Order Granting Motion to Confirm Pending State Enforcement Action is Not Subject to Automatic Stay. The Debtor in a voluntary chapter 13 bankruptcy case was a named defendant in an environmental enforcement action initiated in state court by the state of North Carolina prepetition (the “State Court Action”). Shortly after commencement of the bankruptcy case, the State filed a motion for a declaration from the Court that the automatic stay did not prevent it from moving forward with the State Court Action. The State relied on an exception to the automatic stay found in § 362(b)(4) of the Bankruptcy Code, which limits the application of the stay in proceedings where a governmental unit attempts to enforce its police or regulatory power. Alternatively, the State argued that relief from the automatic stay to proceed with the State Court Action was appropriate under § 362(d). The Debtor objected to State’s motion, arguing that the police and regulatory power exception in § 362(b)(4) did not apply to the State Court Action because the State’s primary purpose in bringing that action was to reach the Debtor’s assets. The Court granted the State’s motion, finding both that the police and regulatory power exception applied to the State Court Action and that cause existed under § 362(d)(1) to lift the automatic stay as to that proceeding.

Prior to the bankruptcy, the State filed an action in state court against Carolina Composting Solutions, LLC ("CCS")—an entity with which the Debtor was purportedly substantially involved—seeking to remedy alleged violations of wastewater-related state environmental law at a site CCS maintained as a soil remediation facility (the "Site"). In April 2026, the State filed an amended complaint for the purpose of adding the Debtor and several other parties as defendants to the action. Roughly one month later, the Debtor filed his bankruptcy case. The core relief sought by the State in the State Court Action was injunctive, relating to halting regulatory infractions and providing for environmental remediation at the Site. The State sought to apply the injunctive relief sought against CCS to the Debtor by employing a veil-piercing theory in the complaint. In the bankruptcy case, the Debtor argued that this undermined the State’s arguments regarding the applicability of the automatic stay.

The Bankruptcy Code provides that the filing of a petition operates as an immediate stay against actions taken by creditors on account of prepetition claims. This typically includes litigation outside of the bankruptcy court. However, the Code also contains numerous exceptions to this stay. One such exception provides that the stay does not apply to “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). Crucially, this exception applies only when a governmental unit acts to enforce a law that has a primary purpose of promoting public safety and welfare or effectuating public policy. Safety-Kleen, Inc. (Pinewood) v. Wyche, 274 F.3d 846, 865 (4th Cir. 2001). It does not apply when a governmental unit acts to enforce laws that primarily reflect the government’s own pecuniary interest in the Debtor’s assets, nor does it enable governmental units to enforce money judgments.

Even though environmental enforcement injunctions frequently require defendants to make significant expenditures to remediate regulatory violations, courts have routinely held that proceedings to enforce environmental regulation and impose remediation requirements through injunctive relief are excepted from the automatic stay under § 362(b)(4). See id. Here, the State sought to enforce N.C. Gen. Stat. § 143-215.1(a), North Carolina's primary statute for enforcing the Clean Water Act's prohibition of unpermitted discharges and various related water quality standards promulgated by the State under N.C. Gen. Stat. § 143-214.1. The State Attorney General is tasked with bringing injunctive enforcement proceedings to enforce these statutes on behalf of the North Carolina Department of Water Quality.

The Court determined that these statutes have a primary purpose of promoting public safety and welfare and effectuating public policy. It also determined that while the injunctive relief sought by the State in the State Court Action might require defendants to make expenditures, that did not make § 362(b)(4) inapplicable. Having made that determination, the Court reasoned that the fact that the amended complaint in the State Court Action contained veil piercing allegations did not change the outcome of that question as to the Debtor. This is because under North Carolina state law, piercing the corporate veil is not an independent theory of legal liability, but merely an avenue for the application of substantive claims.  Green v. Freeman, 367 N.C. 136, 749 S.E.2d 262, 271 (N.C. 2013). Moreover, regardless of whether the State is interested in making the Debtor’s assets available for environmental remediation efforts, the § 362(b)(4) exception is keyed to the purpose of the law, not the government’s intent in enforcing the law in a particular case. See Safety-Kleen, Inc. (Pinewood), 274 F.3d at 865.

Finally, the Court also found that the In re Robbins factors supported granting relief from the automatic stay to allow the State Court Action to move forward, provided that the State seek further relief from the Court if enforcement of a money judgment is sought. 964 F.2d 342, 345 (4th Cir. 1992). For those reasons, it granted the State’s Motion to Confirm State Enforcement Action is Not Subject to Automatic Stay.

     Order Granting in Part and Denying in Part Motion to Dismiss.  Defendant doctor filed a motion to dismiss the Plaintiff-Trustee’s amended complaint, in which the Trustee sought to avoid and recover a $12.5 million transfer used to purchase the Defendant’s medical practice as an actually fraudulent transfer under N.C. Gen. Stat. § 39-23.4(a)(1) and the Trustee’s strong-arm powers of 11 U.S.C. § 544.                  
     The Court granted the motion to dismiss the Trustee’s second cause of action finding that the Trustee failed to sufficiently allege that insurance policyholders qualified as "triggering creditors" under section 544(b). The Court observed that, given the attenuated and unclear nature of any claim a policyholder might have that would lead to a claim against the Debtor under North Carolina law, and the complexity of the transfers providing the basis for any such claim, the lack of basic factual assertions in the Amended Complaint supporting the existence of a policyholder-creditor left the issue at the speculative level rather than crossing into the plausible.
     The Court, however, denied the motion as to the first and third causes of action. Per the Trustee’s allegations, the Debtor in the underlying bankruptcy was an entity created by Greg Lindberg, a convicted felon who allegedly used the purchase of the Defendant’s medical practice as part of a wide-ranging scheme to siphon insurance company money for personal benefit. The Court found the Amended Complaint plausibly alleged that the transfer was made with the actual intent to defraud creditors, noting the presence of several "badges of fraud" under N.C. Gen. Stat. § 39-23.4(b), such as the fact that the $25 million purchase price significantly exceeded the value of the practice's assets and that the Debtor was left overleveraged and unable to meet its debt obligations. The Amended Complaint also contained plausible allegations that the Debtor’s transfer to the Defendant connected to and furthered Lindberg’s fraudulent scheme. As a result, the Court found the first and third causes of action stated a claim for actual fraudulent transfer and met the heightened pleading standard for fraud under Rule 9(b).
 

Order Granting Defendants’ Motion to Dismiss Adversary Proceedings.  Prepetition, one of the Defendants commenced a foreclosure action against Debtor-Plaintiff.  In the same state court, also prepetition, Plaintiff filed her own proceeding against Defendants.  On the day of the scheduled foreclosure sale, Plaintiff filed a chapter 7 petition and attempted to notify Defendant of the bankruptcy case.  Because Defendant did not find out about the bankruptcy in time, the foreclosure sale was held; however, Defendant moved to set aside the report of the foreclosure sale after becoming aware of the bankruptcy case.  Subsequently, Plaintiff filed a motion in her main case to enforce the automatic stay and for sanctions.  The Court denied that motion, finding that the foreclosure sale was of no effect by operation of North Carolina law, and that the sale was merely a technical violation of the stay, for which Plaintiff did not suffer damages.  Plaintiff then commenced this adversary proceeding against Defendants for alleged violations of the automatic stay related to the foreclosure action and based upon actions taken by Defendants in the separate action Plaintiff commenced in state court.  Defendants moved to dismiss the complaint for failure to state a claim under 12(b)(6), primarily because Defendants’ actions were merely only intended to seek dismissal of the Debtor’s pre-petition suit.   While courts generally limit their 12(b)(6) examination to the complaint itself, the Fourth Circuit also permits consideration of documents submitted by the movant when there is no dispute about their authenticity and the complaint relies heavily upon the other documents.  Here, Defendants attached, and the Court considered as part of the complaint, state court proceeding documents illustrating the arguments Defendants advanced in defense to Plaintiff’s state court claims.  The Court dismissed the adversary proceeding claims which attempted to re-litigate the issue of whether the foreclosure sale violated the automatic stay and entitled Plaintiff to sanctions.  The Court also found that merely defending against a complaint filed by a debtor pre-petition is not a violation of the stay.  As Plaintiff had failed to allege a violation of the automatic stay, the Court dismissed the adversary proceeding.

Order Granting Defendants’ Motion to Dismiss Adversary Proceeding and Permissively Abstaining Under 28 U.S.C. § 1334.  Debtor-plaintiff commenced this adversary proceeding, alleging that Defendants, Debtor’s insurer and insurer’s agents, violated numerous state laws and the automatic stay under 11 U.S.C. § 362.  Defendants filed a Rule 12(b)(6) motion to dismiss the adversary proceeding on the basis that the complaint fails to state a claim on which relief can be granted.  The Court first found that Plaintiff’s § 362 claim for violation of the automatic stay could not survive at the motion to dismiss stage.  To establish a claim for relief for violation of the automatic stay, Plaintiff was required to allege, among other things, that Defendants took some post-petition action against her, her property, or the bankruptcy estate.  Plaintiff did not allege facts supporting this element, and the Court dismissed that claim with prejudice. The remaining claims all alleged violations of state law.  The Court noted that, under 28 U.S.C. § 1334(c)(1), a bankruptcy court may permissively abstain from proceedings over which it would otherwise have jurisdiction. Analyzing twelve abstention factors, the Court found that permissive abstention was appropriate.  Especially important to the Court’s abstention was its uncertainty as to its subject matter jurisdiction over the remaining claims, the high likelihood that any awards granted on these claims would not be administered by the chapter 7 trustee, and the availability of a state agency and state courts as fora to adjudicate these claims.  Having decided to permissively abstain from hearing the state law claims, the Court granted Defendants’ motion to dismiss without prejudice as to those claims.