When the city’s chief lawyer, Michael Cardozo, goes before the U.S. Supreme Court this month to demand tax dollars from Mongolia and India, he will stand in opposition to the Justice Department on the issue.

The outcome of the case, scheduled for argument on April 24, will decide whether the city gets to tax countries that use their missions to the United Nations to house chauffeurs, security guards, secretaries, and other support staff.

A win before the Supreme Court almost certainly would spur the city to sue other countries: New York City already has accused about a half dozen of being tax cheats.

The Justice Department, speaking on behalf of the State Department, says the case has global implications that go beyond a dispute about Manhattan real estate. Siding with Mongolia and India, the American solicitor general, Paul Clement, is arguing that Mayor Bloomberg’s effort to tax these properties could encourage foreign countries to respond by ” hindering the ability of the United States’ missions abroad to buy, sell and construct diplomatic properties,” according to a brief by the solicitor general’s office.

As evidence of the likelihood of this danger, the State Department has disclosed that one of these two countries has already retaliated in response to the city’s tax collectors by blocking the sale of a “major piece of property” belonging to the American government, according to another court brief.

The brief does not say which country blocked the sale, and a spokesman for the State Department declined to comment on the incident.
The city is seeking some $18 million from the two countries. India, whose permanent mission to the United Nations is housed in a 26-floor building on East 43rd Street, owed, as of 2003, $16.4 million, the city claims. The city is demanding $2.1 million from Mongolia, which owns a six-story building on East 77th Street.

Since 1993, the city has been dutifully reminding countries of their obligation to pay real estate tax on properties not used exclusively for diplomatic purposes or to house top diplomats — an exemption created by New York State law, according to the city’s brief. The city finally went to court in 2003.

Both countries have defended their use of diplomatic buildings to house lower-level employees. The policies of both foreign missions require staff to live at the compounds because the time differences between New York and the two countries often demand around-the-clock availability, according to the brief submitted by India and Mongolia.

New York’s floor-by-floor tax assessment of their two buildings is intrusive, they argue.

“The operation and staffing of a foreign mission and the deployment of its senior diplomatic personnel is peculiarly sovereign,” lawyers for the two countries, represented by Kaye Scholer LLP, argue in their brief.

The legal question at the heart of the case is whether a federal law, the Foreign Sovereign Immunities Act, gives countries immunity from New York City’s suit. The law contains an exemption for disputes over immovable property.

In its brief, New York argues that the liens it has on both buildings for unpaid taxes are enough to trigger that exemption. India and Mongolia say the exemption was intended for questions over disputed ownership of the property. In their brief, the two countries compare the city’s suit with a hypothetical “dispute over the Mission’s obligation to pay a merchant for selling it a rug.” Both the city and the rug merchant may have claims against the Mission, the countries argue, but neither of the claims amounts to a dispute over property.

The Supreme Court could also rule that the suits are precluded by international treaty.

The two lower courts that have heard the case have disagreed with the arguments of Mongolia and India. In both instances, the lower courts decided that courts did have jurisdiction to hear New York City’s suit against the countries.

The 2nd U.S. Circuit Court of Appeals held that this case was about the obligation of foreign states to obey the local law while conducting diplomacy in New York. That decision, written last year by Judge Robert Katzmann, is now under review.

“When owning property abroad, a foreign state must follow all the same laws that pertain to private owners of such property,” Judge Katzmann wrote.

The Supreme Court was likely encouraged to take the case because of a split between the circuits. The 2nd Circuit’s decision was in opposition to a 1985 decision by a federal appellate court in Philadelphia that held that a weekend retreat in Englewood, N.J., owned by Libya was tax exempt.

During arguments, both sides are likely to focus their arguments on Justice Scalia. As a circuit judge, Justice Scalia wrote an opinion in a case about land grants dating back to the Mexican-American War that has become a leading precedent about the property exemption in the Foreign Sovereign Immunities Act.

The argument will be the first before the Supreme Court for Mr. Cardozo, the city’s corporation counsel. The two countries will be represented before the court by John Howley of Kaye Scholer’s New York office. The office of the solicitor general has also asked for time to participate in oral arguments.