# Petition for Writ of Certiorari — Kahn v. Juniper Development Group, 114 S. Ct. 303 (1993) (No. 93-187) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386019_1249%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1993 ## Text 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. EE 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). EE 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, [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386019_1249%3A1. Public record. Not legal advice.