444 Lafayette, LLC v. Cnty. of Ramsey, A12–0963.
| Decision Date | 24 April 2013 |
| Docket Number | No. A12–0963.,A12–0963. |
| Parties | 444 LAFAYETTE, LLC, et al., Relators, v. COUNTY OF RAMSEY, Respondent. |
| Court | Minnesota Supreme Court |
OPINION TEXT STARTS HERE
Syllabus by the Court
1. Appellate review of the Minnesota Tax Court's decision on remand is for an abuse of discretion. Although that review is deferential, the tax court must execute a remand order according to its instructions and has no power to modify those instructions.
2. The tax court abused its discretion in determining the market values for the subject property on remand when it failed to explain its reasoning and describe the factual support in the record for its calculation of parking income and expenses.
Thomas R. Wilhelmy, Jennifer A. Kitchak, Fredrikson & Byron, P.A., Minneapolis, MN, for relators.
John J. Choi, Ramsey County Attorney, M. Jean Stepan, Assistant County Attorney, Saint Paul, MN, for respondent.
Considered and decided by the court without oral argument.
In this appeal, we consider whether the Minnesota Tax Court followed our remand instructions in 444 Lafayette, LLC v. County of Ramsey (444 Lafayette I), 811 N.W.2d 106 (Minn.2012). Originally, relators 444 Lafayette, LLC and Meritex Enterprises, Inc. sought certiorari review of the tax court's market value determinations for the subject property for the assessment dates January 2, 2007; January 2, 2008; and January 2, 2009. After trial, the tax court adopted the market values proposed by respondent Ramsey County in its post-trial brief, which were higher than the value opinions presented by either party's appraiser at trial. Relators appealed, and we reversed and remanded with instructions for the tax court to carefully explain its reasoning for rejecting the appraisal testimony and describe the factual support in the record for its determinations. On remand, the tax court again adopted market values that exceeded the parties' appraisal opinions. Because we conclude that the tax court failed to follow our remand instructions when it calculated parking income and expenses, we reverse.
The subject property is located at 444 Lafayette Road in Saint Paul, Minnesota. It is improved by a six-story, single-tenant office building, which is currently leased to the Minnesota Department of Human Services. During the relevant time period, the subject property was owned by either Meritex Enterprises or 444 Lafayette. Because there are no parking spaces on the subject property, a Reciprocal Easement Agreement (REA) provides access to parking spaces on three adjacent properties. The REA expressly runs with the land and grants to the subject property, among other things, the right to lease 979 parking spaces on designated portions of the adjacent properties for use by employees,visitors, and delivery persons. In addition, the REA provides that the income generated and expenses incurred from leasing the parking spaces on the adjacent properties shall be attributed to the subject property.
The County Assessor estimated the market value of the subject property at $22,500,000 for all three assessment dates. Relators filed a petition under Minn.Stat. § 278.01, subd. 1 (2012), challenging the County's assessments. At trial, both parties introduced expert appraisal reports and opinions as to market value. Relators presented the appraisal testimony of Michael F. Amundson, who estimated the subject property's market value at $16,200,000 for 2007; $16,300,000 for 2008; and $13,800,000 for 2009. The County presented the appraisal testimony of Jason L. Messner, who estimated market value at $23,900,000 for 2007; $25,000,000 for 2008; and $20,100,000 for 2009.
In its post-trial brief, the County argued for higher value determinations than the value opinions of either party's appraiser. The tax court adopted, verbatim, the County's proposed value determinations of $26,164,000 for 2007; $27,420,000 for 2008; and $22,094,000 for 2009. 444 Lafayette, LLC v. Cnty. of Ramsey, Nos. 62–CV–08–4369, 62–CV–09–4709, 62–CV–10–166, 2011 WL 1364461, at *2 (Minn. T.C. Apr. 7, 2011).
On appeal, we reversed the tax court's value determinations and remanded the case for further proceedings. 444 Lafayette I, 811 N.W.2d at 107–08. We observed that the tax court “incorporated into its findings a nearly verbatim recitation of many of the County's post-trial arguments, including several typographical errors found in the County's post-trial brief.” Id. at 107. Consequently, we concluded that the tax court “ ‘failed to exercise its own skill and independent judgment’ in valuing the subject property.” Id. at 108 (quoting Eden Prairie Mall, LLC v. Cnty. of Hennepin, 797 N.W.2d 186, 192 (Minn.2011)). We therefore instructed the tax court to “carefully explain its reasoning for rejecting the appraisal testimony and the grounds for adopting a lower or higher value, and adequately describe the factual support in the record for its determination[s].” Id. (citation omitted) (internal quotation marks omitted).
On remand, the tax court requested additional briefing from the parties. Subsequently, the tax court issued its remand order, which again determined market values for the subject property that were higher than the opinions of either party's appraiser. 444 Lafayette, LLC v. Cnty. of Ramsey, Nos. 62–CV–08–4369, 62–CV–09–4709, 62–CV–10–166, 2012 WL 1191598, at *2 (Minn. T.C. Apr. 5, 2012), amended by2012 WL 1191601, at *1 (Minn. T.C. Apr. 12, 2012).
A summary of the County's assessed values, the parties' appraisal opinions, and the tax court's value determinations in both of its orders is as follows:
I.
Relators argue that the tax court failed to follow our remand instructions when it valued the subject property higher than the appraisal testimony of either party without explaining its reasoning or describing the factual support in the record. The County responds that the tax court's value determinations are supported by the record as a whole.
Generally, our review of the tax court's decision is limited to determining whether the court had jurisdiction, whether its decision was justified by the evidence and in conformity with law, or whether it committed any other error of law. Minn.Stat. § 271.10, subd. 1 (2012). We review the tax court's legal conclusions de novo, but we defer to the tax court's market value determinations unless they are clearly erroneous. See Cont'l Retail, LLC v. Cnty. of Hennepin, 801 N.W.2d 395, 398 (Minn.2011). The tax court's value determinations are clearly erroneous if they are not reasonably supported by the record as a whole. Equitable Life Assurance Soc'y v. Cnty. of Ramsey, 530 N.W.2d 544, 552 (Minn.1995). We will not defer to the value determinations if the tax court has clearly misvalued the property or completely failed to explain its reasoning. Cont'l Retail, 801 N.W.2d at 399.
Similarly, we review the tax court's decision on remand for an abuse of discretion. See Janssen v. Best & Flanagan, LLP, 704 N.W.2d 759, 763 (Minn.2005). Although our review is deferential, the tax court must execute our remand order according to its instructions and has no power to modify those instructions. See Halverson v. Vill. of Deerwood, 322 N.W.2d 761, 766 (Minn.1982).
Essentially, relators' challenge to the tax court's value determinations focuses on three components of this court's remand order: (1) operating expenses, (2) tenant improvement allowances, and (3) parking income and expenses. We will discuss each component in turn.
Relators argue that the tax court failed to explain its reasoning and describe the factual support in the record for its determination of operating expenses. Operating expenses are the periodic expenditures necessary to maintain the real property and continue production of income. See Appraisal Institute, The Appraisal of Real Estate 459 (13th ed.2008).
To project operating expenses, the relators' appraiser relied on two Twin Cities surveys to determine the market level of operating expenses. He amended his projections at trial based on a recalculated amount of rentable square footage, and then estimated operating expenses at $1,604,646 for 2007; $1,652,786 for 2008; and $1,700,925 for 2009. The County appraiser, however, estimated operating expenses by comparing the subject property's historic operating expenses to similar properties in the market. He testified that the subject property's historic operating expenses were generally consistent with the market, and estimated operating expenses at $1,540,946 for 2007; $1,610,989 for 2008; and $1,610,989 for 2009.
On remand, the tax court concluded that the County appraiser's market study approach was “more persuasive,” and adopted his operating expense figures. The court rejected the figures used by the relators' appraiser because they relied upon the NorthMarq survey, which is a local market study that assumed a declining trend in...
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