Cary Ichter, who represents the county’s bond authority, says the suits threaten to wreck economic havoc on developers who rely on developers. (John Disney/Daily Report)
One week before it was set to go to trial, a Fulton County judge has once again tossed a long-running lawsuit that aimed to have declared illegal more than $5 billion in bonds issued by the county’s development arm.
The Dec. 20 bench ruling by Superior Court Judge Jerry Baxter comes four and a half years after the filing of the first challenge to the county’s system for funding several major projects through “sales-leaseback” agreements with private developers.
The dispute has thrice gone to the Georgia Court of Appeals and made one trip to the state Supreme Court. Cary Ichter, an Ichter Thomas partner who represents the Development Authority of Fulton County and is preparing an order for Baxter to sign, said he expects another foray to the appellate courts.
The litigation involves two now-combined suits that, Ichter said, threaten to “wreak economic havoc” on the county and developers who have relied on the bonds’ validity to fund the projects.
The suits were filed by former Fulton County Taxpayer Foundation president John Sherman and SJN Properties, who are represented by Martinson Hasbrouk & Simon attorney Robert Feagin III, Irwin Stolz Jr. of Athens’ Hurt Stolz, and Atlanta solo John Woodham.
“We are anxious—and that’s a good word to use—to see the written order,” Stolz said. “We think it’s wrong, and we’ll certainly appeal.”
He added, “Judge Baxter has been reversed three times, and we expect he will be reversed again. There are very knotty legal issues involved here; we think those issues need to be addressed and ruled on in the appellate court.”
The cases stem from the county’s adoption of a “50 percent ramp-up” method of funding dozens of projects that include hotels, retail centers and office parks. Under the terms of such arrangements, a developer transfers the title to a parcel of property to the development authority, which in turns issues tax-exempt revenue bonds to fund the planned project. The authority then leases the property back to the developer and uses the lease payments to finance the principle and interest on the bonds; at the end of 10 years, the developer can repurchase the property for a nominal fee.
Taxes are assessed at 50 percent of a property’s appraised value the first year, and ramped up by 5 percent per year until the full value is reached.
The plaintiffs challenged the ramp-up system as an illegal scheme that doesn’t provide an accurate assessment of the properties’ value as required by law. The suits also decried the bonds as “phantom bonds” because, according to a plaintiffs’ brief, “there is no actual financing of the project. The lessee is actually the purchaser of the bonds in a non-cash bond closing, pursuant to a Bond Purchase Agreement between the issuing development authority and the lessee. The sole or primary purpose of a ‘phantom’ bond transaction is to provide an ad valorem property tax abatement, preferential tax assessment and/or tax exemption to the lessee.”
In response, the county argued that the bonds were granted “to accomplish [the development authority's] statutory mission: to stimulate economic activity and to create job opportunities in Fulton County. By reducing the tax burdens that would be imposed on certain taxpayers who bring jobs and economic development, the sale-leaseback transactions here under attack actually enhance tax collections and benefit the taxpayers in the community.”
The properties in question, said the defense brief, are appraised exactly as other county properties.
“Just as a small business may choose to organize itself as a Subchapter S corporation for tax purposes, or just as the grantor of a trust may wish to structure gifts for maximum tax benefit, these sale-leaseback transactions do nothing more than reorganize or restructure the ownership of taxable property so as to minimize tax burdens,” it said.
In 2010, Sherman filed another suit challenging the ramp-ups, and the two were later combined.
The litigation has bounced back and for the appellate courts on several occasions. In 2010, the Georgia Supreme Court revived it after a previous Baxter dismissal, ruling in a 4-3 decision that Fulton had not proved that its method of assessing the properties’ values “fairly and justly establishes the fair market value of a bond transaction leasehold estate such that the method is not ‘arbitrary or unreasonable.’”
Back at the trial level Baxter again dismissed the case, only to have the Court of Appeals resuscitate it last year, ruling that Baxter did not sufficiently explain his reasoning for the 2011 dismissal.
The parties appeared for a summary judgment hearing on Dec. 20, Ichter said, prior to what was to have been placement on Baxter’s Jan. 7 trial calendar.
“I was up arguing rebuttal to the development authority’s motion for summary judgment, and I was about 10 minutes in when Judge Baxter stopped me and said, ‘Mr. Ichter, I’m going to grant your motion,’ and directed me to draft an order,’” Ichter said.
Stolz said prior appellate rulings and basic common sense make clear that the issues raised cannot be resolved through summary judgment.
“We think [the properties] were never properly evaluated and assessed for tax purposes; that’s the whole thing,” said Stolz. “I think there are some jury issues here, but I think a big chunk of it is a matter of law. This summary judgment order will give the appellate courts an opportunity to confront the issues and resolve them for the trial court.”
The cases are Sherman v. Fulton County Board of Assessors, Nos. 2009CV171275 and 2010CV183245.