Jump to Navigation
Jump to Content

In re Mystic Tank Lines Corp.

ELR Citation: 38 ELR 20273
Nos. No. 06-4033, (3d Cir., 10/16/2008)

The Third Circuit held that a bankruptcy court properly allowed New York's claim for soil and groundwater contamination damages against a bankrupt gasoline distributor. New York obtained a default judgment against the distributor in state court after the distributor had filed for bankruptcy. The bankruptcy court then granted New York's claim based on that judgment. Under the Bankruptcy Code, the filing of a bankruptcy petition generally operates as an automatic stay of any judicial action or proceeding against the debtor that was or could have been commenced prior to the commencement of the bankruptcy case. The distributor, therefore, argued that the default judgment is a violation of the automatic stay. Here, however, the default judgment falls within the police power exception to the automatic stay. The state court, therefore, had jurisdiction to enter the default judgment, and the bankruptcy court properly allowed the claim based on that judgment.