Extending the § 362(b)(4) Police & Regulatory Power Exception to Private-Party Contempt Motions

Commentary on Cory Markham v. Auto Cycle Exchange Services, Inc., BAP No. CO-24-19 (10th Cir. BAP Aug. 15 2025)

Introduction

The Bankruptcy Appellate Panel (BAP) for the Tenth Circuit has delivered an important opinion clarifying the reach of the “police and regulatory power” exception to the automatic stay contained in 11 U.S.C. § 362(b)(4). In Cory Markham v. Auto Cycle Exchange Services, Inc., the Panel held that a post-petition state-court contempt proceeding initiated by private parties—seeking both incarceration and monetary sanctions—fell within the § 362(b)(4) exception, despite the fact that the creditors, not a governmental agency, triggered the contempt process and sought liquidated damages payable to themselves.

At the heart of the appeal was whether Auto Cycle Exchange Services, Inc. and its principal, Kurt Dimick (collectively, “Appellees”), violated the automatic stay by pursuing a contempt motion in Colorado state court after debtor Cory Markham had filed for Chapter 7 protection. The contempt motion requested incarceration (punitive sanctions) and $20,000 in liquidated damages (remedial sanctions) for Markham’s alleged post-petition harassment and threats—conduct that breached a pre-petition settlement order embodying a permanent injunction.

Summary of the Judgment

Affirming the Bankruptcy Court’s grant of summary judgment for Appellees, the BAP unanimously concluded:

• The contempt proceeding—despite being initiated by private parties—was primarily designed to vindicate the dignity and authority of the state court and to deter ongoing violations of its orders.
• Such a purpose satisfies the “public policy” branch of the two-part tests (the “pecuniary purpose” and “public policy” tests) employed to evaluate § 362(b)(4).
• Because the primary aim was regulatory/police in nature, the entire contempt proceeding (including the request for the $20,000 liquidated damages) was exempt from the automatic stay.
• Accordingly, Appellees did not willfully violate § 362(a), and the debtor’s adversary complaint was properly dismissed on summary judgment.

Analysis

Precedents Cited

1. Eddleman v. U.S. Department of Labor, 923 F.2d 782 (10th Cir. 1991)
   – First Tenth Circuit case articulating the two analytical inquiries for § 362(b)(4): the “pecuniary purpose” test and the “public policy” test. The Panel leaned heavily on Eddleman, emphasizing that satisfying either test suffices.
2. Safety-Kleen (Pinewood) v. Wyche, 274 F.3d 846 (4th Cir. 2001); Universal Life Church, Inc., 128 F.3d 1294 (9th Cir. 1997); In re FirstEnergy Solutions Corp., 945 F.3d 431 (6th Cir. 2019)
   – These decisions recognize that where a proceeding serves dual purposes (public and private), courts must determine the primary purpose. The BAP borrowed this “primary-purpose” lens to resolve the mixed compensatory/deterrent nature of the contempt sanctions.
3. Colorado Rule of Civil Procedure 107
   – Governs punitive and remedial contempt in Colorado. The BAP dissected the rule to show that punitive contempt—to vindicate a court’s dignity—is inherently governmental and thus fits comfortably within § 362(b)(4).
4. In re Berg, 230 F.3d 1165 (9th Cir. 2000) & In re Dingley, 852 F.3d 1143 (9th Cir. 2017)
   – Both uphold the proposition that contempt sanctions aimed at coercing compliance or punishing affronts to judicial authority satisfy § 362(b)(4).

Legal Reasoning of the Panel

1. Procedural posture matters, but purpose matters more.
   Although the contempt motion was filed by private parties, once they invoked the court’s contempt powers they acted as “judicial surrogates.” The BAP accepted, at least implicitly, that the state trial court itself—the governmental unit—was exercising its police power, notwithstanding that private litigants set the process in motion.
2. Application of the “public policy” test.
   The Panel scrutinized transcripts showing Appellees’ dominant concern was safety and cessation of harassment, not collection of money (e.g., Dimick’s statement, “I don’t care about the $20,000 … I just want this to stop.”). This factual matrix convinced the court that the primary objective was deterrence and protection of judicial authority—classic public policy purposes.
3. Incidental monetary benefit does not disqualify the exemption.
   Citing Ninth Circuit precedent, the Panel acknowledged that government actions often have pecuniary by-products. A sanction payable to a private party does not, by itself, convert a police-power proceeding into a collection action. The court deemed the $20,000 award “incidental” to the deterrence goal.
4. Waiver and scope of review.
   Debtor argued, for the first time on appeal, that a contempt motion filed by a non-governmental actor cannot invoke § 362(b)(4). The Panel held the argument waived because it was not raised in the opening brief, reinforcing appellate procedural discipline.

Impact of the Decision

• Expanded reach of § 362(b)(4). Courts within the Tenth Circuit may now rely on Markham to exempt from the stay contempt motions or other “quasi-criminal” enforcement actions initiated by private parties, so long as the court finds a dominant public-policy purpose.
• Strategic repercussions for debtors. Debtors cannot assume that filing bankruptcy will insulate them from contempt for violating pre-petition injunctions, even where monetary relief is sought.
• Guidance for practitioners. Creditors who need to enforce court orders post-petition should frame their requests around public-policy objectives (deterrence, vindication of judicial authority) and document these purposes thoroughly on the record.
• Potential circuit influence. While unpublished, the opinion is persuasive authority and may influence other circuits grappling with the “governmental unit” question when private actors invoke contempt powers.

Complex Concepts Simplified

Automatic Stay (11 U.S.C. § 362(a))

A statutory injunction triggered the moment a bankruptcy petition is filed. It halts most litigation, collection efforts, and enforcement actions against the debtor.

Police and Regulatory Power Exception (§ 362(b)(4))

Carves out from the stay any action by a governmental unit (e.g., a court, agency, municipality) aimed at enforcing laws or orders that protect public health, safety, or welfare—not merely collecting money.

Pecuniary Purpose vs. Public Policy Tests

Pecuniary purpose: Is the action mainly about the government’s (or party’s) financial gain?
Public policy: Is the action mainly about enforcing broader societal norms or protecting judicial authority?
If the answer to the second is “yes,” § 362(b)(4) usually applies even if money is involved.

Punitive vs. Remedial Contempt (Colo. R. Civ. P. 107)

Punitive: Fixed jail/fine to punish past defiance and uphold the court’s dignity.
Remedial: Coercive sanction (often purgeable) to compel future compliance.

Conclusion

The Tenth Circuit BAP’s decision in Markham cements an important principle: the automatic stay does not shield debtors from contempt proceedings whose central aim is to vindicate judicial authority—even when those proceedings are instigated by private creditors and include requests for monetary sanctions. By focusing on the primary purpose of the action and treating private litigants as “judicial surrogates” when they invoke contempt powers, the Panel broadened the practical application of § 362(b)(4).

Practitioners should now assume that where debtor conduct post-petition defies an injunction or court order, creditors may pursue contempt relief without fear of stay violations—provided they can demonstrate a genuine regulatory or public-policy motive. Debtors, conversely, must recognize that bankruptcy is not a safe harbor for continuing misconduct in derogation of court orders. Although unpublished, the opinion’s reasoning is likely to carry substantial persuasive weight both within and beyond the Tenth Circuit.