Amicus Curiae Brief — CMC Heartland Partners v. Union Pacific Railroad, 117 S. Ct. 44 (1996) (No. 96-44)

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No. 96-44 | DEC SA 1996

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In the Supreme Court of the Gutex States-

CLERK

OCTOBER TERM, 1996

CMC HEARTLAND PARTNERS, PETITIONER

UNION PACIFIC RAILROAD COMPANY

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

WALTER DELLINGER

Acting Solicitor General

Lois J. SCHIFFER

Assistant Attorney General

LAWRENCE G. WALLACE

Deputy Solicitor General

JEFFREY P. MINEAR

Assistant to the Solicitor

General

JOHN A. BRYSON

ANNE S. ALMY

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

QUESTION PRESENTED

Whether, for purposes of bankruptcy law, a liability

claim based on a state statute can arise before enactment

of the statute that creates liability for that conduct.

(I)

TABLE OF UCsJNTENTS

Page

IIIT Wicratidichtahibiecntabebarcesstesiindeniserssresdéchiacstbbeorss 1

NINN didn beastsenksabubhdntskonsincubess traxnitaceueyersipeusanse 9

eI ildinAniassadedicintnbiipeieveneaceasecacdtisbabsesadtvarestsnaie’ 19

TABLE OF AUTHORITIES

Cases:

Chateaugay Corp., In re:

Ne ee TE GE GRE ROWED. vocvesscdoreseverinrscccsciscenss 17

53 F.3d 478 (2d Cir.), cert. denied, 116 S. Ct.

PEED: cdskiiusbbdpeiaddlamberiucciuisessevcerccesess 14, 15, 16, 18

Chicago, Milwaukee, St. P. & Pac. R.R., In re,

OT4 F.Ba TiS (7th Cir. LOOZ) 2....s.secsceccoccsccsesscceeess 7

Epstein v. Official Comm. of Unsecured Creditors

of Estate of Piper Aircraft Corp., 58 F.3d 1573

EE VE.iT5 varladudolidonth ubeakscnibreisirtestsacdaccees 17

Frenville Co., In re, 744 F.2d 332 (3d Cir. 1984),

cert. denied, 469 U.S. 1160 (1985) ............cceseseeeee 17

Grady v. A.H. Robins Co., 839 F.2d 198 (4th

Cir.), cert. dismissed, 487 U.S. 1260 (1988) ......... 18

Grogan v. Garner, 498 U.S. 279 (1991) ............. 15

Helvering v. Minnesota Tea Co., 296 U.S. 378

NE ae AA NtF a ialg i tahcdnksvaletnkchsisbsneibiasbiedl ciszesserce 12

Hines v. Davidowitz, 312 U.S. 52 (1941) ............. 16

Jensen, In re, 995 F.2d 925 (9th Cir. 1993) ........... 17

Lebron v. National R.R. Passenger Corp.,

Rs Re EE CBE: sbinidsidintscoinidcorainterscenovesvevesis 12

McCullough v. Kammerer Corp., 323 U.S. 327

EE Riwidatiaksddshdniaietinseiasvienddtectercsaess: ebadeedenans 12

Northern Pipeline Constr. Co. v. Marathon Pipe

BR Ee Uo lls OO CAD sestanccccccerciccsesiseccssece 15

Patrick v. Burget, 486 U.S. 94 (1988) .............0. 12

Penn Central Transp. Co., In re, 944 F.2d 164

(3d Cir. 1991), cert. denied, 503 U.S. 906

SUE Siiittaiiiaancndgeninabiondivitiiassessdintttdatietonscseee 6, 8, 10, 16

Pennsylvania Dep’t of Pub. Welfare v. Davenport,

i MI CEMEE: dist chertastncnsaticasbsccnsecokescssrccctens 14

(IIT)

Cases—Continued Page

Vanston Bondholders Protective Comm. v. Green,

SBD UB: 2G CHGS isckckasdsinsinciteassicescitusiannns 15

Yee v. City of Escondido, 503 U.S. 519 (1992) ..... 12, 13

Youakim v. Miller, 425 U.S. 231 (1976) .............. 12

Constitution, statutes and rule:

US: Commit; Ast. 5 66 G4 Cdk 2

Act of Apr. 4, 1800, ch. 19, 2 Stat. 19 ................. 2

Act of Aug. 19, 1841, ch. 9, 5 Stat. 440 oe. 2

Act of Mar. 2, 1867, ch. 176, 14 Stat. 517 ............... 2

Act of Mar. 3, 1933, ch. 204, § 1, 47 Stat. 1474 ....... 2-3

Act of June 7, 1934, ch. 424, § 1, 48 Stat. 912 ......... 3

Bankruptcy Act of 1898, ch. 541, 30 Stat. 544 ........ 2

S TTD), 13 UBC. BOR) GPG) ccccevssscisnccessvscsaies 7, 14, 16

Bankruptcy Code, 11 U.S.C. 101 et seq. ..............004 3

Ch, 1, 11 U.S.C. 101 et seq.:

BA RS De CUE? “daponstiatuvandainiiieievensscencsiehala 14, 18

DS fa 5) | PRRDRIRAie coarenel nen Dae pr oe sy 16

Ch. 3, 11 U.S.C. 301 et seq.:

DE Ee ccnnincahiecsiimivinnhinaiicion: 17

Ghai ARs SE SE ar Be OE GOW, inceteticacrhieinsteenints 3

SS SIT... RO wiktshnsbpclivinisiavidhmlgbbebentpbbiatiness 3

RE: SAGA cschciictanbadactgaabibinddbecedtbchhinpetiin 3

2D CE Re actin canictindehodnscnscctdideshanadvanstadoecs 3

BS Seats BIT sctelacecseeteintintbinnsiudsdigiickantys 3, 15

Bankruptcy Reform Act of 1978, Pub. L. No.

RB Es Be ince aibtitesinictsunctrasscetuccscaiseale 3

©, Fe ts Fe onccnitcticicccentimivacnnitatcininne 4

Chandler Act, ch. 575, § 1, 52 Stat. 883-930 ........... 3

Comprehensive Environmental Response, Com-

pensation, and Liability Act, Pub. L. No. 96-510,

94 Stat. 2767 (42 U.S.C. 9601 et 8€q.) ......ccccceeeeeees 1,5

eM Bes ee | a een rr 5

Model Toxics Control Act, Wash. Rev. Code

§§ 70.105D.010 et seq. (1994) ..........cccccccccereeeeeeees 1-2

§ 4, Wash. Rev. Code § 70.105D.040 ................ 5

RS Tr RE A, Fh kc ah cceess inion ddan ecacatcbebdiatnidinionie 5

TR CRs Ths DU nccctcinscch tnt ctehguabintoritguemmmnavmannsie 12

Miscellaneous:

John C. Anderson, Chapter 11 Reorganizations

GEL Diaseets prentishaabanidtdenthisdakinebearnandiarentdécactiesese

Ralph E. Clark, Contingent and Immature Claims

in Receivership Proceedings, 29 Yale L.J. 481

EUIEOP visitdransabestbaniebinlasdihdahininudeseiliblsiabetinbnnnetions

EE FUE citainbisicnintnthactniciitdeietithseliredeteistidbexeintdeies

James W. Moore, Moore’s Bankruptcy Manual

CHIMES ‘ecsaissceccauhscenechiduisedmanienaunsachbiberonneestrtucctinses

Page

In the Supreme Court of the Gnited States

_ OCTOBER TERM, 1996

No. 96-44

CMC HEARTLAND PARTNERS, PETITIONER

UNION PACIFIC RAILROAD COMPANY

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

This brief is submitted in response to the Court’s invi-

tation to the Solicitor Genera! to express the views of the

United States.

STATEMENT

Petitioner is the successor of the Chicago, Milwaukee,

St. Paul & Pacific Railroad Company (Milwaukee Road),

which was reorganized under Section 77 of the Bank-

ruptcy Act of 1898, 11 U.S.C. 205 (1976), in accordance with

a consummation order entered in 1985. After the entry of

the consummation order, Union Pacific Railroad Company

sought reimbursement from petitioner for the cost

of cleaning up hazardous wastes at a property, located

in Tacoma, Washington, that was formerly owned by

Milwaukee Road. Union Pacific asserted its claims under

the Comprehensive Environmental Response, Compensa-

tion, and Liability Act of 1980 (CERCLA), 42 U.S.C. 9601

et seqg., and the Washington State Model Toxics Control

(1)

Act (MTCA), Wash. Rev. Code §§ 70.105D.010 et seq. (1994).

Petitioner filed this action in the district court that

had jurisdiction over the reorganization to enjoin Union

Pacific from asserting those claims. That court enjoined

Union Pacific from asserting liability claims under

CERCLA, but refused to enjoin Union Pacific from as-

serting analogous claims under the MTCA, which had not

been enacted until after the court’s order consummating

the bankruptcy reorganization. The court of appeals af-

firmed that ruling.

1. The Constitution grants Congress the power to

“establish * * * uniform Laws on the subject of

Bankruptcies.” U.S. Const. Art. I, § 8, Cl. 4. During the

nineteenth century, Congress exercised that power by

enacting a series of bankruptcy statutes that allowed

insolvent debtors to discharge their debts through the

liquidation of their assets. See Act of Apr. 4, 1800, ch. 19, 2

Stat. 19 (repealed 1803); Act of Aug. 19, 1841, ch. 9, 5 Stat.

440 (repealed 1843); Act of Mar. 2, 1867, ch. 176, 14 Stat. 517

(repealed 1878); Bankruptcy Act of 1898, ch. 541, 30 Stat.

544 (repealed 1978). Those statutes generally did not pro-

vide businesses with an opportunity to satisfy their debts

through reorganization. In response, financially encum-

bered businesses, particularly railroads, employed the de-

vice of the equity receivership to adjust their debts while

remaining in operation. See John C. Anderson, Chapter 11

Reorganizations §§ 1.01-1.06 (1995).

During the Great Depression, Congress recognized the

need to provide a mechanism for reorganization under the

federal bankruptcy laws. Based on the experience gained

through equity receiverships, Congress amended the

Bankruptcy Act of 1898 to provide for reorganization of

bankrupt business entities. Those amendments included

enactment of: (1) Section 77, which governed railroad re-

organizations (see Act of Mar. 3, 1933, ch. 204, § 1, 47 Stat.

1474); (2) Section 77B, which governed other business re-

organizations (see Act of June 7, 1934, ch. 424, § 1, 48 Stat.

912); and Chapters X through XII, which replaced Section

77B (see Chandler Act, ch. 575, § 1,52 Stat. 883-930 (1938)).

See generally 5 Lawrence P. King, Collier on Bankruptcy

{ 1100.01 (15th ed. 1996); John C. Anderson, Chapter 11 Re-

organizations §§ 1.01-1.06 (1995); James W. Moore, Moore’s

Bankruptcy Manual (1939).

In 1978, Congress comprehensively revised the federal

bankruptcy laws through enactment of the Bankruptcy

Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549,

which repealed and prospectively replaced the Bankruptcy

Act of 1898 and its amendments. The revised laws are

currently codified as the Bankruptcy Code, 11 U.S.C. 101

et seq. Chapter 11 of the Bankruptcy Code provides for

reorganization of debtors. See 11 U.S.C. 1101 et seg. The

provisions of Chapter 11 are generally similar, but not

identical, to those contained in the 1898 Act.

Under Chapter 11, a debtor (and, in certain circum-

stances, uther parties in interest) may submit a plan for

reorganization. See 11 U.S.C. 1121. Creditors are entitled

to express approval of or opposition to the plan. See 11

U.S.C. 1126. If the plan satisfies specific requirements

contained in the Code, a court may confirm it. See 11

U.S.C. 1129. As a general matter, the confirmation of a

reorganization plan “discharges the debtor from any debt

that arose before the date of such confirmation” unless the

plan or order confirming the plan provides otherwise. 11

U.S.C. 1141(d).

2. On December 19, 1977, Milwaukee Road petitioned

the United States District Court for the Northern Dis-

trict of Illinois for reorganization under Section 77 of the

Bankruptcy Act of 1898, 11 U.S.C. 205 (1976), which was

then in force. While the reorganization was in progress,

Union Pacific purchased approximately 100 miles of rail-

road right-of-way and various properties from the bank-

ruptcy trustee for Milwaukee Road. Pet. App. 2a, 23a-24a.

The properties included a railyard in Tacoma, Washington,

that Milwavkee Road had owned from the early years of

this century. /d. at 24a. As part of that transaction, which

took place on December 19, 1980, Union Pacific received a

covenant from the Trustee and Milwaukee Road “to

indemnify and save harmless Union Pacific * * * against

any and all claims * * * arising out of the operations of

the properties prior to March 12, 1980.” Jd. at 39a.

The reorganization progressed through the enactment

of the Bankruptcy Reform Act of 1978, which provided that

ongoing reorganizations would continue to be governed by

the 1898 Act. See Pub. L. No. 95-598, § 403, 92 Stat. 2683.

On July 12, 1985, the district court confirmed the debtor’s

reorganization plan and established bar dates for post-

petition claims. Pet. App. 2a, 24a. On November 12, 1985,

the court entered a consummation order that barred and

discharged all claims against the Trustee, Milwaukee

Road, and petitioner, as Milwaukee Road’s successor, ex-

cept as provided in the reorganization plan. See ibid.

That plan bars all claims for contribution and indemnity

existing as of the confirmation and consummation dates

except “claims for contribution or indemnity based on

facts that are unknown, undisclosed or unasserted” as of

those dates. Jd. at 42a.

3. ‘While petitioner’s reorganization was in progress,

Union Pacific learned through various inspections and

reports that the Tacoma site contained discarded indus-

trial materials. Pet. App. 24a-27a. In 1990, after the con-

summation of petitioner’s reorganization, Union Pacific

decided to sell the property. It commissioned a pre-sale

environmental audit, which disclosed subsurface contami-

nation from petroleum and other products. Jd. at 27a.

That audit heightened concerns about potential liability

under federal and state law. The United States and the

State of Washington had each enacted legislation imposing

retrospective liability on responsible parties for the reme-

diation of sites containing improperly discarded hazardous

substances. See CERCLA § 107, 42 U.S.C. 9607; MTCA

§ 4, Wash. Rev. Code § 70.105D.040 (1994). Congress enact-

ed CERCLA in 1980, see Pub. L. No. 96-510, 94 Stat. 2767,

while the Washington legislature enacted the MTCA in

1989, see 1989 Wash. Laws ch. 2.

Union Pacific notified the United States Environmental

Protection Agency (EPA) and the Washington Depart-

ment of Ecology (DOE) of the contamination. Pet. App.

27a. The DOE informed Union Pacific that it was poten-

tially liable for clean-up of the property under the MTCA,

which obligates the owner of a contaminated property, as

well as others who contributed to the hazards, to clean up

the site. See Wash. Rev. Code § 70.105D.040 (1994). Union

Pacific ultimately entered into an agreement with the

DOE to assume responsibility for cleaning up the property

and moved forward with the remedy. See Pet. App. 27a.

4. On September 9, 1991, Union Pacific sent petitioner

a letter seeking to negotiate over petitioner’s potential

liability for clean-up and response costs to be incurred at

the Tacoma site. Pet. App. 27a. In response, petitioner

filed this action in the Illinois district court that con-

firmed the bankruptcy reorganization and requested that

court to enjoin Union Pacific from prosecuting any claims

respecting the site. Ibid. While petitioner’s request for

an injunction was under consideration, Union Pacific filed

a complaint against petitioner in the United States

District Court for the Western District of Washington for

its response costs, predicating liability on CERCLA, the

MTCA, and the indemnification terms of the original sales

contract. Jd. at 27a-28a.

The Illinois district court granted in part petitioner’s

motion to enjoin Union Pacific’s action. Pet. App. 37a-46a.

The court observed that, under the terms of the consum-

mation order, petitioner remained liable for “claims for

contribution or indemnity based on facts that are un-

known, undisclosed or unasserted” as of the relevant

confirmation and consummation dates. /d. at 42a. The

court concluded that Union Pacific, which had participated

in the reorganization proceedings, had adequate knowl-

edge under the facts presented here to have asserted a

CERCLA claim in those proceedings. Jd. at 44a.

The district court ruled, however, that the consum-

mation order did not bar Union Pacific’s MTCA claim,

because the MTCA “had not been enacted by the State of

Washington at the time the consummation order was

entered” and Union Pacific “could not possibly have

known of its liability under a statute that was not in exis-

tence until four years after the bar dates were estab-

lished.” Pet. App. 45a, citing In re Penn Central Transp.

Co., 944 F.2d 164 (8d Cir. 1991), cert. denied, 503 U.S. 906

(1992). The court accordingly entered an order enjoining

Union Pacific from “asserting or attempting to prose-

cute” any claims for contribution or indemnity under

CERCLA, but did not extend that relief to claims under

the MTCA. Id. at 46a. Both parties appealed.

5. The court of appeals affirmed the district court’s

judgment in part, vacated it in part, and remanded for

further proceedings. Pet. App. 19a-34a. The court of ap-

peals concluded that the controlling issues were whether:

(1) “Union Pacifie’s claim for indemnification of its lia-

bility under federal law arose before the discharge and

thus was barred”; and (2) “Union Pacific’s claim for indem-

nification of its liability under state law arose after the

discharge and thus was not barred.” /d. at 23a. The court

of appeals agreed with the district court “that Union

if ne

Pacifie’s claim under CERCLA was barred,” but remanded

the case for further consideration of the MTCA claim.

Ibid.

The court of appeals explained that Union Pacific’s

CERCLA claim was barred because Union Pacific could

have asserted that claim in the bankruptcy proceeding.

Pet. App. 30a-33a. The court had previously stated in Jn re

Chicago, Milwaukee, St. Paul & Pacific Railroad, 974

F.2d 775 (7th Cir. 1992), that Section 77(b) of the Bank-

ruptey Act of 1898, 11 U.S.C. 205(b) (1976) (repealed 1978),

“broadly defines claims to include ‘debts, whether liqui-

dated or unliquidated . . . or other interests of whatever

character.’” 974 F.2d at 780. The court accordingly ruled

in that case that a potential CERCLA claimant is obli-

gated to submit a CERCLA claim in a Section 77 reorgani-

zation, even if the claim is contingent on the occurrence of

additional events, if the potential claimant has evaluated a

contamination problem and “can tie the bankruptcy debtor

to a known release of a hazardous substance which thfe]

potential claimant knows will lead to CERCLA response

costs.” Id. at 786. See Pet. App. 2la-22a. Applying that

reasoning, the court of appeals concluded that the district

court had correctly determined that Union Pacific had

sufficient constructive knowledge of the contamination

problem during the reorganization proceeding to file a

“contingent” CERCLA claim before the bar dates. Jd. at

30a-33a.

The court then turned to petitioner’s contention on

appeal that Union Pacific’s MTCA claim was also barred.

Pet. App. 33a-34a. Petitioner did not contest that the

MTCA went into effect after the bar dates or that, under

prevailing law, “claims based on a statute enacted after

discharge in bankruptcy are not barred.” Jd. at 38a. See

Penn Central, 944 F.2d at 168. Petitioner instead argued

as follows:

The crucial factor in the district court’s refusal to

bar Union Pacific’s MTCA claims was the fact that

MTCA was enacted in 1989 after the bar dates and

consummation order in the Milwaukee Road _ bank-

ruptcy. The district court accepted Union Pacific’s

contention that, as a matter of law, a bankruptcy claim

cannot be barred unless ihe precise statute under

which the claim is asserted already existed before the

bar date.

[Petitioner] maintain[s] that as a matter of law the

district court has articulated and applied an incorrect

test. The prajger legal test should be to determine

whether a newly-enacted statute creates new rights

for the putative claimant or merely recodifies existing

rights. If the latter, as is the case here, the claim

must be barred.

Appellant CMC Heartland Partners C.A. Br. 17 (Nos. 92-

3713 & 92-3790). See id. at 17-26.

Based on that submission, the court of appeals vacated

the district court’s judgment on the MTCA claim and re-

manded the case with directions that “the district court

first determine what liabilities under the [MTCA], if any,

were imposed under previous Washington statutes, and

_ then decide what, if any, specific cleanup liabilities under

previous state statutes were discharged because no claims

were timely presented to the bankruptcy court.” Pet. App.

23a. See id. at 33a-34a.

6. On remand, the district court referred the case to a

magistrate judge who compared the cause of action avail-

able under the MTCA to three Washington state statutory

schemes existing at the time of the bankruptcy. The

magistrate judge concluded that the MTCA created lia-

EE"

bility different from that imposed by those pre-existing

statutes. See Pet. App. 4a, 54a-55a. Petitioner filed objec-

tions to the magistrate judge’s report, but the district

court overruled those objections. Jd. at 47a-64a. The court

determined that the question on remand was “whether

Union Pacific faced the same type of liability under the

[MTCA] as Union Pacific faced under the prior existing

statutes.” Jd. at 55a-56a. It carefully examined the con-

tent of the prior state statutes and concluded that the

MTCA imposed a new form of liability. Id. at 57a-64a.

7. Petitioner appealed again, and the court of appeals

affirmed the district court’s decision. Pet. App. 1la-18a.

The court of appeals reviewed the prior history of the case,

id. at 2a-8a, and stated that in its prior decision it had

“joined other courts * * * in concluding that claims

based on a statute enacted after the discharge date are not

barred,” id. at 3a, citing Penn Central. The court then

examined whether, “in 1985, * * * Union Pacific ha[d] a

contingent claim, based on the three existing Washington

statutes, which would bar its claim based on Washington’s

1989 [MTCA].” Jd. at 9a. The court found that “[tJhe

Washington statutes did not provide the comprehensive

liability or remedy found in the [MTCA].” Jd. at 10a. See

id. at 10a-17a. It accordingly concluded that the “Wash-

ington statutes existing in 1985 did not form the basis for

the filing, by Union Pacific, of a contingent claim in the

Milwaukee Road bankruptcy proceeding.” Jd. at 17a. The

court of appeals also rejected petitioner’s claim that newly

discovered evidence warranted a different result. Jd. at

17a-18a.

DISCUSSION

Petitioner asks this Court to review whether a federal

bankruptcy claim based on state law arises at the time

when the conduct underlying the claim occurs, or at the

time when state law creates a cause of action imposing

liability for that conduct. We submit that review of that

issue is not warranted in this case. Petitioner did not

present its current legal theory to the court of appeals.

Moreover, the court of appeals’ decision is correct. There

is no conflict among the courts of appeals on the question

whether a post-discharge statutory enactment that im-

poses retrospective liability should be treated as creating

a claim that arises at the time the underlying conduct

occurred. There is a conflict on the question, not pre-

sented here, when a claim that is based on a pre-discharge

cause of action, but is dependent on future events, arises

for purposes of the Bankruptcy Code. The resolution of

that conflict, however, should await a case that squarely

presents the issue that has actually divided the courts of

appeals.

1. Petitioner seek~ review of an issue that was neither

developed nor addressed in the proceedings below. In its

first decision, the district court concluded that the con-

summation order discharging the liability of Milwaukee

Road and its successors could not bar Union Pacific’s

claim “under a statute that was not in existence until four

years after the bar dates were established for filing claims

against the Milwaukee Road.” Pet. App. 45a. The district

court explicitly followed the Third Circuit’s decision in

Penn Central, which held that a consummation order that

was entered before enactment of CERCLA did not dis-

charge a post-consummation CERCLA claim. See 944

F.2d at 168. The district court concluded that Penn

Central was controlling here, noting that petitioner had

“cite[d] no authority to support barring Union Pacific

from prosecuting [its MTCA] claim.” Pet. App. 45a.

In its first appeal, petitioner did not challenge the hold-

ing of Penn Central and similar cases, but instead at-

tempted to distinguish them. Pet. App. 33a. Petitioner

argued that, “{iJn those cases, claims were allowed only if

the liability of the debtor or the claimant’s rights to pro-

ceed against the debtor did not exist before the bankruptcy

bar dates.” Appellant CMC Heartland Partners C.A. Br.

22 (Nos. 92-3713 & 92-3790). Petitioner asserted that the

district court had erred “by failing to examine Union Pa-

cifie’s liability and claims under MTCA to see if they

varied from the claims Union Pacific possessed in 1985 but

elected not to submit to the reorganization court.” Jd. at

26. The court of appeals responded to that argument by

remanding the case to the district court to determine

“what liabilities under the [MTCA], if any, were imposed

under previous Washington statutes.” Pet. App. 23a.

On remand, the district court and a magistrate judge

carefully examined that question and concluded that the

MTCA imposed a new form of liability. Pet. App. 47a-64a.

Petitioner appealed from that ruling, and the court of

appeals rejected petitioner’s argument that “Union Pa-

cific’s environmental clean-up liability was essentially

similar under the 1985 Washington state statutes and the

(MTCA].” Appellant CMC Heartland Partners C.A. Br. 14

(No. 95-1412) (argument heading). Petitioner did not

argue, as its does here, that “[a] federal bankruptcy ‘claim’

arises at the time the relevant conduct occurs, not at the

time state law creates liability based on such conduct.”

Pet. 8 (argument heading).'

! Petitioner gave the first hint of its current argument in its peti-

tion for rehearing and suggestion for rehearing en banc. In the last

three pages of that document, petitioner challenged the court of appeals’

This Court does not ordinarily grant a petition for a

writ of certiorari to consider claims that were not raised

below. See, e.g., Patrick v. Burget, 486 U.S. 94, 99 n.5

(1988); Youakim v. Miller, 425 U.S. 231, 234 (1976) (per

curiam); McCullough v. Kammerer Corp., 323 U.S. 327,

328 (1945) (per curiam); Helvering v. Minnesota Tea Co.,

296 U.S. 378, 380 (1935). The Court has distinguished,

however, between claims and arguments in support of

those claims. Once a writ of certiorari is granted on a

properly presented federal claim, “a party can make any

argument in support of that claim; parties are not limited

to the precise arguments they made below.” Lebron v.

National R.R. Passenger Corp., 115 S. Ct. 961, 965 (1995);

Yee v. City of Escondido, 503 U.S. 519, 534 (1992). Never-

theless, the Court should be cautious in granting certio-

rari based on a new legal theory that had not been fully

litigated in the current case or a past decision of the court

below. See id. at 538.

Union Pacific contends that petitioner did not properly

present to the court of appeals the claim that it presents

here. See Br. in Opp. 9-13. At a minimum, petitioner did

not present the legal theory that it now advocates, and the

decision on policy grounds, stating that the decision “would give state

and local governments the ability to vitiate any claims bar date by

simply enacting new legislation after the bar date had passed,” that

the court had “favored state environmental policies over competing

federal policies,” and that it had “opened the door to state lawmakers

allowing them to thwart federal bankruptcy law.” Pet. for Rehearing,

with Suggestion for Rehearing in Banc 13-15 (Nos. 95-1412 & 95-2986).

Petitioner, however, did not assert its current legal argument or

suggest that there was any conflict among the courts of appeals on the

question. See 7th Cir. R. 35(b) (“Suggestions that an appeal be re-

heard en bane must state in a concise sentence at the beginning of the

petition * * * with what decision of the United States Supreme

Court, this court, or another court of appeals the panel decision is

claimed to be in conflict.” (emphasis added)).

court of appeals had no occasion to address that theory.

The court of appeals decided the case based on the argu-

ments placed before it, expressly rejecting petitioner’s

theory that Union Pacific’s claims were barred because

Union Pacific could have asserted an analogous claim

under the state laws then in existence. Hence, as a pre-

liminary consideration, the Court should be reluctant to

address petitioner’s new theory without “the benefit of

developed arguments on both sides and lower court opin-

ions squarely addressing the question.” Yee, 503 U.S. at

538.”

2. In any event, petitioner’s new theory does not

warrant review. Petitioner contends that Union Pacific’s

claim under the MTCA is barred because it “arose before

the Milwaukee Road’s bankruptcy discharge.” Pet. 8.

According to petitioner, Union Pacific’s claim under the

MTCA arose when “the contamination or violation oc-

curred” at the Tacoma site, even though the MTCA had

not yet been enacted (and Union Pacific did not yet own

the site). See Pet. 10 (emphasis and citation omitted).

That counter-intuitive contention is not well founded.

Petitioner’s argument is contrary to the language of

both the Bankruptcy Act of 1898 and the current Bank-

2 In response to Union Pacific’s brief in opposition, petitioner

contends that it consistently argued below that Union Pacifie’s claim

should be barred because Union Pacific knew about the underlying

contamination but failed to file a contingent claim. Pet. Reply Br. 6,

quoting Appellant CMC Heartland Partners C.A. Br. 18 (Nos. 92-3713

& 92-3790). Petitioner's argument below appears, however, to have

been more limited. Petitioner asserted that Union Pacific had the

opportunity to file a contingent claim because the MTCA “amount[ed]

to little more than a recodification of prior state law” and “provided

Union Pacific with no greater, or different, rights against [petitioner]

than it had before the bankruptcy bar dates.” Appellant CMC Heart-

land Partners C.A. Br. 18 (Nos. 92-3713 & 92-3790).

ruptcy Code. Section 77(b) of the Bankruptcy Act of 1898

defined “claims” to include

debts, whether liquidated or unliquidated, securities

(other than stock and option warrants to subscribe to

stock), liens, or other interests of whatever character.

11 U.S.C. 205(b) (1976) (repealed 1978). The current Bank-

ruptcy Code defines a “claim” in relevant part as a

right to payment, whether or not such right is reduced

to judgment, liquidated, unliquidated, fixed, contin-

gent, matured, unmatured, disputed, undisputed, legal,

equitable, secured, or unsecured.

11 U.S.C. 101(5)(A). The definitions contained in the

Bankruptcy Act of 1898 and the current Bankruptcy Code

are not necessarily co-extensive, but they lead to the same

result in this case. Union Pacific did not have any “in-

terest” or “right to payment” under the MTCA until the

State of Washington enacted that statute. See Penn-

sylvania Dep’t of Pub. Welfare v. Davenport, 495 U.S.

552, 559 (1990) (“a ‘right to payment’ is nothing more nor

less than an enforceable obligation”). It would be far-

fetched to conclude that Union Pacific had a “contingent”

interest or right to payment in 1985 based on the possibil-

ity that the State might someday enact a statute that

would create the underlying right. See In re Chateaugay

Corp., 53 F.3d 478, 497 (2d Cir.), cert. denied, 116 S. Ct. 298

(1995).°

Petitioner is mistaken in its contention that the court

of appeals “violated federal law and policy by looking to

3 See also, e.g., Ralph E. Clark, Contingent and Immature Claims

in Receivership Proceedings, 29 Yale L.J. 481, 482 (1920) (“A contingent

claim is one which is not absolutely owing at the time insolvency

occurs and the receiver is appointed, but may ripen into an absolute

claim later on.”).

state law to determine when a ‘claim’ arose for federal

bankruptcy purposes.” Pet. 9. That court simply recog-

nized that federal bankruptcy law looks to federal and

state non-bankruptcy law in determining whether a poten-

tial claimant has a cognizable claim. As this Court has

specifically noted, the federal bankruptcy laws provide a

mechanism for adjustment of rights and interests that

arise “independent” of the bankruptcy process and that

exist as a matter of federal or state non-bankruptcy law.

Northern Pipeline Constr. Co. v. Marathon Pipe Line

Co., 458 U.S. 50, 84 (1982) (plurality opinion); see Grogan v.

Garner, 498 U.S. 279, 283-284 & n.9 (1991); Vanston Bond-

holders Protective Comm. v. Green, 329 U.S. 156, 161

(1946); id. at 170 (Frankfurter, J., concurring) (“a claim

implies the existence of an obligation created by State

law”). There is nothing anomalous in the fact that the

federal bankruptcy laws do not treat a “claim” as arising

until state law creates the “interest” or “right to pay-

ment.” See Chateaugay, 53 F.3d at 497.

There is also no merit to petitioner’s contention that

the court of appeals’ decision has “jeopardized the funda-

mental predictability and stability of the uniform federal

bankruptcy laws.” Pet. 11. At bottom, petitioner contends

that the federal bankruptcy laws should preempt the

application of the MTCA to a reorganized entity. See Pet.

13 n.11 (federal bankruptcy laws “trump inconsistent state

enactments outright”). There is no occasion, however, for

federal law to preempt state law here, because there is no

inconsistency between the bankruptcy laws and the state

law involved in this case. The current Bankruptcy Code

provides relief from the financial obligations that precipi-

tated insolvency by discharging the debtor “from any debt

that arose before the date of such confirmation” unless the

plan or order confirming the plan provides otherwise. 11

U.S.C. 1141(d). In this case, Union Pacific did not have a

claim under the MTCA at the time of confirmation, and the

current Bankruptcy Code (even if it were applicable) would

not have discharged any corresponding debt. See il

U.S.C. 101(12) (defining “debt” as “liability on a claim”).

The same result follows under the Bankruptcy Act of 1898.

See 11 U.S.C. 205 (1976). There is simply no conflict be-

tween the federal and state laws.*

3. We also disagree with petitioner’s contention that

this case presents an important question that has divided

the circuits and warrants immediate review. As an initial

matter, there is no conflict among the courts of appeals on

the specific issues that the court of appeals actually ad-

dressed. The Second, Third, and Seventh Circuits have all

concluded that “claims based on a statute enacted after the

discharge date are not barred.” Pet. App. 3a; see Chateau-

gay, 53 F.3d at 497; Penn Central, 944 F.2d at 168. No

other courts of appeals have addressed that question.°

4 Furthermore, petitioner does not contest that Congress has im-

posed retrospective liability on reorganized entities through CERCLA,

which subjects such entities to liability for past waste disposal activi-

ties. Pet. 13 n.11 (citing Penn Central). Hence, there is no basis to con-

clude that a State’s enactment of complementary laws to achieve the

same objective “stands as an obstacle to the accomplishment and execu-

tion of the full purposes and objectives of Congress.” Hines v. Davido-

witz, 312 U.S. 52, 67 (1941). This is, in sum, a particularly unpersua-

sive context in which to argue that federal bankruptcy laws preempt

the States from imposing retrospective liability on all persons who

engaged in similar conduct during a defined time period and require

the States, instead, to distinguish between those that underwent inter-

vening reorganizations and those that did not.

5 Notwithstanding petitioner’s suggestion of a “parade of horribles”

(Pet. 15), we are not aware of any other pending litigation in which

a reorganized entity claims immunity from post-discharge statutory

enactments that impose retrospective liability.

Furthermore, there is little likelihood that a conflict will

develop among the courts of appeals over the question

whether the MTCA creates new liability distinct from

prior state law. See Pet. App. 10a.

Petitioner contends that this case is part of a larger

conflict among the courts of appeals as to when a claim

“arises” for purposes of bankruptcy. Pet. 13-15. Peti-

tioner is mistaken in that characterization of this case.

There is a disagreement among those courts on the

question whether a potential suit that would rest on a

cause of action that existed before the bankruptcy, but is

contingent on future events, is a “claim” for purposes of

the Bankruptcy Code. But those cases present an issue

that is distinct from the question presented in this case.

The Third Circuit’s decision in In re Frenville Co., 744

F.2d 332 (1984), cert. denied, 469 U.S. 1160 (1985), lies at

the center of that disagreement. The Third Circuit there

held that the Bankruptcy Code’s automatic stay provision,

11 U.S.C. 362(a), did not stay a creditor’s indemnification

suit against the debtor where the creditor’s contractual

right to indemnification existed before the bankruptcy, but

did not mature into a cause of action until after the bank-

ruptcy petition was filed. 744 F.2d at 335-336. Other

courts of appeals have criticized Frenville’s reasoning and

have concluded that a potential suitor can have a “con-

tingent” claim, within the meaning of the Bankruptcy

Code, if there is a significant pre-petition relationship

between the debtor and the potential claimant, see Epstein

v. Official Comm. of Unsecured Creditors of the Estate of

Piper Aircraft Corp., 58 F.3d 1573, 1577 (11th Cir. 1995);

or if the potential claimant has sufficient notice so that

the potential liability is within the fair contemplation of

the parties at the time of the bankruptcy, see In re

Jensen, 995 F.2d 925, 930-931 (9th Cir. 1993). See also In

re Chateaugay Corp., 944 F.2d 997, 1004-1005 (2d Cir. 1991)

(discussing, but not deciding the issue); Grady v. A.H.

Robins Co., 839 F.2d 198, 201-203 (4th Cir.) (suggesting in

the context of an automatic stay that pre-petition conduct

is enough to establish a claim), cert. dismissed, 487 U.S.

1260 (1988).

That conflict over the scope of contingent claims is not

implicated here. The cases criticizing Frenville all in-

volved potential suits based on a statutory or common law

cause of action that was in existence at the time of the

bankruptcy. The critical issue in each case was whether a

potential suit that would become actionable only on the

occurrence of a future event, such as illness or injury that

satisfies an element of a product liability cause of action,

was a contingent claim for purposes of bankruptcy. None

of those cases involved the post-discharge enactment of a

new statute. Petitioner is incorrect in agserting that

there is “no relevant difference” between those situations.

Pet. Reply Br. 5n.3. A person who can point to an existing

but unripe cause of action at the time of a bankruptcy

reorganization may have a “contingent” right to payment.

See 11 U.S.C. 101(5)(A). But the person who cannot point

to an existing cause of action at the time of bankruptcy

has no right to payment at all. See Chateaugay, 53 F.3d at

497 (“where the statute imposing the liability has not been

enacted, ‘it would be impossible to find even the remotest

“right to payment”’ ” (citation omitted)).

Petitioner may be correct that the split of authority

precipitated by Frenville presents an issue of general

importance under the bankruptcy laws. Pet. 14. But this

case does not provide an occasion for this Court to attempt

to resolve that question. The court of appeals did not cite,

discuss, or rely on the reasoning of Frenville or any of the

cases that have criticized that decision. Nor did it have

any reason to do so. Moreover, this case arises under the

Bankruptcy Act of 1898, which has been repealed and has

limited continuing importance. Ifthe Court is to provide

guidance on the issues raised by Frenville, it should await

a case that squarely presents those issues and does so in

the context of the current Bankruptcy Code.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

DECEMBER 1996