Secretary of Labor v. Hidden Splendor Resources, Inc. (Commission decision, June 6, 2013)

Plain-English summary

Hidden Splendor Resources filed for Chapter 11 bankruptcy while the Commission was reviewing three civil penalties from a 23-citation case. The company argued that the bankruptcy filing automatically stayed the Commission proceeding. The Commission held that MSHA penalty litigation falls within the Bankruptcy Code exception for government police or regulatory actions because it enforces mandatory mine-safety standards and protects public safety rather than a private financial interest. It ordered the case to continue and gave Hidden Splendor 30 days to file its response brief. The Commission later decided the penalty issues in west-2009-208-commission.

Decision snapshot

• Governing rule: 29 C.F.R. § 2700.75(a)(2)
• Outcome: The Commission declined to stay the penalty review and ordered briefing to resume.
• Key point: Chapter 11's automatic stay does not halt a Mine Act enforcement proceeding brought to exercise the government's police and regulatory power.

Full text (FMSHRC public release)

Federal Mine Safety and Health Review Commission

FEDERAL MINE SAFETY AND HEALTH REVIEW COMMISSION

1331 PENNSYLVANIA AVENUE, NW, SUITE 520N

WASHINGTON, D.C. 20004-1710                                

June 6, 2013

SECRETARY OF LABOR, 

MINE SAFETY AND HEALTH 

ADMINISTRATION (MSHA) 

v.

HIDDEN SPLENDOR RESOURCES, INC. 

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Docket Nos. 

WEST 2009-208 

WEST 2009-209

WEST 2009-210 

WEST 2009-342

WEST 2009-591

WEST 2009-916

WEST 2009-1072 

WEST 2009-1162 

WEST 2009-1451

BEFORE: Jordan, Chairman; Young and Nakamura, Commissioners

ORDER

BY THE COMMISSION:

These civil penalty proceedings arise under the Federal Mine Safety and Health Act of 1977, 30 U.S.C. § 801 et seq. (2006) (“Mine Act”). At issue is whether these proceedings must be stayed under an automatic stay provision of the Bankruptcy Code.

In these proceedings, Administrative Law Judge Richard Manning issued a decision disposing of issues and assessing civil penalties relating to 23 citations and orders issued to Hidden Splendor Resources, Inc. (“Hidden Splendor”) by an inspector with the Department of Labor’s Mine Safety and Health Administration (“MSHA”). 34 FMSHRC , slip op. at 72-73, No. WEST 2009-208 (Dec. 20, 2012) (ALJ). On January 22, 2013, the Secretary of Labor filed a petition for discretionary review with the Commission challenging three of the penalties assessed by the Judge. The Commission subsequently granted the petition. On February 26, 2013, the Secretary designated her petition as her opening brief. Hidden Splendor did not file a response brief.

On March 18, 2013, the Commission received a Suggestion of Bankruptcy from Hidden Splendor, stating that it had filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Nevada. Hidden Splendor stated that, as a result, these proceedings are automatically stayed pursuant to 11 U.S.C. § 362(a).

The Secretary subsequently filed with the Commission a statement in opposition to the operator’s Suggestion of Bankruptcy and motion to reset the briefing schedule. The Secretary asserts that the present proceedings should not be stayed because they fall within an exception to the automatic stay provision of the Bankruptcy Code. The Secretary requests that the Commission order the parties to resume briefing and proceed to decide the issues on review. The operator did not file a response to the Secretary’s opposition.

Section 362(a) of the Bankruptcy Code provides that the filing of a Chapter 11 bankruptcy petition operates as an automatic stay of the continuation of administrative proceedings against the bankruptcy petitioner.

Section 362(b)(4) exempts from the automatic
stay provisions the continuation of a proceeding by a “governmental unit” to enforce the governmental unit’s police or regulatory power.

To determine whether proceedings fall within the police or regulatory power exception to the automatic stay, courts have applied the pecuniary purpose test and the public policy test. In re Halo Wireless, Inc., 684 F.3d 581, 588 (5th Cir. 2012). The “pecuniary purpose test 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.” Id. (citations omitted). The “public policy test asks whether the government is effectuating public policy rather than adjudicating private rights.” Id. (citations omitted). Both tests contemplate the consideration of “‘whether the particular regulatory proceeding at issue is designed primarily to protect public safety and welfare, or represents a governmental attempt to recover from property of the debtor estate, whether on its own claim, or the nongovernmental debts of private parties.’” Id. (citations omitted).

As the Commission has previously recognized, the Secretary, the Department of Labor, and MSHA are all “governmental units” within the meaning of the Bankruptcy Code.

Jim
Walter Res., Inc., 12 FMSHRC 1521, 1530 (Aug. 1990) (“JWR”). The present case was brought by the United States, through the Secretary, to effectuate and enforce mandatory safety standards that implement the Mine Act. This is the kind of regulatory action covered by the police or regulatory power exception to the automatic stay. See Holst Excavating, Inc., 17 FMSHRC 101, 102 (Feb. 1995); JWR, 12 FMSHRC at 1530.

Accordingly, this case shall proceed in accordance with the Mine Act and the Commission’s Procedural Rules, 29 C.F.R. Part 2700. Hidden Splendor must file its response brief, if any, with the Commission within 30 days of the date of this order. The Secretary may file any reply brief in accordance with the provisions of 29 C.F.R. § 2700.75(a)(2).

/s/ Mary Lu Jordan

Mary Lu Jordan, Chairman

/s/Michael G. Young

Michael G. Young, Commissioner

/s/ Patrick K. Nakamura

Patrick K. Nakamura, Commissioner

Distribution:

Alexander H. Walker III

American West Resources, Inc.

57 West 200 South, Suite 400

Salt Lake City, UT 84101

[email protected]

W. Christian Schumann, Esq.

Office of the Solicitor

U.S. Department of Labor

1100 Wilson Blvd., Room 2220

Arlington, VA 22209-2296

Melanie Garris

Office of Civil Penalty Compliance

MSHA

U.S. Dept. Of Labor

1100 Wilson Blvd., 25th Floor

Arlington, VA 22209-3939

Administrative Law Judge Richard Manning

Federal Mine Safety & Health Review Commission

Office of Administrative Law Judges

721 19th Street, Suite 443

Denver, CO 80202-5268