Miriam Osborn Mem'l Home Ass'n v. Assessor of City of Rye

• Decision Date: 12 October 2010
• Citation: 909 N.Y.S.2d 493,80 A.D.3d 118
• Parties: In the Matter of MIRIAM OSBORN MEMORIAL HOME ASSOCIATION, respondent-appellant, v. ASSESSOR OF CITY OF RYE, et al., appellants-respondents.
• Court: New York Supreme Court — Appellate Division

909 N.Y.S.2d 493
80 A.D.3d 118

In the Matter of MIRIAM OSBORN MEMORIAL HOME ASSOCIATION, respondent-appellant,
v.
ASSESSOR OF CITY OF RYE, et al., appellants-respondents.

Supreme Court, Appellate Division, Second Department, New York.

Oct. 12, 2010.

909 N.Y.S.2d 495

Kristen K. Wilson, Interim Corporation Counsel, Rye, N.Y., and DelBello Donnellan Weingarten Wise & Wiederkehr, LLP, White Plains, N.Y., for appellants-respondents Assessor of City of Rye, Board of Assessment Review of City of Rye, and City of Rye (no brief filed).

McDermott Will & Emery LLP, New York, N.Y. (Robert A. Weiner, Lisa A. Linsky, and Daniel G. Vincelette, P.C., of counsel), for appellant-respondent Rye City School District.

Cadwalader, Wickersham & Taft, LLP, New York, N.Y. (Brian T. McGovern, Matthew S. Fenster, and Benjamin Kraus of counsel), and Watkins & Watkins LLP, White Plains, N.Y. (John E. Watkins, Jr., and Liane V. Watkins of counsel), for respondent-appellant (one brief filed).

REINALDO E. RIVERA, J.P., FRED T. SANTUCCI, RANDALL T. ENG, and CHERYL E. CHAMBERS, JJ.

CHAMBERS, J.

80 A.D.3d 121

On this appeal we are called upon to determine whether the denial of a 100% charitable use tax exemption and the grant of a partial hospital use tax exemption with respect to the real property of the petitioner, Miriam Osborn Memorial Home Association (hereinafter the Osborn), was proper. We are further asked to determine whether the valuation of the Osborn's real property was correct. We conclude that, although the Osborn's request for a 100% charitable use tax exemption was properly denied, the partial hospital use tax exemption should also have been denied, but that the trial court's valuation of the subject property was correct.

I. Introduction

From 1908 until 1996, the Osborn enjoyed a 100% charitable use tax exemption with respect to the subject property. In 1997, however, the Assessor for the City of Rye (hereinafter the Assessor) revoked the Osborn's tax exempt status. Ultimately, the Board of Assessment Review of the City of Rye (hereinafter the BAR) restored the Osborn's tax exempt status, but only partially, to the extent of a 20.8% reduction in the assessed value of the property for the years 1997 through 2001, and an 18.04% reduction in the assessed value of the property for the years 2002 and 2003. The Osborn thereafter commenced seven proceedings pursuant to RPTL article 7, one for each of the tax years at issue, 1997 through 2003, against the Assessor, the BAR, and the City of Rye (hereinafter collectively Rye), with the Rye City School District (hereinafter the RCSD) intervening in the proceedings. In its petitions, Osborn sought the restoration of its full charitable tax exemption. Alternatively, the Osborn sought a hospital use tax exemption. The Osborn further alleged that, even if its property was not fully tax exempt, its property had nonetheless been overassessed. The RCSD, upon being granted leave to intervene as a party respondent, defended the Assessor's determination to deny a full charitable tax exemption, and urged the Supreme Court to accept the Assessor's valuation of the property from 1997 to 2003 but, in effect,

80 A.D.3d 122

cross-claimed against Rye, challenging the BAR's determination that the Osborn was entitled to a partial hospital use tax exemption.

The issue of the Osborn's tax exempt status proceeded to trial first. After 74 days of hearing evidence, the Supreme Court issued a 109-page decision and order, concluding that the Osborn was not entitled to a 100% charitable tax exemption, but that it was entitled to a partial hospital use tax exemption. Thereafter, a 22-day trial was held on the issue of valuation,

909 N.Y.S.2d 496

which culminated in the Supreme Court's determination that the property had been overassessed, and that a refund for each of the tax years must be paid to the Osborn.

II. The Tax Exemption Trial

A. The Formation and Operation of the Miriam Osborn Memorial Home Association

Evidence was adduced at trial that Miriam Osborn (hereinafter Miriam) envisioned the creation of a home for aged women who had been left indigent by the deaths of their husbands. Miriam's husband, Charles Osborn, who had amassed a fortune as a Wall Street speculator, died at 45 years of age, in 1885. While Miriam was bequeathed a large share of his estate, she realized that many other widows were not as fortunate. According to the Osborn's historical documents, Miriam "saw the tragedy of the destitute single woman and the widow in the 1880s when there were no pensions or organized support whatsoever except for the few voluntary homes for the aging." She reportedly "knew the great fear gentlewomen had of untimely death or illness leaving them without support unless relatives or friends were able to provide a home." As a result, in Miriam's last will and testament, she provided for the establishment of the Miriam Osborn Memorial Home Association "for the relief of Respectable, Aged, Indigent Females." Miriam appointed her friend and lawyer, John Sterling, as trustee under her will, and directed him to incorporate the Miriam A. Osborn Memorial Home Association. On March 5, 1892, by special act of the Legislature, the Miriam Osborn Memorial Home Association was incorporated ( see L. 1892, ch. 94). The stated general purpose of the Osborn was to provide a home and support, within the State of New York, for respectable, aged women in needy circumstances.

In April 1908, 16 years after its incorporation, the Osborn opened its first building, the Osborn Building, to 12 residents. By year's end, there were 21 women living at the Osborn. According

80 A.D.3d 123

to a 1913 application for admission to the Osborn, an applicant had to show that she was a " gentlewoman in needy circumstances, of good education and pleasant manners, at least 65 years of age, of sound mind and in good average health, and must present undoubted testimonials of high character and good disposition." An applicant was required to pay a $500 non-refundable fee. By 1936 the Osborn added two more buildings, the Strathcona Infirmary Building and the Sterling Memorial Building. In 1969 the New York State Department of Health issued the Osborn a license for operation of a skilled nursing and health-related facility.

In the meantime, the Osborn established three categories of residents. The first category, type A residents, paid a monthly fee in exchange for room and board. However, according to their contracts with the Osborn, type A residents would not have to leave the residence facility after they exhausted their financial resources. The second category, type B, or scholarship residents, were indigent and were fully supported through the Osborn's endowment fund. The third category, Type C, or assignment residents, assigned their assets to the Osborn in exchange for lifetime care. The Osborn provided all of its residents with three levels of health care, depending on their requirements: skilled nursing, assisted living, and managed care.

B. The Pathway 2000 Plan

By the late 1980s, the Osborn's financial condition had seriously deteriorated. There was a gross imbalance between the

909 N.Y.S.2d 497

combined number of type B and type C residents, on the one hand, which totaled more than 50% of the Osborn's 144 residents, and the number of paying residents, on the other. Thus, the Osborn had to spend its endowment principal in order to cover its operating losses. Based on the rate at which the Osborn was spending from its endowment, Mark Zwerger, chief executive officer of the Osborn, testified to his projection that the endowment fund would have been entirely exhausted by 1999 if spending at that rate had continued.

In addition, the Osborn presented evidence that its buildings were badly in need of renovation and remodeling. Building support systems, particularly the electrical system, needed to be upgraded. Original furnishings in the buildings were worn and needed to be replaced. Thus, due to this state of disrepair, it became increasingly difficult to attract new residents. In order to address these problems, Zwerger devised the Pathway 2000 Plan "to develop a continuing care retirement community and

80 A.D.3d 124

preserve the original facilities of the Osborn." The plan described the continuing care retirement community (hereinafter CCRC) as "a residential location which provides a continuum of health services to older persons." According to Zwerger, since a CCRC would offer independent living, an "assisted living" level of care, and " skilled nursing" level of care for its residents on one campus, it was distinguishable from other senior citizen housing.

To determine the feasibility of its plan, the Osborn hired a consulting firm, Van Scoyoc Associates (hereinafter Van Scoyoc), to conduct an extensive market assessment. In a 200-plus-page report, Van Scoyoc concluded that a market existed for a CCRC, but only for "a small segment of the affluent elderly population." The targeted market, or those who "financially qualified" for the CCRC, was based on ability to pay a schedule of fees proposed by the Osborn. Under the proposed schedule, residents would be offered two general contracts involving different combinations of entrance and monthly fees. Residents would pay either a lump sum entrance fee that ranged from $175,000 to $218,750, plus an ongoing monthly fee that ranged between $1,450, and $2,050, or a monthly fee that ranged between $2,850 and $3,810. Although Van Scoyoc found sufficient "market penetration" to warrant further investigation of the proposed CCRC, given the relatively small number of qualified, one-person households consisting of persons aged 75 years old or older, Van Scoyoc suggested that the Osborn "assess options for moderating its entry fee requirements to broaden affordability among this key market segment." Additionally, Van Scoyoc researched the types of facilities and amenities wealthy seniors would find desirable. It found...