Tilting at Tax Appeals

By Daniel Richardson

Sobel v. City of Rutland, 2012 VT 84.

Sometimes a lawsuit is nothing more than a prolonged reaction to a single mistake.  A driver appears to waive another car forward, and the parties spend years litigating the question of whether this gesture caused the ensuing accident. 

Today’s appeal is essentially this problem writ large.  Plaintiffs are doctors who had the entrepreneurial idea to buy a residential property in Rutland, tear it down, and build an office building where they could house their practice and potentially charge commercial tenants commercial rents.

 

As part of their due diligence, Plaintiffs wanted to know how much property tax this project was likely to cost.  Rather than hiring their own appraiser, they cleverly contacted their friendly neighborhood City Assessor and gave him some rough outlines of the project.  Assessor responded to Plaintiffs’ inquiries with a series of best-guess-estimates that were disclaimed and clearly labeled as such.  Assessor did not charge Plaintiffs for his work but did it as a function of his position with the City.

Plaintiffs went ahead with construction.  Several months and $700,000 later, they had a new office building, and shortly thereafter a new tax bill.  Plaintiffs were shocked—shocked even—when their first tax bill arrived and listed the new property at $649,000 ($553,000 for the house and $96,000 for the land) which was twice as high for the building as one of the estimates the Assessor had initially made on the limited information given to him.  (Note, the SCOV’s record seems to indicate that the Assessor had given out other estimates that were closer).

Plaintiffs were not happy.  They appealed their assessment, but it was upheld by the Board of Civil Authority and then the state appraiser. 

Not a big surprise.  Plaintiffs could not really argue with the assessment.  They had just poured $700,000 into the property.  Assessing it 78% of that amount is probably close to what Plaintiffs would believe the property to be worth.  After all it is a commercial property that Plaintiffs built for profit rather than to express aesthetic joy. 

Plaintiff’s beef was not really with the valuation but the fact that they had been led to believe that it was going to be lower.

Enter present lawsuit where Plaintiffs seek compensation for what they characterize as the Assessor’s negligent misrepresentation and on the basis of equitable estoppel.  Plaintiffs’ basic theory is that they relied on the estimates provided by the Assessor, and they should not be held responsible for Assessor’s bad guesses.

This theory did not have legs at the trial court level, and it comes to the SCOV on grant of summary judgment.

The SCOV agrees with the trial court and makes quick work of the appeal.  For municipal law junkies, though, the meat of the SCOV’s discussion offers some good language on the ever-tricky issue of municipal immunity.

Like many municipal liability cases, the issue here is not one of merits but of defenses.  The primary question before the SCOV is whether the Assessor (and by extension the City) is protected from liability by municipal immunity. 

Any form of immunity is hard to explain, but municipal immunity is a particularly knotty concept.  The first thing to remember is that immunity comes before anything else.  It comes before the court weighs the merits of the claim.  It comes before the plaintiff can even build her case.  It is basically a doctrine that says—no matter the alleged negligence or incompetence, we will not let a private action stand against the city or its employee.  It is a threshold question that is usually confuses everyone.  How can you dismiss those serious claims against that nogoodnik state employee?  The answer is immunity. 

The working theory here is that there are certain governmental functions that are immune from liability.  In other words, we recognize that there are dangerous, undesirable, necessary jobs that fall to government.  In return for doing them, we, as a society, agree to hold them harmless.  There is also the fact that responsibility for any liability ultimately rests with the taxpayers.

The test of municipal immunity rests on a governmental–proprietary distinction.  If the city was doing something that we associate primarily with governments (legislating, fighting a fire, plowing a street), then the action is immune from liability.  If the city was doing something that we associate primarily with private business (selling gravel to companies, running concession at a baseball game, plowing private driveways), then the action is not immune and a lawsuit may proceed.

As you can imagine, the grey area under this test often threatens to outstrip the bright-lines. 

Here the problem is one of perspective.  There is no doubt that the Assessor was acting as an assessor when Plaintiffs contacted him, but the specific acts that he performed were not strictly assessor duties.  There is no statute, rule, or obligation that requires or allows an assessor to offer off-the-cuff estimates on what future construction projects might be worth on the Grand List.  This is more the province of the private appraiser.  Assessor was just being nice and doing a favor. 

The SCOV looks to the bigger picture.  Just because Assessor was not required to provide this estimate does not make it a proprietary function.  This is part of his job as Assessor—to interact with the public provide information, give of his skills to the citizens who benefit from this type of work.  Furthermore, this was a freebie.  Neither the Assessor nor the City benefited from this work.  It was pure public service, which means you get what you don’t directly pay for.

In the end, the SCOV finds this ancillary action by the Assessor to be a governmental function in the way it was conducted, in the nature of the service provided, and its relation to the larger function of the Assessor’s Office.

The SCOV makes a final stop in the realm of equitable estoppel.  This is a doctrine that says if someone makes a false statement and another person reasonably relies upon it to her detriment, the courts should provide a remedy no matter what the law says.  As a judge once told me, if you are leading off with equity, son, you are in a world of trouble already.  Equitable estoppel is basically there to prevent someone from being a bad actor and getting away with it on a technicality.  It is basic fairness, but the SCOV, like most courts, won’t go too far into equity if the facts do not clearly support such relief. 

You can guess how it turns out here.  The Assessor warned Plaintiffs not to rely or invest on his estimates.  He limited his opinion, and it was neither reasonable nor fair to think he was misleading Plaintiffs.  They relied on a result that was explicitly limited.  When it blew up, they were the only ones holding the fuse.

For Plaintiffs, it is a hard lesson.  Mistakes happen, but sometimes liability doesn’t.