85 Hawai'i 36, Maile Sky Court Co., Ltd. v. City and County of Honolulu

• Decision Date: 17 April 1997
• Docket Number: 19836,Nos. 19835,s. 19835
• Citation: 85 Hawaii 36,936 P.2d 672
• Parties: 85 Hawai'i 36 ., LTD. v. CITY AND COUNTY OF HONOLULU, Appellee. 1 Supreme Court of Hawai'i
• Court: Hawaii Supreme Court

Page 672

936 P.2d 672

85 Hawai'i 36

In the Matter of the Tax Appeal of MAILE SKY COURT CO., LTD. v. CITY AND COUNTY OF HONOLULU, Appellee.

Nos. 19835, 19836. ¹

Supreme Court of Hawai'i.

April 17, 1997.

As Amended May 6, 1997.

Carlito P. Caliboso (Donna Y. L. Leong with him on the briefs of Cades Schutte Fleming & Wright), Honolulu, for Appellant Maile Sky Court Co., Ltd.

Susan A. Bender, Deputy Corporation Counsel, Real Property Division, on the briefs, Honolulu, for Appellee City and County of Honolulu.

Before MOON, C.J., and KLEIN, LEVINSON, NAKAYAMA and RAMIL, JJ.

KLEIN, Justice.

Appellant Maile Sky Court Company, Ltd. (MSC) appeals from the Tax Appeal Court's judgment concerning certain apartments in the Outrigger Maile Sky Court for the 1994 and 1995 tax years. The issue presented in this appeal is whether a party with a secondary contractual obligation to pay the tax assessed against another has a right to challenge that assessment to the Tax Appeal Court under Hawai'i Revised Statutes (HRS) § 232-1 (1993). ² We hold that it does.

I. BACKGROUND

MSC, as Lessee/Sublessor, is a party to a "sandwich lease" with the fee owners, as Lessors, on one side, and individual apartment owners, as Sublessees, on the other. The subject property is a condominium/hotel in Waikiki. ³

The master lease between the fee owners and MSC obligates MSC to "pay ... all taxes and assessments[.]" The lease prohibits the Lessee's assignment of the lease without the consent of the fee owners: "[n]o such assignment shall release the assignor from further liability hereunder unless the Lessor shall consent in writing to such assignment." The lease, however, permits the Lessee to sublease without the consent of the fee owners, "provided, that notwithstanding such subletting, Lessee shall at all times remain liable to the Lessor under the terms hereof."

Between 1990 and 1993, MSC executed numerous subleases with individual investors, mostly Japanese nationals or corporations, for apartments in the hotel. MSC subleased 252 of the 548 total units in 1995, and 248 units in 1996. A standard provision in the subleases provides that the "[s]ublessee will pay ... all taxes and assessments[.]"

The City & County of Honolulu (the City) separately assessed, and issued a notice of property assessment, for each of the 548 units in the hotel. The City addressed all of the notices either to MSC or to the fee owners. MSC filed notices of appeal directly to the Tax Appeal Court, alleging violations of HRS §§ 232-3(2) and -3(4) (1993) ⁴ and Revised Ordinances of Honolulu 1990(ROH) §§ 8-12.3(1), -3(2), and -3(4). ⁵

On October 2, 1995, the City filed a Motion to Dismiss, or in the Alternative, for Partial Summary Judgment (Motion to Dismiss). The City argued that the Tax Appeal Court lacked subject matter jurisdiction because (1) MSC failed to file separate appeals for each apartment, and (2) MSC failed to allege separate assessed and claimed values for each apartment.

The City did not allege in its Motion to Dismiss that MSC did not have a right to appeal the assessments for the apartment owners. Instead, counsel for the City stated at the hearing on the motion that the City "has no objection to Maile Sky Court bringing the appeals on behalf of these some 240 investor owners. The [C]ity only asks that each assessment contested be separately appealed as required by law."

On October 13, 1995, the Tax Appeal Court issued a Minute Order in which the Court determined sua sponte that:

Only a taxpayer or a person having a contractual obligation (obligor) to pay a tax assessed against another may appeal an assessment to the Tax Appeal Court.

Here Appellee assessed approximately 600 units separately and informed the owners of the respective assessments. Although Appellant qualifies as a taxpayer for most of the units, it does not qualify as a taxpayer for approximately 240 units. The apartment owners of those units are the taxpayers. Nor does Appellant have a contractual obligation to pay the taxes assessed against each of those 240 units. The obligation resides solely with an apartment owner.

On October 18, 1996, MSC filed a Motion for Rehearing of the Minute Order. At the resulting hearing, MSC argued that it had standing to appeal the assessments because it had a continuing contractual obligation under the master lease to pay the real property taxes assessed against the fee owners on the entire project, including the units sold to individual owners. The City, on the other hand, argued for the first time at the hearing that:

Section 232-1, HRS, was promulgated so that taxpayers who had a contractual obligation to pay a tax assessed against another and who actually paid the tax assessed and were aggrieved had standing to appeal the taxes assessed.

The Tax Appeal Court denied MSC's motion for rehearing:

So under this Court's ruling, the party entitled to appeal an assessment not only must be contractually obligated to pay the assessment for another, but must also pay the assessment for the particular tax year on appeal, otherwise the person, even though it may have, as in this case, a secondary contractual obligation, is not aggrieved by the assessment. It is the person who actually renders payment who is the aggrieved taxpayer for appellate purposes, and it's the Court's construction that unless we have that foundation the Court lacks jurisdiction over a particular appeal.

Following entry of the Tax Appeal Court's judgment dismissing MSC's appeal with respect to the units that it subleased to individual apartment owners (the dismissed units), MSC filed a timely notice of appeal to this court.

II. STANDARD OF REVIEW

It is well settled that[,] in reviewing the decision and findings of the Tax Appeal Court, a presumption arises favoring its actions which should not be overturned without good and sufficient reason. The appellant has the burden of showing that the decision of the Tax Appeal Court was "clearly erroneous."

City and County of Honolulu v. Steiner, 73 Haw. 449, 453, 834 P.2d 1302, 1306 (1992) (citations omitted). In a tax appeal, findings supported by substantial evidence are not clearly erroneous unless an appellate court is left with "a definite and firm conviction that a mistake has been made." In re Tax Appeal of Frank W. Swann, 7 Haw.App. 390, 399, 776 P.2d 395, 401 (1989) (citations omitted).

Questions of law, however, are reviewed under the right/wrong standard. In re Tax Appeal of Fuji Photo Film Hawaii, Inc., 79 Hawai'i 503, 508, 904 P.2d 517, 522 (1995). The interpretation of a statute is a question of law. Id. at 508, 904 P.2d at 522; Ross v. Stouffer Hotel Co. (Hawai'i) Ltd., 76 Hawai'i 454, 460, 879 P.2d 1037, 1043 (1994).

When construing a statute, our foremost obligation is to ascertain and give effect to the intention of the legislature, which is to be obtained primarily from the language contained in the statute itself. Therefore, the fundamental starting point for statutory interpretation is the language of the statute itself.... And where the statutory language is plain and unambiguous, our sole duty is to give effect to its plain and obvious meaning.

Intern. Sav. and Loan Ass'n v. Wiig, 82 Hawai'i 197, 199, 921 P.2d 117, 118 (1996) (citations and internal quotation marks omitted).

III. DISCUSSION

A. Pursuant to HRS § 232-1, MSC, as the person under a contractual obligation to pay the tax assessed against another, has the same rights of appeal as if the tax were assessed against it.

The Tax Appeal Court granted the City's Motion to Dismiss with respect to the units that were subleased to individual owners because MSC did not have a "contractual obligation to pay the taxes assessed against each of those ... units." The obligation to pay the taxes, according to the Tax Appeal Court, "resides solely with an apartment owner."

We begin with the proposition that the right of review of a tax assessment is purely statutory. As such, whether a person challenging an assessment bears such a relation to the real property being assessed as to entitle that person the right to appeal is determined by the applicable statutes.

HRS § 232-1 grants any person under a contractual obligation to pay the tax assessed against another the right to appeal the assessment. See supra note 2. The Tax Appeal Court, however, was under the mistaken belief that only the party with the primary obligation to pay the assessment has standing to appeal. On its face, HRS § 232-1 clearly does not limit standing to the fee owner and parties who are primarily liable for the payment of the tax assessment. The statute states in plain and unambiguous language that "[w]henever any person is under a contractual obligation to pay a tax assessed against another, the person shall have the ... rights of appeal[.]" (Emphasis added). The statute neither defines nor restricts the terms "under a contractual obligation" to only those individuals who have a primary obligation to pay the taxes. Accordingly, the question for decision is whether MSC is under any contractual obligation to pay the taxes assessed against the fee owners.

The City maintains that MSC is not so obligated. According to the City, the subleases released MSC from its contractual obligation to pay the tax assessments. In support of its argument, the City refers this court to the provision in the subleases which provides that "[s]ublessee will pay ... all taxes and assessments of every description to which said premises or Sublessor or Sublessee in respect thereof are now or may during said term be assessed or become liable." This, the City submits, operates to extinguish MSC's obligation under the master lease to pay the real property taxes.

The City ignores an important provision in the master lease that explicitly states that "notwithstanding ... [the] subletting[,] Lessee shall at all times remain liable to the Lessor under the terms thereof." Therefore, under the terms of the master...