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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1987
- **Citation:** 483 U.S. 1005

## Text

ee

„ 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,
v.

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

1.

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

oo

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?

iv

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

V

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
„„ „„ 4 2
„„ „„ „ 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,
V.

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.

2

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.

4

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.

5

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

I.

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

9

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

10

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

11

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

12

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

13

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.

14

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

15

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

16

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).

17

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:

18

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.

19

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
ES
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

II

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,

V.
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.

I.

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

A.

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.

ie

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.

V.

For the foregoing reasons, the judgment of the district court
is AFFIRMED.

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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-
tions 6901-6987. Judge Elliott held that th © PA's action was
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.

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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

IV

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 in

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_1895%3A1. Public record. Not legal advice.