OPINION AFFIRMING BANKRUPTCY COURT'S ORDERS
BERNARD A. FRIEDMAN, Senior District Judge.
This matter is presently before the Court on an appeal from "the judgment, order, or decree of the bankruptcy judge entered in this adversary proceeding on the 19th day of November, 2014."
To the extent the Bankruptcy Court's decision depended on factual findings, this Court reviews those findings for clear error; and to the extent its decision depended on rulings of law, this Court review those rulings de novo. See 28 U.S.C. § 158(a); In re Cook, 457 F.3d 561, 565 (6th Cir. 2006).
Plaintiffs are ten residents of the City of Detroit, Michigan, who are residential customers of the Detroit Water and Sewerage Department ("DWSD"), and four organizations who claim to "represent members throughout the City of Detroit who are residential customers of DWSD." First Am. Compl. ¶¶ 20-33. The individual plaintiffs allege that in 2013 or 2014 the DWSD turned off their water, or threatened to do so, because their water bills were in arrears. Six of the plaintiffs indicate that their water service was turned off but then restored after they or their landlords paid a portion of the arrearage (generally one-third) and entered into payment plans, sometimes with advocacy assistance from one of the plaintiff organizations. Of the other four individual plaintiffs, two say they could not afford to pay the arrearage or the terms of the payment plan, or both, and remain without water; and the other two avoided service interruption when they, or their landlord, entered into payment plans. All plaintiffs find the cost of DWSD's water service to be unaffordable. See First Am. Compl. ¶¶ 35-63. Five of the plaintiffs claim their water service was turned off without notice or without "effective" notice, see id. ¶¶ 40, 43, 47, 56, 63, and they claim that "thousands of Detroit residents fac[e] water shut-offs without notice, or with deficient notice, on large water delinquencies, often of $1000 or more." Id. ¶ 96. Plaintiffs purport to represent themselves and a class of "all persons living in households who have been issued watershutoffs by the [DWDS] and who have had their water or sewerage service shutoff." Id. ¶ 100.
Plaintiffs assert six claims. In Count I they claim that defendant has breached the "executory contracts" it has with each plaintiff. In Count II plaintiffs claim defendant has violated their procedural due process rights in various ways. In Count III plaintiffs claim defendant has violated their equal protection rights by treating commercial account holders more favorably than residential account holders. In Count IV plaintiffs claim defendant has violated their right to water under the Michigan Constitution. In Count V plaintiffs claim defendant is estopped from changing its past practice of allowing water bills to go unpaid without turning off the account holder's water. And in Count VII
On August 18, 2014, plaintiffs filed a motion for a TRO. On August 28, 2014, defendant filed a motion to dismiss. On September 22 and 23, 2014, the Bankruptcy Court held a hearing on both motions. On September 29, 2014, the Bankruptcy Court issued its bench ruling denying plaintiffs' motion for a temporary restraining order and granting defendant's motion to dismiss. And on November 19, 2014, the Bankruptcy Court issued its Supplemental Opinion in which it clarified the reasons for its bench ruling and, in addition, denying plaintiffs' motions for reconsideration and for leave to amend their complaint. The Bankruptcy Court summarized its rulings as follows:
Bankr. Ct.'s 11-19-14 Suppl. Op. at 3 (Pg. ID 2452).
Having reviewed the Bankruptcy Court's orders and the hearing transcript, as well as the amended complaint and the parties' briefs, the Court concludes that appellants have failed to show any error in the orders dismissing the complaint, denying plaintiffs' motion for a TRO, denying plaintiffs' motion for reconsideration, and denying plaintiffs' motion for leave to amend the complaint.
Turning first to the dismissal of the complaint, the Bankruptcy Court was clearly correct in determining that it lacked authority under the Bankruptcy Code to grant any of the relief plaintiffs requested. In a municipal bankruptcy such as this, the code states that "unless the debtor consents or the plan so provides, the [bankruptcy] court may not, by any stay, order, or decree, in the case or otherwise, interfere with (1) any of the political or governmental powers of the debtor; (2) any of the property or revenues of the debtor; or (3) the debtor's use or enjoyment of any income-producing property." 11 U.S.C. § 904. As the Detroit Water and Sewerage Department is an arm of the City of Detroit, and the City did not consent to the requested relief or agree to it in the plan, the Bankruptcy Court could not have awarded any of the relief plaintiffs seek without violating § 904. See In re City of Stockton, 499 B.R. 802, 808 (Bankr. E. D. Cal. 2013) (noting that with § 904 "Congress has barred this court from interfering with any of the political or governmental powers of the City."); In re City of Stockton, 478 B.R. 8, 20 (Bankr. E. D. Cal. 2012) (noting that § 904 "is so comprehensive that it can only mean that a federal court can use no tool in its toolkit—no inherent authority power, no implied equitable power, no Bankruptcy Code § 105 power, no writ, no stay, no order—to interfere with a municipality regarding political or governmental powers, property or revenues, or use or enjoyment of income-producing property."). On this basis, the Bankruptcy Court's dismissal of Counts IV, V, and VII was proper.
Nor did the Bankruptcy Court err in dismissing Count I on the grounds that the relationship between the City and those to whom it provides water service is not an executory contract
The Bankruptcy Court also correctly dismissed plaintiffs' due process and equal protection claims (Counts II and III). The due process claim depends on the allegations in the complaint that the City fails to provide its residents with adequate notice or an opportunity to be heard regarding water bills and shutoffs. The Bankruptcy Court correctly held that these allegations are conclusory in nature and do not suffice to allege a due process claim under Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). The correctness of this conclusion was strengthened by the actual bills and notices which were offered in evidence at the hearing on the plaintiffs' motion for a TRO and on defendant's motion to dismiss.
Plaintiffs' equal protection claim was also properly dismissed. This claim is based on the allegation that defendant treats its residential and commercial customers differently in that some commercial customers are substantially in arrears but defendant has not terminated their water service, whereas defendant may shut off water service to individual residents whose accounts are 60 days or $150 delinquent.
"To state an equal protection claim, a plaintiff must adequately plead that the government treated the plaintiff `disparately as compared to similarly situated persons and that such disparate treatment either burdens a fundamental right, targets a suspect class, or has no rational basis.'" Ctr. for Bio-Ethical Reform, Inc. v. Napolitano, 648 F.3d 365, 379 (6th Cir. 2011) (quoting Club Italia Soccer & Sports Org., Inc. v. Charter Twp. of Shelby, Mich., 470 F.3d 286, 299 (6th Cir. 2006)). "[L]egislation is presumed to be valid and will be sustained if the classification drawn by the statute is rationally related to a legitimate state interest. When social or economic legislation is at issue, the Equal Protection Clause allows the States wide latitude, and the Constitution presumes that even improvident decisions will eventually be rectified by the democratic processes." City of Cleburne, Tex. v. Cleburne Living Ctr., 473 U.S. 432, 440 (1985) (citations omitted). Further,
Heller v. Doe by Doe, 509 U.S. 312, 319-21 (1993) (citations omitted).
This claim fails initially because plaintiffs have not adequately alleged that defendant treated them less favorably than any similarly situated individuals. "The purpose of the Equal Protection Clause is to `protect against invidious discrimination among similarly-situated individuals' thereby ensuring that all similarly-situated people are treated alike." Dog Pound, LLC v. City of Monroe, Mich., 558 F. App'x 589, 592 (6th Cir. 2014); see also Napolitano, supra, 648 F.3d at 379 (noting that plaintiff must allege he was treated less favorably than "similarly situated persons"). Plaintiffs have not cited any authority for the proposition, and the Court is aware of none, that an equal protection claim by individuals may be based on an allegation that they are treated less favorably than certain business entities or, conversely, that business entities may base such a claim on an allegation that they are treated less favorably than certain individuals. The mere fact that individuals and businesses both purchase water does not make them "similarly situated" for equal protection purposes any more than the fact that both pay taxes or that both may own property. For the claim to succeed, plaintiffs would have to show that defendant treated them differently as compared to similarly situated individuals.
Further, in response to defendant's motion to dismiss, plaintiffs did not "negative every conceivable basis which might support [the alleged difference in treatment]," Heller, supra, but simply pointed to the difference and labeled it "irrational" and "absurd." This does not suffice to state an equal protection claim. The Bankruptcy Court noted that the difference in treatment might be justified by the fact that commercial water customers have more complex service connections. Hr'g Tr. 15-16. The difference in treatment might also be justified by the fact that terminating water service to commercial customers could seriously harm their businesses, causing layoffs and other undesirable economic consequences. The City might also reasonably find that commercial customers are more likely than residential customers to eventually pay past-due water bills. In any event, plaintiffs' equal protection claim fails because plaintiffs have not (1) compared themselves to similarly situated individuals, and (2) met their burden under Heller "to negative every conceivable basis which might support" the alleged difference in treatment.
Plaintiffs also appeal the Bankruptcy Court's denial of their motion for a TRO. Because the Court is affirming the Bankruptcy Court's dismissal of the complaint, the Court must necessarily affirm the denial of the TRO, as plaintiffs are not only unlikely to succeed but, in the Court's view, cannot succeed on the merits. Plaintiffs are not entitled to any relief based on a complaint that fails to state a claim.
Finally, plaintiffs appeal the Bankruptcy Court's order denying their motions for reconsideration and for leave to file a second amended complaint. As the Court is affirming the dismissal of the complaint, it also affirms the denial of plaintiffs' motion for reconsideration. As for the denial of the motion for leave to amend, a review of the docket sheet in this matter reveals that no such motion was ever filed. Instead, plaintiffs buried a request for leave to amend within their "Brief in Response to Defendant's Motion to Dismiss" [Bankr. docket entry 47, p. 6]. Such a request is improper. See Begala v. PNC Bank, 214 F.3d 776, 784 (6th Cir. 2000). Even if a motion for leave to amend could be made in this way, in the present case plaintiffs did not seek leave to cure the pleading defects listed by the Bankruptcy Court but merely offered to omit the word "breach" from their executory contract claim. Further, the motion was not supported by a brief or by a proposed amended complaint. The Court affirms the denial of this improperly asserted motion.
For the reasons stated above, the November 19, 2014, orders of the Bankruptcy Court clarifying its bench opinion, denying plaintiffs' motion for a temporary restraining order, granting defendant's motion to dismiss, denying plaintiffs' motion for reconsideration, and denying plaintiffs' motion for leave to file a second amended complaint are