In re Sundance Corp., Inc.
| Decision Date | 13 January 1993 |
| Docket Number | Bankruptcy No. 88-01246-R41. |
| Citation | 149 BR 641 |
| Parties | In re SUNDANCE CORPORATION, INC., a North Dakota Corporation, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Washington |
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Michael A. Arch, James Drewelow, Wenatchee, WA, for Scott Property Management.
Andrew Salter, Seattle, WA, for Pacific First Bank.
Keith Trefry, Spokane, WA, for Holeman Group.
JURISDICTION
This court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(a) () and 28 U.S.C. § 157(a) (). This matter is a core proceeding under 28 U.S.C. Section 157(b)(2)(B) and (O).
On January 30, 1985, Community First Federal Savings and Loan ("Community"), filed a state court complaint to foreclose a mortgage on a fruit orchard of approximately 2,000 acres situated in Grant County, Washington (the "Orchard") owned by the Sundance Corporation ("Debtor"). H.V. Holeman and Holeman Limited Partnership (collectively, "Holeman") own the stock of the Debtor. Concurrently, Community sought appointment of a state court receiver and authority to expend funds necessary for the protection and preservation of the Orchard.
On February 7, 1985, Community and Holeman stipulated to an order (the "Order") appointing Scott Property Management, Inc. ("SPM") as receiver. The Order also authorized Community to disburse funds to SPM for the "operation and maintenance" of the Orchard, authorized SPM to take "the necessary action and expend the necessary funds to prune and spread the Orchard", and required SPM post a $125,000.00 bond.
On February 11, 1985, SPM filed an affidavit incorporating a proposed budget for the operation of the Orchard during the remainder of the 1985 crop year, including an inspection report dated September 18 and 19, 1984 that recommended the Orchard's trees be staked.1
On March 25, 1985, SPM moved to amend the Order by adopting a budget for the Orchard for February 1, 1985 through January 31, 1986 which detailed expenditures necessary to maintain and preserve the Orchard according to prevalent horticultural practices and standards in Grant County. The state court approved SPM's motion (the "Amended Order") and extended the receivership through January 31, 1986. The Amended Order provided that Community would fund material and labor necessary to stake the Orchard.
Staking the Orchard was necessary to prevent wind damage, and entailed using wooden stakes to support the apple trees. SPM treated one end of each stake with a mixture of pentachlorophenol and diesel fuel (the "Dip") to prevent its deterioration. The mixing of the Dip was done according to the pentachlorophenol's label instructions, and applied by filling 55 gallon drums with a few inches of the Dip. The stakes were tightly packed in the drums, bundled standing upright, and soaked in the Dip for approximately 24 hours. Each bundle was then removed by a forklift and would be held over its barrel for approximately 30-60 seconds to allow excess Dip to drain off. Approximately 300,000 stakes were treated with the Dip through the end of 1986. Some minor treatment occurred thereafter.
Additionally, SPM used various pesticides at the Orchard.2 The pesticides were mixed with water at various locations around the Orchard (the "Fill Stations") and were used on the Orchard to preserve, maintain, and commercially operate it. At all times, SPM's use and application of pesticides was in good faith and in accordance with prevailing horticultural practices and standards in Grant County. Additionally, Community was generally aware that SPM was using the pesticides at the Orchard, and approved and reimbursed SPM's expenditures incurred for their use.
For the year ended January 31, 1986, SPM moved for approval of its' 1985 receivership report and for extension of the receivership through 1986. The state court approved SPM's annual report for 1985 and extended the receivership till December 31, 1986.
Thereafter, the state court again approved SPM's report on operations for 1986 and extended the receivership through 1987.
On February 26, 1988, Debtor filed a petition in Montana for relief under Chapter 11 of the Bankruptcy Code (the "Code"). On March 2, 1988, Community moved for an order to excuse SPM from having to turn over the Orchard to Debtor, and SPM filed a similar motion shortly afterwards. The Montana bankruptcy court excused SPM from turning over the Orchard, finding that SPM had ably performed its duties as receiver.3 On April 6, 1988, Debtor's case was transferred to the Eastern District of Washington, and on March 20, 1989 this court confirmed Debtor's Plan. The Plan provided for the Orchard, equipment, and 1988 apple crop proceeds to be transferred to Pacific Bank, ("Pacific") the successor-in-interest to the claims of Community. Pacific was to pay $2,500,000 to Debtor upon completion of said transfer, and all of Pacific's claims were to be deemed satisfied. Holeman also agreed with Pacific to split the anticipated clean-up costs for hazardous materials released at the Orchard reasonably necessary to bring the property into minimal compliance with federal and state laws and regulations.
Tests of soil samples found pentachlorophenol in the stake treatment area, and also found that the soil at three of the Fill Stations contained varying levels of Elgatol, Envy, Guthion, Paraquat, Parathion, Princep, Surflan, Systox-6, Penoxalin, and Cholopyrifos. The soil at the stake treatment area and several of the Fill Stations was visibly stained.
Pursuant to the Plan, the real and personal property at the Orchard was transferred to Pacific's management company. On April 9, 1990, SPM filed a motion under § 543(b)(2) for approval of an accounting, termination and discharge of its custodianship, and exoneration of the receivership bond. SPM was in actual possession and control of the Orchard as a receiver or custodian from February 7, 1985, to approximately June 1, 1989.
Holeman and Pacific objected to SPM's motion, asserting that SPM was liable for cleanup costs in connection with the release of hazardous substances at the Orchard. SPM then amended its motion to also request the payment of attorney fees and costs. Pacific and Holeman again opposed this amended motion.
The parties agreed to bifurcate the legal issues regarding SPM's liability for environmental cleanup from the damages issue. Pacific and Holeman filed separate motions for partial summary judgment on SPM's liability for the cleanup costs. SPM filed a cross-motion for summary judgment on all claims against it by Pacific and Holeman. After a hearing on the motions for summary judgment, the court took the matter under submission.
Pacific and Holeman assert that SPM's activities regarding the use of the chemicals were abnormally dangerous, and that SPM is strictly liable for clean-up costs under the common law, the statutory strict liability provisions of the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), and Washington state's Model Toxics Control Act ("MTCA") and Hazardous Waste Management Act ("HWMA"). SPM's cross-motion for summary judgment asserts primarily that, because its conduct in managing the Orchard was done pursuant to orders of a state court or bankruptcy judge, the doctrine of derivative judicial immunity immunizes it from liability for clean-up cost claims based upon common law, CERCLA, MTCA, or HWMA. Additionally, SPM implicitly raises the issue of whether its acts as receiver are beyond review since they have already been approved by order of the appointing state court. Thus, resolution of this case first requires a preliminary determination of whether this court has jurisdiction to review SPM's performance prior to the bankruptcy. If SPM's performance during the state court receivership is reviewable, then this court will have to consider the scope of a receiver's immunity from strict liability for court authorized performance of abnormally dangerous activities, and whether CERCLA, the MTCA, or the HWMA have abrogated the derivative judicial immunity that a receiver may possess under the common law.
The orders approving SPM's operating plan, budget and interim accountings are interlocutory orders incident to the administration of the estate and subject to correction upon the receiver's final accounting. Pacific Coast Coal Co. v. Esay, 92 Wash. 203, 207; 158 Pac. 1003 (1916). Thus, those orders may be subject to review.
The staking activity which constitutes the major gravamen of Pacific and Holeman's case took place in 1985 and 1986. The majority of SPM's actions took place prior to the bankruptcy and most of the damages complained of occurred during the state court receivership as opposed to the bankruptcy court custodianship. Pacific and Holeman's complaints require that this court review SPM's performance prior to the bankruptcy as well as its performance as bankruptcy custodian. Review of SPM's performance as a receiver raises the issue of whether this court has jurisdiction, as a non-appointing court, to review that performance.
From the earliest days of our state's jurisprudence, consent by the appointing court has been a necessary predicate to actions against a receiver. In Brown v. Rauch, 1 Wash. 497, 20 Pac. 785 (1889), the territorial supreme court, relying upon the Supreme Court's decision in Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881), ruled that consent of the appointing court was a jurisdictional prerequisite for a suit against a receiver in his official capacity.4 1 Wash. at 500, 20 Pac....
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