Appeal of

MRCK LIMITED PARTNERSHIP

PSBCA No. 6177

Under Lease Agreement

APPEARANCE FOR APPELLANT:
Robert Kapusta, Esq.
Kapusta & Otzel Attorneys at Law

APPEARANCE FOR RESPONDENT:
Alfred J. Zwettler, Esq.
Atlanta Law Office
3980 DeKalb Technology Parkway
Atlanta, GA  30340-2887

OPINION OF THE BOARD

            This appeal involves interpretation of the tax clause of a lease between MRCK LP, Appellant, and the United States Postal Service, Respondent, to determine responsibility for payment of a fee for solid waste disposal.  We conclude that the lease allocates responsibility to Appellant and that the doctrine established in Alvin Ltd. v. United States Postal Service, 816 F.2d 1562 (Fed. Cir. 1987), does not alter that result. 

            The parties elected to submit this appeal on the record, pursuant to 39 CFR § 955.12, supplemented by oral argument.  Only entitlement is at issue (Order of November 14, 2008).

FINDINGS OF FACT

            1.  Appellant’s predecessors in interest and Respondent entered into the McClellanville, South Carolina Post Office lease in 1982.  The lease was renewed four times, with the current term scheduled to expire in 2017.  Following an intermediate conveyance, the post office property was conveyed to Appellant, and the lease was assigned to Appellant effective January 20, 2006.  (Appeal File Tabs (AF) 1, 6-10).

            2.  The McClellanville Post Office is located in Charleston County, South Carolina (AF 1).

            3.  The lease provides, at paragraph 6, that Respondent pays general real estate taxes.  Paragraph 6 references a tax rider incorporated into the lease as paragraph 23 (AF 1).

            4.  Paragraph 23 of the lease is the Zero Tax Clause Rider, PS Form 7419-A (Jan. 1975).  Section (a) states, in relevant part:

The lessor shall present to the Postal Service the general real estate tax bills of each taxing authority for taxes due and payable on the land and buildings hereby demised when said taxes apply to any year or part thereof within the term of this lease. General real estate taxes are taxes which are assessed on an ad valorem basis, against all taxable real property in the taxing authority's jurisdiction without regard to benefit to the property, for the purpose of funding general governmental services. . . . After the presentation of said tax bills, the Postal Service shall pay to the lessor, as additional rent due hereunder, the net amount of said taxes by check made payable to the lessor and the taxing authority issuing said tax bill. The lessor shall thereafter promptly indorse said check and deliver the same to said taxing authority. The lessor shall pay all assessments and fees of every kind and nature other than general real estate taxes.

(AF 1).

            5.  In 1987, Charleston County imposed the Solid Waste Recycling and Disposal Fee (Solid Waste Fee) on all county property owners to pay for the costs of trash disposal, including the provision of alternatives to landfills not previously utilized by the county, such as an incineration facility and a recycling facility.  Recycling was newly introduced and funded by the Solid Waste Fee. (Charleston County Municipal Code §§ 10-51-10-53; Exhibit I to notice of appeal/complaint). 

            6.  Owners of non-residential property pay an assessment, designated by Charleston County as a user fee, based on the amount of trash estimated to be generated at the property, and are billed for the user fee separately from the real estate tax bill (Charleston County Ordinance No. 1500 (June 7, 2007); Charleston County Ordinance No. 1545 (June 3, 2008); Charleston County Municipal Code §§ 10-51-10-60; Exhibits C, I-K to notice of appeal/complaint; Supplemental Appeal File (SAF) 28, Declaration of T. Houston (Houston Decl.), pp. 5, 22, 24, 61-74, 89-98).^[1]

            7.  The Solid Waste Fee is kept in a fund separate from the general revenues, and pays for the costs of garbage incineration, landfill, and recycling.  (SAF 28, Houston Decl., pp. 22-23, 29; Exhibit I to notice of appeal/complaint). 

            8.  Since 1994, Respondent has paid the general real estate taxes but not the Solid Waste Fee for the McClellanville Post Office.^[2]  (SAF 31, Declaration of S. Hedrick, ¶ 4).

            9.  The postmaster of the Awendaw, South Carolina Post Office, also located in Charleston County, has paid the Solid Waste Fee for that post office for the last four years.  The record contains no evidence of the tax clause, if any, applicable to the lease of that post office.  (SAF 29, Declaration of G. Cooley, ¶ 2; SAF 30, Declaration of E. Tinort, ¶ 4). 

            10.  On February 1, 2007, Appellant sent Respondent the Solid Waste Fee billing notice for calendar year 2006, and on January 15, 2008, sent Respondent the Solid Waste Fee billing notice for calendar year 2007.  Both billing notices from Charleston County, dated December 29, 2006, and December 28, 2007, calculated the fee based on the amount of waste estimated to be generated at the property.  (AF 13, 19).

            11.  Respondent declined payment by letters of February 6, 2007, and January 29, 2008 (AF 14, 20).  Appellant submitted formal claims to Respondent, and on March 4, 2008, transmitted a letter to the contracting officer explaining its position and requesting a final decision (AF 15, 21-22).

            12.  The contracting officer denied Appellant’s 2007 claim in a final decision dated March 12, 2008, and denied Appellant’s 2008 claim in a final decision dated May 8, 2008 (AF 23, 25).  Appellant timely appealed (June 3, 2008 notice of appeal submitted to Board).

DECISION

            Appellant argues that the language of the tax clause (Finding 4) requires Respondent to pay the Solid Waste Fee at issue here.  Appellant contends that because the Solid Waste Fee is assessed against all county property owners for the purpose of funding general government services, such as the disposal of solid waste, it constitutes a general real estate tax and is Respondent’s responsibility under the lease.  Appellant’s argument, however, ignores the part of the definition in the lease of a general real estate tax that requires such a tax to be assessed on an ad valorem basis – i.e., a tax based on the value of the property.  The Solid Waste Fee at issue here is not based on the property’s assessed value, as is an ad valorem tax.  Rather it is assessed based upon an estimate of the amount of trash generated at the property (Findings 6, 10).  Therefore, the Solid Waste Fee does not fit within the express language of the lease as an expense that is Respondent’s responsibility.  See Elsie C. Fiorio (Executrix of the Estate of Wilfred J. Fiorio), PSBCA No. 2832, 92-1 BCA ¶ 24,398 (lessor may not recover city-wide assessment made only on property receiving the benefits from the services provided and not made on an ad valorem basis like general real estate taxes).

            Appellant next argues that the Solid Waste Fee is used to fund a service that was previously funded by a general real estate tax and that, as a result, Respondent is liable for paying it under the holding by the United States Court of Appeals for the Federal Circuit in Alvin, supra.

            In Alvin, the Federal Circuit interpreted a tax clause obligating Respondent to pay general real estate taxes but which did not itself define general real estate taxes, as does the lease here at issue.  The court concluded that Respondent would remain responsible to pay fees assessed by a mechanism other than general real estate taxes, where those same fees had been funded by general real estate taxes at the time the lease was executed and had been paid by Respondent.  In S.S. Silberblatt Inc. v. United States, 888 F.2d 829 (Fed. Cir. 1989), the Federal Circuit revisited Alvin, and affirmed this Board’s denial of recovery to the lessor.  Silberblatt restated the doctrine to require “strong indicia, found in Alvin, that the new taxes instituted were intended as direct substitutes for the prior general real estate tax scheme.”  Id., 888 F.2d at 832 (emphasis in original). 

            Appellant presents two arguments to prove that the Solid Waste Fee was a direct substitute for previously assessed general real estate taxes paid by Respondent.  First, Appellant emphasizes language in the Charleston County ordinances and related explanatory documents that describe the purposes of the Solid Waste Fee as funding basic services to the county’s residents, and preserving the health, safety and welfare of county residents by providing for solid waste disposal.  Appellant argues that because the Solid Waste Fee funds basic services, and basic services are typically funded by general real estate taxes, ipso facto, the fee must constitute a direct substitute for such a former tax. 

            The language relied upon by Appellant does not establish that the Solid Waste Fee is a direct substitute for what formerly was a general real estate tax.  There is no evidence of how, if at all, the services funded by the Solid Waste Fee were provided prior to its assessment in 1987.  Further, the Solid Waste Fee funds, at least in part, services that were not in existence prior to the 1987 ordinance.  (Findings 5, 7).  See S.S. Silberblatt, Inc. & Oakland Associates, PSBCA Nos. 1245, 1383, 1414, 89-1 BCA ¶ 21,268, aff’d, 888 F.2d 829 (Fed. Cir. 1989) (denying recovery where there was “no evidence that the specific governmental services funded by those assessments were [previously] in existence”).

            Second, a sworn interrogatory response by Appellant (submitted into the record by Respondent) asserts that an employee of Charleston County told Appellant’s principal that prior to the county’s 1987 ordinance, solid waste was disposed of as trash “under the tax bill coverage” (SAF 26, Interrogatory Response No. 10).  However, Appellant did not submit testimonial evidence from the county employee.  Further, there is no corroboration of this hearsay representation in the record, and it is contradicted by other credible evidence in the record demonstrating the Solid Waste Fee funded, at least in part, new methods of disposing solid waste (Findings 5, 7).  After evaluating the weight to be given the conflicting evidence in the record, we conclude that Appellant has not demonstrated that that the Solid Waste Fee is a direct substitute for general real estate taxes formerly paid by Respondent. 

            Appellant offers two other general arguments, neither of which is persuasive.  First, it asserts that Respondent has paid the Solid Waste Fee at the Awendaw, South Carolina Post Office, see Finding 9, and complains that it is unfair for Respondent to have interpreted the tax clause so as to pay the Solid Waste Fee in one location but not another.  However, there is no evidence of the tax provision applicable in the Awendaw lease (see Finding 9).  Furthermore, to the extent that Appellant may be asserting a course of conduct argument, it was not a party to the Awendaw lease, and the only potentially relevant past practice evidence indicates that the lessor rather than Respondent, has been paying the Solid Waste Fee for the McClellanville Post Office (Finding 8).^[3]  See Alvin, supra; Fiorio, supra.    

            Second, Appellant argues that a 1998 Postal Service policy memorandum, which is not in the record, indicates that the Postal Service changed its standard tax clause in leases executed thereafter, such that Respondent pays fees and assessments beyond general real estate taxes.  Appellant contends that this policy indicates that Respondent believes it should pay for all fees and assessments regardless of their nature.  There is no evidence of such a policy change, and one would not be relevant, nor would tax clauses in other leases.  We interpret only the lease before us. 

            Because Appellant has not demonstrated that the Solid Waste Fee is a general real estate tax within the meaning of the lease, the residual language of paragraph 23, requiring the lessor to “pay all assessments and fees of every kind and nature other than general real estate taxes,” allocates responsibility to Appellant.  See Nationwide Postal Management, PSBCA No. 4015, 98-2 BCA ¶ 29,929, recon. denied, 98-2 BCA ¶ 30,089; Roger H. Elliott, PSBCA No. 3285, 1993 WL 73426 (Feb. 12, 1993); Fiorio, supra.^[4]

            The appeal is denied.

Gary E. Shapiro
Administrative Judge
Board Member

I concur:                                                          I concur:
William A. Campbell                                         David I. Brochstein
Administrative Judge                                      Administrative Judge
Chairman                                                        Vice Chairman

[1]  Respondent submitted a declaration from Mr. Houston in an effort to authenticate documentation obtained from the official internet website of Charleston County, SC, and from another internet website containing Charleston County ordinances and related materials.  These materials were admitted without objection, and the references herein to pages within Mr. Houston’s declaration are to the materials obtained from these sources.

[2]  The parties did not submit evidence concerning payments before 1994.

[3]  Any demonstrable past practice evidence should not be considered in any event because we find the lease language to be unambiguous.  See Valley Realty Co., PSBCA No. 5344, 07-1 BCA ¶ 33,566.  Further, Appellant has not presented evidence of its knowledge of a differing practice regarding payment of the Solid Waste Fee, and therefore has not shown that it could have relied on such a practice.  See Fortec Constructors, ASBCA No. 26809, 82-2 BCA ¶ 15,879 (lack of reliance precludes prior course of conduct argument).

[4]  Appellant’s focus upon whether the Solid Waste Fee is fairly categorized as a special assessment is misplaced.  The essential inquiry is whether the fee constitutes a general real estate tax as specifically defined in the lease.  If not, whether the Solid Waste Fee is considered a user fee, a special assessment, a service charge, or some other type of imposition is immaterial.