Kupperstein v. Schall
Case Information
*3 THOMPSON , Circuit Judge .
BACKGROUND
Thе short story, sticking with only what is relevant
here, is that years ago, Donald C. Kupperstein, with the help of
his comrade, Thomas Sheedy, improperly entangled himself with a
piece of real property on Reservoir Street in Norton, Massachusetts
and lined his pockets with rents from various tenants he
installed.
[1]
In re Kupperstein,
Evidently unphased, Kupperstein rented the property to new tenants about a month later. Id. The probate court did not look kindly upon this and issued an order forbidding Kupperstein from executing any agreements involving the property, voiding anything he had previously executed, and banning Kupperstein, Sheedy, and their agents from entering the property at all. Id. On December 22, 2017, the probate court again found Kupperstein and Sheedy in contempt and reiterated the order for each to pay the rents they had been collecting to the estate or MassHealth. [3] Id. The probate court also ordered that the pair hand in any keys or other ways to access the property and all *5 documents and leases associated with the property. Id. Plus, the probate court threatened to jail Kupperstein and Sheedy for thirty days if they did not pay MassHealth $5,400. Id. Kupperstein and Sheedy turned in only $3,000 and no keys or leases. Id. Unimpressed, the probate court set a hearing for January 12, 2018, and directed each man to explain why he should not be jailed for contempt for thirty days. Id.
On January 11, 2018, the day before his contempt hearing, Kupperstein filed for bankruptcy in the United States Bankruptcy Court for the District of Massachusetts. Id. at 17-18. To keep things interesting, Kupperstein listed the Kuhn estate as his own property, valued at $350,000. Id.
Kupperstein did show up for his January 12 court date
and explained to the probate court that it could not touch him
because his bankruptcy filing triggered an automatic stay of court
proceedings against him. See 11 U.S.C. § 362(a).
[4]
The probate
court was unmoved and instead put Kupperstein in a holding cell
for the day for violating the court's orders four times. In re
Kupperstein,
*6 At the next court date, Kupperstein was almost ordered to serve his thirty-day sentence, but then produced $5,400 in cash and the elusive keys to the property. Id.
Then, he vanished. Id. The probate court held
Kupperstein in contempt twice more for missing three court dates and continuing to violate its previous orders. Id. The probate court ordered Kupperstein and Sheedy to pay over $50,000 in outstanding rents and over $10,000 in attorneys' fees as sanctions for their repeated flouting of the court's orders. Id. To drive its point home, the court warned that Kupperstein and Sheedy would be jailed for thirty days unless they worked out a payment plan with MassHealth. Id. The probate court issued warrants for his arrest, but Kupperstein rеmained at large. Id.
Tired of waiting for Kupperstein to return from his sojourn, Schall, in her capacity as the estate's representative, and MassHealth each filed motions in the bankruptcy court to lift the automatic stay as it applied to any state court actions, so those cases could proceed. [5] Id. Kupperstein (through counsel because he was still AWOL) opposed those motions and moved that the bankruptcy court hold MassHealth in contempt and impose *7 monetary sanctions because MassHealth partiсipated in the probate court's various contempt proceedings in violation of the automatic stay. Id. at 18.
In nearly identical orders, the bankruptcy court found
"good cause" to "lift[]" the stay and ordered that the state court
actions could proceed, except that Schall and MassHealth could
"not seek to enforce against . . . Kupperstein, any judgment with
respect to the $191,741.79 MassHealth reimbursement claim or
attempt to collect from Kupperstein all or any part thereof." The
court lifted the automatic stay in the state court actions "[i]n
all other respects . . . including the assessment by the courts
against Kupperstein of any restitution and sanction amounts." In
support of its decision, the bankruptcy court cited In re Dingley,
Soon after, the bankruptcy court denied Kupperstein's
motion to hold MassHealth in contempt and to impose sanctions. In
re Kupperstein,
Miffed, Kupperstein appealed those decisions to the
district court, but fared no better.
[6]
In re Kupperstein, 943 F.3d
at 19. The district court read all three orders "as having rested
-- at least in part, as a separate and independent ground -- on a
discretionary determination that relief from the automatic stay
was warranted 'for cause' under § 362(d)(1)." In re Kupperstein,
Nos. 18-11772-LTS, 18-11851-LTS,
*9 Kupperstein now appeals, asking us to hold that the automatic stay is still in effect and remand this case to the bankruptcy court to sanction MassHealth for violating that stay. [7]
THE POLICE POWER EXCEPTION
When a debtor files for bankruptcy, the petition
activates an automatic stay of various judicial and administrative
proceedings against the debtor. See 11 U.S.C. § 362(a). The
intention is to "give the debtor breathing room by 'stop[ping] all
collection efforts, all harassment, and all foreclosure actions.'"
In re Soares,
The filing of a bankruptcy petition does not stay a governmental proceeding by "a governmental unit . . . to enforce [its] police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or *10 proceeding by the governmental unit to enforce such governmental unit's or organization's police or regulatory power." 11 U.S.C. § 362(b)(4).
To determine if the police power exception applies, we
evaluate whether the government's action is to effectuate a "public
policy" or to further its own "pecuniary interest." Parkview
Adventist Med. Ctr. v. United States,
Though we have not opined prеcisely on the question at
hand, the bankruptcy court cited in its orders two cases where
sister circuits applied the "public policy" or "pecuniary
interest" test for the police power exception to contempt
proceedings. In In re Dingley, the Ninth Circuit held that civil
contempt proceedings were excepted from a bankruptcy's automatic
stay because those "proceedings are intended to effectuate the
court's public policy interest in deterring litigation
misconduct."
(Bankr. D. Mass. 2018).
STANDARD OF REVIEW
Where, as here, we serve as a "second tier of appellate
review," we look through the district court's determination and
analyze the bankruptcy court's decision directly. In re Montreal,
Me. & Atl. Ry., Ltd.,
OUR TAKE The core dispute is whether the probate court's contempt proceedings and resultant penalties are excepted from the automatic stay (as the bankruptcy court held they were) and *13 therefore MassHealth's participation did not merit sanctions or whether those proceedings are not excepted, оpening a can of worms about whether the bankruptcy court likely abused its discretion in partially lifting the stay and not sanctioning MassHealth. [8] We begin with a de novo review of the legal question of the reach of the police power exception and then evaluate whether the bankruptcy court abused its discretion in each of the challenged orders.
The Police Power Exception
First, all agree we ought to evaluate the probate court's
orders through the overlapping lenses of "two interrelated, fact-
dominated inquiries": the "public policy" test аnd the "pecuniary
purpose" test. In re McMullen,
Turning to the aspects of the probate court's order involving money, Kupperstein does expend many pages of his brief on the argument that the police power exception does not apply to MassHealth's attempts to collect the underlying debt in the probate court, and he's right. But, the record shows that no one is currently trying to collect on that judgment. The bankruptcy court order explicitly maintains the autоmatic stay for any activity related to judgments against Kupperstein for the nearly $200,000 owed to MassHealth via the Kuhn property. And, post-petition, no court ordered Kupperstein to satisfy the judgment against him. As such, Kupperstein's extensive argument on this point is merely fighting a straw man, and we need engage no further.
So, finally, what about the aspects of the probate
court's contempt orders that require Kupperstein to pay sanctions
for repeated violations of court orders and disgorge the rents he
collected (in violation of court orders) from tenants (living on
a property over which Kupperstein had no legal control)? He argues
that any attempt by the probate court to force Kupperstein to hand
over so much as a dime is automatically for a "pecuniary purpose."
*16
But this ignores the distinction between a judgment prematurely
awarding assets to creditors ahead of the process permitted by the
bankruptcy court (exactly the sort of thing the automatic stay is
intended to prevent, see In re Spookyworld,
2:19-cv-00467-GMN-NJK, 2020 WL 6044550, at *2 (D. Nev. Oct. 12,
2020) (approving of police power exception to permit the government
to pursue False Claims Act case to recover improper government
payments to debtor); In re RGV Smiles by Rocky L. Salinas D.D.S.
P.A., Nos. 20-70209, 20-70210,
Even if the financial aspects of the probate court's
orders arguаbly serve a pecuniary purpose (though we hold they do
not), that still would not change the result of our analysis.
Where the application of the police power exception contains
various elements, some of which effectuate a public policy and
others of which could involve pecuniary interests, we examine the
totality of the circumstances and what "the governmental action
'is designed primarily to [do].'" Parkview Adventist Med. Ctr.,
Kupperstein raises two additional arguments that merit our discussion. Pointing to 11 U.S.C. § 362(b)(4), he believes that the "plain language" of the Code makes our resolution of this case "crystal clear." On its face, the Code's plain language does not address this question at all. Yet, best we can cobble together, based on the assumptions wrapped up in Kupperstein's contentions, he sеems to be trying to tell us the following: the police power exception does not apply to enforcing "money judgement[s]" and any court action with money involved is an action to enforce a "money judgment." Kupperstein's argument here is actually a repackaging of his contention that the probate court order is for a pecuniary purpose. On that point, we remain unmoved.
Finally, Kupperstein explains, we are bound by our precedent in Parker v. United States, which he says stands for the proposition that civil contempt proceedings are for a pecuniary purpose and are therefore subject to the automatic stay. 153 F.2d 66 (1st Cir. 1946). But Parker is inapplicable here. In that case, issued prior to the promulgation of the Bankruptcy Code, the court considered whether a pre-bankruptcy civil contempt award was dischargeable after the close of bankruptcy. Id. at 67-68. The court did not wrestle with any of the questions at issue here. Kupperstein cites to it for its lengthy discussion of the differences between civil and criminal sanctions, but there is no dispute that the probate court orders here are civil in nature (having been imposed to coerce Kupperstein's compliance with valid Massachusetts court orders) and that the Code permits some civil actions to proceed during the automatic stay. See 11 U.S.C. § 362(b).
With no more arguments to address and considering the totality of the circumstances, we conclude the probate court's contempt orders are excepted from the automatic stay under the police power exception. [9]
*20 The Merits of Kupperstein's Appeals With the law on this issue firmly established, our resolution on the merits of the bankruptcy court's orders becomes simple. The bankruptcy court did not abuse its discretion when lifting the stay as it applied to the probate court's contempt proceedings because those proceedings were excepted from the stay under the police power exception. Similarly, the bankruptcy court did not abuse its discretion when it declined to hold MassHealth in contempt or levy any sanctions against it for its participation in the probate court's cоntempt proceedings. Those proceedings were not stayed by the automatic stay, so MassHealth's participation was proper.
CONCLUSION
The bankruptcy court's decisions were correct and the district court properly affirmed. We affirm the district court's order and award costs to the appellees.
motions" is unavailing and misleading, as MassHealth's memorandum in support of its motion for stay relief, which was before the bankruptcy court, clearly lays out an entire section of argument premised on 11 U.S.C. § 362(d)(1). Indeed, it is Kupperstein who should bе concerned about waiver, as he doubles down in his appellate briefing by failing to address the merits of the § 362(d)(1) argument, only arguing waiver and that the bankruptcy court's use of "good cause" was boilerplate language, despite the fact that the court was briefed on this issue. The district court's emphasis on the alternative grounds of § 362(d)(1) gave Kupperstein ample notice and opportunity to address the merits of any such argument.
Notes
[1] We have previously detailed the made-for-TV movie about how Kupperstein (who remains licensed to practice law in Massachusetts) and Sheedy duped the only child of Fred Kuhn, the property's owner, after Kuhn's death, into selling the property for a "pittance" and both ultimately ended up owing a lot of money to the Commonwealth of Massachusetts. See In re Kupperstein, 943 F.3d 12, 15 (1st Cir. 2019).
[2] MassHealth is empowered to recover benefits from a beneficiary's estate after death and, in this case, filed a petition with the Massachusetts Probate Court to ensure payment. See Mass. Gen. Laws ch. 118E, §§ 31, 32.
[3] In the months since the last contempt order, Kupperstein had sued the estate in Massachusetts Land Court, seeking a declaration that he was the rightful owner of the property. He had neglected to mention the litigation in the probate court and the order that said otherwise. Once the land court got hip to Kupperstein's game, it dismissed the case because it was brought in bad faith and ordered that he pay attorneys' fees to MassHealth and the estate for their trouble.
[4] Generally, a bankruptcy filing causes an automatic stay that halts other lawsuits against the debtor until a federal court lifts the stay. 11 U.S.C. § 362(a).
[5] For instance, Suffolk Superior Court had entered judgment
ordering that Kupperstein pay the amounts ordered by the probate
court, plus over $6,000 in costs and fees awarded by the land
court, and $575,240.37 to MassHealth, representing three times the
amount initially owed to MassHealth by the estate. In re
Kupperstein,
[6] That appeal first bounced from the district court to us (to
deal with a procedural issue) and then back to the district court
with instructions to resolve the appeal on the merits. See In re
Kupperstein,
[7] Without any support, Kupperstein also instructs us that we ought to order his "release from any further incarceration." Even if we had a stack of "Get Out of Jail Free" cards, we seriously doubt their application to state court contempt proceedings. Plus, we note that at the time his brief was filed, the record indicated Kupperstein had returned, was briefly in custody, and was already again at liberty.
[8] There does not appear to be any dispute that the superior court, land court, and probate court fall within the Code's definition of "governmental unit," defined as a "department, аgency, or instrumentality of . . . a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state." 11 U.S.C. § 101(27). The question is more precisely whether the contempt proceedings are excepted from the stay.
[9] Because we resolve the issues on appeal based on the police power exception, we need not address the bankruptcy court's lifting of the automatic stay "for cause" under 11 U.S.C. § 362(d)(1). We note here, however, that Kupperstein's argument on appeal that he "has carefully reviewed the appellees' motions for relief from the automatic stay, and can find no reference to that section in the