U.S. v. Whizco, Inc., 87-5317

• Decision Date: 07 March 1988
• Docket Number: No. 87-5317,87-5317
• Citation: 841 F.2d 147
• Parties: , 56 USLW 2556, 17 Bankr.Ct.Dec. 497, Bankr. L. Rep. P 72,214, 18 Envtl. L. Rep. 20,571 UNITED STATES of America, Plaintiff-Appellant, v. WHIZCO, INC., et al. Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 147

841 F.2d 147

27 ERC 1373, 56 USLW 2556, 17

Bankr.Ct.Dec. 497,

Bankr. L. Rep. P 72,214, 18 Envtl. L. Rep. 20,571

UNITED STATES of America, Plaintiff-Appellant, v. WHIZCO, INC., et al. Defendants-Appellees.

No. 87-5317.

United States Court of Appeals Sixth Circuit.

Argued Jan. 5, 1988.

Decided March 7, 1988.

John W. Gill, Jr., U.S. Atty., Gerald A. Thornton, Sp. Asst. U.S. Atty., U.S. Dept. of Interior, Knoxville, Tenn., Jacques B. Gelin (argued), Appellate Section, Land & Natural Resources Div., U.S. Dept. of Justice, Robert L. Klarquist, Washington, D.C., for plaintiff-appellant.

John F. Weaver (argued), Lawrence H. Bidwell, IV, Knoxville, Tenn., for defendants-appellees.

Before MERRITT, KENNEDY and KRUPANSKY, Circuit Judges.

KENNEDY, Circuit Judge.

Plaintiff-appellant the United States ("plaintiff") appeals from the judgment of the District Court denying the plaintiff an injunction against defendant-appellee Donovan Lueking ("defendant"). The plaintiff sought to enjoin defendants Whizco, Inc. ("Whizco"), a coal company, and Lueking, its operator, to obey orders of the Secretary of the Interior requiring the defendants to satisfy their statutory obligation to reclaim their abandoned coal mine. The District Court granted the injunction with respect to defendant Whizco, but denied it as to defendant Lueking. ¹ This case presents the question of whether the discharge provisions of the Bankruptcy Code apply to mandatory injunctive relief that cannot be performed personally and would require a debtor in a chapter 7 liquidation bankruptcy to spend money.

The Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. Sec. 1201 et seq. (the "Act"), underlies this dispute. It creates a program for reclaiming lands mined for coal. The Act created the Office of Surface Mining Reclamation and Enforcement ("OSM") within the Department of the Interior. The Secretary of the Interior, acting through OSM, has the primary responsibility for administering the Act.

Defendant Lueking was the vice-president and sole shareholder of defendant Whizco, which mined a permitted area in Tennessee. The terms of the permit, and the statute and regulations, 30 U.S.C. Secs. 1251-1279, 30 C.F.R. Secs. 710-725, obliged Whizco to reclaim the surface area disturbed by the mining. Whizco failed economically and abandoned its mining sites without adequately reclaiming them. The Department of the Interior, through OSM, issued three cessation orders against Whizco for its failure to abate a total of four violations, commanding Whizco to remedy the violations.

When Whizco failed to comply with the orders, the plaintiff brought suit pursuant to 30 U.S.C. Sec. 1271, which provides that where the permittee or his agents fail or refuse to comply with the Secretary's orders, the Secretary "may request the Attorney General to institute a civil action for relief, including a permanent or temporary injunction, restraining order, or any other appropriate order in the district court of the United States." The plaintiff amended its complaint on October 8, 1985 to join Lueking as Whizco's agent and to add the third cessation order. Lueking, d/b/a Lueking Coal Co., Whizco, and Hi Tenn Coal, Inc., had filed for reorganization under Chapter 11 of the Bankruptcy Code on April 8, 1985. On August 23, 1985, the day after the plaintiff filed its complaint, the proceeding was converted to a Chapter 7 liquidation.

In its suit the plaintiff sought a permanent injunction against the defendants from mining coal anywhere in the United States until they remedy the violations. It also sought affirmative remedial action on the part of defendants to perform specific acts of reclamation which would abate the environmental damage at the defendants' surface mining site in Tennessee. The plaintiff claims that the Act does not allow the Secretary the alternative remedy of reclaiming the site and demanding payment for the costs incurred, and the defendants do not dispute this. On September 24, 1986 the District Court entered judgment against defendant Whizco granting the requested injunctive relief. The parties subsequently stipulated that defendant Lueking was the agent of Whizco, that he was potentially subject to the same injunctive relief, that he was unable to perform the affirmative reclamation action personally, and that his debts had been discharged in a Chapter 7 bankruptcy proceeding on December 19, 1985. The District Court then addressed the issue of "[w]hether any affirmative order of relief, that would require the expenditure of money on Mr. Leuking's [sic] part, had been discharged by his bankruptcy." Joint Appendix at 23.

On January 12, 1987 the District Court issued a decision denying in part the plaintiff's request for mandatory injunctive relief against Lueking, holding that his bankruptcy discharged his obligation to reclaim the sites. The court, evaluating Lueking's personal and financial conditions, found that he could not perform the reclamation work ordered "other than by payment of money," and that therefore the injunction was a debt dischargeable in bankruptcy. Id. at 24 (citing Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985)). Plaintiff appealed.

Except for debts saved from discharge by 11 U.S.C. Sec. 523(a), a discharge in bankruptcy discharges the debtor from all debts that arose before bankruptcy. 11 U.S.C. Sec. 727(b). As the District Court noted, a debt, for the purposes of the Bankruptcy Code, is a "liability on a claim," Id. at Sec. 101(11). The Code further defines a claim as follows:

(A) [a] right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed legal, equitable, secured, or unsecured; or

(B) [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....

Id., at Sec. 101(4) (emphasis added). ² Defendant Lueking testified in an affidavit that he is 63 years old; that he surrendered all his mining equipment and coal leases in his bankruptcy; that he has neither the physical ability to perform the reclamation work himself nor the right to enter upon the reclamation site; and that he lacks the financial ability to post a reclamation bond or to hire anybody to do the reclamation work. Based on this information, the District Court found that the mandatory relief sought by the plaintiff could not be accomplished by anything other than an expenditure of money by the debtor, and that therefore it was a claim discharged in bankruptcy. Id.

The District Court relied on Ohio v. Kovacs. In that case the petitioner, the state of Ohio, had obtained an injunction in state court ordering the respondent to clean up a hazardous waste disposal site. When the respondent failed to comply with the injunction, the petitioner obtained the appointment of a receiver, who was directed to take possession of the respondent's property and other assets and to implement the injunction. The respondent filed a personal bankruptcy petition before the receiver had completed the clean up. The Bankruptcy Court, affirmed by the District Court, declared that the respondent's obligation under the injunction was a discharged debt. The Sixth Circuit agreed, holding that the petitioner essentially sought from the respondent only a monetary payment and that such a required payment was a liability on a claim that was dischargeable under the Bankruptcy Code. In re Kovacs, 717 F.2d 984 (6th Cir.1983). The opinion stressed that the petitioner was seeking the payment of money from the respondent to the petitioner:

Ohio claims that there is no alternative right to payment, but when Kovacs failed to perform, state law gave a state receiver total control over all Kovacs' assets. Ohio later used state law to try and discover Kovacs' post-petition income and employment status in an apparent attempt to levy on his future earnings. In reality, the only type of performance in which Ohio is now interested is a money payment to effectuate the [site's] cleanup.

* * *

We agree, however, with the rationale of the prior opinion in In re Kovacs, supra, that Ohio is essentially trying to obtain a money payment from Kovacs. The impact of its attempt to realize upon Kovacs' income or property cannot be concealed by legerdemain or linguistic gymnastics. Kovacs cannot personally clean up the waste he wrongfully released into Ohio waters. He cannot perform the affirmative obligation properly imposed upon him by the State court except by paying money or transferring over his own financial resources. The State of Ohio has acknowledged this by its steadfast pursuit of payment as an alternative to personal performance.

Id. at 987-88 (emphasis added).

The Supreme Court affirmed, finding that the respondent's breach of the petitioner's injunction gave rise to a right to payment within the meaning of 11 U.S.C. Sec. 101(4)(B). 469 U.S. at 282-83, 105 S.Ct. at 709-10. In so holding, the Court stressed that what the petitioner wanted from the respondent after bankruptcy "was the money to defray cleanup costs." Id. at 283, 105 S.Ct. at 710. ³ Since the clean up order had been converted into an obligation to pay money, it gave rise to a "right to payment" and thus was a debt dischargeable under the Bankruptcy Code. Id.

The distinction between Kovacs and the case...