P 72,182,
In re COMBUSTION EQUIPMENT ASSOCIATES, INC., Debtor.
CARTER DAY INDUSTRIES, INC., f/k/a Combustion Equipment
Associates, Inc., Plaintiff-Appellant,
v.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY and New Jersey
Department of Environmental Protection,
Defendants-Appellees.
No. 424, Docket 87-5022.
United States Court of Appeals,
Second Circuit.
Argued Dec. 7, 1987.
Decided Jan. 22, 1988.
Roy Babitt, New York City (Anderson, Russell Kill & Olick, P.C., Arthur S. Olick, of counsel), for plaintiff-appellant.
Richard M. Schwartz, New York City, Asst. U.S. Atty., S.D.N.Y. (Rudolph W. Giuliani, U.S. Atty., S.D.N.Y., Steven E. Obus, Mary Ellen Kris, Asst. U.S. Attys., New York City, Jacques B. Gelin, Appellate Section, Land and Natural Resources Div., U.S. Dept. of Justice, Washington, D.C., Randye B. Stein, Asst. Regional Counsel, Region II, U.S. E.P.A., New York City, Margaret Silver, Office of Gen. Counsel, U.S. E.P.A., Paul N. Schneider, Trenton, N.J., Deputy Atty. Gen., State of N.J., Dept. of Law & Public Safety, of counsel), for defendants-appellees.
Before FEINBERG, Chief Judge, and OAKES and PRATT, Circuit Judges.
FEINBERG, Chief Judge:
This case involves the interplay of three statutes: the Declaratory Judgment Act, the Bankruptcy Code and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Specifically, Carter Day Industries, Inc., asks us to hold ripe a suit seeking a declaratory judgment that any liability it might have had under CERCLA was discharged by its bankruptcy. For the reasons stated below, we agree with the district court that this suit is not ripe, and we affirm.
I. BACKGROUND
The record and opinion below reveal the following undisputed facts. In 1980, Carter Day, then known as Combustion Equipment Associates, filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. Secs. 1101 et seq. Thereafter, October 29, 1982, was fixed as the bar date for the filing of creditors' claims. The plan of reorganization was confirmed in December 1983.
In October 1981 (over two years prior to confirmation of the plan), Combe Fill Corporation, a Carter Day subsidiary that operated two landfills in New Jersey, petitioned for liquidation under Chapter 7 of the Bankruptcy Code, 11 U.S.C. Secs. 701 et seq. One of the landfill sites was closed just before, and the other just after, the Chapter 7 petition was filed. Water-quality samples revealed that hazardous wastes had contaminated the groundwater at both sites, and during the bankruptcy proceeding the New Jersey Deрartment of Environmental Protection (the New Jersey Department) filed a claim against Combe Fill for $5 million to cover closure costs and penalties. On consent, the claim was allowed for $50,000 in January 1984.
The New Jersey Department also filed an identical claim against Carter Day, in its Chapter 11 proceeding. However, on July 7, 1983, the claim was disallowed, apparently because under applicable Nеw Jersey law Combe Fill and not Carter Day was liable.
In September and October 1983, the United States Environmental Protection Agency (EPA) notified Carter Day (along with about 190 others) that it was a potentially responsible party (PRP) for the cleanup of both sites under 42 U.S.C. Sec. 9607. Pursuant to CERCLA, the EPA then funded a Remedial Investigation and Feasibility Study (RI/FS) to develop a strategy for cleaning up the sites. The RI/FS was completed in May 1986, and a Recоrd of Decision (ROD) setting out the EPA's planned action to clean one of the sites was made in September 1986.
The EPA filed no claims against Carter Day before the confirmation of Carter Day's Chapter 11 reorganization in December 1983. However, in January 1986 the EPA filed a claim against Combe Fill in its Chapter 7 bankruptcy proceeding for administrative expenses amounting to about $300,000. In May 1986, the Combe Fill claim was allowed in that рroceeding for $50,000 subject to the Trustee's abandoning the sites to Combe Fill under section 554 of the Bankruptcy Code.
Apparently fearing that it might be held liable for any other EPA claim relating to the sites because Combe Fill had no assets, Carter Day began an adversary proceeding in June 1986 in the United States Bankruptcy Court for the Southern District of New York, seeking a declaratory judgment that any CERCLA liability Carter Day may have had fоr the Combe Fill sites was discharged by its Chapter 11 bankruptcy reorganization.1 In November 1986, upon EPA's motion to the United States District Court for the Southern District of New York pursuant to 28 U.S.C. Sec. 157(d), Leonard B. Sand, J., withdrew the earlier reference of the adversary proceeding to the Bankruptcy Court.
II. DISCUSSION
The underlying issues in this case involve a cоnflict between two important national policies reflected in two statutes: the Bankruptcy Code and CERCLA. The conflict begins at a basic level, since the goal of CERCLA--cleaning up toxic waste sites promptly and holding liable those responsible for the pollution--is at odds with the premise of bankruptcy, which is to allow debtors a fresh start by freeing them of liability.
The two statutes also differ in their timing. To foster rapid cleаnup, Congress embraced a policy of delaying litigation about cleanup costs until after the cleanup. Thus, under CERCLA, liability is not assessed until after the EPA has investigated a site, decided what remedial measures are necessary, and determined which PRPs will bear the costs. As we reasoned in Wagner Seed Co. v. Daggett,
Against this backdrop, Carter Day seeks a judgment pursuant to the Declaratory Judgment Act (the Act), 28 U.S.C. Sec. 2201, that its CERCLA liability has been discharged by its bankruptcy. The Act states that "[i]n a case of actual controversy ... any court of the United States ... may declare the rights and other legal relations of any interested party." The purpose of the Act is to enable parties to adjudicate disputes before either side suffers great damage. However, accelerated judicial intervention creates the risk of burdening the courts and the litigants with disputes that were otherwise destined to disappear by themselves, a problem particularly acute when the burdened party is an agency of a coordinate branch of the government charged by Congress with administering a statutory program. See Abbott Laboratories v. Gardner,
As correctly stated by the district court, the Supreme Court has indicated that we should consider two issues when determining whether a declaratory judgment action is ripe: the fitness of the matter for judicial decision and the hardship to the pаrties of withholding court consideration. Abbott Laboratories,
A. Fitness for Judicial Review
1. Finality--The finality requirement of the Administrative Procedure Act, see FTC v. Standard Oil Co.,
The PRP letter is not a final, definitive ruling with the status of a law demanding immediate compliаnce since it does not impose any liability on Carter Day. All the letters say is that "responsible parties may be liable for money expended," and that Carter Day "may have responsibility for undertaking remedial actions at the site[s]" because it "may have disposed of hazardous substances ... at the site[s]." (emphasis added). The EPA sent about 190 such letters for the two sites in question to parties who were potentially resрonsible; the EPA did not determine whether any of the parties were actually liable, since final determinations of liability are made only after a remedial plan has been adopted, and enforcement or cost-recovery actions are not begun without Justice Department authorization. Moreover, an EPA affidavit in the record states that the EPA has not yet decided whether to act, if at all, against Cаrter Day by ordering it to clean up the sites under penalty of fines and triple damages, 42 U.S.C. Secs. 9606, 9607(c)(3), or by cleaning up the sites itself and then seeking reimbursement from Carter Day pursuant to 42 U.S.C. Secs. 9604 and 9607. Indeed, the only requirement the PRP letters imposed on Carter Day was that it answer seven questions concerning its activities at the sites and its relationship with Combe Fill. Carter Day answered the questions in two pages and does not now objеct to having done so. Similarly, the RI/FS and the ROD do not impose any liability on Carter Day because they also do not determine that Carter Day is a responsible party.
Carter Day argues, however, that the EPA's action has the practical effect of a final action because the possibility of CERCLA liability prevents it from getting the fresh start envisioned by the Bankruptcy Code since banks and others will not deal with Carter Day for fear of the CERCLA damages. We address this argument below, and pause here only to note that we have been directed to no evidence in the record of the burden on Carter Day beyond its own general assertions without particulars. See Public Affairs Associates, Inc. v. Rickover,
2. Legal or Factual Issues--A suit raising primarily legal issues is a better candidate for declaratory judgment than is a suit raising factual issues, but commentаtors distinguish between factual issues arising out of events that have already occurred and factual issues arising out of future events. 10A C. Wright, A. Miller & M. Kane, Federal Practice and Procedure (2d Ed.1983) Sec. 2757. See also Salomon Bros., Inc. v. Carey,
One issue arising out of future events is what kind of remedy, if any, the EPA actually seeks from Carter Day. In Ohio v. Kovacs,
B. Hardship to the Parties
As explained above, the second factor we consider in determining whether a declaratory-judgment suit is ripe is the hardship to the parties. Carter Day argues that it would suffer if not allowed to sue now because it would be deprived of the fresh stаrt promised by the Bankruptcy Code. Without attempting to belittle Carter Day's fears, we note that the EPA has not yet tried to coerce Carter Day or the 190 other PRPs into doing anything, and that the record contains no proof of damage already inflicted on Carter Day. We acknowledge that Carter Day's "primary conduct"--operating its pollution control and other businesses--may be affected by the possibility of liability and that this effect suports the appropriateness of adjudication now. Toilet Goods Association v. Gardner,
Moreover, Carter Day's concern over its fresh start seems somewhat disingenuous since it did not include its potential CERCLA liability in the required bankruptcy schedule of liabilitiеs and since it evidently did not attempt to litigate that liability in the bankruptcy court before confirmation of the plan of reorganization, even though the PRP letters were received prior to confirmation. Cf. In re Wall Tube & Metal Products Co.,
Our criticism of Carter Day for not attempting to raise the question during the bankruptcy proceeding might lead one to ask the following question: if Carter Day could have raised the issue in the bankruptcy proceeding, why may it not raise it now, that is, how could the issue be ripe then but not now? One answer is that the bankruptcy court's power to estimate contingent liabilities, 11 U.S.C. Sec. 502(c), substitutes for ripeness. The fact that some claims could be estimated does not mean that those claims would be ripe for resolution after confirmation, but only that the Bankruptcy Code authorizes the bankruptcy court to decide, in one particular procedural context, what would otherwise be unripe disputes. Under this view, the powеr to ripen expires with the bankruptcy court's power to estimate, and Carter Day, having not availed itself of that power, would have lost the opportunity and would now have to wait until the claim is actually ripe. We reiterate that we do not necessarily adopt this view, but merely observe that Carter Day's failure to attempt to bring its CERCLA liability within the bankruptcy proceeding, even if it would not ultimately have prevailеd, is an important factor in evaluating the equitable weight to be given now to Carter Day's alleged (but nonspecific) hardship. See Abbott Laboratories,
Also balanced against Carter Day's alleged hardship is the hardship to the EPA and to the Superfund system if PRPs can challenge the EPA at so preliminary a stage of investigation into a particular site. According to the EPA, about 10,000 PRP letters are outstanding nationwide. If the EPA is forcеd to expend its resources on preserving its rights to eventual recovery against any PRP that has recently emerged from bankruptcy, the EPA will have less ability to pursue its primary mission of cleaning the sites. Of course, any time an agency is forced to litigate it expends funds it might otherwise have used to further its primary purpose, but, as already discussed, Congress has directed the courts to be especially wary of interfering with CERCLA work, seе Wagner Seed, supra, in part because toxic waste sites threaten the public health and must be eradicated quickly. In addition, depending on what the law turns out to be on when a CERCLA claim accrues (a matter on which we express no opinion), deciding various factual issues will interfere with Congress's policy of expediting cleanup. For example, if the law were that CERCLA liability becomes a claim in stages as the EPA incurs costs, there would be the obvious factual issues of which costs occurred at specific times. It is also possible that the courts will find that CERCLA liability does not mature into a claim in stages but accrues as a whole at some point between deposit of toxic waste and final cleanup. If so, the same sort of factual investigation may again be necessary to determine whether and when such a point wаs reached. Either theory would require investigation of internal EPA actions and progress in evaluating the site, with consequent possible interference with the EPA's cleanup efforts.
Moreover, other factual issues come to mind. The EPA's claim was apparently not scheduled on Carter Day's list of liabilities and the EPA therefore did not receive required formal notices in the bankruptcy proceeding, although it may havе known about it. An issue in any attempt by Carter Day to discharge its CERCLA liability is whether the EPA had enough notice of what was happening in the bankruptcy proceeding to make barring its claim fair. See 5 Collier on Bankruptcy p 1141.01 (L. King, ed. 1987). We express no view, of course, as to the outcome of this hypothetical question, but note that under at least one view of the law, see In re Intaco Puerto Rico, Inc.,
III. CONCLUSION
In summary, Carter Day's failure to raise the issue during the bankruptcy proceeding and the potential harm to CERCLA cleanup efforts that immediate litigation in this case would engender lead us to conclude that discretionary jurisdiction under the Deсlaratory Judgment Act should not be exercised here. In the final analysis, there are too many red flags counseling hesitation to render a far-reaching declaratory judgment, which is the only kind that could be rendered on this record. The underlying issues are "of serious public concern" and better left to a time when the overall context of the dispute is more fully developed. Public Affairs Press v. Rickover,
It is important to stress that our holding is narrow because of the unique statutory interaction and the facts in this case. Since we have not attempted to rank the various factors that we have considered or to suggest that any particular one tips the scale, we express no opinion about the outcome of other cases seeking declaratory judgments relating to discharge of non-CERCLA liability or even of CERCLA liability based on distinguishable facts. For the present case, it suffices to say that for all the reasons stated above, we hold this action not ripe and affirm the judgment of the district court.
Notes
Carter Day sued the EPA and the New Jersey Department, and although both are appellees, the New Jersey Department joined in the EPA's brief without filing one of its own. For convenience, we therefore refer to appellees collectively as the EPA