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Deocampo v. Potts

United States Court of Appeals, Ninth Circuit

September 8, 2016

Jason Eugene Deocampo; Jesus Sebastian Grant; Jaquezs Tyree Berry, Plaintiffs-Appellees,
v.
Jason Potts, individually, and in his capacity as a Vallejo Police Officer; Eric Jensen, individually, and in his capacity as a Vallejo Police Officer, Defendants-Appellants, and Jeremy Patzer, individually, and in his capacity as a Vallejo Police Officer, Defendant.

          Argued and Submitted May 10, 2016 San Francisco, California

         Appeal from the United States District Court for the Eastern District of California William B. Shubb, Senior District Judge, Presiding D.C. No. 2:06-cv-01283-WBS-CMK

          Austin Byrne Conley (argued), Gibbons and Conley, Walnut Creek, California; Noah G. Blechman and James V. Fitzgerald, III, McNamara, Dodge, Ney, Beatty, Slattery, Pfalzer, Borges & Brothers LLP, Walnut Creek, California; Claudia M. Quintana, Deputy City Attorney, City of Vallejo, Vallejo, California; for Defendants-Appellants.

          Ayana Cuevas Curry (argued) and John L. Burris, Law Offices of John L. Burris, Oakland, California, for Plaintiffs-Appellees.

          Krista MacNevin Jee, James R. Touchstone, and Martin J. Mayer, Law Offices of Jones & Mayer, Fullerton, California, for Amici Curiae California State Sheriffs' Association, California State Police Chiefs' Association, and California Peace Officers' Association.

          Before: John T. Noonan, Kim McLane Wardlaw, and Richard A. Paez, Circuit Judges.

         SUMMARY[*]

         Civil Rights/Bankruptcy

         The panel affirmed the district court's denial of a Rule 60 motion for relief from judgment, and agreed with the district court that neither a judgment against individual City of Vallejo police officers for excessive force nor a subsequent attorney's fee award in favor of plaintiffs was discharged by the City of Vallejo's bankruptcy proceedings.

         Plaintiffs filed this action against Vallejo police officers and others asserting excessive-force and other constitutional claims under 42 U.S.C. § 1983 and state law. Subsequently, Vallejo filed for Chapter 9 bankruptcy and the district court stayed the § 1983 action. After Vallejo's plan for adjustment of debts was confirmed by the bankruptcy court, the district court lifted the stay in the § 1983 action, and a jury returned a verdict, finding that the officers used excessive force and awarding plaintiffs $50, 000 in compensatory damages and attorney's fees under § 1988. The officers moved for relief from judgment, asserting that the judgment and fee award were effectively claims against the City of Vallejo that were subject to adjustment under the bankruptcy adjustment plan.

         The panel noted that under California law, Vallejo was generally obligated to indemnify its employees for claims against them arising from their employment. The panel held that California's indemnification statutes did not render a judgment or concomitant fee award against an indemnifiable municipal employee a liability of the municipal employer for purposes of adjusting or discharging the debts of a Chapter 9 debtor. The panel further held that the bankruptcy court's plan confirmation did not release any debtor but the City of Vallejo and did not expressly encompass claims or judgments against the City's employees. Accordingly, the panel held that the judgment in the § 1983 action was the officers' personal liability, not Vallejo's. The panel emphasized, however, that its conclusion that the judgment was against the officers personally, and not Vallejo, did not relieve Vallejo of its obligation to indemnify the officers under California law.

          OPINION

          WARDLAW, Circuit Judge

         Does a municipality's bankruptcy plan of adjustment automatically discharge a judgment against individual officers for excessive force by operation of a California statute generally requiring public entities to defend and indemnify their employees for actions within the scope of their employment?

         Like many a city in the wake of the 2007-08 financial crisis, the city of Vallejo, California found itself burdened by mounting debts as its tax base shrank. In 2008, Vallejo responded by petitioning for Chapter 9 bankruptcy, a form of relief available only to municipalities. Some two years after the bankruptcy court confirmed Vallejo's debt-adjustment plan, a federal jury found that two police officers employed by Vallejo used constitutionally excessive force when they arrested Jason Eugene Deocampo. In accordance with the verdict, the district court entered a judgment for money damages against the officers in their personal capacities, and awarded Deocampo his attorney's fees.

         Under California law, Vallejo is generally obligated to indemnify its employees for claims against them arising from their employment. We hold that where, as here, the plan confirmed by the bankruptcy court did not expressly encompass claims or judgments against the city's employees, the indemnification statutes do not subject such claims or judgments to adjustment by operation of law nor by the fact of the public employment itself. We affirm the district court's denial of the officers' Rule 60 motion for relief from judgment, and agree with the district court that neither the judgment nor attorney's fee award was discharged by Vallejo's bankruptcy proceedings.

         I.

         A. Vallejo police use excessive force against Deocampo.

         On March 28, 2003, at approximately 8:00 p.m., Deocampo, Jesus Sebastian Grant, and Jaquezs Tyree Berry (collectively, "Plaintiffs") suffered a violent encounter with police officers employed by Vallejo. According to Plaintiffs, this encounter began when Officers Jason Potts and Jeremy Patzer stopped Berry on the street. With no justification, they kicked and slammed him to the ground, causing him to hit his head on a wooden fence. Deocampo and Grant approached the officers, asked why they were attacking Berry, and informed them that their actions were wrong. Officer Potts told them to go away, and Deocampo complied by walking away from him. Officer Potts followed Deocampo, and shoved him. Officer Potts and a third officer, Eric Jensen ("the Officers") beat Deocampo with their batons, and refused to stop even when he raised his hands in the air and said he would leave. The Officers also pepper-sprayed and beat Grant. Plaintiffs were falsely arrested and charged with resisting, delaying, and obstructing the police.[1]

         On March 30, 2006, Plaintiffs filed this action against Vallejo, Vallejo's chief of police, the Officers, and Patzer. Plaintiffs asserted excessive-force and other constitutional claims against the Officers and Patzer under 42 U.S.C. § 1983; Monell claims against Vallejo and its chief of police, see Monell v. New York City Dep't of Soc. Servs., 436 U.S. 658 (1978); and various state-law causes of action. On July 24, 2007, the parties stipulated to the dismissal with prejudice of Plaintiffs' Monell claims and of Vallejo and its chief of police as defendants.

         B. Vallejo petitions for bankruptcy.

         Subsequently, on May 23, 2008, Vallejo filed for Chapter 9 bankruptcy. This was, at the time, one of the largest municipal bankruptcies in history, and California's largest since Orange County filed for bankruptcy in 1994. See Alison Vekshin & Michael B. Marois, Bankrupt Vallejo, California, Approves Restructuring, Bloomberg (Dec. 1, 2010).[2]

         According to the City of Vallejo, a number of converging forces rendered the city insolvent and necessitated its bankruptcy filing. Vallejo derived most of its revenues from property taxes, sales taxes, assessments, and fees. See In re City of Vallejo, No. 08-26813-A-9, 2008 WL 4180008, at *2 (Bankr. E.D. Cal. Sept. 5, 2008), aff'd, 408 B.R. 280 (B.A.P. 9th Cir. 2009). "Recent adverse economic conditions" caused Vallejo's revenues to decrease. Id. These conditions included not only those predictably associated with the financial crisis, but such contingencies as the closure of a Wal-Mart that had been a large source of sales tax revenue; the loss of shared revenue from a Six Flags/Marine World after Vallejo's ownership interest in the amusement park was bought out; and the unexpected retirement of several police officers and firefighters, who became entitled to millions of dollars in unbudgeted retiree payouts. Id. at *2, *5.

         Vallejo implemented austerity measures, including cutting funds to its senior center, library, parks, symphony, and convention and visitors bureau; using vehicles and equipment well beyond their expected lives; and reducing employee rolls by 87 full-time positions. Id. at *3.

         Nevertheless, Vallejo's "ability to provide minimal levels of service to its residents and provide for their basic health and safety" was seriously threatened. Id. at *5. Pension obligations and benefits due under collective bargaining agreements with several unions could not easily be adjusted. Id. at *3. California laws made it difficult for Vallejo to raise taxes or borrow funds. As the Bankruptcy Appellate Panel noted, "Proposition 13 capped property tax rates to 1% of full cash value. Proposition 218 limited Vallejo's ability to raise any other taxes without a majority vote. Article XVI, section 18 of the California Constitution also restricted its ability to borrow funds." In re City of Vallejo, 408 B.R. at 286 & n.7. Over the objections of several creditors, the Bankruptcy Court for the Eastern District of California found Vallejo eligible to file a Chapter 9 petition, and the Bankruptcy Appellate Panel affirmed. Id. at 299.

         Vallejo was not alone among cities severely affected by the 2007-08 financial crisis. 2008 and the years since have witnessed a small but impactful resurgence in municipal bankruptcy filings. While most have been commenced by special-purpose districts, such as hospital, utility, or sanitation authorities, several cities have filed for Chapter 9 protection, including San Bernardino, California; Stockton, California; Hillview, Kentucky; and Detroit, Michigan. See Bankrupt Cities, Municipalities List and Map, Governing (last updated Aug. 21, 2015).[3]

         Scholars have criticized the very concept of municipal bankruptcy as it is codified by Chapter 9 for a variety of reasons, including that it harms creditors and makes future lending unattractive, and that it hamstrings more flexible state-law solutions. See Omer Kimhi, Chapter 9 of the Bankruptcy Code: A Solution in Search of a Problem, 27 Yale J. Reg. 351, 384-85 (2010) (advancing the former argument); Michael W. McConnell & Randal C. Picker, When Cities Go Broke: A Conceptual Introduction to Municipal Bankruptcy, 60 U. Chi. L. Rev. 425, 494-95 (1993) (advancing the latter). Yet experts have warned that the surge in municipal bankruptcies that began during the financial crisis may not be over. See, e.g., William C. Dudley, President & Chief Exec. Officer, Fed. Reserve Bank of N.Y., Opening Remarks for the Chapter 9 and Alternatives for Distressed Municipalities and

          States Workshop (Apr. 14, 2015), [4] (opining that, while high-profile bankruptcy filings like Detroit's "have captured a considerable amount of attention . . . they may foreshadow more widespread problems than what might be implied by current bond ratings").

         Our case law construing Chapter 9 is scant, and this appeal confronts us with a novel legal issue, of the kind that often surfaces when changing social and economic conditions awaken dormant statutes. But Chapter 9 has awakened, and we do not presume further ...


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