## Facts

- Donald C. Kupperstein, a Massachusetts attorney, filed a Chapter 7 petition while embroiled in Massachusetts probate proceedings concerning a residential property formerly belonging to Fred W. Kuhn’s estate.
- The estate owed MassHealth about $191,000, and the property was the estate’s principal asset (about $350,000).
- The probate court voided a purported transfer by which Kupperstein and an associate claimed the property, and ordered them to disgorge “any and all” rents collected and to surrender keys and related documents.
- After repeated noncompliance, the probate court held Kupperstein in contempt multiple times, imposed coercive sanctions (including a threatened 30-day jail sanction), and ordered additional payments and turnover.
- On January 11, 2018—one day before a scheduled contempt hearing—Kupperstein filed for bankruptcy and asserted the automatic stay barred further probate-court action; the probate court continued contempt enforcement.
- In bankruptcy court, MassHealth and the estate representative sought relief from the automatic stay to continue state-court proceedings; Kupperstein sought contempt sanctions against MassHealth for alleged stay violations.
- The bankruptcy court held the probate contempt proceedings were excepted from the stay under 11 U.S.C. § 362(b)(4), denied Kupperstein’s stay-violation contempt request, and granted stay relief for state-court litigation except as to adjudicating MassHealth’s claim against the bankruptcy estate.
- The district court affirmed; Kupperstein appealed to the First Circuit.

## Issues

1. Whether the probate court’s contempt proceedings and coercive sanctions fell within the 11 U.S.C. § 362(b)(4) “police and regulatory power” exception to the automatic stay.
2. Whether, if the contempt proceedings were excepted from the stay, the bankruptcy court erred in refusing to hold MassHealth in contempt (and to impose sanctions) for participating in those proceedings.

## Decision

- The First Circuit affirmed the district court’s judgment upholding the bankruptcy court’s orders.
- The court held the probate court’s contempt proceedings were excepted from the automatic stay under § 362(b)(4) because they primarily served to enforce court orders and vindicate judicial authority, not to collect a debt.
- Because the state contempt proceedings were not stayed, MassHealth’s participation did not violate § 362(a), and denial of Kupperstein’s contempt motion and sanctions request was proper.
- The court upheld the bankruptcy court’s tailored stay relief permitting state-court litigation to continue, while reserving adjudication of MassHealth’s claim against the bankruptcy estate to the bankruptcy process.

## Legal Principles

- The automatic stay under 11 U.S.C. § 362(a) does not bar actions by a governmental unit to enforce its police and regulatory power under § 362(b)(4).
- In applying § 362(b)(4), courts examine the purpose and effect of the state action, distinguishing public-policy enforcement from actions driven by a pecuniary interest or ordinary debt collection.
- State-court contempt and sanctions proceedings aimed at compelling compliance with court orders, deterring misconduct, and protecting the integrity of judicial processes may qualify for the § 362(b)(4) exception, even if they have financial consequences or incidentally benefit specific parties.
- When the challenged state action is excepted from the stay, a creditor or governmental unit’s participation in that action cannot support contempt or sanctions for an alleged stay violation.

## Conclusion

The First Circuit held that coercive probate-court contempt proceedings enforcing turnover and compliance orders related to estate property fell within the Bankruptcy Code’s § 362(b)(4) police-power exception, so the Chapter 7 automatic stay did not bar them and MassHealth could not be sanctioned for participating in them.


Kupperstein v. Schall (In re Kupperstein), 994 F.3d 673 (1st Cir. 2021)