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Bankruptcy and the Government as Regulator -- Part II
C. Police and Regulatory Power Exceptions [§ 362(b)(4) and
a. The "Pecuniary Purpose Test"
(1) Protecting/promoting public health and safety or other police or regulatory interests - exception applies. See generally PBGC v. LTV Corp., 496 U.S. 633 (1990)(PBGC need not take bankruptcy law into account -- and instead may focus only on ERISA -- when making decisions concerning restoration of terminated pension plans); In re Smith-Goodson, 144 B.R. 72 (Bankr. S.D. Ohio 1992);
(2) Protecting/promoting pecuniary or financial interest - exception does not apply. See generally NLRB v. Sawalski, 158 B.R. 971 (E.D. Mich. 1993); Martin v. Safety Elec. Construction Co., 151 B.R. 637 (D. Conn. 1993); In re Corporacion de Services Medicos Hospital, 805 F.2d 440 (1st Cir. 1986); In re Medicar Ambulance Co., Inc., 166 B.R. 918 (Bankr. N.D. Calif. 1994).
(3) However, merely because action would result in a judgment for the governmental units does not disqualify it from the exceptions if policy/regulatory function is promoted. To decide otherwise would read § 362(b)(5) out of the Code. See, e.g., In re Commonwealth Cos., Inc., 913 F.2d 518 (8th Cir. 1990); United States v. Mattiace Indus. Inc., 73 B.R. 816, 818-19 (Bankr. E.D. N.Y. 1987).
b. The "Public Policy Test"
2. Stay Provisions
a. § 362(a)(1)
b. § 362(a)(3)
3. Exception is not limited only to actions to protect public health or safety. See Midlantic National Nat'l Bank v. N.J. Dep't of Environmental Protection, 474 U.S. 494, 503 (1986) ("one of the purposes of [§ 362(b)(4)] is to protect health and safety") (emphasis added); accord In re Commonwealth Cos., Inc., 913 F.2d 518 (8th Cir. 1990); cf. EEOC v. Rath Packing Co., 787 F.2d 318, 323-25 (8th Cir.) (Title VII employment discrimination action), cert. denied, 479 U.S. 910 (1986); SEC v. First Financial Group, 645 F.2d 429 (5th Cir. 1981) (action to enjoin sale of securities).
4. Exception is not limited only to actions to prevent or stop an imminent or ongoing harm to the public. In re Commonwealth Cos., Inc., 913 F.2d 518, 519 (8th Cir. 1990); In re Commonwealth Oil Refinery Co., Inc., 805 F.2d 1175, 1184-86 (5th Cir. 1986), cert. denied, 483 U.S. 1005 (1987). Thus, the fact that the company is no longer engaged in business is irrelevant.
5. The government's motive in bringing the action is irrelevant. The appropriate focus is on the purposes underlying the law the government is enforcing. EEOC v. Rath Packing Co., 787 F.2d 318, 324-25 (8th Cir.), cert. denied, 479 U.S. 910 (1986); accord In re Commonwealth Cos., Inc., 913 F.2d 518, 523 n.6 (8th Cir. 1990).
(1) Commodities Futures Trading Commission
(a) In re Hunt, 93 B.R. 484 (Bankr. N.D. Tx. 1988)(action to impose civil penalties exempt from automatic stay; but action enjoined under § 105 where costs and distraction of agency proceeding would interfere with reorganization effort and where debtors not likely to engage in any future questioned conduct)
(b) CFTC v. Incomco, Inc., 649 F.2d 128 (2nd Cir. 1981) (access to books and records)
(c) In re Co Petro Marketing Group, 6 B.R. 119 (Bankr. C.D. Cal.), rev'd on other grounds, 11 B.R. 546 (B.A.P. 9th Cir. 1980) (injunctive action against unlawful dealing in futures contracts)
(2) National Labor Relations Board
(a) NLRB v. Evans Plumbing Co., 639 F.2d 291 (5th Cir. 1981) (enforcement proceedings involving unfair labor practice ordering debtor to reinstate discriminatorily discharged employees)
(b) Ahrens Aircraft, Inc. v. NLRB, 703 F.2d 23 (1st Cir. 1983) (enforcement proceedings to determine amount of back pay order)
(c) NLRB v. 15th Ave. Iron Works, Inc., 964 F.2d 1336 (2nd Cir. 1992) (NLRB unfair labor practice enforcement proceeding could continue to point of entry of money judgment but judgment must be brought back to the bankruptcy court). Compare NLRB v. E.D.P. Medical Computer Systems, Inc., 6 F.3d 951 (2nd Cir. 1994) (action to obtain prejudgment writ of garnishment to enforce back pay order not excepted).
(3) Department of Labor
(a) Eddleman v. Dep't of Labor, 923 F.2d 782 (10th Cir. 1991) (DOL suit against debtor employer to liquidate back wage claims and disqualify debtor from future government contracts for violations of minimum wage requirements of Service Contract Act, 41 U.S.C. § 351 et seq., excepted from automatic stay under § 362(b)(4) as "police or regulatory action"); accord In re Western Drywall, Inc., 150 B.R. 774 (Bankr. D. Id. 1993).
(b) Donovan v. TMC Indus., Inc., 20 B.R. 997 (N.D. Ga. 1982) (action to enjoin sale of goods produced by unfairly compensated employees)
(c) In re Tauscher, 7 B.R. 918 (Bankr. E.D. Wis. 1981) (action to assess penalties for child labor violations permitted to point of judgment; enforcement of money judgment stayed)
(d) In re Quinta Contractors, Inc., 34 B.R. 129 (Bankr. M.D. Pa. 1983) (administrative proceedings to enforce Davis-Bacon Act)
(e) Martin v. Chambers, 154 B.R. 664 (E.D. Va. 1992) (action to enforce minimum wage and overtime provisions of FLSA excepted); accord Martin v. Safety Elec. Construction Co., 151 B.R. 637 (D. Conn. 1993).
(4) Equal Employment Opportunity Commission
EEOC v. McLean Trucking Co., 834 F.2d 398 (4th Cir. 1987) (EEOC actions against employer-debtors under Title VII of 1964 Civil Rights Act and Age Discrimination Employment Act); EEOC v. Rath Packing Co., 787 F.2d 318 (8th Cir.), cert. denied, 479 U.S. 910 (1987); EEOC v. Guerdon Industries, 76 B.R. 102 (W.D. Ky. 1987) (EEOC's Title VII action against debtor excepted from automatic stay)
(5) Department of Interior
U.S. v. Energy Int'l, Inc., 19 B.R. 1020 (S.D. Ohio 1981) (civil penalty assessments for mining law violations)
(6) Department of Agriculture
In re Northern Boneless Meat Corp., 9 B.R. 27 (N.D.N.Y. 1981) (action to enjoin violations of Packers and Stockyards Act)
(7) PBGCPBGC v. LTV Corp., 110 S.Ct. 2668 (1990)(PBGC need not take bankruptcy law into account -- and instead may focus only on ERISA -- when making decisions concerning restoration of terminated pension plans)Cf. LTV Corp. v. PBGC, 130 B.R. 690 (S.D.N.Y. 1991) (in reconciling ERISA with the Bankruptcy Code, court held that debtor's post-petition termination of pension plans did not give rise to administrative priority claim; PBGC's claims deemed "pre-petition contingent claims because labor giving rise to pension obligation was performed pre-petition"; only pension related to post-petition labor of employees entitled to administrative priority as "actual and necessary" expense of preserving estate).United States v. Mansfield Tire & Rubber Co., 942 F.2d 1056 (6th Cir. 1991), cert. denied, 112 S. Ct. 1165 (1992)(federal pension excise tax imposed under I.R.C. § 4971(a) is "excise tax" and not a penalty, and, as such, is entitled to § 507(a)(7)(E) priority; such taxes may not be equitably subordinated without showing of inequitable conduct by federal government).(8) Securities and Exchange CommissionSEC v. Long, 106 B.R. 697 (D. Kan. 1989)(commencement of involuntary chapter 7 proceeding did not operate as automatic stay of pending action by Securities and Exchange Commission to enforce its police and regulatory powers).SEC v. First Financial Group, 645 F.2d 429 (5th Cir. 1981) (receiver of debtor's property appointed to prevent further violations of securities laws)See In re Knoell, 160 B.R. 825 (D. Az. 1993) (investigation by Arizona Corporation Comm'n of possible violations of state securities laws excepted)Bilzarian v. SEC, 146 B.R. 871 (Bankr. M.D. Fla. 1992) (SEC's action to fix amount of profits to be disgorged excepted from stay)(9) Department of Energy(a) CPI Crude, Inc. v. U.S. Dept. of Energy, 77 B.R. 320 (D.D.C. 1987) (Department of Energy proceedings giving rise to remedial order designed to rectify overpricing practices on part of debtor reseller of crude petroleum products did not violate stay)(b) In re County Fuel Co., Inc., 29 B.R. 534 (Bankr. D. Md. 1983) (administrative proceedings against debtor for violation of gasoline price guidelines excepted from automatic stay under § 362(b)(4))(c) In re Vantage Petroleum Corp., 9 B.C.D. 1248 (Bankr. E.D.N.Y. 1982) (same holding as County Fuel but, nevertheless, enjoined proceeding under § 105)(d) Davis v. Department of Energy, 950 F.2d 733 (TECA 1991), cert. denied 113 S.Ct. 59 (1992) (DOE claim for crude oil overcharges not a "penalty" subject to subordination under § 726(a)(4), even to the extent DOE cannot identify specific overcharge victims), Overruled by Texas American Oil Corp. v. United States Department of Energy, 44 F.3d 1557 (Fed. Cir. 1994).(10) GNMA(a) In re Commonwealth Mortgage Co., Inc., 145 B.R. 368 (Bankr. D. Mass. 1992)(automatic stay does not apply to GNMA actions when it is exercising its statutory duties under 12 U.S.C. § 1721(g), which provides that no state, local or federal law (except federal law expressly referring to this subsection) shall limit GNMA exercise of contractual rights; thus, GNMA could declare default and require turnover of pooled mortgages backing mortgaged backed securities serviced by debtor).(b) In re Whitcomb & Keller Mortgage Co., Inc., 8 B.R. 83 (Bankr. N.D. Ind. 1980) (approving termination of issuer status and assumption of control of mortgage pools backing GNMA mortgage backed securities)(c) But cf. In re Adana Mortgage Bankers, Inc., 12 B.R. 973 (Bankr. N.D. Ga. 1981), vacated as moot, 687 F.2d 344 (11th Cir. 1982) (lower court found termination of guaranty agreement with debtor-issuer under GNMA mortgage backed securities program subject to automatic stay)(d) See generally 12 U.S.C. § 1721(g)(1) ("no state or local law, and no federal law (except Federal law enacted expressly in limitation of this subsection after October 8, 1980) shall preclude or limit" GNMA's exercise of powers); H.R. Rep. No. 979, 96th Cong., 2nd Sess. 48-49 (1980); H.R. Cong. Rep. on S. 2719, 96th Cong., 2nd Sess. 9814 (1980). H.R. Rep. No. 979, 96th Cong., 2nd Sess. 48-49 (1980).(11) Federal Reserve BoardFederal Reserve Board v. MCorp Financial, Inc., 502 U.S. 32 (1991) (1) neither §§ 362 and 105 could not be invoked to enjoin FRB action to enforce "source of strength" requirement [requiring bank holding company to contribute assets to ensure adequate levels of capital at subsidiary bank] because (a) FRB's "plain, preclusive" anti-injunction language controls; (b) action falls "squarely in § 362(b)(4) exception; (c) §§ 362(a)(3) and (a)(6) staying acts to exercise control over debtor's property or collect a claim have no application to a "non-final administrative proceeding"; and (d) reliance on § 1334(b) for jurisdiction misplaced as it grants bankruptcy courts concurrent jurisdiction only with other "courts"; and (2) reversed 5th Circuit's ruling that it nevertheless could review FRB's "source of strength" doctrine, holding an adequate opportunity for review existed under non-bankruptcy law once FRB decides whether if MCorp violated the regulation).(12) Office of Thrift SupervisionOTS v. Firstcorp. Inc., 967 F.2d 942 (4th Cir. 1992) (OTS regulatory action against debtor thrift holding company, in the form of ongoing administrative proceedings and a temporary cease and desist order, not stayed).(13) RTC/FDIC(a) Federal Reserve Board v. MCorp Financial, Inc., 502 U.S. 32 (1991), holding:i) Anti-injunction provision in 12 U.S.C. § 1818(c)(1) not qualified or superseded by the automatic stay. FRB's administrative proceeding charging bank with violation of "source of strength" regulation falls squarely within "policy or regulatory powers" exception in 𨷂(b)(4).ii) § 362(a)(3) and (a)(6) are inapposite to ongoing, nonfinal administrative proceeding.iii) 28 U.S.C. § 1334(b), authorizing district courts to exercise concurrent jurisdiction, is inapposite because (1) the FRB is not another "court" and (2) prior to the entry of a final order, and commencement of any enforcement action, bankruptcy court's exclusive jurisdiction over property of the estate is unlikely to be impaired.(b) In re Landmark Land Co. of Oklahoma, 973 F.2d 283 (4th Cir. 1992)(FIRREA's anti-injunction provisions precludes bankruptcy court from enjoining RTC's exercise of ownership rights after taking control of thrift's assets, including right to call special shareholders' meeting for wholly owned subsidiary, elect new directors, and dismiss subsidiary's chapter 11 bankruptcy proceedings).(c) RTC v. Firstcorp, Inc., 973 F.2d 243 (4th Cir. 1992)(savings and loan holding company obligated under capital maintenance agreement to maintain capital of subsidiary thrifts required under 11 U.S.C. § 365(o) to cure any deficits under that agreement before it could reorganize under chapter 11).(d) In re American Mortgage and Investor Services, Inc., 141 B.R. 578 (Bankr. D.N.J. 1992)(FIRREA prohibits bankruptcy court from asserting subject matter jurisdiction over assets, disputed or not, in which RTC claims ownership interest until and unless FIRREA claims procedures have been exhausted).(14) FCC