Presenting a live 90-minute webinar with interactive Q&A Environmental Obligations in Bankruptcy: Reconciling the Conflicting Goals of Bankruptcy and Environmental Laws Addressing Pre- vs. Post-Petition Claims, Enforcement Actions, Statutory Super Liens, Asset Sales, Abandonment and More TUESDAY, MARCH 21, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Martin T . Booher , Partner, BakerHostetler , Cleveland Elizabeth A. Green, Partner, BakerHostetler , Orlando, Fla. Lance Gurley, Managing Director, Blackhill Partners , Dallas 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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E NVIRONMENTAL C LAIMS IN B ANKRUPTCY Reconciling the Conflicting Goals of Bankruptcy and Environmental Law
Table of Contents I. Introduction II. Jurisdiction III. Dischargeability of Environmental Claims IV. Exceptions to Automatic Stay relating to Governmental Agencies V. Standing of Governmental Agencies in Bankruptcy Cases VI. Addressing Contingent Environmental Claims VII.Disposition of Contaminated Assets 6
Introduction (1 of 2) • The Conflicting Goals of Bankruptcy and Environmental Law: – Bankruptcy: Provide the debtor a “fresh start” by addressing all liabilities. Allowing environmental liabilities to survive or evade the otherwise comprehensive Chapter 11 plan may destroy a debtor’s ability to reorganize. – Environmental: Prevent and cleanup contamination by imposing liability on responsible parties. Eliminating environmental claims in bankruptcy case may allow guilty parties to escape liability, delay or prevent cleanup, require other parties to overpay for their relative contributions to the contamination, and unnecessarily impose costs on the government 7
Introduction (2 of 2) • What Environmental Obligations? • Environmental obligations take many forms. For example: An obligation to pay money; An obligation to perform a cleanup; or Ongoing regulatory compliance. 8
Jurisdiction Over Environmental Claims (1 of 2) • Original jurisdiction over environmental law issues rests with state courts or U.S. District Courts ( See e.g. 42 U.S.C. § 9613(b) – vesting District Courts with jurisdiction over CERCLA). • Removal: Once a bankruptcy case is filed, a party may generally remove a claim or cause of action to the Bankruptcy Court under 28 U.S.C. § 1452(a). However, § 1452 expressly excepts civil actions “by a governmental unit to enforce such governmental unit’s police or regulatory power” from removal – which generally excepts environmental claims brought by a governmental entity. See e.g. City & County of San Francisco v. PG&E Corp. , 433 F.3d 1115, 1123 (9 th Cir. 2006) (language in § 1452 practically identical to police power exception from automatic stay in § 362, and should be interpreted consistently). 9
Jurisdiction Over Environmental Claims (2 of 2) • If brought before Bankruptcy Court (for example, non-governmental claim), court may be hesitant to resolve environmental law disputes on the merits. – Abstention (28 U.S.C. § 1334) – Remand (28 U.S.C. § 1452(b)) – After Stern v. Marshall, does Bankruptcy Court have authority to enter final judgments in environmental law cases absent consent ? 10
Dischargeability of Environmental Claims (1 of 5) • Three initial questions: – (1) is it a claim? – (2) when did the claim arise? – (3) did the creditor holding the claim have sufficient notice of the case and the debtor’s liability to participate in the bankruptcy case? 11
Dischargeability of Environmental Claims (2 of 5) • First, is it a “Claim” under the Bankruptcy Code? – 11 U.S.C. § 101(5) – “ right to payment , whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent…” Legislative history indicates definition was intended to be broad “by this broadest possible definition…all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case.” H.R. Rep. No 95-595, at 309 (1978). – Holder of a claim generally may participate in the bankruptcy case, vote on the plan, and is entitled to a distribution – Claims are generally subject to discharge 12
Dischargeability of Environmental Claims (3 of 5) • Second, when did the claim arise? – For example, does claim arise when debtor contaminates a site, when contamination is discovered, when scope of contamination is understood, or when cleanup is complete and costs are fully liquidated? – Case law varies by jurisdiction and given its widely- disparate history, outcomes are difficult to predict. However, the trend appears to be toward the so-called “pre - petition relationship” or “fair contemplation” test – the creditor must have had sufficient notice and some basis upon which creditor could fairly contemplate claim against debtor. – Effect of timing: in Chapter 7, pre-petition claims are subject to discharge ( § 727); in Chapter 11, pre- confirmation claims are subject to discharge ( § 1141(d)) 13
Dischargeability of Environmental Claims (4 of 5) • Third, did the creditor holding the claim have sufficient notice of the case and the debtor’s liability to participate in the bankruptcy case ? – Notice satisfies due process if it is “reasonably calculated, under the circumstances, to apprise the interested parties of the pendency of the action and afford them an opportunity to present their objections.” Mullane, 339 U.S. 306, 314 (1950) – For purposes of notice, bankruptcy law differentiates between “known” and “unknown” creditors. – Known creditors are entitled to actual notice of the claims bar date. – Notice to unknown creditors by publication is generally sufficient, as long as the noticing party acted reasonably in selecting the means to inform the persons affected. In re Nortel Networks, Inc. , 531 B.R. 53, 62-63 (Bankr. Del. 2015). A known creditor is one whose identity is either known or reasonably ascertainable by the debtor. The debtor is not required to conduct “a vast, open-ended search .” . Instead, the focus is on whether the debtor “did what was reasonable under the circumstances to provide notice to ascertainable creditors .” 14
Dischargeability of Environmental Claims (5 of 6) • The few clear answers: – Ongoing regulatory compliance obligations are generally not claims subject to discharge. 28 U.S.C. § 959(b) – requires DIP to comply with applicable “state” laws during bankruptcy case (has been interpreted to mean federal laws as well) § 503 generally makes post-petition violations of environmental laws administrative expense claims This continuing duty to comply with the law creates an administrative priority claim for many types of government environmental claims. o Treatment of claims by co-liable parties for work they perform is a thornier issue that depends on subrogation and other areas of law. – Debtor cannot keep property and avoid associated environmental liabilities. Ohio v. Kovacs, 469 U.S. 274 (1985). 15
Dischargeability of Environmental Claims (6 of 6) • Debtors should maximize the scope of the discharge by conducting a reasonable search into potential environmental claimants and providing notice of the bankruptcy case to such claimants • Regulatory agencies or other parties potentially liable with the debtor under environmental laws should take action upon receiving notice of bankruptcy case, because their rights could be adversely affected. 16
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