In re Compton Corp.

Citation90 BR 798
Decision Date09 August 1988
Docket NumberNo. CA4-86-647-K.,CA4-86-647-K.
PartiesIn re COMPTON CORPORATION, Debtor. COMPTON CORPORATION, By and Through Walter KELLOGG, Trustee, Appellee, v. The UNITED STATES DEPARTMENT OF ENERGY, Appellant.
CourtU.S. District Court — Northern District of Texas

Gardere & Wynne, David R. Snodgrass, Philip J. Nicholson, Diane G. Hoover Reed, Dallas, Tex., for appellee.

Harry G. Bayne, Dept. of Energy, Dallas, Tex., Arthur S. Weissbrodt and Patricia D. Graham, U.S. Dept. of Energy, Office of Gen. Counsel, Washington, D.C., for appellant.

MEMORANDUM OPINION

BELEW, District Judge.

Pending before the Court in the above-styled and numbered cause is Appellant United States Department of Energy's (hereinafter "DOE") appeal from two Orders of the United States Bankruptcy Court, Northern District of Texas. The first Order, entered June 27, 1984 as amended July 12, 1984, subordinates the DOE's bankruptcy claim (claim No. 812) against Compton as a penalty under section 726(a)(4) of the Bankruptcy Code, 11 U.S.C. § 726(a)(4), 40 B.R. 875. The second Order, entered June 27, 1984, enjoins the DOE under sections 362(a) and 105(a) of the Bankruptcy Code, 11 U.S.C. §§ 362(a) & 105(a), from litigating the merits of its claim before the Office of Hearings and Appeals (hereinafter "OHA"), 40 B.R. 880. The OHA is the adjudicatory body of the DOE. Appellee filed a responsive brief, Appellant filed an amended brief, oral arguments were heard before this Court, and both parties filed post-oral argument briefs. Appellate jurisdiction is based on 28 U.S.C. § 158. Both parties agree that the issue to be decided on appeal is the propriety of the Bankruptcy Court's entry of the above-referenced two Orders. After careful consideration of the arguments of counsel, briefs submitted, and the applicable law, the Court comes to the following decision.

FACTS

The bankrupt, Compton, was a crude oil reseller during the period when mandatory petroleum price and allocation regulations were in effect. The DOE's claim against Compton is for $8,851,300.93 in oil price overcharges in violation of the regulations which were promulgated pursuant to the Economic Stabilization Act of 1970 (hereinafter "ESA"), 12 U.S.C. § 1904 note, and the Emergency Petroleum Allocation Act of 1973 (hereinafter "EPAA"), 15 U.S.C. §§ 757 et seq. In May of 1982, an involuntary bankruptcy petition under Chapter 7 of the Bankruptcy Code was filed against Compton and its wholly owned subsidiary, one Gratex Corporation.1 The case was later converted to a Chapter 11 reorganization proceeding and then ultimately back to a Chapter 7 liquidation. The DOE's claim was filed pursuant to section 209 of the ESA as incorporated into section 5(a)(1) of the EPAA, 15 U.S.C. § 754(a)(1). Said claim was calculated via a Proposed Remedial Order (hereinafter "PRO")2 issued by the agency's enforcement arm, the Economic Regulatory Administration (hereinafter "ERA"), as the amount received by the bankrupt through illegal certifications and markups between December, 1978 and December, 1980.3 The DOE herein argues that its claim was improperly subordinated as a penalty because, in its opinion, the claim is more accurately characterized as one for restitution. With regard to the injunctive relief afforded Appellee herein, the DOE argues that its claim is exempt from the automatic stay provisions of section 362 of the Bankruptcy Code, and that the Bankruptcy Court abused its discretion by enjoining the DOE in reliance on section 105 of the Bankruptcy Code. As one would expect, Appellee takes exception to all three of the DOE's contentions.

DISCUSSION

At the outset, the Court notes that it is bound to accept the factual findings of the Bankruptcy Court unless such findings are "clearly erroneous." Fed.R.Civ.P. 52(a); In re: Braniff Airways, Inc., 783 F.2d 1283, 1287 (5th Cir.1986); In re: Missionary Baptist Foundation of America, 712 F.2d 206, 209 (5th Cir.1983). However, conclusions of law are fully reviewable by this Court. Dallas/Fort Worth Regional Airport Board v. Braniff Airways, Inc., 26 B.R. 628, 630 (N.D.Tex.1982) (citations omitted).

I. Penalty vis-a-vis Restitution

In the Court's opinion, the Bankruptcy Court's characterization of the DOE's claim as a penalty is purely a determination of law. In so characterizing claim No. 812, the Bankruptcy Court deemed the DOE's claim to be a fourth priority claim pursuant to section 726(a)(4) of the Bankruptcy Code, 11 U.S.C. § 726(a)(4), which provides in pertinent part that a claim is of the fourth priority if it is in "payment of any allowed claim, whether secured or unsecured, for any fine, penalty, or forfeiture, or for multiple, exemplary, or punitive damages . . . to the extent that such fine, penalty, forfeiture, or damages are not compensation for actual pecuniary loss suffered by the holder of such claim." Id.

In support of its argument that its claim is not a "penalty" for purposes of section 726(a)(4) of the Bankruptcy Code, the DOE relies almost exclusively on an opinion of the United States Temporary Emergency Court of Appeals (hereinafter "TECA")4, to-wit, United States Department of Energy v. West Texas Marketing Corporation, 763 F.2d 1411 (TECA 1985), on remand, 82 B.R. 829 (N.D.Tex.1988). Specifically, the DOE successfully argued in that case that its claim was one for restitution and thus was entitled to a second priority as that of any other general unsecured creditor pursuant to section 726(a)(2) of the Bankruptcy Code, 11 U.S.C. § 726(a)(2). See West Texas Marketing, 763 F.2d at 1426. However, Compton herein argues, as did appellee in West Texas Marketing, that the DOE's claim is wholly in the nature of a penalty since the "holder of such claim", i.e., the DOE, did not itself suffer any "actual pecuniary loss" as per the express language of section 726(a)(4) of the Bankruptcy Code. Alternatively, Compton argues that the DOE's claim can be fairly characterized as restitution only to the extent that the DOE can actually identify and reimburse the parties harmed by the illegal overcharges and certifications.5Accord West Texas Marketing, 82 B.R. at 830. In support of its alternative arguments in this regard, Compton offers a plethora of analogous case law that, although decided in different contexts, squarely holds that in the absence of an actual pecuniary loss, claims against a bankrupt are indeed penalties for purposes of section 726(a)(4) of the Bankruptcy Code. See, e.g., Simonson v. Granquist, 369 U.S. 38, 82 S.Ct. 537, 7 L.Ed.2d 557 (1962); In re Unified Control Systems, Inc., 586 F.2d 1036 (5th Cir.1978) (per curiam); see also 3 Collier on Bankruptcy, 381-82 (14th ed. 1977). Compton also argues that the DOE's choice6 to proceed under section 209 of the ESA is further support for its position since pursuit of a section 209 remedy does not foreclose an injured party's option to seek private redress under the ESA's section 210.7

However, while this Court is of the opinion that the authorities proffered by Compton are well-reasoned and arguably quite consistent with a major policy underlying the Bankruptcy Code, to-wit, conservation of the estate's assets so there may be equitable distribution of same to those creditors who have suffered pecuniary loss,8 we are constrained to follow the dictates of the TECA as expressed in West Texas Marketing, supra.9 In that opinion, on petition for rehearing (per curiam), the TECA unequivocally held that the DOE's claim therein was "clearly for restitution and not for a penalty." 763 F.2d at 1426.10Accord United States v. Sutton, 795 F.2d 1040, 1061 (TECA 1986) ("An award of restitution under the ESA's § 209 is an equitable remedy, and not a penalty."), cert. denied, 479 U.S. 1030, 107 S.Ct. 873, 93 L.Ed.2d 828 (1987). The court reasoned that the clear wording of section 209 of the ESA, as incorporated into the EPAA, dictates such a conclusion. West Texas Marketing, 763 F.2d at 1426. The court went on to note that a claim does not first have to be reduced to judgment in order to be allowed in bankruptcy, and that in any event, "whatever its amount is, the DOE's claim is not for `any fine, penalty or forfeiture, or for multiple or exemplary, or punitive damages,' and thus cannot lawfully be relegated to the fourth priority." Id. (emphasis added).11

Further, in construing the Bankruptcy Code's definition of "fourth priority" in relation to the DOE's section 209 claim in West Texas Marketing, the TECA reasoned that "the question of whether a claim is `compensation for actual pecuniary loss suffered by the holder of such claim' only arises when a penalty is involved." Id. (quoting 11 U.S.C. § 726(a)(4)). Concluded the court: "As no penalty is involved here whether the DOE suffered actual pecuniary loss is immaterial." Id. Finally, and perhaps most significantly, the TECA expressly vitiated Appellee's alternative argument herein that the DOE's claim can be for restitution only to the extent that it can identify and reimburse the parties or entities actually injured as a result of Compton's illegal overcharges. "WTM's West Texas Marketing's opinion as to the effectiveness of the DOE in distributing funds collected to the actual parties who were overcharged cannot change the restitutionary character of the DOE's claim." Id. (emphasis added).12See also United States v. Exxon Corp., 773 F.2d 1240, 1286 (TECA 1985) ("Central purpose of restitution is to determine . . . amount by which . . . wrongdoer was unjustly enriched and then to make him disgorge that amount. No proof . . . required that . . . plaintiff was damaged, much less . . . amount of any damage.") (emphasis original) (quoting Citronelle-Mobile Gathering, Inc. v. Edwards, 669 F.2d 717, 722 (TECA), cert. denied, 459 U.S. 877, 103 S.Ct. 172, 74 L.Ed.2d 141 (1982)), cert. denied, 474 U.S. 1105, 106 S.Ct. 892, 88 L.Ed.2d 926, reh'g denied, 475 U.S. 1112, 106 S.Ct. 1526, 89 L.Ed.2d 923 (1986), reh'g denied, ___ U.S....

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