Disturbing Trends in the Abandonment of Hazardous Waste Sites Through Bankruptcy H. Hamner Hill Southeast Missouri State University Royanne Kashiwahara Doi Government and Legal Affairs Liason, ACE Insurance, Tokyo

Objectives Explain the nature of the problem –Bankruptcy and environmental protection –Abandonment of hazardous sites Describe the current state of the law: –Supreme Court –Recent lower court decisions Examine trends on the Supreme Court Conclusions and suggestions

The Nature of the Problem Bankruptcy and environmental protection statutes Conflicting underlying policies: A Clean Slate vs. A Clean Site § 554(a)--After notice and hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate Hazardous sites seem to fit the definition perfectly

The Supreme Court Speaks: Midlantic National Bank v. New Jersey D.E.P. Facts--Quanta resources sought to abandon property contaminated with waste oil (470,000 gallons at 2 sites) Bankruptcy and Federal District Court allow abandonment Court of Appeals (3rd Circuit) disallows abandonment Supreme Court disallows abandonment in 5-4 decision

Rationale in Midlantic No abandonment contravening state health laws § 554 codifies pre-Code law on abandonment Other Code sections are subordinate to state health laws Bankruptcy estate must be operated in compliance with state and federal laws Congress recognizes the importance of environmental protection

A troublesome footnote: The abandonment power is not to be fettered by laws or regulations not reasonably calculated to protect the public health or safety from imminent and identifiable harm.(emphasis added)

Rehnquist’s Dissent The language of § 554 is absolute No textual basis for applying pre-Code law No basis for importing restrictions used elsewhere A tortured reading of the requirement to comply with state and federal laws Ignores the economic and property rights of secured creditors

Voting Pattern in Midlantic Majority Powell Blackmun Marshall Brennan Stevens Dissent Rehnquist Burger White O’Connor

Voting Pattern in Midlantic Majority Powell (Kennedy) Blackmun (Breyer) Marshall (Thomas) Brennan (Souter) Stevens Dissent Rehnquist(Scalia) Burger(Rehnquist) White(Ginzburg) O’Connor

Cases Interpreting Midlantic Abandonment allowed absent a showing of imminent harm Abandonment allowed despite imminent harm –Bankruptcy court gets to decide whether there is immanent harm –Weak state laws, or lax enforcement, justify a finding of no immanent harm Abandonment disallowed without a showing of imminent harm

Abandonment absent a showing of imminent harm The general rule, if there is no imminent and identifiable threat, the power to abandon is unfettered (Smith Douglass. 1988) The mere existence of “old and cold” waste does not bar abandonment (McCrory, 1995) Waste not currently escaping the cite presents no imminent threat

Abandonment despite imminent harm Violation of state environmental law does not establish imminent harm (Smith Douglass, 1988) Failure to allege imminent threat means there is none (Lazar, 1997—leaking gas storage tanks) Unidentified threat does not bar abandonment (St. Lawrence, 1999)

The possibility of a threat won’t bar abandonment (Rancourt, 1997) Abandonment that does not aggravate risk is allowed (Ferrante, 1990) Insufficient funds for effective remediation allows cleanup despite risks (Microfab, 1990)

Abandonment disallowed without imminent harm Trustee must comply strictly with state and federal envirommental laws (Wall Tube, 6 th Cir 1989) Possession of the estate requires strict CERCLA complainace (Peerless Plating, 1989) Threat that may take years to manifest is ‘imminent and identifiable.’ (FCX, 1989)

Related issues Are cleanup costs administrative expenses? (priority)

Supreme Court Trends a.The doctrine of Constitutional literalism –Article I § 8 clause 4 of the Constitution Congress shall have the power to establish... uniform laws on the subject of bankruptcies throughout the United States. –Article VI, Supremacy Clause issues The ‘plain meaning’ approach to the Code The re-emergence of the Takings clause –The new importance of property rights –Lucas and its progeny

Conclusions and Suggestions Raise public awareness of issues relating to the interaction of environmental protection laws with other laws Suggested Bankruptcy Code reforms: –Abandonment of hazardous sites should be expressly prohibited –Uniform definition of imminent and identifiable harm –Environmental obligations should be made non- discharegeable