In re Advance Coatings Co.

No. 89-40108-JFQ (Bankr. D. Mass. July 12, 1989)

The court holds that cost recovery under §§ 107 and 113 of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), against a Chapter 11 debtor, is excepted from the automatic stay under § 362(b)(4) of the Bankruptcy Code. The United States' CERCLA suit sought recovery of response costs already incurred, and requested declaratory relief that defendants in the case were liable for all future costs incurred by the United States at the site. The court noted that both the Senate and House committee reports on the automatic stay provision expressly exempted from the automatic stay a governmental unit's suit to prevent or stop violations of environmental protection laws, and suits attempting to fix damages for violations of such laws. The court holds that such a suit is to enforce the governmental unit's police or regulatory power, even though it seeks compensation for expenditures and § 362(b)(5) prevents the government from enforcing any money judgment which it obtains. the court observes that the government's action is based on the public policy of protection of the environment rather than its own pecuniary interest, that such suits have a deterrent effect that reduces further violations, and that funding of the government's activities is significantly dependent upon such suits. Finally, the court holds that granting the exemption is proper because the debtor has not requested the court to use its general powers under § 105(a) of the Bankruptcy Code, or demonstrated any frustration in reorganization resulting from exempting the government's suit.

Counsel for Federal Government
Casper E. Carpenter, Ass't U.S. Attorney
1107 John W. McCormack
P.O. and Courthouse, Boston MA 02109-4583
(617) 223-9400

Robert Maher
Land and Natural Resources
U.S. Department of Justice, P.O. Box 7611, Ben Franklin Station, Washington DC 20044
(202) 633-4241

Counsel for Debtor
David Nickless
Nickless & Philips
401 Main St., Fitchburg MA 01420
(508) 342-4590

[19 ELR 21420]

Queenan, J.:

Ruling on Effect of Automatic Stay Upon Environmental Litigation

The United States of America ("United States") has filed with the Court a "Statement" claiming exemption from the automatic stay for a suit which it has filed in the United States District Court of Massachusetts against Advance Coatings Company, the Chapter 11 Debtor here, and numerous other defendants. The action was brought under §§ 107 and 113 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9607 and 9613, as amended by the Superfund Amendments and Reauthorization Act of 1986, P.L. No. 99-499. It seeks recovery of costs already incurred by the United States in response to release and threatened release of hazardous substances into the environment from two sites in Massachusetts and two sites in New Hampshire. Also sought is declaratory relief that the defendants are liable for all future costs to be incurred by the United States at the sites. Cannons Engineering Corporation maintained all four sites to store and incinerate hazardous wastes. Operations at the sites have been shut down. Joined as defendants are those who owned or operated the sites, those who generated the waste in their manufacturing operations, and those who transported the waste to the sites. The Debtor is one of the so-called "generator" defendants.

At issue is whether the suit is excepted from the automatic stay as either "an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power" under 11 U.S.C. § 362(b)(4) or "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" under 11 U.S.C. § 362(b)(5). The Debtor contends that neither subsection of the statute applies because the United States is here seeking monetary damages rather than injunctive relief to prevent further actions detrimental to the environment. I disagree. The action falls within § 362(b)(4). Both the Senate and House Committee Reports state that "where a governmental unit is suing a debtor to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such a law, the action or proceeding is not stayed under the automatic stay." (emphasis added). H.R. Rep. No. 595, 95th Cong., 1st Sess. 343 (1977), S. Rep. No. 989, 95th Cong. 2d Sess. 52 (1978). The action which the government has brought, moreover, is based upon the public policy of protection of the environment rather than merely its own pecuniary interest, though it seeks compensation for expenditures. Even if all release of hazardous materials has terminated, which is far from clear, such suits have a deterrent effect which reduces further violations. The policy of environmental protection in any event pervades such suits, and the funding of the government's activities is significantly dependent upon them. For all of these reasons, the decisions seem to be in agreement that actions seeking compensation for clean-up costs are excepted from the automatic stay under § 362(b)(4). E.g., United States v. Nicolet, Inc., 857 F.2d 202 [18 ELR 21411](3d Cir. 1988); Word v. Commerce Oil Co. (In re Commerce Oil Co.), 847 F.2d 291 [18 ELR 21017] (6th Cir. 1988); United States v. Mattiace Indus., Inc., 73 B.R. 816 [17 ELR 21004] (E.D.N.Y. 1987). But § 362(b)(5) makes it clear that the stay operates to prevent the government from enforcing any money judgment which it obtains.

The Debtor has not requested this Court to use its general powers under § 105(a). Nor has it sought to demonstrate how the pending suit frustrates its goal of reorganization or how both reorganization and environmental protection can be harmonized by, for example, an expedited claim estimation procedure. We simply note the possible use of the estimation process and § 105(a) powers in circumstances such as these, upon a proper showing. See, H.R. Rep. No. 595 at 342; S. Rep. No. 989 at 51.