Kakalia Management LLC v. Otsego County Treasurer ( 2023 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
KAKALIA MANAGEMENT, LLC, UNPUBLISHED
April 13, 2023
Plaintiff-Appellant,
v No. 361621
Otsego Circuit Court
OTSEGO COUNTY TREASURER and COUNTY LC No. 18-17383-CH
OF OTSEGO,
Defendants-Appellees.
Before: GADOLA, P.J., and PATEL and MALDONADO, JJ.
PER CURIAM.
The issue on appeal is whether plaintiff Kakalia Management, LLC has a compensable
takings claim under Article 10, § 2 of the 1963 Michigan Constitution and/or a claim for unjust
enrichment following a tax-foreclosure sale of its property. Kakalia claims that because defendant
county of Otsego purchased the property under the then-existing version of MCL 211.78m(1)1 and
the property was not sold at a public auction, Kakalia is entitled to be compensated for the fair
market value of its property, less the tax liability owed (i.e., its pre-foreclosure equity in the
property). Our Supreme Court held in Rafaeli, LLC v Oakland Co, 505 Mich 429, 477; 952 NW2d
434 (2020) that “a former property owner has a compensable takings claim if and only if the tax-
foreclosure sale produces a surplus[,]” in which case “the former owner may make a claim for the
surplus proceeds.” (emphasis added). It is undisputed that there were no surplus proceeds in this
case because the county purchased the property from defendant Otsego County Treasurer for the
minimum bid amount, which Kakalia acknowledges equaled its tax-liability. The Rafaeli Court
“reject[ed] the premise that just compensation requires that [former property owners] be awarded
the fair market value of their properties so as to be put in as good of position had their properties
not been taken at all.” Id. at 483. Accordingly, we affirm the trial court’s order granting
defendants’ motion summary disposition under MCR 2.116(C)(10).
1
MCL 2.11.78m was amended by 2020 PA 255, effective January 1, 2021, which was after the
August 2018 tax-foreclosure sale.
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I. FACTUAL BACKGROUND
The underlying facts are not in dispute. In January 2012, Kakalia acquired a commercial
property in Gaylord, Michigan known as the Royal Crest Motel or the Econolodge. Kakalia sold
the property by land contract in June 2015, but the land contract vendee defaulted and forfeited its
interest back to Kakalia in June 2017. On February 5, 2018, a judgment of foreclosure was entered
on the property pursuant to the General Property Tax Act (GPTA), MCL 211.1 et seq., because
Kakalia owed delinquent taxes, unpaid assessments, fees, penalties, and/or interest totaling
$89,609.47. Kakalia failed to redeem its property, and the judgment of foreclosure became
effective on April 2, 2018, which resulted in absolute title to the property vesting to the Otsego
County Treasurer. See MCL 211.78g(2).
The tax-foreclosed property was scheduled to be auctioned on August 13, 2018. On July
18, 2018, under the then-existing version of MCL 211.78m(1), the county exercised its statutory
election right to purchase the property from the Otsego County Treasurer for a minimum bid
amount of $89,609.47.2 At the time of the foreclosure purchase, the tax-delinquent property was
worth approximately $455,000 based on the facts alleged here.
In August 2018, Kakalia filed a complaint to quiet title against the Otsego County
Treasurer, alleging that it did not receive actual or proper notice of the tax-foreclosure proceedings.
The trial court dismissed Kakalia’s claim under MCR 2.116(C)(4), but Kakalia was afforded leave
to amend its claim. Kakalia amended its claim to allege that the Takings Clause of the Michigan
Constitution required the county to pay Kakalia just compensation equal to the fair market value
of the property less the amount owed to the Otsego County Treasurer for delinquent taxes.
Defendants moved to dismiss Kakalia’s claim under MCR 2.116(C)(10), arguing that the
sale of the property to the county did not yield any “surplus proceeds” and thus Kakalia had no
right to recovery pursuant to Rafaeli. In response, Kakalia asserted that Rafaeli was inapplicable
because (1) there was no “foreclosure sale” in the instant matter and (2) the taking in Rafaeli was
the “common law property right to retain any surplus proceeds from a foreclosure sale,” while the
taking in the instant was the “real property itself.” Relying on Justice Viviano’s concurring opinion
in Rafaeli, Kakalia asserted that the Rafaeli majority did not address whether a former property
owner has a vested property right to equity held in the property.
After initially denying the Otsego County Treasurer’s motion for summary disposition, the
trial court granted the motion after reconsideration:
The Michigan Supreme Court has held that one who loses a “property
interest” through tax foreclosure has a common law right to any “surplus proceeds”
actually realized by the government through the sale of the property and that such
right is protected [by] the Takings Clause of the Michigan Constitution. Rafaeli,
LLC v Oakland County, 505 Mich 429, 470-3 (2020).
2
“Because of the property’s proximity to the downtown County Building,” the county maintained
that it wished to retain the property “for potential County growth.”
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The plaintiff in this case challenges the sale of its former real estate after
property tax foreclosure via direct sale by the Otsego County Treasurer to Otsego
County for $89,609.47, which is the owing for unpaid real estate taxes. Although
not binding precedent, the court is persuaded by the analysis of the United States
District Court for the Eastern District of Michigan in Hall v Oakland County
Treasurer, Case No. 20-12230 (ED Mich, May 21, 2021).[3] Consistent with the
Hall courts [sic] reasoning, this court finds that defendant in this case is entitled to
summary disposition pursuant to MCR 2.116 (C)(7) [sic].[4]
Thereafter, the court granted Kakalia leave to file a third amended complaint adding the
county as a party defendant, adding a claim for unjust enrichment, and seeking a declaratory
judgment to confirm its present legal interest in the surplus equity in the subject property.
Contemporaneous with the order granting leave, the court granted summary disposition in favor
of defendants under MCR 2.116(C)(10) as to all of Kakalia’s claims asserted in the third amended
complaint. This appeal followed.
II. STANDARD OF REVIEW
“We review de novo a trial court’s decision on a motion for summary disposition.” El-
Khalil v Oakwood Healthcare, Inc, 504 Mich 152, 159; 934 NW2d 665 (2019). A motion for
summary disposition pursuant to MCR 2.116(C)(10) tests the factual sufficiency of the complaint.
Woodring v Phoenix Ins Co, 325 Mich App 108, 113; 923 NW2d 607 (2018). We consider all
evidence submitted by the parties in the light most favorable to the non-moving party. El-Khalil,
504 Mich at 160. Summary disposition under MCR 2.116(C)(10) is only appropriate when there
is no genuine issue of material fact. Id. “A genuine issue of material fact exists when the record,
giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon which
reasonable minds might differ.” Zaher v Miotke, 300 Mich App 132, 139-140; 832 NW2d 266(2013).
III. TAKINGS CLAIM
Kakalia argues that its surplus equity interest in the tax-foreclosed property was improperly
taken and that just compensation requires that it be compensated for the fair market value of its
property, less the tax liability owed. We disagree.
3
After this appeal was filed, the Sixth Circuit Court of Appeals reversed the district court’s
dismissal of the Hall plaintiffs’ takings claim under the U.S. Constitution, vacated the district
court’s dismissal of their takings claims under the Michigan Constitution, and remanded with
instructions for the district court to abstain from adjudicating the takings claims under the
Michigan Constitution. Hall v Meisner, 511 F4th 185, 196-197 (CA 6, 2022).
4
The trial court subsequently amended its order to reflect that its holding was based on MCR
2.116(C)(10).
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Under the GPTA, any property taxes that remain unpaid from the preceding twelve months
are “returned as delinquent for collection” on March 1 of each year. MCL 211.78a(2). If the
delinquent property taxes remain unpaid by March 1 of the following year, the property is
“forfeited to the county treasurer for the total amount of those unpaid delinquent taxes, interest,
penalties, and fees.” MCL 211.78g(1).5 Forfeited property may be redeemed by paying the total
amount of unpaid delinquent taxes, interest, penalties, and fees to the county treasurer on or before
the March 31 immediately succeeding the entry of a foreclosure judgment. MCL 211.78g(3).
When property taxes are delinquent, a county treasurer may elect to act as the foreclosing
governmental unit (FGU) for the municipality where the property is located; otherwise the state
will do so. MCL 211.78(3), (8). If the property owner does not redeem the forfeited property, the
FGU may file a petition for foreclosure. MCL 211.78h(1). If the property owner does not pay the
delinquent taxes, interest, penalties and fees by the March 31 immediately succeeding the entry of
the foreclosure judgment, fee simple title to the property will vest absolutely to the FGU without
any further redemption rights. MCL 211.78k(5).
Under the then-existing version of MCL 211.78m for the time periods relevant to this
action, the state had a “right of first refusal” to buy the foreclosed property “at the greater of the
minimum bid or its fair market value.” MCL 211.78m(1).6 If the state declined, the city, village
or township in which the property was located could purchase the property by paying the FGU the
“minimum bid.” Id. And if the city, village or township declined, the county in which the property
was located could purchase the property by paying the FGU the “minimum bid.” Id. Otherwise,
the foreclosed property would be sold by the FGU at public auction. MCL 211.78m(2). If a
governmental body exercised its statutory right to purchase the property from the FGU before the
public auction, the purchasing governmental body was free to sell the property. MCL 211.78m(1).
But, under the then-existing version of the GPTA, the property’s former owner did not have a right
to any of the surplus proceeds from the sale. See Rafaeli, 505 Mich at 447 (noting that the GPTA
“does not provide for any disbursement of the surplus proceeds to the former property owner, nor
does it provide former owners a right to make a claim for these surplus proceeds.”)7
Michigan’s Takings Clause provides, in relevant part:
5
MCL 211.78g was amended by 2020 PA 33 and 2020 PA 256, but the language we have cited
remained unchanged.
6
As used in this section, “minimum bid” is the amount of tax delinquency, including interest,
penalties, and fees due on the property. MCL 211.78m(11).
7
In response to Rafaeli, the Legislature passed amendments to the GPTA to provide a mechanism
for persons to obtain surplus proceeds after a tax-foreclosure sale. Proctor v Saginaw Bd of
Comm’rs, 340 Mich App 1, 9; 985 NW2d 193 (2022). Specifically, MCL 211.78t, which was
added by 2020 PA 256, outlines how a former property owner or other claimant may claim an
interest in the remaining proceeds following a sale of foreclosed property. The Legislature also
amended the GPTA to require any governmental body that purchases tax-foreclosed property to
pay the FGU “the greater of the minimum bid or the fair market value of the property.” See MCL
211.78m(1), as amended by 2020 PA 255.
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Private property shall not be taken for public use without just compensation
therefore being first made or secured in a manner prescribed by law. If private
property consisting of an individual's principal residence is taken for public use, the
amount of compensation made and determined for that taking shall be not less than
125% of that property's fair market value, in addition to any other reimbursement
allowed by law. . . .
“Public use” does not include the taking of private property for transfer to a
private entity for the purpose of economic development or enhancement of tax
revenues. Private property otherwise may be taken for reasons of public use as that
term is understood on the effective date of the amendment to this constitution that
added this paragraph. [Const 1963, art 10, § 2.]
“A ‘taking’ . . . means that the government has permanently deprived the property owner
of any possession or use of the property without the commencement of formalized condemnation
proceedings.” Rafaeli, 505 Mich at 454. “When such a taking occurs, the property owner is
entitled to just compensation for the value of the property taken.” Id. at 454-455. The Rafaeli
Court concluded that Michigan’s “common law recognizes a former property owner’s property
right to collect the surplus proceeds that are realized from the tax-foreclosure sale of property.” Id.
at 470. The Court also found that Article 10, § 2 of Michigan’s “1963 Constitution protects a
former owner’s property right to collect the surplus proceeds following a tax-foreclosure sale[.]”
Id. at 473. And because this common-law interest is protected by the Takings Clause, the GPTA
could not abrogate it. Id. But the Court held that “a former property owner has a compensable
takings claim if and only if the tax-foreclosure sale produces a surplus.” Id. at 477 (emphasis
added).
The remedy for a government taking is “just compensation for the value of the property
taken.” Id. at 482 (cleaned up). The Rafaeli Court determined that “just compensation” was the
surplus proceeds generated from the tax-foreclosure sale. Id. at 481-482. In doing so, the Court
made it clear that “the property improperly taken was the surplus proceeds, not plaintiffs’ real
properties.” Id. at 483. The Court expressly “reject[ed] the premise that just compensation requires
that plaintiffs be awarded the fair market value of their properties so as to be put in as good of
position had their properties not been taken at all” because “this would run contrary to the general
principle that just compensation is measured by the value of the property taken[,]” “plaintiffs are
largely responsible for the loss of their properties’ value by failing to pay their taxes on time and
in full[,]” and “[i]f plaintiffs were entitled to collect more than the amount of the surplus proceeds,
not only would they be taking money away from the public as a whole, but they would themselves
benefit from their tax delinquency.” Id. at 483. The Court concluded that “when property is taken
to satisfy an unpaid tax debt, just compensation requires the foreclosing governmental unit to
return any proceeds from the tax-foreclosure sale in excess of the delinquent taxes, interest,
penalties, and fees reasonably related to the foreclosure and sale of the property—no more, no
less.” Id. at 483-484 (emphasis added).
In this case, Kakalia’s property was not sold at a public auction; instead the county
exercised its statutory election to purchase the property from the Otsego County Treasurer, the
FGU, for the minimum bid pursuant to the then-existing version of MCL 211.78m(1). It is
undisputed that no “surplus proceeds” were generated by the tax-foreclosure sale to the county.
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But Kakalia attempts to distinguish this case from Rafaeli by arguing that “the property improperly
taken was Kakalia’s real property, not the surplus proceeds from a public auction.” Kakalia has
failed to demonstrate that its real property was improperly taken. Pursuant to MCL 211.78k(5),
absolute title to the subject property vested to the Otsego County Treasurer when the foreclosure
judgment became effective. Because Kakalia did not challenge the foreclosure proceedings, there
is no dispute that the Otsego County Treasurer properly acquired title to the property. Once
absolute title vested to the Otsego County Treasurer with no further rights of redemption, Kakalia
no longer had a vested property right to the real property itself. Albeit arguably in dictum, the
Rafaeli Court stated that it is “unaware of any authority affirming a vested property right to equity
held in property generally.” Id. at 484 n 134.8 And Justice Viviano recognized in his concurrence
that “the majority’s view of the case would seemingly be that if the property does not sell at auction
and is simply transferred to a governmental unit, the taxpayer is out of luck: no proceeds, let alone
a surplus, have been produced or retained by the government.” Rafaeli, 505 Mich at 518 (VIVIANO,
J., concurring). We adopt the dicta set forth in Rafaeli and affirm the trial court’s dismissal of
Kakalia’s takings claim.
IV. UNJUST ENRICHMENT
Next, Kakalia argues that the trial court erred in dismissing its unjust enrichment claim.
We disagree.
“Unjust enrichment is a cause of action to correct a defendant’s unjust retention of a benefit
owed to another.” Genesee Co Drain Comm’r v Genesee Co, 504 Mich 410, 417; 934 NW2d 805(2019) (cleaned up). To establish a claim of unjust enrichment, a plaintiff must show “(1) the
receipt of a benefit by the other party from the complaining party and (2) an inequity resulting to
the complaining party because of the retention of the benefit by the other party.” Karaus v Bank
of New York Mellon, 300 Mich App 9, 22-23; 831 NW2d 897 (2012). “Not all enrichment is unjust
in nature, and the key to determining whether enrichment is unjust is determining whether a party
unjustly received and retained an independent benefit.” Id. at 23. Our Courts recognize a viable
claim for unjust enrichment for violation of a plaintiff’s common-law property rights protected
under our state’s Takings Clause to collect the surplus proceeds that are realized from the tax-
foreclosure sale of property. See Rafaeli, 505 Mich at 468-470, 473; Proctor, 340 Mich App at
17, 19-20.
Kakalia’s unjust enrichment claim alleges that the county “has received a benefit from
[Kakalia] by retaining the market value of the subject property in excess of the amount needed to
8
The Court went on to state, “[n]or is it necessary for us to do so here.” Rafaeli, 505 Mich at 484
n 134. The Court explained that the issue was “whether a former property owner retains the ability
to collect any surplus proceeds that might result after the government seizes title to real property
for failure to pay taxes and then sells that property for more than the tax delinquency.” Id. “It is
a well-settled rule that statements concerning a principle of law not essential to determination of
the case are obiter dictum and lack the force of an adjudication,” and are “not binding on this
Court.” Griswold Props, LLC v Lexington Ins Co, 276 Mich App 551, 557-558; 741 NW2d 549(2007). But it is permissible for an appellate court to find dictum persuasive and decide to follow
it. Dykstra v Dep’t of Transp, 208 Mich App 390, 392; 528 NW2d 754 (1995).
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pay” the delinquent taxes, interest, penalties, and fees, which “is an inequitable result . . . because
the value of the property was far greater than the amount [Kakalia] owed . . . for unpaid taxes.”
Kakalia alleges that the county “has been unjustly enriched by retaining the surplus equity in
[Kakalia’s] property.”
Kakalia has failed to demonstrate that the county has received a “benefit” from Kakalia.
At set forth in Issue III, supra, it is undisputed that no “surplus proceeds” were realized from a
“tax-foreclosure sale,” and Kakalia has failed to demonstrate a property right or amount or benefit
that was “unjustly” taken from it by the county, which properly acquired the subject property from
the Otsego County Treasurer after proper tax-foreclosure proceedings. The Rafaeli Court made
clear that a plaintiff’s only “property interest” surviving a tax-foreclosure is not in the real property
itself, but only in the surplus proceeds resulting from the tax-foreclosure sale, if any. In this case,
there are no such surplus proceeds. Further, there was nothing improper or unlawful with the
Otsego County Treasurer’s foreclosure of the subject property, or the county’s exercise of its
statutory election to purchase the property from the Otsego County Treasurer for the minimum bid
pursuant to the then-existing version of MCL 211.78m(1). No evidence suggests that the county
has unjustly benefited by its legal purchase of the property for the minimum bid amount. “One is
not unjustly enriched . . . by retaining benefits involuntarily acquired which law and equity give
him absolutely without any obligation on his part to make restitution.” Tkachik v Mandeville, 487
Mich 38, 48; 790 NW2d 260 (2010) (cleaned up). Accordingly, the trial court did not err in
dismissing Kakalia’s unjust enrichment claim.
V. DECLARATORY JUDGMENT
Finally, Kakalia argues that it is entitled to a declaratory ruling that the county is obligated
to pay Kakalia any surplus proceeds from a future sale of the subject property. We disagree.
Because the subject property was sold under MCL 211.78m “before July 18, 2020,” MCL
211.78t(1)(b) now provides the exclusive mechanism for a former property owner to claim the
surplus proceeds from a tax-foreclosure sale. See MCL 211.78t(11). But since the tax-foreclosure
sale already occurred and it’s undisputed that there were no “surplus proceeds,” Kakalia has no
further remedy. Accordingly, we affirm the trial court’s dismissal of Kakalia’s claim for a
declaratory judgment.
Affirmed.
/s/ Michael F. Gadola
/s/ Sima G. Patel
/s/ Allie Greenleaf Maldonado
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