IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 97-30423

_____________________

In The Matter Of: CRYSTAL OIL COMPANY,

Debtor.

-----------------------------------------

LOUISIANA DEPARTMENT OF ENVIRONMENTAL

QUALITY; OLIN CORPORATION,

Appellants,

versus

CRYSTAL OIL COMPANY,

Appellee.

_________________________________________________________________

Appeals from the United States District Court for the

Western District of Louisiana

_________________________________________________________________ October 20, 1998

Before POLITZ, Chief Judge, REAVLEY, and JOLLY, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

This bankru ptcy appeal arises from a decision that the

environmental damage claims of the Louisiana Department of

Environmental Quality (“LDEQ”) against Crystal Oil Company

(“Cryst al”) were discharged by LDEQ’s failure to bring its claim

prior to the bar date establis hed in the bankruptcy proceeding.

For the reasons set forth b elow, we find no error on the part of

the district court.2 I

From 1926 to 1965, Crystal Oil Refining Corporation

(“CORC”)owned a plot of land known as the “Shoreline site.” CORC

transferred a parcel of land, including the Shoreline site, to Olin

Mathieson Chemical Corporation in 1965. At that point, CORC

transferred all l and records associated with the Shoreline site.

In 1966, CORC merged into Roberts Company. Roberts Company

personnel assumed management responsibilities for the new company,

which was renamed Crystal Oil Company, the appellee in this case.

On February 25, 1986, LDEQ received a citizen complaint about

the Shoreline site. An employee working for the emergency response

team of LDEQ investigated the site. He discovered oil oozing out

of the ground, tanks above ground with problems, and gathering

lines with problems. He also noticed a rusted sign bearing

“Crystal Oil Company” at the edge of the site. The employee made

an initial investigation and sent a report to the abandoned and

inactive site division of LDEQ.

What followed is what can only be described as a profoundly

problematical conversation for the parties concerned--LDEQ and

Crystal. In May 1986, Nathan Clements of the abandoned and

inactive site division of LDEQ made a phone call t o Crystal and

spoke with Pat Eddings, the security/environmental compliance

officer. Eddings subsequently sent a memorandum summarizing the

conversation to Caskey, Crystal’s corporate secretary:3

Rec ords indicate that a Crystal Oil Company owned the

property in the 1930's and a Mr. C.M. Leonard (ph) was

president until 1937. He purchased the property as an

individual and operated it as the Leonard Company until

they took bankruptcy. The property may have reverted

back to Crystal. Ownership, after that, is unknown. It

is now owned by the Mandeville or Manville Corporation.

Mr. Clements request [sic] to know if it was our “Crystal

Oil Company”. If so, did Crystal build or purchase the

original refinery. If so when? What was refined? Where

and to whom did we sell it? Did we later regain control

and operations?

. . . .

You may want to use caution in releasing any information

as there could be environmental problems.

D.EXH.90. Eddings received a response from Caskey, who concluded

that, based on a search of in-house records, Crystal had not owned

the land. Eddings did not respond to Clements until Clements

initiated further contact.

When Clements called ag ain, Eddings agreed to send a letter

resp onding to Clements questions. On October 22, 1986, after

another round of deliberation with Caskey, Eddings sent the

following letter, which is Crystal’s final and only written

response to LDEQ’s inquiry:

At the request of Mr. Nathan Clements a research was

made of available records now in possession of Crystal

Oil Company relative to Shoreline Refinery that operated

at one time in North Louisiana, Caddo Parish.4 Please be advised that no in formation was found

indicating this company ever owned or operated such a

facility.

Trial EXH D-92.

It is worth reflecting for a moment on the nature of the

communication between LDEQ and Crystal. From the information

available, it is apparent that LDEQ knew that there was a

significant environmental problem that could result in liability to

p revious owners of the land. LDEQ also knew, from performing a

title search, that the land had been owned by CORC. Finally, LDEQ

suspected that Crystal was CORC’s successor corporation. However,

because multiple Crystal Oil companies existed, it could not be

certain. For whatever reason, Clements did not inform Eddings of

the environmental pro blem. Instead, Clements asked a series of

questions designed to elicit the one missing piece of information

Clements needed, that Crystal was the successor corporation.

Eddings, on the other han d, we can assume to be well aware

that his company was in fact the successor to CORC. As Eddings’s

memorandum to Caskey makes clear, he was also a ware that a call

from LDEQ raised the possibility that Crystal could be liable for

environmental problems on the land. What Eddings did not know was

whether Crystal actually was the company that owned the Shoreline

site. Thus, in his own guarded manner, Eddings ultimately

responded to the query by answering that, after a search of

available records, he had no information to indicate that Crystal5

owned the Shoreline site. At the end of this round of

communication, neither party had obtained any useful information.

Eddings did not have any sense of the what, if any, liability

Crystal could be subject to if it owned the Shoreline site.

Clements, on the other hand, still had not obtained the crucial

piece of information he was s eeking--whether Crystal was the

successor company to CORC.

Crystal incorrectly concluded that it did not o wn the site

because the rel evant documents were in off-site storage and were

not searched. On appeal, the appellants, LDEQ and Olin (“LDEQ, e t

al. ”), do not contend that Crystal acted in bad faith in responding

to Clements’s query. Indeed, given the clear potential for an

adv ersarial relationship between the parties, Crystal’s reply to

this opening salvo is a diligent response to LDEQ’s query. There

was no effort to follow up by LDEQ. Indeed, Crystal did not hear

from LDEQ again on this matter for over nine years. In January of

1996, however, Crystal received a letter informing it that it was

a potentially respons ible party for remediation of the Shoreline

site.

But other events had occurred in the nine-year interim. On

October 1, 1986, Crystal had filed for Chapter 11 relief in the

United States Bankruptcy Court for the Western District of

Louisiana. The bankruptcy court set the claims bar date for6

October 31, 1986. Crystal published a notice of its bankruptcy in

the national edition of The Wall Street Journal and mailed notice

of the claims bar date to hundreds of known creditors, including

the Louisiana State Department of Conservation, a sister agency of

LDEQ. On December 31, 1986, the bankruptcy court entered an order

confirming Crystal’s reorganization plan.

Crystal did not list LDEQ as a creditor on its bankruptcy

s chedules or send LDEQ notice of the claims bar date. It is

disputed whether Crystal’s environmental compliance department

informed LDEQ officials of its bankruptcy during discussions about

ownership.

Environmental response activities at the Shoreline site were

transferred to the United States Environmental Protecti on Agency

(the “EPA”) in early 1988. The site was then transferred back to

LDEQ in Nov ember 1990. Because the EPA had secured the site and

LDEQ’s resources were li mited, LDEQ deferred action on the site

until 1996. At that time, an inspection of the Shoreline site

revealed the following:

The site is an approximate 50 acre tract which housed an

abando ned oil refinery and which now appears as a

waste/sludge field, portions of which have been

characterized as a hazardous substance due to

corrosivity

. . . . The property consists of acres of

contaminated soil with evidence that groundwater is

contaminated. The site also contains piles of refinery

sludge placed in an unlined surface impoundm ent at the

site. The sludge is refinery unit sludge which is common

to refinerie s such as the one Crystal allowed to be7

operated on its property and is a recognized waste in the

process of petroleum production refining.

R. 799-800.

On April 19, 1996, Crystal filed a motion to reopen its

bankruptcy case, seeking to enforce the confirmation order against

LDEQ by asserting that any claims of LDEQ had been discharged.

Olin Corporation (“Olin”) intervened in support of LDEQ because it

was also listed as a potentially responsible party f or the

Shoreline site and wanted to preserve any contribution claims

against Crystal. After a two-day hearing, the bankruptcy court

h eld that the claims arose before confirmation and were

dischargeable, denying LDEQ’s request to file late claims. On

Fe bruary 28, 1997, the United States District Court consolidated

LDEQ’s appeal and Olin’s appeal into one proceeding. The district

court affirmed the bankruptcy court. LDEQ and Olin timely

appealed. The EPA and the Louisiana Department of Transportation

and Development filed ami cus curiae briefs on behalf of LDEQ,

raising substantially the same arguments as LDEQ and Olin

.

II

On appeal, LDEQ, et al., raise three issues. First, they

argue that the bankruptcy and district courts erred in concluding

that a pre-petition bankruptcy claim existed. The bankruptcy court

held that the liability for the Shoreline site con stituted a

“claim” within the meaning of the Bankruptcy Code. 11 U.S.C.8

§ 101(5). Using the “fair contemplation” test set forth in In re

National Gypsum Co. , 139 B.R. 397 (N.D. Tex. 1992) (Sanders, J.),

the court concluded that LDEQ’s claim arose before confirmation of

the plan bec ause LDEQ knew at the time of the bankruptcy filing

that Crystal was a former owner of the contaminated site, making

the claim dischargeable. LDEQ, e t al., contend that the courts

misapplied this test, and no “claim” existed at the time of

bankruptcy.

Second, LDEQ, et al., argue that the bankruptcy and district

courts erred in holding that LDEQ was given adequate notice. The

bankruptcy court found that LDEQ was not a known claimant and,

thus, received adeq uate constructive notice of the bankruptcy.

LDEQ, et al., contend that this finding was error because LDEQ was

a known claimant and due process dictates that actual notice was

required.

The third and final argument made by LDEQ, et al., is that the

bankruptcy and district courts erred in holding that the nine-year

delay in filing a claim did not qualify as “excusable neglect.”

LDEQ, et al. argue that, by considering the requisite factors of

prejudice to the debtor, the circumstances of this case amount to

excusable neglect, entitling LDEQ to file a late claim.1 Note that the Fifth Circuit has never issued an opinion in

this precise area, and, at least as to the issues in this case, has

not adopted either the somewhat elaborate rule of In re National

Gypsum

, 139 B.R. 397 (N.D. Tex. 1992), nor the blunt standard of In

re Chateaugay Corp

. , 944 F.2d 997 (2d Cir. 1991). Although this

conclusion is contrary to the intimations of some of the briefs and

the determination of the bankruptcy court, it is well supported by

a close reading of Judge King’s opinion in Lemelle v. Universal

Mfg. Co.

, 18 F.3d 1268 (5th Cir. 1994), the source of the purported

adoption. That case did not involve environmental regulatory

claims at all, and only looked to National Gypsum and Chateaugay

for first principles.

9 III

The first question we address is whether LDEQ’s environmental

liability claim against Crystal arose prior to the confirmation of

Crystal’s re organization plan for bankruptcy purposes. We have

considered the various standards that have been suggested for the

analysis of this question, and are persuaded that the analysis set

forth in the Seventh Circuit’s decision in I n re Chicago,

Milwaukee, St. Paul & Pac. R.R. Co. , 974 F.2d 775 (7th Cir. 1992)

(“ Chicago I ”), is correct. That case discusses most of the

relevant cases in this highly specialized area of the law, 1 and

synthesizes them to a rational and coherent rule. Under the test

ultimately employed by the court in Chicago I

, a regulatory

environmental claim will be held to arise when “a potential . . .

claimant can tie the bankruptcy d ebtor to a known release of a

hazardous s ubstance.” 974 F.2d at 786. In this case, then, the

question is whether, at the time of bankruptcy, LDEQ could have

ascertained through the exercis e of reasonable diligence that it10

had a claim against Crystal for a hazardous release at the

Shoreline site.

We agree with the bankruptcy court that LDEQ became aware of

the hazardou s release in question before the close of Crystal’s

bankruptcy case. LDEQ, e t al., present two arguments to the

contrary. First, they contend that LDEQ did not have actual

knowledge of a hazard ous substance. Second, they contend that,

even if LDEQ had known of such a substance, LDEQ could not have

tied Crystal to its release. We shall address each argument in

turn.

LDEQ, et al., contend that although LDEQ had found oil oozing

out of the ground at the Shoreline site, they had not found a

hazardous substance, as that term is defined in state and federal

definitions of the word. 42 U.S.C. § 9601(14); LSA-R.S.

30:2272(4)(c)(Supp. 1996) formerly LSA-R.S. 20:1149.42(4)(c)(Supp.

1976 to 1986). However, although state and federal definitions

exclude “crude oil” from the definitions of hazardous substances,

th ey do not exclude waste oil. As the description of the

environmental problems with the Shoreline site, supra Part I, makes

c lear, it is waste oil that makes up the corrosive sludge tha t

qualifies as a hazardous substance at issue here. The bankruptcy

court found, as a matter of fact, that LDEQ’s investigator observed

waste oil rather than crude oil at the site. This finding is not11

clearly erroneous. Because LDEQ knew about a hazardous substance

that constituted an environmental violati on, we hold that it was

enough to put them on notice of the claim under the broad

definition of that term applicable in bankruptcy law.

The second argument LDEQ, et al., make is that they could not

have known Crystal was the successor to CORC given Crystal’s denial

t hat it owned the property. Thus, LDEQ could not tie Crystal to

the release of the hazardous substance. Although the evidence on

this point was mixed, and included the troubling fact that Crystal

provided LDEQ with inaccurate information, it is difficult to find

the court’s decision to have been clearly in error. The bankruptcy

court concluded that LDEQ had searched the conveyance records for

Cad do Parish and obtained information tying Crystal to the

property. R. at 955-6. Although LDEQ had not ascertained for

certain that Crystal was the successor company, it clearly was in

the process of investigating Crystal. If Crystal’s response had

included a factual misrepresentation that misled LDEQ into

believing Crystal was not CORC’s successor, then there might be a

basis for concluding that LDEQ believed it could not tie Crystal to

the release of the hazardous substance. Crystal, however, made no

such misrepresentation. Instead, it provided LDEQ with no

conclusive information at all. The Louisiana Secretary of State

assures that mergers and name changes like that which occurred here2 There is also a subsidiary question of whether Crystal might

have gi ven LDEQ actual notice in the first place. LDEQ concedes

that Crystal did give actual notice to the Louisiana Department of

Conservation, and, in In re Jensen , 955 F.2d 925 (9th Cir. 1993),

notice to a “sister agency” was held t o be sufficient in the

environmental regulatory context. As we conclude that actual

notice is not necessary in this case, we need no t address this

issue.

12 are matters of public record that can be easily ascertained in a

document search, so the old name should have been en ough to put

LDEQ on the right trail that would have led to Crystal. We

therefore find no error in the bankruptcy court’s holding that

LDEQ’s claim was pre-petition.

IV

The next question we must answer is whether Crystal provided

LDEQ with adequate notice of its bankruptcy by publishing it in

The Wall Street Journal

. 2 Under the Supreme Court’s longstanding

jurisprudence, the debtor must provide actual notice--not notice by

publication--to all “known creditors” in order to achieve a legally

effective discharge of their claims. C ity of New York v. New York,

N.H. & H.R. Co.

, 344 U.S. 293, 296 (1953). As the Supreme Court

has further explained, however, “ known creditors” include both

those claimants actually known to the debtor, as well as those

whose identities are “reasonably ascertainable.” T ulsa

Professional Collection Serv., Inc. v. Pope

, 485 U.S. 478, 490

(1988). A creditor is “reasonably ascertainable” if it can be

discovered through “reasonably diligent efforts.” M ennonite Bd. of13

Missions v. Adams

, 462 U.S. 791, 798 n.4 (1983). In a somewhat

similar case, the Third Circuit held that such efforts need

generally include only a careful search of the debtor’s own

records, and that environme ntal claimants whose claims are not

discoverable therein or otherwise app arent are not “known

creditors” for bankruptcy purposes. Chemetron Corp. v. Jones , 72

F.3d 341, 346-4 8 (3d Cir. 1995). In reaching this holding, the

Chemetron court stressed that claimants must be reasonably

ascertainable, not reasonably foreseeable. I d. at 348. As we read

these cases, in order for a claim to be reasonably ascertainable,

the debtor must have in his possession, at the very least, some

specific info rmation that reasonably suggests both the claim for

which the debtor may be liable and the entity to whom he would be

liable.

LDEQ, et al., make three arguments challenging the bankruptcy

court’s finding on this issue: (1) Crystal was involved in the oil

business throughout the state and had de alt previously with

environmental agencies and thus should have contemplated a claim by

LDEQ; (2) Crystal intentionally avoided listing LDEQ as a creditor

and providing notice; and (3) Becau se LDEQ had contacted Crystal

about the Shoreline site, LDEQ was a “reasonably ascerta inable”

creditor, and thus a known creditor, entitled to actual notice.14

The first two arguments can be dispensed of easily. With

respect to the first argument, based on the standard we articulate

above, ther e can be no basis for concluding that a debtor is

required to send notices to any government agency that possibly may

have a claim against it. The second argument, that Crystal

intentionally avoided listing the L DEQ as a creditor despite an

outstanding amount of $135.36 owed to the Air Quality Division of

LDEQ, was adequately addressed by the bankruptcy court. We find no

error.

The last argument advanced b y LDEQ, e t al.

, that because

Crystal received a phone call from LDEQ, it had information that

should have led it to conclude that LDEQ had a claim, is a closer

i ssue. It is undisputed that LDEQ contacted Crystal, identified

itself, and asked about the site in question. Crystal looked into

the records it had on hand, and erroneously (but in good faith as

far as this record or the contentions of the parties indicate)

concluded that it had had no relationship with that property. The

bankruptcy cour t held that this inquiry was reasonably diligent,

because the only records that would have revealed the con nection

were ancient ones in long-term storage.

A s LDEQ did not give Crystal any other reason to th ink that

there might be a claim against it, the bankruptcy court reasoned

that LDEQ was not a reasonably ascertainable creditor. It has been15

argued in the briefs, however, that LDEQ informed Crystal during

its inquiries that the prior record title holder to the site was

CORC. Because we must assume that a company has knowledge of the

companies for which it is a successor company, if LDEQ did provide

this information, Crystal would have been on notice that whatever

problems there were at the site, they would eventually be brought

to Crystal’s door.

The ba nkruptcy court also concluded that, regardless of

Crystal’s knowledge of its link to the site, LDEQ’s inquiry did not

put it on notice that there were any environmental problems there

in the first place. That finding also is open to interpretation in

the light of Eddings’s memorandum concerning LDEQ’s inquiry that

warned to “use caution in releasing any information as there could

be environmental problems.” Thus, it appears arguable that LDEQ

might well have been a readily ascertainable creditor deserving

actual notice.

Although the evidence could go either way, this is entirely an

issue of fact, and our standard of review is therefore one of clear

error. We hold that there is no basis in either the testimony or

the written documents describing Clements’s contact with Eddings to

lead us to conclude that the bankruptcy court’s findings are

clearly erroneous. The bankruptcy court considered the internal

memoranda written by Eddings and Caskey along with the testimony of

Eddings on this issue. That testimony is clearly consistent with16

the bankruptcy court’s finding that Eddings was never given enough

information by Clements to believe that Crystal could be liable for

a claim. LDEQ did not present any written or testimonial evidence

that might have shed some other light on the conversation between

Clements and Eddings. Thus, while reasonable minds could differ on

this issue , we must conclude, based on the bankruptcy court’s

findings, that LDEQ was not a reasonably ascertainable claimant and

therefore only entitled to public notice. In sum, the record

supports the bankruptcy court’s finding that the information in the

possession of Crystal, th at is the written memoranda and

correspondence related to LDEQ’s contact with Crystal and Crystal’s

officers’ recollections of that contact, did not suggest that there

was a hazardous waste claim for which Crystal would be liable to

LDEQ.

V

The final issue we must address is whether LDEQ should

nonetheless be allowed to file a l ate claim on the basis of

excusable neglect. We can see no merit to this argument. Under

Pioneer Investment Services Co. v. Brunswick Associates L.P. , 507

U.S. 380 (1993), the court must consider prejudice to the debtor,

length of the delay, and reason for the delay in determining

whether the claimant’s neglect was excusable. In this case, the

bankruptcy court correctly determined that: (1) the prejudice to

the debtor would be high, (2) the length of the delay (nine years)17

was quite long, and (3) the reason for the delay (LDEQ’s lack of

funds) was unconvincing. In the light of these findings, we cannot

say that LDEQ should be allowed to file a nine-year late claim.

VI

In summary, we hold that LDEQ’s environmental liability claim

against Crystal arose pre-petition for bankruptcy purposes because

LDEQ had enough information through which it could have tied

Crystal to a known release of a hazar dous substance at the point

that they found the “Crystal Oil” signs on the property. Despite

its phone call to Crystal, LDEQ was not a reasonably ascertainable

creditor for bankruptcy purposes, and the notice by publication

that it received was therefore sufficient to subject its claim to

discharge in bankruptcy. Finally, LDEQ’s decade-long delay in

bringing its claim was not excusable neglect.

In closing, we should note that this case presented complex

issues resolved only by relying on the factual determinations

reached by the bankruptcy court. We recognize that the bankruptcy

court was confronted with factual disputes presenting close calls

and that reasonable minds may differ over their outcome. In

bankruptcy cases, however, we owe substantial def erence to the

bankrup tcy court’s findings of fact. Here, the factual findings

are not clearly erroneous and, given those findings, it is clear

that the bankruptcy court did not err in reaching the conclusions

that it reached.18

In accordance with the above-stated reasons, the judgment of

the district court is therefore

A F F I R M E D.