No Automatic Stay for Fraudulent Crawfish Caper

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By Daniel Gill

Rupari Foods Services, Inc.'s bankruptcy won’t stay an action accusing it of misrepresenting the source of crawfish it imported nearly twenty years ago, according to the U.S. Court of International Trade ( United States v. Rupari Food Servs., Inc. , 2017 BL 279870, Ct. Int’l Trade, No. 10-00119, 8/10/17 ).

The government’s action against the food importer was exempt from the automatic bankruptcy stay as a proper exercise of policy and regulatory enforcement powers, Judge Gary S. Katzmann ruled Aug. 10. It sought only the entry, but not the enforcement, of a monetary judgment against the company.

During the summer of 1998, Rupari attempted to enter containers of Chinese crawfish meat into the U.S. with documents falsely claiming that the meat originated in Thailand. In 2001, U.S. Customs issued a penalty notice for fraud pursuant to 19 U.S.C. §1592.

But Rupari didn’t pay the penalty and continued to litigate the matter with the U.S., which sought a judgment in the Court of International Trade for a penalty of more than $2.7 million.

Rupari filed for Chapter 11 bankruptcy protection on April 10, 2017, and argued that the automatic stay, which halts most judicial proceedings against the debtor or its property, applied.

The U.S. claimed that the action was exempt from the stay as a use of police or regulatory enforcement powers.

The exemption prevents wrongdoers from hiding behind a bankruptcy filing, the court explained.

The court found that the government was acting to enforce its regulatory powers regarding the importation of goods, and that “the thrust of the statute is not the protection of the pecuniary interest of the United States.”

Instead, the penalties are “driven primarily by considerations of deterrence rather than compensation,” the court said.

That the U.S. merely sought entry, not enforcement, of the judgment was key to the court’s decision.

The court also found that it had concurrent jurisdiction with the U.S. Bankruptcy Court for the District of Delaware, where the bankruptcy was filed, for the purpose of determining whether the automatic stay applied.

The U.S. was represented by Department of Justice counsel Mikki Cottet, Washington. Lawrence M Friedman, Chicago, represented Rupari Food Services.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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