Fox v. Cnty. of Saginaw

• Decision Date: 29 March 2022
• Docket Number: 1:19-cv-11887
• Parties: THOMAS A. FOX, on behalf of himself and all others similarly situated, Plaintiff, v. COUNTY OF SAGINAW, by its BOARD OF COMMISSIONERS, et al., Defendants.
• Court: U.S. District Court — Eastern District of Michigan

THOMAS A. FOX, on behalf of himself and all others similarly situated, Plaintiff, v. COUNTY OF SAGINAW, by its BOARD OF COMMISSIONERS, et al., Defendants.

No. 1:19-cv-11887

United States District Court, E.D. Michigan, Northern Division

March 29, 2022

OPINION AND ORDER (1) GRANTING AND DENYING IN PART PLAINTIFF'S EMERGENCY MOTION, (2) LIFTING STAY FOR PURPOSES OF LIMITED DISCOVERY AND CLASS NOTICE, (3) AUTHORIZING LIMITED DISCOVERY, (4) DIRECTING PLAINTIFF TO SUBMIT PROPOSED CLASS NOTICE, AND (5) DENYING MOTION FOR LEAVE TO FILE AMICUS CURIAE BRIEF AS MOOT

THOMAS L. LUDINGTON, United States District Judge.

Before a statutory amendment in 2020, Michigan counties regularly sold tax-delinquent properties without refunding the surplus proceeds to the former owners. In June 2019, Plaintiff Thomas A. Fox brought this class action under 42 U.S.C. § 1983 to recover surplus proceeds from 27 counties.

While this case was pending, Michigan enacted Public Act 256 (“PA 256”), establishing an exclusive scheme for recovering surplus proceeds. Nearly 14 months later Plaintiff filed an emergency motion to declare PA 256 unconstitutional.

Because the Michigan Court of Appeals is considering several important questions regarding PA 256, this Court will abstain from deciding the statute's constitutionality. Notwithstanding that abstention, absent class members must be apprised of their rights and PA 256's potential effect. To that end, this Court will authorize limited discovery as to the identity and contact information of class members and direct Plaintiff to file a proposed class notice.

I.

Before PA 256 was enacted, Michigan's General Property Tax Act (GPTA) allowed the “foreclosing governmental unit”-usually the county-to sell tax-delinquent property at auction and retain any surplus proceeds. See MICH. COMP. LAWS § 211.78m (amended 2020). In Plaintiff's case and many others, this practice resulted in a windfall for the government. See ECF No. 1 at PageID.4-5 (claiming that Defendant Gratiot County retained $21, 908.77 in surplus proceeds from selling Plaintiff's property). And unlike the law governing private-foreclosure sales, the GPTA did little to protect owners' equity in the foreclosed property.^[1] Rather than connecting the minimum bid to the property's fair-market value, ^[2] the GPTA set the minimum bid equal to the sum of the delinquent taxes and sale expenses, allowing the government to sell properties at a non-fair-market rate. See MICH. COMP. LAWS § 211.78m(16)(a) (amended 2020), In June 2019, Plaintiff brought this action under 42 U.S.C. § 1983 to declare the practice unconstitutional and to recover surplus proceeds from 27 counties. One year later, the Michigan Supreme Court delivered him a considerable victory. See Rafaeli, LLC v. Oakland Cnty., 952 N.W.2d 434 (Mich. 2020). In Rafaeli the court ruled that Michigan property owners have a constitutional right to surplus proceeds, which the legislature is “powerless to override.” Id. at 446.

In response to Rafaeli, the Michigan Legislature enacted PA 256. As relevant here, PA 256 establishes a purportedly exclusive process for compensating former property owners through their local circuit court. See MICH. COMP. LAWS § 211.78t(11). To start the process, a claimant must notify her foreclosing county on a state-provided form of her intent to recover the “remaining proceeds” of a tax-foreclosure sale. Id. § 211.78t(2). She must then file a motion for recovery of the proceeds in her foreclosing county's circuit court identifying the property at issue, the foreclosure date, and similar information. Id. § 211.78t(4). If the claimant proves her interest in the foreclosed property, the circuit court must award her a portion of the surplus proceeds proportionate to the value and priority of her interest. Id. § 211.78t(11).

Despite some claimants having secured large recoveries through PA 256, see Asset Recovery's Show-Cause Br., ECF No. 184 at PageID.4895 (noting that one claimant recovered $110, 308.30), ^[3] Plaintiff and others maintain that the statute is unfair and inadequate, see Pl.'s Emergency Mot., ECF No. 228 at PageID.6146; Mot. for Leave to File Amicus Br., ECF No. 234 at PageID.6242.^[4] Plaintiff's criticism is primarily directed at the statute's two-year limitations period and nonretroactivity provision, the latter of which purports to bar claims stemming from tax-foreclosure sales conducted before July 18, 2020, when Rafaeli was decided. See MICH. COMP. LAWS §§ 211.78l, 211.78t(1)(b).

But even before PA 256 was enacted, Plaintiff was skeptical that the Michigan Legislature would respond adequately to Rafaeli. See Pl.'s Reply in Supp. of Mot. to Certify, ECF No. 121 at PageID.2117 (claiming that a bill substantially similar to PA 256 “would not, as written, provide complete relief to the class”). This Court echoed that skepticism in granting class certification. See Fox v. Cnty. of Saginaw, No. 19-CV-11887, 2020 WL 6118487, at *11 (E.D. Mich. Oct. 16, 2020) (“While this case seems well-suited for legislative action, the remedies being proposed are plainly inferior to a class action.”). Class litigation was superior to the then-proposed legislative remedies, this Court explained, not only because of the longer limitations period but also because of Plaintiff's more beneficial damages theory. Id. Rather than the difference between the tax delinquency and the sale price, Plaintiff sought-and still seeks-the difference between the tax delinquency and the fair-market value of the property. Id.

Defendants have long maintained that such damages are unrecoverable under Rafaeli. See Defs.' Reply in Supp. of Mot. to Dismiss, ECF No. 139 at PageID.3175-76. But that contention remains untested. Shortly after class certification, Defendants filed motions to dismiss under the doctrine of sovereign immunity. See, e.g., ECF No. 120 at PageID.2108 (claiming that “Defendants did only what State law required of them, and . . . [therefore] act[ed] as an arm of the State”). Those motions were denied in relevant part, and Defendants appealed. To preserve their asserted immunity on appeal, the case was stayed. Fox, 2021 WL 872089, at *1.

Nearly one year later, in February 2022, the Sixth Circuit affirmed. Fox v. Saginaw Cnty., No. 21-1108, 2022 WL 523023, at *1 (6th Cir. Feb. 22, 2022). Yet because Defendants filed a petition for en banc review, the mandate has not issued, leaving the year-old stay in place. See FED. R. APP. P. 41(b) (“The court's mandate must issue 7 days after the time to file a petition for rehearing expires, or 7 days after entry of an order denying a timely petition for panel rehearing, petition for rehearing en banc, or motion for stay of mandate, whichever is later.”).

Meanwhile, Plaintiff has filed an emergency motion to either (1) declare PA 256 unconstitutional; (2) stay its enforcement under the All-Writs Act, 28 U.S.C. § 1651; or (3) lift the stay and direct class notice.^[5] ECF No. 228. Plaintiff deems his motion an emergency due to an impending statutory deadline. Under Plaintiff's reading of PA 256, class members whose property was sold in 2020 have until March 31, 2022, to bring an action under the statute. Id. at PageID.6147. After that date, their claims might be barred due to the statute's two-year limitations period. Id. Although Plaintiff maintains that PA 256 is inferior to class litigation, he acknowledges that absent class members should be apprised of their rights. Id. at PageID.6147-48.

Given the circumstances, expediting briefing was directed. See ECF Nos. 230. Having carefully reviewed that briefing, this Court finds that a hearing is unnecessary and will proceed to address Plaintiff's motion on the papers. See E.D. Mich. LR 7.1(f)(2).

II.

A.

The analysis begins with Plaintiff's request to declare PA 256 unconstitutional. In many respects, Plaintiff's argument is less about the Constitution and more about the differences between PA 256 and the federal remedy.^[6] For example, Plaintiff argues that PA 256 is unconstitutional because it (1) deprives claimants of interest on their surplus proceeds, cf. Knick v. Twp. of Scott, 139 S.Ct. 2162, 2170 (2019) (“[C]ompensation must generally consist of the total value of the property when taken, plus interest from that time.”); and (2) forces them to pay a “sales commission” worth 5% of the surplus proceeds, cf. United States v. Reynolds, 397 U.S. 14, 16 (1970) (“The owner is to be put in the same position monetarily as he would have occupied if his property had not been taken.”). See ECF No. 228 at PageID.6151-58.

Although Defendants deny that PA 256 is unfair or unconstitutional, their response brief consists largely ofjurisdictional arguments. See ECF No. 232 at PageID.6211-17. First, they argue that Plaintiff's constitutional challenge is not ripe for review because he has not shown that any class member is likely to be harmed by the statute. Id. at PageID.6212-13. Similarly, they argue that this Court should abstain from considering PA 256's constitutionality due to similar litigation pending in the Michigan Court of Appeals. Id. at PageID.6213-14 (citing R.R. Comm'n v. Pullman Co., 312 U.S. 496 (1941)).

“The threshold question in every federal case is whether the court has [jurisdiction].” Parsons v. DOJ, 801 F.3d 701, 709 (6th Cir. 2015). Article III of the Constitution limits federal jurisdiction to “Cases” and “Controversies.” U.S. CONST. art. III. § 2. Over the years, the Supreme Court has sharpened that limitation with several jurisdictional rules, including standing, mootness, and ripeness. See DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006) (noting that mootness, ripeness, political-question doctrine, and standing “all originate in Article III's ‘case' and ‘controversy' l...