Title: Town of Victory v. State

State: vermont

Issuer: Vermont Supreme Court

Document:

Town of Victory v. State (2003-196); 177 Vt. 365; 865 A.2d 402

2004 VT 110

[Filed 22-Oct-2004]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.

                                 2004 VT 110

                                No. 2003-196

  Town of Victory	                         Supreme Court

                                                 On Appeal from
       v.	                                 Essex Superior Court

  State of Vermont	                         April Term, 2004

  M. Kathleen Manley, J.

  Philip H. White of Wilson & White, P.C., Montpelier, for
    Plaintiff-Appellee.

  William H. Sorrell, Attorney General, and Mary L. Bachman, Special
    Assistant Attorney General, Montpelier, for Defendant-Appellant.

  PRESENT:  Amestoy, C.J., (FN1)  Dooley, Johnson, Skoglund and Reiber, JJ.

        
       ¶  1.  DOOLEY, J.  The Vermont Department of Taxes (State) appeals
  from an Essex Superior Court decision setting the 1999 fair market value of
  land owned by the Agency of Natural Resources (ANR) in the Town of Victory
  (Town).  Pursuant to 32 V.S.A. § 3708, the State makes annual payments in
  lieu of taxes (PILOT) to towns in which ANR owns land.  The PILOT payments
  at issue are based on the appraisal value of the land as set by the
  director of property valuation and review (PVR), 3 V.S.A. § 2289, a
  division of the Department of Taxes.  See 32 V.S.A. § 3708(a) (instructing
  director of PVR to appraise all ANR-owned land, and directing the State to
  make PILOT payments).  Under § 3708(d), a town that disagrees with the
  director's appraisal can appeal the set value to the superior court, as the
  Town did in this case.  In that appeal, the superior court found that the
  director's valuation was invalid and set a valuation substantially above
  the director's appraisal.  We affirm in part, vacate the valuation of
  forest land set by the superior court, and remand to the director of PVR.  

       ¶  2.  ANR owns over 19,310 acres of land in the Town.  Of that
  amount, 8724 acres are enrolled in the agricultural and managed forest land
  use value program, 32 V.S.A. §§ 3751-3763, and are not part of this appeal. 
  Most of the remaining acreage, 10,068 acres, is located in the Victory
  State Forest, with a small amount, 518 acres, in the Victory Basin, also
  known as Victory Bog.  In 1999, the director of PVR appraised the forest
  land at $211.05 per acre and the basin land at $183.59 per acre.  The land
  consists of both timberland and wetlands.  The record indicates that
  approximately eighty percent of the forest land could be commercially
  productive, while the basin land has little commercial viability.

       ¶  3.  The 1999 appraisals by the director of PVR did not change the
  values from those arrived at in 1995, the year of the previous appraisal. 
  In 1995, Robert Beaulieu, then a PVR district advisor, appraised the forest
  and basin lands to set their values for ANR's 1996 PILOT payment. (FN2) 
  The trial court found that to determine the value, Beaulieu used a mass
  appraisal methodology in the following manner:

    a) He was physically on-site on approximately six occasions, but
    did not inspect the property other than what he was able to
    observe from his immediate location.

    b) He reviewed Property Transfer Tax Returns (PTTR) for large acre
    sales lying in his district and in parts of adjoining districts to
    include more parcels[,] including Essex, Caledonia, Orleans, [and]
    parts of Orange and Washington counties for two years prior to
    1995.  From that review he selected timberland parcels over 300
    acres or larger.  He excluded any sale that appeared from the PTTR
    to be non-arm's length and two parcels with extreme values, one
    very high and one very low.

    c) Using a base of 8 sales, Beaulieu calculated the per acre price
    for each sale, totaled the per acre values and divided by 8 to
    arrive at an unweighted average.  This method is also referred to
    as a parcel-weighted mean which gives each parcel in the sales
    base equal weight.  This produced an average per acre value of
    $328.

    d) Beaulieu adjusted this average for land in the Victory Forest
    by applying two adjustment factors.  He applied a .8 factor for
    location (a 20% reduction from the average property in his base
    properties) and a .8 factor for topography (20% reduction from the
    average property in his base properties).  The location adjustment
    was made due to the relative remoteness of Victory Forest and the
    topography adjustment was made due to the steepness and wetness of
    the land.

  This methodology yielded an appraisal of $211.05 per acre for the forest
  land and $183.59 per acre for the basin land as the basis for the 1996
  ANR-land PILOT payment.

       ¶  4.  To determine the 1997 PILOT payment, district advisor Stearns
  Allen reviewed the value set by Beaulieu and recommended no changes. 
  Similarly, in 1998, district advisor Douglas Lay considered Beaulieu's
  valuation and did not increase the value of ANR's lands.  The appraisal for
  1999, the year in question, proceeded in a similar manner.  In that year,
  district advisor John Westinghouse reviewed the Beaulieu values and
  recommended no adjustments.  We note that there were no appraisal protocols
  that the district advisors were required to follow in any of these years. 
  Following Westinghouse's appraisal, the Town appealed the valuation to the
  superior court.
   
       ¶  5.  During the appeal, the Town attacked the PVR appraisal, but
  did not introduce its own alternative appraisal.  The State, in opposition,
  introduced independent evidence that supported the valuation and argued
  that the Town failed to meet its burden of proof because it did not
  introduce its own appraisal.  Both sides presented several witnesses.  In
  its findings and order, the trial court reviewed in detail both the
  valuation determined in 1995 and the subsequent decisions to continue that
  valuation for the 1997-99 PILOT payments.
         
       ¶  6.  Before addressing the merits of the appeal, the court
  considered the applicable standard of review.  Observing that the standard
  of review for an appeal in the context of the PILOT program is not set
  forth in § 3708, and that this Court has not spoken on this issue, the
  court considered arguments from both sides.  The State and the Town both
  agreed that the most analogous process to a PILOT appeal is an appeal of a
  lister's appraisal under 32 V.S.A. § 4467.  Both parties were in accord
  that under § 4467 the trial court reviews the appraisal de novo; however,
  the Town further asserted that the PVR appraisal is given no deference
  whatsoever.  The State, in contrast, contended that although a § 4467
  appeal is de novo, a presumption of validity and legality attaches to the
  lister's work, and, therefore, to overturn the appraisal, the opponent must
  show that the valuation was either arbitrary and capricious or unlawful. 
  The court accepted the State's view, and applied the arbitrary and
  capricious standard.

       ¶  7.  Turning to the merits of the appeal, the trial court, although
  recognizing that there is a significant amount of "individual discretion
  and judgment involved in appraisal methodology," rejected the 1999
  appraisal.  In reaching the conclusion that the 1999 appraisal was invalid,
  the court first addressed the 1995 Beaulieu appraisal.  The court found
  this appraisal unreliable stating, "its ad hoc and essentially arbitrary
  nature reflects both the lack of any guiding standardized appraisal
  methodology or procedures on the part of PVR at that time, and an approach
  that relies primarily on vague general impressions rather than feasible
  empirical research and evaluation."
   
       ¶  8.  The court went on to detail the reasons for finding that the
  Beaulieu appraisal was unreliable: (1) he selected his eight comparable
  land tracts solely on the basis that they were larger than 300 acres and
  the PTTR indicated that they were timberland, but he neither determined the
  individual characteristics of the comparables nor learned their exact
  location or topography; (2) he did not consider the "forest
  potential"-timber rights, the existence of a forest management plan, or the
  impact of recent logging-in his calculation; (3) with respect to the eight
  comparable parcels, he used an unweighted average, so that every comparable
  was considered the same, an approach the court found "assumes that
  adjustments to the parcel values are made before averaging, to reflect
  differences in the individual parcels;" (4) his reduction adjustments, 20%
  for location and 20% for topography, were based on only a general
  familiarity with the district and not serious analysis; and (5) he did not
  consider a 1995 acquisition by the Nature Conservancy of a 2600 acre
  parcel, approximately 1100 acres of which is in the town of Victory, with
  the remainder in the adjoining towns of Concord and Lunenberg.  The court
  felt that the third reason was a "disqualifying defect" in the property
  valuation.  The court was particularly influenced by the fifth reason
  because the land acquired by the Nature Conservancy was transferred to the
  State and became part of the Victory Forest, and the price the Nature
  Conservancy paid, $275 per acre, was based on a full appraisal.  Yet,
  Beaulieu disregarded the sale, reasoning that a sale to a government or
  conservation entity is suspect as to fair market value because these
  agencies may be willing to pay more than economic value for timberland. 
  Thus, in 1996, he added the additional 1100 acres to the size of the
  Victory Forest parcel and valued it at the 1995 level of $211.05 per acre.  
   
       ¶  9.  After reviewing the Beaulieu appraisal, the court addressed
  the subsequent reviews conducted by the various district advisors.  The
  court concluded that these reviews were fatally flawed.  Specifically, the
  court found that in 1997 Allen's review showed that he accepted the
  Beaulieu valuation "based upon general familiarity with the area" and had
  no knowledge of the lack of a comparable basis in the comparable parcels. 
  Similarly, Lay reviewed the Beaulieu appraisal, but conducted no
  independent inquiry into the valuation.  In like manner, Westinghouse only
  reviewed Lay's workfile and did not review the original appraisal.  Also,
  Westinghouse was aware of two land transactions that he did not take into
  account when reviewing valuation for the 1999 PILOT payment.  The first
  transaction, which was being finalized in 1999, involved the purchase by
  the State, federal government and private conservation groups of 137,000
  acres owned by Champion Paper Company.  The second transaction involved the
  sale of approximately 15,000 acres known as the "John Hancock" property to
  GMO Forestry for $247 per acre.  This sale did not occur until after the
  valuation date, but the court found "it is a tract of timberland similar in
  size and location to Victory Forest." 

       ¶  10.  Given these findings, the court ruled that there was
  insufficient evidence to show that the valuation of the basin land was
  inaccurate, but concluded that the 1999 valuation of the Victory Forest
  land was invalid.  The court explained it found the 1995 appraisal
  questionable and arbitrary.  Additionally, it found the subsequent reviews
  insufficient and in contravention of § 3708(a)(1), which requires an
  "appraisal value for the current year."  Accordingly, the court found the
  valuation arbitrary and unlawful because it did not reflect the statutory
  mandate of § 3708.  The court rejected the State's argument that the Town
  failed to meet its burden because it did not introduce an independent
  appraisal and found that "sufficient evidence was elicited during the
  course of the hearing to establish a fair market value based on the
  testimony of the numerous witnesses, most of whom were or are involved in
  appraising timberland property."  The court then went on to arrive at its
  own valuation for the forest land.
   
       ¶  11.  In setting its own valuation, the court explained that it
  found two transactions highly relevant.  The first was the 1995 acquisition
  by the Nature Conservancy of 2600 acres, 1100 of which are in the Town of
  Victory.  The land in this transfer was valued at $275 per acre.  The
  second was the transfer in 1999 of approximately 15,000 acres to GMO
  Forestry at $247 per acre.  The court noted that this second transaction
  was particularly relevant because it was an arm's length transfer of a
  large tract of timberland that was similar in size and location to the
  forest land.  Finding this second transaction highly persuasive, the court
  adopted this valuation and set the forest land value at $247 per acre.  

       ¶  12.  While the court's order explained in full detail the flaws in
  the 1995 valuation and its adoption in subsequent years, it did not address
  the additional evidence submitted by the State supporting the $211 per acre
  valuation.  Accordingly, following the issuance of the order, the State
  moved pursuant to Vermont Rules of Civil Procedure 52(b) and 59(e) to amend
  the court's findings and judgment.  The State requested that the court
  adopt twenty-two additional findings. (FN3)  Most of the requested findings
  related to additional land valuations and transactions that supported the
  $211 per acre valuation.  The court denied the State's motion with no
  explanation.  This appeal followed.

       ¶  13.  The State argues that the trial court erred because: (1) it
  disregarded the additional evidence supporting the $211 valuation and based
  its decision primarily on perceived flaws in the Beaulieu valuation; (2) it
  did not accord any deference to the value set by the director of PVR; (3)
  it chose a value of $247 per acre based on a sale that occurred after the
  1999 valuation date and ignored substantial evidence introduced by the
  State supporting a lower value; and (4) it failed to make findings of
  uncontested fact in its initial order and failed to amend its findings to
  incorporate those facts.  The State has not appealed the court's
  determination that the PVR valuation was arbitrary and capricious.
   
       ¶  14.  We conclude that this appeal is governed by our determination
  of the proper standard of review for appeals from PVR appraisals under §
  3708, and do not reach the other issues raised by the State.  As the trial
  court observed, § 3708 does not state the standard of review that the court
  must use when hearing a valuation appeal from PVR, and we have not
  addressed the issue.  In essence, the superior court ruled that it could
  not uphold the PVR valuation under any standard of review and that it was
  required, therefore, to determine the proper valuation.  We review the
  court's interpretation of the law de novo.  In re Beckstrom, 2004 VT 32,
  ¶ 9, 15 Vt. L. Wk. 152,