NEW COVERT GENERATING COMPANY, LLC v TOWNSHIP OF COVERT; NEW COVERT GENERATING COMPANY, LLC v TOWNSHIP OF COVERT
Nos. 348720, 348721
STATE OF MICHIGAN COURT OF APPEALS
September 24, 2020
FOR PUBLICATION; Tаx Tribunal LC No. 16-001888-TT; LC No. 12-000248-TT
If this opinion indicates that it is “FOR PUBLICATION,” it is subject to revision until final publication in the Michigan Appeals Reports.
Before: MURRAY, C.J., and CAVANAGH and SWARTZLE, JJ.
This dispute involves the tax assessed on an electric power plant owned by petitioner, New Covert Generating Company. In Docket No. 348720, respondents, Covert Township and Van Buren County, appeal by right the Tax Tribunal‘s opinion and judgment setting the true cash value of the personal property at issue for tax year 2016, and the Tax Tribunal‘s order imposing sanctions for the filing of frivolous motions. On cross-appeal in Docket No. 348720, New Covert Generating appeals by right the Tax Tribunal‘s opinion and judgment setting the true cash value of the personal property for tax year
I. STATEMENT OF FACTS
The present appeal involves a long-running dispute between New Covert Generating and the local taxing authorities regarding the proper assessed value of New Covert Generating‘s industrial personal property and the proper application of any tax exemptions applicable to the property. New Covert Generating owns real property in Covert Township, which is in Van Buren County. The property has been improved with a natural gas-fired combined-cycle facility and related equipment. Such power plants have two kinds of turbines: combustion turbines and steam turbines. A generator converts the rotational energy of the turbines into electricity. New Covert Generating is not a utility—it is a merchant generator of electricity that sells electricity on the open market. New Covert Generating transitioned from selling in the Midcontinent Independent System Operator (MISO) market to the PJM Interconnection (PJM) by June 2016, to increase profits and work at a higher capacity. New Covert Generating had to build a new switchyard, the Segreto switchyard, to make this transition.
II. PROCEDURAL HISTORY
A. CHALLENGES TO PROPERTY ASSESSMENTS
New Covert Generating has challenged the assessments of its real and personal property for the years 2010 through 2016. In December 2012, the Tax Commission granted New Covert Generating‘s classification appeal for the years 2010 and 2011, ordering the Township to create a separate personal рroperty parcel for the turbines and generators, and classify that parcel as industrial personal property. The classification change entitled New Covert Generating to receive the state education tax and school operating millage exemptions to its personal property other than its turbine property. But in January 2013, New Covert Generating challenged the 2011 and 2012 assessments on the ground that the taxing authorities failed to take into consideration the state education tax and school operating millage exemptions for nonturbine personal property.
In May 2013, the Tax Tribunal issued its opinion setting the true cash value of the parcels for 2010 and 2011, and New Covert Generating petitioned the Tax Tribunal to require the taxing authorities to modify the assessed values for 2013 using the values established by the Tax Tribunal for 2011 with appropriate adjustments.
In February 2014, New Covert Generating filed a new petition with the Tax Tribunal regarding its 2011 tax assessments by the Township and County. New Covert Generating stated that the Township had assessed its real property at $193,970,800 and its personal property at $6,552,240 for 2011. It noted that it had appealed to the Commission the Township‘s decision to classify its turbines, generators, and other machinery as real property. The Commission, it wrote, had since granted the appeal, and ordered the Township to create a separate personal property parcel for the turbines and generators. It also ordered the Township to classify the property as industrial personal property. New Covert Generating alleged that the County thereafter issued a new tax bill for 2011 that reallocated most of the value previously classified as real property to the new personal property parcel created for the turbine personal property, which was not entitled
| Parcel Number | Tax Year | Actual Value/State Equalized Value | Taxable Value |
|---|---|---|---|
| 80-07-004-003-03 Real Property | 2011 | $8,016,600 | $8,016,600 |
| 80-07-900-084-00 Personal Property | 2011 | $6,663,600 | $6,663,600 |
| 80-07-900-084-01 Turbine Property | 2011 | $185,842,800 | $185,842,800 |
New Covert Generating alleged that the County lacked the authority to make the changes and stated that, after the change, the Commission modified its order and required the Township to assess the “turbines” alone under the new parcel—parcel 80-07-900-084-01—and to move the other personal property from the real property parcel to the original personal рroperty parcel number, which was parcel 80-07-900-084-00. New Covert Generating alleged that the actions by the Township and County did not constitute a final decision, ruling, or determination not already subject to the Tax Tribunal‘s jurisdiction, but it nevertheless stated that it was appealing the reclassification in its petition as a precautionary measure.
This Court issued an opinion affirming the Tax Tribunal‘s decision regarding the assessments for 2010 and 2011. See New Covert Generating Co v Covert Twp, unpublished per curiam opinion of the Court of Appeals, issued August 4, 2015 (Docket No. 320877). In that decision we recognized that the Township had initially taxed two separate parcels owned by New Covert Generating: one tax parcel for its industrial personal property and another for its real property. See id. at 1. However, we recognized that the Commission ordered the Township to establish a separate tax parcel for New Covert Generating‘s industrial personal property that constituted turbines beginning with the 2011 tax year. Id. at 1 n 1. The Court related that the Commission ordered the Township to create the separate parcel because turbines were not exempt property. Id. at 12-13. The case proceeded to trial before the Tax Tribunal, and the Tax Tribunal ultimately set the true cash value of the property at $179,100,000 for 2010, and at $228,400,000 for 2011. Id. at 2.
The Township also argued in part that the Tax Tribunal did not have jurisdiction to consider New Covert Generating‘s petition because New Covert Generating did not file statements of assessable property in 2010 and 2011. Id. This Court concluded that, under
In May 2016, New Covert Generating filed a petition challenging the assessments of its property for 2016. The Tax Tribunal thereafter consolidated all of the appeals involving tax claims for years 2012 through 2015 into one appeal, and ultimately granted the County‘s motion to intervene.
B. MOTIONS FOR SUMMARY DISPOSITION
In February 2017, New Covert Generating moved for partial summary disposition in the consolidated appeals and the appeal involving the 2016 tax year, asking the Tax Tribunal to interpret the meaning of the term “turbine” as used in
To determine the proper interpretation of the term “turbine,” the Tax Tribunal found it noteworthy that the Legislature had demonstrated its ability to identify energy systems involving turbines in other statutes, but chose not to define the term to include an energy system in the statutes at issue. Thus, the Tax Tribunal rejected the Township‘s contention that the term applied broadly “to include all parts necessary to generate electricity.” Relying on a dictionary definition, the Tax Tribunal held that the term “turbine,” as used in
Assertedly on the basis of several discovery disputes, the Township and County moved for summary disposition on October 25, 2017. They argued that New Covert Generating did not have standing to challenge the assessments because it was not a “party in interest” as that phrase is used in
The Tax Tribunal denied that motion for summary disposition, stating that it was undisputed that New Covert Generating owned the property at issue. As such, it was a party in interest as defined in Spartan Stores, Inc v Grand Rapids, 307 Mich App 565; 861 NW2d 347 ( 2014). The Tax Tribunal also concluded that the Township and County violated MCR 2.114—now
New Covert Generating submitted a bill of costs and fees in the amount of approximately $26,000. After the Township and County objected, the Tax Tribunal held an evidentiary hearing on the reasonableness of New Covert Generating‘s bill of costs, but withheld its decision until entry of its final order and judgment resolving the appeals.
In June 2018, the Township and County again moved for summary disposition on the ground that the Tax Tribunal lacked jurisdiction. They argued that the Commission requires electric generating facilities to file three different statements of assessable property, and although New Covert Generating filed the three forms, the filings were improper because two of the forms were filed under protest, and inserted $0 as the value of the property, which was inaccurate. Additionally, under
New Covert Generating responded that the motion was patently frivolous, as the Tоwnship and the County had asserted the same argument in the 2010 and 2011 proceedings, and both the Tax Tribunal and this Court rejected that argument. It was undisputed that New Covert Generating had filed the required forms for each of the years at issue and, it had protested to the Board for each of the years except 2013. New Covert Generating asserted that the Township and County knew that their motion was meritless, and requested sanctions.
In July 2018, the Tax Tribunal denied the outstanding motions for summary disposition by the Township and County. The Tax Tribunal rejected the Township and County‘s argument that it had to order New Covert Generating to pay its taxes before it could consider New Covert Generating‘s appeals. It also recognized that this Court had already rejected the contention that the Tax Tribunal lacked jurisdiction because New Covert Generating failed to file the properly filled-out forms. The Tax Tribunal further opined that the timing and nature of the motion raised concerns that the Township and County made it for an improper purpose, or knew that it was frivolous. However, the Tax Tribunal held that issue in abeyance pending resolution of the underlying tax disputes.
C. THE CONTESTED HEARING
In July 2018, the Tax Tribunal held a contested hearing to determine the true cash value and taxable values of the parcels at issue in the appeal for the 2016 tax year.1 Edward VanderVries and Laureen Birdsall testified regarding the 2016 assessment of New Covert Generating‘s property—$660 million, but they allocated 3% of that total to real property, which left a value of $638 million for the personal property.
D. POSTHEARING JUDGMENTS
In January 2019, the parties entered a stipulated judgment establishing the true cash values, assessed values, and taxable values for all of the parcels involved in the tax appeals for tax years 2012 through 2015. They also stipulated to the amount of refund owing to New Covert Generating for those tax years. The Tax Tribunal entered the stipulated judgment as a partial consent judgment. The Tax Tribunal left the appeal open to consider the costs and fees to be awarded as a sanction.
The Tax Tribunal subsequently issued its February 8, 2019 final opinion and judgment establishing the true cash value and taxable values for the parcels at issue in the appeal for the 2016 tax year. The Tax Tribunal found that the parties’ experts agreed that the assessor‘s value ($1,342,800) for the land was accurate, as was the value of the exempt pollution control assets ($46,320,249). The Tax Tribunal found that the assessment presented by the Township and County was not supported by substantial, competent, or material evidence, and that while New Covert Generating‘s appraisal was not without its flaws, it did constitute substantial, competent, and material evidence sufficient to clear the low hurdle of the burden going forward with the evidence. For that reason, the Tax Tribunal rejected the Township and County‘s request for a directed verdict.
Turning to the parties’ appraisals, the Tax Tribunal generally found that the appraisal by Duff & Phelps (New Covert Generating‘s expert) was more reliable than the appraisal by Concentric (the appraiser for the Township and County). The Tax Tribunal agreed that the sales approach employed by Duff & Phelps was flawed, but accepted the cost approach as a reliable approach in valuing the property. The Tax Tribunal explained that the only alternative to purchasing an existing plant would be to purchase a new plant. In looking at the cost approach,
the Tax Tribunal found that Duff & Phelps‘s use of the 2016 Annual Energy Outlook report was relevant to determining the cost of a new plant on December 31, 2015. The Tax Tribunal found that the costs associated with the construction of a new plant stated in the 2016 Annual Energy Outlook report included the cost of a switchyard; as such, it agreed with Duff & Phelps‘s conclusion that the cost оf a switchyard had to be deducted when determining the replacement cost.
The Tax Tribunal did agree with two criticisms of Duff & Phelps‘s cost approach. It determined that it was reasonable to include owner‘s profit in the cost to build a new plant. The Tax Tribunal also did not agree with Duff & Phelps‘s decision to deduct the cost of the Segreto switchyard with regard to each of its valuation approaches. On the basis of these changes, the Tax Tribunal revised the cost value calculated by Duff & Phelps from $423,000,000 to $510,000,000.
In the end, the Tax Tribunal concluded by weighing the two approaches equally and finding that the true cash value of all the property was $509,500,000. The Tax Tribunal then turned to the proper allocation of the value.
The Tax Tribunal employed Duff & Phelps‘s method for determining the value of the real property, which was to subtract the agreed value of the land, multiply the remainder by 3% to calculate the value of the improved land, and then add the land value back to that total to get a real estate value of $16,587,516. The total value of the personal property would then be $492,912,484. After determining the value of the personal property, the Tax Tribunal subtracted the agreed value of the tax-exempt pollution control property, which was $31,960,972. The remaining value of the personal property was $460,951,512.
The Tax Tribunal did not agree with Duff & Phelps‘s allocation of the remaining value between the turbine personal property parcel and the nonturbine personal property parcel. The Tax Tribunal determined that the law required it to value the turbine property as installed. It determined that 46% of the value ought to be assignеd to the turbine parcel, which resulted in a value of $212,037,696 for that parcel.
At the same time it entered its final opinion and judgment for the 2016 tax year, the Tax Tribunal entered its order awarding costs and fees as a sanction for the Township and County‘s motions for summary disposition in the appeals involving the 2012 through 2015 tax years. The Tax Tribunal found that the litigation conduct of the County‘s counsel called into question whether the motions were interposed for an improper purpose. Specifically, the Township and County filed six motions for summary disposition and a request for immediate consideration, and despite counsel being familiar with Spartan Stores, he argued in direct contravention of its holding. The Tax Tribunal concluded that the Township and County had attempted to cast New Covert Generating in a bad light.
The Tax Tribunal similarly found that the June 2018 motion was frivolous, reasoning that that motion was completely unfounded and made for an improper purpose because it was identical to motions previously filed and resolved, and those parties failed to acknowledge that the issue had been decided previously by the Tax Tribunal and this Court. Their failure to cite to the previous opinion led the Tax Tribunal to conclude that the motion was frivolous and imposed for an improper purpose.
The Tax Tribunal found that $17,955 of the fees that New Covert Generating requested for responding to the motion of October 2017 were reasonable. It ordered the signatory of that motion to pay half the fees. The Tax Tribunal ordered a hearing to determine what fees would be reasonable for the filing of the June 2018
III. INVOKING THE TAX TRIBUNAL‘S JURISDICTION
The Tax Tribunal did not commit an error of law when it concluded that it had jurisdiction over the appeals.
This Court‘s review of agency decisions involving property tax valuations is quite limited: “In the absence of fraud, error of law or the adoption of wrong principles, no appeal may be taken to any court from any final agency provided for the administration of property tax laws from any decision relating to valuation or allocation.”
Whether a tribunal had subject-matter jurisdiction may be raised at any time, even for the first time on appeal. See Midwest Energy Co-op v Mich Pub Serv Comm, 268 Mich App 521, 523; 708 NW2d 147 (2005). This Court also reviews de novo as a question of law whether this Court has subject-matter jurisdiction. Id.; Chen v Wayne State Univ, 284 Mich App 172, 191; 771 NW2d 820 (2009).
A. APPELLATE JURISDICTION
As a preliminary matter, we note that part of the appeal in Docket No. 348721 was previously dismissed with regard to the claims involving the March 11, 2019 order. This Court ordered that the appeal involving the order of February 8, 2019, remained pending. See New Covert Generating Co, LLC v Covert Twp, unpublished order of the Court of Appeals, entered May 14, 2019 (Docket No. 348721). What has not been decided is whether this Court lacked jurisdiction to consider whether statements of assessable property must be filed to invoke jurisdiction or whether New Covert Generating was a party in interest because the Township and County did not timely appeal the consent judgment. We do so now.
Because the consent judgment disposed of all the claims and adjudicated all the rights and liabilities of all the parties for the disputes involving tax years 2012 through 2015, it was a final judgment as to those petitions. See
New Covert Generating also argues that this Court cannot consider any challenge to the consent judgment because a party may not assert an error with regard to a judgment to which that party consented. See Dora v Lesinski, 351 Mich 579, 582; 88 NW2d 592 (1958). However, a party may raise a challenge to subject-matter jurisdiction at any time, and the parties cannot confer subject-matter jurisdiction on the Tax Tribunal by their conduct or through waiver. See, e.g., Paulson v Secretary of State, 154 Mich App 626, 630-631; 398 NW2d 477 (1986).3 Accordingly, the Township and County may challenge the Tax Tribunal‘s exercise of subject-matter jurisdiction even though they did not reserve the right to appeal on that ground in the consent judgment. Id.
B. INVOKING THE TAX TRIBUNAL‘S JURISDICTION
The Township and County argue that under
1. SUBJECT-MATTER JURISDICTION OR PROCEDURAL PREREQUISITE
Subject-matter jurisdiction involves a court or tribunal‘s abstract power to try a case of the kind or character of the one pending. Petersen Fin, LLC v Kentwood, 326 Mich App 433, 441; 928 NW2d 245 (2018). The Legislature provided for the Tax Tribunal‘s subject-matter jurisdiction under
(a) A proceeding for direct review of a final decision, finding, ruling, determination, or order of an agency relating to assessment, valuation, rates, special assessments, allocation, or equalization, under the property tax laws of this state.
(b) A proceeding for a refund or redetermination of a tax levied under the property tax laws of this state.
(c) Mediation of a proceeding described in subdivision (a) or (b) before the tribunal.
(d) Certification of a mediator in a tax dispute described in subdivision (c).
(e) Any other proceeding provided by law. [
MCL 205.731 .]
the assertion of jurisdiction reduce the subject-matter jurisdiction of a tribunal—some are merely claim-processing rules that do not implicate subject-matter jurisdiction. See Union Pacific R Co v Brotherhood of Locomotive Engineers and Trainmen Gen Comm of Adjustment, 558 US 67, 81-82; 130 S Ct 584; 175 L Ed 2d 428 (2009).
Although it did not directly consider whether the Legislature intended to make the prerequisites stated under
In any event, and as discussed below, the Tax Tribunal did not err when it concluded that New Covert Generating had met the requirements of
2. ACQUIRING JURISDICTION
The resolution of this issue involves the proper interpretation of
As part of the General Property Tax Act, see
The Legislature also created the Tax Tribunal through the Tax Tribunal Aсt,
Before January 1, 2007, the Tax Tribunal could only acquire jurisdiction over a tax dispute involving an assessment or exemption if the aggrieved party first protested the assessment or claimed the exemption before the appropriate board of review, see
(4) In the 2007 tax year and each tax year after 2007, all of the following apply:
(a) For an assessment dispute as to the valuation or exemption of property classified . . . as commercial real property, industrial real property, or developmental real property, the assessment may be protested before the board of review or appealed directly to the tribunal without protest before the board of review as provided in subsection (6).
(b) For an assessment dispute as to the valuation or exemption of property classified . . . as commercial personal property, industrial personal property, or utility personal property, the assessment may be protested before the board of review or appealed directly to the tribunal without protest before the board of review as provided in subsection (6), if a statement of assessable property is filed under [
MCL 211.19 ], prior to the commencement of the board of review for the tax year involved.(c) For an assessment dispute as to the valuation of property that is subject to taxation under . . . the commercial redеvelopment act, . . . the enterprise zone act, . . . the technology park development act, . . . the obsolete property rehabilitation act, . . . the commercial rehabilitation act, . . . the assessment may be protested before the board of review or appealed directly to the tribunal without protest before the board of review as provided in subsection (6). This subdivision
does not apply to property that is subject to the neighborhood enterprise zone act . . . . [
Notably, the provisions of
Under
The only distinction between subdivisions (4)(a) and (c), and the exception stated in subdivision (4)(b), is that, for the exception stated under subdivision (4)(b), the Legislature added a limitation to the permissive language:
For an assessment dispute as to the valuation or exemption of . . . commercial personal property, industrial personal property, or utility personal property, the assessment may be protested before the board of review or appealed directly to the tribunal without protest before the board of review as provided in subsection (6), if a statement of assessable property is filed . . . . [
MCL 205.735a(4)(b) .]
If the Township and County‘s preferred interpretation were correct, the exception stated under
But subdivision (4)(b) does not address the authority of boards of review to hear a protest; it addresses the prerequisites applicable to the Tax Tribunal‘s acquisition of jurisdiction under an exception to the rule stated in
In the previous appeal, this Court rejected the Township‘s construction of
MCL 205.735a provides a general jurisdictional rule in § (3) that providesthat an assessment dispute must be protested before the board of review prior to the Tax Tribunal acquiring jurisdiction in accordance with the petition filing requirements of subsection (6). MCL 205.735a provides exceptions to the general rule, however, in subsection (4). Each subsection restates the general jurisdictional rule, but makes the general rule permissive rather than mandatory. Thus, while protest before board of review is not required for property covered in each of the three subsections prior to an appeal before the Tax Tribunal, protest before the board of review remains an available course. Respondent‘s proposed reading of the exception in subsection (4)(b) would add a requirement to the exception that does not exist in the general rule in section (3); that is, section (3) requires only that a petitioner protest an assessment before the board of review and does not require the filing of a statement of assessable personal property in order to allow the tribunal to acquire jurisdiction of the dispute underMCR 205.735a(6) upon the timely filing of a petition. Subsection (4)(b) similarly permits a petitioner to protest an assessment before the board of review, but also offers a petitioner the option of appealing to the tribunal without protest if an additional condition is satisfied: a statement of assessable property must be filed under§ 19 of the general property tax act before commencement of the board of review for the particular tax year. . . . [See New Covert Generating Co, unpub op at 4.]
When read in context and with a view to the role of the exceptions in the statutory scheme as a whole, see Manuel, 481 Mich at 650,
Here, it is undisputed that New Covert Generating protested the assessments and exemptions before the Board of Review for each petition. Consequently, the Tax Tribunal acquired jurisdiction of the appeals consistent with
IV. “PARTY IN INTEREST”
The Tax Tribunal also did not commit an error of law or adopt wrong principles when it concluded that New Covert Generating was a party in interest capable of invoking its jurisdiction.6
This Court reviews the Tax Tribunal‘s judgment and orders for fraud, error of law, or the adoption of wrong principles, Mich Props, LLC, 491 Mich at 527-528, while we review de novo whether the Tax Tribunal erred as a matter of law when it interpreted or applied the relevant statutes. Makowski, 317 Mich App at 441. This Court also reviews de novo as a question of law whether the Tax Tribunal had subject-matter jurisdiction. Midwest Energy, 268 Mich App at 523.
The Legislature provided, in relevant part, that the jurisdiction of the Tax Tribunal “is invoked by a party in interest, as petitioner, filing a written petition . . . .”
interest. Id. at 566-567. It also had to determine whether Family Fare was a party in interest even though it did not own the underlying property. Id. at 566-567.
The Spartan Stores Court examined the methods by which an appeal typically proceeded to the Tax Tribunal, and noted that taxpayers previously had to protest an assessment before the local board of review before the taxpayer could proceed to the Tax Tribunal. Id. at 571, citing
[H]istorically it was unnecessary for courts to define the use of “party in interest” in
MCL 205.735(3) with any more specificity, because the term necessarily encompassed only those parties that had protested before the board of review—i.e., the property owner or its agent.MCL 211.30(4) . In other words, the board of review‘s strict limit on which parties could contest property-tax assessments served as a screen on which parties could appeal those assessments to the Tax Tribunal, and necessarily limited the scope of the phrase “party in interest” inMCL 205.735(3) to property owners or their agents. [Id. at 571-572.]7
The Court held that
Returning to our case, it is undisputed that New Covert Generating was the actual owner of the real and personal property that had been assessed. Therefore, it was plainly a party in interest under both the original understanding of that phrase and the broadened construction of that phrase
given by the Spartan Stores Court. Contrary to the Township and County‘s assessment, the Court‘s discussion of the law applicable to disregarding the separate existence of entities did not indicate that such an ownership interest may be insufficient when there has been an abuse of the corporate form. See Spartan Stores, 307 Mich App at 577 n 13.
Instead, the Spartan Stores Court stated that it could not conclude that Spartan had an interest in the property because it had to respect Spartan‘s separate existence from Family Fare. Id. It did not suggest that Family Fare‘s status as a party in interest would be lost if Family Fare‘s separate existence were disregarded. Id. Similarly, here there had been no underlying action involving a request to disregard the separate existence of New Covert Generating from the entities that directly or indirectly own and control it. Gallagher v Persha, 315 Mich App 647, 654, 664-666; 891 NW2d 505 (2016) (stating that the equitable doctrine of piercing the corporate veil is a remedy that may be invoked in a separate action to redress an underlying wrong). As such, the Tax Tribunal did not commit an error of law when it respected New Covert Generating‘s separate existence, as it was required to do, see Green v Ziegelman, 310 Mich App 436, 450-451; 873 NW2d 794 (2015), and determined that New Covert Generating was a party in interest that had the right to invoke the Tax Tribunal‘s jurisdiction consistent with Spartan Stores, 307 Mich App at 575-577,
We reject the Township and County‘s argument that it would be absurd to allow a so-called “shell” corporation to invoke the Tax Tribunal‘s jurisdiction. Although the undisputed evidence showed that New Covert Generating outsourced its operations and management to related entities, it was also undisputed that New Covert Generating actually owned the real and personal property at issue, which was worth hundreds of millions of dollars. Given the value of these properties, New Covert Generating had a powerful incentive to comply with the tax laws and to adhere to the Tax Tribunal‘s orders and judgments in order to protect its property from liens, foreclosure, or seizure. See
The Tax Tribunal additionally had the authority to penalize New Covert Generating for discovery violations occasioned by its failure or refusal to authorize or cause the entities with whom it contracts to provide relevant discovery, should the taxing authorities be unable to get the discovery directly from those contracting entities. See
V. PROPER CONSTRUCTION OF TERM “TURBINE”
We next turn to whether the Tax Tribunal committed an error of law when it gave the term “turbine” its ordinary meaning.
Before 2007, the Legislature imposed a state education tax on property classified as industrial рersonal property, see
(3) For taxes levied after December 31, 2007, the following property is exempt from the tax levied under this act:
(a) Except as otherwise provided in subdivision (b), personal property classified under
MCL 211.34c , as industrial personal property.(b) Beginning December 31, 2011, a turbine powered by gas, steam, nuclear energy, coal, or oil the primary purpose of which is the generation of electricity for sale is not eligible for the exemption under this subsection.
After its amendment,
(1) Except as otherwise provided in this section and [under
MCL 380.1211(c) ], the board of a school district shall levy not more than 18 mills for school operating purposes or the number of mills levied in 1993 for school operating purposes, whichever is less. A principal residence, qualified agricultural property, qualified forest property, supportive housing property, property occupied by a public school academy, and industrial personal property are exempt from the mills levied under this subsection except for the number of mills by which that exemption is reduced under this subsection. . . .* * *
(10) As used in this section:
* * *
(e) “Industrial personal property” means the following:
(i) Except as otherwise provided in subparagraph (ii), property classified as industrial personal property under . . .
MCL 211.34c .(ii) Beginning December 31, 2011, industrial personal property does not include a turbine powered by gas, steam, nuclear energy, coal, or oil the primary purpose of which is the generation of electricity for sale.
The definition of industrial personal property is quite broad; it includes: “[a]ll machinery and equipment, furniture and fixtures, and dies on industrial parcels, and inventories not exempt by law.” See
When interpreting a statute, this Court‘s goal is to determine the Legislature‘s intent. Sun Valley Foods, 460 Mich at 236. The best indicator of the Legislature‘s intent is the language of the statute itself. Id. If the statute is not ambiguous, this Court must assume that the Legislature intended the meaning clearly expressed and must enforce the statute as written. Id. A statute is ambiguous only when it irreconcilably conflicts with another provision or is equally susceptible to more than a single meaning. Alvan Motor Freight, 281 Mich App at 39-40. Notably, when construing a statute, this Court does not interpret the statute in a vacuum; rather, it must interpret the statute in context and with a view to the statute‘s placement within the overall statutory scheme. Manuel, 481 Mich at 650.
The
The Legislature further provided that only those turbines that were “powered by gas, steam, nuclear energy, coal, or oil the primary purpose of which is the generation of electricity for sale” were excluded from the exemption.
Given its common meaning, the term turbine applies to a wide variety of engines or machines that are rotated by moving fluids—everything from a waterwheel to a wind turbine. But the Legislature chose not to exclude waterwheels and wind turbines from classification as industrial personal property. Rather, it chose to limit the exclusion to those turbines that met two criteria: turbines that were (1) “powered” by “gas, steam, nuclear energy, coal, or oil,” and (2) that have the primary purpose of “the generation of electricity for sale.” Although the limiting language refers to the generation of electricity, the qualifying language cannot be understood to expand the ordinary understanding of the term “turbine” to encompass property that would be needed to enable the turbine to generate electricity. Applying the only reasonable construction, it is evident that the limiting language was intended only to limit the type of turbine that was excluded from the definition of industrial personal property—it was not intended to expand the types of property excluded from the definition of industrial personal property.
New Covert Generating urges a construction of the statute that goes beyond the plain meaning of the statute. New Covert Generating argues that the statutory language requires the Tax Tribunal to determine the value of the turbine as an isolated piece of equipment, and then subtract that value from the value of the industrial personal property as a whole.
As the Township and County correctly note,
Additionally, New Covert Generating‘s construction ignores the fact that the statutes do provide that a turbine will not be excluded from the definition of industrial personal property unless “powered” by, in relevant part, gas or steam. The use of the past participle indicates that the turbines will only be excluded from the definition of industrial personal property when actually used in the manner described (i.e., when powered by gas or steam for the primary purpose of generating electricity for sale on the market). See
The conclusion that the turbines must be valued in relation to a functioning power plant also follows from the statutes governing the proper valuation of personal property. True cash value is defined as the “usual selling price at the place where the property to which the term is applied is at the time of assessment, being the price that could be obtained for the property at private sale, and not at auction sale except as otherwise provided in this section, or at forced sale.”
Extensive testimony was put before the Tribunal establishing that the value of the plant depended almost entirely on the attributes and condition of the plant‘s turbines. The experts agreed that the expected lifespan and depreciation applicable to the turbines affected the value of the plant as a whole, and that the plant‘s capacity, efficiency (its heat rate), and its economic obsolescence
were related to its turbines and significantly affected the plant‘s value. There was also testimony that the long-term service plan for the turbines also affected the value of the plant. Therefore, the testimony and evidence established that persons who value and purchase power plants value the plant and its equipment as a whole, and do so in significant part on the basis of installed and functioning turbines. Consequently, the “usual selling price at the place where the property to which the term is applied,”
New Covert Generating‘s argument that such a valuation indirectly causes the value of the turbine to include the value of ancillary equipment, in violation of the exclusions stated under
New Covert Generating also suggests that valuing the turbines as a component of a functioning plant runs afoul of the doctrine of uniformity in taxation, see
The Tax Tribunal did not commit an error of law when it interpreted the statutes to apply to a machine or engine rotated by fluid that was powered by—in relevant part—gas or steam and with a primary purpose of generating electricity. As such it did not commit an error of law when it concluded that the term did not apply to ancillary equipment necessary to enable the turbine to generate electricity. The Tax Tribunal also did not commit an error of law when it determined that the value of the turbines at issue had to be ascertained by reference to their value as a component part of a functioning power plant. See Mich Props, 491 Mich at 527-528.
VI. TAX TRIBUNAL‘S FINDINGS AND DETERMINATIONS OF VALUE
As already noted, Michigan‘s Constitution limits this Court‘s ability to review “any [agency] decision relating to valuation or allocation” of taxes to review for “fraud, error of law or the adoption of wrong principles.”
The nature of the review required under the substantial-evidence test was articulated in Mich Employment Relations Comm v Detroit Symphony Orchestra, Inc, 393 Mich 116; 223 NW2d 283 (1974), where the Court explained that, although review was not de novo, it nevertheless must be thorough and required assessment of the evidence as a whole:
What the drafters of the Constitution intended was a thorough judicial review of administrative decision, a review which considers the whole record—that is, both sides of the record—not just those portions of the record supporting the findings of the administrative agency. Although such a review does not attain the status of de novo review, it necessarily entails a degree of qualitative and quantitative evaluation of evidence considered by an agency. Such review must be undertaken with considerable sensitivity in order that the courts accord due deference to administrative expertise and not invade the province of exclusive administrative fact-finding by displacing an agency‘s choice between two reasonably differing views. Cognizant of these concerns, the courts must walk the tightrope of duty which requires judges to provide the prescribed meaningful review. [Id. at 124.]
This Court has characterized the substantial-evidence test as requiring evidence that a ” ‘reasoning mind’ ” would accept as sufficient to support a conclusion. See Black v Dep‘t of Social Servs, 195 Mich App 27, 30; 489 NW2d 493 (1992), citing Soto v Director, Mich Dep‘t of Social Servs, 73 Mich App 263, 271; 251 NW2d 292 (1977). Evidence that a reasoning mind would accept as sufficient is more than a scintilla, but less than a preponderance. See Black, 195 Mich App at 30. Further, it is not this Court‘s place to resolve conflicts in the evidence or pass on the credibility of witnesses—that is, if there was adequate evidence to support the agency‘s decision, then this Court cannot substitute its judgment for the agency‘s judgment. Id.
A. REPLACEMENT COST: SWITCHYARD
The Township and County first argue that the Tax Tribunal should not have deducted the costs associated with the construction of a new switchyard from the base cost estimate for a new plant stated in the Energy Information Administration‘s 2016 Annual Energy Outlook report because there was insufficient evidence to support a $41 million deduction from the base cost.
It was undisputed that New Covert Generating‘s tax parcels did not include the switchyard for operation in the PJM market on the valuation date. In calculating the value of New Covert Generating using the replacement cost method for valuation, the experts examined the estimated cost to build a state-of-the-art plant, and then adjusted the value of that plant to reflect the actual condition of the New Covert Generating plant. Both appraisers used the Energy Information Administration‘s Annual Energy Outlook reports to obtain a baseline estimated cost for a new plant. However, Duff & Phelps chose to use the 2016 Report, whereas Concentric chose to use the 2013 Report.
New Covert Generating‘s expert testified that the estimated cost for a new plant stated in the reports included the costs associated with the construction of a switchyard. Because New Covert Generating did not own a switchyard for its market, and the existing switchyard had no value to New Covert Generating, he opined that the cost included in the reports for a switchyard had to be deducted to reflect New Covert Generating‘s actual situation on the valuation date.
The record evidence reveals that the Tax Tribunal had to decide between two diametrically opposed positions: one stating that the Tax Tribunal should deduct $41 million to subtract out the costs associated with a new switchyard, and the other stating that the Tax Tribunal should
The Township and County further argue that there was no evidence that the MISO switchyard actually cost $41 million, and that there was evidence that suggested that it had a much lower original cost. That argument is inapposite. Testimony made it clear that the 3.74% was applied to the baseline replacement cost of a new plant as a way to calculate the amount included within the total cost that reflected the costs of a new switchyard. That is, the deduction did not reflect the value of the actual MISO switchyard.
They similarly complain that New Covert Generating never disclosed how much it cost to build the MISO switchyard. The cost to build a specific switchyard at some point long before the valuation date was, however, not relevant to determining the amount of costs relating to a switchyard that were included in the Energy Information Administration‘s cost estimate in the 2016 Annual Energy Outlook report. Because the cost of the original switchyard was irrelevant to determining how much of the cost estimate for a new plant reflected the cost of a new switchyard, the Tax Tribunal had no obligation to discuss the MISO switchyard‘s value or justify the apparent difference between that value and the calculated value of a new switchyard that was included in the cost estimate for a new plant. See
The Township and County presented testimony and evidence to undermine the view that the cost of a new plant estimated in the 2016 Report included approximately $41 million in costs associated with the construction of a new switchyard. That being said, the expert adequately explained the basis of his opinion, and there was underlying evidence from the reports to support his testimony. As such, the dispute was a matter of the weight and credibility of the evidence, which was for the Tax Tribunal to resolve. Black, 195 Mich App at 30.
There was competent, material, and substantial evidence to support the Tax Tribunal‘s resolution of the amount of any adjustment to the baseline estimated replacement cost for a new plant to reflect the fact that the existing plant did not include a switchyard. Therefore, it did not commit an error of law by resоlving that dispute in New Covert Generating‘s favor. See Mich Props, 491 Mich at 527-528.
B. INTANGIBLES
Michigan‘s Constitution provides that the Legislature must provide for the taxation
The Township and County argue that there was no evidentiary support for a 3% reduction for intangibles. More specifically, they state that there was no evidence for specific intangibles that were applicable to New Covert Generating, and no study to support the use of a generic 3% estimate. They also contend that the Tax Tribunal accepted New Covert Generating‘s deductions for expenses related to the intangibles when calculating the value using the income approach and then deducted 3% for the value of the intangibles, which resulted in a double deduction.
As the Township and County correctly note, two experts testified that New Covert Generating did not have intangibles that warranted a deduction. However, one of those experts also agreed that power plants typically have intangibles, that the most important intangibles for power plants involved contracts, and that 3% was a standard figure (though commonly applicable to a business that owned multiple plants).
Although there was testimony admitting that New Covert Generating had a trained workforce in place, the undisputed evidence showed that New Covert Generating outsourced its management and operations to other entities, and had no employees of its own. Similarly, while there was testimony that it did not matter that the workforce belonged to another entity, there was no basis for valuing that workforce‘s training and experience as an intangible asset of New Covert Generating because New Covert Generating had no ability to control the workforce beyond the terms of the agreement with the employees’ employer. That is, any value arising from the workforce was derived from the agreement that New Covert Generating had with the employees’ employer. The same is true for the other intangible assets that might be owned by the entities with which New Covert Generating contracted to operate its plant. Nevertheless, there was evidence that New Covert Generating had intangible assets in the form of such contracts. There was also evidence that those contracts would have some value. Indeed, one expert used the long-term service agreement with Mitsubishi to estimate New Covert Generating‘s future maintenance expenses, and rejected a sales comparison approach to valuing New Covert Generating on the ground that power plants were unique, and that the value of a power plant could be affected by undisclosed data, such as the value of undisclosed contracts. Similarly, another expert agreed that New Covert Generating had a long-term service agreement with warranties that had some value. Additionally, there was evidence that New Covert Generating had other valuable contracts and permits of which the value should be excluded.
In sum, expert testimony confirmed that power plants like New Covert Generating frequently have valuable intangible assets in the form of contractual rights, and that 3% of total value was a commonly used estimate for the value of the intangible property. Given the testimony and evidence that New Covert Generating owned valuable contract rights, a reasonable person could conclude that some value should be deducted to reflect the value of the intangible property that was not subject to taxation. See Black, 195 Mich App at 30. And whether the general figure should be modified on the specific facts applicable to New Covert Generating was a matter of the evidence‘s weight and credibility to be resolved by the Tax Tribunal, which this Court will not second guess on appeal. See id. That testimony, when considered in light of the evidence concerning Duff & Phelps‘s experience and the other testimony and evidence, constituted competent, material, and substantial evidence to support a finding that 3% of New Covert Generating‘s value could be attributed to its intangible assets. Mich Props, 491 Mich at 527-528.
C. WORKING CAPITAL
The Township and County also argue that the Tax Tribunal erred when it accepted Duff & Phelps‘s deduction for working capital, asserting that the evidence showed that New Covert Generating did not need significant working capital because PJM paid New Covert Generating on a weekly or bimonthly basis, which was adequate to cover New Covert Generating‘s monthly operating expenses.
The expert testimony offered by the Township and County suggested that New Covert Generating might not need substantial working capital because its revenue stream was adequate to finance its needs. But they did not relate their opinions to all the expenses that New Covert Generating might have had—such as its labor costs, management costs, or costs arising from contractual agreements. Moreover, the testimony of a New Covert Generating expert was adequate to establish that the generally applicable estimate of working capital acсurately modeled New Covert Generating‘s actual working capital needs. Because there was competent evidence to support either position, it was for the Tax Tribunal to resolve the conflicting evidence, and this Court cannot substitute its judgment for that of the Tax Tribunal. Black, 195 Mich App at 30. The Tax Tribunal did not commit an error of law when it accepted Duff & Phelps‘s handling of this disputed calculation. Mich Props, 491 Mich at 527-528.
D. COST TO FINANCE
The Tax Tribunal‘s decision to accept Duff & Phelps‘s estimate for the cost to
As discussed, the parties relied on Annual Energy Outlook reports by the Energy Information Administration when calculating the base cost for a new plant. Those reports state the “overnight cost” of a plant, which is the estimate of all the costs for everything that one would need to build a plant on the day of valuation. The overnight cost, according to one expert, did not include the expenses associated with the actual construction, such as the expenses related to financing the project. Accordingly, the parties agreed that the base cost for a new plant should be adjusted to reflect the costs associated with the financing for the project.
Duff & Phelps viewed the cost a bit differently for purposes of the valuation; it chose to determine the cost by looking at the owner‘s lost opportunity to invest the amount needed to develop the new plant in a long-term interest rate vehicle. It calculated the lost interest over the development period to be $16 million on an investment of a “billion 92 million.”
By contrast, an expert for the Township and County assumed that a typical developer would finance 38% of the project with equity and the remaining percentage with construction loans, and calculated the total cost to finance the approximately $690 million expense over a construction term of three years using interest rates that began at 7.23% and gradually rose to 7.86%. The total cost under that approach amounted to more than $62 million. Because the hypothetical owner of the new plant developed the plant in part using equity, the cost was increased by the owner‘s expected profit.
The Tax Tribunal accepted Duff & Phelps‘s treatment of the cost to finance as the more reasonable approach. In explaining its reasoning, the Tax Tribunal stated that Concentric placed the interest rate at 12%, which was not the actual rate assigned in Concentric‘s appraisal. The Tax Tribunal rejected that rate, not only because it felt that the rate was unreasonable, but also because a market-based interest rate was highly variable and depended in significant measure on who the developer was, rather than the nature of the property itself. As such, the Tax Tribunal determined, application of a market rate would run afoul of the doctrine of uniformity in taxation.
Additionally, the Tax Tribunal indicated in its opinion denying reconsideration that the reference to 12% interest did not warrant any relief because it had properly rejected the application of a market rate as violative of the doctrine that taxation should be uniform.
The Tax Tribunal did not err when it rejected the market rate approach to calculating the costs associated with financing the development of a new plant. As the evidence showed, there were many different debt instruments available to finance a new project. Yet, in assessing the value of property, the Tax Tribunal had to ensure that valuation method ensured uniformity in taxation, but a valuation that varied significantly on the basis of an interest rate calculation would violate that requirement. See Meadowlanes, 437 Mich at 493. The approach taken by Duff & Phelps avoided the problem of varying interest rates by assuming that the developer could finance the entire project with equity, and then measuring the expense by calculating the lost revenue
E. PLANT EFFICIENCY AND FUEL COSTS
The Township and County finally argue that the Tax Tribunal adopted a wrong principle when it accepted Duff & Phelps‘s heat rate for a new plant that used a turbine that did not exist on the valuation date and which did not reflect real working conditions.
The Tax Tribunal determined that, of the two Annual Energy Outlook reports that the parties used to calculate the base cost of a new plant, Duff & Phelps‘s use of the 2016 report reflected a more accurate assessment of the cost of a new plant on the valuation date of December 31, 2015. The Tax Tribunal reasoned that the information contained in the 2016 report was relevant, even though issued some months after the valuation date, and better reflected the technology available in 2015.
The Tax Tribunal‘s rationale was adequate to justify its decision to accept Duff & Phelps‘s use of the 2016 report. The 2013 report reflected data for a new plant that was available in 2012—it did not reflect the advancements that occurred in the years since. Further, there was testimony that the data reflected in the 2016 report was collected in 2015. Therefore, even though the report itself did not get released until 2016, the underlying data could have been collected by a hypothetical developer and used to calculate the cost of a new plant for purposes of valuing an existing plant on December 31, 2015. Moreover, even though the report was not released until some months after the valuation date, as the Tax Tribunal properly recognized, that fact did not make the report irrelevant. Rather, it was a factor to consider in assigning the weight afforded to the information contained in the report. Jones & Laughlin Steel Corp v Warren, 193 Mich App 348, 354; 483 NW2d 416 (1992).
The Township and County attempt to distinguish Jones & Laughlin on the basis that the data at issue there involved an actual sale, not a report that discussed a technology that was not in existence. The attempt is unavailing, as the Jones & Laughlin Court held that evidence is not automatically rendered irrelevant because the evidence involved events occurring after the valuation date. Id. at 354. Under that holding, the Tax Tribunal did not commit an error of law when it determined that the data from that report was relevant to the findings of fact necessary to calculate the replacement cost of New Covert Generating‘s plant on December 31, 2015. MRE 401; MRE 402. Indeed, the Tax Tribunal determined that the data from the 2016 report better reflected the costs and heat rate for a plant on December 31, 2015, than did the 2013 report, which necessarily reflected technology that was several years out of date by the valuation date. As such, the Tax Tribunal‘s finding that the 2016 report was more credible and worthier of greater weight was supported by competent, material, and substantial evidence. Black, 195 Mich App at 30. Similarly, whether there should be additional modifications to the data reflected in the
F. OWNER‘S PROFIT
On cross-appeal, New Covert Generating argues that the Tax Tribunal erred by including in the cost of a new plant an amount attributable to the owner‘s profit. It maintains that, in Meijer, Inc v Midland, 240 Mich App 1; 610 NW2d 242 (2000), this Court held that owner‘s profit would be applicable only under circumstances when the property was developed to make a profit from sale and there was evidence that the market price would bear inclusion of the owner‘s profit. New Covert Generating argues that the Tax Tribunal erred by failing to consider these factors and erred because there was no evidentiary support for them. Finally, it argues that there was no evidentiary support for the 5% figure actually selected for owner‘s profit.
In Meijer, we analyzed whether the Tax Tribunal erred when it accepted a valuation that added “five percent for entrepreneurial profit” to the cost approach for valuing a property, id. at 8, agreeing with foreign authorities that the “true cash value of developed real estate may not always be reflected by the cost of the project without the inclusion of entrepreneurial profit.” Id. at 10. The Court stated that the Tax Tribunal, however, could not mechanically include an entrepreneurial or owner‘s profit, and it warned that dеtermining when it was proper to include owner‘s profit in the cost calculation might be difficult. Id. Thus, we held that an owner‘s profit may be included where a developer might develop the property in order to profit from its sale, id. at 11, but there must be “some evidence upon which one can support the conclusion that the market would bear the inclusion of entrepreneurial profit,” or the inclusion of such profit would amount to pure speculation. Id. at 12. Because there was no evidence that a developer would develop a 180,000-square-foot retail building for profit, the Tax Tribunal had erred by including a 5% owner‘s profit. Id. at 13.
Here, although the Tax Tribunal adopted Duff & Phelps‘s approach to valuation using the cost approach, it determined that that approach was flawed to the extent that it did not include “owner‘s profit” because “no one would build a plant for free.” The Tax Tribunal accepted Concentric‘s included owner‘s profit of $53,853,870. When New Covert Generating challenged this decision in its motion for reconsideration, the Tax Tribunal clarified that entrepreneurial incentives were appropriate because the property was specifically developed as a merchant generator operating in the private market. For that reason, it concluded that the plant was intended to earn a return on its owner‘s investment.
Although it may be true generally that regulated utilities do not develop property for profit from sale, that is not necessarily the case for the development of a merchant generator. Rather, as the parties’ experts related, a merchant generator competes in the market and hopes to profit from the sale of electricity. And a developer may develop a merchant generator with the expectation to sell it for a profit to an entity that specializes in the energy market, or to transfer it to a related company to serve as part of its energy portfolio.
Duff & Phelps calculated the rеplacement cost by first determining the cost to develop a new and state-of-the art plant with a similar nameplate capacity, and chose not to increase the cost of development by the cost to finance some or all of the project, which impliedly meant that its appraisal involved a hypothetical developer who financed the project with its own resources. Duff & Phelps assumed that the developer‘s only cost beyond the investment of more than $1 billion in the project itself would be the lost opportunity to invest the $1 billion in treasury bonds. However, it is reasonable to assume that a developer with more than $1 billion to invest would likely not choose to invest in the development of a for-profit merchant generator if it could not realize a profit greater than the interest that it might receive from investing its $1 billion in treasury bonds. Accordingly, under the development model advanced by Duff & Phelps, an accurate baseline cost should include some profit beyond the lost opportunity to invest.
Both the Tax Tribunal and the New Jersey Tax Court have recognized that entrepreneurial profit must be included when calculating the cost of a new development under like conditions: ” ‘When the direct and indirect costs of developing a property are used to provide an indication of value, the appraiser must also include an economic reward sufficient to induce an entrepreneur to incur the risk associated with a building project.’ ” Metuchen I, LLC v Borough of Metuchen, 21 NJ Tax 283, 292 (2004),8 quoting American Institute of Real Estate Appraisers, The Appraisal of Real Estate 360 (12th ed 2001). The court in Metuchen I further observed:
Entrepreneurial profit is compensation for risk and expertise associated with development. Therefore, a realistic cost approach must recognize adequate compensation to the entrepreneur to induce him to organize the project. It is necessary to include a figure which reflects the time, effort, and incidental expense of the owner in the development of the property. [Metuchen I, 21 NJ Tax at 292 (citations omitted).]
Accordingly, there was record support for the Tax Tribunal‘s decision to include entrepreneurial profit in the base cost of the cost tо develop a new power plant. See Meijer, 240 Mich App at 11.
The Tax Tribunal accepted Concentric‘s assessment of the cost of equity that an investor would expect to receive for developing a merchant electric-generator. In doing so, it impliedly adopted Concentric‘s underlying rationale and data, which it could do to satisfy its duty to state the facts consistent with
G. SEGRETO SWITCHYARD
Finally, New Covert Generating argues that the Tax Tribunal erred in its treatment of the expenses associated with the construction of the Segreto switchyard. It maintains that the Tax Tribunal itself recognized that New Covert Generating had to spend at least an additional $12 million to complete the project, but did not reduce the cost to reflect that obligation, even though a prospective buyer would take that expense into consideration. New Covert Generating further argues that the Tax Tribunal should have deducted the full $58,915,530 because that expenditure was necessary to ensure that the property was fit for its highest and best use.
On appeal, New Covert Generating makes much of the fact that a purchaser would normally account for the costs that it would have to pay after purchasing the plant in order to operate at its highest and best use. But the testimony and evidеnce supported a finding that the costs associated with the PJM Interconnection, which included the Segreto switchyard, had already been paid by the valuation date. As such, there was evidence that a purchaser would not have to account for the costs when purchasing the plant. Rather, the purchaser would value the plant on the basis of the completed interconnection project. New Covert Generating‘s mere disagreement with the Tax Tribunal‘s findings does not establish that the Tax Tribunal committed an error of law or adopted a wrong principle. Black, 195 Mich App at 30.
New Covert Generating also concludes that the Tax Tribunal must have erred in its findings because the Tax Tribunal admitted as much on reconsideration. In its opinion and judgment, the Tax Tribunal found that the costs associated with the Segreto switchyard had already been paid before the valuation date and, for that reason, should not be deducted from the valuation of New Covert Generating. A different judge reviewed the motions for reconsideration, and opined that the first judge erred by making that finding because the evidence showed that additional amounts would be due in 2016. However, that judge did not have the opportunity to hear the witnesses and assess their credibility. That judge also did not acknowledge that the report that purportedly established the costs associated with the interconnection project was a cost estimate prepared some years earlier and did not involve actual data. Given the lack of evidence that New Covert Generating had actual obligations arising from the construction of the Segreto switchyard after the valuation date, the original judge could properly find that the obligations had been paid before the valuation date and, on that basis, could determine that it was inappropriate to value New Covert Generating by deducting expenses already paid, or on the assumption that it would have future expenses related to another entity‘s property. On this record, there was competent, material, and substantial evidence to support
VII. SANCTIONS
The Township and County have not shown that the Tax Tribunal erred when it determined that the filing of the motions at issue warranted sanctions.
Although this Court‘s review of a Tax Tribunal‘s findings of fact and application of law is generally quite limited, those limitations apply only to decisions relating to valuation or allocation of taxes, see
The Legislature has authorized the Tax Tribunal to issue any order that it deems necessary or appropriate in the process of disposition of a matter over which it has jurisdiction.
The Tax Tribunal sanctioned the Township, County, and counsel under what was then MCR 2.114(D), which has since been relocated to MCR 1.109(E).9 The court rules provide that, by signing a document filed with the court, the signer certifies that, “to the best of his or her knowledge, information, and belief formed after reasonable inquiry, the document is well grounded in fact and is warranted by existing law or a good-faith argument for the extension, modification, or reversal of existing law[,]” MCR 1.109(E)(5)(b), and that he or she has not interposed the document “for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation[,]” MCR 1.109(E)(5)(c). If a signatory signs a document in violation of the rule, the court “shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the document, including reasonable attorney fees.” MCR 1.109(E)(6).
“An attorney has an affirmative duty to conduct a reasonable inquiry into the factual and legal viability of a pleading before it is signed.” LaRose Market, Inc v Sylvan Ctr, Inc, 209 Mich App 201, 210; 530 NW2d 505 (1995). “The reasonableness of the attorney‘s inquiry is determined by an objective standard, not the attorney‘s subjective good faith.” Meisner Law Group, PC v Weston Downs Condo Ass‘n, 321 Mich App 702, 731; 909 NW2d 890 (2017). “A court must determine whether a claim or defense is frivolous
The Township and County filed two motions that the Tax Tribunal determined warranted sanctions. They filed a motion for summary disposition in October 2017, concerning New Covert Generating‘s status as a party in interest, and they filed a motion for summary disposition in June 2018, arguing that the Tax Tribunal lacked jurisdiction because New Covert Generating had not filed statements of personal property.
In its brief in support of its motion for summary disposition involving whether New Covert Generating was a party in interest, the Township and County acknowledged the decision in Spartan Stores, 307 Mich App 565, but argued that that case had not involved a shell corporation. They also noted that the Spartan Stores Court had stated that the separate existence of an entity could be disregarded. The Township and County indicated that all of the elements necessary to disregard New Covert Generating‘s separate existence were present, and that the Legislature did not intend to allow shell companies to invoke the Tax Tribunal‘s jurisdiction. Both parties asked the Tax Tribunal to dismiss New Covert Generating‘s petitions for lack of jurisdiction.
Although the Township and County mentioned the decision in Spartan Stores, they did not discuss it in any meaningful way. Moreover, they ignored the actual holdings in Spartan Stores—this Court expanded the concept of party in interest to include not only the actual owner of the property assessed, but also any entity that held an interest in the property. See Spartan Stores, 307 Mich App at 575-576. The Township and County also ignored the fact that the Spartan Stores Court held that Spartan was not a party in interest because it indirectly owned the entity thаt owned the leasehold interest, Family Fare, which was insufficient to establish an interest in the property because courts must generally respect the separate existence of artificial entities. Id. at 577 n 13.
The Township and County also did not examine the actual language of the statute, and did not identify the terms that demonstrated that the statute actually barred so-called “shell” companies from being a party in interest. Rather, they appeared to argue that the Tax Tribunal should treat the record owner of the property assessed as though it were not a party in interest—even though caselaw clearly established that it was a party in interest—because New Covert Generating was an asset-holding entity that used other entities to run its day-to-day operations, which made discovery complicated. Notably, the Township and County did not sue to have New Covert Generating‘s separate existence disregarded. Indeed, they did not even address whether the Tax Tribunal had the authority to disregard New Covert Generating‘s separate existence. See Electronic Data Sys Corp v Flint Twp, 253 Mich App 538, 548; 656 NW2d 215 (2002) (stating that the Tax Tribunal does not have equitable powers).
Examining the actual arguments made in their motion for summary disposition premised on
In their June 2018 motion for summary disposition premised on jurisdiction, the Township and County argued—as they had in the previous litigation—that a taxpayer could not invoke the Tax Tribunal‘s jurisdiction without first filing statements of assessable property. They maintained that New Covert Generating had to file Forms L4175, 3991, and 4094, as promulgated by the State Tax Commission. They acknowledged that New Covert Generating had filed all three forms, even if under protest, but maintained that the filings did not comply with the instructions for completing the forms. They then argued that the filings were inadequate to meet what they believed was required under
The Tax Tribunal relied on this Court‘s decision in the appeal involving the petitions from 2010 and 2011, and concluded that New Covert Generating did not have to file statements of assessable property before directly appealing to the Tax Tribunal because it was undisputed that New Covert Generating had protested the tax years at issue before the Board. The Tax Tribunal also noted that this Court had stated that the only form that New Covert Generating had to file was Form 4175, which it did. Accordingly, it denied the motion.
The Township and County‘s preferred construction—although implausible, as discussed above—was not so implausible that counsel could not advocate for that position without running afoul of MCR 1.109(D). Therefore, the Tax Tribunal erred to the extent that it determined that the motion was not well grounded in fact or law. To the extent that the Tax Tribunal relied on counsel‘s purportedly inconsistent positions in different cases involving different parties, that too was error. Counsel had every right to advance the lawful objectives of his clients by every reasonably available means permitted by law, even if that position was inconsistent with the position that counsel advanced on behalf of a different client. See MRPC 1.2(a). Therefore, the trial court clearly erred when it determined that the filing of the June 2018 motion for summary disposition wаs not well grounded in fact or law. Nevertheless, that was not the only basis
In determining that sanctions were warranted, the Tax Tribunal initially stated that the timing of the June 2018 motion just before the July 2018 contested hearing raised the issue as to whether it was filed for an improper purpose, such as to delay or harass New Covert Generating. It also indicated that the motion might be frivolous given this Court‘s previous decision in the prior appeal. However, the Tax Tribunal withheld resolution of those issues.
In its opinion applicable to tax year 2016, the Tax Tribunal provided a further rationale for its decision to sanction the Township and County for the motions for summary disposition filed in October 2017 and June 2018. It first discussed the motion filed in October 2017, and considered the manner by which counsel for the County conducted the litigation, and noted that counsel had filed what was in effect six motions for summary disposition in addition to requests for leave to appeal. It further wrote that counsel had used motions for immediate consideration in a way that compelled New Covert Generating to respond within seven days. The Tax Tribunal also cited counsel‘s conduct in other litigation, which suggested that counsel was familiar with the holding in Spartan Stores, and stated that counsel used allegations of fact and innuendo to cast New Covert Generating in a bad light. The Tax Tribunal found that the purpose of the motion was to “poison the well at [the] hearing, rather than to win on the merits of the motion.”
With regard to the motion filed in June 2018, the Tax Tribunal determined that that motion was also frivolous, and further found that it was “imposed for an improper purpose.” The Tax Tribunal reiterated these determinations and findings for the order applicable to tax years 2012 through 2015. Finally, on reconsideration, the Tax Tribunal stated in relevant part that the Township and County could not reasonably cite the discovery disputes as justification for the motions because the Tax Tribunal had resolved the discovery disputes. Additionally, the Tax Tribunal again cited counsel‘s positions in other litigation regarding the holding in Spartan Stores as evidence that counsel‘s purpose for filing the motion was improper.
Based on the entire record, the Tax Tribunal‘s findings for both motions were not clearly erroneous. The Township and County had been involved in long, ongoing and cоntentious tax disputes with New Covert Generating. As the Tax Tribunal noted, the Township and County filed three motions for summary disposition in each of the tax appeals, even though it subsequently withdrew one. When the timing is considered in relation to the stage of the dispute, the discovery battles, and the date scheduled for the contested hearing, the Tax Tribunal could reasonably conclude that the motions were filed for ulterior motives: namely, to poison the well before the hearing, harass New Covert Generating, and increase the cost of litigating the valuation dispute. The Tax Tribunal was familiar with the present litigation, the past litigation, the parties, and their counsel. As such, it was in the best position to assess the credibility and motivation of the parties and counsel. See MCR 2.613(C). MCR 1.109(E)(5) provides that the effect of a signature on a document represents that the signer read the document, it was well grounded in fact and law, “and” it was not filed for an improper purpose. Therefore, although the Tax Tribunal clearly erred in determining that the June 2018 motion for summary disposition was not well grounded in fact and law, it
Once the Tax Tribunal found that counsel filed the motions for an improper purpose, it had to impose an appropriate sanction, even if the motion was otherwise well grounded in fact and law. See MCR 1.109(E)(6). Moreover, the Township and County have not challenged the propriety of the actual sanctions or the amount of the sanction. As such, they have not identified a basis for reversing the Tax Tribunal‘s orders imposing sanctions.
Affirmed.
/s/ Christopher M. Murray
/s/ Mark J. Cavanagh
/s/ Brock A. Swartzle