## Facts

- Tennessee environmental regulators initiated an administrative enforcement action against Commerce Oil Company for alleged illegal brine discharges into Stowers Creek from certain wells.
- The Commissioner’s order sought (1) cessation of discharges, (2) repairs to the wells, and (3) monetary relief: $1,235.37 in damages and $15,000 in civil penalties.
- Commerce appealed the Commissioner’s action to the Tennessee Water Quality Control Board.
- Shortly after filing the administrative appeal, Commerce filed a Chapter 11 bankruptcy petition; the State filed a proof of claim in bankruptcy for $16,235.37 based on the assessed amounts.
- At a Board hearing, Commerce asserted the automatic stay under 11 U.S.C. § 362(a) barred continuation of the administrative proceeding; the State paused and sought a bankruptcy-court ruling on whether the § 362(b)(4) police-power exception applied.

## Issues

1. Whether a state administrative proceeding enforcing environmental law, including determining and fixing civil penalties and damages, falls within the 11 U.S.C. § 362(b)(4) police and regulatory power exception to the automatic stay.
2. Whether the automatic stay bars the State from adjudicating and fixing the amount of monetary penalties and damages, as distinguished from collecting those amounts.

## Decision

- The Sixth Circuit reversed.
- The court held that the State’s administrative proceeding to continue enforcement of the Tennessee Water Quality Control Act, including fixing liability and amounts for civil penalties and damages, is excepted from the automatic stay under § 362(b)(4).
- The court distinguished between (1) continuing the regulatory proceeding to determine liability and amounts, which may proceed, and (2) collecting any resulting money judgment, which remains limited by the Bankruptcy Code’s stay structure, including § 362(b)(5).

## Legal Principles

- Section 362(b)(4) permits governmental units to continue actions to enforce police or regulatory power notwithstanding the automatic stay, particularly where the action serves health, safety, welfare, or environmental objectives.
- Regulatory proceedings may proceed to determine and fix civil penalties and damages as part of enforcing public law; the monetary component does not alone convert the action into a stayed debt-collection effort.
- The Bankruptcy Code preserves a line between adjudication/fixing of regulatory liability (generally allowed under § 362(b)(4)) and enforcement/collection of a money judgment (generally restricted, reflected in § 362(b)(5)).
- In evaluating § 362(b)(4), courts consider whether the governmental action primarily advances public policy (permitted) rather than the government’s pecuniary interest in the debtor’s property (more likely stayed).

## Conclusion

The Sixth Circuit held that Tennessee could continue its environmental administrative enforcement proceeding against the Chapter 11 debtor to determine and fix civil penalties and damages under state law because the action was an exercise of police and regulatory power under § 362(b)(4), while leaving collection of any money judgment subject to bankruptcy limits.


In re Commerce Oil Co., 847 F.2d 291 (6th Cir. 1988)