United States v. Rupari Food Servs., Inc.

254 F.Supp.3d 1367

UNITED STATES, Plaintiff,

v.RUPARI FOOD SERVICES, INC., Defendant.

Slip Op. 17-104 Consol. Court No. 10-00119.

United States Court of International Trade.

August 10, 2017

Mikki Cottet, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, for Plaintiff. With her on the brief were Chad A. Readler, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M. McCarthy, Assistant Director, of Washington, DC. Of counsel on the brief was Brian J. Redar, Office of Associate Chief Counsel, U.S. Customs and Border Protection, of Long Beach, CA.

Lawrence M. Friedman, Barnes Richardson & Colburn, of Chicago, IL, for Defendant. With him on the brief was Peter A. Quinter, Gray Robinson, P.A., of Miami, FL.

OPINION

Katzmann, Judge:

The issue now before this court appears to be one of first impression: does the automatic stay in bankruptcy, effected by 11 U.S.C. § 362(a) (2012),¹ stay an action for a civil penalty brought by the United States against the bankrupt party pursuant to 19 U.S.C. § 1592² for alleged fraudulent, negligent, or grossly negligent misrepresentations made in the course of importing goods into the commerce of the country? Or, is that civil penalty action exempt from the automatic stay in bankruptcy because it is "an action or proceeding by a governmental unit ... to enforce such governmental unit's or organization's police and regulatory power" pursuant to 11 U.S.C. § 362(b)(4) ? The court concludes that this 19 U.S.C. § 1592 civil penalty action is exempt from the automatic stay in bankruptcy under 11 U.S.C. § 362(b)(4), insofar as it constitutes an action for the entry, rather than the enforcement, of a money judgment.

BACKGROUND

The facts of this case span approximately two decades and need not be recited in full here. The relevant portions are as follows: defendant Rupari Food Services, Inc. ("Rupari") is a Florida corporation that purchased crawfish from abroad and sold it to restaurants in the United States. United States v. Am. Cas. Co. of Reading Pa., 39 CIT ––––, ––––, 91 F.Supp.3d 1324, 1327 (2015), as amended (Aug. 26, 2015) (" Rupari I"); First Amended Complaint ¶ 3, Aug. 31, 2015, ECF No. 110 ("Compl."). Plaintiff, the United States, on behalf of Customs and Border Protection ("the Government"), alleges that in the summer of 1998, Rupari attempted to enter five containers of Chinese crawfish tail meat by means of documents falsely claiming that the crawfish tail meat originated in Thailand. Rupari I, 91 F.Supp.3d at 1332 ; Compl. ¶¶ 43–64. Customs examined and seized these attempted entries. Compl. ¶ 42. On April 9, 2001, Customs issued a pre-penalty notice to Rupari proposing a monetary penalty on the basis of fraud and in an amount equal to the domestic value of the five seized entries, and four entered entries, of Chinese crawfish tail meat. Compl. ¶ 65. On November 21, 2001, Customs issued a penalty notice to Rupari, assessing, pursuant to 19 U.S.C. § 1592(c),³ a civil penalty for fraud for the violation of § 1592(a). Compl. ¶ 66. The Government maintains that Rupari has not paid the penalties it seeks in this action. Compl. ¶ 69.

On June 20, 2011, the Government filed a complaint against Rupari for violations of 19 U.S.C. § 1592(a).⁴ Rupari I, 91 F.Supp.3d at 1332. An amended complaint was filed on August 31, 2015. Compl. The Government asks this court to "enter judgment for the United States against Rupari for a penalty in the amount of $2,784,636.18⁵ for fraudulent violations of 19 U.S.C. § 1592(a)," or in the alternative, "the maximum amount for" grossly negligent or negligent violations of 19 U.S.C. § 1592(a). Rupari I, 91 F.Supp.3d at 1332 ; Compl. ¶ 78. The Government filed its motion for summary judgment on January 15, 2015. ECF No. 79. Rupari filed its response and cross-motion for summary judgment on February 24, 2016. ECF No. 119. Further briefing on the motions for summary judgment has been stayed multiple times since April 15, 2016. See ECF No. 131.

Since January 2017, the parties have filed, and the court has granted, several motions to stay proceedings, in which the parties represented that they were attempting, in good faith, to resolve this action by way of settlement. ECF Nos. 139–47. However, on April 10, 2017, Rupari filed for Chapter 11 bankruptcy protection. See In re Rupari Food Servs., Inc., No. 17–10794 (Bankr. D. Del. filed Apr. 10, 2017). The court maintained the stay on briefing, and ordered that parties report to the court their joint position or, in the absence of a joint position, their respective positions regarding the applicability to this proceeding of the automatic stay effected by 11 U.S.C. § 362(a), or recommend what further action, if any, be taken in this action prior to the resolution of the bankruptcy proceeding. ECF No. 149. The Government reported its position on July 3, 2017, maintaining that it was seeking entry, but not execution of a monetary judgment, and that the civil penalty action pursuant to 19 U.S.C. § 1592(a), commenced to enforce police or regulatory powers, was exempt from the automatic stay provision of the bankruptcy statute. ECF No. 154 ("Pl.'s Mem."). Rupari reported its opposing position on July 27, 2017. ECF No. 160 ("Def.'s Mem.").

As in the underlying action, the court possesses jurisdiction pursuant to 28 U.S.C. § 1582.⁶

DISCUSSION

Bankruptcy petitions initiated by debtors such as Rupari, which are not individual natural persons, are governed by Chapters 7 and 11 of the Bankruptcy Code. See 11 U.S.C. §§ 1101 – 1174. "In Chapter 11, debtor and creditors try to negotiate a plan that will govern the distribution of valuable assets from the debtor's estate and often keep the business operating as a going concern." Czyzewski v. Jevic Holding Corp., ––– U.S. ––––, 137 S.Ct. 973, 978, 197 L.Ed.2d 398 (2017). In general, the filing of a bankruptcy petition operates to stay the continuance of any judicial proceeding against a debtor. 11 U.S.C. § 362(a).⁷ See Dominic's Rest. Of Dayton, Inc. v. Mantia, 683 F.3d 757, 760 (6th Cir. 2012). "The purpose of the automatic stay is to ‘give[ ] the debtor a breathing spell from his creditors.... It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him to 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).

However, significantly and directly on point here, "the automatic stay protection does not apply to all cases; there are statutory exemptions, and there are non-statutory exceptions." Dominic's Rest., 683 F.3d at 760 ; see. e.g., Seiko Epson Corp. v. Nu–Kote Int'l, Inc., 190 F.3d 1360, 1364 (Fed. Cir. 1999) ("[P]roceedings that do not threaten to deplete the assets of the debtor need not be stayed."), reh'g denied (Oct. 19, 1999). One such statutory exception to the automatic stay, enumerated in 11 U.S.C. § 362(b)(4), relates to the enforcement of the Government's police or regulatory powers. In order to prevent abuse by debtors improperly seeking refuge under the bankruptcy laws, Congress provided that certain governmental actions, including the "continuation of an action or proceeding by a governmental unit ... to enforce such governmental unit's or organization's police and regulatory power," are exempt from the automatic stay provisions of 11 U.S.C. § 362(a). Id.§ 362(b)(4) ; see United States v. Nicolet, Inc., 857 F.2d 202, 207 (3d Cir. 1988) ; 3 COLLIER ON BANKRUPTCY ¶ 362.05[5][a] (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2017). "[T]he policy behind § 362(b)(4) is ‘to prevent the bankruptcy court from becoming a haven for wrongdoers.’ " SEC v. Towers Fin. Corp., 205 B.R. 27, 30 (S.D.N.Y. 1997) (quoting SEC v. Elmas Trading Corp., 620 F.Supp. 231, 240 (D. Nev. 1985), aff'd, 805 F.2d 1039 (9th Cir. 1986) ); see also In re Bilzerian, 146 B.R. 871, 873 (Bankr. M.D. Fla. 1992) (citing the legislative history of § 362(b)(4) for the same).

To ascertain whether the proceeding at issue falls within the scope of § 362(b)(4), courts have applied two "related, and somewhat overlapping" tests: the pecuniary purpose test and the public policy test. In re Nortel Networks, Inc., 669 F.3d 128, 139 (3d Cir. 2011) (quoting Lockyer v. Mirant Corp., 398 F.3d 1098, 1108 (9th Cir. 2005) ). The Court of Appeals for the Third Circuit has summarized these tests 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. The complementary tests "are designed to sort out cases in which the government is bringing suit in furtherance of either its own or certain private parties' interest in obtaining a pecuniary advantage over other creditors."⁸

Id. at 139–40 (citing Chao, 270 F.3d at 385, 389 ). The legislative history of § 362(b)(4) provides that "where a governmental unit is suing a debtor to prevent or stop violation of fraud, ... or similar police or regulatory laws, or attempting to fix damages for violation of such a law, the action or proceeding is not stayed under the automatic stay." Id. at 141 (quoting S. REP. NO. 95–989 at 49 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787, 5838).

Police power proceedings that fall within the scope of § 362(b)(4) are limited in that while "the exception extends to permit an...