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United States v. Professional Sales Corp.

ELR Citation: 16 ELR 20474
Nos. No. 85 C 5791, 56 Bankr. 753/23 ERC 1946/(N.D. Ill., 12/16/1985)

The court rules that § 105 of the Bankruptcy Code does not authorize a bankruptcy judge to enjoin the Environmental Protection Agency (EPA) from terminating the interim status of a hazardous waste disposal facility owned by a firm in a Chapter 11 reorganization. As a result of a mechanics lien, appellee came into ownership of a violation-plagued hazardous waste disposal facility with interim status under the Resource Conservation and Recovery Act (RCRA). Appellee twice requested extensions for submitting its RCRA Part B permit application. EPA conditioned the second extension on submission of a cleanup plan and other steps to remedy problems at the site. Appellee filed for Chapter 11 reorganization before complying with EPA's request. After an explosion at the site, EPA removed the hazardous wastes on the surface pursuant to its Comprehensive Environmental Response, Compensation, and Liability Act authority and notified appellee of its intention to terminate the facility's interim status. Appellee went to bankruptcy court and obtained a temporary restraining order (TRO), which was extended three times. EPA appealed to the district court after the third extension, which the court vacated as a violation of Rule 65(b) of the Federal Rules of Civil Procedure (FRCP). On remand, the bankruptcy court treated appellee's motion to reinstate the TRO as a request for a preliminary injunction, granted the request without holding a hearing, and declared the interim status (Part A) permit part of the estate in bankruptcy. Appellee had argued that without interim status, it would have a very difficult time selling the property.

The court first rules that the bankruptcy court's most recent action was appealable, since it was in effect a preliminary injunction indefinitely extending the status quo. It next holds the injunction invalid under FRCP 65(a)(1), which requires a hearing prior to imposition of an injunction. Instead of remanding the matter, however, the court turns to appellant's claims that the bankruptcy judge lacks jurisdiction for further proceedings.

The court rules that the bankruptcy action was moot, because EPA terminated the facility's interim status before the bankruptcy court decided the Part A permit was part of the estate in bankruptcy. EPA had announced that interim status would end on May 12, 1984. That decision did not take effect on schedule because of the bankruptcy court's TROs. However, because the last TRO was voided on appeal, the interim status had ended before the bankruptcy court's final ruling in 1985. Noting that the mootness issue was clouded by appellant's willingness to treat the TROs as an indefinite preliminary injunction, the court goes on to address other arguments on jurisdiction.

The court rules that the waiver of sovereign immunity in §106 of the Bankruptcy Code does not give bankruptcy courts the power under §105 to enjoin regulatory actions that do not threaten the property of the estate. The bankruptcy court had ruled that §106 and its inherent equitable power to protect the estate in bankruptcy gave it authority to enjoin not only government actions requiring payment of money by a bankrupt, but also regulatory actions. The court finds the cited statutory support for this conclusion questionable, but in accord with the weight of judicial authority. It also identifies a key distinction between decisions subordinating regulatory actions to the powers of the bankruptcy courts and the instant case: in the former the regulatory action threatened to devalue physical property or take money from the estate; in this case the property threatened, the interim status permit, was itself a creature of regulation. The court reasons that the Bankruptcy Code cannot be read to protect such property, because that would make it possible for bankrupt estates to operate in the regulated hazardous waste business with fewer constraints than other firms.

The full text of the opinion is available from ELR (5 pp. $2.00, ELR Order No. C-1351).

Counsel for Plaintiff-Appellee
John Redfield
20 N. Clark St., Chicago IL 60602
(312) 269-1300

Counsel for Defendant-Appellant
Elizabeth Stein, Ass't U.S. Attorney
Everett McKinley Dirksen Bldg., Rm. 1500S, 219 S. Dearborn St., Chicago IL 60604
(312) 353-5300

John F. Cermak
United States Environmental Protection Agency
401 M St. SW, Washington DC 20024
(202) 475-8040

Getzendanner, J.