Commissioners John A. Gose and Edith H. Jones concur in this dissent; they do not, however, subscribe to all of the views and statements contained herein.

Introduction.⁽²⁸³²⁾ There are a number of serious problems with the section of the report entitled, Procedural Recommendations to the Bankruptcy Code: Police and Regulatory Exception Under 11 U.S.C. § 362(b)(4) & (b)(5). This section addresses the concerns raised by the government with respect to sections 362 and 105. In many respects it goes beyond those matters that were discussed by the Commission, much less those which the Commission formally adopted in the form of a proposal. Indeed, in some respects, its tone appears to be contrary to positions taken in earlier Commission documents, including the Government Working Group A, Working Group Proposal # 7: Section 362(b)(4) draft of November 8, 1996.

This dissent notes certain specific concerns about the report that should be corrected. To provide fairness and balance to the report the entirety of the January 1997 proposal is attached. ⁽²⁸³³⁾ That proposal provides a fair and balanced presentation of these issues and represents the position that the Commission should have adopted.

Initially, the relative perspectives of the various parties and the function of the bankruptcy system within American jurisprudence must be considered. In viewing the bankruptcy system in its proper perspective, one must ask, Has bankruptcy law elevated the private interests of the debtor and the creditors over the public interests? The Constitution states that Congress shall have the power to "establish . . . uniform Laws on the subject of Bankruptcies throughout the United States." ⁽²⁸³⁴⁾ Bankruptcy law is established in federal law to achieve uniformity as a part of the regulation of commerce and to prevent fraud where debtors may have property located in other states. ⁽²⁸³⁵⁾ The bankruptcy process is but one function of government, a substructure within the panoply of governments, both state and federal, which must provide for all citizens. Governments' role, state, federal and local, in the bankruptcy system is unique because they function not only, or even most importantly, as a creditor; they must serve their primary roles of regulators and service providers. Private creditors have no corollary roles in performing such governmental functions as adopting and administering policies related to the exercise of police power, tax power, federally mandated programs, public finance obligations, or regulatory powers. The government that establishes and administers the bankruptcy system is also obligated to provide for the public safety and welfare of all citizens. The bankruptcy system, a system that serves the needs of only a limited spectrum of society, should not be allowed to impede or unduly burden that larger governmental function.

The commencement of a bankruptcy case imposes the most powerful injunction provided by law without the opportunity for a prior hearing, the stay of proceedings under section 362 of the Bankruptcy Code. All that is necessary is to sign and file a form and to pay a fee. This stay of proceedings is available to all debtors regardless of the merits of their case and initially enjoins, among other things, nearly all actions pursuant to state, federal or local law which may affect the debtor or the estate, including the collection of taxes, many aspects of the regulation of business, and the licensing and enforcement activities of most regulatory agencies. Together with the court's equitable jurisdiction under section 105(a) of the Bankruptcy Code debtors have a formidable array of tools with which to achieve results and obtain benefits not available through any other means. Thus, the extent to which governmental regulatory actions are exempted from this initial stay of proceedings is crucial.

A provision within the Chemical Weapons Convention Implementation Act⁽²⁸³⁶⁾ would clarify the exceptions to the section 362 automatic stay of proceedings to remove any doubt whether or not the police or regulatory power can be exercised against property of the estate. Under the Bankruptcy Code, as it presently stands, a governmental agency charged with protecting the public in the case of manufacturing, trafficking or holding certain hazardous or illegal goods, such as diseased livestock, counterfeit goods, and other hazardous materials held by the debtor, runs the risk of sanctions for violating the section 362 stay of proceedings if it carries out its duties under law and seizes the offensive material without prior permission from the bankruptcy court. ⁽²⁸³⁷⁾

Those who oppose the amendment in the Chemical Weapons Bill which excepts police and regulatory action from portions of the section 362 stay of proceedings contend that a bankruptcy judge must be the arbiter of which laws enacted by Congress will be enforced. The report appears to advocate their view that the government should be precluded from acting against property of the estate, no matter what the exigency of the circumstances, unless it first obtains bankruptcy court approval, even where a state court has already determined that the government's actions are necessary. They argue that a law, enacted by Congress for the public protection and with full knowledge that it may prove financially burdensome to some to comply therewith, nevertheless can be enjoined upon the unilateral decision of a bankruptcy judge. Moreover, the court's rulings need not be made on the basis of the law's constitutionality but, rather, can be based simply on the exercise of a "seat of the pants" sense of equity, for the private benefit of the debtor and its creditors, thereby jeopardizing the interests of the public for whose benefit the law was passed. This position is totally untenable. The power to determine whether or not a law should be enforced should not be transferred from our elected representatives to appointed federal judges, merely to assist in the reorganization of a particular debtor. Nonbankruptcy law provides for injunction of government actions only in the most exceptional cases; that authority should not be expanded merely because of the debtor's asserted financial distress.

Does Congress really want to give bankruptcy lawyers and judges the power to determine whether or not a Congressional enactment shall be followed, based on purely commercial considerations? How many members of Congress, who worked hard to obtain passage of an important piece of legislation at the behest of their constituents, are willing to give up to the bankruptcy judges the power to decide whether or not that law will be enforced? Are those who are protected by the laws which require seizure and destruction of counterfeit products, for instance, willing to entrust the determination of whether or not those laws will be enforced to bankruptcy lawyers and judges? Any bankruptcy law, rule or power which subverts, negates, supplants, subjugates, or subordinates nonbankruptcy laws intended to protect the people frustrates government of the people and cannot be tolerated. Bankruptcy judges cannot become demigods and the Bankruptcy Code cannot be the source of omnipotent power.

The Report. Specific Defects.

First, there are concerns about the entire structure of this section of the report. It is unfocused, by design apparently, having initially been prepared to serve as a discussion paper for a meeting of the Commission held in Detroit, Michigan, on June 20, 1997. As such, it serves no particular role in the Commission's report. If it is merely meant to be a historical recitation of what the Commission discussed, it is far longer than necessary. If it is meant to reflect the full range of the issues and the Commission's position thereon, it is neither fully accurate nor complete. For instance, it does not make clear that the Commission appeared to be supportive of at least a limited expansion of the stay exceptions until the Chemical Weapons Bill was introduced. Moreover, the report suggests that the Commission decided against those pending proposals when, in fact, the issues were essentially treated as moot once the Chemical Weapons Bill passed the Senate. In short, the report seems to be merely an effort to rewrite history and the Commission's discussions.

Second, the draft does not fairly present the January 1997 proposal. It paraphrases the proposed amendment to section 362 contained in that proposal, without ever actually quoting it. By doing so, the report fails to disclose the fact that the January 1997 proposal, like the Chemical Weapons Bill, explicitly carves out enforcement of money judgments from the expanded stay exceptions that are being proposed. The result is that the January 1997 proposal is presented as if it proposed a far more drastic revision to the Code than was actually being discussed. That mischaracterization is underscored by the use of a quotation found in footnote 98, that the "proposal would allow government agencies to pursue actions 'to collect, assess, or recover a claim against the debtor that arose before the commencement of the case . . . ,'" while omitting the language in the proposal which specifically restricts the exercise of the police or regulatory power to the enforcement of a judgment "other than a money judgment." This mischaracterization furthers the misleading impression that the government is seeking to be able to collect money judgments. The January 1997 proposal clearly and explicitly disavows any such intention.

Third, the report uncritically quotes, at footnote 98, the opposition of the Commercial Law League of America and Bernard Shapiro. However, the concerns they express, if truly valid, about which there are serious doubts, would militate in favor of removing the exception to the stay for governmental actions altogether. It certainly makes no sense to suggest that the government should be required to go through the process of initiating and conducting the entire investigative and litigation process, without challenge by the debtor as to its bona fides, and only then, at the very last moment, have the bankruptcy court reconsider everything that has gone before. The Code already presumes that the government knows what the limits are of police and regulatory actions and will not deliberately violate them. If the debtor wishes to challenge that assumption in a particular case, it certainly should be expected to raise that issue as soon as the government begins its action, rather than to wait until final action is imminent and then claim that all that went before was voided by the stay.

Nor, in the great majority of the cases, is there any validity to Mr. Shapiro's suggestion that the government can simply do anything it wants with respect to the debtor's property without any prior judicial review. Just because the automatic stay doesn't apply to an action, doesn't mean that the other statutory or constitutional requirements applicable outside of bankruptcy law have somehow become obsolete. The bankruptcy court is surely not the only entity capable of carrying out judicial review of the government's proposed actions.

Fourth, lifting a stay is not always an expeditious matter, contrary to the suggestion on page 32 and footnote 100. ⁽²⁸³⁸⁾ Thus, the report expresses the bias of those who advocate the expansion of the power of the bankruptcy courts by requiring government regulators to first seek the permission of the bankruptcy court before being permitted to protect the public, as required by nonbankruptcy law. Moreover, if the bankruptcy court refuses to lift the stay, appealing that decision can be an excruciatingly long process. ⁽²⁸³⁹⁾

Fifth, the opening sentence in the second full paragraph on page 33, is inaccurate where it states that, "The circuit courts, as well as other lower courts, that have addressed this issue [of the application of § 362(a)(3)] have not adopted the literal construction." While one would hope that all courts would agree that section 362(a)(3) should not be applied to police and regulatory actions, the reality is that the court are distinctly split on the issue. The report eventually goes on to recognize that split, but inappropriately downplays it at the beginning of this discussion. Moreover, even where the courts do adopt this position, they recognize that they must do so despite the literal language of section 362(a). It is grossly unfair for the government to be left in such a precarious position. Nor should the report minimize the need for change by underplaying the existing problem. If the Commission agrees that this is the desired reading of the Code, then it should support the government's proposed amendments; not pretend that there is no need for them. Indeed, even if the cases were unanimous, why should there be a problem with changing the language to more clearly reflect that consensus?

Sixth, there are several problems with the cases that are cited for various propositions on page 39. For instance, the cases cited in the second paragraph of footnote 129, do not support the proposition for which they are cited. Neither In re Thomas⁽²⁸⁴⁰⁾ nor In re Bridge⁽²⁸⁴¹⁾ discussed whether or not forfeiture is a police or regulatory matter and both noted that section 362(b)(4) does not apply to the kind of postpetition actions that were involved there, in any event. Also on page 39, it is not at all clear why Thomas is quoted at all. The only point seems to be to say that civil forfeiture is a bad thing and that bankruptcy should be a way to avoid it--which would seem to be a comment beyond the Commission's jurisdiction. As to Ryan,⁽²⁸⁴²⁾ its summary rejection of the notion that forfeiture serves a police and regulatory purpose is not entitled to much weight. Congress and state legislatures have repeatedly decided that forfeiture is an important weapon in the war on drugs. It is not up to a bankruptcy judge to unilaterally reject that conclusion. Finally, Bridge simply does not support the proposition it is cited for in footnote 131.

Seventh, it is difficult to discern what the purpose is of the section purportedly dealing with the Chemical Weapons Bill, itself. If the point of this section of the report is to assist Congress with respect to its consideration of the bill, then the draft's perfunctory discussion and its failure to relate the language in the bill to what occurred during the Commission process precludes that possibility. It would appear that the report is intended to suggest that the Commission opposes the CWB, but such a position has never been discussed or voted on by the Commission, which leaves the report without a punch line. The result is a discussion that starts and ends nowhere.

Eighth, the report then shifts to a discussion of section 105. This part of this section of the report is probably the most objectionable. It turns the thrust of the discussions and the Working Group's position on its head; the position of the Working Group was clearly expressed in a draft proposal prepared at the direction of the Commissioners serving as a Working Group. ⁽²⁸⁴³⁾ Issues regarding sections 362(b)(4) and 105 were discussed at two Commission meeting in Santa Fe, New Mexico in September 1996 and in San Diego, CA in October 1996. ⁽²⁸⁴⁴⁾ Until that time, government issues had been considered by a Working Group comprised of Chairman Brady Williamson and Commissioners Shepard and Gose with assistance from Senior Advisor, Stephen H. Case. At the Santa Fe and San Diego meetings, the government issues were split into two panels, one to consider tax issues and the other to deal with general matters including stay issues. Of the six commissioners present in Santa Fe, Williamson, Shepard and Alix, along with Advisor Case, conducted the tax panel. Commissioners Ceccotti, Ginsberg, and Hartley, with Commissioner Reporter Professor Elizabeth Warren, conducted the other panel. Following that session, several draft proposals were circulated ⁽²⁸⁴⁵⁾ and certain matters were marked as having purportedly been resolved. ⁽²⁸⁴⁶⁾ One such proposal is contained in Government Working Group A, Working Group Proposal #5,⁽²⁸⁴⁷⁾ a copy of which is attached hereto. That draft which emerged from the Santa Fe meeting has never been changed or retreated from by the Working Group.

The government representatives were concerned, however, that the provisions in Working Group Proposal # 5 and its companion proposal # 7, which dealt with the automatic stay, were not yet adequate to address their concerns. Accordingly, at the government's request, all of these issues were opened for further discussion at the San Diego meeting. The Commissioners participating in the general government panel discussion at that session included Ginsberg, Ceccotti, Williamson, and Judge Edith Jones. Neither at the San Diego meeting nor thereafter has any Commissioner objected to the position taken in Proposal # 5, although it has never been formally ratified by the Commission as a whole. Rather, at that meeting, and continuing thereafter, the government continued to urge the Commission to adopt its proposed changes to section 105, rather than rest with the endorsement of the government's construction of the existing language that is contained in Proposal #5. No formal action was ever taken thereon by the Commission.

Thus, as of the last meeting in August, it appeared that the Commission's position was that expressed in Working Group Proposal # 5. The report, however, takes a position drastically at odds with the Working Group Proposal, and the discussions and positions previously taken by a number of Commissioners, even though the new position was never even raised with the Commission, much less put to a vote. I most strenuously dissent from this usurpation of the Commission's authority. ⁽²⁸⁴⁸⁾

It is impossible to tell from the current draft that the discussion about section 105 arose from the government's concerns and its desire to clarify section 105 to keep it from being used inappropriately. As can be seen from brief review of Proposal # 5, the Working Group agreed that the government's position on the scope of the section was correct, but concluded that the problem was not so severe that it warranted changing the Code's language. Instead, it referred to "aberrational cases" which Judge Ginsberg contended were issued by "rogue judges." In response to that position, the government supplied the Commission with additional evidence at the San Diego meeting, describing the extent of the problem, and later provided further voluminous submissions to the same effect. As the government well documented, its enforcement efforts are severely hampered by the delays and additional costs caused by litigation under this section even if the government eventually wins. The problem is exacerbated if the government loses on hearing before the bankruptcy court and must wait until it convinces a higher court to overturn the stay. ⁽²⁸⁴⁹⁾ Justice delayed by an inappropriate injunction is still justice denied, even if the injunction is eventually lifted--all to the potential harm of those who are not parties to the case, the citizens of the country who are not in bankruptcy but are affected by the debtor's actions.

The report not only ignores this evidence, but, at page 42, states to the contrary, that section 105 is "applied sparingly" and that "courts generally do not apply such power freely." Those statements are not based on any empirical data and completely fail to come to grips with the government's detailed evidence. Some thirty-five published decisions on the topic, and undoubtedly many more unpublished orders, does not suggest a minor problem. ⁽²⁸⁵⁰⁾ Two recent unreported decisions are representative. In In re Luskin's, Inc.,⁽²⁸⁵¹⁾ the District Court was forced to reverse a bankruptcy court which had barred the appeal of a liability determination in a consumer protection case merely because it involved monetary restitution issues. In Matter of Long Distance Services, Inc.,⁽²⁸⁵²⁾ a bankruptcy court issued an ex parte temporary restraining order to prevent the state from continuing litigation of restitution and penalty issues in a consumer protection case, merely because the debtor claimed that the state was seeking a really big penalty. Nothing in either sections 362 or 105 that suggests that the exceptions depend on whether the debtor's misdeed warrants only a small penalty, or whether it has engaged in truly colossal misconduct. It would be truly disturbing to suggest that the more egregious the debtor's actions, the more it would be protected by the Code!

There are other problems with the report and the cases cited. For instance, the nearly identical cases cited in footnotes 143 and 144 deal with injunctions to protect the bankruptcy court's jurisdiction in a particular proceeding--they do not stand for the proposition an action by the state which does not interfere with the jurisdictional scheme of the Code, but which is merely burdensome to the debtor, may be barred. As such, they do not support the more generalized proposition for which they are cited.

The paragraph beginning on page 44 and which carries over to page 45, is clearly nothing more than an unrestrained attempt by the reporter to editorialize under the guise of the Commission's imprimatur. The statements are flatly contrary to existing law,⁽²⁸⁵³⁾ contradict statements made by Commissioners in their discussions in Santa Fe and San Diego, and go far beyond anything that the Commission has voted on or agreed to. This portion of the report argues for exactly the position that the appellate courts have repeatedly rejected--that the needs of the debtor are enough to allow a bankruptcy court to enjoin bona fide police and regulatory actions. Moreover, it suggests that it should be up to a bankruptcy court--not an elected legislature--to balance the needs of all parties who might be affected by actions of the debtor. The Commission has not recommended, and if seriously suggested, likely would reject, such judicial usurpation of authority.

As in other areas noted above, there are problems with the cases cited by the report, with respect to both the validity of how the cases are characterized and the merits of endorsing the positions for which they are cited. For instance, the court in Metro Transportation Co.,⁽²⁸⁵⁴⁾ cited at footnote 150 of the report, decided that the bankruptcy court had an independent right to disregard the determinations of the duly constituted Administrative Law Judge and the Public Utility Commission and, instead, accept the recommendations of their staff, which had taken a more accommodating view towards the debtor's arguments. A cursory reading of this case would suggest that there are major full faith and credit problems with such a process, certainly not one the Commission should endorse.

Similarly, there are major problems with using a standard like "threatening the assets of the estate," particularly when this is coupled with cases that suggest that the costs of litigation constitute such a threat. ⁽²⁸⁵⁵⁾ Of the cases cited in footnote 151, only Superior Forwarding, Inc.,⁽²⁸⁵⁶⁾ actually held that costs of litigation, standing alone, can be such a threat. In the other cases, the agency apparently had no right to bring the suit at all. As such, they are hardly authority for a broad generalization of using section 105 to enjoin litigation, merely because it costs money to defend. Under such a standard it would be a rare police and regulatory case, indeed, that could go forward. In any event, the holding in Superior Forwarding, Inc. has been severely undercut, if not overruled, by the Supreme Court's decision in Mcorp.⁽²⁸⁵⁷⁾

The report's use of amorphous standards like "extraordinary circumstances," or "significant or unwarranted threat to estate assets," would simply be a green light to debtors to file these actions routinely and would encourage the bankruptcy courts to grant even more injunctions. The Commission's discussions concluded with a strong endorsement of the government's view that section 105 should not be applied to bona fide police in regulatory actions that would, hopefully, help to stem the tide of frivolous litigation. The report's language, to the contrary, will only encourage the filing of such cases. Finally, the report's apparent suggestion that criminal cases involving monetary offenses are generally "bad faith prosecutions" amounts to blatant misrepresentation; the report fails to balance the single case that it cites with even one of the numerous cases that take the opposite point of view. ⁽²⁸⁵⁸⁾

Ninth, the Commission has never voted on, and only briefly discussed, any potential issues arising from the Supreme Court's decision in Seminole Tribe of Florida. ⁽²⁸⁵⁹⁾ Thus, any discussion that suggests that the Commission has taken any position on the case, its impact on bankruptcy jurisdiction, or what the effect should be with respect to other Commission proposals, is entirely inappropriate. In addition, the statement on page 46 of the report that relief pursuant to Ex Parte Young is worthless, because it is impossible to know in advance what action a state official plans to take, is not correct. It is obvious that, in most cases, the government will demand compliance or file a complaint or make a phone call before taking any specific action against a debtor. The debtor is certainly free at that point to bring suit against the governmental agency to enjoin its actions before they have any material effect on the debtor or its estate. And, even if property may be seized without notice in some circumstances, this still does not mean that one cannot sue the official for return of the property in most cases. More importantly, this is an enormously complex area which is only beginning to be explored. There is little point in the report venturing into this subject with a superficial discussion that says little and recommends less.

In short, this section of the report fails to give a balanced presentation of the issues and fails to support the propositions expressed therein with adequate legal analysis. The discussion does not accurately reflect what the Commission has discussed and agreed to, it only presents the unilateral views of the reporter. The report's discussion of the Chemical Weapons Bill and the police and regulatory exception to the automatic stay is not only superfluous, but highly imprudent. Congress created this Commission to review the bankruptcy law and recommend appropriate legislative changes. In implementing the Chemical Weapons Treaty, however, Congress was obliged to and chose to act in advance of the Commission's recommendations and the Senate voted overwhelmingly to amend this statutory provision. It is hard to see how the mere discussion by the Commission's staff of the impact of the automatic stay on government's police and regulatory authority, following a very brief and very limited discussion of the Commission at its meeting in Detroit, contributes anything to a dialogue already actively engaged in Congress. More likely, this discussion will be viewed as officious meddling in the process, an attempt to influence the House of Representatives to reject or modify a legislative change unanimously adopted by the Senate.

Overview

The filing of a bankruptcy petition creates an automatic stay under section 362(a) that enjoins, inter alia, a) the initiation or continuation of civil actions against the debtor relating to prepetition claims (sec. 362(a)(1)), b) the enforcement of a prepetition judgment against the debtor or against property of the estate (sec. 362(a)(2)), c) any act to obtain possession of property of the estate or to exercise control over property of the estate (sec. 362(a)(3)), or d) any act to collect, assess, or recover a prepetition claim against the debtor (sec. 362(a)(6)). The Bankruptcy Code contains exceptions in sections 362(b)(4) and (5) that mirror the scope of the automatic stay provisions in section 362(a)(1) and (2). These sections exempt the government, in the exercise of its essential police and regulatory functions, from the bars on initiating actions against the debtor on prepetition claims and from enforcing prepetition judgments, other than money judgments, against either the debtor or against property of the estate. However, the provisions of sections 362(b)(4) and (5), unlike the other subsections of 362(b), do not except government police and regulatory actions from the other limitations in section 362(a), particularly the bar on taking action to obtain possession of, or control, property of the estate and the prohibition on "acts" to collect, assess or recover prepetition claims. Because of this distinction, and because of the overlapping nature of the prohibitions contained in section 362(a), it has been argued that police and regulatory actions which the government is allowed to take by virtue of sections 362(b)(4) and (5) are still barred because of section 362(a)(3) and/or 362(a)(6).

Examples of the types of actions that are at issue here include government actions to deny or revoke licenses to parties engaged in fraud, incompetent work, negligent operation of a nursing home; to seize and/or destroy contaminated or defective goods or diseased livestock; to bar products made in violation of federal labor laws from entering interstate commerce; and to carry out forfeiture actions against contraband or the instrumentalities of unlawful activity such as drug dealing. To the extent that section 362(a)(3) and/or (6) apply to such activities because they result in exercising control over or taking possession of property of the estate, or because they are "acts" to collect a claim, they seriously hinder the ability of government entities to carry out important police and regulatory functions that are essential to protecting the safety and welfare of their citizens. ⁽²⁸⁶⁰⁾ This proposal seeks to eliminate that ambiguity while preserving the distinction between governmental actions seeking to enforce a monetary judgment and other police and regulatory actions by the government.

That is, even true police and regulatory actions may result in judgments that are purely monetary. While the Code has always preserved the right of governmental agencies to litigate and liquidate such claims; it has required that the actual collection of the amounts determined in such actions must be subject to the processes and priorities of the Bankruptcy Code. Other governmental actions may result in mixed judgments. A remedial order under the National Labor Relations Act may include both a reinstatement order for an illegally discharged employee--which is not a money judgment and which may be enforced during the case and a back pay order for the wages lost prior to the reinstatement--which is a money judgment and which can only be collected through the process of filing a proof of claim. This proposal intends to maintain this distinction, while clarifying the ability of the government to enforce nonmonetary police and regulatory judgments that affect property of the estate.

An additional portion of the proposal deals with proposed changes to section 105. This section of the Bankruptcy Code supplies an important tool to bankruptcy courts to assist them in carrying out their requirements under the Code. ⁽²⁸⁶¹⁾ Congress has placed limits on the use of this power, but many debtors have argued that courts should use this discretionary power to enjoin the police and regulatory actions of government entities if those actions might have had adverse effects on the reorganization efforts of the debtor. The present language and, in our view, the appropriate view of section 105 do not support this interpretation of the provision, which potentially wreaks havoc on the ability of the government to protect the welfare of its constituents. However, in light of the large number of cases in which the issue is litigated and the willingness of a substantial number of courts to enter such orders, it was concluded that clarifying language should be included to define the substantive and procedural standards for when such orders may be entered against a police or regulatory action by the government.

The Recommendations

The Commissioners agreed that the Commission should recommend the following statutory amendment to 11 U.S.C.§ 362(b)(4) and (5):⁽²⁸⁶²⁾

11 U.S.C. § 362(b)(4) should be amended to read as follows:

(b) the filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay-

. . .

(4) under subsection (a)(1), (2), (3), and (6) of this section, of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police and regulatory power, including by the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit's police or regulatory power;

[delete existing subsection (5)]

The Commissioners also agree that the Commission should recommend the following statutory amendments to 11 U.S.C. § 105 to ensure that the authority given to governmental authorities under Section 362 is not unduly infringed by use of the bankruptcy court's discretionary authority.

The following language should be added to Section 105:

(e) In issuing an injunction, the court shall apply the standards and procedures applicable to a district court under nonbankruptcy law, except to the extent procedures are modified by the Federal Rules of Bankruptcy Procedure.

(f) A police or regulatory act of a governmental unit that is not stayed or proscribed by a specific provision of this title may be enjoined only to the extent authorized by nonbankruptcy law.

Background

The filing of a bankruptcy petition stays the commencement or continuation of most proceedings against the debtor and property of the debtor's bankruptcy estate. ⁽²⁸⁶³⁾ For the most part, parties wishing to pursue actions against the debtor or against property of the estate must obtain permission from the bankruptcy court. This automatic stay generally applies to all creditors, including government entities that are acting as creditors. ⁽²⁸⁶⁴⁾

The Bankruptcy Code provides several governmental exceptions to the automatic stay that allow police and regulatory actions to go forward. Under section 362(b)(4), a proceeding by a government unit to enforce its police or regulatory power is not subject to the stay of such actions contained in section 362(a)(1). ⁽²⁸⁶⁵⁾ In this regard, the Supreme Court stated in 1990 that it was "not persuaded . . . that the automatic stay provisions have any application to ongoing, nonfinal administrative proceedings."⁽²⁸⁶⁶⁾ The legislative history indicates that Congress created this carve-out to permit the continuation of proceedings by governmental units to "stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws."⁽²⁸⁶⁷⁾ Similarly, 11 U.S.C. § 362(b)(5) excepts the enforcement of prepetition judgments, other than money judgment, obtained in action or proceeding by governmental unit to enforce such governmental unit's police or regulatory power from the stay in section 362(a)(2) of such actions. ⁽²⁸⁶⁸⁾

Yet, the language of these exceptions stops short of giving government entities carte blanche in fulfilling their police and regulatory functions. Unlike other exceptions to the stay which remove certain actions completely from the coverage of the stay, the current governmental exceptions only exempt police and regulatory actions from certain portions of the stay. Thus, an act to "obtain possession . . . or to exercise control" over property of the estate pursuant to police and regulatory power is not exempted specifically from the automatic stay. ⁽²⁸⁶⁹⁾ This becomes relevant when a government agency (e.g., Federal Aviation Administration, local zoning authorities, mining regulators), wants to revoke or suspend a license in which the bankruptcy estate has an interest. ⁽²⁸⁷⁰⁾ By the same token, the government is often in the position of seizing and even destroying tangible assets under its police and regulatory powers. This could include fruit that may be infested with Mediterranean fruit flies, livestock at risk for "mad cow" disease, children's nightwear which is coated with flammable chemicals, goods which have been "tainted" because they were manufactured in violation of the Fair Labor Standards Act, mislabeled prescription drugs, and the fruits and instrumentalities of crime.

Similarly, an act to "collect, assess, or recover" a prepetition claim is also not exempted from the automatic stay, even if the claim is one arising out of a purely police and regulatory action. ⁽²⁸⁷¹⁾ Taken literally, section 362(a)(6) is so broad that it swallows up everything that is also covered by sections 362(a)(1) and (2). Thus, despite the presence of language exempting specific types of governmental actions from portions of the automatic stay, other, overlapping provisions in the stay still remain and, it can be argued, bar the government from taking those actions which are otherwise authorized.

Not all courts are troubled by this apparent conflict; some have taken a flexible approach and concluded that section 362(b)(4) and (5) permit government agencies to take the necessary actions with respect to property of the estate to enforce police or regulatory powers without seeking bankruptcy court permission. ⁽²⁸⁷²⁾

Traditionally, however, exceptions to the automatic stay have been construed narrowly. ⁽²⁸⁷³⁾ Moreover, the obvious structural difference between the limited stay exceptions contained in sections 362(b)(4) and (5) and the broader exceptions contained in other portions of section 362(b) have convinced many courts that the former sections must be interpreted more strictly. These factors have, therefore, led many courts to read section 362(b)(4) and (5) literally and thus hold that sections 362(a)(3) and (6) stay even legitimate police and regulatory attempts to the extent that they affect property of the estate or that they enforce prepetition nonmonetary judgments, limiting the exceptions' application to the proceedings that lead to the determination that exercising such control is necessary. ⁽²⁸⁷⁴⁾

A further problems arises when the bankruptcy court is urged to use its discretionary authority to impose a stay under Section 105 in a situation where the automatic stay does not apply. To this end, a court can exercise injunctive powers to supplement the automatic stay provided by section 362⁽²⁸⁷⁵⁾ and may enjoin an action if the court determines that the action would interfere with administration or progress of a bankruptcy case, or if equitable considerations require that the court stay the action. In interpreting this provision, most courts have held that section 105 powers must be exercised in connection with a substantive Code provision. ⁽²⁸⁷⁶⁾

In light of the specific exemption granted for police and regulatory actions, and the absence of a specific Code provision allowing debtors to violate existing state or federal law, it is reasonable to conclude, and indeed most courts have concluded, that courts are not authorized to use section 105 to enjoin police and regulatory government actions that are taken to protect the health and welfare of other citizens, assuming that these actions would be legal in a nonbankruptcy context. However, other courts have concluded that they are allowed to utilize this discretionary power where, in their view, the equities favor the debtor's reorganizational needs over the police and regulatory goals to be served by the statute.

Reasons for the Proposed Change

As illustrated by the split in the case law, the current police and regulatory exceptions are not sufficiently inclusive to ensure that a government agency can enforce its valid police or regulatory powers without being held to have violated the automatic stay, and without facing the possibility of being subject to a discretionary stay under section 105. Congress enacted sections 362(b)(4) and (5) to permit certain government actions to go forward when necessary to enforce laws that implicate public safety and welfare; the proposed amendment would clarify what steps government entities may take, when acting ins a valid exercise of their police and regulatory powers, without having to re-litigate the matter in the bankruptcy court. Absent the exemption of these actions from sections 362(a)(3) and (6), to the extent proposed below, the government's ability to protect its citizenry would be seriously compromised.

The federal government supplied a list of almost 20 different statutory authorities that allow it to seize property; states and local governments have numerous additional provisions authorizing such actions. Many such actions must be taken on an expedited or emergency basis and would be seriously impacted by a requirement that the government must seek relief from the stay before it can act. We are unprepared to accept the view that the mere filing of a bankruptcy petition should allow a debtor to automatically preclude the government from exercising the necessary power to seize property to protect the health and safety of its citizens. Absent the government's continuing right to enforce such laws, there is a strong temptation for a debtor to skirt them in order to obtain a financial benefit or to salvage value from assets which would otherwise be destroyed to protect the public safety, health, or welfare.

Amendments need to be made to both sections 362(b)(4) and (5) for the same reason: despite the breadth of the exceptions they grant to the stay imposed under sections 362(a)(1) and (2), respectively, governmental actions continue to be subject to the much broader and less defined stay provisions in sections 362(a))(3) and (6). Because, it is clear that the drafters of the Code deliberately wrote the stay provisions to be as broad as possible and designed them to have overlapping coverage, actions which are to be allowed must be excepted from all applicable provisions of the stay, not just some of them. Thus, while section 362(b)(5), for instance, allows the government to enforce a judgment against property of the estate, this does not solve the problem posed by sections 362(a)(3) and/or (6), because, on their face, they appear to forbid those very actions While we believe that this conflict should not exist--and that the exceptions explicitly granted in sections 362(b)(4) and (5) demonstrate the proper scope of the governmental exception--we believe the changes proposed here are necessary to ensure that the government may move forward in this area with a degree of confidence.

We also believe that clarifying these sections will benefit all parties by removing an ambiguous section that tends to encourage unnecessary litigation. Even if the government eventually wins every challenge brought under these sections, the expense and delay incurred in such a process is a serious impediment to the enforcement process. We are also motivated to fully correct the problem so that we do not, inadvertently, create other ambiguities that lead to negative implications about the breadth of the exception that we are advocating.

The net result of the proposal is that, assuming the action is determined to be a proper police or regulatory action, the government may:

a) Investigate, file complaints, litigate and determine the substantive merits of matters involving the debtor whether or not the conduct occurred pre- or postpetition;

b) Take similar steps with respect to liquidating monetary amounts associated with such police and regulatory actions, whether such amounts are owed to the government or to third parties, such as consumers or employees;

c) Complete the appeals process with respect to any such actions;

d) Enforce nonmonetary judgments obtained in such actions, whether obtained pre- or postpetition, and whether or not the enforcement results in exercising control, or taking possession of property of the estate

The government may not use this exception to allow it to bring an action which does not constitute a police or regulatory action (unless that action is allowed elsewhere, such as the exemption contained in section 362(b)(9) with respect to tax collection activities). Nor may it enforce a final monetary judgment, even if the judgment arises in a police or regulatory action.

Having determined what the proper scope of governmental actions during the case should be, the Commissioners also concluded that that freedom of action should normally not be subject to curtailment by way of a section 105 injunction. In our view, that Code provision does not provide courts with the authority to contravene legislative prerogative on an ad hoc basis. We believe that this represents the correct--and the majority--view of the law. However, the evidence submitted by the government indicates that they are subject to repeated litigation over this issue, that approximately half of the cases are decided adversely to them initially and only corrected upon appeal, and that the constraints of ongoing events and limited resources precludes them from appealing some adverse rulings, thereby leaving them subject to an improper stay. The likelihood of at least initial success on the merits, therefore, ensures the continued filing--and granting--of such motions unless and until the statute is amended to plainly bar this use of the bankruptcy court's authority.

Thus, the proposal to amend section 105 contains two parts: first, a requirement that the court consider the motion using the normal standards and procedures applicable to granting an injunction under nonbankruptcy law: i.e., there must be a showing of irreparable harm and a likelihood of success on the merits, and the balance of harms must favor the debtor. Second, injunctions of police or regulatory actions that are not otherwise stayed or proscribed (such as by section 525) may not be enjoined unless authority to do so exists in nonbankruptcy law--i.e., under a Younger v. Harris-type standard, for instance. ⁽²⁸⁷⁷⁾

No Expansion of Scope of Exceptions to Automatic Stay

This proposed change is not intended to alter the substantive scope of the section 362(b)(4) and (5) governmental exceptions to the automatic stay. ⁽²⁸⁷⁸⁾ The distinctions between "purely pecuniary" and "police and regulatory" matters have been developed by the case law and would remain in full force and effect. ⁽²⁸⁷⁹⁾ The recommendation would not permit government agencies to use section 362(b)(4) to enforce its own, purely contractual rights without seeking automatic stay relief,⁽²⁸⁸⁰⁾ nor would it allow a government entity to revoke a license merely as a means to collect a debt from the debtor or to advance the pecuniary interest of the government.

Thus, this proposal does not purport to address or resolve disputes underlying the frequent litigation over whether an action is purely pecuniary or police and regulatory,⁽²⁸⁸¹⁾ nor does it alter the potential consequences for acting in violation of the automatic stay (e.g., sanctions, contempt) if the government's exercise of control over property of the estate is challenged and ultimately found not to be police or regulatory. The proposal only would ensure that government agencies have the proper tools to carry out their police and regulatory responsibilities. Similarly, the amendments to Section 105 are meant to clarify the appropriate limits for application of that section, not to provide the government with new rights.

Competing Considerations

To the extent that these changes clarify that the government may control or take possession of certain assets of the debtor's estate, this may make a reorganization more difficult or impossible or may deprive other creditors of the value that could be obtained through disposal of those assets. Plainly, this tends to defeat the legitimate hopes of both of those groups. To the extent that certain police or regulatory policies are given a broad scope as a prophylactic measure and may not actually be necessary in a particular case, requiring the debtor to adhere to them may hinder or doom a reorganization which could otherwise take place. However, the Commissioners concluded that the needs to protect legitimate governmental actions to protect the public health, safety, and welfare, outweigh this benefit to a single debtor. To the extent that Congress believed that certain requirements could appropriately be waived for entities suffering financial difficulties, it could do so in those laws. Allowing a bankruptcy filing, standing alone, to automatically accomplish that aim would likely only to encourage parties to violate the law and then seek refuge in the bankruptcy courts.

Nor, the Commissioners concluded, is it appropriate to allow bankruptcy judges to make ad hoc determinations as to which laws should be applied to which debtors. First, requiring a government to prove the reasons and necessity for each of its laws every time it seeks to enforce them against a particular debtor would obviously be unduly burdensome. Indeed, laws in general are meant to be obeyed by all--the mere fact that a violation by a particular individual might not really harm anyone has never been thought to justify a failure to obey the law. Thus, requiring the government to prove that specific harm would result from this specific debtor's violations could prove to be an impossible task. Second, a bankruptcy judge is not, realistically, in a position to take into account the multitude of interests that go into the balance struck by the legislature. Faced with the parties at hand, the judge will be hard-pressed to consider the impact that his decision will have on the debtor's competitors who must continue to comply with laws and regulations and the surrounding community which is protected by them, particularly if other parties are encouraged to file bankruptcy as a way of escaping legislation that they view as unduly burdensome. Again, in our view, Congress or state legislatures are in a better position to judge when and how exemptions from the laws should be granted and how such exemptions will impact on those not receiving them.

Some might also conclude that this proposed change supplies additional leverage to government entities, enabling them to pursue mere pecuniary actions without court authority or supervision. Those who take this position might argue that bankruptcy courts can resolve lift stay actions expeditiously and therefore it is not an undue burden on government entities to require them to move to have the stay lifted before they take police and regulatory actions with respect to property of the estate. However, the Commissioners who deliberated on the issue determined that the proposed statutory changes do not broaden the range of actions that can be pursued without bankruptcy court authority. Thus, there would be no change in the treatment of government actions that constitute mere debt collection, and debtors and trustees would retain their tools for challenging the propriety of such actions. Governments seeking to rely on the exemption in the new section 362(b)(4) would act at their own risk in determining that they are engaged in a police and regulatory function. They would still be subject to sanctions should they attempt to utilize these provisions for purely pecuniary purposes.

On the other hand, if governmental entities are to be allowed to continue to exercise their police and regulatory powers, then it makes little sense to burden them and the courts with ruling on motions that should be granted virtually automatically. The only effect of such a process would be to impose additional costs on the government, the debtor and the creditors, while delaying enforcement actions which may need to be taken with great dispatch. Accordingly, we are of the view that these provisions strike the proper balance between the needs of the government to protect the public and the desire to assist debtors in their efforts to reorganize.

The following is a proposal to amend the Bankruptcy Code by the addition of new section 105(e) as follows:

(e) The court may issue an order enjoining a governmental unit's commencement or continuation of a proceeding to exercise its police or regulatory power only if the court finds that the governmental unit is proceeding in bad faith or in clear violation of the law and absent an injunction there will be immediate irreparable harm to the debtor.

Historical and Revision Note

This proposal expressly adopts for bankruptcy the well-established standard for obtaining injunctions against governmental units exercising their police and regulatory powers in administrative and civil enforcement proceedings in a non-bankruptcy context. At present, neither the Bankruptcy Code, nor its legislative history provides a standard for granting injunctions pursuant to Bankruptcy Code Section 105(a) against police and regulatory enforcement actions. This uncertainty encourages forum shopping and the misuse of bankruptcy because defendants in police and regulatory actions use bankruptcy as an offensive weapon rather than as a shield to protect a financially distressed business.

In Younger v. Harris, 401 U.S. 37 (1971), the Supreme Court barred federal courts from interfering with state criminal prosecutions except in extraordinary circumstances. The Court invoked principles of comity and federalism as well as the ancient maxim that equity will not enjoin a criminal prosecution. Subsequently, in Huffman v. Pursue, 420 U.S. 592 (1972), the Supreme Court extended Younger to civil police and regulatory actions brought by state and local officials. The Court held that the extraordinary circumstances referred to in Younger encompasses cases where the danger of irreparable loss is both great and immediate, and where the state proceeding is conducted in order to harass, or otherwise is in bad faith, or is flagrantly and patently unconstitutional. Id. at 611.

A similarly high threshold is applicable to govern the granting of injunctions against police and regulatory actions by federal agencies. As the Supreme Court explained in Schlessinger v. Councilman, 420 U.S. 738, 756 (1975), the practical considerations underlying Younger are similar to those barring intervention in administrative agency proceedings because of the exhaustion of remedies doctrine. The Court stated:

The latter rule, looking to the special competence of agencies in which Congress has reposed the duty to perform particular tasks, is based on the need to allow agencies to develop the facts, to apply the law in which they are peculiarly expert, and to correct their own errors.

In developing the exhaustion of remedies doctrine. the Court has been mindful of the dangers of forum shopping, and it has stated "Judicial review . . . should not be a means for turning a prosecutor into a defendant." FTC v. Standard Oil of California, 449 U.S. 232 (1980). This rationale is equally applicable in a bankruptcy case, as Congress stated throughout the legislative history of the Bankruptcy Code that it did not intend for the bankruptcy court to provide a haven from law enforcement. Indeed, the Younger standard is necessary to respect the principles of federalism, comity and separation of powers underlying the preceding cases. These constitutional values cannot be defeated simply because enjoining a law enforcement action might be more conducive to the financial rehabilitation of a debtor.

Background

Section 105 of the Bankruptcy Code supplies an important tool to bankruptcy courts to assist them in carrying out their requirements under the Code. ⁽²⁸⁸²⁾ Congress has placed limits on the use of this power, but occasionally courts have used section 105 to enjoin temporarily the police and regulatory actions of government entities if those actions might have had adverse effects on the reorganization efforts of the debtor. The present language and majority view of section 105 do not support this interpretation of the provision, which potentially wreaks havoc on the ability of the government to protect the welfare of its constituents.

The Proposal

The Commissioners in Government Working Group A agreed that no statutory change was necessary or appropriate, but endorsed advisory language to be included in the final report of the Commission:

In its report, the Commission should reaffirm that section 105 is not meant to be and should not be interpreted to expand the injunction capacity of bankruptcy courts beyond what the statute specifically authorizes; therefore, courts should not use section 105 to stay the police and regulatory actions of government entities that would be allowable in a nonbankruptcy context.

Reason for the Recommendation

In interpreting this provision, most courts have held that section 105 powers must be exercised in connection with a substantive Code provision. ⁽²⁸⁸³⁾ To this end, a court can exercise injunctive powers to enforce the automatic stay provided by section 362⁽²⁸⁸⁴⁾ and may enjoin an action if the court determines that the action would interfere with administration or progress of a bankruptcy case, or if equitable considerations require that the court stay the action.

However, not all postpetition actions taken against the debtor violate the automatic stay. For obvious reasons, the Bankruptcy Code does not permit debtors to use the automatic stay to protect themselves from police and regulatory actions of governmental agencies. ⁽²⁸⁸⁵⁾ It is reasonable to conclude, and indeed most courts have concluded, that courts are not authorized to use section 105 to enjoin police and regulatory government actions that are taken to protect the health and welfare of other citizens, assuming that these actions would be legal in a nonbankruptcy context.

The Commissioners in Government Working Group A endorsed this interpretation of section 105; the Code provision does not provide courts with the ability contravene legislative prerogative. The Commissioners also agreed that while a few courts have reached conclusions contrary to this view, those decisions have been aberrational and largely have been corrected by reviewing courts. In deciding not to propose changes to the statute to correct a limited number of aberrational cases, the Working Group members indicated their concern that altering the language of section 105 could have unanticipated consequences; there was little to be gained by correcting the outcome in a few cases at the risk of creating a new wave of litigation as a result of a statutory change.

Therefore, the Commissioners recommended that the Commission's final report address the issue and include advisory comments, but they saw no need and no proper place for any statutory amendment in this regard. Representatives of several governmental agencies indicated their satisfaction with this determination.

Competing Considerations

Section 105 authorizes a court to take actions sua sponte, in which case a court is not subject to any affirmative evidentiary standards beyond compliance with the language of the statute itself. ⁽²⁸⁸⁶⁾ Debtors that seek section 105 injunctions must file adversary proceedings and are usually required to satisfy the standards commonly associated with preliminary injunctions. Some have argued that courts should be required to meet at least the preliminary injunction standards. Because the Commissioners concluded that the limitations on the injunctive powers of courts are clear vis-à-vis police and regulatory actions, which were the focus of the discussion, there was not Commission support for such an amendment.

Notes:

²⁸³²  The subject of this section of the report and this dissent, the exercise of the police and regulatory power by governmental agencies, illustrates that bankruptcy has grown too important to entrust to those who work within the bankruptcy system--the drafting of bankruptcy laws should not be left to those who have a vested interest in the implementation of those laws. Unfortunately, the Commission has been studying the fish from inside the fish bowl when it should have been studying the fish from the broader perspective outside the tank. Return to text

²⁸³³  Throughout the report a certain document is identified as the "DOJ/NAAG proposal." This label was attached to that document by the author of this dissent to distinguish it from a proposal prepared by the Commission staff. In fact, this proposal was prepared at the request of the author by several individuals including representatives of the U.S. Department of Justice and the National Association of Attorneys General (N.A.A.G.). The purpose of the proposal was to clarify the needs of the governments and to fairly state the interests of the respective parties. The proposal was not officially approved by any governmental agency or the National Association of Attorneys General. Thus, the January 1997 proposal should properly be entitled something other than the "DOJ/NAAG proposal." Ms. Cordry, Bankruptcy Counsel at N.A.A.G. notes that it was not an official position taken by the National Association of Attorneys General or any federal, state or local governmental agency, but was merely an effort undertaken at the author's request to assist in further developing these concepts in line with various discussions that had taken place to that point. While the concepts in the proposal have been generally endorsed by Attorneys General in various sign-on letters to the Commission and Congress, this particular document was never submitted to them, nor were they asked to review or endorse it. As such, it would be inappropriate to attribute it directly to that group, when it was submitted under the author's auspices. A copy of that proposal is attached to this dissent. Thus that proposal is identified in this dissent as the "January 1997 proposal." Return to text

²⁸³⁴  U.S. CONST. art. I, § 8, cl. 3. Return to text

²⁸³⁵  THE FEDERALIST NO. 42, at 217 (James Madison) (Garry Wills ed., 1982). Return to text

²⁸³⁶  Chemical Weapons Implementation Act of 1997, S. 610 (May 23, 1997); hereinafter the Chemical Weapons Bill or the CWB. Return to text

²⁸³⁷  One Assistant Attorney General told the author of this dissent that an employee of a state regulatory agency was threatened with sanctions for violation of the stay of proceedings if they removed the patients from a nursing home where the electrical wiring was arcing in the walls, creating a substantial fire hazard. Return to text

²⁸³⁸  The use of quotations from a publication authored by Karen Cordry, NAAG Bankruptcy Counsel, at footnote 100 and 125 is inappropriate. Both quotes are taken out of context in a misplaced effort to suggest that there is support for the report's position, a support which the drafters surely know does not exist. Read in context, the first quote merely suggested what should happen when a motion to lift the stay is filed, not what actually happens in such cases. The second quote was part of a discussion of the practical realities of dealing with judges who take an expansive view of their powers. It did not purport to state what she thinks the law is or should be. Return to text

²⁸³⁹  See, e.g., McCrory Corp. v. State of Ohio, 1997 WL 148071 (S.D. N.Y. 1997) (stay imposed in 1994 to bar states from assessing responsible officers; district court ruled that the bankruptcy court had erred and lifted stay in March 1997-- well over two years later). Return to text

²⁸⁴⁰  In re Thomas, 179 B.R. 523 (Bankr. E.D. Tenn. 1995). Return to text

²⁸⁴¹  In re Bridge, 90 B.R. 839 (Bankr. E.D. Mich. 1988). Return to text

²⁸⁴²  In re Ryan, 15 B.R. 514 (Bankr. D. Md. 1981). Return to text

²⁸⁴³  Government Working Group Proposal # 5: Section 105, October 8, 1996 draft. A more modest proposal was prepared and submitted by Carlos J. Cuevas, a copy of which is attached, which proposed amending 11 U.S.C. § 105 to clarify that the standards enunciated by the Supreme Court in Younger v. Harris, 401 U.S. 37 (1971),would apply when police or regulatory action is enjoined. The Government Working Subgroup briefly discussed the Cuevas proposal but concluded that there was insufficient time remaining for the Commission to give full consideration to the issues addressed therein and no action was taken. Return to text

²⁸⁴⁴  For purposes of public hearings on the discussion of governmental issues the Commission was divided into two groups at its meetings in Santa Fe, New Mexico, and San Diego, California. There were only six Commissioners present in Santa Fe, thus the tax issues were heard by Commissioners Alix, Shepard and Williamson; the panel was moderated by Stephen H. Case, Senior Advisor. The General Government Issues were heard by Commissioners Ceccotti, Ginsberg and Hartley and the Reporter. Because the General Government Issues panel, moderated by Prof. Elizabeth Warren, failed to recommend any form of action with regard to issues considered extremely important to the participants several of the issues were revisited by another panel of Commissioners at its meeting in San Diego on October 19, 1996, in spite of the characterization by Prof. Warren of several of the issues discussed in Santa Fe as having been "resolved." See Issues List, on file with the Commission, prepared and distributed to the Commissioners in advance of the San Diego meeting. Thereafter, jurisdiction of the issues related to 11 U.S.C. § 362(b)(4) for purposes of drafting the various versions of the proposals and moderating the continuing discussions remained with Prof. Warren. Return to text

²⁸⁴⁵  See Government Working Group A, Working Group Proposal #7: Section 362(b)(4), drafts of Oct. 8, 1996, Oct. 13, 1996, and Nov. 8, 1996; Government Working Group A, Working Group Proposal # 5: Section 105, Oct.8, 1996 draft. Return to text

²⁸⁴⁶  Government Working Group A Roundtable Discussion Issues List, prepared for the Commission's meeting on Oct. 19, 1996, in San Diego, California, on file with the Commission. Return to text

²⁸⁴⁷  Government Working Group A, Working Group Proposal #5: Section 105, Oct.8, 1996 draft. Return to text

²⁸⁴⁸  These changes were presumably made at the direction of the Reporter, Professor Warren without consultation with or direction by the Commission. This action is further rendered suspect by other concerns raised to the Commission about Professor Warren's actions with respect to proposal dealing with the treatment of the bankruptcy stay. During the time that the Commission was considering the governments' problems with 11 U.S.C. §§ 362(b)(4) and 105(a), the Commission was informed that she may have been instrumental in causing the National Bankruptcy Conference to reverse its published position with respect to the recommendation to repeal 11 U.S.C. § 362(a)(3).

To my surprise, the current version of the Report of the NBC Committee on Stays and the Secured Creditor does not include [the recommendation to repeal 11 U.S.C. § 362(a)(3)], although it was part of the Report of that Committee published in 1994. . . . I have learned that the recommendation was eliminated from the Report at the October 1996 meeting of the NBC . . . based on the request of Prof. Elizabeth Warren and Robert A. Greenfield of Stutman, Treister & Glatt.

Letter of April 24, 1997 from Sally S. Neely, Esq. to Commissioners Gose, Hartley and Shepard, on file with the Commission; a copy of the memorandum circulated to the Conferees in that regard was enclosed with Ms. Neely's letter, also on file with the Commission. Copies of these documents were provided to the other members of the Commission by the author of this dissent. The National Bankruptcy Conference statement of positions that was eventually filed with the Commission did oppose the action recommended in Working Group Proposals #5 and 7, despite the original position of the Committee, taken in 1994. See Statement of the National Bankruptcy Conference, prepared for the Commission's meeting of January 22-23, 1997, on file with the Commission. No action was taken with regard to these concerns. Return to text

²⁸⁴⁹  As the government's cases show, about half the cases initially are decided against the government. Of those, virtually all are reversed on appeal when the government has the time and the resources to take up an appeal, and where the passage of time has not made the matter moot. The cases in which a governmental agency has been forced to defend against a debtor's attempt to bar governmental police or regulatory action are unending. See, e.g., Board of Governors v. MCorp Financial, 502 U.S. 32 (1991) (sustaining reversal of injunction issued by the district court sitting in bankruptcy against Federal Reserve Board's administrative proceeding to require the debtor to recapitalize its subsidiary banks); In re Ludlow Hospital Society, Civ. Act No. 96-30064 (Bankr. D. Mass. Oct.15, 1996) (reversing bankruptcy court's injunction against enforcement of Medicare's time limits for filing a loss of sale claim; district court held that bankruptcy court lacked power under § 105 to except the debtor from federal regulatory requirements); Matter of Brennan, 198 B.R. 445 (D. N.J. 1996) (reversing bankruptcy court injunction that temporarily barred the pursuit of a civil fraud action by the state against the debtor, who had filed bankruptcy after being convicted on federal fraud charges and ordered to pay $75 million dollars, during the time a court-appointed examiner was looking into the debtor's affairs); In re USAfrica Airways Holdings. Inc., 192 B.R. 641 (Bankr. D. Del. 1996) (reversing bankruptcy court's injunction staying DOT from reallocating debtor's air service authority; the court reasoned that DOT's reallocation was "critical public business" and excepted from the automatic stay); In re 1820-1828 Amsterdam Equities. Inc., 191 B.R. 18 (S.D. N.Y. 1996); (reversing decision of bankruptcy court that temporarily stayed civil and criminal actions against landlord because bank was proceeding with repairs); In re Capital West Investors, 186 B.R. 497 (N.D. Cal. 1995) (reversing decision of bankruptcy court that confirmed plan that removed standard provisions from HUD loan agreement that the bankruptcy court thought were unnecessary in the particular case); In re Hansen, 164 B.R. 482 (D. N.J. 1994); (reversing bankruptcy court's injunction which forced municipalities to renew debtor's motel license; injunction had been sought to protect the debtor's race discrimination suit against the municipalities; district court reasoned that the bankruptcy court lacked jurisdiction over the civil rights suit and lacked authority to enjoin the municipalities' regulatory authority); In re Baker & Drake. Inc., 35 F.3d 1348 (9th Cir. 1994); (reversing decision of lower courts that barred enforcement of law requiring taxi drivers to be employees rather than independent contractors); In re Hucke, 992 F.2d 950 (9th Cir.) (reversing decisions of lower courts that had barred revocation of a convicted sex offender who had been allowed to pay restitution in lieu of jail sentence but who had then failed to comply with that obligation), cert. denied, 114 S. Ct. 178 (1993); In re Olympia Holding Corp., 161 B.R. 524 (M.D. Fla. 1993); (reversing bankruptcy court decision that had barred ICC from "any proceeding that would require the debtor to proceed before the ICC"; while the district court agreed that intervening case law had made the initial action the ICC sought to pursue totally unauthorized, it held that the bankruptcy court's injunction was overbroad and would have prohibited matters that the ICC could legally pursue); In re Horizon Air. Inc., 156 B.R. 369 (N.D. N.Y. 1993); (upholding TRO issued by bankruptcy court against FAA's revocation of debtor's operating certificate and withdrawing reference to hear preliminary injunction; although the district court denied subsequently a preliminary injunction, the FAA was unable to enforce its emergency revocation order for three weeks); Wilner Wood Products Co. v. Maine, 128 B.R. 1 (D. Me. 1991); (reversing bankruptcy court decision that had barred state's effort to enforce denial of emissions license while appeal from denial was pending); ln re Heldor Industries. Inc., 131 B.R. 578 (Bankr. D. N.J. 1991) (held that 11 U.S.C. § 363 sale of property could take place without compliance with state environmental law that imposed requirements on such sales; decision was entered even though prior to that date the state and the parties had reached agreement on how compliance should take place and the state withdrew its objections to the sale), vacated as moot, New Jersev DEP v. Heldor Industries. Inc., 989 F.2d 702 (1993)); United States v. Wheeling-Pittsburgh Steel Corp., 818 F.2d 1077 (3rd Cir. 1988) (reversing district court's decision that bankruptcy filing justified modification of consent decree to remove timetable for completing cleanup action); In re Compton Corp., 90 B.R. 798 (N.D. Tex. 1988); (reversing bankruptcy court decision that had barred government tribunal from liquidating the amount of overcharges by oil company); In re Professional Sales Corp., 56 B.R. 753 (N.D. 111.1985) (reversing bankruptcy court decision that barred EPA from revoking interim status permit for hazardous waste site); In re Braniff Airways. Inc., 700 F.2d 935 (5th Cir. 1983) (reversing bankruptcy court's use of 11 U.S.C. § 105 to require FAA to reassign landing slots to debtor); In re Vel Rey Properties. Inc., 174 B.R. 859 (Bankr. D. D.C. 1994) (court refused to enjoin operation of city laws and regulations so as to allow trustee to operate property without complying therewith); In re Florida Bay Banks. Inc., 156 B.R. 673 (Bankr. N.D. Fla. 1993) (court sanctioned debtor for its frivolous attempt to use § 105 to bar state enforcement action); Matter of Catalano, 155 B.R. 224 (Bankr. D. Neb. 1993) (court refused emergency motion seeking to bar condemnation of unsafe housing); In re Grace Coal Co.. Inc., 155 B.R. 5 (Bankr. E.D. Ky. 1993) (denying motion to bar sate from prohibiting mining by debtor during pendency of license renewal process); In re Newport Assembly Restaurant. Inc., 142 B.R. 22 (Bankr. D. R.I. 1992) (court would not bar state from suspending liquor license for nonpecuniary violations); In re Carib-Inn of San Juan Corp., 905 F.2d 561(1st Cir. 1990) (affirming district court's refusal to enjoin NLRB litigation of amounts owing to employees for back pay); In re Security Gas & Oil. Inc., 70 B.R. 786 (Bankr. N.D. Cal. 1987) (denying motion to bar cleanup order during reorganization--but stating that 28 U.S.C. § 959 does not apply to liquidations and implying that order would be barred in such a case); Matter of Commonwealth Oil Refining Co.. Inc., 805 F.2d 1175 (5th Cir. 1986) (affirming lower courts' denial of motion to bar EPA from requiring debtor to comply with provisions regulating hazardous waste facility); Matter of 1600 Pasadena Offices. Ltd., 64 B.R. 192 (Bankr. M.D. Fla. 1986) (denying motion to enjoin city's revocation of building permit); In re Wengert Transportation, 59 B.R. 231 (Bankr. N.D. Ind. 1986) (denying motion to bar state from conducting financial responsibility determination); Matter of Nicholas. Inc., 55 B.R. 212 (Bankr. D. N.J. 1985) (denying motion to bar NLRB from investigating and hearing unfair labor practice charges); In re Beker Industrial Corp., 57 B.R. 611 and 57 B.R. 632 (Bankr. S.D. N.Y. 1986) (denying an injunction and a stay of its order that allowed the Florida Land and Water Adjudicatory Commission to continue its administrative actions); Matter of Williston Oil Corp., 54 B.R. 10 (Bankr. D. N.J. 1984) (denying motion to bar state from requiring debtor to either properly close, abandon or operate oil wells); ln re Farmers & Ranchers Livestock Auction. Inc., 46 B.R. 781 (Bankr. E.D. Ark. 1984) (denying motion to bar governmental investigation and license revocation proceeding); In re Thomassen, 15 B.R. 907 (BAP 9th Cir. 1981) (upholding bankruptcy court's refusal to enjoin medical license revocation proceeding); In re Prindle Leasing Co.. Inc. et al., No.96-30327, Adv. Pro. 96-3131 (Bankr. D. Ct.) (debtor unsuccessfully sought to enjoin state prosecutor from proceeding against corporate officer on a bad check charge). Return to text

²⁸⁵⁰  Citations to these cases, see fn.18, above, and others have been provided to the Commission and its staff. The failure of the report to refer to those cases indicates that those who caused this section of the report to be drafted failed to seek a balanced view. Return to text

²⁸⁵¹  In re Luskin's, Inc. (Maryland Consumer Protec. Div. v. Luskin's, Inc.), Civ. Action No. MJG-97-1937 (D. Md. Aug. 21, 1997). Return to text

²⁸⁵²  Matter of Long Distance Services, Inc. (Long Distance Services, Inc. v. Ohio), Case No. 97-49212, Adv. No. 97-4517 (Bankr. E.D. Mich. July 1, 1997). Return to text

²⁸⁵³  The proposal cites a single case at footnote 141 for the limited nature of section 105. In fact, there are numerous cases that make this point, which has been echoed by virtually every Court of Appeals. The strict line they take on the use of section 105 is totally at odds with the expansive view that the report supports. See, e.g., In the Matter of Carlson (Carlson v. United States), No. 96-2959, 1997 U.S. LEXIS 26247 (7th Cir. Sept. 23 1997) ("In regard to § 105(a), although a bankruptcy court is a court of equity, it cannot use its equitable power to circumvent the law."); In re Baker & Drake, Inc., 35 F.3d 1348 (9th Cir. 1994); Chiasson v. J. Louis Matherne and Assoc., 4 F.3d 1329 (5th Cir. 1993); In re Eagle-Picher Industries, Inc., 963 F.2d 855 (6th Cir. 1992); In the Matter of Commonwealth Oil Refining Co., Inc., 805 F.2d 1175 (5th Cir. 1986); In re Western Real Estate Fund, Inc., 922 F.2d 592 (10th Cir. 1990); see generally Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988). By downplaying this extensive litany of cases which preclude the use of Section 105 as an independent basis for enjoining nonbankruptcy law, the report conceals the degree to which its recommendations would work a change in existing law. Return to text

²⁸⁵⁴  Pennsylvania Public Utility Commission v. Metro Transportation Co., 64 B.R. 968 (Bankr. E.D. Pa. 1986). Return to text

²⁸⁵⁵  It should also be noted that statements in other cases that refer to "threats to assets of the estate" as being a valid basis for a § 105 injunction were merely dicta. As such, they never defined what such a threat could be, and did not, in fact, find that any such threat existed from the government's action. As a result, this phrase has largely (and correctly) disappeared from use; its resurrection by use in this report is highly objectionable. It will cause nothing but mischief. Return to text

²⁸⁵⁶  National Labor Relations Board v. Superior Forwarding, Inc., 762 F.2d 695 (6th Cir. 1985). Return to text

²⁸⁵⁷  Board of Governors v. MCorp Financial, 502 U.S. 32, 112 S. Ct. 459 (1991) Return to text

²⁸⁵⁸  See, e.g., United States v. Truxler Hosiery Co., Inc., 796 F.2d 723 (4th Cir. 1986); In re Fussell, 928 F.2d 712 (5th Cir. 1991), cert. denied, 502 U.S. 1107 (1992); In re Davis, 691 F.2d 176 (3d Cir. 1982); Barnett v. Evans, 673 F.2d 1250 (11th Cir. 1982); In re Schake, 154 B.R. 270 (Bankr. D. Neb. 1990). Return to text

²⁸⁵⁹  Seminole Tribe of Florida v. Florida, ___ U.S. ___, 116 S. Ct. 1114 (1996). Return to text

²⁸⁶⁰  In many cases, the governmental regulatory injunctive actions would not necessarily create a "claim," under the government's analysis of the breadth of that term. However, at least some actions concededly would fall within that definition and some courts construe a "claim" more broadly than does the government. As a result, 11 U.S.C. § 362(a)(6) also poses a threat, albeit a lesser one, to legitimate governmental regulatory activities. Return to text

²⁸⁶¹  "The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process." 11 U.S.C. § 105(a). Return to text

²⁸⁶²  Because of the interrelated nature of 11 U.S.C. §§ 362(b)(4) and (5), and to emphasize that these changes only apply to police and regulatory actions and not to attempts to collect monetary judgments, we have suggested combining these two subsections into one. Return to text

²⁸⁶³  See 11 U.S.C. § 362(a)(1). Return to text

²⁸⁶⁴  See Hillis Motors, Inc. v. Hawaii Automotive Dealers' Ass'n, 997 F.2d 581, 586 (9th Cir. 1993); In re University Medical Center, 973 F.2d 1065, 1073 (3d Cir. 1992); In re Pearson, 917 F.2d 1215 (9th Cir. 1990), cert. denied, 112 S. Ct. 514 (1992). Return to text

²⁸⁶⁵  "The filing of a petition . . . does not operate as a stay 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." 11 U.S.C. § 362(b)(4). See also Board of Governors of the Federal Reserve System v. MCorp Financial, Inc., 112 S. Ct. 459 (1991) (Federal Reserve Board's administrative proceedings against debtor excepted from stay by section 362(b)(4)). Return to text

²⁸⁶⁶  MCorp, 112 S. Ct. at 464. Return to text

²⁸⁶⁷  H.R. REP. 595, 95th Cong., 1st Sess. 342-43 (1977); S. REP. NO. 989, 95th Cong., 2d Sess. 51-52 (1978). Return to text

²⁸⁶⁸  "The filing of a petition . . . does not operate as a stay . . . under subsection (a)(2) of this section, of the enforcement of a judgment, other than a money judgment, obtained in an action or proceeding by a governmental unit to enforce such governmental units's police or regulatory power." 11 U.S.C. § 362(b)(5). Return to text

²⁸⁶⁹  11 U.S.C. § 362(a)(3) stays "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." Congress added the "exercise control over" language in the Bankruptcy Amendments and Federal Judgeship Act of 1984. See 2 COLLIER ON BANKRUPTCY ¶ 362.04[3] (15th ed. 1996). Return to text

²⁸⁷⁰  Most agree that a licensee holds at least some proprietary interest in a license, an interest that becomes property of the estate upon the filing of a bankruptcy petition. See, e.g., In re Gull Air, 890 F.2d 1255 (1st Cir. 1989); In re Draughon Training Inst., Inc., 119 B.R. 921 (Bankr. W.D. La. 1990). Return to text

²⁸⁷¹  11 U.S.C. § 362(a)(6) stays "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title." Return to text

²⁸⁷²  See, e.g., Cournoyer v. Lincoln, 790 F.2d 971 (1st Cir. 1986) (section 362(b)(4) exempts town's removal of used truck parts from debtors' property, which had violated zoning ordinance); In re Yellow Cab Cooperative Ass'n, 96 K 256, 1996 WL 520497 (D. Colo. Sept. 12, 1996) (reversing bankruptcy court's order enjoining public utilities commission from prohibiting debtor from transferring taxis to another company); In re Universal Life Church, Inc., 191 B.R. 433, 442 (E.D. Cal. 1995) (automatic stay does not bar revocation of tax-exempt status); Carr and Company Investments, Ltd. v. St. Tammany Parish Policy Jury, 88-0542, 1989 WL 65530 (E. D. La. June 13, 1989) (property rezoning exempted from stay under section 362(b)(4)); In re Heritage Village Church & Missionary Foundation, Inc., 87 B.R. 401, 404 (D.S.C. 1988) (section 362(b)(4) precludes bankruptcy court from enjoining revocation of debtor's tax-exempt status), aff'd, 851 F.2d 104 (4th Cir. 1988); Vaspourakan, Ltd. v. Licensing Bd. for the City of Boston, 85 B.R. 189 (D. Mass. 1988) (board's refusal to transfer liquor license to debtor not stay violation); In re Synergy Development Corp., 140 B.R. 958 (Bankr. S.D.N.Y. 1992) (not stay violation to withhold debtor's license to operate health club for failure to post bond); In re Edwards Motor Home Sales, Inc., 119 B.R. 857 (Bankr. M.D. Fla. 1990) (state permissibly revoked mobile home dealer license for failure to be bonded); In re Christmas, 102 B.R. 447, 460 (Bankr. D. Md. 1989) (revocation of debtor's horse trainer license excepted from stay under section 362(b)(4)).

See also In re Gull Air, Inc., 890 F.2d 1255 (1st Cir. 1989) (non-discretionary automatic termination of right to use landing slots under "use or lose" provision due to post-petition non-use did not violate section 362(a)(3)); In re Grace Coal Co., 155 B.R. 5 (Bankr. E.D. Ky. 1993) (debtor enjoined from mining without operating permit pursuant to 28 U.S.C. § 959(b)); Colonial Tavern, Inc. v. Byrne, 420 F. Supp. 44 (D. Mass. 1976) (under Bankruptcy Act, bankruptcy court could not enjoin city licensing board from suspending debtors' liquor licenses). Return to text

²⁸⁷³  See, e.g., Hillis Motors, Inc. v. Hawaii Automobile Dealers' Ass'n, 997 F.2d 581, 590 (9th Cir. 1993). Return to text

²⁸⁷⁴  See, e.g., In re Draughon Training Institute, Inc., 119 B.R. 921 (Bankr. W.D. La. 1990) (although school license revocation proceeding was within section 362(b)(4) exception, actual revocation of school license violated automatic stay); In re Cattle Congress, Inc., 179 B.R. 588 (Bankr. N.D. Iowa 1995) (revocation of gaming facility license violated automatic stay), remanded on other grounds, 91 F.3d 1113 (8th Cir. 1996). Accord In re Hillis Motors, Inc., 997 F.2d 581 (9th Cir. 1993) (holding that section 362(b)(4) does not except acts that are described by section 362(a)(3), although also holding that commerce department's action of dissolving corporation was not police or regulatory action). See also In re Horizon Air, Inc., 156 B.R. 369 (N.D.N.Y. 1993) (district court issuing temporary restraining order against F.A.A. revocation of flight operating license for alleged safety violations pending resolution of preliminary injunction hearing). Return to text

²⁸⁷⁵  See Celotex Corp. v. Edwards, 115 S. Ct. 1493 (1995). Return to text

²⁸⁷⁶  See, e.g. United States v. Pepperman, 976 F.2d 123, 131 (1992); In re Murgillo, 176 B.R. 524, 532 (Bankr. 9th Cir. 1994), (citing Norwest Bank Worthington v. Ahlers, 108 S. Ct. 963 (1988)). Return to text

²⁸⁷⁷  See Younger v. Harris, 401 U.S. 37 (1971). Return to text

²⁸⁷⁸  The proposed amendment would not change the outcome when courts hold that an act does not fall within an agency's police and regulatory powers. See, e.g., In re University Medical Center,, 973 F.2d 1065 (3d Cir. 1992) (withholding Medicare payments was enforcement of contractual rights, not police and regulatory action, and violated automatic stay); In re Farmer's Market, Inc., 792 F.2d 1400, 1043 (9th Cir. 1986) (refusal to transfer liquor license due to nonpayment of taxes violated automatic stay); In re Corporacion de Servicios Medicos Hospitalarios de Fajardo, 805 F.2d 440 (1st Cir. 1986) (department of health's revocation of debtor's operating license was not police and regulatory action, but was contractual action); In re North, 128 B.R. 592 (Bankr. D. Vt. 1991) (state suspension of chiropractor's license to compel debtor to pay taxes was not within police and regulatory powers); In re Massenzio, 121 B.R. 688 (Bankr. N.D.N.Y. 1990) (insurance department's revocation action against debtor was triggered by debtor's failure to pay debt and violated stay); In re St. Louis South Park II, Inc., 111 B.R. 260 (Bankr. W.D. Mo. 1990) (forfeiture of nursing home debtor's certificate of need not police and regulatory action, violated stay); Island Club Marina Ltd. v. Lee Co., Fla., 32 B.R. 331, 336 (Bankr. N.D. Ill. 1983) (due to lack of evidence that agency's withdrawal of building permit was pursuant to police and regulatory power, violated stay). See also In re Medicar Ambulance Co., Inc., 166 B.R. 918 (Bankr. N.D. Cal. 1994) (suspension of Medicare payments not police and regulatory action, violated stay). Cf. In re Orthotic Center, Inc., 193 B.R. 832 (N.D. Ohio 1996) (Medicare overpayments not property of estate, but if they were, suspension would not violate stay because it was within police and regulatory powers). Return to text

²⁸⁷⁹  Courts generally use one of several similar tests to discern the nature of the government's action. Using the "pecuniary purpose test," a court assesses whether the proceeding relates primarily to the protection of the government's pecuniary interest and not to public policy matters. In re Eddleman, 923 F.2d 782, 791 (10th Cir. 1991); United States v. Nicolet, Inc., 857 F.2d 202 (3d Cir. 1988). "The terms 'police and regulatory power' as used in those exceptions refer to the enforcement of state laws affecting health, morals, and safety but not regulatory laws that directly conflict with the control of the res or property of the bankruptcy court." Hillis Motors, Inc. v. Hawaii Automobile Dealers' Ass'n, 997 F.2d 581, 591 (9th Cir. 1993) (citing In re Missouri v. United States Bankr. Ct. for the E.D. of Ark., 647 F.2d 768, 776 (8th Cir. 1981), cert. denied, 102 S. Ct. 1035 (1982) (state liquidation of grain warehouse violated stay)). One court has offered a slight variation on the pecuniary purpose test: "as a general matter, section 362(b)(4) does not include governmental actions that would result in a pecuniary advantage to the government vis-à-vis other creditors of the debtor's estate." In re Commonwealth Companies, Inc., 913 F.2d 518, 523 (8th Cir. 1990) (emphasis added). The "public policy test" focuses on whether the proceedings are intended to effectuate public policy or whether they are adjudications of private rights. NLRB v. Edward Cooper Painting, Inc., 804 F.2d 934 (6th Cir. 1986). In any event, the explication and development of this concept is not at issue with respect to these proposed amendments. Return to text

²⁸⁸⁰  In re University Medical Center, 973 F.2d 1065, 1074 (3d Cir. 1992) (withholding Medicare payments not police and regulatory), citing In re Corporacion de Servicios Medicos Hospitalarios, 805 F.2d 440, 445 (1st Cir. 1986). Return to text

²⁸⁸¹  See, e.g., cases cited in notes 11 & 12. Nor does the proposed amendment affect what would constitute property of the estate in the first instance. See, e.g., Pension Benefit Guaranty Corp. v. Braniff Airways, Inc., 700 F.2d 935, 942 (5th Cir. 1983) (court prohibited from using section 105 to protect landing slots since slots are not property of estate). Cf. In re Gull Air, Inc., 890 F.2d 1255 (1st Cir. 1989) (debtor had limited proprietary interest in landing slots). Return to text

²⁸⁸²  "The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No Provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process." 11 U.S.C. § 105(a). Return to text

²⁸⁸³  See, e.g., United States v. Pepperman, 976 F.3d 123, 131 (1992); In re Murgillo, 176 B.R. 524, 532 (Bankr. 9th Cir. 1994), citing Norwest Bank Worthington v. Ahlers, 108 S. Ct. 963 (1988). Return to text

²⁸⁸⁴  See Celotex Corp. v. Edwards, 115 S. Ct. 1493 (1993). Return to text

²⁸⁸⁵  See 11 U.S.C. § 362(b)(4). Return to text

²⁸⁸⁶  See In re L & S Industries, Inc., 989 F.2d 929 (7th Cir. 1993). Return to text