Equal Employment Opportunity Commision v. Tim Shepherd MD PA
Filing
30
MEMORANDUM OPINION AND ORDER granting 26 Motion to Reopen the Case Following Administrative Closure. The court vacates its order administratively closing this case (Doc. 24 ) and reopens this action for further proceedings consistent with the scheduling order previously entered by the court. (Ordered by Judge Sam A Lindsay on 10/11/2018) (zkc)
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
EQUAL EMPLOYMENT OPPORTUNITY
COMMISSION,
Plaintiff,
v.
TIM SHEPHERD M.D., PA d/b/a
SHEPHERD HEALTHCARE,
Defendant.
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Civil Action No. 3:17-CV-02569-L
MEMORANDUM OPINION AND ORDER
Before the court is Plaintiff Equal Employment Opportunity Commission’s Motion to
Reopen the Case Following Administrative Closure (“Motion”) (Doc. 26), filed August 30, 2018.
After careful consideration of the Motion, response, reply, pleadings, and applicable law, the
court grants the Motion (Doc. 26).
I.
Factual Background and Procedural History
On September 20, 2017, Plaintiff Equal Employment Opportunity Commission (“EEOC”
or “Plaintiff”) brought this action against Defendant Tim Shepherd M.D., PA d/b/a Shepherd
Healthcare (“Shepherd” or “Defendant”) for alleged violations of Title VII of the Civil Rights
Act of 1964 (“Title VII”). The EEOC seeks injunctive relief under Title VII, back pay with
prejudgment interest, compensatory damages for past and future pecuniary and non-pecuniary
losses, punitive damages, and costs. On August 29, 2018, Defendant filed a voluntary petition
under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern
District of Texas in Bankruptcy Case No. 18-41895. In light of the bankruptcy proceeding, the
Memorandum Opinion and Order – Page 1
court entered an order, pursuant to 11 U.S.C. § 362, notifying the parties that an automatic stay
was in effect, and administratively closed the case.
In its Motion, the EEOC requests that the court reopen the case and allow it to proceed
with its claims notwithstanding the bankruptcy proceeding. The EEOC contends that Bankruptcy
Code’s automatic stay provision does not apply to this action against Defendant because this
proceeding falls within the exception under 11 U.SC. § 362(b)(4) to the automatic stay
provision.1 Shepherd acknowledges that certain types of EEOC enforcement actions fall within
Section 362(b)(4)’s exception to the automatic stay but contends that the scope of this exception
does not extend to enforcement of a money judgment.
In its reply, Plaintiff continues to
maintain that enforcement actions such as this, in which the EEOC seeks vindication of the
public interest, are exempted from the automatic stay provision. In addition, the EEOC clarifies
that it is not seeking to enforce a monetary judgment but, instead, seeks to prove that Shepherd is
liable for the claims asserted and obtain a judgment against Defendant for damages and
injunctive relief that will prevent Shepherd from “engaging in future discriminatory conduct in
violation of Title VII.” Pl.’s Reply 4.
II.
Section 362(b)(4)’s Exception to the Automatic Stay Provision
Section 362’s automatic stay is “one of the fundamental debtor protections provided by
bankruptcy laws.” Midlantic Nat’l Bank v. N.J. Dep’t of Envtl. Prot., 474 U.S. 494, 503 (1986)
1
The EEOC also contends that it should be allowed to conduct discovery to determine whether Defendant has
engaged in a fraudulent conveyance and created a successor company in an attempt to avoid prosecution under Title
VII. The parties dispute whether discovery regarding this issue should be undertaken in this action as opposed to the
bankruptcy proceeding. The court, however, need not decide this issue to rule on the EEOC’s Motion and determine
whether the relief sought by the EEOC in this action falls within Section 362(b)(4)’s exception to the automatic stay
provision, and any disputes between the parties regarding the appropriate scope of discovery can be handled via
normal discovery procedures, including objections, motions for protective orders, motions to quash, or motions to
compel.
Memorandum Opinion and Order – Page 2
(citation omitted). The automatic stay acts as an injunction that arises automatically upon the
filing of a bankruptcy petition. See 11 U.S.C. § 362(a). The stay enjoins specific acts against a
debtor in bankruptcy or a bankruptcy estate, including the commencement or continuation of
judicial proceedings against the debtor. Id. § 362(a)(1). The automatic stay prevents creditors
from seizing secured assets to give the debtor “breathing room” to reorganize. In re Stembridge,
394 F.3d 383, 387 (5th Cir. 2004). “Whether the stay applies to litigation otherwise within the
jurisdiction of a district court . . . is an issue of law within the competence of both the [district]
court within which the litigation is pending . . . and the bankruptcy court.” Hunt v. Bankers Tr.
Co., 799 F.2d 1060, 1099 (5th Cir. 1986) (footnote and citation omitted).
Section 362(b) sets forth exceptions to the automatic stay. 11 U.S.C. § 362(b). One
exception is the governmental unit or police and regulatory power exception under Section
362(b)(4), which provides that the filing of a bankruptcy petition “does not operate as a stay” of:
the commencement or continuation of an action or proceeding by a governmental
unit . . . to enforce such governmental unit’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 . . . police or regulatory power.
11 U.S.C. § 362(b)(4). The purpose of this exception is to discourage debtors from initiating
bankruptcy proceedings to “evad[e] impending governmental efforts to invoke the governmental
police powers to enjoin or deter ongoing debtor conduct which would seriously threaten the
public safety and welfare.” In re Halo Wireless, Inc., 684 F.3d 581, 587 (5th Cir. 2012) (citations
omitted). Section 362(b)(4), therefore, permits a governmental unit to continue judicial
proceedings to enforce its police and regulatory power.
Memorandum Opinion and Order – Page 3
To determine whether proceedings fall within Section 362(b)(4)’s police and regulatory
power exception to the automatic stay, the Fifth Circuit applies two tests—a “public policy test”
and a “pecuniary purpose test.” Id. at 588 (citations omitted). “The pecuniary purpose test asks
whether the government primarily seeks to protect a pecuniary governmental interest in the
debtor’s property, as opposed to protecting public safety and health.” Id. (citation omitted). “The
public policy test asks whether the government is effectuating public policy rather than
adjudicating private rights.” Id. (citation omitted). “[I]f the purpose of the law is to promote
public safety and welfare or to effectuate public policy, then the exception to the automatic stay
applies.” Id. (citation omitted). “[O]n the other hand, [if] the purpose of the law is to protect the
government’s pecuniary interest in the debtor’s property or primarily to adjudicate private rights,
then the exception is inapplicable.” Id. (citations omitted). In applying both tests, the court
considers the totality of the circumstances and determines whether the “proceeding at issue is
designed primarily to protect the public safety and welfare, or represents a governmental attempt
to recover from property of the debtor estate, whether on its own claim, or on the
nongovernmental debts of private parties.” Id. (citations omitted).
To fall within the exception, the public policy interests of the governmental unit need not
be limited to health and physical safety, and the remedy sought by the governmental unit can be
monetary in character as long as the governmental unit is “acting to vindicate something more
than a pecuniary interest.” In re Wyly, 526 B.R. 194, 198 (Bankr. N.D. Tex. 2015) (citations
omitted). Further, the exception allows entry of a money judgment against a debtor but cannot
be used to enforce a money judgment. Halo Wireless, 684 F.3d at 587 (quoting S.E.C. v.
Brennan, 230 F.3d 65, 71 (2d Cir. 2000), for the proposition that “[i]t is well established that the
Memorandum Opinion and Order – Page 4
governmental unit exception of § 362(b)(4) permits the entry of a money judgment against a
debtor so long as the proceeding in which such a judgment is entered is one to enforce the
governmental unit’s police or regulatory power. . . . However, . . . anything beyond the mere
entry of a money judgment against a debtor is prohibited by the automatic stay.”).
III.
Analysis
Neither party disputes that the EEOC is a governmental unit for purposes of Section
362(b)(4).2 Resolution of Plaintiff’s Motion, therefore, turns on whether Plaintiff’s claims and
requests for relief fall within the scope of Section 362(b)(4). To make that determination, the
court must assess whether the EEOC’s primary purpose in bringing this action is to protect
public policy and welfare as opposed to adjudicating private rights or represents an attempt by it
to recover property from Shepherd’s bankruptcy estate, whether on its own claim, or based on
the debts of private parties. Halo Wireless, 684 F.3d at 588.
The Fifth Circuit has not specifically addressed whether an EEOC enforcement action
under Title VII falls within Section 362(b)(4)’s exception to the automatic stay provision. The
court, however, finds persuasive the Fourth Circuit’s reasoning in McLean in which the court
concluded that actions by the EEOC for employment discrimination under Title VII satisfy the
public policy test, even when brought on behalf of specific individuals, because the EEOC in
such circumstances “is guided by ‘the overriding public interest in equal employment
opportunity . . . asserted through direct Federal enforcement.’ 118 Cong. Rec. 4941 (1972).
When the EEOC acts, albeit at the behest of and for the benefit of specific individuals, it acts
2
Under the Bankruptcy Code, “governmental unit” means “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 title), 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).
Memorandum Opinion and Order – Page 5
also to vindicate the public interest in preventing employment discrimination.”
EEOC v.
Mclean, 834 F.2d 398, 402 (4th Cir. 1987) (quoting General Tel. Co. of the Northwest v. EEOC,
446 U.S. 318, 326 (1980)). Based on the Supreme Court’s determination that the “primary
purpose of Title VII was to achieve equality of employment opportunities,” the court in Mclean
concluded as follows:
[W]hen [the] EEOC sues to enjoin violations of Title VII or ADEA and seeks
reinstatement of the victims of alleged discrimination and adoption of an
affirmative action plan in a Title VII case, and couples these prayers for relief
with a claim for back pay, [the] EEOC is suing in exercise of its police or
regulatory power and is not subject to the automatic stay until its monetary claims
are reduced to judgment.
Mclean, 834 F.2d at 402. The McLean court also noted that the Eighth and Third Circuits have
reached the same conclusion in cases involving the same or similar issues. Id. (citing EEOC v.
Rath Packing Co., 797 F.2d 318, 325-26 (8th Cir 1986); and EEOC v. Hall’s Motor Transit Co.,
789 F.2d 1011, 1013 (3d Cir. 1986)).
The same rationale applies in this case. In its Amended Complaint, the EEOC alleges that
Defendant engaged in unlawful employment practices in violation of the federally protected
rights of several employees and asserts employment law claims for religious discrimination,
religious-based hostile work environment, and retaliation claims under Title VII against
Defendant. For relief, the EEOC requests an injunction permanently enjoining Shepherd and
Shepherd’s agents from engaging in discriminatory and retaliatory employment practices in
violation of Title VII. In addition, the EEOC seeks a judgment requiring Shepherd to compensate
certain individuals for: (1) back pay with interest; (3) past and future pecuniary and
nonpecuniary losses resulting from Defendant’s unlawful employment practices; and (3) punitive
damages.
Memorandum Opinion and Order – Page 6
Of the relief sought by the EEOC in this case, first and foremost is its request for a
permanent injunction, which is not limited in application to the individuals named in the EEOC’s
pleadings. There is also no indication from the EEOC’s pleadings that it brought this action to
protect a pecuniary governmental interest in Shepherd’s property, and, while the EEOC seeks
monetary relief on behalf of specific individuals, it is also vindicating the public interest by
seeking to prevent discrimination in the workplace under Title VII. In other words, there is no
indication that the EEOC’s primary purpose in bringing this action was to recover property from
Shepherd’s bankruptcy estate, whether on its own claim, or based on the debts of private parties.
Moreover, the EEOC is not seeking to enforce a money judgment; rather, it seeks to
prosecute its Title VII claims against Defendant in this action for purposes of preventing
Shepherd from engaging in religious discrimination in the future and to also obtain a money
judgment on behalf of the named employees. The EEOC also acknowledges that it will not be
able to use this proceeding to enforce any money judgment entered against Shepherd.
Accordingly, the court determines that the public policy and pecuniary interest tests are satisfied,
and that this action falls within the EEOC’s police and regulatory powers. Section 362(b)(4),
therefore, applies, and the EEOC is entitled to prosecute its claims and requests for relief in this
court notwithstanding Defendant’s bankruptcy proceeding.
IV.
Conclusion
For the reasons herein explained, the court concludes that this action is not subject to the
Bankruptcy Code’s automatic stay provision and grants Plaintiff’s Motion to Reopen the Case
Following Administrative Closure (Doc. 26) pursuant to 11 U.S.C. § 362(b)(4). Accordingly,
Memorandum Opinion and Order – Page 7
the court vacates its order administratively closing this case (Doc. 24) and reopens this action
for further proceedings consistent with the scheduling order previously entered by the court.
It is so ordered this 11th day of October, 2018.
_________________________________
Sam A. Lindsay
United States District Judge
Memorandum Opinion and Order – Page 8
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