Reply Brief — Kmart Corp. v. Stearns County (No. 05-1655)

| FILED

+), JUL 2.4 2008

THE CLERK

No. 05-1655 | QUBSExte COURT, U.S.

IN THE

Supreme Court of the Anited States

- 4

KMART CORPORATION,

Petitioner,

Vv.

COUNTY OF STEARNS,

Respondent.

S

On Petition For A Writ Of Certiorari To The

Minnesota Supreme Court

+

PETITIONER’S REPLY BRIEF IN SUPPORT OF

PETITION FOR WRIT OF CERTIORARI

*

LAURIE J. MILLER THOMAS R. WILHELMY

Counsel of Record RICHARD D. SNYDER

FREDRIKSON & BYRON, P.A. FREDRIKSON & BYRON, P.A.

200 South Sixth Street ‘200 South Sixth Street

Suite 4000 Suite 4000

Minneapolis, MN 55402 Minneapolis, MN 55402

(612) 492-7132 (612) 492-7058/7145

Attorneys for Petitioner Kmart Corporation

TABLE OF CONTENTS

Page

FARR CAE AA FEI ea BBE senses enniscesercemsshcttinsionceteameennciiades il

FATE TTIRET © scciiaictassicenisaveridesiunssomentionsianiahtietaenenidiaemadiion |

I. |The Minnesota Supreme Court and Tax Court

Decisions Did Not Rest Upon the Resolution of a

Factual Dispute; They Reinterpreted a Statute and

Rendered It Unconstitutionally Vague. ..................... ]

II. |The Opposition Brief Fails to Address the Inherent

Vagueness of the 60-Day Rule. ...............ccceecccseseeseeeeeees 4

III. The Opposition Brief Misstates Kmart’s Arguments

Concerning the Due Process Violation of Doing

Away With the Doctrine of Precedent............00..........0. 8

TABLE OF AUTHORITIES

UNITED STATES SUPREME COURT CASES

A. B. Small Co. v. American Sugar Ref. Co., 267 U.S.

TEA dal. Gade ls sllsns eodeconebenrvendeerneetetersvovessoysecebeenssos 4

Barenbiatt v. U.S., 360 U.S.-109 (1959).........0cercssserrsesereree 5

Chevron Oil Co. v. Huson, 404 U.S. 97 (1971)............. 9,10

Giaccio v. Pennsylvania, 382 U.S. 399 (1966)...............cse 4

Village of Hoffman Estates v. Flipside, Hoffman

ee TE, OEP OE EL Docs ceiecevorceecasevscoevecesosacvscess 5

MINNESOTA CASES

Hoff v. Kempton, 317 N.W.2d 361 (Minn. 1982)................ 9

Kmart Corp. v. Becker County, No. CX-02-410 (Minn.

Ii ici cernseesl brnosedseepearinegiecoeroeisnoreteuseness 6

Kmart Corp. v. County of Crow Wing, 2001 WL

I I 5 cc cncendaci-voescntnaveretenedeveewsesiens 7

Kmart Corp. v. County of Martin, 2006 WL 771935

a aa bdnedevewnntabauahounieos 6

Kmart Corp v. County of Otter Tail, 2000 WL 1719925

i a sacepsinpnoneseuenen -o/deoaeie 7

Kmart Corp. v. County of St. Louis, 2001 WL 40370

I At cccusenenepenenvousesan’ 2,6

MINNESOTA STATUTES

Minn. Stat. § 271.01

Minn. Stat. § 278.05, subd. G8) ...00rccccccsecccerecesscseseeses passim

il

ARGUMENT

I. The Minnesota Supreme Court and Tax Court

Decisions Did Not Rest Upon the Resolution of a

Factual Dispute; They Reinterpreted a Statute and

Rendered It Unconstitutionally Vague.

The opposition brief incorrectly asserts that the primary issue

in this case was a factual dispute about whether certain

information was actually available to Kmart within the 60-

day period. (Opp. Brf. 11.) This contention misstates the

record. Nowhere in the Minnesota Supreme Court’s decision

is there any discussion of an alleged dispute about the

availability of certain information.

In fact, it is undisputed that Kmart timely provided

information to the County for its petition years at issue,'

including information about its lease of the subject property

and operating revenue information about the store it operates

as a tenant of the subject property. Kmart was not able to

provide the expense information held to be relevant to

valuation of the real estate under well-established Minnesota

Tax Court precedent-- vacancy rates, management fees and

replacement reserves -- because that information was in the

possession of a third party landlord, not Kmart, and therefore

was “unavailable” to Kmart within the meaning of the

60-Day Rule. See Kmart Corp v. County of Otter Tail, 2000

WL 1719925 (Minn. Tax Ct. 2000) (holding that the

“expenses attributable to the real estate include the vacancy

loss, management fees and replacement reserves,” all of

' Kmart filed petitions in 2000, 2001 and 2002 to challenge,

respectively, the County’s valuations of its property in 1999,

2000 and 2001.

which “are available to the Landlord, not the tenant’). App.

at 135. Kmart also did not provide information about the

expenses of operating its retail store at the subject property,

including insurance, utilities and repair and maintenance

expenses. Kmart did not produce this tenant-paid expense

information because such information was not relevant to the

valuation of the real estate, as determined by many prior Tax

Court decisions. See pp. 7-8 of Kmart’s Petition.

Stearns County thereafter moved to dismiss Kmart’s action

based on Kmart’s alleged failure to produce information

about the “expenses” for the subject property. Two

categories of information were at issue: (1) information about

“vacancy loss, management fees and replacement reserves,”

which the Tax Court had previously held is relevant and, if

available, must be provided under the 60-Day Rule, but it is

usually available only to the landlord, not a tenant; and

(2) information about tenant-paid expenses including

insurance, utilities, and repair and maintenance expenses,

which the Tax Court previously held are not relevant to the

valuation of the real property and which do not need to be

provided under the 60-Day Rule.’ As to the first category,

Kmart argued in response to the County’s motion to dismiss

that the information was not available to Kmart because it

* See, Kmart Corp. v. County of St. Louis, 2001 WL 40370

(Minn. Tax Ct. 2001) (“Since other operating expenses

including insurance, utilities and common area maintenance

and repair expenses that are paid by the tenant do not reduce

the income to the landlord, those expenses are not relevant in

calculating the value of the property. ... Therefore, these

other operating expenses do not need to be provided” under

the 60-Day Rule.) Petitioner's App. at 142-43 (emphasis

added).

2

was information that the landlord, not Kmart possessed, and

therefore was unavailable for Kmart to provide under the 60-

Day Rule. As to the second category, contrary to statements

made in the opposition brief, Kmart did not argue that its

information about the expenses of operating its store at the

subject property, including insurance, maintenance and repair

expenses, was unavailable. Instead, Kmart argued that such

tenant-paid expense information was not relevant and had

never been required to be produced under the 60-Day Rule,

as evidenced by a lengthy and consistent series of Tax Court

decisions.

Thus, the issue in the Minnesota Supreme Court, and in the

Tax Court, was not whether information about “expenses

including insurance, utilities, and common area maintenance

and repair expenses that are paid by the tenant” was available

to Kmart; .ie issue was whether such tenant-paid expense

information fell within the scope of the 60-Day Rule’s

undefined “income and expense” language, despite prior

holdings from the Tax Court that it did not. Accordingly, the

primary issue in this case did not turn on a factual dispute,

but rather on a legal issue as to the meaning of undefined

statutory terminology.’

The opposition briefs reference at n.2 to legislative

testimony given by Mr. Wilhelmy in opposition to the 60-

Day Rule before enactment is not in the record before this

Court, is incorrectly cited, and bears no relationship to the

issues On appeal.

Il. The Opposition Brief Fails to Address the Inherent

Vagueness of the 60-Day Rule.

The opposition brief first erroneously argues that the

vagueness doctrine is limited to criminal statutes. However,

the Due Process Clause applies to civil litigants as well as

criminal defendants. This Court long ago rejected the notion

that the vagueness doctrine applies only in the criminal

context, saying “It [is] not the criminal penalty that [is] held

invalid, but the exaction of obedience to a rule or standard

which [is] so vague and indefinite as really to be no rule or

standard at all.” A. B. Small Co. v. American Sugar Ref. Co.,

267 U.S. 233, 239 (1925).

The void for vagueness doctrine has been invoked in many

non-criminal matters. In Giaccio v. Pennsylvania, 382 U.S.

399, 402-03 (1966), for example, a statute permitted a jury to

impose a civil penalty in the form of court costs on the

prevailing party in litigation, but failed to outline any criteria

to be used by the jury in reaching its decision. The state

appellate courts determined that the statute was not void for

vagueness because “The Act ‘is not a penal statute’ but

simply provides machinery for the collection of costs of a

‘civil character’ analogous to imposing costs in civil cases

‘not as a penalty but rather as compensation to a litigant for

expenses.”” Jd. This Court rejected a purported distinction

between civil and criminal matters, explaining “one of the

basic purposes of the Due Process Clause has always been to

protect a person against having the Government impose

~ burdens upon him except in accordance with the valid laws of

the land. Implicit in this constitutional safeguard is the

premise that the law must be one that carnes an

understandable meaning with legal standards that courts must

enforce.” /d. at 403. The void for vagueness doctrine

requires greater scrutiny in criminal statutes and statutes

which infringe upon constitutional rights, such as the right to

petition the government for redress. Village of Hoffman

Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 498-

99 (1982); cf Barenbdlatt v. U.S., 360 U.S. 109, 137 (1959)

(“the ‘vice of vagueness’ is especially pernicious where

legislative power over an area including speech, press,

petition and assembly is involved’’), (Black, J. dissenting,

joined by Warren, C.J. and Douglas, J.)

The opposition brief next argues that the 60-Day Rule is not

vague because it simply requires production of “relevant”

evidence. However, the problem is that the decision below

permits a county and its litigation experts to make their own

subjective (and unpredictable) relevance determinations years

after the expiration of the 60-Day Rule. The opposition brief

never addresses the fatal flaw of the statute: the fact that the

determination of what information is “relevant” and must be

provided within 60 days is ultimately made by the county,

which is an adverse party to the litigation, and its litigation

expert witnesses, well after the 60-day period has expired.

The language in the decision of the Minnesota Supreme

Court highlights the lack of objective criteria for the scope of

the information that must be produced. In its syllabus, the

court states that a taxpayer has to produce “sufficient

information” about expenses paid by the taxpayer as a tenant.

App. 3. In its central holding, the court goes on to state:

We interpret the 60-day rule to require

production of expense information that is useful

and relevant to the appraisal process.

App. 11 (emphasis added). The inherent vagueness of the

statute results from the fact that no objective criteria exist to

determine what information is “sufficient,” or what

information a county or its litigation expert will opine, after

the fact, is “useful and relevant” to the appraisal process.

In this case, for example, a number of previous Tax Court

rulings held that tenant-paid expenses, and in particular,

utilities, insurance and maintenance and repair expenses, are

not relevant to the valuation of the property. See Kmart

Corp. v. County of St. Louis, 2001 WL 40370 (Minn. Tax. Ct.

2001) (“operating expenses including insurance, utilities, and

common area maintenance and repair expenses that are paid

by the tenant . . . are not relevant [and] do aot need to be

produced under the 60-day Rule”); see also cases cited on

pp. 7-8 of the Petition.

Despite the holdings of those cases, Stearns County hired an

expert witness for the present litigation, Dwight Dahlen, to

opine that information about tenant-paid expenses -- in

particular, utilities, insurance and maintenance and repair

expenses -- would be useful and relevant to the appraisal of

the landlord’s real estate. However, that same expert

previously testified as an expert on behalf of counties in

many other property tax valuation disputes involving the

same type of build-to-suit properties for Kmart, and

Mr. Dahlen never used these types of tenant-paid expenses to

determine property values in any of those prior cases, despite

his affidavit in the present case that such information is

relevant and necessary.* Instead, in each case involving the

* In Kmart Corp. v. County of Martin, 2006 WL 771935

(Minn. Tax Ct. 2006) the data relied on by Mr. Dahlen to

determine the value of the real estate in which Kmart leased

space included vacancy and credit rates, the management fees

paid, and reserves. In Kmart Corp. v. Becker County, No.

CX-02-410 (Minn. Tax Ct. 2004) he valued the property

[footnote continued on following page]

6

valuation of property under leases in which Mr. Dahlen has

testified as an expert, he has analyzed only information about

vacancy rates, credit losses, management fees and reserves in

order to make valuation adjustments -- the very items that the

Tax Court previously held are relevant and necessary to

provide under the 60-Day Rule, but are in the possession of

the landlord, and not of a tenant such as Kmart. Kmart Corp

v. County of Otter Tail, 2000 WL 1719925 (Minn. Tax Ct.

2000) (holding that the “expenses attributable to the real

estate include the vacancy loss, management fees and

replacement reserves”).

It is this kind of subjective relevance determination, made by

hired litigation experts after the fact, that renders the statute

unreasonably vague. What information is “sufficient” and

what information would be “useful and relevant” to the

appraisal process is limited only by the imagination of a

county’s litigation expert.

Before taking away a party’s valuable rights, such as the night

to petition the government for redress from unfair and

unequal taxation, a statute must define, in objective terms,

what the party must do to preserve its rights. Just as a statute

again by considering “vacaicy and credit loss” rates,

“management fees” and “reserves.” In Kmart Corp. v.

County of Crow Wing, 2001 WL 826120 (Minn. Tax. Ct.

2001) he again relied on vacancy and credit loss rates. This

is the landlord’s information, not the tenant’s. In none of the

cases in which Mr. Dahlen has valued leased real property

has he analyzed and adjusted for tenant-paid expenses such as

insurance, utilities, repair and maintenance expense in order

to determine the value of the real estate.

of limitations would be unreasonably vague if it permitted

actions to be dismissed if filed untimely, but failed to identify

any objective time limits for filing actions, so too the

statutory 60-Day Rule, as reinterpreted by the Tax Court and

Minnesota Supreme Court in this case, is unreasonably vague

because it fails to provide objective criteria for what

“expense” information a taxpayer must provide within 60

days to avoid dismissal.

Ill. The Opposition Brief Misstates Kmart’s

Arguments Concerning the Due Process Violation

of Doing Away With the Doctrine of Precedent.

The opposition brief also misstates Kmart’s arguments about

the Minnesota Supreme Court’s ruling that decisions of the

Minnesota Tax Court have no precedential value. The

opposition brief mischaracterizes Kmart’s position as arguing

that “‘an inferior court’s decision has stare decisis effect in a

state supreme court... .”’ (Opp. Brf. at 5.) However, Kmart

has never argued that the Minnesota Supreme Court, or any

other appellate court, is bound under the doctrine of

precedent or stare decisis to follow decisions of inferior

courts. Instead, the issue is whether it is a due process

violation to declare that decisions of a court -- particularly a

court like the Minnesota Tax Court, which is a “court of

record” having “statewide jurisdiction,” established by the

Minnesota Legislature as the “sole, exclusive and final

authority for the hearing and determination of all questions of

law and fact arising under the tax laws of the state’ (Minn.

Stat. § 271.01, subd. 5) -- have no precedential effect.

The issue of the precedential effect of tax court decisions

arose in the context of Kmart’s claim that the decision of the

Minnesota Tax Court in this case, as affirmed by the decision

of the Minnesota Supreme Court, should be given prospective

application only because it established a different rule of law

than previously has been consistently followed in the Tax

Court. Minnesota has adopted the prospective ruling doctrine

that this Court recognized in Chevron Oil Co. v. Huson, 404

U.S. 97, 106-07 (1971). See Hoff v. Kempton, 317 N.W.2d

361, 363 (Minn. 1982). The Minnesota Supreme Court

acknowledged that its decision, and the decision of the Tax

Court in this case, departed from prior Tax Court decisions,

App. 9, but concluded that the Chevron prospective ruling

doctrine should not be applied to limit the application of the

new rule to the existing case because “the decisions of the tax

court do not qualify as precedent for purposes of retroactivity

analysis.” App. 17.

The Minnesota Supreme Court’s declaration that the

decisions of the Minnesota Tax Court have no precedential

effect is a violation of due process because it strips away

from litigants important procedural safeguards that are deeply

rooted in the common law. The doctrine of precedent or

stare decisis does not require one court rigidly to adhere to

prior decisions of another court. It does protect a litigant’s

right to due process by at least forcing a court that departs

from precedent to analyze and address contrary precedent.

Stare decisis requires a court to explain the reason for its

departure from precedent -- such as that the case involves

distinguishing facts or that the rule announced in the prior

decision is incorrect or should be changed. The doctrine of

precedent or stare decisis permits the law to develop in an

orderly and logical fashion, and provides a degree of certainty

in the rule of law that people can rely upon as they plan their

affairs.

Abolishing the doctrine of precedent within any court system

-- particularly within a court system such as the Minnesota

Tax Court which was established to have “statewide

jurisdiction” and the “sole, exclusive and final authority for

the hearing and determination of all questions of law and fact

arising out of the tax laws of the state” -- is a grave violation

of due process. It fosters ad hoc and arbitrary decisions and

contradictory rules of law. Statutes and rules would not have

any understood meaning if different courts could adopt

whatever interpretation they chose, without consideration of

interpretations given in prior court decisions. Litigants would

have no ability to determine their course of action in reliance

upon any particular rule of law. No issue would ever be

settled. Litigants could re-litigate any issue, despite the fact

that prior decisions had resolved the issue the other way. It is

because of these types of concerns that the doctrine of

precedent has been entrenched in our nation’s common law

throughout its history. Abolishing the doctrine of precedent

within the Minnesota Tax Court, and refusing to apply the

Chevron purely prospective ruling doctrine to the recent

change in statutory interpretation because Tax Court

decisions have no precedential effect, as the Minnesota

Supreme Court has ruled here, violated Kmart’s due process

rights.

July 24, 2006 Respectfully submitted,

LAURIE J. MILLER THOMAS R. WILHELMY

Counsel of Record RICHARD D. SNYDER

FREDRIKSON & BYRON, P.A. FREDRIKSON & BYRON, P.A.

200 South Sixth Street 200 South Sixth Street

Suite 4000 Suite 4000

Minneapolis, MN 55402 Minneapolis, MN 55402

(612) 492-7132 (612) 492-7058/7145

Attorneys for Petitioner Kmart Corporation

10