Sherman v. City of St. Joseph

• Decision Date: 18 June 2020
• Docket Number: No. 348333,348333
• Citation: 332 Mich.App. 626,957 N.W.2d 838
• Parties: William SHERMAN, Christopher Wellin, and Fairways at Harbor Shores Association, Plaintiffs-Appellants, v. CITY OF ST. JOSEPH and City of Benton Harbor, Defendants-Appellees.
• Court: Court of Appeal of Michigan — District of US

332 Mich.App. 626

957 N.W.2d 838

William SHERMAN, Christopher Wellin, and Fairways at Harbor Shores Association, Plaintiffs-Appellants,

v.CITY OF ST. JOSEPH and City of Benton Harbor, Defendants-Appellees.

No. 348333

Court of Appeals of Michigan.

Submitted June 3, 2020, at Grand Rapids.

Decided June 18, 2020, 9:05 a.m.

Foster, Swift, Collins & Smith, PC, Grand Rapids (by Laura J. Genovich ), for plaintiffs.

Laurie L. Wightman Schmidt for the city of St. Joseph.

Bloom Sluggett, PC (by Christian K. Mullett, Troy, Jeffrey V. H. Sluggett, and Amy R. Jonker ) for the city of Benton Harbor.

Before: K. F. Kelly, P.J., and Fort Hood and Swartzle, JJ.

Swartzle, J.

The individual plaintiffs in this lawsuit vote in St. Joseph elections but are subject to Benton Harbor taxes. This unusual arrangement is a temporary one and arises under defendants’ conditional transfer-of-property agreement. Plaintiffs do not take issue with their right to vote in St. Joseph elections, but they do contend that, because they cannot vote in Benton Harbor elections, they cannot be subject to Benton Harbor taxes. We conclude otherwise and hold that defendants’ agreement is consistent with Michigan's conditional transfer-of-property law and that the agreement does not otherwise violate the state's tax or election laws. For these reasons and as more fully explained below, we affirm summary disposition in favor of defendants.

I. BACKGROUND

This case involves an agreement under the Intergovernmental Conditional Transfer of Property by Contract Act, MCL 124.21 et seq. Because the statute was first enacted by 1984 PA 425, intergovernmental agreements under its authority are commonly referred to as "Act 425" agreements. The underlying purpose of an Act 425 agreement is to enable a local unit of government to facilitate an economic development project. See MCL 124.22(1) ; MCL 124.21(a).

In 2005, the cities of St. Joseph and Benton Harbor entered into an Act 425 agreement in which they agreed to the conditional transfer of property located within the boundaries of St. Joseph to Benton Harbor for a period of 20 years. According to St. Joseph and Benton Harbor, the conditionally transferred property was principally composed of former industrial sites with environmental contamination, and the agreement was intended to allow the property to qualify for economic incentives, such as those available under the Brownfield Redevelopment Financing Act, MCL 125.2651 et seq. , to facilitate the property's redevelopment for residential and commercial purposes.

Under the terms of the Act 425 agreement, the zoning ordinances of St. Joseph continued to apply to the conditionally transferred property, and St. Joseph continued to provide municipal services, e.g., water, sanitary sewer, law enforcement, fire protection, fire-code administration and enforcement, construction-code administration and enforcement, and property-maintenance-code enforcement, to the property. Furthermore, the agreement provided that the conditionally transferred property would be treated as if it were within the jurisdictional limits of St. Joseph for the purpose of applying and enforcing all ordinances, rules, and regulations. Any residents of the conditionally transferred property would be "considered residents of both Benton Harbor and St. Joseph for purposes of library and park privileges in either community."

The current dispute centers on provisions of the agreement addressing taxation and voting. Under the agreement, individuals residing on the conditionally transferred property were entitled to continue voting in St. Joseph but were required to pay taxes to Benton Harbor for the duration of the agreement. Specifically, the agreement provides in relevant part:

2.2 Effect of Transfer. Except as otherwise specifically provided in this Agreement, the Conditionally Transferred Property shall, for all purposes, be within the jurisdiction of Benton Harbor and St. Joseph shall have no further jurisdiction over that property.

* * *

(d) Taxes. For the purposes of all taxation, including, without limitation, ad valorem real and personal property taxes, income taxes, hotel/motel tax, etc., the Conditionally Transferred Property shall be considered as being within the jurisdictional limits of Benton Harbor....

* * *

(f) Voting. Any persons residing on the Conditionally Transferred Property shall be entitled to vote on the same basis as all other persons residing within the legal limits of St. Joseph. The parties recognize that because at the termination of this Agreement, the Conditionally Transferred Property will once again lie within St. Joseph's jurisdictional limits, the long-term interests of those registered electors who may reside on the Conditionally Transferred Property will likely be to have input into St. Joseph electoral matters. In addition, St. Joseph will be adopting, implementing and enforcing the ordinances and policies, including utility policies, affecting the Conditionally Transferred Property during the term of this Agreement. The parties therefore determined that, on balance, the interests of those registered electors who may reside on the Conditionally Transferred Property are more likely advanced by providing they are electors in St. Joseph during the term of this Agreement. If a court of competent jurisdiction determines that the voting rights of the registered electors residing on the Conditionally Transferred Property should be different than as provided in this provision, this provision shall be revised in accordance with such court's opinion and order and the order and the remainder of this Agreement shall be unaffected by such court's determination.

The agreement further contains detailed provisions regarding the sharing of revenues between the local units of government, including ad valorem property taxes, state and federal revenue sharing, and Act 51¹ funds.

After the agreement went into effect, a site-condominium project was developed on the conditionally transferred property. Plaintiffs William Sherman and Christopher Wellin purchased parcels on the property, and plaintiff Fairways at Harbor Shores Association was created as the homeowners’ association affiliated with the site-condominium project, including the individual plaintiffs’ parcels.

In 2017, Benton Harbor placed a tax initiative on the ballot for approval by the registered electors of the city. Under the Act 425 agreement, plaintiffs could not vote on the income-tax question because they were deemed electors of St. Joseph, not Benton Harbor, and yet, they would be subject to any approved tax because they were deemed residents of Benton Harbor for purposes of taxation. The Benton Harbor electors approved the income-tax question by a narrow margin. Accordingly, beginning in January 2018, Benton Harbor's income tax requires businesses and residents (including the individual plaintiffs) to pay a 1% tax on their income.

Plaintiffs sued six months after the income tax became effective. They contend that they are not subject to the income tax because the provisions of the Act 425 agreement that split their voting and taxing rights violated the City Income Tax Act (CITA), MCL 141.501 et seq. In essence, because they were not permitted to vote on the income-tax question, they are not required to pay income tax to Benton Harbor, according to plaintiffs. The trial court granted summary disposition in favor of defendants, and this appeal followed.

II. ANALYSIS

We review de novo a trial court's decision to grant or deny a motion for summary disposition. Clam Lake Twp. v. Dep't of Licensing and Regulatory Affairs , 500 Mich. 362, 372, 902 N.W.2d 293 (2017). "Summary disposition is appropriate if there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law." Id. Furthermore, statutory interpretation is a question of law, which we also review de novo. Id. at 372-373, 902 N.W.2d 293.

As an initial matter, plaintiffs argue that the trial court erred because it granted summary disposition to defendants on the ground that plaintiffs waived their claim. Our review of the record indicates that the trial court's grant of summary disposition to defendants was not based on waiver. The trial court's statements regarding any delay in the filing of this lawsuit or dilatory conduct by plaintiffs were merely dicta. Therefore, plaintiffs are not entitled to relief on this ground.

Moving to plaintiffs’ primary argument, they maintain that the provisions in the Act 425 agreement regarding taxing and voting violate the CITA. They adamantly assert that they are not making a constitutional claim but, rather, a statutory one, i.e., a violation of the CITA. Relatedly, plaintiffs do not challenge the results of the election. Accordingly, we focus on the language found in Act 425, the CITA, and the relevant provisions of the Act 425 agreement, and we do not consider any constitutional claim or challenge to the election.

Act 425 provides that two or more local units of government "may conditionally transfer property for a period of not more than 50 years for the purpose of an economic development project." MCL 124.22(1). This conditional transfer of property "shall be...