City of Rochester v. Chiarella
| Decision Date | 16 June 1983 |
| Parties | CITY OF ROCHESTER, Plaintiff, v. Angelo CHIARELLA; Real Estate Board of Rochester, New York, Inc. and Midtown Holdings Corp., each individually and on behalf of all payers of real property taxes to the City of Rochester, for the fiscal years 1974-75 through 1977-78, Defendants. |
| Court | New York Supreme Court |
On March 29, 1983 the Court of Appeals (58 N.Y.2d 316, 461 N.Y.S.2d 244, 448 N.E.2d 98) affirmed in all respects the decision of the Appellate Division in this case (86 A.D.2d 110, 449 N.Y.S.2d 112)--determining that the unconstitutional taxes paid voluntarily and not under protest could not be recovered as a matter of legal right. The remaining issue regarding the rights of "non-protestors", remanded to me by the Appellate Division, is whether the City may nonetheless legislatively recognize their claims as equitable or moral obligations within the meaning of General City Law Section 20(5) which provides in relevant part:
§ 20. Grant of Specific Powers. Subject to the Constitution and general laws of this State, every city is empowered:
* * *
5 ... to pay or compromise claims equitably payable by the city, though not constituting obligations legally binding on it ....
Upon the entire record and for the reasons which follow, I hold that the City may so recognize these claims and that it has properly done so. First, however, some background is required.
For four fiscal years the City of Rochester exceeded its Constitutional taxing limitation (1974-75 through 1977-78). Approximately 30 percent of its total tax bills in each of these years was invalid. There is no dispute that the City spent the sums illegally collected for municipal purposes benefiting all taxpayers--protestors and non-protestors alike. The City estimates that more than $100,000,000 was illegally collected with approximately half of this sum having been paid by the non-protestors.
Then Waldert v. City of Rochester, 44 N.Y.2d 831, 406 N.Y.S.2d 752, 378 N.E.2d 115 was decided by the Court of Appeals in May of 1978, more than one month after the last installment of taxes was due for the last fiscal year in question. While the Appellate Division had declined to order refunds to the taxpayer plaintiffs in Waldert, the Court of Appeals held otherwise, citing the fact that Hurd v. City of Buffalo, 34 N.Y.2d 628, 355 N.Y.S.2d 369, 311 N.E.2d 504 had put the City on notice of the infirmity of the general taxing scheme employed.
With the refunds ordered by Waldert came the handwriting on the wall: the City was clearly liable to its many thousands of taxpayers who, like the plaintiffs in Waldert had protested the payment of their taxes, and it was possibly liable to those who had not. Though in Hurd and Waldert there was dicta to the effect that only those who protested might recover, there were no non-protestors represented in either case, and at least a reasonable doubt existed as to whether their rights were thus precluded.
The City's response to its potential liability for the last two of the fiscal years in question was to enact Ordinance 79-307. In it, the City recognized the claims of all taxpayers as equitable obligations using the following language:
WHEREAS, this City Council hereby determines that the declaration of such taxes as unconstitutional establishes an equitable claim upon the City on behalf of all real property taxpayers within the City to a refund of such unconstitutional taxes ...
While the Ordinance was ultimately ruled unconstitutional for other reasons in Angelone v. Rochester, 72 A.D.2d 445, 424 N.Y.S.2d 933, the Appellate Division had this to say regarding the recognition of the claims of non-protestors by the City as equitable obligations:
Although only those taxpayers who paid their taxes "under protest" are legally entitled to a refund, arguably the City would have authority under statute to return unconstitutionally assessed taxes to the taxpayers who paid them regardless of whether they had the foresight to pay "under protest".
Id. at 449, 424 N.Y.S.2d 933. The Court of Appeals in Angelone, apparently in consideration of the inseparable nature of Ordinance 79-307, specifically declined to rule on whether the payment of equitable claims of non-protestors would pass constitutional muster (52 N.Y.2d 982, 438 N.Y.S.2d 287, 420 N.E.2d 85).
With the Appellate Division decision in Angelone the City's liability was expanded from two to four fiscal years. The Appellate Division's decision came on the eve of the expiration of the six year statute of limitations applicable to refunds of taxes, for the first of the four years (First National City Bank v. City of New York, 36 N.Y.2d 87, 365 N.Y.S.2d 493, 324 N.E.2d 861). The City's option to achieve a governmental solution to the problem at hand was therefore coming to a close, at least if it wished to fulfill its avowed intention to treat all taxpayers equally. It could readily be expected that the expiration of the statute of limitations would forever foreclose many unwitting taxpayers from any entitlement to refunds. (See p. 4, Brief for the City in the Appellate Division in this case.)
Anticipating this and the flood of litigation that was certain to follow the Appellate Division's decision in Angelone, the City commenced this reverse class action against all of its taxpayers who paid the unconstitutional taxes, before the expiration of the statute of limitations. In turn, all taxpayers served counterclaims seeking refunds, again prior to the expiration of the statute of limitations. The City's complaint specifically named, among others, a representative of all those who failed to pay under protest. In it, the City sought declaratory relief that if it was unsuccessful in the then pending appeal to the Court of Appeals in Angelone, the Court would direct a method of payment according to a plan to be proposed by the City.
After Angelone was affirmed, this Court ordered the City to submit the "Plan of Refund" proposed by its Complaint. The plan thereafter submitted, proposed to pay all taxpayers 50 percent of their claims for all four years regardless of their failure to protest. Though the City denied any legal liability to pay non-protestors, consistent with its avowed policy it proposed nevertheless to do so pursuant to the authority of General City Law Section 20(5).
When this Court certified the class action, its Order deferred consideration of the City's refund plan until the final disposition of the inter-related threshold questions: (a) whether protest was legally required under the facts of this case, and (b) if it was, whether the City could nonetheless legally pay non-protestors as it proposed to do in its plan under General City Law Section 20(5). As noted above, the decision by the Court of Appeals in this case that protest was required now brings into focus the issue of the City's ability to pay non-protestors at all under General City Law Section 20(5).
In order to implement its plan in the aftermath of the Court of Appeals' recent decision and to bring the next issue before the Court in concrete form, the City Council unanimously adopted Ordinance No. 83-162 (May 10, 1983) which reads in full as follows:
WHEREAS, from July 1, 1974 through June 30, 1978, the City of Rochester levied and collected certain real property taxes pursuant to the authority of state legislation declared unconstitutional in Waldert v. City of Rochester, 44 N.Y.2d 831 [406 N.Y.S.2d 752, 378 N.E.2d 115] (1978), and Angelone v. City of Rochester, 52 NY2d 982 [438 N.Y.S.2d 287, 420 N.E.2d 85] (1981); and
WHEREAS, many city property owners did not protest appropriately when they paid their taxes, resulting in approximately 45 million dollars of unprotested unconstitutional taxes being paid over the four year period; and
WHEREAS, a counterclaim for refunds of those unconstitutional taxes was pleaded on behalf of all those nonprotestors in a class action entitled City of Rochester v. Chiarella, brought and pending in Supreme Court, Monroe County; and
WHEREAS, the Court of Appeals has now affirmed (March 29, 1983), in the first phase of the class action, that the City is not bound to make tax refunds to these nonprotestors as a matter of legal obligation; and
WHEREAS, the City of Rochester has since 1978 consistently declared its policy to be to make refunds equally to all who paid unconstitutional taxes, as a matter of fairness, regardless of whether they protested;
NOW, THEREFORE, BE IT ORDAINED, by the Council of the City of Rochester as follows:
Section 1. Pursuant to the authority of General City Law Section 20(5) "to pay or compromise claims equitably payable by the City, though not constituting obligations legally binding on it", the City of Rochester hereby recognizes the counterclaim of the non-protestors, pleaded in the class action and seeking refunds of the unconstitutional taxes levied and collected from 1974 to 1978, as a claim equitably payable by the City, and, further, authorizes payment of such claim solely from the City's special fund for tax refunds in an amount determined by an order of compromise ultimately to be made and entered in the pending class action.
Section 2. This ordinance shall take effect immediately.
Subclass A-1 challenges this legislation and any recognition by the City of the claims of non-protestors as an unconstitutional gift, prohibited by Article VIII, Section 1 of the New York Constitution. This section provides in part as follows:
No county, city, town, village or school district shall give or loan any money or property to or in aid of any individual, or private...
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