Judge Joseph F. Bianco
Quarta owns SCA Restaurant Corp. The Labor Department’s (DOL) 2009 lawsuit alleged SCA’s violation of the Fair Labor Standards Act’s (FLSA) minimum wage and overtime compensation provisions. Quarta subsequently sought Chapter 7 bankruptcy protection. The court denied his request to stay the DOL’s lawsuit under Bankruptcy Code §362′s automatic stay provision. Bankruptcy Code §362(b)(4) provides an exception to automatic stays for actions by a governmental unit to enforce its police or regulatory powers. The court found the DOL’s lawsuit to be such an action. The lawsuit satisfied both the “pecuniary purpose” test and the “public policy” test historically applied to distinguish between situations in which a “state acts pursuant to its ‘police and regulatory power’ and where [it] acts merely to protect its status as a creditor.” Discussing Eddleman v. U.S. Dept. of Labor and distinguishing Chao v. Hospital Staffing Services, the court concluded that DOL’s lawsuit enforces its regulatory powers under the FLSA and that the injunction sought by DOL would serve to prevent further violations, protect labor conditions, and prevent unfair labor competition from companies paying substandard wages.
