David Johnson v. David Orr ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 08-1133
D AVID JOHNSON
Plaintiff-Appellant,
v.
D AVID D. O RR, M ARIA P APPAS,
Treasurer, FREDDA B ERMAN, et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 07 C 5900—Wayne R. Andersen, Judge.
A RGUED O CTOBER 16, 2008—D ECIDED D ECEMBER 4, 2008
_____________
Before R IPPLE, E VANS and T INDER, Circuit Judges.
R IPPLE, Circuit Judge. David Johnson acquired a “certifi-
cate of purchase” on a parcel of land in Cook County,
Illinois (the “County”) for which taxes had not been paid.
Ordinarily the holder of a certificate of purchase can
acquire a tax deed from the County if the owner of the
property does not pay the delinquent taxes, but, in this
2 No. 08-1133
instance, it turned out that the County had been mistaken
about the delinquency. With Mr. Johnson’s explicit con-
sent, a state circuit court judge entered an order directing
that the tax sale be rescinded, Mr. Johnson’s money be
returned and the certificate of purchase be cancelled. Mr.
Johnson nevertheless petitioned the state court to compel
the County to issue him a tax deed, and when that request
was denied, he filed this action claiming that the county
clerk and other county officials had violated his civil rights
under 42 U.S.C. § 1983, the Interstate Land Sales Full
Disclosure Act, 15 U.S.C. § 1703, and Illinois state law. The
district court concluded that it lacked subject matter
jurisdiction under both the Rooker-Feldman doctrine and the
Tax Injunction Act. Because we agree that the district court
lacked subject matter jurisdiction over Mr. Johnson’s
claims under the Rooker-Feldman doctrine, we affirm its
judgment.
I
BACKGROUND
In 2004, Cook County concluded that the property taxes
for a particular parcel of real estate had not been paid.
Under Illinois law, when an owner fails to pay taxes on real
estate, the county collector and the county clerk bring an in
rem action in state court and request permission to sell the
accrued taxes, special assessments, interest and penalties.
See 35 ILCS 200/21-150; Wilder v. Finnegan, 642 N.E.2d 496,
499 (Ill. App. Ct. 1994). In May 2004, the County sold the
delinquent taxes to Z Financial, LLC, and issued
Z Financial a certificate of purchase. See 35 ILCS 200/21-250.
No. 08-1133 3
Z Financial later sold the certificate of purchase to Mr.
Johnson. Illinois law thus entitled Mr. Johnson, as the tax
purchaser, to receive a tax deed for the property if he sent
and published the required notices informing the delin-
quent taxpayer of the right to redeem the property by
repaying the delinquencies, see 35 ILCS 200/21-345, 200/21-
350, 200/22-5, 200/22-10, 200/22-15, 200/22-20, 200/22-25,
and then successfully petitioned the state circuit court,
within three to six months of the end of the redemption
period, for an order directing the county clerk to issue the
deed. See 35 ILCS 200/22-30, 200/22-40; Cook County
Circuit Ct. R. 10.3.
Mr. Johnson complied with the notice provisions. Before
he petitioned the circuit court for a tax deed, however, the
County sought a judicial declaration that the tax sale was
“in error” because the parcel was owned by a government
entity and therefore was exempt from property taxes. See
35 ILCS 200/21-310(a). On September 6, 2006, Mr. Johnson
and the County entered into an “agreed order” declaring
that the tax sale was in error and directing that the certifi-
cate of sale be surrendered within ten days, that the
certificate be cancelled and that the county treasurer
refund the purchase price plus costs and interest. The
Illinois circuit court entered the order. Mr. Johnson does
not allege that the County failed to return the money and
cancel the certificate of purchase.
Despite the entry of the agreed order, Mr. Johnson
petitioned the Illinois circuit court to order the county clerk
to issue him the tax deed for the property. Apparently his
first application did not follow the proper form, and the
4 No. 08-1133
circuit court granted him leave to file an amended applica-
tion, which he did in November 2006. The record contains
no further information regarding the outcome of Mr.
Johnson’s application, although the complaint in this case
states that no deed was issued to Mr. Johnson.
One year later, in October 2007, Mr. Johnson filed this
action. He claims that, by refusing to issue him a tax deed,
the County violated his constitutional rights to due pro-
cess, equal protection and freedom from illegal searches
and seizures; that the County defrauded him in violation
of the Interstate Land Sales Full Disclosure Act; and that
the County’s actions ran afoul of state statutes and Illinois
common law. In his complaint, Mr. Johnson does not even
acknowledge the existence of the agreed order. The
defendants moved to dismiss the complaint for lack of
subject matter jurisdiction. In granting the motion, the
district court concluded that Mr. Johnson was asking, in
effect, that the district court review and overturn the
agreed order entered in state court, a remedy that the
Rooker-Feldman doctrine prohibits. The district court also
concluded that the Tax Injunction Act barred the exercise
of federal jurisdiction because giving Mr. Johnson the relief
he requests would interfere with Illinois’ tax collection
practices.
II
DISCUSSION
We review de novo a district court’s determination that
it lacks subject matter jurisdiction over a dispute. Vill. of
No. 08-1133 5
DePue, Ill. v. Exxon Mobil Corp., 537 F.3d 775, 782 (7th Cir.
2008). Where a party raises the issue of subject matter
jurisdiction, a court need not simply rely on the facts
alleged in the complaint, but also may consider extrinsic
evidence to determine whether it can exercise jurisdiction.
See Hay v. Ind. State Bd. of Tax Comm’rs, 312 F.3d 876, 879
(7th Cir. 2002).
A.
The district court reasoned that, under the Rooker-
Feldman doctrine, it lacked subject matter jurisdiction over
Mr. Johnson’s claims. The Rooker-Feldman doctrine states
that federal courts, other than the Supreme Court, do not
have jurisdiction to review decisions of state courts in civil
cases. See Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544
U.S. 280, 283-84 (2005); Hemmer v. Ind. State Bd. of Animal
Health, 532 F.3d 610, 613 (7th Cir. 2008); Holt v. Lake County
Bd. of Comm’rs, 408 F.3d 335, 336 (7th Cir. 2005). The
doctrine deprives federal courts of subject matter jurisdic-
tion where a party, dissatisfied with a result in state court,
sues in federal court seeking to set aside the state-court
judgment and requesting a remedy for an injury caused by
that judgment. See Exxon Mobil Corp., 544 U.S. at 284; Beth-
El All Nations Church v. City of Chicago, 486 F.3d 286, 292
(7th Cir. 2007). If the injury the plaintiff complains of
resulted from, or is inextricably intertwined with, a state-
court judgment, then lower federal courts cannot hear the
claim. Taylor v. Fed. Nat’l Mortgage Ass’n, 374 F.3d 529, 532-
33 (7th Cir. 2004). Rooker-Feldman is inapplicable, however,
when the alleged injury is distinct from the judgment. For
6 No. 08-1133
instance, it is inapplicable when the federal claim alleges “a
prior injury that a state court failed to remedy.” Centres,
Inc. v. Town of Brookfield, Wis., 148 F.3d 699, 702 (7th Cir.
1998); see also Long v. Shorebank Dev. Corp., 182 F.3d 548, 555
(7th Cir. 1999).
Mr. Johnson alleges that he has been injured by the
court’s failure to issue him a tax deed. This alleged injury
stems directly from the Illinois circuit court’s entry of the
agreed order; it is that very order that deprived Mr.
Johnson of the right to receive the tax deed and relieved
the defendants of any obligation to deed the property to
him. In essence, Mr. Johnson is complaining because the
defendants are following the circuit court’s order. See Ritter
v. Ross, 992 F.2d 750, 754-55 (7th Cir. 1993) (holding that
Rooker-Feldman bars subject matter jurisdiction where “but
for” the state-court judgment the plaintiff would have no
claim); see also Holt, 408 F.3d at 336.
It is of no consequence that Mr. Johnson’s complaint does
not challenge specifically the agreed order. Nor is it
relevant that he has characterized his grievance as a civil
rights claim. To determine whether Rooker-Feldman bars a
claim, we look beyond the four corners of the complaint to
discern the actual injury claimed by the plaintiff. Remer v.
Burlington Area Sch. Dist., 205 F.3d 990, 997 (7th Cir. 2000)
(looking to the substance of the plaintiff’s claim to deter-
mine whether Rooker-Feldman applies). “[A] litigant may
not attempt to circumvent the effect of Rooker-Feldman and
seek a reversal of a state court judgment simply by casting
the complaint in the form of a civil rights action.” Holt, 408
F.3d at 336 (internal quotation marks and citation omitted).
No. 08-1133 7
Mr. Johnson’s injury—the County’s refusal to issue him a
tax deed—was caused by the agreed order. He cannot
avoid the Rooker-Feldman bar by alleging that he suffered
this injury as a result of violations of his constitutional
rights. Therefore, we agree with the district court that it
lacked subject matter jurisdiction over Mr. Johnson’s civil
rights claims.
Mr. Johnson claims that the Rooker-Feldman doctrine does
not apply because he has not “lost any ‘decision’” and has
not been “injured by a state court judgment.” Appellant’s
Br. 33. We cannot accept these arguments. Mr. Johnson
ignores that he consented to the agreed order’s terms,
characterizes it as an order that “[d]efendants have
drafted” and describes it as “void.” Id. In his brief, how-
ever, Mr. Johnson does not dispute that the order was a
final decision of the state circuit court. At oral argument
his attorney submitted that the agreed order was not final.
We disagree. A settlement approved by a state court is a
judgment for purposes of Rooker-Feldman. Crestview Vill.
Apartments v. U.S. Dep’t of Hous. & Urban Dev., 383 F.3d 552,
556 (7th Cir. 2004) (quoting 4901 Corp. v. Town of Cicero, 220
F.3d 522, 528 n.5 (7th Cir. 2000)). In Illinois, an agreed order
constitutes a settlement. See Buntrock v. Terra, 810 N.E.2d
991, 999 (Ill. App. Ct. 2004) (observing that “an order
entered by consent” is equivalent to a settlement agree-
ment recorded by the court). That Mr. Johnson later filed a
petition for a tax deed—a right he explicitly relinquished
when he consented to the agreed order—does not change
the essential nature of the current action: it is an effort to
overturn the decision of the state court.
8 No. 08-1133
Mr. Johnson’s complaint and his appellate brief make
crystal clear that he is claiming that he has been injured by
the agreed order. The thrust of his argument is that the
state court’s judgment was in error. He alleges in his
complaint that the property is not tax exempt, that defen-
dants “purposely or recklessly ignored publicly available
information that the land is not exempt from taxation in
the state of Illinois,” and that the land is “not exempt from
taxation under Article IX, Section 6 of the Constitution of
Illinois.” R.1 at 2, 7. In his opening appellate brief, he
submits that he “has purchased delinquent land not
exempt from taxation,” that “the delinquent land was not
sold through inadverten[ce] or mistake,” and that the
agreed order “falsely stated that the delinquent land was
exempt from taxation.” Appellant’s Br. 6, 18, 28. The way
to remedy these alleged wrongs is not through an action in
the district court. If Mr. Johnson believes the state court
was wrong about the tax-exempt status of the property or
that he was induced fraudulently to sign away his rights to
receive the tax deed, his remedy is to ask the state circuit
court to set aside the agreed order. An Illinois court can set
aside a consent order on the basis of newly discovered
evidence or on a showing that the agreement was the result
of a fraudulent misrepresentation. See In re Marriage of
Nienhouse, 821 N.E.2d 1228, 1234 (Ill. App. Ct. 2004);
Burchett v. Goncher, 603 N.E.2d 1, 4 (Ill. App. Ct. 1991). Mr.
Johnson’s relief lies in the Illinois courts, and he cannot
avoid Rooker-Feldman simply by bypassing state court. See
Beth-El All Nations Church, 486 F.3d at 294; Manley v. City of
Chicago, 236 F.3d 392, 397 (7th Cir. 2001).
No. 08-1133 9
Mr. Johnson also protests that the agreed order is irrele-
vant because the certificate of purchase was a final judg-
ment guaranteeing him the right to receive a tax deed and
therefore could not be voided by the agreed order. We
cannot accept this argument. It is well established under
Illinois law that a tax purchaser is not automatically
entitled to receive a tax deed. For instance, if the tax
purchaser does not comply with the requirement that he
give notice of the deficiency to the owner of the property,
he will not be granted a tax deed. See 35 ILCS 200/22-5,
200/22-40(a). Similarly, an order declaring that the tax sale
was in error voids the certificate of purchase and revokes
the tax purchaser’s right to receive a tax deed. See 35 ILCS
200/21-310; see also RTC Commercial Assets Trust 1995-NP3-1
v. Phoenix Bond & Indem. Co., 169 F.3d 448, 451 (7th Cir.
1999). Thus, Mr. Johnson’s certificate of purchase was not
a final judgment because it was revocable and did not
automatically entitle him to a tax deed. See RTC Commercial
Assets Trust 1995-NP3-1, 169 F.3d at 455.
Mr. Johnson also contends that the Rooker-Feldman
doctrine does not apply because his complaint alleges that
the defendants acted under the color of state law. In
support of this argument, Mr. Johnson relies heavily on
Nesses v. Shepard, 68 F.3d 1003 (7th Cir. 1995), but he
misreads that case. The plaintiff in Nesses lost a series of
lawsuits in state court and then brought a civil rights
action in federal court against the lawyers and judges
involved in the state litigation, alleging that they had
conspired to ensure that he lost his lawsuits. We deter-
mined that Rooker-Feldman was not a barrier to Nesses’
claims because he was not “merely claiming that the
10 No. 08-1133
decision of the state court was incorrect.” Id. at 1005.
Instead, he claimed that the defendants had violated
an independent right: “the right (if it is a right) to be
judged by a tribunal that is uncontaminated by politics.”
Id. This decision does not help Mr. Johnson; he does not
claim that the defendants violated some independent right.
All of his constitutional claims stem from the revocation of
his right to receive a tax deed, as set forth in the agreed
order. And as we noted earlier, a plaintiff cannot get
around Rooker-Feldman simply by couching his grievance
as a constitutional claim. See Long, 182 F.3d at 557; Holt,
408 F.3d at 336.
B.
In addition to his civil rights claims, Mr. Johnson’s
complaint also alleges a violation of the Interstate Land
Sales Full Disclosure Act, 15 U.S.C. §§ 1701-1720. We do not
have subject matter jurisdiction to entertain this claim. A
district court has federal question jurisdiction only if the
complaint shows, on its face, that a federal claim is
“sufficiently substantial.” See Greater Chicago Combine &
Ctr., Inc. v. City of Chicago, 431 F.3d 1065, 1069 (7th Cir.
2005) (quoting Gammon v. GC Servs. Ltd. P’ship, 27 F.3d
1254, 1256 (7th Cir. 1994)). Thus, if a claim that purportedly
arises under a federal statute is “wholly insubstantial and
frivolous,” then the court must dismiss that claim for lack
of subject matter jurisdiction. Greater Chicago Combine &
Ctr., 431 F.3d at 1069 (quoting Ricketts v. Midwest Nat’l
Bank, 874 F.2d 1177, 1182 (7th Cir. 1989)).
No. 08-1133 11
Mr. Johnson’s claim under the Interstate Land Sales Full
Disclosure Act is insubstantial and frivolous. The Act
prohibits property owners from engaging in fraud in the
sale or lease of certain types of real estate. As relevant here,
the prohibitions in the Act apply only to a “sale or lease, or
offer to sell or lease any lot” that is not subject to an
exemption. See 15 U.S.C. § 1703(a)(2). The defendants did
not sell any property to Mr. Johnson. The County does not
acquire ownership of property, and thus cannot sell it,
simply because taxes go unpaid. Mr. Johnson was assigned
a “certificate of purchase” by Z Financial, which had paid
the delinquent taxes on the property. Thus, the County
essentially sold the right to collect the back taxes from the
property owner, who was entitled to reimburse Mr.
Johnson for the delinquent taxes and retain ownership. See
35 ILCS 200/21-345. If the property owner failed to pay, Mr.
Johnson then had to petition the circuit court and provide
proof that he had given the taxpayer the required notice
before he could receive a deed. See 35 ILCS 200/22-30,
200/22-40; Cook County Circuit Ct. R. 10.3. The County did
not sell the property to Mr. Johnson, and Mr. Johnson
never owned it. See Beth-El All Nations Church, 486 F.3d at
288 (noting that the holder of a certificate of purchase did
not own the property).
Even if a tax sale were a “sale” of property for purposes
of the Act, Mr. Johnson’s claim would be meritless for
another reason. The Act specifically exempts from its reach
“the sale or lease of real estate by any government or
government agency.” 15 U.S.C. § 1702(a)(5). Cook County,
through the county collector and the county clerk, adminis-
tered the tax sale and issued the certificate of purchase. The
12 No. 08-1133
County, a government entity, is exempt from liability for
land sales under the Act.
C.
The district court correctly concluded that it lacked
subject matter jurisdiction to decide Mr. Johnson’s claims.
We briefly address, however, the district court’s ruling that
the Tax Injunction Act (“TIA”) provides an additional basis
for finding a lack of jurisdiction. The TIA deprives district
courts of jurisdiction when a party seeks to “enjoin,
suspend or restrain the assessment, levy or collection of
any tax under State law where a plain, speedy and efficient
remedy may be had in the courts of such State.” 28 U.S.C.
§ 1341. Essentially, it blocks taxpayers from suing in
federal court to tie up a state’s “rightful tax revenue” or to
avoid paying state taxes, both of which would reduce the
flow of tax revenue. Levy v. Pappas, 510 F.3d 755, 760-62
(7th Cir. 2007); see also Hibbs v. Winn, 542 U.S. 88, 107
(2004). Although the TIA applies only to suits seeking
injunctive relief, suits for damages that seek to reduce state
tax revenue are barred “by the free-standing principle of
comity.” Wright v. Pappas, 256 F.3d 635, 637 (7th Cir. 2001)
(citations omitted).
Mr. Johnson does not seek to tie up the County’s tax
revenue or to avoid paying taxes. The taxes originally, but
erroneously, assessed on the property were paid at the tax
sale. The ultimate relief Mr. Johnson seeks—a tax
deed—would not deprive the County of tax revenue. Cf.
Levy, 510 F.3d at 762 (holding that the TIA barred suit
alleging loss of and delay in receiving tax refunds because
No. 08-1133 13
relief sought would operate to reduce the flow of tax
revenue to the state); Wright, 256 F.3d at 637 (holding that
the TIA barred suit where tax purchaser sought to undo tax
sale because purchaser was, in effect, seeking a refund of
taxes). To the contrary, it appears that Mr. Johnson would
be quite content to allow the County to keep the taxes he
paid on the property (or more precisely, that Z Financial
paid, but that Mr. Johnson presumably reimbursed to Z
Financial when he bought the certificate of purchase) and
to put the property back on the tax rolls, provided that the
County issue him a tax deed. It is the defendants, not Mr.
Johnson, who argue that the County is not entitled to the
revenue because the property is tax exempt. If Mr. Johnson
were to receive his requested relief, the Illinois coffers
would be increased, not decreased. See Hibbs, 542 U.S. at 94(holding TIA inapplicable to suit challenging the constitu-
tionality of state tax credits where the relief sought would
increase, not decrease, state’s revenue); Dunn v. Carey, 808
F.2d 555, 558 (7th Cir. 1986) (observing that the TIA does
not bar suits “that might increase state taxes”). Finally, in
a similar vein, the defendants argue that the relief Mr.
Johnson seeks would “restrain the tax sale process” and
thus reduce the flow of tax revenue. Mr. Johnson does not
seek an injunction to suspend or otherwise impede tax
sales. He merely insists that the state court failed to issue
him a tax deed.
Because Mr. Johnson has not asked the court for relief
that would impede the collection of taxes or reduce the
flow of tax revenue to Illinois, the TIA does not bar his
claims. See Hibbs, 542 U.S. at 105 (rejecting the proposition
that the TIA strips federal courts of jurisdiction over “all
14 No. 08-1133
aspects of state tax administration”). However, because we
conclude for other reasons that subject matter jurisdiction
is lacking, the judgment of the district court is affirmed.
A FFIRMED
12-4-08