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3 Hofstra Envtl. L. Dig. 1 (1986)

handle is hein.journals/hofe3 and id is 1 raw text is: HOFSTRA ENVIRONMENTAL LA W DIGEST A Publication of the Environmental Law Society Hofstra University School of Law Vol. 3 No. I Spring 1986 BANKRUPTCY Midlantic National Bank v. New Jersey Department of Environmental Protection; O'Neill, Trustee in Bankruptcy of Quanta Resources Corp., Debtor, v. City of New York, 106 S.Ct. 755 (January 17, 1986). The issue in these two petitions for certiorari, which arose out of the same bankruptcy petition, is whether a bankruptcy trustee may abandon property under §554(a) of the Bankruptcy Code, I I U.S.C. §554(a) (1982), in contravention of state and local public health and safety laws. Section 554(a) reads: After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate. Abandonment is defined as the release from the debtor's estate of property previously included in that estate. (See dissenting opinion of Justice Rehnquist, 106 S.Ct. at 763, citing 2 W. Norton, Bankruptcy Law and Practice §39.01). The Supreme Court, in a 5-4 decision written by Justice Powell, held that a trustee may not abandon property in contravention of local laws reasonably designed to protect the public's health or safety from identified hazards. 106 S.Ct. at 762. Quanta Resources Corporation (Quanta) processed waste oil at two locations, one facility in Long Island City, New York and the other in Edgewater, New Jersey. In June 1981, Midlantic National Bank (Midlantic) provided Quanta with a $600,000loan secured by Quanta's inventory, accounts receivable and certain equipment. Also in June 1981, the New Jersey Department of Environmental Protection (NJDEP), which had given Quanta a temporary permit to operate the Edgewater facility, discovered that Quanta had violated its permit by accepting more than 400,000 gallons of oil containing PCBs. As a result, NJDEP ordered Quanta to halt its operations at Edgewater. Negotiations between NJDEP and Quanta concerning the cleanup of the facility commenced soon after the NJDEP order. However, on October 6, 198 1, Quanta filed a petition for reorganization under Chapter I I of the Bankruptcy Code. The next day, NJDEP ordered Quanta to clean up the site, and in November. 1981, Quanta converted its Chapter II petition to Chapter 7, liquidation. Thomas O'Neill was appointed as Quanta's trustee in bankruptcy. An investigation of the Long Island City facility revealed that Quanta had accepted and stored over 70,000 gallons of PCB- contaminated oil in leaky containers. O'Neill notified Quanta's creditors and the Bankruptcy Court for the District of New Jersey that he intended to abandon the Long Island City property pursuant to §554(a) after attempts to sell the property proved unsuccessful. The trustee's allegation that the Long Island City facility was burdensome and of inconsequential value to the estate within the meaning of §554 was not disputed by any party involved in the bankruptcy proceeding. Although not parties to the proceeding, the City and State of New York (New York) objected to the abandonment, contending that it would threaten public health and safety and would violate state and federal environmental law. New York based its objection on considerations of public policy that pervade local laws and on 28 U.S.C. §959(b) (1982) which requires that a trustee .manage and operate the property of the estate according to the requirements of the valid laws of the State in which such property is situated. However, the Bankruptcy Court approved the abandonment and the U.S. District Court for the District of New Jersey affirmed. New York appealed this decision to the Third Circuit. Upon abandonment, the trustee removed the 24-hour protection service from the Long Island City facility and shut down the fire-suppression system. To protect public health, New York spent $2.5 million to decontaminate the facility. On April 23, 1983, shortly after the District Court approved the abandonment of the Long Island City site, the trustee announced his intention to abandon the Edgewater site. On May 20, the Bankruptcy Court approved this abandonment. NJDEP objected to the abandonment because the estate had sufficient funds to protect the public from dangers posed by the hazardous waste. 106 S.Ct. at 758. Presumably, the abandonment could require New Jersey to make expenditures to decontaminate the Edgewater site. Pursuant to §405(c)(l)(B) of the Bankruptcy Code, the parties in the New Jersey litigation consented to NJDEP appealing from the Bankruptcy Court to the Third Circuit because the abandonments of the New Jersey and New York sites presented the same issue. The Third Circuit held that the Bankruptcy Court erred in permitting abandonment. In re Quanta Resources Corp., 739 F.2d 912 (3d Cir. 1984) and In re Quanta Resources Corp., 739 F.2d 927 (3d Cir. 1984). (For a discussion of Quanta, 739 F.2d 912, see Vol. I, No. 2, Hofstra Environmental Law Digest (Fall 1984).) In affirming the Third Circuit's decision, Justice Powell, joined by Justices Brennan, Marshall, Blackmun and Stevens, emphasized three factors prohibiting a trustee from the abandonment of property in contravention of state law designed to protect public health and safety. Justice Powell first examined the trustees abandonment power prior to the 1978 revisions of the Bankruptcy Code. Prior to 1978, the trustees abandonment power had been limited by a judicially developed doctrine intended to protect legitimate state or federal interests. 106 S.Ct. at 759. Justice Powell then concluded that when Congress codified the rule of abandonment in §554, it also presumably included the established corollary that a trustee could not exercise his abandonment power in violation of certain state and federal laws. Id. If Congress intends to change the interpretation of a judicially created concept, it normally makes the intent specific in Spring 1986 Vol. 3 No. I

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