Northwestern Nat. Life Ins. Co. v. County of Hennepin, C2-97-90

• Decision Date: 31 December 1997
• Docket Number: No. C2-97-90,C2-97-90
• Citation: 572 N.W.2d 51
• Parties: NORTHWESTERN NATIONAL LIFE INSURANCE CO., Relator, v. COUNTY OF HENNEPIN, Respondent.
• Court: Minnesota Supreme Court

Page 51

572 N.W.2d 51

NORTHWESTERN NATIONAL LIFE INSURANCE CO., Relator, v. COUNTY OF HENNEPIN, Respondent.

No. C2-97-90.

Supreme Court of Minnesota.

Dec. 31, 1997.

Rehearing Denied Feb. 5, 1998.

Syllabus by the Court

1. The doctrine of collateral estoppel precludes relitigation of issues determined in a prior proceeding. The issue of the cost of construction of the office building and data center on the subject property in this case was determined in a prior proceeding.

2. Relator's due process rights were violated when the tax court allowed the respondent Fredrikson & Byron, P.A., Thomas R. Wilhelmy, Thomas R. Muck, Minneapolis, for relator.

to use information at trial that had been withheld during discovery. However, the tax court's due process violation did not prejudice the relator.

Michael O. Freeman, Hennepin County Atty., Mark K. Maher, Asst. County Atty., Minneapolis, for respondent.

Heard, considered, and decided by the court en banc.

OPINION

PAGE, Justice.

Pursuant to Minnesota Statutes Chapter 278 (1996), Relator Northwestern National Life Insurance Company filed petitions with the tax court challenging Respondent Hennepin County's 1993 and 1994 assessments of Northwestern National's property, consisting of an office building and data center located at 111 Washington Avenue South in Minneapolis ("the subject property"). On August 27, 1996, the tax court filed its findings of fact, conclusions of law and order for judgment in this matter and determined that the property's fair market value for 1993 was $23,000,000 and for 1994 was $25,000,000. Northwestern National timely moved the tax court for amended findings or a new trial. The tax court denied the motions, and this court granted Northwestern National's petition for certiorari.

Northwestern National raises essentially the same issues here that it raised in its post-trial motions to the tax court: (1) whether the tax court clearly erred in finding that the doctrine of collateral estoppel was inapplicable to this case; (2) whether the tax court clearly erred in finding that the building's raised, removable computer flooring and cooling, electrical, and fire control equipment (collectively "the data center components") were real property rather than personal property; (3) whether the tax court denied Northwestern National due process by allowing the County to use information at trial, that the County failed to provide in advance of the trial, pursuant to Northwestern National's discovery requests; (4) whether the tax court clearly erred in using a 12% yield rate in its income approach to valuation; (5) whether the tax court abused its discretion in limiting Northwestern National's cross-examination of a co-author of the appraisal report relied on by the County's assessor; and (6) whether the tax court's conclusions as to market net rent and vacancies are unsupported by the evidence and thus clearly erroneous. We affirm in part, reverse in part, and remand.

The subject property is improved with a mid-rise building which was built by Northwestern National in 1987. The building includes 15 stories of office space above ground and a two-level data center below ground. The data center floors, which were designed to be removable, are raised 21 inches above a subfloor, and the floors in the office space are raised 9 inches. When constructed, a halon fire control system was built into the data center, along with additional electrical support and cooling equipment required by the data center's computers.

Due to the inexact nature of property assessment, this court defers to the decision of the tax court unless it has clearly misvalued the property or completely failed to explain its reasoning. Harold Chevrolet v. County of Hennepin, 526 N.W.2d 54, 58 (Minn.1995). We will not disturb the tax court's valuation of property unless the tax court's decision is clearly erroneous. Id. at 57. A decision is clearly erroneous when it is not reasonably supported by the evidence as a whole. Westling v. County of Mille Lacs, 512 N.W.2d 863, 866 (Minn.1994) (citation omitted). When questions of law arise, this court has plenary powers to review the tax court's decision. Nagaraja v. Commissioner of Revenue, 352 N.W.2d 373, 376 (Minn.1984).

The first issue raised by Northwestern National is whether the tax court erred in finding that the doctrine of collateral estoppel was inapplicable to this case. In 1995, Northwestern National successfully challenged the County's 1992 valuation of the subject property. See Northwestern National Life Insurance Company v. County of Hennepin (NWNL I ), File No. TC-18794, 1995 WL 377079 (Minn. Tax Ct. June 21, 1995). In appraising the subject property, in NWNL I, the County used the income, market, and cost approaches to valuation. In its cost approach, the County used a "Marshall Valuation segregated replacement cost analysis" to estimate the historical ¹ cost of constructing the office building and data center. In its estimate of the construction cost of the office building and data center, the County included the cost of the data center components. In the appraisal report introduced in NWNL I, the County included Exhibit A in support of its segregated replacement cost analysis. Exhibit A was a document provided to the County by Northwestern National that showed in summary form the contract amount for the construction of the office building and data center, reduced by the cost of the data center components, certain personal property, and other miscellaneous items. Exhibit A showed an adjusted construction cost of $42,157,784. The County's appraiser testified that in performing the segregated replacement cost analysis, he used the information contained on Exhibit A for comparison purposes only. Northwestern National did not perform a cost approach to valuation. Thus, in NWNL I, Northwestern National did not introduce any evidence relating to the construction cost of the office building and data center. The tax court, without explaining what items were included in or excluded from the construction cost, and without any other explanation as to what its finding was based on, found that the construction cost of the office building and data center was $42,000,000. The tax court also found that the market value of the property for 1992 was $19,600,000.

At the tax court in this case, both Northwestern National and the County used the income, market, and cost approaches to value the subject property. In using the cost approach, rather than estimating, the parties began with the actual construction cost of the office building and data center and then trended that cost forward. The County, in its cost approach, again included the cost of the data center components in the construction cost of the office building and data center, but this time the figures were based on actual cost rather than an estimate. In its cost approach, Northwestern National excluded the cost of the data center components from the construction cost.

Prior to trial, Northwestern National raised the issue of whether the County should be estopped from relitigating the issue of construction cost. The tax court found that the doctrine of collateral estoppel did not apply based on its conclusion that the issue of construction cost was not actually litigated in NWNL I. The tax court then found, for purposes of its cost approach to valuation, that the construction cost of the office building and data center was $49,800,000 which was $7,800,000 more than what the tax court found in NWNL I. Ultimately, the tax court found that the market value of the subject property for 1993 and 1994 was $23,000,000 and $25,000,000 respectively. In determining market value for 1993 and 1994, the tax court indicated that it placed "little weight" on the market...