Kupperstein v. Schall (In re Kupperstein)

• Citation: 994 F.3d 673
• Decision Date: 22 April 2021
• Docket Number: No. 20-1472,20-1472
• Parties: IN RE: Donald C. KUPPERSTEIN, Debtor, Donald C. Kupperstein, Appellant, v. Irene Schall, Personal Representative of the Estate of Fred Kuhn; and Executive Office of Health and Human Services, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

994 F.3d 673

IN RE: Donald C. KUPPERSTEIN, Debtor,

Donald C. Kupperstein, Appellant,

v.Irene Schall, Personal Representative of the Estate of Fred Kuhn; and Executive Office of Health and Human Services, Appellees.

No. 20-1472

United States Court of Appeals, First Circuit.

April 22, 2021

David G. Baker, Boston, MA, for appellant.

Roger Stanford, Salt Lake City, UT, with whom Moses Smith, Markey & Walsh was on brief, for appellee Irene B. Schall.

Paul T. O'Neill, Assistant General Counsel, for appellee Executive Office of Health and Human Services.

Before Howard, Chief Judge, Lipez and Thompson, Circuit Judges.

THOMPSON, Circuit Judge.

BACKGROUND

The short story, sticking with only what is relevant here, is that years ago, Donald C. Kupperstein, with the help of his comrade, Thomas Sheedy, improperly entangled himself with a piece of real property on Reservoir Street in Norton, Massachusetts and lined his pockets with rents from various tenants he installed.¹

In re Kupperstein, 943 F.3d 12, 15-16 (1st Cir. 2019). That property belonged to the estate of Fred Kuhn (the estate is now managed by Irene Schall) and that estate owed a debt to the Massachusetts Office of Health and Human Services, better known as "MassHealth."² Id. As a result of Kupperstein's disinterest in relinquishing his claim to the property, all of these parties ended up in Massachusetts Probate Court, Suffolk Superior Court, and Massachusetts Land Court. Motions were filed, orders were entered, and, where it mattered, Kupperstein lost on the merits. Ultimately, the probate court voided the property's transfer (so that Kupperstein and Sheedy had no claim to it) and ordered the duo to pay to MassHealth "any and all" rents collected from the property. Id. at 16-18. Kupperstein and Sheedy disregarded the probate court's order and continued to rent the property for their own gain. Id. at 17. In mid-2017, Sheedy signed over his interest in the property solely to Kupperstein, but neither the estate nor MassHealth saw a dime. Id. So, on August 4, 2017, the probate court held Kupperstein and Sheedy in contempt.

Evidently unphazed, Kupperstein rented the property to new tenants about a month later. Id. The probate court did not look kindly upon this and issued an order forbidding Kupperstein from executing any agreements involving the property, voiding anything he had previously executed, and banning Kupperstein, Sheedy, and their agents from entering the property at all. Id.

On December 22, 2017, the probate court again found Kupperstein and Sheedy in contempt and reiterated the order for each to pay the rents they had been collecting to the estate or MassHealth.³ Id. The probate court also ordered that the pair hand in any keys or other ways to access the property and all documents and leases associated with the property. Id. Plus, the probate court threatened to jail Kupperstein and Sheedy for thirty days if they did not pay MassHealth $5,400. Id. Kupperstein and Sheedy turned in only $3,000 and no keys or leases. Id. Unimpressed, the probate court set a hearing for January 12, 2018, and directed each man to explain why he should not be jailed for contempt for thirty days. Id.

On January 11, 2018, the day before his contempt hearing, Kupperstein filed for bankruptcy in the United States Bankruptcy Court for the District of Massachusetts. Id. at 17-18. To keep things interesting, Kupperstein listed the Kuhn estate as his own property, valued at $350,000. Id.

Kupperstein did show up for his January 12 court date and explained to the probate court that it could not touch him because his bankruptcy filing triggered an automatic stay of court proceedings against him. See 11 U.S.C. § 362(a).⁴ The probate court was unmoved and instead put Kupperstein in a holding cell for the day for violating the court's orders four times. In re Kupperstein, 943 F.3d at 18. The probate court yet again ordered Kupperstein to give up the keys to the property, but he maintained he did not have them. Id.

At the next court date, Kupperstein was almost ordered to serve his thirty-day sentence, but then produced $5,400 in cash and the elusive keys to the property. Id.

Then, he vanished. Id. The probate court held Kupperstein in contempt twice more for missing three court dates and continuing to violate its previous orders. Id. The probate court ordered Kupperstein and Sheedy to pay over $50,000 in outstanding rents and over $10,000 in attorneys' fees as sanctions for their repeated flouting of the court's orders. Id. To drive its point home, the court warned that Kupperstein and Sheedy would be jailed for thirty days unless they worked out a payment plan with MassHealth. Id. The probate court issued warrants for his arrest, but Kupperstein remained at large. Id.

Tired of waiting for Kupperstein to return from his sojourn, Schall, in her capacity as the estate's representative, and MassHealth each filed motions in the bankruptcy court to lift the automatic stay as it applied to any state court actions, so those cases could proceed.⁵ Id. Kupperstein (through counsel because he was still AWOL) opposed those motions and moved that the bankruptcy court hold MassHealth in contempt and impose monetary sanctions because MassHealth participated in the probate court's various contempt proceedings in violation of the automatic stay. Id. at 18.

In nearly identical orders, the bankruptcy court found "good cause" to "lift[ ]" the stay and ordered that the state court actions could proceed, except that Schall and MassHealth could "not seek to enforce against ... Kupperstein, any judgment with respect to the $191,741.79 MassHealth reimbursement claim or attempt to collect from Kupperstein all or any part thereof." The court lifted the automatic stay in the state court actions "[i]n all other respects ... including the assessment by the courts against Kupperstein of any restitution and sanction amounts." In support of its decision, the bankruptcy court cited In re Dingley, 852 F.3d 1143 (9th Cir. 2017) and Alpern v. Lieb, 11 F.3d 689 (7th Cir. 1993), two cases where appellate courts affirmed the application of the so-called "police power" exception to the automatic stay.

Soon after, the bankruptcy court denied Kupperstein's motion to hold MassHealth in contempt and to impose sanctions. In re Kupperstein, 943 F.3d at 19. Citing the same cases it cited in its orders granting relief from the stay, the bankruptcy court analyzed the police power exception in more detail and noted that "[a] court's imposition and enforcement of a monetary sanction for contemptuous conduct is an exercise of its police power and is excluded from the automatic stay by Bankruptcy Code § 362(b)(4)." So, the state court actions that "involved the imposition and enforcement of sanction awards against [Kupperstein] did not violate the automatic stay" and, therefore, neither did MassHealth's participation in those proceedings.

Miffed, Kupperstein appealed those decisions to the district court, but fared no better.⁶ In re Kupperstein, 943 F.3d at 19. The district court read all three orders "as having rested -- at least in part, as a separate and independent ground -- on a discretionary determination that relief from the automatic stay was warranted 'for cause' under § 362(d)(1)." In re Kupperstein, Nos. 18-11772-LTS, 18-11851-LTS, 2020 WL 1939719 at *7, 2020 U.S. Dist. LEXIS 70883 at *11 (D. Mass. Apr. 20, 2020). The district court then noted that Kupperstein waived any argument on that point by failing to address it in his briefing. Id. at *––––, 2020 U.S. Dist. LEXIS 70883 at *12. Taking a belt and suspenders approach, the district court further concluded that the bankruptcy court did not abuse its discretion when finding the balance of the equities favored lifting the stay. Id. Turning to the denial of Kupperstein's motion to hold MassHealth in contempt, the district court affirmed the bankruptcy court's decision, echoing the bankruptcy court's reasoning. Id. at *–––– – ––––, 2020 U.S. Dist. LEXIS 70883 at 14-17.

Kupperstein now appeals, asking us to hold that the automatic stay is still in effect and remand this case to the bankruptcy court to sanction MassHealth for violating that stay.⁷

THE POLICE POWER EXCEPTION

When a debtor files for bankruptcy, the petition activates an automatic stay of various judicial and administrative proceedings against the debtor. See 11 U.S.C. § 362(a). The intention is to "give the debtor breathing room by ‘stop[ping] all collection efforts, all harassment, and all foreclosure actions.’ " In re Soares, 107 F.3d 969, 975 (1st Cir. 1997) (quoting H.R. Rep. No. 95-595, at 340 (1977)). To that end, the stay forbids judicial proceedings against the debtor to progress (even those that had begun before the commencement of the bankruptcy case) until a federal court lifts the stay or closes the case. See id. (citing 11 U.S.C. § 362(a) ).

The filing of a bankruptcy petition does not stay a governmental proceeding by "a governmental unit ... to enforce [its] 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).

To determine if the police power exception applies, we evaluate whether the government's action is to effectuate a "public policy" or to further its own "pecuniary interest." Parkview Adventist Med. Ctr. v. United States, 842 F.3d 757, 763 (1st Cir. 2016) (quoting In re Nortel Networks, Inc., 669 F.3d 128, 140 (3d Cir. 2011) ). If "the governmental action ‘is designed primarily to protect the public safety and welfare,’ " then it passes the "public policy" test and is excepted from the automatic stay. Id. (quoting In re McMullen, 386 F.3d 320, 325 (1st Cir. 2004) ). In contrast, if the government is attempting to proceed against the debtor for a "pecuniary purpose," that is, "to...