Computer Virus Constitutes “Good Cause” to Amend Appraisal

It is generally difficult to amend an appraisal in an eminent domain or tax certiorari proceeding.  The party attempting to amend an appraisal must show good cause, which is determined by the court’s discretion.

22 NYCRR § 202.61 controls the exchange of appraisal reports in New York Supreme Court eminent domain proceedings and states that “the court may, upon good cause shown, … allow an amended or supplemental report to be filed upon such conditions as the court may direct.”  § 202.61(a)(3).  The same language is used for amended appraisal reports in tax certiorari proceedings.  22 NYCRR §§ 202.59(h), 202.60(h).  (The rule for amending appraisals in a New York Court of Claims eminent domain proceeding is 22 NYCRR § 206.21(f).)  These rules are adopted pursuant to New York Civil Practice Law and Rules § 3140.

The question becomes, what constitutes good cause to amend an appraisal?

Courts have held that inadvertence or oversight is not good cause.  Consol. Edison Co. v. State Bd. of Equalization & Assessment, 83 A.D.2d 355 (3d Dep’t 1981), aff’d 58 N.Y.2d 710 (1982).

The mere desire to introduce a new theory or new evidence has also been held to not constitute good cause.  Home Gas Co. v. Miles, 40 A.D.2d 896 (3d Dep’t 1972).

And, dissatisfaction with an attorney and the appraisal report, without proof of undue hardship, does not constitute good cause.  Laken Realty Corp. v. State, 37 A.D.2d 885 (3d Dep’t 1971).

Leave to file a supplemental appraisal report has similarly been denied where “no convincing reason is given why the appraisal could not also have included therein whatever additional factual support or greater detail [the claimant] now seeks to proffer by way of a supplemental appraisal.” Matter of Acquisition of Real Property by Country Knolls Water Works, 229 A.D.2d 859, 860 (3d Dep’t 1996) (citations and quotation marks omitted).

Ultimately, “[i]n determining whether a party has shown “good cause,” the court must consider all of the relevant circumstances.”  Matter of Staten Island Bluebelt Phase 2 [196 Slater Blvd. Bldg. Corp.], 108 A.D.3d 773, 773 (2d Dep’t 2013) (citation omitted).

In a recent tax certiorari decision pursuant to New York Real Property Tax Law Article 7, the court held that loss of data from a computer virus was good cause to allow an amended or supplemental appraisal report.  Matter of 3803 Realty Assoc., Inc. v. Tax Comm’n and Dep’t of Finance of the City of New York, 2015 NY Slip Op 32199(U), 2015 N.Y. Misc. LEXIS 4220 (Sup. Ct. N.Y. County 2015).

In 3803 Realty Assoc., a computer virus attacked the computer of petitioner’s appraiser on the appraisal exchange date.  This deleted the appraisal from the appraiser’s computer.  When the parties finally exchanged, the petitioner’s appraisal stated that “a significant portion of his analysis and portions of this report were lost from a computer failure and this portion is supplied to you subject to amendment.”  Subsequently, the petitioner moved to amend its appraisal.

The court stated,

“In RPTL article 7 proceedings, the good cause language of 22 NYCRR 202.60 (h) has been liberally construed, since it is well established that where possible matters should be tried on the merits.  While 22 NYCRR 202.60 (h) does not itself define “good cause,” this is not a situation involving inadvertence or oversight or the mere desire to introduce a new appraisal theory or new evidence.  Rather, petitioner simply seeks to remedy and correct the omissions caused by the computer problem of its appraiser.

Furthermore, the denial of amendment would result in leaving the appraisal in its present state, with substantial portions deleted due to the computer virus.  As such, respondents seek to preclude it for insufficiency.  Considerable latitude is afforded to a party when addressing a motion by its adversary to preclude it from filing its appraisal report.  While respondents seek to distinguish cases where a party has defaulted in filing an appraisal report, as opposed to seeking an amendment of such appraisal report, petitioner should not be in a worse position or penalized because it attempted, through difficult efforts, to submit an appraisal with deletions, rather than simply defaulting and failing to serve or file any appraisal report.

The court, in exercising its discretion to determine whether a party has shown “good cause” for relieving a default, must consider all of the relevant circumstances, along with the excuse or reason proffered by the party.  Indeed, when there is a default or belated filing involving an initial appraisal report, the obvious and severe hardship that accrues to the offering party as a result of rejection of that report-namely, preclusion of the introduction of any appraisal testimony on value has been deemed a sufficient basis for granting the relief sought.  If an arguably tenable excuse is proffered as well, ample foundation exists for a decision denying preclusion.”

In support of its position, the petitioner submitted the affirmation of an attorney, for whom the petitioner’s appraiser served as a consultant on tax certiorari matters, who attested that the petitioner’s appraiser was working 12 to 16 hour days and sometimes sleeping in the office in order to recover from the computer virus and resume work on tax cases.  The petitioner’s appraiser also submitted a notarized statement and sworn affidavit stating that he suffered the loss of all of his business computers and had not fully recovered from the loss.  The petitioner’s appraiser also submitted a notarized document signed by the typist of the appraisal report, which stated that the analysis section of the appraisal was completely typed but when it came time to print and bind the appraisal report, they were unable to retrieve the document.  There was also a signed letter from the appraiser’s data entry person stating the effect of the computer virus.

The court found that “this destruction as a result of the computer virus constitutes good cause shown to allow an amended or supplemental appraisal report to be served by petitioner in order to fill in the missing data and render a complete report pursuant to 22 NYCR.R 202.60 (h).”

Of note, the court dismissed respondent’s argument that “22 NYCRR 202.60(g)(3) required that the reports be exchanged simultaneously, and that petitioner had an unfair advantage since it was able to examine their appraisal report prior to cross-moving to amend.”

The court stated that

“This contention is devoid of merit since 22 NYCRR 202.60(h) expressly permits the filing of an amended appraisal report.  Thus, the mere fact that petitioner has seen respondents’ appraisal prior to filing its amended appraisal does not constitute prejudice.  Indeed, under unusual and extraordinary circumstances, 22 NYCRR 202.60(h) even permits an amendment of an appraisal report after the trial of the issues has begun upon application to the trial judge.”

Instead,

“The interests of justice are best served by affording both parties an opportunity to elicit expert testimony as to value.  If relief pursuant to 22 NYCRR 202.60(h) were not permitted, great prejudice would result to petitioner in that it would be unable to provide any evidence as to value at trial and be deprived of its day in court.  Respondents have not demonstrated that they will be substantially prejudiced by permitting petitioner to file an amended appraisal report.  Rather, permitting the filing of an amended appraisal report will allow both parties to present their evidence as to value at trial.”

Posted in Appraisers, Tax Certiorari
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