Although the facts existed and a statute had been adopted before bankruptcy giving rise to a claim that would be discharged, the claim was not discharged because the Supreme Court did not hand down a decision until years after bankruptcy recognizing a private right of action.
The Sept. 22 decision by Chief District Judge Dora L. Irizarry in Brooklyn, N.Y., means that a confirmed chapter 11 plan is no shield to environmental contribution claims not recognized by statute or case law until after bankruptcy. This principle might also apply to bar discharge of other types of successor liability claims created by legislation or recognized by the courts for the first time after bankruptcy.
Quanta Resources Corp., a recycler of waste oils, filed bankruptcy in 1981 after discovery of hazardous liquids in its tanks. Revere Copper & Brass Inc. filed a chapter 11 petition in 1982 and confirmed a plan in 1985. Revere had shipped hazardous materials to Quanta between 1972 and 1981, thus making itself a potentially responsible party, or PRP, in Quanta’s cleanup.
After being sued under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, known as CERCLA, Quanta and a major oil company entered into a settlement agreement where they agreed to pay the plaintiff for some of its response and remediation costs. Quanta and the oil company in turn filed a third party complaint against Revere’s successor for contribution as a PRP.
Revere’s successor filed a motion to dismiss the third party complaint, contending that the environmental contribution claims had been discharged by the confirmed plan in 1985 because all the events giving rise to liability occurred before bankruptcy, including the adoption of CERCLA. Judge Irizarry denied the motion and held that the claims were not discharged.
Citing the Second Circuit’s 2009 decision in PBGC v. Oneida, Judge Irizarry said that a claim is discharged if there was a right to payment that arose before bankruptcy. To make that determination, courts look to “the substantive non-bankruptcy law that gives rise to the debtor’s obligation,” again quoting from Oneida.
Although CERCLA had been adopted before Revere’s bankruptcy, Judge Irizarry said that a private right of action for contribution by one PRP against another did not exist until the Supreme Court decided U.S. v. Atlantic Research Corp. in 2007.
Even though the statutory language did not change over the years, Judge Irizarry said that every federal appellate court, including the Second Circuit, had held before Atlantic Research that one PRP could not bring a cost recovery action against another.
Applying the law to the facts, Judge Irizarry said that Quanta and the oil company therefore “lacked knowledge as to the existence of any claims whatsoever at the time” Revere filed bankruptcy. For years after Revere’s bankruptcy, she also said that courts interpreted the pivotal provisions in CERCLA as allowing no private contribution claims.
In summary, she said that the claims against Revere did “not constitute pre-petition claims” because the “elements necessary to give rise to such a legal obligation” did not arise until the Supreme Court decided Atlantic Research.
The opinion does not discuss retroactivity, nor does it eliminate the possibility that Revere’s successor may have other defenses. As it stands, the opinion means that purchasers of a bankrupt company or its assets may not be able to raise discharge or a Section 363 sale order as a bar to all manner of environmental claims. The more interesting application of the case will come in decisions dealing with other types of claims not recognized until after bankruptcy.