Opinion ID: 449697
Heading Depth: 1
Heading Rank: 2

Heading: Southern's Claim

Text: 8 It is not disputed that Johnson undertook, in the license agreement which permitted it to use the ditch, to indemnify Southern, and thus that Southern is at least a general unsecured creditor for the cost of the cleanup. Southern seeks, however, to impose the cost of cleanup of its drainage ditch either upon Perry, or by way of an administrative priority, upon Johnson. A. Against Perry 9 While Johnson, in the course of the sale to Perry, assigned the sublease from PRF Corporation to Perry, it did not assign the drainage license, and Perry, therefore, assumed no obligations with respect to that license. The bankruptcy court credited the testimony of Perry's agent that when he visited the site he did not see any evidence of the ditch. Thus, there is no basis on which any express or implied contractual obligation running from Perry to Southern could be found. Perry's interest in the leasehold might be subject to a lien securing the indemnity agreement had its predecessor so burdened the property, but the indemnity agreement in the license did not so provide. Moreover, Southern has not referred us to any South Carolina law which would impose a lien on the leasehold in its favor. Thus the bankruptcy court properly held that Southern has no claim against Perry. B. Against the Debtor's Estate 10 The bankruptcy court held that despite Southern's unsecured status, it would be granted a lien against the proceeds of the Johnson-Perry sale for the cost of cleaning its ditch. In reaching this result the bankruptcy court relied upon its equity powers under section 105(a) of the Bankruptcy Code, which provides that [t]he bankruptcy court may issue any order, process or judgment that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. Sec. 105(a) (1982). It found an equity in Southern's favor in that Southern had not received notice of the intended sale to Perry, and thus had lost the opportunity to object to that sale prior to its consummation. Rather than set the sale aside, the court took what it regarded as the less dislocat[ing] step of imposing a lien on the proceeds. App. 83. 11 We conclude that the notice which preceded the sale to Perry was legally sufficient. The debtor in possession had the powers of a trustee. 11 U.S.C. Sec. 1107(a) (1982). Thus it, had the power to sell estate property other than in the ordinary course of business after notice and a hearing. Id. Sec. 363(b). Section 102(1) provides: 12 (1) [A]fter notice and a hearing, or a similar phrase-- 13 (A) means after such notice as is appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate in the particular circumstances.... 14 Id. Sec. 102(1)(A). Bankruptcy Rule 2002(i) provides that when property is to be sold other than in the ordinary course of business the court may order that notices ... be mailed only to the committees or their authorized agents and to the creditors and equity security holders who file with the court a request that all notices be mailed to them. Notice of the Johnson-Perry sale was given to the Committee of Unsecured Creditors, and Southern, as a creditor, had not filed with the court a request that it receive all notices. Thus, the notice procedure resorted to in connection with the Sec. 363(b) sale was sufficient under the Bankruptcy Code and Rules. 15 Perhaps Sec. 105(a) which confers equity powers upon the bankruptcy court affords authority to provide some form of relief to a creditor who can show prejudice flowing from a failure to receive notice in the course of a proceeding which conforms to the requirements of Rule 2002(i), but section 105(a) does not authorize the bankruptcy court to create rights not otherwise available under applicable law. As this court observed with respect to the equitable powers of the bankruptcy courts functioning under the Bankruptcy Act of 1898, 16 [t]he court may not by granting a priority which it deems equitable set aside the clear congressional mandate that no such priority shall be accorded. Pepper v. Litton, 308 U.S. 295 [60 S.Ct. 238, 84 L.Ed. 281] ... is not to the contrary. That case holds that a court of bankruptcy under its equitable powers may disallow or subordinate a particular claim in bankruptcy which, because of the fraudulent nature of the claim or the bad faith or improper conduct of the claimant, ought not in equity and good conscience to be allowed or paid on a parity with other claims. It does not hold that the court may set up a sub-classification of claims within a class given equal priority by the Bankruptcy Act and fix an order of priority for the sub-classes according to its theory of equity. 17 In re Columbia Ribbon Co., 117 F.2d 999, 1002 (3d Cir.1941). Accord, In re B & W Enterprises, 713 F.2d 534, 537 (9th Cir.1983). 18 Southern seeks to have its contractual indemnification claim against Johnson treated as somehow superior to the claims of other general unsecured creditors. Its claim is not afforded priority under 11 U.S.C. Sec. 507 (1982); thus equality of treatment is the applicable standard. Indeed, the only basis which it suggests for such preferential treatment is that because SCDHEC has sought to force it to clean up the drainage ditch it should be subrogated to the rights, against Johnson, of SCDHEC. Assuming without deciding that there is some legal basis for the recognition of such a subrogation right, it can rise no higher than that of SCDHEC. In Ohio v. Kovacs, --- U.S. ----, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985) the Supreme Court held that Ohio's injunction directing the cleanup of a hazardous waste site was no more than a general unsecured claim. In this case, South Carolina's administrative order had not even been reduced to judgment. Thus, the claim to which Southern seeks to be subrogated, a general unsecured claim, in no way improves its priority. 19 Southern urges that this court's decision in In re Quanta Resources Corp., 739 F.2d 912 (3d Cir.1984), cert. granted sub nom. O'Neil v. City of New York, --- U.S. ----, 105 S.Ct. 1168, 83 L.Ed.2d --- (1985), its companion case of the same name, 739 F.2d 927 (3d Cir.1984), cert. granted sub nom. Midlantic National Bank v. New Jersey Department of Environmental Protection, --- U.S. ----, 105 S.Ct. 1168, 83 L.Ed.2d --- (1985) and Penn Terra Ltd. v. Department of Environmental Resources, 733 F.2d 267 (3d Cir.1984) require affirmance. Reliance on those cases is misplaced. Penn Terra decided only that the automatic stay provision in 11 U.S.C. Sec. 362 did not bar an injunction action by the Commonwealth of Pennsylvania to enforce its environmental protection statutes. No such issue is presented in this case. Indeed South Carolina did proceed with enforcement actions against Perry and Southern, and has not sought anything from the debtor's estate. Thus, Penn Terra does not deal with the priority to be afforded to a claim against the estate for the cost of an environmental cleanup. In Quanta Resources the majority held that a trustee could not abandon property subject to a cleanup injunction, but expressly declined to reach the issue of priority, if any, to be afforded a claim for the cost of cleanup. 739 F.2d at 923, 929. Since those decisions, the Supreme Court has spoken definitively on the priority question in Ohio v. Kovacs, supra, and that case controls. The bankruptcy court had no authority to elevate Southern's general unsecured contract indemnity claim to the status of a claim secured by a lien on the proceeds of the sale from Johnson to Perry.