SSC8, LLC

v.

DANIEL

this statement deters independent bidders like Plaintiffs from seeking new EINs for tax certificate bidding purposes. Even if independent bidders choose to ignore the IRS’s informal statement of disapproval and apply for EINs for tax certificate bidding, never in this lifetime will they collect enough EINs to rival master bidders’ numbers. Though the IRS seems to unofficially condemn the use of EINs solely for participation in tax certificate auctions, Defendants do not. Defendants repeatedly expressed that the IRS’s aforementioned statement of disapproval is not a formal

There is no doubt that Defendants’ group bidding rules favor master bidders. As an example, Plaintiffs tied for the winning bids on over 10,000 tax certificates auctioned by Defendants in 2021. Also tied for the winning bids were over 3.4 million bids submitted by master bidders and their subsidiary entities. It comes as no surprise that Plaintiffs were not awarded a single one of the 10,000 tax certificates. It is likewise unsurprising that the majority of tax certificates were

of tax certificates auctioned by the two counties in 2020. At trial, Defendants feigned ignorance as to the inherent unfairness resulting from their group bidding rules. Defendants asserted that their group bidding rules treat every bidding “person” equally, given that subsidiary entities are “persons” for purposes of tax certificate auctions under section 197.432(6). Defendants largely refused to acknowledge the reality that subsidiary entities are just shells of a master bidder. And though Defendants testified that their group bidding rules promote efficiency and increase tax certificate sales, there is little—if any— support for this contention. Other Florida counties, including Hillsborough and Pinellas Counties, have ceased group bidding without issue. There is no indication that any Florida county that has abandoned group bidding has experienced decreased efficiency or sales. In fact, Defendants’ expert, Lloyd McClendon, testified at the parties’ preliminary injunction hearing before this Court that he was not aware of any difference in the performances of counties that allow group bidding and counties that do not. Dkt. 109 at 134. Nevertheless, Defendant Seminole County Tax Collector J.R. Kroll testified that if his office abandoned its group bidding rules, it could be forced to handle millions of separate bids from master bidders and subsidiary entities that were previously submitted together through group bidding. Yet there is no evidence that this has happened in other Florida counties that have ceased group bidding. Mr. McClendon previously testified before the Court that there was “not an appreciable difference” in demand for tax certificates in counties that allow group bidding and counties that do not. Id. Moreover, Mr. Kroll’s concern is unrealistic for at least one practical reason: the deposits that he and four other Defendants require. Under these Defendants’ current policies, a master bidder and its subsidiary entities would each need to submit their own deposits if group bidding was discontinued. Defendants cannot reasonably believe that a master bidder with 1,000,000 subsidiary entities would be willing to make 1,000,000 separate deposits for its subsidiary entities’ independent bids in a single auction. Other concerns offered by Defendants at trial made little sense. Volusia

County Tax Collector Will Roberts testified that he would face lawsuits for excluding bidders if his county were to forego its group bidding rules. The only “bidders” Mr. Roberts would be “excluding” are shell entities that serve no purpose other than to replicate a master bidder’s bid for the master bidder’s benefit. Unsurprisingly, Defendants offered no evidence to suggest that any of these shell entities have brought, or threatened to bring, lawsuits against Florida counties that have moved away from group bidding.

Defendants’ true concern appears to be related to appeasing master bidders. Mr. Garzone, Defendants’ witness, testified at trial that his tax certificate investment company would invest less capital in Florida tax certificate auctions if

Defendants abandoned group bidding.⁵ Such testimony is to be expected from an individual who controls a master bidder entity. As noted above, Mr. Garzone’s master bidder entity, Keys Funding, has about 1,000,000 subsidiary entities that give Keys Funding a massive advantage in Defendants’ auctions. If Defendants were to cease group bidding, Mr. Garzone’s tax certificate investment company would lose this advantage and be forced to compete on a more-or-less even playing field with independent bidders.

Precisely why Defendants are staunchly opposed to stripping master bidders of their advantage is unclear to this Court. Whether a tax certificate is awarded to a master bidder or an independent bidder makes no difference in terms of

Defendants’ auction profits; a sold tax certificate is a sold tax certificate. As noted above, other Florida counties have ceased group bidding without consequence. Even the act of switching from group bidding to independent bidding is as simple as “flipping a switch” on the websites of Defendants’ auction vendors. Despite the evidence undermining Defendants’ stated concerns of abandoning their group bidding rules, Defendants have remained steadfast in their refusal to remedy the

CONCLUSIONS OF LAW

At trial, Plaintiffs pursued three claims against Defendants. Count One is a §

1983 claim asserting that Defendants’ group bidding rules violate substantive due process. Count Two is a second § 1983 claim in which Plaintiffs allege that Defendants’ group bidding rules violate the Equal Protection Clause of the Fourteenth Amendment. Lastly, in Count Three, Plaintiffs contend that

Defendants’ method of resolving ties among bids violates section 197.432(6), Florida Statutes. Seeking only injunctive relief, Plaintiffs request that this Court declare Defendants’ group bidding rules invalid and enjoin their use. The Court addresses Plaintiffs’ claims in turn.

I. Substantive Due Process

In Count One, Plaintiffs allege that Defendants’ group bidding rules constitute a substantive due process violation. Substantive due process protects

“rights that are fundamental and ‘implicit in the concept of ordered liberty.’” Foley v. Orange Cnty., 638 F. App’x 941, 944 (11th Cir. 2016) (quoting Greenbriar Vill., L.L.C. v. Mountain Brook, City, 345 F. 3d 1258, 1262 (11th Cir. 2003)).

Fundamental rights are rights created by the Constitution. Kentner v. City of Sanibel, 750 F. 3d 1274, 1279 (11th Cir. 2014) (citation omitted). In the Eleventh Circuit, there exists a general rule that substantive due process claims concerning non-fundamental rights fail as a matter of law. See id. There is a limited exception to this rule for state-created rights infringed by a “legislative act,” as opposed to an executive act. Id. at 1279−80. While executive acts typically apply to one person, such as a permit decision or termination of employment, legislative acts apply to a larger segment of society and generally include laws, zoning decisions, and executive regulations. Id. at 1280. Legislative acts that purportedly infringe upon state-created rights are subject to rational basis review. See Leib v. Hillsborough Cnty. Public Transp. Comm’n, 558 F. 3d 1301, 1308 (11th Cir. 2009); see also Ga. Elec. Life Safety & Sys. Ass’n v. City of Sandy Springs, 965 F. 3d 1270, 1275 (11th Cir. 2020).

Here, the parties agree that there is no fundamental right at issue. The parties disagree, however, as to whether there is a state-created right to the same, such that Plaintiffs’ substantive due process claim is viable if Defendants’ group bidding rules constitute a legislative act. The Court need not reach this question to resolve this claim, though. Even if there exists a state-created right to participate in a fair tax certificate auction, Defendants’ group bidding rules must be upheld under rational basis review for reasons set forth below.

When assessing government action through the lens of rational basis review, a court must “ask whether the government has the power or authority to regulate the particular area in question,” and whether the proposed regulation is rationally related to a legitimate government purpose. Ga. Elec. Life Safety, 965 F. 3d at 1275 (citation omitted). Plaintiff bears the burden of proving that the challenged government action bears no rational relationship to a legitimate government interest. This standard of review is highly deferential. Kentner, 750 F. 3d at 1281 (quoting Williams v. Pryor, 240 F. 3d 944, 948 (11th Cir. 2001)). Only in the most exceptional of circumstances will a legislative act be held unconstitutional under the rational basis test. Id. (citing Williams, 240 F. 3d at 948). “[E]ven if the court is convinced that the political branch has made an improvident, ill-advised or unnecessary decision, it must uphold the act if it bears a rational relation to a legitimate government purpose.” United States v. Plummer, 221 F. 3d 1298, 1309 (11th Cir. 2000). The Court turns first to the question of Defendants’ power or authority to use group bidding. Section 197.432(1) provides that tax collectors may allow “proxy bidding,” which is defined by section 197.102(1)(d) as “a method of bidding by which a bidder authorizes an agent, whether an individual or an electronic agent, to place bids on his or her behalf.” While the Court rejects Defendants’ assertion that “proxy bidding” and “group bidding” are synonymous, the Court agrees that group bidding is a form of proxy bidding. Group bidding is therefore permitted, though not required, by section 197.432(1). However, this does not end the Court’s inquiry. The ultimate issue is not whether group bidding is permissible, but whether Defendants’ group bidding rules are permissible. The Court therefore turns to the question of whether Defendants’ group bidding rules are rationally related to a legitimate government interest such that they must be upheld under rational basis review. If there is any conceivable basis for Defendants to believe that their group bidding rules will accomplish a legitimate government interest, the group bidding rules must be upheld if rationally related to that interest. See FCC v. Beach Commc’ns, Inc., 508 U.S. 307, 313−15 (1993). While Defendants’ group bidding rules lead to unfair results among bidders, the Court finds that they survive rational basis review. It is reasonably conceivable that Defendants believed their group bidding rules would promote the legitimate government interests of conducting their auctions with efficiency and administrative ease. Though Defendants have no burden of proof under the rational basis test, they testified to their collective belief that their group bidding rules prevent their auctions from being overwhelmed by a flood of individuals bids. While evidence suggests that this concern has not been realized in other counties that have abandoned group bidding, a legislative judgment need not be supported by data or other evidence to withstand rational basis review. See Ga. Elec. Life Safety, 965 F. 3d at 1275. Indeed, rational basis review “tolerates an imprecise match between means and ends.” Id. at 1276.

Even if Defendants were motivated to adopt their group bidding rules for some other purpose, Defendants’ true motivations are “entirely irrelevant for constitutional purposes.” See Beach Commc’ns, 508 U.S. at 315. It is enough that efficiency and administrative ease are conceivable bases for Defendants’ adoption of their group bidding rules. While a seemingly imprecise match, the Court finds that Defendants’ group bidding rules are rationally related to those legitimate government interests. Accordingly, the Court must uphold the group bidding rules under rational basis review.

II. Equal Protection

The Court next turns to Plaintiffs’ Count Two equal protection claim, which alleges that Defendants’ group bidding rules violate the Fourteenth Amendment’s Equal Protection Clause. Pursuant to the Equal Protection Clause, “[s]ocial and economic legislation . . . that does not employ suspect classifications or impinge on fundamental rights must be upheld against equal protection attack when the legislative means are rationally related to a legitimate government purpose.” Estate of McCall ex rel. McCall v. United States, 642 F. 3d 944, 950 (11th Cir. 2011) (quoting Hodel v. Indiana, 452 U.S. 314, 331 (1981)). Here, the parties agree that rational basis review applies to Plaintiffs’ equal protection claim, as there are no fundamental rights or suspect classifications at issue. Though the Court agrees with Plaintiffs’ contention that Defendants’ group bidding rules lead to unfair results, rational basis review “is not a license for courts to judge the wisdom, fairness, or logic of legislative choices.” Beach Commc’ns,

508 U.S. at 313. Given that the Court already determined in its Count One analysis that Defendants’ group bidding rules are rationally related to a legitimate government interest such that they must be upheld under rational basis review, the Court is constrained to enter judgment for Defendants on Plaintiffs’ equal protection claim. III. Section 197.432(6) Finally, the Court considers Plaintiffs’ Count Three claim that alleges

Defendants’ method of selecting a winning bidder in the event of tied bids violates section 197.432(6), Florida Statutes. That section provides in relevant part: If multiple bidders offer the same lowest rate of interest, the tax collector shall determine the method of selecting the bidder to whom the certificate will be awarded. Acceptable methods include the bid received first or the use of a random-number generator. Fla. Stat. § 197.432(6). Plaintiffs take issue with Defendants’ recognition of master bidders and their subsidiary entities as distinct bidders for purposes of resolving ties through their random number generators. Because master bidders and their subsidiary entities engaging in group bidding are not truly “multiple bidders,” but instead just a master bidder disguised in various forms,

Plaintiffs contend that Defendants’ current system of resolving ties is not an “acceptable method” under section 197.432(6). While Plaintiffs’ point is well-taken, the Court finds that

Defendants’ current method of resolving ties does not run afoul of the plain language of section 197.432(6). By stating that “acceptable methods include the bid received first or the use of a random-number generator,” the Florida legislature provided tax collectors with discretion to select a tie-breaking method. See Fla. Stat. § 197.432(6) (emphasis added). Given that one expressly permitted method of breaking a tie is selecting the bid first received, this discretion is not limited to the selection of a method that affords every tied bidder an equal chance of being awarded a tax certificate following a tie. Given section 197.432(6) does not require Defendants to utilize a random number generator and affords Defendants ample discretion in choosing a method of resolving ties, judgment is due to be entered for Defendants on Count Three.

CONCLUSION

Based on the foregoing, Defendants are entitled to judgment on Plaintiffs’ claims. The Clerk is directed to enter judgment accordingly and close the case. DONE AND ORDERED at Tampa, Florida, on March 13, 2023. /s/ William F. Jung

WILLIAM F. JUNG

UNITED STATES DISTRICT JUDGE

COPIES FURNISHED TO: Counsel of Record