Supreme Court, Albany County, January 12, 2021

Lipsitz Green Scime Cambria LLP, Buffalo (Paul J. Cambria, Jeffrey F. Reina and Patrick J. Mackey of counsel), for petitioner.

Letitia James, Attorney General, Albany (Ryan L. Abel of counsel), for respondent.

[*2]In this CPLR article 78 proceeding the petitioner ERW Enterprises, Inc. (ERW Enterprises) moves for an order to compel the respondent Commissioner of the New York State Department of Taxation and Finance, Michael R. Schmidt, in his official capacity, to remove from its website a $1,259,250 civil fine imposed against ERW Enterprises and to cease maintaining the civil fine as an active assessment in its records. The respondent opposes, asserting that while a companion matter, Eric White doing business as ERW Wholesale (ERW Wholesale), is on appeal before the Appellate Division, Third Department, there has actually been no final adjudication in the civil fine imposed against the petitioner and the fine imposed must remain on the respondent's records; and that the matter is not ripe for judicial review. The respondent also argues that its inclusion of the civil fine against ERW Enterprises in its records is not arbitrary, or capricious, or contrary to law.

For the reasons that follow the court grants the petition in its entirety.

On December 14, 2014, the respondent issued two separate notices of determination (2014 determinations), each in the amount of $1,259,250, one against the petitioner, ERW Enterprises; and one against another entity, Eric White doing business as ERW Wholesale. Both the petitioner and ERW Wholesale petitioned to the respondent's Division of Tax Appeals (Division) for review of each determination, with a joint hearing held on January 11, 2017, before the Division's administrative law judge (ALJ). On March 15, 2018, the ALJ made a single determination (2018 determination), sustaining the 2014 determinations as against both the petitioner and ERW Wholesale. On May 15, 2018, the petitioner and ERW Wholesale filed a single notice of exception to the 2018 determination,{**71 Misc 3d at 244} seeking review by the respondent's Tax Appeals Tribunal (Tax Tribunal). The Tax Tribunal's decision, dated May 29, 2019, granted the petitioner's petition—thus cancelling the civil fine imposed by the 2014 determination against it; and also denied the petition of ERW Wholesale, or the cancellation of the civil fine imposed against ERW Wholesale. On August 11, 2020, ERW Wholesale filed an article 78 petition with the Appellate Division, Third Department, seeking review of the Tax Tribunal's 2019 decision and cancellation of the 2014 determination and civil fine assessed against ERW Wholesale. On August 11, 2020, the respondent answered ERW Wholesale's petition. Notably, the petitioner ERW Enterprises is not a party to the ERW Wholesale article 78 petition, nor has the respondent sought judicial review of the Tax Tribunal's 2019 decision cancelling the civil fine imposed in the 2014 determination as against the petitioner ERW Enterprises.

The petitioner tells the court, notwithstanding the cancellation of the 2014 determination issued against ERW Enterprises, and notwithstanding that there was no appeal by the respondent of the Tax Tribunal's 2019 decision as against it, and notwithstanding the petitioner's repeated request to remove the civil fine from its records, that the respondent has failed and continues to refuse to remove from its website and from its records the $1,259,250 civil fine imposed against ERW Enterprises. After finding out that the fine was still being so reported, the petitioner sent a letter to Tax and Finance demanding that it remove the fine for ERW Enterprises' online account summary. Following phone calls and another letter, on June 18, 2020, counsel for Tax and Finance sent a letter stating that the civil fine from ERW Enterprises would remain on the online account for so long as the ERW Wholesale article 78 remained pending. ERW Enterprises asserts that it has been, and is being, prejudiced by this false and damaging information, and the same may cause economic hardship. ERW Enterprises asserts that the [*3]respondent's refusal to correct its online account is an unreasonable exercise of its power, and its decision to continue displaying the cancelled fine on its website is arbitrary, capricious and an abuse of power.

However viewed, this article 78 proceeding involves, quite simply, one legal issue: namely whether the Appellate Division, Third Department, in determining ERW Wholesale's article 78 petition, can, or will sua sponte, "reverse, modify or remand any aspect of a matter that comes before it" (CPLR 5522, 7806), {**71 Misc 3d at 245}including that portion of the Tax Tribunal's 2019 determination which cancelled the 2018 determination and civil fine as against ERW Enterprises. Here, the respondent particularly argues that the Appellate Division could very likely reinstate the civil fine imposed against ERW Enterprises.

As an initial matter, appeals of a determination by the Tax Appeals Tribunal are reviewed under Tax Law § 2016, and are directly heard by the Appellate Division, Third Department. This said, the standard of review of a tribunal's determination is limited, and if the Tax Tribunal's determination is rationally based upon and supported by substantial evidence, it must be confirmed, even if it is reasonably possible to reach a different determination (Matter of CS Integrated, LLC v Tax Appeals Trib. of State of N.Y., 19 AD3d 886 [3d Dept 2005]; Matter of Buzzard v Tax Appeals Trib. of State of N.Y., 205 AD2d 852 [3d Dept 1994]). Review of the issues in the article 78 raised is limited to assuring that the assessment of the penalty was supported by substantial evidence and is not arbitrary or capricious (Matter of Ross-Viking Mdse. Corp. v Tax Appeals Trib. of State of N.Y., 188 AD2d 698, 699 [1992]). Resolution of credibility issues are decided by the Tax Tribunal, and its decision should not be disturbed in an article 78 (Matter of Petak v Tax Appeals Trib. of State of N.Y., 217 AD2d 807 [3d Dept 1995]). Once an appeal has been timely taken, the Appellate Court's scope of review is "generally limited to those parts of the judgment that have been appealed" (Hecht v City of New York, 60 NY2d 57, 61 [1983]; Citimortgage, Inc. v Etienne, 172 AD3d 808 [2d Dept 2019]).

On this record, it cannot be said that ERW Enterprises has sought review of the Tax Appeals Tribunal's 2019 decision, or that the respondent has sought a review of the decision as against ERW Enterprises. Thus, albeit the 2019 decision is a joint determination, there is no merit to the respondent's argument that the dismissal of the 2014 determination and cancellation of the civil fine as against the petitioner ERW Enterprises is reviewable by the Appellate Division. Further, the respondent offers no case law for its extremely expansive (and in the court's view erroneous) belief in the role of the Appellate Division as a reviewing court—that despite no party moving for relief as against ERW Enterprises, and also in the absence of it appearing in the pending appeal, it could reverse or modify any non-appealed portion of the 2019 determination favorable to ERW Enterprises (compare with Hecht, 60 NY2d at 64).{**71 Misc 3d at 246}

Turning to the respondent's argument that the matter is not ripe for judicial review, the court is mindful that the "concept of ripeness holds that a controversy cannot be ripe if the claimed harm may be prevented or significantly ameliorated by further administrative action or steps available to the complaining party" (Matter of Federation of Mental Health Ctrs. v DeBuono, 275 AD2d 557, 561-562 [3d Dept 2000] [internal quotation marks and citations omitted]). Certainly, ERW Enterprises is entitled to have the respondent report accurate information concerning its tax status. On this record, and with no other available remedies, it can only be said that the matter is ripe for review.

Lastly, in reviewing the respondent's determination to deny the petitioner's request to correctly report its tax status, the court is mindful that it "must ascertain whether there is a rational basis for the action in question or whether it is arbitrary and capricious . . . [and that the] action is arbitrary and capricious when it is taken without sound basis in reason or regard to the facts" (Matter of McCollum v City of New York, 184 AD3d 838, 839-840 [1st Dept 2020] [internal quotation marks and citations omitted]). In light of the finality of the 2019 determination in favor of the petitioner, the respondent's continuing refusal to correct its own records, including its website, is an act outside of its authority, as well as purely arbitrary, capricious, and without substantiation in law or this record.

Accordingly, it is ordered that the relief demanded in the article 78 petition is granted in its entirety; and it is further ordered that the New York State Department of Taxation and Finance, Michael R. Schmidt, in his official capacity, shall within five days of this decision and order remove the $1,259,250 civil penalty against ERW Enterprises, Inc., including from its website, and cease maintaining the civil fine as an active assessment in its records as against ERW Enterprises, Inc.