THRIFTY ROYAL OAK v. ROYAL OAK

WAHLS, J.

I agree with Judge BRONSON that the tribunal's decision with respect to both the principal amount assessed and the amount of interest imposed must be affirmed. In my opinion, the tribunal did not adopt wrong principles of valuation.

However, I am unable to agree with Judge BRONSON that the tribunal erred in denying intervention. I agree with Judge ALLEN that intervention is discretionary and that there was no abuse of discretion.

I would affirm the judgment of the Tax Tribunal.

BRONSON, J.

The primary issue before this Court is whether the Tax Tribunal's decision is supported by competent, material, and substantial evidence on the whole record. Fisher New Center Co v State Tax Comm, 381 Mich. 713, 715; 167 N.W.2d 263 (1969). I believe that the tribunal's decision must be affirmed because the values indicated by expert witness Leo Goldstein's appraisal, as limited by a reproduction cost approach to value, constitued competent, material and substantial evidence of the determined value. I also believe that there was an ample basis for the tribunal's decision to reject the alternative appraisals submitted by petitioners' experts, Donald Hartman and Eldon Nedeau.

The tribunal found Goldstein's testimony to have been "more persuasive overall" than that of petitioners' experts. The tribunal's finding with respect to credibility of witnesses is a factual finding which binds the present Court on review. Consolidated Aluminum Corp v Richmond Twp, 88 Mich. App. 229; 276 N.W.2d 566 (1979). There are only two ways in which petitioners challenge Goldstein's appraisal.

First, they dismiss his appraisal as invalid by noting the tribunal's "serious doubt" as to the "arm's length nature" of the underlying lease between Thrifty Royal Oak, Inc., and the parent company, Meijer, Inc. Arguably, as petitioners contend, certain terms and conditions of the lease may have been formulated so as to accomplish what petitioners characterize as "intra-company" objectives. However, Goldstein did testify that, despite the relationship between the Meijer-affiliated parties to the lease, the rental figure did reflect a fair equivalent of market conditions. As noted above, the tribunal has the prerogative of determining the credibility of witnesses.

The tribunal's statement that the lease was not an arm's-length transaction does not translate into a conclusion that the rental amount inherent in the lease was anything other than a market rent. On the contrary, the tribunal's opinion indicates that its sole purpose in describing the lease as a non-arm's-length transaction was to distinguish the case of CAF Investment Co v Saginaw Twp, 410 Mich. 428; 302 N.W.2d 164 (1981):

"The proofs cast serious doubt upon the arm's length nature of the subject long-term lease * * *. The conclusion that the subject lease was not an arm's-length transaction for assessment purposes eliminates the necessity of attempting to apply to the instant case the rationale of the Supreme Court's majority in CAF Investment Co v Saginaw Twp [citation omitted] and, in the process, arrive at a finding of true cash value within the realm of reason and supported by the evidence. Indeed, were the tribunal to conclude that subject lease was arm's length in nature and necessary of consideration herein, the actual net income * * * would produce an excessive value estimate not justified by the proofs."

It is apparent that the tribunal's reference to the lease as a non-arm's-length transaction did not in any way invalidate its reliance upon Goldstein's appraisal testimony.

Petitioners' second and more basic challenge to the use of Goldstein's appraisal testimony concerns the fact that, using a market approach to valuation, Goldstein's value estimate was about $3,000,000 more than the reproduction cost of the property. Petitioners contend that the tribunal erred as a matter of law when it resolved this discrepancy by applying the principle of substitution, whereby appraised market value would have an upper limit not exceeding reproduction costs plus land value. However, petitioners fail to demonstrate the inappropriateness of applying this principle, nor do they suggest any reason why the tribunal might have erred in using a cost approach for the sole purpose of setting an upper limit on value otherwise indicated by Goldstein's market approach.

In arguing against the tribunal's use of a cost approach, petitioners focus exclusively upon the fact that the tribunal's opinion characterized the property as "unique", and the fact that the tribunal cited this Court's opinion in First Federal Savings Loan Ass'n of Flint v City of Flint, 104 Mich. App. 609; 305 N.W.2d 553 (1981), rev'd 415 Mich. 702; 329 N.W.2d 755 (1982), as authority for use of a cost approach. I believe that the tribunal acted properly in characterizing the property as "unique", and disagree with Judge ALLEN'S suggestion that the citation of this Court's opinion in First Federal, supra, necessarily renders invalid the tribunal's use of a cost approach.

The tribunal's conclusion that the property is "unique" flows directly from the nature of evidence adduced at the hearings below. Neither party presented any evidence of sales of properties which were comparable in size or use. Instead, the parties relied upon "hybrid" estimates of value which combined elements of community shopping centers on the one hand, and smaller individual stores on the other. It is clear from the record that each party's "comparables" attributed a distorted market value to the subject property — those used by petitioners' appraisers understated cash value, while those used by Goldstein resulted in valuations which exceeded replacement costs of the building. Given the parties' complete inability to produce relevant "comparables", the tribunal acted properly in characterizing the subject property as unique "in light of the proofs presented".

The question remains whether the tribunal's citation to this Court's opinion in First Federal, supra, was sufficient to invalidate the tribunal's use of a cost approach in this case. For several reasons, I believe that the reference to First Federal was not reversible error. First, as noted above, the lack of any reliable "comparables" was by itself sufficient to demonstrate the unique character of the property and, in turn, to justify resort to a cost approach to valuation. In Consumers Power Co v Big Prairie Twp, 81 Mich. App. 120, 130; 265 N.W.2d 182 (1981), this Court observed:

"The choice of which method [of valuation] to use is by no means unfettered; it is the duty of the Tax Tribunal to adopt that method which is most appropriate to the individual case as the particular facts may indicate."

In the Supreme Court's opinion in First Federal, so heavily relied upon by petitioners and Judge ALLEN, the Court actually applied this principle in a manner which favors respondent's position in this case. The Court noted that, in cases where the parties fail to present other persuasive evidence of valuation, it may be not only proper but desirable to consider evidence of cost:

" Absent more persuasive evidence, such as comparable sales, historical cost or reproduction cost can be considered in arriving at the usual selling price, but historical or reproduction cost that merely enhances image or business but not selling price is not subject to taxation." 415 Mich. 706-707. (Emphasis added.)

It is apparent that, under the circumstances, the tribunal's decision to consider cost data was consistent with, rather than contrary to, principles underlying the Supreme Court opinion in First Federal.

The Supreme Court did not reverse this Court's decision in First Federal solely because the tribunal had found the property in that case unique and had considered reproduction cost as evidence of value. Instead, the reason for reversal was that the tribunal's decision in that case contravened the principle announced in the nonemphasized portion of the sentence quoted above. Specifically, the Court observed:

"The Tax Tribunal erred in adopting the hearing officer's reasoning that the value should include amounts expended for physical improvements that the hearing officer found were made to enhance the bank's `image' or `business' without regard to whether the expenditures added to the `cash' or `usual selling price' of the property." 415 Mich. 705.

The foregoing reveals a crucial distinction between the present case and First Federal, supra. Here, petitioners have not shown that the tribunal has improperly relied upon any evidence of reproduction cost which "merely enhances image". In fact, petitioners do not challenge the validity of the particular cost figures used by the tribunal — their primary argument is that the tribunal erred in considering evidence of cost at all. Since the reason for reversal in First Federal was not the mere finding of uniqueness, or even the tribunal's use of a cost approach but, rather, the use of flawed cost data, petitioners' failure to identify comparably flawed data in the present case goes a long way toward distinguishing First Federal.

Another important factor distinguishing First Federal is the result which flowed from the tribunal's application of a cost approach. In First Federal, the use of a cost approach had the effect of raising assessed value above that dictated by the more conventional market or income approaches. Contrast the present case where cost data was used to limit the value which would have resulted from adoption of Goldstein's market-based appraisal, which the tribunal found credible.

In short, the present case does not present the problems encountered in First Federal: reliance upon elements of cost which (1) "merely enhance image" and (2) raise, rather than limit, the assessment that would otherwise have been reached using a more conventional approach to valuation. Accordingly, the mere fact that the tribunal cited First Federal in support of its use of a cost approach does not compel the conclusion that it has repeated the error which required reversal in that case.

I believe that the tribunal acted properly in rejecting the appraisals submitted by petitioners' experts. First, the tribunal properly rejected the experts' claim that the subject property was functionally and economically obsolescent within months of its opening. It is true that the tribunal relied to a significant extent upon gross sales per square foot in rejecting the claim of obsolescence. However, this was neither surprising nor improper given that petitioners had based their claim of obsolescence on a showing that the store was "unprofitable" because sales were unusually low by industry standards.

In rejecting the claim of obsolescence, the tribunal found that the subject store was performing significantly better than other Meijer stores and far better than other community stores and discount outlets. This finding was in turn based upon figures contained in Exhibit R-8, an exhibit whose admission into evidence remains unchallenged on appeal. The tribunal did not improperly rely upon any exhibit which was not in evidence.

Similarly, in rejecting the claim of obsolescence, the tribunal did not err in failing to adjust comparable sales figures for petitioners' sales of gasoline and food. Even after the adjustments proposed by petitioners, the gross sales of merchandise per square foot compared satisfactorily, if not favorably, with that of other discount stores. The tribunal was not required to derive a precise formulation of petitioners' gross sales. The sole purpose for using these figures was to review the claim that the subject property was obsolescent, because of either its size or location. Given that, even after any proposed adjustments, sales at the subject store compared satisfactorily with other discount stores, and given further the witness's agreement that during the period in question the subject store was still in a "start up" period, following which sales would normally be expected to grow to even higher levels, I believe that the evidence did in fact support the tribunal's decision to reject the claim of obsolescence. Accordingly, the tribunal acted properly in rejecting the appraisals of petitioners' experts, which presupposed such obsolescence.

The remaining issues raised by petitioners on appeal are without merit. All of these issues involve factual determinations which are beyond this Court's purview. The tribunal did not err in refusing to consider petitioners' Exhibit 33 showing the assessed true cash values of other Meijer stores and K mart stores. Cross-examination of the witness who prepared the exhibit, Charles Payton, revealed that there was no way to determine the means of assessment on any of the comparison stores. Furthermore, it was impossible to determine the extent to which principles of depreciation had been applied to the other stores, so that any comparison of cash values would be meaningless. Since petitioners concede that the sole purpose of the exhibit was to show that the market value of the comparison stores equaled their assessed true cash value, the uncertainties inherent in those comparison values were in and of themselves sufficient to justify the tribunal's refusal to consider them. Accordingly, the tribunal acted properly in refusing to give weight to the exhibit whose sole purpose was to set forth those values.

There was no error in the tribunal's decision to reject witness Donald Hartman's industrial appraisal of the property. The tribunal found as a factual matter that the other witnesses, Goldstein and Nedeau, had correctly identified the property's highest and best use as commercial, rather than industrial. This was the basis for its decision to reject Hartman's industrial appraisal; the presence of zoning and ground lease restrictions which might have precluded industrial use was only a nominal factor in the tribunal's decision to reject this appraisal. The factual determination underlying the tribunal's treatment of this appraisal — that the property's highest and best use is commercial — is a finding which a reviewing court may not overturn on appeal, Consolidated Aluminum, supra.

The tribunal also did not err in rejecting Hartman's supplemental "commercial use" appraisal. Petitioners' assertions to the contrary, the tribunal did not just rely upon its finding that the five comparable sales underlying that appraisal were "salvage" or "forced" sales of bankrupt discount stores. The tribunal pointed to other factors which rendered Hartman's comparables unreliable, e.g.: (1) the fact that the "comparables" were "significantly (55% to 75%) smaller than [the] subject [property]", and (2) the deteriorated and abandoned condition of the buildings on the "comparable" properties, which contrasted sharply with the new building and viable business located on the subject property. In short, the evidence of record amply supports the tribunal's disposition of the issues raised by petitioners on appeal. Petitioners' claims of error are primarily factual in nature and, as such, are beyond the purview of this Court. I believe that the tribunal's determination of true cash value should be affirmed.

The final issue involved in the appeal concerns the rate at which interest has accrued on the additional portion of petitioners' taxes, first assessed in the tribunal's 1981 judgment. The opinion sets a rate of six percent, as required under MCL 205.737(4); MSA 7.650 (37)(4). However, respondent urges that interest should accrue at the higher, 12% rate set forth in MCL 211.59; MSA 7.103, a provision which governs collection of delinquent taxes.

Nothing in the record supports respondent's assumption that petitioners have been "delinquent" in their payment of taxes on the subject property. Under MCL 205.755; MSA 7.650(55), once petitioners filed an appeal, the due date for collection was deferred pending final disposition of the matter appealed. Petitioners correctly point out that taxes cannot be delinquent until they have been lawfully placed upon the tax rolls and remain unpaid, the taxes may not be placed on the rolls until their legality has been established, and the legality of the assessment, in turn, cannot be accomplished until all appeals, including the present one to this Court, have been resolved. In the present case, the legality of the assessment and the tribunal's methods of deriving that assessment remain disputed through the present appeal. Accordingly, there can be no basis for applying a statute which presupposes a taxpayer's delinquent status.

Respondents do not point to any alternative basis for imposing a 12% rate of interest on the unpaid amount in question. Accordingly, there is no basis for this Court to disturb the tribunal's decision to impose interest at the rate of six percent.

In conclusion, I believe that the tribunal's decision must be affirmed with respect to both the principal amount assessed and the amount of interest imposed.

Lastly, I cannot concur with the disposition by Judge ALLEN and Judge WAHLS relative to the issue raised in respondent intervenor's cross-appeal, namely, whether the tribunal erred in denying its motion to intervene. Specifically, I disagree that a school district whose budget may be profoundly affected by the outcome of a tax dispute may be denied intervention where the request to intervene is timely made.

Judge ALLEN'S opinion relies exclusively on Northwood Apartments v Royal Oak, 98 Mich. App. 721, 729; 296 N.W.2d 639 (1980), in which a panel of this Court held that MCL 205.744; MSA 7.650(44) "does not create an absolute right to intervene on the part of the school district". However, the situation in Northwood Apartments, supra, differed sharply from that of the present case. There, the school district had not applied for intervention until well after the hearing and issuance of the tribunal's decision. Under the circumstances, it is hardly surprising that the panel found no "absolute right" to intervene. Contrast the present case where the school district filed its motion to intervene in 1978, long before the hearing date. To the extent that the decision in Northwood Apartments was based upon the school district's tardiness in filing for intervention, it should be limited to its facts. At the very least, the result of that case is neither apposite nor binding here, because the school district's motion here was by all means timely.

Petitioners point to certain language in Northwood Apartments which suggests that intervention under MCL 205.744; MSA 7.650(44) is discretionary rather than mandatory:

"The respondent School District contends that the Tax Tribunal erred in denying its motion to intervene. It is contended that the motion should have been granted as of right and, in the alternative, that the Tribunal abused its discretion in denying the motion.

"MCL 205.744; MSA 7.650(44), provides in relevant part:

"`* * * the tax tribunal may permit the intervention or impleading of any governmental unit which receives tax funds from the petitioner who is making the appeal.'

"Unless other considerations compel a contrary conclusion, the use of the word `may' indicates that the statute is discretionary. Law Dep't Employees Union v City of Flint, 64 Mich. App. 359, 368; 235 N.W.2d 783 (1975). Respondent having failed to cite to this Court any `other considerations' which compel a contrary conclusion, we hold that the statutory language does not create an absolute right to intervene on the part of the School District.

"No time limitations on the date of intervention are set forth in MCL 205.744; MSA 7.650(44). See Consumers Power Co, supra, 159. However, an intervenor must be diligent, and any unreasonable delay after knowledge of the action will justify a denial of intervention where no satisfactory excuse is shown for the delay. School Dist of City of Ferndale v Royal Oak Twp School Dist No 8, 293 Mich. 1, 10-11; 291 N.W. 199 (1940)." 98 Mich. App. 729.

Petitioners' assertions to the contrary, the foregoing quotation is consistent with either of two propositions which favor the school district's position: (1) that intervention may still be as of right when timely requested, or (2) that intervention is discretionary, but that under certain circumstances, such as those of the present case, it is an abuse of discretion to deny a timely filed request to intervene. I believe that the decision in Northwood Apartments may reasonably be construed as having left the door open to intervention as of right.

The Court in Northwood Apartments had no choice but to reject the school district's proposed mandatory construction of the statute because the school district in that case had failed to cite any "considerations" which might weigh in favor of such a construction. 98 Mich. App. 729. In the present case, the school district has taken the step of identifying certain crucial policy considerations which strongly support, if not compel, a construction allowing for intervention as of right.

First, many school districts do not receive state school aid adjustments corresponding to tax revenue short-falls and, therefore, may find that in certain major tax disputes a significant percentage of their budget is at stake. It is apparent that, in many cases, the school district affiliated with the taxing authority has an acute interest in the outcome of certain assessment proceedings. For example, in the present case, it is undisputed that the school district has far more tax dollars at stake than does the respondent, City of Royal Oak. This is a phenomenon which is hardly unique: in most communities, a school district's tax rate is substantially higher than that of the related city or township. I find it highly inequitable that the party with the greatest amount at stake in such appeals would, under the majority's proposed rule, have no opportunity to even help finance the defense, let along have a voice in the proceedings.

Second, a consideration which weighs in favor of intervention by right is the fact that the school district has no alternative remedy for an adverse result in an assessment appeal to the tribunal. There can be no question that the school district will be bound by any judgment issued by the Tax Tribunal. Still, there is no forum other than the Tax Tribunal in which a school district would be able to express its views on matters at issue before the tribunal.

Third, failure to allow intervention as of right would contravene the expressed intention of the Legislature. In 1976, MCL 205.744; MSA 7.650(44) was amended to allow for liberalized intervention. By adding subsection (1), the Legislature expressed its intention of allowing school districts to represent their own interest when the school district has some motive to participate — a motive which the Legislature framed in terms of protecting the tax revenues which sustain the district's operations. The amendment immediately followed issuance of an opinion of the Attorney General, OAG, 1975-1976, No 4963, p 375 (April 8, 1976), holding that a school district may not even contribute financially to a city's defense of an assessment appeal unless the district is a party to that appeal. The amendment appears to have been a reaction to that opinion and manifests an intention to liberalize the rules of intervention so as to allow school districts to more readily defend their vital interests. Given this legislative history, together with the fact that intervention statutes are remedial in nature and should therefore be liberally construed, School Dist of City of Ferndale v Royal Oak Twp School Dist No 8, 293 Mich. 1, 9; 291 N.W. 199 (1940); D'Agostini v Roseville, 396 Mich. 185, 189; 240 N.W.2d 252 (1976), I believe that the tribunal should have resolved any ambiguity in the statute and the Northwood Apartments decision in favor of intervention by right.

There is one additional factor which weighs in favor of intervention by right. Standards for discretionary intervention are impossible to discern either from the face of the statute or from any of the cases decided under it. The absence of such standards would inevitably result in serious inconsistencies, if not grave inequities, in school districts' access to tribunal proceedings.

Even in the present case, the tribunal's criteria for denying "discretionary" intervention were vague and amorphous. The original, October 10, 1978, order denying intervention was based on the school district's supposed failure to show that its interests would not be adequately represented by the City of Royal Oak. On rehearing, the tribunal changed its criterion and found intervention unnecessary because the school district had alleged "nothing more than a monetary interest in the proceeding". This latter criterion is particularly puzzling, since the sole interest of any party to litigation (other than actions for injunctive or declaratory relief) is compensation — inevitably expressed in terms of a monetary award or judgment. In tax cases such as the present one, the monetary award is designated as tax revenue, but it is of no less "interest" to the school district dependent upon such revenue than an arbitration award or jury verdict is to an aggrieved litigant in a non-tax case. The fact that the tribunal resorted to the use of this vague, undefined criterion of "interest in the case" shows how free-wheeling and capricious the petitioners' proposed "discretionary" intervention standard would be.

Manageable standards governing intervention by right may be found in GCR 1963, 209.1(3), a rule which contains provisions sufficient to safeguard against any unnecessary grant of intervention. The rule provides three prerequisites to intervention by right: (1) timely application, (2) a showing that the proposed intervenor's interest is not adequately represented by existing parties, and (3) a showing that the proposed intervenor "may" be bound by judgment in the proceedings. These standards may reasonably be read into MCL 205.744; MSA 7.650(44), as construed by Northwood Apartments, supra. In that case, the school district failed to meet the first requirement and thus was properly denied intervention by right. Contrast the present case where it is undisputed that the first and third requirements have been fulfilled (the third requirement is fulfilled because the school district's revenues will definitely be affected by the outcome of the tribunal proceedings), yet the district will have no forum for appealing that outcome.

The only question in the present case was whether the school district had met the second requirement, showing that its interests were not adequately represented by the city. It was this criterion which the tribunal initially relied upon in denying intervention, although its finding as to this issue was conclusory and has never been satisfactorily explained. The fact that the tribunal even referred to this criterion shows that, in essence, it was applying the court rule's standards governing intervention by right; there was no need to resort to any theory that the intervention issue was a matter of "discretion".

I believe that this Court should clarify the status of school districts and their right to intervention in the Tax Tribunal proceedings. Adoption of the standards set forth in GCR 1963, 209.1(3), either by analogy or by implication as elements of the right of intervention guaranteed by MCL 205.744; MSA 7.650(44), would go a long way toward eliminating the uncertainties which surround this issue.

I would reverse that aspect of the tribunal's decision which denied the school district's motion to intervene and would hold that, under the circumstances presented, the school district would have been entitled to intervene as a matter of right, provided it could show that its interests were not adequately represented by the city. There is no need to address the school district's alternative contention that the tribunal abused its discretion in denying intervention.