Newberry v. City of San Bernardino (In re City of San Bernardino)
558 B.R. 321
C.D. Cal.2016Background
- City of San Bernardino filed for Chapter 9 bankruptcy in August 2012; bankruptcy court found the City eligible for relief.
- In November 2014 Newberry plaintiffs sued the City and officers in federal district court alleging an August 2014 Fourth Amendment violation from warranted inspections of the Edgehill Apartments and sought injunctive, declaratory, and damages relief (including § 1988 fees).
- District court held the suit was subject to the automatic bankruptcy stay; Newberry then moved in bankruptcy court for relief from stay and to dismiss the Chapter 9 petition for bad faith.
- Bankruptcy court declined to grant relief from stay, proposed and later entered a limited injunction protecting the Newberry plaintiffs (and apartments they might move to) from future searches based solely on inspection warrants, ordered dismissal of the district-court action, and denied dismissal of the Chapter 9 case for lack of notice.
- Newberry appealed; the district court (on appeal) affirmed the bankruptcy court’s denial of relief from stay and refusal to dismiss the Chapter 9 case.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §§ 362 and 922 bar post-petition injunctive and damage suits against a municipal debtor | § 362(a)(3) does not apply to suits seeking injunctive relief for post-petition claims; intentional tort/constitutional claims should be exempt | Automatic stay and § 922 apply to stay post-petition actions against the debtor and its officers; exceptions are limited to § 362(b) | Stay applies; injunction and fee/damage claims against the City are subject to § 362(a)(3) and § 922(a)(1) |
| Whether the automatic stay violates the Petition Clause (First Amendment) | Stay prevents access to courts to petition for redress of rights | Plaintiffs can present claims in bankruptcy (administrative claim or adversary proceeding) or seek withdrawal/consent mechanisms; stay does not bar access to adjudication | No First Amendment violation; access to bankruptcy procedures suffices |
| Whether declaratory relief (§ 2201) or § 1988 attorneys’ fees are immune from the stay | Declaratory relief and fee awards are rights that cannot be vitiated by the stay; fees are ongoing operating/administrative costs | Declaratory relief is discretionary; fees/damages seek the debtor’s property and are subject to stay and bankruptcy allocation rules | Stay does not vitiate declaratory relief right; fees/damages remain claims against debtor and are subject to stay |
| Whether bankruptcy court abused discretion under Curtis factors in denying relief from stay | Bankruptcy court misapplied Curtis factors; plaintiffs need a jury trial and district court forum | Granting relief would interfere with reorganization, be unfair to other creditors, and the bankruptcy court can provide injunctive relief and bankruptcy remedies | No abuse of discretion; bankruptcy court reasonably weighed Curtis factors and provided substantial injunctive relief |
Key Cases Cited
- Hillis Motors, Inc. v. Haw. Auto. Dealers’ Ass’n, 997 F.2d 581 (9th Cir. 1993) (automatic stay freezes status quo and precludes post-petition actions affecting estate property)
- In re Chugach Forest Prods., Inc., 23 F.3d 241 (9th Cir. 1994) (§ 362(a)(3) prevents dismemberment of the estate)
- Alexander v. City & Cnty. of San Francisco, 29 F.3d 1355 (9th Cir. 1994) (inspection warrants cannot be a pretext for criminal searches)
- In re Mortgages Ltd., 771 F.3d 1211 (9th Cir. 2014) (standards for appellate review of bankruptcy findings)
- In re Miller, 397 F.3d 726 (9th Cir. 2005) (adversary proceedings in bankruptcy can provide injunctive relief without relief from stay)
- In re Zilog, Inc., 450 F.3d 996 (9th Cir. 2006) (post-petition tort claims can be administrative expenses)
- Borough of Duryea v. Guarnieri, 564 U.S. 379 (2011) (Petition Clause protects right to access courts and other governmental dispute-resolution forums)
- Pub. Affairs Assocs., Inc. v. Rickover, 369 U.S. 111 (1962) (Declaratory Judgment Act is discretionary)
- In re Curtis, 40 B.R. 795 (Bankr. D. Utah 1984) (factors for granting relief from stay; focus on interference with estate administration)