Opinion ID: 4161963
Heading Depth: 2
Heading Rank: 3

Heading: The Automatic Bankruptcy Stay

Text: Under federal bankruptcy law, “a petition [for bankruptcy] . . . operates as a stay [of] the commencement or continuation . . . of a judicial, administrative, or other action or proceeding against the debtor that was . . . commenced before the commencement of the case under this title.” 11 U.S.C. § 362(a)(1). The stay is self-executing and effective upon filing a bankruptcy petition. Griffin v. Wardrobe (In re Wardrobe), 559 F.3d 932, 934 (9th Cir. 2009). The sweep of the automatic stay is broad and “serves as one of the most important protections in bankruptcy law.” Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1214 (9th Cir. 2002) (citing Hillis Motors, Inc. v. Hawaii Auto Dealers’ Ass’n, 997 F.2d 581, 585 (9th Cir. 1993)). The stay “provides debtors with protection against hungry creditors” and “assures creditors that the debtor’s other creditors are not racing to various courthouses to pursue independent remedies to drain the debtor’s assets.” Dean v. Trans World Airlines, Inc., 72 F.3d 754, 755–56 (9th Cir. 1995). It also provides the debtor with some “breathing space” so that the debtor can focus on reorganization rather than the defense of pending litigation. Hillis Motors, 997 F.2d at 585. The bankruptcy statute provides certain exceptions to the automatic stay. One of the exceptions is for actions “by a governmental unit . . . to enforce such governmental unit’s . . . police and regulatory power.” 11 U.S.C. § 362(b)(4). The bankruptcy code defines “governmental unit” as: 8 PORTER V. NABORS DRILLING USA United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, or instrumentality of the United States (but not a United States trustee while serving as a trustee in a case under this title), a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government. 11 U.S.C. § 101(27). Porter concedes that he is not a governmental unit. He argues instead that a private party can invoke the governmental unit exception when it acts as an agent of the government, as long as the private party seeks to protect the public health and safety. In doing so, however, Porter effectively asks us to read the phrase “by a governmental unit” out of the governmental unit exception. We decline to do so. We are not persuaded that the government’s creation of a private right of action to enforce laws aimed to protect the health and safety of the public is sufficient governmental involvement to invoke the exception to the bankruptcy stay. As noted above, a PAGA action has been identified as a kind of qui tam action, an action in which a private citizen is authorized to sue on behalf of the government. Courts have consistently held that the automatic stay applies to those cases, at least when the government has not intervened, because they do not fall within the governmental unit exception. See, e.g., In re Edison Mission Energy, 502 B.R. 830 (Bankr. N.D. Ill. 2013); United States ex rel. Kolbeck v. Point Blank Sols., Inc., 444 B.R. 336 (E.D. Va. 2011); United States ex rel. Goldstein v. P & M Draperies, Inc., 303 B.R. 601 (D. Md. 2004); In re Chateaugay Corp., PORTER V. NABORS DRILLING USA 9 118 B.R. 19 (Bankr. S.D.N.Y. 1990); United States (EPA) v. Envtl. Waste Control, Inc., 131 B.R. 410 (N.D. Ind. 1991); In re Revere Copper & Brass, Inc., 29 B.R. 584 (Bankr. S.D.N.Y. 1983). This is because, unlike in traditional government enforcement actions, the qui tam relators in these cases were proceeding without the involvement of the governmental unit on whose behalf the action is purportedly brought. See, e.g., Edison Mission Energy, 502 B.R. at 836 (declining to apply governmental unit exception in part because “the record indicates that [no state agency] has requested or directed the [claimant] to act in its stead”); Kolbeck, 444 B.R. at 340 (declining to apply governmental unit exception in part because “the government decline[d] to intervene in [the] qui tam [False Claims Act] action” and “the proceedings [were] thereafter conducted solely by the qui tam relator”). We reach the same conclusion in this case. Porter’s claim against Nabors was filed by Porter, and it remains under his control. Despite having received notice of Porter’s allegations pursuant to PAGA’s notice provisions, the state of California, through LWDA, did not request, direct, or join in the filing. Nor has the state attempted to intervene in the action since its filing. Under these circumstances, the action cannot properly be understood to be an action “by a governmental unit . . . to enforce such governmental unit’s . . . police and regulatory power.” 11 U.S.C. § 362(b)(4). Porter argues that his PAGA claim is analogous to a claim for sanctions brought by a litigant requesting that the court discipline a party for violating court rules. It is true that actions by courts to impose sanctions in order to enforce their own rules or police the members of their bar may fall within the governmental regulatory exception for purposes of the bankruptcy stay. See, e.g., Dingley v. Yellow 10 PORTER V. NABORS DRILLING USA Logistics, LLC (In re Dingley), — F.3d —, No. 14-60055, 2017 WL 1208454, at  (9th Cir. 2017) (holding that, in certain situations, state court “civil contempt proceedings are exempted from the automatic stay under the Bankruptcy Code’s government regulatory exemption”); Berg v. Good Samaritan Hosp. (In re Berg), 230 F.3d 1165, 1166 (9th Cir. 2000) (holding that federal appellate court’s “award of sanctions falls under the ‘government regulatory power’ exemption of § 364(b)(4)”); Wade v. State Bar of Ariz. (In re Wade), 948 F.2d 1122, 1124 (9th Cir. 1991) (per curiam) (holding that a state bar association “exercises this delegated authority under the ‘direction and control’ of the Arizona Supreme Court” (citation omitted)). Relying on this line of cases, Porter contends that because he also acts as an agent of a governmental unit in bringing his PAGA claim and because the PAGA claim will ultimately be adjudicated, like a sanctions award, by a court, the governmental unit exception should apply to him. We are not persuaded. In the context of judicially imposed sanctions, the governmental unit whose interests are being enforced—that is, the court—itself conducts additional proceedings to advance its own interests and uses its own resources to do so. Ultimately, the “sanction is meted out by a governmental unit, the court,” even if the sanction is initially “sought by a private individual or organization—a nongovernmental litigant.” Alpern v. Lieb, 11 F.3d 689, 690 (7th Cir. 1993). Porter does not contend that his action is taken on behalf of the court, however. He claims to be acting as a private attorney general in place of LWDA. The subsequent involvement of the court does not bring his PAGA action within the language of the exception: “by a governmental unit . . . to enforce such governmental unit’s . . . police and regulatory power.” 11 U.S.C. § 362(b)(4). That a court might ultimately decide the fate of Porter’s PORTER V. NABORS DRILLING USA 11 PAGA action does not mean that the court decision is an action to enforce its own power. Although a litigant may initially request the imposition of sanctions, ultimately the sanctions proceedings are conducted by a governmental unit, the court, to advance its own interest in enforcing its authority. See Alpern, 11 F.3d at 690.