Country View Manors at Dunmore, L.P. v. Dunmore School District, et al. (Majority Opinion)

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IN THE COMMONWEALTH COURT OF PENNSYLVANIA Country View Manors at Dunmore, L.P., Petitioner : : : : v. : No. 462 M.D. 2007 : Submitted: December 28, 2007 Dunmore School District, Borough of : Dunmore and Department of : Community and Economic : Development of the Commonwealth : of Pennsylvania, : Respondents : BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge HONORABLE DAN PELLEGRINI, Judge HONORABLE JOSEPH F. McCLOSKEY, Senior Judge OPINION NOT REPORTED MEMORANDUM OPINION BY JUDGE PELLEGRINI FILED: February 12, 2008 Country View Manors at Dunmore, L.P. (Country View) has filed a petition for review in this court s original jurisdiction challenging a decision of the Department of Community and Economic Development (Department) to deny it certification for 2006 Keystone Opportunity Zone (KOZ) benefits under the Keystone Opportunity Zone, Keystone Opportunity Expansion Zone and Keystone Opportunity Improvement Zone Act (Act).1 Before us are two motions, one filed pursuant to Pa. R.A.P. 1532(b)2 requesting that the Department be ordered to grant the requested 1 Act of October 6, 1998, P.L. 705, as amended, 73 P.S. §§820.101-820.1309. 2 Rule 1532(b) of the Pennsylvania Rules of Appellate Procedure states: At any time after the filing of a petition for review in an appellate or original jurisdiction matter the court may on application enter judgment if the right of the applicant thereto is clear. The note to Rule 1532 states that Pa. R.A.P. 1532(b) Subdivision (b) authorizes immediate disposition of a petition for (Footnote continued on next page ¦) certification and that the Dunmore School District (School District), Department and Borough of Dunmore (Borough) be estopped from asserting that Country View is not entitled to KOZ benefits, and the other a judgment on the pleadings against the Department requesting only that the Department be ordered to grant the requested certification. In 1998, the General Assembly enacted the Act to address the circumstances of communities characterized by high unemployment, low investment of new capital, inadequate dwelling conditions, blighted conditions, underutilized, obsolete or abandoned industrial, commercial and residential structures and deteriorating tax bases. Section 102(1) of the Act, 73 P.S. §820.102(1); see also School District of the City of Monessen v. Farnham & Pfile Company, Inc., 878 A.2d 142 (Pa. Cmwlth. 2005). Under the Act, the Department is authorized to designate 12 Keystone Opportunity Expansion Zones (KOEZ) with subzones, as long as the zone does not exceed 1,500 acres. Section 301a(a) of the Act, 73 P.S. §820.301a(a); Section 301a(c) of the Act, 73 P.S. §820.301a(c). Once an area is designated, qualified persons or businesses are entitled to abatement and exemptions from certain state and local taxes. For an area to be designated as a KOEZ, an application must be filed by one or more of the political subdivisions setting forth, among other things, the geographic area of the deteriorated property within the proposed zone and a (continued ¦) review, similar to the type of relief envisioned by the Pennsylvania Rules of Civil Procedure regarding judgment on the pleadings and peremptory and summary judgment. However, such relief may be requested before the pleadings are closed where the right of the applicant is clear. 2 formal binding ordinance or resolution passed by every political subdivision in which the proposed expansion subzone is located that specifically provides for all local tax exemptions, deductions, abatements or credits set forth in this act. Section 302(a)(5) of the Act, 73 P.S. §820.302(a)(5). See also Section 304(c) of the Act, 73 P.S. §820.304(c). Once the application is submitted and receives all local approvals, the appropriate Commonwealth and local authorities conduct a compliance review. Section 906(a) of the Act, 73 P.S. §820.906(a). After the compliance review is completed, the Department notifies the political subdivision(s) of its approval or denial of the application for the KOEZ. Section 906(a) of the Act, 73 P.S. §820.906(a). From that time forward, the Act requires that political subdivisions exempt, deduct, abate or credit local taxes in accordance with their respective ordinances. Section 701(a) of the Act, 73 P.S. §820.701(a). Once the KOEZ is approved, qualified persons and businesses within the authorized KOEZ must request each year a certification from the Department that they are entitled to all tax exemptions, deductions, abatements or credits set forth in the Act. Section 907 of the Act, 73 P.S. §820.907. To qualify for a tax exemption, deduction, abatement or credit under the Act, a qualified business 3 must also receive certification each year from the Department that the business is located and is in the active conduct of a trade, profession or business within the subzone, improvement subzone or expansion subzone. 3 Section 307 of the Act, 73 P.S. Section 103 of the Act, 73 P.S. §820.103, defines qualified business as a business authorized to do business in this Commonwealth which is located or partially located within a subzone, expansion subzone or improvement subzone and is engaged in the active conduct of a trade or business in accordance with the requirements of section 307 for the taxable year. An agent, broker or representative of a business is not engaged in the active conduct of trade or business for the business. 3 §820.307. This certification is non-transferable. Section 901 of the Act, 73 P.S. §820.901. As required by the Act, on February 13, 2001, the Board of Commissioners of Lackawanna County (Board) submitted an application to the Department for KOEZ designation. The Board adopted a resolution, as required, which exempted all taxes allowed by the Act for deteriorated property in the proposed KOEZ. Country View s parcel was listed in the resolution as one of the sites in the proposed KOEZ. On February 8, 2001, the School District also adopted a resolution in which specific properties (including Country View s parcel) within the proposed KOEZ were exempted from paying certain taxes. However, the District s resolution included the condition that benefits would be granted only if the properties were used for non-residential purposes.4 On February 7, 2001, the Borough also passed a resolution identifying certain properties to be included within the KOEZ without restriction. This resolution was amended on February 28, 2001, to condition 4 The School District resolution provided: III. KOZ RESOLUTION Motion by Mrs. Taffera seconded by Mr. Summa to approve the designations of Lots 2, 3, and 4 and the Lackawanna County Housing Authority property as outlined on Exhibit 1 as a Keystone Opportunity Zone. This resolution is conditioned upon the use of the land being limited to non-residential. Use of the property for residential purpose would forfeit any tax benefits. ALL PRESENT WERE IN FAVOR EXCEPT MR. FARRIS WHO ABSTAINED. Excerpt from a Special Meeting of the Dunmore School District, February 8, 2001. 4 the KOEZ designation as to the parcel in question on the use of the property only for non-residential purposes. On either February 20, 2001, or March 2, 2001, the Department approved the KOEZ designation for an area in which Country View s property was located.5 In October 2005, Dunmore Emerald Housing, L.P. (Emerald) acquired the multi-unit residential housing complex (Country View s parcel) within the KOEZ from the Lackawanna County Housing Authority. It applied to the Department for certification to receive KOEZ benefits, which it was approved for in calendar year 2005 with renewal for calendar year 2006.6 5 The date of the Department s approval of the KOEZ designation is subject to dispute. Landowner states in its petition for review that the Department approved the designation on February 20, 2001. (Landowner s Petition for Review, Paragraph 29.) The Department admitted Paragraphs 1 through 68 in its answer to the Petition for Review and New Matter. However, in the Department s brief in support of the Motion for Peremptory Judgment, the Department states that it ultimately approved the KOEZ designation on March 2, 2001. (Department s Brief in support of Petitioner s Motion for Peremptory Judgment, page 6.) The School District and the Borough deny all averments concerning the date of the Department s approval of the KOEZ designation. 6 In approving Emerald s request, the Department letter read: I am pleased to inform you that the Department of Community and Economic Development (the Department ) has approved the application of Dunmore Emerald Housing, L.P. (the Company ) to receive benefits for calendar year 2005 under the Keystone Opportunity Zone, Keystone Opportunity Expansion Zone and Keystone Opportunity Improvement Zone Act (the Act ) and has certified the Company as a qualified business under the Act. As a qualified business, the Company is entitled to receive sales tax benefits and property tax benefits, as set forth below, for calendar year 2005 prior to the Company locating into a Keystone Opportunity Zone (the Zone ) ¦ If the Company is found to be noncompliant with any tax or zoning requirement during the 2005 calendar year, the Company s KOZ status will be revoked and the Company may be subject to penalties and/or recapture under the Act. Letter to Brian T. Regan of Dunmore Emerald Housing, L.P. from Dennis Yablonsky, Secretary of the Department, dated January 18, 2006. (Petition for Review and Request for Special Relief in the Nature of Peremptory Judgment pursuant to Pa. R.A.P. 1532, Exhibit B.) 5 On April 3, 2006, Country View acquired the multi-unit residential housing complex from Emerald for $2,230,000. Country View applied to the Department for KOEZ benefits, but the Department denied the application because it was not in compliance with Section 903(b) of the Act, 73 P.S. §820.903(b), which provided that no qualified business may claim or receive an exemption, deduction, abatement or credit under this act unless that qualified business is in full compliance with all State and local tax laws, ordinances and resolutions. Country View was not in compliance because the School District and the Borough resolutions that authorized the KOEZ specifically excluded residential uses from receiving KOEZ benefits.7 Country View then filed a petition for review in this Court s original jurisdiction to compel the Department to grant KOEZ benefits and enjoin the School District and the Borough from attempting to enforce the restriction on granting exemptions to residential business enterprises because such restrictions were not permitted by the Act. It also contended that the Borough s restriction on KOEZ benefits was ineffective because it was passed on February 28, 2001, after the KOEZ had been allegedly approved by the Department on February 20, 2001. 7 In denying certification, the Department letter stated: The Department of Community and Economic Development has declined the application of Country View Manors at Dunmore, L.P. (the Company) for 2006 Keystone Opportunity Zone (KOZ) benefits. According to the agency (ies) listed below, attempts have been made to help you resolve your situation to no avail. In order to receive KOZ benefits, the Company must be in full compliance with all state and local tax laws, as well as zoning codes. According to your local KOZ Coordinator, the Company has remained noncompliant despite attempts to help the Company resolve its non-compliance issues. Letter dated April 12, 2007 to Frank Dipaolo of Country View Manors at Dunmore, L.P. from Tom Usiadek, Manager of the Keystone Opportunity Zone. (Landowner s Brief in support of its Motion for Peremptory Judgment, Exhibit A.) 6 The Department answered the petition for review by agreeing with Country View, but stated that it could not certify the application to abate taxes because the local taxing bodies refused to approve Country View as compliant.8 The School District and the Borough filed answers, in which other than admitting that they passed the resolutions as set forth in the petition, they denied all other allegations. Each also filed cross-claims against the Department, contending that the Department was responsible for any loss of taxes incurred if Country View was successful in this action. After the pleadings were closed, Country View filed two motions. The first, titled Motion for Preemptory Judgment pursuant to Pa. R.A.P. 1532, was filed against the Department, the School District and the Borough. In this motion, Country View alleged that judgment should be entered in its favor because: ¢ The Department, the School District and the Borough, by enacting legislation that limited the tax benefits to non-residential properties, failed to follow the 8 The Department states in its brief in support of Landowner s Motion for Peremptory Judgment: The Department does not argue that the designation of the Keystone Opportunity Zone is void ab initio in light of the use restrictions contained in the 2001 ordinances. To the contrary, the Department has viewed the use restrictions contained in the 2001 ordinances as without any force and effect. (Department s Brief in support of Landowner s Motion for Peremptory Judgment at footnote 1, page 10.) The Department further argues in its brief in support of Landowner s Motion for Peremptory Judgment that the local jurisdictions are empowered by the Act to designate properties to be included in a zone, but powerless to attach conditions as to the specific use of such properties outside any zoning ordinances. (Department s Brief in support of Landowner s Motion for Peremptory Judgment at footnote 1, page 10.) The Department also adds while the Department is powerless to grant benefits absent certification of compliance with Section 903, local jurisdictions are powerless to deny benefits to a property once a zone is designated. As this property received benefits in 2005 and 2006, the local jurisdictions are without authority to deny benefits in 2007. (Department s Brief in support of Landowner s Motion for Peremptory Judgment at footnote 1, page 10.) 7 Act s requirement that all qualified businesses are entitled to the tax benefits provided for in the Act. ¢ The Borough and the Department had first-hand knowledge of Country View s plans to continue use of the property as multi-unit housing, but failed to inform it of the purported use restriction to foreclose residential properties from receiving tax abatements. The Department agreed with Country View s position, stating the sole reason that it did not approve the grant of the tax exemption was because of the limitation contained in the School District and the Borough resolutions that conditioned the tax benefits to non-residential businesses. The School District and the Borough denied all allegations except for the dates the resolutions were passed. They also opposed the entry of preemptory judgment due to disputed issues of material facts and because Country View was a residential property not entitled to an exemption. The second motion Country View filed was a Motion for Judgment on the Pleadings but was filed against only the Department. The Department answered and agreed that judgment on the pleadings should be entered against it. The School District and the Borough answered and stated that this motion should not be granted while a ruling on the motion for preemptory judgment has not yet been entered. The ultimate issue properly before us in both motions is whether the Department improperly withheld KOEZ certification for calendar year 2007. Notwithstanding the fact that Country View has joined the School District and the Borough, they are not indispensable parties to the action because the Act gives the Department the sole discretion to decide whether a certification abating and 8 exempting taxes should be granted. Because it now admits that it erred in not granting County View s certification when it was requested, the Department is directed to issue a certification to Country View with notice to the School District and the Borough. If they desire to have that certification reviewed, the School District and the Borough are entitled to a hearing that complies with Lyness v. State Board of Medicine, 529 Pa. 535, 605 A.2d 1204 (1992), to determine whether the Department properly granted the certification. See Hardee's Food Systems, Inc. v. Department of Transportation of Pennsylvania, 495 Pa. 514, 434 A.2d 1209 (1981). Any party can then appeal from that adjudication by filing a petition for review with this Court. An appropriate order will be entered. ________________________________ DAN PELLEGRINI, JUDGE Senior Judge McCloskey dissents. 9 IN THE COMMONWEALTH COURT OF PENNSYLVANIA Country View Manors at Dunmore, L.P., Petitioner : : : : v. : No. 462 M.D. 2007 : Dunmore School District, Borough of : Dunmore and Department of : Community and Economic : Development of the Commonwealth : of Pennsylvania, : Respondents : ORDER AND NOW, this 12th day of February, 2008, the Department is directed to approve Petitioner s application for a certification entitling it to all tax exemptions, deductions, abatements or credits set forth in the Pennsylvania Keystone Opportunity Zone Act, 73 P.S. §§820.101-820.1309, with notice to Dunmore School District and the Borough of Dunmore. If either of those parties appeal, the Department will provide them with a hearing and issue an adjudication as provided for in this opinion. ________________________________ DAN PELLEGRINI, JUDGE

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