Courthouse Steps Decision: Tyler v. Hennepin County, Minnesota

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Jack Capizzi:  Welcome to today's Federalist Society virtual event. Today, May 30th, 2023, we are excited to present a Courthouse Steps Decision program in the case of Tyler v. Hennepin County Minnesota. My name is Jack Capizzi and I'm an Assistant Director of Practice Groups here at The Federalist Society. As always, please note that the expressions of opinion on the call are those of the speaker on today's program. After our speaker has given his remarks, we'll turn to you, the audience, for any questions that you might have. If you do have any questions about the case even now, feel free to type them into the Q&A feature at the bottom of your screen and we will handle them as we can towards the end of today's program. Leading today's program is Tony Francois. Tony is a partner at Briscoe Ivester & Bazel and is a member of The Federalist Society's Environmental Law and Property Rights Practice Group Executive Committee. Thank you all for being with us today. Tony, over to you.

 

Tony Francois:  Thank you very much, Jack and thank you to The Federalist Society for the opportunity to speak about the Tyler v. Hennepin County decision. This is an opinion of the Supreme Court that was handed down last Thursday, and it's a takings case under the Fifth Amendment to the U.S. Constitution as applied to the state of Minnesota by the Fourteenth Amendment involving what's known as home equity theft. The case name is Geraldine Tyler v. Hennepin County Minnesota. It was the final case argued in the fall 2022, October 2022 term at the Supreme Court and then decided very quickly -- I'm not sure it took them a month to decide it -- and decided unanimously in last Thursday's decision.

 

This today is the third Federalist Society teleforum that we've presented on the case. On The Federalist Society website, you'll find recordings and video of a pre-argument preview that we did involving amicus filers on both sides of the case. It was a very lively debate and airs a lot of the issues that were then argued at the oral argument at the end of April. And then on the day of argument, we did a Courthouse Steps interview with Christina Martin, who is the attorney with Pacific Legal Foundation who argued the case for Mrs. Tyler. Today, we're going to do an overview of the Supreme Court's unanimous decision in favor of Mrs. Tyler and against Hennepin County and give you a little bit of background on how this dispute arose and then some reflections on what we might take from the opinion. I also want to note that Tyler v. Hennepin was decided the same day as Sackett v. Environmental Protection Agency, also a Pacific Legal Foundation case. It's a banner year for my former colleagues at Pacific Legal Foundation having argued and won three cases this term. So there's a lot of very good work going on over there. Congratulations to all of them.

 

So what is this case about? The state of Minnesota, along with a dozen other states, in its real property tax foreclosure statutes where a real property owner has failed to pay and has fallen seriously delinquent in their property tax, has a very typical remedy for the local government who is owed the property tax which is to essentially seize the real property and sell it in order to satisfy the delinquent tax debt. And that's a ubiquitous practice in all 50 states and pretty much anywhere you'll find the collection of property tax. The real property secures the payment of the tax. But what Minnesota had been doing -- similar to about a dozen other states -- was rather than refunding any surplus over the tax debt to the property owner from whom the property had been seized, the state kept it. And this is distinct from state law, for example, if your lender or another secured party has the legal right to foreclose on your property in order to pay the debt. In those instances where there's a private seller, the seller is required to surrender any surplus from the sale over the debt owed back to the delinquent property owner.

 

So in this particular case, Mrs. Tyler, who's 95 years old, had owned a condo in Minneapolis and had lived in there for many years but then as she aged, her family and she decided that it would be better for her to live in a senior facility. And during her residence in the senior facility, nobody attended to paying the property tax on the condo and eventually that tax got so delinquent in the amount of about $2,300 that the county exercised its foreclosure rights, added about $13,000 in interest and penalties for late payment of tax, and held a public sale of the property. And so the property fetched about $40,000 at public sale. The total tax debt to the county including the delinquent tax and the penalties and interest was about $15,000. And under the state law, the county kept the $25,000 surplus from the sales price.

 

So Mrs. Tyler challenged this in federal district court as a taking under the Fifth Amendment and the Fourteenth Amendment of her property, specifically her interest in the equity in the home over and above the tax debt. There's also a claim in the complaint that the collection of the $25,000 surplus is an excessive fine under the Eighth Amendment. The federal district court in Minnesota dismissed both claims for failure to state a claim and the Eighth Circuit affirmed that and concluded that because Minnesota law provided that all of a homeowner or other property owner's financial value of real property was forfeited to the government under the tax foreclosure statutes, there really wasn't any property interest in that surplus. Absent a property interest, there is no taking and therefore, no claim was stated.

 

The Supreme Court accepted certiorari of this case actually quite recently as well. I mentioned earlier that it was the last case argued and it was decided within about a month. The case was accepted by the Supreme Court only a few months before it was argued, and so this has had a very brief stay at the Supreme Court and yet in the opinion that it issued last Thursday, the Court unanimously found for Mrs. Tyler that she did have a property interest in the equity in her home that the county and the state of Minnesota through its statute had taken in violation of the Fifth Amendment as applied to that state through the Fourteenth Amendment and that she was entitled then to pursue her case. So it's important to remember that the posture of the case before the Supreme Court is on a motion to dismiss and so at this point, the case will now be remanded back down to the district court for proceedings on the complaint. So it seems likely that she will then prevail because it's not clear what factual defenses the county would have, but nonetheless, the posture of the case going forward will be that she's now free to litigate her case in the district court.

 

Another interesting aspect of what we might look for on remand is that the case is filed as a punitive class action, and so they'll probably be proceeding shortly to certify a class and proceed on that footing. The unanimous decision is kind of interesting in her favor because the tenor of the argument last month did not feel very unanimous and there seemed to be some skepticism from at least a few members of the Court that there was any such property interest in the equity or that the state can't condition your obligation to pay taxes on the forfeiture of all the value of the property. The county's lead argument at oral argument was that if one looks at this practice historically there's, in the county's view, sufficient precedent at the time of the founding for this type of collection of all of the property value to make it something that's consistent with an originalist view of the takings clause and therefore not a violation of that clause -- not a taking.

 

Interestingly, what the Supreme Court did with that argument is to flip it on the county and say that the county's example of a couple of states who, at the founding, engaged in this practice demonstrates that those couple of states are actually outliers and that a very consistent legal tradition going back to Magna Carta in 1215 in England supports a property owner's right to have any surplus from a forced sale over the debt owed returned to the property owner both by private foreclosures and by government. And so the Court rested its unanimous decision in this case largely in the history of practice in the United States. One of the important facts that the Court noted is that up until 1935, the state of Minnesota followed the majority rule, which was that in a tax foreclosure, the foreclosed upon property owner was entitled to the surplus over the tax debt from any foreclosure sale.

 

And then the Court referenced another older case in which a property owner's land had been seized by the federal government and not sold, rather retained by the federal government. And in that decision, and you can find that looking at the cite for it in the Tyler decision, but then in that case, the Court had agreed that even though the federal government had not sold the property and so there wasn't a source of funds to give back to the property owner, nonetheless the property owner was entitled to the surplus of the value of the property over the debt to the federal government when the property was seized. So essentially, I would say the holding of this case is that where a state has an historical recognition of a property interest, its later effort to limit or restrict that interest can easily fall afoul of the takings clause.

 

And there are other historical discussions in the opinion that are worth taking a look at and I'd commend it to everybody with an interest in the topic to read. It's a very short opinion -- easy to read -- it's not dense. And it reflects a simplification of the Supreme Court's property rights jurisprudence starting with the Cedar Point and Pac Bell decisions a couple of years ago where the issues at stake are a little bit more clearly laid out and where the results are more clear cut. And I think one of the things that this opinion reflects or is an example of is a movement away from the very vague and difficult to apply standards that come out of relatively recent, say 1980s and forward, but still at this point older Supreme Court takings cases such as Lingle and the Penn Central case and the Murr case which seemed to promulgate very complex, difficult to apply, multi factor tests where you can't really know what the answer is going to be until you've gone through the process. These more recent decisions starting with Cedar Point and maybe even the -- I'm blanking on the name of it but the other case that overruled the Williamson County decision reflected just a more straightforward approach to property cases at the Supreme Court. It's a relatively short opinion. It's got some interesting history to it and so it -- not only a good read but I think a very useful precedent for property rights attorneys around the country.

 

One thing that I think is worth reflecting on when you read the opinion is this key fact that up until 1935, the state of Minnesota had recognized the property owner's right to the surplus from a foreclosure sale and had changed that in 1935. And so without mentioning the Lucas v. South Carolina Coastal Commission case from several years ago which identifies the idea that there are background principles in state property law, that a state cannot in more recent enactments that reflect more current priorities whittle down or legislate away property rights that existed at the time of statehood. And that's called the background principles or the Lucas principle.

 

So the Tyler decision does not allude directly to Lucas but it's really got a Lucas feel to it, if you like, it does suggest that the emerging majority of the Supreme Court on these property rights issues and their more straightforward approach to deciding the cases seems to lean in the direction that historic property rights have kind of a one way ratchet aspect to them, that once a state recognizes a type of property right for an extended period of time, certainly from the time of its entry into the union forward, that its later decisions to start restricting that property right can run afoul of the takings clause in a way that is difficult to avoid and serves as a bulwark against states legislating property rights away once they've been recognized for a period of time. Now this is a unanimous decision. I really don't think that the more leftward side of the Court would be willing to follow that implication where it leads. But at least in this case, the unanimous holding seems to be that if a state had previously recognized a certain type of property right, its later effort to legislate that away will likely violate the takings clause.

 

Another aspect of the decision which I think is really important to note is how it identifies the property interests that it is addressing. Of course, to bring a takings claim, the first thing you have to allege prove is a property interest. And for a very long time, there had been a very simple way of explaining what this element required, that one had to typically identify a state law defined property interest in order to bring a classic takings claim. There are other kinds of property interests that arise under federal law. Intellectual property is one of those, but in the mill run of property takings cases, the plaintiff's first task is to identify a state-based property interest that is alleged to have been taken by the government.

 

The Court does something kind of interesting in this case. It recognizes that that's an important source of defined property interests, but it goes on to say that that's not the only way of identifying a taken property interest. And the Erie doctrine notwithstanding, the Court does reference Cedar Point -- its decision in Cedar Point -- and seems to be leaning now in the direction of what you might call a federal common law of property. And its treatment of whether or not there's a property interest in the equity of one's property is not limited to the original Minnesota definition of property and the way that it protected the equity in property over tax debt or other liens.

 

The Court starts with a discussion of Magna Carta in 1215, brings that forward through a number of centuries of English history, references treatises at the time of the founding, and kind of elaborates a general rule that exists independently of any particular state's law and rests heavily on the fact that this was the majority rule in the states at the time of the founding. So there may be emerging a more robust school of, what as a matter of federal constitutional law are the kinds of property interests that the takings clause protects? And so we'll have to wait and see if and how that develops further, but I think that's an interesting thing to note in this decision.

 

It's also a unanimous decision that's written by the chief justice and reflects perhaps a very good exercise of his ability to write a sound decision for the winning party that nonetheless gains the approval of the majority of the Court. Its reliance in part on the Cedar Point decision is kind of interesting in that regard because that was far from a unanimous decision and drew a strong dissent from Justice Kagan, and yet she's perfectly comfortable joining in this unanimous opinion that endorses in part Cedar Point's view of the common lawish idea of what property interests are. So I think one of the things to maybe think about with this case as you look at it as practitioners or academics or just interested observers is that we may be looking at the emergence of something we might eventually call Magna Carta originalism for property rights or the 1215 project, if you will.

 

The final note, and then we'll take some questions, is that there is a separate concurrence by Justice Gorsuch that's joined in by Justice Jackson on Mrs. Tyler's separate excessive fines claim. So the majority opinion does not deal with the excessive fines claim and does not explicitly say that it reverses the -- I don't believe that it explicitly says that it reverses the Eighth Circuit's affirmance of the dismissal of that claim. It doesn't dismiss the judgment and so it will be, I think, a question on remand whether that claim is revived by this decision. But I was struck during the argument by both of those Justices -- Gorsuch and Jackson's -- interest in the excessive fines claim. And so between the two of them writing this separate opinion, calling into question several of the aspects of excessive fines jurisprudence, and commending the Court below to give that claim serious review that there may be an increasing interest at the Court that litigants and advocates should be looking at carefully in the area of excessive fines.

 

There was the Timbs case, I want to say about five years ago, in which the Court finally confirmed that the Eighth Amendment is incorporated against all the states as the result of the Fourteenth Amendment, and I think this is now maybe the first even partial discussion of how lower courts should be looking at those claims. There are not a lot of Supreme Court authorities on excessive fines. The leading case is Bajakajian which is written by Justice Thomas and so there's at least three justices on the Court that are willing to give these kinds of claims close examination. What makes a fine excessive both as a legal and factual matter has a lot to be developed in it. One would hope that with the current Court's preference both among the conservatives and the liberals for relatively simple to apply rules, that there will be some good developments in this area.

 

And so I think that covers the opinion. Jack, if there's questions, I'd be happy to address any of them. And thank you again for the opportunity to talk about this case again.

 

Jack Capizzi:  Thanks, Tony. It does look like we're starting to get some questions in. Just as a reminder to everyone who's with us, please type your questions into the Q&A feature down below and they'll appear for us on our screens. One question we might get started off from -- this one's from Ralph Reddick who is asking about the specifics of the case and what happens next. He asks, "Are there other instances of this kind of action which are affected by this judgment? Assuming she wins the case when it's redone, will she get the excess back? Will it include interest or penalties?" Do you have any thoughts on that?

 

Tony Francois:  Well, the -- so the last question first -- if what you're referring to were the interest and penalties on her delinquent tax debt, she would not recover those. Of the $15,000 that reflected the total tax debt, only $2,300 of that was actually delinquent tax. So as with all things tax, the penalties and interest are the real game. And throughout the case, she conceded that she owed that much to the county. Now, there's an interesting discussion then of what the value of the property taken is which is then going to be the measure of just compensation under the Fifth Amendment. And so that winds up being a question of whether the tax sale itself is the right measure of the equity that was taken or if there will be, for example, a trial of fact on how -- what a correct appraisal of the property at the time the county took title to it under the tax foreclosure statute would be.

 

There's also, as I mentioned a -- this was filed as a punitive class action and there's been no -- to my knowledge -- no word below yet on certification of a class. So one of the things that was pointed out at argument is that not every property that is sold for delinquent taxes fetches more than the tax debt. And so the county takes a loss on some of these properties. And that was actually part of the argument that this is all constitutional because they win some, they lose some, and in the end, all they're trying to do is make the public fisc whole. So not every case in which this has been done necessarily involves the retention of surplus equity. But that does raise an interesting question, I think, about the nature of tax foreclosure sales, whether those are the best measure of what the full market value or fair market value of a property is. When the actual taking occurs, is that at the time that the county takes title under the foreclosure statute? Or since what's being taken is the equity, is that when the county sells the property and retains the surplus? And I think that's an issue that's yet to be worked out.

 

Jack Capizzi:  Certainly. One other question we have -- this is from Bailey Martin who asks, "How does the case affect the Court of Federal Claims jurisdiction on takings if at all?"

 

Tony Francois:  Well, so that's a very good question. So the Court of Federal Claims is where one goes with federal takings claims against the federal government and interestingly, this is already the federal rule that under whichever basis the federal government identifies a debt owed to the government that results in a lien against the debtor's property, the sale of that property entitles the debtor to any surplus over the debt including the processing costs and frequently, there's attorney’s fees and all those things thrown in but then once you've totaled that up, then the federal rule is that the debtor is entitled to the surplus.

 

And in fact, that's why -- this is kind of an interesting situation in takings cases -- the United States actually appeared as an amicus and argued at oral argument in favor of Mrs. Tyler in this case and against the county's -- against Minnesota's practice of keeping the surplus. And if you look in the opinion, there's a citation to a couple of older Supreme Court decisions in the context of claims against the federal government that identify this rule. So it's not merely a question of statutory practice at the federal level but that in fact constitutionally, the federal government is obliged to return surplus.

 

Jack Capizzi:  Thank you. Let's see. We've got another one here from Tanmay Shukla who asks, "In your opinion, apart from the excess surplus, do the county's fines and penalties themselves also raise an excessive fines issue?

 

Tony Francois:  Well, in my opinion, they do because there's -- well, but -- so let me explain my answer to that. It has really kind of a gut instinct to it. Her total debt all in was $15,000 and they kept $25,000 more. And there's no formula that says how much they keep and in fact, anybody whose property is sold, and the sale price doesn't satisfy the debt, the county gets nothing. And so there's an arbitrariness to the way that this retention of surplus falls on certain property holders that's completely unrelated to failure to pay property tax. And so some people may fail to pay, and their property is worth more than the debt, other people may fail to pay, and the property is worth less. And so the retention of surplus falls as a penalty of sorts randomly on those whose property happens to be worth more than the debt. And I think that is a factor in why the excess amount is collected under excessive fines analysis.

 

But I would say this, that there's very, very little useful case law on this. The Bajakajian case at the Supreme  Court involved a seizure by customs agents at an airport of a duffel bag full of cash from a traveler and the -- that had not been declared on the customs form -- and Justice Thomas's opinion for the Court simply says this -- and it was about $167,000 in cash. And the opinion for the Court simply says, "Seizing somebody's cash to the tune of $160,000 is grossly disproportionate to the objective of getting people to fill out their customs forms." And on that basis, he should get the cash back; this is excessive. But there aren't close call cases in many decisions, and this is because it's a smaller amount, because it's close to the amount owed. Just in terms of whether it's so much that it's excessive is a hard call to make and I think not one that's easily answered with the available precedents.

 

Jack Capizzi:  Thanks, Tony. Let's see. Another one here we have is from Rob Dorr who asks, "Does this have any effect on the underlying Minnesota statute?"

 

Tony Francois:  I think it does. I mean, I think it basically rules that the 1935 statute which established retention of surplus from tax foreclosure sales is unconstitutional and can't be enforced and that taxpayers will need to be aware at least until the state rescinds that statute or county officials comply with this decision routinely. But my expectation is there'll probably be an adjustment period where some counties continue to try to enforce this and try to claim that there are factual distinctions or something of that nature. But I think the holding of the opinion is that the 1935 statute is unconstitutional and that would make it unenforceable.

 

Jack Capizzi:  Right. Right. And there's another question that's somewhat related which is that "If Minnesota voters had or did amend the state constitution would that mean that Hennepin County or others in Minnesota could simply do what they did in regard to this case and continue to get away with it?"

 

Tony Francois:  I don't think so because I think that the way the Supreme Court analyzes the change in law in 1935 doesn't really rest on the fact that it's a statute rather than something in the state constitution. And given that you've got application of most of the bill of rights to the states through the Fourteenth Amendment, a state constitutional provision that violated the Fifth Amendment or the Eighth Amendment would fall, under the supremacy clause, before those amendments. So there are some interesting -- for anybody that operates in the California water law space which is a pretty big and complex area -- there are amendments to the state constitution that changed the pre-existing regime of water rights in the 1920s. And I've argued in a number of places that those constitutional changes violate the background principles rule under Lucas, would be subject to the same kind of analysis as in this decision on the takings position. And the Supreme Court has actually in a couple of cases taken the same view of exactly those provisions. So statute or constitution at the state level if it's inconsistent with the federal constitution, then it's going to give way in this kind of case.

 

Jack Capizzi:  Thanks, Tony. Well, that looks like most of the questions. I think we've got time for -- let's see -- one or two more. There's one here that's wondering about your thoughts on the county's argument that Geraldine Tyler did not have standing because she owed other debtors.

 

Tony Francois:  Yeah. That's an interesting question. And there's another question in the comments there about junior lien holders. So in the posture at the Supreme Court, there was nothing in the record on other lien holders. The county argued that there were other lien holders whose interests exceeded the amount received at the sale. And then on that basis, Mrs. Tyler did not have standing because she didn't have any surplus that she had a right to receive back. Now, because this was on a motion to dismiss, and the county had not added any -- had not asked for judicial notice of anything, this is strictly a pleading motion under rule 12B that the -- on its face, the complaint failed to state a claim. And the way the county argued it was that it would've, in their view, have been a pleading requirement that the plaintiff alleged equity in the property over and above any other lien holder's interest.

 

So setting aside what the nature of those liens are or might be, that's probably something that will get looked into on remand and there's an interesting question about those junior liens because under state law, those liens are extinguished by the sale. It's either by the seizure -- the foreclosure on the property -- or the sale. And that's an aspect of property tax administration, you know, the public tax collector is always going to be in first position even against the purchase money lender. So there is an interesting issue in there about what happens to lenders and other lien holders and frankly, whether they have similar claims as the homeowner, and I think we'll probably see a fair amount of litigation on how this is supposed to work in those states that still have this practice. Generally a junior lien holder has the opportunity to cure the debt that's owed to the senior lien holder in order to avoid getting foreclosed out second. So there's a lot of detailed rules that will have to get worked out in particular cases. But it was significant to this decision that there was nothing actually in the record that the Court could look at and then, so the decision is quite clear. The complaint is adequate. Now, the complaint gets litigated.

 

Jack Capizzi:  Thank you. Thanks. That's a helpful answer. I think that we've got one final question that came in. Bailey Martin asks, "In the opinion, the Supreme Court directs lower courts to look at traditional property law principles plus historical practice and this Court's precedence. What happens if some of the aforementioned factors cut in favor of the government and others in favor of the property owner? Basically, what qualifies as a traditional property rights principle?"

 

Tony Francois:  That's a really good question. I enjoy it quite a bit because I'm kind of a history nerd and these are usually some sort of history question. One of the interesting things is that in cases where there's disparity in practice or law at the state level, a lot of decisions that grapple with these kinds of questions look to a kind of survey of what the states and the federal government do. So in the Dolan v. City of Tigard case, one of the sections of that opinion is, how do different states deal with this rough proportionality idea that an exaction has to more or less fit the impact of the project that's seeking permitting. And there are other cases I could catalog where, in the takings context, a federal court in particular will do a kind of multi-state survey to try to figure out if there's a majority and minority rule. And this has the feel, frankly, of something like the restatements and an effort to decide whether there should be a uniform national rule or not.

 

A lot of state supreme courts, when they're looking at a question like this, "Is this a property right?" will also look to other jurisdictions to see how they have dealt with it. Different state courts are more or less interested in the history, and it tends to be kind of a current divide on these kinds of questions that more textualist and originalist courts and judges will look more to history and more purposive courts and judges will look more to social policy and current conditions. But I think there is a basic way of addressing this that comes out of the Lucas decision which is that property is defined as at it's -- at least it's protected extent by state law property at the time of the state's succession to the union, that there are pre American, if you will, I mean, there's English common law basics of property that inform what the tradition background principles of property law are, and that those two tools stop short of establishing a federal common law of real property but nonetheless are more than simply, what does the state statute say the property interests are?

 

And it's also worth observing that at the time of the founding, many states abolished certain types of property interests through local versions of the rule against perpetuities by abolishing entail that were part of the English property law system that perpetuated concentrated property holding. So this is not a crystal-clear methodology for trying to determine at some magic point in time these were the property interests. Despite the value of historical inquiry into what these property interests have always been, it's also part of the American founding that certain of those interests were contrary to the values in the declaration and abolished. So make it the way you will. Your mileage will vary.

 

Jack Capizzi:  Thanks, Tony. That looks like most of our questions. I know that you've given us plenty of your time today. Are there any sort of final remarks or thoughts that you have about the case?

 

Tony Francois:  Well, I just -- I think that this is another in a recent but now growing line of decisions that takes property questions away from about a generation's worth of very complex, vague, multifactor tests and toward more simple rules that are easier to apply, easier for courts to apply, easier for property owners to resolve disputes with state and local governments because they don't require years and years of litigation necessarily. And it'll be interesting to see how this line of cases develops going forward, but I think in the very big picture, this signals an increasing likelihood that very complex and vague areas like Penn Central with its multifactor tests for regulatory takings of property may begin a process of rationalization so that both property owners and governments have clear rules that they can more easily follow.

 

 

Jack Capizzi:  Thanks, Tony. I think that that seems like a good spot to wrap up today. On behalf of The Federalist Society, I do want to thank you, Tony, for all of your time and expertise on today's program as well as on the preview and oral argument breakdowns as were mentioned at the top of the program. Those are both also available on The Federalist Society website and we'll be having plenty of webinars coming up in the next few weeks as more decisions are released. So please keep an eye on your emails or our website for that. As always, we do welcome listener feedback by email at [email protected]. With that, thank you all for joining us today. We are adjourned.