Emerson v. Erie Cty. Bd. of Revision (Slip Opinion)

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as

Emerson v. Erie Cty. Bd. of Revision, Slip Opinion No. 2017-Ohio-865.]

NOTICE

This slip opinion is subject to formal revision before it is published in an

advance sheet of the Ohio Official Reports. Readers are requested to

promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65

South Front Street, Columbus, Ohio 43215, of any typographical or other

formal errors in the opinion, in order that corrections may be made before

the opinion is published.

SLIP OPINION NO. 2017-OHIO-865

EMERSON, APPELLEE, v. ERIE COUNTY BOARD OF REVISION ET AL.,

APPELLANTS.

[Until this opinion appears in the Ohio Official Reports advance sheets, it

may be cited as Emerson v. Erie Cty. Bd. of Revision, Slip Opinion No.

2017-Ohio-865.]

Taxation—Real-property valuation—Related parties—A certified appraisal can be

used to show that the purchase price in a sale between related parties

reflected fair market value.

(No. 2014-1794—Submitted January 10, 2017—Decided March 14, 2017.)

APPEAL from the Board of Tax Appeals, No. 2012-Y-2287.

_______________________

Per Curiam.

{¶ 1} This case involves two adjoining parcels of real property in Erie

County, near Sandusky. The property owner, appellee David Emerson

(“Emerson”), challenged the Erie County auditor’s valuations for tax year 2011.

He argued to the Erie County Board of Revision (“BOR”) that his September 2009

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purchase of the parcels established lower true values because it was a recent arm’s-

length transaction. The BOR rejected his claim and retained the auditor’s

valuations. Emerson appealed to the Board of Tax Appeals (“BTA”), which

reversed and valued the properties according to the sale price. The auditor and the

BOR (collectively, “the county”) jointly appealed to this court.

{¶ 2} The county asserts two propositions of law. In its first proposition, it

contends that we must reverse the BTA’s decision and reinstate the BOR’s

valuation because the sale was not a recent arm’s-length transaction. The county

says that because Emerson purchased the parcels from his brother, who was acting

as trustee for a pension fund, and because Emerson did not prove that he and his

brother had separate interests in carrying out the transfer, the sale was not arm’s

length in nature. The county also argues that it rebutted the recency of the sale with

evidence of changed circumstances between the date of the sale and the tax-lien

date. In its second proposition, the county argues that the BTA failed to address

the appraisal and the related testimony that it presented at the BTA hearing. The

county says that even if we do not reverse outright, we must remand to the BTA

with instructions to fully address all the evidence. We reject both propositions and

affirm the BTA’s decision.

I. Facts and Procedural History

{¶ 3} The two parcels together constitute 1.9353 acres near the intersection

of Milan Road (U.S. Route 250) and State Route 2 outside Sandusky. The parcels

can be accessed from Baywinds Drive, a private road that connects to Milan Road.

The larger of the two parcels, comprising 1.7393 acres, has no direct access to

Baywinds Drive or any other roadway and is partially developed with an asphalt

parking lot. The smaller parcel, comprising 0.196 acres, is undeveloped and abuts

both Baywinds Drive and the larger parcel.

{¶ 4} Mueller Electric Employee Pension Fund acquired the parcels for

$310,000 in 2006. According to the pension fund’s trustee, Emerson’s brother

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Scott Emerson, the property was to be used for auxiliary parking for Maui Sands

Resort, which was being developed on the other side of Baywinds Drive. In

September 2009, the pension fund sold the parcels to Emerson for $180,000.

Before the sale, Scott Emerson had obtained an appraisal from a state-certified

general appraiser who determined the market value of the property to be $170,000

as of July 7, 2009. The appraisal noted that the property’s intended use was no

longer viable because the Maui Sands development was in receivership at the time.

It also explained that access to the property via Baywinds Drive from Milan Road

remained “very difficult.” The appraisal used a sales-comparison approach and

relied on the sales of three vacant parcels in Erie County between September 2003

and November 2006.

{¶ 5} The auditor’s aggregate valuation of the two parcels for tax year 2011

was $328,270. Emerson challenged the valuations, alleging that the aggregate

value should be $180,000—the price he had paid 15 months before the January 1,

2011 tax-lien date. Under the law in effect at the time, if the BOR found that the

purchase was sufficiently recent to the tax-lien date and arm’s length in nature, it

was required to treat the sale price as the property’s true value. See Berea City

School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269,

2005-Ohio-4979, 834 N.E.2d 782, ¶ 13. Emerson acknowledged that he had

purchased the parcels from his brother, who was acting as trustee for the pension

fund, but he submitted the July 2009 appraisal with his BOR complaint in an effort

to validate the arm’s-length nature of the sale. Also, at the BOR hearing, Scott

Emerson explained that the value declined after 2006 because Maui Sands no

longer needed the land for parking. He said the land was “undevelopable” because

significant improvements were needed to make Baywinds Drive safely accessible

from Milan Road. The BOR retained the auditor’s valuation, and Emerson

appealed to the BTA.

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{¶ 6} At the BTA, Scott Emerson again testified that the land could not be

developed. He explained that the existing parking lot on the larger parcel could not

be accessed directly from Baywinds Drive and that it was far from certain that the

adjacent property owner would grant an easement to provide access to the road. He

also said that the cost of improving access to Baywinds Drive from Milan Road

made development unfeasible. According to Scott Emerson, he sold the property

to his brother on behalf of the pension fund to recover the pension fund’s

investment.

{¶ 7} For its part, the county introduced an appraisal report from Richard

Hoffman, a member of the Appraisal Institute, at the BTA hearing. Hoffman

opined that the market value of the property as of January 1, 2011, was $283,000.

He used a sales-comparison approach and relied on the sales of three vacant parcels

in Erie County that occurred in 2010 and 2011. He acknowledged the obstacles to

development identified by Scott Emerson but testified that he took those concerns

into account in reaching his conclusion, stating that his valuation would have been

$152,405 higher if not for the access problems concerning the larger parcel.

Although he acknowledged Scott Emerson’s concerns about the intersection of

Baywinds Drive and Milan Road, Hoffman claimed to have knowledge, through

his work on other nearby projects, that the intersection would be improved with

public funds. Hoffman was unwilling to disclose his source for that claim, citing

confidentiality agreements with other clients. The intersection remained

unimproved at the time of the BTA hearing in January 2013.

{¶ 8} The BTA reversed the BOR’s decision and valued the property at

$180,000. The BTA acknowledged that a sale between related parties ordinarily

will not qualify as an arm’s-length transaction but found that Emerson, by

submitting the July 2009 appraisal, “satisfied his burden to demonstrate that the

August 2009 sale price was the best indication of the subject properties’ values.”

The BTA did not mention Hoffman’s appraisal or testimony. The BTA denied the

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county’s motion for reconsideration. The county appealed to this court as a matter

of right.

II. Analysis

A. Emerson demonstrated a recent arm’s-length sale

{¶ 9} Under the version of R.C. 5713.03 in effect on the tax-lien date,

“when [a] property has been the subject of a recent arm’s-length sale between a

willing seller and a willing buyer, the sale price of the property shall be ‘the true

value for taxation purposes.’ ” Berea, 106 Ohio St.3d 269, 2005-Ohio-4979, 834

N.E.2d 782, at ¶ 13, quoting former R.C. 5713.03, Am.Sub.H.B. No. 260, 140 Ohio

Laws, Part II, 2665, 2722. Under this rule, “the only rebuttal lies in challenging

whether the elements of recency and arm’s-length character between a willing seller

and a willing buyer are genuinely present for that particular sale.” Cummins

Property Servs., L.L.C. v. Franklin Cty. Bd. of Revision, 117 Ohio St.3d 516, 2008-

Ohio-1473, 885 N.E.2d 222, ¶ 13. The county challenges both aspects of the sale

in this appeal.

1. Arm’s-length nature

{¶ 10} The county first argues that the sale involving the Emerson brothers

cannot be an arm’s-length transaction because it was between “related parties.”

“The allegation that the parties to a sale are related bears on whether they are self-

interested for purposes of R.C. 5713.03. That is so because related parties may be

pursuing the identical interest of common owners rather than acting as separately

interested, typically motivated actors in the marketplace.” N. Royalton City School

Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 129 Ohio St.3d 172, 2011-Ohio-

3092, 950 N.E.2d 955, ¶ 33. A transaction involving related parties ordinarily will

not qualify as an arm’s-length sale, but such a sale can qualify if the proponent

“affirmative[ly] demonstrat[es] that the price actually reflects fair market value in

spite of the relationship of the parties.” Id.

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{¶ 11} As a preliminary matter, it is undisputed that Scott Emerson did not

act in his individual capacity when he sold the parcels to his brother. As trustee of

Mueller Electric Employee Pension Fund, he held the property as a fiduciary

“ ‘subject to an equitable obligation to keep or use [it] for the benefit of’ ” the fund’s

beneficiaries. See Hill v. Irons, 160 Ohio St. 21, 26, 113 N.E.2d 243 (1953),

quoting 1 Bogert, Trusts and Trustees, Section 1. Because Scott Emerson acted as

a fiduciary, the sale was not between brothers; it was between Emerson and the

pension fund. Thus, one might argue that the transaction was not between “related

parties” at all. Emerson, however, did not file a brief in this appeal and did not

assert that argument below. We therefore assume without deciding that the sale

was between related parties, notwithstanding that one party acted as a fiduciary.

{¶ 12} Under our holding in N. Royalton, Emerson needed to show that the

$180,000 purchase price actually reflected fair market value. N. Royalton at ¶ 33.

The BTA found that he satisfied this burden by submitting an appraisal report that

valued the parcels at $170,000 two months before the sale. We must decide

whether that finding was “reasonable and lawful.” R.C. 5717.04.

{¶ 13} This raises questions regarding both the legal sufficiency and the

weight of Emerson’s evidence. We consider questions involving legal

sufficiency—for example, whether a certain type of evidence tends to prove an

ultimate fact—de novo. See Ace Steel Baling, Inc. v. Porterfield, 19 Ohio St.2d

137, 142, 249 N.E.2d 892 (1969). Determinations involving the weight of

evidence, on the other hand, are purely factual, and we will reverse them only if the

BTA has abused its discretion. Strongsville Bd. of Edn. v. Cuyahoga Cty. Bd. of

Revision, 112 Ohio St.3d 309, 2007-Ohio-6, 859 N.E.2d 540, ¶ 15.

{¶ 14} We hold that a certified appraisal, such as the one that Emerson

presented to the BOR, can be used to show that the purchase price in a sale between

related parties reflected fair market value. We have long recognized that appraisals

of market value are, generally speaking, reliable and probative evidence of the true

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value of real property.1 See Rite Aid of Ohio, Inc. v. Washington Cty. Bd. of

Revision, 146 Ohio St.3d 173, 54 N.E.3d 1177, 2016-Ohio-371, ¶ 25, citing State

ex rel. Park Invest. Co. v. Bd. of Tax Appeals, 175 Ohio St. 410, 412, 195 N.E.2d

908 (1964). It follows that when a party to a sale solicits a certified appraisal to

help determine the sale price that fact tends to prove that the sale reflected fair

market value.

{¶ 15} The county offers no compelling reason for us to hold that an

appraisal contemporaneous to the sale could not satisfy a party’s burden under N.

Royalton. The county’s principal argument is that Emerson could not demonstrate

the arm’s-length nature of his purchase solely with evidence of a contemporaneous

appraisal because, under Walters v. Knox Cty. Bd. of Revision, 47 Ohio St.3d 23,

25, 546 N.E.2d 932 (1989), an arm’s-length sale “generally takes place in an open

market,” and there is no evidence of an open-market sale here. This argument fails,

however, because establishing that it occurred on the open market is not the only

way to prove that a sale reflected fair market value. N. Royalton at ¶ 29. Neither

Walters nor N. Royalton prevents us from holding that a contemporaneous

appraisal, standing alone, can affirmatively demonstrate that the price actually

reflected fair market value. Id. at ¶ 33.

{¶ 16} The county also characterizes the appraisal as “inadmissible

hearsay,” suggesting that it was not properly before the BTA. But the county did

not develop this argument, nor did it object to the appraisal on hearsay (or any

other) grounds in the proceedings below. We hold that the county has waived any

argument that the appraisal was inadmissible. See Plain Local Schools Bd. of Edn.

v. Franklin Cty. Bd. of Revision, 130 Ohio St.3d 230, 2011-Ohio-3362, 957 N.E.2d

1

The facts here differ from those in Berea, 106 Ohio St.3d 269, 2005-Ohio-4979, 834 N.E.2d 782,

at ¶ 13, in which we held that a complainant may not use an appraisal to depart from a recent arm’s-

length sale price for purposes of valuation under former R.C. 5713.03. Emerson did not use the

appraisal to adjust the contract sale price but to confirm that the price reflected fair market value.

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268, ¶ 20-21. What is more, even now, the county does not challenge Scott

Emerson’s testimony that the parties negotiated based on the appraisal and agreed

on a price that was $10,000 more than the appraised market value. Therefore, there

was no plain error in considering the July 2009 appraisal, and as a result, there was

ample evidence for the BTA to conclude that the sale price actually reflected fair

market value notwithstanding the relatedness of the parties.

{¶ 17} The county nevertheless argues that the July 2009 appraisal is not

persuasive—that it cannot overcome other evidence showing that the parties had

identical interests. In this respect, the county, relying on Scott Emerson’s testimony

that he sold the property to recover the pension fund’s investment, argues that

“David Emerson merely took the property off his brother’s hands to reduce some

of his brother’s loss.” This argument is unpersuasive because there is no evidence

that Emerson shared his brother’s interest in reducing the pension fund’s losses.

And the county’s premise—that there were losses to reduce—supports Emerson’s

claim that the value of the parcels had significantly decreased since 2006.

{¶ 18} Contrary to the county’s argument, Scott Emerson’s testimony does

not prove that the parties to the sale had identical interests, nor does it undermine

the general reliability or probativeness of the July 2009 appraisal. Therefore, the

county has not shown that the BTA acted unreasonably or unlawfully in weighing

the evidence concerning the arm’s-length nature of the sale.

2. Recency

{¶ 19} The county next argues that Hoffman’s appraisal and testimony

rebutted Emerson’s claim by showing that the September 2009 sale was not

sufficiently recent to the January 1, 2011 tax-lien date. Ordinarily, a sale that occurs

so close to the tax-lien date is considered to be “within a reasonable length of time”

under R.C. 5713.03. See Akron City School Dist. Bd. of Edn. v. Summit Cty. Bd. of

Revision, 139 Ohio St.3d 92, 2014-Ohio-1588, 9 N.E.3d 1004, ¶ 26. But temporal

proximity “is not the sole factor affecting recency.” Worthington City Schools Bd.

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of Edn. v. Franklin Cty. Bd. of Revision, 124 Ohio St.3d 27, 2009-Ohio-5932, 918

N.E.2d 972, ¶ 32. “[R]ecency ‘encompasses all factors that would, by changing

with the passage of time, affect the value of the property.’ ” Id., quoting Cummins,

117 Ohio St.3d 516, 2008-Ohio-1473, 885 N.E.2d 222, at ¶ 35.

{¶ 20} Although it is possible under Cummins for a party to rebut the

element of recency, the county did not challenge the recency of the sale before the

BTA. We will “not consider any matter not presented to the Board of Tax

Appeals.” Neil House Hotel Co. v. Franklin Cty. Bd. of Revision, 147 Ohio St. 231,

70 N.E.2d 646 (1946), paragraph one of the syllabus; see also Columbus City

Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, 144 Ohio St.3d 549, 2015-

Ohio-4837, 45 N.E.3d 968, ¶ 14-15. The county waived any argument concerning

the recency of the sale by failing to raise it at the BTA.

B. The county cannot rebut the sale price with an appraisal

{¶ 21} In its second proposition, the county argues that we must remand to

the BTA because the BTA never addressed the Hoffman appraisal. The county

relies on Dublin Senior Community Ltd. Partnership v. Franklin Cty. Bd. of

Revision, 80 Ohio St.3d 455, 462, 687 N.E.2d 426 (1997), in which we held that

the BTA had an affirmative duty to set forth its basis for accepting or rejecting the

multiple appraisals that had been presented. Because we have rejected the county’s

first proposition of law, Dublin Senior Community is inapplicable.

{¶ 22} Once Emerson showed that the September 2009 sale was a recent

arm’s-length transaction, the BTA had to consider the sale price to be the true value

of the property for taxation purposes. See Berea, 106 Ohio St.3d 269, 2005-Ohio-

4979, 834 N.E.2d 782, at ¶ 13. The county could avoid application of that rule only

by proving that the sale was either not arm’s length in nature or not sufficiently

recent to the tax-lien date. Cummins, 117 Ohio St.3d 516, 2008-Ohio-1473, 885

N.E.2d 222, at ¶ 13. There is no need for the BTA to consider the Hoffman

appraisal anew because it does not speak to the arm’s-length nature of the sale; it

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merely proposes an alternative appraisal-based valuation—precisely what Berea

prohibits. And even if Hoffman’s appraisal or testimony identified factors that

could bring the recency of the sale into question, the county waived that argument

by failing to raise it with the BTA. We therefore reject the county’s second

proposition of law.

{¶ 23} Because we reject both of the county’s propositions of law, we

affirm the decision of the BTA.

Decision affirmed.

O’CONNOR, C.J., and O’DONNELL, KENNEDY, FRENCH, O’NEILL, FISCHER,

and DEWINE, JJ., concur.

_________________

Rich & Gillis Law Group, L.L.C., Kelley A. Gorry, and James R. Gorry, for

appellants.

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