Governor Dayton appointed Tamar N. Gronvall to the Minnesota Tax Court for a six-year term, which began in January 2017 and will expire on January 2, 2023.

Before her appointment to the Tax Court, Ms. Gronvall was General Counsel in the Office of Legal Services at the Minnesota Department of Commerce, where she led a team advising the agency in areas of consumer protection, banking, insurance, energy, insurance fraud, contracts, and employment law. She also was a Manager of Tax Litigation, Bankruptcy and Education Division of the Office of the Minnesota Attorney General.

Judge Gronvall has an extensive history in public service, government, commerce, litigation, and tax. Here are a few of Judge Gronvall’s initial rulings as a Tax Court Judge:

Macy’s Retail Holdings, Inc. (Downtown Minneapolis Parking Ramp)-Petitioner v. County of Hennepin-Respondent and InterPark Holdings, LLC-Intervenor, File Nos: 27-CV-13-6683, 27-CV-14-6579 (Minn. T.C. June 2, 2017)

Type of Decision: Evidence, Protective Order, Procedural

Summary: Macy’s objected to parts of the County’s appraisal that included third party non-public data through a Motion in Limine The parties stipulated to allow InterPark to intervene in Macy’s Motion in Limine for the purposes of protecting InterPark’s data that it had provided to the City of Minneapolis. The Court held a hearing on the issue and encouraged the parties to work to stipulate to a protective order to protect InterPark’s information. Macy’s and InterPark were able to agree and stipulate to the protective order terms, but the County did not agree. Macy’s and InterPark filed the proposed order and the County asked for direction from the Tax Court on how to object to the proposed protective order. The Court permitted the County to submit written objections.

Comment: Judge Gronvall encouraged the parties to work together to collaborate on a solution for the protective order and was willing to provide procedural guidance to the County.

University Court LLC v. County of Hennepin, File No: 27-CV-15-07947 (Minn. T.C. June 2, 2017)

Type of Decision: Discovery

Summary: The County served Interrogatories and Requests for Production of Documents and University Court did not respond within the required 30 days. The County requested to meet and confer with University Court. University Court asked for an extension, which the County allowed. When the extension expired the County asked again for discovery responses, but received no response from University Court. The County then filed a Motion to Compel. University Court filed no response and did not appear at the hearing. The County’s motion to compel was granted with expenses and attorney fees.

Comment: This is a straight forward failure by a party to comply with discovery and Judge Gronvall handled it according to the rules. Moral of the story, if you don’t respond you will probably lose.

Macy’s Retail Holdings, Inc. (Downtown Minneapolis Parking Ramp) v. County of Hennepin, File Nos: 27-CV-13-6683, 27-CV-14-6579 (Minn. T.C. June 19, 2017)

Type of Decision: Discovery

Summary: The County sought to compel discovery of information regarding offers to purchase or sell the property. The County’s Motion to Compel was granted. Although Macy’s had received multiple letters of intent or expressions of interest, it claims that because those documents either expressly or impliedly disclaimed contractual liability they did not constitute offers. The Court found that the County satisfied the procedural requirements to compel discovery, and that the the letters of intent were responsive to the County’s request for information on all offers. In other words, in this case letters of intent are offers. In addition, even though the purchase agreement was finalized after the close of discovery Macy’s was required to supplement its discovery responses.

Comment: Judge Gronvall followed the procedural rules for considering the motion to compel and concluded in the County’s favor that the letters of intent are offers, and discovery responses must be supplemented after the close of discovery even if the information was not created until after the close of discovery.

Macy’s Retail Holdings, Inc. (Downtown Minneapolis Parking Ramp)-Petitioner v. County of Hennepin-Respondent, and InterPark Holdings, LLC-Intervenor, File Nos: 27-CV-13-6683, 27-CV-14-6579 (Minn. T.C. July 28, 2017) 

Type of Decision: Evidence and Protective Order

Summary: Macy’s Motion in Limine to exclude portions of the County’s appraisal that included third party nonpublic data was denied. The expert reports were temporarily sealed and if InterPark alleges that the parties’ expert reports include proprietary or sensitive information it may file a motion to permanently seal the relevant portions. In short the County redacted nonpublic information in its discovery responses, but included the information in its appraisal. Macy’s objected on discovery grounds. The Court found that, among other things, Macy’s was not prejudiced, so its motion to exclude portions of the County’s appraisal was denied. The Court also protected InterPark’s third party information and provided an avenue for further protection for InterPark if any is needed.

Comment: Judge Gronvall decided this issue in favor of the County, but did place significant weight on the whether Macy’s was prejudiced by the failure to disclose in discovery, which Judge Gronvall found it was not. This is consistent with many decisions of the Tax Court to include evidence rather than exclude. In addition, Judge Gronvall’s willingness to protect third party information is a positive sign for taxpayers that provide information to assessor.

Final Thoughts

Judge Gronvall has shown in her early rulings that she follows discovery rules closely, has preferred to include more evidence rather than less, encourages parties to work together, and protects third parties. The decisions can be found here.

 

Real estate buyers who purchase property from banks sometimes get the property for a price that seems below market. Assessors frequently dismiss these sales as “bank sales” and therefore irrelevant for property tax valuation. However, these apparent discounts can be the result of actual distress or market influences, rather than because the bank was under duress to sell.

The Minnesota Tax Court squarely addressed this issue in Zephyr Group LLP v. County of Washington. The subject – a former Denny Hecker car dealership – was acquired by a financial institution after the bankruptcy of the previous owner. The property was then listed and marketed for almost four years with offering prices incrementally dropping from $1,800,000 to $600,000. The subject finally sold for $600,000. Since the assessed value was approximately $2,300,000, the buyer filed an appeal.

Subject Property
Subject Property

On appeal, the county disregarded the sale because it was “lender mediated.” The court however, disregarded the county’s analysis because of its failure to consider the sale.

A long standing rule in Minnesota Tax Court is that a sale of the subject property near the date of assessment is the “best indicator of value” and it should be “given great weight, especially when [it] was an arm’s length transaction.”

Nonetheless, the tax court is always cautious to use only the sale price of the subject, because “one sale does not make a market” and other evidence may show that the sale price is above or below market.

In Zephyr, the court found that the subject was an arms’ length transaction, because it was sufficiently exposed to the market, sold between two unrelated parties, and the lender was not under any regulatory or other pressure to sell for a below market. Because it was arms’ length and took place near the date of assessment, it was the best indicator of value.

Accordingly, a bank sale can be an arms’ length, market transaction; and therefore, the best indicator of value entitled to great weight in property tax valuation.

 

Home improvement retailer, Menard’s, successfully lowered the value of its Moorhead store in tax court. When it pressed its position based only on sales of similar properties, the court replied that valuation is not that narrowly focused.  The appeal covered years 2011 through 2014 and the original value was $11,200,000 for each year. At tax court, Menard’s sought a value as of $4,000,000. The tax court’s final value decision was as follows:

Appraisal Year County Assessor County’s Appraiser (Vergin) Menard’s Appraiser (MaRous) Tax Court Order Tax Court Amended Order
2011 $11,200,000 $12,000,000 $4,000,000 $7,432,100 $7,516,600
2012 $11,200,000 $12,300,000 $4,000,000 $7,585,800 $7,681,300
2013 $11,200,000 $12,500,000 $4,000,000 $7,219,000 $7,331,300
2014 $11,200,000 $12,700,000 $4,000,000 $7,393,600 $7,556,200

Menard’s appealed the tax court’s decision because it wanted the Minnesota supreme court to rule that only the sales comparison approach should have been considered, instead of the sales comparison and cost approaches to value.

Menard's Moorehead - Entrance

The court has long held that review of the tax court’s decisions is very limited and it will only overturn a valuation if is clearly erroneous. Menard’s contended that the tax court’s job was done when it determined that the sales comparison approach provided a reliable indicator of market value. However, the court has already ruled that approach out when it said some years ago,

“appraisal is an inexact valuation determination” and an “estimate of value”

Lewis & Harris v. Cty. of Hennepin, 516 N.W.2d 177, 180 (Minn. 1994) (emphasis added). The court has also stated that whenever possible the tax court should apply at least two of the approaches to value, and value indications derived can serve as useful checks on each other. Overriding weight can be given to one approach over another and the tax court has the discretion to determine what weight it will assign to each approach.

Finally, the court emphasizes that none of its decisions narrow the view of the inexact science of real estate appraisal to such a degree. As a result, for property tax valuation, the methodology should try to avoid being so narrowly focused.

The court also weighed in on the highest and best use determination and the depreciation analysis for the Menard’s property. If interested in the finer points of the valuation issues, here is the full November 9, 2016 decision for Menard, Inc. v. County of Clay.