In re Dana Corp.
| Decision Date | 20 November 2007 |
| Docket Number | No. 07 Civ. 8160(SAS).,07 Civ. 8160(SAS). |
| Citation | 379 B.R. 449 |
| Parties | In re DANA CORPORATION, et al., Debtors. |
| Court | U.S. District Court — Southern District of New York |
Russell Marc Yankwitt, Pierre G. Armand, Daniel P. Filor, Assistant United States Attorneys, United States Attorney's Office, New York, NY, for the United States of America.
Steven C. Bennett, Esq., Jones Day, New York, NY, Marc S. Levin, Esq., Dana Corporation, Toledo, OH, for Debtors.
Paul Bradley O'Neill, Esq., Kramer, Levin, Naftalis & Frankel, LLP, New York, NY, for Official Committee of Unsecured Creditors.
On September 18, 2007, the United States Government filed a motion to withdraw the reference of certain issues in the above-referenced petition from the United States Bankruptcy Court for the Southern District of New York pursuant to 28 U.S.C. § 157(d) ("section 157(d)"). Specifically, the Government moves to withdraw the reference of the objection (the ") of Dana Corporation and forty of its domestic direct and indirect subsidiaries ("Dana," or collectively, "Debtors") to the Government's proofs of claim, as well as Debtors' motion for an order establishing procedures to estimate those claims (the "Estimation Motion"). For the following reasons, the Government's motion is granted.
On March 3, 2006, Debtors filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On September 21, 2006, the Government filed two proofs of claim on behalf of the Environmental Protection Agency (the "EPA") and the Departments of Commerce and the Interior.1 Debtors moved on September 5, 2007 for the entry of an order establishing procedures to estimate the Government's claims and for estimation of the claims pursuant to those procedures.2 Debtors' motion proposed that fact and expert discovery conclude within two months so that the estimation hearing on the claims could be held by December 2007.3
On September 7, 2007, Debtors objected to the Government's proofs of claim primarily on the ground that the Government's largest claim seeks response costs for environmental damage that is allegedly unrelated to any activity conducted by Dana.4 The Government then filed an objection to Debtors' Estimation Motion on September 14, 2007 contending, inter alia, that the matter should be withdrawn to this Court and that Debtors' proposed estimation schedule and procedures are "unreasonable in that they fail to afford sufficient time to develop a complete factual record" regarding the claims at issue.5 The bankruptcy court, over the Government's objection, entered an order establishing the estimation process and timeline for the claims at issue, with the estimation hearing set for January 14, 2008.6
On September 18, 2007, the Government moved to withdraw the reference of Debtors' Claim Objection as well as the Estimation Motion. Additionally, the Government requested that the bankruptcy court stay consideration of these proceedings pending this Court's decision on its motion to withdraw the reference. By memorandum decision, and order dated October 3, 2007, the bankruptcy court denied the Government's motion, finding that the Government had failed to clearly demonstrate a likelihood of success on its motion to withdraw the reference, and had "not demonstrated any harm it would suffer if discovery on its claims were to continue pending" this Court's decision.7 In contrast, "the potential harm to the Debtors and their estates, creditors, workforce and other parties in interest is great."8 The Government appealed the bankruptcy court's denial of the stay. By Order dated October 4, 2007, I denied the motion for a full stay pending my decision on the motion to withdraw, but granted a sixty-day extension of the discovery schedule, thereby pushing the date of the estimation hearing past the previously scheduled date of January 14, 2008. On October 25, 2007, the parties appeared before the Court for oral argument on the Government's motion to withdraw the reference.
The Government's claims against the Debtors largely stem from response costs incurred and to be incurred by the EPA, pursuant to section 107(a) of the Comprehensive and Environmental Response, Compensation, and Liability Act ("CERCLA"),9 for its response efforts at six Superfund sites across the country; Tremont City, Ohio; Elkhart, Indiana; Claypool, Indiana; Hastings, Nebraska; Southington, Connecticut; and South Plainfield, New Jersey.10 The approximate total of past and future response costs for these sites is $295 million, with the South Plainfield site (the "CDE Site") accounting for about $250 million of that amount.11 Additionally, the Government asserts a claim on behalf of the Departments of Commerce and Interior pursuant to section 107(f) of CERCLA for natural resource damage at the CDE Site for an estimated amount of twenty to thirty-seven million.12
Because the CDE Site accounts for the bulk of the Government's claims, it is the site on which the parties focus much of their attention. The CDE Site was owned by Dana and its corporate predecessor from approximately 1914 until 1956.13 During that period, from 1936 to 1956, Dana and its predecessor leased the property to CDE, which subsequently purchased the property from Dana in 1956 and continued its operations there until 1962.14 CDE was engaged in the manufacture of electronic components, including capacitors, and used polychlorinated biphenyls ("PCBs") and chlorinated organic solvents in its manufacturing processes. According to the Government's proof of claim, CDE disposed of PCB-contaminated materials and other hazardous substances, resulting in elevated levels of PCBs, volatile organic compounds, and inorganic material that are now present in the property's soil, sediment, groundwater, surface water, and structures.15
In 1996, the EPA began testing activities at the CDE Site at the request of the New Jersey Department of Environmental Protection.16 After additional testing and collection activities, as well as placement of the CDE Site onto the National Priorities List,17 the EPA initiated its remedial investigation for the CDE Site in 2000 and divided the property into four operable units.18 While remedial action for the first operable unit has been concluded for the most part, remedial action for the other operable units are at varying stages of design and progress.19
As stated in the Government's CDE Site Proof of Claim, Debtors' liability for the response costs incurred and to be incurred at the CDE Site stems from its status as "owner and/or operator of the CDE Macility at the time of disposal of hazardous substances" within the meaning of section 107(a)(2) of CERCLA.20 Debtors deny that there was any disposal of hazardous wastes during the time it was an "owner or operator" of the CDE Site.21 Moreover, Debtors contend that "to the extent that the Government's evidence shows that the disposal of hazardous substances occurred during this time, such disposal or other activity took place at the direction and/or under the supervision of agencies of the United States," including the Defense Department, and without Debtors' actual knowledge.22 According to Debtors, the Government, through the Defense Department, served as an operator and contributed to the environmental damage at issue by controlling operations at the CDE Site and demanding that CDE increase its manufacture of capacitors pursuant to the nation's World War II effort.23
Section 157(d) mandates that the district court withdraw a proceeding referred to the bankruptcy court if "resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce." The Second Circuit Court of Appeals construes this provision "narrowly," requiring withdrawal of the reference only if "substantial and material consideration of non-Bankruptcy Code federal Bawl is necessary for the resolution of the proceeding.24
Withdrawal of the reference is appropriate where the case would require "the bankruptcy court to engage itself in the intricacies" of non-Bankruptcy law, as opposed to "routine application" of that law.25 The "bare contention" that non-bankruptcy law is dispositive or in conflict with the bankruptcy code is not sufficient.26
Section 157(d) gives the district court discretion to withdraw the reference of a case referred to the bankruptcy court "in whole or in part ... on timely motion of any party, for cause shown." Although the statute does not define "cause," the Second Circuit has held that "[a] district court considering whether to withdraw the reference should first evaluate whether the claim is core or non-core."27 Section 157(b)(2) sets forth a nonexhaustive list of core proceedings, including the "allowance or disallowance of claims against the estate ... and estimation of claims or interests for the purposes of confirming a plan under chapter 11 ...."28 Congress intended that core jurisdiction be construed broadly to avoid overwhelming the district court with bankruptcy matters.'29 "[C]ore matters are ones with which the bankruptcy court has greater familiarity and expertise."30
While the court's determination of whether a matter is core is "often central to the analysis of whether there is cause to withdraw a reference to the bankruptcy court," it does not dispose of the issue.31 Rather, after the court makes its determination, the inquiry then turns to "whether the claim or proceeding ... is legal or equitable, and considerations of efficiency, prevention of forum shopping, and uniformity in the administration of bankruptcy law."32
CERCLA's section on liability provides, in pertinent part, that:
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