Midland Cogeneration Venture Ltd Partnership v. Robert Naftaly

Michigan Supreme Court
Lansing, Michigan
Chief Justice: Justices:
Opinion Robert P. Young, Jr. Michael F. Cavanagh
Marilyn Kelly
Stephen J. Markman
Diane M. Hathaway
Mary Beth Kelly
Brian K. Zahra
FILED MAY 23, 2011
STATE OF MICHIGAN
SUPREME COURT
MIDLAND COGENERATION VENTURE
LIMITED PARTNERSHIP,
Plaintiff-Appellant,
v No. 140814
ROBERT NAFTALY, in his capacity as
chairperson of the State Tax Commission,
DOUGLAS ROBERTS and FREDERICK
MORGAN, in their capacities as members of
the State Tax Commission, and STATE TAX
COMMISSION,
Defendants-Appellees.
IRON MOUNTAIN INFORMATION
MANAGEMENT, INC.,
Plaintiff-Appellant,
v No. 140817
ROBERT NAFTALY, in his capacity as
chairperson of the State Tax Commission,
DOUGLAS ROBERTS and FREDERICK
MORGAN, in their capacities as members of
the State Tax Commission, and STATE TAX
COMMISSION,
Defendants-Appellees,
and
JAMES RUSHTON, in his capacity as
Pittsfield Charter Township Assessor, and
PITTSFIELD CHARTER TOWNSHIP,
Defendants.
CVS PHARMACY, INC.,
Plaintiff-Appellant,
v No. 140818
ROBERT NAFTALY, in his capacity as
chairperson of the State Tax Commission,
DOUGLAS ROBERTS and FREDERICK
MORGAN, in their capacities as members of
the State Tax Commission, and STATE TAX
COMMISSION,
Defendants-Appellees,
and
GLENN LEMMON, in his capacity as
assessor for the city of Novi, and CITY OF
NOVI,
Defendants.
NES RENTAL HOLDINGS, INC.,
Plaintiff-Appellant,
v No. 140819
2
ROBERT NAFTALY, in his capacity as
chairperson of the State Tax Commission,
DOUGLAS ROBERTS and FREDERICK
MORGAN, in their capacities as members of
the State Tax Commission, and STATE TAX
COMMISSION,
Defendants-Appellees,
and
LINDA BADE, in her capacity as assessor
for the city of Detroit, and CITY OF
DETROIT,
Defendants.
IRON MOUNTAIN INFORMATION
MANAGEMENT, INC.,
Plaintiff-Appellant,
v No. 140820
ROBERT NAFTALY, in his capacity as
chairperson of the State Tax Commission,
DOUGLAS ROBERTS and FREDERICK
MORGAN, in their capacities as members of
the State Tax Commission, and STATE TAX
COMMISSION,
Defendants-Appellees,
and
LINDA BADE, in her capacity as assessor
for the city of Detroit, and CITY OF
DETROIT,
Defendants.
3
IRON MOUNTAIN INFORMATION
MANAGEMENT, INC.,
Plaintiff-Appellant,
v No. 140821
ROBERT NAFTALY, in his capacity as
chairperson of the State Tax Commission,
DOUGLAS ROBERTS and FREDERICK
MORGAN, in their capacities as members of
the State Tax Commission, and STATE TAX
COMMISSION,
Defendants-Appellees,
and
SHERRON SHULTZ, in her capacity as
assessor for the city of Livonia, and CITY
OF LIVONIA,
Defendants.
IRON MOUNTAIN INFORMATION
MANAGEMENT, INC.,
Plaintiff-Appellant,
v No. 140822
ROBERT NAFTALY, in his capacity as
chairperson of the State Tax Commission,
DOUGLAS ROBERTS and FREDERICK
MORGAN, in their capacities as members of
the State Tax Commission, and STATE TAX
COMMISSION,
Defendants-Appellees,
and
4
SHERRON SCHULTZ, in her capacity as
assessor for the city of Livonia, and CITY
OF LIVONIA,
Defendants.
IRON MOUNTAIN INFORMATION
MANAGEMENT, INC.,
Plaintiff-Appellant,
v No. 140823
ROBERT NAFTALY, in his capacity as
chairperson of the State Tax Commission,
DOUGLAS ROBERTS and FREDERICK
MORGAN, in their capacities as members of
the State Tax Commission, and STATE TAX
COMMISSION,
Defendants-Appellees,
and
TOM YACK, in his capacity as Canton
Township Supervisor, and CANTON
TOWNSHIP,
Defendants.
IRON MOUNTAIN INFORMATION
MANAGEMENT, INC.,
Plaintiff-Appellant,
v No. 140824
ROBERT NAFTALY, in his capacity as
chairperson of the State Tax Commission,
DOUGLAS ROBERTS and FREDERICK
5
MORGAN, in their capacities as members of
the State Tax Commission, and STATE TAX
COMMISSION,
Defendants-Appellees,
and
LINDA BADE, in her capacity as assessor
for the city of Detroit, and CITY OF
DETROIT,
Defendants.
BEFORE THE ENTIRE BENCH
MARILYN KELLY, J.
In these consolidated cases, we must determine whether circuit courts have subject
matter jurisdiction over appeals from the State Tax Commission (STC) regarding
property classifications. We conclude that they do.
We hold that, because they constitute final decisions that are quasi-judicial and
affect private rights, STC property-classification decisions fall within the ambit of article
6, § 28 of the Michigan Constitution, which guarantees judicial review. The Legislature
lacks the authority to abolish the right to judicial review by enacting a statute. As a
consequence, we declare the final sentence of MCL 211.34c(6) unconstitutional because
it denies appeal in the courts of STC classification decisions. And because the
Legislature has not provided other means for judicial review of STC classification
decisions, we hold that the circuit courts have jurisdiction over such appeals pursuant to
MCL 600.631.
6
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
This appeal involves nine consolidated cases. All the plaintiffs own property that
is subject to property taxes in Michigan. They describe the property as machinery and
equipment. For 2008, the tax year in question, the local assessors classified the property
for tax-assessment purposes as industrial real property1 or commercial personal property.2
Plaintiffs timely petitioned the relevant boards of review to reclassify the property as
industrial personal property.3 That reclassification would permit them to take advantage
of recently enacted tax exemptions or credits.4 In each instance, the board denied the
request. Plaintiffs thereafter individually petitioned the STC to reclassify the property.
In each case, the STC denied the request to reclassify the property. Plaintiffs then
individually sought and obtained relief in various circuit courts. Defendants appealed the
judgments in the Court of Appeals, which granted leave to appeal and consolidated the
individual cases. The Court reversed each of the circuit court judgments and remanded
1
MCL 211.34c(2)(d).
2
MCL 211.34c(3)(b). In the Midland Cogeneration case (Docket No. 140814), the
Midland assessor classified plaintiff’s property as industrial real property. In all the other
cases (Docket Nos. 140817 through 140824), the property in question was classified as
commercial personal property.
3
MCL 211.34c(3)(c).
4
Changes to the Michigan Business Tax Act (MBTA), MCL 208.1101 et seq., effective
in tax year 2008 provide for credit against MBTA liability for property taxes paid on a
tax parcel classified as industrial personal property. MCL 208.1413. In addition, recent
amendments of the Revised School Code provide exemptions for industrial personal
property and commercial property from taxes levied under the State Education Tax Act.
See MCL 380.1211.
7
for the entry of orders granting summary disposition in defendants’ favor.5 It held that
MCL 211.34c(6) bars an appeal in the courts of an STC classification decision.6
MCL 211.34c(6) provides in pertinent part: “An appeal may not be taken from the
decision of the state tax commission regarding classification complaint petitions and the
state tax commission’s determination is final and binding for the year of the petition.”
The Court of Appeals rejected plaintiffs’ claim that the statute violates the constitutional
guarantee of a direct appeal of administrative final decisions. The Court held that,
although it prevents an appeal of classification decisions in the courts, the statute does not
prevent other review, such as seeking a refund in the Michigan Tax Tribunal.
Plaintiffs sought leave to appeal in this Court and we granted it, limited to whether
the circuit courts have subject matter jurisdiction over appeals of an STC decision
regarding property classification.7
STANDARD OF REVIEW AND LEGAL BACKGROUND
The issue of subject matter jurisdiction presented in these cases involves questions
of constitutional and statutory interpretation, which are reviewed de novo.8
The General Property Tax Act9 requires local tax assessors to classify “every item
of assessable [real and personal] property” in the local tax assessing unit according to
5
Iron Mountain Info Mgt, Inc v State Tax Comm, 286 Mich App 616, 623; 780 NW2d
923 (2009).
6
Id. at 621.
7
Iron Mountain Info Mgt, Inc v Naftaly, 486 Mich 1038 (2010); Midland Cogeneration
Venture Ltd Partnership v Naftaly, 486 Mich 1038 (2010).
8
Hunter v Hunter, 484 Mich 247, 257; 771 NW2d 694 (2009).
8
categories established in MCL 211.34c.10 It classifies real property into six broad
categories: agricultural, commercial, developmental, industrial, residential, and timber-
cutover.11 Personal property is classified into five broad categories: agricultural,
commercial, industrial, residential, and utility.12
A property owner who disputes the local tax assessor’s classification “must notify
the assessor and may protest the assigned classification to the March board of review.”13
A property owner or the assessor may appeal a decision of the board by filing a petition
with the STC not later than June 30 of that tax year.14 The STC is required to “arbitrate
the petition based on the written petition and written recommendations of the assessor
and the state tax commission staff.”15
Under MCL 211.34c(6), a decision of the STC regarding property classification is
final, and no appeal is permitted. However, MCL 211.34c(7) provides that the
Department of Treasury may appeal a classification decision to “the residential and small
claims division of the Michigan tax tribunal not later than December 31 in the tax year
for which the classification is appealed.”
9
MCL 211.1 et seq.
10
MCL 211.34c(1).
11
MCL 211.34c(2)(a) through (f).
12
MCL 211.34c(3)(a) through (e).
13
MCL 211.34c(6).
14
Id.15
Id.9
ANALYSIS
In reviewing a constitutional challenge, we presume that statutes are constitutional
as written.16 We exercise the power to declare a law unconstitutional “with extreme
caution.”17 Plaintiffs claim that MCL 211.34c(6) violates article 6, § 28 of the Michigan
Constitution, which provides in pertinent part:
All final decisions, findings, rulings and orders of any administrative
officer or agency existing under the constitution or by law, which are
judicial or quasi-judicial and affect private rights or licenses, shall be
subject to direct review by the courts as provided by law. This review shall
include, as a minimum, the determination whether such final decisions,
findings, rulings and orders are authorized by law . . . .[18]
Article 6, § 28 is not an absolute guarantee of judicial review of every
administrative decision. In order for it to apply, (1) the administrative decision must be a
“final decision” of an administrative agency, (2) the agency must have acted in a “judicial
or quasi-judicial” capacity, and (3) the decision must affect private rights or licenses.
Therefore, we must determine whether STC classification decisions are final decisions of
a judicial or quasi-judicial nature that affect private rights or licenses.
16
Cruz v Chevrolet Grey Iron Div of Gen Motors Corp, 398 Mich 117, 127; 247 NW2d
764 (1976) (opinion by COLEMAN, J., citing cases).
17
Thayer v Dep’t of Agriculture, 323 Mich 403, 410; 35 NW2d 360 (1949) (citations and
quotation marks omitted).
18
Const 1963, art 6, § 28. The final sentence of this section provides: “In the absence of
fraud, error of law or the adoption of wrong principles, no appeal may be taken to any
court from any final agency provided for the administration of property tax laws from any
decision relating to valuation or allocation.” The parties do not allege that property
classifications are decisions relating to valuation or allocation. Hence, we do not
consider this portion of the section in this opinion.
10
First, it is uncontested that the challenged STC decisions are final decisions of an
administrative agency. In each of these cases, the STC sent a letter to the plaintiff
advising it that the STC’s decision was final because MCL 211.34c(6) provides for no
appeal of it.
Second, in order for article 6, § 28 to apply, the STC must have acted in a judicial
or quasi-judicial capacity in rendering its classification decisions. Decisions of the STC
are not judicial decisions. The dispositive question is whether they are quasi-judicial in
nature.
This Court has employed the term “quasi-judicial” broadly: “When the power is
conferred by statute upon a commission such as the public utilities, or a board such as the
department of labor and industry, to ascertain facts and make orders founded thereon,
they are at times referred to as quasi-judicial bodies . . . .”19 The Court of Appeals has
referred to Black’s Law Dictionary to define “quasi-judicial”:
“A term applied to the action, discretion, etc., of public
administrative officers, who are required to investigate facts, or ascertain
the existence of facts, and draw conclusions from them, as a basis for their
official action, and to exercise discretion of a judicial nature.”[20]
An STC classification decision is not a general rulemaking or advisory decision.
The STC resolves disputed factual claims on a case-by-case basis. This entails an
evaluation of evidence and dispute resolution, which are quasi-judicial functions.
Furthermore, MCL 211.34c(6) styles the STC’s actions as arbitrations in which the STC
19
People ex rel Clardy v Balch, 268 Mich 196, 200; 255 NW 762 (1934).
20
Pletz v Secretary of State, 125 Mich App 335, 351-352; 336 NW2d 789 (1983),
quoting Black’s Law Dictionary (4th ed), p 1411.
11
considers written petitions and “arbitrates” matters.21 Thus, in rendering property
classification decisions, the STC acts as an arbitrator adjudicating disputed claims. It is
well settled that an arbitrator’s function is quasi-judicial in nature.22
Third, in order for article 6, § 28 to apply to STC classification decisions, they
must “affect private rights or licenses.” This case does not involve a license. Therefore,
we must determine whether STC classification decisions affect private rights.
Taxpayers do not have “a vested right in a tax statute or in the continuance of any
tax law.”23 We defined a vested right as “an interest that the government is compelled to
recognize and protect of which the holder could not be deprived without injustice.”24 In
contrast, article 6, § 28 of the constitution recognizes and protects administrative
decisions that “affect private rights.” Black’s Law Dictionary defines a “private right” as
“a personal right, as opposed to a right of the public or the state.”25 Black’s defines
“right” as “[t]he interest, claim, or ownership that one has in tangible or intangible
property.”26
21
“The state tax commission shall arbitrate the petition based on the written petition and
the written recommendations of the assessor and the state tax commission staff.” MCL
211.34c(6).
22
See Boraks v American Arbitration Ass’n, 205 Mich App 149, 151; 517 NW2d 771
(1994); Int’l Union, United Auto, Aerospace, & Agricultural Implement Workers v
Greyhound Lines, Inc, 701 F2d 1181, 1185 (CA 6, 1983).
23
Detroit v Walker, 445 Mich 682, 703; 520 NW2d 135 (1994).
24
Id. at 699.
25
Black’s Law Dictionary (8th ed), p 1348.
26
Id. at 1347, definition 5.
12
We conclude that taxpayers have a private right to ensure that their property is
taxed the same as similarly situated property.27 As applied to this case, the classification
of plaintiffs’ property will determine whether plaintiffs are entitled to the same tax
treatment received by owners of similarly classified property. Plaintiffs have an interest
in the proper interpretation of the statutory definitions of “industrial personal property,”
“commercial personal property,” and “industrial real property.” An erroneous
interpretation of the statutory definitions could impermissibly increase their tax burden
and thus affect their private right. Hence, the STC classification decisions in question
affect private rights.
Aside from requiring a final quasi-judicial decision that affects private rights,
article 6, § 28 provides that such decisions “shall be subject to direct review by the courts
as provided by law.”28 Defendants argued that “as provided by law” means that the
Legislature has the authority to limit the jurisdiction of the circuit courts. The Court of
Appeals agreed and, in reliance on that language, held that MCL 211.34c(6) prevents an
STC classification decision from being appealed in a court. It relied solely on this
Court’s 1977 decision in McAvoy v H B Sherman Co.29
McAvoy held that the Legislature may “exert substantial control over the
mechanics of how administrative decisions are to be appealed.”30 It does not stand for
27
See Const 1963, art 9, § 3 (requiring the Legislature to provide for uniform taxation of
property).
28
Const 1963, art 6, § 28 (emphasis added).
29
McAvoy v H B Sherman Co, 401 Mich 419, 443; 258 NW2d 414 (1977).
30
Id.13
the proposition that the Legislature can limit the jurisdiction of the circuit courts. Rather,
McAvoy held that “as provided by law” contemplates that the Legislature will provide the
manner in which judicial review shall occur. It recognized the Legislature’s ability to
dictate “how,” “when,” and “what” type of appeal of an agency decision is permitted.
Acknowledging that the Michigan Constitution mandates review, McAvoy opined that “as
provided by law” permits the Legislature only to prescribe the details of that review.31
For example, the Legislature can prescribe time frames for filing an appeal, dictate
whether a party may obtain a stay pending appeal, and set forth the controlling standard
of review.
MCL 211.34c(6) is not an exercise of control over the “mechanics” of an appeal to
the courts of an STC classification decision. Rather, it is a complete prohibition of court
review of STC classification decisions. There is a significant difference between
dictating the mechanics of an appeal and preventing an appeal altogether. Thus, the
Court of Appeals erred by concluding that MCL 211.34c(6) is concerned merely with
mechanics.
The Legislature may not eradicate a constitutional guarantee in reliance on the
language “as provided by law.” Because MCL 211.34c(6) eliminates any appeal of a
final administrative decision that is quasi-judicial in nature and affects private rights, it
runs afoul of the guarantee in article 6, § 28. This conclusion assumes that there is no
other mechanism for direct review by the courts.
31
See id.
14
The Court of Appeals and defendants have failed to make a persuasive case that an
alternative mechanism exists with which to appeal an STC classification decision. The
Court suggested that a plaintiff could pay the tax and then seek a refund in the Michigan
Tax Tribunal.32 However, nothing in the Tax Tribunal Act grants the Tax Tribunal
jurisdiction over STC classification decisions. Indeed, in 2010, the Tax Tribunal ruled
that it lacks jurisdiction over STC classification decisions.33 Hence, as a result of that
decision and the Court of Appeals’ opinion, plaintiffs are left with no forum in which to
challenge STC classification decisions, notwithstanding their constitutional right to
judicial review.
Therefore, we hold that the phrase “as provided by law” in article 6, § 28 does not
grant the Legislature the authority to circumvent the protections that the section
guarantees. If it did, those protections would lose their strength because the Legislature
could render the entire provision mere surplusage. And given that no other mechanism
for review of STC classification decisions exists, the last sentence of MCL 211.34c(6)
violates article 6, § 28.
To cure this defect, we must determine whether the entire statute is
unconstitutional or whether its last sentence is severable. MCL 8.5 provides:
32
The Court of Appeals stated: “The Legislature did not preclude review by other
mechanisms. For example, a party could pay the property taxes due for a subject parcel,
and then file a claim in the Michigan Tax Tribunal for a refund of taxes paid because of
an improper classification.” Iron Mountain Info Mgt, 286 Mich App at 623 n 2.
33
Midland Cogeneration Venture Ltd Partnership v City of Midland, order of the
Michigan Tax Tribunal, entered April 21, 2010 (Docket No. 383162).
15
If any portion of an act or the application thereof to any person or
circumstances shall be found to be invalid by a court, such invalidity shall
not affect the remaining portions or applications of the act which can be
given effect without the invalid portion or application, provided such
portions are not determined by the court to be inoperable, and to this end
acts are declared to be severable.
To determine whether severance is appropriate, we must consider whether the portion of
MCL 211.34c(6) remaining after its last sentence has been severed is capable of
functioning alone.34
The subsection consists of four sentences. The first three dictate the process by
which a property owner may protest an adverse property classification.35 The initial
review is made by the March board of review. The next level of review is by the STC.
The fourth and final sentence of MCL 211.34c(6) restricts judicial review of STC
classification decisions. This final sentence has no effect on the remainder of the
subsection. In its absence, the subsection provides for an internal appellate process
within the administrative agency. The internal process is separate and distinct from any
judicial review. Thus, MCL 211.34c(6) is capable of functioning without its final
sentence. Accordingly, the final sentence of MCL 211.34c(6), which shields STC
classification decisions from judicial review, is severed and declared unconstitutional.36
The remainder of MCL 211.34c(6) remains in full force and effect.
Without the final sentence of MCL 211.34c(6), the General Property Tax Act is
silent as to plaintiffs’ right to appeal an adverse STC classification decision. As we have
34
See Maki v East Tawas, 385 Mich 151, 159; 188 NW2d 593 (1971).
35
MCL 211.34c(6).
36
See C F Smith Co v Fitzgerald, 270 Mich 659, 667-668; 259 NW 352 (1935).
16
held, however, article 6, § 28 of the Michigan Constitution mandates that plaintiffs be
afforded this right. Thus, we must consider what remedy is available to plaintiffs absent
a specific legislative directive.
The Revised Judicature Act specifically allows appeals of decisions by state
agencies when judicial review “has not otherwise been provided by law.”37 Because
MCL 211.34c(6) precluded judicial review in violation of article 6, § 28, judicial review
“has not otherwise been provided by law,” and MCL 600.631 applies. Therefore, the
circuit court has subject matter jurisdiction over appeals of a decision of the STC
regarding property classifications.
CONCLUSION
STC property-classification decisions are final decisions of an administrative
agency that are quasi-judicial in nature and affect private rights. Consequently, article 6,
§ 28 of the Michigan Constitution guarantees judicial review of them, and this guarantee
may not be jettisoned by statute. Accordingly, because the final sentence of MCL
211.34c(6) precludes judicial review of STC classification decisions, it violates article 6,
37
MCL 600.631 states:
An appeal shall lie from any order, decision, or opinion of any state
board, commission, or agency, authorized under the laws of this state to
promulgate rules from which an appeal or other judicial review has not
otherwise been provided for by law, to the circuit court of the county of
which the appellant is a resident or to the circuit court of Ingham county,
which court shall have and exercise jurisdiction with respect thereto as in
nonjury cases. Such appeals shall be made in accordance with the rules of
the supreme court.
17
§ 28 of the Michigan Constitution. We declare that sentence unconstitutional and sever
it, leaving the remainder of MCL 211.34c(6) in full force and effect.
The circuit courts have subject matter jurisdiction over appeals of a decision of the
STC regarding property classifications. Plaintiffs may appeal the decisions in the cases
before us in the circuit court for the county of which plaintiffs are residents or the circuit
court for Ingham County.
We reverse the judgment of the Court of Appeals.
Marilyn Kelly
Robert P. Young, Jr.
Michael F. Cavanagh
Stephen J. Markman
Diane M. Hathaway
Mary Beth Kelly
Brian K. Zahra
18