In re Edison Mission Energy

• Decision Date: 19 November 2013
• Docket Number: No. 12–49219.,12–49219.
• Citation: 502 B.R. 830
• Parties: In re EDISON MISSION ENERGY, et al., Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

502 B.R. 830

In re EDISON MISSION ENERGY, et al.,¹ Debtors.

No. 12–49219.

United States Bankruptcy Court,

N.D. Illinois,

Eastern Division.

Nov. 19, 2013.

Joshua A. Sussberg, New York, NY, for Debtor.

David C. Bender, Matthew E. McClintock, Chicago, IL, for the Sierra Club.

Amended Memorandum Opinion (dkt. no. 1283)

JACQUELINE P. COX, Bankruptcy Judge.

This matter is before the Court on the motion of the Sierra Club for entry of an order confirming that the automatic stay is not in effect, or, in the alternative, granting relief from the automatic stay (the “Motion”). See Bankruptcy Case no. 12–49219, dkt. no. 1283. For the reasons that follow, the Motion is Granted.

I. Jurisdiction and Venue

This Court has jurisdiction to hear this matter pursuant to 28 U.S.C § 1334(a). A matter to determine the application of the automatic stay is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G). Venue is proper pursuant to 28 U.S.C. § 1408.

II. Facts and Background

Edison Mission Energy (“EME”) together with its Debtor and non-Debtor affiliates, including Midwest Generation, LLC (“MWG”), is a leading independent power producing enterprise specializing in developing, operating, and selling energy and capacity from approximately 40 generating facilities in 12 states and the Republic of Turkey. The Debtors have approximately 925 employees and maintain headquarters in Chicago, Illinois and Santa Ana, California. ( See Motion for Joint Administration of Lead Case, dkt. no. 717, p. 4.)

The Debtors are indirect subsidiaries and affiliates of non-Debtor Edison International Inc. (“EIX”). ( See Declaration of Maria Rigatti, Senior Vice President and Chief Financial Officer of Edison Mission Energy (“Rigatti Declaration”)). dkt. no. 6, p. 2, ¶ 6. EME and its subsidiaries own and operate certain unregulated coal, wind, and gas power generating assets. Id. at ¶ 6. MWG operates several coal-fired plants in Illinois, including the Joliet Generating Station in Joliet; the Powerton Generating Station in Pekin; the Waukegan Generating Station in Waukegan; and the Will County Generating Station in Romeoville (the “Coal Plants”). Motion, dk.no. 1283, p. 2. ¶ 4.

The Sierra Club is the nation's oldest and largest grassroots environmental organization. It has approximately 641,000 members, including approximately 23,000 members in Illinois. See Motion, p. 2.

On October 4, 2013, the Sierra Club filed the instant Motion seeking entry of an order either confirming that the automatic stay is not in effect due to Section 362(b)(4)'s police power exception, or, in the alternative, granting relief from the automatic stay to continue a regulatory action pending against MWG before the Illinois Pollution Control Board (the “IPCB Proceeding”).

The Sierra Club initiated the IPCB Proceeding on December 15, 2012 by filing a complaint against MWG pursuant, in part, to a provision of the Illinois Environmental Protection Act (the “IEP Act”) that prohibits the discharge or emission of “contaminants” that would cause or tend to cause air pollution (the “Complaint”).²See415 ILCS 5/9(a) (2012) which provides as follows:

Sec. 9. Acts prohibited. No Person shall:

(a) Cause or threaten or allow the discharge or emission of any contaminant into the environment in any State so as to cause or tend to cause air pollution in Illinois, either alone or in combination with contaminants from other sources, or so as to violate regulations or standards adopted by the Board under this Act.

Section 9 of the IEP Act encompasses the National Ambient Air Quality Standard (“NAAQS”) for sulfur dioxide which was established by the United States Environmental Protection Agency (“EPA”) to protect human health against excessive sulfur dioxide emissions. The NAAQS sets a maximum sulfur dioxide level of 75 parts per billion (the “EPA sulfur dioxide limit”). See 75 Fed.Reg. 35520, 35546–48 (June 22, 2010).

The IPCB, the policy making body on environmental issues in Illinois, has determined that Section 9 of the IEP Act is violated when predicted sulfur dioxide levels exceed EPA-adopted standards, such as the EPA sulfur dioxide limit. Envt. Prot. Agency v. City of Springfield, No. PCB 70–9, Opinion and Order at 8–9 (Ill. Pollution Control Board May 12, 1971).

To ensure compliance with air quality standards, the IPCB adopted a regulation which provides:

No person shall cause or threaten or allow the discharge or emission of any contaminant into the environment in any State so as, either alone or in combination with contaminants from other sources, to cause or tend to cause air pollution in Illinois, or so as to violate the provisions of this Chapter, or so as to prevent the attainment or maintenance of any applicable ambient air quality standard.

35 Ill. Admin. Code § 201.141. Sulfur dioxide is defined as a “contaminant” within the meaning of this regulation. 35 Ill. Admin. Code § 201.102. The EPA's sulfur dioxide limit is an “applicable ambient air quality standard.” 75 Fed.Reg. 35520 (June 22, 2010).

The Sierra Club conducted an investigation and concluded that the MWG Coal Plants emit significant amounts of sulfur dioxide into the atmosphere, which chemicals pose a threat to human health and the environment when present in the air in sufficient concentrations.³ Motion, p. 4, ¶ 9. Based upon these findings, the Sierra Club filed the Complaint against MWG with the IPCB. The Sierra Club alleges in the Complaint that the Coal Plants' sulfur dioxide emissions violate Illinois law by emitting sulfur dioxide at levels that would cause violations of the EPA sulfur dioxide limit and therefore, cause or threaten to cause “air pollution” as prohibited by Illinois law. See Motion, dkt. no. 1283, p. 4.

In the Complaint, the Sierra Club requests the imposition of penalties on MWG and an order requiring it to cease violating Illinois EPA regulations, by reducing and limiting sulfur dioxide emissions from its Coal Plants ⁴. The primary relief sought in the IPCB Proceeding is: 1) a determination that MWG is violating state environmental laws and 2) entry of an order compelling MWG to comply with state laws by regulating and reducing sulfur dioxide emissions from its Coal Plants. The Sierra Club also seeks an award of civil penalties pursuant to 415 ILCS 5/42, payable to the Environmental Protection Trust Fund. See Motion, dkt. no. 1283, pp. 8–9, ¶¶ 20–22. Pursuant to the statute, the civil penalty is capped at “$50,000 for the violation and an additional civil penalty of not to exceed $10,000 for each day during which the violation continues.” ⁵415 ILCS 5/42 (2012). The Sierra Club notes in its Motion that it is not seeking to enforce any civil penalty that may be awarded in the IPCB Proceeding. See Motion, p. 10, ¶ 22. Rather, it seeks to pursue its requests for declaratory and injunctive relief and to liquidate the amount of civil penalties.

The Court notes that neither the Illinois Attorney General nor the Illinois Environmental Protection Agency has taken a position on the relief requested in the Motion herein.

III. Discussion

A. Application of the Police Power Exception to the Automatic Stay

Generally, Section 362(a)(1) of the Bankruptcy Code provides that the filing of a petition for relief under the Bankruptcy Code operates as a stay, applicable to all entities, of:

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.

11 U.S.C. § 362(a)(1).

However, Section 362(b)(4) provides that the filing of a petition does not operate as a stay “of the commencement or continuation of an action or proceeding by a governmental unit ... to enforce such governmental unit's or organization's policeand regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit's or organization's policy or regulatory power.” 11 U.S.C. § 362(b)(4). This exception requires both that: 1) the proceeding be brought by a governmental unit and (2) the proceeding be brought to enforce ... police or regulatory power of the governmental unit. This exception was enacted in part to protect public health and safety.⁶In re Herrera, 194 B.R. 178, 185 (Bankr.N.D.Ill.1996).

In deciding whether an action falls within the police power exception, courts must determine whether the action relates to matters of public safety and health as opposed to matters concerning the government's pecuniary interest. In re Phillips, 368 B.R. 733, 739 (Bankr.N.D.Ind.2007). This requirement, also known as the “pecuniary purpose test,” focuses on whether a governmental proceeding “relates to public safety and welfare, which favors application of the stay exception, or to the government's interest in the debtor's property, which does not.” Id. at 739.

In its Motion, the Sierra Club acknowledges that it is not a governmental unit as defined by the Bankruptcy Code.⁷ The Sierra Club nonetheless argues that its IPCB Proceeding may proceed under the police power exception, because it is acting as an agent of a government unit, which in this case is the Illinois Attorney General or the Illinois EPA.

In support, the Sierra Club relies principally on Alpern v. Lieb, 11 F.3d 689 (7th Cir.1993), a Seventh Circuit decision which was decided in the context of sanctions imposed under Rule 11 of the Federal Rules of Civil Procedure. There, the Court opined:

The Rule 11 sanction is meted out by a governmental unit, the court, though typically sought by a private individual or organization—a nongovernmental litigant, the opponent of the litigant to be sanctioned. There is no anomaly, given the long history of private enforcement of penal and...