Court Opinion

ID: 4016880
Source: CourtListenerOpinion
Date Created: 2016-07-18 20:00:38.207978+00
Date Added: 2024-06-11T07:44:55.518710
License: Public Domain

NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT
                                _____________

                                     No. 15-2164
                                    _____________

              In re: G-I HOLDINGS INC, f/k/a GAF Corporation, et al.,
                                                 Debtors

                     NEW YORK CITY HOUSING AUTHORITY,
                                            Appellant
                                    v.

                                 G-I HOLDINGS, INC.
                                    _____________

                   On Appeal from the United States District Court
                              for the District of New Jersey
                            District Court No. 2-14-cv-06103
                   District Judge: The Honorable Stanley R. Chesler

                  Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                                   July 14, 2016

                Before: SMITH, ROTH, and RENDELL, Circuit Judges

                                 (Filed: July 18, 2016)
                               _____________________

                                      OPINION
                               _____________________

SMITH, Circuit Judge.


    This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does
      The New York City Housing Authority (NYCHA) has creatively tried to

repackage its claim against G-I Holdings for property damage as a claim for

injunctive relief in the hopes of getting a better outcome this time around.

Specifically, NYCHA argues that its “new” claim is a non-dischargeable injunctive

claim for pollution abatement brought by NYCHA in its capacity as a

governmental entity. By turning its monetary claim for property damage into a

“regulatory” action, NYCHA hoped to avoid the steep discounting, inherent in

most bankruptcy proceedings, of its claim for monetary damages. We hold that

NYCHA cannot so easily circumvent federal bankruptcy laws. We will therefore

affirm the District Court’s judgment in all respects.

                                          I.

      NYCHA is a public corporation created under New York law to construct

and maintain public housing for lower-income residents in New York City.

Approximately 419,000 residents are currently housed in NYCHA’s 2,702

residential properties. G-I Holdings is the corporate successor to a manufacturer of

housing products that contained asbestos. Facing close to 500,000 asbestos-related

lawsuits, G-I Holdings filed a voluntary petition for relief under Chapter 11 of the

Bankruptcy Code in 2001. During the bankruptcy process, NYCHA submitted a

Proof of Claim seeking roughly half a billion dollars for property damage to its

not constitute binding precedent.
                                          2
buildings. As a result of the well-documented carcinogenic effects of exposure to

asbestos fibers, NYCHA claimed that it had to undertake extensive, and expensive,

precautionary measures whenever it removed Asbestos Containing Material

(ACM) from any of its buildings. The Proof of Claim filed by NYCHA did not

mention injunctive relief or allege that its claim was non-dischargeable.

      On November 9, 2009, the Bankruptcy Court in conjunction with the District

Court approved the Eighth Amended Joint Plan of Reorganization (Plan), which

disposed of all covered claims against G-I Holdings and barred the holders of such

claims from reasserting them against the reorganized G-I Holdings. NYCHA

never appealed the Confirmation Order finalizing the Plan.

      However, three years later NYCHA filed a complaint against G-I Holdings

in which it sought an injunction to compel G-I Holdings to remove ACM from

hundreds of NYCHA’s buildings. In this complaint, NYCHA put forward two

reasons why this claim was not barred by the now-finalized Plan. First, NYCHA

argued that its request for an injunction was not a “claim” as defined by the Plan

and thus was not barred by the res judicata effect of the District Court’s

Confirmation Order. Second, NYCHA argued that as a governmental entity, it

should be allowed to use its inherent regulatory power to force G-I Holdings to

remediate the environmental damage caused by the ACM. The Bankruptcy and

                                          3
District Courts rejected both of these arguments, and we do the same.1

                                        II.

      NYCHA’s request for an injunction is most certainly a claim as defined by

the Plan. The Plan specifically states that a “claim” includes “any right to any

equitable remedy.” JA 1202. Thus, to the extent NYCHA is acting as a creditor

seeking to enforce a claim for injunctive relief, this claim is barred by the clear

terms of the Plan.

      NYCHA, however, argues that it is not an ordinary creditor. Instead, it

claims that it can exercise its inherent power as a governmental entity to compel G-

I Holdings to remediate the ongoing environmental harm resulting from the ACM

it produced. In support, NYCHA cites several cases which stand for the much

narrower proposition that an entity cannot simply “discharge” future compliance

with state and local environmental laws by entering into bankruptcy. See, e.g., In

re Torwico Elec., Inc., 8 F.3d 146 (3d Cir. 1993); In the Matter of Quanta

Resources Corp., 739 F.2d 912 (3d Cir. 1984).

      A brief explanation of our holding in Torwico will help clarify why

1
  We have jurisdiction pursuant to 28 U.S.C. § 158(d)(1), the District Court had
jurisdiction pursuant to 28 U.S.C. 158(a)(1), and the Bankruptcy Court had
jurisdiction pursuant to 28 U.S.C. 157(b). “We exercise de novo review over
orders granting motions to dismiss.” In re Plassein Int’l Corp., 590 F.3d 252, 256
(3d Cir. 2009).

                                         4
NYCHA’s attempt to invoke this exception fails. In Torwico, the New Jersey

Department of Environmental Protection and Energy (NJDEPE) issued an order

requiring Torwico to submit a written plan explaining how it would close the

seepage pit that was allegedly polluting local waterways.       8 F.3d at 147-48.

Torwico argued that this was a “claim” under its bankruptcy reorganization plan

and thus was discharged because the NJDEPE did not file a timely proof of claim.

Id. at 148. We disagreed, explaining that the state was exercising its police powers

to “enforce laws requiring Torwico to clean up the hazardous waste it is

responsible for under state law.” Id. We thus held that “a debtor cannot maintain

an ongoing nuisance in direct violation of state environmental laws. The state can

exercise its regulatory powers and force compliance with its laws, even if the

debtor must expend money to comply.” Id. at 150. Torwico – and the judicially

created exception NYCHA is trying to invoke – is thus limited to situations in

which a state is not attempting to enforce a “right to payment” but is instead

invoking its “right to force the debtor to comply with applicable environmental

laws by remedying an existing hazard.” Id.

      This case is easily distinguishable from Torwico and the other similar cases

NYCHA cites. First, NYCHA does not point to a single law which requires G-I

Holdings to mitigate the property damage resulting from its products or which

permits NYCHA to hold G-I Holdings liable for the environmental harm caused by

                                         5
its products. Instead, the only laws mentioned impose a duty on NYCHA to

provide safe housing for its residents. Second, NYCHA is a public corporation

created for the specific purpose of providing housing to lower-income residents in

New York City.       It has not been given authority to enforce New York’s

environmental laws. Third, as NYCHA admits, the asbestos fibers in ACM only

create a health hazard when ACM is removed or otherwise disturbed during

apartment renovations. The state is thus not confronted with a polluter whose

conduct necessitates injunctive relief to stop ongoing pollution. Instead, the injury

here is the additional cost associated with renovating apartments that contain

ACM. These additional costs are properly conceptualized as a form of property

damage to NYCHA that occurred when the ACM material was installed. Thus,

NYCHA’s claim for injunctive relief is merely an attempt to force G-I Holdings to

foot the bill for remediation of a past harm. This type of claim was dealt with in

G-I Holdings’ bankruptcy proceeding and cannot be relitigated now.

      NYCHA’s claim is thus properly characterized as a “repackaging of a

forfeited claim for damages.” Torwico, 8 F.3d at 150. NYCHA is not a regulatory

agency seeking to enforce a state or local law; it is simply a creditor seeking to

circumvent the limitations on its recovery of monetary damages from G-I Holdings

                                         6
under the Plan.2 We will accordingly affirm the District Court’s judgment in all

respects.

2
 The Bankruptcy Court therefore properly denied NYCHA’s request to amend its
Proof of Claim to incorporate these “new” claims.
                                       7