DENNIS v. Metro Enterprises Corp., Cross–Defendant–Claimant–Appellant. (2021)

Order, Supreme Court, New York County (Kathryn E. Freed, J.), entered August 13, 2019, which, inter alia, granted cross-defendants-claimants New York State Department of Taxation and Finance (Tax Department) and the Commissioner's motion to dismiss the interpleader complaint (see CPLR 5520[c]) and denied defendants-stakeholders and cross-defendant-claimant Metro Enterprises Corp.'s (together, appellants) motions for a preliminary injunction, unanimously affirmed, without costs.

The motion court correctly dismissed defendants-stakeholders' interpleader complaint for failure to exhaust administrative remedies (Watergate II Apts. v. Buffalo Sewer Auth., 46 N.Y.2d 52, 57, 412 N.Y.S.2d 821, 385 N.E.2d 560 [1978]).  The resolution of adjudications between taxpayers and the Tax Department is governed by the Tax Law, which sets forth procedures that expressly exclude judicial review in this type of action (Tax Law §§ 1140;  2000).  The statute provides that these procedures are the “exclusive remedies available to any person for the review of [sales] tax liability” and, as a result, that “no determination or proposed determination of tax or determination of any application for [a] refund shall be enjoined or reviewed ․ by any action or proceeding other than a proceeding under [CPLR article 78]” (Tax Law § 1140).

Appellants failed to show that an exception to the exclusive-remedy requirement and their failure to exhaust administrative remedies applies to this case.  First, appellants are not excused from the exclusive-remedy requirement on the ground that the sales tax laws are “wholly inapplicable” to them (Bankers Trust Corp. v. New York City Dept. of Fin., 1 N.Y.3d 315, 322, 773 N.Y.S.2d 1, 805 N.E.2d 92 [2003]).  We have previously addressed this issue in a strikingly similar case, in which we rejected an exotic dance club's “wholly inapplicable” argument with respect to its own scrip transactions (CMSG Rest. Group, LLC v. State of New York, 145 A.D.3d 136, 40 N.Y.S.3d 412 [1st Dept. 2016], appeal dismissed, lv. denied 29 N.Y.3d 929, 50 N.Y.S.3d 32, 72 N.E.3d 567 [2017], cert denied ––– U.S. ––––, 138 S. Ct. 381, 199 L.Ed.2d 279 [2017]).  Appellants argue that the scrip in CMSG was used for a wider range of purposes than in this case and thus fell within the ambit of the Tax Law. This argument presents a factual issue that precludes a judicial determination (Metro Enters. Corp. v. New York State Dept. of Taxation & Fin., 171 A.D.3d 1377, 1380, 98 N.Y.S.3d 652 [3d Dept. 2019]).

Even if the interpleader complaint were not subject to dismissal, appellants would not be entitled to the preliminary injunctive relief they seek (see Nobu Next Door, LLC v. Fine Arts Hous., Inc., 4 N.Y.3d 839, 800 N.Y.S.2d 48, 833 N.E.2d 191 [2005]).  Appellants have not shown a likelihood of success on the merits, as they have not exhausted their administrative remedies and have not established any exception to this requirement.  They are also unlikely to succeed on their claim that they do not owe sales tax on scrip sales, given that several courts have already rejected this argument.  Moreover, they have not even attempted to show irreparable harm or a balance of the equities in their favor.

We have considered appellants' remaining contentions and find them unavailing.