Dechert LLP, Petitioner v. Pennsylvania Department of Community and Economic Development, Respondent
No. 442 M.D. 2019
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
June 23, 2020
Argued: February 12, 2020
HONORABLE RENÉE COHN JUBELIRER, Judge
HONORABLE P. KEVIN BROBSON, Judge
HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE ELLEN CEISLER, Judge
HONORABLE J. ANDREW CROMPTON, Judge
OPINION
BY JUDGE CROMPTON
FILED: June 23, 2020
Before us is Dechert LLP‘s (Dechert) dual jurisdiction petition for review (Petition) challenging the Department of Community and Economic Development‘s (DCED) construction of the Keystone Opportunity Zone, Keystone Opportunity Expansion Zone and Keystone Opportunity
I. Background
A. Statutory Overview
The General Assembly enacted the KOZ Act in 1998 as a measure to encourage business development and employment in certain distressed areas. Under the KOZ Act, geographic areas of varying size may be designated as one of three types of opportunity zones, Keystone Opportunity Zones (KOZs), Keystone Opportunity Expansion Zones (KOEZs) and Keystone Opportunity Improvement Zones (KOIZs) (collectively, Zones). KOZ subzone properties are exempt from local property taxes and a qualified business within a Zone “shall be entitled to all tax exemptions, deductions, abatements or credits set forth in this act for a period not to exceed 15 years ....” Section 301(b) of the KOZ Act,
DCED is the Commonwealth agency that administers the KOZ Act through the KOZ programs. DCED designates areas in the Commonwealth as KOZs and KOEZs and may designate a limited number of subzones within KOZs and KOEZs, see
DCED did not promulgate regulations regarding relocation restrictions. DCED also did not issue policy statements or other guidance documents limiting a business‘s movement from an expired zone into an active zone.
B. Relevant Facts
Dechert leases space from Brandywine Realty Trust (Brandywine) in the Cira Centre located at 2929 Arch Street in Philadelphia, next to the 30th Street Station. Cira Centre is an office complex within a now expired KOIZ (Expired Zone). Qualified businesses like Dechert received tax benefits under the KOZ Act during the active term of the Zone, from 2004 to its expiration on December 31, 2018. During its tenancy at the Cira Centre, Dechert
Dechert plans to end its lease in the Cira Centre and lease space in a new office complex under construction by the same landlord in a different Zone. Brandywine‘s new construction is at 3001 JFK Boulevard, “JFK Towers,” located in the Schuylkill Yard KOEZ (Active Zone). Dechert anticipates that upon relocating, it will lease 100,000 square feet in JFK Towers. Regardless of whether it relocates to JFK Towers, Dechert intends to move at least some of its workforce from the Expired Zone to another location, which may be outside the Commonwealth. Dechert was required to give notice to Brandywine in 2019 as to whether it will leave its space at the Cira Centre when its lease expires on March 18, 2021. Dechert subsequently received an extension of its lease renewal deadline.
In April 2019, Dechert requested a letter ruling from DCED regarding the availability of tax benefits should it move its location from the Cira Centre located in the Expired Zone to JFK Towers in the Active Zone.5 Dechert maintained that its move from the Expired Zone to the Active Zone should not affect its eligibility for KOZ tax benefits in the Active Zone, despite receiving almost 15 years of KOZ benefits while located within the Expired Zone.
In a letter dated July 11, 2019, the Secretary of DCED responded to Dechert stating that its interpretation of the KOZ Act precludes a beneficiary of tax benefits of an expired zone to receive full benefits should it relocate to an active zone (Letter Ruling). See Reproduced Record (R.R.) at 3a-5a. In its Letter Ruling, the Secretary explained that the KOZ program is designed to encourage businesses to locate in economically distressed communities; to become economic anchors of the communities; and to re-enter the state and local tax rolls at the end of the KOZ term. Consequently, DCED “denie[d] Dechert‘s request for Tax Benefits at a new Zone.” See DCED‘s Prelim. Objs. ¶6.
Section 307(b) of the KOZ Act, relating to “Relocation,” sets forth certain eligibility requirements for businesses that relocate from “outside” a zone.
C. Procedural Posture
Dechert filed the instant Petition challenging DCED‘s construction of the KOZ Act to preclude movement from the Expired Zone into the Active Zone, appealing the Letter Ruling in Count I and seeking a declaration of the meaning of the KOZ Act and a determination that DCED‘s construction was invalid in Count II. The parties
Upon Dechert‘s application for a stay of the original jurisdiction part of the Petition, which was unopposed, in October 2019, this Court granted a stay. After a series of continuances, in February, this Court heard argument en banc on the appellate jurisdiction part of the Petition. Critically, the material allegations and the prayer for relief in the declaratory judgment claim and the appeal are virtually identical in that Dechert seeks a declaration that DCED misconstrued the KOZ Act in its Letter Ruling.6 Although the parties here treat DCED‘s Letter Ruling as an “adjudication” for purposes of the Administrative Agency Law,
Following argument, we concluded this matter presents a pure legal question appropriate for disposition in our original jurisdiction. On February 28, 2020, we issued an order advising the parties of our intent to treat the submissions before us as applications for summary relief absent an objection. Neither party objected. Thus, we consider Dechert‘s Petition as an application for summary relief.
II. Discussion
The legal question before us concerns whether the KOZ Act permits relocation from a Zone in which the KOZ tax benefits expired into an active Zone. We recognize DCED‘s construction of the KOZ Act to preclude relocation from an expired Zone into an active Zone poses a question of public importance with ramifications beyond the parties to this action.8 Indeed, DCED‘s construction of the KOZ Act potentially affects the property rights of other qualified businesses, commercial interests in economic development and the Commonwealth‘s interest in incentivizing infrastructure in areas of economic distress. Mindful of these practical considerations, we consider the meaning of relocation under Section 307(b) of the KOZ Act pursuant to the Declaratory Judgments Act,
A. DJA
The DJA is remedial, its purpose “is to settle and to afford relief from uncertainty
Declaratory relief is suitable when litigation “is both imminent and inevitable and the declaration sought will practically help to end the conflict between the parties.” Eleven Eleven Pa., LLC v. State Bd. of Cosmetology, 169 A.3d 141, 145 (Pa. Cmwlth. 2017) (citation omitted). Thus, lack of present harm is not fatal to a DJA claim. Joint Bargaining Comm. of Pa. Soc. Servs. Union, Local No. 668, SEIU v. Com., 530 A.2d 962 (Pa. Cmwlth. 1987). Section 7533 of the DJA provides that “[a]ny person ... whose rights, status, or other legal relations are affected by a statute ... may have determined any question of construction or validity arising under the ... statute ... and obtain a declaration of rights, status, or other legal relations thereunder.”
This Court‘s ruling on declaratory judgment is committed to our sound discretion. GTECH Corp. v. Dep‘t of Revenue, 965 A.2d 1276 (Pa. Cmwlth. 2009). Because the issue presented is one of statutory interpretation, which is a pure question of law, our review is plenary. Com. v. Giulian, 141 A.3d 1262 (Pa. 2016).
1. Statutory Provisions in KOZ Act
We begin by reviewing the applicable provisions within the KOZ Act. The construction of Section 307 of the KOZ Act presents a matter of first impression.
Since its enactment, the KOZ Act has been amended to add new zone types such as KOEZs and KOIZs and to allow DCED to authorize new types of subzones. However, and relevant here, Section 307 has not materially changed. Section 307 of the KOZ Act, entitled “Qualified Businesses,” states in full:
(a) Qualifications.--In order to qualify each year for a tax exemption, deduction, abatement or credit under this act, a business shall own or lease real property in a subzone, improvement subzone or expansion subzone from which the business actively conducts a trade, profession or business. The qualified business shall receive certification from [DCED] that the business is located and is in the active conduct of a trade, profession or business, within the subzone, improvement subzone or expansion subzone. The business shall obtain annual renewal of the certification from [DCED] to continue to qualify under this section. The certification form shall include, but not be limited to, all of the following:
- The type and duration of the zone designation.
- The number of jobs created.
- The number of jobs retained.
- The amount of capital investment.
- Any other information, conditions or requirements reasonably required by [DCED].
(b) Relocation.--Any business that relocates from outside a subzone, improvement subzone or expansion subzone into a subzone, improvement subzone or expansion subzone shall not receive any of the exemptions, deductions, abatements
or credits set forth in this act unless that business does one of the following:
- increases full-time employment by at least 20% in the first full year of operation within the subzone, improvement subzone or expansion subzone;
- makes a capital investment in the property located within the subzone, improvement subzone or expansion subzone at least equivalent to 10% of the gross revenues of that business in the immediately preceding calendar or fiscal year; or
- enters into a lease agreement for property located within the subzone, improvement subzone or expansion subzone:
- for a term at least equivalent to the duration of the subzone, improvement subzone or expansion subzone; and
- with aggregate payment under the lease agreement at least equivalent to 5% of the gross revenues of that business in the immediately preceding calendar or fiscal year.
[DCED], in consultation with the Department of Revenue, may waive or modify the requirements of this subsection, as appropriate.
Section 102 of the KOZ Act includes the following legislative findings:
(1) There exist in this Commonwealth areas of economic distress characterized by high unemployment, low investment of new capital, inadequate dwelling conditions, blighted conditions, underutilized, obsolete or abandoned industrial, commercial and residential structures and deteriorating tax bases.
(2) These areas require coordinated efforts by private and public entities to restore prosperity and enable the areas to make significant contributions to the economic and social life of this Commonwealth.
(3) Long-term economic viability of these areas requires the cooperative involvement of residents, businesses, State and local elected officials and community organizations. It is in the best interest of the Commonwealth to assist and encourage the creation of keystone opportunity zones and keystone opportunity expansion zones and to provide temporary relief from certain taxes within the zones to accomplish the purposes of this act.
2. Declaration of Meaning of Section 307(b)
Dechert argues the plain language of Section 307(b) allows its plan to relocate “from outside” a Zone and “into” the Zone with the proposed JFK Towers.
We construe the meaning of the provisions in the KOZ Act pursuant to the
Where the statute is ambiguous, the interpretation of the agency charged with its enforcement will be given deference, unless it is clearly erroneous. Summit Sch., Inc. v. Dep‘t of Educ., 108 A.3d 192 (Pa. Cmwlth. 2015). However, “when the statute is unambiguous, such administrative interpretation carries little weight.” Lancaster Cty. v. Pa. Labor Relations Bd., 94 A.3d 979, 986 (Pa. 2014) (citations omitted). Thus, it is critical at the outset to determine whether the statutory language at issue qualifies as ambiguous.
A statutory provision is ambiguous when it is capable of two reasonable interpretations. A.S. v. Pa. State Police, 143 A.3d 896 (Pa. 2016). But such an interpretation must be supported by its language, and when words of a statute are clear, we construe them “according to their common and approved usage.”
Importantly, DCED does not offer a different construction of the terms contained in Section 307(b) (from “outside” a Zone and “into” a Zone). Rather, DCED asks this Court to disregard the statute‘s plain meaning in favor of its proffered construction of the statute‘s silence as a prohibition. It contends that the terms should not be construed in accordance with their plain meaning because that would permit businesses like Dechert to abandon the Expired Zone and pursue additional KOZ benefits in the Active Zone. DCED posits that such a construction is inconsistent with legislative intent and allows an absurd result. We disagree.
We do not construe statutory silence as ambiguity. Indeed, we not only review what the statute says; we “must also listen attentively to what it does not say.” Giulian, 141 A.3d at 1268 (emphasis added); see E. Coast Vapor, LLC v. Pa. Dep‘t of Revenue, 189 A.3d 504, 519 (Pa. Cmwlth. 2018) (en banc) (reasoning this Court may not adopt an agency‘s interpretation and “add terms to the [statute] under the guise of interpreting it” as the legislature could have easily included such terms but “did not do so“). We observe no ambiguity triggering deference to DCED‘s construction of the KOZ Act to impose a limitation that it does not contain.10
The plain language of Section 307(b) entitles a qualified business to KOZ benefits when it “relocates from outside a subzone” and meets one of the three other requirements.
Because Dechert is located in the Cira Centre, for which the KOZ status expired in 2018, Dechert is relocating “from outside a subzone.” Id. Further, it is relocating “from outside” the Active Zone covering the location of JFK Towers. Relocation in this context focuses only on the Zone into which a business is relocating, and the statute is silent regarding the KOZ status of the area the business is leaving.11 Thus, by its plain language, the KOZ Act permits “relocation” from outside a zone.
DCED‘s prohibition on ‘zone-hopping’ is simply not contained in the statute. Contrary to DCED‘s proffered application, the KOZ Act does not impose a “one and done” rule whereby a qualified business may only receive KOZ tax benefits once. Because DCED cannot engraft additions upon the KOZ Act that the legislature did not impose, its extension of the KOZ Act to bar Dechert‘s proposed movement from the Expired Zone into the Active Zone is not supportable. Although repeatedly admitting the KOZ Act is silent on the matter, see Dechert‘s Br. at 16-17, DCED nonetheless maintains that it would yield an absurd result to construe the KOZ Act in accordance with its terms. Cf.
We are cognizant of the impact of our interpretation and that its effects may generate a legislative response. But DCED may not engraft restrictions upon a statute it administers to advance its policy goals. E. Coast Vapor. To the extent DCED believes the statute should prohibit movement from an expired Zone to an active Zone, that end implicates a legislative remedy beyond its purview or that of this Court.12
In sum, considering the explicit legislative findings in Section 102(3), that the KOZ Act established temporary, not perpetual, tax relief, we discern no violation of legislative intent to allow the future relocation of businesses that benefited from the KOZ status from an expired Zone and into an active Zone. The KOZ Act does not
The ultimate goal of raising economic vitality of distressed areas is met when a resident of an expired Zone chooses to relocate to an active Zone as opposed to leaving the Commonwealth altogether, and taking the jobs and associated benefits and fund sources with it. Indeed, incentivizing large employers and vital commercial areas to remain in Philadelphia was precisely the purpose of the KOZ Act. As such, construing the KOZ Act to preclude DCED‘s unsupported policy judgment restricting movement from an expired Zone into an active Zone is consistent with the plain language of Section 307(b), the legislative findings in Section 102 and the principle contained in Section 1305. Therefore, based on the plain language of Section 307(b), we declare that the KOZ Act does not restrict or penalize the relocation of a qualified business from an expired Zone into an active Zone.
B. Summary Relief
Applications for summary relief are governed by
Accordingly, we grant summary relief to Dechert on Count II of its Petition and enter judgment on its declaratory judgment claim in its favor. As such, we dismiss DCED‘s preliminary objections as moot. Because the relief is virtually identical in both counts, and we do not recognize the Letter Ruling as a final determination properly within our appellate jurisdiction, we dismiss Count I of the Petition.
III. Conclusion
For the foregoing reasons, we grant Dechert the declaratory relief sought in Count II of its Petition. We declare that DCED overstepped its authority by construing a prohibition into the KOZ Act that is not express nor implied. Provided a business qualifies under the KOZ Act, and meets the express relocation requirements, then the movement from an expired zone into an active zone is not grounds for deeming a business unqualified for the tax benefits under the KOZ Act. Provided Dechert otherwise satisfies the requirements in Section 307(b) of the KOZ Act, Dechert may receive full KOZ benefits should it relocate into the Active Zone.
J. ANDREW CROMPTON, Judge
Judge Fizzano Cannon did not participate in the decision of this case.
Dechert LLP, Petitioner v. Pennsylvania Department of Community and Economic Development, Respondent
No. 442 M.D. 2019
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
ORDER
AND NOW, this 23rd day of June 2020, Count II of Petitioner Dechert LLP‘s (Dechert) Petition for Review, seeking declaratory relief, which we treat as an application
Accordingly, we DECLARE that DCED‘s statutory construction of the Keystone Opportunity Zone, Keystone Opportunity Expansion Zone and Keystone Opportunity Improvement Zone Act1 to preclude a qualified business from receiving full benefits when it relocates from an expired zone into an active zone is unsupported by the plain language in the statute, and it shall not be so construed.
The remainder of the Petition for Review invoking our appellate jurisdiction is DISMISSED.
J. ANDREW CROMPTON, Judge