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Colt Industries, Inc. v. Finance Administrator

54 N.Y.2d 533 Court N.Y. Decision date 1982-01-07 English

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p. 533
In the Matter of Colt Industries, Inc., Appellant, v Finance Administrator of the City of New York et al., Respondents. Robert Abrams, as Attorney-General of the State of New York, Intervenor-Respondent. In the Matter of Equitable Life Assurance Society of the United States, Appellant, v Finance Administrator of the City of New York et al., Respondents. Robert Abrams, as Attorney-General of the State of New York, Intervenor-Respondent.
Argued November 18, 1981;
decided January 7, 1982
p. 535
POINTS OF COUNSEL
Donald N. David and Benjamin Newman for Colt Industries, Inc., appellant.
I. Public interest demands that the city be compelled to adhere to the statutory standard of assessment, i.e., full or actual market value. (Fernandez v Wiener, 326 US 340 ; Carmichael v Southern Coal Co., 301 US 495 ; Maxwell v Bugbee, 250 US 525 ; Hagar v Reclamation Dist. No. 108, 111 US 701 ; Allen v Board of Assessors of Town of Mendon, 57 AD2d 1036 ; Matter of Batavia Enterprises v Assessor of Town of Batavia, 72 AD2d 912 ; Grant Co. v Srogi, 71 AD2d 457 , 52 NY2d 496 ; Matter of Rokowsky v Finance Administrator of City of N. Y., 41 NY2d 574 ; Mercantile Nat. Bank of City of N. Y. v Mayor of City of N. Y., 172 NY 35 ; People ex rel. Trust Co. v Feitner, 51 App Div 178 .) II. The real property tax system in the City of New York is universally recognized as haphazard, inequitable and unfair. (Matter of Rokowsky v Finance
p. 536
Administrator of City of N.Y., 41 NY2d 574 .) III. Section 166-1.0 of the Administrative Code does not authorize a fractional, classified, section-wide assessment system. (Mercantile Nat. Bank of City of N. Y. v Mayor of City of N. Y., 172 NY 35 ; People ex rel. Stewart v Feitner, 95 App Div 481 ; Matter of Rokowsky v Finance Administrator of City of N.Y., 41 NY2d 574 .) IV. Section 166-1.0 of the Administrative Code is not constitutional if read as creating a classified property tax system. (Matter of Mollenhauer, 257 App Div 286 ; People ex rel. Hatch v Reardon, 184 NY 431 ; Genet v City of Brooklyn, 99 NY 296 ; Matter of Mooney v Cohen, 272 NY 33 ; Matter of Levine v Whalen, 39 NY2d 510 ; Matter of Small v Moss, 279 NY 288 ; Gautier v Ditmar, 204 NY 20 ; Matter of United States Steel Corp. v Gerosa, 7 NY2d 454 ; Weissinger v Boswell, 330 F Supp 615 ; Matter of Rego Props. Corp. v Finance Administrator of City of N. Y., 102 Misc 2d 641 .) V. If section 307 of the Real Property Tax Law is applicable to the City of New York, it cannot be read as retroactively establishing a classified tax system applicable to the instant proceedings. (Matter of Rego Props. Corp. v Finance Administrator of City of N. Y., 102 Misc 2d 641 .) VI. Subdivision 3 of section 720 of the Real Property Tax Law is invalid as applied to New York City because it effectively deprives a taxpayer of any remedy for inequality of assessment. (Gibbes v Zimmerman, 290 US 326 ; Board of Comrs. of Excise of City of Auburn v Merchant, 103 NY 143 ; Matter of Johnson v Town of Haverstraw, 102 Misc 2d 923 ; Matter of Pepsi-Cola Co. v Tax Comm. of City of N.Y., 19 AD2d 56 ; Matter of Property Portfolio 182 Corp. v Tax Comm. of City of N. Y., 58 AD2d 650 ; Matter of Washington Apts. v Board of Assessors of County of Nassau, 43 AD2d 942 ; Mobil Oil Corp. v Tax Comm. of City of N. Y., 60 AD2d 910 ; Dutton Lbr. Corp. v Van Ness Lbr. Corp., 54 AD2d 723 ; Johnson v Equitable Life Assur. Soc. of U.S., 16 NY2d 1067 .) VII. The 1979 amendment to subdivision 3 of section 720 of the Real Property Tax Law represents an impermissible intrusion of the court’s fact-finding function. (Sackler v Sackler, 15 NY2d 40 ; Board of Comrs. of Excise of City of Auburn v Merchant, 103 NY 143 ; Howard v Moot, 64 NY 262 ; Baldwin v Standard Acc. Ins. Co., 237 App Div 334 ; People
p. 537
ex rel. Dixon v Lewis, 249 App Div 464 ; Guth Realty v Gingold, 34 NY2d 440 ; 860 Executive Towers v Board of Assessors of County of Nassau, 53 AD2d 463 , affd sub nom. Matter of Pierre Pellaton Apts, v Board of Assessors of County of Nassau, 43 NY2d 769 ; Matter of O’Brien v Assessor of Town of Mamaroneck, 20 NY2d 587 ; Matter of Lawrence Investing Co. v Board of Review of Dept. of Assessment of Town of Eastchester, 86 Misc 2d 642 .) VIII. Appellant’s motion for discovery of the special sales data listings should have been granted. (Matter of Tartaglia v McLaughlin, 190 Misc 266 , 273 App Div 821 , 297 NY 419 ; Fields v Taylor, 274 App Div 810 ; People v Krull, 18 Misc 2d 1027 ; Matter of 749 Broadway Realty Corp. v Boyland, 1 Misc 2d 575 , 1 AD2d 819 , 3 NY2d 737 ; Cooke v Doge, 168 Misc 561 .)
Daniel S. Greenfeld, Gale G. Moscow and Robert J.
Kipnees for The Equitable Life Assurance Society of the United States, appellant. I. The State Board of Equalization and Assessment rate which measures the aggregate ratio of assessed values to full market values of real property on a whole-roll, city-wide basis is an appropriate evidentiary basis for determining inequality of assessment in a New York City real estate tax review proceeding. (Matter of Rego Props. Corp. v Finance Administrator of City of N. Y., 102 Misc 2d 641 ; Matter of Rokowsky v Finance Administrator of City of N. Y., 41 NY2d 574 ; People ex rel. Stewart v Feitner, 95 App Div 481 ; Greyhound Corp. v Mt. Hood Stages, 437 US 322 ; Blue Chip Stamps v Manor Drug Stores, 421 US 723 ; People ex rel. American Sugar Refining Co. v Sexton, 274 NY 304 ; People ex rel. O’Neill v Purdy, 188 App Div 485 ; People ex rel. Savory, Inc. v Plunkett, 295 NY 180 ; Mercantile Nat. Bank of City of N. Y. v Mayor of City of N. Y., 172 NY 35 .) II. The State Board of Equalization and Assessment rate is admissible and probative evidence of inequality of assessment in a real estate tax review proceeding. (Matter of O’Brien v Assessor of Town of Mamaroneck, 20 NY2d 587 ; Guth Realty v Gingold, 34 NY2d 440 ; 860 Executive Towers v Board of Assessors of County of Nassau, 53 AD2d 463 .) III. The 1979 amendment to subdivision 3 of section 720 of the Real Property Tax Law insofar as it purports to preclude
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utilization of the State Board of Equalization and Assessment rate as evidence of inequality is unconstitutional as a denial of due process and equal protection of the law. (Guth Realty v Gingold, 34 NY2d 440 ; 860 Executive Towers v Board of Assessors of County of Nassau, 53 AD2d 463 , affd sub nom. Matter of Pierre Pellaton Apts, v Board of Assessors of County of Nassau, 43 NY2d 767 ; C.H.O.B. Assoc. v Board of Assessors of County of Nassau, 45 Misc 2d 184 , 22 AD2d 1015 , 16 NY2d 779 ; Board ofComrs. of Excise of City of Auburn v Merchant, 103 NY 143 ; Landay v United States, 108 F2d 698 , 309 US 681 ; Hass v United States, 93 F2d 427 ; People ex rel. Clark v Gilchrist, 243 NY 173 ; People ex rel. Warren v Carter, 109 NY 576 ; Matter of Furey v Graves, 148 Misc 785 .)
Allen G. Schwartz, Corporation Counsel (Leonard Olarsch, Morris Einhorn, Reed G. Schneider and Gary Schuller of counsel), for respondents.
I. Cognizant that to preserve the diverse economy of the Nation’s largest city its tax system must reflect the capacity of income-producing and non-income-producing property to defray the cost of government. The Legislature has provided that proof of discrimination in distributing that cost be essentially confined to property of like character. (Matter of Hellerstein v Assessor of Town of lslip, 37 NY2d 1 ; Sonmax, Inc. v City of New York, 89 Misc 2d 945 , 43 NY2d 253 ; Matter of Board of Water Supply of City of N.Y., 277 NY 452 ; People ex rel. Marlborough Hotel Co. v Feitner, 33 Misc 293 ; Mercantile Nat. Bank of City of N. Y. v Mayor of City of N. Y., 172 Misc 35 ; People ex rel. Bronx Gas & Elec. Co. v Feitner, 43 App Div 198 ; People ex rel. Sutphen v Feitner, 45 App Div 542 ; People ex rel. Broadway Realty Co. v Feitner, 61 App Div 156 ; People ex rel. Zollikoffer v Feitner, 74 App Div 130 , 172 NY 618 ; People ex rel. Bishop v Feitner, 116 App Div 452 .) II. Even if section 166-1.0 were held to require proof of discrimination in relation to all properties in the city, requiring that it be proved in relation to “property of the same major type” (Real Property Tax Law, § 307) and eliminating the State Board of Equalization and Assessment’s rate as evidence (§ 720, subd 3) represent a rational legislative response to threatened fiscal bankruptcy of localities pending transition to full value assessments.
p. 539
Petitioner has acquired no vested right to continued availability of the State Board of Equalization and Assessment’s rate in proof of discrimination. It is fatuous to believe, given the unsettled history of the equalization rate, that any property owner would have ordered his affairs or placed any reliance on the possibility of obtaining a refund on that basis. (Defiance Milk Prods. Co. v Du Mond, 309 NY 537 ; Usery v Turner Elkhorn Min. Co., 428 US 1 ; Matter of Chrysler Props, v Morris, 23 NY2d 515 ; Matter of Neuner v Weyant, 63 AD2d 290 , 48 NY2d 975 ; Matter of Slewett & Farber v Board of Assessors of County of Nassau, 80 AD2d 186 ; Press v County of Monroe, 50 NY2d 695 ; New York Public Interest Research Group v Board of Assessment Review of City of Albany, 104 Misc 2d 128 ; United States v Heinszen & Co., 206 US 370 ; Rafferty v Smith, Bell & Co., 257 US 226 ; Tiaco v Forbes, 228 US 549 .) III. Special Term properly rejected petitioner’s attack on section 1146-15.0 of the Administrative Code and correctly denied petitioner’s motion to discover confidential sales information from tax returns. (Matter of New York State Dept, of Taxation & Fin. v New York State Dept, of Law, 44 NY2d 575 ; Matter of Manufacturers Trust Co. v Browne, 269 App Div 108 , 296 NY 549 ; Matter of Bakers Mut. Ins. Co. of N. Y. [Department of Health of City of N. Y.] 301 NY 21 ; Caravaggio v Retirement Bd. of Teachers’ Retirement System of City of N. Y., 36 NY2d 348 .)
Robert Abrams, Attorney-General (John M. Farrar and Shirley Adelson Siegel of counsel), for intervenor-respondent.
I. The provisions of the Administrative Code (§ 166-1.0, subd b, par 3) and subdivisions 3, 4 and 5 of section 307 of the Real Property Tax Law, as procedural statutes, create no constitutional infirmity. Moreover, the inequality petitioner in the City of New York has ratified fractional assessment practices whether “generic” or by “class”. (Matter of Finnegan v Cohen, 275 NY 432 ; Schielcrawt v Moffett, 294 NY 180 ; Matter of Slewett & Farber v Board of Assessors of County of Nassau, 80 AD2d 186 ; Matter of Hellerstein v Assessor of Town of lslip, 37 NY2d 1 ; Pollitz v Wabash R.R. Co., 207 NY 113 ; Hechter v New York Life Ins. Co., 46 NY2d 34 ; Matter of United Paper Mach. Corp. v Di Carlo, 14 NY2d 814 ; Matter of Zimmer
p. 540
man v Cohen, 236 NY 15 ; Matter of Dudley v Kerwick, 52 NY2d 542 .) II. Even if considered taxing statutes neither section 166-1.0 (subd b, par 3) of the Administrative Code nor subdivisions 3, 4 and 5 of section 307 of the Real Property Tax Law violates constitutional principles. (Matter of Slewett & Farber v Board of Assessors of County of Nassau, 80 AD2d 186 ; New York Steam Corp. v City of New York, 268 NY 137 ; People ex rel. Hatch v Reardon, 184 NY 431 , 204 US 152 ; Sonmax, Inc. v City of New York, 89 Misc 2d 954 , 43 NY2d 253 ; People v Cook, 34 NY2d 100 ; San Antonio School Dist. v Rodriguez, 411 US 1 ; Salsburg v Maryland, 346 US 545 ; Matter of Long Is. Light. Co. v State Tax Comm., 45 NY2d 529 ; Usery v Turner Elkhorn Min. Co., 428 US 1 ; Teeval Co. v Stern, 301 NY 346 .) III. The 1979 amendment to subdivision 3 of section 720 of the Real Property Tax Law, if applicable in the instant proceeding, should be applied in accordance with the legislative intent to bar use of the State rate as evidence of ratio. (Matter of Slewett & Farber v Board of Assessors of County of Nassau, 80 AD2d 186 ; Sheilcrawt v Moffett, 294 NY 180 ; Board of Comrs. of Excise of City of Auburn v Merchant, 103 NY 143 ; Louisville & Nashville R.R. v Melton, 218 US 36 ; Mobile, J. & K.C.R.R. v Turnipseed, 219 US 34 ; Farrington v Pinckney, 1 NY2d 74 ; Matter of Boardwalk & Seashore Corp. v Murdock, 286 NY 494 ; Bradford v County of Suffolk, 257 App Div 777 ; United States v Heinszen & Co., 206 US 370 ; Germania Sav. Bank, Kings County v Village of Suspension Bridge, 159 NY 362 .)

OPINION OF THE COURT

In Matter of Colt Inds. v Finance Administrator of City of N. Y., the order of the Appellate Division should be modified by deleting therefrom all declarations as to the constitutionality or applicability of former section 307 and subdivision 3 of section 720 of the Real Property Tax Law and by reversing so much of the order as denied petitioner’s motion for discovery of “special sales data listings” and remitting that motion to Supreme Court for further consideration and disposition in light of our decision in this case. As so modified, the order of the Appellate Division should

p. 541
be affirmed and the consolidated proceedings remitted to Supreme Court. The question certified is answered in the negative.

In Matter of Equitable Life Assur. Soc. of U. S. v Finance Administrator of City of N. Y., the order of the Appellate Division should be modified to the extent of granting petitioner’s motion to dismiss those defenses which rely on the New York City Administrative Code’s purported authorization of a classified system of assessment. As so modified, the order of the Appellate Division should be affirmed. The question certified should be answered in the negative.

Section 166-1.0 of the Administrative Code of the City of New York governs the procedure for review of tax assessments in the City of New York. By its terms, taxpayers may challenge the assessed valuation of their property on the grounds that it is illegal, that it overvalues the property, or that “the assessment is erroneous by reason of inequality.” That section further provides that inequality may be proven by showing that the assessment was “made at a higher proportionate valuation than the assessment of other real property of like character in the same ward or section, or other real property on the assessment rolls of the city for the same year”. To hold, as the courts below have, that this procedural provision is legislative authorization for a classified system of assessments in the City of New York improperly expands the scope of the section. In these proceedings to challenge tax assessments on the ground of inequality, we have no occasion to reach and, therefore, do not address the contentions of the parties with respect to the methods or systems of assessments in New York City. Our attention is focused on assertions of inequality of actual assessments whatever the means or basis on which they were made. Thus, we hold that this section authorizes taxpayers who challenge the assessments of their real property to present proof of inequality based on either or both of two theories — that the particular assessment “has been made at a higher proportionate valuation than the assessment of other real property of like character in the same ward or section”, or that the assessment “has been made at a higher proportionate valuation

p. 542
than the assessment of *** other real property on the assessment rolls of the city for the same year.” Thus, proof may be introduced to establish inequality with respect to property of similar character in the same ward or section or with respect to the city-wide assessment rolls. In continuing this proceeding, petitioner should be allowed to introduce either or both types of proof.

There remains the question whether, if it is sought to establish inequality with respect to city-wide assessment rolls, State equalization rates may be introduced. (Cf. Matter of Rokowsky v Finance Administrator of City of N. Y., 41 NY2d 574 ; Guth Realty v Gingold, 34 NY2d 440 .) Legislative action taken over the past few years to restrict the use of such proof and considered by the courts below[1] expired on October 30, 1981 and accordingly now has no application to this proceeding.

On December 3, 1981, however, the Legislature passed S-7000A over the Governor’s veto (L1981, ch 1057). Section 7 of that bill contains a new subdivision 3 of section 720.[2]

1 Amendment of subdivision 3 of section 720 of the Real Property Tax Law (L 1979, ch 126, 82; L 1981, ch 3, 8 1; L 1981, ch 107, 8 1; L 1981, ch 259, § 1) and enactment of new section 721 of the Real Property Tax Law (L 1979, ch 127, 82; L 1981, ch 3, §2).

2 The revised subdivision 3 of section 720 now reads: “3. Evidence on the issue of whether an assessment is unequal shall be limited as hereinafter provided. The parties shall mutually agree on the parcels to be appraised and the number of witnesses to be heard with respect to such issue. In the event the parties fail to agree on such parcels or on the number of witnesses, upon application of either party the court or referee shall select the parcels to be appraised without reference to their assessed values, or shall determine the number of witnesses, or both, as the case may be. Before any testimony is given by either party as to the value of such parcels, each party shall simultaneously file with the court or referee, on a date fixed by the court or referee, a written statement or tabulation of the appraised values placed upon such parcels by the witnesses of the respective parties, and each party shall serve on the other at the same time a copy of such statement or tabulation of values stated by his witnesses. The parties shall be limited in their proof on the trial of such issue to such parcels and witnesses, except that in any event, whether or not parcels are selected as hereinabove provided, evidence may be given by either party as to the following: “(a) in all assessing units, actual sales of real property within the assessing units that occurred during the year in which the assessment under review was made; “(b) in all assessing units other than special assessing units as defined in section eighteen hundred one of this chapter, the state equalization rate established for the roll containing the assessment under review; or “(c) in all special assessing units as defined in section eighteen hundred one of this chapter, only for proceedings commenced with respect to assessment rolls completed after December thirty-first, nineteen hundred eighty-three, the latest applicable class ratio established for the roll containing the assessment under review; provided, however, that such class ratios shall not be admissible pursuant to this paragraph unless the petitioner alleges and proves an inequality greater than twelve and one half percent of such class ratio.”

p. 543
This new legislation contains no express provision for retroactive application as did the former law (L 1979, ch 126, § 4; L 1979, ch 127; § 3); it provides only, in section 17, that “this act shall take effect immediately”. Accordingly to the extent that it is otherwise appropriate, it applies to proceedings pending on December 3, 1981.

We hold that this new subdivision 3 now applies to these proceedings. Although the proceedings were commenced prior to the enactment of S-7000A, no evidentiary hearings have yet been held or interlocutory determinations made as was the case in Matter of Slewett & Farber v Board of Assessors of County of Nassau ( 54 NY2d 547 [decided herewith]). Accordingly, when such evidentiary hearings are held in these cases on remittal following this appeal, among other considerations to be taken into account in rulings with respect to the admissibility of evidence will be the provisions of new subdivision 3 of section 720.

We further consider, on the basis of postargument briefs submitted to this court after the enactment by the Legislature of S-7000A, the constitutionality of the new subdivision 3 of section 720 insofar as it is applicable to the litigation now before us. As did former subdivision 3, this section governs what evidence is admissible on the issue of whether an assessment is unequal. Data on selected parcels and actual sales are admissible as evidence to show an unequal assessment in all assessing units. Use of the State equalization rate, however, is limited to “all assessing units other than special assessing units.”[3] The effect of this provision is to foreclose the use of State equalization rates in-this type of proceeding in the City of New York and in Nassau County.

Petitioners claim that this is a restriction based on population and geographic area which violates their right to equal protection of the laws. They further claim that the excessive cost of proving a claim of unequal assessment associated with the remaining two methods of proof essentially bars them from seeking any redress and, therefore, constitutes a violation of their due process rights. Recognizing that subdivision 3 of section 720 is procedural in

3 A special assessing unit is defined by section 1801 as an assessing unit with a population of one million or more.

p. 544
nature, we hold this section of the Real Property Tax Law, as enacted on December 3, 1981, to be constitutional.

The core of petitioners’ equal protection claim is that the Legislature, by allowing the use of State equalization rates as proof of the ratio between assessed and full value in all parts of the State but the City of New York and Nassau County, makes an impermissible distinction between geographic areas of the State. “Equal protection does not require territorial uniformity of law within a State (Salsburg v. Maryland, 346 U. S. 545 [rules of evidence in prosecutions for gambling offenses]; Missouri v. Lewis, 101 U. S. 22 [access to appellate courts]).” (Matter of Rosenthal v Hartnett, 36 NY2d 269 , 274.) It has long been the rule that the State Legislatures may make such geographic distinctions without denying any person equal protection of the laws. The Supreme Court in Missouri u Lewis ( 101 US 22 , 31) stated: “If the State of New York, for example, should see fit to adopt the civil law and its method of procedure for New York City and the surrounding counties, and the common law and its method of procedure for the rest of the State, there is nothing in the Constitution of the United States to prevent its doing so. This would not, of itself, within the meaning of the Fourteenth Amendment, be a denial to any person of the equal protection of the laws.”

The distinction made by this legislation, although not based on geographic factors, is neither impermissible nor unreasonable; rather, the distinction is based on size of population within municipal units.[4] To strike down this provision, it must be shown that the Legislature acted unreasonably — that is, that the Legislature did not have a rational basis for creating such a distinction.

The Legislature had a rational basis for designating the City of New York and Nassau County special assessing units and restricting the admissibility of State equalization rates in such units. This legislation which was designed to overrule this court’s decision in Matter of Heller-stein v Assessor of Town of Islip ( 37 NY2d 1 ), which required full value assessment for all property, recognized

4 The application of this distinction, as well as every differentiation among municipal units, whatever its basis, will have a geographic consequence.

p. 545
the unique nature of those communities with their high density of population and diversity of property.

Petitioners further contend that by restricting the use of State equalization rates as proof of the ratio between assessed and full value in special assessing units, their right to due process of the law has been violated. This argument is premised on claims that the other authorized methods of proof, selected parcels and sales, are prohibitively expensive so that petitioners, and similarly situated parties, are effectively foreclosed from challenging the rate of assessment of their property. While a “law which would practically shut out the evidence of a party and thus deny him the opportunity for a trial would substantially deprive him of due process of law” (Board of Comrs. of Excise of City of Auburn v Merchant, 103 NY 143 , 148), it cannot be said that this legislation has been shown, on its face, to constitute such a deprivation. The fact that these procedures are admittedly more cumbersome and expensive does not require a holding that there is a deprivation of due process. (Gibbes v Zimmerman, 290 US 326 .) The Legislature, in its wisdom, has seen fit to restrict the admissible proof to selected parcels and sales data and there are no grounds for this court, by judicial fiat, to authorize additional proof. The Legislature did no more than restore, in special assessing units, the status quo ante chapter 942 of the Laws of 1961 which first authorized the admission of State equalization rates.

Once the ratio between assessed value and full market value has been determined, petitioners will be required to establish the fair market value for the property against which the ratio will be applied to determine whether the assessment is proper. Because sales data of comparable property is one method of establishing a fair market value, petitioner Colt Industries’ motion for discovery of that data is remitted to Supreme Court for further consideration and disposition in light of our decision in this case. Assuming petitioner can show a correlation between those listings and the question of fair market value, discovery should be granted.

p. 546
Chief Judge Cooke and Judges Jasen, Gabrielli, Jones, Wachtler, Fuchsberg and Meyer concur in Per Curiam opinion.

In Matter of Colt Inds. v Finance Administrator: Order modified, without costs, and matter remitted to Supreme Court, New York County, for further proceedings in accordance with the opinion herein and, as so modified, affirmed. Question certified answered in the negative.

In Matter of Equitable Life Assur. Soc.v Finance Administrator: Order modified, without costs, in accordance with the opinion herein and, as so modified, affirmed. Question certified answered in the negative.

Cases cited

Statutes and regulations cited