Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
Sept. 22 — Plaintiffs can't pursue a civil rights action against the city of San Bernardino, Calif., and its employees for alleged violations of the Fourth Amendment because the city is reorganizing in Chapter 9 bankruptcy, a district court in California held Sept. 19 ( Newberry v. City of San Bernardino (In re City of San Bernardino), 2016 BL 308312, C.D. Cal., No. 6:12-bk-28006-MJ, 9/19/16 ).
Filing for bankruptcy imposes an automatic stay under the Bankruptcy Code, which halts all judicial proceedings against the debtor. A party must get court permission to lift the automatic stay in order to proceed with an action against the debtor. The city of San Bernardino filed for Chapter 9 protection, which is a form of bankruptcy available to municipalities.
Judge Otis D. Wright, II, of the U.S. District Court for the Central District of California affirmed the bankruptcy court's denial of plaintiff Raymond Newberry's motion for relief from the Bankruptcy Code's automatic stay.
Newberry filed a civil rights action in the district court two years after the bankruptcy court determined that the city of San Bernardino was eligible for Chapter 9 relief. Newberry alleged that in 2014, the city's police department conducted an unlawful search of an apartment complex to “root out criminal elements,” and the search was conducted with media present under an inspection warrant rather than a criminal search warrant. Under California law, inspection warrants are “intended to grant access to structures only for the purpose of investigating potential safety risks or code violations,” the court said.
The district court determined that the city and its officers were subject to the automatic stay.
Newberry asked the bankruptcy court for relief from the stay, which it denied, but entered an order enjoining the city from entering any apartment in that complex or in the city based solely on an inspection warrant.
On appeal, Newberry argued that intentional tort claims and constitutional claims against a municipality that arise after the bankruptcy petition is filed are a “special breed of claims” that should be exempt from a stay.
The district court said it didn't take Newberry's “assertions of Fourth Amendment violations lightly,” but still didn't find these claims enough to overcome the automatic stay. Newberry isn't left without a remedy for these violations, the court said. Newberry could file a claim for administrative expenses or file an adversary proceeding (another lawsuit) against the city for the same claims and neither required relief from the automatic stay, the court said.
The court also expressed concern that introducing an unpredictable variable like this case into the city's reorganization efforts could delay confirmation, and granting Newberry relief would be unfair to other similarly situated creditors.
Jason Michael Ewert, San Bernardino City Attorney's Office, San Bernardino, Calif., represented The City of San Bernardino; Marjorie Barrios, Law Offices of Marjorie Barrios, San Bernardino, Calif., represented appellant Raymond Newberry; Gary David Saenz, San Bernardino City Attorneys Office, San Bernardino, Calif., and Paul Robert Glassman, Stradling Yocca Carlson and Rauth PC, Santa Monica, Calif., represented appellee The City of San Bernardino; Matthew J. Troy, U.S. Department of Justice, Washington, D.C., represented Intervenor United States.
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