William H. Rehnquist: We'll hear argument now in No. 90-368, Sheldon Baruch Toibb v. Stuart Radloff. Mr. Lieb, you may proceed whenever you are ready.
Peter M. Lieb: Mr. Chief Justice, and may it please the Court: The issue in this case is whether an individual who has no business is eligible for chapter 11 of the Bankruptcy Code. The amicus in this case has urged this Court to adopt a business requirement for chapter 11, even though such a requirement is contrary to the plain language of the statute and would add a complexity to bankruptcy cases that was not intended by Congress. Section 109(d) of the Bankruptcy Code by its terms provides that a person, except for a stockbroker or a commodities broker, who is eligible for chapter 7 is also eligible for chapter 11. Section 101.37 of the code defines the word "person" to include an individual, partnership, or corporation. The plain meaning of these words is that, except for a stockbroker or commodities broker, an individual, partnership, or corporation who is eligible for chapter 7 is also eligible for chapter 11. And since there is no dispute in this case that an individual without a business is eligible for a chapter 7, the statute by its terms makes them eligible for chapter 11 as well. Now, the use of the word 109(d) cannot be viewed as a legislative oversight or a carelessly chosen word. In section 109 Congress focused exclusively on eligibility for the various chapters, and Congress demonstrated in section 109 that it knew how to limit eligibility for the various chapters, and that it even knew how to distinguish some persons from other persons. Section 109(e), for example, limits the eligibility in chapter 13 to some individuals. Congress also demonstrated in section 1304 that it knew how to distinguish individuals who were engaged in a business from individuals who were not engaged in a business. And so we believe that the amicus' concession in this case that there is no express business requirement in the code for chapter 11 is a clear indication that no such requirement was intended by Congress. The amicus--
Sandra Day O'Connor: Mr. Lieb, if you're right, does this mean that consumer debtors can be placed into involuntary bankruptcy under chapter 11 by creditors?
Peter M. Lieb: --It does mean that, although we think it's unlikely that that will happen very often.
Sandra Day O'Connor: Why is that?
Peter M. Lieb: Because... because... for the same reasons that we think that consumers will not generally... well, it doesn't generally make sense for a consumer to use chapter 11 because of the complexity and the length of a chapter 11 proceeding. And for the same reasons creditors will not want to put consumer debtors into chapter 11 because of the added complexity and the length of the proceedings. It may make sense in most cases to force them into chapter 7.
Sandra Day O'Connor: Well, Congress certainly expressly rejected that under chapter 13, didn't it?
Peter M. Lieb: Congress did reject that in chapter 13, but there were peculiar reasons for rejecting that in chapter 13 which don't apply in chapter 11. Congress' principal concern in chapter 13 was a concern with involuntary servitude, and that's reflected in statements in the legislative history. And that's because in chapter 13 a plan must provide for the payment of future wages pursuant to the plan of reorganization. There isn't any such requirement in chapter 11 that future wages be used in the plan of reorganization. In fact section 541(a)(6) expressly excludes future wages from property of the estate. And so the concern about involuntary servitude that was expressed in the legislative history just doesn't apply in chapter 11. The amicus has suggested in its argument that the exclusive purpose of chapter 11 is to resuscitate failing businesses, and that making individuals eligible for chapter 11 without a business serves no purpose of the Bankruptcy Code, and we think that this is plainly wrong. A fundamental purpose of the Bankruptcy Code is to maximize the value of the estate, and there are instances when a liquidation or reorganization in chapter 11 will maximize the value of the estate versus a liquidation in chapter 7. In chapter 7 a trustee is appointed and the trustee is under a duty presumed to section 704 to liquidate the assets to cash as expeditiously as possible. And expeditiously is the word used in section 704. In chapter 11, by contrast, in most cases no trustee is appointed, and chapter 11 offers individual debtors the flexibility to propose plans of reorganization which liquidate or reorganize over an extended period of time. And there were certain types of assets which when sold in a chapter 11... chapter 7 setting, in the forced sale atmosphere that often accompanies sales by trustees, which will yield less in chapter 7 than if they are sold pursuant to a chapter 11 plan. And I am thinking in particular of illiquid assets such as real estate or perhaps stock in a closely held corporation. If sold pursuant to chapter 7 they may well yield less, and the estate may be diminished to the extent that they yield less. In addition, an individual may be more familiar with his assets, and for this reason can add value to the estate. In this case, for example, the principal... one of the principal assets was the debtor's causes of action. And the individual debtor's participation in the lawsuits that he hopes to bring may be critical to their success. And finally, whereas... and this could be in contrast with the trustee where a trustee may be unwilling to pursue a lengthy litigation, and even if the trustee is willing to pursue the lengthy litigation, that would, that may not be the most efficient way of pursuing litigation because of the added expenses and trustee's fees that might accompany his involvement in the litigation. There is one other instance where it may make sense--
Byron R. White: Well, in your example about your property, why would the debtor... if it's going to be sold in one proceeding or another, why would it, why would he want to sell it in chapter 11 rather than chapter 7?
Peter M. Lieb: --Well, in a--
Byron R. White: Just to help the creditor?
Peter M. Lieb: --Well, the... if I take it your question is asked what is the individual debtor's motive, the motive is to yield as much as possible to pay off his creditors in full and hopefully to regain some of the value that may exist in the asset.
Byron R. White: I thought maybe his desire would be to retain the property for himself and maybe, maybe he's got... he obviously doesn't have a steady income or he'd be in 13, I suppose.
Peter M. Lieb: Well--
Byron R. White: But it may be he has potential to earn money--
Peter M. Lieb: --Well, it's--
Byron R. White: --and pay off his creditors in full.
Peter M. Lieb: --That's another scenario where it might make sense, although in this case because of the individual debtor's high level of debt he wouldn't qualify for chapter 13. So 13 is not available, given those limits.
Byron R. White: But he can get in chapter 11.
Peter M. Lieb: He can get into--
Byron R. White: You think.
Peter M. Lieb: --We submit that he can get into chapter 11. There is another instance where it may make some sense for individuals without businesses to use chapter 11, and that's the situation in which an individual has no business but wants to get back into business. And he may want to use chapter 11 to pay off his creditors so that he can have dealings with them in the future and retain his, as good a credit rating as possible.
Byron R. White: What does he have to show to get a plan approved under chapter 11?
Peter M. Lieb: Well, what he has to do is provide a disclosure statement which is approved by the court. The plan then must be approved by at least one class of creditors, which approval is defined to include--
Byron R. White: And he can scale down the unsecured, I suppose, if he can--
Peter M. Lieb: --Well, he can't scale down the unsecured creditors to such an extent that they would get less in chapter 11 than in chapter 7--
Byron R. White: --Yes.
Peter M. Lieb: --because of the best interest test.
Byron R. White: Sure.
Peter M. Lieb: But he... so his plan must at least provide the same amount that a hypothetical chapter 7 debtor would... creditor would receive.
Byron R. White: Before the credit down operates.
Peter M. Lieb: That's correct. He also has to get a sufficient vote from creditors in order to--
Byron R. White: And he can't scale down secured creditors? He can postpone them?
Peter M. Lieb: --He can postpone secured creditors, and secured creditors... I mean, if secured creditors feel like they are not getting as much as they are entitled to, they may, they can vote against the plan and prevent it from being confirmed. So... but in any event--
Sandra Day O'Connor: Can the creditors clearly prohibit the chapter 11 plan if they choose?
Peter M. Lieb: --If a sufficient number or amount of creditors in one class votes against it, then they can prevent the plan from being confirmed.
Sandra Day O'Connor: Well, what if all there is basically is some consumer debt and a home with a mortgage on it?
Peter M. Lieb: Right.
Sandra Day O'Connor: Can the holder of the mortgage prevent the chapter 11?
Peter M. Lieb: It, I think it depends on whether the... on the given facts of the case and whether, for example, the consumer debt and the mortgage debt are lumped into one class. If--
Sandra Day O'Connor: Well, what is normally done in that regard?
Peter M. Lieb: --I think in... that secured creditors are often considered in a different class. And if the secured creditor is in a different class and votes against the plan, it... he can still prevent the plan from being confirmed if he can establish that he would receive less than he would in the chapter 7 liquidation.
Sandra Day O'Connor: Well, under chapter 11 I take it the debtor can propose and the court can approve a lower rate of interest on the mortgage, and can modify the maturity of the debt?
Peter M. Lieb: A debtor could propose that, but if, for example, the secured, the mortgagee would not receive the same amount doing the arithmetic that he would receive in a chapter 7 liquidation and decided to object, the plan can't be confirmed, pursuant to section 1129. The amicus'... has... principal arguments come out of references in the code and the legislative history to the business uses of chapter 11. And, to be sure, there are numerous references in the code and the legislative history to the business uses of chapter 11. But we believe that those references demonstrate Congress' expectation that chapter 11 would be used primarily by businesses. We don't think that they demonstrate an intent to limit chapter 11 to businesses. In fact these... both the Senate and the House reports state that chapter 11 is primarily designed for businesses, not exclusively. And they also both indicate that consumers will not use chapter 11, not because they are ineligible for chapter 11, but because in most cases the procedures are just too complex. The House report also states that the report distinguishes between business debtors and consumer debtors, but that it also plainly states that the bill itself makes no such distinction. The amicus also urge this Court to be fearful of the fact that if individuals are eligible for chapter 11 this might open the floodgates to abusive or bad faith filings. But there are numerous protections in the code to deal with situations if there are additional bad-faith filings brought upon by the result that we urge. In particular, section 1112(b) of the code gives the bankruptcy court discretion to dismiss the case or convert it to chapter 11... to chapter 7, for cause. And clearly cause would include the bad-faith situation that is suggested. In fact a number of courts are using section 1112(b) to convert cases to chapter 7 in situations when the filing is found to be in bad faith. And the court can do this, use section 1112(b) at any time during a case, immediately after the filing up until the time when the plan is being confirmed. In addition, as I stated earlier, a chapter 11 case must be submitted to creditors for their vote, and if the case is brought in bad faith it is hard to imagine that a plan would be attractive enough to creditors that creditors would give it the necessary votes. And finally, again at chapter 11, section 1129 of the code provides that a plan cannot be confirmed over the objection of any creditors unless those creditors would receive the same amount that they would receive in a hypothetical chapter 7 liquidation. And so there are protections to deal with the situation of abusive filings which might be brought on by the courts. We therefore submit that Congress plainly intended to make individuals without businesses eligible for chapter 11, and that forcing individuals who are not eligible for chapter 13 to use chapter 7 disserves the fundamental policy of the Bankruptcy Code of maximizing the value of the estate. I'd like to reserve my remaining time, if there... unless there are any further questions at this time.
William H. Rehnquist: Very well, Mr. Lieb. Mr. Marzen.
Peter M. Lieb: Thank you.
Stephen J. Marzen: Thank you, Mr. Chief Justice, and may it please the Court: It's not at all unnatural to reorganize consumer debts in chapter 11. If an individual proprietor who owns a mom and pop store has debts, he can, he or she can file under--
William H. Rehnquist: What does the term Mr. Marzen, as you just used it? Is it a word of art?
Stephen J. Marzen: --It's actually defined in the Bankruptcy Code itself under 1017.
William H. Rehnquist: How is it defined?
Stephen J. Marzen: It's defined to mean debts contracted primarily for a personal, family, or household obligation. That--
William H. Rehnquist: So then a mom and pop store, its indebtedness would be a consumer debt?
Stephen J. Marzen: --A mom and pop store could have business debts and consumer debts.
William H. Rehnquist: But they would be distinct from one another?
Stephen J. Marzen: Yes. The code does provide a distinction. I think raising that point has two very important indications. First, since the code does define consumer debts, if Congress wanted to exclude individuals with purely consumer debtors from chapter 11 it would have been very easy to add a phrase to section 109(d). Along with stockbrokers and commodity brokers who are excluded from chapter 11, Congress simply could have added the phrase individuals with only consumer debts, and that would have had the same effect as the Eighth Circuit's judgment in this case. The second point, and based on the definition of consumer debtor in the code, is that it is very wise for Congress not to include such a bar. It's a very difficult threshold inquiry for a bankruptcy court to decide the primary reason why debts were contracted. So if you adopted an ongoing business requirement or a consumer debt limitation as part of a chapter 11 threshold inquiry, the bankruptcy court would have to figure out why primarily debts were contracted. Looking at petitioner's debts in this case indicates how difficult that can be. The entire schedule of debts is basically credit card debts, utility debts, many of which were contracted for a business purpose as part of this petitioner's consulting business or as part of his business to get... to solicit charitable contributions, both of which were businesses. So it's very, it's a very inappropriate and difficult inquiry to have at the start of a bankruptcy litigation. If a mom and pop store does file under chapter 11, the store can adjust and reorganize both the business debts and the consumer debts as defined in the code. In fact in 1990 according to statistics from the administrative office of U.S. courts, more than 2,500, or 12 percent of chapter 11 cases were filed by individuals primarily with consumer debts. So it's not at all unnatural for bankruptcy courts to reorganize cases when the primary debts to reorganize are consumer debts. Given that that's the case, there's no reason in the Bankruptcy Code or in bankruptcy policy to prevent mom and pop from going in and reorganizing just their consumer debts, and not bring in the store as well. Three points very briefly this afternoon. First, reorganization serves a useful purpose. Second, it won't be subject to abuse. And third, it's dictated by the code regardless of whether we think it's a good idea. Chapter 11 serves a useful purpose for reorganizing consumer debts for two reasons. One is that some assets are worth more in chapter 11 than they are in chapter 11. And that's because some assets have no ready market because there is no pool of competing buyers. A possible example here is petitioner's stock. The corporation's only assets are licensed to... licenses to build low-head hydroelectric power plants on some rivers. The only offers we have are from corporate insiders, and the number of licenses and the amount of money at stake probably is not sufficient to get disinterested buyers or at least the large number of disinterested buyers assumed by the efficient market hypothesis, to bid on these assets and get a fair return in a liquidation sale. In these kinds of situations it may well be better to reorganize rather than liquidate. The second and more typical example of when it makes sense to reorganize under chapter 7 rather than... reorganize under chapter 11, excuse me, rather than liquidate, is when there's an asset that the debtor for whatever reason wants to have, be it a family homestead or, in this case, stock that the petitioner really deeply concerns about. As petitioner pointed out, there is no requirement and it's not possible under chapter 11 to force the debtor to give up his future wage income. Under chapter 11, however, the petitioner or debtor can, if he or she wants, pledge future wage income in order to redeem an asset that would otherwise be liquidated under chapter 7. In that case the debtor can give a better deal to the creditors in return for getting them to return an otherwise non-exempt asset, in this case petitioner's stock. That sort of deal may propose benefits for the creditors and the debtors. Second, individuals with purely consumer debts will not be able to abuse chapter 11. Petitioner has already described the authority under section 1112(b) which allows a court to dismiss a chapter 11 case for cause. And the statute describes 10 non-exclusive factors for what may constitute cause, and the cases that amicus cites on page 10 of his brief indicate that courts use this policing power with fair degree of regularity. The only point I would like to add here is the role of the United States trustee, which is my client in this case. The U.S. trustee, under 28 U.S.C. 586 has a role in supervising every chapter 11 case. Under section 1112(b) the U.S. trustee is specifically authorized to come in and file a motion so that if this, if there is an abusive chapter 11 filing, if there is no possibility of effectuating plan, if there is no money or income to fund a plan, the U.S. trustee's duty and obligation is to come in and file the motion and take care of the case. And that is in fact what the U.S. trustee does right now in the Eleventh Circuit, where the rule under the Moog case is that consumers can file chapter 11 petitions. My final point is that the Bankruptcy Code makes consumer debtors eligible for relief under chapter 11. The plain language of the code has been described, and in response to Chief Justice Rehnquist's question I have already described how unadministerable it would be to have any other limit. With that, I have nothing further.
William H. Rehnquist: Thank you, Mr. Marzen. Mr. Hamilton, we'll hear now from you.
James Hamilton: Mr. Chief Justice, and may it please the Court: May I begin by thanking you for the honor of appearing before you as amicus curiae to defend the judgment below. Petitioner and the Solicitor General would have this Court conclude that this is a simple case. They would have this Court conclude that, to use basketball parlance, this is a slam-dunk for the petitioner because of the plain language of the statute. They say that sections 109(b) and (d) do not exclude consumer debtors who do not operate businesses from the broad group that may be debtors under chapter 11, and thus such consumer debtors may proceed under that chapter even though it is designed and intended for business debts. May I respectfully suggest that the issue is not that simple. May I submit that just because, as I concede, consumer debtors are not excluded by section 10... by the section 109 threshold definition, as the Solicitor General refers to it, this does not mean that consumer debtors may proceed to obtain relief under chapter 11, for section 109 is not the only gatekeeper to relief under chapter 11. Now section 109(b) and (d) in essence provide that persons may be debtors under chapter 7 and 11 only if they are not certain entities. Now, while the plain language of 109 does not exclude consumer debtors from chapter 11, section 109 must be read in the context of the code as a whole. This principle, of course, is a commonplace of statutory interpretation. It is a principle repeated by this Court in many, many cases, including those interpreting the code. Indeed recently this Court said in reference to the code in Timbers of Inwood Forest that statutory construction is a holistic endeavor. Now, it is evident from several other provisions of the code that certain persons who are not excluded as chapter 7 debtors by the language of section 109(b) may not proceed to relief under that chapter, and let me give you one example. As petitioner concedes, an individual consumer debtor who is able to pay his debts cannot proceed to relief under chapter 7. Rather, the case will be dismissed pursuant to section 707(b), because allowing such debtors to proceed would be, in the language of the statute, a substantial abuse of the provisions of this chapter. Now there are also various cases establishing that while chapter 11, chapter 11 is available to individuals who operate businesses, that chapter is not available to individual consumers, and these cases are cited at page 10 of our brief. Some courts have concluded that a consumer, nonbusiness debtor who attempts to use chapter 11 does not act in good faith, and thus is subject to dismissal under section 1112(b) of that chapter which allows dismissal for cause. These courts, exercising the broad discretion and the flexibility that is given them by section 1112(b), have concluded that for an attempt to reorganize or to rehabilitate to be in good faith there must be something, that is there must be a business to reorganize or rehabilitate, and if there is not dismissal for cause is appropriate. Indeed the statute itself says that dismissal is proper in the absence of a reasonable likelihood of rehabilitation. These cases under section 1112(b) are consistent with section 1129(a)(3), which requires that reorganization plans be proposed in good faith. Now, it is apparent that section 1112(B) as interpreted by these cases stands as a further qualification to the eligibility requirements in section 109. It is, in other words, another gatekeeper to relief under chapter 11. Now, it may be remarked that section 1112(b) does not specifically require dismissal of a chapter 11 case because where there is no business to reorganize, and this of course is true. But it is also true that section 707(b) does not specifically require dismissal of a chapter 7 case for substantial abuse where the debtor has the ability to repay his creditors. But courts nonetheless have had no trouble reaching this result by reviewing Congress' intent as evidenced in the statute and in the statute's legislative history. Let me turn then to those portions of the code and its legislative history that demonstrate that consumer debtors should not be allowed to proceed to obtain relief under chapter 11 even though they meet the threshold test for chapter 11 that is set forth in section 109. I believe it is difficult to dispute that chapter 11 was designed and intended to provide reorganization relief for corporate and individual business debtors, and not for individual consumer debtors. The fundamental provisions of chapter 11 focus on the plight of the business debtor. For example, sections 1107 and 1108 authorize the debtor in possession or the trustee to operate the debtor's business. Section 1103 authorizes an equity security holders committee to investigate the operation of the debtor's business and the desirability of the continuation of that business. Section 1106 authorizes a similar investigation into the debtor's business by the trustee. And the list goes on. Other examples are collected at pages 9 and 10 of our brief. Now these provisions and many others show that chapter 11 was essentially structured for the business debtor and not for the consumer debtor.
William H. Rehnquist: Mr. Hamilton, what is your response to a point made by Mr. Marzen that if we accepted your contention we would be establishing kind of a very difficult jurisdictional test? How do we define when someone is a business debtor and when not?
James Hamilton: Well, this is obviously, Mr. Chief Justice, a factual question. In this particular case it was easy for the court to decide that Mr. Toibb's debts were consumer debts, that he was not operating a business, and therefore he was a consumer debtor and not a business debtor. I believe in any situation you will have a factual question. But in many of the situations that are dealt with in the cases that we have cited, the court had no difficulty making this determination.
William H. Rehnquist: The difficulty with having it such a heavily factual question is, of course, that the bankruptcy court might rule one way and a district court or court of appeals reviewing the judgment another way, and you might just have a lot of wheel spinning.
James Hamilton: You may have factual questions. I will concede that. But as I said, courts heretofore have had no trouble in making this determination.
William H. Rehnquist: Courts that have followed the Eighth Circuit rule in this case?
James Hamilton: That's correct, yes. Now, there is after all another chapter, chapter 13, that is designed and intended for consumer debtors. And I would suggest that its very existence raises questions about the propriety of consumer debtors using chapter 11. And it's also important to look at the legislative history relating to chapter 11, which shows yet again that it was intended solely for business reorganizations. For example, the Senate report at page 9 says that chapter 11 deals with the reorganization of a financially distressed business enterprise. The House report on chapter 11 reorganizations does not even mention consumer debtors. But the clearest indication that chapter 11 does not apply to consumer debtors is found in the House report section on liquidation. The House report plainly says that if consumer debtors cannot use chapter 13, then chapter 7 is the... or straight bankruptcy... is the only remedy available to them. With the Court's indulgence, I would like to read this brief passage which says, some consumer debtors are unable to avail themselves of the relief provided under chapter 13.
Byron R. White: Would that be provided they don't have regular income?
James Hamilton: That would be one reason, yes. Either no regular income or debts exceeding certain limits. For these debtors straight bankruptcy is the only remedy that will enable them to get out from under the debilitating effects of too much debt. I submit to the Court that this passage could not be clearer. And although we referenced it several times in our brief, the petitioner in his reply brief has elided any mention of it. I will concede to the Court that there is some ambiguity in certain other passages in both the House and the Senate report as to whether chapter 11 is available to individual consumer debtors. But this ambiguity, I submit, should not mitigate the force of this precise, this unqualified statement that I have just referred to. Moreover, the principal ambiguous passages which are cited at pages 13 and 14 of our brief can best be interpreted to mean that individual business debtors can use chapter 11, but individual consumer debtors cannot. To read these passages to say that any individual can proceed under chapter 11, as petitioner and the Solicitor General do, is to ignore the definitive passage from the House report that I have just quoted. Now, other code provisions, principally those in chapter 13, demonstrate that chapter 11 is not intended for consumer nonbusiness debtors. Chapter 13 of course is the chapter that allows certain consumer debtors to devise debt repayment plans, that allows them to retain their assets and to pay their creditors out of future disposable income over a 3 to 5-year period. Chapter 13 allows only voluntary plans. In other words, creditors may not force debtors into chapter 13 debt repayment plans. There is good reason for this. Congress wisely recognized that a debt restructuring plan, in the words of the Senate report, only works where there is a willing debtor who wants to repay his creditors. Now whether creditors should be able to force consumers into chapter 13 plans was a hotly disputed issue when the code was passed. The credit industry lost in its attempt to enact legislation that would do just that. But under chapter 11 creditors can force debtors into involuntary bankruptcy plans. Consequently, if consumer debtors are eligible for chapter 11 they could be forced into such involuntary plans. But such plans seemingly would be inherently infeasible if consumer debtors with no businesses were unwilling to cooperate with plans to restructure their lives and plans that would force them to find money to repay their debts. For example, the rather unique plan proposed here would have no chance of being effected unless Mr. Toibb was willing, because the Court could not force Mr. Toibb to go out and obtain an unsecured loan to pay off his creditors. More importantly, it is oifficult to conclude that Congress would expressly refrain from forcing consumer debtors into chapter 13 plans, and then turn around and decide that consumer debtors could be forced into chapter 11 involuntary plans without clearly stating the congressional intent that this be so. I also must observe that Congress decided that consumer debtors like Mr. Toibb, with unsecured debts over $100,000 and no regular income, could not use chapter 13. It is difficult to conclude, therefore, that Congress would decide that such debtors could nonetheless use chapter 11 without being much more specific about it. And to the contrary, the House report section that I have cited to you makes it very clear that consumer debtors can only use chapter 13 and chapter 7. And finally there are additional policy considerations that counsel against allowing consumer debtors to use chapter 11. The stated congressional purpose of chapter 11 is to return businesses to viable states, to protect jobs, to protect investors, and to use the assets of the business to repay the debtor's debts. And none of these laudatory goals is served by allowing consumer debtors to reorganize under chapter 11. And I should say in response to Mr. Lieb that there is no indication in the legislative history that consumer debtors should be allowed to use chapter 11 in order to maximize their assets in liquidation. Moreover, to allow consumer debtors to use chapter 11 would give them a benefit that was apparently unintended by Congress. And if I may I would like to explain this. Chapter 13 protects the assets of the debtor, but it requires use of disposable income to repay a debtor's creditors. Chapter 7, on the other hand, protects post-petition income earned by personal services, but not assets, which must be liquidated to pay a creditor. Chapter 11 protects both assets and post-petition income earned by the debtor for personal services. Thus a punitive chapter 11 consumer debtor might protect both his assets and his disposable income. For example, to allow Mr. Toibb to reorganize under chapter 11 would allow him to protect his stock and would allow him to protect any post-petition income he might earn by personal services, even if that income amounted to $100,000 or $200,000 a year.
Byron R. White: But that's only if some feasible plan to pay off these debts over a period of time.
James Hamilton: Well, I... assuming that the plan that he has suggested would be approved by the court, then he would protect his asset, his stock, he would protect any post-petition income he might make, regardless of the amount.
Byron R. White: But the creditors would get more than they would get in chapter 7?
James Hamilton: They would get the same thing under his plan, because... they would get $25,000, basically, minus some expenses.
Byron R. White: But they wouldn't lose anything?
James Hamilton: They wouldn't lose anything in the circumstances.
Byron R. White: Except the time when they would get it.
James Hamilton: The time might be different, yes, depending on how long it took the plan to be worked out. But there is no indication, Justice White, that Congress intended such a result as I have just described.
Sandra Day O'Connor: To what extent can the creditors prevent the chapter 11 proceeding?
James Hamilton: Well, the creditors of course, classes of creditors can object by a vote. And if they vote against it, there is no plan unless the cram down provisions work. And in that situation they would get at least what they would get in a chapter 7 liquidation.
Sandra Day O'Connor: If that's so, then what's the harm in it?
James Hamilton: What is the harm? In this particular circumstance there may be, it might be no harm to Mr. Toibb's creditors. But I think the question, Justice O'Connor, is a question of congressional intent. Did Congress intend that a chapter 7... I'm sorry, a chapter 11 consumer debtor would have, a punitive chapter 11 consumer debtor would have the right to protect both his stock, in this case, and his post-petition income.
William H. Rehnquist: Well, I suppose one way of trying to ascertain Congress' intent once we start speculating about it is to ask the question Justice O'Connor asked. What harm would come from consumer debtors utilizing chapter 11? They must have asked themselves that question, don't you think?
James Hamilton: They may well have asked that question. I know of no discussion in the legislative history about that particular question. What I do know about, Mr. Chief Justice, is the statement that I have quoted to you that says the only provisions, the only chapters available to consumer debtors are 13 and 7. I would suggest that the very fact that post-petition income is excluded from the chapter 11 estate is in itself strong evidence that Congress did not intend that this chapter be used for consumer reorganizations, because such income is normally needed to pay off the debts of a bankrupt consumer. And finally, without some clear expression of congressional intent, I submit that the bankruptcy and other courts should not be saddled with the chore of ruling on a flood of consumer debtor chapter 11 plans that may be filed if this Court clears the way. It think it is not fanciful to expect that many of these consumer plans will be jerry-built, will be infeasible, and will be a burden on the court. I suspect that the bankruptcy courts have enough to do in ruling on proposed chapter 11 business reorganization plans, almost 90 percent of which fail. If it please the Court I will rely on our briefs for our remaining contentions. I will be most happy to respond to any questions that the Court may have.
William H. Rehnquist: Thank you, Mr. Hamilton. We appreciate your appearing amicus in this case. Mr. Lieb, do you have anything further? You have 5 minutes remaining.
Peter M. Lieb: Mr. Chief Justice, I have nothing further to add unless there are any questions that the court has.
William H. Rehnquist: Very well. The case is submitted.
Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.


Warren E. Burger: We will hear arguments next in Brandon against Holt. I think you may proceed when you are ready, Mr. Schnapper.
Eric Schnapper: Mr. Chief Justice, and may it please the Court, the question presented by this case is neither complex nor novel. The issue, simply put, is whether a judgment against a public official in his official capacity runs against the official personally or against the entity for which the official works. The District Court in this case found that the director of the police department in Memphis was liable in his official capacity. The Court of Appeals concluded... I think this is maybe best cast as a construction of what such a judgment would mean... that a judgment against an official in his official capacity runs against the official personally, not against the entity of which he is an employee. The question before the Court is whether the District Court erred in this regard.
William H. Rehnquist: Well, something would depend, wouldn't it, Mr. Schnapper, on how the case was tried, the theory on which he was tried?
Eric Schnapper: Well, I think there are... that would be a somewhat different question. The first issue is, if we have a judgment against the official in his official capacity, assuming that judgment was correctly entered, who has to pay. The second question, I think, encompassed within your own is, might such a judgment be improper because of the nature of the case and the way it was tried.
William H. Rehnquist: Well, particularly when the case was tried before Monell was decided, or rather, the complaint was filed before Monell was decided, so you have a fairly ambiguous situation, it seems to me.
Eric Schnapper: Well, I don't think we have an ambiguous situation as of the time the case went to trial or even as of 19 months before that. As I indicated, 19 months before trial, we filed a memorandum in the District Court making crystal clear that we sought to impose liability on the defendant only in his official capacity, and noted that this Court's decision in Monell had held that an official capacity judgment ran against the entity.
William H. Rehnquist: Why didn't you move to amend your complaint?
Eric Schnapper: Well, on our reading of the federal rules, no such amendment was necessary. The defendant was certainly on notice as to what we were trying to do and on whom the liability would be imposed. There is nothing in the federal rules as they now stand that requires that notice be in the complaint.
William H. Rehnquist: But ordinarily a prudent lawyer wanting a judgment against a city would be fairly certain to make sure the city was named defendant if the city were suable, I would think. You wouldn't rely on a provision in the rules that you thought might justify an argument in the Supreme Court of the United States that perhaps the Court would rule for you on the point.
Eric Schnapper: Well, Your Honor, the Supreme Court had decided the issue twice by 1979, both in our favor. All the Courts of Appeals had concluded that Rule 25(d) means what it says on its face, that a judgment against an official in his official capacity is a judgment against the entity. I don't disagree that we would have avoided a trip to Washington had we amended the complaint in that way, but in our view the trip should have been unnecessary, and the rules mean what they say.
Thurgood Marshall: Mr. Schnapper, is this anything more than a lesson in pleading?
Eric Schnapper: Well, I think it may more reasonably be cast as a lesson about--
Thurgood Marshall: Because if so, we have more important things to do.
Eric Schnapper: --Well, I think that the federal rules don't require the notice at issue to have been in any particular form as long as the defendants had actual notices to the entity against which the judgment would run, and they certainly had that.
Thurgood Marshall: Who did? The city?
Eric Schnapper: The city.
Byron R. White: How do you know they knew?
Eric Schnapper: We filed a memorandum in February of 1979.
Byron R. White: In court.
Eric Schnapper: In court. Expressed this--
Byron R. White: Was the city a party? Was the city a party to that case?
Eric Schnapper: --The city's lawyer was representing the defendant at that point.
Byron R. White: But except for this rule, except for this rule you rely on, which... except for that rule, the city would not have been bound by the judgment? It wasn't a party, and it wasn't served.
Eric Schnapper: Well, prior to the existence of Rule 25(d) and its predecessor under the 1937 Rules of Federal Civil Procedure, there were lawsuits against officials in their official capacity. There was an enormous amount of confusion as to just what that meant, and Rule 25(d) was meant to clear that up. But I would argue were we now standing and arguing this in 1936, that the result would be the same. It would be a more difficult argument, however. But the notion, the concept of official capacity lawsuits has been around for quite some time, going back well into the previous century. In any event--
Sandra Day O'Connor: --Mr. Schnapper--
Eric Schnapper: Yes.
Sandra Day O'Connor: --when this action went to trial, it apparently was tried and liability was found on the basis of whether Officer Chapman knew or should have known of the dangerous propensities of the other officer. Is that right?
Eric Schnapper: Well, I think that--
Sandra Day O'Connor: Is that the theory?
Eric Schnapper: --That is not the only theory of liability. We indicated at the--
Sandra Day O'Connor: Is that what the District Court found as the basis for liability?
Eric Schnapper: --Well, that is one of the findings it made. It made several specific findings with regard to city practices.
Sandra Day O'Connor: Do you think that that finding alone is even appropriate under the Monell standard for liability in an official capacity suit?
Eric Schnapper: I think, Your Honor, it would depend on who the official was that knew or should have known. There are some officials--
Sandra Day O'Connor: I just didn't see anything at all in Monell to that effect. It seemed to me that maybe what had to be found was whether it was an official policy or practice of the department or city.
Eric Schnapper: --I think that's correct, and I think there are a number of specific findings with regard to practices that I would like to come back to in a second, but with regard to the question of whether a finding that an official knew or should have known about the sort of aberrant policeman at issue here, Monell refers not merely to policies but to acts. There are some natural persons within any governmental unit whose actions are official actions, and I think that while--
William H. Rehnquist: But that doesn't necessarily mean that their actions are official policies. A policy certainly means more than just the action of a particular individual.
Eric Schnapper: --I think that Monell refers to actions and decisions as well as policies. I mean, there are any number of decisions that have to get made in a given case which aren't policies that affect a lot of cases. They are just decisions on a particular situation.
Sandra Day O'Connor: Well, if it turns out that we disagree with you and think that what has to be established for an official capacity suit is whether it was an official policy or practice of the department or city, would it have to be sent back then for a new trial?
Eric Schnapper: Well, I don't think so, Your Honor. We do have a number of very specific findings of governmental practices here set out in the District Court's opinion. There was a finding that it was the policy of the department never to fire a violent officer, not to transfer officers for disciplinary reasons. There is a finding that it was the policy of the director of the department to insulate himself from knowledge of any abuses by officials, and there is also a finding of what I think is clearly a custom within the meaning of Monell, a code of silence among all the officers involved not to disclose what abuses might be going on within the department. We think those findings are sufficient to meet the Monell standards, and they are express findings. This is not a case like Wainwright against Witt. We aren't arguing that just because we won in the District Court, the Court should presume there must have been some unstated findings in our favor. We think that Rule 52, like Section 2254, refers to real live written or oral findings, but we have those here. And we think they are entirely sufficient. Indeed, they are considerably more specific in detail than are present in ordinary Monell cases.
Byron R. White: Well, the Court of Appeals didn't reach the issue of policy.
Eric Schnapper: That's correct.
Byron R. White: So that you could still lose this case back in the Court of Appeals, even if we agreed with you now.
Eric Schnapper: Yes, and I don't mean by my response to Justice O'Connor's question to suggest that that is an issue that ought to be addressed here. It, like the problem of Peratt against Taylor, was not raised at the trial court, was not raised in the Court of Appeals. It probably can't be raised at this stage in the litigation in any event, but certainly if it can be raised it ought to be looked at in the first instance by the Court of Appeals. I think the only thing that is properly addressed by this Court is whether the judgment that we won, assuming it was correct, ran against the city. We are delighted to win this case at any time on any issue in any forum, but I am constrained to acknowledge that, as Mr. Justice White suggests, under the ordinary practice of this Court, the Monell issues are issues which should be dealt with in the first instance by the Court of Appeals. The specific events which gave rise to liability in this case are set out in the findings of the District Court. The most important finding with regard to that incident was that the assault in question happened under color of law. Patrolman Allen used his police weapon. He used his police identification to get one of the petitioners out of the car, and then assaulted one petitioner with a knife, and as the petitioners fled used his service revolver to attempt to kill them. The District Court, as I also noted, found a number of specific policies which had been engaged in by the police department, and concluded, I think correctly, that--
John Paul Stevens: Mr. Schnapper, is it not correct that those policies in the District Court's finding merely were to establish the proposition that Chapman should have known about this officer's propensities, rather than saying that the policies were what actually caused the injury. That is the way one might read the conclusions of law.
Eric Schnapper: --That is a possible reading of it, but that, I think, only puts an additional wrinkle in the causation claim. That is to say, on your characterization, the judge found four policies which caused Chapman not to know about what was going on, and Chapman's lack of knowledge caused the assault. So whether you see the causation as a two-step... or a one-step--
John Paul Stevens: Well, I am not sure... well, you say and the lack of knowledge caused the assault? It doesn't go that... the District Court I'm not sure said that. I thought he more or less held him liable on a respondeat superior theory and explained why he should have known of the propensities of the officer.
Eric Schnapper: --We don't read the District Court's opinion like that. All of the findings with regard to these practices would make no sense if the District Judge thought that the mere fact that Chapman was the supervisor is enough to impose liability on him.
Byron R. White: Well, he certainly didn't articulate any... articulate his ruling in terms of the city's liability under Monell.
Eric Schnapper: Well, let me answer that question in... with before and after the point which I broke it up with my interruption. Certainly the Judge made it clear he understood that the city was going to be liable. Not only did he reiterate on three occasions that Chapman was liable in his official capacity, but in his opinion he quoted that portion of this Court's decision in Monell which said a finding of liability against an official in his official capacity runs against the entity rather than the official person.
Byron R. White: Yes, but he didn't say, now, I am going to identify a city policy. Certainly there wasn't any city policy to have... to encourage officers to go around and act the way this officer did.
Eric Schnapper: Well--
Byron R. White: They didn't train them to do it, for example.
Eric Schnapper: --Let me answer those questions in reverse order. I think your description of the policy is correct. It was not the policy of the city to encourage assaults on teenagers parked in shady lanes in the middle of the night, but it was the policy of the department to take no action and indeed to make no effort to remove from the force officials whom were well known to be dangerous officers, people who have a propensity for violence, who were regarded in this case as so dangerous by their colleagues in the department that other police officers would not ride in the same squad car with the patrolman who committed this offense. This is a case in which there was virtually a complete breakdown in control. I mean, people were given guns and badges and set loose on the citizenry. There was simply no control over them. If they turned out to be dangerous, violent human beings who went around beating people up or shooting at them, the police department in Memphis had a policy of doing nothing about it. And we think that such a policy certainly is sufficient under Monell. Monell contemplates that liability is imposed not merely for--
Byron R. White: Well, at the very least, you do pose a question of what does "policy" mean under Monell.
Eric Schnapper: --I think there are interesting questions like that raised by this case but not at this time. I think that you earlier suggested, and I think correctly so, that that is an issue which, if it can be addressed at all, ought to be addressed in the first instance by the Court of Appeals, and it is a situation like the situation discussed in Footnote 3 of Peratt against Taylor, in which these... that is to say, these issues were never raised in the District Court, the questions that are raised--
William H. Rehnquist: Did the District Court say exactly what the constitutional violation was here?
Eric Schnapper: --No, it did not.
William H. Rehnquist: It is kind of hard to find one, isn't it?
Eric Schnapper: I think that your characterization of it is a very strained one. Reviewing the trial transcript, and indeed the briefs on appeal, looking at that very issue, my reading of what happened is that no one really questioned that there was a constitutional violation here. You had two individuals accused of no crime whatsoever who were assaulted by a police officer acting under color of law. There doesn't seem to have been a point in the litigation where the defendants denied, and I think no defendant reasonably could, that that violated the Constitution in a number of ways. The issue as all parties perceived it below was whether or not liability for that extended beyond the particular patrolman who wielded the knife and pulled the trigger. And again, like the problem about Monell, that is an issue which was not raised in the District Court, was not raised in the Court of Appeals, probably can't be raised at this late date, and in any event shouldn't be raised in the first instance here without the Court of Appeals having a chance to look at it. The District Court judgment, as I indicated, ran against the director in his official capacity. The Court of Appeals concluded that that judgment in fact was a judgment against him personally. Based on that premise, it then applied the good faith and immunity rule of Scheuer against Rhodes and Procunier against Navarette, and found that Director Chapman had acted in good faith. At the point of the District Court opinion, as chance would have it, by operation of Rule 43(c) of the Federal Rules of Appellate Procedure, Director Chapman was no longer a party to the litigation. Of course, he had left office prior to the decision of the Court of Appeals, and the nominal defendant at that point was Police Director Holt. In any event, the narrow issue which we think is before this Court is not an issue of first impression. In our view, it is an issue of fourth impression. The question of whether a judgment against an official in his official capacity runs against the entity or against the individual personally has been resolved three times before. It was first resolved by this Court in Monell. In Monell, the question was what standard would apply in the case of an action against a municipality, and the Court noted that that same standard, the precise scope of which I think we agree is not entirely clear yet, was equally applicable to a suit against an official in the official's official capacity. Secondly, in the same month--
William H. Rehnquist: To say that the same standard applies doesn't mean that the two are the same thing.
Eric Schnapper: --Well, Mr. Justice Rehnquist, there may be circumstances, none of which come to mind at this point, where there might be some difference. The specific question in this case is whether the good faith immunity rule would apply in such a case, and you expressly resolved that question in Owen against City of Independence.
William H. Rehnquist: I thought you were citing cases to say that we have already decided precisely this question, and you say that in the first case we said that the same standard would apply in a suit against a city as in a suit against an officer in his official capacity. One can subscribe to that view without in any way subscribing to the view that the two are identical so far as imposing liability is concerned.
Eric Schnapper: Mr. Justice Rehnquist, I perhaps understated the language in Monell. Monell says that a claim against an individual in his official capacity is generally the same as a claim against the entity of which he is an official. Now, the word "generally" I take it was sort of precautionary language the Court customarily and wisely uses, you know, to guard against the possibility that some situation might arise where such a claim wasn't to be treated as identical to a claim against the city. But Rule 25 in our view contemplates that they are to be treated as the same thing, and no case comes to mind which would be different. It is one of the annoying things about the law that cases which don't come to mind sometimes do come to pass, and I don't want to... as the President is prone to say, Presidents never say never, I am a little reluctant to say never myself. But certainly no case that I can imagine exists in which these... in which a judgment against an official in his official capacity would be any different than a judgment against the entity itself. In any event, the specific question at issue here is whether there is any difference between a judgment against an official in his official capacity and a judgment against the entity with regard to the good faith defense recognized by Percunier and Scheuer against Rhodes. That was the precise issue that was before the Court in Owen against City of Independence, in which the officials... the defendant was not just in that case the City of Independence, but a number of officials who were sued in their official capacity, and the Court in Owen noted that only the liability of the municipality was at issue in Owen, not any liability of the individuals. A similar reading of what it means to have a judgment against an official in his official capacity was made by the Court in Huddo against Finney with regard to liability issues and the Eleventh Amendment. We think that all of these decisions are clearly correctly decided, and one need look no further than the actual language of Rule 25(d), which provides that upon the removal from office of any official in an official capacity action, his or her successor is to be substituted. That rule would make absolutely no sense if an official capacity judgment imposed personal liability. That would mean that if we had a judgment against Mr. Chapman in his official capacity for $1 million, he resigned and was replaced by Director Holt, that we could then garnish Director Holt's salary and seize Director Holt's house. It is simply inconceivable that the framers of Rule 25 contemplated that an official capacity action could produce personal liability of that sort. On the contrary, the committee note makes it quite clear that official capacity actions are actions which, although brought in form against a named officer, are intrinsically against the government.
William H. Rehnquist: Does the committee language indicate any thought that the rule applies beyond injunctive suits?
Eric Schnapper: I am not sure about that, but I would say that certainly must have been its intent, because the problems which arose that Justice Frankfurter referred to in 1951 about official capacity lawsuits were mostly lawsuits against government officials for money. Snyder against Buck and the like were actually damage actions, and it had long been assumed in those cases, in suits against a postmaster or whatever, that the government was going to actually have to pay the bill. The problem in those cases was one postmaster would leave office, another postmaster would come in, and there would be procedural chaos. But I expect if we took another look at the committee notes, there would be reference to a number of these cases, most of which, as I say, were damage actions, not injunctive actions. I would like to reserve the balance of my time.
Warren E. Burger: Mr. Klein.
Henry L. Klein: Mr. Chief Justice, and may it please the Court, the question really involved in this case is whether or not this is in reality an official capacity lawsuit or a lawsuit against an individual, and it is the position of the respondent that this is actually an individual capacity case. The Court of Appeals in its opinion clearly stated that this was a suit against an individual and not against the city, and further went on to say that what claimants were doing in effect was attempting to amend their complaint at this stage to include the city under the guise that it was an official capacity lawsuit. The court recognized that--
Byron R. White: That's what the Court of Appeals said. What did the District Court say?
Henry L. Klein: --The District Court said that in dealing with the question, and as they commented, the sole issue is whether Director Chapman should have known about the dangerous propensities of the officer in question, that in dealing with that, they concluded--
Byron R. White: Excuse me. What page of the appendix are you or?
Henry L. Klein: --If Your Honor please, this in the--
Byron R. White: Petition?
Henry L. Klein: --petition for writ of certiorari, on Page 20A. The court says both parties to the case agreed that Mr. Chapman had no actual knowledge of Officer Allen's dangerous propensities. Thus, they said that the sole issue was whether Director Chapman should have known, not knew, but should have known that Officer Allen's dangerous propensities created a threat to the rights and safety of other citizens. That was determined by the District Court as to be the ground rules or the framework under which this case was to be tried, and that is the way it was tried. Now, counsel argues that there is discussion about various policies that were in effect, but it is obvious... at least it is our contention that it is obvious in a reading of the District Court's opinion that what they were doing was really directing everything to that one question, and that is, whether or not--
Harry A. Blackmun: Of course, you didn't read the next sentence, did you?
Henry L. Klein: --Because Mr. Chapman as police director should have known of Officer Allen's dangerous propensities, the courts find that he must be held liable in his official capacity to the complainants. But the problem there, if Your Honor please, is that that is really an inconsistent finding, because if the only question is whether he should have known, this is obviously a negligence type question, not a Monell type question. Nothing ever came into play in the District Court's findings with regard to Monell. No reference whatsoever. No reference to the Monell standards. That is the part about the District Court's opinion that becomes a little bit confusing, because on the one hand you are dealing with the issue of should have known, which we submit is clearly nothing more than a negligence issue, and then on the other hand it is finding him liable in his official capacity, and as we read the law, there would be no way under a simple negligence finding that he could be liable in his official capacity. But in any event, the court did, as Your Honor points out, the court did make such a finding, but then when it got up to the Court of Appeals, it was obvious that they considered it nothing more than a negligence type question as to whether or not there were any dangerous propensities or he should have known, but then went further to say that in that this is just a case against the city... or against the individual, and not against the city, that the director was entitled to good faith immunity.
Harry A. Blackmun: Well, whether it is obvious or not, that's the issue here.
Henry L. Klein: Yes, sir.
Sandra Day O'Connor: Mr. Klein--
Henry L. Klein: Yes, Your Honor.
Sandra Day O'Connor: --was Officer Chapman represented in the District Court by the city attorney?
Henry L. Klein: He was represented by me, Your Honor.
Sandra Day O'Connor: And would that be the normal procedure in an individual capacity suit?
Henry L. Klein: Yes, it would.
Sandra Day O'Connor: Would the city step in and representing the officer?
Henry L. Klein: Yes, it would, Your Honor. That is done... that is done quite frequently, and there have been a number of cases that I can state where I have as... my official title is staff attorney for the city of Memphis... where I have represented--
Sandra Day O'Connor: Do you think there normally would be an automatic substitution of parties in an individual capacity suit wherein Officer Holt was substituted for officer Chapman if it is an individual action?
Henry L. Klein: --No, I do not, Your Honor.
Sandra Day O'Connor: Well, how did that come about?
Henry L. Klein: Well, that came about, the plaintiffs, and if my memory serves me correctly, that came about after the case was up on appeal, and before the Court of Appeals. Then they filed a motion to substitute.
Sandra Day O'Connor: Did you object to that substitution--
Henry L. Klein: No, I did not--
Sandra Day O'Connor: --and why not, if you thought it was an individual capacity suit?
Henry L. Klein: --Well, if Your Honor please, we in our... when we got to the Court of Appeals, of course, our whole argument was based on the fact that this was an individual capacity lawsuit, and we felt like we made it clear to the Court of Appeals at that time that it was only being treated in this way, and that we were entitled to good faith immunity, and also the question about the standard which was to be imposed, but we did not officially object to that, and the Court of Appeals in its opinion is--
Sandra Day O'Connor: That is a bit inconsistent with your theory, is it not?
Henry L. Klein: --The fact that we did not object?
Speaker: Yes.
Henry L. Klein: Well, the fact that we did not object I don't think was inconsistent with what we were trying to do or what our theory was. There could be no question before the Court of Appeals what our theory was. And frankly, we did... I say ignore. We did not respond. That's true. But we did not consider that that had any merit, because it didn't apply or should not apply in an individual capacity case.
Harry A. Blackmun: Was Mr. Campbell removed from the litigation at that point?
Henry L. Klein: Mr.--
Sandra Day O'Connor: Chapman, you mean? Chapman.
Henry L. Klein: --Not... well, if Your Honor please, the Court of Appeals didn't treat him as having been removed, because a reading of... the Court of Appeals opinion talks about Director Chapman throughout, and never makes any reference to Director Holt. Of course, what had happened was, Chapman had left office, and Director Holt had been appointed by the mayor, and that is when this attempted substitution was filed. But a reading of the Court of Appeals opinion clearly shows the Court of Appeals didn't consider that Director Holt was in the picture because they considered that it was an action individually against Director Chapman, and so stated. So, they didn't pay, so to speak, didn't pay any attention to the fact that there had been this proposed substitution.
Thurgood Marshall: And you didn't pay any attention to your client, either. You just took him on as another client.
Henry L. Klein: I beg your pardon, Your Honor?
Thurgood Marshall: You just took him on as your new client.
Henry L. Klein: No, sir, I was still representing Director Chapman.
Thurgood Marshall: And you weren't representing anybody else?
Henry L. Klein: No, Your Honor, only Director Chapman, and only represented Director Chapman--
Thurgood Marshall: Director Chapman is out of the case now, isn't he?
Henry L. Klein: --Well, that's the--
Thurgood Marshall: Isn't he?
Henry L. Klein: --Well, we say that he's not, Your Honor. That's a question. But our position is, he's not out of the case, and never has been out of the case, because he was sued individually.
Thurgood Marshall: Are you representing everybody here?
Henry L. Klein: I beg your pardon?
Thurgood Marshall: Are you representing all of the appellees here?
Henry L. Klein: If Your Honor please, our contention is that the only true appellee in this case is Director Chapman.
Thurgood Marshall: Are you representing the others, the other named appellees?
Henry L. Klein: I am in effect representing Director Chapman.
Thurgood Marshall: And nobody else?
Henry L. Klein: Well, it is our position, Your Honor, that no one else is before the Court.
Thurgood Marshall: And as staff attorney of Memphis?
Henry L. Klein: Yes, sir, that's correct.
Thurgood Marshall: You are representing this private litigant.
Henry L. Klein: Well, private litigant, although he was--
Thurgood Marshall: Well, is he a private litigant?
Henry L. Klein: --Well, in this particular case he would be a private litigant, although at the time--
Thurgood Marshall: And you say he is a private litigant.
Henry L. Klein: --He would be a private litigant.
Thurgood Marshall: I didn't say would. I said is.
Henry L. Klein: Yes, sir.
Thurgood Marshall: Is.
Henry L. Klein: Yes, sir.
Thurgood Marshall: He is a private litigant?
Henry L. Klein: Yes, sir. Now, again, from an analysis of the Court of Appeals opinion, what is clear is that they were dealing with only one issue, and that was whether or not there was any liability on the part of Director Chapman, and we say individually, and the standard that should be applied to determine that liability. The court comments that the parties in the case expended considerable energy either relying on or distinguishing in their opinion an opinion in the case of Hayes versus Jefferson County, and that was a Sixth Circuit case that applied the applicable standards. The question was whether the standard in Peratt v. Taylor would apply or whether a greater degree of negligence should be applied. And by the fact that both parties were spending a considerable amount of time addressing themselves to that issue, it was obvious to the Court of Appeals that the only issue that was before them was one... a question of negligence, and not a question of policy under the Monell standard. And as I say, they go ahead to find that in reality, the plaintiffs are attempting to amend their complaint so as to treat the police director as though he were the city in order to provide the qualified immunity which shields Director Chapman. Nothing was ever referred to, no mention was ever made of any Monell standards in the Court of Appeals. The case started out clearly as a case against Director Chapman, without any reference to it being an official capacity lawsuit. There was any attempt to bring the city in. There was never any attempt to amend to bring the city in, which they clearly could have done. And even though this case was filed before Monell was decided, the Sixth Circuit in various opinions had held that the city could be brought in under Section 1331 and the Fourteenth Amendment. But be that as it may, no attempt was ever made to bring the city in.
Sandra Day O'Connor: Well, I guess if there were an official capacity suit which had been brought against Director Chapman and liability was found, the city would be liable, whether or not it was named. Would you agree with that?
Henry L. Klein: I would agree that that is what the cases... that is what the cases seem to hold. But the problem is--
Sandra Day O'Connor: So it wouldn't have been necessary to amend to bring the city in as a named party in order to impose liability if it were an official capacity suit?
Henry L. Klein: --If it were an official capacity suit. That is what the cases have held, Your Honor. That is correct. But since this was not done, it is our position it was clearly tried as an individual capacity lawsuit. Interestingly enough, a motion for summary judgment was filed pretrial, and at that time there were three defendants in the case. There was Officer Allen, and there was the mayor, and there was the police director, Chapman. And the court dismissed the mayor on the grounds that he did not actively participate in the acts that were involved, and as a supervisory personnel, there was nothing to establish any liability on his part, and considered very carefully whether or not Director Chapman should have been dismissed, and then finally concluded that because through discovery there were two letters that were found that may indicate that he may have known something about this individual officer, the court declined, on that basis and that basis alone, the court declined to grant the summary judgment, and said that there may be some genuine issue as to whether Director Chapman knew or should have known about the danger.
Sandra Day O'Connor: Mr. Klein, were you involved at the trial stage?
Henry L. Klein: Yes, Your Honor, I was.
Sandra Day O'Connor: Was there ever any discussion by counsel with the Court about Monell and what was required under that?
Henry L. Klein: No, Your Honor, there was not.
Sandra Day O'Connor: You just weren't aware that that case had been decided?
Henry L. Klein: We were aware that the case had been decided, but it was clearly established that the sole issue was whether or not Director Chapman should have known about the dangerous propensities, which we--
Sandra Day O'Connor: There was no discussion about what the proper standard would be?
Henry L. Klein: --No discussion. Now, counsel for the plaintiff did say that they were contending, and this was at the trial and opening statement, that they did contend that Monell was the same, in this instance would be the same as a suit against the entity itself under the holding of Monell. But with regard to the standards under which the case was tried, there was never any discussion about Monell standards, and of course, again--
Sandra Day O'Connor: And you never objected to the standard that was being employed?
Henry L. Klein: --No, Your Honor, because we felt like... we felt like that was the appropriate standard. That's the way the case was brought. That's the way it was framed. And quite frankly, that's the way it was tried on the question of whether he should have known. Nothing about... nothing about Monell.
John Paul Stevens: Mr. Klein, on that point, the Court of Appeals concluded that the good faith defense was available because Chapman neither knew nor should have known of the misconduct, and I don't understand how they did that in view of... maybe this is beyond the question presented, but in view of the unequivocal finding in the District Court that Chapman should have known. How do you reconcile that?
Henry L. Klein: Well, Your Honor, what they did, they made their findings based upon good faith, and what the Court said, and they said the record was clear that, Number One, he knew nothing about Officer Allen, including his instability, that he had only assumed his office six months prior to the occurrence of this incident, that at the time he was in the process of instituting significant changes to stop police brutality in Memphis--
John Paul Stevens: I understand all that, but still, is it not correct that the District Court did squarely say that in view of the various policies that your opponent has discussed, the code of silence and all the rest, that he in fact should have known.
Henry L. Klein: --That's what they're saying.
John Paul Stevens: That's what the District Court said.
Henry L. Klein: Yes, sir. The District Court said that. But the Court of Appeals disagrees.
John Paul Stevens: They don't say the finding was clearly erroneous. In fact, they don't even acknowledge that the District Court made such a finding.
Henry L. Klein: They don't say anything about them being erroneous other than the fact than they say the District Court failed to consider the good faith immunity defense, and that based on what was in this record, it was clear that what Officer or Director Chapman has been doing in the six months that he had been in office was trying to effect changes to correct whatever problems existed.
John Paul Stevens: How do we take the record? Should he or should he not have known of the misconduct of the officer?
Henry L. Klein: Well, we say that he should not have known, and of course that's what we argued down at the trial level.
John Paul Stevens: And you lost before the District Court--
Henry L. Klein: We lost--
John Paul Stevens: --on that precise issue.
Henry L. Klein: --The the precise issue of whether... not whether he knew--
John Paul Stevens: But should have known.
Henry L. Klein: --but whether he should have known. Yes, sir. We lost that precise issue. And we could contend, and I could, of course, go back over the facts... I won't reargue the case--
John Paul Stevens: No.
Henry L. Klein: --but we contended that--
John Paul Stevens: Do you think that was a question of fact or a question of law, whether he should have known?
Henry L. Klein: --What was decided by the Court of Appeals?
John Paul Stevens: The question whether Chapman should have known of the officer's misconduct. Is that a question of fact?
Henry L. Klein: That's a question, I would say, a question of fact.
Warren E. Burger: Isn't that a mixed question of fact and law?
Henry L. Klein: Well, conceivably it could be.
Warren E. Burger: Well, as soon as they invoked the idea that Chapman should have known, it could only have been in his official capacity. Could it be in any other way?
Henry L. Klein: No, sir.
Warren E. Burger: Why should he have to know the propensities of a dangerous policeman except in his capacity as an official of the city?
Henry L. Klein: That's--
Warren E. Burger: Directly in charge.
Henry L. Klein: --That's correct.
Warren E. Burger: How do you get away from this being an official capacity case under Monell?
Henry L. Klein: Well, the way I get away from it, Your Honor, is because of the standard which should be applied under Monell. The fact that he was acting in his official capacity, and there are many cases which I am sure Your Honor is fully familiar with where we deal with individuals acting in their official capacity in the operation of whatever it may be, school board, police department, or what have you, and there can be no question that he was acting in that role. He wasn't acting as just an individual off the street. Of course not. He was acting in his official capacity. But the standards that have to be applied are entirely different, we contend, with regard to whether or not he would be liable in his individual and liable in his official capacity, and the only way that he could be liable in his official capacity would be under the Monell standards, whereas he is the alter ego of the police department. The police department obviously can't function without its representatives, and he, of course, stands in that position, and anything that he does, of course, does represent the police department. But in order to hold the police department liable or the city liable in this circumstance, we would have to, as we say, apply the Monell standards. But I cannot say that he wasn't acting in his... in an official capacity, but I think it is quite common that suits against officials, whether they be individual or in his official capacity, he was certainly acting as school board member, or as an officer of the state, or as a member of the police department. But the fact that whether he is individually liable or liable in his official capacity really brings into play two different standards, and if you are going to say that liability or at least suing him in his official capacity is just another way of suing the entity itself, we submit that the Monell standards would have to apply, and not the typical negligence standards which apply in cases against individuals who, although are acting in a so-called official capacity, but who would be liable individually rather than as a representative of the city. As I mentioned, the court preliminarily came very close to dismissing Director Chapman on a motion for summary judgment, and it was obvious at this point that the Court was only considering Director Chapman in his individual capacity.
Harry A. Blackmun: Is that fact apparent from the record, that it came close to deciding?
Henry L. Klein: Yes, sir, it is. There is the--
Harry A. Blackmun: I wish I could say that about every case that I have lost.
Henry L. Klein: --If Your Honor please, in the appendix there is a reference to the order granting the motion for summary judgment, and in denying the summary judgment as to Director Chapman, the court said that it was denied, but granted leave to file a renewed motion for summary judgment if additional discovery shows that there was no actual or genuine issue as to Chapman's lack of knowledge. So, when we say close, if Your Honor please, what we are saying is, the court was giving very careful consideration to whether there was even enough in the case to hold Director Chapman liable based on what he knew or should have known, and did grant leave to file a renewed motion on that one point. But again, what we are saying is, it was clear that the only thing that was being considered was Chapman as an individual, and not in an official capacity, which would be another way of holding the city in. The findings of the court, the District Court, with regard to the liability of Director Chapman, as I have stated previously, do not meet the Monell standards, and the court talks about, for example, unjustified inaction.
Lewis F. Powell, Jr.: May I ask this question?
Henry L. Klein: Yes, Your Honor.
Lewis F. Powell, Jr.: Assume for the moment that they did meet the Monell standards. What would be the effect on your client, Mr. Chapman?
Henry L. Klein: If they did meet the Monell standards?
Lewis F. Powell, Jr.: Yes. That would make the city liable?
Henry L. Klein: That would make the city liable.
Lewis F. Powell, Jr.: Would Mr. Chapman still be liable?
Henry L. Klein: No, Your Honor.
Lewis F. Powell, Jr.: Well, are you representing him or the city here?
Henry L. Klein: Well, I am representing him because it is our contention the city is not involved, never has been involved, was never brought in, was never served with process, was never required to answer. There was never an amendment to bring the city in. There was never an amendment to try this lawsuit under Monell standards, and it is our position that we are here in behalf of Director Chapman. But in response to your question, if the Monell standards applied and the city were found to be liable, it is our position there would be no liability as to Director Chapman.
Lewis F. Powell, Jr.: Would he win either way this case goes?
Henry L. Klein: I beg your pardon, sir?
Lewis F. Powell, Jr.: Would Monell win either way? Sorry. Would Chapman win either way this case goes? If he is viewed as liable personally, then it was found that he had good faith immunity.
Henry L. Klein: That's correct.
Lewis F. Powell, Jr.: If we rule that Monell applies and he acted only in official capacity, he would be out then also, wouldn't he?
Henry L. Klein: That's correct, Your Honor.
Lewis F. Powell, Jr.: So he doesn't need counsel here, does he?
Henry L. Klein: Well-- 0 [Generallaughter.] I would use the expression, I am sort of put between the rock and the hard place with regard to this particular situation, but yes, we think he needs to be represented, because he is the only one in the lawsuit at this particular juncture, and that is the problem that we perceive with these official capacity lawsuits as trying to distinguish them from individual capacity lawsuits.
John Paul Stevens: Mr. Klein, am I correct or is this just something in the briefs, or is it in the record that the city has undertaken to obey any judgment of the District Judge?
Henry L. Klein: No.
John Paul Stevens: That is not in the record?
Henry L. Klein: No, sir. There was a finding, Your Honor, with regard to damages, but there is nothing in the record with regard to whether the city has undertaken to--
John Paul Stevens: What is the finding with regard to damages?
Henry L. Klein: --The finding with regard to damages was that Director Chapman, I believe, was responsible for approximately $26,000.
John Paul Stevens: Oh, I see, it is the amount of damages.
Henry L. Klein: Yes, sir.
John Paul Stevens: Yes, I see.
Henry L. Klein: That's--
Sandra Day O'Connor: Mr. Klein, are punitive damages available in an individual capacity suit if the facts warrant it--
Henry L. Klein: --Yes, Your Honor, they would--
Sandra Day O'Connor: --against someone in an individual capacity... sued in their individual capacity?
Henry L. Klein: --Yes, Your Honor.
Sandra Day O'Connor: But the court, the District Court below determined that no punitive damages could be awarded against Director Chapman, did it not?
Henry L. Klein: That's correct.
Sandra Day O'Connor: Since he was sued as the director of the police department.
Henry L. Klein: Sued in his official capacity. That's correct, Your Honor.
Sandra Day O'Connor: So that does look like at least to that extent it was tried as an official capacity suit?
Henry L. Klein: Well, to that extent, but, Your Honor, again, this is the point I was making before. That's the confusion and inconsistency with the case. When you look at the standard on which it was actually tried, whether he should have known, which is clearly not an official capacity, official policy case, and then the District Court's conclusion that, yes, he was found liable in his official capacity, that's where the inconsistency comes, and that's where the confusion comes. And of course if the city had been brought in initially, then a lot of this would have been avoided, but unfortunately that wasn't--
Sandra Day O'Connor: Did you cross-petition? I can't recall. Did you cross-petition for Chapman on the theory that if in fact it were an official capacity suit, that the standard below was the wrong one?
Henry L. Klein: --Not... you mean before court?
Sandra Day O'Connor: Up here.
Henry L. Klein: No, Your Honor, we didn't, did not.
John Paul Stevens: May I ask one other question about the should have known finding? Was the finding of the District Court that the supervisor should have known of the incident after it happened, or that he should have known of the officer's propensities even before the incident?
Henry L. Klein: Should have known of his propensities before. In other words, the idea or the theory was that if they knew about his dangerous propensities, some action would have been taken, hopefully, to either reassign him or--
John Paul Stevens: And that with such knowledge, it would have been the equivalent of a policy to employ such an individual?
Henry L. Klein: --Well, that's hard to read into what the District Court is saying. They do talk at one point about a policy, but we always get back to the threshold--
John Paul Stevens: If you don't read that in, I can't understand why you wouldn't have raised more Monell issues, so that is why I was trying to figure out what your theory of the defense was.
Henry L. Klein: --Well, my theory of the defense was that it was strictly a negligence question whether he should have known, and of course our whole effort was directed toward showing that there was really no way that he would have known, not having come and been there for the short period of time, and that he was trying to implement new policies, trying to make changes, but that it was almost as if they expected that he went back and read every file on every... on some 1,250 or 1,275 police officers to determine who was good and who was bad. It was our argument that the law just didn't impose that standard on him. Thank you.
Warren E. Burger: I think you responded to someone but I don't recall your response. Were you in the case from the outset?
Eric Schnapper: Personally?
Warren E. Burger: Yes.
Eric Schnapper: No.
Warren E. Burger: That's what I understood.
Eric Schnapper: A couple of quick things. Mr. Justice Rehnquist earlier asked whether under Monell one had to have a policy. At 436 US at 690, the list of things that are sufficient under Monell includes a decision, so a discrete act or, I would think, failure to act as well as an ongoing failure would be sufficient. Mr. Klein suggested, though I may have misheard him, that there was no discussion at the trial court level of the Monell standards. At Page 21 of our brief, we refer to a discussion of just those standards, and the need to prove policy under Monell. However, we think that much of the discussion that we have presented runs a bit far afield of what the Court should appropriately decide at this juncture. There are two, perhaps two questions that we have been considering. First, did the District Judge properly find Chapman liable in his official capacity, and second, is such a judgment against an official in his official capacity a judgment which runs against the city rather than against Chapman personally. It is only the second question that was decided by the Court of Appeals. Indeed, it was only the second question that was raised in the Court of Appeals. The Court of Appeals at three points in the Joint Appendix, Pages 30, 39, and 46, characterizes this as a suit against Director Chapman in his official capacity, and at Page 46 squarely holds that a judgment against an official in his official capacity runs only against him personally. Now, at this juncture, that finding, I think, stands almost undefended. I think Mr. Klein came close to conceding that it was wrong. Certainly he has not gone to the point of arguing that it is right. But in any event, that is the only decision that was actually resolved by the Court of Appeals, and we think that is all that need appropriately be considered here. The question of whether the District Court should have imposed liability on Chapman in his official capacity is a much more far-reaching, far-ranging kind of bundle of problems, none of which were addressed below. In discussing them, we have conducted something of a grand tour of civil procedure jurisprudence, the problems of Monell, of Percunier. Mr. Justice Stephens raised some issues about the Swind against Pullman standard. We've got problems under Rules 8 and 9 and 12 and a bunch of other rules. None of these questions were raised below. None of these questions were decided below. And none of these questions in our view need be decided here.
Warren E. Burger: Thank you, gentlemen. The case is submitted.
Speaker: The Honorable Court is now adjourned until tomorrow at 10:00.