Competition from trucks combined with onerous regulation got the better of the fabled Milwaukee Road during the 1970s. In 1977 the Chicago, Milwaukee, St. Paul & Pacific Railroad filed a petition under § 77 of the Bankruptcy Act of 1898. After
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abandoning losing spurs, it sold some operations to shоrt lines and the rest to the Soo Line. E.g.,
In re Chicago, Milwaukee, St. Paul & Pacific R.R.,
Today’s case has aspects of the old railroad’s transportation and real estate businesses, with an overlay of bankruptcy. The Milwaukee Roаd mined some of the gravel it needed for roadbeds from a site near Janesville, Wisconsin. Having created a gaping hole in what came to be called Wheeler Pit, the Milwaukee Road agreed to let General Motors Corporation help fill it up аgain. In 1956 the railroad leased 3.82 acres of the Pit to GM, which it used until 1974 to dump paint sludge and coal ash generated by its plant nearby. Today there is no pit; grass and trees cover the site. When closing and sealing its corner of Wheeler Pit, GM followed the requirements of thе Wisconsin Department of Natural Resources, using the best technology available at the time to prevent leaching and leakage of the heavy metals in the 22.3 million gallons of sludges. Whether this was good enough is a debatable question. CMC contends that as a rеsult of the bankruptcy it may discontinue the debate.
Wheeler Pit came to the attention of the Environmental Protection Agency early in the Agency’s existence. GM and state officials occasionally monitored groundwaters in the area. Readings led the EPA to put Wheeler Pit on the National Priorities List established by § 105(a)(8) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. § 9605(a)(8). The listing took effect on September 21, 1984, 49 Fed.Reg. 37070, a year before the final date for filing claims in the bankruptcy. Listing has no direct legal consequence, but it signifies the EPA’s belief that the site is releasing or likely to release hazardous substances. Because it reveals the EPA’s assessment of hazards and (rough) priorities for cleanup, listing is an ominous sign. If it does nothing else, listing makes the parсel something less than prime real estate, with effects on the owner’s wealth. See
Kent County v. EPA,
Once the EPA gets around to a more detailed analysis, it may take two routes under CERCLA. Section 107(a)(2), 42 U.S.C. § 9607(a)(2), provides that the owner or operator of the site when the wastes wеre deposited must pay for removal or treatment (which the statute calls “response costs”), reimburse the Superfund if the EPA taps that source to cope with the gunk, and pay damages for any injury to the environment. Section 106(a), 42 U.S.C. § 9606(a), provides that “when the President determines that there may be an imminent and substantial endangerment to the public health or welfare or the environment because of an actual or threatened release of a hazardous substance from a facility, he may require the Attorney Genеral of the United States to secure such relief as may be necessary to abate such danger or threat”. The President also may issue “such orders as may be necessary to protect public health and welfare and the environment.” The President has delеgated this power to the EPA. The owner of the land when the order issues (or the Attorney General applies to the court) is among the persons responsible. See
New York v. Shore Realty Corp.,
The EPA issued an order under § 106(a) requiring CMC and GM to clean up Wheeler Pit. CMC repaired to the bankruptсy court, contending that the order violates the injunction that court issued at the end
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of the reorganization. The injunction bars all actions against the railroad and its successors “by reason of or on account of any obligation ... incurred by the Debtor or by the Trustee, except the obligations imposed upon or required to be assumed by the Reorganized Company by the Plan [of reorganization] ... or this Order.” CMC maintained that the EPA’s order reflects an “obligation” — the duty to clean up or pay— that existed during the bankruptcy and therefore is barred. The EPA knew about Wheeler Pit, and even put it on the National Priorities List, while the reorganization was ongoing, yet the United States did not file a claim in the bankruptcy. Having slept through the reorganization, the United States is barred like any other creditor, CMC concludes. The court denied CMC’s application, distinguishing its liability as owner at the time of the dumping from its liability as owner at the time of the EPA’s order.
A fundamental idea of bankruptcy is that bygones should not prevent the best current deployment of assets. Sunk costs and their associated promises to creditors create problems of allocatiоn when the firm cannot pay its debts as they come due. But assets that cannot generate enough revenue to pay all claims may still produce net profits from current operations. So bankruptcy cleaves the firm in two. Existing claims must be satisfied exclusively from existing assets, while the “new” firm, created as of the date the petition is filed, carries on to the extent current revenues allow.
Boston & Maine Corp. v. Chicago Pacific Corp.,
To the extent §§ 106 and 107 require a person to pay money todаy because of acts before or during the reorganization proceedings, CERCLA creates a “claim” in bankruptcy. Whatever doubts there may be about the status of contingent and hard-to-quantify environmental claims under the Bankruptcy Code of 1978, compare
Cha-teaugay,
Liability under § 106 in conjunction with § 107(a)(1) is a different matter. By authorizing the President to direct the current owner to clean up a dump, CERCLA creates a claim running with the land. Such claims depend not at all on the debt- or’s actions before or during the reorganization. To see this, suppose CMC had sold
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Wheeler Pit to Exxon a year after the confirmation of its plan of reorganization. As the owner, § 107(a)(1), Exxon could be responsible today for cleanup under § 106(a) even though it played no role in depositing the рaint sludge.
Nurad, Inc. v. William E. Hooper & Sons Co.,
Kovacs
settles all questions on this score. Although the Court held that environmental loss that has been monetized by the conclusion of the bankruptcy case is a claim, and hence may be discharged, it added: “we do not question that anyone in possession оf the site — whether it is Ko-vacs [the debtor] or another ..., or a vendee from the receiver or the bankruptcy trustee — must comply with the environmental laws of the State of Ohio. Plainly, that person or firm may not maintain a nuisance, pollute the waters of the State, or refuse to remove the source of such conditions.”
What remains in question is whether the EPA’s order really depends оn CMC’s current ownership of Wheeler Pit. CMC’s liability under § 107 for damages and other relief that may be awarded against the “operator” of the facility vanished in the reorganization when the United States neglected to file a claim. To avoid the conclusion that it is reрackaging a forfeited claim for damages, the EPA must establish that harmful releases are threatened or ongoing — in the language of § 106(a), that the Pit poses “an imminent and substantial endangerment to the public health or welfare or the environment because оf an actual or threatened release of a hazardous substance”. Otherwise there is no nuisance to clean up.
Paragraphs N and R of the EPA’s cleanup order make this statutory finding. The Agency took samples of the wastes and found barium, cadmium, chromium, lead, mercury, xylenes, toluene, and several forms of benzene. No surprises; these are standard components of paint. Are they escaping from the Pit? The EPA wrote: “Analyses of groundwater performed during the RI [the “remedial investigation”] revealed the presеnce of a number of hazardous substances as defined in Section 101(14) of CERCLA, including toluene, xy-lenes, chlorinated benzene compounds, phthalates and metals.” Presence of these substances in the groundwater is consistent with leaching from the deposits in the Pit. It is alsо consistent with migration *1148 from another source, including rocks that were present in Wisconsin before the dawn of man. Determining the source of toxic substances, and not merely their presence in the water, entails comparing readings near the facility with other samples for which the facility in question is not a likely source. CMC denies that Wheeler Pit is the source of what the EPA found in the water and observes that the order was issued without adversary presentation. That the EPA’s water samples contained chromium but not barium, cadmium, lead, оr mercury suggests that there may be something to CMC’s protest. Is such selectivity a likely outcome of the process of leaching?
Whether the EPA is right or wrong is not, however, a subject for the bankruptcy court. CERCLA postpones all judicial review of administrative orders under § 106(a) until the work has been performed or the EPA itself applies for judicial enforcement. Section 113(h), 42 U.S.C. § 9613(h). See
North Shore Gas Co. v. EPA,
CMC conceded at oral argument that, if Wheeler Pit is emitting hаzardous substances today, the bankruptcy order does not relieve it of an obligation to join GM in putting a stop to that problem. So the request to the bankruptcy court stands revealed as an effort to avoid § 113(h). Congress put decontamination ahead оf litigation, and we shall continue to enforce that rule, as we did in North Shore Gas and Schalk. If the EPA’s findings of hazard are right, then there is no bankruptcy obstacle to the order. If the EPA’s findings are wrong, then CMC is entitled to be compensated for its efforts — for it cannot be liable as the operator of the facility at the time GM dumped the sludges. Whether the EPA is correct is a subject for another forum, another day.
AFFIRMED.