Opinion ID: 494610
Heading Depth: 2
Heading Rank: 2

Heading: application of the automatic stay

Text: 21 11 U.S.C. Sec. 362, the automatic bankruptcy stay provision, generally stays the commencement or continuation of judicial proceedings against the debtor upon the filing of a Chapter 11 petition, including the enforcement of judgments. 6 The section contains certain exceptions: 22 (b) The filing of a petition under section 301, 302, or 303 of this title ... does not operate as a stay-- 23 .... 24 (4) under subsection (a)(1) of this section, of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power; 25 (5) under subsection (a)(2) of this section, the enforcement of judgment, other than a money judgment, obtained in an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power[.] 26 11 U.S.C. Sec. 362(b)(4), (5). 27 Because the Secretary had not commenced the instant proceeding before Morysville filed its petition, only paragraph (4) is implicated. The legislative history explains that paragraph (4) provides an exception to the automatic stay where a governmental unit is suing a debtor to stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such a law. H.R.Rep. No. 595, 95th Cong., 2nd Sess. 343, reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6299 (emphasis supplied); see also S.Rep. No. 989, 95th Cong., 2nd Sess. 52, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5838. This court has therefore found that paragraph (4), together with paragraph (5), exempts from the automatic stay equitable actions brought by state and federal agencies to correct violations of regulatory statutes enacted to promote health and safety. See United States v. Wheeling-Pittsburgh Steel, 818 F.2d 1077 (3d Cir.1987); Penn Terra, Ltd. v. Department of Environmental Resources, 733 F.2d 267 (3d Cir.1984); see also Midlantic National Bank v. New Jersey Department of Environmental Protection, 474 U.S. 494, 106 S.Ct. 755, 761, 88 L.Ed.2d 859 (1986) (one of the purposes of paragraph (5) is to protect public health and safety). 28 There are two components to the citation for which the Secretary seeks summary enforcement. The citation orders Morysville to abate its continuing violations of OSHA. It also orders the debtor in bankruptcy to pay a fine of $21,000. In light of the principles applicable to governmental enforcement actions against bankrupt entities, we examine each of these components in turn to determine the respective applicability of the automatic stay. 29 1. Abatement Orders. In this case, the Secretary seeks enforcement of a final order that in part compels Morysville to abate certain safety violations by requiring the company to install an eye wash, affix point-of-operation guards on machinery, provide goggles or shields for employees, and repair certain electrical equipment. Remedying the stated violations will undoubtedly require Morysville to spend money, perhaps considerable sums, thereby significantly affecting the finances of the distressed corporation. The Secretary's order, however, was meant to prevent future harm to employees and to restore the work site to a safe condition. This portion of the order is therefore fully prospective, see Penn Terra, 733 F.2d at 274-78; ITT Grinnell Corp. v. Donovan, 744 F.2d 344, 350 (3d Cir.1984), and we shall grant the petition insofar as it orders abatement of violations of the Occupational Safety and Health Act. Cf. Wheeling-Pittsburgh, 818 F.2d at 1086-87 (3d Cir.1987); (bankruptcy no bar to prospective enforcement of Clean Air Act); In re: Commonwealth Oil Refining Co., 805 F.2d 1175 (5th Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 3228, 97 L.Ed.2d 734 (1987) (same; Resource Conservation and Recovery Act); Cournoyer v. Town of Lincoln, 790 F.2d 971 (1st Cir.1986) (same; zoning ordinance); Penn Terra, 733 F.2d at 274-78 (same; state environmental laws). 30 We are mindful of the position in which this conclusion may place financially distressed businesses. Although protected by the automatic stay from enforcement of direct money judgments, see infra, companies that have sought bankruptcy protection are not automatically insulated from orders to abate, which may have as great or greater financial consequences than direct money judgments. Nevertheless, an entity that operates in a regulated sphere is obliged to comply with the relevant regulations; otherwise, it must exit the field. As we have specifically found in the OSHA field, Congress did contemplate that the Secretary's rule making would put out of business some businesses so marginally efficient or productive as to be unable to follow standards otherwise universally feasible. AFL-CIO v. Brennan, 530 F.2d 109, 123 (3d Cir.1975). It would appear to be consistent with the purposes of the [OSH] Act to envisage the economic demise of an employer who has lagged behind the rest of the industry in protecting the health and safety of employees and is consequently financially unable to comply with new standards as quickly as other employers. American Iron & Steel Institute v. OSHA, 577 F.2d 825, 835 (3d Cir.1978) (quoting Industrial Union Dept. v. Hodgson, 499 F.2d 467, 478 (D.C.Cir.1974)); see also Arkansas-Best Freight Systems, Inc. v. OSHRC, 529 F.2d 649, 654 n. 6 (8th Cir.1976) (same); cf. Forging Industry Ass'n. v. Secretary of Labor, 773 F.2d 1436, 1453 (4th Cir.1985) (en banc) (finding OSHA safety standard valid even if it does portend disaster for some marginal firms). 31 2. Money Judgment. In addition to enforcement of the abatement order, the Secretary also seeks entry of a money judgment for $21,000. Although Congress was clear in exempting abatement actions from the automatic stay, it plainly drew the line at enforcement of money judgments. 32 Since the assets of the debtor are in the possession and control of the bankruptcy court, and since they constitute a fund out of which all creditors are entitled to share, enforcement by a governmental unit of money judgment would give it preferential treatment to the detriment of all other creditors. 33 H.R.Rep. No. 595, 95th Cong., 2nd Sess. 343, reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6299. Thus, although the stay does not operate against actions or proceedings by governmental units attempting to fix damages for violation of such a [health and safety] law, id. at 343, 1978 U.S.Code Cong. & Ad.News at 6299; see also S.Rep. No. 989, 95th Cong., 2nd Sess. 52, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5838, it does prevent a governmental unit from enforcing a money judgment. The Secretary is not before us to fix the amount of damages owed by Morysville; under 29 U.S.C. Sec. 659(a), a final determination of that issue has been made. Rather, he in part seeks summary enforcement of a money judgment pursuant to 29 U.S.C. Sec. 660. The automatic stay clearly prevents us from enforcing this portion of the citation. As punishment for past violations, it is not a fully prospective order, which, despite the financial consequences to the distressed corporation, we may enforce to protect workers from the hazards of an unsafe work. 34 Similarly, the Supreme Court in Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985), distinguished orders requiring the abatement of regulatory violations from the entry of a money judgment. In Kovacs, a receiver was appointed pursuant to state environmental laws to implement compliance with those laws, including the cleanup of discharged pollution. Before the receiver completed the cleanup, however, Kovacs filed for bankruptcy protection. The receiver sought money from the bankrupt estate to effectuate the required environmental cleanup, but the bankruptcy court, the district court, and the court of appeals all found that Ohio was impermissibly attempting to collect from Kovacs a monetary payment. See id. at 707-08; In re Kovacs, 681 F.2d 454 (6th Cir.1982); In re Kovacs, 29 B.R. 816 (Bkrtcy.S.D.Ohio 1982). The Supreme Court affirmed, holding that the enforcement of such a money judgment was contrary to the automatic stay. In a footnote, however, the court explicitly distinguished the prospective enforcement of health and safety regulations at issue in Penn Terra on the basis that it was an effort to enforce the police power statutes of the State, not a suit to enforce a money judgment. Kovacs, 105 S.Ct. at 711, n. 11. The automatic stay provision does not apply to suits to enforce the regulatory statutes of the State, recognized the Court, but enforcement of such a judgment by seeking money from the bankrupt ... is another matter. Id. 35 We find no feature of federal health and safety regulations that would alter the application of the Supreme Court's analysis, which concerned only state health and safety laws. Cf. Wheeling-Pittsburgh, 818 F.2d at 1086-87 (applying Penn Terra to Clean Air Act); In re: Commonwealth Oil Refining Co., 805 F.2d 1175 (5th Cir.1986), petition for cert. filed, 55 U.S.L.W. 3622 (Feb. 23, 1987) (No. 86-1400) (Resource Conservation and Recovery Act). We must therefore deny the petition insofar as it seeks entry of a $21,000 judgment.