The Cracked Egg LLC, 624 B.R. 84

The Cracked Egg, LLC operates a restaurant in Allegheny County and was observed violating Pennsylvania COVID-19 mitigation orders (masking, physical distancing, indoor occupancy limits).
Allegheny County Health Department suspended the restaurant’s operating permit in August 2020 and ordered closure; the restaurant allegedly continued to operate.
County filed a civil enforcement action in the Court of Common Pleas on September 4, 2020; the Debtor filed Chapter 11 on October 9, 2020.
County moved for relief from the automatic stay so it could continue enforcement of the COVID-19 Control Measure Orders; County asserts statutory authority to enforce public health laws.
Debtor responds by challenging the legality and constitutionality of the COVID-19 orders and effectively asks the bankruptcy court to block enforcement via the stay.
The bankruptcy court granted relief from stay under 11 U.S.C. § 362(b)(4), declined to resolve the constitutional challenges, and ordered the enforcement action remanded to state court.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the automatic stay bars the County’s enforcement action	County: §362(b)(4) police and regulatory exception permits commencement/continuation of enforcement	Debtor: Bankruptcy stay should prevent the County from proceeding	Held: §362(b)(4) applies; stay does not bar the County’s enforcement action
Whether the bankruptcy court must adjudicate validity of the COVID orders before lifting the stay	County: No gatekeeping required; exception allows government to proceed without prior bankruptcy adjudication	Debtor: Court should decide legality/constitutionality before allowing enforcement	Held: Court will not adjudicate validity under §362(b)(4); no gatekeeper role required
Whether the Debtor’s constitutional challenge prevents relief from stay	Debtor: Orders are unconstitutional, so enforcement is ultra vires and should be stayed	County: Enforcement seeks protection of public health, not governmental pecuniary interest	Held: Substantial questions exist but not dispositive; constitutional defenses can be litigated in the enforcement forum; stay relief granted
Whether the enforcement action should remain in bankruptcy or be remanded to state court	County: Action belongs in state court of common pleas for public-health enforcement	Debtor: Implicitly prefers centralized bankruptcy forum to challenge orders	Held: Case remanded to state court for adjudication of enforcement and defenses

U.S. v. Nicolet, 857 F.2d 202 (3d Cir. 1988) (police and regulatory exception prevents bankruptcy refuge from governmental enforcement)
Commodity Futures Trading Comm’n v. Co Petro Mktg. Group, Inc., 700 F.2d 1279 (9th Cir. 1983) (limitations on stay when government exercises police power)
In re Nortel Networks, Inc., 669 F.3d 128 (3d Cir. 2011) (§362(b)(4) discourages bankruptcy filings to evade governmental police powers)
In re McMullen, 386 F.3d 320 (1st Cir. 2004) (discusses limits on stay for government enforcement actions)
Bd. of Governors of the Fed. Reserve Sys. v. MCorp Fin., Inc., 502 U.S. 32 (1991) (bankruptcy courts should not be required to scrutinize validity of every administrative enforcement action)
Conn. Nat’l Bank v. Germain, 503 U.S. 249 (1992) (statutory interpretation depends on plain statutory language)
Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988) (equitable powers of bankruptcy courts are constrained by the Bankruptcy Code)
South Bay United Pentecostal Church v. Newsom, 140 S. Ct. 1613 (2020) (deference to state public-health officials in pandemic restrictions)
Jacobson v. Massachusetts, 197 U.S. 11 (1905) (foundational precedent recognizing state police power in public health)
Maryville Baptist Church, Inc. v. Beshear, 957 F.3d 610 (6th Cir. 2020) (upholding that pandemic restrictions are subject to judicial review but require careful consideration)