In re Prieb Properties, L.L.C.

• Decision Date: 16 March 2012
• Docket Number: No. 105,298.,105,298.
• Parties: In the Matter of the Equalization Appeal of PRIEB PROPERTIES, L.L.C., for the Tax Years 2006 & 2007 in Shawnee County, Kansas, Pursuant to K.S.A. 79–1409 and K.S.A. 79–1609.
• Court: Kansas Court of Appeals

47 Kan.App.2d 122

275 P.3d 56

In the Matter of the Equalization Appeal of PRIEB PROPERTIES, L.L.C., for the Tax Years 2006 & 2007 in Shawnee County, Kansas, Pursuant to K.S.A. 79–1409 and K.S.A. 79–1609.

No. 105,298.

Court of Appeals of Kansas.

March 16, 2012.

Linda Terrill, of Neill, Terrill & Embree, of Leawood, for appellant Prieb Properties, LLC.

Aimee Betzen, assistant county counselor, for appellee Shawnee County.

Before GREENE, C.J., PIERRON and MARQUARDT, JJ.

GREENE, C.J.

The taxpayer, Prieb Properties, LLC, (Prieb or Taxpayer), seeks judicial review of an order of the Court of Tax Appeals (COTA) that established the value of its commercial real property in Topeka, arguing that COTA erred in failing to recognize that it was barred by res judicata or collateral estoppel from departing from its prior decision setting value on the same property, that COTA was not properly constituted for its ruling, and that COTA erred either in its findings of fact or conclusions of law in relying on build-to-suit lease rental rates for probative evidence of market rent. We reject Prieb's argument on the effect of COTA's prior ruling and the challenge to COTA's legal status when its order was issued, but we conclude that build-to-suit lease rental rates are not probative of market conditions and thus reverse and remand with directions.

FACTUAL AND PROCEDURAL BACKGROUND

Prieb owns a 45,814–square–foot building on about 4 acres of land located on Wanamaker Avenue in Topeka's prime retail corridor, and it currently leases the building to Best Buy Co., Inc. When Shawnee County valued the property at $4,291,900 for tax year 2006 and $3,850,000 for 2007, Prieb appealed these values to COTA, contending the property should be valued at $2,520,000 for each of these tax years. After an evidentiary hearing, COTA established the value of the property at $3,337,000 for 2006 and $3,850,000 for 2007. Judge Kubik dissented, wrote a separate opinion, and embraced the Taxpayer's proposed value for both tax years. After reconsideration was denied by COTA, Prieb seeks our review of COTA's valuation order.

The record on appeal reflects that the property was burdened by a lease agreement dated August 15, 1996, for a term of 15 years, which required that lessor construct and deliver to tenant an expansion of the building—then configured within 27,000 square feet—to its current size of 45,814 square feet. The parties do not dispute that this lease arrangement was a typical first generation "build-to-suit" lease agreement with lease rental rates established accordingly. For 2006 and 2007, the lease provided for a rental rate of $10.50 to $11 per square foot.

Additional facts are provided below where material to the issues framed.

STANDARDS OF REVIEW

COTA decisions are reviewed under the Kansas Judicial Review Act (KJRA), K.S.A. 2010 Supp. 77–601 et seq. See K.S.A. 2010 Supp. 74–2426(c) ; K.S.A. 2010 Supp. 77–603(a). The KJRA specifically provides for our standards of review, and several are applicable to this appeal. We are authorized to grant relief when the party seeking such relief sustains its burden to prove the invalidity of the agency action in one or more of the following manners that have been alleged in this appeal: (1) COTA has erroneously interpreted or applied the law ( K.S.A. 2010 Supp. 77–621 [c] [4] ); (2) COTA has engaged in an unlawful procedure or has failed to follow prescribed procedure ( K.S.A. 2010 Supp. 77–621 [c][5] ); (3) COTA was improperly constituted as a decision-making body when the decision was issued ( K.S.A. 2010 Supp. 77–621 [c][6] ); (4) COTA's decision was based on a determination of fact that is not supported to the appropriate standard of proof by evidence that is substantial when viewed in light of the record as a whole ( K.S.A. 2010 Supp. 77–621 [c][7], [d] ); (5) COTA's decision is otherwise unreasonable, arbitrary or capricious (K.S.A. 2010 Supp. 7–621[c] [8] ).

For purposes of our review of fact findings express or implied, our review of the record as a whole means that

"the adequacy of the evidence in the record before [us] to support a particular finding of fact shall be judged in light of all the relevant evidence in the record cited by any party that detracts from such finding as well as all of the relevant evidence in the record ... cited by any party that supports such finding, including determinations of veracity by the presiding officer...."

We do not, however, reweigh the evidence or engage in de novo review. K.S.A. 2010 Supp. 77–621(d).

In applying our standards of review in this context, we are required to take due account of the rule of harmless error. K.S.A. 2010 Supp. 77–621(e).

DID COTA ERR IN REFUSING TO RECOGNIZE AND APPLY ITS PRIOR ORDER ESTABLISHING VALUE OF THIS PROPERTY TO THE 2006 AND 2007 TAX YEARS?

For its first issue on appeal, the Taxpayer argues that res judicata and collateral estoppel require reversal of COTA's 2006 and 2007 decisions, because the issue of what rents are to be used in an income approach to valuation was raised and decided in the Board of Tax Appeals' (Board of Tax Appeals—the predecessor to COTA) decision for tax year 2004 regarding this property. In fact, BOTA ruled in its valuation decision for this property in the 2004 tax year that build-to-suit lease rental rates were not probative of market rents.

The County argues that because the Taxpayer did not raise the res judicata and collateral estoppel issues before COTA, these issues are not properly before this court. Although Taxpayer's petition for reconsideration included the statement: "The exact same issue with the exact same parties for the exact same location was decided by the Court of Tax Appeals for years 2003 & 2004 with the results being applied to the 2005 tax year," the Taxpayer did not articulate that it was making res judicata and collateral estoppel arguments or support the arguments with any pertinent authority. Because the Taxpayer did not make these arguments below, the issue is not properly before this court. See K.S.A. 2010 Supp. 77–617 ; Kingsley v. Kansas Dept. of Revenue, 288 Kan. 390, 411, 204 P.3d 562 (2009) ("a party may only argue the issues raised at the administrative hearing"); In re Tax Exemption Application of Strother Field Airport, 46 Kan.App.2d 316, 320, 263 P.3d 182 (2011) ("When a party fails to raise a specific ground for relief in the petition for reconsideration, that argument is not properly preserved for judicial review.").

Even if this court were to reach the merits of these issues, Taxpayer's arguments would fail because the tax years in question are different. Our Supreme Court recently decided that when different tax years are involved in matters of taxation, principles of res judicata and collateral estoppel do not apply because taxes are levied annually. In re Tax Appeal of Fleet, 293 Kan. 768, 272 P.3d 583 (2012). Here, different tax years were at issue, and res judicata and collateral estoppel do not apply. Moreover, the doctrine of stare decisis is not generally applicable to decisions of administrative tribunals. In re Appeal of K–Mart Corp., 238 Kan. 393, Syl. ¶ 3, 710 P.2d 1304 (1985). " ‘As a general matter,’ the court explained in Hatch v. FERC, 654 F.2d 825, 834 (D.C.Cir.1981), ‘an agency is free to alter its past rulings and practices even in an adjudicatory setting.... However, it is equally settled that an agency must provide a reasoned explanation for any failure to adhere to its own precedents.’ " Honeywell Intern. v. Nuclear Regulatory Com'n, 628 F.3d 568, 579 (D.C.Cir.2010) ; see Western Resources Inc. v. Kansas Corporation Comm'n, 30 Kan.App.2d 348, Syl. ¶ 7, 42 P.3d 162, rev. denied 274 Kan. 1119 (2002).

For these reasons, we reject the Taxpayer's first challenge to COTA's decision.

WAS COTA PROPERLY CONSTITUTED AT THE TIME OF CERTIFYING THE ORDER AT ISSUE?

Taxpayer next argues that COTA was not properly constituted at the time its decision was certified to the parties. COTA heard this case on January 12–13, 2009. The parties' written closing arguments were submitted to the court on May 4, 2009, and COTA issued its order on September 22, 2010. To correct a minor error in the original certificate of mailing, COTA recertified its order on September 29, 2010.

On August 19, 2010, Judge Rebecca Crotty, who at the time of the hearings in this case was COTA's chief judge, was appointed to the Shawnee County District Court. She was sworn in on September 27, 2010.

Taxpayer argues that at time of the final certification of the COTA order, the only two remaining COTA members were Judges Larkin and Kubik, one voting with the majority and one dissenting. Taxpayer argues that COTA's decision cannot be upheld by a 1 to 1 ruling.

Taxpayer cites no legal authority for finding that COTA was not properly constituted at the time it issued its decision. As pointed out by the County, however, according to K.S.A. 2010 Supp. 74–2433, COTA judges hold office until their successors are appointed and confirmed. Judge Crotty's successor was not confirmed until January 19, 2011.

Moreover, we note that COTA's first service of the order was on September 22, 2010, prior to Crotty's swearing-in as a district court judge. This service was valid and effective inasmuch as it served the final order on all parties and attorneys of record. The subsequent recertification and service did not change the final order in any way and added only the County's new attorney to the service list. To the extent that there was any error in certifying and serving the decision 2 days after Crotty took the district court bench, we can only consider that to be harmless error that did not serve to invalidate the entirety of COTA's final action in this rather complex proceeding. See K.S.A. 2010 Supp. 77–621(e).

We therefore reject Prieb's challenge to COTA's legal configuration when the order was finally certified.

WAS COTA'S VALUATION ORDER ADEQUATELY SUPPORTED BY SUBSTANTIAL EVIDENCE AND OTHERWISE IN...