Title Pennsylvania v. Conroy
Date 1994
By Alito
Subject Misc
Contents
Page 1
LEXSEE 24 F3D 568
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF ENVIRONMENTAL RESOURCES v. FRANK D. CONROY; ROSEMARY P. CONROY; OFFICE OF THE U.S. TRUSTEE (D.C. Civil No. 93-10); FRANK D. CONROY; ROSEMARY P. CONROY v. COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF ENVIRONMENTAL RESOURCES STEPHEN I. GOLDRING, Trustee (D.C. Civil No. 93-11), FRANK D. CONROY and ROSEMARY P. CONROY, Appellants
No. 93-3284
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
24 F.3d 568; 1994 U.S. App. LEXIS 11065; 38 ERC (BNA) 1737; 25 Bankr. Ct. Dec. 1081; 24
ELR 21365
January 10, 1994, Submitted Under Third Circuit LAR 34.1(a) May 19, 1994, Filed
PRIOR HISTORY: **1 ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA. (D.C. Civil Nos. 93-00010 and 93-00011).
CASE SUMMARY:
PROCEDURAL POSTURE: Appellant bankrupt indi- viduals sought review of an order from the United States District Court for the Western District of Pennsylvania, which awarded appellee Department of Environmental Resources administrative costs incurred for the cleanup of appellants' property.
OVERVIEW: Appellant bankrupt individuals chal- lenged a decision awarding appellee Department of Environmental Resources the amount it had paid to the contractor and an additional 10 percent to cover admin- istrative and legal expenses. Appellants argued that the amount paid by appellee to the cleanup contractor was excessive. On appeal, the court affirmed and held that the district court was correct in awarding appellee money to compensate for the costs it incurred in obtaining autho- rization for the cleanup and in coordinating and monitor- ing the contractor's work. The award was not "surcharge," rather than compensation for "actual" and "necessary" ex- penses. The court saw no reason that the administrative and legal costs incurred by appellee in arranging for the cleanup could not qualify as administrative expenses un- der 11 U.S.C.S. § 503(b)(1)(A).
OUTCOME: The court affirmed an order granting ap- pellee Department of Environmental Resources adminis- trative and legal expenses for the action it took in clean-
ing up appellant bankrupt individuals' property. The court held that the costs incurred in arranging for the cleanup of hazardous waste qualified as an administrative expense.
LexisNexis(R) Headnotes
Environmental Law > Hazardous Wastes & Toxic
Substances > Cleanup
HN1 The Pennsylvania Hazardous Sites Cleanup Act prohibits the "release" of a hazardous substance and im- poses liability and penalties on those responsible. Pa. Stat. Ann., tit. 35, §§ 6020.507(a), 6020.1101, 6020.1104. Abandonment of a hazardous substance constitutes a "re- lease." Pa. Stat. Ann., tit. 35, § 6020.103.
Environmental Law > Hazardous Wastes & Toxic
Substances > Cleanup
HN2 11 U.S.C.S. § 554 does not preempt a state law that, in a reasonable effort to promote public health or safety, prohibits the abandonment of property containing hazardous wastes.
Environmental Law > Hazardous Wastes & Toxic
Substances > Cleanup
HN3 See Pa. Stat. Ann., tit. 35, § 6020.507(b). COUNSEL: EDWARD S. STOKAN, Assistant Counsel, KENNETH T. BOWMAN, Assistant Counsel, Commonwealth of Pennsylvania, Department of Environmental Resources, 400 Waterfront Drive, Pittsburgh, PA 15222-4745, Attorneys for Appellee. REED J. DAVIS, ESQ., Davis & Riley, 1124 Frick Building, Pittsburgh, PA 15219, Attorneys for Appellants.
24 F.3d 568, *; 1994 U.S. App. LEXIS 11065, **1;
38 ERC (BNA) 1737; 25 Bankr. Ct. Dec. 1081
Page 2
JUDGES: Before: STAPLETON, COWEN, and ALITO, Circuit Judges.
OPINIONBY: ALITO
OPINION: *569 OPINION OF THE COURT
ALITO, Circuit Judge:
Frank Conroy operated and, through another corpo- ration, owned a printing company. After the company ceased doing business, drums and canisters of hazardous waste were found on the premises. The Commonwealth of Pennsylvania Department of Environmental Resources
(DER) ordered Conroy to arrange for proper disposal of the waste, but he failed to comply with this order. Instead, he and his wife, Rosemary Conroy, filed a chapter 11 bankruptcy petition. Concerned that Conroy's failure to remove the hazardous waste was endanger- ing public health and safety and the environment, the DER decided to initiate an "interim response" under Pa.
**2 Stat. Ann., tit. 35, § 6020.505(b), and the DER obtained a court order giving it access to the printing company's premises. Through a private contractor, the DER cleaned up this facility and then filed an admin- istrative expense claim with the bankruptcy court under
11 U.S.C. § 503(b)(1)(A), seeking to recover the costs it had incurred. The bankruptcy court awarded the DER
$103,293.00 -- the amount it had paid to the contractor -- but the bankruptcy court denied the DER's request for an additional 10% to cover administrative and legal ex- penses. On appeal, the district court held that the DER was entitled to the entire amount it sought. We affirm.
HN1 The Pennsylvania Hazardous Sites Cleanup Act prohibits the "release" of a hazardous substance and imposes liability and penalties on those responsible. See Pa. Stat. Ann., tit. 35, §§ 6020.507(a), 6020.1101,
6020.1104. Abandonment of a hazardous substance con- stitutes a "release." Pa. Stat. Ann., tit. 35, § 6020.103. Therefore, Pennsylvania law effectively prohibited the Conroys from abandoning the hazardous wastes located on the printing facility premises.
Since the bankruptcy laws were revised in 1978, **3 debtors have argued that state laws prohibiting the aban- donment of hazardous substances are preempted by the literal language of Section 554 of the Bankruptcy Code,
11 U.S.C. § 554. However, in Midlantic National Bank v. New Jersey Department of Environmental Protection,
474 U.S. 494, 88 L. Ed. 2d 859, 106 S. Ct. 755 (1986), the Supreme Court held that HN2 Section 554 does not preempt a state law that, in a reasonable effort to pro- mote public health or safety, prohibits the abandonment of property containing hazardous wastes. It appears, there-
fore, that if the DER had not itself undertaken to clean up the printing company facility, the Conroys could not have escaped their obligation to do so by abandoning the hazardous property in question. Furthermore, if Frank Conroy had arranged for cleanup of the facility after he had filed a chapter 11 petition, the costs of this cleanup would have constituted administrative expenses under 11
U.S.C. § 503(b)(1)(A), since they are a portion of "the actual, necessary costs and expenses of preserving the es- tate, including **4 wages, salaries, or commissions for services rendered after the commencement of the case." Here, the DER, rather than Conroy, arranged and paid for cleanup of the printing facility. Under similar circumstances, the Second and Sixth Circuits have held that response costs incurred by environmental agencies should be classified as administrative expenses. In re Chateaugay Corp., 944 F.2d 997, 1009-10 (2d Cir. 1991); In re Wall Tube & Metal Products, Co., 831 F.2d 118, 123-
24 (6th Cir. 1987). These courts have reasoned that since the estate could not avoid *570 such costs through abandonment, the "expenses to remove the threat posed by such substances are necessary to preserve the estate." Chateaugay, 944 F.2d at 1010. We agree with these deci- sions, cf. In re Torwico Electronics, Inc., 8 F.3d 146, 149-
50 (3d Cir. 1993) (discussing Chateaugay approvingly), and we therefore hold that the costs incurred by the DER in contracting for cleanup of the printing facility were properly classified as administrative expenses.
Contrary to the Conroys' argument, this court's deci- sion **5 in Southern Railway Co. v. Johnson Bronze Co., 758 F.2d 137 (3d Cir. 1985), does not dictate a dif- ferent result. We read the portion of that decision that is most closely related to the present case to mean that a state administrative order requiring cleanup of hazardous wastes may not be afforded priority over unsecured claims pursuant to 11 U.S.C. § 105(a), which provides that a bankruptcy court "may issue any order, process, or judg- ment that is necessary or appropriate to carry out the provisions of this title." Southern Railway said nothing about whether a bankruptcy court may grant administra- tive expense priority to the costs that an environmental agency incurs in cleaning up a hazardous waste site that could not be abandoned under state law. n1
n1 Several courts and commentators have read
Southern Railway as declaring that Ohio v. Kovacs,
469 U.S. 274, 83 L. Ed. 2d 649, 105 S. Ct. 705
(1985), resolved the question whether such costs are administrative expenses entitled to priority re- imbursement. See, e.g., In re Hemingway Transp., Inc., 73 Bankr. 494, 502 (Bankr. D. Mass. 1987), aff'd, 126 Bankr. 656 (D. Mass. 1991), aff'd in part and vacated in part, 993 F.2d 915 (1st Cir. 1993),
24 F.3d 568, *570; 1994 U.S. App. LEXIS 11065, **5;
38 ERC (BNA) 1737; 25 Bankr. Ct. Dec. 1081
Page 3
cert. denied, 114 S. Ct. 303 (1993); In re Pierce Coal & Constr., Inc., 65 Bankr. 521, 529 (Bankr. N.D. W.Va. 1986); In re Virginia Builders, Inc.,
153 Bankr. 729, 734 n.10 (Bankr. E.D. Va. 1993); In re Kent Holland Die Casting & Plating, Inc.,
**6
853 F.2d at 709.
125 Bankr. 493, 500 (Bankr. W.D. Mich. 1991). See also Daniel Klerman, Earth First? CERCLA Reimbursement Claims and Bankruptcy, 58 U. Chi. L. Rev. 795, 803 & n.56 (1991). Even if this read- ing of Southern Railway is plausible, we believe that it would be unwise to adopt such a reading in light of the Supreme Court's subsequent opinion in Midlantic. Midlantic, we think, indicates that the Supreme Court does not view Kovacs as hav- ing resolved the reimbursement priority issue. See Midlantic, 474 U.S. at 498 n.2 (noting that whether a state's cleanup costs are administrative expenses is
"not before us"). Cf. Virginia Builders, 153 Bankr. at 734 n.10 (stating that in light of Supreme Court's Midlantic decision, Southern Railway "is question- able precedent").
Contrary to the Conroys' suggestion, the Ninth
Circuit's decision in In re Dant & Russell, Inc.,
853 F.2d 700 (1988), is also distinguishable. That case held that a lessor who has a bankruptcy claim against a lessee for the costs of cleaning up haz- ardous wastes deposited by the lessee on the leased property is not entitled to administrative expense priority. However, the Dant & Russell court was careful to state that
quite a different result is warranted when the cleanup costs result from monies expended for the preservation of the bankruptcy estate. See, e.g., Lancaster v. Tennessee ( In re Wall Tube & Metal Prod. Co., 831 F.2d
118, 124 (6th Cir. 1987)) (state enti- tled to administrative expense priority for its response costs from the debtor's estate under CERCLA); . . . In re Distrigas Corp., 66 Bankr. 382, 386
(Bankr. D. Mass. 1986) (to the ex- tent that the state expended funds to cleanup debtor's contaminated prop- erty (whose property absent cleanup had little or no value), it would be en- titled to a first priority administrative expense claim); . . . In re Stevens, 68
Bankr. 774, 783 (D. Maine 1987) (state entitled to administrative expense pri- ority for costs it incurred in removing waste from property of the estate).
The Conroys have argued that the amount paid by the DER to the cleanup contractor was excessive. Both the bankruptcy court and the district court held to the contrary, and after reviewing the record, we likewise con- clude that the Conroys' argument lacks merit.
We also hold that the district court was correct in awarding the DER $10,329.30 to compensate for the costs it incurred in obtaining authorization for the cleanup and in coordinating and monitoring the contractor's work. The Conroys contend that this award was actually a "sur- charge," rather than compensation for "actual" and "nec- essary" expenses, and that in any event the DER did not adequately substantiate these expenses. We disagree.
First, we see no reason why the administrative and le- gal costs incurred by the DER in arranging for the cleanup cannot qualify as administrative expenses under 11 U.S.C.
§ 503(b)(1)(A). Such costs may constitute *571 "actual, necessary costs and expenses of preserving the estate." Id. Second, we think that the amount of the award in this case -- 10% of the amount paid to the contractor -- was sufficiently substantiated. In enacting Pa. Stat. Ann., tit.
35, § **7 6020.507(b), n2 the Pennsylvania legislature apparently concluded that the DER's "administrative and legal costs" will generally amount to "10% of the amount paid for the response action or the actual costs, whichever is greater." This implicit legislative finding is reasonable, and we believe that it is sufficient to satisfy the DER's burden of proving its entitlement to these administrative expenses. While the Conroys and other interested par- ties could certainly have attempted to show that the 10% figure was excessive in this case, the Conroys have not directed our attention to any such evidence. Moreover, there is evidence in the record that tends to substantiate the reasonableness of the amount awarded. n3
n2 HN3 This provision reads as follows:
(b) Amount.--In an action to recover response costs and natural resource damages, the department shall include administrative and legal costs incurred from its initial investigation up to the time that it recovers its costs. The amount attributable to administrative and legal costs shall be 10% of the amount paid for the response action or the actual costs, whichever is greater.
**8
24 F.3d 568, *571; 1994 U.S. App. LEXIS 11065, **8;
38 ERC (BNA) 1737; 25 Bankr. Ct. Dec. 1081
Page 4
n3 The Conroys also contend that the DER failed to substantiate its claim in the manner re- quired by a Rule 9016.1 of the Local Rules of the United States Bankruptcy Court for the Western District of Pennsylvania. This rule imposes general requirements on parties submitting administrative claims. We do not interpret it to mean that the DER may not satisfy its burden of proof under the par- ticular circumstances present here by relying on
the legislative finding implicit in Pa. Stat. Ann., tit.
35, § 6020.507(b). Therefore, we need not consider whether the bankruptcy court, in promulgating lo- cal rules of practice, could resolve a legal question of this nature.
For these reasons, we conclude that the district court properly held that the DER is entitled to $113,622.30 in administrative expenses, and we therefore affirm the order of the district court.
Contents
Prev
Next
Last
