Application of the Automatic Stay Against Environmental Claims

Adam P. Strochak, of Weil, Gotshal & Manges LLP, considers the extent to which an environmental action is precluded by application of the Bankruptcy Code section 362 automatic stay or the bankruptcy courts discretionary power under Code section 105. This analysis is an excerpt from Collier Monograph: Environmental Issues in Bankruptcy Cases (LexisNexis Matthew Bender 2009).
Under section 362(a) of the Bankruptcy Code, a bankruptcy petition imposes an automatic stay of all judicial, administrative or other actions or proceedings against the debtor or the enforcement of any judgment obtained before the filing of the petition. Certain governmental proceedings are exempt from the automatic stay under the police or regulatory power exception. Actions brought for the enforcement of monetary judgments, however, are not subject to the police powers exception and are therefore barred by the automatic stay. Where environmental claims are not subject to the automatic stay, a debtor may under certain circumstances petition the bankruptcy court for a discretionary stay of governmental enforcement proceedings and injunctions pursuant to section 105(a).

Certain Environmental Actions Are Subject to the Automatic Stay

Section 362(b)(4) provides that the filing of a bankruptcy petition does not operate as a stay of any action by a governmental unit to enforce such governmental unit's . . . police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit's . . . police or regulatory power. Thus, even an action subject to the police power exception to the automatic stay must cease before execution of any resulting money judgment.

An important controversial issue is what type of environmental proceedings, and what stage in the proceeding, constitutes the enforcement of a money judgment. Notwithstanding debtors' arguments that CERCLA section 107 costs recovery actions and actions to impose fines are merely attempts to collect on prepetition debts and are therefore actions for enforcement of a money judgment, courts generally have held that the government may pursue the litigation to judgment, but is barred by the automatic stay from enforcing that judgment. [footnotes omitted]