Dermody, Burke & Brown, CPAs, LLC v. Department of Economic Development

Board (hereinafter the Board), which upheld the revocation. Petitioner commenced this combined proceeding pursuant to CPLR article 78 and action for declaratory judgment, which was marked off the calendar while the Board conducted a de novo review. Thereafter, the Board again upheld the determination, finding that petitioner had not demonstrated extraordinary circumstances warranting continued certification (see General Municipal Law § 959 [w]; 5 NYCRR 14.2 [b]). Petitioner amended its application to include the de novo determination. Following joinder of issue, and as pertinent here, Supreme Court dismissed the petition/complaint.^[1] Petitioner appeals.

In evaluating the merits of petitioner’s arguments, “this Court is limited to determining whether the Board’s determination [ ] w[as] arbitrary and capricious and without a rational basis” (Matter of Lyell Mt. Read Bus. Ctr. LLC v Empire Zone Designation Bd., 129 AD3d at 143 [internal quotation marks, brackets, ellipsis and citation omitted]). We reject petitioner’s contention that there was no factual basis for the Commissioner’s determination to revoke petitioner’s certification. As a participant in the Empire Zones Program, petitioner was required to complete and submit business annual reports (hereinafter BARs) that provided information about its activities, employment and investments (see 5 NYCRR 11.7). The BAR that petitioner completed for 2006 included a section inquiring whether its business was subject to a recently-enacted Tax Law provision that excluded certain firms from receiving tax benefits unless they could establish that they had been formed for a valid business purpose (see Tax Law § 14 [j] [4] [B]). Petitioner responded affirmatively and, as required by the form, attached a statement explaining that it had been formed by combining two previously-existing accounting firms for various valid business purposes. We find that petitioner’s affirmative response on the 2006 BAR, taken together with facts set forth in the attached explanatory statement, provided a rational basis for the Commissioner’s decertification decision.

Petitioner’s mere affirmative response to the question whether the Tax Law provision was applicable to its business, without more, would not have sufficed to provide a rational basis for the determination that it was a shirt-changer. The Tax Law provision, enacted in 2005, was a previous legislative attempt to address abuses of the Empire Zones Program that

retroactively barred businesses from receiving benefits if they were certified before August 1, 2002, “ha[d] a base period of zero years or zero employment for its base period,” were similar in ownership and operation to an existing or previously existing business entity and could not show that they had been formed for a valid business purpose other than the avoidance or reduction of taxation (Tax Law § 14 [j] [4] [B]).^[2] The 2009 legislation established new standards that empire zone participants were required to satisfy to retain their certification. Under the provision at issue here, the Commissioner was directed to decertify participants that 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]). Such transfers of employees and real property were not relevant to the 2005 Tax Law provision and, thus, were not addressed in the question on the 2006 BAR. Thus, an affirmative response to that question might suggest the possibility of shirt-changing but, without more, could not form the sole basis for a rational inference that a prohibited transfer had occurred (see Matter of PG Erie Props., LLC v Department of Economic Dev., 140 AD3d 1267 [2016]).

However, the statement that petitioner attached to the 2006 BAR to demonstrate that it was formed for a valid business purpose contained factual information that was relevant to the Commissioner’s 2009 analysis. In the statement, petitioner averred that it was formed in 2002 by combining two previously existing accounting firms, one of which — then known as Dermody, Burke & Brown, RC. — had been engaged in the practice of public accountancy for 50 years. According to the statement, the 14 shareholders of this firm joined with the seven partners of a second accounting firm, Pasquale and Bowers, LLP, to become members of a new entity, which subsequently carried on the combined practices of the two previous firms. These factual assertions were sufficient to give rise to the reasonable inference that petitioner had caused individuals to transfer from existing employment with the previous two ac

counting firms to similar employment with petitioner, and that — as petitioner’s members were the same individuals who had been the members and shareholders of its predecessors— its ownership was similar to that of the prior firms. Accordingly, there was an evidentiary basis for the determination that petitioner was a shirt-changer within the meaning of the 2009 legislation (compare id.).^[3]

Upon petitioner’s appeal, the Board was permitted to reverse the Commissioner’s decertification determination only if it found unanimously that “extraordinary circumstances [had] occurred which would justify the continued certification of the business enterprise” (General Municipal Law § 959 [w]). 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]). In its de novo determination, the Board acknowledged that it had previously found the existence of extraordinary circumstances warranting continued certification when other companies had proven that no prohibited transfers of employees or assets had occurred. Here, however, the Board found that petitioner had not set forth “facts that would allow the Board to conclude that [petitioner’s] employees and properties were not transferred from related entities” and, thus, had not met its burden. The record supports the Board’s determination.

In support of its appeal to the Board, petitioner submitted an affidavit from one of its members, who described petitioner’s formation in some detail and also asserted — in brief, conclusory terms — that petitioner’s affirmative response on the 2006 BAR was made in error, that the company was not similar in ownership or operation to an existing or previously existing entity, and that it had not caused any prohibited transfers of employment or assets. The affidavit failed to state the specific factual