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In re In re Commercial Oil Serv., Inc.

ELR Citation: 16 ELR 20655
Nos. No. 85-01951, 58 Bankr. 311/(Bankr. N.D. Ohio, 02/21/1986)

The bankruptcy court holds that it cannot remove from state court an action for cleanup of hazardous wastes initiated under state environmental laws, and dismisses a voluntary petition for bankruptcy as a result of pending cleanup action in state and federal court. The court first holds that it has jurisdiction to hear a trustee in bankruptcy's application for removal from state court of the state's suit against the debtor for cleanup and abatement of polychlorinated biphenyls (PCBs) and other toxic materials. The trustee's application for removal under a statutory section no longer in force, 28 U.S.C. §1478(a), is not fatal because §157(a) of the Bankruptcy Reform Act gives authority to the district court to make a general referral of all bankruptcy cases to the bankruptcy court. A general referral has been made to the bankruptcy court; the trustee therefore filed his application with the correct court. The court then holds that it must abstain from hearing the case under 28 U.S.C. §1334(c)(2). Section 1334(c)(2) requires abstention in cases that could not have been filed in federal court but for the bankruptcy petition if an appropriate state court forum is available. Ohio's suit in this case is based entirely on state environmental laws, and the case could not have been brought in federal court except for the fact that the defendant has filed for bankruptcy. Moreover, there is no evidence to indicate that the action will not be timely adjudicated in state court.

The court holds that §305 of the Bankruptcy Reform Act, which allows for dismissal of bankruptcy petitions if the interests of the debtor and creditors would be better served, does not apply to a voluntary petition. The court holds, however, that §707(a) of the Act calls for dismissal for cause of the debtor's bankruptcy petition. There is cause here in the form of concern for the health, safety, and welfare of the community. There are suits pending in both state and federal court, both under an automatic stay as a result of the bankruptcy action, and either forum is a more appropriate place in which to resolve the issues. The court notes that under the ruling articulated in the recent Supreme Court decision in Midlantic National Bank v. New Jersey Department of Environmental Protection, 16 ELR 20278, the trustee will be liable under state law for failure to clean up the site; the court is reluctant to force a trustee unfamiliar with hazardous waste cleanup to shoulder that burden. Moreover, the cost of litigating in three forums will decrease the amount of any assets available. Placing the trustee in charge of cleanup rather than the federal and state authorities will also hinder the pace of cleanup. The court rejects the debtor's argument that dismissal is inappropriate since it is prohibited from defending itself in the state action as a result of a temporary restraining order. The debtor agreed not to spend its assets on a trial on the merits so that there would be funds available for cleanup; the debtor agreed to this order. Finally, the court holds that the burden was on the debtor to disprove the evidence presented by the state indicating the presence of PCBs and other highly toxic materials at the site.

Counsel for Plaintiffs
David Schiff, Martha E. Horvitz
Office of the Attorney General
30 E. Broad St., State Office Tower, 17th Fl., Columbus OH 43215
(614) 466-3376

Counsel for Debtor
Thomas J. Schank
Hunter & Schank
5403 Summit St., Toledo OH 43611
(419) 729-3369