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In re City of Detroit

United States District Court, E.D. Michigan, Southern Division

February 24, 2017

IN RE CITY OF DETROIT, Debtor.
v.
CITY OF DETROIT, Appellee. MICHAEL MCKAY, Appellant, Bankr. No. 13-53846

          HON. THOMAS J. TUCKER

          OPINION AND ORDER AFFIRMING THE DECISION OF THE BANKRUPTCY COURT

          BERNARD A. FRIEDMAN SENIOR UNITED STATES DISTRICT JUDGE

         This matter is before the Court on an appeal of the bankruptcy court's denial of appellant's motion to consider his claim a § 1983 claim [docket entry 1]. The issue is fully briefed.

         The instant case began in 2012 when appellant, under 42 U.S.C. § 1983, filed in state court a complaint against Detroit Police officers Watkins, Person, and Clark in their individual capacities. In May 2013, the parties agreed to resolve his action through binding arbitration; the arbitration panel returned a $42, 500 award in favor of appellant. In July 2013, appellee filed for Chapter 9 bankruptcy.

         Appellant then filed a claim in the bankruptcy proceedings in an effort to collect the arbitration award. Because the status of § 1983 claims during the bankruptcy proceedings was uncertain, rather than risk an unfavorable final bankruptcy plan, many claimants, including appellant, entered into settlement agreements that amended their claims.

         Appellant's settlement agreement, signed in June 2014, contains three paragraphs relevant to this appeal: paragraphs 2, 5, and 8:

         Paragraph 2 states: “The Filed Claim[s] is deemed amended, modified and allowed as a general unsecured, nonpriority claim (any such claim, a ‘Settled Claim') in the corresponding amount set forth in the table below under the heading ‘Settled Claim Amount.'” In other words, appellant amended and modified his § 1983 claim to be a general unsecured, nonpriority claim. To illustrate the settlement agreement, this image appeared below Paragraph 2:

         (Image Omitted)

         Paragraph 5 states: “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.” Paragraph 5 reiterates that the settled claim is a general unsecured, nonpriority claim and that it will be handled with the larger class of like claims. According to the later-confirmed final plan, all general unsecured, nonpriority claims are Class 14 claims.

         Paragraph 8 states:

As to the Filed Claims and Settled Claims described herein, the Claimant releases the City from any and all liability, actions, damages and claims (including claims for attorney fees, expert fees or court costs), known and unknown, arising or accruing at any time prior to and after the date of this Agreement, that the Claimant has or may have against the City.

         The word “City” includes all servants, agents, and employees of appellee. Here, appellant releases appellee from “any and all liability, actions, ” or claims, including known claims arising prior to the settlement agreement.

         In November 2014, Bankruptcy Judge Steven Rhodes confirmed appellee's bankruptcy plan. He specifically exempted from the plan all § 1983 claims against individual officers. In March 2016, appellant obtained from Wayne County Circuit Court an order confirming the May 2013 arbitration award.

         In May 2016, appellant filed a motion with the bankruptcy court, arguing that his § 1983 claim against appellee was unaltered by the settlement agreement and was not a Class 14 claim. The significance of the claim's category is that the Class 14 recovery rate is 13% while § 1983 claims against officers in their ...


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