Greetings, Court Fans!

We’re back with the two decisions from Wednesday, which deal with the accrual of a cause of action for false arrest and the conversion of bankruptcy proceedings from Chapter 7 to Chapter 13 under the Bankruptcy Code.

We’ll cover false arrest first. In Wallace v. Kato (05-1240), the Court ruled that a claim under 42 U.S.C. § 1983 for false arrest accrues with the end of the arrest, not with the end of the ensuing criminal proceedings, and threw out a suit where the petitioner waited nine years after his wrongful arrest to sue. Wallace was arrested for murder (without a warrant) in Illinois in 1994, and coerced into confessing. The state appellate court overturned his conviction on Fourth Amendment grounds, and the prosecutor ultimately dropped the charges in 2002. In 2003, Wallace sued the police for false arrest, but the Court held 7-2 that this was untimely. Justice Scalia’s majority opinion (which garnered only five votes, the so-called “conservative” bloc of the Chief, Scalia, Kennedy, Thomas and Alito) began by noting one of the intricacies of section 1983: While federal courts use the general tort limitations period of the relevant state (two years in Illinois), the accrual date – when that clock starts to run – is an issue of federal law. The majority then analogized Wallace’s suit to the traditional tort of false imprisonment, defined (critically, it turns out) as “detention without legal process.” On the assumption that one falsely imprisoned may be unable to sue while still in detention, that tort does not accrue until the false imprisonment is over – that is, until the prisoner gets process (e.g., an arraignment). At that point, the false arrest is complete and the clock starts to run on a lawsuit. (The Court conceded that the arrestee might still suffer harm after arraignment, but noted that this would fall under malicious prosecution, an entirely separate tort claim – against not the police but the prosecutor – that accrues only when the plaintiff wins his criminal case). While parallel criminal and civil proceedings might be unwieldy, the district court can always stay the section 1983 case until the criminal case is over – but the arrestee needs to go ahead and file suit for false arrest.

Justice Stevens, joined by Justice Souter, concurred in the judgment but not the majority’s reasoning. He began by rejecting (as did the majority) Wallace’s argument that the Court’s 1994 decision in Heck v. Humphrey favored his position. There, the Court held that a section 1983 suit that, if proved, would actually invalidate an outstanding criminal conviction did have to wait until the end of any criminal appeals or habeas challenges, because those vehicles and not civil rights suits were the proper means to challenge improper convictions. Heck did not apply to Wallace, because (for reasons way too complicated to summarize in an e-mail) he had no habeas claim in the first place, and there simply was no reason to hold that his false arrest claim did not accrue once his arrest had ended. (The differences between Stevens and Scalia are subtle, and spelled out at length in the footnotes; feel free to read if you’re interested.)

Justice Breyer dissented, along with Justice Ginsburg. Breyer was uncomfortable with the majority’s rule of immediate filing plus an uncertain system of possible stays, and instead would allow “equitable tolling” of the limitations period where a plaintiff reasonably claims he was disabled from filing immediately or would face troublesome concurrent litigation. (The majority thought this was “ironic,” as equitable tolling probably would be more unwieldy in practice than a file-and-stay system.)

The bankruptcy decision was Marrama v. Citizens Bank of Massachusetts (05-996), where a 5-4 Court read a “bad faith” exception into a debtor’s statutory right to convert a bankruptcy proceeding from Chapter 7 to Chapter 13 of the Bankruptcy Code. Under Chapter 7, a debtor’s assets are liquidated and distributed to creditors; prepetition debts are discharged, but the estate is managed by a trustee. Under Chapter 13, an individual with income can complete a payment plan and discharge his debts while keeping control of his property. The Code provides that either proceeding can be converted to the other, so long as the debtor would qualify as “a debtor under such chapter.” Marrama tried to convert his Chapter 7 proceeding to Chapter 13, but creditors claimed that he had falsified information about his assets such that he had forfeited the right to convert. The Court agreed, in an opinion by Justice Stevens (joined by Justices Kennedy, Ginsburg, Breyer and Souter). The crux of the majority opinion was that Marrama would not qualify as a “debtor” under Chapter 13 because of another section in the Code providing for dismissal of a Chapter 13 proceeding (or conversion to Chapter 7) “for cause,” which courts routinely read to include bad faith by the debtor. Similarly, the Code also provides that bankruptcy courts can take action to prevent abuse of process. For these reasons, the majority held, the statutory right to convert is subject to an implicit bad-faith exception.

Justice Alito led the dissenters, joined by the Chief, Scalia and Thomas (they couldn’t get Kennedy this time). For the dissenters, the majority did violence to the text of the Code, which provides for the right to convert with no exceptions or limits; notably, the requirements of being a “debtor” do not include anything about good or bad faith. The majority’s implied exception came from separate provisions that deal with remedies for bad faith once a proceeding is already in Chapter 13 – but simply because a court can send a Chapter 13 proceeding back to Chapter 7 does not mean the statutory right to convert to Chapter 13 can be forfeited. Finally, any equitable powers courts possess must be exercised within the bounds of the Code; they cannot violate the text.

That’s it for the week. Until next time, thanks for reading!

Ken & Kim

From the Appellate Practice Group at Wiggin and Dana For more information, contact Kim Rinehart, Ken Heath, Aaron Bayer, or Jeff Babbin at 203-498-4400