Court Opinion

ID: 1016281
Source: CourtListenerOpinion
Date Created: 2013-07-04 21:46:21.062973+00
Date Added: 2024-06-11T15:38:37.164050
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 04-1895

In Re: CLAUDE MASON ROYAL; In Re: VIRGINIA
HOWELL ROYAL,

                                                            Debtors.

-----------------

BOARD OF SUPERVISORS FOR        THE COUNTY OF
CAMPBELL;   CAMPBELL COUNTY      UTILITIES AND
SERVICE AUTHORITY,

                                             Plaintiffs - Appellees,

           versus

CLAUDE MASON ROYAL; VIRGINIA HOWELL ROYAL,

                                           Defendants - Appellants,

           and

HERBERT   BESKINS,  Trustee;   UNITED  STATES
TRUSTEE FOR THE WESTERN DISTRICT OF VIRGINIA,

                                               Parties in Interest.

Appeal from the United States District Court for the Western
District of Virginia, at Lynchburg.  Norman K. Moon, District
Judge. (CA-04-8-NKM; BK-03-683)

Argued:   March 16, 2005                     Decided:   May 24, 2005

Before TRAXLER and DUNCAN, Circuit Judges, and Frederick P. STAMP,
Jr., United States District Judge for the Northern District of West
Virginia, sitting by designation.
Reversed and remanded by unpublished per curiam opinion.

ARGUED: Monica Taylor Monday, Lori Dawn Thompson, GENTRY LOCKE
RAKES & MOORE, Roanoke, Virginia, for Appellants. John Michael
Perry, Jr., EDMUNDS & WILLIAMS, P.C., Lynchburg, Virginia; David
William Shreve, Alta Vista, Virginia, for Appellees. ON BRIEF:
Eric J. Sorenson, Jr., EDMUNDS & WILLIAMS, P.C., Lynchburg,
Virginia, for Appellees.

Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).

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PER CURIAM:

        Defendants-Appellants, Claude Royal and Virginia Royal (the

“Royals”), appeal the district court’s June 12, 2004 order holding

that the automatic stay in bankruptcy, 11 U.S.C. § 362, does not

operate to bar Plaintiffs-Appellees, the Board of Supervisors for

the County of Campbell, et al. (the “County”) from exercising the

power of eminent domain over the Royals’ land.             Specifically, the

district court, reversing the bankruptcy court, held that 11 U.S.C.

§ 362(b)(4) excepted the County’s proposed use of eminent domain

proceedings from the automatic stay provision as a matter of law.

For the following reasons, we reverse the district court and remand

this case for further proceedings.

                                      I.

     The Royals own and operate the Twin Oaks mobile home park in

Campbell County, Virginia.      In order to provide residents with

water, the Royals installed and maintained water wells on Twin

Oaks.     The County owns and operates a landfill adjacent to Twin

Oaks.       Between   approximately        1996   and   2002,   environmental

contamination migrated underground from the landfill onto Twin

Oaks, making some of the wells unsafe for drinking water provision.

The Royals responded by closing the contaminated wells and opening

new wells on uncontaminated portions of the property.             These wells

                                      3
are currently providing safe drinking water, though there is a

dispute over whether they will continue to do so.

      Since 2002, the Royals and the County have been involved in

negotiations regarding the cleanup of Twin Oaks and the provision

of safe drinking water to residents, but have been unable to reach

an agreement.      The County claims that it needs to permanently

decommission the water wells on the Royals’ property and install a

public water system at Twin Oaks in order to guarantee safe

drinking water.       The Royals claim that the current wells are safe

and   are   closely    monitored,   that   permanent     decommissioning   is

unnecessary, and that the County wants to decommission the wells in

order to avoid a costly clean-up of the contamination that it

created. Specifically, the Royals contend that the County wants to

engage in a cheaper and less effective decontamination procedure

than that which would be necessary if the land were to support

water wells in the future.          In short, the parties fundamentally

disagree    over   the    best   manner    to   remove   the   environmental

contamination while providing for the health and safety of Twin

Oaks residents.1

      1
      Both parties present testimony and related documentation from
environmental experts supporting their position concerning the
cleanup. Because, however, the bankruptcy and district courts did
not conduct an evidentiary hearing on these issues, we take no
position on the matter and note only that there are disputed issues
of material fact concerning the best method to clean the land.

                                      4
     Unable to reach an agreement concerning the best manner to

handle the contamination, the County indicated that it would take

portions of Twin Oaks through eminent domain and permanently

decommission the wells on the property taken.

     Before the County could take the land, the Royals filed a

voluntary   petition    for   bankruptcy   under   Chapter   11   of   the

Bankruptcy Code (the petition was later converted to a Chapter 13

petition). In October, 2003, the County filed a motion, asking the

Bankruptcy Court to determine that its proposed eminent domain

taking was excepted from the automatic stay provision of the Code.

See 11 U.S.C. § 362.      On January 15, 2004, the Bankruptcy Court

decided that it did not need to conduct an evidentiary hearing and

held, as a matter of law, that the proposed eminent domain taking

did not qualify for an exception to the automatic stay.

     The County appealed this decision to the District Court, which

decided on July 12, 2004, that the proposed taking was excepted

from the automatic stay as a matter of law.          The Royals timely

appeal that decision.

                                   II.

     “We review the judgment of a district court sitting in review

of a bankruptcy court de novo, applying the same standards of

review that were applied in the district court.”        In Re: Litton,

330 F.3d 636, 642 (4th Cir. 2003) (internal quotation omitted).

                                    5
Specifically, we review any questions of law, such as those at

issue in this case, de novo.            Id.

       When   a    debtor     files   for   bankruptcy,        Section      362    of   the

Bankruptcy Code imposes a broad automatic stay which prohibits “all

entities” from, among other things, engaging in “any act to obtain

possession of property of the estate or of property from the estate

or to exercise control over property of the estate.”                        11 U.S.C. §

362(a)(3).        This automatic stay provides one of the fundamental

protections of debtors and their estates found in the bankruptcy

code.    See Midlantic Nat'l Bank v. N.J. Dep't of Env’l Prot., 474

U.S. 494, 503 (1986); see also S. Rep. No. 95-989 at 52, reprinted

in 1978 U.S.C.C.A.N. 5787, 5835 (hereinafter “Senate Report”)

(noting that the automatic stay provides fundamental protection for

both    debtors     and     creditors);         H.R.   Rep.    No.   95-595       at    340,

reprinted in 1978 U.S.C.C.A.N. 5787, 6296-97 (hereinafter “House

Report”)(same).           Congress, however, has created certain statutory

exceptions        which    prevent    the   automatic         stay   from    attaching,

including the exception at issue in this case which allows for “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 . . . .”                      11 U.S.C. §§

362(a), 362(b)(4).

       This appeal asks us to resolve the narrow question of whether

the County’s proposed eminent domain taking is an enforcement of a

                                            6
governmental unit’s police and regulatory power under Section

362(b)(4).         It does not ask us to determine the legality or

propriety of the proposed taking, nor does it ask us to determine

whether, after motions and hearings in the bankruptcy court, the

automatic stay should be lifted.           See id. §§ 362(d), 362(e).     Those

issues remain for further proceedings in the bankruptcy court or

the Virginia state courts.         At this time, we are only determining

the scope of the Section 362(b)(4) exception as a matter of law.

     In order for the County’s proposed eminent domain taking to

qualify for the Section 362(b)(4) exception to the automatic stay,

the county must demonstrate that it is 1) enforcing 2) its police

and regulatory power.        Id. § 362(b)(4).      Because we find that the

County is not “enforcing” anything, as that term is used in Section

362(b)(4), we hold that the exception does not apply.2

                                         A.

     In this case, we must ascertain what it means “to enforce”

police and regulatory powers.            11 U.S.C. § 362(b)(4).      The County

urges    us   to    accept   a   broad   meaning   of   the   term   “enforce,”

     2
      Though the parties spend much time discussing the question,
we need not reach the issue of whether the County’s proposed
exercise of eminent domain in this case qualifies as a “police or
regulatory power” because our decision turns on the existence of an
enforcement action. See generally Safety-Kleen v. Wyche, 274 F.3d
846, 865-66 (4th Cir. 2001) (providing the Fourth Circuit standard
for determining if an action qualifies as a police or regulatory
power for purposes of Section 362(b)(4)).

                                          7
synonymous with “to exercise” or “to use.”             Under the County’s

interpretation, any valid exercise of the police power constitutes

an “enforcement” of that power under the statute.             The Royals,

conversely, contend that “enforcement” is narrower than “exercise,”

requiring the governmental entity at issue to use its police power

to “compel compliance” with a law or regulation that is being

violated.

      Our inquiry begins, as always, with the plain language of the

statute.    S.C. Dep't of Health & Envtl. Control v. Commerce &

Indus. Ins. Co., 372 F.3d 245, 255 (4th Cir. 2004).          We determine

the   meaning   of   statutory   language   through    “reference    to   the

language itself, the specific context in which that language is

used, and the broader context of the statute as a whole.”           Robinson

v. Shell Oil Co., 519 U.S. 337, 341 (1997).           The statute does not

contain an express definition of “enforce,” but the statutory

context of Section 362(b)(4) in which the language is used suggests

a narrow interpretation.

      The automatic stay is not permanent. If a governmental entity

(or any party in interest) believes that there is cause to remove

or modify the stay, the statute provides a mechanism through which

it can request a hearing in the bankruptcy court to present its

case.   11 U.S.C. §§ 362(d)-(e).         Additionally, the statute also

provides a mechanism through which the governmental entity can

request immediate relief from the stay without a hearing if it

                                     8
believes that its interest in the property will suffer “irreparable

damage.”     Id. § 362(f).       These “safety valve” provisions help

ensure that, if the automatic stay is inappropriately applied, the

parties in interest and the bankruptcy court can work quickly to

provide the proper relief.          Senate Report, 1978 U.S.C.C.A.N. at

5836 (“The stay is not permanent.         There is adequate provision for

relief from the stay elsewhere in the section.”); House Report,

1978 U.S.C.C.A.N. at 6297 (same).

     Once,    however,    the   bankruptcy   court    applies    the   Section

362(b)(4) exception to the automatic stay, there are no equivalent

“safety valve” provisions that allow parties in interest to request

a hearing or otherwise review that decision in the bankruptcy

court.    See 11 U.S.C. § 362(a) (noting that Section (b) operates to

prevent the stay from attaching at all).             The statutory context

therefore indicates that we should read Section 362(b)(4) narrowly

because the bankruptcy court can quickly and easily correct issues

resulting from a problematic stay, but has no power to correct

issues caused by a problematic exception to a stay.

     Because we find that the plain language of the statute is

unambiguous, our inquiry into the statute’s meaning is, as a formal

manner, finished.        South Carolina Dep’t of Health and Envtl.

Control v. Commerce and Indus. Ins. Co., 372 F.3d 245, 255 (4th

Cir. 2004).    We do note, however, that the legislative history of

Section    362(b)(4)     supports   the   narrow     reading    of   “enforce”

                                      9
compelled by the statutory context. Specifically,    the House and

Senate Reports on the statute note that:

     [Section 362(b)(4)] excepts commencement or continuation
     of actions and proceedings by governmental units to
     enforce police or regulatory powers.      Thus, where a
     governmental unit is suing a debtor to prevent or 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,
     the action or proceeding is not stayed under the
     automatic stay.

Senate Report, 1978 U.S.C.C.A.N. at 5838; House Report, 1978 U.S.

C.C.A.N. at 6299.

     In other words, the legislative history supports the plain

language of the statute indicating that we should treat the Section

362(b)(4) exception narrowly, and only apply it to situations in

which a governmental entity is using its police power “to prevent

or stop violation of fraud, environmental protection, consumer

protection, safety or similar police or regulatory laws.”   Id.

     Therefore, as indicated by the plain statutory language and

supported by the legislative history, we hold that a governmental

entity does not enforce its regulatory or police power for purposes

of Section 362(b)(4) merely through exercising it.        Instead,

enforcement requires the governmental entity to be correcting

violations of or compelling compliance with pre-existing public

benefit statutes or regulations.

                                10
                                          B.

       Our inquiry therefore collapses into an analysis of whether

the    County’s       proposed    use   of     eminent   domain   is       compelling

compliance with or correcting violations of public benefit statutes

or regulations.            The County suggests that the proposed use of

eminent domain “enforces” Virginia Code Section 15.2-1200, Virginia

Code Section 15.2-900, Virginia Code Section 15.2-2109, Virginia

Code Sections 15.2-5100, et seq., and Virginia Code Section 15.2-

928.       We disagree.

       Virginia Code Sections 15.2-1200, 15.2-2109, 15.2-5100 et

seq., 15.2-928, and 15.2-900 are simply enabling statutes which

transfer power to local governments to enact legislation, establish

municipal facilities, and abate nuisances.               See Va. Code. § 15.2-

1200 (empowering a county to “adopt such measures as it deems

expedient to secure and promote the health, safety and general

welfare of its inhabitants which are not inconsistent with the

general      laws     of   the   Commonwealth”);     §   15.2-2109      (empowering

localities       to    acquire    or    establish    utilities);       §    15.2-5100

(empowering localities to create local water authorities); § 15.2-

928 (empowering localities to establish waste disposal facilities);

§ 15.2-900 (empowering a locality to “maintain an action to compel

a responsible party to abate . . . a public nuisance”).3                     They are

       3
      Section 15.2-900 does contain the language “compel,” which
the County argues makes any exercise of power under that statute a
self-executing enforcement. This argument misses the point. We

                                          11
not statutes that the Royals can be violating or with which the

Royals can be compelled to comply.          Compare this case, in which the

Royals are not accused of violating any statute or regulation, with

other cases cited by the parties, all of which involve debtors who

were    accused     of   violating   specific    statutory     or   regulatory

provisions, e.g., Safety-Kleen, Inc. v. Wyche, 274 F.3d 846, 856,

864-66 (4th Cir. 2001) (debtor accused of violating South Carolina

financial assurance regulations relating to public safety); United

States Dep’t of Hous. & Urban Dev. v. Cost Control Mktg. & Sales

Mgmt. of Va., 64 F.3d 920, 923-24 (4th Cir. 1995) (debtor accused

of violating the Interstate Land Sales Full Disclosure Act);

Eddleman v. United States Dep’t of Labor, 923 F.2d 782, 783 (10th

Cir. 1991) (debtor accused of underpaying workers in violation of

the Service Contract Act); In re: Commonwealth Cos., Inc., 913 F.2d

518, 520 (8th Cir. 1990) (debtor accused of rigging construction

bids in violation of False Claims Act); In re Commerce Oil Co., 847

F.2d 291, 292 (6th Cir. 1988) (debtor accused of discharging brine

into a creek in violation of the Tennessee Water Quality Control

Act); Penn Terra Ltd. v. Penn. Dept. of Envtl. Res., 733 F.2d 267,

269    n.1   (3rd    Cir.   1984)    (debtor    accused   of   violating   the

are not deciding whether the County has the power to compel
compliance with public health and welfare laws. It surely does.
We are instead concerned with whether there are any public health
and welfare laws that the Royals are accused of violating in the
first place. Because the County can point to none (and we can find
none), there is nothing for it to “enforce” against the Royals.

                                       12
Pennsylvania Clean Streams Law and the Bituminous Coal Open Pit

Mining Conservation Act).   The County presents no case in which a

court has allowed an entity to invoke the 362(b)(4) exception

despite the fact that the debtor was not accused of violating any

pre-existing public health or safety regulations.   We decline the

County’s invitation to become the first court to do so.

     Accordingly, because the County is not compelling compliance

with or correcting violations of any public benefit law, it is not

“enforcing” its police and regulatory power and, therefore, is not

entitled to the Section 362(b)(4) exception to the automatic stay.

                               III.

     Both the Royals and the County spend much energy debating the

merits and prudence of the proposed eminent domain taking.   Those

arguments are properly presented to the bankruptcy court if and

when a party in interest moves pursuant to Section 362(d) to modify

or dissolve the automatic stay.       Today, we hold only that the

Section 362(b)(4) exception does not operate to except the County’s

proposed taking from the automatic stay.    Accordingly, we reverse

the district court decision holding that the automatic stay does

apply and remand for further proceedings consistent with this

opinion.

                                              REVERSED AND REMANDED

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