         SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department
1211
CA 11-00675
PRESENT: CENTRA, J.P., FAHEY, GREEN, AND GORSKI, JJ.


JAMES SQUARE ASSOCIATES LP, MOHAWK GLEN
ASSOCIATES, LLC, PIONEER FULTON SHOPPING
CENTER, LLC, PIONEER MANAGEMENT GROUP, LLC,
AND WATERFRONT ASSOCIATES, LLC,
PLAINTIFFS-RESPONDENTS,

                    V                                  OPINION AND ORDER

DENNIS MULLEN, COMMISSIONER, NEW YORK STATE
DEPARTMENT OF ECONOMIC DEVELOPMENT, AND JAMIE
WOODWARD, COMMISSIONER, NEW YORK STATE
DEPARTMENT OF TAXATION AND FINANCE,
DEFENDANTS-APPELLANTS.
(APPEAL NO. 2.)


ERIC T. SCHNEIDERMAN, ATTORNEY GENERAL, ALBANY (OWEN DEMUTH OF
COUNSEL), FOR DEFENDANTS-APPELLANTS.

BOND, SCHOENECK & KING, PLLC, SYRACUSE (JONATHAN B. FELLOWS OF
COUNSEL), FOR PLAINTIFFS-RESPONDENTS.


     Appeal from an order and judgment (one paper) of the Supreme
Court, Onondaga County (John C. Cherundolo, A.J.), entered February 9,
2011. The order and judgment granted the motion of defendants for
leave to renew and, upon renewal, adhered to the court’s order and
judgment entered June 22, 2010, and further declared that the August
11, 2010 “clarification” of the 2009 amendments to the Empire Zones
Program is, as applied to plaintiffs, an unconstitutional taking of
plaintiffs’ property.

     It is hereby ORDERED that the order and judgment so appealed from
is unanimously affirmed without costs.

     Opinion by GREEN, J.: Plaintiffs are business enterprises that
at one time were certified as eligible to receive benefits pursuant to
the New York State Empire Zones Act ([Empire Zones Act] General
Municipal Law § 955 et seq.). In April 2009, as part of the 2009-2010
budget legislation, the Governor signed into law amendments to the
Empire Zones Act that altered certain eligibility criteria for
business enterprises and directed defendant Commissioner of the New
York State Department of Economic Development (DED Commissioner) to
conduct a review of all business enterprises receiving benefits (see §
959 [a] [5], [6]; [w]). As the result of that review, the DED
Commissioner revoked the certification of each plaintiff, effective
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                                                           CA 11-00675

January 1, 2008. We agree with defendants that the Legislature
intended that the pertinent 2009 amendments to the Empire Zones Act
would apply retroactively to January 1, 2008. We agree with
plaintiffs and Supreme Court, however, that such retroactive
application unconstitutionally deprived plaintiffs of their property
interests without due process.

                                  I

     In 1986 the Legislature enacted the Empire Zones Act “to
stimulate private investment, private business development and job
creation” in economically impoverished areas (General Municipal Law §
956). Toward that end, the State offered certain incentives to
encourage the development of new businesses and the expansion of
existing businesses in such economically impoverished areas,
designated as Empire zones (see id.; § 957 [d]). Those incentives
include various tax credits for investment and job creation (see e.g.
Tax Law § 606 [j], [j-1], [k], [l]; § 1456 [d], [o], [p]), which are
available to business enterprises that the DED Commissioner has
certified as eligible to receive such benefits (see General Municipal
Law § 959 [a]). Prior to the 2009 amendments, the DED Commissioner
was authorized to revoke the certification of participating business
enterprises on various grounds, and the effective date of such
decertification was “the date determined to be the earliest event
constituting grounds for revoking certification” (id.).

     In an effort to ensure that those business enterprises
benefitting from the Empire Zones Program were meeting the investment
and employment goals of the program, the Legislature amended General
Municipal Law § 959 (a) in April 2009 to revise the eligibility
criteria for businesses receiving Empire zones’ benefits. Pursuant to
section 959 (a) (v) (5) of the amended statute, the DED Commissioner
is authorized to revoke the certification of a business enterprise
upon a finding, inter alia, that

          “the business enterprise . . . caused individuals
          to transfer from existing employment with another
          business enterprise with similar ownership and
          located in New York state to similar employment
          with the certified business enterprise or if the
          enterprise acquired, purchased, leased or had
          transferred to it real property previously owned
          by an entity with similar ownership, regardless of
          form of incorporation or organization . . .”

     That provision was intended to curb a practice colloquially known
as “shirt-changing,” which creates the illusion that a business
enterprise is creating jobs and making investments when it does not in
fact provide tangible economic benefits to the Empire zone where the
business is operating. The amended statute also added a cost-benefit
criterion and permitted the DED Commissioner to revoke a certification
upon finding that:

          “the business enterprise has failed to provide
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                                                         CA 11-00675

          economic returns to the state in the form of total
          remuneration to its employees (i.e. wages and
          benefits) and investments in its facility greater
          in value to the tax benefits the business
          enterprise used and had refunded to it” (General
          Municipal Law § 959 [a] [v] [6]).

     The same legislation added a new subdivision (w) to section 959,
which directed the DED Commissioner to conduct a review during 2009 of
all certified business enterprises to determine whether they should be
decertified pursuant to the “shirt-changing” provision or the cost-
benefit criterion. If decertification was not warranted, the DED
Commissioner was to issue an Empire zones’ retention certificate. On
the other hand, if the DED Commissioner determined that the business
enterprise should be decertified pursuant to the “shirt-changing”
provision or the cost-benefit criterion, i.e., subparagraph (5) or (6)
of section 959 (a), the certification of the business enterprise would
be revoked.

     At the same time that it amended article 18-B of the General
Municipal Law, the Legislature also amended several Tax Law provisions
applicable to carryovers of Empire zones’ tax credits (see L 2009, ch
57, part S-1, §§ 11-22). Each of the pertinent Tax Law amendments
provided in essence that “[a]ny carry over of a credit from prior
taxable years will not be allowed if an [E]mpire zone retention
certificate is not issued pursuant to [General Municipal Law § 959
(w)] to the [E]mpire zone enterprise which is the basis of the credit”
(id. at § 11).

     The legislation further provided that the pertinent amendments to
General Municipal Law § 959 would “take effect immediately” (id. at §
44) but specified that the Tax Law amendments applicable to carryover
tax credits were to “apply to taxable years beginning on or after
January 1, 2008” (id. at § 44 [a]). The Governor signed the
legislation on April 7, 2009, and on April 15, 2009 the Department of
Taxation and Finance issued a memorandum advising businesses that they
must obtain an Empire zones’ retention certificate and attach that
certificate to their tax returns in order to receive credits for tax
years beginning on or after January 1, 2008. The DED Commissioner
contemporaneously promulgated a regulation providing that “[t]he
effective date of decertification [pursuant to the pertinent statutory
amendments] shall be January 1, 2008” (5 NYCRR 11.9 [c] [2]).

                                  II

     Upon the reviews conducted by the DED Commissioner, the
certifications of plaintiffs Pioneer Fulton Shopping Center, LLC and
Pioneer Management Group, LLC were revoked based upon the “shirt-
changing” provision, those of plaintiffs James Square Associates LP
(James Square) and Waterfront Associates, LLC were revoked based upon
the cost-benefit criterion, and the certification of plaintiff Mohawk
Glen Associates, LLC was revoked based upon both the “shirt-changing”
provision and the cost-benefit criterion. The DED Commissioner
notified each plaintiff that the effective date of the revocations was
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                                                         CA 11-00675

January 1, 2008. With the exception of James Square, all of the
plaintiffs took administrative appeals to the empire zones designation
board (EZDB) from the determinations revoking their certifications
(see General Municipal Law § 960 [a]). The EZDB upheld each of the
determinations, including the one revoking the certification of James
Square despite the absence of an administrative appeal.

                                 III

      Plaintiffs commenced the instant action during the pendency of
the administrative appeals. Plaintiffs do not contend that they meet
the revised eligibility criteria set forth in the amended statute or
that their certification of eligibility to receive Empire zones’
benefits was improperly revoked. Rather, plaintiffs challenge the
effective date of those revocations and the retroactive application of
the revised criteria to January 1, 2008. Plaintiffs thus sought,
inter alia, judgment declaring that the amendments to the statute set
forth in paragraphs (5) and (6) of General Municipal Law § 959 (a) (v)
may be applied prospectively only, and not retroactively to January 1,
2008.

     Plaintiffs moved and defendants cross-moved for summary judgment.
In support of their motion, plaintiffs submitted a portion of the
2009-2010 budget bill proposed by the Governor that expressly provided
that the decertification of a business enterprise pursuant to the
review conducted by the DED Commissioner under General Municipal Law §
959 (w) would be effective for the taxable year beginning January 1,
2008. Plaintiffs contended that, inasmuch as the Legislature declined
to enact that portion of the proposed bill, it intended that
decertification would be prospective. Plaintiffs also submitted
affidavits from their officers or members asserting that they had
closed their books on 2008 prior to receiving notice in mid-2009 that
their certifications had been revoked, and that they were thereafter
assessed additional taxes that they had not anticipated.

      In support of their cross motion, defendants submitted an
affidavit from the Director of the Empire Zones Program who asserted
that, both before and after the 2009 amendments, General Municipal Law
§ 959 (a) provided that the effective date of decertification was the
“ ‘date determined to be the earliest event constituting grounds for
revoking certification,’ ” and that the pertinent amendments to the
Tax Law in the 2009-2010 budget bill applied to tax years beginning in
2008. The Director further asserted that, at the time the
certifications were revoked, the most current date available was
contained in plaintiffs’ 2007 business annual reports, and thus the
earliest date that the DED Commissioner had grounds for revoking
plaintiffs’ eligibility was January 1, 2008. Defendants also
submitted an excerpt from the Governor’s “2009-10 Enacted Budget
Financial Plan,” which projected that the legislation amending the
eligibility criteria for business enterprises receiving Empire zones’
benefits would provide the State with savings of $90 million in 2009-
2010.
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                                                         CA 11-00675

                                  IV

      The court granted plaintiffs’ motion and denied defendants’ cross
motion. Based upon the language of the amended statute, the
legislative history, and the rule of statutory construction that
statutes are generally presumed to apply prospectively (see McKinney’s
Cons Laws of NY, Book 1, Statutes § 51 [c]), the court concluded that
“[t]he Legislature could not have intended that . . . the amendments
would apply retroactively . . . [and that] the only logical date when
§§ 959 (a) (v) (5) and 959 (a) (v) (6) should have taken effect[] was
immediately upon the signing of the amendments into law,” i.e., April
7, 2009. The court therefore granted the relief sought by plaintiffs,
declaring that the amendments at issue apply prospectively only and
that the decertification of plaintiffs, to the extent that it was
applied by defendants retroactively to January 1, 2008, was null and
void.

     The order and judgment was entered June 22, 2010, and the
Legislature responded swiftly by enacting legislation on August 11,
2010 addressing the effective date of decertifications made pursuant
to the 2009 amendments. That legislation provides in pertinent part:

          “It is the intent of the legislature to clarify
          and confirm that the amendments made to the
          [G]eneral [M]unicipal [L]aw by chapter 57 of the
          laws of 2009 that require the revocation of
          certification of certain business entities
          previously certified under the [E]mpire [Z]ones
          [P]rogram are intended to be effective for the
          taxable year in which the revocation of
          certification occurs and for all subsequent
          taxable years . . . and that such revocations of
          certification that occur in 2009 are deemed to be
          in effect for the taxable year commencing on or
          after January 1, 2008 and before January 1, 2009”
          (L 2010, ch 57, part R, § 1).

     The Legislature also added the following language to General
Municipal Law § 959 (a):

          “[W]ith respect to any business . . . whose
          certification has been revoked pursuant to
          subparagraph five or six of this paragraph, that
          revocation (I) will be effective for a taxable
          year beginning on or after January first, two
          thousand eight and before January first, two
          thousand nine and for subsequent taxable years . .
          . and (II) thereafter will be effective for the
          taxable year during which the commissioner makes
          his or her determination (prior to any appeal) to
          revoke the certification of a business . . . and
          for subsequent taxable years” (L 2010, ch 57, part
          R, § 2).
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                                                         CA 11-00675

     Based upon the 2010 legislation, defendants moved for leave to
renew. The court granted defendants’ motion, and upon renewal,
concluded that the 2010 legislation, as applied to plaintiffs, results
in an unconstitutional taking of plaintiffs’ property. The court
therefore declared a second time that the 2009 amendments at issue may
be applied prospectively only, and further declared that the
decertifications of plaintiffs, to the extent that they were made
retroactive to January 1, 2008, were unconstitutional, and thus null
and void.

                                  V

     Contrary to the contention of plaintiffs and the conclusion of
the court, we agree with defendants that the record establishes the
intention of the Legislature that the revocation of plaintiffs’
certifications pursuant to the 2009 amendments would be effective for
the taxable year commencing January 1, 2008. In reaching that
conclusion, we are mindful that, in interpreting a statute, our role
is to effectuate the intent of the Legislature, and that the clearest
indicator of the legislative intent is the language of the statute
(see Patrolmen’s Benevolent Assn. v City of N.Y., 41 NY2d 205, 208).
Here, the Legislature provided that the amendments at issue were to
“take effect immediately.” When a statute is to take effect and
whether that statute applies retroactively, however, are distinct
issues. As the Court of Appeals noted in Majewski v Broadalbin-Perth
Cent. School Dist. (91 NY2d 577, 583 [internal quotation marks
omitted]), “[w]hile the fact that a statute is to take effect
immediately evinces a sense of urgency, the meaning of the phrase is
equivocal in an analysis of retroactivity.” Indeed, both parties rely
on the phrase to support their respective positions on retroactivity
and, “[u]nder the circumstances, the proviso that the subject
provisions were to ‘take effect immediately’ contributes little to our
understanding of whether retroactive application was intended on the
issue presented” (id. at 583-584).

     When the court ruled on the original motion and cross motion, the
Legislature had not expressly stated when the revocation of a business
enterprise’s certification was to be effective. The court’s decision,
however, seemingly prompted the Legislature “to clarify and confirm”
its intent in no uncertain terms that the decertification of Empire
zones’ businesses that occurred during 2009 were “deemed to be in
effect for the taxable year commencing on or after January 1, 2008 and
before January 1, 2009” (L 2010, ch 57, part R, § 2). While “[t]he
Legislature has no power to declare, retroactively, that an existing
statute shall receive a given construction when such construction is
contrary to that which the statute would ordinarily have received”
(Matter of Roosevelt Raceway v Monaghan, 9 NY2d 293, 304, appeal
dismissed 368 US 12; see Matter of Bright Homes v Weaver, 7 AD2d 352,
358, affd 6 NY2d 973), here the Legislature’s retroactive construction
is entirely consistent with the 2009 amendments. The legislative
history of the amendments at issue suggests that they were intended,
at least in part, to generate revenue during 2009-2010, revenue that
would not be generated if those amendments were to be applied
prospectively. In addition, each of the amendments to the Tax Law
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                                                         CA 11-00675

affecting Empire zones’ carryover tax credits refers to the retention
certificate issued to business enterprises that satisfied the new
eligibility criteria set forth in General Municipal Law § 959 (a) (v)
(5) and (6), and those amendments to the Tax Law were expressly
effective retroactive to January 1, 2008 (see L 2009, ch 57, part S-1,
§§ 11-22, 44 [a]).

     Further, “[o]ne crucial legislative function is to clarify the
meaning and purpose of the Legislature’s enactments; it is the essence
of the judicial function to honor legislative intent” (Phillips v City
of New York, 66 AD3d 170, 188). As noted, the Legislature acted
swiftly to clarify the effective date of the 2009 amendments in
response to the court’s initial decision and, “when the Legislature
does tell us what it meant by a previous act, its subsequent statement
of earlier intent is entitled to great weight” (Matter of Chatlos v
McGoldrick, 302 NY 380, 388; see RKO-Keith-Orpheum Theatres, Inc. v
City of New York, 308 NY 493, 501-502).

                                  VI

     While we thus agree with defendants on the issue of legislative
intent, we further conclude that the retroactive application intended
by the Legislature violates plaintiffs’ due process rights. Here,
“[i]nasmuch as the transactions were complete and reimbursement was
owed prior to the . . . effective date of the . . . [s]tatute, which
‘altered the substantive law governing [plaintiffs’] conduct[,]’ . . .
application of that statute to [plaintiffs’] claims would render it
‘retroactive’ in the true sense of that term” (Matter of County of St.
Lawrence v Daines, 81 AD3d 212, 216, lv denied 17 NY3d 703). The 2009
amendments at issue are not, strictly speaking, retroactive tax laws,
i.e., they do not retroactively impose a new tax or increase an
existing tax. The amendments, however, alter plaintiffs’ eligibility
for tax credits, and the cases addressing the retroactive application
of tax statutes are therefore instructive. In Matter of Replan Dev. v
Department of Hous. Preserv. & Dev. of City of N.Y. (70 NY2d 451, 456,
appeal dismissed 485 US 950), the Court of Appeals explained that
determining whether the retroactive application of a tax law offends
constitutional limitations requires a balancing of the equities:

          “In reaching the appropriate balance, several
          factors may be considered. First, and perhaps
          predominant, is the taxpayer’s forewarning of a
          change in the legislation and the reasonableness
          of his reliance on the old law . . . This inquiry
          focuses on whether the taxpayer’s reliance has
          been justified under all the circumstances of the
          case and whether his [or her] expectations as to
          taxation [have been] unreasonably disappointed . .
          . The strength of the taxpayers’ claim to the
          benefit may be significant if he [or she] has
          obtained a sufficiently certain right to the money
          prior to the enactment of the new legislation . .
          . Additionally, the length of the retroactive
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                                                         CA 11-00675

          period often has been a crucial factor, and
          excessive periods have been held to
          unconstitutionally deprive taxpayers of a
          reasonable expectation that they will secure
          repose from the taxation of transactions which
          have, in all probability, been long forgotten . .
          . Finally, the public purpose for retroactive
          application is important because of the taxing
          authority’s legitimate concern that evasive
          measures taken after introduction of a bill but
          before enactment might frustrate the purpose of
          the legislation” (internal quotation marks and
          citations omitted).

      Those factors militate in plaintiffs’ favor. The time period at
issue, measured from the enactment of the 2009 amendments, is
approximately 16 months. Whether that period is excessive, in our
view, cannot be resolved in the abstract, but only in light of the
other factors, i.e., notice and reliance. “The constitutionality of
[the retroactive decertification] turns primarily on whether
[plaintiffs] could have reasonably foreseen the enactment and, if
[they] could have anticipated [decertification], whether [plaintiffs]
would have altered [their] behavior” (Wittenberg v City of New York,
135 AD2d 132, 137, affd 73 NY2d 753). There is no indication in the
record that plaintiffs had any warning that the criteria for
certification of Empire zones’ businesses were going to change,
prospectively or retroactively, prior to April 2009. Further, and
most significantly, it is undisputed that plaintiffs maintained their
eligibility for Empire zones’ tax credits throughout the tax year
beginning January 1, 2008 pursuant to the criteria then in effect. As
the court observed, here plaintiffs did not merely rely on the
continuing benefit of a tax statute (cf. Matter of Varrington Corp. v
City of N.Y. Dept. of Fin., 85 NY2d 28, 32-33), but they were induced
to conduct their businesses in a particular way in specified
disadvantaged areas in reliance upon the availability of Empire zones’
tax credits. Under the circumstances, those tax credits “have induced
action in reliance thereon [and thus] . . . may not be invalidated by
subsequent legislation” (People v Brooklyn Garden Apts., 283 NY 373,
380).

     Finally, we conclude that defendants have failed to explain what
legitimate public purpose is served by retroactive application of the
2009 amendments. This is not a situation in which “evasive measures
taken after introduction of a bill but before enactment might
frustrate the purpose of the legislation” (Matter of Neuner v Weyant,
63 AD2d 290, 302, appeal dismissed 48 NY2d 975; see Replan Dev., 70
NY2d at 456). Plaintiffs were powerless to alter the conduct of their
businesses for the tax year that ended before the 2009 amendments were
introduced, and defendants offer no justification for retroactive
application of the 2009 amendments apart from the additional revenue
that the State would realize by retroactively eliminating tax credits
for certain participants in the Empire Zones Program. That
justification by defendants, balanced against the inequity to
plaintiffs, is insufficient. We are compelled to conclude that “the
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                                                         CA 11-00675

apparent absence of a persuasive reason for retroactivity, with its
potentially harsh effects, offends constitutional limits, especially
when the tax [credit eliminated] is one which might exert significant
influence on . . . business transactions” (Holly S. Clarendon Trust v
State Tax Commn., 43 NY2d 933, 935, cert denied 439 US 831). The
court therefore properly declared that the amendments at issue apply
prospectively only, and that the revocations of plaintiffs’
certifications, to the extent they were made retroactive to January 1,
2008, are null and void.

                                 VII

     Accordingly, the order and judgment should be affirmed.




Entered:   November 18, 2011                    Patricia L. Morgan
                                                Clerk of the Court
