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Pennsylvania Dep't of Envtl. Resources v. Tri-State Clinical Labs., Inc.

ELR Citation: 29 ELR 21269
Nos. No. 98-3332, 178 F.3d 685/48 ERC 1737/(3d Cir., 06/02/1999)

The court holds that punitive criminal fines imposed against a bankrupt laboratory for post-bankruptcy petition conduct that violated the Pennsylvania Solid Waste Management Act are not administrative expenses that receive priority status under the Bankruptcy Code. The court first holds that noncompensatory criminal fines imposed on a Chapter 7 debtor or trustee should not be deemed administrative expenses under Bankruptcy Code §503. Rather, §503's restriction to "expenses of preserving the estate" limits such expenses to those that constitute compensation for expenditures necessary to the operation of the debtor-in-possession's businesses. Congress intended only for those "actual necessary costs and expenses" that arise in the context of, or compensate for, legitimate business activity, or the losses resulting therefrom, to be treated as expenses of preserving the estate, and accorded priority as an administrative expense. Here, the laboratory was not required to endanger the health and welfare of residents of the community by illegally disposing of test tubes containing blood, and the sanction that was imposed as punishment for doing so has nothing to do with compensation or proper business operations. Rather, the purpose of this criminal fine is deterrence, retribution, and punishment. In addition, allowing the state's claim to be treated as an administrative expense in this case will allow that claim to be paid to the exclusion of, and out of the resources otherwise available for, claims of other creditors. This interpretation also is consistent with Congress' limitation on the dischargeability of criminal fines and penalties.

Counsel for Appellants
Stuart M. Bliwas
Pennsylvania Department of Environmental Resources
Office of Chief Counsel
400 Market St., Harrisburg PA 17105
(717) 783-2300

Counsel for Appellees
Matthew M. Pavlovich
Nigro & Malley
Two Gateway Center, Ste. 1270, Pittsburgh PA 15222
(412) 471-8118

Before Sloviter and Rendell, JJ.