Penn Terra Ltd. v. Department of Environmental Resources

The Pennsylvania Department of Environmental Resources (DER) found that coal mines operated by Penn Terra Limited (Penn Terra) (debtor) were violating environmental-protection laws. DER entered into a consent order with Penn Terra that required Penn Terra to bring the mines into compliance. Penn Terra failed to comply with the consent order and subsequently filed for Chapter 7 bankruptcy. DER brought an action against Penn Terra in a Pennsylvania commonwealth court seeking an injunction directing Penn Terra to comply with the consent order. The commonwealth court issued an injunction requiring Penn Terra to complete backfilling projects at the mines and implement plans for erosion and sedimentation control, among other things. The injunction did not direct Penn Terra to pay a specific amount to DER. However, complying with the injunction would have required Penn Terra to spend money, and Penn Terra was insolvent. Penn Terra filed a contempt petition against DER in bankruptcy court, arguing that the commonwealth-court proceeding violated 11 U.S.C. § 362(a)’s automatic stay of legal proceedings against a debtor during the pendency of a bankruptcy case. DER argued that the commonwealth-court action fell under 11 U.S.C. §§ 362(b)(4) and (b)(5)’s exception to the stay for actions by governmental units performed pursuant to the government’s police power, including the power to protect the environment. The bankruptcy court found that because the consent order required Penn Terra to spend money reclaiming the mines, DER’s commonwealth-court action was an action to enforce a money judgment, which did not fall within the exception. The bankruptcy court thus enjoined DER from enforcing the commonwealth-court injunction. The district court affirmed, and DER appealed.