Public Interest and Private Rights A Simpler Theory of Police and Regulatory Action

Courts commonly assert that there are two tests for determining if a governmental action meets the "police and
regulatory" standard under the §362(b)(4) exception to the automatic stay.² The first is the "pecuniary purpose" test,
and the other is the "public interest/private rights" test. While Congress never actually defined what it meant by
police and regulatory action, the first test can reasonably be derived from language in the legislative history. The
second test, though, as initially enunciated in Dan Hixson Chevrolet³ and applied most recently in Chao v.
Hospital Staffing Services Inc.,⁴ is, I suggest, based on nothing in the Code or its history, needlessly complicates
the analysis and erroneously excludes certain actions that the Code does mean to cover.

Instead, there is a far simpler dichotomy—which looks to whether the government is acting as prosecutor or merely
neutral adjudicator—that can easily be discerned in the Code's language and that falls neatly within a line of
analysis often articulated by the Supreme Court in recent cases. Adhering to that distinction will make the process
far simpler for all concerned.

For those of us who began practicing after 1978, a little history is in order. Prior to the Code, there
was neither the broad automatic stay that now exists under §362(a), nor the array of exceptions set forth in
§362(b). Instead, there was a statutory authorization for the court to impose a stay and, beginning in the
mid-1970s, a series of Rules, one per chapter, that imposed a stay, inter alia, against "the commencement
or the continuation of any court or other proceeding against the debtor..." Despite the absence of any explicit
exception from that sweeping language for police and regulatory actions, most courts readily concluded that
the Rule stays were not meant to bar governmental regulatory actions, as opposed to efforts to collect on a
claim.⁵ Some courts, though, took a more literal view of the scope of the Rule stay and held that it limited
the government's efforts to protect consumers, the environment or the like.⁶ As a result, when Congress
enacted §362(a) with its broad range of injunctive provisions, it simultaneously took care to also enact
§362(b)(1), (4) and (5) to protect governmental criminal and civil police and regulatory actions from some
or all of those limits.⁷ The official legislative reports noted that:

Paragraph (4) excepts commencement or continuation of actions and proceedings by governmental units to enforce
police or regulatory powers. Thus, where a governmental unit is suing a debtor to prevent or stop violation of
fraud, environmental protection, consumer protection, safety or similar police or regulatory laws, or attempting to
fix damages for violation of such a law, the action or proceeding is not stayed under the automatic stay. (H.R. Rep.
p. 343; S. Rep., No. 989, 95th Cong. 2d Sess. 52 (1978) (hereinafter "S. Rep.")) (emphasis added).

That discussion would suggest a generous reading for the stay exception to protect the critical
governmental functions that were discussed by the reports. On the other hand, Rep. Don Edwards of California and
Sen. Dennis DeConcini of Arizona read identical statements into the record, to the effect that "[§362(b)(4)] is
intended to be given a narrow construction in order to permit governmental units to pursue actions to protect the
public health and safety and not to apply to actions by a governmental unit to protect a pecuniary interest in
property of the debtor or property of the estate." (124 Cong. Rec. H11092 (Sept. 28, 1978); S17409 (Oct. 6,
1978)).

While a number of courts in the early days of the Code took those references to "health and safety"
literally,⁸ most other courts applied the exception more broadly, in line with the actual language in the Code and
the full committee reports.⁹ In so doing, the courts had little difficulty in distinguishing between cases in which a
government was bringing actions as a regulator, as opposed to when it was proceeding in its own pecuniary or
contractual interest.¹⁰ They reject the view that the Edwards/DeConcini statements imply that true regulatory
actions should be narrowly construed. Instead, they note that the statements "'do no more than state the very
problem' courts must resolve in determining the parameters of §362(b)(4)."¹¹

Thus, when the government engages in normal commercial transactions to purchase goods or services,
lends money to students or small businesses, or collects taxes, its actions normally fall outside the exception.¹²

And, prior to the 1998 amendments to the Code, courts also applied this test to situations in which the government
was taking actions that directly affected the bankruptcy court's control over the property of the estate.¹³ None of
those cases, though, had a significant impact on core police and regulatory actions—the consumer and
environmental protection, labor and securities law, and antitrust cases that are the bread and butter of government
prosecutors. These cases involve remedies sought for private parties, and thus steer clear of the pecuniary purpose
test.

The far more difficult problems for the government arise from the second test that Hixson announced, in
deciding whether a suit brought between two private parties before a government agency was excepted from the stay.
Under this test, the court must determine whether an action is actually "on behalf of the public interest" or is merely
an "adjudication of private rights" of affected individuals. According to Hixson, the court must determine whether
an agency's action "concerns only parties who are immediately affected or a wider group of those subject to [its]
authority," and where "the agency's action concerns only the parties who are immediately affected, the debtor is
entitled to the same protection it would receive under the automatic stay if the proceeding were pending [in] a
judicial forum" rather than before an agency. 12 B.R. at 920-21. In Hixson, the action at issue was one between two
private parties that was heard by a special state administrative agency, with no government prosecutor involved. Its
analysis, though, was later applied to an action filed by the government itself in In re Charter First Mortgage Inc., 42 B.R. 380 (Bankr. D. Ore. 1984). The court held there that the government could prosecute a consumer protection
action to the extent that it sought injunctive relief or imposed penalties, but was barred to the extent that it sought
to determine and liquidate the monetary damages suffered by the individual victims (even though no attempt was
made to collect those damages).

There are any number of immediate problems with this theory and test. The first is that, when combined
with the pecuniary purpose test, it bids fair to eliminate the governmental exception altogether. If the government is
seeking money for its own interest, the action violates the pecuniary purpose test, but if it is seeking compensation
or other direct relief for the victims, then the action violates the private rights test! An analytical method that leaves
almost no room for the exception to actually apply is unlikely to be correct.¹⁴

Looking at the private rights test by itself, the courts that adopt this view have provided no workable way
to distinguish the public from the private cases. Is it the mere fact that the court is determining that harm has been
done to particular individuals? That seems unlikely, since consumer protection cases, for instance, inevitably deal
with the harm done to individual victims and normally result in an order for restitution for them. Yet, as noted
above, Congress explicitly stated that actions to determine violations of consumer protection laws are covered as
well as actions "to fix the damages for violations of such laws."

Perhaps the dividing line between the public interest and private rights depends on the number of victims.
If only one person is involved in the state's prosecution of a consumer protection or labor case, is the action merely
adjudicating a private right? On the other hand, is there a public interest if there is a larger number of victims? If so,
what is the tipping point? Is it two victims, 10, 100? The courts, of course, never specify. And if they did try to
draw a line, on what basis can a court decide that protecting one person is not a valid exercise of the public interest,
but protecting two people or 10 is?

Or perhaps it is the type of relief? Prospective injunctive relief seems more directed to the public than
monetary relief provided to remedy harm already suffered by individual victims. But again, "fixing damages" was
explicitly described by Congress as an action covered under the exception. Conversely, some injunctive relief, such
as reinstatement, directly benefits only the victim. And even if the relief is victim-specific, why should this matter?
Why is the public interest only served by action to prevent an amorphous possibility of future harm, but not by
action to correct the concrete harm suffered by the actual victims of the debtor's misconduct? Or, as a panel
majority in the Sixth Circuit suggested, is there a public interest only if the debtor is remaining in business, so that
a failure to promptly correct its actions will allow the debtor to unfairly compete with other employers?¹⁵ While
that is a reason for why governments prosecute cases, it seems to make little sense to say that the public is only
served by indirectly protecting future victims, but not at all by providing direct relief to current victims.

Moreover, as a practical matter, the test makes little sense since in most cases, the discovery and trial work
needed to make the showing for injunctive relief is the same as needed to establish the damages. Thus, so long as
the government can seek any relief, the debtor will still be subject to virtually the same burden, so the distinction
provides little real benefit.

Finally, perhaps the greatest problem is that the test allows unelected judges to substitute their judgment
for the considered decision of the legislature about what actions should be made subject to civil or criminal
prosecution in order to protect the public interest. Section 525 bars the government from discriminating against
debtors, so it may not prosecute them for actions that would not equally be subject to prosecution had they not filed
bankruptcy. That fact alone provides a substantial check on the scope of governmental prosecutions, since any law
that a legislature passes must apply equally to the financially strong and politically influential as to the financially
struggling. Moreover, the legislature must also take into account the state's limited resources, since there are many
drawbacks to passing broad laws that cannot be effectively implemented. Thus, when the court says that a
governmental action fails the public-interest test, it is holding that an action that the legislature has authorized the
government to prosecute is nevertheless not in the public interest to pursue.¹⁶

Indeed, attorneys general are normally only authorized by statute to prosecute matters in the public interest.
They are given prosecutorial discretion precisely to ensure that they exercise appropriate judgment as to which cases
should be pursued. That decision, perforce, considers the merits of the case, the resources of the office and the likely
remedial and deterrent effect of a settlement or judgment on this violator and on other similar parties. When a court
then holds that a prosecution is not in the public interest but merely an adjudication of private rights, it is, in effect,
saying that the prosecutor is acting ultra vires of his statutory authority!

With all of these problems, why did this test ever appear? The answer is simple—it was meant to deal with
a valid issue that arose in Hixson—namely, whether an action brought by a private party under a police and
regulatory statute is covered by the exception. The court there reached the correct result (it is not), but it did so by
focusing on the wrong distinction. Instead of simply focusing on the parties involved, the court instead looked to
whether, in its view, the agency decision would affect anyone other than the parties before it. It concluded that it
would not directly do so in that case, but then neither would the decision to provide compensation to victims of
consumer fraud. That conclusion, though, ignores the educational and deterrent effect of litigation of individual
cases, and it assumes that the public has no interest in the outcome of the issues adjudicated between the private
parties. But if the legislature did not view the results of such cases as a matter of public interest, why would it have
established a specialized agency to hear the matters at issue in Hixson? In this regard, the situation is no different
than in the Mansfield cases where the Sixth Circuit had no difficulty in concluding that the public was interested in
having a workable system to compensate injured workers.

But when one reads the statue, that is not the point. One can readily assume that an action such as that in
Hixson may involve the public interests and regulatory matters, but the crucial difference set by the Code turns on
which party is bringing the action—the government as prosecutor or the private party as plaintiff. Unlike the public
policy test as courts now articulate it, which has no textual support, the Code clearly states that it only excepts
actions "by a governmental unit." Actions are not brought "by" judges, they are brought by plaintiffs. And by its
own terms, the Code only protects actions where the prosecutor is the plaintiff. The distinction can be seen even
more clearly in the legislative history, which states that "where a governmental unit is suing a debtor," the stay does
not apply. This clearly distinguishes between when the government is acting in its prosecutorial role, as opposed to
when it is merely serving as a neutral adjudicator. Even the literal phrasing of "public policy test" itself draws the
same distinction. It purports to contrast cases where the government is suing in the public interest versus when it is
merely adjudicating private rights. But this is like comparing apples to oranges. Prosecutors sue, courts

adjudicate—and never the twain shall meet. A prosecutor cannot adjudicate a right, whether public or otherwise. It
can only submit its arguments to a court and that body, in turn, can adjudicate private and public rights. One need
only focus on what role the government is actually playing in a given case.

In short, if Hixson had analyzed the issue solely in terms of who was bringing the case, then its reference
to an adjudication of private rights would both make sense, and would define the essential difference between two
separate governmental roles—as partisan advocate or as neutral adjudicator. Only the former fits the statutory
exception for a police and regulatory action brought by the government. When it merely adjudicates, it is not a party
bringing the action; it is only an observer of a dispute between private parties.¹⁷ This is true even where both
private and governmental parties can bring similar actions under the same statute. For instance, when the Equal
Employment Opportunity Commission (EEOC) prosecutes a race-discrimination case, the action is excepted from
the stay, even if the same litigation, when pursued by the individual victim under a "right to sue" letter, is
barred.¹⁸

Why does the statute make such a distinction? The answer is the same reason the Supreme Court has often
stated: Governments are different. Prosecutors are expected, by definition, to operate in the public interest, to take
into account a variety of global concerns and interests that private parties need not, and to act with judgment and
informed discretion.¹⁹ It is precisely those expectations that are the reason Congress gave governmental entities
greater rights to proceed than private parties. In Blatchford v. Native Village of Noatak, 501 U.S. 775 (1991), the
Supreme Court considered an argument that the right of the federal government to sue a state could be "delegated"
to an Indian tribe. The Court rejected that argument, stating, "The consent, 'inherent in the convention,' to suit by
the United States—at the instance and under the control of responsible federal officers—is not consent to suit by
anyone whom the United States might select; and even consent to suit by the United States for a particular person's
benefit is not consent to suit by that person himself." (Emphasis added.) Id. 501 U.S. at 785.

The same theme of government accountability was sounded in Alden v. Maine, 527 U.S. 706 (1999),
where the Court held that the federal government could not authorize private parties to sue states even though it

could do so, noting that "suits brought by the United States itself require the exercise of political responsibility for
each suit prosecuted against a state, a control which is absent from a broad delegation to private persons to sue
nonconsenting states." And in Federal Maritime Com'n. (FMC) v. South Carolina State Ports Authority, 535 U.S.
743 (2002), the Court rejected the argument that federal intervention at a subsequent stage of the case could validate
an earlier proceeding by a private party, reiterating that "the prosecution of a complaint filed by a private party with
the FMC is plainly not controlled by the United States, but rather is controlled by that private party... As a result,
the United States plainly does not 'exercise...political responsibility' for such complaints, but instead has
impermissibly effected 'a broad delegation to private persons to sue nonconsenting states.'" (citing Alden).²⁰

And in a context that is even closer to the automatic-stay situation, the Court held that an arbitration
agreement entered into by an employee could not limit the EEOC's ability to seek relief for that same individual. In
E.E.O.C. v. Waffle House Inc., 534 U.S. 279 (2002), the Court reversed a decision by the lower court that
distinguished between the award of prospective general injunctive relief that would benefit employees generally, as
opposed to narrowly tailored injunctive and monetary relief that would benefit the individual complainant. The
lower court had concluded that the values served by the arbitration agreement (like the automatic stay) should be
deemed to outweigh the benefit to be served by providing specific relief to the actual victim. The Court held,
though, that "the statute clearly makes the EEOC the master of its own case and confers on the agency the authority
to evaluate the strength of the public interest at stake. Absent textual support for a contrary view, it is the public
agency's province—not that of the court—to determine whether public resources should be committed to the
recovery of victim-specific relief." (Emphasis added). 534 U.S. at 290-91. In addition, the Court concluded,
"whenever the EEOC chooses from among the many charges filed each year to bring an enforcement action in a
particular case, the agency may be seeking to vindicate a public interest, not simply provide make-whole relief for
the employee, even when it pursues entirely victim-specific relief. (Emphasis added). 534 U.S. at 296. In short,
Congress has provided this legislative grant of authority and discretion to the EEOC, and courts should not
second-guess that determination.²¹ Nor should the courts assume that they can decide when victim-specific relief is
in the public interest—that decision is left to the public prosecutor.

In sum, the courts can greatly simplify their decision-making process by recognizing that the Supreme
Court has made clear that government prosecutions are in the public interest with no need to show more. So long
as there is no allegation of bad-faith conduct by the government, the only real issue that the court needs to review is
whether the government is appearing in the case as adjudicator or as prosecutor. Under that approach, the
government and the courts could devote less time to dealing with undefined—and undefinable—challenges to the
government's right to proceed and more time to the real issues in the case, such as seeking justice for those whom
the debtor is alleged to have victimized.

Footnotes

¹ The views expressed herein are those of the author, the bankruptcy counsel for the National Association of
Attorneys General, and should not be attributed to NAAG, any individual attorney general or any member of their staffs. Return to article

² See, e.g., In re First Alliance Mortgage Co. (Massachusetts v. FAMCO), 263 B.R. 99, 107-08 (9th Cir. B.A.P.
2001), and In re First Alliance Mortgage Co. (FTC et al. v. FAMCO), 264 B.R. 634, 646-47 (C.D. Cal. 2001)

(both finding that actions by state and federal government seeking consumer restitution were excepted from the
stay). Return to article

³ In re Dan Hixson Chevrolet Co. (Volkswagen of America v. Dan Hixson Chevrolet Co.), 12 B.R. 917 (Bankr.
N.D. Tex. 1981). Return to article

⁴ Chao v. Hospital Staffing Services Inc., 270 F.3d 374, (6th Cir. 2001). Return to article

⁵ See, e.g., In re Bel Air Chateau Hospital Inc., 611 F.2d 1248, 1250-51 (9th Cir. 1979) (Supreme Court's decision
in Nathanson v. NLRB, 344 U.S. 25 (1952), which held that the bankruptcy court should defer to the expertise of
the administrative agency, "strongly supported" the view that regulatory actions are not subject to Rules stay); In
the Matter of Shippers Interstate Service Inc., 618 F.2d 9, 11-12 (7th Cir. 1980) (same); In the Matter of The
Briarcliff, 16 B.R. 544, 546 (D. N.J. 1981) (rent control board proceeding not stayed); In the Matter of Canarico
Quarries Inc., 466 F. Supp. 1333, 1339-40 (D. P.R. 1979) (environmental licensing not barred); In the Matter of
Colonial Tavern Inc., 420 F. Supp. 44, 46 (D. Mass. 1976) (suspension of liquor licence for hours violation not
barred by stay, otherwise "Chapter XI would provide an instantly available, cheap and easy sanctuary from all
regulatory enforcement proceedings."). Return to article

⁶ "Under present law, there has been some overuse of the stay in the area of government regulation. For example, in
one Texas bankruptcy court, the stay was applied to prevent the state of Maine from closing down one of the
debtor's plants that was polluting a Maine river in violation of Maine's environmental protection laws. In a
Montana case, the stay was applied to prevent Nevada from obtaining an injunction against a principal in a
corporation who was acting in violation of Nevada's anti-fraud consumer protection laws." H.R Rep. No. 95-595,
95th Cong., 1st. Sess. 175, 177 (hereinafter "H.R. Rep."). See, also, In re Hillsdale Foundry Co., 1 Bankruptcy
Court Decisions 195 (W.D. Mich. 1974), where the court held that the state was barred from bringing an
environmental action against a notorious air polluter, and In the Matter of National Hospital and Institutional
Builders Co., 658 F.2d 39 (2d Cir. 1981), which held that the stay would bar a bad faith action by the state to
revoke the debtor's certificate of occupancy. Return to article

⁷ Sections 362(b)(4) and (5) originally were exceptions to §§362(a)(1) and (2), respectively. They were combined and
expanded in the new §362(b)(4) in 1998, which excepts civil police and regulatory actions from §§362(a)(1), (2), (3)
and (6). It now reads in pertinent part that the stay does not apply to "the commencement of continuation of an
action or proceeding by a governmental unit...to enforce such governmental unit's...police and regulatory power..."
The language in the original §362(b)(4) was essentially the same. Return to article

⁸ See, e.g., In re King Memorial Hospital Inc., 4 B.R. 704 (Bankr. S.D. Fla. 1980) (enforcement of state "certificate
of need" was stayed because it did not involve issue of "urgent protection of the public health and welfare"), and In
re Theobald Ind. Inc., 16 B.R. 537, 538-39 (Bankr. D. N.J. 1981) (NLRB proceeding was "essentially monetary in
nature" and did not involve public health and safety; decision, though, was based on discretionary stay). The

Theobald judge, however, later concluded in In re Nicholas, 55 B.R. 212 (Bankr. D. N.J. 1985), that the automatic
stay did not apply to NLRB actions and a discretionary stay would not be granted. In addition, the decision in
Theobald was vacated when a settlement was later reached in the case. Return to article

⁹ See, e.g., S.E.C. v. First Financial Group of Texas, 645 F.2d 429 (5th Cir. 1981) (agency could seek
appointment of temporary receiver since the action served to preserve rather than dismember the estate); Donovan v.
TMC Industries Inc., 20 B.R. 997 (N.D. Ga. 1982) (action by secretary of labor to enjoin shipment of goods made
in violation of Fair Labor Standards Act until "taint" had been removed by remedying violation was not stayed); In
re LaPorta, 26 B.R. 687 (Bankr. N.D. Ill. 1982) (action by secretary of labor to determine if debtor violated Service
Contract Act by underpaying employees not aimed at protecting government's pecuniary interests); Marshall v.
International Formal Wear Inc., 6 B.C.D. 477 (S.D. Ga. 1980) (action to determine wages due under the Fair
Labor Standards Act were not stayed). Return to article

¹⁰ In re Coporacion de Servicios Medicos Hospitalarios de Fajardo, 805 F.2d 440, 445-46 (1st Cir. 1986)
("actions by a governmental agency to enforce [its] contractual rights," even if related in some way to a regulatory
concern, are not police and regulatory; there was no showing that the government's actions were based on any
generally applicable regulatory law, as opposed to rights solely derived from terms of contract). Return to article

¹¹ In re Commonwealth Companies Inc., 913 F.2d 518, 524 (8th Cir. 1990), citing Penn Terra Ltd. v. Department
of Envtl. Resources, 733 F.2d 267, 274 n. 6 (3d Cir.1984). Return to article

¹² See U.S. v. Nicolet Inc., 857 F.2d 202, 209 (3rd Cir. 1988) (government suit would not be excepted when the
government is "suing in its role as a consuming participant in the national economy"), and Coporacion, supra, note
9. Even in such cases, there will be times where the government will still be exercising regulatory powers. The need
to deal with fraud or other abuse can provide a regulatory component even to contract actions (In re Commonwealth
Companies Inc., 913 F.2d 518, 523-25 (8th Cir. 1990) (suit brought under False Claims Act did not violate
"pecuniary purpose" test even though it involved government contract)) and to tax issues (In re Universal Life
Church Inc., 128 F.3d 1294 (9th Cir. 1997) (government action to revoke church's tax-exempt status not stayed,
even though making church contributions taxable would obviously be in government's financial interest)). Return to article

¹³ See In re State of Missouri, 647 F.2d 768 (8th Cir. 1981) (state effort to maintain receivership over grain
elevators in which debtor held small amount of grain violated §362(a)(3)); Hillis Motors Inc. v. Hawaii Auto.
Dealers' Ass'n., 997 F.2d 581 (9th Cir. 1993) (state action to dissolve defunct corporation during bankruptcy
violated §362(a)(3) because it exercised control over property of the estate). Actually, the real problem in these cases
was not that the action was not police and regulatory, but rather that it ran afoul of §362(a)(3), which at the time
was not covered by the exception. Even before the 1998 amendments, though, many courts recognized that an
overly narrow reading of the stay exception, as it applied to actions affecting estate property, could have untenable
results when clear regulatory interests were at stake. See Javens v. City of Hazel Park, 107 F.3d 359, 367-70 (6th
Cir.1997) (state could raze unsafe building even though this "controlled" property of the estate), and In re Yellow
Cab Coop. Ass'n., 132 F.3d 591, 598-99 (10th Cir. 1997) (government could not be barred from enforcing
regulatory limits on number of cab licenses to be transferred). The 1998 Code amendments were supported by the
government in order to resolve this tension. In Chao, 270 F.3d at 383-85, the Sixth Circuit treated the automatic
stay exceptions as an implicit, pro tanto limitation on the bankruptcy court's exclusive jurisdiction under 28
U.S.C. §1334. Return to article

¹⁴ Virtually the only action that might make its way through a rigorous application of both tests might be an
environmental suit seeking injunctive relief to improve general air or water quality. Even then, such actions
probably have a greater impact on some individuals than on the community and could be argued as being directed to
their private rights, not the general good. Return to article

¹⁵ Chao, 270 F.3d at 389-94. In that case, the secretary of labor had brought an action similar to that in TMC,
supra, note 8, to enjoin transfer of goods in commerce that had been produced in violation of the Fair Labor
Standards Act. The panel majority held that it could undertake a de novo review of the balance between the public
interest and the private rights being served by the particular prosecution. It was not enough to look at the purpose
of the statute; rather, the court must microscopically analyze the particular suit and bar any action where it

concluded that the public interest did not predominate. The majority held that an action to decide back-pay damages
only protected the public interest if the debtor was still operating, in which case the public interest would be served
by eliminating its unfair competition. Since this debtor was out of business, no further competition could occur
and, hence, the government's suit was barred by the stay. The third judge dissented vehemently from this position,
noting that it was inconsistent with decisions in other circuits and, indeed, within the Sixth Circuit. Return to article

¹⁶ Chao makes this point clear in stating that "the existence of the public policy test naturally presumes that some
suits by governmental units, even though they would effectuate certain declared public policies, will nevertheless
be regarded as largely in furtherance of private interests." (emphasis added). 270 B.R. at 389. Not surprisingly, the
court conceded that it was not easy for it to tell which public policy actions were not really in the public interest. It
even suggested that legislatures might make any breach of contract a violation of law subject to state prosecution,
but ignored the political realities discussed above which make such a scenario a practical impossibility.

This level of micro-management seems to violate the Supreme Court's holding in Board of Governors of Federal
Reserve System v. MCorp Financial Inc., 502 U.S. 32, 40 (1991), that courts should not be in the business of
scrutinizing the validity of enforcement actions in making the stay determination. "Such a reading [of the Code] is
problematic, both because it conflicts with the broad discretion Congress has expressly granted many administrative
entities and because it is inconsistent with the limited authority Congress has vested in bankruptcy courts." It
added, "we are not persuaded, however, that the automatic stay provisions of the Bankruptcy Code have any
application to ongoing, nonfinal administrative proceedings." Id., 502 U.S. at 41. While the issue was somewhat
different there, the Court's view that deference should be accorded to administrative decision-makers is clear. Return to article

¹⁷ Even there, some cases would take an opposite view. Ironically, in light of Chao, the Sixth Circuit actually took
a very broad view in Mansfield Tire and Rubber Co. (Ohio v. Mansfield Tire and Rubber Co.), 660 F.2d 1108 (6th
Cir. 1981). There, it held that the determination of individual workers' right to worker's compensation benefits was
excepted from the stay, even though there was no government prosecutor involved. Most courts now would be more
likely to find that the stay applied but that the bankruptcy court should lift the stay and defer to the agency's
expertise in resolving these claims. The court's decision here was likely influenced by practice under the Act where
there was no explicit stay exception, and the analysis tended to collapse the two issues of whether the stay applied
and whether it should be lifted into a single analysis. Return to article

¹⁸ Compare EEOC v. Rath Packing Co., 787 F.2d 318 (8th Cir. 1986) (government action not stayed) with Place v.
California Webbing Industries Inc., ___ F.Supp.2d ___, 2003 WL 1798958 (D. R.I., Apr 03, 2003) (private action
stayed); In re Pincombe, 256 B.R. 774 (Bankr. N.D. Ill. 2000) (same); In re America West Airlines, 148 B.R. 920
(Bankr. D. Ariz. 1993) (same). Compare, also, In re 1736 18th Street N.W. Ltd. Part., 97 B.R. 121 (Bankr. D.
D.C. 1989) (rent control action by tenants barred by stay), with In re Berry Estates Inc., 812 F.2d 67 (2d Cir.
1987) (rent control action brought by state not barred). Return to article

¹⁹ And no, governments do not always achieve those objectives, any more than any other human institution—but
they are expected to strive for those goals in ways that private parties with no obligation to any interest but their
own are not expected to. Return to article

²⁰ Compare Chao v. Virginia Dept. of Transp., 291 F.3d 276, 281 (4th Cir. 2002), which allowed a suit, brought
by the United States seeking wage benefits for private individuals, to proceed, noting that the United States was the
true party in interest in bringing suit where "the secretary's suit has the political control found lacking in New
Hampshire v. Louisiana, 108 U.S. 76, 2 S.Ct. 176, 27 L.Ed. 656 (1883). The case is being litigated by lawyers
within, and is under the full control of, the Executive Branch." (Emphasis added). The suit was allowed even
though an earlier action by the private plaintiffs had been barred by the Eleventh Amendment. Return to article

²¹ The Court also emphasized the substantial screening function undertaken by the EEOC. It noted, in footnote 7,
that of the 80,000 charges received by the EEOC, the agency found reasonable cause in 798—but only filed 291
suits. This plain evidence of the exercise of prosecutorial discretion weighed heavily with the Court. Return to article