In re Allegheny Intern., Inc.
| Decision Date | 30 July 1993 |
| Docket Number | Bankruptcy No. 88-00448,Obj. No. 89-0009. |
| Citation | 158 BR 361 |
| Parties | In re ALLEGHENY INTERNATIONAL, INC., et al., Debtors. AL TECH SPECIALTY STEEL CORPORATION, Plaintiff, v. ALLEGHENY INTERNATIONAL, INC., et al., Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
William L. Gardner, Kenneth A. Rubin, Anthony C. Roth, Morgan, Lewis & Bockius, Washington, DC, George L. Cass, Buchanan Ingersoll, P.C., Pittsburgh, PA, for debtors.
David K. Floyd, David P. Flynn, Phillips, Lytle, Hitchcock, Blaine & Huber, Buffalo, NY, H. Brian Peck, Rothman Gordon, Pittsburgh, PA, for AL Tech.
This dispute revolves around a claim AL Tech Specialty Steel Corporation ("AL Tech") filed against Allegheny International, Inc. ("AI") to recover response costs related to various hazardous waste sites.1 On January 12, 1990, AI moved for summary judgment and for disallowance of AL Tech's claim. On January 22, 1990, AL Tech filed a cross-motion for "pass-through" treatment contending that a portion of its claim was not dischargeable in the bankruptcy plan because it did not arise prior to the bankruptcy.
On April 30, 1990, by an Order and Memorandum Opinion, this court granted AI's motion for summary judgment, denied AL Tech's cross-motion for "pass-through" treatment, and disallowed AL Tech's claim under 11 U.S.C. § 502(e)(1)(B). In addition, this court held that the non-assignment clause of the original sale agreement prohibited AL Tech from asserting the indemnity provision of the sale agreement between it and AI.
This was appealed and on May 6, 1991, the District Court for the Western District of Pennsylvania issued a Memorandum Opinion and Order affirming in part and reversing in part. In re Allegheny Int'l, Inc., 126 B.R. 919, 922, 926 (W.D.Pa.1991). The district court affirmed this court's holding regarding the indemnity provision of the sale agreement, and reversed and remanded AL Tech's statutory contribution claims for further findings of fact and for an estimation of AL Tech's pre-petition contribution claims under CERCLA and the New York Oil Spill Act.
On November 29, 1991, the Court of Appeals for the Third Circuit entered a judgment order affirming the district court. Allegheny Int'l, Inc. v. AL Tech Specialty Steel Corp., 950 F.2d 721 (3d Cir.1991), affirmed without opinion.
On remand in the bankruptcy court, AI moved for summary judgment as to each of AL Tech's claims and renewed its motion for summary judgment pursuant to 11 U.S.C. § 502(e)(1)(B). On September 17, 1992, AI's motions for summary judgment were denied. On or about September 30, 1992, AL Tech withdrew its claims alleging post-petition and "pass-through" treatment of its claims.
In November and December, 1992, a trial in accordance with the district court's order was conducted. The parties presented expert testimony on the amount of incurred costs by AL Tech and when they were incurred. Expert testimony also estimated the total expected response costs under the appropriate regulatory statutes, and which party had the responsibility for paying such costs.
Between 1937 and 1976, Allegheny Ludlum Industries, Inc. ("Allegheny Ludlum"), the predecessor of AI, owned and operated a steel plant in Dunkirk, New York and in Watervliet, New York. On August 2, 1976, Allegheny Ludlum sold its steel plants to AL Tech.2 The purchase agreement between Allegheny Ludlum and AL Tech was dated July 7, 1976 (the "1976 sale agreement").
AL Tech's two steel plants have been sold and purchased three times since AI last owned them in 1976. On April 29, 1981, the first sale of AL Tech was to GATX Corporation ("GATX") pursuant to an agreement and plan of merger dated March 16, 1981. GATX paid approximately $24.7 million for the AL Tech steel plants.
In June, 1986, Rio Algom, Inc. and Rio Algom Limited (collectively "Rio Algom") considered purchasing AL Tech. As a result, Rio Algom retained Arthur D. Little to perform environmental audits of the two Al Tech steel plants with special emphasis on certain facilities. A report by Arthur D. Little identified many of the environmental problems facing AL Tech, and it concluded that there were known problems which could result in millions of dollars of capital expenditures.
On June 30, 1986, the second sale of AL Tech took place when GATX sold the steel plants to Rio Algom pursuant to a stock purchase agreement. Rio Algom purchased AL Tech from GATX for one dollar ($1).
In 1988, Rio Algom decided to sell AL Tech. As part of the "information package" provided to prospective buyers, Rio Algom prepared a "Schedule 14" which identified AL Tech's "Current Major Environmental Liabilities" and estimated them at $16.9 million. The schedule also identified AL Tech's "Pending Major Environmental Liabilities" and estimated them at $3 million. Also provided was a "wild guess" that plant-wide decontamination would cost in excess of $100 million, if the steel plants were closed.
Rio Algom commissioned two environmental audits to quantify AL Tech's environmental liabilities. One report by Fred C. Hart Associates, Inc. estimated that the environmental remediation costs at the Watervliet plant would be between $15-$18 million, depending upon whether the plant was closed or upgraded to bring it into regulatory compliance. The second report by Ecology and Environment, Inc. contained similar results, with estimated remediation costing between $14.4-$21.35 million.
On May 11, 1989, AL Tech was sold for the third time. Pursuant to a stock purchase agreement between Rio Algom, AL Tech, and Sammi Steel Company, Limited ("Sammi"), Sammi purchased the AL Tech steel plants from Rio Algom for $100,000. According to AL Tech's chief financial officer, Sammi reached its $100,000 offering price by reducing "dollar-for-dollar" AL Tech's anticipated environmental compliance and remediation costs. The $100,000 purchase price was also subject to an adjustment based upon AL Tech's "Modified Net Income (Loss)" during the first seven months of 1989.3
Prior to the 1989 sale, AL Tech and Rio Algom provided Sammi with numerous documents concerning environmental compliance and contamination of the steel plants. This included the two environmental audits of the plants done for Rio Algom in 1988 and 1989, a five-year environmental expenditure plan, and a "Schedule 14."4
On May 26, 1988, AL Tech filed a timely proof of claim against AI. This claim alleged that AI was liable to AL Tech for a share of the incurred, contingent and unliquidated response costs required to remediate hazardous wastes located at the two steel plants. AL Tech's original estimated claim for already incurred and projected response costs was for the amount of $27,824,946. AL Tech subsequently amended its proof of claim to the amount of $22,367,463, which it alleges is the portion of the total estimated response costs of $34,754,691 that AI is responsible for paying.
AL Tech's claims against AI are based upon the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA")5 as amended by the Superfund Amendments and Reauthorization Act of 1986 and the New York Oil Spill Prevention, Control and Compensation Act ("Oil Spill Act")6.
A. The District Court's Decision
This court is bound to follow the district court's appellate decision and will do so accordingly.
On appeal, AL Tech argued that this court erred in determining that AL Tech's claims for contribution pursuant to CERCLA and the Oil Spill Act were contingent and therefore disallowed by 11 U.S.C. § 502(e)(1)(B). Section 502(e)(1)(B) states as follows:
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