LTV Steel Co. v. Union Carbide Corp. (In Re Chateaugay Corp.)

193 B.R. 669, 1996 U.S. Dist. LEXIS 3191, 1996 WL 117565
CourtDistrict Court, S.D. New York
DecidedMarch 18, 1996
Docket86 B 11270 (BRL) to 86 B 11334 (BRL), 86 B 11402 (BRL), 86 B 11464 (BRL) and 95 Civ. 4644 (MBM)
StatusPublished
Cited by14 cases

This text of 193 B.R. 669 (LTV Steel Co. v. Union Carbide Corp. (In Re Chateaugay Corp.)) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
LTV Steel Co. v. Union Carbide Corp. (In Re Chateaugay Corp.), 193 B.R. 669, 1996 U.S. Dist. LEXIS 3191, 1996 WL 117565 (S.D.N.Y. 1996).

Opinion

MUKASEY, District Judge.

LTV Steel Company (“LTV”), formerly a bankruptcy debtor, has sued in this district’s Bankruptcy Court for a judgment declaring that LTV’s potential liability under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), 42 U.S.C. § 9601 et seq., in an action pending in the Western District of Pennsylvania, has been discharged. Four of the defendants to LTV’s adversary proceeding, Aerospace Metals, Inc., Aveo Corporation, Dana Corpora *672 tion and Flowline Corporation, have moved pursuant to 28 U.S.C. § 157(d) (1988) to withdraw the order of reference to the Bankruptcy Court. LTV opposes that motion. For the reasons that follow, the motion to withdraw the reference is denied.

I.

In July 1986, LTV and 66 of its affiliates filed a reorganization petition pursuant to Chapter 11 of the Bankruptcy Code. (Mot. to Withdraw Reference ¶ 1) The Bankruptcy Court set a bar date of November 30, 1987 for creditors to file claims, but none of the defendants in this action filed claims against LTV before that date. (Zalenski Aff. Ex. A) On May 27, 1993, the Bankruptcy Court confirmed the Plan of Reorganization and LTV emerged from bankruptcy. (Id. Ex. B)

Four years after LTV filed for bankruptcy, in June 1990, the Environmental Protection Agency (“EPA”) brought a CERCLA action against 24 named defendants, including all of the defendants in the present action, seeking monetary and other relief for the actual or threatened release of hazardous substances in Pulaski, Pennsylvania (the “Metcoa site”). (Id. ¶ 3) That action, entitled United States v. Pesses, No. 90-654, is now pending before Judge Gustave Diamond and a magistrate judge of the United States District Court in the Western District of Pennsylvania.

To manage the large and complex CERC-LA litigation, the magistrate judge issued a case management order dividing the case into the following three phases: (1) liability, (2) cost-related issues, and (3) cross-claims and third-party claims. (White Aff. Ex 1 p. 4) Pursuant to this schedule, the Court first ruled that the “Scrapper/Dealer Defendants,” a group that included several federal agencies, were “responsible persons” under CERCLA, 42 U.S.C. § 9607(a). United States v. Pesses, 794 F.Supp. 151, 153 (W.D.Pa.1992). Shortly thereafter, many of the defendants, including the federal agencies, entered into a consent decree with the EPA to repay the government’s clean-up costs. But in November 1994, Judge Diamond rejected the consent decree on the ground that the proponents of the decree failed to establish that the allocation of responsibility to the federal agencies was fair and reasonable under the circumstances. United States v. Pesses, No. Civ. A. 90-0654, 1994 WL 741277, *14 (W.D.Pa. Nov. 7, 1994).

The consent decree was rejected in part because the first case management order was unworkable: there was virtually no way to complete phase two — assessing the cost of clean-up, before completing phase three— determining the validity of the cross-claims and third-party claims. Accordingly, the magistrate judge revised the ease management order to require: (1) immediate im-pleader of third parties, (2) discovery on the liability of those third parties, (3) appointment of an allocation consultant to create a volumetric ranking list, and (4) establishment of a committee to allocate liability. (White Aff. Ex. 3 pp. 5-7)

Pursuant to this new schedule, in February 1995, the defendants filed a third-party complaint against 228 additional parties, including LTV, seeking costs from potentially responsible parties (“PRPs”) who had arranged for the treatment and disposal of hazardous material at the Metcoa site. (Id. Ex. 2) On April 11, 1995, the defendants amended the third-party complaint to add a count seeking a declaratory judgment that LIN’S bankruptcy discharge did not bar the CERCLA adversary proceeding for two reasons: (1) LTV had not provided sufficient notice to these defendants of its bankruptcy in 1986-87, and (2) these defendants did not hold “claims” subject to bankruptcy discharge. (Id. Ex. 6 ¶¶ 17-29)

LTV did not answer the third-party complaint, but instead initiated the present action on May 23, 1995 seeking both a declaratory judgment that is the opposite mirror image of the one sought in Pennsylvania — a judgment that any liability it may owe to the defendants under CERCLA has been discharged by its bankruptcy, and a permanent injunction to stop the Pennsylvania litigation against it. LTV obtained an ex parte temporary restraining order enjoining the defendants from prosecuting the Pennsylvania action. (Mot. to Withdraw Reference ¶ 5) Four of the defendants to that action, Aerospace Metals, Avco, Dana and Flowline, now seek to withdraw the bankruptcy court reference so that the action may be heard in an Article III court.

*673 II.

After the Supreme Court ruled in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 81, 102 S.Ct. 2858, 2876, 73 L.Ed.2d 598 (1982), that the Bankruptcy Reform Act of 1978 unconstitutionally vested Article I courts with “the essential attributes of the judicial power,” Congress enacted the Bankruptcy Amendments and Federal Judgeship Act of 1984 to correct the infirmities flagged by the Court in Marathon, and to create a workable and constitutional system for bankruptcy administration. See 1 Collier on Bankruptcy ¶ 3.01[2][a] (15th ed. 1995). Unlike its predecessor, § 241(a) of the Bankruptcy Reform Act of 1978, which granted broad jurisdiction to the bankruptcy court, the 1984 legislation limits bankruptcy court jurisdiction by giving the district court discretion to refer a case to bankruptcy court, and by authorizing the district court to withdraw a reference under appropriate circumstances. Specifically, 28 U.S.C. § 157(d) provides that:

The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown. The district court shall, on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.

28 U.S.C. § 157(d) (1988).

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193 B.R. 669, 1996 U.S. Dist. LEXIS 3191, 1996 WL 117565, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ltv-steel-co-v-union-carbide-corp-in-re-chateaugay-corp-nysd-1996.