Weybosset Hill Investments, LLC v. Rossi

• Decision Date: 06 July 2004
• Docket Number: No. 2002-693-Appeal.,2002-693-Appeal.
• Citation: 857 A.2d 231
• Parties: WEYBOSSET HILL INVESTMENTS, LLC v. Thomas ROSSI, in his capacity as tax assessor for the City of Providence.
• Court: Rhode Island Supreme Court

857 A.2d 231

WEYBOSSET HILL INVESTMENTS, LLC v. Thomas ROSSI, in his capacity as tax assessor for the City of Providence.

No. 2002-693-Appeal.

Supreme Court of Rhode Island.

July 6, 2004.

Richard A. Licht, Providence, for Plaintiff.

Caroline Cornwell, Providence, for Defendant.

Present: WILLIAMS, C.J., FLANDERS, GOLDBERG, FLAHERTY, and SUTTELL, JJ.

OPINION

SUTTELL, Justice.

This is another in a series of tax appeals involving various parcels of commercial real estate in downtown Providence. In this case, Blue Cross and Blue Shield of Rhode Island (Blue Cross) challenged three years of tax assessments on a seven-story office building known as One Weybosset Hill.¹ While these tax appeals were pending, Blue Cross sold the property and assigned its rights to the appeals to the plaintiff, Weybosset Hill Investments, LLC (Weybosset Hill). The new owner continued to prosecute the appeals that Blue Cross initiated, and challenged an additional assessment in its own right after it took title to the property.

Failing to secure relief from either the tax assessor or the board of tax assessment review, Weybosset Hill filed petitions in Superior Court challenging as excessive the property tax assessments made by defendant Thomas Rossi in his capacity as tax assessor for the City of Providence (the city) for tax years 1997, 1998, 1999, and 2000. The actions were consolidated for the purposes of trial. The trial justice ruled that the real estate had been over-assessed for all four tax years and awarded to Weybosset Hill damages of $871,170.90, plus interest of $352,134.16, for a total of $1,223,358.01. The city appealed, raising several issues, the most significant of which questions the validity of the assignments. After examining the record and briefs filed by the parties and hearing the arguments of counsel, we affirm the judgment of the Superior Court.

Facts and Travel

On March 12, 1999, Weybosset Hill became the owner of the property at One Weybosset Hill in Providence (the property) and a parking lot across the street. Weybosset Hill purchased both parcels from Blue Cross for $3,592,000.

In 1987 the city conducted a decennial citywide revaluation of real estate, and assessed the subject property for $10,425,400. It then carried over this assessment each year thereafter, including the tax years at issue in this case. Blue Cross, then the owner of the property, challenged the assessments for tax years 1997, 1998, and 1999. On July 23, 1998, Blue Cross entered into a purchase and sale agreement with Paolino Realty, LLC, the predecessor-in-interest to Weybosset Hill.²

The consideration for the sale of the property included an assignment of the property tax challenges, which were then in various stages of the appellate process. Two days before the closing, an assignment agreement was executed in which Blue Cross assigned to Weybosset Hill "all claims, rights, remedies, entitlements and obligations" relating to the pending appeals of tax years 1998 and 1999. On May 8, 2002, Blue Cross and Weybosset Hill executed a document entitled "Confirmatory Assignment and Acceptance" that memorialized the intent of the parties to assign the appeal for tax year 1997, which had been "inadvertently omitted" from the original assignment.

After the closing, Weybosset Hill continued to pursue diligently all appeals initiated by Blue Cross. Moreover, it challenged the assessment for the tax year 2000 in its own right. All such appeals were denied by the tax assessor and the board of tax assessment review, after which Weybosset Hill timely appealed to the Superior Court. The four cases eventually were consolidated, and were heard by a trial justice sitting without a jury in May 2002.

At trial, Weybosset Hill presented testimony from Webster Collins (Collins), a certified real estate appraiser and executive vice president with CB Richard Ellis/Whittier Partners. He testified that he had been involved in appraisal work dealing with properties in Providence since the 1970s. Collins explained that there are three valuation methods one can employ when appraising real estate: the cost approach, the market sales comparison approach, and the income approach. The best evidence of value in a particular year, however, is an arm's-length sale that occurred in that year. Consequently, he testified that the value of the property in 1999 was $2,500,000, which he calculated by deducting from the total purchase price the estimated, discounted value of the tax appeals and the cost of the parking lot.

With respect to the other years, Collins posited that the income approach generally is preferred for valuing income-producing property, such as is at issue here. According to Collins, the income methodology weighs a number of factors, including the potential rental value of similar property, the property's vacancy rate, and the overall vacancy rate in the city. In calculating the value of the subject property, he also made adjustments for various expenses and costs, including amortized capital improvements, leasing commissions, and parking operation expenses. Using this approach, Collins opined that the value of the property was $3,495,000 for tax year 1997, $3,895,000 for 1998, and $5,400,000 for 2000. All of Collins's conclusions and calculations were included in an appraisal report that he prepared. The city objected to the introduction of this report, arguing that although it had requested the report months before trial, it received the report only ten or twelve days before the trial commenced and had insufficient time to review it. The report was entered into evidence over the city's objection.

Weybosset Hill also presented testimony from Thomas Bovis (Bovis), an assistant vice president of engineering and administrative services for Blue Cross. His duties included real estate development, acquisition, and space planning. Bovis explained the procedure Blue Cross used to authorize the sale of real estate. He further testified that part of the negotiations with Paolino Realty, LLC over the purchase of the property concerned an assignment of Blue Cross's rights to its applications for tax abatements for tax years 1997, 1998, and 1999. In addition, Weybosset Hill produced as a witness Joseph R. Paolino, Jr. (Paolino), who also testified to the extensive "back-and-forth" negotiations and concessions each party made. Based upon the uncontradicted testimony of both Bovis and Paolino, the trial justice found that the sale of the property was indeed an arm's-length transaction.

Rossi did not appear at the trial because of medical reasons, but was permitted to submit testimony by affidavit. Specifically, Rossi characterized the sale as a "sale-leaseback," which he said often is motivated by a desire to convert an illiquid real estate asset into cash, while retaining control and use of the facility. He further averred that such arrangements generally include a long-term lease commitment by the seller, a condition absent from this transaction. Thus, according to the city, the sale was not an arm's-length transaction and therefore not a valid indicator of valuation.

Rossi also questioned some of the underlying assumptions Collins made in his appraisal. For instance, he asserted that Collins's appraisal methodology did not conform to the Uniform Standards of Professional Appraisal Practice. Rossi noted that the rental figure of $15 per square foot presented in Collins's report was not accurate because the "Greater Providence Office Market Report" estimated comparable space between $15 and $20 per square foot. He also noted that the property's good location indicated that the rental value should be higher than $15 per square foot. He further averred, "The operating expenses, taxes, parking and utilities are the responsibility of the tenants," not the owner. Therefore, those adjustments should not have been made against the value of the property. Rossi concluded, "The Gross Rent was understated, and the operating expenses are overstated."

In lieu of closing arguments, both sides submitted multiple post-trial memoranda. The city also moved for judgment on partial findings pursuant to Rule 52(c) of the Superior Court Rules of Civil Procedure, in which it renewed its previous argument that Weybosset Hill lacked standing to challenge the assessments for the 1997, 1998, and 1999 tax years. The city asserted that the right to appeal an assessment under the statute is personal to the taxpayer and may not be assigned. Further, it argued that, with respect to the 1999 tax, the account, which is a statutory prerequisite to seeking relief from a claimed overassessment, was filed by Blue Cross under oath and was not transferable.

In a written decision, the trial justice denied the city's Rule 52(c) motion, and found Collins's testimony to be "credible, convincing, and virtually uncontradicted." Accordingly, she accepted his expert testimony and concluded that Weybosset Hill had presented sufficient testimony to rebut "the presumption of validity attendant to the assessor's carry-over of a decennial review * * *." The trial justice formally adopted Collins's appraisals of fair market value, and ordered the city to "alter the assessments accordingly and return to [Weybosset Hill] all of the excess amounts paid for those years relating to the Property, whether paid by [Blue Cross] or [Weybosset Hill]."

Judgment entered on September 11, 2002, on behalf of Weybosset Hill, from which the city timely appealed.³

Discussion

The city advances three arguments in support of its appeal. First, it asserts that the trial justice erroneously denied its motion to amend its answer to add the affirmative defense that Weybosset Hill had failed to perfect its appeal because it did not file "a true and exact account under oath" as required by G.L.1956 §§ 44-5-15 and 44-5-16. Second, the city contends that the trial justice erred by not granting a reasonable continuance because...