Flummerfelt v. City of Taylor
| Docket Number | 22-10067 |
| Decision Date | 06 January 2023 |
| Parties | JUDY FLUMMERFELT, et al., Plaintiffs, v. CITY OF TAYLOR, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
REPORT AND RECOMMENDATION MOTIONS TO DISMISS (ECF NOS. 29, 46, 48, 66)
Plaintiffs Judy Flummerfelt, Frances Ridenour, Anthony Hamilton, and Holly Hamilton, on behalf of themselves and those similarly situated in the City of Taylor, filed suit alleging violations of the United States Constitution and Michigan law on January 11, 2022. They later amended their complaint. (ECF No. 6). The complaint arises out of the tax foreclosure of the named plaintiffs' homes located in the City of Taylor. They allege that, through illegal conspiracies, they were denied the surplus value or equity in their foreclosed homes. The defendants are the Wayne County Treasurer and the City of Taylor, the government entities involved in the foreclosure and first sale of the properties. Plaintiffs also sue former Taylor mayor, Richard Sollars; Taylor Community Development Manager, Jeffery Baum; Shady Awad and his real estate businesses Realty Transition LLC (“RT”) and Taylor Rehab LLC (“Taylor Rehab”) (collectively, the “Awad defendants”); and Hadir Altoon and his real estate businesses Taylor South Investment LLC (“Taylor South”) and Abigail Investment LLC “Abigail”). Plaintiffs allege violations of the Fifth and Eight Amendments, due process, and Michigan law.
Taylor Wayne County, the Awad defendants, and Sollars moved to dismiss the amended complaint. (ECF Nos. 29, 46, 48, 66). On order of the Court, the parties, except Sollars, filed supplemental briefing regarding the recent Sixth Circuit decision, Hall v. Meisner, 51 F.4th 185 (6th Cir. 2022). (ECF Nos. 71-73, 76-78). This matter is now ready for report and recommendation.
For the reasons below, the undersigned recommends that the City of Taylor, the Awad defendants, and Sollars' motions to dismiss be GRANTED and Wayne County's motion to dismiss be GRANTED IN PART AND DENIED IN PART.
As mentioned, this case arises out of the events following the tax foreclosures of Plaintiffs' properties in Taylor, Michigan. Michigan's General Property Tax Act (“GPTA”) provides the statutory process by which a governmental entity in the state collects unpaid and delinquent real property taxes through property forfeiture and foreclosure. Under the Act, at the time of the events alleged, if property taxes remained unpaid in the prescribed twelve-month period, the property was forfeited to the county treasurer. M.C.L. §§ 211.78a(2), 211.78g(1). This forfeiture allowed the Foreclosing Governmental Unit (“FGU”) to petition for a judgment of foreclosure on the property. The FGU was not, however, required to seek foreclosure. If it did not, the State could then seek foreclosure. M.C.L. §§ 211.78(6); (3)(a). If, during the foreclosure process, the owner did not redeem the property, the FGU would obtain a court order vesting absolute title to the property in itself. M.C.L. § 211.78k(5)(a). Michigan then had the option to purchase the property at the greater of either the minimum bid (the amount of delinquent taxes, interests, and costs) or the fair market value. If the State declined to purchase the property, the city in which the property was located could purchase the property for the minimum bid.[1] M.C.L. § 211.78m(1). After purchasing the property, the state or local government could then sell the property at a public auction. Important here, the former owner had no right to any of the proceeds, no matter the sale price. Rafaeli, LLC v. Oakland Cnty., 505 Mich. 429, 434 (2020).
Wayne County acted as the FGU pursuant to the GPTA. After Plaintiffs did not redeem their properties, title to the properties was vested in the County. The State elected not to purchase the properties. The City of Taylor then purchased the properties for the minimum bid, or the amount of the tax delinquency plus costs. The city later sold the properties variably to Awad and Altoon, who then resold them earning significant profit. Plaintiffs realized none of the profits.
Plaintiffs allege the defendants conspired to deprive them of the surplus value or equity in the properties. According to Plaintiffs, in 2015, Taylor created a program called the Right of First Refusal program (“ROFR program”). Under this program, Taylor exercised its ROFR to acquire tax-foreclosed properties in Taylor from Wayne County under the GPTA. Taylor then selected a developer to acquire, redevelop, and resell the properties. (ECF No. 6, PageID.76-77). Sollars allegedly had control and influence over the ROFR program, including which developers would be chosen to participate. In July 2015, Sollars recommended to Taylor's City Council that Awad's company, RT, be awarded all tax-foreclosed properties in the city. Soon after, Awad was awarded all 95 tax-foreclosed properties in the ROFR program. (Id. at PageID.77-78, ¶ 49). In return, Sollars received tens of thousands of dollars in cash and services from Awad. This scheme allegedly continued for years. (Id. at PageID.78, ¶ 50). Similarly, from September 2017 through January 2019, Sollars received kickbacks from defendant Altoon, who acquired tax-foreclosed properties and provided Sollars substantial sums of money to his campaign fund. (Id. at PageID.79, ¶ 54).
Flummerfelt's property accrued around $15,000 in unpaid taxes. After the foreclosure, the City conveyed the property by quitclaim deed to RT for $10.00. RT later transferred the property to Taylor Rehab for $10.00. The property was sold nearly two years later for $165,000. (Id. at PageID.89-90). Ridenour's property accrued $2,904.87 in delinquent property taxes. After the County foreclosed on the property and Taylor acquired it for the minimum bid, Taylor conveyed the property to RT by quitclaim deed for $10.00. (Id. at PageID.90). Plaintiffs do not indicate that the Ridenour property was sold again. The Hamilton property accrued $3,396.09 in delinquent taxes. Taylor conveyed the property to RT by quitclaim deed for an unspecified amount. The Hamilton property was sold by RT for $55,000 about three years later. (Id. at PageID.90-91).
Awad and Altoon pleaded guilty to federal charges of conspiracy to commit bribery concerning programs receiving federal funds under 18 U.S.C. §§ 371 and 666(a). (Id. at PageID.85, ¶¶ 46-80). Sollars was awaiting trial related to the same scheme at the time the complaint was filed.
Defendants bring their motions pursuant to Rule 12(b)(6). When deciding a motion to dismiss under Rule 12(b)(6), the Court must “construe the complaint in the light most favorable to plaintiff and accept all allegations as true.” Keys v. Humana, Inc., 684 F.3d 605, 608 (6th Cir. 2012). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation omitted); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (). Facial plausibility is established “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.
Plaintiffs sue Wayne County[2] and Taylor for the improper taking of their properties without just compensation. They assert they have a property interest in the surplus value or equity in their properties that was illegally withheld from them. (ECF No. 6, Count I). The Fifth Amendment's Takings Clause provides that “private property” shall not “be taken for public use, without just compensation.” U.S. Const. amend. V.
Hall v. Meisner dealt with similar claims against similar defendants. There, the plaintiffs sued Oakland County and the County Treasurer, the City of Southfield, city officials, and a for-profit neighborhood revitalization company. Those plaintiffs lost their properties much like Plaintiffs here-they became delinquent in property taxes in amounts far less than the market value of their homes, Oakland County obtained fee simple title, the City of Southfield purchased the properties for the amount of the unpaid taxes plus costs, the city transferred the deeds to the revitalization company for a nominal amount, and the company eventually sold the properties for significant profit. The plaintiffs were not compensated for the surplus value of their homes. 51 F.4th at 189.
Two of the court's conclusions affect this case. One is that property owners retain a property interest in the surplus value of the property that is not extinguished when the property is sold to the City for the “minimum bid.” Id. at 195. Thus, plaintiffs here can maintain a takings claim for the surplus value of their properties.
Second, since “the act of taking is the event which gives rise to the claim for compensation, . . . the County alone is responsible for the taking of the plaintiffs' property” under the United States Constitution. Id. at 196 (internal citation omitted).
Plaintiffs appear to concede that Wayne County alone is the proper defendant for this claim. (See ECF No. 76). Thus, this claim should be dismissed against the City of Taylor.
Wayne County argues that this...
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