Springhill Lake Investors Ltd. Partnership v. Prince George's County, 923

• Decision Date: 01 September 1996
• Docket Number: No. 923,923
• Parties: SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP v. PRINCE GEORGE'S COUNTY, Maryland. ,
• Court: Court of Special Appeals of Maryland

Page 420

114 Md.App. 420

690 A.2d 535

SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP v. PRINCE GEORGE'S COUNTY, Maryland.

No. 923, Sept. Term, 1996.

Court of Special Appeals of Maryland.

March 5, 1997.

Richard A. Medway (Elliott B. Adler and Powell, Goldstein, Frazer & Murphy, on the brief), Washington, D.C., for appellant.

J. Michael Dougherty, Jr., Associate County Attorney (Barbara L. Holtz, Acting County Attorney, on the brief), Upper Marlboro, for appellee.

Argued before MOYLAN, CATHELL and HOLLANDER, JJ.

CATHELL, Judge.

Section 10-188(d) of the Prince George's County Code, in pertinent part, contains an exemption from county transfer taxes. It provides: "Upon any refinancing of property by the original mortgagor or mortgagors, the [transfer] tax shall apply only to the consideration over and above the amount of the original mortgage or deed of trust." The lone issue presented by the case sub judice is whether the indemnity deed of trust that appellant recorded among the land records for Prince George's County evidenced a refinancing and therefore qualified for the refinancing exemption.

Springhill Lake Investors Limited Partnership, appellant, challenges the denial of its application for the refund of transfer taxes paid (under protest) to Prince George's County (the "County"), appellee, upon the recordation of an Amended and Restated Indemnity Deed of Trust and Security Agreement in the principal amount of $58,000,000 that was part of a total of a $63,000,000 refinancing. That denial was upheld by both the Maryland Tax Court and the Circuit Court for Prince George's County. We shall begin our discussion by setting forth the transactions at issue and the relevant procedural background.

The Transactions

In January of 1985, appellant borrowed $58,000,000 from the Connecticut General Life Insurance Company (CIGNA). In return, appellant gave CIGNA a promissory note in that same amount, and, in addition to another guaranty instrument, an indemnity deed of trust was executed and delivered to CIGNA by: First Springhill Lake Limited Partnership, Second Springhill Lake Limited Partnership, Third Springhill Lake Limited Partnership, Fourth Springhill Lake Limited Partnership, Fifth Springhill Lake Limited Partnership, Sixth Springhill Lake Limited Partnership, Seventh Springhill Lake Limited Partnership, Eighth Springhill Lake Limited Partnership, Ninth Springhill Lake Limited Partnership, Springhill Commercial Limited Partnership, and Springfield Facilities, Inc. (collectively, the Indemnitors). Pursuant to this trust deed, the Indemnitors conveyed certain real property to trustees for the benefit of CIGNA, because CIGNA "would not have made [the] Loan without the giving of this Deed of Trust." This indemnity deed of trust was recorded among the land records for Prince George's County; for reasons unknown, no transfer taxes were imposed or collected upon the recordation of that document. ¹

Subsequently, in April of 1993, as a part of a refinancing by appellant, the borrower, CIGNA assigned all of its right, title, and interest in the note and indemnity deed of trust to trustees for Aldrich, Eastman & Waltch (AEW), a trust entity. Concurrently, appellant entered into a new loan agreement with AEW; it stated:

Borrower [appellant] wishes to refinance the CIGNA Loan with a loan from Lender [AEW] in the original principal amount of $63,000,000.

Lender and Borrower have agreed that Lender will purchase the CIGNA Loan for the sum of $58,000,000, that the CIGNA Note and CIGNA Deed of Trust will be amended and restated in their entirety, and that Lender will lend an additional $5,000,000 to Borrower, all on the terms and conditions set forth in this Agreement.[ ²

In exchange, as security for this new loan, in addition to another guaranty instrument, the same Indemnitors under the original indemnity deed of trust executed and delivered for the benefit of AEW an Amended and Restated Indemnity Deed of Trust and Security Agreement (the "IDOT") in the amount of $58,000,000, which was "to amend, totally restate and supersede in its entirety that certain Indemnity Deed of Trust and Security Agreement granted by [the Indemnitors] to [CIGNA]." Upon the recordation of the IDOT, the County imposed and collected transfer taxes at the rate of one and one-half percent (1-1/2%) or $870,000. We shall further discuss the transaction infra.

Procedural Posture

On July 29, 1993, appellant filed an Application for Refund of Tax Erroneously Paid to Prince George's County, Maryland. By letter dated January 24, 1994, the County denied appellant's application. This determination was appealed, in turn, to the Maryland Tax Court. Before the Tax Court, appellant principally made two arguments: 1) the IDOT was part of a refinance of the property and, therefore, qualified for the refinance exemption contained in section 10-188(d) of the Prince George's County Code; and 2) the County was "merely attempting to obfuscate the nature of the 1993 transaction so that it may now recover the taxes associated with the" first indemnity deed of trust that was filed in 1985 and upon which no transfer taxes were imposed.

The Tax Court affirmed the County's decision. In its Memorandum of Grounds for Decision, the Tax Court stated, in relevant part:

The 199 IDOT was not a refinance.[ ³] The language in the IDOT indicates that it was a mere guaranty requiring the grantors [the Indemnitors] to reimburse the lender [AEW], if, and when, the borrower [appellant], defaults on its loan. The only exchange of funds occurred by the sale of the loan from one mortgagee [CIGNA] to another [AEW]. No new debt was incurred on the part of the [Indemnitors]. The indemnity deed of trust secured a guaranty. No debt exists under the instrument to refinance, therefore the exemption from tax does not apply.

....

Petitioner [appellant] also asserts a statute of limitation[s] defense claiming that the County was seeking to impose the tax on the 1985 IDOT beyond the 7[-]year statutory period allowed. This argument is without merit in that the imposition of the tax was triggered by the recordation of the 1993 IDOT, not the 1985 instrument, and the tax was calculated on the consideration as stated therein.

Thereafter, appellant filed a Petition of Appeal for Judicial Review in the Circuit Court for Prince George's County. Before the circuit court, appellant pressed only the refinance exemption argument. In its Memorandum, Opinion and Order of Court, the trial court opined:

This member of the Bench agrees with Prince George's County that no debt existed under the original [1985] or Amended [1993] IDOT at the moment of recordation. An Indemnity Deed of Trust is collateral security in the nature of a guarantee and unless there has been a default, there is no debt which can be "refinanced." There being no debt to refinance, the exemption for refinance found in § 10-188(d) of the Prince George's County Code is inapplicable.

Accordingly, the court affirmed the Tax Court's decision. Therefrom, appellant noted a timely appeal to this Court.

Discussion

We first note that, because the issue in this case is whether an instrument qualifies for exemption from taxation, we are called upon to decide an issue of law. Despite its name, the Maryland Tax Court is an administrative agency, and, when reviewing the legal determinations of an administrative agency, a court is under no constraints in reversing a determination that is premised solely upon an erroneous conclusion of law. Montgomery County v. Buckman, 333 Md. 516, 519-20, 636 A.2d 448 (1994); Ramsay, Scarlett & Co. v. Comptroller of Treasury, 302 Md. 825, 834, 490 A.2d 1296 (1985).

We next note that what is not in question in the case at bar is whether transfer taxes may be collected upon the recordation of an indemnity deed of trust. That question was answered by the Court of Appeals in Prince George's County v. Brown, 334 Md. 650, 640 A.2d 1142 (1994). Brown makes clear that "the Prince George's County Code provides no exemption [from transfer taxes] for indemnity deeds of trust or other guarantee instruments." Id. at 666, 640 A.2d 1142. Our analysis does not end here, however.

In Brown, a landowner sought a refund of both State recordation and county transfer taxes collected upon the recordation of three deeds of trust, one of which was an indemnity deed of trust. The landowner argued that a refund was due because the trust deeds were supplemental instruments--i.e., they supplemented previously recorded instruments. Discussing whether a refund of county transfer taxes was due, Judge Karwacki, writing for the Court, held that "[n]o provision [of the Prince George's County Code] explicitly or implicitly exempts supplemental instruments of writing from the transfer tax." Id. at 665, 640 A.2d 1142. The Court then held that "collection of county transfer tax on the ... Indemnity Deed of Trust was proper." Id. at 666, 640 A.2d 1142. Had the county code provided an exemption for supplemental instruments, however, the Court would have, perforce, analyzed whether the indemnity deed of trust qualified under that exemption. See id. at 658-62, 640 A.2d 1142 (analyzing whether the three deeds of trust came within the supplemental instrument exemption for State recordation taxes).

Thus, Brown contemplates a two-step analysis. The first step is to determine whether transfer tax is even due upon the recordation of the instrument and, clearly, the Brown Court held that transfer taxes are due when an indemnity deed of trust is recorded. What was not before the Court of Appeals in Brown was the second step of the analysis: if county transfer taxes can be collected upon the recordation of the instrument, does a respective instrument nevertheless qualify for an exemption under other provisions of the statute.

In Brown, as to the indemnity deed of trust, because the county code did not contain an exemption for supplemental instruments, ...