UYB Ranch LLC v. Crook County Assessor ( 2018 )

IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Property Tax
UYB RANCH LLC, )
)
Plaintiff, ) TC-MD 170327N
)
v. )
)
CROOK COUNTY ASSESSOR, )
)
Defendant. ) FINAL DECISION1
This is one of ten cases considering the value of omitted personal property used in rental
cabins at the Brasada Ranch resort.2 The years at issue are as set forth in the facts below. Trial
in all ten cases was held concurrently. Plaintiffs in all ten cases (taxpayers) were represented by
Carlyle MacHarg III and Charles Pratt, both of whom appeared and testified at trial. In addition,
Ramona Hulick, auctioneer, testified for taxpayers. Eric Blaine, Assistant County Counsel,
appeared on behalf of Defendant (the county). Shaun Christofferson, Chief Appraiser, and
Karen Bushnell, Assessment Technician III, testified for the county. Plaintiffs’ Exhibits 1 to 10
and Defendant’s Exhibits A to M were admitted without objection.
I. STATEMENT OF FACTS
Brasada Ranch is a luxury resort in Central Oregon with amenities that include a designer
golf course and a 17,000-square-foot recreation center. The personal property tax accounts at
issue in these cases hold the furnishings of individually owned rental cabins at the resort; e.g.,
1
This Final Decision incorporates without change the court’s Decision, entered April 26, 2018. The court
did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court
Rule–Magistrate Division (TCR–MD) 16 C(1).
2
The ten cases are: Storey v. Crook County Assessor, TC–MD 170316G; Serendipity Associates LLC v.
Crook County Assessor, TC–MD 170318R; McElroy v. Crook County Assessor, TC–MD 170322G; Wilsey-Magers
v. Crook County Assessor, TC–MD 170324R; UYB Ranch LLC v. Crook County Assessor, TC–MD 170327N;
Spann Family 2007 Rev Trust v. Crook County Assessor, TC–MD 170329G; Manuel v. Crook County Assessor,
TC–MD 170330N; Paul Nielsen Family LP v. Crook County Assessor, TC–MD 170331R; Nielsen v. Crook County
Assessor, TC–MD 170332R; and Vandermolen v. Crook County Assessor, TC–MD 170340R.
FINAL DECISION TC-MD 170327N 1
furniture, appliances, and household and kitchen items. The cabins were built between 2005 and
2007 with similar two- and three-bedroom floorplans, varying slightly in number of bathrooms
and number of floors. (Ex 1.) All cabins were sold identically furnished, with the three-
bedroom cabins having additional furnishings of the same type. During the years at issue,
virtually all furnishings in the subject accounts were original and generally similar in the amount
of wear and tear.
In July 2017, the county added the cabin furnishings to the tax roll as omitted property
for years dating back to 2011. The county set the assessed value of the furnishings at the full
amount of the real market value it concluded. (Ex 2 at 3.) The personal property real market
values added to the accounts are summarized in the following table. Where no value is listed in
a column, that year is not at issue for the given account.
Case Account 2BR/ 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17
Number Number 3BR RMV RMV RMV RMV RMV RMV
170316G 66042 2BR $24,801 $22,321 $20,088 $18,080
170318R 66052 3BR $31,178 $28,060 $25,254 $22,729 $20,456 $18,410
170322G 66058 2BR $24,801 $22,321 $20,088 $18,080
170324R 66105 2BR $25,982 $23,383 $21,045 $18,941 $17,047
170327N 66081 2BR $18,080
170329G 66076 3BR $31,178 $28,060 $25,254 $22,729 $20,456 $18,410
170330N 66084 2BR $24,801 $22,321 $20,088 $18,080
170331R 66064 2BR $24,801 $22,321 $20,088 $18,080
170332R 66063 2BR $24,801 $22,321 $20,088 $18,080
170340R 66080 2BR $29,196 $26,277 $23,649 $21,284 $19,156 $17,240
By the parties’ agreement, the 2017–18 tax year is also at issue in two cases, Serendipity
Associates LLC v. Crook County Assessor, TC–MD 170318R, and Spann Family 2007 Rev Trust
v. Crook County Assessor, TC–MD 170329G.
A. Cost Methods
Although the county generated the tax roll values using the cost approach applied to each
component of the subject accounts, only the taxpayers submitted written evidence of the county’s
FINAL DECISION TC-MD 170327N 2
approach. (Ex 5 at 7–9.) Taxpayers presented their own cost approach as well, also valuing the
components separately but using a different original value and applying a different depreciation
schedule.
1. Original value
Christofferson testified that, in 2006, the previous owner of Brasada Ranch reported to
the county that the personal property cost $67,000 for a two-bedroom cabin and $77,000 for a
three-bedroom cabin. The county assessor directed his staff to use $42,000 as an initial 2006
value for the personal property of a two-bedroom cabin and to derive roll values for later years
from that figure.3,4
Taxpayers questioned the original value contained in the county records and submitted an
estimate of original cost prepared by a procurement professional who did not testify. The
taxpayers’ expert’s estimated original cost was $40,355 for furnishings of a three-bedroom cabin.
(Ex 6 at 6.) In addition, taxpayers provided evidence that some personal property had been
removed from the cabins in 2012. (Ex 6 at 3.)
2. Depreciation
The county determined the roll values by reducing the total value of each personal
property account by 10 percent each year. (Ex 5 at 2.) That method of determining value
differed from—and was less favorable to taxpayers than—the guidelines published by the
Department of Revenue, which would have reduced the subject property’s value by 17 percent
the first year and by somewhat less for the successive years. (See id. at 5.) When asked to
3
No testimony was heard as to the original value used for a three-bedroom cabin. Extrapolating backward
from the data, it appears that the county used a 2006 value of $52,800.
4
The county submitted evidence after trial that information provided to the assessor by the previous owner
matched the directions given by the assessor to his staff, contradicting Christofferson’s testimony. That evidence
was not admitted and is not considered in this decision.
FINAL DECISION TC-MD 170327N 3
explain the reason for the difference, Christofferson testified that the county had been valuing
personal property with a straight 10-percent reduction for as long as he had been there, and that
other counties did similarly.
Instead of the straight 10-percent per year, taxpayers applied the Department of
Revenue’s cost factors to each component item of the accounts. Beginning with the lower
original value, eliminating some items not in the accounts, and applying the more favorable cost
factors resulted in estimates of 2012 personal property value of $17,087 for a three-bedroom
cabin and $14,111 for a two-bedroom cabin. (Ex 6 at 9, 29.) Tables of reduced amounts for
subsequent years were also provided.
B. Sales Comparison
Taxpayers identified a comparable sale of a three-bedroom cabin’s complete furnishings
for $14,000 in 2010, although they had not verified it. (Ex 10.) Christofferson testified that after
receiving taxpayers’ exhibits he had spoken with the buyer and confirmed the sale for $14,000
had occurred as reported. The buyer had purchased an unfurnished three-bedroom cabin from a
bank and purchased the furnishings from another cabin owner whose cabin was undergoing
foreclosure. The furnishings were not listed on the market.
Christofferson provided a chart comparing the 2009 sale prices of two unfurnished
cabins—$352,000 for three bedrooms and $275,000 for two bedrooms—with the sale prices of
furnished cabins that year. (Ex E.) Christopherson provided two three-bedroom comparables
and two two-bedroom comparables. He adjusted the comparables for date of sale and for
“Lot/Location view.” After adjustments, the difference between the sale price of a three-
bedroom cabin furnished and unfurnished ranged from $59,400 to $136,190. The difference for
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FINAL DECISION TC-MD 170327N 4
a two-bedroom cabin ranged from $111,100 to $138,300. (Id.) Christofferson attributed the
entire difference to the value of the personal property.
During cross-examination, Christofferson disclosed that his unfurnished comparable sales
were bank foreclosures. He stated that the use of foreclosure sales was appropriate because those
were the only sales of unfurnished cabins available. He also stated that the foreclosure sales had
been “market tested,” meaning they had been listed for a short period before they were sold.
The evidence also includes buyers’ reports of personal property’s contributory value to
the sales price of furnished cabins. (Ex C.) Those reports came in response to the county’s
“Residential Sales Questionnaire,” which was sent to buyers immediately after sales. In 2012,
one buyer attributed $70,000 of the cabin’s purchase price to personal property; that same year,
another buyer attributed $20,000. (Ex C at 1.) In 2013, a buyer set the value of the personal
property at $50,000; in 2016, another buyer set the value at $15,000. (Id.)
Christofferson explained that the county used the questionnaires it received and other,
unspecified market data to determine a county-assigned contributory value for personal property
in sales of Brasada Ranch cabins. That county-assigned contributory value was $40,000 for
2012 cabin sales and $15,000 for cabin sales in 2013 and later. (Id.) Christofferson testified that
he believed $15,000 was a reasonable contributory value for personal property in 2013, although
he emphasized that the county had never received personal property returns and therefore did not
have current information about the items in the accounts.
Christofferson briefly testified that a buyer of a two-bedroom cabin without furniture had
purchased replacement furniture in 2012 for $36,000. (Ex D.) His written summary reported
another buyer in 2011 had had a “difficult time finding replacement furniture” for a three-
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FINAL DECISION TC-MD 170327N 5
bedroom cabin but estimated it would cost $25,000. (Id.) Yet another buyer in 2016 estimated
replacement furniture would cost $30,000. (Id.)
C. Additional Evidence
Taxpayers’ expert, Hulick, offered her opinion that the correct values of the personal
property accounts ranged from $3,020 for one of the two-bedroom cabin configurations to
$3,610 for a three-bedroom cabin. (Ex 3.) Although not a licensed appraiser, Hulick based her
opinion on her experience of over 35 years as an auctioneer valuing and selling personal property
of all kinds.
Hulick valued the items of personal property at the amounts for which they would
separately sell if liquidated in auctions at the cabins. She explained, for example, that a hot tub
would sell for at most $200 because any buyer would factor in additional costs to disassemble it,
move it, and reassemble it. Hulick typically sold individual lots of individual items (or sets of
related items) because the items brought in more money when sold separately—although on one
occasion in the past she sold a business as a whole after first attempting to sell its assets
separately. Although Hulick’s opinion of value was as of November 2017, she testified that
none of the items would have been worth significantly more in 2011. Her reasoning was that the
reduction in the personal property’s value was primarily attributable to its being “used furniture”
rather than its condition deteriorating over time.
Taxpayers’ representative, Pratt, also prepared an estimate of the personal property
values in the two- and three-bedroom cabins, based on his experience recently selling used
furniture and on the “ItsDeductible” program from TurboTax. Pratt valued the component assets
of the accounts separately. Pratt estimated personal property values ranging from $7,237 for a
two-bedroom cabin to $8,192 for a three-bedroom cabin. (Ex 7 at 5, 8.)
FINAL DECISION TC-MD 170327N 6
In addition, taxpayers submitted photographs of the various items of cabin furnishing,
coupled with Internet listings for items of similar appearance. With certain electronic items—
such as a television set—taxpayers found identical model numbers listed. (See Ex 8 at 51–53)
(television listed on eBay for $21 plus $10 shipping). With other items, listings were provided
for items with similar—but not identical—appearance. For example, after a photograph of an
area rug, multiple listings were provided—a 5’1” x 7’7” rug for $109.22, an 8’ x 11’ rug for
$74.99, and a 5’ x 8’ rug for $61.59. (Ex 8 at 36–39.)
II. ANALYSIS
The issue is the real market value of the personal property in the various accounts under
appeal. Because the taxpayers seek affirmative relief, they must bear the burden of proof. See
ORS 305.427.5 That burden may be met by a showing that the necessary facts are “more
probably true than false.” Cook v. Michael, 214 Or 513, 527, 330 P2d 1026 (1958).
Business personal property is valued at its “real market value” as of January 1 and
assessed at its “assessed value.” ORS 308.250; cf. ORS 307.190 (exempting most personal
property held for personal use). Each year, the Department of Revenue determines a threshold
value, below which the assessment of a personal property account is canceled. ORS
308.250(2),(4). That threshold value was $12,500 in 2002 and is modified annually to remain
proportional to changes in the U.S. City Average Consumer Price Index. Id.Real market value is defined as “the amount in cash that could reasonably be expected to
be paid by an informed buyer to an informed seller, each acting without compulsion in an arm’s-
length transaction occurring as of the assessment date for the tax year.” ORS 308.205(1).
Appraisers have developed three methods of determining real market value, also known as
5
The court’s references to the Oregon Revised Statutes (ORS) are to 2009. The relevant statutes did not
materially change during the years at issue.
FINAL DECISION TC-MD 170327N 7
approaches to value, which assessors are required to use when valuing property: the “sales
comparison approach, cost approach, and income approach.” OAR 150-308-0240(2)(a); ORS
308.205(2).
A. Highest and Best Use
Implicit in all methods of determining real market value is consideration of the property’s
highest and best use (HBU). Norpac Foods, Inc. v. Dept. of Rev., 18 OTR 41, 52 (2004)
(avoiding rule construction that would eliminate consideration of HBU from valuation of
personal property). Analysis of HBU “looks for the highest value that can be placed on an asset
or group of assets, regardless of the fact that the component value or current aggregated value
might be less.” Id. at 51. Thus, HBU analysis will determine whether multiple components
within a property account have a higher value separately or together. Value that is “attributable
to the assembly of the parts into a unified or working whole” is known as “assemblage value.”
Deschutes County Assessor v. Broken Top Club, LLC, 15 OTR 231, 237 (2000). A property’s
HBU is the “first question that must be addressed in a credible appraisal” because it impacts the
selection of comparable sales and properties. Hewlett-Packard Co. v. Benton County Assessor,
21 OTR 186, 188 (2013), aff’d, 357 Or 598, 356 P3d 70 (2015). An appraisal with an error
about HBU is entitled to “little or no weight.” Id. at 193.
Here, each subject account contains several dozen components and, without analysis,
each of taxpayers’ proposed valuations considered the components separately rather than as
assembled. Hulick, the auctioneer, admitted on cross-examination that she had once sold
business property for more collectively than she could get for it separately. The valuations
prepared by both Hulick and Pratt resulted in values significantly less than $10,000 for 2017 and
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FINAL DECISION TC-MD 170327N 8
2012, respectively. Taxpayers’ remaining valuation is given little weight because it was based
on the opinion of a nontestifying expert.
Over and against taxpayers’ calculations is one comparable sale: a three-bedroom cabin’s
assembled furnishings sold for $14,000 in 2010. Hulick’s and Pratt’s component values for
subsequent years remain far below $14,000 if extrapolated back to 2010 at the county’s 10-
percent-per-year rate of depreciation.6 The sale of the assembled furnishings for a price greater
than taxpayers’ estimates of their individual values is evidence that Brasada Ranch cabin
furnishings were worth more collectively than they were individually.
It is reasonable that a rental cabin’s furnishings would be worth more as assembled than
individually. As taxpayers pointed out, the market generally assigns a low value to individual
items of used furniture. However, the evidence shows there was a market for assembled cabin
furnishings alongside the market for Brasada Ranch cabins. A cabin cannot generate rental
income until it is completely furnished. Therefore, a complete set of furnishings in place
generates value by avoiding lost rent during the time it would otherwise take to locate and
assemble furnishings suitable to the cabins’ décor and space requirements.
The court finds that the HBU of the property in the subject accounts was continued use as
assembled together. Taxpayers’ valuation methods relying on separate valuations of components
are assigned little weight.
B. Value as Assembled
The three approaches developed by the county did not make the same error about HBU
because they all valued the subject properties’ components as assembled. The county’s appraiser
6
The valuation based on the nontestifying expert’s opinion concluded to values of $17,087 for a three-
bedroom cabin and $14,111 for a two-bedroom cabin in 2012. By the county’s straight line method, the values
would have been $21,095 and $17,421 in 2010.
FINAL DECISION TC-MD 170327N 9
acknowledged that available market data was limited, and the large inconsistencies in the values
indicated by each of the county’s methods show that significant uncertainty remains.
First, the county looked to the contributory value reported by buyers immediately after
their purchases of Brasada Ranch cabins. The questionnaire respondents in 2012 reported a wide
range of values for a two-bedroom cabin’s furnishings, ranging from $20,000 to $70,000. Based
in part on those questionnaires, the county attributed $40,000 of cabin sale prices occurring
through 2012 to personal property and $15,000 of cabin sale prices occurring through 2013.
Buyers’ reports of the contributory value of personal property in a real property sale are
doubtful evidence because they are not market transactions. In Pfanmuller v. Department of
Revenue, 11 OTR 225, 233 (1989), this court found that a taxpayer’s valuation of personal
property derived from a buyer’s allocation of motel sales prices between real and personal
property did not sustain the burden of proof. A buyer’s allocation is not “the market” because a
buyer is free to assign any value without the seller’s agreement. See Pfanmuller, 11 OTR at 233.
Furthermore, some buyers might be tempted to overstate the contributory value of personal
property, both to reduce their real property taxes and to reduce their personal income taxes
through a depreciation deduction.7 Particularly given the wide range of reported values, the
court cannot assign much weight to the returned questionnaires.
The county also submitted a paired-sale analysis of cabins sold with and without
furnishings. While that method is promising in theory, during cross-examination it emerged that
the baseline sales of cabins without furnishings were both foreclosures—a fact the county’s
appraiser failed to disclose in his written summary. After an adjustment for location and time
trending, the county’s appraiser attributed the entire difference in sales price between the bank
7
The latter incentive was noted at trial by one of taxpayers’ representatives, who had himself returned a
questionnaire reporting personal property contributory value of $50,000 in 2013.
FINAL DECISION TC-MD 170327N 10
sales and the arm’s-length sales to personal property. Those differences generally exceeded
$100,000.
Bank sales are unreliable as indicators of market value because, among other reasons, a
bank may seek to sell foreclosed property quickly for the amount of the outstanding loan rather
than its market value. The county’s appraiser stated that those sales had been market-tested,
meaning that they had been briefly listed before selling. However, the market listing does not
account for the seller’s incentive to accept any offer above the amount of the loan and the
foreclosure costs. The county’s paired-sale analysis thus attributes over $100,000 in value to
used cabin furnishings that no one asserts cost that much when new. The result is not credible,
and Christofferson admitted that the available market evidence was poor. Because the court has
no way to distinguish what portion, if any, of the difference in sales prices was attributable to
personal property as opposed to a foreclosure discount, the county’s paired-sale analysis cannot
be given much weight.
Finally, the county reported that a buyer of a two-bedroom cabin without furniture had
purchased replacement furniture in 2012 for $36,000. The county’s evidence does not show
whether the replacement furnishings purchased in 2012 were used or new. If the furnishings
were purchased new, their purchase price would require adjustment for comparison with the
subject accounts at issue here, which were six years old in 2012. Under the county’s 10-percent-
per-year depreciation model, new furnishings worth $36,000 in 2006 would be worth 40 percent
of that in 2012—$14,400. That number would be lower if the $25,000 estimated replacement
cost of a three-bedroom cabin’s furnishings provided by another buyer in 2011 is correct.
Because the evidence does not show whether the replacement furniture was purchased new or
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FINAL DECISION TC-MD 170327N 11
used, the $36,000 reported replacement furniture cost supports a value of only $14,400 in 2012,
and the other estimated costs support lower values.
Of all the evidence before the court, the best market-derived value clearly attributable to
the cabin furnishings is the $14,000 for which a three-bedroom cabin’s personal property was
sold in 2010. There was no listing of that personal property; however, such a listing may not
have been possible or even desirable given the limited market for assembled Brasada Ranch
cabin furnishings. Because the furnishings matched the décor and size requirements of the
Brasada Ranch cabins, its assemblage value was presumably higher to owners of Brasada Ranch
cabins than to other purchasers. Although the cabin from which the furnishings were purchased
was undergoing foreclosure, the furnishings were reportedly purchased from an individual
owner, not a bank. An individual owner—as opposed to a bank—may be expected to retain the
full proceeds of the sale and therefore has an incentive to get the highest price possible.
Although the evidence in this case is limited, it is enough to show the values on the tax
rolls are likely overstated. Those values were based on a cost approach. In general, the cost
approach is not preferred where the property at issue is not new. See Gettman v. Dept. of Rev.,
TC 3388, WL 300719 at *2 (Or Tax Aug 5, 1993) (with reference to real property, stating that
cost approach of “little weight where the property is not newly constructed and there are
adequate comparable sales”). The personal property at issue here was six to twelve years old and
reportedly had a depreciable life of only ten years. Further, “[c]ost is not a good measure of
value where there is significant economic and functional obsolescence[.]” Dept. of Rev. v. Grant
Western Lumber Co., 15 OTR 258, 264 (2000). Here, the evidence suggests that equivalent
replacement furnishings were purchased in 2011 and 2012 for between $25,000 and $36,000—a
range of value significantly lower than the reported original value of the furnishings. That
FINAL DECISION TC-MD 170327N 12
suggests a superadequacy in the furnishings at the time of their original purchase, a form of
functional obsolescence. See Magno v. Dept. of Rev., 19 OTR 51, 60 n 11 (2006). Finally, the
county did not explain the rationale of its straight 10-percent-per-year depreciation method,
which appears to differ from the Department of Revenue’s recommendations. As for the
department’s cost factor recommendations, no expert testimony was received as to their market
basis or their application to the subject accounts. In sum, no reliable application of the cost
method was developed by any party. By contrast, taxpayers located—and the county’s appraiser
verified—a comparable sale of similar personal property in 2010 for $14,000, an amount much
lower than was placed on the tax roll for any of the subject accounts in 2011. That value was
supported by the county appraiser’s admission that $15,000 was a reasonable valuation of the
personal property in 2013.
This court has jurisdiction to determine the correct real market value on the basis of the
evidence, without regard to the values pleaded by the parties. ORS 305.412. The $14,000
purchase price of a three-bedroom cabin’s furniture in 2010 is the best evidence available.
Although some adjustment for depreciation in subsequent years would hypothetically be
reasonable, little evidence was presented supporting such an adjustment. The county’s straight-
line depreciation method was supported only by antiquity and rumors of other counties’
processes. The Department of Revenue’s cost factors had no defenders at trial. In opposition to
either of those methods was testimony of Plaintiffs’ auctioneer that the biggest decline in the
value of individual furnishings occurs immediately upon sale and that subsequent annual
declines are much less.
A market value of $14,000 derived from a single sale has a high degree of uncertainty.
Subsequent annual declines in value would likely be much smaller than the range of uncertainty
FINAL DECISION TC-MD 170327N 13
in the initial value. Under those circumstances, the court finds the evidence is insufficient to
support reducing the subject accounts’ values below $14,000 for any of the years at issue.
Finally, the available evidence is inconsistent regarding the relative values of furnishings
for three-bedroom and two-bedroom cabins. While one would expect the smaller cabins’
furnishings to be worth less, the record is unclear. A two-bedroom cabin’s furniture was
replaced for $36,000 in 2012, while replacement costs for a three-bedroom cabin’s furniture
were estimated at $25,000 in 2011. While $14,000 is the best-supported value for the used
furnishings of a three-bedroom cabin over the years at issue, the state of the evidence does not
permit the court to determine a different value for a two-bedroom cabin’s furniture.8
III. CONCLUSION
The best market evidence of the subject personal property accounts’ values supports a
value of $14,000 for a three-bedroom cabin’s furnishings in 2010, and the evidence is
insufficient to support a reduced value for smaller cabins or for subsequent years. Now,
therefore,
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8
The county filed a motion to strike taxpayers’ untimely filed post-trial brief on the relative value of the
two- and three-bedroom cabins, and the taxpayers objected. Although the court initially requested briefing on the
relative values of three- and two-bedroom cabin furnishings, upon further analysis the evidence does not permit
derivation of one value as a proportion of the other. The county’s motion to strike is therefore moot.
FINAL DECISION TC-MD 170327N 14
IT IS THE DECISION OF THIS COURT that the real market value of the subject
personal property account was $14,000 for tax year 2014–15.
Dated this day of May, 2018.
POUL F. LUNDGREN
MAGISTRATE
If you want to appeal this Final Decision, file a complaint in the Regular
Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR
97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your complaint must be submitted within 60 days after the date of the Final
Decision or this Final Decision cannot be changed. TCR-MD 19 B.
This document was signed by Magistrate Lundgren and entered on May 15,
2018.
FINAL DECISION TC-MD 170327N 15