Opinion ID: 3030281
Heading Depth: 3
Heading Rank: 1

Heading: Jurisdiction to Determine the Applicability

Text: of the Automatic Stay Relying on Celotex Corp. v. Edwards, 514 U.S. 300 (1995), and In re Gruntz, 202 F.3d 1074 (9th Cir. 2000) (en banc), the district court expressed concern that it did not have jurisdiction to determine the applicability of the automatic stay. The district court’s concern was unfounded. In Celotex, the bankruptcy court issued a § 105 injunction preventing plaintiffs who had won a district court suit against the debtor from executing on a supersedeas bond that would have satisfied their judgment. See 11 U.S.C. § 105(a). The district court allowed plaintiffs to execute on the bond despite the bankruptcy court’s § 105 injunction, on the ground that the judgment had been affirmed on appeal and the bond had become due before the bankruptcy filing. The decision of the district court was appealed to the Fifth Circuit, which affirmed. The Supreme Court reversed. Without deciding whether the § 105 injunction was properly issued, the Court held that the district court acted improperly in disregarding it. If plaintiffs wanted relief from the injunction, wrote the Court, they should have sought modification in the bankruptcy court that issued the injunction. 514 U.S. at 313. In Gruntz, Gruntz had twice been convicted in state court of failure to pay child support. He filed for bankruptcy prior to sentencing in the first criminal proceeding, and prior to the institution of the second criminal proceeding. He brought an adversary proceeding in bankruptcy court seeking a declaration that the state criminal proceedings violated the automatic stay. The bankruptcy court denied relief, holding that it was collaterally estopped by the state court’s decision that the 1660 LOCKYER v. MIRANT CORP. automatic stay did not apply. On appeal, we held that the state court has the power to decide whether the automatic stay applies to its proceedings. 202 F.3d at 1087 (“Thus, unless a specific § 105 injunction applies, state trial courts need not seek bankruptcy court approval before commencing criminal proceedings.”). But a state court makes such a decision at its peril, for the bankruptcy court is not precluded by the state court’s decision. If the bankruptcy court later decides that the state court was incorrect, the state court proceedings in violation of the stay are void. See, e.g., In re Schwartz, 954 F.2d 569 (9th Cir. 1992); In re Shamblin, 890 F.2d 123 (9th Cir. 1989). On the other hand, if the state court is correct in deciding that the stay does not apply, the state court proceedings are not void. Gruntz, 202 F.3d at 1087. We ultimately affirmed the result reached by the bankruptcy court based on our determination, independent of the state court’s decision, that the state criminal proceedings were not within the scope of the stay. [5] Celotex and Gruntz both stand for familiar propositions in bankruptcy law. Neither case casts doubt on a district court’s ability to decide for itself whether proceedings pending before it are subject to an automatic stay. Celotex tells us that a district court has no authority to modify or to disregard a § 105 injunction. Only the bankruptcy court that issued the injunction has the authority to modify the injunction, and until the injunction is modified the district court is bound by it. Gruntz tells us that a state court has the authority to decide whether its proceeding is within the scope of the automatic stay, but the state court’s holding is not entitled to preclusive effect in the bankruptcy court. [6] There is no reason why a federal court should have less power than a state court to decide whether its proceeding comes within the scope of the automatic stay. Indeed, there are a number of cases, in this circuit and elsewhere, in which a federal court has decided whether the automatic stay applies to a proceeding pending before it. See, e.g., NLRB v. ContiLOCKYER v. MIRANT CORP. 1661 nental Hagen Corp., 932 F.2d 828 (9th Cir. 1991) (NLRB enforcement proceeding in the court of appeals comes within the § 362(b)(4) exception to the automatic stay); NLRB v. Twin Cities Elec., 907 F.2d 108 (9th Cir. 1990) (same); Commodity Futures Trading Comm’n v. Co Petro Marketing Group, Inc., 700 F.2d 1279 (9th Cir. 1983) (Commodities Exchange Act proceeding in the district court comes within the § 362(b)(5) exception to the automatic stay); Chao v. Hospital Staffing Servs., Inc., 270 F.3d 374, 384-85 (6th Cir. 2001) (suit under the federal Fair Labor Standards Act in the district court does not come within the § 362(b)(4) exception to the automatic stay, but the district court has authority to decide the applicability of the exception); NLRB v. Edward Cooper Painting, Inc., 804 F.2d 934 (6th Cir. 1986) (NLRB enforcement proceeding in the court of appeals comes within the § 362(b)(4) exception to the automatic stay); Hunt v. Bankers Trust Co., 799 F.2d 1060, 1069 (5th Cir. 1986) (“ ‘Whether the stay applies to litigation otherwise within the jurisdiction of a district court or court of appeals is an issue of law within the competence of both the court within which the litigation is pending . . . and the bankruptcy court.’ ” (citation omitted)); In re Baldwin-United Corp., 765 F.2d 343, 347 (2d Cir. 1985) (“The court in which the litigation claimed to be stayed is pending has jurisdiction to determine not only its own jurisdiction but also the more precise question whether the proceeding pending before it is subject to the automatic stay.”); SEC v. First Fin. Group of Texas, 645 F.2d 429 (5th Cir. 1981) (civil enforcement action under the federal securities laws in the district court comes within the § 362(b)(4) exception to the automatic stay). We are aware of no case holding to the contrary. [7] We therefore hold, in accordance with established law, that a district court has jurisdiction to decide whether the automatic stay applies to a proceeding pending before it, over which it would otherwise have jurisdiction. Specifically, as applied to this case, we hold that the district court has jurisdiction to decide whether the Attorney General’s section 16 1662 LOCKYER v. MIRANT CORP. Clayton Act suit comes within the exception to the automatic stay for “police or regulatory power” under § 362(b)(4). B. Exception from the Automatic Stay under § 362(b)(4) The applicability of the automatic stay, and the extent of the “police or regulatory power” exception under § 362(b)(4), are questions of law that we consider de novo. In re Hines, 198 B.R. 769 (9th Cir. BAP 1996), rev’d on other grounds by 147 F.3d 1185 (9th Cir. 1998) (whether an act falls within statutory exception to the stay is reviewed de novo). The record is sufficiently complete that we may decide the question even though the district court did not. Chang v. United States, 327 F.3d 911, 928 (9th Cir. 2003). [8] Section 362(b)(4) provides that the filing of a bankruptcy petition does not operate as an automatic stay “of the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit’s . . . police or regulatory power.” 11 U.S.C. § 362(b)(4). A government unit need not affirmatively seek relief from the automatic stay to initiate or continue an action subject to the exemption. Edward Cooper Painting, 804 F.2d at 939. The theory of the exception is that bankruptcy should not be “ ‘a haven for wrongdoers.’ ” Universal Life Church, Inc. v. United States (In re Universal Life Church), 128 F.3d 1294, 1297 (9th Cir. 1997) (citations omitted). The “police or regulatory power” exception allows the enforcement of laws affecting health, welfare, morals, and safety despite the pendency of the bankruptcy proceeding. The exception applies, for example, to suits to determine a federal income tax exemption, see id.; to enforce federal labor laws, see Twin Cities Electric, 907 F.2d at 109; to enforce state bar disciplinary rules, see Wade v. State Bar of Arizona, 948 F.2d 1122 (9th Cir. 1991); to enforce federal employment discrimination laws, see EEOC v. Hall’s Motor Transit Co., 789 F.2d 1011 (3rd Cir. 1986); and to enforce state consumer LOCKYER v. MIRANT CORP. 1663 protection laws, see In re First Alliance Mortgage, 263 B.R. 99 (B.A.P. 9th Cir. 2001). Mirant did not argue in the district court that the Attorney General’s Clayton Act suit fell outside the § 362(b)(4) exception. In its initial briefing before us, Mirant similarly did not argue that the suit fell outside the exception, even though the Attorney General had briefed the question. After oral argument, we asked the parties to submit supplemental briefing in order to be sure that Mirant had been given a full opportunity to address the question. Mirant now makes two arguments to us. First, it argues that the § 362(b)(4) exception does not apply because the statutory reference to “such government unit’s police or regulatory power” means that the government in question must be suing in furtherance of its own police and regulatory power. Mirant contends that the state Attorney General is not doing so in this case because his only remaining claim is for injunctive relief under section 16 of the federal Clayton Act, which authorizes “[a]ny person, firm, corporation, or association” to seek injunctive relief “against threatened loss or damage by a violation of the antitrust laws.” 15 U.S.C. § 26. [9] Mirant suggests in its argument that a suit by a California official to enforce the federal Clayton Act would not be a suit within its own authority, and that only a suit by the United States Attorney to enforce the Clayton Act would come within § 362(b)(4). This suggestion is without foundation in the case law. A number of cases make clear that the § 362(b)(4) exception extends to a government’s enforcement of laws enacted by other governments. See, e.g., City of New York v. Exxon Corp., 932 F.2d 1020, 1024-25 (2d Cir. 1991) (municipality enforcing federal environmental law); In re Commonwealth Oil Refining Co., 805 F.2d 1175, 1186, 1188 & n. 5 (5th Cir. 1986) (United States enforcing Puerto Rico law); New York v. Mirant New York, Inc., 300 B.R. 174, 17879 (S.D.N.Y. 2003) (state enforcing federal environmental 1664 LOCKYER v. MIRANT CORP. law); Herman v. Brown, 160 B.R. 780, 781 (E.D. La. 1993) (state enforcing federal racketeering law); People of the State of Illinois v. Electrical Utilities, 41 B.R. 874, 876-77 (N.D. Ill. 1984) (state enforcing federal environmental law); In re Canarico Quarries, Inc., 466 F. Supp. 1333, 1334 (D. Puerto Rico 1979) (commonwealth enforcing federal Clean Air Act); In re Pincombe, 256 B.R. 774, 781-83 & n.3 (Bankr. N.D. Ill. 2000) (state enforcing federal employment discrimination law); In re New York Trap Rock Corp., 153 B.R. 642, 643 (Bankr. S.D.N.Y. 1993) (county enforcing federal environmental law). Mirant argues explicitly that because section 16 of the Clayton Act authorizes suits by private parties, a government unit suing to enforce that section cannot be acting as a government within the meaning of § 362(b)(4). This argument is also without foundation. While section 16 does authorize suits by private entities, it also authorizes suits by state governments. See California v. Am. Stores Co., 495 U.S. 271, 27576 (1990) (upholding injunctive relief awarded to state in suit brought under section 16 of the Clayton Act). When the Attorney General seeks to enforce this law on behalf of the citizens of California, he is acting within the police power of the California government. His suit is authorized by the state, is in furtherance of the state’s authority, and uses state resources. We are aware of no authority, and Mirant cites none, holding that a government suit that would otherwise be within the “police or regulatory power” exception of § 362(b)(4) ceases to come within that exception whenever the provision of law under which the government sues also authorizes suits by private entities. [10] Second, Mirant argues that the Attorney General’s suit does not satisfy either of the two established tests for the “police or regulatory powers” exception of § 362(b)(4). The two tests are the related, and somewhat overlapping, “pecuniary purpose” and “public purpose” tests. A suit comes within the exception of § 362(b)(4) if it satisfies either test. See UniverLOCKYER v. MIRANT CORP. 1665 sal Life Church, 128 F.3d at 1297 (“The question in this case is whether [the government action] meets either test.”) (emphasis added). We hold that the Attorney General’s Clayton Act suit satisfies both tests. [11] Under the “pecuniary purpose” test, “the court determines whether the [government] action relates primarily to the protection of the government’s pecuniary interest in the debtors’ property or to matters of public safety and health.” Continental Hagen, 932 F.2d at 828 (internal quotation marks and modifications omitted). See also Edward Cooper Painting, 804 F.2d at 942; In re State of Missouri, 647 F.2d 768, 776 (8th Cir. 1981). If the suit seeks to protect the government’s pecuniary interest, the § 362(b)(4) exception does not apply. On the other hand, if the suit seeks to protect public safety and welfare, the exception does apply. The purpose of the “pecuniary purpose” test is to prevent suits that would allow a governmental unit to obtain an advantage over creditors or potential creditors in the bankruptcy proceeding. [12] The Attorney General’s section 16 Clayton Act suit clearly satisfies the “pecuniary purpose” test. After having been trimmed down by the district court, the suit now seeks only divestiture. The Attorney General does not seek a monetary recovery, and asserts no interest of the state in the three power plants that are the subject of his suit. Rather, the Attorney General seeks only an injunction that would require Mirant to divest itself of the plants. There is nothing in this relief that would allow the Attorney General to gain an advantage over creditors in the bankruptcy proceeding. If granted, the only effect of the remedy would be to require that the plants be sold, with the entire proceeds going to the bankruptcy estate. Further, it is clear that the suit seeks to protect the welfare of electricity consumers in northern California by protecting them from the excessive charges that might result from an undue concentration of market power. [13] Under the “public purpose” test, the court determines whether the government seeks to “effectuate public policy” or 1666 LOCKYER v. MIRANT CORP. to adjudicate “private rights.” NLRB v. Continental Hagen, 932 F.2d at 833. If the government seeks the former, the exception applies; if the government seeks the latter, it does not. Id.; see also In re State of Missouri, 647 F.2d at 776. A suit does not satisfy the “public purpose” test if it is brought primarily to advantage discrete and identifiable individuals or entities rather than some broader segment of the public. See, e.g., Chao, 270 F.3d 378 (suit to recover unpaid wages under the Fair Labor Standard Act does not come within § 362(b)(4)). The Attorney General’s suit clearly satisfies the “public interest” test, for it is brought to protect the interest of all electricity consumers in northern California. [14] We therefore hold that the Attorney General’s section 16 Clayton Act suit comes within the “police or regulatory power” exception under § 362(b)(4), and that the automatic stay does not apply. C. Landis Stay [15] A district court has discretionary power to stay proceedings in its own court under Landis v. North American Co., 299 U.S. 248, 254 (1936). In Landis, two holding companies sued the Securities and Exchange Commission (“SEC”) in the District Court for the District of Columbia to enjoin enforcement of the Public Utility Holding Company Act of 1935 on the ground that it was unconstitutional. Numerous similar suits were filed, in the District of Columbia and elsewhere, against the SEC. The SEC filed a complaint in the district court for the Southern District of New York to compel other holding companies to comply with the terms of the Act. The District of Columbia district court stayed its suit, indicating that the stay would last until the New York district court suit was decided on appeal by the Supreme Court or was otherwise finally resolved. [16] The Supreme Court reversed: LOCKYER v. MIRANT CORP. 1667 [A party seeking] a stay must make out a clear case of hardship or inequity in being required to go forward, if there is even a fair possibility that the stay for which he prays will work damage to some one else. Only in rare circumstances will a litigant in one cause be compelled to stand aside while a litigant in another settles the rule of law that will define the rights of both. Id. at 255. The Court noted that resolution of the New York district court suit could help narrow the issues considerably: True, a decision in the cause then pending in New York may not settle every question of fact and law in suits by other companies, but in all likelihood it will settle many and simplify them all. Id. at 256. Nonetheless, the Court held that a stay lasting until the New York district court suit was finally resolved exceeded “the limits of a fair discretion.” Id. It then held that, in the circumstances now confronting it, where the New York district court had already had its case for a year, a stay lasting only until the New York district court decided the case might be appropriate. Id. at 256-57. It therefore remanded to the District of Columbia district court to consider whether to grant a stay of what was now likely to be fairly short duration. Id. at 259. We have sustained, or authorized in principle, Landis stays on several occasions. In CMAX, Inc. v. Hall, 300 F.2d 265 (9th Cir. 1962), CMAX, a common carrier by air, sued Drewry, a shipper, in federal district court to recover $12,696.00, contending that Drewry had not paid the full amount of the government-approved tariff. At least a dozen other suits were later filed in the same district court, in which CMAX sued shippers on the same ground. The Civil Aeronautics Board (“CAB”) then instituted an administrative enforcement proceeding against CMAX, contending that CMAX had charged 1668 LOCKYER v. MIRANT CORP. numerous shippers, including Drewry, more than the approved tariff. The district court stayed CMAX’s suit against Drewry. CMAX sought mandamus. Citing Landis, we set out the following framework: Where it is proposed that a pending proceeding be stayed, the competing interests which will be affected by the granting or refusal to grant a stay must be weighed. Among those competing interests are the possible damage which may result from the granting of a stay, the hardship or inequity which a party may suffer in being required to go forward, and the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law which could be expected to result from a stay. Id. at 268. We denied mandamus. Applying the framework, we noted that CMAX sought only damages. It alleged no continuing harm and sought no injunctive or declaratory relief. Delay of CMAX’s suit would result, at worst, in a delay in its monetary recovery, with possible (though by no means certain) loss of prejudgment interest. Further, we noted that the CAB proceeding would provide considerable assistance in resolving CMAX’s suit against Drewry, as well as CMAX’s other suits in the district court: [A]t the very least, the [CAB] proceeding will provide a means of developing comprehensive evidence bearing upon the highly technical tariff questions which are likely to arise in the district court case. Moreover, if that proceeding should result in a revocation of CMAX’s operating authority, the district court will be enabled to explore the effect thereof on that carrier’s standing to collect past undercharges. ... LOCKYER v. MIRANT CORP. 1669 To these considerations must be added the fact that several other similar cases are now pending in the same district court, and more are likely to be filed in the near future. In the interests of uniform treatment of like suits there is much to be said for delaying the frontrunner. Id. at 269. In Leyva v. Certified Grocers of California, Ltd., 593 F.2d 857 (9th Cir. 1979), truck drivers sued their employer for unpaid wages under the federal Fair Labor Standards Act (“FLSA”) (count I), and under their collective bargaining agreement (count II). The district court stayed both counts under the Federal Arbitration Act. On appeal, we held that the collective bargaining count was subject to arbitration, but that the FLSA count was not. We nonetheless held that a stay of the FLSA count might be justified under Landis and related cases: [S]ound reasons may exist . . . to support the dis- trict court’s determination to stay the action under the powers to control its own docket and to provide for the prompt and efficient determination of the cases pending before it.