Repossession: Just Because You Have A Legal Right To Recover Assets Doesn’t Mean It Is Going To Be Easy

Alexander v. Hedback, 718 F.3d 762 (8th Cir. 2013) –

After extended litigation regarding the rights of two Chapter 7 debtors, the bankruptcy court ordered that two bankruptcy trustees were entitled to possession of the debtors’ home and authorized the U.S. Marshals to evict anyone at the property.  After the debtors’ son was evicted, he sued the bankruptcy trustees, the United States Marshal, unnamed deputy marshals, the City of St. Paul and two St. Paul police officers.  The complaint included a claim under 42 USC §1983 alleging a violation of the son’s constitutional rights, as well as several equitable and tort claims.  The federal district court dismissed the §1983 and equitable claims with prejudice, and the remaining claims without prejudice.  The son (Alexander) appealed the dismissal of the §1983 and tort claims to the 8th Circuit.

The opinion opens with the comment that the eviction order came after more than 13 years of litigation.  It also indicates that the eviction was carried out by six deputy marshals accompanied by approximately six St. Paul police officers.  Although the opinion does not contain many other details, this obviously was a toxic situation.

With respect to the federal defendants, the 8th Circuit concluded that dismissal of the §1983 claim was proper because there was no indication that the federal defendants were operating under “color of state law.”  Alexander then argued that the complaint should have been construed as alleging a claim under Bivens instead.  (Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388, 91 Sup. Ct. 1999, 29 L. Ed. 2d 619 (1971).)  However, the court agreed that dismissal of the Bivens claim was correct since Alexander never amended his complaint to add any Bivens claims.

With respect to the state defendants, the court concluded that the two police officers were sued only in their official capacity, which meant that it was “merely a suit against the public employer,” and “[a] municipality can be liable under §1983 only if a municipal policy or custom caused a claimant to be deprived of a federal right.”

Thus the threshold question was whether there was a causal link between a city policy or custom and a constitutional deprivation.  Alexander tried arguing that (1) the city did not properly train its officers in eviction procedures, because (2) if it had, they would have reviewed and investigated the validity of the bankruptcy court’s order.  Alexander postulated that (3) the bankruptcy court had no jurisdiction to evict or to order the U.S. Marshals to help; so (4) the St. Paul officers should have figured out that the bankruptcy order was not valid; and thus (5) they should not have assisted in executing the order.  The 8th Circuit concluded that, regardless of the validity of Alexander’s argument that the bankruptcy court order was not valid, the causal link was too weak to survive a motion to dismiss.

The tort claims against the bankruptcy trustees failed due to the Barton doctrine.  (Barton v. Barbour, 104 U.S. 126, 26 L. Ed. 672 (1881).)  The theory is that a trustee is working for the court that appointed him/her in administering property of the estate under the Bankruptcy Code, and it would impede this work for the court if the trustee had to defend against litigants disappointed by the trustee’s actions.  Consequently, a bankruptcy trustee cannot be sued without leave from the court that made the appointment.

Alexander contended that the Bankruptcy Reform Act of 1978 abrogated the Barton doctrine.  However, the 8th Circuit joined other circuit courts in holding that Barton remains good law.  So Alexander’s failure to obtain leave from the bankruptcy court precluded the suit against the chapter 7 trustees for acts done in their official capacities.

Finally, once all of Alexander’s federal claims were dismissed, there was no abuse of discretion in declining to exercise supplemental jurisdiction over the remaining state law claims.

Sometimes it can be very difficult to explain to a client that, notwithstanding the fact that it has a clear legal right to take possession of its collateral, as a practical matter achieving that result may be very difficult.  For example, in addition to constitutional issues, Article 9 of the Uniform Commercial Code allows a secured creditor to take possession of its collateral without judicial process only if it could do so without breach of the peace.  If a debtor is not cooperative, it is highly likely that any attempts to recover collateral will cause a breach of the peace.

And this case illustrates that you are not necessarily home free even if you are recovering property through judicial process.  (It also suggests why police officers may be reluctant to take aggressive action.  In other words, forget the “as seen on TV” repo activities.  Police officers would rather not be sued.)

Vicki R. Harding, Esq.

About BankruptcyRealEstateInsights

Vicki R. Harding was a partner in the Detroit office of Pepper Hamilton LLP who moved to Arizona seeking warmer weather. Ms. Harding continues to handle commercial transactions with an emphasis on real estate and bankruptcy issues (but no longer owns a snow shovel).
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