Opinion
DOCKET NO. A-3081-11T1 DOCKET NO. A-3082-11T1
05-09-2013
BEACH CREEK MARINA, Plaintiff-Appellant, v. NORTH WILDWOOD CITY, Defendant-Respondent.
Flavio L. Komuves argued the cause for appellant in A-3081-11 and A-3082-11 (Zazzali, Fagella, Nowak, Kleinbaum & Friedman, attorneys; Robert A. Fagella, of counsel; Mr. Komuves, on the brief). William J. Kaufmann argued the cause for respondent in A-3081-11 and A-3082-11 (Cafiero & Balliette, attorneys; Mr. Kaufmann, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Grall, Simonelli and Koblitz.
On appeal from the Tax Court of New Jersey, Docket No. 3414-2008 and 1843-2007.
Flavio L. Komuves argued the cause for appellant in A-3081-11 and A-3082-11 (Zazzali, Fagella, Nowak, Kleinbaum & Friedman, attorneys; Robert A. Fagella, of counsel; Mr. Komuves, on the brief).
William J. Kaufmann argued the cause for respondent in A-3081-11 and A-3082-11 (Cafiero & Balliette, attorneys; Mr. Kaufmann, on the brief).
The opinion of the court was delivered by GRALL, J.A.D.
Plaintiff Beach Creek Marina, Inc., owns real property in the City of North Wildwood (City). The Tax Court tried Beach Creek's challenges to its 2007 and 2008 real estate assessments together and dismissed them at the conclusion of Beach Creek's case for failure to establish a right to relief. R. 4:37-2(b). We have consolidated Beach Creek's separate appeals from the dismissal of those complaints and now reverse. In Beach Creek Marina, Inc. v. City of North Wildwood, No. A-2590-11 (App. Div. May 9, 2013), also decided today, we address Beach Creek's appeal of the dismissal of a challenge to the 2006 assessment raised in an action in lieu of prerogative writs.
A
Following a re-evaluation of the properties within its boundaries, the City increased the assessed value of Beach Creek's property from $1,526,200 for 2005 to $14,612,900 for 2006. The City assessed the property at $14,288,900, approximately $14.3 million, for 2007 and 2008. Beach Creek filed a timely challenge to its 2007 assessment on March 15, 2007 and a timely challenge to its 2008 assessment on March 24, 2008.
While the cases were pending before the Tax Court, and in connection with its defense against the challenges to the 2007 and 2008 assessments, the City obtained an appraisal of Beach Creek's property completed by J. Paul Bainbridge, MAI on March 12, 2009. The Bainbridge appraisal concludes that the "retrospective market value of [Beach Creek's] property for 2006-2009 tax years" is $4.6 million. Thus, as of March 2009, the City had information that the full and fair value of the property in 2007 and 2008 was nearly $10 million lower than the assessed value for those years. The City provided the Bainbridge appraisal to Beach Creek in discovery and filed it with the Tax Court.
The City filed a motion to strike the Bainbridge appraisal from Beach Creek's appendix, which we denied at the time but reserved for the panel. Although the appraisal was marked by and used by the City's attorney during cross-examination of Beach Creek's expert appraiser, it was not introduced into evidence. We have determined to consider the cover letter to that report, which was referenced by the court at trial. It states the appraiser's conclusion quoted above. We have, however, struck and not considered the contents of the appraisal.
Beach Creek's attorney brought the Bainbridge appraisal to the court's attention during a pre-trial colloquy between the court and counsel about the status of litigation pending in the Law and Chancery Divisions in which Beach Creek was challenging its 2006 assessment. In that context, Beach Creek's attorney explained that the biggest issue in those cases was that Beach Creek's assessment was over $14 million and the City now had an appraisal for the relevant years fixing the property's value at $4.6 million.
The Superior Court litigation is discussed in Beach Creek Marina, Inc., No. A-2590-11, supra.
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The City's attorney also brought the Bainbridge appraisal to the attention of the court. He used the Bainbridge appraisal in questioning Beach Creek's expert, and he referred to it in urging the court to dismiss the complaints at the close of Beach Creek's case. During argument on that motion, the court inquired about the harshness of a dismissal in this case, and the City's attorney gave this response:
Would it be a harsh result? Whenever a party's case is dismissed it, it's a harsh result. Nonetheless, when we apply the law to, you know, the particular facts, sometimes that results.It is a matter of record that the City assessed the property at $4.6 million for 2010.
And it's not as though the assessment hasn't been adjusted for certain years. It has, consistent with our appraisal. I mean, I can say prospectively.
[(Emphasis added).]
Beach Creek's property is Block 152, Lot 1 in the City. It is waterfront property with an area of 4.85 acres — 2.61 acres of upland and 2.24 acres of riparian area. It is bordered by streets on three sides, 470 feet along New York Avenue, 423 feet along Seventh Avenue and 248 feet along Fifth Avenue. A wood and steel plated bulkhead abuts the riparian areas.
The property is developed with a variety of uses. The most significant building is the seven-story Marina Bay Towers, which has commercial space on the first floor and 142 or 143 residential units for senior citizens of low and moderate income on the other six floors. Beach Creek owns the land underlying the Towers but not the condominium units. The owner has a ninety-nine-year lease for the land underlying the Towers, and the rent is income to Beach Creek.
There are other improvements on the property. These include a 160-slip marina and a 3900 square-foot marina services building. A service area and a service counter are on that building's first floor, which has an area of 1700 square feet. There is office space on the second and third floors, and the third floor also has as an apartment equipped with a kitchen, bathroom and jacuzzi.
The other improvement on this property is a one-story restaurant. A portion of that building is utilized as a marine supply store, but it could be treated as part of the restaurant.
Errett Vielehr, who is associated with Robert M. Sapio, MAI of Robert M. Sapio Real Estate Appraisers and Consulting, LLC, was Beach Creek's expert at trial. He is a certified general real estate appraiser and, at the time of his appraisal, also a certified tax appraiser. Vielehr and Sapio, who also worked on the appraisal, inspected the property on multiple occasions in 2005, 2008 and 2009. The court accepted Vielehr as an expert, and his appraisal was admitted into evidence without objection.
Vielehr valued the several uses on this property separately. Based on the available data, he determined that the most reliable appraisal would be one reached by using the valuation method most appropriate for each of the property's several components. Thus, Vielehr used the income approach in valuing the marina and the land underlying the Towers; the cost approach to arrive at the value of the marina services building; and the sales comparison approach to determine the value of the restaurant. The value he assigned to the entire property for 2007 and 2008 is the total of the separate values of the components in each of those years.
Vielehr was questioned extensively about his decision to value the components separately using different approaches for the various components. While Vielehr could not point to a specific authority for his hybrid approach, he said it was an accepted method and recognized in the literature. Vielehr responded to a question critical of the hybrid approach with a rhetorical question — would you value a property that included a convenience store and a separate residence using an income approach for both or would you ask what the house was worth using comparable sales in the neighborhood?
Vielehr also explained why the data available favored a hybrid approach in this case. According to Vielehr, the cost approach for valuing the marina services building was appropriate for several reasons. The building was new and not yet completed, and the cost approach is commonly used for new buildings. He ruled out the income approach for that building because the building was necessary to the operation of the marina. Thus, he explained that the value of the marina services building under the income approach was captured in the value he assigned to the marina using that approach.
In Vielehr's view, however, the marina services building had additional value that was not captured with the income approach but was accounted for by using the cost approach to value the building itself. He noted that his hybrid approach using the income approach for the marina that required the marina services building and the cost approach for the building probably involved some double-counting resulting in a higher appraisal. With respect to the apartment on the third floor of that building, Vielehr indicated that the cost approach captured the apartment's amenities. Also pertinent to the apartment, in stating his rationale for selecting the capitalization rate used to value the income from operating the marina, Vielehr described the business as similar to lodging in that both are labor intensive and require someone to be present at all times.
Vielehr selected the comparable sales approach, rather than the income approach, for valuing the restaurant because the leases he uncovered did not provide data that he deemed as reliable as the data he obtained from the comparable sales. He acknowledged that he had neither appended nor described the leases that he ruled out as unreliable, but he explained that if he were to have used the income approach for the restaurant he would have derived a value of $280 per square foot for this site based on the comparable sales. In his opinion, use of the comparable sales approach gave him a value higher for the restaurant than the one Bainbridge assigned. Vielehr specified that he adjusted the comparable sales to account for the location of this restaurant, expressly identifying its waterfront location as a positive feature. Vielehr did not mention and was not directly asked whether he took the proximity of the restaurant to the Towers and the marina into consideration when adjusting the comparable sales for location.
B
At the conclusion of Beach Creek's case, the court granted the City's motion to dismiss. The court did so on the ground that Beach Creek had not produced evidence sufficiently definite, positive and certain in quality and quantity to overcome the presumption of validity that attaches to the assessment under New Jersey law. R. 4:37-2(b); Pantasote Co. v. City of Passaic, 100 N.J. 408, 412-14 (1985).
The court gave several reasons for its conclusion that Beach Creek's evidence was inadequate to withstand the City's motion. First, the court determined that the hybrid approach used by Vielehr — "taking one approach for each of the three or four aspects of the property and then somehow just adding them together and coming up to value" — was unprecedented. Second, the court perceived weaknesses in Vielehr's application of the cost and comparable sales approaches and concluded that the flaws left the court without a basis for assigning a true value to this property based on Beach Creek's evidence.
With respect to the cost approach Vielehr applied to the marina services building, the court determined that Vielehr's failure to include the cost for the land underlying that building was fatal. The flaw the court deemed fatal to the value Vielehr assigned to the restaurant was the expert's failure to adjust the comparable sales for the fact that this restaurant was located on a property that included 142 or 143 residential units and a marina.
C
In ruling on a motion for dismissal at the close of the plaintiff's case pursuant to Rule 4:37-2(b), the court must give the plaintiff the benefit of all favorable evidence and every favorable inference. Dolson v. Anastasia, 55 N.J. 2, 5 (1969). The court is concerned with the existence of the evidence, not its weight. Id. at 5-6. Thus, questions of credibility are irrelevant. Ibid. This court applies the same standard in reviewing the trial court's determination. Barsotti v. Merced, 346 N.J. Super. 504, 512 (App. Div. 2002).
There is an additional consideration for the Tax Court when confronted with a Rule 4:37-2(b) motion in a trial challenging a property assessment made by a taxing authority. The assessment enjoys a presumption of validity, and the taxpayer must overcome it by proving the assessment erroneous. Pantasote, supra, 100 N.J. at 412-13. Cogent evidence of true value is necessary to meet that burden; the evidence must be "'definite, positive and certain.'" Id. at 413 (quoting Aetna Life Ins. Co. v. City of Newark, 10 N.J. 99, 105 (1952)). At the close of the plaintiff's case, there must be enough evidence to raise a "debatable question as to the validity of the assessment." MSGW Real Estate Fund, LLC v. Borough of Mountain Lakes, 18 N.J. Tax 364, 376 (Tax 1998).
"'[T]he presumption stands until sufficient competent evidence is adduced to prove a true valuation different from the assessment.'" Pantasote, supra, 100 N.J. at 413 (quoting Aetna, supra, 10 N.J. at 105). But that legal proposition must be understood in light of the nature of this presumption, which is more than "a mechanism to allocate the burden of proof." Ibid. "It is, rather, a construct that expresses the view that in tax matters it is to be presumed that governmental authority has been exercised correctly and in accordance with law." Ibid. "The presumption attaches to the quantum of the tax assessment." Ibid. Accordingly, the presumption may be overcome not only by cogent evidence of a different true value but also by "sufficient collateral grounds, such as an assessment totally unrelated to true value." Id. at 417.
Measured against the foregoing standards, Beach Creek's evidence was adequate to withstand the City's motion. To the extent that the court discounted the opinion of Beach Creek's expert on the ground that there is no authority for a hybrid approach, the court was mistaken.
There is precedent. In Livingston Mall Corp. v. Livingston Township, 15 N.J. Tax 505, 508-09 (Tax 1996), the court was faced with valuing a mall that included three anchor department stores and non-anchor mall stores that were leased. The court concluded that the income approach was not probative of the true value of the anchor stores because of the paucity of the data, and the court determined that it would be appropriate to use the cost approach for the anchor stores because there was no evidence of comparable sales. Id. at 519-22. The court used a different approach for the non-anchor stores, however. Those stores were leased and provided income to the mall owner; for that reason, the court concluded that the income approach should be used to value them. Id. at 522. Consequently, the court in Livingston explained that it had assigned a value to the property by using a "hybrid approach (cost for the anchors, income for the mall stores)." Id. at 527.
Considering Livingston, Vielehr's selection of a hybrid approach because of the quality of the data available was not a reason to grant the City's motion to dismiss. Livingston not only provides authority for such an approach, its approval of the use of a hybrid approach when warranted by the data is wholly consistent with a well-settled principle — "there is no single rule or approach that must be followed in valuing real property." Pantasote, supra, 100 N.J. at 414.
In its other determinations, the court failed to give Vielehr's appraisal the benefit of all favorable inferences. The court discounted the value Vielehr derived for the marina services building on the ground that the expert had not included the cost of the land. Here again, Livingston provides support for the conclusion that Beach Creek's evidence was adequate despite the lack of a value for the land underlying the marina services building — 1500 square feet of the property's 2.61 upland acres, which equals 13,691.6 square feet. In Livingston, the court applied the cost approach to value the three anchor department stores even though it did not have any evidence to determine the value of the land underlying them. See Livingston, supra, 15 N.J. at 527 n.10 (noting the deficiency).
In this case, there is another reason why the absence of a value for this small section of the total land should not have been deemed fatal. There was evidence that would permit the court to infer that Vielehr had accounted for the value of the land underlying the marina services building. Vielehr testified that the income value of the marina services building — and presumably the value of the land underlying it — was captured in the value he assigned to the marina. Giving Beach Creek the benefit of that inference, one could find that Vielehr fully accounted for the value of the land with the income approach, and the building and its amenities with the cost approach.
Similarly, we cannot conclude that Beach Creek was given the benefit of all favorable inferences when the court concluded that the evidence of the restaurant's value was too uncertain to permit a determination of true value. One might reasonably infer that Vielehr considered the proximity of the marina and the Towers when he adjusted the comparable sales to reflect this restaurant's favorable location.
Finally, we reject the court's conclusion that Beach Creek failed to overcome the presumption of the validity afforded to the quantum of these $14.3 million assessments for 2007 and 2008. Here, collateral grounds suggesting that the 2007 and 2008 assessments bore no relationship to the property's true value were brought to the court's attention. While the Bainbridge appraisal was not in evidence, the City intended to rely on it at trial, and the court was informed that the City had relied on it in reducing the property's assessment prospectively to reflect the value recommended in that appraisal. In addition, Beach Creek's attorney advised the court that Bainbridge's appraisal put true value at $4.6 million for the relevant years. These undisputed factual representations established collateral grounds indicating the $14.3 million assessments for 2007 and 2008 were widely off its $4.6 million true value; that was enough to obliterate any presumption that the assessments' quantum was valid. See Pantasote, supra, 100 N.J. at 417; Lancellotti v. Maryland Cas. Co., 260 N.J. Super. 579, 584-85 (App. Div. 1992) (holding that dismissal pursuant to Rule 4:37-2(b) is inappropriate where the plaintiff has indicated an intention to rely on a defense expert). Thus, reliance on the presumption of the validity to dismiss was misplaced.
Indeed, the City's action in moving for dismissal based on Beach Creek's failure to overcome the presumption of validity raises a serious question about the City's performance of its obligation to "'turn square corners'" in litigation. F.M.C. Stores Co. v. Borough of Morris Plains, 100 N.J. 418, 426 (1985) (quoting Gruber v. Mayor & Twp. Comm. of Raritan Twp., 73 N.J. Super. 120, 127 (App. Div.), aff'd, 39 N.J. 1 (1962)). Because the City intended to rely on the $4.6 million appraisal, the City obviously had no evidence suggesting, and no basis for believing, that the 2007 and 2008 assessments were anything but grossly erroneous. The City's pursuit of this motion to dismiss may well have been consistent with sound litigation strategy, but it was inconsistent with the City's obligation to "comport itself with compunction and integrity." Id. at 427. It was also in conflict with the principle of full and fair value that governs the assessment of property taxes under our law. N.J.S.A. 54:4-23a(1).
For all of the foregoing reasons, we reverse and remand for further proceedings.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION