The Appellate Division, Second Department, at 41 Monroe Place, Brooklyn (NYLJ/Rick Kopstein)
After a New York City agency apparently misclassified a house and caused a builder’s tax liability to spike more than 700 percent, a divided appeals court has ruled the builder can challenge the assessment under regulations that allow tax bills to be altered in cases of “clerical error” or “error of description.”
Overruling a lower court to reinstate an Article 78 petition, the 3-1 Appellate Division, Second Department, panel said tax certiorari proceedings under Real Property Tax Law article 7 were not the exclusive remedy for such a scenario.
“Giving the petitioner the benefit of every favorable inference, the alleged error could have simply been the result of an error in reciting the number of units. Since such an error can be viewed as clerical in nature, the petition states a valid cause of action seeking the correction of that error pursuant to [New York City] Administrative Code §11-206,” Justice John Leventhal (See Profile) said, writing for the majority in Matter of Better World Real Estate Group v. New York City Department of Finance, 2012-01396.
The provision at issue states the New York City Department of Finance “may correct any assessment or tax which is erroneous due to a clerical error or to an error of description.” It does not define the types of mistakes at issue.
In her dissent, Justice Ruth Balkin (See Profile) said the majority “misconstrue[d]” the city code by applying a broad reading to the provision.
“Were we vested with discretion here, I would likely exercise it to grant relief, despite the petitioner’s failure to timely challenge the assessment before it became final,” she wrote. “In, however, interpreting Administrative Code §11-206 more broadly than was intended, the majority not only gives this petitioner an unauthorized second chance, but also muddles the previously clear procedure for challenging real property tax assessments in New York City.”
Balkin said legislative history surrounding the city code supported a narrow reading of the sorts of errors that can be corrected.
But Leventhal said there was no such indication. “The dissent suggests that even a bona fide clerical error can be used as a sword to prevent this petitioner from obtaining relief pursuant to Administrative Code §11-206. We do not agree,” he said.
It was argued more than a year ago, on May 31, 2013.
In January 2008, while Better World Real Estate was building a two-family house and garage in Queens, the finance department classified it as a three-family house with one store or office. The house was completed in November 2008.
The determination meant Better World’s tax bill rose to more than $60,000 from $8,300 in the 2008-2009 tax year.
The city reclassified the site as a two-family residential property the following year, but neither revised its 2008-2009 classification nor canceled the taxes due for that year.
In March 2011, Better World asked the finance department to change the property’s 2008-2009 classification and invoked §11-206.
The department declined the request, saying in a denial letter that “clerical errors” involved “transcription errors and errors in arithmetic and mathematics.” The department added it was not authorized to act when the property owner claimed over-evaluation. “Such issues are resolved upon review by the Tax Commissioner and/or the courts,” the department wrote.
Better World filed an Article 78 petition challenging the denial four months later.
The city said Better World’s only way to fight the classification was under tax certiorari proceedings, not code provisions.
Even if it was permissible to bring an Article 78 petition connected to the city code, the city said Better World’s bid was time-barred, coming more than three years after the final assessment was recorded.
Queens Supreme Court Justice Bernice Siegal (See Profile) granted the city’s dismissal motion in December 2011 and Better World appealed.
In his decision, Leventhal said wording in Real Property Tax Law itself was “clear” certiorari proceedings were not the only way to fight allegedly excessive assessments.
He also pointed to various cases where taxpayers employed Article 78 petitions instead of starting certiorari proceedings. Accepting the city’s view that certiorari was the sole vehicle for relief would leave the city regulation “superfluous and meaningless,” he said.
Leventhal said clerical errors generally resulted from “minor mistake[s] or inadvertence[s]” instead of reasoning or judgment flaws.
Assuming the case’s facts to be true at the pleading stage, Leventhal said the mistake could be seen as clerical in nature.
He waved off the city’s timeliness argument, saying Better World met the four-month deadline to commence Article 78 petitions by filing the current case after the department’s denial.
In her dissent, Balkin said Better World’s petition did not state a cause of action.
Balkin cited various cases, noting that clerical errors were typically limited to duplicate entries, miscalculations and misstatements on parcel sized. Likewise, “an error of description” generally corrected descriptions of property, she said.
Balkin acknowledged classification may have started as a clerk’s error “but, sometimes, even an error that begins as a clerk’s error becomes an error in substance.”
Karen Strom, a partner at Schroder & Strom in Mineola, represents Better World.
In an interview, Strom said the regulation has been “very unused,” but if city lawmakers wanted to constrict its scope, they would have or should have done so.
“I think it’s pretty clear,” Strom said of the provision. “I think the majority got it right.”
Assistant Corporation Counsels Vincent D’Orazio, Steven Tishco, and Brooke Zacker appeared for the city.