Michael Scott Keller

1

UNITED STATES BANKRUPTCY COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
WINSTON-SALEM DIVISION

In re: )
)
Michael Scott Keller ) Chapter 13
)
Debtor. ) Case No. 26-50423
____________________________________)

MEMORANDUM OPINION IN SUPPORT OF ORDER GRANTING MOTION
TO CONFIRM PENDING STATE ENFORCEMENT ACTION IS NOT
SUBJECT TO AUTOMATIC STAY

THIS MATTER came before the Court on the Motion to Confirm Pending
State Enforcement Action is Not Subject to Automatic Stay filed by the State of
North Carolina, ex rel., North Carolina Department of Environmental Quality,
Division of Waste Management and Division of Water Resources (Dkt. No. 16, the
“Motion”) and the related objection filed by the Debtor in this case (Dkt. No. 26, the
“Objection”). On June 25, 2026, the Court entered an order granting the State’s
Motion and indicated that that it would supplement that order by later
memorandum opinion. (Dkt. No. 31). The following constitutes the Court’s findings
of fact and conclusions of law with respect to that order.
I. J
URISDICTION
The Court has jurisdiction over this proceeding under 28 U.S.C. § 1334(b).
Under 28 U.S.C. § 157(a), the United States District Court for the Middle District of
North Carolina has referred this case and this proceeding to this Court by its Local
Rule 83.11. This is a statutorily core proceeding under 28 U.S.C. §§ 157(b)(1) and
(b)(2)(G).
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II. FACTUAL AND PROCEDURAL BACKGROUND
This Debtor filed this case voluntarily under chapter 13 of the Bankruptcy
Code on May 20, 2026. (Dkt. No. 1). Shortly thereafter, the State filed the instant
Motion, along with a motion to reduce notice under Fed. R. Bankr. P. 9006(c) and its
corresponding Local Rule, seeking an order from this Court confirming that the
Bankruptcy Code’s automatic stay does not apply to the State’s “pending
environmental compliance injunctive action,” in which the Debtor is a named
defendant. (Dkt. Nos. 16, 17). In its motion to reduce notice, the State asserted that
the site central to that action “continues to discharge wastewater into waters of the
State after virtually every rain event, impacting the State’s waters as well as
neighboring landowners.” (Dkt. No. 17). The Court held a hearing on June 24, 2026,
and entered an order granting the State’s Motion the next day. (Dkt. No. 31).
The Motion and the Debtor’s related Objection center on a North Carolina
state court proceeding initiated by the State more than a year prior to the
commencement of this bankruptcy case.
1
That proceeding (the “State Court
Action”) began with a complaint filed by the State 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 a verified amended complaint (the “Amended

1
The Court takes judicial notice of the underlying state court proceeding, including the relevant
amended complaint, which—in addition to being a public record—is attached as an exhibit to both
parties’ respective filings. (Dkt. Nos. 16, 26). The proceeding is Case No. 24CV001480-030, pending
before the Superior Court in Anson County, North Carolina.
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Complaint”) for the purpose of including the Debtor and several other parties as
defendants to the action. Roughly one month later, the Debtor filed this bankruptcy
case.
The core relief sought by the State in the State Court Action is injunctive. As
stated in the Amended Complaint:
[The] action is commenced by the State of North Carolina against
Defendants for the purpose of seeking injunctive relief to require all
Defendants to (1) cease discharges of untreated wastewater to waters
of the State in Anson County, including but not limited to an unnamed
tributary to Flat Fork and an unnamed tributary to Cedar Creek; (2) to
remediate the impacts of CCS’s unlawful discharges; and (3) to comply
with regulations that apply to the treatment of petroleum
contaminated soils and the permit issued to CCS pursuant to those
regulations.

(Dkt. No. 16, Ex. A, at 3). The prayer for relief includes requests for preliminary and
permanent injunctions requiring the defendants to cease their allegedly unlawful
activities at the Site and take immediate action to bring the Site into compliance
with relevant environmental standards. (Id. at 31–34). It contains no request for
damages. What is salient about the Amended Complaint in the context of this
proceeding is that the State included allegations to support piercing the corporate
veil between CCS and the Debtor so that, if successful, any resulting injunctive
relief would be effective against the Debtor. (Id. at 25–29).
2
These allegations are at
the heart of the Debtor’s Objection in this matter.
According to the State, the inclusion of veil-piercing allegations in the
Amended Complaint does not prevent the State Court Action from falling squarely

2
The Amended Complaint also identifies a third entity, Alternative Energy Solutions of NC, LLC
(AES), to which some of its veil-piercing allegations are relevant.
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within the Bankruptcy Code’s police and regulatory power exception to the
automatic stay, found in 11 U.S.C. § 362(b)(4). In the alternative, it argues that any
stay on the State Court Action should be lifted for cause under 11 U.S.C. § 362(d).
The Debtor, on the other hand, asserts that the allegations supporting veil piercing
in the Amended Complaint demonstrate that the State’s inclusion of the Debtor in
the State Court Action is motivated primarily by its own pecuniary interest in the
Debtor’s assets. He argues that the State Court Action—or at least those aspects of
the action pertaining to piercing the corporate veil—remains subject to the
automatic stay. For the following reasons, the State prevails.
III. D
ISCUSSION
A. The Police and Regulatory Power Exception to the Automatic Stay
The Bankruptcy Code provides that the filing of a petition operates as an
immediate stay as to an array of actions creditors might normally pursue on
account of prepetition claims against a petitioning debtor. 11 U.S.C. § 362(a); see
Houck v. Substitute Trustee Servs., Inc., 791 F.3d 473, 480–81 (4th Cir. 2015). This
“automatic stay” on creditor activity is one of the fundamental protections afforded
by the Bankruptcy Code, id., and generally operates to channel such activity into
the bankruptcy case for organized, efficient resolution. See Dubois v. Atlas
Acquisitions LLC (In re Dubois), 834 F.3d 522, 528 (4th Cir. 2016). The scope of the
automatic stay includes
the commencement or continuation . . . of a judicial, administrative, or
other action or proceeding against the debtor that was or could have
been commenced before the commencement of the case under this title,
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or to recover a claim against the debtor that arose before the
commencement of the case under this title.

11 U.S.C. § 362(a)(1). It also includes “any act to obtain possession of property of the
estate or of property from the estate or to exercise control over property of the
estate.” Id. § 362(a)(3). These provisions function to protect debtors and the
bankruptcy estate from litigation outside of the bankruptcy court, such as state
court litigation, during the pendency of a bankruptcy case.
Though the automatic stay is expansive in reach, the Bankruptcy Code
provides numerous exceptions to its application, one of which is central to this
matter. Id. § 362(b). A bankruptcy petition does not operate as a stay
under paragraph (1), (2), (3), or (6) of subsection (a) of this section, of
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.

Id. § 362(b)(4). This “police and regulatory power exception” balances the
Bankruptcy Code’s preference for addressing debtors’ obligations in a single forum
with governmental units’ legitimate interest in public welfare by “ensur[ing] that
government agencies can still enforce laws ‘affecting health, welfare, morals and
safety’ and that debtors are not automatically protected in bankruptcy court from
such regulatory laws,” Milk Indus. Regul. Off. v. Ruiz (In re Ruiz), 122 F.4th 1, 13
(1st Cir. 2024) (citing In re Universal Life Church, Inc., 128 F.3d 1294, 1297
(9th Cir. 1997)), while preventing the enforcement of money judgments from
interfering with the orderly administration of a bankruptcy estate.
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Determining whether this exception applies is not always straightforward.
The Fourth Circuit has explained:
The difficulty in applying this exception comes in distinguishing
between situations in which the state acts pursuant to its “police and
regulatory power” and situations in which the state acts merely to
protect its status as a creditor. To make this distinction, we look to the
purpose of the law that the state is attempting to enforce. If the
purpose of the law is to promote “public safety and welfare,” Universal
Life Church, Inc. v. United States (In re Universal Life Church, Inc.),
128 F.3d 1294, 1297 (9th Cir. 1997), or to effectuate public policy, then
the exception applies. On the other hand, if the purpose of the law
relates “to the protection of the government's pecuniary interest in the
debtor's property,” [id.], or to adjudicate private rights, then the
exception is inapplicable. The inquiry is objective: we examine the
purpose of the law that the state seeks to enforce rather than the
state's intent in enforcing the law in a particular case.

Safety-Kleen, Inc. (Pinewood) v. Wyche, 274 F.3d 846, 865 (4th Cir. 2001) (citation
modified). Since many laws have multifaceted purposes, the task of a court deciding
whether this exception applies is to “determine the primary purpose of the law that
the state is attempting to enforce.” Id. (citations omitted).
In the context of applying the police and regulatory power exception to
environmental laws, particularly when cleanup costs are sought, “courts often focus
on whether deterrence is the primary purpose of the law” at issue. Id.; see United
States v. Nicolet, Inc., 857 F.2d 202, 210 (3d Cir. 1988) (holding that the police and
regulatory power exception applied to the EPA’s pursuit of environmental cleanup
costs against a debtor under CERCLA because, in part, it ensured that “responsible
parties will be held accountable for their environmental misdeeds.”); New York v.
Exxon Corp., 932 F.2d 1020, 1024 (2d Cir. 1991) (“[G]overnmental actions under
CERCLA to recover costs expended in response to completed environmental
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violations are not stayed by the violator’s filing for bankruptcy.”).
3
A law intended to
deter environmental misconduct qualifies paradigmatically as one with a purpose of
promoting “public safety and welfare.” See Safety-Kleen, Inc. (Pinewood), 274 F.3d
at 865; Penn Terra, Ltd. v. Dep’t of Envtl. Res., 733 F.2d 267, 274 (3d Cir. 1984).
Even when environmental cleanup costs are not directly pursued in an
enforcement action, courts recognize that a debtor’s compliance with an order
requiring environmental remediation—frequently the object of such actions—may
entail significant expenditures by the debtor. See, e.g., Penn Terra, 733 F.2d at 277–
78. This possibility sometimes complicates an evaluation of the “exception to the
exception,” that is, whether an action or proceeding counts as one to enforce a
“money judgment.” 11 U.S.C. § 362(b)(4). Many courts, including the Fourth Circuit,
however, have reasoned that the fact a state action requires—or may require—a
debtor to make an expenditure does not mean that the police and regulatory power
exception is inapplicable. Safety-Kleen, Inc (Pinewood), 274 F.3d at 865 (citing
Commonwealth Oil Refining Co. v. EPA (In re Commonwealth Oil Refining Co.), 805
F.2d 1175, 1186 (5th Cir. 1986); Penn Terra, 733 F.2d at 277–78 (“Were we to find
that any order which requires the expenditure of money is a ‘money judgment,’ then
the exception . . . which should be construed broadly, would instead be narrowed
into virtual nonexistence.). See generally 3 Collier on Bankruptcy ¶ 362.05[5][b][iii]

3
The 1998 amendment to 11 U.S.C. § 362(b)(4) combined what were previously two provisions ((b)(4)
and (b)(5)) into a single exception. That amendment functioned primarily to expand the scope of the
exception. As demonstrated by Safety-Kleen, Inc. (Pinewood), 274 F.3d at 865, widely accepted
judicial analysis regarding the pre-amendment exception in the context of environmental actions
generally continues to stand to reason.
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(16th ed.). Consequently, such circumstances do little to change analysis under the
exception.
Here, the State seeks an order confirming that the police and regulatory
power exception applies to the State Court Action.
4
That action is grounded in N.C.
Gen. Stat. § 143-215.1(a)—North Carolina’s “primary statute for enforcing the
Clean Water Act’s prohibition of unpermitted discharges,” various related water
quality standards promulgated by the State under N.C. Gen. Stat. § 143-214.1, and
the State’s capacity to obtain injunctive relief under N.C. Gen. Stat. § 143-215.6C.
(Dkt. No. 16, Ex. A, at 4–10). Injunctive enforcement proceedings under these
statutes are instituted by the Attorney General on behalf the North Carolina
Department of Environmental Quality (DEQ), an agency tasked with administering
“a complete program of water and air conservation, pollution abatement and control
and . . . achiev[ing] a coordinated effort of pollution abatement and control with
other jurisdictions.” N.C. Gen. Stat. §§ 143-211, 143-215.6C. As a matter of public
policy, water quality standards promulgated by the DEQ are designed
to protect human health, to prevent injury to plant and animal life, to
prevent damage to public and private property, to insure the continued
enjoyment of the natural attractions of the State, to encourage the
expansion of employment opportunities, to provide a permanent
foundation for healthy industrial development and to secure for the
people of North Carolina, now and in the future, the beneficial uses of
these great natural resources.

4
The Debtor does not dispute, and it is plain to the Court, that the State of North Carolina is a
“governmental unit” as defined by the Bankruptcy Code and contemplated by the police and
regulatory power exception. 11 U.S.C. §§ 101(27), 362(b)(4).
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Id. § 143-211 (“Declaration of public policy.”). When these standards are violated or
a violation is threatened, the State is empowered to seek injunctive relief “necessary
to prevent or abate the violation or threatened violation.” Id. § 143-215.6C.
Given this context and the content of the Amended Complaint, the Court
finds that the primary purpose of the laws the State seeks to enforce in the State
Court Action is—consistent with the North Carolina General Assembly’s
declaration of public policy—“to promote public safety and welfare” and “effectuate
public policy.” Safety-Kleen, Inc (Pinewood), 274 F.3d at 865. Additionally, much
like the EPA’s CERCLA action to recover environmental cleanup costs in Nicolet,
857 F.2d at 210, and South Carolina’s action to enforce financial assurance
requirements in Safety-Kleen, Inc., 271 F.3d at 866, the State’s enforcement
proceeding here—which will potentially obligate the defendants to expend funds to
remediate alleged environmental violations—represents an important deterrence
element in the context of environmental regulation by “ensuring that responsible
parties will be held accountable for their environmental misdeeds.” Id. (citing
Nicolet, 857 F.2d at 210). Consequently, the State Court Action falls squarely within
the Bankruptcy Code’s police and regulatory power exception to the automatic stay.
See In re Laurinburg Oil Co., 49 B.R. 652 (Bankr. M.D.N.C. 1984) (holding that
under the pre-amendment version of the police and regulatory power exception, “the
automatic stay provisions of 11 U.S.C. § 362(a)(1) and (2) will not operate to stay
[North Carolina] from commencing a civil injunctive action and enforcing a
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judgment obtained therein . . . to abate violations of the State water pollution
laws.”).
The Debtor “does not contest that the State’s environmental enforcement
action, specifically the injunctive claims directed at CCS requiring cessation of
discharges and remediation of the site may fall within the exception of 11 U.S.C.
§ 362(b)(4).”
(Dkt. No. 26, ¶ 8). The Objection instead presents arguments that the
inclusion of “veil-piercing claims”
5
in the Amended Complaint relating to the Debtor
and a corporate defendant renders at least part of the State Court Action subject to
the automatic stay because those “claims against the Debtor are pecuniary in
purpose.” (Id. ¶ 10). The Debtor contends, for example, that “[t]he sole purpose of
the veil-piercing claims against the Debtor is to reach his assets to fund CCS’s
remediation obligations,” (id.), and that the State “did not add the Debtor [to the
action] because his conduct required regulatory intervention but rather because
CCS could not pay.” (Id. ¶ 12.). In service of this argument, he points out that “[t]he
State acknowledges that CCS ‘has represented that it does not have sufficient funds
to remedy the significant noncompliance at the Site’ and that it is pursuing the
Debtor personally because he and AES ‘have additional capital or other assets that
could be used to remedy the violations.’” (Id. ¶ 10) (quoting the Amended Complaint
at 25, 29). In other words, he asserts that the practical effect of piercing the
corporate veil would be “to impose a monetary obligation on the debtor.” (Id. ¶ 9).
The Debtor is perhaps best understood to make two distinct arguments here. First,

5
Though identified as such by the Debtor, the Amended Complaint does not include separate “claims” for piercing
the corporate veil.
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that the “veil-piercing claims” constitute a distinct aspect of the Amended
Complaint to which a primarily pecuniary purpose can be attributed under the
framework set forth in Safety-Kleen, Inc. and which is therefore subject to the
automatic stay. Second, that the inclusion of the “veil-piercing claims” in the
Amended Complaint demonstrates that the State’s interest in subjecting the Debtor
to the enforcement action is primarily pecuniary, and the action against him is
therefore subject to the stay. Neither argument prevails.
Regarding the first argument, under North Carolina law—which governs
the State Court Action—“[t]he doctrine of piercing the corporate veil is not a theory
of liability. Rather, it provides an avenue to pursue legal claims against corporate
officers or directors who would otherwise be shielded by the corporate form.” Green
v. Freeman, 749 S.E.2d 262, 271 (N.C. 2013). In other words, the State’s allegations
regarding the Debtor’s relationship to corporate defendants in the State Court
Action do not constitute independent legal claims against the Debtor, they simply
function as an “avenue” for the application of the State’s core environmental claims
to the Debtor—an allegedly responsible party.
6
See Id. Therefore, they should not be
evaluated independently under the Safety-Kleen, Inc. framework; instead, the
primary purpose of the law for which enforcement is sought—the environmental
claims and injunctive relief—governs. See Safety-Kleen, Inc. (Pinewood), 274 F.3d at
865.

6
The underlying claims are (1) unlawful discharge, (2) violations of water quality standards, and (3)
permit violations. (Dkt. No. 16, Ex. A, at 29–30). These claims are paired with a request for
preliminary injunctive relief. (Id. at 30–31).
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As to the second argument, the Fourth Circuit made clear in Safety-Kleen,
Inc. that the relevant inquiry in this context is objective: “we examine the purpose
of the law that the state seeks to enforce rather than the state's intent in enforcing
the law in a particular case.” Id. (emphasis added). The Debtor’s allegations, for
example, that “[t]he sole purpose of the veil-piercing claims against the Debtor is to
reach his assets to fund CCS’s remediation obligations,” and that “the State did not
add the Debtor because his conduct required regulatory intervention but rather
because CCS could not pay,” may be suggestive of the State’s subjective intent in
adding the Debtor to the State Court Action, (Dkt. No. 26, ¶¶ 10, 12), but do not
impact an objective analysis of the purpose of the underlying law. Even if the
State’s subjective intent, as alleged in the Objection, were somehow relevant, it
would not support the Debtor’s desired outcome. The fundamental question behind
the purpose inquiry in the context of the police and regulatory power exception is
whether the State acts “pursuant to its ‘police and regulatory power’” or “merely to
protect its status as a creditor.” Safety-Kleen, Inc. (Pinewood), 274 F.3d at 865. The
State’s interest in ensuring funds are available for prospective environmental
remediation requirements stemming from the State Court Action reflects its role as
a regulator and defender of public welfare, not that of a private creditor of the
Debtor. The State makes clear in the Motion, and reiterated at the hearing, that it
views the Debtor as the party primarily responsible for the environmental
violations alleged in the Amended Complaint. (Dkt. No. 16, ¶¶ 1–5).
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For the foregoing reasons, the Court found that the entirety of the State
Court Action, which seeks only injunctive relief, falls within the police and
regulatory power exception to the automatic stay. (Dkt. No. 31).
7

B. Relief from Stay Under the Robbins Factors
Even if the State Court Action were not covered by the police and regulatory
power exception to the automatic stay, cause would exist to grant the State’s
alternative request for relief from the stay under 11 U.S.C. § 362(d)(1). Section
362(d)(1) provides simply that the stay may be lifted “for cause, including the lack of
adequate protection of an interest in property of such party in interest.” 11 U.S.C.
§ 362(d). Because the Bankruptcy Code does not define what constitutes “cause” to
lift the stay, “courts must determine when discretionary relief is appropriate on a
case-by-case basis.” In re Robbins, 964 F.2d 342, 345 (4th Cir. 1992) (citing In re
Mac Donald, 755 F.2d 715, 717 (9th Cir. 1985)).
In In re Robbins, the Fourth Circuit established three factors for courts to
consider when deciding whether cause exists to lift the automatic stay as to
litigation pending outside of the bankruptcy court:
(1) whether the issues in the pending litigation involve only state law,
so the expertise of the bankruptcy court is unnecessary; (2) whether
modifying the stay will promote judicial economy and whether there
would be greater interference with the bankruptcy case if the stay
were not lifted because matters would have to be litigated in
bankruptcy court; and (3) whether the estate can be protected properly
by a requirement that creditors seek enforcement of any judgment
through the bankruptcy court.

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The State reiterated at the hearing that the State Court Action seeks only injunctive relief, not
money damages, and agreed that to the extent the State ever sought money damages from the
Debtor, further appropriate relief from this Court would be necessary.
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PARTIES TO BE SERVED
Michael Scott Keller
Case No. 26-50423

John Paul Hughes Cournoyer, Bankruptcy Administrator
via cm/ecf
Brandi Richardson, Chapter 13 Trustee
via cm/ecf
Taylor Hampton Crabtree on behalf of Movant State of North Carolina
via cm/ecf

Christopher D Layton on behalf of Debtor Michael Scott Keller
via cm/ecf
Richard Abbitt Prosser on behalf of Creditor Truist Bank
via cm/ecf

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