United States v. Greenlight Organic, Inc.
2017 CIT 126
| Ct. Intl. Trade | 2017Background
- The United States sued Greenlight Organic, Inc. under 19 U.S.C. § 1592 for allegedly importing athletic apparel from Vietnam with fraudulent misrepresentations (2007–2011) seeking unpaid duties and civil penalties.
- Complaint alleges undervaluation and false descriptions to reduce duties; Government seeks roughly $238,516.56 in unpaid duties and $3,232,032 in penalties.
- Greenlight filed for Chapter 11 bankruptcy on July 25, 2017 and asserted the automatic stay of 11 U.S.C. § 362(a) halted this Court’s proceedings.
- Government argued the suit is exempt from the automatic stay under 11 U.S.C. § 362(b)(4) because it enforces the government's police and regulatory power.
- The Court considered whether § 362(b)(4)’s exemption applies by applying the pecuniary-purpose and public-policy tests and whether § 1592 primarily effectuates public policy or protects a pecuniary interest.
- The Court held the action falls within § 362(b)(4) (public policy/police power enforcement) and is therefore exempt from the § 362(a) automatic stay; the case may proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the automatic bankruptcy stay (§ 362(a)) bars the Government’s § 1592 action | The suit enforces public safety/policy (deterrence of customs fraud) and fits § 362(b)(4)’s police/regulatory exemption, so stay is inapplicable | The action primarily seeks money (unpaid duties/penalty) to benefit the Government pecuniarily, so the stay should apply | The Court held § 362(b)(4) applies; the Government’s enforcement action is exempt from the automatic stay and may proceed |
| Whether § 1592 is primarily pecuniary or regulatory (tests) | § 1592 is aimed at deterrence and accurate customs reporting (public policy), not merely compensatory recovery | Monetary relief sought shows a pecuniary purpose and adjudication of private rights | The Court applied pecuniary-purpose and public-policy tests and found § 1592’s primary purpose is regulatory/deterrent (public policy) |
| Whether entry of a money judgment would make the Government a secured creditor or bypass the bankruptcy protections | A judgment would merely fix an unsecured claim and does not give the Government a pecuniary advantage over other creditors; enforcement is still police/regulatory | Recovering duties and penalties is enforcement of prepetition monetary claims and should be stayed to protect the estate | The Court held entry of a monetary judgment in an enforcement proceeding is permissible under § 362(b)(4) because it enforces police/regulatory power and does not convert the Government into a secured creditor |
| Whether previously issued customs demands/penalty notices preclude characterization as an enforcement action | The Government seeks to assess liability and fix damages de novo under § 1592(e), so amounts are not final | Damages were already fixed by Customs notices, so this is collection and pecuniary enforcement | The Court found amounts are not finally fixed (court reviews liability and penalty de novo) and the suit remains an enforcement (police/regulatory) action |
Key Cases Cited
- Chao v. Hosp. Staffing Servs., Inc., 270 F.3d 374 (6th Cir.) (non‑bankruptcy courts have jurisdiction to decide applicability of automatic stay)
- In re Nortel Networks, Inc., 669 F.3d 128 (3d Cir.) (articulating pecuniary-purpose and public-policy tests for § 362(b)(4))
- Lockyer v. Mirant Corp., 398 F.3d 1098 (9th Cir.) (district court jurisdiction to determine stay applicability)
- In re Robinson, 764 F.3d 554 (6th Cir.) (purpose of automatic stay to give debtor a breathing spell)
- Dominic's Rest. Of Dayton, Inc. v. Mantia, 683 F.3d 757 (6th Cir.) (statutory and non‑statutory exemptions to stay)
- S.E.C. v. Brennan, 230 F.3d 65 (2d Cir.) (government may obtain money judgment under § 362(b)(4) when enforcing police/regulatory power)
- In re Universal Life Church, Inc., 128 F.3d 1294 (9th Cir.) (pecuniary component does not abrogate government’s police power)
- United States v. Ford Motor Co., 497 F.3d 1331 (Fed. Cir.) (types of monetary relief available under § 1592)
- United States v. Nat'l Semiconductor Corp., 547 F.3d 1364 (Fed. Cir.) (penalties under § 1592 are punitive/deterrent in nature)
- In re Commonwealth Cos., Inc., 913 F.2d 518 (8th Cir.) (entry of judgment fixes an unsecured claim and does not grant government secured status)