Petition for Writ of Certiorari — Kahn v. Juniper Development Group, 114 S. Ct. 303 (1993) (No. 93-187)
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Supreme Court, U.S.
No. FILE Dp
1’ AUG 2 4993
938-187 wm [as:,
Supreme Court of the Hnited ‘States
a
October Term, 1993
IN RE HEMINGWAY TRANSPORT, INC., BRISTOL
TERMINALS, INC.,
Debtors.
HERBERT C. KAHN, Trustee for HEMINGWAY
TRANSPORT, INC. and BRISTOL TERMINALS, INC.,
Petitioner,
VS.
JUNIPER DEVELOPMENT GROUP, a Massachusetts
Partnership; and GEORGE D. WHITTEN, AMY WHITTEN
and CHARLES WHITTEN, as Trustees of 60 OLYMPIA
NOMINEE TRUST,
Respondents.
Petition for a Writ of Certiorari to the United States Court of
Appeals for the First Circuit
PETITION FOR A WRIT OF CERTIORARI
A. VAN C. LANCKTON
Counsel of Record
WILLIAM F. MACAULEY
MARTIN P. DESMERY
CRAIG AND MACAULEY
PROFESSIONAL CORPORATION
Attorneys for Petitioner
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210
(617) 367-9500
(800) 3 APPEAL + (800) 5 APPEAL - (800) BRIEF 21
QUESTIONS PRESENTED FOR REVIEW
A. Future Response Costs Under CERCLA.
1. Does § 502(e)(1)(B) of the Bankruptcy Code mandate
disallowance of a contingent claim for reimbursement or
contribution of environmental response costs under CERCLA,
where the costs have yet to be incurred and both the claimant and
the debtor are jointly liable to EPA for the cleanup?
2. Does the “co-liability” element of § 502(e)(1)(B) of the
Bankruptcy Code require that both the claimant and the underlying
creditor file proofs of claim against a debtor’s estate?
3. Is § 502(e)(1)(B) of the Bankruptcy Code designed solely
to prevent two creditors from recovering on tl 2 same claim; or is
the statute also intended to effectuate the orderly and efficient
distribution of assets to creditors?
B. Administrative Expense Priority.
1. Does § 503(b)(1)(A) of the Bankruptcy Code afford an
administrative expense priority with respect to contingent claims
for environmental response costs that have not been (and may never
be) incurred?
2. Does § 503(b)(1)(A) of the Bankruptcy Code afford an
administrative expense priority with respect to the costs incurred
by the claimant in removing hazardous waste from property that is
no longer owned by the bankruptcy estate?
3. Does § 503(b)(1)(A) of the Bankruptcy Code afford an
administrative expense priority with respect to the cost of
remediating environmental hazards created pre-petition, in the
absence of (a) an imminent and identifiable harm to public safety,
or (b) any actionable, post-petition conduct on the part of the
Trustee?
PARTIES TO THE PROCEEDING
The parties to the proceeding are those set forth in the caption.
Herbert C. Kahn is the chapter 7 bankruptcy trustee of Hemingway
Transport, Inc. and its wholly owned subsidiary, Bristol Terminals,
Inc. There is no parent company of Hemingway Transport, Inc.
lil
TABLE OF CONTENTS
Page
Questions Presented forReview ................+4-- i
POFIIOSSG UNG PIOCCOGING .. ww... ccc cc ccc c ccc ness li
PCS Ce ET eT eee Tee EEE ETE EE EET lil
ka neh ce heehee ene sees eee sane Vv
Opinions Below .............esceeeeeeees oor ee 2
i assess eae sisecaneveues 2
Statutory Provisions Involved ............-..+++e+055 2
Se PO eee EEE ETE TEE EEE Ee 3
vice beeen sad se esecneecesees 3
B. Sdidantine ES en ee 4
ee EN EEEUOOEY, ncn cece seen ncvececes 6
Reasons for Granting the Writ ............. 0 ee ee eee 8
I. The First Circuit decision in Hemingway involves
important questions of federal law about the proper
balance between the competing objectives of
CERCLA and the Bankruptcy Code. ........... 8
II. The First Circuit decision in Hemingway is in
conflict with the reported decisions of other Courts
IS, vee e ssc e scene essesesescsesans 10
iv
Contents
Page
A. Future Response Costs Under § 502(e)(1)(B).
ee eT ree eee eee eee yee ere Te 10
B. Administrative Expense Priority. ...-..... 14
1. The First Circuit Granted. An
Administrative Priority To Juniper’s
Claim For Contingent, Not “Actual,”
Response Costs UnderCERCLA. ..... 14
2. The First Circuit Granted An
Administrative Priority To Juniper’s
Claim For Decontaminating Property
That Did Not Belong To The Estate. ... 15
3. The First Circuit’s Decision Conflicts
With The “Midlantic National Bank”
Fg err ree Tre rr rere ee 16
III. The Hemingway opinion is in conflict with the
Supreme Court’s decision in Reading Co. v. Brown
and the reported decisions of other Courts of
| ST eeT TTT Tee eT Tey ee Per Ee TT 18
IV. The Hemingway opinion calls for the Supreme
Court to exercise its supervisory powers over the
MET See e Te ere Tre eer eee 20
CIN i Cactus eck cae eh eee eee 22
Vv
Contents
Page
TABLE OF CITATIONS
Cases Cited:
Artesian Water Co. v. Government of New Castle County,
GPE Freee CaO Ga, SOE) voc kas Sacer avan cose 8
Carter-Wallace, Inc. v. Davis-Edwards Pharmacal Corp.,
RES FiO eT CU BOP ED 64h Seda ce eckved aces 18
Daigle v. Shell Oil Co., 972 F.2d 1527 (10th Cir. 1992) ... 8
Helling v. McKinney, 61 U.S.L.W. 4648 (U.S. June 18,
| ene Per rer Tee eee eS ee 21
InreA & H, Inc., 122 B.R. 84 (Bankr. W.D. Wis. 1990) ... 13
In re Brio Refining, Inc., 86 B.R. 487 (N.D. Tex. 1988) ... 16
In re Carpet Center Leasing Co., Inc., 991 F.2d 682 (11th
oo | Sr ee ree e Pre ry ee rr renee 15
In re Charter Company, 81 B.R. 644 (M.D. Fla. 1987),
aff'd, 862 F.2d 1500 (11th Cir. 1989) .......... 10,11, 13,14
In re Chateaugay Corp., 112 B.R. 513 (S.D.N.Y.
1990), aff'd, 944 F.2d 997 (2d Cir. 1991) ........ 8,15, 16, 17
In re Chicago, Mil., St. P. & Pac. R.R., 974 F.2d 775 (7th
se | eee eee ee eT eee TTT TTT err Te eee 8,17
In re Combustion Equip. Assocs., Inc., 838 F.2d 35 (2d Cir.
SNE skh vo aR Naa sake Sen ROWS Te he RCOaeS 9
VI
Contents
Page
In re Dant & Russell, Inc.,951 F.2d 246 (9th Cir. 1991) ..
Le Weldw bee Lakes ios eknee eee 11, 12,13, 15, 16,19
In re E.A. Nord., Co., Inc., 78 B.R. 289 (E.D. Wash. 1987)
aun ad ee ede shed etew ence te een eee reese iees 18
In re Hemingway Transport, Inc., 73 B.R. 494 (Bankr. D.
PeeOG. Ter) skh civ ks bawconneet eee eres 2,7
In re Hemingway Transport, Inc., 105 B.R. 171 (Bankr. D.
DORON, SSE ois 03 has eee eee eee eee 2,7, 11
In re Hemingway Transport, Inc., 108 B.R. 380 (Bankr. D.
Panes. COGt avin) oek eens se eee 2, 6,7
In re Hemingway Transport, Inc., 126 B.R. 656 (D. Mass.
ROPE) oc ackca saver neuen eee aeeee ee eee 2,7
In re Hemingway Transport, Inc., 993 F.2d 915 (1st Cir.
ROO sks civ oaes 2,8, 10, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21
In re Pettibone Corp., 90 B.R. 918 (Bankr. N.D. Ill. 1988)
WUTTTCOCT TUTTE or ee 19
In re Pierce Coal & Constr., Inc., 65 B.R. 521 (Bankr. N.D.
W.Va EOD bh back aenesccwekn eae eee 19
In re Security Gas & Oil, Inc., 70 B.R. 786 (Bankr. N.D.
oO: ss ee ere rr re ee 19
In re Stevens, 68 B.R. 774 (Bankr. D. Me. 1987) ........ 16
Vil
Contents
Page
In re T.P. Long Chemical, Inc., 45 B.R. 278 (Bankr. N.D.
RD a Sach cscs Ne RGACiay eee en eee 16
In re Wall Tube & Metal Products Co., 56 B.R. 918 (Bankr.
E.D. Tenn. 1986), rev’d on other grounds, 831 F.2d 118
SG SEED Sk webe suas eshe40k eek sae eS 15,17
In re Wedtech Corp., 85 B.R. 285 (Bankr. S.D.N.Y. 1988)
eGNakee Rh eee Raneke VR e ese eR UAE e NNT eee 13
In the Matter of Provincetown-Boston Airlines, Inc., 72
RR... S57 CE. HEIs PUR. USSD in ck cee cccesnes li, 12
J. Catton Farms vy. First Nat. Bank of Chicago, 779 F.2d
orig, (| | rere errr err sre 20
Marden Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454 (9th
ob Aes eee eee ee Se ee 19
Midlantic National Bank v. New Jersey Department of
Environmental Protection, 106 S. Ct. 755 (1986) ....9, 16,17
NL Industries, Inc. v. GHR Energy Corp., 940 F.2d 957 (Sth
Se Tere ery errr rrr eres re ee re i =
Ohic v. Kovacs, 469 U.S.274(1985) ..........0.000e- 9
Pease & Curen Refining, Inc. v. Spectrolab, Inc., 744 F.2d
oe ee ere Ter ret ere eer ee 8
Pennsylvania v. Union Gas Co., 491 U.S. 1(1989) ...... 8
vill
Contents
Page
Preiser v. Newkirk, 422 U.S. 395 (1975) .............. 21
Reading Co. v. Brown, 391 U.S. 471 (1968) ........ 9,18,19,20
Riverside Market Dev. Corp. v. International Bldg. Prods.,
Inc., 931 F.2d 327 (Sth Cir. 1991), cert. denied,
bee Bee Ot ee ee Aree. en ee 8
Stanton Road Association v. Lohrey Enterprises, 984 F.2d
DRC UE Seuvdccenchivebas caecvhees ees 9
Southern Railway Co. v. Johnson Bronze Co., 758 F.2d 137
Se 0 cd hace cea aa eae 16,19
United States v. Fleet Factors, 901 F.2d 1550 (10th Cir.
1990), cert. denied, 498 U.S. 1046(1991) .......... 8
U.S. Dept. of Interior v. Elliot, 761 F.2d 168 (4th Cir. 1985)
OP re Perr er ree err Tye Tere TT Te ee Te 18
Yorke v. NLRB, 709 F.2d 1138 (7th Cir. 1983), cert.
Gonied, 465 U.S. WZS CFCS) cc ccc ccccecasesuces 18
Statutes Cited:
CE Teese ee EO, ca eek eek bebe ee nee reeks 3
Se ee es can hock cea ue ciee vad eee ees 13,20
bE ei ee 6 5 nso aN oe eee eee eee 12
Te Rees OED ae k-b-cuh a wcae en bees rede aera 12
ix
Contents
Page
11 U.S.C. §502(e)(1)(B) .....1,3, 4, 7, 8,9, 10, 11, 12, 13, 14, 21
hie foe ho 4. tS eee rere rere reer res i,4,14,15
Ggth tog ft) eee eer Tee eee ee TST eee 2,4, 14
GRRE ake ge ete) ena an a ere Oar ys 20
yD SRM tee Bb): eee ere erie a o: 2
Sere PUT 5 co akc eu ke oeercadekent ens 3
ee PII eeepc Rede ssensatses cee 3,7
Rte ee ee oe ra eet cciecawsees Cueherees 3
ae ee ne ee re 3
Rules Cited:
oo Peer rer erererrer er ree eer rere 20
NEY TOE FOOD oo eho c cee ne ween neha 20
et re eeerrer rere rer eee eres 21
Other Authority Cited:
oo err rer Tee ere ree Tere ee 6
x
Contents
APPENDIX
Appendix A — Opinion of the United States Court of
Appeals for the First Circuit Dated May 4, 1993 ....:.
Appendix B — Opinion of the United States District Court
for the District of Massachusetts Dated March 26, 1991
COSCO EGAES BHO EO O4 OBESE SRO O EBA SE OOO EEE ODO OYE OD
Appendix C — Opinion of the United States Bankruptcy
Court, District of Massachusetts Dated December 18,
PMU CUME oe Ls. ce eee nS es NA eee aA Oe EEO wR
Appendix D — Opinion of the United States Bankruptcy
Court for the District of Massachusetts Dated
I OU CU noes eh ccpndehaueekennawkee
Appendix E — Opinion of the United States Bankruptcy
Court for the District of Massachusetts Dated May 8,
SN ERAdaed4 RGN AARENEE UE MRMRESE SESS E TEES
Page
la
43a
60a
74a
No.
In The
Supreme Court of the United States
+
October Term, 1993
IN RE HEMINGWAY TRANSPORT, INC., BRISTOL
TERMINALS, INC.,
Debtors.
HERBERT C. KAHN, Trustee for HEMINGWAY
TRANSPORT, INC. and BRISTOL TERMINALS, INC.,
Petitioner,
vs.
JUNIPER DEVELOPMENT GROUP, a Massachusetts
Partnership; and GEORGE D. WHITTEN, AMY WHITTEN
and CHARLES WHITTEN, as Trustees of 60 OLYMPIA
NOMINEE TRUST,
Respondents.
Petition for a Writ of Certiorari to the United States Court of
Appeals for the First Circuit
PETITION FORA WRIT OF CERTIORARI
2
Herbert C. Kahn, Trustee of Hemingway Transport, Inc. and
Bristol Terminals, Inc., respectfully petitions for a writ of certiorari
to review the judgment of the United States Court of Appeals for
the First Circuit entered in this action on May 4, 1993.
OPINIONS BELOW
The decision of the United States Court of Appeals for the
First Circuit will be reported at 993 F.2d 915 (1st Cir. 1993).
The decision of the United States District Court for the
District of Massachusetts is reported at 126 B.R. 656 (D. Mass.
1991).
The decisions of the United States Bankruptcy Court for the
District of Massachusetts are reported at 108 B.R. 378 (Bankr. D.
Mass. 1989), 105 B.R. 378 (Bankr. D. Mass. 1989) and 73 B.R. 494
(Bankr. D. Mass. 1987).
A copy of each of the reported opinions below is included in
the Appendix (“App.”).
STATEMENT OF JURISDICTION
The final judgment of the United States Court of Appeals for
the First Circuit was entered on May 4, 1993. This Court has
jurisdiction under 28 U.S.C. § 1254(1).
STATUTORY PROVISIONS INVOLVED
This case involves 11 U.S.C. §§ 502(e)(1)(B) (Allowance of
Claims or Interests), 503(b)(1)(A) (Allowance of Administrative
Expenses), and 507(a)(1) (Priorities of Distribution). The pertinent
texts of the statutes are set forth in the Appendix.
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3
STATEMENT OF THE CASE!
A. Introduction
This petition involves the confusing and often “hazardous”
interplay between the Bankruptcy Code, 11 U.S.C. §§ 101 et seg.,
and the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. §§ 9601 et seg. (“CERCLA”). The
case arises out of an adversary proceeding commenced in the
United States Bankruptcy Court for the District of Massachusetts
by Juniper Development Group, et al. (“Juniper”) against Herbert
C. Kahn, trustee (“Trustee”) of two Chapter 7 debtors: Hemingway
Transport, Inc. (“Hemingway”) and Bristol Terminals, Inc.
(“Bristol’’).
Juniper is the current owner and operator of a hazardous waste
facility. Hemingway and Bristol (collectively, the “Debtors”)
owned or operated the facility at the time of disposal of hazardous
substances. Both Juniper and the Debtors are jointly and severally
liable for “all costs of removal or remedial action” incurred by the
United States Environmental Protection Agency (“EPA”) in
connection with the cleanup of the property. See 42 U.S.C.
§ 9607(a)(4)(A).
In the adversary proceeding, Juniper sought recovery of its
“response costs” under § 107(a)(4)(B) of CERCLA. On summary
judgment, the Bankruptcy Court held that § 502(e)(1)(B) of the
Bankruptcy Code mandated disallowance of Juniper’s claim for
future response costs on the grounds that (1) such claim was one for
reimbursement or contribution, (2) Juniper was jointly liable with
the Debtor on the claim of EPA, and (3) the claim was contingent
upon future events. After trial, the Bankruptcy Court found that the
1. The facts set forth below are supported by the Joint Appendix submitted
to the Court of Appeals (hereafter, “JA”).
4
Debtors were liable to Juniper under CERCLA for past response
costs in the amount of $38,763.63. In accordance with its previous
interlocutory order, the Bankruptcy Court held that Juniper’s claim
was entitled to an administrative expense priority under 11 U.S.C.
§§ 503(b)(1)(A) and 507(a)(1).
The Bankruptcy Court’s rulings were affirmed by the United
States District Court for the District of Massachusetts. Juniper took
an appeal to the United States Court of Appeals for the First Circuit
on the applicability of § 502(e)(1)(B) to Juniper’s claim for future
response costs. The Trustee cross-appealed on the priority of
Juniper’s claim for past response costs. The First Circuit affirmed
the administrative expense ruling, but vacated the order under §
502(e)(1)(B).
B. Substantive Facts.
On July 28, 1982, Hemingway and Bristol simultaneously
filed voluntary Chapter 11 bankruptcy petitions. On March 29,
1983, Bristol entered into a written agreement with George
Whitten — a general partner of Juniper — regarding the purchase
and sale of Bristol’s trucking facility located at 60 Olympia Avenue
in Woburn, Massachusetts (the “Property”). Pursuant to the
contract, Whitten agreed to purchase the Property subject to “all
environmental and other applicable laws and ordinances.” JA 49.
The agreement also included the following language:
The BUYER acknowledges that the BUYER
has not been influenced to enter into this
transaction nor has he relied upon any
warranties or representations not set forth or
incorporated in this agreement. Buyer further
warrants and represents to Seller that Buyer has
made all such inspections of the premises as
Buyer wishes to make. . . .
a
5
JA 51 (emphasis supplied). On April 29, 1983, an order was
entered by the Bankruptcy Court approving the sale of the
Property, subject to the terms and conditions set forth in the
purchase and sale agreement. JA 194. The order was approved by
the District Court on May 3, 1983, and the Property was sold to
Juniper, Whitten’s nominee, on May 18, 1983.JA 194.
Juniper is a Massachusetts partnership involved in
commercial real estate development. JA 64, 93. At the time of the
sale, Juniper was familiar with the Woburn area, and had
developed several projects within half a mile of the Property. JA
65-66, 68. Juniper also was aware of the existence of a hazardous
waste Superfund site located within one mile of the Property. JA
67. Nevertheless, Juniper did not conduct a physical inspection of
the entire premises before the sale. JA 69, 224, 227-28. Juniper’s
inspection was limited to the paved portion of the Property, which
consisted of only 6.6 of the 21.4 total acres. /d.
On November 18, 1983, the Chapter 11 cases of Hemingway
and Bristol were converted to liquidation proceedings under
Chapter 7 of the Bankruptcy Code. Herbert C. Kahn was appointed
trustee of the Debtors one day later.
On December 30, 1985, Juniper received a “notice of potential
liability” under CERCLA from EPA. The notice advised Juniper
that EPA had discovered “approximately 12 drums in disintegrated
condition” at the southern end of the Property. Tests conducted by
EPA in September of 1985 revealed that the drums and surrounding
soil were contaminated by a variety of chemicals defined under
CERCLA as “hazardous substances.” An administrative order
directing Juniper to remove the drums was issued on February 7,
1986. JA 71-89.
The drums were located approximately 100 feet from the
6
railroad tracks on the western border of the Property,’ JA 347,
which was precisely the area that Juniper failed to inspect prior to
purchasing the Property.
On April 20, 1988, Juniper received another notice of
potential liability from EPA with respect to the Wells G & H
Superfund Site. JA 120-25. Wells G & H were municipal wells
developed in the 1960’s to supplement the water supply for the City
of Woburn. JA 151. In 1979, Woburn police discovered over 180
55-gallon drums of industrial waste abandoned in the vicinity of
the wells. JA 151. The resulting investigations led to the wells and
surrounding area being added to the Superfund National Priorities
List in 1982. See 48 Fed. Reg. 40,658. The cleanup plan proposed
by EPA in 1989 estimated the cost of remediating the Site at $40.3
million. JA 156-61. The 21.4 acre parcel currently owned by
Juniper, and formerly owned by the Debtors, is deemed by EPA to
be part of the 330-acre Wells G & H Site. JA 120.
By separate letters dated February 3, 1989, Hemingway and
Bristol also were notified of their potential liability to EPA with
respect to the Weils G & H Site. JA 126-35. The notice letters stated
that, unless an agreement could be reached, EPA would perform
the cleanup and seek to recover its response costs from Juniper,
Bristol, Hemingway and several other responsible parties. JA 126
& 130.
C. Procedural History.
Juniper commenced the adversary proceeding against the
2. The source of the drums and the circumstances regarding their pre-
petition disposal have never been determined. As stated by the Bankruptcy Court
after trial, “no allegation has ever been made that Hemingway was responsible
for generating the toxic wastes in the barrels or for depositing them on the
[Property].” Hemingway, 108 B.R. at 380.
anes
7
Trustee on May 7, 1986. The original adversary complaint alleged
that Juniper had incurred expenses in excess of $30,000 in
connection with the administrative order, and that Juniper was
awaiting “further orders [from EPA] for a possible future clean up”
of the Property. JA4. Juniper asserted claims under § 107(a)(4)(B)
of CERCLA for “contribution” (Count I) and “indemnity” (Count
IT) for “‘all past or future costs incurred or assessed for said cleanup,
plus interest, costs and attorney fees.”
On September 13, 1989, the Bankruptcy Court disallowed
Juniper’s claim for future response costs under § 502(e)(1)(B) of
the Bankruptcy Code on the grounds that (1) Juniper’s claim was
one for reimbursement or contribution, (2) Juniper was jointly
liable with the Debtor on the claim of EPA, and (3) Juniper’s claim
was contingent upon future events. /n re Hemingway Transport,
Inc., 105 B.R. 171 (Bankr. D. Mass. 1989).
On October 17, 1989, the Bankruptcy Court conducted a trial
on Juniper’s claim for past response costs in connection with the
administrative order. Judgment was entered in favor of Juniper in
the amount of $38,763.63. Jn re Hemingway Transport, Inc., 108
B.R. 378 (Bankr. D. Mass. 1989). In accordance with its prior
interlocutory order, 73 B.R. 494 (Bankr. D. Mass. 1987), the Court
held that Juniper’s claim for past response costs was an
administrative expense.
On March 26, 1991, the District Court affirmed the relevant
orders of the Bankruptcy Court. /n re Hemingway Transport, Inc.,
126 B.R. 656 (D. Mass. 1991). Juniper took an appeal to the United
States Court of Appeals for the First Circuit on the applicability of
§ 502(e)(1)(B) to its claim for future response costs. The Trustee
cross-appealed on the priority of Juniper’s claim for past response
costs. By memorandum and order dated May 4, 1993, the First
Circuit affirmed the administrative expense ruling, but vacated the
order disallowing Juniper’s claim for future response costs under
§ 502(e)(1)(B).
REASONS FOR GRANTING THE WRIT
THE FIRST CIRCUIT DECISION IN HEMINGWAY
INVOLVES IMPORTANT QUESTIONS OF FEDERAL LAW
ABOUT THE PROPER BALANCE BETWEEN THE
COMPETING OBJECTIVES OF CERCLA AND THE
BANKRUPTCY CODE.
The First Circuit decision in Hemingway presents important
questions of federal law regarding (1) the circumstances under
which environmental claims should be afforded administrative
expense priority, and (2) the scope of a debtor’s ability under
§ 502(e)(1)(B) of the Bankruptcy Code to avoid liability with
respect to environmental claims. In light of CERCLA’s notorious
lack of clarity,» together with the competing objectives of
CERCLA and the Bankruptcy Code,‘ even the most experienced
3. Itis universally recognized that “CERCLA is not a paradigm of clarity
or precision.” Pease & Curen Refining, Inc. v. Spectrolab, Inc., 744 F.2d 945,
950 (C.D. Cal. 1990) (citations omitted); Pennsylvania v. Union Gas Co., 491
U.S. 1, 46 (1989) (White, J. dissenting) (“experienced jurists could disagree
about Congress’ intent under CERCLA”); Daigle v. Shell Oil Co. , 972 F.2d 1527,
1533 (10th Cir. 1992) (noting “convoluted path” of CERCLA’s definitions);
Riverside Market Dev. Corp. v. International Bldg. Prods., Inc., 931 F.2d 327,
330 (Sth Cir. 1991), cert. denied, 112 S. Ct. 636 (1991) (CERCLA was “hastily
drafted” and passed through a “lame-duck”™ session of Congress); United States
v. Fleet Factors, 901 F.2d 1550, 1554 n. 3 (10th Cir. 1990), cert. denied, 498 U.S.
1046 (1991) (CERCLA marred by “careless drafting”); Artesian Water Co. v.
Government of New Castle County, 851 F.2d 643, 648 (3rd Cir. 1988) (CERCLA
criticized for “inartful drafting and numerous ambiguities”).
4. Itis equally acknowledged that the legislative goals of CERCLA often
conflict with the policies embodied in the Bankruptcy Code. See, e.g., In re
Chicago, Mil., St. P. & Pac. R.R., 974 F.2d 775, 779 (7th Cir. 1992); In re
Chateaugay Corp., 944 F.2d 997, 1002 (2d Cir. 1991); In re Combustion Equip.
Assocs., Inc., 838 F.2d 35, 36 (2d Cir. 1988).
‘iis
9
environmental and bankruptcy attorneys need guidance on these
issues.
The purpose of CERCLA is to abate and prevent pollution by
imposing strict liability on a broad range of responsible parties,
and to channel as many resources as possible toward the cleanup of
hazardous waste. Stanton Road Associates v. Lohrey Enterprises,
984 F.2d 1015, 1020 (9th Cir. 1993). In contrast, the Bankruptcy
Code is designed to effectuate the fair and efficient distribution of
assets to all creditors having claims against a debtor’s estate.
Reading Co. v. Brown, 391 U.S. 471,477 (1968).
The issue of whether environmental claims should be afforded
an administrative expense priority presents a classic example of
the conflict between the competing aims of CERCLA and the
Bankruptcy Code.* On the one hand, the priority treatme..t of
environmental claims would promote the goal of ensuring that
sufficient funds are available to clean up contaminated property.
On the other hand, affording a priority to environmental claims
almost invariably eliminates any distributions to a debtor's
remaining creditors.
The applicability of § 502(e)(1)(B) of the Bankruptcy Code to
contingent claims under CERCLA presents a similar problem.
Section 502(e)(1)(B) mandates disallowance of contingent claims
for reimbursement or contribution asserted by an entity that is
liable with the debtor on the claim of another creditor. As stated by
the Eleventh Circuit Court of Appeals, § 502(e)(1)(B) “epitomizes
a considered Congressional policy that underlies the Bankruptcy
Code as a whole . . .; that is, the bankrupt’s estate should not be
5. The Supreme Court has declined on two occasions to address the
administrative expense issue. See Midlantic National Bank v. New Jersey
Department of Environmental Protection, 106 S. Ct. 755, 758 n. 2 (1986); Ohio
v. Kovacs, 469 U.S. 274, 284-85 n. 12 (1985).
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10
burdened by estimated claims contingent in nature.” Jn re Charter
Co., 862 F.2d 1500, 1502 (11th Cir. 1989). This important federal
policy directly contradicts the equally fundamental goal of
requiring all potentially responsible parties to fund the cleanup of
hazardous waste facilities.
The decision in Hemingway presents several issues of first
impression. Resolution of these issues will help to bridge the gap
between the discordant policies of the Bankruptcy Code and
CERCLA, and will have a profound effect on the practice of
environmental law and the administration of bankruptcy estates.
The need for further guidance in each of these areas is evidenced by
the increasing number of bankruptcy filings that are motivated, in
whole or in part, by the existence of environmental claims.
II.
THE FIRST CIRCUIT DECISION IN HEMINGWAY IS
IN CONFLICT WITH THE REPORTED DECISIONS OF
OTHER COURTS OF APPEALS.
A. Future Response Costs Under § 502(e)(1)(B).
The Supreme Court has never addressed the applicability of
§ 502(e)(1)(B) of the Bankruptcy Code, which provides as follows:
(e)(1) Notwithstanding subsections (a),
(b), and (c) of this section and paragraph (2) of
this subsection, the court shall disallow any
claim for reimbursement or contribution of an
entity that is liable with the Debtor on or has
secured the claim of a creditor, to the extent
that —
1]
(B)such claim for reimbursement or
contribution is contingent as of the time of
allowance or disallowance of such claim for
reimbursement or contribution; .. .
11 U.S.C. § 502(e)(1)(B). As indicated by the above language,
three elements must be established in order for the statute to apply
to particular claim: (1) the claim must be one for “reimbursement
or contribution;” (2) the entity asserting the claim for
reimbursement or contribution must be “liable with the debtor” on
the claim; and (3) the claim must be “contingent” at the time of its
allowance or disallowance. Jn the Matter of Provincetown-Boston
Airlines, Inc., 72 B.R. 307, 309 (Bankr. M.D. Fla. 1987) (hereafter,
“PBA”).
The first case to consider the applicability of section
502(e)(1)(B) to a private party claim under CERCLA was /n re The
Charter Company, 81 B.R. 644 (M.D. Fla. 1987), aff’d, 862 F.2d
1500 (11th Cir. 1989). In Charter, the debtor and the claimants
were jointly and severally liable for all future costs incurred by
EPA in responding to the disposal of dioxin-bearing waste.
Applying the three part test set forth in PBA, the bankruptcy court,
the district court and the Eleventh Circuit Court of Appeals each
held that the creditors’ contingent claims under CERCLA fell
squarely “within the ambit of § 502(e)(1)(B).”° See Charter, 862
F.2d at 1502.
The Ninth Circuit also has addressed the impact of section
502(e)(1)(B) on contingent claims for reimbursement or
contribution under CERCLA. See Jn re Dant & Russell, Inc., 951
6. Likewise, the Bankruptcy Court and the District Court in Hemingway
“had no difficulty” concluding that section 502(e)(1)(B) mandated disallowance
of Juniper's contingent claim for future response costs. See, e.g., Hemingway,
105 B.R. at 177.
12
F.2d 246 (9th Cir. 1991). In Dant & Russell, the claimant filed a
proof of claim in excess of $14,000,000, seeking approximately
$1,000,000 for “actually incurred” cleanup costs and the
remainder for future cleanup. With respect to future costs, the
Court of Appeals found that the proposed cleanup would be
performed voluntarily, rather than at the behest of EPA. Dant &
Russell, 951 F.2d at 248-49. Thus, § 502(e)(1)(B) did not apply
because there was no “third party” such as EPA to whom the
claimant was “liable with” the debtor. Dant & Russell, 951 F.2d at
249; see id. at 249-50 (disallowing contingent claim for future
costs on other grounds).
In Hemingway, the First Circuit Court of Appeals repeatedly
stated that section 502(e)(1)(B) was enacted only for the purpose
of ensuring that bankruptcy estates are not exposed to “double-
dipping” by holders of the same underlying claim. App. 12a-13a,
18a. Given that EPA had not filed a proof of claim against the
Debtors’ estate, the Court of Appeals expressed concern that the
disallowance of Juniper’s claim under § 502(e)(1)(B) “may
occasion a pointless financial loss to Juniper and result in a
windfall to the chapter 7 estate.” App. 23a-24a. For this reason, the
court in Hemingway fashioned a new and entirely unique
procedure for determining contingent claims under § 502(e)(1)(B)
in cases where one creditor has not filed a timely proof of claim;
namely, “mandatory resort” to the surrogate claim provisions of 1]
U.S.C. §§ 501(b) and (c).
Sections 501(b) and (c) of the Bankruptcy Code provide that,
“{iJf a creditor does not timely file a proof of such creditor’s
claim,” a surrogate claim may be filed by either the debtor or “an
entity that is liable to such creditor with the debtor.” 11 U.S.C.
§§ SO1l(b) and (c). The Court of Appeals in Hemingway
acknowledged that § 501 is permissible, and that the statutory
deadline for filing surrogate claims expired in 1984. App. 21a, 22a
n. 14. Nevertheless, the court held that Juniper’s claim could not be
TT
)3
disallowed under § 502(e)(1)(B) unless and until the Trustee
elected to file a surrogate proof of claim on behalf of EPA.
The Hemingway opinion is in direct conflict with the
decisions in Charter and Dant & Russell. Neither the Eleventh nor
the Ninth Circuit Courts of Appeals would require “mandatory
resort” to the surrogate claim procedures of § 501. Further, the
Hemingway opinion forces a trustee to establish the liability of the
claimant and the underlying creditor before obtaining the benefit
of § 502(e)(1)(B). A trustee is not permitted to rely upon the proofs
of claim. Cf. Charter, 862 F.2d at 1503 (claimants bound by
admissions in proofs of claim); JA 1-6 (Juniper admitted its joint
liaiblity in the adversary complaint and characterized its
contingent claim as one for reimbursement or contribution).
The conflict between Hemingway and Charter stems from a
fundamental difference in policy. The First Circuit’s view is that
the “singular purpose” of § 502(e)(1)(B) is to prevent redundant
recoveries on identical claims. In contrast, the Eleventh Circuit’s
opinion is that the statute “epitomizes a considered Congressional
policy” of providing “fair treatment to creditors by paying
ascertainable claims as quickly as possible.” Charter, 862 F.2d at
1502.’ Similarly, the Court of Appeals in Hemingway believes that
strict adherence to the Bankruptcy Code may thwart CERCLA’s
goal of obtaining broad financial participation in the cleanup of
hazardous wastes. Conversely, the Eleventh Circuit Court of
Appeals concludes that upholding the Code’s prohibition of
contingent claims encourages the expeditious cleanup of
contaminated sites, “since those seeking contribution will have to
incur [response costs] prior to stating an allowable claim to a
7. See also In re Wedtech Corp., 85 B.R. 285, 290 (Bankr. S.D.N.Y. 1988)
(“purpose of disallowing contingent indemnity and contribution claims is
precisely because they are so contingent”); In re A & H, Inc., 122 B.R. 84, 85
(Bankr. W.D. Wis. 1990) (statue reflects dual policy of preventing double
payment and promptly satisfying ascertainable claims).
14
bankrupt’s estate.” Charter, 862 F.2d at 1503-04.
The decisions in Charter and Hemingway are diametrically
opposed. Given that the allowance or disallowance of
environmental claims in bankruptcy is a question of great national
significance, the applicability of § 502(e)(1)(B) to claims for
future response costs under CERCLA should not be resolved in a
piecemeal fashion by the remaining Circuit Courts of Appeals. The
Trustee respectfully submits that the Supreme Court should grant
his petition for certiorari in order to avoid any further confusion.
B. Administrative Expense Priority.
Under the Bankruptcy Code, administrative expenses are
entitled to a first priority of distribution. 11 U.S.C. § 507(a)(1). The
Code defines administrative expenses in relevant part as the
“actual, necessary costs and expenses of preserving the estate
.... 11 U.S.C. § 503(b)(1)(A). There is a large body of diverse
and conflicting case law regarding the circumstances under which
environmental claims should be afforded administrative expense
priority.
1]. The First Circuit Granted An Administrative Priority To
Juniper's Claim For Contingent, Not “Actual,” Response
Costs Under CERCLA.
A “contingent” administrative expense does not exist under
the Bankruptcy Code. See 11 U.S.C. § 503(b)(1)(A) (only “actual”
costs are afforded priority treatment). Nevertheless, the Court of
Appeals in Hemingway held that Juniper’s future response costs —
which have not been (and may never be) “actually” incurred —
could give rise to an administrative expense claim.* The
8. The First Circuit in Hemingway held that Juniper's contingent claim,
once estimated and allowed, would be transformed into an “actual” expense of
administration. App. 29a.
15
unprecedented opinion in Hemingway conflicts with virtually
every other decision rendered by a United States Court of Appeals.
See, e.g., Inre Dant & Russell, Inc., 853 F.2d 700, 706-07 (9th Cir.
1988) (“actual” benefit must accrue); NL Industries, Inc. v. GHR
Energy Corp., 940 F.2d 957, 966 (Sth Cir. 1991) (only “actual,” not
punitive, damages constitute administrative expenses); /n re
Carpet Center Leasing Co., Inc., 991 F.2d 682, 688 (11th Cir.
1993) (priority granted only with respect to value of trustee’s
“actual,” not potential, use of collateral post-petition).
2. The First Circuit Granted An Administrative Priority To
Juniper’s Claim For Decontaminating Property That Did
Not Belong To The Estate.
As noted above, an administrative expense must be part of the
“necessary costs and expenses of preserving the estate.” 11 U.S.C.
§ 503(b)(1)(A) (emphasis supplied). In contrast, the Court of
Appeals in Hemingway afforded priority treatment to Juniper’s
claim for the past and future costs of preserving non-estate
property. The cleanup brought Juniper (nor the Debtors) into
compliance with environmental laws. Cf, In re Wall Tube & Metal
Products Co., 831 F.2d 118, 122-23 (6th Cir. 1987) (property
owner must comply with environmental laws).
In Wall Tube, the trial court expressly held that once property
is no longer part of the estate, “any expenses thereafter incurred in
connection with the [cleanup] cannot qualify as administrative
costs of preserving the estate.” Wall Tube, 56 B.R. 918, 923 (Bankr.
E.D. Tenn. 1986), rev’d on other grounds, 831 F.2d 118 (6th Cir.
1987). On appeal, the Sixth Circuit specifically noted that the
response costs at issue were incurred only “in connection with the
items that remain in the debtor’s estate.” Wall Tube, 831 F.2d at 120
Te hy
9. See In re Chateaugay Corp., 112 B.R. 513, 525 n.22(S.D.N.Y. 1990),
(Cont'd)
16
Both the Third Circuit and the Ninth Circuit have expressly
refused to grant an administrative expense priority to claims
arising from the cleanup of non-estate property. See Southern
Railway Co. v. Johnson Bronze Co., 758 F.2d 137 (3rd Cir. 1985);
In re Dant & Russell, Inc., 853 F.2d 700, 707-09 (9th Cir. 1988).
Moreover, the “property of the estate requirement” is implicit in all
cases holding that environmental response costs “preserve the
estate.” The Hemingway opinion directly conflicts with these
decisions.
3. The First Circuit's Decision Conflicts With The “Midlantic
National Bank” Line of Cases.
In Midlantic National Bank v. New Jersey Department of
Environmental Protection, 106 S. Ct. 755, 762 (1986), the
Supreme Court held that a bankruptcy court “does not have the
power to authorize abandonment [of estate property] without
formulating conditions that will adequately protect the public’s
health and safety.” The Court noted, however, that the exception to
the abandonment power “is a narrow one,” which “does not
encompass speculative or indeterminate” dangers. Midlantic, 106
S. Ct. at 762-63 n. 9. In order to prevent abandonment, the moving
-party must show that an “imminent and identifiable harm” to
public safety would result. /d.
(Cont'd)
aff'd, 944 F.2d 977 (2d Cir. 1991) (noting that EPA did not seek priority for
“costs relating to property not owned by debtor”); /n re Brio Refining, Inc., 86
B.R. 487, 488-89 (N.D. Tex. 1988) (no priority where property was not part of
the estate at the time response costs were incurred); /n re Stevens, 68 B.R. 774,
76 (Bankr. D. Me. 1987) (“trustee confirmed that [storage area] and drums were
the property of the bankrupt estate” at the time of cleanup); /n re T.P. Long
Chemical, Inc., 45 B.R. 278, 281 (Bankr. N.D. Ohio 1985) (noting EPA’s own
admission that costs incurred to cleanup non-estate property were not allowable
as an administrative expense).
aT
17
Although the Court expressly reserved the issue of
administrative expenses, 106 S. Ct. at 758 n. 2, a growing number
of cases have relied upon Midlantic in granting priority status to
post-petition response costs.'°The reasoning of these decisions is
that, where property of the estate cannot be abandoned under
Midlantic, the trustee has an implicit duty to expend the debtor’s
funds to bring the property into compliance with environmental
laws. If the trustee is unwilling to perform the cleanup, the costs
incurred in substitute fulfillment of the trustee’s obligations are
deemed to confer a benefit on the estate.
The decision in Hemingway is in conflict with the Midlantic-
based cases in at least two critical respects. First, the property at
issue was not “property of the estate” at the time Juniper incurred
its response costs. See supra. Second, Juniper’s response costs
were not incurred in abating an “imminent and identifiable harm”
to the public health and safety. Juniper was awarded less than
$39,000 for removing 17 drums, which contained a “semi-solid,
tar-like substance.” The testimony at trial revealed that the
“petroleum constituents” contained in the drums presented only a
“minor threat” to the environment. Compare Wall Tube, 831 F.2d at
124 (“It is undisputed that the hazardous wastes still within the
debtor’s estate after the 1984 conveyance presented a danger to the
public’s health and safety”).
10. See, e.g., Chateaugay, 944 F.2d at 1002; In re Smith-Douglas, Inc., 856
F.2d 12 (4th Cir. 1988); Jn re Wall Tube & Metal Products, Co., 831 F.2d 12 (4th
Cir. 1987); see also, In re Chicago, Rock Island and Pacific Railroad Co., 756
F.2d 517 (7th Cir. 1985) (pre-Midlantic case anticipating and effectively
following the Supreme Court's holding).
hl
18
Il.
THE HEMINGWAY OPINION IS IN CONFLICT WITH
THE SUPREME COURT'S DECISION IN READING CO. V.
BROWN AND THE REPORTED DECISIONS OF OTHER
COURTS OF APPEALS.
In Reading Co. v. Brown, 391 U.S. 471 (1968), a receiver was
appointed to operate a realty company under Chapter XI of the
Bankruptcy Act. The trial court found that a fire caused by the
receiver’s negligent operation of the debtor’s business destroyed
the property of certain creditors. In holding that the creditors’ tort
claims were entitled to priority status as costs of administration,
the Supreme Court emphasized one important and decisive
statutory objective: “fairness to all persons having claims against
an insolvent.” 391 U.S. at 477.
Reading stands for the proposition that the post-petition
operation of a debtor’s business may, in limited circumstances,
give rise to a first priority administrative expense. See Jn re E.A.
Nord., Co., Inc., 78 B.R. 289, 291-92 (E.D: Wash. 1987); Yorke v.
NLRB, 709 F.2d 1138, 1143 (7th Cir. 1983), cert. denied, 465 U.S.
1023 (1984). The rationale is that existing creditors are presumed
to benefit from the continued operation of the debtor’s business,
and therefore any persons injured by such operation should recover
their claims ona priority basis. Reading, 391 U.S. at 478. Reading
and its progeny rest firmly on the existence of a post-petition act or
omission on the part of the person managing the debtor’s affairs."'
11. The post-petition character of the actionable wrong is common to all
cases decided under the Reading rationale. See, e.g., U.S. Dept. of Interior v.
Elliot, 761 F.2d 168 (4th Cir. 1985) (post-petition violation of Surface Mining
Control and Reclamation Act); Yorke v. NLRB, 709 F.2d 1138, 1143 (7th Cir.
1983), cert. denied, 465 U.S. 1023 (1984) (estate must bear responsibility for
trustee’s intentional, post-petition unfair labor practice); Carter- Wallace, Inc. v.
Davis-Edwards Pharmacal Corp., 443 F.2d 867, 874 (2d Cir. 1971) (trustee
intentionally infringed upon plaintiff's patent).
aa aaa
19
Pre-petition events—even those resulting in strict liability—do not
give rise to administrative expense claims."*
To the extent that Hemingway can be construed as a Reading-
based opinion,"* the case is in conflict with the Supreme Court and
other courts of appeals because Juniper was not injured by the
operation of the Debtors’ businesses. The only “post-petition”
event was the sale of the property, which Juniper voluntarily
purchased (1) subject to “all environmental laws,” (2) without any
warranties or representations on the part of the estate, and (3) after
conducting “all such inspections of the premises as [Juniper]
wishe[d] to make.” JA 49-52; see Marden Corp. v. C.G.C. Music,
Ltd., 804 F.2d 1454, 1460 (9th Cir. 1986) (“nothing in CERCLA
suggests that it was intended to offer special protection to unwary
purchasers”).
There is no basis for concluding that it would be “more natural
and just” to permit Juniper to recover ahead of the Debtors’
remaining creditors. See Reading, 391 U.S. at 482. Juniper
voluntarily and knowingly contracted with a bankrupt company
12. See Southern Railway Co. v. Johnson Bronze Co., 758 F.2d 137 (3rd
Cir. 1985); In re Dant & Russell, Inc., 853 F.2d 700 (9th Cir. 1988); see also, In re
Pettibone Corp., 90 B.R. 918, 934 (Bankr. N.D. Ill. 1988) (products liability
claim based upon pre-petition acts); In re Security Gas & Oil, Inc., 70 B.R. 786,
795 n. 5 (Bankr. N.D. Cal. 1987) (environmental hazard created pre-petition
gives rise to general unsecured claim); Jn re Pierce Coal & Constr., Inc., 65 B.R.
521, 530 (Bankr. N.D. W. Va. 1986) (only environmental damages caused by the
post-petition operation of the bankruptcy estate are entitled to priority).
13. In Hemingway, the First Circuit sends conflicting signals regarding its
reliance upon the Reading line of cases. On the one hand, the court noted that
“Juniper dealt voluntarily on a contractual basis with the chapter 1] estate,” and
that the “fairness” doctrine in Reading was misapplied by the lower courts. On
the other hand, the court cited Reading in affording priority treatment to
Juniper's claim for past and future response costs.
ial
20
for the purchase and sale of commercial real estate; the remaining
creditors unwittingly provided goods and services to an entity that
later became insolvent. Juniper had the ability to avoid its losses by
conducting a simple inspection of the Property; the remaining
creditors found themselves “in a dilemma not of their own
making.” See Reading, 391 U.S. at 483. Therefore, a proper
balancing of the equities would not warrant a disturbance of the
priorities established by Congress. See J. Catton Farms v. First
Nat. Bank of Chicago, 779 F.2d 1242, 1249 (7th Cir. 1985)
(Reading “stressed the involuntary nature of the tort victim’s
relationship to the bankrupt . . . ,a consideration emphatically not
present in this case”).
IV.
THE HEMINGWAY OPINION CALLS FOR THE
SUPREME COURT TO EXERCISE ITS SUPERVISORY
POWERS OVER THE FEDERAL COURTS.
The Hemingway opinion is fundamentally flawed because it is
based upon facts that were not in evidence. The keystone of
Hemingway is the surrogate claim procedure under § 501 of the
Bankruptcy Code. Pursuant to Bankruptcy Rules 3004 and
3005(a), a surrogate claim must be filed within 30 days of the bar
date for filing proofs of claim. Although the bar date in
Hemingway expired in 1984, the First Circuit held that the Trustee
and Juniper, as EPA surrogates, could avail themselves of the
“extended filing” provisions of § 726(a)(2)(C)(i) of the Code. This
section authorizes distributions with respect to claims that were
tardily filed only if the claimant “did not have notice or actual
knowledge of the case in time for timely filing. ...” 11 U.S.C.
§ 726(a)(2)(C)(i). Without any factual support on the record
regarding “notice or actual knowledge,” the First Circuit found
that—almost 10 years after the bar date—‘“EPA can yet file a
belated claim that can receive payment along with other timely-
filed unsecured claims. .. .”
21
In addition to making factual determinations sua sponte, the
First Circuit in Hemingway decided at least one legal issue that was
never presented, briefed or argued on appeal: namely, the
circumstances under which Juniper’s claim for future response
costs may be entitled to administrative expense priority. In 1989,
the Bankruptcy Court entered summary judgment disallowing
Juniper’s cleim for future response costs under § 502(e)(1)(B).
Accordingly, the Bankruptcy Court refused to admit any evidence
at trial with respect to such claim. The scope of the trial was limited
to the actual costs incurred by Juniper in removing 17 barrels of
hazardous waste from the Debtors’ former trucking facility. The
priority of any future costs related to the entire Wells G & H Site
was never presented to the Bankruptcy Court. Four years after the
trial, the First Circuit decided this issue sua sponte.
The exercise of judicial power under Article III of the
Constitution depends upon the existence of an “actual
controversy,” which “must be extant at all stages of review.”
Preiser v. Newkirk, 422 U.S. 395, 401 (1975). In contrast, the Court
of Appeals in Hemingway improperly assumed facts not in
evidence and, without any notice to the parties, chose to establish
its position on the priority of future response costs under
CERCLA. The court’s opinion “so far depart[s] from the accepted
and usual course of judicial proceedings ...as to call for an
exercise of this Court’s power of supervision.” See Supreme Court
Rule 10.1.(a); see also, Helling v. McKinney, 61 U.S.L.W. 4648
(U.S. June 18, 1993) (Court of Appeals improperly decided issues
and facts sua sponte).
22
CONCLUSION
For the reasons stated and on the authorities cited, the
Trustee’s petition for a writ of certiorari should be granted.
Respectfully submitted,
A. VAN C. LANCKTON
Counsel of Record
WILLIAM F. MACAULEY
MARTIN P. DESMERY
CRAIG AND MACAULEY
PROFESSIONAL CORPORATION
Attorneys for Petitioner
600 Atlantic Avenue
Boston, Massachusetts 02210
(617) 367-9500
la
APPENDIX A — OPINION OF THE UNITED STATES
COURT OF APPEALS FOR THE FIRST CIRCUIT
DATED MAY 4, 1993
UNITED STATES COURT OF APPEALS
For the First Circuit
No. 92-1040
IN RE HEMINGWAY TRANSPORT, INC., ET AL.,
Debtors,
JUNIPER DEVELOPMENT GROUP, ETC., ETAL.,
Appellants,
Le
HERBERT C. KAHN, ETC.,
Appellee.
No. 92-1095
IN RE HEMINGWAY TRANSPORT, INC., ETAL.,
Debtors,
JUNIPER DEVELOPMENT GROUP, ETC., ETAL.,
v.
HERBERT C. KAHN, ETC.,
Appellant.
————————————————————
2a
Appendix A
No. 92-1289
IN RE HEMINGWAY TRANSPORT, INC., ET AL.
Debtors,
JUNIPER DEVELOPMENT GROUP, ETC., ETAL.,
Appellants,
y;
HERBERT C. KAHN, ETC.,
Appellee.
No. 92-1290
IN RE HEMINGWAY TRANSPORT, INC., ETAL.,
Debtors,
JUNIPER DEVELOPMENT GROUP, ETC., ETAL.,
Appellees,
¥.
HERBERT C. KAHN, ETC.,
Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge}
Before
Torruella, Cyr and Boudin,
Circuit Judges.
3a
Appendix A
Roy P. Giarrusso with whom Louis N. Massery and Cooley,
Manion, Moore & Jones, P.C. were on brief for appellants.
William F. Macauley with whom Martin P. Desmery and Craig
and Macauley were on brief for appellee.
Martin P. Desmery for trustee appellee in cross-appeal.
May 4, 1993
CYR, Circuit Judge. The bankruptcy court disallowed the
contingent claim Juniper Development Group (“Juniper”) filed
against the consolidated chapter 7 estate of Hemingway Transport,
Inc. (“Hemingway”) and Bristol Terminals, Inc. (“Bristol”) for
anticipated response costs for the removal and remediation of
hazardous substances discovered on property previously
purchased by Juniper from the Hemingway-Bristol chapter 11
estate. Juniper’s companion claim for cleanup-related attorney
fees was disallowed as well. The district court affirmed and Juniper
appeals. The chapter 7 trustee (“trustee”) cross-appeals the
allowance of Juniper’s priority claim for past cleanup costs as an
administrative expense.
I
BACKGROUND
Between 1963 and 1982, Hemingway and Bristol
continuously owned or operated a trucking business conducted
from a twenty-acre parcel of land located in Woburn,
Massachusetts (‘’facility’’).! In May 1980, the Massachusetts
1. Hemingway began business operations at the facility shortly after acquiring
itin 1963. In 1974, Hemingway sold the facility to Woburn Associates, but continued
to occupy it under a leaseback arrangement with Woburn. In 1980, Bristol, a wholly
owned Hemingway subsidiary, acquired the facility from Woburn.
| senate
4a
Appendix A
Department of Environmental Quality Engineering (DEQE)
discovered seventeen corroded drums leaching a semi-solid, tar-
like substance onto a 13.8 acre “wetlands” area at the facility.
DEQE informed Hemingway that the substance contained
petroleum constituents DEQE received assurances from
Hemingway that the drums would be removed. The drums were
still at the facility when DEQE conducted its last site inspection, in
August 1982.
In July 1982, Hemingway and Bristol filed chapter Il petitions.
With the approval of the bankruptcy court, appellant Juniper, a
local land developer, purchased the facility from debtor-in-
possession Bristol for $1.6 million on April 29, 1983. Prior to the
purchase, Juniper’s representatives conducted an _ on-site
inspection but did not walk the wetlands area where DEQE had
discovered the drums; Juniper contends that the area was
submerged at the time. Seven months after the sale, the
Hemingway-Bristol chapter 11 reorganization proceeding was
converted to a chapter 7 liquidation proceeding, and a chapter 7
trustee was appointed.
In April 1985, drums containing various solvents and
pesticides classified as “hazardous substances” under the
Comprehensive Environmental Response, Compensation, and
Liability Act (“CERCLA”), 42 U.S.C. §§ 9601-9657, 9601(14)
(1981), were discovered at the facility, in the same wetlands area,
by the United States Environmental Protection Agency (“EPA”).
The following December, Juniper, then the “owner” of the facility,
received notice that the EPA considered Juniper a “potentially
responsible party” (“PRP”) under CERCLA, see id. § 9607(a).
Shortly thereafter the EPA issued an administrative order requiring
Juniper to remove the hazardous substances from the facility at its
own expense. See id. § 9606. Juniper claims $92,088 in response
5a
Appendix A
costs incurred pursuant to the EPA administrative order.’
Juniper initiated an adversary proceeding against the
Hemingway-Bristol estate for CERCLA response costs already
incurred under the EPA administrative order and for future
response costs required to complete the anticipated cleanup and
remediation. Initially, the bankruptcy court denied the trustee’s
motion for summary judgment on Juniper’s CERCLA claim. The
court determined that Juniper’s CERCLA claim, if ultimately
allowed, would be entitled to priority payment from the chapter 7
estate as an administrative expense of the chapter 11 estate, since
Juniper’s exposure to CERCLA liability had arisen from its
postpetition agreement to purchase the facility from the chapter 11
estate. Jn re Hemingway Transp., Inc., 73 B.R. 494, 505 (Bankr. D.
Mass. 1987) (citing Reading Co. v. Brown, 391 U.S. 471 (1968)).?
2. Juniper alleges that an engineering firm was paid $30,208 to remove the
drums; an environmental consulting firm was paid $7,880 to monitor the removal
action; anda law firm was paid $54,000 to ensure adequate compliance with the EPA
order.
In April 1988, EPA demanded $2.1 million in CERCLA contribution from
Juniper for costs incurred by EPA in assessing and evaluating the site. The PRP notice
advised that Juniper would be notified of future “cleanup response costs” as well. In
February 1989, EPA sent PRP notices to Hemingway and Bristol, as former owner-
operators of the facility. See infra note 9.
3. Although count of the original Juniper complaint did not assert a right to
CERCLA contribution, when the trustee’s motion for summary judgment on count I
was denied the bankruptcy court allowed Juniper to amend count I toassertaclaim for
contribution under 42 U.S.C. § 9607(a). In re Hemingway Transp.,73 B.R. at 507-08.
See also infra note 20. The court entered summary judgment for the trustee on count
II, which alleged a breach of warranty by Bristol, and on Count III, which sought
rescission of the land-sale agreement on the ground of fraudulent misrepresentation.
(Cont'd)
6a
Appendix A
The trustee renewed the motion for summary judgment on
Juniper’s claim for future response costs, and moved for
reconsideration of the “administrative expense priority” ruling
previously entered by the bankruptcy court. The bankruptcy court
then disallowed Juniper’s claim for future response costs, pursuant
to Bankruptcy Code § 502(e)(1)(B), 11 U.S.C. § 502(e)(1)(B), on
the ground that Juniper was the holder of a contingent CERCLA
contribution claim based on a debt owed EPA for which Juniper,
Hemingway, and Bristol were jointly and severally liable, in
connection with which Juniper had yet to incur any liability by the
time of the allowance of its claim. /n re Hemingway Transp., Inc.,
105 B.R. 171, 176-78 (Bankr. D. Mass. 1989). The bankruptcy
court reaffirmed its earlier ruling entitling Juniper to
administrative expense priority on its claim for past response
costs.
Following trial on Juniper’s $92,088 claim for CERCLA
response costs previously incurred, the bankruptcy court ruled that
Hemingway and Bristol were responsible parties “liable” to the
EPA, as they either owned or operated the facility at the time a
passive “disposal”, of hazardous substances occurred at the
facility. In re Hemingway Transp., Inc., 108 B.R. 378, 380 (Bankr.
D. Mass. 1989) (holding that CERCLA liability arising from
(Cont'd)
As tocountII, the bankruptcy court held that Juniper had forfeited any nght to recover
for breach of warranty by representing in the contract that it had “made all such
inspections of the premises as [it] wishe[d] to make.” /d. at 506. As to count III, the
bankruptcy court held that Juniper failed to allege fraud with the requisite
particularity. /d. (holding that Massachusetts law requires more than proof of the
seller’s nondisclosure of aknown defect; it requires proof that the seller deliberately
concealed, or prevented the buyer from discovering, known defects). Juniper does not
challenge this bankruptcy court ruling.
Ta
Appendix A
“disposal” need not result from affirmative acts, but encompasses
“leaking” of previously deposited waste during PRP’s ownership)
(citing United States v. Waste Indus., Inc., 734 F.2d 159, 164 (4th
Cir. 1984)). Significantly, however, the bankruptcy court noted no
evidence that Hemingway or Bristol, notwithstanding their
continuous ownership or possession of the facility for a period of
twenty years, either generated or deposited hazardous wastes at the
facility. /d. at 380.
The bankruptcy court allowed Juniper’s claim for past
response costs in the amount of $38,763 as an administrative
expense entitled to priority payment, id. at 382, but disallowed the
$54,000 claim on the ground that attorney fees are not recoverable
in a private action under 42 U.S.C. § 9607(a)(4)(B). /d. at 383.
Juniper appealed the rulings disallowing its claim for future
response costs and for attorney fees. The trustee cross-appealed the
order allowing Juniper’s $38,763 priority claim for administrative
expense. The district court affirmed. Jn re Hemingway Transp.,
Inc., 126 B.R. 656 (D. Mass 1991).
II
DISCUSSION
A. Juniper’s Appeal: Disallowance of Future Response Costs
(11 U.S.C. § 502(e)(1)(B).
1. The Intersection of CERCLA and the Bankruptcy
Code.
Juniper finds itself stranded at the increasingly crowded
“intersection” between the discordant legislative approaches
embodied in CERCLA and the Bankruptcy Code. See In re
8a
Appendix A
Chateaugay Corp., 944 F.2d 997, 1002 (2d Cir. 1991). CERCLA’s
settled policy objectives, reemphasized in the Superfund
Amendments and Reauthorization Act of 1986 (“SARA”),
prominently include the expeditious cleanup of sites contaminated
or threatened by hazardous substance releases which jeopardize
public health and safety, and the equitable allocation of cleanup
costs among all potentially responsible persons (“PRPs”). See
United States v. Cannons Eng’g Corp., 899 F.2d 79, 90-91 (Ist Cir.
1990); see also B.F. Goodrich Co. v. Murtha, 958 F.2d 1192, 1198
(2d Cir. 1992). The PRP class broadly encompasses, inter alia, past
and current owners or operators of a contaminated facility. See 42
U.S.C. § 9607(a). To foster CERCLA’s primary objective —
promotion of spontaneous private cleanup initiatives — all PRPs
are deemed strictly liable for the total response costs required to
remediate the contaminated facility. See United States v. Kayser-
Roth Corp., 910 F.2d 24, 26 n.3 (Ist Cir. 1990), cert. denied, 111S.
Ct. 957 (1991). Strict liability is normally both joint and several.
See O'Neil v. Picilli, 883 F.2d 176, 178 (Ist Cir. 1989), cert. denied,
493 U.S. 1071 (1990); see also New York v. Shore Realty Corp.,
759 F.2d 1032, 1042 (2d Cir. 1985).*And the EPA is invested with
4. The defendant in an EPA enforcement action would have an especially
heavy burden to establish that the shared responsibility of the PRPs is divisible, so as
to elude imposition of joint and several liability. Cf O'Neil, 883 F.2d at 178-79
(“[R]esponsible parties rarely escape joint and several liability [because] itis [often]
impossible to determine the amount of environmental harm caused by each party.”’);
see also United States v. Chem-Dyne Corp., 572 F. Supp. 802, 808-10 (S.D. Ohio
1983). However, ina CERCLA contribution action among responsible parties who
are jointly and severally liable, the burden of proof is less demanding, though the
court nevertheless may undertake a comparable allocation of the relative
responsibilities of the joint obligors. See 42 U.S.C. § 9613(f)(1) (“[T]he court may
allocate response costs among liable parties using such equitable factors as the court
determines are appropriate.”’); see also Smith Land & Improvement Corp. v. Celotex
Corp., 851 F.2d 86, 90 (3d Cir. 1988), cert. denied, 488 U.S. 1029 (1989). In
(Cont'd)
9a
Appendix A
broad administrative discretion to compel PRPs to undertake
immediate cleanup measures, a prerogative largely insulated from
judicial review at the pre-enforcement stage. See 42 U.S.C. § 9606;
see also 42 U.S.C. § 9613(f) (PRPs who settle with EPA are
immune from subsequent contribution claims); /n re CMC
Heartland Partners, 966 F.2d 1143, 1148 (7th Cir. 1992).
(Cont'd)
approaching these divisibility and apportionment determinations, the courts have
relied on various guideposts, including the legislative history in general, and the so-
called “Gore Factors” in particular:
(i) the ability of the parties to demonstrate that their
contribution to a discharge, release or disposal of a
hazardous waste can be distinguished;
(ii) the amount of the hazardous waste involved;
(iii) the degree of toxicity of the hazardous waste
involved,
(iv) the degree of involvement by the parties in the
generation, transportation, treatment, storage, OF
disposal of the hazardous waste,
(v) the degree of care exercised by the parties with
respect to the hazardous waste concerned, taking into
account the characteristics of such hazardous waste; and
(vi) the degree of cooperation by the parties with
Federal, State or local officials to prevent any harm to the
public health or the environment.
Environmental Transp. Sys., Inc. v. Ensco, Inc.,969 F.2d 503, 508-09 (7th Cir. 1992)
(“Gore factors” provide a nonexhaustive but valuable roster of equitable
apportionment considerations) (quoting United States v. A & F Materials Co., Inc.,
578 F. Supp. 1249, 1256(S.D. Ill. 1984)).
10a
Appendix A
Atthe same time, however, CERCLA section 9613(f) is aimed
at promoting equitable allocations of financial responsibility by
authorizing PRPs subjected to pending or completed EPA
enforcement actions under 42 U.S.C. §§ 9606 and 9607(a)(4)(A)
to initiate private actions for full or partial contribution from
nonsettling PRPs by way of impleader or an independent action.
See 42 U.S.C. § 9613(f).° Thus, targeted PRPs, relying on the
ultimate financial accountability of more “culpable” PRPs, are
encouraged to initiate prompt response efforts, at their own
expense, in cooperation with the EPA. See H.R. Rep. No. 253, 99th
Cong., Ist Sess. 80, reprinted in 1986 U.S.C.C.A.N. 2835
(“Private parties may be more willing to assume the financial
responsibility for some or all of the cleanup if they are assured that
they can seek contribution from others.”); Jn re Dant & Russell,
Inc., 951 F.2d 246, 248 (9th Cir. 1991).
On the other hand, Bankruptcy Code § 502(e)(1)(B) often
5. Section 9613(f)(1) provides:
Any person may seek contribution from any other person
who is liable or potentially liable under section
{9607(a)], during or following any civil action under
section [9606] or under section [9607(a)]. Such claims
shall be brought in accordance with this section and the
Federal Rules of Civil Procedure, and shall be governed
by Federal law. In resolving contribution claims, the
court may allocate response costs among liable parties
using such equitable factors as he court determines are
appropriate. Nothing in this subsection shall diminish
the right of any person to bring an action for contribution
in the absence of a civil action under section [9606] or
section [9607].
42U.S.C. § 9613(f).
lla
Appendix A
serves to forestall CERCLA’s intended equitable allocation of
responsibility, as occurred in this case when the bankruptcy court
disallowed Juniper’s estimated claim for $6.2 million in
anticipated future CERCLA response costs. Section 502(e)(1)(B)
provides, in pertinent part:
[T]he court shall disallow any claim for
reimbursement or contribution of an entity
[viz., Juniper] that is liable with the debtor
[Hemingway-Bristol] on or has secured, the
claim of a creditor [EPA], to the extent that —
(B) such claim for reimbursement or
contribution is contingent as of the time
of allowance or disallowance of such
claim for reimbursement or
contribution....
11 U.S.C. § 502(e)(1)(B). There can be little doubt that, but for
section 502(e)(1)(B), the Hemingway-Bristol estate would share
some measure of financial responsibility for the anticipated $6.2
million in future response costs on which the Juniper claim is
based.
Nevertheless, section 502(e)(1)(B) would mandate
disallowance of the Juniper claim against the Hemingway-Bristol
chapter 7 estate if Juniper is jointly liable with the Hemingway-
Bristol estate on the same “debt” for estimated future CERCLA
response costs to EPA, and Juniper’s right to payment on its claim
— denominated a claim for reimbursement or contribution —
remained “contingent” at the time of its disallowance. See In re
Provincetown-Boston Airlines, 72 B.R. 307, 309 (Bankr. M.D. Fla.
12a
Appendix A
1987). The bankruptcy court, citing Jn re Charter Co., 862 F.2d
1500 (11th Cir. 1989), held that the Juniper claim met all three
criteria for disallowance under section 502(e)(1)(B). First, Juniper
denominated its claim as one for “indemnification” or
“contribution.” But see infra note 22. Second, Juniper and
Hemingway-Bristol are “liable” to the EPA for future CERCLA
response costs (hereinafter: the “EPA debt”) because all three
entities were designated PRPs by the EPA. Third, the Juniper claim
is “contingent” because the EPA has issued no further cleanup
orders against Juniper; hence, additional cleanup of the facility
may not be required. /n re Hemingway Transp., 105 B.R. at 177-78.
2. Applicability of Section 502(e)(1)(B) to CERCLA
Claims.
Section 502(e)(1)(B) was enacted for one purpose — “to
prevent[] competition between a creditor and his guarantor for the
limited proceeds of the estate.” H.R. Rep. No. 595, 95th Cong., Ist
Sess. 354 (1977); S. Rep. No. 989, 95th Cong., 2d Sess. 65 (1978)
(emphasis added). Normally, section 502(e)(1)(B) is invoked
against claims based on debts or obligations arising from voluntary
contractual relationships. Even in the context of a CERCLA-
based, quasi-“tort” obligation, however, the practical need for
section 502(e)(1)(B) is evident; that is, but for section
502(e)(1)(B), see infra note 6, an estimation of Juniper’s claim for
anticipated response costs, see 11 U.S.C. § 502(c)(1), would entitle
Juniper to share in the distribution of the insolvent chapter 7 estate
under Bankruptcy Code 726(a), 11 U.S.C. § 726(a), see, e.g., In re
Butterworth, 50 B.R. 320, 322 (Bankr. W.D. Nich. 1984),
notwithstanding that its claim remained “contingent” until such
time (if ever) as EPA were to call upon Juniper to pay any future
CERCLA response costs incurred for further cleanup or
remediation of the facility.
——=—
13a
Appendix A
The Cade’s expansive definition of “claim” permits automatic
allowance of most “contingent” claims, see Bankruptcy Code
§§ 101(4), 502(a), 11 U.S.C. §§ 101(4), 502(a), against a chapter 7
estate upon timely filing, see id. §§ 501, 726; Fed. R. Bankr. P.
3002(c). The bankruptcy court simply estimates the amount of the
claim for purposes of its allowance, see id. § 502(c)(1),
discounting its value to reflect the uncertainty of the contingency,
in order to enable the holder to share in the distribution of the
insolvent estate.© On the other hand, where the filing of a
contingent claim for contribution or reimbursement entails risk
that the assets of the chapter 7 estate will be exposed to “double-
dipping” by holders of the same underlying claim against the
estate, section 502(e)(1)(B) mandates disallowance of the
contingent claim. The sole purpose served by section 502(e)(1)(B)
is to preclude redundant recoveries on identical claims against
insolvent estates in violation of the fundamental Code policy
fostering equitable distribution among all creditors of the same
class. The “double-dipping” threat in the present case would result
from the allowance and estimation of Juniper’s contingent claim,
6. Under CERCLA § 9607(a)(4)(B), see pp. 32-35 infra, “contribution” relief
is restricted to damages for past response costs (i.e., costs already “incurred’”’). On the
other hand, section 961 3(g)(2) authorizes a declaratory judgmentaction to determine
liability forresponse costs which “will be binding on any subsequent action or actions
to recover further response costs or damages,” a form of relief plainly encompassed
within Juniper’ s amended complaint. See Jn re Chateaugay Corp., 944 F.2d at 1008
(noting that, notwithstanding CERCLA’s ban on pre-enforcement judicial review, a
bankruptcy court may estimate CERCLA claims pursuant to Bankruptcy Code
§ §02(c)(1), “with ultimate liquidation of the claims to await the outcome of normal
CERCLA enforcement proceedings”). A “contingent” claim predicated on an
otherwise valid declaratory judgment entered pursuant to section 9613(g)( 2) would
be subject to estimation. See Bankruptcy Code § 502(c)(1), 11 U.S.C. § 502(c)(1)
(“There shall be estimated for purposes of allowance under this section . . . any
contingent or unliquidated claim, the fixing or liquidation of which, as the case may
be, would unduly delay the administration of the case. . . .”).
l4a
Appendix A
and the allowance of an EPA claim, for the same future CERCLA
response costs against the chapter 7 estate.
Section 502(e)(1)(B) is a fair and reasonable measure as
applied against a contract guarantor or surety. Confronted with the
prospect that its contingent claim for reimbursement or
contribution against a chapter 7 debtor estate may be subject to
disallowance under section 502(e)(1)(B), an entity may elect to
cause its contingent contract claim to become “fixed” prior to
disallowance, see Bankruptcy Code § 502(e)(2), by itself
satisfying the debt due the creditor of the debtor estate, leaving the
entity as the sole holder of a claim against the estate based on that
debt.’ See, e.g., In re Baldwin-United Corp, 55 B.R. 885, 895
(Bankr. S.D. Ohio 1985). On the other hand, the section 502(e)(2)
“fixing” option presents an especially difficult dilemma for an
owner or operator of a targeted facility, such as Juniper, involved in
a Superfund contribution action. The onerous CERCLA
remediation process may take years to complete, leaving PRPs
holding the bag; that is, holding unallowable contingent claims for
contribution or reimbursement against the chapter 7 estate, claims
typically totaling millions of dollars. In such circumstances,
section 502(e)(1)(B) may operate to preclude innocent PRPs from
7. Section 502(e)(2) provides.
A claim for reimbursement or contribution of such an
entity that becomes fixed after the commencement of the
case shall be determined, and shall be allowed under
subsection (a), (b), or (c) of this section, or disallowed
under subsection (d) of this section, the same as if such
claim had become fixed before the date of the filing of
the petition.
11 U.S.C. § 502(e)(2).
Oe
1Sa
Appendix A
recovering CERCLA response costs from a chapter 7 estate even
though the estate clearly is responsible for all or part of the
environmental contamination. If the EPA opts to refrain from
participating in any distribution from the chapter 7 estate, as it may
do simply by not filing a proof of claim, Juniper may end up as the
only potential EPA enforcement-action target still left standing and
solvent.® Thus, sometimes the fundamental policy embodied in
Bankruptcy Code § 502(e)(1)(B) may promote an expeditious
administration of the chapter 7 estate, see In re American
Continental Corp., 119 B.R. 216, 217 (Bankr. D. Ariz. 1990), at the
expense of a fundamental CERCLA policy: the equitable
allocation of environmental cleanup costs among all responsible
parties.
Although section 502(e)(1)(B) may have been devised
primarily with contract-based codebtor relationships in mind (e.g.,
guaranties, suretyships), however, its language (“liable with”) has
been found too plain and inclusive to exempt “joint and several”
tort-based obligations from disallowance, see, e.g., In re American
Continental, 119 B.R. at 217; In re Pacor, Inc., 110 B.R. 686, 688
(E.D. Pa. 1990); In re Wedtech Corp., 87 B.R. 279, 284 (Bankr.
S.D.N.Y. 1988), and the Bankruptcy Code elsewhere carves out no
exception for this variety of co-obligation. Moreover, even though
8. EPA enforcement actions generally are excepted from the automatic stay
provisions. See Bankruptcy Code § 362(b)(4), 11 U.S.C. § 362(b)(4); New York v.
Exxon Corp., 932 F.2d 1020, 1024-25 (2d Cir. 1991). Even were the EPA toreduce to
judgment its claim for prepetition damages against the chapter 7 debtors, however,
the judgment would not be enforceable against the debtors’ estate except through the
normal claim allowance process. See Bankruptcy Code § 362(b)(5), 11 uss.
§ 362(b)(5). Moreover, corporate debtors cannot receive a discharge, see id.
§ 727(a)(1), 11 U.S.C. § 727(a)(1) (“The court shall grant the debtor a discharge,
unless . . . the debtor is not an individual . . . .”). Consequently, virtually all such
chapter 7 proceedings end with the debtor in dissolution and its corporate cupboard
bare.
16a
Appendix A
CERCLA and SARA postdate the enactment of Bankruptcy Code
§ 502(e), and plainly envisfon private rights of action for CERCLA
contribution as inducements to spontaneous private cleanup
efforts by PRPs, neither environmental statute alludes to the
Bankruptcy Code, let alone exempts CERCLA contribution claims
from the Code’s normal claim procedures. Thus, notwithstanding
the purposive liberality with which courts are to construe
CERCLA’s remedial provisions, see Kayser-Roth, 910 F.2d at 26
(“ ‘[W]e will not interpret section 9607(a) in any way that
apparently frustrates the statute’s goals.’ ”) (citation omitted),
Bankruptcy Code § 502(e)(1)(B) obliges a construction consistent
with its plain terms. See Norwest Bank Worthington v. Ahlers, 485
U.S. 197, 206 (1988) (“[W]hatever equitable powers remain in the
bankruptcy courts must and can only be exercised within the
confines of the Bankruptcy Code.”).
Finally, we discern no inherent incompatibility between
section 502(e)(1)(B) and the congressional policies underlying
CERCLA, such as might enable a court reasonably to conclude that
Congress implicitly exempted CERCLA co-obligation claims.
Although on occasion section 502(e)(1)(B) may impede
CERCLA’s subsidiary policy of promoting equitable allocations
of environmental cleanup costs among responsible parties, pre-
“fixing” disallowance does not conflict with CERCLA’s primary
goal — encouraging targeted PRPs to initiate cleanup efforts as
expeditiously as practicable in the expectation that their contingent
claims may become “fixed” in time for allowance against the
debtor estate. See In re Charter Co., 862 F.2d at 1504 (noting
obvious environmental benefit from efforts to “fix” contingent
claims prior to the closing of the bankruptcy case); see also supra
note 7.
Accordingly, we conclude that Congress did not exempt
CERCLA claims from disallowance under section 502(e)(1)(B).
eisai
17a
Appendix A
3. Burdens of Proof in Section 502(e)(1)(B) Litigation.
In the litigation of a section 502(e)(1)(B) objection to a
contingent claim, however, the proper allocation of burdens of
proof and production may be decisive. A proof of claim which
comports with the requirements of Bankruptcy Rule 3001(f)
constitutes prima facie evidence of the validity and amount of the
claim. See Fed. R. Bankr. P. 3001(f). The interposition of an
objection does not deprive the proof of claim of presumptive
validity unless the objection is supported by substantial evidence.
Norton Bankruptcy Law & Practice, Bankruptcy Rules at 191
(1992); see also In re Beverages Int’l, Ltd., 50 B.R. 273, 276 (D.
Mass. 1985). Once the trustee manages the initial burden of
producing substantial evidence, however, the ultimate risk of
nonpersuasion as to the allowability of the claim resides with the
party asserting the claim. See Bankruptcy Rules, at 191-92; see
also Inre VTN, Inc., 69 B.R. 1005, 1006 (Bankr. S.D. Fla. 1987). In
the present case, therefore, the chapter 7 trustee was required to
come forward with substantial evidence that Juniper’s claim is one
for CERCLA “contribution,” which would implicate two related
questions: (1) whether Hemingway-Bristol is contingently
“liable” to the EPA for future response costs, and (2) whether
Juniper is “liable” to the EPA on the same “debt.”
4. Hemingway-Bristol “Liability” on Joint Obligation.
At the time it allowed Juniper’s claim for past response costs,
the bankruptcy court determined that Hemingway-Bristol had
owned or operated the facility when the passive “disposal” of
hazardous substances occurred and that Hemingway-Bristol had
actual knowledge of the presence of the leaking barrels. Hence,
Hemingway-Bristol is a “covered person,” strictly liable to the
EPA for future response costs pursuant to 42 U.S.C.
§ 9607(a)(4)(A).
18a
Appendix A
Juniper nonetheless suggests that the term “liable with”
should be interpreted in light of the singular legislative purpose
underlying the section 502(e)(1)(B) contingent claim
disallowance provision. Like any other claim for contribution,
says Juniper, its claim for future CERCLA response costs could
pose no “double-dipping” threat were the EPA, for whatever
reason, not to participate in any distribution from the chapter 7
estate. Moreover, the EPA has elected not to assert a claim against
the estate, despite considerable prodding by Juniper. Rather, the
EPA repeatedly has manifested its intention to forego any
immediate claim against the chapter 7 estate in favor of
administrative enforcement actions against other PRPs, such as
Juniper.’ The trustee responds that the literal language of section
502(e)(1)(B) directs disallowance of the codebtor’s [Juniper’s]
contingent claim even though the creditor [EPA] has not filed a
proof of claim by the time the codebtor’s claim is considered for
allowance.
Section 502(e)(1) directs disallowance of the claim of a
codebtor who is liable with the debtor on the “claim of a creditor.”
The pivotal terms — “claim” and “creditor” — are defined. A
“claim” is a “right to payment, whether or not such right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.” Bankruptcy Code § 101(4), 11 U.S.C. § 101(4)
(emphasis added). A“‘creditor” is an “eritity that has aclaim against
the debtor that arose at the time of or before the order for relief
concerning the debtor.” Jd. §§ 101(9), 301 (“The commencement
9. In a May 1987 letter to Juniper, the EPA suggested that it had already
exercised its discretion to refrain from asserting an enforcement action against the
chapter 7 estate, at least as of that time. Two years later, however, the EPA sent PRP
notices to Hemingway and Bnstol.
19a
Appendix A
of a voluntary case under a chapter of this title constitutes an order
for relief under such chapter.”).
The EPA presumably holds a prepetition claim against the
chapter 7 estate, since its contingent “right to payment” accrued
while Bristol and Hemingway owned or operated the facility at
which the hazardous waste “disposal” occurred. Cf. In re
Chateaugay, 944 F.2d at 1002-06 (EPA claim for CERCLA
response costs is a prepetition claim if the contamination occurred
prior to the petition, without regard to when EPA discovered
contamination, or incurred response costs). Although section
502(e)(1)(B) plainly does not require that a creditor’s right to
payment be evidenced by a timely proof of claim, or a previously
allowed claim, see In re Wedtech Corp., 85 B.R. 285, 289 (Bankr.
S.D.N.Y. 1988), it is nonetheless incumbent on the trustee to
produce substantial evidence of the existence of aright to payment
on the part of the creditor.
The co-liability clause in section 502(e)(1), viz., “liable with
the debtor,” interpreted in light of its singular purpose, might
permit allowance of a non-fixed codebtor claim for CERCLA
contribution if the creditor were foreclosed from participating in
any distribution from the estate under Bankruptcy Code § 726(a).
Nevertheless, though we reject the trustee’s contention that the
EPA might yet demonstrate “excusable neglect” warranting an
extension of time to file a proof of claim,'° we must examine other
10. Inachapter7 case, proofs of claim must be filed within ainety days after the
first date set for the first meeting of creditors. Fed. R. Bankr. P. 3002(c). See In re
Chirillo, 84 B.R. 120, 122 (Bankr. N.D. Ill. 1988). Since the EPA could no longer
satisfy any of the six conditions for extension of the ninety-day bar date set forth in
Bankruptcy Rule 3002(c), it is precluded from asserting a timely proof of claim
against the chapter 7 estate. See Fed. R. Bankr. P. 9006(b)(1). Rule 9006(b) plainly
precludes resort to Rule 9006(b)(1) to extend a time period prescribed in Rule
(Cont'd)
20a
Appendix A
means which may remain open to EPA’s participation in any
chapter 7 distribution.
The EPA may participate in a distribution to unsecured
creditors under section 726(a)(2)(C) if it was never scheduled as a
“creditor” of the estate, and had no actual knowledge of the
proceedings in time to file a proof of claim. See Jn re Global
Precious Metals, Inc., 143 B.R. 204, 205-06 (Bankr. N.D. II.
1992) (chapter 7).'' Thus, a remote “double-dipping” prospect
would remain if Juniper’s claim were to be allowed, as it is
| conceivable that EPA might yet file an allowable claim.”
| (Cont'd)
3002(c), except “to the extent and under the conditions stated in [Rule 3002(c)].”’ /d. at
9006(b)(3). ;
11. Bankruptcy Code § 726(a)(2)(C) provides for “payment of any allowed
unsecured claim, other than aclaim of a kind specified in paragraph (1), (3), or (4) of
| this subsection, proof of whichis... tardily filed under section 501 (a) of this title, if (i)
| the creditor that holds such claim did not have notice or actual knowledge of the case
in time for timely filing of a proof of such claim under section 501 (a) of this title; and
(ii) proof of such claim is filed in time to permit payment of such claim.” 11 U.S.C.
§ 726(a)(2)(C). The appellate record does not disclose whether EPA was listed as a
creditor. In addition, it is conceivable, though unlikely, that EPA’s CERCLA claim
might be entitled to share in any subordinate distribution under section 726(a)(3), as
an “allowed unsecured claim proof of which is tardily filed,” even if EPA was
scheduled, or had actual notice of the case prior to the bar date. See In re Melenyzer,
140B.R. 143, 156n.42 (Bankr. W.D. Tex. 1992) (chapter 7).
12. Of course, the bankruptcy court might condition its allowance of a
codebtor’s claim on the ultimate failure of the creditor to file a proof of claim. See
Bankruptcy Code § 502(j), 11 U.S.C. § 502(j) (“A claim that has been allowed or
disallowed may be reconsidered for cause.”). Instead of automatic disallowance,
some courts have suggested that the bankruptcy court sharply discount the codebtor’s
claim to offset this all-or-nothing contingency, or direct that any distribution to the
codebtor be placed in trust, to be expended only to reduce the common debt. See /n re
(Cont'd)
ee te
‘ee
21a
Appendix A
In this case, however, the harsh results occasioned by
Bankruptcy Code 502(e)(1)(B) are mitigable through recourse to
Bankruptcy Code 501(c), which provides that, “[i]fa creditor does
not timely file a proof of such creditor’s claim, the debtor or the
trustee may file a proof of such claim.” See also Fed. R. Bankr. P.
3004. Although section 501(c) is permissive (“may file”), rather
than mandatory, and is designed principally to prevent creditors
from depriving debtors of the benefit of a discharge under
Bankruptcy Code § 727, 11 U.S.C. § 727, cf. supra note 8, in these
circumstances there are sound reasons to require the chapter 7
trustee to shoulder the initial burden of filing a surrogate claim in
behalf of the EPA as a precondition to obtaining simultaneous
disallowance of Juniper’s contingent claim under section
501(e)(1)(B).
First, even if the chapter 7 trustee were to decline to act as an
EPA surrogate, Juniper could force the trustee’s hand. Under a
parallel Code provision, Juniper itself would be permitted to file a
surrogate claim for the EPA. See Bankruptcy Code § 501(b), 11
U.S.C. § 501(b) (“If acreditor [EPA] does not timely file a proof of
such creditor’s claim, an entity [Juniper] that is liable to such
creditor with the debtor... may file a proof of such claim.”).'’ Were
(Cont'd)
Allegheny Int'l. inc., 126B.R.919,924(W.D. Pa. 1991), aff'd, 950 F.2d 721 (3d Cir.
1991). However, these options find little support in the categorical language of
section 502(e)(1)(B).
13. Theequitable considerations underlying the section 501(b) surrogate-claim
procedure have been described as follows:
Section 501(b) and Rule 3005 protect the codebtor
against the danger that the creditor, faced with the
bankruptcy of the prime debtor, might decide to rely on
the solvency of the codebtor and therefore, to abstain
(Cont'd)
ee
22a
Appendix A
it to resort to the surrogate-claim procedure, Juniper would be
required to show simply that “the original debt [due EPA by
Hemingway-Bristol would] be diminished by the amount of the
distribution [to the EPA on the surrogate claim].” Fed. R. Bankr. P.
3005(a). Of course, even this modest burden would be obviated if
the surrogate claim were to be superseded by the EPA’s filing of its
own proof of claim. See id. '*
(Cont'd)
from filing a proof of claim. In such a case, while there
might be a prospect of securing at least partial
satisfaction from the assets of the debtor, the creditor
would forego this possibility and merely proceed with
his claim against the codebtor. By the time the creditor
decided to take such action, any period fixed for the
filing of claims might have elapsed. Indeed, the debtor’s
estate might have been fully administered by the trustee
so that the codebtor would be left without the possibility
of even partial reimbursement to the extent he has
satisfied the claim of the debtor’s creditor. The debtor’s
discharge would remove the possibility that his codebtor
could secure indemnification from him at some future
time... . [T]he unwillingness of th[{e] creditor to take the
necessary steps in the administration of bankruptcy to
insure . . . participation [in distribution of the debtor's
assets] would not deny the ability of the codebtor to do
so.
See Lawrence D. King, Collier on Bankruptcy J 509.02, at 509-6 (15th ed. 1991)
[hereinafter Collier on Bankruptcy}.
14. Although the EPA can no longer file a “timely” proof of claim now that
the bar date has passed, see supra note 10, its forbearance triggers the trustee’s
and Juniper’s rights to file a proof of claim in EPA’s behalf. Under Bankruptcy
Rules 3004 and 3005(a), the trustee and Juniper normally would have only thirty
days from the bar date to file their surrogate claims. But insofar as EPA “did not
have notice or actual knowledge of the case in time for timely filing of a proof of
(Cont'd)
23a
Appendix A
More importantly, mandatory resort to the trustee's option to
file a surrogate proof of claim under section 501(c) more readily
comports with the allocation of the burden of proof under section
502(e)(1)(B), which would require the trustee to come forward
with substantial support for the section 502(e)(1)(B) objection to
Juniper’s proof of claim, and hence, substantial evidence that
Hemingway and Bristol were “liable” to the EPA. See supra
Section II.A.3. In addition, the trustee has title and ready access to
the debtors’ records, see Bankruptcy Code § 521(4), 11 U.S.C.
§ 521(4) (“[D]ebtor shall . . . surrender to trustee all property of
the estate, including books, documents, records, and papers... .”’);
In re Bentley, 120 B.R. 712, 714 (S.D.N.Y. 1990), and the right to
require the debtors’ officers to submit to examination, see
Bankruptcy Code § 521(3), 11 U.S.C. § 521(3) (“[DJebtor shall...
cooperate with the trustee as necessary to enable the trustee to
perform the trustee’s duties . . . .”); Fed. R. Bankr. P. 4002(4)
(Debtor must “cooperate with the trustee in . . . the examination of
proofs of claim... .”); Jn re Neese, 137 B.R. 797, 801 (C.D. Cal.
1992) (* ‘[CJooperate’ is a broad term... .”). Thus, the trustee is in
a far better position than Juniper to ferret out evidence relevant to
the EPA’s claim against the debtors.
Although disallowance of Juniper’s CERCLA claim under
section 502(e)(1)(B) is not strictly foreclosed by EPA’s failure to
file timely proof of its claim, we cannot overlook the fact that the
trustee’s reliance on section 502(e)(1)(B) may occasion a pointless
(Cont'd)
... Claim,” Bankruptcy Code § 726(a)(2)(C)(i), see also supra note 11 and
accompanying text, the EPA can yet file a belated claim that can receive payment
along with other timely-filed unsecured claims, so long as “proof of such claim is
filed in time to permit payment of such claim.” /d. § 726(a)(2)(C)(ii). Thus, the
trustee and Juniper, as EPA surrogates, can avail themselves of the section
726(a)(2)(C) “extended filing” provision.
24a
Appendix A
financial loss to Juniper and result in a windfall to the chapter 7
estate, notwithstanding Juniper’s best efforts to induce EPA to file
its claim. In this vein, we note that resort to subsections 501(b) and
(c) would not compel EPA’s participation in the bankruptcy
proceedings, cf. In re Hemingway Transp., 70 B.R. 549 (Bankr. D.
Mass. 1987) (finding sovereign immunity would preclude
mandatory joinder of EPA as party); cf. also infra note 26, but
nevertheless would compel a set-aside for EPA’s benefit at the time
of distribution regardless of its decision to refrain from filing a
claim against the chapter 7 estate. The distribution to EPA would
result in a reduction in the total indebtedness to EPA for which
Juniper and the chapter 7 estate are alleged to be co-liable. In our
view, the EPA’s recalcitrance, whatever its administrative
justification, provides no relevant legal or equitable basis for
barring resort to the alternative surrogate-claim filing procedure
authorized under subsections 501(b) and (c).
Accordingly, we vacate the bankruptcy court order
disallowing Juniper’s claim under section 502(e)(1)(B). On
remand, the bankruptcy court should prescribe a reasonable bar
date by which the chapter 7 trustee must elect whether to file a
surrogate EPA claim pursuant to Bankruptcy Code § 50l1(c),
without prejudice to Juniper’s right to submit a surrogate claim
under subsection 502(b) as well.'® Should the trustee not file a
15. Unlike a creditor filing in its own behalf, or a trustee seeking to avail the
debtor of the full benefit of achapter 7 discharge, in this case the chapter 7 trustee may
have little incentive to maximize any surrogate claim in behalf of EPA, thus depleting
any pro-rata dividend available to other unsecured creditors. A similar problem may
arise if any superseding proof of claim filed by EPA were to understate (in Juniper's
view) the chapter 7 debtors’ share of the CERCLA obligation. We do not construe
subsections 501(b) and (c) as suggesting that the trustee could preempt a surrogate
EPA claim by Juniper under section 501(b) asserting that the chapter 7 estate’s
CERCLA liability to EPA is greater than that asserted in the trustee’s section 501(c)
(Cont'd)
25a -
Appendix A
timely surrogate claim (and should Juniper not do so), the section
§02(e)(1)(B) objection should be dismissed, and the court should
estimate Juniper’s direct claim against the chapter 7 estate
pursuant to normal claimallowance procedures. See Bankruptcy
Code § 502(c).
5. Juniper’s “Liability” on Joint Obligation.
In the event the trustee should file a surrogate claim in behalf
of the EPA pursuant to sections 501(c) and 726(a)(2)(C) following
remand, we outline the standards governing its consideration by
the bankruptcy court.
Juniper’s “contribution” claim differs in one important
respect from codebtor claims normally subjected to disallowance
under section 502(e)(1)(B). In the typical contractual relationship
between a principal and its surety or guarantor, the codebtor’s
(surety’s or guarantor’s) obligation on the common debt arises at
the same time as the creditor’s (principal’s) “right to payment”
from the debtor — during the prepetition period — which
necessarily means that both the creditor and the codebtor hold
prepetition claims against the debtor estate. Here, on the other
hand, regardless whether the EPA has a prepetition or a
postpetition claim, Juniper’s “right to payment” from
Hemingway-Bristol arose, at the earliest, when it purchased the
facility from the Hemingway-Bristol chapter 11 estate in April
1983. Only then did Juniper become an “owner and operator” of
the contaminated facility, hence a “covered person” under
(Cont'd)
surrogate claim. Rather, the bankruptcy court should entertain evidence from the
trustee and Juniper, for the purpose of estimating the value of the EPA claim under
section 502(c).
26a
Appendix A
CERCLA." Since Juniper undeniably holds a postpetition “claim”
Bankruptcy Code §§ 101(9), 301, 11 U.S.C. § 101(9), 301, its
“proof of claim” under Bankruptcy Code §§ 501 and 502 is no less
readily — and presumably even more accurately — characterized
as “a request for payment of an administrative expense” under
Bankruptcy Code § 503(a). See Bankruptcy Code § 348(d), 11
U.S.C. § 348(d) (providing that claims arising after the filing of a
_ chapter 11 petition and before conversion to chapter 7 shall be
treated as prepetition claims, unless they qualify as
“administrative expenses” under section 503(b))."’
Bankruptcy Code § 503(a)(1)(A) enables an entity to file a
request for payment of an administrative expense, including “the
actual, necessary costs and expenses of preserving the estate.” “As
16. The bankruptcy court implicitly acknowledged as much when it approved
Juniper’s request for past response costs as an administrative expense: “Juniper’s
cause of action under CERCLA arose when the property containing the drums was
transferred to Juniper or, alternatively, when Juniper expended money in response to
the EPA’s administrative order.” Jn re Hemingway Transp., 73 B.R. at 503.
17. Courts have long recognized a category of allowable administrative
expenses resulting in no discernible benefit to the debtor estate, see Jn re Charlesbank
Laundry, Inc., 755 F.2d 200 (Ist Cir. 1985), in instances where fundamental fairness
required that the claimant’s right to distribution take precedence over the rights of
general creditors. See Reading Co. v. Brown, 391 U.S.471 (1968). In Reading, several
business firms, whose premises were damaged by a fire negligently caused by the
receiver appointed to operate a Chapter XI business, requested that their fire-loss
claims be allowed as administrative expenses of the Chapter XI estate,
notwithstanding the fact that the losses sustained as a result of the fire resulted in no
“benefit” to the Chapter XI estate. Noting the “decisive, statutory objective [of]
fairness to all persons having claims against the insolvent,” Reading, 391 U.S. at477,
the Supreme Court held that the claims for postpetition fire loss were allowable as
costs of administration. Its rationale was equitable in nature: unsecured creditors ina
Chapter XI reorganization anticipate that their agreement to defer receipt of payment
(Cont'd)
AON ih EI LORD RSE
ne Ales Ml aa
27a
Appendix A
a general rule, a request for priority payment of an administrative
expense pursuant to Bankruptcy Code § 503(a) may qualify if (1)
the right to payment arose from a postpetition transaction with the
debtor estate, rather than from a prepetition transaction with the
debtor, and (2) the consideration supporting the right to payment
was beneficial to the estate of the debtor.” Jn re Hemingway
Transp., Inc., 954 F.2d 1, 5 (Ist Cir. 1991) (citing In re Mammoth
Mart, Inc., 536 F.2d 950, 954 (ist Cir. 1976)). The trustee argues
that administrative expense priority under Mammoth Mart iS
(Cont'd)
on their prepetition claims may facilitate the reorganization debtor’s ultimate
rehabilitation, thereby enhancing their prospects for recovery on their prepetition
claims. Unlike holders of prepetition claims, however, the firms whose business
premises were damaged by the postpetition fire negligently caused by the receiver
had “the insolvent business [involuntarily] thrust upon them by operation of law.” /d.
Similarly, in Charlesbank, we extended Reading to postpetition fines imposed ona
chapter 1] estate for deliberate disregard of an injunction. See Charlesbank, 755 F.2d
at 203.
In citing Reading and Charlesbank as support for its provisional decision
granting Juniper administrative priority for its postpetition contribution claims, the
bankruptcy court focused entirely on the debtors’ failure to disclose the
environmental risk prior to the 1983 sale, and the perceived “unfairness” in the
“debtor attempting to transfer its liability or potential for liability under state or
federal environmental laws” in those circumstances. See In re Hemingway Transp.,
73 B.R. at 504. Thus interpreted, Reading might permit Juniper to recover the entire
cost of its extant “injury” — or the past and future costs of remediation — despite the
fact that it has yet to incur some of these response costs. Unlike the injured parties in
Reading and Charlesbank, however, Juniper dealt voluntarily onacontractual basis
with the chapter 1 1 estate. No principle of fundamental fairness would entitle Juniper
to administrative priority over other unsecured creditors of the Hemingway-Bristol
estate if it failed to exercise due diligence in all the circumstances to protect itself,
from the outset, against any imposition of CERCLA joint and several liability. In
addition, lack of due diligence would, for reasons explained below at pp. 36-38,
prevent Juniper from escaping the strictures of section 502(e)(1)(B)’s “fixing”
requirement.
28a
Appendix A
wholly unavailable to Juniper on its claims for past and future
response costs, as Juniper’s right to contribution from the chapter 7
estate was not supported by consideration (i.e., Juniper’s outlay of
response costs) which could “benefit” the estate. Thus, the trustee
points out that the contaminated facility was no longer property of
the chapter 11 estate, hence Juniper’s incurrence of response costs
would not bring the estate into compliance with federal or state
environmental regulations. Cf. Jn re Stevens, 68 B.R. 774, 783 (D.
Me. 1987) (finding that the State’s claim for cleanup expenses
incurred in substitute fulfillment of the trustee’s legal obligation
was entitled to administrative expense priority, where the trustee,
who would be prohibited from exercising his power of
abandonment in contravention of state environmental protection
laws, was still in “possession” of property posing an “imminent
and identifiable danger” to public health and safety; contrasting
case in which trustee had already been “dispossessed” of waste site
at time of government-financed cleanup); Jn re T.P. Long Chem.,
Inc., 45 B.R. 278, 284-85 (Bankr. N.D. Ohio 1985). Nor could the
CERCLA response costs incurred by Juniper “benefit” the chapter
11 estate while the estate remained jointly and severally liable on
the EPA debt. Although we agree that Juniper’s incurrence of
CERCLA response costs might not benefit the estate, on the facts
of this case we cannot agree that Mammoth Mart priority is
altogether unavailable to Juniper.
In the context of their arm’s-length purchase-sale transaction
in 1983, we must presume that Juniper and the chapter 11 estate
were cognizant of the federal and state environmental laws then in
effect, and that, notwithstanding Juniper’s resulting status as an
“owner or operator” of the contaminated facility, the chapter 11
estate could remain liable for any response costs later incurred by
Juniper and for which the debtors (or the debtor estate) were liable
under CERCLA section 9607(a), an obligation explicitly provided
29a
Appendix A
for presently in 42 U.S.C. §§ 9607(a)(4)(B) and 9613(f). See
O'Neil, 883 F.2d at 179 (noting that SARA contribution provisions
merely “codif[ied] [a remedy] that most courts had concluded was
implicit in the 1980 Act”); Marden Corp. v. C.G.C. Music, Ltd.,
804 F.2d 1454, 1457 n.3 (9th Cir. 1986) (collecting pre-SARA
caselaw recognizing implicit right of contribution in CERCLA).
There is no record evidence that the estate either contracted away
its obligation to contribute, or bargained for a right to
indemnification from Juniper. See 42 U.S.C. § 9607(e) (purported
transfers of CERCLA liability cannot exonerate transferor, but
indemnification agreements are permissible). Similarly, to the
extent that the $1.6 million purchase price for the facility
presumptively reflected the parties’ allocation of the risks relating
to these contribution costs, the $1.6 million constituted
“consideration” supporting Juniper’s right to payment for
contribution for response costs from the estate. Obviously, this
substantial infusion of cash benefitted the chapter 11 rehabilitation
effort. Thus, the $1.6 million in purchase monies constituted the
requisite baseline “consideration” for Juniper’s right to
contribution; and response costs subsequently incurred by Juniper
a mere maturation of that right, immaterial for Mammoth Mart
purposes.
On the other hand, we agree that Mammoth Mart priority is
unavailing to Juniper insofar as its right to contribution for future
response costs remains “contingent” at the time the bankruptcy
court considers Juniper’s claim for allowance against the debtor
estate. Only “actual” administrative expenses, not contingent
expenses, are entitled to priority payment under Bankruptcy Code
§ 503(b)(1)(A). Even though Juniper’s postpetition contribution
claim, once allowed, would be entitled to priority treatment under
section 503(b), the parallel restrictions in section 502(e)(1)(B)
pose an additional hurdle. Under its clear terms, section
30a
Appendix A
502(e)(1)(B) does not apply exclusively to “creditors,” or in other
words, to holders of prepetition claims for reimbursement or
contribution. Section 502(e)(1)(B) refers to the holder of the claim
as an “entity,” not as a “creditor” of the estate.'* Accordingly,
Juniper’s priority “claim for reimbursement or contribution”
would be allowable if either: (1) Juniper and the chapter 11 estate
are not strictly, jointly, and severally liable (“liable with the
debtor”) on the EPA debt under the liability provisions of the
CERCLA statute, or (2) Juniper’s response costs have become
“fixed” and “actual” (i.e., have been expended by Juniper for
remediation or paid over to the EPA) by the time Juniper’s claim is
considered for disallowance. As Juniper’s contingent claim for
future response costs is, by definition, not “fixed,” Juniper cannot
escape the consequences of section 502(e)(1)(B) unless it is not
strictly and jointly “liable” with Hemingway-Bristol on the EPA
debt. Cf. infra Section II.C. (Mammoth Mart administrative
expense priority would attach to Juniper’s “fixed” claim for past
response costs). We turn, therefore, to the question of Juniper’s
alleged liability to the EPA.
The threshold question is whether Juniper is even asserting a
direct CERCLA claim against the chapter 7 estate, or merely a
derivative claim for “contribution” from the chapter 7 estate.
CERCLA section 9613(f) is the sole statutory basis for a right to
“contribution,” see supra note 5 and accompanying text, but
CERCLA prescribes other remedial provisions as well. Unlike
section 9613(f), a private right of action for CERCLA response
costs under section 9607(a)(4)(B) is available to “any person” who
incurs necessary response costs, presumably without regard to
whether the plaintiff is an EPA target, i.e., a PRP or “covered
person” under section 9607(a). See 42 U.S.C. § 9601(21)
18. “Creditor” means an “entity that has a claim that arose at the time of or
before the order of relief.” Bankruptcy Code § 101(9), 11 U.S.C. § 101(9).
3la
Appendix A
(“person” includes “corporation”). Section 9607(a)(4)(B) simply
requires the private-action plaintiff to prove that (1) a rel-ase ofa
“hazardous substance” from the subject “facility” occurred or is
threatened; (2) the defendant comes within any of four categories
of “covered persons,” which include current owners or operators of
the facility, see 42 U.S.C. § 9601(9)(B), as well as the owners and
operators of the facility at the time the contamination occurred; (3)
the release or threatened release has caused (or may cause) the
claimant to incur response costs;'? and (4) the response costs are
“necessary” and “consistent with the national contingency plan.”
See Dedham Water Co. v. Cumberland Farms Dairy Inc. , 889 F.2d
1146, 1150 (Ist Cir. 1989).”°
19. Response costs,” 42 U.S.C. § 9601(25), include costs incurred in
“removal” actions, which address immediate threats to public health and safety
caused by hazardous substances, 42 U.S.C. § 9601(23), and costs incurred in
“remedial” actions, directed at long-term or permanent remediation of the
contamination, 42 U.S.C. § 9601(24).
20. Section 9607(a‘ provides, in pertinent part:
(1) [T]he owner and operator of a vessel or a facility,
(2) [A]ny person who at the time of disposal of any
hazardous substance owned or operated any facility at
which such hazardous substances were disposed of . . .
shall be liable for — ,
(A) all costs of removal or remedial action
incurred by the United States Government or
a State...
(B) any other necessary costs of response
incurred by any other person consistent with
the national contingency plan.
42 U.S.C. § 9607(a)(2)(B) (emphasis added).
32a
Appendix A
For instance, a neighboring landowner, who is neither a
current nor a past owner or operator of the contaminated facility,
hence not strictly liable as a “covered person” under section
9607(a), may incur response costs as a result of a threatened release
and potential migration of hazardous substances from an adjoining
property, and may assert a right of action under section
9607(a)(4)(B). See, e.g., Dedham Water, 889 F.2d at 1146-48
(noting that water utility would have cause of action under section
9607(a)(4)(B) against neighboring property owner for response
costs relating to threatened release). On the other hand, in the event
the private-action plaintiff itself is potentially “liable” to the EPA
for response costs, and thus is akin to a joint “tortfeasor,” section
9607(a)(4)(B) serves as the pre-enforcement analog to the
“impleader” contribution action permitted under section 9613(f).
See 42 U.S.C. § 9613(f) (“Nothing in this subsection shall diminish
the right of any person to bring an action for contribution in the
absence of a civil action under section [9606] or section [9607].”);
see also Wickland Oil Terminals v. Asarco, Inc., 792 F.2d 887, 890-
91 (9th Cir. 1986) (holding that section 9607(a)(4)(B) grants
private right of action for response costs, without regard to any
prior EPA enforcement actions).
Because Juniper’s initial complaint in the instant adversary
proceeding invoked generic claims for “contribution” and
“indemnification,” without attribution to any statutory source, the
bankruptcy court specifically requested Juniper “to amend Count I
[of its complaint] to include the statutory prerequisite [sic] of 42
U.S.C. § 9607(a)(4)(B).” Although the amended complaint
represents at best an imperceptible improvement over its
predecessor, the bankruptcy court apparently considered it
adequate to assert such a claim.”! Juniper’s amended complaint
21. The bankruptcy court opinion states: “In the context of this case, it is
possible to view Juniper as a direct creditor of Hemingway and as an entity jointly
liable with the Debtor.” Jn re Hemingway Transp., 105 B.R. at 175.
Se Seer eter te aren
PUA Whe ees
33a
Appendix A
bears this out. It alleges that (1) Juniper is a current owner of the
facility, but not that it is a “covered person” under section 9607(a);
(2) Hemingway and Bristol fraudulently concealed the presence of
hazardous wastes at the facility prior to the 1983 sale; and (3)
Juniper neither knew nor had “reason to know” of the
contamination until 1985.
The bankruptcy court concluded that Juniper, as the current
“owner” of the facility, undoubtedly would be “liable” to the EPA
in an enforcement action simply by virtue of its prima facie status
as a “covered person” under section 9607(a).22 The undefined term
“liable” is common to both CERCLA 9607(a) and Bankruptcy
Code § 502(e)(1)(8). Its construction presents a question of law
subject to plenary review. See In re Erin Food Servs., Inc., 980 F.2d
792, 794 (Ist Cir. 1992) (citing In re LaRoche, 969 F.2d 1299, 1301
(Ist Cir. 1992)).
Of course, not all “covered persons” are strictly liable for
response costs. The harsh effects of the strict liability rule are
22. The bankruptcy court based its section 502(e)(1 )(B) disallowance on the
ground that Juniper had denominated its claim a derivative claim for “contribution,”
thereby conceding its co-liability with the Hemingway-Bristol estate for future
response costs. In our view, this ruling exalts form over substance, and ignores both
the liberality with which pleadings must be construed and the right to plead alternative
or seemingly “inconsistent” claims. See Fed. R. Bankr. P. 7008(a) (incorporating Fed.
R. Civ. P. 8(e), providing that “[a] party may set forth two or more statements of a
claim or defense alternatively or hypothetically ... regardless of consistency ....”)
(emphasis added); cf. also Schott Motorcycle Supply Inc. v. American Honda Motor
Co., 976 F.2d 58, 61-62 (1st Cir. 1992). Given the comparative breadth of the section
9607(a)(4)(B) remedy, and Juniper’s explicit allegation that it had no actual or
constructive knowledge of the contamination at the time it purchased the facility, we
think the trustee must come forward with substantial evidence from which the
bankruptcy court could conclude that Juniper is a “covered person” liable to the EPA
for future response costs.
34a
Appendix A
subject to mitigation through resort to certain affirmative defenses.
Section 9607(b) expressly provides that “[t]here shall be no
liability under section [9607)(a) . . . for a person otherwise liable
who can establish by a preponderance of the evidence [the
following defenses]... .” See also Environmental Transp. Sys. v.
Ensco, Inc., 969 F.2d 503, 504 n.3 (7th Cir. 1992). Section
9607(b)(3) would afford a complete defense to CERCLA liability
if Juniper were to establish that (1) it acquired the facility after the
initial deposit of the hazardous substances; (2) at the time of its
acquisition, it did not know and had “no reason to know” that any
hazardous substance was deposited at the facility; and (3) once the
presence of the hazardous substance became known, Juniper
exercised due care in the circumstances. The statute defines the
term “no reason to know” as follows:
[T]he [buyer] must have undertaken, at the
time of acquisition, all appropriate inquiry
into the previous ownership and uses of the
property consistent with good commercial or
customary practice in an effort to minimize
liability. For purposes of the preceding
sentence the court shall take into account any
specialized knowledge or experience on the
part of the [buyer], the relationship of the
purchase price to the value of the property if
uncontaminated, commonly known or
reasonably ascertainable information about
the property, the obviousness of the presence or
likely presence of contamination at the
property, and the ability to detect such
contamination by appropriate inspection.
42 U.S.C. § 9601(35) (B) (emphasis added); see also United States
35a
Appendix A
vy. Pacific Hide & Fur Depot, Inc., 716 F. Supp. 1341, 1347 (D.
Idaho 1989); cf. 42 U.S.C. § 9622 (g) (de minimis settlement
provisions not applicable to owners who purchased land with
actual or constructive knowledge of contamination). As an
acquiring party and an owner of the facility during a period of
“passive” disposal,”> Juniper would be held to an especially
stringent level of preacquisition inquiry — on the theury that an
acquiring party’s failure to make adequate inquiry may itself
contribute to a prolongation of the contamination.”
Thus, under either section 501(e)(1)(B) or section 503(a),
Juniper’s participation in any distribution from the chapter 7 estate
hinges entirely on the validity of its “innocent landowner” defense.
Notwithstanding its relevance, the “innocent landowner” defense
was never explicitly considered by the bankruptcy court in
connection with the trustee’s motion for summary judgment
disallowing Juniper’s CERCLA claim pursuant to section
502(e)(1)(B), nor in connection with its earlier provisional ruling
on Juniper’s entitlement to administrative priority. Cf. supra note
23. The parties do not challenge the bankruptcy court ruling that the
Hemingway-Bristol estate is “liable” for the “passive” disposal at the faciiity (i.e., the
leaking of previously generated or deposited containers of hazardous waste), even
absent evidence that the chapter 7 estate contributed to the generation or the deposit of
the hazardous substances in the first instance. Furthermore, the chapter 7 estate could
not establish an “innocent owner” defense: the 1982 DEQE notice afforded the
debtors actual knowledge that drums of contaminants were located at the facility. On
the other hand, the bankruptcy court found that “none of the interested parties,
including the Trustee, Juniper and the twocourts that approved the sale, were apprised
of the presence of hazardous wastes on the property, despite the DEQE action.” /n re
Hemingway Transp., 73 B.R. at 501-02.
24. The EPA informed Juniper in May 1987 that its alleged contribution to the
passive disposal was undetermined because the extent of the post- 1983 “contaminant
plume” at the facility had yet to be ascertained.
a
36a
Appendix A
17. The record contains mixed signals on the “innocent
landowner” defense. In a May 19, 1987 letter to Juniper, the EPA
opined that Juniper would not be entitled to the “innocent
landowner” defense, for several reasons: Juniper (1) knew in 1983
that the facility was in close proximity (200 feet) to a larger
Superfund site already included on the national priority list; (2)
made no preacquisition inquiry of EPA or DEQE concerning
possible contamination in the area; and (3) did not obtain available
maps showing an unpaved access road to the allegedly inaccessible
portion of the facility where the drums were found.
The EPA opinion is not necessarily dispositive as to the
allowability of a claim or an administrative expense request.
Nevertheless, after trial on the issue of Hemingway’s liability for
past response costs, the bankruptcy court noted (notwithstanding
Juniper’s contention that the drums were located in an area which
was inaccessible at the time of the 1983 sale) that “easy access to
the location of the barrels is possible along the City of Woburn’s
sewer easement, which parallels the MBTA tracks.” Jn re
Hemingway Transp., 108 B.R. at 380 (emphasis added). The record
further suggests that Juniper, an experienced land developer in the
Woburn area, may have been familiar with the environmental risks
posed by its acquisition of the facility, and therefore may have been
cognizant that the $1.6 million purchase price reflected a discount
due to contamination. Cf. Smith Land & Improvement Corp. v.
Celotex Corp., 851 F.2d 86, 90 (3d Cir. 1988) (in allocating
responsibility between vendor and purchaser, court may consider
any implicit discount in sale price as reflecting assumption of risk
of contamination).
On the other hand, the record indicates that the bankruptcy
court may have considered Juniper’s responsibility for any
contamination extremely minimal, especially in comparison to
37a
Appendix A
Hemingway-Bristol. For example, in allowing Juniper’s
contribution claims for past response costs, the bankruptcy court
allocated total financial responsibility to Hemingway-Bristol, see
supra note 4, despite the fact that the court also found no evidence
that Hemingway-Bristol, throughout twenty years’ occupancy,
ever generated or deposited hazardous wastes at the facility. The
bankruptcy court further found that Juniper was never “apprised of
the presence of hazardous wastes. .. .” In re Hemingway Transp.,
73 B.R. at 501. And, of course, discount prices are not uncommon
in forced sales of the assets of insolvent estates.
Since the bankruptcy court’s disallowance of Juniper’s claim
must be vacated on independent grounds, see supra Section II.A.4,
on remand the trustee will have the burden to file a surrogate claim
in behalf of the EPA and the burden to come forward with
substantial evidence that Juniper is not entitled to an “innocent
landowner” defense. The ultimate burden of proof on that defense,
however, will remain with Juniper. The bankruptcy court should
determine whether Juniper made “all appropriate” preacquisition
inquiry pursuant to 42 U.S.C. § 9601(35), a factual finding which
would be subject to clear error review only. Should the bankruptcy
court find that Juniper did not have notice or actual knowledge of
the contamination at the time it purchased the facility in 1983,
Juniper’s claim for past and future response costs should be
estimated?’ and allowed as administrative expenses entitled to
25. Because of its earlier section 502(e) disallowance, the bankruptcy court
refused to permit Juniper to introduce evidence of anticipated future cleanup costs.
Although we need not decide the issue at this juncture, we note that the EPA’s
nonbinding preliminary allocation of responsibility may be inadmissible evidence as
to the value of Juniper’ s claim for future response costs, see 42 U.S.C. § 9622(€)(3)(C)
(“The nonbinding preliminary allocation of responsibility shall not be admissible as
evidence in any proceeding . . . [nor] constitute an apportionment or other statement
on the divisibility of harm or causation.”), and, on remand, that it may be incumbent
on Juniper to present other evidence of the extent of its “injury.”
i
38a
Appendix A
priority.”° On the other hand, if Juniper did not take all appropriate
steps to protect itself from CERCLA liability, its lack of diligence
exposed it to the harsh consequences of strict, joint and several
liability under CERCLA. In that event, Juniper’s claim would be
subject to the section 502(e)(2) “fixing” requirement and Juniper
would not be entitled to administrative expense priority with
respect to any allowable CERCLA claim.
B. Juniper’s Appeal: Disallowance of Attorney Fees (42
U.S.C. § 9607(a)).
Juniper argues for an award of attorney fees pursuant to 42
U.S.C. § 9607(a)(4)(B), which makes no reference to “attorney
26. The determination of Juniper’s CERCLA “liability” by the bankruptcy
court is required solely for purposes of the allowance or disallowance of Juniper’s
proof of claim, a core proceeding in bankruptcy, and the court cannot ignore the
possibility that the EPA might yet maintain a successful enforcement action against
Juniper. But unlike the holder of a prepetition claim for contribution, which normally
must await final distribution under Bankruptcy Code § 726, Juniper would enjoy a
distinct distributional advantage should it succeed in establishing its entitlement to
the “innocent landowner” defense under section 9607(b)(3). The court properly could
provide for the immediate, pre-distribution payment of Juniper’s “claim” in trust, see,
e.g., Inre Allegheny Int'l, Inc., 126B.R. at 924 (“Creation of a trust to be expended on
contingent claims is a frequently used mechanism for insuring that such funds are
properly disbursed.”) (citing Jn re Johns-Manville Corp., 68 B.R. 618, 625-26
(Bankr. S.D.N.Y. 1986, aff'd, 78 B.R. 407 (S.D.N.Y. 1987), aff'd, 843 F.2d 636 (2d
Cir. 1988)), exclusively for “necessary” future response costs at the facility. See 3
Collier on Bankruptcy J 503.01, at 503-5 (citing Jn re Verco Indus., Inc., 20B.R. 664,
665 (Bankr. 9th Cir. 1982) (holding that bankruptcy court has discretion to orderearly
payment of an administrative expense)); cf. supra note 12. In this manner, the EPA
debt would be reduced pro tanto by any disbursement from the trust account, thereby
effecting ade facto “fixing” of the EPA debt should EPA later attempt to file a claim
against the chapter 7 estate. See supra note 7.
39a
Appendix A
fees” in private cost recovery actions. Juniper contends that the
term “necessary costs of response” should be broadly construed to
encompass attorney fee awards so as to advance CERCLA’s
remedial purposes by inducing PRPs to cooperate in initiating
prompt cleanup efforts. We affirm on the grounds advanced in the
well-reasoned district court opinion. See Jn re Hemingway Transp.,
Inc., 108 B.R. at 383.
Absent an explicit statutory authorization, a party is not
entitled to recover attorney fees simply because it prevailed in the
litigation. Runyon v. McCrary, 427 U.S. 160, 185 (1976).
CERCLA contains explicit provisions authorizing attorney fee
awards in certain other types of actions. See, e.g., 42 U.S.C.
§ 9610(c) (employee-whistleblowers may recover “all costs and
expenses (including attorney’s fees”) . . . .”); id. § 9659(f)
(prevailing parties in private citizen suits may recover costs of
litigation, “including reasonable attorney and expert witness
fees”). Moreover, Congress did not consider, and SARA did not
include, any attorney fee award amendment applicable to the
private cost recovery provision in section 9607(a)(4)(B). We
therefore conclude that Congress has elected not to authorize
attorney fee awards in these actions. Cf. Dedham Water, 972 F.2d at
461 (“[L)itigation-related expenses are, of course, noi
compensable as response costs incurred by private parties under
CERCLA § [9607].”) (citing Regan v. Cherry Corp., 706 F. Supp.
145, 149 (D.R.I. 1989)). Although a strong case might be made that
attorney fee awards in private cost recovery actions promote
CERCLA’s remedial aims, see, e.g., General Elec. Co. v. Litton
Indus. Automation Sys., Inc., 920 F.2d 1415 (8th Cir. 1990), cert.
denied, 111 S. Ct. 1390 (1991), that case is one for the legislative
venue. Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S.
240, 263-64 (1975) (“[I]t would be difficult, indeed, for the court,
without legislative guidance, to consider some statutes important
40a
Appendix A
and others unimportant and to allow attorneys’ fees only in
connection with the former.”); see also U.S. Steel Supply Inc. v.
Chatwins Group, Inc., No. 89-C20241, 1992 U.S. App. LEXIS
13722, at 45-46(N.D. Ili. Sept. 9, 1992).
Juniper argues, nonetheless, that only a small portion of its
attorney fees were incurred in preparation for the “response cost”
recovery litigation itself, the greater portion having been incurred
to ensure that Juniper’s “response” was in compliance with the
administrative order issued by the EPA. We conclude that the
present claim was waived. At trial, Juniper’s attorney fee billings
were admitted in evidence. Juniper suggested no distinction
between attorney fees incurred for litigative and administrative
purposes.”’ Juniper’s failure to advance the present contention
below deprived the bankruptcy court of an opportunity to consider
it, thereby waiving the claim. See Jn re LaRoche, 969 F.2d 1299,
1305 (Ist Cir. 1992) (arguments not raised in bankruptcy court
cannot be raised for first time on appeal); Jn re 604 Columbus Ave.
Realty Trust, 968 F.2d 1332, 1343 (Ist Cir. 1992) (same).
27. Prior to admitting Juniper’s attorney fee billing in evidence, the
bankruptcy judge stated: “[A]ssuming only for the moment that legal services are a
compensable item of damage [under CERCLA), then aren’t all reasonable fees
incurred by the plaintiff resulting from the alleged harm, aren’tthey all compensable?
.. . [D)idn’t [Juniper’s attorneys} perform services as a result of the acts of the
defendant if I find the defendant liable?” Thus, the court plainly signaled its intention
to treat Juniper’s entire attorney fee request as either compensable or
noncompensable.
28. Even assuming the issue was preserved, the record on appeal does not
enable reliable appellate review. It is impossible to determine with reasonable
confidence whether the attorney fees incurred by Juniper were reasonably
“necessary” to facilitate its compliance with the EPA administrative order, or to
discover the existence or whereabouts of other PRPs who might be amenable to suit
by Juniper in an action for contribution.
'
’
j
I
i
'
:
i
;
'
4la
Appendix A
C. The Trustee’s Cross-Appeal: Administrative Expense
Priority for Past Response Costs.
The trustee appeals the allowance of Juniper’s claim for past
response costs as an administrative expense entitled to priority
distribution. The bankruptcy court ruled that Juniper’s CERCLA
liability resulted from its postpetition purchase of the facility from
Hemingway-Bristol, debtor in possession, during the course of the
chapter 11 proceeding. The bankruptcy court found that it would be
fundamentally “unfair” not to allow Juniper to receive payment of
~its contribution claim in advance of other creditors. See supra note
17 (noting court’s reliance on Reading Co. v. Brown, 391 U.S. 471
(1968)).
We affirm the allowance of Juniper’s claim for past response
costs as an administrative expense entitled to priority distribution
under Bankruptcy Code §§ 503(b)(1)(A), 507(a)(1) and 726(a)(1).
See Norris v. Lumbermen’s Mut. Cas. Co., 881 F.2d 1144, 1151-52
(Ist Cir. 1989) (appellate court may affirm on any ground supported
by the record). As concerns Juniper’s claim for CERCLA response
costs previously incurred, its entitlement to priority does not hinge
on the court’s determination of the merits of Juniper’s “innocent
landowner” defense. Even if Juniper and the Hemingway-Bristol
estate are co-“liable” on the EPA debt, Juniper’s claim for past
response costs escapes the section 502(e)(1)(B) coliability
problem encountered by its claim for future response costs,
because Juniper’s right to payment for past response costs became
“fixed” upon Juniper’s incurrence of actual and necessary
response costs prior to the time its claim was considered for
allowance. On the other hand, if Juniper and the estate are not co-
“liable” on the EPA debt, because Juniper has the benefit of the
“innocent landowner” defense, both its past and future response
costs are recov: -able as priority administrative expenses under
either Mammoti Mart or Reading.
4h.
Appendix A
Il
CONCLUSION
We vacate the bankruptcy court’s section 502(e)(1)(B)
disallowance of Juniper’s claim for future response costs. On
remand, the bankruptcy court shall permit the chapter 7 trustee and
Juniper a reasonable time within which to file surrogate claims in
behalf of the EPA under sections 501(b) or 501(c) of the
Bankruptcy Code. Should the trustee file a timely surrogate claim,
and should Juniper choose to press for simultaneous allowance of
its so-called “direct” claim, the court should determine whether
Juniper would be entitled to an “innocent landowner” defense
pursuant to 42 U.S.C. § 9601(35)(B). If Juniper is so entitled, its
claim for “contribution” should be allowed as an administrative
expense. If not so entitled, its claim should be disallowed unless
and until Juniper “fixes” its right to contribution by actually
incurring any such response costs by the time its claim is
considered for allowance. If the chapter 7 trustee elects not to file a
surrogate claim under section 501(b), thereby waiving the section
502(e)(1) (B) objection to Juniper’s direct claim against the
chapter 7 estate, the court should receive evidence relating to the
extent of Juniper’s anticipated response costs and should allow
Juniper’s claim as an administrative expense of the chapter 11
estate.
The order disallowing an award of attorney fees, and the
order allowing Juniper’s claim for past response costs as an
administrative expense, are affirmed. The order disallowing
Juniper’s claim for future response costs is vacated and
remanded to the bankruptcy court for further proceedings
consistent with the opinion herein; costs to neither party.
. AVATT AR COP
43a
APPENDIX B — OPINION OF THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF
MASSACHUSETTS DATED MARCH 26, 1991
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVILACTION NOS.
-90)-10302-Z, 90-10431-Z and
90-10432-Z, Consolidated
In re HEMINGWAY TRANSPORT, INC. and BRISTOL
TERMINALS, INC.,
Debtors
JUNIPER DEVELOPMENT GROUP, a Massachusetts
Partnership; and GEORGE D. WHITTEN, AMY WHITTEN and
CHARLES WHITTEN, as Trustees of 60 OLYMPIA NOMINEE
TRUST,
Appellants and Cross-Appellees
VS.
HERBERT C. KAHN, Trustee for HEMINGWAY TRANSPORT,
INC. and BRISTOLTERMINALS, INC.,
Appellee and Cross-Appellant
ee
44a
Appendix B
MEMORANDUM OF DECISION
ZOBEL, D.J.
This consolidated bankruptcy appeal presents several issues
of law arising out of three different decisions of the Bankruptcy
Court. See In re Hemingway Transport, Inc., 108 Bankr. 378 (D.
Mass. 1989); 105 Bankr. 171 (D. Mass. 1989); 73 Bankr. 494 (D.
Mass. 1987). Briefly, the underlying facts are these: On July 28,
1982, the Debtors, Hemingway Transport, Inc. and Bristol
Terminals, Inc. (collectively, “Hemingway”), filed voluntary
petitions for bankruptcy under Chapter 11 of the Bankruptcy Code.
(The proceedings subsequently were converted to Chapter 7 on
November 18, 1983.) While in Chapter 11, the Debtors, with Court
approval, sold a parcel of real property located at 60 Olympia
Avenue, Woburn, Massachusetts (“the Property”) to Juniper
Development Group.
In April, 1985, a representative of the Environmental
Protection Agency (“EPA”) discovered a number of barrels
containing hazardous waste on the Property. The EPA then issued
an order pursuant to section 106(a) of the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980 (“CERCLA”), 42 U.S.C. § 9606(a) (1988), directing Juniper
to remove the drums and surrounding soil. Juniper complied with
the order. In 1986, Juniper commenced the instant adversary
proceeding in which it seeks indemnification or contribution under
CERCLA for past and future “response costs” incurred as a result
of compliance with the EPA order. Two years later, on April 20,
1988, the EPA notified Juniper of its status as a “Potentially
Responsible Party” in connection with the so-called Wells G & H
Superfund Site, a 330-acre parcel of land which includes the
Property now owned by Juniper.
sceummceaaiail
4Sa
Appendix B
Three separate decisions of the Bankruptcy Court are at issue.
First, on May 8, 1987, the Bankruptcy Court, on a motion for
summary judgment, held that Juniper’s claims for response costs
were entitled to administrative expense priority under the
Bankruptcy Code. Hemingway appeals from this decision.
Second, Juniper appeals from a decision, dated September 13,
1989, which (on another motion for summary judgment)
disallowed, as contingent claims for reimbursement or
contribution under § 502(e)(1)(B) of the Bankruptcy Code,
Juniper’s claims for future response costs. Third, in a decision
dated December 18, 1989 (following an evidentiary hearing on
October 17), the Bankruptcy Court held that neither attorney’s fees
nor prejudgment interest were recoverable as response costs under
CERCLA. At the October 17 hearing, the Bankruptcy Court also
excluded evidence concerning certain labor expenses which
Juniper claimed as recoverable response costs; Juniper appeals this
ruling as well.
Standards of Review
The opinions of the Bankruptcy Court, dated May 8, 1987 and
September 13, 1989, both resolved motions for summary
judgment. A district court, sitting in review, considers a
bankruptcy court’s decision to grant summary judgment de novo.
In re Two “S” Corp., 875 F.2d 240, 242 (9th Cir. 1989). The
standard for granting summary judgment in an adversarial
bankruptcy proceeding is the same as in Rule 56(c), Federal Rules
of Civil Procedure. Bankruptcy Rule 7056, 11 U.S.C. (1988).
Summary judgment is appropriate if, viewing the evidence in the
light most favorable to the party opposing the motion, the court
finds that there is no genuine issue of material fact. Fed. R. Civ. P.
56(c); see also General Office Prods. Corp. v. A. M. Capen’s Sons,
780 F.2d 1077, 1078 (Ist Cir. 1986).
46a
Appendix B
The appeals arising out of the October 17 evidentiary hearing
and the resulting opinion are governed by a different standard.
Bankruptcy Rule 8013 mandates the application of the “clearly
erroneous” standard of review with regard to findings of fact made
by the Bankruptcy Court, and “de novo” standard with respect to
conclusions of law. First Software Corp. v. Computer Assocs. Int'l,
107 Bankr. 417, 420 (D. Mass. 1989). The issues presented in the
instant appeal are questions of law.
Administrative Expenses
In enacting the Bankruptcy Code, Congress recognized that, if
a business that has filed for bankruptcy is to continue operating for
even a limited period of time, third parties must be willing to
provide necessary goods and services. Since these parties will
obviously not be so willing unless they are assured of payment
ahead of pre-bankruptcy creditors, Congress provided a priority
for administrative expenses, that is, “the actual, necessary costs
and expenses of preserving the estate. ...” 11 U.S.C.
§ 503(b)(1)(A) (1988).
The Bankruptcy Court undertook an extensive analysis of the
relevant case law before reaching its conclusion that Juniper’s
claims are properly classified as administrative expenses. The
Court relied primarily on a Supreme Court case, Reading Co. v.
Brown, 391 U.S. 471 (1968), and on a First Circuit opinion, /n re
Charlesbank Laundry, 755 F.2d 200 (Ist Cir. 1985).
In Reading, a fire caused by the negligence of a receiver acting
within the scope of his employment destroyed property in
adjoining premises. Fire loss claimants filed claims for
administrative expenses. The Supreme Court held that “tort claims
arising during a [Chapter 11 reorganization are] actual and
47a
Appendix B
necessary expenses of the [reorganization].” Reading, 391 U.S. at
482. The Court found that the “decisive statutory objective” was
“fairness to all persons having claims against an insolvent.” /d. at
477. Unlike creditors who chose to do business with the debtor
prior to its petitioning for bankruptcy, the fire victims “did not
merely suffer injury at the hands of an insolvent business: [they
had] an insolvent business thrust upon [them] by operation of law.”
Id. at 478.
More than ten years after Reading, the First Circuit in
Charlesbank held that a civil compensatory fine for a violation of a
state court injunction imposed on the debtor, when that debtor was
operating under Chapter 11, qualified for priority treatment as an
administrative expense. Charlesbank, 755 F.2d at 202-03. The
court noted:
The debtor in this case deliberately continued a
violation of law month after month presumably
because it was more lucrative for the business
to operate outside the zoning ordinance than
within it. If fairness dictates that a tort claim
based on negligence should be paid ahead of
pre-organization claims, then, a fortiori, an
intentional act which violates the law and
damages others should be so treated.
Id. at 202.
The reasoning in Reading and Charlesbank logically compel
the conclusion that Juniper’s claims must be granted
administrative expense priority. As the court below reasoned,
“clearly, if damages leading to a negligence claim against a
receiver qualify as administrative expenses then so do damages
ii
48a
Appendix B
giving rise to a strict liability claim against a Chapter 11 debtor-in-
possession under CERCLA.” Hemingway, 73 Bankr. at 505.
Hemingway takes issue with this analysis in several, related
ways. First, it argues, Juniper’s remedial efforts cannot be
construed as “preserving the estate” of the debtor within the
meaning of § 503(b)(1)(A), since the property had been sold and
transferred to Juniper three years before the EPA issued its cleanup
order. But while the costs themselves may not have materialized
until years later, Hemingway’s liability arose from acts and
omissions that were a part of its business operations. The eventual
cleanup order came about because Hemingway improperly
disposed of waste on its property, and later failed to remove these
drums. In addition, the sale of the Property to Juniper, out of which
Hemingway’s liability eventually arose, was an attempt to raise
money in order to continue business operations. That the drums
were only discovered by the authorities years later does not alter
the fact that their presence was a result of Hemingway’s post-
petition business operations. Moreover, all response cost claims
under CERCLA involve some delay between the acts or omissions
giving rise to liability, and the eventual cleanup order; to hold, as
urged by Hemingway, would necessarily deprive all such claims of
the benefit of administrative expense priority. CERCLA claims
would thus receive far less favorable treatment in the bankruptcy
context than do more conventional torts, a conclusion at odds with
the broad remedial purposes of CERCLA, Dedham Water Co. v.
Cumberland Farms Dairy, 805 F.2d 1074, 1081 (Ist Cir. 1986), and
the Supreme Court’s emphasis on using the administrative expense
priority system to achieve a fair result, Reading, 391 U.S. at 477.
Next, Hemingway contends that the Bankruptcy Court
misapplied Reading and Charlesbank to these facts. Hemingway
first points out that both of those cases involved debtors in Chapter
‘i
49a
Appendix B
11 proceedings (where the debtor is charged with the continued
operation of the insolvent business entity), rather than Chapter 7
liquidation proceedings. Chapter 7, however, also mandates that
administrative expenses be given priority, see 11 U.S.C. § 726
(1988). Moreover, neither the Bankruptcy Code nor any court has
drawn a distinction between Chapter 11 and Chapter 7 in
determining administrative priority. See In re Pierce Coal &
Constr., 65 Bankr. 521 (N.D. W. Va. 1986) (any damages caused by
debtor-in-possession under Chapter 11 or Chapter 7 trustee are
entitled to administrative priority). Hemingway has failed to
provide this Court with any authority mandating a difference in
analysis, or with a compelling rationale for creating one.
Hemingway also argues that, since Juniper entered into the
contract of sale with Hemingway “voluntarily and as a result of
arms-length negotiations,” it cannot be maintained that either
Hemingway or the property were “thrust upon [Juniper] by
operation of law.” Cf. Reading, 391 U.S. at 478. It is wrong to
conclude, however, that since Juniper’s response costs were the
result of its knowing acquisition of property, Juniper must now
meet these cleanup obligations without help. Such a position
contradicts one of CERCLA’s basic goals, that is, the redistribution
of response costs to previous owners of property who engaged in
improper waste disposal. Rather, the EPA order placed an
unexpected burden on Juniper for which it was legally entitled to
contribution; if Juniper is now deprived of this contribution, its
burden will have been increased by operation of the bankruptcy
law. This is exactly the sort of unfair situation which led the Court
in Reading to characterize the claims of tort victims as
administrative expenses.
Finally, Hemingway asserts that the First Circuit, in /n re
Mammoth Mart, 536 F.2d 950 (Ist Cir. 1976), endorsed a two-part
50a
Appendix B
inquiry for determining administrative priority, and that Juniper
has failed to meet that test. In Mammoth Mart, former employees
of a bankrupt corporation operating under Chapter 11 contended
that their claims for severance pay were entitled to administrative
priority. The court held that claims against a debtor-in-possession
are not entitled to such priority unless the debt arises “from a
transaction with the debtor-in-possession” and the bankrupt estate
gained benefit from that transaction, id. at 954. Hemingway
contends that Juniper’s claim neither arose from a transaction with
the trustee, nor did Hemingway gain any benefit from any such
transaction.
The court in Mammoth Mart was faced with the prospect of
giving administrative priority to claims arising in large part from
pre-petition activities. That is, the employees bringing the suit had
been hired before the estate entered Chapter 11, and now claimed
that their claim to severance pay was purely a post-petition
expense. To avoid that result, the First Circuit fashioned a test
designed to limit administrative priority to those claims arising
only from post-petition activity.
It is clear in the case at bar that Hemingway’s liability to
Juniper arose post-petition. As the court below succinctly put it,
“Juniper’s cause of action under CERCLA arose when the property
containing the drums was transferred to Juniper or, alternatively,
when Juniper expended money in response to the EPA’s
administrative order.” Hemingway, 73 Bankr. at 503. Hemingway
therefore must rely on a semantic argument that misses the essencé
of what the court in Mammoth Mart was trying to do. Hemingway
claims that, since Juniper’s claims do not arise entirely from the
sale of property alone, they do not arise from a “transaction” and
thus cannot be accorded administrative priority under Mammoth
Mart.
<= °°
Sla
Appendix B
Hemingway and Juniper were engaged in a post-petition
commercial relationship which promised to benefit both parties.
Juniper’s liability would obviously never have existed were it not
for this relationship. Its claim clearly arises out of a post-petition
transaction within the meaning of Mammoth Mart. To hold
otherwise would, once again, prevent classification of any
CERCLA response cost claim as an administrative expense,
because no such claim arises solely from a single “transaction.”
Disallowance under § 502(e)(1)(B)
Juniper contends that the court below erred in disallowing its
claims for future response costs under § 502(e)(1)(B) of the
Bankruptcy Code.' For a claim tocome within this provision, (i) it
must be one for reimbursement or contribution; (ii) the entity
asserting the claim must be “liable with the debtor” on or have
secured the claim of a creditor; and (iii) the claim must be
contingent at the time of its allowance or disallowance. 11 U.S.C.
§ 502(e)(1)(B) (1988); In re Weatech Corp., 85 Bankr. 285, 289
(S.D.N.Y. 1988). The court belowheld that Juniper’s claim against
Hemingway satisfied all three prongs. Hemingway, 105 Bankr. at
174-78. Juniper argues that neither the second nor third
requirements are met.
1. Appellee argues that appellant Juniper, in its opposition to the motion below,
failed to address the impact of § 502(e)(|)(B) on its claim against Hemingway;
therefore, appellee argues, Juniper is not entitled to raise any objections to the
application of that statute on appeal. The applicability of § 502(e)(1)(B) was,
however, the subject of the Memorandum of Decision which Juniper now appeals.
Hemingway, 105 Bankr. at 171. Because Juniper raises objections to matters
considered below, it is obviously within this Court's discretion to entertain these
arguments now.
52a
Appendix B
1. Co-liability
Juniper’s first argument, simply put, is that § 502(e)(1)(B)
must be read literally and applied narrowly. Appellant contends
that Hemingway and Juniper are not both liable on the claim of the
EPA, since the EPA has not yet filed a proof of claim against
Hemingway.’ Because the statute reads, “is liable” instead of
“could be” liable “on the claim of a creditor,” appellant argues, its
claim should not be disallowed.
In support of its interpretation of the statute, appellants assert
that the purpose of § 502(e)(1)(B), as illuminated by legislative
history, is the prevention of a double payment by the debtor (here,
Hemingway) on the same debt. Where there has not been a claim
against the debtor by the creditor (the EPA), the argument goes, the
debtor is not subjected to a dual claim, and there is no need to
protect the debtor by disallowing the codebtor’s claim under
§ 502(e)(1)(B).
It is true that “the legislative history concerning § 502(e)
indicates that a principal purpose of the entire subsection is to
prevent a double payment by the estate.” Wedtech, 85 Bankr. at
289; see H.R. Rep. No. 595, 95th Cong., Ist Sess. 354 (1977).
Nevertheless, the plain language of § 502(e)(1)(B) suggests that
this particular provision also serves a different purpose: to
disallow contingent indemnity and contribution claims precisely
because they are contingent, thereby “enabling distribution to
unsecured creditors without a reserve for these types of contingent
2. Appellee points out that this argument relies on facts not presented to the
court below, namely, that the EPA has not filed a proof of claim against Hemingway.
Whether or not this fact may be considered on appeal, however, is of noconsequence,
as I hold here that the EPA is indeed a creditor of Hemingway within the meaning of
§ 502(e)(1)(B).
_
aalaa
53a
Appendix B
claims.” Wedtech, 85 Bankr. at 290; see also In re Amatex Corp.,
110 Bankr. 168, 170-72 (E.D. Pa. 1990). Juniper’s interpretation of
the statute would require both the debtor and the co-debtor (here,
Juniper) to have been adjudged liable before the codebtor’s claim
could be disallowed under § 502(e)(1)(B). This interpretation
simply does not comport with the wording of the statute.
Under CERCLA, Hemingway is potentially liable to the EPA
for “all costs of removal or remedial action incurred by the United
States Government. ... not inconsistent with the national
contingency plan.” 42 U.S.C. § 9607(a)(2)(A) (1988). Indeed, the
EPA has named both Juniper and Hemingway as potentially
responsible parties. The EPA is therefore a creditor of Hemingway
within the meaning of § 502(e)(1)(B), even assuming it has not yet
filed a proof of claim against Hemingway.
2. Contingency of the Claim
Juniper also claims that § 502(e)(1)(B) is not applicable here
because its claim against Hemingway for future response costs is
not “contingent” within the meaning of that statute. The court
below was unconvinced by Juniper’s argument:
[T]he contingency of Juniper’s claim for future
response costs is obvious. With respect to
obligations stemming from the administrative
order, Juniper states in its complaint that it is
awaiting “further orders for a possible future
clean up. ...” With respect to costs of
remediating the Wells G & H Site, any claim
that Juniper would have would be contingent
upon the United States commencing and
prevailing in an enforcement action under
54a
Appendix B
CERCLA or Juniper’s involvement in
performing or financing cleanup work at the
cite.
Hemingway, 105 Bankr. at 178.
Under § 502(e)(1)(B), the claim of a surety or co-debtor is
contingent until the claimant “pays the principal creditor and
thereby fixes his own right to payment from the debtor.” 3 Collier
on Bankruptcy { 502.05, at 502-88 (15th ed. 1990). Obviously,
Juniper has not yet incurred any future response costs; nor has it
been adjudged liable in an appropriate CERCLA enforcement
action. Therefore, Juniper cannot yet be said to have fixed its own
right of payment against Hemingway. Although Juniper has been
named by the EPA as a “Potentially Responsible Party,” this type of
agency notice letter is not definitive on the question of liability.
Pacific Resins & Chems. v. United States, 654 F. Supp. 249 (W.D.
Wash. 1986). Juniper’s claim against Hemingway for future
response costs is therefore contingent within the meaning of
§ 502(e)(1)(B).
Accordingly, the decision of the court below with respect to
the disallowance of Juniper’s claim under § 502(e)(1)(B) is
affirmed.
Response Costs
Appellant Juniper next appeals the bankruptcy court’s ruling
on December 18, 1989, that attorney’s fees, prejudgment interest
and other costs are not recoverable as response costs in a private
party action under § 107(a)(2)(B) of CERCLA, 42 U.S.C.
§ 9607(a)(2)(B) (1988).
55a
Appendix B
Since CERCLA does not define “response costs,’”’ the issue is
one of statutory interpretation.
1. Attorney’s Fees
The courts that have addressed the question of whether
attorney’s fees are necessary response costs under CERCLA have
not reached consensus. See, e.g., General Elec. Co. v. Litton
Industrial Automation Systems, No. 89-2845 (8th Cir. Dec. 12,
1990) (private party can recover attorney’s fees under CERCLA);
Pease & Curren Ref., Inc. v. Spectrolab, Inc., 744 F. Supp. 945
(C.D. Cal. 1990) (same); Shapiro v. Alexanderson, 741 F. Supp.
472 (S.D.N.Y. 1990) (attorney’s fees recoverable for proper
response activities); cf. Fallowfield v. Strunk, No. 89 Civ. 8644
(E.D. Pa. Apr. 23, 1990) (attorney’s fees not recoverable); Mesiti v.
3. While it does not precisely define the phrase “necessary response costs,”
CERCLA does provide that “response” means “remove, removal, remedy and
remedial action. . . includ[ing] enforcement activities related thereto.” 42 U.S.C.
§ 9601.25) (1988). “Remove” and “removal” are defined as:
[T]he cleanup or removal of released hazardous
substances from the environment, such actions as may be
necessary taken in the event of the threat of release of
hazardous substances into the environment, such actions
as may be necessary to monitor, assess, and evaluate the
release or threat of release of hazardous substances, the
disposal of removed material, or the taking of such other
actions as may be necessary to prevent, minimize, or
mitigate damage to the public health or welfare or to the
environment, which may otherwise result from a release
or threat of release.
42U.S.C. § 9601(23) (1988) (footnote omitted).
56a
Appendix B
Microdot, 739 F. Supp. 57 (D.N.H. 1990) (same); T & E Indus. v.
Safety Light Corp., 680 F. Supp. 696 (D.N.J. 1988) (same).
A careful review of the statute persuades me that the costs of
litigation are not recoverable by a private litigant. I start with the
general principle that “[A]bsent explicit Congressional
authorization, attorneys’ fees are not a recoverable cost of
litigation.” Runyon v. McCrary, 427 U.S. 160, 185 (1976).
CERCLA provides no such explicit authorization. The statute
elsewhere specifically provides that the government can recover
legal costs, 42 U.S.C. § 9604(b) (1988), but fails to extend that
right to private parties. Nor can private litigation expenses be
considered recoverable “enforcement activity” within the meaning
of the statute; while “plaintiffs may bring an action for recovery of
response costs, they may not bring an action to enforce CERCLA’s
cleanup provisions against another private entity.” T & E, 680 F.
Supp. at 708 n.13. Accordingly, plaintiffs are not entitled to
recover attorney’s fees that were incurred to pursue this litigation.
See also Regan v. Cherry Corp., 706 F. Supp. 145, 149 (D.R.I.
1989) (discussing Congress’ failure to amend § 9607 to allow
reimbursement of attorneys’ fees in response cost suits).
2. Labor Costs
Juniper next argues that the Bankruptcy Court improperly
excluded the value of the time of Juniper’s personnel from its
determination of recoverable response costs. Specifically, it
suggests that the cost to Juniper of the time and effort spent on the
problem by Mr. Charles Whitton, General Partner of Juniper,
shouid have been part of the award.
Nothing in the statutory language of CERCLA indicates that
employee time should be considered a cost of response. Rather,
seine aaa
S7a
Appendix B
employees must be paid whether or not they have spent their time
addressing waste cleanup efforts; these costs are not made
necessary by the improper disposal of wastes. To interpret
CERCLA to require reimbursement of employee time and effort
would, in effect, compensate CERCLA plaintiffs for lost employee
productivity. But CERCLA was never intended to provide for the
recovery of business losses. Artesian Water Co. v. Govt of New
Castle County, 659 F. Supp. 1269, 1287 (D. Del. 1987).
At the evidentiary hearing on October 17, the bankruptcy
judge excluded testimony by Mr. Whitton regarding the value of
his own efforts to address the waste problem. Because time spent
on cleanup efforts is nothing more than a cost of doing business, I
affirm that ruling. But see T & E, 680 F. Supp. at 706-07 (employee
time spent in cleanup effort recoverable as response cost).
3. Prejudgment Interest
The Bankruptcy Court did not include prejudgment interest in
its determination of Juniper’s recoverable response costs in its
decision of December 18, 1989. Hemingway, 108 Bankr. at 383-84.
Once again, defendant objects to the omission, and once again,
CERCLA does not specifically address the issue.
In the absence of legislative provision, the Supreme Court has
directed that the decision to grant or deny prejudgment interest
should hinge on whether to do so would further the congressional
purposes underlying the obligations imposed by the statute in
question. Rodgers v. United States, 332 U.S. 371, 373 (1947).
CERCLA has been described as “a remedial statute designed by
Congress to protect and preserve public health and the
environment. . . . [I]ts provisions [should therefore be] construed
liberally to avoid frustration of the beneficial legislative
a
58a
Appendix B
purposes.” Dedham, 805 F.2d at 1081. Atleast two district courts
have imposed prejudgment interest under CERCLA in private
party suits. General Elec. Co. v. Litton Business Sys., 715 F. Supp.
949, 959 (W.D. Mo. 1989); United States v. Northeastern
Pharmaceutical & Chem. Co., 579 F. Supp. 823, 852 (W.D. Mo.
1984). Itis clear, then, that prejudgment interest is available under
CERCLA.
In general, without statutory direction, the granting of
prejudgment interest lies within the discretion of the trial court.
Whitfield v. Lindemann, 853 F.2d 1298, 1306 (Sth Cir. 1988). Such
interest should be “given in response to considerations of
fairness.” Blau v. Lehrman, 368 U.S. 403, 414 (1962). The fact that
the bankruptcy court declined without comment to award
prejudgment interest makes it difficult to weigh the propriety of the
exercise of discretion in this case. Whitfield, 853 F.2d at 1306. This
issue, therefore, is remanded to the bankruptcy court to consider
the matter of prejudgment interest.
Conclusion
For the reasons stated, the decision of the court below granting
administrative expense priority to Juniper’s claims is affirmed, as
is its decision to disallow Juniper’s claims for future response costs
under 11 U.S.C. § 502(e)(1)(B). The decisions not to award
attorney’s fees to Juniper and to exclude evidence of Juniper’s
labor costs from its calculation of recoverable response costs are
also affirmed.
The case is remanded to the Bankruptcy Court to consider
whether prejudgment interest on the award to Juniper is
appropriate, and if so, to determine the proper amount of that
interest.
ai aa ali aoe |
March 26, 1991
DATE
59a
Appendix B
s/ Ryan Zobel
DISTRICT JUDGE
60a
APPENDIX C — OPINION OF THE UNITED STATES
BANKRUPTCY COURT DISTRICT OF MASSACHUSETTS
DATED DECEMBER 18, 1989
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
Chapter 7
Case No. 82-1340-JNG
Case No. 82-1341-JNG
Adversary Proceeding
86-1081
In re:
HEMINGWAY TRANSPORT, INC.
BRISTOL TERMINALS, INC.
Debtors
JUNIPER DEVELOPMENT GROUP, A MASSACHUSETTS
PARTNERSHIP AND GEORGE D. WHITTEN, AMY
WHITTEN, AND CHARLES WHITTEN AS TRUSTEES OF 60
OLYMPIA NOMINEE TRUST,
Plaintiffs
V.
HERBERT C. KAHN, TRUSTEE FOR HEMINGWAY
TRANSPORT, INC., AND BRISTOL TERMINALS, INC.,
Defendants
6la
Appendix C
HERBERT C. KAHN, TRUSTEE FOR HEMINGWAY
TRANSPORT, INC. AND BRISTOL TERMINALS, INC.,
Third-Party Plaintiffs
v.
WOBURN ASSOCIATES,
Third-Party Defendant
MEMORANDUM
I. FACTS
On October 17, 1989, this Court conducted an evidentiary
hearing with respect to the CERCLA claim of Juniper
Development Group (“Juniper”) against the Trustee of
Hemingway Transport, Inc. (“Hemingway”) and Bristol
Terminals, Inc. (“Bristol”) (collectively “Hemingway”). Three
witnesses testified during the hearing and nine exhibits were
introduced into evidence. The parties’ stipulated to the following
relevant facts:
1. Juniper, Hemingway, Bristol and Woburn
are “persons,” as that term is defined by
CERCLA. See 42 U.S.C.A. § 9601(21) (West
1983 & Supp. 1989).
1 Third-party defendant Woburn Associates (“Woburn”) joined the
Stipulation, and was permitted to participate at the trial without objection by Juniper.
62a
Appendix C
2. Woburn was an “owner,” as that term is
defined by CERCLA, of 60 Olympia Avenue
(“the property”) from June 26, 1974 to July 29,
1980. Jd. at § 9601(20).
3. Hemingway leased the property from
Woburn from June 26, 1974 to July 29, 1980.
4. Bristol, asubsidiary of Hemingway, was the
“owner,” as that term is defined by CERCLA,
of the property from July 29, 1980 to May 18,
1983.
5. Juniper purchased the property from Bristol
on May 18, 1983 and has been an “owner,” as
that term is defined by CERCLA, since that
date.
6. To the extent that itis found that “hazardous
substances” were “disposed of,” as those terms
are defined in CERCLA, on the property at the
time Hemingway, Bristol and Woburn owned
and/or operated the property then the property
is a “facility,” as that term is def
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