Victoria Kathrein v. City of Evanston, Illinois
752 F.3d 680
7th Cir.2014Background
- Evanston’s Affordable Housing Demolition Tax required owners demolishing residential buildings to pay $10,000 per building or $3,000 per unit, with proceeds earmarked for an Affordable Housing Fund.
- Michael and Victoria Kathrein alleged the Tax reduced a buyer’s offer on their single‑family lot in 2007 and sued under 42 U.S.C. § 1983 challenging the Tax and asserting the Tax Injunction Act (TIA) is unconstitutional.
- District court dismissed: held the exaction was a tax, TIA barred federal adjudication of the Tax claims, and the Kathreins lacked standing to challenge the TIA. A Seventh Circuit panel reversed as to standing and characterized the exaction as regulatory (not a tax), allowing the suit to proceed.
- The Seventh Circuit en banc in Empress Casino rejected the panel’s multifactor test and announced a bright‑line classification (tax vs. fee vs. fine), indicating the Evanston exaction is a tax.
- After Empress Casino the defendants moved to dismiss; the district court concluded the en banc decision constituted intervening law and dismissed the remaining federal claims under the TIA.
- The Kathreins did not move under Rule 60(b) to vacate the earlier final dismissal of their separate constitutional challenge to the TIA; the court held that claim is not before it and the Kathreins waived relief by failing to seek reconsideration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Demolition Tax is a "tax" for purposes of the TIA | Kathreins: the ordinance is regulatory (deterrent) not a tax; the panel’s earlier multifactor analysis governs | City: Empress Casino changed the law; the exaction is a tax because it raises revenue and is earmarked to subsidize housing | Held: Under Empress Casino the exaction is a tax; district court properly departed from law of the case and dismissed |
| Whether the TIA bars the Kathreins’ § 1983 claims attacking the Demolition Tax | Kathreins: TIA should not apply if the ordinance is regulatory; law of the case prevents relitigation | City: TIA bars federal suits that directly contest state tax schemes; comity requires dismissal | Held: TIA (and McNary comity principle) bars these federal § 1983 claims; dismissal affirmed |
| Whether the Kathreins may relitigate their constitutional challenge to the TIA (Count One) after Empress Casino | Kathreins: if ordinance is a tax now, they should be allowed to pursue their constitutional challenge to the TIA | City: That claim was finally dismissed earlier and the Kathreins failed to seek Rule 60(b) relief; claim is closed | Held: Kathreins waived review by not moving under Rule 60(b); Count One is not before the court |
| Whether intervening en banc precedent justified departing from the law‑of‑the‑case | Kathreins: earlier panel decision remains controlling law of the case | City: En banc Empress Casino effected an intervening change in law justifying departure | Held: Empress Casino created an intervening change; district court reasonably departed from law of the case |
Key Cases Cited
- Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc., 651 F.3d 722 (7th Cir. 2011) (en banc) (announces bright‑line taxonomy of exactions as taxes, fees, or fines and treats revenue‑raising deterrent exactions as taxes)
- Kathrein v. City of Evanston, Ill., 636 F.3d 906 (7th Cir. 2011) (panel decision reversing district court and applying a multifactor regulatory test to characterize the exaction)
- Fair Assessment in Real Estate Ass'n, Inc. v. McNary, 454 U.S. 100 (U.S. 1981) (federal courts must defer to state remedies; § 1983 suits that directly challenge state tax systems are barred on comity grounds)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (U.S. 1992) (party invoking federal jurisdiction bears the burden of establishing Article III standing)