Kathrein v. City of Evanston

• Decision Date: 15 May 2014
• Docket Number: No. 12–2958.,12–2958.
• Parties: Victoria KATHREIN and Michael L. Kathrein, Plaintiffs–Appellants, v. CITY OF EVANSTON, ILLINOIS, et al, Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

752 F.3d 680

Victoria KATHREIN and Michael L. Kathrein, Plaintiffs–Appellants,

v.CITY OF EVANSTON, ILLINOIS, et al, Defendants–Appellees.

No. 12–2958.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 10, 2013.

Decided May 15, 2014.

Victoria Kathrein, Chicago, IL, pro se.

Michael L. Kathrein, Chicago, IL, pro se.

Brandon Deberry, Attorney, A & G Law LLC, Chicago, IL, for Defendants–Appellees.

Before KANNE, WILLIAMS, and TINDER, Circuit Judges.

TINDER, Circuit Judge.

This appeal is the second occasion for our court to consider the suit by Michael and Victoria Kathrein against the City of Evanston, its mayor, and nine aldermen, pursuant to 42 U.S.C. § 1983. Originally, the district court dismissed the case for want of subject matter jurisdiction. A panel of this court then affirmed in part, reversed in part, and remanded for further proceedings. But in light of an intervening decision of this court sitting en Banc, the district court revisited the question of subject matter jurisdiction and dismissed the remaining claims for a second time. Because the decision of the en Banc court did effect an intervening change in the law, we agree with the district court and now affirm. We also decline to revisit the part of the district court's original decision that we have already affirmed, despite the change in the law, because the Kathreins failed to preserve that issue for review.

I

The Kathreins first filed suit in January of 2008, claiming that Evanston's Affordable Housing Demolition Tax violates the Fifth and Fourteenth Amendments of the United States Constitution, as well as provisions of the Illinois Constitution and other state law. The facts leading to this lawsuit and the first appeal were described in this court's initial panel decision. See Kathrein v. City of Evanston, Ill., 636 F.3d 906, 909–10 (7th Cir.2011). To summarize, the Demolition Tax requires, with certain explicit exceptions, a property owner seeking to demolish any residential building to first pay the City $10,000 per building, or $3,000 per residential unit (whichever is greater). The ordinance establishing the tax states that the measure is designed to “provide a source of funding for the creation, maintenance, and improvement of safe and decent affordable housing in the City of Evanston.” Evanston, Ill., Code § 4–18–1. It accomplishes this goal by directing the proceeds of the exaction to the city's Affordable Housing Fund, which helps low- and moderate-income residents find and keep affordable housing. Id. § 4–18–3(A). In the relevant time period, the law generated approximately $90,000 a year.

The Kathreins alleged that they owned a property containing a single-family house in Evanston in 2007, when a real estate investor and developer agreed to purchase the land for $225,000. But once the prospective buyer learned of the Demolition Tax, he lowered his bid to reflect the extra cost of razing the house. The sale fell through, and the Kathreins state that they have since dropped any plans to sell the property.

Instead, the Kathreins sued in federal court. Their case hit an obstacle, however, in the Tax Injunction Act (TIA), 28 U.S.C. § 1341, which forbids federal courts to “enjoin, suspend, or restrain the assessment, levy or collection of any tax under State law,” so long as there exists “a plain, speedy and efficient remedy” available in state court. The Kathreins therefore amended their complaint to add a new Count One, which alleged that the TIA is unconstitutional.¹ The district court nevertheless granted the defendants' motion to dismiss. The court held that the Demolition Tax was a tax, and that the Kathreins were attempting to interfere with its collection. ²Kathrein v. City of Evanston, Ill., No. 08 C 83, 2009 WL 3055364, at *4–5 (N.D.Ill. Sept. 18, 2009). As to the constitutionality of the TIA itself, the district court held that the Kathreins lacked standing to bring that claim, because the Act barred them only from federal court, and did not stop them from challenging the Demolition Tax in state court. Id. at *5. Therefore, the court reasoned, the Kathreins could not show that the TIA injured them.

A panel of this court reversed the district court's decision in part. Employing a multi-factor analysis, the panel held that the Demolition Tax was a regulatory device, not a tax within the meaning of the TIA, because it provided an effective deterrent against the demolition of residential buildings, and because it raised relatively little revenue. Kathrein v. City of Evanston, Ill., 636 F.3d 906, 912–13 (7th Cir.2011). And with the Demolition Tax no longer considered a tax, the TIA posed no obstacle to the Kathreins' claims against it, and the case could move forward. Id. at 916. But by the same token, the Kathreins could not demonstrate that the TIA inflicted any injury upon them. For that reason, the panel affirmed the dismissal of the constitutional challenge to the TIA for lack of standing. Id. at 913. The case was remanded to the district court for further proceedings.

But before the district court could resolve the remaining claims, this court issued its en banc ruling in Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc., 651 F.3d 722 (7th Cir.2011). In that decision, the full court rejected the multi-factor approach to identifying a tax taken by the panel in the first appeal in this case, stating, “We do not agree with that decision.” Id. at 730. Instead, the court held that an “exaction[ ] designed to generate revenue” was a tax, contrasting such an exaction with fines “designed ... to punish,” and fees that “compensate for a service that the state provides to the person or firms on whom ... the exaction falls.” Id. at 728.

Upon learning of this court's en Banc decision, the defendants again moved to dismiss the Kathreins' claims. Although the panel's earlier ruling that the Demolition Tax was not a tax was the law of the case, the defendants argued that Empress Casino effected an intervening change in the law that permitted the district court to depart from this court's earlier mandate. The Kathreins opposed the defendants' motion, arguing that the panel's decision was still good law after Empress Casino and that it still governed this litigation.

The district court agreed with the defendants. The court read the Empress Casino case to say that the full court “would conclude that the Demo[lition] Tax was a tax within the meaning of the TIA.” Kathrein v. City of Evanston, Ill., No. 08 C 83, 2012 WL 3028331, at *2 (N.D.Ill. July 24, 2012). Although the en Banc court did not “expressly overrule Kathrein ” the district court concluded that it could not ignore “an opinion by the majority of the court stating that an earlier panel decision was wrong.” Id. The Kathreins' remaining claims challenging the Demolition Tax were dismissed.

Notably, neither the district court nor the litigants discussed what should happen to Count One, the Kathreins' constitutional challenge to the TIA. To be sure, the district court had already dismissed that claim in its first decision, and the panel affirmed the dismissal, albeit on different grounds. But that was before Empress Casino unsettled the law of the case. If the TIA now bars the Kathreins' suit, why were they still unable to show injury sufficient to establish Article III standing? This question was left unanswered, because it went unasked.

In the instant appeal, the Kathreins restate their arguments that the original panel decision still governs this case even after Empress Casino. But they also argue in the alternative that, if the Demolition Tax is now to be considered a tax, they should be allowed to press forward with the constitutional challenge to the TIA in the district court.

II

We review a district court's dismissal for want of subject matter jurisdiction, whether due to the TIA or a lack of standing, de novo. Hager v. City of W. Peoria, 84 F.3d 865, 868 (7th Cir.1996); Doe v. Cnty. of Montgomery, Ill., 41 F.3d 1156, 1158 (7th Cir.1994). We accept all well pleaded allegations in the complaint as true, and draw all reasonable inferences in favor of the plaintiff. Hager, 84 F.3d at 868–69;Doe, 41 F.3d at 1158. This appeal turns on the legal interpretation of the Em press Casino decision, and not on any disputed factual findings of the district court.

A. Law of the Case

The Kathreins understandably maintain that our original determination that the Demolition Tax was a regulatory device is now the law of the case. According to the law of the case doctrine, “a ruling made in an earlier phase of a litigation controls the later phases unless a good reason is shown to depart from it.” Tice v. Am. Airlines, Inc., 373 F.3d 851, 853 (7th Cir.2004). Indeed, by finding the Demolition Tax was a tax, the district court effectively reentered a judgment that we had reversed on appeal. “The most elementary application of [law of the case] doctrine is that when a court of appeals has reversed a final judgment and remanded the case, the district court is required to comply with the express or implied rulings of the appellate court.” Waid v. Merrill Area Pub. Sch., 130 F.3d 1268, 1272 (7th Cir.1997) (internal quotation marks omitted).

However, the law of the case doctrine is not “hard and fast,” and we find that the district court had ample “good reason” to depart from it in this instance. Tice, 373 F.3d at 853–54. In general, the “unusual circumstances” that justify abandonment of the law of the case “include (1) substantial new evidence introduced after the first review, (2) a decision of the Supreme Court after the first review that is inconsistent with the decision on that review, and (3) a conviction on the part of the second reviewing court that the decision of the first was clearly erroneous.” Chi. & N.W. Transp. Co. v. United States, 574 F.2d 926, 930 (7th Cir.1978). The second item in that list is an example of a generally accepted occasion for disturbing...