Choice of Law in Takings Cases After Tyler v. Hennepin County

The Tyler case and the choice of law questions it raises.

Thank you, Eugene! It's always an honor and a pleasure to write for The Volokh Conspiracy. My topic this week is specialized, but it's one likely to interest quite a few TVC readers: When a federal court hears an inverse-condemnation ("takings") lawsuit, the first thing it needs to do is to determine whether the plaintiffs have constitutional "private property" sufficient to give them federal claims. What law should the court consult to determine whether the plaintiffs have "private property" sufficient to support such a lawsuit? Some TVC bloggers and readers are staunch supporters of property rights. Other TVC bloggers and readers are fascinated by the ins and outs of federal courts doctrine, and specifically the doctrines about conflicts between federal and state law in federal litigation. I hope that the question interests both sets of bloggers and readers.

The U.S. Supreme Court tackled my question in a 2023 decision, Tyler v. Hennepin County, Minnesota. The most important holding in Tyler is a holding about "private property" for takings litigation: When a government forecloses on real estate to recover on a tax debt, the real estate's owner has private property in any residual proceeds post-sale left over after the tax debt is paid off. (Property lawyers call those residual proceeds an "equitable interest," and this week I'll follow suit by calling the proceeds "surplus equity.") To reach that holding, however, the Court needed to rely on choice of law principles. And the Court's choice of law holding is interesting. An old wedding tradition encourages brides to wear "something old, something new, something borrowed, something blue." In Tyler, the "old" and the "borrowed" are the basic principles of choice of law in federal constitutional litigation. The new and the blue come in details in application of those basic principles. To decide whether Tyler had constitutional property in surplus equity, the Court canvassed a wider range of legal sources than federal courts usually consult.

I'm writing a forthcoming article about Tyler and its choice of law holding for the Journal of Law, Economics, and Policy, based at George Mason University, my university. Together with the Pacific Legal Foundation, JLEP hosted a symposium on the future of regulatory takings doctrine, and my article contributed to that symposium. I wrote the article for an audience different from the audience of a standard article in a U.S. student-edited law review—not just academics, but also bar and bench. (One of the advantages of that focus is that my article is mercifully short—only 10,500 words!) As I'll explain this week, my sense is that judges, clerks, and takings lawyers don't appreciate the niceties of the choice of law principles I study. I also have the sense that property scholars don't understand the choice of law principles, and federal courts scholars don't appreciate the complications that property law and takings law create in choice of law. But I'm not certain I'm reading my different audiences correctly. So if you think I'm reading your section of the room wrong, please post a comment or email me!

In the rest of this post, I'd like to do three things. I'd like to introduce the main holdings and reasoning in Tyler. I'd like to give readers the background they need to understand the choice of law issue lurking beneath Tyler's merits. Finally, I'd like to explain why the Tyler decision seems strange or confusing to many lawyers and scholars.

On to Tyler. Geraldine Tyler owed $2,300 in taxes to Hennepin County for a condominium she had lived in from 1999 to 2010 and owned in absentia thereafter. She did not pay the taxes and by 2015 she owed another $13,000 in interest and penalties. Under the relevant Minnesota tax statutes, when an owner does not pay real estate taxes on time to the county of jurisdiction, Minnesota obtains a judgment against the property and acquires title in it subject to a three-year redemption period. If the owner/tax debtor does not pay the tax arrearage within three years, however, her interests are forfeit and title vests in the state. If the state sells the property after it takes title, the sale proceeds are used first to pay off the tax arrearage. Any proceeds left over are apportioned among the county, town, and school district of jurisdiction. Pursuant to those statutes, in 2015 Hennepin County seized Tyler's condominium, sold it for $40,000, extinguished her $15,000 tax debt, and kept the leftover $25,000.

Tyler brought a class action against the county and its officials. She claimed she was entitled to the $25,000 in surplus equity left over after her tax debt was paid off, and she alleged that the  laws that let Hennepin County keep the surplus equity violated the Takings Clause. (She also raised an Excessive Fines Clause challenge, but the Court opinion sidestepped that challenge and I will here, too.) The district court dismissed Tyler's taking challenge, and the circuit court affirmed the judgment of dismissal. The Takings Clause provides: "[N]or shall private property be taken for public use, without just compensation." A litigant doesn't have a claim capable of supporting a federal inverse-condemnation lawsuit unless she has a legal interest that counts as "private property" under the Takings Clause. And according to the Minnesota tax-foreclosure scheme, Tyler didn't have property in the surplus equity; her property rights were extinguished as soon as the County foreclosed on her lot.

The Supreme Court reversed, unanimously, in an opinion authored by Chief Justice Roberts. (Justice Gorsuch wrote a concurring opinion joined by Justice Jackson, but I'll ignore that concurrence because it focuses on the Excessive Fines issue.) On the merits, Roberts recognized that the U.S. Constitution left Minnesota and Hennepin County with authority to foreclose to recover Tyler's tax arrearages. But the governments "could not use the toehold of the tax debt," Roberts insisted, "to confiscate more property than was due." The Court thought it clear that, under the federal Constitution, "a taxpayer is entitled to the surplus in excess of the debt owed" post-foreclosure. And by (allegedly) keeping Tyler's surplus equity, Roberts concluded for the Court, Minnesota and Hennepin County (again allegedly) "effected a classic taking in which the government directly appropriates private property for its own use."

To a lot of readers, however, Tyler seems more than a bit strange. Why was the Court so sure that owners are entitled, under the federal Constitution, to surplus equity after a foreclosure sale? In constitutional property litigation, it's black-letter law that "[p]roperty interests … are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law." The Supreme Court said as much in a 1972 procedural due process case, and the principle migrated to regulatory takings law in the 1980 case Webb's Fabulous Pharmacies v. Beckwith. And Chief Justice Roberts himself had repeated that black-letter principle just two years before Tyler, in Cedar Point Nurseries v. Hassid: "As a general matter, … the property rights protected by the Takings Clause are creatures of state law." If that black-letter principle were all there was, the district court and circuit court were clearly right to hold that Tyler's suit needed to be dismissed. The controlling tax-foreclosure statutes, after all, clearly specified that Minnesota and other state actors are entitled to surplus equity once tax arrearages are paid off.

In response, Chief Justice Roberts cited for the Court a wide collection of sources: a passage from Magna Carta; a 1692 Act of Parliament; Blackstone's Commentaries; a 1798 Act of Congress; the treatment of surplus equity in 11 of the 13 original United States shortly after the Founding; the Court's own precedents on surplus equity; and Minnesota law on foreclosure and surplus equity in cases not involving a government-forced foreclosure to collect tax arrearages on real estate. But assume that Tyler's property rights are entirely creatures of Minnesota's tax-foreclosure statutes. Then, the Court's collection of sources seems motley—or, maybe "cobbled" together from its own version of persuasive authorities not strictly relevant to the case.

And the Tyler briefs didn't shed light on the issue relevant here. Hennepin County argued that the Minnesota scheme was consistent with Anglo-American practice. In doing so, however, the county tacitly conceded that Tyler's property rights were not entirely creatures of Minnesota law. In her brief to the Supreme Court, Tyler reminded the Court that it had warned states against "transform[ing] private property into public property without compensation by mere say-so." But she did not explain why state-based property rules might be subject to an anticircumvention principle or when a state law seems to "sidestep" federal eminent domain guarantees. A few amicus curiae briefs argued that Tyler's private property was determined by common law. For example, three members of the U.S. House of Representatives (all from Minnesota) argued that "the common law (as reflected in England, the States, and the federal courts) is essential to identifying" whether an eminent domain claimant has private property. But that argument seems to do violence to the ordinary relations between state law and common law; it converts the common law into a "brooding omnipresence in the sky."

I have a lot more sympathy for what Roberts and his colleagues were trying to do in Tyler than I've been letting on. My article makes the case for Tyler's approach. Although Roberts assumed more than he spelled out explicitly, he was relying on familiar  choice of law principles appropriate for federal constitutional litigation. In such litigation, federal courts usually rely on state law to determine whether the plaintiffs have valid federal claims. And the key word in that last sentence is "usually." In principle, the substance of a federal constitutional right presents a federal question. In practice, federal courts usually consult state law, and they do so because and to the extent that state law fills in the substance of the right consistent with the federal guarantee. In practice, however, federal courts reserve discretion to measure the substance of the federal right relying on sources besides the most relevant state law, if and when they suspect that the most relevant state law circumvents the federal right. Tyler followed those federal courts/choice of law principles, with a twist. Tomorrow, I'll study the general principles; on Wednesday, I'll study the twist.