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Appeal from Pierce County Superior Court. Docket No: 11-2-12496-2. Date filed: 11/10/2011. Judge signing: Honorable John Russell Hickman.
Joseph Z. Lell and Wayne D. Tanaka (of Ogden Murphy Wallace PLLC ), for appellant.
Margaret Y. Archer (of Gordon Thomas Honeywell LLP ) and Carolyn A. Lake (of Goodstein Law Group PLLC ), for respondents.
AUTHOR: Thomas R. Bjorgen, J. We concur: Joel Penoyar, J.P.T., Jill M Johanson, A.C.J.
[179 Wn.App. 926] ¶ 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.
¶ 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. [179 Wn.App. 927] 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."  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 1464-1626. 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 [179 Wn.App. 928] 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, 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) [179 Wn.App. 929] 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.
¶ 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 [179 Wn.App. 930] 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 favor
of 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.
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. City of Yakima, 89 Wn.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 [179 Wn.App. 931] 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 (alterations in original) (quoting Kusky v. City of Goldendale, 85 Wn.App. 493, 933 P.2d 430 (1997)).
¶ 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 a 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 in person or through counsel.
¶ 17 After hearing the protestors' arguments and rebuttal from the attorney representing the City, the Council briefly discussed the issues raised in some of the appeals. The Council then voted on an ordinance to confirm the roll exactly as recommended by the examiner except for reductions to two additional assessments, but it failed to pass. After additional deliberations, mostly involving the financial consequences to the City of further delay, the Council held another vote on the same ordinance, this time passing it. The ordinance took effect August 1, 2011.
[179 Wn.App. 932] D. Appeal to the Superior Court
¶ 18 Nine protesting owners, including the respondents, timely appealed the Council's decision to Pierce County Superior Court pursuant to RCW 35.44.250, alleging both substantive defects in the appraiser's assessment and flaws in the protest procedures.
The court consolidated the cases and ultimately filed its decision on November 10, 2011. The court concluded that the City's procedures suffered from many defects, notably, that " the City's notice and advisement of the hearing set for June 1, 2011 [before the examiner] was so inadequate as to violate the appellants' right to a fair hearing." CP at 2843. The court remanded the matter " for a revised and de novo hearing and evidentiary process before the Hearing Examiner," requiring the examiner and the Council to provide specific procedural protections to the protestors on remand. CP at 2843-45.
¶ 19 The City timely appealed the superior court's decision. Respondent Docken timely cross appealed.
¶ 20 Because this case involves a complex and specialized area of law, we set forth the relevant principles governing LID assessments in some detail before ...