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Volume 2 - Opinions of Counsel SBEA No. 37

Opinions of Counsel index

School districts (rights and liabilities in Article 7 proceeding) - Real Property Tax Law, §§ 708(2), 1316(5):

A final order in an Article 7 proceeding is binding on a school district which levied a tax based on the contested assessment.

Service of a copy of the petition and notice must be made on a school district within ten days of service on the parties, but failure to serve the school district does not invalidate a proceeding.

A school district has the right to participate in settlement negotiations, and a settlement order based on a compromise reached without notice to the school district is prejudicial to the school district and must be vacated.

We have received an inquiry concerning the rights and liabilities of a school district as related to a settlement order in a Real Property Tax Law, Article 7 proceeding.

The starting point in a discussion of this problem must be the Real Property Tax Law, section 1316, subdivision 5, which directs that any final order in an Article 7 proceeding shall be binding on a school district which has levied a tax based upon the contested assessment. The application of this subdivision has been litigated in the Appellate Division with the result that the Court held that the statute requires an appropriate school district to refund a pro rata share of taxes it has levied and received based upon an assessment which has subsequently been reduced pursuant to an Article 7 proceeding. In explaining the basis for this holding, the Appellate Division states that the rationale is consistent with the “statutory scheme applying the principle of imposing ultimate responsibility for refunds upon the political subdivision for whose benefit the tax was collected." (City of Troy v. The City School District of the City of Troy, 26 App.Div.2d 148, 271 N.Y.S.2d 422.)

Subdivision 2 of section 708 of the Real Property Tax Law, directs that service of a copy of the petition and notice in an Article 7 proceeding must be made on the school district within ten days of service on the parties. The subdivision specifically provides that such service shall not be deemed to make the school district a party to the proceeding. The question of what effect the failure to serve the school district would have on the proceeding has been litigated, and in at least two cases the courts have held that such a failure is not fatal. In North Crystal Gardens, Inc. v. Bell, 44 Misc.2d 449, 254 N.Y.S.2d 64, the Supreme Court held that section 708(2) is meant both to insure that a school district has the opportunity to sustain an assessment and to provide the school district with a “forewarning of an impending change in valuations affecting its tax base.” However, the Court held that the proceedings had not reached a stage whereby a substantial right of the school district had been prejudiced.

In a second case, Magee v. Board of Assessors of the Town of Nelson, 49 Misc.2d 499, 268 N.Y.S.2d 61, aff’d 24 App. Div.2d 1045, 265 N.Y.S.2d 618, the Appellate Division held that a proceeding was not invalidated because of failure to serve the appropriate school district pursuant to section 708(2). In so holding the Court stated that the purpose of the requirement is to give to the school district notice that a review of an assessment is underway and that in due course an application for partial refund may be made.

The ambiguity of these holdings in relation to the right of the school district to receive notice at some time prior to a final disposition of an Article 7 proceeding has apparently been clarified at the Appellate Division level by a recent decision in the Third Department. In Stanford Associates v. Board of Assessors of the Town of Niskayuna (67 Misc.2d 477, 324 N.Y.S.2d 453, aff’d 39 App. Div.2d 800, 332 N.Y.S.2d 286), the Appellate Division affirmed a Schenectady County Supreme Court holding that a school district has the right to participate in settlement negotiations. Alluding to a school district’s right to intervene in an Article 7 proceeding, the Court held that a settlement order based upon a compromise reached without notice to the school district was prejudicial to the school district and must be vacated.

This case is made even stronger (as to the rights of school districts) by the fact that the school district had been served pursuant to section 708(2). However, subsequent to such service but prior to the return date the compromise was negotiated, and agreed upon without notice to the school district, and it is the failure to provide this notice that was the basis for vacating the settlement order.

September 13, 1972

NOTE:  Construes law prior to L.1955, c.693.

Updated: