PG Erie Properties, LLC v. Department of Economic Development

Appeal from a judgment of the Supreme Court (Collins, J.), entered October 6, 2014, which, among other things, partially dismissed petitioner’s application, in a combined proceeding pursuant to CPLR article 78 and action for declaratory judgment, to review a determination of respondent Empire Zone Designation Board revoking petitioner’s certification as an empire zone business enterprise.

In 1997, petitioner was certified as a participant in the Economic Development Zones Program, which later became the Empire Zones Program (see General Municipal Law art 18-B). Statutory amendments in 2009, as relevant here, directed respondent Commissioner of Economic Development to conduct a review of participating businesses and revoke the certifications of any entities that failed a 1:1 benefit-cost test or that were found to be “shirt-changers” — that is, businesses that had transferred employees or real property between related entities to produce the appearance that new jobs or investments had been created (see General Municipal Law § 959 [a] [v] [5]; [w]; Matter of Lyell Mt. Read Bus. Ctr. LLC v Empire Zone Designa

In deciding whether a business should be decertified for failing the shirt-changer test, the Commissioner was directed to determine whether the entity had “caused individuals to transfer from existing employment with another business enterprise with similar ownership ... to similar employment with the certified business enterprise or if the enterprise acquired, purchased, leased, or had transferred to it real property previously owned by an entity with similar ownership, regardless of form of incorporation or organization” (General Municipal Law § 959 [a] [v] [5]; see General Municipal Law § 959 [w]). Petitioner contends that it never engaged in such transfers of real property or employment, that the administrative record lacks any evidence to the contrary, and, thus, that there is no factual basis for the determination that this provision was violated. We agree, and therefore find that the Board’s denial of petitioner’s appeal from the revocation of its certificate was “arbitrary and capricious and without a rational basis” (Matter of WL, LLC v Department of Economic Dev., 97 AD3d 24 , 29 [2012], affd sub nom. James Sq. Assoc. LP v Mullen, 21 NY3d 233 [2013]).

In its appeal to the Board,, petitioner argued that the Commissioner improperly based its determination that petitioner had violated the shirt-changer provision on its response to a particular question on a business annual report (hereinafter

Nothing in the statement that petitioner attached to its 2006 BAR indicates that any transfers of employment or property between similar entities occurred. The statement makes no reference of any kind to transfers of employment, and its sole reference to asset transfers concerns the “acquisition and leasing of real property from an unrelated party” (emphasis added). As such, nothing in petitioner’s 2006 BAR provides a factual basis for the Commissioner’s determination that petitioner was a shirt-changer within the meaning of the 2009 legislation (compare id.; Matter of Lyell Mt. Read Bus. Ctr. LLC v Empire Zone Designation Bd., 129 AD3d at 145-146 ). Upon this appeal, respondents concede that the Commissioner’s determination in petitioner’s case was premised upon the 2006 BAR, and they make no argument that anything else in the administrative record supports the revocation of its certificate.

In its appeal to the Board, petitioner relied in part upon an affidavit from Peter Muserlian, one of its members, setting forth facts about petitioner’s business operations, investments and assets. With regard to real property transfers, Muserlian asserted that petitioner was formed in 1996 to acquire a building in the City of Syracuse, Onondaga County that had formerly been a furniture warehouse, had been vacant for a long period of time and was in “decrepit condition.” Muserlian stated that petitioner acquired the building in a tax foreclosure proceeding and further averred that petitioner did not acquire, purchase, lease or transfer to itself real property previously owned by a company with similar ownership, and did not cause individuals to transfer from existing employment with another business with similar ownership to employment with petitioner.

In its decision rejecting petitioner’s appeal, the Board acknowledged these factual assertions as well as petitioner’s contention that its response on the 2006 BAR did not reveal a violation of the 2009 shirt-changer provision. The Board further acknowledged that it had found extraordinary circumstances justifying the continued certification of certain other enterprises based upon proof that they had not transferred assets or

As respondents contend, the sole basis upon which the Board could reverse a determination by the Commissioner that a participant should be decertified under the shirt-changer provision was a unanimous finding that “extraordinary circumstances [had] occurred which would justify the continued certification of the business enterprise” (General Municipal Law § 959 [w]), and it was petitioner’s burden to establish the existence of such extraordinary circumstances by submitting “specific factual information (along with documentation establishing that information) and all legal arguments” (5 NYCRR 14.2 [b]). We reject respondents’ contention that Muserlian’s affidavit was inadequate to satisfy this burden and that petitioner should also have submitted a deed or other documentation substantiating the affidavit’s description of the acquisition of its real property. Muserlian’s sworn testimony that the building was acquired in a tax foreclosure proceeding — and, thus, presumably from a municipality — revealed that the property was not transferred from a similar private business entity; it is unclear what further relevant information the tax deed may possibly have conveyed. The Board did not state that it had rejected the credibility of Muserlian’s uncontradicted testimony, nor did it provide any reason for doing so, and this Court may not “affirm the underlying determination upon a ground not invoked by the Board in the first instance” (Matter of Office Bldg. Assoc., LLC v Empire Zone Designation Bd., 95 AD3d 1402 , 1404-1405 [2012]). In view of the complete absence of any evidence controverting Muserlian’s account or otherwise indicating that a prohibited real property transfer had occurred, it was irrational for the Board to require further proof on this issue.

Likewise, while Muserlian’s terse statement that no prohibited employment transfers had occurred might not have sufficed under 5 NYCRR 14.2 (b) if there had been some other contradictory proof in the record, it was adequate where, as here, there was no evidence whatsoever that petitioner had

Peters, P.J., Rose, Clark and Aarons, JJ., concur.

Ordered that the judgment is modified, on the law, without costs, by reversing so much thereof as dismissed that part of the petition/complaint seeking to annul the revocation of petitioner’s certification as an empire zone business enterprise; petition granted to that extent and determination annulled; and, as so modified, affirmed.