Court Opinion

ID: 6226272
Source: CourtListenerOpinion
Date Created: 2022-02-16 17:00:34.277649+00
Date Added: 2024-06-11T08:57:38.627651
License: Public Domain

United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 20-3730
                        ___________________________

      Geraldine Tyler, on behalf of herself and all others similarly situated,

                       lllllllllllllllllllllPlaintiff - Appellant,

                                           v.

Hennepin County; Mark Vincent Chapin, Auditor-Treasurer, in his official capacity,

                      lllllllllllllllllllllDefendants - Appellees.

                             ------------------------------

                            AARP; AARP Foundation,

                 lllllllllllllllllllllAmici on Behalf of Appellant(s),

International Municipal Lawyers Association; Association of Minnesota Counties,

                  lllllllllllllllllllllAmici on Behalf of Appellee(s).
                                        ____________

                    Appeal from United States District Court
                         for the District of Minnesota
                                 ____________

                           Submitted: October 21, 2021
                            Filed: February 16, 2022
                                 ____________
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

      1
      The Honorable Patrick J. Schiltz, United States District Judge for the District
of Minnesota.

                                         -2-
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-

                                          -3-
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.

                                         -4-
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
(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 (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, 19 N.W. 83 (Minn. 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

                                           -5-
surplus exists independently of such statutory provision.” Id. at 84-85. The parties
here debate whether Farnham recognized a common-law property interest in surplus
equity after a tax-foreclosure sale or whether the decision merely interpreted the 1881
statute.

        We conclude that any common-law right to surplus equity recognized in
Farnham has been abrogated by statute. In 1935, the Minnesota legislature
augmented its tax-forfeiture plan with detailed instructions regarding the distribution
of all “net proceeds from the sale and/or rental of any parcel of forfeited land.” 1935
Minn. Laws, ch. 386, § 8. The statute allocated the entire surplus to various entities
but allowed for no distribution of net proceeds to the former landowner. The
necessary implication is that the 1935 statute abrogated any common-law rule that
gave a former landowner a right to surplus equity.

       Minnesota’s current surplus distribution provision is codified at Minn. Stat.
§ 282.08. Like the 1935 statute, current law governs how every dollar of surplus is
to be distributed. First, the net proceeds must cover various expenses related to
improving and maintaining the forfeited property. Minn. Stat. § 282.08(1)-(2).
Second, remaining net proceeds must be used to discharge any special assessments
charged against the parcel for drainage. Id. § 282.08(3). The county board may then
allocate remaining funds for forest development and county parks and recreation
areas. Id. § 282.08(4)(i)-(ii). Finally, any remaining balance is to be paid in specified
percentages to the county, the school district, and the city. Id. § 282.08(4)(iii).
Minnesota’s current distribution plan provides how the county must spend the entire
surplus, and it does not give the former owner a right to the surplus. Thus, even
assuming Tyler had a property interest in surplus equity under Minnesota common
law as of 1884, she has no such property interest under Minnesota law today.

      Where state law recognizes no property interest in surplus proceeds from a tax-
foreclosure sale conducted after adequate notice to the owner, there is no

                                          -6-
unconstitutional taking. In Nelson v. City of New York, 352 U.S. 103 (1956), the
Supreme Court addressed the constitutionality of a tax-forfeiture scheme under which
the City of New York foreclosed real property for delinquent taxes, and retained the
entire proceeds of the sale. In that case, state law gave the property owners a right
to redeem the property or to recover the surplus, but they took no timely action to do
so. The Court held that “nothing in the Federal Constitution prevents” the
government from retaining the surplus “where the record shows adequate steps were
taken to notify the owners of the charges due and the foreclosure proceedings.” Id.
at 110. Even though the plaintiffs previously owned the parcels at issue, the Court
rejected their claim that the Takings Clause forbade the City to retain the entire
proceeds of a sale made after proper notice to owners who failed to respond.

       Nelson’s reasoning on the Takings Clause controls this case despite a modest
factual difference. It is true that New York foreclosure law allowed the plaintiffs in
Nelson to file an action to redeem the property or to recover the surplus, while Tyler
had options only to redeem the property, confess judgment, or apply to repurchase the
property. But that distinction is immaterial. Like the property owners in Nelson,
Tyler received adequate notice of the impending forfeiture action and enjoyed
multiple chances to avoid forfeiture of the surplus. She could have recovered the
surplus by redeeming the property and selling the condominium, or by confessing
judgment, arranging a payment plan for the taxes due, and then selling the property.
Only after she declined to avail herself of these opportunities did “absolute title” pass
to the State. Minn. Stat. § 281.18. Even then, Tyler had six more months to apply to
repurchase the condominium. Id. § 282.241, subdiv. 1. Nelson provides that once
title passes to the State under a process in which the owner first receives adequate
notice and opportunity to take action to recover the surplus, the governmental unit
does not offend the Takings Clause by retaining surplus equity from a sale. That
Minnesota law required Tyler to do the work of arranging a sale in order to retain the
surplus is not constitutionally significant.

                                          -7-
      In addition to her takings claim, Tyler argues that the county’s retention of her
surplus equity is an unconstitutional excessive fine and a violation of substantive due
process. She also contends that the county’s actions constitute unjust enrichment
under Minnesota law. The district court carefully analyzed Tyler’s arguments and
dismissed each count for failure to state a claim. We agree with the district court’s
well-reasoned order and affirm the dismissal of these counts on the basis of that
opinion. See Tyler v. Hennepin Cnty., 505 F. Supp. 3d 879, 895-99 (D. Minn. 2020).

      The judgment of the district court is affirmed. Tyler’s unopposed motion to file
a supplemental letter brief is granted.
                       ______________________________

                                         -8-