U.S. v. Apex Oil Co., Inc.

• Decision Date: 25 August 2009
• Docket Number: No. 08-3433.,08-3433.
• Citation: 579 F.3d 734
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. APEX OIL COMPANY, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

579 F.3d 734

UNITED STATES of America, Plaintiff-Appellee, v. APEX OIL COMPANY, INC., Defendant-Appellant.

No. 08-3433.

United States Court of Appeals, Seventh Circuit.

Argued May 11, 2009.

Decided August 25, 2009.

Randall M. Stone, Attorney (argued), Department of Justice, Washington, DC, for Plaintiff-Appellee.

Bruce S. Sperling, Attorney (argued), Sperling & Slater, P.C., Chicago, IL, for Defendant-Appellant.

Before CUDAHY, POSNER, and KANNE, Circuit Judges.

POSNER, Circuit Judge.

Apex Oil Company appeals from the grant of an injunction, at the behest of the Environmental Protection Agency and on the authority of 42 U.S.C. § 6973 (a part of the Resource Conservation and Recovery Act of 1976, 42 U.S.C. §§ 6901 et seq.), that requires Apex to clean up a contaminated site in Hartford, Illinois. In a 178-page opinion following a 17-day bench trial, the district judge made findings that millions of gallons of oil, composing a "hydrocarbon plume" trapped not far underground, are contaminating groundwater and emitting fumes that rise to the surface and enter houses in Hartford and in both respects are creating hazards to health and the environment. The judge deemed it Apex's legal responsibility to abate this nuisance because the plume was created by an oil refinery owned by a corporate predecessor of Apex. Apex challenges these findings and conclusion, but the challenge has no possible merit.

The principal question presented by the appeal is unrelated to the district judge's findings and conclusions; it is whether the government's claim to an injunction was discharged in bankruptcy and therefore cannot be renewed in a subsequent lawsuit—this suit. The bankruptcy judge's confirmation (approval) of a claim in a Chapter 11 proceeding discharges the debtor from "any debt that arose before the date of" confirmation, 11 U.S.C. § 1141(d)(1)(A), with immaterial exceptions. "Debt" is defined as "liability on a claim," § 101(12), and "claim" as either a "right to payment," § 101(5)(A), or—the critical language in this case—a "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured." § 101(5)(B). The critical question is the meaning of "gives rise to a right to payment."

Because Apex no longer does refining and as a result has no in-house capability of cleaning up a contaminated site, it would have to hire another company to do the clean up in order to comply with the injunction. It estimates that it would have to pay such a company $150 million for the job, though it might be able to recover some of the expense from other contributors to the contamination.

The natural reading of the statutory provision that we quoted is that if the holder of an equitable claim can, in the event that the equitable remedy turns out to be unobtainable, obtain a money judgment instead, the claim is dischargeable. If for example you have a decree of specific performance (a type of injunction and therefore an equitable remedy) that you can't enforce because the property that the decree ordered the defendant to sell you was sold to someone else (from whom, for whatever reason, you cannot recover it), you are entitled to a money judgment for the value of the property, e.g., UFG, LLC v. Southwest Corp., 848 N.E.2d 353, 363, 365 (Ind.App.2006); Vinson v. Marton & Associates, 159 Ariz. 1, 764 P.2d 736, 739-40 (App.1988); Engasser v. Jones, 88 Cal. App.2d 171, 198 P.2d 546, 549 (1948)—and your claim to that value is a claim to a right to receive payment and is dischargeable in the seller's bankruptcy. In re Davis, 3 F.3d 113, 116 (5th Cir.1993); In re Irizarry, 171 B.R. 874, 878-79 (9th Cir. BAP 1994).

In addition, some equitable remedies, such as backpay orders in employment cases, Doe v. Oberweis Dairy, 456 F.3d 704, 714 (7th Cir.2006); Pals v. Schepel Buick & GMC Truck, Inc., 220 F.3d 495, 500-01 (7th Cir.2000); Broadnax v. City of New Haven, 415 F.3d 265, 271 and n. 1 (2d Cir.2005), and orders of equitable restitution, 1 Dan B. Dobbs, Law of Remedies § 4.3 (2d ed.1993), are orders to pay, and so would be dischargeable were it not for specific exceptions in the Bankruptcy Code. See, e.g., Eden v. Robert A. Chapski, Ltd., 405 F.3d 582, 586-87 (7th Cir. 2005); Bush v. Taylor, 912 F.2d 989, 992-93 (8th Cir.1990) (en banc). That equitable remedies are always orders to act or not to act, rather than to pay, is a myth; equity often orders payment. Williams Electronics Games, Inc. v. Garrity, 366 F.3d 569, 576-77 (7th Cir.2004); Clair v. Harris Trust & Savings Bank, 190 F.3d 495, 498-99 (7th Cir.1999); John H. Langbein, "What ERISA Means by `Equitable,'" 103 Colum. L.Rev. 1317, 1350-51 (2003).

But the Resource Conservation and Recovery Act, which is the basis of the government's equitable claim, does not entitle a plaintiff to demand, in lieu of action by the defendant that may include the hiring of another firm to perform a clean up ordered by the court, payment of clean-up costs. It does not authorize any form of monetary relief. 42 U.S.C. § 6973(a). The Act's companion provision authorizing private suits, 42 U.S.C. § 6972(a)(2), has been held not to authorize monetary relief, Meghrig v. KFC Western, Inc., 516 U.S. 479, 483-87, 116 S.Ct. 1251, 134 L.Ed.2d 121 (1996); Avondale Federal Savings Bank v. Amoco Oil Co., 170 F.3d 692, 694-95 (7th Cir.1999); AM Int'l, Inc. v. Datacard Corp., 106 F.3d 1342, 1348 (7th Cir. 1997); Abreu v. United States, 468 F.3d 20, 31 (1st Cir.2006); South Carolina Dep't of Health & Environmental Control v. Commerce & Industrial Ins. Co., 372 F.3d 245, 256 (4th Cir.2004), and the relevant language of the two provisions is identical.

Thus the government's equitable claim, if well founded, as the district court ruled it to be, entitles the government only to require the defendant to clean up the contaminated site at the defendant's expense. Earlier cases, such as United States v. Northeastern Pharmaceutical & Chemical Co., 810 F.2d 726, 749-50 (8th Cir.1986), and United States v. Conservation Chemical Co., 619 F.Supp. 162, 201 (W.D.Mo. 1985), which allowed an award of clean-up costs on the basis of general equitable principles set forth in such cases as Mitchell v. Robert De Mario Jewelry, Inc., 361 U.S. 288, 291-92, 80 S.Ct. 332, 4 L.Ed.2d 323 (1960), and Porter v. Warner Holding Co., 328 U.S. 395, 397-98, 66 S.Ct. 1086, 90 L.Ed. 1332 (1946), are dead after Meghrig, if we are correct in thinking that the identical language in sections 6972(a)(2) and 6973(a) requires an identical conclusion with regard to a plaintiff's right to seek a money judgment.

That leaves Apex to argue that the cost of complying with an equitable decree should be deemed a money claim, and hence dischargeable. We rejected that proposition, which does not comport with the language of the Bankruptcy Code—the cost to Apex is not a "right [of the plaintiff] to payment"—in AM Int'l, Inc. v. Datacard Corp., supra, 106 F.3d at 1348; see also In re CMC Heartland Partners, 966 F.2d 1143, 1145-47 (7th Cir.1992); In re Torwico Electronics, Inc., 8 F.3d 146, 150 (3d Cir.1993); In re Commonwealth Oil Refining Co., 805 F.2d 1175, 1186-87 (5th Cir.1986); Penn Terra, Ltd. v. Department of Environmental Resources, 733 F.2d 267, 278-79 (3d Cir.1984); United States v. Hubler, 117 B.R. 160, 164 and n. 1 (W.D.Pa.1990); In re Chateaugay Corp., 112 B.R. 513, 523-24 (S.D.N.Y.1990), affirmed, 944 F.2d 997 (2d Cir.1991).

Almost every equitable decree imposes a cost on the defendant, whether the decree requires him to do something, as in this case, or, as is more common, to refrain from doing something. The logic of Apex's position is thus that every equitable claim is dischargeable in bankruptcy unless there is a specific exception in the Code. That is inconsistent with the Code's creation in 11 U.S.C. § 101(5)(B) of only a limited right to the discharge of equitable claims. And if "any order requiring the debtor to expend money creates a dischargeable claim, it is unlikely that the state could effectively enforce its laws: virtually all enforcement actions impose some cost on the violator." In re Torwico Electronics, Inc., supra, 8 F.3d at 150 n. 4.

It is true that in Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985), the Supreme Court allowed the discharge in bankruptcy of an equitable obligation to clean up a contaminated site owned by the debtor. An injunction ordering the clean up had been issued before the bankruptcy. The debtor had failed to comply with the injunction and a receiver had been appointed to take possession of his assets and obtain from them the money needed to pay for the clean up. The receiver thus was seeking money rather than an order that the debtor clean up the contaminated site. That was a claim to a "right to payment." The plaintiff in our case (the government) is not seeking a payment of money and the injunction that it has obtained does not entitle it to payment. See In re Udell, 18 F.3d 403, 409-10 (7th Cir.1994); In re Torwico Electronics, Inc., supra, 8 F.3d at 150; In re Chateaugay Corp., 944 F.2d 997, 1008 (2d Cir.1991).

Apex cites Johnson v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991), which held that a mortgage, which is an equitable interest, can be discharged in a Chapter 13 bankruptcy. A mortgage secures a loan, and thus entitles the lender to force the sale of the mortgaged property (the collateral for the loan) in the event the borrower defaults, and to collect the unpaid portion of the debt from the proceeds. That is a straightforward case of an equitable claim that gives rise to a right of payment to the claimant—namely, as in Kovacs, the right to payment of his debt out of the proceeds of a sale of property pursuant to a decree (the equitable remedy) that the property be...