In re Albion Disposal, Inc., 97-CV-0024E(SC)

• Decision Date: 11 August 1997
• Docket Number: No. 97-CV-0024E(SC),No. AP 96-1093K.,97-CV-0024E(SC),AP 96-1093K.
• Citation: 217 BR 394
• Parties: In re ALBION DISPOSAL, INC., I & J Disposal of Western New York, Inc., J & I Disposal, Inc., 11372 Main Street, Inc., Orleans Sanitary Landfill, Inc., Debtors. Craig A. SLATER, as Trustee of Albion Disposal, Inc., I & J Disposal of Western New York, Inc., J & I Disposal, Inc., and Orleans Sanitary Landfill, Inc., and Waste Management of New York, Inc., Plaintiffs/Appellees, v. TOWN OF ALBION and Town Board of Town of Albion, Defendants/Appellants.
• Court: U.S. District Court — Western District of New York

217 B.R. 394 (1997)

In re ALBION DISPOSAL, INC., I & J Disposal of Western New York, Inc., J & I Disposal, Inc., 11372 Main Street, Inc., Orleans Sanitary Landfill, Inc., Debtors Craig A. SLATER, as Trustee of Albion Disposal, Inc., I & J Disposal of Western New York, Inc., J & I Disposal, Inc., and Orleans Sanitary Landfill, Inc., and Waste Management of New York, Inc., Plaintiffs/Appellees, v. TOWN OF ALBION and Town Board of Town of Albion, Defendants/Appellants.

No. 97-CV-0024E(SC), No. AP 96-1093K.

United States District Court, W.D. New York.

August 11, 1997.

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Joseph Zagraniczny, Scott R. Hatz, Bond, Schoeneck & King, Syracuse, NY, for Waste Management of New York, Inc.

Cheryl R. Storie, Julia S. Kreher, Hodgson, Russ, Andrews, Woods & Goodyear, Christopher K. Reed, Buffalo, NY, for Town of Albion and Town Board of Town of Albion.

Raymond Fink, Harter, Secrest & Emery, Buffalo, NY, for Craig A. Slater.

MEMORANDUM and ORDER

ELFVIN, District Judge.

Presently before this Court is an appeal by defendants-appellants Town of Albion and Town Board of the Town of Albion (collectively, "the Town") from an order of the Bankruptcy Court dated December 12, 1996 ("the December 12 Order") that denied the Town's motion to dismiss this adversary proceeding. For the reasons set forth below, the December 12 Order will be affirmed.

For purposes of the instant appeal, the allegations made by the plaintiffs-appellees are deemed true. The following statement of facts is taken from the Amended Complaint that they filed June 27, 1996. The accompanying summary of this proceeding's procedural history is drawn from the Record on Appeal that was filed March 4, 1997.

Involuntary Chapter 11 bankruptcy petitions were filed against I & J Disposal of Western New York, Inc. ("I & J"), J & I Disposal, Inc. ("J & I") and Albion Disposal, Inc. ("Albion Disposal") on August 5, 1991. On August 14, 1991 Orleans Sanitary Landfill, Inc. ("OSL") and 11372 Main Street, Inc. ("11372 Main") filed voluntary Chapter 11 bankruptcy petitions. On December 3, 1991 the Bankruptcy Court appointed plaintiff Slater ("the Trustee") as the Chapter 11 Trustee of I & J, J & I, Albion Disposal, 11372 Main and OSL ("the Debtors").

Prior to filing for bankruptcy protection, OSL operated a "municipal solid waste management facility" — in layman's terms, a landfill — on a 35-acre parcel of land in Albion.¹ OSL operated that landfill ("the Landfill") from October 1983 until December 1990.² In April 1989 OSL filed applications ("OSL's DEC Applications") with New York's Department of Environmental Conservation ("the DEC") seeking permits to construct and operate (1) a "vertical expansion" of the Landfill and (2) a 154-acre "horizontal expansion" of the Landfill onto adjacent property owned, in whole or in part, by OSL. That adjacent property has been and will be referred to as "the Debtors' Premises."³ OSL filed similar applications ("OSL's Town Applications") with the Town in 1990 pursuant to Chapter 49 of the Town Code ("Chapter 49"). OSL subsequently filed with both the Town and the DEC extensive hydrogeological data and environmental and engineering information regarding the expanded landfill that it was proposing.

In October 1990 OSL executed a consent order requiring it to close the Landfill pursuant to a closure plan that had been approved by the Town and the DEC. When the Debtors' bankruptcy petitions were filed in 1991, OSL was in breach of that consent order. Among other things, leachate from the Landfill posed a threat to the environment. Because of OSL's breach, the Town asked the Trustee to assume responsibility for leachate collection and ongoing maintenance until the Landfill was closed pursuant to the previously-approved closure plan. The Trustee did not have sufficient funds to perform that work.

At this point in time, the Trustee and the Debtors' creditors, including the Town — which had filed a proof of claim of approximately $2 million —, understood that the Debtors' "property" was limited to (1) the Debtors' Premises and (2) OSL's DEC and Town Applications (collectively, "the OSL Applications"). The Trustee and the creditors further understood that the Trustee should sell the Debtors' assets to the highest bidder as quickly as possible.

In November 1991 the Town urged the Trustee to expedite the closing of the Landfill by selling the Debtors' assets to a purchaser with the financial ability to close the Landfill and to pursue the OSL Applications. On December 9, 1991 the Town granted the Trustee an extension of time to find a buyer for the Debtors' Premises and the OSL Applications. In granting that extension, the Town passed a resolution denying OSL's Town Applications unless (1) the Town's environmental concerns were addressed in a feasible plan of operation and (2) other defaults under agreements and licenses that the Debtors had with the Town were remedied or guaranteed to be by an entity capable of fulfilling the Debtors' obligations. In January 1992 the Town advised the Bankruptcy Court, the Trustee and prospective purchasers that OSL's Town Applications would remain pending and that the Board would objectively review and process those applications if the Landfill's environmental problems were addressed and the Landfill properly closed. The Town subsequently advised the Trustee that it deemed the conditions attached to its December 9, 1991 resolution to have been fulfilled and represented that, if the Landfill were properly closed, OSL's Town Applications — or any supplemental or new applications — would be reviewed and processed in accordance with Chapter 49.

To satisfy the Town and the DEC, the Bankruptcy Court and the Trustee required the successful purchaser of the Debtors' Premises and the OSL Applications to close the Landfill in full compliance with the original closure plan. On April 24, 1992 the Bankruptcy Court approved (1) the lease of the Debtors' Premises to plaintiff Waste Management of New York, Inc. ("WMNY"), a non-debtor, and (2) the assignment of the OSL Applications to WMNY pursuant to a letter of intent obligating WMNY to act as the Trustee's contractor and to close the Landfill.

In January 1993 the Trustee, the Town and the DEC executed new consent orders under which WMNY would correct the Landfill's environmental problems and close it pursuant to a new closure plan. At the same time WMNY executed guarantees promising that it would fully perform the Debtors' obligations under the consent orders and the new closure plan. Over the next fifteen months, WMNY closed the Landfill in accordance with the new closure plan and satisfied all of the Trustee's obligations under the 1993 consent orders. In December 1993 the Trustee assigned the OSL Applications to WMNY⁴ and amended the lease with WMNY ("the Lease") to include all of the Debtors' Premises. WMNY spent more than $5 million in connection with the above-described activities. In addition to WMNY's expenditures, the Trustee paid the Town approximately $650,000 in 1993, including $150,000 when the Lease was amended and approximately $400,000 as "host fees" when WMNY was closing the Landfill.

WMNY and the Town engaged in all of this conduct in reliance on the Town's repeated representations that it would review and process the OSL's Town Applications— or any supplemental or new applications relating to the Debtors' Premises — in accordance with Chapter 49.

Under the Lease, WMNY leases the Debtors' Premises for 48 years for the sole purpose of constructing and operating a landfill. The Lease further obligates WMNY to proceed diligently in obtaining all of the permits that are necessary to construct and operate a landfill on the Premises. Until WMNY receives those permits, WMNY pays a monthly rent of $200. Upon receipt of the permits, WMNY will pay the Trustee approximately $5.2 million in pre-paid rent. Once the new landfill becomes operational, WMNY will pay the Trustee $3.50 for every ton of municipal solid waste deposited therein. Under the Trustee's proposed plan of reorganization, WMNY's lease payments will be used to pay the claims of the Debtors' creditors.

If the Town had not represented that it would review and process OSL's Town Applications — or any new or supplemental applications — pursuant to Chapter 49, WMNY and the Trustee would not have executed the above-described consent orders, guarantees and leases, would not have expended the significant sums of money discussed above and would not have closed the Landfill. Those actions were taken in direct reliance on the Town's representations. Those representations also led the Trustee and WMNY to believe that they had a binding agreement with the Town. As the plaintiffs understood it, that agreement obligated the Town to review and process OSL's Town Applications — or any new or supplemental applications — in accordance with Chapter 49 if the plaintiffs took the above-described actions.

After performing extensive testing on the Debtors' Premises and properties adjacent to the Premises, WMNY decided to reduce the scale of the proposed landfill from 154 acres to approximately 72 acres. That decision prompted WMNY to file, on March 24, 1995, revised applications ("the WMNY Applications") reflecting such scaled-down landfill.⁵ On December 4, 1995 WMNY filed additional information with the Town in order to satisfy the requirements of Chapter 49. On December 21, 1995 the Town Attorney confirmed that the WMNY Applications were "complete for purposes of Chapter 49's technical requirements."

Beginning in January 1996, the Town commenced a course of action aimed at (1) preventing further consideration of the WMNY Applications and (2) prohibiting all solid waste management facilities in the Town. That course of action was led by Town Board members who had been newly elected thereto in November 1995.

At a special meeting of the Town Board held on January...