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SUPERIOR COURT OF THE DISTRICT OF
COLUMBIA Peter S. Craig, v. DISTRICT OF COLUMBIA, Class Action 1. Petitioner Peter S. Craig, an owner of residential property in the neighborhood of Cleveland Park, jointly with other petitioners as named in Appendix A and Appendix B, who are also owners of residen- tial properties in the District of Columbia, bring this class action on behalf of themselves and on behalf of others similarly situated, to set aside and correct unlawful and unconstitutional real property tax assessments levied on Class 1 residential properties located in the District of Columbia in neighborhoods encompassed in former Trien- nial Group 1, as defined by the Office of Tax and Revenue (OTR), for Tax Year 2002 and to seek resulting refunds for such properties. 2. Attached as Appendix A and Appendix B is the present list of the members of the class in formation. Appendix A includes petitioners in neighborhoods located in Triennial Group 1 adversely affected by assessments for Tax Year 2002. Appendix B includes petitioners in other neighborhoods adversely affected by the methodology used for tax assessments for Tax Year 2002. All of said petitioners have paid all real property taxes (including penalties and interest due thereon, if any) for which they have been billed and assessed prior to the filing of this petition. 3. Respondents are the District of Columbia, a municipal corpor ation; Anthony J. Williams, Mayor of the District of Columbia; Natwar Gandhi, Chief Financial Officer of the District of Columbia; Herbert J. Huff, Deputy Chief Financial Officer of the District of Columbia for the Office of Tax and Revenue; William Henry Riley, Director of Real Property Tax Administration; Thomas W. Branham, Chief Assessor of the Office of Tax and Revenue (OTR); and Libby Kavoulakis, Chair- person of the Board of Real Property Assessments & Appeals (BRPAA) for the District of Columbia. 4. Jurisdiction of this court to hear and decide this case is found ed in D.C. Code §§ 11-1201, 11-1202, 2-510 (a), 47-825.01 (j-1), and 47- 827, and 47-3303, and Superior Court Civil Division Rules 23 and 23-I, as incorporated by reference in the Tax Division’s Rule 3(a). Statement of Facts Background 5. Until recently Respondents assessed residential properties according to a legal methodology known as replacement cost new less depreciation under a Computer Assisted Mass Appraisal (CAMA) system, which is authorized by statute. In its place, Respondents, without following any rule-making procedure and without notifying affected taxpayers, secretly switched to a system called "trending," making across-the-board increases based on assessment-sales ratio studies, rather than property-specific changes. Respondents did so, on information and belief, because the "trending" assessments were higher than the CAMA assessments and thus would increase tax revenues without having to ask the D.C. Council for an act to increase the tax rate. The "trending" assessments were, at the same time, illegal and unconstitutional. While Respondents may use assessment-sales ratio studies to analyze past assessments, they may not use such ratio studies for establishing future assessments on an across-the-board basis. The effect of the new assessment methodology has been to shift the tax burden from recently improved properties to older properties which have neither been improved nor remodeled recently. 6. In 1998, after several years of preparation, James A. Vinson, then Chief Assessor for the District of Columbia, implemented a new CAMA system for the assessment of residential properties in the Dis- trict of Columbia. The CAMA assessments were to be applied to one- third of the District of Columbia during each of three years. The city was divided into Triennial Groups 1, 2 and 3, to be assessed respectively in 1998, 1999 and 2000. 7. In early 1998, the Chief Assessor served notices on all owners of residential properties in Triennial Group 1, notifying such persons of the proposed CAMA assessments for Tax Years 1999, 2000 and 2001. Where such assessments resulted in increases in the assessed value, such increases were phased in over the three Tax Years. 8. In early 1999, the Chief Assessor served notices on all owners of residential property in Triennial Group 2, notifying such persons of the proposed CAMA assessments for Tax Years 2000, 2001 and 2002. Where such assessments resulted in increases in the assessed value, such increases were phased in over the three Tax Years. 9. In early 2000, the Chief Assessor served notices on all owners of residential property in Triennial Group 3, notifying such persons of the proposed assessments for Tax Years 2001, 2002 and 2003. Where such assessments resulted in increases in the assessed value, such increases were phased in over the three Tax Years. Substitution of "Trending" Assessments 10. By notice dated April 27, 2001, Respondent Herbert J. Huff served notice on all owners of residential properties in Triennial Group 1 of their revised assessments for Tax Year 2002. Reference was made to the fact that, under a new law, assessments were now to be made annually instead of once every three years. 11. Such notices did not give any reason for the particular assess ments and did not otherwise comply with the applicable requirements of the D.C. Code § 47-824 and OTR regulations. 12. Secretly, and without notice to the taxpayers, by rule-making or otherwise, OTR, in the neighborhood of Cleveland Park, (a) in- creased all assessments of single-family lots and improvements involv- ing detached houses by 49.2%, (b) increased all assessments of single family lots and improvements involving semi-detached and row houses by 38%, and (c) made an exception for some single-family houses sold during 1999 or 2000 whereby a minority of them were assessed at 97% of the sales price in lieu of the across-the-board increases. Similar across-the-board increases were also applied to other residential properties in Cleveland Park. 13. Secretly, and without notice to the taxpayers, by rule-making or otherwise, OTR established other and different multipliers to be applied to residential properties in other neighborhoods and subneigh borhoods in former Triennial Group 1. 14. Petitioner Craig objected to these across-the-board increases in Cleveland Park and the inconsistent treatment of properties sold and asked to be heard on these issues. He met with Respondent Riley on May 30, 2001, and presented a petition, submitting that –
15. At this meeting, on May 30, 2001, Respondent Riley disclosed, for the first time, that the across-the-board increases being proposed for Cleveland Park and other neighborhoods in Triennial Group 1 were based on assessment-sales ratio studies which compared assessments for Tax Year 1999 with actual sales in 1999 and 2000 and then applied the median ratio to all properties in the selected neighborhood. He sum- marily denied the petition. 16. Such ratio studies were statistically invalid in that they – (a) did not include all sales, (b) relied upon sales and assessment data which were not verified and were frequently inaccurate, (c) did not exclude from the trend analyses properties which had been improved, and (d) did not determine whether the properties sold were representa- tive of properties not sold. They were, in short, irrelevant in determin- ing the value of any specific property. 17. On June 4, 2001, Petitioner Craig asked Respondent Riley to reconsider his decision, pointing out that the assessment-sales ratio studies were defective. 18. Respondent Riley denied this petition for reconsideration on June 15, 2001, whereupon Petitioner Craig filed an appeal on June 20, 2001, with Respondents Williams, Gandhi and Huff. Neither Mayor Williams nor CFO Gandhi ever replied. Herbert Huff, by letter dated August 13, 2001, denied the appeal, stating "Should you wish to con- tinue your petition, you may appeal to the Board of Real Property Assessments and Appeals (BRPAA) and then to the Superior Court of the District of Columbia." 19. On September 28, 2001, Petitioner Craig filed an appeal to BRPAA, challenging (a) OTR’s inconsistent treatment in the assessment of single-family properties that had been sold, whose market value had been determined by the market, and (b) OTR’s application of across- the-board increases based on assessment-sales ratio studies for single- family properties not sold. Petitioner further claimed (c) that OTR’s assessment-sales ratio studies were inaccurate and (d) that, in any case, OTR’s use of assessments based on such ratio studies was in itself highly discriminatory and unlawful in violation of the Due Process and Equal Protection clauses of the U.S. Constitution. The appeal further asked that a proceeding be initiated, under D.C. Code § 825.01 (c), to review and revise the proposed assessments. 20. Approximately 40 other appeals were filed with BRPAA by other owners of single-family properties in Cleveland Park. Because such other appeals raised common issues regarding OTR’s selective use of the 97% rule and the validity of using assessment-sales ratio studies as a basis for assessments, Petitioner Craig filed a motion to consolidate such cases for hearing on November 8, 2001. 21. Said motion to consolidate was denied by Respondent Libby Kavoulakis, Chairperson of BRPAA. She did, however, agree to sched- ule a hearing on these common issues, which hearing was held on November 29, 2001. Petitioner Craig and another Cleveland Park home owner, John Buckley, presented arguments to the full Board at that time. Petitioner Craig’s presentation is reproduced in Appendix C. Petitioner Craig specifically requested the following relief:
The Chairperson never responded to this request. 22. By a decision and order dated January 30, 2002, a copy of which is attached as Appendix D, a three-member panel of BRPAA addressed Petitioner Craig’s contentions, by stating:
23. Regarding Petitioner’s appeal of his own assessment, the same panel decided that the "application of the ratio study to this property is so flawed as to constitute error," whereupon it reduced Petitioner’s assessment to $513,000. (See Appendix D) The same panel issued similar decisions in other cases. No other panel, however, ad- dressed the question of the validity of trending by ratio studies in their decisions on other Cleveland Park appeals. 24. Under date of March 1, 2002, Respondent Branham served notice on Petitioner Craig and all other owners of residential properties in Cleveland Park and other neighborhoods in Triennial Groups 1 and 2 that they were being reassessed for Tax Year 2003. 25. Such notices did not give any reason for the particular assess ments proposed and did not otherwise comply with the requirements of the D.C. Code, OTR regulations or the U.S. Constitution. 26. Secretly and without notice to the taxpayers, by rule-making or otherwise, OTR reinstated CAMA assessments in four neighbor- hoods, but otherwise substituted for CAMA assessments a new set of "trend factors" which varied from one neighborhood to another and, within each neighborhood or subneighborhood, often varied by type of residential property. 27. Among neighborhoods formerly in Triennial Group 1, which had been reassessed in the prior year, the "trend factors" for single- family houses varied from a low of 0% in some neighborhoods to as much as 59% in Mount Pleasant-B, 49.1% in Massachusetts Heights, 48% in Mount Pleasant-A and 45.95% in Central (neighborhood 10). The cumulative impact was much greater. In Cleveland Park, for example, the combined across-the-board increases resulted in a two- year increase of 77.6% for detached houses and empty lots. 28. Among neighborhoods formerly in Triennial Group 2, which had been reassessed three years before, the "trend factors" varied from 15% for semi-detached houses in Georgetown-F and for detached houses in Kent and Old City 1-E to highs of 90.05% in Old City 1-M, 80.41% in Old City 2-C and 79% in Georgetown-H. 29. Such "trend factors" were applied to all residential proper ties in most neighborhoods or subneighborhoods, even where sales data showed significantly different market values and without regard to whether the property had been improved or not. 30. All of such "trend factors" were developed by Respondent Branham, based on judgments derived from assessment-sales ratios of properties sold during 2001. 31. Such ratio studies were statistically invalid in that they – (a) did not include all sales in the year 2001, (b) relied upon sales and assessment data which were not verified and were frequently inaccu- rate, (c) did not exclude from the trend analyses properties which had been improved, and (d) did not determine whether the properties sold in 2001 were representative of properties not sold in 2001. They were, in short, irrelevant in determining the value of any specific property. 32. The above "trend factors" were applied to all neighborhoods and subneighborhoods in Triennial Groups 1 and 2, except four, not withstanding the fact that OTR had already prepared CAMA assess ments for all single-family properties throughout Triennial Groups 1 and 2. CAMA assessments were used in only four neighborhoods. 33. The "trend factor" assessments were substituted for the CAMA assessments in order to surreptitiously increase the District of Columbia’s assessment base to a higher level. 34. On March 25, 2002, Petitioner Craig, on behalf of himself and other home owners in Triennial Groups 1 and 2, petitioned Respondent Branham, asking that he (a) vacate all new assessments based on so- called "trend factors" and that (b) new assessment notices be issued using his department’s own CAMA assessments for each property that had not been sold since January 1, 1998; and that, for properties sold between that date and December 31, 2001, he assess such properties at 90% of their most recent sales price, adjusted upward for changes in the Consumer Price Index between the time of sale and January 1, 2002. 35. Subsequently, Respondent Branham informed Petitioner Craig that it was not for him to rule on this petition, but rather the Chief Financial Officer, Respondent Gandhi. 36. Accordingly, on May 6, 2002, Petitioner Craig submitted a petition to Respondent Gandhi, requesting that he cancel all tax assess ments made for Tax Year 2002 and Tax Year 2003 that were based on assessment-sales ratio studies and to substitute CAMA assessments already developed (but not used) by the Office of Tax and Revenue, for single-family residential houses not sold since January 1, 1998, and to assess properties sold after January 1, 1998, based on the price paid for the land and improvements. A copy of this petition is attached as Appendix E. 37. In the intervening months, Respondent Gandhi has not responded to this petition. Neither has he agreed to any meeting with Petitioner Craig. 38. In order to exhaust his administrative remedies, Petitioner Craig also appeared at an open meeting of BRPAA on June 5, 2002, at which time he submitted a copy of his May 6 petition and requested the Chairperson, Respondent Kavoulakis, to order cancellation of all proposed assessments on residential property for Tax Year 2003 which are based on "market trend factors" derived from assessment-sales ratio studies and to substitute, as proposed assessments, the assessments already made by OTR under the CAMA system, with the ordinary rights of taxpayers to file first-level and second-level appeals. 39. Respondent Kavoulakis has not responded to this request. General Allegations Applicable to Tax Year 2002 40. A determination by Respondents that real property should be assessed by neighborhood "trend factors," based on assessment-sales ratio studies of sales in that neighborhood, instead of property-specific CAMA assessments, is the adoption of a rule, which requires adherence to the D.C. Administrative Procedure Act, D.C. Code, §§ 2-501 to 2-510. 41. The adoption by OTR of different across-the-board assess ment increases for different neighborhoods and subneighborhoods and the adoption of different across-the-board increases for different types of residential properties within such neighborhoods and subneighbor hoods through the assessment-sales ratio studies which it conducted is the adoption of rules, requiring adherence to the D.C. Administrative Procedure Act. 42. In adopting the rules set forth in paragraphs 40 and 41, the Respondents have not followed the requirements of the D.C. Adminis- trative Procedure Act. 43. In the assessment of single-family properties for Tax Year 2002, substituting across-the-board "trend" factors for property- specific CAMA assessments, Respondents have acted arbitrarily and capriciously, contrary to the requirements of the D. C. Code, and contrary to the Due Process and Equal Protection requirements of the U. S. Constitution. Illustrative of the discrimination prohibited by law are the examples set forth in Appendix C, Exhibit 107, which shows that assessments for Tax Year 2002 in Cleveland Park ranged between 23% and 396% of the sales price for residential properties sold in 1998, 1999 and 2000. The valuation date for such assessments was January 1, 2001. 44. The D. C. Code § 47-829 (e) requires Respondents to reassess any single-family dwelling, by lot and square, whenever a new improve ment has been constructed or whenever an addition to or renovation of an existing improvement has been constructed, after a certificate of occupancy has been issued or a building permit has been made final. Respondents have consistently ignored this requirement. The effect of this delinquency, coupled with the across-the-board "trended" assess ments, has been to unlawfully transfer the increased value of renovated properties to properties which have not been renovated. 45. For Tax Year 2002 and continuing thereafter, Respondents have been ignoring the sale prices of renovated homes, so that, by the use of the above "trend factors," the value of new improvements, additions and renovations is being transferred from improved proper- ties to unimproved properties in the same neighborhood, further aggravating pre-existing discrimination among homeowners. 46. The methodology of assessment carried out by Respondents for both Tax Years 2002 and 2003 was carried out with stealth and guile. Petitioners were not told that CAMA assessments of their prop- erty also existed and were led to believe that the increase in their assessments was attributable solely to inflation of realty prices when, in truth and fact, the increases were caused mainly by the secret switch from the legal CAMA method to the illegal and unconstitutional "trend ing" method. Class Action Allegations 47. There are two classes of petitioners in this case. Class A includes all owners of Class I residential properties in Triennial Group 1, as defined by OTR, whose neighborhood assessments are based primarily on assessment-sales ratio studies by Respondents, and who are adversely affected thereby. It is estimated that this class includes approximately 35,000 taxpayers. Class B includes all owners of residen tial property in triennial groups 2 and 3, as defined by OTR, who are adversely affected by the methodologies used in Tax Year 2002 assess ments as it may affect their assessments for Tax Years 2003 and 2004. It is unknown how many taxpayers are in this class. 48. Petitioner Craig and the petitioners named in Appendix A and Appendix B meet the qualifications of Civil Rule 23(a) in that (1) the class is so numerous that joinder of the members is impractical, (2) there are questions of law or fact common to the class, (3) the claims of petitioners are typical of the class, and (4) petitioners will fairly and adequately protect the interests of the class. 49. This action is maintainable under Civil Rule 23(b) because –
50. This action is also maintainable under Civil Rule 23(b) because (2) Respondents have acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole. Legal Errors 51. The Office of Tax and Revenue (OTR) has unlawfully substi tuted assessments based on alleged "market trends" for lawful CAMA assessments. 52. Such "trending," as applied by Respondents, is not autho- rized by law. 53. If present law authorizes OTR to enact rules defining or departing from the statutory standards for assessing property, taking such action, as in this case, is a "rule-making" requiring adherence to the D.C. Administrative Procedure Act, which has not been done. 54. OTR has unlawfully failed to assess recently-sold houses on the basis of their actual market value and, in dereliction of its duty, has failed to correct assessments for renovated homes, with the result that assessments have become highly discriminatory, benefitting home owners who own renovated properties and injuring those who own unrenovated properties. 55. The "trending" factors applied are based on invalid, incom plete and inaccurate assessment ratio studies and result in unjust discrimination among home owners in violation of the equal protection guaranteed by the U.S. Constitution. 56. The class has otherwise also been deprived of due process of law in that, in making new assessments on alleged "trending" grounds,
Relief Requested 57. That the Court find that the assessments by OTR of Class I properties in former Triennial Group 1, made in 2001 for Tax Year 2002, based on assessment-sales ratio studies, are arbitrary, capricious and contrary to law and the Constitution and are hence void. 58. That the Court direct the Respondents, pursuant to D.C. Code § 47-831, to reassess the properties described in paragraphs 57, as follows:
59. That the Court grant such other, further and different relief as may be appropriate in this case, including, but not limited to -- (a) That the Court declare that all assessments of residential properties in Triennial Groups 1 for Tax Years 2002 are null and void, and that it reinstate the assessments effective for Tax Year 2001, order- ing Respondents to refund to each member of Class A the difference between the taxes paid on the assessments voided herein, together with interest at 6% per annum from the time the tax was paid until the refund is made, or (b) That the Court declare all assessments of residential proper- ties in Triennial Group 1 for Tax Year 2002 are null and void to the extent that they exceed the lowest assessment to market value ratio that applies to any individual property in each property owner’s neighbor- hood, such market value to be determined as in paragraph 58(a) for properties sold since the valuation date of the last CAMA assessment and on the basis of the CAMA assessments prepared (although not used) for all other properties; and that Respondents be ordered to refund to each member of the class the difference between the taxes paid on the assessments voided herein and the taxes that would have been due under such lowest assessment to market ratio, together with interest at 6% per annum from the time the tax was paid until the refund is made. 60. That the Court retain jurisdiction in this matter until it is fully satisfied that Respondents have cured their unlawful activities and have completed the reimbursements under paragraph 58(e) or 59 above. 61. That petitioners be awarded attorney fees and costs for the prosecution of this action. Respectfully submitted, Owners of Residential Properties in Triennial Group 1 Adversely Affected by Tax Year 2002 Assessments Peter S. Craig, 3406 Macomb St., N.W., Washington DC 20016 Appendix B Owners of Residential Properties in Triennial Groups 2 and 3 Adversely Affected by Tax Year 2002 Assessments Robert D. Stiehler, 3234 Quesada St., N.W., Washington DC 20015 SUPERIOR COURT OF THE
DISTRICT OF COLUMBIA Peter S. Craig, v. DISTRICT OF COLUMBIA, Tax Docket No. 8112-02 Class Action - Unlawful and Unconstitutional Tax Assessments of Class 1 Residential Properties for Tax Years 2002 and 2003 Amendment No. 1 to Petition The petition filed with this court on September 30, 2002, is hereby amended as follows: 1. The caption is amended to substitute the words "Tax Years 2002 and 2003" for "Tax Year 2002." 2. Paragraph 1 is amended to substitute the words "Triennial Groups 1 and 2" for "Triennial Group 1" and to substitute the words "Tax Years 2002 and 2003" for "Tax Year 2002." 3. Paragraph 2 is amended to substitute the words "Tax Years 2002 and 2003" for "Tax Year 2002" in both places. 4. Paragraph 4 is amended to insert, after the words, "founded in", the words "42 U. S. Code, § 1983," 5. After Paragraph 39, insert the following two paragraphs:
6. Change the heading preceding paragraph 40 by substituting the words "Tax Years 2002 and 2003" for "Tax Year 2002." 7. In paragraph 43, substitute the words "Tax Years 2002 and 2003" for "Tax Year 2002" in the first two lines. 8. In paragraph 57, insert after "Tax Year 2002," the words "and the assessments by OTR of Class I properties in former Triennial Groups 1 and 2 for Tax Year 2003,". 9. In paragraph 58 (c), substitute the words "Tax Years 2002 and 2003" for "Tax Year 2002." 10. In paragraph 58 (e), substitute the words "Tax Years 2002 and 2003" for "Tax Year 2002." 11. In paragraph 59 (a), insert the words "and 2003" after the words "Tax Years 2002," in the second line. Also insert the following before the word "or":
11. In paragraph 59 (b), insert after the words "Tax Year 2002," the following: "and all assessments of residential properties in Triennial Groups 1 and 2 for Tax Year 2003". Respectfully submitted, |
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