Confirmation Barred Claims Against a Coal Producer for Causing Global Warming

Confirmation of a chapter 11 plan barred local governments from suing a reorganized coal producer for contributing to global warming.

According to the Eighth Circuit’s affirmance of a decision by Bankruptcy Judge Barry S. Schermer of St. Louis, the claims were discharged even though the chapter 11 plan for Peabody Energy Corp. did not discharge claims under environmental laws.

What the Plan Didn’t Discharge

Peabody’s plan did not discharge claims “under any applicable Environmental Law.” The term “Environmental Law” was defined to include all federal, state and local laws, regulations and ordinances concerning pollution or protection of the environment. The laws were further defined to include 10 federal statutes such as the Clean Air Act and CERCLA, “and any state or local equivalents . . . .”

Months after confirmation, several California municipalities sued Peabody and 30 other energy companies for contributing to global warming. The suits raised claims for strict liability and negligence in failure to warn based on design defect, negligence, trespass and private nuisance. The suits also included claims for public nuisance.

The plaintiffs sought abatement of the nuisances, damages and disgorgement of profits.

Peabody persuaded Bankruptcy Judge Schermer to enjoin the suits against it, in part because most of the claims were based on acts that occurred before plan confirmation. Judge Schermer ruled that the claims were all discharged.

The district court upheld Judge Schermer, and the municipalities appealed to the Eighth Circuit.

Judge Schermer Upheld in the Eighth Circuit

Reviewing Judge Schermer’s interpretation of the plan for abuse of discretion, the Eighth Circuit affirmed in an opinion on May 6 by Circuit Judge Morris S. Arnold.

The municipalities contended that their common law claims were “state or local equivalents” of federal pollution laws. Adopting the analysis by Judge Schermer, Judge Arnold said the plan was referring to statutory equivalents of the 10 listed federal statutes, not nonstatutory equivalents of statutes concerning pollution. If the plan had meant to exempt common law claims from discharge, it “would have explicitly said so,” Judge Arnold concluded.

Since Judge Schermer’s interpretation of the plan was “at least a reasonable one,” Judge Arnold said that Judge Schermer had not abused his discretion in barring prosecution of common law claims.

On the other hand, the municipalities’ nuisance claims were “a closer call because they rely on specific California statutes,” Judge Arnold said.

Unlike the listed federal statutes, Judge Arnold said that the state nuisance statutes “have their roots in common law and are often referred to as common law claims.”

Again adopting the analysis by Judge Schermer, Judge Arnold observed that the listed federal statutes were designed to remedy particular environmental problems. The state nuisance statute, by comparison, “does not focus on particular environmental problems” and could regulate nuisances with no effect on the environment.

The municipalities argued that their suits were not discharged because the plan also excluded clams brought under police or regulatory powers.

The provision did not apply, according to Judge Arnold, because the plaintiffs were seeking damages as victims of torts, not in exercise of police or regulatory power.

Finally, the municipalities contended they were not pursuing “claims” that were discharged. Rather, the plaintiffs argued they only sought equitable remedies to abate the nuisance.

Judge Arnold rejected the argument, because equitable relief could result in an order directing the debtor to make payment into a fund to abate the nuisance. Thus, even the nuisance claims were based on “claims” discharged by the plan.