United States v. Troxler Hosiery Co., Inc., C-84-322-G
| Decision Date | 27 July 1984 |
| Docket Number | B-82-02002C-11.,No. C-84-322-G,C-84-322-G |
| Citation | 41 BR 457 |
| Parties | UNITED STATES of America, Appellant, v. TROXLER HOSIERY CO., INC., Appellee. |
| Court | U.S. District Court — Eastern District of North Carolina |
Kenneth W. McAllister, U.S. Atty., Richard L. Robertson, Asst. U.S. Atty., Greensboro, N.C., David P. Grise and John R. Fleder, Office of Consumer Litigation, U.S. Dept. of Justice, Washington, D.C., for appellant.
A.L. Meyland of Block, Meyland & Lloyd, Gerald S. Schafer, trustee, Charles M. Ivey, The Committee of Unsecured Creditors of Ivey & Ivey, Greensboro, N.C., for appellee.
This matter came before the Court on appeal from the March 5, 1984 Order of the Honorable Rufus W. Reynolds, United States Bankruptcy Judge, denying plaintiff's Motion for Summary Judgment (Record on Appeal, Item 11). The Bankruptcy Court's order denied the United States' request for a declaratory judgment relieving it from the automatic stay of 11 U.S.C. § 362(a). The government seeks to collect a criminal fine and costs imposed on Troxler Hosiery Co., Inc. (Troxler), the debtor appellee, and contends that 11 U.S.C. § 362(b)(1) excepts such collection from the automatic stay. Gerald S. Schafer, Trustee for Troxler, asserts that collection of the criminal fine is not a criminal proceeding excepted by 11 U.S.C. § 362(b)(1). The Trustee further asserts that the fine is a money judgment of a governmental unit which under 11 U.S.C. § 362(b)(5) is not excluded from the automatic stay. The Court, having reviewed the Record on Appeal, considered the parties' briefs and heard arguments of counsel on June 26, 1984, will reverse the Bankruptcy Court's order.
In January 1978, the government commenced forfeiture proceedings against TRIS-treated sleepwear garments possessed by Troxler which it contended were hazardous substances. A district court order quashing the warrant of seizure was appealed to the United States Court of Appeals for the Fourth Circuit. On February 2, 1978, the Honorable Harrison A. Winter, United States Circuit Judge, entered an order prohibiting Troxler from removing the seized garments from the Middle District of North Carolina. This order was continued on March 8, 1978. On remand to the district court for the limited purpose of determining the appropriate disposition of the goods in the event they were subsequently found to be subject to condemnation, the district court concluded that the goods could not be released to Troxler for sale in foreign commerce. The Court Appeals agreed with this particular ruling of the district court. United States v. Articles of Hazardous Substance, etc. and Troxler Hosiery Co., 588 F.2d 39, 44 (4th Cir.1978). In May 1978, while Judge Winter's order was still in effect, Troxler, through the direction of its president, Robert A. Troxler, Sr., arranged for the sale and removal of the seized garments to Miami and Venezuela. The Fourth Circuit later ruled that the seizure of the goods was lawful. United States v. Articles of Hazardous Substance, 588 F.2d 39.
Criminal contempt proceedings against Troxler were instituted in the Fourth Circuit in May 1981. Troxler was found guilty of criminal contempt under 18 U.S.C. § 401(3),1United States v. Troxler Hosiery Co., 672 F.2d 365 (4th Cir.1982), and fined $80,000 plus costs. United States v. Troxler Hosiery Co., 681 F.2d 934 (4th Cir. 1982). In setting the fine, the court considered Troxler's ability to pay. 681 F.2d at 938. Troxler was given twelve (12) months from the date of Judgment, August 5, 1982, to pay the fine and costs totalling $82,733.48. Troxler's motion to reduce the fine, Fed.R.Crim.P. 35, was denied on November 15, 1982.
Troxler filed a voluntary petition under Chapter 11 of the Bankruptcy Code on November 3, 1982. On February 3, 1983, the government filed a proof of secured claim in the amount of the fine and costs, none of which had been paid. On October 5, 1983, the government filed an adversary proceeding complaint in bankruptcy seeking a declaratory judgment that the automatic stay did not apply to its attempts to collect the criminal fine. The bankruptcy proceeding was converted to a Chapter 7 liquidation proceeding on March 12, 1984.
Following two rounds of briefing and oral arguments, the Bankruptcy Court denied the government's request and ruled as a matter of law that the automatic stay applied to the United States' efforts to collect the contempt fine. The Bankruptcy Court order stated that the government's claim is a money judgment obtained in an action or proceeding by a governmental unit to enforce such governmental unit's police power under section 11 U.S.C. § 362(b)(5) which provides:
Under subsection (a)(2) of this section, . . . the enforcement of a judgment, other than a money judgment, obtained in an action or proceeding by a governmental unit to enforce such governmental unit\'s police or regulatory power is not stayed.
The Bankruptcy Court inappropriately relied on this subsection. A criminal contempt case is different from an action by a governmental unit to enforce its police or regulatory powers. The phrase "police or regulatory power" refers to the administration and enforcement of "state laws affecting health, welfare, morals, and safety. . . ." Missouri v. U.S. Bankruptcy Court, 647 F.2d 768, 776 (8th Cir.1981), cert. denied, 454 U.S. 1162, 102 S.Ct. 1035, 71 L.Ed.2d 318 (1982). The pertinent legislative history of the statute describes "police or regulatory power" as governmental action relating to consumer protection, environmental protection, fraud, safety, or similar police or regulatory laws. H.R. Rep. No. 95-595, 95th Cong., 2d Sess. 343, reprinted in 1978 U.S. Code Cong. & Ad. News 5787, 6299; S.Rep. No. 95-989, 95th Cong., 2d Sess. 52, reprinted in U.S. Code Cong. & Ad. News 5787, 5838. Section 362(b)(5) permits a direct application of a governmental unit's police or regulatory powers against a debtor but prohibits actions aimed at obtaining a pecuniary advantage. In re Aegean Fare, Inc., 35 B.R. 923 (Bankr.D.Mass.1983). Prosecution of a criminal case is not, however, aimed at obtaining a pecuniary advantage. It is designed to punish offenders of the criminal law and serve as a deterrence to others. If Congress intended for police power to include enforcement of criminal laws, 11 U.S.C. § 362(b)(1) would be surplusage. While sections 362(b)(1) and (5), 11 U.S.C., are indeed related since they identify situations when proceedings against an estate are not stayed, they concern different topics. Only section 362(b)(1) is relevant to the issue in this case.2
The Court's task in a case of statutory construction is to interpret the words of the statute in light of the purposes Congress sought to serve. Norfolk Redevelopment and Housing Authority v. Chesapeake and Potomac Telephone Co., ___ U.S. ___, ___, 104 S.Ct. 304, 307, 78 L.Ed.2d 29, 34 (1983). The starting point for interpreting a statute is the language of the statute itself. Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766, 772 (1980).
Section 362(b)(1), 11 U.S.C., provides that "the filing of a petition in bankruptcy . . . does not operate as a stay . . . under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor." It is undisputed that the contempt proceedings against Troxler were criminal in nature. Sentencing of a criminal defendant, whether it be imprisonment or imposition of a fine, fixes and declares the legal consequences of predetermined guilt. United States v. Henry, 709 F.2d 298, 310 (5th Cir.1983). A criminal sentence without accompanying authority to ensure service by the defendant as ordered would be meaningless. Action by the government to enforce the terms of a sentence are plainly a continuation of the entire criminal proceeding. The fact that the government may resort to collection means which are civil in nature3 does not transform a criminal case into a civil one.
The Trustee's position is that 11 U.S.C. § 362(b)(1) excepts from the automatic stay a criminal prosecution against the debtor and service of a prison term but does not lift the stay for purposes of collecting money from a criminal/debtor (or property of its estate) because of the detrimental effect such collection would have on the bankruptcy administration. The language of the statute does not support the Trustee's position. It makes no distinction between sentences of imprisonment or fines and is broad enough to include enforcement of a judgment through pecuniary collection means from the debtor or property of the estate. Section 362(a), 11 U.S.C., contains eight subsections, all of which define different proceedings. Noteworthy here are subsections (1) and (2). Subsection (1) stays judicial, administrative, and other proceedings to recover a claim against the debtor. Subsection (2) stays "the enforcement, against the debtor or property of the estate, of a judgment obtained before the commencement of the bankruptcy case. . . ." Thus, section 362(a)(2) standing alone stays enforcement procedures of the nature which the government would like to employ against Troxler.
The eight subsections of 11 U.S.C. § 362(b) identify matters which are not affected by part or all of the stays variously enunciated in 11 U.S.C. § 362(a). The section 362(b)(1) criminal proceedings exception applies without limitation to any specific subsection of section 362(a). The breadth of section 362(b)(1) is significant when contrasted with the exceptions set forth in sections 362(b)(4) & (5) which do not refer to the all inclusive nature of section 362(a) but which are specifically limited in their application to subsections 362(a)(1) & (2), respectively.
When Congress includes particular language in one section but omits it in another section of the same act, it is generally...
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