In re: Genesys Research Institute, Inc. et al
District Judge Leo T. Sorokin: ORDER entered The Court AFFIRMS the decision of the Bankruptcy Court. Hahnfeldt's EmergencyMotion for a Stay of Execution of Judgment Pending Appeal, Doc. No. 5, is DISMISSED AS MOOT. (Montes, Mariliz)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
PHILIP J. HAHNFELDT, PHD,
HAROLD B. MURPHY, Trustee,
Civil No. 16-11953-LTS
May 18, 2017
Genesys Research Institute (GRI) is a Massachusetts nonprofit formed under Mass. Gen.
Laws ch. 180. RA 1 at 26. GRI conducted and facilitated clinical and other research projects in
health care and life sciences. RA at 26–27. GRI was primarily funded by government research
grants. RA at 27. On July 14, 2015, GRI filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of Massachusetts.
Doc. No. 4 at 2. The automatic stay went into effect at that time and at no point has it been lifted.
On October 16, 2015, on motion by the Office of the United States Trustee, the Court appointed
trustee Harold Murphy. RA at 27.
The Court need not delve into the minutiae of all of the Bankruptcy Court proceedings
and will offer an overview only of matters relevant to this Order. Among other actions, the
RA refers to the record appendix, Doc. Nos. 8-2, 8-2. SRA refers to the supplemental record
appendix, Doc. No. 9-3.
Trustee sold GRI’s tangible assets including certain research equipment and ensured the proper
disposal of biological materials, all with the approval of the Bankruptcy Court. This approval
was gained through two motions, the “Disposition Motion” and the “Settlement Motion,” both
filed on March 25, 2016. RA at 3. Philip Hahnfeldt, Ph.D., a former research scientist at GRI,
objected to the motions and the Trustee responded. RA at 3–4; SRA at 127. The Bankruptcy
Court allowed the Settlement Motion over Hahnfeldt’s objection on May 19, 2016, SRA at 1,
and allowed the Disposition Motion on May 21, 2016, SRA at 49.
On May 24, Hahnfeldt filed an Emergency Motion to Reconsider both the Settlement and
Disposition Motions. SRA at 54. Hahnfeldt’s Motion argued, as he had in previous filings, that
the assets in question were not available to the bankruptcy estate until state cy pres law was
adequately addressed. Hahnfeldt argued that state law required the Trustee to seek a cy pres
deviation from the Massachusetts Supreme Judicial Court before he could dispose of the research
equipment and biological materials. On May 27, Hahnfeldt appealed the Disposition and
Settlement Orders to the Bankruptcy Appellate Panel for the First Circuit. 2 SRA at 69.
On June 24, the Bankruptcy Court denied the Emergency Motion to Reconsider in a
lengthy memorandum. SRA at 121. The Bankruptcy Court ruled that Hahnfeldt lacked standing
to seek cy pres relief. SRA at 161–62. The Bankruptcy Court further noted that the
Massachusetts Attorney General, the party statutorily charged with overseeing nonprofit
institutions, had not filed a cy pres action in the case and had not objected to either the
Settlement Motion or Disposition Motion despite being involved in the case. SRA at 162. The
The outcome of this proceeding was not included in the record. From the Trustee’s assertions,
however, it appears that the Bankruptcy Appellate Panel dismissed the appeal of both Orders and
Hahnfeldt appealed to the First Circuit where briefing is currently underway. Doc. No. 9 at 4 n.3.
Bankruptcy Court also found that Hahnfeldt had failed to establish standing to act on behalf of
the Attorney General for the Commonwealth of Massachusetts. SRA at 171.
On June 27, Hahnfeldt filed a second Emergency Motion to Reconsider. SRA 186. The
Bankruptcy Court denied that Motion on June 29 for the same reasons it denied Hahnfeldt’s first
Motion. SRA 217. On July 1, Hahnfeldt filed a statement with the Bankruptcy Court again
bringing up the cy pres issue. SRA at 218. On July 5, the Massachusetts Attorney General
responded and attached an email sent to Hahnfeldt in which an Assistant Massachusetts Attorney
General stated that the Massachusetts Attorney General’s office considered the Bankruptcy
Court’s order “consistent with applicable Massachusetts charities law.” SRA at 225, 230. The
pleading noted that the cy pres doctrine did not apply to the biological samples or research
equipment because state law excluded “program-related assets,” meaning “an asset held by an
institution primarily to accomplish a charitable purpose of the institution and not primarily for
investment.” SRA at 225–26 (quoting Mass. Gen. Laws ch. 180A § 1). At this point, no motions
were pending on the cy pres issue though this notice and response were both before the
On July 14, Hahnfeldt filed an emergency petition with the Supreme Judicial Court in
which he requested that Court to enjoin GRI from disposing of the biological samples and
research equipment. SRA at 236. On July 15, Trustee’s counsel sent Hahnfeldt a letter stating the
petition violated the automatic stay issued by the Bankruptcy Court, requested that Hahnfeldt
immediately withdraw the petition, and notified Hahnfeldt that the Trustee intented, unless
Hahnfeldt dismissed his petition by noon on July 18, to seek sanctions for this violation of the
automatic stay and failure to seek the leave of the Bankruptcy Court to file the petition. SRA at
255–56. Hahnfeldt did not dismiss the petition. On July 18 the Trustee filed an emergency
motion with the Bankruptcy Court for an order to show cause why Hahnfeldt should not be held
in contempt for violating the automatic stay. SRA at 231. The following day, July 19, the
Bankruptcy Court issued an Order to show cause why Hahnfeldt “should not be sanctioned for
commencing an action in violation of the automatic stay and the Barton doctrine and why he
should not be ordered to pay actual damages, including the Chapter 11 Trustee’s legal fees
relating to this Motion.” 3 SRA at 257. On July 20, the Supreme Judicial Court denied the petition
without a hearing and, it appears from the record, without an opinion. RA at 104.
Also on July 20, Hahnfeldt filed a response to the Show Cause Order stating that the
regulatory powers exception to the automatic stay applied. RA at 105. He made no mention of
ultra vires actions by the Trustee. On July 21, the Trustee replied. RA at 112. On July 22,
Hahnfeldt filed a “Motion to the Court Regarding its Order and Response to Trustee Reply to
Hahnfeldt’s Response to Trustee’s Show-Cause” raising the ultra vires issue, claiming that the
Trustee was acting outside the scope of his authority in treating the biological materials and
research equipment as part of the bankruptcy estate. RA at 117 (citations omitted). On July 26,
the Trustee replied. SRA at 258. On the same day, Hahnfeldt filed a further reply. SRA at 263.
On August 1, the Bankruptcy Court found “that the bankruptcy estate ha[d] been injured
by Hahnfeldt’s willful violation of the automatic stay and his violations of orders of this Court,
and the Court orders Hahnfeldt to pay the Trustee’s reasonable attorney’s fees incurred in
defending the automatic stay and orders of this Court from his Petition filed in the Supreme
Judicial Court.” SRA at 268. After consideration of the Trustee’s statement on fees, on
September 13 the Bankruptcy Court ordered Hahnfeldt to pay $10,829.50 to the Trustee’s
The Barton doctrine refers to the “general rule that before suit is brought against a receiver
leave of the court by which he was appointed must be obtained.” Barton v. Barbour, 104 U.S.
126, 128 (1881).
counsel as the reasonable expenses incurred in connection with the Supreme Judicial Court
petition. RA at 13; SRA at 269.
A violation of the automatic stay must be willful or the violator cannot be held liable for
damages. 11 U.S.C. § 362(h). Whether a party has willfully violated the automatic stay is a
question of fact reviewed for clear error. In re McMullen, 386 F.3d 320, 330 (1st Cir. 2004). The
amount of sanctions is reviewed for an abuse of discretion. In re Miller, 730 F.3d 198, 203 (3d
“The standard for a willful violation of the automatic stay under [11 U.S.C.] § 362(h) is
met if there is knowledge of the stay and the defendant intended the actions which constituted the
violation.” Fleet Mortg. Grp., Inc. v. Kaneb, 196 F.3d 265, 269 (1st Cir. 1999). “In cases where
the creditor received actual notice of the automatic stay, courts must presume that the violation
was deliberate.” Id. Hahnfeldt does not contest that he received actual notice of the stay and his
extensive filings in the Bankruptcy Court would belie any assertion that he was unaware.
Indeed, he was an active participant in the proceedings before the Bankruptcy Court in which the
trustee sought permission from the Bankruptcy Court, over his objection, to dispose of certain
assets. Filing the petition with the Supreme Judicial Court was certainly not an inadvertent act.
He intentionally filed the petition. He intentionally aimed the petition at assets of the estate. He
intentionally sought, in this new state action, an order from the state court aimed at obtaining the
relief denied to him, repeatedly, by the Bankruptcy Court. The Bankruptcy Court did not clearly
err in finding a willful violation of the automatic stay. The Court notes that filing a new petition
in state court to restrain the sale of assets ordered sold by the Bankruptcy Court over the filer’s
objection is a plain violation of the automatic stay. Thus, unless an exception applies,
Hahnfeldt’s action constitutes a sanctionable willful violation of the automatic stay.
Hahnfeldt argues in his brief that the regulatory powers exception to the automatic stay
applies to his actions. 4 Under this exception, “[t]he filing of a [bankruptcy] petition . . . does not
operate as a stay . . . of the commencement or continuation of an actions or proceeding by a
governmental unit . . . to enforce such governmental unit’s or organization’s police and
regulatory power, including the enforcement of a judgment other than a money judgment,
obtained in an action or 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). In the definitions
section of the Bankruptcy Code, “governmental unit” is defined as “United States; State;
Commonwealth; District; Territory; municipality; foreign state; department, agency, or
instrumentality of the United States (but not a United States trustee while serving as a trustee in a
case under this titles), a State, a Commonwealth, a District, a Territory, a municipality, or a
foreign state; or other foreign or domestic government.” 11 U.S.C. § 101(27).
Hahnfeldt is, obviously, not a “governmental unit.” Hahnfeldt argues that the exception
applies because the Supreme Judicial Court is a regulatory body and so, regardless of the
automatic stay, he is able to petition the Supreme Judicial Court so that it would exercise its
Hahnfeldt also focuses considerable portions of his brief on arguing that the cy pres doctrine
applies and that the Bankruptcy Court’s order on the disposition of charitable assets is wrong.
This Court is tasked with reviewing the Bankruptcy Court’s order of sanctions. Thus, this Court
will not delve into underlying cy pres argument. The issue here is whether Hahnfeldt willfully
violated the Bankruptcy Court’s order and the appropriateness of monetary sanctions; if
Hahnfeldt wants to challenge the cy pres issue, he must do so in an appropriate forum. Any error
by the Bankruptcy Court—and the Court sees no error—would not absolve Hahnfeldt of his
responsibility to follow the order pending appeal. See Acevedo-Garcia v. Vera-Monroig, 368
F.3d 49, 58 (1st Cir. 2004) (“It is well-settled that a party is not free to violate a court order
simply because it believes (correctly or not) that the order is invalid.”).
regulatory powers. He points to In re McMullen, 386 F.3d 320 (1st Cir. 2004), to support his
argument. In re McMullen, however, does not support Hahnfeldt’s assertions. In In re McMullen,
buyers in a failed real estate transaction submitted a complaint against the debtor, a real estate
agent acting as their broker for the transaction, before a state regulatory agency, to the
Massachusetts Division of Registration for Real Estate Agents. Id. at 323. The buyers had notice
of the bankruptcy proceeding. Id. The First Circuit stated that “[a]lthough we broadly construe
the automatic stay in many contexts, the same sound public policy reasons which undergird the
subsection 362(b)(4) exception counsel against any rule which might dissuade private parties
from providing governmental regulators with information which might require enforcement
measures to protect the public from imminent harm.” Id. at 328. The In re McMullen Court
differentiated between “[a] private party’s reporting of wrongful conduct to governmental
regulatory authorities” and “the commencement of a proceeding under subsection 362(a)(1)” or
“an ‘act to collect’ under subsection 362(a)(6).” Id. The buyers were not sanctioned for willful
violation of the automatic stay because the state regulatory proceeding was not restricted by the
Here, the situation is vastly different. Hahnfeldt petitioned the Supreme Judicial Court in
its adjudicative, judicial function: he filed a petition with a court seeking an injunction
restraining the sale of certain property. Hahnfeldt asked the Supreme Judicial Court to act as a
court, not a regulatory body. The regulatory exception does not apply. Hahnfeldt commenced a
proceeding as described in 11 U.S.C. § 362(a)(1) in violation of the automatic stay. Section
362(a)(1) notes that the automatic stay applies to “the commencement or continuation, including
the issuance or employment of process, of a judicial, administrative, or other action or
proceeding against the debtor that was or could have been commenced before the
commencement of the case under this title, or to recover a claim against the debtor that arose
before the commencement of the case under this title.” Hahnfeldt’s actions fall squarely within
The ultra vires exception similarly does not apply. Under Barton v. Barbour, 104 U.S.
126 (1881), “[i]t is a general rule that before suit is brought against a receiver leave of the court
by which he was appointed must be obtained.” Id. at 128. Under the ultra vires exception, an
injured party need not obtain the leave of the bankruptcy court before bringing suit if the trustee
is acting outside the scope of his authority. The exception allows a suit where the trustee has
seized property which is not properly a part of the estate. Here, the Trustee did not act outside the
scope of his authority. This was not a case where a Trustee unilaterally took possession of assets
he wrongly believed to be a part of the estate. See Leonard v. Vrooman, 383 F.2d 556, 560 (9th
Cir. 1967). He acted according to the Disposition and Settlement Orders of the Bankruptcy
Court. Following the orders of the Bankruptcy Court is within the scope of the Trustee’s
authority. Though more may not be necessary, there is further support for the order under review
here. The Massachusetts Attorney General, the state official charged with enforcing state cy pres
law, declined to object to the Bankruptcy Court rulings.
Finally, “[i]n reviewing the appropriateness of a sanction, an appellate court should
‘defer, within broad limits, to the [lower] court’s exercise of its informed discretion,’ yet still ‘be
careful not merely to rubber stamp’ the decision below.” In re 1095 Commonwealth Corp., 236
B.R. 530, 538 (D. Mass. 1999) (quoting Navarro-Ayala v. Nunez, 968 F.2d 1421, 1426 (1st Cir.
1992)) (alteration in original). “So long as the sanction selected is ‘appropriate,’ [the rules] place
virtually no limits on judicial creativity.” Id. (quoting Anderson v. Beatrice Foods Co., 900 F.2d
388, 394 (1st Cir 1990) (alteration in original). Here, the Bankruptcy Court’s order sets out each
action taken as a result of Hahnfeldt’s willful violation of the automatic stay, SRA at 269–71,
and includes an itemized list of the attorneys’ fees incurred, SRA at 273–74. The sanction of
attorneys’ fees of $10,829.50 is appropriate and is not an abuse of discretion.
The Court AFFIRMS the decision of the Bankruptcy Court. Hahnfeldt’s Emergency
Motion for a Stay of Execution of Judgment Pending Appeal, Doc. No. 5, is DISMISSED AS
/s/ Leo T. Sorokin
Leo T. Sorokin
United States District Judge
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