Opposition Brief — O'Neill v. City of New York, 105 S. Ct. 2110 (1985) (No. 84-805)

F

JAN 22 1985

In The

7. u NDER L. STEVAS,

Supreme Court of the United States _

October Term, 1984

THOMAS J. O’NEILL, TRUSTEE IN BANKRUPTCY

OF QUANTA RESOURCES CORPORATION, Debtor,

Petitioner,

ai, Utfice-Supremie Court, US

(4) ILED

No. 84-805

V.

THE CITY OF NEW YORK and

STATE OF NEW YORK,

Respondents.

——

THOMAS J. O’NEILL, TRUSTEE IN BANKRUPTCY

OF QUANTA RESOURCES CORPORATION, Debtor,

Petitioner,

Vv.

THE NEW JERSEY DEPARTMENT OF

ENVIRONMENTAL PROTECTION,

Respondent.

ra

RESPONDENT'S BRIEF IN OPPOSITION TO A

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Irwin |. KIMMELMAN

Attorney General of New Jersey

Attorney for Respondent,

New Jersey Department of

Environmental Protection

Richard J. Hughes Justice Complex

CN 112

Trenton, New Jersey 08625

(609) 984-5612

James J. Crancta*®

Assistant Attorney General

Of Counsel

Ricwarp F’, EncE.

Deputy Attorney General

On the Brief

*Counsel of Record

COCKLE LAW BRIEF PRINTING CO., (800) 835-7427 Ext. 333

QUESTIONS PRESENTED

Whether the court below was correct that Congress

did not intend the Bankruptcy Code, 11 U.S.C. 4 554

(a), which authorizes the abandonment of burden-

some property, to abrogate federal, state and local

laws governing the disposal of hazardous wastes.

Whether a trustee can abandon a hazardous waste

facility in contravention of state laws and his obliga-

tions under 28 U.S.C. § 959(b) to manage and operate

the property according to the requirements of valid

state laws.

QUESTIONS PRESENTED

TABLE OF AUTHORITIES

COUNTERSTATEMENT OF THE CASE

TABLE OF CONTENTS

ARGUMENT:

A. THE DECISION OF THE COURT OF AP-

C.

CONCLUSION

CaSEs :

- Gillis v. California, 293 U.S. 62 (1934)

PEALS IS NOT CONTRARY TO ANY OF

THIS COURT’S PRIOR RULINGS. —.

THE QUESTION OF THE CORRECTNESS

OF THE COURT OF APPEAL’S INTER-

PRETATION OF 11 U.S.C. § 959(b) NEED

NOT BE REACHED BY THIS COURT. .....

THIS COURT NEED NOT DECIDE

WHETHER ABANDONMENT IN THIS

CASE VIOLATES STATE LAWS OR

REGULATIONS.

THE DECISION OF THE COURT OF AP-

PEALS WILL NOT FRUSTRATE THE

OBJECTIVES OF THE BANKRUPTCY

CODE. 7

TABLE OF AUTHORITIES

In the Matter of Canarico Quarries, Inc., 466 F.

Supp. 1333 (D.P.R. 1979)

In re Chicago Rapid Transit Company, 129 F.2d

1 (7th Cir.), cert. den., 317 U.S. 683 (1942) 2.

10

13

lil

TABLE OF AUTHORITIES—Continued

Page

In re Dolly Madison Industries, 504 F.2d 499 (3rd

Cir. 1974) 9

N.L.R.B. v. Bildisco & Bildisco, — U.S. —, 104

S.Ct. 1188, 79 L.Ed.2d 482 (1984) 5, 6

Ohio v. Kovacs, (No. 83-1020, January 9, 1985)............... 8,9

United States v. Security Industrial Bank, 459 U.S.

70, 103 S.Ct. 407, 74 L.Ed.2d 235 (1982) 5, 6,7

STaTuTEs:

11 U.S.C. §362(@) .. ee

11 U.S.C. §365(a) 5

11 U.S.C. §508 ........ ’ 11

11 U.S.C. §503(b) 10

11 U.S.C. $507 ... 11

11 U.S.C. §507(a) 10

11 U.S.C. $552(f) ... 7

11 U.S.C. 4554 passim

11 U.S.C. §701 et seq. 3

11 U.S.C. §959(b) .... 8

11 U.S.C. §1167 5

11 U.S.C. §15107 12

28 U.S.C. §959(b) 8, 9,12

28 U.S.C. §1293(b) ... 3

No. 84-805

AY

In The

Supreme Court of the United States

October Term, 1984

THOMAS J. O’NEILL, TRUSTEE IN BANKRUPTCY

OF QUANTA RESOURCES CORPORATION, Debtor,

Petitioner,

Vv.

THE CITY OF NEW YORK and

STATE OF NEW YORK,

Respondents.

ray

THOMAS J. O’NEILL, TRUSTEE IN BANKRUPTCY

OF QUANTA RESOURCES CORPORATION, Debtor,

Petitioner,

Vv.

THE NEW JERSEY DEPARTMENT OF

ENVIRONMENTAL PROTECTION,

Respondent.

Ly.

RESPONDENT'S BRIEF IN OPPOSITION TO A

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

a

COUNTERSTATEMENT OF THE CASE

These companion cases result from appeals by the

New Jersey Department of Environmental Protection

(hereafter ‘‘NJDEP’’) and the City and State of New

York from orders of the United States Bankruptcy Court

for the District of New Jersey allowing the trustee in

bankruptey of Quanta Resources Corporation to abandon

waste oil reprocessing facilities in Edgewater, New Jersey,

and New York City. The Bankruptcy Court relied on 11

1

U.S.C. § 554, which governs abandonment of property of

the bankrupt’s estate.

Quanta Resources Corporation is a Delaware corpora-

tion which was formed in March, 1980 to engage in the

business of waste oil recovery at several sites in New

York and in Edgewater, New Jersey. It owned the land in

New York City which was used to reprocess oil, and leased

the land in New Jersey from James V. Frola and Albert

VonDohlin.

With regard to the New Jersey facility, Quanta had

taken it over in July, 1980. It had been used by a previous

company which had been granted a temporary operating

authorization from the NJDEP, which specifically prohib-

ited acceptance of polychlorinated biphenyls (PCB’s), an

extremely hazardous substance, at the facility. When

Quanta took over the facility a similar restriction was

placed in its temporary operating authorization. Quanta

accepted waste oil and other liquids at the property and

put it in its tanks, where it was reprocessed and sold.

A sampling of waste at the site by NJDEP in June,

1981, revealed that PCB’s were present in the liquids in

the tanks in excess of the permissible standards in the

temporary operating authorization. On July 2, 1981,

Quanta agreed, at NJDEP’s request, to cease operations

at the site. Following the shutdown, NJDEP and Quanta

began negotiations regarding the cleanup of the property,

but on October 6, 1981, Quanta filed for reorganization

under Chapter 11 of the Bankruptcy code. On October 7,

1981, NJDEP issued an Administrative Order to Quanta

requiring that it cease operations and clean up all hazard-

ous materials at the site. On November 12, 1981, without

3

the work having been performed as ordered, Quanta filed

for conversion of the proceeding in the Bankruptcy Court

to a liquidation under 11 U.S.C. § 701 et seq.

The New Jersey facility, at the time of bankruptcy

filing, included tanks holding approximately 3.5 to 5 mil-

lion gallons of oil, oil sludge, and other liquids. About

400,000 gallons of this oil and sludge contained PCB’s in

excess of the permissible standard. Approximately 650,-

000 gallons of the oii that was on the site was able to be

sold, and was sold after the bankruptcy filing. The pro-

ceeds from the sale were placed in an escrow account. To

date, the other liquids remain on the site.

On May 20, 1983, an order was entered by the Bank-

ruptey Court authorizing the abandonment of the New

Jersey »roperty, effective May 17, 1983 nunc pro tunc

(Pet. App. 64a to 65a).

On September 21, 1983, NJDEP filed a Notice of Ap-

peal by Agreement to the Court of Appeals under 28

U.S.C. § 1293(b).

With regard to the New York property, it is located in

the geographical heart of New York City, in Queens, and

contained approximately 500,000 gallons of waste oil,

sludge and hazardous waste on the property, more than

70,000 gallons of which were contaminated with PCB's.

The facility was in a state of extreme disrepair.

The facility was operating in New York pursuant to a

consent order with the New York State Department of

Environmental Conservation (hereafter ‘‘NYSDEC’’),

which obligated Quanta to bring the facility into compli-

ance with New York law. It has been the position of New

York throughout these proceedings that the condition of

the facility violated not only the consent order but numer-

ous provisions of the New York State Environmental Con-

servation Law.

It has been conceded by all parties that the cost of

cleanup of the facility exceeded the value of any assets of

the property, and in fact, after the bankruptcy was filed

the City and State undertook a cleanup which cost ap-

proximately $2.5 million.

Following the proper notice, on June 22, 1982, the

Bankruptcy Court authorized the Trustee to abandon the

property (Pet. App. 69a to 75a). An appropriate order

was entered on July 7, 1982, effective June 22, 1982 nunc

pro tunc (Pet. App. 66a to 68a).

Notice of Appeal to the District Court was filed on

July 16, 1982. In an oral opinion on January 24, 1983, and

in a subsequent memorandum opinion (Pet. App. 52a to

60a), the District Court affirmed the decision of the Bank-

ruptey Court. A subsequent appeal was taken to the

United States Court of Appeals for the Third Circuit.

Opinions in both the New Jersey and New York cases

were filed on July 20, 1984, reversing the decisions of the

Bankruptcy and District Courts. (Pet. App. la to 48a).

The Trustee filed a petition for rehearing in both matters,

and on August 16, 1984, rehearing was denied (Pet. App.

49a to 5la).

ARGUMENT

A. The Decision Of The Court Of Appeals Is

Not Contrary To Any Of This Court’s Prior

Rulings.

Petitioner contends that the decision of the Court of

Appeals is in conflict with this Court’s decision in NLRB

v. Bildisco € Bildisco, — U.S. —, 104 S.Ct. 1188, 79 L.Ed.

2d 482 (1984) and United States v. Security Industrial

Bank, 459 U.S. 70, 103 S.Ct. 407, 74 L.Ed.2d 235 (1982),

and therefore this Court should grant the writ of certio-

rart in this case. Respondent, NJDEP, submits that the

decision of the Court of Appeals is consiscent with both of

those opinions, and therefore, certiorari should not be

granted.

In Bildisco this Court was called upon to decide

whether the term ‘‘executory contract” as used in 1]

U.S.C. § 365(a) included collective bargaining agreements.

A labor union had contended that § 365(a), which permits

a trustee to assume or reject any executory contract of a

debtor, did not extend to the right to reject a collective

bargaining agreement.

In interpreting the meaning of § 365(a), this Court

noted that that section contained a number of limitations

on the right of a debtor to reject executory contracts, but

that there was no limitation regarding the rejection of a

collective bargaining agreement. Bildisco, 104 S.Ct. at

1194. This Court also noted that 11 U.S.C. § 1167 ex-

pressly exempted collective bargaining agreements under

the Railway Labor Act from the provisions of § 365(a),

and thus this Court felt that Congress did not intend to

exeinpt collective bargaining agreements made under the

os

National Labor Relations Act. This Court reasoned that

Congress had made a number of exceptions to the right to

reject executory contracts, and since collective bargaining

agreements was not among them Congress must have in-

tended that they be allowed to be rejected.

Petitioner contends that this reasoning should be used

to find that Congress intended, in enacting 11 U.S.C. § 554,

to allow no exceptions to abandonment, despite the fact

that such abandonment may constitute an illegal act ac-

cording to State law.

There is no inconsistency between the Bildisco deci-

sion and the decision of the Court of Appeals in this mat-

ter. The Court of Appeals held that, with regard to § 554,

Congressional intent regarding exceptions cannot be ascer-

tained from a reading of the statute. The entire Bank-

ruptey Code and other statutes had to also be examined.

The Court concluded Congress did not intend an unlimited

right to abandon.

This is consistent with Bildisco. If 4 554 had limited

the power to abandon in some instances but not others, the

petitioner’s argument might be valid. However, it did not.

The two decisions are thus not in conflict and provide no

reason for this court to grant the writ of certiorari.

This Court’s decision in United States v. Security

Industrial Bank, 459 U.S. 70, 103 S.Ct. 407, 74 L.Ed.2d 235

(1982), is also not in conflict with the decision of the

Court of Appeals. Security Industrial Bank simply stated

the well-known principle of construction that constitu-

tional questions should not be addressed if there is an-

other way to interpret a statute to avoid the need to reach

those questions. In Security Industrial Bank the court

=

was faced with the question of whether 11 U.S.C. § 552(f)

should be applied retroactively. This Court held that,

since there was no intent on the part of Congress to apply

that section retroactively, there was clearly no constitu-

tional taking question that need be decided if retroactivity

were found to apply.

Here, however, there is no legislative history or other

clear evidence of Congressional intent regarding § 554 of

the Bankruptcy Code. Petitioner has raised the taking

question, and thus has raised an issue which respondent

contends need not be reached for the following reason.

It is not clear from the record whether the inability

of the trustee to abandon the property will deplete the

assets of the estate or the assets of any creditor. As the

Court of Appeals noted, ‘‘the trustee argues that use of

the estate’s assets to comply with State law may deplete

the estate...” (emphasis added). Failure to abandon

has no effect on any particular creditor, since secured

creditors still have the right to seek relief from the auto-

matie stay and foreclose on their collateral, 11 U.S.C.

§ 362(d), and all other creditors will be in the same posi-

tion they always were before any attempt to abandon.

The court below did not even reach the question of what

priority any government expenditures would have in the

distribution of the estate. It specifically remanded that

question to the Bankruptey Court (Pet. App. 25a).

Therefore, contrary to petitioner’s assertion, this

Court would be applying the principle of Security Indus-

trial Bank, to avoid unneeded constitutional questions, by

not taking this case and allowing the remand to proceed in

the Bankruptcy Court.

8

This Court’s recent opinion in Ohio v. Kovacs, (No. 83-

1020, January 9, 1985) is also not in conflict with the deci-

sion of the Third Cireuit. Kovacs concerned itself with

whether a debtor’s obligation under a State injunction was

dischargable because it was a ‘‘debt’’ or ‘‘liability on a

claim.” This Court held that it was. Respondent NJDEP

is not seeking an injunction here, and there is no dispute in

this case regarding whether NJDEP has a claim.

This Court also specifically noted that it was not de-

ciding what the duties are of a trustee in bankruptcy, oth-

er than that the trustee must comply with state environ-

mental laws while in possession of the site. Kovacs, Slip

Opinion at 10-11. It was noted that were Kovacs’ prop-

erty in the possession of a trustee in bankruptcy, and were

it worth less than the cost of cleanup, the trustee would

likely abandon the property. Kovacs, Slip Opinion at 10,

n. 12. However, this Court did not state whether such con-

duct by a trustee, if it were in violation of state law, would

be permissible under the Bankruptcy Code, and thus the

Kovacs opinion is not in conflict with that of the Third

Circuit.

B. The Question Of The Correctness Of The

Court Of Appeal’s Interpretation of 11 U.S.C.

§ 959(b) Need Not Re Reached By This Court.

The Court of Appeals correctly construed 28 U.S.C.

§ 959(b), and its construction is consistent with the prior

decisions of other federal courts on this issue. Respond-

ent knows of no other Court of Appeals decisions which

conflict with the interpretation of §959(b) by the Third

Circuit, since respondent knows of no other decisions inter-

preting this section in the context of liquidation. However,

9

the interpretation is consistent with other opinions in the

context of reorganization. See e.g., Gillis v. California,

293 U.S. 62 (1934); In the Matter of Canarico Quarries,

Inc., 466 F.Supp. 1333 (D.P.R. 1979); In re Dolly Madison

Industries, 504 F.2d 499 (3rd Cir. 1974); In re Chicago

Rapid Transit Company, 129 F.2d 1 (7th Cir.), cert. den.,

317 U.S. 683 (1942).

This Court also recently noted in Ohio v. Kovacs (83-

1020, January 9, 1985), that any person in possession of a

site that is part of a bankrupt estate, whether it is.a re-

ceiver or a trustee in bankruptcy, must comply with en-

vironmental laws. Slip Opinion ;at 10-11. This is con-

sistent with the holding of the Third Circuit below.

However, this Court need not reach the question of the

interpretation of 28 U.S.C. § 959(b), because the Court of

Appeals only discussed the section as an example of why it

felt that Congressional intent, as embodied in 4 554 of the

Bankruptey Code, prohibited abandonment of property

when such abandonment would contravene state and local

health laws. As an indication that Congress did not in-

tend the abandonment power to be absolute, the court

noted that 28 U.S.C. §959(b) requires a trustee in bank-

ruptecy to comply with state law.

C. This Court Need Not Decide Whether Aban-

donment In This Case Violates State Laws

Or Regulations.

Petitioner asserts that the court below erred in de-

ciding that abandonment would contravene New Jersey

and New York laws, and therefore this Court should ac-

cept this case to reverse that holding. However, such a

decision by the court below is not: a) in conflict with deci-

10

sions of other Circuits of Court of Appeals; b) an im-

portant question of federal law; or ¢) in conflict with any

prior decisions of this Court.

Rather, all of the lower courts in this matter based

their decisions on the assumption that abandonment would,

in and of itself, violate the requirements of New York and

New Jersey law (Pet. App. 6a, 54a, 72a). Each of the 50

states has different laws with regard to environmental

protection. Therefore, for this Court to decide that the

lower courts were incorrect in their assertions regarding

the meaning of New York and New Jersey laws would not

help the federal courts in the other 48 states when faced

with the issue of the interpretation of § 554 of the Bank-

ruptey Code. The petition for writ of certiorari should

therefore be denied.

D. The Decision Of The Court Of Appeals Will

Not Frustrate The Objectives Of The Bank-

ruptcy Corde.

Petitioner asserts that the purposes of the Bankruptcy

Code would be frustrated by the application of the deci-

sion of the court below. (See Petitioner’s Brief at p. 18

to 27). Petitioner’s assertion is based on his belief that

the opinion of the court below assigned a priority to the

claims of New York and New Jersey. On the contrary,

however, the court below specifically declined to set such a

priority.

New York had asked that its cost of cleanup be reim-

bursed out of the estate as an ‘‘administrative expense” as

defined in 11 U.S.C. §503(b) and §507(a). The court

held that,

11

we need not, however, reach the issue of the priority,

if any, of New York’s claim. That is an issue that can

properly be resolved only by the Bankruptcy Court,

since the issue was not treated in the proceedings be-

low and so the record on appeal does not include find-

ings of relevant facts. (Pet. App. at 25a).

All that the court below held was that a trustee may

not abandon property when such abandonment contra-

venes State and local public health laws. Thus, a trustee

must retain possession of the property until the liquidation

of the estate is complete. In some instances, a trustee

may be required to expend assets of the estate during that

time to prevent violation of State laws, including environ-

mental protection and health laws. He also may not.

States may or may not choose to expend their own funds

during that time to correct violations of environmental and

health laws. If they do, they may decide to file claims

avainst the estate. The trustee then, with court approval,

would be required to deal with these claims as with any

other claims, according to the requirements of the Bank-

ruptey Code. See 11 U.S.C. §§ 503 and 507. New York

and New Jersey have not asserted otherwise in this pro-

ceeding.

Respondent thus fails to see how the request that a

trustee not abandon property in any way frustrates the

purposes of the Bankruptey Code, which petitioner has

define 1 as the swifi reduction of the debtor’s property to

money and the fair and equitable distribution to the debtor

and its creditors of the estate. The court below has not

created a preference for New York or New Jersey. It

simply directed that the Bankruptey Court consider what

priority New York’s claim might have, along with the

claims of all other creditors.

12

With regard to the New Jersey facility, the court

specifically noted that “NJDEP .. . has not argued it

should be reimbursed for any expenses incurred in cleaning

up or restoring the property . . .,” and thus did not address

that issue (Pet. App. 39a). The court reiterated:

the issue is not who should pay to clean up the estate’s

property; it is whether the trustee’s interest in pre-

serving the estate should prevail over the public’s in-

terest in containing the hazards produced by toxic

wastes in the possession of the estate. As in the com-

panion case where the State and City of New York

are appealing, we are convinced that the equities must

be balanced in favor of the public interest. Jd.

The petitioner finally asserts that the purposes of the

Bankruptcy Code would be frustrated should the decision

below stand, because no one would agree to be a trustee in

bankruptcy. Again, petitioner misconstrues the opinion of

the court below. That decision simply requires that the

trustee in bankruptcy foliow state and local laws to the

extent that the funds in the estate allow. Trustees in

bankruptcy are required frequently to balance competing

requests for funds while the estate is being liquidated.

This decision requires nothing different. In addition, even

if a private trustee does not wish to serve, the United

States trustee could be required to do so under 11 U.S.C.

§ 15107.

Petitioner also suggests that for some reason trustees

would be subject to civil or criminal sanctions because of

failure to clean up hazardous wastes that might exist at a

site. Such sanctions under 28 U.S.C. 4 959(b) would only

be applied, however, if the trustee, while in possession of

the assets of the estate, violates a state or local health or

environmental law. This is no different than if the trustee

13

_were to violate any other law while he is in possession of

the estate.

In summary, nothing in the decision below conflicts

with any of the purposes of the Bankruptcy Code.

CONCLUSION

There is no reason why the writ of certiorari should

be granted in this case. The decision of the Court of Ap-

peals does not conflict with any decisions of other courts

of appeals. The decision also does not conflict with any

prior decisions of this Court, and the questions presented

by the petitioner are not so novel or important questions

of interpretation of federal law that they require the

granting of this writ.

It is therefore respectfully submitted that this peti-

tion for writ of certiorari to the United States Court of

Appeals for the Third Cireuit be denied.

DATED: Trenton, New Jersey

January 16, 1985

Respectfully submitted,

Irwin I. KIMMELMAN

Attorney General of New Jersey

Attorney for Respondent,

New Jersey Department of

Environmental Protection

14

Richard J. Hughes Justice Complex

CN 112

Trenton, New Jersey 08625

(609) 984-5612

Attorney for Respondent

New Jersey Department of

Environmental Protection

James J. Crancia*

Assistant Attorney General

Of Counsel

Ricuarp F., Ence.

Deputy Attorney General

On the Brief

*Counsel of Record

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