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Fayette County Clerk v. Kings Right, LLC

Court of Appeals of Kentucky

October 20, 2017

FAYETTE COUNTY CLERK APPELLANT
v.
KINGS RIGHT, LLC APPELLEE AND FAYETTE COUNTY CLERK APPELLANT
v.
DOT CAPITAL INVESTMENTS, LLC APPELLEE

         APPEAL FROM CALLOWAY CIRCUIT COURT HONORABLE DENNIS R. FOUST, JUDGE ACTION NO. 15-CI-00221

         APPEAL FROM CARLISLE CIRCUIT COURT HONORABLE TIMOTHY A. LANGFORD, JUDGE ACTION NO. 15-CI-00035

          BRIEFS FOR APPELLANT: Larry S. Roberts Richard E. Vimont Steven Paul Stadler Lexington, Ky

          BRIEF FOR APPELLEE: Justin Henry Ramey Murray, Ky

          BEFORE: CLAYTON, DIXON, AND THOMPSON, JUDGES.

          OPINION

          DIXON, JUDGE.

         In these consolidated cases, Appellant, the Fayette County Clerk ("Clerk"), appeals from orders of the Calloway Circuit Court and Carlisle Circuit Court ruling that the Kentucky Board of Tax Appeals erred in upholding Appellant's refusal to refund the purchase price of certificates of delinquency to Appellees, King's Right, LLC and Dot Capital Investments, LLC. For the reasons set forth herein, we reverse and remand for further proceedings.

         Appellees are both third-party purchasers of delinquent tax bills on real property. On July 28, 2014, Kings Right purchased 2013 Certificate of Delinquency Bill Number 12830 from Appellant. The certificate listed the taxpayer as the Commonwealth of Kentucky Transportation Cabinet Department of Highways and provided that the owner of the property located at 615 De Roode Street in Fayette County, Kentucky, on the January 1, 2013, assessment date was Robert P. Brown.[1] Similarly, on July 28, 2014, Dot Capital Investments purchased 2013 Certificate of Delinquency Bill Number 40013 from Appellant. The certificate listed the taxpayer as the Commonwealth of Kentucky FBO Transportation Cabinet and provided that the owner of the property located at 555 Merino Street on the January 1, 2013, assessment date was William E. Hagan.[2]

         Subsequently, Appellees contacted the Transportation Cabinet to initiate collection on the certificates. In a letter dated November 6, 2014, the Cabinet responded,

Please be advised that the Cabinet relies on City of Harlan v. Blair, 64 S.W.2d 434, 436 (Ky. 1933), for the proposition that even if a valid lien existed at the time of the Cabinet's acquisition, such a lien was extinguished, based on sovereign immunity, by the Commonwealth's acquisition for a public purpose. The court in the City of Harlan case held that "Where property, subject to the lien of a tax is acquired by the state or any of its agencies for a public purpose, it thereby becomes freed from such lien, and further steps to enforce it are without effect."

Accordingly, Appellees thereafter applied for refunds on the certificates pursuant to KRS 134.551. Noting that the "tax bills were not paid prior to the sale" and that the deeds were available for public inspection prior to the tax sale, Appellant concluded that there was no statutory basis for a refund in either case.

         Appellees then appealed to the Kentucky Board of Tax Appeals ("KBTA"), arguing that at the time they purchased the certificates of delinquency, a lien could not be pursued against the state as a property owner and, as such, the "tax liability represented by the certificate of delinquency was satisfied prior to the purchase of the certificate of delinquency, " entitling them to a refund pursuant to KRS 134.551(2)(a). Following oral arguments in April 2015, the KBTA entered orders[3] upholding Appellant's refusal to issue refunds. Therein, the KBTA noted,

[W]hile the Appellant cannot stand in the shoes of the state and enforce the tax lien against the state, it still has the ability to enforce the certificate of delinquency against the January 1 owner. It is clear that "the tax liability represented by the certificate of delinquency" was not satisfied prior to the purchase of the certificate of delinquency, but remains outstanding against the original owner. The Appellant has the ability to pursue any of the remedies listed in KRS 134.546 against the delinquent taxpayer.

         Appellees then filed timely appeals in separate circuit courts. On November 18, 2015, the Calloway Circuit Court entered an order reversing the decision of the KBTA in the Kings Right matter. Therein, the trial court stated,

The fact that the Appellant may have other remedies against a delinquent taxpayer is irrelevant to the ruling at hand. What is relevant is that the Commonwealth of Kentucky purported to sell something to an individual or an LLC which did not and does not fit within the statutory scheme of KRS Chapter 134 with respect to collection of delinquent property taxes.
This Court has generally not been overly sympathetic to third party purchasers of certificates of delinquency. However, the Kentucky Legislature in its infinite wisdom deemed it appropriate to provide such a mechanism. In so doing, the Court finds nowhere which would suggest that it intended to allow the state to do what it could not otherwise do, which is to collect taxes which could not be collected in the first place.
This Court finds that because the facts certainly indicate that this tax liability was satisfied in a manner which would fit within the provisions of KRS 134.551(2)(a)(1)(b), that the Board of Tax Appeals should have ordered the Fayette County Clerk to refund the purchase price of the certificate of delinquency.
. . . [I]n this instance, equity, if nothing else, screams for the state to "do the right thing" and not attempt to collect taxes to which it is not entitled.

         The Carlisle Circuit Court also subsequently entered an opinion reversing the KBTA in the Dot Capital Investments matter. The court adopted the language of the Calloway Circuit Court's order and noting that this is an issue of first impression in this Commonwealth, further added,

With regard to the Appellant's Certificate of Delinquency, Appellee correctly states on page 7 of its Memorandum, "the liability was extinguished against the Commonwealth." It is undisputed that the Commonwealth was represented on the certificate of delinquency in question, as the "taxpayer." As the Commonwealth has no liability, common sense would seem to cry out that Appellant's certificate is a satisfied, unenforceable, refundable delinquent tax bill. . . .
KRS 134.546 states that in an action to collect the amount due on a certificate of delinquency, "[a] third party purchaser may, " among other things, "[i]nstitute an action to enforce the lien . . . against the . . . property." In other words, they can foreclose. The Appellant herein cannot foreclose against the property. Yet, Appellee insists that Appellant's lien should not be construed as unenforceable/refundable under KRS 134.551. This statutory interpretation places the laws of our State at odds.
If 'satisfied" in KRS 134.551 is construed as meaning "paid, " then KRS 134.546 is essentially unworkable. KRS 134.546 dictates that third party purchasers can foreclose. Yet, all third-party purchasers in ...

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