In re Hemingway Transport, Inc., Bankruptcy No. 82-1340-JNG

• Decision Date: 08 May 1987
• Docket Number: Bankruptcy No. 82-1340-JNG,82-1341-JNG,Adv. No. 86-1081-JNG.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts
• Parties: In re HEMINGWAY TRANSPORT, INC., Bristol Terminals, Inc., Debtors. JUNIPER DEVELOPMENT GROUP, a Massachusetts Partnership and George D. Whitten, Amy Whitten, and Charles Whitten as Trustees of the 60 Olympia Nominee Trust, Plaintiffs, v. Herbert KAHN, Trustee for Hemingway Transport, Inc. and Bristol Terminals, Inc., Defendants.

73 B.R. 494 (1987)

In re HEMINGWAY TRANSPORT, INC., Bristol Terminals, Inc., Debtors JUNIPER DEVELOPMENT GROUP, a Massachusetts Partnership and George D. Whitten, Amy Whitten, and Charles Whitten as Trustees of the 60 Olympia Nominee Trust, Plaintiffs, v. Herbert KAHN, Trustee for Hemingway Transport, Inc. and Bristol Terminals, Inc., Defendants.

Bankruptcy Nos. 82-1340-JNG, 82-1341-JNG, Adv. No. 86-1081-JNG.

United States Bankruptcy Court, D. Massachusetts.

May 8, 1987.

Louis S. Massery, Cooley, Manion, Moore & Jones, P.C., Boston, Mass., for plaintiffs.

Judy K. Mencher, Goodwin Procter & Hoar, Boston, Mass., for defendants.

MEMORANDUM

JAMES N. GABRIEL, Chief Judge.

INTRODUCTION

The matter before the Court is the Motion for Summary Judgment filed by the Chapter 7 Trustee of Hemingway Transport, Inc. and Bristol Terminals, Inc. (collectively, the "Debtor" or "Hemingway"). The motion, which raises an issue of first impression in this Court, arises out of an action brought by the above named plaintiffs (collectively, the "Plaintiff" or "Juniper") against the Trustee, seeking damages and equitable rescission in connection with the purchase of the land and buildings (a trucking terminal and approximately 21.4 acres land) known as 60 Olympia Avenue, Woburn, Massachusetts from the Debtor while the Debtor was in Chapter 11.¹

Juniper's complaint contains three counts that are predicated upon the following allegations:

1) that the Debtor, on or about May 18, 1983, sold the property to Juniper free and clear of all liens and encumberances;

2) that, at the time of the sale, the Debtor knew or had reason to know that an administrative order had been issued by the Massachusetts Department of Environmental Quality Engineering (the "DEQE"), requiring the Debtor to clean up approximately twelve barrels of hazardous wastes on an isolated portion of the Debtor\'s property;

3) that both the Bankruptcy Court and the United States District Court for the District of Massachusetts authorized the May 18th sale;

4) that the Debtor concealed the DEQE order from Juniper; and

5) that the United States Environmental Protection Agency (the "EPA") discovered the barrels in September of 1985 and subsequently issued an administrative order requiring Juniper to remove the barrels and to perform investigative work.²

In count I, Juniper alleges that the Trustee is a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.A. §§ 9601-9657 (West 1983 & Supp.1987) ("CERCLA"). Juniper seeks contribution from the Trustee for all or part of the past and future costs of cleanup in that count. In count II, Juniper alleges fraud and breach of warranties on the part of the Debtor in conjunction with the sale. It seeks judgment in indemnity for all present and future costs of cleanup in count II. As an alternative remedy, Juniper, in count III, alleges a fraudulent conveyance and seeks rescission of the sale and the return of the purchase price and other expenses incident to the sale.

In response to Juniper's allegations and claims, the Trustee asks the Court for summary judgment against Juniper. The Trustee asserts that there are no material facts in dispute and that:

1. the Court lacks subject matter jurisdiction to hear the CERCLA cause of action because the Plaintiff has not complied with the presuit requirements of that Act;

2. the Plaintiff has, at most, an unsecured claim against the Debtor\'s estates if the Debtor is a "potentially responsible party" under CERCLA and therefore the appropriate remedy is a request to file a late proof of claim;

3. the Plaintiff has failed to allege fraud with particularity as required under Fed.R.Civ.P. 9(b);

4. the Plaintiff\'s breach of warranty claim fails as a matter of law because no lien or encumbrance was ever placed on the property under Mass.Gen.Laws ch. 21E; and Plaintiff purchased the property without warranties and specifically subject to environmental and other applicable laws; and

5. the Plaintiff\'s fraudulent transfer claim based on Mass.Gen.Laws ch. 21C, § 7 fails because that provision only applies to facilities licensed to treat, store, or dispose of hazardous waste.

Under Fed.R.Civ.P. 56(c), which is made applicable to this adversary proceeding by Bankruptcy Rule 7056, summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." The Supreme Court has recently ruled that Rule 56(c) "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, ___ U.S. ___, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).

With respect to the first of the Trustee's arguments as to the appropriateness of summary judgment, the Court ruled from the bench that the 60 day notice requirement contained in section 112(a) of CERCLA, 42 U.S.C. § 9612(a), an ostensible presuit requirement with which Juniper did not comply, is inapplicable to a claim under section 107(a) of CERCLA, 42 U.S.C. § 9607(a), citing the recent First Circuit Court of Appeals decision in Dedham Water Co. v. Cumberland Farms Dairy, Inc., 805 F.2d 1074, 1077 (1st Cir.1986). See also State of New York v. General Electric Co., 592 F.Supp. 291, 300 (N.D.N.Y. 1984). As a consequence, the Trustee's jurisdictional argument need not be addressed in this memorandum.

I

Without conceding that the Debtor is a responsible party under CERCLA, the Trustee, with respect to count I of Juniper's complaint, maintains that even if Juniper has a valid claim under 42 U.S.C. § 9607(a)³ it would be a general unsecured claim. According to the Trustee, in order for Juniper to be able to seek response costs from the Debtor it must establish that the chemicals in the drums, which have been removed from the property, are hazardous substances and that the Debtor owned or operated the facility at the time the drums were deposited there. The Trustee notes that, pursuant to 42 U.S.C. § 9607(a)(2), Juniper neither alleged nor offered proof that the Debtor owned or operated the facility (defined at 42 U.S.C. § 9601(9) as "any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise comes to be located ...") at the time the drums were placed on the Woburn property. However, the Trustee does not deny that the Debtor owned the property at the time the barrels were deposited on the property.

The Court observes initially that the Trustee is correct in pointing out that the Plaintiff has failed to allege that the Debtor owned the Woburn site at the time the drums were placed on the property. The Court, therefore, will assume for purposes of this opinion that Juniper will amend its complaint to include this necessary averment. In view of Juniper's assiduous defense of the summary judgment motion, the Court presumes that its failure to make this allegation was an oversight.

Citing In re Wall Tube and Metal Products Co., 56 B.R. 918 (E.D.Tenn.1986), the Trustee next asserts that even if Juniper could prove that the Debtor is a responsible party, the Court could find that because the drums were placed on the property prior to the filing of the petition on July 28, 1982, any response cost claim would be a general unsecured claim. The Trustee also cites In re Wall Tube and Metal Products Co. for the proposition that once property is no longer property of the estate, expenses incurred in connection with the removal of hazardous waste from it cannot be administrative costs of preserving the estate. 56 B.R. at 924.

Juniper, in its memorandum, criticizes the Trustee for suggesting, at least implicitly, that response costs cannot be recovered from a trustee due to lack of ownership. Relying on In re T.P. Long Chemical, Inc., 45 B.R. 278 (N.D.Ohio 1985), Juniper maintains that once the hazardous waste became the property of the estate, the estate became potentially liable as a person under CERCLA. Juniper also maintains that the costs of removing the hazardous waste from the Woburn site are entitled to administrative expense priority as actual and necessary costs of preserving the estate. See 11 U.S.C. § 503(b) and 507(a). In support of its position, Juniper insists that the Trustee and the estate became liable for the toxic waste cleanup at least one year prior to the May 18, 1983 sale when the DEQE issued an administrative order requiring the cleanup of the hazardous waste on the site.

By way of background, section 9607(a)(2)(A), (B) of CERCLA expressly creates a private cause of action for damages. NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.1986); Wickland Oil Terminals v. Asarco, Inc., 792 F.2d 887, 890 (9th Cir.1986). It imposes a strict liability standard. United States v. Price, 577 F.Supp. 1103 (D.N.J.1983). In Price the court noted:

Although the term "strict" was deleted at the last minute, it still appears that Congress intended to impose a strict liability standard subject only to the affirmative defenses listed in § 107(b). This conclusion is reinforced by virtue of the fact that Congress left the "due care" defense in the statute, a defense which would be rendered meaningless in the absence of strict liability. Moreover, the strict liability standard fits most closely with the legislative aims of CERCLA which include goals such as cost spreading and assurance that responsible parties bear the cost of the clean up. The fulfillment of these Congressional goals is more likely to be effectuated if the defendants who allegedly contributed to the environmental mess are now held to a

...