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Solis v. SCA Rest. Corp. - 463 B.R. 248 (E.D.N.Y. 2011)

Rule:

To determine if 11 U.S.C.S. § 362(b)(4) applies under the pecuniary purpose test, a court looks to whether a governmental proceeding relates to public safety and welfare, which favors application of the stay exception, or to the government's interest in the debtor's property, which does not. If it is evident that a governmental action is primarily for the purpose of protecting a pecuniary interest, then the action should not be excepted from the stay. The pecuniary advantage analysis has been used as an alternative formulation of the pecuniary interest test.

Facts:

In a complaint filed against Quarta and SCA Restaurant Corp. on May 21, 2009, the DOL alleges that defendants violated Sections 7 and 15(a)(2) of the FLSA by failing to pay minimum wage and overtime compensation to the employees of SCA Restaurant Corp., and that defendants violated Sections 11(c) and 15(a)(5) of the FLSA by failing to keep full and accurate records concerning their employees' wages, hours, and conditions of employment. 29 U.S.C. §§ 207211(c)215(a)(2)215(a)(5). The DOL sought an injunction pursuant to Section 17 of the FLSApermanently restraining defendants from violating Sections 7, 11(c), 15(a)(2), and  [*251]  15(a)(5) of the FLSA, and an order pursuant to Section 16(c) finding defendant liable for unpaid overtime compensation and an equal amount of liquidated damages. After the DOL filed the instant suit, Quarta filed for voluntary bankruptcy under Chapter 7 of the Bankruptcy Code in the Eastern District of New York. In the instant motion, Quarta urges the Court to find that the DOL's action is stayed under the automatic stay provision pursuant to Section 362 of the Bankruptcy Code.

Issue:

Does the the plaintiff’s action under §§ 16 and 17 of the FLSA fell within the police and regulatory powers exemption to the automatic bankruptcy stay under 11 U.S.C.S. § 362(b)(4)?

Answer:

Yes.

Conclusion:

Plaintiff’s action under §§ 16 and 17 of the FLSA fell within the police and regulatory powers exemption to the automatic bankruptcy stay under 11 U.S.C.S. § 362(b)(4). The action served the valid public policy of enjoining violations of the FLSA and protecting labor conditions, and successful prosecution of the action would not create a pecuniary interest for the government in defendants’ property, nor would it result in a pecuniary advantage to the government over other creditors. Defendants' request that the automatic stay arising under Section 362 of the Bankruptcy Code be found to apply to this action is denied. This action is exempt from the automatic stay under the police and regulatory power exception set forth in Section 362(b)(4) of the Bankruptcy Code.

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