Court Opinion

ID: 4207206
Source: CourtListenerOpinion
Date Created: 2017-09-28 17:01:06.472851+00
Date Added: 2024-06-11T14:40:59.779545
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                          File Name: 17a0543n.06

                                      Case No. 17-1256

                         UNITED STATES COURT OF APPEALS                              FILED
                              FOR THE SIXTH CIRCUIT                            Sep 28, 2017
                                                                           DEBORAH S. HUNT, Clerk
IN RE: CITY OF DETROIT,                           )
                                                  )
     Debtor.
                                                  )
_____________________________________
                                                  )      ON APPEAL FROM THE UNITED
MICHAEL MCKAY,                                    )      STATES DISTRICT COURT FOR
       Appellant,                                 )      THE EASTERN DISTRICT OF
                                                  )      MICHIGAN
v.                                                )
                                                  )
CITY OF DETROIT, MICHIGAN,                        )
                                                  )
       Appellee.                                  )
                                                  )

       BEFORE: SUTTON, DONALD, and THAPAR, Circuit Judges.

       SUTTON, Circuit Judge. Michael McKay settled his § 1983 lawsuit with the City of

Detroit after the City declared bankruptcy. The City’s eventual bankruptcy plan prompted a

dispute about how much McKay is owed under the settlement agreement. Both the bankruptcy

court and the district court agreed with the City’s interpretation of the agreement. We do too,

and affirm.

       In May 2013, an arbitrator awarded Michael McKay $42,500 in his § 1983 lawsuit

against three Detroit police officers. McKay expected to collect his award from the City, which

indemnifies its officers for their liabilities. Indemnification arrangements normally make it

easier for plaintiffs to get paid. Unhappily for McKay, that’s not how it worked out because

Detroit went bankrupt before McKay could collect his award.
Case No. 17-1256, McKay v. City of Detroit

       Armed with the arbitration award, McKay filed a proof of claim in the City’s bankruptcy

proceedings. In June 2013, McKay and the City signed an “Agreement Resolving Claim of

Michael McKay.” R. 8 at 441–45. Paragraph 2 of the agreement provided: “The Filed Claim is

deemed amended, modified and allowed as a general unsecured, nonpriority claim.” Id. at 443.

Paragraph 5 added: “The Parties agree that any Settled Claim is a general unsecured, nonpriority

claim, subject to the treatment provided for such claims under any chapter 9 plan for the

adjustment of debts confirmed by the Bankruptcy Court.” Id. And Paragraph 8 stated that “the

Claimant releases the City from any and all liability, actions, damages and claims . . . that the

Claimant has or may have against the City.” Id. at 444. That same paragraph clarified that “the

City” included Detroit’s “servants, agents, . . . [and] employees.” Id.

       In October 2013, the City issued its bankruptcy plan. The plan treated “Other Unsecured

Claims” as “Class 14” claims, meaning they would receive around 13 cents on the dollar. Id. at

33–34, 56.

       The bankruptcy court confirmed the City’s plan and clarified two pertinent points in the

process. It explained that § 1983 suits against officers in their individual capacities, as opposed

to suits against officers in their official capacities, were not “claims against the City” and could

not be discharged or adjusted by the plan. R. 8 at 322. And it emphasized that “nothing in the

Plan shall discharge or impair the obligations of the City . . . to indemnify . . . the liability of

officers and employees of the City.” R. 8 at 321. Taken together, these two clarifications meant

that plaintiffs could pursue their § 1983 claims against individual officers for their full amounts

and, after that, the City would indemnify the officers.

       In the light cast by that order, the two sides of this dispute become clear. On the one

hand, the settlement agreement appeared to waive McKay’s rights to collect anything more from

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Case No. 17-1256, McKay v. City of Detroit

the City or its employees than what the agreement provided—namely about 13% of $42,500. On

the other hand, the bankruptcy court clarified that individual-capacity claims were not claims

against the City and thus were not discharged by the bankruptcy.

       In the aftermath of the bankruptcy court’s order, McKay asked for the full $42,500. He

sought, and received, a state court order enforcing the initial arbitration award.      The City

demurred, pointing out that McKay settled his § 1983 claim against the individual officers in

exchange for a Class 14 claim against the City.

       McKay filed a motion in bankruptcy court claiming that the settlement agreement

required the City to pay him the full $42,500. In rejecting the motion, the bankruptcy court

noted that McKay had released his § 1983 claims against the officers by signing the settlement

agreement and by receiving a general unsecured non-priority claim in return.           Under the

bankruptcy plan, the bankruptcy court added, “other unsecured claims” are treated as “Class 14”

claims and thus are not entitled to 100 cents on the dollar. R. 11 at 392–93. The district court

affirmed.

       The bankruptcy court correctly interpreted the agreement.        As McKay conceded in

bankruptcy court, he released his § 1983 claims against the officers by signing the agreement. In

exchange, his claims were “deemed amended, modified, and allowed as a general unsecured,

nonpriority claim” against the City in its bankruptcy proceedings. R. 8 at 443. He “agree[d] that

any Settled Claim is a general unsecured, nonpriority claim, subject to the treatment provided for

such claims under any chapter 9 plan for the adjustment of debts confirmed by the Bankruptcy

Court.” Id. And the final bankruptcy plan provided that “other unsecured claims” are “Class 14”

claims. Id. at 33–34, 56.

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Case No. 17-1256, McKay v. City of Detroit

       Trying to sidestep this language, McKay argues that § 1983 claims are “by [their] very

nature . . . unsecured claim[s] that [are] nonpriority.” Appellant’s Br. 18–19. Accordingly,

McKay reasons, the agreement “does not change the nature of the claim, but rather describes it in

terms commonly used in Bankruptcy plans.”           Id. at 19.   And because the “nature” and

“character” of the claim remain unchanged, McKay adds, he “still retain[s] a § 1983 claim

against the officers individually.” Id. But this argument has two flaws.

       One: McKay conceded in the bankruptcy court proceedings—twice—that he settled his

§ 1983 claims against the individual officers by signing the settlement agreement. He is free to

insist now that he “retains” the claims, but that does not make it so, and the language of the

settlement agreement and his concessions prohibit it from being so.

       The other: It does not matter whether the settlement agreement changed the “nature” or

“character” of McKay’s claims. Settlements by their nature often change the nature of claims

and above all often change the relationship of the parties with respect to them. What matters is

the claim McKay still holds. Before the settlement agreement, McKay held § 1983 claims

against the officers in their individual capacities. At the time, it was unclear how the City’s

bankruptcy plan would treat claims against the City’s employees. Many plaintiffs, including

McKay and his counsel, fought for better treatment of their § 1983 claims against officers. In

view of this uncertainty and the uncertainty that often accompanies bankruptcy proceedings,

McKay made a bargain. He swapped his claims against the officers for an immediate unsecured

nonpriority claim against the City in its bankruptcy proceedings. Paragraph 2 of the agreement

says just that: “The Filed Claim[s] [are] deemed amended, modified and allowed as a general

unsecured, nonpriority claim.” R. 8 at 443 (emphasis added). McKay’s bargain perhaps did not

turn out as well as he might have hoped given the final bankruptcy plan. But courts are not in

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Case No. 17-1256, McKay v. City of Detroit

the business of overriding the terms of contracts when one party has settler’s remorse. Generally

speaking, courts enforce settlement agreements; they do not rewrite them.

          McKay separately argues that a handwritten notation (which he presumes was written by

a City official) on the settlement agreement—reading “1983”—“make[s] clear that the debt was

to retain its character” as a § 1983 claim. Appellant’s Br. 17. But that note does not change

things.     McKay forfeited any argument regarding the note when he failed to raise it in

bankruptcy court. On top of that, a delphic handwritten note cannot override the clear terms of a

settlement agreement.

          For these reasons, we affirm.

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