Wayside Church v. Van Buren Cty.

Citations: 847 F.3d 812; 2017 FED App. 0030P; 2017 U.S. App. LEXIS 2404; 2017 WL 541008Docket: 15-2525

Court: Court of Appeals for the Sixth Circuit; February 10, 2017; Federal Appellate Court

Original Court Document: View Document

SummaryOriginalCytator Case TreatmentAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiffs Wayside Church, Myron Stahl, and Henderson Hodgens appealed the district court's decision to grant Defendants Van Buren County and its Treasurer, Karen Makay, a motion to dismiss their complaint. The Plaintiffs alleged violations of their Fifth Amendment rights due to the taking of their property without just compensation. Defendants cross-appealed, contesting the district court's jurisdiction over the case. The court vacated the district court's judgment and remanded the case with instructions to dismiss it for lack of subject matter jurisdiction.

In 2011, Plaintiffs owned real property in Van Buren County but failed to pay property taxes. Their properties were subject to forfeiture and foreclosure by March 2012 under the General Property Tax Act. A foreclosure judgment in April 2014 transferred title to the county, which subsequently auctioned the properties. The properties sold for significantly more than their minimum bids, resulting in surplus proceeds for the county: Wayside Church's property sold for $206,000 (surplus of $189,250), Stahl's for $68,750 (surplus of $43,750), and Hodgens' for $47,750 (surplus of $41,850).

Plaintiffs seek the return of surplus funds from the sales of their foreclosed properties, claiming a property interest in these funds and asserting that Defendants violated the Fifth Amendment by failing to provide just compensation. Rather than contesting the foreclosure process, Plaintiffs aim for a declaratory judgment that Defendants' actions constituted a taking without just compensation. The suit, initiated on December 11, 2014, includes three counts: Count I alleges a Fifth Amendment violation, Count II seeks monetary damages under 42 U.S.C. § 1983 for this violation, and Count III requests a declaration regarding the redemption period based on state law. Plaintiffs also intend to represent a class of former Michigan property owners affected similarly. Defendants filed a motion to dismiss on January 7, 2016, arguing lack of jurisdiction and failure to state a claim, leading the district court to deny the jurisdictional motion but grant the motion regarding the claim's viability. Plaintiffs appealed this decision, while Defendants cross-appealed the jurisdictional ruling. The appellate court must first address the jurisdictional challenge, as it determines whether the claims are ripe for review, which impacts the court's subject matter jurisdiction. There are two types of challenges to jurisdiction: facial attacks, which question the sufficiency of the pleadings, and factual attacks. Defendants' challenge is a facial attack.

In a facial attack on subject matter jurisdiction, a district court assumes the truth of the complaint's allegations, similar to a Rule 12(b)(6) motion. The reviewing court examines facial challenges de novo but engages in a factual analysis for factual attacks, which involves weighing conflicting evidence to determine jurisdiction. Factual findings by the district court are accepted unless clearly erroneous, while the legal application of those facts is also reviewed de novo. In this case, since the district court treated the challenge as a facial attack without making factual findings, the appeal is handled similarly. The plaintiff bears the burden of proving jurisdiction under Rule 12(b)(1).

The defendants argue lack of jurisdiction based on two points: the ripeness of the plaintiffs’ claims and the applicability of the Tax Injunction Act and comity principles. Regarding the ripeness of Takings Clause claims, which are enforceable against the states through the Fourteenth Amendment, the Takings Clause requires just compensation for property taken for public use but does not outright prohibit such takings. A violation of the clause occurs only when the state fails to compensate the property owner. Compensation does not need to be paid before or at the time of the taking. A takings claim is ripe only if the state does not provide an adequate post-deprivation remedy, with a two-part test established by the Supreme Court indicating that a federal court may hear a takings claim after the plaintiff has received a final decision from the relevant government authority and has sought compensation through state procedures.

Plaintiffs must seek state court redress before pursuing federal litigation if state procedures are "reasonable, certain, and adequate" at the time of the taking, according to Williamson County standards. Although this requirement is deemed prudential rather than strictly jurisdictional, it serves significant federalism interests, particularly when the case involves state-defined property interests. Defendants do not dispute that the initial test is met but challenge the district court's conclusion that adequate state procedures for Plaintiffs to contest the alleged taking do not exist. They argue that Plaintiffs could have raised constitutional challenges in state court or pursued an inverse condemnation action. However, the district court determined that the General Property Tax Act (GPTA) limits such remedies. Specifically, under Michigan Compiled Laws 211.78l, after foreclosure, property owners can only seek monetary damages in the Court of Claims, which lacks jurisdiction if an adequate federal remedy exists. Consequently, Plaintiffs assert that federal court is their only viable option for relief, a position supported by the district court's ruling that the GPTA allows a cause of action solely for lack of notice, limiting claims against county treasurers to those based on lack of required notice.

The court determined that the Michigan Court of Claims is the sole venue for challenges to the GPTA (General Property Tax Act), but federal claims cannot be pursued in that court. The district court ruled that because the Court of Claims has exclusive jurisdiction over GPTA claims against the County Treasurer and because state law prohibits claims in that court when federal remedies are adequate, the state did not provide a sufficient remedy. However, this ruling contained two significant errors. 

First, the district court misinterpreted the statute by limiting challenges to the GPTA solely to notice procedures, when the statute only restricts remedies to monetary damages under specific conditions: (1) the former owner's rights must have been extinguished due to foreclosure for unpaid taxes, and (2) the challenge must be regarding the notice received. The plaintiffs explicitly stated they were not contesting the notice, meaning the restrictions did not apply to their Takings Clause claim.

Second, the district court incorrectly concluded that the Court of Claims has exclusive jurisdiction over all GPTA challenges, conflating "section" and "act." The legislature intended "act" to refer to the entire GPTA and "section" to specific provisions within it. Therefore, the jurisdictional limitation applied only to claims challenging notice provisions under section 211.78l, which does not encompass the plaintiffs' claims. As a result, the plaintiffs were not obliged to file their claims in the Court of Claims and were not barred by the statute concerning adequate federal remedies.

The district court improperly concluded that the GPTA offered no remedy for the Plaintiffs' constitutional claims. If interpreted as the district court suggested, the statute would be unconstitutional, violating the constitutional avoidance rule which prefers a construction maintaining constitutionality when two interpretations exist. The court's interpretation would effectively bar all but one federal right—due process notice—in state court, which is untenable as it undermines federal law. The Michigan Supreme Court affirmed that the legislature cannot create a statute allowing for constitutional violations without recourse, rendering the relevant portion of the GPTA unconstitutional and unenforceable. Consequently, section 211.78l of the GPTA does not prevent Plaintiffs from filing their Takings Clause claims in state court. However, it must be determined whether there are adequate procedures to challenge a taking under state law before Plaintiffs can seek federal redress. The Michigan Court of Appeals has noted that the Court of Claims is the appropriate venue for inverse condemnation claims against the state, but jurisdiction does not extend to counties. Since Plaintiffs are suing Van Buren County and its treasurer—not the State of Michigan—this case does not fall under the Court of Claims' jurisdiction, allowing the Plaintiffs to proceed in circuit court instead.

The Michigan jurisdictional scheme requires that claims against political subdivisions of the state can be litigated in state court, contradicting the argument for exclusive federal jurisdiction when an adequate federal remedy exists. In *Gordon v. Sadasivan*, the Michigan Court of Appeals established that state courts have concurrent jurisdiction over claims brought under Section 1983, despite the existence of federal remedies. The court clarified that while the Court of Claims may lack jurisdiction when a federal remedy is available, this does not preclude jurisdiction in state circuit courts. The circuit courts routinely handle cases with federal claims, thus affirming that plaintiffs are not barred from seeking remedies in state court for their federal constitutional rights.

Furthermore, the district court erred in asserting jurisdiction based on federal law, as the plaintiffs did not demonstrate a lack of adequate state remedies at the time of the alleged taking, referencing *Williamson County*. The Tax Injunction Act prohibits federal courts from intervening in state tax matters when a speedy and efficient remedy is available in state courts. Additionally, the principle of comity restricts taxpayers from using Section 1983 actions to challenge state tax laws in federal courts, applicable to both injunctive and monetary claims. This principle, while similar to the Tax Injunction Act, functions independently and reinforces limits on federal jurisdiction over state tax-related disputes.

Federal courts may only exercise jurisdiction when state courts fail to provide a "plain, adequate, and complete" remedy, as established by the Tax Injunction Act and the principle of comity. In this case, plaintiffs sought both declaratory judgment and monetary damages, which necessitated an analysis under both doctrines. Remedies are considered "plain, adequate, and complete" if they allow taxpayers a full hearing to raise federal constitutional objections. The court determined that the plaintiffs could indeed challenge the General Property Tax Act (GPTA) on constitutional grounds in state court, and thus the district court erred in asserting jurisdiction over the plaintiffs' claims. Consequently, the judgment was vacated, and the case was remanded with instructions to dismiss for lack of subject matter jurisdiction.

In dissent, Judge Kethledge argued that the federal courts have jurisdiction under 28 U.S.C. 1331 and emphasized that they must exercise this jurisdiction unless prudential doctrines dictate otherwise. He contended that the plaintiffs' case involved a potential takings claim under the federal Constitution that should not be dismissed based solely on the Williamson County precedent, which favors state court remedies for takings claims. Kethledge noted the discretionary nature of the Williamson County doctrine and argued for its inapplicability in this instance, asserting the need for a thorough judicial process.

Michigan law recognizes a cause of action for inverse condemnations, where property is taken without formal eminent domain proceedings, as established in Merkur Steel Supply, Inc. v. Detroit. However, it remains uncertain whether a local government's appropriation of property through taxing power constitutes a taking under state law, particularly if the property value exceeds taxes owed. This potential inverse-condemnation claim is considered possibly valid due to the perceived injustice involved. The Michigan Act mandates that the County must compensate taxpayers for the difference between forfeited property value and owed taxes, but the courts have not definitively recognized such claims.

Jurisdiction poses additional challenges for plaintiffs filing an inverse-condemnation claim. They must choose between the state circuit court and the state court of claims, with the latter having exclusive jurisdiction over monetary claims against the state or its departments. The Michigan Court of Appeals has indicated that claims of inverse condemnation should be filed in the court of claims. However, there is ambiguity regarding whether a case against a county, as a state instrumentality, would also fall under the court of claims' jurisdiction. Moreover, a statutory provision may prevent claims in the court of claims if an adequate federal remedy exists, complicating the plaintiffs' situation given their assertion of a federal constitutional claim.

Plaintiffs are directed by statute 600.6440 to litigate their claims in federal court, but the majority opinion interprets Williamson County to require them to pursue their claims in state court. This creates a conflict where state law suggests federal court jurisdiction, yet the majority declares the state jurisdictional framework unconstitutional, allowing the plaintiffs to file in state circuit court contrary to the Michigan statutes. The dissent emphasizes the importance of adjudicating federal constitutional claims, particularly a substantial claim regarding property taking in tax situations. It highlights Congress's grant of jurisdiction for such claims and stresses the obligation to exercise that jurisdiction. Despite this, the majority's decision, framed as an effort to uphold federalism, leads to a rejection of state preferences and sends plaintiffs back to state court, which is described as having confusing and uncertain procedures. The dissent critiques the majority's reliance on Haywood v. Drown, noting that in this case, there is no intention from the state to undermine federal law, unlike the discrimination against federal claims seen in Haywood. The dissent argues that the federal courts, through the application of Williamson County, have actually hindered the adjudication of federal takings claims.