1300 Nicollet LLC v. Cnty. of Hennepin

Decision Date17 May 2023
Docket NumberA22-0671
Parties1300 Nicollet, LLC, Relator, v. County of Hennepin, Respondent.
CourtMinnesota Supreme Court

Tax Court Office of Appellate Courts

Thomas R. Wilhelmy, Judy S. Engel, Gauri S. Samant, Fredrikson &amp Byron, P.A., Minneapolis, Minnesota, for relator.

Mary F. Moriarty, Hennepin County Attorney, Sara L. Bruggeman Jeffrey M. Wojciechowski, Rebecca L.S. Holschuh, Assistant County Attorneys, Minneapolis, Minnesota, for respondent.

SYLLABUS

1. Because Minnesota Statutes section 278.05, subdivision 3 (2022), and Minnesota Statutes section 13.03, subdivision 6 (2022), can be read together, the tax court did not abuse its discretion when it applied the balancing test of section 13.03 subdivision 6, and found that only the information that respondent county provided to its expert and on which he relied had to be made available to the taxpayer.

2. The tax court's adjustments to the market valuations of the subject property were not clearly erroneous.

Affirmed.

OPINION

CHUTICH, JUSTICE.

This case arises from the Minnesota Tax Court's market valuation of the real estate of the Minneapolis Hyatt Regency Hotel (the Hotel) for the tax years 2016, 2017, and 2018. Relator 1300 Nicollet, LLC (1300 Nicollet), which owns the Hotel, challenged the market values assessed by respondent County of Hennepin (the County) for these tax years. 1300 Nicollet first contests the tax court's discovery and evidentiary decisions related to the nonpublic assessor's records in the County's possession. It asserts that the tax court erred by ordering that only the information that the County provided to the County's expert-and upon which he relied-needed to be provided to 1300 Nicollet in discovery.

1300 Nicollet next contends that the tax court clearly erred when the court accepted the appraisal report of 1300 Nicollet's expert, but then made unsupported and unexplained adjustments to the expert's valuations. Through its adjustments, the tax court increased the market value of the Hotel real estate from the expert's appraised values of $39,700,000, $39,300,000, and $35,200,000 to $71,703,000, $67,940,000, and $68,881,000, for tax years 2016, 2017, and 2018, respectively.[1]

We hold that when a county opposes discovery and the taxpayer moves to compel discovery, as happened here, the balancing test found in Minnesota Statutes section 13.03, subdivision 6 (2022), is applicable. Because the tax court did not err as a matter of law or abuse its discretion in reaching its discovery and evidentiary rulings and did not clearly err when adjusting 1300 Nicollet's valuation of the Hotel real estate, we affirm.

FACTS

1300 Nicollet owns the Hyatt Regency Hotel, which is located at 1300 Nicollet Mall in downtown Minneapolis. The County assessed the value of the Hotel real estate for the years 2016, 2017, and 2018, and 1300 Nicollet appealed the valuations to the tax court. See Minn. Stat. § 278.01, subd. 1 (2022) (providing for appeals of assessed value to the tax court). The Hotel has approximately 78,000 square feet of meeting and event space. It has two restaurants, the Prairie Kitchen and Bar and Vitali's Bistro, and a convenience store, the MPLS Market. The Hotel operates each of these facilities. 1300 Nicollet now disputes the tax court's discovery and evidentiary rulings, as well as adjustments it made to 1300 Nicollet's expert's valuation of the Hotel real estate.

Before trial, 1300 Nicollet served the County with written discovery requests, including requests for income and expense information and assessor's data for 10 other Minneapolis hotels.[2] The County refused to produce appraisal reports and assessor's data for competitor hotels, asserting that they contained information protected by the Minnesota Government Data Practices Act (Data Practices Act), Minnesota Statutes sections 13.01-.90 (2022).

1300 Nicollet then moved to compel the production of tenancy, income, and expense information related to the 10 downtown properties and proposed a protective order providing that the data would be used only for these proceedings. Several downtown Minneapolis hotels intervened to oppose the motion to compel, arguing that the dissemination of their data to a competitor would cause them substantial harm. The County and 1300 Nicollet then exchanged their respective experts' appraisal reports. The County's appraisal showed that its expert, Peter F. Korpacz, considered data of at least four downtown Minneapolis hotels in his appraisal.

The tax court found that the requested information was "assessor's data" and is classified as private or nonpublic under Minnesota Statutes section 13.51, subdivision 2, of the Data Practices Act. It therefore used the two-prong balancing test laid out in Minnesota Statutes section 13.03, subdivision 6, of the Data Practices Act to determine whether to grant 1300 Nicollet's motion to compel. The first prong requires the presiding officer to determine whether the data are discoverable under the relevant court rules. Minn. Stat. § 13.03, subd. 6. Then, under the second prong, the presiding officer weighs the benefit to the party seeking access to the data to determine whether that benefit outweighs the confidentiality interests of the entity maintaining the data or a third party. Id.

The tax court relied heavily on our decision in EOP-NicolletMall, L.L.C. v. County of Hennepin, 723 N.W.2d 270 (Minn. 2006), when applying the balancing test. The tax court analyzed the first prong of the test, whether the information was discoverable, under Minnesota Rule of Civil Procedure 26.02(b). The tax court found the requested information to be relevant and not privileged. But when considering the proportionality of the requested discovery to the needs of the case, the tax court found that David C. Lennhoff, 1300 Nicollet's expert, was able to make an informed appraisal without access to the requested information based on other available sources and that hotel valuations do not require any extraordinary discovery. Specifically, Lennhoff stated in a sworn affidavit, "I most certainly had more than sufficient information upon which to perform my appraisal analysis," but that the requested information "would have been useful and considered by me for purposes of confirming my opinions of market value." Because the "marginal benefit" to 1300 Nicollet was outweighed by the burden that disclosure would place on the County, the tax court found that the requested materials were not discoverable under the first prong of the balancing test. Accordingly, it did not consider the second prong of the balancing test (weighing the confidentiality interests at stake).

Despite denying 1300 Nicollet's motion to compel the requested information of 10 competitor properties, the tax court considered whether the County was required to produce information about the four hotel properties that it gave Korpacz, and that he relied on in his appraisal. The tax court found under the first prong of the balancing test (discoverability) that the information was again relevant and not privileged, but that the proportionality question "changes substantially" for disclosure of data that the County provided to its expert. Although the tax court found that 1300 Nicollet would benefit only marginally from receiving information about other downtown properties, it found that 1300 Nicollet would gain a more specific benefit in being able to effectively cross-examine Korpacz about the information of the four hotels upon which he relied. Using the factors set forth in Rule 26.02(b), the tax court therefore concluded that the information the County gave to Korpacz, and upon which he relied, was discoverable.

The tax court then weighed the confidentiality interests at stake in providing information about those four hotels to 1300 Nicollet under the second prong of the balancing test in section 13.03, subdivision 6. The tax court found that because the County chose to provide certain nonpublic data to Korpacz, the data must likewise be provided to 1300 Nicollet and likely disseminated at trial. According to the tax court, the benefit to 1300 Nicollet in receiving the information that the County had provided to Korpacz outweighed the confidentiality interests of third parties and of the County. Thus, the tax court granted 1300 Nicollet's motion to compel in part and ordered the County to provide 1300 Nicollet with any information (including assessor's data) concerning downtown Minneapolis hotels that it gave to Korpacz and upon which he relied in preparing his appraisal. The tax court "encourage[d] the parties to promptly negotiate a suitable protective order and to take all reasonable measures to prevent the unnecessary dissemination of protected information."

The County later filed a motion in limine to exclude 1300 Nicollet's proposed exhibits 16-26 containing 10 affidavits of third-party properties,[3] arguing that the affidavits were irrelevant, hearsay, and lacked foundation. 1300 Nicollet argued that this information was necessary to confirm what information Korpacz had access to when preparing his appraisal. The tax court preserved the exhibits for the record but refused to admit them into evidence, finding that "[t]he fact that the County received the information does not show that the information was given to Mr. Korpacz."

The case proceeded to trial. 1300 Nicollet and the County each presented their expert appraisals and testimony in support of their proposed valuations. Importantly, exempt personal property, including personal intangible assets,[4] are not included when valuing real property for tax purposes. See Minn. Stat. §§ 272.02, subd. 9 (2022); 272.03 subds. 1-2 (2022). We recognize three approaches for valuing real property:...

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