Police Abuse Claims Survive Vallejo Bankruptcy

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By Daniel Gill

Sept. 9 — A judgment for damages against police officers for use of excessive force wasn't discharged by the municipal bankruptcy case of Vallejo, Calif., according to a ruling by the U.S. Court of Appeals for the Ninth Circuit ( Deocampo v. Potts, 9th Cir., No. 14-16192, 9/8/16 ).

Circuit Judge Kim McClane Wardlaw concluded that the debt adjustment plan confirmed in the Northern California city's bankruptcy case didn't discharge the $50,000 plus attorneys' fees judgment obtained by Jason Eugene Deocampo.

In the wake of the 2007-2008 financial crisis, Vallejo, Calif. filed a Chapter 9 bankruptcy case. Relief under Chapter 9 is available only to municipalities, allowing them a breathing spell to work out a plan for repaying their debts.

In a Chapter 9 case, the city, town or county debtor seeks to confirm a debt adjustment plan, which will be confirmed by the bankruptcy court if it is in the best interests of creditors and is feasible. Confirmation doesn't require approval by a vote of creditors.

Prior to Vallejo's historic bankruptcy filing (at the time it was one of the largest municipal bankruptcies in history and the largest since Orange County Calif. filed in 1994), Deocampo and two companions “suffered a violent encounter with police officers employed by Vallejo,” the court said. They were shoved, beaten with batons and pepper-sprayed before being “falsely arrested and charged” with resisting and obstructing the police, the court said.

Deocampo and the two other victims of the alleged abuse filed suit against the officers, Vallejo, and the town's chief of police in 2006, alleging use of excessive force and other constitutional claims under 42 U.S.C. §1983, the court said. The claims against the city and its chief of police were later dismissed by the parties' stipulation.

After Vallejo's bankruptcy filing, the parties to the lawsuit stipulated that the automatic stay — which takes effect in bankruptcies to put a temporary halt to actions against a debtor or its property — applied to their case, although they didn't express why it would apply with none of the parties in bankruptcy, the court said.

The bankruptcy court confirmed Vallejo's debt adjustment plan on Aug. 4, 2011. The plan provided, among other things, that “litigation claimants would recover approximately 20 to 30 percent of the value of any claims below $500,000,” the court said.

After the plan was confirmed, the district court lifted the stay on the plaintiffs' lawsuit. It went to trial, and a jury awarded Deocampo $50,000 in compensatory damages. The court then awarded him costs and attorney's fees as permitted by 42 U.S.C. §1988.

The officers ultimately appealed, asserting that because of Vallejo's confirmed plan, Deocampo should be entitled to only 20 to 30 percent of the verdict.

The court affirmed the district court, rejecting the officers' two main arguments.

First, it found that the judgment was against the officers personally and rejected their argument that it was in fact a personal liability of Vallejo. The officers argued that Vallejo's duty under California law to indemnify them conferred direct, “personal” liability on the city.

But the court rejected the argument, noting that “Vallejo may be obligated by statute to indemnify the Officers for the amount of the Judgment, but this ‘purely intramural arrangement' doesn't alter the fact that the Judgment itself is binding on the Officers and the Officers alone.”

The court then rejected the officers' second argument, that the confirmed plan applies to Deocampo's judgment because of a “unity of interest” created by the Calif. indemnity statute. The court noted that the plan didn't provide for the discharge of any claims against third party “indemnifiable employees,” as did the plans in other municipal bankruptcies like San Bernardino, Calif. or Detroit.

The court therefore reserved judgment and didn't decide whether a third party release in Chapter 9 would be binding, because the plan didn't include one.

Finally, the court concluded its opinion by noting that the officers actually didn't have “any skin in the bankruptcy game,” because Vallejo remains obligated under California law to indemnify them for the judgment they owe to Deocampo. Vallejo undertook the defense of the officers after confirmation of its plan, and therefor its “indemnification obligation is a post-petition debt that is not subject to adjustment” or discharge, the court said.

Circuit Judges John T. Noonan and Richard A. Paez also sat on the panel hearing the case.

Austin Byrne Conley, Gibbons and Conley, Walnut Creek, Calif. represented the defendant officers in the appeal. Ayana Cuevas Curry, Law Offices of John L. Burris, Oakland, Calif. represented the plaintiff-appellees.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bna.com

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