Beneficial Tennessee, Inc. v. The Metropolitan Government

IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

September 14, 2005 Session

BENEFICIAL TENNESSEE, INC. v. THE METROPOLITAN

GOVERNMENT, ET AL.

Appeal from the Chancery Court for Davidson County

No. 02-801-III Carol McCoy, Chancellor

No. M2004-01071-COA-R3-CV - Filed March 8, 2006

The trial court held that the due process clause of the Fourteenth Amendment was violated by

sending notice to a mortgagee of an impending tax sale of the mortgaged property by regular mail.

We reverse.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court

Reversed

PATRICIA J. COTTRELL, J., delivered the opinion of the court, in which WILLIAM C. KOCH JR., P.J.,

M.S., and FRANK G. CLEMENT , JR., J., joined.

J. Douglas Sloan, III, John Kennedy, Nashville, Tennessee, for the appellant, Metropolitan

Government of Nashville and Davidson County, Tennessee.

Richard J. Myers, Forest J. Dorkowski, Memphis, Tennessee, for the Appellee, Beneficial

Tennessee, Inc.

OPINION

The issue on appeal is whether the Metropolitan Trustee’s Office (“Metro Trustee”) is

required by due process to notify mortgagees by certified mail, as opposed to regular mail, that it is

preparing to sell the secured property to collect delinquent taxes. As set out below, the parties

stipulated to the majority of the facts at trial.1 The trial court found that if notice is to be delivered

by mail then failure to send the notice by certified mail, return receipt requested, violated the

lienholder’s constitutional right not to be deprived of property without due process under the

Fourteenth Amendment.

1

The parties make reference to testimony of the hearing on this matter. No transcript was provided on appeal.

Since our analysis and resolution is not dependent on any facts outside the parties’ stipulation, the omission of the

transcript has no bearing on this appeal.

The parties stipulated to the following relevant facts. Beneficial Tennessee, Inc.

(“Beneficial”) during the course of its consumer finance business loaned money to David Owens in

1995 secured by a deed of trust on property located in Davidson County, Tennessee. Mr. Owens did

not pay the 1996 real property taxes on the mortgaged property. The Metropolitan Trustee’s Office

(“Metro Trustee”) mailed Beneficial a letter in 1996 notifying Beneficial that the property was going

to be sold for failure to pay 1996 county property taxes. Beneficial acknowledged receiving this

letter and as a result the 1996 taxes were paid.

By 1998, Mr. Owens was again delinquent in paying his county property taxes. On June 2,

1998, the Metro Trustee obtained a default judgment against Mr. Owens for failure to pay property

taxes totaling $2,070. The court set a tax sale of the property for August 5, 1998, to satisfy the tax

judgment lien. It is not disputed that Mr. Owens received appropriate notice of the delinquency, suit

and tax sale. Apparently, he failed to notify Beneficial that its collateral was at risk.2

The Metro Trustee searched the real estate records and located Beneficial’s mortgage and the

post office box address provided by Beneficial in the mortgage. The Metro Trustee prepared a letter

on July 23, 1998 to be sent to Beneficial by regular mail to the address provided in the mortgage.

This letter advised Beneficial that the property was set to be sold for taxes on August 5, that the tax

sale will divest Beneficial of its lien, and that the redemption period is one year. The Metro Trustee

also published notice of the impending tax sale for two weeks in the Tennessean and Nashville

Record. It is the practice of the Metro Trustee to send property owners notice of a tax sale by

certified mail, return receipt requested. With regard to lienholders, however, the Metro Trustee’s

policy, practice, procedure or custom in 1998 was to send mortgagees notices of tax sale by regular

U.S. mail and did not provide for certified mail.

On August 5, 1998, the property was sold at a tax sale to Steve Turmen. Thereafter, in

September of 1999, Beneficial’s one-year right to redeem the property after a tax sale expired.

Beneficial denies it received the notice letter or that it was aware of the published notices of the

August tax sale.

Over three years after the tax sale, in March of 2002, Beneficial filed suit against the

Metropolitan Government of Nashville and Davidson County (“Metro”) seeking damages under 42

U.S.C. § 1983 alleging Metro failed to provide adequate notice to Beneficial of the delinquent taxes

and scheduled tax sale in violation of Tenn. Code Ann. § 67-5-2502 and due process under the

Tennessee and United States Constitutions.3

2

On July 28, 1998, Beneficial, apparently ignorant of the tax delinquency, refinanced Mr. Owens’s loan and

seems to have increased the loan amount.

3

The record is not clear, but according to the complaint in June of 2000 Beneficial sued Metro and Mr. Owens

sued the new property owners in federal court under unspecified causes of action. The complaint states that Mr. Owens’s

action was dismissed. While it appears from the allegations in the complaint that the district court dismissed Beneficial’s

action, Beneficial allegedly filed an appeal to the 6th Circuit. W e have no explanation of the status of that appeal. This

(continued...)

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The parties filed cross motions for summary judgment and on the day of the hearing filed a

stipulation of the relevant facts. The trial court found the following:

due process requires that the beneficiary of a recorded mortgage encumbering real

property (“Mortgagee”) receive actual notice of a tax sale from the governmental

entity conducting the tax sale; the methods for ensuring actual notice to a Mortgagee

are those set forth in Tenn. R. Civ. P. 4; if notice by mail is pursued, then notice must

be forwarded by certified mail, return receipt requested, as set forth in Tenn. R. Civ.

P. 4; Defendant’s policy, practice and/or procedure of sending a Mortgagee notice of

a tax sale by regular mail (“Defendant’s policy”) is unconstitutional pursuant to the

United States Constitution, Fourteenth Amendment, Due Process Clause; Plaintiff

did not receive notice of the tax sale and Plaintiff’s mortgage was thus extinguished

due to Defendant’s policy; and Plaintiff has been damaged by Defendant’s policy.

The trial court then awarded Beneficial $144,726.26 in damages.4

I. STATE LAW QUESTIONS

There is some discussion on appeal regarding whether the Metro Trustee’s practice of

sending notice to lienholders by regular mail violated Tenn. Code Ann. § 67-5-2502 or the

Tennessee Constitution. The trial court, however, based its ruling solely on the due process clause

of the United States Constitution since the only cause of action alleged was under 42 U.S.C. § 1983.

In the transcript of the court’s findings of facts and conclusions of law incorporated into the

court’s order, the trial court found:

the Metropolitan Government is correct that a claim under Title 43 United States

Code 1983 cannot be brought for violation of a state law or state constitutional

violations.

In their briefs, both parties concur with the trial court that state law, whether statutory or

constitutional, cannot be the basis of a claim under 42 U.S.C. § 1983. A claim under 42 U.S.C. §

1983 can only be brought “for deprivations of rights secured by the Constitution and laws of the

United States.” Lugar v. Edmondson Oil Co., 457 U.S. 922, 924, 102 S.Ct. 2744, 2747, 73 L.Ed.2d

482 (1982). Therefore, allegations of state law violations are not sufficient to support a Section 1983

claim. Neinast v. Board of Trustees of Columbus, 346 F.3d 585, 597 (6th Cir. 2003); White v. Olig,

3

(...continued)

appears to explain why the statute of limitations was not raised.

4

Beneficial sued solely under Section 1983 for money damages and did not request injunctive relief or an

invalidation of the tax sale. See Bullington v. Greene County, 88 S.W .3d 571, 581 (Tenn. Ct. App. 2002) (tax sale void

due to constitutionally deficient notice); Sunburst Bank v. Patterson, 971 S.W .2d 1, 5-6 (Tenn. Ct. App. 1997) (tax sale

set aside due to inadequate notice to lienholder).

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56 F.3d 817, 820 (7th Cir. 1995). An alleged violation of a state constitution is not cognizable under

Section 1983, Radvonsky v. City of Olmstead Falls, 395 F.3d 291, 314 (6th Cir. 2005). Similarly,

violation of state procedure that does not violate federal law is not a viable basis for a claim under

42 U.S.C. § 1983. Brody v. City of Mason, 250 F.3d 432, 437 (6th Cir. 2001); Purisch v. Tennessee

Technological University, 76 F.3d 1414, 1423 (6th Cir. 1996).5

Because the only cause of action alleged in the complaint is under 42 U.S.C. § 1983, we must

confine ourselves to the question whether Metro violated the due process clause of the United States

Constitution.

II. FEDERAL DUE PROCESS VIOLATIONS

The trial court found the Metro Trustee’s acknowledged practice of using regular mail, as

opposed to certified mail, to provide lienholders notice of a tax sale violated the due process clause

of the United States Constitution. The question before us, therefore, is purely legal - whether service

by regular mail, together with publication, is constitutionally sufficient notice to lienholders of a tax

sale under the due process clause of the Fourteenth Amendment. Consequently, no presumption of

correctness attaches to the trial court’s conclusions of law. Carvell v. Bottoms, 900 S.W.2d 23, 26

(Tenn. 1995).

Whether through stipulation by the parties or established law, many of the factual and legal

issues surrounding this matter are not at issue. Beneficial does not dispute that the county property

taxes on the subject property were delinquent and that the Metro Trustee proceeded properly under

Tenn. Code Ann. § 67-5-2401 et seq. to sell the property in order to collect the taxes. The parties

stipulated that the Metro Trustee took the appropriate steps to identify Beneficial, the nature of

Beneficial’s interest, and Beneficial’s correct address. Furthermore, the parties agreed that the Metro

Trustee’s practice and custom was to send notices to lienholders of tax sales by regular U.S. mail.

The parties agreed that such a notice was prepared to be mailed to Beneficial. Metro does not

challenge the trial court’s finding that Beneficial, however, did not receive the notice.

It is not disputed that in order to prevail under 42 U.S.C. § 1983, Beneficial must establish

that the Metro’s Trustee’s practice is unconstitutional. A municipality is liable under Section 1983

only if plaintiff’s constitutional rights are deprived because of a governmental policy, procedure, or

custom.6 Monell v. Department of Soc. Serv., 436 U.S. 658, 690-91, 98 S.Ct. 2018, 2035-36 (1978).

As the trial court noted, whether an employee negligently failed to mail the notice to Beneficial may

not be the subject of a 42 U.S.C. § 1983 action, since an isolated clerical act is not a policy,

procedure, or custom. Metro does not dispute that Beneficial’s interest as a lienholder is a protected

property interest that may not be disturbed absent due process of law under the Fourteenth

5

It is important to note that Beneficial does not allege an equal protection violation under the federal

constitution based on discriminatory application of state law or procedure.

6

W hether and to what extent Metro is liable for the negligence of its employees in a particular situation would

be the subject of a claim under state law which Beneficial did not bring.

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Amendment. Mennonite Board of Missions v. Adams, 462 U.S. 791, 798, 103 S.Ct. 2706, 2711

(1983). The parties agree that since Beneficial’s address was in the public records and readily

ascertainable, then notice by publication alone is not sufficient, and due process is satisfied if notice

of the tax sale is mailed to Beneficial. The issue narrows to the simple question whether Metro’s

practice of sending notices to lienholders by regular mail deprives Beneficial of its constitutional

rights or whether due process requires a more aggressive method of providing notice such as by

certified mail, return receipt requested.

In Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652 (1950) the

United States Supreme Court found that notice by publication to beneficiaries of a common trust

fund was not sufficient under the due process clause and established the touchstone criteria for due

process analysis.

An elementary and fundamental requirement of due process in any proceeding which

is to be accorded finality is notice reasonably calculated under all the circumstances

to apprise interested parties of the pendency of the action and afford them an

opportunity to present their objections.

339 U.S. at 314, 70 S.Ct. at 657.

Finding that publication alone did not satisfy this test for those beneficiaries whose address could

be located with due diligence, the court then discussed notice by mail to these entities:

. . . within the limits of practicability notice must be such as is reasonably calculated

to reach interested parties. Where the names and post office addresses of those

affected by a proceeding are at hand, the reasons disappear for resort to means less

likely than the mails to apprise them of its pendency.

The trustee has on its books the names and addresses of the income beneficiaries

represented by appellant, and we find no tenable ground for dispensing with a serious

effort to inform them personally of the accounting, at least by ordinary mail to the

record addresses.

...

The statutory notice to known beneficiaries [publication] is inadequate, not because

in fact it fails to reach everyone, but because under the circumstances it is not

reasonably calculated to reach those who could easily be informed by other means

at hand. However, it may have been in former times, the mails today are recognized

as an efficient and inexpensive means of communication.

339 U.S. at 318-19, 70 S.Ct. at 659-60.

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The Supreme Court in Mennonite discussed at length the property interest and notice

requirements when a local government sells a lienholders’ collateral to collect delinquent property

taxes. In Mennonite, the Supreme Court found that where, as here, the mortgagee is reasonably

identifiable7 then notice of a tax sale by publication “must be supplemented by notice mailed to the

mortgagee’s last known address, or by personal service.” Mennonite, 462 U.S. at 798, 103 S.Ct. of

2711. Throughout the Mennonite opinion, the Court referred to the required notice as “mailed

notice” without mentioning any additional requirements, including but not limited to certified, return

receipt requested, mail.

The County’s use of these less reliable forms of notice [publication] is not reasonable

where, as here, “an inexpensive and efficient mechanism such as mail service is

available.” Greene v. Lindsey, supra 456 U.S., at 455, 102 S.Ct., at 1881.

Personal service or mailed notice is required even though sophisticated creditors have

means at their disposal to discover whether property taxes have not been paid and

whether tax sale proceedings are therefore likely to be initiated.

...

But it does not follow that the State may forego even the relatively modest

administrative burden of providing notice by mail to parties who are particularly

resourceful. New York, v. New York, N.H. & H.R. Co., supra, 344 U.S., at 297, 73

S.Ct., at 301. Notice by mail or other means as certain to ensure actual notice is

a minimum constitutional precondition to a proceeding which will adversely affect

the liberty or property interests of any party, whether unlettered or well versed in

commercial practice, if its name and address are reasonably ascertainable.

462 U.S. at 799, 103 S.Ct. at 2712. (emphasis added).

Tennessee courts have consistently applied the holding in Mennonite to cases involving

notices of tax sales. Bullington v. Greene County, 88 S.W.3d at 577; Sunburst Bank v. Patterson,

971 S.W.2d 1 (Tenn. Ct. App. 1998) (Shelby County Trustee’s practice of sending notice of the tax

sale only to the address of the subject property violated the mortgagee’s due process rights when the

mortgagee’s address was readily ascertainable from the deed).

While certified mail may very well be “better” notice and the Metro Trustee may elect to use

this notice in the future, we must conclude that it is not constitutionally mandated. Beneficial was

unable to cite to us a single case where it was held that minimum due process requires that notice

7

The Court found since the mortgagee is identified in a publically recorded mortgage media then it is reasonably

identifiable. Mennonite, 462 U.S. 798, 103 S.Ct. at 2711.

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of a tax sale to a lienholder must be sent certified mail, return receipt requested.8 The Supreme Court

in Mennonite found regular mail to be a sufficient means to provide lienholders notice of a tax sale.

The fact that Beneficial did not receive the notice in this instance does not nullify the efficacy of the

use of regular mail. The Supreme Court in Mullane recognized that in order to meet minimum due

process requirements, the method of notice need not be fail proof since “constitutional law, like other

mortal contrivances, has to take some chances.” Mullane, 339 U.S. at 319. 70 S.Ct. at 660, citing

Blinn v. Nelson, supra, 222 U.S. at page 7, 32 S.Ct. at page 2.

Because Constitutional due process does not require the adoption of other, more expensive

delivery methods, we find that the Metro Trustee’s practice of sending notice to lien holders of a tax

sale by regular mail does not violate due process.

For these reasons the judgment of the trial court is reversed. Costs are assessed against the

appellee, Beneficial, Tennessee, Inc., for which execution may issue if necessary.

____________________________________

PATRICIA J. COTTRELL, JUDGE

8

On the contrary, in DePiero v. City of Macedonia, 180 F.3d 770, 787-88 (6th Cir. 1999) the Sixth Circuit

found that service of a summons by regular mail met due process requirements and specifically found that certified mail

would not ensure receipt.

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