Real Estate & Property Law

North Dakota SCT: Gov't Seizure A Function Of Police And Tax Power, Not Eminent Domain

By Robert Thomas (inversecondemnation.com)

We like creative lawyering. We really, really do. After all, we like to think of ourselves as creative lawyers. But sometimes, you wish your colleagues would keep their ardor for seeing a "taking" in every situation in check, because by raising -- and losing, badly -- these marginal claims, they lessen tolerance for more serious takings challenges, and make proving substantial claims more difficult.

So appears to us the case of Bala v. North Dakota, No. 20090312 (Aug. 23, 2010), in which the North Dakota Supreme Court affirmed the dismissal for failure to state a claim of a number of takings challenges to the state and federal governments' enforcement actions against a horse racing enterprise that -- oops! -- missed about 10 million in excise tax payments. Here's the fact summary from the opinion:

In 2003, state and federal authorities began investigating RSI?s account wagering activities. The State, through the North Dakota Racing Commission, determined nearly $9 million from approximately $99 million in account wagering bets was owed as excise taxes and brought a civil lawsuit against Bala and RSI to collect the taxes, and a receiver was appointed to manage RSI.  RSI paid almost $2 million of the taxes, and after Bala filed for bankruptcy on behalf of RSI, the State made a priority claim for the remainder of the excise taxes in the bankruptcy court. State and federal criminal charges were also brought against Bala, RSI, and others involved. After Bala was convicted of numerous federal law violations by a federal court jury, the state criminal proceedings were dismissed. Bala?s federal court convictions were ultimately overturned based on insufficiency of the evidence. See United States v. Bala, 489 F.3d 334 (8th Cir. 2007). However, Bala and RSI?s subsequent petition for a certificate of innocence, a prerequisite to seeking damages against the United States for wrongful imprisonment, was denied.  See United States v. Racing Services, Inc., 580 F.3d 710, 714 (8th Cir. 2009) ("RSI and Bala secretly collected and distributed $99,000,000 of parimutuel account wagers without paying one penny to charities, to the Racing Commission, or to the state treasurer, as North Dakota?s gambling laws required.").

Slip op. at 1-2. Rather than be thankful to be not spending time in the federal and/or North Dakota pokey, "[i]n April 2009, Bala and RSI brought this action against the State, claiming the State took RSI?s property without just compensation in violation of the takings clauses of the state and federal constitutions." Slip op. at 2. Their "interests" were property taken in violation of both the U.S. and the N.D. constitutions, in that they collected cash and took excise taxes, the plaintiffs asserted. The state moved to dismiss for failure to state a claim, which the trial court granted.

The N.D. Supremes, made short work of each of the takings claims and affirmed the dismissal. First, the court correctly noted that the government was not exercising its eminent domain power, but rather its police power. See slip op. at 4. Unfortunately, the court stopped there, as if that conclusion was the end of its analysis. Id. ("Assuming for purposes of argument that the State "took" anything from Bala and RSI in this case, we conclude the State was exercising its police power rather than its eminent domain power."). Problem is, that is always the case where the plaintiff alleges a regulatory taking; by definition, it is the de facto taking of property by the government exercising some power other than the eminent domain power. See Lingle v. Chevron U.S.A., Inc., 544 U.S. 528 (2005).The court needed to explain why it was not a regulatory taking for the government to try and obtain the $10 milion the plaintiff was obligated by law to pay, but did not.

On the second point, the court's analysis was more on the mark. It concluded that the plaintiff did not possess "property" protected by the takings clause because "gambling in North Dakota is a 'highly regulated' industry." Slip op. at 4. You can hardly claim to have unfettered rights to property when the property itself depends on the state for its existence, or is subject to such heavy regulation that you have no reasonable expectation of doing whatever you please with it.

The court also dealt with two other "takings" claims -- see slip op. at 4-6 -- but we will leave those for you to review. Bottom line: no viable takings claim was asserted.

Barista's note: this case was no Amerisource, where the government seized the property of an innocent witness to a crime, only returning it (unusued in the prosecution) after the property became worthless. Even there, the innocent property owner lost what was a much closer call, in our opinion, than the Bala case.

The N.D. court's analysis of the plaintiff's takings claims was really not necessary, and this opinion only made it harder for courts to address substantial and genuine claims that government has regulated property so far as to be the equivalent of a taking.

Full post as published by inversecondemnation on August 25, 2010 (boomark / email).