In re Qimonda AG

• Decision Date: 16 February 2010
• Docket Number: No. 09-14766-RGM.,09-14766-RGM.
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re QIMONDA AG, Debtor.

425 B.R. 256

In re QIMONDA AG, Debtor.

No. 09-14766-RGM.

United States Bankruptcy Court, E.D. Virginia, Alexandria Division.

February 16, 2010.

Jeff A. Showalter, Morrison & Foerster, LLP, Washington, DC, Jeffrey Anderson Showalter, Morrison & Foerster LLP, McLean, VA, William A. Gray, Sands Anderson, Richmond, VA, for Debtor.

MEMORANDUM OPINION

ROBERT G. MAYER, Bankruptcy Judge.

The question presented is whether the automatic stay is applicable to an action pending before the International Trade Commission. The ITC argues that the action is an enforcement of its police or regulatory power and is excluded from the automatic stay.¹ 11 U.S.C. § 362(b)(4).

Prior Bankruptcy Proceedings

Qimonda AG filed an application with the Amtsgericht-Insolvenzgericht München ("the Munich Local Court") to open insolvency proceedings under the German insolvency law. The Munich Local Court appointed Dr. Michael Jaffé as the preliminary insolvency administrator. After receiving his report, the court opened the insolvency proceeding and appointed him the insolvency administrator.

Dr. Jaffé, as Qimonda's foreign administrator, filed a request for recognition of a foreign main proceeding under 11 U.S.C. § 1515 and a motion for provisional injunctive relief pending recognition of the foreign main proceeding. He sought preliminary application of § 362(a) to stay the ITC proceeding as to Qimonda. This court granted the provisional relief requested. In re Qimonda AG, 2009 WL 2210771 (Bankr.E.D.Va.2009). The court later entered a recognition order recognizing the German insolvency proceeding as a foreign main proceeding 11 U.S.C. § 1517. The automatic stay arises upon entry of a recognition order. 11 U.S.C. § 1520. LSI and the ITC argued at the recognition hearing that the automatic stay did not apply to the ITC proceeding because the proceeding was an enforcement proceeding under the ITC's police and regulatory powers. This Memorandum Opinion addresses that question.

Proceedings Pending before the ITC

LSI Corporation and Agere Systems, Inc., initiated an action against twenty respondents, including Qimonda, before the ITC under § 337 of the Tariff Act of 1930, 19 U.S.C. § 1337, et seq. They alleged that the respondents were infringing their patents and sought an order prohibiting any infringing devices from being imported into the United States. In the Matter of Certain Semiconductor Integrated Circuits Using Tungsten Metallization, Inv. No. 337-TA-648. Several respondents settled with LSI and Agere and were dismissed as parties to the action. The ITC reviewed and approved the settlements. In addition to the parties, the Office of Unfair Import Investigations, which is separate from the Commission itself, also participated in the case. It filed pleadings and argued motions, but the laboring oar was, and continues to be, pulled by the parties themselves. The action was pending before an administrative law judge when the recognition order was entered and the automatic stay became effective. The matter had been fully briefed and was ready for trial before the administrative law judge.

Discussion

Section 362(b)(4) states:

(b) The filing of a petition under section 301, 302, or 303 of this title ... does not operate as a stay—...

(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... 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 or organization's police or regulatory power.

11 U.S.C. § 362(b)(4).

Section 362(b)(4) requires three elements: (1) a governmental unit (2) that is commencing or continuing an action or proceeding (3) to enforce that governmental unit's police or regulatory power. Two questions are presented: Is the action pending before the ITC the continuation of an action by the ITC? Is the action an enforcement of the ITC's police and regulatory power?

Continuation of Action by Governmental Unit

The governmental unit must be the moving party, the party enforcing its police and regulatory power. The statutory language is clear: There must be a commencement or continuation of an action "by a governmental unit" and the police and regulatory power sought to be enforced must be "such governmental unit's" police and regulatory power. 11 U.S.C. § 362(b)(4) (emphasis added). The plain meaning of the provision is that a governmental unit must bring the action, not a private party. See Collier on Bankruptcy § 362.05 (15th ed. Rev., 2010).

Actions brought by private entities are not within the exception of § 362(b)(4). In Hudson River Sloop Clearwater, Inc. v. Revere Copper and Brass, Inc. (In re Revere Copper and Brass, Inc.), 32 B.R. 725 (S.D.N.Y.1983), Hudson River Sloop Clearwater, Inc., and National Resources Defense Council, Inc., two private, non-governmental entities, filed a suit against Revere Copper and Brass, Inc., which had filed a chapter 11 petition in bankruptcy almost a month before the suit was filed. Id. at 726. The debtor successfully sought to enjoin the suit and hold the plaintiffs in contempt for violating the automatic stay. On appeal to the District Court, the plaintiffs argued that "they should be given the status of a governmental unit" and that because they were "in the position of private attorney generals seeking to enforce the environmental laws they should be given the same status as governmental units with respect to" the debtor, that is, that the exception under § 362(b)(4) should apply to them as well. Id. at 727. The District Court disagreed and affirmed the Bankruptcy Court. It stated:

Not only is this provision explicitly limited to true governmental entities, but the legislative history of this definitional section provides:

Entities that operate through state action such as through the grant of a charter or license, and have no further connection with the state or federal government are not within the contemplation of the definition.

H.R.Rep. No. 595, 95th Cong., 1st Sess. 311 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 24 (1978), U.S.Code Cong. & Admin.News, pp. 5787, 5810, 6268.

Clearly, both the statutory language and the legislative history demonstrate that the term "governmental unit" in the bankruptcy code refers exclusively to actual governmental groups and not to organizations acting in a governmental capacity. The exception to the automatic stay for governmental units was intended to allow state, federal or foreign entities to continue to proceed or to commence actions against debtors.

Id. at 727. See also United States v. Environmental Waste Control, Inc., 131 B.R. 410, 422 (N.D.Ind.1991) (§ 362(b)(4) is confined to governmental authorities seeking to enforce regulations).

The ITC argues that it is the moving party and that LSI and Agere are simply complaining parties. This argument requires an examination of the roles of the ITC on the one hand and LSI and Agere on the other. LSI and Agere initiated the proceeding. The proceeding is pending before an administrative law judge, not the Commission itself.

LSI and Agere have controlled the litigation from the beginning. The ITC does not control the litigation before the administrative law judge. LSI and Agere negotiated settlements with various respondents who have been dismissed from the case. The ITC did not participate in the negotiation of the settlements. The administrative law judge hearing the matter did not participate in the negotiations of the settlements. There is no indication that the staff attorneys from the Office of Unfair Import Investigations had any significant participation either. It is true that the ITC approved the settlements, but this is little different from a bankruptcy court approving settlements or any other court granting motions to dismiss a party from the case.

The participation of the Office of Unfair Import Investigations is not control over the proceedings. There are three parties or groups of parties: the complainant who is asserting the validity of a patent; the respondent who is alleged to have infringed the patent; and a staff investigative attorney from the Office of Unfair Import Investigations. The staff attorney participates in the proceeding by filing pleadings and arguing matters before the administrative law judge, but he does not control or direct either the complainant's actions or the respondent's actions.

The closest that the ITC comes to controlling the litigation is the standing rules of procedure it promulgated. They are similar to the Federal Rules of Civil Procedure. See Rules of Practice and Procedure, 19 C.F.R. parts 201 and 210. They are applicable to all such actions and are intended to be fair and evenhanded to all the participants. They assist in the orderly disposition of matters before the administrative law judges. They do not influence the substantive rights of the parties and are not control over the litigation.

The reality is that the ITC and its administrative law judges are the forum before whom the action was brought by LSI and Agere and who are seeking the protection of their property rights. The proceeding is adversarial and subject to the adjudicative provisions of the Administrative Procedure Act, 5 U.S.C. §§ 551, et seq. The administrative law judge makes an initial determination which contains findings of fact and conclusions of law with respect to the issues in controversy. In this action, those issues include the validity of the patents, the scope of the patents, the infringement of the patents, and the scope of any licenses previously granted. Any party may petition the ITC to review the initial determination and to modify or reverse it. The ITC may also review the initial determination on its own motion. Rather than being the governmental...