There’s no place in a federal court for claims a school district inflated property taxes by encouraging out-of-district enrollment, a judge has ruled.
Chief U.S. District Judge Rebecca R. Pallmeyer has ruled the principle of comity prevents a taxpayer suit against a DeKalb public school district, which alleged the district for more than a decade facilitated the enrollment of about 1,200 nonresident students, costing the district nearly $9 million in extra expenses requiring the increase in property taxes.
Despite the group of property owners making due process and equal protection claims under the U.S. Constitution, their arguments are fundamentally local tax disputes that should be adjudicated by state courts, Pallmeyer wrote last week.
“Comity ‘is a doctrine of abstention,’ and it reflects, among other things, ‘the belief that the [n]ational [g]overnment will fare best if the [s]tates and their institutions are left free to perform their separate functions in separate ways,’” the judge wrote, citing last year’s 7th U.S. Circuit Court of Appeals decision in Perry v. Coles County and the 1981 U.S. Supreme Court decision in Fair Assessment in Real Estate Association Inc. v. McNary, “Taxation is one such function.”
From January 2007 through July 2018, the plaintiffs owned property in the DeKalb school district. More than 60% of their property tax payments went to Community Unit School District 428.
They claimed the school artificially inflated that number by “intentionally and deliberately” encouraging nondistrict students to enroll. Those actions, the property owners maintain, caused the taxpayers to pay expenses for approximately 1,200 extra students.
The school district initially responded to the complaints by hiring an outside firm that specializes in the topic to conduct an investigation of nonresident tuition violations.
But the plaintiffs claimed the process was rigged because the school withheld evidence, fudged sample numbers and publicly misrepresented the total number of tuition violators during that time span as 300.
The plaintiffs maintained the out-of-district students cost about $7,400 per pupil, resulting in $8.8 million in extra tax payments per year over the time span. They claimed the extra tax payments have caused the school district’s property tax rate to soar into the highest 1% in the nation and have caused a local economic downturn.
A five-count complaint claimed, among other things, that the school district’s actions subjecting them to unlawful charges and lack of transparency amounted to violations of due process and equal protection. The plaintiffs also made civil rights claims under U.S.C. 1983, 1985 and 1986.
They sought more than $134 million in damages, which included requests to return the property taxes paid and to cover the cost of extra school resources. They also sought $20 million for loss of property value and an injunction requiring the district to cooperate with future residency investigations.
The school district filed a motion to dismiss, arguing comity barred the suit. Pallmeyer granted the motion on Thursday.
She cited case law stating that the doctrine “serves to minimize the frictions inherent in a federal system of government” and embodies a “federal reluctance to interfere with state taxation.”
She also specifically cited the Fair Assessment case as stating that those alleging their federal rights are violated by state tax practices must go through those systems to have them resolved as long as they’re “plain, adequate and complete.”
Pallmeyer noted Illinois taxpayers who are dissatisfied with their taxes can take their claims through either property tax appeals boards or directly to state circuit courts. She wrote that the plaintiffs never alleged those routes were inadequate.
The plaintiffs argued that they weren’t alleging deficiencies with the property tax system, but that the school district was using taxes as a “guise” to deprive them of constitutional rights. Pallmeyer wrote that argument “has no traction.
“Plaintiffs allege that the taxes were too high because they effectively charged for out-of-district students’ education and claim that being forced to overpay taxes deprived them of due process and equal protection,” she wrote. “The only fair reading of these allegations is that [p]laintiffs are asserting civil rights claims against the validity of a local tax system through a federal lawsuit.”
Pallmeyer also wrote that the 7th Circuit has “repeatedly” held that Illinois provides “plain, adequate and complete” remedies for taxpayers to make constitutional arguments in state court.
“Because there are ‘plain, adequate and complete’ state remedies for [p]laintiffs’ [Section] 1983 claims, the principle of comity bars [p]laintiffs from bringing them in this court,” she wrote, adding that goes for their Section 1985 and 1986 claims as well.
She also ruled that even if comity didn’t bar the lawsuit, the Tax Injunction Act does. Citing the 7th Circuit’s 2008 decision in Scott Air Force Base Properties LLC v. County of St. Clair, among other decisions, Pallmeyer wrote that law “strips the district courts of the power to hear suits seeking not only injunctive but also declaratory relief from state taxes.”
Michael P. Coghlan, of the Law Office of Michael Patrick Coghlan in DeKalb, represented the plaintiffs. He said this morning he’s planning to file a motion to reconsider the decision.
He noted this isn’t just an issue in Illinois. Florida, Colorado and New York have all had similar issues. He said out-of-district enrollment would be fine as long as families paid tuition. He cited a 2015 U.S. Supreme Court decision, Direct Marketing Association v. Brohl, as stating a residency investigation is a pretax activity that’s not technically a state tax function.
“It says, if it’s a pretax function, then there’s jurisdiction in the federal court,” he said.
The defendants were represented by Thomas J. Lester of Hinshaw & Culbertson LLP. Thomas J. Lester, a partner at Hinshaw & Culbertson who represented the defendants, said this morning he's pleased with the decision, and that the plaintiffs' complaint had no merit.
He said the district did review the allegations in case it had to answer the complaint directly, but "that investigation revealed that there’s no substantial issue with non-residency students attending the DeKalb school district," he said.