Harold Levinson Assoc., Inc. v New York State Dept. of Taxation & Fin.
Annotate this CaseDecided on December 23, 2005
Supreme Court, New York County
Harold Levinson Associates, Inc., Plaintiff,
against
New York State Department of Taxation and Finance, and ANDREW S. ERISTOFF, AS COMMISSIONER OF THE NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, and MICHAEL COMMISSO, AUDIT DIVISION, NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, and STEVEN SASKIN, AS CONCILIATION CONFEREE, BUREAU OF MEDIATION AND CONCILIATION, Defendants.
603308/05
Richard F. Braun, J.
In the complaint in this action, plaintiff seeks a declaratory judgment, specific performance, and a preliminary injunction. Plaintiff brought a motion for the latter relief in order to prohibit defendants from acting further in connection with a pending license suspension proceeding against plaintiff, and a stay of the proceeding. Defendants cross-moved to dismiss the complaint, pursuant to CPLR 3211 (a) (1), (2), and (7). Plaintiff subsequently cross-moved to lift the stay of discovery, pursuant to CPLR 3214 (b). That cross motion was withdrawn by stipulation.
On a CPLR 3211 motion to dismiss a complaint, it is to be liberally construed, pursuant to CPLR 3026; the factual allegations in the pleading accepted as true; and the plaintiff afforded the benefit of all possible inferences that flow from the complaint (Leon v Martinez, 84 NY2d 83, 87 [1994]). The court is to decide merely whether the allegations fit into any cause of action recognized under New York law.(id.)
Plaintiff Harold Levinson Associates, Inc. is a licensed stamping agent and the largest cigarette wholesaler in New York State. Plaintiff employs about 400 people and has annual revenues of nearly one billion dollars. Defendant New York State Department of Taxation and Finance (Tax Department) is an agency of the State of New York. Defendant Andrew S. Eristoff is the Tax Department's Commissioner, defendant Michael Commisso an Excise Tax Technician [*2]of defendant Tax Department's Audit Division, and defendant Steven Saskin (Saskin) a Conciliation Conferee for defendant Tax Department's Bureau of Conciliation and Mediation Services.
In about early 2000, defendant Tax Department conducted an industry-wide investigation of cigarette wholesalers as to allegations of "rebating". That consisted of arrangements whereby the wholesalers were providing promotions or inducements to retailers that reduced the price of cigarettes which the retailers purchased, in order to avoid the minimum prices under the Cigarette Marketing Standards Act (Tax Law article 20-A). After negotiating for months, plaintiff and defendant Tax Department entered into a Stipulated Agreement of Settlement (agreement) on October 4, 2001, in which they settled the matters under investigation.
Plaintiff was to pay $100,000 to defendant Tax Department to compensate it for plaintiff's share of the expenses of the investigation. The agreement provided in pertinent part:
4. a. For a period of one year subsequent to the execution of this Agreement, if Tax [Department] learns of any conduct or activity on the part of [plaintiff] HLA, occurring after the execution of this Agreement, which conduct or activity may constitute a violation of Article 20-A of the Tax Law, then Tax agrees to notify HLA. HLA will then have two weeks from the date of such notification to cease and desist such conduct or activity and to explain to Tax's satisfaction that such activity does not constitute a systemic violation of article 20-A of the Tax Law, but is instead an isolated instance, that has been corrected.
b. If Tax is not satisfied that HLA has ceased such activity or that such activity was an isolated instance, Tax is then free to bring a proceeding allowed by the Tax Law ("first proceeding"). HLA shall be entitled to a full, complete, and expedited hearing, all allowable appeals, and all defenses allowed by law....
....
f. If at the end of the one year period that this paragraph 4 is operable Tax has not begun a first proceeding, then at that time, and effective as of the date of the execution of this Agreement, the parties to this Agreement will mutually release and discharge each other, and their respective officers, agents, principals and employees, from any and all claims, demands, administrative or legal actions and proceedings, and liabilities of every kind and nature, legal and/or equitable, occasioned by or arising out of the subject of the investigation, and the facts and allegations described in this Agreement, it being the intention of the parties by the settlement to completely resolve any and all possible judicial and administrative actions or proceedings which have or could have been, initiated or commenced by either such party as against the other as a result of, or arising from, the investigation, the facts or allegations as to acts occurring prior to the date of this Agreement.
In approximately September 1998, plaintiff entered a relationship with the New York Shell Dealers Association (NYSDA) which later became the Northeast Gas Dealers, Inc. (NEGDI). On or about August 28, 2002, defendant Tax Department served NYSDA/NEGDI with a subpoena that sought documents regarding plaintiff back to January 1, 2001. Defendant Tax Department did not give plaintiff any notice under paragraph 4 a. of the agreement that defendant Tax Department had learned of any conduct or activity by plaintiff that may have constituted a violation of Tax Law article 20-A. Nor was plaintiff given an opportunity to cease and desist any such conduct or activity. Instead defendant Tax Department continued its investigation until October 28, 2003 when it issued a cease and desist letter to plaintiff and NYSDA/NEGDI.
On or about October 25, 2004, defendant Tax Department issued a notice of suspension that proposed a 30 day suspension of plaintiff's licenses as a cigarette stamp agent and wholesale cigarette dealer, based on plaintiff's relationship with NYSDA/NEGDI in an alleged illegal rebating scheme in violation of Tax Law article 20-A. Plaintiff filed a request with defendant Tax Department for a conciliation conference regarding the notice of suspension in order to [*3]attempt to settle the rebating charge. A conference was held on or about May 3, 2005 at the office of defendant Saskin. He issued a conciliation order that the notice of suspension was sustained.
One basis for the motion by defendants to dismiss the complaint is that plaintiff failed to exhaust its administrative remedies. Tax Law § 484 (a) (5) (C) provides that in deciding whether to suspend or revoke a license, the penalties shall be determined as if they were taxes under Tax Law § 478. That statute provides for a determination by the Commissioner of defendant Tax Department. At the request of the taxpayer only, that decision is subject to review by the Division of Tax Appeals. The review of that determination is by the Tax Appeals Tribunal. Pursuant to Tax Law § 2016, that body's decisions can be reviewed in a proceeding under CPLR article 78 commenced before the Appellate Division, Third Department. That court review is the exclusive remedy of a taxpayer (Tax Law § 478).
Plaintiff argues that, under the circumstances, exhaustion of administrative remedies is not required under exceptions to that doctrine set forth in Watergate II Apts. v Buffalo Sewer Auth. (46 NY2d 52, 57 [1978]), and that plaintiff should be allowed to pursue its remedies in this action for specific performance of the agreement between plaintiff and defendant Tax Department, and dismissal of the notice of suspension, and a declaratory judgment that the notice of suspension should be vacated because of defendant Tax Department's breach of the agreement. However, where a statute sets forth that remedies are exclusive, the exceptions to the exhaustion doctrine cannot be applied (Bankers Trust Corp. v New York City Dept. of Fin. [Bankers Trust], 1 NY3d 315, 322 [2003]). Thus, plaintiff has to avail itself of the administrative remedies here (see Curry v New York State Dept. of Taxation & Fin., 196 AD2d 422 [1st Dept 1993]; W. T. Wang, Inc. v New York State Dept. of Taxation & Fin., 88 AD2d 825, 826 [1st Dept 1982]; Slater v Gallman, 44 AD2d 657, 658 [1st Dept 1974]; cf. Urban Assocs. v Hettinger, 177 AD2d 439 [1st Dept 1991] [the plaintiff could not collaterally attack by way of the declaratory judgment action the determination of the New York State Division of Housing and Community Renewal but should have exhausted the administrative remedies after which the appropriate court review would be a proceeding under CPLR article 78]). Therefore, because plaintiff did not exhaust its administrative remedies, this court lacks jurisdiction over the subject matter of this action (see Ancrum v St. Barnabas Hosp., 301 AD2d 474 [1st Dept 2003]; Slater v Gallman, 44 AD2d at 658).
Therefore, the motion has been denied by this court's separate decision and order, dated December 22, 2005. Defendants' cross motion has been granted to the extent of dismissing the complaint in this action, pursuant to CPLR 3211 (a) (2) (see Bankers Trust, 1 NY3d at 323).
Dated: New York, New York
December 23, 2005RICHARD F. BRAUN, J.S.C.
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