Lake Superior Paper Industries v. State

• Decision Date: 05 April 2001
• Docket Number: No. C0-00-598.,C0-00-598.
• Citation: 624 N.W.2d 254
• Parties: LAKE SUPERIOR PAPER INDUSTRIES, Relator, v. STATE of Minnesota and County of St. Louis, Respondent, v. City of Duluth, Intervenor, Respondent.
• Court: Minnesota Supreme Court

624 N.W.2d 254

LAKE SUPERIOR PAPER INDUSTRIES, Relator, v. STATE of Minnesota and County of St. Louis, Respondent, v. City of Duluth, Intervenor, Respondent.

No. C0-00-598.

Supreme Court of Minnesota.

April 5, 2001.

Robert C. Maki, Maki & Overon, Robert Asleson, City of Duluth, for respondent City of Duluth.

Michael R. Dean, St. Louis County Attorney's Office, Duluth, for respondent County of St. Louis.

Considered and decided by the court en banc without oral argument.

OPINION

GILBERT, Justice.

This case involves a developer's property tax challenge of the assessor's value of a redeveloped property that was financed in part by the use of tax increment bonds pursuant to Minn.Stat. § 469.177 (1990) for the City of Duluth's (City) contribution. The developer is also challenging the validity of the assessment agreement. The tax court ruled in favor of the City on the City's cross motion for summary judgment. We affirm.

The facts relevant to this appeal are undisputed. On December 2, 1985, Lake Superior Paper Industries (LSPI) and the City entered into a development agreement whereby LSPI agreed to build a paper mill on blighted industrial waterfront property. The mill was designed to manufacture supercalendered paper, which is a semi-glossy paper used in advertising supplements as well as specialty catalogues, magazines, and commercial printing. The initial plans indicated that the mill's production capacity would reach 235,700 tons of paper per year, and operations were scheduled to begin by January 1988. Preliminary documents prepared by the City estimated that the total cost in redeveloping the paper mill site exceeded $450,000,000.

The development agreement obligated the City to incur the costs to acquire the land targeted for redevelopment, prepare it for redevelopment, and then sell it to LSPI. Among other things, the agreement required the City to demolish existing structures, rezone the land, make utility improvements, and vacate existing street, avenue, alley, and utility easements. In addition, the agreement required the City to supply the mill with up to 240,000 pounds of steam per hour by acquiring, retrofitting, and operating boilers from a nearby steam plant—the M.L. Hibbard Steam and Electric Station.

The development agreement also provided that the City's share of the project's costs would be funded by a $29,300,000 issuance of tax increment revenue bonds. The City entered into an indenture agreement with the First National Bank of Chicago in 1985 ("Trust Indenture"), and the issuance was supported by a letter of credit from National Australia Bank Limited until 1993. Of the total issuance, approximately $5,100,000 was dedicated to acquire and prepare the waterfront property for development, pay the capitalized interest, and pay the costs of issuing the bonds. The remaining $24,200,000 was reserved for the City's expenses associated with acquiring and improving the Hibbard Steam Plant.

The development agreement obligated LSPI to incur the paper mill's construction and operation costs and it also required LSPI to purchase the redevelopment property from the City once the City's obligations under the agreement were complete. Included in an amendment to the agreement was a statement regarding the parties' intent to execute an assessment agreement in the future setting the minimum market value of the paper mill at a reasonable value. The proposed assessment agreement was attached to the development agreement as "Exhibit O," but the dollar amounts were left blank.

The Trust Indenture directed that bond payments would first be deposited into the tax increment account to meet the mandatory bond payment requirements. Any amount remaining in that account at the end of the year—which would represent any amount collected in excess of the payment liability—would be transferred into the reserve fund where the funds would accumulate. The Trust Indenture directed that if the amount in the reserve fund exceeded the minimum reserve requirement, the excess would be transferred to the redemption account. Any funds transferred into the redemption account were then to be applied to the principal, which over time could result in retiring the bonds before their maturity date.

On December 24, 1987, LSPI and the City signed a Certificate of Completion and Continuation Agreement, which certified that LSPI had completed construction and had initiated operation of the paper mill. The agreement also detailed additional responsibilities of each party, including the development-related work not yet completed. The agreement indicated that the new document would supersede the original development agreement "except as otherwise setforth [there]in." The agreement also stated that the parties intended to "execute an Assessment Agreement substantially in the form attached hereto as Exhibit O."

Although the record is not clear as to the reason for the delay, active negotiation on an assessment agreement did not begin until early 1990. Letters between counsel for each party indicated that there was some confusion as to whether the paper mill's minimum market value was $56,578,900 or $42,742,100. After further negotiations, LSPI and the City signed an assessment agreement in January 1991, which set the minimum market value of LSPI's paper mill and underlying and surrounding real estate at $42,742,100. The effective date of the agreement was January 1, 1988. The City Assessor certified that $42,742,100 was a reasonable market value for the paper mill. Shortly after the assessor certified the assessment agreement's minimum market value, he retired, and he did not retain his notes regarding the paper mill's valuation. The agreement was recorded in December 1992 after LSPI completed its final obligations, one of which included determining the legal description of the real estate.

In November 1996, LSPI requested the City to agree to adjust the paper mill's minimum market value downward. The City refused to agree to a downward adjustment,¹ and LSPI sought judicial relief. In total, LSPI petitioned for review of its 1996, 1997, and 1998 property taxes, and those petitions were consolidated into one case. Because LSPI challenged the interpretation of a statute and the validity of the assessment agreement, the parties agreed to bifurcate the case.

LSPI brought a motion for summary judgment requesting the tax court to invalidate the minimum assessment agreement, and the City brought a cross-motion for summary judgment. The tax court granted the City's motion for summary judgment. It concluded that the assessment agreement was valid and that the City did not unreasonably withhold its consent to employ the adjustment clause. The tax court also held that although construction of the improvements may have been largely completed at the time the assessment agreement was entered into, there were still several uncompleted tasks that were part of the overall project development. These uncompleted tasks included assembling and acquiring additional land, i.e. additional purchases; vacating utility easements in City streets, avenues, and alleys; platting; title work; and related surveying. Therefore, the court held that the parties complied with the governing statute. In addition, the tax court held that the City Assessor's certification of the paper mill's minimum value was valid because the assessor complied with the statutory requirements. The tax court refused to address an issue related to the enforceability of a stipulation by the parties, and that issue is therefore not an issue in this appeal.

On appeal, LSPI argues that the tax court erred in interpreting and applying the adjustment clause in the parties' assessment agreement and in determining that the mill's construction was not completed until after the assessment agreement was executed; that the assessor's certification of value for the assessment agreement was valid; and that there were no genuine issues of material fact that would preclude summary judgment in the City's favor. LSPI argues that any one of the alleged errors would invalidate the assessment agreement, which would cause the paper mill to be assessed at its actual market value under the default provisions of Minn.Stat. § 273.11, subd. 1 (1996).

I.

On an appeal from summary judgment from the tax court, this court determines "whether there are any genuine issues of material fact and whether the lower court erred in its application of the law." Brookfield Trade Ctr., Inc. v. County of Ramsey, 584 N.W.2d 390, 392-93 (Minn.1998) (hereinafter Brookfield I). Here, the issues relate to whether the tax court erred in its application of the underlying statute when it interpreted the parties' minimum assessment agreement pursuant to Minn.Stat. § 469.177, subd. 8 (1990). This court reviews statutory interpretation de novo. Brookfield I, 584 N.W.2d at 393. Contract interpretation is also a legal issue that we review de novo. See Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn.1979)

.

LSPI first argues that the tax court erred in holding that "the City had no obligation ever to agree to a downward adjustment, and that the only adjustment possible under [the assessment agreement] would be an upward adjustment." Our review of the tax court's decision indicates that the tax court never made such a determination. Because this argument lacks merit, we decline to address it.

II.

LSPI next argues that the City unreasonably withheld its consent to LSPI's request for a downward adjustment in the market value of the redeveloped property. LSPI argues that the tax court erroneously considered extrinsic evidence of a letter from LSPI's former counsel to Minnesota Power, and the language of the trust indenture between the parties entered into years before the assessment agreement. LSPI further argues that the City had no reasonable basis for refusing LSPI's request. The City argues that its refusal was not...