Jones v. Southern Natural Gas Co.

• Decision Date: 12 May 2011
• Docket Number: Nos. 46,347–CA,46,348–CA,46,351–CA.,s. 46,347–CA
• Parties: Pam JONES, in her Capacity as Assessor for Lincoln Parish, Plaintiff–Appelleev.SOUTHERN NATURAL GAS CO., Defendant–Appellant.Rich Bailey, in his Capacity as Assessor for Ouachita Parish, Plaintiff–Appelleev.ANR Pipeline, Southern Natural Gas Co. and Tennessee Gas Pipeline Co., Defendants–AppellantsMary T. “Terry” Baker, in her Capacity as Assessor for Union Parish, Plaintiff–Appelleev.Tennessee Gas Pipeline Co., Defendant–Appellant.
• Court: Court of Appeal of Louisiana — District of US

63 So.3d 1080

Pam JONES, in her Capacity as Assessor for Lincoln Parish, Plaintiff–Appellee

v.SOUTHERN NATURAL GAS CO., Defendant–Appellant.Rich Bailey, in his Capacity as Assessor for Ouachita Parish, Plaintiff–Appellee

v.ANR Pipeline, Southern Natural Gas Co. and Tennessee Gas Pipeline Co., Defendants–AppellantsMary T. “Terry” Baker, in her Capacity as Assessor for Union Parish, Plaintiff–Appellee

v.Tennessee Gas Pipeline Co., Defendant–Appellant.

Nos. 46,347–CA

46,348–CA

46,351–CA.

Court of Appeal of Louisiana, Second Circuit.

April 13, 2011.Rehearing Denied May 12, 2011.

Hilton S. Bell, New Orleans, LA, Angela W. Adolph, Baton Rouge, LA, Milling Benson Woodward LLP, for Appellant.Brian A. Eddington, Baton Rouge, LA, for Appellee.Robert Dean Hoffman, Jr., for La. Tax Commission.Before CARAWAY, MOORE and LOLLEY, JJ.MOORE, J.

[2 Cir. 1] ANR Pipeline Co., Tennessee Gas Pipeline Co. and Southern Natural Gas Co. (collectively referred to as “the taxpayers”) appeal three judgments that reversed and vacated a ruling of the Louisiana Tax Commission (“the LTC”) and reinstated the tax assessments fixed by the assessors of Ouachita, Union and Lincoln Parishes on the taxpayers' property in those parishes. For the reasons expressed, we affirm.

Factual Background

The taxpayers are corporate affiliates that provide natural gas transportation, storage and balancing services in Louisiana and in interstate commerce. Their property is classified as “public service property” under La. R.S. 47:1851 and thus subject to assessment at 25% of fair market value under La. Const. Art. VII, § 18. (By contrast, intrastate pipelines are deemed “non-public service property” and assessed at only 15% of fair market value.) For property tax purposes, public service property is normally assessed on a systemwide basis by the LTC, which then allocates valuations to the individual parishes. La. Const. Art. VII, § 18(D), La. R.S. 47:1855 A. The taxpayers' property is also regulated by the Federal Energy Regulatory Commission (“FERC”), 15 U.S.C. § 717f(b), and thus subject to an extensive regulatory process before any of it can be sold. According to the taxpayers, FERC regulation depresses the fair market value of their property.

In the 1990s, ANR filed suits alleging that the LTC was treating other, competing pipelines (called “preferred pipelines”) as though they were not public service property, i.e., assessing their property at only 15% [2 Cir. 2] and applying depreciation. Tennessee Gas Pipeline and Southern Natural Gas joined the suits for the years 2000–2003, the time frame at issue in this appeal.

After a trial in 2005, Judge Tim Kelley of the 19th Judicial District Court found that the LTC violated the taxpayers' rights to uniform taxation; however, he rejected their claim for refunds. Instead, he ordered that the taxpayers' property be reassessed by parish assessors at 15% of fair market value, using the same method as for the preferred companies. In effect, local assessors were ordered, for the first time, to assess public service property, but to do so equitably with non-public service property.

The taxpayers appealed, claiming they were entitled to a refund, not a reassessment, but the First Circuit affirmed, and both the Louisiana and United States Supreme Courts denied writs. ANR Pipeline Co. v. Louisiana Tax Comm'n, 2005–1142 (La.App. 1 Cir. 9/7/05), 923 So.2d 81, writ denied, 2005–2372 (La.3/17/06), 925 So.2d 547, cert. denied, 549 U.S. 822, 127 S.Ct. 157, 166 L.Ed.2d 38 (2006) (“ ANR VI ”).

When this judgment became final, the LTC formally ordered assessors to reassess the taxpayers' property using the same valuation methodology as for other pipelines and at 15% of fair market value.

On May 17, 2006, the taxpayers filed their reassessment returns with the assessors of Ouachita, Union and Lincoln Parishes. They reported the depreciated replacement cost of their property and requested a reduction in value for obsolescence. The obsolescence was based on the claim that the pipelines were operating at less than full capacity. However, according to [2 Cir. 3] the assessors, the supporting documents (attachment to LAT 4, 5 and 14) listed only “percentage of pipeline capacity used” for each year, based on a nationwide average of the entire pipeline system and without stating the throughput and rated capacity of the lines in the respective parishes.

On August 28, 2006, the taxpayers filed letter memoranda in support of their requests for obsolescence. In support they attached the affidavits of Sally Costley, their tax agent, listing the pipelines' capacity used in 2002–2003; of Thomas K. Tegarden, an expert in utilities appraisal, listing the fair market value of the property for the same period; and of Richard Smead, an expert in FERC rate proceedings, stating that the effect of regulation was to depress the value of the property.

According to the assessors, however, the percentages were still based on nationwide capacity used, not the capacity used in the individual parishes. Moreover, the percentages were inconsistent. For example, ANR first reported a use of 62.54% of capacity in Ouachita Parish in 2003, but in the amended request, this dropped to 60.69%; Southern Natural Gas first reported a use of 80.451% of capacity in Lincoln Parish in 2000, but this dropped to 60.591% in the amended request. Ouachita Parish Deputy Assessor Joellen Johnson testified before the LTC that she specifically requested additional information from the taxpayers, but received none. Finding that the reported capacities were unreliable and lacking in factual support, the assessors rejected the claims for obsolescence and assessed the property at the values stated on the face of the returns.

[2 Cir. 4] The new assessed values in Ouachita, Union and Lincoln Parishes were 2–2 1/2 times higher than those originally entered by the LTC; in Ouachita Parish, for example, the difference amounted to over $1 million in extra tax due from ANR, and completely negated the taxpayers' claims for refunds arising from ANR VI. The taxpayers initially lodged protests with the parish boards of review, which denied them all. They then appealed the reassessments to the LTC.

After a hearing in October 2009, the LTC ruled that the assessors had indeed used on the taxpayers' property the “same valuation and assessment methodology” as on the preferred properties. It also found, however, that the assessors had failed to adjust the fair market value for obsolescence based on the “service factor for throughput,” resulting in incorrect valuation and an abuse of discretion. The LTC ordered the assessors to reduce the valuations in amounts ranging from 19–34%, based on Ms. Costley's affidavit.

The taxpayers lodged an appeal in the 19th JDC but did not file for judicial review in Ouachita, Union or Lincoln Parish.

Procedural History

On November 23, 2009, the assessors of Ouachita, Union and Lincoln Parishes filed the instant petitions for judicial review pursuant to La. R.S. 47:1998 A and 1989 D. They alleged that they were aggrieved by the ruling of the LTC, and requested that its decision be vacated and their own reassessments reinstated. The taxpayers did not file their own petitions for judicial review in these parishes or reconvene against the assessors.

[2 Cir. 5] The taxpayers did, however, file numerous exceptions: lis pendens, improper venue, lack of subject matter jurisdiction, no right of action, no cause of action, and prematurity (an exception of nonjoinder was later withdrawn). These argued, in essence, that any review of the LTC's decision was proper only in the 19th JDC, where an appeal was currently pending. They also contended that the LTC never authorized the assessors to challenge its decision, and in fact the only appeal authorized by statute, R.S. 47:1856, is that of a taxpayer in the 19th JDC. At hearings in February 2010, the taxpayers argued that allowing multiple appeals was judicially inefficient and could lead to inconsistent results.

The district courts denied all exceptions. The taxpayers applied for writs, which this court consolidated and denied on June 17, 2010. Jones v. Southern Natural Gas Co., 45,677 (La.App. 2 Cir. 6/17/10) (unpublished writ denial). The Louisiana Supreme Court also denied writs and a stay. Jones v. Southern Natural Gas, 2010–1558 (La.7/15/10), 39 So.3d 593.

The cases proceeded to trials in July and August 2010. Although the trials were limited to argument, the taxpayers introduced into evidence complete transcripts and exhibits of all proceedings before the LTC, comprising some 29 binders, each about 3 inches thick.

All three courts found that the taxpayers failed to provide any specific, substantive evidence of obsolescence, only throughput figures, which the assessors were entitled to disregard as inadequate. The courts found that the LTC exceeded its authority in ordering the assessors to adopt such evidence, and vacated the LTC's order. A final judgment to this effect [2 Cir. 6] was rendered in each case.

The taxpayers have appealed, designating 12 assignments of error.

Discussion: Rulings on Exceptions

By their first assignment of error, the taxpayers urge the courts erred in denying their declinatory exceptions of lis pendens, improper venue and lack of subject matter jurisdiction, and their peremptory exceptions of no cause of action, no right of action and prescription. This court notes at the outset that the taxpayers already challenged these rulings by writ application which was denied by this court on June 17, 2010, and by the supreme court on July 15, 2010. Jones v. Southern Natural Gas, supra. Ordinarily, this court does not reconsider matters after the denial of writ. URCA 2–18.7; D'Amico, Curet & Dampf v. Jumonville, 458 So.2d 903 (La.1984). Out of abundant caution, however, we will briefly revisit the exceptions.

The factual basis of the exceptions is that the taxpayers have properly appealed the...