Juniper Development v. Kahn
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Juniper Development v. Kahn, (1st Cir. 1993).
Opinion
USCA1 Opinion
May 4, 1993
____________________
No. 92-1040
IN RE HEMINGWAY TRANSPORT, INC., ET AL.,
Debtors,
______
JUNIPER DEVELOPMENT GROUP, ETC., ET AL.,
Appellants,
v.
HERBERT C. KAHN, ETC.,
Appellee.
_____________________
No. 92-1095
IN RE HEMINGWAY TRANSPORT, INC., ET AL.,
Debtors,
______
JUNIPER DEVELOPMENT GROUP, ETC., ET AL.,
v.
HERBERT C. KAHN, ETC.,
Appellant.
_____________________
No. 92-1289
IN RE HEMINGWAY TRANSPORT, INC., ET AL.
Debtors,
______
JUNIPER DEVELOPMENT GROUP, ETC., ET AL.,
Appellants,
v.
HERBERT C. KAHN, ETC.,
Appellee.
_____________________
No. 92-1290
IN RE HEMINGWAY TRANSPORT, INC., ET AL.,
Debtors,
______
JUNIPER DEVELOPMENT GROUP, ETC., ET AL.,
Appellees,
v.
HERBERT C. KAHN, ETC.,
Appellant.
_____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
___________________
____________________
Before
Torruella, Cyr and Boudin,
Circuit Judges.
______________
____________________
Roy P. Giarrusso with whom Louis N. Massery and Cooley, Manion,
________________ ________________ _______________
Moore & Jones, P.C. were on brief for appellants.
___________________
William F. Macauley with whom Martin P. Desmery and Craig and
___________________ _________________ __________
Macauley were on brief for appellee.
________
Martin P. Desmery for trustee appellee in cross-appeal.
_________________
____________________
____________________
CYR, Circuit Judge. The bankruptcy court disallowed
CYR, Circuit Judge.
______________
the contingent claim Juniper Development Group ("Juniper") filed
against the consolidated chapter 7 estate of Hemingway Transport,
Inc. ("Hemingway") and Bristol Terminals, Inc. ("Bristol") for
anticipated response costs for the removal and remediation of
hazardous substances discovered on property previously purchased
by Juniper from the Hemingway-Bristol chapter 11 estate. Jun-
iper's companion claim for cleanup-related attorney fees was
disallowed as well. The district court affirmed and Juniper
appeals. The chapter 7 trustee ("trustee") cross-appeals the
allowance of Juniper's priority claim for past cleanup costs as
an administrative expense.
I
I
BACKGROUND
BACKGROUND
__________
Between 1963 and 1982, Hemingway and Bristol continu-
ously owned or operated a trucking business conducted from a
twenty-acre parcel of land located in Woburn, Massachusetts
("facility").1 In May 1980, the Massachusetts Department of
Environmental Quality Engineering (DEQE) discovered seventeen
corroded drums leaching a semi-solid, tar-like substance onto a
13.8 acre "wetlands" area at the facility. DEQE informed Heming-
way that the substance contained petroleum constituents. DEQE
____________________
1Hemingway began business operations at the facility shortly
after acquiring it in 1963. In 1974, Hemingway sold the facility
to Woburn Associates, but continued to occupy it under a lease-
back arrangement with Woburn. In 1980, Bristol, a wholly owned
Hemingway subsidiary, acquired the facility from Woburn.
4
received assurances from Hemingway that the drums would be
removed. The drums were still at the facility when DEQE conduct-
ed its last site inspection, in August 1982.
In July 1982, Hemingway and Bristol filed chapter 11
petitions. With the approval of the bankruptcy court, appellant
Juniper, a local land developer, purchased the facility from
debtor-in-possession Bristol for $1.6 million on April 29, 1983.
Prior to the purchase, Juniper's representatives conducted an on-
site inspection but did not walk the wetlands area where DEQE had
discovered the drums; Juniper contends that the area was sub-
merged at the time. Seven months after the sale, the Hemingway-
Bristol chapter 11 reorganization proceeding was converted to a
chapter 7 liquidation proceeding, and a chapter 7 trustee was
appointed.
In April 1985, drums containing various solvents and
pesticides classified as "hazardous substances" under the Compre-
hensive Environmental Response, Compensation, and Liability Act
("CERCLA"), 42 U.S.C. 9601-9657, 9601(14) (1981), were dis-
covered at the facility, in the same wetlands area, by the United
____ ________ ____
States Environmental Protection Agency ("EPA"). The following
December, Juniper, then the "owner" of the facility, received
notice that the EPA considered Juniper a "potentially responsible
Free access — add to your briefcase to read the full text and ask questions with AI
USCA1 Opinion
May 4, 1993
____________________
No. 92-1040
IN RE HEMINGWAY TRANSPORT, INC., ET AL.,
Debtors,
______
JUNIPER DEVELOPMENT GROUP, ETC., ET AL.,
Appellants,
v.
HERBERT C. KAHN, ETC.,
Appellee.
_____________________
No. 92-1095
IN RE HEMINGWAY TRANSPORT, INC., ET AL.,
Debtors,
______
JUNIPER DEVELOPMENT GROUP, ETC., ET AL.,
v.
HERBERT C. KAHN, ETC.,
Appellant.
_____________________
No. 92-1289
IN RE HEMINGWAY TRANSPORT, INC., ET AL.
Debtors,
______
JUNIPER DEVELOPMENT GROUP, ETC., ET AL.,
Appellants,
v.
HERBERT C. KAHN, ETC.,
Appellee.
_____________________
No. 92-1290
IN RE HEMINGWAY TRANSPORT, INC., ET AL.,
Debtors,
______
JUNIPER DEVELOPMENT GROUP, ETC., ET AL.,
Appellees,
v.
HERBERT C. KAHN, ETC.,
Appellant.
_____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
___________________
____________________
Before
Torruella, Cyr and Boudin,
Circuit Judges.
______________
____________________
Roy P. Giarrusso with whom Louis N. Massery and Cooley, Manion,
________________ ________________ _______________
Moore & Jones, P.C. were on brief for appellants.
___________________
William F. Macauley with whom Martin P. Desmery and Craig and
___________________ _________________ __________
Macauley were on brief for appellee.
________
Martin P. Desmery for trustee appellee in cross-appeal.
_________________
____________________
____________________
CYR, Circuit Judge. The bankruptcy court disallowed
CYR, Circuit Judge.
______________
the contingent claim Juniper Development Group ("Juniper") filed
against the consolidated chapter 7 estate of Hemingway Transport,
Inc. ("Hemingway") and Bristol Terminals, Inc. ("Bristol") for
anticipated response costs for the removal and remediation of
hazardous substances discovered on property previously purchased
by Juniper from the Hemingway-Bristol chapter 11 estate. Jun-
iper's companion claim for cleanup-related attorney fees was
disallowed as well. The district court affirmed and Juniper
appeals. The chapter 7 trustee ("trustee") cross-appeals the
allowance of Juniper's priority claim for past cleanup costs as
an administrative expense.
I
I
BACKGROUND
BACKGROUND
__________
Between 1963 and 1982, Hemingway and Bristol continu-
ously owned or operated a trucking business conducted from a
twenty-acre parcel of land located in Woburn, Massachusetts
("facility").1 In May 1980, the Massachusetts Department of
Environmental Quality Engineering (DEQE) discovered seventeen
corroded drums leaching a semi-solid, tar-like substance onto a
13.8 acre "wetlands" area at the facility. DEQE informed Heming-
way that the substance contained petroleum constituents. DEQE
____________________
1Hemingway began business operations at the facility shortly
after acquiring it in 1963. In 1974, Hemingway sold the facility
to Woburn Associates, but continued to occupy it under a lease-
back arrangement with Woburn. In 1980, Bristol, a wholly owned
Hemingway subsidiary, acquired the facility from Woburn.
4
received assurances from Hemingway that the drums would be
removed. The drums were still at the facility when DEQE conduct-
ed its last site inspection, in August 1982.
In July 1982, Hemingway and Bristol filed chapter 11
petitions. With the approval of the bankruptcy court, appellant
Juniper, a local land developer, purchased the facility from
debtor-in-possession Bristol for $1.6 million on April 29, 1983.
Prior to the purchase, Juniper's representatives conducted an on-
site inspection but did not walk the wetlands area where DEQE had
discovered the drums; Juniper contends that the area was sub-
merged at the time. Seven months after the sale, the Hemingway-
Bristol chapter 11 reorganization proceeding was converted to a
chapter 7 liquidation proceeding, and a chapter 7 trustee was
appointed.
In April 1985, drums containing various solvents and
pesticides classified as "hazardous substances" under the Compre-
hensive Environmental Response, Compensation, and Liability Act
("CERCLA"), 42 U.S.C. 9601-9657, 9601(14) (1981), were dis-
covered at the facility, in the same wetlands area, by the United
____ ________ ____
States Environmental Protection Agency ("EPA"). The following
December, Juniper, then the "owner" of the facility, received
notice that the EPA considered Juniper a "potentially responsible
party" ("PRP") under CERCLA, see id. 9607(a). Shortly thereaf-
___ ___
ter the EPA issued an administrative order requiring Juniper to
remove the hazardous substances from the facility at its own
5
expense. See id. 9606. Juniper claims $92,088 in response
___ ___
costs incurred pursuant to the EPA administrative order.2
Juniper initiated an adversary proceeding against the
Hemingway-Bristol estate for CERCLA response costs already
incurred under the EPA administrative order and for future
response costs required to complete the anticipated cleanup and
remediation. Initially, the bankruptcy court denied the trust-
ee's motion for summary judgment on Juniper's CERCLA claim. The
court determined that Juniper's CERCLA claim, if ultimately
allowed, would be entitled to priority payment from the chapter 7
estate as an administrative expense of the chapter 11 estate,
since Juniper's exposure to CERCLA liability had arisen from its
postpetition agreement to purchase the facility from the chapter
11 estate. In re Hemingway Transp., Inc., 73 B.R. 494, 505
_______________________________
(Bankr. D. Mass. 1987) (citing Reading Co. v. Brown, 391 U.S. 471
___________ _____
(1968)).3
____________________
2Juniper alleges that an engineering firm was paid $30,208
to remove the drums; an environmental consulting firm was paid
$7,880 to monitor the removal action; and a law firm was paid
$54,000 to ensure adequate compliance with the EPA order.
In April 1988, EPA demanded $2.1 million in CERCLA contribu-
tion from Juniper for costs incurred by EPA in assessing and
evaluating the site. The PRP notice advised that Juniper would
be notified of future "cleanup response costs" as well. In
February 1989, EPA sent PRP notices to Hemingway and Bristol, as
former owner-operators of the facility. See infra note 9.
___ _____
3Although count I of the original Juniper complaint did not
assert a right to CERCLA contribution, when the trustee's motion
for summary judgment on count I was denied the bankruptcy court
allowed Juniper to amend count I to assert a claim for contribu-
tion under 42 U.S.C. 9607(a). In re Hemingway Transp., 73 B.R.
_______________________
at 507-08. See also infra note 20. The court entered summary
___ ____ _____
judgment for the trustee on count II, which alleged a breach of
warranty by Bristol, and on Count III, which sought rescission of
6
The trustee renewed the motion for summary judgment on
Juniper's claim for future response costs, and moved for recon-
______
sideration of the "administrative expense priority" ruling pre-
viously entered by the bankruptcy court. The bankruptcy court
then disallowed Juniper's claim for future response costs,
______
pursuant to Bankruptcy Code 502(e)(1)(B), 11 U.S.C. 502(e)-
(1)(B), on the ground that Juniper was the holder of a contingent
CERCLA contribution claim based on a debt owed EPA for which
Juniper, Hemingway, and Bristol were jointly and severally
liable, in connection with which Juniper had yet to incur any
liability by the time of the allowance of its claim. In re
_____
Hemingway Transp., Inc., 105 B.R. 171, 176-78 (Bankr. D. Mass.
________________________
1989). The bankruptcy court reaffirmed its earlier ruling
entitling Juniper to administrative expense priority on its claim
for past response costs.
____
Following trial on Juniper's $92,088 claim for CERCLA
response costs previously incurred, the bankruptcy court ruled
that Hemingway and Bristol were responsible parties "liable" to
the EPA, as they either owned or operated the facility at the
____________________
the land-sale agreement on the ground of fraudulent misrepresen-
tation. As to count II, the bankruptcy court held that Juniper
had forfeited any right to recover for breach of warranty by
representing in the contract that it had "made all such inspec-
tions of the premises as [it] wishe[d] to make." Id. at 506. As
___
to count III, the bankruptcy court held that Juniper failed to
allege fraud with the requisite particularity. Id. (holding that
___
Massachusetts law requires more than proof of the seller's
nondisclosure of a known defect; it requires proof that the
seller deliberately concealed, or prevented the buyer from
discovering, known defects). Juniper does not challenge this
bankruptcy court ruling.
7
time a passive "disposal" of hazardous substances occurred at the
facility. In re Hemingway Transp., Inc., 108 B.R. 378, 380
_______________________________
(Bankr. D. Mass. 1989) (holding that CERCLA liability arising
from "disposal" need not result from affirmative acts, but
encompasses "leaking" of previously deposited waste during PRP's
ownership) (citing United States v. Waste Indus., Inc., 734 F.2d
_____________ __________________
159, 164 (4th Cir. 1984)). Significantly, however, the bankrupt-
cy court noted no evidence that Hemingway or Bristol, notwith-
standing their continuous ownership or possession of the facility
for a period of twenty years, either generated or deposited
hazardous wastes at the facility. Id. at 380.
___
The bankruptcy court allowed Juniper's claim for past
response costs in the amount of $38,763 as an administrative
expense entitled to priority payment, id. at 382, but disallowed
___
the $54,000 claim on the ground that attorney fees are not
recoverable in a private action under 42 U.S.C. 9607(a)(4)(B).
Id. at 383. Juniper appealed the rulings disallowing its claim
___
for future response costs and for attorney fees. The trustee
cross-appealed the order allowing Juniper's $38,763 priority
claim for administrative expense. The district court affirmed.
In re Hemingway Transp., Inc., 126 B.R. 656 (D. Mass 1991).
_____________________________
II
II
DISCUSSION
DISCUSSION
__________
A. Juniper's Appeal: Disallowance of Future
A. Juniper's Appeal: Disallowance of Future
Response Costs (11 U.S.C. 502(e)(1)(B).
Response Costs (11 U.S.C. 502(e)(1)(B).
_______________________________________
1. The Intersection of CERCLA and the Bankruptcy Code.
1. The Intersection of CERCLA and the Bankruptcy Code.
__________________________________________________
8
Juniper finds itself stranded at the increasingly
crowded "intersection" between the discordant legislative ap-
proaches embodied in CERCLA and the Bankruptcy Code. See In re
___ _____
Chateaugay Corp., 944 F.2d 997, 1002 (2d Cir. 1991). CERCLA's
_________________
settled policy objectives, reemphasized in the Superfund Amend-
ments and Reauthorization Act of 1986 ("SARA"), prominently
include the expeditious cleanup of sites contaminated or threat-
ened by hazardous substance releases which jeopardize public
health and safety, and the equitable allocation of cleanup costs
among all potentially responsible persons ("PRPs"). See United
___ ______
States v. Cannons Eng'g Corp., 899 F.2d 79, 90-91 (1st Cir.
______ ____________________
1990); see also B.F. Goodrich Co. v. Murtha, 958 F.2d 1192, 1198
___ ____ _________________ ______
(2d Cir. 1992). The PRP class broadly encompasses, inter alia,
_____ ____
past and current owners or operators of a contaminated facility.
See 42 U.S.C. 9607(a). To foster CERCLA's primary objective
___
promotion of spontaneous private cleanup initiatives all PRPs
are deemed strictly liable for the total response costs required
to remediate the contaminated facility. See United States v.
___ ______________
Kayser-Roth Corp., 910 F.2d 24, 26 n.3 (1st Cir. 1990), cert.
_________________ ____
denied, 111 S. Ct. 957 (1991). Strict liability is normally both
______
joint and several. See O'Neil v. Picilli, 883 F.2d 176, 178 (1st
___ ______ _______
Cir. 1989), cert. denied, 493 U.S. 1071 (1990); see also New York
____ ______ ___ ____ ________
v. Shore Realty Corp., 759 F.2d 1032, 1042 (2d Cir. 1985).4 And
__________________
____________________
4The defendant in an EPA enforcement action would have an
especially heavy burden to establish that the shared responsibil-
ity of the PRPs is divisible, so as to elude imposition of joint
and several liability. Cf. O'Neil, 883 F.2d at 178-79 ("[R]e-
___ ______
9
the EPA is invested with broad administrative discretion to
compel PRPs to undertake immediate cleanup measures, a preroga-
tive largely insulated from judicial review at the pre-enforce-
ment stage. See 42 U.S.C. 9606; see also 42 U.S.C. 9613(f)
___ ___ ____
(PRPs who settle with EPA are immune from subsequent contribution
____________________
sponsible parties rarely escape joint and several liability
[because] it is [often] impossible to determine the amount of
environmental harm caused by each party."); see also United
___ ____ ______
States v. Chem-Dyne Corp., 572 F. Supp. 802, 808-10 (S.D. Ohio
______ _______________
1983). However, in a CERCLA contribution action among responsi-
_____
ble parties who are jointly and severally liable, the burden of
proof is less demanding, though the court nevertheless may
undertake a comparable allocation of the relative responsibili-
ties of the joint obligors. See 42 U.S.C. 9613(f)(1) ("[T]he
___
court may allocate response costs among liable parties using such
equitable factors as the court determines are appropriate."); see
___
also Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d
____ _______________________________ ______________
86, 90 (3d Cir. 1988), cert. denied, 488 U.S. 1029 (1989). In
____ ______
approaching these divisibility and apportionment determinations,
the courts have relied on various guideposts, including the
legislative history in general, and the so-called "Gore Factors"
in particular:
(i) the ability of the parties to demonstrate that
their contribution to a discharge, release or disposal
of a hazardous waste can be distinguished;
(ii) the amount of the hazardous waste involved;
(iii) the degree of toxicity of the hazardous waste
involved;
(iv) the degree of involvement by the parties in the
generation, transportation, treatment, storage, or
disposal of the hazardous waste;
(v) the degree of care exercised by the parties with
respect to the hazardous waste concerned, taking into
account the characteristics of such hazardous waste;
and
(vi) the degree of cooperation by the parties with
Federal, State or local officials to prevent any harm
to the public health or the environment.
Environmental Transp. Sys., Inc. v. Ensco, Inc., 969 F.2d 503,
_________________________________ ___________
508-09 (7th Cir. 1992) ("Gore factors" provide a nonexhaustive
but valuable roster of equitable apportionment considerations)
(quoting United States v. A & F Materials Co., Inc., 578 F. Supp.
_____________ _________________________
1249, 1256 (S.D. Ill. 1984)).
10
claims); In re CMC Heartland Partners, 966 F.2d 1143, 1148 (7th
_____________________________
Cir. 1992).
At the same time, however, CERCLA section 9613(f) is
aimed at promoting equitable allocations of financial responsi-
bility by authorizing PRPs subjected to pending or completed EPA
enforcement actions under 42 U.S.C. 9606 and 9607(a)(4)(A) to
initiate private actions for full or partial contribution from
____________
nonsettling PRPs by way of impleader or an independent action.
See 42 U.S.C. 9613(f).5 Thus, targeted PRPs, relying on the
___
ultimate financial accountability of more "culpable" PRPs, are
encouraged to initiate prompt response efforts, at their own
expense, in cooperation with the EPA. See H.R. Rep. No. 253,
___
99th Cong., 1st Sess. 80, reprinted in 1986 U.S.C.C.A.N. 2835
_____________
("Private parties may be more willing to assume the financial
responsibility for some or all of the cleanup if they are assured
that they can seek contribution from others."); In re Dant &
_____________
Russell, Inc., 951 F.2d 246, 248 (9th Cir. 1991).
_____________
____________________
5Section 9613(f)(1) provides:
Any person may seek contribution from any other person
who is liable or potentially liable under section
[9607(a)], during or following any civil action under
section [9606] or under section [9607(a)]. Such claims
shall be brought in accordance with this section and
the Federal Rules of Civil Procedure, and shall be
governed by Federal law. In resolving contribution
claims, the court may allocate response costs among
liable parties using such equitable factors as the
court determines are appropriate. Nothing in this
subsection shall diminish the right of any person to
bring an action for contribution in the absence of a
civil action under section [9606] or section [9607].
42 U.S.C. 9613(f).
11
On the other hand, Bankruptcy Code 502(e)(1)(B) often
serves to forestall CERCLA's intended equitable allocation of
responsibility, as occurred in this case when the bankruptcy
court disallowed Juniper's estimated claim for $6.2 million in
anticipated future CERCLA response costs. Section 502(e)(1)(B)
provides, in pertinent part:
[T]he court shall disallow any claim for
reimbursement or contribution of an entity
[viz., Juniper] that is liable with the debt-
____
or [Hemingway-Bristol] on or has secured, the
claim of a creditor [EPA], to the extent that
. . . .
(B) such claim for reimbursement or con-
tribution is contingent as of the time
of allowance or disallowance of such
claim for reimbursement or contribution
. . . .
11 U.S.C. 502(e)(1)(B). There can be little doubt that, but
for section 502(e)(1)(B), the Hemingway-Bristol estate would
share some measure of financial responsibility for the anticipat-
ed $6.2 million in future response costs on which the Juniper
claim is based.
Nevertheless, section 502(e)(1)(B) would mandate disal-
lowance of the Juniper claim against the Hemingway-Bristol
chapter 7 estate if Juniper is jointly liable with the Hemingway-
Bristol estate on the same "debt" for estimated future CERCLA
____
response costs to EPA, and Juniper's right to payment on its
claim denominated a claim for reimbursement or contribution
remained "contingent" at the time of its disallowance. See In re
___ _____
12
Provincetown-Boston Airlines, 72 B.R. 307, 309 (Bankr. M.D. Fla.
____________________________
1987). The bankruptcy court, citing In re Charter Co., 862 F.2d
_________________
1500 (11th Cir. 1989), held that the Juniper claim met all three
criteria for disallowance under section 502(e)(1)(B). First,
Juniper denominated its claim as one for "indemnification" or
"contribution." But see infra note 22. Second, Juniper and
___ ___ _____
Hemingway-Bristol are "liable" to the EPA for future CERCLA
response costs (hereinafter: the "EPA debt") because all three
entities were designated PRPs by the EPA. Third, the Juniper
claim is "contingent" because the EPA has issued no further
cleanup orders against Juniper; hence, additional cleanup of the
facility may not be required. In re Hemingway Transp., 105 B.R.
___ _______________________
at 177-78.
2. Applicability of Section 502(e)(1)(B) to CERCLA Claims.
2. Applicability of Section 502(e)(1)(B) to CERCLA Claims.
______________________________________________________
Section 502(e)(1)(B) was enacted for one purpose "to
prevent[] competition between a creditor and his guarantor for
___________ _______ _ ________ ___ ___ _________
the limited proceeds of the estate." H.R. Rep. No. 595, 95th
Cong., 1st Sess. 354 (1977); S. Rep. No. 989, 95th Cong., 2d
Sess. 65 (1978) (emphasis added). Normally, section 502(e)(1)(B)
is invoked against claims based on debts or obligations arising
from voluntary contractual relationships. Even in the context of
a CERCLA-based, quasi-"tort" obligation, however, the practical
need for section 502(e)(1)(B) is evident; that is, but for
section 502(e)(1)(B), see infra note 6, an estimation of Juni-
___ _____
per's claim for anticipated response costs, see 11 U.S.C. 502-
___
(c)(1), would entitle Juniper to share in the distribution of the
13
insolvent chapter 7 estate under Bankruptcy Code 726(a), 11
U.S.C. 726(a), see, e.g., In re Butterworth, 50 B.R. 320, 322
___ ____ _________________
(Bankr. W.D. Mich. 1984), notwithstanding that its claim remained
"contingent" until such time (if ever) as EPA were to call upon
Juniper to pay any future CERCLA response costs incurred for
further cleanup or remediation of the facility.
The Code's expansive definition of "claim" permits
automatic allowance of most "contingent" claims, see Bankruptcy
___
Code 101(4), 502(a), 11 U.S.C. 101(4), 502(a), against a
chapter 7 estate upon timely filing, see id. 501, 726; Fed. R.
___ ___
Bankr. P. 3002(c). The bankruptcy court simply estimates the
amount of the claim for purposes of its allowance, see id.
___ ___
502(c)(1), discounting its value to reflect the uncertainty of
the contingency, in order to enable the holder to share in the
distribution of the insolvent estate.6 On the other hand, where
____________________
6Under CERCLA 9607(a)(4)(B), see pp. 32-35 infra, "contri-
___ _____
bution" relief is restricted to damages for past response costs
____
(i.e., costs already "incurred"). On the other hand, section
____
9613(g)(2) authorizes a declaratory judgment action to determine
liability for response costs which "will be binding on any
subsequent action or actions to recover further response costs or
damages," a form of relief plainly encompassed within Juniper's
amended complaint. See In re Chateaugay Corp., 944 F.2d at 1008
___ ______________________
(noting that, notwithstanding CERCLA's ban on pre-enforcement
judicial review, a bankruptcy court may estimate CERCLA claims
pursuant to Bankruptcy Code 502(c)(1), "with ultimate liquida-
tion of the claims to await the outcome of normal CERCLA enforce-
ment proceedings"). A "contingent" claim predicated on an
otherwise valid declaratory judgment entered pursuant to sec-
tion 9613(g)(2) would be subject to estimation. See Bankruptcy
___
Code 502(c)(1), 11 U.S.C. 502(c)(1) ("There shall be estimat-
ed for purposes of allowance under this section . . . any contin-
gent or unliquidated claim, the fixing or liquidation of which,
as the case may be, would unduly delay the administration of the
case. . . .").
14
the filing of a contingent claim for contribution or reimburse-
ment entails risk that the assets of the chapter 7 estate will be
exposed to "double-dipping" by holders of the same underlying
claim against the estate, section 502(e)(1)(B) mandates disal-
lowance of the contingent claim. The sole purpose served by
section 502(e)(1)(B) is to preclude redundant recoveries on iden-
tical claims against insolvent estates in violation of the
fundamental Code policy fostering equitable distribution among
all creditors of the same class. The "double-dipping" threat in
the present case would result from the allowance and estimation
of Juniper's contingent claim, and the allowance of an EPA claim,
for the same future CERCLA response costs against the chapter 7
estate.
Section 502(e)(1)(B) is a fair and reasonable measure
as applied against a contract guarantor or surety. Confronted
with the prospect that its contingent claim for reimbursement or
contribution against a chapter 7 debtor estate may be subject to
disallowance under section 502(e)(1)(B), an entity may elect to
cause its contingent contract claim to become "fixed" prior to
disallowance, see Bankruptcy Code 502(e)(2), by itself satisfy-
___
ing the debt due the creditor of the debtor estate, leaving the
entity as the sole holder of a claim against the estate based on
that debt.7 See, e.g., In re Baldwin-United Corp., 55 B.R. 885,
___ ____ __________________________
____________________
7Section 502(e)(2) provides:
A claim for reimbursement or contribution of such an
entity that becomes fixed after the commencement of the
case shall be determined, and shall be allowed under
15
895 (Bankr. S.D. Ohio 1985). On the other hand, the section
502(e)(2) "fixing" option presents an especially difficult
dilemma for an owner or operator of a targeted facility, such as
Juniper, involved in a Superfund contribution action. The
onerous CERCLA remediation process may take years to complete,
leaving PRPs holding the bag; that is, holding unallowable
___________
contingent claims for contribution or reimbursement against the
chapter 7 estate, claims typically totaling millions of dollars.
In such circumstances, section 502(e)(1)(B) may operate to pre-
clude innocent PRPs from recovering CERCLA response costs from a
chapter 7 estate even though the estate clearly is responsible
for all or part of the environmental contamination. If the EPA
opts to refrain from participating in any distribution from the
chapter 7 estate, as it may do simply by not filing a proof of
claim, Juniper may end up as the only potential EPA enforcement-
action target still left standing and solvent.8 Thus, sometimes
____________________
subsection (a), (b), or (c) of this section, or disal-
lowed under subsection (d) of this section, the same as
if such claim had become fixed before the date of the
filing of the petition.
11 U.S.C. 502(e)(2).
8EPA enforcement actions generally are excepted from the
automatic stay provisions. See Bankruptcy Code 362(b)(4), 11
___
U.S.C. 362(b)(4); New York v. Exxon Corp., 932 F.2d 1020, 1024-
________ ___________
25 (2d Cir. 1991). Even were the EPA to reduce to judgment its
claim for prepetition damages against the chapter 7 debtors,
however, the judgment would not be enforceable against the
debtors' estate except through the normal claim allowance pro-
cess. See Bankruptcy Code 362(b)(5), 11 U.S.C. 362(b)(5).
___
Moreover, corporate debtors cannot receive a discharge, see id.
___ ___
727(a)(1), 11 U.S.C. 727(a)(1) ("The court shall grant the
debtor a discharge, unless . . . the debtor is not an individual
. . . ."). Consequently, virtually all such chapter 7 proceed-
16
the fundamental policy embodied in Bankruptcy Code 502(e)(1)(B)
may promote an expeditious administration of the chapter 7
estate, see In re American Continental Corp., 119 B.R. 216, 217
___ _________________________________
(Bankr. D. Ariz. 1990), at the expense of a fundamental CERCLA
policy: the equitable allocation of environmental cleanup costs
among all responsible parties.
Although section 502(e)(1)(B) may have been devised
primarily with contract-based codebtor relationships in mind
_________
(e.g., guaranties, suretyships), however, its language ("liable
____
with") has been found too plain and inclusive to exempt "joint
and several" tort-based obligations from disallowance, see, e.g.,
___ ____
In re American Continental, 119 B.R. at 217; In re Pacor, Inc.,
___________________________ _________________
110 B.R. 686, 688 (E.D. Pa. 1990); In re Wedtech Corp., 87 B.R.
___________________
279, 284 (Bankr. S.D.N.Y. 1988), and the Bankruptcy Code else-
where carves out no exception for this variety of co-obligation.
Moreover, even though CERCLA and SARA postdate the enactment of
Bankruptcy Code 502(e), and plainly envision private rights of
action for CERCLA contribution as inducements to spontaneous
private cleanup efforts by PRPs, neither environmental statute
alludes to the Bankruptcy Code, let alone exempts CERCLA contri-
bution claims from the Code's normal claim procedures. Thus,
notwithstanding the purposive liberality with which courts are to
construe CERCLA's remedial provisions, see Kayser-Roth, 910 F.2d
___ ___________
at 26 ("'[W]e will not interpret section 9607(a) in any way that
____________________
ings end with the debtor in dissolution and its corporate cup-
board bare.
17
apparently frustrates the statute's goals.'") (citation omitted),
Bankruptcy Code 502(e)(1)(B) obliges a construction consistent
with its plain terms. See Norwest Bank Worthington v. Ahlers,
___ _________________________ ______
485 U.S. 197, 206 (1988) ("[W]hatever equitable powers remain in
the bankruptcy courts must and can only be exercised within the
confines of the Bankruptcy Code.").
Finally, we discern no inherent incompatibility between
section 502(e)(1)(B) and the congressional policies underlying
CERCLA, such as might enable a court reasonably to conclude that
Congress implicitly exempted CERCLA co-obligation claims.
Although on occasion section 502(e)(1)(B) may impede CERCLA's
subsidiary policy of promoting equitable allocations of environ-
__________
mental cleanup costs among responsible parties, pre-"fixing"
disallowance does not conflict with CERCLA's primary goal
_______
encouraging targeted PRPs to initiate cleanup efforts as expedi-
tiously as practicable in the expectation that their contingent
claims may become "fixed" in time for allowance against the
debtor estate. See In re Charter Co., 862 F.2d at 1504 (noting
___ _________________
obvious environmental benefit from efforts to "fix" contingent
claims prior to the closing of the bankruptcy case); see also
___ ____
supra note 7.
_____
Accordingly, we conclude that Congress did not exempt
CERCLA claims from disallowance under section 502(e)(1)(B).
3. Burdens of Proof in Section 502(e)(1)(B) Litigation.
3. Burdens of Proof in Section 502(e)(1)(B) Litigation.
___________________________________________________
In the litigation of a section 502(e)(1)(B) objection
18
to a contingent claim, however, the proper allocation of burdens
of proof and production may be decisive. A proof of claim which
comports with the requirements of Bankruptcy Rule 3001(f) con-
stitutes prima facie evidence of the validity and amount of the
_____ _____
claim. See Fed. R. Bankr. P. 3001(f). The interposition of an
___
objection does not deprive the proof of claim of presumptive
validity unless the objection is supported by substantial evi-
___________ ____
dence. Norton Bankruptcy Law & Practice, Bankruptcy Rules at 191
_____ ________________________________ ________________
(1992); see also In re Beverages Int'l, Ltd., 50 B.R. 273, 276
___ ____ ____________________________
(D. Mass. 1985). Once the trustee manages the initial burden of
producing substantial evidence, however, the ultimate risk of
nonpersuasion as to the allowability of the claim resides with
the party asserting the claim. See Bankruptcy Rules, at 191-92;
___ ________________
see also In re VTN, Inc., 69 B.R. 1005, 1006 (Bankr. S.D. Fla.
___ ____ _______________
1987). In the present case, therefore, the chapter 7 trustee was
required to come forward with substantial evidence that Juniper's
claim is one for CERCLA "contribution," which would implicate two
related questions: (1) whether Hemingway-Bristol is contingently
"liable" to the EPA for future response costs, and (2) whether
Juniper is "liable" to the EPA on the same "debt."
4. Hemingway-Bristol "Liability" on Joint Obligation.
4. Hemingway-Bristol "Liability" on Joint Obligation.
_________________________________________________
At the time it allowed Juniper's claim for past res-
____
ponse costs, the bankruptcy court determined that Hemingway-
Bristol had owned or operated the facility when the passive
"disposal" of hazardous substances occurred and that Hemingway-
19
Bristol had actual knowledge of the presence of the leaking
barrels. Hence, Hemingway-Bristol is a "covered person," strict-
ly liable to the EPA for future response costs pursuant to 42
U.S.C. 9607(a)(4)(A).
Juniper nonetheless suggests that the term "liable
with" should be interpreted in light of the singular legislative
purpose underlying the section 502(e)(1)(B) contingent claim
disallowance provision. Like any other claim for contribution,
says Juniper, its claim for future CERCLA response costs could
pose no "double-dipping" threat were the EPA, for whatever
reason, not to participate in any distribution from the chapter 7
estate. Moreover, the EPA has elected not to assert a claim
against the estate, despite considerable prodding by Juniper.
Rather, the EPA repeatedly has manifested its intention to forego
any immediate claim against the chapter 7 estate in favor of
administrative enforcement actions against other PRPs, such as
Juniper.9 The trustee responds that the literal language of
section 502(e)(1)(B) directs disallowance of the codebtor's
[Juniper's] contingent claim even though the creditor [EPA] has
not filed a proof of claim by the time the codebtor's claim is
considered for allowance.
Section 502(e)(1) directs disallowance of the claim of
a codebtor who is liable with the debtor on the "claim of a
______ ____ ___ ______
____________________
9In a May 1987 letter to Juniper, the EPA suggested that it
had already exercised its discretion to refrain from asserting an
enforcement action against the chapter 7 estate, at least as of
that time. Two years later, however, the EPA sent PRP notices to
Hemingway and Bristol.
20
creditor." The pivotal terms "claim" and "creditor" are
defined. A "claim" is a "right to payment, whether or not such
_____
right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured." Bankruptcy Code 101(4), 11
U.S.C. 101(4) (emphasis added). A "creditor" is an "entity
that has a claim against the debtor that arose at the time of or
before the order for relief concerning the debtor." Id. 101-
___
(9), 301 ("The commencement of a voluntary case under a chapter
of this title constitutes an order for relief under such
chapter.").
The EPA presumably holds a prepetition claim against
the chapter 7 estate, since its contingent "right to payment"
accrued while Bristol and Hemingway owned or operated the facili-
ty at which the hazardous waste "disposal" occurred. Cf. In re
___ _____
Chateaugay, 944 F.2d at 1002-06 (EPA claim for CERCLA response
__________
costs is a prepetition claim if the contamination occurred prior
to the petition, without regard to when EPA discovered contamina-
tion, or incurred response costs). Although section 502(e)(1)(B)
plainly does not require that a creditor's right to payment be
evidenced by a timely proof of claim, or a previously allowed
claim, see In re Wedtech Corp., 85 B.R. 285, 289 (Bankr. S.D.N.Y.
___ ___________________
1988), it is nonetheless incumbent on the trustee to produce sub-
stantial evidence of the existence of a right to payment on the
part of the creditor.
The co-liability clause in section 502(e)(1), viz.,
___
21
"liable with the debtor," interpreted in light of its singular
purpose, might permit allowance of a non-fixed codebtor claim for
CERCLA contribution if the creditor were foreclosed from partici-
__________
pating in any distribution from the estate under Bankruptcy Code
726(a). Nevertheless, though we reject the trustee's conten-
tion that the EPA might yet demonstrate "excusable neglect" war-
ranting an extension of time to file a proof of claim,10 we
must examine other means which may remain open to EPA's parti-
cipation in any chapter 7 distribution.
The EPA may participate in a distribution to unsecured
creditors under section 726(a)(2)(C) if it was never scheduled as
a "creditor" of the estate, and had no actual knowledge of the
proceedings in time to file a proof of claim. See In re Global
___ ____________
Precious Metals, Inc., 143 B.R. 204, 205-06 (Bankr. N.D. Ill.
______________________
1992) (chapter 7).11 Thus, a remote "double-dipping" prospect
____________________
10In a chapter 7 case, proofs of claim must be filed within
ninety days after the first date set for the first meeting of
creditors. Fed. R. Bankr. P. 3002(c). See In re Chirillo, 84
___ _______________
B.R. 120, 122 (Bankr. N.D. Ill. 1988). Since the EPA could no
longer satisfy any of the six conditions for extension of the
ninety-day bar date set forth in Bankruptcy Rule 3002(c), it is
precluded from asserting a timely proof of claim against the
chapter 7 estate. See Fed. R. Bankr. P. 9006(b)(1). Rule
___
9006(b) plainly precludes resort to Rule 9006(b)(1) to extend a
time period prescribed in Rule 3002(c), except "to the extent and
under the conditions stated in [Rule 3002(c)]." Id. at 9006(b)-
___
(3).
11Bankruptcy Code 726(a)(2)(C) provides for "payment of
any allowed unsecured claim, other than a claim of a kind speci-
fied in paragraph (1), (3), or (4) of this subsection, proof of
which is . . . tardily filed under section 501(a) of this title,
if (i) the creditor that holds such claim did not have notice or
actual knowledge of the case in time for timely filing of a proof
of such claim under section 501(a) of this title; and (ii) proof
of such claim is filed in time to permit payment of such claim."
22
would remain if Juniper's claim were to be allowed, as it is
conceivable that EPA might yet file an allowable claim.12
In this case, however, the harsh results occasioned by
Bankruptcy Code 502(e)(1)(B) are mitigable through recourse to
Bankruptcy Code 501(c), which provides that, "[i]f a creditor
does not timely file a proof of such creditor's claim, the debtor
or the trustee may file a proof of such claim." See also Fed. R.
___ ____
Bankr. P. 3004. Although section 501(c) is permissive ("may
file"), rather than mandatory, and is designed principally to
prevent creditors from depriving debtors of the benefit of a
discharge under Bankruptcy Code 727, 11 U.S.C. 727, cf. supra
___ _____
note 8, in these circumstances there are sound reasons to require
the chapter 7 trustee to shoulder the initial burden of filing a
surrogate claim in behalf of the EPA as a precondition to obtain-
____________________
11 U.S.C. 726(a)(2)(C). The appellate record does not disclose
whether EPA was listed as a creditor. In addition, it is con-
ceivable, though unlikely, that EPA's CERCLA claim might be
entitled to share in any subordinate distribution under section
726(a)(3), as an "allowed unsecured claim proof of which is
tardily filed," even if EPA was scheduled, or had actual notice
of the case prior to the bar date. See In re Melenyzer, 140 B.R.
___ _______________
143, 156 n.42 (Bankr. W.D. Tex. 1992) (chapter 7).
12Of course, the bankruptcy court might condition its
allowance of a codebtor's claim on the ultimate failure of the
creditor to file a proof of claim. See Bankruptcy Code 502(j),
___
11 U.S.C. 502(j) ("A claim that has been allowed or disallowed
may be reconsidered for cause."). Instead of automatic disal-
lowance, some courts have suggested that the bankruptcy court
sharply discount the codebtor's claim to offset this all-or-
nothing contingency, or direct that any distribution to the
codebtor be placed in trust, to be expended only to reduce the
common debt. See In re Allegheny Int'l., Inc., 126 B.R. 919, 924
___ ____________________________
(W.D. Pa. 1991), aff'd, 950 F.2d 721 (3d Cir. 1991). However,
_____
these options find little support in the categorical language of
section 502(e)(1)(B).
23
ing simultaneous disallowance of Juniper's contingent claim under
section 501(e)(1)(B).
First, even if the chapter 7 trustee were to decline to
act as an EPA surrogate, Juniper could force the trustee's hand.
Under a parallel Code provision, Juniper itself would be permit-
ted to file a surrogate claim for the EPA. See Bankruptcy Code
___
501(b), 11 U.S.C. 501(b) ("If a creditor [EPA] does not
timely file a proof of such creditor's claim, an entity [Juniper]
that is liable to such creditor with the debtor . . . may file a
proof of such claim.").13 Were it to resort to the surrogate-
claim procedure, Juniper would be required to show simply that
____________________
13The equitable considerations underlying the section 501(b)
surrogate-claim procedure have been described as follows:
Section 501(b) and Rule 3005 protect the codebtor
against the danger that the creditor, faced with the
bankruptcy of the prime debtor, might decide to rely on
the solvency of the codebtor and therefore, to abstain
from filing a proof of claim. In such a case, while
there might be a prospect of securing at least partial
satisfaction from the assets of the debtor, the credi-
tor would forego this possibility and merely proceed
with his claim against the codebtor. By the time the
creditor decided to take such action, any period fixed
for the filing of claims might have elapsed. Indeed,
the debtor's estate might have been fully administered
by the trustee so that the codebtor would be left
without the possibility of even partial reimbursement
to the extent he has satisfied the claim of the debt-
or's creditor. The debtor's discharge would remove the
possibility that his codebtor could secure indemni-
fication from him at some future time. . . . [T]he
unwillingness of th[e] creditor to take the necessary
steps in the administration of bankruptcy to insure
. . . participation [in distribution of the debtor's
assets] would not deny the ability of the codebtor to
do so.
See Lawrence D. King, Collier on Bankruptcy 509.02, at 509-6
___ ______________________
(15th ed. 1991) [hereinafter Collier on Bankruptcy].
_____________________
24
"the original debt [due EPA by Hemingway-Bristol would] be
diminished by the amount of the distribution [to the EPA on the
surrogate claim]." Fed. R. Bankr. P. 3005(a). Of course, even
this modest burden would be obviated if the surrogate claim were
to be superseded by the EPA's filing of its own proof of claim.
See id. 14
___ ___
More importantly, mandatory resort to the trustee's
option to file a surrogate proof of claim under section 501(c)
more readily comports with the allocation of the burden of proof
under section 502(e)(1)(B), which would require the trustee to
come forward with substantial support for the section 502(e)-
___________
(1)(B) objection to Juniper's proof of claim, and hence, substan-
tial evidence that Hemingway and Bristol were "liable" to the
EPA. See supra Section II.A.3. In addition, the trustee has
___ _____
title and ready access to the debtors' records, see Bankruptcy
___
Code 521(4), 11 U.S.C. 521(4) ("[D]ebtor shall . . . surren-
der to trustee all property of the estate, including books,
documents, records, and papers . . . ."); In re Bentley, 120 B.R.
_____________
____________________
14Although the EPA can no longer file a "timely" proof of
claim now that the bar date has passed, see supra note 10, its
___ _____
forbearance triggers the trustee's and Juniper's rights to file a
proof of claim in EPA's behalf. Under Bankruptcy Rules 3004 and
3005(a), the trustee and Juniper normally would have only thirty
days from the bar date to file their surrogate claims. But
insofar as EPA "did not have notice or actual knowledge of the
case in time for timely filing of a proof of . . . claim,"
Bankruptcy Code 726(a)(2)(C)(i), see also supra note 11 and
___ ____ _____
accompanying text, the EPA can yet file a belated claim that can
receive payment along with other timely-filed unsecured claims,
so long as "proof of such claim is filed in time to permit
payment of such claim." Id. 726(a)(2)(C)(ii). Thus, the
___
trustee and Juniper, as EPA surrogates, can avail themselves of
the section 726(a)(2)(C) "extended filing" provision.
25
712, 714 (S.D.N.Y. 1990), and the right to require the debtors'
officers to submit to examination, see Bankruptcy Code 521(3),
___
11 U.S.C. 521(3) ("[D]ebtor shall . . . cooperate with the
trustee as necessary to enable the trustee to perform the trust-
ee's duties . . . ."); Fed. R. Bankr. P. 4002(4) (Debtor must
"cooperate with the trustee in . . . the examination of proofs of
claim . . . ."); In re Neese, 137 B.R. 797, 801 (C.D. Cal. 1992)
___________
("'[C]ooperate' is a broad term . . . ."). Thus, the trustee is
in a far better position than Juniper to ferret out evidence
relevant to the EPA's claim against the debtors.
Although disallowance of Juniper's CERCLA claim under
section 502(e)(1)(B) is not strictly foreclosed by EPA's failure
to file timely proof of its claim, we cannot overlook the fact
that the trustee's reliance on section 502(e)(1)(B) may occasion
a pointless financial loss to Juniper and result in a windfall to
the chapter 7 estate, notwithstanding Juniper's best efforts to
induce EPA to file its claim. In this vein, we note that resort
to subsections 501(b) and (c) would not compel EPA's participa-
tion in the bankruptcy proceedings, cf. In re Hemingway Transp.,
___ ________________________
70 B.R. 549 (Bankr. D. Mass. 1987) (finding sovereign immunity
would preclude mandatory joinder of EPA as party); cf. also infra
_______ ___ ____ _____
note 26, but nevertheless would compel a set-aside for EPA's
benefit at the time of distribution regardless of its decision to
refrain from filing a claim against the chapter 7 estate. The
distribution to EPA would result in a reduction in the total
indebtedness to EPA for which Juniper and the chapter 7 estate
26
are alleged to be co-liable. In our view, the EPA's recalci-
trance, whatever its administrative justification, provides no
relevant legal or equitable basis for barring resort to the
alternative surrogate-claim filing procedure authorized under
subsections 501(b) and (c).
Accordingly, we vacate the bankruptcy court order
disallowing Juniper's claim under section 502(e)(1)(B). On
remand, the bankruptcy court should prescribe a reasonable bar
date by which the chapter 7 trustee must elect whether to file a
surrogate EPA claim pursuant to Bankruptcy Code 501(c), without
prejudice to Juniper's right to submit a surrogate claim under
subsection 502(b) as well.15 Should the trustee not file a
timely surrogate claim (and should Juniper not do so), the
section 502(e)(1)(B) objection should be dismissed, and the court
should estimate Juniper's direct claim against the chapter 7
estate pursuant to normal claim-allowance procedures. See
___
Bankruptcy Code 502(c).
____________________
15Unlike a creditor filing in its own behalf, or a trustee
seeking to avail the debtor of the full benefit of a chapter 7
discharge, in this case the chapter 7 trustee may have little
incentive to maximize any surrogate claim in behalf of EPA, thus
depleting any pro-rata dividend available to other unsecured
creditors. A similar problem may arise if any superseding proof
of claim filed by EPA were to understate (in Juniper's view) the
chapter 7 debtors' share of the CERCLA obligation. We do not
construe subsections 501(b) and (c) as suggesting that the
trustee could preempt a surrogate EPA claim by Juniper under
section 501(b) asserting that the chapter 7 estate's CERCLA
liability to EPA is greater than that asserted in the trustee's
section 501(c) surrogate claim. Rather, the bankruptcy court
should entertain evidence from the trustee and Juniper, for the
purpose of estimating the value of the EPA claim under section
502(c).
27
5. Juniper's "Liability" on Joint Obligation.
5. Juniper's "Liability" on Joint Obligation.
_________________________________________
In the event the trustee should file a surrogate claim
in behalf of the EPA pursuant to sections 501(c) and 726(a)(2)(C)
following remand, we outline the standards governing its con-
sideration by the bankruptcy court.
Juniper's "contribution" claim differs in one important
respect from codebtor claims normally subjected to disallowance
under section 502(e)(1)(B). In the typical contractual relation-
ship between a principal and its surety or guarantor, the
codebtor's (surety's or guarantor's) obligation on the common
debt arises at the same time as the creditor's (principal's)
"right to payment" from the debtor during the prepetition
______ ___ ___________
period which necessarily means that both the creditor and the
______
codebtor hold prepetition claims against the debtor estate.
___________
Here, on the other hand, regardless whether the EPA has a prepet-
ition or a postpetition claim, Juniper's "right to payment" from
Hemingway-Bristol arose, at the earliest, when it purchased the
__ ___ ________
facility from the Hemingway-Bristol chapter 11 estate in April
1983. Only then did Juniper become an "owner and operator" of
the contaminated facility, hence a "covered person" under CERC-
LA.16 Since Juniper undeniably holds a postpetition "claim,"
____________
Bankruptcy Code 101(9), 301, 11 U.S.C. 101(9), 301, its
____________________
16The bankruptcy court implicitly acknowledged as much when
it approved Juniper's request for past response costs as an
____
administrative expense: "Juniper's cause of action under CERCLA
arose when the property containing the drums was transferred to
Juniper or, alternatively, when Juniper expended money in re-
sponse to the EPA's administrative order." In re Hemingway
_________________
Transp., 73 B.R. at 503.
_______
28
"proof of claim" under Bankruptcy Code 501 and 502 is no less
readily and presumably even more accurately characterized
as "a request for payment of an administrative expense" under
Bankruptcy Code 503(a). See Bankruptcy Code 348(d), 11
___
U.S.C. 348(d) (providing that claims arising after the filing
of a chapter 11 petition and before conversion to chapter 7 shall
be treated as prepetition claims, unless they qualify as "admin-
istrative expenses" under section 503(b)).17
____________________
17Courts have long recognized a category of allowable
administrative expenses resulting in no discernible benefit to
the debtor estate, see In re Charlesbank Laundry, Inc., 755 F.2d
___ _______________________________
200 (1st Cir. 1985), in instances where fundamental fairness
required that the claimant's right to distribution take prece-
dence over the rights of general creditors. See Reading Co. v.
___ ___________
Brown, 391 U.S. 471 (1968). In Reading, several business firms,
_____ _______
whose premises were damaged by a fire negligently caused by the
receiver appointed to operate a Chapter XI business, requested
that their fire-loss claims be allowed as administrative expenses
of the Chapter XI estate, notwithstanding the fact that the
losses sustained as a result of the fire resulted in no "benefit"
to the Chapter XI estate. Noting the "decisive, statutory
objective [of] fairness to all persons having claims against the
insolvent," Reading, 391 U.S. at 477, the Supreme Court held that
_______
the claims for postpetition fire loss were allowable as costs of
administration. Its rationale was equitable in nature: unse-
cured creditors in a Chapter XI reorganization anticipate that
their agreement to defer receipt of payment on their prepetition
claims may facilitate the reorganization debtor's ultimate
rehabilitation, thereby enhancing their prospects for recovery on
their prepetition claims. Unlike holders of prepetition claims,
however, the firms whose business premises were damaged by the
postpetition fire negligently caused by the receiver had "the
insolvent business [involuntarily] thrust upon them by operation
of law." Id. Similarly, in Charlesbank, we extended Reading to
___ ___________ _______
postpetition fines imposed on a chapter 11 estate for deliberate
disregard of an injunction. See Charlesbank, 755 F.2d at 203.
___ ___________
In citing Reading and Charlesbank as support for its provi-
_______ ___________
sional decision granting Juniper administrative priority for its
postpetition contribution claims, the bankruptcy court focused
entirely on the debtors' failure to disclose the environmental
_______
risk prior to the 1983 sale, and the perceived "unfairness" in
the "debtor attempting to transfer its liability or potential for
liability under state or federal environmental laws" in those
29
Bankruptcy Code 503(a)(1)(A) enables an entity to
file a request for payment of an administrative expense, includ-
ing "the actual, necessary costs and expenses of preserving the
estate." "As a general rule, a request for priority payment of
an administrative expense pursuant to Bankruptcy Code 503(a)
may qualify if (1) the right to payment arose from a postpetition
transaction with the debtor estate, rather than from a prepet-
ition transaction with the debtor, and (2) the consideration
supporting the right to payment was beneficial to the estate of
the debtor." In re Hemingway Transp., Inc., 954 F.2d 1, 5 (1st
______________________________
Cir. 1991) (citing In re Mammoth Mart, Inc., 536 F.2d 950, 954
_________________________
(1st Cir. 1976)). The trustee argues that administrative expense
priority under Mammoth Mart is wholly unavailable to Juniper on
____________
its claims for past and future response costs, as Juniper's right
to contribution from the chapter 7 estate was not supported by
consideration (i.e., Juniper's outlay of response costs) which
____
could "benefit" the estate. Thus, the trustee points out that
the contaminated facility was no longer property of the chapter
____________________
circumstances. See In re Hemingway Transp., 73 B.R. at 504. Thus
___ _______________________
interpreted, Reading might permit Juniper to recover the entire
_______
cost of its extant "injury" or the past and future costs of
remediation despite the fact that it has yet to incur some of
these response costs. Unlike the injured parties in Reading and
_______
Charlesbank, however, Juniper dealt voluntarily on a contractual
___________ ___________
basis with the chapter 11 estate. No principle of fundamental
fairness would entitle Juniper to administrative priority over
other unsecured creditors of the Hemingway-Bristol estate if it
failed to exercise due diligence in all the circumstances to
protect itself, from the outset, against any imposition of CERCLA
joint and several liability. In addition, lack of due diligence
would, for reasons explained below at pp. 36-38, prevent Juniper
from escaping the strictures of section 502(e)(1)(B)'s "fixing"
requirement.
30
11 estate, hence Juniper's incurrence of response costs would not
bring the estate into compliance with federal or state environ-
mental regulations. Cf. In re Stevens, 68 B.R. 774, 783 (D. Me.
___ ______________
1987) (finding that the State's claim for cleanup expenses
incurred in substitute fulfillment of the trustee's legal obliga-
tion was entitled to administrative expense priority, where the
trustee, who would be prohibited from exercising his power of
abandonment in contravention of state environmental protection
laws, was still in "possession" of property posing an "imminent
and identifiable danger" to public health and safety; contrasting
case in which trustee had already been "dispossessed" of waste
site at time of government-financed cleanup); In re T.P. Long
_________________
Chem., Inc., 45 B.R. 278, 284-85 (Bankr. N.D. Ohio 1985). Nor
___________
could the CERCLA response costs incurred by Juniper "benefit" the
chapter 11 estate while the estate remained jointly and severally
liable on the EPA debt. Although we agree that Juniper's incur-
rence of CERCLA response costs might not benefit the estate, on
________ _____
the facts of this case we cannot agree that Mammoth Mart priority
____________
is altogether unavailable to Juniper.
In the context of their arm's-length purchase-sale
transaction in 1983, we must presume that Juniper and the chapter
11 estate were cognizant of the federal and state environmental
laws then in effect, and that, notwithstanding Juniper's result-
ing status as an "owner or operator" of the contaminated facili-
ty, the chapter 11 estate could remain liable for any response
costs later incurred by Juniper and for which the debtors (or the
31
debtor estate) were liable under CERCLA section 9607(a), an
obligation explicitly provided for presently in 42 U.S.C. -
9607(a)(4)(B) and 9613(f). See O'Neil, 883 F.2d at 179 (noting
___ ______
that SARA contribution provisions merely "codif[ied] [a remedy]
that most courts had concluded was implicit in the 1980 Act");
Marden Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454, 1457 n.3 (9th
____________ __________________
Cir. 1986) (collecting pre-SARA caselaw recognizing implicit
right of contribution in CERCLA). There is no record evidence
that the estate either contracted away its obligation to con-
tribute, or bargained for a right to indemnification from Juni-
per. See 42 U.S.C. 9607(e) (purported transfers of CERCLA
___
liability cannot exonerate transferor, but indemnification agree-
ments are permissible). Similarly, to the extent that the $1.6
million purchase price for the facility presumptively reflected
the parties' allocation of the risks relating to these contribu-
tion costs, the $1.6 million constituted "consideration" support-
ing Juniper's right to payment for contribution for response
costs from the estate. Obviously, this substantial infusion of
cash benefitted the chapter 11 rehabilitation effort. Thus, the
$1.6 million in purchase monies constituted the requisite base-
line "consideration" for Juniper's right to contribution; and
response costs subsequently incurred by Juniper a mere maturation
of that right, immaterial for Mammoth Mart purposes.
____________
On the other hand, we agree that Mammoth Mart priority
____________
is unavailing to Juniper insofar as its right to contribution for
future response costs remains "contingent" at the time the bank-
32
ruptcy court considers Juniper's claim for allowance against the
debtor estate. Only "actual" administrative expenses, not
contingent expenses, are entitled to priority payment under
Bankruptcy Code 503(b)(1)(A). Even though Juniper's post-
petition contribution claim, once allowed, would be entitled to
____ _______
priority treatment under section 503(b), the parallel restric-
tions in section 502(e)(1)(B) pose an additional hurdle. Under
its clear terms, section 502(e)(1)(B) does not apply exclusively
to "creditors," or in other words, to holders of prepetition
___________
claims for reimbursement or contribution. Section 502(e)(1)(B)
refers to the holder of the claim as an "entity," not as a
"creditor" of the estate.18 Accordingly, Juniper's priority
"claim for reimbursement or contribution" would be allowable if
either: (1) Juniper and the chapter 11 estate are not strictly,
______
jointly, and severally liable ("liable with the debtor") on the
EPA debt under the liability provisions of the CERCLA statute, or
__
(2) Juniper's response costs have become "fixed" and "actual"
(i.e., have been expended by Juniper for remediation or paid over
____
to the EPA) by the time Juniper's claim is considered for disal-
lowance. As Juniper's contingent claim for future response costs
is, by definition, not "fixed," Juniper cannot escape the conse-
quences of section 502(e)(1)(B) unless it is not strictly and
jointly "liable" with Hemingway-Bristol on the EPA debt. Cf.
___
infra Section II.C. (Mammoth Mart administrative expense priori-
_____ ____________
____________________
18"Creditor" means an "entity that has a claim that arose at
the time of or before the order of relief." Bankruptcy Code
101(9), 11 U.S.C. 101(9).
33
ty would attach to Juniper's "fixed" claim for past response
____
costs). We turn, therefore, to the question of Juniper's alleged
liability to the EPA.
The threshold question is whether Juniper is even as-
serting a direct CERCLA claim against the chapter 7 estate, or
______
merely a derivative claim for "contribution" from the chapter 7
__________
estate. CERCLA section 9613(f) is the sole statutory basis for a
right to "contribution," see supra note 5 and accompanying text,
___ _____
but CERCLA prescribes other remedial provisions as well. Unlike
section 9613(f), a private right of action for CERCLA response
costs under section 9607(a)(4)(B) is available to "any person"
___ ______
who incurs necessary response costs, presumably without regard to
whether the plaintiff is an EPA target, i.e., a PRP or "covered
____
person" under section 9607(a). See 42 U.S.C. 9601(21) ("per-
___
son" includes "corporation"). Section 9607(a)(4)(B) simply
requires the private-action plaintiff to prove that (1) a release
of a "hazardous substance" from the subject "facility" occurred
or is threatened; (2) the defendant comes within any of four
categories of "covered persons," which include current owners or
operators of the facility, see 42 U.S.C. 9601(9)(B), as well as
___
the owners and operators of the facility at the time the con-
tamination occurred; (3) the release or threatened release has
caused (or may cause) the claimant to incur response costs;19
____________________
19"Response costs," 42 U.S.C. 9601(25), include costs
incurred in "removal" actions, which address immediate threats to
public health and safety caused by hazardous substances, 42
U.S.C. 9601(23), and costs incurred in "remedial" actions,
directed at long-term or permanent remediation of the contamina-
34
and (4) the response costs are "necessary" and "consistent with
the national contingency plan." See Dedham Water Co. v. Cumber-
___ ________________ _______
land Farms Dairy, Inc., 889 F.2d 1146, 1150 (1st Cir. 1989).20
______________________
For instance, a neighboring landowner, who is neither a
___________
current nor a past owner or operator of the contaminated facili-
ty, hence not strictly liable as a "covered person" under section
9607(a), may incur response costs as a result of a threatened
release and potential migration of hazardous substances from an
adjoining property, and may assert a right of action under
section 9607(a)(4)(B). See, e.g., Dedham Water, 889 F.2d at
___ ____ ____________
1146-48 (noting that water utility would have cause of action
under section 9607(a)(4)(B) against neighboring property owner
for response costs relating to threatened release). On the other
hand, in the event the private-action plaintiff itself is poten-
tially "liable" to the EPA for response costs, and thus is akin
to a joint "tortfeasor," section 9607(a)(4)(B) serves as the pre-
____
____________________
tion, 42 U.S.C. 9601(24).
20Section 9607(a) provides, in pertinent part:
(1) [T]he owner and operator of a vessel or a facili-
ty,
(2) [A]ny person who at the time of disposal of any
hazardous substance owned or operated any facility
at which such hazardous substances were disposed
of . . . shall be liable for
(A) all costs of removal or remedial action
incurred by the United States Government
or a State . . .
(B) any other necessary costs of response
_________ _____ __ ________
incurred by any other person consistent
___ _____ ______
with the national contingency plan.
42 U.S.C. 9607(a)(2)(B) (emphasis added).
35
enforcement analog to the "impleader" contribution action permit-
___________
ted under section 9613(f). See 42 U.S.C. 9613(f) ("Nothing in
___
this subsection shall diminish the right of any person to bring
an action for contribution in the absence of a civil action under
section [9606] or section [9607]."); see also Wickland Oil Ter-
___ ____ __________________
minals v. Asarco, Inc., 792 F.2d 887, 890-91 (9th Cir. 1986)
______ _____________
(holding that section 9607(a)(4)(B) grants private right of
action for response costs, without regard to any prior EPA
enforcement actions).
Because Juniper's initial complaint in the instant
adversary proceeding invoked generic claims for "contribution"
and "indemnification," without attribution to any statutory
source, the bankruptcy court specifically requested Juniper "to
amend Count I [of its complaint] to include the statutory prereq-
uisite [sic] of 42 U.S.C. 9607(a)(4)(B)." Although the amended
complaint represents at best an imperceptible improvement over
its predecessor, the bankruptcy court apparently considered it
adequate to assert such a claim.21 Juniper's amended complaint
bears this out. It alleges that (1) Juniper is a current owner
of the facility, but not that it is a "covered person" under
section 9607(a); (2) Hemingway and Bristol fraudulently concealed
the presence of hazardous wastes at the facility prior to the
1983 sale; and (3) Juniper neither knew nor had "reason to know"
____________________
21The bankruptcy court opinion states: "In the context of
this case, it is possible to view Juniper as a direct creditor of
Hemingway and as an entity jointly liable with the Debtor." In
__
re Hemingway Transp., 105 B.R. at 175.
____________________
36
of the contamination until 1985.
The bankruptcy court concluded that Juniper, as the
current "owner" of the facility, undoubtedly would be "liable" to
the EPA in an enforcement action simply by virtue of its prima
_____
facie status as a "covered person" under section 9607(a).22
_____
The undefined term "liable" is common to both CERCLA 9607(a)
and Bankruptcy Code 502(e)(1)(B). Its construction presents a
question of law subject to plenary review. See In re Erin Food
___ ________________
Servs., Inc., 980 F.2d 792, 794 (1st Cir. 1992) (citing In re
____________ ______
LaRoche, 969 F.2d 1299, 1301 (1st Cir. 1992)).
_______
Of course, not all "covered persons" are strictly
liable for response costs. The harsh effects of the strict
liability rule are subject to mitigation through resort to
certain affirmative defenses. Section 9607(b) expressly provides
that "[t]here shall be no liability under section [9607](a) . . .
__ _________
for a person otherwise liable who can establish by a preponder-
____________________
22The bankruptcy court based its section 502(e)(1)(B) dis-
allowance on the ground that Juniper had denominated its claim a
derivative claim for "contribution," thereby conceding its co-
liability with the Hemingway-Bristol estate for future response
costs. In our view, this ruling exalts form over substance, and
ignores both the liberality with which pleadings must be con-
strued and the right to plead alternative or seemingly "incon-
sistent" claims. See Fed. R. Bankr. P. 7008(a) (incorporating
___
Fed. R. Civ. P. 8(e), providing that "[a] party may set forth two
or more statements of a claim or defense alternatively or hypo-
_____________
thetically . . . regardless of consistency . . . .") (emphasis
__________ __ ___________
added); cf. also Schott Motorcycle Supply, Inc. v. American Honda
___ ____ ______________________________ ______________
Motor Co., 976 F.2d 58, 61-62 (1st Cir. 1992). Given the compar-
_________
ative breadth of the section 9607(a)(4)(B) remedy, and Juniper's
explicit allegation that it had no actual or constructive knowl-
edge of the contamination at the time it purchased the facility,
we think the trustee must come forward with substantial evidence
from which the bankruptcy court could conclude that Juniper is a
"covered person" liable to the EPA for future response costs.
37
ance of the evidence [the following defenses] . . . ." See also
___ ____
Environmental Transp. Sys. v. Ensco, Inc., 969 F.2d 503, 504 n.3
___________________________ ___________
(7th Cir. 1992). Section 9607(b)(3) would afford a complete
defense to CERCLA liability if Juniper were to establish that (1)
it acquired the facility after the initial deposit of the hazard-
ous substances; (2) at the time of its acquisition, it did not
know and had "no reason to know" that any hazardous substance was
__ ______ __ ____
deposited at the facility; and (3) once the presence of the
hazardous substance became known, Juniper exercised due care in
the circumstances. The statute defines the term "no reason to
know" as follows:
[T]he [buyer] must have undertaken, at the
time of acquisition, all appropriate inquiry
___ ___________ _______
into the previous ownership and uses of the
property consistent with good commercial or
customary practice in an effort to minimize
__ __ ______ __ ________
liability. For purposes of the preceding
_________
sentence the court shall take into account
any specialized knowledge or experience on
the part of the [buyer], the relationship of
___ ____________ __
the purchase price to the value of the prop-
___ ________ _____ __ ___ _____ __ ___ _____
erty if uncontaminated, commonly known or
____ __ ______________ ________ _____ __
reasonably ascertainable information about
__________ _____________ ___________
the property, the obviousness of the presence
___ ___________ __ ___ ________
or likely presence of contamination at the
__ ______ ________ __ _____________
property, and the ability to detect such
contamination by appropriate inspection.
42 U.S.C. 9601(35)(B) (emphasis added); see also United States
___ ____ _____________
v. Pacific Hide & Fur Depot, Inc., 716 F. Supp. 1341, 1347 (D.
________________________________
Idaho 1989); cf. 42 U.S.C. 9622(g) (de minimis settlement
___ __ _______
provisions not applicable to owners who purchased land with
actual or constructive knowledge of contamination). As an
acquiring party and an owner of the facility during a period of
38
"passive" disposal,23 Juniper would be held to an especially
stringent level of preacquisition inquiry on the theory that
an acquiring party's failure to make adequate inquiry may itself
contribute to a prolongation of the contamination.24
Thus, under either section 501(e)(1)(B) or section
______ __
503(a), Juniper's participation in any distribution from the
chapter 7 estate hinges entirely on the validity of its "innocent
landowner" defense. Notwithstanding its relevance, the "innocent
landowner" defense was never explicitly considered by the bank-
ruptcy court in connection with the trustee's motion for summary
judgment disallowing Juniper's CERCLA claim pursuant to section
502(e)(1)(B), nor in connection with its earlier provisional
ruling on Juniper's entitlement to administrative priority. Cf.
___
supra note 17. The record contains mixed signals on the "inno-
_____
cent landowner" defense. In a May 19, 1987 letter to Juniper,
the EPA opined that Juniper would not be entitled to the "inno-
____________________
23The parties do not challenge the bankruptcy court ruling
that the Hemingway-Bristol estate is "liable" for the "passive"
disposal at the facility (i.e., the leaking of previously gener-
____
ated or deposited containers of hazardous waste), even absent
evidence that the chapter 7 estate contributed to the generation
or the deposit of the hazardous substances in the first instance.
Furthermore, the chapter 7 estate could not establish an "inno-
cent owner" defense: the 1982 DEQE notice afforded the debtors
actual knowledge that drums of contaminants were located at the
______
facility. On the other hand, the bankruptcy court found that
"none of the interested parties, including the Trustee, Juniper
and the two courts that approved the sale, were apprised of the
presence of hazardous wastes on the property, despite the DEQE
action." In re Hemingway Transp., 73 B.R. at 501-02.
_____ _________________
24The EPA informed Juniper in May 1987 that its alleged
contribution to the passive disposal was undetermined because the
extent of the post-1983 "contaminant plume" at the facility had
yet to be ascertained.
39
cent landowner" defense, for several reasons: Juniper (1) knew
in 1983 that the facility was in close proximity (200 feet) to a
larger Superfund site already included on the national priority
list; (2) made no preacquisition inquiry of EPA or DEQE concern-
ing possible contamination in the area; and (3) did not obtain
available maps showing an unpaved access road to the allegedly
inaccessible portion of the facility where the drums were found.
The EPA opinion is not necessarily dispositive as to
the allowability of a claim or an administrative expense request.
Nevertheless, after trial on the issue of Hemingway's liability
for past response costs, the bankruptcy court noted (notwith-
standing Juniper's contention that the drums were located in an
area which was inaccessible at the time of the 1983 sale) that
"easy access to the location of the barrels is possible along the
____ ______
City of Woburn's sewer easement, which parallels the MBTA
tracks." In re Hemingway Transp., 108 B.R. at 380 (emphasis
______ __________________
added). The record further suggests that Juniper, an experienced
land developer in the Woburn area, may have been familiar with
the environmental risks posed by its acquisition of the facility,
and therefore may have been cognizant that the $1.6 million
purchase price reflected a discount due to contamination. Cf.
___
Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86, 90
______________________________ ______________
(3d Cir. 1988) (in allocating responsibility between vendor and
purchaser, court may consider any implicit discount in sale price
as reflecting assumption of risk of contamination).
On the other hand, the record indicates that the
40
bankruptcy court may have considered Juniper's responsibility for
any contamination extremely minimal, especially in comparison to
Hemingway-Bristol. For example, in allowing Juniper's contribu-
tion claims for past response costs, the bankruptcy court allo-
____
cated total financial responsibility to Hemingway-Bristol, see
_____ ___
supra note 4, despite the fact that the court also found no
_____
evidence that Hemingway-Bristol, throughout twenty years' occu-
pancy, ever generated or deposited hazardous wastes at the
facility. The bankruptcy court further found that Juniper was
never "apprised of the presence of hazardous wastes. . . ." In
__
re Hemingway Transp., 73 B.R. at 501. And, of course, discount
____________________
prices are not uncommon in forced sales of the assets of insol-
vent estates.
Since the bankruptcy court's disallowance of Juniper's
claim must be vacated on independent grounds, see supra Section
___ _____
II.A.4, on remand the trustee will have the burden to file a
surrogate claim in behalf of the EPA and the burden to come
___
forward with substantial evidence that Juniper is not entitled to
an "innocent landowner" defense. The ultimate burden of proof on
that defense, however, will remain with Juniper. The bankruptcy
court should determine whether Juniper made "all appropriate"
preacquisition inquiry pursuant to 42 U.S.C. 9601(35), a
factual finding which would be subject to clear error review
only. Should the bankruptcy court find that Juniper did not have
notice or actual knowledge of the contamination at the time it
purchased the facility in 1983, Juniper's claim for past and
41
future response costs should be estimated25 and allowed as
administrative expenses entitled to priority.26 On the other
hand, if Juniper did not take all appropriate steps to protect
itself from CERCLA liability, its lack of diligence exposed it to
the harsh consequences of strict, joint and several liability
____________________
25Because of its earlier section 502(e) disallowance, the
bankruptcy court refused to permit Juniper to introduce evidence
of anticipated future cleanup costs. Although we need not decide
the issue at this juncture, we note that the EPA's nonbinding
preliminary allocation of responsibility may be inadmissible
evidence as to the value of Juniper's claim for future response
costs, see 42 U.S.C. 9622(e)(3)(C) ("The nonbinding preliminary
___
allocation of responsibility shall not be admissible as evidence
in any proceeding . . . [nor] constitute an apportionment or
other statement on the divisibility of harm or causation."), and,
on remand, that it may be incumbent on Juniper to present other
evidence of the extent of its "injury."
26The determination of Juniper's CERCLA "liability" by the
bankruptcy court is required solely for purposes of the allowance
or disallowance of Juniper's proof of claim, a core proceeding in
bankruptcy, and the court cannot ignore the possibility that the
EPA might yet maintain a successful enforcement action against
Juniper. But unlike the holder of a prepetition claim for
___________
contribution, which normally must await final distribution under
Bankruptcy Code 726, Juniper would enjoy a distinct distribu-
tional advantage should it succeed in establishing its entitle-
ment to the "innocent landowner" defense under section 9607-
(b)(3). The court properly could provide for the immediate, pre-
_________
distribution payment of Juniper's "claim" in trust, see, e.g., In
__ _____ ___ ____ __
re Allegheny Int'l, Inc., 126 B.R. at 924 ("Creation of a trust
________________________
to be expended on contingent claims is a frequently used mecha-
nism for insuring that such funds are properly disbursed.")
(citing In re Johns-Manville Corp., 68 B.R. 618, 625-26 (Bankr.
__________________________
S.D.N.Y. 1986, aff'd, 78 B.R. 407 (S.D.N.Y. 1987), aff'd, 843
_____ _____
F.2d 636 (2d Cir. 1988)), exclusively for "necessary" future
response costs at the facility. See 3 Collier on Bankruptcy
___ ______________________
503.01, at 503-5 (citing In re Verco Indus., Inc., 20 B.R. 664,
________________________
665 (Bankr. 9th Cir. 1982) (holding that bankruptcy court has
discretion to order early payment of an administrative expense));
cf. supra note 12. In this manner, the EPA debt would be reduced
___ _____
pro tanto by any disbursement from the trust account, thereby
___ _____
effecting a de facto "fixing" of the EPA debt should EPA later
__ _____
attempt to file a claim against the chapter 7 estate. See supra
___ _____
note 7.
42
under CERCLA. In that event, Juniper's claim would be subject to
the section 502(e)(2) "fixing" requirement and Juniper would not
be entitled to administrative expense priority with respect to
any allowable CERCLA claim.
B. Juniper's Appeal: Disallowance of
B. Juniper's Appeal: Disallowance of
Attorney Fees (42 U.S.C. 9607(a)).
Attorney Fees (42 U.S.C. 9607(a)).
___________________________________
Juniper argues for an award of attorney fees pursuant
to 42 U.S.C. 9607(a)(4)(B), which makes no reference to "attor-
ney fees" in private cost recovery actions. Juniper contends
that the term "necessary costs of response" should be broadly
construed to encompass attorney fee awards so as to advance
CERCLA's remedial purposes by inducing PRPs to cooperate in
initiating prompt cleanup efforts. We affirm on the grounds
advanced in the well-reasoned district court opinion. See In re
___ _____
Hemingway Transp., Inc., 108 B.R. at 383.
_______________________
Absent an explicit statutory authorization, a party is
not entitled to recover attorney fees simply because it prevailed
in the litigation. Runyon v. McCrary, 427 U.S. 160, 185 (1976).
______ _______
CERCLA contains explicit provisions authorizing attorney fee
awards in certain other types of actions. See, e.g., 42 U.S.C.
___ ____
9610(c) (employee-whistleblowers may recover "all costs and
expenses (including attorney's fees") . . . ."); id. 9659(f)
___
(prevailing parties in private citizen suits may recover costs of
litigation, "including reasonable attorney and expert witness
fees"). Moreover, Congress did not consider, and SARA did not
include, any attorney fee award amendment applicable to the
43
private cost recovery provision in section 9607(a)(4)(B). We
therefore conclude that Congress has elected not to authorize
attorney fee awards in these actions. Cf. Dedham Water, 972 F.2d
___ ____________
at 461 ("[L]itigation-related expenses are, of course, not
compensable as response costs incurred by private parties under
CERCLA [9607].") (citing Regan v. Cherry Corp., 706 F. Supp.
_____ ____________
145, 149 (D.R.I. 1989)). Although a strong case might be made
that attorney fee awards in private cost recovery actions promote
CERCLA's remedial aims, see, e.g., General Elec. Co. v. Litton
___ ____ _________________ ______
Indus. Automation Sys., Inc., 920 F.2d 1415 (8th Cir. 1990),
_____________________________
cert. denied, 111 S. Ct. 1390 (1991), that case is one for the
____ ______
legislative venue. Alyeska Pipeline Serv. Co. v. Wilderness
____________________________ __________
Soc'y, 421 U.S. 240, 263-64 (1975) ("[I]t would be difficult,
_____
indeed, for the court, without legislative guidance, to consider
some statutes important and others unimportant and to allow
attorneys' fees only in connection with the former."); see also
___ ____
U.S. Steel Supply Inc. v. Chatwins Group, Inc., No. 89-C20241,
_______________________ _____________________
1992 U.S. App. LEXIS 13722, at 45-46 (N.D. Ill. Sept. 9, 1992).
Juniper argues, nonetheless, that only a small portion
of its attorney fees were incurred in preparation for the "re-
sponse cost" recovery litigation itself, the greater portion
having been incurred to ensure that Juniper's "response" was in
compliance with the administrative order issued by the EPA. We
conclude that the present claim was waived. At trial, Juniper's
attorney fee billings were admitted in evidence. Juniper sug-
gested no distinction between attorney fees incurred for liti-
44
gative and administrative purposes.27 Juniper's failure to
advance the present contention below deprived the bankruptcy
court of an opportunity to consider it, thereby waiving the
claim. See In re LaRoche, 969 F.2d 1299, 1305 (1st Cir. 1992)
___ _____________
(arguments not raised in bankruptcy court cannot be raised for
first time on appeal); In re 604 Columbus Ave. Realty Trust, 968
_____________________________________
F.2d 1332, 1343 (1st Cir. 1992) (same).28
C. The Trustee's Cross-Appeal: Administrative
C. The Trustee's Cross-Appeal: Administrative
Expense Priority for Past Response Costs.
Expense Priority for Past Response Costs.
________________________________________
The trustee appeals the allowance of Juniper's claim
for past response costs as an administrative expense entitled to
priority distribution. The bankruptcy court ruled that Juniper's
CERCLA liability resulted from its postpetition purchase of the
facility from Hemingway-Bristol, debtor in possession, during the
course of the chapter 11 proceeding. The bankruptcy court found
that it would be fundamentally "unfair" not to allow Juniper to
____________________
27Prior to admitting Juniper's attorney fee billing in
evidence, the bankruptcy judge stated: "[A]ssuming only for the
moment that legal services are a compensable item of damage
[under CERCLA], then aren't all reasonable fees incurred by the
plaintiff resulting from the alleged harm, aren't they all
compensable? . . . [D]idn't [Juniper's attorneys] perform servic-
es as a result of the acts of the defendant if I find the defen-
dant liable?" Thus, the court plainly signaled its intention to
treat Juniper's entire attorney fee request as either compensable
or noncompensable.
28Even assuming the issue was preserved, the record on
appeal does not enable reliable appellate review. It is impossi-
ble to determine with reasonable confidence whether the attorney
fees incurred by Juniper were reasonably "necessary" to facili-
tate its compliance with the EPA administrative order, or to
discover the existence or whereabouts of other PRPs who might be
amenable to suit by Juniper in an action for contribution.
45
receive payment of its contribution claim in advance of other
creditors. See supra note 17 (noting court's reliance on Reading
___ _____ _______
Co. v. Brown, 391 U.S. 471 (1968)).
___ _____
We affirm the allowance of Juniper's claim for past
response costs as an administrative expense entitled to priority
distribution under Bankruptcy Code 503(b)(1)(A), 507(a)(1) and
726(a)(1). See Norris v. Lumbermen's Mut. Cas. Co., 881 F.2d
___ ______ __________________________
1144, 1151-52 (1st Cir. 1989) (appellate court may affirm on any
ground supported by the record). As concerns Juniper's claim for
CERCLA response costs previously incurred, its entitlement to
priority does not hinge on the court's determination of the
merits of Juniper's "innocent landowner" defense. Even if
Juniper and the Hemingway-Bristol estate are co-"liable" on the
EPA debt, Juniper's claim for past response costs escapes the
section 502(e)(1)(B) co-liability problem encountered by its
claim for future response costs, because Juniper's right to
payment for past response costs became "fixed" upon Juniper's
incurrence of actual and necessary response costs prior to the
time its claim was considered for allowance. On the other hand,
if Juniper and the estate are not co-"liable" on the EPA debt,
because Juniper has the benefit of the "innocent landowner"
defense, both its past and future response costs are recoverable
as priority administrative expenses under either Mammoth Mart or
____________
Reading.
_______
III
III
CONCLUSION
CONCLUSION
__________
46
We vacate the bankruptcy court's section 502(e)(1)(B)
disallowance of Juniper's claim for future response costs. On
remand, the bankruptcy court shall permit the chapter 7 trustee
and Juniper a reasonable time within which to file surrogate
claims in behalf of the EPA under sections 501(b) or 501(c) of
the Bankruptcy Code. Should the trustee file a timely surrogate
claim, and should Juniper choose to press for simultaneous
allowance of its so-called "direct" claim, the court should
determine whether Juniper would be entitled to an "innocent
landowner" defense pursuant to 42 U.S.C. 9601(35)(B). If
Juniper is so entitled, its claim for "contribution" should be
allowed as an administrative expense. If not so entitled, its
claim should be disallowed unless and until Juniper "fixes" its
right to contribution by actually incurring any such response
costs by the time its claim is considered for allowance. If the
chapter 7 trustee elects not to file a surrogate claim under
section 501(b), thereby waiving the section 502(e)(1) (B) objec-
tion to Juniper's direct claim against the chapter 7 estate, the
court should receive evidence relating to the extent of Juniper's
anticipated response costs and should allow Juniper's claim as an
administrative expense of the chapter 11 estate.
The order disallowing an award of attorney fees, and
The order disallowing an award of attorney fees, and
_______________________________________________________
the order allowing Juniper's claim for past response costs as an
the order allowing Juniper's claim for past response costs as an
_________________________________________________________________
administrative expense, are affirmed. The order disallowing
administrative expense, are affirmed. The order disallowing
______________________________________ ______________________
Juniper's claim for future response costs is vacated and remanded
Juniper's claim for future response costs is vacated and remanded
_________________________________________________________________
to the bankruptcy court for further proceedings consistent with
to the bankruptcy court for further proceedings consistent with
_________________________________________________________________
47
the opinion herein; costs to neither party.
the opinion herein; costs to neither party.
__________________________________________
48
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Juniper Development v. Kahn, Counsel Stack Legal Research, https://law.counselstack.com/opinion/juniper-development-v-kahn-ca1-1993.