City of Rochester v. Chiarella

• Decision Date: 29 March 1983
• Citation: 58 N.Y.2d 316,448 N.E.2d 98,461 N.Y.S.2d 244
• Parties: , 448 N.E.2d 98 CITY OF ROCHESTER, Respondent, v. Angelo CHIARELLA et al., Individually and on Behalf of All Payers of Real Property Taxes to the City of Rochester for the Fiscal Years 1974-1975 through 1977-1978, Appellants, and Stephen J. Sercu et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 244

461 N.Y.S.2d 244

58 N.Y.2d 316, 448 N.E.2d 98

CITY OF ROCHESTER, Respondent, v. Angelo CHIARELLA et al., Individually and on Behalf of All Payers of Real Property Taxes to the City of Rochester for the Fiscal Years 1974-1975 through 1977-1978, Appellants and Stephen J. Sercu et al., Respondents.

Court of Appeals of New York.

March 29, 1983.

Kenneth A. Payment, A. Paul Britton, Jr., and Fred G. Aten, Jr., Rochester, for Angelo Chiarella, appellant.

Byron Johnson, Rochester, for Quality Packaging Supply Corp. and others, appellants.

Louis N. Kash, Corp. Counsel, Rochester, for City of Rochester, respondent.

David J. Angelone, Rochester, for Stephen J. Sercu and another, respondents.

John M. Wilson, II, Rochester, for Rochester Area Chamber of Commerce, Inc., amicus curiae.

OPINION OF THE COURT

WACHTLER, Judge.

Appellant is the representative of a subclass of real property owners in the City of Rochester whose property was assessed for real property taxes in excess of the tax limitations imposed by our State Constitution. Refunds are sought in the amount of the excess taxes paid pursuant to the unconstitutional levy for the tax years 1974-1975 through 1977-1978, although the taxpayers in the subclass had paid taxes for those years without protest. Special Term concluded that, under the circumstances of this case, the taxpayers' failure to protest payment of the excess taxes should not bar recovery. The Appellate Division, 86 A.D.2d 110, 449 N.Y.S.2d 112, reversed, holding that, absent appropriate protest or payment of the taxes under duress, these taxpayers are not entitled to refund of the excess taxes as a matter of legal right. There should be an affirmance.

The background of the present appeal begins with this court's decision in Hurd v. City of Buffalo, 34 N.Y.2d 628, 355 N.Y.S.2d 369, 311 N.E.2d 504, affg. 41 A.D.2d 402, 343 N.Y.S.2d 950. At issue in Hurd was a provision of the Local Finance Law which excepted from the 2% constitutional limitation on real property taxation (N.Y. Const., art. VIII, § 10) taxes levied for pension and retirement benefits. Although the statute and the tax levied pursuant to it were held unconstitutional, retrospective relief was withheld, because the municipality had relied upon the statute in preparing its budget. Under the circumstances, "to mandate repayment of amounts illegally collected in the past would place an impossible burden upon [the municipality]" (41 A.D.2d, at p. 406, 343 N.Y.S.2d 950).

In response to the Hurd decision, the Legislature attempted, in successive enactments, to alleviate the fiscal crisis faced by municipalities and school districts caused by the limitations on their taxing authority. To this end, chapters 496 and 497 of the Laws of 1974 continued the exception from the constitutional limitation for pension and retirement benefits on a temporary, emergency basis. The same legislation established a temporary commission on constitutional tax limitations, which was to make recommendations for a more permanent solution to the local finance problem. ¹ Thereafter, a proposed constitutional amendment to modify or repeal the real property taxing limitations was defeated by the voters.

The Legislature responded to this defeat by passing an additional enactment (L.1976, ch. 349), again designed to allow certain municipalities and school districts to exclude pension and retirement benefits from the applicable constitutional tax limitations. Although the purpose of this legislation was stated to be the enactment of emergency provisions for the temporary solution of local finance problems, it was nevertheless held unconstitutional. As this court noted, this legislative effort amounted to "nothing more than an attempt to circumvent the constitutional limitation upon the amount of revenue that may be raised by local subdivisions of the State through the taxation of real property" (Bethlehem Steel Corp. v. Board of Educ., 44 N.Y.2d 831, 834, 406 N.Y.S.2d 752, 378 N.E.2d 115, modfg. 61 A.D.2d 147, 402 N.Y.S.2d 655, app. dsmd. sub. nom. City of Rochester v. Waldert, 439 U.S. 922, 99 S.Ct. 303, 58 L.Ed.2d 315). However, unlike the situation in Hurd, where the municipalities had relied upon the statute authorizing the excessive levies, thus justifying the withholding of retroactive relief to the taxpayers, the municipalities in Bethlehem Steel had received ample notice, by virtue of the Hurd decision itself, that such a disregard of constitutional limits on their taxing authority would not be tolerated. Accordingly, we held that the taxpayers were entitled to establish their right to a refund of taxes paid in excess of the constitutional limitations "if such taxes were paid under appropriate protest" (id., 44 N.Y.2d at p. 835, 406 N.Y.S.2d 752, 378 N.E.2d 115).

The City of Rochester, acting pursuant to the legislation described above, had continued to levy real property taxes in excess of the constitutional limitations for the tax years 1974-1975 through 1977-1978. Many real property owners paid the excess taxes "under protest", but the taxpayers represented by appellant failed to register any protest to payment of their taxes. Following the decision in Bethlehem Steel, the city commenced this defendant class action against its taxpayers in order to prevent a multiplicity of separate lawsuits and to have all claims concerning the excessive levies resolved in one forum. Defendants interposed counterclaims on behalf of themselves and members of the class for refunds of the excess taxes paid. Special Term certified the class action, appointed class representatives and set down for threshold determination the issue of whether the nonprotesting taxpayers were entitled to recovery of the illegal taxes paid. ² On the protest issue, Special Term ultimately concluded that the nonprotesting taxpayers are entitled to refunds, notwithstanding their failure to protest formally, because the imposition of a lien upon the real property and the exaction of interest for delinquent payment rendered the payments involuntary, thus excusing protest. ³

The Appellate Division reversed, holding that the routine creation of a lien and the exaction of interest for nonpayment were insufficient to constitute the duress or coercion necessary to excuse the requirement of formal protest. ⁴ The court also restructured the classes placi protestors and nonprotestors into separate subclasses, inasmuch as its determination of the protest issue rendered the interests of the two groups adverse. ⁵ The Appellate Division then granted the nonprotestors leave to appeal to this court, certifying a question as to the correctness of its order concerning the protest issue.

The rules concerning the circumstances under which recovery of a payment made pursuant to an assessment later declared illegal may be had are well settled. Generally, the voluntary payment of a tax or fee may not be recovered (Mercury Mach. Importing Corp. v. City of New York, 3 N.Y.2d 418, 424-425, 165 N.Y.S.2d 517, 144 N.E.2d 400; Adrico Realty Corp. v. City of New York, 250 N.Y. 29, 164 N.E. 732; Pooley v. City of Buffalo, 122 N.Y. 592, 26 N.E. 16). When a payment is made under a mistake of law, with actual or constructive knowledge of the facts, as in the present case, it is incumbent upon the taxpayer to demonstrate that payment was made involuntarily (Adrico Realty Corp. v. City of New York, supra ). ⁶ Payment of a tax under appropriate protest will ordinarily suffice to indicate the involuntary nature of the payment (Mercury Mach. Importing Corp. v. City of New York, supra, 3 N.Y.2d at p. 425, 165 N.Y.S.2d 517, 144 N.E.2d 400). The failure to register formal protest, however, will be excused in cases in which the payment is made under duress or coercion. The duress necessary to indicate involuntariness is present in circumstances where payment of a tax is necessary to avoid threatened interference with present liberty of person or immediate possession of property (Mercury Mach. Importing Corp. v. City of New York, supra, at p. 425, 165 N.Y.S.2d 517, 144 N.E.2d 400; Tripler v. Mayor of City of N.Y., 125 N.Y. 617, 626-627, 26 N.E. 721; see Five Boro Elec. Contrs. Assn. v. City of New York, 12 N.Y.2d 146, 150, 237 N.Y.S.2d 315, 187 N.E.2d 774).

Although the test of involuntariness is easily stated, it is not quite as easy to apply. Recognizing that all governmental assessments are, in a sense, paid involuntarily, the determination is primarily one of degree, turning up numerous factors, including: "[T]he right of the taxing authorities to rely on objection if...