ORDER DENYING DEFENDANT’S MOTION FOR JUDGMENT ON THE PLEADINGS
This matter is before the Court on Defendant Mason and Dixon Lines, Inc. (“MDL”)’s motion for judgment on the pleadings, pursuant to Federal Rule of Civil Procedure 12(c), on Plaintiffs Signature Combs, Inc., et al. (“Plaintiffs”)’ Third Amended Complaint (“Complaint”) seeking cost recovery under 42 U.S.C. §§ 9607(a)(3) and 96013(f)(1). MDL’s Mot. For J. On The Pleadings, Doc. # 217-1, Case # 98-cv-02777. MDL contends that Plaintiffs’ claims against it were discharged pursuant to MDL’s Chapter 11 bankruptcy reorganization. This Court has jurisdiction over Plaintiffs’ CERCLA claims pursuant to 28 U.S.C. § 1331. For the following reasons, this Court DENIES MDL’s motion for judgment on the pleadings.
I. Background Facts and Procedural History
Pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), 42 U.S.C. § 9601 et seq., Plaintiffs seek to recover response costs allegedly incurred by Plaintiffs at the South 8th Street Landfill Superfund Site and the Gurley Pit Superfund Sites (collectively, the “Gurley Sites”). These response costs stem from remedial measures taken to alleviate hazardous waste dumped at the Gurley Sites in the 1950S-1970S. 1
On September 8, 1998, the United States filed
United States v. Aircraft Serv. Int’l., Inc., et al.,
No. J-C-98-362 (E.D.Ark.), seeking to recover from Plaintiffs in the instant case $10 million in response costs that the EPA allegedly incurred in implementing the Gurley Pit Site remedy. On September 9, 1998, the Arkansas Department of Pollution Control and Ecology (“ADPC
&
E”) filed
Arkansas Dept. of Pollution Control and Ecology v. Aircraft
On September 8,1998, Plaintiffs brought the instant suit in an effort to recoup their anticipated expenses from Defendants. Plaintiffs filed their Third Amended Complaint on March 20, 2000. Count II, the only remaining claim in the Complaint, 2 asserts that Defendants are severally liable for contribution to Plaintiffs’ past and future cleanup costs under CERCLA Section 113(f)(1), 42 U.S.C. § 96013(f)(1).
On December 19, 2000, Plaintiffs in the instant action entered into a Consent Decree with the United States and the ADPC & E regarding response costs for the Gur-ley Pit Site and remedial responsibilities for the South 8th Street Site. Without admitting liability, Plaintiffs agreed to conduct and pay for the South 8th Street Site cleanup and to reimburse the United States and the ADPC & E for their expenses incurred in cleaning the Gurley Pit Site.
On January 12, 2001, this Court entered a Case Management Order (“CMO”) (Doc. # 149-1, Case # 98-cv-02777) to administer the disposition of the above-titled cases. MDL brought its motion for judgment on the pleadings on February 13, 2002. Plaintiffs filed their opposition brief on March 1, 2002, and MDL filed its reply brief on March 15, 2002.
II. Plaintiffs’ Procedural Objections To MDL’s Motion
Plaintiffs claim that MDL’s motion is technically improper because it was filed on February 13, 2002, prior to the filing of MDL’s answer on May 6, 2002. A motion for judgment on the pleadings may only be brought after the pleadings are closed. Fed.R.Civ.P. 12(c). Pleadings are deemed “closed” upon the filing of a complaint and answer, unless a counterclaim, cross-claim, or third-party claim is interposed, in which case the filing of a reply, cross-claim, or third-party answer will mark the close of the pleadings. See Fed.R.Civ.P. 7(a); 5A Charles A. Wright and Arthur R. Miller, Federal Practice and Procedure § 1367 (2d ed.1990). Thus, MDL’s motion was premature when filed. Nevertheless, MDL subsequently filed an answer on May 6, 2002. Athough the Court has the discretion to deny MDL’s motion without prejudice in order to allow MDL to re-file its motion on a date subsequent to May 6, 2002, no useful purpose would be served by doing so. Accordingly, the Court will construe MDL’s motion as a motion to dismiss for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). Such a motion applies the same analysis as a motion for judgment on the pleadings but is permissible prior to the filing of a defendant’s answer.
Similar reasoning applies to Plaintiffs’ contention that MDL’s motion should be denied because it was filed in violation of the CMO governing the above-titled cases. Section 11(2) of the CMO states that “Defendants shall not file responsive pleadings directed to Plaintiffs’ amended complaint herein. Nor shall Defendants file any motions under Fed.R.Civ.P. 12 directed to Plaintiffs’ amended complaint.” In an Order filed April 15, 2002 (Doc. #250-1,
III. Analysis of MDL’s Substantive Claim
A. Motion to Dismiss Standard
A party may move to dismiss a complaint for failure to state a claim upon which relief may be granted under F.R.C.P. 12(b)(6). The purpose of a motion to dismiss under F.R.C.P. 12(b)(6) is to test the formal sufficiency of the claim, not to resolve the facts or merits of the case.
Scheuer v. Rhodes,
In reviewing the complaint, the court must accept as true all factual allegations in the complaint and construe them in the light most favorable to the plaintiff.
Scheuer,
B. Determining the Proper Legal Standard for Discharging CERC-LA Liability Through Bankruptcy
1. CERCLA § 113 Contribution Liability Depends On MDL’s Liability to the United States
MDL contends that any CERCLA § 113(f) liability it may have had to Plaintiffs was discharged by MDL’s bankruptcy, which became final in 1986. Although this action was filed in 1998, MDL claims that Plaintiffs’ claims were discharged because “Mason and Dixon’s liability to Plaintiffs depends on whether Mason and Dixon is potentially liable to the United States,” and Mason and Dixon’s potential liability to the United States itself was discharged by MDL’s bankruptcy. Mem. In Supp. of Def.’s Mot. For J. On The Pleadings at 3-4 (Doc. # 218-1, Case # 98-CV-02777).
In response, Plaintiffs argue that their claims are not solely derivative of the United States’ claims but are independent statutory claims “which clearly arose after defendant’s bankruptcy in the mid-1980s.” Mem. In Support of Pls.’ Opp. To Def.’s Mot. For J. On The Pleadings at 4 (Doc. # 227-1, Case # 98-cv-02777).
MDL counters by stating that Plaintiffs can only sue for contribution under § 113 of CERCLA. As a result, according to
In re Reading Co.,
Whether § 113(f) permits contribution among parties who do not have a common derivation of liability constitutes an issue of first impression within this Circuit. The Court finds the analysis set forth in In re Reading Co. to be persuasive, see id. at 1123-24, and accordingly adopts the Third Circuit’s holding that a plaintiff may only bring a CERCLA § 113(f) contribution claim against a defendant when both the plaintiff and the defendant share a common derivation of liability. Therefore, Plaintiffs in the case sub judice may only bring their CERCLA § 113(f) contribution claims against MDL if both Plaintiffs’ and MDL’s liability are derivative of the claims of the United States.
2. When A Contingent CERCLA Claim Arises for the Purpose of Discharging Liability Through Bankruptcy
The next question the Court must answer is whether MDL’s potential liability to the United States was discharged by MDL’s 1986 bankruptcy. The Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 (codified as amended at 11 U.S.C. §§ 101-1330 (1988)) (hereinafter “Bankruptcy Code”) provides individuals and corporations with a means to obtain relief from their indebtedness. Under Chapter 11 of the Bankruptcy Code, a debtor filing for reorganization proposes a plan for reorganization to the bankruptcy court, 11 U.S.C. § 1121(b) (1988), which the debtor’s creditors must approve. 11 U.S.C. § 1126(a)-(g) (1988). The bankruptcy court then must confirm the reorganization plan after determining that the plan provides equal treatment for creditors in the same class, 11 U.S.C. § 1123(a)(4) (1988), and that the proposed plan is feasible, 11 U.S.C. § 1129(a)(ll). Once the bankruptcy court completes confirmation of the reorganization plan, “except for the prebankruptcy obligations reaffirmed in the debtor’s reorganization plan, the Chapter 11 debtor is ‘discharged’ from all ‘claims’ that arose before the bankruptcy confirmation.” Kevin J. Saville, Discharging CERCLA Liability in Bankruptcy: When Does a Claim Arise?, 76 Minn. L.Rev. 327, 337 (Dec.1991) (citing 11 U.S.C. § 1141 (1988)). The Code defines “claim” as, inter alia, a:
right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.
11 U.S.C. § 101(5)(A). The debtor remains fully liable for all “claims” arising after the bankruptcy confirmation. See Saville, supra, at 337. A creditor who has a “claim” must file a proof of the claim with the bankruptcy court prior to a date fixed by the court to avoid the claim being discharged upon judicial confirmation of the reorganization plan. See 11 U.S.C. §§ 501 and 502.
MDL contends that any CERCLA liability was discharged by its bankruptcy “because all the necessary elements of a CERCLA claim existed when the plan was confirmed in 1986 and the United States had actual and constructive knowledge
This question of when a party’s contingent CERCLA liability may be discharged through bankruptcy constitutes an issue of first impression within this Circuit. Courts in other Circuits have split on this issue, adopting different standards for determining when contingent CERCLA claims “arise” for the purpose of bankruptcy discharge. Before adopting an approach, the Court will briefly outline the varying approaches other courts have taken.
a. Right to Payment Approach
At one end of the jurisprudential spectrum, some courts have held that a claim does not arise until all four CERCLA elements exist.
3
See In re Reading Co.,
The right to payment approach has been criticized for failing to address bankruptcy law and policy. One of the chief goals of bankruptcy is providing “a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy ‘a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.’ ”
Grogan v. Garner,
Moreover, as set forth above, the Bankruptcy Code defines “claim” more broadly than the traditional cause of action, encompassing any right to payment, no matter how distant or contingent. 11 U.S.C. § 1011(5)(A). Therefore, critics of the right to payment approach argue, non-bankruptcy law such as CERCLA should not control when a bankruptcy claim arises.
See Jensen,
Requiring courts to determine when a bankruptcy claim arises based on whether all four CERCLA elements have been satisfied in effect reinserts' a “provability” requirement which was expressly repealed under the 1978 Bankruptcy Code.
See, e.g.,
H.R.Rep. No. 95-595, at *180 (1977),
reprinted in
1978 U.S.C.C.A.N. 5963, 6141,
Finally, by giving the creditor so much control over the accrual of its claim, the right to payment standard might encourage nefarious creditors to delay cleaning up sites-and thereby incurring response costs-until the close of bankruptcy proceedings.
See In re Jensen,
b. Underlying Act Approach
At the other end of the spectrum, some courts have maintained that a pre-bankruptcy “claim” subject to the Code’s discharge provisions exists so long as the underlying polluting act occurred prior to the debtor’s bankruptcy.
See In re Jensen,
This underlying act standard has been criticized as patently unfair to creditors because it would allow a polluting party to undergo bankruptcy proceedings and receive a discharge from any liabilities before the EPA-or any other credit- ever has a reason to know about the debtor’s involvement in the release or threatened release of hazardous waste.
See, e.g., In re Chicago,
This approach also has been criticized for hindering several of CERCLA’s goals..
See, e.g., id.
(quoting Saville,
supra,
at 350). CERCLA’s central purposes are to protect public health and safety by facilitating an expeditious cleanup of hazardous waste and to hold polluters accountable for their actions. Saville,
supra,
at 327 (citing H.R. Rep. 96-1016(I), at *21 (1980),
reprinted in
1980 U.S.C.C.A.N. 6119, 6124-25,
Moreover, the underlying acts approach, if widely implemented, could have the unintended effect of causing the EPA to divert its energies from cleaning up sites to determining a debtor’s potential status as a responsible party and, if so, filing a proof of claim and participating in the debtor’s bankruptcy proceedings. Given the limited budget of the EPA, requiring the EPA to become embroiled in bankruptcy proceedings in order to maintain its ability to hold polluters responsible constitutes a wasteful allocation of resources. See Saville, supra, at 351 (“Allowing the courts to control the priority of the EPA’s response as well as the scope and magnitude of the debtor’s CERCLA liability could undermine CERCLA’s goal of expeditiously and effectively cleaning up the environment.”).
Additionally, this approach may discourage settlement agreements between polluters and the EPA, thereby diminishing the likelihood of a quick cleanup paid for by the polluters. Settlements heretofore offered an enticement to polluters because they could resolve their liability to the EPA without resorting to costly litigation. In addition, settlers obtain protection from lawsuits by co-contributors pursuant to 42 U.S.C. § 96013(f)(2). The EPA is willing to offer settlement because such agreements typically speed up reclamation efforts and because settling polluters can identify other responsible parties, the types and amounts of toxins used, and other pertinent information. Pursuant to the underlying acts approach, however, by entering into bankruptcy as soon as a par
The underlying acts approach also risks violating the EPA’s (or other creditors’) right to reasonable notice prior to the discharge of a claim. Both as a matter of constitutional law and statutory enactment, all creditors, including the EPA, are entitled to notice by a debtor prior to the debtor’s liability being discharged by the bankruptcy court.
See generally
11 U.S.C. §§ 1109(b), 1128(a);
City of New York v. New York, N.H. & H. R.R.,
c. Debtor-Creditor Relationship Approach
A few courts have adopted a third approach, known as the “debtor-creditor relationship” standard, for determining when a CERCLA claim arises. This standard posits that any CERCLA liability is discharged if the creditor and debtor began a relationship before the debtor filed for bankruptcy, so long as the underlying act occurred before the bankruptcy petition was filed.
See United States v. LTV Corp. (In re Chateaugay Corp.), 944
F.2d 997 (2d Cir.1991);
Pettibone Corp. v. Ramirez (In re Pettibone Corp.),
The primary criticism of this approach is that courts using the relationship test, such as In Re Chateaugay Corp., have defined “relationship” so broadly that they have made it the equivalent of the underlying acts approach:
By broadly defining the relationship, the court[s have] undermined the rationale for considering whether or not a relationship exists-that a creditor with a relationship may anticipate its potential claim. All claims arising after this debt- or-creditor relationship is known to exist, even those that are not within the creditor’s contemplation, will be discharged. When courts fail to limit the scope of the relationship to situations where some prepetition interaction between the PRP and the EPA existed, this expansive relationship approach takes on the characteristics of and thus suffers from the same infirmities as the ‘underlying acts’ approach.
Saville, supra, at 353. Therefore, application of the debtor-creditor relationship test results in the same problems as those of the underlying acts approach described above.
d. Fair Contemplation Approach
Reflecting on the shortcomings of the first three approaches, subsequent courts and commentators have developed an alternative standard seeking to accommodate the policy aims of both bankruptcy law and CERCLA. This “fair contemplation” or “foreseeability” standard posits that a contingent CERCLA claim arises pre-petition only if it is “based upon pre-petition conduct that can fairly be contemplated by the parties at the time of the debtors’ bankruptcy.”
Jensen,
This standard allows a claim to accrue earlier than the right to payment standard because the potential claimant need not incur response costs (the fourth CERCLA element) for a contingent claim to arise under this standard. At the same time, the standard requires more awareness of a potential CERCLA claim by a potential
Courts and commentators have offered little criticism for the fair contemplation approach. In fact, the only direct criticism of this approach argues that the approach, which is rooted in a contractual standard, is inapposite to the CERCLA claim context due to the regulatory, involuntary relationship between the EPA and the debtor.
See
Philippe J. Kahn,
Bankruptcy Versus Environmental Protection: Discharging Future CERCLA Liability In Chapter 11,
14 Cardozo L.Rev.1999, 2029-30 (May 1993) (“To characterize the EPA’s relationship with the debtor as akin to a contractual relationship ignores the absence of a voluntary relationship, a bargained-for obligation .... ”). Indeed, the approach does not appear to fit perfectly with situations such as the instant case, when the debtor’s potential liability cannot be ascertained for decades due to the scores of parties involved, many of whom cannot be identified until after litigation has commenced and discovery has occurred.
Cf. Jensen,
e. Adopting a Standard
After reviewing the above theories, the Court finds the fair contemplation standard to be the appropriate standard to apply in the case at bar. It is the only test which tries to accommodate both the fresh start goal of bankruptcy and the speedy cleanup and polluter accountability CERC-LA goals. Moreover, unlike other standards, the fair contemplation approach does not violate Fifth Amendment and Bankruptcy Code notice requirements because creditors must be aware of potential claims against debtors before such claims can be discharged. Finally, while this standard slightly prioritizes CERCLA’s goals over the fresh start bankruptcy goal, the Court finds this prioritization to be justifiable.
Despite the fact that “[cjonflict and confusion are almost inevitable” in balancing CERCLA and bankruptcy goals, the Supreme Court requires that the conflicting objectives of CERCLA and bankruptcy to be reconciled whenever possible.
Jensen,
Additionally, the fair contemplation approach does not suffer from the notice infirmities of the underlying act and relationship approaches. Whereas the latter approaches, as mentioned above, do not provide adequate notice to potential creditors that their CERCLA claims are being discharged, the former approach only allows for discharge when the creditor contemplates the existence of such a claim prior to the debtor’s bankruptcy filing. Indeed, the existence of due process and Code concerns about meaningful notice “bolsters the conclusion that a future claim that cannot be contemplated by the parties is not discharged under the Bankruptcy Code, even if that claim stems from the pre-petition conduct of the debtor.”
In re Hexcel Corp.,
The Court recognizes that any approach adopted will invariably favor either CERCLA or bankruptcy goals, as a perfectly equitable balance between the two is simply unattainable. 4 See, e.g., John C. Ryland, When Policies Collide: The Conflict Between the Bankruptcy Code and CERCLA, 24 Mem. St. U.L.Rev. 739, 772 (“While the ultimate goal is for the Code and CERCLA to interact and still achieve their legislative goals, it is apparent that any solution will, to some extent, involve the subordination of one act’s interests for those of the other.”). Given this reality, the Court prefers to favor slightly CERC-LA’s goals of speedy cleanup and polluter accountability over the fresh start goal of bankruptcy. Several reasons inform this conclusion. First, removing hazardous waste from the environment as expeditiously as possible implicates public health and safety concerns to an extent not extant in bankruptcy’s purely economic fresh start goal. See id. (“Cleaning up the environment to preserve the public’s health and safety should outweigh the economic interests of polluters who seek to avoid environmental cleanup liability in bankruptcy.”).
Third, while the fair contemplation standard may diminish the number of claims a debtor can discharge through bankruptcy, “a debtor has no Constitutional or ‘fundamental’ right to a discharge in bankruptcy.”
Grogan,
3. Applying the Fair Contemplation Standard to the Complaint and MDL’s Motion
MDL’s bankruptcy reorganization plan was finalized in 1986.
See In re Mason & Dixon Lines, Inc.,
IV. Conclusions
For the above-state reasons, having construed MDL’s motion as a motion to dismiss for failure to state a claim, this Court DENIES MDL’s motion for judgment on the pleadings.
Notes
. The relevant facts and background information for the above-titled consolidated cases can be found in this Court's Order Granting Def.’s Mot. To Dismiss ("February 14, 2003 Order”). In the interest of brevity, these facts will not be recited herein.
. Count I of the Complaint was dismissed with prejudice against all Defendants in the above-titled actions by this Court's February 14, 2003 Order.
. These four elements are: 1) the defendant falls within one of the four categories of responsible parties; 2) hazardous substances are disposed at a facility; 3) there is a release or threatened release of hazardous substances from the facility into the environment; and 4) the release causes the incurrence of response costs including removal activities and enforcement activities related thereto.
See In re Reading Co.,
. Indeed, the only alternative approach that would embrace CERCLA’s goals without compromising bankruptcy's goals would be to establish a trust fund for future potential but as yet unknown CERCLA claimants and the appointment of a claim representative to protect the interests of these claimants during the bankruptcy confirmation process, such as occurs within the context of mass tort bankruptcy proceedings.
See, e.g., Hexcel,
. While extrinsic evidence is generally not considered when adjudicating a Fed. R.Civ. P. 12(b)(6) motion, the Court may take judicial notice of pertinent matters of public record such as MDL’s bankruptcy order. See United States v. Wood, 925 F.2d 1580, 1582 (7th Cir.1991) (citations omitted); Wright & Miller, supra, § 1357.