CHICAGO — The U.S. Supreme Court has said people can’t use a bankruptcy filing to prevent the city of Chicago from retaining vehicles impounded over unpaid parking tickets and other fees.
The issue dates to a 2016 ordinance granting Chicago the power to impound and hold vehicles if the city deemed the owners owed too much money in unpaid fines and fees. Four debtors — identified as Robbin Fulton, Timothy Shannon, George Peake and Jason Howard — owed between $5,600 and $13,000 in unpaid tickets and fees, including the impound fees charged by the city, and asked the city to return their vehicles after they filed for Chapter 13 bankruptcy protection.
Several federal bankruptcy court judges ruled the city couldn’t “ignore the Bankruptcy Code” and “continue to hold a debtor’s vehicle until the debtor pays her outstanding parking tickets." In June 2019, the U.S. Seventh Circuit Court of Appeals upheld those rulings.
U.S. Supreme Court Justice Sonia Sotomayor
The appellate panel noted the city never asked bankruptcy judges to expedite claims to unpaid debts, and said bankruptcy law puts the onus on a creditor to ask the court for protection, as opposed to obligating the debtor to sue. It further rejected the city’s attempt to invoke its police powers, saying seizing vehicles for unpaid parking tickets has little to do with law enforcement’s charge to protect the public.
“We are persuaded that, on balance, this is an exercise of revenue collection more so than police power,” the appellate judges said.
The city took the case to the Supreme Court, however, and found a more favorable audience there.
Justice Samuel Alito wrote the Supreme Court’s 6-0 opinion, issued Jan. 14. The case had been argued on Oct. 13. Justice Amy Coney Barrett, who had formerly served on the Seventh Circuit court and who only recently joined the Supreme Court, took no part in the decision.
Justice Sonia Sotamayor filed a concurring opinion.
Saying the city’s policy amounted to “mere retention of property” after a bankruptcy filing, Alito explained federal bankruptcy law serves a debtor’s interest “by protecting the estate from dismemberment, and it also benefits creditors as a group by preventing individual creditors from pursuing their own interests to the detriment of the others.”
Acknowledging the potential for ambiguity in interpreting the Bankruptcy Code’s Section 362 language regarding the automatic stay provision concerning the estate created at the time of a bankruptcy filing, Alito pointed to Section 542, which “expressly governs the turnover of estate property” and does so in the city’s favor.
In keeping the cars, Alito explained, the city isn’t exercising control over the property. It is just preserving the status quo at the time of the bankruptcy filing. Taking the view of the vehicle owners, he continued, would force the city to surrender property otherwise exempt from turnover under Section 542 as it is “of inconsequential value or benefit to the estate.”
In her concurrence, Sotamayor agreed Section 362 “does not cover a creditor’s passive retention of property lawfully seized prebankruptcy.” But she added the court didn’t determine when that section’s other provisions might make a creditor return property or whether the city was in compliance.
“Regardless of whether the city’s policy of refusing to return impounded vehicles satisfies the letter of the Code, it hardly comports with its spirit,” Sotomayor wrote.
Peake, for instance, wanted his car back so he could keep driving to work in Joliet, Sotomayor noted. The car was worth about $4,300, but lacking reliable transportation resulted in a loss of income and therefore jeopardized Peake’s ability to pay off all his creditors, including the city.
“Bankruptcy courts are not powerless to facilitate the return of debtors’ vehicles to their owners,” Sotamayor wrote.
She pointed to different courts that have made it easier for debtors to recover cars provided a holding entity is notified or shown proof of insurance against its financial interest in the vehicle.
“Ultimately, however, any gap left by the Court’s ruling today is best addressed by rule drafters and policymakers, not bankruptcy judges," Sotomayor said.
The Court vacated the Seventh Circuit’s opinion and sent the cases back for further proceedings.
The city of Chicago was represented before the Supreme Court by attorney Craig Goldblatt and others with the firm of Wilmer Cutler Pickering Hale and Dorr LLP, of Washington, D.C.
The bankruptcy filers were represented by attorneys Eugene R. Wedoff, of Oak Park; Catherine Steege and Carl Wedoff, of the firm of Jenner & Block, with offices in Chicago and New York; and John P. Wonais and Michael A. Miller, of the Semrad Law Firm, of Chicago.