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Fairbanks Board of Equalization et al v. Cool Homes et al (10/29/93), 860 P 2d 1248
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Notice: This is subject to formal correction
before publication in the Pacific Reporter.
Readers are requested to bring typographical
or other formal errors to the attention of
the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, in order
that corrections may be made prior to
permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
COOL HOMES, INC., an Alaska )
Corporation, ) Supreme Court No. S-3995
) Superior Court No.
Appellant, ) 4FA-89-0405 Civil
v. )
)
FAIRBANKS NORTH STAR BOROUGH, TAX )
FORECLOSURE LIST BY THE FAIRBANKS )
NORTH STAR BOROUGH AGAINST CERTAIN )
REAL PROPERTY LOCATED THEREIN AND )
DESCRIBED IN THIS PETITION, )
)
Appellee. )
___________________________________)
)
COOL HOMES, INC., an Alaska )
Corporation, )
) Supreme Court No. S-4337
Appellant, ) Superior Court No.
) 4FA-89-1415 Civil
v. )
)
FAIRBANKS NORTH STAR BOROUGH, )
)
Appellee. )
___________________________________)
)
COOL HOMES, INC., an Alaska )
Corporation, and BEN LOMOND, INC., ) Supreme Court No. S-4338
a Utah Corporation, ) Superior Court No.
) 4FA-89-1078 Civil
Appellants, )
)
v. )
)
FAIRBANKS NORTH STAR BOROUGH )
BOARD OF EQUALIZATION, )
)
Appellee. )
___________________________________)
)
FAIRBANKS NORTH STAR BOROUGH )
BOARD OF EQUALIZATION, ) Supreme Court No. S-4353
) Superior Court No.
Cross-Appellant, ) 4FA-89-1078 Civil
)
v. )
)
COOL HOMES, INC., an Alaska )
Corporation, ) O P I N I O N
)
Cross-Appellees. ) [No. 4016 - October 29, 1993]
___________________________________)
Appeal from the Superior Court of the
State of Alaska, Fourth Judicial District,
Fairbanks,
Jay Hodges, Judge.
Niesje J. Steinkruger, Judge.
Appearances: Brent M. Wadsworth,
Wadsworth & Associates, Anchorage, for
Appellants/Cross-Appellees. Eugene Hardy,
Borough Attorney, Mark Andrews, Assistant
Borough Attorney, Fairbanks, for
Appellee/Cross-Appellant. David H. Call,
Call, Barrett & Burbank, Fairbanks, for Aetna
Life Insurance Company, Amicus Curiae.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton and Moore, Justices.
PER CURIAM
COMPTON, Justice, dissenting in part.
These cases arise out of the refusal of Cool Homes,
Inc. (Cool Homes) to pay property taxes assessed
against it by the Fairbanks North Star Borough
(Borough). The appeals raise the following separate
issues.
The issue in No. S-3995 is whether the superior court
erred in granting summary judgment against Cool Homes
in the Borough's action to foreclose Cool Homes'
interest in its buildings on Eielson Air Force Base.
The court ordered the buildings sold and transferred to
the Borough for the amount of taxes, penalties,
interest, advertising costs and legal fees for which
the property is liable.
No. S-4337 arises out of an action by the Borough for a
personal judgment against Cool Homes. The Borough
sought the personal judgment to recover the property
taxes assessed against Cool Homes' leasehold interest
in the land, including statutory penalties and
interest. The superior court granted summary judgment
in favor of the Borough. The issue thus is whether
Cool Homes may be held personally liable under the
assessment and foreclosure statutes.
Nos. S-4338-4353 raise several discrete issues
concerning the reassessment of the Cool Homes'
properties, including whether the Borough violated the
Open Meetings Act during the reassessment process, the
relative burdens on the taxing authority and the
property owner, adjustments for lease restrictions and
whether the superior court abused its discretion in
permitting supplementation of the record on appeal.
I. FACTUAL AND PROCEDURAL BACKGROUND
The backdrop for these appeals is set forth generally
in Ben Lomond, Inc. v. Fairbanks North Star Borough
Board of Equalization, 760 P.2d 508 (Alaska 1988).
Cool Homes, the successor in interest to Ben Lomond,
Inc. (Ben Lomond), owns approximately three hundred
units of housing on Eielson Air Force Base. Ben Lomond
constructed these houses on land leased in 1985 from
the federal government. This Land Lease runs for
twenty-three years and provides for a nominal lease
rental. The federal government, in turn, leased the
housing development and underlying land from Ben Lomond
for an annual lease rental of $3,600,000.00 plus an
annual maintenance fee. The term of this "Project
Lease" is twenty years, running concurrently with the
last twenty years of the Land Lease.
The Land Lease is authorized under 10 U.S.C. 2667,
which provides:
(a) Whenever the Secretary of a
military department considers it advantageous
to the United States, he may lease to such
lessee and upon such terms as he considers
will promote the national defense or be in
the public interest, real or personal
property that is
(1) under the control of that department;
(2) not for the time needed for
public use; and
(3) not excess property, as
defined by section 3 of the Federal Property
and Administrative Services Act of 1949 (40
U.S.C. 472).
. . . .
(2) The interest of a lessee of
property leased under this section may be
taxes by State or local governments. A lease
under this section shall provide that, if and
to the extent that the leased property is
later made taxable by State or local
governments under an Act of Congress, the
lease shall be renegotiated.
The Project Lease is authorized under the Military
Construction Authorization Act of 1984 (Act), Section
801, codified as 10 U.S.C. 2828. The Act inaugurated
a test program "to determine if leasing is more cost
effective to the [United States] than the traditional
method of constructing [military] housing with
appropriated funds." While the Act does not refer
specifically to taxation, there is no indication that
10 U.S.C. 2828 was intended to supersede 10 U.S.C.
2667, which provides for taxation of private interests.
The terms of the lease between the federal government
and Ben Lomond specifically address Ben Lomond's
responsibility for taxes assessed against the property.
Condition 13 of the Land Lease provides:
That the Lessee [Cool Homes] shall pay
to the property authority, when and as the
same become due and payable, all taxes,
assessments, and similar charges which, at
any time during the terms of this lease, may
be taxed, assessed, or imposed, upon the
Lessee's interest in the leased premises. In
the event any taxes, assessments, or similar
charges are imposed, with the consent of
Congress upon property owned by the
Government and included under this lease (as
opposed to the leasehold interest of the
Lessee therein), they shall be paid (1) by
the Government, in which event this lease
shall then be renegotiated to increase the
consideration provided above in the amount of
such taxes, assessments, or similar charges
paid by the United States, or (2) at the
option of the Government, by the Lessee.
Article VII of the Project Lease provides, in pertinent part:
Lessor [Cool Homes] shall pay all taxes,
general or special, all public rates, dues,
and special assessments of every kind which
shall become due and payable or which are to
be assessed against or may be levied upon
said Premises during the terms of this Lease.
The Borough assessed the property for the years 1986,
1987 and 1988. Although the Borough mailed property
tax bills to Cool Homes for each of these years, the
corporation has paid no part of the property taxes.
Pursuant to AS 29.45.210(d), Cool Homes sought judicial
review of each assessment. The superior court upheld
the Borough's right to tax Cool Homes' interest, but
remanded all of the assessments to the Borough Board of
Equalization (Board) for recalculation of the amount
based on a twenty-three year lease, rather than on a
forty-year lease.
In affirming Cool Homes' obligation to pay property
taxes, we held that "Lomond's [now Cool Home's] twenty-
three year leasehold interest in land at Eielson Air
Force Base and its twenty year interest in the
improvements it constructed upon the land are both
taxable interests under the Borough's real property
taxation statutes." Ben Lomond, 760 P.2d at 513.
The exact amount Cool Homes owed was still in dispute
following our decision. The Board reassessed the
property in May 1989. The superior court affirmed
these assessments. Cool Homes, Inc. v. Fairbanks
Northstar Borough Board of Equalization, No. 4FA-89-
1078 Civ. (Alaska Super., November 19, 1990). This
proceeding was a consolidated appeal of the 1986-89
assessments. Cool Homes appealed. See Nos. S-4338,
4353.
The Borough also filed an action for a personal
judgment against Cool Homes. The superior court
granted the Borough summary judgment in that case as
well. Fairbanks Northstar Borough v. Cool Homes, Inc.,
No. 4FA-89-1415 Civ. (Alaska Super., November 19,
1990). Cool Homes appealed. See No. S-4337.
Prior to the superior court's decision in the
reassessment proceeding, the Borough filed a petition
for judgment of foreclosure against Cool Homes. The
petition was part of the Borough's annual general in
rem foreclosure action. The Borough submitted its
delinquent tax foreclosure list and published the list
for four consecutive weeks in a newspaper of general
circulation. Cool Homes filed an answer and objection
to the foreclosure action. Pursuant to AS
29.45.390(a), the court separated Cool Homes' property
from the in rem proceeding and dealt with it
separately. The Borough filed a Motion for Summary
Judgment as to Cool Homes. Following briefing and oral
argument, the court granted the Borough's Motion for
Summary Judgment and ordered Cool Homes' interest
foreclosed. Cool Homes appealed. See No. 3995.
II. DISCUSSION
A. No. S-3995
1. STANDARD OF REVIEW
"When reviewing a grant of summary judgment, this court
must determine whether there was a genuine issue of
material fact and whether the moving party was entitled
to judgment on the law applicable to the established
facts." Merdes v. Underwood, 742 P.2d 245, 248 (Alaska
1987) (quoting Zeman v. Lufthansa German Airlines, 699
P.2d 1274, 1280 (Alaska 1985)). The court considers
matters of law de novo and adopts rules of law which
are most persuasive in light of precedent, reason and
policy. Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska
1979).
2. THE BOROUGH'S MOTION FOR SUMMARY JUDGMENT
a. Cool Homes Has a Property Interest
Subject to Foreclosure.
Cool Homes distinguishes its two interests that have
been taxed. First, it has a leasehold interest in the
land upon which it constructed military housing.1
Second, it has an ownership interest in the buildings
it constructed. Cool Homes argues that the buildings
cannot be considered real property absent any
connection to the land. According to Cool Homes, its
interest in the buildings is not subject to real
property taxes since the federal government owns the
underlying land. Cool Homes concedes that the
buildings are taxable as personal property, but
maintains that they are not subject to foreclosure.
The Borough asserts that governments traditionally
enforce liens on taxable interests in tax-exempt
property. It cites cases from other jurisdictions in
support of the position that it may foreclose upon the
ownership interest in the improvements, notwithstanding
the location of the buildings on tax-exempt federal
property. The Borough argues that such separation of
property interests for tax purposes is permitted under
article IX, section 4 of the Alaska Constitution.2
We agree with the Borough. In Ben Lomond, 760 P.2d at
513, we stated that Ben Lomond's [now Cool Homes']
"interest in the improvements it constructed upon the
land [is taxable] under the Borough's real property
taxation statutes." Id. (emphasis added). Cool Homes'
argument that the buildings are personal property
because the corporation does not own the underlying
land ignores the court's previous explicit holding that
the improvements are real property.3
Cool Homes' argument that the Borough cannot foreclose
on the buildings to collect delinquent taxes is also
without merit. Ownership of property consists of a
bundle of separate rights, powers and privileges. See
e.g., Wm. E. Burby, Handbook on the Law of Real
Property 9, at 13-14 (3rd ed. 1965). Although Cool
Homes does not own the underlying land, it owns the
buildings it constructed on Eielson Air Force Base.
There appears to be no insurmountable difficulty in
foreclosing on the houses without foreclosing on the
land. This was the situation in Brown v. Hart, 692
P.2d 14 (Mont. 1984), where the court upheld the tax
sale of a privately owned cabin on federal land. In
Brown, the court stated:
The cabin in question is located on
Forest Service land on Seeley Lake. It was
built more than twenty years ago and,
although it lacks a foundation, is "affixed"
to the land by means of water and sewer
lines. No hair-splitting distinctions are,
however, required. The cabin, so long as it
remains upon the land, is real property. . .
. An objective test applies: the taxing
authority need only observe the structure;
the present or future intentions of the
parties are irrelevant. The cabin is a
building resting on the land. The fact that
it may be moved or may have to be removed in
the future does not, for tax and recording
purposes, change the nature of the cabin as
real property.
692 P.2d at 15-16. See also First National Bank of Beresford,
South Dakota v. Anderson, 332 N.W.2d 723, 726 (S.D.
1983) (holding that real estate can be severed to
preserve a homestead exemption and the non-exempt
remainder ordered sold to satisfy a civil money
judgment).
Brown is not distinguishable simply because Cool Homes'
interest is non-possessory. The non-possessory nature
of Cool Homes' interest precludes neither taxation nor
foreclosure.4
The federal government is in a position similar to that
of a tenant whose landlord has failed to pay property
taxes. The tenant cannot prevent foreclosure by the
taxing authority, just as the tenant cannot prevent
foreclosure by a private creditor if the landlord fails
to make mortgage payments.5
b. Cool Homes' Appeal of its Tax Assessment
and the Superior Court's Remand for
Reassessment Precludes Foreclosure.
Cool Homes argues that no valid tax assessment existed
until May 22, 1989, when the Board of Equalization
reassessed the property following remand of the 1986-88
assessments to it by the superior court. Since Alaska
statutes provide that an annual foreclosure list must
be based on the previous year's assessment, AS
29.45.330, Cool Homes argues that foreclosure on the
1989 assessment could not occur until 1990. Cool Homes
also argues that interest and penalties could not begin
to accrue against the corporation until May 22, 1989,
when a valid assessment was made.
The Borough argues that Alaska statutes require a
landowner to pay the taxes assessed and then sue for a
refund if the taxpayer believes the assessment is
erroneous. According to the Borough, Cool Homes could
have avoided the interest and penalties as well as
foreclosure, by paying the taxes assessed against it.
The Borough also asserts that Cool Homes could have
stayed execution of the tax assessment pending appeal
by posting bond. Since Cool Homes has failed to pay
any of its property taxes and failed to post bond to
stay execution of tax enforcement, the Borough argues
that it is entitled to foreclose on Cool Homes'
buildings.
Alaska statutes provide aggrieved taxpayers with a
number of remedies. The taxpayer may pay taxes under
protest and then sue for a refund. If the taxpayer is
entitled to a refund, he or she receives interest and
costs, in addition to the amount of taxes that had been
collected in error. AS 29.45.500(a).6 In addition, a
taxpayer can obtain a stay of the tax execution pending
appeals to the superior and supreme courts by posting
bond. City of Nome v. Catholic Bishop of Northern
Alaska, 707 P.2d 870, 878 (Alaska (1985). Alaska R.
App. P. 204, 603.
However, in the case before us the taxpayer has
proceeded beyond the appeal stage. The taxpayer has
obtained a reversal of the action of the Board and
vacation of the assessment, and the matter has been
remanded to the Board to rectify its errors.7
We summarily rejected8 the Borough's argument that it
may proceed with foreclosure notwithstanding the
superior court's remand to the Board of Equalization
for reassessment.9 Since the amount of the tax due had
not been determined when the Borough initiated
foreclosure, the amount of its lien had not been
established. Interest and penalties could not be
determined, since there was no figure on which to base
them. The taxpayer's right of redemption was impaired,
because the taxpayer could not ascertain what amount it
had to pay to avail itself of the right.10
c. Penalties and Interest.
In calculating the tax obligations on remand the
superior court must decide whether late payment
penalties and interest on the tax lien are appropriate.
We thus address the issue of whether interest and
penalties should run from the original due date for
each tax year or only from the date of reassessment
after remand.11
The superior court ordered foreclosure on a tax lien
which included statutory penalties and interest, dating
back to 1986, 1987 and 1988. Cool Homes contends that
this is improper because the tax assessment after
remand was not made until May 1989. The Borough argues
that the interest and penalties may be properly dated
back to the original due date as distinguished from the
actual date of assessment following an appeal.
Alaska statutes allow a municipality to add a penalty
to all "delinquent"taxes and provide that interest may
accrue "from the due date." AS 29.45.250. Interest
and penalties serve different functions and thus
separate standards are appropriate. Penalties are
meant to punish a party for late payment. Interest,
however, is not punitive.12 Rather, it is intended to
compensate the party to whom the sum is owed for the
use of the money during the period of nonpayment.
Lundgren v. Gaudiane, 782 P.2d 285, 289 (Alaska 1989).13
Neither prejudgment nor postjudgment interest depends
on which party is at fault for the delay. Farnsworth
v. Steiner, 638 P.2d 181, 184-85 (Alaska 1981).
We have previously held that for the purposes of former
AS 29.53.180, the precursor to AS 29.45.250,14 there can
be no delinquency until a "valid" tax is assessed.
Alascom, Inc. v. North Slope Borough, Bd. of
Equalization, 659 P.2d 1175, 1180 (Alaska 1983). In
Alascom, the municipality failed to list certain real
property on its tax rolls and the property therefore
"escaped"taxation. Instead the property was assessed
in 1979 for the six prior years. Id. at 1177. We held
that interest and penalties were not authorized because
of the municipality's failure to discharge its
responsibility as to real property to timely assess the
property and notify the taxpayer. We stated:
As to real property the responsibility
for assessing taxable parcels and for
notifying a taxpayer of his tax liability
rests solely with the borough. As we have
previously ruled, a tax on real property is
ineffective until the borough discharges its
respons- ibilities by making an assessment,
notifying the taxpayer of his liability, and
providing the taxpayer with an opportunity to
pay his taxes. Until the borough has
exercised its right to demand real property
taxes in the manner provided by statute there
can be no valid tax and hence no delinquency
within the meaning of AS 29.53.180, which
authorizes penalties and interest on
delinquent taxes.
Alascom, 659 P.2d at 1180 (footnote omitted). This rationale is
not applicable where the municipality makes an
assessment of the real property in question, but makes
a mistake as to the amount of the assessment. In such
a case the property owner is aware that taxes are being
demanded and can pay them immediately under protest, AS
29.45.500, or it can take an administrative appeal to
the Board of Equalization, AS 29.45.190, and to the
superior court, AS 29.45.200. The taxpayer whose
property is timely assessed should be aware that in all
likelihood its property will generate some tax
liability and can plan for that eventuality. Alascom
does not stand for the proposition that interest on
taxes imposed on property which is timely assessed
should not relate back to the original due date.
However, we view Alascom as authority with respect to
penalties. Although the question is a close one and
the applicable statute, AS 29.45.250, gives no
guidance, it seems appropriate to require an error free
assessment before penalties can be imposed. Thus, in
this case, penalties may be charged only from the due
date which follows May 22, 1989. The superior court
erred in charging Cool Homes penalties which dated back
to 1986, 1987 and 1988.
With respect to interest, the "due date"refers to when
the cause of action arises and not when a judgement is
awarded. "When a cause of action arises, the injured
party become immediately entitled to be made whole, and
the amount later adjudicated as damages becomes due."
Farnsworth, 638 P.2d at 183. Thus the interest on a tax
assessment runs from the due date in the year of the
original assessment rather than from the date of
reassessment.
B. No. S-4337
1. THE PERSONAL ACTION AGAINST COOL HOMES
The Borough filed a personal action against Cool Homes
to recover the taxes assessed on Cool Homes' leasehold
interest in the land on Eielson Air Force base. The
superior court granted summary judgment in favor of the
Borough. Fairbanks North Star Borough v. Cool Homes,
Inc., Case No. 4FA-89-1415 Civil (Sup. ct. Nov. 19,
1990). Cool Homes contends that summary judgment was
inappropriate because genuine issues of material fact
exist and because the superior court improperly applied
the law.
a. Standard of Review.
When reviewing a grant of summary judgment, this court
must determine whether a genuine issue of material fact
exists and whether the moving party is entitled to
judgment as a matter of law. Merdes v. Underwood, 742
P.2d 245, 248 (Alaska 1887).15
b. Propriety of a Personal Action.
Cool Homes asserts that summary judgment is improper
because the foreclosure action alone compensates the
Borough for all unpaid taxes. It contends that the
superior court erred as a matter of law in its
interpretation of AS 29.45.320.
Alaska Statute 29.45.320(b) authorizes a personal
action against the delinquent taxpayer if a tax
assessed on a taxable interest in tax-exempt property
is not paid.16 Cool Homes claims that this means only
that a tax delinquency on an interest in real property
which is not foreclosable may be remedied through a
personal action. Cool Homes concludes that a taxing
authority may institute a personal action only if the
property is not subject to foreclosure. We disagree.
Alaska Statute 29.45.320(b) authorizes a personal
action to collect a delinquent tax assessed on a
taxable interest in tax-exempt property. Cool Homes'
taxable interest is its leasehold interest in real
property owned by the United States, which is tax-
exempt property. Cool Homes' unpaid tax is subject to
a personal action.
Cool Homes also contends that the possible overlapping
of a foreclosable interest and an interest subject to
the personal judgment creates a genuine issue of
material fact. We disagree. Alaska Statute
29.45.320(b) specifically states that the personal
action remedy is available "in addition to other
remedies available to enforce the lien." Foreclosure
is another remedy available to enforce the lien and the
personal action may be pursued in addition to
foreclosure.17
C. Nos. S-4338/4353
Cool Homes appeals affirmance of the property taxes
assessed by the Borough and seeks remand to the
Borough's Board of Equalization for redetermination.
The Board cross-appeals, claiming that the superior
court, on intermediate review, improperly supplemented
the record.
1. THE BOARD DID NOT VIOLATE THE OPEN MEETINGS ACT.
a. Standard of Review.
Whether or not the Board complied with the Open
Meetings Act, AS 44.62.310, is a question of law. This
court may substitute its judgment for that of the
superior court. Ben Lomond, Inc. v. Fairbanks North
Star Borough, Bd. of Equalization, 760 P.2d 508, 511
(Alaska 1988).
b. The Board's Executive Session Was Not Improper.
On May 3, 1989, the Board convened to review the
Borough's assessment of Cool Homes' property. Its
first order of business was to call an executive
session to discus "the ins and outs and status of both
Cool Homes and the Alaska Housing cases" and
"litigation."18 Mark Andrews, who served as both the
Board's and the Borough's attorney, was present at the
session. The session was held over Cool Homes'
objection.19
Cool Homes contends that this executive session was in
violation of the Open Meetings Act, AS 44.62.310.20
Cool Homes thus asks that the Board's actions be
rendered void.
The Open Meetings Act requires that all meetings of any
administrative board be open to the public. The act
allows for certain excepted subjects to be discussed at
executive sessions closed to the public. Among those
excepted subjects are "matters which by law, municipal
charter, or ordinance are required to be confidential."
AS 44.62.310(c)(3). The remedy provided by the Act is
to void all action taken contrary to the Act. AS
44.62.310(f).
The superior court found that the Act was not violated
because the executive session with the Board's attorney
was a protected communication. The court held that
"[b]ecause the attorney-client privilege operates
concurrently with AS 44.62.310 although it is not an
expressed exception, the Board's executive session,
called to discuss the status of this case with its
attorney, did not violate AS 44.62.310."
The Board claims that it is proper to assert the
privilege in this case because the Board members had
been threatened with personal liability if they failed
to follow the directions given by the courts in the
numerous appeals which preceded the hearing. Just
three months before the hearing, Superior Court Judge
Richard D. Savell specifically suggested that Mr.
Andrews, in his capacity as the Board's counsel, advise
the Board that any appearance of noncompliance with
previous orders could potentially expose them to
personal financial liability.21 Thus, the executive
session was merely to allow the Board members to
receive legal advice to protect themselves from
personal liability.
The lawyer-client privilege is set out in Evidence Rule
503: "A client has a privilege to refuse to disclose
and to prevent any other person from disclosing
confidential communications made for the purpose of
facilitating the rendition of professional legal
services to the client . . . between himself . . . and
his lawyer." Alaska R. Evid. 503(b). A "client"
includes an "organization or entity, either public or
private." Alaska R. Evid. 503(a)(1). Thus, the Board
may exercise the privilege.22
The threshold question is thus whether the Open
Meetings Act and the lawyer-client privilege can
coexist. Cool Homes argues that they can, but not in
this situation. We disagree.
The policies underlying the principle of open meetings
are set out in AS 44.62.312. Among these is that "the
people's right to remain informed shall be protected so
that they may retain control over the instruments they
have created." AS 44.62.312(a)(5). Thus, the
applicability of the lawyer-client privilege must be
narrow to afford this objective maximum realization.
In The Sacramento Newspaper Guild v. Sacramento County
Board of Supervisors, 263 Cal. App. 2d 41, 58 (1968)
(since superseded by statute), relied upon by the
superior court below, the California Court of Appeals
noted the importance of limiting the privilege:
The two enactments are capable of
concurrent operation if the lawyer-client
privilege is not overblown beyond its true
dimensions. . . . Public board members,
sworn to uphold the law, may not arbitrarily
or unnecessarily inflate confidentiality for
the purpose of deflating the spread of the
public meeting law. Neither the attorney's
presence nor the happenstance of some kind of
lawsuit may serve as the pretext for secret
consultations whose revelation will not
injure the public interest.
Other jurisdictions have limited a lawyer-public body
exception to their open meeting acts to consideration
of pending litigation. Such a limitation reflects a
concern that when the public body is a party to a
lawsuit, it should not be disadvantaged by allowing its
opponents access to its meetings with counsel. Smith
County Educ. Ass'n v. Anderson, 676 S.W.2d 328, 334
(Tenn. 1984) (would impair the attorney's ability to
fulfill ethical duties as an adjunct of the court);
Oklahoma Ass'n of Mun. Attorneys v. State, 577 P.2d
1310, 1315 (Okla. 1978) (might seriously impair the
ability of the public body to process a claim or
conduct pending litigation); Channel 10, Inc. v.
Independent School Dist. No. 709, St. Louis County, 215
N.W.2d 814, 825-26 (Minn. 1974) (the machinery of
justice would be adversely affected if clients were not
free to discuss legal matters with their attorneys
without fear of disclosure).23 The exception is not
appropriate for "the mere request for general legal
advice or opinion by a public body in its capacity as a
public agency." Minneapolis Star & Tribune Co. v. The
Housing & Redevelopment Authority in and for
Minneapolis, 246 N.W.2d 448, 454 (Minn. 1976).
The privilege should not be applied blindly. Id. at
453. It is not enough that the public body be involved
in litigation. Rather, the rationale for the
confidentiality of the specific communication at issue
must be one which the confidentiality doctrine seeks to
protect: candid discussion of the facts and litigation
strategies. Channel 10, 215 N.W.2d at 825-26. See
also City of San Antonio v. Aguilar, 670 S.W.2d 681,
686 (Texas App. 1984) (holding that a conference on
decision to appeal deserves confidentiality); Hui
Malama Aina O Ko'olau v. Pacarro, 666 P.2d 177, 183-84
(Haw. App. 1983) (holding that a settlement conference
deserves confidentiality). The principles of
confidentiality in the lawyer-public body relationship
should not prevail over the principles of open meetings
unless there is some recognized purpose in keeping the
meeting confidential. Channel 10, 215 N.W.2d at 825.
The privilege thus should be applied only when the
revelation of the communication will injure the public
interest or there is some other recognized purpose in
keeping the communication confidential. Such
requirements are especially appropriate where, as here,
the public body's counsel is also appearing before the
body as an advocate. Public revelation of public
counsel's interpretation of "what has happened in the
year between the last session and today as to Court
findings" would not be injurious to the public
interest. It might be informative and desirable.
However, we find this case to be a very specific
exception to the Open Meetings Act. The Board members
had been threatened with personal liability. The
liability was with reference to ongoing litigation. By
calling the executive session, the Board was merely
following through on Judge Savell's admonition to the
Borough's counsel. The Board was entitled to legal
advice as to how it and its members could avoid legal
liability, although not general legal advice. The
Borough did not violate the Open Meetings Act.
2. TAXING AGENCY METHODOLOGY
a. Standard of Review.
The recognized standard of review of administrative
decisions involving questions of law or fact requiring
agency expertise is the reasonable basis test. North
Star Alaska Housing Corp. v. Fairbanks North Star
Borough, Board of Equalization, 778 P.2d 1140, 1144 n.7
(Alaska 1989). This court has used this deferential
standard before for reviews of tax assessments: "Taxing
authorities are to be accorded broad discretion in
deciding among recognized valuation methods." Id. at
1143-44. If a reasonable basis for the taxing agency's
method exists, the taxpayer must show fraud or the
"clear adoption of a fundamentally wrong principle of
valuation." Hoblit v. Greater Anchorage Area Borough,
473 P.2d 630, 632 (Alaska 1970) (quoting Twentieth
Century Investment Co. v. City of Juneau, 359 P.2d 783,
788 (Alaska 1961).24
b. The Parties' Relative Burdens of Proof.
Alaska law provides that the taxpayer bears the burden
of proof before a Board of Equalization. "The only
grounds for adjustment of the assessment are proof of
unequal, excessive, improper, or under valuation based
on the facts that are stated in a valid, written appeal
or proven at the appeal hearing." AS 29.45.210(b).
The Borough Code contains similar language. FNSB
3.24.012(C)(2). The Borough contends throughout its
brief that Cool Homes lost its appeal because it failed
to offer adequate evidence, including suggestions as to
what the proper valuation method should be. Cool Homes
counters that it should prevail because the Borough
must justify its valuation method and demonstrate that
it is supported by substantial evidence.
A taxpayer contesting an assessment need only prove
that the valuation is improper. The taxpayer does not
have to offer the correct amount, range or method of
valuation, as the Borough repeatedly insisted. See
Alascom, Inc. v. North Slope Borough Bd. of
Equalization, 659 P.2d 1175, 1180 (Alaska 1983) (noting
that the Borough has responsibility of making valid
assessment); North Star Alaska Housing, 778 P.2d at
1146 (stating that the proper remedy is to remand to
the Board for redetermination). The burden then shifts
to the taxing authority to introduce credible evidence
which substantiates its assessment. See Hoblit, 473
P.2d at 632.25
However, AS 29.45.210(b) still requires that the
taxpayer prove facts at the hearing. Moreover, the
Borough Code states that the "Appellant's presentation
must contain evidence which, if not contradicted, would
prove an unequal, excessive, improper or under
valuation." FNSB 3.24.012(C)(2). It is not enough
merely to argue that the valuation was inadequate or
demand a justification from the taxing authority.
c. Adjustment for Lease Restrictions.
The Borough employed a valuation method whereby the
land subject to Cool Homes' leasehold was valued as a
fee simple interest and then adjusted to reflect the
leasehold's restrictions and the reversionary interest
of the United States. The Borough used a 10 percent
adjustment factor to reflect the restrictions. This
method and the 10 percent factor have been approved by
this court before for a similar lease and housing
project on United States military lands. North Star
Alaska Housing, 778 P.2d at 1145-46.
Cool Homes contends that 10 percent does not adequately
reflect the extensive restrictions on its leasehold.26
It argues that the Borough has never put forward
evidence to demonstrate that a 10 percent factor
accurately reflects the differences between the value
of Cool Homes' leasehold interest and the hypothetical
fee simple value. Thus, the Board had no reasonable
basis upon which to affirm the assessment.
Moreover, Cool Homes contends that it has met its
burden of proving that the 10 percent adjustment is
unsound. The thrust of its argument is that because of
recognized differences27 between Cool Homes' interest
and the interest in North Star Alaska Housing and other
projects in Fairbanks, the same 10 percent factor
should not have been used.
The evidence before the Board that the lease
restrictions were improperly accounted for consisted of
the affidavit of Kenneth D. Lougee, counsel for Ben
Lomond, Inc., which was filed with the Board in 1986;
the deposition and testimony of Mr. Norm Thompson,
president of Cool Homes, presented in the 1987 hearing;
and Mr. Lougee's argument before the Board in 1987.
Mr. Lougee's affidavit merely stated that both the Cool
Homes property and the Railroad Industrial Area
property in Fairbanks were assessed the same 10 percent
deduction, even though the Railroad property is not
located on a federal enclave. Thompson's deposition
detailed the lease restrictions in Cool Homes' contract
with the Air Force. Mr. Lougee's testimony noted that
Cool Homes' interest was distinguishable from that of
the North Star project because the land lease outlasted
the project lease.
The evidence produced by Cool Homes is insufficient to
satisfy its burden, thereby triggering the Borough's
burden to defend the 10 percent deduction. All Cool
Homes has said is that its leasehold had many
restrictions and that it was different than other
properties for which the 10 percent adjustment was also
used. It offered minimal evidence that the 10 percent
was "unequal, excessive or improper" and did not
reflect these restrictions. The Board thus had a
reasonable basis for affirming the assessment with
respect to the adjustment for lease restrictions.
d. Salvage Value.
The Board of Equalization upheld and assessed improve
ments valuations for Cool Homes' interest in the sum of
$24,527,500 for 1987, $22,633,512 for 1988, and
$21,690,449 for 1989. These valuations were arrived at
by a replacement cost method. Under this method the
current replacement cost of the improvements was
calculated using two alternative cost formulas. The
assessor used the lower result. This was then reduced
by a factor of 15 percent to account for presumed
savings because of the size of the Cool Homes' project.
The resulting figure was in turn depreciated at the
rate of four percent per year over 20 years with 1987
used as the base year. Thus, the Borough assumed that
Cool Homes' interest in the improvements would lose 80
percent of its value over the term of the lease. The
remaining 20 percent was attributed to salvage value,
that is, the value from the improvements which Cool
Homes could recover at the end of the lease.
Borough assessment personnel cross-checked the result
reached by the replacement value approach by referring
to market indicators and a capitalization of income
approach. Testimony indicated that the best market
indicator was the fact that Aetna Life Insurance
Company had loaned Cool Homes' predecessor $30,000,000
as permanent financing for the project. Borough assess
ment personnel testified that if a market approach had
been used "we would have come in with somewhere around
$30,000,000"based on this transaction. Based on the
income stream calculation, Borough personnel testified
that a valuation of roughly $28,000,000 would have been
appropriate in the first year.28 Deputy Assessor
McManus testified that the replacement cost method was
employed rather than direct market comparisons or
income capitalization because replacement cost is
uniformly used throughout the Borough for all improved
property.
Focusing on the replacement cost method employed by the
Borough, Cool Homes contends that the use of any
salvage value is inappropriate. It relies on the
following finding made by Superior Court Judge James R.
Blair in a prior appeal:
After the twenty-year term is up, the
lease is renewable at the government's
option. If the government opts not to renew
the lease, Cool Homes' sole recourse is to
remove the buildings within thirty days and
restore the land to its prior condition. It
is undisputed that the buildings cannot be so
removed.
The Borough defends the 20 percent salvage value by
referring to testimony by Deputy Assessor McManus which
suggests that the buildings can be moved29 and that in
any event even if they had to be dismantled on site, a
20 percent salvage value figure would be appropriate.
McManus stated:
We're saying that if entrepreneur or
entrepreneurs or just people that wanted to
buy things, if they'd be willing to pay 20›
on the dollar, they'd dismantle and cart them
off, but more appropriately that they
relocate them as units in place. Certainly
there's a cost and Ray Mark indicated the
cost, it averaged around $8,500 to move the
Hutchinson Career four-bedroom out to North
Pole. And he said that price can vary
depending upon how many electrical lines are
in the way; how many obstacles; it's a fairly
clear shot from Eielson to, perhaps, the
North Pole area; probably more clear than
from out there off of University Avenue.
But, basically, it appeared from the
marketplace that individuals were willing to
pay 50› on the dollar for new ones. We also
took a look at homes that were in the salvage
value condition, and either need to be
completely refurbished, or actually relocated
elsewhere and -- or, in some cases,
dismantled and salvaged, the components of
them, and any way that we looked at them we
still came up with about a 20 percent value.
So, we thought that the 20 percent was fair
over a 20-year period.30
At another point McManus further explained the salvage
figure:
And at the end of that 20 years one of
the options available is that Cool Homes will
remove improvements from the Eielson Air
Force Base land and that's where the 20
percent salvage comes in. To determine that
20 percent we took a look at Hutchinson
Career Center who has been building, for
several years now, homes that they do build,
but they're sitting on -- they're sitting to
be relocated. And those prices have ranged
from $25,001 all the way up to $52,000
depending on the magnitude of the size, I
should say, of the structure. They're the
same structures, once placed on a tract of
land, full site improvements, on foundation,
with water and sewer, generating a value of -
- The lowest was $51,000, the highest was
$96,000. And we rounded this to conclude
that it was .50› on the dollar that
individuals were willing to pay for a
structure that had to be relocated. We
checked with Ray Mark with Mark Acres to find
out the cost of relocating these structures
and in our mind was that people could safely
invest 50› on the dollar. But, we're looking
at a rather large project here so we had to
deduct the 20 percent from there and that's
where we come up with the 40› on the dollar
for their improvements recognizing that these
would be 20 years old on a four [sic forty]
year economic life is the same as saying that
we'd reduce it from 40› to 20› then, or half
used up. And the 20› on the dollar then we
felt was a fair estimate of salvage value and
that equates to 20 percent.
Although there was evidence presented by Cool Homes
that the structures could not be relocated, the
testimony of McManus, especially as it relates to the
buildings' value in a dismantled state, is sufficient,
in our view, to substantiate the assessment.
As a part of its argument that the Borough erred in
using a 20 percent salvage value, Cool Homes states:
"The use of a salvage value in connection with
'accelerated depreciation,' is also erroneous." Cool
Homes' argument seems to be that depreciating the
improvements over a 20-year life fails to consider the
residual value to the government of the improvements
since the useful life of the buildings is at least 40
years.
This argument lacks merit. The Borough depreciated the
improvement over 20 years rather than 40 because in an
earlier appeal of this case to the superior court the
superior court accepted Cool Homes' predecessor's
argument that assessing its interest based on a 40-year
useful life did not take into account the fact that
there was only a 20-year lease. See Ben Lomond, Inc.
v. Board of Equalization, 760 P.2d 508, 510 (Alaska
1988). To contend that the 20-year depreciation
schedule does not account for the government's
reversionary interest is clearly wrong. Because of the
accelerated depreciation, Cool Homes will be taxed in
future years on a value which is progressively less
than the replacement cost of the project taken as a
whole. The difference between the amount on which Cool
Homes is taxed and the replacement cost, less
depreciation keyed to the true useful life of the
buildings, is the reversionary interest to the
government.
3. CROSS-APPEAL: SUPPLEMENTATION OF THE
RECORD BY THE SUPERIOR COURT
In May, 1989 the Board of Equalization affirmed the
Borough's tax assessment of Cool Homes' real property
interests. In June, Cool Homes appealed to the
superior court. During the course of the appeal, Cool
Homes noticed that a document entitled "Assignment of
Rents and Leases"was not part of the record. On May
16, 1990, it filed a Motion to Supplement Record. The
motion was granted by order of the superior court in
October. The Borough appeals, contending that the
motion to supplement was improperly granted.
A board of equalization is authorized in the Municipal
Government title of the Alaska Statutes. AS 29.45.200.
A determination of a board of equalization may be
appealed to the superior court "as provided by the
rules of court applicable to appeals from decisions of
administrative agencies." AS 29.45.210(d). The
superior court hears the appeals "on the record
established at the hearing before the board of
equalization." AS 29.45.210(d).
The limitation on the record was added to the provision
in 1985. The section which was replaced, former
AS 29.53.140(f), allowed for trial de novo on appeal to
the superior court. The legislature thus expressly
chose to limit the scope of review of the board's
determinations. See Winegardner v. Greater Anchorage
Area Borough, 534 P.2d 541, 547 (Alaska 1975) (noting
that a trial de novo allowed by former statute on issue
of whether assessment was proper "represents a decision
by the legislature that in tax assessments, the borough
assembly shall not be the only judge in its own case").
This is in contrast to the statute governing the appeal
to the superior court of some state administrative
agencies. AS 44.62.570(d).31
However, supplementation of the record has not
prejudiced the Borough. Even with the supplemented
record, the superior court ruled in the Borough's
favor. The supplemented document does not impact this
court's decision because it has not been argued in Cool
Homes' briefs before this court. Thus, the granting of
the motion was harmless error which this court will
disregard. See Boyles v. Smith, 759 P.2d 518, 521
(Alaska 1988).
III. CONCLUSION
The court's grant of summary judgment in S-3995, the
Borough's action to foreclose Cool Homes' interest in
its buildings on Eielson Air Force Base, is REVERSED
and REMANDED for further proceedings consistent with
this opinion. The court's grant of summary judgment in
S-4337 for personal judgment to recover property tax
assessed against Cool Homes' leasehold interest is
AFFIRMED.
Concerning Nos. S-4338/4353 the Board did not violate
the Open Meetings Act by conferring in private with its
attorney before hearing Cool Homes' case. With respect
to the validity of the tax assessment of Cool Homes'
property, the Board did have a reasonable basis for
affirming the Borough's assessment which included a
salvage value and accelerated depreciation. The Board
had a reasonable basis to affirm the use of the 10
percent factor to reflect lease restrictions.
The superior court's grant of summary judgment is
REVERSED and REMANDED for further proceedings
consistent with this opinion.
COMPTON, Justice, dissenting in part.
I dissent from the holding in section C, subsection
(2)(d), regarding salvage value. In my view neither
the Borough nor this court has satisfactorily answered
Cool Homes' arguments.
The Borough depreciated Cool Homes' interest in the
improvements using a 4 percent depreciation rate over a
twenty year period. Thus, the Borough assumed that
Cool Homes' interest would lose 80 percent of its value
over the terms of its lease. The remaining 20 percent
was attributed to salvage value, that is, the value of
the improvements which Cool Homes could recover at the
end of the lease.
Cool Homes contends that because of the nature of its
contract with the Air Force, any salvage value is
inappropriate. In a prior appeal regarding this
property, Superior Court Judge James R. Blair made the
following finding:
After the twenty-year term is up, the
lease is renewable at the government's
option. If the government opts not to renew
the lease, Cool Homes' sole recourse is to
remove the buildings within thirty days and
restore the land to its prior condition. It
is undisputed that the buildings cannot be so
removed.32
Cool Homes, Inc. v. Fairbanks North Star Borough, Case No. 4FA-87-
1093 Civil (Alaska Super., Dec. 19, 1987). This
finding has not been contested.
The court affirms the salvage value figure on the basis
of the testimony of Deputy Assessor McManus, which it
claims "substantiate[s] the assessment." I submit that
the testimony begs the question, rather than answering
it. McManus' first
quoted testimony, and conclusion, is predicated on a
person being willing to pay $.20 on the dollar for a
building in salvage value condition. These are the two
qualifiers to this conclusion:
[I]f entrepreneur or entrepreneurs or
just people that wanted to buy things, if
they'd be willing to pay $.20 on the dollar,
they'd dismantle and cart them off, but more
appropriately that they relocate them as
units in place. . . . We also took a look at
homes that were in the salvage value
condition, and either need to be completely
refurbished, or actually relocated elsewhere
and -- or, in some cases, dismantled and
salvaged, the components of them, and . . .
we still came up with about a 20 percent
value.
(Emphasis added).
This is not evidence that substantiates that the
buildings will be in salvageable condition when the
land lease expires.
McManus' next quoted testimony is similarly flawed:
To determine that 20 percent we took a
look at Hutchinson Career Center who has been
building, for several years now, homes that
they do build, but they're sitting on --
they're sitting to be relocated.
These are homes that are built to be relocated in the first
place.
The Borough looked to Hutchinson Career Center, which
constructs buildings to be relocated, in determining
the twenty percent salvage value. The Borough
concluded that people were willing to pay 50 cents on
the dollar for these relocated buildings. The Borough
obtained an estimate from Mark Acres confirming that
"the cost of relocating these structures and in our
mind was that people could safely invest .50 cents on
the dollar." The Borough then discounted the fifty
percent to forty percent because of the size of the
Cool Homes' project. The Borough further reduced that
in half to twenty percent to account for the fact that
the buildings would be twenty years old (half of the
forty year economic life estimate). Again, this is not
evidence that the buildings will be capable of being
relocated, or in an otherwise salvageable condition,
when the land lease expires.
There is no evidence that moving these buildings will
be possible. There is no evidence to take into account
any cost of removing buildings which were not
constructed for relocation. On this record, the
improvements will have no value to Cool Homes when the
term of the land lease expires.
In the 1989 appeal before the Board, Cool Homes also
elicited testimony from Deputy Assessor McManus that
the Borough did not consider Judge Blair's findings
that the improvements could not be removed when
calculating the salvage value. And although it is
possible that the Air Force could change its mind and
renew the lease or purchase the buildings, the Borough
admitted that it would be improper to base assessments
on mere possibilities.33
Cool Homes met its burden of proving that the salvage
value, if any exists at all, was assessed erroneously.
The Board did not have a reasonable basis to affirm the
assessment of the salvage value.34 I would remand this
issue to the Board to determine what the rubble would
be worth.
Cool Homes also contends that the use of the
accelerated depreciation method was improper. The
thrust of Cool Homes' argument is that the accelerated
depreciation method does not adequately account for the
reversionary interest the government will have in the
improvements after the land lease expires. Again, Cool
Homes complains that the Borough has not put forward
any evidence to justify this method without itself
producing facts which cast doubt on it. Its argument
keys on the contention that the assessed value bears no
relation to the project's cash flow.
The only evidence before the Board that the Borough was
excluding the government's interest in the improvements
from the assessment was from McManus: "We feel we're
doing that, yes, in that accelerated depreciation."
The Borough's "feeling"that the reversionary interest
is excluded is not evidence.
It is possible that over the life of the twenty year
lease the reversionary interest will be excluded, but
there was no evidence presented that substantiates how
this method works. Evidence was presented that in the
first year Cool Homes would be taxed on 100% of the
value of the improvements, with nothing deducted for
the government's reversionary interest. In the second
year 4%, would be deducted, and the next year 8%. No
evidence was presented that justifies this method of
valuing the reversionary interest.
Cool Homes does not dispute that the Borough may use a
reversionary method of tax assessment. "This method
begins by valuing property at its fee simple value.
This value is then reduced, or discounted, by a factor
representing the restrictions on the property. The
value is further reduced to remove any value pertaining
to the reversionary interest of the government in the
land." Cool Homes claims a straight-line depreciation
to reduce the initial value down to salvage value at
the end of the lease period does not exclude the value
of the reversionary interest. Cool Homes presented
evidence that a straight line depreciation over the
life of the lease to salvage value is a "fundamentally
wrong" way to account for the governments reversionary
interest. The Borough presented no evidence that its
method was reasonable. Cool Homes' experts testified
that the income stream approach was the more sound
method. I conclude that Cool Homes' argument is
persuasive.
_______________________________
1. Cool Homes concedes that its leasehold interest is
taxable. It argues that the Borough cannot foreclose
on it since the land is owned by the federal
government. However, the Borough did not foreclose on
Cool Homes' leasehold interest.
2. Article IX, section 4 of the Alaska Constitution
permits "[a]ll, or any portion of, property" to be
exempt from taxation.
3. See City of Nome v. Catholic Bishop of Northern Alaska,
707 P.2d 870 (Alaska 1985), as an example of the
practice of separating property interests for tax
purposes. In City of Nome, we held that article IX,
section 4 mandates spatial apportionment of all
property into exempt and nonexempt portions. Id. at
881. Thus, the city could not tax portions of a church
used exclusively for religious, charitable or
educational purposes, but could tax other portions of
the same building. Id. at 887.
4. A lessor is generally liable for taxes on the leased
property even though the lessor's interest is non-
possessory and represents only a fraction of the total
value of the property. Frank M. Keesling, Property
Taxation of Leases and Other Limited Interests, 47
Calif. L. Rev. 470, 476-77 (1959). In this case, the
project lease specifically provided that Cool Homes was
liable for any taxes assessed against the property.
Under Alaska law, property taxes are a lien upon the
property assessed which may be foreclosed for failure
to pay the taxes owned.
Alaska Statute 29.45.300(b) provides:
Property taxes, together with penalty
and interest, are a lien upon the property
assessed, and the lien is prior and paramount
to all other liens or encumbrances against
the property.
Alaska Statute 29.45.320(a) provides:
The municipality shall enforce
delinquent real property tax liens by annual
foreclosure, unless otherwise provided by
ordinance.
5. Cool Homes' reliance on City of Anchorage v. Baker, 376
P.2d 482 (Alaska 1962), is misplaced. First, Baker
involved the interpretation of a territorial law no
longer in effect. Second, the interest at issue in
this appeal is not a leasehold interest. Cool Homes
owns the buildings it constructed at Eielson Air Force
Base. Finally, the holding in Baker is much narrower
than Cool Homes suggests. Contrary to Cool Homes'
belief, the court did not hold that foreclosure of
leasehold interests in general is fruitless. The court
held that foreclosure of Baker's leasehold would be of
no value to the city because the written lease between
Baker and the Alaska Railroad provided for forfeiture
of Baker's rights if he failed to pay all taxes levied
against improvements on the land. Baker, 376 P.2d at
483.
6. AS 29.45.500(a) provides:
If a taxpayer pays taxes under protest,
the taxpayer may bring suit in the superior
court against the municipality for recovery
of the taxes. If judgment for recovery is
given against the municipality, or, if in the
absence of suit, it becomes obvious to the
governing body that judgment for recovery of
the taxes would be obtained if legal
proceedings were brought, the municipality
shall refund the amount of the taxes to the
taxpayer with interest at eight percent from
the date of payment plus costs.
7. Thus, we need not address whether the filing of an
appeal of a tax assessment, standing alone, precludes
foreclosure.
8. The appeal in this case, No. S-3995, was argued prior
to the appeals in the three other Cool Homes cases.
Following oral argument in No. S-3995, we entered an
order which provided in part:
IT IS ORDERED:
1. The judgment and decree of foreclosure
entered by the superior court on May 7, 1990, in
case 4FA 89-405 Civil is REVERSED.
2. Additional consideration of this appeal is
stayed pending submission of the following appeals
to the court for consideration on the merits.
S-4337 Cool Homes, Inc. v. Fairbanks North Star Borough
(4FA 89-1415 Civil)
S-4338/ Cool Home, Inc. and Ben Lomond, Inc. v.
S-4353 Fairbanks North Star Borough Board of
Equalization
(4FA 89-1078
9. We also reject the Borough's contention that Cool
Homes' failure to avail itself of any of the statutory
remedies for paying the taxes under protest or staying
execution makes foreclosure possible immediately upon
reassessment.
10. Cool Homes also argues that questions of material fact
exist which preclude summary judgment. These issues
arise from the charging of penalties and interest prior
to the date of assessment and the Borough's alleged non-
compliance with the statutory requirements for
foreclosure. Both of these issues, however, are
actually legal determinations. Because we hold as we
do, we need not address the legal issues. However, to
offer guidance for remand, the interest and penalties
issues are discussed below.
11. Cool Homes claims that this imprecision in the amount
is grounds alone for reversing the summary judgment.
Because we reverse the summary judgment on other
grounds, Cool Homes need not rely on this argument.
However, we note that this imprecision does not create
a genuine issue of material fact so that summary
judgment would be reversed. Instead, the proper action
would be to vacate the judgment with respect to amount
only and remand for a determination of the proper
amount. This same analysis applies to the interest and
penalties issue raised by Cool Homes in S-4337.
12. "The assessment of interest for late payment has no
punitive element. While it is logical to relieve a
taxpayer of paying a penalty, where under the
circumstances such as this he has been guilty of no
misconduct, interest stands on different footing. It
is non-pejorative." North Slope Borough v. Sohio
Petroleum Corp., 585 P.2d 534, 546 (Alaska 1978).
13. A corollary purpose is to deprive the party that held
the money from being unjustly enriched because of use
of the money. Lundgren, 782 P.2d at 289.
14. The material language that penalties may be assessed on
"delinquent"taxes and interest shall accrue "from the
due date" is present in both statutes. AS 29.45.250;
former AS 29.53.180.
15. The Borough notes that the superior court's order of
summary judgment was without a statement of reasons.
In such cases, this court presumes that the superior
court ruled in movant's favor on all of the grounds put
forward by the movant. "Accordingly, the summary
judgment should be reversed only if no ground asserted
supports the trial court's decision." Reed v.
Municipality of Anchorage, 741 P.2d 1181, 1184 (Alaska
1987). The Borough asserted the following grounds in
support of its motion for summary judgment: 1) The
Borough may bring this personal action to enforce tax
liens when foreclosure is ineffective; 2) the
foreclosure judgment in the superior court collaterally
estops Cool Homes from contesting the validity and
valuation of the tax liens; and 3) Cool Homes cannot
withhold payment of its assessed taxes pending
exhaustion of its judicial remedies. However, since we
have reversed the foreclosure, we need only consider
the first and third grounds.
16. Alaska Statute 29.45.320 (b) reads:
If the tax on property described in
AS 29.45.070 or on a taxable interest in tax-
exempt property is not paid when due, a
municipality may enforce the tax by a
personal action against the delinquent
taxpayer brought in the district or superior
court, in addition to other remedies
available to enforce the lien.
17. Cool Homes also claims that a genuine issue of material
fact exists with respect to value because there is
uncertainty whether the Borough followed the proper
procedure in assessing the tax. Cool Homes contends
that adequate notice was not provided. That is, the
Borough never disclosed to Cool Homes the amount which
gave rise to the foreclosure action. Moreover, the
notice which was given for the entire assessment was in
error.
Although this may be a compelling point, Cool Homes
does not point to any affirmative proof in the record
that the debt was treated as one debt for notice
purposes. Instead it cites the absence of indications
that the proper procedures were followed. Cool Homes
had failed to raise a genuine issue of material fact to
preclude summary judgment.
Cool Homes also claims that summary judgment was
precluded because the amount of the judgment was in
dispute as interest and penalties were miscalculated.
We held in S-3995 that this uncertainty alone does not
preclude summary judgment.
18. The Board's action was as follows:
MADAM CHAIR: We are going to entertain a motion
to go into an Executive Session for the purpose of
discussing personnel?
MR. ANDREWS: No, it's not personnel. The purpose
of this will be the ins and outs and status of
both Cool Homes and the Alaska Housing cases.
MADAM CHAIR: Okay. I thought it had to be
personnel or jeopardy.
[UNKNOWN VOICE]: Well, this is (indiscernible -
simultaneous speech).
MADAM CHAIR: Okay. Okay. Litigation, fine.
After being asked by Cool Homes to explain the purpose
of the session, the chairwoman stated: "It is simply
to bring us back in review of what has happened in the
year between the last session and today as to the Court
findings. . . ."
The act limits the subjects considered in the executive
session to "those mentioned in the motion calling for
the executive session unless auxiliary to the main
question." AS 44.62.310(b).
19. The Board sought to have this issue litigated before the
hearings went further to spare the Board from having to
rehear the claims should the executive session be
declared unlawful. The superior court did not rule on
this issue, however, until after the hearings were
held.
20. Alaska Statute 44.62.310 provides:
Government meetings public. (a)
All meetings of a legislative body, of a
board of regents, or of an administrative
body, board, commission, committee,
subcommittee, authority, council, agency, or
other organization, including subordinate
units of the above groups, of the state or
any of its political subdivision, including
but not limited to municipalities, boroughs,
school boards, . . . agencies, assemblies,
councils, departments, division, bureaus,
commissions or organizations, advisory or
otherwise, of the state or local government
supported in whole or in part by public money
or authorized to spend public money, are open
to the public except as otherwise provided by
this section. . . .
(b) If excepted subjects are to be
discussed at a meeting, the meeting must
first be convened as a public meeting and the
question of holding an executive session to
discuss matters that come within the
exceptions contained in (c) of this section
shall be determined by a majority vote of the
body. Subjects may not be considered at the
executive session except those mentioned in
the motion calling for the executive session
unless auxiliary to the main question.
Action may not be taken at the executive
session.
(c) The following excepted subjects
may be discussed in an executive session:
. . . .
(3) matters which by law, municipal
charter, or ordinance are required to be
confidential.
. . . .
(f) Action taken contrary to this
section is void.
21. "[C]ounsel can tell [the Board] in his professional
discretion and in a manner of professional advice-
giving that any such appearance would be looked upon
with the displeasure by the Court and carry with it,
assuming for the purposes of warning that has or could
take place, that could carry with it financial costs
which might not be borne by the Borough alone."
According to the Borough, Judge Savell's warning was
the result of Cool Homes' repeated castigation of, and
threats of contempt actions against, the Board for
ignoring the court's directions.
22. According to the borough ordinance governing Board
hearings, "Formal rules of evidence do not apply;
however, all evidence must be relevant to the matter
being heard." FNSB 3.24.015. Thus, it is arguable
that the Evidence Rules do not apply at all in this
case. Rather, the lawyer's ethical duty of
confidentiality, Code of Professional Responsibility DR
4-10-1 would apply. See Smith County Educ. Ass'n v.
Anderson, 676 S.W.2d 328, 332-35 (Tenn. 1984) (holding
that the ethical duty is better grounds for exception
to open meetings act).
Other jurisdictions have held, however, that lawyer-
client privilege is more than just a testimonial
exclusion. "The privilege against disclosure is
essentially a means for achieving a policy objective of
the law. The objective is to enhance the value which
society places upon legal representation by assuring
the client full disclosure to the attorney unfettered
by fear that others will be informed. . . . If client
and counsel must confer in public view and hearing,
both privilege and policy are stripped of value." The
Sacramento Newspaper Guild v. Sacramento County Bd. of
Supervisors, 263 Cal. App. 2d 41, 53-54 (1968) (since
superseded by statute).
23. Some jurisdictions have refused to imply the exception
to their open public meetings statutes even for pending
litigation. Neu v. Miami Herald Publishing Co., 462
So.2d 821, 824 (Fla. 1985) (since superseded by
statute); Laman v. McCord, 432 S.W.2d 753, 755-56 (Ark.
1968) ("The city attorney, with the assistance of the
mayor, department heads, and other municipal employees,
can certainly prepare a case for trial without
discussing his plans in detail with the [public body].
By analogy, the State of Arkansas is continually
engaged in litigation, but there is scant occasion for
its Attorney General or its other legal counsel to
confer in secret with the members of the General
Assembly.").
At least one jurisdiction has applied the exception to
potential litigation. Hui Malama Aina O Ko'olau v.
Pacarro, 666 P.2d 177, 183-89 (Haw. App. 1983).
24. Technically, Cool Homes has erroneously couched its
points on appeal in terms of superior court error.
This court will independently review the merits of an
administrative determination. No deference is given to
the superior court's decision when that court acts as
an intermediate court of appeal. Tesoro Alaska
Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d 896, 903
(Alaska 1987). This court is reviewing, and must find
error in, the Board of Equalization's determinations,
not the superior court's.
25. A superior court opinion included in the record by FNSB
spoke of this burden: "At trial or upon review,
however, the taxing authority has the burden to produce
a record which 'contains credible evidence
substantiating [its] assessment.'" Alaska Int'l Air,
Inc. v. Fairbanks North Star Borough, Case No. 75-
505/527 (Alaska Super., August 29, 1978) (quoting
Hoblit, 473 P.2d at 632).
Cool Homes contends that its burden allocation is
consistent with the reasonable basis test. However,
Cool Homes is confusing burden of proof with standard
of review. The former refers to the parties'
obligations at the hearing before the Board and is
governed by statute in this case. The latter refers to
the role this court plays on appeal.
26. The superior court refused to consider Cool Homes'
challenge to the 10 percent "discount" rate on the
grounds that Cool Homes had not challenged that rate in
the administrative proceeding. Cool Homes maintains
that it had argued this issue in appeals hearings
dating back to 1986 and incorporated the record of the
earlier appeals into the 1989 record. Cool Homes
implies that the superior court's refusal was error
sufficient to reverse the affirmance. However, as
discussed above, we are reviewing the Board's
determination, not that of the superior court.
In addition, the Board points out that both Cool Homes
and the superior court confused two different 10
percent calculations. One is the 10 percent deducted
from the fee simple value to reflect restrictions. The
Borough argues that this issue is not properly before
this court, but gives no reasons in support. The other
is the 10 percent discount rate used to adjust the
assessment to present values. This rate has not been
contested below or in Cool Homes' briefs and is not
properly before us.
27. The Borough's deputy assessor admitted at least that
Cool Homes' interest was the only 20 year lease for
which the Borough had assessed taxes. He also stated
that Cool Homes' interest was considered similar to the
North Star project. "[I]'s not unlike the assessment
of the North Star. We felt that we treated this one as
fair as that one."
The Borough contends that the issue of "recognized
differences"is not properly before us because it was
not listed in Cool Homes' Statement of Points on
Appeal. Generally, an issue not included in the
Statement of Points on Appeal will not be considered on
appeal. Oceanview Homeowners Ass'n v. Quadrant Constr.
and Engineering, 680 P.2d 793, 797 (Alaska 1984).
Although the statement must set forth the points in
more than general terms, an elaboration of legal
theories relied upon is not required. Lewis v.
Anchorage Asphalt Paving Co., 535 P.2d 1188, 1195
(Alaska 1975). The key is that the statement
adequately notify the opposing party and the court of
the possible sources of error. Myers v. Sill, 497 P.2d
920, 923 (Alaska 1972). Thus, we will consider an
issue omitted from the points on appeal if the issue
was raised at the trial level and the opposing counsel
was apprised of it. Oceanview Homeowners, 680 P.2d at
797. Here, "recognized differences" is an obvious
subcategory of the stated point on appeal concerning
the 10 percent rate. Thus, it is properly before this
court.
28. Cool Homes called an expert on the subject of valuation
who, using an income stream method of valuation,
arrived at a figure of $22,711,507 assuming 18 years
left on the lease. Since 18 years would be left on the
lease as of 1989, this figure should be compared with
the Borough's 1989 assessment.
29. The project consists of 51 four-plexes, 48 duplexes, and
one office/shop building. All buildings are 2x6 wood
frame construction.
30. McManus made clear that the 20 percent did not include
any valuation for the possibility that the federal
government would renew the lease. He stated: "No,
those assumptions would not be valid; I mean, they just
don't have that crystal ball. In the worst case
scenario is that they'd be asked to remove those
structures, and that's why we felt the 20 percent
salvage was appropriate."
31. Under those provisions the superior court is still
required to find "that there is relevant evidence
which, in the exercise of reasonable diligence, could
not have been produced or which was improperly excluded
at the hearing . . . ." AS 44.62.570(b).
Cool Homes contends that AS 44.62.570(d) also applies
to a board of equalization. However, the agencies
covered by that statute are listed in AS 44.62.330, the
opening section of the Administrative Procedure Act.
The act provides that its rules may also be applicable
to other agencies "only as to those functions to which
[the act is] made applicable by the statutes relating
to that agency." AS 44.62.330(b). The statute
allowing for appeals of board of equalization
determinations does not reference the Administrative
Procedure Act. Rather, the "rules of court" to which
it refers are the appellate rules dealing with the
superior court as an appellate court. See Alaska R.
App. P. 601-12.
32. The finding that the buildings could not be removed in
30 days especially in a salvageable condition is based
on the affidavit and testimony of John R. Jones in the
1987 appeal to the Board of Equalization. Jones
testified:
It would be like taking a bucket of
sticks and taking the bottom one out; they
would crumble. . . . Even if they could be
moved, there is so much utilidor and concrete
work in the project, to bring equipment in to
even [do] demolition would be really a very
impossible thing. We'd spend more time
taking the equipment out of the ditches and
the holes and some 12-foot deep utilidors for
the size of equipment . . . .
33. Before the 1989 Board, the deputy assessor testified as
follows:
Q: And just for the record, in using the number
you're not in any way making any assumptions about
what the government might do as far as renewing
the lease, extending the lease, issuing a new
lease?
A: No, those assumptions would not be valid; I
mean they just don't have that crystal ball. In
the worst case scenario is that they'd be asked to
remove those structures, and that's why we felt
the 20 percent salvage was appropriate.
The superior court justified the salvage value because
"[a]lthough Cool Homes may not be able to remove the
buildings at the end of the lease, it will benefit from
the possible sale of the structures to the government."
Cool Homes, Inc. and Ben Lomond, Inc. v. Fairbanks
North Star Borough, Board of Equalization, Case No. 4FA-
89-1078 (Alaska Super., Nov. 19, 1990). The Borough
admitted, however, that such a sale was not a
consideration. Rather, the assessor considered that
the corporation had to remove and then refurbish,
relocate or otherwise salvage the property. However,
Judge Blair found that none of these was a realistic
possibility.
The Borough's contradictory contention in its brief
that the assessment was performed assuming "the worst
case scenario from the owner's viewpoint -- the
destruction of the houses and the end of the lease" is
not supported by the record. Instead, the deputy
assessor testified that the worst case scenario was the
"removal"of the structures.
34. Cool Homes and amicus curiae Aetna Life Insurance
Company also urge the court to direct the Board on
remand to further exclude the value of the land
improvements beyond the land lease term from the tax.
"To the extent that the estimated useful life of any of
these items extends beyond the term of the lease, the
value attributable to such period must be excluded from
the tax since it represents the Government's ownership
interest." Ben Lomond, 760 P.2d at 512 (quoting Offutt
Housing Co. v. County of Sarpy, 351 U.S. 253, 262 n.1
(1956)). See also Duwamish Warehouse Co. v. Hoppe, 684
P.2d 703, 707 (Wash. 1984) (reversing a judgment which
ignored the reversion of a building to the public long
before its useful life expired).
The contract does caution that the government may take
possession of the improvements without payment at the
end of the land lease. However that is merely one
possibility which may happen when the land lease
expires. Taking of the housing by the government is
still not any more likely than any of the other
possibilities like renewal of the lease. Cool Homes
urges elsewhere that such possibilities should not be
considered. Thus it seems just as improper to deduct
the remaining useful life from the tax (a negative
salvage value) as it would be to calculate a salvage
value.
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