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S. 610 Chemical Weapons Convention Implementation Act of 1997

Submitted by webadmin on

To implement the obligations of the United States under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, known as `the Chemical Weapons Convention' and opened for signature and signed by the United States on January 13, 1993.

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Senate
105
S. 610: Chemical Weapons Convention Implementation Act of 1997

S. 610 Chemical Weapons Convention Implementation Act of 1997

Submitted by webadmin on

To implement the obligations of the United States under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, known as `the Chemical Weapons Convention' and opened for signature and signed by the United States on January 13, 1993.
MEMORANDUM

In Further Response to Prof. Bruce Markell Re: Section 603 of Chemical Weapons
Convention Implementation
Act

Editor's Note:

Other Commentary on Section 603 of S. 610:

Professor Markell has now responded to my comments on his article about the proposed
revisions to the automatic stay that are contained in S. 610, the implementing legislation for the
Chemical Weapons Bill. He attacks the process by which the language was included and disputes
whether the bill says what it means. What he conspicuously fails to do is engage the real issue
here: namely, what should be the proper scope of the police and regulatory exception. If
there is agreement on that point, then it matters little whether Congress arrived at that conclusion
on its own or whether it recognized and built on the work of the Commission. (In this regard, I
would reiterate the point I made previously — while NAAG is obviously in agreement with
this proposal, it did not contact the Senate or request that this issue be dealt with in this
bill. To the contrary, the government has raised these issues with the Commission from day one
and proposals have been presented to and debated extensively before the Government Working
Group and the Commission as a whole. Indeed, the Commissions's current working proposal
endorses much, albeit not all, of this proposal. That is all that the government did.) It
does little to advance the debate to engage in ad hominem references to "lobbyist-supported and lobbyist-drafted language" to describe actions that are no different from those of
every other participant in the process before the Commission (including, of course, the good
Professor himself.)

I also find offensive Professor Markell's statement, that the government's position that the
proposal excludes payment of monetary judgments is bad drafting, at best, and "dissembling," at
worst. The government has stated explicitly and unequivocally in every discussion there has been
of these issues that it does not seek to change the current system by which it may
liquidate, but not collect, monetary judgments obtained in police and regulatory actions.
Professor Markell can hardly deny that the proposed language, by incorporating the limitation that
is presently contained in §362(a)(5), at least evinces an effort to retain that distinction
— and Commissioner Edith Jones of the 5th Circuit
has indicated that she reads the proposal in the same way that the government does. While
ambiguity in drafting is an ever-present hazard, accusing a proposal's proponents of undertaking
the effort in bad faith is unlikely to advance the dialogue. In any event, fighting over the current
language, I suggest, misses the point. If the debate would, instead, focus on reaching agreement
on what the scope of the exception should be, it should certainly then be possible for
persons of good will to ensure that the proposal does correctly state that understanding.

Turning to the merits of this debate, then, the government believes that there is a
great need to clarify the existing language in §362. Congress has already made clear that it
wishes to allow the normal police and regulatory processes to go on, even in situations where
enforcement of the regulatory decision would, inevitably, affect estate property. Having made the
policy judgment to allow the process to proceed to that point, it will only be in rare situations that
the bankruptcy court will have any power to bar the government from implementing the
order. This is not because government actions are unique; rather, it is simply an inescapable result
of the Full Faith and Credit Clause — like every other court, a bankruptcy court is not
authorized to relitigate the merits of determinations made by other courts with jurisdiction to hear
the case. If one accepts that simple principle of jurisprudence, then it follows logically that a
bankruptcy court can refuse to allow the enforcement of those governmental orders only

if it decides that it can disregard the finding that the debtor is violating the law and authorize that
lawbreaking if this is what is necessary to assist the debtor's reorganization. I challenged
Professor Markell in my initial response to find authority in the Bankruptcy Code for placing such
startling and far-ranging authority in the bankruptcy courts and I renew that challenge now.

I submit that there is no such general authority. (Congress clearly knows how to make the
Code govern, "notwithstanding applicable non-bankruptcy law" in treating matters such as
executory contracts — but there is no such statement with respect to police and regulatory
actions.) Yet, despite the fact that the court will have virtually no discretion, at that stage of
the proceedings, to deny the government's request to enforce its order, the current language
in §§362(a)(3) and (6) can be read to hold that the implementation of such orders is
barred until the court carries out the ministerial act of lifting the stay. The proposed language was
meant to eliminate the need for the government to take that additional step, because it is an
unnecessary source of cost and delay and encourages debtors to seek to relitigate matters which
have been finally adjudicated.

  • That is not to say that the bankruptcy court will never have the power to enjoin police and
    regulatory actions. Clearly, it may act on a motion by the debtor that challenges the government's
    assertion that is exercising police and regulatory authority. In addition, even if the action is
    ostensibly covered by the governmental exception to the stay, the court may still enjoin use of
    applicable non-bankruptcy principles, such as bad faith or equitable estoppel, to enjoin the
    government. Excepting an action from the automatic stay does not immunize the government
    from such motions; at most, it merely presumes the regularity of the government's actions and
    requires the debtor to affirmatively raise the issue if it believes the government is not acting
    properly. Thus, while I may debate Professor Markell's view that check prosecutions are "bad
    faith" actions, the fact is that motions to enjoin the government on that basis are routinely filed
    (and usually denied) in criminal cases, even though such cases are exempt from all
    aspects of the stay. Ipso facto, the debtor is entitled to raise the issues in civil
    proceedings. Allowing challenges on these limited bases, though, is a far cry from an assertion
    that the court has a general authority to enjoin the government so as to allow the debtor
    to continue to break the law.

    Moreover, even though I agree that these challenges may be made, if they are raised at
    the appropriate time    , I strongly disagree with the assumption that the debtor should be able
    to use §362(a)(3) as the basis for seeking a plenary, de novo review of these issues

    after the regulatory process is complete and the government is prepared to implement its
    order. Waiting to conduct such a review until that point, I suggest, comes far too late in the
    process. In all but the most unusual cases, these issues will be apparent and ripe for decision as
    soon as the government begins its regulatory actions. When the government continues an
    enforcement action after a bankruptcy filing, it does so, perforce, based on the assertion (whether
    explicit or implicit) that its actions are justified by the police and regulatory exception and are not
    being taken in bad faith. If the debtor disagrees with that position, it can and I suggest
    must timely assert them, either before the bankruptcy court by means of a requested
    injunction, or in the nonbankruptcy proceedings as an affirmative defense, long before the final
    judgment is reached. It makes neither legal nor logical sense to suggest that a debtor may allow
    the litigation process to run its course in state court and only then raise these issue before the
    bankruptcy court if the results prove unfavorable. The non-bankruptcy court may have explicitly
    ruled on these issues — and, if so, its judgment is entitled to full faith and credit. But, even
    if it did not, the principles of res judicata dictate that these defenses must be raise at an
    appropriate time or they will be waived. It is one thing to say that the government must be
    prepared to defend its actions if the debtor challenges them in a timely fashion; it is quite another
    to say that the reason for retaining §§362(a)(3) and/or (6) is to ensure that debtors
    may have this very belated bite at that apple.

    Some may view these arguments as overly technical or legalistic. Why not, after all, let the
    bankruptcy court, the "authority" on the automatic stay, decide those issues once they are really
    "crucial?" Or why not let the bankruptcy court "balance" the important goals of the Code against
    the regulatory requirements of the other statute? Why not indeed. While these arguments may
    seem tempting, they are based on the notion that bankruptcy is an area in which normal rules of
    jurisprudence simply don't apply — and that is a very dangerous slope to begin to venture
    down. Moreover, while there may seem to be little harm in allowing judges to exempt a debtor
    "just this once" from just this little "technicality," the legal and practical drawbacks to granting
    such unbounded authority to judicial actors are insurmountable. What standard would they use to
    "balance" a goal against a law? What evidence would be admissible to prove the "need" for the
    law? What presumption of validity would be accorded to the conclusions of the statute's drafters
    on those issues? Perhaps most importantly, how would the interests of third parties like neighbors
    and competitors be recognized in this process? Professor Markell does not like legislatures
    passing laws without notice and comment — surely he does not suggest that a court should
    be allowed to override a duly-enacted law without according those same rights to
    everyone affected by the change?

    All of this suggests why we believe the present proposal is necessary. Professor Markell
    disagrees and argues that there is no reason why the current legislation should go beyond
    language dealing with chemical weapons inspectors. His proposal is flawed for several reasons:

    • First, if a change is made only with respect to chemical weapons, this would
      strongly suggest, by negative implication, that §§362(a)(3) and (6) do apply
      to bar all other governmental police and regulatory actions that may affect estate property. The
      courts are currently split on these issues, but adopting Professor Markell's proposal would
      strongly suggest to them that the argument should be resolved against the government. Thus, his
      change would not be neutral, but would leave regulators in a weaker position than they are now
      — which directly contradicts the recommendation from the Working Group of the
      Bankruptcy Review Commission that the government's ability to act should be
      strengthened.

    • Second, while chemical weapons are undoubtedly dangerous, in reality, the number of
      filings involving such parties are likely to be minuscule, at best. If it's important to ensure that the
      government can act in those highly unlikely cases, why is it any less important to ensure that it
      may act in the more mundane, but far more likely, situations that occur? Shutting down an
      unsanitary restaurant without delay, for instance, does not have the glamour of seizing chemical
      weapons — but is far more likely to actually prevent illness and death. Granted, most courts
      will probably overlook the "technical" violation that occurs when the health inspectors padlock
      the doors without obtaining relief from the stay, but should a government be forced to
      operate this way — protecting the public good only at its peril and under the constant threat
      of contempt sanctions? I suggest that is no way to run a railroad —or a government.

    • Finally, Professor Markell's suggested language does not deal with §362(a)(6)
      and he continues to profess a lack of understanding as to why the proposal in S.610 deals with
      that section. The reason is simple. By its terms, that section prohibits any act to collect
      or recover on a pre-petition claim — words which, applied literally, cover far more than just
      attempts to receive actual payment of one's claim. Debtors have frequently argued that
      the section should be applied according to its literal terms, so as to bar even regulatory actions
      that are explicitly covered by the section 362(b)(4) and (5) exceptions. In their view, every act
      that the government takes, from the first filing of a complaint to the last appeal, is simply a step
      along the way to collecting on the claim and, as such, is barred. Again, to be sure, most courts
      view that interpretation of the section as "absurd," and rewrite its language so that it does not
      apply to actions that are otherwise excepted from the stay. But, so long as the words are as broad
      as they are, they will invite unnecessary litigation. If the section were rewritten to narrow it to its

      intended scope; i.e., nonjudicial acts of harassment or coercion, then there might
      be no need to have a governmental exception to it. Until then, though, it is important to clarify
      that it does not apply to normal police and regulatory litigation and that is what the language in
      S.610 attempts to do, by allowing enforcement of regulatory judgments, while excepting the
      enforcement of money judgments.

    Finally, Professor Markell returns to Seminole as a reason for retaining the
    automatic stay. Much of the debate on this topic seems to proceed on the notion that state laws
    allow government officials to seize money and assets of the estate in blithe disregard of the Due
    Process Clause. Obviously that is not the case. Indeed, the vast majority of police and regulatory
    seizures will only take place after prolonged bureaucratic wrangling so the debtor will have ample
    opportunity to name the appropriate state official (rather than the state directly) and request an
    injunction against the actions being threatened by that official. Moreover, even where tangible
    assets or a bank account are seized or frozen without a preliminary hearing, it may still be possible
    to obtain injunctive relief against the state official to obtain the return of the items, so long as the
    debtor retains an ownership interest in the property. Finally, as to the small number of cases that
    may remain, I am confident that there be some forum where monetary claims against a state may
    be heard in virtually all instances. State politicians must answer to their constituents, after all, and
    those persons are unlikely to allow the government to trample on them without an opportunity for
    redress for long. Those state forums, in turn, are required to enforce federal laws equally with
    state laws.

    Failing to do so is unconstitutional and would be subject to appeal to the state Supreme Court
    and to the United States Supreme Court. While in an occasional case, the need for such review
    may result in greater cost and delay than would occur if the states were fully amenable to suit in
    bankruptcy court, this is part of the price we pay for our federal system. (Indeed, the frequent
    efforts by debtors to use bankruptcy as a means of shifting pending state court litigation to
    bankruptcy court has its costs as well, but that too is part of the system.) In any event, the
    Supreme Court has spoken and Seminole is the law of the land. In my view, the cases
    where Seminole will raise substantial issues will be far fewer than those where it is
    important to clarify the government's ability to act to protect its citizens during a bankruptcy
    case. That is what this amendment is about, and I continue to believe it is necessary and
    appropriate.

    • ABI Tags
    Senate
    105

    S. 610 Chemical Weapons Convention Implementation Act of 1997

    Submitted by webadmin on

    To implement the obligations of the United States under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, known as `the Chemical Weapons Convention' and opened for signature and signed by the United States on January 13, 1993.

    ABI Tags
    Senate
    105
    S. 610: Chemical Weapons Convention Implementation Act of 1997

    S. 610 Chemical Weapons Convention Implementation Act of 1997

    Submitted by webadmin on

    To implement the obligations of the United States under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, known as `the Chemical Weapons Convention' and opened for signature and signed by the United States on January 13, 1993.
    MEMORANDUM

    Re: Section 603 of Chemical Weapons Convention Implementation
    Act

    Editor's Note:

    Other Commentary on Section 603 of S. 610:

    Also included in this response: A letter to Rep. Lee H. Hamilton
    and a proposed section addressing concerns regarding the automatic
    stay.

    Karen Cordry has written a spirited defense of proposed revisions to the exemptions from the
    automatic stay. I have the following brief points in reply:

    • I fully support exemptions to the stay for chemical weapons teams. That, however is not
      the
      issue.

    • There are two types of issues that divide Ms. Cordry and me: process issues; and
      substantive
      issues.

    • The process issues involve how we should go about amending the Bankruptcy Code. I
      do
      not believe that lobbyist-supported and lobbyist-drafted language should go into the Code without
      any hearings on the matter, and without giving other interested parties a chance to comment.
      Further, the National Bankruptcy
      Review Commission       debated this very topic last fall, and took no action after that debate.
      The Commission revived the topic this June, but has still not acted. Thus, if Congress enacts
      Section 603, not only will the normal hearing and comment process be short-circuited, but
      Congress will ignore the deliberations of the body it created to advise it on the necessity of
      proposed changes to the Code.

    • On the process issue, my colleague Douglass Boshkoff and I have written to
      Representative
      Lee Hamilton, who is the sponsor of the companion bill in the House (H.R.
      1590      ). We have urged him not to add language similar to Section 603 to the
      House bill, or to any final bill approved by the House. We have also drafted language which
      addresses the narrow concern presented by the Chemical Weapons Convention which could be
      used instead of Section 603. That letter is reprinted below, as well as
      the proposed alternative language. Anyone who wishes to write to
      Representative Hamilton may do so using the address on our letter.

    • The substantive issue is Ms. Cordry's assertion that the changes are "inevitable" and that
      without the unfettered ability of government agencies to unilaterally seize a debtor's property "a
      civilized society cannot function." I note that the provisions at issue have been in the Code for
      almost 20 years, and the world as we know it has not ended yet.

    • There is a further substantive point. The proposed language is badly drafted. The
      inclusion
      of an exception to §362(a)(6) is a key (but not only) example of the overbreadth. Section
      362(a)(6) stays any action "to collect, assess or recover a [pre-petition] claim against the debtor .
      . . ." If the bill becomes law, then a government entity could use its police or regulatory power to
      collect or recover a debt if it is doing so pursuant to its police and regulatory power. That is what
      the language says. As I stated before, I don't know what this means, but I submit that it means
      more than a "simple clarif[ication] that the extremely broad language in that section should not be
      used to bar legitimate governmental actions . . . ." And I will wager that members of Ms.
      Cordry's organization will likely say that it means more than that as well. Given that it would be
      relatively easy to draft language which specifically addresses the Chemical Weapon Convention
      concerns, one wonders why this overbroad and confusing language is being proposed.

    • In addition, in Ms. Heitkamp's memorandum explaining the bill, the assertion is made, in bold type,
      that: "The proposal, however, specifically excludes the enforcement of monetary judgments from
      the police and regulatory power exception." I disagree. The relevant language states that there
      are exemptions for:

      • the commencement or continuation of an action or proceeding by a governmental unit . . .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 . . . police or regulatory
      power."

      I do not see how this language "specifically excludes" money judgments. Indeed, it does the
      opposite. Under the Code, "includes" is not limiting. Section 102(1). Thus the
      bold-faced language above does not limit the general language by excluding anything. It
      is
      an explanatory appositive. At best, Ms. Heitkamp's statement is bad interpretation; at worst it is
      dissembling.

    • Ms. Cordry's response
      also seems to assume that once a state or government passes a law, of whatever type, bankruptcy
      courts must enforce it unless it is unconstitutional. That is not my understanding of the law. For
      example, bankruptcy courts can (although for good reasons they often don't) enjoin bad faith
      criminal prosecutions for writing bad checks if the purpose of that prosecution is to aid private
      recovery. See Collier on Bankruptcy ¶105.03[3][c]. I suspect a bankruptcy court
      could also apply the same reasoning (using Younger v. Harris reasoning) to a civil
      forfeiture statute that was drafted and being used for the purpose of augmenting tax coffers,
      rather than protecting the public.

    • Ms. Cordry likewise raises the Supremacy and Due Process Clauses to my analysis of
      the
      Court's Seminole decision. Talking about Seminole in an abbreviated forum such
      as this is problematic, but let me try again: Seminole may (and time will tell) have two
      components: a jurisdictional bar, and a federalism overlay. Initially, if all the decision did was to
      move the dispute to state instead of federal court, I would grumble about the erosion of the goal
      of having the bankruptcy court as the single forum to resolve disputes, but I wouldn't object too
      loud. State courts are competent. But that is part of the problem. Once you get into state court,
      you are suing the sovereign that established that court. Competent state court judges will then
      notice that there are state sovereign immunity concerns, particularly with money judgments. In
      short, even if the state court has jurisdiction over the state, the state may have a complete and
      total affirmative defense: sovereign immunity. If the state has not seen fit to waive sovereign
      immunity, I think the bankrutpcy estate is in a quandry. Does it then have to go into federal court
      alleging that the failure to waive sovereign immunity is unconstitutional? Does it appeal that
      decision to the State Supreme Court? If the Eleventh Amendment means what it says, where is
      the jurisdiction for the any federal district court (or indeed, the U.S. Supreme Court) to hear the
      case against the state? How is a harmed debtor to collect? Even if my immunity analysis is
      flawed (and I hope it is) haven't we just increased the cost of proving that the state has proceeded
      unconstitutionally, thereby ensuring practical immunity for the state in cases involving amounts
      where the cost of litigation is less than the amount at issue? Especially in an area where we are
      concerned with insolvent estates, I question the wisdom of this approach.

    • Finally, Ms. Cordry suggests that if the bankruptcy bar does not like civil forfeiture laws
      (which appear to be the focus of much of this debate), then they should go to Congress to get
      them changed. I agree with that suggestion. I suspect, however, that Ms. Cordry would like to
      get advance notice of the proposed changes so that she could express her organization's view to
      Congress (even though some changes are inevitable), would expect Congress to at least listen to
      agencies created to study the legislation, and would not expect to see the changes for the first
      time after they had been opportunistically tacked-on to an unrelated bill. At least I think those
      would be her expectations.

    The Honorable Lee H. Hamilton,

    Member, United States House of Representatives

    9th Congressional District, Indiana

    2314 Rayburn House Office Building

    Washington, DC 20515-1409

    Re: Changes to Bankruptcy Code (title 11, U.S.C.) Contained in H.R. 1590 (Chemical
    Weapons Convention Implementation Act of 1997)

    Dear Representative Hamilton:

    We teach bankruptcy and commercial law at Indiana University School of
    Law—Bloomington. We write to you in your capacity as sponsor of H.R. 1590, the
    Chemical Weapons Convention Implementation Act of 1997 ("Chemical Weapons Convention.").

    As you know, the Senate passed a similar bill on May 23 (S. 610), and that bill was
    introduced in the House on June 10, 1997.

    We write to point out that S. 610 contains a provision (Section 603) amending title 11 (the
    Bankruptcy Code) in ways wholly unrelated to the needs of assuring compliance with the
    Chemical Weapons Convention. One of us has written on Section 603, and we include that article
    with this letter. To summarize, however, Section 603 purports to modify bankruptcy's automatic
    stay—a provision necessary for orderly liquidation and efficient reorganization—to
    allow entities charged with enforcing the Chemical Weapons Convention to dispense with
    bankruptcy court approval for any actions taken when dealing with debtors in bankruptcy.

    While it certainly does this, it does far more. In addition, it would permit federal, state and
    local governments to seize or take control of any property of a debtor in bankruptcy so long as
    the seizure was for "police or regulatory power," regardless of whether the
    governmental entities' activity has any relation to the Chemical Weapons Convention.
    This power is new, controversial and would amend a provision of title 11 that has been unchanged
    since the adoption of the current Bankruptcy Code in 1978.

    Although we think the proposed amendment unwise, our concerns are more fundamental.
    We do not think Congress should amend the Bankruptcy Code in such a piecemeal basis. In
    1994, Congress created the National Bankruptcy Review Commission in part to address this
    problem, and that body debated the advisability of similar changes as recently as June 20, 1997. It
    has yet to reach a consensus. Moreover, the Senate held no hearings, and as far as we know,
    invited no comment beyond that of the National Association of Attorneys General who suggested
    the amendment. Changes of the type proposed by Section 603, especially when the National
    Bankruptcy Review Commission is debating similar changes, deserve better and wider input from
    interested parties.

    To the extent the bankruptcy concerns addressed by Section 603 are valid, we include a
    revised section which only permits relief from the automatic stay for purposes of enforcing the
    Chemical Weapons Convention. We believe this section addresses all legitimate concerns.

    In summary, we urge you to resist efforts to change H.R. 1590 bill to conform to Section 603
    of S. 610. To the extent that some modification of the automatic stay is necessary, we urge you
    to go no further than the text we have supplied.

    Thank you for your time.

    Very truly yours,
    Douglass Boshkoff

    Robert McKinney Professor of Law (Emeritus)

    Bruce A. Markell

    Professor of Law


    Proposed Section Addressing Concerns Regarding Automatic Stay

    Section 362(b) of title 11, United States Code, is amended—(1) by adding a new paragraph
    (19) which would read as follow:

    "(19) under paragraph (1), (2) or (3) of subsection (a) of this section, of the commencement or
    continuation of any action or proceeding, or the taking of any action, by any person or
    governmental unit exercising authority under the Convention on the Prohibition of the
    Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction,
    opened for signature on January 13, 1993."

    ABI Tags
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    105

    S. 610 Chemical Weapons Convention Implementation Act of 1997

    Submitted by webadmin on

    To implement the obligations of the United States under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, known as `the Chemical Weapons Convention' and opened for signature and signed by the United States on January 13, 1993.

    ABI Tags
    Senate
    105
    S. 610: Chemical Weapons Convention Implementation Act of 1997

    S. 610 Chemical Weapons Convention Implementation Act of 1997

    Submitted by webadmin on

    To implement the obligations of the United States under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, known as `the Chemical Weapons Convention' and opened for signature and signed by the United States on January 13, 1993.
    Big Changes in Stay Exemptions Brewing


    Written by:

    Bruce A. Markell

    Professor of Law

    Indiana University School of Law—Bloomington

    bmarkell@polecat.law.indiana.edu

    Web posted and Copyright ©
    June 25, 1997, American Bankruptcy
    Institute    .

    Editor's Note:

    Other Commentary on Section 603 of S. 610:

    The Changes

    here
    are some potentially large changes to the automatic stay brewing in Congress. The Chemical
    Weapons Convention Implementation Act of 1997", S. 610, which
    passed the Senate on May 23, and
    which was introduced in the House on June 10, has changes to the exemptions to the automatic
    stay which go way beyond Chemical Weapons treaties.

    The full text of Section 603 of the bill, which would make the changes, is reproduced below. In essence, the changes increase the current exemptions from the
    stay for governmental entities seeking to enforce any police or regulatory power (it is
    not limited to actions under the Chemical Weapons Treaty).

    Section 603 accomplishes this sweeping change by first eliminating the current exemptions for
    police and regulatory activity (§§362(b)(4) and 362(b)(5)). It then replaces them
    with an omnibus exemption for any actions stay by §362(a)(1) (the commencement or
    continuation of an action on a pre-petition claim), §362(a)(2) (the enforcement of a
    pre-petition judgment), §362(a)(3) (any act to take possession or control of property of the
    estate or of the debtor) and §362(a)(6) (any act to collect, assess or recover a pre-petition
    claim). The exemption will apply if the actions are "the commencement or continuation of an
    action or proceeding by a governmental unit . . . 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
    . . . police or regulatory power."

    Similar changes do not appear in the House companion bill, HR 1590,
    sponsored by Lee Hamilton of Indiana.

    Current Law

    Under current law, a governmental entity is not restricted in enforcing its police or regulatory
    powers so long as it does not try to take possession or exercise control over property of the
    estate. For example, the government can continue or initiate a criminal prosecution and can
    initiate an injunctive proceeding to stop pollution, even if such activities relate back to a period
    before the petition.

    What the government cannot do, however, is take control of estate property, in part because
    it is within the exclusive jurisdiction of the bankruptcy court under §1334(e) of the Judicial
    Code (title 28, U.S.C.). For example, the government cannot take control of transferrable liquor
    licenses, or exercise its regulatory powers for private gain. If there is any question, the
    government can always seek relief from the stay, in many cases on an ex parte basis
    (depending on the emergency), and if there is a problem with any legitimate action, the stay can
    always be retroatively annulled. (Technically, §§362(b)(4) and (5) currently contain
    no exemptions for actions stayed under §362(a)(3)).

    Effect of the Changes

    Under the change contained in Section 603 of the Chemical Weapons bill, governmental entities
    need not worry about the stay if they determine that their action fits within police or regulatory
    power. This is because it adds, for the first time, exemptions to §362(a)(3) and
    §362(a)(6) for any exercise of police or regulatory powers by governmental entities. If
    adopted, §362(b) would exempt, for example, the seizure and destruction of T-shirts in the
    debtor's warehouse if they violate copyright law. It could also conceivably be used to justify the
    seizure and sale of a $1000 care containing $100 of contraband drugs, with the legitimate $900
    profit going to tax coffers instead of creditors. [Note: at least one circuit has held that civil
    forfeitures relating to pre-petition exemptions are already exempt from the stay. In re
    James    , 940 F.2d 46 (3d Cir. 1991). There are, however, cases that go the other way: See
    In re Goff    , 159 BR 33 (Bankr. N.D. Okla. 1993); In re Thomas, 179 BR 523 (Bankr.
    E.D. Tenn. 1995) (post petition seizure); In re Ryan, 15 BR 514 (Bankr. D. Md. 1981).]

    Exceptions for Collection Activity?

    The bill also permits, by including an exemption to §362(a)(6), governmental action
    pursuant to the police or regulatory power in order to collect a debt. (§362(a)(6) stays
    "any act to collect, assess or recover a [pre-petition] claim.") I can't figure that one out, but I
    guess some court will have to.

    Double Whammy:

    Seminole and the Exemption from §362(a)(3)

    This legislation is particularly troubling in light of the uncertainty caused by the Supreme Court's
    decision in Seminole Tribe of Florida v. Florida, 116 S.Ct. 1114 (1996). Under some
    readings of Seminole, the states (but not municipalities) are immune, under the Eleventh
    Amendment, from jurisdiction in bankruptcy court. If so, whether they may be sued in state court
    then turns on the status of sovereign immunity under state law.

    This leads to the specter of a state making a unilateral determination that a seizure is
    permitted by its interpretation of its police and regulatory powers, and then never having
    that issue reviewed in any court, federal or state. To put it in context, if a state
    determines that products manufactured by a debtor violate state unfair trade law, and if state law
    permits civil seizure and forfeiture in such circumstances, the whole business may be confiscated
    without ever having to seek bankruptcy court relief.

    After confiscation, the identity of who may challenge the state's determination, and how it
    will be challenged, will solely be a function of state law. This can be troubling, especially in light
    of recent Supreme Court determination that co-owners and lienors need not be given any
    opportunity to contest a civil forfeiture. Bennis v. Michigan, 116 S. Ct. 994 (1996)
    (upholding Michigan statute allowing car to be forfeited as abatable nuisance after man engaged
    service of prostitute in car, notwithstanding state's failure to reimburse man's wife's part
    ownership interest).

    Lack of Public Input

    As far as I know, there were no hearings or any testimony on the issue. Press releases from Sen.
    Grassley's office indicate that the changes were suggested by the National Association of
    Attorneys General. There is nothing in the public record to explain why the changes go beyond
    changes necessary to implement the Chemical Weapons convention.

    One irony behind these changes is that one of the reasons that Congress created the National Bankruptcy Review
    Commission     was to stop piecemeal riders such as that found in the Chemical Weapons bill.
    The Commission initially rejected the type of amendments set forth in the Chemical Weapons bill
    last fall, but decided early this year to discuss them again. When it finally was able to fit the
    discussion onto its agenda, at the Friday, June 20 meeting of the Commission in Detroit, the
    Commission was reduced to a roundtable discussion on the effect of pending legislation, rather
    than an investigation of what ought to be the law.


    The Text of the Bill

    Here are the changes, found in Section 603 of S. 610:

    Section 362(b) of title 11, United States Code, is amended—
    (1) by striking paragraphs (4) and (5); and
    (2) by inserting after paragraph (3) the following:

    "(4) under paragraph (1), (2), (3), or (6) of subsection (a) of this section, of the
    commencement or continuation of an action or proceeding by a
    governmental unit or any organization exercising authority under the
    Convention on the Prohibition of the Development, Production,
    Stockpiling and Use of Chemical Weapons and on Their Destruction,
    opened for signature on January 13, 1993, to enforce such governmental
    unit's or organization'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; "

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    105

    S. 610 Chemical Weapons Convention Implementation Act of 1997

    Submitted by webadmin on

    To implement the obligations of the United States under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, known as `the Chemical Weapons Convention' and opened for signature and signed by the United States on January 13, 1993.
    MEMORANDUM

    Re: Section 603 of Chemical Weapons Convention Implementation Act

    Editor's Note: Other Commentary on Section 603 of S. 610:


    June 23, 1997

    As chair of the Bankruptcy and Taxation Working Group of the National Association of
    Attorneys General, I write to support the bankruptcy provisions contained in S. 610, the
    implementing legislation for the Chemical Weapons Treaty. We believe these provisions
    represent a balanced approach that recognizes the needs of the debtor and creditors, while
    ensuring that the government may continue to exercise its vital and fundamental police and
    regulatory powers to protect the citizenry as a whole. The new language does not expand
    the scope of those police powers, rather it only serves to clarify existing Congressional
    intent about the extent to which the exercise of such powers should be exempt from the
    automatic stay. Its inclusion will remove the ambiguities in current law, thereby
    eliminating unnecessary litigation, delay, and expense for all parties involved in such
    matters.

    The provisions in S. 610 will allow the government to continue to adjudicate liability
    issues and liquidate damages in cases involving police and regulatory matters, including
    areas such as environmental protection, consumer protection, and labor laws. In addition,
    as under current law, the government will be free to force compliance with injunctive
    obligations that are not claims and to enforce non-monetary judgments. The proposal,
    however, specifically excludes the enforcement of monetary judgments from the police and
    regulatory power exception    . Thus, as is currently the case, the stay will continue to
    bar the actual collection of money judgments even where they are entered in true
    police and regulatory actions. Moreover, it does nothing to change the existing scope
    of police and regulatory powers which do not include matters such as collection of taxes,
    student loans, small business loans, or other similar purely monetary issues    . Finally,
    it does not except governmental actions from the provisions of the automatic stay
    (§§362(a)(4) and (5)) which bar the creation or enforcement of liens against property of
    the estate and/or the debtor. Thus, the interests of secured creditors will not be
    affected by these provisions.

    The provisions ensure that the government’s authority to carry out bona fide
    police and regulatory actions will not be impeded by the automatic stay where no attempt
    to collect a monetary judgment is at issue. Under the current language, the provisions of
    §§362(a)(3) and/or (6) have sometimes been held to bar implementation of decisions in
    police and regulatory actions where they would, unavoidably, impact on property of the
    estate. The situations dealt with in the Chemical Weapons bill are an obvious example of
    where the application of §§362(a)(3) and (6) to governmental actions could cause serious
    danger. Clearly, even if a maker of such weapons files bankruptcy, the government must
    retain the ability to control the weapons and the chemicals used to make them, to seize
    them if authorized to do so by the bill, and, in general, to exercise the full authority
    provided for in S. 610 without being required to defer critical actions while it files a
    motion with the bankruptcy court to lift the stay. Indeed, financial difficulties facing a
    debtor may be the very reason that it tries to circumvent the law to find an easy source
    of funds to escape those problems. It is in those situations that the ability of the
    government to act quickly is more important, not less.

    Chemical weapons, however, are only one of a myriad of areas in which the government
    must be free to act in order to protect its citizenry, even if those actions may,
    unavoidably, make it more difficult for an individual entity to reorganize. When a law is
    passed, it is often clear that some portion of the regulated businesses may not be able to
    survive if they must comply with its terms, but the decision to accept that risk is a
    choice that has been made by the legislature, and should not be subject to revision on an ad
    hoc     basis by the bankruptcy courts. There are many instances where the government must
    be free to act directly and expeditiously to control estate property: the destruction of
    unsafe and condemned buildings, [ FN: In re Javens,
    107 F.3d (6th Cir. 1997).]     seizure of diseased or contaminated meat or
    confiscation of produce infested with Mediterranean fruit flies can hardly be held hostage
    to the need to obtain a lifting of the stay. The government must also be able to act on
    licensing issues where public health and safety or consumer protection issues are at
    stake, even if this means an unsafe or crooked facility is put out of business. [ FN: In re Wilner Wood Products Co. v. State of Maine,
    128 B.R. 1 (D. Me. 1992);In re Professional Sales Corp., 56 B.R. 753 (N.D. Ill.
    1985).]     Finally, the legislature may determine that some estate property
    must be treated as contraband and removed from the stream of commerce, regardless of its
    sales value. This may involve the destruction of counterfeit goods or those made in
    violation of applicable labor laws, [ FN: In re
    Brock v. Rusco Industries Inc.    , 842 F.2d 270 (11th Cir. 1988); Donovan v. TMC
    Industries Inc.    , 20 B.R. 997 (N.D. Ga. 1982).]     or the forfeiture of
    items which are the proceeds and instrumentalities of a crime. [

    FN: In re James, 940 F.2d 46 (3rd Cir. 1991)] Regardless of
    the intrinsic "value" of the goods, the government must be allowed to seize
    and/or destroy such items in order to protect against the harm that they do to the
    debtor’s employees and competitors by their very existence; to do otherwise would be
    to make the government an accomplice in the debtor’s unlawful actions. Moreover,
    forfeiture of assets, whether on a civil or criminal basis, has been made an integral part
    of this country’s war on crime, particularly in the drug area. Again, bankruptcy
    cannot and should not be seen as an avenue of escape from those legislative policy
    choices.

    This provision ensures that those choices will be respected. The courts retain power to
    restrain bad faith conduct by the government in the limited circumstances where this would
    also be allowed outside of bankruptcy courts. [ FN: Younger
    v. Harris    , 401 U.S. 37 (1971).]     That exception, though, cannot be
    equated to a general power in the bankruptcy courts to authorize a debtor to violate the
    law that all others must obey whenever the court thinks the law is unwise, unnecessary, or
    unduly burdensome. Those policy judgments are for the legislature, not the courts and this
    proposal clarifies that fundamental position.

    Heidi Heitkamp, Chair

    Bankruptcy and Taxation Working Group

    National Association of Attorneys General

    Note: The above was forwarded to Sen. Charles Grassley and Sen. Patrick
    Leahy, Ranking Member of the Subcommittee on Administrative Oversight and the Courts and
    its members.

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    105

    S. 610 Chemical Weapons Convention Implementation Act of 1997

    Submitted by webadmin on

    To implement the obligations of the United States under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, known as `the Chemical Weapons Convention' and opened for signature and signed by the United States on January 13, 1993.
    Brewing a Tempest in a Teapot:

    A Response to Professor Markell


    Written by:

    Karen Cordry

    NAAG Bankruptcy Counsel

    National Association of Attorneys General

    kcordry@naag.org

    Web posted and Copyright ©
    July 1, 1997, American Bankruptcy
    Institute    .

    Editor's Note:

    Other Commentary on Section 603 of S. 610:

    rof. Markell has written an analysis of the language in S.610 that
    revises §362 of the Bankruptcy Code. As NAAG has been publicly accorded responsibility
    for the inclusion of the language in the bill, I would like to present a counterpoint to some of the
    more alarmist portions of the Professor's discussion. I have also included a letter that was sent to the
    House and Senate subcommittee by the Chair of NAAG's Bankruptcy and Taxation Working
    Group, Attorney General Heidi Heitkamp of North Dakota, which further discusses these issues.

    Just a note on process first. I do take responsibility for suggesting that the Justice
    Department's
    December 1996 memorandum to the National Bankruptcy Review Commission include the language that is
    now part of S. 610, but that is as far as I go. The Senate acted independently, and without
    consultation with NAAG, when it decided to include that language in the Chemical Weapons bill.
    It is my understanding that they were initially concerned with whether the non-governmental
    inspection teams that enforce the Chemical Weapons Treaty would qualify for inclusion under the
    police and regulatory exemptions from the stay. Although that concern could be easily addressed,
    the subcommittee was then forced to consider whether a party could file bankruptcy and assert
    the automatic stay as a bar to the regulatory actions of such teams. In deciding to add language
    to address those concerns, the Senate subcommittee concluded that the revisions were equally
    appropriate with respect to governmental police and regulatory actions generally. (Some have
    suggested that they should have only made the change with respect to the chemical weapons
    teams, but this could have resulted in unwarranted negative implications about the scope of the
    police and regulatory exception in other areas.) S. 610 then passed the Senate
    unanimously—a result with which NAAG is well pleased, although not directly responsible.

    On the merits, then, the bill simplifies the existing structure by combining present
    §§362(b)(4) and (5) into a single section which also exempts police and regulatory
    actions from §§362(a)(3) and (6). This change is not necessarily an expansion of the
    Code's present provisions; a substantial number of courts already consider that either or both of
    §§362(a)(3) and (6) cannot reasonably be deemed to apply to actions which are
    explicitly exempted by §§362(b)(4) and (5). See, e.g. Javens v. City of Hazel
    Park    , 107 F.3d 359 (§362(a)(3)) and In re Mateer, 205 B.R. 915, 921-922
    (C.D. Ill. 1997) (§362(a)(6)). But, to the extent that the case law is split, and the proposal
    does propose a change, I submit it is reasonable, necessary, and, indeed, inevitable.

    In so stating, I refer, of course, only to the changes that the proposal actually makes, not to
    the imaginative list of horribles that have been conjured up about it. To clarify the situation:

    • The proposal only exempts police and regulatory actions. Collection of taxes,
      student loans, SBA loans, and the like have never been viewed as police and regulatory
      actions and would not be affected by this change.
    • A monetary judgment may be entered in a police and regulatory action but, as is the case
      now, cannot be enforced through collection from the estate's or the debtor's assets. (Thus, Prof.
      Markell's assertion that the exemption from §362(a)(6) will allow the government to
      "collect a debt" is simply incorrect. The exemption from §362(a)(6) is included, not to
      allow for collection of money judgments, but rather to clarify that the extremely broad language in
      that section should not be used to bar legitimate governmental actions which are explicitly
      exempted from the more specific sections of the Code.)
    • The provisions of §§362(a)(4) and (5), which bar actions to create, perfect, or
      enforce a lien remain effective against governmental entities.
    • Exempting an action from the automatic stay does not exempt the government or the debtor
      from other restrictions in the Code; thus, the government would still not be able to discriminate
      against a debtor for failure to pay a dischargeable debt, nor would the debtor be free to make
      post-petition payments on governmental claims except in accordance with the Code's provisions.
    • Section 105 remains available to restrict actions by the government which could be enjoined
      under nonbankruptcy law, such as where the government is acting in bad faith or could be subject
      to equitable estoppel.

    To the extent, though, that true police and regulatory actions do require the exercise
    of control over property of the estate, the bill clarifies that generally applicable law continues to
    control, even with respect to entities that file for bankruptcy. I make no apology for that
    proposition—a civilized society cannot function if its laws can be set aside whenever they
    impinge on business' profit-making opportunities. The choices as to whether the benefits of a law
    outweigh its impact on marginal enterprises is one that must be faced by the legislature when it
    enacts the statute; once that choice is made, there is nothing in the Code that authorizes a
    bankruptcy judge to override the legislative judgment, based on his own ad hoc weighing
    of the equities of the situation. This does not mean that the government can "exercise its
    regulatory powers for private gain." It does mean that the government can continue to protect
    the public interest in health, safety, consumer protection, environmental protection, labor laws,
    and the like even when a debtor is involved.

    At times, those protective actions inevitably will impact on property of the estate. Under
    current law, the government is plainly allowed to complete all necessary proceedings to determine
    that the particular actions should be taken, but arguably must come to the bankruptcy
    court for a "Mother, may I?" type of hearing before it is allowed to actually take the
    actions. But requiring a motion to lift the stay makes sense only if the bankruptcy court has any
    meaningful discretion to grant or deny the request. But, on what basis may it do so? There really
    are only two options: it can refuse to grant full faith and credit to a judgment of another court and
    redetermine the merits of that judgment, or it can admit the validity of the order but conclude that
    it may allow the debtor to violate the law in order to assist the reorganization effort or to provide
    more money to creditors. I invite Prof. Markell or anyone else to find the language in the Code
    that authorizes either of those results. (Contrast, for instance, the language in §505 that
    allows tax liabilities to be redetermined, with the language in 28 U.S.C. 959(b) which explicitly
    requires the debtor to obey applicable state police and regulatory statutes.)

    This is not to say that a state court judgment, for instance, is always right, but full faith and
    credit does not depend on the merits of the other court's actions. Rather, our federal system
    requires each branch of government to respect the actions of other branches and nothing
    in the Code overrules that fundamental principle of federalism. (See In the Matter of Pope
    (Pope v. Wagner)    , 1997 WL 341702, fn. 9 (Bankr. N.D. Ga. 6/16/97), which discusses the
    Rooker-Feldman abstention doctrine, which provides that even if a state court decision is wrong,
    only the Supreme Court has appellate jurisdiction to modify that decision). In short, the
    bankruptcy courts do not exercise appellate authority over every other state and federal court in
    the land. And, if the bankruptcy court must accept the validity of those judgments, then
    requiring a pro forma motion will be, at best, a waste of time and money for all
    concerned and, at worst, will allow serious harm while time is wasting. Professor Markell's
    suggestion that the government should simply either routinely make ex parte motions to
    lift the stay or seek retroactive annulment of the stay is, I submit, no way to run a railroad.
    Government should not have to function by emergency motion or court contempt sanctions with
    the hope that its good intentions will save it from being punished.

    Prof. Markell then goes on to cite some examples of government actions that would be
    allowed under this section, but which he believes should not be allowed to take place. I suggest,
    however, that there is no alternative to allowing those actions to proceed. For instance, he states
    that the amendment would allow the government to seize and destroy T-shirts that violate
    copyright law. That is probably true, but does he seriously suggest that creditors have a right to
    demand that the government must sell the shirts for their benefit, thus becoming an
    accomplice to the debtor's illegal actions? If so, how does one balance the benefit to those
    creditors with the harm to the debtor's competitors who must stand by and watch the federal
    government take sales away from them by marketing goods when the debtor is not allowed to
    sell? By the same token, if current forfeiture laws allow for the seizure and sale of a car that is
    used as an instrumentality in the sale of drugs, does he mean to say that a bankruptcy judge may
    refuse to lift the stay if the judge believes that the law is unfair and should not be applied in that
    fashion? That conclusion is a prescription for judicial anarchism. I suggest, instead, that if one
    disagrees with the current forfeiture laws (and there may be much to disagree with), the proper
    solution is to go to Congress and have them changed, not to allow debtors to use bankruptcy
    courts as an end run around the law to gain additional rights that do not now exist.

    Finally, Prof. Markell argues at length that the problem is heightened with respect to state
    actions because of the Supreme Court's decision in the Seminole Tribe case. To be sure,
    that decision did give the states a measure of immunity from federal court jurisdiction
    over challenges to their actions. That is a far cry from "the specter of a state making a unilateral
    determination that a seizure is permitted by its interpretation of its police and regulatory powers,
    and then never having that issue reviewed in any court, federal or state."
    Seminole did not repeal either the Due Process or the Supremacy Clauses of the
    Constitution. Thus, I would be more impressed by this "specter" if the article provided examples
    of where a governmental agency could seize property without satisfying due process
    requirements, including appropriate notice, a hearing, and rights to object. It is one thing to say
    that review of a civil seizure or forfeiture decision may not be available in the bankruptcy court; it
    is quite another to imply that this means there is no independent review of the action or
    remedies for an improper action. I assume, Prof. Markell did not intend to suggest that state
    courts are incapable or unwilling to apply state and federal law competently and evenhandedly. If
    bankruptcy courts believe themselves competent to administer state law, they should be equally
    willing to extend the same collegial respect to state court judges.

    Moreover, it is not at all clear that the bankruptcy courts are totally barred from adjudicating
    challenges to state property seizures. The Supreme Court's recent decision in Idaho v. Couer D'Alene Tribe, No. 94-1474 (June 23, 1997)
    discusses the scope of the Ex Parte Young exception, as it pertains to declaratory
    judgments against state officials with respect to control of property. While the unusual facts of
    that case resulted in a determination that the exception did not apply, I think there is room for
    debtors to argue that they may normally sue state officials in bankruptcy court to determine rights
    of possession, if not final ownership, in goods seized from them during the case. If so, then there
    is a federal avenue to regain these assets for the estate's use during the case even if a
    final decision on ownership may need to be made in state court. I do not concede this point, I
    merely note that the issue is by no means settled or hopeless for debtors. Nor, of course, in any
    event, do I believe that going to state court is a fate worse than death, as some commentators
    seem to assume. Most state courts are well aware of their obligations to obey federal law, are
    reasonably competent at reading and applying a statute, and may even be capable of deciding a
    case correctly without assistance from the federal judiciary. Seminole probably does
    mean that other parties will need to visit state courts more often—and we welcome their
    arrival.

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