Opposition Brief — Castlewood, Inc. v. Anderson County

< | Supreme Court, U.S,

rat & D

No. 98-361 ge

In The OFFICE OF THE reel

Supreme Court of the United States

o

October Term, 1997

CASTLEWOOD, INC.,

Petitioner,

VS.

ANDERSON COUNTY, TENNESSEE, PATSY STAIR,

TRUSTEE, OWEN K. RICHARDSON, TAX ASSESSOR,

CITY OF OAK RIDGE, TENNESSEE and TENNESSEE

STATE B“ ARD OF EQUALIZATION,

Respondents.

On Petition for Writ of Certiorari to the

Supreme Court of the State of Tennessee

RESPONDENTS’ BRIEF IN OPPOSITION

DAVID A. STUART

Counsel of Record

STUART & VAN RIPER

; Attorney for Respondents

sel:

— Anderson County, Tennessee,

DAVID S. CLARK Patsy Stair, Trustee, and

County Attorney for Respondents Owen K. Richardson,

DAVID S. CLARK & ASSOCIATES /@* Assessor”

ANDERSON COUNTY 300 Market Street

166 Fairbanks Rd. Clinton, TN 37716

Oak Bridge, TN 37830 (423) 457-6414

(423) 482-3933

148803 @ Counsel Press LLC

FORMERLY LUTZ APPELLATE SERVICES

(800) 274-3321 + (800) 359-6859

——

AN SRR EE ALO TOE np 8 ALES TOS TO gs AN Te . . RRO LIE TAE DA TLEPE NEI SELON ES OER IIE THD ESA ILE I SEMA.

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Sea rr ’ I AOI 3 oT a Me PO en et i ea PED

QUESTION PRESENTED

Anderson County does not agree that the petitioner has

presented the question fairly. The appropriate question in this

case may be stated as follows:

Whether the Constitutional and Statutory law of the State

of Tennessee, as construed by the Tennessee Supreme Court,

relative to the classification and assessment of condominium

property for real property ad valorem tax purposes, is in

violation of the Equal Protection Clause of the Fourteenth

Amendment to the Constitution of the United States, because

it provides that two or more condominium units under common

ownership in the same structure and used as rental apartments,

should be classified as industrial or commercial property, and

assessed at 40% of appraised value, while single condominium

units, used as owner-occupied residences or as rental property,

should be classified as residential property, and assessed at 25%

of appraised value.

il

TABLE OF CONTENTS

Page

fo | ee prereerary rey arr er ee i

Se Oe CN bcs ose eign 64 Ce ee ee il

Sete OF CRE AMIIOIITIOS 5 io occ cc hos Cesee cess iil

mente Count PIOCOOUINS (8 skis sess duces ieee tebes ]

Reasons for Denying the Writ ...... oc cc ccc ncsesss 1

I. There Is No Legitimate Equal Protection Issue

Under The Facts In This Cate. 2.066.620 605: ]

II. There Is No Conflict Between The Decision Of

The Tennessee Supreme Court In This Case And

Any Other State Court Of Last Resort, Any United

States Court Of Appeals, Or Any Relevant

Decisions OF This COG. cee cs siie ces: 6

Ill. The Petition Should Be Denied Since It

Improperly Seeks Review By The Supreme Court

Of The Correctness Of An Interpretation Of State

Law By The State’s Highest Court. ......... 9

IV. The Equal Protection Issue Should Not Be

Considered As It Was Not Squarely Briefed And

Argued At Any Time When The Case Was On

Appeal, But Nonetheless Was Addressed By The

Tennessee Supreme Court In Its Opinion. .... 11

Comcteeiene Co i ecu awk 103 08 13

il

TABLE OF CITED AUTHORITIES

Cases:

Addington v. Texas, 441 U.S. 418, 99 S. Ct. 1804, 60

Mem Oe BOA TENEEE ook ices

Allegheny Pittsburgh Coal Co. v. County of Webster

County, West Virginia, 488 U.S. 336, 109 S. Ct. 633,

POP an ee Me OR EIOEO).,.. 22... ees

Brown-Forman Co. y. Kentucky, 217 U.S. 563 at 573, 54

hn tiee GE, 20 a. CL SIO (1910) .....-.......

In re Murchison, 349 U.S. 133, 75 S. Ct. 623, 99 L. Ed.

I de ea

Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356,

35 L. Ed. 2d 351, 93 S. Ct. 1001 i oe | STR

Louisville & N.R.R. vs. Public Service Commission, 493

F. Supp. 162 (M.D. Tenn. 1978), aff'd, 631 F.2d 426

(6th Cir. 1980), cert. denied, 450 U.S. 959, 67 L. Ed.

2d 384, 101 S. Ct. 1418 SOMEEE As eT Sock

Nordlinger v. Hahn, 505 U.S. 1, 112 S. Ct. 2326, 120 L.

I on Cee ee

Re Ee PO EOS EE OG DEW Sb CE Oke KK KR

Page

10

7,8

10

iv

Table of Cited Authorities

Page

United States Constitution:

Pomtennts Asm ia oi 5 i hes ea OK i, 9

Rule:

Supeeine Cott Bale iO i cc Reise. | .

Other Authority:

Article II, § 28 of the Constitution of Tennessee .... 1, 2, 4, 9

l

STATE COURT PROCEEDINGS

The petitioner is incorrect in its assertion that the Tennessee

Court of Appeals made any reference to an equal protection

issue. The only constitutional issue addressed by that court was

the construction and interpretation of Article iI, § 28 of the

Constitution of Tennessee.

The Tennessee Supreme Court noted that the Tennessee

Court of Appeals did not address the equal protection issue.

See Opinion, Pet. App. A, p. 2a, n.1:

The Court of Appeals did not consider the

federal constitutional issue but it is asserted on this

appeal.

Contrary to the assertions of the petitioner, Pet. at 8, the

reference to “fundamental fairness” in the Opinion of the

Tennessee Court of Appeals, Pet. App. C, 15a, is not part of an

equal protection analysis. It is instead a part of the reasoning

process of that court in resolving the question of constitutional

and statutory construction relative to the classification and

assessment of condominium property, and in carrying out the

intent of the framers of Article Il, § 28, of the Constitution of

Tennessee.

REASONS FOR DENYING THE WRIT

I.

THERE IS NO LEGITIMATE EQUAL PROTECTION

ISSUE UNDER THE FACTS IN THIS CASE.

There is no compelling reason to grant the petition in this

case, because there is no substantial equal protection issue

presented by the decision of the Tennessee Supreme Court.

2

Where taxation is concerned, and no specific

federal right, apart from equal protection, is

imperiled, the States have large leeway in making

classifications and drawing lines which in their

judgment produces a reasonable system of taxation.

Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356 at 359,

35 L. Ed. 2d 351, 93 S. Ct. 1001 (1973). Moreover, when the

equal protection issue arises with regard to classification, if

the classification is neither capricious nor arbitrary, and rests

upon some reasonable consideration of difference or policy,

there is no denial of the equal protection of the law. Brown-

Forman Co. v. Kentucky, 217 U.S. 563 at 573, 54 L. Ed. 883,

30 S. Ct. 578 (1910).

Considering all the circumstances in this case, there is no

colorable equal protection issue arising from the interpretation

and construction of the constitutional and statutory law of the

state by the Tennessee Supreme Court regarding the

classification and assessment of condominium property for real

property ad valorem tax purposes. Under Tennessee law as

established by the decision of the state’s highest court, similarly

situated condominium owners are treated exactly alike. The

owners of single condominium units pay taxes based upon an

assessment of 25% of the appraised value. Owners of two or

more condominium units in the same structure who rent or lease

their units to others for use as apartments pay taxes based upon

an assessment of 40% of the appraised value.

This is in accordance with the intent of the applicable

provision of Article II, § 28 of the Constitution of Tennessee,

relative to the classification and assessment of industrial and

commercial property on the one hand, and residential or farm

property on the other, with multi-unit income-producing

residential properties to be taxed at a higher rate than owner-

a taints Tinie CR eel

oo anche Sa or acl ete Be Sale Si

3

occupied residences and farms. Snow v. City of Memphis, 527

S.W. 2d 55 (Tenn. 1975); Louisville & N.R.R. vs. Public Service

Commission, 493 F. Supp. 162 (M.D. Tenn. 1978), aff'd, 631

F.2d 426 (6th Cir. 1980), cert. denied, 450 U.S. 959, 67 L. Ed.

2d 384, 101 S. Ct. 1418 (1981). The Tennessee Supreme Court

has reaffirmed that this is the public policy of the state in the

decision now under attack by the petitioner.

The state’s constitutional and statutory system for

classification and assessment clearly has a rational basis in that

it taxes income producing property at a higher rate by applying

a higher assessment to the appraised value. Under the facts of

this case, where the petitioner constructed some 86

condominium units, in multiple structures of more than two

(2) units each, and leases or rents 80 of the units to others for

profit in the same way units are rented in apartment complexes,

it is not a violation of the rights of the landlord to tax the rental

units as industrial or commercial property.

Contrary to the assertion of the petitioner, the taxing

authority does not examine the ownership of the units to

determine how to classify the property for assessment purposes.

Rather, the taxing authority looks to the use of the units.

Ownership is relevant only to this extent: if the owner of two

(2) or more units in the same structure rents or leases them to

others, the same are being used as rental apartments, i.e., income

producing property, and are to be classified and assessed as

industrial and commercial property. In exactly the same way,

the owners of multi-unit rental residential apartments are

classified and assessed taxes on their income producing

properties at the industrial and commercial rate. This is in

accordance with the state constitutional mandate:

Real Property shall be classified into four (4)

subclassifications and assessed as follows:

4

(a) Public Utility Property, to be assessed at

fifty-five (S5%) percent of its value;

(b) Industrial and Commercial Property, to be

assessed at forty (40%) percent of its value;

(c) Residential Property, to be assessed at

twenty-five (25%) percent of its value, provided that

residential property containing two (2) or more

rental units is hereby defined as industrial and

commercial property [emphasis added]; and

(d) Farm Property, to be assessed at twenty-five

(25%) of its value. ;

See Constitution of Tennessee, Article II, § 28; Pet. App. D,

p. 22a.

The petitioner complains that it is illogical to tax the owner

of multiple single-family residence rental properties based on

a residential classification while at the same time taxing the

owner of multiple rental condominium units in the same

structure based on an industrial or commercial classification.

Pet. at 10. It can be argued with greater force that it is illogical

to have two identical multi-unit apartment buildings side by

side, of equal value, and identical in appearance and total value,

with one legally constituted as traditional apartments, and one

legally constituted as condominiums, with each condominium

being under common ownership for use as rental property, yet

with the income-producing apartment property being taxed at

40% of the appraised value and the income-producing

condominium property being taxed at 25% of appraised value.

While there may be logical arguments on both sides of the

equation, the classification approved by the Tennessee Supreme

Court in this case is consistent with the intent of the state

se A NSE tik NN ir NR SAS ‘

5

constitution that multi-unit income producing residential

property be classified as industrial or commercial.

The Tennessee Supreme Court has articulated a rational

basis for the difference in treatment, and there is clearly support

for that conclusion in the constitution, statutes, and case law of

the state. The decision of the Tennessee Supreme Court in this

case is the definitive statement of the state’s policy on the

classification and assessment of multi-unit income producing

condominium properties. There is nothing discriminatory about

either the classification system itself, or the determination that

multi-unit rental condominiums should be classified as

industrial or commercial. Even the petitioner does not argue

that there is no rational basis for taxing industrial and

commercial property at a higher rate than single family

residences and farms.

As demonstrated by the Tennessee Supreme Court in its

discussion of the equal protection issue, there is an obvious

rational basis for the classification and assessment provisions

of the Constitution of Tennessee and the enabling statutes which

are at issue here, which is an intent to tax income producing

property at a higher rate than owner-occupied residences and

farms. Pet. App. A, 6a-8a. It is equally clear that the Tennessee

Supreme Court and Tennessee Court of Appeals have

harmonized the constitutional and statutory provisions relative

to the classification and assessment of property for tax purposes

with the state’s horizontal property act. At the same time, those

courts declined to read the horizontal property act as an

exception to the statutes on classification and assessment, or

as a vehicle for circumventing the constitutional and statutory

intent that multi-unit income producing apartments or

condominiums be taxed at the industrial and commercial rate.

Pet. App. A, 3a-5a; Pet. App. B, 13a-15a.

6

This precise issue was one of first impression in the

Tennessee courts. The Tennessee Supreme Court has now

clearly stated the law of the state on the property tax question,

and at the same time has demonstrated a rational basis for the

classification and assessment of the petitioner’s 80 rental

condominium units.

An owner ofa single family dwelling may rent the property

to another without losing the residential classification. The

owner of a single condominium is treated similarly. It is only

where multiple rental units under common ownership in the

same building are rented or leased to others that the properties

are assessed at the industrial and commercial rate. This

classification applies whether the units are apartments or rental

condominiums under common ownership. Such circumstances

fall clearly within the constitutional intent to classify income

producing property as commercial. Snow and Louisville &

N.R.R., supra, p. 3. There is a rational basis for the classification

and assessment method on the very face of the constitution and

statutes of the state, as construed by the state’s highest court.

Il.

THERE IS NO CONFLICT BETWEEN THE

DECISION OF THE TENNESSEE SUPREME COURT IN

THIS CASE AND ANY OTHER STATE COURT OF LAST

RESORT, ANY UNITED STATES COURT OF APPEALS,

OR ANY RELEVANT DECISIONS OF THIS COURT.

Consideration of this case by this Court would not resolve

any existing conflict among other courts. As conceded by the

petitioner, “[t]his Court has not addressed the simple issues

raised in this petition.” Pet. 21. Nor does the petitioner argue

that the decision of the Tennessee Supreme Court in this case

is in conflict with the decision of any other state court of last

resort or any United States court of appeals. In fact, none of

the considerations governing review on certiorari as set forth

SOFA ERIS HPL te sce a Pil A A eb loc, ,

5

in Rule 10 appear to be applicable in this case. Simply stated,

there are no compelling reasons to grant the petition in this

case.

While admitting on the one hand that this Court has not

addressed the issues raised in this petition, the petitioner argues

on the other that the decision of the Tennessee Supreme Court

violates the principles expressed in Allegheny Pittsburgh Coal

Co. v. County of Webster County, West Virginia, 488 U.S. 336,

109 S. Ct. 633, 102 L. Ed. 2d 688 (1989) and Nordlinger v.

Hahn, 505 U.S. 1, 112 S. Ct. 2326, 120 L. Ed. 2d 1 (1992).

However, it is manifest from the Opinions in those cases that

the outcome of the inquiry in each case was driven by factual

variations in light of the unique property, taxation, and

constitutional law of West Virginia and California, respectively.

In Allegheny Pittsburgh, the classification was an arbitrary

one invented entirely by the local tax assessor, which

discriminated against recent buyers of real estate, and had no

other basis for the classes or distinctions used in the

assessments. Conversely, in the instant case, each member of

every class is treated exactly alike, and the owners and renters

of multi unit-condominiums are classified and assessed exactly

like each other and like the owners and renters of multi-unit

apartments. This method more than meets the test that

the fairness of one’s allocable share of the total

property tax burden can only be meaningfully

evaluated by comparison with the share of others

similarly situated relative to their property holdings.

488 U.S. at 346.

Nordlinger is not authority for the proposition that

certiorari should be granted under the facts of this case; indeed

8

it is much to the contrary. There, a system almost as unfair and

oppressive as the “welcome stranger” assessments in Allegheny

Pittsburgh survived an equal protection challenge. Although

there is little factual similarity between California’s Proposition

13, which was at issue in Nordlinger, and the facts of this case,

it is instructive that the treatment of those taxpayers survived. '

The ultimate conclusion upon a comparison of A‘/egheny

Pittsburgh and Nordlinger is that the question in this case must

be resolved squarely outside anything resembling an equal

protection violation.

In the case sub judice, not only was the case litigated in

light of a question primarily of construction and interpretation

rather than an equal protection issue, but the facts which do

appear in the stipulation lend themselves to support a conclusion

that there is a rational basis for the result approved by the

Tennessee Court of Appeals and the Tennessee Supreme Court

in the decisions below.

The highest court in Tennessee has made an authoritative

interpretation of that state’s constitution and statutes relative

to the stipulated facts on the classification issue. Apparently

no other state has the same constitutional and statutory

provisions. While it may be true, as stated by the Tennessee

Court of Appeals, that “both parties’ positions are well

reasoned,” Pet. App. C, 15a, and that good arguments can be

made on both sides of the question of constitutional and

statutory construction, once that question is definitively

resolved by the state’s highest court, it virtually by definition

cannot be an equal protection violation, where, on the facts,

every member of each class is treated equally. The horizontal

property act has been harmonized with Article II, § 28 and the

1. Justice Stevens, in lone dissent, described the disparate tax

burden between new owners and the landed gentry in Nordlinger as

conferring “a privilege of a medieval character.” 120 L. Ed. 2d at 25.

9

implementing statutes to require the owners of multi-unit rental

condominiums in the same building to pay taxes at the industrial

or commercial rate, just like the owners of identical multi-unit

apartments. Similarly situated property owners are being treated

equally, and the classification rests upon the policy ground of

taxing multi-unit apartments or condominiums in the same

building under common ownership as income-producing

industrial or commercial property. The state constitutional and

statutory language, as construed by the state’s highest court,

easily passes muster under the equal protection clause on its

face. :

Ill.

THE PETITION SHOULD BE DENIED SINCE IT

IMPROPERLY SEEKS REVIEW BY THE SUPREME

COURT OF THE CORRECTNESS OF AN

INTERPRETATION OF STATE LAW BY THE STATE’S

HIGHEST COURT.

The petition in this case is liberally sprinkled with

assertions that the decision of the Tennessee Supreme Court is

contrary to the constitutional and statutory law of the state.’

2. See e.g., Pet. p. 3 (“This taxation scheme is without any basis

under Tennessee law. ...”), p. 9 (“This standard for determining and

assessing real property taxes is not authorized in the Tennessee

Constitution or the Tennessee Horizontal Property Act.”), p. 11 (“The

tax assessment scheme and classification adopted by the Tennessee

Supreme Court for residential condominium units violates the Fourteenth

Amendment because it fails to follow the dictates of Article II, Section

28 of the Tennessee Constitution and the Tennessee Horizontal Property

Act.”) (“Under Tennessee law, ownership is not a factor to be used in

classifying residential condominiums for tax purposes.”), p. 12 (“The

1992 Tax Assessment does not comply with the dictates of the Horizontal

Property Act.”), pp. 13-14 (“By considering the ownership in classifying

(Cont'd)

10

These arguments ignore the settled rule that a state’s highest

court is the ultimate authority as to the construction of its

constitution and statutes. Addington v. Texas, 441 U.S. 418, 99

S. Ct. 1804, 60 L. Ed. 2d 323 (1979); In re Murchison, 349

U.S. 133, 75 S. Ct. 623, 99 L. Ed. 2d 942 (1955).

Accordingly, to the extent the petition is founded upon an

argument that the decision of the Tennessee Supreme Court in

this case is not in accordance with Tennessee law, the same

does not present a reviewable issue to this Court. /d.

By arguing that the classification approved by the

Tennessee Supreme Court is not in accordance with Tennessee

law, the petitioner in this case reveals the deeper flaw in its

equal protection argument: once the classification is made, the

petitioner is treated exactly like all other owners of multi-unit

rental apartments or condominiums. The petitioner does not

argue that the classes themselves violate equal protection, but

simply argues that it has been erroneously classified.

(Cont’d)

the Units, the Tennessee Supreme Court improperly classified and

approved an unequal tax assessment scheme on absolutely identical

properties.”), p. 14 (“The decision by the Tennessee Supreme Court

approving the 1992 Tax Assessments based on this distinction violates

... Tennessee law... .”) (“The Tennessee Supreme Court’s argument

regarding the ‘constitutional intent’ of Article II, Section 28 ignores the

clear language of Article II, Section 28.”), pp. 18-19 (“The Tennessee

Supreme Court found that ownership of the property and whether the

property was income-producing to be determinative factors in the

classifying and assessing different taxes on identical condominium units

despite no legal authority to support this finding.”), p. 19 (“The 1992

Tax Assessment is improper. The Tennessee Supreme Court relied upon

factors that are not supported or mandated by the Tennessee Constitution

or applicable statutes.”) (“As set forth above, the Tennessee Supreme

Court’s decision fails to comply with Tennessee law and arbitrarily taxes

owners of absolutely identical condominium units differently.”).

Chee oe ee eee aa ae

1]

The petitioner does not argue that members of the same

class are receiving disparate treatment. It also does not argue

that the establishment of a higher rate of assessment for

industr: 4] or commercial property is a violation. The petitioner’s

argument is really a question of the appropriateness of the

classification it has been assigned. When viewed in this light,

the question purportedly presented for review in this case

€vaporates, leaving only a pure matter of state law.

IV.

THE EQUAL PROTECTION ISSUE SHOULD NOT BE

CONSIDERED AS IT WAS NOT SQUARELY BRIEFED

AND ARGUED AT ANY TIME WHEN THE CASE WAS

ON APPEAL, BUT NONETHELESS WAS ADDRESSED

BY THE TENNESSEE SUPREME COURT IN ITS

OPINION.

The equal protection issue in this case should not be

considered at this time because it was not squarely briefed or

argued while the case was being appealed from the trial court

to the intermediate appellate court and from that court to the

State supreme court, but rather, was never addressed in any of

the decisions of the courts below until the case was on second-

tier appellate review in the state’s high court. Pet. App. A, p.

2a, n. 1, pp. Sa-8a.?

This case was tried on a Stipulation of facts in the trial

court, and that stipulation was entered into at a time when the

focus of the litigation was upon questions regarding the

3. The petitioner did allege an equal protection violation in its

original complaint. However, that allegation appears with a laundry list

of other alleged state and federal constitutional violations, the remainder

of which were never pursued in the litigation. Pet. App. F, pp. 49a-50a,

Ti 14-17.

12

construction and interpretation of the Tennessee system of

classification and assessment as embodied in its constitution

and laws. If an equal protection issue arising from the

constitutional and statutory provisions for the classification and

assessment of condominium property in Tennessee is going to

be addressed by this Court, it should only be done in a case

where that was the primary issue being litigated from the outset

of the proceedings; rather than where it was not addressed by

any court until the case was on appeal. If this Court is inclined

to consider this issue, it would be better to do so only after it

has been more thoroughly developed in the courts of the state,

under the various factual variations which may arise from time

to time and from one condominium complex to the next, in

light of the fundamental question of construction and

interpretation which is now the settled law as articulated by

the state’s highest court.

13

CONCLUSION

For the foregoing reasons, and others which may appear to

the Court, the petition for writ of certiorari filed in this case

should be denied.

Respectfully submitted,

DAVID A. STUART

Counsel of Record

STUART & VAN RIPER

Attorney for Respondents

Anderson County, Tennessee,

Patsy Stair, Trustee, and

Owen K. Richardson, Tax Assessor

300 Market Street

Clinton, TN 37716

(423) 457-6414

Of Counsel:

DAVID S. CLARK

County Attorney for Respondents

DAVID S. CLARK & ASSOCIATES

ANDERSON COUNTY

166 Fairbanks Rd.

Oak Bridge, TN 37830

(423) 482-3933