Hohokam Resources v. Maricopa County

Citations: 169 Ariz. 596; 821 P.2d 257; 98 Ariz. Adv. Rep. 60; 1991 Ariz. App. LEXIS 298Docket: No. 1 CA-TX 90-028

Court: Court of Appeals of Arizona; October 31, 1991; Arizona; State Appellate Court

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Maricopa County's appeal contests a tax court ruling that found the Maricopa County Assessor unlawfully increased the limited value of Hohokam Resources' parcel for tax year 1988 beyond the permissible limit set by A.R.S. 42-201.02(B). The county also disputes the award of $10,000 in attorneys’ fees to the taxpayer under A.R.S. 12-349, asserting that the county's defense lacked substantial justification and unnecessarily prolonged the proceedings. The appeal raises two main issues: 1) whether A.R.S. 42-405(A) could retroactively validate the county's procedural failures in raising the property's limited value for 1988, and 2) whether the tax court improperly awarded attorneys’ fees against the county. The court affirmed the tax court's judgment.

The facts are not disputed. The taxpayer owned an unimproved parcel in Maricopa County until a commercial building was completed in 1986, significantly increasing the parcel's value. Since the 1980 constitutional amendment, property taxes are based on "limited property value." According to A.R.S. 42-201.02(B), the limited property value for any tax year is based on the prior year's value plus the greater of either 10% of that value or 25% of the difference between the current year's full cash value and the previous year's limited value. A.R.S. 42-201.02(C) allows for setting the limited value without regard to limits if improvements were omitted from the tax rolls due to error, but A.R.S. 42-201.02(D) requires written reporting and board approval for increases based on partially omitted value-adding attributes. In 1987, the assessor increased the limited value to $1,762,245 without dispute. However, in 1988, the assessor raised the limited value to $2,959,940—about a 67% increase—without the required written report or board approval, violating A.R.S. 42-201.02(D).

The taxpayer initiated a civil complaint and a tax appeal in Maricopa County Superior Court, asserting that the county assessor overvalued their property for the tax year 1988, violating A.R.S. 42-201.02. The taxpayer claimed the assessed limited value was excessive and requested a reduction based on statutory requirements. Maricopa County denied these assertions. For the tax year 1989, the county increased the property value to $3,301,939. The taxpayer served discovery papers on the county and was allowed to amend their complaint to contest the property values for both years. The amended notice reiterated the claims of excessive valuation under A.R.S. 42-201.02, which were again denied by the county. Following procedural exchanges, including lists of witnesses and exhibits, the tax court scheduled a trial for January 4, 1990. Maricopa County subsequently sought to continue the trial, citing that the taxpayer revealed procedural deficiencies in the assessor's valuation process for 1988, specifically that the county failed to adhere to the necessary reporting and approval procedures for value increases, which would lead to a lower assessment under A.R.S. 42-201.02.

A procedural error occurred in 1988 regarding the limited property value of Parcel 122-40-133, which the County acknowledges but seeks to correct under A.R.S. Sec. 42-405. The County scheduled a hearing for January 8, 1990, to discuss a correction to the 1988 limited property value, proposing it be set at $2,959,940. The taxpayer opposed this, claiming A.R.S. 42-405 was inapplicable and asserting that the County was only aware of the alleged error during discovery. The County contended that it required a clear statement from the taxpayer regarding the property’s full cash value before proceeding.

On January 2, 1990, the tax court confirmed the trial date, and the taxpayer filed a memorandum on the applicability of A.R.S. 42-405, referencing a prior letter sent to the Assessor in May 1988 that outlined procedural requirements for increasing the limited property value. At trial, both parties agreed that the County had not followed the proper procedures mandated by A.R.S. 42-201.02(D) for raising the limited property value. The tax court ultimately ruled in favor of the taxpayer, stating that while A.R.S. 42-405 allows for corrections to tax rolls, it requires notice to the taxpayer if such corrections would increase valuations. The court rejected the County's argument that increasing the property value was a mere ministerial function, emphasizing the necessity of following statutory procedures.

Limited property value increases can only occur under A.R.S. 42-201.02, with increases beyond specified limits requiring justification by the Assessor and approval from the board of supervisors. If the board does not approve, limited value remains constrained by A.R.S. 42-201.02(B). A.R.S. 42-405 cannot be used to establish limited value increases if A.R.S. 42-201.02(D) has not been properly followed. Each year is treated independently regarding compliance with A.R.S. 42-201.02(D), allowing for increases in subsequent years if missed in prior years due to the County's failure to comply. The Court ordered reductions in limited property values for 1988 and 1989 to align with A.R.S. 42-201.02(B). On January 8, 1990, the Maricopa County Board approved a limited property value for the taxpayer's parcel, which the taxpayer subsequently challenged in a tax appeal. The taxpayer also filed for attorneys’ fees under A.R.S. 12-348, and the tax court awarded $10,000 in fees, criticizing Maricopa County for attempting to circumvent compliance with A.R.S. 42-201.02(D) by using A.R.S. 42-405. The Court denied the County's motion to continue the trial, advising against further Board applications while the matter was under advisement, yet the County proceeded, causing additional expenses for the taxpayer.

Maricopa County's defense in this dispute was found to be unjustified, causing unreasonable delays in the proceedings. The Court awarded the Plaintiff $10,000 in attorney's fees under A.R.S. 12-349, acknowledging that the Plaintiff's request for $14,000 was reasonable but compromised due to statutory limitations and the County's failure to expediently resolve factual disputes. The tax court issued formal findings and the County subsequently appealed, with jurisdiction established under A.R.S. 12-2101(B).

Regarding retroactive validation of property values, Maricopa County contended that the tax court erred by ruling that the error correction mechanism in A.R.S. 42-405 could not retroactively rectify the County Assessor's procedural failures in raising the taxpayer's property value for 1988 above statutory limits. The County argued that this ruling created an unjust windfall for the taxpayer and constituted judicial legislation, citing previous cases for support. 

The Court clarified that while A.R.S. 42-405 is unambiguous, it disagreed with the County's interpretation. Subsection A of the statute pertains solely to correcting errors found in official assessment documents and allows corrections by the official in control of those records. The County had not utilized A.R.S. 42-405 to physically amend the assessment list or tax roll for 1988, which was necessary for compliance with the statute's intent to ensure accurate public records in real property taxation.

The county intends to retain documents in their original form but seeks to retroactively validate a procedural step required by A.R.S. 42-201.02(D) to increase the taxpayer’s property value for 1988. A.R.S. 42-405 is cited as the basis for this action; however, the language does not support such retroactive validation, as acknowledged by the county’s counsel during tax court proceedings. The court noted that A.R.S. 42-405 allows corrections only after the assessment roll has been closed, which does not apply to the county's situation. The county's reference to the Wallapai Mining case is deemed inappropriate as it did not address a predecessor statute relevant to the current case but rather a law from 1903 concerning tax bill certification. Similarly, the Blubaum case does not support the county's actions, as it involved valid corrections to assessments rather than the retroactive validation sought by the county. The tax court correctly ruled that A.R.S. 42-405 does not permit retroactive validation of property value increases that violate A.R.S. 42-201.02(B) and (D). However, the county may seek future increases above the limits by complying with A.R.S. 42-201.02(D) in subsequent tax years.

Regarding attorneys’ fees, the taxpayer requested fees against Maricopa County under A.R.S. 12-348, but the tax court's award was based solely on A.R.S. 12-349, negating the county's arguments about the applicability of A.R.S. 12-348. The county also contended that the taxpayer's fee petition was insufficient per the standards set in Schweiger v. China Doll Restaurant, Inc., but the court found that the petition implicitly indicated agreed hourly rates and that billing statements supported the fees claimed, thus rejecting the county's objections.

The billing statements submitted by the taxpayer were sufficiently detailed, countering the county's argument that they were mere 'broad summaries.' The county failed to prove that the tax court's significant reduction of the fee award did not adequately address its claims regarding allegedly duplicative or unnecessary time spent on services. The tax court had ample evidence to assess the quality of the taxpayer’s attorneys, the nature of the work performed, and the outcomes achieved.

Regarding the admissibility of the taxpayer's attorneys’ fees affidavit, Maricopa County claimed it was inadmissible hearsay and that the taxpayer did not demonstrate the need for summary evidence under the relevant rules of evidence. The court disagreed, noting that the county did not provide legal authority to challenge the use of the affidavit for a post-trial attorneys’ fee request, and that the superior court's proceedings are less formal. The county objected to the sufficiency of the evidence but did not request an evidentiary hearing.

Finally, the tax court's award of attorneys’ fees under A.R.S. 12-349 was upheld despite the county's objections regarding the taxpayer's knowledge of procedural history and the use of an unintroduced letter as evidence. The court found that the county did not expediently address the taxpayer's allegations regarding the property value assessment and delayed its response significantly, undermining its position in the case.

Maricopa County's claim of surprise regarding the taxpayer’s discovery responses was viewed by the tax court as an indication of the county's inadequate investigation into the allegations made in the taxpayer's amended notice of appeal. This notice asserted that the county assessor did not comply with A.R.S. 42-201.02 when determining the limited property value for the parcel. A competent attorney for the county would have reviewed the assessor's records and recognized that the taxpayer's property value for 1988 exceeded the allowed limits without following the required procedures. The tax court noted that the relevant information was more accessible to the county than to the taxpayer, justifying its conclusion that the county's conduct unreasonably expanded or delayed the proceedings as per A.R.S. 12-349(A)(3).

The taxpayer sought attorneys’ fees on appeal under A.R.S. 12-349 and Rule 25, Ariz.R.Civ. App. P., which the court granted, noting that Maricopa County's extensive and irrelevant arguments had unnecessarily prolonged the appeal. The court considered all relevant factors outlined in A.R.S. 12-350. The taxpayer is instructed to determine the amount of the award following Rule 21, Ariz. R.Civ. App. P. The decision was affirmed with concurrence from Judge Contreras and Retired Judge Melvyn T. Shelley.

Approval by the board to adjust the limited property value requires a majority vote at a regular meeting, with the new valuation reflecting any omitted or incorrectly stated characteristics as if they were modifications occurring post-1979. The 1989 legislation retained the core elements of subsections (B), (C), and (D) while amending subsection (B). According to A.R.S. 42-405, corrections to omissions or errors in assessment lists can be made by the assessor or county treasurer with prior approval from the department and county board of supervisors, even after publication of delinquent lists. Any increase in valuation must be preceded by a minimum of twenty days' notice to affected property owners, detailing the proposed changes and hearing information. Taxpayers dissatisfied with property valuations can appeal to the state board of tax appeals or superior court. A taxpayer's assertion of a limited property value of $2,454,699 is based on a calculation involving a ten percent increase from the prior year’s limited value or a percentage of the difference between full cash value and previous limited value. For the subsequent tax year, an additional calculation yields a prospective limited value of $2,923,007, in contrast to the assessed value of $3,301,939. This appeal is assigned to Department T of the court, with provisions for awarding fees and expenses to prevailing parties in tax-related civil actions as per A.R.S. 12-348.

Effective September 1, 1990, Arizona Revised Statutes (A.R.S.) 12-348 was amended to allow courts discretion in awarding attorneys' fees for tax appeals filed for tax year 1991 and beyond, including the ability to make counties liable for such awards. A.R.S. 12-349 outlines circumstances under which a court can impose reasonable attorneys' fees and double damages (up to $5,000) against attorneys or parties, including the state, if they engage in actions such as filing claims without substantial justification, for delay or harassment, unnecessarily prolonging proceedings, or abusing discovery. "Without substantial justification" is defined as actions that are harassing, groundless, or not made in good faith. A.R.S. 12-350 mandates that when awarding attorneys' fees under 12-349, the court must articulate specific reasons, considering factors such as efforts to ascertain claim validity prior to filing, post-filing efforts to streamline claims, availability of pertinent facts, financial positions of the parties, bad faith in prosecution or defense, conflicting factual issues, the degree of success in the claims, and the relevance of any settlement offers compared to the final court ruling.