City of Old Town v. Expera Old Town, LLC
| Decision Date | 20 April 2021 |
| Docket Number | Docket: Pen-20-189 |
| Citation | 249 A.3d 141 |
| Parties | CITY OF OLD TOWN v. EXPERA OLD TOWN, LLC |
| Court | Maine Supreme Court |
Edmond J. Bearor, Esq., and Jonathan P. Hunter, Esq. (orally), Rudman Winchell, Bangor, for appellant City of Old Town
Jonathan A. Block, Esq. (orally), and Olga J. Goldberg, Esq., Pierce Atwood LLP, Portland, for appellee Expera Old Town, LLC
Susanne F. Pilgrim, Esq., Maine Municipal Association, Augusta, for amicus curiae Maine Municipal Association
Panel: MEAD, GORMAN, JABAR, HUMPHREY, and HORTON, JJ.
[¶1] The City of Old Town appeals from a judgment entered in the Superior Court (Penobscot County, Anderson, J. ) affirming a 2019 decision of the State Board of Property Tax Review. The Board's 2019 decision, which granted the tax abatement requests of Expera Old Town, LLC, for the 2014 and 2015 tax years for a wood pulp and paper mill commonly known as the Old Town Mill, was issued after the Superior Court vacated and remanded the Board's original 2017 decision affirming the City's assessments. The City argues that, because the Board was not compelled on the record before it to find that the City's assessment substantially overvalued the Mill, the Board's 2017 decision was not manifestly wrong, and the Superior Court therefore erred in vacating it.1 We agree and vacate the Superior Court's judgment.
[¶2] The following facts, which are not disputed, were found by the Board in its 2017 decision and are supported by evidence presented to the Board during a five-day testimonial hearing. In October of 2008, Red Shield Acquisition, LLC, a subsidiary of Patriarch Partners, purchased the Mill for $18,875,000 at a bankruptcy sale. As part of the purchase, Red Shield entered into a Combined Real Estate Mortgage and UCC Article 9 Personal Property Security Agreement (CSA) with Patriarch Partners Agency Services, LLC (PPAS) (another subsidiary of Patriarch Partners) to secure cash advances to Red Shield. The Mill remained operational for nearly seven years until, in July of 2014, Red Shield shut down the Mill due to an economic downturn. In August of 2014, Red Shield began marketing the Mill for sale. At that time, PPAS was Red Shield's primary creditor.
[¶3] In August of 2014, PPAS foreclosed on the portion of the CSA involving the Mill's personal property, thereby acquiring title to that property in partial satisfaction of the cash advance made to Red Shield. Before PPAS was able to proceed with a foreclosure on the real property, creditors other than PPAS filed an involuntary petition for Chapter 7 bankruptcy against Red Shield.
[¶4] While this was unfolding, Expera Specialty Solutions, which owns four paper mills in Wisconsin, became aware that the Mill was for sale. In October of 2014, Expera Specialty Solutions’ vice president of operations participated in a limited due diligence review of the Mill that included an eight-hour walk-through of the property. On December 4, 2014, Expera Old Town—a subsidiary of Expera Specialty Solutions—purchased the Mill for $10.5 million with the approval of the United States Bankruptcy Court for the District of Maine. The purchase price consisted of $7.3 million in cash plus an estimated $3.2 million of specified assumed liabilities.
[¶5] Expera Old Town's plan for the Mill was to convert it from hardwood pulp production to softwood pulp production. Although Expera Old Town did not anticipate making a profit in its first year, it did expect to get the Mill up and running within the first part of 2015. The start-up, however, was complicated and stalled by extreme cold weather and equipment failure. After numerous delays the conversion to producing softwood pulp finally began and, by September of 2015, the Mill was producing 400 to 450 tons per day. At the same time, however, the price for softwood pulp was decreasing and Expera Old Town concluded that it could not continue to operate the Mill without taking huge losses. Expera Old Town shut down the Mill in October of 2015. In January of 2016, Expera Old Town sold the Mill for $2.5 million, with the understanding that it would be scrapped.
[¶6] The City's assessor originally assessed the Mill at around $51 million for the 2014 tax year. The City then contracted with MR Valuation (MRV) to assist it in reviewing the assessment of the Mill property for the 2014 tax year and in determining the value of the Mill property for the 2015 tax year. In July of 2015, MRV issued a report that stated that the fair market value of the Mill was $19,560,000 for the 2014 tax year and $30,860,000 for the 2015 tax year. The City's assessor accepted MRV's appraisal for the 2014 tax year and reduced MRV's suggested value to $25,354,400 for the 2015 tax year after accounting for additional exemptions. Expera Old Town requested tax abatements for 2014 and 2015, but the City denied the requests. Expera Old Town appealed the denial of its requested abatements to the Board. See 36 M.R.S. §§ 271(2)(A)(3) ; 843(1-A) (2021).
[¶7] Between August of 2016 and February of 2017, the Board held a five-day evidentiary hearing on Expera Old Town's appeals. At the hearing, Expera Old Town offered an appraisal developed by the valuation firm of Duff & Phelps that set the value of the Mill at $10.5 million for the 2014 tax year and $10 million for the 2015 tax year. To support that appraisal, Expera Old Town presented evidence and witnesses, including Expera Specialty Solutions’ vice president of operations and two valuation experts from Duff & Phelps. The City offered, among other evidence, the appraisal developed by MRV and testimony of two valuation experts from MRV.
[¶8] In a twenty-page decision issued April 27, 2017, the Board reduced the City's 2014 tax year assessment from $19,560,000 to $16,963,112 to account for the required exclusion of exempt personal and real property, and accepted the City's $25,354,400 assessment for the 2015 tax year.
[¶9] The Board then explained that Expera Old Town had failed to meet its burden of proving that the assessments were "manifestly wrong." In explaining why it found Duff & Phelps's heavy reliance on the 2014 bankruptcy sale of the Mill "as market evidence of value as a comparable sale ... flawed and not credible," the Board pointed out that (1) in comparison to the situation in December of 2014, "the [M]ill was operating as of April 1 [in] both tax years," and by September of 2015 it "had fully converted to softwood production and was producing ... within its design capacity of 400 [to] 500 tons per day"; (2) the appropriate exposure time for selling a property like the Mill was between twelve and twenty-four months, "which was cut short ... by an involuntary or forced petition for Chapter 7 bankruptcy"; (3) Expera Specialty Solutions’ vice president of operations viewed the Mill for only eight hours before the Mill was purchased; and (4) "the sale price ... included items not directly related to the fair market value of real and personal property assets such as employee payments, and liabilities for specified environmental settlements." The Board also rejected or discounted Duff & Phelps's application of the sales approach generally and described its application of the cost approach2 to be "arbitrary and not credible."3 Based on these findings, the Board affirmed the City's assessments of $16,963,112 for the 2014 tax year and $25,354,400 for the 2015 tax year.
[¶10] Expera Old Town appealed the Board's decision to the Superior Court. See 36 M.R.S. § 271(7) (2021) ; see also 5 M.R.S. § 11001 (2021) ; M.R. Civ. P. 80C. Although the court summarily rejected most of Expera Old Town's claims of error,4 the court, citing our decision in Terfloth v. Town of Scarborough , 2014 ME 57, 90 A.3d 1131, concluded that the City's assessment did not assign sufficient weight to the 2014 bankruptcy and 2016 liquidation sales of the Mill. The court vacated the Board's decision and remanded the case to the Board with instructions to give "real weight to the 2014 and 2016 sales of the Mill." See 36 M.R.S. § 843(1-A).
[¶11] On remand from the Superior Court, the Board determined by a vote of two to zero with one abstention that the 2014 bankruptcy sale was an arm's-length transaction, and by a vote of three to zero that "the market for softwood pulp had not changed in any material way" between the date of the sale and the April 1, 2014, and April 1, 2015, valuation dates. The Board further determined by a vote of two to one that the 2016 liquidation sale was an arm's-length transaction, but that "the market had materially changed between April 1, 2014 and January [of] 2016," rendering the sale "irrelevant." The Board then concluded by a vote of three to zero that the value of the property was $10.5 million for the 2014 tax year. By a vote of two to one, the Board concluded that the value of the Mill for the 2015 tax year was also $10.5 million.
[¶12] The City appealed the Board's 2019 decision to the Superior Court, and the court affirmed that decision. See 36 M.R.S. § 271(7) ; see also 5 M.R.S. § 11001 ; M.R. Civ. P. 80C. The City timely appealed. See 14 M.R.S. § 1851 (2021) ; M.R. App. P. 2B(c)(1).
[¶13] Where "the Superior Court act[s] as an intermediate appellate court, we review directly the Board's decision for abuse of discretion, error of law, or findings unsupported by substantial evidence in the record." Town of Southwest Harbor v. Harwood , 2000 ME 213, ¶ 6, 763 A.2d 115. In the present case, there are two decisions of the Board—one before and one after the Superior Court's remand. "Underlying our doctrine identifying the operative decision for review is the aim that the operative decision represent the decision of the original fact-finding tribunal." Friends of Lamoine v. Town of Lamoine , 2020 ME 70, ¶ 2-3, 18 n.6, 234 A.3d 214. Here, the operative decision for our review is the Board's initial decision in 2017, including its original...
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