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In re Combustion Equipment Associates Inc.

decided: January 22, 1988.

IN RE COMBUSTION EQUIPMENT ASSOCIATES, INC., DEBTOR. CARTER DAY INDUSTRIES, INC., F/K/A COMBUSTION EQUIPMENT ASSOCIATES, INC., PLAINTIFF-APPELLANT,
v.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY AND NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION, DEFENDANTS-APPELLEES



Carter Day Industries, Inc., appeals from a judgment of the United States District Court for the Southern District of New York, Leonard B. Sand, J., that dismissed as unripe its suit for a declaratory judgment that any liability it may have had under the Comprehensive Environmental Response, Compensation and Liability Act was discharged by its bankruptcy.

Feinberg, Chief Judge, Oakes and Pratt, Circuit Judges.

Author: Feinberg

FEINBERG, Chief Judge:

This case involves the interplay of three statutes: the Declaratory Judgment Act, the Bankruptcy Code and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Specifically, Carter Day Industries, Inc., asks us to hold ripe a suit seeking a declaratory judgment that any liability it might have had under CERCLA was discharged by its bankruptcy. For the reasons stated below, we agree with the district court that this suit is not ripe, and we affirm.

I. Background

The record and opinion below reveal the following undisputed facts. In 1980, Carter Day, then known as Combustion Equipment Associates, filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101 et seq. Thereafter, October 29, 1982, was fixed as the bar date for the filing of creditors' claims. The plan of reorganization was confirmed in December 1983.

In October 1981 (over two years prior to confirmation of the plan), Combe Fill Corporation, a Carter Day subsidiary that operated two landfills in New Jersey, petitioned for liquidation under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 701 et seq. One of the landfill sites was closed just before, and the other just after, the Chapter 7 petition was filed. Water-quality samples revealed that hazardous wastes had contaminated the groundwater at both sites, and during the bankruptcy proceeding the New Jersey Department of Environmental Protection (the New Jersey Department) filed a claim against Combe Fill for $5 million to cover closure costs and penalties. On consent, the claim was allowed for $50,000 in January 1984.

The New Jersey Department also filed an identical claim against Carter Day, in its Chapter 11 proceeding. However, on July 7, 1983, the claim was disallowed, apparently because under applicable New Jersey law Combe Fill and not Carter Day was liable.

In September and October 1983, the United States Environmental Protection Agency (EPA) notified Carter Day (along with about 190 others) that it was a potentially responsible party (PRP) for the cleanup of both sites under 42 U.S.C. § 9607. Pursuant to CERCLA, the EPA then funded a Remedial Investigation and Feasibility Study (RI/FS) to develop a strategy for cleaning up the sites. The RI/FS was completed in May 1986, and a Record of Decision (ROD) setting out the EPA's planned action to clean one of the sites was made in September 1986.

The EPA filed no claims against Carter Day before the confirmation of Carter Day's Chapter 11 reorganization in December 1983. However, in January 1986 the EPA filed a claim against Combe Fill in its Chapter 7 bankruptcy proceeding for administrative expenses amounting to about $300,000. In May 1986, the Combe Fill claim was allowed in that proceeding for $50,000 subject to the Trustee's abandoning the sites to Combe Fill under section 554 of the Bankruptcy Code.

Apparently fearing that it might be held liable for any other EPA claim relating to the sites because Combe Fill had no assets, Carter Day began an adversary proceeding in June 1986 in the United States Bankruptcy Court for the Southern District of New York, seeking a declaratory judgment that any CERCLA liability Carter Day may have had for the Combe Fill sites was discharged by its Chapter 11 bankruptcy reorganization.*fn1 In November 1986, upon EPA's motion to the United States District Court for the Southern District of New York pursuant to 28 U.S.C. § 157(d), Leonard B. Sand, J., withdrew the earlier reference of the adversary proceeding to the Bankruptcy Court. 67 Bankr. 709 (S.D.N.Y. 1986). Thereafter, in an opinion dated April 17, 1987, Judge Sand held the suit was not ripe and dismissed the complaint. 73 Bankr. 85 (S.D.N.Y. 1987). This appeal followed.

II. Discussion

The underlying issues in this case involve a conflict between two important national policies reflected in two statutes: the Bankruptcy Code and CERCLA. The conflict begins at a basic level, since the goal of CERCLA -- cleaning up toxic waste sites promptly and holding liable those responsible for the pollution -- is at odds with the premise of bankruptcy, which is to allow debtors a fresh start by freeing them of liability.

The two statutes also differ in their timing. To foster rapid cleanup, Congress embraced a policy of delaying litigation about cleanup costs until after the cleanup. Thus, under CERCLA, liability is not assessed until after the EPA has investigated a site, decided what remedial measures are necessary, and determined which PRPs will bear the costs. As we reasoned in Wagner Seed Co. v. Daggett, 800 F.2d 310, 315 (2d Cir. 1986), "to introduce the delay of court proceedings at the outset of a cleanup would conflict with the strong congressional policy that directs cleanups to occur prior to a final determination of the party's rights and liabilities under CERCLA." See also Wheaton Industries v. EPA, 781 F.2d 354, 356 (3d Cir. 1986); Lone Pine Steering Committee v. EPA, 777 F.2d 882, 887-88 (3d Cir. 1985), cert. denied, 476 U.S. 1115, 106 S. Ct. 1970, 90 L. Ed. 2d 654 (1986). In fact, Congress amended CERCLA in 1986 to make clear that the statute precluded preenforcement judicial review. See 42 U.S.C.A. § 9613(h) (West Supp. 1987); H. Rep. 253(I), 99th Cong., 2d Sess. 81, reprinted in 1986 U.S. Code Cong. & Ad. News 2835, 2863. In contrast to CERCLA's preference for delaying litigation, a preference that postpones the fixing ...


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