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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