In re DuFrayne
| Decision Date | 04 April 1996 |
| Docket Number | Bankruptcy No. 94-14932SR. Adv. No. 95-831. |
| Citation | 194 BR 354 |
| Parties | In re Mark Joseph DuFRAYNE, Rosemary DuFrayne, Debtors. Mark Joseph DuFRAYNE, Rosemary DuFrayne, Plaintiffs, v. FTB MORTGAGE SERVICES, INC., Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Robert P. Frank, Tobey M. Daluz, Reed Smith Shaw & McClay, Philadelphia, PA, for debtors.
Peter C. Cilio, Federman & Phelan, Philadelphia, PA.
Michael L. Krancer, David M.M. Taffet, Blank Rome Comisky & McCauley, Philadelphia, PA.
Frederic J. Baker, Senior Assistant United States Trustee, Office of the U.S. Trustee, Philadelphia, PA.
Presently before the Court is the motion of secured creditor FTB Mortgage Services, Inc. ("FTB") to dismiss Counts I, II and III of the Complaint filed by joint debtors Mark and Rosemary DuFrayne ("Debtors"). FTB moves to dismiss these counts pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Fed.R.Civ.P.")1 on the basis that they fail to state claims for which relief can be granted.
A hearing on the motion was held on February 1, 1996, after the conclusion of which the Court took the matter under advisement. For the reasons stated herein, the Court grants FTB's motion and dismisses Counts I, II, and III.
The Court has jurisdiction over the parties and subject matter of this core proceeding pursuant to 28 U.S.C. §§ 1334 and 157(a), 157(b)(1), (b)(2)(A) and (O).
The instant case witnesses the latest round of fighting between the Debtor/homeowners and their mortgage lender, FTB, in a battle to determine which party shall bear the brunt of the economic consequences that are likely to result from a decision of the Environmental Protection Agency ("EPA") to include the Debtors' residence, FTB collateral, as part of a Superfund clean-up site. The primary issue of dispute under Counts I and II concerns whether FTB, by obtaining a security interest in the residence under a mortgage at a time when it knew, or should have known about the contamination and the EPA's plans for remediation of the property, may be held liable to the Debtors for any response costs that they incur, or become liable for, under the Comprehensive Environmental Resource Compensation and Liability Act ("CERCLA"), codified in part as amended at 42 U.S.C. §§ 9601-9675 (1995), or whether FTB is exempt from such liability under the so called "secured lender exception" of CERCLA. See 42 U.S.C. § 9601(20)(A). The dispute over Count III centers on whether the Debtors may collaterally attack in this Court an adverse state court judgment that was obtained prior to the filing of their bankruptcy petition.
The facts which are central both to the Debtors' bankruptcy case in general, and this adversary proceeding in particular, were previously examined by the Court and discussed in its Memorandum Opinion dated September 20, 1995 ("Prior Opinion"), denying confirmation of the Debtors' proposed plan of reorganization. The factual findings made in the Prior Opinion are the law of the case and are therefore binding on the parties in this proceeding. See e.g., Safir v. Dole, 718 F.2d 475, 480-81 (D.C.Cir.1983), cert. denied, 467 U.S. 1206, 104 S.Ct. 2389, 81 L.Ed.2d 347 (1984); In re PCH Associates, 122 B.R. 7, 9 (S.D.N.Y.1990), vacated on different grounds, 949 F.2d 585 (2d Cir.1991). A summary of the relevant facts from the Prior Opinion, and the factual allegations of the Complaint, follow.
The Debtors' residence is located at 6 East Plumstead Avenue, Lansdowne, Pennsylvania (the "Property"). The Debtors purchased the Property in 1989 for the sum of $140,000.00, financing $108,000.00 of the purchase price through the E.B. Mortgage Corporation ("E.B. Mortgage Corp."). The loan was evidenced by a promissory note dated May 31, 1989 ("Note"), and was secured by a first mortgage on the Property ("Mortgage") of even date with the Note. The E.B. Mortgage Corp. was apparently succeeded in interest by Maryland National Mortgage Corporation ("MNMC"), whose interests were then later succeeded to by FTB.
The events which led to the filing of the Debtors' Chapter 11 case, and ultimately to the filing of this adversary proceeding, had their genesis in November 1991. It was during the week of Thanksgiving of that year that the Husband/Debtor first learned that a neighbor's house had been identified by the EPA as being contaminated by radioactive "tailings" from an ore milling process that had been conducted at a factory in the area during the period from about 1915 to 1925. Apparently, large quantities of the tailings, essentially pulverized rock resembling sand from which radium ore had been extracted, were hauled away from the factory by local building contractors of the era and used in the construction of new homes nearby. Upon learning about the contamination at their neighbor's house, the Debtors began to suspect that their home might also be contaminated since it had been built during the same summer and has the same floor plan as the neighbor's house.
The Debtors' suspicions concerning contamination of the Property were confirmed when, using a borrowed geiger counter, they detected the presence of radiation in the basement. Subsequent testing by the EPA revealed contamination by radium 226 and thorium 230. By February 1992, the EPA had identified a total of 29 residences in the area, including the Property, as locations "where radioactive wastes have been deposited". 57 Fed.Reg. 4824, 4828 (Feb. 7, 1992). The number of affected homes, however, was later increased to 40. The area became formally known as the Austin Avenue Radiation Superfund Site ("Austin Avenue Site"), so named due to the location of the factory from which the contamination originated, the W.L. Cummings Radium Processing Co., at the intersection of Austin and Union Avenues in Lansdowne. Id.
Initially, the Debtors continued to reside at the Property while the EPA investigated the Austin Avenue Site and began developing a clean-up strategy. On or about December 21, 1991, the EPA installed a device at the Property that continuously pumps contaminated air from the basement and presumably exchanges it with outside air ("Air Exchanger"). Complaint at ¶ 34. In or about June 1992, however, the EPA temporarily relocated the Debtors to other quarters after it was discovered that the Wife/Debtor was pregnant with the couple's second child. The Debtors were allowed to return to the Property in or around October 1992, and have continued to reside there ever since. The Debtors continued occupancy of the Property is subject to a set of strict guidelines that were established for them by the EPA to reduce the health risks posed by exposure to the radioactive contamination present in their home.2
The initial findings and recommendations of the EPA for remediation of the Austin Avenue Site were presented in a document entitled "Proposed Remedial Action Plan". The Debtors belong to an organized group of affected homeowners who, with the assistance of legal counsel, publicly commented on, and opposed, the Proposed Remedial Action Plan. Complaint at ¶ 31. In response to public comment received on the initial plan, the EPA issued a follow up document entitled "Revised Proposed Remedial Action Plan". Complaint at ¶ 26-27. Finally, after responding to public comment received on the revised plan, the EPA issued a formal Record of Decision pertaining to the Austin Avenue Site in which it detailed its findings concerning the nature and extent of the contamination and its plans for the clean-up of the site and remediation of the homes located there.
Under the Record of Decision certain of the affected homeowners, the Debtors included, were given the option of choosing temporary relocation from their homes, removal and disposal of contamination from each building site, and either: A) onsite relocation in a newly built replacement structure; B) permanent offsite relocation in suitable alternative housing; or C) onsite relocation in the original building, if repairs to that structure were practicable. The Debtors chose option "A". At the hearing on confirmation, the Husband/Debtor testified that he was informed by the EPA that even after remediation is completed, and their home rebuilt, the EPA will not certify the Property to be free of contamination. Complaint at ¶ 43. He also testified that the EPA informed him that the rebuilt Property will not be removed from the Superfund list, Complaint at ¶ 42, due to the subsequent discovery of extensive ground water contamination in the area directly related to the radium processing that took place at the old Cummings factory.
The Debtors' problems with their mortgage lender were apparently precipitated by the fact that, beginning in or around the spring of 1992, they ceased making the monthly payments due under the Note and Mortgage. Rather than seeking to remedy the default by foreclosure of the Mortgage, MNMC (the Note and Mortgage holder at the time) instead chose to commence legal proceedings against the Debtors to collect the amount due under the Note. The action on the Note was commenced on or about February 17, 1993, in the Court of Common Pleas of Delaware County ("Court of Common Pleas"). Thereafter, on May 5, 1994, the Court of Common Pleas granted summary judgment in favor of MNMC and entered judgment on the Note in the amount of $126,223.37, plus interest and costs ("Judgment"). The Debtors did not appeal the Judgment.
Not long after entry of the Judgment, on July 29, 1994, the Debtors commenced the underlying bankruptcy case by filing a joint petition for relief under Chapter 11 of the United States Bankruptcy Code. 11 U.S.C. §§ 101-1330 ("Code"). The Debtors allege that it was not until sometime after the commencement of their bankruptcy case that FTB acquired MNMC's interests...
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