IN THE COURT OF APPEAL FOR THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SIX

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1 2nd Civ. No. B IN THE COURT OF APPEAL FOR THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SIX EXXON MOBIL CORPORATION, vs. Plaintiff/Respondent, COUNTY OF SANTA BARBARA AND GARY L. FERAMISCO, TREASURER AND TAX COLLECTOR FOR THE COUNTY OF SANTA BARBARA, Defendants/Appellants. APPELLANT'S OPENING BRIEF STATEMENT OF CASE This is a property tax matter. As such, it is not the usual appeal from a decision of a trial court after the trial court had taken evidence in the first instance and rendered a decision. Rather, the trial court sat as a court of review and should have determined whether the findings and decision of the local county assessment appeals board were supported by substantial evidence. However, instead of doing this, the trial court weighed the evidence and substituted its judgment

2 for that of the local appeals board. The trial court remanded Plaintiff and Respondent's Applications for Reduction of Property Tax Assessment to the Assessment Appeals Board of Santa Barbara County and directed that Board to redetermine the full value of the respondent's property per the instructions of the trial court. The effect of the order was to overturn the Assessment Appeals Board on three significant valuation issues. The local Assessment Appeals Board had valued the subject property, an oil processing plant, using the cost approach, and had considered the subject property as a separate appraisal unit from the Plaintiff and Respondent's other properties which contained oil reserves and were located outside the County's jurisdiction in offshore federal waters. The Board also considered State Board of Equalization Rule 468 inapplicable to the subject property because it had no reserves. In determining the full value of the property the Board made an allowance for economic obsolescence by using the direct capitalization method. That resulted in an assessed value of $643,676,000 for 1994 (the base year) with a range of $548 to 654 million for the years , roughly $6 million per year in property taxes allocated to affected taxing entities. The County of Santa Barbara appeals from the court's order that in effect overturned these findings. PROCEDURAL HISTORY On June 14, 1999, Plaintiff and Respondent Exxon Mobil Corporation ("ExxonMobil") filed a Verified Complaint in the Superior Court for Santa Barbara County. (CT 1) The thrust of the complaint was to overturn the findings and decision of the local Assessment Appeals Board setting the full value of certain of ExxonMobil's real property for property tax purposes. The complaint contained three causes of action. The first cause of action sought recovery of property --2--

3 taxes that ExxonMobil had paid. (CT 11) The second cause of action sought recovery of property taxes and interest on escape assessments. (CT 14) The third cause of action requested declaratory relief pursuant to Code of Civil Procedure section (CT 16) On August 6, 1999, Defendants and Appellant filed an Answer to the Complaint. (CT 96). A briefing schedule was stipulated to (CT 107) and both parties submitted extensive briefs. (CT 109, 253, 310, 556 and 621.) In addition to the briefs, the parties by stipulation also submitted declarations of witnesses for consideration by the court. A certified copy of the voluminous Administrative Record of the proceedings before the Assessment Appeals Board was lodged with the court on July 14, (CT 377) The cause was submitted to the court for decision on the Administrative Record which included both a reporter's transcript of the testimony taken at the hearing before the Assessment Appeals Board as well as all exhibits that were introduced and received into evidence. The case was tried to the court sitting without a jury on August 25, 2000 (CT 745). The court ruled from the bench on that day. As is evident from the reporter's transcript of the proceedings (which is only 14 pages long) the "trial" was very brief and consisted of the court taking the bench and announcing its tentative decision. The court signed a Statement of Decision on October 25, 2000, (CT 747) and the Statement of Decision and Order on Remand was filed on October 26, (CT 745). Both the Notice of Appeal and the Notice to Prepare Clerk's Transcript on Appeal; Notice to Prepare Reporter's Transcript were timely filed on December 12, (CT 751, 753) Plaintiff and Respondent filed a notice Designating Additions to the Clerk's Transcript on December 27, (CT 760) On May 2, 2001, a Stipulation to Augment the Record on Appeal was granted. On May 11, 2001, this court granted ExxonMobil's Motion for Calendar Preference to Expedite the Appeal. -3--

4 STATEMENT OF FACTS In 1994, ExxonMobil completed construction of an oil/gas processing and co-generation facility. (AR 1942) Together with certain onshore land, improvements, facilities, equipment, machinery and personalty this formed the property that was the subject of the assessment proceedings before the Board. (CT 26) It designated this facility the "Las Flores Canyon Facility" ("LFC"). (CT 32) The LFC was intended to service the extensive offshore oil and gas properties ExxonMobil owns that are located in federal waters more than three miles off-shore of Santa Barbara County and hence beyond the County's taxing jurisdiction. (CT 33, 123; AR 1806; Rev. & Tax Code 201.) These properties consist of 16 leased offshore tracts consisting of approximately 76,200 acres located in the outer continental shelf in the Santa Barbara Channel and include oil and gas leases, production platforms, pipelines and certain related improvements, facilities, equipment, machinery and personalty. (CT 35, 123) Collectively, these properties, are commonly referred to by ExxonMobil as its Santa Ynez Unit (SYU). (CT 123) As of the lien dates at issue in this case, LFC had the capability to process more than 100,000 barrels of oil per day, approximately 21,000,000 cubic feet of gas, together with a substantial quantity of natural gas liquids and sulfur. (CT 33) As of the March 1, 1993, the lien date for the tax year, the LFC constituted "new construction" in progress, as it had not been completed. In December 1993, the plant was completed and received its first deliveries of oil. On or about February 17, 1994, the first deliveries of processed oil from the plant were made. -4--

5 ExxonMobil and the County Assessor agreed that LFC was completed immediately prior to the March 1, 1994 lien date, and, as a result, the 1994 lien date value constitutes base-year value for LFC for property tax purposes. (CT 31) In addition to appealing the value determined by the County Assessor for the 1993 and 1994 lien dates, ExxonMobil also appealed the values determined for the lien dates of 1995 and The value of the LFC, including pipelines and power cables located within California State waters, is the subject of the dispute between ExxonMobil and the County. As required by law, the Assessor appraised the value of the "new construction" as of the March 1, 1994 lien date, the date of completion. Exxon disputed the value arrived at by the Assessor and filed an Application for Reduction of Assessment with the Santa Barbara County Assessment Appeals Board. A hearing was held on the application (CT 20) which consisted of 28 days of evidentiary hearings, testimony from 13 witnesses, 223 exhibits and was recorded in 5267 pages of reporter's transcript. The Board was made up of a certified public accountant, an attorney and the chair of the board was a credentialed appraiser. (CT 505) The values of the LFC Improvements were the sole issues in dispute before the Board and there was no dispute as to the value of the personal property and the unimproved land for each of the years in issue. (CT 32) ExxonMobil also disputed the County Assessor's determination that the correct unit of appraisal was the LFC as opposed to its entire Santa Ynez Unit which, as previously explained, included Exxon's offshore gas and oil properties as well as the LFC. (CT 29) ISSUES ON APPEAL I. Whether the trial court's order is appealable. II. Whether the findings of the local assessment appeals board are supported by -5--

6 substantial evidence. III. Whether the trial court was entitled to substitute its judgment for that of the appeals board on the issues of: A. Proper Unit of Appraisal B. Use of Rule 468 C Propriety of Using the Direct Capitalization Method. ARGUMENT I. THE TRIAL COURT'S ORDER IS APPEALABLE. ExxonMobil previously moved in this court to dismiss the County of Santa Barbara's appeal claiming that the trial court's order is non-appealable. On January 24, 2001, this court denied that motion without prejudice to reconsideration of the motion at the time of determination of the merits of the case. An order is appealable if it effectively disposes of the entire matter. (Belio v. Panorama Optics, Inc. (1995) 33 Cal.App.4th 1096, 1101.) The instant appeal is from the trial court's order of remand. Although not denominated as a judgment, the designation is not controlling. It is the substance and effect of the adjudication, and not the form, which determines if the order is interlocutory and nonappealable, or final and appealable. (Id. at p ) In a tax refund action, the trial court has no power to exercise its independent judgment on the evidence, declare that the plaintiff's value testimony applies and then direct the Board to enter a specific or particular assessment value. (Kaiser Center, Inc. v. County of Alameda, (1987) 189 Cal.App.3d 978, 983.) This limited power of the trial court most likely explains why -6--

7 orders of trial courts in tax refund actions, remanding the case to the local assessment appeals board, have historically been treated as appealable. (See, e.g., De Luz Homes, Inc. v. County of San Diego (1955) 45 Cal.2d 546; Kaiser Center, Inc. v. County of Alameda, supra, 189 Cal.App.3d 978.) Kaiser, supra, involved an appeal from an order of the trial court remanding the matter to the assessment appeals board, the principal dispute between the parties being the proper valuation approach to be used: income capitalization or replacement cost. (Id. at p. 981.) In Kaiser, supra, the order appealed from was virtually identical to the order appealed from in the instant case. The court of appeal obviously deemed this to be an appealable order, in light of the fact that it decided the appeal on the merits. (Kaiser Center, Inc. v. County of Alameda, supra. 189 Cal.App.3d 978, 984.) In resolving the appeal on the merits, the Court of Appeal held that: "Clearly, the court's order of remand to the Board was proper. Upon such remand, the Board must reevaluate its assessment and consider such additional evidence as may be presented by the assessor utilizing the income approach to the entire property." (Id.) In the instant case, the operative part of the trial court's ruling read: "This matter is remanded to the Board and the Board is directed to redetermine the full value of the subject property for the lien dates in question in accordance with this Statement of Decision and Remand Order." (CT 747) It is submitted that the substance of that order is essentially the same as the order ruled to be appealable in Kaiser. Similarly, in Pacific Mutual Life Ins. Co. v. County of Orange (1985) 187 Cal.App.3d 1141, Pacific filed an application for property tax reduction, seeking equalization with respect to -7--

8 its real property. The assessment appeals board conducted an equalization hearing. Pacific was denied all relief. Pacific then commenced its superior court action for refund of taxes. The trial court determined that the assessor employed the wrong method of valuing the building and remanded Pacific's application for equalization to the Board for a redetermination of the fair market value of the subject building. An appeal was taken to the court of appeal which affirmed the trial court's ruling. In De Luz Homes, Inc. v. County of San Diego (1955) 45 Cal.2d 546, a taxpayer, who took issue with the value of its property as found by the assessment appeals board, filed a refund action in the Superior Court. After a trial, the court found that the method of valuation used by the assessor was improper. The court ordered the board to reconvene, to take new evidence of value, to recompute the value of possessory interests by a method specified by the court, and to order the assessor to enter the new assessment on the tax roll in lieu of the amount previously approved by the board. The trial court retained jurisdiction to review the proceedings of the board and to make such further orders, findings of fact, and judgments, including repayment of taxes, as might be necessary. The county appealed from the order remanding the proceedings to the county board of equalization. The California Supreme Court considered the case on the merits and reversed with directions to the trial court to remand the proceedings to the county board of equalization for action in accord with the Supreme Court's opinion. The posture of the case at bar is no different from that of the De Luz Homes, Kaiser Center and Pacific Mutual Life cases. In each of those cases the trial court found the method of valuation to be improper and remanded the respective cases to the assessment appeals board for further proceedings while (implicitly) retaining jurisdiction in some form or another. These well- -8--

9 established cases stand for the principle that the order in question in the case at bar is appealable. II. THE BOARD'S FINDINGS ARE SUPPORTED BY SUBSTANTIAL EVIDENCE. A. The Legal Standard to be Applied. In reviewing the decision of a local assessment appeals board, the function of the superior court is to examine the administrative record to determine whether the board's findings are supported by substantial evidence and whether the board has committed any errors of law. (County of Sacramento v. Assessment Appeals Bd. No. 2, (1973) 32 Cal.App.3d 654, 661; Campbell Chain Co. v. County of Alameda, (1970) 12 Cal.App.3d 248, 253, 258.) Under article XIII, section 16 of the California Constitution, the Board is vested with the authority to equalize assessments. "That article XIII sections 9 and 9.5 (now 16) confer adjudicative powers on local boards of equalization and assessment appeals boards can scarcely be gainsaid. The specific language of sections 9 and 9.5 casts a duty upon the local board to equalize the valuation of the taxable property in the county. It is well settled 'that in discharging this duty, "the board is exercising judicial functions, and its decision as to the value of the property and the fairness of the assessment so far as amount is concerned constitutes an independent and conclusive judgment of the tribunal created by law for the determination of that question"...' (Hunt-Wesson Foods, Inc. v. County of Alameda (1974) 41 Cal.App.3d 163, 176.) The substantial evidence issue involves: "... a review of the quantum of evidence before the board to support the board's factual determination of the value of the taxpayer's properties. (Georgia-Pacific Corp. v. County of Butte (1974) 37 Cal.App.3d 461, 475.) In discharging its duty '... the board's determination upon the merits of the controversy is conclusive; the taxpayer -9--

10 has no right to a trial de novo in the superior court to resolve conflicting issues of fact as to the taxable value of his property. [Citations.] The question presented to the superior court in such an action is whether there was evidence of sufficient substantiality before the board to justify the finding [citation] and... the board is the sole judge of questions of fact and of the values of property." (Bank of America v. Mundo (1951) 37 Cal.2d 1, 5.)"[T]he scope of review for a superior court in reviewing the administrative record of a local board of assessment appeals is that of reviewing the entire record to determine if the findings are supported by substantial evidence." (Hunt-Wesson Foods, Inc. v. County of Alameda, supra, 41 Cal.App.3d at p. 176; accord Bret Harte Inn, Inc. v. City & County of San Francisco, supra, 16 Cal.3d at p. 23.) In California, the conclusion of the assessing officers concerning the value of property for purposes of taxation, when honestly arrived at and not made pursuant to some fixed rule or general system the result of which is necessarily discriminatory and inequitable, is conclusive on the courts, however erroneous it may be. (Domenghini v. County of San Luis Obispo (1974) 40 Cal.App.3d 689, 697.) Both the assessor and the assessment appeals board exercise judicial functions, and when they have acted within the limits of reasonable discretion their judgment is unassailable. It is only when the conclusions of assessing officers are not honestly arrived at, or are made pursuant to some fixed rule or general system the result of which is necessarily discriminatory and inequitable, that the courts will interfere. (Id.) Thus, the factual assessments of a board of assessment appeals are entitled to all of the deference and respect due a judicial decision. (Hunt-Wesson Foods v. Alameda (1974) 41 Cal.App.3d 163.) As such, the trial court was obligated to "consider the evidence in the light most favorable to the prevailing party, giving [it] the benefit of every reasonable inference and

11 resolving conflicts in support of the judgment." (9 Witkin, Cal.Proc. (4th ed. 1997) Appeal 359 [and cases collected therein].) When the findings are attacked for insufficiency of the evidence, the power of a reviewing court begins and ends with a determination as to whether there is any substantial evidence to support them: the court has no power to judge of the effect or value of the evidence, to weigh the evidence, to consider the credibility of witnesses, or to resolve conflicts in the evidence or in the reasonable inferences that may be drawn therefrom. (Overton v. Vita-Food Corp. (1949) 94 Cal.App.2d 367, 370.) In sum, a superior court sitting in a tax refund action may not reweigh the evidence that was presented to the local assessment appeals board. (Westlake Farms, Inc. v. County of Kings (1974) 39 Cal.App.3d 179, 183.) Here, the court concluded that the value set by the Board was not supported by substantial evidence because it found that the method used by the Board was not proper. (CT 746) In making that finding the trial court improperly infringed upon the province of the Board. CONCLUSION The sole question before the trial court was whether there was substantial evidence to support the findings of the Assessment Appeals Board. The Board was the sole judge of questions of fact and of the values of property. The factual assessments of the board were entitled to all of the deference and respect due a judicial decision, yet, the trial court failed to accord those findings such respect. Instead, it reweighed the evidence and freely substituted its judgment for that of the Board. In overturning the Board's decision, the trial court improperly relied upon evidence that was never presented to the Board. Further, the trial court improperly encroached on two key -11--

12 areas that were exclusively within the Board's discretion, method of appraisal and proper appraisal unit. The local Board reasonably determined that LFC was a separate appraisal unit, and that because it had no oil reserves, made a proper appraisal judgment that Rule 468, which requires an estimate of reserves, was inapplicable, and equitably considered economic obsolescence. In sum, the board made a reasoned decision amply supported by the evidence that was contained in the record before it. For all of the foregoing reasons, the order of the trial court must be reversed and the findings and conclusions of the Santa Barbara County Assessment Appeals Board must be reinstated and upheld. Dated: July 5, 2001 Respectfully submitted, STEPHEN SHANE STARK COUNTY COUNSEL By: CRAIG A. SMITH Deputy County Counsel Attorneys for COUNTY OF SANTA BARBARA -12--