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Metropolitan Associates v. City of Milwaukee

Supreme Court of Wisconsin

January 10, 2018

Metropolitan Associates, Plaintiff-Appellant-Petitioner,
City of Milwaukee, Defendant-Respondent.

          Submitted on Briefs: oral argument: September 15, 2017

         REVIEW OF A DECISION OF THE COURT OF APPEALS Reported at 373 Wis.2d 310, 895 N.W.2d 104 (2017 - Unpublished)

         Source of Appeal Court Circuit county Milwaukee Jeffrey A. Conen and Dennis P. Moroney Judge

          For the plaintiff-appellant-petitioner, there were briefs filed by Alan Marcuvitz, Nicholas J. Boerke, and Von Briesen & Roper, S.C., Milwaukee. There was an oral argument by Nicholas J. Boerke and Alan Marcuvitz.

          For the defendant-respondent, there was a brief filed by Grant F. Langley, city attorney, and Allison N. Flanagan, assistant city attorney. There was an oral argument by Allison N. Flanagan.

          An amicus curiae brief was filed on behalf of League of Wisconsin Municipalities by Claire Silverman and League of Wisconsin Municipalities, Madison.

          R.G. BRADLEY, J. and KELLY, J. (coauthor) dissent (opinion filed).


         ¶1 The petitioner, Metropolitan Associates (Metropolitan), seeks review of an unpublished court of appeals decision affirming the circuit court's determination, which in turn affirmed the City of Milwaukee's (the City) tax assessment of property owned by Metropolitan.[1] Metropolitan contends that the court of appeals erred in concluding that the City complied with Wis.Stat. § 70.32(1) (2013-14)[2] in its assessment of Metropolitan's property.

         ¶2 Specifically, Metropolitan argues that the City contravened Wis.Stat. § 70.32(1) because it failed to utilize the "best information" available when it relied on mass appraisal, and not single-property appraisal, in determining the value of Metropolitan's property. Metropolitan additionally asks this court to reject the findings of the circuit court regarding the reliability of the competing assessment evidence and the weight and credibility the circuit court attributed to that evidence. Ultimately, it argues that the application of the presumption of correctness to the City's assessment based on a mass appraisal constitutes an error of law.

         ¶3 We conclude that the City's assessment of Metropolitan's property complied with Wis.Stat. § 70.32(1). The City permissibly utilized mass appraisal for its initial assessment and appropriately defended its initial assessment with single property appraisals demonstrating that the assessment was not excessive.

         ¶4 Next, we decline Metropolitan's request to upset the circuit court's findings of fact. As the court of appeals aptly stated, "[i]n asking us to reject the court's judgment as to the weight and credibility of the competing assessment evidence, Metropolitan effectively asks us to substitute our judgment for the circuit court's regarding the credibility of witnesses and the relative weights to assign to various pieces of the evidence at trial, neither of which we can do."[3]

         ¶5 We conclude that the circuit court's findings of fact regarding the reliability of the respective appraisals are not clearly erroneous. Because the circuit court's findings are sufficient to support its determination regardless of whether the presumption of correctness was employed, we need not address whether the presumption of correctness attached to the assessment based on the initial mass appraisal.

         ¶6 Accordingly, we affirm the decision of the court of appeals.


         ¶7 The facts presented arise from the City's assessments of seven properties owned by Metropolitan for the tax years 2008-2013. Metropolitan objected that the assessments were excessive, initially appealing to the City's Board of Assessors and Board of Review. The Board of Assessors and Board of Review both upheld the assessments. Metropolitan then brought an excessive assessment action in the circuit court.

         ¶8 Both parties agreed to present evidence on only one of the seven Metropolitan properties, the Southgate Apartments, and to focus exclusively on the tax years 2008-2011. They further agreed that the resolution of the Southgate Apartments assessment would control the resolution of Metropolitan's challenges to the other six properties' assessments.

         ¶9 The Southgate Apartments were initially assessed by the City using a "mass appraisal" technique. At trial, the City assessor, Peter Weissenfluh, testified that "[m]ass appraisal is a technique used by probably the majority of assessment jurisdictions in the nation. It is a process whereby an assessor values entire groups of property using systematic techniques and allowing for statistical testing."

         ¶10 Mass. appraisal stands in contrast to single property appraisal. Weissenfluh testified that single property appraisal "is looking at the individual properties and determining the full fair market value of that individual property with more detail and more . . . individual analysis . . . ."

         ¶11 Single property appraisals are conducted by what Weissenfluh described as a "three-tier valuation technique." The three "tiers" of analysis provide a hierarchy of what constitutes the best evidence of fair market value. Pursuant to a "tier 1" analysis, the best evidence of value is a recent sale of the subject property.

         ¶12 Weissenfluh explained that there were no recent sales of the Southgate Apartments. Because no tier 1 evidence was available, he then moved to a "tier 2" analysis, also known as a "sales comparison" approach.

         ¶13 A tier 2 analysis examines any sales of reasonably comparable property. Under this approach, as Weissenfluh testified, an assessor "surveys the market to determine comparable sales. In that process many sources are used." The assessor then selects comparable properties relying on such factors as location and use, adjusting the sale price based on particular physical characteristics of the properties.

         ¶14 Weissenfluh testified that he completed a tier 2 analysis to assess the Southgate Apartments. Through this analysis, he ultimately arrived at a value higher than that produced with the initial mass appraisal.

         ¶15 If there is no information from which to conduct either a tier 1 or tier 2 analysis, the assessor moves to a "tier 3" analysis. A tier 3 analysis takes into account other characteristics of the property, such as the amount of income it generates and the cost to maintain it.

         ¶16 Weissenfluh conducted a tier 3 income analysis "to confirm that the sales comparison approach made sense." He further testified that his income analysis validated the results of the sales comparison analysis, confirming that the initial mass appraisal was not excessive.

         ¶17 Metropolitan responded by presenting the testimony of its appraiser, Lawrence Nicholson. He also conducted both tier 2 and tier 3 analyses of the Southgate Apartments. Nicholson concluded, contrary to Weissenfluh's determination, that the Southgate Apartments had a value lower than that reflected in the City's initial mass appraisal.

         ¶18 After a two-day bench trial, the circuit court rendered a written decision affirming the City's initial assessments. The circuit court determined first that the City complied with Wis.Stat. § 70.32(1) and the Wisconsin Property Assessment Manual (the Manual) by conducting a mass appraisal of the Southgate Apartments.

         ¶19 Second, the circuit court found that the City's tier 2 and 3 valuations were "more reliable" than Metropolitan's. Specifically, the circuit court determined that "[t]he City's sales comparison approach is more reliable than Metropolitan's approach" because Metropolitan made "adjustments based solely on the properties' net operating income[]." In so doing, Metropolitan "conflate[d] the sales comparison and income approaches."

         ¶20 Further, the circuit court found that "[t]he City's income approach was more reliable than Metropolitan's approach." The City's income approach correctly adjusted for Metropolitan's expense ratio, which was "markedly higher than the expense ratios for similar properties in the market." As the circuit court highlighted, "[t]he market trend is to maintain a lower expense ratio, and the City's income approach accounted for this."

         ¶21 On appeal, Metropolitan argued that the circuit court erred in concluding that Metropolitan failed to rebut the presumption of correctness to which City assessments are entitled. Specifically, it asserted that (1) the City's initial assessments were invalid as a matter of law because the City assessor used the mass appraisal method and not the three-tier technique; (2) the City assessor's tier 2 and 3 assessments were conducted in a manner contrary to Wisconsin assessment law in that the City assessor ignored the individual economic characteristics of the Southgate Apartments property; and (3) the circuit court erred in its determination that the City assessor's methods were more reliable than those of Metropolitan's assessor.

         ¶22 The court of appeals rejected Metropolitan's arguments. It concluded that the Wisconsin Property Assessment Manual explicitly encourages assessors to use mass appraisal. Metro. Assocs. v. City of Milwaukee, No. 2016AP21, unpublished slip op., ¶20 (Wis. Ct. App. Dec. 8, 2016). Next, it determined that the City assessor's sales comparison and income analyses were conducted in accordance with Wisconsin law. Id., ¶33. Finally, it opined that the circuit court's determination regarding the reliability of each assessor's methods was a credibility determination that the court of appeals would not upset on appeal. Id., ¶35.


         ¶23 In this case we are asked to review a tax assessment made in an action for refund of excess property taxes paid pursuant to Wis.Stat. § 74.37(3)(d).[4] An action under § 74.37 is a new trial, not a certiorari action. Trailwood Ventures, LLC v. Vill. of Kronenwetter, 2009 WI.App. 18, ¶6, 315 Wis.2d 791, 762 N.W.2d 841');">762 N.W.2d 841. Accordingly, we review the circuit court's determination, not that of the assessor or Board of Review. Id.

         ¶24 In review, we interpret and apply Wis.Stat. § 70.32 to determine whether the appraisal at issue followed the statutory directives. Regency W. Apartments LLC v. City of Racine, 2016 WI 99, ¶22, 372 Wis.2d 282, 888 N.W.2d 611. Statutory interpretation and application present questions of law that this court reviews independently of the determinations rendered by the circuit court and court of appeals. Id.

         ¶25 We do, however, defer to a circuit court's findings of fact. Royster-Clark, Inc. v. Olsen's Mill, Inc., 2006 WI 46, ¶11, 290 Wis.2d 264, 271, 714 N.W.2d 530, 534 (citation omitted). Factual findings made by the circuit court will not be disturbed unless they are clearly erroneous. Emp'rs Ins. of Wausau v. Jackson, 190 Wis.2d 597, 613, 527 N.W.2d 681 (1995) . It is within the province of the factfinder to determine the weight and credibility of expert witnesses' opinions. Bonstores Realty One, LLC v. City of Wauwatosa, 2013 WI.App. 131, ¶6, 351 Wis.2d 439, 839 N.W.2d 893 (citation omitted).


         ¶26 Metropolitan argues first that the City's assessments do not comply with Wis.Stat. § 70.32(1), which provides in relevant part:

Real property shall be valued by the assessor in the manner specified in the Wisconsin property assessment manual provided under s. 73.03(2a) from actual view or from the best information that the assessor can practicably obtain . . .

         Specifically, Metropolitan contends that the City did not use the "best information" available when it relied on mass appraisal rather than single property appraisal. The argument centers on the meaning of "best information that the assessor can practicably obtain."

         ¶27 In its initial briefing, [5] Metropolitan asserts that the "best information" on which to base an assessment is not that which informs a mass appraisal, but instead is information underlying a single property appraisal pursuant to the three tiers of analysis under State ex rel. Markarian v. City of Cudahy, 45 Wis.2d 683, 173 N.W.2d 627 (1970) .

         ¶28 Wisconsin Stat. § 70.32(1) explicitly directs that property be assessed "in the manner specified in the Wisconsin property assessment manual." The Manual provides that "[c]ommercial property can be valued by either single property or mass appraisal techniques." 1 Wisconsin Property Assessment Manual (2009) at 9-5.[6]

         ¶29 "Mass appraisal is the systematic appraisal of groups of properties, as of a given date, using standardized procedures and statistical testing." 1 Wisconsin Property Assessment Manual at 7-32. The Manual provides for assessors utilizing mass appraisal in initial assessments: "Mass appraisal is the underlying principle that Wisconsin assessors should be using to value properties in their respective jurisdictions." Id.

         ¶30 Mass. appraisal stands in contrast to single property appraisal, which is the valuation of a single particular property as of a given date. Id. A single property appraisal focuses on the unique characteristics of the subject property within the strictures of the methodology set forth in Markarian, 45 Wis.2d 683.

         ¶31 In Markarian, we addressed a landowner's challenge to the City of Cudahy's assessment of his property. 45 Wis.2d at 684. We interpreted Wis.Stat. § 70.32 (1)[7] to set forth a hierarchical valuation methodology for single-property appraisal. Id. at 686. The text of the statute lists three sources of information in a specific order, with the court in Markarian clarifying this order as indicative of the quality of the information each source provides. Id. This methodology has been further described in the courts as providing for three "tiers" of analysis. See, e.g., Allright Props., Inc. v. City of Milwaukee, 2009 WI.App. 46, ¶¶20-30, 317 Wis.2d 228, 767 N.W.2d 567.

         ¶32 The best information of a property's fair market value is an arm's-length sale of the subject property. Markarian, 45 Wis.2d at 686; Regency W., 372 Wis.2d 282, ¶27. Examination of a recent arm's-length sale is known as a "tier 1" analysis. Allright Props., 317 Wis.2d 228, ¶21.

         ¶33 If there is no recent sale of the subject property, the appraiser moves to tier 2, examining recent, arm's-length sales of reasonably comparable properties (the "sales comparison approach") . Markarian, 45 Wis.2d at 686; Allright Props., 317 Wis.2d 228, ¶22.

         ¶34 When both tier 1 and tier 2 are unavailable, an assessor then moves to tier 3. See Allright Props., 317 Wis.2d 228, ¶29. Under tier 3, an assessor "may consider 'all the factors collectively which have a bearing on value of the property in order to determine its fair market value.'" Adams Outdoor Advert., Ltd., v. City of Madison, 2006 WI 104, ¶35, 294 Wis.2d 441, 717 N.W.2d 803 (quoting Markarian, 45 Wis.2d at 686) . These factors include "cost, depreciation, replacement value, income, industrial conditions, location and occupancy, sales of like property, book value, amount of insurance carried, value asserted in a prospectus and appraisals produced by the owner." State ex rel. Mitchell Aero, Inc. v. Bd. of Review of City of Milwaukee, 74 Wis.2d 268, 278, 246 N.W.2d 521');">246 N.W.2d 521 (1976) (citations omitted). Both the income approach, which seeks to capture the amount of income the property will generate over its useful life, and the cost approach, which seeks to measure the cost to replace the property, fit under the umbrella of tier 3 analysis. Adams Outdoor Advert., 294 Wis.2d 441, ¶35.

         ¶35 Metropolitan's argument that the "best information" must necessarily be the information underlying a single property appraisal and not a mass appraisal is unpersuasive for two reasons. First, property must be assessed "in the manner specified in the Wisconsin property assessment manual." Wis.Stat. § 70.32(1) . It allows assessors to conduct mass appraisal. 1 Wisconsin Property Assessment Manual at 7-32. Second, Metropolitan's argument does not give full effect to the word "practicably" in § 70.32(1).

         ¶36 The Manual outlines the division of labor between mass appraisal and single property appraisal, demonstrating when the use of each method is appropriate:

The assessor needs skills in both mass appraisal and single property appraisal. Mass. appraisal skills for producing initial values, whether during a reappraisal year or not, and single property appraisal skills to defend specific property values or to value special-purpose properties that do not lend themselves to mass appraisal techniques.

1 Wisconsin Property Assessment Manual at 7-32.

         ¶37 Metropolitan acknowledged in its reply brief and at oral argument that mass appraisal is appropriate in certain circumstances. Namely, Metropolitan recognized that at the initial assessment stage, mass appraisal may comprise the best information for all properties being assessed en masse.

         ¶38 The Manual makes clear that mass appraisal is accepted at the initial assessment stage. It likewise sets forth when a single property appraisal is warranted. A single-property appraisal is necessary (1) after the initial mass appraisal has been challenged by the taxpayer or (2) if the property being valued is a "special-purpose" property that does not lend itself well to mass appraisal.[8] See 1 Wisconsin Property Assessment Manual at 7-32. The express language of the Manual indicates that mass appraisal is a proper method of valuation in all other circumstances.

         ¶39 Requiring a single property appraisal after a taxpayer challenges an assessment does not mean that the value of the property must be set in accordance with the single property appraisal. Indeed, this could not be the case when the subsequent single property appraisal is higher than the initial mass appraisal. In Trailwood Ventures, the court of appeals determined that Wis.Stat. §§ 74.37 and 74.39[9] do not permit the court to impose a greater tax burden than the one the taxpayer challenges. 315 Wis.2d 791, ¶10.

         ¶40 The question on appeal in a Wis.Stat. § 74.37 action is not whether the initial assessment was incorrect, but whether it was excessive. Accordingly, Weissenfluh testified at trial as follows:

Q: And you're not asking that the assessment be changed to the sales comparison approach value, correct?
A: No. The assessment cannot be changed at this level. All I'm showing is that my work supports the original assessment and I conclude, therefore, that the assessment as made was not excessive.

         The value reflected in the initial mass appraisal can thus constitute the value of the property for tax assessment ...

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