United States Court of Appeals for the Federal Circuit
December 3, 1999
SUMMERFIELD HOUSING LIMITED PARTNERSHIP, PLAINTIFF-APPELLANT,
UNITED STATES, DEFENDANT-APPELLEE.
Before Michel, Circuit Judge, Smith, Senior Circuit Judge, and Schall,
The opinion of the court was delivered by: Schall, Circuit Judge.
Summerfield Housing Limited Partnership ("Summerfield") appeals the decision of the United States Court of Federal Claims that granted summary judgment in favor of the United States in Summerfield's suit against the United States for additional compensation and declaratory relief under a lease agreement between Summerfield and the government. The Court of Federal Claims held that an annual Solid Waste Service Charge ("SWSC") assessed by the Department of Environmental Resources ("DER") of Prince George's County, Maryland, is a special assessment tax which Summerfield is obligated to pay under the lease. See Summerfield Housing Ltd. Partnership v. United States, 42 Fed. Cl. 160 (1998). We affirm.
The pertinent facts are not in dispute. On March 29, 1991, the Department of the Navy ("Navy") issued Request for Proposal ("RFP") No. N6247791RP00017 for the construction of, among other things, 1,242 family housing units in Prince George's County, Maryland. The RFP provided that the successful offeror would be required to build the units and then lease them to the government for a 20 year period. The RFP further provided that the maximum annual rental for the project set forth in the RFP did "not include utility consumption and property maintenance costs, which will be paid by the Government." The RFP stated:
The fixed rent includes the successful offeror's return, debt service, property taxes, and insurance. The Government will pay the successful offeror 100 percent of all increases in property taxes and insurance premiums after the second year of full occupancy. The Government will manage and maintain the units and pay all utility consumption costs directly.
The RFP also stated that the offeror would contact a local private waste collection firm to incorporate the requirements for a solid waste collection system in its project design. According to the RFP, upon issuance of a "certificate of acceptance for the entire premises by the government, selection of a private waste collection firm for these [solid waste collection] services (including rental of the dumpsters) will be contracted by the government under the maintenance contract for this project." The RFP also included a copy of the actual lease, which was to take effect once the government accepted the construction work.
On May 24, 1991, the Navy issued written responses to questions submitted by potential offerors. The first question and answer read:
Q. Will tax increases incurred by the Government after the second year of the Lease include special assessments and taxes for special services?
A. The Government will pay increases in the general real estate taxes after the second full year of occupancy. General real estate taxes as defined in Article III.D., page H-7, of the Lease Agreement, are taxes which are assessed on an ad valorem basis against all taxable real property without regard to the benefit to the property, for the purpose of funding general governmental services. A "special assessment" is generally a one-time assessment for improvements or a requirement for approval of the development and does not meet the definition of a "general real estate tax" as used in this Lease Agreement. Therefore, the Navy does not have the authority or obligation to pay such a fee. (emphasis added).
The term "special assessment" is not defined in the RFP or the lease.
The contract was awarded to the Hunt Building Corporation ("Hunt") on September 26, 1991. Hunt assigned its interest in the lease to Summerfield on December 1, 1995. In due course, the government contracted with a private firm for solid waste collection services.
The lease, which remains in effect, incorporates the terms and conditions of the RFP and Hunt's proposal. Article III of the lease, dealing with "RENT," provides, in pertinent part, as follows:
C. Rent reflects the cost of ownership to the Lessor for newly-constructed facilities provided to the Government over the term of the lease including, but not limited to, the cost of land, improvements, property taxes, utility connection fees, insurance, the cost of borrowing money, and profits earned thereon. Rent shall be fixed for the lease term with the exception of general real estate tax and insurance increases after the second full year following issuance of the Certificate of Acceptance for the entire Premises by the Government.
D. TAX INCREASES
1. After the completion of the second full year following the date of issuance of the Certificate of Acceptance for the entire Premises, the Government shall pay all general real estate tax increases. . . .
2. In the event of any decreases in general real estate taxes occurring during the lease term, the rental amount shall be reduced accordingly. . . . Any special assessments of real estate tax surcharges imposed upon the Premises before, during, or after the term of this lease shall be and remain the responsibility of the Lessor.
3. General real estate taxes are taxes which are assigned on an ad valorem basis, without regard to benefit to the property, for the purpose of funding general governmental services. The term "general real estate taxes" shall exclude any fine, interest or penalty for non-payment, but shall include any discount offered for prompt payment whether the Lessor has taken advantage of it or not. (emphasis added).
Article V of the lease, dealing with "OCCUPANCY PROVISIONS," states, in pertinent part, as follows:
C. UTILITIES, RATES, CHARGES, TAXES, AND ASSESSMENTS
Lessor shall be responsible to pay all taxes, general or special, all public rates, dues, and special assessments of every kind which may become due and payable or which are to be assessed against or levied upon said premises during the term of this lease. (emphasis added).
Article XX of the lease, entitled "COMPLIANCE WITH LAWS AND REGULATIONS," states that "the Lessor will at all times during the existence of this lease comply, at its sole cost and expense, with the provisions of any and all federal, state and local statutes, ordinances, rules, and regulations which may be applicable to the premises or any part thereof."
Finally, Article XXI.A. of the lease, dealing with "CHANGES," provides that:
A. It is expressly understood that all risks and costs relating to design, construction, and ownership *fn1 of the facilities shall be borne solely by the Lessor. These risks and costs which must be completely assumed by the Lessor include but are not limited to delays, differing site conditions, changed conditions, changed circumstances, suspension of work, changes in labor rates or taxes or any constructive change.
On June 27, 1995, the Prince George's County Council ("County Council") enacted an emergency bill entitled "Special Assessments in Urban Areas" for the purpose of establishing "special assessments . . . relating to recyclables, garbage and trash." The special assessment was enacted under Section 2-375(b) of the Prince George's County Code, which provides as follows:
(b) The special assessment taxes levied by the Council for the costs of garbage and trash collection, removal and Disposition, including site acquisition and operation shall be by an ad valorem tax against all of the improved properties assessed for County tax purposes within the area receiving trash and garbage removal and Disposition service. The Council may in its discretion prescribe the method of payment and the rate of tax for the costs of the collection, removal and Disposition of trash and garbage as follows: the basis of the tax to be the total costs of said service divided by the number of units served. The Council may vary the tax rate as between individual residential units and commercial establishments. Such decision as to any variance for such service by the Council shall be conclusive.
On May 17, 1996, Summerfield was notified by the Director of the DER that it would be assessed an SWSC in the fiscal year 1997 county tax bill. The Director explained that "[b]ecause the County can no longer fund the costs associated with its solid waste programs solely from tipping fee revenues, several service charges have been implemented to help fund the system." He added that the SWSC was designed to "provide a more stable revenue source and decrease the fluctuations in revenues available for solid waste programs." The SWSC appeared on Summerfield's county tax bills as a separate line item, and totaled $114,732 for fiscal year 1997.
The SWSC encompasses three different charges: 1) the Base Benefit Charge; 2) the Bulky Trash charge; and 3) the Recycling Charge. The Base Benefit Charge "[c]overs the cost of the solid waste system infrastructure the County must maintain to handle solid waste in the County." It also covers environmental controls, support facilities, and administrative offices. The Bulky Trash Charge "[c]overs the cost of providing bulky trash collection." The Recycling Charge "[c]overs the cost of providing curbside collection of recyclables . . . as well as costs for other programs."
Summerfield timely paid the SWSC and sought reimbursement from the Navy for the amount of the charge. After the contracting officer denied the claim, Summerfield filed suit in the Court of Federal Claims seeking to recover the $114,732 it had paid for fiscal year 1997 and a declaratory judgment that the Navy is obligated to pay the SWSC for the remaining term of the lease. In due course, Summerfield and the government cross-moved for summary judgment. In granting the government's motion, the court concluded that the SWSC is a special assessment tax that Summerfield must pay under the terms of the lease.
The term "special assessment" is not defined in the RFP or the lease. Accordingly, the court noted that "both parties have focused on Maryland law" to define "special assessment." Under Maryland law, a special assessment "is a tax levied occasionally as may be required upon a limited class of persons interested in local improvement, and who are presumed to be benefited by the improvement over and above the ordinary benefit which the community in general derive[s] from the expenditure of the money." Williams v. Anne Arundel County, 638 A.2d 74, 78 (Md. 1994). "In order to justify a special assessment for a local improvement, however, there must be both a public purpose and a special benefit to the properties to be assessed over and above that accruing to the public." Montgomery County v. Schultze, 489 A.2d 16, 20 (Md. 1985). "Special assessments are . . . imposed because the improvement for which the assessment is levied causes an enhancement of the property's value, with no pecuniary loss suffered by the property owner." Id.
Applying the Maryland law definition of "special assessment," the court rejected Summerfield's argument that the SWSC is not a special assessment because Summerfield has received no special benefit. Citing Pumphrey v. County Comm'rs, 130 A.2d 297 (Md. 1957), the court concluded that the determination of the existence of a special benefit is a matter within the discretion of the County legislature.
Summerfield acknowledges that the SWSC is properly classified as a special assessment under Maryland law. It argues, however, that Maryland law does not control the result in this case and that the parties did not intend that a charge like the SWSC be viewed as a special assessment.
In support of its argument, Summerfield points to the government's response to one of the pre-bid questions it received concerning the RFP, in which, as noted above, the government stated that it would not pay "special assessments" and that "special assessments" are "generally a one-time assessment for improvements or a requirement for approval of the development." Since the SWSC was neither a one-time assessment nor a requirement for approval of the development, Summerfield contends that the SWSC is not a special assessment within the contemplation of the parties. We are not persuaded by this argument. The government's response did not limit the definition of special assessments. It merely described characteristics that special assessments "generally" have.
Article XX of the lease requires "the Lessor . . . [to] comply . . . with the provisions of any and all . . . state and local statutes, ordinances, rules, and regulations which may be applicable to the premises or any part thereof." The SWSC was a creation of Maryland law, enacted by the Prince George's County Council. It was assessed on land owned by Summerfield in Prince George's County, and it appeared as a separate line item on Summerfield's Prince George's County real property tax bill. Thus, it is appropriate to look to Maryland law in determining whether the SWSC is a special assessment.
Finally, in Article v.
C. of the lease, the parties agreed that Summerfield would pay "special assessments of every kind." In addition, pursuant to Article XXI of the lease, Summerfield was responsible for bearing "all risks and costs relating to design, construction, and ownership of the facilities." We believe that the risk that the County would experience a revenue shortfall from a loss in tipping fees at its dumps and thereafter enact a special assessment to make up this shortfall-which is what occurred in this case-is a risk "relating to . . . ownership of the facilities."
In sum, because the SWSC is a special assessment under Maryland law and because the lease requires Summerfield to pay "special assessments of every kind," Summerfield is the proper party to pay the SWSC.
Summerfield argues that, even if the SWSC is a special assessment, our decision in Alvin, Ltd. v. United States Postal Serv., 816 F.2d 1562 (Fed. Cir. 1987) compels a ruling in its favor. Summerfield's reliance on Alvin is misplaced, however.
Alvin involved long-term lease agreements between thirty limited partnerships ("Alvin") and the United States Postal Service ("Postal Service") with respect to various facilities in California. The lease agreements required Alvin to pay special assessment taxes and the Postal Service to pay general real estate taxes. See id. at 1563. After the lease period began, Proposition 13 changed the California Constitution to require that ad valorem taxes on real property not exceed 1% of the assessed value of the property. See id. The result was an immediate reduction of community revenue from ad valorem real estate taxes. See id. Communities in California responded by invoking alternative revenue collection methods, in the form of special assessments. See id.
For the tax years 1978 to 1981, the Postal Service paid the reduced general real estate taxes and some of the new special assessments. See id. at 1564. After 1981, however, the Postal Service refused to pay anything other than taxes denominated "general real estate taxes" that were assessed on an ad valorem basis. See id. Consequently, the Postal Service's lease costs decreased, with corresponding increases in costs to Alvin. See id. After the Postal Service denied Alvin's claim for reimbursement of the special assessment charges, Alvin appealed to the Postal Service Board of Contract Appeals ("Board").
The Board denied Alvin's appeal. It concluded that Alvin had "assum[ed] . . . the risk that a third party-the state or local governments-would change the method through which revenues were raised." Id. at 1564. Therefore, the Board ruled that while the Postal Service "bore the risk of increases in general real estate taxes, [Alvin] assumed the risk that its obligation for other revenue raising devices would be increased." Id.
On appeal, this court reversed the decision of the Board. In so doing, we stated that the Board had "treated the question of contractual intent solely as whether the Postal Service intended to pay for the levies denominated 'special assessments,' whatever their genesis or scope . . . . Therein lies its error." Id. at 1565. We reasoned that "[t]he dispute arises not out of the circumstances at the time of formation of these contracts, but out of a change in state law enacted up to 25 years later." Id. "In ascertaining whether such a change may be accommodated, the original intention of the parties must be considered." Id.
As far as the special assessments were concerned, we pointed out that "the Postal Service offered no evidence of contemporaneous recognition that such a dramatic change in tax structure was a reasonable possibility." Id. We also pointed out that the special assessments appeared on Alvin's tax bills for the same services that previously were funded by ad valorem real estate taxes. See id. at 1565. The new special assessments were collected at the same time and in the same manner as the ad valorem real estate taxes, operated in a manner similar to a tax lien, and applied to all or substantially all of the property within a local jurisdiction. See id. at 1565-66. Accordingly, we concluded that "the Postal Service's undertaking to pay general real estate taxes requires the payment of those levies that succeeded the general real estate taxes, however these successor taxes are denominated." Id. at 1566. "Such payment reinstates the original bargain, as it was understood by both the Postal Service and the lessors." Id.
The critical point is that, in Alvin, the special assessments that the Postal Service refused to pay were imposed to make up for the reduction of revenue in general real estate taxes that was caused by the passage of Proposition 13, a reduction that the Postal Service benefited from because it was obligated under the leases to pay general real estate taxes. The Postal Service's refusal to pay the special assessments in Alvin thus had the effect of transferring to Alvin an obligation that the parties originally agreed was the Postal Service's. That is not the case here. The enactment of the SWSC and the Navy's refusal to pay it did not result in the transfer of a contractual obligation from the Navy to Summerfield. Thus, Alvin is very different from the case at bar.
For the foregoing reasons, the decision of the Court of Federal Claims is affirmed.
Each party shall bear its own costs.