In re Combustion Equipment Associates, Inc.

• Decision Date: 24 November 1986
• Docket Number: No. 86 CIV 5816 (LBS).,86 CIV 5816 (LBS).
• Citation: 67 BR 709
• Parties: In re COMBUSTION EQUIPMENT ASSOCIATES, INC., Debtor. CARTER DAY INDUSTRIES, INC., f/k/a Combustion Equipment Associates, Inc., Plaintiff, v. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY and New Jersey Department of Environmental Protection, Defendants.
• Court: U.S. District Court — Southern District of New York

67 B.R. 709 (1986)

In re COMBUSTION EQUIPMENT ASSOCIATES, INC., Debtor.

CARTER DAY INDUSTRIES, INC., f/k/a Combustion Equipment Associates, Inc., Plaintiff, v. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY and New Jersey Department of Environmental Protection, Defendants.

No. 86 CIV 5816 (LBS).

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

November 24, 1986.

Anderson Russell Kill & Olick, P.C., New York City, for plaintiff; Roy Babitt, Arthur S. Olick, Warren R. Graham, of counsel.

Rudolph W. Giuliani, U.S. Atty., S.D.N.Y., New York City, for defendants; Alan Nisselson, Asst. U.S. Atty., Elizabeth Yu, U.S. Dept. of Justice, of counsel.

SAND, District Judge.

Defendant United States Environmental Protection Agency ("EPA") brings this motion for an order under 28 U.S.C. § 157(d) (Supp.1985) withdrawing to the United States District Court the reference made earlier to the Bankruptcy Court of the underlying adversary proceeding. EPA claims simultaneously that the underlying action is not ripe for adjudication, and thus this Court lacks subject matter jurisdiction. The plaintiff, Carter Day Industries, Inc. ("Carter Day"), formerly known as Combustion Equipment Associates, Inc. ("CEA"), is currently protected as a reorganized debtor pursuant to the Bankruptcy Code. See 11 U.S.C. §§ 524, 1141(d) (West 1979 & Supp.1986). For the reasons stated herein, defendant's motion to withdraw the proceeding from the Bankruptcy Court so that Carter Day's claims will be determined in the District Court is granted, and Carter Day is granted two weeks time, to December 10, 1986, to respond to defendant's claim that this case is not ripe for adjudication.

Facts and Underlying Proceeding

This motion relates to an adversary proceeding brought by Carter Day against EPA and New Jersey Department of Environmental Protection ("NJDEP") seeking declaratory and injunctive relief. Carter Day contends in its action that its discharge in bankruptcy pursuant to 11 U.S.C. §§ 524 and 1141 has also discharged any potential liability that Carter Day may have under section 107(a) of the Comprehensive Environmental Response, Compensation and Liability Act, ("CERCLA"), 42 U.S.C.A. § 9607(a) (West 1983), concerning two landfill sites in Morris County, New Jersey. The question whether any claims against Carter Day may be asserted under CERCLA depends on when such claims are deemed to have arisen. The confirmation of a plan in Chapter 11 discharges the corporate debtor from any debt that arose before, but not after the date of such confirmation. 11 U.S.C. § 1141(d)(1)(A).

Following CEA's (now known as Carter Day) voluntary petition for relief under Chapter 11 of the Bankruptcy Code, a reorganization plan was confirmed by order of the Bankruptcy Court on December 21, 1983. Two years before, Combe Fill Corporation ("Combe Fill"), a wholly owned subsidiary of CEA, filed a separate voluntary petition for liquidation in accordance with Chapter 7 of the Code. Combe Fill had operated two solid waste disposal landfill sites in New Jersey which the EPA listed on its National Priority List of hazardous waste sites in accordance with CERCLA.

After closure of these sites in 1981, NJDEP filed a claim against Combe Fill for $5 million based on closure costs and penalties. On consent, the claim was allowed by the Bankruptcy Court in the amount of $50,000. In accordance with code sections applicable to Chapter 11 cases, this claim had been disallowed earlier when asserted against CEA. While EPA has filed no claim against CEA, it has settled a claim for administrative costs against Combe Fill for $50,000. The settlement is conditioned upon Bankruptcy Court approval of Combe Fill Trustee's application for leave to abandon the landfill sites.

In 1983, EPA advised CEA (among at least 100 other persons and entities) that the company was considered to be a potentially responsible party ("PRP") under CERCLA for remedial actions which might be taken in connection with the Combe Fill sites. Analytical results of groundwater samples taken in the vicinity showed groundwater contamination with substances considered hazardous under CERCLA. Pursuant to the statute, EPA has funded a Remedial Investigation and Feasibility Study ("RI/FS") at each site in order to identify an appropriate remedial strategy.

EPA incurred the bulk of the costs to conduct these studies after December 1983, the date at which CEA's reorganization plan was confirmed. Once EPA selects a remedy for the sites, if no PRP settles with EPA and implements the remedy itself, most of EPA's expenditures for cleaning up the site will occur in the future. However, the government's brief indicates that at this time, it has not made a decision whether to take action against any PRP, including plaintiff. The government has not determined whether any PRP is legally liable, or whether enforcement action will in fact be necessary at all.

The Withdrawal of Reference Standard

The standard for withdrawal of reference from the Bankruptcy Court is contained in 28 U.S.C.A. § 157(d) (West Supp. 1986) and provides:

The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown. The district court shall, on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.

This standard was part of the congressional response to Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 785 (1982), which held unconstitutional the broad grant of jurisdiction given to bankruptcy judges under the Bankruptcy Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549, to hear and determine all matters arising under or related to Title 11. The question presented in this case involves that portion of section 157 that, if interpreted literally, provides for the mandatory withdrawal of reference in certain circumstances by virtue of Congress's use of the word "shall".

The Court recognizes that the literal interpretation of the last sentence of section 157 could result in a broad "escape hatch through which most bankruptcy matters could be removed to a district court." 130 Cong.Rec. H1850 (daily ed. Mar. 21, 1984) (Statement of Rep. Kramer), and that there is no indication that Congress intended through section 157 to so overhaul the bankruptcy jurisdiction. See In re White Motor Corp., 42 B.R. 693, 697 (N.D.Ohio 1984) (Congress intended to retain as much as possible of bankruptcy court structure within constitutional constraints spelled out in Marathon). Rather, the canons of statutory construction and the legislative history specific to section 157 indicate that Congress intended that the district courts would, as a mandatory matter, withdraw proceedings from the bankruptcy courts, but only in a limited class of cases.

The legislative history of section 157(d) and the case law interpreting it reveal that withdrawal is mandatory only when "substantial and material consideration" of federal statutes other than the Bankruptcy Code "is necessary for the resolution of a case or proceeding." In re White Motor Corp., 42 B.R. at 703, 704; see, e.g., United States v. ILCO, Inc., 48 B.R. 1016, 1021 (N.D.Ala.1985); see also In re Baldwin-United Corp., 47 B.R. 898, 899 (S.D.Ohio 1984) (withdrawal is required only when resolution of the proceeding requires substantial consideration of both the Bankruptcy Code and federal interstate commerce laws.); In re Maislin Industries, U.S., Inc., 50 B.R. 943, 947 (E.D. Mich.1985) (same). The Court further finds that when this standard is met, Congress intended that withdrawal is required, and not merely a matter of the district court's discretion.

The Court disagrees with plaintiff's assertion that "shall" in the last sentence of section 157 should be construed as the permissive "may." First, it is fundamental that when the actual language of a statute is clear, it is ordinarily conclusive. United States v. Clark, 454 U.S. 555, 560, 102 S.Ct. 805, 809, 70 L.Ed.2d 768 (1982); Consumer Products Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980). Not only is the word "shall" unambiguous on its face, but the legislative history, which is controlling, supports the conclusion that withdrawal is mandatory in the limited set of cases outlined above. See 130 Cong. Rec. S6087 (daily ed. May 21, 1984) (remarks of Sen. Heflin) (district court "is mandated to grant a party's motion to withdraw proceedings involving both Title 11 and other laws of the United States regulating organizations and activities affecting interstate commerce"); S.Rep. No. 55, 98th Cong., 1st Sess. 16 (1983) ("recall is mandatory" where claim does not arise under Title 11 or where federal laws regulating organizations or activities affecting interstate commerce are involved); 130 Cong.Rec. S7622 (daily ed. June 19, 1984) (interpretation of section 157(d) by Sen. DeConcini) (withdrawal is mandatory when laws regulating organizations or activities affecting interstate commerce are likely to be considered); cf. Patchogue Nursing Center v. Bowen, 797 F.2d 1137, 1143 (2d Cir.1986) ("shall" is mandatory language). Therefore, if a case meets section 157(d)'s standard as interpreted above, the district court is required to grant a party's request for mandatory withdrawal.

The District Court Must Determine When a CERCLA Claim Arises

The issue presented in this case is essentially that which was presented in United States v. Johns-Manville Corp., 63 B.R. 600 (S.D.N.Y.1986). In that case, Judge Leval determined that adversary proceedings brought against Johns-Manville following a determination of bankruptcy should be withdrawn from the Bankruptcy Court. The adversary...