Presenting a live 90-minute webinar with interactive Q&A Environmental Liabilities and PRP Insolvency Managing Environmental Obligations and Meeting Remediation Requirements THURSDAY, APRIL 4, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Milissa A. Murray, Of Counsel, Bingham , Washington, D.C. Michael S. McDonough, Partner, Pillsbury , Los Angeles William F . Govier, Of Counsel, Lesnick Prince & Pappas , Lesnick Prince & Pappas The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Environmental Issues in Bankruptcy Strafford Webinar April 4, 2013 Milissa Murray Bingham McCutchen LLP Mike McDonough Pillsbury Winthrop LLP Bill Govier Lesnick Prince & Pappas LLP
I. Introduction • Environmental claims and obligations pose unique issues in bankruptcy – their treatment often highlights the tension between the “ fresh start ” policy underlying the Bankruptcy Code and the “ polluter pays ” principle behind environmental statutes. • Broadly speaking, the primary holders of environmental claims in bankruptcy cases are the government and private parties aggrieved by the debtor ’ s failure to clean up its mess (or compensate for its toxic torts). 6
Introduction (cont ’ d) • Whether private or governmental, environmental creditors rarely emerge after bankruptcy unscathed by the reduction, capping or elimination (a/k/a “ reorganization ” ) of the debtor’s environmental liabilities and obligations. • The treatment of environmental claims in bankruptcy will vary widely depending upon the legal basis for the claim; whether it is direct or in contribution; who is asserting it; and whether it is contingent. • Parties who share environmental liabilities with the debtor face particularly challenging obstacles to securing the debtor ’s fair share of cleanup costs. Nevertheless, there are preventative measures PRPs and remediating PRP groups can take to minimize the risks and consequences of disallowance of their claims in the bankruptcy of another PRP. 7
Common Themes • Right to a money recovery vs. injunctive relief • Claims by government vs. claims by private parties • Obligation to maintain environmental compliance during bankruptcy • Timing/priority of payment for ongoing cleanup • Joining of contract or common law claims • Rights of subsequent property purchasers 8
II. Bankruptcy Law Overview • Goals: fresh start (discharge); avoiding race to the courthouse (equitable distribution to creditors) • Means: Debtor gets breathing room (automatic stay); Assets at petition date used to satisfy pre-petition debts; Trustee may abandon burdensome estate property; Trustee may reject or assume executory contracts; “Claims” are defined broadly; notice to creditors may be constructive and remote. • Chapters 7 (liquidation); 11 (restructuring); 13 (consumer); 15 (cross border) and 9 (municipalities) 9
Key Bankruptcy Issues Automatic stay – Section 362 • • Abandonment of property that is burdensome to estate and rejection or assumption of executory contracts – Sections 554 and 365, respectively. • Dischargable claims; definition of “ claim ” (Section 101(5); notice (Section 342) • Releases/third-party releases (Ch.11 Disclosures and Plans) • Claims resolution process: allowance and estimation (Chapter 5) • Priority of claims - Administrative priority claims (Section 503) Contingent contribution claims – Section 503(e)(1)(B) • 10
Key Bankruptcy Issues (cont’ d) • Duty to manage estate property and operate in compliance with environmental laws and regulations (28 USC § 959) • Settlements of claims and regulatory obligations • Section 363 sales; “ free and clear ” orders; government’s ability to object to sales; liabilities that may survive against the asset purchaser 11
III. Environmental Laws Potentially Implicated in Bankruptcies • Most Commonly Implicated • CERCLA/Superfund • RCRA • Other Laws Potentially Implicated • State hazardous waste cleanup laws • Common law (e.g., nuisance, trespass) • Clean Air Act • Clean Water Act • Oil Pollution Act 12
CERCLA (Superfund) (42 U.S.C. 9601 et seq.) • Authorizes the federal government to respond to/clean up releases/threatened releases of wide variety of hazardous substances • Imposes strict liability on PRPs, including owners & operators (now or at the time of disposal), arrangers, transporters (42 U.S.C. § 9601(a)) • Government can either force PRPs to clean up, or can clean up itself and then seek reimbursement from PRPs 13
CERCLA (Superfund) (42 U.S.C. 9601 et seq.) • PRPs can sue for cleanup cost recovery (42 U.S.C. § 9607(a)(4)(B)), or for cost contribution from other co-liable PRPs (42 U.S.C. § 9613(f)) • Certain exceptions to liability for bona fide prospective purchasers, contiguous owners, innocent landowners • Cleanup can proceed even if one or more PRPs settles with the government, is in bankruptcy or otherwise unavailable - but impacts cost allocation • Multi-PRP working group often left to pursue other nonparticipating PRPs to recover costs from them 14
RCRA (42 U.S.C. 6901 et seq.) • Regulation of generation, treatment, storage, transport & disposal of “ hazardous wastes ” • “ Corrective action ” may be required to force owner or operator to clean up hazardous waste contamination 15
RCRA (42 U.S.C. 6901 et seq.) • EPA can order permitted owner/operator to perform corrective action to clean up site • EPA can order immediate cleanup where wastes cause “ imminent & substantial endangerment ” • RCRA does not authorize monetary relief in lieu of cleanup • Government cannot force reimbursement after it conducts RCRA cleanup, it can only require cleanup at PRP’ s expense • U.S. v. Apex Oil , 579 F.3d 734 (7th Cir. 2009) 16
Other Relevant Laws • Clean Water Act/Oil Pollution Act • Strict liability for cleanup costs, natural resource damages, penalties • EPA can issue administrative orders for cleanup, prevention of actual/threatened discharges of oil or hazardous substances to “ navigable waters ” • Can also bring civil action for penalties/injunction • Clean Air Act • EPA can issue administrative orders to stop pollution, or seek penalties • State cleanup laws • Mini-CERCLA, hazardous waste laws, water quality laws 17
IV. Application of Bankruptcy Concepts to Environmental Issues and Claims • Section 362 — Automatic Stay: scope and police powers exception — cleanup orders and financial assurance obligations • Abandonment of contaminated property — Section 554 and Midlantic National Bank case • Notice and Claims process — • known vs unknown environmental creditors; schedules • filing proofs of claim; timing and surrogate claims • liquidation and estimation of environmental claims • Disputed claims reserves/motions 18
Application (cont’ d) • Only “prepetition” “claims” can be discharged. So when do environmental claims arise (for discharge and notice purposes) and what are environmental obligations that may not qualify as “claims” and thus, are non-dischargeable? • Debtor’ s continuing obligations at Debtor-owned vs. non-owned/operated sites • Discharge — certain cleanup obligations are not discharged — Apex Oil • When can cleanup costs give rise to a priority administrative expense claim? 19
V. Disallowance of Contingent Contribution Claims ~ Section 502(e)(1)(B) of the Bankruptcy Code • Elements: (i) co-liability to a creditor, (ii) contingent claim, (iii) for contribution or reimbursement • Effect on PRP claims • CERCLA 107(a) claims — Atlantic Research • CERCLA 113 contribution claims — Aviall, Niagara Mohawk, Agere • Lyondell and Chemtura 20
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