By Matthew Santoni

Law360 (January 5, 2021, 4:35 PM EST) -- A Pennsylvania federal judge questioned Tuesday whether a Pittsburgh-area restaurant was prematurely challenging the legality of Pennsylvania Gov. Tom Wolf's pandemic control measures in bankruptcy court as a way to avoid the Allegheny County Health Department's lawsuit seeking to shut the diner down for ignoring those orders.

U.S. Bankruptcy Judge Jeffery A. Deller said it did not appear on its face that the health department was exceeding its powers to enforce regulations and public health orders when it sought to close The Crack'd Egg for the restaurant's failure to follow state-issued mask requirements or occupancy limits, though he did not immediately rule on the county's request to lift the stay on litigation that came down when parent company The Cracked Egg LLC filed for Chapter 11 in early October.

James R. Cooney of Robert O. Lampl Law Office, representing the restaurant, claimed via videoconference that the county lawsuit, filed about two weeks before the bankruptcy, was not exempt from the bankruptcy stay because the mask mandate and occupancy limit the county sought to enforce were not legal or binding.

"Isn't that putting the cart before the horse?" Judge Deller asked. "That is really a defense to whether a violation can be enforced, not whether the government agency is looking to implement its police and enforcement power."

Attorneys for the Allegheny County Health Department argued that the stay on their case should be lifted because government enforcement actions are exempt from the automatic halt on litigation that comes with a bankruptcy filing, saying the case should be remanded to state court because it only involved whether the county could enforce the state mandate.

But Cooney countered that the statewide orders from Wolf and Pennsylvania Secretary of Health Rachel Levine requiring public mask use and limiting indoor dining were unenforceable since they lacked the authority of law that could only come from the state legislature.

"We would agree [with the court] if there were valid regulations. … The governor's declarations are rulings by executive fiat," he told the judge. "It is for the court of first instance to determine the validity of the law, and that is this court."

Allegheny County had sued the restaurant in September for allegedly letting employees and patrons in without masks amid the pandemic and for ignoring the occupancy limit intended to maintain safe distances between customers. The Cracked Egg filed a countersuit in federal court challenging the state mandates and tried to remove the county suit to federal court as well.

Shortly after the federal court remanded the county's lawsuit back to state court, The Cracked Egg filed for bankruptcy, which had the effect of halting the suit seeking its closure and letting it continue to operate during its reorganization. The restaurant's social media pages shared posts against virus mitigation measures and showed events being held in defiance of the county's order and a recently-expired statewide shutdown of indoor dining.

Judge Deller gave a brief, preemptive rebuke to any attempts to deny the seriousness of the pandemic, noting the number of cases and deaths nationwide and the effect it had on businesses.

"It is real all the way around," he said.

Cooney replied that while the pandemic was real, it should be up to the county to prove the efficacy of the mask orders and social distancing measures it sought to enforce.

"The county has the burden to prove that mitigation orders have any effect," he said. "They need proof that masks control the spread of disease, or that 50% occupancy controls the spread of disease, and they have not done that."

Vijya Patel, representing Allegheny County, said Pennsylvania's Disease Control Law gives the health department the power to regulate businesses that affect the public health, and even if there wasn't a statewide mask order, the county could still use the law to shut down the restaurant if its practices posed a significant risk of spreading COVID-19.

"The department's action is an exercise of its regulatory power to protect the public's health and safety," she said. "Even if The Cracked Egg takes issue with the validity of the underlying order, it has no bearing on whether the stay can be lifted."

Any arguments about the validity of the state orders should be heard by the state court when it takes up the county's complaint, which it couldn't while the stay was in effect and the case was removed to bankruptcy court, Patel said.

Though the county argued that the enforcement lawsuit wasn't "related to" the bankruptcy, Judge Deller noted that if successful, the county's request to shut down the restaurant would undoubtedly affect its ability to earn income to support its Chapter 11 plan. Patel countered that a shutdown would be "temporary" if the restaurant complied with the rules and received the county's permission to reopen — it could even go from 25% occupancy to 50% if it had the right safety plans. Both sides noted that the restaurant was currently operating at full capacity "at its own risk."

Judge Deller took the arguments under advisement Tuesday and said he would issue a ruling "shortly."

The Allegheny County Health Department is represented in-house by Michael A. Parker and Vijya Patel, and Frances Liebenguth of the Allegheny County Law Department.

The Cracked Egg LLC is represented by James R. Cooney, Robert O. Lampl, Sy O. Lampl, Alexander L. Holmquist and Ryan J. Cooney of Robert O. Lampl Law Office.

The case is In re: The Cracked Egg LLC, case number 20-22889, in the U.S. Bankruptcy Court for the Western District of Pennsylvania.

--Editing by Steven Edelstone.

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