Valley Forge Towers Apartments N, LP v. Upper Merion Area Sch. Dist.

• Decision Date: 10 September 2015
• Citation: 124 A.3d 363
• Parties: VALLEY FORGE TOWERS APARTMENTS N, LP; Morgan Properties Abrams Run Owner LP; KBF Associates, LP; Gulph Mills Village Apartments LP; and the Lafayette at Valley Forge LP, Appellants v. UPPER MERION AREA SCHOOL DISTRICT and Keystone Realty Advisors, LLC.
• Court: Pennsylvania Commonwealth Court

124 A.3d 363

VALLEY FORGE TOWERS APARTMENTS N, LP; Morgan Properties Abrams Run Owner LP; KBF Associates, LP; Gulph Mills Village Apartments LP; and the Lafayette at Valley Forge LP, Appellants
v.
UPPER MERION AREA SCHOOL DISTRICT and Keystone Realty Advisors, LLC.

Commonwealth Court of Pennsylvania.

Argued May 8, 2015.
Decided Sept. 10, 2015.

124 A.3d 365

Matthew A. Hamermesh, Philadelphia, for appellants.

Wendy G. Rothstein, Blue Bell, for appellees Upper Merion Area School District and Keystone Realty Advisors, LLC.

Opinion

OPINION BY Judge COVEY.

Morgan Properties Abrams Run Owner LP, KBF Associates, LP, Gulph Mills Village Apartments LP and The Lafayette at Valley Forge LP (collectively, Taxpayers)¹appeal from the Montgomery County Common Pleas Court's (trial court) October 9, 2014 order sustaining Upper Merion Area School District's (UMASD) and Keystone Realty Advisors, LLC's (Keystone Realty) (collectively, District) preliminary objections to Taxpayers' complaint seeking a declaratory judgment, injunctive relief and damages (Complaint). There are three issues before the Court: (1) whether Taxpayers stated a claim for which relief could be granted when they alleged that the District violated Article 8, Section 1 of the Pennsylvania Constitution(Uniformity Clause) by evaluating and filing assessment appeals only against the Taxpayers and similar commercial properties; (2) whether administrative exhaustion principles prevent Taxpayers from bringing their Uniformity Clause challenge as an independent equity action, rather than in separate assessment appeals; and (3) whether Taxpayers alleged a proper negligence claim against Keystone Realty. After review, we affirm.

Taxpayers own apartment buildings in UMASD. UMASD filed annual assessment appeals with the Montgomery County Board of Assessment Appeals (Board) challenging the assessments of Taxpayers' properties. The Board denied the appeals and UMASD appealed to the trial court. The appeals remain pending before the trial court.

On May 2, 2014, Taxpayers filed their Complaint. Taxpayers allege in the Complaint that UMASD contracted with Keystone Realty to recommend property assessments from which UMASD should appeal. Taxpayers further contend that, as a result of Keystone Realty's recommendations, UMASD systematically selected and appealed from commercial property assessments, including apartment buildings, but did not appeal from residential property assessments. Finally, Taxpayers aver that UMASD's actions were part of a scheme between UMASD and Keystone Realty to generate more tax revenue for UMASD which, in turn, would benefit Keystone Realty, since it was paid a contingency fee of 25% of any increased revenue it generated for UMASD. Taxpayers claim that UMASD's appeals solely of commercial properties violated the Uniformity Clause.

On May 28, 2014, the District filed its preliminary objections to the Complaint to which Taxpayers responded on

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June 24, 2014. The trial court heard argument on October 3, 2014, and sustained the preliminary objections by October 9, 2014 order, thereby dismissing the Complaint with prejudice. Taxpayers appealed to this Court.²

Pennsylvania Constitution's Uniformity Clause

Taxpayers first argue that UMASD's selective assessment appeals violate the Pennsylvania Constitution's Uniformity Clause. Specifically, they contend that “the [District] has concocted a scheme to ensure that commercial properties, such as the [Taxpayers'] apartment buildings, are assessed at a higher ratio to their fair market value than residential properties.” Taxpayers' Br. at 13. The District rejoins that Taxpayers have failed to establish a lack of uniformity or that UMASD has acted in an unconstitutional manner. The District, inter alia,cites Weissenberger v. Chester County Board of Assessment Appeals,62 A.3d 501 (Pa.Cmwlth.2013)to support its position.

The Pennsylvania Constitution's Uniformity Clause provides: “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.” Pa. Const. art. VIII, § 1. Section 8855 of the Consolidated County Assessment Law (Law) states in relevant part:

A taxing district shall have the right to appeal any assessment within its jurisdiction in the same manner, subject to the same procedure and with like effect as if the appeal were taken by a taxable person with respect to the assessment, and, in addition, may take an appeal from any decision of the board or court of common pleas as though it had been a party to the proceedings before the board or court even though it was not a party in fact.

53 Pa.C.S. § 8855. “[I]t is now well settled that municipal tax authorities, such as school districts, may appeal a property's assessment.” Weissenberger,62 A.3d at 507.

Improper Classification

Taxpayers assert that the trial court erred in relying on In re Springfield School District,101 A.3d 835 (Pa.Cmwlth.2014)(Springfield II), because the SpringfieldCourt misinterpreted the Pennsylvania Supreme Court's decision in Downingtown Area School District v. Chester County Board of Assessment Appeals,590 Pa. 459, 913 A.2d 194 (2006). In Downingtownthe Supreme Court held that “the Uniformity Clause does not require equalization across all sub-classifications of real property.” Trial Ct. Op. at 7. Taxpayers maintain that the DowningtownCourt was merely distinguishing the United States (U.S.) Constitution's Equal Protection Clause from the Pennsylvania Constitution's Uniformity Clause. However, this Court in Weissenbergerexplained the significance of the Downingtownholding in relation to the Pennsylvania Constitution's Uniformity Clause. The WeissenbergerCourt explained:

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Our Supreme Court consistently interprets the Uniformity Clause as precluding real property from being divided into different classes for purposes of systematic assessment: ‘The [Pennsylvania Constitution] [requires] all real estate to be treated as a single class entitled to uniform treatment.’ Clifton[v. Allegheny Cnty., 600 Pa. 662], 969 A.2d [1197,] 1212[ (Pa.2009) ]. Moreover, while the Court has held that Equal Protection and Uniformity claims pertaining to matters of taxation are analyzed coterminously, the Court has recognized that the U.S. Constitution does not require equalization across all potential subclassifications of real property, noting that federal standards contemplate that similarly situatedtaxpayers should not be deliberately treated differently by tax authorities. Downingtown....Thus, while noting that real property cannot be subdivided into classes for purposes of assessment and taxation, the Court held that meaningful subclassifications can be considered as a ‘component of the overall evaluation of uniform treatment in the application of the taxation scheme.... [To do otherwise] would represent an impermissible departure from federal equal protection jurisprudence... [.]’ Id.at 200.

Weissenberger,62 A.3d at 506–07(emphasis added). The Court concluded:

[A] [s]chool [d]istrict is expressly authorized to initiate assessment appeals, and it is not an entity clothed with the power to revise assessments or assessment ratios, such that lodging an appeal constitutes an impermissible spot reassessment. Moreover, ... adopting a methodology that narrows the class of properties evaluated for appeal based upon considerations such as financial and economic thresholds or by classifications of property do not as a matter of law demonstrate deliberate, purposeful discrimination.

Id.at 508–09(emphasis added). Thus, we hold that the Springfield IICourt did not misinterpret Downingtown,and the trial court properly relied thereon.

Deliberate Discrimination

Taxpayers further declare that the UMASD selected its properties based on their owners' lack of political power, and thereby deliberately discriminated against an underrepresented group violating uniformity. See Downingtown.We acknowledge that Taxpayers alleged in their Complaint: “On information and belief, [UMASD] has failed to appeal the assessments of single family homes because many if not all are owned by residents who vote in local electionsand it would be politically unpopular to appeal such voters' property assessments.” Complaint ¶ 53; Reproduced Record (R.R.) at 16a (emphasis added). However, Taxpayers also alleged:

48. Upon information and belief, pursuant to the contract between the School Board and Keystone [Realty], the School Board agreed to pay Keystone [Realty] a contingency fee of 25% of any increased tax revenue [UMASD] generates through a Keystone [Realty]-assisted appeal.

49. This contingency fee arrangement creates for Keystone [Realty] an economic interest in recommending that [UMASD] target for appeal high-value properties,in disregard of the requirements of the Uniformity Clause.

50. This interest creates a direct conflict between Keystone [Realty]'s interest in maximizing its contingency fee and [UMASD's] obligations to abide by the Uniformity

...