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Hamilton Corner I, LLC v. City of Napavine

Court of Appeals of Washington, Division 2

August 22, 2017


          WORSWICK, J.

         Hamilton Corner I LLC, appeals from a superior court decision affirming the city council's confirmation of the city of Napavine's local improvement district (LID) assessment levied against Hamilton Corner's properties. The assessment was for expansion of city water to an area not previously serviced by public water. Among other improvements, the LID improvements included equipping a recently drilled city well (Well 6) with a pump, power, controls, and piping to connect the well to the city's water mains. However, the city later determined that the water from Well 6 was not suitable for drinking without additional improvements and currently could be used only for fire suppression.

         Hamilton Corner argues that the city's current inability to use Well 6 for drinking water materially altered the LID as originally proposed, and thus, the assessment roll was founded upon a fundamentally wrong basis. Hamilton Corner further argues that because the assessment roll was founded upon a fundamentally wrong basis, the city's appraisal of Hamilton Corner's properties was founded upon a fundamentally wrong basis, and thus, the council's decision to confirm the assessments was arbitrary and capricious. We disagree and affirm the superior court's decision.


         Hamilton Corner owns three properties relevant to this case, which are located in the city of Napavine. In 2011, the city declared its intention to order the acquisition and construction of certain water system improvements in the "Rush Road area, " which included Hamilton Corner's properties. The planned improvements aimed to expand the city water system to the Rush Road area to promote development. The plan included connecting the public water system to a recently drilled well, Well 6. The city's "Description of Improvements" described the improvements as follows:

Acquisition of a 12-inch water main, pressure reducing stations and fire hydrants, on Rush Road from Cedar Crest Street north to the Interstate 5 freeway interchange, and north on Hamilton Road to a point approximately 2, 400 feet beyond the Interstate 5 freeway interchange; construction of additional 12-inch and 8-inch water main along Rush Road across the Interstate 5 freeway interchange, construction of 8-inch water main north on Rush Road from the Interstate 5 interchange approximately 1, 500 feet, and south from the Interstate 5 interchange along Kirkland Road and Bond Road approximately 1, 800 feet; additional fire hydrants per City of Napavine by these water mains; equipping a recently drilled City well[1] with a pump, power, controls, and piping to connect well to aforementioned water mains; and construction of a new water reservoir for pressure control for the zone to be served by aforementioned water mains, including piping from the new water reservoir to aforementioned water mains; and associated work and appurtenances related to the above-described improvements.

Clerk's Papers (CP) at 76. The city adopted Resolution No. 11-12-34 giving notice of its intent to establish LID No. 2011-1, which would implement the proposed improvements and provide payment for the improvements in part by special assessments upon the property within the district.

         In February 2012, the city mailed notices of the LID formation hearing and preliminary assessments to the taxpayers of record as shown for the LID properties. After a public hearing, the city council adopted Ordinance No. 497, forming the LID and adopting the preliminary assessment roll in accordance with Resolution No. 11-12-34. For the next three years the city moved forward with its improvement plans.

         During this time, the city discovered that the water from Well 6 was significantly discolored and thus failed to meet public health and city code requirements to be used as potable drinking water. While the city explored its options for correcting the Well 6 issue, the city moved forward with its improvement plans to otherwise bring public water to the Rush Road area, while reserving Well 6 water for fire suppression purposes until the discoloration was corrected.[2]

         In 2012, the city acquired an appraisal of Hamilton Corner's properties in order to obtain an opinion as to the "before" and "after" market values of the properties and resulting special benefits, if any, relating to the LID, for purposes of establishing the properties' assessments. The appraisal was performed without any owner contact, and the properties were inspected only from the exterior and public areas.

         Regarding the Hamilton properties, the appraisal noted that the primary difference between the "before" condition and the "after" condition would be that water would be provided by an extension of the city's public water system as opposed to the properties' private well system. The completed public water system would allow for full development of the properties in accordance with the city's zoning and development standards, reduce system maintenance expenses, and lower property insurance rates. The appraisal concluded that "[t]he highest and best use is the continued use of the existing improvements for the foreseeable future, with the excess land of 19.43 acres suitable for additional commercial and industrial development upon extension of public water." Based on its investigation, the appraisal placed the "before" value of the Hamilton Corner properties at $3, 440, 000, and the "after" value at $3, 760, 000, for a total special benefit of $320, 000. CP at 57.

         On September 29, 2015, the city council published and mailed notices of public hearing for the LID final assessment roll to all property owners within the LID. Based on the appraisal, Hamilton Corner's three properties were assessed for a total $170, 329.02, approximately half of the value of the special benefits to them, as calculated by the appraisal.[3] On October 27, 2015, Hamilton Corner sent a written objection to the assessment of its properties to the city council. That same day, the city began its public hearing on the assessments.

         At the hearing, Hamilton Corner expressed its concerns to the city council. The council noted Hamilton Corner's protest and explained that while no water from Well 6 would be provided until the discoloration issue was resolved, a valve system allowed the city to nonetheless provide potable water to the area in the meantime. The council then continued the hearing to November 24, to allow time for the LID to prepare written responses to the protests received at the October 27 hearing. The council also encouraged Hamilton Corner to contact an independent appraiser, stating, "I would recommend that maybe what you should possibly look at doing is talking to an appraiser . . . and have them determine whether they feel there's benefit after the improvements to your property." Administrative Record (AR) at 155-56.

         On November 19, legal counsel for the city responded to Hamilton Corner's letter explaining the cost of the improvement project. The letter also explained:

A Benefit Study/Appraisal Report was prepared for your property in accordance with standard practices. The work was performed by an independent appraiser with expertise in special benefit assessments. The appraiser has worked throughout the State on LIDs. The City is unaware of any appraisals undertaken by qualified experts which contradict the conclusions reached by the City's expert.
The City will not provide water that does not meet all public health requirements as well as the City's own stricter requirements. Water from Well 6 will not be placed into service until the discoloration issue is resolved. Costs associated with resolving this problem are not included in the LID costs.

CP at 70-71.

         At the November 24 hearing, the council heard further testimony from protesting property owners and the city. At the hearing, Hamilton Corner had the opportunity to question the appraiser as to his appraisal methods and valuations. Of particular note were Hamilton Corner's concerns about what special benefits were being conferred on its properties since the properties were sufficiently serviced by their private water systems. The appraiser explained that under the city's zoning ordinances, the properties could not be further developed without being attached to a public water system, and that by bringing that infrastructure to the area, the properties' values increased commensurate with their increased ability to develop to their "highest and best use."[4] CP at 110. Hamilton Corner did not present any valuation evidence of its own. After considering all the protests and evidence, the city council passed a motion to accept the final assessment roll without modification and adopted an ordinance to confirm the final assessment roll.[5]

         Hamilton Corner then appealed the city council's decision to superior court, pursuant to RCW 35.44.210. The superior court affirmed the city council's decisions. Hamilton Corner now appeals to this court.


         I. Legal Principles

         Local governments may impose special assessments on property owners within a local LID to pay for particular improvements that specially benefit those properties. Hasit LLC v. City of Edgewood, 179 Wn.App. 917, 933, 320 P.3d 163 (2014). Special benefit is "the increase in fair market value attributable to the local improvements." Doolittle v. City of Everett, 114 Wn.2d 88, 103, 786 P.2d 253 (1990). "To be subject to a LID assessment, a property must realize a benefit that is 'actual, physical and material . . . not merely speculative or conjectural.'" Hasit, 179 Wn.App. 933 (alteration in original) (quoting Heavens v. King County Rural Library Dist., 66 Wn.2d 558, 563, 404 P.2d 453 (1965)). An assessment may not substantially exceed a property's special benefit. Hasit, 179 Wn.App. at 933.

         Affected owners have the right to a hearing as to whether the improvement resulted in special benefits to their properties. Hasit, 179 Wn.App. at 933. Parties may appeal a council's final assessment decision to the superior court. RCW 35.44.200. The superior court shall confirm the assessment decision, unless it finds "that such assessment is founded upon a fundamentally wrong basis and/or the decision of the council . . . was arbitrary or capricious." RCW 35.44.250.

         An assessment is founded on a "fundamentally wrong basis" if there exists "'some error in the method of assessment or in the procedures used by the municipality, the nature of which is so fundamental as to necessitate a nullification of the entire LID, as opposed to a modification of the assessment as to particular property.'" Abbenhaus v. City of Yakima, 89 Wn.2d 855, 859, 576 P.2d 888 (1978) (quoting Cammack v. City of Port Angeles, 15 Wn.App. 188, 196, 548 P.2d 571 (1976)). "Arbitrary and capricious" refers to "willful and unreasoning action, taken without regard to or consideration of the facts and circumstances surrounding the action." Abbenhaus, 89 Wn.2d at 858. And, "[w]here there is room for two opinions, an action taken after due consideration is not arbitrary and capricious even though a reviewing court may believe it to be erroneous." Abbenhaus, 89 Wn. 2d at 858-59.

         When reviewing a superior court's determination under RCW 35.44.250, our review is not an "independent consideration of the merits of the issue but rather a consideration and evaluation of the [city council's] decision-making process." Abbenhaus, 89 Wn.2d at 859-60. "Review is limited to the record of proceedings before the City Council." Bellevue Assoc. v. City of Bellevue, 108 Wn.2d 671, 674, 741 P.2d 993 (1987). We review the superior court's appellate decision by applying the same "fundamentally wrong basis" and ...

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