In re L. F. Jennings Oil Co.

No. 93-2001 (10th Cir. September 8, 1993)

The court holds that a bankruptcy court's order allowing a trustee to abandon a contaminated site that was part of the bankrupt estate did not violate the U.S. Supreme Court's ruling in Midlantic National Bank v. New Jersey Department of Environmental Protection, 16 ELR 20278 (1986), on the abandonment of bankrupt estate property in violation of state and local public health and safety laws. The court first holds that this appeal of the bankruptcy court's order by the state agency is moot as to two of three properties that once belonged to the debtor from which the contaminating tanks were removed and which had since been abandoned and deeded to third-party purchasers. There is no live controversy regarding the two properties because they have been cleaned up to the satisfaction of the state, so that a determination as to whether the bankruptcy court abandoned these properties in error, and any relief that might be granted, would have no proactive significance. Also, the state appears to be seeking future guidance in the form of an advisory opinion. The court holds that this action does not fall into the "capable of repetition yet evading review" exception to mootness. Although the circumstances are likely to repeat themselves, the issue will not inherently escape review, because the state will have ample opportunity to contest this issue in each case when it arises, as long as the state properly enters an appearance and files a request for notice pursuant to the bankruptcy rules. Finally, the court holds that the bankruptcy court did not violate Supreme Court precedent by allowing abandonment of the third property, because the property did not represent an immediate and identifiable harm to public health or safety. This "public health" exception to a trustee's abandonment powers, which the Supreme Court set forth in Midlantic, is narrow, the third property is not included in the state's list of contaminated sites, there is insufficient data that the property is a present threat, and the trustee's only violation of state law at the time of abandonment was a failure to file reports.

Counsel for Appellant
Felicia L. Orth, Ass't Attorney General
Attorney General's Office
Bataan Bldg., P.O. Box 1508, Santa Fe NM 87501
(505) 827-6000

Counsel for Appellee
James R. Jurgens
411 Paseo De Peralta, Santa Fe NM 87501
(505) 984-2020

Before Brorby and Brimmer^*

[24 ELR 20168]

Logan, JJ.:

At the heart of this appeal¹ are three properties, former gas stations that once belonged to the debtor, L. F. Jennings Oil Company. They are known as the Carrizozo Mart (Carrizozo), the Midtown Mart 1 (Midtown), and the Capitan Mart (Capitan). After Jennings filed for Chapter 7 bankruptcy protection, the trustee sought to sell the properties. In the process, he obtained tank and soil tests on all three sites, which evidenced contamination in excess of 100 parts per million at each site. The trustee reported these results to the New Mexico Environment Department (NMED), as required by state law.

The trustee subsequently concluded that the bankruptcy estate had no equity in the properties; accordingly, he filed motions to abandon them pursuant to 11 U.S.C. § 554(a). Although the NMED had notice of the sites' contamination and of Jennings' bankruptcy, it did not enter an appearance in the bankruptcy proceeding, and therefore did not receive notice of the abandonment motions.

The bankruptcy court allowed abandonment of the properties, and the NMED subsequently filed a motion for reconsideration requesting that the bankruptcy court quash its previous abandonment orders. After a hearing the bankruptcy court denied the NMED's motion.² In its oral ruling, the court stated that the NMED should have entered an appearance and objected to the abandonment motions in a timely fashion, and concluded thatnone of the properties represented an immediate threat to public health or safety such that the abandonment was improper.

The NMED appealed this decision to the district court, but did not seek a stay. The successor trustee moved to dismiss the appeal as moot as to two of the properties, Carrizozo and Midtown, which by that time had been deeded to third-party purchasers. On November 30, 1992, the district court filed a memorandum opinion and order, denying the trustee's motion to dismiss, and affirming the bankruptcy court's decision denying reconsideration of its order allowing abandonment.

The NMED now appeals, contending that the trustee's abandonment of the properties contravened the state's environmental laws and violated the Supreme Court's ruling in Midlantic National Bank v. New Jersey Department of Environmental Protection, 474 U.S. 494 [16 ELR 20278] (1986). We have jurisdiction over this appeal pursuant to 28 U.S.C. § 158(d). We agree with the district court that the facts of this case are not contested. We review the bankruptcy court's legal determinations de novo. Clark v. Valley Fed. Sav. & Loan Ass'n (In re Reliance Equities, Inc.), 966 F.2d 1338, 1340 (10th Cir. 1992).

Initially, we address the trustee's contention that this appeal is moot as to Carrizozo and Midtown. '"The mootness question necessarily constitutes our threshold inquiry, because the existence of a live case or controversy is a constitutional prerequisite to the jurisdiction of the federal courts.'" Dais-Naid, Inc. v. Phoenix Resource Cos. (In re Texas Int'l Corp.), 974 F.2d 1246, 1247 (10th Cir. 1992) (quoting Beattie v. United States, 949 F.2d 1092, 1093 (10th Cir. 1991)). We review the mootness issue de novo. Id. Our review of the district court's order, together with the undisputed facts concerning events subsequent to the bankruptcy court's abandonment orders, convinces us that this appeal is moot with respect to Carrizozo and Midtown.

The record reveals that the tanks were removed from the Carrizozo and Midtown sites, that the NMED issued letters with respect to these properties, essentially recognizing that they do not pose a serious threat to public health and safety, and that the properties were sold to third-party good-faith purchasers. Under these facts, none of which the NMED contests, it is clear that no live controversy with respect to the Carrizozo and Midtown sites still exists, nor did it exist when the district court decided the case. See Lewis v. Continental Bank Corp., 494 U.S. 472, 477 (1990) (case or controversy required at all stages of federal review); Morgan v. K. C. Mach. & Tool Co. (In re K. C. Mach. & Tool Co.), 816 F.2d 238, 242 (6th Cir. 1987) (dispute as to abandoned property moot). Nonetheless, the NMED asserts two points in favor of its position that this appeal is not moot regarding these two properties. First, it contends that "the conflict remains squarely drawn," and argues that this court can still grant effective relief as to Carrizozo and Midtown. Second, it contends that this dispute falls within the "capable of repetition yet evading review" exception to the mootness doctrine.

The NMED's first argument is not persuasive. It characterizes the conflict as "whether the Bankruptcy Court can approve abandonment of contaminated estate property without first requiring the trustee to comply with state environmental laws and regulations designed to protect public health and safety." Appellant's Br. at 18. The evidence indicates the Carrizozo and Midtown sites have been cleaned up to the NMED's satisfaction. The determination whether the bankruptcy court abandoned these properties in error, therefore, would have no practical significance. See Smith v. United States (In re Smith), 921 F.2d 136, 139 (8th Cir. 1990); Martin-Trigona v. Shiff, 702 F.2d 380, 386 (2d Cir. 1983) ("The hallmark of a moot case or controversy is that the relief sought can no longer be given or is no longer needed.") (emphasis added).

Additionally, it is clear from the record and the NMED's own arguments that effective relief cannot be granted on this issue as to Carrizozo and Midtown. The NMED's motion for reconsideration requested that the bankruptcy court quash its abandonment orders, and order the trustee to investigate the tank sites and perform any necessary cleanup. Now, despite the undisputed lack of any threat from these properties, the NMED maintains that effective relief can still be had: "the Court should . . . hold, without requiring further action, that the abandonment of [Carrizozo and Midtown] before environmental laws were satisfied was error." Appellant's Br. at 19. Such an order would grant no effective relief. See Lewis, 494 U.S. at 479-80 (declining review due to mootness where appellee's only remaining request was to have statute declared unconstitutional). Accordingly, it appears to this court that, at best, the NMED is seeking an advisory opinion on this issue as to Carrizozo and Midtown. See Sullivan Cent. Plaza, I, Ltd. v. BancBoston Real Estate Capitol Corp. (In re Sullivan Cent. Plaza, I, Ltd.), 914 F.2d 731, 735 (5th Cir. 1990) ("The mootness doctrine avoids advisory opinions on abstract propositions of law."), aff'd on reh'g on other grounds, 935 F.2d 723 (1991). This conclusion is bolstered by the NMED's various arguments on appeal seeking future guidance from this court on what it views as an important issue.

We also disagree with the NMED's contention that this issue is "capable of repetition yet evading review." While, generally speaking, the circumstances are likely to repeat themselves insofar as a trustee in bankruptcy may seek to abandon properties that require environmental cleanup pursuant to state regulation, the issue does not inherently escape review. Outside of a vague reference to the short time deadlines in bankruptcy proceedings, the NMED does not argue otherwise. See Beattie, 949 F.2d at 1094 n.2 (issue must, by its own nature, be "so ephemeral as to elude the processes of federal review"). We expect that the NMED will have ample opportunity to contest this issue in each case where it arises, should it properly enter an appearance and file a request for notice pursuant to the bankruptcy rules. The NMED cannot rely on its own failure to follow such rules to support its argument that the exception applies.

Additionally, the NMED could have requested a stay if it thought the properties represented an immediate threat to public health and safety. See Official Comm. of Unsecured Creditors of [24 ELR 20169] LTV Aerospace & Defense Co., v. Official Comm. of Unsecured Creditors of LTV Steel Co. (In re Chateaugay Corp.), 988 F.2d 322, 325-26 (2d Cir. 1993) (mootness in light of failure to seek stay "especially pertinent in bankruptcy proceedings"); In re Sullivan Cent. Plaza, I, Ltd., 914 F.2d at 733 (failure to obtain a stay will result in court's inability to grant effective relief once property sold); Cook v. Fletcher (In re Cook), 730 F.2d 1324, 1326 (9th Cir.1984) (failure to seek stay supported court's conclusion that appeal was moot). The NMED's arguments that it did not seek a stay in light of the purchasers' agreements to perform cleanup activities at Carrizozo and Midtown merely beg the question. We conclude that this appeal is moot as to Carrizozo and Midtown.

We reach the merits of the NMED's argument that the bankruptcy court allowed abandonment in violation of the Supreme Court's opinion in Midlantic, but only as to the remaining property, the Capitan site.³ Midlantic holds that "[n]either the Court nor Congress has granted a trustee in bankruptcy powers that would lend support to a right to abandon property in contravention of state or local laws designed to protect public health or safety." 474 U.S. at 502. However, this exception to the trustee's abandonment powers under bankruptcy law "is a narrow one." Id. at 507 n.9. As the parties' arguments on appeal apparently recognize, before abandonment of a property can violate Midlantic the property must represent an immediate and identifiable harm to public health or safety. See id.; Borden, Inc. v. Wells-Fargo Business Credit (In re Smith-Douglass, Inc.), 856 F.2d 12, 16 (4th Cir. 1988).

It is abundantly clear from the record on appeal that Capitan was not, at the time of abandonment, an immediate threat to public health or safety. The record shows that 1) the Capitan site was not listed on the state's list of contaminated sites, indicating that the NMED was not considering further testing or investigation of the site, 2) there was insufficient data from which the NMED's own expert could state that Capitan was a present threat, and 3) the trustee's only violation of state law at the time of abandonment was failure to file reports. Under these facts, we agree with the bankruptcy and district courts that Capitan did not pose an immediate threat to public health or safety. Accordingly, the bankruptcy court's order allowing abandonment of that property did not violate Midlantic.

The judgment of the United States District Court for the District of New Mexico is AFFIRMED as to the Capitan site. As to the Carrizozo and Midtown sites, this appeal is DISMISSED as moot, and the action REMANDED to the district court to vacate that part of its order as moot and to remand to the bankruptcy court with directions to vacate its abandonment orders and its denial of reconsideration as to those two properties. See Beattie, 949 F.2d at 1095 (citing United States v. Munsingwear, Inc., 340 U.S. 36, 39 (1950)).

* Honorable Clarence A. Brimmer, United States District Judge for the District of Wyoming, sitting by designation.

1. After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a); 10th Cir.R.34.1.9. The case is therefore ordered submitted without oral argument.

2. The NMED's motion for reconsideration expressly discusses only two of the three properties, as does the trustee's response to that motion. However, at the hearing the bankruptcy court heard evidence regarding all three properties, the parties' proposed factual findings and conclusions of law discuss all three properties, and the bankruptcy court's ruling refers to all three properties. On appeal to the district court and to this court, the parties continue to discuss all three properties. Therefore, we do likewise.

3. We decline to address the parties' arguments regarding the NMED's failure to object to the proposed abandonment before the bankruptcy court order. The parties characterize the bankruptcy court's order as a ruling that the NMED was barred from objecting to the abandonment after the bankruptcy court's decision or that the NMED waived its right to challenge the abandonment by failing to object before the bankruptcy court's decision. Neither characterization appears to be correct. The bankruptcy court's order does not state the basis for its decision denying the NMED's motion for reconsideration. The transcript of the court's oral ruling, however, clearly states that the court had two reasons for denying the motion: the NMED should have entered an appearance, filing a request for notice, and, even had the NMED presented its case before the bankruptcy court allowed abandonment, the merits did not support a decision denying abandonment. The bankruptcy court's ruling does not indicate that the NMED's failure to object in a timely fashion was a legally independent reason to deny its motion, nor did the court say that such failure constituted a waiver by NMED or resulted in a bar to NMED's challenge of the abandonment orders. Indeed, the court ruled on the merits of the NMED's evidence. We do likewise.