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Clean Up That Mess

Posted on: October 18, 2010

Last week the Supreme Court exercised its option to do nothing about a Seventh Circuit decision allowing the federal government to cram a $150 million remediation obligation onto a chapter 11 successor corporation – all because the feds chose to proceed under RCRA (the federal hazardous waste statute) rather than CERCLA (the Superfund cleanup statute). Smart tactics by the feds.

In Apex Oil, Judge Posner reasoned that a RCRA cleanup injunction against the corporate successor to a chemical company was not discharged in chapter 11 because the injunction does not create a right to payment and so is not a ‘debt’ under the Bankruptcy Code. The case turned on a weirdness in RCRA: RCRA allows the government to order cleanup but does not allow the government to order payment for cleanup (unlike CERCLA). Thus, the RCRA order was not an equitable remedy for which breach of performance gives rise to a right to payment. Consequently, the responsibility associated with the order had not been discharged.  The case further cabins the contrary determination in the Sixth Circuit in Whizco.

A wide body of law already exists to chart the erratic course of CERCLA liability through (or not through) restructuring.  Now there's a new and improved way the feds can impose serious environmental liability post-restructuring, with much less trouble. Expect more focus on RCRA by the Justice Department and Environmental Protection Agency as they look to pick up some remediation money from folks who thought they were in the clear. Likewise, the case highlights the importance of a nuanced evaluation of environmental risks at the front end of a 363 sale and in the restructuring itself.

The Seventh Circuit case below is United States v. Apex Oil Co., 579 F.3d 734 (7th Cir. 2009). The contrary case in the Sixth Circuit is United States v. Whizco Inc., 841 F.2d 147 (6th Cir. 1988).

Kevin Ewing is also a regular contributor to Bracewell & Giuliani's Energy Legal Blog.