Opinion ID: 511020
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 7 In the course of its attempted reorganization, 1 the debtor Smith-Douglass, Inc. (Smith-Douglass ) moved to abandon its fertilizer plant at Streator, Illinois. The State of Illinois, Bernard Garrett (Garrett), and Borden, Inc. (Borden) objected on the ground that the property contained violations of Illinois environmental laws and regulations. The Bankruptcy Court granted the debtor's request and the district court affirmed. 8 The Streator facility was formerly owned by Borden and operated by the Smith-Douglass division of Borden as a fertilizer plant. In 1981, certain assets of Borden's Smith-Douglass Division including the Streator facility were acquired by Garrett Acquisition Corporation (GAC), which was then renamed Smith-Douglass, Inc. Wells Fargo financed GAC's purchase and received a first lien on all the properties. 9 On March 11, 1983, Smith-Douglass filed a voluntary petition under Chapter 11 of the bankruptcy code. Three months later, Smith-Douglass leased the Streator plant to another company, SECO, Incorporated (SECO), which is now in bankruptcy. SECO left the premises in August, 1985 and operations ceased. 10 At some point after the petition was filed, Smith-Douglass concluded that it would not be able to reorganize successfully. Wells Fargo, as first lien creditor, agreed to provide post-petition financing while Smith-Douglass liquidated its assets. There were no unencumbered assets. 11 Smith-Douglass attempted, unsuccessfully, to sell the Streator facility both privately and by public auction. By mid-1986, the Streator facility was the only piece of property remaining in the estate. The debtor moved for leave to abandon the property and Wells Fargo moved for leave to terminate funding of post-petition operations. 12 An evidentiary hearing was held on June 30, 1986. The debtor's motion to abandon was supported by Wells Fargo. Borden, Garrett and the State of Illinois opposed the proposed unconditional abandonment on the ground that the debtor should be required to clean up alleged environmental hazards. 2 13 The bankruptcy court found that conditions at the Streator facility violated provisions of the Illinois Environmental Protection Act and regulations promulgated thereunder in the following respects: 14 A. Ponds 1, 2, 3, 4 and 5 were considered as treatment works, but they were operated without operating permits. 15 B. Pond 2 was subject to flooding during wet weather periods. It was not constructed, nor was it being operated, to minimize violations during such wet weather periods. 16 C. Contaminants were deposited upon the land so as to create a water pollution hazard. Contaminants also had entered waters of the state at a number of locations at the facility and had caused violations of the Stream Water Quality Standards. 17 D. The discharge from sewer 4 and the discharge ditch out of pond 4 were considered point source discharges which require National Pollutant Discharge Elimination System permits. The facility had no such permits. 18 E. Waters in the abandoned creek bed violated the water quality standards as follows: 19 1. The waters contained unnatural sludge, bottom deposits, color and turbidity. 20 2. Two water samples demonstrated a low pH (less than 6.5) and contamination by excessive amounts of fluoride, sulfate, cadmium, iron, and manganese. 21 F. Contaminants were entering Phillips Creek, causing the creek to contain unnatural sludge, bottom deposits, color and turbidity. 22 G. Waters contained in the roadside ditch adjacent to Smith-Douglass Road violated water quality standards as follows: 23 1. The waters contained unnatural sludge, bottom deposits, color, turbidity and odor. 24 2. A water sample showed a low pH (less than 6.5) and contamination by excessive amounts of fluoride, sulfate, iron, and manganese. 25 H. A sediment sample at pond 2 indicated an arsenic concentration that is higher than authorized but not at the danger level. 26 I. A liquid sample in a sump at the base of two tanks had a pH of less than one which is considered hazardous under regulations. 27 J. There were several 55 gallon drums of liquid waste with a flash point below 140. 28 K. One 55 gallon drum contained hazardous waste. 29 L. There were over ten drums of spent vanadium pentoxide waste which is a hazardous waste. 30 M. Three tanks contained spent sulfuric acid. 31 The evidence further demonstrated that the State of Illinois monitored the facility. The Illinois Environmental Protection Agency had made on-site inspections and received environmental reports from the debtor and its predecessor. The state agency, however, never took any enforcement action against any owner of the Streator facility for environmental violations. Though concluding that violations of state environmental laws existed, the Court found that they did not present any imminent harm or danger to the public. Coupling that conclusion with the fact that the debtor was devoid of unencumbered assets with which to finance a clean up, the bankruptcy court authorized unconditional abandonment of the facility. 32 The district court affirmed on the ground that abandonment is precluded only where there is an imminent danger present, and the bankruptcy court's determination that there was no such imminent danger was not clearly erroneous. 75 B.R. 994 (E.D.N.C.1987). The district court, however, found the bankruptcy court's consideration of the financial condition of the debtor irrelevant. Borden and Illinois appealed.