Fifth Circuit Upholds Regulatory Powers Exception to the Automatic Stay
Citation: Halo Wireless, Inc. v. Alenco Communications Inc. (In re Halo Wireless, Inc.), Case No. 12-40122 (5th Cir. June 18, 2012)
Halo Wireless, Inc. was a small telecommunications company that provides wireless phone and data service to its customers pursuant to a license from the Federal Communications Commission (“FCC”). Starting in May 2011, private telephone companies (the “Private Plaintiffs”) commenced proceedings in various state public utility commissions (the “PUC Proceedings”) against Halo, alleging claims arising under both federal and state telecommunications laws that sought to enforce private contracts between the parties.
On August 8, 2011, Halo filed a chapter 11 petition, removed the various PUC Proceedings to federal court, pursuant to 28 U.S.C. § 1452, and it then filed motions to have those actions transferred to the bankruptcy court. In response, the Private Plaintiff’s claimed that the PUC Proceedings were exempt from the automatic stay
under section 362(b)(4) of the Bankruptcy Code
The Bankruptcy Court held that (i) section 362(b)(4) applied to the PUC Proceedings, allowing the actions to proceed, and (ii) the state adjudicate bodies could not (a) liquidate the amount of any claim against Halo or (b) take any action that affects the debtor-creditor relationship between Halo and any of its creditors or potential creditors. The Bankruptcy Court certified the appeal directly to the Fifth Circuit
pursuant to 28 U.S.C. § 158(d)(2), because there was no controlling case law on the issue.
Affirming the Bankruptcy Court, the Fifth Circuit held that the governmental police or regulatory power exception to the automatic stay provided in section 362(b)(4) of the Bankruptcy Code applied to the PUC Proceedings against Halo. The two main issues on appeal were whether (1) the PUC Proceedings were being “continued by” a governmental unit, and (2) those proceedings were in furtherance of the states’ police and regulatory powers
The Fifth Circuit found that “the PUC [Proceedings] [met] the first requirement of the exception to the automatic stay, because they [were] being continued by governmental units” as part of a state regulatory proceeding, without regard to who initially filed the complaint.
As to the second issue, the Fifth Circuit found that the PUC Proceedings were in furtherance of the states’ police and regulatory powers under both (1) the pecuniary interests test, which asks whether the government primarily seeks to protect a pecuniary governmental interest in the debtor’s property, as opposed to protecting the public safety and health,” and (2) the public policy test, which asks whether the government is effectuating public policy rather than adjudicating private rights.” Specifically, the Fifth Circuit found that the public utilities commissions
were seeking to effectuate public policies through the PUC Proceedings, which to enforce regulatory statutes. Moreover, the PUC Proceedings would not be furthering any party’s pecuniary interest because the bankruptcy judge’s order prevented the issuing of monetary judgments as part of the PUC Proceedings. Thus, even though the PUC actions had been initiated by private parties, because they were all state regulatory proceedings, the Fifth Circuit held that they were excepted from the automatic stay under section 362(b)(4) of the Bankruptcy Code.
Jolly, Benavides, and Dennis
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