Pennsylvania, Department of Environmental Resources v. Conroy , 24 F.3d 568 ( 1994 )

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
5-18-1994
Com. of PA, Dept. of Env.'l Resources v. Conroy et
al.
Precedential or Non-Precedential:
Docket 93-3284
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Recommended Citation
"Com. of PA, Dept. of Env.'l Resources v. Conroy et al." (1994). 1994 Decisions. Paper 22.
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 93-3284
____________
COMMONWEALTH OF PENNSYLVANIA,
DEPARTMENT OF ENVIRONMENTAL RESOURCES
v.
FRANK D. CONROY;
ROSEMARY P. CONROY;
OFFICE OF THE U.S. TRUSTEE
(D.C. Civil No. 93-10)
FRANK D. CONROY;
ROSEMARY P. CONROY
v.
COMMONWEALTH OF PENNSYLVANIA,
DEPARTMENT OF ENVIRONMENTAL RESOURCES
STEPHEN I. GOLDRING,
Trustee
(D.C. Civil No. 93-11)
FRANK D. CONROY and ROSEMARY P. CONROY,
Appellants
____________________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
(D.C. Civil Nos. 93-00010 and 93-00011)
____________________
Submitted Under Third Circuit LAR 34.1(a)
January 10, 1994
Before: STAPLETON, COWEN, and ALITO, Circuit Judges
(Opinion Filed: May 19, 1994)
____________________
OPINION OF THE COURT
____________________
EDWARD S. STOKAN
Assistant Counsel
1
KENNETH T. BOWMAN
Assistant Counsel
Commonwealth of Pennsylvania
Department of Environmental Resources
400 Waterfront Drive
Pittsburgh, PA 15222-4745
Attorneys for Appellee
REED J. DAVIS, ESQ.
Davis & Riley
1124 Frick Building
Pittsburgh, PA 15219
Attorneys for Appellants
ALITO, Circuit Judge:
Frank Conroy operated and, through another corporation,
owned a printing company. After the company ceased doing
business, drums and canisters of hazardous waste were found on
the premises. The Commonwealth of Pennsylvania Department of
Environmental Resources (DER) ordered Conroy to arrange for
proper disposal of the waste, but he failed to comply with this
order. Instead, he and his wife, Rosemary Conroy, filed a
chapter 11 bankruptcy petition. Concerned that Conroy's failure
to remove the hazardous waste was endangering public health and
safety and the environment, the DER decided to initiate an
"interim response" under Pa. Stat. Ann., tit. 35, § 6020.505(b),
and the DER obtained a court order giving it access to the
printing company's premises. Through a private contractor, the
DER cleaned up this facility and then filed an administrative
expense claim with the bankruptcy court under 11 U.S.C.
§503(b)(1)(A), seeking to recover the costs it had incurred. The
bankruptcy court awarded the DER $103,293.00 -- the amount it had
2
paid to the contractor -- but the bankruptcy court denied the
DER's request for an additional 10% to cover administrative and
legal expenses. On appeal, the district court held that the DER
was entitled to the entire amount it sought. We affirm.
The Pennsylvania Hazardous Sites Cleanup Act prohibits
the "release" of a hazardous substance and imposes liability and
penalties on those responsible. See Pa. Stat. Ann., tit. 35,
§§6020.507(a), 6020.1101, 6020.1104. Abandonment of a hazardous
substance constitutes a "release." Pa. Stat. Ann., tit. 35,
§6020.103. Therefore, Pennsylvania law effectively prohibited
the Conroys from abandoning the hazardous wastes located on the
printing facility premises.
Since the bankruptcy laws were revised in 1978, debtors
have argued that state laws prohibiting the abandonment of
hazardous substances are preempted by the literal language of
Section 554 of the Bankruptcy Code, 11 U.S.C. § 554. However, in
Midlantic National Bank v. New Jersey Department of Environmental
Protection, 474 U.S. 494 (1986), the Supreme Court held that
Section 554 does not preempt a state law that, in a reasonable
effort to promote public health or safety, prohibits the
abandonment of property containing hazardous wastes. It appears,
therefore, that if the DER had not itself undertaken to clean up
the printing company facility, the Conroys could not have escaped
their obligation to do so by abandoning the hazardous property in
question. Furthermore, if Frank Conroy had arranged for cleanup
of the facility after he had filed a chapter 11 petition, the
costs of this cleanup would have constituted administrative
3
expenses under 11 U.S.C. § 503(b)(1)(A), since they are a portion
of "the actual, necessary costs and expenses of preserving the
estate, including wages, salaries, or commissions for services
rendered after the commencement of the case."
Here, the DER, rather than Conroy, arranged and paid
for cleanup of the printing facility. Under similar
circumstances, the Second and Sixth Circuits have held that
response costs incurred by environmental agencies should be
classified as administrative expenses. In re Chateaugay Corp.,
944 F.2d 997, 1009-10 (2d Cir. 1991); In re Wall Tube & Metal
Products, Co., 831 F.2d 118, 123-24 (6th Cir. 1987). These
courts have reasoned that since the estate could not avoid such
costs through abandonment, the "expenses to remove the threat
posed by such substances are necessary to preserve the estate."
Chateaugay, 944 F.2d at 1010. We agree with these decisions, cf.
In re Torwico Electronics, Inc., 8 F.3d 146, 149-50 (3d Cir.
1993) (discussing Chateaugay approvingly), and we therefore hold
that the costs incurred by the DER in contracting for cleanup of
the printing facility were properly classified as administrative
expenses.
Contrary to the Conroys' argument, this court's
decision in Southern Railway Co. v. Johnson Bronze Co., 758 F.2d
137 (3d Cir. 1985), does not dictate a different result. We read
the portion of that decision that is most closely related to the
present case to mean that a state administrative order requiring
cleanup of hazardous wastes may not be afforded priority over
unsecured claims pursuant to 11 U.S.C. § 105(a), which provides
4
that a bankruptcy court "may issue any order, process, or
judgment that is necessary or appropriate to carry out the
provisions of this title." Southern Railway said nothing about
whether a bankruptcy court may grant administrative expense
priority to the costs that an environmental agency incurs in
cleaning up a hazardous waste site that could not be abandoned
under state law.1
1
Several courts and commentators have read Southern Railway as
declaring that Ohio v. Kovacs, 469 U.S. 274 (1985), resolved the
question whether such costs are administrative expenses entitled
to priority reimbursement. See, e.g., In re Hemingway Transp.,
Inc., 73 B.R. 494, 502 (Bankr. D. Mass. 1987), aff'd, 126 B.R.
656 (D. Mass. 1991), aff'd in part and vacated in part, 993 F.2d
915 (1st Cir. 1993), cert. denied, 114 S. Ct. 303 (1993); In re
Pierce Coal & Constr., Inc., 65 B.R. 521, 529 (Bankr. N.D. W.Va.
1986); In re Virginia Builders, Inc., 153 B.R. 729, 734 n.10
(Bankr. E.D. Va. 1993); In re Kent Holland Die Casting & Plating,
Inc., 125 B.R. 493, 500 (Bankr. W.D. Mich. 1991). See also
Daniel Klerman, Earth First? CERCLA Reimbursement Claims and
Bankruptcy, 58 U. Chi. L. Rev. 795, 803 & n.56 (1991). Even if
this reading of Southern Railway is plausible, we believe that it
would be unwise to adopt such a reading in light of the Supreme
Court's subsequent opinion in Midlantic. Midlantic, we think,
indicates that the Supreme Court does not view Kovacs as having
resolved the reimbursement priority issue. See Midlantic, 474
U.S. at 498 n.2 (noting that whether a state's cleanup costs are
administrative expenses is "not before us"). Cf. Virginia
Builders, 153 B.R. at 734 n.10 (stating that in light of Supreme
Court's Midlantic decision, Southern Railway "is questionable
precedent").
Contrary to the Conroys' suggestion, the Ninth Circuit's
decision in In re Dant & Russell, Inc., 853 F.2d 700 (1988), is
also distinguishable. That case held that a lessor who has a
bankruptcy claim against a lessee for the costs of cleaning up
hazardous wastes deposited by the lessee on the leased property
is not entitled to administrative expense priority. However, the
Dant & Russell court was careful to state that
[q]uite a different result [] is warranted when the
cleanup costs result from monies expended for the
preservation of the bankruptcy estate. See, e.g.,
Lancaster v. Tennessee (In re Wall Tube & Metal Prod.
5
The Conroys have argued that the amount paid by the DER
to the cleanup contractor was excessive. Both the bankruptcy
court and the district court held to the contrary, and after
reviewing the record, we likewise conclude that the Conroys'
argument lacks merit.
We also hold that the district court was correct in
awarding the DER $10,329.30 to compensate for the costs it
incurred in obtaining authorization for the cleanup and in
coordinating and monitoring the contractor's work. The Conroys
contend that this award was actually a "surcharge," rather than
compensation for "actual" and "necessary" expenses, and that in
any event the DER did not adequately substantiate these expenses.
We disagree.
First, we see no reason why the administrative and
legal costs incurred by the DER in arranging for the cleanup
cannot qualify as administrative expenses under 11 U.S.C.
§503(b)(1)(A). Such costs may constitute "actual, necessary
costs and expenses of preserving the estate." Id. Second, we
think that the amount of the award in this case -- 10% of the
Co., 831 F.2d 118, 124 (6th Cir. 1987)) (state entitled
to administrative expense priority for its response
costs from the debtor's estate under CERCLA); . . . In
re Distrigas Corp., 66 B.R. 382, 386 (Bankr. D. Mass.
1986) (to the extent that the state expended funds to
cleanup debtor's contaminated property (whose property
absent cleanup had little or no value), it would be
entitled to a first priority administrative expense
claim); . . . In re Stevens, 68 B.R. 774, 783 (D. Maine
1987) (state entitled to administrative expense
priority for costs it incurred in removing waste from
property of the estate).
853 F.2d at 709.
6
amount paid to the contractor -- was sufficiently substantiated.
In enacting Pa. Stat. Ann., tit. 35, § 6020.507(b),2 the
Pennsylvania legislature apparently concluded that the DER's
"administrative and legal costs" will generally amount to "10% of
the amount paid for the response action or the actual costs,
whichever is greater." This implicit legislative finding is
reasonable, and we believe that it is sufficient to satisfy the
DER's burden of proving its entitlement to these administrative
expenses. While the Conroys and other interested parties could
certainly have attempted to show that the 10% figure was
excessive in this case, the Conroys have not directed our
attention to any such evidence. Moreover, there is evidence in
the record that tends to substantiate the reasonableness of the
amount awarded.3
2
This provision reads as follows:
(b) Amount.--In an action to recover response costs and
natural resource damages, the department shall include
administrative and legal costs incurred from its
initial investigation up to the time that it recovers
its costs. The amount attributable to administrative
and legal costs shall be 10% of the amount paid for the
response action or the actual costs, whichever is
greater.
3
The Conroys also contend that the DER failed to substantiate its
claim in the manner required by a Rule 9016.1 of the Local Rules
of the United States Bankruptcy Court for the Western District of
Pennsylvania. This rule imposes general requirements on parties
submitting administrative claims. We do not interpret it to mean
that the DER may not satisfy its burden of proof under the
particular circumstances present here by relying on the
legislative finding implicit in Pa. Stat. Ann., tit. 35,
§6020.507(b). Therefore, we need not consider whether the
bankruptcy court, in promulgating local rules of practice, could
resolve a legal question of this nature.
7
For these reasons, we conclude that the district court
properly held that the DER is entitled to $113,622.30 in
administrative expenses, and we therefore affirm the order of the
district court.
8