Petition for Writ of Certiorari — Commonwealth Oil Refining Co. v. United States Environmental Protection Agency

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„ Supreme Court, U.S.

86 1400 FILED

FEB 23 1987

No. OSEPH F. SPANIOL, UR.

CLERK

In THE

Supreme Court of Che United States

OcTOBER TERM, 1986

COMMONWEALTH OIL REFINING COMPANY, INC.,

Petitioner,

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY,

Respondent.

Petition for a Writ of Certiorari to The United States Court

of Appeals for The Fifth Circuit

ROBERT T. BROUSSEAU

Stutzman & Bromberg

2323 Bryan Street

Twenty-Second Floor

Dallas, Texas 75201

(214) 969-4900

Counsel of Record

Of Counsel:

SANDER L. ESSERMAN

VAN J. HOOKER

KENNETH F. PLIFKA

2323 Bryan Street

Twenty-Second Floor

Dallas, Texas 75201

February 23, 1987

QUESTIONS PRESENTED

Does a court of appeals err in adopting a standard “funda-

mentally at odds with the policies of flexibility and equity

built into Chapter 11 of the Bankruptey Code” condemned

by this Court in National Labor Relations Board v. Bildisco

and Bildisco, 465 U.S. 513, 104 S. Ct. 1188 79 L.Ed. 2d 482

(1984), and in failing to use the balancing test Bildisco

mandates where bankruptcy policy conflicts with non-

bankruptcy federal policy?

Does a court of appeals ignore this Court’s recent hoidings

in Midlantic Nat’l Bank vs. New Jersey Dept. of Environmen-

tal Protection, — U.S. —, 106 S.Ct. 755, 88 L.Ed. 2d 859

(1986) and Ohio vs. Kovacs, 469 U.S. 274, 105 S. Ct. 705, 83

L.Ed. 2d 649 (1985), when it fails to balance the costs to the

bankruptcy trustee in complying with non-critical govern-

mental regulation, with the benefits, if any, to be derived

from such regulation?

. Does a court of appeals err in affirming a district court’s

finding that any governmental environmental regulatory

authority falls outside the “automatic stay“ of the Bank-

ruptey Code, 11 U.S.C. §362(a) in the absence of any

showing of imminent and identifiable harm?

TABLE OF AUTHORITIES

Cases

Page

In re Ilco, United States; Alabama, et al. v. ILCO,

48 BB. 1006 (WD. Ale FOGB) woo kits ccsccesncs 17

In re Professional Sales Corp., 56 B.R. 753

[FEM Bs — tasas Oh cer ikke 18

Midlantic National Bank v. New Jersey Dept. of

Environmental Protection, 5.4. 206 .

755, 88 L.Ed. 2d 859 (1986) 7, 8, 9, 10, 18, 15, 16, 18

N.L.R.B. v. Bildisco and Bildisco, 465 U.S. 513, 104

S.Ct. 1188, 79 L.Ed. 2d 482, (1984) ........ 7, 8, 9, 15, 18

Ohio v. Kovacs, L. S., 469 U.S. 274, 105 S.Ct. 705, 83

nh ds Fan cis ceed 9, 15, 16

Penn Terra, Lid. v. Dept. of Envt’l Resources, 733 F.2d

met CO CS Be . 17

People v. Electrical Utilities, Inc., 41 B.R. 874 a

. —ů¹⅛ww ] ˙—m.. d. ee ae 18

Texaco, Inc. v. Pennzoil Company, 626 F.Supp. 250

(S. D. N. V. 1986) aff'd, 784 F.2d 1133

%;’. caesar 10

United States v. Johns-Mansville Sales Corp., 13 Env. L.

Kr 0 kv a vit masaneccins 12, 13, 14, 15

TABLE OF AUTHORITIES — (Continued)

Page

Statutes

h/ 5

Z ED ncn cnc cece ahsdescccecvececees 2, 16

„„ „ „ 11, 14, 15, 17

11 U.S.C. 5 362 (b) (0)oõbõõꝛꝛꝛ 5 . settee tenes 2,12

hh „„ „ „ . 2

F „ 2

„„ „„ „ „ 2

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„„ „„ „ 2

Title 12 P. R. Laws § 1121 (Puerto Rico Publie Policy

D 4

42 U.S.C. § 6901 et seg. (Resource Conservation and

ee rer re See ee ee eee passim

42 U.S.C. §§ 6924 et seg. (Solid Waste Disposal

))%) hd 5, 6

42 U.S.C. §§ 9604 and 9607 (Comprehensive Environ-

mental Response, Compensation and Liability Act

ee cen cns.c es eu dete heneveseas ce 16, 18

IN THE

Supreme Court of The United States

OcTOBER TERM, 1986

COMMONWEALTH OIL REFINING COMPANY, INC.,

Petitioner,

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY,

Respondent.

Petition for a Writ of Certiorari to The United States Court

of Appeals for The Fifth Circuit

The petitioner Commonwealth Oil Refining Company, Ine.

respectfully prays that a writ of certiorari issue to review the

judgment and opinion of the United States Court of Appeals

for the Fifth Cireuit, entered in the above-entitled proceeding

on November 25, 1986.

OPINIONS BELOW

The memorandum opinion of the Court of Appeals for the

Fifth Circuit is reported at 805 F.2d 1175, and is reprinted in

the appendix hereto, p. A-4, infra.

The opinion of the United States District Court for the

Western District of Texas (Garcia, J) is unreported, and is

reprinted in the appendix hereto, p. A-35, infra.

The opinion of the United States Bankruptcy Court for the

Western District of Texas (Elliot, J.) is reported at 58 B.R.

608, and is reprinted in the appendix hereto, p. A-40, infra.

JURISDICTION

The jurisdiction of the bankruptcy court was invoked under

28 U.S.C. § 157 and 1334, petitioner having filed a petition for

relief under Chapter 11 of the Bankruptcy Code and having

filed a motion for determination of the application of the

automatic stay as to respondent under 11 U.S.C. § 362.

The jurisdiction of the district court was invoked under 11

U.S.C. § 158a, petitioner having timely appealed the order of

the bankruptcy court.

The jurisdiction of the Court of Appeals for the Fifth Circuit

was invoked under 11 U.S.C. § 1291. The judgment of the Court

of Appeals for the Fifth Cireuit was entered on November 25,

1986, affirming the district court judgment. The jurisdiction of

this Court is invoked under 28 U.S.C. § 1254(1).

STATUTE INVOLVED

11 U.S.C. § 362. Automatic stay

(a) Except as provided in subsection (b) of this section, a

petition filed under section 301, 302, or 303 of this title, or an

application filed under section 5(a) (3) of the Securities Inves-

tor Protection Act of 1970 (15 U.S.C. 78eee(a) (3)), operates

as a stay, applicable to all entities of —

(1) The commencement or continuation, including the

issuance or employment of process, of a judicial, administra-

tive, or other action or proceeding against the debtor that

was or could have been commenced before the commence-

ment of the case under this title, or to recover a claim

against the debtor that arose before the commencement of

the case under this title;

(b) The filing of a petition under section 301, 302, or 303 of

this title, or of an application under section 5(a)(3) of the

Securities Investor Protection Act of 1970 (15 U.S.C.

78eee (a) (3), does not operate as a stay —

(4) under subsection (a)(1) of this section, of the com-

mencement or continuation of an action or proceeding by a

governmental unit to enforce such governmental unit’s police

or regulatory power;

(5) under subsection (a)(2) of this section, of the en-

forcement of a judgment, other than a money judgment,

obtained in an action or proceeding by a governmental unit

to enforce such governmental unit's police or regulatory

power;

STATEMENT OF THE CASE'

Commonwealth Oil Refining Company, Ine. (“Coreo’’) is the

debtor-in-possession and acts as bankruptcy trustee in the

reorganization proceeding bearing its name. It draws its corpo-

rate name from the Commonwealth of Puerto Rico, where its

petrochemical complex is located (Movants Exhibit 1 in the

bankruptcy hearing). Puerto Rico is, regrettably, an area of

high unemployment (T. 26). About 1982, Coreo was compelled

gradually to reduce production and eventually to cease refining

petroleum products altogether (T. 14, 96; Movants Exhibit 1).

While in bankruptcy in a prior proceeding in the same bank-

ruptey court under Chapter XI of the former Act, Coreo on

November 18, 1981, applied for, and obtained from EPA,

Part A of its permit to operate under the Solid Waste Disposal

Act, as amended by the Resource Conservation and Recovery

Act (“RCRA”), 42 U.S.C. § 6901 et seg. (The “interim status”

References to the record of testimony before the Bankruptcy Court

are described as “T.

permit). Within two years of obtaining the interim status

permit, Coreo ceased refining operations. Since then Coreo has

not generated any hazardous wastes (T. 17-23, 32). Corco

emerged from the Chapter XI proceeding.

On October 14, 1982, the Administrator of EPA authorized

Puerto Rico to operate “Phase I” of the Hazardous Waste

Program (including regulation of interim status facilities) in

lieu of the Federal program, pursuant to Section 300(b) of

RCRA, 42 U.S.C. 5 6926 (b) (T. 21-22). Puerto Rico operates

its own state hazardous waste program under 42 U.S.C.

§ 6926(b) (T.21-22) and has published regulations for the

control of hazardous and non hazardous solid waste pursuant

to the Puerto Rico Public Policy Environmental Act, P. R.

Laws Ann Tit. 12, § 1121 et seq. It has not complained of Coreo

(T. 21-22), and indeed opposed the entry of the bankruptcy

court order which gives rise to this Petition.

EPA inspected the Coreo site on March 23, 1984 and found

“all concentrations were below the maximum concentrations

considered to be EP toxic.” (Movants Exhibit 1). This was still

the case at the time of bankruptcy hearing (T. 21). The Puerto

Rican authorities filed no complaints against Corco (T. 21-22).

Coreo received no complaints from any source suggesting any

threat to health or environment (T. 23), and the government of

Puerto Rico opposed the EPA’s actions in the Bankruptcy

Court (Tab 5.a).

On April 12, 1984, Coreo received a demand letter from EPA

requesting that Corco comply with EPA Part B permit proce-

dures’ or to shut down. The Puerto Rico Environmental Qual-

? EPA Part B permit procedure consists of gathering general infor-

mation and specific technical information, including design draw-

ings, engineering studies certified by a registered professional

engineer, chemical and physical analyses, contingency and closure

plans. 40 C.F.R. § 270.14 through 270.29.

ity Board did not join in EPA’s request (T. 22-23). Even

though the record reflects that the EPA viewed Corco’s alleged

violation to be technical (T. 99-100) and not related to a

present threat to the environment but rather to mere compli-

ance with administrative regulations (T. 99-101) relating to

Part B procedure (T. 96-99), the record also demonstrates that

the financial cost of complying with the EPA’s demands were

from $500,000.00 for the Part B application to $1,000,000.00

for final closure (T. 25). Coreo could not then submit to EPA

its Part B application because it had not yet determined the

type or extent of business it would operate as a reorganized

company and because it was required to comply with the

Bankruptcy Code in making such a business determination (T.

38-39, 67-68, 92-98).

On July 11, 1984, Coreo filed for protection under Chapter 11

of the Bankruptcy Code, 11 U.S.C. 5 101 et seq. When EPA

refused to give Coreo time to respond or comply, Coreo filed its

Motion for Determination of Applicability of the Automatic

Stay in the United States Bankruptcy Court.

EPA informed the bankruptcy court that it intended to file

an administrative complaint against Coreo pursuant to RCRA

for violations of Puerto Rico's Public Policy Environmental

Act, sections 3004 and 305 of RCRA, 42 U.S.C. 55 6924, 6925,

and regulations under both statutes. (T. 102). It has since

ordered Coreo either to comply with the Part B permit proce-

dure or to forfeit interim status under 42 U.S.C. §§ 6925(e),

and to file and execute an EPA final closure plan no later than

15 days after termination of interim status. 40 C. F. K.

§ 265.112 (e). (T. 100).

In the bankruptcy court, EPA in effect demanded that Coreo

prematurely commit either some $500,000 to comply with the

Part B procedure or some $1,000,000 to comply with the EPA

closure plan to shut down its entire facility (T. 97-98), without

regard to the considerations of bankruptcy reorganization or to

any benefit to the public. The record there showed that Coreo

has repeatedly sought to reconcile demands by EPA with

Coreo's alternative plans for its future and its obligations to its

creditors. (T. 26). Corco is now engaged solely in the terminal-

ling and storage of petroleum products belonging to others

(Movants Exhibit 1), and not refining. When it files a Plan of

Reorganization under Chapter 11 in order to emerge from

bankruptcy, its business may have changed (T. 25-28). The

record shows that Coreo would be wasting assets of the estate

if it completed the EPA Part B permit procedure before

formulating the business operations it will undertake and

before obtaining the approval of creditors and the bankruptcy

court to undertake those operations. (T. 38-39). Althongh EPA

refused to allow any reasonable extension of time within which

Coreo can prepare for a plan of reorganization, the bankruptcy

court found the automatic stay inapplicable.

The bankruptcy court’s order was appealed to the United

States District Court by Coreo and the court-appointed Official

Committee of Unsecured Creditors and the Indenture Trustee.

The district court affirmed, basing its opinion on grounds later

partly eschewed by the Court of Appeals for the Fifth Cireuit.“

* The district court had suggested that the case was moot in that

Corco might have lost its “interim status” pursuant to an auto-

matic termination provision in 42 U.S.C. § 6925(e) (2). There is no

evidence of this in the record. Corco has not lost interim status

under that provision, which applies by its terms only to “land

disposal facilities.“ Coreo is not a land disposal facility, and is

litigating this very issue in the EPA administrative proceeding, In

Re Commonwealth Oil Refining Co., Inc., II RCRA-85-0301. The

court of appeals wrote: “Whether the district court was correct in

its conclusion, or indeed whether it had before it a sufficient record

on which to base such a determination, are not questions we must

resolve to determine whether this case is moot.” 805 F.2d 1175 at

1181 (emphasis supplied). The court of appeals concurred with all

parties that the case was not moot.

Coreo together with the court-appointed Official Committee of

Unsecured Creditors and the Indenture Trustee representing

the corporation’s public bondholders, argued that the Congress

and the Court had mandated a balancing of burden to the

bankruptcy trustee with any alleged benefit to the public or

environment. Although Coreo and the other appellants urged

the court of appeals to use the balancing test announced in

N. L. R. B. v. Bildisco and Bildisco 465 U.S. 513, 104 S. Ct. 1188,

79 L. Ed. 2d 482 (1984) and implicit in Midlantic National

Bank v. New Jersey Dept. of Environmental Protection,

U.S. 106 S. Ct. 755, 88 L. Ed. 2d 859 (1986), the

Fifth Cireuit rejected these recent Supreme Court precedents

and found the narrow exception for regulatory proceeding was

“not... limited to those situations where imminent and identi-

fiable harm to the public health... is shown.“ In its view, any

regulatory activity, no matter how burdensome or how lacking

in benefit to the public, falls outside the automatic stay. It

affirmed.

REASONS FOR GRANTING THE WRIT

The Fifth Circuit's holding ignores the balancing test

announced in N. L. R. B. v. Bildisco and Bildisco for resolving

policy clashes between Chapter 11 and federal nonbank-

ruptcy law. 3

The resolution of any competing interests, and especially

those between environmental interests and economic interests,

necessarily involves a weighing or a balancing of the interests

and the values they subserve. This is especially so in bank-

ruptey. See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 8.

Ct. 1188 at 1197 (1984). The Fifth Cireuit's absolutist ap-

proach ignores this Court’s earlier pronouncements requiring a

balancing of equities where he Bankruptcy Code confronts a

nonbankruptey federal policy. In Bildisco, 104 S.Ct. 1188 at

1196, this Court rejected a court of appeals’ holding that it

found would “present difficulties to the debtor-in-possession

that will interfere with the reorganization process.” This Court

held the court of appeals’ standard “fundamentally at odds

with the policies of flexibility and equity built into Chapter 11

of the Bankruptey Code.” N. L. R. B. v. Bildisco and Bildisco,

104 S. Ct. at 1196. This Court chided the court of appeal for

“subordinat[ing] the multiple, competing considerations un-

derlying a Chapter 11 reorganization to one issue.“ Id. A

balancing is required.

Coreo is in mideourse of a complex bankruptcy reorganiza-

tion, which if successful, will benefit the economy and people of

Puerto Rico. The Court below, however, has held that Coreo's

efforts must be put in jeopardy by a questionable exercise in

administrative compliance with no corresponding benefit to the

environment, to public health or safety. Coreo urges that only a

balancing test assures that sensitive and important concerns of

bankruptey reorganization are not subjugated to costly but

routine administrative interests of environmental authorities.

Here, the bankruptcy court was sympathetic to Corco’s plight

(T. 97-101) but mistakenly viewed itself as powerless to stay

any manner of environmental regulation. The drafters of the

automatic stay, however, intended it to be construed broadly

and its exceptions, including the one for governmental regula-

tion, narrowly. 124 Cong. Rec. 32395, 33995 (1978). The effect

of the opinions of the court of appeals is to reverse this

Congressional mandate. This Court has recently allowed a

limited environmental exception to be engrafted upon bank-

ruptey law, taking pains to call the exception a narrow one“.

Midlantic National Bank v. N. J. Dept. of Environmental Protec-

tion, 106 S. Ct. 755 at 762n9. Ht-conditioned its use, as all

courts have before the opinion here on appeal, on a showing of

a risk to “public health or safety from imminent and identifiable

harm.” Id. (emphasis added).

The court below improperly disregarded the necessity of

integrating administrative enforcement of non-critical environ-

mental compliance issues into the bankruptcy framework. It

considered no benefits to be derived from the stay, and took no

notice that the stay produced no harm to the public. On the

contrary, the result of the court of appeals’ opinion is to

produce harm to Coreo, its creditors and the people and

economy of Puerto Rico, with no showing of benefit to anyone.

Such a result strikes an impermissible balance, offends the

equitable principles undergirding the Bankruptcy Code, and is

“fundamentally at odds with the policies of flexibility and

equity built into Chapter 11.. See N. L. R. B. v. Bildisco and

Bildisco, 104 S. Ct. 1188 at 1196.

II.

The Fifth Circuit’s absolute exemption for unnecessary

regulatory activity conflicts with decisions of this Court

requiring a showing of imminent and identifiable harm to

the public and environment.

The Fifth Cireuit ignores the recent decisions of this Court

dealing with the national problem created by the conflicting

demands of environmental protection and bankruptcy reorgan-

ization. Midlantic National Bank v. New Jersey Dept. of Environ-

mental Protection, — U. S., 106 S.Ct. 755, 88 L.Ed. 2d 859

(1986); Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 705, 83 L. Ed.

2d 649 (1985). Unlike the present case, each involved a “dump

and run” situation in which a failed company left identifiable

toxic wastes undisposed of.

In Kovacs, the corporate owner of a site was in receivership.

State intervention was necessary to clean up the hazardous

site. The state sought to impose a monetary obligation result-

ing from clean-up upon an officer and stockholder of the

corporation. Nonetheless, this Court held the obligation to

clean-up properly involved matters of bankruptcy concern, and

not solely of the environment. It held Kovacs’ obligations

dischargeable.

In Midlantic National Bank, this Court, faced with proposed

abandonment of a toxic site by a trustee appointed by the

bankruptcy court, created a limited exception to the trustee’s

usually unfettered abandonment power under 11 U.S.C.

§ 554(a) for those few cases where abandonment would thwart

‘laws or regulations... reasonably calculated to protect the

public health or safety from imminent and identifiable harm.”

106 S. Ct. at 762n.9 (emphasis added).

The Fifth Cireuit's opinion conflicts with this reasoned

reconciliation. The Midlantic requirement of a showing of

imminent and identifiable harm continues the consistent treat-

ment given to environmental concerns arising in the reorgani-

zation context. There is a national concern, implemented in the

uniform federal bankruptcy laws mandated by the Constitution

itself, that the conflicting demands upon an insolvent estate be

reconciled in the bankruptcy court. Reorganization is an impor-

tant national concern. The success of a business enterprise

often goes beyond the finances of the concerned entity or its

owners. Texaco, Inc. v. Pennzoil Company, 626 F. Supp. 250

(S.D.N.Y.), aff d., 784 F.2d 1133 (2d Cir. 1986) (“The sudden

death or dismemberment of a corporation, while it is not

analogous to the sudden death of an individual, hurts the

public interest... The consequent harm to Texaco will be

shared by those members of the publie whose welfare is

dependent upon Texaco’s continued existence as a vital wealth-

generating economic organism.“) For this reason, bankruptcy

courts are given national, federal, exclusive jurisdiction to

oversee economic reorganization. Only in very limited cireum-

stances is that authority displaced.

a. Congress intended the Automatic Stay to Apply to

Regulatory Actions Generally

Congress designed the “automatic stay” provision, 11 U.S.C.

§ 362, to give debtors a “breathing spell“, to protect them

during the pendency of a bankruptcy case from creditor claims,

from lawsuits, pending or threatened, and from other forms of

harassment. See H. Rep. No. 95-595, 95th Cong., 2d Sess. 340,

1978 U.S. Code Cong. & Ad. News 5963, 6296. Congress clearly

swept governmental action within the ambit of the automatic

stay:

(a). . . a petition .. operates as a stay, applicable to all

entities, of —

(2) the commencement or continuation, including the issu-

ance of employment of process, 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, or to recover a claim against the debtor

that arose before the commencement of the case under this

title... (emphasis supplied).

The decision of the court below centers upon the narrow

exception enacted into 11 U.S.C. § 362 (b) (4):

The filing of a petition . . . does not operate as a stay —

(4) under subsection (a)(1) of this section of the com-

mencement or continuance of an action or proceeding by a

governmental unit to enforce such governmental unit’s police

or regulatory power...

Legislative History reflects the clear and limited purpose of

the subsection. Statements on the floor indicate that the

362(b) (4) exception “is intended to be given a narrow con-

struction in order to permit governmental units to pursue

actions to protect che public health and safety and not to apply

to actions by a governmental unit to protect a pecuniary

interest in the property of the debtor.” 124 Cong. Rec. 32395

(1978) (Remarks of Rep. Edwards); 124 Cong. Rec. 33995

(1978) (Remarks of Senator DeConcini). See. U.S. v. Johns-

Mansville Sales Corp., 13 Env. L. Rep. 20310 at 20311 (D.N.H.

1982), citing this legislative history with approval. Thus, Sec-

tion 362(b) (4) must be read in conjunction with § 362(b) (5),

excepting from the general automatic stay, “the enforcement of

a judgment, other than a money judgment, obtained in an action

or proceeding by a governmental unit to enforce such govern-

mental unit’s police or regulatory power.” Read together, the

provisions provide a delicate balance, allowing the government

to regulate in certain instances, but giving great weight to the

Bankruptcy Code’s paramount concern of protecting the bank-

ruptey estate from unnecessary financial burden. See Ohio v.

Kovacs, 469 U.S. 274, 105 S. Ct. 705, 83 L. Ed. 2d 649 (1985).

Thus, the scheme of the regulatory seetions attempts to isolate

a company's finances from unnecessary adverse regulatory

action during bankruptey proceedings.

b. A Present Ongoing Threat of Imminent and Identifi-

able Harm to Safety and Health is Required before the

Governmental Regulation Exception may be Invoked.

The very legislative history shows that the government regu-

lation exception was intended to be limited to cases where the

government can show present ongoing pollution posing an

imminent peril to the public.

Under present [pre-Code] law there has been some overuse

of the stay in the area of governmental regulation. For

example, in one Texas bankruptcy court, the stay was ap-

plied to prevent the State of Maine from closing down one of

the debtor’s plants that was polluting a Maine River in

violation of ... [State law.] The bill [the 1978 Code] excepts

these kinds of actions from the automatic stay....

H.R. Rep. No. 595, 95th Cong., 2d Sess. 174-75, reprinted in

1978 U.S. Code Cong. & Ad. News 6135-36 (emphasis sup-

plied). This is the clear message of this Court in Midlantic

National Bank as well, U. S.. 106 S. Ct. 755, 88 L.Ed.

2d 859 (1986) (“to protect the public health or safety from

imminent and identifiable harm’) (emphasis added). The re-

cord is clear that no pollution is taking place at Corco and that

no “imminent” or “identifiable” harm exists.

The well-known case of United States v. Johns-Mansville Sales

Corp., 13 Env. L. Rep. 20310 (D.N.H. 1982), a case almost

directly on point, stands for the same proposition. In Johns-

Mansville, the government asked Mansville, then and now in

Chapter 11 proceedings, to prepare a plan for covering disposal

sites and mines, long extant and no longer part of Mansville’s

production process. The Johns-Mansville court took express

note of the government’s right and ability to use its own funds

under the so-called “superfund” law, Sections 104 and 107 of

the Comprehensive Environmental Response, Compensation

and Liability Act of 1980 (“CERCLA”), 42 U.S.C. § 9604 and

9607. Under “superfund,” were a true and imminent threat to

the environment present, EPA could itself clean up the offend-

ing site.

In Johns-Mansville, as in Coreo, the government eschewed

this obvious course in order to place the financial burden on the

debtor attempting to reorganize itself. In so doing, there and

here, the government intrudes into the area left by the Consti-

tution and Congress to the bankruptcy courts, which are

charged with the reconciliation of competing demands upon the

reorganization debtor’s asserts.

In Johns-Mansville, the Court noted that the attempt by the

government at dressing up its enforcement threats in the garb

of “injunction” or other “non-monetary” remedy is simply not

determinative. The question is whether the government’s action

effectively imposes a “monetary obligation” on the reorganiza-

tion debtor. The expense to the estate of even preparing a plan

justified the imposition of the stay in Johns-Mansville. 13 Env.

L. Rep. at 20311.

The Mansville court noted that the debtor was not being

asked to cease present, demonstrably hazardous activity. This

is Coreo's situation precisely.

Were the circumstances of the instant case such that the relief

sought was an injunction which would require Mansville to

cease and desist from ongoing deposit of asbestos wastes on real

property sites in New Hampshire, together with the addi-

tional posting of modest performance bond to ensure compli-

ance with such order, this Court would agree that the above-

cited cases relied on by movants would indicate that such

relief should not be stayed under 11 U.S.C. 5 362 (b) (4).

Unfortunately, this is not such a case. The circumstances herein

depict federal and state governments which are either unable

or unwilling to take the necessary financial steps to protect the

public from what are long extant but apparently recently

discovered dump sites containing hazardous wastes, and the

same plaintiffs are similarly unwilling to proceed against the

current owners who are in possession of such sites. Clearly

the relief sought 1s directed against Mansville alone and will

require it to divert substantial of its assets now held in the

jurisdiction of a bankruptcy court from the claims of numerous

creditors, many of whom allege that they are themselves

suffering serious physical debilitation as a result of the

inhalation of asbestos fibers. Cast in this light, it is clear to

this Court that the exception from stay detailed in 11 U.S.C.

§ 362(b) (4) is not here applicable. (emphasis supplied).

Here, as in Johns-Mansville, there is no showing of a demon-

strable, present threat to public safety sufficient to bring the

narrow exception of Section 362 (b) (4) into play. In fact, Coreo

is an even stronger case since the EPA has itself inspected

Coreo's site and found no toxicity. In the words of this Court,

there is no “imminent and identifiable” threat to public safety

or health. Midlantic National Bunk, — U.S. 106 S. Ct.

755 at 762n.9, 88 L.Ed. 2d 859 (1986). As in Johns-Mansville,

the debtor, acting as trustee, is faced with a threatened

regulatory proceeding, by a governmental agency either “una-

ble or unwilling to take the necessary financial steps to protect

the public from what are long extant but apparently recently

discovered ... sites containing hazardous wastes,’ and which

seeks to impose a huge charge on the assets of a debtor now

held in the jurisdiction of the Bankruptcy Court. Under a

Bildisco balancing test, the result would be clear: Congress’

intent embodied in & 362 (a) would predominate and the en-

forcement action would be stayed pending reorganization.

c. This Court in Midlantic National Bank and in Kovacs

Has Reaffirmed the Requirement that there be an Active

Polluting Practice.

Although this Court in Midlantic National Bank and Kovacs

addressed slightly different factual scenarios than the court in

Johns-Mansville, the tenor is the same. To the extent the

governmental action is aimed at the financial responsibility of

the debtor, it amounts to the enforcement of a monetary

obligation. In reality,” this Court wrote, citing the lower court

in Kovacs, the only type of performance in which Ohio is now

interested is a money payment to effectuate the Chem-Dyne

clean up.“ 105 S. Ct. at 710. On the other hand, this Court in

each case reserved the government’s power over current, active

polluting practices.

„. . . [Wie do not hold that the injunction against bringing

further toxic wastes on the premises or against any conduct

that will contribute to the pollution of the site or the State’s

waters is dischargeabie in bankruptcy . . . Ohio v. Kovacs, id.

at 711. (emphasis added).

This Court’s concern in Midlantic was the same: the protection

of the public weal against identified hazard,” 106 S. Ct. 755 at

762, or from “imminent and identifiable harm” 706 S. Ct. 755

at 762n.9. The EPA has striven to bring its enforcement

proceeding within the letter of Kovacs and Midlantic. In so

doing, if indeed it does, it misses the spirit of those cases. As

the Johns-Mansville court recognized, the EPA is hoist on its

own petard. An “imminent and substantial danger” to public

health and safety triggers the “superfund” provision of CER-

CLA, which allows the government itself to clean up at its own

expense, 42 U.S.C. 5 9604 (a) (1). In that event, there is no

reason to proceed against Coreo except to compel payment of a

monetary obligation, 42 U.S.C. 5 9607 (a). Kovacs prohibits

this. After Midlantic, this Court’s directive is even clearer.

“Imminent and identifiable harm“ within the meaning of

Midlantic is remarkably similar to the “imminent and substan-

tial danger provisions of “superfund’’. Only such an active

and positive threat to the environment warrants total govern-

mental ouster of the orderly processes of bankruptcy reorgani-

zation. A Bildisco balancing test would achieve this result.

Thus, Kovacs’ rationale was misunderstood by the court

below. Like the later Midlantic opinion, Kovacs limits regula-

tory intervention to active pollution posing imminent peril:

“Plainly, that person or firm may not maintain a nuisance,

pollute the waters of the State, or refuse to remove the source of

such condition. 105 S8. Ct. at 712 (emphasis supplied).

Since the record is clear that Coreo poses no such imminent

peril to the health and safety of the people of Puerto Rico, the

narrow § 362(b)(4) exception to the stay is inapposite. The

EPA is stayed from unnecessary, unregulated pursuit of the

debtor. EPA’s rights and duties to act in the public interest are

not forfeited; they are simply channelled into the reorganiza-

tion court. There, the EPA and Coreo can work together, as the

debtor-in-possession as trustee must with all its creditors, to

achieve their common goals in the context of a plan of reorgani-

zation under the Bankruptcy Code.

Besides this Court’s opinions, other cases emphasize the

requirement that imminent harm is a prerequisite to displacing

the ordinary and effective reorganization processes. Penn Terra

Limited v. Dept. of Environmental Resources of Pennsylvania,

733 F.2d 267 (3d Cir. 1984) rested upon a finding that “DER

seeks to force Penn Terra to rectify harmful environmental

hazards.” (emphasis supplied). United States v. ILCO, Inc., 48

B.R. 1016 (N.D. Alabama 1985) underscores the fundamental

distinction between reparation of past damages, made subject

to bankruptcy jurisdiction in Kovacs, and protection from

identifiable imminent harm, subject to external governmental

regulation in Midlantic. In ILCO, the court found the govern-

mental regulation exception to the automatic stay applicable

only in the face of claims of current active “discharging of lead-

contaminated wastewater” and actual “releasing [of] hazard-

ous wastes into the environment at the ILCO site.” 48 B.R. at

1018-1019. Moreover, the government's complaint included

“the EPA’s determination that the...site may present an

imminent and substantial endangerment to public health and

environment.” 48 B.R. at 1019 (emphasis supplied). As in

Midlantic, the ILCO Court’s holding clearly rests upon this

finding of a present environmental hazard:

This court concludes that the complaint filed by the U.S.,

which seeks a court order compelling ILCO as well as other

named defendants to remedy environmental hazards, consti-

tutes an equitable action to prevent future harm, rather than

an action to enforce a money judgment.”

48 B.R. at 1024. See also People v. Electrical Utilities, Inc., 41

B. R. 874 (N. D. III. 1984) in which the court allowed the state

to obtain an injunction against toxic PCB spillage. Here, the

government’s own report shows that there is absolutely no

endangerment to the public health and environment. (Movants

Exhibit 1). The Coreo site, by the government’s own report, is

in a benign state. See also In Re Professional Sales Corp., 56

B.R. 753 (N.D. Ill. 1985), where the Court permitted an EPA

enforcement action based in part upon a finding that EPA had

found “an imminent and substantial danger to the public

health or welfare” and had been compelled under “superfund,”

42 U.S.C. § 9604, to remove 7500 drummed and 37,500 gallons

of hazardous waste from the site. Only in ze court of appeals’

decision below has the stay been applied upon a record demon-

strating no identifiable or imminent harm to the public environ-

ment. “Speculative or indeterminate future harm” does not

justify ousting the Trustee's ability to reorganize a business.

See Midlantic Nat'l Bank v. New Jersey Dept. of Environmental

Protection, 106 S. Ct. 755 at 762n.9 (1986). Under Bildisco, it

“subordinates the multiple, competing considerations underly-

ing a Chapter 11 reorganization to one issue“ and is “funda-

mentally at odds with the policies of flexibility and equity built

into Chapter 11.” 105 S.Ct. at 1196.

Even then, the Electrical Utilities court held that to the extent the

injunetion requires expenditure of money by the estate, the state as

environmental creditor would be treated as any other creditor. 41

B. R. 874 at 877.

CONCLUSION

The important national interest embodied in Section 362 of

the Bankruptcy Code can only be met by balancing present

harm to the State, the public and the environment, with the

benefits to the State, the public and their economy incidental to

successful reorganization of a financially ailing company. EPA

has by its own evidence proven that there is no imminent and

identifiable threat to health or the environment. Regulation

must prove itself of some benefit before it may impair the

Trustee’s ability successfully to reorganize a business. With a

record demonstrating a complete absence of threatening iden-

tifiable harm, the court of appeals erred in denying the Con-

gressione'ly-mandated benefits of the automatic stay. Absent

this critical showing, EPA’s enforcement actions should be

stayed pending reorganization. Consequently, a writ should

issue and the judgment of the court of appeals be reversed.

Respectfully submitted,

ROBERT T. BROUSSEAU

Stutzman & Bromberg

2323 Bryan Street

Twenty-Second Floor

Dallas, Texas 75201

(214) 969-4900

- Counsel of Record

Of Counsel:

SANDER L. ESSERMAN

VAN J. HOOKER

KENNETH F. PLIFKA

2323 Bryan Street

Twenty-Second Floor

Dallas, Texas 75201

February 23, 1987

APPENDIX

III

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APPENDIX

Contents

Judgment of the United States Court of

Appeals for the Fifth Circuit .............

Opinion of the United States Court of Appeals

Memorandum Opinion of the United States

District Court for the Western District of

EEE

Memorandum Opinion for the United States

Bankruptcy Court for the Western District

of Texas — San Antonio Division

gs !.

Page

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A-4

A-35

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JUDGMENT OF THE UNITED STATES

COURT OF APPEALS FOR THE FIFTH CIRCUIT

A-3

UNITED STATES CouRT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 85-2827

D. C. Docket No. SA-85-CA-2044

IN THE MATTER OF:

COMMONWEALTH OIL REFINING Co., INC., Debtor.

COMMONWEALTH OIL REFINING COMPANY,

INC. AND OFFICIAL COMMITTEE OF

UNSECURED CREDITORS,

Appellants

versus

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY,

Appellee.

Appeal from the United States District Court for the

Western District of Texas

Before GEE, RANDALL AND Davis, Circuit Judges.

JUDGMENT

This cause came on to be heard on the record on appeal

and was argued by counsel. |

ON CONSIDERATION WHEREOF, It is now here ordered and

adjudged by this Court that the judgment of the District Court

in this cause is affirmed.

IT Is FURTHER ORDERED that appellants pay to appellee,

the costs on appeal to be taxed by the Clerk of this Court.

November 25, 1986

A true copy

Test GILBERT F. GANUCHEAU

Clerk, L. S. Court of Appeals, Fifth

Circuit

By RAYMOND WAQUESPACK

DEPUTY

New Orleans, Louisiana

Issued as Mandate: December 17, 1986

OPINION OF THE UNITED STATES

COURT OF APPEALS FOR THE FIFTH CIRCUIT

A-5

IN THE UNITED STATES CouRT OF APPEALS

For THE FIFTH CIRCUIT

No. 85-2827

IN THE MATTER OF

COMMONWEALTH OIL REFINING Co., INC., DEBTOR

COMMONWEALTH OIL REFINING COMPANY, INC., ET AL.,

Appellants,

Vv.

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY,

Appellee.

No. 85-2828

IN THE MATTER OF

COMMONWEALTH OIL REFINING Co., INC., DEBTOR

OFFICIAL COMMITTEE OF UNSECURED CREDITORS, ET AL.,

Appellants,

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY,

Appellee.

Appeals from the United States District Court

for the Western District of Texas

NOVEMBER 25, 1986

Before GEE, RANDALL and Davis, Circuit Judges.

RANDALL, Circuit Judge:

A-6

Appellants, Commonwealth Oil Refining Company, Ine.

(CORCO), the debtor-in-possession, the Committee of Un-

secured Creditors, and the Indenture Trustee, appeal from the

district court’s order affirming the bankruptcy court’s decision

that the United States Environmental Protection Agency’s

(EPA) administrative action to bring CORCO into compliance

with federal and state environmental laws is exempt from the

automatic stay provision of the Bankruptcy Reform Act of 1978

(Bankruptey Code), 11 U.S.C. §362(a), and should not be

stayed under § 105 of the Bankruptcy Code. We affirm.

This case presents the question of whether a debtor, who has

filed a petition under Chapter 11 of the Bankruptcy Code, can

be forced to comply with federal and state environmental laws

designed to protect the public health and safety, before that

debtor has filed its plan of reorganization.

Congress enacted the Resource Conservation and Recovery

Act of 1976 (RCRA), 42 U.S.C. $§ 6901-6991, to regulate the

treatment, storage, and disposal of hazardous wastes by moni-

toring wastes from their creation until their permanent dispo-

sal. The objective of the RCRA is “to promote the protection of

health and the environment and to conserve valuable material

and energy resources.” 42 U.S.C. § 6902. Section 3005 of the

RCRA, 42 U.S.C. § 6925, requires that the facilities which

treat, store, or dispose of hazardous waste obtain a permit

from the EPA or from an authorized state. Such permits are to

be issued only upon a determination that the facility is in

compliance with the § 3004 hazardous waste management stan-

dards, see 42 U.S.C. § 6924 and 40 C.F.R. Part 264, and the

§ 3005 hazardous waste permit requirements, see 42 U.S.C.

§ 6925 and 40 C.F.R. Part 270.

A-7

Congress recognized that the EPA would not be able to issue

permits to all hazardous waste management facilities before

the permit program became effective. Therefore, it provided in

§ 3005 (e) of the RCRA, 42 U.S.C. 5 6925 (e), that certain

facilities would be treated as having been issued a permit until

final administrative disposition of their permit application

could be made. A facility obtains this “interim status” if it

meets the following three requirements set out in § 3005:

(1) that the facility was in existence on November 19, 1980 or

on the effective date of statutory or regulatory changes that

render the facility subject to the permit requirement; (2) that

the facility has complied with the preliminary notification

requirements of RCRA 5 3010 (a), 42 U.S.C. § 6930 (a); and

(3) that the facility filed a permit application conforming with

EPA regulations.’

The EPA has promulgated regulations setting out the re-

quirements for the permit application which must be filed as a

prerequisite to interim status. See 40 C. F. R. §$§ 270.1-.2,

270.10-.73. The regulations require that an existing facility first

submit Part A of its permit application. See 40 C.F.R.

§§ 270.1(b), 270.10(e). Part A requires general descriptive

information about the facility, such as its location and the

processes the facility uses in the treatment, storage, and

disposal of hazardous waste. See 40 C.F.R. § 270.13.

For the interim status facilities, the actual permitting pro-

cess begins when the EPA requests that the facility submit the

second part of the permit application, known as “Part B.” See

40 C. F. R. 55 270.1 (b), 270.14. Part B consists of specific

Facilities with interim status must comply with interim status

standards set forth at 40 C. F. R. Part 265 or with the analagous

provisions of an authorized state program. Interim status facilities

“are not relieved from complying with other state requirements.“ 40

C. F. R. § 270.1 (b).

A-8

information concerning the individual site and the operation of

the facility that will indicate compliance with the technical

standards and form the basis of the decision to issue or deny

the permit and establish site-specific permit conditions. See 40

C. F. R. § 270.14.“ The EPA has the authority to call in Part B

at any time. The facility owner has six months from the date of

the EPA's request to submit the technical information required

by Part B. 40 C. F. R. 5 270.1(b).

Failure to furnish the information necessary for final permit-

ting within the time provided is grounds for the termination of

interim status. 40 C. F. R. 5 270.10 (e) (5). Additionally, under

the 1984 amendments to the RCRA, each land disposal facil-

ity” operating under interim status prior to November 8, 1984,

must submit a Part B permit application and a certification of

compliance with all applicable groundwater monitoring and

financial responsibility requirements by November 8, 1985, in

order to retain interim status after that date. 42 U.S.C.

§ 6925 (e) (2). Facilities that lose their eligibility to operate

under interim status must cease acceptance of hazardous waste

for treatment, storage, or disposal, and must commence closure

activities. See generally 40 C. F. R. 58 265.112 (e), 265.113. No

later than 15 days afier a facility loses its interim status, it

must submit a closure plan to the Regional Administrator. 40

C. F. R. § 265.112 (e).

On October 14, 1982, the administrator of the EPA author-

ized Puerto Rico to operate Phase I of the hazardous waste

program in lieu of the federal program, all as contemplated by

part B consists of general information and specific technical infor-

mation, including design drawings, engineering studies certified by

a registered professional engineer, chemical and physical analyses,

and contingency and closure plans. See 40 C.F.R. §§ 270.14-.29.

A-9

§ 3006(b) of the RCRA, 42 U.S.C. 5 6926.“ To implement

Phase I, Puerto Rico has promulgated regulations. ‘Although

Puerto Rico operates its own Phase I program, § 3008 of the

RCRA, 42 U.S.C. § 6928, authorizes the EPA to enforce the

provisions of Puerto Rico’s program.

On August 13, 1980, CORCO advised the EPA that it

conducts activities at the facility involving “hazardous waste,”

as defined in 5 1004 (5) of the RCRA, 42 U.S.C. § 6903. On

November 18, 1980, CORCO submitted a completed Part A,

thereby obtaining interim status. CORCO engaged in its refin-

ery operations until March 3, 1982. Upon ceasing refinery

operations, CORCO rented its storage tanks to various indus-

trial companies for storage of fuel oil, gas and liquified natural

gas. On April 12, 1984, the EPA called in CORCO’s Part B

application and set October 12, 1984, as a deadline for filing.

CORCO requested and received an extension to December 7,

1984. On July 11, 1984, CORCO filed a petition under Chap-

ter 11 of the Bankruptcy Code. On December 11, 1984, CORCO

»The EPA may authorize a state to operate its own hazardous waste

program in lieu of the federal program. On October 14, 1982, the

EPA authorized Puerto Rico to operate Phase I of the hazardous

waste program. 47 Fed. Reg. 45880. Phase I allows states to

administer a hazardous waste program that covers identification of

hazardous waste and interim status standards in lieu of the federal

program covering those areas. See 40 C. F. R. § 271.121(b). Puerto

Rico was never authorized to operate Phase II which consists of a

permit program for hazardous waste treatment, storage, and dispo-

sal facilities. See id. Therefore, authority for requesting permit

applications and issuing permits to hazardous waste facilities in

Puerto Rico has always rested with the EPA.

* These regulations were issued pursuant to the Puerto Rico Public

Policy Environmental Act (Law No. 9 of June 18, 1970, as

amended) P.R. Laws Ann. tit. 12, § 1112 ef seg. (PRPPEA).

A-10

informed the EPA that it would not submit its Part B applica-

tion or a closure plan.

The instant law suit began when CORCO filed a motion for

an order determining the applicability of the automatic stay

provision of the Bankruptcy Code, 11 U.S.C. § 362 (a) (1), to an

impending enforcement action by the EPA under § 3008 of the

RCRA, 42 U.S.C. § 6928. In the alternative, CORCO moved for

an order staying the EPA’s enforcement action under 11

U.S.C. § 105. The EPA opposed both motions.

After a hearing during which CORCO’s vice-president ac-

knowledged that CORCO had failed to install a groundwater

monitoring system and had not conducted groundwater testing

as required by Puerto Rico’s regulations, and that CORCO had

never filed a Part B application, the bankruptcy court, on

May 17, 1985, determined that the EPA’s impending enforce-

ment action was not subject to the automatic stay provision of

11 U.S.C. 5 362 (a) (1) and that no stay should issue under 11

U.S.C. 5 105 (a) because CORCO had failed to show a likeli-

hood of success on the merits. See 58 B. R. 608 (Bankr. W. D.

Tex. 1985).

On July 1, 1985, the EPA issued an administrative complaint

against CORCO, citing it for violations of both the RCRA and

the PRPPEA, and the regulations promulgated under both

statutes. Among those violations cited were CORCO’s failure

to submit Part B or a closure plan and its failure to install,

operate, and maintain a groundwater monitoring system and

groundwater sampling and analysis. The EPA issued a compli-

ance order against CORCO providing as follows: (1) that

-—CORCO shall within ninety days from the date of the complaint

make a decision to file either a closure plan within thirty

ealendar days from decision or a Part B permit application by

November 8, 1985; and (2) that CORCO shall within thirty

days from the date of the complaint cease to act as a treatment,

A-11

storage, and disposal facility, unless CORCO elects fo file a

Part B permit application and complies with certain provisions

of Puerto Rico’s regulations.

The EPA then moved for leave to file an amended adminis-

trative complaint to reflect that CORCO had lost its interim

status as of November 8, 1985, by operation of the 1984

amendment to the RCRA, 42 U.S.C. § 6925 (e) (2). Leave to file

the amended adminstrative complaint was granted. The

amended complaint alleged the same basic factual allegations

as those alleged in the original adminstrative complaint, but

added a cause of action. The amended complaint alleges that

CORCO is in violation of 5 3005 (a) (2) of the RCRA, 42 U.S.C.

§ 6925 (e)(2). The EPA issued a new compliance order, pro-

viding as follows: (1) that CORCO shall henceforth not treat,

store, or dispose of any hazardous waste without first having

obtained a permit from the EPA; (2) that CORCO shall have

thirty days to submit a closure plan for its land disposal

facilities and slop oil tank pursuant to the requirements of 40

C.F.R. § 266.112; and (3) that CORCO shall have thirty days

to submit a post-closure plan for its land disposal facilities

pursuant to the requirements of 40 C.F.R. § 266.118.

The district court, in its November 5, 1985 opinion, affirmed

the bankruptcy court’s decision, noting that it occured to the

court thai the entire appeal may be moot by virtue of the

automatic termination provision of 42 U.S.C. § 6925 (e) (2). The

district court found that since CORCO did place hazardous

waste in a surface impoundment, its plant in Puerto Rico is a

land disposal facility. The court noted that regardless of the

outeome of the appeal, the debtor would, by congressional

mandate, lose its interim status on November 8, 1985 (just

three days from the date of the opinion), unless it complied

with the conditions set out in § 6925. The court considered it

“most likely” that CORCO would not or could not comply.

A-12

The district court affirmed the bankruptcy court’s holding

that the EPA’s enforcement action was not stayed by the

automatic stay provision of the Bankruptcy Code. The court

also affirmed the bankruptcy court’s holding that CORCO had

failed to establish the prerequisites necessary for a stay under

§ 105. The court stated that CORCO had conceded that it could

not prevail on the merits, and noted that the automatic loss of

interim status on November 8, 1985, also precluded success on

the merits. Finally, the court noted that an injunction re-

straining enforcement of the environmental laws would disturb

the publie interest.

This appeal followed.

II.

We must first address the question raised, but not decided,

by the district court, of whether this case is moot by virtue of

the 1984 amendment to the RCRA, 42 U.S.C. § 6925 (e) (2),

which established November 8, 1985, as the date on which the

interim status of a land disposal facility would terminate if the

facility had not filed Part B and the required certifications of

compliance with applicable groundwater monitoring and finan-

cial responsibility requirements. Raising the mootness ques-

tion, the district court noted:

It oceurs to the Court that the entire appeal may be moot.

The only issue is whether the EPA can force the debtor to

file a Plan B or lose interim status and file a closure plan on

its hazardous waste facility in Puerto Rico. Sec-

tion 6925(e)(2) of Title 42 of the United States Code

provides that the interim status of a land disposal facility

shall terminate automatically on November 8, 1985 unless

the owner or operator applies for a final determination

regarding the issuance of a permit and certifies that such

facility is in compliance with all applicable groundwater

A-13

monitoring requirements. Since debtor did place hazardous

waste in a surface impoundment ... its plant in Puerto Rico

is a land disposal fac lity. Title 11 U.S.C. Section 6924(k).

Debtor has conced d it has not filed its Plan B and has not

instituted a groundwater monitoring system. . . It appears

that regardless of the outcome of this appeal, debtor will, by

Congressional mandate, lose its interim status on Novem-

ber 8th unless it complies with the above conditions, which it

most likely will not or cannot do.

Commonwealth Oil Refining Co., Inc. v. United States Environ-

mental Protection Agency, No. SA-85-CA-2044, slip op. at 2

(W.D. Tex. Nov. 5, 1985) [hereinafter cited as Slip op.].

However, the court did not resolve the mootness question, but

rather, went on to decide that “[i]n any event, this Court finds,

for the reasons set forth in [the bankruptcy court’s] opinion,

that EPA’s enforcement action should not be restrained.” Id.

Since the mootness question “strike[s] at the very heart of

federal subject matter jurisdiction,” decision of that question

cannot be avoided. Sannon v. United States, 631 F.2d 1247, 1250

(5th Cir. 1980). We must, then, as a threshold matter, deter-

mine whether this litigation presents a case or controversy”

within the meaning of Article III of the Constitution.

To present a justiciable “controversy” within Article III, the

dispute in question

must be a real and substantial controversy admitting of

specific relief through a decree of a conclusive character, as

distinguished from an opinion advising what the law would

be upon a hypothetical state of facts .... Where there is such

a concrete case admitting of an immediate and definitive

determination of the legal rights of the parties in an adver-

sary proceeding upon the facts alleged, the judicial function

may be appropriately exercised ....

A-14

Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937)

(citations omitted). Mootness is one of the doctrines derived

from the essential adversarial requirement expressed in Ar-

ticle III. “If a dispute has been settled or resolved, or if it has

evanesced because of changed circumstances, including the

passage of time, it is considered moot.” In re 8.L.E., Inc., 674

F.2d 359, 364 (5th Cir. 1982). “[A] case is moot when the

issues presented are no longer ‘live’ or the parties lack a legally

cognizable interest in the outcome,” but, “[w]here one of the

several issues presented becomes moot, the remaining live

issues supply the constitutional requirement of a case or

controversy.” Powell v. McCormack, 395 U.S. 486, 496-97

(1969). A case is not moot so long as any claim for relief

remains viable, whether that claim was the primary or secon-

dary relief originally sought. Jd. at 496 & n.8, 499-500.

The district court decided that CORCO is a land disposal

facility so that its interim status terminated, by operation of

law, on November 8, 1985. Whether the district court was

correct in its conclusion, or indeed, whether it had before it a

sufficient record on which to base such a determination, are not

questions that we must resolve to determine whether this case

is moot. There is an administrative proceeding underway in

New York to resolve the question of whether CORCO is a “land

disposal facility” within 42 U.S.C. § 6925 (e) (2), such that its

interim status terminated on November 8, 1985. We do not

want, or need, to prejudge that question. Rather, to determine

whether this case is moot, we will simply ask whether, assum-

ing arguendo that CORCO’s interim status did terminate on

November 8, 1985, there remain viable claims for relief. Find-

ing that viable claims remain even if the interim status has

terminated, we conclude that we have subject-matter jurisdic-

tion over this case.

Even if CORCO lost its interim status by operation of law on

November 8, 1985, a court could, at the very least, stay the

A-15

EPA’s ongoing enforcement action which seeks to require

CORCO to comply with its closure and post-closure obliga-

tions. See 40 C.F.R. Part 265. Under the RCRA regulations, a

facility must, within fifteen days, submit a closure plan for

hazardous waste management units no longer operating under

interim status, 40 C. F. R. § 265.112, and must complete closure

within 180 days of the final receipt of hazardous wastes or the

approval of the closure plan. 40 C. F. R. § 265.113.

While CORCO apparently sought a stay for the purpose of

preserving its interim status — a status that may now have

terminated by operation of 42 U.S.C. § 6925 (e) (2) — its mo-

tion for stay is much broader. CORCO sought an order “stay-

ing any enforcement or revocation proceeding” and requested

that the bankruptcy court enter an order “staying enforcement

proceeding [sic] against CORCO by the EPA under the Re-

- source Conservation and Recovery Act.” (emphasis added). In

light of the broad nature of CORCO’s motion and the ongoing

EPA enforcement action against CORCO, a real controversy

between the parties remains. Consequently, this case is not

moot. It is clear that there remain live issues between the

parties in this case. The fact that a stay of these proceedings

might not have the potential for preserving CORCO’s interim

Status does not end the controversy or deprive the parties of

their legally cognizable interests in the dispute. Therefore, we

now address the substantive issues presented in this case.

III.

Appellants contend that the district court erred in affirming

the bankruptcy court’s holding that the automatic stay provi-

sions of the Bankruptcy Code, 11 U.S.C. § 362 (a) (1), did not

apply to the EPA’s actions in this case. Appellants do not

appear to dispute that the EPA’s administrative action is

directed at bringing CORCO into compliance with state and

A-16

federal environmental laws. Rather, they contend that the

EPA’s action is merely one to correct “technical violations”

and that a present ongoing threat of “imminent and identifi-

able harm“ to safety and health or “urgent public necessity” is

required before the governmental regulation exception to the

automatic stay may be invoked. In support of the argument

that the exception is limited to those situations where there is

imminent and identifiable harm, CORCO cites Midlantic Nat.

Bank v. New Jersey Dept. of Envtl. Protection, 106 S.Ct. 755

(1986). In Midlantic, the Supreme Court held that there was a

limited exception to the trustee’s abandonment power created

under 11 U.S.C. § 554 (a) for those cases where abandonment

would thwart “laws or regulations... reasonably calculated to

protect the public health or safety from imminent and identifi-

able harm.” 106 S.Ct. at 762-63 n.9. Additionally, to bolster its

argument, CORCO cites portions of the legislative history of

the government regulation exception. CORCO contends that no

pollution is taking place because the refinery is shut down, and

thus, that no imminent and identifiable harm exists. Further,

appellants argue that since CORCO would be forced to expend

funds in order to comply, the EPA’s administrative action is

one to enforce a money judgment and is therefore stayed by

virtue of 11 U.S.C. §§ 362 (a) (2) and 362 (b) (5).°

° In addition to arguing that there is no urgency here, the ereditor's

committee focuses on the amount of money that CORCO is going to

have to spend to comply with RCRA and says that the EPA’s

enforcement action and resulting debts of CORCO should also be

dischargeable. Alternatively, the creditor's committee argues that

the interim status permit is property protected under the automatic

stay, a valuable asset which should be protected, relying on In re

Professional Sales Corp., 48 B.R. 651 (Bankr. N. D. III.), vacated, 56

B. R. 753 (N.D. 111. 1985), where the bankruptcy court issued an

injunction under § 105(a) to prevent the EPA from taking away the

debtor’s interim status permit.

A-17

The automatic stay provision of the Bankruptcy Code pro-

vides, in relevant part, that the filing of a petition in bank-

ruptey operates as a stay of “the commencement or

continuation . .. of a judicial, administrative, or other proceed-

ing against the debtor that was or could have been commenced

before the commencement of the case under this title, or to

recover a claim against the debtor that arose before commence-

ment of the case under this title.” 11 U.S.C. § 362 (a) (1). The

purpose of the automatic stay is to give the debtor a “breathing

spell” from his creditors, and also, to protect creditors by

preventing a race for the debtor’s assets. See H.R. Rep. No.

595, 95th Cong., Ist Sess. 340 (1977), reprinted in 1978 U.S.

Code Cong. & Admin. News 5963, 6296-97 [hereinafter cited as

House Report]. The automatic stay provision is now, however,

absolute. Congress set forth, in 11 U.S.C. § 362 (b), several

exceptions to the automatic stay. Relevant to this case are 11

U.S.C. §$§ 362 (b) (4) and 362 (b) (5).

Section 362 (b) (4) provides that the filing of a petition in

bankruptcy does not operate as a stay of the commencement

or continuation of an action or proceeding by a governmental

unit to enforce [its] police or regulatory power.” The purpose

of this exception to the automatic stay is explained in the

legislative history:

Paragraph (4) excepts commencement or continuation of

actions and proceedings by governmental units to enforce

police or regulatory powers. 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 dam-

ages for violation of such a law, the action or proceeding is

not stayed under the automatic stay.

A-18

S. Rep. No. 989, 95th Cong., 2d Sess. 52 (1978), reprinted in

1978 U.S. Code Cong. & Admin. News 5787, 5838 [hereinafter

cited as Senate Report]; House Report, supra, at 343.

Section 362 (b) (5) provides that the filing of a bankruptcy

petition does not operate as a stay “of the enforcement of a

judgment, other than a money judgment, obtained in an action

or proceeding by a governmental unit to enforce such govern-

mental unit’s police or regulatory power.“ While expressly

excepting from the automatic stay certain judgments obtained

in actions to enforce police or regulatory powers, § 362 (b) (5)

creates an “ ‘exception to the exception,’ [from the automatic

stay] in that actions to enforce money judgments are affected

by the automatic stay, even if they otherwise were in further-

ance” of police and regulatory powers. Penn Terra Lid. v. Dept.

of Envtl. Resources, 733 F. 2d 267, 272 (3d Cir. 1984) (emphasis

in original). As the legislative history explains:

Paragraph (5) makes clear that the exception extends to

permit an injunction and enforcement of an injunction, and

to permit the entry of a money judgment, but does not

extend to permit enforcement of a money judgment. Since

the assets of the debtor are in the possession and control of

the bankruptcy court, and since they constitute a fund out of

which all creditors are entitled to share, enforcement by a

governmental unit of a money judgment would give it prefer-

ential treatment to the detriment of all other creditors.

Senate Report, supra, at 52; House Report, supra, at 343.

The bankruptcy court found that § 362 (a) (1) was inapplica-

ble to the EPA’s impending enforcement action against

CORCO. The court reasoned that the intent underlying both

§§ 362(b) (4) and 362 (b) (5) is to permit a governmental unit

that is suing a debtor to prevent or stop a violation of environ-

mental protection laws to continue, and that the action which

A-19

the EPA was seeking to institute was clearly an action that

Congress intended to exempt from the automatic stay:

The action which EPA is seeking to institute is precisely

the type of proceeding Congress intended to exempt from

the stay. The RCRA requirements are designed to protect

the environment. Congress expressly stated in RCRA that

“(t]he objectives of this chapter are to promote the protec-

tion of health and environment and to conserve valuable

material and energy resources by... (4) regulating the

treatment, storage,transportation, and disposal of hazardous

wastes which have adverse effects on health and the environ-

ment....” Section 1003, 42 U.S.C. § 6902.

58 B.R. at 612. Further, the court found that, notwithstanding

the fact that CORCO would be forced to expend funds to

comply, the EPA’s actions were exempt from the automatic

stay. Id. at 613-15.

The district court, affirming the bankruptcy court’s decision,

found that the attempt to require debtor to comply with the

permit requirements or lose interim status is a legitimate

exercise of the government’s regulatory power,” Slip op. at 2,

and went on to say that “[t]he incidental expense which debtor

will incur to comply with environmental laws does not convert

the action into an enforcement of a money judgment, which

would be automatically stayed.” Jd. at 3.

We agr with the conclusion of the bankruptcy court and

the district court that the automatic stay does not apply to the

EPA’s actions in this case. The EPA has the authority to

enforce its regulatory power, that is, to require CORCO to

comply with the federal and state environmental laws and

regulations at issue in this case. The enforcement actions of the

EPA in this case do not come within the ambit of § 362 (a) (1)

because they are actions to enforce police and regulatory

powers, thus falling within the § 362 (b) (4) exception to the

A-20

automatic stay. The EPA’s actions are not an attempt to

enforce a money judgment, proscribed by § 362 (b) (5), not-

withstanding the fact that CORCO will be forced to expend

funds in order to comply.

The exception from the automatic stay for proceedings to

enforce police and regulatory powers is not, as appellants

suggest, limited to those situations where “imminent and

identifiable harm” to the public health and safety or “urgent

public necessity” is shown. The words of 88 362 (b) (4) and

362 (b) (5) allow for no such reading. The language of these

exceptions is unambiguous — it does not limit the exercise of

police or regulatory powers to instances where there can be

shown imminent and identifiable harm or urgent public neces-

sity. Where the language of a statute is unambiguous, in the

absence of “ ‘clearly expressed legislative intention to the

contrary, that language must ordinarily be regarded as conclu-

sive. North Dakota v. United States, 460 U.S. 300, 312 (1983)

(quoting Consumer Product Safety Comm. v. GTE Sylvania,

Inc., 447 U.S. 102, 108 (1980)). In this ease, the legislative

history of the statutory provisions does not call into question

our reading of §§ 362(b) (4) and 362(b) (5) as exempting from

the automatic stay, without a showing of imminent harm or

urgent public necessity,° exercises of police and regulatory

powers.

s Without expressing a view as to what constitutes imminent harm

and urgent public necessity or as to whether imminent and identifi-

able harm or urgent public necessity can be said to exist in this

case, we simply note that the EPA’s permitting procedure and

attendant information-gathering system are vital components of

the environmental protection system. See infra note 11.

We find nothing in the legislative history of § 362 (b) (4) that

persuades us that the police and regulatory power exception to the

A-21

Case law supports our conclusion that the police and regula-

tory exceptions do not depend on a showing of imminent and

identifiable harm or urgent public necessity and that the

EPA’s actions in this case are exempt from the automatic stay.

automatic stay can only be invoked where there is a showing of

imminent and identifiable harm or urgent public necessity. Appel-

lants point generally to floor statements regarding § 362(b) (4) in

which it was noted that the § 362(b) (4) exception “is intended to

be given a narrow construction in order to permit governmental

units to pursue actions to protect the public health and safety and

not to apply to actions by a governmental unit to protect a

pecuniary interest in property of the debtor or property of the

estate.” 124 Cong. Rec. H11089, reprinted in 1978 U.S. Code Cong.

& Admin. News 6436, 6444-45 (statement of Rep. Edwards); 124

Cong. Ree. 817406, reprinted in 1978 U.S. Code Cong. & Admin.

News 6506, 6513 (statement of Sen. DeConcini). We cannot read

these statements to exempt from the exception police and regula-

tory actions designed to protect the public health and safety. We

find no basis for reading the admonitiou that the exception be

contrued narrowly to exclude anything but those actions which are,

in fact, aimed at protecting the goverment’s monetary interest.

Additionally, appellants cite a portion of the House Report in

support of their argument:

Under present [pre-Code] law there has been some overuse

of the stay in the area of governmental regulation. For exam-

ple, in one Texas bankruptcy court, the stay was applied to

prevent the State of Maine from closing down one of the

debtor’s plants that was polluting a Maine River in violation of

Maine’s environmental protection laws .... The bill [the 1978

Code] excepts these kinds of actions from the automatic stay.

House Report, supra, at 174-75 (citations omitted) (emphasis ad-

ded). This passage, with the emphasis added by appellants, is said

to evince a congressional intent to limit § 362(b) (4) to cases where

the government can show present ongoing pollution posing an

imminent threat. We cannot accept this as evidence of such a

congressional intent.

A-22

For example, in Penn Terra, the Third Cireuit found that the

exception to the automatic stay in 55 362 (b) (4) and 362 (b) (5)

should be construed broadly so as not to override state laws

enacted to protect some public interest.” 733 F.2d at 273. The

Penn Terra court found that the state’s action to compel Penn

Terra to correct violations of anti-pollution laws was exempt

from the automatic stay. These violations consisted, in part, of

a failure to maintain adequate erosion and sedimentation

controls, failure to seal a deep mine pit, and failure to treat

mine drainage properly. See 733 F.2d at 269 n.2.

The Supreme Court, in Ohio v. Kovacs, 469 U.S. 274 (1985),

noted the Penn Terra decision in the context of recognizing

that “[t]he automatic stay provision does not apply to suits to

enforce the regulatory statutes of the State.” 469 U.S. at

283-84 n.11. The Court accepted the result of Penn Terra in

cases where the governmental action is one to enforce regula-

tory statutes, as opposed to one to enforce a money judgment.

Id. Neither Penn Terra nor the other cases in which a regula-

tory or police action was found to be exempt from the auto-

matic stay depended on a determination that there was

imminent danger to the public.’ Contrary to what appellants

* The court also noted that the “exception to the exception” created

by § 362 (b) (5), making enforcement of money judgments by gov-

ernmental units subject to the automatic stay, “should be contrued

narrowly so as to leave to the States as much of their police power

as a fair reading of the statute allows. 733 F.2d at 273 (emphasis

in original).

Adding further support to our conclusion that the EPA's regula-

tory action is exempt from the automatic stay are cases wherein

courts faced with non-environmental exercises of police or regula-

tory powers have interpreted § 362 (b) (4). See, e.g., EEOC v. Rath

Packing Co., 787 F.2d 318 (8th Cir.), cert. denied, 55 U.S. L. W. 3258

(1986) (automatic stay did not apply to Title VII action);

Cournoyer v. Town of Lincoln, 790 F.2d 971 (Ist Cir. 1986) (Town's

A-23

suggest, the fact that “imminent and identifiable harm” can be

shown in cases where the regulatory exception was found to

apply does not form the basis for reading such a requirement

into the exceptions.

Appellants’ reliance on the Supreme Court's recent decision

in Midlantic is misplaced. Midlantic presented the question of

“whether § 554(a) of the Bankruptcy Code 11 U.S.C. § 554(a),

authorizes a trustee in bankruptcy to abandon property in

contravention of state laws or regulations that are reasonably

designed to protect the publie's health or safety. 106 S.Ct. at

757 (citation omitted). In Midlantic, the Court recognized an

exception to the power of a trustee to abandon property, but

limited that exception to those instances in which abandon-

ment would violate laws or regulations “reasonably calculated

to protect the public health or safety from imminent and

identifiable harm.” Jd. at 762-63 n.9.

In concluding that Midlantic does not support appellants’

argument that the §§ 362(b)(4) and 362(b)(5) exceptions to

the automatic stay cannot be invoked absent imminent and

identifiable harm, we note several things. First, the question

before the Court in Midlantic was the scope of the abandon-

action to clear debtor's property of scrap metal and automotive

parts exempt from automatic stay); Ahrens Aircraft, Inc. v. NLRB,

703 F.2d 23 (lst Cir. 1983) (enforcement of an NLRB order

awarding back pay was not subject to automatic stay by virtue of 11

U.S. C. 56 362 (b) (4) and (5)); NLRB v. Evans Plumbing Co., 639

F.2d 291 (5th Cir. 1981) (NLRB proceeding for entry of judgment

for back pay is exempt from automatic stay); Jn re D.H. Overmyer

Telecasting Co., 35 B.R. 400 (Bankr. N.D. Ohio 1983) (action by the

Federal Communication Commission to strip debtor of its broad-

casting license is exempt regulatory action); Donovan v. TMC

Industries, Lid., 20 B.R. 997 (N.D. Ga. 1982) (action to enjoin sale

of goods produced in violation of Fair Labor Standards Act is

excepted regulatory action).

A-24

ment power, and it is that power that the Court found to be

limited by the “imminent and identifiable harm” standard.

Second, notwithstanding the fact that the Court found that

pre-Code case law had established limitations on the trustee's

abandonment power, see 106 S.Ct. at 759-60, it must be recog-

nized that the abandonment power of § 554 is unqualified on its

kace. By contrast, the automatic stay was expressly qualified

by Congress — 11 U.S.C. § 362(b) (4) specifically excludes the

exercise of regulatory and police powers from the automatic

stay, Moreover, the Supreme Court itself characterized the

automatic stay provision as designed to overrule judicial ex-

pansion of the automatic stay that was foreelos ing] States’

efforts to enforce their antipollution laws.” 106 S.Ct. at 761.

Nowhere did the Supreme Court suggest that the exception in

11 U.S.C §362(b)(4) applies only if there is imminent and

identifiable harm to the public health or safety.

The EPA’s enforcement action in this case is an attempt to

bring CORCO into compliance with state anc federal environ-

mental laws and “falls squarely within the [government's]

police and regulatory powers. . No more obvious exercise of

the [government's] power to protect the health, safety, and

welfare of the public can be imagined.” Penn Terra, 733 F.2d at

274. As such, we find that it falls squarely within the

§ 362(b) (4) police and regulatory exception to the automatic

stay.

Section 554 (a) provides: “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 and benefit to the estate.”

11 U.S.C. 5 554 (a).

We note that appellants’ characterization of the proceedings at

issue here as attempts to correct mere “technical violations,” and

therefore, somehow less worthy of exception from the automatic

stay, is misguided. First, the exceptions to the automatic stay make

A-25

We must reject appellants’ argument that the EPA's en-

foreement action in this case is an attempt to enforce a money

judgment, thus proscribed under § 362 (b) (5), since either the

filing of a Part B application or the filing of a closure plan and

commencement of closure activities would require CORCO to

expend funds. This cannot be the test for determining whether

a governmental unit seeks to enforce a money judgment, such

that its enforcement actions fall within the § 362 (b) (5) ex-

ception to the exception” to the automatic stay. As the Third

Cireuit has observed, "[w]ere we to find that any order which

requires the expenditure of money is a ‘money judgment,’ then

the exception to section 362 for government police action ...

would ... be narrowed into virtual nonexistence .... [Wie

cannot ignore the fundamental fact that, in contemporary

times, almost everything costs something.” Penn Terra, 733

F.2d at 277-78.

Congress did not define the phrase “enforcement of a money

judgment” in § 362(b) (5), so, as the court in Penn Terra noted,

lilts meaning must ... be gleaned from the commonly ac-

cepted usage and from whatever indications of congressional

intent we find persuasive .... [W]e must look to legal custom

and practice to determine what was traditionally understood to

be a recovery for money damages.” Penn Terra, 733 F.2d at

274-75 (emphasis in original). As traditionally understood, a

money judgment “need consist of only two elements: (1) an

identification of the parties for and against whom judgment is

being entered, and (2) a definite and certain designation of the

amount which plaintiff is owed by defendant. It need not, and

no such distinction. Second, the EPA, to protect the public health

and safety, must gather information from facilities like CORCO

and maintain permitting procedures. Without such information

gathering and permitting systems, the EPA would be impeded in

its obligation to administer the environmental protection system.

A-26

generally does not, contain provisions for its enforcement.”

Id. at 275 (emphasis in original).

Just as the Third Circuit found in Penn Terra with respect to

proceedings initiated by Pennsylvania’s Department of Envi-

ronmental Resources, we find that, at least as a matter of form,

the EPA’s action is not a proceeding to enforce a money

judgment as that term is traditionally understood. Further-

more, the EPA’s action which is clearly not, in form, an action

to enforce a money judgment, is also not, in substance, an

action to enforce a money judgment. Since we agree with the

Third Circuit that the legislative intent underlying

§ 362(b) (5) should not be undermined “by artful pleading that

depends on form rather than substance,” 733 F.2d at 275, we

must look beyond form to substance to determine whether the

EPA’s action in reality sought to achieve what a money judg-

ment was traditionally meant to achieve and no more.

The Penn Terra court explicitly rejected the notion that

simply because an injunction action will require the debtor to

1 The Third Cireuit noted that:

As the legislative history explicity notes, the mere entry of a

money judgment by a governmental unit is not affected by the

automatic stay, provided of course that such proceedings are

related to that government’s police or regulatory powers.

Quite separate from the entry of a money judgment, how-

ever, is a proceeding to enforce that money judgment. The

paradigm for such a proceeding is when, having obtained a

judgment for a sum certain, a plaintiff attempts to seize

property of the defendant in order to satisfy that judgment. It

is this seizure of a defendant-debtor's property, to satisfy the

judgment obtained by a plaintiff-creditor, which is proscribed

by subsection 362(b) (5).

Penn Terra, 733 F.2d at 275 (citations omitted) (emphasis in

original).

A-27

expend funds, that action is, in actuality, one to enforce a

money judgment.“ 733 F.2d at 277-78. In rejecting that notion,

the court recognized that “in contemporary times, almost

everything costs something,” id. at 278, and commented that

laln injunction which does not compel some expenditure or

loss of monies may often be an effective nullity.““ Id. (cita-

The recent decision in United States v. ILCO, Inc., 48 B. R. 1016

(N.D. Ala. 1985), also rejected the notion that the expenditure of

funds will suffice to convert a proceeding into an action to enforce a

money judgment, and explained:

ILCO, as well as other defendants, will be forced to spend

money to clean up the hazardous waste sites. Obviously, this

will deplete ILCO's assets to the detriment of other creditors.

Congress indicated in § 362(b), however, that preserving the

debtor’s estate was not always the dominant goal. The legisla-

tive history... indicates that the enforcement of an injunction

ordering compliance with environmental laws is more impor-

tant than the debtor's right to have a breathing spell from its

creditors or than the creditors’ rights to an orderly adminis-

tration of the estate. Furthermore, if courts were to find, as

ILCO contends, that an order which requires the expenditure

of money is a “money judgment,” then “the exception to

section 362 for government police [and regulatory] action,

which should be construed broadly, would instead be narrowed

into virtual non-existence....[A]lmost everything costs

something. An injunction which does not compel some expendi-

ture or loss of monies may often be an effective nullity.”

48 B.R. at 1023 (citing Penn Terra, 733 F.2d at 277-78). But see

United States v. Johns-Manville Sales Corp., 13 Envtl. L. Rep. 20310,

20211-12 (1982).

We note that in Ohio v. Kovacs, 469 U.S. 274 (1985), the Supreme

Court stated that the automatic stay provision did not apply to

suits to enforce the regulatory statutes of a state. 469 U.S. at

283-84 n.11. The Court noted that in Penn Terra the state’s effort

was held to be directed at enforcing an injunction to require

compliance with an environmental law, not to enforce a money

A-28

tions omitted). The Third Circuit proposed that a better

approach for a court to take to determine whether an injunc-

tion action is, in application, a money judgment suit, is to focus

“on the nature of the injuries which the challenged remedy is

intended to redress — including whether plaintiff seeks com-

pensation for past damages or prevention of future harm.” Id.,

see Cournoyer v. Town of Lincoln, 790 F.2d 971, 976 (Ist Cir.

1986); ILCO, 48 B. R. at 1024.

Utilizing this approach, we conclude that the EPA’s adminis-

trative action is not, in form or in substance, an action to

enforce a money judgment proseribed by § 362 (b) (5). The

action is one to compel compliance with federal and state

environmental laws. The action does not seek the entry of a

judgment. In Kovacs the court noted that in the specific eireum-

stances before it, the clean up duty had been reduced to a monetary

obligation and that [oln the facts before it, and with the receiver

in control of the site, we cannot fault the Court of Appeals for

concluding that the cleanup order had been converted into an

obligation to pay money, an obligation that was dischargeable in

bankruptcy.” Id. at 283. The Court noted that Ohio, instead of

prosecuting Kovacs under the environmental laws — as the EPA

intends to do in this case — secured the appointment of a receiver

who was ordered to take possession of Kovacs’ nonexempt assets as

well as the assets of the corporate defendants and to comply with

the injunction entered against Kovacs. It dispossessed Kovacs.

What the receiver wanted from Kovacs after the bankruptcy was

the money to defray the clean up costs. At oral argument before the

Supreme Court, the state’s counsel conceded that after the receiver

was appointed, the only performance sought from Kovacs was the

payment of money.

We believe that Kovacs can properly be read as an acceptance of

Penn Terra’s money judgment analysis, and, at the very least,

should be seen as casting no doubt on Penn Terra. The Supreme

Court in Kovacs made it clear that it was the dispossession of

Kovacs’ assets and the appointment of a receiver that turned the

injunction in that case into, a dischargeable monetary obligatior

EEE

A-29

money judgment or the adjudication of liability for a sum

certain. Further, mere payment of money, even if it could be

estimated, would not satisfy the EPA’s requests.“ Finally, the

EPA’s action cannot be seen as an attempt to obtain compensa-

tion for past damage. Therefore, the EPA’s enforcement action

requiring CORCO to comply with federal and state environ-

mental laws is a proper exercise of its regulatory power and is

not an attempt to enforce a money judgment. It is exempt from

the automatic stay by virtue of §§ 362 (b) (4) and 362 (b) (5).

IV.

We turn now to the question of whether, under the facts of

this case, the bankruptcy court abused its discretion in refus-

ing to issue a stay of EPA proceedings under 11 U.S.C. § 105.

Section 105(a) provides, in relevant part, that “[t]he bank-

ruptey court may issue any order, process, or judgment that is

necessary or appropriate to carry out the provisions of this

title.“ 11 U.S.C. §105(a). Assuming that a 5 105 stay is

available to stay an action expressly exempted by Congress

from the operation of the automatic stay provision,“ we find

©The EPA in the instant case made it clear to the bankruptcy court

that it in no way intends to bring CORCO into compliance with the

applicable environmental laws and regulations by dispossessing

CORCO of its assets or by seeking complaince by a money judg-

ment. Rather, the EPA is seeking to bring CORCO into compliance

with the federal environmental laws and the hazardous waste

regulations of Puerto Rico.

he legislative history of the Bankruptcy Code explains that:

Subsection (b) lists five exceptions to the automatic stay.

The effect of an exception is not to make the action immune

from injunction.

The court has ample other powers to stay actions not

covered by the automatic stay. Section 105, of proposed ti-

A-30

that the bankruptcy court did not abuse its discretion in

refusing to issue a stay under § 105 in this case.

tle 11, derived from Bankruptcy Act 5 2a (15), grants the

power to issue orders neecssary [sic] or appropriate to carry

out the provisions of title 11. The bankruptcy courts are

brought within the scope of the All Writs Statute, 28 U.S.C.

1651 (1970), and are given the powers of a court of law, equity,

and admiralty (H.R. 8200, § 243(a), proposed 28 U.S.C. 1481).

Stays or injuctions issued under these other sections will not

be automatic upon the commencement of the case, but will be

granted or issued under the usual rules for the issuance of

injunctions. By excepting an act or action from the automatic

stay, the bill simply requires that the trustee move the court

into action, rather than requiring the stayed party to request

relief from the stay. There are some actions, enumerated in the

exceptions, that generally should not be stayed automatically

upon the commencement of the case, for reasons of either

policy or practicality. Thus, the court will have to determine on

a case-by-case basis whether a particular action which may be

harming the estate should be stayed.

House Report, supra, at 342; Senate Report, supra, at 51.

Courts considering the scope of § 105 have seen it as an avenue

available for staying actions that are found to fall within an

exception to the automatic stay. See Browning v. Navarro, 743 F.2d

1069, 1084 (5th Cir. 1984); State of Missouri v. United States

Bankruptcy Court, 647 F.2d 768, 776-77 (8th Cir. 1981), cert.

denied, 454 U.S. 1162 (1982); In re Bel Air Chateau Hosp., Inc., 611

F.2d 1248, 1251 (9th Cir. 1979); Penn Terra, 733 F.2d at 273; In re

Global Int l. Airways Corp., 48 B. R. 849, 851 (W. D. Mo. 1985); In re

Professional Sales Corp., 48 B.R. at 660; In re Jerzak, 47 B.R. 771,

773 (Bankr. W.D. Wise. 1985); In re Farmers & Ranchers Livestock

Auction, Inc., 46 B.R. 781, 796 (Bankr. E.D. Ark. 1984); In re King

Memorial Hosp., Inc., 4 B.R. 704, 709 (Bankr. S. D. Fla. 1980); ef.

NLRB v. Superior Forwarding, Inc., 762 F.2d 695, 699 (8th Cir.

1985).

We note however, that the powers of a court under § 105 are not

unlimited. See, e.g., United States v. Sutton, 786 F.2d 1305, 1307-08

cee tikinbeas

[ie Osa ak nnn AREA Within es TR ie

A-31

The bankruptcy court noted that the legislative history of

§ 105 makes clear that stays under that section are granted

only “under the usual rules for the issuance of an injunction.”

Senate Report, supra, at 51; House Report, supra, at 342; see In

re Cournoyer, 43 B.R. 354 (Bankr. D. R.. 1984), aff d in part,

rev'd in part, 53 B. R. 478 (D. R. I. 1985), aff’d, 790 F.2d 971

(Ist Cir. 1986). The four prerequisites to the issuance of a

preliminary injunction are: (1) a substantial likelihood that the

movant will prevail on the merits; (2) a substantial threat that

the movant will suffer irreparable injury if the injunction is not

granted; (3) that the threatened injury to the movant out-

weighs the threatened harm an injunction may cause the party

opposing the injunction; and (4) that the granting of the

injunction will not disserve the public interest. See Southern

Monorail Co. v. Robbins & Myers, Inc., 666 F.2d 185, 186 (5th

Cir. 1982).

The bankruptcy court found that CORCO had conceded the

first requirement, stating that, “[s]pecifically, the debtor-in-

possession has noted that ‘CORCO does not assert that the

EPA is wrong, or that it is acting in an arbitrary and capri-

cious manner with respect to the substantive environmental

issues. 68 B.R. at 615-16. The bankruptcy court also

noted the testimony of CCRCO’s vice-president who had ac-

(5th Cir. 1986); Southern Ry. Co. v. Johnson Bronze Co., 758 F.2d

137, 141 (3d Cir. 1985); In re Fox, 725 F.2d 661, 663 (11th Cir.

1984); Johnson v. Nat. Bank of Montevideo, 719 F.2d 270, 273 (8th

Cir. 1983), cert. denied, 465 U.S. 1012 (1984); In re Pirsig Farms,

Inc., 46 B.R. 237, 240 (D. Minn. 1985); In re Wood, 33 B.R. 320,

322-23 (Bankr. D. Idaho 1983); In re Candor Diamond Corp., 26

B. R. 850, 851 (Bankr. S.D.N.Y. 1983); In re Dunkle Assocs., Inc., 19

B.R. 481, 485-86 (Bankr. E.D. Pa. 1982). While the question of

where the outermost boundaries of a court’s powers under § 105

fall is an interesting one and one worthy of consideration, that

question is not presently before this court and we do not attempt to

resolve that question here.

A-32

knowledged that CORCO has filed neither a Part B nor a

closure plan and that the facility has not complied with the

requirements of the interim status regulations, such as ground

water monitoring.” Jd. at 616. Therefore, the bankruptcy court

concluded that it was unnecessary to address the other three

prerequisites for the issuance of a preliminary injunction.

The district court agreed with the bankruptcy court’s eonelu-

sions that CORCO had failed to establish the prerequisites for

a § 105 stay, since “[t]hey concede they cannot prevail on the

merits by their admissions that no Plan B has been filed and no

groundwater monitoring system exists.“ Slip op. at 3.

Appellants argue that both the bankruptcy court and the

district court misapprehended what the “merits” would be for

purposes of assessing whether there was a substantial likeli-

hood that CORCO would prevail on the merits. According to

appellants, the courts below erroneously viewed the merits to

be whether CORCO had complied with the EPA, that is,

whether CORCO would be likely to succeed in the underlying

enforcement action.“ In appellants’ view, the merits are, in-

stead, whether CORCO must now comply with the federal and

With respect to the likelihood of success on the merits, the district

court went on to note that the loss of interim status on November 8,

1985, also precludes success on the merits. Additionally, the Court

noted that an injunction would disserve the public interest since it

would delay a determination about possible groundwater

contamination.

1 Appellants are urging that the bankruptcy court and the district

court focused on the wrong issue —the issue is not whether

CORCO will prevail on the merits, but simply, whether a proceed-

ing must be stayed so that reorganization efforts mandated by the

Bankruptcy Code will not be thwarted by the proceeding. They

urge what can best be described as a “balancing of the equities”

approach.

A-33

state environmental laws, or whether it can later comply as

part of a reorganization plan.

We believe that the bankruptcy and district courts correctly

identified the “merits” for purposes of assessing the propriety

of the issuance of a § 105 stay. See In re Cournoyer, 43 B.R. at

360. The inquiry for a preliminary injunction necessarily fo-

cuses on the outcome of a later proceeding, at which time the

merits of the questions giving rise to the litigation will be

decided. CORCO’s characterization of the merits“ for pur-

poses of the preliminary injunction analysis erroneously substi-

tutes the question before the court at the preliminary

injunction hearing for the merits of the case that must be

ultimately decided.

Since we believe that the bankruptcy court and the district

court correctly identified the “merits,” and because we believe

that the finding that CORCO was not likely to succeed on the

merits was not erroneous,“ we need not address the remaining

requirements for a § 105 stay.” We briefly note, however, that a

1? CORCO disputes the conclusion that it “conceded” that the EPA

would prevail in an enforcement action against it. Even if we were

to accept CORCO’s argument, we would still find that the district

court did not abuse its discretion because there is sufficient

support for the conclusion that there is not a substantial likelihood

that CORCO would prevail.

0 Additionally, we need not delay long in disposing of a final

argument raised in this case. At this late stage in these proceed-

ings, and at the veritable tail-end of its brief, the creditor's

committee argues that the district court erred in failing to hold a

“de novo hearing.” We note that CORCO does not raise this

argument at all. We find this argument to be disingenuous, at best,

given the fact that the creditor’s committee, as well as the Inden-

ture Trustee and CORCO, took an appeal from “the final order of

the Bankruptcy Court” to the district court. See Notice of Appeal

of the Official Committee of Unsecured Creditors (May 24, 1985).

A-34

balancing of the harms in this case seem to weigh in favor of

the EPA. Enforcement of the environmental laws is in the

public interest. While we do not decide today that there will

never be a case where a court should issue a § 105 stay to stop

proceedings that are exempted from the automatic stay under

§§ 362 (b) (4) or 362 (b) (5), we do believe that this clearly is

not such a case. After two petitions for bankruptcy protection,

numerous extensions of the exclusivity period in the current

reorganization, and no reorganization plan yet filed, CORCO is

in no position to argue that it is “equitably” entitled to more

time to comply with the EPA’s requirements. the time has

come for CORCO to comply.

For the foregoing reasons, the judgment of the district court

is AFFIRMED.

A-35

III

MEMORANDUM OPINION OF THE UNITED STATES

DISTRICT COURT FOR THE

WESTERN DISTRICT OF TEXAS

(Garcia, J.)

A-36

IN THE UNITED STaTEs District Court

FOR THE WESTERN DISTRICT OF TEXAS

SAN ANTONIO DIVISION

IN THE MATTER OF: )

COMMONWEALTH OIL REFINING

ComMPANY, INC.,

Debtor

OFFICIAL COMMITTEE OF

UNSECURED CREDITORS AND THE

INDENTURE TRUSTEE, » SA-85-CA-2045

Appellants

vs.

UNITED STATES ENVIRONMENTAL

PROTECTION AGENCY,

Appellee

MEMORANDUM OPINION

On appeal is the Order of United States Bankruptcy Judge

Joseph C. Elliott denying debtor’s motion to determine the

applicability of the automatic stay provision, Title 11 U.S.C.

Section 362, to an action by the United States Environmental

Protection Agency (EPA) to enforce the Resource Conserva-

tion and Recovery Act (RCRA), Title 42 U.S.C. See-

an exercise of its regulatory power and, thus, excepted from an

automatic stay. Title 11 U.S.C. Section 362(b)(4). He also

denied debtor's request for a stay pursuant to Title 11 U.S.C.

Section 105. The debtor, the indenture trustee and the credi-

tor’s committee have timely appealed from the Order. This

Court has examined the transcript of the hearing in bankruptcy

court, the exhibits, the pleadings and the applicable law, and is

of the opinion the Order should be affirmed.

A-37

It oceurs to the Court that the entire appeal may be moot.

The only issue is whether the EPA can force the debtor to file a

Plan B or lose interim status and file a closure plan on its

hazardous waste facility in Puerto Rico. Section 6925(e) (2) of

Title 42 of the United States Code provides that the interim

status of a land disposal facility shall terminate automatically

on November 8, 1985 unless the owner or operator applies for a

final determination regarding the issuance of a permit and

certifies that such facility is in compliance with all applicable

groundwater monitoring requirements. Since debtor did place

hazardous waste in a surface impoundment (Tr. 23,50,52), its

plant in Puerto Rico is a land disposal facility. Title 11 U.S.C.

Section 6924(k). Debtor has conceded it has not filed its

Plan B and has not instituted a groundwater monitoring

system. (Tr. 30). It appears that regardless of the outcome of

this appeal, debtor will, by Congressional mandate, lose its

interim status on November 8th unless it complies with the

above conditions, which it most likely will not or cannot do.

In any event, this Court finds, for the reasons set forth in

Judge Elliott’s opinion, that EPA’s enforcement action should

not be restrained. The attempt to require debtor to comply with

the permit requirements or lose interim status is a legitimate

exercise of the government’s regulatory power. In re

Cournoyer, 43 B. R. 354 (Bkrtey. 1984) (and cases cited

therein). Assuming that an ongoing threat must be shown to

avoid the automatic stay, testimony at the hearing established

that debtor’s previous handling of hazardous waste might have

caused groundwater contamination, which cannot be deter-

mined without a monitoring system required by federal and

Puerto Rico law. This is not a situation in which the debtor is

being forced to clean up past damage. The EPA has no

monetary interest in compliance. The incidental expense which

debtor will incur to comply with environmental laws does not

convert the action into an enforcement of a money judgment,

A-38

which would be automatically stayed. Title 11 U.S.C.

Section 362(b) (5).

Appellants have failed to establish the prerequisites neces-

sary for a stay under Title 11 U.S.C. Section 105(a). They

concede they cannot prevail on the merits by their admissions

that no Plan B has been filed and no groundwater monitoring

system exists. The automatic loss of interim status on Novem-

ber 8th also precludes success on the merits. Additionally, an

injunction restraining enforcement of the environmental laws

would disserve the public interest since it would delay a

determination as to groundwater contamination.

The argument that Puerto Rican law preempts EPA enforce-

ment is without merit. Whether or not Puerto Rico chooses to

enforce its environmental laws, the federal government is

authorized to revoke the hazardous waste permit of a noncom-

plying facility, Title 11 U.S.C. Section 6925 (d), and otherwise

require compliance by a person in violation of the RCRA. Title

11 U.S.C. Section 6928 (a) (1) and (a) (2). Since the govern-

ment denies reliance on Title 28 U.S.C. Section 959 (b) as

authority for enforcement, and the Court believes such addi-

tional authority is unnecessary, appellants’ argument that

section 959(b) is inapplicable will not be considered.

Appellants are not entitled to a stay of EPA enforcement. At

the hearing, debtor's representative testified it would be eigh-

teen months before debtor would even know what it intended to

do with the facility. Appellants want this Court to suspend the

applicability of environmental law requirements to give debtor

this time. They contend that an expenditure of money to

comply will damage reorganization efforts. Even if true, this

will not preclude the EPA from terminating debtor's interim

status. See, In re Fresh Approach, Inc., 49 B.R. (Bkrtcy. 1985).

The bankruptcy court correctly ruled that enforcement can

proceed.

A-39

SIGNED this 5th day of November, 1985.

H. F. Garcia

United States District Judye

A-40

MEMORANDUM OPINION FOR THE

UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF TEXAS

SAN ANTONIO DIVISION

(Elliott, J.)

A-41

UNITED STATES BANKRUPTCY COURT FOR

THE WESTERN DISTRICT OF TEXAS

SAN ANTONIO DIVISION

IN RE:

COMMONWEALTH OIL REFINING No. 5-84 01153E

ComPANY, INC., (Chapter 11)

Debtor.

MEMORANDUM ANL ORDER

Pending before the Court is debtor’s motion for an order

determining the applicability of the Bankruptcy Code’s auto-

matic stay provision, 11 U.S.. § 362 (a) (1), to an impending

enforcement action by the United States Environmental Pro-

tection Ageney (“EPA”) under section 3008 of the Solid

Waste Disposal Act, as amended by the Resource Conservation

and Recovery Act (“RCRA’’), 42 U.S.C. §§ 6901-6987 (1982).

In the alternative, CORCO has moved for an order staying

EPA’s enforcement action pursuant to 11 U.S.C. § 105. EPA

opposes the motion.

After considering the parties’ pleadings, affidavits, oral ar-

guments of counsel, and the additional evidence presented at

the hearing of April 3, 1985, the Court makes the following

findings of fact and conclusions of law:

I. Federal Statutory and Regulatory Framework.

Section 3005 of RCRA, 42 U.S.C. 5 6925, requires that

facilities which treat, store, or dispose of hazardous waste

obtain a permit from EPA or from an authorized State.’ Such

permits are to be issued by EPA only upon a determination

’ Section 3006 (b) of RCRA, 42 U.S.C. § 6926 (b), allows the Adminis-

trator of EPA to authorize a State (including the Commonwealth of

Puerto Rico) to operate its own hazardous waste program in lieu of

the federal program, providing the State makes certain showings.

A-42

that the facility is in compliance with the section 3004 hazard-

ous waste management standards (promulgated by EPA in 40

C.F.R. Part 264) and the section 3005 hazardous waste permit

requirements (promulgated by EPA in 40 C.F.R. Part 270). 42

U.S.C. $§ 6924, 6925. Congress recognized, however, that EPA

would not be able to issue permits to all hazardous waste

management (“HWM”’) facilities before the permit program

became effective. Therefore, section 3005 (e), 42 U.S.C.

§ 6925(e), provides that certain facilities would be treated as

having been issued a permit until final administrative action

was taken on their permit application. See generally Hempstead

County d Nevada County Project v. EPA, 700 F.2d 459, 460-62

(8th Cir. 1983). A facility obtains this interim status“ if it

meets the following three statutory requirements, set out in

section 3005 (e), 42 U.S.C. § 6925 (e): First, that the facility

was in existence on November 19, 1980 or is in existence on the

effective date of statutory or regulatory changes under RCRA

that require the facility to have a permit; second, that the

facility complied with the requirements of section 3010(a), 42

U.S.C. §6930(a), which requires notification of hazardous

waste activity; and, third, that the facility filed a permit

application which conforms with EPA regulations. Any facility

which does not meet these requirements does not have interim

status and, if operated without a permit, is in violation of

RCRA.

EPA has promulgated regulations setting out the require-

ments for the permit application which must be filed as a

prerequisite to interim status. See 40 C.F.R. §§ 270.2, 270.10,

270.70-270.73 (1984). The regulations require that an existing

facility first submit Part A of its permit application. Id.

§§ 270.1, and 270.10(e). The Part A application requires mini-

mal descriptive information such as the location of the facility

and processes used in the treatment, storage and disposal of

hazardous waste. Jd. § 270.13. A facility which has interim

A-43

status can continue to operate without a RCRA permit until

EPA acts on the facility’s permit application. Jd. § 270.1(b).

The interim status facility must, however, comply with federal

regulations and applicable state requirements. 42 U.S.C.

§ 6929; 40 C. F. R. Part 265, 5 270.1 (b) (1984).

For these interim status facilities, the actual section 3005 (e)

permitting process begins with EPA's request for the second

part of the permit application, known as Part B. Id. 55 270.1,

270.14. EPA has the authority to call in the Part B at any time.

Id.“ The facility owner or operator has six months from the

date of EPA’s request to submit the technical information“

required by the Part B application. Jd. § 270.1(b). “Failure to

furnish a requested Part B application on time, or to furnish in

full the information required by the Part B application, is

grounds for termination of interim status under Part 124.” 40

C. F. R. § 270.10 (e) (5) (1984). No later than 15 days after

termination of interim status, a closure plan must be submitted

to the Regional Administrator. Id. § 265.112 (e).

? Section 213 of the Hazardous Waste Amendments of 1984 amended

“section 3005 (e) of RCRA, 42 U.S.C. § 6925 (e), to require submis-

sion of the Part B application by a certain date (depending upon

the type of facility) if EPA has not already called in tie application

by that date.

The Part B application requires information such as how the

facility will meet the requirements of 40 C.F.R. Part 264; a general

description of the facility; a description of the security procedures

at the facility; a copy of the contingency plan to minimize hazards

to human health or environment from fires, explosions or unplanned

release of hazardous waste; and closure plans. Id. § 270.14.

A-44

II. Factual Background.

The debtor, Commonwealth Oil Refining Company

(“CORCO”), is the owner and operator of a HWM facility at

Penuelas, Puerto Rico. On August 13, 1980, CORCO informed

EPA that it conducts activities at the facility involving “haz-

ardous waste,” as defined in section 1004(5) of RCRA, 42

U.S.C. § 6903 (5) and in 40 C. F. R. § 261.3. On November 18,

1980, CORCO submitted a completed Part A permit applica-

tion, thereby obtaining interim status.

On October 14, 1982, the Administrator of the EPA author-

ized Puerto Rico to operate Phase I” of the hazardous waste

program (including regulation of interim status facilities) in

lieu of the federal program, pursuant to section 3006(b) of

RCRA, 42 U.S.C. § 6926 (b) 47 Fed. Reg. 45,880 (Oct. 14,

1982). To implement Phase I, Puerto Rico has promulgated

Regulations for the Control of Hazardous and Non-Hazardous

Solid Waste pursuant to the Puerto Rico Publie Policy Envi-

ronmental Act, P.R. Laws Ann. tit. 12, § 1121 et seg. Although

Puerto Rico operates its own program, section 3008 of RCRA,

42 U.S.C. § 6928, authorizes EPA to enforce the provisions of

the Commonwealth’s program. EPA also operates Phase II“

of the hazardous waste program in Puerto Rico, which includes

the authority to issue RCRA permits. 40 C.F.R. § 271.128

(1984).

On April 12, 1984, EPA called in CORCO’s Part B applica-

tion and set a due date for filing of October 12, 1984. On

July 11, 1984, CORCO filed for bankruptcy and on Decem-

ber 13, 1984, CORCO, as debtor-in-possession, moved for an

automatic stay or in the alternative a section 105(a) stay of

any RCRA enforcement action that has been or will be taken by

EPA.

EPA, at this time, intends to file an administrative com-

plaint against CORCO pursuant to RCRA for violations of the

A-45

Commonwealth of Puerto Rico Public Policy Environmental

Act and sections 3004 and 3005 of RCRA, 42 U.S.C. 55 6924,

6925, and regulations promulgated under both statutes. The

thrust of EPA’s enforcement action is that CORCO must either

file the Part B permit application or else forfeit interim status

and file a closure plan. CORCO does not contend that EPA is

wrong on the substantive environmental issues. Rather, it

seeks to dalay indefinitely the decision on whether to file the

Part B or a closure plan.

III. Discussion

a. The Automatic Stay Provision Of The

Bankruptcy Code Is Inapplicable To

EPA’s Enforcement Action

The filing of a bankruptcy petition operates as an automatic

stay of any proceeding against the debtor. 11 U.S.C. § 362 (a).

EPA’s potential enforcement action, however, is designed to

obtain CORCO’s compliance with hazardous waste, storage and

disposal regulations and falls squarely within the exception to

the automatic stay codified at 11 U.S.C. §362(b) (4). That

section provides:

(b) The filing of a petition under section 301, 302, or 303 of

this title does not operate as a stay —

(4) under subsection (a)(1) of this section, of the com-

mencement or continuation of an action or proceeding by a

governmental unit o enforce such governmental unit’s police

or regulatory power....

Furthermore, subsection (b) (5) provides that the petition

does not stay “the enforcement of a judgment, other than a

money judgment, obtained in an action or proceeding by a

A-46

governmental unit to enforce such governmental unit’s police

or regulatory power.“

The intent underlying subsections (b) (4) and (5) is elari-

fied in the legislative history of the Bankruptcy Reform Act of

1978 (“Bankruptey Code’’). Both the Senate and House re-

ports provide as follows:

Paragraph (4) [11 U.S.C. 5 362 (b) (4)] excepts commence-

ment or continuation of actions and preceedings by govern-

mental units to enforce police or regulatory powers. Thus,

where a governmental unit is suing a debtor to prevent or stop

violation of fraud, environmental protection, consumer protec-

tion, safety, or similar police or regulatory laws, or attempt-

ing to fix damages for violation of such a law, the action or

proceeding is not stayed under the automatic stay.

Paragraph (5) [11 U.S.C. § 362(b) (5) ] makes clear that the

exception extends to permit an injunction and enforcement of

an injunction, and to permit the entry of a money judgment,

but does not extend to permit enforceme:.t of a money

judgment (emphasis added).

S. Rep. No. 989, 95th Cong., 2d Sess. 52, reprinted in 1978 U.S.

Code Cong. & Ad. News 5787, 5838; H.R. Rep. No. 595, 95th

Cong., 2d Sess. 343, reprinted in 1978 U.S. Code Cong. & Ad.

News 5963, 6299.

The House Report to the Bankruptcy Code went on to state

that environmental enforcement actions, such as the one at bar,

should not be subject to the automatic stay provision:

Under present [pre-Code] law there has been some overuse

of the stay in the area of governmental regulation. For

example, in one Texas bankruptcy court, the stay was ap-

plied to prevent the State of Maine from closing down one of

the debtor’s plants that was polluting a Maine River in

violation of... [State law.] The bill [the 1978 Code] excepts

these kinds of actions from the automatic stay....

A-47

H.R. Rep. No. 595, 95th Cong., 2d Sess. 174-75, reprinted in

1978 U.S. Code Cong. & Ad. News 6135-36.

The action which EPA is seeking to institute is precisely the

type of proceeding Congress intended to exempt from the stay.

The RCRA requirements are designed to protect the environ-

ment. Congress expressly stated in RCRA that “[t]he objec-

tives of this chapter are to promote the protection of health and

environment and to conserve valuable material and energy

resources by... (4) regulating the treatment, storage, trans-

portation, and disposal of hazardous wastes which have ad-

verse effects on health and the environment... .’’ Section 1003,

42 U.S.C. § 6902.

United States District Judge Dickinson R. Debevoise in the

District of New Jersey recently recognized in an unpublished

order “that EPA’s issuance of administrative orders or initia-

tion of other action pursuant to Section 7003 [of RCRA]... to

protect public health and welfare and the environment also

constitutes a valid exercise of the police power of the United

States.” In re Bayonne Barrel & Drum Co., Inc., No. 82-0474,

slip op. at 1 (D.N.J. July 17, 1984). He therefore held EPA’s

enforcement action under section 3008 to be exempt from the

automatic stay. Id. The United States District Court for Puerto

Rico, where CORCO’s facility is locaved, has also recognized

that:

The Bankruptcy Court has no express congressional author-

ity to intervene in environmental matters. Congress did not

give the Bankruptcy Court exclusive jurisdiction over all

controversies that in some way affect the debtor’s estate...

Congress has recently recognized in an express fashion its

intention that public interest regulations are to outweigh

that of the Bankruptcy Act and Rules in case of conflict.

A-48

Matter of Canarico Quarries, Inc., 466 F. Supp. 1333, 1339

(D.P.R. 1979) (emphasis in original).

The propriety of EPA’s acting to ensure that the conditions

at CORCO’s facility are remedied was confirmed in Penn Terra

Ltd. v. Dep’t of Envt’l. Resources, 733 F.2d 267 (3d Cir. 1984),

in which the automatic stay provision of 11 U.S.C. § 362 was

determined to be inapplicable to a suit to remedy environmen-

tal hazards brought by the Pennsylvania Department of Envi-

ronmental Resources (DER“). The Court stated:

DER seeks to force Penn Terra to rectify harmful environ-

mental hazards. No more obvious exercise of the State’s

power to protect the health; safety, and welfare of the public

ean be imagined. Indeed, both the Senate and the House

committee reports on the Bankruptcy Reform Act explicitly

acknowledge environmental protection as part of the State’s

police power.

Id. at 274.

IV. The United States Supreme Court's Decision

In Ohio v. Kovacs Supports The Government's

Attempt To Bring CORCO Into Compliance With

The Environmental Laws.

The United States Supreme Court recently approved of the

approach taken by the Penn Terra court. In Ohio v. Kovacs, 105

S. Ct. 705 (1985), the Court stated that the automatic stay

provision did not apply to suits to enforce the regulatory

statutes of a state. Id. at 711 n.11. It noted that in Penn Terra

the State’s effort was held to be directed at enforcing an

injunction to require compliance with environmental law, not

an effort to enforce a money judgment. Jd. The Court also

stated that anyone in possession of the property of the bank-

rupt estate had to comply with the State’s environmental laws.

A-49

Id. at 711-12. Kovacs therefore confirms that the automatic stay

is inapplicable to EPA’s enforcement action.

In Kovacs, the Supreme Court addressed whether, under the

circumstances of the case before it, an injunction could be a

“debt” or “liability on a claim” subject to discharge under the

Bankruptcy Code. In that case, the State of Ohio sued Kovacs,

the chief executive officer and stockholder of the Chem-Dyne

Corporation, and several other business entities, for polluting

public waters, maintaining a nuisance and causing fish kills in

violation of state environmental laws. In 1979, Kovacs, both on

behalf of Chem-Dyne, and in his individual capacity, signed a

stipulation and judgment entry settling the action. In addition

to prohibiting certain actions, the stipulation required defend-

ants to remove certain wastes from the Chem-Dyne hazardous

waste disposal site and ordered the payment of $75,000 in

compensation to the State for wildlife injury. Id. at 707.

Kovaes and the other defendants failed to comply with their

obligations under the injunction. The State then obtained the

appointment of a receiver, who took possession of the site and

began implementing the judgment entry by commencing to

clean up the site. Prior to completion of this task, Kovaes filed

for personal bankruptcy. Id.

In order to develop a basis to require application of part of

Kovacs’ postbankruptcy income to be applied to the receiver-

ship’s task, the State filed a motion in State court to discover

Kovacs’ current income and assets. At Kovacs’ request, the

Bankruptcy Court stayed those proceedings. The State then

filed a complaint in the Bankruptey Court seeking a declara-

tion that Kovacs’ obligation under the stipulation to clean up

the Chem-Dyne site was not dischargeable as a debt“ or a

liability on a “claim.” The complaint also sought an injunction

against the bankruptcy trustee to restrain him from pursuing

any action to recover Kovacs’ assets held by the receiver. Both

A-50

the Banktruptey Court and the District Court ruled against the

State. The Sixth Circuit affirmed and held that Ohio was

essentially seeking a monetary payment from Kovacs and that

such a payment was a liability on a claim, which was discharge-

able. Id. at 707-708.

The United States Supreme Court agreed with the Sixth

Circuit and held that the injunction in question represented an

attempt to enforce a money judgment and was therefore a

claim pursuant to 11 U.S.C. § 101(4) (B), which was discharge-

able. The Court made clear, however, that its decision was

limited to the facts of the case. The Court noted that [a]s we

understand it, the Court of Appeals held that, in the circum-

stances, the cleanup duty had been reduced to a monetary

obligation” and that on the facts before it, and with the receiver

in control of the site, we cannot fault the Court of Appeals for

concluding that the cleanup order had been converted into an

obligation to pay money, an obligation that was dischargeable

in bankruptcy.” Jd. at 710-11 (emphasis added).

The Supreme Court made it unequivocally clear that it was

the dispossession of Kovacs’ assets and the appointment of a

receiver that turned the injunction into a dischargeable money

obligation. Jd. at 710-11 & n.11. The Court noted that Ohio,

instead of prosecuting Kovacs under the environmental

laws — as EPA intends to do in this case —

secured the appointment of a receiver, who was ordered to

take possession of Kovacs’ nonexempt assets as well as the

assets of the e#rmorate defendants and to comply with the

injunction entered against Kovacs. it dispossessed Kovacs,

removed his authority over the site, and divested him of

assets that might have been used by him to clean up the

property. Furthermore, when the bankruptcy trustee sought

to recover Kovacs’ assets from the receiver, the latter sought

an injunction against such action. Although Kovacs had been

A-51

ordered to “cooperate” with the receiver, he was disabled by

the receivership from personally taking charge of and carry-

ing out the removal of wastes from the property. What the

receiver wanted from Kovacs after bankruptcy was the money

to defray cleanup costs. At oral argument the State’s

counsel conceded that after the receiver was appointed, the

only performance sought from Kovacs was the payment of

money.

Id. at 710 (emphasis added).

The above discussion makes clear that absent divestiture of

Kovacs’ funds, compliance with the injunction would nonethe-

less have been required. It was the method utilized by the State

to obtain clean-up that the Court found objectionable. This is

borne out by the Court’s discussion of the Third Cireuit's Penn

Terra decision. Id. at 711 n.11. The Court distinguished Penn

Terra by pointing out that in that case there was neither the

appointment of a receiver, nor was the State seeking money

from the bankrupt. Id. Yet in Penn-Terra, the Third Circuit

recognized that institution of the injunctive relief might neces-

sitate the expenditure of money:

Were we to find that any order which requires the expendi-

ture of money is a “money judgment,” then the exception to

section 362 for government police action, which should be

construed broadly, would instead be narrowed into virtual

nonexistence. Yet we cannot ignore the fundamental fact

that, in contemporary times, almost everything costs some-

thing. An injunction which does not compel some expendi-

ture or loss of monies may often be an effective nullity.

733 F.2d at 277-78. es

The Supreme Court's implied approval of Penn Terra makes

it apparent that the Supreme Court is not concerned with the

expenditure of money by the estate required to bring it into

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compliance with the environmental laws, but rather with the

dispossession of the estate’s property by the sovereign in an

attempt to carry out an injunction. That this is the proper

interpretation of the Court’s opinion is borne out by the

Court's statement that “we do not suggest that Kovacs’ dis-

charge will shield him from prosecution for having violated the

environmental laws... The Court also emphasized that upon

Kovacs’ failure to comply with the injunction, an environmen-

tal enforcement action or civil or criminal contempt proceed-

ings could have been brought by the State, id., and that anyone

in possession of the site had to comply with Ohio's environmen-

tal laws. Jd. at 711-12. “Plainly, that person or firm may not

maintain a nuisance, pollute the waters of the State, or refuse

to remove the source of such condition. As this case comes to us,

however, Kovacs has been dispossessed and the State seeks to

enforce his cleanup obligation by a money judgment.” Id. at

712 (emphasis added). It is, of course, impossible to comply

with the environmental laws without expending money. The

Supreme Court recognized this point and discussed a trustee’s

options when it is determined that the estate’s property is

worth either more or less than the cost of bringing iit into

compliance with the environmental laws. Id. at 711 n.12. The

Court specifically refers to the “cost of bringing [the property]

into compliance with state law,” thereby recognizing that

compliance requires the expenditure of money. This further

underscores that it is not the bankrupt’s duty to spend money

to comply with the environmental laws that is dischargeable in

bankruptcy, but rather a State's attempt to obtain compliance

by enfore ng a money judgment.

EPA has made it clear that it .n no way intends to seek to

bring CORCO into compliance with the applicable environmen-

tal laws and regulations by dispossessing CORCO of its assets

or by seeking compliance via a money judgment. EPA further

does not intend to seek either the appointment of a receiver or

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the execution of a money judgment against CORCO.* Rather,

EPA is seeking to bring CORCO into compliance with the

federal environmental laws and the hazardous waste regula-

tions of the Commonwealth of Puerto Rico. Without submis-

sion of the Part B application, compliance with interim status

requirements, or submission of a closure plan, CORCO will

continue to be in violation of the environmental laws. Under

Kovacs, CORCO may not avoid these requirements. Id. at 711-

712. Furthermore, as previously noted, Kovacs held that the

automatic stay provision does not apply to suits to enforce a

State's regulatory statutes. Jd.at 711 n.11.

V. CORCO Is Not Entitied To A

Stay Under 11 U.S.C. § 105.

In the alternative to the automatic stay, CORCO has moved

for a stay of proceedings under 11 U.S.C. § 105 to afford it “a

reasonable time to reach a management decision, and if it then

so chooses, to file a permanent [Part B] Permit Application.“

CORCO can no longer maintain that it is entitled to a section

105 (a) stay.

Section 105(a) provides that “the bankruptcy court may

issue any order, process, or judgment that is necessary or

appropriate to carry out the provisions of this title.“ Stays

under section 105(a) are not, however, routinely granted. The

legislative history of the Bankruptcy Code clarifies that see-

tion 105(a) stays are only granted “under the usual rules for

the issuance of injunction. ... S. Rep. No. 989, 95th Cong. 2d

Sess. 51, reprinted in 1978 U.S. Code Cong. & Ad. News 5837;

H.R. Rep. 595, 95th Cong., 2d Sess. 342, reprinted in 1978 U.S.

Code Cong. & Ad. News 6298. One of the four prerequisites in

* Counsel for EPA has informed the Court that the Agency will not

seek the entry of a money judgment.

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this circuit for the issuance of an injunction is “a substantial

likelihood that the movant will prevail on the merits.” Southern

Monorail Co. v. Robbins & Myers, 666 F.2d 185, 186 (5th Cir.

1977). Yet CORCO has conceded this element. Specifically, the

debtor-inpossession has noted that CORCO does not assert

that the EPA is wrong, or that it is acting in an arbitrary and

capricious manner with respect to the substantive environmen-

tal issues. Moreover, Pedro A. Rios Santiago,

vice-president of CORCO, testified that CORCO has filed

neither a Part B nor a closure plan and that the facility has not

complied with the requirements of the interim status regula-

tions, such as groundwater monitoring. The Court need not

therefore address the remaining three elements for a prelimi-

nary injunction or address EPA’s remaining arguments why a

section 105(a) stay should not be granted.

Finally, the Court wishes to note that Congress has ex-

pressly directed in 28 U.S.C. § 959 (b) that a debtor-in-posses-

sion “shall manage and operate the property in his possession

... according to the requirements of the valid laws of the State

in which such property is situated... This provision requires

CORCO to comply with federal law. See, e.g., Haberern v.

Lehigh & N.E. Ry. Co., 554 F.2d 581 (3d Cir. 1977); Carpenters

Local Union No. 2746 v. Turney Woods Products, Inc., 289 F.

Supp. 143 (W.D. Ark. 1968). Therefore, there is no obstacle to

EPA’s enforcement action in this case.

EPA also contends that (1) issuance of a 5 105 (a) stay would

render Kovacs a nullity, (2) EPA is immune from suit in this Court,

(3) the Court lacks jurisdiction to review the merits of EPA’s

impending enforcement action, because there has been no final

agency action, and (4) the applicability of a § 105 stay is not ripe

for review.

— —— el eer

—— ete S

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For the foregoing reasons, CORCO’s Motion for an Auto-

matic Stay or a Section 105(a) Stay is denied. Moreover, EPA

may proceed with its RCRA administrative enforcement action.

So ORDERED, this 16th day of May, 1985.

Joseph C. Elliott

Bankruptcy Judge

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.