The US Supreme Court ruled unanimously Thursday that Chicago did not violate the US Bankruptcy Code by maintaining possession of cars it had impounded.
The ruling came in the case of Chicago v. Fulton. In oral arguments, the city framed the question in the case as “whether the Bankruptcy Code’s automatic stay requires a creditor in lawful possession of estate property when a bankruptcy petition is filed to return that property to the debtor immediately or else pay damages.” Unlike the US Court of Appeals for the Tenth Circuit, which had ruled in favor of the debtors, stating that the cars must be returned in accordance with §362(a)(3) of the Bankruptcy Code, the Supreme Court answered the question in Chicago’s favor.
The opinion was written by Justice Samuel Alito, who looked directly at the text of the Code. In particular, “stay,” “of any act,” and “to exercise control” were examined. Alito’s opinion points out that the most natural reading of such words would mean that affirmative action cannot be taken to “take” the property. Although the court agreed that inaction may be an act, it was still not persuaded to rule in favor of the debtors. Further, the court found that §542 would be “rendered superfluous” and contradicted if it were to read §362 in the way in which the debtors argued.
Justice Sonia Sotomayor issued a concurrence where she emphasized that the court had not “decided whether and when §362(a)’s other provisions may require a creditor to return a debtor’s property.”
This case was remanded to the lower court.