CITY’S BANKRUPTCY PLAN DOESN’T DISCHARGE PERSONAL DAMAGES AWARD AGAINST OFFICER
On September 8, 2016, the Ninth Circuit U.S. Court of Appeals held, in Deocampo v. Potts et al, that “. . . California’s indemnification statutes do not render a judgment or concomitant fee award against an indemnifiable municipal employee a liability of the municipal employer for purposes of adjusting or discharging the debts of a Chapter 9 debtor. The Judgment is the Officers’ personal liability, not Vallejo’s.”
However, “(o)ur conclusion that the Judgment is against the Officers personally, and not Vallejo, does not relieve Vallejo of its obligation to indemnify the Officers under California law.”
Facts
In 2008, Vallejo petitioned for Chapter 9 bankruptcy, a form of relief available only to municipalities. Some two years after the bankruptcy court confirmed Vallejo’s debt-adjustment plan, a federal jury found that two police officers [Jason Potts and Eric Jensen] employed by Vallejo used constitutionally excessive force when they arrested Jason Eugene Deocampo. The judgment was against the officers in their personal capacity only.
“(A) jury returned a verdict, finding that the officers used excessive force and awarding plaintiffs $50,000 in compensatory damages and attorney’s fees under §1988. The officers moved for relief from judgment, asserting that the judgment and fee award were effectively claims against the City of Vallejo that were subject to adjustment under the bankruptcy adjustment plan.”
The officers argued that, since the City was obligated under California law to indemnify them, since they acted in the course and scope of employment, the judgment was an obligation of the City’s and, therefore, subject to discharge under the Bankruptcy Plan. The District Court disagreed and held that the judgment in the §1983 action was the officers’ personal liability, not Vallejo’s. The case was appealed to the Ninth Circuit U.S. Court of Appeals.
Court of Appeal Discussion
“The Officers do not contend that Vallejo’s bankruptcy discharge wiped out the Judgment against them entirely. Rather, it is their position that the claim for which Deocampo filed proof in Vallejo’s bankruptcy proceedings was subject to the Plan’s adjustment schedule, reducing the claim’s value to 20 to 30 percent of the Judgment. The Officers contend that, to the extent the Judgment purports to create an obligation distinct from that adjusted claim, the confirmation of the Plan discharged and rendered this obligation void.”
“(I)t was Vallejo, not the Officers, that declared bankruptcy and adjusted its debts, and the Judgment was entered against the Officers solely in their personal capacities. The Officers argue, however, that the Judgment was brought within the ambit of the Plan by the California Government Code, which broadly requires public entities like Vallejo to indemnify their employees in litigation arising from the employees’ performance of official duties. The Officers rely principally upon Section 825 of the Government Code, which in relevant part provides:
“[I]f an employee or former employee of a public entity requests the public entity to defend him or her against any claim or action against him or her for an injury arising out of an act or omission occurring within the scope of his or her employment as an employee of the public entity and the request is made in writing not less than 10 days before the day of trial, and the employee or former employee reasonably cooperates in good faith in the defense of the claim or action, the public entity shall pay any judgment based thereon or any compromise or settlement of the claim or action to which the public entity has agreed.”
“Cal. Gov’t Code §825(a) requires the public entity to indemnify itsemployee for compensatory damages awarded under42 U.S.C. §1983 and attorney’s fees the employee is orderedto pay under 42 U.S.C. §1988. The Officers argue that the California indemnification provisions rendered the Judgment a personal liability ofVallejo. We disagree.”
“It is a basic precept of Section 1983 litigation that a judgment against a government official in his personal capacity leads to the imposition of liability ‘against the individual defendant, rather than against the entity that employs him.’ Thus, ‘an award of damages against an official in his personal capacity can be executed only against the official’s personal assets.’” (Emphasis added.)
“(T)he statute [section 825(a)] creates a ‘purely intramural arrangement between a state and its officers,’ because if a plaintiff ‘prevails on the merits, the court will not be ordering the state to do anything; it will only be ordering the official to pay damages. If the state official desires indemnification under the state statute, he must bring suit in a state court.’”
“The Judgment embodies the jury’s determination, by a preponderance of the evidence, that the Officers, acting in their personal capacities, seriously injured Deocampo while acting under the color of state law, as well as a concomitant Section 1988 fee award that Congress has seen fit to authorize for injuries of this nature. Deocampo is entitled to enforce the Judgment against the Officers personally, but he has no right to enforce it directly against Vallejo or its property.”
“Vallejo may be obligated by statute to indemnify the Officers for the amount of the Judgment, but this ‘purely intramural Arrangement’ does not alter the fact that the Judgment itself is binding on the Officers and the Officers alone.”
HOW THIS AFFECTS YOUR AGENCY
The issue of concern raised by the lower court’s ruling was that if a city or county filed for bankruptcy and a judgment was awarded against a public employee, who acted within the course and scope of employment, that the employees would be personally liable for those damages despite California law. The manner in which the lower court’s decision was written created that concern.
However, the Ninth Circuit’s decision clarifies that issue in a positive manner. Although the judgment is still the personal obligation of the officers as far as the Bankruptcy Plan is concerned, the employing entity is still obligated to indemnify them under appropriate circumstances.
“On appeal, the Officers and various law enforcement association amici make a third, policy-oriented argument that denying the Officers relief from judgment would have dire consequences. They are concerned that a ruling in favor of Deocampo will inject uncertainty into the scope of indemnity coverage, demoralize officers, and dissuade them from zealously performing their duties, or deter them from even becoming police officers. These concerns are misplaced. The Officers will not be required to pay the Judgment out of their own pockets. Our conclusion that the Judgment is against the Officers personally, and not Vallejo, does not relieve Vallejo of its obligation to indemnify the Officers under California law.”
[JONES & MAYER, as counsel to CPCA, CSSA, and CPOA filed an amicus brief in the case in support of the officers]
“The [Bankruptcy] Plan also committed Vallejo to ‘continue to operate pursuant to the City Charter, the Constitution of the State of California and other applicable laws,’ and thereby excepted from discharge any §825 claims. Our decision thus does not unsettle the commitment of California municipalities to indemnify their employees, nor should it chill legitimate law enforcement activity.”
As with all legal issues it is imperative that you confer with and receive guidance from your agency’s designated attorney. As always, if you wish to discuss this case in greater detail, please feel free to contact me at (714) 446 – 1400 or via email at mjm@jones-mayer.com.
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