Watergate II Apartments v. Buffalo Sewer Authority

• Citation: 412 N.Y.S.2d 821,46 N.Y.2d 52,385 N.E.2d 560
• Parties: , 385 N.E.2d 560, 12 ERC 1582 WATERGATE II APARTMENTS, Appellant-Respondent, v. BUFFALO SEWER AUTHORITY, Respondent-Appellant.
• Decision Date: 06 December 1978
• Court: New York Court of Appeals

Page 821

412 N.Y.S.2d 821

46 N.Y.2d 52, 385 N.E.2d 560, 12 ERC 1582

WATERGATE II APARTMENTS, Appellant-Respondent, v. BUFFALO SEWER AUTHORITY, Respondent-Appellant.

Court of Appeals of New York.

Dec. 6, 1978.

Evan E. James and William M. Feigenbaum, Buffalo, for appellant-respondent

Joseph P. McNamara, Corp. Counsel, Buffalo (Eugene J. Martin, Buffalo, of counsel), for respondent-appellant

OPINION OF THE COURT

FUCHSBERG, Justice.

This case involves a challenge to the power of the Buffalo Sewer Authority to levy "sewer rents" computed on the basis of the assessed valuation of the appellant's property in the face of a tax limitation agreement between the appellant and the City of Buffalo.

The plaintiff-appellant, Watergate II Apartments, is a designated "redevelopment company" organized under article 5 of the New York Private Housing Finance Law. To satisfy eligibility requirements for a Federal national mortgage construction loan, it entered into a tax abatement agreement with the City of Buffalo under which it was exempt from "taxes * * * in excess of $35,200 per year".

After Watergate completed construction of the apartments so financed, the defendant-respondent Buffalo Sewer Authority billed it for (1) "sewer rents" based on the assessed value of its taxable property, (2) "sewer charges" based on the actual consumption of water at the Watergate II Apartments, and (3) "sewer rents" based on the assessed value of its tax exempt property. In doing so, the authority acted pursuant to section 1180 of the Public Authorities Law, which empowers it to "establish a schedule of * * * 'sewer rents' (which) may be based upon either the consumption of water on premises connected with such facilities * * * the number and kind of plumbing fixtures connected with such facilities, or the number of persons served by such facilities, or may be determined by the authority on Any other equitable basis " (emphasis ours).

Watergate paid the first two items, but refused to pay the third. It then commenced this action against the authority to obtain a declaration that the rejected charges were "unlawful and unconstitutional" as applied, essentially because, though denominated sewer rents, they "(bore) no relationship to the quantity of water used or the amount of flow therefrom" and therefore constituted a discriminatory tax beyond the power of the authority to impose. Watergate moved for summary judgment; the authority cross-moved pursuant to CPLR 3211 to dismiss the complaint.

Special Term, granting Watergate's motion and denying that of the authority, declared the sewer rents in question "null and void" and entered an order to that effect. The court agreed with Watergate that, because the sewer rents were computed on the basis of assessed valuation, they were taxes, which the authority did not have the power to levy. It also rejected the authority's contention that Watergate had failed to exhaust its administrative remedies. Finally, it found it unnecessary to reach the question, raised by the parties, of the effect of the tax abatement agreement with the city.

The Appellate Division, in reversing, expressed the opinion that the sewer rents were not violative of Watergate's agreement with the city, but, without going on to determine the propriety of using assessed value as a factor in fixing water charges, held that, in any event, Watergate was not entitled to judicial relief until it had exhausted its administrative remedies. We now uphold its order, but we do so on the ground that the authority did not overstep its statutory bounds merely by basing sewer rents on assessed valuation. ^*

It is hornbook law that one who objects to the act of an administrative agency must exhaust available administrative remedies before being permitted to litigate in a court of law (e. g., Young Men's Christian Assn. v. Rochester Pure Waters Dist., 37 N.Y.2d 371, 375, 372 N.Y.S.2d 633, 635, 334 N.E.2d 586, 588). This doctrine furthers the salutary goals of relieving the courts of the burden of deciding questions entrusted to an agency (see 1 N.Y.Jur., Administrative Law, § 5, pp. 303-304), preventing premature judicial interference with the administrators' efforts to develop, even by some trial and error, a co-ordinated, consistent and legally enforceable scheme of regulation and affording the agency the opportunity, in advance of possible judicial review, to prepare a record reflective of its "expertise and judgment" (Matter of Fisher (Levine ), 36 N.Y.2d 146, 150, 365 N.Y.S.2d 828, 832, 325 N.E.2d 151, 153; see, also, 24 Carmody-Wait 2d, N.Y.Prac., § 145:346).

The exhaustion rule, however, is not an inflexible one. It is subject to important qualifications. It need not be followed, for example, when an agency's action is challenged as either unconstitutional or wholly beyond its grant of power (cf. Matter of First Nat. City Bank v. City of New York, 36 N.Y.2d 87, 92-93, 365 N.Y.S.2d 493, 496-497, 324 N.E.2d 861, 863-864; see Jaffe, Judicial Control of Administrative Action, p. 438), or when resort to an administrative remedy would be futile (Usen v. Sipprell, 41 A.D.2d 251, 342 N.Y.S.2d 599; 1 N.Y.Jur., Administrative Law, § 171, p. 575) or when its pursuit would cause irreparable injury (Pierne v. Valentine, 291 N.Y. 333, 52 N.E.2d 890; Utah Fuel Co. v. Coal Comm., 306 U.S. 56, 59 S.Ct. 409, 83 L.Ed. 483).

It is sufficient unto the purposes of the present case that it falls within the first of these exceptions. As is made clear by the First Nat. City Bank case (Supra, p. 92, 365 N.Y.S.2d at p. 497, 324 N.E.2d at p. 864), even where a statute expressly designates an article 78 proceeding as the sole route to relief from its invalid application, resort to another form of judicial scrutiny nevertheless may be had when the statute "is alleged to be unconstitutional, by its terms or application, or where (it) is attacked as wholly inapplicable". There is no reason why this principle should have less force where our jurisprudence requires that one challenging the enforcement of a statute first pursue administrative remedies.

Watergate points to no violation of any State or Federal constitutional provision; to the contrary, section 1180 of the Public Authorities Law, under which the authority promulgated its schedule of water rent classifications, long ago was declared constitutional (Robertson v. Zimmermann, 268 N.Y. 52, 196 N.E. 740). Rather, the complaint is that, in interpreting the "equitable basis" language of the statute as though it granted power to base water rents on assessed valuation, the authority has in fact imposed a tax.

For the reasons we later indicate, the levying of a tax is dehors the authority's jurisdiction. Unlike taxes, which go to the support of government without any necessity to relate them to particular benefits received by the taxpayer (58 N.Y.Jur. (rev.), Taxation, § 2), the charges that the authority was empowered to collect were in the nature of fees which had to bear a direct relationship to the cost of furnishing the water services (Jewish Reconstructionist Synagogue v. Incorporated Vil. of Roslyn Harbor, 40 N.Y.2d 158, 163, 386 N.Y.S.2d 198, 200, 352 N.E.2d 115, 117; New York Univ. v. American Book Co., 197 N.Y. 294, 90 N.E. 819). Thus, if Watergate's contention is correct, the manner in which the authority has chosen to apply the statute would be wholly beyond its power. We therefore address that issue, but without reaching the factual question of the accuracy of the actual computation of the exact charges imposed (see Berkshire Fine Spinning Assoc. v. City of New York, 5 N.Y.2d 347, 184 N.Y.S.2d 623, 157 N.E.2d 614, app. dsmd. 361 U.S. 3, 80 S.Ct. 86, 4 L.Ed.2d 51; 3 Weinstein-Korn-Miller, N.Y.Civ.Prac., par. 3001.09c, pp. 30-83).

Turning then to the substance of the plaintiff's claims, we conclude, preliminarily, that the tax abatement agreement with the city did not apply to the authority's sewer rents. The agreement limited Watergate's liability with respect to taxes imposed "by or in behalf of any taxing jurisdiction as defined in Subdivision 1(d) of Section 125 of the Private Housing Finance Law"...