United States v. Greenlight Organic, Inc.

264 F.Supp.3d 1376

UNITED STATES, Plaintiff,

v.GREENLIGHT ORGANIC, INC., Defendant.

Court No. 17–00031

Slip Op. 17–126

United States Court of International Trade.

September 15, 2017

William Kanellis, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, D.C., for Plaintiff. With him on brief were Chad A Readler, Acting Assistant Attorney General, Jeanne E Davidson, Director, and Patricia M. McCarthy, Assistant Director.

Peter S. Herrick, Peter S. Herrick, P.A., of St. Petersburg, FL, for Defendant. With him on brief were Josh Levy, Marlow, Adler, Abrams, Newman and Lewis, P.A., of Coral Gables, FL, and Gregory E. Garman and Mark M. Weisenmiller, Garman Turner Gordon LLP, of Las Vegas, NV.

OPINION

Choe–Groves, Judge:

Before the court is the issue of whether the automatic bankruptcy stay of 11 U.S.C. § 362(a) (2012)¹ applies to an action brought pursuant to 19 U.S.C. § 1592 for fraudulent misrepresentations made in the course of importing merchandise into the commerce of the United States. For the reasons set forth below, the court finds that the stay in 11 U.S.C. § 362(a) does not apply and this action may proceed accordingly.

BACKGROUND

This action concerns the alleged fraudulent importation of athletic wearing apparel from Vietnam, entered into the United States by Greenlight Organic, Inc. ("Greenlight" or "Defendant") from January 1, 2007 through December 31, 2011. See Summons, Feb. 8, 2017, ECF No. 1; Compl. ¶ 3, Feb. 8, 2017, ECF No. 2. The United States ("Plaintiff" or "Government") commenced this action on February 8, 2017 seeking to recover unpaid duties, fees, and a penalty for fraudulent violation of 19 U.S.C. § 1592(a). See Compl. ¶ 1. Defendant filed its answer on April 21, 2017, and the court entered a scheduling order on May 16, 2017 setting forth the deadlines for discovery. See Scheduling Order, May 16, 2017, ECF No. 12. The court subsequently amended the scheduling order and set the deadline for initial disclosures for July 27, 2017. See Scheduling Order, July 14, 2017, ECF No. 14 (granting Defendant's motion to amend the scheduling order). The court held a teleconference with the Parties on July 26, 2017. See Teleconference, July 26, 2017, ECF No. 16. During the teleconference, the court was informed that Defendant had filed for bankruptcy in the United States Bankruptcy Court for the District of Nevada on July 25, 2017, and Defendant believed that the proceedings in this action were automatically stayed pursuant to 11 U.S.C. § 362(a). See Teleconference. Plaintiff argued, however, that the automatic stay was inapplicable because 11 U.S.C. § 362(b)(4) excluded actions against a debtor by the government when the matters involved the government's police power. See Teleconference. The court requested that the Parties submit briefs addressing whether 11 U.S.C. § 362(a) stayed this action. Briefing was completed on August 8, 2017. See The United States Mem. Relating to 11 U.S.C. § 362, July 28, 2017, ECF No. 17 ("Pl. Memo."); Debtor's Mem. 11 U.S.C. § 362, Aug. 4, 2017, ECF No. 18 ("Def. Memo"); The United States' Reply in Supp. Mem. Relating to 11 U.S.C. § 362, Aug. 8, 2017, ECF No. 19 ("Pl. Reply").

JURISDICTION

The court has jurisdiction over the underlying action pursuant to 28 U.S.C. § 1582. A non-bankruptcy court has jurisdiction to decide whether the automatic stay provision of 11 U.S.C. § 362 stays proceedings that have been properly commenced in that court._ See Chao v. Hosp. Staffing Servs., Inc., 270 F.3d 374, 384 (6th Cir. 2001) (finding that "when a party seeks to commence or continue proceedings in one court against a debtor or property that is protected by the stay automatically imposed upon the filing of a bankruptcy petition, the non-bankruptcy court properly responds to the filing by determining whether the automatic stay applies to (i.e., stays) the proceedings.").²

This court has jurisdiction, therefore, to determine whether the automatic stay applies to this action.

DISCUSSION

Plaintiff argues that when the action instituted by the government involves claims of fraud against a debtor, such as an action pursuant to 19 U.S.C. § 1592, the automatic stay is inapplicable by operation of the exemption in 11 U.S.C. § 362(b)(4). See Pl. Memo. 6–14. Defendant asserts that 19 U.S.C. § 1592 is not the type of action that is exempted from the stay and this action should be stayed pending resolution of the proceedings in the bankruptcy court. See Def. Memo. 4–10.

Generally, when a debtor files a bankruptcy petition, 11 U.S.C § 362(a) operates to stay any pending, or subsequently filed, judicial proceedings against the debtor. See 11 U.S.C. § 362(a).³ "The purpose of the automatic stay is to ‘give[ ] the debtor a breathing spell from his creditors ... [and] permit[ ] the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.’ " In re Robinson, 764 F.3d 554, 559 (6th Cir. 2014) (quoting H.R. REP. No. 95–595, at 340 (1977), as reprinted in 1978 U.S.C.C.A.N. 5963, 6296–97). The automatic stay, however, "does not apply in all cases; there are statutory exemptions, and there are non-statutory exemptions." Dominic's Rest. of Dayton, Inc. v. Mantia, 683 F.3d 757, 760 (6th Cir. 2012). One statutory exemption relates to actions by a governmental unit seeking "to enforce such governmental unit's ... police and regulatory power, including 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 or organization's police or regulatory power[.]" 11 U.S.C. § 362(b)(4).

To determine if the judicial proceeding is within the exemption of 11 U.S.C. § 362(b)(4), courts have applied two tests: the pecuniary purpose test and the public policy test. See In re Nortel Networks, Inc., 669 F.3d 128, 139 (3d. Cir. 2011) ; Chao, 270 F.3d at 384 ; Lockyer v. Mirant Corp., 398 F.3d 1098, 1108 (9th Cir. 2005). The tests can be summarized as follows:

The pecuniary purpose test asks whether the government primarily seeks to protect a pecuniary governmental interest in the debtor's property, as opposed to protecting the public safety and health. The public policy test asks whether the government is effectuating public policy rather than adjudicating private rights. If the purpose of the law is to promote public safety and welfare or to effectuate public policy, then the exception to the automatic stay applies. If, on the other hand, the purpose of the law is to protect the government's pecuniary interest in the debtor's property or primarily to adjudicate private rights, then the exception is inapplicable.

In re Nortel Networks, Inc., 669 F.3d at 139–40. Therefore, the court "must determine the primary purpose of the law that [the government] is attempting to enforce." Safety–Kleen, Inc. (Pinewood) v. Wyche, 274 F.3d 846, 865 (4th Cir. 2001) (citing Yellow Cab Coop. Ass'n v. Metro Taxi, Inc. (In re Yellow Cab Coop.), 132 F.3d 591, 597 (10th Cir. 1997) ; Javens v. City of Hazel Park (In re Javens), 107 F.3d 359, 367–68 (6th Cir. 1997) ; E.E.O.C. v. Rath Packing Co., 787 F.2d 318, 324 (8th Cir. 1986) ).

The Government's action is brought pursuant to 19 U.S.C. § 1592(a), which makes it unlawful for any person, by fraud, gross negligence, or negligence, to "enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States by means of ... any document or electronically transmitted data or information, written or oral statement, or act which is material and false." 19 U.S.C. § 1592(a)(1)(A).⁴ In an action brought pursuant to 19 U.S.C. § 1592, the Government can seek two types of money damages: 1) civil penalties pursuant to 19 U.S.C. § 1592(c) ;⁵ and 2) a restoration of any lawful duties pursuant to 19 U.S.C. § 1592(d).⁶ United States v. Ford Motor Co., 497 F.3d 1331, 1338 (Fed. Cir. 2007). Plaintiff alleges that Greenlight made certain fraudulent misrepresentations on importation documents.⁷ See Compl. Defendant asserts that because the Government seeks monetary damages, the purpose of the action is to gain an interest in the Defendant's property and to adjudicate private rights. See Def. Memo 7–10. The legislative history notes, however, that the purpose of 19 U.S.C § 1592 is "to encourage accurate completion of the entry documents upon which Customs must rely to assess duties and administer other customs laws." S. Rep. No. 95–778, at 17, as reprinted in 1978 U.S.C.C.A.N. 2211, 2229. Congress' decision "to tie the maximum penalty to the culpability of the violator further suggests that ‘[ 19 U.S.C. § 1592 ] is driven primarily by considerations of deterrence rather than compensation.’ "

United States v. Nat'l Semiconductor Corp., 547 F.3d 1364, 1370 (Fed. Cir. 2008) (quoting United States v. Complex Mach. Works Co., 23 CIT 942, 950, 83 F.Supp.2d 1307, 1315 (1999) ).⁸ Despite Defendant's arguments, simply because the action involves a pecuniary component, it "does not abrogate [the government's] police power function." In re Universal Life Church, Inc., 128 F.3d 1294, 1299 (9th Cir. 1997). Therefore, an action brought pursuant to 19 U.S.C § 1592 is "effectuating public policy rather than adjudicating private rights," Nortel Networks, 669 F.3d at 140, and is an exercise of the Government's police and regulatory power.

Defendant asserts that the action should be stayed because the Government seeks to "recover" unpaid duties and a penalty for fraud, rather than merely to fix the damages for the alleged violation. See Def. Memo 9. Defendant argues that the damages the Government seeks were fixed when Customs issued a duty demand and a penalty notice. See id. at 10. Defendant reasons that Plaintiff is seeking to enforce these damages through this action to gain a pecuniary interest in the Defendant's property. See id. at 9–10. Plaintiff represents, however, that the "purpose of this lawsuit...