ANALYSIS OF JANUARY 23, 2020 SUPREME COURT OPINION
(Posted January 23, 2020) While today’s published opinion in Portsmouth 2175 Elmhurst, LLC v. City of Portsmouth is about real-estate taxes, the second issue decided today will be of interest to lawyers who don’t handle tax challenges. That issue is contingency fees. Let’s take a look.
For many years, a local meat-packing company used a large building on Elmhurst Lane in Portsmouth to make hot dogs. The company shut down the plant in 2012. Evaluating the structure against modern manufacturing processes, the company decided it could no longer utilize the building, so it listed the property for sale.
The offering price of $1.9 million, for 12 ½ acres, must have seemed a bargain; the City’s tax assessment was over $6 million. But the best offer the seller got was $875,000. The company signed on the dotted line in 2013 and probably felt relieved to be rid of a non-income-producing asset.
The buyer decided to strip certain fixtures from the building, by then in disrepair, and sell it for market price. It offered the land, with the building still there, for $1.1 million, but eventually sold it in 2015 for about half that asking price.
Meanwhile, the buyer felt that three years’ tax assessments for an obsolete and vacant building were too high. It applied for tax relief for the years 2013 through 2015. The City reduced the assessment from $6 million to about $3.8 million for the last tax year only. The buyer paid the taxes under protest and sued for a correction.
The substance of today’s opinion is a complex recitation of competing expert opinions on fair market value. The buyer offered testimony from an appraiser whose work I know and respect; he opined that FMV for all three years was $950,000. The City responded with the tax assessor, who described his mass appraisal of this site along with others. Each party called one other expert to bolster its case. The trial court ruled that the buyer hadn’t overcome the appraisal’s presumption of correctness.
The court also ruled on the attorney’s-fee petition filed by the lawyer hired by the City. That lawyer agreed to a 20% contingency fee, as specified in the tax-collection statute. The lawyer sought about $36,000. He didn’t keep time records but outlined for the judge the nature of the duties he performed. The judge cut the fee award to $24,000.
The buyer appealed both the principal judgment and the fee award. Today, the Supreme Court affirms the judgment on the tax-relief petition. After outlining the taxpayer’s burden in such challenges, the court rules that, while the buyer certainly made out a prima facie case that the parcel was taxed above its fair-market value, it didn’t establish that the City used an impermissible method of mass appraisal.
This is the part of the opinion that will primarily interest lawyers who handle litigation like this, and not many others. That being said, I found one passage particularly interesting. One of the taxpayer’s experts testified, and the court admitted her expert report into evidence. On appeal, the buyer points to certain details in the written report that weren’t in her oral testimony. It argued that she shouldn’t have had to repeat all those details orally, since they were undeniably in evidence.
Addressing this, Justice McCullough’s opinion for a unanimous court contains this wise counsel for trial lawyers:
That may be correct in the abstract, but practices, procedures, rules, and standards in this technical area are generally beyond the expertise of judges. Submitting a written report, without additional clarifying testimony from the expert at the trial, may not be sufficient to persuade the factfinder that the assessment is deficient under the second part of the two-part test specified in Code § 58.1-3984(B). In other words, asserting in relatively conclusory fashion violations of the practices, procedures, rules and standards as prescribed by nationally recognized professional appraisal organizations is not the same thing as proving such violations.
That’s solid advice in many contexts. Your case at trial shouldn’t be a matter of handing an unassembled jigsaw puzzle to the finder of fact, and expecting that finder to put everything together. Assembling the pieces is your job.
On to the fees issue. Today’s opinion notes that the court has previously set out a non-exclusive list of seven items for a court to consider when shifting fees under a statute or contract. The buyer argued that there was no evidence at trial on six of those, but the Supreme Court finds that a court need not consider all of them, particularly where, as here, there’s a contingency fee. That’s because in such an arrangement, the lawyer is assuming part of the risk of the litigation.
In evaluating this retainer, the court notes that the amount awarded is below the statutory 20%, so it’s presumptively reasonable. And the absence of time-sheet records “is hardly surprising under a contingency fee arrangement.” The justices find no abuse of discretion in the fee award.
I believe that other lawyers seeking fees from an adversary will look with interest on this last passage. In a footnote, the court does observe that time records can be useful to show reasonableness, or in a quantum meruit situation. But they aren’t essential.
One last point: The secondary buyer, the one who took the property off this taxpayer’s hands in 2015, razed the obsolete building and built a brand-new structure for its intermodal transportation business. The City, hard-strapped for revenue, is no doubt delighted by the new facility – especially for the tax revenue it brings.