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Bethlehem Area School District v. Board of Revenue Appeals of Northampton County

Commonwealth Court of Pennsylvania

January 16, 2020

Bethlehem Area School District, Appellant
The Board of Revenue Appeals of Northampton County and Lehigh Crossing Associates, LP

          Argued: December 10, 2019




         Bethlehem Area School District (District) appeals from the orders of the Court of Common Pleas of Northampton County (trial court) dated February 14, 2019, that granted the motion for summary judgment filed by Lehigh Crossing Associates, LP (Taxpayer) and dismissed the District's tax assessment appeals.[1] The trial court concluded that the evidence of record showed that "no triable issue of fact exists" and the assessment appeals were "borne out of a systematic and intentional practice of selectively targeting commercial properties" in violation of the Uniformity Clause of the Pennsylvania Constitution.[2] Upon review, we conclude that the trial court erred as a matter of law, and therefore, we reverse the trial court and remand this matter for further proceedings consistent with this opinion.

         This matter commenced on July 27, 2012 when the District appealed the tax assessments of two properties, Tax Parcel N7 2 1D-1 0204 and Tax Parcel N7 2 1D-1 0212 (collectively, Property), owned by the Taxpayer, seeking an increase in the assessments for the tax year commencing January 1, 2013.[3]Reproduced Record (R.R.) at 3a, 11a, & 18a. The Property is located within the boundaries of the District, includes "a multi-unit apartment complex, and operates as one single economic unit." See Trial Court Orders and Opinions dated 2/14/19 n.1; R.R. at 3a & 11a. In 2012, the combined assessed value of the Property was $2, 268, 300, which correlates to a 2013 tax year implied market value of $6, 048, 800. R.R. at 18a. After hearings on the matter, the Board of Revenue Appeals of Northampton County (Board) dismissed the appeal and stated that "[t]here will be no change in the assessment." R.R. at 8a & 16a.

         On December 7, 2012, the District appealed the Board's decision to the trial court. R.R. at 1a-16a. Before the trial court, the District argued that the Property assessment is "substantially lower than assessments of comparable properties in the taxing district" and is based on an "erroneous determination of the fair market value particularly as it concerns [the Taxpayer's] [P]roperty," in violation of constitutional and statutory law. Id. at 3a-4a & 11a-12a. The Taxpayer responded with motions to quash the appeals arguing that the District selectively appealed a "class of properties, commercial properties, to the exclusion of lower assessed residential properties" in violation of the Uniformity Clause of the Pennsylvania Constitution and as provided in Valley Forge Towers Apartments N, LP v. Upper Merion Area School District, 163 A.3d 962, 978 (Pa. 2017). See Taxpayer's Motion to Quash Bethlehem Area School District's Tax Assessment Appeal (Motion to Quash) ¶¶ 3-4.

         The District answered the motion to quash and denied that it targeted commercial properties for appeal, explaining that the Supreme Court in Valley Forge refrained from holding that the use of a monetary threshold or "some other selection criteria would violate uniformity if it were [sic] implemented without regard to the type of property in question or the residency status of its owner." See Answer to Taxpayer's Motion to Quash ¶ 3. The District, relying on Valley Forge, alleged that it retained an outside consultant to review "all properties in the [D]istrict and identify those that met the District's [monetary] threshold and are [under assessed] by an amount sufficient to justify the cost of litigation." Id. ¶ 7 (emphasis in original). The District alleged that "[b]ased on recommendation of counsel, it was believed that the average tax assessment appeal taken through trial would cost $10, 000. Therefore, the direction given to counsel was to identify properties where there was a reasonable expectation of generating at least $10, 000 in potential tax increase" ($10, 000 threshold). See Memorandum of Law in Opposition to Taxpayer's Motion to Quash at 5. By order dated November 20, 2017, the trial court denied the Taxpayer's motion to quash. Trial Court's Order dated 11/20/17 n.1 & R.R. at 42a-43a. The trial court noted in its order that

[a]t this stage in the litigation, without the benefit of discovery, we cannot conclude that the monetary threshold set by [the District] was merely a proxy for the sub-classification of commercial properties. Our ruling is without prejudice to [the Board and the Taxpayer] such that [the Board and the Taxpayer] may move for summary judgment after the parties have completed discovery.

Id. The parties completed discovery, and, thereafter, the Taxpayer filed a motion for summary judgment with the trial court, which the District contested. In their filings with the trial court, the parties relied on the following facts.

         On February 27, 2012, the District, through the Bethlehem Area School Board (School Board), voted to retain a consulting firm, Keystone Realty Advisors, LLC (Keystone), to assist with identifying properties for the District to consider bringing assessment appeals. R.R. at 23a-33a. The minutes of the February 27, 2012 School Board meeting provided as follows:

During the past few weeks, the administration discussed with the [School] Board the concept of the District taking a proactive approach to real estate assessments whereby the District can identify under assessed properties to be evaluated for their fair market value rather than simply allowing the taxpayer to file reduction appeals. Several school districts are currently doing exactly this in identifying [under assessed] properties, which meet a predetermined threshold to conduct a reverse appeal presented by the school district rather than the property owner. This process serves to identify and correct valuation inequities among comparable properties and addresses the proper share of taxation between commercial and residential owners. When commercial parcels are undervalued because of corporate expertise and resources in filing assessment reduction appeals, the residential property owner ultimately subsidizes that reduction in revenue.

         R.R. at 25a (emphasis added). A copy of the agreement between the District and Keystone was attached to the February 27, 2012 meeting minutes. Id. at 27a-32a. The agreement provides that Keystone would receive a contingency fee of 30% of any increased tax revenue that the School District generates through a Keystone assisted assessment appeal. Id. at 29a. The agreement further states that

[Keystone] agrees to provide an ongoing review of the property tax assessment of real estate parcels located in the client's geographic area comprising a variety of property types to be determined at the direction of [the District] with the intent of identifying properties which may warrant review by [the District] and its attorney for consideration of a [District] initiated tax appeal ("reverse appeal").

Id. at 27a (emphasis added). Based on the agreement, Keystone identifies the properties in the District to consider for assessment appeals and reviews them with the District's solicitor. Id. at 129a. The solicitor then meets with the District's Administration, namely the Chief Financial Officer (CFO) and Superintendent, which recommends approval to appeal the assessments to the School Board. Id. The School Board approves the Administration's recommendation. Id. After Keystone was retained, Keystone identified 27 commercial properties for appeal, and on July 23, 2012, the School Board approved assessment appeals on all 27 commercial properties. Id. at 39a. The next day, an article was published on the Lehigh Valley Live website summarizing the July 23, 2012 School Board meeting and indicated that the School Board hired Keystone "to identify commercial and industrial properties that are [under assessed] so the [D]istrict can file an appeal to raise their taxable value." Id. at 40a (emphasis added). A few days later, the District initiated assessment appeals for the 2013 year, just ahead of the August 1, 2012 filing deadline, including the appeals of the Property at issue. Id. at 75a.

         Based on the aforementioned facts, the Taxpayer argued to the trial court that summary judgment was appropriate because the facts show that the District targeted only commercial properties for assessment appeals. R.R. at 74a-77a. The Taxpayer relied on the February 27, 2012 School Board meeting minutes stating that "[t]his process serves to identify and correct valuation inequities among comparable properties and addresses the proper share of taxation between commercial and residential owners." Id. at 25a & 74a-75a. Further, the Taxpayer asserted that the District did not file any appeals on residential properties in 2012 nor in any year thereafter. Id. at 63a-65a & 77a. Though the District argues that it was not targeting commercial properties but relying on a $10, 000 threshold, the Taxpayer explained that the agreement with Keystone did not contain any language referencing a $10, 000 threshold and there was nothing in writing evidencing such a policy. Id. at 57a, 63a & 76a-77a. Therefore, the Taxpayer argued:

The . . . District produced nothing in discovery to demonstrate that the policy claimed by counsel had been followed with respect to residential properties.
Furthermore, nothing was produced demonstrating how and why certain properties were chosen for appeal. No documents were produced setting forth Keystone's analysis of the properties chosen to be appealed, nor any documents setting forth the list of recommendations from Keystone. Nor was there any documentation as to how the residential properties were reviewed to determine if the $10, 000 policy would apply to them. . . . All the . . . District has confirmed is that (1) Keystone recommended appeals on commercial properties, (2) appeals were filed on each commercial property by the . . . District, (3) no appeals were filed on residential properties, and (4) [t]he . . . District has failed to produce any evidence or documentation to support the . . . District's claim that residential properties were ever considered for appeal.

Id. at 77a.

         The District responded that the motion for summary judgment should be denied because the record supports its assertion that it utilized the $10, 000 threshold without regard to property type. R.R. at 91a. In support, the District relied on an affidavit executed by the District's CFO, Stacy M. Gober, who represented that the District developed the $10, 000 threshold in consultation with its solicitor so as to account for the potential costs of litigating the appeals. Id. at 130a & 216a. The CFO expressly stated that the $10, 000 threshold was "not developed based on a [sic] sub-classifications of properties based on property type," and the threshold is implemented without regard to property type. Id. The CFO ...

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