Branford House, Inc. v. Michetti

• Decision Date: 12 October 1993
• Parties: , 623 N.E.2d 11 In the Matter of BRANFORD HOUSE, INC., et al., Appellants, v. Felice MICHETTI, as Commissioner of Housing Preservation and Development of the City of New York, et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 290

603 N.Y.S.2d 290

81 N.Y.2d 681, 623 N.E.2d 11

In the Matter of BRANFORD HOUSE, INC., et al., Appellants, v. Felice MICHETTI, as Commissioner of Housing Preservation and Development of the City of New York, et al., Respondents.

Court of Appeals of New York.

Oct. 12, 1993.

Szold & Brandwen, P.C., New York City (Alan G. Blumberg, Eric J. Weisberg and Robert I. Goodman, of counsel), for appellants.

O. Peter Sherwood, Corp. Counsel, New York City (Timothy J. O'Shaughnessy and Kristin M. Helmers, of counsel), for respondents.

OPINION OF THE COURT

HANCOCK, Judge.

This proceeding involves a limited-profit (or Mitchell-Lama) housing company, which voluntarily dissolved by prepaying its subsidized mortgage in order to remove the housing project from City regulation and "go private". The parties dispute the application and interpretation of Private Housing Finance Law § 35. Section 35 provides that, except for projects aided by a State loan, upon dissolution, any surplus in the housing company's treasury, after accounting for various expenses, obligations and the housing company's profit, must be paid to the municipality that granted the housing company a tax exemption.

Petitioners raise two arguments. First, despite the limiting language in section 35(3) indicating that only projects aided by a State loan are exempt from the surplus requirement, they contend that their project, which was aided by a non-State loan, is exempt from the surplus requirement because the limiting word "state" was accidentally inserted into section 35 when it was recodified in 1961. Second, petitioners argue that, even if they are not exempt from the surplus requirement, section 35 should be construed so as to permit them to deduct the prepayment of their mortgage debt in calculating their surplus, thereby eliminating any surplus they might have been required to repay. For the reasons that follow, we reject petitioners' contentions.

I.

In 1963, petitioner Branford House, Inc. (Branford), now dissolved, became a limited-profit housing company under article II of the Private Housing Finance Law. As such, it received a 50-year, low-interest loan from the New York City Board of Estimate and a 30-year exemption from local and municipal taxes for a 159-unit apartment building to be constructed in the Bronx to provide low-rental housing for middle income families. In exchange for the receipt of these financial advantages, Branford promised to remain a limited-profit housing company in the Mitchell-Lama program for a minimum of 20 years before filing for dissolution. In 1989, after being notified of Branford's intention to dissolve, respondent New York City Department of Housing Preservation and Development informed Branford that it was required to pay a surplus of $377,074 pursuant to section 35(3). ¹ Branford prepaid its mortgage balance of $2,471,095.74 due to the City and conveyed the property to petitioner New Branford, Inc. Petitioners also paid the surplus to respondents under protest. They then commenced this proceeding.

Supreme Court concluded that petitioners owed the surplus. The Appellate Division unanimously affirmed, and rejected petitioners' claim that the word "state" had been inadvertently inserted into section 35(3). The Court also concluded that there was no merit to petitioners' position that the mortgage should be considered when calculating the surplus (187 A.D.2d 380, 382, 590 N.Y.S.2d 198). We granted petitioners leave to appeal and now affirm.

II.

We first address petitioners' contention that it is exempt from application of the surplus requirement because the word "state" was inadvertently inserted into Private Housing Finance Law § 35(3). That section exempts from the surplus requirement those housing companies that were "aided by a state loan made after" May 1, 1959 (emphasis added). ² Branford's project was aided by a loan, made after May 1, 1959, by the City, not the State. Thus, the City's loan to Branford does not fall within the express language of the statutory exemption from the surplus requirement. Petitioners argue, however, that the insertion of the limiting word "state" before the word "loan" in the 1961 recodification of the Limited-Profit Housing Companies Law was an inadvertent clerical error, and that section 35(3) should be applied as if the clerical error had not been made. If the statute is read without the limiting word "state", inasmuch as the project was aided by "a loan" made after May 1, 1959, it would be exempt from the surplus requirement.

Generally, a court may not assume the existence of legislative error and change the plain language of a statute to make it conform to an alleged intent. However, a court may apply a statute by disregarding a clerical error in legislation so as to make the corrected statute conform to the Legislature's true intent, if it is established unquestionably that (1) the true legislative intent is contrary to the statutory language, and (2) the mistake is due to inadvertence or clerical error (McKinney's Cons.Laws of N.Y., Book 1, Statutes § 362; see, People ex rel. French v. Lyke, 159 N.Y. 149, 152-153, 53 N.E. 802; McKee Land & Improvement Co. v. Williams, 63 App.Div. 553, 561, 71 N.Y.S. 1141, affd. 173 N.Y. 630, 66 N.E. 1112; Matter of Deuel, 116 App.Div. 512, 514-515, 101 N.Y.S. 1037; People ex rel. Fitch v. Lord, 9 App.Div. 458, 41 N.Y.S. 343).

We first hold that petitioners have failed to meet their burden of establishing without question that the Legislature in the 1961 recodification of section 35(3) did not intend to restrict the scope of the exemption from the surplus requirement to projects aided by a State loan. On the contrary, the legislative history of section 35(3) supports equally the conclusion that limiting the surplus exemption to State-aided projects was a considered decision of the 1961 Legislature. Indeed, the Legislature in 1959 so limited the surplus exemption. Although in 1960 it expanded the exemption to projects aided by any loan, in 1961 it again limited the exemption to State-aided projects, just as it had done in 1959. ³ Petitioners do not offer any persuasive reason why the Legislature's 1961 amendment should be considered any less deliberate than the ones in 1959 and 1960. Petitioners argue that because the insertion of the word "state" in 1961 was a substantive change contrary to the 1961 legislative history's statements that the recodification was intended to be without substantive change, the 1961 amendment should not be given effect. But, such a general statement of legislative intent is not sufficient to meet petitioners' heavy burden of establishing that the Legislature's intended meaning was contrary to the plain language of a statute, especially where that language has been left unchanged by the Legislature for over 30 years.

We also conclude that petitioners have failed to establish that the insertion of the word "state" in the 1961 amendment was a clerical error. The claimed error is not the typical mistake in drafting--i.e., a typographical error, misspelling or a transposition of letters or numerals. Rather, the purported error is in the inclusion of a substantive word in the statute. Nothing has been shown about the circumstances surrounding the incorporation of this word that would suggest that it was due to a clerical error in drafting or printing (cf., People ex rel. French v. Lyke, 159 N.Y. 149, 152-153, 53 N.E. 802, supra [omission of the word "or"]; McKee Land & Improvement Co. v. Williams, 63 App.Div. 553, 71 N.Y.S. 1141, affd. 173 N.Y. 630, 66 N.E. 1112,supra [reference to chapter 744 rather than chapter 774]. The parties agree that no documentary evidence exists that accounts for the alleged mistake, and petitioners' attempt to explain it is wholly speculative. Furthermore, the inclusion of the word "state" in section 35(3) does not create any anomaly in the statute or result in a statutory scheme that is not entirely reasonable (cf., Matter of Deuel, 116 App.Div. 512, 514-515, 101 N.Y.S. 1037, supra; People ex rel. Fitch v. Lord, 9 App.Div. 458, 41 N.Y.S. 343, supra ). On the contrary, without the inclusion of the limiting word "state", the exemption would apply to all loans made after May 1, 1959 regardless of source, and thus, in effect, eliminate the surplus requirement. A court should certainly not attribute such a far-reaching result to an alleged clerical error without stronger evidence than petitioners have provided.

III.

Given our conclusion that the surplus requirement of Private Housing Finance Law § 35(3) applied to Branford, we now address petitioners' alternative argument that Branford's mortgage debt should have been included as part of "indebtedness" under section 35(3) and, thus, should have been deducted in making the surplus calculation. The parties agree that if Branford's mortgage debt is so deducted, no surplus exists. Section 35(2), provides, in pertinent part, that a limited-profit housing company may voluntarily dissolve upon payment in full of its mortgage debt. ⁴ Section 35(3) further states that before such dissolution, "payment shall be made of all current operating expenses, taxes, indebtedness and all accrued interest thereon and the par value of and accrued dividends on the outstanding stock of such company." After making such payments, any surplus remaining in the treasury of the housing company shall be paid to the municipality which granted the company a tax exemption.

Petitioners' claim that its mortgage debt should have been deducted in making the surplus calculation is not persuasive. Read sequentially so as to give section 35 "a sensible and practical over-all construction" (Matter of Long v. Adirondack Park Agency, 76 N.Y.2d 416, 420, 559 N.Y.S.2d 941, 559 N.E.2d 635), subdivision (2) first requires, for a housing company to be eligible for voluntary dissolution, that the mortgage be paid, and subdivision (3) thereafter provides that the...