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

IN THE

Supreme Court of the Unit

OCTOBER TERM, 19847

THOMAS J. O’NEILL, TRUSTEE IN BANKRUPTCY OF

QUANTA RESOURCES CORPORATION, Debtor,

. Petitioner,

THE CiTy OF NEW YORK and STATE OF NEW YORK,

Respondents.

MIDLANTIC NATIONAL BANK,

Petitioner,

v.

NEW JERSEY DEPARTMENT OF

ENVIRONMENTAL PROTECTION,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Third Circuit

BRIEF OF THE STATE OF WEST VIRGINIA AND

FIFTEEN STATES AS AMICI CURIAE

Of Counsel to the Attorney CHARLIE BROWN

General of West Virginia Attorney General of

JAMES D. Morris * West Virginia

HOWARD J. WEIN STEVEN JOHNSTON KNOPP

Pennsylvania Department Assistant Attorney General

of Environmental State of West Virginia

Resources Capitol Complex

1314 Chestnut Street Charleston, WV 25305

Suite 1200 (304) 348-9160

Philadelphia, PA 19107

(215) 875-7486

* Counsel of Record

for Amici Curiae

WILSON - EPES PRINTING Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

TABLE OF CONTENTS

Page

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THE INTEREST OF THE AMICI CURIAE................ 2

SUMMARY OF ARGUMENT ...WWW222.2....2..02--e--cseeeeeeees 3

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The United States Court of Appeals for the Third

Circuit protected the public health and safety and

vindicated Congressional policy under the Bank-

ruptcy Code by refusing to allow the bankrupt

Quanta Resources to abandon its responsibilities

with respect to two dangerous hazardous waste

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The United States Court of Appeals for the Third

Circuit correctly required the bankruptcy court to

carry out its obligations as a federal court of

equity by balancing the public health, safety and

welfare against the financial interests of Quanta’s

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TABLE OF AUTHORITIES

CASES: Page

Astol Calero-Toledo v. Pearson Yacht Leasing

Company, 416 U.S. 663 (1974)_-........-.--.2...... 8

In Re Lewis Jones, Inc., 1 Bkr. Ct. Dec. 277 (E.D.

EEN ce a a 7

In Re Quanta Resources Corp., 739 F.2d 912 (3rd

Ee 2, 4, 6, 7, 8,9

Ottenheimer v. Whitaker, 198 F.2d 289 (4th Cir.

esd aR AS Ca .

Queenside Hills Realty v. Sazl, U.S. 80 (1946)...

STATUTES:

Federal:

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West Virginia:

W. Va. Code § 16-20-1 et seq. _.......-..2....--eeeee ne eeeeeenee

W. Va. Code § 20-5A-1 et seq. cece cece

W. Va. Code § 20-5E-1 et seq...

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W. Va. Code § 20-6-1 et seq. 222.2... nee

OTHER:

Wein, Environmental Enforcement and the Bank-

ruptcy Act, 17 Dug. L. Rev. 183 (1978-1979)... 9

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

No. 84-805

THOMAS J. O’NEILL, TRUSTEE IN BANKRUPTCY OF

QUANTA RESOURCES CORPORATION, Debtor,

. Petitioner,

THE CiTy OF NEW YORK and STATE OF NEW YORK,

Respondents.

No. 84-801

MIDLANTIC NATIONAL BANK,

* Petitioner,

NEW JERSEY DEPARTMENT OF

ENVIRONMENTAL PROTECTION,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Third Circuit

BRIEF OF THE STATE OF WEST VIRGINIA AND

FIFTEEN STATES AS AMICI CURIAE

2

THE INTEREST OF THE AMICI CURIAE

The amici curiae are the Attorneys General of the

State of West Virginia and the states of Indiana, Texas,

Oklahoma, Delaware, Pennsylvania, Connecticut, Ten-

nessee, Ohio, New Mexico, North Carolina, Michigan,

New Hampshire, Vermont, Kansas and Illinois, who file

this brief pursuant to Rule 36.4 of the Rules of the

Supreme Court of the United States. In each of the amici

states, the governors and the legislatures have developed

or are developing comprehensive statutory and regulatory

programs for assuring the public health, safety and wel-

fare by protecting the environment.’

Crucial to such state programs are state statutes and

city ordinances intended to impose liability for abate-

ment and rehabilitation upon the polluter who violates

these laws and thereby causes serious environmental

harm. The United States Court of Appeals for the Third

Circuit correctly recognized the importance of such laws

and reversed the courts below it, remarking “[t]hat Con-

gress did not intend to abrogate the enforcement of state

police power regulations .. .” 739 F.2d 912, 918. When

the bankruptcy courts allow abandonment and thereby

relieve illegal operators such as Quanta, and their legal

successors, the trustees in bankruptcy, of precisely such

responsibility, the bankruptcy courts effectively nullify

those state programs and jeopardize the public health and

safety. The decision of the United States Court of Ap-

1 West Virginia’s statutes are illustrative of the comprehensive

program of environmental protection. Each statute is designed to

address a particular area of concern. West Virginia Water Pollu-

tion Control Act, W. Va. Code § 20-5A-1 et seq., 1981, 1984 Supp.

(Water Pollution); West Virginia Air Pollution Control Act,

W. Va. Code § 16-20-1 et seq., 1985 (Air Pollution) ; West Virginia

Hazardous Waste Management Act, as amended, W. Va. Code

§ 20-5E-1 et seq., 1981, 1984 Supp. (Hazardous Waste); West

Virginia Solid Waste Management Act, as amended, W. Va. Code

§ 20-5F-1 et seq., 1981, 1984 Supp. (Solid Waste); West Virginia

Surface Coal Mining and Reclamation Act, W. Va. Code § 20-6-1

et seq., 1981, 1984 Supp. (Surface Mining).

3

peals for the Third Circuit prohibiting such a result

should be affirmed.

The common interest of the amici lies in the preserva-

tion of their ability to protect the citizenry through en-

forcement of state police power enactments. They also

seek to vindicate the Congressional intent that the Bank-

ruptcy Code honor, rather than undermine, the legitimate

interest of the states in seeking the abatement of hazards

and nuisances which threaten the public health, safety

and welfare. The amici have a growing concern that

lower federal courts are failing as federal courts of equity

by allowing bankrupts to subvert these important state

interests.

In recent years, Congress has increasingly recognized

the importance of protecting the same interests served by

the state environmental protection statutes.2 The com-

prehensive regulatory scheme enacted by Congress is de-

signed to protect against, inter alia, existing and past

unlawful hazardous waste disposal activities and includes

provisions for state enforcement of various federally im-

posed requirements. If the Third Circuit’s decision is

reversed, that scheme could be impaired severely. The

amici also have an interest in protecting the effectiveness

of the federal programs and the ability of the states |to

enforce the provisions of those laws.

SUMMARY OF ARGUMENT

The United States Court of Appeals for the Third Cir-

cuit protected the public health and safety and vindicated

Congressional policy under the Bankruptcy Code by re-

fusing to allow the bankrupt Quanta Resources to aban-

don its responsibilities with respect to two dangerous haz-

ardous waste disposal sites.

2 See, e.g., the Clean Air Act, 42 U.S.C. § 7401; the Federal Water

Pollution Control Act, 33 U.S.C. § 1251; the Resource Conservation

and Recovery Act, 42 U.S.C. § 6901; the Federal Surface Mining

Control and Reclamation Act, 30 U.S.C. § 1201; the Comprehensive

Environmental Response, Compensation and Liability Act (Super-

fund legislation), 42 U.S.C. § 9601.

4

Even assuming that Congress may have granted the

federal bankruptcy courts a new statutory power to over-

rule the states’ exercise of the police power reserved to

them under the Tenth Amendment, to jeopardize the

public health and safety, to ignore the intent of the Bank-

ruptey Code and to disregard the federal legislative

scheme controlling and regulating hazardous waste, it is

manifestly clear that the Constitution requires that such

power must be exercised, if ever, in a manner consistent

with the balancing of interests required of a federal court

sitting in equity, rather than as a purely commercial

tribunal whose sole interest lies in the vindication of

creditors’ rights. The United States Court of Appeals for

the Third Circuit properly reversed such an untoward re-

sult and should be affirmed.

ARGUMENT

The United States Court of Appeals for the Third Circuit

protected the public health and safety and vindicated

Congressional policy under the Bankruptcy Code by

refusing to allow the bankrupt Quanta Resources to

abandon its responsibilities with respect to two danger-

ous hazardous waste disposal sites.

By interfering with the legitimate efforts of New York,

New York City and New Jersey to contain and control

severe environmental hazards by compelling the bank-

rupt to comply with state and local laws respecting en-

vironmental protection, the bankruptcy court imperiled

the public health and safety in the vicinity of the two

sites. The United States Court of Appeals for the Third

Circuit correctly reversed the courts below, remarking:

“(ejonsidered in the light of other provisions that both

limit the supersession of state laws and specifically incor-

porate equitable principles into a bankruptcy court’s ju-

risdiction, it is clear that Section 554 [of the Bankruptcy

Code] does not of itself preempt state police power reg-

ulations.” 739 F.2d 912, 918 (8rd Cir. 1984).

—s_

5

Despite state statutes and city ordinances clearly in-

tended to impose liability for abatement and rehabilita-

tion upon the polluter who violates these laws and there-

by causes serious environmental harm, the bankruptcy

court in fact relieved Quanta—just such an illegal oper-

ator—and its legal successor, the trustee in bankruptcy,

of precisely such responsibility.

State regulatory agencies throughout the nation are

faced every day with the urgent need to protect their

citizens from both the immediate dangers posed by the

illegal disposal of hazardous and industrial waste, as in

the instant cases, and by violations of the other state

statutes * designed to protect the public health, safety

and welfare. Such statutes represent valid exercises of

the police power, reserved to the states under the Tenth

Amendment to the Constitution of the United States.

Traditionally recognized by this Court as the least limit-

able of the reserved powers, Queenside Hills Realty v.

Saxl, 328 U.S. 80 (1946), the police power broadly au-

thorizes the various states to regulate in order to pro-

tect the health, safety and welfare of their citizens.

Legitimate state enforcement action pursuant to such

statutes is thwarted when illegal activities are sanc-

tioned by the federal bankruptcy courts. In the instant

cases, the federal bankruptcy court refused to show con-

stitutionally mandated deference toward the states in

the exercise of the police power. The decision of the

United States Court of Appeals for the Third Circuit

correctly redressed this imbalance, by reversing the

courts below and refusing to allow abandonments which

result in violations of the state laws and city ordinances

concerning the disposal of hazardous waste.

8 The briefs of New York, New York City and New Jersey are

replete with reference to the various state and municipal require-

ments relating to police power enactments respecting environmental

protection. See n.1, supra.

6

Quanta’s trustee in bankruptcy is under an absolute

and unconditional obligation to comply with the laws of

New York, New York City and New Jersey, and to ap-

ply all necessary assets of the estate to the cleanup of

the two environmental disasters which Quanta owned

and in the creation of which Quanta aided. The Bank-

ruptey Code itself contemplates that state police power

actions will not be subjected to interference by the fed-

eral bankruptcy courts, see 11 U.S.C. § 362 (b) (4); 28

U.S.C. § 1478(a).* The trustee must comply with val-

idly enacted state police power statutes, 28 U.S.C. § 959

(b). As the United States Court of Appeals for the

Third Circuit remarked: ‘“[t|jhe question thus presents

itself: did Congress intend that the trustee’s abandon-

ment power be unrestricted by public health and safety

regulations? Our examination of the bankruptcy laws

and the authorities interpreting these laws reveals no

such congressional intent.” 739 F.2d 912, 916.

Furthermore, the action of the bankruptcy court was

at marked variance with clearly expressed congressional

intent respecting environmental protection against the

illegal disposal of hazardous waste, see, e.g., 42 U.S.C.

§§$ 6901(b) (4) and 6901(b)(5). The United States

Court of Appeals for the Third Circuit specifically recog-

nized that state and local law implement the same in-

tent: “[t]he primary purpose of the state and local laws

regulating the disposal of hazardous wastes is obviously

to protect the public from the toxic effect of dangerous

substances by preventing their uncontrolled discharge

into the environment.” 739 F.2d 912, 915 (8rd Cir.

1984).

The action of the bankruptcy court frustrated the op-

eration and administration of the federal laws concern-

ing the protection of the public against the dangers posed

4 Section 1478 of Title 28 was modified by the Bankruptcy Amend-

ments and Federal Judgeship Act of 1984, P.L. 98-353. However,

the policy protecting states from removal remained the same.

7

by the ‘llegal disposal of dangerous industrial waste.

Given the bankruptcy court’s failure to respect the

reserved police power of New York and New Jersey,

and given its obstruction of the operation and admin-

istration of the federal environmental law, the decisions

of the Bankruptcy Court were properly reversed, and

the decision of the United States Court of Appeals for

the Third Circuit should be affirmed.

The United States Court of Appeals for the Third Cir-

cuit correctly required the bankruptcy court to carry

out its obligations as a federal court of equity by balanc-

ing the public health, safety and welfare against the

financial interests of Quanta’s creditors.

The bankruptcy court below also failed as a federal

court of equity.” The United States Court of Appeals for

the Third Circuit properly identified the bankruptcy

court as just such a court, 739 F.2d 912, 917, and pro-

ceeded to present the balancing of equities which the

bankruptcy court should have, but here failed, to do:

In this case, the state and local regulations advance

a very important policy: to protect the public health

by regulating disposal of toxic wastes. Abandonment

by the trustee clearly contravened applicable law, and

did so not merely technically, but with severely dele-

terious implications for the public safety. . .

To be weighed against this manifestly important

public policy is the policy advanced by abandonment,

to preserve as much of the estate as possible for dis-

tribution to creditors. This policy must be viewed in

light of the indications of a concurrent federal legis-

lative policy to limit intrusion into state police power

regulations, including environmental protection

laws...

5 See Ottenheimer v. Whitaker, 198 F.2d 289 (4th Cir. 1952);

In re Lewis Jones, Inc., 1 Bkr. Ct. Dec. 277 (E.D. Pa. 1974), which

were cited with approval by the United States Court of Appeals for

the Third Circuit, 739 F.2d 912, 916-918 (1984).

8

But the extent (unproven in these proceedings) of

the expenditures necessary to dispose of the waste

properly is not in itself sufficient to outweigh the

public interest at stake here. . . The supremacy

clause does not require the suspension of the opera-

tion of New York’s hazardous waste disposal laws.

739 F.2d 921-922 (footnotes omitted) (emphasis sup-

plied).

As a court of equity, the bankruptcy court below suc-

ceeded only in protecting the limited group of entities

which financed the creation of the two illegal hazardous

waste disposal sites. It provided no consideration or pro-

tection for the citizenry actually or potentially affected

by the illegal hazardous waste, and it chose to impose

indirectly the costs of cleanup upon the already strained

fise of New York, New York City and New Jersey.

Were the trustee compelled to address his responsibil-

ities with respect to the Quanta sites, the various cred-

itors who financed the creation of the Quanta disasters

would have nothing legitimate to complain of. A pru-

dent lender is on inquiry notice with respect to real

estate security, and such a lender ought logically at least

on occasion to police such collateral. Even assuming that

the creditors were unaware of the illegal conduct on the

part of their debtor, this Court has sustained actions by

governmental agencies which worked far more onerous

deprivations without finding a compensable taking. For

example, in Astol Calero-Toledo v. Pearson Yacht Leas-

ing Company, 416 U.S. 663 (1974), a yacht lessor’s boat

was seized and forfeited by the authorities of Puerto

Rico pursuant to the arrest of a dealer in illegal drugs

who was using the boat to transport drugs. Despite the

yacht lessor’s complete lack of knowledge of or connec-

tion with the criminal enterprise, this court held that

no unconstitutional deprivation was worked by the for-

feiture.

Finally, the bankruptcy court below proceeded as

though totally unaware that the state s.atuies and ordi-

9

nances involved in the instant cases (as well as their

equivalents in West Virginia and other states) were en-

acted to implement and complement federal legislative

action under the Commerce Clause.* The constitutional

scheme protecting both the police power of the states

and the power of the federal government to regulate

interstate commerce was severely disrupted when the

bankruptcy court below allowed abandonment to proceed.

The United States Court of Appeals for the Third Cir-

cuit has set forth a lucid and sensible analysis for bank-

ruptcy courts to apply when they consider abandonments

which may involve violations of state and local laws re-

specting the disposal of hazardous waste. On the one

hand, the court must consider “. ... a very important

policy: to protect the public health by regulating dis-

posal of toxic wastes.” 739 F.2d 912, 921. On the other

hand, the court must consider “. . . the policy advanced

by abandonment, to preserve as much of the estate as

possible for distribution to creditors.” 739 F.2d 912, 921.

Where the two policies conflict, the court must rule in

favor of the public health, safety and welfare. As the

United States Court of Appeals for the Third Circuit

concluded: “(t]he Supremacy clause does not require the

suspension of New York’s hazardous waste disposal

laws.” 739 F.2d 912, 921. Its judgments should be con-

firmed.

6 See, e.g., the Resource Conservation and Recovery Act, 42

U.S.C. § 6901 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.;

the Water Pollution Control Act, 33 U.S.C. § 1251 et seq. and the

Surface Mining Control and Reclamation Act, 30 U.S.C. §1201

et seq. See also, Wein, Environmental Reguiation and the Bank-

ruptcy Act, 17 Dug. L. Rev. 133, 186 (1978-1979).

10

CONCLUSION

The United States Court of Appeals for the Third

Circuit protected the public health and safety and vindi-

cated Congressional policy under the Bankruptcy Code

by refusing to allow the bankrupt Quanta Resources to

abandon its responsibilities with respect to two dan-

gerous hazardous waste disposal sites. The United States

Court of Appeals for the Third Circuit correctly re-

quired the bankruptcy court to carry out its obligations

as a federal court of equity by weighing the public health,

safety and welfare against the financial interests of

Quanta’s creditors.

_ Accordingly, the judgments of United States Court

of Appeals for the Third Circuit should be affirmed.

Respectfully submitted,

Of Counsel to the Attorney CHARLIE BROWN

General of West Virginia Attorney General of

JAMES D. Morris * fi West Virginia

HOWARD J. WEIN STEVEN JOHNSTON KNOPP

Pennsylvania Department Assistant Attorney General

of Environmental _ State of West Virginia

Resources Capitol Complex

1314 Chestnut Street Charleston, WV 25305

Suite 1200 (304) 348-9160

Philadelphia, PA 19107

(215) 875-7486

§ Counsel of Record

for Amici Curiae