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Attorney(S)

Adrian P. Burke, Corporation Counsel ( Samuel J. Warms, Raymond Herzog and Robert J. Metzler, II of counsel), for appellant. Edward J. Boyle and W. Foster Wollen for respondent.

Judges

Charles D. Breitel

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Smart Summary

Case Summary: In the Matter of First National City Bank v. City of New York Finance Administration

Factual and Procedural Background

Between September 23, 1963 and December 19, 1966, First National City Bank reported and paid $679,008.68 in New York City commercial rent or occupancy taxes. Each quarterly payment was accompanied by a written protest asserting that the tax, as applied to a national bank, violated federal law and the Federal Constitution. Subsequent judicial decisions involving other national banks supported the bank's constitutional position, a concession the City also made in this case.

The applicable municipal statute (Commercial Rent or Occupancy Tax Law, Administrative Code § L46-9.0, subd. a) required refund applications to be filed within the later of 18 months from the date for filing the return or 6 months from the date of payment, and declared the statutory refund remedy exclusive except for judicial review by an article 78 proceeding (§ L46-10.0).

The bank filed a statutory refund application on June 20, 1968. On February 11, 1971 the City Finance Administration ruled the claim untimely as to $627,932.68 paid between June 1, 1963 and August 31, 1966, and refunded only $51,076. On March 11, 1971 the bank brought an article 78 proceeding to review that adverse administrative determination. Separately, on June 18, 1971 the bank instituted a plenary action for moneys had and received, which was allowed to lie dormant and is not before the Court of Appeals.

Special Term granted judgment for the bank in the amount of $627,932.68 and denied the City's motion to dismiss for untimeliness. The Appellate Division modified only to award 3% interest from the dates of payment and otherwise affirmed. The City appealed to the Court of Appeals.

Legal Issues Presented

Whether resort to the statutory refund procedure (and the article 78 review of the administrative determination) bars the bank from obtaining relief outside the statute's short time limitations.
Whether the article 78 proceeding may be converted into a plenary action for moneys had and received under CPLR 103(c), and if so, when the six-year statute of limitations applicable to such a plenary action is tolled (i.e., whether from the date of the refund application, June 20, 1968, or from the date the judicial proceeding was instituted, March 11, 1971).
Whether, following conversion (if appropriate), the City may assert the Statute of Limitations as a defense and whether the bank is entitled to interest on recoverable sums from the dates of payment.

Arguments of the Parties

Petitioner / Respondent (First National City Bank)

The bank contended it was not barred by the tax statute's short limitations simply because it resorted to the article 78 remedy prescribed by the statute.
The bank asserted that, irrespective of pursuing the special statutory proceeding, it was pursuing a remedy in the nature of an action for moneys had and received, which is governed by a six-year statute of limitations.
The bank argued the six-year limitation should be tolled as of June 20, 1968, the date it filed its refund application.

Appellant (City of New York Finance Administration)

The City argued the bank was bound by the tax statute's short time provisions because the bank resorted to the special statutory remedy and only sought judicial relief by article 78 to review the administrative determination.
The City asserted the bank did not avail itself of the alternative common-law remedy (a plenary action) until it started a separate plenary action on June 18, 1971, and therefore the instant proceeding (the article 78 filed March 11, 1971) should be dismissed as untimely to the extent the refund application was untimely under § L46-9.0.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Liberty Nat. Bank v. Buscaglia, 21 N.Y.2d 357; affd. upon rearg. 23 N.Y.2d 933	Authority for the proposition that courts in related cases substantiated the bank's position that such taxes were invalid as applied to national banks.	Used to show subsequent judicial decisions supported the bank's constitutional position.
Agricultural Nat. Bank v. Tax Comm., 392 U.S. 339, 345-346	Federal precedent supporting the invalidity of tax application to national banks.	Reinforced the factual/legal backdrop that courts had substantiated the bank's position.
Nettleton Co. v. Diamond, 27 N.Y.2d 182, 189	Related case authority cited in discussion of tax invalidity or applicability.	Referenced as part of the body of cases supporting the bank's position.
Richfield Oil Corp. v. City of Syracuse, 287 N.Y. 234, 239	When a tax statute is alleged unconstitutional or wholly inapplicable, judicial challenges may proceed outside the statute's exclusive remedy; invalidity affects the statute including its limitations and restrictions.	Cited to support the proposition that unconstitutional statutes may be attacked outside the statutory remedy and that invalidity affects statutory limitations.
Dun Bradstreet v. City of New York, 276 N.Y. 198, 206-207	Same principle as Richfield: invalidity of tax statute permits collateral attack outside statutory remedy.	Used to reinforce the rule regarding challenge to the statute and its limitations.
Socony-Vacuum Oil Co. v. City of New York, 247 App. Div. 163, 166-167; affd. 272 N.Y. 668	Authority on collateral attack when statute is invalid as applied or wholly inapplicable.	Supported the discussion that a tax statute's invalidity affects limitation provisions.
New York R.T. Corp. v. City of New York, 275 N.Y. 258, 264; affd. 303 U.S. 573	Recognition that a plenary action for moneys had and received is a method of collaterally attacking an invalid tax and can avoid time bar when timely brought.	Applied to explain that a plenary action is an available remedy and that pursuing it avoids a time bar if instituted within applicable period.
Mercury Mach. Importing Corp. v. City of New York, 1 A.D.2d 337, 340-341; revd. on other grounds 3 N.Y.2d 418, 430	Supports that plenary action for recovery may be available as collateral attack to statutory refund procedures.	Referenced in connection with availability of plenary remedies and conversion rationale.
Diefenthaler v. Mayor, 111 N.Y. 331, 337	Principle that action for moneys had and received is controlled by a six-year statute of limitations; accrual of cause of action when payment was made under protest.	Used to show the governing limitation period for the plenary action theory.
People ex rel. First Nat. Bank v. Schadt, 237 App. Div. 233, 236	Support for accrual rule and for characterization of plenary actions for recovery of taxes.	Followed in explaining when causes of action for moneys had and received accrue.
Aetna Ins. Co. v. Mayor, 153 N.Y. 331, 339-340	Payment under protest gives rise to a cause of action for recovery.	Cited to establish accrual of the bank's causes of action when payments were made under protest.
Matter of United Piece Dye Works v. Joseph, 282 App. Div. 60, 64-65; affd. 307 N.Y. 780; cert. den. 348 U.S. 916	Example that an article 78 review is limited by the statutory administrative time preconditions when the statute prescribes exclusive procedures.	Used to show the limits of article 78 review when the statutory remedy is asserted as exclusive.
Phalen v. Theatrical Protective Union, 22 N.Y.2d 34, 41-42; cert. den. 393 U.S. 1000	Authority for CPLR 103(c) conversion power: courts should convert improperly framed proceedings to proper forms rather than dismiss.	Cited to justify converting the article 78 proceeding into a plenary action for moneys had and received under CPLR 103(c).
Matter of Brodsky v. Murphy, 25 N.Y.2d 518, 521-523	Authority supporting award of interest (3%) from dates of payment on recoverable tax refunds.	Applied to award 3% interest from dates of payment on that portion of refunds not barred by limitations.
Matter of O'Berry, 179 N.Y. 285, 286-291	Authority concerning allowance of interest on refunds from dates of payment.	Reinforced the court's decision to award interest on recoverable amounts from payment dates.
Tax — Recovery Back — Limitations, Ann., 92 A.L.R. 1360	Secondary source summarizing limitations principles applicable to tax recovery actions.	Referenced generally to support limitation-period discussion for tax recovery actions.

Court's Reasoning and Analysis

The Court commenced by identifying the central tension: the bank paid taxes under protest and later filed a refund application under the municipal statute, but did so outside the statutory short filing periods. The administrative denial followed, and the bank sought judicial review by article 78 and asked alternatively that the proceeding be treated as a plenary action for moneys had and received.

The Court analyzed three linked propositions:

Effect of resorting to the statutory remedy: The Court held that the bank's decision to use the special statutory remedy (and its use of article 78 to review the administrative determination) subjects it to the statute's limitations and procedural preconditions. An article 78 brought to review an administrative refund determination is limited by the statutory time preconditions to that administrative determination.
Availability of conversion to plenary action: Under CPLR 103(c), courts are empowered to convert a proceeding not brought in the proper form into the proper form rather than dismissing it. Because the bank's petition raised the statute's unlawful application and unconstitutionality, and because a plenary action for moneys had and received is an available form, the court concluded the special proceeding should be treated as one of improper form and converted to a plenary action to avoid dismissal as to a substantial part of the relief sought.
Proper accrual and tolling for the six-year limitation: The Court held that if the article 78 is converted into a plenary action, the six-year statute of limitations applicable to actions for moneys had and received is tolled only when judicial proceedings are actually instituted. The filing of the administrative refund application (June 20, 1968) and the adverse administrative determination do not toll the six-year limitation applicable to a plenary action. Thus the operative date for measuring the six-year period is when the notice of petition was served (March 11, 1971), not the date of the refund application.

The Court therefore concluded that only payments made within six years prior to March 11, 1971 could be recovered in the converted plenary action. The filing of the refund application did, however, temporarily bar the bank from instituting an action for 30 days under a referenced Administrative Code subdivision, but beyond that 30-day period did not toll the six-year period.

The Court applied authorities for several discrete propositions: (1) that unconstitutional or wholly inapplicable tax statutes may be collaterally attacked and such invalidity affects statutory limitations (citing Richfield Oil, Dun Bradstreet, Socony-Vacuum); (2) that a plenary action for moneys had and received is an appropriate collateral remedy and is governed by a six-year statute (New York R.T. Corp., Diefenthaler, People ex rel. First Nat. Bank v. Schadt); (3) that causes of action accrue when payments are made under protest (Aetna Ins. Co. and Schadt); and (4) that CPLR 103(c) authorizes conversion of improperly framed proceedings (Phalen).

On procedural remediation, the Court directed that, upon remittal to Special Term, the converted plenary action proceed and that the City be permitted to answer and assert, if it chooses, the Statute of Limitations as an affirmative defense (citing applicable CPLR provisions governing pleading). For that portion of the taxes not barred by limitations, the Court affirmed the Appellate Division's award of 3% interest from the dates of payment.

Holding and Implications

Holding: The Court modified the Appellate Division's order by vacating the judgment for the bank and remitting the matter to Special Term to be treated as a plenary action for moneys had and received. The Court held that conversion under CPLR 103(c) is appropriate here, but the six-year statute of limitations for such a plenary action is tolled only when the judicial proceeding is instituted; accordingly, recoverable payments are limited to those made within six years prior to the notice of petition (March 11, 1971). The Court further held that the City may answer and plead the Statute of Limitations and that interest at 3% from the dates of payment is proper on amounts not barred by limitations.

DIRECT EFFECT: The order of the Appellate Division is modified (judgment in favor of the bank vacated) and the matter remitted to Special Term for proceedings consistent with this opinion; the City is permitted to answer and assert a Statute of Limitations defense; the bank may recover only those protested payments made within six years prior to March 11, 1971; interest at 3% is allowed on recoverable amounts from the dates of payment.

Implications: The opinion clarifies that (1) attempting to use a statutory refund procedure subjects a claimant to the statute's time limits and preconditions when the claimant pursues the administrative remedy and article 78 review; (2) courts may convert improperly framed special proceedings into plenary actions under CPLR 103(c) where appropriate; and (3) where conversion occurs, the limitations period for the converted plenary action is measured from the commencement of judicial proceedings, not from the date of an earlier administrative refund application. The opinion does not announce that it is establishing a new rule beyond applying these established principles to the circumstances presented; it specifies the direct effect on the parties and remits the case for further proceedings.

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In the Matter of FIRST NATIONAL CITY BANK, Respondent, v. CITY OF NEW YORK FINANCE ADMINISTRATION, Appellant.

Chief Judge BREITEL.

In an article 78 proceeding (CPLR) brought by a national bank to recover invalidly levied municipal taxes for the years 1963-1966, the City of New York by its Finance Administration appeals. The Finance Administration denied petitioner's claim solely on the ground that its refund application in 1968 had not been timely filed under the tax statute. The courts below allowed judgment in favor of the bank.

The principal issue is whether the bank, because it resorted to an article 78 proceeding, a remedy prescribed by the applicable taxing statute, is barred by the short time limitations in the statute. The bank contends that it is not so barred and, regardless of the special proceeding, it is pursuing a remedy in the nature of an action for moneys had and received, limited only by a six-year Statute of Limitations. The bank, however, would toll the Statute of Limitations from 1968, when it filed its claim under the statute, rather than 1971, when it brought the judicial proceeding.

The order of the Appellate Division should be modified. The resort to the special proceeding prescribed by the statute subjects the bank to its limitations, including the time to file a claim and to institute the proceeding. The courts, however, under CPLR 103 (subd. [c]) may convert the proceeding into a plenary action to recover moneys had and received, but in that event the six-year Statute of Limitations is tolled only when judicial proceedings are instituted. The filing of the claim or the adverse administrative determination rejecting the claim are to no avail in tolling the Statute of Limitations governing the plenary action. As a consequence, the bank may recover only those protested payments made up to six years prior to the bringing of judicial proceedings. The matter should be remitted to Special Term to be treated as a plenary action for moneys had and received, and the city permitted to serve an answer, including, if it be so advised, a defense of Statute of Limitations.

Between September 23, 1963 and December 19, 1966, the bank reported and paid $679,008.68 in city commercial rent or occupancy taxes, pursuant to chapter 46, title L, of the Administrative Code of the City of New York (Local Laws, 1936, No. 39 of City of New York; Laws 1963, ch. 257). Each quarterly payment was accompanied by written protest that the tax, as applied to a national bank, contravened both the Federal Constitution and Federal law because national banks are constitutionally immune from State and local taxes not authorized by section 5219 of the U.S. Revised Statutes (13 U.S. Stat. 111; U.S. Code, tit. 12, § 548; see U.S. Const., art. VI, cl. 2). After the protested payments the courts, in cases affecting other national banks, substantiated the bank's position (see Liberty Nat. Bank v. Buscaglia, 21 N.Y.2d 357, affd. upon rearg. 23 N.Y.2d 933; Agricultural Nat. Bank v. Tax Comm., 392 U.S. 339, 345-346; cf. Nettleton Co. v. Diamond, 27 N.Y.2d 182, 189). The city concedes this to be so.

The Commercial Rent or Occupancy Tax Law, the statute invalidly applied, requires that a written application for a refund of a tax erroneously, illegally, or unconstitutionally collected or paid be made within the later of 18 months from the date for filing the return or 6 months from the date of payment (Administrative Code of City of New York, § L46-9.0, subd. a). The statute also provides that the statutory remedy be exclusive, by stating that a determination on a refund application may not be reviewed except by an article 78 proceeding and in circumstances not now relevant, an action for a declaratory judgment (§ L46-10.0).

The bank did not apply for a refund pursuant to the statute until June 20, 1968. On February 11, 1971, after a delay of nearly three years, the City Finance Administration, applying the 18 months' and 6 months' time provisions, ruled that the claim was untimely filed as to $627,932.68 paid between June 1, 1963 and August 31, 1966. The bank was refunded only the last quarterly payment of $51,076.

On March 11, 1971, the bank brought this special proceeding to review the adverse determination on its refund application. Later, on June 18, 1971, the bank started a separate plenary action for moneys had and received, an action which has been permitted to lie dormant and is not before the court.

Special Term, noting the unconstitutionality of the tax levy and the availability of remedies alternative to a refund claim under the statute, granted plaintiff judgment for the stated amount of $627,932.68, and denied the city's motion to dismiss for untimeliness. The Appellate Division modified only to award petitioner 3% interest from the dates of payment, and otherwise affirmed the judgment.

The refund application filed on June 20, 1968 was untimely under section L46-9.0 as to the large part of the bank's claim, because of the 18 months' and 6 months' limitations. When a tax statute, however, is alleged to be unconstitutional, by its terms or application, or where the statute is attacked as wholly inapplicable, it may be challenged in judicial proceedings other than those prescribed by the statute as "exclusive"; the invalidity or total inapplicability affects the entire statute, including the limitations and restrictions on the remedy provided in it (see Richfield Oil Corp. v. City of Syracuse, 287 N.Y. 234, 239; Dun Bradstreet v. City of New York, 276 N.Y. 198, 206-207; Socony-Vacuum Oil Co. v. City of New York, 247 App. Div. 163, 166-167, affd. 272 N.Y. 668). One method of collateral attack is a plenary action for moneys had and received (see New York R.T. Corp. v. City of New York, 275 N.Y. 258, 264, affd. 303 U.S. 573; Mercury Mach. Importing Corp. v. City of New York, 1 A.D.2d 337, 340-341, revd. on other grounds 3 N.Y.2d 418, 430). Such an action is based, in theory, upon a contractual obligation or liability, express or implied in law or fact, and is controlled only by the six-year Statute of Limitations (see Diefenthaler v. Mayor, 111 N.Y. 331, 337; People ex rel. First Nat. Bank v. Schadt, 237 App. Div. 233, 236; see, generally, Tax — Recovery Back — Limitations, Ann., 92 A.L.R. 1360).

The bank's causes of action for moneys had and received accrued as it paid under protest the taxes unlawfully and unconstitutionally imposed upon it (see Aetna Ins. Co. v. Mayor, 153 N.Y. 331, 339-340; People ex rel. First Nat. Bank v. Schadt, 237 App. Div. 233, 236, supra). The causes of action having accrued, the bank could have avoided any time bar by pursuing a plenary action (see New York R.T. Corp. v. City of New York, 275 N.Y. 258, 264, affd. 303 U.S. 573, supra). The bank until 1971, however, chose to seek relief only by the statutory refund procedure.

An article 78 proceeding under the applicable tax statute could itself be the vehicle for attack on the tax statute for unlawful application or unconstitutionality, but only in seeking to review the administrative determination. In that event, it would be limited by the statutory procedure. The bank could not take part and reject part, as suits its purposes, of the statutory procedure. The special proceeding instituted on March 11, 1971, while timely to review the administrative determination, would also be limited by the statutory time preconditions to an administrative determination stipulated in the statute (see, e.g., Matter of United Piece Dye Works v. Joseph, 282 App. Div. 60, 64-65, affd. 307 N.Y. 780, cert. den. 348 U.S. 916; Mercury Mach. Importing Corp. v. City of New York, 1 A.D.2d 337, 339-340, supra).

The bank therefore urges alternatively that its article 78 proceeding be treated as a plenary action to recover moneys had and received, with the six-year limitation period measured from the filing of its refund application on June 20, 1968. The city on the other hand contends that the bank did not avail itself of this alternative common-law remedy until it started the separate plenary action on June 18, 1971, and argues that the instant proceeding should be dismissed in view of the untimeliness of the refund application under section L46-9.0.

Under CPLR 103 (subd. [c]), the courts are empowered and indeed directed to convert a civil judicial proceeding not brought in the proper form into one which would be in proper form, rather than to grant a dismissal, making whatever order is necessary for its proper prosecution (see, e.g., Phalen v. Theatrical Protective Union, 22 N.Y.2d 34, 41-42, cert. den. 393 U.S. 1000). Because the petition raised the statute's unlawful application and unconstitutionality, and a proper form of action was available, the courts should regard the problem as one of improper form only. Consequently, the special proceeding should be converted into an action for moneys had and received to avoid dismissal as to a substantial part of the relief sought. This treatment is particularly warranted here in the interest of justice and equity (cf., e.g., Mercury Mach. Importing Corp. v. City of New York, supra; Guaranty Trust Co. v. State of New York, 271 App. Div. 711, 714).

In computing the six-year limitation on the plenary action, however, the bank's claim must be deemed interposed on March 11, 1971, when the notice of petition was served, not, as the bank contends, on June 20, 1968, the date the refund application was filed (see CPLR 103, subd. [b]; CPLR 105, subd. [b]; CPLR 203, subd. [b]; see, generally, 1 Weinstein-Korn-Miller, N Y Civ. Prac., par. 203.07). Filing the application, moreover, did not toll the Statute of Limitations beyond 30 days, the period during which petitioner was barred from instituting an action or proceeding by subdivision a of section 394a-1.0 of the Administrative Code (see CPLR 204, subd. [a]). Upon remittal, therefore, the city should be permitted to serve an answer, pleading, if it be so advised, the Statute of Limitations (CPLR 3018, subd. [b]).

Finally, on that portion of the taxes, refund of which is not barred by the Statute of Limitations, the bank should be awarded, as it was at the Appellate Division, interest at 3% from the dates of payment (see Matter of Brodsky v. Murphy, 25 N.Y.2d 518, 521-523; Matter of O'Berry, 179 N.Y. 285, 286-291; see, generally, Tax Refund or Credit — Interest, Ann., 88 ALR 2d 823, 827).

Accordingly, the order of the Appellate Division should be modified, without costs, by vacating the judgment in favor of the bank, and the matter remitted to Special Term for proceedings in accordance with this opinion.

Judges JASEN, GABRIELLI, JONES, WACHTLER, FUCHSBERG and COOKE concur.

Order modified, without costs, and the matter remitted to Special Term for further proceedings in accordance with the opinion herein and, as so modified, affirmed.

FIRST NAT. CITY BANK v. CITY OF N.Y