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In re Commerce Oil Co.

847 F.2d 291 (1988)

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In re Commerce Oil Co.

United States Court of Appeals for the Sixth Circuit
847 F.2d 291 (1988)

Facts

Finding that Commerce Oil Company (Commerce) (debtor) had violated the Tennessee Water Quality Control Act by putting brine into a creek, Tennessee’s commissioner of health and environment (the state) ordered that Commerce cease its actions, ordered Commerce to pay damages related to the clean-up, and assessed penalties. Commerce appealed to the Water Safety Board (board) and then filed for Chapter 11 bankruptcy one week later. The state filed a proof of claim in the bankruptcy action for the fines and penalties imposed against Commerce in the state proceeding. At a hearing in front of the board, Commerce claimed the hearing should be stayed under the Bankruptcy Code’s automatic-stay provision in 11 U.S.C. § 362. Commerce’s lawyer threatened to seek a contempt order if the board hearing was not stayed. The state stopped the hearing and asked the bankruptcy court to determine whether the police-power exception to the automatic stay would allow the state to continue the proceedings against Commerce. The bankruptcy court found that the state’s consideration of remedial measures and injunctive relief was not stayed under the police-power exception but that the state’s review and determination of any fines did not fall under the exception and was therefore stayed. The district court affirmed. The state appealed.

Rule of Law

Issue

Holding and Reasoning (Johnstone, J.)

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