310 F.Supp.2d 447 (2004) | Cited 2 times | D. Rhode Island | March 30, 2004


This matter is before the Court on Michael F. Cunha's ("Cunha"),Deborah Lapatin's ("Lapatin"), and Sunset Realty's ("Sunset")(collectively, "Appellants") appeal1 from an Opinion and Order of theU.S. Bankruptcy Court for the District of Rhode Island, which held theRhode Island Tax Sales Statute (the "Tax Sale Statute"), R.I. Gen. Laws§§ 44-9-1 et seq., unconstitutional insofar as it fails to provideproperty owners notice of their right of redemption under Rhode Islandlaw. For the reasons discussed below, the Opinion and Order of theBankruptcy Court is AFFIRMED. This Court writes separately to provideadditional analysis regarding several important questions raised in thisappeal.Page 2

I. Appellate Jurisdiction and Standard of Review

District courts have jurisdiction to hear appeals from judgments,orders, and decrees of the bankruptcy court. See 28 U.S.C. § 158. Appealsfrom a bankruptcy court "are `taken in the same manner as appeals incivil proceedings generally are taken to the courts of appeal from thedistrict courts.'" In re Ryan, 282 B.R. 742, 747 (D.R.I. 2002) (quoting28 U.S.C. § 158(c)(2)). The standard of review is a bifurcated one. In reEdmonston, 107 F.3d 74, 75 (1st Cir. 1997). While the bankruptcy court'sfindings of fact are reviewed for clear error, see F.R.Bankr.P. 8013, itsconclusions of law are reviewed de novo. See id.

II. Background2

In August 1998, pursuant to R.I. Gen. Laws § 44-9-1 et seq., theProvidence Tax Collector sold Anthony Pontes' ("Pontes" or the "Debtor")residence at tax sale to recover delinquent taxes due on his property.Prior to the sale, the Collector sent by certified mail a Tax Sale Notice(the "Notice"), advising Pontes of the time and place of the sale andthat the sale could be prevented by payment of the overdue taxes. TheNotice did not advise Pontes of the statutory right to redeem hisproperty, R.I. Gen. Laws § 44-9-213Page 3or of the existence of the procedures available to exercise the right ofredemption.

The overdue taxes were not paid, the sale was held, and Sunset boughtthe property for $2,884.81 (the taxes owed plus accrued charges andpenalties). Sunset received a "Collector's Deed" that is subject only tothe Debtor's statutory right of redemption and exists for at least oneyear following the tax sale, and thereafter until the tax sale purchaserfiles a petition for foreclosure of redemption. See R.I. Gen. Laws §§44-9-21 and 44-9-25 (2000).4Page 4After the tax sale, Sunset recorded the deed in the Providence landevidence records. Pontes received no notice, actual or otherwise, thatthe sale took place, nor did he receive any post-sale notice of the rightof redemption, the length of time that he had to redeem, or the amount ofmoney required to redeem. In fact, Pontes received no notice of any kinduntil one year after the tax sale, in September 1999, when he received acopy of an amended "Petition To Foreclose Tax Lien," filed in the RhodeIsland Superior Court by Sunset. The petition, which initiated theprocedure to foreclose the right of redemption, advised Pontes of theexistence of the action and the deadline for filing an answer. Thepetition stated in part: Whereas, an amended petition has been presented to said Court by SUNSET REALTY . . . to foreclose all rights of redemption from the tax lien proceedings described in said petition in and concerning a certain parcel of land If you desire to make any objection to said petition you or your attorney must file a written appearance and answer, under oath, setting forth clearly and specifically your objections or defense. . . .See Joint Statement of Stipulated Facts, Docket No. 99-13945, Ex. C, ¶1, 4-5. Less than two months after receiving a copy of the "Petition ToForeclose Tax Lien," Pontes sought protection under Chapter 13 of theBankruptcy Code, and shortly thereafter brought an adversary proceedingchallenging the constitutionality of the Tax Sale Statute. In thatproceeding, Pontes alleged thatPage 5the Tax Sale Statute violated due process because it failed to providehim meaningful notice of the right of redemption and the proceduresavailable to redeem his property under the statute.

The City of Providence (the "City") and the State of Rhode Island (the"State") objected to the jurisdiction of this Court, first on the groundthat principles of comity and the Tax Injunction Act ("TIA"),28 U.S.C. § 1341, bar this type of case from being brought in any federalcourt. The City also objected to the merits of Pontes' argument byarguing that taxpayers are charged with knowledge of their rights underthe law, and that the Tax Sale Statute as written provides due process.

The State, appearing specially, argued in the Bankruptcy Court that itis an indispensable party to the suit and dismissal of the adversaryproceeding was required based on its sovereign immunity.

Based on the stipulated record submitted to the Bankruptcy Court, andthe arguments of counsel on cross-motions for summary judgment, theBankruptcy Court found as follows: (1) that notwithstanding the TIA, theBankruptcy Court had jurisdiction to hear this matter; (2) that the Statewas not an indispensable party; and (3) that sovereign immunity does notapply in this proceeding.5 As to the constitutional question, theBankruptcy Court concluded that the Tax Sale Statute fails to providePage 6meaningful notice of the right to redeem property after a tax sale,and that this omission violates the Due Process Clause of the FourteenthAmendment.

III. The Question of Jurisdiction

The City's argument that the TIA bars the Court from exercisingjurisdiction requires this Court to examine both the TIA (and itshistorical origins and scope) and the so-called "bankruptcy exception" tothe TIA. As the discussion below illustrates, this is not a well-litpath. No case in the First Circuit and few courts anywhere have confrontedthe question presented here.

A. The TIA

The journey starts with the TIA itself, which states simply: "Thedistrict courts shall not enjoin, suspend or restrain the assessment,levy or collection of any tax under State law where a plain, speedy andefficient remedy may be had in the courts of such State." 28 U.S.C. § 1341.When the Constitution's framers "split the atom of sovereignty," U.S.Term Limits, Inc. v. Thornton, 514 U.S. 779, 838 (1995) (Kennedy, J.,concurring), they recognized that the states' taxing power is anessential element of state sovereignty, which could not be abridged bythe federal government.

[T]he individual States should possess an independent and uncontrollable authority to raise their own revenues for the supply of their own wants. . . . [T]hey would under the plan of the Convention retain that authority in the most absolute and unqualified sense; and . . . an attempt on the part of the national Government to abridge them inPage 7 the exercise of it would be a violent assumption of power unwarranted by any article or clause of its Constitution.

The Federalist No. 32, at 199 (Alexander Hamilton)(Jacob E. Cooke,1961). Very early in the Nation's history, in McCulloch v. Maryland,17 U.S. 316, 425 (1819), the Supreme Court recognized that interferencewith state taxing power could jeopardize the delicate balance ofstate-federal relations. Fifty years later, the Court reiterated thepoint: It is upon taxation that the several States chiefly rely to obtain the means to carry on their respective governments, and it is of the utmost importance to all of them that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes may derange the operation of government, and thereby cause serious detriment to the public.Dows v. City of Chicago, 78 U.S. 108, 110 (1870)

The TIA was enacted to ensure the continuity of these fundamentalprinciples after the Supreme Court's landmark decision in Ex parte Young,209 U.S. 123 (1908), which held that federal courts may enjoin stateofficers from enforcing an unconstitutional law. In passing the TIA,Congress "recognized that the autonomy and fiscal stability of the Statessurvive best when state tax systems are not subject to scrutiny infederal courts." Fair Assessment in Real Estate Ass'n. v. McNary,454 U.S. 100, 102-03 (1981); Arkansas v. Farm Credit Servs. of CentralArkansas, 520 U.S. 821, 826-27 (1997) ("Enactment of the [TIA] reflects acongressional concern to confine federal-court intervention inPage 8state government, a concern prominent after . . . Ex parte Young. . .."); Nat'1 Private Truck Council, Inc. v. Okla. Tax Comm'n., 515 U.S. 582,590-91 (1995) ("the [TIA] may be best understood as but a partialcodification of the federal reluctance to interfere with statetaxation"); California v. Grace Brethren Church, 457 U.S. 393, 409 n.22(1982) ("Congress worried not so much about the form of relief availablein the federal courts, as about divesting the federal courts ofjurisdiction to interfere with state tax administration"). Moreover, theSupreme Court has emphasized that the TIA is to be interpreted broadlyand that federal courts are to "guard against interpretations of the[TIA] which might defeat its purpose and text." Farm Credit Servs., 520U.S. at 827.

The tax scheme at issue in this case involves the collection ofmunicipal property taxes.6 As such, it falls squarely within thescope of the TIA's prohibition on federal interference. A suit to enjointhe tax collection scheme is as much an interference with the tax schemeas a suit to enjoin the tax itself. See In re Gillis, 836 F.2d 1001, 1008(6th Cir. 1988) ("the interference byPage 9the federal courts into the state tax system is the same in degreeand kind as a suit seeking to enjoin a state tax; and the expense to thestate in defending the action is identical"). Thus, it is beyond quarrelthat the TIA precludes federal court jurisdiction in this case unlesssome other basis for jurisdiction exists that supercedes the TIA.

B. The "Bankruptcy Exception" to the TIA

The City argues that the TIA, and the long-standing principles ofcomity and federalism that undergird it, precluded the Bankruptcy Courtfrom exercising jurisdiction over Pontes' challenge to the Tax SaleStatute. In rejecting this argument, the Bankruptcy Court relied on theso-called "bankruptcy exception" to the TIA found at 11 U.S.C. § 505.Section 505 states that a bankruptcy court "may determine the amount orlegality of any tax, any fine or penalty relating to a tax, or anyaddition to [a] tax," unless "such amount or legality was contestedbefore and adjudicated by a judicial or administrative tribunal ofcompetent jurisdiction." 11 U.S.C. § 505(a)(1)(2) and (a)(2)(A). TheBankruptcy Court cited several cases for its conclusion that § 505 carvesout a "well recognized exception" to the TIA and principles of comity forcases being adjudicated in a bankruptcy court. See In re Stoecker,179 F.3d 546 (7th Cir. 1999); City Vending of Muskogee v. Oklahoma TaxComm'n, 898 F.2d 122 (10th Cir. 1990); Adams v. Indiana, 795 F.2d 27 (7thCir. 1986). In its briefPage 10discussion of these cases, the Bankruptcy Court found that "[c]ourtsconsidering the interplay between the T.I.A. and Section 505 have heldthat Congress intended the more specific Bankruptcy Code provision tooverride and supercede the older general language of the T.I.A." 280B.R. at 27.7

The Tenth Circuit's discussion in the Muskogee case of the policiesunderlying § 505, which was relied upon by the Bankruptcy Court, is byfar the most helpful of the cases cited. Muskogee involved twoassessments against distribution of cigarettes to an Indian tribe thatthe distributor contended were unconstitutional. The district court heldthat it lacked jurisdiction to hear the case because of the TIA. TheCircuit Court upheld that conclusion, but seemed to rely on othergrounds. 898 F.2d at 124-26. The court stated that § 505 permits abankruptcy court to consider questions of "state tax assessments" wherethe taxpayer has failed to pursue state remedies. The court pointed totwo policies underlying this exception to the TIA. First, the need for"prompt resolution of a debtor's tax liability, where that liability hasnot yet been determined prior to the bankruptcy proceeding, in the sameforum addressing the debtor's overall financial condition"; and second,the need to protect "creditors from the dissipation ofPage 11the estate's assets which could result if the creditors were bound by atax judgment which the debtor, due to his ailing financial condition, didnot contest.'" Id. at 124-125 (internal citation omitted). Thus, whilethe court did hold that § 505 may provide an exception to thejurisdictional bar of the TIA, it declined to apply the exception becausethere had been a final determination in the state tax tribunal.

As Muskogee indicates, while the jurisdictional bar of the TIA isindeed broad, § 505 appears to allow a federal court to exercisejurisdiction if the amount or legality of any tax, fine, or penaltyrelating to the tax needs to be determined in order to finalize theestate and move the bankruptcy case to closure. This does not mean that§ 505 should permit a debtor/taxpayer simply to forego the state processand use the bankruptcy court's adversary proceeding vehicle to"federalize" a question that otherwise would be exclusively an issue ofstate law. A taxpayer cannot challenge a state tax for the first time infederal court when a state provides a process to challenge the tax, see,e.g., Patel v. City of San Bernardino, 310 F.3d 1138, 1141 (9th Cir.2002); Bernard v. Village of Spring Valley, N.Y., 30 F.3d 294, 297 (2dCir. 1994) (holding that action in federal court was barred whenplaintiff had procedurally adequate remedies that could be sought in statecourt); Daytona Beach Racing and Recreational Facilities Dist. v. Countyof Volusia, 579 F.2d 367, 369 (5th Cir. 1978) (holding thatPage 12plaintiff could not "fail to take advantage of the state remedy andthen litigate in federal court"), or where there is a final adjudicationat the state level (and a party seeks only a second bite at the apple).Further, even when a challenge is based on federal law, or where anaction is purely injunctive (or declaratory) in nature but does notimpact the estate and the efficient resolution of the case, the federalcourt will decline to entertain the question. However, where thechallenge does have a direct impact on the amount of money in the estate,would contribute to the efficient resolution of the bankruptcy petition,and raises a federal constitutional question, as this one does, it fallswell within the scope of the federal court's jurisdiction under §505's carve-out to the TIA.

Pontes has neither challenged the amount of the assessment on hisproperty nor the legality of the tax through the state court process. TheCity initiated the collection process by slating the property for taxsale. Pontes made no challenge — he simply did not pay. Only afterthe tax title was purchased by Sunset at a tax sale, and foreclosureproceedings were initiated, did Pontes file his Chapter 13 petition andbring this adversary proceeding. Thus, it is uncontested that Pontes hasnever challenged the assessment or its legality at the administrativelevel or in state court.

The challenge by Pontes does, however, have a potentially significantfinancial impact on the estate. If the Tax SalePage 13Statute is held unconstitutional and the tax sale is void, then anycosts, penalties, interest, and attorneys fees associated with theredemption are eliminated. In this respect, § 505 clearly conferredjurisdiction upon the Bankruptcy Court to consider the Debtor'sconstitutional challenge. If it were otherwise, a bankruptcy court wouldnot be able to determine accurately the obligations of a debtor that areessential to the approval of the Chapter 13 plan, or protect an estatefrom inappropriate encroachments if the redemption process isconstitutionally deficient.

Having concluded that the Bankruptcy Court properly assertedjurisdiction under § 505, this Court will turn to the due process claimraised by the Debtor.

IV. Due Process

There is no dispute that Pontes was entitled to redeem his property inaccordance with the tax sale procedure set forth in R.I. Gen. Laws §44-9-1 et seq. On appeal, the question is simply whether the Tax SaleStatute provided Pontes with appropriate notice and a sufficientopportunity to assert his right of redemption.

A. The Right of Redemption and Due Process Protection

The Due Process Clause of the Fourteenth Amendment only protectssignificant property interests. See Mathews v. Eldridge, 424 U.S. 319,332-33 (1976). To determine if redemption is aPage 14property interest for purposes of the Fourteenth Amendment's Due ProcessClause, courts should look to "an independent source such as state law —rules or understandings that secure certain benefits and that supportclaims of entitlement to those benefits." Board of Regents of StateColleges v. Roth, 408 U.S. 564, 577 (1972). The Bankruptcy Courtdetermined the right to redemption to be a property interest in RhodeIsland because of the way it is treated by the Tax Sale Statute. SeeR.I. Gen. Laws § 44-9-12 (stating that a Collector's deed shall conveythe land to the purchaser, subject to the right of redemption). ThisCourt agrees with the Bankruptcy Court. Accordingly, this Court mustdetermine whether this right of redemption is "significant" for purposesof a due process analysis.

"A `person's interest in a benefit is a `property' interest for dueprocess purposes if there are . . . rules . . . that support his claim ofentitlement to the benefit and that he may invoke at a hearing.'" FederalDeposit Ins. Corp. v. Morrison, 747 F.2d 610, 614 (11th Cir. 1984)(quoting Perry v. Sindermann, 408 U.S. 593, 601 (1972)). The right ofredemption at issue in this case is part of a statutory scheme that isintended to protect property owners from the inequities that often existin tax sales. To protect that right, the Rhode Island General Assemblyprovided property owners with a statutory right to retake their propertyfollowing a tax sale once the outstanding taxes are paid. ThePage 15Rhode Island Supreme Court has stressed the importance of the right ofredemption. See Albert son v. Leca, 447 A.2d 383, 388 (R.I. 1982)(holding that "the right of redemption is a valuable property right . .. and the potential loss to the owner is grave"). Moreover, as theBankruptcy Court held, the right of redemption implicates one of "life'sbasic necessities — the place where [one] lives." 280 B.R. at 33.Accordingly, this Court agrees with the Bankruptcy Court and holds thatthe right of redemption is a significant property interest protected bythe Due Process Clause.8

B. The Right of Redemption: What Process is Due?

Procedural due process is a flexible concept that "calls for suchprocedural protections as the particular situation demands." Morrissey v.Brewer, 408 U.S. 471, 481 (1972); see Zinermon v. Burch, 494 U.S. 113,127 (1990).

In order to determine whether the Tax Sale Statute satisfies dueprocess, the Bankruptcy Court correctly applied the balancing test firstset forth in Mathews, 424 U.S. at 334. Under the Mathews balancing test,a court is required to weigh three factors when determining whatprocedural safeguards the Constitution requires in a particular case: (1)the private interest that willPage 16be affected by the official action; (2) the risk of an erroneousdeprivation of such interest through the procedures used, and theprobable value, if any, of additional or substitute proceduralsafeguards; and (3) the Government's interest, including the functioninvolved and the fiscal and administrative burdens that the additional orsubstitute procedural requirement would entail. Id. After consideringthese factors, the Bankruptcy Court held that the Tax Sale Statute failsto satisfy due process. See In re Pontes, 280 B.R. at 34. This Court willconduct a de novo review of these factors.

1. The Private Interest That Will Be Affected

This factor easily and heavily weighs in Pontes' favor. As this Courtnoted, supra, Rhode Island law regards the right of redemption as asignificant property interest that merits due process protection underthe Fourteenth Amendment. Moreover, the right of redemption is the typeof property interest that deserves special attention because, at itscore, the right of redemption implicates an individual's ability toretain his or her home. Accordingly, this Court finds that the BankruptcyCourt correctly applied and resolved this factor in the Debtor's favor.

2. Risk of Erroneous Deprivation of Property

In order to diminish the risk of an erroneous deprivation of property,the Supreme Court has held that the Constitution requires notice and ahearing before a state can deprive a person of his orPage 17her property. See, e.g., Zinermon, 494 U.S. at 127; Goss v. Lopez,419 U.S. 565, 579 (1975)(at a minimum, due process requires "some kind ofnotice and . . . some kind of hearing") (emphasis in original).Moreover, not only does the Due Process Clause mandate notice, but italso dictates the quality of that notice. In this case, theconstitutionality of the Tax Sale Statute hinges on this principle.

Notice must be "reasonably calculated, under all the circumstances, toapprise interested parties of the pendency of the action and afford theman opportunity to present their objections." Mullane v. Central HanoverBank & Trust Co., 339 U.S. 306, 314 (1950). While Mullane is the seminalcase regarding the adequacy of notice for purposes of the Due ProcessClause, its application in the property tax sale context in MennoniteBoard of Missions v. Adams, 462 U.S. 791 (1983), is particularly relevantto this case.

In Mennonite, a mortgagee's recorded lien on real property had beenextinguished under Indiana law by virtue of a tax sale and expiration ofthe redemption period. The mortgagee sued the current owner, arguing thatits due process rights had been violated because (1) it had not receivedconstitutionally adequate notice of the pending tax sale, and (2) it hadnot received notice of the opportunity to redeem the property followingthe tax sale. 462 U.S. at 795. The Indiana courts upheld the statutorynotice scheme. The United States Supreme Court reversed, holding that duePage 18process required actual notice of the tax sale to the known mortgagee, butexpressly stated that it was not deciding the issue of whether themortgagee was also entitled to actual notice of its right to redeem theproperty. Id. at 800 n.6. The Mennonite Court relied on the noticeprinciples set forth in Mullane to reach this decision. Id. at 795.Finding that the mortgage was a "substantial property" interest andnoting that Indiana tax sales "significantly affected" mortgages, theCourt held that the bank enjoyed a due process right to receive actualnotice of the tax sale. Id. at 798.

The constitutional question that this Court must therefore address,which was not reached in Mennonite, is whether due process requires theCity of Providence to provide interested parties actual notice of theright to redeem their property in the event it is sold at a tax sale. TheAppellants contend that it does not.

Appellants contend that it is not accurate to state that the propertyowner never receives notice of his or her right of redemption under thecurrent version of the Tax Sale Statute. They are correct: R.I. Gen. Laws§ 44-9-25 requires the holder of a tax title to file a Notice ofIntention to Foreclose the Right of Redemption in state superior courtanytime after one year from the time of the tax sale in order to obtainfee simple title to the property. The property owner is served with acopy of this notice. Upon receipt of this notice, the property owner maysuccessfullyPage 19contest the foreclosure of the right of redemption by filing an answer tothe notice and agreeing to pay the entire delinquent tax bill, plusinterest and statutory penalties for the failure to pay the taxes ontime. There are also attorneys' fees and costs associated with theforeclosure proceeding. The issue in this case, however, is not whetherthe property owner ever receives notice of his or her right ofredemption. Instead, the issue is whether the Due Process Clause isviolated by the fact that the Tax Sale Statute permits the City to waituntil the last possible moment to inform the property owner (through theTax Title holder) of the right of redemption.

While neither the First Circuit nor any of its district courts hasaddressed this question, the Rhode Island Supreme Court recentlyconfronted a constitutional challenge to the notice provision of theRhode Island Tax Sale Statute that merits attention. See Kildeer Realtyv. Brewster Realty Corp., 826 A.2d 961 (R.I. 2003). In Kildeer, therecord owner of property granted a mortgage on the property to theBrewsters, who recorded their interest in the property by filing amortgage deed in Providence's land evidence records. The property wassubsequently conveyed several times until it ended up in the hands of 514Broadway, Inc. During these conveyances, the property remained subject tothe Brewsters' mortgage. Ultimately, because of a default on theunderlying loan, the mortgage was foreclosed on May 21, 1999, andPage 20the property was sold at a tax sale to Brewster Realty. On May 28, 1999,the foreclosure deed was properly recorded in the land evidence records.Prior to the mortgage foreclosure, the Providence tax assessor assessedtaxes on the property for the 1998 tax year. The tax had been assessed onCraig Raposa, the record owner when the taxes were assessed on December31, 1997. The tax was never paid, and a tax sale was scheduled for August19, 1999. As part of the tax sale, the collector's office conducted atitle search through June 24, 1999, and notified all mortgage holders ofrecord of the impending tax sale. However, for unknown reasons, the titlesearch did not uncover the Brewsters' mortgage on the property despiteits proper filing in the land evidence records. Consequently, theBrewsters never received notice of the impending tax sale. On August 19,1999, the property was sold to Kildeer Realty at a tax sale, and KildeerRealty properly recorded its interest in the property. More than one yearafter the tax sale, Kildeer Realty filed a petition to foreclose theright of redemption pursuant to R.I. Gen. Laws § 44-9-25, and providednotice to all interested parties. This time, however, Brewster Realtyreceived notice of the pending action. Despite receiving notice, BrewsterRealty did not contest the foreclosure, and a final decree was enteredforeclosing Brewster Realty's right of redemption.Page 21

Brewster Realty challenged the judgment, arguing that its failure toreceive notice of the tax sale violated the Due Process Clause of theFourteenth Amendment. The Superior Court rejected this argument becauseBrewster Realty never responded to the petition to foreclose the right ofredemption. On appeal, Brewster Realty reasserted its due processargument. The Supreme Court held that Brewster Realty was entitled tonotice of the tax sale, but that it had waived its argument when itfailed to answer the forfeiture petition. "Any previous defects in thenotice procedure of the tax sale were negated by Brewster Realty'ssubsequent failure to answer or appear upon notice of the petition toforeclose its right of redemption." 826 A.2d at 966.9

If a property owner can waive the right to receive notice of anupcoming tax sale by failing to respond to the foreclosure of the right ofredemption, then arguably the owner could also waive the right to receivenotice of the right of redemption (which would be contained in theinitial tax sale notice under the theory proposed by Pontes and theBankruptcy Court). However, in this case, Pontes did contest the validityof the tax sale by initiating the adversary proceeding after filing forbankruptcy. Accordingly, because there is no waiver in this case, thisCourt finds that Kildeer has no effect on the narrow constitutional issuepresentedPage 22here. Of course, even if one were to perceive a conflict between Kildeerand the holding of the Bankruptcy Court, this Court is in no way bound byKildeer with regard to federal constitutional issues.

In finding the Tax Sale Statute unconstitutional, the Bankruptcy Courtprimarily relied on Dionne v. Bouley, 583 F. Supp. 307 (D.R.I. 1984),aff'd as modified, 757 F.2d 1344 (1st Cir. 1985). In Dionne, a socialsecurity beneficiary challenged the constitutionality of Rhode Island'spost-judgment garnishment statute on the ground that the statute failed toadvise her that her social security funds are exempt from attachment. Thedistrict court agreed and held the statute unconstitutional. On appeal,the First Circuit upheld the decision of the district court and endorsedthe lower court's use of the Mathews balancing test to determine thestatute's risk of erroneous deprivation of property. 757 F.2d at1352-53.

The Bankruptcy Court analogized the Tax Sale Statute to thepost-judgment garnishment statute in Dionne and reasoned that the two are"as close as it gets, since notice in either case gives owners theopportunity to remove attachments from their property." 280 B.R. at 33.This Court agrees with the Bankruptcy Court's reliance on Dionne.10Like the social security benefits at issuePage 23in Dionne, this case also implicates one of "life's basic necessities —the place where [one] lives." See id.

The Appellants argue that Pontes did receive notice of the right ofredemption when Sunset Realty filed the petition to foreclose the rightof redemption under R.I. Gen. Laws § 44-9-29. It is true that a taxpayerreceives notice of the right of redemption under § 44-9-29, but by thetime the taxpayer receives this notice the right of redemption has becomeburdened with interest, penalties, attorneys' fees, and court costsassociated with contesting the foreclosure petition. Due to the oftensubstantial economic burden these expenses place on the taxpayer, theCourt finds that waiting to provide notice of the right of redemptionuntil the end of the tax sale process effectively deprives the taxpayerof the right itself. The taxpayer should be notified of the right ofredemption before it is so burdened by thePage 24increased expenses associated with § 44-9-29 and constrained by time soas to make the "right of redemption" a mere shibboleth.

One is left to wonder why the City would choose not to notifydelinquent taxpayers of their statutory right to make good on theirdelinquent tax debt and their right to do so within one year. Taxpayersare not even notified that their property has been sold at tax sale, letalone of their right to redeem. The position of the City is even moremystifying at a time when its resident population (many of whom areproperty owners) is increasingly comprised of the elderly and poor, manyof whom are low income earners from diverse cultures, who may not speakEnglish, and who are unfamiliar with the workings of local government.This Court finds that the Bankruptcy Court was correct in holding thatthe Tax Sale Statute creates an unreasonable risk of erroneousdeprivation of Pontes' right of redemption.

3. The Government's Interest

The Mathews balancing test also requires this Court to consider theburden that providing notice of the right of redemption would place onthe City. Specifically, this Court must consider "the Government'sinterest, including the function involved and the fiscal andadministrative burdens that the additional or substitute proceduralrequirement would entail." Mathews, 424 U.S. at 335.Page 25

The Bankruptcy Court held that this factor easily weighed in favor ofthe Debtor. This Court agrees. While there is no question that the Cityhas a substantial interest in ensuring the timely collection of itsproperty taxes, 11 in this case, however, the greater interestclearly weighs in favor of the taxpayer. Providing earlier notice of theright of redemption will have little effect on the City's ability tocollect its property taxes. Regardless of whether the taxpayer decides toredeem his or her property, the City still collects its revenue —from a tax sale purchaser if there is no redemption, or from a propertyowner in the event of a redemption. Moreover, the City can easily modifythe current Tax Sale Statute to provide for notice of the right ofredemption. The Tax Sale Statute already provides for notice of theimpending tax sale, and advisory language regarding the right ofredemption could, without any difficulty, be included in that notice. Asthe Bankruptcy Court explained, "[n]ot even additional postage would berequired." 280 B.R. at 34.12Page 26

IV. Conclusion

For the reasons set forth above, the Order of the Bankruptcy Court isAFFIRMED.


1. By Order of this Court dated April 14, 2003, the three appealsthat comprise this case, 02-420S, 02-421S, 02-422S, were consolidatedunder 02-420S.

2. This factual recitation is taken largely from the Opinion of theBankruptcy Court, see 280 B.R. 20 (Bankr. D.R.I. 2002).

3. R.I. Gen. Laws § 44-9-21 states: Any person may redeem by paying or tendering to a purchaser, other than the town, his or her legal representatives, or assigns, or to the person to whom an assignment of a tax title has been made by the town, at any time prior to the filing of the petition for foreclosure, in the case of a purchaser the original sum and any intervening taxes which have been paid to the municipality plus interest thereon at the rate of one [percent] (1%) per month and costs paid by him or her, plus a penalty as provided in § 44-9-19, or in the case of an assignee of a tax title from a town, the amount stated in the instrument of assignment, plus the above-mentioned penalty. He or she may also redeem the land by paying or tendering to the treasurer the sum which he or she would be required to pay to the purchaser or to the assignee of a tax title, in which case the town treasurer shall be constituted the agent of the purchaser or assignee. The right of redemption may be exercised only by those entitled to notice of the sale pursuant to §§ 44-9-10 and 44-9-11.

4. R.I. Gen. Laws § 44-9-25 states, in pertinent part: thereunder. After one year from a sale of land for taxes, except as provided in §§ 44-9-19-44-9-22, whoever then holds the title acquired may bring a petition in the superior court for the foreclosure of all rights of redemption

5. The State has not raised its indispensable party and sovereignimmunity arguments on appeal, and therefore these issues require nofurther analysis by this Court.

6. There is no dispute that municipal property taxes are covered bythe TIA. See, e.g., Platteville Area Apartment Assoc. v. City ofPlatteville, 179 F.3d 574, 582 (7th Cir. 1999) (holding that the TIAapplies to local as well as state taxes); Home Builders Assoc. of Miss.,Inc. v. City of Madison, 143 F.3d 1006, 1010 n.6 (5th Cir. 1998) (same);Folio v. City of Clarksburg, W. VA., 134 F.3d 1211, 1214 (4th Cir. 1998)(same). While the tax in issue is a municipal tax, the Tax Sale Statuteis a state law applicable to all cities and towns in Rhode Island.

7. Both Stoecker and Adams involved complicated factual scenarios anddiscussions of both the TIA and § 505. However, neither case involved adirect conflict between the TIA and § 505 such as is present in thiscase.

8. The right of redemption is a property interest distinct andseparate from an owner's right of ownership in the underlying propertyitself. In this case, the right at issue is triggered once the governmentinitiates the tax sale process, and continues to exist through theexpiration of the redemption of period. See R.I. Gen. Laws § 44-9-29.

9. Kildeer was decided by a three-judge panel of the Rhode IslandSupreme Court in June 2003, and therefore could not have been addressedby the Bankruptcy Court or by the parties on appeal.

10. The Appellants contend that the Bankruptcy Court should havelooked to decisions in the tax sale context from other jurisdictions whenconducting its due process analysis. See in Dionne, this case alsoimplicates one of "life's basic necessities — the place where [one]lives." See id. Weigner v. City of New York, 852 F.2d 646 (2d Cir.1988); Farbotko v. Clinton County, New York, 168 F. Supp.2d 31 (N.D.N.Y.2001). However, Weigner and Farbotko do not support the Appellants'argument. While Weigner did involve a challenge to a tax foreclosurenotice, the challenge in that case revolved around the taxpayer's failureto receive the notice, not the content of the notice. Furthermore, thetax sale notice in Weigner apprised the taxpayer of the right to redeemthe property and the length of time available to exercise the right. 852F.2d at 648. Farbotko also involved a challenge to a tax sale scheme.However, the principal challenges raised in Farbotko did not involveactual notice of the right of redemption. In fact, the statutory schemeat issue in Farbotko provided notice of the right of redemption in thetax sale notice and by publication. These decisions therefore have nobearing on the matter before the Court.

11. Indeed, property taxes are the primary source of revenuescontrolled by local governments. Accordingly, the City's interest incollecting delinquent property taxes is a significant one. See generallyFrank S. Alexander, Tax Liens, Tax Sales, and Due Process, 75 Ind. L.J.747, 748 (2000) (providing a detailed discussion of property taxcollection schemes and due process).

12. The ease with which the City could have provided Pontes withnotice of the right of redemption is evidenced by the General Assembly'samendment to R.I. Gen. Laws § 44-9-9, entitled "Notice and Advertisementof Sale," which added the following language: "Any notice of sale shallinform any party entitled to notice of its right of redemption and shallexplain to such party the manner.

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