Victor Qiu is a JURIST Washington, D.C. correspondent and an attorney. The views expressed in this article are his own and in his personal capacity.
Last week, I attended the oral argument for Michael Pung, Personal Representative of the Estate of Timothy Scott Pung v. Isabella County, Michigan, at the United States Supreme Court. While there were no demonstrators outside the Court, numerous tourists lined the sidewalk, taking photographs in front of the Supreme Court building. In the courtroom from my seat in the alcove, I spotted the Pung family in the audience. Pung’s counsel later acknowledged their presence during the argument.
The justices entered the courtroom shortly before 10 a.m. Justice Ketanji Brown Jackson announced the opinion for Villarreal v. Texas, and Justice Elena Kagan announced the opinion for GEO Group, Inc. v. Menocal. Chief Justice John Roberts then admitted several groups of attorneys into the Supreme Court Bar.
Pung v. Isabella County centers on two fundamental Constitutional amendments: the Fifth Amendment’s Takings Clause and the Eighth Amendment’s Excessive Fines Clause. The Takings Clause prohibits the government from taking private property for public use without providing just compensation. The Excessive Fines Clause prohibits the government and courts from imposing fines that are grossly disproportionate to the offense.
In 2012, Michael Pung, the petitioner and executor of his nephew’s estate, became involved in a real estate tax dispute with Isabella County regarding taxes owed on his nephew’s family home. When Pung disputed the $2,242 tax debt, the County filed several notices of tax delinquency, which Pung did not pay. In 2014, the County deemed the property forfeited and filed a foreclosure petition. Pung did not appear at any foreclosure hearings, and a Michigan circuit court entered a judgment of foreclosure in 2015. In 2018, Pung unsuccessfully sought review from the Michigan Supreme Court, and the County obtained a final foreclosure judgment on the home. The property had an assessed fair market value of $194,400 in 2019. The County sold the property in 2019 at auction for $76,008 and retained all the proceeds. The auction purchaser “immediately turned around and sold” the property for $195,000. Pung sued the County in the United States District Court for the Eastern District of Michigan on Takings Clause and Excessive Fines Clause grounds.
The district court granted partial summary judgment to Pung on the Takings Clause claim and left the question open but dismissed the Excessive Fines claim. Pung argued that he was entitled to the fair market value of the home minus the tax debt. However, the district court held in 2022 that Pung was entitled to only the “surplus proceeds,” calculated as the foreclosure sale price minus the tax debt owed, an approach later confirmed by the Supreme Court in Tyler v. Hennepin County, Minnesota in 2023. The Sixth Circuit Court of Appeals affirmed the judgment and rejected Pung’s Excessive Fines Clause claim.
Pung appealed to the Supreme Court, and the Court granted review on two issues: (1) whether the Takings Clause requires the government to provide compensation based on fair market value of the home in a tax foreclosure, rather than auction sales proceeds, and (2) whether the Excessive Fines Clause was implicated here when the property was worth far more than the tax debt, but sold for a fraction of its assessed value.
Philip Ellison, the Pung family’s long-time attorney, began by framing the Takings Clause issue as “just compensation meant returning remaining equity” and in this case, fair market value of the home should be the calculation as to whether Pung received just compensation. Ellison characterized the Excessive Fines Clause argument as a “backstop,” arguing that the government’s taking of a home worth nearly $200,000 over a $2,242 tax debt was “grossly disproportionate.”
Justice Clarence Thomas inquired whether English and American legal traditions permit this type of tax foreclosure. Justice Sonia Sotomayor echoed the history and pressed counsel on whether there was caselaw requiring foreclosure sales to be at fair market value. Ellison acknowledged that there is a history of tax foreclosures and that there were no Supreme Court cases stating that foreclosure sales must be at fair market value. Ellison noted that the foreclosure was just the first half of the equation, and that the “other half of the equation” is that history has provided protections for the individual, including challenges to inequity, setting aside the foreclosure, or awarding compensation.
The discussion turned to the procedural “fairness” of the foreclosure and whether the auction sale process was fair. Justice Elena Kagan hypothesized whether Pung would still be entitled to the property’s fair market value if the auction itself was fair but produced a depressed price. Ellison’s response was a “more nuanced half-step” – that the property owner should be able to challenge if the auction price actually reached fair market value. As to the Excessive Fines Clause backstop, Ellison noted that the difference in value between the small tax debt and the government’s destruction of the majority of Pung’s home equity constituted an excessive fine.
Justice Neil Gorsuch sought clarification of the factual record, observing that at the outset, an administrative law judge ruled that Pung did not have to pay the $2,242 tax, but the County assessed it anyway and used it as a basis for the foreclosure. Ellison confirmed that Pung could not figure out why the County would pursue this four-figure debt that arguably was not owed, to this extreme length. Justice Amy Coney Barrett echoed Justice Gorsuch, remarking that this was “some real unfairness to [Pung]” when he “didn’t even owe the tax” and that this “small tax” caused the “big loss of the family home . . . and of the money.”
Assistant to the Solicitor General Frederick Liu, representing the United States as amicus curiae supporting neither party, stated that the government’s position is to vacate the Sixth Circuit’s decision and remand for consideration of the preserved arguments as to the process of the foreclosure sale. Justice Sotomayor reiterated Justice Barrett’s description of the “fundamentally unfair” situation Pung is in and questioned whether the Constitution said what just compensation is. Liu maintained that the history and tradition analysis is the “most principled way” to decide which foreclosure procedures are required and which are not.
Justice Samuel Alito referenced amicus briefs suggesting procedural safeguards to make the tax foreclosure process fairer, including listing at market value and setting minimum strike prices at auction, to comply with the Takings Clause. Liu “shared that concern” and conceded that a constitutional floor should exist, but that states should have the leeway to adopt other procedures. Justice Brett Kavanaugh inquired whether the Court’s opinion should discuss the procedure of tax foreclosure sales. Liu responded that it should not, and that the Court should articulate the principle that as long as “sale is fairly conducted, the surplus proceeds represent just compensation.”
Matthew Nelson, representing Isabella County, agreed with the Sixth Circuit decision and advanced the position that the situation here is a “compelled market condition” which is different from a fair market value in an “idealized private sale.” When Justice Gorsuch asked Nelson whether there was a colorable argument that a taking occurs when the government takes title to a home, Nelson conceded that the County’s action qualified as a taking under the Fifth Amendment.
Justice Ketanji Brown Jackson emphasized that Nelson did not dispute that there was a taking, but rather the dispute was “the value of what has occurred as a result of the taking.” Nelson reinforced that the County’s foreclosure auction sale and the return of the surplus proceeds to Pung were consistent with the Court’s holding in Tyler, and therefore, just compensation was provided.
In Ellison’s rebuttal, he concluded that the government must “take the bitter with the sweet.” If it chooses to take the benefits of a tax foreclosure sale, it must also provide just compensation under the Takings Clause.
It is difficult to predict which direction the Court will take in its opinion, but the justices hinted that it may give the Pungs another chance. Throughout the argument, several justices suggested that the Court may adopt the Solicitor General’s position to vacate and remand the case to consider the fairness of the foreclosure auction process.
