Tyler v. Hennepin Cnty., Case No. 20-CV-0889 (PJS/BRT)

• Citation: 505 F.Supp.3d 879
• Decision Date: 04 December 2020
• Docket Number: Case No. 20-CV-0889 (PJS/BRT)
• Parties: Geraldine TYLER, on behalf of herself and all others similarly situated, Plaintiff, v. HENNEPIN COUNTY and Mark V. Chapin, Auditor-Treasurer, in his official capacity, Defendants.
• Court: U.S. District Court — District of Minnesota

505 F.Supp.3d 879

Geraldine TYLER, on behalf of herself and all others similarly situated, Plaintiff,

v.HENNEPIN COUNTY and Mark V. Chapin, Auditor-Treasurer, in his official capacity, Defendants.

Case No. 20-CV-0889 (PJS/BRT)

United States District Court, D. Minnesota.

Signed December 4, 2020

Charles R. Watkins, GUIN, STOKES & EVANS, LLC; Roberta A. Yard and Garrett D. Blanchfield, Jr., REINHARDT WENDORF & BLANCHFIELD; Daniel C. Hedlund and Daniel J. Nordin, GUSTAFSON GLUEK PLLC; and Marisa C. Katz and Vildan A. Teske, TESKE KATZ, PLLP, for plaintiff.

Rebecca L.S. Holschuh, Kelly K. Pierce, and Jeffrey M. Wojciechowski, HENNEPIN COUNTY ATTORNEY'S OFFICE, for defendants.

ORDER

Patrick J. Schiltz, United States District Judge

Plaintiff Geraldine Tyler owed $15,000 in unpaid state property taxes, penalties, costs, and interest. Acting pursuant to a Minnesota statute, defendants Hennepin County and Hennepin County Auditor-Treasurer Mark Chapin (collectively "the County"¹ ) foreclosed on Tyler's property, sold it for $40,000, and kept all of the proceeds. Tyler filed this lawsuit alleging, among other things, that the County violated her constitutional rights by retaining the value of her property in excess of the $15,000 tax debt that Tyler owed.

This matter is before the Court on the County's motion to dismiss. ECF No. 11. For the reasons that follow, the County's motion is granted, and Tyler's amended complaint is dismissed with prejudice.

I. BACKGROUND

Tyler purchased a condominium in Minneapolis in 1999. Am. Compl. ¶ 5. Tyler moved out of her condo in 2010 and began renting an apartment. At that time, Tyler stopped paying the property taxes that she owed on the condo. Id.

In Minnesota, property taxes become a lien against the subject property at the time they are assessed. Minn. Stat. § 272.31. Property taxes that are not paid during the year in which they are due become delinquent on January 1 of the following year. See Minn. Stat. § 279.03 subd. 1. If the taxes become delinquent, the county may obtain a judgment against the property.

On or before February 15 of each year, the county auditor generates a delinquent tax list identifying the properties on which delinquent taxes are owed, the delinquent taxpayers, and the amounts of taxes and penalties owed. Minn. Stat. § 279.05. The filing of the delinquent tax list commences a lawsuit against each property on the list. Id. Both the delinquent tax list and notice of the action are published twice and mailed to the delinquent taxpayers and to anyone else who has requested notice. Minn. Stat. §§ 279.09 – 279.091. If no answer is filed, the district-court administrator enters a judgment against the property. Minn. Stat. § 279.16.

On the second Monday in May, each parcel with an unsatisfied judgment is sold to the state through a procedure by which the county (acting on behalf of the state) "bids in" (i.e., purchases the property for) the amount of delinquent taxes, penalties, costs, and interest. Minn. Stat. § 280.01. At this time, title vests in the state subject to the right of redemption set out in Minn. Stat. § 281. Minn. Stat. § 280.41. During the redemption period (which for most properties is three years), the delinquent taxpayer and any other person claiming an interest in the property may redeem it for the amount of the delinquent taxes, penalties, costs, and interest. Minn. Stat. §§ 281.01 – 281.02, 281.17. The county must notify the delinquent taxpayer and anyone else claiming an interest in the property of their right to redeem—and of the date on which that right will expire—by posting notice at the county auditor's office, publishing notice, mailing notice by certified mail, and personally serving notice on any occupant of the property. Minn. Stat. § 281.23.

If a property owner cannot afford to redeem but wishes to avoid forfeiture, the property owner may make a "confession of judgment." Minn. Stat. § 279.37. By so doing, the taxpayer agrees to the entry of judgment for all delinquent taxes, penalties, costs, and interest. Confessing judgment allows the taxpayer to consolidate her entire delinquency (which may span several years) into a single obligation to be paid in installments over five to ten years. Id.

If the property owner does not exercise her right of redemption under § 281 or make a confession of judgment under § 279.37, final forfeiture occurs. Absolute title to the property vests in the state, and all taxes, penalties, costs, interest, and special assessments are canceled, along with all other liens against the property held by any party. Minn. Stat. §§ 281.18, 282.07.

Following final forfeiture, the former property owner may apply to repurchase the property. The repurchase price is the amount of the taxes, penalties, costs, interest, and special assessments owing at the time of forfeiture, along with any taxes that would have been collected if the property had not been forfeited. Minn. Stat. § 282.241. If the application to repurchase is granted, the county may allow the repurchase price to be paid in installments. Id.

Following final forfeiture, the county holds a public classification meeting to determine whether forfeited properties should be sold to private parties or retained for public use. Minn. Stat. § 282.01 subd. 1. If sold to a private party, the property is sold at its appraised value. Minn. Stat. § 282.01 subds. 3–4. If sold to a public entity, the property may be sold at less than its appraised value (or even transferred at no cost). Minn. Stat. § 282.01 subd. 1a.

If the property is sold, the proceeds of the sale are, of course, not applied to the unpaid taxes, because the tax deficiency was cancelled at the time of final forfeiture. Rather, Minn. Stat. § 282.08 directs that the net proceeds must be distributed in the following order: First, any expenses incurred for municipal improvements and environmental cleanup that increased the value of the property must be paid. Second, any special assessments must be paid. Third, the county may choose to designate a portion of the proceeds to help fund forest development or county parks or recreational areas. And finally 40 percent of what remains must be distributed to the county, 40 percent to the school district, and 20 percent to the town or city.

Minnesota's statutory tax-foreclosure scheme does not provide former property owners with any means to claim the proceeds of the sale in excess of the tax debt. Minnesota is one of just a handful of states that statutorily requires the surplus to be distributed to recipients other than the former property owner.²

Pursuant to this statutorily-prescribed process, the County obtained a judgment against Tyler's condo in April 2012 after she received notice of the foreclosure action and failed to file an answer. Am. Compl. ¶ 5. Tyler then received notice of her right to redeem, but at no point during the three-year redemption period did she redeem or seek a confession of judgment. After the County took absolute title to her condo in July 2015, Tyler did not apply to repurchase the property. The County sold the condo for $40,000 four months later. At the time, Tyler's outstanding tax debt (including penalties, costs, and interest) was just $15,000.

Tyler filed this action in state court, alleging that the County's retention of the "surplus"—that is, the value of her condo in excess of her $15,000 tax debt—is unconstitutional and that the County has been unjustly enriched. The County removed the case to this Court and now moves to dismiss for failure to state a claim.

II. ANALYSIS

A. Subject-Matter Jurisdiction

The Court must initially determine whether it has subject-matter jurisdiction over Tyler's claims. Because those claims involve the administration of state and local taxes, both the Tax Injunction Act ("TIA") and the related comity doctrine create potential barriers to this Court's exercise of jurisdiction. See Diversified Ingredients, Inc. v. Testa , 846 F.3d 994, 996 (8th Cir. 2017) (explaining that the TIA is jurisdictional).

1. The Tax Injunction Act

The TIA provides that "[t]he district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341. "The Act is a gesture of comity toward the states; recognizing the centrality of tax collection to the operation of government, the Act prevents taxpayers from running to federal court to stymie the collection of state taxes." Wright v. Pappas , 256 F.3d 635, 636 (7th Cir. 2001). The TIA deprives federal courts of jurisdiction over claims seeking injunctive or declaratory relief; it is not clear whether the TIA also bars jurisdiction over claims seeking damages.³ See California v. Grace Brethren Church , 457 U.S. 393, 408–11, 102 S.Ct. 2498, 73 L.Ed.2d 93 (1982). Both Tyler and the County argue that the TIA does not deprive this Court of jurisdiction over Tyler's claims.

Whether the parties are correct depends on the exact nature of those claims. At times, Tyler has seemed to argue that the County acted unlawfully when it took title to her condo.⁴ Under the TIA, however, this Court may not exercise jurisdiction over any claim seeking to enjoin or restrain the "collection" of any state tax. 28 U.S.C. § 1341. The Supreme Court has held that forfeiture is a form of tax "collection" for purposes of the TIA. Direct Mktg. Ass'n v. Brohl , 575 U.S. 1, 10, 135 S.Ct. 1124, 191 L.Ed.2d 97 (2015). Thus, to the extent that Tyler challenges the County's seizure of her condo, Tyler's request for injunctive and declaratory relief is barred by the TIA.

In her supplemental briefing, however, Tyler clarifies that she is not pursuing any challenge to the forfeiture of her condo or any other conduct of defendants, save for their retention of the surplus following final forfeiture of her condo. See ECF No. 33. For the reasons that follow, the Court finds that the TIA does not...