Third Circuit: Bankruptcy and Environmental Claims

Wednesday, September 2, 2020

The continued pandemic saga and present financial slowdown immediate us to revisit chapter — this time with an environmental focus. The Chapter Code (11 U.S.C. §101 et seq.) permits a debtor who recordsdata each respiratory room and a contemporary begin. Courts have been inconsistent with balancing the Code in opposition to the social wants of environmental legislation.

Chapter 11 offers with reorganizations. After submitting, there’s an automated keep of most claims whereas the debtor provides discover to collectors and seeks court docket affirmation of a reorganization plan with its collectors. Collectors should well timed file proof of claims, that are sorted as contested vs. uncontested, precedence, routine, and so on. Discharges and distributions are concerned within the last court docket order.

What occurs when environmental claims on the debtor’s property come up, e.g., penalties and cleanup orders? Though the automated keep provisions at Part 362 have little pertinence to company environmental judicial decrees,[1] the part will usually keep enforcement of many judgments and lawsuits. Past stays, how are environmental claims to be handled through the chapter?

Within the current case In Re: Exide Applied sciences, Reorganized Debtors, South Coast Air High quality Administration District, Appellants v. Exide Applied sciences, Appellee, 613 B.R. 79 (USDC D. Delaware 2020), the court docket was confronted with post-petition, agency-imposed penalties on the battery producer for exceeding lead and arsenic emission requirements. The penalty was to punish and deter and to not function compensation to the company for any loss it incurred. The court docket discovered that for the reason that company sustained no loss or harm as a result of firm’s fraud in concealing its emission, the penalties weren’t entitled to precedence administration bills (§§503, 523,1141(d)). They’d not profit the property. This punitive declare (as much as $80 million) was aside from a non-dischargeable declare for a company debt, regardless of fraud. This declare was, due to this fact, not entitled to the standing of precedence administrative bills to be paid out of the property, and was dischargeable.

This was below the Third Circuit, however different circuits don’t concur that non-compensation penalties are dischargeable.[2] Nevertheless, the result’s excellent news for different precedence collectors, who may have extra of a slice of the property to fulfill their claims.

Cleanup prices symbolize a unique image.

In one other current case, In Re: Exide Applied sciences, Reorganized Debtor, West Salem Storage, LLC, Plaintiff, 600 BR 753 (US Chapter Court docket, D. Delaware 2019), the court docket handled the debtor’s lead-contaminated property and an “unknown” creditor who in 2011 had acquired the debtor’s contaminated land and had a pre-confirmation/pre-petition declare for the prices over $1 million in remediating lead contamination. The plaintiff had not acquired precise discover of a declare bar date for its value. The chapter petitions have been filed in 2002 and 2013, the latter being of relevance to this case. The court docket discovered that the declare was discharged. The case illustrates the issue in figuring out when environmental claims come up.

West Salem was conscious in 2011 of some prior contaminations that had been addressed, however didn’t know the extent of all contaminations till 2015. The court docket discovered that an company easement and equitable servitude EES had existed on the property, limiting its use since 1999. Underneath both an “publicity check” or a “truthful compensation” check, the court docket discovered the EES confirmed that West Salem ought to have identified of contamination earlier than the 2013 chapter submitting. Thus the claims have been pre-petition, however West Salem didn’t have precise discover of the declare bar date. West Salem was an unknown creditor to the debtor since debtor was an earlier ancestor in title.

The court docket dominated that Exide didn’t have to look at property data however solely use due diligence to look at its personal books and data to find out who was the proprietor of the positioning on the time of the chapter petition. The court docket discovered Exide’s discover of bar date was printed in The Wall Road Journal, The New York Instances, and 130 land and required newspapers, which glad due course of. The court docket discovered West Salem had enough and constructive discover. Exide gained its movement to dismiss West Salem’s grievance.

These circumstances symbolize totally different eventualities of the discharge of chapter environmental claims that save the debtor’s contemporary begin and the claims of most different collectors. Publish-petition claims and uncontested, well timed filed claims will be saved. Most don’t lose in chapter environmental circumstances.

{1] Penn Terra Restricted v. Dept. of Env. Assets, 733 F.second 267 (third Cir. 1984) (protecting violations and corrective motion).

[2] See 150 A.L.R. 159 (authentic 1998). Apart from for company debtors, penalties for compensation are non-dischargeable for particular person debtors.