In re Jensen
| Decision Date | 15 May 1991 |
| Docket Number | BAP No. EC 90-1655-AsMeO,Bankruptcy No. 284-00512-A-7,Adv. No. 289-0147. |
| Citation | 127 BR 27 |
| Parties | In re Robert Burns JENSEN, Rosemary Tooker Jensen, Debtors. Robert Burns JENSEN and Rosemary Tooker Jensen, aka Rosemary Paula Jensen, aka Rosemary Paula Kitchen, Appellants, v. CALIFORNIA DEPARTMENT OF HEALTH SERVICES, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Terrance L. Stinnett, San Francisco, Cal., for appellants, Robert and Rosemary Jensen.
Margarita Padilla, San Diego, Cal., for appellee, California Dept. of Health Services.
Before ASHLAND, MEYERS and OLLASON, Bankruptcy Judges.
The debtors Robert and Rosemary Jensen ("Jensens") appeal the bankruptcy court's grant of summary judgment in favor of the State of California Department of Health Services ("DHS"), the California counterpart to the federal Environmental Protection Agency, upon the parties' cross-motions for summary judgment. We reverse.
The Jensens individually wholly-owned Jensen Lumber Company ("JLC"), whose manufacturing process included dipping logs in fungicide tanks. DHS generally seeks indemnity for cleanup costs incurred related to the fungicide tanks, which remained on property (the "site") leased and later abandoned in bankruptcy by JLC. The California Regional Water Quality Control Board (the "Board") inspected the site on January 25, 1984 and issued a letter, received by the Jensens on February 2, stating a hazardous waste problem existed at the site. The Jensens thereafter individually filed bankruptcy under Chapter 7 on February 13, 1984. They did not list any claim for hazardous waste cleanup. The DHS later became involved in March, 1984 but did not expend funds for hazardous waste cleanup until substantially after that time.
Following the determination that no assets were available for distribution to creditors, the Jensens received a discharge on July 16, 1984. The Jensens filed an adversary proceeding on April 24, 1989, to determine that the DHS's claim for cleanup costs was discharged in the Jensen's individual bankruptcy, after the DHS had taken steps seeking recovery under the federal and state "Superfund" statutes, CERCLA1 and HSA2, respectively. A more complete chronology of relevant events surrounding the Chapter 7 bankruptcies of JLC (converted from Chapter 11) and the Jensens as individuals appends this decision.
This case requires us to determine when claims arise for purposes of bankruptcy, specifically claims under CERCLA and HSA. As a preliminary matter, we note the DHS does not contend its claim is excepted from discharge. Rather, the DHS asserts its claim arose postpetition and is therefore not discharged. Thus, the sole issue as framed by the parties, and as addressed by the bankruptcy court, 114 B.R. 700, concerns when DHS's claim arose for purposes of bankruptcy.
The issue presented involves an interpretation of law by the bankruptcy court, which we review de novo. In re Tompkins, 95 B.R. 722, 723 (9th Cir.BAP 1989); In re Orvco, Inc., 95 B.R. 724, 726 (9th Cir.BAP 1989). The facts as set forth in the appendix are essentially undisputed.
A claim for purposes of bankruptcy is defined at 11 U.S.C. § 101(4) (1988) as follows:
Congress has expressed a clear intention that the definition of claim be interpreted broadly. H.R.Rep. No. 595, 95th Cong., 1st Sess. 309, reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 6266, states: "The bill contemplates that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case." The Senate commented similarly. S.Rep. No. 989, 95th Cong., 2d Sess. 21-22, reprinted in 1978 U.S.Code Cong. & Admin. News 5787, 5807-08. See also In re Bullion Reserve of North America, 836 F.2d 1214, 1218 (9th Cir.1988). While all courts generally acknowledge the definition of claim should be interpreted broadly, the issue remains exactly how broad.
The parties and the bankruptcy court rely to varying degrees on two recent Supreme Court cases addressing environmental issues in the context of bankruptcy. In Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985), the State of Ohio had obtained, prior to debtor's bankruptcy, an injunction ordering the debtor to clean up hazardous waste residing on debtor's property. After the debtor filed the petition, the State filed a complaint against the debtor seeking a declaration that the debtor's obligation under the injunction was not dischargeable. The State argued the injunction did not constitute a "debt" or "liability on a claim" as defined in the Bankruptcy Code and thus was not dischargeable. The Supreme Court rejected this argument, holding the State sought the equivalent of a monetary payment within the definition of claim, and the obligation was thus dischargeable in bankruptcy. Id. at 283, 105 S.Ct. at 709. While holding the environmental obligation constituted a dischargeable claim, Kovacs nevertheless did not address when such claims arise for bankruptcy purposes. Id. at 284, 105 S.Ct. at 710. We find Kovacs inapposite for this reason.
Midlantic National Bank v. New Jersey Dept. of Environ. Protection, 474 U.S. 494, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986), also involved environmental obligations in bankruptcy. At issue in Midlantic was whether the trustee's powers permitted abandonment of property of the debtor contaminated with hazardous waste. Id. at 496, 106 S.Ct. at 757. The Supreme Court examined the scope of the trustee's powers in light of Congressional intent and case precedent. The court held that a trustee in bankruptcy may not abandon property in contravention of a state statute or regulation that is reasonably designed to protect the public health and safety, here state environmental laws. Id. at 506-507, 106 S.Ct. at 762. The Supreme Court concluded the property must be either sold or cleaned up. The Court took a narrow view of the trustee's powers to force cleanup of the hazardous waste. However, this interpretation of the trustee's powers does not decide when a bankruptcy claim arises. For this reason, we find Midlantic to be likewise inapposite.
Authority generally supports three points of origination for claims, each of which is advocated by one or the other parties in the present case. The cases hold bankruptcy claims may arise: (1) with the right to payment; (2) upon the establishment of the relationship between the debtor and the creditor; or (3) based upon the debtor's conduct. Following the foregoing examination of each theory, we hold the DHS's claim arose for purposes of the Jensens' bankruptcy at the time of actual or threatened release of the hazardous waste, or based upon the debtors' conduct.
DHS contends and the bankruptcy court held that DHS's claim did not arise until DHS incurred costs for hazardous waste cleanup. DHS argues and the bankruptcy court held that § 101(4) specifically requires a "right to payment" before a claim cognizable in bankruptcy arises. The argument then proceeds that the right to payment under CERCLA or HSA does not arise until cleanup costs are incurred. DHS thus argues that until cleanup costs are incurred, no right to payment, and no cognizable claim, exists for bankruptcy purposes.
This theory has been adopted by at least one circuit court. In In re Frenville, 744 F.2d 332 (3rd Cir.1984), cert. denied, 469 U.S. 1160, 105 S.Ct. 911, 83 L.Ed.2d 925 (1985), a creditor appealed a district court order holding the creditor's indemnity action against the Chapter 7 debtor was barred by the automatic stay. While the debtor's acts underlying the indemnity occurred prepetition, the suit against the creditor was filed postpetition, prompting the indemnification action. In determining when the claim originated, the Third Circuit first noted the Bankruptcy Code does not clearly define when a "right to payment" arises, and therefore applied state law. Id. at 337. The relevant state law declared a right to payment on an indemnity arises upon payment of the judgment flowing from the act. The Frenville court then concluded the suit against the creditor had been filed postpetition, the creditor's claim therefore arose postpetition, and the automatic stay did not apply. Id. The court in United States v. Union Scrap Iron & Metal, 123 B.R. 831 (D.Minn.1990), cited by the DHS, adopted the same reasoning, although without mention of Frenville.
However, Frenville has been roundly criticized by several courts. As stated in In re A.H. Robins Co., 63 B.R. 986, 992 (Bankr.E.D.Va.1986), the Frenville court confuses "...
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