Michael Cobb v. City of Stockton

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE CITY OF STOCKTON, No. 14-17269

CALIFORNIA,

Debtor, D.C. No.

12-32118

MICHAEL A. COBB,

Objector-Appellant, OPINION

v.

CITY OF STOCKTON,

Debtor-Appellee.

Appeal from the United States Bankruptcy Court

for the Eastern District of California

Christopher M. Klein, Chief Bankruptcy Judge, Presiding

Argued and Submitted November 14, 2016

Resubmitted December 10, 2018

San Francisco, California

Filed December 10, 2018

2 IN RE CITY OF STOCKTON

Before: Sidney R. Thomas, Chief Judge, and Ronald M.

Gould and Michelle T. Friedland, Circuit Judges.*

Opinion by Chief Judge Thomas;

Dissent by Judge Friedland

SUMMARY**

Bankruptcy

The panel dismissed as equitably moot an appeal from

the bankruptcy court’s order denying an objection to

confirmation of the Chapter 9 plan of adjustment of the City

of Stockton.

The objector had filed an inverse condemnation claim

against the City in state court. The plan classified the claim

as a general unsecured claim.

Agreeing with the Sixth Circuit, the panel dismissed the

appeal as equitably moot because the objector did not seek a

stay of confirmation; the plan had been substantially

consummated; the relief of undoing plan confirmation would

bear unduly on innocent third parties; and the bankruptcy

*

This case was originally submitted to a panel that included Judge

Kozinski. After Judge Kozinski’s retirement, Judge Gould was drawn by

lot to replace him. Ninth Circuit General Order 3.2.h. Judge Gould has

read the briefs, reviewed the record, and listened to oral argument.

**

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

IN RE CITY OF STOCKTON 3

court could not fashion relief without undoing the confirmed

plan.

The panel also affirmed the bankruptcy court’s conclusion

that the objector’s claim—that the Takings Clause exempted

his unsecured claim from reorganization—failed on the

merits. The panel concluded that the objector’s purported

property interest was, in reality, a claim for monetary relief.

Dissenting, Judge Friedland wrote that the objector sought

only to have his claim for just compensation under the

Takings Clause excepted from discharge, and a claim that

falls outside of bankruptcy cannot be subject to the

bankruptcy doctrine of equitable mootness. On the merits,

Judge Friedland wrote that because the objector maintained

a constitutional claim for just compensation, and because that

claim should have been excepted from discharge, the state-

court inverse condemnation action should have been allowed

to proceed.

COUNSEL

Bradford J. Dozier (argued), Atherton & Dozier, Stockton,

California, for Objector-Appellant.

Robert Loeb (argued), Orrick Herrington & Sutcliffe LLP,

Washington, D.C.; Christopher J. Cariello, Orrick Herrington

& Sutcliffe LLP, New York, New York; Lesley M. Durmann,

Patrick B. Bocash, and Marc A. Levinson, Orrick Herrington

& Sutcliffe LLP, Sacramento, California; for Debtor-

Appellee.

4 IN RE CITY OF STOCKTON

OPINION

THOMAS, Chief Judge:

Michael Cobb appeals the bankruptcy court’s order

denying his objection to confirmation of a Chapter 9.

However, he did not seek a stay of confirmation at any stage;

the plan has been substantially consummated; the relief of

undoing plan confirmation would bear unduly on innocent

third parties; and the bankruptcy court could not fashion relief

without undoing the confirmed plan. Therefore, we dismiss

his appeal as equitably moot. His claims also fail on the

merits.

I

A

When it filed its Chapter 9 petition, Stockton became the

largest city in history to seek municipal bankruptcy

protection. The recession had reduced property values by

half, and 22% of Stockton’s residents were unemployed.

Franklin High Yield Tax-Free Income Fund v. City of

Stockton (In re City of Stockton), 542 B.R. 261, 265 (B.A.P.

9th Cir. 2015). The City was unable to pay bondholders, it

had over-committed to public pensions, and its accounting

system was in disarray. Id. Budget cuts left police able to

respond only to emergency calls. Id. at 266, 274. Stockton

ranked 10th in the nation in its violent crime rate, with

homicides at an all-time record. In re City of Stockton,

493 B.R. 772, 780 (Bankr. E.D. Cal. 2013). In a cost-cutting

initiative commenced in 2008, the City workforce decreased

by 25%. Id. The police force was reduced by 20%; the fire

IN RE CITY OF STOCKTON 5

department’s workforce by 30%; and the public works

employee workforce by 38%. Id.

Despite these cost-cutting measures, the City projected a

general fund deficit of almost $9 million as of June 2012 and

a deficit of $20 to $30 million in the next fiscal year. Id.;

Franklin, 542 B.R. at 266. The City Council authorized

diversion of money from earmarked funds and intentionally

defaulted on payments for over $2 million of bonds. In re

City of Stockton, 493 B.R. at 781, 789. It also authorized a

neutral evaluation process under California Government Code

§ 53760, a prerequisite to a Chapter 9 bankruptcy filing.

Franklin, 542 B.R. at 266.

Unlike other voluntary bankruptcy petitioners, a Chapter

9 debtor must prove that it is eligible for bankruptcy relief.

11 U.S.C. §§ 109(c), 921(c). One of the statutory

requirements is that the debtor must prove that it is insolvent.

11 U.S.C. § 109(c)(3). Here, the City filed a petition for an

Order for Relief alleging that it was eligible for bankruptcy

and, in fact, was insolvent. After a three-day bench trial, the

bankruptcy court issued an extensive order making factual

findings and determining that the City was eligible for

Chapter 9 relief. As to insolvency, the court examined the

City’s ability to: (1) pay its debts as they matured (commonly

referred to as “cash insolvency”); (2) pay for the costs of

providing services required for the health, safety, and welfare

of the community (commonly called “service delivery

insolvency”); and (3) create a balanced budget (termed

“budget insolvency”). After considering the evidence, the

court found that:

The sum of the evidence establishes that the

City was insolvent by all available measures

6 IN RE CITY OF STOCKTON

when it filed its chapter 9 case. It was cash

insolvent, unable to pay its debts as they came

due as required by § 101(32)(C) and

§ 109(c)(3). That it was service delivery

insolvent confirms that the cash insolvency

was not a mere technical insolvency. That it

was budget insolvent for the long term

confirms that the insolvency would persist

without realignment of revenues and

expenses. Hence, the City satisfied the

insolvency requirement of § 109(c)(3).

In re City of Stockton, 493 B.R. at 790–91.

The ensuing Chapter 9 proceedings were complex, costly,

and contentious. Franklin, 542 B.R. at 266. Pre-petition

settlements were reached with a number of creditors, and

collective bargaining agreements were renegotiated. Id.

Under the guidance of a court-appointed mediator, post-

petition settlements were reached with the California Public

Employees’ Retirement System; the Stockton Police Officers’

Association; the Official Committee of Retirees; Assured

Guaranty Corporation (which insured the City’s pension

bonds); the National Public Finance Guarantee Corporation

(an insurer of almost $100 million in city bonds); Ambac

Assurance Corporation (an insurer of $13.3 million in City

certificates of participation); and Wells Fargo Bank

(indenture trustee for a number of the City’s bond issues). Id.

at 266–67. Eventually, over the objections of some creditors,

including Cobb, Stockton’s plan of reorganization was

confirmed. Id. at 268.

The plan was funded by “a sales tax increase in the

greatest amount and for the longest period permitted by

IN RE CITY OF STOCKTON 7

California law.” Id. at 271 (citation omitted). Under the

plan, City employees and retirees “shared the pain” with the

capital market and bond creditors, losing the pension and

lifetime health benefits around which they had planned their

futures. Id. (citation omitted). The plan provided for

payment of $1.5 billion in claims distributed among

20 classes of creditors.

The plan became effective in February 2015. Id. at 276.

Pursuant to the plan, the City made wire transfers totaling

$13.1 million, including a settlement of heath care benefits to

retirees and payments to institutional creditors. The City

implemented the provisions of the plan, restructuring its

obligations to two other major institutional creditors by

conveying title to 17 parking lots and garages, assigning

leasehold interests, and assigning an option for the purchase

of a city office building. The City has continued to make its

payments pursuant to the plan, with secured creditors

receiving lower payments on the secured debt and unsecured

creditors receiving lesser amounts.

B

So, what was Objector-Appellant Michael Cobb’s part in

all of this? The background is somewhat procedurally

complex. Cobb’s father, Andrew Cobb, owned a parcel of

land in Stockton. In 1998, the Stockton City Council

resolved that the public necessity required the condemnation

of a strip of land across the parcel for the purpose of building

a road.

In California, the power of eminent domain can be

exercised through traditional condemnation proceedings,

where possession is taken at the time of judgment, or through

8 IN RE CITY OF STOCKTON

“quick-take” condemnation where a locality can take

possession upon depositing a probable compensation amount

determined by a qualified expert appraiser. Cal. Const. art. I,

§ 19; Cal. Civ. Proc. Code § 1255.010; see also Mt. San

Jacinto Cmty. Coll. Dist. v. Superior Court of Riverside Cty.,

151 P.3d 1166, 1168 (Cal. 2007). Following the deposit of

funds under the “quick-take” procedure, the government may

move the court for an immediate possession order. Cal. Civ.

Proc. Code § 1255.410. If the defendant elects to withdraw

the proposed compensation amount, he waives all claims and

defenses to the condemnation, except a claim for greater

compensation. Cal. Civ. Proc. Code § 1255.260.

Stockton elected to use the “quick-take” process. Thus,

pursuant to California Civil Procedure Code § 1255.010, the

City had an expert appraise the parcel to determine the

amount of just compensation owed to Andrew Cobb. The

appraiser valued the parcel at $90,200.00. As required by the

“quick-take” provisions, the City deposited that sum with the

California State Treasurer Condemnation Deposits Fund.

That same day, the City initiated eminent domain proceedings

in the Superior Court of California, County of San Joaquin,

to acquire a permanent easement over the parcel (the

“eminent domain action”).

Later that year, the Superior Court determined the City

had met the requirements of § 1255.010, concluded it had met

the requirements of probable compensation, and issued an

Order for Prejudgment Possession in favor of the City. A

road was then built on the parcel, and the Stockton City

Council passed a resolution in 2000 accepting the

improvements.

IN RE CITY OF STOCKTON 9

In the meantime, Andrew Cobb passed away and his son,

Michael Cobb, inherited the parcel. After Andrew Cobb’s

death, Cobb was substituted in the condemnation action. He

entered into a stipulation with the City allowing him to

withdraw the deposited amount and, in 2000, he withdrew the

entire amount of the deposit. At that point, by operation of

law, he waived all of his defenses and claims to the property,

except a claim for greater compensation. Cal. Civ. Proc.

Code § 1255.260. In other words, Cobb gave up all rights to

the property. He did not assert a counterclaim for greater

compensation in the condemnation proceeding.

Seven years later, Cobb attempted to return the

$90,200.00 to the City—apparently in an attempt to revoke

his earlier waiver—but the City would not accept the funds,

explaining that the withdrawal of probable compensation was

final under California law. Cobb deposited the funds into an

interest-bearing trust account.

In 2007, the Superior Court dismissed the City’s eminent

domain action because it had not been brought to trial within

five years of its commencement, as is required by California

Civil Procedure Code § 583.310. A year later, Cobb filed a

complaint in San Joaquin County Superior Court, seeking

relief for inverse condemnation (the “inverse condemnation

action”). The complaint alleged that because the City failed

to prosecute the eminent domain action, the true market value

of the parcel remained undetermined and thus Cobb had not

received the just compensation due him under the California

Constitution. Over the next several months, Cobb amended

his complaint three times, adding claims for quiet title,

ejectment, trespass, and declaratory relief. The City

demurred to all the amended complaints. The Superior Court

sustained the City’s demurrer as to the inverse condemnation

10 IN RE CITY OF STOCKTON

claim on the grounds that it was barred by the statute of

limitations because the taking occurred more than five years

before the complaint was filed, and it sustained the City’s

demurrer as to the other claims on the grounds that they were

barred by the doctrine of intervening public use.

Cobb appealed the Superior Court’s dismissal of his

inverse condemnation claim solely on statute of limitations

grounds. He did not appeal the dismissal of the quiet title,

ejectment, trespass, or declaratory relief claims. In 2011, the

Court of Appeals reversed the dismissal of Cobb’s inverse

condemnation claim, finding that his claim was timely

because it “did not accrue until the City’s occupation of the

property became wrongful, which did not occur until the

eminent domain proceeding was dismissed.” Thus, what

remained of his state court action was simply an unliquidated

and unsecured monetary damage claim. The merits of his

inverse condemnation claim remain unadjudicated and

unproven. As the bankruptcy court pointed out, given the

various defenses available to the City, “Mr. Cobb has a very

steep hill to climb in his action for greater compensation in

the California courts.”

Thereafter, in 2012, the City petitioned for bankruptcy

protection under Chapter 9. In a Chapter 9 bankruptcy, the

debtor is not required to file schedules and a statement of

financial affairs. Rather, the debtor is required to file a list of

creditors. 11 U.S.C. § 924. Any claim on the debtor’s list is

deemed filed as a proof of claim pursuant to 11 U.S.C. § 501,

unless the debt is listed as contingent, disputed or

unliquidated. 11 U.S.C. § 925.

When it filed its list of creditors in this case, the City

identified Cobb’s claim as an unsecured, disputed liability

IN RE CITY OF STOCKTON 11

claim of an unknown amount. Subsequently, Cobb filed a

proof of claim for $4,200,997.26. Cobb’s claim consisted of

a principal of $1,540,000.00 for the parcel, $2,282,997.26 in

interest on the principal, $350,000.00 in attorney’s fees and

expenses, $13,000.00 in costs of suit, and $15,000.00 in real

estate taxes and maintenance and insurance costs. Cobb did

not assert on his proof of claim that his claim was secured.

In 2013, the City filed its first amended plan for

adjustment of its debts (the “plan”), which listed 19 classes of

claims. The plan included Cobb’s claim in Class 12 as a

general unsecured claim. On February 11, 2014, Cobb filed

an objection to confirmation of the plan, alleging that his

“claims in inverse condemnation are protected by the Fifth

and Fourteenth Amendments to the United States

Constitution and cannot be impaired by the Plan.” He did not

contest the listing of his claim as unsecured.

In 2014, the bankruptcy judge overruled Cobb’s objection

to confirmation of the pending plan of adjustment. The

bankruptcy judge explained that Cobb is left with only a

claim for more money because the road had long since been

built on the parcel and because by withdrawing the probable

just compensation, Cobb had waived by operation of law all

claims except a claim for greater compensation. In an oral

ruling, the bankruptcy judge concluded that “[t]he bankruptcy

clause does permit the adjustment of a debt for greater

compensation,” and “if [the debt] were reduced to judgment,

it would be a general unsecured debt at the moment the

judgment was issued.”

Cobb did not seek a stay of plan confirmation from the

bankruptcy court. Cobb timely appealed the bankruptcy

court’s order overruling his objection to the plan to the

12 IN RE CITY OF STOCKTON

district court for the Eastern District of California. He did not

seek a stay of plan confirmation before the district court.

Cobb and the City both stipulated, pursuant to 28 U.S.C.

§ 158(d)(2)(A), that the appeal warranted proceeding directly

to the Court of Appeals for the Ninth Circuit. On August 7,

2014, the district court certified this appeal to this Court,

pursuant to 28 U.S.C. § 158(d)(2)(B)(ii). A motions panel of

our Court granted Cobb’s motion to appeal directly to this

Court. Cobb did not seek a stay of plan confirmation. The

bankruptcy court confirmed the City’s plan of adjustment and

issued a final judgment. Cobb did not seek a stay following

plan confirmation, and the plan became effective on February

25, 2015.

II

A

Finality is essential to the success of bankruptcy

reorganization plans. A reorganization plan almost always

involves tradeoffs, debt adjustment, partial asset liquidation,

and the infusion of new revenue sources. Both creditors and

the debtor require certainty so that the debtor can return to

economic health, and the creditors can maximize their

recovery within the debtor’s ability to pay. In the case of a

municipal reorganization, the public has an enormous stake

in the outcome so that critical government programs, such as

law enforcement, fire protection, and public works, can be

restored. Thus, if a creditor wishes to challenge a

reorganization plan on appeal, we require the creditor to seek

a stay of proceedings before the bankruptcy court. When a

stay is requested, all affected parties are on notice that the

plan may be subject to appellate review and have an

IN RE CITY OF STOCKTON 13

opportunity to present evidence before the bankruptcy court

of the consequences of a stay. “A confirmed reorganization

plan operates as a final judgment with res judicata effect.”

Unsecured Creditors Comm. v. Southmark Corp. (In re

Robert L. Helms Constr. & Dev. Co.), 139 F.3d 702, 704 (9th

Cir. 1998) (en banc).

If the creditor does not seek a stay, then the creditor risks

dismissal of the appeal on the grounds of equitable mootness.

“An appeal is equitably moot if the case presents transactions

that are so complex or difficult to unwind that debtors,

creditors, and third parties are entitled to rely on the final

bankruptcy court order.” JPMCC 2007-C1 Grasslawn

Lodging, LLC v. Transwest Resort Props., Inc. (In re

Transwest Resort Props., Inc.), 801 F.3d 1161, 1167 (9th Cir.

2015) (quoting Rev Op Grp. v. ML Manager LLC (In re

Mortgs. Ltd.), 771 F.3d 1211, 1215 (9th Cir. 2014)). If there

is a confirmed bankruptcy plan that deserves finality—for

employees, retirees, creditors, taxpayers, and for the future of

the City—it is Stockton’s.

B

We have identified four factors to determine whether an

appeal is equitably moot, namely: (1) whether a stay was

sought; (2) whether the plan has been substantially

consummated; (3) the effect of the remedy on third parties

not before the court; and (4) “whether the bankruptcy court

can fashion effective and equitable relief without completely

knocking the props out from under the plan and thereby

creating an uncontrollable situation for the bankruptcy court.”

In re Transwest Resort Props., Inc., 801 F.3d at 1167–68

(quoting Motor Vehicle Cas. Co. v. Thorpe Insulation Co. (In

re Thorpe Insulation Co.), 677 F.3d 869, 881 (9th Cir. 2012)).

14 IN RE CITY OF STOCKTON

1

As to the first factor, there is no doubt. Cobb sought no

stay whatsoever. He did not seek a stay in the bankruptcy

court. He did not seek a stay in the district court. He did not

seek a stay in our Court. While he was appealing the

rejection of his plan objections, he took no action to stay the

plan’s implementation, although confirmation proceedings

were ongoing. He did nothing.

It is “obligatory” that one seeking relief from plan

confirmation “pursue with diligence all available remedies to

obtain a stay of execution of the objectionable order.” Trone

v. Roberts Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d

793, 798 (9th Cir. 1981). Failure to do so without adequate

explanation should result in dismissal. Id. Seeking a stay

affords the bankruptcy court the opportunity to consider

equitable factors, make a reasoned decision, and provide a

decision and record which an appellate court can review. On

the other hand, excusing a failure to seek a stay before the

bankruptcy court allows a party to play possum, without

consequence, while everyone else has materially changed

positions in reliance on plan confirmation. The first factor

indisputably favors application of equitable mootness.1

2

The second factor is whether the plan has been

substantially consummated, and Cobb does not contest the

1

In Franklin, in which the Bankruptcy Appellate Panel dismissed an

appeal in this bankruptcy as equitably moot, the creditor had a much better

argument than Cobb because it had actually sought a stay in bankruptcy

court. Franklin, 542 B.R. at 275.

IN RE CITY OF STOCKTON 15

fact that it was. As the Bankruptcy Appellate Panel noted,

there is no dispute that this plan was substantially

consummated in February 2015. Franklin, 542 B.R. at 276.

The City wired payment to institutional creditors, transferred

property, and sent checks to former city employees to resolve

pension claims. Id. It conveyed title to numerous parcels of

real property, assigned leasehold interests, and granted

purchase options. The City has now operated under the

reorganization plan for years. The second factor also favors

application of equitable mootness.

3

The third factor is “whether the relief sought would bear

unduly on innocent third parties.” In re Transwest Resort

Props., Inc., 801 F.3d at 1169. In other words, it must be

“possible to [alter the plan] in a way that does not affect third

party interests to such an extent that the change is

inequitable.” Id. (quoting In re Thorpe Insulation Co.,

677 F.3d at 882) (alteration in original).

Here, reversal of the Confirmation Order would

undermine the settlements negotiated with the unions,

pension plan participants and retirees, bond creditors, and

capital market creditors, all of which were built into the

reorganization plan. As the Bankruptcy Appellate Panel

concluded in Franklin, “[t]o reverse the Confirmation Order

at this point would have a potentially devastating impact on

creditor constituencies whose settlements with the City were

incorporated in the Plan and who are not appearing before us

in this appeal.” Franklin, 542 B.R. at 278.

In addition to the creditors, reversal of the Confirmation

Order would have a substantial effect on the citizens of

16 IN RE CITY OF STOCKTON

Stockton, who depend upon the City for the provision of vital

services. The City placed ample evidence in the record of the

serious impact of reversal of plan confirmation, which impact

is confirmed in Franklin.

Cobb argues that his claim is only a monetary one, having

little impact on creditors or the City. Leaving aside the fact

that the remedy he seeks is to reverse plan confirmation,

Cobb is making a multi-million dollar claim which, on its

face, would have a considerable impact on the City. He

suggests, without proof, that the City has the resources to pay

the claim. However, as the City pointed out in Franklin,

allowing such a claim would likely result in revisiting the

City’s Long Range Financial Plan, which provided the basis

for the plan’s feasibility, and “consequently calling into

question the economic underpinnings of the Plan.” 542 B.R.

at 276 (internal quotation marks and citation omitted).

In addition, and most importantly, the only adjudication

of the City’s solvency in the record is the bankruptcy court’s

findings of facts and conclusions of law holding that the City

was insolvent—a finding that was adopted and reiterated at

the time of plan confirmation.2 Cobb did not challenge the

City’s claim of insolvency in the bankruptcy court, nor

dispute the bankruptcy court’s findings. He simply suggests

2

Further, even if Cobb could demonstrate the City’s ability to fund

the claim, the solvent-debtor exception to the stay requirement does not

apply where, as here, there has “been such a comprehensive change in

circumstances as to render it inequitable for the court to consider the

merits of the appeal.” Platinum Capital, Inc. v. Sylmar Plaza, L.P. (In re

Sylmar Plaza, L.P.), 314 F.3d 1070, 1074 (9th Cir. 2002). This rule

makes good sense, as “[b]ankruptcy cases often implicate parties besides

the debtor and its creditors.” In re Mortgs. Ltd., 771 F.3d at 1216.

IN RE CITY OF STOCKTON 17

for the first time on appeal, without support in the record, that

the City is not insolvent.

In sum, the third factor favors application of equitable

mootness.

4

The final factor is whether the bankruptcy court could

fashion equitable relief without completely undoing the plan.

Of course, undoing the plan is precisely the remedy that Cobb

seeks. Cobb argues that he seeks only monetary relief, but

his appeal is of the bankruptcy court’s order overruling

Cobb’s objection to confirmation of the plan of adjustment.

His challenge—and his only challenge—is to the

confirmation of the plan itself. In his objection to the plan

before the bankruptcy court, Cobb argued that the plan could

not be confirmed, and “[w]here a Chapter 9 Plan may not be

confirmed, the remedy appears to be dismissal of the

bankruptcy case.” The Notice of Appeal was taken as to the

bankruptcy court’s order denying his objection to plan

confirmation. On appeal, he reiterated his objection to the

plan and repeated his claim that where a bankruptcy plan

cannot be confirmed, the remedy is dismissal of the

bankruptcy case.

Sustaining Cobb’s objection would mean dismantling the

confirmed reorganization plan, which is the only relief he

seeks. Considering this remedy in Franklin, the Bankruptcy

Appellate Panel concluded that “[r]eversing the Confirmation

Order would ‘knock the props out from under’ the plan and

would leave the bankruptcy court with an unmanageable

situation on remand.” Franklin, 542 B.R. at 278. The plan

provides for 20 different classes of creditors, almost all of

18 IN RE CITY OF STOCKTON

which have been deemed impaired—meaning that the legal,

equitable, or contractual rights of the creditors are affected by

the plan. Plan confirmation adjusted all of these rights. To

reverse the Confirmation Order at this stage would create

chaos and undo years of carefully negotiated settlements.

The fourth factor favors application of equitable mootness.

5

Thus, as it was for the Sixth Circuit in considering a

similar appeal arising out of Detroit’s bankruptcy, “[t]his is

not a close call.” Ochadleus v. City of Detroit (In re City of

Detroit), 838 F.3d 792, 799 (6th Cir. 2016). As with the

situation posed by the Detroit municipal reorganization, the

complex plan has been confirmed, affecting the rights of

thousands of creditors and the public.

The reorganization train has left the station. Cobb did not

pursue any bankruptcy stay remedies, much less pursue them

with the requisite diligence. The plan has long been

substantially consummated. He offers too little, too late.

None of the factors that we consider in deciding whether to

apply the doctrine of equitable mootness favor Cobb. Thus,

his appeal must be dismissed.

III

Cobb’s underlying theory—that the Takings Clause

exempts his unsecured claim from reorganization—is not

viable on this record, and the bankruptcy court properly

concluded that this claim fails on the merits. The Takings

Clause is only implicated in bankruptcy if the creditor has

actual property rights. In other words, the creditor must have

an “in rem right under nonbankruptcy law to look to specific

IN RE CITY OF STOCKTON 19

items of property” in order for the debt to be paid ahead of

unsecured creditors. 4 Collier on Bankruptcy ¶ 506.03 (Alan

N. Resnick & Henry J. Sommer eds., 16th ed. 2017). If the

purported property interest is, in reality, just a contractual or

statutory right for monetary relief, then the debt can be

adjusted in bankruptcy.

A

Distilled to its essence, Cobb’s argument on appeal is that

he has a property interest that cannot be adjusted in

bankruptcy. But that is not what his bankruptcy claim is, or

even what he asserted that his was. As we have noted, both

the City and Cobb classified his claim as an unsecured

monetary claim. Cobb has never challenged the

categorization of the claim as unsecured; nor has he sought,

through 11 U.S.C. § 506 or otherwise, to have his interest

adjudicated otherwise. Indeed, prior state court judgments

against him would have precluded that.

Even assuming that Cobb had asserted a property-based

proof of claim, it failed on the merits to be categorized as

such, as the bankruptcy court found. First, he had

relinquished his property interest in the land more than

15 years before bankruptcy was filed. As we have noted,

under California’s “quick-take” condemnation proceedings,

Stockton properly hired a qualified expert appraiser, who

valued the property. Following the statutory procedure,

Stockton then deposited the funds and moved the superior

court for immediate possession of the property, and the

superior court granted the City immediate possession of the

parcel. Andrew Cobb did not object to the probable just

compensation finding or judgment.

20 IN RE CITY OF STOCKTON

As we have noted, under California law, if the property

owner elects to withdraw the proposed compensation amount,

he waives all claims and defenses to the condemnation,

except a claim for greater compensation. Cal. Civ. Proc.

Code § 1255.260. Michael Cobb withdrew the deposit,

thereby waiving all claims, except as to a claim for greater

compensation. In other words, Cobb gave up all rights to the

property. He did not assert a counterclaim for greater

compensation in the condemnation proceeding.

Seven years later, he tried to return the money, which the

City declined. His subsequent suit against the City, in which

he sought quiet title and declaratory relief, among other

remedies, was dismissed. In sum, the relief he sought to

enforce property rights or restoration of his property interest

was rejected. That judgment is final and binding. He did not

take an appeal from that decision, except as to the statute of

limitations on his inverse condemnation claim. The

California Court of Appeal granted him relief on that

question. So, what remains of his state court action is simply

an unliquidated and unsecured monetary damage claim.

Thus, the bankruptcy court properly concluded that once

Cobb withdrew the tendered compensation, he waived by

operation of law all claims and defenses in his favor as to the

property, except for a claim for greater compensation, which

is an unsecured monetary debt claim.

Second, Cobb independently relinquished any property

interest he had by allowing the City to construct the road and

open the road to public use. Under California law, if a

property owner allows the government to complete the taking

of the property for public use, he is “denied the right to enjoin

the agency.” Frustuck v. City of Fairfax, 28 Cal. Rptr. 357,

IN RE CITY OF STOCKTON 21

373 (Cal. Dist. Ct. App. 1963). The fact that formal title has

not passed is irrelevant under California law. California ex

rel. Dep’t of Pub. Works v. Peninsula Title Guar. Co.,

301 P.2d 1, 3 (Cal. 1956) (noting that when there has been a

prior physical taking the subsequent title transfer “is merely

a confirmation of the original taking”).

Thus, when the bankruptcy was filed, Cobb did not

possess a right to the property protected by the Fifth

Amendment. It had been extinguished. What remained was

bare legal title—without any other property rights and subject

to defeasance by the prior litigation—and an unsecured

statutory monetary claim for greater compensation.

Cobb’s theory seems to be that an unliquidated, statutory

claim for greater compensation cannot be adjusted in

bankruptcy. But it is purely a monetary claim. As the

bankruptcy court pointed out, if the inverse condemnation

claim had been reduced to a judgment, it would be subject to

adjustment in bankruptcy; therefore, it is not logical to say

that an unliquidated claim for greater compensation cannot be

adjusted in bankruptcy.

Nor does the character of any claim asserting an

unconstitutional taking make it immune from evaluation on

the merits in bankruptcy. Indeed, we have approved the

dismissal of a takings claim in its entirety by a bankruptcy

court. George v. City of Morro Bay (In re George), 322 F.3d

586, 590–91 (9th Cir. 2003) (per curiam). Cobb cannot

implicate the Takings Clause in order to elevate his claim

above other Fifth Amendment-protected property

interests—which are adjustable in bankruptcy—and to escape

procedural requirements. See Bennett v. Jefferson Cty., __

F.3d __, 2018 WL 3892979, at *7 (11th Cir. 2018) (quoting

22 IN RE CITY OF STOCKTON

Henderson v. United States, 568 U.S. 266, 271 (2013))

(“[T]he mere fact that a potential or actual violation of a

constitutional right exists does not generally excuse a party’s

failure to comply with procedural rules for assertion of the

right. A ‘constitutional right, or a right of any other sort, may

be forfeited in criminal as well as civil cases by the failure to

make timely assertion of the right before a tribunal having

jurisdiction to determine it.’”).

Cobb had ample opportunities in the bankruptcy court to

adjudicate the nature of his claim through a variety of

procedural mechanisms. He did not do so. He listed his

claim as unsecured and did not file any proceeding to have

the court determine its secured status. He did not object to

the disclosure statement. He did not seek exemption from

discharge. It would be improper not only to excuse all of

these failures, but to invent for him an entirely new remedy

on appeal. One cannot play possum during bankruptcy

proceedings and then claim some new interest after a plan has

been confirmed. A contrary holding would emasculate

bankruptcy proceedings.

B

Cobb argues that his monetary claim has protected status

because it was originally founded as a constitutional claim.

However, other constitutionally based lawsuits seeking

money damages, such as § 1983 claims, are routinely

adjusted in bankruptcy—and, in fact, were adjusted in this

bankruptcy. Cobb cites Louisville Joint Stock Land Bank v.

Radford, 295 U.S. 555 (1935), for the unremarkable

proposition that the bankruptcy power is subject to the Fifth

Amendment. However, that “does not mean, of course, that

secured creditors are immune from the bankruptcy process.”

IN RE CITY OF STOCKTON 23

4 Collier on Bankruptcy ¶ 506.02. Rather, “in a number of

contexts the Code expressly permits the adjustment of debts

of secured creditors, including lien rights.” Id.

Moreover, as the Supreme Court itself suggested in

Helvering v. Griffiths, 318 U.S. 371, 400–01 & n.52 (1943),

the precedential weight of Radford is uncertain in light of

Wright v. Vinton Branch, 300 U.S. 440 (1937), in which the

Court upheld the same act struck down in Radford following

relatively minor amendment. Indeed, the relevant problem

addressed in Radford is “the taking of substantive rights in

specific property acquired by the bank prior to the act.”

Radford, 295 U.S. at 590 (emphasis added). This reading of

Radford presents an easy synthesis with United States v.

Security Industrial Bank, in which the Court held that

constitutional infirmity could be avoided by reading a

bankruptcy statute as not compromising security interests

created before the statute was enacted. 459 U.S. 70, 81

(1982). The Supreme Court has never held that the Takings

Clause renders claims that accrued after the Bankruptcy Code

was enacted immune from the Bankruptcy power, or the

bankruptcy process.3 In short, Radford does not reach as far

as Cobb asserts.

Further, “just compensation” under the Takings Clause is

not equivalent to “full compensation.” United States v.

Norwood, 602 F.3d 830, 834 (7th Cir. 2010). The concept of

“just compensation” requires consideration of “all

circumstances,” including whether the contemplated

3

See, e.g., James Steven Rogers, The Impairment of Secured

Creditors’ Rights in Reorganization: A Study of the Relationship Between

the Fifth Amendment and the Bankruptcy Clause, 96 HARV. L. REV. 973,

974 (1983).

24 IN RE CITY OF STOCKTON

compensation “would result in manifest injustice to owner or

public.” United States v. Commodities Trading Corp,

339 U.S. 121, 123 (1950) (“[T]he dominant consideration

always remains the same: What compensation is ‘just’ both

to an owner whose property is taken and to the public that

must pay the bill?”).

In sum, when Stockton filed its bankruptcy petition, Cobb

did not possess a property interest cognizable as such in

bankruptcy, and he never asserted anything but an unsecured

proof of claim. His unsecured claim for greater compensation

was not tethered to the actual property interest he had when

the bankruptcy was filed. Rather, his claim is for the

purported rights that were extinguished long before the

bankruptcy was filed. What he is left with after bankruptcy

is bare property title and an unliquidated unsecured claim.

Given the circumstances of the case, the bankruptcy court

correctly determined that Cobb’s claim was properly

categorized in the reorganization plan and properly overruled

his objection to plan confirmation.

IV

Stockton’s reorganization plan was confirmed and has

been substantially consummated. Undoing the confirmed

plan would seriously affect the rights of third parties. Cobb

did not take the minimal step of seeking a stay at any

level—not before the bankruptcy court, not before the district

court, and not before us. On the merits, the bankruptcy court

properly rejected his claim. The claim was correctly

categorized as unsecured and adjusted as such.

This appeal is not the first time that the question of

equitable mootness has arisen in the context of this

IN RE CITY OF STOCKTON 25

bankruptcy. In Franklin, the Bankruptcy Appellate Panel

carefully reviewed the challenge of a large capital market

creditor to Stockton’s plan of reorganization. It concluded

that the creditor’s challenge was equitably moot in

consideration of the substantial consummation of the plan, the

effect on third parties, and whether relief could be fashioned

without destroying the plan. Franklin, 542 B.R. at 264–65.

The same considerations apply here, with the same effect.

DISMISSED.

FRIEDLAND, Circuit Judge, dissenting:

The Bill of Rights constrains the powers given to

Congress by Article I of the Constitution. And, in particular,

the Fifth Amendment’s requirement that the government

provide just compensation for any taking of private property

constrains the powers granted to Congress by the Bankruptcy

Clause of Article I. Takings claims should therefore be

excepted from discharge in bankruptcy.

The majority contends that the judge-made bankruptcy

doctrine of equitable mootness is the dominant principle at

issue in this appeal, and that it prevents us from even

adjudicating the constitutional claim to just compensation

asserted by Appellant Michael Cobb (“Cobb”) against the

City of Stockton (“City”). But equitable mootness has no

role to play here. Cobb seeks only to have his claim to just

compensation excepted from discharge—that is, to effectively

be treated as falling outside the City’s bankruptcy adjustment

plan (“Plan”). A claim that falls outside of bankruptcy cannot

be subject to the bankruptcy doctrine of equitable mootness.

26 IN RE CITY OF STOCKTON

I would therefore reach the merits of Cobb’s appeal rather

than dismissing it.

As to the merits, there is no dispute that the City

condemned Cobb’s property.1 And, after that happened,

Cobb took all actions necessary under state law to preserve

his right to just compensation for the taking of that property.

Indeed, his state court action for just compensation would

have proceeded if it had not been stayed in response to the

City’s bankruptcy filing. Because Cobb maintains a

constitutional claim for just compensation, and because that

claim should have been excepted from discharge, I would

hold that Cobb’s state-court inverse condemnation action

should be allowed to proceed.

I.

The majority concludes that any appeal seeking to unravel

the Plan would be equitably moot. Even assuming so,

undoing the confirmed Plan is not on the table in this appeal.

Cobb has been abundantly clear before our court that he seeks

only to except his claim from discharge, and thus to remove

his claim from the Plan altogether. Although Cobb originally

lodged his complaint as an objection to the Plan, which may

1

I note that the fee owner of the parcel is the Andrew C. Cobb 1992

Revocable Trust dated July 16, 1992, for which Cobb serves as trustee.

In that capacity, Cobb has the authority to “prosecute or defend actions,

claims, or proceedings for the protection of trust property.” Moeller v.

Superior Court, 947 P.2d 279, 284 (Cal. 1997) (quoting Cal. Prob. Code

§ 16249). In such actions, “the trustee, rather than the trust, is the real

party in interest.” Id. at 283 n.3. I accordingly refer to Cobb as the

“owner” of the condemned parcel, and the parties have similarly stipulated

that Cobb became the “owner of the [p]arcel by operation of state probate

and trust succession following the death of [his father,] Andrew C. Cobb.”

IN RE CITY OF STOCKTON 27

have seemed to him the only option given the novelty of the

legal issue his situation presented, he has since plainly

disclaimed any intent to “unwind” the Plan. Equitable

mootness considerations are therefore irrelevant here and

should not prevent us from adjudicating Cobb’s argument that

his takings claim was entitled to “pass through [the]

bankruptcy unaffected.” In re Towers, 162 F.3d 952, 953

(7th Cir. 1998).

Equitable mootness “reflects an unwillingness to provide

relief” in cases involving bankruptcy “transactions that are so

complex or difficult to unwind that debtors, creditors, and

third parties are entitled to rely on the final bankruptcy court

order.” In re Transwest, 801 F.3d 1161, 1167 (9th Cir. 2015)

(quoting In re Mortgs. Ltd., 771 F.3d 1211, 1215 (9th Cir.

2014)). I am unaware of any case in which we have applied

an equitable mootness analysis to an individual’s claim that

an asset should have been excepted from discharge and

excluded from bankruptcy proceedings altogether. Indeed, it

makes no sense to extend this judicially created doctrine to

cases like this one. The sole point of this appeal is that Cobb

should have been permitted to pursue his claim outside of the

Plan because his claim should have been excepted from

discharge. See In re Towers, 162 F.3d at 953. Such an appeal

could never undo a plan. If an appellant like Cobb prevails,

his or her claim will survive totally apart from the plan, and

recognition of such survival will in no way change the terms

of the plan. If the appellant does not prevail, then it will have

been appropriate to have discharged his or her claim as part

28 IN RE CITY OF STOCKTON

of the plan, and there will thus be no reason to change the

terms of the plan.2

The majority relies on Franklin High Yield Tax-Free

Income Fund v. City of Stockton, 542 B.R. 261, 265 (B.A.P.

9th Cir. 2015), to conclude that we should dismiss this appeal

because Cobb’s claim might jeopardize the City’s financial

health. In fact, the Bankruptcy Appellate Panel in Franklin

recognized that a claim solely for a monetary remedy—unlike

a claim seeking to undo the Plan—would not necessitate

disturbing the Plan and so would not be moot. Id. at 277. As

a result, the Bankruptcy Appellate Panel concluded that “to

the extent [the creditor] s[ought] through its appeal [from

confirmation of the Plan] only a greater payment on its

unsecured claim . . . an effective remedy [was] theoretically

possible, and that claim [was] not equitably moot.” Id. at

2

And with respect to the first equitable mootness factor—whether a

stay was sought—it would be pointless for parties trying to have their

claims excepted from discharge to be required to seek to stay a plan that

they believe their claims should not be part of in the first place.

Moreover, although Cobb did not seek a stay of the Plan, he was certainly

diligent in pursuing his rights. See In re Thorpe Insulation Co., 677 F.3d

869, 881 (9th Cir. 2012) (holding that “where a party has done nothing by

its own inaction to encourage or permit developments to proceed without

its participation, courts should be cautious about reaching a conclusion of

equitable mootness”). Cobb argued in the bankruptcy court that his

“claims in inverse condemnation are protected by the Fifth and Fourteenth

Amendments to the United States Constitution and cannot be impaired by

the Plan,” and the bankruptcy court held a hearing and then ruled on this

objection. As a result, contrary to the majority’s suggestion, it was

unnecessary for Cobb to seek a stay to afford the bankruptcy court an

opportunity to rule on this issue.

IN RE CITY OF STOCKTON 29

278.3 Franklin thus did not, as the majority suggests, hold

that requiring the City to pay a monetary judgment would

threaten the integrity of the Plan.

Because this appeal in no way threatens the finality of the

Plan, and in fact seeks to allow Cobb’s claim to proceed

totally apart from the Plan, I would fulfill our “virtually

unflagging obligation . . . to exercise the jurisdiction given”

us by ruling on the merits. Colo. River Water Conservation

Dist. v. United States, 424 U.S. 800, 817 (1976).

II.

With respect to the substance of Cobb’s claim, the

majority is persuaded that Cobb has waived all property

rights in the condemned parcel as a matter of California law,

including his right to seek just compensation. And, even if he

has not, the majority appears to conclude that a claim for just

compensation could be reduced in bankruptcy. I disagree on

both counts. Starting with the latter point, as a matter of

constitutional first principles, I believe municipalities are

obligated to provide just compensation for any taking of

private property, regardless of the bankruptcy laws. And

regarding Cobb’s claim in particular, I believe that Cobb has

preserved a constitutional claim for just compensation, and

3

And because Cobb, unlike the creditor in Franklin, seeks to proceed

entirely outside the Plan, the City would be under no obligation to

compensate him within the same timeframe in which it compensates the

creditors covered by the Plan. See infra note 14.

30 IN RE CITY OF STOCKTON

that his claim thus should have been excepted from

discharge.4

A.

“Congress, in common with all branches of the

Government, must exercise its powers subject to the

limitations placed by the Constitution on governmental

action,” including “the relevant limitations of the Bill of

Rights.” Barenblatt v. United States, 360 U.S. 109, 112

(1959). Where, for example, a statute violates the First

Amendment, it is no answer that the statute was properly

enacted pursuant to Congress’s power under the Commerce

Clause. See Cal. Bankers Ass’n v. Shultz, 416 U.S. 21, 77

(1974) (noting that Congress “is of course subject to the

strictures of the Bill of Rights, and may not transgress those

strictures” when enacting legislation). Accordingly, although

Congress has the authority to enact “uniform Laws on the

subject of Bankruptcies,” U.S. Const. art. I, § 8, cl. 4, such

laws must not take away rights guaranteed by the Bill of

Rights. These rights include the Fifth Amendment’s

proscription, operational against the states under the

Fourteenth Amendment, that private property shall not “be

taken for public use, without just compensation,” U.S. Const.

amend. V. See Dolan v. City of Tigard, 512 U.S. 374, 383–84

(1994).

4

I recognize that only a portion of the proof of claim that Cobb

submitted in the bankruptcy proceeding is truly a claim for just

compensation, and I would hold that Cobb’s claim should be excepted

from discharge only to the extent that it seeks just compensation for the

condemned parcel in excess of what he has already been paid. I do not

believe that Cobb is entitled to shield from bankruptcy the portion of his

claim that requests other forms of recovery, such as attorney’s fees or

insurance costs.

IN RE CITY OF STOCKTON 31

In addressing the interplay between these clauses of the

Constitution, the Supreme Court has confirmed that the

Takings Clause of the Fifth Amendment constrains the power

conferred by the Bankruptcy Clause of Article I. The Court

first discussed this principle in Louisville Joint Stock Land

Bank v. Radford, 295 U.S. 555 (1935). Radford held that the

Frazier-Lemke Act, which effectively permitted a debtor to

purchase mortgaged property for less than its fair market

value, was unconstitutional. The Court explained that “[t]he

bankruptcy power, like the other great substantive powers of

Congress, is subject to the Fifth Amendment.” Id. at 589. As

a result, the Act’s impairment of a mortgagee’s rights

violated the Takings Clause:

[T]he Fifth Amendment commands that,

however great the Nation’s need, private

property shall not be . . . taken even for a

wholly public use without just compensation.

If the public interest requires, and permits, the

taking of property of individual mortgagees in

order to relieve the necessities of individual

mortgagors, resort must be had to proceedings

by eminent domain.

Id. at 602. In short, Radford teaches that the Takings Clause

prohibits the impairment in bankruptcy of “substantive rights

in specific property,” such as the rights of a mortgagee in real

property.5 Id. at 590.

5

The Supreme Court later upheld the constitutionality of the amended

Frazier-Lemke Act in Wright v. Vinton Branch of Mountain Trust Bank,

300 U.S. 440 (1937). Contrary to the majority’s assertion, Wright does

not undermine the Court’s holding in Radford that the bankruptcy power

is subject to the Takings Clause. Rather, Wright turned on the

32 IN RE CITY OF STOCKTON

Similarly, in the Regional Rail Reorganization Act Cases,

419 U.S. 102 (1974), the Court expressed concern that a

bankruptcy statute might unconstitutionally leave a taking

uncompensated, though it concluded that a mechanism

existed to provide just compensation, alleviating that concern.

Id. at 149, 155. Those cases involved a challenge to the

constitutionality of the Regional Rail Reorganization Act,

under which railroad creditors would receive securities of

then-unknown value to compensate them for the conveyance

of the railroads’ property. Id. at 117–18. The Court

recognized that the reorganization “might raise serious

constitutional questions” absent a method to challenge the

amount of compensation received, because the properties

were to be transferred before it was clear whether the

securities would satisfy the requirement of just compensation.

Id. at 149, 155. But because the creditors had “recourse to a

Tucker Act suit in the Court of Claims for a cash award to

cover any constitutional shortfall,” the Court held that the

reorganization provided “adequate assurance that any taking

w[ould] be compensated.” Id. at 155.

The Court subsequently reconfirmed in United States v.

Security Industrial Bank, 459 U.S. 70 (1982), that “[t]he

bankruptcy power is subject to the Fifth Amendment’s

prohibition against taking private property without just

compensation.” Id. at 75. There, the Court considered a

determination that the new Act had no significant impact on property

rights at all. 300 U.S. at 457, 470; see also Rodrock v. Sec. Indus. Bank,

642 F.2d 1193, 1197–98 (10th Cir. 1981) (explaining that while

subsequent cases “may well refine the rule of Radford, . . . they do not

destroy the fundamental teaching of Radford that Congress may not under

the bankruptcy power completely take for the benefit of a debtor rights in

specific property previously acquired by a creditor”), aff’d sub nom.

United States v. Sec. Indus. Bank, 459 U.S. 70 (1982).

IN RE CITY OF STOCKTON 33

Takings Clause challenge to the Bankruptcy Code exemption

in 11 U.S.C. § 522(f)(2), which permits individual debtors to

avoid liens on certain personal property, such as household

goods or appliances, in bankruptcy proceedings. Id. at 71–73.

Holders of non-purchase-money, non-possessory liens on

such property argued that retroactive application of § 522(f)

to their liens would exact a taking. Id. at 73. The Court

agreed that retroactive application of the statute would raise

serious constitutional questions, because the provision “could

be read literally to divest property interests which had been

created before it was enacted.” Id. at 80. Emphasizing “‘the

absence of a clear expression of Congress’ intent to’ apply”

the provision to preexisting liens, the Court invoked the

doctrine of constitutional avoidance to hold that the statute

did not apply retroactively, thus averting the possibility that

§ 522(f) might result in a taking. Id. at 78–82 (quoting NLRB

v. Catholic Bishop of Chi., 440 U.S. 490, 507 (1979)).6

6

The majority attempts to limit this line of cases to situations in

which the government retroactively divests creditors of their property

interests. But, even if it should be so limited, that is exactly the situation

facing Cobb. To begin, there is no question that a taking occurred that

divested Cobb of his interest in real property. He had an undisputed right

to just compensation until the City filed for bankruptcy and attempted to

eliminate that right retroactively.

Moreover, the majority fails to recognize the important distinction

between the rights of land owners and the rights of secured creditors.

Applying § 522(f) prospectively in Security Industrial Bank did not

implicate constitutional concerns because the property interests of secured

creditors are themselves “defined by reference to existing law.” See

James Steven Rogers, The Impairment of Secured Creditors’ Rights in

Reorganization: A Study of the Relationship Between the Fifth Amendment

and the Bankruptcy Clause, 96 Harv. L. Rev. 973, 987 (1983). When a

creditor “enter[s] into [a] security arrangement, he kn[ows] . . . that his

rights [a]re circumscribed by the federal legislation.” Id. By contrast,

legislation restricting rights in real property could never be entirely

34 IN RE CITY OF STOCKTON

These decisions underscore that Congress’s bankruptcy

powers do not allow it to infringe upon rights guaranteed by

the Takings Clause. Where a taking has occurred, just

compensation is owed and cannot be reduced—bankruptcy

notwithstanding. Accordingly, a municipality may not nullify

its obligation to pay just compensation for seized property

through a chapter 9 proceeding. Rather, claims for just

compensation should be excepted from discharge, such that

they survive any bankruptcy intact.7

B.

Unlike the majority, I believe Cobb took all the steps

necessary to preserve his constitutional claim for just

compensation. When Cobb’s property was condemned by the

prospective. Id. at 987 n.59. In other words, “there can . . . be new

security arrangements,” but there “can be no new land.” Id. Accordingly,

Cobb’s claim implicates the same concerns that led the Supreme Court to

limit retroactive application of the bankruptcy laws.

7

I note that the majority’s contrary approach is at odds with the only

other federal court that has addressed this question. The bankruptcy court

adjudicating Detroit’s municipal bankruptcy held that the Takings Clause

prohibits the discharge in bankruptcy of pending claims for just

compensation arising from already completed takings. In re City of

Detroit, 524 B.R. 147, 270 (Bankr. E.D. Mich. 2014). There, creditors

were slated to receive a fraction of their takings claim under Detroit’s

chapter 9 plan. Id. at 267. Because the proposed plan denied those

creditors their constitutionally owed just compensation, the court held that

it would violate the Fifth Amendment if confirmed. Id. at 270. The

bankruptcy court thus provided in its confirmation order that the takings

claims were excepted from discharge. Id.

IN RE CITY OF STOCKTON 35

City, he obtained a constitutional right to just compensation.8

He retained this right by filing an inverse condemnation

action and pursuing it in accordance with the appropriate state

procedures. That action is still pending in state court, having

been stayed when the City filed its bankruptcy petition. As

a result, Cobb maintains a claim for just compensation that

should now be allowed to proceed.

The majority instead holds that Cobb has forfeited all

property rights in the condemned parcel under California law,

and that his pending claim is “simply” a statutory claim for

monetary damages. But the statutory character of Cobb’s

8

This case presents a separate issue from cases adjudicating whether

a taking has in fact occurred. The majority cites In re George, 322 F.3d

586 (9th Cir. 2003), for the proposition that we have approved a

bankruptcy court’s dismissal of a takings claim on the merits. There, we

considered the application of 11 U.S.C. § 365(d)(4), which requires a

bankruptcy trustee to assume or reject an “unexpired lease of

nonresidential real property” within a particular timeframe to avoid having

to surrender the property. 322 F.3d at 589 n.2 (quoting 11 U.S.C.

§ 365(d)(4)). We had previously clarified that, because the statute allows

the debtor either to assume or to reject the lease, the statute does not itself

result in an unconstitutional taking. See In re Ariz. Appetito’s Stores, Inc.,

893 F.2d 216, 220 (9th Cir. 1990) (explaining that where a debtor does not

move to assume a lease, it is the debtor’s “own conduct” that results “in

the rejection of the lease and the loss of its interest in the building”—not

operation of the bankruptcy statute). In In re George, the debtors were

required to surrender the leased property after they failed to take action

during the relevant timeframe. 322 F.3d at 589. We concluded that there

was no cognizable taking because, following the surrender, “the debtors

ha[d] no valid right to possess or develop the property.” Id. at 590.

Accordingly, the debtors had “no right to be compensated at all, let alone

justly.” Id. at 591. Contrary to the majority’s characterization, there was

therefore no colorable takings claim for the bankruptcy court to have any

impact on one way or the other. Here, by contrast, there is no question

that a taking occurred that entitled Cobb to compensation.

36 IN RE CITY OF STOCKTON

claim does not diminish its constitutionally protected

status—indeed, a constitutional claim for just compensation

is a statutory claim for monetary damages under California

law.

And Cobb did not forfeit his right to just compensation by

either withdrawing the probable just compensation funds or

permitting the public to use the road. The California

Supreme Court has in fact explained that the constitutionality

of the state’s quick-take scheme rests in part on its allowing

a continuing claim for greater compensation after deposited

funds are withdrawn. Cf. Mt. San Jacinto Cmty. Coll. Dist. v.

Superior Court, 151 P.3d 1166, 1175 (Cal. 2007). I thus

disagree that Cobb has completely relinquished his interest in

the property.

1.

The majority’s conclusion that Cobb’s inverse

condemnation action somehow became untethered from the

Takings Clause is both inconsistent with California law and

fundamentally at odds with the Fifth Amendment. To

demonstrate why this is so, it is necessary to describe the

constitutional nature of Cobb’s pending inverse

condemnation action under California law.

Because the Fifth Amendment “proscribes takings without

just compensation, no constitutional violation occurs until

just compensation has been denied.” Williamson Cty. Reg’l

Planning Comm’n v. Hamilton Bank of Johnson City,

473 U.S. 172, 194 n.13 (1985). The Fifth Amendment does

not require payment of just compensation “in advance of, or

contemporaneously with, the taking; all that is required is that

a ‘reasonable, certain and adequate provision for obtaining

IN RE CITY OF STOCKTON 37

compensation’ exist at the time of the taking.” Id. at 194

(quoting Reg’l Rail Reorg. Act Cases, 419 U.S. at 124–25).

Accordingly, “if a State provides an adequate procedure for

seeking just compensation, the property owner cannot claim

a violation of the Just Compensation Clause until it has used

the procedure and been denied just compensation.” Id. at

195.

California provides such a process by making available an

action for inverse condemnation. See Regency Outdoor

Advert., Inc. v. City of Los Angeles, 139 P.3d 119, 123 (Cal.

2006) (“Inverse condemnation actions provide a vehicle for

property owners to obtain ‘just compensation.’”); Adam Bros.

Farming v. Cty. of Santa Barbara, 604 F.3d 1142, 1147–48

(9th Cir. 2010) (noting that the procedure for seeking just

compensation in California is an inverse condemnation

action). An inverse condemnation action enables a property

owner to enforce his constitutional right to just compensation,

Baker v. Burbank-Glendale-Pasadena Airport Auth.,

705 P.2d 866, 868 (Cal. 1985), when a municipality “has

taken private property for public use without following the

requisite condemnation procedures,” Customer Co. v. City of

Sacramento, 895 P.2d 900, 905 (Cal. 1995).

An inverse condemnation action became available to

Cobb when the City failed to prosecute its eminent domain

action to final judgment and thus did not complete the

condemnation procedures required under California law to

compensate Cobb and to secure title for the City.9 See Redev.

9

To the extent the majority faults Cobb for not asserting a

counterclaim for greater compensation in the eminent domain proceeding,

the majority is mistaken. Because an eminent domain action will

necessarily determine the compensation due to the property

38 IN RE CITY OF STOCKTON

Agency v. Gilmore, 700 P.2d 794, 802 (Cal. 1985) (explaining

that title to condemned property does not pass until a final

order of condemnation has been recorded, including in a

quick-take case); accord Cal. Civ. Proc. Code § 1268.030(c).

The majority misunderstands the significance under state law

of Cobb’s retention of title. Where, as here, a municipality

takes possession of property using the quick-take process,

title to the property does not vest in the municipality until

there has been a jury determination of just compensation, the

full amount of that compensation has been paid, a final

judgment has been entered in the eminent domain action, and

a final order of condemnation has been recorded. Cal. Const.

Art. 1, § 19; Cal. Civ. Proc. Code § 1268.030(a), (c).

Because the City failed to pursue its eminent domain claim to

completion, no jury determination of just compensation

owner—indeed, that is the purpose of the action—a property owner is not

required to separately counterclaim for more than the probable just

compensation funds. In fact, the value of the probable just compensation

funds “may not be given in evidence or referred to in the trial of the issue

of compensation” during an eminent domain proceeding in California

court. Cal. Civ. Proc. Code § 1255.060(a). This state procedural rule

would make no sense if a property owner had to bring a counterclaim to

request compensation in excess of the deposited funds. Moreover, the

City has never asserted that Cobb was required to bring a counterclaim for

his requested compensation. Even assuming such a requirement existed,

then, the City has forfeited any argument that Cobb failed to meet it.

Finally, as the California Court of Appeal explained in concluding that

Cobb’s inverse condemnation action was still timely, a property owner is

not required to bring an inverse condemnation action until the dismissal

of the eminent domain proceeding. If Cobb had been required to assert a

counterclaim for greater compensation, he would not have had a viable

inverse condemnation claim that could even potentially have been time

barred. The fact that the Court of Appeal held that Cobb’s inverse

condemnation action could proceed shows that the court implicitly

concluded that Cobb was not required to bring a counterclaim in the

eminent domain action.

IN RE CITY OF STOCKTON 39

occurred, Cobb’s takings claim was never finally adjudicated,

and title to his property never passed to the City. See Redev.

Agency, 700 P.2d at 802; Prop. Reserve, Inc. v. Superior

Court, 375 P.3d 887, 907–08 (Cal. 2016) (observing that,

under California law, condemnation requires “a jury

determination of just compensation”). As a result, although

the majority is correct that Cobb could not now eject users of

the road from the land, Cobb’s title is meaningful because it

demonstrates that he has an outstanding constitutional claim

for just compensation. See id.

Cobb’s efforts to pursue that claim were halted when the

City’s bankruptcy filing led to a stay of Cobb’s inverse

condemnation proceeding. To this day, Cobb remains the

legal owner of the property with an outstanding claim for just

compensation.10

10

People ex rel. Department of Public Works v. Peninsula Title

Guaranty Co., 301 P.2d 1 (Cal. 1956), is not to the contrary. The majority

invokes Peninsula Title for the proposition that formal title passage is not

required to effect a change of ownership “[w]here there has been a prior

physical ‘taking.’” Id. at 3. But the question in Peninsula Title was

whether a property owner who retains legal title remains liable for certain

taxes after a public entity has already taken the property. Id. at 3–4. The

California Supreme Court held that, under those circumstances, lack of a

formal transfer of title should not operate to impose continued tax liability

on a property owner who has already experienced “a divestiture for all

practical purposes.” Id. at 3. The issue in Peninsula Title was thus

whether a property owner should continue to bear the burdens of

ownership throughout the lengthy eminent domain process despite having

effectively lost the property, not whether a property owner is deprived of

the only benefit remaining to him at that point—the constitutional right to

seek just compensation. The City has not cited any cases that support the

latter proposition, nor has the majority. And, indeed, Cobb has continued

to pay taxes on the parcel.

40 IN RE CITY OF STOCKTON

2.

The majority recasts Cobb’s effort to enforce his

constitutional right to just compensation as a mere monetary

claim that is based on California’s statutory scheme rather

than the United States Constitution. As a preliminary matter,

of course Cobb’s claim takes the form of a statutory claim for

money. The Fifth Amendment requires that states provide a

mechanism for compensating land owners for their

condemned property, so such takings claims will generally be

brought in accordance with procedures laid out in state

statutes. Takings claims arising in California do not somehow

lose their constitutional status merely because California’s

procedures for seeking just compensation were codified by

statute rather than solely through caselaw. And all actions for

just compensation could be characterized as claims for

money; that is the nature of the claim. Cf. Lucree v. United

States, 117 Fed. Cl. 750, 752 (2014) (“A claim for just

compensation [under federal law] is a claim for money

damages cognizable under the Tucker Act.”).11 The fact that

Cobb’s claim takes the form of a statutory claim for money

damages, therefore, does not render it something other than

a claim for just compensation arising out of the Fifth

Amendment.

Additionally, Cobb’s claim for just compensation did not

lose its constitutional mooring when Cobb withdrew the

11

For these reasons, and contrary to the majority’s assertion, Cobb’s

inverse condemnation claim should have been exempted from discharge

even if it had already been reduced to judgment. Whether someone has

an outstanding claim for just compensation or a judgment awarding him

just compensation, he has a constitutional right to just compensation that

neither a city nor Congress through its bankruptcy powers may extinguish.

IN RE CITY OF STOCKTON 41

probable just compensation funds. Cobb undeniably waived

certain rights by withdrawing the funds, including his ability

to challenge the City’s “right to take” and “any claim as to

lack of a public purpose.” See Clayton v. Superior Court,

78 Cal. Rptr. 2d 750, 752 (Ct. App. 1998). But the plain

language of California Civil Procedure Code § 1255.260

preserves Cobb’s right as the owner of the property to seek

“greater compensation.”

And try as the majority might to reframe a claim for

“greater compensation” as some monetary claim unrelated to

the property owner’s constitutional right to just compensation

for taken property, the California Supreme Court has equated

a claim for greater compensation following a quick take

procedure with the constitutional right to just compensation.

See Mt. San Jacinto Cmty. Coll. Dist., 151 P.3d at 1175

(rejecting a party’s argument that California’s quick-take

procedures deprive property owners of their constitutional

right to just compensation on the ground that “section

1255.260 does not require waiving a claim for greater

compensation with withdrawal of the deposit”). Under

California law, a claim for “greater compensation” comprises

Cobb’s ability “to litigate the issue of adequate

compensation,” Clayton, 78 Cal. Rptr. at 753, that is, the

“amount of ‘just compensation’ to which [he] [i]s entitled,”

Contra Costa Water Dist. v. Vaquero Farms, Inc.,

68 Cal. Rptr. 2d 272, 274–75 (Ct. App. 1997) (rejecting the

argument that a condemnee waived the ability to argue that

just compensation had not yet been paid by withdrawing the

probable just compensation deposit under section 1255.260).

The amount of just compensation is precisely the matter at

issue in Cobb’s inverse condemnation action.

42 IN RE CITY OF STOCKTON

Nor did Cobb relinquish his interest in just compensation

by, as the majority puts it, “allowing the City to construct a

road and open it to public use.”12 In support of the contention

that he did, the majority cites Frustuck v. City of Fairfax,

28 Cal. Rptr. 357 (Ct. App. 1963), which held that “where a

property owner permits the completion by a . . . public agency

of the work which results in the taking of private property for

a public use he will be denied the right to enjoin the agency.”

Id. at 373. But Frustuck speaks to a landowner’s right to

enjoin, not his ability to seek just compensation, and thus has

no applicability here. See id. Indeed, the very next sentence

of Frustuck following the passage quoted by the majority

states: “[The property owner’s] only remedy under such

circumstances is a proceeding in inverse condemnation to

recover damages.” Id. Frustuck thus does not stand for the

proposition that intervening public use deprives a condemnee

of all property rights. Frustuck merely clarifies that, instead

of injunctive relief, the appropriate remedy in such

circumstances is to seek just compensation in an inverse

condemnation action—the very course Cobb pursued.13

12

I note that the Cobb family permitted the City to build a road only

in the sense that they did not challenge the City’s action for prejudgment

possession. See Cal. Civ. Proc. Code § 1255.410(c). The Cobbs did not

otherwise have a choice as to whether the City could proceed with

construction.

13

It is irrelevant that Cobb did not appeal the Superior Court’s

rejection of his quiet title, ejectment, and trespass claims. Those claims

seek relief that would essentially prohibit the City from continuing to use

the land for a public road; such relief is no longer available to Cobb, see

Frustuck, 28 Cal Rptr. at 373, and the Superior Court accordingly held

that the doctrine of intervening public use barred those claims. But

Frustuck makes clear that Cobb can still pursue just compensation in an

inverse condemnation action, see id., and he appealed the Superior Court’s

dismissal of that claim.

IN RE CITY OF STOCKTON 43

Accordingly, Cobb has not relinquished his right to seek

just compensation under California law. Cobb’s right to just

compensation arose when the City seized his property for

public use nearly 20 years ago, and he has adequately pursued

that right ever since.

3.

Finally, the majority places great weight on Cobb’s

failure to contest the unsecured classification of his claim

within the Plan. But the Constitution’s mandate that takings

claims be excepted from discharge does not depend on

whether those claims were initially classified in any

bankruptcy proceeding as secured or unsecured; the whole

point of nondischargeability is that nondischargeable claims

pass through bankruptcy unaffected, see In re Grynberg,

986 F.2d 367, 370 (10th Cir. 1993). And the Bankruptcy

Code does not require a creditor with a claim that is excepted

from discharge to file a proof of claim in the bankruptcy

proceeding to preserve that claim in its entirety. Id.

(describing how a “holder of a nondischargeable debt” is

“free to pursue the debtor outside bankruptcy”); see also In re

Kolstad, 928 F.2d 171, 174 (5th Cir. 1991) (recognizing that

if a creditor with a nondischargeable claim “elected not to

participate in the bankruptcy case and not to file a claim, the

debtor would remain burdened by that debt following

bankruptcy”).14 Instead, the Federal Rules of Bankruptcy

14

Of course, where a creditor with a nondischargeable claim elects to

sit out the bankruptcy entirely, the creditor loses the opportunity to

participate in voting on or distribution under the plan. Grynberg, 986 F.2d

at 370; see also Fed. R. Bankr. P. 3003(c)(2) (explaining that a creditor

who does not file a proof of claim in a chapter 9 or chapter 11 proceeding

“shall not be treated as a creditor with respect to such claim for the

purposes of voting and distribution” (emphasis added)). And “[c]reditors

44 IN RE CITY OF STOCKTON

Procedure plainly state that a complaint seeking exception

from discharge “may be filed at any time.”15 Fed. R. Bankr.

P. 4007(b). As a result, the classification of Cobb’s claim

within the Plan is irrelevant here.

Moreover, while Cobb may not have challenged his

claim’s specific classification, he unequivocally maintained

throughout the bankruptcy proceeding that his claim for just

compensation was “protected by the Fifth and Fourteenth

Amendments to the United States Constitution and c[ould

not] be impaired by the Plan” or treated as a mere “‘general

unsecured’ claim.” This line of reasoning plainly

encompasses the argument that his claim should have been

excepted from discharge. Cobb has now also clearly

expressed to our court that the remedy he requests is to

preserve his takings claim. Given that the parties had an

opportunity to address all of the relevant issues, I see no

reason to fault Cobb for failing to challenge the

categorization of his claim as unsecured. After all, “the

bankruptcy law is not supposed to function merely as a

procedural gauntlet that only the most adroit or best

represented creditors can overcome.” Kolstad, 928 F.2d at

173.

holding nondischargeable debts who do not participate in the distribution

of the debtor’s estate under the plan take a large risk that the debtor will

have nothing left after bankruptcy proceedings are concluded, and that

although the debt has not been discharged, meaningful recovery will be

postponed indefinitely.” Grynberg, 986 F.2d at 370 n.4.

15

The only exception to the lack of a time limit—not applicable

here—is for complaints filed under 11 U.S.C. § 523(c), which relates to

debt incurred from fraud or willful and malicious injury. In re Coleman,

560 F.3d 1000, 1004 n.6 (9th Cir. 2009); see also 11 U.S.C.

§ 523(a)(3)(B).

IN RE CITY OF STOCKTON 45

III.

Contrary to the majority’s suggestions, the sky will not

fall if Cobb is allowed to pursue his claim for just

compensation. I am not blind to the City’s herculean task of

pulling itself out of bankruptcy, but a ruling for Cobb would

not topple the Plan, or somehow throw the City back into

bankruptcy. The City has presented no evidence that Cobb

cannot be compensated for his condemned property while the

City carries out its Plan. The City has not, for example,

argued that it would have to claw back distributions under the

Plan to pay Cobb. Indeed, the City has not even claimed that

it is currently insolvent.16 And, because Cobb seeks to

proceed entirely outside of the Plan, the City would be under

no obligation to compensate him within the same timeframe

in which it compensates creditors under the Plan. See supra

note 14.

In addition, as the majority itself notes, just compensation

does not necessarily mean full compensation. United States

16

To argue otherwise, the majority relies on facts from the

Bankruptcy Appellate Panel’s decision in a different challenge to the

City’s bankruptcy, Franklin High Yield Tax-Free Income Fund v. City of

Stockton, 542 B.R. 261 (B.A.P. 9th Cir. 2015). There is no basis for

incorporating statements—absent from the record here—that were made

in a separate litigation in which Cobb was not a party. See United States

v. Joyce, 511 F.2d 1127, 1132 (9th Cir. 1974) (explaining that “the facts

found in one case are not evidence of those same facts in another case”).

That the majority found it necessary to do so demonstrates the lack of

evidence presented on the issue in this appeal. And, in fact, the

bankruptcy court in the Franklin proceeding noted that with the City’s

“finances on more stable footing,” it was possible that “additional funds

could be made available to [creditors] . . . and that could be done without

disturbing in any way the payments to retirees.” Franklin, 542 B.R. at

277.

46 IN RE CITY OF STOCKTON

v. Norwood, 602 F.3d 830, 834 (7th Cir. 2010). I agree with

the majority that a determination of just compensation

requires considering whether the compensation “would result

in manifest injustice to owner or public.” United States v.

Commodities Trading Corp., 339 U.S. 121, 123 (1950). But

the analysis of what just compensation entails must take place

under the Fifth Amendment, rather than through the lens of

the Bankruptcy Code.

Moreover, recognizing the protected nature of Cobb’s

claim would have implications only for other takings claims,

and thus would not leave the City vulnerable to a slew of new

liabilities arising from other sorts of constitutional claims.

The import of Cobb’s claim is not merely that he has a

constitutional right—it is that he has a constitutional right to

just compensation.17 The Takings Clause stands alone among

constitutional provisions in requiring a specific compensatory

remedy. By contrast, nothing in the Constitution expressly

guarantees compensation for a violation by a city of, for

example, the Equal Protection Clause of the Fourteenth

Amendment. See In re City of Detroit, 524 B.R. 147, 265

(Bankr. E.D. Mich. 2014) (concluding that, in contrast to the

Takings Clause, “the Fourteenth Amendment does not

provide a substantive constitutional right to compensation for

damages”). The majority’s observation that other

constitutional claims are routinely reduced during bankruptcy

proceedings misses this crucial distinction.

17

Because of this distinction, the majority’s reliance on Bennett v.

Jefferson Cty., 899 F.3d 1240 (11th Cir. 2018), is unwarranted. In

Bennett, the Eleventh Circuit held that equitable mootness may bar

consideration on appeal of constitutional challenges to a chapter 9 plan,

but the challenges the court considered related to voting rights and

procedural due process, not the Takings Clause. Id. at 1243, 1250–51.

IN RE CITY OF STOCKTON 47

IV.

For the foregoing reasons, I respectfully but adamantly

dissent.