Victoria KATHREIN and Michael L. Kathrein, Plaintiffs-Appellants, v. CITY OF EVANSTON, ILLINOIS, et al, Defendants-Appellees.
No. 12-2958
United States Court of Appeals, Seventh Circuit
May 15, 2014
Argued Sept. 10, 2013.
Michael L. Kathrein, Chicago, IL, pro se.
Brandon Deberry, Attorney, A & G Law LLC, Chicago, IL, for Defendants-Appellees.
Before KANNE, WILLIAMS, and TINDER, Circuit Judges.
TINDER, Circuit Judge.
This appeal is the second occasion for our court to consider the suit by Michael and Victoria Kathrein against the City of Evanston, its mayor, and nine aldermen, pursuant to
I
The Kathreins first filed suit in January of 2008, claiming that Evanston‘s Affordable Housing Demolition Tax violates the Fifth and Fourteenth Amendments of the United States Constitution, as well as provisions of the Illinois Constitution and other state law. The facts leading to this lawsuit and the first appeal were described in this court‘s initial panel decision. See Kathrein v. City of Evanston, Ill., 636 F.3d 906, 909-10 (7th Cir. 2011). To summarize, the Demolition Tax requires, with certain explicit exceptions, a property owner seeking to demolish any residential building to first pay the City $10,000 per building, or $3,000 per residential unit (whichever is greater). The ordinance establishing the tax states that the measure is designed to “provide a source of funding for the creation, maintenance, and improvement of safe and decent affordable housing in the City of Evanston.” Evanston, Ill., Code § 4-18-1. It accomplishes this goal by directing the proceeds of the exaction to the city‘s Affordable Housing Fund, which helps low- and moderate-income residents find and keep affordable housing. Id. § 4-18-3(A). In the relevant time period, the law generated approximately $90,000 a year.
The Kathreins alleged that they owned a property containing a single-family house in Evanston in 2007, when a real estate investor and developer agreed to purchase the land for $225,000. But once the prospective buyer learned of the Demolition Tax, he lowered his bid to reflect the extra cost of razing the house. The sale fell through, and the Kathreins state that they have since dropped any plans to sell the property.
Instead, the Kathreins sued in federal court. Their case hit an obstacle, however, in the Tax Injunction Act (TIA),
A panel of this court reversed the district court‘s decision in part. Employing a multi-factor analysis, the panel held that the Demolition Tax was a regulatory device, not a tax within the meaning of the TIA, because it provided an effective deterrent against the demolition of residential buildings, and because it raised relatively little revenue. Kathrein v. City of Evanston, Ill., 636 F.3d 906, 912-13 (7th Cir. 2011). And with the Demolition Tax no longer considered a tax, the TIA posed no obstacle to the Kathreins’ claims against it, and the case could move forward. Id. at 916. But by the same token, the Kathreins could not demonstrate that the TIA inflicted any injury upon them. For that reason, the panel affirmed the dismissal of the constitutional challenge to the TIA for lack of standing. Id. at 913. The case was remanded to the district court for further proceedings.
But before the district court could resolve the remaining claims, this court issued its en banc ruling in Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc., 651 F.3d 722 (7th Cir. 2011). In that decision, the full court rejected the multi-factor approach to identifying a tax taken by the panel in the first appeal in this case, stating, “We do not agree with that decision.” Id. at 730. Instead, the court held that an “exaction[] designed to generate revenue” was a tax, contrasting such an exaction with fines “designed ... to punish,” and fees that “compensate for a service that the state provides to the person or firms on whom ... the exaction falls.” Id. at 728.
Upon learning of this court‘s en Banc decision, the defendants again moved to dismiss the Kathreins’ claims. Although the panel‘s earlier ruling that the Demolition Tax was not a tax was the law of the case, the defendants argued that Empress Casino effected an intervening change in the law that permitted the district court to depart from this court‘s earlier mandate. The Kathreins opposed the defendants’ motion, arguing that the panel‘s decision was still good law after Empress Casino and that it still governed this litigation.
The district court agreed with the defendants. The court read the Empress Casino case to say that the full court “would conclude that the Demo[lition] Tax was a tax within the meaning of the TIA.” Kathrein v. City of Evanston, Ill., No. 08 C 83, 2012 WL 3028331, at *2 (N.D. Ill. July 24, 2012). Although the en Banc court did not “expressly overrule Kathrein” the district court concluded that it could not ignore “an opinion by the majority of the court stating that an earlier panel decision was wrong.” Id. The Kathreins’ remaining claims challenging the Demolition Tax were dismissed.
Notably, neither the district court nor the litigants discussed what should happen to Count One, the Kathreins’ constitutional challenge to the TIA. To be sure, the district court had already dismissed that claim in its first decision, and the panel affirmed the dismissal, albeit on different grounds. But that was before Empress Casino unsettled the law of the case. If the TIA now bars the Kathreins’ suit, why were they still unable to show injury sufficient to establish Article III standing? This question was left unanswered, because it went unasked.
In the instant appeal, the Kathreins restate their arguments that the original
II
We review a district court‘s dismissal for want of subject matter jurisdiction, whether due to the TIA or a lack of standing, de novo. Hager v. City of W. Peoria, 84 F.3d 865, 868 (7th Cir. 1996); Doe v. Cnty. of Montgomery, Ill., 41 F.3d 1156, 1158 (7th Cir. 1994). We accept all well pleaded allegations in the complaint as true, and draw all reasonable inferences in favor of the plaintiff. Hager, 84 F.3d at 868-69; Doe, 41 F.3d at 1158. This appeal turns on the legal interpretation of the Empress Casino decision, and not on any disputed factual findings of the district court.
A. Law of the Case
The Kathreins understandably maintain that our original determination that the Demolition Tax was a regulatory device is now the law of the case. According to the law of the case doctrine, “a ruling made in an earlier phase of a litigation controls the later phases unless a good reason is shown to depart from it.” Tice v. Am. Airlines, Inc., 373 F.3d 851, 853 (7th Cir. 2004). Indeed, by finding the Demolition Tax was a tax, the district court effectively reentered a judgment that we had reversed on appeal. “The most elementary application of [law of the case] doctrine is that when a court of appeals has reversed a final judgment and remanded the case, the district court is required to comply with the express or implied rulings of the appellate court.” Waid v. Merrill Area Pub. Sch., 130 F.3d 1268, 1272 (7th Cir. 1997) (internal quotation marks omitted).
However, the law of the case doctrine is not “hard and fast,” and we find that the district court had ample “good reason” to depart from it in this instance. Tice, 373 F.3d at 853-54. In general, the “unusual circumstances” that justify abandonment of the law of the case “include (1) substantial new evidence introduced after the first review, (2) a decision of the Supreme Court after the first review that is inconsistent with the decision on that review, and (3) a conviction on the part of the second reviewing court that the decision of the first was clearly erroneous.” Chi. & N.W. Transp. Co. v. United States, 574 F.2d 926, 930 (7th Cir. 1978). The second item in that list is an example of a generally accepted occasion for disturbing settled decisions in a case: when there has been an intervening change in the law underlying the decision. See United States v. Thomas, 11 F.3d 732, 736 (7th Cir. 1993) (Law of the case doctrine permits “a court to revisit an issue if an intervening change in the law, or some other special circumstance, warrants reexamining the claim.“).3
Although the intervening decision here came not from the Supreme Court, but from this very court sitting en Banc, we have little trouble concluding that it worked a change in the law. Empress Casino did not explicitly overrule the pan-
The Kathreins respond by noting, as did the dissent in Empress Casino, that the en Banc decision confronted a private racketeering suit rather than the Section 1983 “public law” suit presented in this case. They contend that Empress Casino could not overrule the prior panel decision in this case because the two decisions did not involve the same legal issue. However, in both cases the decision rested on whether the disputed exaction was a tax, and, as a result, whether the TIA applied. Thus, the announcement of a new legal rule in Empress Casino necessarily disturbed the law set out in the earlier, inconsistent panel decision.
B. The Demolition Tax
The next question is whether, under the new Empress Casino standard, the Demolition Tax is a tax. It clearly is. First, in disagreeing with the panel‘s original decision in Kathrein, the en Banc majority indicated that the Demolition Tax, as described by the panel decision, was a tax. “The tax would deter demolitions and the modest fund generated by it ... would be used to subsidize those poor people” who were in danger of losing their homes. Id. at 730. The Empress Casino majority concluded that “[t]axes that seek both to deter and to collect revenue when deterrence fails ... are commonplace,” and that the Evanston ordinance was an example of a “sin tax.” Id.
Even had the en Banc court not already explicitly categorized the Demolition Tax, we would still hold that the new rule squarely describes the exaction here as a tax. The Empress Casino decision divided exactions into three categories: fines, fees, and taxes. It noted that a fine is “designed ... to punish,” and that fees “compensate for a service that the state provides to the person or firms on whom ... the exaction falls.” Id. at 728. The Demolition Tax is not designed to punish property owners for demolishing buildings, nor was it enacted with “the hope ... that the punishment [would] deter” its citizens from tearing down houses and essentially cease all demolition of residential buildings. Id. The practice of demolishing residences is not “completely forbidden.” Id. at 729. The City of Evanston obviously expects and hopes that houses requiring demolition will continue to be torn down in the future, albeit perhaps at a slower rate. Nor is the ordinance a fee. It does not compensate for a state-provided service
The Kathreins respond that the ordinance does not impose a tax because the property owner can be exempt from paying—for instance, one who has owned and occupied a residence for three years, and who, following the demolition of that residence, lives in the new dwelling for three years following the demolition. See Evanston, Ill., Code § 4-18-4(A), D(1). However, tax laws commonly carve out exemptions. See, e.g.,
The purposes of the exaction in this case, as the en Banc court observed, are 1) to slow the rate of demolitions through a financial disincentive, and 2) to use the revenue from the demolitions to support poor homeowners. This dual motive clearly places the exaction in the category of a tax under Empress Casino‘s bright-line test.
C. Application of the TIA
Because the Demolition Tax is properly considered a tax, the TIA bars the Kathreins’ challenge to the exaction.4 The TIA is the state-tax analogue to the Tax Anti-Injunction Act,
The final question is what to do about the Kathreins’ contention that the TIA is unconstitutional. The district court originally dismissed this count of the Kathreins’ complaint, and the panel affirmed that aspect of the decision on the ground that the Kathreins lacked standing to challenge the TIA because the Demolition Tax was not a tax. As we have explained, the principle upon which the affirmance rested is no longer good law. The Kathreins therefore request that they be allowed to press forward in the district court with their constitutional claim.
Unfortunately, the Kathreins never moved for reconsideration of Count One before the district court. Unlike their other claims, which were still live following remand and thus susceptible to the defendants’ renewed motion to dismiss, Count One was dismissed in a final judgment of the district court. This court affirmed the dismissal order on different grounds, and its mandate issued. See Freeman v. Chandler, 645 F.3d 863, 870 (7th Cir. 2011) (The court of appeals “may affirm on any grounds present in the record.“). The claim was therefore no longer part of the case, and the district court could not revisit it sua sponte. See United States v. Polland, 56 F.3d 776, 777 (7th Cir. 1995) (“The mandate rule requires a lower court to adhere to the commands of a higher court on remand.“). As a result, Count One is not before this court, and there is no decision of the district court to review regarding that claim.
If the Kathreins had wished for the district court to reconsider the dismissal following the mandate, they should have moved for relief from the final judgment pursuant to
Instead of filing an appropriate motion to reconsider, the Kathreins, in their responses to the post-Empress Casino motion to dismiss before the district court, argued exclusively that this court‘s earlier panel ruling was binding law of the case. In other words, they maintained that, for purposes of this litigation, the Demolition Tax should not be considered a tax and the TIA should not apply. The Kathreins also responded with a separate motion to refile Count Two of their amended complaint—a takings claim that had been dismissed by stipulation and without prejudice. Crucially, they did not file any such motion regarding Count One. This
The Kathreins argue that they should have the opportunity to relitigate the dispute over the constitutionality of the TIA, despite their failure to move for relief from final judgment, because the ruling that the Evanston ordinance levies a tax, by logical necessity, grants them standing to challenge the TIA. According to this contention, the district court‘s second ruling automatically, or “by default,” resurrected the constitutional claim. This argument is unavailing, for at least three reasons.
First,
Second, the Kathreins have failed to show the district court that they have standing to pursue their constitutional claim. The district court‘s initial decision did, like the en Banc court, correctly view the Demolition Tax as a tax. It nevertheless dismissed the Kathreins’ constitutional challenge for lack of standing. The court reasoned that “[t]hough the TIA bars federal courts from adjudicating state tax challenges, it leaves plaintiffs’ state-court remedies intact.” 2009 WL 3055364, at *5.
The third and final reason a motion was necessary is that
III
This case presents the rare instance in which an en Banc decision creates an intervening change in the law that permits the district court to deviate from the law of the case. The defendants realized that the law had changed and properly moved for relief pursuant to the new legal rule. The Kathreins did not, so they must live with the consequences.
The decision of the district court is AFFIRMED.
TINDER
CIRCUIT JUDGE