In re National Gypsum Co.

• Decision Date: 13 September 1991
• Docket Number: Bankruptcy No. 390-37214-SAF-11,390-37213-SAF-11.,Civ. A. No. 3-91-1653-H
• Citation: 134 BR 188
• Parties: In re NATIONAL GYPSUM COMPANY, a Delaware Corporation, Aancor Holdings, Inc., a Delaware Corporation. ENVIRONMENTAL PROTECTION AGENCY, U.S. Dept. of Interior v. NATIONAL GYPSUM CO., et al.
• Court: U.S. District Court — Northern District of Texas

134 B.R. 188 (1991)

In re NATIONAL GYPSUM COMPANY, a Delaware Corporation, Aancor Holdings, Inc., a Delaware Corporation ENVIRONMENTAL PROTECTION AGENCY, U.S. Dept. of Interior v. NATIONAL GYPSUM CO., et al.

Civ. A. No. 3-91-1653-H, Bankruptcy Nos. 390-37214-SAF-11, 390-37213-SAF-11.

United States District Court, N.D. Texas, Dallas Division.

September 13, 1991.

Boe W. Martin, Keith W. Harvey, Johnson & Gibbs, P.C., Dallas, Tex., David F. Williams, James Moorman, Cadwalader, Wickersham & Taft, Washington, D.C., Rebecca O. Beasley, National Gypsum Co., Dallas, Tex., for debtors.

Marvin Laurence Collins, U.S. Atty., Rebecca A. Gregory, Dallas, Tex., David L. Dain, U.S. Dept. of Justice Environment & Natural Resources Div., John Wheeler, U.S. Environmental Protection Agency, Anna Wolgast, Jeffery K. Gordon, Peter E. Jaffe, U.S. Dept. of Justice, Carolyn Dibona, Office of the Solicitor Department of the Interior, Washington, D.C., for plaintiffs.

Barbara J. Houser, Leonard M. Parkins, Dallas, Tex., Anne Marie Ferazzi, Sheinfeld, Maley & Kay, Houston, Tex., for Official Committee of Asbestos Claimants of National Gypsum Co., movant.

MEMORANDUM OPINION AND ORDER

SANDERS, Chief Judge.

Before the Court are the United States Environmental Protection Agency ("EPA"), and the United States Department of Interior ("DOI") Memorandum in Support of Motion for Withdrawal of Reference Pursuant to 28 U.S.C. § 157(d) ("U.S. Motion to Withdraw"), filed on August 16, 1991; and Debtors' Opposition to said Motion ("Debtors' Opposition"), filed August 30, 1991.

I. Factual Background

National Gypsum Co. ("Gypsum"), along with its parent corporation, Aancor Holding Inc., (collectively "Debtors"), filed a voluntary petition for bankruptcy on October 28, 1990, under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. ("Code"). Since the petition date, Debtors have operated their businesses as debtors in possession pursuant to Sections 1107 and 1108 of the Code.

On May 29, 1991, the United States filed its Proof of Claim ("Proof of Claim") on behalf of EPA and DOI. Pursuant to CERCLA¹, the United States' Proof of Claim focuses on seven manufacturing plants nationwide that it alleges were owned and operated by Debtors, and that Debtors generated or disposed of hazardous substances thereby. The Proof of Claim involves Debtors' liability on primarily three grounds: past response costs², future response cost, and natural resource damages. Liability is premised on sections 107(a)(1), (2) and (3) of CERCLA, 42 U.S.C. §§ 9607(a)(1), (2) and (3), respectively.

First, the United States asserts that the Debtors are jointly and severally liable for all costs of past response actions incurred by the EPA at these sites. See U.S. Motion to Withdraw at 4.

Second, the United States asserts that the costs of any response costs that may be undertaken after confirmation of Debtors' plan of reorganization, do not fall under the definition of "claim," as provided in Section 101(4) of the Code.³ In the alternative, should the Court find that future response costs are "claims" subject to discharge, the United States has also filed its Proof of Claim for such costs as contingent claims. Id.

Third, the United States asserts "that natural resources damages for which a suit may not be maintained before confirmation of a plan of reorganization do not give rise to `claims' within the meaning of the Bankruptcy Code subject to discharge in the bankruptcy proceedings." Id. at 5. However, should the Court determine that the cost of such natural resource damages are "claims" subject to discharge, the Proof of Claim reflects loss and destruction of natural resources for four sites. Id.

On August 2, 1991 the Debtors filed with the bankruptcy court an Objection to the Proof of Claim. The Debtors objected to the Proof of Claim on numerous grounds, arguing, inter alia, that:

1. The United States has not established that there were releases or threatened releases of hazardous substances at the sites;

2. The United States has not established that the costs incurred by the United States at the sites were consistent with the National Contingency Plan promulgated pursuant to CERCLA; and

3. Any liability Debtors may have for costs at the sites is not joint and several with other liable parties, but is limited to the Debtors\' fair and equitable share.

U.S. Motion to Withdraw at 5-6.⁴

On August 2, 1991, the Debtors filed a Motion to Estimate the Claims of the United States Pursuant to Section 502(c)(1) of the Code. In this motion, the Debtors realleged the same objections raised in their objection to the Proof of Claim. See U.S. Motion to Withdraw at 6.

On August 2, 1991, the Debtors also filed a Motion to Classify the Claims of the United States Pursuant to Rule 3013 of the Bankruptcy Rules of Practice and Procedure. In this motion, the Debtors requested an Order from the Bankruptcy Court stating that all claims of the United States are general and unsecured, and are not entitled to administrative priority. See U.S. Motion to Withdraw at 6.

On August 30, 1991, contemporaneous with their present opposition before this Court, the Debtors filed with the bankruptcy court a motion to bifurcate the litigation into an estimation and classification phase ("Phase One") and a liability phase addressing ultimate allowance ("Phase Two"). See Debtors' Opposition at 4. Debtors claim that resolution of the estimation and classification phase of the proceedings entails determination of the following four issues:

1. When the United States Claims arose, and whether they constitute "claims" under Code;

2. Whether response costs and damages at unlisted sites constitute claims;

3. Whether claims regarding the Salford Quarry are "administrative" or "prepetition" under the Code; and

4. Whether the United States Claims are "dischargeable" under the Code.

Id. at 7.

On August 16, 1991, the United States filed its motion for withdrawal; on August 30, 1991, the Debtors' filed their opposition.

II. Parties' Contentions

The United States seeks withdrawal of reference under 28 U.S.C. § 157(d) primarily on the grounds that resolution of its Proof of Claim and Debtors' objections requires substantial and material consideration of both the Code and CERCLA, which regulates organizations or activities affecting interstate commerce.

In opposition, the Debtors contend that:

1. The estimation and classification phase of the proceedings should not be withdrawn, because they involve purely bankruptcy procedures; and

2. Withdrawal of the estimation and classification phase, as well as the liability phase, will have a serious adverse impact on the ability of the bankruptcy court to administer the case in a timely and efficient fashion.

Absent denying the motion to withdraw in its entirety, the Debtors urge this Court to withdraw reference only with respect to the ultimate issue of liability, and to maintain at the bankruptcy court the issues involving the estimation and classification of the United States' Claim.

III. Withdrawal of Reference

The United States moves for withdrawal of reference to the bankruptcy court pursuant to 28 U.S.C. § 157(d), which provides:

The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party for cause shown. The district court shall, on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.

(Emphasis added).

In creating a distinction between circumstances where the district court "may" and "shall" act, Congress has provided for both permissive and mandatory withdrawal of reference. Legislative history of the statute, and its clear and unambiguous language indicate that "shall" is mandatory language, and should not be construed as the permissive "may." See In re Combustion Equipment Associates, Inc. v. U.S. Environmental Protection Agency, 67 B.R. 709, 711 (S.D.N.Y.1986), aff'd, 838 F.2d 35 (2d Cir.1988). Although the United States relies on both grounds for withdrawal, as demonstrated below, consideration of the conditions warranting mandatory withdrawal proves to be dispositive of the present case.

Section 157(d) serves a dual and interrelated purpose. It serves to insulate the 1984 bankruptcy legislation from constitutional attack, while according separate treatment to certain types of adversary proceedings. See In re Combustion, 67 B.R. at 711; 1 COLLIER ON BANKRUPTCY, ¶ 3.01 (15th ed. 1990) at 62. In 1984, Congress amended the 1978 Bankruptcy Act in response to the Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Constitutional concerns surrounding the grant of encompassing jurisdiction to non-Article III judges crystallized in Marathon, where the Court concluded that:

Section 241(a) of the Bankruptcy Act of 1978 has impermissibly removed most, if not all, of "the essential attributes of the judicial power" from the Art. III district court, and has vested those attributes in a non-Art. III adjunct. Such a grant of jurisdiction cannot be sustained as an exercise of Congress\' power to create adjuncts to Art. III courts.

Id. at 87, 102 S.Ct. at 2880.

Judicial derivation of the type of cases that warrant mandatory withdrawal, while informed by the dictates of Marathon, has also attempted to serve the purposes underlying Congress' creation of bankruptcy courts. Bankruptcy courts provide the expertise and efficiency intended by Congress in adjudication of bankruptcy matters, and, as a result, withdrawal can not be based on "speculation about . . . issues which may or may not arise and may or may not be germane to resolution" of the proceedings. In re White Motor Corp.,...