In the wake of Detroit’s municipal bankruptcy, the Sixth Circuit ruled that the court cannot exercise jurisdiction in a chapter 9 case, even though the same claims might be viable in an ordinary district court suit for violation of state law or the federal Constitution when the plaintiffs want the court to rule on how the city should provide governmental services.
A group of Detroit residents sued in bankruptcy court following the city’s filing for municipal debt adjustment in 2013. They alleged that the city was violating state law as well as their constitutional rights in turning off water for nonpayment and in imposing requirements for the resumption of service. They sought declaratory and injunctive relief.
The pivotal statute is Section 904, which provides that the court may not “interfere with” a municipality’s “political or governmental power” or the city’s “use or enjoyment of any income-producing property.”
Although the citizens sought the same declaratory and injunctive relief on their state law and constitutional claims, the bankruptcy court ruled that Section 904 only barred consideration of the state law claims, not the constitutional claims. In a Nov. 14 opinion by Circuit Judge Richard Allen Griffin, the Sixth Circuit went a step further by holding that the bankruptcy court does not have “judicial power to enjoin” a violation of citizens’ constitutional rights.
The opinion is a synopsis of the limitations imposed by the Tenth Amendment on municipal bankruptcy law. Chapter 9 was crafted “‘to give courts only enough jurisdiction to provide meaningful assistance to municipalities that require it, not to address the policy matters that such municipalities control,’” Judge Griffin said in quoting a bankruptcy court decision from Stockton, Calif.’s chapter 9 case.
Judge Griffin said that an injunction to stop terminations and provide water service “necessarily” interferes with the city’s “governmental powers” and its “use [and] enjoyment” of income-producing property.
The appeals court disagreed with the bankruptcy court’s conclusion that Section 904 does not bar consideration of claims under the federal Constitution. Although governments do not have power to violate citizens’ constitutional rights, Judge Griffin said it “does not follow that the bankruptcy court has judicial power to enjoin such violations.”
Explaining that Section 904 “limits remedies,” he added that the “massive scale of a municipal bankruptcy simply provides more opportunities for excessive federal court interference.” While constitutional rights are “inviolable,” Judge Griffin said “the remedies available to [plaintiffs] in the chapter 9 setting are not.”
Tellingly, the opinion includes a footnote speculating that the plaintiffs might have achieved more success by seeking a modification of the automatic stay “to pursue their claims outside of bankruptcy court.”
The opinion includes discussions of interest to constitutional scholars, including analysis of substantive due process and other features of the complaint where the plaintiffs failed to state viable claims. There is also an analysis of mootness in the context of recurring constitutional claims.
In the wake of Detroit’s municipal bankruptcy, the Sixth Circuit ruled that the court cannot exercise jurisdiction in a chapter 9 case, even though the same claims might be viable in an ordinary district court suit for violation of state law or the federal Constitution when the plaintiffs want the court to rule on how the city should provide governmental services.