565 F.Supp.3d 953
E.D. Mich.2021Background
- Eight former Southfield property owners sued multiple defendants after tax-foreclosures under Michigan’s GPTA; properties were transferred to the City for the statutory minimum and then quit-claimed to SNRI for $1.00.
- Plaintiffs allege a scheme by City officials, SNPHC, and SNRI to strip owners of equity and benefit insiders; several properties were later rehabilitated and sold by SNRI or remain owned by SNRI.
- Michigan Supreme Court’s decision in Rafaeli recognized a former owner’s vested right only to surplus proceeds from a tax-foreclosure auction (i.e., sale proceeds exceeding taxes, interest, penalties, and sale-related fees). Rafaeli did not recognize a right to ‘equity’ absent an auction surplus.
- SNRI, SNPHC, and individual SNRI officers moved to dismiss under Rule 12(b)(6); court considered prior state-court litigation and public records in that motion.
- The district court dismissed with prejudice plaintiffs’ claims against SNRI, SNPHC, Mitchell Simon, and E’Toile Libbett (concluding res judicata barred some claims, Byers lacked standing, unjust enrichment failed, and takings claims were unsupported against these defendants).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Res judicata as to Miller, American Internet Group, Akande v. SNRI | Prior state suit was different (housing discrimination); new takings theory unavailable then because Rafaeli had not been decided | Prior state-court suit arose from same transaction; dismissal on merits bars relitigation | Court: Claims against SNRI for these plaintiffs are barred by res judicata; claims against SNPHC/Simon/Libbett are not barred (they were not parties to the prior suit) |
| Standing of Marcus Byers | Byers had equitable interest via guardian and contributed funds; thus suffered injury | Records show Debbie Byers held title at foreclosure and litigated separately; no recorded interest for Marcus at foreclosure time | Court: Byers lacked Article III standing; claims dismissed with prejudice |
| Unjust enrichment against SNRI/SNPHC/individuals | SNRI obtained surplus/equity through prearranged transfers and retained benefits; equitable relief available | Rafaeli limits post-foreclosure property interest to auction surplus; here no auction surplus existed and SNRI acquired property lawfully from City, not from plaintiffs | Court: Unjust enrichment claim fails — no surplus proceeds were created and defendants received no unjust benefit from plaintiffs; claim dismissed |
| Sufficiency of pleading against SNPHC, Simon, Libbett | All are part of the alleged scheme and thus liable | Complaint fails to identify these defendants in any Counts or plead specific factual conduct | Court: Claims against Simon and Libbett dismissed for failure to plead plausible facts; SNPHC remains as sufficiently alleged in general allegations (not dismissed on that basis) |
| Takings claim under U.S./Michigan Constitutions against SNRI Defs | Plaintiffs seek just compensation for lost equity/surplus even where no auction occurred | Rafaeli recognizes only a right to auction surplus; no surplus here because City purchased for minimum bid and transferred to SNRI; also no state-action pleaded | Court: Takings claims against SNRI Defendants fail; no cognizable property interest (no auction surplus) and plaintiffs did not plead SNRI as state actors or deprivation of constitutional right |
Key Cases Cited
- Rafaeli, LLC v. Oakland County, 505 Mich. 429 (Mich. 2020) (Michigan Supreme Court: former owners have vested right only to surplus proceeds from a tax-foreclosure auction; no recovery of full equity absent surplus)
- Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75 (U.S. 1984) (federal courts must give state-court judgments the same preclusive effect as state law dictates)
- Adair v. State, 470 Mich. 105 (Mich. 2004) (Michigan’s broad transactional test for res judicata)
- Twombly v. Bell Atl. Corp., 550 U.S. 544 (U.S. 2007) (complaint must plead enough facts to make entitlement to relief plausible)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (legal conclusions not accepted as true on a motion to dismiss)
- Karaus v. Bank of New York Mellon, 300 Mich. App. 9 (Mich. Ct. App. 2012) (unjust enrichment requires defendant received benefit from plaintiff unless defendant engaged in misleading conduct)
- Rental Props. Owners Ass’n of Kent Cnty. v. Kent Cnty. Treasurer, 308 Mich. App. 498 (Mich. Ct. App. 2014) (local unit may purchase foreclosed property for public purpose and convey it; courts should not read extra statutory limits on subsequent conveyance)
- City of Bay City v. Bay Cnty. Treasurer, 292 Mich. App. 156 (Mich. Ct. App. 2011) (statutory right of first refusal for public units may be exercised for public purposes; courts should not inflict additional restrictions)
- Phillips v. Washington Legal Found., 524 U.S. 156 (U.S. 1998) (property interests for Takings Clause are defined by existing state law)
- Palazzolo v. Rhode Island, 533 U.S. 606 (U.S. 2001) (Takings Clause applies to states through the Fourteenth Amendment)