Jensen, In re
| Decision Date | 15 June 1993 |
| Docket Number | No. 91-15879,91-15879 |
| Citation | 36 ERC 1954,995 F.2d 925 |
| Parties | , 61 USLW 2782, 29 Collier Bankr.Cas.2d 101, 24 Bankr.Ct.Dec. 621, Bankr. L. Rep. P 75,323, 23 Envtl. L. Rep. 20,991 In re Robert Burns JENSEN; Rosemary Tooker Jensen, Debtors. CALIFORNIA DEPARTMENT OF HEALTH SERVICES, Appellant, v. Robert Burns JENSEN; Rosemary Tooker Jensen, Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Timothy R. Patterson, Deputy Atty. Gen., San Diego, CA, for appellant.
Terrance L. Stinnett, Goldberg, Stinnett & MacDonald, San Francisco, CA, for appellees.
D.J. Baker, Weil, Gotshal & Manges, Houston, TX, David R. Berz and David B. Hird, Weil, Gotshal & Manges, Washington, DC, for amici curiae Circle K. Corp. and affiliates.
Ward T. Kelsey, Asst. Counsel, for amicus curiae Commonwealth of Pennsylvania.
R. Claire Guthrie, Deputy Atty. Gen., for amicus curiae Commonwealth of Virginia.
Beryl I. Dulsky, Asst. Atty. Gen., for amicus curiae State of Ariz.
Beverly Yale Pfeiffer, Asst. Atty. Gen., for amicus curiae State of OH.
Brian Chally, Senior Deputy Atty. Gen., for amicus curiae State of Nev.
Tom Udall, Atty. Gen., for amicus curiae State of N.M.
Brian J. Zwit, Asst. Atty. Gen., for amicus curiae State of Tex.
Appeal from the United States Bankruptcy Appellate Panel of the Ninth Circuit.
Before ALDISERT, * GOODWIN, and FLETCHER, Circuit Judges.
The California Department of Health Services ("California DHS") appeals the decision of the Bankruptcy Appellate Panel that its claim against Robert Burns Jensen and Rosemary Tooker Jensen for cleanup of hazardous waste at the Jensen's former business property was discharged in the couple's bankruptcy. We have jurisdiction over California DHS's timely appeal pursuant to 28 U.S.C. § 158(d) (1988). We affirm.
A decade ago, the Jensens owned a closely-held corporation called the Jensen Lumber Co. ("JLC") and briefly operated its lumber business. 1 On December 2, 1983, JLC filed a voluntary Chapter 11 bankruptcy petition; the company had been in business only since May 1983.
Several weeks after the petition was filed, on January 25, 1984, an inspector from the California Regional Water Quality Control Board ("California Water Board") visited the inactive JLC site and noticed a large, cinder-block tank. The tank contained about 5,000 gallons of a lumber fungicide. JLC had used the "dip tank" and fungicide solution to treat the lumber it processed. The solution contained toxic chlorinated phenols (including pentachlorophenal, or "PCP").
By letter dated February 2, 1984, the California Water Board inspector expressed his concern to Robert Jensen that any release of the solution "through accident or vandalism.... would probably cause a major fish kill in the South Fork Trinity River and could possibly affect the health of downstream water users." 2 ER at 27. The inspector requested prompt action to prevent such a catastrophe, and advised Robert Jensen that he should either find another operating lumber mill that could use the fungicide, or contact an appropriate hazardous waste removal company.
The Jensens' attorney at the time responded by letter dated February 10, 1984. He advised the California Water Board that JLC would "almost certain[ly]" go completely out of business and that its bankruptcy case likely would be converted to a Chapter 7 proceeding. He also informed the California Water Board that JLC "has no funds available to dispose of the lumber fungicide." ER at 28. On February 13, 1984, the Jensens filed a Chapter 7 personal bankruptcy petition. On March 20, 1984, as predicted, JLC converted its pending corporate Chapter 11 proceedings to a Chapter 7 liquidation.
The California Water Board brought the California DHS in to assist in removing the fungicide on March 23, 1984. On May 18, 1984, a California DHS waste management specialist supervised the removal of the solution from the six foot by six foot by twenty foot dip tank. The California DHS specialist noticed spillage inside the building housing the tank, and evidence of leakage on the river side of the building. He took soil samples, which revealed varying concentrations of PCP contamination; the worst contamination seemed to be located, not surprisingly, in and around the dip tank. Initial estimates of the volume of fungicide in the tank had been about 3,000 gallons. In fact (as suggested above), about 5,000 gallons were pumped into the waste removal tanker, filling it to capacity. 3
The Jensens' personal bankruptcy case was closed on February 20, 1985. No assets were distributed to creditors. The JLC corporate bankruptcy proceedings closed March 18, 1987. On March 30, 1987, California DHS notified Robert Jensen that it considered him a responsible party liable for the cleanup of the hazardous waste at the JLC site. Rosemary Jensen was later named a potentially responsible party.
Eventually, having been unable to persuade the Jensens or other involved parties to undertake independently the cleanup operation, California DHS developed its own remedial action plan. California DHS has spent over $900,000 at the JLC site (including areas other than the dip tank). The Jensens, doing business as JLC, have been allocated ten percent financial responsibility for the cleanup.
On December 5, 1988, the Jensens' personal bankruptcy proceedings were reopened to permit them to list California DHS and the other parties to the JLC site cleanup as creditors. Their adversary proceeding complaint, dated April 24, 1989, sought a determination that their pro rata share of the cleanup expenses had been "discharged by the granting of the discharge to the debtors herein on July 23, 1984." ER at 7-8.
Ruling on cross-motions for summary judgment, the bankruptcy court determined that California DHS's cleanup recovery claim "arose postpetition and is not subject to discharge." In re Jensen, 114 B.R. 700, 707 (Bankr.E.D.Cal.1990). The BAP reversed, finding that "[b]ecause ... claims in bankruptcy arise based upon the debtor's conduct, ... [California] DHS's claim arose in this case prepetition, and was therefore discharged in the Jensens' bankruptcy." In re Jensen, 127 B.R. 27, 33 (Bankr. 9th Cir.1991). California DHS filed its notice of appeal from that decision on June 3, 1991.
The BAP's decision is reviewed de novo. In re Dewalt, 961 F.2d 848, 850 (9th Cir.1992). The bankruptcy court's conclusions of law are reviewed de novo, and its findings of fact are reviewed for clear error. Id.
The intersection of environmental cleanup laws and federal bankruptcy statutes is somewhat messy. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C.A. §§ 9601-9675 (1988 & Supp.1993) ("CERCLA"), and similar state laws, like California's Carpenter-Presley-Tanner Hazardous Substance Account Act, Cal.Health & Safety Code §§ 25300-25395 (West 1992) ("HSA"), 4 seek "to protect public health and the environment by facilitating the cleanup of environmental contamination and imposing costs on the parties responsible for the pollution." Kevin J. Saville, Note, Discharging CERCLA Liability in Bankruptcy: When Does a Claim Arise?, 76 Minn.L.Rev. 327, 327 (1991) [hereinafter Discharging CERCLA Liability in Bankruptcy ].
By contrast, the Bankruptcy Reform Act of 1978, 11 U.S.C.A. §§ 101-1330 (1988 and Supp.1993), is "designed to give a debtor a 'fresh start' by discharging as many of its 'debts' as possible." Arlene Elgart Mirsky et al., The Interface Between Bankruptcy and Environmental Laws, 46 Bus.Law. 626, 626 (1991) [hereinafter The Interface Between Bankruptcy and Environmental Law ]. Consistent with this policy, a "claim" is defined at 11 U.S.C.A. § 101(5) in these broad terms:
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.
11 U.S.C.A. § 101(5).
Conflict and confusion are almost inevitable. See In re Chicago, M., St. P. & P.R.R., 974 F.2d 775, 777 (7th Cir.1992). For instance,
[i]f a problem exists but has not been found or if a cleanup occurs at an identified site before liability is determined, can one of the potentially responsible parties ("PRPs") get a complete discharge in bankruptcy? [And h]ow can a debtor get a fresh start if it is potentially subject to environmental liability, a large portion of which may be contingent ...?
The Interface Between Bankruptcy and Environmental Laws, 46 Bus.Law. at 627.
Notwithstanding what might be perceived to be diametrically opposed philosophies, the Supreme Court has indicated more than once that, if possible, these two conflicting objectives should be reconciled. Erman v. Lox Equip. Co., 142 B.R. 905, 907 (N.D.Cal.1992) (citing, inter alia, Midlantic Nat'l Bank v. New Jersey Dep't of Environmental Protection, 474 U.S. 494, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986); Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985)); see also In re Nat'l Gypsum Co., 139 B.R. 397, 404 (N.D.Tex.1992) ().
Courts considering when a claim for environmental response costs arose have employed somewhat varying approaches to the question. See In re Jensen, 127 B.R. at 30-33. Several courts, including the bankruptcy court below, have rejected the argument that a CERCLA claim arises upon the release or threatened release of hazardous waste,...
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