The following e-filed documents, listed by NYSCEF document number (Motion 001) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 29, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 51, 55, 56, 57, 58, 59 were read on this motion to/for DISMISS. The following e-filed documents, listed by NYSCEF document number (Motion 002) 23, 24, 25, 26, 27, 30, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 52, 53, 54, 60 were read on this motion to/for DISMISSAL. DECISION + ORDER ON MOTION In August 2022, plaintiff Trenton Business Assistance Corporation d/b/a Regional Business Assistance Corporation (hereinafter, “RBAC”) commenced the instant action against State Defendants, Amanda Hiller, in her capacity as acting commissioner of the New York Department of Taxation and Finance, and Thomas DiNapoli, in his capacity as New York State Comptroller and City Defendants, the City of New York and Preston Niblack, in his capacity as the Commissioner of the New York City Department of Finance. As a non-profit entity incorporated under New Jersey law and a certified development company (“CDC”) in the U.S. Small Business Administration’s (“SBA”) “504 Loan Program,” RBAC paid a mortgage recording tax (“MRT”) required by New York State’s Tax Law §253 and a City MRT authorized by the same section. In this action, RBAC alleges that §253 and Non-Profit Corporation Law §1411 (discussed in further detail infra) violate the Commerce, Equal Protection, and Supremacy clauses of the U.S. Constitution (as applied to RBAC), as well as the Equal Protection clause in the New York State Constitution by unlawfully subjecting it, an out-of-state corporation, to the MRT while exempting New York-based, non-profit local development corporations (“LDCs”). Accordingly, RBAC seeks a declaratory judgement as to the unconstitutionality of these laws and a refund from the NYC Department of Finance for $46,200 (the amount it paid to record a mortgage on property located in Manhattan). In motion sequence 001, State Defendants move to dismiss pursuant to CPLR 3211 (a) (5), arguing that the doctrine of res judicata and collateral estoppel bar RBAC from recovering on these claims, and pursuant to CPLR 3211 (a) (7) for failure to state a cause of action. In addition to moving under these same CPLR provisions, in motion sequence 002, City Defendants also contend that RBAC lacks standing as RBAC has not presented to the Court a justiciable controversy. RBAC opposes both motions, urges the Court to convert them into summary judgment motions CPLR 3211 (c), and seeks judgment in its favor. The two motions are consolidated for resolution herein. For the following reasons, the State and City Defendants’ motions are granted. BACKGROUND The Challenged Regulations — Tax Law §253 and NPCR §1411 New York’s Non-Profit Corporation Law (NPCL) §1411 permits local governments and private entities to incorporate or reincorporate as a special type of non-profit organization-the local development corporation (LDC). LDCs are exempt from state and city taxes including the MRT under Tax Law §253. (See NPCL §1411 [f].) However, to constitute an LDC, the entity’s business structure must be organized in a narrowly prescribed manner. It must include in its certificate of incorporation (COI) three important provisions: (1) “that all income and earnings of such corporation shall be used exclusively for its corporate purposes or accrue and be paid to the New York job development authority” (JDA); (2) “that no part of the income or earnings of such corporation shall inure to the benefit or profit of…any member or private person, corporate or individual, or any other private interest;” and (3) “that if such corporation accepts [a] mortgage loan or loans from the New York job development authority, such corporation shall be dissolved in accordance with provisions of [1411 (g)].” (NPCL §1411 [e].) Under subsection (g), §1411 requires the dissolving LDC to distribute the remaining balance of funds to either “one or more counties, cities, towns or villages within the territory designated in its certificate of incorporation…or to the New York job development authority.” (NPCL §1411 [g].) Subsection (g) does not contain carve out provisions. For example, nothing in §1411 (g) allows for an LDC to distribute funds to entities other than local governments or the job development authority, regardless of which state the funds/profits originated. Nor is there a carve out for what should happen if a corporation “accepts [a] mortgage loan…from the New York job development authority”: by its terms, a dissolution of the corporation shall happen upon repayment. RBAC and the Previous Litigation — The Trenton I Action RBAC is a not-for-profit corporation incorporated under New Jersey law, and a certified development company (“CDC”) under the SBA’s “504 Loan Program.” Typical projects financed by CDCs such as RBAC under this program are structured so that a borrower obtains a private sector loan, often from a bank or other financial institution, that covers 50 percent of the project’s costs (secured by a senior mortgage), the CDC then provides the borrower with another loan (backed by the SBA) covering another 40 percent (secured by a junior mortgage), with the borrower contributing the final 10 percent of the project’s cost. In 2016, RBAC recorded mortgages on such projects in New York but did not pay the MRT, citing an exemption to the tax. According to its complaint, a competing CDC made the SBA aware of RBAC’s failure to pay the recording taxes, and thereafter the SBA stopped accepting RBAC loans without proof of a MRT payment or an order/exemption provided the Department of Finance opinion or a court. (NYSCEF doc. no. 1 at 36-37, complaint.) Accordingly, RBAC commenced an action (Trenton I) in New York Supreme Court, Nassau County after the Department of Finance refused to grant it an exemption. Therein, RBAC brought four claims based on the applicability of the MRT to foreign non-profits and the exemption given to LDCs under NCPL §1411 (f): (1) 42 U.S.C. §1983 — violation of RBCA’s Equal Protection rights to under the U.S. Constitution; (2) violation of RBACs Equal Protection rights under the New York Constitution; (3) 42 U.S.C. §1983 — violation of RBAC’s rights under the Commerce Clause; and (4) a declaratory judgment seeking to hold Tax Law §253 and NCPL §1411 (f), as applied to RBAC, unconstitutional under the above theories. (See NYSCEF doc. no. 15 at 2, Nassau Decision.) The court granted the State and City Defendants’ motion to dismiss RBAC’s two Equal Protection Clause claims. In doing so, it rejected RBAC’s contention that foreign not-for-profit development corporations were treated differently from domestic not-for-profit development corporations. For the court, the tax exemption treated foreign and domestic not-for-profit corporations the same since “domestic not-for-profit corporations are also not afforded a tax exemption.” (Id. at 4.) Since NPCL §1411 hinges tax emption status on a corporation’s business structure, thus treating LDCs differently from other types of non-profits (regardless of the corporation’s state of residency), the court upheld the law as applied to RBAC under rational-basis review. The Second Department affirmed this branch of the motion to dismiss, but then modified the Supreme Court’s order and granted State and City Defendants’ motion to dismiss the RBAC’s claims under the Commerce Clause and for declaratory judgment as well. The court found that because RBAC was not incorporated under §1411, it was not similarly situated compared to the LDCs to which the exemption applied, and therefore RBAC failed to establish a Commerce Clause violation. (Trenton Bus. Assistance Corp. v. O’Connell, 191 AD3d 817, 821 [2d Dept 2021] ["The first step [in identifying a Commerce Clause violation] requires…identification of the similarly situated in-State and out-of-State interest. If there is no differential treatment of identifiable, similarly situated interests, there is no dormant Commerce Clause violation (citations omitted)”].) The Instant Action In response to the Second Department’s decision in Trenton I, RBAC amended its COI to reflect the language of §1411. In pertinent part, Article II, Section 2.03 purportedly mirrors subsection (e) and states, “with respect to such activities undertaken in the State of New York only: (i) all income and earnings of the Corporation shall be used exclusively for its corporate purposes or accrue and be paid to the New York job development authority, (ii) no part of the income or earnings of the Corporation shall inure to the benefit or profit of…any member or private person, corporate or individual, or any other private interest…, (iii) if the Corporation accepts a mortgage loan or loans from the New York job development authority, the Corporation shall be dissolved in accordance with Article [X] of this Certificate of incorporation upon the repayment or other discharge in full by the Corporation of all such loans or in the alternative withdraw its Certificate of Authority in the State of New York (emphasis added).” (NYSCEF doc. no. 4, certificate of incorporation.) Article X, Section 10.01 provides, “Upon dissolution…the balance of the Corporation’s remaining funds and other property…shall be distributed to the Federal government, or to a local government for a public purpose…, to one or more counties, cities, towns, villages, or other local governments in which the Corporation’s operations are principally to be conducted…or to the New York job development authority.” (Id.) In April 2022, RBAC closed on another SBA loan under the 504 Loan program, recorded the mortgage on the property at 364 East 69th St., and paid the $46,200.00 MRT under protest. It then commenced the instant action (this time without seeking administrative review from the relevant agencies beforehand) and now seeks a refund of the MRT. RBAC alleges that, since it now has substantially complied with the three structural requirements of an LDC pursuant to §1411 (e) and with the dissolutions requirements of §1411 (g), it is similarly situated to LDCs actually “incorporated or reincorporated” under the section. Therefore, to deny it the MRT exemption would be solely based on its status as a New Jersey corporation, and as a result would violate the above-described constitutional clauses. In addition to reasserting the Equal Protection and Commerce Clause claims that it brought in Trenton I, RBAC now alleges that denying it the §1411 (f) exemption also violates the Supremacy Clause since, as an SBA-approved CDC, it is a federal instrumentality distributing SBA funds and beyond New York’s taxing power. DISCUSSION On their respective motions, State and City Defendants contend that (1) as in Trenton I, RBAC “continues to be a not-for-profit corporation formed under the laws of New Jersey and its COI continues to not conform to mandatory §1411 corporate structures and requirements” such that collateral estoppel precludes recovery on the Equal Protection and Commerce Clause claims; and (2) all claims are barred by res judicata because Trenton I constituted a final judgment on the merits of identical claims between the same parties and, as to specifically the Supremacy Clause claim, RBAC was obligated, but failed, to bring it in the original action.1 (NYSCEF doc. no. 12 at 16-18, State Defendants’ memo of law in support; NYSCEF doc. no. 24, at 7, City Defendants’ memo of law in support.) Since RBAC instead asserts that its amended COI now conforms with §1411 — an issue that was not decided in Trenton I — it insists the Court cannot apply these doctrines. Accordingly, the dispositive issue is whether, with the changes to its COI, RBAC is now similarly situated with LDCs specifically incorporated under §1411 such that the Trenton I holdings are no longer applicable. The Court finds that it is still not similarly situated. RBAC contends that §1411 protects New York not-for- profit corporations by exempting them from the MRT but excludes RBAC from the same exemption even though RBAC has the same purpose and powers as those New York entities. (NYSCEF doc. no. 31 at 21.) However, is it clear that RBAC’s amended COI does not grant to RBAC the same purpose and powers that §1411 (e) and (g) require of other LDCs. Where §1411 (e) (i) requires all income and earnings of a LDC be used for its corporate purposes and accrue or be paid to the New York job development authority or local governments, RBAC’s similarly worded provision applies only to income and earnings accruing from its New York business. All other income and earnings from out-of-state loans may be used for entirely different purposes and accrue or be paid to other entities. Where §1411 (e) (iii) requires a LDC to dissolve upon the repayment of a New York job development authority loan, RBAC’s COI allows it to altogether avoid dissolution in such situations by simply choosing to withdraw its certificate of authority in New York.2 In choosing this alternative, RBAC would not be obligated to distribute income or earnings to New York local governments or the job development authority. Where §1411 (g) requires the LDC to distribute funds to local New York entities or the job development authority upon dissolution, RBAC, as an SBA-backed CDC, may distribute its funds to the Federal Government. Lastly, while RBAC assures the Court that it has substantially complied with §1411, such assurances may, in the future, prove meaningless since it is not actually “incorporated or reincorporated” under §1411 but is rather a New Jersey corporation that can, and may, amend its COI in accordance with New Jersey law to further limit obligations imposed by §1411. The above-described differences between an LDC as incorporated under §1411 and the newly organized RBAC are far from minor. Instead, as defendants argue, the differences are precisely what separate an ordinary non-profit from a specialized §1411/LCD- based non-profit. RBAC argues that State and City defendants cannot (1) require it to re-incorporate in New York under §1411, (2) restrict its out-of-state activities, (3) force it to dissolve its out-of-state operations upon repayment of New York loans, or (4) ensure it to distributes income and earnings to New York local governments upon dissolution. To do any of these things would be to violate the Commerce Clause and/or Equal Protection Clause. (NYSCEF doc. no. 31 at 22-26.) Yet these arguments still miss something fundamental: of course, New York cannot force RBAC to comply with these provisions, but the consequences of not strictly complying with §1411 (e) and (g) is that RBAC is treated like other ordinary non-profit entities, all of whom do not meet subsections (e) and (g) requirements and also must pay a mortgage recording tax. This is exactly what the Second Department held in Trenton I. Accordingly, the Court finds that RBAC continues to not conform to the mandatory requirements of §1411 and thus, the remaining issues are precluded by the doctrines of res judicata and/or collateral estoppel. For RBAC’s Commerce Clause and Equal Protection claims — both of which were asserted in Trenton I — collateral estoppel, or issue preclusion, precludes recovery.3 This doctrine bars recovery where the asserting party has shown that the issue decided in the prior proceeding is identical and decisive in the second proceeding, and that the opposing party had a full and fair opportunity to contest the issue at the prior proceeding. (See Rojas v. Romanoff, 186 AD3d 103, 108 [1st Dept 2020].) Here, the issue of whether Tax Law §253 and NPCL §1411 can constitutionally be applied to non-profit entities that are not in compliance with requirements under §1411 (e) and (g) was already decided in Trenton I and is decisive in this action. Moreover, RBAC does not dispute that it had a full and fair opportunity to litigate the issues in Trenton I. The doctrine of res judicata, or claim preclusion, prevents parties from relitigating causes of action arising out of the same transaction or series of transactions that were either raised or could have been raised in the prior proceeding. (Id.) It applies even where the claim is brought under different theories or seeks a different remedy. (O’Brien v. Syracuse, 54 NY2d 353, 357 [1981]; Jacobson Dev. Group, LLC v. Grossman, 198 AD3d 956, 959 [2nd Dept 2021].) A plaintiff cannot “avoid res judicata by varying facts [or] changing his cause of action.” (Simmons v. New York City Health & Hoss. Corp., 71 AD3d 410, 411 [1st Dept 2010].) Here, State and City defendants have demonstrated that the instant action arises out of the same transaction or series of transactions as Trenton I and that RBAC could have and should have brought its Supremacy Clause claim therein. RBAC’s primary argument against applying res judicata here is that the mortgage upon which it paid the MRT arose after Trenton I and therefore cannot be considered part of the same transactions that made up the first action. Yet the idea that post-judgment conduct necessarily gives rise to a new claim is not precisely true. In Monahan v. New York City Dep’t. of Correction, the Second Circuit found that a prior judgment precluded recovery even as the plaintiffs complained of new injuries arising after the prior judgment. (214 F3d 275, 290 [2d Cir. 2000].) More specifically, the Second Circuit rejected a police union’s contention that it could maintain a challenge to a revised sick leave policy resulting from a stipulation agreement in the prior action. According to the court, even though the revised policy may have harmed officers post-stipulation and was “not the same, i.e., identical policy challenged” in the first action, “[p]laintiffs’ assertion of new incidents arising from the application of the challenged policy is insufficient to bar the application of res judicata. (citations omitted).” (Id. at 289-290.) Similar circumstances are at play here: though RBAC’s amended COI is not identical to the one at issue in Trenton I, it is, in all material respects and in the same manner, just as non-conforming as its original COI. Considering RBAC’s continued incorporation in New Jersey and non-compliance with §1411 throughout these two actions, the mortgages that RBAC now seeks to record un-taxed are part of the same series of transactions that were at issue in Trenton I. (See Norman v. Niagara Mohawk Power Corp., 873 F2d 634, 638 2d Cir. 1989] ["Although some of the acts of which Norman complains may have occurred in the one year interval between [the] dismissal of the 1985 action and the bringing of the instant suit in 1986, it is readily apparent that they were all part of the same cause of action and arose from a ‘single core of operative facts’”].) Further, the operative facts upon which RBAC rests its Supremacy Clause challenge — that it is a heavily regulated SBA-approved CDC and therefore an instrumentality of the Federal Government — existed when it brought Trenton I. At no point did this aspect of RBAC’s business structure change when RBAC amended its complaint. In fact, it is the only claim that plaintiff brings here that is entirely based on facts known in the previous action. (See Waldman v. Village of Kiryas Joel, 39 F Supp 2d 370, 377 [SDNY 1999] ["Whether or not the first judgment will have preclusive effect depends in part on whether the same transaction or connected series of transactions is at issue, whether the same evidence is needed to support both claims, and whether the facts essential to the second were present in the first"].) These principles apply even to constitutional claims that could have been brought in the first action. (See Irish Lesbian and Gay Org. v. Giuliani, 143 F3d 638, 646 [2d Cir. 1998] [barring organization's free speech and equal protection challenges to the facial validity of ordinance and accompanying interpretive police department regulations on grounds that such claims had been or could have been litigated in the previous action].) Lastly, assuming arguendo that the Supremacy Clause claim is not precluded by the previous action, RBAC is not, as a matter of law, a federal instrumentality. (See United States v. New Mexico, 455 US 720, 735 [1982] [Under the Federal Constitution's Supremacy Clause, "tax immunity is appropriate…when the levy falls on the United States itself, or an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities"].) RBAC contends it is such an instrumentality because, among other things, the SBA relies on CDCs and other 504 Lenders to distribute funds to small businesses, it is a non-profit organization that only offers SBA loans, those loans must meet comprehensive criteria, the loan rates are determined by the SBA and funded by SBA debentures, the SBA approves RBAC hires (including its board of directors), etc.4 While RBAC’s arguments suggest CDCs are heavily regulated, they do not establish that CDCs are so intimately connected to the SBA that they cannot be viewed as separate entities. This conclusion is informed first from the statute. 13 CFR §120.820, entitled “CDC Affiliation,” provides, “A CDC must be independent and must not be affiliated (as determined in accordance with §121.103 of this chapter) with any Person (as defined in §120.10).” §120.10 defines a “person” as “any individual, corporation, partnership, associate, unit of government, or legal entity, however organized.” (13 CFR §120.10.) Moreover, as the Court of Appeals has noted, courts “strictly construe federal tax emptions in derogation of state taxing authorities and decline to extend such exemptions beyond their express provisions. (Hudson Val. Fed. Credit Union v. New York State Dept. of Taxation, 20 NY3d 1, 8 [2012] [recognizing that when Congress has intended to immunize "mortgages" of federally chartered lending entities from state taxation, it has done so explicitly], citing California State Bd. of Equalization v. Sierra Summit, Inc., 490 US 844, 851-852 [1989].) Here, there is no express provision granting CDCs local and state tax emptions and such a statutory omission weighs against RBAC. Second, the SBA itself does not appear to consider CDCs to be instrumentalities: (1) its website states that CDCs are nonprofit corporations that “are certified and regulated by SBA. They work with SBA and private-sector lenders” (NYSCEF doc. no. 18, screenshot SBA website); and (2) according to the complaint, the reason that RBAC brought Trenton I is that the SBA would not accept RBAC loans if it did not pay the MRT, suggesting that SBA considered CDCs to be required to pay such taxes. This last point is instructive because the SBA itself has preserved its own immunity from “any local or state control, penalty, tax, or liability. (See 13 CFR 101.106.) For these reasons, RBAC is not a federal instrumentality for purposes of Tax Law §253 and §1411 (f). Since State and City Defendants have established that (1) the RBAC’s COI does not conform to §1411, (2) the Commerce Clause and Equal Protection Clause can be constitutionally applied to non-conforming non-profits as determined in Trenton I, and (3) RBAC’s Supremacy Clause claim is precluded by the doctrine of res judicata, or in the alternative, that RBAC has failed to state a claim under the Supremacy Clause, State and City Defendants have demonstrated they are entitled to dismissal. Accordingly, for the foregoing reasons, it is hereby ORDERED that State Defendants Amanda Hiller and Thomas DiNapoli’s motion to dismiss is granted pursuant to CPLR 3211 (a) (5) and (a) (7) is granted and the complaint is dismissed as against them. ORDERED that Cit Defendants Preston Niblack and the City of New York’s motion to dismiss pursuant to those same CPLR provisions is granted and the complaint is dismissed as against them; and it is further ORDERED that the Clerk of the Court shall enter judgment accordingly; and it is further ORDERED the counsel for the City of New York shall serve a copy of this order, along with notice of entry, on all parties within twenty (20) days of entry. This constitutes the Decision and Order of the Court. CHECK ONE: X CASE DISPOSED NON-FINAL DISPOSITION X GRANTED DENIED GRANTED IN PART OTHER APPLICATION: SETTLE ORDER SUBMIT ORDER CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT REFERENCE Dated: May 24, 2023
