Friendship Village of Greater Milwaukee, Inc. v. City of Milwaukee, 92-1895

• Decision Date: 21 December 1993
• Docket Number: No. 92-1895,92-1895
• Citation: 181 Wis.2d 207,511 N.W.2d 345
• Parties: FRIENDSHIP VILLAGE OF GREATER MILWAUKEE, INC. and Freedom Village, Inc., Plaintiffs-Respondents, v. CITY OF MILWAUKEE, Defendant-Appellant. d
• Court: Wisconsin Court of Appeals

Page 345

511 N.W.2d 345

181 Wis.2d 207

FRIENDSHIP VILLAGE OF GREATER MILWAUKEE, INC. and Freedom Village, Inc., Plaintiffs-Respondents, v. CITY OF MILWAUKEE, Defendant-Appellant. ^d

No. 92-1895.

Court of Appeals of Wisconsin.

Submitted on Briefs May 4, 1993.

Opinion Released Dec. 21, 1993.

Opinion Filed Dec. 21, 1993.

Before WEDEMEYER, P.J., and SULLIVAN and SCHUDSON, JJ.

WEDEMEYER, Presiding Judge.

The City of Milwaukee (City) appeals from a judgment finding that "Freedom Village," a retirement home developed by Freedom Village, Inc., is exempt from general property taxes due to its classification as a benevolent retirement home for the aged pursuant to sec. 70.11(4), Stats. ¹ The City also challenges an earlier non-final order denying its motion to dismiss the complaint for failure to state a claim.

The City's appeal essentially distills to two claims: (1) the trial court erred in its conclusion that sec. 74.35, Stats., does not provide the exclusive remedy for a taxpayer objecting to a tax assessment; and (2) the trial court erred in its conclusion that the property known as Freedom Village, Inc. was tax exempt pursuant to sec. 70.11(4), Stats. Because sec. 74.35 is not the exclusive method for analyzing a property tax objection, and because Freedom Village, Inc. is indeed entitled to a tax exemption under sec. 70.11(4), we affirm in part and reverse in part. ²

I. BACKGROUND

In this appeal we address the issue of whether a senior citizens residential facility known as Freedom Village is entitled to a tax exemption pursuant to sec. 70.11(4), Stats. At the heart of the appeal is a complex corporate framework--involving both profit and non-profit entities--from which Freedom Village was created. A brief consideration of the framework as relevant to this appeal is appropriate.

At the top of the corporate framework is Friendship Living Centers, Inc. (FLC). FLC is incorporated as a non-profit organization. It has an eleven member board that receives no compensation for its work relating to the corporation. As relevant to this appeal, FLC functions as the parent corporation of both plaintiffs--Friendship Village of Greater Milwaukee, Inc. (Friendship Village, Inc and Freedom Village, Inc.

Friendship Village, Inc. is organized as a non-stock, not-for-profit corporation that has owned and operated a senior citizens residential and medical center located at 8616 North 72nd Street in the City of Milwaukee since 1973. The facility is called "Friendship Village." Friendship Village is a life-care facility that provides three levels of care depending on the health needs of its elderly residents at any given time, i.e., apartments, a licensed assisted living facility, and a licensed skilled nursing center. Residents pay a one-time endowment fee and a separate monthly fee for support and maintenance costs. Residents are then entitled to the apartment of their choice so long as good health continues. If a resident's health deteriorates, he or she is then eligible for care in the Friendship Village Medical Center.

In 1987, the management of Friendship Village, Inc. formed a second non-profit corporation called Freedom Village, Inc. Freedom Village, Inc. was organized for the purposes of owning and operating a new facility called "Freedom Village." The new facility, located on an approximately twenty-eight acre site adjacent to Friendship Village, was intended to service elderly persons who were capable of enjoying a somewhat more independent lifestyle than residents of Friendship Village.

The land on which Freedom Village was to be built was owned by Friendship Village, Inc. Because Friendship Village, Inc. was entitled to a federal tax exemption, it retained title to the land until Freedom Village, Inc. obtained a similar exemption. An exemption pursuant to 26 U.S.C. sec. 501(c)(3) (1988) was granted on July 21, 1989. ³

Construction of Freedom Village began in September 1988. The project was financed primarily by City of Milwaukee tax-exempt bonds. In August 1989, FLC contracted with Freedom Village, Inc. to provide management services for the organization and operation of Freedom Village. On January 17, 1990, the title to Freedom Village was transferred from Friendship Village, Inc. to Freedom Village, Inc.

On February 15, 1990, Friendship Village, Inc. commenced an action seeking a determination that the parcel of land upon which Freedom Village was built was tax exempt from real property taxes for 1989 and 1990. The City of Milwaukee filed a motion to dismiss alleging that payment of the taxes was a condition to maintaining such an action. The trial court denied the City's motion on August 13, 1990.

On April 15, 1991, the trial court approved a stipulation of the parties that limited the issues to be addressed at trial. Rather than seeking a determination regarding both the 1989 and 1990 assessment of the property in question, the parties agreed that:

While the action seeks declaratory relief with respect to exemption of the property from 1989 and 1990 property tax, Friendship Village and the City agree that they will present to the Court for decision solely the issue of exemption from the 1990 property tax. Friendship Village and the City further agree that they will be bound as to exemption from the 1989 property tax on the Property, by a final judgment in this action following all appeals, with respect to the exemption from the 1990 tax on the Property.

Friendship Village, Inc. subsequently moved for summary judgment. On October 2, 1991, the trial court approved a stipulation that permitted Freedom Village, Inc. to be added as a plaintiff. The City answered the amended complaint and filed its own motion for summary judgment. Following an oral hearing, the trial court granted summary judgment in favor of Friendship Village, Inc. and Freedom Village, Inc. A judgment was entered on June 12, 1992. The City now appeals. Other facts necessary to a resolution of the case are set forth below.

II. MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

The City's first claim is that "[t]he trial court erred in denying the City's motion to dismiss where the plaintiff refused to proceed under sec. 74.35, Stats., which provides the exclusive remedy for a taxpayer seeking determination as to the legality of the assessment of allegedly exempt property." A. Standard of Review

The Wisconsin Supreme Court has noted the following concerning a motion to dismiss for failure to state a claim:

[T]o determine if a complaint should be dismissed for failure to state a claim upon which relief can be granted pursuant to a motion under sec. 802.06(2)(f), Stats., the facts pled are taken as admitted. No inference can be reached in respect to the ultimate facts alleged until resolved by judge or jury. The purpose of the motion to dismiss for failure to state a claim is to test the legal sufficiency of the complaint. Since pleadings are to be liberally construed, a claim will be dismissed only if "it is quite clear that under no conditions can the plaintiff recover."

Evans v. Cameron, 121 Wis.2d 421, 426, 360 N.W.2d 25, 28 (1985) (citations omitted). In reviewing a sec. 802.06(2)(f) motion, this court accepts the alleged facts as being true and decides any legal conclusions without deference to the trial court. See Morgan v. Pennsylvania Gen. Ins. Co., 87 Wis.2d 723, 731, 275 N.W.2d 660, 664 (1979).

B. Application

The City first contends that the plaintiffs are not entitled to seek redress via a declaratory judgment action because the legislature, by enacting sec. 74.35, Stats., provided the exclusive remedy for a tax dispute under sec. 70.11(4), Stats. Section 74.35(2)(a), Stats., provides: "A person aggrieved by the levy and collection of an unlawful tax assessed against his or her property may file a claim to recover the unlawful tax against the taxation district which collected the tax." The City further argues that because the plaintiffs have not paid the taxes in dispute, they are precluded from seeking judicial review under sec. 74.35. Thus, the City maintains that the plaintiffs' complaint should be dismissed pursuant to sec. 802.06(2)(f), Stats. We are not persuaded.

Neither party disputes that sec. 74.35, Stats., is appropriately applied in controversies relating to ordinary property tax litigation, e.g., the amount of a tax or procedural irregularities in the collection of a tax. The present case, however, deals with the threshold question of whether a particular parcel of property is exempt from taxation. As noted by the supreme court, tax assessment on exempt property is "void ab initio so there [is] nothing for a statute of limitation to act upon." Family Hospital Nursing Home, Inc. v. City of Milwaukee, 78 Wis.2d 312, 325, 254 N.W.2d 268, 275 (1977). Consistent with Family Hospital, we conclude that litigation over whether property is exempt from taxation is not generally subject to limitations which may apply to other property tax disputes. See Trustees of Clinton Lodge v. Rock County, 224 Wis. 168, 170, 272 N.W. 5, 6 (1937) (where property is found to be exempt from taxation, statutory limitations not applicable). Thus, the City's argument that tax exemption disputes must be brought under the framework of sec. 74.35 fails.

Our conclusion begs the question: Is a declaratory judgment action an appropriate manner in which to consider the threshold question of whether Freedom Village is entitled to a tax exemption? Guided by the cases of Family Hospital and Madison General Hospital Association v. City of Madison, 71 Wis.2d 259, 237 N.W.2d 750 (1976), we conclude that it is.

In Family Hospital, the issue was whether a nursing home owned and operated by Family Hospital was a benevolent nursing home pursuant to sec. 70.11(4), Stats., thus entitling it to an exemption from property tax for the years 1970 and 1971. Family Hospital, 78 Wis.2d at 314, 254 N.W.2d at 270. A separate issue was whether the trial court...