Town of Fishkill v. Royal Dutchess Properties Inc.

• Decision Date: 30 April 1998
• Citation: 241 A.D.2d 286,672 N.Y.S.2d 442
• Parties: , 1998 N.Y. Slip Op. 4251 In the Matter of TOWN OF FISHKILL et al., Appellants, v. ROYAL DUTCHESS PROPERTIES INC. et al., Respondents.
• Court: New York Supreme Court — Appellate Division

Page 442

672 N.Y.S.2d 442

241 A.D.2d 286, 1998 N.Y. Slip Op. 4251

In the Matter of TOWN OF FISHKILL et al., Appellants, v. ROYAL DUTCHESS PROPERTIES INC. et al., Respondents.

Supreme Court, Appellate Division Third Department.

April 30, 1998.

Van DeWater & Van DeWater (David D. Hagstrom, of counsel), Poughkeepsie, for appellants.

Plunkett & Jaffee P.C. (Patrick E. Brown, of counsel), Albany, for respondents.

Before CARDONA, P.J., and YESAWICH, PETERS, SPAIN and CARPINELLO, JJ.

YESAWICH, Justice.

Appeal from a judgment of the Supreme Court (Connor, J.), entered October 3, 1997 in Albany County, which dismissed petitioners' application, in a proceeding pursuant to CPLR article 78, to review a determination of the State Office of Real Property Services finding that real property owned by respondent Royal Dutchess Properties Inc. is exempt from real property taxes.

In 1984 respondent Comptroller, in his capacity as trustee of the Common Retirement Fund of the State of New York (hereinafter CRF)--a trust fund holding the bulk of the assets of the New York State and Local Employees' Retirement System and the New York State and Local Police and Fire Retirement System (see, Retirement and Social Security Law § 422)--extended a $15 million loan of fund assets to the owner of a shopping mall in the Town of Fishkill, Dutchess County. The loan was secured by a mortgage on the mall property. When the owner subsequently defaulted on the loan, settlement of the ensuing foreclosure proceedings resulted in respondent Royal Dutchess Properties Inc. acquiring the property by deed in lieu of foreclosure. Royal, a Delaware corporation authorized to do business in New York, was formed for the sole purpose of acquiring and holding title to real property and remitting the income from that property "to one or more organizations described in Section 501(c)(25)(C) of the Internal Revenue Code of 1986, as amended [including any agency or instrumentality of a State], which are shareholders of [Royal]" (see, 26 USC § 501[c][25][C] ). Royal's sole shareholder is the Comptroller, in his capacity as trustee of the CRF.

This dispute centers on whether the mall property--since sold to an unrelated private entity--was exempt from local property taxes while it was owned by Royal. In reliance upon, inter alia, an opinion issued by the State Office of Real Property Services (hereinafter ORPS), respondents repeatedly asked that the property be removed from the local tax assessment rolls in 1994 on the ground that it was then owned by the State or a State agency (see, RPTL 404[1] ). Petitioners, the Town and its assessor, refused to accede to this request, asserting that inasmuch as the property was owned by a private corporation, legally distinct from the State, the retirement systems and the CRF, it was not entitled to the claimed tax exemption.

Ultimately, petitioners commenced an action seeking a judicial declaration that the property was taxable. On respondents' motion, the action was converted to a CPLR article 78 proceeding and venue was changed, as required, to Albany County (see, 231 A.D.2d 511, 648 N.Y.S.2d 107). Upon reaching the merits of the petition, Supreme Court found that Royal was essentially an "alter ego" of the Comptroller, in his role as trustee of the CRF, and therefore was properly considered a tax-exempt State agency within the scope of RPTL 404(1) by ORPS. Petitioners appeal.

Petitioners' initial contention, that the Comptroller is not statutorily empowered to create a corporation such as Royal, is meritless. Retirement and Social Security Law § 177(7) expressly authorizes the trustee of a public pension fund (e.g., the CRF [see, Retirement and Social Security Law § 176(1) ] ):

* * * to invest the moneys thereof in * * * stock of corporations (including subsidiaries of the fund) * * * provided that (a) such * * * corporation (including a subsidiary of the fund) * * * has been established or organized primarily for the purpose of investing in securities, real estate or other investments in which the trustee * * * of a fund [is] authorized to invest pursuant to this section * * *.

Those investments include, inter alia, real estate "acquired in satisfaction of loans [or] mortgages" (Retirement and Social Security Law § 177[6][c] ). That a fund trustee may create a subsidiary corporation, for the purpose of holding title to real estate obtained through, or in lieu of, foreclosure of a mortgage is implicit in these provisions; indeed, the references to investment in "subsidiaries" would be largely meaningless were the trustee not so empowered. ¹

Nor did Supreme Court err in concluding that Royal's relationship with the State is sufficiently close so that it can be considered "an arm or agency of the State" (Easley v. New York State Thruway Auth., 1 N.Y.2d 374, 376, 153 N.Y.S.2d 28, 135 N.E.2d 572) for the...