In re Apco Liquidating Trust

• Decision Date: 29 June 2007
• Docket Number: No. 05-12355 (BLS).,05-12355 (BLS).
• Citation: 370 B.R. 625
• Parties: In re APCO LIQUIDATING TRUST and APCO Missing Stockholder Trust, Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

370 B.R. 625

In re APCO LIQUIDATING TRUST and APCO Missing Stockholder Trust, Debtors.

No. 05-12355 (BLS).

United States Bankruptcy Court, D. Delaware.

June 29, 2007.

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COPYRIGHT MATERIAL OMITTED

Jason M. Madron, John Henry Knight, Richards, Layton & Finger, P.A., Wilmington, DE, Rebecca L. Booth, Morgan Lewis Bockius, Philadelphia, PA, for Debtors.

MEMORANDUM OPINION¹

BRENDAN L. SHANNON, Bankruptcy Judge.

Before the Court is the Objection of the Liquidation Trustee to Claim Numbers 22 and 23² Filed by the City of Wichita, Kansas and Motion to Estimate, if Necessary (the "Objection") [Docket No. 233]. For the reasons stated below, the Court will sustain the Objection and disallow the claims pursuant to section 502(e)(1)(B) of the Bankruptcy Code (the "Code").

BACKGROUND

Almost twenty years prior to the filing of the above-captioned bankruptcy cases (the "Cases"), in 1986, the Kansas Department of Health and Environment ("KDHE") discovered hazardous contaminants in the groundwater at a 3,850 acre industrial area near the city center of Wichita, known as the Gilbert and Mosley site (the "G & M Site").³ The G & M Site contains approximately 8,000 parcels of land, over 400 of which are owned by the City. One parcel within the G & M Site, located at 1001 East Lincoln Street ("1001 E. Lincoln"), was owned by APCO Oil Corporation⁴ until 1971.

Four years after the initial contamination discovery, KDHE completed an investigation into the potential and actual contamination at the G & M Site pursuant to the Comprehensive Environmental Response, Comprehension and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601-9675 (2006). It located multiple sources of groundwater contamination and identified over 500 potentially responsible parties ("PRPs"). Shortly thereafter, on March 26, 1991, the City, which had not been identified as a PRP at that time, voluntarily entered into an agreement with KDHE, entitled "Settlement Agreement for Remedial Investigation and Feasibility Study, and for Certain Remedial Actions to be Determined Following Opportunity for Public Involvement" (the "City/KDHE Agreement"). See generally Memorandum of Law, Ex. C. Pursuant to the City/ KDHE Agreement, the City agreed to perform a remedial investigation and feasibility study ("RI/FS") of the G & M Site and, ultimately, to undertake the remedial activities identified in the RI/FS necessary to clean up the G & M Site.

Seven years later, the City commenced a lawsuit pursuant to sections 9607(a) and 9613(f)(1) of CERCLA in the United States District Court for the District of Kansas seeking to recover its past and future response costs of investigating and cleaning the contamination from twenty-seven alleged PRPs, including the Debtors (the "Wichita Action"). After a lengthy trial, the Debtors were determined to be liable under section 9613(f)(1) for 1.72% of the City's past and future response costs of groundwater remediation for the entire G & M Site and for 100% of the City's future source control costs to be incurred at 1001 E. Lincoln. See City of Wichita v. Trs. of APCO Oil Corp. Liquidating Trust, 306 F.Supp.2d 1040, 1046 (D.Kan.2003) [hereinafter Wichita Judgment]. In 2004, the Debtors partially satisfied the Wichita Judgment, paying $467,273.10 for their 1.72% allocable share of the City's groundwater remediation costs for the entire G & M Site.

On August 19, 2005, the Debtors commenced the Cases, seeking protection under chapter 11 of the Code. The City timely filed a proof of claim ("Claim No. 26") based upon the unsatisfied portion of the Wichita Judgment awarding the City 100% of the future source control costs to be incurred at 1001 E. Lincoln. Claim No. 26 estimates the City's future source control costs to be $1,325,527. See Objection, Ex. G. The United States Environmental Protection Agency also filed a proof of claim seeking reimbursement for $32,112.31 in past response costs incurred at the G & M Site. See Memorandum of Law, Ex. C. KDHE has not filed a proof of claim against the Debtors based upon the contamination of the G & M Site.

On December 12, 2006, John G. McMillian, the liquidation trustee (the "Liquidation Trustee"), filed the Objection, primarily urging this Court to disallow Claim No. 26 because (1) it is a contingent claim for contribution pursuant to section 502(e)(1)(B); and (2) the City cannot maintain a cause of action under CERCLA after the Supreme Court's decision in Cooper Industries, Inc. v. Aviall Services, Inc., 543 U.S. 157, 125 S.Ct. 577, 160 L.Ed.2d 548 (2004). On December 29, 2006, before the City responded to the Objection, the Liquidation Trustee filed a motion to transfer venue of the Objection to the United States District Court for the District of Kansas (the "Motion to Transfer Venue") [Docket No. 237].

A hearing on the Motion to Transfer Venue was held on January 18, 2007, at which time the Court decided to withhold ruling on the Motion to Transfer Venue pending disposition of the legal question of disallowance under section 502(e)(1)(B). To that end, the Court requested further briefing regarding section 502(e)(1)(B) and the Supreme Court's decision in Aviall.

On March 28, 2007, the City responded to the Objection, denying that Claim No. 26 was a contingent claim for contribution. According to the City, the claim arose from a final judgment rendering the Debtors directly liable to the City (and thus, not liable via principles of contribution) for the future source control costs to be incurred at 1001 E. Lincoln. Further, the City opposed any adverse application of Aviall to its claim, arguing that: (1) the principles of stare decisis and res judicata prevent the parties from re-litigating issues resolved by the Wichita Judgment; (2) the standards of Federal Rule of Civil Procedure 60(b)(5) do not apply to allow the Debtors to obtain relief from the Wichita Judgment; and finally, (3) even if the Court were to grant relief from the Wichita Judgment under Rule 60(b)(5) and apply Aviall, the City continues to have causes of action under both section 9613(f)(1) and 9607(a) of CERCLA.

A hearing on the Objection was held on May 5, 2007, at which time the Court took the matter under advisement.

This matter is ripe for decision.

JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1). Consideration of this matter constitutes a "core proceeding" under 28 U.S.C. § 157(b)(2)(A), (B), and (0).

DISCUSSION

I. Disallowance Pursuant to 11 U.S.C. § 502(e)(1)(B)

The Debtors contend that Claim No. 26 must be disallowed under section 502(e)(1)(B) because it is a contingent claim for contribution. Pursuant to section 502(e)(1)(B), "the 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...." 11 U.S.C. § 502(e)(1)(B). For a claim to be disallowed under this section, three requirements must be satisfied: "(1) the claim must be one for reimbursement or contribution; (2) the entity asserting the claim for reimbursement or contribution must be `liable with the debtor' on the claim; and (3) the claim must be contingent at the time of its allowance or disallowance." In re Provincetown-Boston Airlines, Inc., 72 B.R. 307, 309 (Bankr.M.D.Fla.1987); accord In re Eagle Picher Indus., Inc., 164 B.R. 265, 268 (S.D.Ohio 1994); In re GCO Servs., LLC, 324 B.R. 459, 465 (Bankr. S.D.N.Y.2005); In re Drexel Burnham Lambert Group, 148 B.R. 982, 985 (Bankr. S.D.N.Y.1992). Because the Court concludes that Claim No. 26 satisfies each of these three requirements, the claim must be disallowed.

First, Claim No. 26 is a claim for contribution. "Whether a claim is one for reimbursement or contribution depends on its characterization under state or federal statutory law or common law." 4 COLLIER ON BANKRUPTCY ¶ 502.06[2][a] (Alan N. Resnick et al. eds., 15th ed. rev.2006); see, e.g., Provincetown-Boston, 72 B.R. at 310 ("[The Debtor's] duty to indemnify [the claimant] if both are found ultimately liable in the class action suit would arise independent of the Underwriting Agreement under the joint and several liability created by federal statute.").

Under CERCLA, two distinct causes of action have been created by Congress: "cost recovery" under 42 U.S.C. § 9607(a), commonly known as section 107(a), and "contribution" under 42 U.S.C. § 9613(f)(1), commonly known as section 113(f)(1). Under a section 107(a) "cost recovery" action,⁵ a party, such as a private party landowner or the United States government, who has incurred cleanup and remediation costs at a hazardous waste site, may seek to recover its full response costs from a party or parties who may be potentially responsible for the contamination. See generally United States v. Atl. Research Corp., ___ U.S. ___ 127 S.Ct. 2331, 168 L.Ed.2d 28 (2007). The apportionment of liability under section 107(a) is strict, joint, and several — "without regard to fault or willfulness". H.R.Rep. No. 99-253(I), at 74 (1985), reprinted in 1986 U.S.C.C.A.N. 2835, 2856; New Castle County v. Halliburton NUS Corp., 111 F.3d 1116, 1120-21 (3d Cir.1997); In re Kaiser Group Int'l, Inc., 289 B.R. 597, 602 (Bankr.D.Del.2003). Therefore, under section 107(a), "once liability is demonstrated, a [defendant] PRP may be held liable for the entire cost of cleanup, even if multiple PRPs are involved." Wichita Judgment at 1048-49.

Under a section 113(f)(1) "contribution" action,⁶ a PRP is granted the right to recoup from other PRPs the portion of its cleanup and remediation costs "which exceeds its fair share of the overall liability." New Castle County, 111 F.3d at 1121; see also Atl. Research, 127 S.Ct. at 2331; Kaiser, 289 B.R. at 603. In other words, under section...