he U.S. Supreme Court’s decision Thursday that a Minnesota county can’t keep proceeds from the sale of a residential condo it took after the owner fell behind on property taxes could lead to additional litigation in the nearly dozen other states that allow for such measures, experts say.

The high court’s unanimous decision Thursday in Tyler v. Hennepin County reversed an Eighth Circuit decision that Hennepin County, which includes Minneapolis, could keep $40,000 in proceeds from a condo sold after the owner had fallen behind by $15,000 on property taxes and related penalties.

“It’s an invitation in those other states to bring their laws into compliance with what the Supreme Court has now ordered,” said Michael Allan Wolf, a law professor at the University of Florida’s Levin College of Law. “If they fail to do so, we could see other cases proceeding.”

“I would imagine [there would be additional litigation] if the right fact pattern presents itself, where there’s a dramatic difference between the amount owed and the value of the property,” Wolf added.

The Pacific Legal Foundation lists 12 states, plus the District of Columbia, that have laws on the books allowing localities to keep the surplus after selling a tax-delinquent property. Alongside Minnesota, they include Alabama, Arizona, Colorado, Illinois, Massachusetts, Maine, Nebraska, New Jersey, New York, Oregon and South Dakota.

Another nine states have legal loopholes that allow local governments to keep surplus funds in some instances, although they generally return the surplus to the former owners. For example, Montana’s law requires the surplus to be returned to owners of residential property, but not commercial owners.

“Some of the other 12 states are very aggressive, and others don’t enforce it as much. But you’re not going to be able to keep the proceeds from a tax sale beyond what the tax liability is,” said David Brunori, a visiting professor of public policy at George Mason University. “What they should do is take their tax money and any fines or interest, and give the rest back.”

Partly at issue is just how narrowly states define “property” when it comes to the question of takings. In the case at hand, the government had argued that takings law didn’t apply to the $40,000 in proceeds.

“The court spent a lot of time talking about general principles of takings and property law, and a lot less time focusing on the specifics of Minnesota law. They seem to be very dismissive of Minnesota law, and instead went back to Magna Carta and early federal statutes … They cited cases involving taxes that were assessed to pay for the Civil War,” Wolf said.

“The way in which the court is widening its focus … could be problematic. If the court continues to do that … it might lead to a more aggressive interpretation and application of the takings clause to the detriment of the government,” Wolf added.

Brunori, meanwhile, said local governments may now look for other ways to claw back some money in the form of penalties or extra fees if they find they can’t keep sale proceeds in cases like the Minnesota one.

“But they’re going to have to be careful, because this is a pretty strong statement from the court,” he said. “Hennepin County could have said, ‘This whole thing is a fine.’ The court didn’t reach that question.”

“The [excessive fines] part is going to be the next battle in courts,” Brunori added.

The high court has heard various takings cases of late, and in many, liberal justices have sided with governments and conservative justices with property owners. This time, however, all justices agreed in siding with the property owner.

“Tyler is … important because it includes an ‘odd couple’ concurring opinion by Justice [Neil] Gorsuch, joined by Justice [Ketanji Brown] Jackson, regarding the Eighth Amendment’s excessive fines clause,” Kevin King, a partner at Covington & Burling LLP, said in a statement sent to Law360 on Thursday.

“Although that opinion is not controlling precedent, it reflects views of two justices who come from opposite sides of the jurisprudential spectrum and as a result, may have a significant effect in lower courts — essentially making it easier for plaintiffs to succeed on excessive fines claims,” King added.

And while the high court has already issued various recent decisions siding with property owners, the latest in the Tyler case further points to a shift of the needle toward property owners in takings disputes.

“I think it sends a strong message not only to the local municipalities and to the states [about] the importance of private property rights to our Founding Fathers and the need to, when [courts] see an injustice … correct swiftly,” said Richard DeWitt of Government Law Group PLLC. “This is an amazing opinion.”

Geraldine Tyler is represented by Christina M. Martin, Lawrence G. Salzman, Deborah J. La Fetra, David J. Deerson and Joshua W. Polk of the Pacific Legal Foundation, Charles R. Watkins of Guin Stokes & Evans LLC, Garrett D. Blanchfield and Roberta A. Yard of Reinhardt Wendorf & Blanchfield, and Vildan A. Teske of Teske Katz PLLP.

Hennepin County is represented by Rebecca Lee Stark Holschuh, Kelly K. Pierce, Jeffrey M. Wojciechowski and Jonathan P. Schmidt of the Hennepin County Attorney’s Office, and Neal K. Katyal, Katherine B. Wellington, Reedy C. Swanson, Nathaniel A.G. Zelinsky and Ezra P. Louvis of Hogan Lovells.

The case is Tyler v. Hennepin County, Minnesota, et al., case number 22-166, in the Supreme Court of the United States.

–Additional reporting by Chuck Slothower. Editing by Philip Shea and Lakshna Mehta.

This story has been edited to include the current job title for David Brunori.

For a reprint of this article, please contact reprints@law360.com.

Article Link: High Court Minn. Takings Ruling Could Lead To More Suits

Author: Andrew McIntyre and David Holtzman