Mission Housing Development Co. v. City and County of San Francisco

• Decision Date: 12 November 1997
• Docket Number: No. A075003,A075003
• Citation: 69 Cal.Rptr.2d 185,59 Cal.App.4th 55
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 8631, 97 Daily Journal D.A.R. 13,981 MISSION HOUSING DEVELOPMENT COMPANY, et al., Plaintiffs and Appellants, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent.

Page 185

69 Cal.Rptr.2d 185

59 Cal.App.4th 55, 97 Cal. Daily Op. Serv. 8631,

97 Daily Journal D.A.R. 13,981

MISSION HOUSING DEVELOPMENT COMPANY, et al., Plaintiffs and Appellants, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent.

No. A075003.

Court of Appeal, First District, Division 5, California.

Nov. 12, 1997.

As Modified on Denial of Rehearing Dec. 12, 1997.

Review Denied March 11, 1998. ^*

Rod Divelbiss, Mark J. Divelbiss, Divelbiss & Divelbiss, Divelbiss, Divelbiss & Bonzell, Robert S. Beach, San Francisco, for Plaintiffs and Appellants.

Louise H. Renne, City Attorney, Dennis Aftergut, Chief Assistant City Attorney, Claude F. Kolm and Jeffrey I. Margolis, Deputy City Attorneys, for Defendant and Respondent.

JONES, Associate Justice.

This is an action for refund of property taxes brought by appellants (hereafter Taxpayers), a number of corporations and limited partnerships that own low-income housing projects in the City of San Francisco, ¹ against respondent the City and County of San Francisco (hereafter the City). In this appeal, Taxpayers challenge the trial court's judgment upholding the San Francisco Assessment Appeals Board's (hereafter AAB) decision denying a number of applications for reduction in assessment filed by Taxpayers for tax years 1982-1983 through 1987-1988.

SUMMARY OF ISSUES AND CONCLUSIONS

Due to the number of issues the parties have raised on appeal, we begin our opinion by summarizing the major issues and our conclusions thereon.

(1) Taxpayers contend they are entitled to have their opinions of the value of their properties, stated in their applications for reduction in assessment, inserted on the county assessment roll for tax years 1983-1984 through 1986-1987 because the AAB failed to hear and make a final determination on their applications within two years after they were filed, as required by Revenue and Taxation Code section 1604, subdivision (c). ² The City contends Taxpayers affirmatively waived the two-year requirement and are otherwise estopped to enforce it. The City also contends section 1604, subdivision (c) is not applicable in this case, and is otherwise unconstitutional.

The City failed to plead the waiver and estoppel issues as affirmative defenses in its answer, and is therefore barred from relying on those defenses. We reject the City's contention that section 1604, subdivision (c) does not apply because Taxpayers provided only nominal property values on their applications and thus failed to provide full and complete information on their applications. Even if this were true, the AAB was required to inform Taxpayers of this defect in writing in order to avoid the effect of section 1604, subdivision (c). In addition, the City has failed to carry its burden of overcoming the presumption of constitutionality attached to section 1604, subdivision (c).

We thus conclude that Taxpayers are entitled to have their opinions of value, as stated in their applications for reduction in assessment, inserted on the assessment roll for the tax years during which they awaited a hearing. For reasons we shall explain, however, this conclusion holds only with respect to tax years 1985-1986 and 1986-1987.

(2) The City counters Taxpayers' procedural argument by asserting that Taxpayers failed timely to file their refund claims with the San Francisco Board of Supervisors for tax years 1982-1983 through 1984-1985. Taxpayers contend the AAB caused the delay by failing timely to adjudicate their applications for reduction in assessment. We conclude, based on the language of section 5097, that Taxpayers' refund claims were untimely for the years in question, as well as for a payment made on November 5, 1985 for the Prince Hall property for tax year 1985-1986. We therefore affirm the trial court's judgment with respect to tax years 1982-1983 through 1984-1985.

(3) The City also argues that Taxpayers failed to exhaust their administrative remedies before filing this court action. Taxpayers contend the City failed timely to raise this defense below and has thus waived it. The defense of failure to exhaust administrative remedies may be waived if not properly and timely raised. To the extent the City's exhaustion defense is based on Taxpayers' purported failure to file valid applications for reduction in assessment, the City failed to raise this issue below. The City adequately raised this defense, however, to the extent it is based on Taxpayers' purported failure to file valid claims for tax refund. Although the City is correct that Taxpayers' refund claims were not properly verified, we nonetheless conclude that this defect is not fatal to Taxpayers' claims, and, therefore, that Taxpayers properly exhausted their administrative remedies.

(4) Substantively, and applicable to tax years 1985-1986 through 1987-1988, Taxpayers contend the appropriate method of valuation in this case is the comparable sales method, as opposed to the band-of-investments method advocated by the City. We conclude the assessor's use of the band-of-investments method was not arbitrary, and was therefore proper. We also conclude that Taxpayers have failed to show the assessor's application of that method was erroneous.

(5) Finally, Taxpayers contend they are entitled to attorney fees under section 5152 and Government Code section 800. We have concluded that the AAB failed to comply with the two-year hearing requirement of section 1604, subdivision (c) with regard to tax years 1985-1986 and 1986-1987, and that this error requires reversal of the trial court's judgment in that respect. Because the error was

the AAB's, Taxpayers are not entitled to attorney fees under section 5152. Taxpayers may be entitled to fees under Government Code section 800, however. We therefore remand to the trial court for further proceedings with respect to the issue of attorney fees.

BACKGROUND

Taxpayers own a number of low-income housing projects in San Francisco. According to the parties, these projects qualify for subsidies under the federal National Housing Act (NHA) (12 U.S.C. § 1701 et seq.). They are commonly named "section 236" projects after that particular section of the NHA. Put simply, a developer of a section 236 project finances it by borrowing 90 or 100 percent of the development cost from a financial institution at market rates. The federal Department of Housing and Urban Development (HUD) guarantees the loan and pays all interest thereon in excess of one percent. In exchange, the developer agrees to provide housing at reduced rents for low-income families and individuals. The rents charged reflect the cost to amortize the low-interest loan plus reasonable operating expenses.

The dispute in this case concerns property taxes paid by Taxpayers for their various properties for the tax years 1982-1983 through 1987-1988. ³ Taxpayers timely filed applications for reduction in assessment for all or most of the properties for each tax year. ⁴ The assessed value of the properties implicated in the applications is almost $176.5 million. Taxpayers' opinion of the value of these properties amounted to a little over $20 million. The AAB conducted hearings on the applications on various dates between October 1988 and February 1989 after rescheduling the hearings from an initial hearing date of November 29, 1984. With few exceptions, the AAB denied the applications without changing the assessments.

Taxpayers subsequently filed claims for refund of property taxes with interest and attorney fees with the San Francisco Board of Supervisors. Taxpayers claimed the AAB utilized improper valuation methods and that the AAB failed to set the value of the properties in question at the values set forth in Taxpayers' applications for reduction in assessment, as required under section 1604. The Board denied Taxpayers' claims on the ground the AAB had already ruled on the issues raised by Taxpayers.

On June 22, 1990, Taxpayers initiated this action in San Francisco Superior Court seeking a tax refund plus interest, attorney fees, and costs. A court trial was held on October 5, 1995. On November 21, 1995, the trial court entered judgment in favor of the City. On June 21, 1996, the trial court denied Taxpayers' timely motion for new trial. Taxpayers timely appeal the trial court's judgment. ⁵

DISCUSSION

I. Exhaustion Of Administrative Remedies

We first address several threshold issues raised by the City as to whether Taxpayers exhausted their administrative remedies.

A. Taxpayers Failed Timely To File Administrative Claims For Refund With Respect To All Taxes Paid With Respect To Tax Years 1982-1983, 1983-1984, And 1984-1985

The City contends Taxpayers failed to file timely administrative claims for tax refund for all taxes paid prior to December 8, 1985. This would cover tax years 1982-1983 through 1984-1985. We agree.

Section 5097, subdivision (a) provides that "[n]o order for a refund under this article shall be made, except on a claim: ... [p] (2) Filed within four years after making of the payment sought to be refunded or within one year after the mailing of notice as prescribed in Section 2635, or the period agreed to as provided in Section 532.1, whichever is later."

Taxpayers filed their refund claims on December 8, 1989. They do not dispute that their refund claims for tax years 1982-1983 through 1984-1985 were filed more than four years after payment of all taxes for which those refunds were sought. The record also shows that Taxpayers' fund claims were filed more than four years after a November 5, 1985 payment for the Prince Hall property for tax year 1985-1986. They instead contend the AAB caused the delay by failing timely to adjudicate their applications for reduction in assessment. They contend they could not have filed their refund claims until the AAB ruled on their applications because to do so would have constituted a failure to exhaust their administrative remedies. The record shows that...