NY Court Limits Discovery in Tax Certiorari Proceedings
While discovery motions are exceedingly rare in New York State real property tax litigation matters (tax certiorari), the New York State Supreme Court (New York’s trial-level court) recently issued a pair of decisions denying Respondent New York City’s motions to compel petitioners to turn over various items the city deemed crucial to its defense of the matters. These decisions are victories for taxpayers and should serve, at least to some degree, to expedite the notoriously lengthy delays associated with resolving property tax disputes.
Under Article 7 of New York State’s Real Property Tax Law,tax certiorari proceedings are considered “summary” proceedings. As such,discovery can only be directed by leave of court and only if the discovery isdeemed “material and necessary.”
While this standard has generally been interpreted quite liberally by the courts, the recent decisions issued by Justice Lori Sattler in New York County demonstrate that the standard is not without limits.
In the first case, the Petitioner (owner of a Manhattan hotel represented by our firm, Ditchik & Ditchick PLLC) brought a challenge to the assessed value (and, therefore, to the real estate taxes) of its property in relation to the 2020/21 tax year. Respondent City sought to compel disclosure of appraisal reports made in connection with 2020 and 2021 mortgage modifications for the property in question. The City claimed these reports contained valuable information (including conclusions of value) that were material and necessary to its defense of this challenge. After considering Petitioner’s arguments to the contrary, the Court disagreed with the City and denied its motion.
Every tax certiorari trial involves the parties’ expert real-estate appraisers, who prepare independent appraisal reports and arrive at their own conclusions of value for real estate tax purposes specifically. The Court acknowledged that process and understood that the appraisals being sought through the City’s motion were prepared for a completely different and unrelated purpose (namely, mortgage financing) and were therefore not material and necessary to the City’s defense.
Further, the City could only speculate that these reports might have some additional information that it would deem useful; however, that mere speculation was not enough to compel disclosure. In fact, Petitioner had already voluntarily provided all the basic property-related information the City sought during pretrial negotiations. Having resolved this discovery matter in favor of Petitioner, the case will now proceed with an exchange of expert appraisal reports, then potentially to trial, as the summary proceeding nature of this type of litigation contemplates.
Similarly, in a second recent decision in a different taxcertiorari challenge, Justice Sattler denied the City’s motions to compelPetitioner (an owner of two small laundry room units) to provide a variety ofinformation the City sought during pretrial negotiations over the correctassessed values of those laundry units.
Specifically, while the two units in question were owned byPetitioner (and therefore not leased out to third parties), Petitioner alsoowns/manages laundry units in the city where leases are in place. The Citysought copies of the leases at Petitioner’s other properties, claiming theywere relevant comparables to the property in question and would providematerial and necessary evidence to assist the City in its defense.
The Court again disagreed, stating that it cannot compelPetitioner to produce leases that are not the subject of the proceeding at handprior to the parties’ exchanging appraisals. Each party’s independent appraisalreport produced in connection with the litigation would presumably rely on itsown analysis of the market/leases available.
Additionally, each party would have the opportunity to cross-examine the other party’s expert with respect to what each relied on in arriving at its value. Therefore, the Court held that requiring Petitioner to produce this type of information (wholly unrelated to the subject property)during pretrial negotiation would not be appropriate. The Court further held that Respondents were not entitled to information related to the subject properties’ business income, as that was not relevant to the valuation dispute, which centers around the appropriate rental value of the spaces.
Taken together, these decisions reinforce the fact that while the discovery standard is generally a liberal one in tax certiorari proceedings, the summary nature of these proceedings places some limitations on lengthy discovery disputes.
We are pleased that the Court agreed with the Petitioners inboth cases that the City’s request, which would only serve to delay the timelyresolution of these matters, was unnecessary and inconsistent with the summarynature of the proceedings.
