RFM-TREI Jefferson Apartments v. Stark County Board of Comm'rs , 2020 ND 204 ( 2020 )

Filed 10/21/20 by Clerk of Supreme Court
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2020 ND 204RFM-TREI Jefferson Apartments, LLC, Appellant
v.
Stark County Board of Commissioners, Appellee
No. 20190396
RFM-TREI Lincoln Apartments, LLC, Appellant
v.
Stark County Board of Commissioners, Appellee
No. 20190397
Dickinson Homestay, LLC, Appellant
v.
Stark County Board of Commissioners, Appellee
No. 20190398
Lodgepros Dickinson, LLC, Appellant
v.
Stark County Board of Commissioners, Appellee
No. 20190399
Appeals from the District Court of Stark County, Southwest Judicial District,
the Honorable William A. Herauf, Judge.
REVERSED AND REMANDED.
Opinion of the Court by Tufte, Justice.
Michael S. Raum (argued) and Aubrey J. Fiebelkorn-Zuger (on brief), Fargo,
N.D., for appellants.
Mitchell D. Armstrong (argued) and Brian D. Schmidt (on brief), Bismarck,
N.D., for appellee.
RFM-TREI Jefferson Apartments v. Stark Cty. Bd. of Comm’rs
Nos. 20190396–20190399
Tufte, Justice.
[¶1] RFM-TREI Jefferson Apartments, LLC; RFM-TREI Lincoln
Apartments, LLC; Dickinson Homestay, LLC; and Lodgepros Dickinson, LLC
(together “the Taxpayers”) appeal from district court judgments affirming the
Stark County Board of Commissioners’ (“the Board”) denials of their
applications for tax abatements or refunds. On appeal, the Taxpayers argue
the Board’s decisions are arbitrary and unreasonable, the Board applied an
incorrect legal standard, and the Taxpayers’ right to due process was violated.
We reverse the judgments and the Board’s decisions and remand for further
proceedings.
I
[¶2] The Taxpayers collectively own two apartment complexes and two hotels
located in the City of Dickinson. The Taxpayers filed applications for
abatement or refund of their 2016 property taxes. The Taxpayers’ opinions of
value for each property differed from the City’s valuations by a range of roughly
$1.8 million to $20.3 million. After holding a hearing, the City recommended
the Board deny each application.
[¶3] After briefly discussing the applications at its regular meeting, the Board
decided to hold a special hearing due to the limited time available at the
regular meeting. County representatives sent the Taxpayers an agenda for the
special meeting. The agenda listed each abatement application in fifteen-
minute time intervals. The Taxpayers’ counsel raised concerns with County
representatives by email and letter indicating the Taxpayers would not have
enough time to present their material. County representatives were largely
unresponsive and replied with a revised agenda that omitted the time
designations.
[¶4] At the special hearing, the Taxpayers’ counsel began his presentation by
informing the Board he had intended to call witnesses but chose not to do so
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because he was unsure whether the Board would grant him enough time.
Rather than calling witnesses, the Taxpayers’ counsel submitted what he
described as an “offer of proof,” which contained detailed information on each
property and stated:
[W]e would anticipate eliciting expert testimony which would
demonstrate that the decline in oil prices had a significant and
immediate impact on the Dickinson market for commercial real
estate, particularly with respect to apartments and lodging
properties like the Subject Properties. This testimony would also
establish that the assessment for each parcel has not declined with
the market, and therefore exceeds the true and full value of each
parcel.
The Taxpayers’ counsel presented valuations for each property based on an
income approach. The Dickinson City Assessor presented valuations based on
a replacement-cost approach. The assessor informed the Board he was unable
to conduct an income-approach analysis because his attempts to obtain income
information from the Taxpayers were unsuccessful.
[¶5] The Board denied the abatement applications in four separate written
decisions. Using the same language in each, the Board concluded the assessor’s
valuations were not “in error, invalid, inequitable, unjust, or arrived at in an
arbitrary, capricious, or unreasonable manner.” The decisions also explained
the Board did not believe the Taxpayers provided “sufficient enough
information relating to the subject properties, or the local market for
competing properties, to lead us to the same value conclusions requested by
the applicant.” The district court affirmed each denial in separate, written
orders and judgments. The cases have been consolidated on appeal.
II
[¶6] We review local governing bodies’ decisions on tax rebate and abatement
applications under the arbitrary, capricious, or unreasonable standard:
Our review of a local governing body’s assessment of value
for tax purposes is limited by the doctrine of separation of powers.
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Taxation of property is a legislative function, not a judicial
function, and courts may not substitute their judgment for that of
the local governing body. A reviewing court may not reverse the
Board’s decision simply because it finds some of the evidence more
convincing; rather, the reviewing court may reverse only where
there is such an absence of evidence or reason that the Board’s
decision is arbitrary, capricious, or unreasonable. A decision of a
local governing body is arbitrary, capricious, or unreasonable only
if it is not the product of a rational mental process, by which the
facts and the law are considered together for the purpose of
achieving a reasoned and reasonable interpretation.
Dakota Northwestern Assocs. v. Burleigh Cty. Bd. of Cty. Comm’rs, 2000 ND
164, ¶ 8, 616 N.W.2d 349 (citations omitted). Our limited scope of review does
not permit us “to weigh the material on value to determine which part of it is
more convincing.” Ulvedal v. Bd. of Cty. Comm’rs of Grand Forks Cty., 434
N.W.2d 707, 710 (N.D. 1989). “Weighing factual material for tax purposes is
the responsibility of county commissioners, not the courts.” Id.A
[¶7] The Taxpayers assert the Board implied an improper standard by
approaching their abatement applications as an appellate review of the
assessor’s valuations rather than as an independent fact finder. The Taxpayers
argue that “[r]ather than consider the evidence submitted by Taxpayers, the
Board was concerned about whether or not the Taxpayers had provided the
City of Dickinson’s Assessor with its evidence and arguments prior to the
assessment.”
[¶8] Although N.D.C.C. § 57-23-06 requires the Board to give the City’s
recommendation “consideration” in tax abatement and refund proceedings, the
Board is also required to determine a property’s true and full value based upon
all of the evidence before it. Dakota Northwestern Assocs., 2000 ND 164, ¶ 13,
616 N.W.2d 349. The Board may grant an abatement or refund when an
assessment is “invalid, inequitable, or unjust.” N.D.C.C. § 57-23-04(1)(h). On
appeal, we “presume, in the absence of contrary evidence, that the assessing
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officers performed their duty.” Ulvedal, 434 N.W.2d at 709 (quoting Appeal of
Johnson, 173 N.W.2d 475, 482 (N.D. 1970)).
[¶9] On a number of occasions during the hearing, the assessor advised the
Board that his requests for income information from the Taxpayers went
unanswered. This prompted discussion about what information the assessor
had when he completed his valuation, which prompted more discussion about
what the appropriate standard was for the Board to apply. The Stark County
State’s Attorney and the Taxpayers’ counsel repeatedly advised the Board it
was required to consider all of the evidence before it to determine whether the
assessor’s valuation was invalid, inequitable, or unjust.
[¶10] After the hearing, the Board issued identical, conclusory explanations
for its denial of each Taxpayer’s abatement application. The Board should have
provided better explanations for its decisions. Cf. Dakota Northwestern Assocs.,
2000 ND 164, ¶ 15 n.2, 616 N.W.2d 349 (urging boards of county commissioners
to provide a full explanation for the rationale behind their decisions on tax
abatement applications). A review of the evidence before the Board shows the
Board engaged in a determination of whether the assessor’s process was
reasonable without regard to whether the resulting assessment itself was
invalid, inequitable, or unjust.
[¶11] During the hearing, the assessor conceded, on the basis of his 17 years
of experience as an appraiser and assessor, the properties at issue would not
have sold in 2016 for the assessed values.
CHAIRMAN ELKIN: And the property, at least what you’re
supplying us, the one piece of property—one property sold for $30
million for Lincoln Meadows; right?
MR. HIRSCHFELD: Yes.
CHAIRMAN ELKIN: To the property owners and the other one,
which is Jefferson Creek, sold for 6—you know, $6.45 million;
right?
MR. HIRSCHFELD: Correct.
CHAIRMAN ELKIN: And yet it didn’t cost near that to build them.
You and I probably know that. But then how do you come to your
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values? You’re basing basically on market, or are you basing it on
market cost?
MR. HIRSCHFELD: That’s where that hybrid model comes into
where we are capturing that entrepreneurial profit from the sales.
CHAIRMAN ELKIN: Right, and that’s really what you have to
base your appraisal on, that’s the only thing you can go by?
MR. HIRSCHFELD: Correct.
CHAIRMAN ELKIN: Next question, how do these properties—I’d
like to know, when you look at what happened with the pricing of
oil, and oil prices did crash, but I don’t believe the real estate
market—most of us understand that did not crash until after oil
crashed. So how did you determine the values when oil was
crashing?
MR. HIRSCHFELD: Well, and that’s that gotcha moment that
they have here with, do I know that the property would sell for
that. Well, having been an appraiser and assessor now for 17
years, I’m sitting there looking at all the information I have and,
you know, I can’t see it selling for that. However, when I go back
and follow my process, you know, values always lag a year because
we are looking at history.
Despite his concession, the Board adopted the assessor’s determination of true
and full value as reflected by the assessments.
[¶12] Every property within North Dakota, including the properties at issue,
must be assessed at its “true and full value.” True and full value is “the value
determined by considering the earning or productive capacity, if any, the
market value, if any, and all other matters that affect the actual value of the
property to be assessed.” N.D.C.C. § 57-02-01(15). The assessor’s guidebook for
North Dakota adopts the International Association of Assessing Officers’
definition of “market value”:
the most probable price expressed in terms of money that a
property would bring if exposed for sale in the open market in an
arms-length transaction between a willing seller and a willing
buyer, both of whom are knowledgeable concerning all the uses to
which it is adapted and for which it is capable of being used.
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Property Tax Guideline: Assessment Terms and Concepts, N.D. Office of State
Tax Comm’r, July 2005. For commercial properties, “[m]arket value is the
same as true and full value.” Id. “All assessments of any taxable property in
excess of the full and true value in money are subject to correction and
abatement and refund.” N.D.C.C. § 57-23-01.
[¶13] In a typical appeal, this Court has affirmed determinations of local
taxing authorities when the taxing authorities had been confronted with
competing valuations provided by the assessor and the taxpayer. E.g., Dakota
Northwestern Assocs., 2000 ND 164, ¶¶ 10-11, 616 N.W.2d 349 (affirming a
Board’s contested valuations when the challenges pertained to weight and
credibility of the valuations); Ulvedal, 434 N.W.2d at 710-11 (holding a board
did not abuse its power upon reviewing the assessor’s contested approach to
appraisal valuation); Am. Crystal Sugar Co. v. Traill Cty. Bd. Of Comm’rs,
2006 ND 118, ¶¶ 14-15, 714 N.W.2d 851 (holding it is not for this Court to
micro-manage valuations of assessments when the valuations are contested
amongst the parties). We have never affirmed a local taxing authority’s
decision to knowingly adopt an assessment greater than the true and full value
of the property, and we decline to do so here. Our prior cases simply affirmed
a taxing authority’s choice between two conflicting opinions regarding the true
and full value.
[¶14] Despite the assessor’s concession that the assessed value exceeded the
market value of the properties, the Board adopted the assessments. It is
inequitable and unjust to assess property in excess of the true and full value.
Whether the requests for abatement should have been granted can be
answered with a single question statutorily required to be answered by the
Board: were the assessments in excess of the true and full value? N.D.C.C. § 57-
23-01. The answer to the question is yes. The only evidence before the Board
was that the 2016 assessments exceeded the true and full value of the
properties. The assessor conceded the properties could not have sold in 2016
for the value they were assessed; their market value was less than their
assessed value. Because they are commercial properties, market value is
synonymous with true and full value. Property Tax Guideline: Assessment
6
Terms and Concepts, N.D. Office of State Tax Comm’r, July 2005. The Board
adopted assessments that the assessor conceded were greater than the true
and full value of the properties. Accepting assessments that exceed the true
and full value of property and denying requests for abatement is contrary to
N.D.C.C. § 57-23-01, which provides that “assessments of any taxable property
in excess of the full and true value in money are subject to correction and
abatement and refund.” When a Board acts contrary to a legislature’s directive,
those acts must be determined to be arbitrary and unreasonable.
B
[¶15] The Taxpayers also argue the Board denied them due process because it
did not meaningfully respond to their requests concerning the hearing format
and time limitations. Although they acknowledge the Board “never specifically
forbade any witness from testifying,” they claim the Board “effectively denied
that opportunity.” Because this may recur on remand, we briefly address this
argument.
[¶16] The standard for due process in the context of tax abatement proceedings
is different from the process required in judicial proceedings:
This Court has long held that the taxation of property is a
legislative rather than a judicial function. Because a board of
county commissioners is not a judicial tribunal, due process does
not require a judicial trial, and the character of the hearing is not
measured by standards of judicial procedure. . . .
The fundamental requirement of due process is the
opportunity to be heard at a meaningful time and in a meaningful
manner. Whether a party has been deprived of due process by an
action of a nonjudicial body depends on whether it acted contrary
to the statutes and rules and with arbitrary and unreasonable
discrimination.
Am. Crystal Sugar Co., 2006 ND 118, ¶¶ 7-8, 714 N.W.2d 851 (citations and
internal quotation marks omitted).
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[¶17] The County’s responses to the Taxpayers’ inquiries regarding the
hearing rules and time limitations were unclear and inconsistent. In response
to the Taxpayers’ requests for clarification, one County representative advised
the Taxpayers that “[t]he agenda is just a guideline,” but the representative
did not provide any other direction. Although the Taxpayers’ complaints raise
legitimate concerns, we are not convinced they amount to a deprivation of due
process.
[¶18] The Taxpayers have not explained what additional information the
witnesses would have proffered. The Taxpayers argue:
[T]he proposed [testimony is] not cumulative of other evidence in
the record. Arguments of counsel are not the same as testimonial
evidence. Although Taxpayers resorted to making an offer of proof,
such an offer is not itself evidence in the record; it is rather a record
of what evidence was excluded from the record.
We disagree. In tax assessment proceedings, boards of county commissioners
are not restricted by the same rules judicial tribunals must follow. Am. Crystal
Sugar Co., 2006 ND 118, ¶ 7, 714 N.W.2d 851. Taxing authorities may consider
information that does not meet the standards for admissibility of evidence in
court:
While it exercises quasi-judicial powers, the Board is not
circumscribed by the restrictions that apply to a court in the
reception and consideration of evidence. The Board is not obliged
to consider only evidence taken before it in the ordinary way. It
may base its action in part upon investigations of its members, and
upon their knowledge of values as derived from experience and
study.
Koch Hydrocarbon Co. v. State Bd. of Equalization, 454 N.W.2d 508, 513 (N.D.
1990) (internal quotation marks omitted) (quoting N. Pac. Ry. Co. v. State, 71
N.D. 93, 104, 299 N.W. 696, 702 (1941)).
[¶19] Contrary to the Taxpayers’ suggestion, the Board was not foreclosed
from considering the Taxpayers’ information presented in written form and
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orally summarized by counsel. Although we acknowledge live-witness
testimony is often more persuasive than written information, the fundamental
standard for due process is an opportunity to be heard at a meaningful time
and in a meaningful manner. The Board held a special hearing and did not
restrict the Taxpayers’ time to present their case or their manner of doing so.
However evidence comes before the Board, once the matter is appealed to the
district court or to this Court, both the Board and the Taxpayers are limited to
the record developed before the Board. Midwest Processing Co. v. McHenry
Cty., 467 N.W.2d 895, 900 (N.D. 1991) (citing Evenson v. Hlebechuk, 305
N.W.2d 13, 16 (N.D. 1981) (the purpose of an appeal is for review; it is not an
opportunity to develop different strategies and theories)). See also Nat’l Sun
Indus., Inc. v. Ransom Cty., 474 N.W.2d 502, 506 (N.D. 1991) (taxing
authorities are also bound by the record they make for appeal). Despite the
county representatives’ terse responses to the Taxpayers’ questions, we cannot
say the Board acted “contrary to the statutes and rules” or treated the
Taxpayers “with arbitrary and unreasonable discrimination.” See Am. Crystal
Sugar Co., 2006 ND 118, ¶ 8, 714 N.W.2d 851. We conclude the Board did not
deny the Taxpayers due process.
C
[¶20] The Taxpayers also argue that multipliers applied to arrive at the final
assessment are arbitrary because there is no explanation of how the
multipliers are calculated or what they quantify. The Taxpayers assert the
multipliers “inflated” the Assessor’s valuation “by more than 85% for no
discernable reason.” Because we reverse for the reasons stated in II(A), we
need not address this argument here other than to reaffirm that the statutory
requirement in tax abatement proceedings is to ascertain the true and full
value, and the assessor and the board must apply that standard regardless of
the method or tool they may use. An inability to explain how multipliers are
determined and how they aid in reaching the true and full value would be
relevant to determining whether a taxing authority acted in an arbitrary,
capricious, or unreasonable manner.
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III
[¶21] We conclude the Board acted arbitrarily and unreasonably in adopting
assessments exceeding the true and full value of the property. We reverse the
district court judgments and the Board’s decisions denying the Taxpayers’
abatement applications. We remand for a new hearing to determine the “true
and full value” of the properties and reconsideration of the abatement
applications.
[¶22] Jerod E. Tufte
Gerald W. VandeWalle
Lisa Fair McEvers
Daniel J. Crothers
Jon J. Jensen, C.J.
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