Shuwa Investments tax case still hovers in limbo despite state Supreme Court ruling.

Shuwa Investments tax case still hovers in limbo despite state Supreme Court ruling

Full reappraisal is voided on property bought by plaintiff

Real estate investors were given mixed signals by a recent California Supreme Court action that allows a Sherman Oaks widow to escape full reappraisal on property she purchased.

Shuwa Investments Corp. is one high-profile landlord that could have benefited from a definitive ruling. Shuwa has claimed in another lawsuit it did not deserve full reappraisal -- and the resulting higher property-tax bill -- after purchasing the 51-story Arco Plaza towers in downtown Los Angeles.

The state Supreme Court decided not to review Marian C. Aden v. John J. Lynch, L.A. County Assessor. That let stand a precedent-setting state appellate court ruling in May in favor of Aden, which might have aided Shuwa's quest. But the action, while likely recouping at least $150,000 for Aden, is moot to Shuwa and other litigants because the Supreme Court ordered the lower court ruling decertified.

"It can't be used as a precedent," said Assistant Assessor Roy Sharman. Sharman's office had requested the decertification.

When appellate justices ordered their May 31 Aden opinion published, that indicated they believed it created a precedent; nevertheless, that power disappeared when the state Supreme Court ordered it removed from the books.

"The net effect (to Shuwa) is as if the Aden case never existed," said tax attorney Terry Polley. Shuwa attorneys, at downtown L.A. law firm Kindel and Anderson, declined to comment.

There may be a windfall, however, to Aden. She may collect $40,000 to $50,000 in property taxes which, she says, were wrongly levied by the assessor. Her estimated legal fees of $100,000 also would be picked up by the assessor.

Attempts to reach Aden were unsuccessful. Her attorney, William M. Bullis of Century City, was on vacation last week.

The cases are similar in that both Aden and Shuwa are claiming that only half of their lands can be reassessed, which would effectively trim their tax bills. The Proposition 13 amendment to state tax law calls for newly sold property to be reassessed at the new sales price. That value is then used to compute the annual property taxes. After about 17 years of continuous ownership for both Aden and Shuwa during the city's heyday of soaring land prices, their tax bills increased considerably. Shuwa claims its Arco Plaza property is being overtaxed by more than $2 million annually.

Shuwa's lawsuit, filed in Spring 1989, has not come to trial. It is widely watched by tax specialists, like Polley and tax attorney John S. Warren, with Loeb & Loeb in downtown L.A.

Warren noted that the Supreme Court offered no reason why it killed Aden's precedential power. To settle the 50-percent issue, "One can speculate that they (Supreme Court justices) would prefer to wait for a more important case, involving a lot more money," said Warren, indicating Shuwa would fit the bill.

County official Sharman said he knew of no other lawsuit dealing with the same issue. The quarrel concerns whether buyers, who take title to land in certain two-step transactions, are shielded from full revaluation.

Polley, however, said, "There are literally dozens, if not hundreds, of cases where transactions have been structured" like Aden and Shuwa.

The cases differ most in that Aden moved from a 50 percent owner to a 100 percent owner of her property.

Shuwa's interest in Arco Plaza grew from 0 percent to 100 percent when it purchased the highrises for $611 million in 1986.

Aden and her partner, Winfield MacDonald, each owned half of Matador Apartments Inc. from 1967 to 1985. The corporation's sole asset was a 67-unit apartment complex in Northridge. One day in 1985 they had Matador deed half the land to Aden and the other half to MacDonald. Then, on the same day, she bought his 50 percent for approximately $900,000.

The county considered the two-step transactions as essentially one transaction, not worthy of dodging full reassessment.