Lyda v. City of Detroit, Mich. (In Re City of Detroit, Mich.)
561 B.R. 684
6th Cir.2016Background
- Detroit filed Chapter 9 bankruptcy in July 2013; plaintiffs are DWSD residential customers and advocacy organizations challenging mass water shutoffs and seeking injunctions and an order requiring an affordability plan.
- Plaintiffs alleged seven counts (including procedural and substantive due process, equal protection, estoppel, public-trust/human-right-to-water, and breach of executory contract under § 365) and sought only prospective declaratory and injunctive relief (no damages).
- Bankruptcy court dismissed the complaint (and denied TRO), concluding § 904 barred most relief, the DWSD–customer relationship was not an executory contract for § 365 relief, and plaintiffs’ constitutional claims failed to state a claim; the district court affirmed.
- After briefing and argument, the court considered mootness: some named plaintiffs had temporary restoration of service and DWSD implemented new notice/payment procedures (Ten Point Plan, WRAP, 10/30/50), but the court found most claims not moot except the procedural-due-process challenge to prior notice procedures.
- The Sixth Circuit reviewed de novo whether § 904 of the Bankruptcy Code precluded the requested injunctive/declaratory relief and independently assessed the sufficiency of substantive due process and equal protection claims under Twombly/Iqbal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Mootness of case | Plaintiffs argue restoration of service for named plaintiffs does not moot case because claims are capable of repetition yet evading review and plaintiffs face future shutoffs. | Defendants argue restoration and new assistance programs (WRAP, 10/30/50) moot claims. | Not moot as to most claims; capable-of-repetition exception applies (procedural due process claim based on prior procedures is moot due to new procedures). |
| § 904 scope — can bankruptcy court grant injunctive/declaratory relief (including requiring affordable water)? | Plaintiffs contend § 904 does not deprive the court of authority over executory contracts under § 365 and cannot bar constitutional relief. | Defendants contend § 904 bars any order that would interfere with municipal governmental powers, property, revenues, or use of income-producing property, including injunctive/declaratory relief about water service/pricing. | § 904 bars the bankruptcy court from awarding the requested injunctive/declaratory relief—even for constitutional claims—because such remedies would interfere with the City’s governmental powers, property, revenues, or use of income-producing property. |
| Procedural due process claim premised on prior notice/systemic procedures | Plaintiffs argue DWSD’s prior bills and notices denied adequate notice/hearing. | Defendants point to Ten Point Plan reforms (door hangers, revised notices) as curing the challenged procedures. | Procedural due process claim is moot because DWSD substantially altered the challenged procedures; court must evaluate the procedure as it exists now, and the present changes produce a substantially different controversy. |
| Substantive due process — right to affordable continued water service | Plaintiffs claim a substantive right to continued water service at an affordable price. | Defendants argue no fundamental right to free or subsidized water; conditioning service on payment is rationally related to municipal financial stability. | Dismissed: no fundamental substantive due process right to affordable water; conditioning on payment satisfies rational-basis review. |
| Equal protection — disparate treatment of residential vs. commercial delinquents | Plaintiffs allege discriminatory enforcement (residential shutoffs while many commercial delinquents not shut off). | Defendants offer many rational bases (different service connections, harm to businesses, likelihood of collection). | Dismissed: complaint fails to allege facts sufficient to overcome the presumption of rationality; plaintiffs did not plead facts negating conceivable non-discriminatory rationales. |
| Leave to amend denial | Plaintiffs sought leave to file a second amended complaint in reconsideration motions. | Defendants oppose as untimely and unsupported by a proposed pleading. | No abuse of discretion: plaintiffs’ amendment requests were perfunctory, lacked a proposed complaint, and § 904 forecloses proposed injunctive relief. |
Key Cases Cited
- Monell v. Dep’t of Soc. Servs., 436 U.S. 658 (1978) (municipal liability under § 1983 requires a municipal policy or custom)
- Memphis Light, Gas & Water Div. v. Craft, 436 U.S. 1 (1978) (prospective injunctive relief differs from damages; damages necessary to challenge past disconnections)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (apply Twombly plausibility standard to legal conclusions and factual allegations)
- Heller v. Doe, 509 U.S. 312 (1993) (rational-basis review presumption of constitutionality)
- Lamie v. U.S. Trustee, 540 U.S. 526 (2004) (enforce plain statutory text where language is clear)
- Patterson v. Shumate, 504 U.S. 753 (1992) (party seeking to overcome plain statutory language bears heavy burden)
- Washington v. Glucksburg, 521 U.S. 702 (1997) (test for fundamental rights under substantive due process)
- Range v. Douglas, 763 F.3d 573 (6th Cir. 2014) (substantive due process framework)
- Mansfield Apt. Owners Ass’n v. City of Mansfield, 988 F.2d 1469 (6th Cir. 1993) (conditioning water service on payment does not violate substantive due process)