LTV Steel Co. v. City of Buffalo Urban Renewal Agency

No. 99-CV-0624E(F) (UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NEW YORK May 9, 2002)

The court grants in part and denies in part a steel company's and city's motions for injunctions against one another in a case involving the parties' liability for cleanup under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The company filed suit against the city claiming that the city had contaminated the company's property and violated an easement agreement between the parties. The company further alleged that the city violated CERCLA when it used hazardous waste materials to construct an embankment. The company then filed for bankruptcy. The city filed a motion for an injunction against the asset protection plan being used by the company, claiming that it failed to provide for the city's environmental counterclaims against the company. The company filed a motion for injunction based on its bankruptcy petition, arguing that the automatic stay provision in the Bankruptcy Code protected it from the city's claims. The court first holds, however, that the legislative history of the automatic stay provision states that where a governmental unit is suing a debtor to prevent or stop violation of environmental protection or similar police or regulatory laws, the action is not stayed under the automatic stay. Thus, the company's motion for an injunction is denied insofar as it seeks to stay the city's motion for an injunction requiring it to abate environmental nuisance on the property. Additionally, the city argued that it is entitled to an injunction on its counterclaims against the company on the basis that the company is liquidating its assets and will have insufficient funds to satisfy the city's claims if the city prevails at trial. The court, however, is unwilling to issue such an injunction without conducting an evidentiary hearing.

Counsel for Plaintiffs
John A. Ragosta
Dewey Ballantine
1775 Pennsylvania Ave. NW, Washington DC 20006
(202) 862-1000

Counsel for Defendants
John Keske
Buffalo Urban Renewal Agency
City Hall
Buffalo NY 14202
(716) 851-5052

[32 ELR 20687]

Elfvin, J.:

Memorandum and Order

Plaintiffs LTV Steel Company, Inc. ("LTV") and The Hanna Furnace Corporation ("Hanna") commenced this action against the City of Buffalo Urban Renewal Agency ("BURA") and the City of Buffalo ("City") September 3, 1999.¹ Plaintiffs allege that defendants contaminated their real property located at Abbey Street in Buffalo ("the industrial property") and violated the terms of an October 1993 easement and the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. ("CERCLA") when they used hazardous waste materials, including, inter alia, construction and demolition debris in the construction of a landscaped embankment thereon ("the Abbey Street Berm"). In their Complaint plaintiffs raise seven causes of action—viz, (1) CERCLA cost recovery, (2) CERCLA contribution, (3) declaratory relief, (4) breach of contract, (5) trespass, (6) private nuisance and (7) waste. BURA filed its Answer December 13, 1999 alleging that plaintiffs had contaminated the industrial property, and certain property which defendants had purchased from plaintiffs in 1992 for residential development ("the residential property") (collectively "the property") by their operation thereon of a steel plant from 1917 until 1982 and raised three counterclaims—viz, (1) CERCLA, (2) public nuisance and (3) navigation law. The City filed its Answer December 13, 1999 and an Amended Answer October 6, 2000 also alleging that plaintiffs had contaminated the property through their operation thereon of a steel plant and raising nine counterclaims—viz, (1) punitive damages, (2) navigation law, (3) public nuisance, (4) CERCLA, (5) restitution, (6) blight, (7) waste, (8) the Resource Conservation Recovery Act, 42 U.S.C. § 6901 et seq. ("RCRA") and (9) New York State Hazardous Waste Management Regulations, N.Y.C.R.R. §§ 370-374, 376. This Court has jurisdiction over this case pursuant to 28 U.S.C. §§ 1331 and 1367.

On December 29, 2000 LTV filed a petition for bankruptcy in the Northern District of Ohio and is currently in the process of liquidating its assets pursuant to an asset protection plan ("APP") approved by Chief Bankruptcy Judge William T. Bodoh in a December 7, 2001 Memorandum Opinion and Order which also overruled objections to the APP brought by, inter alia, BURA and the City on the basis that it failed to provide for their environmental claims against LTV. LTV's Mot. to Stay Exs. 1 (LTV's Mot. for approval of APP), 2 (City's Claim), 3 and 4 (Defs.' Objections to APP) and 6 (Dec. 7, 2001 Order of Judge Bodoh). Defendants filed a motion for a preliminary/permanent injunction based upon their counterclaims² March 5, 2002 seeking to require plaintiffs to (1) abate an environmental nuisance by remediating the property by, inter alia, removing and disposing of the hazardous materials thereon and (2) by implementing a fair market value protection plan for the owners of the residential properties which would guarantee the fair market value of their properties absent the "environmental stigmata." Stanton Mar. 4, 2002 Aff. PP40-44, 46-47; Ryan Mar. 4, 2002 Aff. PP28-32, 34-35. Hanna filed a petition for bankruptcy in the Northern District of Illinois March 6, 2002 and is reorganizing. Kilbert Mar. 22, 2002 Aff. P2. LTV filed a motion to stay defendants' continued prosecution of their counterclaims and motion for an injunction pursuant to 11 U.S.C. § 362(a)(1) March 21, 2002 based upon its December 29, 2000 petition for bankruptcy. Hanna filed a similar motion to stay March 25, 2002 based upon its March 6, 2002 petition for bankruptcy. Oral argument was held on the above motions April 12, 2002 and such have thereafter been before this Court for disposition.

This Court will first address plaintiffs' motions to stay defendants' counterclaims based upon the automatic stay imposed by the Bankruptcy Code which states that:

"except as provided in subsection (b) of this section, a petition [for bankruptcy] ^*** operates as a stay, applicable to all entities, of ^*** the commencement or continuation ^*** of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the [filing of the petition for bankruptcy], or to recover a claim against the debtor that arose before the [filing of the petition for bankruptcy] ^***." 11 U.S.C. § 362(a)(1).

Defendants argue that the automatic stay does not apply to their motion for an injunction because such is brought pursuant to the police power exception of the Bankruptcy Code, which states that the

"filing of a petition [for bankruptcy] ^*** does not operate as a stay ^*** ofthe commencement or continuation of an action or proceeding by a governmental unit ^*** to enforce such governmental unit's ^*** police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit's ^*** police or regulatory power ^***." 11 U.S.C. § 362(b)(4).

The legislative history to subsection (b)(4) states that "where a governmental unit is suing a debtor to prevent or stop violation of *** environmental protection *** 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." S. Rep. No. 95-989, at [32 ELR 20688] 52 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5838; H.R. Rep. No. 95-595, at 343 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6299. RCRA was enacted to protect the public health, safety and welfare and, therefore, governmental actions brought pursuant to such statute for injunctive relief or to recover costs, damages and penalties for a debtor's past environmental violations fall under the police power exception and are not covered by the automatic stay. Cf. City of New York v. Exxon Corporation, 932 F.2d 1020, 1024 (2d Cir. 1991) (claim brought under CERCLA); United States v. Mattiace Industries, Inc., 73 B.R. 816, 818-20 [17 ELR 21004] (E.D.N.Y. 1987) (same). In United States v. LTV Steel Company, 269 B.R. 576 (W.D. Pa. 2001), LTV admitted that the police power exception to the automatic stay provided for in 11 U.S.C. § 362(b)(4) "applies in [environmental] cases where the government is seeking injunctive relief to prevent or stop a violation or to recover monies to remedy harm caused by a violation." Id. at 581. In contrast, actions taken by a governmental agency which have the principal purpose of benefitting private parties and improving their stance among the debtor's creditors, with only an incidental benefit to the public, are barred by the automatic stay. Chao v. Hospital Staffing Services, Inc., 270 F.3d 374, 385-91 (6th Cir. 2001); In re Synergy Development Corp., 140 B.R. 958, 960-61 (S.D.N.Y. 1992); In re Massenzio, 121 B.R. 688, 692-93 (Bankr. N.D.N.Y. 1990). Accordingly, plaintiffs' motions to stay defendants counterclaims will be denied insofar as they seek to stay defendants' motion for an injunction requiring them to abate an environmental nuisance on the property and granted insofar as they seek to stay defendants' motion for an injunction requiring them to implement a fair market value protection program for the owners of the residential properties.

Defendants state that they are presently entitled to the relief they seek in their counterclaims through a preliminary injunction because LTV is in the process of liquidating its assets and will have insufficient funds available to satisfy their counterclaims if defendants prevail after trial. Plaintiffs oppose the issuance of an injunction without an evidentiary hearing and Hanna notes that it is reorganizing, not liquidating. This Court is unwilling to issue an injunction of the nature and scope requested by defendants without conducting an evidentiary hearing. Pursuant to Rule 65(a)(2) of the Federal Rules of Civil Procedure, the evidentiary hearing shall be consolidated with the trial on the merits and scheduled on an expedited basis. This Court respectfully recommends to Judge Bodoh that he stay distribution of LTV's assets pending a decision in this case, or alternatively ensures that sufficient funds are set aside in trust to cover the environmental contamination claims asserted against LTV.

Accordingly, it is hereby ORDERED that LTV's motion for a stay and Hanna's motion for a stay are denied in part and granted in part and that the parties shall appear before Part III of this Court to set a date for an expedited evidentiary hearing/trial Friday, May 17, 2002 at 3:00 p.m. or as soon thereafter as the matter may be heard and that LTV Steel v. City of Buffalo (In re Chateaugay Corp.), No. 02-CV-0267E(F) shall be consolidated into a single action under the case number 99-CV-0624E(F), all documentation from 02-CV-0267E(F) shall be physically transferred to 99-CV-0624E(F) and that 02-CV-0267E(F) shall be closed and the case caption shall now read:

"In Re CHATEAUGAY CORPORATION, REOMAR, INC. THE LTV CORPORATION et al., Debtors.

LTV STEEL COMPANY, INC. and HANNA FURNACE CORPORATION, Plaintiffs, -vs- THE CITY OF BUFFALO, NEW YORK, THE CITY OF BUFFALO URBAN RENEWAL AGENCY and JOHN DOES NOS. 1-10, Defendants."

1. On September 2, 1999 LTV had commenced an adversary proceeding against defendants in the United States Bankruptcy Court for the Southern District of New York seeking a declaration that any liability it may have had for any environmental contamination caused to the residential property it had sold to defendants in 1992 had been discharged pursuant to a petition for bankruptcy it had filed in that court in 1986 and from which it had emerged May 26, 1993 pursuant to a reorganization plan which absolved it from any liability for claims arising prior to June 28, 1993. Hanna intervened in the adversary proceeding May 26, 2000 and it and LTV also argued that any liability against them had been waived pursuant to the sale agreement by which defendants had purchased the residential property from them. In an Opinion and Order dated March 29, 2002. Judge Sidney H. Stein withdrew the order of reference from the bankruptcy court and transferred the adversary proceeding to this Court. See LTV Steel v. City of Buffalo (In re Chateaugay Corp.), No. 00 Civ. 9429 (SHS), 2002 WL 484950 (S.D.N.Y. Mar. 29, 2002). Such case was received by this Court April 8, 2002 and opened under docket number 02-CV-0267E(F); it shall be consolidated with this case under docket number 99-CV-0624E(F).

2. BURA seeks the preliminary/permanent injunction based upon its public nuisance counterclaim and the City based upon its public nuisance, blight, waste and RCRA counterclaims.