Hasit, LLC v. City of Edgewood (Local Improvement Dist. # 1), Corp.

179 Wash.App. 917

320 P.3d 163

HASIT, LLC, a Washington limited liability company, Appellant,

v.CITY OF EDGEWOOD (LOCAL IMPROVEMENT DISTRICT # 1), a municipal corporation, Respondent.

1999 Stokes Family LLC, a Washington limited liability company, and Ray Rempel and Eldean Rembel, as Trustees for Revocable Trust Agreement of Ray E. Rempel and Eldean B. Rempel Dated December 12, 2006, a Trust, Respondents/Cross–Appellants,

v.City of Edgewood, a municipal corporation, Appellant/Cross–Respondent.

Eric Docken Properties, LP; Enid and Edward Duncan, James and Patricia Schmidt; Darlene Masters a/k/a the Brickhouse, LLC; George and Arlyn Skarich; Suelo Marina, LLC, Respondents/Cross–Appellants,

v.City of Edgewood, (Local Improvement District # 1), Appellant/Cross Respondent.

No. 42842–3–II.

Court of Appeals of Washington, Division 2.

March 13, 2014.

Joseph Zachary Lell, Wayne Douglas Tanaka, Ogden Murphy Wallace PLLC, Seattle, WA, for Appellant.

Margaret Yvonne Archer, Attorney at Law, Carolyn A. Lake, Goodstein Law Group PLLC, Tacoma, WA, for Respondent.

BJORGEN, J.

¶ 1 The City of Edgewood (City) appeals from a superior court order remanding local improvement district (LID) assessments, levied against respondents' property, for further proceedings before a hearing examiner and the Edgewood City Council (Council). We hold that the assessments rested in part on a fundamentally wrong basis, that they were arbitrary and capricious, and that the nature of the notice and the inadequate time between it and the hearing deprived the respondents of the due process of law. Accordingly, we annul the assessments against respondents' properties.

FACTS

¶ 2 The Council created LID No. 1 by ordinance in October 2008 in response to a petition from various property owners. The City, incorporated in 1996, had no sewer service, and its reliance on on-site septic systems limited potential for development in the area. The LID financed the construction of a $21,238,268 sewer system, imposing the entire cost on the owners of 161 parcels in a 312–acre area. A portion of this cost resulted from the accommodation of flows from properties outside the LID that would connect to the system in the future. The contractor substantially completed the sewer system by March 2011, and the Council officially accepted the work by resolution on April 12, 2011.

A. Calculation of the Assessments Based on “Special Benefits”

¶ 3 In October 2009 the City hired a professional appraisal firm, Macaulay & Associates, to estimate the increase in value accruing to each parcel due to the sewer project, characterized as each parcel's “special benefit.” ¹ Clerk's Papers (CP) at 1528. Macaulay was also charged with allocating the cost of the project among the LID parcel owners in proportion to those benefits. Between December 2010 and May 2011, Macaulay's certified appraisers prepared a “mass appraisal report,” using a valuation date of May 10, 2011. CP at 1464.

¶ 4 The Macaulay report established general value ranges per square foot of land, both with and without the sewer project, for the various zoning categories in the LID. It also provided an estimated with- and without-sewer value for each parcel based on “highest and best use” and described the various methods, assumptions, and sources of information used. CP at 1464–626. The report did not, however, provide actual appraisals of each parcel or the specific calculations used to arrive at the estimated values.

¶ 5 On May 9, 2011, amendments to the City's zoning ordinance substantially increased the density and building heights allowed for most of the zoning designations in the LID. Macaulay used these zoning changes as a “major assumption” in estimating the with-sewer values of the LID parcels, but did not consider the new zoning in estimating values without sewer. Macaulay made this distinction because the “zoning changes could not be implemented without the availability of sanitary sewer service.” CP at 1532.

¶ 6 To calculate the recommended assessments, Macaulay divided the total cost of the sewer project by the combined special benefit estimate for all LID parcels, $28,818,000, then multiplied the resulting quotient, approximately 0.74, by the estimated special benefit to each parcel. As long as the estimates of value with and without sewer were reasonably accurate, this approach would as a matter of logic maintain proportionality among the assessments and ensure that no parcel's assessment exceeded its special benefit.

B. Public Hearing Before the Examiner

¶ 7 The city manager sent property owners in the LID a letter dated April 20, 2011,² providing “general information” concerning the assessment roll confirmation process and informing them that they could object to the assessments at a public hearing planned for June 1, 2011. CP at 216–17. The letter informed owners that the purpose of the hearing was “to hear from individual property owners regarding their individual assessments” and cautioned that “[o]nly those property owners that have filed written objections ... at or prior to the hearing ... may testify.” CP at 216. Although the letter stated that “[t]he hearing examiner will consider all written and oral testimony,” it added that “[p]roperty owners must limit their testimony to (1) whether their property's benefit from the improvements is at least as high as the assessment on their property; and (2) whether their assessment is proportional to the assessments on other property in the LID.” CP at 216.

¶ 8 On May 12, 2011, the City mailed an official notice of the proposed assessments to the LID parcel owners and made the Macaulay report available for inspection at city hall. The notice informed the owners of the specific amounts proposed to be assessed against their properties and invited them to attend the public hearing before a hearing examiner on the assessment roll scheduled for June 1, 2011.

¶ 9 The official notice again advised the owners that they had to submit any objections in writing by the June 1 hearing, and it also informed them, as required by statute, that any owner who submitted a written protest at or prior to the hearing could appeal the hearing examiner's recommendation to the Council. The notice also included an “information sheet” that contained the same language that appeared in the city manager's April 20 letter.

¶ 10 On May 27, 2011, respondent Docken requested a continuance on the grounds that the City's notice was defective. The City denied the request.

¶ 11 The examiner proceeded with the hearing as scheduled. Owners timely submitted 24 protests involving 41 LID parcels, and the examiner heard testimony from 16 owners or their representatives. Appraiser Robert Macaulay and an assistant appeared and answered questions from protestors, their attorneys, and the attorney representing the City. Respondents all timely submitted protests in writing.³

¶ 12 At the end of the hearing, the examiner stated that he would “leave the record open for one week for any written responses or closing argument [from the owners] to the City's presentation, and then ... an additional week [for the City] to respond to ... the arguments.” CP at 2257. The examiner specified that no new evidence could be submitted or made part of the record.

¶ 13 The examiner issued his report and recommendation to the Council on June 30, 2011. In making the recommendations, the examiner applied various presumptions in favorof the appraiser's proposed assessment roll:

A. The City's action in forming the LID and its assessments are correct.

B. A property owner challenging the assessment has the burden of proving its correctness.[ ⁴]

C. The City has acted legally and properly.

D. An improvement is a benefit to the property.

E. An assessment is no greater than the benefit.

F. An assessment is equal or ratable to an assessment upon other property similarly situated.

G. The assessment is fair.

CP at 56 (citing Abbenhaus v. Yakima, 89 Wash.2d 855, 576 P.2d 888 (1978)).

¶ 14 The examiner also stated that “[t]hose protesting an assessment have a heavy burden of proof,” which he described as follows: “a party challenging a final assessment must present expert appraisal evidence that their property is either not benefitted by the improvement or that their assessment is not equal or ratable to assessments of other property similarly situated.” CP at 57. The examiner then quoted at length from an opinion of Division Three of this court:

Even if the presumption of an assessment's validity is successfully rebutted, however, the objector must still show that the assessment was founded on a fundamentally wrong basis or was imposed arbitrarily or capriciously.... A city council proceeds on a fundamentally wrong basis if it uses a method of assessment so flawed that it necessitates a nullification of the entire LID.... An arbitrary and capricious action refers to legislative decisions (such as the decision of the council here) made willfully and unreasonably, without regard or consideration of facts or circumstances.

CP at 57 (quoting Kusky v. City of Goldendale, 85 Wash.App. 493, 933 P.2d 430 (1997) (omissions in original)).

¶ 15 Ultimately, the examiner concurred in the recommendations in a June 13 letter from Macaulay to reduce three assessments, and the examiner further recommended investigation of claim made by one protestor that Macaulay had relied on incorrect zoning designations in its estimates. The examiner recommended rejecting all the other protests entirely.

C. The Council's Confirmation of the Assessment Roll

¶ 16 The Council considered the examiner's recommendations and heard appeals from the protestors at a closed-record hearing on July 19, 2011. The Council had by ordinance limited argument to facts already in the record before the examiner, ultimately allowing three minutes' argument for each appeal. Ten owners, including all the respondents, timely submitted written appeals and appeared at the hearing either...