Great Bay Hydro Corp. v. Town of Derby

Great Bay Hydro Corp. v. Town of Derby (2005-504)

2007 VT 10

[Filed 25-Jan-2006]
      
                                 ENTRY ORDER

                                 2007 VT 10

                      SUPREME COURT DOCKET NO. 2005-504

                            SEPTEMBER TERM, 2006


  Great Bay Hydro Corporation          }         APPEALED FROM:
                                       }
      v.                               }
                                       }         Property Valuation and 
                                       }         Review Division
                                       }
  Town of Derby                        }
                                       }         DOCKET NO. PVR 2004-35, 
                                       }                36, 37, 70


             In the above-entitled cause, the Clerk will enter:

       ¶  1.  Great Bay Hydro Corporation appeals from a decision of the
  state appraiser setting the listed value of its property used as a
  hydroelectric generating plant in Orleans County.  Great Bay contends the
  state appraiser departed from settled law in rejecting a recent sale of the
  property as conclusive evidence of its fair market value for tax assessment
  purposes.  We affirm.  

       ¶  2.  The property in question is part of the Clyde River
  Hydroelectric Project.  The project comprises several parcels, including a
  dam, impoundment area, and three hydroelectric turbines located in the Town
  of Derby and the City of Newport.  The Derby parcels amount to more than
  500 acres. The Newport parcel is over forty-six acres. For many years,
  Citizens Utilities Company, the predecessor to Citizens Communications
  Company (Citizens), owned and operated the project under a license from the
  Federal Energy Regulatory Commission and a Water Quality Certification
  permit from the State of Vermont.  The current federal license and State
  permit include a number of environmental-protection measures which,
  according to Great Bay, have reduced the project's annual power output and
  increased its generating costs.

       ¶  3.  On April 1, 2004, Citizens sold the project to Great Bay for
  $10.  The purchase and sale agreement required Citizens to indemnify Great
  Bay up to $3.5 million, over a period of three years from the date of
  closing, for costs incurred to bring the project into compliance with the
  conditions contained in the state and federal permits.  Notwithstanding the
  nominal purchase price,  Great Bay paid Vermont property transfer tax in
  the amount of $41,274.45 in connection with the transaction based on an
  expressed value of $3,301,956.  Assessors in the City and the Town set the
  2004 listed value of the properties involved at $2,504,300 and $1,193,200,
  respectively, and these values were affirmed by their respective Boards of
  Civil Authority.  Great Bay appealed both rulings to the state appraiser,
  who consolidated the appeals, held an evidentiary hearing in May 2005, and
  issued a written decision in June 2005.
   
       ¶  4.  The state appraiser rejected Great Bay's claim that the sale
  price of $10 necessarily established the property's fair market value,
  finding in this regard that the sale was not an arms-length transaction. 
  The appraiser based this finding on several considerations, including the
  fact that the property was privately offered to a limited number of buyers
  rather than exposed on the open market.  The appraiser also noted that the
  sale to Great Bay was part of an overall plan by Citizens  to divest all
  electrical power assets and that the parcels here in question were, in
  fact, its last electrical assets to be liquidated.  After reviewing
  alternative appraisals and methodologies submitted by the parties, the
  state appraiser determined that "[t]he income approach provides the most
  reliable estimate of Fair Market Value for the Subject property," and
  therefore, set the listed value of the property in the Town at $1,092,600
  and in the City at $1,721,700 (after adjusting for local equalization
  ratios).  This appeal by Great Bay followed. (FN1)      

       ¶  5.  We note at the outset the deferential character of our
  review.  We assess decisions of the state appraiser to ensure that they
  "are supported by findings rationally drawn from the evidence and are based
  on a correct interpretation of the law."  Barrett v. Town of Warren, 2005
  VT 107, ¶ 5, 179 Vt. 134, 892 A.2d 152.  Thus, we will not disturb a fair
  market value supported by the evidence and findings absent a clear error of
  law.  Id.   Furthermore, interpretations of statutory provisions by the
  agency responsible for their administration will not be disturbed absent
  compelling indication of error.  Id.  With these standards in mind, we turn
  to Great Bay's claim on appeal. 
   
       ¶  6.  Great Bay contends that the purchase and sale agreement
  consummated on the same date as the municipal appraisals in this case
  necessarily established the fair market value of the property.  Great Bay
  relies principally on the property-tax statute, 32 V.S.A. § 3481(1), which
  equates appraisal value with "estimated fair market value" and defines the
  latter  as "the price which the property will bring in the market when
  offered for sale and purchased by another," as well as this Court's
  decision in Royal Parke Corp. v. Town of Essex, 145 Vt. 376, 379, 488 A.2d 766, 768 (1985) where we observed that, when a recent arms-length sale of
  the property has occurred, "a market value is perforce established for
  appraisal purposes."  Great Bay overlooks the final sentence of the
  statute, however, which provides that, "[i]n determining estimated fair
  market value, the sale price of the property in question is one element to
  consider, but is not solely determinative."  32 V.S.A. § 3481(1).
  Consistent with this provision, we have held that, while sale price may
  represent a persuasive and favored method of determining fair market value,
  "there may be situations where a court must look beyond a sale."
  Barrett/Canfield, L.L.C. v. City of Rutland, 171 Vt. 196, 199, 762 A.2d 823, 825 (2000); accord Barrett, 2005 VT 107, ¶ 14 (observing that, while
  we have characterized sale price as the most persuasive method of
  determining fair market value, there may arise situations "in which the
  state appraiser may, consistent with the statute, disregard a sale and turn
  to other evidence of fair market value"); see also Lake Morey Inn Golf
  Resort v. Town of Fairlee, 167 Vt. 245, 249, 704 A.2d 785, 788 (1997) ("It
  is the duty of the Board to explore all methods that help in determining
  fair market value. . . .") (quotation omitted); Gionet v. Town of Goshen,
  152 Vt. 451, 453, 566 A.2d 1349, 1350 (1989) ("The unswerving goal of the
  statute is fair market valuation, but there is no single pathway to that
  goal.");  Sondergeld v. Town of Hubbardton, 150 Vt. 565, 567, 556 A.2d 64,
  66 (1988) ("[O]ur statute does not prescribe the method nor limit the
  manner in which evidence of fair market value may be presented to the
  Board.").  Furthermore, we will not second-guess the state appraiser's
  choice of methodology if supported by the evidence and findings, and sound
  in law.  See Vt. Elec. Power Co. v. Town of Vernon, 174 Vt. 471, 473,  807 A.2d 430, 434 (2002) (mem.) ("It is within the discretion of the state
  appraiser to determine the most appropriate method for arriving at fair
  market value.").


       ¶  7.   As explained above, the state appraiser here rejected the
  recent sale price of the Clyde River property as reliable evidence of fair
  market value based largely on the fact that the property was privately
  offered  to a limited number of potential buyers.  Great Bay argues that
  this fact alone did not undermine the bona fides of the sale.  Although we
  are inclined to agree that no inflexible rule requires that all property,
  however unique, must be openly marketed to establish an arms-length
  transaction, (FN2) we need not resolve this particular issue.  While an
  actual sale may be "strong evidence of fair market value," there may be any
  number of situations "where some evidence undermines the bona fide nature
  of the sale," thereby requiring the court to "extend its inquiry." 
  Barrett/Canfield, 171 Vt. at 199, 762 A.2d  at 825; see also, Vt. Nat'l Bank
  v. Leninski, 166 Vt. 577, 579, 687 A.2d 890, 892 (1996) (mem.) (holding
  that auction sale following foreclosure was less reliable indicator of fair
  market value than bank appraisal); Beach Props., Inc. v. Town of
  Ferrisburg, 161 Vt. 368, 376-77, 640 A.2d 50, 54 (1994) (upholding
  determination that sale price did not reflect fair market value where
  intra-family sale of stock, while voluntary, was not made in the parties'
  own interest but instead to protect common family interests).   Indeed, our
  rule in this regard is consistent with "the broad[] range of authority
  [which] supports the proposition that . . .  a sale price is not
  necessarily conclusive evidence of the property's value."  K. Karnezis,
  Annotation, Sale Price of Real Property as Evidence in Determining Value
  for Tax Assessment Purposes, 89 A.L.R.3d 1126 (1979).
                      
       ¶  8.  Apart from the absence of a classic open-market sale, the
  record here plainly shows that the purchase and sale agreement between
  Citizens and Great Bay-predicated on a nominal consideration of $10-was
  "not one in the way of ordinary business."  Thaw v. Town of Fairfield, 43 A.2d 65, 67 (Conn. 1945) (holding that town appraiser could properly reject
  sale price as evidence of the property's true value where, despite a
  willing buyer and seller, the "predominating influence in the sale was a
  desire on the part of [seller] to dispose of the property speedily"). 
  Substantial authority supports the principle that where, as here, specific
  circumstances surrounding a transaction operate to dramatically depress the
  sale price of property below its reasonable value, courts may look to
  indicia other than the sale price as competent evidence of fair market
  value.  See, e.g., Josten-Wilbert Vault Co. v. Bd. of Equalization, 138 N.W.2d 641, 643 (Neb. 1965) (holding that " 'sale price' [was] not
  synonymous with actual value or fair market value" where the sale was by a
  company engaged in the process of liquidating its properties); Rek Inv.
  Co.v. City of Newark, 194 A.2d 368, 372-73 (N.J. Super. Ct. App. Div. 1963)
  (holding that assessor was not bound by the sale price as an "exclusive
  criterion of value" where the sale of real property was by an entity "going
  out of the real estate business" and the property in question "was its last
  remaining parcel of real estate"); F.W. Woolworth Co. v. Srogi, 461 N.Y.S.2d 97, 99 (App. Div. 1983) (mem.) (upholding appraiser's rejection of
  sale price as an accurate measure of value in light of the "seller's desire
  to rid itself of the property"); E. Am. Energy Corp. v. Thorn, 428 S.E.2d 56, 60 (W.Va. 1993)  (upholding $3 million appraisal of energy processing
  plant, nearly four times in excess of recent sale price, where evidence
  showed that taxpayer's purchase offer was accepted by a company seeking to
  entirely "divest its oil and gas property"); State ex rel Hein v. City of
  Barron, 87 N.W.2d 785, 788 (Wis. 1958) (upholding assessment of commercial
  property nearly twice the recent sale price where the evidence revealed
  that the seller was "endeavoring to dispose of" multiple additional
  properties during the same period).

       ¶  9.  As noted, the City and Town satisfied their initial burden in
  this case to produce evidence of the subject property's fair market value,
  evidence which Great Bay has not challenged on appeal.  Accordingly, Great
  Bay retained the ultimate burden of persuasion on all contested issues, a
  burden carried not merely by "impugning" the appraiser's methods or
  "questioning its understanding of assessment theory or technique," but
  rather by demonstrating "an arbitrary or unlawful valuation."  Barrett,
  2005 VT 107, ¶ 8.  Great Bay has not shown that the state appraiser acted
  arbitrarily or unlawfully in concluding that the circumstances surrounding
  the sale of the property rendered the purchase price an unreliable
  indicator of fair market value.  Accordingly, we discern no basis to
  disturb the judgment.  

       Affirmed.   


                                       BY THE COURT:


                                       _______________________________________
                                       Paul L. Reiber, Chief Justice

                                       _______________________________________
                                       John A. Dooley, Associate Justice

                                       _______________________________________
                                       Denise R. Johnson, Associate Justice

                                       _______________________________________
                                       Marilyn S. Skoglund, Associate Justice

                                       _______________________________________
                                       Brian L. Burgess, Associate Justice


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                                  Footnotes

FN1.  Great Bay's appeal is limited to the state appraiser's decision to
  disregard the sale price in determining fair market value; it has not
  challenged the evidence or findings underlying the values determined by the
  appraiser using the income approach.  Accordingly, in concluding that the
  appeal lacks merit, we necessarily affirm the fair market value assigned to
  the properties by the state appraiser, although we express no view on the
  method the state appraiser employed or its application in this case.

FN2.  As we observed in Barrett/Canfield, "[n]owhere in our cases or in 32
  V.S.A. § 3481 is there a requirement that a property be actively marketed
  in order to establish a bona fide sale." 171 Vt. at 199, 762 A.2d  at 825.