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THE RAN-MAR TRILOGY – “PERSPECTIVES” ON TAX SALES

original post date: February 25, 2008

Over the course of two and a half years, three different judges sitting in Washington Superior Court have issued decisions regarding the process for collecting delinquent property taxes through tax sale. These decisions discuss a town’s ability to collect interest on delinquent taxes through a tax sale, the proper treatment of “excess proceeds” during the redemption period, and the time for imposing and limits on attorneys fees that may be “levied” against a delinquent taxpayer.

RAN-MAR I

Ran-Mar, Inc., sued the Town of Berlin claiming that the Town had acted unlawfully by retaining, during the redemption period, so-called “excess proceeds” from the tax sale, and that the Town had unlawfully collected interest owed on the delinquent taxes at the tax sale.

On June 27, 2005, Judge Katz ruled that the plain language of Title 32 did not support Ran-Mar’s contentions. Interest that accrues on delinquent taxes may lawfully be collected by the Town as part of the "amount owed" in a tax sale.

Judge Katz also found no express statutory right for a property owner to immediately receive any proceeds of from a tax sale greater than the amount needed to satisfy the Town’s lien, so-called “excess proceeds”. Distinguishing Bogie v. Town of Barnett, 129 VT 46 (1970), Judge Katz found no basis in the statute for immediate disbursement of excess proceeds, and concluded that equity is better served by having excess proceeds held by the town in escrow, pending the end of the redemption period, rather than disbursed to the taxpayers.

RAN-MAR II

In a November 2005 decision, Judge Toor ruled on aspects of the Plaintiffs’ claims for recovery of attorneys fees they paid to the Town for services provided by the law firm (MGC) and Attorney Rice in connection with the tax sale of Plaintiffs’ properties. Ran-Mar, Inc. and RHD Development Company v. Town of Berlin, McKee Giuliani & Cleveland, and Gloria Rice, Esq.

The facts were essentially these: the Town would, as a matter of practice, refer delinquent tax accounts to MGC and Attorney Rice for collection. For each successful collection, the lawyers would be paid a fee equal to 15% of the delinquent taxes collected, regardless of the time actually spent on the collection effort. The Town automatically added the 15% attorney’s fees to the amounts owed by delinquent taxpayers as a matter of practice as soon as the account was assigned for collection. The Town collected the fees from the taxpayers, and then paid them over to the attorneys. According to the decision, no separate records of time actually spent on this collection work, broken down by individual taxpayer, were kept.

Section 5258 of Title 32 authorizes a Vermont municipality to charge taxpayers for attorney’s fees incurred by the municipality under the specific circumstances, as follows:

The fees and costs allowed after the warrant and levy for delinquent taxes have been recorded should be as follows: ... expenses actually and reasonably incurred by the tax collector for legal assistance in the preparation for or conduct of such sale when authorized by the selectmen, provided that such expenses shall not exceed 15% of the uncollected tax; ....

Judge Toor concluded that the Town’s practice of automatically assessing legal fees equal to 15% of the delinquent taxes violated the plain language of the statute.

First, the statute plainly provides that fees of 15% are a “cap, not a floor” (i.e., “shall not exceed 15%”). And, a Town tax collector may only pass on to taxpayers those fees “actually and reasonably incurred by the tax collector for legal assistance” in the tax sale. Hence, an automatic assessment of fees equal to 15% regardless of the time spent or the work required to effect the collection, is inconsistent with the statute, as such fees are not “actually and reasonably incurred.”

Furthermore, the statute provides that attorney’s fees may only be assessed to the taxpayer “after the warrant and levy for delinquent taxes have been recorded” and not until “authorized by the selectmen.” The Town had not recorded the warrant and levy nor had its secured authorization from the Selectboard to retain legal counsel. Consequently, the Court ruled that the Town’s imposition of attorney’s fees under these facts was inconsistent with the statute and improper, and ordered the Town to repay the attorney’s fees collected from the Plaintiffs.

The Court refused to find a violation of the equal protection guarantees of the Vermont Constitution or that the law firm or Attorney Rice had wrongfully interfered in Ran-Mar’s contractual relationship with its lender.

RAN-MAR III

Finally, in a decision issued on December 13, 2007, Judge Pearson dealt with the Plaintiffs’ claim of unjust enrichment against Attorney Rice and their claim that they were entitled for recovery of legal fees they paid to bring the lawsuits, and the Town’s cross-claim against Attorney Rice styled as an “implied indemnification” claim.

In dismissing the unjust enrichment claim, Judge Pearson observed that if the Plaintiffs had any claim for unjust enrichment it was against the Town – the Town assessed legal fees against the Plaintiffs, not the attorneys. And, because Judge Toor’s earlier decision meant Plaintiffs were going to recover legal fees assessed against them by the Town, a second recovery against the Town’s attorneys would be improper.

Judge Pearson found no basis for a recovery by Plaintiffs against Attorney Rice for the attorney’s fees the Plaintiffs had spent to prosecute their claims against Attorney Rice or the Town. Under the “American Rule”, each party to a lawsuit is responsible for legal fees they incur absent a statute or contract provision to the contrary, or exceptional circumstances. No statute provided for fee recovery, no contract existed between Plaintiffs and Attorney Rice, and no “exceptional circumstances” existed. Attorney Rice had prevailed on all direct claims made against her, the Plaintiffs’ claims for fees were properly directed only at the Town, not Attorney Rice, and no bad faith on her part was shown.

Finally, Judge Pearson found no basis for the Town to recover from Attorney Rice the fees it had been obligated to pay to the Plaintiffs under Ran-Mar II.

The Ran-Mar Trilogy are all trial court decisions based on the specific facts presented, not decisions of the Vermont Supreme Court. Consequently, while informative, they are not “legally binding” on other trial courts in Vermont. Nonetheless, the lessons of these cases should be kept in mind.

If you are a collector of delinquent taxes or a municipal official, and you have questions about the process of conducting a tax sale, feel free to call Bob Fletcher.

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