411 F.3d 367 (2nd Cir. 2005), 04-1156, In re Dairy Mart Convenience Stores, Inc.

Docket Nº:04-1156-BK.
Citation:411 F.3d 367
Party Name:In re: DAIRY MART CONVENIENCE STORES, INC., et al., Debtors. Dairy Mart Convenience Stores, Inc., et al., Debtors-Appellees, v. Robert E. Nickel, Secretary Ronald B. McCloud, Defendants-Appellants.
Case Date:June 13, 2005
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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411 F.3d 367 (2nd Cir. 2005)

In re: DAIRY MART CONVENIENCE STORES, INC., et al., Debtors.

Dairy Mart Convenience Stores, Inc., et al., Debtors-Appellees,

v.

Robert E. Nickel, Secretary Ronald B. McCloud, Defendants-Appellants.

No. 04-1156-BK.

United States Court of Appeals, Second Circuit

June 13, 2005

Argued Oct. 29, 2004.

Page 368

James D. Brannen, Frankfort, Kentucky (Office of the Petroleum Storage Tank Environmental Assurance Fund, Frankfort, Kentucky; Joseph T. Moldovan, Morrison Cohen LLP, New York, New York, of counsel), for Defendants-Appellants.

Lena Mandel, New York, New York (Dennis F. Dunne, Milbank, Tweed, Hadley & McCloy LLP, New York, New York, of counsel), for Debtors-Appellees.

Before: CARDAMONE, KATZMANN, and RAGGI, Circuit Judges.

CARDAMONE, Circuit Judge.

In this opinion we are required to examine concepts that have evolved in our jurisprudence since the 1798 ratification of the Eleventh Amendment to the United States Constitution. Contributing to those concepts were, among others, Alexander Hamilton in The Federalist No. 81 (Sesquicentennial ed.), Chief Justice John Marshall in Osborn v. Bank of United States, 22 U.S. (9 Wheat.) 738, 6 L.Ed. 204 (1824), and a host of scholarly writers, see, e.g., John V. Orth, The Judicial Power of the United States (1987). Examining the broad canvas of this jurisprudence is like looking at an abstract painting whose meaning and significance is not seen by every viewer in the same light. We, of course, are obliged to and do adopt the

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meaning set out in Supreme Court opinions, as the following discussion illustrates.

Defendants Robert E. Nickel and Ronald B. McCloud, public officials of the Commonwealth of Kentucky (defendants, state officials, or appellants), appeal from an order dated January 23, 2004 of the United States District Court for the Southern District of New York (Wood, J.). The decision affirmed an order dated June 12, 2002 of the United States Bankruptcy Court for the Southern District, which denied defendants' motion to dismiss an adversary proceeding initiated by debtors Dairy Mart Convenience Stores, Inc. and its affiliated organizations (Dairy Mart or plaintiff). Defendants contend the present action should be dismissed for lack of subject matter and personal jurisdiction because the doctrine of sovereign immunity, as derived from the Eleventh Amendment to the United States Constitution, protects state officials from suit. Dairy Mart urges that the action falls under the exception to sovereign immunity set forth in Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). For the reasons stated below, we affirm.

BACKGROUND

On September 24, 2001 plaintiff Dairy Mart filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. Plaintiff operated a large chain of convenience stores comprising about 547 stores located in Ohio, Kentucky, Pennsylvania, Michigan, Indiana, and North Carolina. One hundred ninety-three of these convenience stores sold gasoline. Because Dairy Mart owned facilities that stored gasoline in underground tanks, it is subject to the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq. (2000) (Resource Recovery Act or Act), which requires such entities to pay for cleanup costs and third-party damage in the event of contamination.

In order to assist owners and operators of underground storage tanks in meeting their responsibilities under the Resource Recovery Act, the Kentucky General Assembly created the Office of Petroleum Storage Tank Environmental Assurance Fund (Office) to administer the Petroleum Storage Tank Environmental Assurance Fund (Fund). The Fund reimburses owners and operators of underground tanks for expenses associated with cleanup actions mandated by the Act. These reimbursements are derived, in part, from assurance fees assessed on fuels imported into the Commonwealth of Kentucky. See Ky.Rev.Stat. Ann. § 224.60-145 (2001). As an importer Dairy Mart pays these fees into the Fund.

Appellants Nickel and McCloud have substantial responsibilities within the Office. Nickel is the Office's executive director and has responsibility for the overall management of the Fund's operations, including final authority over claim acceptances or rejections. McCloud is the Secretary of the Public Protection and Regulation Cabinet for the Commonwealth of Kentucky and oversees agencies within the Cabinet, including the Office.

Once a qualified entity incurs cleanup costs under the Act, it must file an application for reimbursement with the Office, which then determines whether the application will be approved on the basis of numerous regulatory qualifications. These include, among others, whether: (1) the claimant is eligible under the program, (2) the contamination occurred at an approved facility, (3) corrective action was necessary, (4) the event had been reported to the Natural Resources and Environmental Protection Cabinet, and (5) the costs were

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reasonable and properly documented. See generally 415 Ky. Admin. Regs. 1:080 (2003). Timeliness in making a claim is one of the many requirements for reimbursement. Dairy Mart missed the filing deadline of October 13, 2001, imposed by Ky. Admin. Regs. 1:080 § 6(4)(a), when it filed 22 Fund reimbursement claims with the Office four days late. All of these claims sought reimbursement for corrective action done with respect to Dairy Mart's underground storage tanks in Kentucky.

Dairy Mart contends these claims were timely filed despite the Kentucky regulation, because § 108 of the bankruptcy code, which is set forth in the margin, 1 automatically extends the filing deadline to 60 days after the filing date of a bankruptcy petition, in this case to November 23, 2001. This provision of the federal bankruptcy law affords a grace period regarding all regulatory deadlines for a debtor's filing of a "proof of claim or loss" if such deadlines have not yet passed on the date the debtor files for bankruptcy. 11 U.S.C. § 108(b) (2000). Dairy Mart's filing occurred well within this grace period.

During the application process, plaintiff drew defendants' attention to the effect of this section of the bankruptcy code. The state officials, however, refused to accept Dairy Mart's claims as being timely filed, indicating that § 108 did not bind the Fund. Their denial of the claims was communicated to plaintiff by a letter dated December 5, 2001, and through telephone conferences with Dairy Mart's counsel.

On March 5, 2002 plaintiffs initiated an adversary proceeding in the bankruptcy court seeking a declaratory judgment with respect to the parties' rights and obligations in connection with the grace period provided by § 108 of the bankruptcy code, and also requesting an injunction ordering defendants to accept Dairy Mart's claims as timely filed, pursuant to 11 U.S.C. § 105(a). Defendants filed a motion to dismiss, arguing that sovereign immunity protected them from suit and that the bankruptcy court therefore lacked personal and subject matter jurisdiction over them. On June 12, 2002 the bankruptcy court denied the motion to dismiss. It reasoned that the Eleventh Amendment did not bar the suit because Dairy Mart sought prospective injunctive relief to end a continuing violation of federal law, thus falling within the Ex parte Young exception to the bar of sovereign immunity.

Defendants then appealed that decision to the United States District Court for the Southern District of New York, which has appellate jurisdiction over final judgments, orders, and decrees of federal bankruptcy courts in the Southern District, pursuant to 28 U.S.C. § 158(a)(1). In an order dated January 23, 2004, district court Judge Kimba Wood affirmed the order of the bankruptcy court, agreeing that the action was "best understood as one for 'prospective injunctive relief.' " This appeal followed.

DISCUSSION

I Standard of Review

The single issue on appeal is whether the relief sought by Dairy Mart is essentially for the retroactive recovery of funds

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from the Commonwealth of Kentucky and thus jurisdictionally barred by the doctrine of sovereign immunity, as derived from the Eleventh Amendment, which protects states from being sued in federal court. Both the bankruptcy court and the district court answered this question in the negative. We agree.

When a district court acts as an appellate court in an appeal from an order of the bankruptcy court, its determination is subject to plenary review. See Mazzeo v. Lenhart ( In re Mazzeo ), 167 F.3d 139, 142 (2d Cir.1999). Exercising that kind of review, we independently examine the bankruptcy court's factual determinations and legal conclusions, accepting the former unless clearly erroneous and reviewing the latter de novo. See Resolution Trust Corp. v. Best Prods. Co. ( In re Best Prods. Co.), 68 F.3d 26, 29 (2d Cir.1995). Whether a state is immune from suit under the Eleventh Amendment is a question of law reviewed de novo. See CSX Transp., Inc. v. N.Y. State Office of Real Prop. Servs., 306 F.3d 87, 94 (2d Cir.2002).

II A Doctrinal Summary of the Eleventh Amendment

The Eleventh Amendment to the United States Constitution states that "[t]he Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State." U.S. Const. amend. XI. For over a century, the Supreme Court has interpreted the Eleventh Amendment not as against a tabula rasa, but rather as a confirmation of the preexisting principle of sovereign immunity. See Seminole Tribe of Fla. v. Fla., 517 U.S. 44, 54, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996) ("[W]e have reaffirmed that federal jurisdiction over suits against...

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