PORTLAND (LN) — Oregon counties that pocketed profits from tax-foreclosure sales exceeding the underlying tax debts cannot escape a consolidated class action on the ground that state law required them to do so, a federal judge ruled Thursday.
U.S. District Judge Karin J. Immergut denied the motion to dismiss filed by Josephine and Klamath Counties in Gabbert v. Josephine County, one of four related cases consolidated before her court. The other cases name Multnomah, Marion, and Baker Counties as defendants.
The counties' central argument was that they had no choice: Oregon law, specifically O.R.S. § 275.275 as it existed before June 6, 2024, required them to distribute surplus foreclosure proceeds to government entities rather than to former owners. Because they were merely following mandatory state law, the counties argued, no Monell policy or custom could attach and the claims had to go.
Immergut rejected that framing. Under the Monell framework, municipal liability requires a deliberate choice made from among various alternatives, and the judge found the counties had several. Plaintiffs pointed to a provision allowing counties to sell foreclosed properties to a government entity or Indian tribe under O.R.S. § 275.070(1), sales to which the surplus-distribution rules expressly do not apply. Counties could also have compensated former owners directly from county funds. Immergut noted that Multnomah County began doing exactly that in late 2023, after the U.S. Supreme Court's decision in Tyler v. Hennepin County, and before the Oregon legislature changed the law the following June.
The counties had cited a Ninth Circuit unpublished opinion, Wilkins v. Herron, in which the appeals court upheld dismissal of a Monell claim against a school district that enforced COVID-19 vaccine and mask mandates under state law. Immergut distinguished the cases. The school district in Wilkins was required to proactively enforce employment mandates; the counties here were not bound by Oregon law to withhold compensation from homeowners who lost equity above their tax debt.
On the state constitutional claim, the counties argued they lacked the intent required under Oregon's takings clause, which demands that a government entity have intentionally authorized the interference with property rights. Immergut was unpersuaded. The counties sold the properties to receive funds, she wrote, and had alternatives available under state law — enough to satisfy the intentional-authorization standard stage.
The plaintiffs' theory, carried across all four cases, is that the counties maintained a longstanding policy of seizing tax-delinquent properties, selling them for substantially more than the money owed, and keeping the profits without just compensation.
The Oregon Court of Appeals has already observed that Oregon's statutory scheme is similar to Minnesota's such that Tyler controls, though that decision is currently pending review before the Oregon Supreme Court.