Tuesday, December 11, 2018

Cobb v. City of Stockton (9th Cir. - Dec. 10, 2018)

There are lots of different legal and factual issues at play in this appeal.  But I wanted to mention only the one I thought was the most interesting, and as to which there may be some disagreement between the majority and the dissent:

Does the Fifth Amendment trump a discharge in bankruptcy?

To put it differently:  If you're entitled to "just compensation" because someone (e.g., a city) has taken your property, is your takings claim against that entity constitutionally entitled to super-priority over all other claims, secured as well as unsecured?

I could see why someone might say "Yes."  The Constitution expressly says you're entitled to "just compensation" if your stuff is taken.  So maybe you're automatically entitled to that compensation.  Period.  Even if the entity that took your stuff doesn't have enough money to pay everyone, you get your money.  End of story.

But I could also see why someone might say "No."  There's not enough money to pay everyone.  We've got a long history of distinguishing, for example, between secured and unsecured creditors.  When there's not enough money to go around, it might not make sense to someone automatic priority just because they've got a particular type of constitutional claim.  Just like people with Section 1983 constitutional claims don't get priority in bankruptcy.  It's a generally applicable law about how to allocate the residual money of a bankrupt that doesn't violate the Fifth Amendment.

And I could also see why someone might say "Maybe."  Maybe what counts as "just" compensation depends not only on the value of the property, but also -- in cases where there's not enough money to compensate all the creditors -- how such compensation would affect others.  Maybe paying someone less than what their property is worth is okay if the relevant entity is bankrupt and so paying one type of claim would necessarily harm those with other types of claims.  Maybe not.

I'm not sure I have a definitive view on this issue.  Each of the various alternatives has its upsides and downsides.

But it's something I hadn't thought about before, and it's interesting.  So I thought I'd share the case.  (Which doesn't really answer the question either, but which definitely raises it, albeit in an incredibly complicated procedural setting that mucks things up a bit.)