New York Law Review

172 East 122 Street Tenants Assn. v. Schwarz, 73 N.Y.2d 342 (1989): Authority of Dissolved Corporation to Reclaim Property

Published by

The New York Law Review

in

172 East 122 Street Tenants Assn. v. Schwarz, 73 N.Y.2d 342 (1989)

A corporation dissolved for failure to pay franchise taxes can still apply to reclaim property formerly owned by it that was acquired by the city in a tax foreclosure proceeding, as this constitutes winding up its affairs by collecting assets.

Summary

This case addresses whether a corporation, dissolved for failing to pay franchise taxes, can apply to reclaim property foreclosed upon by New York City. The Court of Appeals held that it can. PRF Realty was dissolved and the City foreclosed on its properties. PRF applied for release of the properties under an Administrative Code provision, which the City conditionally approved. Tenant associations sought to void the transfer. The Court of Appeals reversed the lower court’s decision, finding that reclaiming foreclosed property is part of winding up the corporation’s affairs, which is permitted under the Business Corporation Law.

Facts

PRF Realty (PRF) owned two adjacent buildings in New York City but abandoned them. The City initiated in rem tax foreclosure proceedings. Before the foreclosure judgment, PRF was dissolved by the Secretary of State for failure to pay corporate franchise taxes. After the City foreclosed, PRF applied for release of the City’s interest in the properties under the Administrative Code. The Corporation Counsel conditionally approved the application, pending payment of tax deficiencies. PRF then conveyed the properties via quitclaim deed to 420-172 East Associates (East Associates). East Associates’ payment to PRF included a check payable to the City for the tax deficiencies.

Procedural History

The tenants associations sought to purchase the buildings under the Tenant Interim Lease Program. The City’s approval of PRF’s release application prevented this. The tenant associations then initiated an Article 78 proceeding to vacate the release and void the transfer to East Associates. The Supreme Court granted the petition, voiding the transfer. The Appellate Division affirmed, relying on prior precedent. The Court of Appeals reversed and dismissed the petition.

Issue(s)

  1. Whether a corporation dissolved by proclamation for failure to pay franchise taxes is “eligible” to seek release of its formerly owned property pursuant to section 11-424 of the Administrative Code.
  2. Whether the Corporation Counsel was required to review PRF’s release application to ensure that granting the relief requested would not violate other statutory mandates.

Holding

  1. Yes, because Business Corporation Law § 1006(b) allows a dissolved corporation to pursue remedies related to property it owned before dissolution, and Administrative Code § 11-424 grants such a remedy.
  2. No, because the Corporation Counsel’s interpretation of “eligibility” under the statute and his approval of the application were neither arbitrary nor irrational merely because the application was not checked against the provisions of the Business Corporation Law pertaining to dissolved corporations.

Court’s Reasoning

The Court reasoned that the Administrative Code provision allows a former owner to recover foreclosed property by filing a release application. Business Corporation Law § 1006(b) states that dissolution does not affect any remedy available to the corporation for rights existing before dissolution. The Court emphasized that “[t]he dissolution of a corporation shall not affect any remedy available to or against such corporation * * * for any right or claim existing * * * before such dissolution.” Thus, PRF’s ability to reclaim its property does not depend on whether the property is currently a corporate asset, but on whether a remedy exists allowing PRF to recapture a property right it possessed prior to dissolution. Administrative Code § 11-424 provides that remedy. The court deferred to the Corporation Counsel’s interpretation of “eligibility” under the Administrative Code. “[I]nterpretation of a statute by the agency charged with its enforcement is, as a general matter, given great weight and judicial deference so long as the interpretation is neither irrational, unreasonable nor inconsistent with the governing statute”.

More ARTICLES