Court Opinion

ID: 9518726
Source: CourtListenerOpinion
Date Created: 2023-08-07 01:00:35.544381+00
Date Added: 2024-06-11T12:31:36.037644
License: Public Domain

OPINION

JONES, Bankruptcy Judge:
BACKGROUND
The debtor, Daniel C. Hanna (“Hanna”), and appellant, Gull Industries, Inc. (“Gull”), owned adjacent filling stations in Gresham, Oregon. Both filling stations leaked petroleum products into the soil, causing contamination. However, only Hanna’s leakage reached the groundwater. The contamination of the groundwater is apparently a slow, continuing process which occurs after the soil is saturated with petroleum.
Gull began cleaning up its site in August 1989, in conjunction with the sale of its property to BP Oil Company (“BP”). That sales agreement required Gull to clean up environmental damage to the site according to a specific timetable. Findings of Fact and Conclusions of Law (4-7-92) at 7. Gull hired Applied Geotechnology, Inc. (“AGI”) to perform a site assessment and cleanup which eventually cost about $130,000. AGI deter*388mined that the groundwater beneath the Gull site was contaminated by one to three inches of free petroleum product. The bankruptcy court found that “Gull asserted and proved at trial that contaminated subsurface water continued to migrate to its land from the polluted Hanna land_” Findings (4-7-92) at 3.
After beginning its remediation efforts by installing three twenty-four inch recovery wells on the Gull site in June 1990, Gull demanded that Hanna stop the flow of contamination from the Hanna site to the Gull site.1 About a week later on July 27, 1990, Hanna filed for relief under Chapter 11. Three days later the bankruptcy court appointed John Mitchell, Inc. (“Mitchell”), as Chapter 11 trustee.
Gull continued its remediation efforts by installing an “air stripper” to clean the groundwater, and on August 24, 1990, brought an adversary complaint seeking in-junctive relief and tort damages under Oregon Revised Statute § 465.255. Gull asked that these claims be treated as administrative expenses under 11 U.S.C. § 503.2
In October 1990, Mitchell emptied the leaking underground storage tanks on Hanna’s site, and in April 1991 removed them; however, he failed to remove the underlying contaminated soil or to perform a site study as directed by the bankruptcy court in its December 13, 1990 order.
On April 7, 1992, the bankruptcy court denied administrative status but concluded that Gull’s expenses were “remedial action costs” recoverable as a general unsecured claim under O.R.S. § 465.255. Gull now appeals the denial of administrative status, and Mitchell cross-appeals the granting of the general unsecured claim. We affirm both.
STANDARD OF REVIEW
We review for an abuse of discretion the bankruptcy court’s award or denial of administrative claims pursuant to 11 U.S.C. § 503(b)(1)(A). See In re Dant & Russell, Inc., 853 F.2d 700, 707 (9th Cir.1988). In general, we review findings of fact for clear error and conclusions of law de novo. E.g., In re Comer, 723 F.2d 737, 739 (9th Cir.1984).
ISSUES PRESENTED
1. Whether Gull’s cleanup costs performed on property not owned by the estate and relating to pre-petition damages are entitled to § 503(b)(1)(A) administrative expense status.
2. Whether the bankruptcy court erred as a matter of fact or law in granting Gull an unsecured claim for its cleanup costs.
DISCUSSION
We construe § 503(b)(1)(A) strictly. E.g., In re Catalina Spa & R.V. Resort, Ltd., 97 B.R. 13, 17 (Bankr.S.D.Cal.1989) (citing Standard Oil Co. v. Kurtz, 330 F.2d 178, 180 (8th Cir.1964)). The applicant must prove by a preponderance of the evidence entitlement to the administrative expense. Id. (citing In re Patch Graphics, 58 B.R. 743, 746 (Bankr.W.D.Wis.1986)).
Administrative status is allowed when a claim (1) is incurred postpetition, (2) directly and substantially benefits the estate, and (3) is an actual and necessary expense. E.g., In re Great Northern Forest Prods., Inc., 135 B.R. 46, 60 (Bankr.W.D.Mich.1991). We affirm based on the first element and therefore do not address the other two.
1. Damages Caused Pre-Petition
Although the bankruptcy court’s findings of fact and conclusions of law raise some questions, the court clearly found that the petroleum leaks on the Hanna property occurred pre-petition, and that neither Hanna nor Mitchell “added any significant new contamination to the Hanna land postpetition.” Findings (4-7-92) at 2-7.
As noted above, the bankruptcy court also found:
*389Gull asserted and proved at trial that contaminated subsurface water continued to migrate to its land from the polluted Hanna land....
Findings (4-7-92) at 3. The apparent inconsistency in these findings is resolved through the court’s citation to In re Jensen, 127 B.R. 27 (9th Cir. BAP 1991), aff'd, 995 F.2d 925 (9th Cir.1993).3
In Jensen, the BAP discussed when claims arise for purposes of dischargeability.4 The BAP held that the estate’s cost-recovery claim was dischargeable because it arose from the debtor’s prepetition actions even though the state’s right to recover did not arise until postpetition when it cleaned up the site. 127 B.R. at 33.
Jensen cites as authoritative In re Chateaugay Corp., 112 B.R. 513 (S.D.N.Y.1990), aff'd, 944 F.2d 997 (2d Cir.1991), for the proposition that a claim arises upon the actual or threatened release of hazardous waste by the debtor. Consequently, if a tort occurs prepetition, with the injury occurring postpetition, such claim is deemed to have arisen prepetition. Jensen, 127 B.R. at 33 (citing Chateaugay, 112 B.R. at 522). In other words, so long as a prepetition triggering event had occurred, the claim was dis-chargeable regardless of when the claim for relief was ripe for adjudication. Chateaugay, 112 B.R. at 522.
In the instant case the bankruptcy court identified the acts giving rise to the alleged liability as the petroleum .spills from the underground storage tanks into the soil. The later leaching from the soil to the groundwater required no activity by Mitchell, but was rather “passive.” See Findings (4-7-92) at 5. Consequently, the bankruptcy court found that all environmental damage was deemed to have occurred pre-petition. See id. We agree.
The Ninth Circuit has held that “damages caused during the pre-petition period are not entitled to administrative expense priority.” Dant, 853 F.2d at 709. Dant also held that “consequent damage” occurring postpetition should be regarded as having occurred pre-petition. Id..5
For all practical purposes, the instant appeal is equivalent to Dant. In Dant, a pre-petition debtor operated a wood treatment plant on land partially owned by the debtor and partially leased from the Burlington Northern Railroad Company. The wood treatment facility operated for over a decade and caused massive toxic waste contamination on both properties, including significant concentrations of PCP in the groundwater. The pre-petition debtor clearly caused the pollution to both properties.
Burlington Northern spent approximately $250,000 under a separate agreement with the EPA to clean up its property. Burlington requested that these cleanup costs be given administrative expense status, which request was denied for two reasons: (1) because the damages occurred pre-petition; and (2) because the remedial efforts occurred off-site on property not owned by the bankruptcy estate. Dant, 853 F.2d at 709. See also Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985). The Dant court *390reasoned, pursuant to § 503(b)(1)(A), that the off-site remediation had not been shown to be for “the actual, necessary costs and expenses of preserving the estate....” Dant, 853 F.2d at 709. Gull has cited no ease wherein off-site cleanup costs were given administrative expense status.
In light of Dant, the bankruptcy court did not abuse its discretion in denying Gull administrative expense status for the continuing effects of pre-petition damages. See e.g., In re Bill’s Coal Co., 124 B.R. 827, 829-30 (D.Kan.1991).
2. Policy Considerations
Gull argues that its $130,000 claim should be allowed as an administrative expense as a matter of environmental protection policy. Gull’s argument fails to recognize the conflicting authority articulated by the Ninth Circuit that “[although [the creditor] asserts that public policy considerations entitled its claims for cleanup costs to administrative expense priority, we acknowledge that Congress alone fixes priorities.... Courts are not free to formulate their own rules of super or sub-priorities within a specifically enumerated class.” Dant, 853 F.2d at 709 (citations omitted); see also Jensen, 127 B.R. at 33.
Dant, a case dealing with Oregon law, concluded with the following statement:
[A] State may protect its interests in the enforcement of its environmental laws by giving cleanup judgments the status of statutory liens or secured claims. But until the Oregon legislature enacts such protective provisions or until Congress amends sections 503 and 507 to give priority to claims for cleanup costs, we are without authority to create such a priority.
Dant, 853 F.2d at 709 (citations omitted). Consequently, we cannot grant the requested relief as a matter of policy.
3. Cross-Appeal.
Mitchell argues that' Gull’s claim should not be allowed because it failed to follow the guidelines issued by the ODEQ in its cleanup efforts, and that its efforts were not reasonable as required by the statute. Mitchell also disputes the court’s alternative theory of liability based on trespass. Because we affirm based on the former, we do not address the latter.
Mitchell asserts that Gull did not follow applicable rules governing remedial actions in containing the gasoline plume. Pursuant to O.R.S. § 465.200(15), Mitchell believes that, by definition, an allowable claim must be “consistent with a permanent remedial action.” The court found that Gull’s actions could be consistent, and the trustee asserts that therein lies the error.
However, the definition of remediation goes on to state that remediation includes actions “taken instead of or in addition to removal actions ... to minimize the release ... so that it does not migrate to cause substantial danger....” Because the court found that Gull’s actions slowed the spread of the plume, it appears that its actions fit the statute. Although Gull’s particular actions are not listed in the statute, the statute expressly states that the list is not exclusive. Nor does the statute require that an action be cost effective. Thus, even though the court was not convinced that the action was cost effective, it did not err in concluding that the action was remedial under the statute.
CONCLUSION
The bankruptcy court found that the environmental damage caused to the Hanna site occurred prepetition, including the continuing effects of prepetition damages, and that cleanup costs relating to prepetition damages were not entitled to administrative expense priority. Gull has failed to show that these findings of fact and conclusions of law were erroneous. Gull has also failed to show that this panel should go beyond the facts and law relevant to this case based on policy considerations.
The bankruptcy court found that Gull’s efforts were remedial and benefitted the public, and that Gull was therefore entitled to a general unsecured claim. Mitchell has failed to show that the bankruptcy court erred in these findings and conclusions.
Accordingly, we affirm the bankruptcy court’s denial of administrative expense sta*391tus and its grant of a general unsecured claim to Gull.

. Similar demands were made by the Oregon Department Of Environmental Quality ("ODEQ”) before and after the filing of the bankruptcy petition.

. Unless otherwise indicated, all statutory citations refer to the Bankruptcy Code, 11 U.S.C. sections 101 to 1330.

. Mitchell argues that insufficient evidence was presented to determine that the Hanna release leached into the groundwater, and that the court made an impermissible presumption of causation. This is incorrect. The court heard testimony from AGI who believed that the groundwater contamination originated at the Hanna site. There was no contradictory evidence offered. The court is permitted to give weight to expert testimony. Fed.R.Evid. 702.

. The Jensen analysis is not limited to discharge-ability cases, but rather is also useful for purposes of determining administrative status. Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985), relied on by the dissent, also deals with dischargeability issues.

.Jensen and Dant are Ninth Circuit and BAP opinions interpreting the Bankruptcy Code. These opinions are not affected by the idiosyn-cracies of state law, such as O.R.S. § 465.255, which, according to the dissent, contradicts Jensen and Dant. We find no contradiction — Dant having applied Oregon law' — but in the event of a disagreement between the Bankruptcy Code and the Oregon Code, the former must prevail. See also discussion, infra at 390. We do not disagree with the dissent's insistence that a trustee must comply with state environmental laws. If such laws have been violated, appropriate remedies are available outside of the bankruptcy context. However, the narrow issue before this panel is whether Gull's cleanup costs should be given administrative priority under the Bankruptcy Code.