The opinion of the court was delivered by: Roanne L. Mann, United States Magistrate Judge:
MEMORANDUM AND ORDER/ REPORT AND RECOMMENDATION
Plaintiff Federal Trade Commission ("FTC" or "plaintiff") brought this lawsuit under the Federal Trade Commission Act, 15 U.S.C. §§ 53(b) and 57(b), and the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101 et seq., alleging fraudulent conduct in the marketing and management of medical discount plans run by defendants Consumer Health Benefits Association ("CHBA"), Louis Leo, Rita and Ronald Werner (the "Werner defendants"), and related entities. Complaint ("Compl.") (Aug. 3, 2010), E.C.F. Docket Entry ("D.E.") #1. Plaintiff seeks: a permanent injunction to stop the alleged fraudulent conduct; rescission or reformation of contracts to protect harmed consumers; restitution to harmed consumers; and costs. Compl. at 17-18. On April 18, 2011, CHBA, the Werner defendants, and defendants National Benefit Consultants, LLC and National Benefit Solutions, LLC (collectively, the "bankrupt defendants") filed Suggestions of Bankruptcy, signed by their bankruptcy attorney, Lawrence Schantz,*fn1 asserting that proceedings against the bankrupt defendants, who had filed Chapter 7 bankruptcy proceedings on April 3, 2011, were subject to an automatic stay pursuant to 11 U.S.C. § 362. Suggestions of Bankruptcy (Apr. 18, 2011), D.E. #152-155.*fn2 The FTC responded, contending that this action is exempt from the automatic stay provision under the statutory exception for "an action or proceeding by a governmental unit . . . to enforce such governmental unit's . . . police and regulatory power . . . ." 11 U.S.C. § 362(b)(4). Plaintiff's Response to Suggestion of Bankruptcy ("Pl. Resp.") (Apr. 25, 2011), D.E. #156.
On May 6, 2011, this Court directed the bankrupt defendants "to show cause why the action is not exempted from the automatic stay provisions of the Bankruptcy Code and why sanctions should not be imposed" for the attempt, by Mr. Schantz, "to stay [the instant] action without a reasonable basis therefor." Order to Show Cause (May 6, 2011), D.E. #168. The Werner defendants responded, and included a May 5th letter that Mr. Schantz had sent to the FTC to argue that this action was subject to a stay. Defendants Ronald and Rita Werner's Affirmation in Response to the Order to Show Cause ("Def. Resp.") (May 11, 2011) and Schantz Letter, D.E. #169; see also Plaintiff's Reply to Defendants' Response to Order to Show Cause ("Pl. Reply") (May 19, 2011), D.E. #186.
For the following reasons, the Court concludes that the proceedings
against the bankrupt defendants are not subject to an automatic stay,*fn3
but that the attempt to stay the case does not merit the
imposition of Rule 11 sanctions.*fn4
I. POLICE POWERS EXCEPTION TO THE AUTOMATIC STAY
Under 11 U.S.C. § 362(a)(1), the filing of a bankruptcy petition
automatically stays the commencement or continuation of judicial
proceedings against the debtor. See Eastern Refractories Co.
v. Forty Eight Insulations, Inc., 157 F.3d 169, 172 (2d Cir. 1998).
The automatic stay is a fundamental component of a bankruptcy petition, as
it "provides the debtor with a breathing spell from his creditors" and
"allows the bankruptcy court to centralize all disputes concerning
property of the debtor's estate in the bankruptcy court so that
reorganization can proceed efficiently, unimpeded by uncoordinated
proceedings in other arenas." In re Ionosphere Clubs, Inc., 922 F.2d
984, 989 (2d Cir. 1990) (internal citations and quotation marks
Section 362(b)(4) of the Bankruptcy Code provides an exception to the automatic stay for any "action . . . by a governmental unit . . . to enforce such governmental unit's or organization'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 or organization's police or regulatory power." 11 U.S.C. § 362(b)(4). As the Second Circuit explained, "the purpose of this exception is to prevent a debtor from frustrating necessary governmental functions by seeking refuge in bankruptcy court." SEC v. Brennan, 230 F.3d 65, 71 (2d Cir. 2000) (internal quotation and citations omitted). "Thus, 'where a governmental unit is suing a debtor to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such a law, the action or proceeding is not stayed under the automatic stay.'" Id. at 71 (quoting H.R.Rep. No. 95-595, at 343 (1977), U.S. Code Cong. & Admin. News at 6299, and S.Rep. No. 95-989, at 52 (1978), U.S. Code Cong. & Admin. News at 5838).
Other circuits have developed a number of tests to evaluate whether a particular action falls within the scope of the section 362(b)(4) exception. For example, under the "pecuniary purpose" test adopted in other circuits, see, e.g., Lockyer v. Mirant Corp., 398 F.3d 1098, 1108 (9th Cir.2005); Chao v. Hosp. Staffing Servs., Inc., 270 F.3d 374, 385 (6th Cir. 2001), . . . it is necessary to determine whether the governmental action relates primarily to the government's pecuniary interest in the debtor's property, in which case the automatic stay applies, or to matters of safety and welfare, in which case the suit may proceed. Cases that employ the pecuniary purpose test also use the "public purpose" test, under which the reviewing court determines whether the government seeks to "effectuate public policy" or "adjudicate private rights." Mirant, 398 F.3d at 1109 (internal quotation marks omitted).
In re Methyl Tertiary Butyl Ether ("MTBE") Prods. Liab. Litig. ("MTBE Litig."), 488 F.3d 112, 133 (2d Cir. 2007). "Under the 'pecuniary advantage' test," in contrast, "the relevant inquiry is not whether the governmental unit seeks property of the debtor's estate, but rather whether the specific acts that the government wishes to carry out would create a pecuniary advantage for the government vis-a-vis other creditors." United States ex rel. Fullington v. Parkway Hosp., Inc., 351 B.R. 280, 283 (E.D.N.Y. 2006). The Second Circuit has yet to pass on the validity of any particular test. See MTBE Litig., 488 F.3d at 133. This Court need not do so here: as the Second Circuit made clear in Brennan, a government lawsuit "to prevent or stop violation of fraud . . . [or] consumer protection . . . laws, or . . . to fix damages for violation of such a law," is not subject to the automatic stay. Brennan, 230 F.3d at 71.
The Werner defendants seek to circumvent this principle by arguing that "since all of our businesses are closed and our assets are either frozen or seized, the FTC's case at this point is mainly an effort by the FTC to fix the amount of damages . . . ." Def. Resp. at 2. The legislative history of the police powers exception suggests that such an effort by the FTC -- i.e., to fix the amount of damages for past violations of consumer fraud laws -- falls squarely within the parameters of the exception to the automatic stay.*fn5 See id. at 71. Thus, the Second Circuit has allowed damage actions "for completed violations of environmental laws" to proceed under the police powers exception. City of New York v. Exxon Corp., 932 F.2d 1020, 1024 (2d Cir. 1991). In doing so, the Court of Appeals noted:
Actions to collect damages after violations have occurred also are consistent with the section's legislative objective of "enforc[ing] . . . police or regulatory powers." They provide an effective deterrent to violators, who will be forced to pay for the government's costs in responding to their violations. The need to continue such deterrent actions, despite the pendency of a bankruptcy action, furthers the purpose of the regulatory exemption to the automatic stay squarely: to avoid frustrating "necessary governmental functions by seeking refuge in bankruptcy court." United States v. Seitles, 106 B.R. 36, 38-40 (S.D.N.Y.1989), vacated on other grounds, 742 F.Supp. 1275 (S.D.N.Y.1990).
Id. at 1024 (alterations in original). Other circuits have reached similar results. See In re Commerce Oil Co., 847 F.2d 291, 297 (6th Cir. 1998) (holding that "proceedings to fix civil liability" for water quality violations were "within the § 362(b)(4) exception to the automatic stay in bankruptcy"); United States v. Nicolet, Inc., 857 F.2d 202, 208-10 (3d Cir. 1988) (holding that the government's suit to recover the costs of cleaning up a hazardous waste site was not subject to an automatic stay). "[R]estitution actions are frequently brought by [government units] pursuant to the police and regulatory power exception of § 362(b)(4)." In re Fucilo, No. 00-36261(CGM), 2002 WL 1008935, at *15 (Bankr. S.D.N.Y. Jan. 24, 2002) (citing cases).
To be sure, some courts have stayed cases where it was apparent that the defendants could not resume the challenged conduct. The United States Bankruptcy Court for the Southern District of New York did so in In re Enron Corp., 314 B.R. 524 (Bankr. S.D.N.Y. 2004), which stayed a lawsuit by the state of California. The court in Enron found, however, that the injunctive relief sought by the state was duplicative and meaningless: Enron was involved in parallel federal litigation and criminal prosecutions over the same conduct, the company was in the liquidation process, and it had recently sold its trading operations, leading the court to conclude that it was "practically impossible" for Enron to resume the challenged activity. Id. at 537. In contrast, absent injunctive relief, the individual defendants ...