Madison Paper Industries v. Town of Madison

STATE OF MAINE SUPERIOR COURT
SOMERSET, ss. CIVIL ACTION
DOCKET NO. AP-19-05

MADISON PAPER INDUSTRIES,
Petitioner

v. ORDER OF COURT

TOWN OF MADISON,
Respondent

I. Posture of the Case:

This case is before this Court on Petitioner Madison Paper Industries' (hereinafter
"MPI") "Petition For Review" pursuant to Rule SOC, Maine Rules of Civil Procedure, 36
M.R.S. § 271, and 5 M.R.S. §§ 11001-11008. Specifically, the Petitioner is appealing the
decision dated July 29, 2019 of the State Board of Property Tax Review (hereinafter "The
Board") to deny MPI' s appeal from the Madison Board of Assessors decision to deny
certain abatement applications filed by MPI for the April 1, 2016 property tax year.

II. Factual Background:

1. MPI was the owner ofthe Madison Paper Mill (hereinafter "Mill"), that included
two hydro-electric plants, both situated in Madison and partially in Anson, Maine.

2. For the tax year April 1, 2016, the total assessed value of the subject property,
excluding BETE 1 exempt property, and including the two hydro-electric plants, was
$72,362,681. The Town Of Madison (hereinafter "Town") assessed the Mill property,
excluding BETE exempt property, at $38,070,181, and the two hydro-electric plants (the
parts in Madison), again excluding BETE, at $34,292,500.

3. These valuations are the subject of the current appeal. MPI asserts a value of
$2,675,000 for the mill assets and $31,787,000 for the hydro-electric plants (also the parts
located in Madison). This valuation is based on an appraisal by Duff & Phelps, authored
by Robert Herman, in May of 2017 and included that as of April 1, 2016, "the premise of

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Business Equipment Tax Exemption, 36 M.R.S. §§ 691-699 (2010 & Supp. 2018).
value considered in this appraisal assumes that the paper mill assets subject to the appraisal
will be liquiclaied and repurposed for a different use - not for paper making."

4.
MPI was a pmtnership between the N w York Times Company (hereinafter
"NYT") and UPM-Kymmene Corporation (hereinafter' UPM"). MPI purchased the Mill
in order to supply NYT, and presumably others as well, with super-calendared paper
(hereinafter "SC ) for advertising and other newspaper inserts.

5. The two hydro-electric plants provided 40% of the en rgy the MiU required
with MPI purchasing the remaining 60% on the market. Although the pmtnership' s
EBIT A 2 had decreased notably in recent years, and the S industry as a whole continued
to decline because of the increasing move away from paper newspapers to online news, the
Jnil1 nonetheless continued to maintain a positive cash flow, and it still operated in the black
at the time · f the appraisal. In addition the mill, despite being over 30 years old, was well
maintained and was considered a ' state of the arC' facility.

6. UPM also produced SC paper at other locations in addition to Madison, and
MPI did not deny that closing down the Mill - and preventing it from ever producing SC
paper - would potentially benefit UPM.

7. On March 14, 2016, NYT/UPM announced the dissolution of their partnership,
MPI, in the USA, the closure of the Mill, and the sale of the hydro power assets. The
announcement did not state that the Mill would be sold. The offer to sell the Mill and the
hydro power assets as a whole was not made. Unlike for the hydro property, for the Mill
no broker was hired, no formal prospectus was issued, and no advertising was issued. On
April 1, 2016, the Mill was operational, and neither NYT nor UPM were in .financial
difficulty.

8. Because thehydro property would be so ld separately, most bids to purchase the
Mill sought only the equipment, with no plans to operate the mill; indeed, everyone who
submitted a formal bid for 'the mill assets was a liquidator.

9. Additionally, as UPM did with other closures worldwide, they placed restrictions
on six pieces of MPI miU equipment critical to the production process. This restriction
prohibited the equipn,1ent from being used on or off the premises or sold to anyone for use
in the production of SC paper or to any mill that makes a paper product in competition with
UPM. Moreover, the restriction specifically stated that the _parties ' agree that this
restriction is reasonable in scope and duration [10 years] in order to protect the legitimate
competitive interests of Seller and its Affiliates ....'

10. Despite the rather significant restriction, Duff & Phelps seemingly did not take
it into consideration in their appraisal, which the Board decision pointed out on numerous
occasions - indeed, it seems that this was one of the primary reasons that the Board ruled
against MPI. Ultimately, the mill property was sold in December 2016 to Somerset
Acquisitions LLC, for $2,000,000 as scrap - Duff & Phelps cited the sale price as support

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Earnings before interest, taxes and amortization

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for its conclusion of value f $2,675,000 exclusive of excess land. Pmsuaut to an asset
agreement between the two companies, Somerset Acquisitions was forbidden from using
certain equipment for the production of SC paper.

11. As mentioned above, the hydro-property was given more standard tr a:tment,
as UPM advertised its sale, issu d a pr spectus, and even hired Kleinschmidt as a s rt of
consultant for the sale oftbe hydro properties. The hydro property ventually sold to Eagle
Creek after negotiations commenced in December 2016.

12. The sale fonnally closed in July 2017 a few days after Duff & Phelps issued
its appraisal report. Duff & Phelps did not mention the sale price of the hydro property, as
it did for th mill assets, claiming promise of confidentiality based on other work performed
for Eagle Creek under a different assignm nt.

13. The Board convened on October 25, 26, and 29, 2018, to conduct a hearing on
the substance of the appeal. The Board conducted deliberations on April 25, 20l9, and
concluded that MPT did not meet its burden to prove that the property was substantially
overvalued, and denied the appeal.

ID. Standard of Review:

14. The Court reviews the Board's decision for abuse of discretion or findings not
supported by substantial evidence in the record. Yorkv. Town ofOgunquit, 2001 ME 53, ,r
6, 769 A.2d 172. Substantial evidence is evidence that is suffici nt for the Board to have
reasonably found the facts as it did. Ryan v. Town of Camden, 582 A.2d 973, 975 (Me.
1990).

15. A Board's "decision is not wrong because the record is inconsistent or a
different conclusion could be drawn from it." Twigg v. Torvn ofKennebunk, 662 A.2d 914,
916 (Me. 1996).

16. In appeals of denial of an abatement, the assessor's valuation is presumed to
be valid. Yusem v. Town ofRaymond, 2001 ME 61, 18, 769 A.2d 865, overruled in part
,r
by Mainetoday Media, Inc. V. tate, 2013 ME 100, 10 n.8, 82 A.3d 104; Petrin V. Town
ofScarborough, 20 16 ME 136, if 14, 147 A.3d 842. To rebut that presumption, a taxpayer
bas the affirmative burden to prove that the assessed value of the property "is 'manifestly
wrong' by demonstrating that (1) the property was substantially overvalued and an injustice
resulted from the overvaJuation; (2) that there was unjust discrimination in the valuation. of
the property; or (3) that the assessment was fraudulent, dishonest or illegal." Ne. Empire
Ltd. P 'ship No. 2 v. Town ofAshland, 2003 ME 28, ,r 7, 818 A.2d 1021 , 1024. See also
City of Waterville v. Waterville Homes, Inc. 655 A.2d 365, 367 (Me. 1995) (citations
omitted) ("The taxpayer seeking abatement canies that burden by proving that the assessed
valuation in relation to the just value is 'manifestly wrong ").

17. In order to meet this burden imp aching the assessor is not by itself, enough
to prove the taxpayer's case. Waterville, 655 A.2d at 367. The petitioner for an abatement

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of taxes must prove his case. He must show that the property is overrated." Sears, Roebuck
& Co. v. City ofPresque Isle, 150 Me. 181, 186, 107 A.2d 475,477 (Me. 1954), superseded
by statute, 36 M.R.S. § 844, as recognized in Town of Vienna v. Kokernak, 612 A.2d 870,
873 (Me. 1992). "We will vacate the [Board's] decision that a taxpayer failed to meet his
burden to show one of these three circumstances 'only if the record compels a contrary
conclusion to the exclusion of any other inference." Town of Bristol Taxpayers' Ass 'n v.
Bd. of Selectmen/Assessors for the Town of Bristol, 2008 ~ 159, 19, 957 A.2d 977;
Terfloth v. Town ofScarborough, 2014 ~ 57, 113, 90 A.3d 1121.

IV. Discussion:

18. The Maine Constitution provides that "[a]ll taxes upon real and personal estate,
assessed by authority of this State, shall be apportioned and assessed equally according to
the just value thereof." Me. Const. art. IX§ 8; Weekley v. Town ofScarborough, 676 A.2d
932, 934 Me. 1996) ("Just value" means "market value.")

19. Thus, an assessment must be supported by two factual findings. Chase v. Town
ofMachiasport, 1998 ~ 2601 11, 721 A.2d 636, overruled in part by Maine today Media,
2013 ME 100,110 n.8. "[F]irst, the property must be assessed at its fair market value." Id.
(citing Quoddy Realty Corp. v. City of Eastport, 1998 ME 14, 19, 704 A.2d 407).
"[S]econd, the assessed value must be equitable, that is, the property must be assessed at a
relatively uniform rate with comparable property in the district." Chase, 1998 ~ 260, 1
11.

20. The undersigned acknowledges that "[t]he sale price of property is probative
of its market value." McCullough v. Town of Sanford, 687 A.2d 629, 631 (Me. 1996)
(quoting Weekley, 676 A.2d at 934); see also Arnold v. Me. State Highway Comm 'n, 283
A.2d 655 (Me. 1971) ("An actual sale very near to the time at which the value is to be fixed
is of 'great weight' as contrasted with mere opinion evidence."). Thus, the discrepancy
between the town's assessed value of the mill properties, $38,070,181, and the ultimate
sale price, $2,000,000, is, at least on its face, troubling.

21. However, the Law Court has also found against taxpayers even when the sales
price is significantly lower than the assessed value, see, e.g., McCullough, 687 A.2d at 631,
and the Law Court has never held "that the price from an arm's-length sale is dispositive
of a property's fair market value," Terfloth v. Town of Scarborough, 2014 ~ 57, 1 19
(emphasis added). Thus, in situations where outside factors significantly affect the fair
market price, such as purchasing property at a distress sale, foreclosure sale, or an auction,
or purchasing from a family member or some other non-arm's length transaction, see
Terfloth, 2014 ~ 57, 1 17; see also Menard, Inc. v. City ofEscanaba, 315 Mich. App.
512, 528-29, 891 N.W.2d 1, 11 (2016), the sales price will not accurately reflect the true
value, and appraisals for significantly more value may remain even after judicial review.

22. As noted above, the Board believed that this was such a situation of an
inaccurate reflection of the true value, as it was troubled by the major restrictions placed
on the sale. Further, because the appraisal by Duff & Phelps did not take these restrictions

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into consideration, the Board also found their appraisal not credible. Because of these sale
restrictions, MPI failed to convince the Board that liquidation was the highest and best use
of the mill property. Because it was MPI's burden to do so, they failed in front of the Board.

23. MPI's arguments in front of this Court fail for the same reasons. MPI asserts
three specific arguments in this appeal, all of which fail to convince the undersigned that
the Town's appraisal is "manifestly wrong" or that the "record compels a contrary
conclusion to the exclusion of any other inference." First, MPI argues that the "Board erred
by basing the value of the mill on its current use on April 1, 2016, rather than its highest
and best use[.]" Second, it argues that the "Board erred by inconsistently taxing the hydros
at their highest and best use while simultaneously taxing the mill at its current use on April
1, 2016, thereby double-counting the value of the hydros[.]" And third, MPI argues that
the "Board erred by misapplying section 848-A in concluding that there was less than a
10% difference in the positions of the parties on the hydro values[.]" Among other
problems, MPI erroneously asserts that the Board made these errors in valuation, when in
fact, it was the Town that made the appraisal that MPI disputes, not the Board.

24. MPI's first argument can be easily dismissed. As the Respondent Town notes,
this is a flawed argument in that it states that the Board made a legal error by using current
use above highest and best use to value the property, when this is wrong for multiple
reasons. As noted above, the Board did not perform any appraisal and come to any
valuation on its own, and it did not make a legal determination to use one valuation method
over the other, as MPI would suggest. Instead, the Board rejected Duff & Phelps'
conclusion that the highest and best use of the mill property was liquidation. See Board
Decision, 21, 23.

25. As the fact-finder, the Board was well within its discretion in rejecting Duff
& Phelps' conclusions. See Hutz v. Alden, 2011 ME 27, ,r 14, 12 A.3d 1174 ("The court is
not required to accept an appraiser's valuation, however, and its decision to do so must be
based upon a determination of the appraiser's credibility and the weight given that
opinion."). Thus, as is true of most of its arguments, here, MPI simply tries to frame a
factual question as a legal one in order to lower the standard of review on appeal. Because
the Board never chose to use current use instead of highest and best use, and instead only
determined that the mill's best use as of April 1, 2016 was not liquidation, as MPI's expert
suggested, MPl's argument can be easily dismissed for failing to convince this Court that
the Board's decision was manifestly wrong.

26. MPI's second argument is essentially that the hydro plants were double
counted, because the Town valued the hydros at their highest and best use, but valued the
mill at its current use on April 1, 2016. This too is easily dismissed, as there is no evidence
that the Town took different valuation approaches as MPI suggests. What the Town did,
which MPI acknowledges, was assign value to the power that the hydros produced for the
mill, i.e. the saved costs of the mill by not having to purchase that 40% of its energy needs
on the market. This "avoided costs" method may add a significant amount to the properties'
total income, but the Court fails to see, as did the Board, how this "double counts" the value
of the hyrdos. MPI does, however, point out that this avoided costs method awarded the

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increased value to the hydros, when it argues that the increased value should have gone to
the mill, as the mill would have purchased the power on the market, not the hyrdos.

27. While the power would undoubtedly ultimately power the mill, the Court
doesn't see why awarding the avoided costs to the hyrdos is necessarily incorrect, as the
power would still generate the hydros first before powering the mill. Regardless, as noted
above, the chief problem for MPI is that it has the burden to persuade this Court that the
Town's valuation was manifestly wrong and that the record compels a contrary outcome,
a burden which MPI has not overcome.

28. MPI's final argument is that the Board used the wrong figure when calculating
the difference between the Town's assessed value of the hyrdo properties and the Duff &
Phelps' valuation, for purposes of 36 M.R.S. § 848-A. That section states that "[i]n any
proceedings relating to a protested assessment, it is a sufficient defense of the assessment
that it is accurate within reasonable limits of practicality, except when a proven deviation
of 10% or more from the relevant assessment ratio of the municipality or primary assessing
area exists." Both patiies agree that Duff & Phelps valued the hyrdos at $31,787,000, but
disagree on the correct number for the Town's valuation. The Town argues, and the Board
agreed, that their appraisal valued the hyrdos at $34,292,500, while MPI argues that the
Town actually appraised the hydros at $37,064,500. This is because the Town's valuation
does not include BETE exempt property, while MPI's argued correct valuation does. 3

29. Thus, MPI's argument is essentially that the Town's valuation should have
included the BETE exempt property. Unsurprisingly, MPI doesn't really develop much of
an argument to support this, as the entire section is two short paragraphs with no citations
to case law or statutory sections. Again, given that MPI has a high burden on this appeal,
their argument falls well short of carrying that burden, meaning this argument too must
fail.

V. Conclusion:

30. MPI had a very tough burden to overcome in this case, as they had to prove
that the Town's appraisal was "manifestly wrong," and MPI has failed in carrying that
burden. In particular, the Court agrees with the Board that the failure of their appraiser,
Duff & Phelps, to consider the burdensome sales restrictions placed on the sale of the mill
property made their valuation highly suspect; accordingly, the Court is not surprised at all
that the Board did not give much consideration to their appraisal (as it was the Board's
right and responsibility, as the fact finder, to do).

31. Given that the mill property was a "state of the art" facility that was designed
to produce SC paper, prohibiting any purchaser from using the mill as it was intended to
be used indeed essentially meant that liquidating it was the only thing that a buyer could
do with the mill. This, obviously, does not mean that the mills were worth what they sold
for, and MPI cannot tell buyers not to use the mill as it was meant to be used and then argue

3
Page 2 of the Board's decision includes a footnote that shows this. The hyrdos had BETE exempt property
worth $2,771,968. 34,292,500 + 2,771,968 = 37,064,468.

6
that that restriction means it was worth significantly less to them, and resultingly pay a
fraction of the taxes that they would otherwise owe.

32. Accordingly, for the reasons stated above the Petition for Review is denied
and the Board's decision is affirmed.

The Clerk is directed to incorporate this Order by reference into the docket for this
case, pursuant to Rule 79(a), Maine Rules of Civil Procedure.

Date: 8/13/2020

BYBid-1ll
Rbhert E. Mullen, Chief Justice
Maine Superior Court

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Date filed: 08/30/19 Somerset Docket No.: AP-19-05
(
Action: SOC

Petitioner: Respondent:

MADISON PAPER INDUSTRIES TOWN OF MADISON

ATIY: JONATHAN BLOCK, ESQ. ATTY: DAVID SILK, ESQ.
254 COMMERCIAL STREET PO BOX 7320
PORTLAND ME 04101 PORTLAND ME 04112-7320

DATE OF
ENTRY: ENT RIES :

08/30/19 Petition for Review Under Rule 80(C), Summary Sheet,
copy of decision and filing fee all received and filed.

09/09/19 Respondent Town of Madison's Appearance and
Statement of Position received and filed 09/06/19.

Notice and Briefing Scheduled forwarded to both parties
( this day.

09/30/19 Completed Certificate of Record, Summary of Contents,
audio CDs of recordings (and flash drive) of hearings and
deliberations, written decision, and transcripts marked as
Exhibits 820, 21, 22 all received and filed 09/27/19.

10/08/19 Petitioner's Rule BOC Brief with Appendix; and Transcript
of Board Hearings, Volume I, II, II all received this day.

11/08/19 Respondent Town of Madison's Rule SOC Brief received
and filed 11/06/19.

11/19/19 Petitioner's Reply Brief received and filed .

12/17/19 Justice Mullen has filed to be given to Law Clerk, Phillip
Banaszek.

06/03/20 Letter filed to court from David Silk and Jonathan Block,
Esq. requesting an argument remotely. Forwarded to

(