Archive for the ‘Bankruptcy’ Category

Bankruptcy Won’t Make RCRA Obligations Disappear

Early last month, the Supreme Court declined to review the 7th Circuit Court of Appeals decision in Apex Oil Co. v. United States, indicating that debtors who file for bankruptcy may not be off the hook for environmental cleanup obligations under RCRA.

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Apex Oil Company is the corporate successor to the Clark Oil & Refining Company, which filed for bankruptcy in 1987. In 2003, the EPA informed Apex that the company was potentially liable under CERCLA (42 U.S.C. § 9601 et seq.) for a subsurface hydrocarbon plume in Hartford, Illinois, that was contaminating groundwater and emitting fumes that were entering area homes. The contamination had happened under Clark’s watch. When Apex “declined” to participate in the site’s remediation, the EPA brought a suit against them in a federal district court, this time seeking relief under RCRA (42 U.S.C. §6901 et seq.).

Apex, who was looking at a $150 million cleanup bill, appealed the district decision that the liability could not be discharged in bankruptcy, still hoping that Clark’s reorganization relieved them of the liability. However, while certain debts may be discharged under the Bankruptcy Code, the 7th Circuit Court agreed that, because RCRA does not authorize any form of monetary relief in lieu of cleanup of contaminated sites, the obligation does not fit within the Bankruptcy Code’s definition of “claim,” and therefore could not be discharged in a bankruptcy plan or reorganization.

What does this mean for the future? Perkins Coie’s related Update posits that “the decision by the Supreme Court not to review the Seventh Circuit’s decision could encourage heavier reliance on environmental statutes like RCRA that do not authorize monetary relief. As a result, we may see more actions by the EPA structured as RCRA injunctive suits instead of CERCLA suits in situations where the defendant is at risk for declaring bankruptcy.”

And what can you do about it? Law firm Akin Gump urges investors and stakeholders in reorganized entities “to perform due diligence to assess potential environmental liabilities that may pass through a reorganization and, if appropriate, seek advice about alternative strategies for mitigating such liabilities.” You can read their specific suggestions (such as the purchase of environmental liability insurance) in their Alert on the subject.

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