# Midlantic National Bank v. New Jersey Department of Environmental Protection

> Supreme Court of the United States · March 24, 1986 · 474 U.S. 494

URL: https://www.frixlaw.com/law-library/cases/9430279

## Case

- **Full name:** Midlantic National Bank v. New Jersey Department of Environmental Protection
- **Court:** Supreme Court of the United States
- **Decided:** March 24, 1986
- **Citations:** 474 U.S. 494; 106 S. Ct. 755; 88 L. Ed. 2d 859; 1986 U.S. LEXIS 50
- **Precedential status:** Published
- **Opinion:** Dissent by Rehnquist
- **Judges:** Blackmun, Brennan, Marshall, Powell, Rehnquist, Stevens
- **Cited by:** 717 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9430279

## How later opinions describe it (automated extraction)

- holding that the Bankruptcy Code did not preempt a state law imposing conditions on a bankruptcy trustee’s abandonment of the estate’s property when the statute was reasonably designed to protect the public health or safety from imminent and identified hazards
- holding that a trustee cannot abandon property in violation of state health or safety laws, but that this "does not encompass a speculative or indeterminate future violation of such laws that may stem from abandonment"
- finding an exception to a trustee’s power to abandon property when done “in contravention of a state statute or regulation that is reasonably designed to protect the public health or safety from identified hazards.”
- holding that bankruptcy trustee may not abandon environmentally contaminated property in contravention of state law that is reasonably designed to protect public health or safety

## Opinion text

Justice Rehnquist,
with whom The Chief Justice, Justice White, and Justice O’Connor join, dissenting.
The Court today concludes that Congress did not intend the abandonment provision of the Bankruptcy Code, 11 U. S. C. § 554 (a), to pre-empt “certain state and local laws.” In something of a surprise ending, the Court limits the class of laws that can prevent an otherwise authorized abandonment by a trustee to those “reasonably designed to protect the public health or safety from identified hazards.” While this limitation reduces somewhat the scope of my disagreement with the result reached, it renders both the ratio decidendi and the import of the Court’s opinion quite unclear. More important, I remain unconvinced by the Court’s arguments supporting state power to bar abandonment. The principal and only independent ground offered — that Congress codified “well-recognized restrictions of a trustee’s abandonment power” — is particularly unpersuasive. It rests on a misreading of three pre-Code cases, the elevation of that *508 misreading into a “well-recognized” exception to the abandonment power, and the unsupported assertion that Congress must have meant to codify the exception (or something like it). These specific shortcomings in the Court’s analysis, which are addressed in greater detail below, stem at least in part from the Court’s failure to discuss even in passing either the nature of abandonment or its role in federal bankruptcy.
Abandonment is “the release from the debtor’s estate of property previously included in that estate.” 2 W. Norton, Bankruptcy Law and Practice §39.01 (1984), citing Brown v. O’Keefe, 300 U. S. 598, 602-603 (1937). Prior to enactment of the Bankruptcy Code in 1978, there was no statutory provision specifically authorizing abandonment in liquidation cases. By analogy to the trustee’s statutory power to reject executory contracts, courts had developed a rule permitting the trustee to abandon property that was worthless or not expected to sell for a price sufficiently in excess of encumbrances to offset the costs of administration. 4 L. King, Collier on Bankruptcy ¶ 554.01 (15th ed. 1985) (hereinafter Collier). 1 This judge-made rule served the overriding purpose of bankruptcy liquidation: the expeditious reduction of the debtor’s property to money, for equitable distribution to creditors, Kothe v. R. C. Taylor Trust, 280 U. S. 224, 227 (1930). 4 Collier ¶ 554.01. Forcing the trustee to administer burdensome property would contradict this purpose, slowing the administration of the estate and draining its assets.
*509 The Bankruptcy Code expressly incorporates the power of abandonment into federal bankruptcy legislation for the first time. The relevant provision bears repeating:
“(a) After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value to the estate.” 11 U. S. C. § 554 (a) (amended 1984).
This language, absolute in its terms, suggests that a trustee’s power to abandon is limited only by considerations of the property’s value to the estate. It makes no mention of other factors to be balanced or weighed and permits no easy inference that Congress was concerned about state environmental regulations. 2 Indeed, as the Court notes, when Congress was so concerned it expressed itself clearly, specifically exempting some environmental injunctions from the automatic stay provisions of §362 of the Code, 11 U. S. C. §§ 362 (b)(4), (5) (1982 ed. and Supp. II). See Ohio v. Kovacs, 469 U. S. 274 (1985).
Nor does the scant legislative history of § 554 support the Court’s interpretation. Nowhere does that legislative his *510 tory suggest that Congress intended to limit the trustee’s authority to abandon burdensome property where abandonment might be opposed by those charged with the exercise of state police or regulatory powers.
The Court seeks to turn the seemingly unqualified language and the absence of helpful legislative history to its advantage. Adopting the reasoning of the Court of Appeals, the Court argues that in light of Congress’ failure to elaborate, § 554 must have been intended to codify prior “abandonment” case law, and that under prior law “a trustee could not exercise his abandonment power in violation of certain state and federal laws,” ante, at 501. I disagree. We have previously expressed our unwillingness to read into unqualified statutory language exceptions or limitations based upon legislative history unless that legislative history demonstrates with extraordinary clarity that this was indeed the intent of Congress. E. g., Garcia v. United States, 469 U. S. 70, 75 (1984). I think that upon analysis the “legislative history” relied upon by the Court here falls far short of this standard.
The Court relies on just three cases for its claimed “established corollary” to the pre-Code abandonment power. A close reading of those cases, however, reveals that none supports the rule announced today. In Ottenheimer v. Whitaker, 198 F. 2d 289 (CA4 1952), the Court of Appeals held that a trustee could not abandon worthless barges obstructing traffic in Baltimore Harbor when the abandonment would have violated federal law. The Court concluded that the “judge-made rule [of abandonment] must give way” to “an Act of Congress in the public interest.” Id., at 290 . Ottenheimer thus depended on the need to reconcile a conflict between a judicial gloss on the Bankruptcy Act and the commands of another federal statute. We implicitly confirmed the validity of such an approach two Terms ago in NLRB v. Bildisco & Bildisco, 465 U. S. 513, 523-524 (1984). Here, by contrast, the “conflict” is with the uncertain commands of *511 state laws that the Court declines to identify. 3 In addition, the Court of Appeals relied heavily on the fact that the pre-Code law of abandonment was judge-made, which in turn raises the somewhat Delphic inquiry as to whether that court would have decided the case the same way under the present Code.
In re Lewis Jones, Inc., 1 BCD 277 (Bkrtcy Ct. ED Pa. 1974), was a Bankruptcy Court decision concluding that the principle of Ottenheimer did not apply because there was no conflicting statute. But because the right to abandon was based on judge-made law, the court nonetheless found itself free to protect the public interest by requiring a trustee seeking abandonment to first spend funds of the estate to seal manholes and vents in an underground pipe network. While this case admittedly comes closer to supporting the Court’s position than does Ottenheimer , it too turns on the judge-made nature of the abandonment power. Moreover, I do not believe that the isolated decision of a single Bankruptcy Court rises to the level of “established law” that we can fairly assume Congress intended to incorporate. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U. S. 353, 379-382 (1982).
In In re Chicago Rapid Transit Co., 129 F. 2d 1 (CA7), cert. denied sub nom. Chicago Junction R. Co. v. Sprague, 317 U. S. 683 (1942), the District Court sitting in bankruptcy had authorized the bankrupt to abandon a lease of a rail line, and a lessor appealed. The bankrupt did not appeal the District Court’s imposition of conditions on the abandonment; the propriety of those conditions thus was not before the *512 Court of Appeals, which affirmed the District Court’s authorization of abandonment. So while there may be dicta in the Court of Appeals’ opinion that would support some limitation on the power of abandonment, the holding of the case certainly does not. In short, none of these cases supports the Court’s view that § 554(a) contains an implicit exception for “certain state and local laws.”
Even assuming these cases stand for the proposition ascribed to them in the Court’s opinion, that opinion’s brief discussion of the cases, ante, at 500-501, certainly does not support the claim that they reflect an “established corollary” to pre-Code abandonment law. Generally speaking, three rather isolated cases do not constitute the sort of settled law that we can fairly assume Congress intended to codify absent some expression of its intent to do so. Perhaps recognizing this, respondents place substantial reliance for their view that the exception was “well settled” on the following statement in the (pre-Code) 14th edition of Collier on Bankruptcy, accompanying a citation to Ottenheimer and Chicago Rapid Transit: “Recent cases illustrate, however, that the trustee in the exercise of the power to abandon is subject to the application of general regulations of a police nature.” 4A J. Moore, Collier on Bankruptcy ¶70.42[2], pp. 502-504 (14th ed. 1978); see also In re Quanta Resources Corp., 739 F. 2d 912 , 916 (1984) (quoting same language from Collier). Respondents further observe that the section of this treatise addressing abandonment was cited in a note to an early precursor of §554, §4-611 of the proposed Bankruptcy Act of 1973, H. R. Doc. No. 93-137, Part II, p. 181, reprinted in A. Resnick & E. Wypyski, 2 Bankruptcy Reform Act of 1978: A Legislative History, Doc. No. 22 (1979). While resourceful, this argument is wholly unpersuasive.
The reference to Collier is not part of the Code’s “ ‘legislative history’ in any meaningful sense of the term,” Board of Governors, FRS v. Dimension Financial Corp., ante, at 372. And the proposition for which the section in Collier is cited is *513 not the view that authority for abandonment is qualified by state police power, but instead the much less remarkable proposition that “[t]he concept of abandonment is well recognized in the case law. See 4A Collier ¶70.42[3].” In order to divine that the statutory power to abandon in the proposed Code was to be conditioned on compliance with state police power regulations, therefore, a Senator or Congressman would not merely have had to look at the legislative history of the precursor to the Code, but also would have had to read the several-page treatise section cited in that earlier legislative history.
Neither the three cases cited by the Court nor the attenuated reference to the since superseded version of Collier supports the inference that Congress, while writing § 554 in unqualified terms, intended to incorporate so ill-defined and uncertain an exception to the abandonment authority of the trustee. After suggesting that “if Congress intends for legislation to change the interpretation of a judicially created concept” it should do so expressly, ante, at 501, the Court concedes that these cases “do not define for us the exact contours of the trustee’s abandonment power,” ibid. The Court never identifies the source from which it draws the “exact contours” -of the rule it announces today; congressional intent does not appear to be a likely candidate. Congress knew how to draft an exception covering the exercise of “certain” police powers when it wanted to. See 11 U. S. C. §§ 362 (b)(4), (5) (1982 ed. and Supp. II); swpra, at 509. It also knew how to draft a qualified abandonment provision. See § 1170(a)(2) (abandonment of railroad lines permitted only if “consistent with the public interest”). Congress’ failure to so qualify § 554 indicates that it intended the relevant inquiry at an abandonment hearing to be limited to whether the property is burdensome and of inconsequential value to the estate.
I find the Court’s discussion of 28 U. S. C. § 959 (b) somewhat difficult to fathom. After suggesting that § 959(b) *514 “provides additional evidence” for the self-evident proposition “that Congress did not intend for the Bankruptcy Code to pre-empt all state laws,” ante, at 505, the Court concedes that the provision “does not directly apply to an abandonment under § 554(a) of the Bankruptcy Code,” ibid, (emphasis added). The precise nature of its indirect application, however, is left unclear. Respondents contend that § 959(b) operates to bar abandonment in these cases. Assuming that temporary management or operation of a facility during liquidation is governed by § 959(b), I believe that a trustee’s filing of a petition to abandon, as opposed to continued operation of a site pending a decision to abandon, does not constitute “manage[ment]” or “operation]” under that provision. Not only would a contrary reading strain the language of § 959(b), cf. In re Adelphi Hospital Corp., 579 F. 2d 726, 729, n. 6 (CA2 1978) (per curiam) (in pre-Code liquidation proceeding trustee “is in no sense a manager of an institution’s operations”), it also would create an exception to the abandonment power without a shred of evidence that Congress intended one. As one commentator has noted, § 554(a) “is among the few provisions in the Bankruptcy Code that do not contain explicit exceptions.” Note, 85 Colum. L. Rev. 870 , 883 (1985). I would not read 28 U. S. C. § 959 (b) as creating an implicit exception.
Citing SEC v. United Realty & Improvement Co., 310 U. S. 434, 455 (1940), respondents argue that the Bankruptcy Court’s equitable powers support the result reached below. I disagree. While the Bankruptcy Court is a court of equity, the Bankruptcy Code “does not authorize freewheeling consideration of every conceivable equity.” Bildisco & Bildisco, 465 U. S., at 527 . The Bankruptcy Court may not, in the exercise of its equitable powers, enforce its view of sound public policy at the expense of the interests the Code is designed to protect. In these cases, it is undisputed that the properties in question were burdensome and of inconsequential value to the estate. Forcing the trustee to expend es *515 tate assets to clean up the sites would plainly be contrary to the purposes of the Code.
I fully appreciate the Court’s concern that abandonment may “aggravate] already existing dangers by halting security measures that preven[t] public entry, vandalism, and fire.” Ante, at 499, n. 3. But in almost all cases, requiring the trustee to notify the relevant authorities before abandoning will give those authorities adequate opportunity to step in and provide needed security. As the Bankruptcy Court noted in No. 84-805: “The City and State are in a better position in every respect than either the Trustee or debtor’s creditors to do what needs to be done to protect the public against the dangers posed by the PCB-contaminated facility.” App. to Pet. for Cert. 73a. And requiring notice before abandonment in appropriate cases is perfectly consistent with the Code. It advances the State’s interest in protecting the public health and safety, and, unlike the rather uncertain exception to the abandonment power propounded by the Court, at the same time allows for the orderly liquidation and distribution of the estate’s assets. Here, of course, the trustee provided such notice and the relevant authorities were afforded an opportunity to take appropriate preventative and remedial measures.
I likewise would not exclude the possibility that there may be a far narrower condition on the abandonment power than that announced by the Court today, such as where abandonment by the trustee itself might create a genuine emergency that the trustee would be uniquely able to guard against. The United States in its brief as amicus curiae suggests, for example, that there are limits on the authority of a trustee to abandon dynamite sitting on a furnace in the basement of a schoolhouse. Although I know of no situations in which trustees have sought to abandon dynamite under such circumstances, the narrow exception that I would reserve surely would embrace that situation.
*516 What the Court fails to appreciate is that respondents’ interest in these cases lies not just in protecting public health and safety but also in protecting the public fisc. In No. 84-805, before undertaking cleanup efforts, New York unsuccessfully sought from the Bankruptcy Court a first lien on the Long Island City property to the extent of any expenditures it might make to bring the site into compliance with state and local law. New York did not appeal the court’s denial of a first lien, and proceeded to clean up the site (except for the contaminated subsoil). It now presses a claim for reimbursement, maintaining that the trustee should not have been allowed to abandon the site. The New Jersey Department of Environmental Protection, in No. 84-801, apparently seeks to undo the abandonment and force the trustee to expend the estate’s remaining assets cleaning up the site, thereby reducing the cleanup costs that must ultimately be borne by the State. 4
The Court states that the “abandonment power is not to be fettered by laws or regulations not reasonably calculated to protect the public health or safety from imminent and identifiable harm.” Ante, at 507, n. 9. Because the Court declines to identify those laws that its deems so “reasonably calculated,” I can only speculate about its view of respondents’ claim that abandonment can be conditioned on a total cleanup. One might assume, however, that since it affirms the judgments below the Court means to adopt respondents’ position. The Court of Appeals, as I read its opinions in these cases, apparently would require the trustee to expend all of Quanta’s available assets to clean up the sites. 5 But barring abandonment and forcing a cleanup would effectively *517 place respondents’ interest in protecting the public fisc ahead of the claims of other creditors. Congress simply did not intend that §554 abandonment hearings would be used to establish the priority of particular claims in bankruptcy. While States retain considerable latitude to ensure that priority status is allotted to their cleanup claims, see Ohio v. Kovacs, 469 U. S., at 285-286 (O’Connor, J., concurring), I believe that the Court errs by permitting them to impose conditions on the abandonment power that Congress never contemplated. Accordingly, in each of these cases I would reverse the judgment of the Court of Appeals.
Under the former Bankruptcy Act, title to the debtor’s property vested in the trustee. Abandonment divested the trustee of title and revested it in the debtor. 4 Collier ¶554.02[2], Under the Code, the trustee no longer takes title to the debtor’s property, and he is simply divested of control over the property by the abandonment. Ibid. Although § 554 does not specify to whom the property is abandoned, the legislative history suggests that it is to the person having a possessory interest in the property. S. Rep. No. 95-989, p. 92 (1978); Ohio v. Kovacs, 469 U. S. 274, 284-285, n. 12 (1985).
Last Term in Ohio v. Kovacs, supra, which involved the discharge-ability of certain environmental injunctions in bankruptcy, we briefly addressed the abandonment of hazardous waste sites:
“After notice and hearing, the trustee many abandon any property of the estate that is burdensome to the estate or that is of inconsequential value to the estate. 11 U. S. C. § 554 . Such abandonment is to the person having the possessory interest in the property. S. Rep. No. 95-989, p. 92 (1978). ... If the site at issue were [the debtor’s] property, the trustee would shortly determine whether it was of value to the estate. If the property was worth more than the costs of bringing it into compliance with state law, the trustee would undoubtedly sell it for its net value, and the buyer would clean up the property, in which event whatever obligation [the debtor] might have had to clean up the property would have been satisfied. If the property were worth less than the cost of cleanup, the trustee would likely abandon it to its prior owner, who would have to comply with the state environmental law to the extent of his or its ability.” Id., at 284-285, n. 12 .
The Court finds “additional support” for its restriction of the abandonment power in recent federal statutes concerned with protecting the environment. If these statutes operated to bar abandonment here — something neither respondents nor the Court suggests — then this might be a different case. See NLRB v. Bildisco & Bildisco, 465 U. S. 513 (1984). But the statutes do not bar abandonment, and the majority’s reference to their obvious concern over the risks of storing hazardous substances is little more than a makeweight.
NJDEP does not contend that the estate, including any assets otherwise subject to Midiantic’s secured claim, contains sufficient assets to complete the cleanup.
1 would think that this command qualifies, in the words of the Court, as a “conditio[n] on abandonment... so onerous as to interfere with the bankruptcy adjudication itself,” ante, at 507.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9430279. Public record. Not legal advice.