Archie J. Pavek, Trustee of the Archie J. Pavek Revocable Trust v. City of Prior Lake

• Court: Court of Appeals of Minnesota
• Decided: December 14, 2015
• Docket: A15-366
• Status: Unpublished

Opinion

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2014).

STATE OF MINNESOTA IN COURT OF APPEALS A15-0366

Archie J. Pavek, Trustee of the Archie J. Pavek Revocable Trust, Respondent,

vs.

City of Prior Lake, Appellant

Filed December 14, 2015 Affirmed Worke, Judge

Scott County District Court File No. 70-CV-13-12697

Christopher A. Neisen, Wornson, Goggins, Zard, Neisen, Morris & King, PC, New Prague, Minnesota (for respondent)

Joseph A. Nilan, Daniel A. Ellerbrock, Gregerson, Rosow, Johnson & Nilan, Ltd., Minneapolis, Minnesota (for appellant)

Susan L. Naughton, League of Minnesota Cities, St. Paul, Minnesota (for amicus curiae League of Minnesota Cities)

Considered and decided by Hooten, Presiding Judge; Worke, Judge; and

Kalitowski, Judge.*

* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10. UNPUBLISHED OPINION

WORKE, Judge

In this special-assessment dispute, appellant argues that the district court erred by

setting aside the original $76,479 assessment and determining that respondent’s property

received a special benefit of only $24,829. We affirm.

FACTS

On May 28, 2013, appellant City of Prior Lake passed Resolution 13-065 and

awarded a construction contract for the Welcome Industrial Improvement Project

(Welcome Avenue project). Prior Lake implemented the Welcome Avenue project, in

part, to improve Welcome Avenue by widening and paving the road, provide municipal

water and sewer services to properties in the area, and alleviate flooding in Markley Lake

by building a pond to collect run-off from surrounding properties.

Respondent Archie J. Pavek, as the trustee of the Archie J. Pavek Revocable Trust,

owns a nearly five-acre parcel in Prior Lake. Pavek’s property is zoned “industrial” and

located between Industrial Circle on the west and Welcome Avenue on the east. Both

roads travel north/south. A gate borders the east side of Pavek’s property.

Pavek’s property contains three buildings on its western half. Pavek operates a

machine shop and wind turbine company. Pavek’s employees, along with other visitors,

access Pavek’s property from the west on Industrial Circle. Pavek testified that although

the property can be accessed from Welcome Avenue, it has been done so just once.

Pavek’s property also contains an underground culvert that runs north/south across the

entire parcel. Water that accumulates on Pavek’s property, and certain properties to the

2 south, drains into the culvert and catch basin and travels underground to Markley Lake.

The culvert and catch basin are non-conforming uses that are grandfathered in. Any

development on Pavek’s property would require him to bring the property into

compliance with the city’s stormwater zoning requirements.

In May 2013, Prior Lake adopted special assessments against property owners to

help fund the Welcome Avenue project. Pavek received assessments for street

improvements and the stormwater pond that totaled $76,479. Pavek appealed Prior

Lake’s assessment. During a bench trial, the district court heard testimony from two

appraisers, Cal Haasken and Paul Gleason.

Haasken completed an appraisal for Pavek and concluded that “general industrial”

is the highest and best use of Pavek’s property. Haasken also stated that it is not

economically viable to subdivide Pavek’s property. Haasken utilized an income

approach, a market-data approach, and a replacement-cost approach to determine the

market value of Pavek’s property. Haasken considered both the land and the

improvements on Pavek’s property. Haasken concluded that the Welcome Avenue

project did not increase the value of Pavek’s property.

Gleason completed an appraisal for Prior Lake and concluded that “light

industrial” is the highest and best use of Pavek’s property. Gleason concluded that the

Welcome Avenue project did not affect the value of the improvements on Pavek’s

property. He stated that only Pavek’s land benefited from the Welcome Avenue project.

Gleason used a direct-sales-comparison approach to estimate the value of Pavek’s land

3 before and after the Welcome Avenue project. Gleason concluded that the Welcome

Avenue project increased the market value of Pavek’s property by $103,000.

Pavek testified that the Welcome Avenue project did not benefit his property

because he uses only the Industrial Circle access point, and the project, as it relates to

water flow, does not benefit his property. Pavek stated that if he subdivided and sold a

1.5-acre parcel on the eastern border, the new owner could benefit from the Welcome

Avenue project.

On August 22, 2014, the district court ordered the assessment against Pavek’s

property to be set aside. The district court found Haasken’s appraisal persuasive because

he determined the market value of the land and buildings, not the land only. The district

court, however, determined that 1.5 acres on the eastern border of Pavek’s property could

benefit from the Welcome Avenue project if developed. The district court ordered Prior

Lake to reassess Pavek’s property in an amount not to exceed $24,829. Prior Lake

moved for a new trial or for an amended order. The district court denied Prior Lake’s

motion. This appeal follows.

DECISION

“A special assessment is a tax, intended to offset the cost of local improvements

such as sewer, water and streets, which is selectively imposed upon the beneficiaries.”

Dosedel v. City of Ham Lake, 414 N.W.2d 751, 755 (Minn. App. 1987). A city’s power

to impose special assessments is limited in three ways: (1) the land must receive a special

benefit from the new improvement, (2) the assessment must be uniform upon the same

class of property, and (3) the assessment may not exceed the special benefit. Carlson-

4 Lang Realty Co. v. City of Windom, 307 Minn. 368, 369, 240 N.W.2d 517, 519 (1976).

An assessment set higher than the special benefit conferred constitutes a taking without

compensation to the extent of the excess. Id. at 370, 240 N.W.2d at 519.

A “[s]pecial benefit is measured by the increase in the market value of the land

owing to the improvement.” Id. at 369, 240 N.W.2d at 519. An appraiser determines

market value by identifying “what a willing buyer would pay a willing seller for the

property before, and then after, the improvement.” Id. “[M]arket value may be

calculated on the highest and best use of the land.” Anderson v. City of Bemidji, 295

N.W.2d 555, 560 (Minn. 1980). The subject property’s present use does not control in

determining special benefits received. Vill. of Edina v. Joseph, 264 Minn. 84, 95, 119

N.W.2d 809, 817 (1962).

After an assessment is adopted, an aggrieved person, who makes a timely

objection, may appeal to the district court. Minn. Stat. § 429.081 (2014). At the district

court, “the city is presumed to have set the assessment legally, and thus introduction of

the assessment roll into evidence constitutes prima facie proof that the assessment does

not exceed [the] special benefit.” Carlson-Lang Realty, 307 Minn. at 370, 240 N.W.2d at

519. A landowner overcomes the presumption by introducing competent evidence that

the assessment is greater than the increase in market value of the property due to the

improvement. Id. “When evidence is also received that the assessment is equal to or less

than the increased market value, the district court must make a factual determination.”

Id., 240 N.W.2d at 519–20; see Hartle v. City of Glencoe, 303 Minn. 262, 266–67, 226

5 N.W.2d 914, 918 (1975) (stating that the factfinder resolves any conflict in testimony as

to whether an increase in market value exceeds the amount of an assessment).

Standard of Review

Upon review, this court conducts “a careful examination of the record to ascertain

whether the evidence as a whole fairly supports the findings of the district court and

whether these in turn support its conclusions of law and judgment.” Carlson-Lang

Realty, 307 Minn. at 373, 240 N.W.2d at 521 (citing G.C. Kohlmier, Inc. v. Albin, 257

Minn. 436, 101 N.W.2d 909 (1960)). Testimony is considered in the light most favorable

to the prevailing party, and the district court’s findings “will not be reversed on appeal

unless they are manifestly contrary to the evidence.” G.C. Kohlmier, Inc., 257 Minn. at

442–43, 101 N.W.2d at 914; see Nelson v. City of St. Paul, 256 N.W.2d 639, 640 (Minn.

1977) (holding that the district court properly applied the standards used for reviewing

assessments and that “[t]he findings by the [district] court are not clearly erroneous”).

Prior Lake asserts that we apply a de novo standard of review, citing Ewert v. City

of Winthrop, 278 N.W.2d 545 (Minn. 1979) in support. But Ewert discussed the district

court’s de novo standard of review, and cited Carlson-Lang Realty for this court’s

standard of review. 278 N.W.2d at 548–49.

In Ewert, the supreme court stated that after both parties present evidence on

whether a property’s market value changed, “the district court [must] make a factual

determination.” Id. at 548 (emphasis added). The court further stated that “[if] the

landowner maintains that the assessment is excessive, this determination is to be a de

novo one.” Id. The supreme court cited Buettner v. City of St. Cloud, 277 N.W.2d 199

6 (Minn. 1979). Id. In Buettner, the supreme court stated: “[W]he[n] the sole issue

presented is whether there has been an unconstitutional taking, the [district] court cannot

abrogate its duty to uphold constitutional safeguards and defer to the judgment of the

taxing authority. Decision must be based upon independent consideration of all the

evidence.” 277 N.W.2d at 203 (emphasis added).

The supreme court’s reasoning in Buettner and Ewert established that, for special-

assessment disputes, the de novo standard of review applies in district court proceedings.

Carlson-Lang Realty established that we carefully examine whether the evidence fairly

supports the district court’s findings and whether those findings support its conclusions of

law and judgment. 307 Minn. at 373, 240 N.W.2d at 521.

The Evidence Fairly Supports the District Court’s Findings

Prior Lake argues that the district court erred by concluding that Pavek’s property

received a special benefit of only $24,829. We must first determine whether the evidence

fairly supports the district court’s findings. Id.

Haasken testified that he used three approaches to determine the value of Pavek’s

property. Haasken testified that the highest and best use of Pavek’s property, both before

and after the Welcome Avenue project, was a five-acre industrial site with existing

buildings. Gleason agreed that this is the highest and best use of Pavek’s property.

Haasken appraised Pavek’s property in accordance with the Uniform Standards of

Professional Appraisal Practice, which explains the processes and forms that must be

complied with during an appraisal. Haasken determined that the value of Pavek’s

property, both before and after the Welcome Avenue project, was $1,200,000.

7 The district court found Haasken’s appraisal more persuasive because he

determined the market value of the land and buildings. The district court recognized that

Haasken gave opinions on the market value of Pavek’s property both before and after the

Welcome Avenue project. The district court accepted Haasken’s conclusion that the

highest and best use of Pavek’s property was industrial, and that a buyer would pay

$1,200,000 for the property prior to and after the Welcome Avenue project. Finally,

based on Pavek’s testimony that 1.5 acres of the property could benefit from the

Welcome Avenue project, the district court found that Pavek’s property received a

special benefit of up to $24,829. Thus, the district court’s findings are not clearly

erroneous.

Prior Lake argues that the district court “incorrectly criticized” Gleason’s appraisal

for focusing on the value of the land separate from its improvements. We do not agree.

“[A]s long as a valuation method fairly approximates the increase in a parcel’s market

value, it may be used in an assessment proceeding.” DeSutter v. Twp. of Helena, 489

N.W.2d 236, 238 (Minn. App. 1992), review denied (Minn. Sept. 30, 1992). “[M]arket

value may be calculated on the highest and best use of the land.” Anderson, 295 N.W.2d

at 560. When evidence conflicts as to whether a special benefit exists, the district court

must make a factual determination. Carlson-Lang Realty, 307 Minn. at 370, 240 N.W.2d

at 519–20. Factual determinations will not be set aside unless they are clearly erroneous.

Nelson, 256 N.W.2d at 640.

Haasken evaluated the market value of Pavek’s property based on its highest and

best use. Haasken considered both the land and its improvements and concluded that the

8 Welcome Avenue project did not affect the property’s market value. Haasken’s opinion

conflicted with Gleason’s opinion, and the district court found Haasken’s appraisal more

persuasive. The weight and credibility given to each appraiser’s opinion, however, was

an issue for the district court to determine. See DeSutter, 489 N.W.2d at 240. Further,

whether the market value of Pavek’s property increased is a question of fact that will not

be set aside unless it is clearly erroneous. See Nelson, 256 N.W.2d at 640. Thus, the

district court did not err by finding Haasken’s appraisal more persuasive.

Prior Lake argues that we should rely on Holden v. City of Eagan, 393 N.W.2d

526 (Minn. App. 1986). In Holden, the subject property was used for farming and zoned

agricultural, however, it was designated R-III (medium density townhome) under the

city’s comprehensive land-use plan. 393 N.W.2d at 527. Appraisers for both parties

concluded that the highest and best use, before and after improvements, was R-III and

that the value of the property’s buildings was not affected by the improvements. Id. at

529. The district court, however, found that the highest and best use was agricultural and

reduced the value of three assessments, discounting the city’s appraisal, in part, because

the appraiser did not take into account the buildings on the land. Id. at 528. This court

reversed the district court’s decision. Id. at 529.

Despite similarities, the Holden decision does not control here. We did not

reverse the district court’s decision in Holden simply because the district court

discredited the city’s appraisal for not considering the structures on the Holdens’ land.

Id. at 528–29. Rather, this court reversed the district court’s decision for two reasons: (1)

there was insufficient evidence to find that the highest and best use of the property before

9 improvements was agricultural; and (2) the district court erred in finding that a building’s

decrease in value upon development of the property into its highest and best use reduced

the benefit derived from the improvements. Id.

Prior Lake also argues that the district court improperly relied upon the present use

of Pavek’s property in determining whether it received a special benefit. We are not

persuaded. The district court adopted Haasken’s appraisal, which determined the highest

and best use of the property to be industrial while using the existing buildings.

Additionally, the district court recognized that both appraisers believed the “highest and

best use” to be industrial. Finally, when adjusting the special-assessment amount, the

district court found that 1.5 acres could be developed as “light industrial.” The present

use of Pavek’s property, coincidentally, happens to be its highest and best use. Thus, the

district court relied on the highest and best use of Pavek’s property.

Prior Lake also argues that the district court erred by excluding portions of

Pavek’s property from assessment. Prior Lake relies on Gibbish v. Vill. of Burnsville,

294 Minn. 318, 200 N.W.2d 310 (1972). But this case does not support Prior Lake’s

position. In Gibbish, the district court set aside assessments that were imposed against

two separate parcels of land. 294 Minn. at 318–19, 200 N.W.2d at 312. The district

court found the assessments invalid because portions of each parcel were not suitable for

development. Id. at 321, 200 N.W.2d at 313. The supreme court held:

Evidence as to the effect of an assessment on portions of an assessed parcel is material to the question of market value of the entire parcel, but cannot be used to defeat an assessment when the increase in market value of the entire

10 parcel by reason of the improvement exceeds the cost of the improvement.

Id. at 318, 200 N.W.2d at 311. The supreme court also stated that the district court

should have made findings as to the value of the subject property both before and after

the improvement. Id. at 322–23, 200 N.W.2d at 314.

Here, unlike Gibbish, the district court did not set aside the assessment because

portions of Pavek’s property were not suitable for development. Rather, the district court

found Haasken’s appraisal and Pavek’s testimony persuasive. The district court found

that both appraisers agreed that the highest and best use of Pavek’s property was

industrial, which is the property’s present use. Additionally, based on Pavek’s testimony

that a portion of his property could benefit from the Welcome Avenue project, the district

court found that the property received a special benefit in the amount of $24,829.

Finally, Prior Lake argues that a district court must conduct an analysis of the

subject property’s market value both before and after the improvements are implemented.

Minnesota courts have recognized this requirement. See Edward Kraemer & Sons, Inc.,

v. Village of Burnsville (In re Vill. of Burnsville), 310 Minn. 32, 40–41, 245 N.W.2d 445,

450–51 (1976) (remanding because the district court did not make findings on central

issue of improvement’s effect on market value ); Peterson v. City of Inver Grove Heights,

345 N.W.2d 274, 277 (Minn. App. 1984) (“[T]he [district] court’s failure to make

findings on the before and after market value of respondent’s property would have been a

separate and sufficient ground for reversing and remanding this case.”).

11 Here, the district court adopted Haasken’s appraisal, which concluded that the

market value of Pavek’s property prior to the Welcome Avenue project was $1,200,000.

The district court also found that Pavek’s property received a special benefit of $24,829.

A “[s]pecial benefit is measured by the increase in the market value of the land owing to

the improvement.” Carlson-Lang Realty, 307 Minn. at 369, 240 N.W.2d at 519. Thus,

the district court found that the property’s market value increased by $24,829 as a result

of the Welcome Avenue project.

Considered in a light most favorable to Pavek, the district court’s findings are not

clearly erroneous because the evidence fairly supports the district court’s findings.

Additionally, the district court’s findings fairly support its conclusions of law and

judgment.

Affirmed.