                    NOTICE: NOT FOR OFFICIAL PUBLICATION.
       UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT
          PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.




                                    IN THE
            ARIZONA COURT OF APPEALS
                                DIVISION ONE


 DESERT GARDENS MOBILE HOMES, L.L.C. dba DESERT GARDENS
     MOBILE HOMES AND CLASSIC CARS, Plaintiff/Appellant,

                                       v.

              TOWN OF QUARTZSITE, Defendant/Appellee.

                            No. 1 CA-TX 14-0009
                              FILED 4-14-2015


                   Appeal from the Arizona Tax Court
                           No. TX2011-000179
                   The Honorable Dean M. Fink, Judge

                                 AFFIRMED


                                  COUNSEL

Ryan Rapp & Underwood, PLC, Phoenix
By Ian A. Macpherson
Counsel for Plaintiff/Appellant

Berry Law Group, PLLC, Phoenix
By Christopher J. Berry, Richard W. Gilmour
Counsel for Defendant/Appellee
             DESERT GARDENS v. TOWN OF QUARTZSITE
                       Decision of the Court



                      MEMORANDUM DECISION

Judge Lawrence F. Winthrop delivered the decision of the Court, in which
Presiding Judge Kent E. Cattani and Judge Patricia K. Norris joined.


W I N T H R O P, Judge:

¶1            Desert Gardens Mobile Homes, LLC, appeals the decision of
the tax court finding it liable for transaction privilege tax assessed by the
Town of Quartzsite, arguing that the Town is estopped from collecting the
tax. Because Desert Gardens has not proven the necessary elements of
promissory estoppel, we affirm the decision of the tax court in favor of the
Town.

                 FACTS AND PROCEDURAL HISTORY

¶2            Desert Gardens sells manufactured homes and motor vehicles
in Quartzsite, Arizona. The Town audited Desert Gardens for the period
from February 2006 through July 2007 and assessed transaction privilege
tax of $44,716.61 plus interest.1

¶3           After exhausting its administrative remedies, Desert Gardens
filed a complaint in La Paz County superior court, which was transferred
to tax court. See Ariz. Rev. Stat. (“A.R.S.”) § 12-163(A)(2015).2 Desert
Gardens did not plead estoppel in its complaint.

¶4          In the joint pretrial statement, Desert Gardens alleged facts
supporting a claim for promissory estoppel, specifically that the Town
manager had offered Desert Gardens “amnesty for prior tax liabilities if


1      Arizona’s transaction privilege tax is an “excise tax on the privilege
or right to engage in an occupation or business in the State of Arizona.”
Ariz. Dep’t of Revenue v. Mountain States Tel. & Tel. Co., 113 Ariz. 467, 468,
556 P.2d 1129, 1130 (1976). The Town assessed transaction privilege tax on
the income Desert Gardens realized from the sale of manufactured homes
pursuant to the Quartzsite Town Code article 9-427.

2      Absent material revisions after the relevant dates, we cite the current
version of a statute unless otherwise indicated.



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             DESERT GARDENS v. TOWN OF QUARTZSITE
                       Decision of the Court

[Desert Gardens] would assist the Town by funding and operating the
City’s defunded Chamber of Commerce which involved taking over the
expenses and responsibilities for answering inquiries and manning the 800
number lines established to help draw tourism to Quartzsite.” Desert
Gardens further alleged that it acted in reliance on the Town manager’s
promise.3

¶5            At trial, Richard Oldham4, the owner of Desert Gardens,
testified regarding the Town’s alleged promise and Desert Gardens’
reliance on that promise. The tax court entered judgment in favor of the
Town, and Desert Gardens timely appealed. We have jurisdiction pursuant
to A.R.S. § 12-2101(A)(1).

                                ANALYSIS

¶6            On appeal, Desert Gardens does not contest the transaction
privilege tax assessment. Rather, the issue raised is whether the Town
should be precluded from enforcing the tax assessment against Desert
Gardens based on the doctrine of promissory estoppel.

       I.     Amendment of the Complaint

¶7            As a preliminary matter, Desert Gardens admits that the
complaint did not include a claim for estoppel and requests that it be
“allowed to conform the pleadings to the evidence litigated and adduced at
trial by allowing its complaint to now be deemed amended.” In its brief,
the Town agrees to the proposed amendment: “By hearing and considering
[Desert Gardens’] evidence and argument on its promissory estoppel
defense, [the tax court] de facto allowed an amendment of Desert Gardens’
pleadings to include that defense.”

¶8           As a general rule, “estoppel, whether the basis of a claim or a
defense, must be specially pleaded.” Connolly v. Great Basin Ins. Co., 6 Ariz.
App. 280, 289, 431 P.2d 921, 930 (1967) (citations omitted). Arizona Rule of
Civil Procedure 15(b), however, provides for the amendment of pleadings
to conform to the evidence:




3      Desert Gardens included the same facts in its proposed findings of
fact and argued for the application of promissory estoppel in its trial brief.

4      Oldham is a former mayor of Quartzsite.



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             DESERT GARDENS v. TOWN OF QUARTZSITE
                       Decision of the Court

              When issues not raised by the pleadings are
              tried by express or implied consent of the
              parties, they shall be treated in all respects as if
              they had been raised in the pleadings. Such
              amendment of the pleadings as may be
              necessary to cause them to conform to the
              evidence and to raise these issues may be made
              upon motion of any party at any time, even after
              judgment, but failure so to amend does not
              affect the result of the trial of these issues.

Ariz. R. Civ. P. 15(b). Our supreme court has applied Rule 15(b) to the
pleading of estoppel: “[A]mendments may be made to conform to the
evidence and to raise issues and present defenses not made by the original
pleadings. Thus the defense of estoppel would not be deemed waived by
failure to plead it originally if pleaded at the time of trial.” Keystone Copper
Min. Co. v. Miller, 63 Ariz. 544, 561-62, 164 P.2d 603, 611 (1945); see also Webb
v. Hardin, 53 Ariz. 310, 315, 89 P.2d 30, 32 (1939) (“[W]herever there is any
evidence appearing in the record upon which the special defense of
estoppel might have been predicated and urged at the trial, this court may
itself raise, consider and apply such defense, notwithstanding that it had
neither been pleaded nor urged as an issue by either party in the lower
court.”).

¶9              Although Desert Gardens did not plead estoppel in its
complaint, it did assert estoppel in pleadings filed prior to trial. Moreover,
at trial, Desert Gardens offered testimony in support of its claim and argued
for the application of promissory estoppel.5 Accordingly, we treat this case
as if the complaint were amended to conform to the evidence. See Elec.
Adver., Inc. v. Sakato, 94 Ariz. 68, 71, 381 P.2d 755, 757 (1963) (“If an
amendment to conform the pleadings to the proof should have been made,
an appellate court will presume that it was so made to support the
judgment.”); State v. Barnum, 58 Ariz. 221, 225, 118 P.2d 1097, 1099 (1941)
(“[W]hen issues not within the pleadings have been made and tried
between the parties, we will permit the pleadings to be amended to cover
such issues, or we will treat the case as though such amendment had been
made.”).




5     The Town’s counsel objected to the testimony on the basis of hearsay
and Arizona Rule of Evidence 408 only.


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             DESERT GARDENS v. TOWN OF QUARTZSITE
                       Decision of the Court

       II.    Promissory Estoppel

¶10           Desert Gardens argues the Town “should be bound by the
doctrine of promissory estoppel to be without authority to enforce the
assessment it has imposed on [Desert Gardens].” The Town argues that the
evidence is insufficient to establish estoppel against a governmental entity.

¶11          Our supreme court has adopted the definition of promissory
estoppel found in the Restatement (Second) of the Law of Contracts, which
provides:

              A promise which the promisor should
              reasonably expect to induce action or
              forbearance on the part of the promisee or a
              third person and which does induce such action
              or forbearance is binding if injustice can be
              avoided only by enforcement of the promise.
              The remedy granted for breach may be limited
              as justice requires.

Restatement (Second) of Contracts § 90(1) (1981); Chewning v. Palmer, 133
Ariz. 136, 138, 650 P.2d 438, 440 (1982) (adopting and applying the
Restatement). The party asserting estoppel “has the burden of showing by
clear and satisfactory proof that all the elements are present, and the acts
relied upon to create it must be absolute and unequivocal.” Knight v. Rice,
83 Ariz. 379, 381, 321 P.2d 1037, 1038 (1958); Fridenmaker v. Valley Nat’l Bank
of Ariz., 23 Ariz. App. 565, 571, 534 P.2d 1064, 1070 (1975).

¶12            As a general rule, Arizona courts have held that promissory
estoppel will not lie against the government. State ex rel. Romley v. Gaines,
205 Ariz. 138, 143, ¶ 17, 67 P.3d 734, 739 (App. 2003). Nevertheless, in
Valencia Energy Co. v. Arizona Dep’t of Revenue, 191 Ariz. 565, 959 P.2d 1256
(1998), our supreme court acknowledged that in rare situations the
government can be equitably estopped from assessing a tax that is legally
owed by a taxpayer. Id. at 576, 578-79, ¶¶ 34, 41, 959 P.2d at 1267, 1269-70.
In Valencia, the taxpayer contacted the Arizona Department of Revenue in
order to determine if transaction privilege tax applied to its coal
transportation activities. Id. at 579-80, ¶¶ 44-45, 959 P.2d at 1270-71.
Ultimately, the Department advised the taxpayer that the transaction was
not taxable and, in reliance on that assurance, the taxpayer did not collect
tax from its customers of more than five million dollars. Id. at 579, 581, ¶¶
44, 53, 959 P.2d at 1270, 1272. Based on those circumstances, the Arizona




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             DESERT GARDENS v. TOWN OF QUARTZSITE
                       Decision of the Court

Supreme Court vacated the tax court’s ruling that had granted summary
judgment to the Department. Id. at 582, 959 P.2d at 1273.

¶13            As the Valencia decision reflects, a party seeking to establish
estoppel against the government has a greater “evidentiary burden” than
would exist in cases not involving the government. See id. at 577, ¶ 36, 959
P.2d at 1268. The court noted that the governmental action must bear a
“considerable degree of formalism,” and that “[i]t is rare that satisfactory
evidence of an absolute, unequivocal, and formal state action will be found
unless it is in writing.” Id. In addition, the party seeking estoppel must
demonstrate that its reliance is reasonable under the circumstances and that
“it prospectively relied on the state action.” Id. at 577, ¶ 37, 959 P.2d at 1268.
Finally, there must be “substantial detriment to the party resulting from a
repudiation of prior representations.” Id. at 577, ¶ 38, 959 P.2d at 1268.6 The
court cautioned:

              We recognize the force of the proposition that
              estoppel should be applied against the
              Government with utmost caution and restraint,
              for it is not a happy occasion when the
              Government’s hands, performing duties in
              behalf of the public, are tied by the acts and
              conduct of particular officials in their relations
              with particular individuals.

              . . . It is to be emphasized that such situations
              must necessarily be rare, for the policy in favor
              of an efficient collection of the public revenue
              outweighs the policy of the estoppel doctrine in
              its usual and customary context.

Id. at 578-79, ¶ 41, 959 P.2d at 1269-70 (quoting Schuster v. C.I.R., 312 F.2d
311, 317 (9th Cir. 1962)).




6      In Valencia, the issue was whether the taxpayer could assert equitable
estoppel against the state. Valencia, 191 Ariz. at 569, ¶ 8, 959 P.2d at 1260.
The distinction between equitable estoppel and promissory estoppel has
been explained as: “[T]o work an equitable estoppel or ‘estoppel in pais,’
the representation in question must be of some present or past fact, while
promissory estoppel rests upon a promise to do something in the future.”
Trollope v. Koerner, 106 Ariz. 10, 18, 470 P.2d 91, 99 (1970).


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             DESERT GARDENS v. TOWN OF QUARTZSITE
                       Decision of the Court

¶14            Because questions of estoppel are fact intensive, “[w]e defer
to the trial court with respect to any factual findings explicitly or implicitly
made, affirming them so long as they are not clearly erroneous.” John C.
Lincoln Hosp. and Health Corp. v. Maricopa Cnty., 208 Ariz. 532, 537, ¶ 10, 96
P.3d 530, 535 (App. 2004), as amended (Sept. 1, 2004). Although the tax
court’s ruling did not specifically address the issue of promissory estoppel,
the court impliedly rejected Desert Gardens’ claim by ruling in favor of the
Town. See Johnson v. Elson, 192 Ariz. 486, 489, ¶ 11, 967 P.2d 1022, 1025
(App. 1998) (“[W]e may infer additional findings of fact and conclusions of
law sufficient to sustain the trial court’s order as long as those findings are
reasonably supported by the evidence, and not in conflict with any express
findings.”). We review the tax court’s decision not to apply estoppel against
the town for an abuse of discretion. See Flying Diamond Airpark, LLC v.
Meienberg, 215 Ariz. 44, 50, ¶ 27, 156 P.3d 1149, 1155 (App. 2007).

¶15           The tax court did not abuse its discretion in deciding not to
apply promissory estoppel. Desert Gardens failed to provide clear and
satisfactory proof that all the elements of promissory estoppel were present,
particularly in light of the heightened evidentiary burden that applies to
estoppel against the government. At trial, Oldham testified regarding the
facts of the alleged estoppel. He described his meeting with the Town
manager, which occurred after Desert Gardens received the notice of
assessment:

              [The Town manager] asked us what we would
              like to do with the audit and we said, “Well, we
              think it’s very unfair and not correct.” But in the
              interest of trying to move along and settle the
              assertion that they were making, we would be
              willing, as we discussed, to take over the - - the
              Town had defunded the chamber of commerce
              and the Town of Quartzsite, and so we agreed
              that we would [ . . . ] answer the phones. There
              [were] a couple of phones that needed to be
              answered for the chamber of commerce that
              were going to be turned off. And there was at
              least one billboard that we would continue to
              pay for or to keep alive talking about the
              chamber of commerce and the services in
              Quartzsite.




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             DESERT GARDENS v. TOWN OF QUARTZSITE
                       Decision of the Court

Oldham could not remember specifically when the meeting occurred, and
he acknowledged that although the Town manager promised she would
document their agreement, she never did.7

¶16          On cross-examination, Oldham admitted that, prior to any
settlement conversation with the Town manager, Desert Gardens had
already assumed responsibility for paying for the phone lines:

              Q: How soon after the communication that you
              had with [the Town manager] did your
              company assume the responsibility of paying
              the phone line?

              A: Actually we were already doing it because
              the Chamber had pretty much run out of
              money.

Moreover, despite the Town’s failure to follow through on its alleged
promise, Desert Gardens continued to maintain and fund the phone lines
up to the time of trial.

¶17          Desert Gardens failed to prove that the Town’s actions were
absolute and unequivocal. Even assuming the Town manager did offer tax
amnesty, her promise, which was never reduced to writing, did not reflect
the “degree of formalism” required to establish estoppel against the

7      Desert Gardens also relies upon Luther Constr. Co. v. Arizona Dep’t of
Revenue, 205 Ariz. 602, 74 P.3d 276 (App. 2003), in which this court held that
a taxpayer’s reasonable reliance on the Department of Revenue’s prior
inconsistent positions precluded summary judgment in favor of the
Department and left to the trial court the determination of whether
equitable estoppel applied. Id. at 284, ¶ 44, 74 P.3d at 610. In Luther Constr.,
the taxpayer relied on: (1) a letter from the Department of Revenue
indicating that income from contracting activity on a reservation was
exempt from taxation; and (2) a refund reflecting the same. See id. at 277-
78, ¶¶ 3, 4, 205 Ariz. at 603-04. We determined the taxpayer could have
viewed the audit results and refund decision as the Department’s
“unequivocal affirmation of its position explicitly stated” in the letter that
proceeds from such contracting were tax exempt. Id. at 280, ¶ 18, 74 P.3d at
606. In the present case, the Town manager did not explicitly state her
promise in a letter nor was there any other unequivocal affirmation of her
promise.




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             DESERT GARDENS v. TOWN OF QUARTZSITE
                       Decision of the Court

government. Moreover, Oldham’s alleged reliance on the promise was not
justifiable under the circumstances. See Higginbottom v. State, 203 Ariz. 139,
144, ¶ 18, 51 P.3d 972, 977 (App. 2002) (holding that a party can only recover
under the theory of promissory estoppel if he or she had a “justifiable right
to rely” on the alleged promise). A reasonable business owner, and former
mayor, would not expect a brief and undocumented discussion to result in
relief from a significant tax liability and act in reliance on the same.8

¶18           In addition, Desert Gardens failed to establish that it
“prospectively relied” on the Town’s action. As Oldham admitted on cross-
examination, Desert Gardens had already agreed to assist and fund the
Quartzsite chamber of commerce before his meeting with the Town
manager and continued to do so after it became obvious that the Town was
not going to grant tax amnesty. This suggests that Desert Gardens did not
take these actions solely in reliance on the Town manager’s alleged
promise.

¶19           Finally, the alleged detriment to Desert Gardens was not
significant. Unlike the taxpayer in Valencia, Desert Gardens’ failure to pass
along the tax liability to its customers was not a result of the alleged
promise. Rather, Oldham met with the Town manager after the tax liability
had already accrued and an assessment had been issued. Accordingly, the
only detriment to Desert Gardens was the cost incurred in funding and
maintaining the chamber of commerce phones and the cost of billboard




8      The parties also dispute whether the Town manager had the
authority to enter into an agreement for the abatement of tax liability
without the approval of the Town Council. We need not reach this issue
because, even assuming the Town manager did have such authority, Desert
Gardens has still failed to prove the elements of promissory estoppel. We
further note that, in support of its argument, the taxpayer has referenced a
town council agenda and meeting minutes that reference some unresolved
discussion about possible settlement of this tax assessment. These
documents were not in evidence before the tax court and are not part of the
record properly before us. In any event, these documents do not support
the taxpayer’s position.




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             DESERT GARDENS v. TOWN OF QUARTZSITE
                       Decision of the Court

advertising. This detriment was insignificant in comparison to the tax
liability.9

¶20           Accordingly, Desert Gardens has failed to provide clear and
satisfactory proof of the elements required to establish estoppel against the
Town.

                              CONCLUSION

¶21          For the foregoing reasons, we affirm the decision of the tax
court. Pursuant to A.R.S. § 12-341 and the Town’s request, we award the
Town its costs on appeal upon compliance with Arizona Rule of Civil
Appellate Procedure 21.




                                   :ama




9     The cost to Desert Gardens of maintaining the phone lines is between
$40 and $50 per month, and the cost of the billboard was $300 to $400 per
year.



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