Reading Co., Matter of

• Decision Date: 13 June 1997
• Docket Number: 95-1988,Nos. 95-1987,s. 95-1987
• Parties: , 30 Bankr.Ct.Dec. 1244, 27 Envtl. L. Rep. 21,075 In the MATTER OF READING COMPANY, Debtor. United States of America, Appellant in 95-1987. In the Matter of READING COMPANY, Debtor. Consolidated Rail Corporation, Appellant in 95-1988.
• Court: U.S. Court of Appeals — Third Circuit

Page 1111

115 F.3d 1111

44 ERC 1865, 30 Bankr.Ct.Dec. 1244,

27 Envtl. L. Rep. 21,075

In the MATTER OF READING COMPANY, Debtor United States of America, Appellant in 95-1987 In the Matter of READING COMPANY, Debtor Consolidated Rail Corporation, Appellant in 95-1988.

Nos. 95-1987, 95-1988.

United States Court of Appeals Third Circuit.

Argued July 15, 1996.

Decided June 13, 1997.

Robert P. Frank (Argued), Andrew J. Soven, Reed, Smith, Shaw & McClay, Philadelphia, PA, John W. Morris, Philadelphia, PA, for Appellee In Re: Reading Co.

Lois J. Schiffer, Assistant Attorney General, Alan Tenenbaum, Alan D. Greenberg, Martin W. Matzen, John A. Bryson, (Argued), United States Department of Justice, Washington, DC, Earl Salo, John Wheeler, U.S. Environmental Protection Agency, Washington, DC, for Appellant United States of America in 95-1987.

Philip J. Katauskas (Argued), Michael H. Reed, Edmund B. Spaeth, Jr., Anne M. Package, Pepper, Hamilton, Scheetz, Philadelphia, PA, for Appellee in 95-1987 and Appellant in 95-1988 Consolidated Rail Corporation ("Conrail").

Before: SLOVITER, Chief Judge, COWEN and ROTH, Circuit Judges.

OPINION OF THE COURT

ROTH, Circuit Judge.

After a decade-long reorganization, the Reading Railroad emerged from bankruptcy on January 1, 1981. On that day, the newly-established Reading Company ¹ was given a fresh start by a consummation order which granted Reading protection from all pre-consummation debts and liabilities. Now, sixteen years later, the Consolidated Rail Corporation (Conrail) asks that we circumvent the protection of the bankruptcy discharge and permit Conrail to seek contribution from Reading for environmental clean-up costs. The district court rejected Conrail's claim. We will affirm the judgment of the district court.

This appeal involves a number of issues under the Comprehensive Environmental Response, Compensation,and Liability Act (CERCLA), 42 U.S.C. §§ 9601-9675, as amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA), Pub.L. No. 990499, § 101 et seq., 100 Stat. 1613 (1986). We will first have to determine what type of claim or claims appellants, Conrail and the United States, can maintain against Reading. We will then consider how Reading's bankruptcy affects appellants' ability to enforce any claims.

As a result of our consideration of these issues, we find that Conrail's only viable claim against Reading is one for contribution under § 113(f). We also find that this claim was not discharged by Reading's consummation order. Nevertheless, we determine that Conrail's claim fails as a matter of law because Reading is not liable to the United States under § 107(a) and consequently Reading cannot be liable to Conrail for contribution of the response costs that Conrail must pay to the United States.

I. FACTS

The roots of this dispute stretch back to November 23, 1971, when the Reading Railroad filed for reorganization under § 77 of the Bankruptcy Act of 1898, formerly 11 U.S.C. § 205 (1976) (repealed 1978). By 1973, seven other major American railroads had joined Reading in reorganization. The seemingly intractable nature of these bankruptcies, combined with the obvious public need for continuing rail service, spurred Congress to action. The result was the Regional Rail Reorganization Act of 1973 ("RRRA"), 45 U.S.C. § 701 et seq., which established a plan for conveying the rail assets of the bankrupt corporations to a new entity, Conrail. The railroads would receive Conrail securities in return for their assets, and the former railroads would then emerge from bankruptcy as new, non-rail entities. See In re Reading Co., 24 B.R. 858, 859-60 (E.D.Pa.1980).

On May 2, 1974, the district court subjected the Reading Railroad to the RRRA. See In re Reading Co., 378 F.Supp. 474, 481 (E.D.Pa.), aff'd sub nom. In re Penn Central Transp. Co., 384 F.Supp. 895 (Sp.Ct.R.R.A.1974). On April 1, 1976, Reading Railroad's rail assets were conveyed to Conrail pursuant to the final system plan, In re Reading Co., 24 B.R. at 860, and the company's 5,664 rail employees became eligible for employment with Conrail, Final System Plan of the U.S. Railway Assoc. at 162, reprinted in Supplemental Appendix at 178. "The remainder of the estate then consisted of real property, a trucking company, some marine equipment, other investments, and the probable proceeds from the [rail assets] valuation case...." 24 B.R. at 860. For all practical purposes, Reading ceased to be a railroad on April 1, 1976.

The Reading Railroad reorganization continued for another four years. By mid-1979, the Trustees had filed an Amended Plan for Reorganization with the district court. On May 21, 1980, after notice to numerous parties including the United States and Conrail, the district court approved the Amended Plan. 24 B.R. at 874. Both the United States and Conrail attended hearings on the plan's confirmation and proposed consummation. Neither objected. On December 23, 1980, the district court entered an order that established December 31, 1980, as the consummation date for the plan.

The most significant feature of the consummation plan for purposes of this appeal was a sweeping injunction which protected the Reading Company from all liability based on the obligations of its predecessor:

7.02 Injunction. All persons, firms, governmental entities and corporations, wherever situated, located or domiciled, are hereby permanently restrained and enjoined from instituting, prosecuting or pursuing, or attempting to institute, prosecute or pursue, any suits or proceedings, at law or in equity or otherwise against the Reorganized Company or its successors or assigns or against any of the assets or property of the Reorganized Company or its successors or assigns, directly or indirectly, on account of or based upon any right, claim or interest of any kind or nature whatsoever which any such person, firm, governmental entity or corporation may have in, to or against the Debtor, the Reading Trustees, or any of their assets or properties ... by reason or on account of any obligation or obligations incurred by the Debtor or any of its Trustees in these proceedings, except the obligations imposed on the Reorganized Company by the Plan or by this Order or reserved for resolution or adjudication by this Order.

In re Reading Co., Memorandum and Order 2004, Bankr. No. 71-823 (E.D.Pa. Dec. 23, 1980) (Consummation Order and Final Decree). With this injunction in place, the Reading Company emerged from bankruptcy on January 1, 1981.

At the same time that the Reading Railroad's Trustees were drawing up Reading's final plan of reorganization, major developments were taking place in Congress. On December 11, 1980, three weeks before the Reading Railroad's plan consummation date, CERCLA became law, effective immediately. The statute imposed retroactive liability on any person who, prior to the statute's passage, had disposed of, transported, or arranged for the disposal of hazardous substances. In re Penn Cent. Transp. Co., 944 F.2d 164, 167 (3d Cir.1991). It granted the Environmental Protection Agency ("EPA") broad powers to enforce this mandate. United States v. Alcan Aluminum Corp., 964 F.2d 252, 258 (3d Cir.1992).

CERCLA's embrace would encompass Conrail and the nation's railroads. See 126 Cong. Rec. 26,061-62 (1980) (letter to Senator Howard W. Cannon from Richard Briggs, Association of American Railroads) (describing CERCLA as a threat to the railroad industry); Superfund: H.R. 4571, 5290 Before the Subcomm. On Transp. & Commerce of the House Interstate & Foreign Commerce Comm., 96th Cong. 1st Sess. 132 (1980) (statement of Barbara Blum, Deputy Administrator, EPA) (identifying railroads as one type of violator whom CERCLA would address). The EPA demonstrated its awareness of the new law and its immediate applicability to the Reading bankruptcy by notifying Reading prior to discharge that the EPA would treat a hazardous waste site in McAdoo, Pennsylvania, as a CERCLA site. Fifth Report to the Court on the Progress of Cleanup at McAdoo, Pa., In re Reading Co., Bankr.No. 71-828 (E.D.Pa. Dec. 23, 1980). However, neither the EPA nor the United States filed any claims in the Reading bankruptcy; nor did they make any mention in those proceedings of other hazardous waste sites or of the potential for additional hazardous waste liability.

This appeal arises from the clash of CERCLA liability with the discharge granted to Reading as a result of its bankruptcy, a clash which occurred at a fifty acre site on the south bank of the Schuylkill River, opposite Douglassville, Pennsylvania. Since 1941, a business, eventually known as Berks Associates, Inc., had operated a solvent recovery and oil recycling business on the property. On October 31, 1980, 41 days prior to CERCLA's passage, the EPA identified Douglassville as a potentially hazardous site. ²

The EPA was already familiar with Douglassville because of problems that had occurred there in the early 1970s. In November 1970, heavy rains caused storage lagoons at Douglassville to fail. Two to three million gallons of waste sludge escaped into the Schuylkill River. The Department of the Interior, acting pursuant to the Clean Water Act, 33 U.S.C. § 1251 et seq., responded to the spill. Two years later, Hurricane Agnes caused a major flood of the Schuylkill, washing more sludge into the river. The EPA responded, invoking the oil spill provisions of the Clean Water Act. As part of the clean-up, the EPA transported sludge from the Douglassville site, using boxcars supplied by the Reading Railroad, which had a rail line serving the facility.

On June 12, 1986, acting pursuant to CERCLA § 104(e), 42 U.S.C. § 9604(e), the EPA requested information from Reading about Douglassville. On June 29, 1988, the EPA designated Reading a potentially responsible party ("PRP"), alleging that between July 6, 1965, and March 12, 1976, Reading had either generated or transported...