In re Weiand Auto. Indus.

• Decision Date: 25 February 2020
• Docket Number: Case No.: 09-13338 (CSS)
• Citation: 612 B.R. 824
• Parties: IN RE: WEIAND AUTOMOTIVE INDUSTRIES, et al., Reorganized Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

612 B.R. 824

IN RE: WEIAND AUTOMOTIVE INDUSTRIES, et al., Reorganized Debtors.

Case No.: 09-13338 (CSS)

United States Bankruptcy Court, D. Delaware.

Signed February 25, 2020

PEPPER HAMILTON LLP David B. Stratton, Evelyn J. Meltzer, Douglas D. Hermann, John H. Schanne, II, Hercules Plaza, Suite 5100, 1313 N. Market Street, Wilmington, DE 19809-1709, Counsel for the Reorganized Debtors

SULLIVAN HAZELTINE ALLINSON LLC William D. Sullivan, William A. Hazeltine, 901 North Market Street Suite 1300, Wilmington, DE 19801, Counsel for the Mehrabian Family Trust and CA Auto Mart Group, Inc.

OPINION ¹

Sontchi, C.J.

INTRODUCTION²

Before the Court is the Motion of Reorganized Debtors for Summary Judgment on the Claim Discharge Dispute and the Cross Motion of the Mehrabian Family Trust and CA Auto Mart Group, Inc. for Summary Judgment on the Claim Discharge Dispute .³ By these motions, the parties seek declaratory judgment regarding the applicability of the discharge and injunction provisions of the Plan and Confirmation Order (the "Discharge Injunction") to the Plaintiffs' environmental claims against the Reorganized Debtors. The Defendants argue that the Plaintiffs claims are discharged by the Confirmation Order because: (i) the Plaintiffs' claims arose prior to the petition date, and (ii) the Plaintiffs lack standing to assert their claims based on an alleged breach of the Reorganized Debtors' Voluntary Cleanup Agreement. Conversely, the Plaintiffs maintain that the Confirmation Order does not discharge their environmental claims because: (i) their claims did not arise until after the Court confirmed the Reorganized Debtors' Plan of Reorganization, and (ii) the Plaintiffs did not receive constitutionally adequate notice of the Reorganized Debtors' bankruptcy proceedings.

Also before the Court is the Motion of the California Action Plaintiffs for Summary Judgment on the Insured Claims . In this motion, the Plaintiffs seek declaratory judgment concerning whether the Discharge Injunction bars the Plaintiffs from establishing liability through the California Action in order to collect judgment from the Reorganized Debtors' insurers.

For the reasons stated below, the Court finds that neither the Reorganized Debtors nor the Plaintiffs are entitled to summary judgment on the Claim Discharge Dispute. There is a genuine dispute of material fact concerning when the California Action claims arose. Additionally, the record is insufficient to determine if the Plaintiffs were known creditors of the Debtors or if the Debtors' publication notice was adequate. Furthermore, because the Plaintiffs never asserted the arguments in their briefs, the Court will not decide if the Plaintiffs lack standing to assert their claims pursuant to the Reorganized Debtors' alleged breach of the Voluntary Cleanup Agreement.

Finally, the Court will grant the Plaintiffs' motion for summary judgment on the Insured Claims Dispute. This Court has core jurisdiction over the Insured Claims Dispute, which falls within the scope of authority defined by the California District Court. Section 524 does not prohibit recovery from a non-debtor third-party that is liable for the debt of a debtor.

JURISDICTION & VENUE

This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(2)(I)-(J). Venue is proper before the United States Bankruptcy Court for the District of Delaware under 28 U.S.C. §§ 1408 and 1409. The Court has the judicial authority to enter a final order.

BACKGROUND

I. Procedural History

Relevant procedural background spans more than one decade. On September 28, 2009 (the "Petition Date"), Weiand Automotive Industries, Inc. ("Weiand"), Holley Performance Products Inc., ("Holley") and their affiliates (collectively, the "Debtors", and post-confirmation, the "Reorganized Debtors") filed voluntary petitions with the United States Bankruptcy Court for the District of Delaware (the "Delaware Bankruptcy Court" or the "Bankruptcy Court") for relief under Chapter 11 of the Bankruptcy Code (the "Weiand Bankruptcy" or the "Bankruptcy").⁴ On December 2, 2009, the Delaware Bankruptcy Court entered a bar date order establishing February 1, 2010 as the general bar date for all creditors holding a claim (the "General Bar Date" or the "Bar Date").⁵ On June 7, 2010, the Delaware Bankruptcy Court entered an order confirming the Debtors' Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (the "Plan") which entered effect on June 22, 2010 (the "Confirmation Order").⁶ The case was closed on February 27, 2012.⁷

On March 20, 2015, the Plaintiffs filed a complaint in the United States District Court for the Central District of California (the "California District Court" or the "California Court") against Joan F. Weiand, Joan F. Weiand Trust, and the Reorganized Debtor, Weiand Automotive (the "California Action").⁸ In the California Action the Plaintiffs seek, among other things, to recover past, present, and future environmental clean-up costs associated with the surface and sub-surface contamination and migration of hazardous waste on properties owned and leased by the Plaintiffs. The California Action asserts claims under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and California state law. On July 2, 2015, Holley Performance Products, Inc. filed a motion to dismiss the California Action on grounds which included that the Plaintiffs' claims were barred both by the Delaware Bankruptcy Court's discharge order in the Weiand Bankruptcy and by a 2001 settlement order issued by the California District Court in connection with a previous contamination cleanup cost lawsuit by Union Pacific Railroad Company.⁹ This motion was granted in some respects but denied with respect to the Weiand Bankruptcy discharge order and the Union Pacific Railroad Company settlement order.¹⁰

On July 2, 2015 the Reorganized Debtors filed a motion in the Bankruptcy Court to reopen the Bankruptcy to determine if the Bar Date Order and the discharge and injunction provisions in the Plan and Confirmation Order applied to the California Action claims (the "Claim Discharge Dispute").¹¹ The Court denied this motion without prejudice in the event that the California District Court would prefer the Delaware Bankruptcy Court determine whether Discharge Injunction was applicable to the claims asserted in the California Action.¹² On September 21, 2015, the California District Court stayed the California Action pending mediation between the Reorganized Debtors and the Plaintiffs (collectively, the "Parties"), which after approximately one year was unsuccessful.¹³ The California Action remains stayed.

On January 19, 2017, the California District Court entered the Order re: Resolution of Discharge Issue by Bankruptcy Court , which held that this Court should resolve the Claim Discharge Dispute.¹⁴ On April 5, 2017, the Reorganized Debtors filed a Motion with this Court to reopen the Bankruptcy for the limited purpose of adjudicating the Claim Discharge Dispute.¹⁵ This motion was granted on April 6, 2017.¹⁶

On April 12, 2019, the Reorganized Debtors filed the Motion of Reorganized Debtors for Summary Judgment on the Claim Discharge Dispute ,¹⁷ and on May 31, 2019, the Plaintiffs filed their Cross Motion for the California Plaintiffs for Summary Judgement on the Claim Discharge Dispute .¹⁸ Additionally, on May 17, 2019 the Plaintiffs filed their Motion of California Action Plaintiffs for Summary Judgment on the Insured Claims , which seeks, irrespective of the ruling on the Claim Discharge Dispute, a judgment that would permit the Plaintiffs to establish Weiand's liability in the California Action and to collect judgment from Weiand's insurers.¹⁹ On June 26, 2019 the Reorganized Debtors filed the Answering Brief of Reorganized Debtors in Opposition to Motion of California Action Plaintiffs for Summary Judgment on the Insured Claims .²⁰ The Plaintiffs filed a Reply Brief in Support of Motion of California Action Plaintiffs for Summary Judgment on the Insured Claims on July 10, 2019.²¹ On July 3, 2019, the Reorganized Debtors filed a Request for Oral Argument on Motion of Reorganized Debtors for Summary Judgment on the Claim Discharge Dispute.²² On July 11, 2019 the Plaintiffs filed a Request for Oral Argument on: (i) the Reorganized Debtors' Claim Discharge Motion; (ii) the Plaintiffs' Claim Discharge Cross Motion; and (iii) the Plaintiffs' Insured Claims Motion.²³ The Court heard oral argument on January 27, 2020.

II. Factual Background

All of the Parties own or lease property in the San Fernando Valley, which is the location of significant environmental contamination. Due to the valley's commercial and industrial past, Tetrachloroethene ("PCE") and trichloroethylene ("TCE"), two volatile organic compounds ("VOCs"), are prevalent in the region and central to the contamination claimed in this case. PCE and TCE are carcinogens and have been associated with neurological and organ damage.²⁴

In 1972, Joan F. Weiand and her husband purchased a 1.6-acre property (the "Site"), to operate the Weiand Automotive machine shop, which used PCE in the course of it business activities.²⁵ In 1998, Holley Performance Products acquired Weiand, and, shortly thereafter, ceased operations at the Site when it relocated to Kentucky. Joan F. Weiand was the owner of the Site at the time Weiand Automotive released PCE and other VOCs on to neighboring properties.

The Mehrabian Family Trust owns property at 2216, 2232, 2242, 2244, and 2250 N. Fernando Road in Los Angeles, California (the "Mehrabian Property" or "MFT Property"). Like most properties in this area, the property has a history of significant industrial use. The Plaintiffs have operated a car dealership on the MFT Property since 2000. As part of the car dealership business, the Plaintiffs leased a portion of the Site from the Weiand Trust from 2002 to 2014.²⁶ The MFT Property and the leased property are the subject...