Aziken v. Dist. of Columbia , 194 A.3d 31 ( 2018 )

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DISTRICT OF COLUMBIA COURT OF APPEALS
No. 16-TX-675 09/20/2018
SMART AZIKEN, APPELLANT,
V.
DISTRICT OF COLUMBIA, APPELLEE.
Appeal from the Superior Court of the
District of Columbia
(CVT-11389-13)
(Hon. John M. Campbell, Motions Judge)
(Argued April 5, 2018 Decided September 20, 2018)
Richard D. Caldwell, with whom Patrick C. Horrell was on the brief, for
appellant.
Mary L. Wilson, Senior Assistant Attorney General, Office of the Solicitor
General, with whom Karl A. Racine, Attorney General for the District of
Columbia, and Todd S. Kim, Solicitor General at the time the brief was filed, and
Loren L. AliKhan, Deputy Solicitor General at the time the brief was filed, were on
the brief, for appellee.
Before EASTERLY and MCLEESE, Associate Judges, and RUIZ, Senior Judge.
RUIZ, Senior Judge: Appellant Smart Aziken refinanced a mortgage on a
property deeded to his sole proprietorship and, as a condition to obtain the loan,
was required to transfer the property to a limited liability company (“LLC”).
2
Appellant paid transfer and recordation taxes to record the transfer, but claims he is
entitled to a refund of those taxes pursuant to an exemption for certain conversions
from one form of business entity to another. Appellant argues that the trial court
erred in its interpretation of the exemption statutes when it held that “no
conversion was effectuated under the law covering tax exemptions,” because,
appellant claims, he met all the statutory criteria to be eligible for the tax
exemption. Appellant also argues that the trial court erred in granting summary
judgment for the District because it used an incorrect standard to evaluate the
motion and, if the correct standard had been applied, appellant could have “ma[d]e
out, at the least, a prima facie case for an estoppel argument.” We affirm.
I. Background1
Appellant purchased the real property in 2002 for $505,000 and recorded the
deed in the name of Smart E. Aziken T/A Friendship Limousine Transportation
Service, his sole proprietorship. Ten years later, in order to refinance a mortgage
on the property, the bank required that the property be owned by an incorporated
entity to insulate it from appellant’s personal liabilities. Appellant filed articles of
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1
The facts set out in this section are based on appellant’s complaint and
motion for summary judgment supported by affidavits. There has been no trial or
fact finding.
3
incorporation for his LLC on July 6, 2012, and he attempted to obtain a
Conversion Certificate from the D.C. Department of Consumer and Regulatory
Affairs (“DCRA”) in August of 2012, that would permit appellant to claim
eligibility for a tax exemption at the Office of Tax and Revenue (“OTR”), but the
Conversion Certificate was not issued.2
To obtain the refinancing, appellant transferred the property to the LLC on
September 19, 2012, by means of a “No Consideration Deed.” In total, appellant
was required to pay $59,225.26 in transfer and recordation taxes in connection
with the deed. Still trying to obtain the Conversion Certificate, appellant attended
a workshop with DCRA’s Corporations Division, where Mr. Josef Gasimov, the
Assistant Superintendent of Corporations, informed appellant that he would have
to dissolve his LLC and reestablish it to receive the Conversion Certificate, which
appellant claimed Gasimov said “should have been issued at the time that the
articles of organization were filed . . . .” As instructed, appellant dissolved the
LLC and created a new one on October 19, 2012, and a Conversion Certificate was
issued the same day. Appellant applied for a refund of the transfer and recordation
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2
Because appellant had not received the Conversion Certificate, he
continued to postpone the closing date for the financing, which he claims resulted
in additional charges for “substantial fees and interest.” Appellant does not
indicate the amount of the “substantial fees and interest,” nor did he seek to recoup
those costs in his suit against the District.
4
taxes, claiming the transfer was exempt; however, his request for a refund was
denied by OTR on the ground that the Conversion Certificate was issued “one
month after the ‘No Consideration Deed’ had been recorded.”
Appellant sued the District of Columbia on December 7, 2012, claiming that
the transfer of the property to the LLC was eligible for an exemption from transfer
and recordation taxes and asserting estoppel against the District. The District filed
a motion to dismiss for failure to state a claim and appellant filed a motion for
summary judgment. After a hearing, the motions judge, the Honorable John
Campbell, treated the District’s Motion to Dismiss as a motion for summary
judgment and granted summary judgment for the District.
II. Standard of Review
Interpretation of statutes presents a question of law that we consider de novo.
See Cherry v. District of Columbia, 164 A.3d 922, 925 (D.C. 2017). This court
also reviews a grant of summary judgment de novo, applying the same standard as
the trial court in considering the motion for summary judgment. See District of
Columbia v. District of Columbia Pub. Serv. Comm’n, 963 A.2d 1144, 1155 (D.C.
2009). A party is entitled to summary judgment if, when the facts are viewed “in
5
the light most favorable to the non-moving party . . . there [are] no genuine issue[s]
of material fact and [] the moving party is entitled to judgment as a matter of law.”
Super. Ct. Civ. R. 56 (c); Hosp. Temps Corp. v. District of Columbia, 926 A.2d
131, 134 (D.C. 2007). On appeal, this court is required to “conduct an independent
review of the record . . . [to] determine whether any relevant factual issues exist by
examining and taking into account the pleadings, depositions, and admissions
along with any affidavits on file, construing such material in the light most
favorable to the party opposing the motion.” District of Columbia v. District of
Columbia Pub. Serv. Comm’n, 963 A.2d at 1155 (quoting Graff v. Malawer, 592
A.2d 1038, 1040 (D.C. 1991)). Decisions of the tax division of D.C. Superior
Court are considered under the same standard of review as appeals from the court’s
other civil divisions. Hosp. Temps Corp., 926 A.2d at 134; Square 345 Ltd. P’ship
v. District of Columbia, 927 A.2d 1020, 1023-24 (D.C. 2007) (stating that
summary judgment principles apply equally in tax cases).
III. Discussion
A. Statutory Interpretation
Generally, when a deed is filed in the District of Columbia, the parties to the
deed must pay transfer and recordation taxes. D.C. Code §§ 47-903 (a)(1) & (c)
6
(2012 Repl.) (transfer tax), 42-1103 (a)(1) & (c) (2012 Repl.) (recordation tax).
There are enumerated exceptions to these taxes. See D.C. Code §§ 47-902, 42-
1102 (2012 Repl.). In 2011, the District adopted an exemption that applies when a
property transfer is made “in connection with the conversion of a converting entity
to a converted entity.” D.C. Code §§ 29-204.06 (h) (2013 Supp.), 42-1102
(22)(A), and 47-902 (16)(A) (2013 Supp.).3 This recent exemption is part of a
broad recodification of the law pertaining to business organization that included a
subchapter, the “Entity Transactions Act of 2010,” D.C. Code § 29-201.01 et seq.
(2012 Repl.), and is based on the Model Entity Transactions Act (“META”). D.C.
Council, Committee on Public Services and Consumer Affairs, Report on Bill No.
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3
There are several conditions that the conversion must meet to qualify for
the tax exemption:
(A) The interest holders of the converted entity are
identical to the interest holders of the converting
entity;
(B) Each interest holder’s allocation of the profits and
losses of the converted entity is identical to the
interest holder’s allocation of the profits and losses of
the converting entity; and
(C) There is no change in the interest holders of the
converted entity or in the allocation to any interest
holder in the profits and losses of the converted entity
during the 12-month period following the effective
date of the conversion, other than by reason of the
death of an interest holder or the involuntary
dissolution of the converted entity.
D.C. Code § 29-204.06 (h)(2) (2013 Supp.).
7
18-500, District of Columbia Code Title 29 (Business Organizations) Enactment
Act of 2010 at 9-10, 19 (Dec. 2, 2010).
The Act defines a “conversion” as involving a domestic or foreign “entity.”
D.C. Code §§ 29-201.02 (defining “conversion”), -204.01 (authorizing certain
conversions by domestic entities). As defined in D.C. law, “[t]he term ‘entity’
does not include [] [a]n individual.” D.C. Code § 29-101.02 (10)(B)(i) (2012
Repl.). The commentary to the META makes clear that “[s]ubparagraph (B)(i) of
this definition [defining the term “entity”] excludes a sole proprietorship from the
concept of an ‘entity.’” NAT’L CONF. OF COMM’R ON UNIFORM STATE LAWS, 6A
UNIFORM LAWS ANNOTATED 15 (2016). This is because in a sole proprietorship an
individual owns the business assets directly, rather than through a partnership or
corporation. “The sole proprietorship form of business provides ‘complete identity
of the business entity with the proprietor himself,’” and “has no legal existence
apart from its owner.” Bushey v. N. Assur. Co. of Am., 766 A.2d 598, 603 (Md.
2001) (quoting 1 Z. Cavitch, Business Organizations § 1.04[1], at 1-23 (Matthew
Bender 2000)).4 Thus, the plain meaning of the statute’s language is clear that a
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4
See also Ladd v. Scudder Kemper Inv., Inc., 741 N.E.2d 47, 49 (Mass.
2001) (“The term ‘sole proprietor’ refers to a single individual who owns a
business.”); West’s Tax Law Dictionary § S2380 (Robert Sellers Smith & Adele
Turgeon Smith eds., 2018) (defining “Sole Proprietorship” as a “[b]usiness owned
(continued . . .)
8
sole proprietorship, being equivalent to the individual owner, is not an “entity” that
can transfer or receive property without having to pay recordation and transfer
taxes.
Appellant nonetheless asks this court to interpret the tax exemption at issue
to include transfer of a property as part of the change of his sole proprietorship into
a single-member LLC, arguing that: (1) he met “all of the requirements listed on
the Affidavit of Transfer Pursuant to Entity Conversion,”5 (2) to interpret the term
“entity” as excluding sole proprietorships is at odds with the District’s
“characterization of a Sole Proprietorship as a corporate form,” 6 and (3) the type of
_____________________
(. . . continued)
by one person and does not include a corporation, partnership or trust. A sole
proprietor is liable for all the debts of the business.”).
5
These are requirements set out in the statute. See supra note 3.
6
Appellant cites no statutory or case authority for this characterization.
Instead, he submitted an excerpt from the DCRA website that lists a variety of
forms of business organization (sole proprietorships, general and limited
partnerships, limited liability partnerships, general and S corporations, and limited
liability companies) under the rubric “Choose a Corporate Structure.” Notably, the
website advises that DCRA “can provide general information on each structure but
strongly suggests you contact an attorney and/or an accountant before making a
final decision on what structure best suits your business needs.” With respect to
sole proprietorships, it notes that a disadvantage is “difficulty obtaining long-term
financing.” https://dcra.dc.gov/service/choose-corporate-structure (July 8, 2014).
9
conversion he completed “d[id] not violate the spirit of the law.” These arguments
run counter to the statutory language and are unsupported by the legislative history.
When the plain language of a statute is “unambiguous” and “does not
produce an absurd result” that language dictates how a court interprets the statute.
District of Columbia v. Brookstowne Cmty. Dev. Co., 987 A.2d 442, 447 (D.C.
2010); Jackson v. District of Columbia Bd. of Elections & Ethics, 999 A.2d 89, 101
(D.C. 2010) (“The words used in a statute are the primary, and ordinarily the most
reliable, source of interpreting the meaning of the statute.” (internal quotation
marks omitted)). Tax exemptions, in particular, “will never be implied” in a
statute, but instead, must be “expressed in clear and unmistakable terms, or must
appear by necessary implication from the language used.” District of Columbia
Office of Tax & Revenue v. BAE Sys. Enter. Sys., Inc. (“BAE”), 56 A.3d 477, 484
(D.C. 2012) (noting that tax exemptions are “construed strictly against the claiming
party”). If the statute is ambiguous, secondary sources will be consulted. See id. at
485 (consulting legislative history for the purpose behind ambiguous tax statute);
Brookstowne, 987 A.2d at 448-49.
Here, no express language in the statute exempts appellant’s transfer from an
individual to a limited liability company and none has to be implied by way of
10
necessity. To the contrary, as already discussed, the statutory language and
commentary to the model law, after which it was drafted, are clear that a
“converting entity” does not include an individual/sole proprietorship.
The legislative history, even if it were necessary to resolve an ambiguity in
the statutory language, does not support appellant’s argument. Appellant does not
point the court to any mention made of sole proprietorships in the committee report
or in any subsequent amendments to the statute, and we have found none. See
D.C. Council, Committee on Consumer and Regulatory Affairs, Report on Bill No.
10-277 (Feb. 22, 1994); D.C. Council, Committee on Public Services and
Consumer Affairs, Report on Bill No. 18-500, District of Columbia Code Title 29
(Business Organizations) Enactment Act of 2010 at 4-5, 19-20 (Dec. 2, 2010);
D.C. Council, Committee on Public Services and Consumer Affairs, Report on Bill
No. 19-532, District of Columbia Title 29 Technical and Harmonizing
Amendments Act of 2012 at 6-7, 32 (June 22, 2012).
Appellant argues that he complied with the “spirit of the law,” because the
transfer he effectuated comports with the purpose of the exemption. Whatever the
merits of his position, it amounts to a plea that the court overlook the clear
statutory language and come to our own determination of what the exemption
11
should cover. This is a matter of legislative policy, not one of judicial
interpretation.7
B. Equitable Estoppel
Our conclusion that the statutory exemption does not apply to a transfer of
property from a sole proprietorship to an LLC is dispositive of appellant’s estoppel
claim.8 We begin by noting that estoppel, when asserted against “the public . . . .
should not be invoked except in rare and unusual, or exceptional, circumstances.”
District of Columbia Office of Tax & Revenue v. Exxonmobil Oil Corp., 141 A.3d
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7
We are unpersuaded by appellant’s argument that his circumstance is no
different than “a partnership giving to an LLC.” Unlike sole proprietorships,
partnerships (general and limited) are expressly included in the definition of
“entity.” D.C. Code § 29-101.02 (10)(A)(iii) and (iv). The D.C. Code defines a
partnership as “an entity distinct from its partners,” D.C. Code § 29-602.01 (a)
(2012 Repl.), in contradistinction to the complete overlap in identity between a
sole proprietorship and its individual owner, who is expressly excluded from the
definition of “entity.”
8
The trial court dismissed this argument, finding that: (1) appellant could
not show a promise was made because the District employees only provided him
general information regarding the process and made no specific promise; (2) even
if the District’s agents did make a promise, it was unreasonable for appellant to
rely on it because they “plainly lack the authority to grant such a refund”; and (3)
appellant did not allege any “affirmative misconduct” on the part of any District
employee. As discussed in the text, we reject appellant’s estoppel claim as a
matter of law and need not address the trial court’s other stated reasons or
appellant’s argument that the trial court misapplied the standard for summary
judgment.
12
1088, 1092 (D.C. 2016) (internal quotation marks omitted). Our case law
establishes that estoppel claims against the District must meet four elements: (1) a
promise made, (2) reasonable reliance on that promise, (3) an injury caused by
breach of the promise, and (4) a showing that enforcement of the promise would be
in the public interest and would prevent injustice. Brookstowne, 987 A.2d at 450.
Appellant’s estoppel claim founders on the second element because claimants are
imputed with knowledge of the scope of an agency’s authority. Thus, as a matter
of law, it is not reasonable to rely on a promise by an agent who “plainly lacks the
authority to do whatever he has promised.” Id. (noting that reliance was
unreasonable where statute “clearly provides that only the three enumerated
categories of [] entities are eligible”). As estoppel against the District is limited to
circumstances where the equities are strongly in favor of the party seeking to
invoke it and in which the agency has the authority to act, District of Columbia v.
Stewart, 278 A.2d 117, 119 (D.C. 1971); Coffin v. District of Columbia, 320 A.2d
301, 305-06 (D.C. 1974), appellant could not succeed on a claim of estoppel.
Appellant alleges that his reliance on the promised refund was reasonable
because the statements were made by agents of the Office of Tax and Revenue,
experts on the matter of tax exemptions who acted “within the purview of their
actual authority.” We disagree. Actual authority denotes that the agent has lawful
13
authority to complete the action, see Perkins v. District of Columbia, 146 A.3d 80,
85 (D.C. 2016), in this case, to effect a refund because the taxes collected were not
due. This argument fails to consider the statute imposed requirements that District
employees had the obligation to apply, and did not authorize a discretionary
refund.
We conclude that D.C. law clearly provides that the transfer effectuated by
appellant from himself to an LLC did not come within the exemption from
applicable transfer and recordation taxes, and that appellant therefore cannot
demonstrate that any reliance on his part to a contrary understanding was
reasonable, such that the government should be estopped from denying his claim
for a refund. The grant of summary judgment to appellee is
Affirmed.