Sinclair v. Meisner

587 F.Supp.3d 597

Marion SINCLAIR, Plaintiff,

v.Andy MEISNER, et al., Defendants.

2:18-CV-14042-TGB-MJH

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

Signed February 28, 2022

Adam T. Schnatz, Jayson E. Blake, McAlpine PC, Mark L. McAlpine, McAlpine & McAlpine, Auburn Hills, MI, Scott F. Smith, Smith Law Group, Farmington Hills, MI, for Plaintiff.

Brandon K. Buck, David N. Asmar, Oakland County Corporation Counsel, Pontiac, MI, for Defendants Andy Meisner, County of Oakland, Oakland County Tax Tribunal.

Michael A. Knoblock, T. Joseph Seward, Seward Peck & Henderson PLLC, Royal Oak, MI, for Defendants City of Southfield, Kenson Siver, Frederick Zorn, Gerald Witkowski, Sue Ward-Witkowski, Irv Lowenberg, Michael Mandlebaum, Donald Fracassi, Daniel Brightwell, Myron Frasier, Lloyd Crews, Nancy Banks.

Joseph G. Couvreur, Matthew T. Nicols, Pentiuk, Couvreur & Kobiljak, P.C., Wyandotte, MI, for Defendants Southfield Non Profit Housing Coporation, Mitchell Simon, Rita Fulgiam-Hillman, Lora Brantley-Gilbert, Earlene Trayler-Neal, Southfield Neighborhood Revitalization Initiative, LLC, Etoile Libbett.

Jason R. Abel, Honigman LLP, Detroit, MI, for Defendant GTJ Consulting, LLC.

ORDER DENYING MOTION TO FILE SECOND AMENDED CLASS ACTION COMPLAINT

TERRENCE G. BERG, United States District Judge

Michigan resident Marion Sinclair, plaintiff in this case, alleges that the Defendants, various local government units, private entities, and public officials, have conspired to unconstitutionally deprive Plaintiff and others of their equity in their homes by taking them in tax foreclosure proceedings. Plaintiff's original complaint was dismissed without prejudice, but the case was stayed because parties and the Court believed that the Sixth Circuit's pending ruling in Freed v. Thomas , 976 F.3d 729 (6th Cir. 2020), would have some bearing on the merits of any amended complaint. ECF No. 39. It did not, so following the decision by the Court of Appeals in Freed , Plaintiff timely filed a motion to amend with a proposed amended complaint attached. Defendants respond in opposition, arguing the law does not recognize the property right of which Plaintiff claims to be deprived, and that any amendment would be futile. For the reasons that follow, the Motion to Amend the Complaint is DENIED .

I. BACKGROUND

Marion Sinclair seeks to represent a proposed class of former property owners in Southfield who claim to have been unconstitutionally deprived of property interests when their homes were lost through tax foreclosure proceedings. Proposed Am. Compl. ¶ 61, ECF No. 51-1, PageID.825.

Understanding Plaintiff's legal claims requires a preliminary discussion of the Michigan General Property Tax Act ("GPTA"). MCL §§ 211.1 - 211.157. The GPTA's purpose is to facilitate the efficient payment of property taxes and the efficient return of delinquent properties back to the tax rolls. When relevant municipal authorities determine that taxes are past due on a property, the owner of the property faces one of two scenarios: (1) the owner is able, within the statutory time limits, to pay their back taxes and redeem their property, or (2) the property is foreclosed on and sold, and the property is returned to the tax rolls after the municipality recovers as much as it can in owed taxes and fees.

The treasurer of a county can elect to act as the "foreclosing government unit" or "FGU" who facilitates the resolution of any delinquent tax payments and administers notification regarding redemption opportunities and eventual foreclosure and sale. If the county treasurer does not elect to act as the FGU, the state will. However, most counties in Michigan (including Oakland County, where Southfield is located) have elected to have their treasurer perform this function. MCL 211.78.

The GPTA sets out the procedures and timelines that govern this process. Each year, property taxes unpaid as of March 1 are identified to the treasurer as delinquent. Once a property becomes delinquent, the treasurer initiates a prescribed schedule of notice and hearing opportunities over the course of twelve months, giving owners a chance to redeem their property. MCL 211.78b -g. If the property is not redeemed in that time, it is "forfeited" to the treasurer. This does not affect title, but allows the treasurer to list the property on the tax rolls as forfeited and file a petition in circuit court seeking foreclosure. The GPTA also includes notice procedures and requirements regarding this foreclosure hearing in circuit court, creating continuing opportunities for redemption by the owner. MCL 211.78h. The taxpayer's right to redeem the property expires on the March 31 immediately following entry of judgment on the foreclosure petition (generally falling about two years after the initial delinquency finding). If delinquent taxes are not paid by that date, title transfers to the treasurer. MCL 211.78k(5) - (6).

During the time frame when the events at issue in this lawsuit occurred, the statute required that after title transferred to the treasurer, the municipality where the property was located had a right of first refusal ("ROFR") to buy the property for a "minimum bid" equal to the delinquent taxes and any fees owed. See ECF No. 51-1, PageID.819. If the relevant municipality did not exercise its ROFR, the property would usually be put up for auction by the treasurer to attempt to recover what was owed. Any monies obtained by the treasurer, either through a ROFR sale or through auction, went towards a general fund used to pay off delinquent taxes to municipalities. See generally Rafaeli, LLC v. Oakland Cty. , 505 Mich. 429, 952 N.W.2d 434, 443-49 (2020) (providing an overview of the GPTA framework).¹

In Plaintiff's case, she fell behind on the property taxes for her home in Southfield sometime between 2013-14. Her property forfeited to the Oakland County Treasurer around June 12, 2015. Proposed Am. Compl. ¶ 56, ECF No. 51-1. A judgment of foreclosure was entered in Oakland County Circuit Court on February 2, 2016. Id. at ¶ 57. Plaintiff was not able to redeem her property before March 31, 2016, so title vested in the Oakland County Treasurer. Id. The delinquency on her property was reported on the judgment of foreclosure as $22,047.46. Id. at ¶ 58. On July 7, 2016, the City of Southfield exercised its ROFR and purchased the property for $28,424.84. On September 22, 2016, the property was conveyed to the Southfield Neighborhood Revitalization Initiative, a for-profit limited liability company or LLC, for $1. Id. at ¶ 60.

Plaintiff makes several allegations as to how this sequence of events violated her constitutional rights. She is suing a variety of Defendant actors that can be separated into three groups: (1) the Oakland Defendants (Oakland County and Andy Meisner, Oakland County Treasurer), (2) the Southfield Public Defendants (the City of Southfield, City Administrator Frederick Zorn, and Mayor Kenson Siver), and (3) the Southfield Private Defendants (the Southfield Nonprofit Housing Corporation or "SNHC" and the Southfield Neighborhood Revitalization Initiative or "SNRI").²

First, Plaintiff alleges that because Southfield paid more for her property than her actual delinquency, Oakland County received a surplus of funds when it sold her home, which should be paid out to her. Second, and more centrally, she alleges the various Southfield Public and Private Defendants are involved in a "scheme" to deprive certain homeowners of their properties at low prices so that they can "flip" them and make a profit on them, without compensating the owners. The alleged scheme goes like this: the non-profit SNHC funds Southfield's purchase of these properties through the ROFR process; then, Southfield sells the properties to the for-profit SNRI for the minimal consideration of $1; eventually, SNRI sells them for a much larger profit.³ SNRI is alleged to have been incorporated in 2016 with the blessing and knowledge of Southfield city administrators for the sole purpose of acting as the "receiving" entity for these properties. By selling the forfeited property, SNRI realizes any "equity" in the property,⁴ alternatively characterized as its fair market value or the difference between the delinquency and whatever profit that is eventually made from the sale. The dollar value of that equity, under this system, is never returned to the original homeowner. See ¶¶ 34-45, ECF No. 51-1.

Plaintiff asserts in her proposed Second Amended Complaint that the post-foreclosure sales of her property to Southfield and then to SNRI constituted an illegal taking in violation of the Fifth and Fourteenth Amendments and Article X, Section 2 of the Michigan Constitution, and that they involved procedural due process violations under the Fourteenth Amendment. She also brings claims of unjust enrichment and civil conspiracy. The Court issued a consolidated briefing schedule in response to the instant motion, which all Parties timely followed, and then heard oral argument on January 5, 2022. In addition to the anticipated briefing, Plaintiff also filed a supplemental brief related to the issue of whether Oakland County truly received a surplus payment, to which the Southfield Public Defendants filed a response and Plaintiff filed a reply. ECF Nos. 59, 60, 61. These issues are now ripe for review.

II. STANDARD OF REVIEW

The decision to grant or deny a motion to amend is within the sound discretion of the Court. See Robinson v. Michigan Consol. Gas Co., Inc. , 918 F.2d 579, 591 (6th Cir. 1990). A party may amend a pleading after the opposing party's responsive pleading has been filed only by leave of court or by written consent of the adverse party. Fed. R. Civ. P. 15(a)(2). Rule 15(a) provides that "leave shall be freely given when justice so requires." Id. However, amendments should not be permitted in instances of "undue delay in filing, lack of notice to the opposing party, bad faith by the moving party, repeated...