Kathrein et al v. City of Evanston, Illinois

Filing 142

MEMORANDUM Opinion and Order Signed by the Honorable Ronald A. Guzman on 7/24/2012. Mailed notice (cjg, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MICHAEL L. KATHREIN and
VICTORIA KATHREIN,
Plaintiffs,
v.
CITY OF EVANSTON, et al.

Defendants.

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08 C 83

Judge Ronald A. Guzmán

MEMORANDUM OPINION AND ORDER
Currently pending before the Court are the defendants’ motion to dismiss the Amended
Complaint and Victoria Kathrein’s motion to refile Count II of the Amended Complaint. For the
reasons stated below, the motion to dismiss [114-1] is granted and the motion to refile [116-1] is
denied.
Background
On March 4, 2008, the Kathreins filed an amended complaint challenging the Evanston
Affordable Housing Demolition Tax (“Demo Tax”), Evanston Ill. Code § 4-22-1, and the Tax
Injunction Act (“TIA”), 28 U.S.C. § 1341.
The City of Evanston then filed a motion to dismiss for lack of jurisdiction. This court
granted the motion agreeing with the City that the Kathreins lacked standing to challenge the
constitutionality of the TIA and that the TIA prevented this court from exercising subject-matter
jurisdiction over the Kathreins’ challenges to the Demo Tax. Kathrein v. City of Evanston, Ill., 08
C 83, 2009 WL 3055364, at *5 (N.D. Ill. Sept. 18, 2009). On appeal, the Seventh Circuit
affirmed this court’s conclusion regarding the Kathreins’ standing to challenge the

constitutionality of the TIA but reversed the conclusion that the TIA prevented this court from
exercising subject matter jurisdiction over the challenges to the Demo Tax. Specifically, the
Kathrein court found that the Demo Tax was a regulatory device, not a tax, and therefore, the TIA
did not prevent the Kathrein’s challenges in federal court to the Demo Tax. Kathrein v. City of
Evanston, 636 F.3d 906, 916 (7th Cir. 2011). The Seventh Circuit remanded the case.
In the meantime, soon after the Seventh Circuit’s decision in Kathrein, an en banc panel
of the Seventh Circuit again addressed the parameters of the TIA in a different case, Empress
Casino Joliet Corp. v. Balmoral Racing Club, 651 F.3d 722 (7th Cir. 2011). In Empress, the
Seventh Circuit provided an in-depth discussion of the purposes of the TIA and the differences
between taxes, fees, and fines. The Empress court expressly criticized the Seventh Circuit’s thenrecent decision in Kathrein, which found that the Demo Tax was a regulatory device and not a
tax, stating that “[w]e do not agree with that decision.” Id. at 730.
Analysis
A.

Motion to Dismiss for Lack of Jurisdiction

With the Kathreins’ case now before this court on remand, the City has moved to dismiss
the case again for lack of subject matter jurisdiction, contending that Empress Casino overruled
Kathrein. According to the City, an en banc court may overrule the law as stated by the panel
because “[w]hen sitting en banc, the full court has the power to change general rules stated in
previous cases.” Mojica v. Gannett Co., Inc., 7 F.3d 552 (7th Cir. 1993). The City goes on to
contend that while the law of the case dictates that an appellate opinion generally governs the
same issue in subsequent stages of the same case, United States v. Mazak, 789 F.2d 580, 581 (7th
Cir. 1986), a district court is not bound by the doctrine when there are intervening changes in the

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law. Tice v. Am. Airlines, Inc., 373 F.3d 851, 854 (7th Cir. 2004). The Kathreins disagree,
arguing that Kathrein was not expressly overruled and that the law of the case requires that the
court deny the motion to dismiss.
The court finds the Seventh Circuit’s decision in Sierra Club v. Khanjee Holding (US)
Inc., 655 F.3d 699 (7th Cir. 2011) (“Sierra Club II”), to be instructive. In Sierra Club II, the
defendant, citing to a Fifth Circuit case, argued that the district court lacked jurisdiction under
federal law to impose civil penalties for expired power plant construction permits. Id. at 704.
Although the Seventh Circuit had already decided that jurisdiction existed in Sierra Club I, a
prior appeal in the same case, the defendant contended that the law of the case doctrine did not
apply to issues of jurisdiction. According to the defendant, the Fifth Circuit’s opposing
conclusion on jurisdiction provided a ground for the Seventh Circuit to revisit its decision in
Sierra Club I.
The Sierra Club II court acknowledged that in Shakman v. Dunne, 829 F.2d 1387, 1393
(7th Cir. 1987), it stated that “courts are significantly less constrained by the law of the case
doctrine with respect to jurisdictional questions,” but clarified that it “re-examined” its
jurisdiction in the Shakman case because it was “confronted with a significantly different legal
landscape than the one that confronted the district court at the time the complaint was originally
filed....” Id. at 704. The Sierra Club II court concluded that the Fifth Circuit opinion had not
changed the legal landscape sufficient to justify a departure from its decision in Sierra Club I. Id.
at 705 (“Here, there are no ‘significant differences’ in the legal landscape that warrant
re-examination of our jurisdictional ruling in Sierra Club I” because the Fifth Circuit case cited
by the defendant “is distinguishable”).

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In the instant case, as in Shakman, the legal landscape has been substantially altered.
With respect to the exact issue presented both to this court and the panel on appeal, the Seventh
Circuit, sitting en banc, expressly stated that it “disagreed” with the Seventh Circuit’s Kathrein
decision and would conclude that the Demo Tax was a tax within the meaning of the TIA.
Empress Casino, 651 F.3d at 730. The Court acknowledges that Empress Casino did not
expressly overrule Kathrein, but finds, in these unique circumstances, that an opinion by the
majority of the court stating that an earlier panel decision was wrong cannot be ignored. In so
stating, the Court recognizes the Seventh's Circuit’s statement in Brooks v. Walls, 279 F.3d 518,
522 (7th Cir. 2002), that “[o]ne panel of this court cannot overrule another implicitly. Overruling
requires recognition of the decision to be undone and circulation to the full court under Circuit
Rule 40(e).” Nevertheless, because this court cannot overlook such a clear statement by a
majority of the Seventh Circuit that the Demo Tax is a tax under the TIA, the defendants’ motion
to dismiss for lack of subject matter jurisdiction is granted.
B.

Motion to Refile Count II of the Complaint

Victoria Kathrein also moves to refile Count II, which alleges under 42 U.S.C. § 1983 that
the Demo Tax violates the takings clause of the Fifth Amendment. After the case was remanded
by the Seventh Circuit, the parties stipulated to dismissing Count II without prejudice.
According to Kathrein, this agreement was based on the defendant’s representation that it would
not be bringing another motion to dismiss. However, after the Seventh Circuit issued its decision
in Empress Casino, the defendant, as addressed above, moved to dismiss the case again for lack
of jurisdiction. Therefore, Kathrein states that “given the possibility that the Amended Complaint
may be dismissed pursuant to Defendant’s Motion and the possible res judicata effects of such an

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order, Plaintiff seeks leave to refile Count II of the Amended Complaint.” (Dkt. #116, ¶ 6).
The Court previously dismissed Count II on the ground that the TIA prevented the court
from exercising subject matter jurisdiction over the plaintiffs’ challenge to the Demo Tax. The
Court also noted in a footnote that it appeared that the claim was not ripe based on the plaintiffs’
failure to exhaust, citing to Daniels v. Area Plan Comm’n of Allen County, 306 F.3d 445, 452 (7th
Cir. 2002) (“[P]rior to initiating a civil action for a taking in federal court, a plaintiff must
demonstrate that he has both received a final decision regarding the application of the
[challenged] regulations to the property at issue from the governmental entity charged with
implementing the regulations, and has sought compensation through the procedures the State has
provided for doing so.”) (quotation and citation omitted). On appeal, the Seventh Circuit noted
that
[t]he district court hinted that some of the Kathreins' claims are not ripe for
consideration in federal court. Federal courts lack jurisdiction to consider an
unripe claim, Flying J Inc. v. City of New Haven, 549 F.3d 538, 544 (7th Cir.
2008), so any question of ripeness should be decided before consideration of a
claim's merits. The parties did not thoroughly brief any ripeness arguments on
appeal, so we leave this issue to the parties and the district court on remand.
Kathrein, 636 F.3d 906, 915-16 (7th Cir. 2011).
Although Federal Rule of Civil Procedure 15(a) provides that leave to amend shall be
“freely given,” district courts may deny leave to amend if, among other things, the amendment
would be futile. Hukic v. Aurora Loan Servs., 588 F.3d 420, 432 (7th Cir. 2009). That is the case
here. For the same reasons discussed above, the TIA bars the claim in federal court. Moreover,
Kathrein has not stated that she exhausted her state court remedies prior to seeking relief in this
court. Therefore, the claim is not ripe. See Daniels, 306 F.3d at 452. Accordingly, Victoria
Kathrein’s motion to refile Count II is denied.
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Conclusion
The defendant’s motion to dismiss [114-1] is granted and Victoria Kathrein’s motion to
refile Count II [116-1] is denied. The clerk is directed to enter a Rule 58 judgment and terminate
this case from the Court’s docket.

Date: July 24, 2012

_______________________________
Ronald A. Guzman
United States District Judge

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