Tarrify Props., LLC v. Cuyahoga Cnty.
| Decision Date | 17 July 2020 |
| Docket Number | Case No. 1:19-cv-2293 |
| Parties | TARRIFY PROPERTIES, LLC, et al., Plaintiffs, v. CUYAHOGA COUNTY, OHIO, Defendant. |
| Court | U.S. District Court — Northern District of Ohio |
Plaintiffs failed to pay taxes on their property.1 The Cuyahoga County Treasurer prosecuted a tax foreclosure against the properties and then transferred the properties to a land reutilization corporation.2 Plaintiffs allege that the value of their property exceeded the taxes owed and that Defendant Cuyahoga County violated the federal and state Takings Clauses when the County transferred that property without providing compensation for the value that exceeded the tax liabilities.3
Defendant moved to dismiss, arguing that the Court does not have jurisdiction over the controversy and that Plaintiffs do not state valid claims.4
For the following reasons, the Court GRANTS in part and DENIES in part Defendant's motion to dismiss.
This case involves an Ohio procedure giving Counties an ability to transfer tax-delinquent properties to third-parties even though the procedure collects no taxes in the transfer and even though property owners have equity in the properties. Under this procedure, a county treasurer or county auditor creates a list of properties the treasurer or auditor claims have been abandoned.5 A county treasurer may then file a complaint with the county board of revision to foreclose on listed properties6
Usually, when the taxes owed on the properties are less than the parcel's fair market value, the board of revision can put the property up for public auction.7 If the auction sale price exceeds the taxes and liens owed, the balance goes to the owner.
This case involves a different Ohio procedure. As an alternative to recovering owed taxes through a foreclosure sale, Ohio law allows the transfer of properties with tax liabilities to a public-purpose entity. And Ohio law allows this transfer to an unrelated party even with small tax liabilities and large property owner equity.
The transfer order is self-executing; "[n]o further act of confirmation or other order shall be required for such a transfer."11
Plaintiffs Tarrify Properties ("Tarrify") and Denise Gutta owned real property in Cuyahoga County.12 The Tarrify Properties real property involved commercial real estate that once hosted a Kentucky Fried Chicken franchise location. The Gutta real property involved a home. Both Plaintiffs were delinquent in property tax payments on those properties.13 In July 2016, Defendant Cuyahoga County foreclosed on Gutta's property.14 In August 2018, Defendant foreclosed on Tarrify's property.15
In both cases, the Cuyahoga County Board of Revision determined that the properties were "abandoned land" as defined in Ohio Revised Code § 323.65.16 And inboth cases the Board of Revision ordered the abandoned properties' transfer to the Cuyahoga County Land Reutilization Corporation (the "Land Bank").17
On October 1, 2019, Plaintiffs sued Defendant Cuyahoga County on behalf of themselves and those similarly situated.18 Plaintiffs contend that the delinquent taxes owed on the properties were substantially less than the value of the properties.19 In Count I, Plaintiffs argue that Defendant violated their federal constitutional rights when the County Board of Revision transferred the properties to the Land Bank without providing compensation for the excess property value.20 And in Count II, Plaintiffs argue that the transfer also violated their state constitutional rights.21
On December 18, 2019, Defendant moved to dismiss the suit.22 Plaintiffs oppose.23
Defendant Cuyahoga County argues that comity should stop this Court from adjudicating Plaintiffs' action.24
Comity is a federal common-law doctrine that "governs constitutional challenges to state tax administration."25 When applied, comity "prohibits 'taxpayers . . . from asserting § 1983 actions against the validity of state tax systems in [the lower] federal courts.'"26
Plaintiffs argue that comity does not stop this case because Plaintiffs do not challenge the state's tax administration.27 They also argue that the County was not exercising a tax authority when it transferred the properties.28
Defendant counters that the foreclosure-transfer mechanism is part of the state's tax administration as "a statutory remedy provided by the General Assembly for the failure to pay real estate taxes."29 Defendant suggests that this remedy "is specifically designed to collect outstanding property taxes because [the statute] specifically provide[s] a delinquent property owner with numerous opportunities to retain their ownership of the property by paying their taxes."30
Defendant's argument is unavailing.31 The transfer is not part of the County's tax administration because the County does not collect any tax when it transfers a property. It does the opposite. By statute, when the County transfers properties under property-transfer mechanism, the County forfeits any right to collect delinquent taxes when it transfers the property, as "all impositions and any other liens on the property [are] deemed foreversatisfied and discharged."32 The property-transfer mechanism stops tax collection from both the entity taking the property and from the earlier owner who owed the taxes. A remedy that waives tax payments is not so imbedded within a state's tax system to be isolated from federal courts' review.
The transfer is a land redevelopment program that gives tax-delinquent properties to non-governmental entities.33 The Court has jurisdiction to consider the constitutionality of these transfers.
Defendant County next argues that the doctrine of res judicata stops Plaintiffs' claims.34 The res judicata doctrine states that "a valid, final judgment rendered upon the merits bars all subsequent actions based upon any claim arising out of the transaction or occurrence that was the subject matter of the previous action."35 Applied here, the County argues that Plaintiffs could have raised takings arguments in appeals from the foreclosure proceedings. By failing to do so, the County argues, Plaintiffs have given up their right to contest the transfer.
Ohio law has four res judicata elements:
(1) a prior final, valid decision on the merits by a court of competent jurisdiction; (2) a second action involving the same parties, or their privies, as the first; (3) a second action raising claims that were or could have beenlitigated in the first action; and (4) a second action arising out of the transaction or occurrence that was the subject matter of the previous action.36
Here, the only final decisions were the Board of Revisions's foreclosure proceedings. The County correctly notes that these administrative proceedings satisfy the first element.37
The County also satisfies the second element. In the foreclosure action, the County Treasurer enjoys privity with Cuyahoga County.38 Ohio applies a broad definition of privity and has stated that that "a mutuality of interest, including an identity of desired result, may create privity."39 The County Treasurer represents the County when prosecuting the foreclosures. The County Treasurer and the County are in privity.
The third element—whether the issue could have been litigated in the earlier foreclosure action—is also satisfied. Although it is unclear if Plaintiffs could have raised their constitutional claims in the foreclosure proceedings, they could have raised them on appeal. Ohio Revised Code § 323.79 provides that any party "aggrieved in any of the proceedings of the county board of revision . . . may file an appeal in the court of common pleas pursuant to Chapters 2505. and 2506. of the Revised Code." On appeal, the court of common pleas proceeds "de novo and may include issues raised or adjudicated in the proceedings before the county board of revision, as well as other issues that are raised for the first time on appeal."40 "Res judicata applies to administrative actions, where a partyhas failed to properly appeal the administrative ruling under R.C. 2506.01."41 Plaintiffs could have litigated their constitutional claims in a Chapter 2506 appeal, so this element is satisfied.
The fourth element—whether the second action comes out of the transaction or occurrence that was the subject matter of the previous action—is also satisfied. Ohio defines a "transaction" as a "common nucleus of operative facts."42 Both the foreclosure and this case rely on the same common set of facts, so this element is satisfied.
Still, the Court declines to apply res judicata. "The binding effect of res judicata has been held not to apply when fairness and justice would not support it."43 The Ohio Supreme Court has cautioned that res judicata "should be applied [to administrative proceedings] with flexibility" and "should be qualified or rejected when its application would contravene an overriding public policy or result in manifest injustice."44
It would be manifestly unjust to apply res judicata to this case. Plaintiffs...
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