In Re Nortel Networks, Inc.
669 F.3d 128
| 3rd Cir. | 2011Background
- Bankruptcy case involves Nortel group assets across multiple jurisdictions with substantial claims (~$8-9B).
- Issue concerns whether police power exception to automatic stay in 11 U.S.C. § 362(b)(4) applies to U.K. pension regulatory proceedings.
- U.K. regulator (TPR) initiated proceedings to determine underfunding and potential Financial Support Direction against Nortel entities.
- Trustee and Pension Protection Fund (PPF) are private/part-private actors, not clearly governmental units under § 101(27).
- District/Bankruptcy courts held the police power exception does not apply because the trustee/PPF are not governmental units and the U.K. proceeding serves private pecuniary interests.
- Court affirms dismissal of police power exception and stays enforcement of U.K. proceedings against the U.S. debtors; comity concerns noted but not dispositive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether police power exception applies to U.K. proceedings | Trustee/PPF argue exception applies; U.K. proceedings are public policy | Debtors argue exception does not apply; entities are private | No; police power exception does not apply |
| Who is the governmental unit for § 362(b)(4) in this context | TPR could be governmental unit; Trustee/PPF are not | TPR not a party to bankruptcy; Trustee/PPF not governmental units | TPR could be governmental unit, but not a party; Trustee/PPF not governmental units |
| Do pecuniary purpose or public policy tests favor applying the police power exception | Proceedings promote public policy of pension protection | Proceedings primarily seek pecuniary relief for a private beneficiary | Proceedings fail both tests; exception not applicable |
| Impact of comity and foreign proceedings on stay | Comity supports broader police power respect | Comity cannot override statutory stay in favor of private interests | Comity considerations acknowledged but do not justify bypassing stay |
| Whether district court abused review in applying § 362(b)(4) | Standard misapplied; narrow construction unnecessary | Proper de novo review of legal questions; factual stays reviewed for clear error | No reversible error; decision affirmed |
Key Cases Cited
- In re McMullen, 386 F.3d 320 (1st Cir. 2004) (police power exception to stay; public policy focus)
- Pension Benefit Guar. Corp. v. LTV Corp. (In re Chateaugay Corp.), 875 F.2d 633 (2d Cir. 1989) (PBGC-like funding issues; stay considerations)
- In re Mystic Tank Lines Corp., 544 F.3d 524 (3d Cir. 2008) (environmental/administrative costs fall within police power exception)
- E.E.O.C. v. Hall’s Motor Transit Co., 789 F.2d 1011 (3d Cir. 1986) (employment discrimination actions fall within police power exception)
- In re Penn Terra Ltd., 733 F.2d 267 (3d Cir. 1984) (narrow construction of police power exception; public policy considerations)
- United States v. Nicolet, Inc., 857 F.2d 202 (3d Cir. 1988) (broad view of pollution/public health enforcement under stay exception)
- Chao v. Hosp. Servs., Inc., 270 F.3d 374 (6th Cir. 2001) (pecuniary vs public policy test in stay exception)