Sundevil Power Holdings, LLC v. Arizona Department of Revenue
240 Ariz. 339
Ariz. Ct. App.2016Background
- Sundevil Power (Taxpayer) bought two of four power blocks (total 50% interest) in the Gila River Power Station; seller Gila River provided its "book costs" (acquisition costs approved in bankruptcy) to Taxpayer.
- A.R.S. § 42-14156 governs valuation of electric generation facilities by summing land, real improvements, and personal property, using defined "cost" methods; subsection (A)(6)(d) addresses acquired facilities and distinguishes when a buyer "has possession of the cost information" (d)(i) vs. does not (d)(ii).
- For 2013 the Department changed its valuation approach and used the arm’s-length acquisition cost between Taxpayer and Gila River (d)(ii), producing a roughly $1M higher valuation; Taxpayer appealed to tax court (initial 2013 suit named only the Department).
- Taxpayer later amended the 2013 complaint to add Maricopa County after the limitations/service period elapsed; the tax court allowed relation back under Ariz. R. Civ. P. 15(c) and entered summary judgment holding the Department should have used seller’s cost information (d)(i); appeals cover 2013, 2014, 2015 valuations.
- The court of appeals affirmed as to 2014 and 2015 (agreeing that Taxpayer possessed the seller’s cost information such that § 42-14156(A)(6)(d)(i) applied) but reversed as to 2013 because Rule 15(c) relation back did not apply—Taxpayer’s omission of the County was a deliberate choice, not a qualifying "mistake concerning the identity of the proper party."
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper meaning of “cost information” in A.R.S. § 42-14156(A)(6)(d) | "Cost information" includes seller’s acquisition costs as submitted to Department (book costs); Taxpayer had that info so (d)(i) applies | "Cost information" should mean original construction/original owner's cost; lacking that, buyer’s acquisition price controls under (d)(ii) | Held for Taxpayer: "cost information" reasonably means seller’s cost of constructing or acquiring in an arm’s-length transaction (so (d)(i) applies where buyer has seller’s acquisition/book costs) |
| Relation back of 2013 amended complaint under Ariz. R. Civ. P. 15(c) | Late-added County received sufficient notice; Department’s conduct delayed the issue; Rule 15(c) should allow relation back | Taxpayer knew County’s role and deliberately chose not to name it; omission was not a qualifying "mistake concerning the identity of the proper party" | Held for Defendants re 2013: Rule 15(c) not satisfied because Taxpayer’s failure to name County was a deliberate choice (no qualifying identity mistake) |
| Effect of Department’s timing and communications on prejudice/notice | Department waited to assert missing-party defense, causing prejudice; County had notice through Department | Even if Department delayed, statutory requirement placed duty on appellant to name County; delay doesn’t convert a deliberate omission into a mistake | Court rejected estoppel/late-raising-defense argument for relation back; statutory naming requirement controls |
| Attorneys’ fees on appeal | Sundevil sought fees as prevailing party for the appeals it won | Department/County opposed | Court awarded Sundevil fees for the 2014 and 2015 appeals upon compliance with Rule 21 |
Key Cases Cited
- Duke Energy Arlington Valley, LLC v. Ariz. Dep’t of Revenue, 219 Ariz. 76 (App. 2008) (standard for reviewing tax-court summary judgment issues)
- Scottsdale/101 Assocs., LLC v. Maricopa County, 238 Ariz. 291 (App. 2015) (de novo review of tax-court summary judgment)
- General Motors Corp. v. Maricopa County, 237 Ariz. 337 (App. 2015) (statutory interpretation principles)
- Tyman v. Hintz Concrete, Inc., 214 Ariz. 73 (App. 2006) (Arizona precedent requiring plaintiff-centered inquiry for Rule 15(c) mistake analysis)
- Krupski v. Costa Crociere, S.p.A., 560 U.S. 538 (2010) (U.S. Supreme Court refocusing Rule 15(c) inquiry on what the added defendant knew or should have known)
- Pargman v. Vickers, 208 Ariz. 573 (App. 2004) (procedural-rule interpretation reviewed de novo)
- Ellman Land Corp. v. Maricopa County, 180 Ariz. 331 (App. 1994) (identity-of-interest/constructive-notice in tax-appeal relation-back contexts)