New York Insurance Ass'n v. State

ment^[1] —two administrative bodies charged with supervising and regulating the insurance industry (see Financial Services Law §§ 102, 201). Specifically, domestic insurers and licensed United States branches of alien insurers domiciled in New York (hereinafter collectively referred to as insurers) are required to pay their pro rata shares of the annual expenses of the Department (see Insurance Law former § 332; Financial Services Law § 206). Insurers receive quarterly invoices demanding payment of their pro rata shares of the Department’s annual expenses and, at the end of each fiscal year, they receive final or “true-up” assessment invoices requiring those insurers that had paid less than their pro rata shares to pay the difference and affording those insurers that had overpaid the option of a refund or a credit against subsequent assessments (see Insurance Law former § 332 [b]; Financial Services Law § 206 [b]). Assessments are deposited into the Department’s “339.B6 account,” a special revenue fund.

In April 2008, the Legislature enacted a budget bill for fiscal year 2008-2009, which included the costs of various governmental programs (hereinafter referred to as the sub-allocated programs)—most of which were administered by other state agencies—in the Department’s appropriated expenses. The budget bills enacted for the fiscal years from 2009-2010 through 2012-2013 also included the costs of the sub-allocated programs. Further, in February 2009, the Legislature enacted a statute which provided that, notwithstanding any law to the contrary, for fiscal year 2008-2009, “the total value of the annual assessment w[ould] be equal to the total value of the [D]epartment’s enacted appropriations,” as opposed to the Department’s actual expenses, and that, if the total value of the assessment exceeded the Department’s actual annual expenses, the State Comptroller was, at the request of defendant Director of the Budget, authorized and directed to transfer up to $4.5 million from the unencumbered balance of the Department’s 339.B6 account into the general fund of defendant State of New York (L 2009, ch 2, part H, § 1). The Legislature enacted five similar statutes for fiscal years 2009-2010 and 2010-2011 (see L 2009, ch 56, part PP, § 2 [up to $15 million]; L 2009, ch 503, part E,

sor, Insurance Law former § 332, were “constitutional, valid and enforceable as applied to plaintiffs.” Plaintiffs appeal.

Plaintiffs’ claims, insofar as relevant to this appeal,^[2] can be separated into two categories: those that challenge the propriety of including the costs of the sub-allocated programs in the annual assessments levied during fiscal years 2008-2009 through 2012-2013, and those that challenge the six statutes authorizing the retention of assessments levied in excess of the Department’s actual expenses in fiscal years 2008-2009, 2009-2010 and 2010-2011, as well as the transfers of unused assessments into the State’s general fund. Causes of action one through four fall into the former category, while causes of action 6 through 11 fall into the latter category. We first focus our attention on those of plaintiffs’ arguments concerning causes of action one through four.

Plaintiffs challenge Supreme Court’s dismissal of portions of their first cause of action, as well as their second cause of action, as time-barred. “In order to determine the [s]tatute of [limitations applicable to a particular declaratory judgment action, the court must ‘examine the substance of that action to identify the relationship out of which the claim arises and the relief sought’ ” (Matter of Save the Pine Bush v City of Albany, 70 NY2d 193 , 202 [1987], quoting Solnick v Whalen, 49 NY2d 224 , 229 [1980]; see Gress v Brown, 20 NY3d 957 , 959 [2012]; Thrun v Cuomo, 112 AD3d 1038 , 1040 [2013], lv denied 22 NY3d 865 [2014]). “If that examination reveals that the rights of the parties sought to be stabilized in the action for declaratory relief are, or have been, open to resolution through a form of proceeding for which a specific limitation period is statutorily provided, then that period limits the time for commencement of the declaratory judgment action” (Solnick v Whalen, 49 NY2d at 229-230 ; accord Press v County of Monroe, 50 NY2d 695 , 701 [1980]; see Gress v Brown, 20 NY3d at 959 ; Spinney at Pond View, LLC v Town Bd. of the Town of Schodack, 99 AD3d 1088 , 1089 [2012]). “Where, as here, governmental activity is being challenged, the immediate inquiry is whether the challenge could have been advanced in a CPLR article 78 proceeding” (Northern Elec. Power Co., L.P. v Hudson Riv.-Black Riv. Regu

of the challenged statutory provisions (see Matter of McCarthy v Zoning Bd. of Appeals of Town of Niskayuna, 283 AD2d 857 , 858 [2001]; Matter of Schulz v New York State Legislature, 278 AD2d 710 , 713 [2000], lv denied 3 NY3d 606 [2004]; Matter of Frontier Ins. Co. v Town Bd. of Town of Thompson, 252 AD2d 928 , 930 [1998]; Almor Assoc. v Town of Skaneateles, 231 AD2d 863 , 863 [1996]), only that portion of the second cause of action alleging that Financial Services Law § 206 unlawfully delegated to the Department the power to tax is timely (see L 2011, ch 62, part A, § 1).

Turning to the merits, with regard to the timely portion of plaintiffs’ first cause of action, the operation of the Laws of 2009 (ch 503, part E, § 5) during fiscal year 2009-2010 is the dispositive circumstance in our analysis of whether the Department’s inclusion of the costs of the sub-allocated programs in the November 5, 2009 quarterly assessment was an unconstitutional usurpation of the Legislature’s exclusive power to tax or' arbitrary and capricious. During that fiscal year, the Laws of 2009 (ch 503, part E, § 5)—which applied notwithstanding Insurance Law former § 332 or any other contrary law—required that the total value of the assessments levied to defray “the annual expenses related to [the Department’s] activities and operations” be equal to the amount of the Department’s appropriated expenses, which included the costs of the sub-allocated programs. Given that the inclusion of the costs of the sub-allocated programs was statutorily mandated in fiscal year 2009-2010, the Department did not act in excess of its authority or in an arbitrary or capricious manner when it included those costs in the November 5, 2009 quarterly assessment (see Matter of Homestead Funding Corp. v State of N.Y. Banking Dept., 95 AD3d 1410 , 1411 [2012]). Thus, the entirety of plaintiffs’ first cause of action must be dismissed.^[3]

The timely portion of plaintiffs’ second cause of action alleges that Financial Services Law § 206, on its face, unlawfully delegates to the Department the Legislature’s exclusive power

to tax (see NY Const, art III, § 1). In relevant part, Financial Services Law § 206 states:

“For each fiscal year commencing on or after April [1, 2012], assessments to defray operating expenses, including all direct and indirect costs, of the [Department . . . shall be assessed by the [Superintendent in accordance with this subsection. Persons regulated under the insurance law shall be assessed by the [Superintendent for the operating expenses of the [Department that are solely attributable to regulating persons under the insurance law.”

Giving effect to its plain language (see McKinney’s Cons Laws of NY, Book 1, Statutes § 76), it is clear that, through its enactment of Financial Services Law § 206, the Legislature solely authorized the Department to impose regulatory assessment fees upon insurers to defray “the operating expenses” associated with the regulatory functions of the Department and did not delegate its exclusive power to tax to the Department (Financial Services Law § 206 [a]), thereby rendering the timely portion of plaintiffs’ second cause of action without merit.

In their third and fourth causes of action, plaintiffs allege that the inclusion of the costs of the sub-allocated programs in the annual assessments violated NY Constitution, article XVI, § 3, which states that “[i]ntangible personal property shall not be taxed ad valorem nor shall any excise tax be levied solely because of the ownership or possession thereof,” as well as NY Constitution, article III, § 22, which requires tax laws to “distinctly state the tax and the object to which it is to be applied.”^[4] To evaluate these claims, we must determine whether the annual assessments levied during fiscal years 2008-2009 through 2012-2013 were, to the extent that they included the costs of the sub-allocated programs, fees or taxes.

“A tax is a charge that a government exacts from a citizen to defray the general costs of government unrelated to any particular benefit received by that citizen” (Matter of Walton v New York State Dept. of Correctional Servs., 13 NY3d 475 , 485 [2009] [citation omitted]; see American Sugar Ref. Co. of N.Y. v Waterfront Commn. of N.Y. Harbor, 55 NY2d 11 , 27 [1982], appeal dismissed 458 US 1101 [1982]; Matter of Homestead Fund

To establish that the costs of the sub-allocated programs were properly assessed as fees, defendants proffered the affidavits of employees involved in the administration of the sub-allocated programs, who attested to the purposes and benefits of each program. These affidavits demonstrated that each of the sub-allocated programs funded during fiscal years 2008-2009 through 2012-2013 was reasonably necessary to the accomplishment of the regulatory purposes of the Department, whether explicitly or implicitly derived from the Insurance Law or the Financial Services Law. As defendants established their prima facie entitlement to summary judgment dismissing causes of action three and four, the burden shifted to plaintiffs to raise triable issues of fact relating to the purposes of, or benefits derived from, each of the challenged programs, as established by defendants (see generally Vega v Restani Constr. Corp., 18 NY3d 499 , 503 [2012]; Alvarez v Prospect Hosp., 68 NY2d 320 , 324 [1986]). Plaintiffs’ submissions failed to do so. Accordingly, as defendants demonstrated that the annual assessments levied during the challenged fiscal years were not taxes, the constitutional provisions are inapplicable and plaintiffs’ third and fourth causes of action were properly dismissed (see Matter of Joslin v Regan, 63 AD2d at 470 ).

We now address causes of action 6 through 11, wherein plaintiffs allege that the six statutes authorizing the retention and transfer of assessments levied in excess of the Department’s annual expenses violated the Takings Clauses of the NY and US Constitutions (see US Const Amend V; NY Const, art I, § 7).^[5] Initially, with respect to the issue of timeliness, we disagree with Supreme Court and defendants that a four-month statute of limitations is applicable simply because the transfers could not occur until the Director of the Budget took administrative action to request the transfers (see L 2009, ch 2, part H, § 1; L 2009, ch 56, part PP, § 2; L 2009, ch 503, part E, §§ 3, 5; L 2010, ch 56, part JJ, §§ 9, 14). The alleged takings

arose out of the statutory language authorizing the retention of funds collected over and above the Department’s actual annual expenses and the subsequent transfer of excess assessments from the Department’s 339.B6 account into the State’s general fund. Inasmuch as claims 6 through 11 attack the constitutionality of legislation, they are subject to a six-year statute of limitations (see Matter of Save the Pine Bush v City of Albany, 70 NY2d at 203-204 ; Matter of Kovarsky v Housing & Dev. Admin. of City of N.Y., 31 NY2d 184 , 191-192 [1972]; Matter of Frontier Ins. Co. v Town Bd. of Town of Thompson, 252 AD2d at 930 ). Having been commenced within the requisite time frame, these causes of action are timely.

As to the merits, in assessing whether the six challenged statutes effectuated a taking of private property without just compensation, we must first determine whether plaintiff insurers held a vested property right entitling them to a refund or credit for money levied in excess of the Department’s actual annual expenses during fiscal years 2008-2009, 2009-2010 and 2010-2011. To that end, “constitutionally protected property interests are ‘created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law’ ” (Alliance of Am. Insurers v Chu, 77 NY2d 573 , 585 [1991], quoting Board of Regents of State Colleges v Roth, 408 US 564 , 577 [1972]). Here, Insurance Law former § 332 clearly created a property right in favor of the insurers, as it provided that the annual assessment be collected to defray the expenses of the Department and that the insurers be reimbursed for, or credited with, any overpayment of their pro rata shares resulting from a discrepancy between the Department’s estimated annual expenses and its actual annual expenses, as determined at the end of each fiscal year (see Alliance of Am. Insurers v Chu, 77 NY2d at 585 ).^[6]

Just as the Legislature has the power to statutorily create property interests, so too may it legislatively alter or take away those same property interests, though its “power to alter the rights and obligations that attach to completed transactions is not as broad as its power to regulate future transactions” (Alliance of Am. Insurers v Chu, 77 NY2d at 585 ; see Matter of Hodes v Axelrod, 70 NY2d 364 , 369-370 [1987]). Here, the Legislature permissibly extinguished the property interest