FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JEREMY PORTER, an individual, No. 15-16985
Plaintiff-Appellant,
D.C. No.
v. 1:15-cv-00805-
MCE-JLT
NABORS DRILLING USA, L.P., a
Limited Partnership organized under
the laws of the State of Delaware, OPINION
Defendant-Appellee.
Motion to Recognize Automatic Stay of Appeal
from the United States District Court
for the Eastern District of California
Morrison C. England, Jr., District Judge, Presiding
Submitted to Motions Panel February 27, 2017
Filed April 20, 2017
Before: William C. Canby, Richard R. Clifton,
and Michelle T. Friedland, Circuit Judges.
Opinion by Judge Clifton
2 PORTER V. NABORS DRILLING USA
SUMMARY *
California Private Attorney General Act /
Automatic Stay
The panel granted the motion of Nabors Drilling USA,
L.P. to recognize an automatic stay, triggered by its filing for
reorganization under Chapter 11 of the Bankruptcy Code, in
a lawsuit file by plaintiff Jeremy Porter, who asserted a claim
under California’s Private Attorney General Act of 2004
(“PAGA”).
The panel held that the exception to an automatic stay
established in 11 U.S.C § 362(b)(4), described as the
governmental regulatory or governmental unit exception,
did not apply to a claim brought by a private party under
PAGA. Because the governmental unit exception to the
automatic bankruptcy stay did not apply to Porter’s PAGA
action, the panel concluded that the automatic stay applied
to the action, including the appeal currently before the court.
The panel suspended further activity in this appeal.
COUNSEL
Arnold P. Peter, Peter Law Group, Manhattan Beach,
California, for Plaintiff-Appellant.
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
PORTER V. NABORS DRILLING USA 3
Tamara I. Devitt and Matthew E. Costello, Haynes and
Boone LLP, Costa Mesa, California, for Defendant-
Appellee.
OPINION
CLIFTON, Circuit Judge:
Movant-Appellee Nabors Drilling USA, L.P. has filed
for reorganization under Chapter 11 of the Bankruptcy Code.
That filing triggered the automatic stay under 11 U.S.C.
§ 362(a)(1), which generally applies to protect a debtor after
it has filed for bankruptcy protection. The question
presented by the current motion is whether that stay applies
to a lawsuit filed by a plaintiff, Appellant Jeremy Porter, who
has asserted a claim under California’s Private Attorney
General Act of 2004 (“PAGA”), Cal. Labor Code §§ 2698 et
seq. Porter contends that the exception established in
11 U.S.C. § 362(b)(4), sometimes described as the
governmental regulatory or governmental unit exception,
applies to exempt his PAGA claim from the automatic stay.
We conclude that the exception does not apply to a claim
brought by a private party under PAGA, and we therefore
grant Nabors’s motion to recognize the automatic stay in this
case.
I. Background
Porter alleges that he was formerly an employee of
Nabors. He notified the California Labor & Workforce
Development Agency (“LWDA”) that he believed that
Nabors had violated various provisions of the California
Labor Code. LWDA did not respond to Porter or take further
action regarding his allegations. Under PAGA, after LWDA
4 PORTER V. NABORS DRILLING USA
had been notified of possible labor code violations and
declined to take action within a certain period of time, Porter
was authorized to file a civil action seeking to recover
penalties for the alleged code violations. See Cal. Lab. Code
§§ 2698 et seq. He did so by filing a complaint against
Nabors in state court. Porter’s complaint contained eight
causes of action, including one PAGA claim.
After removing the action to federal court, Nabors
moved to compel arbitration on all of Porter’s claims
pursuant to an arbitration agreement. Porter agreed to
arbitrate all of his claims except for the PAGA claim. Over
Porter’s objection, the district court granted Nabors’s motion
to compel arbitration of the PAGA claim and dismissed the
complaint. Porter filed the current appeal. LWDA has never
moved to intervene in the action.
After the appeal was filed, Nabors filed in this court a
“Notice of Suggestion of Bankruptcy.” The notice stated
that Nabors and its parent companies filed voluntary
petitions seeking bankruptcy protection under Chapter 11 in
the United States Bankruptcy Court for the Southern District
of Texas, Houston Division. The notice stated that pursuant
to 11 U.S.C. §§ 362(a)(1)–(3), the filing of the bankruptcy
petition automatically stayed all proceedings with respect to
Nabors. Porter then filed with this court a motion for
summary disposition arguing that the automatic bankruptcy
stay does not apply to these proceedings.
As discussed below, there are a small number of
exceptions to the automatic bankruptcy stay. Among those
exceptions is a provision for proceedings brought “by a
governmental unit . . . to enforce such governmental unit’s
. . . police and regulatory power.” 11 U.S.C. § 362(b)(4).
Porter argued that his PAGA claim is brought “by a
governmental unit” to enforce “police and regulatory
PORTER V. NABORS DRILLING USA 5
power,” and thus the bankruptcy stay does not apply. A
motions panel of this court referred Porter’s motion for
summary disposition to the panel that will be assigned to
decide the merits of the appeal and ordered briefing to
proceed.
Two months later, Nabors filed the current motion,
entitled “Emergency Motion Under Circuit Rule 27-3 to
Recognize Automatic Stay.” Nabors argues that requiring it
to brief this appeal would violate the automatic bankruptcy
stay. Porter has filed an opposition to that motion, and
Nabors filed a reply.
II. California’s Private Attorney General Act
LWDA is assigned responsibility under California law
for bringing actions to enforce the state’s labor laws. See,
e.g., Caliber Bodyworks, Inc. v. Superior Court, 36 Cal.
Rptr. 3d 31, 33 & 33 n.1 (Ct. App. 2005). In response to a
concern that labor law enforcement agencies like LWDA
“were unlikely to keep pace with the future growth of the
labor market,” the California legislature passed PAGA.
Arias v. Superior Court, 209 P.3d 923, 929 (Cal. 2009).
Under PAGA, “civil penalt[ies] to be assessed and collected
by the Labor and Workforce Development Agency . . . for a
violation of th[e Labor] code, may, as an alternative, be
recovered through a civil action brought by an aggrieved
employee.” Cal. Lab. Code § 2699(a). To be eligible to file
a claim under PAGA, an aggrieved employee must first
submit his allegations of labor code violations to LWDA as
well as to the employer. Id. § 2699.3(a)(1)(A). If LWDA
does not respond or take action on the allegations within a
certain period, the aggrieved employee is permitted to
“commence a civil action pursuant to Section 2699.” Id.
§ 2699.3(a)(2)(A).
6 PORTER V. NABORS DRILLING USA
If LWDA declines to intervene in a PAGA proceeding,
the plaintiff “pursues the PAGA action in his own name,
exercises complete control over the lawsuit, and is not
restrained by any provision of the PAGA statute from
settling or disposing of the claim as he sees fit.” 1 Nanavati
v. Adecco USA, Inc., 99 F. Supp. 3d 1072, 1083 (N.D. Cal.
2015). As the California Supreme Court has explained,
“[a]n employee plaintiff [bringing a PAGA claim] does so
as the proxy or agent of the state’s labor law enforcement
agencies” and “with the understanding that labor law
enforcement agencies [are] to retain primacy over private
enforcement efforts.” Arias, 209 P.3d at 933, 929–30. If
successful, twenty-five percent of the civil penalties are
distributed to the aggrieved employees, and the remaining
seventy-five percent of the penalties go to LWDA. Cal. Lab.
Code § 2699(i). The PAGA plaintiff is also entitled to
reasonable attorney’s fees and costs. Id. § 2699(g)(1).
When looking at PAGA claims in the context of
arbitration agreements, both the California Supreme Court
and this court have concluded that “[a] PAGA representative
action is . . . a type of qui tam action.” Iskanian v. CLS
Transp. Los Angeles, LLC, 327 P.3d 129, 148 (Cal. 2014);
see Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425,
429 (9th Cir. 2015). A qui tam action for citizen
enforcement traditionally has three elements: “(1) that the
statute exacts a penalty; (2) that part of the penalty be paid
to the informer; and (3) that, in some way, the informer be
authorized to bring suit to recover the penalty.” Iskanian,
1
LWDA has since expanded its oversight of PAGA litigation. For
cases filed after July 1, 2016, aggrieved employees must submit to
LWDA copies of their filed complaints, proposed settlement agreements,
and court orders denying an award of civil penalties. Cal. Lab. Code
§ 2699(l)(1)–(3).
PORTER V. NABORS DRILLING USA 7
327 P.3d at 148 (quoting Sanders v. Pac. Gas & Elec. Co.,
126 Cal. Rptr. 415, 421 (Ct. App. 1975)).
III. The Automatic Bankruptcy Stay
Under federal bankruptcy law, “a petition [for
bankruptcy] . . . operates as a stay [of] the commencement
or continuation . . . of a judicial, administrative, or other
action or proceeding against the debtor that was . . .
commenced before the commencement of the case under this
title.” 11 U.S.C. § 362(a)(1). The stay is self-executing and
effective upon filing a bankruptcy petition. Griffin v.
Wardrobe (In re Wardrobe), 559 F.3d 932, 934 (9th Cir.
2009).
The sweep of the automatic stay is broad and “serves as
one of the most important protections in bankruptcy law.”
Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1214 (9th
Cir. 2002) (citing Hillis Motors, Inc. v. Hawaii Auto
Dealers’ Ass’n, 997 F.2d 581, 585 (9th Cir. 1993)). The stay
“provides debtors with protection against hungry creditors”
and “assures creditors that the debtor’s other creditors are
not racing to various courthouses to pursue independent
remedies to drain the debtor’s assets.” Dean v. Trans World
Airlines, Inc., 72 F.3d 754, 755–56 (9th Cir. 1995). It also
provides the debtor with some “breathing space” so that the
debtor can focus on reorganization rather than the defense of
pending litigation. Hillis Motors, 997 F.2d at 585.
The bankruptcy statute provides certain exceptions to the
automatic stay. One of the exceptions is for actions “by a
governmental unit . . . to enforce such governmental unit’s
. . . police and regulatory power.” 11 U.S.C. § 362(b)(4).
The bankruptcy code defines “governmental unit” as:
8 PORTER V. NABORS DRILLING USA
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).
Porter concedes that he is not a governmental unit. He
argues instead that a private party can invoke the
governmental unit exception when it acts as an agent of the
government, as long as the private party seeks to protect the
public health and safety. In doing so, however, Porter
effectively asks us to read the phrase “by a governmental
unit” out of the governmental unit exception. We decline to
do so. We are not persuaded that the government’s creation
of a private right of action to enforce laws aimed to protect
the health and safety of the public is sufficient governmental
involvement to invoke the exception to the bankruptcy stay.
As noted above, a PAGA action has been identified as a
kind of qui tam action, an action in which a private citizen is
authorized to sue on behalf of the government. Courts have
consistently held that the automatic stay applies to those
cases, at least when the government has not intervened,
because they do not fall within the governmental unit
exception. See, e.g., In re Edison Mission Energy, 502 B.R.
830 (Bankr. N.D. Ill. 2013); United States ex rel. Kolbeck v.
Point Blank Sols., Inc., 444 B.R. 336 (E.D. Va. 2011);
United States ex rel. Goldstein v. P & M Draperies, Inc.,
303 B.R. 601 (D. Md. 2004); In re Chateaugay Corp.,
PORTER V. NABORS DRILLING USA 9
118 B.R. 19 (Bankr. S.D.N.Y. 1990); United States (EPA) v.
Envtl. Waste Control, Inc., 131 B.R. 410 (N.D. Ind. 1991);
In re Revere Copper & Brass, Inc., 29 B.R. 584 (Bankr.
S.D.N.Y. 1983). This is because, unlike in traditional
government enforcement actions, the qui tam relators in
these cases were proceeding without the involvement of the
governmental unit on whose behalf the action is purportedly
brought. See, e.g., Edison Mission Energy, 502 B.R. at 836
(declining to apply governmental unit exception in part
because “the record indicates that [no state agency] has
requested or directed the [claimant] to act in its stead”);
Kolbeck, 444 B.R. at 340 (declining to apply governmental
unit exception in part because “the government decline[d] to
intervene in [the] qui tam [False Claims Act] action” and
“the proceedings [were] thereafter conducted solely by the
qui tam relator”).
We reach the same conclusion in this case. Porter’s
claim against Nabors was filed by Porter, and it remains
under his control. Despite having received notice of Porter’s
allegations pursuant to PAGA’s notice provisions, the state
of California, through LWDA, did not request, direct, or join
in the filing. Nor has the state attempted to intervene in the
action since its filing. Under these circumstances, the action
cannot properly be understood to be an action “by a
governmental unit . . . to enforce such governmental unit’s
. . . police and regulatory power.” 11 U.S.C. § 362(b)(4).
Porter argues that his PAGA claim is analogous to a
claim for sanctions brought by a litigant requesting that the
court discipline a party for violating court rules. It is true
that actions by courts to impose sanctions in order to enforce
their own rules or police the members of their bar may fall
within the governmental regulatory exception for purposes
of the bankruptcy stay. See, e.g., Dingley v. Yellow
10 PORTER V. NABORS DRILLING USA
Logistics, LLC (In re Dingley), — F.3d —, No. 14-60055,
2017 WL 1208454, at *1 (9th Cir. 2017) (holding that, in
certain situations, state court “civil contempt proceedings are
exempted from the automatic stay under the Bankruptcy
Code’s government regulatory exemption”); Berg v. Good
Samaritan Hosp. (In re Berg), 230 F.3d 1165, 1166 (9th Cir.
2000) (holding that federal appellate court’s “award of
sanctions falls under the ‘government regulatory power’
exemption of § 364(b)(4)”); Wade v. State Bar of Ariz. (In re
Wade), 948 F.2d 1122, 1124 (9th Cir. 1991) (per curiam)
(holding that a state bar association “exercises this delegated
authority under the ‘direction and control’ of the Arizona
Supreme Court” (citation omitted)).
Relying on this line of cases, Porter contends that
because he also acts as an agent of a governmental unit in
bringing his PAGA claim and because the PAGA claim will
ultimately be adjudicated, like a sanctions award, by a court,
the governmental unit exception should apply to him. We
are not persuaded. In the context of judicially imposed
sanctions, the governmental unit whose interests are being
enforced—that is, the court—itself conducts additional
proceedings to advance its own interests and uses its own
resources to do so. Ultimately, the “sanction is meted out by
a governmental unit, the court,” even if the sanction is
initially “sought by a private individual or organization—a
nongovernmental litigant.” Alpern v. Lieb, 11 F.3d 689, 690
(7th Cir. 1993). Porter does not contend that his action is
taken on behalf of the court, however. He claims to be acting
as a private attorney general in place of LWDA. The
subsequent involvement of the court does not bring his
PAGA action within the language of the exception: “by a
governmental unit . . . to enforce such governmental unit’s
. . . police and regulatory power.” 11 U.S.C. § 362(b)(4).
That a court might ultimately decide the fate of Porter’s
PORTER V. NABORS DRILLING USA 11
PAGA action does not mean that the court decision is an
action to enforce its own power. Although a litigant may
initially request the imposition of sanctions, ultimately the
sanctions proceedings are conducted by a governmental unit,
the court, to advance its own interest in enforcing its
authority. See Alpern, 11 F.3d at 690.
IV. Conclusion
We conclude that the governmental unit exception to the
automatic bankruptcy stay does not apply to Porter’s PAGA
action. As a result, the automatic bankruptcy stay does apply
to that action, including the appeal that is currently pending
before this court. Accordingly, we suspend further activity
in this appeal and direct the parties to notify this court
promptly of relevant developments in the bankruptcy
proceeding.
The motion to stay appellate proceedings is GRANTED.