Opinion ID: 802443
Heading Depth: 2
Heading Rank: 1

Heading: “Continued by”

Text: Halo argues that none of the PUC proceedings should be exempted from the automatic stay because an action must be prosecuted by and in the name of a governmental unit in order to be excepted from the automatic stay. Halo bases its claim on the statutory text, as well as court decisions that have applied the exception to the stay only where the proceeding is advanced by a governmental unit that sued or prosecuted the debtor to enforce the governmental unit’s own police or regulatory powers. It notes that, while in some cases an action may have originated with a private party complaint to a governmental unit, that unit then conducted an investigation and adopted the role of the plaintiff or prosecutor. The Appellees respond that the bankruptcy court’s ruling was correct because the private party-initiated proceedings are essentially identical to proceedings initiated by PUCs. Therefore, these actions should be excepted in the same manner as those instituted by the state. The Appellees also argue that Halo focuses on only one part of the statutory language when it states that an action must be initiated by the government, because the exception applies to “the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit’s or organization’s police and regulatory power.” § 362(b)(4) (emphasis added). According to the Appellees, all of the state PUC actions are being continued by governmental units because 11 Case: 12-40122 Document: 00511889658 Page: 12 Date Filed: 06/18/2012 No. 12-40122 they are ongoing, and they thus fall within the exception to the automatic stay. In support of their argument, the Appellees point to cases where a complaint was initially filed by a private party, but then prosecuted or continued by a state agency. Halo waxes hyperbolic when it states that “every reported case that has applied the exception to the automatic stay has involved an independent proceeding advanced by a governmental unit that sued or prosecuted the debtor to enforce the governmental unit’s own police or regulatory powers.” While most cases do involve actions pursued by a governmental unit in its own name, the circumstances vary. As the Appellees make clear, many cases are initiated by the filing of a complaint by a private party. This is especially true in actions seeking to vindicate workers’ rights. See, e.g., NLRB v. Evans Plumbing, 639 F.2d 291, 292 (5th Cir. Unit B 1981) (two employees filed a charge of unfair labor practices with the National Labor Relations Board, and the charge was set for a hearing when the employer filed for bankruptcy; the hearing was held, and the NLRB then filed a petition in this Court to enforce its decision ordering the employer to reinstate the employees with backpay, which petition the Court granted).6 Courts have recognized that though these actions may have similarities to private litigation, they also promote the public interest by 6 See generally In re Mohawk Greenfield Motel Corp., 239 B.R. 1 (Bankr. D. Mass. 1999) (two former employees filed complaints with the Massachusetts Commission Against Discrimination, and after conducting hearings, the Commission found for them and sought to enforce a monetary judgment; the bankruptcy court held that the hearings and the entry of a monetary judgment were excepted from the automatic stay, largely due to the state’s public policy against discrimination, but that any effort to enforce the award would not be allowed); In re Ngan Gung Restaurant, Inc., 183 B.R. 689 (Bankr. S.D.N.Y. 1995) (private individuals complained to the Attorney General about a restaurant’s labor practices; the Attorney General investigated and then filed a Notice of Petition against the restaurant in state court, which action the bankruptcy court held was exempt from the automatic stay); In re SSS of Ky., Inc., 29 B.R. 19 (Bankr. W.D. Ky. 1983) (where private parties filed an opposition to the sale of a broadcast license with the FCC, the bankruptcy court ruled that the proceedings before the FCC were exempt from the automatic stay). 12 Case: 12-40122 Document: 00511889658 Page: 13 Date Filed: 06/18/2012 No. 12-40122 enforcing state laws and regulations. See, e.g., In re D. M. Barber, Inc., 13 B.R. 962, 963 (Bankr. N.D. Tex. 1981) (“Proceedings before the National Labor Relations Board are commenced by the initiative of aggrieved individual persons and thus have some characteristics of private litigation. However the case law reflects that the proceedings by the Board are not to adjudicate private rights but to effectuate public policy.” (citations omitted)). There are some cases in which courts have ruled that an action must be brought by the governmental unit in order for it to be exempt from the automatic stay under § 362(b)(4). In In re Reyes, for example, a private party filed a complaint with the Texas Real Estate Commission (“TREC”) against a debtor after she had declared bankruptcy. See No. 10–52366–C, 2011 WL 1522337, at  (Bankr. W.D. Tex. Apr. 20, 2011). The bankruptcy court held that the action before the TREC was not exempt from the automatic stay. Id. at . The court relied, in part, on the fact that once a complaint was filed, “the TREC would be obligated to investigate the allegations if the complaint, together with any evidence submitted with the complaint, provided reasonable cause for an investigation.” Id. at .7 Thus, “[t]he Commission has no discretion in deciding whether to investigate if the complaint provides sufficient grounds for an investigation.” Id. The court also found that the action was not in furtherance of the public interest, but rather to benefit the pecuniary interests of the complainant. Id. at . The court therefore held that § 362(b)(4) should be “narrowly construed” and “applied only when an action against the debtor has been brought by the government.” Id. at ; see also Nortel, 669 F.3d at 139 7 The court in Reyes also noted that the complainant and her attorney filed the complaint against the debtor in the TREC in order to collect on a money judgment rendered against the debtor prior to her filing for bankruptcy: “[The plaintiff’s attorney] had also warned the debtor . . . after [he] had obtained the judgment for his client that, if the debtor filed for bankruptcy, he would make sure that she lost her real estate license.” 2011 WL 1522447, at . 13 Case: 12-40122 Document: 00511889658 Page: 14 Date Filed: 06/18/2012 No. 12-40122 (stating that though the U.K. Pensions Regulator is a governmental entity, and though it initiated a regulatory procedure, it “is not a party to the pending bankruptcy proceedings . . . [and] did not file a claim and therefore cannot assert the police power exception”); Gandy, 327 B.R. at 802 (stating that “the court must determine whether the plaintiff in the state court action is a ‘governmental unit’” (emphasis added)); City of New York v. Exxon Corp., 932 F.2d 1020, 1025 (2d Cir. 1991) (“11 U.S.C. § 362(b)(4) . . . requires that such suits be brought by governmental units, not private persons.”). The court in Reyes relied in part on United States International Trade Commission v. Jaffe, 433 B.R. 538 (E.D. Va. 2010), in making its decision. In Jaffe, a proceeding before the International Trade Commission (“ITC”) was initiated by a private party’s complaint, but the court found it “noteworthy that the filing of the complaint does not initiate a formal ITC § 337 investigation; rather, the action simply results in a ‘preinstitution proceeding,’ in which the ITC ‘examine[s] the complaint for sufficiency and compliance,’ and performs a preliminary investigation.” Id. at 541 (quoting 19 C.F.R. § 210.8). Once the ITC does the preinvestigation and determines that a complaint was properly filed, it institutes an investigation and provides official notice by publication.8 Id. The matter is then referred to an administrative law judge, who determines, through an adversarial process, whether or not the respondent has violated the Tariff Act. Id. Therefore, even though the suit at issue was brought by private parties, the court found that it “fits squarely within the § 362(b)(4) statutory exception to the automatic stay” because “the ITC took affirmative steps to order the commencement of a § 337 investigation.” Id. at 543. In Jaffe, then, though the suit was commenced and pursued by a private party, the court held that it still 8 It was on this basis that the court in Reyes distinguished its case, because the TREC had no “preinstitution proceeding,” nor did it have discretion in determining whether a complaint was validly filed and thus should go forward. See 2011 WL 1522337, at . 14 Case: 12-40122 Document: 00511889658 Page: 15 Date Filed: 06/18/2012 No. 12-40122 met the two requirements of § 362(b)(4): “(i) the action is brought by the government, and (ii) the action seeks to vindicate the public interest, as opposed to a specific individual’s or entity’s rights.” Id. Similarly, in McMullen, a couple filed a complaint against a realtor with the Massachusetts Division of Registration for Real Estate Agents after the realtor had declared bankruptcy. 386 F.3d at 323. The court held that submitting a complaint after the filing of bankruptcy, which the Division then investigated, was excepted from the stay, notwithstanding the fact that the action was initiated by a private party. Id. at 327-28. While the court in Jaffe took pains to point out the discretion the government agency had in allowing an action to proceed, other courts have held that actions brought by private parties are excepted from the automatic stay without going into such an analysis. For instance, in Alpern v. Lieb, 11 F.3d 689 (7th Cir. 1993), the Seventh Circuit held that a proceeding to impose sanctions under Rule 11 was exempt from the automatic stay. The court stated: [t]he Rule 11 sanction is meted out by a governmental unit, the court, though typically sought by a private individual or organization–a nongovernmental litigant, the opponent of the litigant to be sanctioned. There is no anomaly, given the long history of private enforcement of penal and regulatory law. The private enforcer, sometimes called a ‘private attorney general,’ can be viewed as an agent of the ‘governmental unit,’ the federal judiciary, that promulgated Rule 11 in order to punish unprofessional behavior. Id. at 690. In In re Berg, 230 F.3d 1165 (9th Cir. 2000), the Ninth Circuit held that an award of attorneys’ fees imposed as a sanction for unprofessional conduct was exempted from the automatic stay. The court stated that “it is clear that the purpose of such sanctions is to effectuate public policy, not to protect private rights or the government’s interest in the sanctioned person’s property.” Id. at 1168. Both the Seventh and Ninth Circuits focused on the fact that the 15 Case: 12-40122 Document: 00511889658 Page: 16 Date Filed: 06/18/2012 No. 12-40122 sanctions at issue would help to promote the public policy of the state, in the same way that the Jaffe court found that “ITC § 337 investigations plainly evidence an objective purpose of protecting the public interest at each stage of the ITC investigation.” 433 B.R. at 545.9 In this case, the bankruptcy court did not make any findings as to the specific procedures in each state PUC, which would aid us in determining whether the individual commissions conduct preinvestigation proceedings, or have discretion over whether an action goes forward, as the courts in Jaffe and Reyes did. According to AT&T, there is no real difference between proceedings initiated by private parties and those initiated by the State Commissions themselves. As an example, AT&T points to a recent action commenced by the Wisconsin Public Service Commission, investigating the actions of Halo and Transcom, among other companies, which it says is “substantively identical” to the proceedings at issue in this case. Similarly, the TDS Appellees state that the Georgia Public Interest Advocacy Staff and the consumer’s utility counsel division become parties to the proceedings once a private party files a complaint. When a representative of the Missouri Public Service Commission (“MoPSC”) appeared to give testimony at the hearing before the bankruptcy court, she stated that the MoPSC becomes a party when a complaint is filed with it. See MO. ANN. STAT. § 386.390(1) (West 2012). Thus, there is evidence that at least some of the PUC actions at issue here are similar to any action that a state 9 It has been held that qui tam actions are excepted from the automatic stay, as well. In United States ex rel. Doe v. X, Inc., 246 B.R. 817 (E.D. Va. 2000), a private party brought a qui tam False Claims action, and the federal government had not yet decided whether or not to intervene. The court held that the exception to the automatic stay applied because “the United States is the real party in interest in all qui tam suits,” such that “the instant qui tam suit is ‘brought by a governmental unit’ for the purposes of § 362(b)(4)’s police powers exception, even though the United States has not yet made its intervention election.” Id. at 820. 16 Case: 12-40122 Document: 00511889658 Page: 17 Date Filed: 06/18/2012 No. 12-40122 regulatory commission might take itself, and that in some instances, a “governmental unit” actually becomes a party to the action. Perhaps more importantly, as the Appellees note, the statutory language directs that “the commencement or continuation of an action or proceeding by a governmental unit” is excepted from the automatic stay. § 362(b)(4) (emphasis added). It neither ignores nor twists the words of the statute to interpret this phrase as excepting suits continued by a governmental unit, without regard to who initially filed the complaint. Accordingly, we find that the PUC actions meet the first requirement of the exception to the automatic stay, because they are being continued by governmental units.