Is Bankruptcy an excuse for neglect?

By Ena Viteskic, Staff Member

Following the massive BP oil spill in mid-2010, uproar ensued among the political branches and communities throughout the United States. On one side, individuals were voicing their revulsion for BP while on the other side, individuals were angry at the government for insufficient regulation in the oil refinery business. Conservatives, who advocate the “hands off” approach to government, were contending that the government did not reasonably regulate the oil refineries. The question of what should be done dominated the American media and the hearts and minds of ordinary Americans. Oil companies in the past have raised several defenses as to why they should not clean up their own oil spills and messes. Some oil companies have even claimed that they are protected under bankruptcy law; therefore, negating their responsibility to perform any clean-ups.

On August 25, 2009, the United States Court of Appeals for the Seventh Circuit issued a decision that affected companies facing environmental clean-up responsibilities who file for bankruptcy protection. In United States v. Apex Oil, 579 F.3d 734 (7th Cir. 2009), the United States sought injunctive relief requiring Apex Oil Co. to stop a petroleum plume at an oil refinery owned by Apex. The main issue in this case was whether the government’s claim had been discharged in bankruptcy—the court answered in the negative. United States v. Apex Oil Company: Bankruptcy Does Not Discharge RCRA Injunctive Claims, Beveridge & Diamond, P.C., March 22, 2010, http://bdlaw.com/news-833.html. When the Apex disaster happened, over one million gallons of gasoline and other petroleum products from a plume beneath Hartford, Illinois were floating on the groundwater table and enmeshed in sub-surface soils. This caused severe consequences to humans and buildings. The petroleum fumes and thereby caused hundreds of odor complaints, health complaints, and even some fires. Id.

More recently, On October 4, 2010, the Supreme Court of the United States refused to hear the appeal from Apex Oil. Apex Oil Co. v. United States, 2010 U.S. LEXIS 6286 (US 2010). Apex still argued that its duty to clean up the site was discharged with its other debts during the bankruptcy proceedings. Court won’t spare Apex from oil spill clean up, WTOP Radio Network, October 4, 2010, http://www.wtop.com/?nid=858&sid=2069538. However, the Supreme Court simply did not side with Apex Oil Co.

The decision by the Supreme Court of the United States not to hear the appeal by Apex Oil Co. sends an important message to other oil companies—clean up your mess! Although it is only one small decision regarding a big problem, it is a step in the right direction. Regardless of what kind of defense or excuse an oil company may claim, it is clear that the Supreme Court will not tolerate any neglect or irresponsibility on behalf of these oil companies.

Crossroads: The Collision of Bankruptcy's Automatic Stay and Environmental Law’s Injunctive Relief

By: Adam M. Back , Former Staff Member; Note Published in JNREL Vol. 20, No.1

Abstract by: Addison Schreck, Staff Member

The goals and policies of environmental law and bankruptcy law are not concepts generally thought to be of much consequence to one another. However, when a polluting company approaches insolvency, the interaction between the two becomes significantly more apparent. The Bankruptcy Code's automatic stay, as well as its creditor priority provisions, 11 U.S.C. § 362 and 11 U.S.C. § 726 respectively, bring the conflict between the two fields into the limelight.

The automatic stay provisions act to suspend any government enforcement proceedings including environmental ones. This accompanied by the government's status as a low priority creditor under § 726 make the situation a unique one. In general, the policy behind the government's low priority is sound. It is the government's inherent duty to foster economic well-being. Therefore, it makes sense that they would allow their own coffers to go wanting so that private creditors can be paid. However, the public policy argument which is generally applicable is not as appropriate in this case.

Environmental incidents are by their nature worsened by the passage of time. Therefore, the impediments created by the provisions of the Bankruptcy Code oftentimes force governmental agencies to pursue injunctive actions to remedy the situation. Such actions can force the insolvent party even further into debt and also result in sub-sufficient cleanup efforts due to the entity's already depleted resources and lack of expertise. While an environmental exception has been proposed to the automatic stay provisions of the Bankruptcy Act, perhaps the most promising solution proposed is heightening the government's priority during the distribution of a bankrupt entity's assets.

Given the current volatile state of the economy, bankruptcy law promises to be an area that will see developments over the coming years. Whether and to what extent these changes will give deference to environmental concerns is as yet unknown, but it is clear that the current state of affairs does not appropriately address the competing interests at hand.

"Environmental Law and Application in Bankruptcy Law as used in In Re Fv Steel And Wire Co."

Appearing in JNREL Vol. 22 No. 2 this comment was written by former staff member Marlene Bennett. Staff member Bryan Henley wrote this abstract.

In the United States, bankruptcy laws allow discharge of most debts in exchange for liquidating of most of the debtor's assets in an attempt to repay as much of the debt is possible. By definition, the claims sought by creditors to a bankrupt debtor exceed, in aggregate, the debtor's available assets. Often, the purpose of bankruptcy proceedings is to mete out the available assets. As one might imagine, excluding a claim has a profound effect for all other creditors. Reduction in any one debt necessarily increases the assets available for all other debts. Such a situation provides a strong incentive for creditors to bicker over debts, often so much so that the bankruptcy estate is devoured by the legal process as opposed to paying the actual debts. Accordingly, efficiency is a strong motivation for bankruptcy procedures, like estimation of debts. Parties often submit arguments praying that the court follow one method or another for estimating the amount owed under a given debt. Such was exactly the salient issue for In re Steel and Wire Co., a bankruptcy case involving environmental cleanup debt. 372 B.R. 446 (Bankr. E.D. Wis. 2007).

In 1989, the Environmental Protection Agency ("EPA") identified the Sherman Wire Company as one of the parties responsible for the environmental harm caused to the Chemical Recycling, Inc. site. This dubious distinction bound the Sherman Wire Company to bear a share of the cleanup costs of this site, which operated as a debt. In 2004, Sherman Wire Co. declared bankruptcy. The committee in charge of the site cleanup (CRI committee) urged the court to estimate the debt at nearly two-million dollars due, among other costs, the expense of hauling away mass amounts of soil. The debtor, Sherman Wire Company, contested the need to remove the soil and argued that other proposed actions by the committee could cause more harm than good. The debtor submitted an estimate of seventy-five thousand dollars. The bankruptcy court is afforded great discretion in determining the proper method to estimate a given debt, and here the court used that discretion. It chose, as a bankruptcy court, to find that the soil removal and other expensive processes proposed by the committee were not necessary.

This interaction between bankruptcy law and environmental is not uncommon. Business entities that have breached environmental regulation are unlikely to be able to predict the cleanup costs that the EPA might bring to bear. These costs can be surprisingly burdensome, as this case exemplifies. The bankruptcy court must act quickly to preserve assets. Environmental law also encourages swift action to handle compromised sites, as faster cleanup abates the risks of harm to the surrounding environment and human life. In her comment titled "Environmental Law and Application in Bankruptcy Law", Marlene Bennett thoroughly analyzes one court's synthesis of environmental law and bankruptcy. If history serves as a model for the future, this will not be the last time that these questions arise and we would all be well served in maintaining a familiarity with these issues.