Palakurthi v. Wayne County, Michigan
2:21-cv-10707
E.D. Mich.May 5, 2025Background
- Plaintiff Nagesh Palakurthi challenged Wayne County’s retention of surplus proceeds after his property was foreclosed and sold at a tax auction.
- Palakurthi’s claims included Fifth and Fourteenth Amendment takings under 42 U.S.C. § 1983, procedural due process, unjust enrichment, and state-law inverse condemnation. His equal protection claim was previously dismissed.
- The County moved for judgment on the pleadings and later reconsideration, arguing res judicata, statute of limitations, and that Michigan’s statutory post-2021 remedy was exclusive.
- The key timing issue was whether Palakurthi’s claims were timely and whether class action suits (Bowles and Wayside Church) tolled his claims.
- The Court ultimately held that Bowles did not toll, but Wayside Church may have tolled Palakurthi’s claims, based on notice provided to defendant class members.
- The Court dismissed the state-law inverse condemnation claim, holding state law is now exclusive; the federal § 1983 claims survive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Res Judicata (claim preclusion) | Surplus proceeds claim is independent | Claims barred because of earlier foreclosure litigation | Not barred; right to surplus is distinct |
| Statute of Limitations | Claims tolled by class action litigation | Tolled actions (esp. Bowles) do not apply/tolling inapplicable | Bowles didn’t toll but Wayside Church may have tolled |
| Exclusivity of State Remedy (GPTA) | Can raise federal constitutional claims in court | State process is exclusive method for surplus proceeds | State process is exclusive for state claims only; §1983 survives |
| Proceeding directly in federal court | Can sue under §1983 without exhausting state | Must exhaust state statutory remedy before federal suit | Federal suit permissible for takings under § 1983 |
Key Cases Cited
- Rafaeli, LLC v. Oakland County, 952 N.W.2d 434 (Mich. 2020) (former owner entitled to surplus proceeds from tax sale)
- Knick v. Twp. of Scott, 588 U.S. 180 (2019) (plaintiff with a § 1983 takings claim can go straight to federal court)
- Hall v. Meisner, 51 F.4th 185 (6th Cir. 2022) (distinguishes rights of claimants in "right of first refusal" vs. auction cases)
- Bowles v. Sabree, 121 F.4th 539 (6th Cir. 2024) (class action tolling of § 1983 takings claims discussed and applied)
- Tyler v. Hennepin Cnty., 598 U.S. 631 (2023) (retention of surplus proceeds constitutes a taking under the Fifth Amendment)