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In re Commonwealth Cos.

United States Court of Appeals for the Eighth Circuit

February 16, 1990, Submitted ; September 6, 1990, Filed

No. 89-1797NE


 [*520]  MAGILL, Circuit Judge

The United States (the government) appeals from the district court's judgment affirming the bankruptcy court's denial of the government's motion for exception from the Bankruptcy Code's automatic stay under 11 U.S.C. § 362(b)(4), or, in the alternative, relief from the stay for cause under § 362(d)(1). The government's motion sought a ruling that it could join the debtors, Commonwealth Companies, Inc. and its subsidiary, Commonwealth Electric Company, Inc., in a pending civil fraud action brought against officers of the debtor corporations [**2]  and others under the False Claims Act (FCA), 31 U.S.C. §§ 3729-3733. We hold that § 362(b)(4) excepts the government's proposed FCA action against the debtors from the automatic stay up to and including the entry of a money judgment. 2 Accordingly, we reverse the judgment of the district court.

On August 10, 1987, the debtors filed a Chapter 11 bankruptcy petition in the District of Nebraska. Four days later, the government brought a civil fraud action under the FCA in federal court in Tennessee, alleging that the debtor corporations, three of their officers, and other parties had conspired to rig bids on an electrical construction subcontract for a waste water treatment plant in Tennessee. The government had paid seventy-five percent of the costs of the project through a grant awarded by the United [**3]  States Environmental Protection Agency. The complaint stated that the bid-rigging conspiracy had caused the submission of false and inflated claims, resulting in actual damages to the government totaling approximately $ 778,000. For the alleged violations of the FCA, the government requested treble damages, a $ 10,000 penalty for each false or inflated claim, and interests and costs.

Because the debtors had filed a bankruptcy petition four days earlier, the  [*521]  government's complaint did not name them as defendants. On August 25, 1987, the government filed a proof of claim in the bankruptcy court, asserting that it held an unsecured claim against the debtors for approximately $ 2,723,961. In seeking leave from the bankruptcy court to join the debtors in the Tennessee lawsuit, the government agreed that if it were permitted to join the debtors, it would not seek enforcement of the requested money judgment but only entry of judgment, which would fix the amount of the debtors' liability for violation of the FCA. 3 

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913 F.2d 518 *; 1990 U.S. App. LEXIS 15704 **; Bankr. L. Rep. (CCH) P73,610; 20 Bankr. Ct. Dec. 1519

In Re Commonwealth Companies, Inc. and Commonwealth Electric Co., Inc., Debtors. United States of America, Appellant, v. Commonwealth Companies, Inc. and Commonwealth Electric Co., Inc., Appellees

Subsequent History:  [**1]   As Amended October 2, 1990.

Prior History: Appeal from the United States District Court for the District of Nebraska. Lyle Strom, Judge.


damages, bankruptcy court, legislative history, money judgment, pecuniary interest, automatic stay, pecuniary advantage, government action, governmental unit, power to regulate, deter, purposes, injunction, treble

Bankruptcy Law, Judicial Review, Standards of Review, Clear Error Review, Civil Procedure, Appeals, De Novo Review, Procedural Matters, General Overview, De Novo Standard of Review, Clearly Erroneous Review, Automatic Stay, Scope of Stay, Claims Against Debtors, Bankruptcy, Administrative Powers, Automatic Stay, Exceptions to Stay, Police & Regulatory Actions, Entry of Judgments, Stays of Judgments, Automatic Stays, Remedies, Damages, Monetary Damages, Criminal Law & Procedure, Fraud Against the Government, False Claims, Public Contracts Law, Voiding Contracts, Misrepresentation, Relief From Stay, Case Administration, Bankruptcy Court Powers