Filed 11/1/18 ; pub. order 11/30/18 (see end of opn.)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

NEXT CENTURY ASSOCIATES, LLC,

Plaintiff and Appellant,

v.

COUNTY OF LOS ANGELES,

Defendant and Respondent. B284092

(Los Angeles Super. Ct. No. BC569076)

APPEAL from a judgment of the Superior Court of Los Angeles, Ro bert L. Hess, Judge. Reversed and remanded with
directions

. Moore & Associates, Kevin J. Moore and Debby S. Doitch for Plaintiff and Appellant. Lamb & Kawakami, Michael K. Slattery, Shane W. Tseng; Mary C. Wickham, County Counsel and Richard Girgado, Se nior Deputy County Counsel for Defendant and Respondent.

_________________________2 Appellant Next Century Associates, LLC (Next Century) 1 seeks a property tax refund for the 2009

- 2010 tax year. It purchased the Century Plaza Hotel, and the real property on which it is located, in mid

- 2008
, for $366.5 million. As of January 1, 2009, the property’s corrected enrolled assessed value , which we will refer to as the enrolled value, was $367,612,305. But, Next Century contends it was entitled to a reduction in the
assessed value because the “global economic meltdown” of late

2008 caused the property’s market value to drop significantly between the date of purchase and January 1, 2009

. Ne xt Century applied for a reduction i n the property’s
assessed value. The C ounty of Los Angeles Assessment Appeals Board No. 4 ( the Board ) held a hearing on the application, at
which both Ne xt Century and representatives of the Los Angeles County Assessor presented evidence on the value of the property using similar disco unted ca sh flow (DCF) analyses.

Both Next Century’s and the Assessor’s DCF analyses
reflected a decline in value below the enrolled value. The Assessor did not attempt to defend the enrolled value of $367,612,305, and neither party offered evid ence supporting tha t valuation.

Instead, the Assessor’s DCF analysis produced a valuation
of $349,800,000

, about $17.8 million below the enrolled value.
The Board rejected the Assessor’s DCF analysis , however,

1 For reasons unknown to us, Next Century was sometimes referred to as New Century in the proceedings below.3

b ecause it contained an admitted erro r : it overstated the hotel ’s
2006 NOI

. 2

Next Century’s DCF analysis produced a valuation of $277,800,000, almost $ 90 million below the enrolled value. Also, Next Century asserts that if the Assessor’s analysis were
corrected for the admitted mistake

, it would generally support
Nex t Century’s proposed value

. While the Assessor does not

agree, he concedes that correcting the error would not increase
his valuation.
In any event , t he Board also rejected Next Century’s proposed valuation , stating without further explanation that the

co mpany’s “income growth rates do not justify a 22% decline in
value from the 2 nd quarter of year 2008 to the lien date 3 of January 1, 2009, and do not justify a 29% decline in the subject property’s NOI from year 2008 to 2013.”
After concluding Next Century had not met its burden of proof, the Board denied the application and left in place the
enrolled value , even though no party thought it correctly reflected the property’s value as of the lien date

. Next Century then brought suit for a property tax refund in
the Superior C ourt . After reviewing the administrative record,

2 Net operating income.

3 “ ‘Lien date’ is the time when taxes for any fiscal year become a lien on property.” (Rev. & Tax. Code, § 117.) All further statutory references are to the Rev enue and Tax ation Code unless otherwise noted.4

and remanding for clarification, the Superior Court entered judgment in favor of R espondent County of Los Ang e les

. On appeal, Next Century contends the Board was required either to accept Ne xt Century’s proposed assessed value, calculate its own assessed value, or direct the Assessor to
recalculate the assessed value.

We conclude that the Board’s rejection of Next Century’s
valuation

, without sufficient explanation, and with knowledge
that th e Assessor’s valuation analysis

— if corrected

— would result in a valuation significantly lower than the enrolled value

, was arbitrary , as was its decision to leave in place an enrolled
value that had been repudiated by the Assessor and was unsupported by an y evidence

. We also conclude that the Board’s cryptic findings are insufficient to bridge the analytic gap
between the evidence and the Board’s conclusions. (See Topanga Assn. for a Scenic Community v. County of Los Angeles (1974) 11 Cal.3d 506, 515, 516 ( Topanga )

. ) And we conclude the record as a whole does not include substantial evidence in support of the Board’s order leaving the enrolled value in place.

We therefore revers e with directions to remand the matter to the Board for a new hearing and more detailed findings.5 BACKGROUND
The material facts are undisputed.

A. Purchase and Initial Assessment
Next Century purchased the hotel property for $366,500,000. 4 The transfer of ownership recorded on June 2,

2008. Article XIII A of the California Constitutio n

— adopted by the voters as Proposition 13 in 1978

— limits the ad valorem tax on real property to one percent of the property’s “full cash value.” (Cal. Const., art. XIIIA, § 1, subd. (a).) Thus, county assessors must “assess all property subject to genera l property taxation at
its full value.” ( Rev. & Tax Code § 401.) Generally, “full cash value” is “the appraised value of real property when purchased, newly constructed, or a ch ange of ownership has occurred .

. . .” (Ca l . Cons t. art. XIIIA, § 2, subd. (a).)
The hotel purchase triggered a reassessment of the
property. A purchase price in a transaction between unrelated parties generally is rebuttably presumed to be the full cash value

, at least to the extent it is allocated to land and improvements subj ect to property taxation

. ( § 110, subd. (b); Cal. Code Regs., tit. 18, § 2, subd. (b).) Here, the reassessment result ed in an
initial enrolled base year value, as later corrected in October

2010 , of $350,000,000. 5

4 The $366.5 million purchase price included the land, improvements, f

ixtures, and personal property.

5 The Assessor originally determined that the base year value was $331,500,000 for the land and $35,000,000 for improvements. The original valuation did not include any allocation for furniture, fixtures, and improvement s because the6 The issue in this case is the assessed v alue for the

2009

− 2010 tax year (July 1, 2009 to June 30, 2010), measured as of the January 1, 2009 lien date. The initial enrolled value of the property for 2009

− 2010 was $384,442,305. After amending the enrolled base year valuation of the property in O ctober 2010, the
A ssessor revised the 2009

− 2010 assessed value to $367,612,305. 6

T his represented the maximum 2 percent annual increase in assessed value for land and improvements permitted under Proposition 13

. ( §51(a)(1)(D); see Cal. Const., art. XIIIA , §§ 1, 2. ) No one contends that the $367,612,305 enroll ed value was incorrectly computed. Rather, Next Century contends that the property should be reassessed because it declined in value shortly after the purchase.

B. Initial Proceedings Before the Assess ment Appeals
Board
Section 1603 permits a taxpayer to seek a reduction in
assessed value from the Board based on an asserted decline in
value. In its verified Application for Changed Assessment filed December 1, 2009

, Next Century did just that, contend i ng that

Assessor was under the impression that New Century intended to demolish the Hotel. The Assessor’s October 2010 revision allocated $250,000,000 to land, and $100,000,000 to improvements, for a total assessed value of $350,000,000. This

corre cted initial valuation is not in dispute in this litigation.

6 The valuation components were $255,000,000 for land, $102,000,000 for improvements, $2,501,540 for fixtures, and $8 ,110,855 for personal property.7

the value as of January 1, 2009 was only $200,000,000. 7 A s the Superior C ourt later pointed out, “[t]his represented a decline of 44% in the total value of the property, a decline of 33.3% in the value of the land, and a decline in the value of th e improvements of 71.6%, from the purchase price in a per iod of less than seven
months.”
By the time of the hearing before the Board on July 25, 2013, Next Century had abandoned its contention that the property was worth only $200,000,000 on the lien date

. Instead, it sought to reduce the enrolled value of $367,612,305 to $277,800,000 as of the January 1, 2009 lien date. The Assessor, on the other hand, argued the property was worth $349,800,000
on the lien date

. At such a hearing, “[a]n assessor is gener ally entitled to the presumption affecting the burden of proof provided in Evidence Code section 664 that he or she has properly performed his or her duty to assess all properties fairly and on an equal basis. [Citations.] ‘Thus, the taxpayer has the bur den of proving the property was improperly assessed. [Citations.]’” ( Farr

, supra , 187 Cal.App.4 th at pp. 682

− 683. ) This is reflected in Cal ifornia
Code of Reg ulations , tit le 18, section 321, subd ivisions (a)

– (b), which provide:

7 The $200,000,000 proposed valuation was c omprised of $170,000,000 for land, $29,000,000 for improvements, and $1,000,000 for furniture, fixtures, and equipment. Section 51(a)(2), which codifies Proposition 8, passed by the voters in 1978, allows for reductions of assessed value due to “factors

c ausing a decline in value.”8 “(a) Subject to exceptio ns set by state law, it is presumed that the assessor has properly performed his or her duties. The effect of this presumption is to impose on the applicant the burden of proving that the value on the assessment roll is not correct or, where applicable, t he property in question has not been otherwise correctly assessed. The law requires that the applicant present independent evidence relevant to the full value of the property or other issue presented by the application.
“(b) If the applicant has presente d evidence, and the assessor has also presented evidence, then the Board must weigh all the evidence to determine whether it has been established by a preponderance of the evidence that the
assessor’s determination is incorrect. The presumption that the

a ssessor has properly performed his or her duties is not evidence and shall not be considered by the Board in its deliberation. ”
After the hearing, t he Board issued written findings of fact. These findings reflect (and the parties do not dispute) that Next Century and the Assessor agreed on the physical description of the property to be assessed, the financial statements for the years

1999

− 2011, that the property should be valued using the DCF approach, and agreed on certain valuation factors, such as the

a ppropriate capitalization rate, for use in the ir respective DCF analyses

. The Board characterized the central dispute as the predicted net operating income for the hotel for the five

- year period following January 1, 2009. Next Century assumed “a no

growth rate for the subject property’s first two years and an inflationary rate for the following years,” while “[t]he Assessor9

utilized reasonable RevPAR 8 growth estimates” with most years not being much higher than the inflationary rate

. The Board’s findings described various similarities and differences with respect to the parties’ DCF analyses.
Next Century noted, and the Assessor conceded, that the
Assessor made an error in the assumed 2006 NOI (expressed as a
percentage of gross revenue) used in the Assess or’s DCF analysis

. As noted above, Next Century contended that if that error were

correcte d, the Assessor’s DCF analysis would support Next Century’s proposed value. T he Assessor conceded that correcting
the error would not increase his valuation. T he B oard , however, rejected the Assessor’s proposed valuation because of the
admitted error.
Ultimately, the Board concluded Next Century’s projected income figures did not justify the reassessment value it sought.
The Board’s key finding appears on the last page of its decision :

“ E. The Applicant has the burden of proof pursuant to State Board of Equalization Rule 321 [C al. C ode R e gs. , title 18, § 321],
and all of [its] evidence and contentions were considered by the
Board. The Applicant’s income growth ra tes do not justify a 22%
decline in value from the 2 nd quarter of year 2008 to the lien date of January 1, 2009, and do not justify a 29% dec line in the subject property’s NOI from year 2008 to year 2013. ”

F or its “Value Conclusion,” the Board stated:

“ Th e Board finds the Applicant did not meet [its] burden of proof in refuting the legally presumed correctness of the

8 Revenue per available room, or RevPAR, requires a prediction of occupancy and room rates.10

Assessor’s enrolled value. Therefore, the Board finds that the Application is denied and directs that the $367,612,305 enrolled

assessment v alue of the Assessor be sustained. ”

C. Initial Proceedings at the Superior Court
As noted above, Next Century then brought suit in the Superior Court to obtain a refund of the property taxes it paid. 9 After considering the evidence submitted by the parties a nd hearing argument, the trial judge issued his “Order Regarding Appeal of Property Tax Valuation.”

In that order, the trial court observed that it “had two significant problems in connection with analyzing the issues
before it. The first is that in their briefs the parties have given the court very little in terms of explanation of the supposed significance of the numbers they presented to the [Board] or how precisely those numbers lead to their respective conclusion. .

. . The second problem is that [Nex t Century] focuses almost entirely on the evidence it contends supports its position. This does not comply with the requirement that when asserting there is a lack of substantial evidence on a point, all the materi al
evidence must be set forth.”
More sign ificantly, the trial court conclude d that the Board’s key finding, quoted above, communicates three things:

“ First , it constitutes an adverse credibility finding on the evidence, particularly the analysis, presented by [ Ne xt Century ]

. Second , it express ly rejects [ Ne xt Century’s ] analysis that the

9 A refund suit generally may be brought only after first seeking relief from the Board. ( Sunrise Retirement Villa v. Dear (1997) 58 C al.App.4 th 948, 958.)11

pertinent income history of the Hotel substantiates a 22% decline in value from June 2008 to the January 1, 2009 lien date. Third

, it also expressly rejects the five

- year projection of NOI (2009

− 2013) which underlay [ Ne xt Century’s ] DCF analysis. ”
Next Century had complained about the adequacy of the Board’s finding s , but t he Court concluded that the key finding : “sufficiently sets forth the basis for the rejection of [Next] Century’s analysis; it does not need to be a specific exposition of all the evidence and analysis.” Moreover, the trial court ruled
that the Board “was permitted to reject a s not credible the claim that the value of the Hotel’s land and improvements had
decreased over 20% in seven months. [Next Century’s] analysis and projections were analogous to an expert’s opinion in a trial court, which the trier of fact was free to accept or to reject. See
CACI 219.”

The trial court remanded the matter to the Board for
clarification o f one issue , however

. As noted above, C al ifornia
Code of Reg ulations, t itle 18, section 321 , subdivision (b) provides in part: “The presumption that the [A] ssessor has properly performed his or her duties is not evidence and shall not be considered by th e Board in its deliberations.” The court was
concerned that the Board may have run afoul of this provision by relying on the presumption as a basis for upholding the enrolled
value. It therefore remanded the matter to the Board “ to reconsider that portio n of its decision establishing the enrolled

assessme nt value as of January 1, 2009, of $367,612,305. To the extent the [Board] rejects the assessor’s value articulated at the hearing (as well as [Next Century’s]), it should state why it has
done so. If t he [Board] determines that its prior analysis and conclusion were correct, it is requested to amplify on the legal12

basis for that determination. If the [Boar d ] determines that some different enrolled assessment value should apply, it should
articulate the reasons supporting the figure it chooses. ”

D. Proceedings on Remand Before the Board
On remand, after a hearing, the Board issued its Addendum to Findings of Fact. In the Addendum, t he Board
reiterated its conclusion s that Next Century had not met its
burde n of proof, and that the Assessor had not presented a
reliable valuation because of the admitted error. The Board
stated it therefore left the existing enrolled value in place. The
Board also s tated it did not rely on the presumption that the
Assessor ha d properly performed his duties. Rather, it stated it left the existing roll value in place because it believed Next Century had failed to carry its burden of proof. Moreover, it
asserted it is not its responsibility t o correct mistakes made by either pa rty or to develop conclusions that are not based upon evidence or testimony presented during a hearing. It again denied the Application. (The Board did not provide any further explanation of why it rejected Next Century’s valuation analysis or why it aff

irmed the enrolled value even though the Assessor believed it was too high .)

E. Proceedings at the Superior Court Post r emand

After the Superior Court received the Addendum to Findings of Fact, it issued a written decision indicat ing it found the addendum resp onsive to its remand order. The court’s order
states, “The Addendum to Findings of Fact reduces to this: the
Assessor’s enrolled value for 2009

− 2010 was not accepted by the [Board] because of a presumption of correctness, but rather because neither [Next Century] nor the Assessor proved by a13

preponderance of the credible evidence that the ir alternative
calculation was correct. This is known in c ivil litigation is a failure of proof by the party with the burden of proof

. [¶] [T]he court is persuaded that substantial evidence supports the [Board’s] determination that the roll value for 2009

− 2010 should be $367,612,305.”

DISCUSSION

A. Standard of Rev iew

“ ‘ “ Where a taxpayer challenges the validity of the valuation method used by an assessor, the trial court must determine as a
matter of law ‘whether the challenged method of valuation is arbitrary, in excess of discretion, or in violation of the stan dards prescribed by law.’ [Citation.] Our review of such a question is
de novo. [Citation.]” ’ ” ( Time Warner Cable Inc. v. County of Los Angeles (2018) 25 Cal.App.5 th 457, 463 ( Time Warner ) .) Here, as noted above, both Next Century and the Assessor u sed similar DCF analyses, and no one challenges that method of valuation. It is expressly permitted by regulation

. (Cal. Code Reg s

. , title 18, §§ 2 , subd. (b), 3 , subd. (e), 8.)

B ut where, as here, “ ‘ “ the taxpayer challenges the application of a val id valuation method, the trial court must review the record presented to the Board to determine whether the Board’s findings are supported by substantial evidence but may not independently weigh the evidence. [Citations.] This

court

. . . reviews a chall enge to application of a valuation method
under the substantial evidence rule. ” ’ ” ( Time Warner, supra , 25 Cal.App.5th at p. 463 .) Other factual determinations by the
Board also are reviewed under the substantial evidence standard.14

( Farr v. County of Nevada (2010) 187 Cal.App.4 th 669, 679

− 680 ( Farr ). )
Of course, to the extent our analy sis involves interpretation of statutes or administrative regulations, or other questions of law, our review is de novo. ( Robles v. Employment Development Dept

. (2015) 236 Cal.App.4 th 530, 546 ; Farr

, supra , 187 Cal.App.4 th at pp. 679

− 680

. ) Finally, “[a] board’s ‘arbitrariness, abuse of discretion, or failure to follow the standards prescribed by the Legislature’ are legal matters subject to judicial correction. [Citations]. ” ( Farr

, supra , 187 Cal.App.4 th a t p. 679.)

B. The Board ’s Decision to Maintain the Existing Roll Value Was Arbitrary and Unsupported by Substantial Evidence

. Next Century purchased its hotel on the eve of an economic
meltdown the likes of which had not been seen in decades. By January 1, 2 009, the housing and stock markets had imploded and the economy had entered a recession. Business activity, including business travel had declined precipitously

. When, and in what fashion a recovery would come was anyone’s guess.
Against that backdrop, N ext Century had the burden of proving the reduced value of its hotel as of the January 1, 2009
lien date. 10 No party sought to support the existing en rol led
value. Next Century provided survey data indicating hotel values across the country declined “at a dizzying pace” following
the dramatic stock market declines of September 2008. The
Assessor conceded the enrolled value was too high, and sought to

10 Section 1601.8 states, “[t]he applicant for a reduction in an assessment on the local roll shall establish the full value of the property by independent evidence.”15

prove a value between the roll value and the value asserted by Next Century. The parties agreed the hotel ’s value had declined, but disagreed about by how much. The real question was how long, and how severe, the recession would be.
Although the Assessor’s analysis contained an error, if the

error were corrected, it would not increase the Assessor’s
valuatio n conclusion (per the Assessor) and might (per Next Century) result in a value consistent with that advocated by Next Century. In other words, if anything, the error made the
Assessor’s proposed valuation too high

. Under these circumstances, i t was incumb ent on the Board to explain in far more detail the deficiencies it perceived in Next Century’s analysis so that the parties and the court could
understand why the Board rejected Next Century’s analysis , and its rationale for affirming the discredited enrol led value

. C learly, the Board has the power to disregard a valuation analysis it
determines for good reason is unpersuasive, and to reject expert testimony that is speculative, unsupported, or otherwise unpersuasive. But it must tell the parties, and rev iewing courts, why it rejects the evidence in other than conclusory terms

. The orderly process of judicial review requires that administrative agencies must “ set forth findings to bridge the analytic gap
between the raw evidence and ultimate decision or o rder. ” ( Topanga , supra, 11 Cal.3d at pp. 515, 516 ; s ee also

, Young v. City of Coronado (2017) 10 Cal.App.5th 408, 420

− 422 .) T his requirement applies with equal force to local Assessment Appeals
Boards. ( Farr, supra, 187 Cal.App.4th at p. 686. )

“ Among other functions, [the] findings requirement serves to conduce the administrative body to draw legally relevant
subconclu sions supportive of its ultimate decision; the intended16

effect is to facilitate orderly analysis and minimize the likelihood that the agency will randomly leap from evidence to conclusions. [Citations.] In addition, findings enable the reviewing court to trace and examine the agency ’ s mode of analysis. [Citations.] Absent such roadsigns, a reviewing court would be forced into unguided and resource

- consuming explorations; it would have to grope through the record to determine whether some combination of credible evidentiary items which supported some line of factual and legal conclusions supported the ultimate order or decision of the agency. ” ( Topanga, supra , 11 Cal.3d at p. 515.)
Here, the Board stated that Next Century’s “income growth rates” do not j ustify the decline in value it sought, nor do they “justify a 29% decline in the subject property’s NOI from year 2008 to year 2013.” But the Board did not indicate (1) how it
reached th ese conclusion s or (2) what value it believes the income growth rates do support and why.
In any event, no party put forth evidence that the existing
roll value remained valid. On the contrary, the parties agreed it was too high. Thus, there was no substantial evidence supporting the continued validity of that valuation a nd any presumption in favor of the existing roll value was rebutted.

The Board was not limited to choosing between the valuation advocated by Next Century, the Assessor, and the existing roll value. Instead, the Board “shall make it s own determination of value based upon the evidence properly admitted at the hearing.” (Cal. Code Regs. , tit. 18, §324 , subd. (b).) If desired, the Board could have continued the hearing to allow the Assessor to correct the defect in his valuation analy sis, so the Board would have the benefit of the Assessor’s opinion. (Cal. Code Regs. , tit. 18, §323 , subd. (c).) But it was not entitled17

to uphold an enrolled value that the Assessor agreed was too high, and was unsupported by any evidence.

DISPOSITION The judgment of the trial court is reversed and the trial court is directed to enter a new judgment vacating the findings of
fact and decision s of the Board and remanding the matter to the Board for a new hearing. Next Century is awarded its costs on

appe al.

CURREY, J. *

We concur:

ROTHSCHILD

, P. J.

BENDIX, J.

* Judge of the Los Angeles Superior Court assigned by the Chief Ju stice pursuant to article VI, section 6 of the California Constitution.18 Filed 11/30 /1 8 I N THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

NEXT CENTURY ASSOCIATES, LLC

,
Plaintiff and Appellant,

v.

COUNTY OF LOS ANGELES

,
Defendant and Respondent. B2 8 4092

( Super. Ct. L

. A

. County No s

. BC 569076, BC594802 )

ORDER CERTIFYING OPINION FOR PUBLICATION

THE COURT*:

Good cause appearing, it is ordered that the opinion in the above entitled matter, filed November 1 , 20 1 8 , be published in the official reports.

___________________________ _________________________________

________________________ _____________________

_____________________ *ROTHSCHILD, P. J. BENDIX, J. CURREY, J.**

* * Judge of the Los Angeles Superior Court assigned by the Chief Justice pur suant to article VI, section 6 of the California Constitution.