City of Rochester v. Chiarella

• Decision Date: 02 May 1985
• Citation: 490 N.Y.S.2d 174,479 N.E.2d 810,65 N.Y.2d 92
• Parties: , 479 N.E.2d 810 CITY OF ROCHESTER, Appellant, 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 174

490 N.Y.S.2d 174

65 N.Y.2d 92, 479 N.E.2d 810

CITY OF ROCHESTER, Appellant, 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.

May 2, 1985.

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

Kenneth A. Payment and A. Paul Britton, Rochester, for subclass A-2, appellants.

Byron Johnson, Rochester, for subclass B, appellants.

Douglass Foss, Edward H. Fox and Karl S. Essler, Rochester, for Angelo Chiarella, appellant.

Joseph A. Regan, Rochester, for respondents.

OPINION OF THE COURT

SIMONS, Judge.

This appeal concerns efforts by Rochester taxpayers to obtain refunds for taxes illegally assessed against them by the city and which they paid under protest. The claims are based upon several earlier rulings of this court. In Hurd v. City of Buffalo, 34 N.Y.2d 628, 355 N.Y.S.2d 369, 311 N.E.2d 504, we held taxes levied by the City of Buffalo in 1971-1972 invalid because the municipality had violated provisions of the State Constitution which prohibit raising revenues in any year by taxation of real property in an amount exceeding 2% of the average full value of real estate within the municipality (see, N.Y. Const., art. VIII, § 10). Buffalo had violated that provision and exceeded its constitutional taxing powers by excluding from the total levy amounts levied to satisfy municipal liability for employees' benefits. Although we found the taxes unconstitutional, we agreed with the Appellate Division that the declaration of unconstitutionality should not act retroactively to permit recovery of the taxes paid because the city had relied upon a State statute authorizing the practice and to require it to refund the sums collected would impose undue hardship (id., affg. 41 A.D.2d 402, 405-406, 343 N.Y.S.2d 950). Four years later, in Waldert v. City of Rochester and companion cases, 44 N.Y.2d 831, 406 N.Y.S.2d 752, 378 N.E.2d 115, we invalidated similar tax levies by the Cities of Rochester and Buffalo and the Geneva School District, and the statutes on which they were predicated, on precisely the same ground (see also, Angelone v. City of Rochester, 52 N.Y.2d 982, 438 N.Y.S.2d 287, 420 N.E.2d 85). We permitted protesting taxpayers to seek refun of the excess amount of taxes paid as a result of the unlawful levy, however, finding the statutes and the taxes based on them a "palpable evasion" of the constitutional limitations upheld in Hurd.

The taxpayers' claims in this action seek to recover the amount paid in excess of the taxes lawfully levied in the tax years 1974-1975 through 1977-1978. They are asserted as counterclaims in a class action instituted by plaintiff City of Rochester pursuant to CPLR article 9. Defendants Stephen and Charlene Sercu are representatives of subclass A-1 and represent some of the taxpayers who protested the unlawful tax levies for those years. ^* The Appellate Division granted them and members of their subclass partial summary judgment (see, 100 A.D.2d 46, 473 N.Y.S.2d 87). Plaintiff city and the other defendants, representatives of subclasses A-2, B, C and D, appeal from that order.

Following our 1978 ruling in Waldert, the city has tried several devices to alleviate the financial burden of paying the anticipated refund claims. Originally, it passed an ordinance directing refund of all overpayments, whether paid under protest or not, and authorized an additional tax to fund the expense. It implemented the ordinance by including an item of additional tax on each property tax bill, the sum needed to pay the individual taxpayer's claim, and then it "paid" the claim for past overcharges by crediting the taxpayer with payment of the additional charge. It was a paper transaction in which the city, in its own words, "robbed Peter to pay Peter" and the Appellate Division declared the ordinance unconstitutional (see, Angelone v. City of Rochester, 72 A.D.2d 445, 448, 424 N.Y.S.2d 933). After the Appellate Division decision, the city commenced this preemptive class action seeking to avoid a multiplicity of lawsuits and resolve all claims in one forum. Notwithstanding our prior decisions expressly holding otherwise, the city denied in its complaint that it had levied any illegal taxes in the years in question or that it owed refunds to any taxpayer. Urging that many lawsuits to recover refunds had been threatened or instituted, it sought certification of the class action, a stay of all claims or counterclaims until this court reviewed the Appellate Division's decision in the Angelone action and a declaration that the taxes for the years in question were legal. In the event that it lost the Angelone appeal, the city asked for a declaration of the rights of the parties in the class action and an order directing the method and terms for payment of refunds. We affirmed the Appellate Division order in Angelone, 52 N.Y.2d 982, 438 N.Y.S.2d 287, 420 N.E.2d 85, supra, and thereafter Special Term certified the class action, structured several classes, and ordered that all pending actions, including that of the Sercus, be consolidated with it. The defendants answered and asserted counterclaims seeking refunds and the court granted the city an indefinite extension of time to reply to them.

After the class action was certified, the city submitted a plan for settlement. It proposed to reimburse all taxpayers equally, whether they had protested or not, but to pay them only 50% of the overpayment (utility companies were treated separately). Payment was to be made from a special fund consisting of $35 million received from the State and an additional $1.6 million contributed by the city. After the city submitted its plan, some of the protesters contested the right of nonprotesting taxpayers to be paid. Special Term held for the nonprotesters but the Appellate Division reversed (City of Rochester v. Chiarell 86 A.D.2d 110, 449 N.Y.S.2d 112) and we affirmed its order, 58 N.Y.2d 316, 461 N.Y.S.2d 244, 448 N.E.2d 98. The city then undertook to pay nonprotesters' claims from the special fund by adopting an ordinance pursuant to General City Law § 20(5). That statute permits the city to recognize some moral obligation claims by waiving the legal defenses to them. When the appeal challenging the validity of the ordinance reached us, we held the ordinance constitutional and effective to permit refunds to nonprotesting taxpayers. In doing so, however, we noted that we did not decide what effect recognition of the nonprotesters' rights and limiting the source of their recovery to the special fund would have on the right of protesters to full refunds (see, City of Rochester v. Chiarella, 63 N.Y.2d 857, 482 N.Y.S.2d 270, 472 N.E.2d 46). That issue is before us on this appeal by the city and defendants as a result of the Appellate Division's order reversing Special Term and granting the Sercus and the members of subclass A-1 partial summary judgment.

Although the city denies it in its complaint, all the parties expressly or tacitly agree that the taxes for the years in question and the statutes authorizing them were unconstitutional and we have held them so repeatedly (see, e.g., Waldert v. City of Rochester, 44 N.Y.2d 831, 406 N.Y.S.2d 752, 378 N.E.2d 115, supra; see also, Niagara Mohawk Power Corp. v. City School Dist., 59 N.Y.2d 262, 464 N.Y.S.2d 449, 451 N.E.2d 207; Central Buffalo Project Corp. v. City of Buffalo, 52 N.Y.2d 986, 438 N.Y.S.2d 79, 419 N.E.2d 1078; Angelone v. City of Rochester, 52 N.Y.2d 982, 438 N.Y.S.2d 287, 420 N.E.2d 85, supra; Hurd v. City of Buffalo, 34 N.Y.2d 628, 355 N.Y.S.2d 369, 311 N.E.2d 504, supra ). Indeed, the city has appealed to this court three times, implicitly conceding the illegality on each occasion and urging that all taxpayers, protesters and nonprotesters alike, should receive equal treatment when refunds are made. In view of that, there would seem to be no reason why the general issue of the invalidity of the taxes should not be removed from the litigation for the benefit not only of the protesting taxpayers but for the nonprotesters also. Thus, it comes as no surprise that the Appellate Division thought no serious question of illegality remained and granted the application of subclass A-1 members for partial summary judgment, remitting the matter for proof of the validity of the individual protester's claims and for assessment of damages.

Appellants object to the Appellate Division order on several grounds. On the merits they contend first that the ordinance recognizing the claims of nonprotesters requires that they be treated equally with protesters and that the effect of the Appellate Division's order granting summary judgment is to create an improper preference to the assets of the special fund for members of subclass A-1. Second, the city contends that summary judgment must be denied because it possesses a valid defense to the taxpayers' causes of action for money had and received based on value the taxpayers received in return for their money. Third, appellants contend that since this is a class action, the claims of the Sercus' and other protesting taxpayers must be subject to the contemporaneous disposition of all claims, protesters and nonprotesters alike, and, considering the city's financial plight, that the claims must be compromised. Procedurally appellants contend that the motion must be denied because the Sercus had neither the status nor authority to make their motion and that the motion is premature because the city has not yet replied to defendants' counterclaims.

We agree with the holding implicit in the Appellate Division's decision that the Sercus had the authority to move for accelerated judgment but hold that the motion is premature because the city has not replied to the counterclaims. We...