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Valley Forge Towers Apartments N, LP v. Upper Merion Area School District

Supreme Court of Pennsylvania

July 5, 2017


          ARGUED: March 8, 2017

         Appeal from the Order of the Commonwealth Court at No. 1960 CD 2014 dated 9/10/15 affirming the order of the Montgomery County Court of Common Pleas, Civil Division, at No. 2014-09870 dated 10/9/14




         This appeal raises the question of whether the Uniformity Clause of the Pennsylvania Constitution permits a taxing authority to selectively appeal only the assessments of commercial properties, such as apartment complexes, while choosing not to appeal the assessments of other types of property - most notably, single-family residential homes - many of which are under-assessed by a greater percentage.

         I. Background

         The appeal derives from a complaint that was dismissed on a demurrer. Accordingly, the facts as recited below are drawn from it and developed favorably to Appellants, and we assume the truth of all well-pleaded allegations. See Small v. Horn, 554 Pa. 600, 608, 722 A.2d 664, 668 (1998).

         The Upper Merion Area School District (the "School District"), is a taxing district in Montgomery County (the "County"), where the most recent countywide assessment of real property occurred in 1996. Since then, the market value of many of the parcels in the County, including properties within the School District, have changed, leading to significant discrepancies and a wide range of assessment ratios.[1] The School District contains commercial, industrial, and single-family residential properties. Many of the residential properties have an assessment ratio below that of many of the commercial properties. In addition, 80 percent of the single-family homes in the district have assessment ratios below the County's common-level ratio ("CLR").[2]

         The School District decided to appeal the assessments of some of the properties within its boundaries. To this end, it retained Keystone Realty Advisors ("Keystone"), a private firm, to advise it as to which properties should be targeted for appeal. On Keystone's recommendation, the School District concentrated solely on commercial properties, including apartment complexes. They did so because these properties' values were generally higher than those of single-family homes, and hence, raising their assessments would result in a greater tax-revenue increase than doing the same with under-assessed single-family homes, including those which were under-assessed by a greater percentage. Another alleged factor motivating the decision was that most such homes are owned by School District residents who vote in local elections, and it would be politically unpopular to appeal their assessments.[3]

         Appellants own apartment complexes in the School District. Per the above strategy, and believing Appellants' properties were under-assessed, the School District filed administrative appeals, see 53 Pa.C.S. §8855 (giving taxing districts the same right as taxpayers, under the Consolidated County Assessment Law, to pursue administrative appeals), which were denied by the County's Board of Assessment Appeals (the "Board"). The district appealed the denials to the common pleas court. See id. §8854(a) (providing the parties to an administrative appeal with the right to seek judicial review of a decision by the Board).

         While those individual cases were pending, Appellants filed the present complaint, seeking declaratory and injunctive relief against the School District on the theory that it had violated the state charter's Uniformity Clause, see Pa. Const. art. VIII, §1 ("All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws."), by systematically appealing only the assessments of commercial properties.[4] In their complaint, Appellants acknowledged that the School District's appeals of their assessments were proceeding in the county court. However, they averred they lacked an adequate remedy at law because the uniformity violation which they asserted could not be cured via the statutory appeals process - and hence, they were not required to exhaust statutory remedies. In particular, they reasoned, their claims were directed to an overall strategy on the part of the School District to discriminate against commercial properties as a group by targeting them for administrative appeals while ignoring lower assessment ratios among single-family homes. See Complaint at 20-21, ¶¶103-105. Appellants therefore sought a declaration that the School District's actions comprised an unconstitutional application of Section 8855, as well as an injunction preventing the district from continuing to engage in the alleged pattern of selective and discriminatory application of that statute.[5]

         The School District filed preliminary objections, including demurrers to the individual claims, as well as one objection alleging a failure to exhaust statutory remedies and another alleging a lack of jurisdiction due to such failure. As to the demurrers, the district proffered that it had a statutory right to appeal property assessments, and that selective appeals do not violate the Uniformity Clause as a matter of law. See Defendants' Preliminary Objections at 6, ¶¶29, 30. With regard to the exhaustion and jurisdictional preliminary objections, the district forwarded that the constitutional claim Appellants raised in their equity complaint could be raised and adjudicated in their individual administrative appeals. See id. at 4-5, ¶¶20, 25.

         The common pleas court sustained the preliminary objections and dismissed the complaint. The court indicated Appellants' claims failed as a matter of law because the School District was not the entity that set assessments, and Section 8855 gave it a clear statutory right to appeal tax assessments set by the County. See Valley Forge Towers Apts. N, L.P., v. Upper Merion Area Sch. Dist., No 2014-09870, slip op. at 3 (C.P. Montgomery Jan. 2, 2015). In rejecting Appellants' argument relating to discriminatory treatment, the Court indicated that "[t]he filing of selective appeals does not result in a uniformity violation, and it is not deliberate discrimination." Id. at 6 (citing Weissenberger v. Chester Cnty. Bd. of Assessment Appeals, 62 A.3d 501, 508-09 (Pa. Cmwlth. 2013) (en banc)). In this regard, the court ultimately concluded, more generally, that "the Uniformity Clause does not require equalization across all sub-classifications of real property." Id. at 7 (citing In re Springfield Sch. Dist., 101 A.3d 835, 849 (Pa. Cmwlth. 2014)).[6]

         The Commonwealth Court affirmed in a published decision. See Valley Forge Towers Apts. N, L.P., v. Upper Merion Area Sch. Dist., 124 A.3d 363 (Pa. Cmwlth. 2015). It first considered Appellants' assertion that Springfield had misquoted Downingtown Area School District v. Chester County Board of Assessment Appeals, 590 Pa. 459, 913 A.2d 194 (2006), and had, therefore, mischaracterized the relationship between the federal Equal Protection Clause and the Uniformity Clause. Consistent with the common pleas court, the Commonwealth Court rejected this contention. It reasoned that its pre-Springfield decision in Weissenberger v. Chester County Board of Assessment Appeals, 62 A.3d 501 (Pa. Cmwlth. 2013), had addressed the same argument and clarified that equalization is not required across all property sub-classifications. See Valley Forge, 124 A.3d at 367 (quoting Weissenberger, 62 A.3d at 506-09). Turning to the present case, the court recognized that the School District had allegedly created a sub-classification of properties (commercial ones) which it treated differently from other property sub-classes. The court concluded, however, that no suspect or sensitive classification was thereby formed, and hence, the classification was constitutionally permissible as long as it satisfied the deferential rational-basis test. That test was met, the court held, because, according to Appellants' averments, the School District's purpose was to increase revenues sufficiently to justify the costs of appealing. See id. at 368.

         The court additionally acknowledged Appellants' allegation that the School District opted not to appeal the assessments of single-family homes for political reasons. See id. at 367. Somewhat inconsistently, it later stated that Appellants did not make any such allegation because they also averred that: (a) Keystone was the party deciding which properties to target for appeals, see id. at 368, and (b) the School District and Keystone were both motivated by economic gain. See id. at 370.[7]

         Finally, the intermediate court observed that, to bypass statutory remedies and justify the pursuit of an equity action in court, taxpayers must, inter alia, raise a substantial constitutional issue. The court recognized that such an issue can be predicated solely on the manner in which the government applies the tax legislation in question. See id. at 371-72 (citing Beattie v. Allegheny Cnty., 589 Pa. 113, 907 A.2d 519 (Pa. 2006)). Still, it stated that Appellants failed to raise a substantial constitutional challenge to the manner in which any tax statute was applied. In this respect, the court found Appellants' constitutional claim insubstantial because: (a) under Weissenberger, taxing districts may select properties for appeal based on financial considerations; and (b) the complaint did not implicate an "underrepresented group." Id. at 372 & n.4. The court noted, further, that, pursuant to the Consolidated County Assessment Law, [8] the party that appeals to court from a decision of the Board may allege a uniformity violation. See id. at 371 (quoting 53 Pa.C.S. §8854(a)(9)(ii)).[9]

         We granted review to consider whether the Uniformity Clause permits the School District, pursuant to its statutory right to appeal individual property assessments, to concentrate solely on commercial properties while foregoing appeals as to single-family residences which may have even lower assessment ratios. See Valley Forge Towers Apts. N, L.P., v. Upper Merion Area Sch. Dist., __Pa.__, 135 A.3d 1017, 1017-18 (2016) (per curiam). The questions before us involve whether the School District's method of exercising its rights under Section 8855 is constitutional, and whether the common pleas court appropriately sustained the School District's preliminary objections. Both are issues of law as to which our review is de novo and plenary. See Kowenhoven v. Allegheny Cnty., 587 Pa. 545, 555, 901 A.2d 1003, 1009 (2006).

         II. Exhaustion of statutory remedies

         In its brief and in a separate motion to quash the appeal, the School District raises a preliminary issue relating to the exhaustion doctrine, which it claims prevents us from reaching the substantive tax-uniformity question on which review was granted. The district recasts and rephrases its argument in a number of different ways, which can be summarized as follows: Appellants failed to exhaust their statutory remedies; they waived any right to argue that an exception to the exhaustion requirement presently applies by not challenging the Commonwealth Court's failure-to-exhaust holding when they petitioned this Court for allowance of appeal; that being the case, they are precluded by res judicata from suggesting reasons why the common pleas court could properly have exercised its equity jurisdiction to entertain their complaint; they have now raised their uniformity argument as a defense in the School District's individual appeals, thereby rendering the uniformity question moot; because the issue is moot this Court's opinion will only be advisory in nature; although Appellants are precluded from forwarding any relevant advocacy, this Court can nonetheless speak to the topic since it involves subject matter jurisdiction, which can be addressed sua sponte; and (via supplemental briefing) our recent decision in City of Philadelphia v. Lerner, __Pa.__, 151 A.3d 1020 (2016), reinforces the position that the common pleas court could not properly have exercised equity jurisdiction.

         Regardless of the number of ways it is characterized, the School District's position reduces to two essential contentions: Appellants have waived the issue of whether equity jurisdiction was properly invoked, and the common pleas court correctly determined that it was not properly invoked. Both contentions lack merit.[10]

         The School District's waiver argument rests on the premise that the Commonwealth Court issued an alternative holding relating to jurisdiction, and this holding independently supported its affirmance order. We disagree. The intermediate court recited that two elements must be satisfied for the common pleas court to properly exercise its equity jurisdiction: the existence of a substantial constitutional issue and the lack of an adequate administrative remedy. See Valley Forge Towers, 124 A.3d at 371. It then repeated its prior conclusion that Appellants' constitutional argument lacked merit (and was, therefore, insubstantial). As such, the court expressly refrained from any inquiry into the adequacy of Appellants' administrative remedies. See id. at 372 n.4. Notably, if Appellants prevail here on their constitutional argument, the Commonwealth Court's discussion on this point will be fatally undermined. Therefore, the Commonwealth Court did not issue an alternative holding which will remain effective and dispositive regardless of our resolution of the constitutional issue presented. See generally Tarubac v. INS, 182 F.3d 1114, 1120 n.5 (9th Cir. 1999) ("An alternative holding is only adequate to support the result if it is separate from and independent of any other basis for the decision." (emphasis added)). That being the case, Appellants were not required, on pain of waiver, to challenge the Commonwealth Court's exhaustion analysis (such as it was) in their petition for allowance of appeal.

         Nor did the common pleas court suggest any valid reason why its equity jurisdiction was improperly invoked. In terms of its observation that this is not a class-action complaint, see supra note 6, we fail to see the relevance. The court did not reference any authority suggesting that a lack of class-action status is dispositive of the jurisdictional issue. Furthermore, class-action status was also absent in Clifton, and yet Clifton endorsed the exercise of equity jurisdiction to entertain the plaintiffs' as-applied uniformity challenge to an assessment statute. In particular, Clifton held that the trial court's equity jurisdiction was properly invoked "because appellees' claim that the base year system results in mass, systematic, non-uniform assessments raises substantial constitutional issues, which a county board of assessment appeals would be unable to adequately redress." Clifton, 600 Pa. at 683 n.17, 969 A.2d at 1209 n.17; cf. Borough of Green Tree v. Bd. of Prop. Assessments, Appeals & Review of Allegheny Cnty., 459 Pa. 268, 281, 328 A.2d 819, 825 (1974) (plurality) (approving the exercise of equity jurisdiction where, although not a class action, the complaint challenged the constitutionality of certain provisions of the governing assessment statute).

         Clifton's unable-to-adequately-address litmus comports with the explanation in Kowenhoven that courts look to a number of factors to determine whether a complaint is appropriately filed directly in the common pleas court. These include: the adequacy of the legal remedy that can be afforded for the claimed violation; whether legal issues other than the proper valuation of the subject properties have been raised; whether the governmental policy in question is generally applicable to all properties; whether the administrative process has little to contribute to the resolution of the constitutional question raised; and whether, as a result, strict adherence to the statutory appeal process would lead to piecemeal litigation in the form of many individual de novo appeals to the trial court - all of which could be avoided through a single judicial proceeding aimed at reviewing the constitutionality of the challenged government actions. See Kowenhoven, 587 Pa. at 556-60, 901 A.2d at 1010-12.[11]

         Notably, the adjudicatory process undertaken by the board of assessment appeals is solely directed at ascertaining the subject property's value and applying a ratio to that value. The board is not given statutory power to alter this procedure, or to refuse to determine the proper assessment per the legislative directive, based on a uniformity claim relating to a taxing district's alleged scheme of selectively targeting a particular sub-classification of properties. See 53 Pa.C.S. §8844(e); see also Del., L. & W. R. Co. v. Luzerne Cnty. Comm'rs, 245 Pa. 515, 519, 91 A. 889, 890 (1914) (acknowledging a similar limitation on the board's powers under an earlier property assessment statute); Clifton, 600 Pa. at 712, 969 A.2d at 1227 (observing the individual appeals process is inadequate to address claims of pervasive inequities); cf. City of Lancaster v. Lancaster Cnty., 143 Pa. Cmwlth. 476, 499, 599 A.2d 289, 300 (1991) (en banc) ("To force every aggrieved taxpayer to assume the task of appealing, when the larger question can be expeditiously and efficiently resolved in a single action, would be unnecessarily burdensome on both property owners and the judicial system.").

         The statutory appeals process is also not designed to provide the declaratory or injunctive relief Appellants seek, and moreover, strict adherence to it would implicate many of the concerns highlighted in Kowenhoven pertaining to piecemeal litigation and the inadequacy of the statutory remedy. This undermines any suggestion that the present controversy is an inappropriate one for the exercise of equity jurisdiction. Cf. Fry v. Napoleon Cmty. Schs., 580 U.S.__, __, 137 S.Ct. 743, 754 (2017) (holding that exhaustion was not required under a federal education statute where the gravamen of the complaint was not ...

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