Brown Bark I, L.P. v. Traverse City Light and Power ( 2012 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 12a0988n.06
No. 10-2644 FILED
Sep 07, 2012
UNITED STATES COURT OF APPEALS DEBORAH S. HUNT, Clerk
FOR THE SIXTH CIRCUIT
BROWN BARK I, L.P., )
)
Plaintiff-Appellant, ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR
v. ) THE WESTERN DISTRICT OF
) MICHIGAN
TRAVERSE CITY LIGHT AND POWER )
DEPARTMENT, )
) OPINION
Defendant-Appellee. )
)
Before: SUHRHEINRICH, STRANCH, and DONALD, Circuit Judges.
DONALD, Circuit Judge. Plaintiff-Appellant Brown Bark I, L.P. (“BBI”) brought suit
against Traverse City Light & Power (“TCL&P”) in the Western District of Michigan pursuant to
28 U.S.C. § 1332, seeking a declaration that TCL&P has no right under the Michigan Revenue Bond
Act (“RBA”) to assert tax liens; BBI also sought to quiet title and alleged, among other things,
slander of title. BBI and TCL&P filed cross motions for summary judgment. The district court
denied BBI’s motion and granted TCL&P’s motion, holding that TCL&P has a valid tax lien
pursuant to the RBA. BBI now appeals, alleging the district court erred in applying the RBA. For
the following reasons, we affirm.
No. 10-2644
Brown Bark I, L.P. v. Traverse City Light & Power Dept.
I.
BBI owns Brewery Creek Office Condominium Development (“the Property”) in Leelanau
County, Michigan. TCL&P is a municipally-owned utility provider that services the area in which
the Property is located. Brewery Creek Development (“BCD”) was formed to develop the Property.
On May 21, 2003, Republic Bank issued BCD a loan to develop the Property. Republic’s mortgage
was recorded on May 28, 2003. Brewery Creek Center Condominium Association (“BCCCA”)
served as the Property’s owners’ association.
In April 2004, BCCCA and TCL&P entered into an agreement (the “Lighting Agreement”),
whereby TCL&P advanced BCCCA money to install light fixtures in the parking lots, driveways,
and common areas of the Property. TCL&P hired a third-party contractor to install the lighting
fixtures. The Lighting Agreement did not address the future sale of electricity to BCD. The
Agreement established that the BCCCA would repay the amount advanced for the fixtures over a
10-year schedule. The Lighting Agreement also provided that TCL&P could pursue real estate tax
liens on the Property in the event BCCCA failed to pay the amount advanced by TCL&P. BCD and
three condominium property owners consented in writing (the “Consents”) to allow TCL&P to
impose a tax lien in accordance with Mich. Comp. Laws § 141.121 in the event BCCCA failed to
pay. Traverse City has incorporated Mich. Comp. Laws § 141.121(3) into its Code of Ordinances
to ensure that it could avail itself of the provision permitting imposition of a tax lien. The Consents
were recorded with the Leelanau County Register of Deeds in July 2004. The mortgage lender,
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Republic Bank, did not consent to a lien being placed on the Property, and, in fact, the mortgage
agreement with Republic Bank expressly prohibited the imposition of a lien on the Property.
In March 2007, BBI purchased Republic’s right, title, and interest on the mortgage and on
the Property. The assignment was recorded on April 19, 2007. BCD defaulted on the mortgage.
BBI foreclosed on the mortgage, and on November 21, 2008, BBI bought the Property at the
foreclosure sale. The Property was not redeemed and the Sheriff’s Deed was delivered to BBI.
One week prior to the foreclosure sale, TCL&P instituted a state action against BCD and
BCCCA claiming both entities had breached the Lighting Agreement by failing to repay the funds
TCL&P advanced for the lighting fixtures. TCL&P did not join BBI in the action. The state court
entered a consent judgment against BCD for breach of contract. Because BBI now owned the
Property, once it learned of the state court action, it filed a motion to intervene. The motion was
denied. TCL&P admitted that “the [j]udgment may have gone too far[,]” and counsel for TCL&P
was willing to consent to an amended judgment that removed language allowing TCL&P to enforce
the debt as a tax lien on the Property. The state court ultimately did not remove this language from
the judgment and simply awarded TCL&P monetary damages against BCD. TCL&P has not
relinquished its claim that it has authority to impose a tax lien.
BBI then filed suit against TCL&P challenging TCL&P’s right to impose a lien on the
Property. The parties filed cross-motions for summary judgment. Holding that TCL&P may impose
a tax lien on delinquent charges pursuant to the RBA, the district court found in favor of TCL&P and
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granted its motion for summary judgment on all claims. BBI now appeals, claiming that the district
court erred in applying the RBA to the charges at issue, that BBI’s foreclosed mortgage extinguishes
any lien TCL&P had on the property, and that TCL&P is liable for slander of title. The City of
Grand Rapids, Michigan filed an amicus-curiae brief in support of TCL&P.
II.
Holding that the RBA applies, the district court granted TCL&P summary judgment on all
claims. We review a district court’s grant of summary judgment de novo. Blackmore v. Kalamazoo
Cnty., 390 F.3d 890, 894-95 (6th Cir. 2004). Summary judgment is proper where there is no genuine
dispute of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P.
56(a). We view the record in the light most favorable to the nonmoving party and all reasonable
inferences will be drawn in favor of that party. Blackmore, 309 F.3d at 895.
A.
BBI argues that the transaction at issue falls well outside the scope of the RBA, and thus the
district court erred in applying the law to the facts of this case. In advancing this argument, BBI
contends that in order for the RBA to apply TCL&P must have provided services through a “public
improvement.” BBI asserts that providing electrical current to the Property through TCL&P’s utility
system does fall within the scope of the RBA. It maintains, however, that providing financing for
the construction of the light fixtures on private property does not fall within the RBA’s definition
of a “public improvement.” In response, TCL&P asserts that because the RBA broadly defines the
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term, the district court did not err in granting summary judgment when it held that the installation
of the street lighting falls within the RBA’s definition of a “public improvement.” The RBA
provides that:
Any public corporation is authorized to purchase, acquire, construct, improve,
enlarge, extend or repair 1 or more public improvements and to own, operate and
maintain the same, within or without its corporate limits, and to furnish the services,
facilities and commodities of any such public improvement to users within or without
its corporate limits.
Mich. Comp. Laws § 141.104. A “public improvement,” in the context of this case, is broadly
defined to include “utility systems for supplying light, heat, or power, including plants, works,
instrumentalities, and properties used or useful in connection with those systems[.]” Mich. Comp.
Laws § 141.103(b) (emphasis added). Where charges for a “public improvement” go unpaid, the Act
further provides the public corporation with a remedy to collect delinquent payments:
Charges for services furnished to a premises may be a lien on the premises, and those
charges delinquent for 6 months or more may be certified annually to the proper tax
assessing officer or agency who shall enter the lien on the next tax roll against the
premises to which the services shall have been rendered, and the charges shall be
collected and the lien shall be enforced in the same manner as provided for the
collection of taxes assessed upon the roll and the enforcement of the lien for the
taxes.
Mich. Comp. Laws § 141.121(3).
BBI cites several Michigan cases for the proposition that the service provided must involve
the utilization of the public improvement, maintaining that TCL&P does not meet this criterium.
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BBI references the Michigan Supreme Court’s decision in City of North Muskegon v. Bolema Constr.
Co., where the court held:
In our opinion a lateral consisting of sewer pipe and fittings running from a sewer
main to the property line of the use is a necessary part of the sewerage system and as
such is a service or facility within the meaning of the act. The fact that there is a non-
recurring charge for this connection does not detract from the fact that the connection
is a service or facility, which the Department of Public Service must provide.
56 N.W.2d 371, 374 (Mich. 1953).
BBI also cites the Michigan Supreme Court’s holding in Seltzer v. Sterling Twp., 123 N.W.2d
722 (Mich. 1963). In that case, the court applied the RBA where residents were charged a “privilege
fee” so that the Township could acquire capital equipment for the water system. This court, in City
of Detroit, By and Through Detroit Water and Sewerage Dep’t v. Mich., 803 F.2d 1411 (6th Cir.
1986), held that the Wayne County Road Commission was subject to the RBA where its storm water
runoffs flowed into the City’s treatment system. The court reiterated that “a benefit is necessarily
conferred upon those properties which enjoy storm water runoff into a municipal sewer system.” Id.
at 1420. The rationale for this decision stems from the fact that the Wayne County Road
Commission needed appropriate drainage to keep the roads safe for public travel and that without
the help of the sewage system, this would not be possible. Id. at 1421.
All of the aforementioned cases cited by BBI seem to suggest that the RBA encompasses a
broad class of cases ranging from sewer lines running to and from a private residence, to the benefits
an entity and the public receive from a city’s drainage system. However, BBI insists that the RBA
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does not apply because the installation of street lights on private property, in and of itself, does not
utilize TCL&P’s system for a benefit conferred upon the public.
In response, TCL&P and the City of Grand Rapids contend that the RBA does apply, as it
was designed to be liberally construed. The RBA declares:
This act, being necessary for and to secure the public health, safety, convenience and
welfare of the counties, cities, incorporated villages, townships, school districts, port
districts, and metropolitan districts of the state of Michigan, shall be liberally
construed to effect the purposes hereof.
Mich. Comp. Laws § 141.134 (emphasis added). TCL&P argues that the charges incurred for
installing the light fixtures must fall under the definition of “public improvement.” The district court
did not expressly analyze what the “public improvement” is in this case. Instead, the court’s
analysis focused on how “charges” and “rates” for services differed within the meaning of the RBA.
The court reasoned that where “charges” and “rates” were two separate words listed in the statute,
their meanings were intended to be distinct from each other, and, as such, charges are not limited to
the rates charged to customers for electrical current. Therefore, the charges incurred from the
installation of the lighting fixtures could very well be subject to TCL&P’s lien in accordance with
Mich. Comp. Laws § 141.121(3). We agree.
As the district court further pointed out, the RBA defines “rates” as “the charges, fees,
rentals, and rates that may be fixed and imposed for the services, facilities, and commodities
furnished by a public improvement.” (emphasis added). TCL&P’s utility system is undoubtedly
defined as a “public improvement” by the Act, and TCL&P’s system provides the service of
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electricity through a facility such as a light fixture. See Bolema, 56 N.W.2d at 374 (finding that the
sewer lines running to property lines were “facilities” within the meaning of the Act.) (emphasis
added). Further, Mich. Comp. Laws § 141.103(b) indicates that ‘“public improvement’ means the
whole or a part of any of these improvements or of any combination of these improvements or any
interest or participation in these improvements.” (emphasis added). Given the foregoing, the statute,
liberally construed, necessarily includes light fixtures that TCL&P funded and in which it had an
interest.
Moreover, while TCL&P incorrectly asserts that Thomson v. City of Dearborn, 79 N.W.2d
841 (Mich. 1956), stands for the proposition that the RBA resolutely applies to “public
improvements” on private property,1 the RBA does not specifically state whether it applies only to
public property. Further, the RBA does not expressly state that light fixtures on private property are
prohibited from inclusion, and, as the City of Grand Rapids points out, Michigan state courts have
upheld the RBA’s application where the RBA does not expressly limit an action. See Oakland Cnty.
v. City of Detroit By & Through Bd. of Water Comm’rs., 265 N.W.2d 130, 133 (Mich. Ct. App.
1978); see also Sabaugh v. City of Dearborn, 185 N.W.2d 363, 365 (Mich. 1971).
BBI’s argument that TCL&P used a third-party contractor to install the fixtures is also
unavailing; even BBI’s brief illustrates that contractors can competitively bid on public
1
In Thomson, the court cites a case where the municipal parking system assessed a use charge
for on-street and off-street parking. TCL&P incorrectly states that the off-street parking was on
private property. BBI correctly points out that all of the property in Thomson, the on-street and off-
street parking, was public property, and thus, that case is distinguishable from the case at hand.
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improvements. Moreover, the RBA itself permits contractors to perform work on public
improvements. See Mich. Comp. Laws § 129.201.
The City of Grand Rapids urges us to affirm summary judgment on this issue, advancing that
it is “critical that infrastructure improvements be paid in order to perpetuate the operation of the
system.” Construing the statute liberally, the light fixtures at issue certainly fall within the scope of
the RBA. The district court did not err in granting TCL&P’s motion for summary judgment because,
as a matter of law, the RBA governs the delinquent charges at issue.
B.
The district court determined that in applying the RBA, “[M.C.L.] § 141.121(3)[] treats
delinquent government-utility charges the same as delinquent property taxes for purposes of lien
priority and collection.” On appeal, BBI does not dispute that the Act operates in this manner. BBI
argues, however, that TCL&P’s claim of a valid lien is premised on having valid signed Consents,
not on the application of the RBA. They assert that TCL&P’s lien on the Property is not a first
priority lien because the Consents were recorded after Republic Bank’s mortgage. Thus, when BBI
foreclosed on Republic Bank’s mortgage, BBI took the mortgage free and clear of all liens on the
Property.
BBI cites Mich. Comp. Laws § 600.3130, which provides:
Unless the premises or any parcel of them are redeemed within the time limited for
redemption the deed shall become operative as to all parcels not redeemed, and shall
vest in the grantee named in the deed, his heirs, or assigns all the right, title, and
interest which the mortgagor had at the time of the execution of the mortgage or at
any time thereafter.
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(emphasis added). Thus, BBI argues that because the Property was not redeemed, and because at
the time Republic Bank executed its mortgage TCL&P did not have a lien on the property, BBI is
not subject to the lien either.
TCL&P responds that because the RBA does apply to the charges incurred in this case, the
lien automatically came into being as provided by statute. Where the RBA treats the unpaid charges
as a tax delinquency, it is necessary to look to Michigan’s General Property Tax Act (GPTA). 2011
WL 1822454, at *2 (Mich. OAG No. 7258). The GPTA provides as follows:
The people of this state have a valid lien on property returned for delinquent taxes,
with rights to enforce the lien as a preferred or first claim on the property. The right
to enforce the lien is the prima facie right of this state and shall not be set aside or
annulled except in the manner and for the causes specified in this act.
Mich. Comp. Laws § 211.60a(4) (emphasis added). TCL&P has the better argument here.
The statutory language makes clear that if a lien is placed upon property in accordance with
the RBA, the lien is preferred as to all other claims, or “first claim,” as stipulated by the GPTA.
Thus, because the RBA applies to the charges incurred in this case, TCL&P has a first priority lien
that arose by operation of law as provided by statute and was therefore never junior to BBI’s
mortgage. As such, summary judgment was appropriate on this claim.
C.
Lastly, BBI claims that TCL&P is liable for slander of title because it maintained an invalid
lien on the Property. Under Mich. Comp. Laws § 565.108:
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No person shall use the privilege of filing notices hereunder for the purpose of
slandering the title to land, and in any action brought for the purpose of quieting title
to land, if the court shall find that any person has filed a claim for that reason only,
he shall award the plaintiff all the costs of such action, including such attorney fees
as the court may allow to the plaintiff, and in addition, shall decree that the defendant
asserting such claim shall pay to plaintiff all damages that plaintiff may have
sustained as the result of such notice of claim having been so filed for record.
To establish a claim of slander of title, BBI must show falsity, malice and special damages.
Sullivan v. Thomas Org., P.C., 276 N.W.2d 522, 525 (Mich. Ct. App. 1979). Because TCL&P has
a valid tax lien pursuant to the RBA, BBI cannot satisfy the falsity element. Thus, the district court
properly held BBI failed to state a claim for slander of title.
III.
Given the foregoing, we AFFIRM the district court’s grant of summary judgment to TCL&P
in all respects.
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