Tyler v. Hennepin Cnty.

26 F.4th 789

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

v.HENNEPIN COUNTY ; Mark Vincent Chapin, Auditor-Treasurer, in his official capacity, Defendants - Appellees.

AARP; AARP Foundation, Amici on Behalf of Appellant(s),

International Municipal Lawyers Association; Association of Minnesota Counties, Amici on Behalf of Appellee(s).

No. 20-3730

United States Court of Appeals, Eighth Circuit.

Submitted: October 21, 2021

Filed: February 16, 2022

Counsel who presented argument and appeared on the brief on behalf of the appellant was Christina Marie Martin, of Palm Beach Gardens, FL. The following attorneys also appeared on the appellant brief; Vildan Aksoz Teske, of Minneapolis, MN., Charles R. Watkins, of Chicago, IL., Garrett D Blanchfield, Jr., of Saint Paul, MN., and David Deerson, of Sacramento, CA.

Counsel who presented argument and appeared on the brief on behalf of the appellees were Rebecca Lee Stark Holschuh, of Minneapolis, MN. The following attorneys also appeared on the appellees’ brief; Kelly K. Pierce, of Minneapolis, MN. and Jeffrey M. Wojciechowski, of Minneapolis, MN.

The following attorneys appeared on the amicus brief of AARP and AARP Foundation, in support of appellant; Daniel Benjamin Kohrman, of Washington, DC., and William Alvarado Rivera, of Washington, DC.

The following attorneys appeared on the amicus brief of International Municipal Lawyers Association, in support of appellees; John M Baker, of Minneapolis, MN., and Katherine M. Swenson, of Minneapolis, MN.

The following attorneys appeared on the amicus brief of Association of Minnesota Counties, in support of appellees; Jay Thomas Squires, of Minneapolis, MN., and Michael John Ervin, of Minneapolis, MN.

Before COLLOTON, SHEPHERD, and KELLY, Circuit Judges.

COLLOTON, Circuit Judge.

Geraldine Tyler owned a condominium in Minneapolis. When she stopped paying her property taxes, Tyler accumulated a tax debt of $15,000. To satisfy the debt, Hennepin County foreclosed on Tyler's property and sold it for $40,000. The county retained the net proceeds from the sale. Tyler sued the county, alleging that its retention of the surplus equity—the value of the condominium in excess of her $15,000 tax debt—constituted an unconstitutional taking, an unconstitutional excessive fine, a violation of substantive due process, and unjust enrichment under state law. The district court¹ granted the county's motion to dismiss on all counts, and we affirm.

I.

Geraldine Tyler purchased a condominium in Minneapolis in 1999. In 2010, she moved into an apartment and stopped paying the property taxes that she owed on the condominium. The State of Minnesota then initiated a tax-collection process.

In Minnesota, property taxes are a perpetual lien against the property. Minn. Stat. § 272.31. Property taxes not paid during the year in which they are due become delinquent on January 1st of the following year. See id. § 279.03, subdiv. 1. Each year, the county must file a delinquent tax list; this filing commences a lawsuit against the properties on which delinquent taxes are owed. Id. § 279.05. Property owners who owe outstanding taxes receive multiple notices of both the delinquent tax list and the action. Id. §§ 279.06, 279.09, 279.091. If no answer is filed, the district court administrator "shall enter judgment" against the property. Id. § 279.16.

The county auditor, on behalf of the State, then purchases each parcel associated with an unsatisfied judgment for an amount equal to the delinquent taxes, penalties, costs, and interest owed on each parcel. Id. § 280.01. This transaction occurs at a judgment sale; the title vests in the State "subject only to the rights of redemption" allowed by statute. Id. § 280.41.

During the statutory redemption period—which is three years for most properties—the former owner may redeem the property for the amount of delinquent taxes, penalties, costs, and interest. Id. §§ 281.01, 281.02, and 281.17. The county must notify the delinquent taxpayer of her right to redeem through multiple channels, including personal service. Id. § 281.23. A former property owner who wants to redeem but cannot afford to do so may make a "confession of judgment." Id. § 279.37. A former owner who makes a confession of judgment agrees to entry of judgment for all delinquent taxes, and the State consolidates her tax delinquency into a single obligation to be paid in installments over five to ten years. Id.

If the former owner does not redeem her property or make a confession of judgment, then final forfeiture occurs. Final forfeiture vests "absolute title" in the State and cancels all taxes, penalties, costs, interest, and special assessments against the property. Id. §§ 281.18, 282.07. For six months following final forfeiture, a former owner may apply to repurchase the forfeited property. Id. § 282.241, subdiv. 1. After the State takes absolute title to the forfeited property, the county decides whether to retain it for public use or sell it to a private buyer for not less than its appraised value. Id. § 282.01. If the county sells the property, the proceeds of the sale do not satisfy any of the former owner's tax debt because the tax deficiency was cancelled at final forfeiture. Instead, the county auditor distributes any net proceeds in accordance with Minn. Stat. § 282.08 for various purposes. Minnesota's tax-forfeiture plan does not allow the former owner to recover any proceeds of the sale that exceed her tax debt.

When Tyler stopped paying her property taxes in 2010, Hennepin County followed Minnesota's tax-forfeiture scheme to collect her delinquent tax debt of $15,000. Tyler received notice of the foreclosure action and failed to respond. In April 2012, the county obtained a judgment against Tyler's condominium. Tyler then received notice of her right to redeem, but she did not exercise her right to redeem or confess judgment during the three-year redemption period. The State took absolute title to Tyler's condominium in July 2015, and thereby cancelled Tyler's $15,000 tax debt. Tyler did not apply to repurchase the condominium. The county then sold the property to a private party in November 2016 for $40,000. The county distributed the net proceeds pursuant to Minn. Stat. § 282.08.

After the sale of the condominium, Tyler sued Hennepin County. Tyler's principal argument was that the county violated the Takings Clause by allegedly taking her $40,000 condominium to satisfy her $15,000 tax debt and failing to pay her the $25,000 surplus. She also argued that the county's actions constitute an unconstitutional excessive fine, a violation of substantive due process, and unjust enrichment under state law. The district court granted the county's motion to dismiss for failure to state a claim on each count. We review the district court's decision de novo . L.L. Nelson Enters. v. Cnty. of St. Louis , 673 F.3d 799, 804 (8th Cir. 2012).

II.

Tyler argues that Hennepin County committed an unconstitutional taking, in violation of both the Constitution of the United States and the Minnesota Constitution. As relevant here, the inquiry is the same under both provisions: each constitution prohibits the government from taking "private property" for "public use" without paying the owner "just compensation." U.S. Const. amend. V, XIV ; Minn. Const. art. I, § 13 ; see Hall v. State , 908 N.W.2d 345, 352 n.5 (Minn. 2018). The Minnesota takings clause also encompasses takings in which the government "destroyed or damaged" property, but Tyler makes no such allegation in this case. Accordingly, we analyze her federal and state takings claims together.

The first step in evaluating a takings claim is to identify the interest in private property that allegedly has been taken. Tyler does not argue that the county lacked lawful authority to foreclose on her condominium to satisfy her delinquent tax debt: "People must pay their taxes, and the government may hold citizens accountable for tax delinquency by taking their property." Jones v. Flowers , 547 U.S. 220, 234, 126 S.Ct. 1708, 164 L.Ed.2d 415 (2006). Rather, Tyler argues that the county's retention of the surplus equity—the amount that exceeded her $15,000 tax debt—is an unconstitutional taking. Thus, for Tyler to state a plausible claim for relief, she must show that she had a property interest in the surplus equity after the county acquired the condominium.

Whether a property interest exists "is determined by reference to existing rules or understandings that stem from an independent source such as state law." Phillips v. Wash. Legal Found. , 524 U.S. 156, 164, 118 S.Ct. 1925, 141 L.Ed.2d 174 (1998) (internal quotation omitted). We therefore look to Minnesota law to determine whether Tyler has a property interest in surplus equity.

Tyler argues that Minnesota recognizes a common-law property interest in surplus equity in the tax-forfeiture context. She relies on an 1884 decision of the Minnesota Supreme Court, Farnham v. Jones , 32 Minn. 7, 19 N.W. 83 (1884), which addressed an 1881 Minnesota tax-collection statute. See 1881 Minn. Laws, ch. 135. The statute required landowners who owed delinquent property taxes as of 1879 to forfeit their land. Farnham , 19 N.W. at 84. The county auditor then sold the forfeited land at a public sale to satisfy the debt with the proceeds. The statute contained "no provisions in respect to the disposition of the surplus proceeds of the sale," but the court viewed this silence as "immaterial," because "the right to the surplus exists independently of such statutory provision." Id. at 84-85...