Dant & Russell, Inc., In re, s. 89-35422
| Decision Date | 17 December 1991 |
| Docket Number | Nos. 89-35422,89-35449,s. 89-35422 |
| Citation | 951 F.2d 246 |
| Parties | , 60 USLW 2422, Bankr. L. Rep. P 74,400, 22 Envtl. L. Rep. 20,239 In re DANT & RUSSELL, INC., et al., DANT & RUSSELL, INC., et al., Appellant, v. BURLINGTON NORTHERN RAILROAD CO., Appellee. DANT & RUSSELL, INC., et al., Appellant/Cross-Appellee, v. BURLINGTON NORTHERN RAILROAD CO., Appellee/Cross-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Harry H. Schneider, Jr., Perkins Coie, Seattle, Wash., for appellee/cross-appellant.
Christopher R. Hermann, Stoel, Rives, Boley, Jones & Grey, Portland, Or., for appellant/cross-appellee.
Appeal from the United States District Court for the District of Oregon.
Before GOODWIN, SCHROEDER and NOONAN, Circuit Judges.
This appeal arises out of the negative land value caused by industrial pollution of land leased from a railroad. Burlington Northern ("BN") filed a claim against the bankruptcy estate of Dant & Russell ("D & R"), seeking reimbursement for incurred and expected cleanup costs of a site owned by BN and leased to D & R. The bankruptcy court awarded BN approximately $7 million of the $14 million requested. Tenants other than D & R had also contributed contaminants to the site during more than fifty years of use. Both parties appealed. We affirm the bankruptcy court's division of liability between the parties. We reverse the award to BN of cleanup costs not yet incurred. We remand for further accounting of costs incurred.
Since 1958, BN has owned an industrial site in Oregon which it has leased to various tenants, all of whom used the site for chemically treating wood. Earlier owners of the site had also leased the land to similar users. D & R, a tenant of BN, conducted its wood treatment operations between 1971 and 1983. In November, 1982, D & R filed for bankruptcy under Chapter 11 of the Bankruptcy Code.
In 1985, the Environmental Protection Agency ("EPA") ordered BN to conduct "Immediate Removal and Stabilization Activities" at the site. BN spent approximately $1 million in complying with the order. While the EPA reserved the right to take additional action against BN, it has not to date required BN to take actions other than those demanded by the order.
In 1985, BN filed a proof of claim in D & R's bankruptcy case, requesting reimbursement from D & R for the funds it had spent on complying with the EPA order, as well as funds for future cleanup. BN's claim is under § 9607(a)(4)(B) of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601 et seq. (1988). In total, BN is seeking $14,235,700 from D & R: approximately $1 million for incurred cleanup costs and the remainder for future cleanup.
The bankruptcy court found that BN's CERCLA claim was not barred by 11 U.S.C. § 502(e)(1)(B). However, the court found that BN was not entitled to recover from the bankrupt the entire $14 million plus it was seeking. Apportioning liability for the cleanup costs, the court declared D & R liable for $7,402,564 of the total amount and ordered D & R to pay BN this amount.
On appeal, D & R admits substantial liability under CERCLA. Moreover, D & R does not contest "approximately $780,000" of the bankruptcy court's award. D & R concedes that BN actually incurred this amount in conducting the initial cleanup. D & R's argument on appeal concerns the bankruptcy court's award of future cleanup costs. D & R argues that because BN has not yet incurred these costs, the court should have disallowed BN's claim for $14 million plus under § 502(e)(1)(B).
BN argues that under its CERCLA claim, the bankruptcy court was not permitted to apportion liability. BN further argues that even if division of liability was permissible, the one chosen by the bankruptcy court was incorrect. Finally, BN claims that it is entitled to administrative priority for cleanup costs associated with contamination deposited by D & R after D & R filed for bankruptcy in 1982. Both parties were asserting claims that were too broad.
Section 502(e)(1)(B) of the Bankruptcy Code provides that:
[T]he court shall disallow any claim for reimbursement or contribution of an entity that is liable with the debtor on or has secured the claim of a creditor, to the extent that ... such claim for reimbursement or contribution is contingent as of the time of allowance or disallowance of such claim for reimbursement or contribution.
A claim will be disallowed under § 502(e)(1)(B) only if (1) the claim is for reimbursement or contribution; (2) the party asserting the claim is liable with the debtor on the claim of a creditor; and (3) the claim is contingent at the time of allowance or disallowance. See, e.g., In re Provincetown-Boston Airlines, Inc., 72 B.R. 307, 309 (Bankr.M.D.Fla.1987).
Finding that BN's CERCLA claim was non-contingent, the bankruptcy court allowed the claim. Because we find that BN's claim fails to satisfy the co-liability requirement, we need not reach the question of contingency.
The co-liability requirement--that the claimant be "liable with" the debtor on the claim of a third party "creditor"--illuminates the central purpose of § 502(e)(1)(B). The contingency requirement does not explain the purpose of this section. Section 502(c) permits the estimation of contingent or unliquidated claims so that delay in the administration of the estate may be avoided. Accordingly, § 502(e)(1)(B) was drafted to "preven[t] competition between a creditor and his guarantor for the limited proceeds in the estate." S.Rep. No. 95-989, 95th Cong., 2nd Sess. 65 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5851. See also 3 Collier on Bankruptcy p 502.05 (15th ed. 1990) ( that § 502(e)(1)(B) applies to claims of secondarily liable entities whereas § 502(c) applies to claims of the debtor's creditors).
The concerns addressed by § 502(e)(1)(B) are not implicated in this case because third parties are not competing over D & R's funds for cleanup. BN's claim against these funds arises from no external legal compulsion--there is no third party creditor here. This fact is evident from the nature of BN's CERCLA claim.
Section 9607(a) of CERCLA provides, in relevant part:
[T]he owner and operator of a ... facility, [and] any person who at the time of disposal owned or operated any facility at which ... hazardous substances were disposed of ... shall be liable for
(A) all costs of removal or remedial action incurred by the United States Government or a State or an Indian tribe ...; [and]
(B) any other necessary costs of response incurred by any other person....
Section 9607(a) allows the state to recover from a responsible party costs it incurs in cleaning up a hazardous site. See, e.g., United States v. Wade, 577 F.Supp. 1326 (E.D.Pa.1983); Ohio ex rel. Brown v. Georgeoff, 562 F.Supp. 1300 (N.D.Ohio 1983). It is also well-settled that § 9607(a)(1-4)(B) permits a private party to recover from a responsible party response costs it incurs itself in conducting cleanup pursuant to CERCLA--even absent intervention by the state. Wickland Oil Terminals v. Asarco, Inc., 792 F.2d 887, 892 (9th Cir.1986).
The CERCLA private right of action encourages voluntary private action to remedy environmental hazards. In this way, it furthers CERCLA's goal of responding to hazardous situations quickly. EPA arm-twisting is not a prerequisite for filing a § 9607(a)(4)(B) claim. See id.
In this case, BN is seeking to recover the cost of future cleanup. Having complied with the original EPA order to conduct specified cleanup tasks, at a cost of less than $1 million, BN now seeks funding to perform further cleanup operations to finish the job. This latter cleanup has not been ordered by the EPA. When and if it is accomplished, it very well might be at the instigation of BN. Thus, with respect to it's § 9607(a)(4)(B) claim, there is no third party to whom BN is "liable with" D & R. The cases cited by D & R in arguing this point do not support its position. Each case involved an underlying claim by a third party against the party who was in BN's position in this case. See In the Matter of Baldwin-United Corp., 55 B.R. 885 (Bankr.S.D.Ohio 1985) (); In re Wedtech Corp., 87 B.R. 279 (Bankr.S.D.N.Y.1988) (); Provincetown, 72 B.R. at 307 ().
Accordingly, § 502(e)(1)(B) does not bar BN's § 9607(a)(4)(B) CERCLA claim against D & R. But this does not end the inquiry.
BN argues that once the bankruptcy court upheld its CERCLA claim against D & R's § 502(e)(1)(B) challenge, the court had no choice but to ascribe to D & R full liability for BN's claim. This assertion reaches too far.
Section 9613(f)(1) of CERCLA provides:
Any person may seek contribution from any other person who is liable or potentially liable under section [9607(a) ], during ... any civil action under ... section [9607(a) ].... In resolving contribution claims, the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate.
This section applies in this case for at least three reasons: (1) BN has admitted CERCLA liability; (2) this is a civil action under § 9607(a); and (3) D & R is arguing that BN should contribute to the cleanup operations.
The bankruptcy court determined D & R's proportionate liability for the total cleanup costs by converting to percentage the number of years D & R...
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