Commercial Litigation and Arbitration

Sanctions Proceedings and Imposition of Discipline Not Subject to Automatic Stay of Bankruptcy Code, 11 U.S.C. § 362(a)

In re Halo Wireless, Inc., 2012 U.S. App. LEXIS 12284 (5th Cir. June 18, 2012):

[I]n Alpern v. Lieb, 11 F.3d 689 (7th Cir. 1993), the Seventh Circuit held that a proceeding to impose sanctions under Rule 11 was exempt from the automatic stay. The court stated:

[t]he Rule 11 sanction is meted out by a governmental unit, the court, though typically sought by a private individual or organization-a nongovernmental litigant, the opponent of the litigant to be sanctioned. There is no anomaly, given the long history of private enforcement of penal and regulatory law. The private enforcer, sometimes called a 'private attorney general,' can be viewed as an agent of the 'governmental unit,' the federal judiciary, that promulgated Rule 11 in order to punish unprofessional behavior.

Id. at 690. In In re Berg, 230 F.3d 1165 (9th Cir. 2000), the Ninth Circuit held that an award of attorneys' fees imposed as a sanction for unprofessional conduct was exempted from the automatic stay. The court stated that "it is clear that the purpose of such sanctions is to effectuate public policy, not to protect private rights or the government's interest in the sanctioned person's property." Id. at 1168. Both the Seventh and Ninth Circuits focused on the fact that the sanctions at issue would help to promote the public policy of the state, in the same way that the Jaffe court found that "ITC § 337 investigations plainly evidence an objective purpose of protecting the public interest at each stage of the ITC investigation." 433 B.R. at 545.9

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