Supreme Court Lets Stand Seventh Circuit Ruling on Discharging RCRA Cleanup Orders in Bankruptcy
The U.S. Supreme Court has denied certiorari in Apex Oil Co., Inc. v. United States, No. 09-1023, 2010 WL 752322 (U.S. Oct. 4, 2010). At issue in Apex was whether an injunctive order requiring a cleanup of contamination under the Resource Conservation and Recovery Act (RCRA) may be discharged in bankruptcy.
In August 2009, the Seventh Circuit Court of Appeals issued an opinion in United States v. Apex Oil Company, Inc., 579 F.3d 734 (7th Cir. 2009). Apex Oil had appealed the district court's issuance of an injunction under RCRA requiring the company to clean up a contaminated site. The district court had ruled that Apex was responsible for a $150 million cleanup despite the fact that its predecessor company, which was responsible for the contamination, had filed for bankruptcy in 1987.
The issue decided by the Seventh Circuit was whether the government's claim for an injunction was discharged in bankruptcy. The Seventh Circuit held that because RCRA does not entitle a plaintiff to demand, in lieu of an actual cleanup, the payment of money damages, the injunction was not discharged. As a result of the Supreme Court's decision to deny review, the decision of the Seventh Circuit stands. While this case is not inconsistent with other case law, it adds to the uncertainty of the level of protection provided by bankruptcy discharge.
Under principles of bankruptcy law, reorganized debtors are given a "fresh start" by being released from liability from certain debts. Under principles of environmental law, "the polluter pays." These two important policies frequently and sometimes profoundly conflict, particularly where a party that is potentially liable under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA" or "Superfund"), 42 U.S.C. § 9601 et seq., is a debtor in bankruptcy.
When Is an Environmental Claim Dischargeable in Bankruptcy?
Any environmental claim is one of three basic types: (a) an obligation to pay money; (b) an obligation to perform a cleanup; or (c) an obligation to refrain from polluting in the future. As a general matter, environmental claims that consist of an obligation to pay money are dischargeable in bankruptcy. An obligation to clean up a site is dischargeable to the extent that the creditor could perform the cleanup itself and sue for response costs, because it is an equitable claim that can be discharged through the payment of money. Purely equitable rights, that is, those that cannot be converted into money damages, are not claims under the Bankruptcy Code. For instance, an obligation to refrain from polluting in the future is not dischargeable since payment cannot be made in lieu of stopping continued pollution.
The Supreme Court addressed the issue of environmental injunctive orders under CERCLA and their discharge in Ohio v. Kovacs, 469 U.S. 274 (1985). In that case, the debtor was responsible for remediating a waste disposal site. The state had issued an injunctive order requiring the debtor to conduct a cleanup. However, the debtor was no longer in possession of the site. Therefore, the debtor could comply only by monetarily reimbursing the state. Because the injunctive order could only be satisfied by the payment of money, the Court held that it was discharged in the bankruptcy.
The Second Circuit has further refined this analysis. In In re Chateaugay Corp., 944 F.2d 997, 1008 (2d Cir. 1991), the court held that orders for injunctive relief are dischargeable if they do no more than impose an obligation entirely as an alternative to a payment duty. However, if the injunctive relief requires the debtor to cease ongoing pollution, then the order is not deemed a claim and is not dischargeable.
In this case, Apex Oil’s specific obligation was to comply with the cleanup order under RCRA. The Seventh Circuit closely examined the enforcement provisions of RCRA and concluded that RCRA does not authorize any form of monetary relief. Because RCRA does not entitle the government to obtain a money judgment or demand payment of cleanup costs, the Seventh Circuit concluded that the cleanup order was not a dischargeable claim.
The decision by the Supreme Court not to review the Seventh Circuit's decision could encourage heavier reliance on environmental statutes like RCRA that do not authorize monetary relief. As a result, we may see more actions by the EPA structured as RCRA injunctive suits instead of CERCLA suits in situations where the defendant is at risk for declaring bankruptcy.
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