Milk Indus. Regulatory Office v. Ruiz Ruiz
- Summarized by Paris Gyparakis , Porzio, Bromberg & Newman, P.C.
- 1 month 1 week ago
- Case Type:
- Consumer
- Case Status:
- Reversed
- Citation:
- 22-1761 (1st Circuit, Nov 21,2024) Not Published
- Tag(s):
-
- Ruling:
- The planned auction of the debtor's milk quota by the Puerto Rico agency that regulates milk production (ORIL) falls squarely within the "police power" exception to the automatic stay under 11 U.S.C. § 362(b)(4).
- Procedural context:
- The Milk Industry Regulatory Office of Puerto Rico (known as "ORIL") appeals an order of the United States Bankruptcy Court for the District of Puerto Rico denying summary judgment and finding that ORIL violated the automatic stay by issuing a notice for the public auction of a debtor's milk quota.
Ruiz, a Chapter 12 debtor, initially filed an adversary proceeding against ORIL for: (1) a declaratory judgment saying that defendants violated the automatic stay and that the ORIL administrator acted in bad faith; (2) actual and punitive damages for violation of the automatic stay; and (3) a temporary restraining order to stop the public auction of his milk quota.
The Bankruptcy Court denied summary judgment for ORIL and ORIL appealed to the United States District Court for the District of Puerto Rico, which upheld the order of the bankruptcy court holding that ORIL violated the § 362 stay when it took steps to auction Ruiz's milk quota outside the bankruptcy proceedings, and that the police power exception in § 362(b)(4) did not apply.
- Facts:
- ORIL regulates the production and distribution of milk under Puerto Rico law and grants dairy farmers licenses to operate, determines the amount of milk produced in the market through the allocation of milk quotas to licensed farmers.
After filing Chapter 12 bankruptcy in 2015, ORIL began investigating the debtor's milk production practices and claimed to have uncovered evidence of milk trafficking. ORIL filed an internal complaint seeking to revoke the debtor's license for milk trafficking in August of 2028, and by 2020, the debtor's license was revoked. The order revoking the license required the debtor to sell his milk quota within 60 days. In early December 2020, ORIL began taking steps to sell the quota through a public auction. Shortly thereafter, the debtor commenced the adversary proceeding for declaratory relief and damages for willful violations of the automatic stay.
In reversing the judgments of both the District Court and Bankruptcy Court, the First Circuit first acknowledged that the police power exception to the automatic stay ensures that government agencies can still enforce laws "affecting health, welfare, morals and safety" and that debtors are not automatically protected in bankruptcy court from such regulatory laws."
The Court then recognized that ORIL has an interest in ensuring that the milk being produced can meet the demands of the consumer market by preventing milk quota from sitting idly in the hands of someone legally barred from using it, and concluded that, because the license revocation judgment ordered the debtor to dispose of his milk quota, the planned auction falls squarely within 11 U.S.C. § 362(b)(4).
- Judge(s):
- U.S. Circuit Judges David F. Hamilton, Julie Rikelman and O. Rogeriee Thompson (Opinion by Hamilton)
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