United States v. Johns-Manville Sales Corp.

No. 81-299-D (D.N.H. November 15, 1982)

The court rules that it lacks jurisdiction to impose hazardous waste cleanup injunctions on Johns-Manville while the company is protected by the automatic stay provision of the federal bankruptcy law. The court finds that the relief requested by the United States and New Hampshire would require Johns-Maville to spend substantial sums. The court construes the Bankruptcy Reform Act to allow the government to seek an injunction stopping actions that violate health and safety regulations while a stay is in effect, but not to enforce a money judgment against a bankrupt. It holds that an injunction that orders the payment of money is the same as a money judgment. Noting that plaintiffs have recourse to alternative remedies that could control the health hazard, the court holds the injunctions requested to be primarily pecuniary and thus subject to the automatic bankruptcy stay.

Counsel for Plaintiff
Steven M. Gordon, Ass't U.S. Attorney
Feb. Bldg., Concord NH 03301
(603) 834-4735

Philip Boxell
Office of Regional Counsel
Environmental Protection Agency, JFK Fed. Bldg., Boston MA 02203
(617) 223-2311

Erica L. Dolgin
Land and Natural Resources Division
Department of Justice, Washington DC 20530
(202) 633-5258

Counsel for Plaintiff-Intervenor
E. Tupper Kinder
Dep't of the Attorney General
208 State House Annex, Concord NH 03301
(603) 271-3678

Counsel for Defendants
George R. Freund Jr.
Faulkner, Plaut, Hanna, Zimmerman & Freund
P.O. Box 527, Keene NH 03431
(603) 352-3630

Edward W. Warren Jr., L. Mark Wine, David K. Perdue, Michael Baumann
Kirkland & Ellis
1776 K St. NW, Washington DC 20006
(202) 857-5000

S. Wyatt McCallie
Johns-Manville Sales Corp., P.O. Box 5108, Denver CO 80217
(303) 978-4953

[13 ELR 20310]

Devine, J.:

Order

This environmental litigation was commenced in this court by the plaintiff United States of America, which has been subsequently joined in intervention by the State of New Hampshire. Contending that health and environment have been endangered by the disposal of certain asbestos wastes, plaintiff seeks relief pursuant to § 7003 of the Resource Conservation and Recovery Act, 42 U.S.C. § 6973 ("RCRA"), and § 106(a) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9606(a) ("CERCLA"). The relief sought by New Hampshire is grounded in provisions of its Solid Waste Management Act, RSA 147:45, et seq. ("SWMA"), and Hazardous Waste Management Act, RSA 147-A (Supp. 1981) ("HWMA").¹

Defendant Johns-Manville Sales Corporation ("Manville"), described as a Delaware corporation which is registered to do business in New Hampshire, is alleged to have disposed of the wastes at issue as the result of its production facility in Nashua, New Hampshire. The individual defendants² are described as owners of the sites in Hudson, New Hampshire, upon or in which Manville allegedly disposed of its asbestos waste. The initial complaint was filed here in June of 1981 by the United States, and subsequently New Hampshire was permitted to intervene, various cross claims were filed among the defendants, and United States was allowed to amend its complaint,³ following which it sought to move for a preliminary injunction.

As has been well publized, however, Manville sought relief from its creditors pursuant to the 1978 Bankruptcy Code by filing a voluntary petition, 11 U.S.C. § 301, for reorganization under Chapter XI of said Act, 11 U.S.C. § 1101, et seq. On August 26, 1982, the Bankruptcy Court in the Southern District of New York issued a broad restraining order⁴ purporting to stay all persons and governmental units, including the plaintiffs and defendants, from commencing or continuing with any litigation against Manville. Accordingly, under date of September 30, 1982, the Magistrate in this district ordered that further proceedings herein be stayed pending the outcome of the bankruptcy proceedings.

The matter is currently before the Court on the motion of the United States, joined by New Hampshire and defendants Matarazzo, seeking vacation of the aforesaid stay issued by the Magistrate. Manville and certain of the defendants object to the vacation of said stay.⁵

The thrust of the request for relief from the stay herein is to the effect that the relief here sought falls within the specific exception to 11 U.S.C. § 362(a)(1),⁶ which is detailed in 11 U.S.C. § 362(b)(4) as follows:

The filing of a petition under section 301, 302, or 303 of this title does not operate as a stay —

(4) under subsection (a)(1) of this section, of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power (emphasis added).

Movants urge that inasmuch as the relief here sought is injunctive under federal and state laws which authorize abatement of imminent and substantial endangerment to health caused by the disposal of hazardous asbestos wastes, this Court must vacate the stay for protection of the public. For reasons unclear,⁷ neither [13 ELR 20311] the United States nor New Hampshire has sought to make use of its own funds for the purpose of emergency clean-up, removal, and containment action pursuant to section 104 and 107 of CERCLA, 42 U.S.C. §§ 9604, 9607, and New Hampshire's Hazardous Waste Cleanup Fund, RSA 147-B (Supp. 1981) ("HWCF"). Manville argues that as the actual relief here sought is not the injunction of ongoing waste disposal on its part but is the expenditure of funds to rectify what it depicts as long-past disposal practices, the limited relief from bankruptcy stay outlined in 11 U.S.C. § 362(b)(4) should not be here applied.

We commence our analysis with review of the relief sought at pp. 8, et seq., of the amended complaint in behalf of the United States, Document 59. While it is true that movants seek injunction against the allowance or causation of disposal of any asbestos or other hazardous wastes or substances at the sites owned by the individual defendants and also request injunctive relief from the allowance or causing of the alteration of any part of the aforesaid sites without the approval of the Environmental Protection Agency ("EPA"), PP A and B, a fair reading of the remainder of the relief sought demonstrates that if found to be required, its implementation would require the expenditure of substantial funds on the part of Manville. Thus it is sought to require Manville to prepare and implement a plan to be approved by EPA for covering all of the sites at issue with soil and vegetation and to maintain such cover in order to prevent asbestos fibers from becoming airborne, P C, and to erect fences and post warnings around each of the aforesaid sites, P D(1-4).⁸ Additionally, plaintiffs here seek to require Manville to post a performance bond for the accomplishment of all necessary remedial actions.

From the foregoing it can be seen that regardless of its description the relief here sought actually seeks the expenditure of substantial funds from the assets of Manville which are now within the jurisdiction of the Bankruptcy Court for the Southern District of New York.⁹ And although the plaintiffs could easily seek to sever and proceed with their claims against the defendants¹⁰ who are allegedly the owners in possession of the premises upon which threatened imminent danger exists, no such suggestion is here made.¹¹

The legislative history of the Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, is substantially detailed in 1978 U.S. CODE CONG. & AD. NEWS, commencing at p. 5787. Referring respectively and selectively to identical provisions set forth in both the Senate, id. at 5838, and the House, id. at 6299, Reports, the plaintiffs stress that it is obvious that this case is one in which automatic stay is not applicable. Such argument overlooks the requirement that 11 U.S.C. § 362(b)(4) must of necessity be read in conjunction with 11 U.S.C. § 362(b)(5), which excepts from the automatic stay "of the enforcement of a judgment, other than a money judgment, obtained in an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power." Thus, the identical language in the Senate and House Reports which immediately follows that relied on by the plaintiffs herein states:

Paragraph (5) makes clear that the exception extends to permit an injunction and enforcement of an injunction, and to permit the entry of a money judgment, but does not extend to permit enforcement of a money judgment. Since the assets of the debtor are in the possession and control of the bankruptcy court, and since they constitute a fund out of which all creditors are entitled to share, enforcement by a governmental unit of a money judgment would give it preferential treatment to the detriment of all other creditors.

1978 U.S. CODE CONG. & AD. NEWS, at 5838, id. at 6299.

Additionally, the legislative leaders who presented the Bankruptcy Code, i.e., Representative Edwards and Senator DeConcini, made clear that the application of 11 U.S.C. § 362(b)(4) "is intended to be given a narrow construction in order to permit governmental units to pursue actions to protect the public health and safety and not to apply to actions by a governmental unit to protect a pecuniary interest in property of the debtor or property of the estate." 1978 U.S. CODE CONG. & AD. NEWS, at 6444-45 (remarks of Representative Edwards), and at 6513 (remarks of Senator DeConcini). Such remarks merely restate the well-established rule of law to the effect that "[a] plaintiff cannot transform a claim for damages into an equitable action by asking for an injunction that orders the payment of money." Jaffee v. United States, 592 F.2d 712, 715 (3d Cir.), cert. denied, 441 U.S. 961 (1979), quoted in United States v. Price, 523 F. Supp. 1055, 1067 [11 ELR 21047] (D.N.J. 1981) (holding under RCRA and CERCLA plaintiff not entitled to preliminary injunction which would require part and current owners of landfill to fund study to monitor extent of problem posed by leachate emanating from landfill, to devise solution to such problem, or to provide alternate water supply to those home owners whose wells were contaminated by such leachate).

The Court does not find persuasive the case authority relied upon by the movants herein. In the Matter of Canarico Quarries, Inc., 466 F. Supp. 1333 (D.P.R. 1979), concerns circumstances where an authorized administrative agency which had been upheld by a local court had entered a cease and desist order foreclosing the continued operation of the debtor's quarry as violative of the Federal Clean Air Act, 42 U.S.C. § 7401, et seq. Subsequent to such administrative and judicial proceedings, the debtor sought relief under Chapter XI of the 1898 Bankruptcy Act, and the bankruptcy court authorized the debtor's continued operation of its quarry. In reversing the bankruptcy court, the district court predicted in dicta that 11 U.S.C. § 362(b)(4) would mandate exception to any stay. In the course of that portion of its opinion, however, the court quoted language which referred to the "narrow construction" which was to be given 11 U.S.C. § 362(b)(4). 466 F. Supp. at 1340.

In Re Mansfield Tire and Rubber Company, 660 F.2d 1108 (6th Cir. 1981), held that a bankruptcy court would not stay the administration by the State of Ohio of its workers' compensation claims, but in the course of so doing pointed out that the "insurance fund, not the debtor's estate, pays the claims for which the employer has paid the premium." 660 F.2d at 1113. In a subsequent decision, the Sixth Circuit explained its decision in the Mansfield case, in pertinent part, as follows:

The debtor in Mansfield was not subject to making payments on its workers' claims that would resemble a money judgment, since payment of claims would come from premium funds already deposited by the debtor with the state, upon which the debtor had no legal claim. Accordingly, the exception to the automatic stay was applicable in that case, because enforcement of a money judgment liability was not imposed upon the debtor, and the administration of the claims was pursuant to Ohio's police power.

[13 ELR 20312]

In Re Kovacs, 681 F.2d 454, 456 (6th Cir. 1982).

The decision in Commonwealth of Pennsylvania, Department of Environmental Resources v. Peggs Run Coal, 423 A.2d 765 (Pa. Commw. 1980), involved a complaint seeking injunctive relief and the posting of bonds against an ongoing mining operation which was purportedly in violation of certain state environmental laws. The Court held that such action was not automatically stayed by the commencement of bankruptcy proceedings and was within the exception of 11 U.S.C. § 362(b)(4) and (5).¹² NLRB v. Evans Plumbing Company, 639 F.2d 291 (5th Cir. 1981), held that an enforcement proceeding of an NLRB order reinstating two employees will back pay was excepted from bankruptcy stay pursuant to 11 U.S.C. § 362(b)(4), as such action sought enforcement of federal labor laws regulating the relationship between employer and employee.

SEC v. First Financial Group of Texas, 645 F.2d 429 (5th Cir. 1981), held that the appointment of a receiver for a securities dealer against which involuntary bankruptcy had been filed was not precluded by the bankruptcy stay as such appointment serves "to prevent dismemberment of the corporate estate by management personnel who have been found to have acted fraudulently and who could otherwise easily dispose of the assets to the detriment of the debtor's creditors. 645 F.2d at 439. And In Re Bel Air Chateau Hospital, Inc., 611 F.2d 1248 (9th Cir. 1979), another case brought under the 1898 Bankruptcy Act, held that the regulatory proceedings of the NLRB with reference to unfair labor practices involving two employees of the debtor could not be stayed in bankruptcy.

Were the circumstances of the instant case such that the relief sought was an injunction which would require Manville to cease and desist from ongoing deposit of asbestos wastes on real property sites in New Hampshire, together with the additional posting of a modest performance bond to ensure compliance with such order, this Court would agree that the above-cited cases relied on by movants would indicate that such relief should not be stayed under 11 U.S.C. § 362(b)(4). Unfortunately, this is not such a case. The circumstances herein depict federal and state governments which are either unable or unwilling to take the necessary financial steps to protect the public from what are long extant but apparently recently discovered dump sites containing hazardous wastes, and the same plaintiffs are similarly unwilling to proceed against the current owners who are in possession of such sites. Clearly the relief sought is directed against Manville alone and will require it to divert substantial of its assets now held in the jurisdiction of a bankruptcy court from the claims of numerous creditors, many of whom allege that they are themselves suffering serious physical debilitation as a result of the inhalation of asbestos fibers. Cast in this light, it is clear to this Court that the exception from stay detailed in 11 U.S.C. § 362(b)(4) is not here applicable.

Instructive in this regard is the opinion of the Sixth Circuit in In Re Kovacs, supra. There the defendant and certain entities controlled by him were engaged in the business of industrial waste disposal and had been ordered by a state court to cease and desist operations and to remove all industrial wastes from their business premises. On the failure of defendant to do so, the state sought appointment of a receiver over his business assets. Defendant filed in bankruptcy and subsequently sought to restrain in the bankruptcy court proceedings in the state court directed toward inquiry into defendant's current assets and employment. On appeal of the stay issued by the bankruptcy court, the Court of Appeals in affirming such stay said in pertinent part:

We concur with the bankruptcy court's conclusion that § 362 indicates a clear intent to permit governmental units to continue to enforce their police power through mandatory injunctions despite the filing of a bankruptcy petition, but to deny those units the power to collect money in their enforcement efforts. We further concur with the conclusion of the bankruptcy court and the district court that the state of Ohio in its state court proceedings was seeking what in essence amounted to a money judgment against Kovacs, which was properly subject to the monetary stay. We note that the state court's order appointing a receiver also ordered that Kovacs turn over all his non-exempt assets to the receiver, and authorized the receiver to collect any sums of money that would become payable to Kovacs in the future. There is very little in substance to distinguish that order and a money judgment.

Id. at 456.

As has been elsewhere stated, the term "police or regulatory power" contained in 11 U.S.C. § 362(b)(4) has reference to the enforcement of laws "affecting health, welfare, morals, and safety, but not regulatory laws that directly conflict with the control of the res or property by the bankruptcy court." State of Missouri v. United States Bankruptcy Court, et al, 647 F.2d 769, 776 (8th Cir. 1981), cert. denied, 102 S. Ct. 1035 (1982) (state grain warehouse laws, although regulatory in nature, held to primarily relate to the protection of the pecuniary interest in the debtor's property and not to matters of public health and safety).

In sum, while plaintiffs herein could choose to amend their pleadings and proceed pursuant to sections 104 and 107 of CERCLA, 42 U.S.C. §§ 9604, 9607, proceed immediately with government funds to clean up the hazards which they depict to be existing at the waste sites described, and then seek reimbursement from Manville pending resolution of the bankruptcy proceedings, they have not chosen to do so.¹³ In lieu of such proceedings, they suggest that this Court may wrest from the bankruptcy jurisdiction the substantial assets which would be required were the relief here sought to be ordered after trial.¹⁴

This Court has no such jurisdiction, and it should be noted that nothing in this Order seeks to prevent any party in interest herein from seeking relief from the stay of the bankruptcy court by proper application to such court. The Court finds and rules, however, that in entering its Order of September 30, 1982, the Magistrate acted properly, and that the motion to vacate his stay in the instant proceedings must be and it is herewith denied.

SO ORDERED.

1. New Hampshire also claims the right to recovery under the doctrine of common law nuisance.

2. The individual defendants are: Anthony Matarazzo and Rose Matarazzo; Arthur Bursey, Jr.; Thomas Baker; Stanley Alukonis and Sophie Alukonis; Richard Lannan and Brenda Lannan; James Choate and Joyce Choate; and Joseph Lemieux and Marie Lemieux.

3. The amendment, granted on April 6, 1982, allowed the addition of the claim pursuant to CERCLA, 42 U.S.C. § 9606(a).

4. A copy of the restraining order issued by the Bankruptcy Court for the Southern District of New York was attached to the legal memo filed in behalf of Manville herein.

5. Defendants Baker and Alukonis have joined in Manville's objection to the vacation of stay.Although certain of the parties have requested further hearing, the Court finds upon examination of the well-crafted memos filed in behalf of the primary parties and its own research that such hearing is not necessary and proceeds forthwith to resolution of the issues raised.

6. 11 U.S.C. § 362(a)(1) provides:

Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title operates as a stay, applicable to all entities, of —

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.

7. It may well be that the respective government plaintiffs feel that the funds available to them are inadequate to provide the relief actually sought herein and that they must accordingly seek to press the instant action against Manville. See United States v. Wade, 546 F. Supp. 785, 792-94 and n.22 [12 ELR 21051] (E.D. Pa. 1982).

8. In the course of ordinary trial preparation prior to entry of the stay herein, defendants Matarazzo's disclosure of experts pursuant to the applicable provisions of Rule 26(b)(4), FED. R. CIV. P., Document 110, has attached to it an estimate by an expert environmental witness which purports to demonstrate that the cost of removal and cover of the waste on the Matarazzo site alone would exceed $1 million. While establishment of any such amount would naturally require proof adduced in accord withproper trial procedure, such estimate is here referred to merely to illustrate that if the plaintiffs herein are successful in the relief sought, substantial sums of money will be required to implement such relief.

9. At this point, the Court notes that even though it undoubtedly possesses jurisdiction to review the issuance of the stay by its Mangistrate pursuant to the provisions of 28 U.S.C. § 636, even were such relief to be afforded, it might well prove illusory, for it is bankruptcy judge "who is the most knowledgeable about the debtor's affairs, and about the effect that any judicial proceeding would have on the debtor's reorganization" and who ultimately, therefore, retains the jurisdiction of determining whether an action against the debtor may proceed or whether the bankruptcy court's stay should remain in effect. Association of St. Croix Condominium Owners v. St. Croix Hotel Corporation, 682 F.2d 446, 448 (3d Cir. 1982).

10. It is well established that the commencement of Chapter XI proceedings with resulting stay as against the debtor therein does not serve to stay proceedings against codefendants who are not themselves seeking the relief of bankruptcy. Royal Truck & Trailer v. Armadora Maritima Salvadorena et al, 10 B.R. 488 (Bkrtcy. N.D. Ill. 1981).

11. Indeed, the relief herein sought as against the individual defendants appears to be limited to requiring them to note on their deeds the existence of the hazardous waste on their premises and to permit inspection of said premises for testing and monitoring purposes.

12. More recently, the highest state court in New Jersey has held that an action to fix damages for violation of Medicaid fraud statutes is not automatically stayed by the filing of a petition for bankruptcy in behalf of the errant physician. In Re Garay, 89 N.J. 104, 444 A.2d 1107 (1982).

13. This was the procedure followed in City of Philadelphia v. Stepan Chemical Company, 544 F. Supp. 1135 [12 ELR 20915] (E.D. Pa. 1982), where the City expended its own funds to clean up the hazardous wastes which had been illegally dumped by others and then sought to recoup such under § 107 of CERCLA.

14. See United States v. Reilly Tar & Chemical Corporation, 546 F. Supp. 1100 [12 ELR 20954] (D. Minn. 1982), for detailed indication of activities which might be taken against solvent past disposers of hazardous wastes.