City of New York v. Exxon Corp.

• Decision Date: 02 May 1991
• Docket Number: D,No. 179,179
• Citation: 932 F.2d 1020
• Court: U.S. Court of Appeals — Second Circuit
• Parties: , 59 USLW 2757, 24 Collier Bankr.Cas.2d 1737, 21 Bankr.Ct.Dec. 1073, Bankr. L. Rep. P 73,931, 21 Envtl. L. Rep. 21,051 The CITY OF NEW YORK, Plaintiff-Appellee, v. EXXON CORPORATION, Exxon Research and Engineering Company, Inc., Ingersoll-Rand Company, Alcan Aluminum Corporation, Ford Motor Company, Koppers Company, Inc., BASF Wyandotte Corporation, Borg-Warner Corporation, Chrysler Corporation, United Technologies Corporation, Carrier Corporation, National Can Corporation, Public Service Electric & Gas Corporation, Dana Corporation, Defendants. Refinemet International, Inc. f/k/a Ag-Met, Inc., Defendant-Appellant. ocket 90-7360.

Page 1020

932 F.2d 1020

33 ERC 1035, 59 USLW 2757, 24 Collier

Bankr.Cas.2d 1737,

21 Bankr.Ct.Dec. 1073, Bankr. L. Rep. P 73,931,

21 Envtl. L. Rep. 21,051

The CITY OF NEW YORK, Plaintiff-Appellee, v. EXXON CORPORATION, Exxon Research and Engineering Company Inc., Ingersoll-Rand Company, Alcan Aluminum Corporation Ford Motor Company, Koppers Company, Inc., BASF Wyandotte Corporation, Borg-Warner Corporation, Chrysler Corporation United Technologies Corporation, Carrier Corporation National Can Corporation, Public Service Electric & Gas Corporation, Dana Corporation, Defendants. Refinemet International, Inc. f/k/a Ag-Met, Inc., Defendant-Appellant.

No. 179, Docket 90-7360.

United States Court of Appeals, Second Circuit.

Argued Oct. 9, 1990.

Decided May 2, 1991.

Joseph A. DiBenedetto, New York City (Winston & Strawn, Jeanne Murphy, of counsel), for defendant-appellant.

Christopher A. Amato, Asst. Corp. Counsel, New York City (Victor A. Kovner, Corp. Counsel of N.Y., Stephen J. McGrath, Peter H. Lehner, of counsel), for plaintiff-appellee.

Before MAHONEY and WALKER, Circuit Judges, and MARTIN, District Judge. ^*

WALKER, Circuit Judge:

In this appeal from a grant of partial summary judgment in favor of the City of New York ("the City") in its recovery and damage action under CERCLA against defendant Refinemet International, Inc. for certain environmental violations, we must decide two issues: (1) whether the action is barred by 11 U.S.C. Sec. 362(a), which automatically stays litigation of claims against a debtor which were or could have been commenced before the filing of a debtor's bankruptcy action, and (2) whether the court properly enjoined further litigation of the City's claim in Refinemet's ongoing Chapter 11 bankruptcy proceeding in the Central District of California. Because we determine that the City's suit falls within the so-called "police and regulatory exemption" from the automatic stay, we conclude that the automatic stay provision is not a bar to the city's suit. We also conclude that under the "first filed" rule, and for reasons of judicial economy, Judge Conboy acted within his discretion in enjoining further litigation of the City's claims in California bankruptcy court pending resolution of the New York proceedings.

BACKGROUND

The City of New York commenced this action against Refinemet and fourteen other corporate defendants in March of 1985 pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. Sec. 9601 et seq. to recover the costs of removing from several of its landfills certain hazardous substances contained in industrial wastes generated by these defendants. The wastes were illegally dumped in the landfills by wastehauling companies hired by defendants to remove these wastes. The operator of these companies, one Russell Mahler, bribed a city sanitation officer to gain access to the landfills and dump the wastes. In addition to generating some of these industrial wastes, Refinemet wholly owned one of the wastehauling companies operated by Mahler, Newtown Refining Corporation, at a time when Newtown was illegally dumping waste in the City's landfills.

The City's complaint against Refinemet sought recovery under 42 U.S.C. Sec. 9607(a)(4)(A) and (B) of costs incurred and to be incurred in responding to the release of hazardous substances in the landfills, a declaratory judgment under Sec. 9607(a)(4)(A) and (B) that Refinemet was liable for future costs of investigations and remedial action at the sites, and damages for injury to natural resources under Sec. 9607(a)(4)(C). ¹

In June 1985 Refinemet moved to dismiss the complaint for lack of personal jurisdiction; in 1986 this motion was denied, as were other defendants' various motions to dismiss. See City of New York v. Exxon Corp. (Exxon I), 633 F.Supp. 609 (S.D.N.Y.1986). In October of 1987 Refinemet filed for reorganization under Chapter 11 of the Bankruptcy Code in district court for the Central District of California, which action was "referred" to the bankruptcy court under 28 U.S.C. Sec. 157(a). In June 1988, In September 1989 the City moved for summary judgment in New York on Refinemet's liability. After successfully obtaining several adjournments of the motion before Judge Conboy, Refinemet moved in the California bankruptcy proceeding for a determination of its liability to the City under CERCLA. Refinemet followed that motion with a letter to the district court in the New York action that asked the court to "strike" the City's summary judgment motion. The City's response was to move under 28 U.S.C. Sec. 157(d) for withdrawal to the New York district court of those parts of Refinemet's California Chapter 11 proceeding which deal with the City's CERCLA claims. On March 30, 1990, Judge Conboy, finding the automatic stay in bankruptcy inapplicable to the City's action, granted the City's summary judgment motion as to Refinemet's liability, and enjoined the parties from litigating the remaining damage issues in the California bankruptcy proceeding. He denied the City's motion to withdraw the California's bankruptcy court's reference on the grounds that he lacked jurisdiction to do so. 112 B.R. 540.

the City filed a timely proof of claim in the California bankruptcy proceeding, informing that court of the existence of its New York recovery action, and attaching a copy of the complaint. On November 23, 1988, Judge Conboy approved a consent judgment settling the city's suit against seven of the defendants, see City of New York v. Exxon Corp. (Exxon II) 697 F.Supp. 677 (S.D.N.Y.1988); in May 1989 two more consent judgments were approved against six additional defendants, leaving Refinemet and Alcan Aluminum Corporation as the only defendants.

Refinemet appeals from this order, claiming that the district court order erred in 1) holding Refinemet directly liable to the City as a "person" who arranges for the transportation and disposal of hazardous substances under CERCLA or, alternatively, indirectly liable for Newtown's illegal dumping actions by piercing the corporate veil between it and Refinemet; 2) finding the bankruptcy code's automatic stay provision inapplicable to the City's New York recovery action; and 3) enjoining remaining litigation of the City's damages under CERCLA in the California bankruptcy proceedings.

Judge Conboy's ruling on liability is not a final order. The ruling left damages and Refinemet's affirmative defenses still to be considered. Accordingly his grant of summary judgment was only partial, and is not appealable at this time. See Liberty Mutual Ins. Co. v. Wetzel, 424 U.S. 737, 744, 96 S.Ct. 1202, 1206, 47 L.Ed.2d 435 (1976). ("[P]artial summary judgment[s] limited to the issue of ... liability ... are by their terms interlocutory, ... and where assessment of damages or awarding of other relief remains to be resolved have never been considered to be 'final' within the meaning of 28 U.S.C. Sec. 1291.") Nor do we consider this an appropriate case for the exercise of pendent appellate jurisdiction. We have repeatedly indicated that such jurisdiction should rarely be invoked, see Natale v. Town of Ridgefield, 927 F.2d 101, 104 (2d Cir.1991), and as our ensuing discussion demonstrates, Refinemet is incorrect in its assertion that the merits of the CERCLA case are "inextricably intertwined" with the other issues raised by this appeal.

We do have jurisdiction, however, under 28 U.S.C. Sec. 1291(a)(1) to review the applicability of the automatic stay provision to the CERCLA action, and the propriety of Judge Conboy's injunction against further CERCLA litigation in the California bankruptcy proceeding.

DISCUSSION

A. The Automatic Stay

11 U.S.C. Sec. 362(a) stays the commencement or continuation of all proceedings against a debtor that were or could have been commenced before the debtor filed for bankruptcy. ² Certain actions are exempt from this stay, however, including, under Sec. 362(b)(4), "the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power." However, collection of a money judgment obtained in such a regulatory proceeding, would be barred by the stay. See 11 U.S.C. Sec. 362(b)(5).

The question of whether governmental suits for recovery of costs incurred in responding to completed violations of environmental statutes fall under the police power exemption to the automatic stay is new to this circuit. In addressing it, we find the legislative history to the automatic stay provision to clearly support the view that Congress meant to except damage actions for completed violations of environmental laws from the action of the stay.

Paragraph (4) excepts commencement or continuation of actions and proceedings by governmental units to enforce police or regulatory powers. Thus, where a government unit is suing a debtor to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such a law, the action or proceeding is not stayed under the automatic stay.

S.Rep. No. 989, 95th Cong.2d Sess. at 52 (1978); H.R.Rep. No. 595, 95th Cong.2d Sess. at 343 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5838, 6299. (emphasis added).

The inclusion of damage actions for reimbursement together with injunctive relief in this section furthers the purpose of the automatic stay's regulatory exception. The availability of a reimbursement action encourages a quick response to environment crises by a government, secure in the knowledge that reimbursement will follow. Such a quick response is a direct exercise of a government's police power to protect the health and safety of its citizens. Actions to collect damages after violations have occurred also are consistent with the section's legislative objective of "enforc[ing] ... police or regulatory powers."...