SUPREME COURT-STATE OF NEW YORK SHORT FORM ORDER Present: Justice Supreme Court, VALLEY STREAM GREEN ACRES LLC and TRIAL/IAS PART: 11 GREEN ACRES ADJACENT LLC, NASSAU COUNTY Petitioners, -against- Index No: 002959-17 Motion Seq. No. 1 TOWN OF HEMPSTEAD INDUSTRIAL Submission Date: 12/15/17 DEVELOPMENT AGENCY, Respondent. Papers Read on this Motion: Order to Show Cause, Affirmation in Support and Ex! Verified Answer and Objections in Point of La Memorandum of Law and Objections in Opposition. Exhibits to Memorandum of Law and Objections in Oppositio Reply Memorandum in Further Support. Supplemental Reply Affirmation and Exhil This matter is before the court on the motion by Petitioners Valley Stream Green Acres LLC (“VSGA”) and Green Acres Adjacent LLC (“GAA”) (“Owners” or “Petitioners” filed June 27, 2017 and submitted December 15, 2017. For the reasons set forth below, the Court grants the petition and declares that the Respondent Town of Hempstead Industrial Development Agency (“IDA”) lacked a rational basis to revoke the payments-in-lieu-of-taxes (“PILOTS”) agreements at issue in this case. Accordingly, the Respondent's actions were arbitrary and * The Court grants Petitioners’ application to consider their Supplemental Reply Affirmation, which was provided to the Court after the motion was submitted.capricious and violate CPLR § 7803. BACKGROUND. A. Relief Sought The Verified Petition (“Petition”) (Ex. 1 to Didora Aff. in Supp.) alleges as follows Petitioners bring this Article 78 proceeding seeking a judgment declaring that the IDA acted in an arbitrary, capricious and unlawful manner when it voted to revoke the two PILOT agreements awarded to the Owners, annulling the IDA’s resolutions dated April 27, 2017 purportedly revoking the PILOT agreements, and permanently enjoining the IDA from implementing the revocation of the PILOT agreements. In 2014 and 2015, the IDA approved the award of PILOT agreements (“Agreements”) to the Owners for the renovation and development of the Green Acres Mall and property. Pursuant to the PILOT agreements, these properties were removed from the tax rolls and, instead, the Owners were required to make predetermined payments to various taxing authorities. In exchange, the Owners committed to make drastic improvements to the Green Acres Mall that would enhance the mall and generate employment opportunities in the area. The Owners satisfied their obligations pursuant to the PILOT Agreements, including making all required payments. The Owners spent in excess of $120 million to renovate the Green Acres Mall (“Mall”) and construct the Green Acres Commons (“Commons”), which attracted national retailers including Amazon and BestBuy. Retailers at the Mall benefitted from the tax savings of the Agreements that helped to keep their rental costs down. The Malll and Commons are now part of a thriving economic center. The IDA is now attempting to revoke the benefits afforded to the Owners because residents in the Town of Hempstead (“Town Residents”), along with elected officials, have complained that their taxes have increased. To support its action, the IDA Board asserted thatthe Owners misrepresented and failed to meet the minimum job creation requirements. Petitioners allege that the pretextual nature of this claim is evident from a reading of the Agreements, as well as the IDA’s own findings. The Agreements give GAA and VSGA until December 31, 2017, and December 31, 2018, respectively, to meet the minimum job requirements and, therefore, the deadline for the Owners to meet the job requirements has not yet arrived. In its 2016 Compliance Review, however, less than one month before the purported revocation, the IDA concluded that the Owners were in full compliance with the PILOT programs and satisfied the job requirements ahead of schedule. Thus, Petitioners allege, there is no legal or factual basis for the IDA’s revocation (“Revocation”) of the Agreements, and the Owners are simply being made the scapegoat for a politically unpopular agreement. The Petition contains a single cause of action in which Petitioners seek a declaration that the Revocation of the Agreements was arbitrary, capricious and unlawful. On June 27, 2017, the Court issued a temporary restraining order (“TRO) which directed that, pending the determination of this motion, 1) the PILOT Agreement and all related agreements between Respondent and VSGA shall remain in full force and effect, and the parties are to continue complying with their terms and conditions, including but not limited to the Petitioners’ obligation to make any PILOT payments under any applicable Agreements; 2) the PILOT Agreement and all related agreements between Respondent and GAA shall remain in full force and effect, and the parties are to continue complying with their terms and conditions; 3) IDA is enjoined and restrained from taking any steps to add the Mall property to the tax rolls; 4) IDA is enjoined and restrained from taking any steps to add the Commons property to the tax rolls; 5) IDA is enjoined and restrained from terminating all agreements related to VSGA and GA, }) IDA is enjoined and restrained from implementing the Revocation of the Agreement and all related agreements between Respondent and VSGA in accordance with the resolutiondated April 27, 2017; and 7) IDA is enjoined and restrained from implementing the Revocation of the Agreement and all related agreements between Respondent and GAA in accordance with the resolution dated April 27, 2017. In support of the motion, Petitioners provide copies of the exhibits to the Petition, designated Exhibits A-FF. Those exhibits include the following: a January 22, 2015 Newsday article regarding the problems at the Mall (Ex. A): VSGA and GAA’s 2014 applications to the IDA for benefits in connection with the redevelopment of the Mall and construction of the Commons (Exs. B and C); the Resolution and related documentation reflecting the IDA’s December 2014 approval of the award of a PILOT Agreement to VSGA for the Mall (Ex. D); the Resolution and related documentation reflecting the IDA’s April 2015 approval of the award of a PILOT Agreement to GAA for the Commons (Ex. E); the VSGA PILOT Agreement, Recapture Agreement and Lease Agreement (Exs. F-H); the GAA PILOT Agreement, Recapture Agreement and Lease Agreement (Exs. I-K); the analysis conducted by independent contractor Camoin Associates of the Mall and Commons (“Camoin Report”) (Ex. M), who was hired by the IDA in October 2016; November 15, 2016 Newsday article reflecting the resignation of six of the seven IDA Board members who approved the PILOT Agreements (Ex. N), following the receipt of complaints from Town Residents; Notice for Informational Hearing (Ex. 0), which was not provided to Petitioners, regarding hearing held by new IDA Board to gather testimony from Town Residents and other interested parties regarding the status of the Mall and Commons; minutes of January 19, 2017 hearing, which Petitioners attended and at which Petitioners testified (Ex. P); 2016 data sheets provided to IDA by Petitioners (Exs. Q and R) which reflected increase in jobs from time that Petitioners applied for PILOT benefits; February 2, 2017 letter from IDA to VSGA requesting certified payrolls for all occupants and tenants of the Mall (Ex. S), and January 7, 2017 request from Steve Raiser (Ex. T), anew IDA Board member, forcertified payroll records for jobs created and retained by the “Green Acres project” (Pet. at § 55), which Petitioners responded to, even though the requests were not authorized by the Agreements (see Revised Data Sheets and Affidavits, Ex. U); Owners’ March 2017 letters advising IDA that there were only seven tenants at the Mall with whom the Owners had the ability to contractually request certified payroll records (Ex. V); Agenda and Minutes reflecting that on March 30, 2017, the IDA Board passed its 2016 compliance review (Ex. W), and 2016 Annual Financial Report and 2016 Financial Report (Ex. X) which concluded that the Owners were in compliance with the Agreements; IDA Notice and Agenda for April 27, 2017 Meeting (Ex. Y) whose agenda included the “Decision of Board on Green Acres PILOT Revocation” (Pet. at § 68); and transcript of April 27, 2017 meeting (Ex. Z), at which Owners were not given an opportunity to speak, at which IDA revoked the Agreements for both the Mall and Commons, without discussion or debate. Petitioners set forth comments of IDA Board Chairman Arthur Nastre (“Nastre”) during the April 27, 2017 meeting, prior to the vote regarding the Revocation, which included the following (Pet. at $71): [TJhis Board has researched the Company’s employment figures and has determined that the public was right. The [Company] has grossly misstated the number of both temporary construction jobs and permanent, full-time jobs it alleged would be created in its applications for the PILOTS and at the meeting and even during testimony at the [January] 19 hearing... To date, no other information has been received, no actual certified payrolls have been received, only the letters that I just mentioned, No proof has been submitted as [to] the actual number of construction jobs that were generated by the new mall project. No information has been received as to whether the existing mall has retained its 2,774 full-time jobs and no information as to average annual salaries of any of the employees, including construction workers has been supplied. No proof has been submitted that the jobs have been created or actually, no proof has been submitted for jobs that have actually been created were actually in the Town of Hempstead. The Board knows that the new mall has far more than seven tenants and although allegedly, [the Company] cannot contractually force them to submit employment numbers, they could have at least in a spirit of cooperation with the IDA asked their tenants and their contractors to submit proof of thenumber of jobs that they have created... The Board is not at all convinced that they have met, or have even come close to meeting any of their employment representations and we firmly believe that [the Company] has treated this Board’s request for hard proof of job creation in a very cavalier manner and has offered no plausible excuse as to why [it] has not complied with our rather simple request... Petitioners allege that Nastre’s comments are “blatantly incorrect and inconsistent with the terms of the PILOT Agreements as well as the IDA’s own 2016 Annual Financial Report and 2016 Compliance Review finding that the Owners were in compliance with their Agreements” (Pet. at | 72). Petitioners provide copies of the resolutions adopted by the IDA, following the April meeting, revoking the Mall and Commons PILOT Agreements (Exs. AA and BB). Petitioners allege that the resolutions “further highlight why the Board’s action revoking the PILOTs was arbitrary and capricious and not based on facts or applicable law” (Pet. at 174). In opposition to the motion, Respondent provides copies of the following: 1) a December 22, 2016 letter from the IDA to Howard Klein (“Klein”) at VSGA advising Klein that state law requires the IDA to file an Annual Financial Statement with the State of New York and enclosing an affidavit which VSGA is to use in assisting the IDA in meeting its reporting requirements and advising Klein that VSGA must also forward a copy of certain documentation (Ex. 1); a February 8, 2017 letter from the IDA to Klein advising Klein that a review of his Annual Compliance Data Information revealed that “[tJhe data sheet reflects data in the full time created and retained section that does not add up to current number of employees” and requesting Klein to provide the IDA with a detailed letter of explanation by February 17, 2017 (Ex. 2); a February 24, 2017 letter from the IDA to Klein, marked “Urgent Final Notice,” advising Klein that the IDA had not yet received the data sheet regarding employment and further advising Klein that the failure to submit the requested information constitutes a default in the Agreement and will result in the loss of VSGA’s benefits (Ex. 3); and documentationregarding the IDA’s Annual Organizational Board Meeting on January 26, 2017 (Ex. 4) which includes the notation “Steven Raiser made a request to staff to ask for certified payrolls for the [VSGA] project.” Inhis supplemental reply affirmation dated December 20, 2017, which was provided to the Court after the submission of this motion on December 15, 2017, counsel for Petitioners affirms that on December 19, 2017, the New York State Comptroller released its audit report (“Audit”) titled “Town of Hempstead Industrial Development Agency and Valley Stream Union Free School District 30: Green Acres Mall PILOT Payments” (Ex. A to Didora Supp. Reply Aff.), which is available on the Comptroller’s website, The purpose of that Audit was to determine whether the IDA followed its policies and procedures when approving and administrating the Mall and Commons projects, and to determine whether District 30 appropriately budgeted for the Green Acres PILOTS and the 2016-17 tax levy (Audit at p. 1) The Comptroller found that the IDA’s board “[fJollowed its procedures when approving the Green Acres project” and that District 30 officials “[uJnderestimated PILOT revenue resulting in $1.8 million in excess revenue and an unnecessary tax increase to class 1 (residential) 2016-17 tax rates” (Audit at p. 1). Petitioners’ counsel also makes reference to Appendix C to the Audit, which is a letter dated November 29, 2017 from the IDA responding to the draft audit report that had been provided by the Comptroller. That letter includes the following statement, at page 3 of the letter: Finally, this project has upheld all job commitments thus far, as promised by the Developer to the community. The Agency’s board, to date, has approved 36 new tenants, which have created 575 new employment positions thus far as a result of the PILOT. Furthermore, a new anchor store has opened, Century 21, which has also contributed immeasurably to the success of the Green Acres Mall.B. The Parties’ Positions Petitioners assert that by letter dated May 1, 2017 (Ex. CC to Pet.), the Owners responded to the purported revocation by demanding that the IDA Board reconvene on an emergency basis, set aside the action taken on April 27, 2017 and reinstate the PILOT Agreements. Petitioners assert, further, that the IDA never responded in writing to that letter, and never took any action to rescind its allegedly improper revocation of the PILOT Agreements. In June 2017, the IDA Board set a special meeting for June 29, 2017 with a single agenda item, “Consideration of the Termination of all Agreements related to [VSGA] and [GAA]" (see Ex. EE to Pet.). Petitioners assert that the IDA now appears ready to terminate the PILOT Agreements based on its allegedly unlawful Revocation action on April 27, 2017. Under these circumstances, Petitioners submit, they have exhausted their administrative remedies. Petitioners submit that they have established their right to the requested relief, claiming that: 1) The IDA improperly revoked the PILOT Agreements, as evidenced by the fact, inter alia, that a) Both the 2016 Financial Report and the 2016 Compliance Review coneluded that the Owners were in full compliance with the terms of their PILOT Agreements; and b) The Camoin Report concluded infer alia that the renovation and construction of the Mall and Commons “resulted in approximately 177 new direct construction jobs generating nearly $17.4 million in direct new earings on-site and an additional $3.2 million in indirect earnings to 69 indirect jobs” (Ps’ Ex. M at p. 1); and°) ‘The IDA’s November 29, 2017 letter to the Comptroller's Office further contains the IDA’s admission that sufficient jobs have been created due to the PILOTS. 2) The IDA lacked a rational basis to revoke the Agreements because a) b) Although the IDA accused the Owners of not complying with the full-time equivalent (“FTE”) requirements of the Agreements, the Owners did not need to meet those requirements until December 31, 2017 and December 31, 2018 (see Ps’ Ex. Hat § 8.13 and Ps? Ex. K at § 8.13), and the Owners actually satisfied the FTE requirements as demonstrated by the IDA’s 2016 Compliance Review; Even if the Owners were required to meet the FTE requirements prior to the issuance of the resolutions, which they were not, and failed to meet them, the IDA was required to first give the Owners written notice of the default and provide the Owners with an opportunity to cure (see Ps’ Exs. F and I at § 11 - “The Agency agrees to notify the Company in writing of any failure by the Company to comply with any provision of this PILOT Agreement and shall provide the Company with the opportunity to cure such failure within thirty (30) days after receipt by the Company of such notice”), which the IDA failed to do; The IDA failed to comply with the notice requirements pursuant to its own internal policy, as the IDA’s Recapture Policy (Ps* Ex. FF) expressly states that the IDAs decision to terminate and suspendfinancial assistance will be subject to the agreements or project documents entered into by the IDA and a project applicant; and 4) Because the Agreements specifically mandate that the IDA provide the Owners with written notice and an opportunity to cure any alleged defects, the IDA lacked a rational basis in failing to provide the Owners with written notice of any alleged default or noncompliance prior to revoking the Agreements. Respondent opposes the motion, submitting that: y 2) 3) The IDA appropriately requested certified payroll records for all occupants and tenants of the Project on February 2, 2017 (see Ps’ Ex. S), ‘as providing this information to the IDA is Petitioners’ legal obligation pursuant to the parties’ Lease Agreement; Petitioners’ argument that the IDA. was required to give prior notice of revocation is disingenuous in light of the language at Article II of the Lease Agreement, Section 8.6 which authorizes the IDA to request information necessary to enable it to make any report required by law or regulation, and provides that the information will be provided within 30 days of being requested, and Petitioners failed to provide the information requested within the allotted 30 day period; While it is true that an event of default based on failure to make a PILOT payment is subject to written notice and a cure period, the IDA’s basis for the revocation in this action was not failure to make a PILOT payment, but rather failure to provide information requested by the IDA, and there 10is no right to written notice or a cure period for this type of default; and 4) In light of Petitioners’ failure to properly respond to the February 2, 2017 request for certified payroll records, the IDA had the right to revoke the PILOT Agreements, and its decision to do so was not arbitrary and capricious. RULING OF THE COUR’ A court reviewing a CPLR Article 78 petition may not disturb the decision of a municipal body charged with determining land use questions unless that body's decision is arbitrary and capricious, lacks a rational basis, or is an abuse of discretion. Matter of Lucas v. Board of Appeals of Vil. of Mamaroneck, 109 A.D.3d 925, 928 (2d Dept. 2013), |v. app. den, 22'N.Y.3d 858 (2013), quoting Matter of Fuentes v. Planning Bd. of the Vil. of Woodbury, 82 A.D.3d 883 (2d Dept. 2011), Iv. app. den. 17 N.Y.3d 707 (2011). While this is a heavy burden, the Petitioners have met it here. At the outset, the IDA cannot maintain its initial rationale for revoking the PILOTS, as announced by then-Chairman Nastre on April 27, 2017, that there was “no proof” that any jobs were created as a result of the PILOTS. Indeed, the IDA itself, in a November 29, 2017 letter to the New York State Comptroller's Office from Frederick Parola, its then-Executive Director and Deputy Executive Director Edie Longo, contradicts that sentiment. In the November 29, 2017 letter, the IDA states that “this, project has upheld all job commitments thus far, as promised by the Developer to the community,” including the creation of “575 new employment positions thus far as a result of the PILOT,” and the opening of a new anchor store, Century 21. In sum, the IDA is hoist with its own petard — its own words — in its claim that the PILOTS have not created sufficient jobs. ulMoreover, the IDA is similarly arbitrary and capricious in claiming that the Owners did not comply with the IDA’s request for certified payroll records. Initially, the IDA never requested certified payroll records from Petitioner GAA. Without such a request, any decision by the IDA to terminate GAA’s PILOTS agreement for failure to provide such records, is, a fortiori, without any basis, The claim regarding the IDA’s request for payroll records from VSGA requires a different analysis. The IDA requested those records by relying on section 8.6 of its lease with VSGA. That section provides that the IDA may request certified records “to enable the [IDA] to make any report required by law.” The IDA has not pointed to any “report required by law” to which certified payroll records might be germane. Moreover, to the extent that these payroll records are relevant to the IDA’s concerns, such relevance pertains to job creation and retention — which are the very issues that the IDA concedes have been adequately addressed in the November 29, 2017 letter to the Comptroller's Office. Even if the IDA could properly demand certified payroll records from VSGA (or GAA, if it even made such a demand), the IDA did not comply with the notice and cure provisions of the PILOTS agreements. Those agreements provide that the IDA must notify the Company in writing of any failure by the Company to comply with any provision of this PILOT Agreement and shall provide the Company with the opportunity to cure such failure within thirty (30) days afier receipt by the Company of such notice. It is undisputed that the IDA did not provide such written notice, much less any opportunity to cure any deficiencies, This failure further demonstrates the arbitrary and capricious nature of the IDA’s actions, In sum, it may well be that the IDA desires to terminate the PILOTS agreements, It 12may well be that such a desire reflects the will of the IDA’s constituency. And it may well be that the IDA has a proper basis to take such action. The present record before the Court, however, demonstrates that the IDA did not have a properly articulated basis for enacting the April 27, 2017 resolutions that are the fulcrum of this case. Accordingly, the Court (a) declares that the IDA acted in a manner that is arbitrary, capricious, an abuse of discretion and in violation of law in enacting the April 27, 2017 resolutions; (b) declares that IDA’s April 27, 2017 resolutions are annulled and vacated inasmuch as these resolutions arbitrarily and capriciously revoked the PILOTS agreements previously awarded to the Petitioners, and (c) enjoins the IDA from implementing the revocation of the PILOTS agreements and any related agreements between the IDA and either of the Petitioners on the basis of the IDAs April 27, 2017 resolutions. Alll matters not decided herein are hereby denied. This constitutes the decision and order of the Court. Submit judgment on ten (10) days notice. ENTER DATED: fineola, NY February 15, 2018 1B