HCP Properties-Fair Oaks of Fairfax VA, LLC v. Cnty. of Fairfax
| Decision Date | 24 May 2019 |
| Docket Number | Case No. CL-2017-18207 |
| Court | Circuit Court of Virginia |
| Parties | Re: HCP Properties-Fair Oaks of Fairfax VA, LLC v. County of Fairfax, Virginia |
Re: HCP Properties-Fair Oaks of Fairfax VA, LLC
v.
County of Fairfax, Virginia
Case No. CL-2017-18207
NINETEENTH JUDICIAL CIRCUIT OF VIRGINIA COUNTY OF FAIRFAX CITY OF FAIRFAX
May 24, 2019
BRUCE D. WHITE, CHIEF JUDGE RANDY I. BELLOWS ROBERT J. SMITH BRETT A. KASSABIAN MICHAEL F. DEVINE JOHN M. TRAN GRACE BURKE CARROLL DANIEL E. ORTIZ PENNEY S. AZCARATE STEPHEN C. SHANNON THOMAS P. MANN RICHARD E. GARDINER DAVID BERNHARD DAVID A. OBLON DONTAÈ L. BUGG JUDGES
THOMAS A. FORTKORT J. HOWE BROWN F. BRUCE BACH M. LANGHORNE KEITH ARTHUR B VIEREGG KATHLEEN H. MACKAY ROBERT W. WOOLDRIDGE, JR. MICHAEL P. McWEENY GAYLORD L. FINCH, JR. STANLEY P. KLEIN LESLIE M. ALDEN MARCUS D. WILLIAMS JONATHAN C. THACHER CHARLES J. MAXFIELD DENNIS J. SMITH LORRAINE NORDLUND DAVID S. SCHELL JAN L. BRODIE RETIRED JUDGES
LETTER OPINION
Mr. Doug P. Hibshman
Ms. Ronni Two
Fox Rothschild LLP
1030 15th Street NW, Suite 380 East
Washington, DC 20005
Counsel for Plaintiff
Mr. Martin R. Desjardins
Ms. Erin L. Blanch
Assistant County Attorneys
12000 Government Center Parkway, Suite 549
Fairfax, VA 22035-0064
Counsel for Defendant
Dear Counsel:
This cause comes before the Court on the Motion to Substitute Party Plaintiff of HCP Properties-Fair Oaks of Fairfax VA, LLC ("Plaintiff" or "HCP"), and on the Plea in Bar
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and Motion for Sanctions of the County of Fairfax, Virginia ("Defendant" or the "County"). Plaintiff brought this suit in 2017 against the County alleging erroneous tax assessments for the tax years 2015, 2016, and 2017. The Motions before the Court raise the questions of whether the proposed Substitute Plaintiffs are successors in interest of HCP, and whether this Court must follow Delaware law in determining whether HCP can maintain this suit under its name. The Court holds the following: (1) Substitution of the proposed Substitute Plaintiffs in HCP's place is not proper in this case as Arden Courts-Fair Oaks of Fairfax VA, LLC ("Arden Courts"), Manor Care-Fair Oaks of Fairfax VA, LLC ("Manor Care"), and HCR III Healthcare, LLC ("HCR III") are not successors in interest merely because the Master Lease and Subleases obligated them to pay taxes on the Property; (2) Virginia Code § 13.1-1056(C) requires this Court look to Delaware law, where HCP, a voluntarily cancelled LLC, was organized, to determine whether HCP can continue to prosecute this case; (3) HCP cannot continue to maintain this action pursuant to Delaware law, which requires a trustee or receiver be appointed to maintain a suit for a voluntarily cancelled LLC; (4) The County can use a Corporate Designee deposition of an adverse party in support of a Plea in Bar seeking dismissal of an action, even in light of the stricture in Virginia Code § 8.01-420, because the County did not merely conduct a "discovery deposition," but instead designated and conducted the deposition as de bene esse1; and (5) Sanctions against the Plaintiff or its counsel are not mandated by the evidence adduced in this case.
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Consequently, this Court shall by separate order DENY HCP's Motion to Substitute Party Plaintiff, GRANT the County's Plea in Bar, DENY the County's Motion for Sanctions, and DISMISS HCP's suit.
Plaintiff brought this action to correct allegedly erroneous assessments of real property taxes made by the County for tax years 2015, 2016, and 2017. Plaintiff is a limited liability company whose principal place of business is Ohio, formerly organized under the laws of Delaware but with a now voluntarily canceled status as of July 26, 2018, and whose registration to do business in Virginia was also voluntarily canceled on July 25, 2018. HCP owns real property in Fairfax County, specifically Arden Courts of Fair Oaks, located at 12469 Lee Jackson Memorial Highway, Fairfax, VA 22033. The Property houses two live-in facilities, namely a nursing home and a memory care facility.
During the tax years at issue, the County assessed and taxed the Property as follows:
| Year | Actual Assessed Value | Tax Rate | Actual, Total Tax |
| 2015 | $22,901,730 | 1.172% | $268,485 |
| 2016 | $21,889,790 | 1.196% | $261,754 |
| 2017 | $20,943,860 | 1.161% | $243,158 |
| Combined, Actual Total Tax | $773,397 | ||
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Plaintiff timely paid the tax bills issued by the County, but now alleges the County erred and violated the Constitution of Virginia and Title 58.1 of the Code of Virginia by assessing the Property pursuant to values significantly exceeding its fair market value. Plaintiff further alleges the County erred by employing an improper method to determine fair market value. According to Plaintiff, the County used only the income approach and not the proper cost approach or sales approach in determining the properly taxable value. Plaintiff posits that, if the County had considered other valuation methodologies, it would have assessed the Property as follows for each of the tax years:
| Year | Correct Fair Market Value | Tax Rate | Correct Assessment |
| 2015 | $13,820,000 | 1.172% | $162,017 |
| 2016 | $15,565,300 | 1.196% | $186,127 |
| 2017 | $14,800,000 | 1.161% | $171,828 |
| Combined, Actual Total Tax | $519,972 | ||
In sum, the Plaintiff alleges the County over-assessed the Property by a total combined value of $253,425 for the tax years at issue, resulting in Plaintiff paying more than 148% of the tax owed.
Plaintiff filed administrative appeals for each of the years at issue with the County's Board of Equalization of Real Estate Assessments but was denied each time.
Plaintiff filed its Complaint on December 29, 2017, asking the Court: enter judgment against the County for erroneously assessing real property taxes due by Plaintiff on the Property for the 2015, 2016, and 2017 tax years; issue an order requiring the County and its agents to correct the erroneous assessments, refund the excess taxes paid by Plaintiff; and award the Plaintiff interest on the amounts to be refunded from the date each payment was made by the Plaintiff.
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I. Arden Courts, Manor Care, and HCR III may not be substituted as party plaintiffs because none are a successor in interest to HCP.
At the time of filing, HCP was one of many individual owner-entity limited liability companies ultimately held by Quality Care Properties, Inc. ("QCP"). HCP leased the Property to HCR III under a Master Lease entered into in April 2011. HCR III subleased the assisted living facility to Arden Courts and the skilled nursing facility to Manor Care. Both Arden Courts and Manor Care are ultimately owned by HCR ManorCare, LLC.
Under the Master Lease and the subleases, HCP purportedly authorized HCR III to pay taxes and challenge the tax assessments of the Property. Those authorities were also ostensibly provided through the subleases to Arden Courts and Manor Care.2
On or about July 26, 2018, QCP was acquired by Welltower Inc. As part of QCP's acquisition by Welltower, HCP and other owner-entities were merged into HCP Properties, LP, which was renamed Well PM Properties, LLC ("Well PM"). On or about July 26, 2018, HCP granted the Property by Special Warranty Deed to Well PM. Well PM now directly owns and holds the Property and is subject to tax assessments. Well PM is a joint venture owned 80% by Welltower and 20% by HCR ManorCare, LLC.
The lease formerly between HCP and HCR III was reissued between Well PM and HCR III, with substantially the same language. The reissued amended subleases
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between HCR III and Arden Courts and Manor Care also reflect the changes in corporate ownership of the Lessor, and substantially mirror the prior sublease language.
Plaintiff requests the Court substitute the named Plaintiffs HCR III, Arden Courts and Manor Care (collectively the "Substitute Plaintiffs") as the corporate entities with interest in the current action and the ability to continue the challenge of Plaintiff's real estate tax assessments. Arden Courts and Manor Care are the operating entities of the two facilities on the real property at issue and have authority to manage such property and administer its tax affairs. HCR III is a holding company that leases the facilities from the current Owner and subleases the facilities to Arden Courts and Manor Care. Under the Master Lease in effect, HCR III has the obligation to pay all real estate and personal property taxes for the subject Property.
A. Substitution under Virginal Supreme Court Rule 3:17 is impermissible in this case.
Virginia law enables Courts to substitute the name of a Plaintiff in certain circumstances. "If a person becomes incapable of prosecuting or defending because of death, disability, conviction of felony, removal from office, or other cause, a successor in interest may be substituted as a party in such person's place." Va. Sup. Ct. R. 3:17(a). A successor in interest is one "who follows another in ownership or control of property" and who "retains the same rights as the original owner, with no change in substance". Successor in Interest, Black's Law Dictionary (10th ed. 2014). Amendment of a pleading to substitute a party is appropriate "'[w]here the substituted party bears some relation of interest to the original party and to the suit, and there is no change in the cause of action....'" Lake v. N. Va. Women's Med. Ctr., Inc., 253 Va. 255, 262, 483 S.E.2d 220,
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223 (1997) (quoting Jacobson v. Southern Biscuit Co., 198 Va. 813, 817, 97 S.E.2d 1, 4 (1957)). "'[The] discretionary power of the court to such end is to be liberally exerted in favor of, rather than against, the disposition of a case upon its merits.'" Id.
Plaintiff relies heavily on both Jacobson and Lake for its position that substitution is appropriate. Plaintiff argues Substitute Plaintiffs bear some relation of interest to HCP as they purportedly have the authority to pay real estate taxes and the right to appeal tax assessments pursuant to the Master Leases and subleases, and that Arden Courts and Manor Care continue to pay the real estate taxes assessed against the Property.
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