Whittemore v. Thompson

• Decision Date: 24 June 2016
• Docket Number: No. 2014–158–Appeal , No. 2014–160–Appeal.,No. 2014–157–Appeal ,2014–157–Appeal
• Parties: Laurence F. WHITTEMORE, III et al. v. David B. THOMPSON, in his capacity as Tax Assessor for the Town of Westerly.
• Court: Rhode Island Supreme Court

139 A.3d 530

Laurence F. WHITTEMORE, III et al.

v.David B. THOMPSON, in his capacity as Tax Assessor for the Town of Westerly.¹

No. 2014–157–Appeal

No. 2014–158–Appeal

No. 2014–160–Appeal.

Supreme Court of Rhode Island.

June 24, 2016.

Kelly M. Fracassa, Esq., Westerly, for Plaintiffs.

Lauren E. Jones, Esq., Robert S. Thurston, Esq., Matthew T. Oliverio, Esq., Providence, for Defendant.

Present: SUTTELL, C.J., GOLDBERG, FLAHERTY, ROBINSON, and INDEGLIA, JJ.

OPINION

Justice FLAHERTY, for the Court.

This case is before the Court on appeal by the defendant, David B. Thompson, tax assessor for the Town of Westerly, from a judgment of the Superior Court in favor of the plaintiffs, Laurence F. Whittemore, III and Kathleen M. Whittemore. The trial justice granted the plaintiffs' three petitions for relief from property tax assessments on their home at 5 Manatuck Avenue (the subject property) for the years 2009, 2010, and 2011. The petitions were consolidated for a nonjury trial and the appeals have also been consolidated. The defendant asserts that the trial justice erred: (1) in failing to dismiss the Whittemores' petitions after finding that the Whittemores did not prove the fair market value of their property; (2) when she rejected the opinions of both parties' experts, but instead devised her own method for determining the fair market value of the property; (3) when she rejected the 2008 appraisals of the property based on a flawed generalization; and (4) in failing to dismiss the third petition challenging the town's 2011 assessment because she erroneously found that the town's appeals forms did not include mandated statutory language. For the reasons set forth in this opinion, we affirm in part and vacate in part the judgment of the Superior Court.

Facts and Travel

“[I]n this world nothing can be said to be certain, except death and taxes.

”²

The Whittemores moved quickly when they heard that the property at 5 Manatuck Avenue was going to be listed for sale. Each had spent significant amounts of time in Westerly, both growing up and as adults, bringing their children to Mr. Whittemore's parents' home in the Weekapaug section of town during the summers. In the summer of 2006, at a time when the Whittemores' children were young teenagers, the couple began looking for a property to purchase in the Watch Hill section of Westerly because their children had enjoyed past summers with their friends there. They viewed at least fifteen properties between 2006 and 2008, hoping to find a property that would not require renovation, because they believed they had only a few summers remaining before their children went to college. The Whittemores made offers on two properties, one for $3 million and one for $5 million, but both were rejected by the sellers.

When their broker alerted them that the property at 5 Manatuck Avenue was going to be listed later in June, the Whittemores jumped at the opportunity to preempt any competition. The house on the property, which was built in 2002, was newer and larger than the other homes they had seen, but it nonetheless fit with the character of the neighborhood. The lot, which was about 100 yards from the beach, was slightly over an acre in size and the two-story house had six bedrooms, six bathrooms, and ocean views from the second floor. The $7.85 million asking price was much higher than the Whittemores had anticipated paying, but they made an offer of $7.1 million because the property was superior to other properties and fit their needs. Mr. Whittemore believed they were offering an amount in excess of the fair market value, but he felt that it was worth the extra expense because, at that time, housing prices had been increasing for many years, and he planned to keep the property in the family.³ The sellers accepted the Whittemores' offer and they entered into a purchase and sale agreement for the property in June 2008.

By the fall of 2008, the financial climate had changed radically. The Whittemores initially had planned to finance most of the sale price by liquidating some investment accounts; however, in September 2008, the liquid assets available to the Whittemores, like so many others, had dropped dramatically. As a result, to finance the sale by the agreed closing date, the Whittemores came to a financing arrangement with the sellers, whereby $4 million was financed by the sellers and they paid the remaining $3 million. Shortly thereafter, however, the Whittemores paid off the personal loan obtained from the sellers by securing a loan from Washington Trust Company. To approve the loan, Washington Trust obtained two appraisals, valuing the property at $6.9 million and $6.5 million.

In 2009, the Town of Westerly Tax Assessor, Charles Vacca, conducted a statutorily mandated townwide revaluation;⁴ he reassessed the Whittemores' property at $5,976,600 on December 31, 2009 (the effective date), an assessment substantially higher than the assessed value of $5,260,900 that the property had when it was purchased by the Whittemores. The Whittemores objected to that assessment and, after an informal meeting with the tax assessor in the spring of 2010, the town agreed to lower the assessment slightly to $5,905,000.

The Whittemores, still dissatisfied with the assessment, hired Stephen McAndrew, a licensed real estate appraiser who had experience in tax appeals. McAndrew filed an “Annual Return” with the tax assessor on behalf of the Whittemores on October 26, 2010, and he filed a formal appeal with the tax assessor the following day. After Vacca denied the appeal, the Whittemores appealed his decision to the board of assessment review. The Whittemores also appealed the 2010 and 2011 assessments, which remained the same amount as the 2009 assessment. Each year, plaintiffs filed an “Annual Return,” but after the March 15 yearly deadline, set forth in G.L.1956 § 44–5–15. The board denied each appeal, and the Whittemores filed separate petitions in the Superior Court to reduce the tax assessment for each of the three years at issue.

In April 2013, a three-day trial began in the Superior Court on the three consolidated tax-appeal petitions. The trial justice acknowledged that the petition for appeal from the 2011 tax assessment had been so recently filed that the town had not had the opportunity to answer the petition; as a result, the parties agreed to address the issue of the town's affirmative defense—that the Whittemores had failed to timely file an “Annual Return”—in posttrial briefing. In the prosecution of their case, plaintiffs offered three witnesses: Mr. Whittemore, McAndrew, and Vacca. The defendant called Vacca, Stephen Ferreira, the District Manager of Vision Government Solutions, a company specializing in mass appraisals, and David Thompson, the new town tax assessor.

Stephen McAndrew's Testimony

McAndrew testified that he conducted a retrospective appraisal of the property around the end of 2010, to determine its value as of December 31, 2009. In his appraisal, he described the Watch Hill neighborhood as characterized by mini-estates, with many properties being over an acre “with supporting improvements best-termed mansions.” McAndrew described the prevailing market conditions as, “[t]he subject neighborhood is reflecting both stabilization and declining values. * * * Values exceeding [$1,500,000] are felt to continue to decline. Viewing into the foreseeable future, decline in the area is estimated on an annual basis to be 6%.” At trial, McAndrew said that hindsight clarified market trends, but that his conclusion was ultimately the same as in 2010, explaining that values reached a peak in 2005, remained stable until the beginning of 2008, and then showed an “absolutely definable loss in value in the marketplace,” which McAndrew projected to be on an annual basis of about 6 percent, until around 2012, when values began to stabilize. He also testified that, in Watch Hill, the lower-value properties stabilized earlier, but the upper-level property values had not yet done so.

McAndrew testified that the most accurate method of measuring value is by using the “comparable sales approach,” which he employed in his appraisal of the subject property. Because of the scarcity of sales in the area resulting from the prevailing market conditions, he said that he was required to look beyond Watch Hill to find comparable sales that represented similar locational characteristics, physical attributes, and value. He used three “comparables” in his appraisal, one located in Jamestown, one in Newport, and one in the nearby Shelter Harbor neighborhood of Westerly. He said he believed that all of the properties were in very desirable locations, either near or on the water, and that their sale dates were close to the target appraisal date of December 31, 2009. After making adjustments to the sale values for different locations and amenities, McAndrew determined that the adjusted values of the properties ranged from $4.6 million to $5.1 million, and he concluded that the direct sales method indicated an estimated fair market value of $4.9 million for the subject property.

McAndrew also discussed several properties in the Watch Hill neighborhood that he decided not to use as comparables. The property at 7 Manatuck Avenue was assessed in 2009 at $6,498,200, following a sale of that property on April 18, 2008, for $6 million. He said he chose not to use that property as a comparable for the same reason that he would never use the Whittemores' purchase price as a comparable for other properties; because it was an aggressive price that could not be justified in the market. He explained that he had previously appraised 7 Manatuck Avenue in June 2007, before it was sold, for $4.4 million. Furthermore, the house at 7 Manatuck Avenue was completely rebuilt in September 2009 at a cost of $1.2 million, which, McAndrew testified, created a great deal of speculation about how much value was added by the improvements and...