FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CITY & COUNTY OF SAN FRANCISCO,
Plaintiff-Appellant, No. 03-16976
v. D.C. No.
PG&E CORPORATION, CV-02-03668-VRW
Defendant-Appellee.
PEOPLE OF THE STATE OF
CALIFORNIA, ex rel. BILL LOCKYER, No. 03-17051
Attorney General State of D.C. Nos.
California,
Plaintiff-Appellant, CV-02-04330-VRW
CV-02-03668-VRW
v. CV-02-04071-VRW
PG&E CORPORATION, OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of California
Vaughn R. Walker, District Judge, Presiding
Argued and Submitted
February 18, 2005—San Francisco, California
Filed January 10, 2006
Before: Sidney R. Thomas, Richard A. Paez, and
Consuelo M. Callahan, Circuit Judges.
Opinion by Judge Thomas;
Partial Dissent by Judge Callahan
163
166 SAN FRANCISCO v. PG&E CORP.
COUNSEL
Bill Lockyer, Tom Greene, Ken Alex, Danette Valdez, and
Anne Burr, San Francisco, California, for appellant Attorney
General.
Dennis J. Herrera, Owen Clements, Theresa Mueller, David
Campos, San Francisco, California, for appellant City &
County of San Francisco.
SAN FRANCISCO v. PG&E CORP. 167
Alan S. Gover, Mike Stenglein, Stavy Russell, Dewey Balla-
tine LLP, Houston, Texas, and Michael P. Kellser, Weil, Got-
shal & Manges LLP, New York, New York, for the appellees.
OPINION
THOMAS, Circuit Judge:
In this appeal, we consider whether a lawsuit filed by gov-
ernmental entities seeking restitution to third parties pursuant
to the California Unfair Practices Act constitutes a police and
regulatory power action that cannot be removed to bankruptcy
court. Under the circumstances presented here, we conclude
that it does, and reverse the judgment of the district court.
I
The present controversy stems from the bankruptcy reorga-
nization filed by Pacific Gas & Electric Company (“the Utili-
ty” or “the Debtor”). The Utility provides gas and electric
services to more than four million customers in northern and
central California, subject to the regulation of the California
Public Utilities Commission (“CPUC”) and the Federal
Energy Regulatory Commission (“FERC”). In general, the
CPUC has jurisdiction to set the rates, terms and conditions
of service for the Utilty’s electricity distribution, natural gas
distribution and natural gas transportation and storage ser-
vices in California. The CPUC is also responsible for setting
service levels and certain operating practices and for review-
ing the Utility’s capital and operating costs. FERC has juris-
diction to set the rates, terms and conditions of service for the
Utility’s electricity transmission operations and wholesale
electricity sales.
The Utility is a wholly owned subsidiary of PG&E Corpo-
ration (“the Corporation”), an energy-based holding company
168 SAN FRANCISCO v. PG&E CORP.
incorporated in 1995 that conducts business principally
through the Utility. With one exception, during the period rel-
evant to this appeal, the members of the board of directors of
the Utility and the Corporation were the same.
In April 2001, the Utility filed a voluntary petition for
bankruptcy under the reorganization provisions of Chapter 11
of the Bankruptcy Code. In early 2002, the California Attor-
ney General and the City and County of San Francisco (“San
Francisco”) filed separate law enforcement actions in San
Francisco Superior Court against the Corporation, alleging
that it illegally transferred billions of ratepayer generated dol-
lars from the Utility to itself in violation of section 17200 of
the California Business and Professions Code.1 The Attorney
General and San Francisco sought injunctive relief, civil pen-
alties, and restitution as remedies for the parent Corporation’s
and its directors’ unlawful actions. As summarized by the
bankruptcy court, the Attorney General alleged that:
Corporation has engaged in a series of events
amounting to unlawful, unfair and fraudulent busi-
ness acts or practices including (1) agreeing to the
so-called First Priority Condition[2] while never
intending to abide by it and other conditions; (2)
subordinating the interests of Debtor and Debtor’s
ratepayers to Corporation’s own interest; (3) failing
to disclose to the California Public Utilities Commis-
1
Cal. Bus. & Prof. Code §17200 states: “As used in this chapter, unfair
competition shall mean and include any unlawful, unfair or fraudulent
business act or practice and unfair, deceptive, untrue or misleading adver-
tising and any act prohibited by Chapter 1 (commencing with section
17500) of Part 3 of Division 7 of the Business and Professions Code.”
2
The Attorney General alleged that “in order to obtain CPUC’s approval
of Debtor’s application to reorganize into a holding company structure
. . . , Corporation and its directors agreed that they would give ‘first prior-
ity’ to the capital needs of the Debtor as determined to be necessary and
prudent to meet its obligations to serve or operate Debtor in a prudent and
efficient manner.” In re Pac. Gas & Elec. Co., 281 B.R. at 4 n.4.
SAN FRANCISCO v. PG&E CORP. 169
sion (the “CPUC”) its true intentions during the so-
called Holding Company Proceedings;[3] (4) transfer-
ring ratepayer-funded assets from Debtor to Corpo-
ration for the benefit of Corporation and its affiliates,
even while Debtor was experiencing financial dis-
tress, and without intent to infuse capital into Debtor
when it needed capital to operate, in violation of the
First Priority Condition and other conditions; (5)
appropriating over $4 billion from revenues that
Debtor had received from high frozen rates paid by
ratepayers; (6) implementing “ring-fencing” transac-
tions to protect the assets of other affiliates of Cor-
poration from bankruptcy or credit down-grading,
insuring that it would be impossible for Debtor to
access such excess and impairing Corporation’s abil-
ity to provide cash to Debtor, again in violation of
the First Priority Condition.
In re Pac. Gas & Elec. Co., 281 B.R. 1, 4 (Bankr. N.D. Cal.
2002).
The Attorney General sought the following relief for the
alleged conduct: (1) an injunction against the Corporation and
its officers barring them from engaging in further violations
of 17200; (2) the appointment of a receiver; (3) an order
directing the Corporation and its officers to pay restitution;
and (4) an order assessing civil penalties of not less than $500
million and the cost of suit. The Attorney General did not
identify to whom restitution, if found necessary, should be
paid. Id. The Corporation removed the Attorney General’s
action to bankruptcy court. The Attorney General moved to
remand the action to state court.
3
“On October 20, 1995, Debtor filed an application with the CPUC for
approval to reorganize under a holding company structure. It proposed to
implement the restructuring through a reverse triangular merger. As a
result of merger, Debtor would become the wholly owned subsidiary of
Corporation.” In re Pac. Gas & Elec. Co., 281 B.R. at 4 n.5.
170 SAN FRANCISCO v. PG&E CORP.
In February 2002, San Francisco filed a complaint in the
Superior Court of the State of California for the County of
San Francisco alleging that from 1997 through 2000, the Util-
ity and the Corporation unlawfully conspired to transfer $4.6
billion from the Utility to the Corporation. This lawsuit mir-
rored the Attorney General’s action, alleging violations of
Cal. Bus. & Prof. Code § 17200 et seq. The Corporation
removed San Francisco’s action to the bankruptcy court, and
San Francisco moved to remand the action.
In June 2002, the bankruptcy court issued a decision in
which it determined that: (1) the Eleventh Amendment did not
bar removal of the Attorney General’s and San Francisco’s
§ 17200 actions, In re Pac. Gas & Elec. Co., 281 B.R. at 6-7;
and (2) the Attorney General’s and San Francisco’s § 17200
actions were exempt from removal under 28 U.S.C. § 1452(a)
because they were “police or regulatory power” actions, id. at
10-13.
All parties appealed portions of the bankruptcy court’s
decision to the United States District Court for the Northern
District of California. The Attorney General and San Fran-
cisco appealed the bankruptcy court’s holding that the Elev-
enth Amendment did not bar removal of their § 17200
actions. The Corporation appealed the bankruptcy court’s
decision that 28 U.S.C. § 1452(a) bars removal of the § 17200
actions.
The district court affirmed in part and reversed in part the
bankruptcy court. The district court affirmed the bankruptcy
court’s holding that the Eleventh Amendment did not bar
removal of the § 17200 actions. The district court also con-
cluded that: (1) the bankruptcy court correctly remanded the
§ 17200 actions as to civil penalties and injunctive relief
because the “police or regulatory power” exception of 28
U.S.C. § 1452(a) barred removal; (2) the bankruptcy court
erroneously remanded the restitution remedy sought in the
§ 17200 actions because it did not fall within 28 U.S.C.
SAN FRANCISCO v. PG&E CORP. 171
§ 1452(a)’s “police or regulatory power” exception; and (3)
the restitutionary claims are the property of the Utility’s
estate. Therefore, the district court stayed the restitution
award claim and reversed the bankruptcy court’s order
remanding the restitution award claim.
The Attorney General and San Francisco timely appealed.
On April 12, 2004, after these appeals were filed, the Utility
emerged from bankruptcy. As part of its confirmed plan of
reorganization, the Utility released any and all claims it had
against the Corporation and its officers and directors.
II
Before proceeding to the merits of this case, we must first
dispose of a few predicate jurisdictional issues.
A
[1] We have appellate jurisdiction to review the remand
order. Generally, a district court’s denial of a motion to
remand a case to state court is not a final decision on the mer-
its that we may review on direct appeal under 28 U.S.C.
§ 1291. Estate of Bishop v. Bechtel Power Corp., 905 F.2d
1272, 1274-75 (9th Cir. 1990). However, the general rule
does not apply if a district court’s order denying a motion to
remand effectively ends the litigation or “effectively sends a
party out of court.” Ramirez v. Fox Television Station Inc.,
998 F.2d 743, 746 (9th Cir. 1993) (quoting United States v.
Lee, 786 F.2d 951, 956 (9th Cir. 1986)). Here, the district
court’s action effectively terminated the Attorney General’s
and San Francisco’s restitution claim. Therefore, the district
court’s order was a final decision appealable under 28 U.S.C.
§ 1291, and we have appellate jurisdiction to review the order
denying remand. Ramirez, 998 F.2d at 747.4
4
Given this conclusion, it is unnecessary for us to decide whether or not
we also have pendant appellate jurisdiction, as urged by the Attorney Gen-
eral and San Francisco.
172 SAN FRANCISCO v. PG&E CORP.
B
[2] Our review of the district court’s order is not precluded
by 28 U.S.C. § 1452(b), which bars appellate review of a dis-
trict court’s order remanding a properly removed cause of
action if the remand decision is based on equitable factors.5
Section 1452(b) does not deprive appellate courts of jurisdic-
tion to review whether the action was properly removed in the
first instance. See Owens-Illinois, Inc. v. Rapid Am. Corp. (In
re Celotex Corp.), 124 F.3d 619, 625 (9th Cir. 1997) (“The
language of § 1452(b) expressly precludes appellate review of
a district court’s refusal to remand a properly removed action
on equitable grounds. However, the plain language of
§ 1452(b) presumes that removal under § 1452(a) was prop-
er.”).
The central issue in this case is whether removal of the
actions filed by the Attorney General and San Francisco was
precluded because the claims were part of “a civil action by
a governmental unit to enforce such governmental unit’s
police or regulatory power,” and not subject to removal under
28 U.S.C. section 1452(a). This is a question of subject matter
jurisdiction that does not implicate the jurisdictional limita-
tions of section 1452(b).
C
[3] Our appellate jurisdiction is also not precluded by the
statutory bar, pursuant to 28 U.S.C. section 1447(d), of review
5
Section 1452(b) provides as follows:
The court to which such claim or cause of action is removed may
remand such claim or cause of action on any equitable ground.
An order entered under this subsection remanding a claim or
cause of action, or a decision to not remand, is not reviewable by
appeal or otherwise by the court of appeals under section 158(d),
1291, or 1292 of this title or by the Supreme Court of the United
States under section 1254 of this title.
SAN FRANCISCO v. PG&E CORP. 173
of district court decisions to remand for lack of subject matter
jurisdiction.6 There is no question, and neither party disputes,
that § 1447(d) only applies to cases remanded pursuant to
§ 1447(c), where there is a defect in the removal procedure or
“the district court lacks subject matter jurisdiction.”
Rather, the Corporation urges that section 1447(d) should
be construed as modifying the standards set forth in section
1452(b) to bar appeals of remand orders, and orders to not
remand, which are founded on subject matter jurisdiction. For
this proposition, the Corporation relies on Things Remem-
bered, Inc. v. Petrarca, 516 U.S. 124 (1995). However,
Things Remembered did not hold that section 1447(d) modi-
fied section 1452(b). Rather, the Court explained in Things
Remembered that both statutes govern removals and remands
in bankruptcy cases: there is nothing in section 1447(d) that
should be read to imply that it does not apply to bankruptcy,
and section 1452(b) should not be read to prevent section
1447(d) from applying to bankruptcy. See id. at 129.
Section 1447(d) does not “preclude appellate review of a
district court decision not to remand when the district court
6
28 U.S.C. § 1447 provides in relevant part:
(c) A motion to remand the case on the basis of any defect other
than lack of subject matter jurisdiction must be made within 30
days after the filing of the notice of removal under section
1446(a). If at any time before final judgment it appears that the
district court lacks subject matter jurisdiction, the case shall be
remanded. An order remanding the case may require payment of
just costs and any actual expenses, including attorney fees,
incurred as a result of the removal. A certified copy of the order
of remand shall be mailed by the clerk to the clerk of the State
court. The State court may thereupon proceed with such case.
(d) An order remanding a case to the State court from which it
was removed is not reviewable on appeal or otherwise, except
that an order remanding a case to the State court from which it
was removed pursuant to section 1443 of this title shall be
reviewable by appeal or otherwise.
174 SAN FRANCISCO v. PG&E CORP.
erroneously finds subject matter jurisdiction.” Bissonnet Invs.
LLC v. Quinlan (In re Bissonnet Invs. LLC), 320 F.3d 520,
525 (5th Cir. 2003). The policy reasons for precluding appel-
late review of an order to remand based on the lack of juris-
diction, whether correct or not, do not similarly apply to the
opposite situation where a district court retains jurisdiction
based on the belief, whether correct or not, that federal courts
have exclusive jurisdiction over a claim or cause of action.
The strong congressional policy against appellate review of
remand orders is this:
Except in the highly unlikely event that a district
court is so unsure of itself that it stays its decision to
remand, the entry of a remand order ends the pro-
ceeding in the federal court and the state (or other)
court proceeding gets under way. If months or years
later a federal Court of Appeals decides that the
remand was improper, matters are thrown into con-
fusion and the effort expended by the parties on the
state court proceeding (along with a good deal of
state judicial resources) is in jeopardy. And if the
state case has proceeded to judgment, the subsequent
re-removal is for naught as the parties are bound by
res judicata.
Sykes v. Texas Air Corp., 834 F.2d 488, 490 (5th Cir. 1987)
(footnote omitted).
This policy is inapplicable to appellate review of district
court decisions not to remand a claim or cause of action to
state court. Indeed, the strong policy of maintaining the lim-
ited jurisdiction of federal courts militates towards allowing
appellate review of a district court decision not to remand,
particularly when considering the possibility that the district
court made the decision based on the erroneous finding that
it possessed subject matter jurisdiction, a finding that can be
challenged at any stage of litigation. Cf. Things Remembered,
516 U.S. at 132 n.1 (Ginsburg, J., concurring) (“An interlocu-
SAN FRANCISCO v. PG&E CORP. 175
tory decision ‘to not remand,’ therefore, although not per se
reviewable, would leave open for eventual appellate
consideration—also and earlier for district court
reconsideration—any question of the court’s subject-matter
jurisdiction.”); Sykes, 834 F.2d at 492 n.16 (“When the dis-
trict court decides to retain a case in the face of arguments
that it lacks jurisdiction, the decision itself is technically unre-
viewable; but of course the appellate court reviewing any
other aspect of the case must remand for dismissal if the
refusal to remand was wrong, i.e., if there is no federal juris-
diction over the case.”). Furthermore, the fact that section
1447(d) only applies to orders to remand, not orders denying
a motion to remand, adds support to the argument that, read
together, sections 1447(d) and 1452(b), do not bar appellate
review of a decision to not remand where a lack of federal
subject matter jurisdiction is alleged.
There is nothing in section 1447(d) that precludes appellate
jurisdiction in this case.7
D
[4] Both the bankruptcy court and the district court cor-
rectly concluded that the Eleventh Amendment did not pre-
clude the exercise of federal court jurisdiction, as the Attorney
General argues. The Attorney General contends that sovereign
immunity barred the removal of his action to federal court.
However, the Attorney General was the plaintiff in the origi-
7
Given our resolution of this issue, it is not necessary to discuss the
counter-argument raised by the Attorney General and San Francisco that
the Clorox/Pelleport doctrine would provide appellate jurisdiction if sec-
tion 1447(d) applied to preclude it. See Abada v. Charles Schwab & Co.,
300 F.3d 1112, 1118 (9th Cir. 2002) (noting that because “deciding a sub-
stantive legal question [was] necessary to determine whether subject mat-
ter jurisdiction existed, the Clorox/Pelleport doctrine does not apply.”).
See generally Clorox Co. v. United States Dist. Ct., 779 F.2d 517, 520 (9th
Cir. 1985) and Pelleport Investors, Inc. v. Budco Quality Theatres, Inc.,
741 F.2d 273, 276-77 (9th Cir. 1984).
176 SAN FRANCISCO v. PG&E CORP.
nal section 17200 action brought in state court. Therefore,
removal of that action was not prohibited by the Eleventh
Amendment. California ex rel. Lockyer v. Dynegy, Inc., 375
F.3d 831, 848 (9th Cir. 2004) (“[W]e hold that a state that
voluntarily brings suit as a plaintiff in state court cannot
invoke the Eleventh Amendment when the defendant seeks
removal to federal court of competent jurisdiction.”).
III
[5] The central question in this case is whether the section
17200 state lawsuits filed by the Attorney General and San
Francisco constitute police or regulatory power actions that
cannot be removed to bankruptcy court under 28 U.S.C. sec-
tion 1452(a). That section provides:
A party may remove any claim or cause of action in
a civil action other than a proceeding before the
United States Tax Court or a civil action by a gov-
ernmental unit to enforce such governmental unit’s
police or regulatory power, to the district court for
the district where such civil action is pending, if such
district court has jurisdiction of such claim or cause
of action under section 1334 of this title.
28 U.S.C. § 1452(a) (emphasis added).
A
In bankruptcy cases, we have construed the phrase “police
or regulatory power” in the context of the automatic stay
exception contained in 11 U.S.C. section 362(b)(4).8 The lan-
8
Section 362(b)(4) excepts from the automatic stay actions and proceed-
ings 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 regu-
latory power.”
SAN FRANCISCO v. PG&E CORP. 177
guage of the police and regulatory power exceptions in the
automatic stay context and in the removal context is virtually
identical, and the purpose behind each exception is the same.
Koken v. Reliance Group Holdings, Inc. (In re Reliance
Group Holdings, Inc.), 273 B.R. 374, 385 (Bankr. E.D. Pa.
2002). “Section 1452 and 11 U.S.C. § 362(b)(4) were
designed specifically to work in tandem. Therefore, interpre-
tation of these two provisions should be consonant.” Id. (cita-
tion omitted); see also 1 Collier on Bankruptcy (15th ed.)
§ 3.07[3] (“It would seem, therefore, that the congressional
intent was to make those types of civil actions that are not
subject to removal correspond to civil actions that are
excepted from the automatic stay.”).
In the automatic stay context, we generally have construed
the phrase “police or regulatory power” to “refer to the
enforcement of state laws affecting health, welfare, morals,
and safety, but not regulatory laws that directly conflict with
the control of the res or property by the bankruptcy court.”
Hillis Motors, Inc. v. Haw. Auto Dealer’s Ass’n, 997 F.2d
581, 591 (9th Cir. 1993).
[6] We have applied two alternative tests to determine
whether the actions of a governmental unit are in exercise of
its police and regulatory power as defined in 11 U.S.C. sec-
tion 362(b)(4): the “pecuniary purpose” and the “public poli-
cy” test. Universal Life Church v. United States (In re
Universal Life Church, Inc.), 128 F.3d 1294, 1297 (9th Cir.
1997).9 Satisfaction of either test will suffice to exempt the
9
“These tests derive from a statement made by Representative Don
Edwards, a member of the joint committee resolving differences between
the House and Senate versions, who stated that the exception ‘is intended
to be given a narrow construction in order to permit governmental units
to pursue actions to protect the public health and safety and not to apply
to actions by a governmental unit to protect a pecuniary interest in prop-
erty of the debtor, or property of the estate.’ ” Fed. Trade Comm’n v. first
Alliance Mortgage Co. (In re First Alliance Mortgage Co.), 264 B.R. 634,
646 (Bankr. C.D.Cal. 2001) (quoting 124 Cong. Rec. H11,089 reprinted
in 1978 U.S.C.C.A.N. 6436, 6444-45).
178 SAN FRANCISCO v. PG&E CORP.
action from the reach of the automatic stay. Lockyer v. Mirant
Corp., 398 F.3d 1098, 1108 (9th Cir. 2005).
If the action primarily seeks to protect the government’s
pecuniary interest, the automatic stay applies. If the suit pri-
marily seeks to protect the public safety and welfare, the auto-
matic stay does not apply. Universal Life, 128 F.3d at 1297;
see also Mirant, 398 F.3d at 1109 (“If the suit seeks to protect
the government’s pecuniary interest, the § 362(b)(4) excep-
tion does not apply. On the other hand, if the suit seeks to pro-
tect public safety and welfare, the exception does apply.”).
B
In applying the pecuniary purpose and public policy tests,
the district court correctly analyzed the individual claims, not
the section 17200 actions as a whole. See NLRB v. Continen-
tal Hagen Corp., 932 F.2d, 828 834-35 (9th Cir. 1991) (con-
sidering award for backpay separately from cease and desist
order, both sought for violation of 29 U.S.C. § 158); In re
Charter First Mortgage, Inc., 42 B.R. 380, 382 (Bankr. D. Or.
1984) (“[I]t is clear to this court that in applying the pecuniary
purpose test, it must look to what specific acts the government
wishes to carry out and determine if such execution would
result in an economic advantage to the government or its citi-
zens over third parties in relation to the debtor’s estate.”).
If we considered only the action as a whole, the govern-
ment could circumvent the reach of the automatic stay by
including in one action claims that clearly were subject to the
automatic stay with exempt claims. The same principle
applies to the police or regulatory power exception contained
in section 362(b)(4). Thus, contrary to the assertions of the
Attorney General, we must analyze the claims separately, as
did the district court.
C
On appeal, no party disputes that the Attorney General’s
and San Francisco’s claims for injunctive relief and civil pen-
SAN FRANCISCO v. PG&E CORP. 179
alties fall within the police or regulatory exception to
removal. The remaining question is whether the restitution
claims satisfy the requirements to be exempt from removal.
We conclude that they do.
1
[7] The lawsuits brought by the Attorney General and San
Francisco clearly pass the “pecuniary interest” test. “The pur-
pose of the ‘pecuniary purpose’ test is to prevent suits that
would allow a governmental unit to obtain an advantage over
creditors or potential creditors in the bankruptcy proceeding.”
Mirant, 398 F.3d at 1109. “Under the pecuniary purpose test,
the court determines whether the government action relates
primarily to the protection of the government’s pecuniary
interest in the debtor’s property or to matters of safety and
welfare.” Universal Life, 128 F.3d at 1297.10
The actions filed by the Attorney General and San Fran-
cisco were brought pursuant to California’s Unfair Competi-
tion Law, Cal. Bus. & Prof. Code section 17200. The
restitution claims in the actions do not relate primarily to the
protection of the government’s pecuniary interest in the debt-
or’s property. If restitution is warranted, California and San
Francisco will receive no pecuniary advantage; according to
the Corporation, the money may flow directly to the debtor,
and not to the state, county, or city governments.
10
In its opinion, the district court properly highlighted an anomaly in
Universal Life. In another portion of the Universal Life opinion, the phrase
“solely” is used rather than “primarily.” However, as the district court cor-
rectly observed, the test identified in Universal Life is whether the govern-
ment’s action primarily relates to the protection of the government’s
pecuniary interest, and subsequent cases have adhered to that articulation.
See, e.g., Mirant, 398 F.3d at 1109; Berg v. Good Samaritan Hosp. (In re
Berg), 230 F.3d 1165, 1167 (9th Cir. 2000). The incidental use of the word
“solely” appears to be a transcription error in describing the holding of
Thomassen v. Div. of Med. Quality Assurance (In re Thomassen), 15 B.R.
907, 909 (9th Cir. BAP 1981).
180 SAN FRANCISCO v. PG&E CORP.
[8] Restitution will benefit the public welfare by penalizing
past unlawful conduct and deterring future wrongdoing. There
is no showing that the restitution claims primarily advance the
governments’ pecuniary interests. In these circumstances, the
restitution claim fits comfortably within section 362(b)(4)’s
“police or regulatory power.”
2
[9] Given that the governmental entities have satisfied the
pecuniary interest test, it is unnecessary for us to reach the
question of whether the restitution claim also satisfies the
“public policy” test. However, most of our cases have ana-
lyzed both tests, and there are sound analytical reasons for
considering both tests in conjunction.11
“Under the ‘public purpose’ test, the court determines
whether the government seeks to ‘effectuate public policy’ or
to adjudicate ‘private rights.’ ” Mirant, 398 F.3d at 1109
(quoting Continental Hagen Corp., 932 F.2d at 833). If the
primary purpose of the suit is to effectuate public policy, then
the exception to the automatic stay applies. However, “[a] suit
does not satisfy the ‘public purpose’ test if it is brought pri-
11
Our controlling precedent, as we have discussed, quite plainly states
satisfying either the “pecuniary interest” or “public policy” test will suf-
fice. That being said, “[v]iewing the tests as disjunctive perhaps does not
always make sense, however.” First Alliance, 264 B.R. at 647 n.11. One
can conceive of actions in which it would make more sense to analyze the
tests as conjunctive in order to effect the Congressional purpose of “per-
mit[ing] governmental units to pursue actions to protect the public health
and safety,” but still requiring governmental entities to submit to bank-
ruptcy court jurisdiction when pursuing actions “to protect a pecuniary
interest in property of the debtor or property of the estate.” Id. at 646. A
conjunctive, rather than a disjunctive, analysis would be more consistent
with the oft-quoted floor statement of Rep. Edwards. 124 Cong. Rec.
H11,089 reprinted in 1978 U.S.C.C.A.N. 6436, 6444-45); see note 6. This
case may provide an example of why application of the “pecuniary inter-
est” test in isolation may not provide the most satisfactory analysis of
whether the exemption applies.
SAN FRANCISCO v. PG&E CORP. 181
marily to advantage discrete and identifiable individuals or
entities rather than some broader segment of the public.” Id.
As the California Supreme Court has explained, a civil
action brought by a governmental entity under section 17200
“is fundamentally a law enforcement action designed to pro-
tect the public and not to benefit private parties.” People v.
Pacific Land Research Co., 141 Cal. Rptr. 20, 24 (Cal. 1977).
The character of a section 17200 action is not affected by the
choice of restitution as a remedy. As the Court further
explained:
The request for restitution on behalf of vendees in
such an action is only ancillary to the primary reme-
dies sought for the benefit of the public. (People v.
Super. Ct. (Jayhill), 9 Cal.3d 283, 286, 107 Cal.Rptr.
192, 507 P.2d 1400.) While restitution would benefit
the vendees by the return of the money illegally
obtained, such repayment is not the primary object
of the suit, as it is in most private class actions.
Id.
[10] In this case, as in every case involving restitution, a
successful result for the governmental entities may well result
in money being paid to private parties, either indirectly,
through the bankruptcy court, or through direct payments.
However, the section 17200 restitution claims filed by the
governmental entities in this case are fundamentally law
enforcement actions designed to protect the public. As such,
the restitution claims also satisfy the “public policy test.”
D
The Corporation contends that 11 U.S.C. section 541
trumps 28 U.S.C. section 1452(a), permitting removal of these
actions because the choses in action are property of the estate.
To the extent that the Utility had the right to bring a claim
182 SAN FRANCISCO v. PG&E CORP.
against the Corporation pursuant to section 17200, the Corpo-
ration is correct. Section 541 defines the property of the bank-
ruptcy estate, which is subject to the bankruptcy court’s in
rem jurisdiction. Commodity Futures Trading Comm’n v. Co
Petro Mktg. Group, Inc., 700 F.2d 1279, 1282 (9th Cir. 1983).
The Utility’s chose in action would be property of the bank-
ruptcy estate pursuant to section 541(a)(1). Traders State
Bank of Poplar v. Mann Farms, Inc. (In re Mann Farms,
Inc.), 917 F.2d 1210, 1214 (9th Cir. 1990); Sierra Switch-
board Co. v. Westinghouse Elec. Corp., 789 F.2d 705, 707
(9th Cir. 1986).
However, the governmental entities are not asserting the
Utility’s claim in the lawsuit. They are pursuing a section
17200 remedy as a matter of state statutory right independent
of any claim that the Utility could have pursued. Cal. Bus. &
Prof. Code section 17204 provides:
Actions for any relief pursuant to this chapter shall
be prosecuted exclusively in a court of competent
jurisdiction by the Attorney General or any district
attorney or by any county counsel authorized by
agreement with the district attorney in actions
involving violation of a county ordinance, or any
city attorney of a city, or city and county, having a
population in excess of 750,000, and, with the con-
sent of the district attorney, by a city prosecutor in
any city having a full-time city prosecutor or, with
the consent of the district attorney, by a city attorney
in any city and county in the name of the people of
the State of California upon their own complaint or
upon the complaint of any board, officer, person,
corporation or association or by any person who has
suffered injury in fact and has lost money or prop-
erty as a result of such unfair competition.
Section 17204 confers standing to bring actions under sec-
tion 17200 on those who have been injured as the result of
SAN FRANCISCO v. PG&E CORP. 183
unfair competition and also on designated governmental enti-
ties for purposes of public protection. The most recent amend-
ment to section 17204, which does not affect this case, was
made by passage of Proposition 64 in 2004 by the California
electorate. The initiative’s finding and declaration of purpose
provided that “[i]t is the intent of California voters in enacting
this act that only the California Attorney General and local
public officials be authorized to file and prosecute actions on
behalf of the general public.” Initiative Measure (Prop. 64)
§ 1(f). The initiative further declared that “[i]t is the intent of
California voters in enacting this act that the Attorney Gen-
eral, district attorneys, county counsels, and city attorneys
maintain their public protection authority and capability under
the unfair competition laws.” Id. at § 1(g). This statement of
purpose is in accord with the long history of the Unfair Prac-
tices Act. See, e.g., People v. Centr-O-Mart, 214 P.2d 378,
380 (Cal. 1950) (holding that the Attorney General could pur-
sue actions under the predecessor statute to enforce the State’s
interest in public welfare).
The government’s right to pursue a cause of action under
section 17200 is separate from, and not derivative of, the Util-
ity’s right to assert an action as a debtor-in-possession. The
government’s right of action under section 17200 is not part
of the bankruptcy estate under section 541.12
12
The California Supreme Court’s recent decision in State v. Altus Fin.,
S.A., 36 Cal. 4th 1284, 32 Cal. Rptr. 3d 498 (Cal. 2005) does not alter this
conclusion. In Altus, the court considered whether the Attorney General
had the authority to pursue a section 17200 action relating to an insolvent
insurance company when the California Insurance Commissioner had been
appointed to act as a conservator or liquidator. Construing California law,
the court concluded that the Insurance Commissioner had the exclusive
right to pursue such remedies under the California Insurance Code, which
is not at issue in this case. The obligations, rights, and responsibilities of
the California Insurance Commissioner and a federal bankruptcy debtor-
in-possession differ. Further, in examining the specific action at hand, the
court also concluded that the primary purpose of the Attorney General’s
suit was to benefit defined individuals and entities, the protection of which
was already committed to the Insurance Commissioner, rather than to ben-
efit the general public interest.
184 SAN FRANCISCO v. PG&E CORP.
The fact that all or part of a restitution award might be
returned to the Utility or the bankruptcy estate does not
change the analysis. Assuming, arguendo, that a restitution
award would constitute property of the bankruptcy estate, that
does not mean that section 541would obviate the law enforce-
ment exception to removal contained in 28 U.S.C. section
1452(a). Indeed, that is the point of the exception: to define
claims or causes of action that are not subject to removal
despite the actual or potential existence of a related federal
bankruptcy case.
IV
Through various provisions of the Bankruptcy Code, Con-
gress has evidenced its intent that a governmental unit’s
police or regulatory action not be litigated in federal bank-
ruptcy court. Section 362(b)(4) of the Bankruptcy Code
exempts such an action from the reach of the automatic stay;
28 U.S.C. section 1452(a) exempts such an action from
removal to bankruptcy court. The critical determination is
whether a particular government action qualifies as a “police
or regulatory action” under the principles we have articulated,
and that determination must be made on the basis of a case-
specific inquiry.
[11] In analyzing the case at hand, we conclude that the
section 17200 state lawsuits filed by the Attorney General and
San Francisco constitute police or regulatory power actions
that cannot be removed to bankruptcy court under 28 U.S.C.
section 1452(a). Although we agree with much of the district
court’s thoughtful opinion, we reverse the judgment, with the
direction to remand the entire action to state court.
REVERSED and REMANDED.
SAN FRANCISCO v. PG&E CORP. 185
CALLAHAN, Circuit Judge, dissenting in part:
I join the holding on appellate jurisdiction in Part II of the
opinion, but I cannot join my colleagues determination that
appellants’ restitution claims do not have a pecuniary purpose
and satisfy the “public policy” test.
We start at the same place but our reasoning diverges. The
starting point, set forth by the majority in footnote nine, is for-
mer Representative Don Edwards’ statement that the excep-
tion is to be given a narrow construction and is “ ‘not to apply
to actions by a governmental unit to protect a pecuniary inter-
est in property of the debtor, or property of the estate.’ ” In
re First Alliance Mortgage Co., 264 B.R. 634, 646 (C.D. Cal.
2001) (quoting 124 Cong. Rec. H11,089 (1978), reprinted in
1978 U.S.C.C.A.N. 6436, 6444-45) (Slip at 177 n.9).
The majority appears to overlook this advice in concluding
that the restitution claims pass the “pecuniary purpose” test.
It restates the standard as “ ‘to prevent suits that would allow
a governmental unit to obtain an advantage over creditors or
potential creditors in the bankruptcy proceeding.’ ” (Slip at
179, quoting Lockyer v. Mirant, 398 F.3d 1098, 1109 (9th Cir.
2005)). The majority then reasons that because appellants
“will receive no pecuniary advantage” if successful, the pur-
poses of the restitution claims are not primarily pecuniary.
(Slip at 179). The majority further concludes that because res-
titution “will benefit the public welfare by penalizing past
unlawful conduct and deterring future wrongdoing,” the
claims do not “primarily advance the government’s pecuniary
interests.” (Slip at 180).
This logic is less than persuasive. First, the public’s interest
in “penalizing past unlawful conduct and deterring future
wrongdoing” is directly addressed by appellants’ claims for
injunctive relief and civil penalties, which we all agree fall
within the police or regulatory power exception. Second, if,
as Representative Edwards stated, the exception is “not to
186 SAN FRANCISCO v. PG&E CORP.
apply to actions by a governmental unit to protect a pecuniary
interest in property of the debtor, or property of the estate,”
it makes no difference whether the restitution claims benefit
appellants or the debtor because their primary purpose
remains pecuniary gain. In addition, it should be noted that
precisely who or what entity would receive the restitution
award is unclear.1
The majority seeks to bolster its conclusion that the restitu-
tion claims pass the “pecuniary purpose” test by opining that
the claims also satisfy the “public policy” test. (Slip at 180-
81). The shifts in the majority’s analysis, however, expose the
flaws in its determination. The majority initially states that the
district court “correctly analyzed the individual claims, not
the § 17200 actions as a whole.” (Slip at 178). When address-
ing the “public policy” test, however, the majority instead
relies on the California Supreme Court’s statement that “a
civil action brought by a governmental entity under § 17200
‘is fundamentally a law enforcement action designed to pro-
tect the public and not to benefit private parties.’ People v.
Pac. Land Research Co., 141 Cal. Rptr. 20, 24 (Cal. 1977).”
(Slip at 181). The majority then asserts that the “character of
a § 17200 [proceeding] is not affected by the choice of restitu-
tion as a remedy.” (Slip at 181). These shifts from evaluating
individual claims, to looking at the action as a whole, and
from analyzing the individual causes of action, to accepting
broad remedies, is not only confusing, but results in a defini-
tion of the “public policy” test that eviscerates the “pecuniary
purpose” test. It makes little sense to analyze the individual
claims in a § 17200 action to determine whether they meet the
“pecuniary purpose” test if the court is going to conclude that
an entire § 17200 action automatically meets the “public pur-
pose” test when one or more of the claims asserted in the
action concern matters of safety or welfare.
1
The parties disagree as to who should receive any restitution award.
The majority recognizes that “all or part of a restitution award might be
returned to the Utility or the bankruptcy estate,” but does not determine
the question. (Slip at 184).
SAN FRANCISCO v. PG&E CORP. 187
In determining whether the restitution claims meet the
“public policy” test, I would be consistent with our approach
to the “pecuniary purpose” test, and look at the individual
claims, rather than the broad purpose of the § 17200 action.
Here, applying the “public policy” test as set forth by the
majority, the restitution claims do not seek to “effectuate pub-
lic policy” or to adjudicate “private rights.” Mirant, 398 F.3d
at 1109. As previously noted, the § 17200 action’s “public
policy” concerns are addressed in its claims for injunctive
relief and civil penalties, rather than in the restitution claims.
Also, the majority’s comment that if restitution is warranted
“California and San Francisco will receive no pecuniary
advantage” (Slip at 179) certainly implies that the restitution
claims assert “private rights.”
I would remain faithful to the clear standard set forth by
former Representative Edwards. If the government claim is
“to protect a pecuniary interest in property of the debtor, or
property of the estate,” it does not pass the pecuniary interest
test.2 Here, although the § 17200 action’s claims for injunc-
tive relief and civil penalties seek to protect the public safety
and welfare, its restitution claims have the primary purpose of
protecting a pecuniary interest. Moreover, appellants’ restitu-
tion claims when analyzed on their own do not meet the pub-
lic policy test. Accordingly, I would find that the district court
properly retained jurisdiction over the restitution claims, and
affirm the district court’s judgment in its entirety.
2
This approach is consistent with our recent opinion in Mirant, 398 F.3d
at 1109. There we held:
The Attorney General’s section 16 Clayton Act suit clearly satis-
fies the “pecuniary purpose” test. After having been trimmed
down by the district court, the suit now seeks only divestiture.
The Attorney General does not seek a monetary recovery, and
asserts no interest of the state in the three power plants that are
the subject of his suit. Rather, the Attorney General seeks only
an injunction that would require Mirant to divest itself of the
plants.