486 B.R. 75
S.D.N.Y.2012Background
- Route 21 purchased the Site in 1983; contamination emerged in 1984 and a 1996 settlement required remediation and indemnification by the debtor.
- Brownfield and Contaminated Site Remediation Act arrangements in 2005-2006 (Brownfield Agreement) provided Route 21 reimbursement of 75% of eligible remediation costs and other mutual obligations.
- A 2007 Addendum extended Route 21’s responsibilities for groundwater RAW and potential post-closing groundwater remediation; MHC agreed to complete RAW if a Lowe's-style closing failed.
- Lowe's sale never closed; Route 21 continued to own the Site; Chapter 11 petitions were filed in 2009; Route 21 filed administrative expense proofs in 2009 and 2011.
- Plan approved in 2010; Millennium Custodial Trust formed; many environmental contracts were deemed rejected; Route 21’s claims were objected to by the Trust.
- Bankruptcy court ruled (2012) that the agreements were executory and rejected; Route 21’s request for specific performance and pre-petition administrative costs was denied; Route 21 was allowed a general unsecured claim for past costs but not for future costs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the Route 21–debtor agreements executory and thus subject to rejection? | Route 21 asserted ongoing obligations remained, requiring specific performance. | Court should treat agreements as executory and properly rejected under the Plan. | Yes; agreements were executory and properly rejected. |
| Does Route 21 have a right to specific performance, or is the claim monetizable as a debt? | Specific performance should be available to enforce pre-petition covenants. | Specific performance is a claim that is dischargeable if monetizable; here damages are available. | No; specific performance is a dischargeable claim convertible to damages, thus not enforceable here. |
| Is any part of Route 21's claim entitled to administrative priority under 507? | Administrative expenses should cover post-petition remediation costs that benefit the estate. | Pre-petition remediation costs and non-benefit to estate do not qualify for priority. | No part of Route 21's claim qualifies for administrative priority. |
| Can Route 21's future cleanup costs be allowed as a general unsecured claim under 502(e)(1)(B)? | Future costs should be allowed against the estate as a recoverable reimbursement. | Future costs are contingent, and Route 21 is co-liable; disallowance is proper. | Disallowed; future cleanup costs are contingent and subject to 502(e)(1)(B). |
| Does the existence of co-liability with NJDEP affect distribution and double-recovery concerns under 502(e)(1)(B)? | Route 21 faces substantial liability; single claim should be allocated without double recovery. | Co-liability is evident; allowing two parallel claims would cause double recovery. | Approach upheld; 502(e)(1)(B) prevents double recovery; Route 21's future costs disallowed. |
Key Cases Cited
- Ohio v. Kovacs, 469 U.S. 274 (Supreme Court 1985) (right to payment depends on ability to recover costs; broad 'claim' definition)
- In re Apex Oil Co., 579 F.3d 734 (7th Cir. 2009) (RCRA-based cleanup orders may or may not be dischargeable depending on right to payment)
- In re Torwico Elecs., Inc., 8 F.3d 146 (3d Cir. 1993) (administrative status of state cleanup orders; right to payment analysis)
- Chateaugay Corp., 944 F.2d 997 (2d Cir. 1991) (CERCLA remedies; distinction between ongoing pollution and site-cleanup costs for claim status)
- In re Manville Forest Prods. Corp., 209 F.3d 125 (2d Cir. 2000) (whether equitable remedies can be converted to claims for payment)
- In re Hemingway, 993 F.2d 915 (1st Cir. 1993) (discussion of administrative priority for post-petition remediation costs when government claims exist)
- In re Lyondell, 442 B.R. 236 (Bankr. S.D.N.Y. 2011) (co-liability and section 502(e)(1)(B) considerations in environmental cleanup costs)