In re City of Detroit

659 B.R. 191

IN RE: CITY OF DETROIT, MICHIGAN, Debtor.

Case No. 13-53846

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

Signed April 19, 2024

Marc N. Swanson, Ronald A. Spinner, Miller, Canfield, Paddock and Stone, P.L.C., Detroit, Michigan, Attorney for City of Detroit.

Nabih H. Ayad, William D. Savage, Ayad Law, PLLC, Attorneys for Richard Wershe, Jr.

OPINION REGARDING RICHARD WERSHE, JR.'S "MOTION FOR ENTRY OF NOTICE OF CLAIM AFTER BAR DATE"

Thomas J. Tucker, United States Bankruptcy Judge

I. Introduction

This case is before the Court on a motion by Richard Wershe, Jr. ("Wershe"), entitled "Richard Wershe, Jr's Motion for Entry of Notice of Claim After Bar Date" (Docket # 13560, the "Motion"). The Motion seeks an order granting Wershe the right to file a proof of claim in this bankruptcy case more than 8 years after the deadline to do so, or alternatively, granting "a stay in this case pending the resolution of the district court case and any appeals."¹ The "district court case" referred to in the Motion is Wersche v. City of Detroit, et al., Case No. 21-11686, filed on July 20, 2021 in the United States District Court for the Eastern District of Michigan (the "District Court Case").

The City of Detroit (the "City") filed an objection to the Motion,² and Wershe filed a reply and a supplemental brief in support of the Motion.³ The Court concludes that a hearing on the Motion is not necessary, and that the Motion must be denied, based on collateral estoppel.

II. Facts

A. The District Court Case

On July 20, 2021, Wershe filed a complaint against the City and others in the United States District Court for the Eastern District of Michigan, commencing the District Court Case.⁴ On September 14, 2021, Wershe filed an amended complaint against the City and others, and a demand for a jury trial.⁵ In the amended complaint, Wershe asserted various claims against the City for violations of his constitutional rights under 42 U.S.C. § 1983.

On September 30, 2021, the City filed a motion to dismiss the District Court Case (the "Dismissal Motion") for failure to state a claim under Fed. R. Civ. P. 12(b)(6).⁶ The City's Dismissal Motion was later joined and concurred in by Defendants William Jasper and Kevin Green.⁷ The City argued in its brief in support of the Dismissal Motion that all of Wershe's claims against the City were barred by Michigan's three-year statute of limitations.⁸

On November 22, 2021, Wershe filed an untimely response to the Dismissal Motion.⁹ In his response, Wershe argued, in relevant part, that even though Michigan has a "no-tolling rule as applied to prisoners seeking to bring § 1983 claims," under the extraordinary circumstances of his case, namely his fear of physical and legal retaliation by the City and other Defendants, the district court should apply federal equitable tolling and/or judicial tolling law to toll the statute of limitations on his § 1983 claims against the City.¹⁰

On December 1, 2021, the City filed a reply in support of the Dismissal Motion.¹¹ In its reply, the City argued that the district court should not consider Wershe's response to the Dismissal Motion, and treat the Dismissal motion as unopposed, because it was untimely filed.¹² The City argued further that even if the district court considered Wershe's untimely response to the Dismissal Motion, and even if "[W]ershe could benefit from equitable and/or judicial tolling, his [§ 1983] claims [against the City] are nonetheless time-barred[,]" because the basis for Wershe's tolling argument — his alleged fear of retaliation — "was obviated" when "[Wershe] was paroled on all charges underlying this action by the Michigan Parole Board in April of 2017[.]"¹³

On July 19, 2023, the district court held a hearing on the City's Dismissal Motion, two motions filed by Wershe,¹⁴ and a motion to dismiss by Defendants Edward James King, Carol Dixon, Lynn A. Helland, Herman Groman.¹⁵ Oral argument at the July 19, 2023 hearing "was 'limited in scope to the statutes of limitations applicable to [Wershe's] claims.' (See Wershe I, ECF No. 58; Wershe II, ECF No. 12)."¹⁶ At the conclusion of the July 19, 2023 hearing, the district court took all of the motions under advisement.

On September 18, 2023, the district court entered an order, which in relevant part, granted the City's Dismissal Motion, and dismissed all of Wershe's claims against the City in the District Court Case, with prejudice, for failure to state a claim under Fed. R. Civ. P. 12(b)(6) (the "September 18, 2023 Order").¹⁷ In its September 18, 2023 Order, the district court held, in relevant part, that all of Wershe's claims under 42 U.S.C. § 1983 against the City accrued in the 1980s, more than 40 years ago, and therefore all such claims were barred by Michigan's 3-year statute of limitations applicable to those claims, and "must be dismissed unless equitable tolling applies."¹⁸ The district court further held that Wershe had failed to satisfy his heavy burden of showing that he is entitled to equitable tolling of the statute of limitations applicable to his claims.¹⁹ Because all of Wershe's claims against the City were well beyond the applicable statute of limitations for those claims, and equitable tolling of the statute of limitations for those claims did not apply, the district court held that "[Wershe's] allegations [in his amended complaint] affirmatively show that his claims are time-barred and must be dismissed."²⁰ For these reasons, the district court granted the City's Dismissal Motion "as to the statute of limitations issue."²¹

On September 20, 2023, the district court entered a judgment (the "District Court Judgment"), which stated: "IT IS ORDERED AND ADJUDGED that pursuant to this Court's . . . September 18, 2023 [Order], this cause of action is DISMISSED WITH PREJUDICE."²²

On October 4, 2023, Wershe filed a notice of appeal from the District Court's Judgment.²³ That appeal is pending, under Case No. 23-1902, in the Sixth Circuit Court of Appeals.

B. Wershe's Motion in this bankruptcy case

Wershe filed the Motion in this Court before the district court entered the District Court Judgment against Wershe and in favor of the City on all of Wershe's § 1983 claims against the City, dismissing all such claims against the City with prejudice. Wershe argued in the Motion that this Court should allow to him file a proof of claim more than 8 years beyond the claims bar date of February 21, 2014,²⁴ based on both or either of two legal theories" — the equitable tolling of the statute of limitations for Wershe's § 1983 claims, and excusable neglect. The claim(s) Wershe wishes to file in this bankruptcy case are the same as the claims he asserted in the District Court Case.

In its objection to the Motion, the City argued, among other things, that "[t]he Motion should be denied because equitable tolling does not apply to proof of claim deadlines, and the reasons Wershe proffers for his failure to timely file a proof of claim do not constitute excusable neglect."²⁵ In a supplemental brief filed in this Court after the District Court Judgment was entered, the City argued that Wershe's claims against the City are now barred, under the doctrines of collateral estoppel and res judicata.²⁶

III. Discussion

The Court must determine the preclusive effect of the District Court Judgment under the federal common law of collateral estoppel. See Taylor v. Sturgell, 553 U.S. 880, 891, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008) ("The preclusive effect of a federal-court judgment is determined by federal common law. See Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 507-508, 121 S.Ct. 1021, 149 L.Ed.2d 32 (2001).").

A. Federal common law of collateral estoppel

"Under collateral estoppel, once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits . . . involving a party to the prior litigation." Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979) (citations omitted) . . . .

Under the federal common law, there are five requirements for a federal judgment to have a collateral estoppel effect: (1) the issue in the subsequent litigation must be identical to that resolved in the earlier litigation; (2) the issue must have been actually litigated and decided in the prior action; (3) the resolution of the issue must have been necessary and essential to a judgment on the merits in the prior litigation; (4) the party to be estopped must have been a party to the prior litigation (or in privity with such a party); and (5) the party to be estopped must have had a full and fair opportunity to litigate the issue. Wolfe v. Perry, 412 F.3d 707, 716 (6th Cir.2005).

Allstate Ins. Co. v. Harris (In re Harris), 480 B.R. 281, 287-88 (Bankr. E.D. Mich. 2012).

B. Collateral estoppel requires this Court to conclude that Wershe has no valid claim against the City.

The Court finds and concludes that all of the elements of collateral estoppel have been met regarding whether Wershe has any valid claims against the City. The District Court Judgment has conclusively established that Wershe has no valid claims against the City, because all of the claims Wershe asserted against the City in the District Court case are barred by the applicable statute of limitations. In reaching that determination, the district court held that there is no tolling that saves any of Wershe's claims.

Therefore, under the doctrine of collateral estoppel, the District Court Judgment conclusively establishes that Wershe has no valid claim against the City for which he could file a late proof of claim. That means that Wershe could not have any allowed claim in the City's bankruptcy case, even if the Court were to allow Wershe to file a proof of claim well after the claims bar date, as Wershe's Motion asks. See 11 U.S.C. § 502(b)(1) (providing that the Court cannot allow a claim where "such claim in unenforceable against the...