A lawsuit filed in federal court claims money is missing from one tax sale while the state has removed a judge from ruling on another tax sale.
By Jessica Jaglois
Published: Jun. 14, 2024 at 5:16 PM CDT|Updated: Jun. 14, 2024 at 5:47 PM CDT
MEMPHIS, Tenn. (WMC) - More than a million dollars is missing from a Shelby County tax sale, according to local and federal court filings, including money missing from multiple properties that were accidentally sold when they were not tax delinquent.
The Trustee’s Office collects property taxes in Shelby County, and can take possession of properties that are tax delinquent. The Action News 5 Investigators have reported extensively on Shelby County tax sales.
Those properties are then sold to recoup the back taxes owed. Until recently, the properties were auctioned online using the company CivicSource.
Missing money leads to finger pointing
According to a federal lawsuit filed by the Shelby County Trustee’s Office in the U.S. District Court for the Western District of Tennessee, CivicSource auctioned dozens of tax delinquent properties for the county last October, plus 36 properties that were not tax delinquent that accidentally made it into the sale. Four of those properties were sold.
In the lawsuit, the county said it emailed CivicSource asking to refund approximately $266,269 to the bidders of the four non-delinquent properties, and for the $1.23 million it made from the tax delinquent properties.
CivicSource mailed a check via FedEx to the county, which it then said couldn’t be cashed “due to an accounting error.”
“The funds were not placed in the proper clearing account before the check was presented,” CivicSource emailed, according to that federal lawsuit. “Our bank brought the mistake to our attention this morning, and we placed a stop payment on the check.”
The money still hasn’t been sent to Shelby County or to the bidders, the lawsuit claims.
Attempts to contact the company’s attorney were unsuccessful, and there is no contact information listed for any employees on CivicSource’s website.
“There is fraud or negligence somewhere,” said long-time Memphis attorney Darrell Castle. “Where’s the money?”
Castle has appeared in Chancery Court for roughly 40 years, and is well-versed on the tax sale process.
“But the county is responsible because CivicSource is its agent,” said Castle.
It’s unclear why CivicSource hasn’t provided the money or why it hasn’t responded to the county’s federal lawsuit. A federal judge could find the company in default and force it to repay the money to Shelby County.
The Action News 5 Investigators reached out to Trustee Regina Newman, who said she could not comment on pending litigation. The county’s website does show it is now using a new vendor for its online auctions.
Chancellor removed from tax sale ruling after showing “bias”
The federal lawsuit was filed after two Chancery Court judges pointed out the missing money.
Chancellor JoeDae Jenkins filed a Show Cause Order on March 28, 2024 asking why the Trustee “should not be held in contempt for the failure to collect taxes for Tax Sale 2001 and turn said funds over to the Clerk and Master.”
The trustee’s federal lawsuit was filed one month later.
Chancellor Melanie Taylor-Jefferson also questioned the missing money during a legal saga that began when the Shelby County Trustee’s Office filed its Annual Delinquent Personal Property lawsuit in her courtroom in August of 2023.
The chancellor allegedly became “angry” when the lawsuit was filed in her courtroom, according to a motion the county filed asking Jefferson recuse herself from the case. She asked to meet with members of the Trustee’s Office and the two other Chancery Court chancellors.
“I called this meeting when I discovered a personal property lawsuit with over 5,000 cases was filed and assigned to my court room without one discussion with me or any of the other Chancellors,” Jefferson wrote in an email. “This is a blatant disrespect of my title and authority.”
The Trustee’s tax attorney, Greg Gallagher, said in that court filing that the Annual Delinquent Personal Property lawsuit rotates between the three Chancery Court chancellors every year, and this year was Chancellor Jefferson’s turn.
Chancellor Jefferson asked that the lawsuit be split between the three Chancellors, which was approved, but she dismissed the lawsuit anyway.
Jefferson wrote in her dismissal that she was throwing out the case “due to the immense volume of the defendants potentially involved.”
Tax attorney Gallagher asked the judge to reconsider her dismissal, saying it would mean “a significant loss of money” for the county, but that Jefferson was resistant to setting a hearing date for his request.
Gallagher then asked to meet with Chief Judge Carolyn Blackett to consult with her about the issues with Jefferson. A few days later, Chancellor Jefferson approached Gallagher in the hallway.
“Chancellor Jefferson was extremely angry, upset,” Gallagher wrote in that motion asking Jefferson to recuse herself from the lawsuit.
He writes that Chief Judge Blackett told Chancellor Jefferson that Gallagher was going to file a complaint against Jefferson. She responded that she did not like being threatened and asked Gallagher to “bring it.”
“The confrontation was unwarranted, humiliating, and held within earshot of numerous…employees,” Gallagher’s motion reads.
Jefferson refused to recuse herself, responding to the motion saying she believes the Trustee is “anxious to get [the Personal Property lawsuit] resolved because of its mishandling of the most recent real property tax sale, which stands to cost taxpayers over $1.2 million.”
The state steps in but questions linger
After Jefferson did not recuse herself, Gallagher took the case to the Court of Appeals in Jackson, Tennessee, which found Jefferson ”demonstrated pervasive bias.”
The Court of Appeals cited Jefferson’s hallway confrontation and that she did not deny the allegations Gallagher listed. The Court also pointed out that Jefferson did not set a hearing to reconsider the lawsuit dismissal until months later.
“These inexplicable actions ‘reflect an utter incapacity to be fair,’” said the Court of Appeals opinion.
“The system worked,” Castle told The Investigators. “The Appeals Court did the right thing.”
According to Castle, he has never heard of a judge openly confronting a lawyer in public.
“Judges don’t do that. They’re higher than that.”
The tax sale lawsuit has not yet been refiled but Chancellor Jefferson will not be able to rule on it if it is.
While that tax sale hangs in the balance, the question of the missing money remains.
While the federal lawsuit claims CivicSource hasn’t turned over the money, the company’s upcoming tax sale calendar remains full. It shows CivicSource is set to conduct online tax sales across Louisiana and Kansas in the coming months.
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