United States v. Rupari Food Services, Inc. , 254 F. Supp. 3d 1367 ( 2017 )

Slip Op. 17-104
UNITED STATES COURT OF INTERNATIONAL TRADE
UNITED STATES,
Plaintiff,
Before: Gary S. Katzmann, Judge
v.
Consol. Court No. 10-00119
RUPARI FOOD SERVICES, INC.,
Defendant.
OPINION
[The Plaintiff’s 19 U.S.C. § 1592 action is exempt from the automatic stay effected by 11 U.S.C.
§ 362(a) pursuant to 11 U.S.C. § 362(b)(4).]
Dated: August 10, 2017
Mikki Cottet, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of Washington, DC, for Plaintiff. With her on the brief were Chad A.
Readler, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Patricia M.
McCarthy, Assistant Director, of Washington, DC. Of counsel on the brief was Brian J. Redar,
Office of Associate Chief Counsel, U.S. Customs and Border Protection, of Long Beach, CA.
Lawrence M. Friedman, Barnes Richardson & Colburn, of Chicago, IL, for Defendant. With him
on the brief was Peter A. Quinter, Gray Robinson, P.A., of Miami, FL.
Katzmann, Judge: The issue now before this court appears to be one of first impression:
does the automatic stay in bankruptcy, effected by 11 U.S.C. § 362(a) (2012),1 stay an action for
a civil penalty brought by the United States against the bankrupt party pursuant to 19 U.S.C. §
1
All citations to the United States Code are to the official 2012 edition.
Cons. Court No. 10-00119 Page 2
15922 for alleged fraudulent, negligent, or grossly negligent misrepresentations made in the course
of importing goods into the commerce of the country? Or, is that civil penalty action exempt from
the automatic stay in bankruptcy because it is “an action or proceeding by a governmental unit . .
. to enforce such governmental unit’s or organization’s police and regulatory power” pursuant to
11 U.S.C. § 362(b)(4)? The court concludes that this 19 U.S.C. § 1592 civil penalty action is
exempt from the automatic stay in bankruptcy under 11 U.S.C. § 362(b)(4), insofar as it constitutes
an action for the entry, rather than the enforcement, of a money judgment.
BACKGROUND
The facts of this case span approximately two decades and need not be recited in full here.
The relevant portions are as follows: defendant Rupari Food Services, Inc. (“Rupari”) is a Florida
corporation that purchased crawfish from abroad and sold it to restaurants in the United States.
United States v. Am. Cas. Co. of Reading Pa., 39 CIT ___, ___, 91 F. Supp. 3d 1324, 1327 (2015),
as amended (Aug. 26, 2015) (“Rupari I”); First Amended Complaint ¶ 3, Aug. 31, 2015, ECF No.
110 (“Compl.”). Plaintiff, the United States, on behalf of Customs and Border Protection (“the
Government”), alleges that in the summer of 1998, Rupari attempted to enter five containers of
2
Section 1592(a) declares, in relevant part:
[N]o person, by fraud, gross negligence, or negligence—
(A) may enter, introduce, or attempt to enter or introduce any
merchandise into the commerce of the United States by
means of--
(i) any document or electronically transmitted data or
information, written or oral statement, or act which
is material and false, or
(ii) any omission which is material, or
(B) may aid or abet any other person to violate subparagraph
(A).
Cons. Court No. 10-00119 Page 3
Chinese crawfish tail meat by means of documents falsely claiming that the crawfish tail meat
originated in Thailand. Rupari I, 91 F. Supp. 3d at 1332; Compl. ¶¶ 43–64. Customs examined
and seized these attempted entries. Compl. ¶ 42. On April 9, 2001, Customs issued a pre-penalty
notice to Rupari proposing a monetary penalty on the basis of fraud and in an amount equal to the
domestic value of the five seized entries, and four entered entries, of Chinese crawfish tail meat.
Compl. ¶ 65. On November 21, 2001, Customs issued a penalty notice to Rupari, assessing,
pursuant to 19 U.S.C. § 1592(c),3 a civil penalty for fraud for the violation of § 1592(a). Compl.
¶ 66. The Government maintains that Rupari has not paid the penalties it seeks in this action.
Compl. ¶ 69.
On June 20, 2011, the Government filed a complaint against Rupari for violations of 19
U.S.C. § 1592(a).4 Rupari I, 91 F. Supp. 3d at 1332. An amended complaint was filed on August
31, 2015. Compl. The Government asks this court to “enter judgment for the United States against
3
Section 1592(c) prescribes maximum civil penalties that Customs may impose for fraudulent,
grossly negligent, and negligent violations of § 1592(a). “A fraudulent violation of subsection (a)
of this section is punishable by a civil penalty in an amount not to exceed the domestic value of
the merchandise.” 19 U.S.C. § 1592(c)(1). Violations that are grossly negligent are punishable
by a civil penalty in an amount not to exceed the lesser of either the domestic value of the
merchandise, or four times the lawful duties, taxes, and fees of which the United States is or may
be deprived; if the violation did not affect the assessment of duties, then the amount may not exceed
40 percent of the dutiable value of the merchandise. Id. § 1592(c)(2). Violations that are negligent
are punishable by a civil penalty in an amount not to exceed the lesser of either the domestic value
of the merchandise, or two times the lawful duties, taxes, and fees of which the United States is or
may be deprived; if the violation did not affect the assessment of duties, then the amount may not
exceed 20 percent of the dutiable value of the merchandise. Id. § 1592(c)(3).
4
The United States also filed actions against William Vincent “Rick” Stilwell, individually, for
recovery of civil penalties for violations of 19 U.S.C. § 1592(a), and American Casualty Co. of
Reading Pennsylvania (“American Casualty”), to recover, under bonds, unpaid customs duties.
However, all parties agreed to dismiss all claims as to Stilwell and American Casualty with
prejudice and without costs, fees, and expenses on July 17, 2015, and March 21, 2016, respectively.
Stipulation of Partial Dismissal, July 17, 2015, ECF No. 104; Stipulation of Partial Dismissal,
March 21, 2016, ECF No. 121.
Cons. Court No. 10-00119 Page 4
Rupari for a penalty in the amount of $2,784,636.185 for fraudulent violations of 19 U.S.C. §
1592(a),” or in the alternative, “the maximum amount for” grossly negligent or negligent violations
of 19 U.S.C. § 1592(a). Rupari I, 91 F. Supp. 3d at 1332; Compl. ¶ 78. The Government filed its
motion for summary judgment on January 15, 2015. ECF No. 79. Rupari filed its response and
cross-motion for summary judgment on February 24, 2016. ECF No. 119. Further briefing on the
motions for summary judgment has been stayed multiple times since April 15, 2016. See ECF No.
131.
Since January 2017, the parties have filed, and the court has granted, several motions to
stay proceedings, in which the parties represented that they were attempting, in good faith, to
resolve this action by way of settlement. ECF Nos. 139–47. However, on April 10, 2017, Rupari
filed for Chapter 11 bankruptcy protection. See In re Rupari Food Servs., Inc., No. 17-10794
(Bankr. D. Del. filed Apr. 10, 2017). The court maintained the stay on briefing, and ordered that
parties report to the court their joint position or, in the absence of a joint position, their respective
positions regarding the applicability to this proceeding of the automatic stay effected by 11 U.S.C.
§ 362(a), or recommend what further action, if any, be taken in this action prior to the resolution
of the bankruptcy proceeding. ECF No. 149. The Government reported its position on July 3,
2017, maintaining that it was seeking entry, but not execution of a monetary judgment, and that
the civil penalty action pursuant to 19 U.S.C. § 1592(a), commenced to enforce police or regulatory
powers, was exempt from the automatic stay provision of the bankruptcy statute. ECF No. 154
(“Pl.’s Mem.”). Rupari reported its opposing position on July 27, 2017. ECF No. 160 (“Def.’s
Mem.”).
5
Per the Government, $2,784,636.18 is the domestic value of the merchandise that Rupari
attempted to enter into the United States. Rupari I, 91 F. Supp. 3d at 1332; Compl. ¶ 78.
Cons. Court No. 10-00119 Page 5
As in the underlying action, the court possesses jurisdiction pursuant to 28 U.S.C. § 1582.6DISCUSSION
Bankruptcy petitions initiated by debtors such as Rupari, which are not individual natural
persons, are governed by Chapters 7 and 11 of the Bankruptcy Code. See 11 U.S.C. §§ 1101–
1174. “In Chapter 11, debtor and creditors try to negotiate a plan that will govern the distribution
of valuable assets from the debtor’s estate and often keep the business operating as a going
concern.” Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973, 978 (2017). In general, the filing of
a bankruptcy petition operates to stay the continuance of any judicial proceeding against a debtor.
11 U.S.C. § 362(a).7 See Dominic’s Rest. Of Dayton, Inc. v. Mantia, 683 F.3d 757, 760 (6th Cir.
6
Where a party has filed for bankruptcy pursuant to Chapter 11, the non-bankruptcy court in
which other litigation is pending possesses concurrent jurisdiction to determine the applicability
of a stay. See Chao v. Hosp. Staffing Servs.,Inc., 270 F.3d 374, 384 (6th Cir. 2001) (“Not
surprisingly, courts have uniformly held that when a party seeks to commence or continue
proceedings in one court against a debtor or property that is protected by the stay automatically
imposed upon the filing of a bankruptcy petition, the non-bankruptcy court properly responds to
the filing by determining whether the automatic stay applies to (i.e., stays) the proceedings.”); In
re Baldwin–United Corp. Litig., 765 F.2d 343, 347 (2d Cir. 1985) (“Whether the stay applies to
litigation otherwise within the jurisdiction of a district court or court of appeals is an issue of law
within the competence of both the court within which the litigation is pending . . . and the
bankruptcy court . . . .”); SEC v. Thrasher, 2002 WL 523279, at *1 (S.D.N.Y. 2002); see, e.g.,
Brock v. Morysville Body Works, Inc., 829 F.2d 383, 387 (3d Cir. 1987) (“We have no difficulty
deciding that we may determine the applicability of the automatic stay.”); U.S. Dep’t of Hous. &
Urban Dev. v. Cost Control Mktg. & Sales Mgmt. of Virginia, Inc., 64 F.3d 920, 927 n.11 (4th
Cir. 1995); Hunt v. Bankers Trust Co., 799 F.2d 1060, 1069 (5th Cir. 1986) (“While section 362
of the Bankruptcy Code stays the continuation of a judicial proceeding that was commenced before
a commencement of the bankruptcy case, the Texas district court had jurisdiction to determine its
applicability to the case pending in the Texas district court . . . .”); NLRB. v. Cont’l Hagen Corp.,
932 F.2d 828, 832 (9th Cir. 1991); United States v. Wash. Int’l Ins. Co., 25 CIT 1239, 1247, 177
F. Supp. 2d 1313, 1321 (2001) (deciding that § 362(a) would not apply to a surety who is not the
debtor subject of the bankruptcy proceeding).
7
Section 362(a) of Title 11 provides, in relevant part:
Except as provided in subsection (b) of this section, a petition filed
under section 301, 302, or 303 of this title, or an application filed
Cons. Court No. 10-00119 Page 6
2012). “The purpose of the automatic stay is to ‘give[] the debtor a breathing spell from his
creditors. . . . It permits the debtor to attempt a repayment or reorganization plan, or simply to be
relieved of the financial pressures that drove him to bankruptcy.’” In re Robinson, 764 F.3d 554,
559 (6th Cir. 2014) (quoting H.R. REP. No. 95–595, at 340 (1977), as reprinted in 1978
U.S.C.C.A.N. 5963, 6296–97).
However, significantly and directly on point here, “the automatic stay protection does not
apply to all cases; there are statutory exemptions, and there are non-statutory exceptions.”
Dominic’s Rest., 683 F.3d at 760; see. e.g., Seiko Epson Corp. v. Nu-Kote Int’l, Inc., 190 F.3d
1360, 1364 (Fed. Cir. 1999) (“[P]roceedings that do not threaten to deplete the assets of the debtor
need not be stayed.”), reh’g denied (Oct. 19, 1999). One such statutory exception to the automatic
stay, enumerated in 11 U.S.C. § 362(b)(4), relates to the enforcement of the Government’s police
or regulatory powers. In order to prevent abuse by debtors improperly seeking refuge under the
bankruptcy laws, Congress provided that certain governmental actions, including the “continuation
of an action or proceeding by a governmental unit . . . to enforce such governmental unit’s or
organization’s police and regulatory power,” are exempt from the automatic stay provisions of 11
U.S.C. § 362(a). Id. § 362(b)(4); see United States v. Nicolet, Inc., 857 F.2d 202, 207 (3d Cir.
1988); 3 COLLIER ON BANKRUPTCY ¶ 362.05[5][a] (Alan N. Resnick & Henry J. Sommer eds., 16th
under section 5(a)(3) of the Securities Investor Protection Act of
1970, operates as a stay, applicable to all entities, of--
(1) the commencement or continuation, including the
issuance or employment of process, of a judicial,
administrative, or other action or proceeding against the
debtor that was or could have been commenced before the
commencement of the case under this title, or to recover a
claim against the debtor that arose before the
commencement of the case under this title[.]
Cons. Court No. 10-00119 Page 7
ed. 2017). “[T]he policy behind § 362(b)(4) is ‘to prevent the bankruptcy court from becoming a
haven for wrongdoers.’” SEC v. Towers Fin. Corp., 205 B.R. 27, 30 (S.D.N.Y. 1997) (quoting
SEC v. Elmas Trading Corp., 620 F. Supp. 231, 240 (D. Nev. 1985), aff’d, 805 F.2d 1039 (9th Cir.
1986)); see also In re Bilzerian, 146 B.R. 871, 873 (M.D. Fla. 1992) (citing the legislative history
of § 362(b)(4) for the same).
To ascertain whether the proceeding at issue falls within the scope of § 362(b)(4), courts
have applied two “related, and somewhat overlapping” tests: the pecuniary purpose test and the
public policy test. In re Nortel Networks, Inc., 669 F.3d 128, 139 (3d Cir. 2011) (quoting Lockyer
v. Mirant Corp., 398 F.3d 1098, 1108 (9th Cir. 2005)). The Court of Appeals for the Third Circuit
has summarized these tests as follows:
The pecuniary purpose test asks whether the government primarily
seeks to protect a pecuniary governmental interest in the debtor’s
property, as opposed to protecting the public safety and health. The
public policy test asks whether the government is effectuating public
policy rather than adjudicating private rights. If the purpose of the
law is to promote public safety and welfare or to effectuate public
policy, then the exception to the automatic stay applies. If, on the
other hand, the purpose of the law is to protect the government’s
pecuniary interest in the debtor’s property or primarily to adjudicate
private rights, then the exception is inapplicable. The
complementary tests “are designed to sort out cases in which the
government is bringing suit in furtherance of either its own or certain
private parties’ interest in obtaining a pecuniary advantage over
other creditors.” 8
Id. at 139–40 (citing Chao, 270 F.3d at 385, 389). The legislative history of § 362(b)(4) provides
that “where a governmental unit is suing a debtor to prevent or stop violation of fraud, . . . or
8
The Court of Appeals for the Third Circuit has stated that “[i]t is unclear whether the government
action must meet both tests to fall within the police power exception.” Nortel Networks, 669 F.3d
at 139 n.12. The court’s analysis infra does not hinge on either test alone, and so the court does
not attempt to resolve the question of whether only one, or both, tests must be satisfied to allow
the action at issue.
Cons. Court No. 10-00119 Page 8
similar police or regulatory laws, or attempting to fix damages for violation of such a law, the
action or proceeding is not stayed under the automatic stay.” Id. at 141 (quoting S. REP. NO. 95–
989 at 49 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787, 5838).
Police power proceedings that fall within the scope of § 362(b)(4) are limited in that while
“the exception extends to permit an injunction and enforcement of an injunction, and to permit the
entry of a money judgment, [it] does not extend to permit enforcement of a money judgment.”
Nicolet, 857 F.2d at 208 (quoting S. REP. NO. 95–989, at 52 (1978), as reprinted in 1978
U.S.C.C.A.N. 5787, 5838; H.R. REP. No. 95–595, at 343 (1977), as reprinted in 1978
U.S.C.C.A.N. 5963, 6299). “As the legislative history explicitly notes, the mere entry of a money
judgment by a governmental unit is not affected by the automatic stay, provided of course that
such proceedings are related to that government’s police or regulatory powers.” Penn Terra Ltd.
v. Dep’t of Envtl. Res., Com. of Pa., 733 F.2d 267, 275 (3d Cir. 1984) (citation omitted). The
reasoning behind permitting entry of money judgments despite the automatic stay is that “[b]y
simply permitting the government’s claim to be reduced to a judgment, no seizure of property
takes place.” Nicolet, 857 F.2d at 209; see In re Mystic Tank Lines Corp., 544 F.3d 524, 527 (3d
Cir. 2008). By contrast, an action for enforcement of a money judgment is manifested “when,
having obtained a judgment for a sum certain, a plaintiff attempts to seize property of the defendant
in order to satisfy that judgment.” Penn Terra, 733 F.2d at 275 (citation omitted).
Once a civil penalty action has been commenced by the United States for a violation of 19
U.S.C. § 1592(a), “all issues, including the amount of the penalty, shall be tried de novo.” 19
U.S.C. § 1592(e). Thus, the Court determines whether a violation has been committed for purposes
of fixing a civil penalty, United States v. Pan Pac. Textile Grp., Inc., 29 CIT 1013, 1027–28, 395
F. Supp. 2d 1244, 1256–57 (2005), and determines the amount of the penalty for a violation of
Cons. Court No. 10-00119 Page 9
section 1592(a) de novo. See United States v. Dantzler Lumber & Exp. Co., 16 CIT 1050, 1057,
810 F. Supp. 1277, 1284 (1992) (“[T]he actual amount to be paid, if any, is determined only at the
end of a full and fair exposition of the transactions challenged.”).
The Government argues before the court that its “action against Rupari does not involve a
governmental pecuniary interest in Rupari’s property, and it is not designed to adjudicate any
private rights.” Pl.’s Mem. at 10. The Government contends that “a penalty action that was
commenced to fix monetary penalties for Rupari’s fraudulent violation of 19 U.S.C. § 1592(a), . .
. is precisely the type of proceeding contemplated by the exceptions to the automatic stay set forth
in [11 U.S.C. § 362 (b)(4)].”9 Id.Rupari responds that “based on the specific facts before this Court, at this stage in the
proceeding, [the Government] is pursuing the instant litigation solely for its own pecuniary benefit,
which takes this proceeding outside the ambits of the exceptions of 11 U.S.C. § 362(b)(4).” Def.’s
Mem. at 1. Rupari submits that an aspect of pecuniary purpose test is an inquiry into whether the
“specific acts the government wishes to carry out . . . would result in an economic advantage to
the government or its citizens over third parties in relation to the debtor’s estate.” Def.’s Mem. at
5–6 (quoting In re Commonwealth Cos., Inc., 913 F.2d 518, 523 (8th Cir. 1990)). Rupari asserts
that the Government “no doubt, seeks an economic advantage over other creditors in relation to
[Rupari’s] estate,” and thus is not “pursuing this litigation to protect the public safety and health.”
Def.’s Mem. at 6. Rupari argues that because it is undergoing liquidation, rather than a corporate
9
The Government states that this action falls within the exceptions of 11 U.S.C. § 362(b)(5) as
well as the exceptions of 11 U.S.C. §362(b)(4). Pl.’s Mem. at 1. However, 11 U.S.C. § 362 was
amended in 1998, combining paragraphs (b)(4) and (b)(5) into one paragraph, (b)(4). Omnibus
Consolidated and Emergency Supplemental Appropriations Act, Pub. L. No. 105-277, § 603(1),
112 Stat. 2681–886.
Cons. Court No. 10-00119 Page 10
reorganization sans liquidation, “there are no more bad actors of which the [Government] to make
an example.”10 Def.’s Mem. at 6. Rupari further asserts that Customs “already has an entitlement
to file a proof of claim in the Bankruptcy Case, just like any other unsecured creditor of the
Debtor,” because it previously assessed a $2 million penalty in administrative proceedings. Def.’s
Mem. at 7.
Rupari in conclusion asserts that the Government, upon obtaining a money judgment in
this case, would liquidate the presently unliquidated, contingent claim it has submitted in the
bankruptcy proceeding,11 and so “win[] by default at a time when [Rupari] has actively defended
against [the Government’s] efforts in this litigation for over seven years.” Def.’s Mem. at 7. In
summary, Rupari asserts that if this action were allowed to proceed, then the Government would
“win[] by default, obtain[] a liquidated claim to which [the Government] may not otherwise be
entitled to, and obtain[] a larger pro rata portion of any distribution to unsecured creditors in the
Bankruptcy Case as a result, to the detriment of others.” Id.10
Rupari also points out that “the incidents complained of . . . occurred over fifteen years ago,”
that “[m]ajority ownership of the Debtor has changed at least once since [then,]” and that the
“employee who allegedly made the false statements on behalf of [Rupari] to [Customs] passed
away during these proceedings.” Def.’s Mem. at 6 n.3.
11
The Government explains that
[o]n June 27, 2017, Customs mailed a proof of claim to the United
States Bankruptcy Court for the District of Delaware, Case No. 17-
10794 (KJC), Rupari Food Services, Inc., debtor. Customs’ claim
identifies the penalty as being “contingent” in the amount of
$2,784,636.18. In the event that we obtain a judgment that fixes the
amount of the penalty, then Customs will amend its proof of claim
to identify it as being liquidated/non-contingent in the fixed amount
and, thereafter, Customs will follow the procedures that are
applicable to collecting the penalty in bankruptcy court.
Pl.’s Mem. at 7 n.1.
Cons. Court No. 10-00119 Page 11
The court is not persuaded by Rupari’s contentions that the civil penalty action here should
be stayed. The animating purpose of 19 U.S.C. § 1592 is to prevent fraud in the entry of
merchandise into the stream of United States commerce. “[Section 1592] is intended to encourage
accurate completion of the entry documents upon which Customs must rely to assess duties and
administer other customs laws.” S. REP. NO. 95-778, at 17 (1978), as reprinted in 1978
U.S.C.C.A.N. 2211, 2229. The thrust of the statute is not the protection of the pecuniary interest
of the United States. Indeed, § 1592(a) operates “[w]ithout regard to whether the United States is
or may be deprived of all or a portion of any lawful duty, tax, or fee thereby.” As the Court of
Appeals for the Federal Circuit has made clear, “the plain language of the statute supports [the]
position that the damages authorized by § 1592(c) are punitive.” United States v. Nat’l
Semiconductor Corp., 547 F.3d 1364, 1369–70 (Fed. Cir. 2008). In addition, “Congress’s decision
to tie the maximum penalty to the culpability of the violator further suggests that Ԥ 1592 is driven
primarily by considerations of deterrence rather than compensation.’” Id. at 1370 (quoting United
States v. Complex Mach. Works Co., 23 CIT 942, 950, 83 F. Supp. 2d 1307, 1315 (1999)).
As regards § 1592, it is clearly the “purpose of the law . . . to promote public safety and
welfare or to effectuate public policy.” Nortel Networks, 669 F.3d at 140. An action under § 1592
accordingly is one where the Government is “effectuating public policy rather than adjudicating
private rights.” Id. On the facts before the court, the Government is not now “primarily seek[ing]
to protect a pecuniary interest in the debtor’s property,” but is “attempting to fix damages for
violation of [fraud].” Id. at 139–41 (quoting S. REP. NO. 95–989 at 49 (1978), as reprinted in 1978
U.S.C.C.A.N. 5787, 5838).
The court is also not persuaded by Rupari’s arguments that the specific facts of this case
yield an opposite conclusion. Rupari’s suggestion that the court should inquire into whether this
Cons. Court No. 10-00119 Page 12
action “would result in an economic advantage to the government or its citizens over third parties
in relation to the debtor’s estate” does not advance its claim here. Def.’s Mem. at 5–6 (quoting
Commonwealth Cos., 913 F.2d 518). For Rupari, this citation is at best inapposite; in reality, it
supports the Government’s position. In Commonwealth Cos., the Court of Appeals for the Eighth
Circuit agreed that Ҥ 362(b)(4) does not include governmental actions that would result in a
pecuniary advantage to the government vis à vis other creditors of the debtor’s estate,” but stated
also that this limitation “is consistent with Congress’ rationale for not extending the exception to
permit the enforcement of a money judgment.” 913 F.2d at 523 (emphasis added). By contrast,
when the Government “is attempting only to obtain the entry of a money judgment against the
debtors for their alleged violation” of the statute, that outcome would not “otherwise give the
government a pecuniary advantage over other creditors of the debtors’ estate.” Id. at 524(emphasis added). “The entry of judgment would simply fix the amount of the government’s
unsecured claim against the debtors.” Id. That is the situation here. The Government seeks only
to fix the amount of the penalty in this action, not to execute a judgment. See Pl.’s Mem. at 7 n.1.
Rupari’s argument that the punitive and deterrent qualities of § 1592 are inapplicable
because “there are no more bad actors of which the Plaintiff to make an example” is likewise
unpersuasive. Def.’s Mem. at 6. There is no reason for this court to find that liquidation of the
corporate entity, or substitution and loss of personae involved at earlier stages of this proceeding,
would nullify or render nugatory the § 1592 purpose of “encourage[ing] accurate completion of
the entry documents upon which Customs must rely to assess duties and administer other customs
laws.” S. REP. NO. 95-778, at 17 (1978), as reprinted in 1978 U.S.C.C.A.N. 2211, 2229. Nor is
the vintage of the factual background in this case a basis for finding that the Government has
ceased effectuating public policy at some point along the way.
Cons. Court No. 10-00119 Page 13
Finally, it is instructive that courts across the country have applied § 362(b)(4) to prevent
stays from being effected in cases where the Government is concurrently pursuing a fraud claim
against a defendant who has filed for bankruptcy.12 To the extent that Rupari suggests that
continuing proceedings to enter judgment would as a practical matter be a waste of resources as
the civil penalty sum is already, in some form, before the Bankruptcy Court, Def.’s Mem. at 7, that
question is not within the province of this court. Under the framework of the separation of powers,
such prosecutorial decisions are matters for the executive, not the judiciary. See Mullins v. U.S.
Dep't of Energy, 50 F.3d 990, 993 (Fed. Cir. 1995).
12
See, e.g., Commonwealth Cos., 913 F.2d at 525 (“[T]he legislative history of § 362(b)(4)
explicitly recognizes that a fraud law is a police or regulatory law. The [False Claims Act] is
certainly a fraud law.”); In re Universal Life Church, Inc., 128 F.3d 1294, 1298 (9th Cir. 1997)
(“[A] civil suit brought pursuant to the Federal False Claims Act is sufficient to satisfy the section
362(b)(4) exception.”), as amended on denial of reh’g (Dec. 30, 1997); United States ex rel. Green
v. Inst. of Cardiovascular Excellence, PLLC, 2016 WL 2866567, at *2 (M.D. Fla. 2016) (“FCA
actions are exempt from the automatic stay through the entry of judgment.”); id. at *2 n.1 (“The
Court previously considered and declined to follow the holding of In re Bicoastal Corporation[,
118 B.R. 854 (M.D. Fla. 1990)] in light of the more persuasive rationale from [Commonwealth
Cos.] and Judge Paskey's subsequent and contrary ruling in In re Bilzerian.”); Bilzerian, 146 B.R.
at 873 (finding an exception to the automatic stay for an SEC action seeking injunctive relief and
disgorgement); Towers Fin. Corp., 205 B.R. at 30 (“The SEC’s prosecution of a civil fraud action
is excepted from the automatic stay under [§ 362(b)(4)].”); In re First Alliance Mortgage Co., 263
B.R. 99, 110 (9th Cir. 2001) (holding state’s prosecution of restitution claims in its consumer fraud
action were not stayed); In re Mickman, 144 B.R. 259 (E.D. Pa. 1992) (considering complaint that
included claims for common law fraud, inducement of breach of fiduciary duties, unjust
enrichment, payment under mistake of fact, fraudulent conveyances, and the use of corporations
as alter egos); United States v. X, Inc., 246 B.R. 817 (E.D. Va. 2000).
Cons. Court No. 10-00119 Page 14
In sum, as the Government’s civil penalty action here is rooted in its enforcement of the
United States customs laws to interdict and remedy the fraudulent importation of merchandise, it
falls squarely within the scope of 11 U.S.C. § 362(b)(4). Therefore, insofar as the Government
seeks only the entry of a money judgment, its action is exempt from the automatic stay effected by
11 U.S.C. § 362(a) and shall proceed accordingly.
SO ORDERED.
/s/ Gary S. Katzmann
Judge
Dated: August 10, 2017
New York, New York