Fakhreddine v. Sabree

FADI ABI FAKHREDDINE and OLD JOY INVESTMENT CO., INC Plaintiffs, v. ERIC R. SABREE, WAYNE COUNTY TREASURER, Defendant.

No. 21-CV-12250

United States District Court, E.D. Michigan, Southern Division

January 25, 2022

OPINION AND ORDER GRANTING DEFENDANT'S MOTION TO DISMISS (ECF No. 4)

GEORGE CARAM STEEH UNITED STATES DISTRICT JUDGE

Plaintiffs Fadi Abi Fakhreddine and Old Joy Investment Company, Inc. filed this matter in the Wayne County Circuit Court. Defendant Eric R. Sabree, Wayne County Treasurer, removed the case to this Court on September 24, 2021. The case arises out of defendant's foreclosure of two properties owned by plaintiffs due to their failure to pay property taxes. The foreclosures were carried out pursuant to Michigan's General Property Tax Act (“Tax Act”), MCL § 211.1 et seq. Plaintiffs maintain that the foreclosure sales resulted in surplus revenue, beyond that needed to satisfy the property tax delinquencies and associated costs, that should have been returned to plaintiffs but was instead retained by defendant. The Complaint alleges due process violations under the federal constitution, an unlawful taking in violation of the Michigan constitution, conversion in violation of Michigan common law and MCL 600.2919a, and unjust enrichment.

The matter is before the Court on defendant's motion to dismiss plaintiffs' complaint pursuant to Fed.R.Civ.P 12(b)(6). The Court is familiar with the case and has read the pleadings filed by both sides. The Court does not believe that it would benefit from oral argument in this case and is therefore deciding the motion on the briefs. For the reasons stated below, defendant's motion to dismiss is GRANTED.

FACTUAL BACKGROUND

Plaintiff Fadi abi Fakhreddine was the owner of the real property known as 13526 Plymouth Rd., Detroit, MI 28228 [Parcel ID # 22029736] (“Plymouth Property”). Plaintiff Old Joy Investment Company, Inc. (“Old Joy”) was the owner of the real property commonly known as 8853 Schaef Schaefer Highway, Detroit, MI 48228 [Parcel ID # 22031149] (“Schaefer Property”). Plaintiffs failed to pay the property taxes owed on the two properties.

On March 28, 2018, the Wayne County Circuit Court entered a judgment of foreclosure in Wayne County's favor against the Schaefer Property. On August 28, 2018, Wayne County took title to the Schaefer Property under its right of first refusal pursuant to MCL 211.78m for $21, 109.60, which was the amount of the tax delinquency and associated costs. On September 10, 2018 plaintiffs filed a complaint in Wayne County Circuit Court alleging that the foreclosure was invalid because Wayne County failed to follow the required procedure, including failure to give plaintiffs proper notice of foreclosure. Construing plaintiffs' complaint as a motion to set aside the foreclosure, the court denied the motion on October 9, 2018.

After taking title to the Schaefer Property, Wayne County assigned the property to the Wayne County Land Bank. The Wayne County Land Bank then allegedly sold the Schaefer Road Property to a development company, Progressive Real Estate, for $164, 000.

Also, on March 28, 2018, the Wayne County Circuit Court entered a judgment of foreclosure in Wayne County's favor against the Plymouth Property. The Plymouth Property was then sold at tax auction for $55, 000 on November 16, 2018. Plaintiffs contend that the foreclosure and subsequent sale of the Schaefer Property resulted in surplus revenues (“Surplus”) of $272, 000 and the foreclosure and sale of the Plymouth Property resulted in a Surplus of $45, 000. According to plaintiffs, the Surplus is personal property in which they have a vested property interest. Plaintiffs bring this lawsuit to recover the Surplus.

Plaintiffs allege in Count I that they have a property interest in the Surplus and that defendant's retention of the Surplus is a violation of their due process rights pursuant to the 4^th, 5^th and 14^th Amendments to the Constitution. As damages, they demand a return of the Surplus. In Count II, plaintiffs allege that defendant has been unjustly enriched by retaining the Surplus and they seek that it be returned to them. In Count III, plaintiffs allege that defendant's retention of the Surplus was a taking in violation of the Michigan Constitution, Const 1963, art 10, § 2, and assert that the Surplus must be returned. Finally, in Count IV, plaintiffs allege that defendant's retention of the Surplus constituted conversion in violation of common law and MCL 600.2919a. Plaintiffs seek a judgment for damages in the amount of treble the Surplus, pursuant to the statute.

LEGAL STANDARD

Rule 12(b)(6) allows the Court to make an assessment as to whether the plaintiff has stated a claim upon which relief may be granted. Under the Supreme Court's articulation of the Rule 12(b)(6) standard in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554-56 (2007), the Court must construe the complaint in favor of the plaintiff, accept the allegations of the complaint as true, and determine whether plaintiff's factual allegations present plausible claims. “'[N]aked assertion[s]' devoid of 'further factual enhancement'” are insufficient to “state a claim to relief that is plausible on its face”. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 557, 570). To survive a Rule 12(b)(6) motion to dismiss, plaintiff's pleading for relief must provide “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” D'Ambrosio v. Marino, 747 F.3d 378, 383 (6th Cir. 2014) (quoting Twombly, 550 U.S. at 555) (other citations omitted). Even though the complaint need not contain “detailed” factual allegations, its “factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true.” New Albany Tractor, Inc. v. Louisville Tractor, Inc., 650 F.3d 1046, 1051 (6th Cir. 2011) (citing Twombly, 550 U.S. at 555).

ANALYSIS

I. Rafaeli Decision

Plaintiffs' claims are based the Michigan Supreme Court's ruling in Rafaeli, LLC v. Oakland County, 505 Mich. 429 (2020). In 2015, former commercial property owners brought an action to recover surplus funds from the sale of their properties following tax foreclosure. Id. at 438-39. In each instance there was a judgment of foreclosure, a failure to timely redeem the property which resulted in a transfer of fee simple title to the County, and a sale of the property at auction to a third party. The auction proceeds exceeded the debt owed by the property owners. The Michigan Supreme Court found that “defendants' retention of those surplus proceeds is an unconstitutional taking without just compensation under Article 10 § 2 of [Michigan's] 1963 Constitution.” Id. at 437. The court limited its holding to situations where there is a surplus, writing that “a former property owner only has a right to collect the surplus proceeds from the tax-foreclosure sale; that is, a former property owner has a compensable takings claim if and only if the tax-foreclosure sale produces a surplus.” Id. at 477. The court made clear that the County's failure to return the surplus proceeds to plaintiffs constituted a government taking under the Michigan Constitution, and rejected any finding that the Tax Act violated the United States Constitution. Id. It also rejected “lost equity” as the measure of damages for the violation: it “reject[ed] the premise that just compensation requires the plaintiffs to be awarded the fair market value of their properties, so as to be put in as good of [sic] position had their properties not been taken at all.” Id. at 483. Finally, the court noted that nothing “prevents the Legislature from enacting legislation that would require former property owners to avail themselves of certain procedural avenues to recover the surplus proceeds.” Id. at 473 n.108. On remand, the Oakland County Circuit Court determined the Supreme Court's opinion should be applied prospectively as of July 17, 2020, the date of the Rafaeli decision.

Following Rafaeli, the Michigan Legislature modified the Tax Act's procedures by which a person with a property interest could pursue an interest in surplus proceeds from a sale or transfer. The Legislature added Section 78t to the Tax Act, which provides that those who had their “property transferred or sold under section 78m before July 18, 2020, ” may make a claim for reimbursement only “if the Michigan Supreme Court orders that its decision in Rafaeli . . . applies retroactively, ” and if the claimant complies with certain procedural requirements “pursuant to subsection (6).” MCL 211.78t(1)(b). The statute provides “the exclusive mechanism for a claimant to claim and receive any applicable remaining proceeds under the laws of this state” and includes a two-year statute of limitations for pursuing such claims. MCL 211.78t(11) and 78I.

The Court considers plaintiffs' claims against this legal landscape.

II. Schaefer Property

Wayne County took title to the Schaefer Property pursuant to its right of first refusal under MCL 211.78m. On August 28, 2018, that statute provided:

If this state elects not to purchase the property under its right of first refusal, a city, village, or township may purchase for a public purpose any property located within that city, village, or township set forth in the judgment and subject to sale under this section by payment to the foreclosing governmental unit of the minimum bid. If a city, village, or township does not purchase that property, the county in which that property is located may purchase that property under this section by payment to the foreclosing governmental unit of the minimum bid.

MCL 211.78m (2018) (emphasis...