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.