was Not Preserved and the Seriousness of the Error Was Not So Clear-Cut as to Implicate Ineffective Assistance–the Dissent Argued the Jury-Instruction Error Was Preserved and Was Reversible

The Court of Appeals, in a full-fledged opinion by Judge Fahey, over a dissent, affirmed the defendants’ enterprise corruption convictions. The enterprise here involved a doctor and a chiropractor (the defendants), medical clinics, faked accidents, faked injuries, kickbacks to lawyers, fraudulent insurance claims, etc. The court explained that there is no requirement that the People prove the enterprise would continue in the absence of a key participant to demonstrate the “continuity” element of the enterprise, i.e., that the “structure [of the enterprise is] distinct from the predicate illicit pattern.” In addition, the majority determined an acknowledged jury-instruction error (using “and” instead of “or”) was unpreserved, and rejected an ineffective assistance argument which was based on the failure to object to the erroneous jury charge.  In rejecting the ineffective assistance argument, the majority noted that whether the jury-instruction error was reversible was a close question. If the error had been clearly reversible, the majority explained, the ineffective assistance argument would have prevailed. The dissent argued that the jury-instruction error was preserved and constituted reversible error. The jury-instruction and ineffective assistance discussions, like the enterprise corruption discussion, are extensive and substantive.  With respect to the proof requirements for the “continuity” element of enterprise corruption, the court wrote:

Were the People required to prove, beyond a reasonable doubt, that a criminal enterprise would survive the removal of a key participant, it would be impossible in most cases to demonstrate the existence of a criminal enterprise. Except where the leading participant was in fact removed some time before the enterprise disbanded, the People would be expected to prove an unknowable proposition concerning a counterfactual scenario in which events occurred differently from the actual world. We have never required such an exercise. Moreover, there is no reason to treat a criminal structure as less deserving of enhanced penalty if its key figure is so essential to the organization that his or her absence would threaten its criminal agenda. A criminal enterprise is no less a criminal enterprise if it has a powerful leader. Finally, if we were to require a criminal enterprise to be able to survive the removal of a key figure, criminal organizations could avoid enhanced penalties simply by placing all control in the hands of one person. It cannot have been the intent of the Legislature to allow such a loophole.

Instead, what is meant by the continuity element of the statute is that to be a criminal enterprise, an organization must continue “beyond the scope of individual criminal incidents” (Penal Law § 460.10 [3]), and must possess “constancy and capacity exceeding the individual crimes committed under the association’s auspices or for its purposes” … . In other words, the requirement is not that the group would continue in the absence of a key participant, but rather that it continues to exist beyond individual criminal incidents. A team of people who unite to carry out a single crime or a brief series of crimes may lack structure and criminal purpose beyond the criminal actions they carry out; such an ad hoc group is not a criminal enterprise. If a group persists, however, in the form of a “structured, purposeful criminal organization” (id. at 659), beyond the time required to commit individual crimes, the continuity element of criminal enterprise is met. People v Keschner, 2015 NY Slip Op 05596, CtApp 6-30-15

 

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City Had Not Impliedly Dedicated Certain Parcels of Land as Public Parklands—Therefore the Parcels, Which Had Been Used as Public Parks, Were Not Protected by the Public Trust Doctrine and Could Be Sold by the City Without the Approval of the State Legislature

The Court of Appeals determined certain city-owned parcels of land which had been used as public parkland had not been impliedly dedicated as public parklands.  Therefore the parcels were not under the protection of the public trust doctrine and could be sold by the city without the approval of the state legislature:

In support of their appeal, petitioners again advance their argument that the City’s actions manifest its intent to impliedly dedicate the parcels as parkland. Under the public trust doctrine, a land owner cannot alienate land that has been impliedly dedicated to a public use without obtaining the approval of the Legislature … . A party seeking to establish such an implied dedication and thereby successfully challenge the alienation of the land must show that: (1) “[t]he acts and declarations by the land owner indicating the intent to dedicate his land to the public use [are] unmistakable in their purpose and decisive in their character to have the effect of a dedication” and (2) that the public has accepted the land as dedicated to a public use … .

It remains an open question whether the second prong of the implied dedication doctrine applies to a municipal land owner, but we need not and do not resolve that issue on this appeal because we conclude that the City’s acts are not an unequivocal manifestation of an intent to dedicate the parcels as permanent parkland. With respect to the element of the owner’s intent — the only matter contested in this appeal — if a landowner’s acts are “equivocal, or do not clearly and plainly indicate the intention to permanently abandon the property to the use of the public, they are insufficient to establish a case of dedication” … . * * *

Here, as the Appellate Division noted, several documents created prior to this litigation demonstrate that the City did not manifest an unequivocal intent to dedicate the contested parcels for use as public parks. The permit, memorandum of understanding and lease/license relating to Mercer Playground, LaGuardia Park and LaGuardia Corners Gardens, respectively, show that “any management of the parcels by the [DPR] was understood to be temporary and provisional” … . Thus, those documents’ restrictive terms show that, although the City permitted and encouraged some use of these three parcels for recreational and park-like purposes, it had no intention of permanently giving up control of the property. And, as the Appellate Division observed, “the City’s “refus[al of] various requests to have the streets de-mapped and re-dedicated as parkland” … further indicates that the City has not unequivocally manifested an intent to dedicate the parcels as parkland. Matter of Glick v Harvey, 2015 NY Slip Op 05593, CtApp 6-30-15

 

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