Did the retroactive effect of an amendment to a statute constitute a violation of constitutional rights? Answer: No.
In James Square Associates LP v. Dennis Mullen, Commissioner New York State Department of Economic Development, 21 NY3d 233 (2013), the question presented to the Court of Appeals was “whether the retroactive application of the 2009 Amendments to the Empire Zones Program complie[d] with the Due Process Clause of the Fifth Amendment.” Id. at 240. The Court of Appeals concluded that the retroactive application of the 2009 Amendments violated plaintiffs’ due process rights.
Plaintiffs were businesses which were certified, prior to 2008, to participate in a program “to stimulate private investment, private business development, and job creation in certain geographic areas characterized by persistent poverty, high unemployment, shrinking tax bases, and dependence on public assistance[,] through a variety of state tax incentives designed to attract new businesses to the state and to enable existing businesses to expand and create more jobs.” Id. The Legislature enacted amendments to the plan in 2009 that “were to be applied retroactively to January 1, 2008”. Id. at 243.
Pursuant to the 2009 Amendments, plaintiffs were retroactively decertified from the program. While administrative appeals were pending, plaintiffs filed an action “seeking a declaration that the decertification constituted an improper retroactive application of the 2009 Amendments”. Id. at 243. Supreme Court granted plaintiffs’ motion for summary judgment and “declared that the legislature’s [retroactive decertification] as applied was an unconstitutional taking of [property].” Id. The Appellate Division affirmed, concluding that “the time period at issue, the lack of warning to plaintiffs, and the lack of legitimate public purpose of the retroactive application of the 2009 Amendments rendered it unconstitutional, null and void.” The State appealed “on the issue of whether the 2009 Amendments can be applied retroactively.” Id. at 245.
The Court of Appeals affirmed noting at the outset that “[f]or centuries our law has harbored a singular distrust of retroactive statutes[.]” Id. at 246. The Court of Appeals nevertheless held that: “the retroactive tax liability imposed in the present case cannot be characterized as so flagrant as to constitute the confiscation of property under the Takings Clause [because] [p]laintiffs had no guarantee that they would ever recoup their business investments through the receipt of tax credits, and the New York Constitution provides that tax exemptions are freely repealable[.]” Id. at 247.
The Court of Appeals next turned to the question of “whether plaintiffs’ due process rights were infringed”. The Court concluded that “the plaintiffs had no warning and no opportunity at any time in 2008 to alter their behavior in anticipation of the impact of the 2009 Amendments[;] “the legislature’s overt omission of retroactivity language in the 2009 Amendments[;] and “[the State’s failure] to set forth a valid public purpose were the retroactive application of the 2009 Amendments.” The Court of Appeals held that there [was] no cognizable valid public purpose for the retroactive effect of the 2009 Amendments[.]” Id. at 248-50.