e-Journal Summary

e-Journal Number : 63966
Opinion Date : 11/14/2016
e-Journal Date : 11/16/2016
Court : U.S. Court of Appeals Sixth Circuit
Case Name : Lyda v. City of Detroit, MI
Practice Area(s) : Bankruptcy, Municipal
Judge(s) : Griffin, Sutton, and Donald
Full Text Opinion
Issues:

Whether the Bankruptcy Code allowed Detroit Water & Sewerage Department’s (DWSD) customers to sue for injunctive & declaratory relief on DWSD’s water shut-off policies; 42 USC § 1983; Monell v. Department of Soc. Servs.; Whether the plaintiffs’ procedural due process claims were moot; Green Party of TN v. Hargett; Hamilton Cnty. Educ. Ass’n v. Hamilton Cnty. Bd. of Educ.; Whether the restoration of service mooted their claim for declaratory & injunctive relief; Already, LLC v. Nike, Inc.; Fialka-Feldman v. Oakland Univ. Bd. of Trs.; Church of Scientology v. United States; Lewis v. Continental Bank Corp.; Honig v. Doe; International Union, UAW v. Dana Corp.; Limitations on the bankruptcy court’s authority over a “municipal debtor”; 11 USC § 904; In re Addison Cmty. Hosp. Auth. (Bankr. ED MI); In re City of Stockton (Stockton II) (Bankr. ED CA); In re City of Detroit (Bankr. ED MI); Puerto Rico v. Franklin CA Tax-Free Trust; Whether plaintiffs established a substantive due process right to affordable water service; Range v. Douglas; Pearson v. City of Grand Blanc; Matthews v. Eldridge; Ransom v. Marrazzo (3d Cir.); EJS Props., LLC v. City of Toledo; Grinter v. Knight; Memphis Light, Gas & Water Div. v. Craft; MCL 123.166 & 141.121(1); Golden v. City of Columbus; Whether equal protection claims were sufficiently pleaded; Center for Bio-Ethical Reform, Inc. v. Napolitano; Heller v. Doe; Bower v. Village of Mount Sterling (Unpub. 6th Cir.); Whether leave to amend was properly denied; Fed.R.Bankr.P. 9013 (incorporating Fed.R.Civ.P. 7(b)(1)); Evans v. Pearson Enters., Inc.

Summary

[This appeal was from the ED-MI.] In this adversary proceeding arising from the defendant-City’s Chapter 9 bankruptcy case, the court held that under § 904 of the Bankruptcy Code, customers of the defendant-DWSD were not entitled to injunctive relief stopping water shut-offs or to an order directing DWSD to implement an income-based, water-affordability plan for residential customers. The court held that their procedural due process claims were moot where DWSD had made changes to its shut-off procedures. However, their claims for injunctive and declaratory relief were not mooted by the current restoration of service. Although the bankruptcy court ruled that § 904 prevented the plaintiffs from recovering only on their state-law claims, the court agreed with DWSD that it prohibits the grant of “any of the relief requested, whether plaintiffs alleged their injuries as state-law or constitutional harms.” Section 904 “limits the bankruptcy court’s authority over the municipal debtor[,]” and is “‘a keystone in the constitutional arch between federal bankruptcy power and state sovereignty.’” The court held that under the plain language of § 904, injunctive and declaratory relief were expressly prohibited because “injunctions directing DWSD to stop terminations or to provide water service—including service at a specific price—necessarily ‘interfere[s] with’ the city’s ‘governmental powers,’ its ‘property [and] revenues,’ as well as its ‘use [and] enjoyment of . . . income-producing property.’” Section 904 “strips the bankruptcy court of authority to order anything of the sort.” Even if the plaintiffs’ substantive due process and equal protection claims had survived the City’s § 904 challenge, both claims were properly dismissed for “failure to state a claim upon which relief can be granted.” The court concluded that “‘there is no fundamental right to water service.’” If a right to continued affordable water service “exists, it is rooted in Michigan law and the customer relationship plaintiffs share with DWSD.” The bankruptcy court properly dismissed the equal protection claim as inadequately pleaded, and the district court did not err by denying the plaintiffs an opportunity to amend their complaint. The court vacated the district court’s order as to plaintiffs’ now-moot procedural due process claim and affirmed its order affirming dismissal of their remaining claims.

Full Text Opinion