CONTINENTAL RESOURCES, APPELLEE, V. KEVIN L. FAIR, DEFENDANT AND THIRD-PARTY PLAINTIFF, APPELLANT, AND HEATHER HAUSCHILD, SCOTTS BLUFF COUNTY TREASURER, AND DOUG PETERSON, ATTORNEY GENERAL FOR THE STATE OF NEBRASKA, IN THEIR OFFICIAL CAPACITIES, AND THE COUNTY OF SCOTTS BLUFF, THIRD-PARTY DEFENDANTS, APPELLEES.
No. S-21-074
Nebraska Supreme Court
March 18, 2022
311 Neb. 184
2. Jurisdiction: Appeal and Error. The question of jurisdiction is a question of law, upon which an appellate court reaches a conclusion independent of the trial court.
3. Constitutional Law: Statutes: Judgments: Appeal and Error. The constitutionality of a statute presents a question of law upon which appellate courts have an obligation to reach an independent conclusion irrespective of the decision of the court below.
Appeal from the District Court for Scotts Bluff County: LEO P. DOBROVOLNY, Judge. Affirmed.
Michael W. Meister, Jennifer Gaughan, and Mark T. Bestul, of Legal Aid of Nebraska, for appellant.
Gregory C. Scaglione and Casandra M. Langstaff, of Koley Jessen, P.C., L.L.O., for appellee Continental Resources.
HEAVICAN, C.J., CASSEL, STACY, FUNKE, PAPIK, and FREUDENBERG, JJ., and THOMPSON, District Judge.
PAPIK, J.
If an owner of real property in Nebraska fails to pay property taxes, a statute allows the county in which the property is located to sell a tax certificate for the property to a private party. If, after a period of time, the owner of the real property fails to pay the taxes owed and the tax certificate purchaser complies with certain requirements, the tax certificate purchaser can obtain a deed to the property, free of any encumbrances. This appeal presents a multipronged challenge to the constitutionality of the statutes that authorize this process. The appellant contends that the statutes, both facially and as applied to him, violate the state and federal Takings Clauses; the state and federal Due Process Clauses; the federal Excessive Fines Clause; article I, § 25, of the Nebraska Constitution; and article III, § 18, of the Nebraska Constitution. We hold that these claims of unconstitutionality lack merit and, thus, affirm.
BACKGROUND
Nebraska Tax Sale Statutory Process.
Before reviewing the facts of this particular case, we believe it beneficial to provide an overview of Nebraska‘s tax certificate sale process. Because tax certificate sale proceedings are governed by the law in effect at the time the tax sale certificate is sold, see HBI, L.L.C. v. Barnette, 305 Neb. 457, 941 N.W.2d 158 (2020), we cite the statutes that were in effect in March 2015, when the tax certificate for the property at issue in this case was sold.
The tax sale process has been a part of Nebraska law since at least 1879. See 1879 Neb. Laws, §§ 1-184, pp. 276-349. In that year, the Legislature passed an act “[t]o provide a system of revenue” for the growing state. 1879 Neb. Laws,
The process operates in largely the same manner today as it did in 1879. See
To facilitate the sale of the lien, the county treasurer creates a list of all the properties in the county that have delinquent property taxes. See
If a county sells a tax certificate on a property, the property owner is not without recourse. The statute provides the owner the right to redeem the property by paying the county treasurer the amount listed in the tax certificate plus all other taxes paid by the tax certificate purchaser, any interest, and other fees. See
So, what happens if the property owner does not redeem the property? The tax certificate holder can eventually apply for a tax deed, but must first wait at least 3 years after purchasing the tax certificate. See
With this statutory background established, we turn to the facts and procedural history of this case.
Factual and Procedural History.
Kevin L. Fair and Terry A. Fair, a married couple, owned real property in Scotts Bluff County, Nebraska. The Fairs lived in a house on the property and owned the property free of any encumbrances.
In 2014, the Fairs failed to pay the property taxes they owed. In compliance with
The county treasurer sold a tax certificate for the property‘s unpaid taxes to Continental on March 11, 2015, for $588.21. Continental then paid the subsequent property taxes as if it were the owner of the property. Once Continental began paying the property‘s taxes, the County did not send any further communications or tax bills to the Fairs. Nor did the Fairs attempt to make any payments to the county treasurer for the delinquent property taxes.
Three years later, on April 13, 2018, Continental served the Fairs a “Notice of Expiration of Right of Redemption.” The notice informed the Fairs that they had 3 months from the date the notice was served to redeem the property and that redemption would cost $5,268—the total value of the unpaid taxes, fees, and interest. The notice also indicated that if the property was not redeemed, Continental would apply for a tax deed and the right of redemption would expire.
The Fairs did not make any payment to the county treasurer after receiving the notice from Continental. True to its word, in July 2018, Continental applied for a tax deed. The county
Continental thereafter filed a quiet title action against the Fairs. The Fairs eventually filed an amended answer, counterclaim, and third-party complaint, which added Scotts Bluff County and the county treasurer in her official capacity as third-party defendants. Relevant to this appeal, the Fairs alleged that the tax certificate sale process violated their constitutional rights in a number of respects. Because the Fairs sought to have statutes declared unconstitutional, the Nebraska Attorney General exercised his right “to be heard” regarding the Fairs’ constitutional claims. See
In response to a motion filed by Continental, the district court granted summary judgment against the Fairs and quieted title to the property in Continental‘s favor. The district court found that the tax certificate sale statutes were not unconstitutional in the manner alleged.
Terry Fair died while the lawsuit was pending in the district court. Kevin Fair (hereinafter Fair) filed a timely appeal.
On the same day he filed his opening brief, Fair filed a notice pursuant to Neb. Ct. R. App. § 2-109(E) (rev. 2014) that his appeal challenged the constitutionality of Nebraska statutes. We moved the case to our docket. The Attorney General filed a brief on appeal defending the constitutionality of the challenged statutes.
ASSIGNMENTS OF ERROR
Fair assigns that the district court erred in granting Continental‘s summary judgment motion to quiet title because the tax sale process set forth in
Although this case comes to us as an appeal from an order granting summary judgment, the parties do not disagree about any of the relevant facts. The sole issues on appeal are Fair‘s standing to assert his various constitutional challenges and the merits of those constitutional challenges.
[1,2] Standing is a jurisdictional component of a party‘s case because only a party who has standing may invoke the jurisdiction of a court. Adair Holdings v. Johnson, 304 Neb. 720, 936 N.W.2d 517 (2020). The question of jurisdiction is a question of law, upon which an appellate court reaches a conclusion independent of the trial court. Id.
[3] The constitutionality of a statute also presents a question of law upon which appellate courts have an obligation to reach an independent conclusion irrespective of the decision of the court below. See State v. Boche, 294 Neb. 912, 885 N.W.2d 523 (2016).
ANALYSIS
Standing.
Before we can address the merits of Fair‘s constitutional challenges, we are confronted with a challenge to his standing. Because standing is a jurisdictional issue, we address it first. See Egan v. County of Lancaster, 308 Neb. 48, 952 N.W.2d 664 (2020).
The Attorney General contends that because Fair failed to comply with
Fair contends that he has standing to assert his constitutional challenges despite his failure to pay or tender payment of the tax debt. He contends both that
Section
We need not, for purposes of our standing analysis, determine whether Fair would actually be entitled to damages or an order directing Continental or the county to make a payment that would return some of the equity in his property to him. As we have previously explained, because standing focuses “on the party” and not “the claim itself,” when considering standing, “the legal and factual validity of the claim presented must be assumed.” Heiden v. Norris, 300 Neb. 171, 174, 912 N.W.2d 758, 761 (2018) (internal quotation marks omitted).
Procedural Due Process.
Fair first argues that the tax certificate sale violated his right to procedural due process guaranteed by the
The parties to this case do not appear to dispute that before a deed to the property could be conveyed to Continental pursuant to the tax certificate statutes, procedural due process principles required that an attempt be made to provide Fair with advance notice. See Jones v. Flowers, 547 U.S. 220, 223, 126 S. Ct. 1708, 164 L. Ed. 2d 415 (2006) (“[b]efore a State may take property and sell it for unpaid taxes, the Due Process Clause of the Fourteenth Amendment requires the government to provide the owner notice and opportunity for hearing appropriate to the nature of the case“) (internal quotation marks omitted). See, also, HBI, L.L.C. v. Barnette, 305 Neb. 457, 941 N.W.2d 158 (2020). There is also no dispute in this case that Fair received actual notice in April 2018 that
In many instances in which a party challenges the adequacy of notice on due process grounds, the issue is whether adequate steps were taken to attempt to provide notice that ultimately failed to reach its intended recipient. See Oneida Indian Nation of New York v. Madison County, 665 F.3d 408, 432 (2d Cir. 2011) (referring to “the much more common due-process challenge in which a plaintiff contests the sufficiency of a notice that failed to reach its intended recipient“). That was the issue this court addressed in HBI, L.L.C., where it was held that certified mail that did not reach a property owner was nonetheless constitutionally adequate because it was “reasonably calculated” to provide actual notice. 305 Neb. at 470, 941 N.W.2d at 169 (internal quotation marks omitted). Fair‘s challenge is different. He concedes that in April 2018, he received actual notice his right to redeem his property would expire in 3 months, but he argues that due process required that he receive earlier notice. Specifically, Fair contends that due process required that he receive actual notice of the sale of the tax certificate to Continental in March 2015.
A party asserting that he or she was, as a matter of constitutional due process, entitled to earlier notice than that actually provided faces a difficult challenge. As a general matter, due process is a “flexible” concept, Gilbert v. Homar, 520 U.S. 924, 930, 117 S. Ct. 1807, 138 L. Ed. 2d 120 (1997) (internal quotation marks omitted), and thus resistant to an interpretation that “would impose a rigid requirement as to the precise timing with which notice must be given,” Oneida Indian Nation of New York, 665 F.3d at 434. Consistent with that understanding, the U.S. Supreme Court recognized long ago that only in a “clear case” will a notice be found inadequate
As we will explain, we do not believe Fair has shown that this is a “clear case” in which the notice was obviously provided too late. First, we disagree with Fair‘s contention that state and federal Constitutions required that he receive notice upon the sale of the tax certificate to Continental. Fair claims that a property owner is entitled to notice of the sale of a tax certificate concerning his or her property because it is then that “the property begins to be wrested from the control of the one who owns it.” Brief for appellant at 26. Fair points to no authority, however, that requires that notice be provided as soon as the possibility emerges that property may be subject to forfeiture.
Fair also, in our view, overstates the significance that the sale of the tax certificate has on the property owner‘s interests. Prior to the sale of a tax certificate, the county already possesses a lien on the property for the unpaid taxes. See
Neither do we see a basis to hold that Fair was constitutionally entitled to be notified more than 3 months before the redemption period expired. “[D]ue process requires the government to provide ‘notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.‘” Jones v. Flowers, 547 U.S. 220, 226, 126 S. Ct. 1708, 164 L. Ed. 2d 415 (2006) (quoting Mullane v. Central Hanover Tr. Co., 339 U.S. 306, 70 S. Ct. 652, 94 L. Ed. 865 (1950)). In this case, Fair received a notice by certified mail informing him of Continental‘s intent to apply for a tax deed to the property in 3 months if Fair did not redeem the property. Fair was apprised “of the pendency of” Continental‘s intentions. He was also afforded an “opportunity to” redeem the property. We see no basis to say that this is a “clear case” in which the 3 months Fair was provided to assert his rights was plainly inadequate. See Bellingham Bay &c. Co. v. New Whatcom, 172 U.S. 314, 318, 19 S. Ct. 205, 43 L. Ed 460 (1899). We therefore find no procedural due process violation.
Takings Clause.
Fair also contends that the issuance of a tax deed to Continental pursuant to the tax sale certificate statutes violated
Fair makes two arguments regarding the Takings Clauses. He first contends that the issuance of a tax deed to Continental violates the Takings Clauses, because it effects a taking of his property for a private, rather than public, purpose. Alternatively, he argues that, at a minimum, the issuance of the tax deed brought about a taking of the equity in his property in excess of the tax debt and that he is entitled to compensation for that surplus equity.
Fair‘s first argument depends upon his contention that the State‘s power to impose and collect taxes is subject to the Takings Clauses. In support of this argument, Fair relies on a case from the U.S. Supreme Court, Cole v. La Grange, 113 U.S. 1, 5 S. Ct. 416, 28 L. Ed. 896 (1885), and a case from this court, Bradshaw v. City of Omaha, 1 Neb. 16 (1871). Fair argues that these cases establish that a government‘s power to tax is subject to the Takings Clauses. And, Fair continues, if the power to tax is subject to the Takings Clauses, the county‘s sale of a tax certificate and subsequent issuance of a deed to Continental, even if pursuant to an effort to collect a tax debt, is subject to a takings analysis.
Further, more recent cases cast considerable doubt on the notion that a government‘s sale of its lien on tax-delinquent property, or sale of the property itself, is subject to a takings analysis. Within the last decade, the U.S. Supreme Court has said, “It is beyond dispute that [t]axes and user fees . . . are not takings.” Koontz v. St. Johns River Water Management Dist., 570 U.S. 595, 615, 133 S. Ct. 2586, 186 L. Ed. 2d 697 (2013) (internal quotation marks omitted).
If taxes, as the U.S. Supreme Court has held, are not takings, we do not see how efforts to collect that tax, whether through the sale of a lien on the property or sale of the property itself, could be characterized as a taking. See, also, Jones v. Flowers, 547 U.S. 220, 234, 126 S. Ct. 1708, 164 L. Ed. 2d 415 (2006) (“[p]eople must pay their taxes, and the government may hold citizens accountable for tax delinquency by taking their
Our conclusion that the county‘s tax collection efforts were not subject to the Takings Clauses undercuts any argument by Fair that the county could not use the tax sale certificate process to collect Fair‘s undisputed tax debt. Fair‘s alternative argument, however, is that even if the county could take steps to transfer his property to satisfy his tax debt, he is entitled to receive as “just compensation” the difference between the assessed value of his property and the tax debt, interest, and fees he owes, an amount he refers to as the “surplus equity” in his property. Brief for appellant at 34, 35. We turn to that argument now.
Continental and the Attorney General contend that we need not engage in any heavy lifting to address Fair‘s alternative argument. They claim that binding U.S. Supreme Court
The Attorney General also claims Fair‘s argument is precluded by Balthazar v. Mari Ltd., 396 U.S. 114, 90 S. Ct. 397, 24 L. Ed. 2d 307 (1969). In Balthazar, a three-judge district court panel rejected a constitutional challenge to an Illinois tax sale process much like the Nebraska statutory system at issue in this case. See Balthazar v. Mari Ltd., 301 F. Supp. 103 (N.D. Ill. 1969). The district court found no constitutional deficiency despite the fact that the Illinois process did not guarantee that the property owner would receive compensation in the event the value of the property exceeded the tax debt. The U.S. Supreme Court summarily affirmed the district court‘s determination in one sentence without analysis.
Unlike Continental and the Attorney General, we have doubts about whether Fair‘s argument can be resolved with only a cursory citation to Nelson or Balthazar. The Nelson court appeared to rely, at least in part, on the fact that the property owner in that case failed to take advantage of a statutory mechanism that would have entitled him to the proceeds
Furthermore, the U.S. Supreme Court has made clear that “[b]ecause the [Takings Clause] protects rather than creates property interests, the existence of a property interest is determined by reference to existing rules or understandings that stem from an independent source such as state law.” Phillips v. Washington Legal Foundation, 524 U.S. 156, 164, 118 S. Ct. 1925, 141 L. Ed. 2d 174 (1998) (internal quotation marks omitted). So while the U.S. Supreme Court may have concluded there was no constitutional problem in Nelson and Balthazar when the respective property owners did not receive the surplus equity from their property, that conclusion would seem to partially hinge on whether the property owner had a right under state law to the value of the property in excess of the tax debt. And because Fair claims Nebraska law recognizes such a property right, we will proceed to consider whether that is the case.
Fair cannot contend that the tax certificate sale statutes he challenges create a right to receive compensation equal to the value of the property in excess of the tax debt. They make no mention of such a right. Instead, Fair relies on several other Nebraska statutes and a provision in the state constitution that he claims recognize a property interest in the equity of his property. In support of this argument, Fair cites the definition of property in Nebraska‘s Uniform Property Act,
Fair also asks us to recognize a common-law property right in the value of property in excess of the tax debt when a tax deed is issued. Here, Fair asks us to follow the lead of the Michigan Supreme Court in Rafaeli, LLC v. Oakland County, 505 Mich. 429, 952 N.W.2d 434 (2020) (Rafaeli). In Rafaeli, the Michigan Supreme Court held that if a tax foreclosure sale yields proceeds in excess of the tax debt, the original property owner has a property interest in the surplus proceeds under Michigan common law. The Michigan Supreme Court reached this conclusion in reliance on the writings of Sir William Blackstone and former Michigan Supreme Court Justice Thomas M. Cooley, as well as English common-law cases. But the Michigan Supreme Court also found that some of its opinions in the early days of Michigan‘s statehood held that when land was sold for delinquent taxes and the proceeds exceeded the tax debt, the original property owner had a right to the surplus proceeds under the common law. Id. at 465-66, 952 N.W.2d at 456 (“in the early years of this state, it was commonly understood that the delinquent taxpayer, not the foreclosing entity, continued to own the land at the time of the tax-foreclosure sale and would have been entitled to any surplus“).
Fair asks us to follow Rafaeli and find that if a tax deed is issued pursuant to the tax sale certificate statutes and the value of the property for which the tax deed is issued exceeds the tax debt, the original owner has a common-law right to a payment equal to the difference between the value and the tax debt.
We have held that the Takings Clause “applies only to vested property rights” and that “[t]o be considered a vested right, the right must be fixed, settled, absolute, and not contingent upon anything.” Big John‘s Billiards v. State, 288 Neb. 938, 954, 852 N.W.2d 727, 741 (2014) (internal quotation marks omitted). Fair, however, has not demonstrated that at the time the tax deed was issued, he had an absolute right to the difference between the assessed value of his property and his tax debt. Without such a right, his claims under the Takings Clauses cannot succeed.
Fair‘s third argument is under the Excessive Fines Clause of the
The
The U.S. Supreme Court has said, “The Excessive Fines Clause limits the government‘s power to extract payments, whether in cash or in kind, ’as punishment for some offense.‘” Austin v. United States, 509 U.S. 602, 609-10, 113 S. Ct. 2801, 125 L. Ed. 2d 488 (1993) (emphasis in original) (quoting Browning-Ferris Industries v. Kelco Disposal, 492 U.S. 257, 265, 109 S. Ct. 2909, 106 L. Ed. 2d 219 (1989)). As we will explain, we find that the transfer of Fair‘s title to Continental lacks essential attributes of a “fine,” as that term has been defined by the U.S. Supreme Court.
The U.S. Supreme Court has drawn a distinction between a penalty or forfeiture that is purely “remedial” and one that “can only be explained as serving in part to punish.” Id., 509 U.S. at 610. The latter, according to the U.S. Supreme Court, is a fine under the
Fair argues that the transfer of his property can only be understood as a form of punishment. In support of this contention, he points to the fact that as a result of the transfer, he stands to lose a property he previously owned free and clear of any encumbrances, the assessed value of which is more than
First, in United States v. Bajakajian, 524 U.S. 321, 118 S. Ct. 2028, 141 L. Ed. 2d 314 (1998), the U.S. Supreme Court recognized that a penalty or forfeiture is not necessarily punitive merely because of a discrepancy between the value of the property forfeited and the government‘s loss. See, also, Tyler v. Hennepin County, 505 F. Supp. 3d 879, 896 (2020) (relying on Bajakajian and concluding that “[t]he fact that the operation of Minnesota‘s tax-forfeiture system may result in a windfall to the government therefore does not compel the conclusion that the system is punitive“), aff‘d No. 20-3730, 2022 WL 468801 (8th Cir. Feb. 16, 2022). Second, the forfeitures the U.S. Supreme Court has found punitive in Austin, supra, and Bajakajian, supra, involved the forfeiture of property involved in criminal offenses and the U.S. Supreme Court relied heavily on their connection to criminal proceedings. Here, there is no suggestion that a property or its owner must be involved in criminal behavior in order for the property to be transferred via the tax certificate sale process.
In addition to those reasons, the notion that the State or the county intended to punish Fair for not paying his property taxes simply does not hold together. As we have noted, the statutes Fair challenges allowed him to avoid the loss of his property if he paid his tax debt more than 3 years after the tax certificate was first sold. This extended opportunity to avoid forfeiture suggests that the purpose of the tax certificate sale system is to “collect taxes, rather than to punish delinquent taxpayers.” Tyler, 505 F. Supp. 3d at 896.
Further, the magnitude of Fair‘s loss was not dictated solely by the statute. If no party purchases a tax certificate offered for a particular property, a Nebraska statute provides that the county board shall direct the county attorney to foreclose the lien for the taxes in a tax foreclosure proceeding. See
Not only did the magnitude of Fair‘s loss depend on a choice made by Continental, the tax sale certificate process resulted in the transfer of his property to Continental. This fact highlights another way in which the tax sale certificate process does not function as a fine under the
Because we find that there was no fine imposed for purposes of the
Article I, § 25, of Nebraska Constitution.
Next, Fair argues that the tax certificate sale process violates
Article III, § 18, of Nebraska Constitution.
Finally, Fair briefly contends that the tax sale certificate statutes create a “special class” in violation of
CONCLUSION
In this appeal, Fair argues that Nebraska‘s tax certificate sale statutes are “harsh and unconstitutional.” Brief for appellant at 45. The sole questions before us, however, are whether the statutes are unconstitutional in the manner Fair assigns. We find that they are not and, accordingly, affirm.
AFFIRMED.
MILLER-LERMAN, J., not participating.