Court Opinion

ID: 9518727
Source: CourtListenerOpinion
Date Created: 2023-08-07 01:00:35.551435+00
Date Added: 2024-06-11T12:31:36.042803
License: Public Domain

VOLINN, Bankruptcy Judge,
dissenting:
BACKGROUND FACTS
The debtor, Daniel C. Hanna, and appellant Gull Industries operated filling stations on adjacent parcels of land in Gresham, Oregon. Prior to the bankruptcy, Gull sold its filling station to appellant BP Oil Company. In the contract, appellants (collectively referred to as Gull) allocated the cost of any environmental remediation of the site between themselves.
In August of 1989, approximately one year prior to Hanna’s bankruptcy filing, Gull hired AGI, an environmental consultant, to inspect the site. AGI discovered one to three inches of free petroleum product on the surface of the groundwater some 18 feet beneath the site. It concluded that the petroleum contaminating the groundwater had originated uphill on Hanna’s property to the east of the Gull site, migrating downhill into the Gull property. AGI also discovered soil contamination at the Gull site. It determined, however, that the material in this contaminated soil had not leached down to a level where it would contaminate the groundwater.6
In April 1990, the Oregon Department of Environmental Quality (the ODEQ) directed Hanna to perform a site assessment, but Hanna took no action. In June 1990, Gull began remediation on its own site by commencing installation of three large diameter recovery wells. On July 19, 1990, Gull demanded of Hanna that he clean up his site to stop the migration of contamination onto the Gull site. Hanna did not respond to the demand, and, on July 27, filed a petition under Chapter 11 of the Bankruptcy Code. A trustee was appointed on July 30, 1990.
PROCEEDINGS AFTER BANKRUPTCY
After the bankruptcy petition was filed, Gull took substantial additional remedial actions. From August through October, it purchased, installed and operated a vapor extraction system to clean the contaminated groundwater and continued with operation of the previously installed recovery wells. On August 24, 1990 Gull filed an adversary complaint in Hanna’s bankruptcy for an injunction and an administrative priority damage claim. On December 13,1990, the trial court signed a stipulated order in the adversary proceeding issuing an injunction prohibiting the trustee from storing any new petroleum at its site and directing the trustee to comply with Oregon’s hazardous waste statute, O.R.S. § 465.200 et seq.7 The trustee emptied the Hanna underground storage tanks in October 1990 and removed them in April of 1991.8 He did not, however, remove any of the existing contaminated soil that had been determined by AGI to be the source of the contamination on the groundwater under Gull’s premises.
THE COURT’S FINDINGS AND CONCLUSIONS
On April 7,1991, the court signed an order denying Gull an administrative claim. The court found that Gull proved that contaminated subsurface water continued to migrate under Gull’s site after the trustee’s initial action. It found that Gull’s cleanup efforts did not significantly contribute to reduction of contamination of the Hanna site, and therefore, that Gull did not prove that its efforts reduced the cost that the estate would incur to clean up its own property.
The court also found that the release from Hanna’s underground storage tank occurred prepetition, and that the trustee acted reasonably in shutting down operations, even though he did not pursue cleanup of the resulting contamination. It found that the trustee as postpetition successor to the debt- or was not reckless, negligent, nor strictly liable in his postpetition conduct and concluded that there was no postpetition trespass. *392Finally, it found that Gull was not specially damaged by the debtor’s release of contaminant into the groundwater any more than the public at large, except for the effect of the contamination on the sale price of the property between Gull and BP.9
On October 29, 1992, the court entered supplemental findings of fact and conclusions of law. The court found that Gull’s efforts cleaned the groundwater but did not eliminate the source. It found that Gull’s costs were caused by Hanna, and Hanna was liable because Oregon’s hazardous waste statute, O.R.S. § 465.200 et seq., imposes strict liability. It concluded that Gull’s efforts, which it performed on the advice of experts, were reasonable. The court also concluded that while Gull’s efforts did not follow the DEQ’s administrative rules, the efforts were reimbursable under the statute, although the court was not convinced that the actions were cost effective or permanent.
The court also held the debtor liable in the alternative for trespass because the contamination had affected the sale price of the property, although it found that the groundwater did not specially harm Gull any more than the public at large, since it did not use the groundwater at the site. The court allowed Gull a general unsecured claim for $129,420; of this, Gull’s costs expended pre-petition were some $47,452 while its postpetition expenditures amounted to $81,968. As indicated, Gull appealed the denial of first priority administrative status for its claim; the trustee cross-appealed imposition of liability for Gull’s costs as an unsecured claim.
ISSUE PRESENTED
The central issue presented by this appeal is whether a bankruptcy estate is subject to an administrative claim for off-site remediation costs resulting from failure to clean up polluting material on estate property which is a source of contamination of neighboring property. Gull argues that when the court denied administrative priority to Gull’s claim, the court abused its discretion by failing to recognize that Gull’s cleanup costs, although not expended in direct remediation on Hanna’s site, benefitted the estate because post-petition, the estate was obligated to remediate off-site consequences of the release, including the effect on Gull’s site.10 On cross-appeal, the trustee claims that the trial court erred by awarding Gull an unsecured claim under the hazardous waste statute and the common law of trespass, and that the court’s factual finding that the Hanna release contaminated the groundwater was clearly erroneous.
DISCUSSION
I
The facts in this case, with one significant distinction, are similar to facts considered by In re Dant & Russell, 853 F.2d 700 (9th Cir.1988).11 In Dant & Russell, the debtor’s lessor, Burlington Northern (BN), applied for administrative expense status for past and future cleanup costs caused by the debt- or’s prepetition activities when the debtor occupied the property. The court determined that 11 U.S.C. § 503(b), which allows administrative priority for “actual, necessary costs and expenses of preserving the estate” must be construed narrowly in order to preserve the estate for the benefit of all unsecured creditors. After determining that the debtor postpetition had no interest in the lessor’s property, the court denied administrative priority to the lessor’s claim. Here, the debtor’s interest in the estate continued in his capacity as debtor in possession to whose interests the trustee has succeeded.
*393In the present ease, the bankruptcy judge found that contaminants continue to leach from the polluted soil on the Hanna site postpetition. In Dant & Russell, “most, if not all,” of the contamination on BN’s land occurred prepetition. In re Dant & Russell, 67 B.R. 360, 364 (D.Or.1986). Moreover, there is no indication in any of the three Dant & Russell opinions12 that the pollution on BN’s land was caused by leaching from the debtor’s adjoining property, either before or after filing of the bankruptcy.
In the instant case, the cause of the cleanup costs originated on property owned and controlled by the debtor in possession after the filing of the petition and until its ultimate turnover to another entity on plan confirmation. These circumstances differ significantly from those existing in Dant & Russell, where the debtor and the property were not involved with the bankruptcy estate.
II
The United States Supreme Court has considered the interface of environmental and bankruptcy law in circumstances which provide guidance here. In Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985), the state had initiated action to collect from Kovacs the cost of pollution cleanup of debtor’s property. The debtor’s business was placed in state receivership. The Supreme Court determined that the state’s attempt to collect from the individual debtor the cost of cleanup of the business was a claim dischargeable in bankruptcy. The claim was based on the debtor’s failure to comply with a prepetition injunction to clean up hazardous waste. Because the receivership had already dispossessed the debtor from the property prior to his bankruptcy, the state’s only remedy against him was for money damages, and the court therefore held that the remedy constituted a general unsecured claim for money against the debtor subject to discharge.
While the Kovacs court was presented with the liability of the individual debtor and not with the estate’s postpetition liability, it nevertheless alluded to the postpetition liability of the current operator of the property (as is the case here where the trustee controlled the property prior to its turnover to another entity on confirmation of the plan). The court stated:
Finally, we do not question that anyone in possession of the site — whether it is [the debtor] or another in the event the receivership is liquidated and the trustee abandons the property, or a vendee from the receiver or the bankruptcy trustee — must comply with the environmental laws of the State of Ohio. Plainly, that person or firm may not maintain a nuisance, pollute the waters of the State, or refuse to remove the source of such conditions.
Id. at 285, 105 S.Ct. at 711.13
Although the court declined to address the legal consequences which would have ensued had the debtor taken bankruptcy before appointment of the receiver, it nevertheless hypothesized that:
If the property was worth more than the costs of bringing it into compliance ■with state law, the trustee would undoubtedly sell it for its net value, and the buyer would clean up the property, in which event whatever obligation [the debtor] might have had to clean up the property would have been satisfied. If the property were worth less than the cost of cleanup, the trustee would likely abandon it to its prior owner, who would have to comply with the state environmental law to the extent of his or its ability.
Id. at 284-85 n. 12, 105 S.Ct. at 710-11 n. 12.14
*394In a subsequent case, the Supreme Court restricted the trustee’s right to abandon contaminated property, underscoring a trustee’s liability as a property owner. Midlantic Nat. Bank v. N.J. Dept. of E.P., 474 U.S. 494, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986). In Midlantic, the court determined that a bankruptcy trustee cannot abandon property that has negative value, basing its decision in part on 28 U.S.C. § 959(b), which imposes a duty on the trustee to manage and operate estate property in compliance with state law. While abandonment is not an issue presented here,15 the basis for the Midlantic decision is pertinent. Since a trustee cannot abandon property to circumvent a statutory duty, a fortiori, a trustee occupying property which he does not wish to abandon should not disregard or abdicate his duty under state law.
The majority states that it relies on In re Jensen, supra herein, footnote 6, which “cited as authoritative,” In re Chateaugay Corp., 944 F.2d 997 (2nd Cir.1991). Chateaugay, which discussed in depth the nature of pre-petition claims in bankruptcy in the particular context we are concerned with here, affirmed the trial court’s ruling that post-petition remedial claims are to be accorded priority administrative status.16
Taken together, Kovacs and Midlantic impose legal obligations on a bankruptcy estate regardless of the dischargeability of the debtor’s liability. To hold otherwise would not only allow a debtor to shift costs to the taxpaying public or innocent third parties, but would grant the debtor in possession or trustee immunity to laws enacted to protect the public safety.
Ill
Although the majority is correct that the postpetition leaching is a consequential damage caused by the prepetition rupture of Hanna’s underground storage tanks, Oregon’s hazardous waste statute creates a present liability on the landowner for failure to abate it. The court found the debtor liable to Gull under O.R.S. § 465.255. The relevant portion of that statute states:
(1) The following persons shall be strictly liable for those remedial action costs incurred by the state or any other person that are attributable to or associated with a facility and for damages for injury to or destruction of any natural resources caused by a release:
(a) Any owner or operator at or during the time of the acts or omissions that resulted in the release.
*395O.R.S. § 465.255(a) (1993).17
The present owner of the property, in this ease the trustee of the debtor in possession, cannot escape remediation obligations imposed by the law of the state by arguing that the debtor has been discharged from past and future obligations arising out of his pre-petition conduct. Matter of CMC Heartland Partners, 966 F.2d 1143. Gull has a private right of action against any owner or operator of the property, not solely against the owner or operator whose conduct initially created the problem. The trustee is an owner or operator and consequently is burdened with strict liability for all costs related to present releases. The trustee is equally as liable under the statute as any other owner or operator would be. The issue before us is whether, under the circumstances, Gull has demonstrated that its off-site efforts are compensable under the statute.
IV
In its April 7 Findings of Fact and Conclusions of Law, the trial court concluded, “The State of Oregon cannot create an administrative priority for bankruptcy purposes by enacting a statute that imposes strict liability for the claims of a neighbor arising from prepetition conduct of the debtor. Dant & Russell, 853 F.2d at 709.” As noted above, reliance on Dant & Russell is misplaced because here the claim is based on liability arising from the trustee’s knowing failure to observe a duty imposed on him by the Oregon statute with respect to property owned by the estate. Clearly, the State of Oregon can impose liabilities based on property ownership that extend to a bankruptcy trustee. See California State Board of Equalization v. Sierra Summit, Inc., 490 U.S. 844, 853-54, 109 S.Ct. 2228, 2235, 104 L.Ed.2d 910 (1989):
“[b]y the transfer to the trustee no mysterious or peculiar ownership or qualities are given to the property,” and that “there is nothing in that to withdraw it from the necessity of protection by the State and municipality, or which should exempt it from its obligations to either.” (quoting Swarts v. Hammer, 194 U.S. 441, 444 [24 S.Ct. 695, 696, 48 L.Ed. 1060] (1904)).
O.R.S. § 465.200(14) (1993) defines release as:
“[A]ny spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment_” (emphasis added).
While the court found correctly that the trustee’s passive failure to remove the soil was not culpable as trespass, it did not address the trustee’s postbankruptcy conduct under § 465.255(l)(d) which imposes strict liability for omissions. An omission is “the neglect to perform what the law requires. The intentional or unintentional failure to act to act_” Black’s Law Dictionary (6th ed. 1990).
As quoted above, the definition of release in O.R.S. § 465.200(14) which includes “escaping and leaching” imposes liability for non-action as well; a party does not act in regard to escaping or leaching, but rather fails to act to abate it, thereby permitting the escaping or leaching to occur. The statute therefore imposes a duty on the owner of a facility to remove the source of the leaching. The trustee’s failure to clean up the soil permitted or resulted in a leaching type of release, which ultimately took the form of a migratory and invasive “plume” as the trial court described it.
As indicated, the trustee faded to act not only in derogation of a statutory duty to remove the soil, but in the face of a court order to do so. Until soil removal is accomplished, the statute imposes strict liability on the trustee for the efforts of the state or any other person who engages in remedial action, such as Gull, whose actions are currently retarding the plume of gasoline in the groundwater. This duty must be promptly performed since migratory pollution, as indicated in the record here, would proceed inex*396orably without preventive action. The purpose of environmental statutes is to encourage expeditious treatment of the problem so as to forestall further damage.
Oregon’s hazardous waste statute is drafted broadly to effect such prompt preventive action and imposes liability on a property owner for the cost of preventive off-site remediation. Consequently, Gull’s appropriate off-site response gives rise to a cause of action thereunder. “Remedial action” is defined in O.R.S. § 465.200(15) (1993) to mean:
“[T]hose actions consistent with a permanent remedial action taken instead of or in addition to removal actions in the event of a release or threatened release of a hazardous substance into the environment, to prevent or minimize the release of a hazardous substance so that it does not migrate to cause substantial danger to present or future public health, safety, welfare or the environment.” (emphasis supplied).
On the date of the filing of the petition, Hanna’s estate received the contaminated property along with all concomitant obligations to manage it as the law required and liability for failure to do so. Liability of the trustee as the owner of the property therefore is predicated on the continuous release of contaminants in the remaining soil that the court found continues to leach into the groundwater and downhill. It is clear from the court’s findings of fact that, at the date of the filing of the petition, gasoline was leaching out of the contaminated soil on the Hanna site into the groundwater and that Gull was containing its spread. The court’s statements, taken variously from its April 7 and October 29 findings state:
The ground under the [Hanna] tanks was seriously contaminated by gasoline.
Findings of Fact and Conclusions of Law at 3 (April 7, 1992).
Gull asserted and proved at trial that contaminated subsurface water continued to migrate to its land from the polluted Hanna land.

Id.

[The plaintiffs’ efforts] are slowing the plume of contamination which is emanating from the Hanna site.
Findings of Fact and Conclusions of Law at 5 (October 29, 1992).
Although the action by plaintiffs did not eliminate the source of the petroleum, which is the soil on the Hanna site, they reduced the amount of pollutant in the groundwater. In this sense, their action benefitted the public.
Id. at 2.
Thus, it appears clear from the court’s findings that there has been a release of gasoline from the property, originating pre-petition, that has continued postpetition and will continue until the source of the release is removed.18
CONCLUSION
The bankruptcy court’s conclusion that Gull is not entitled to administrative status for its postpetition costs is an error of law. Even though the debtor initially created the harm, the trustee’s succession to ownership of the property was attended by a responsibility to abate the ongoing downhill release of contaminant under Oregon law. This responsibility did not stop at his property line. Gull is entitled to first priority administrative expense status for its postpetition costs associated with remediation of the ongoing release from the contaminated soil. That part of the order denying administrative status for postpetition costs should be reversed. I therefore respectfully dissent.

. Gull removed this material, but the cost of doing so is not involved in its claim against the estate.

. Relevant portions of the statute are quoted infra.

.Both filling stations are presently closed. The Hanna property was transferred to another entity in accordance with the confirmed plan of reorganization in the debtor’s Chapter 11.

. Although not stated by the court, this finding appears to relate to the viability of a nuisance claim — nuisance requires a showing of more than a lowering of the value of the property.

. Gull also argues that its operation of the vapor extraction system is in fact remediating pollution at the Hanna site. Gull asserts that the system is extracting pollution from the groundwater under the Hanna site itself. The court made no finding in this respect.

.In re Jensen, 995 F.2d 925 (9th Cir.1993) citing Dant & Russell, and cited by the majority, is inapposite. In Jensen, the issue was dis-chargeability, or postpetition liability of the debt- or for its prepetition conduct: liability of the trustee or the estate for breach of a distinct postpetition duty was not at issue, as is the case here.

. 61 B.R. 668 (Bankr.D.Or.1985); 67 B.R. 360 (D.Or.1986); 853 F.2d 700 (9th Cir.1988).

. The foregoing language was adopted by Matter of CMC Heartland Partners, 966 F.2d 1143, 1147 (7th Cir.1992), which held that although the EPA's claim against the debtor for prepetition contamination had been time-barred by the EPA's failure to file a proof of claim, this would not bar an independent postpetition claim against the reorganized debtor based on its status as owner of contaminated land. Accord, In re Torwico Electronics, Inc., 8 F.3d 146 (3rd Cir.1993).

.This hypothesis may have relevance here since the confirmed plan has transferred the property. However, the record does not indicate the present status of the Hanna property.

. The trial court stated that "Mitchell [the trustee] believes that the land is worth more than the clean-up.”

. Chateaugay, at page 1009, stated:
The Bankruptcy Code accords an administrative priority to "actual, necessary costs and expenses of preserving the estate." 11 U.S.C. § 503(b)(1)(A) (1988). The District Court ruled that all clean-up costs assessed post-petition with respect to sites currently owned by LTV where there has been a pre-petition release or threatened release of hazardous wastes will be entitled to administrative priority. LTV and the unsecured creditors challenge this ruling, viewing it as an unwarranted attempt to convert pre-petition contingent claims into priority claims by the simple expedient of liquidating them, i.e., incurring response costs and securing reimbursement. EPA contends that response costs paid during administration with respect to pre-petition releases or threatened releases are necessaiy to preserve the estate in the sense that they enable the estate to maintain itself in compliance with applicable environmental laws. The Equity Holders urge that decision as to whether reimbursement for any response costs is entitled to administrative priority cannot be made until there has been a careful assessment of the facts peculiar to each payment.
The District Court drew support for its ruling from the Supreme Court’s decision in Mid-lantic, which ruled that a bankruptcy trustee could not abandon property in contravention of state or local laws designed to protect public health or safety. If property on which toxic substances pose a significant hazard to public health cannot be abandoned, it must the [sic] follow, the Court reasoned, that expenses to remove the threat posed by such substances are necessaiy to preserve the estate. We agree, as have other courts considering the same issue. See In re Wall Tube & Metal Products Co., 831 F.2d 118, 123-24 (6th Cir.1987); In re Peerless Plating Co., 70 B.R. 943, 948-49 (Bankr.W.D.Mich.1987); In re Stevens, 68 B.R. 774, 783 (D.Me.1987); see also In re Smith-Douglass, Inc., 856 F.2d 12, 17 (4th Cir.1988).

. Subsection (b) of § 465.255 imposes strict liability on: "(b) Any owner or operator who became the owner or operator after the time of the acts or omissions that resulted in the release, and who knew or reasonably should have known of the release when the person first became the owner or operator." (emphasis added). This subsection may impose successor liability on a bankruptcy trustee for all remediation costs, whether incurred prepetition or postpetition.

. The court also found that there has been no significant postpetition contamination. In view of the statements quoted above, this finding reflects the court’s understanding that postpetition liability against the estate could be predicated only on postpetition releases from the removed ruptured storage tanks.