Norwesco Development Corp. v. Pennsylvania Department of Environmental Resources (In Re Norwesco Development Corp.)

68 B.R. 123, 16 Collier Bankr. Cas. 2d 145, 1986 Bankr. LEXIS 5121, 15 Bankr. Ct. Dec. (CRR) 668
CourtUnited States Bankruptcy Court, W.D. Pennsylvania
DecidedOctober 17, 1986
Docket19-20342
StatusPublished
Cited by3 cases

This text of 68 B.R. 123 (Norwesco Development Corp. v. Pennsylvania Department of Environmental Resources (In Re Norwesco Development Corp.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Norwesco Development Corp. v. Pennsylvania Department of Environmental Resources (In Re Norwesco Development Corp.), 68 B.R. 123, 16 Collier Bankr. Cas. 2d 145, 1986 Bankr. LEXIS 5121, 15 Bankr. Ct. Dec. (CRR) 668 (Pa. 1986).

Opinion

MEMORANDUM OPINION

JOSEPH L. COSETTI, Bankruptcy Judge.

Before the Court is Norwesco Development Corporation’s Application for Rule to Show Cause Why Pennsylvania’s Departr ment of Environmental Resources (“DER”) Should Not Be Held to Be In Contempt of Court and for a Stay of an Order of the Commonwealth Court of Pennsylvania. As indicated in the Pretrial Order, contempt is not appropriate. The Court now considers the application for a stay. The Debtor, Norwesco Development Corporation (“Nor-wesco”), is operating pursuant to a confirmed Chapter 11 plan. The Commonwealth Court of Pennsylvania has ordered Norwesco to comply with a DER Order. *124 The Order requires Norwesco to provide a temporary and a permanent water supply to the damaged homeowners. Norwesco must first submit a plan to the DER for the permanent water supply.

Norwesco contends that the DER's Order really constitutes a claim treated by the Debtor’s confirmed plan. The Debtor further argues that the costs required to implement the DER Order would be so high that it would force Norwesco into liquidation.

The DER defends and argues that the Bankruptcy Court lacks jurisdiction in this matter. The DER believes it is enforcing the Commonwealth’s environmental protection statutes which are enacted under the police power of the Commonwealth. The DER believes these police power statutes exempt the DER from any Bankruptcy Court review of its orders. Furthermore, the DER argues that its police action is not a monetary claim against the Debtor within the meaning of the Bankruptcy Code.

HISTORY OF THE FACTS

In 1983 and 1984, the DER issued well drilling permits to Norwesco to drill for oil in Sandy Creek Township, Venango County. Some of the permits were within the groundwater recharge area for Belmar Village, which is composed of approximately 18 houses. The water supply for the Bel-mar village residents derives from private water wells. In the oil drilling process, brine is produced as a waste fluid with the crude oil. In 1985 and 1986, 13 homeowners in Belmar Village filed complaints with the DER reporting that their well water was polluted. Because of this pollution, these residents cannot use their well water for cooking, drinking, cleaning or bathing. Norwesco is the only oil and gas operator drilling and producing oil in Bel-mar Village area. There have been other producers in the past.

The DER has administratively determined that Norwesco’s brine disposal activities had polluted the groundwater and water wells of the Belmar residents. On January 3, 1986, the DER issued an administrative Order that: 1. Norwesco provide temporary water supply to Belmar residents. 2. Norwesco submit a plan to the DER for its review and approval, setting forth a permanent water supply replacement. This plan must include a description of the water source, necessary water treatment and water conveyance facilities, with construction details for each. 3. Norwesco implement the plan approved by the DER. 4. During the implementation of the Order, Norwesco must not create any new environmental problems. The DER Order was amended on February 20, 1984 and July 8, 1986 to add four new residents who filed complaints with the DER.

The DER has not ordered Norwesco to purify the polluted groundwater or to in some manner eliminate the brine. Norwes-co believes that over a period of time if no further pollution occurs, the brine would be flushed out by natural processes. It is disputed how long this would take. There may not be a practical method for cleaning the water supply except by allowing the natural processes to occur. The DER believes that providing an alternate water supply is less expensive.

Norwesco appealed the DER Order to the DER’s Environmental Hearing Board (“EHB”), which is pending. A Petition for Supersedeas was denied. Norwesco is not now providing water to the Belmar residents and has not submitted a plan to the DER.

On November 19, 1985, Norwesco filed for reorganization under Chapter 11. Prior to the confirmation of a plan, on April 17, 1986 Judge Bentz of the Bankruptcy Court ordered a stay of the DER Order under 11 U.S.C. § 362. The DER appealed and the District Court vacated the Bankruptcy Court Order on June 16, 1986.

On July 16, 1986, the plan was confirmed. The confirmed Chapter 11 plan treats the DER and 15 homeowners as unsecured creditors. If final liability is proven, their claims were to be paid by Norwesco’s liability insurer.

On March 12, 1986, the Bankruptcy Court granted relief from the automatic *125 stay to certain residents of Belmar Village who desired to file a Complaint for damages against Norwesco in the Court of Common Pleas of Venango County. Fourteen Belmar homeowners then filed a Complaint for damages. Ten of these also filed a complaint with the DER. Three homeowners, not plaintiffs in the Venango County action, filed complaints with the DER. Even so, the insurer has notified Norwesco that it has reserved the right to deny Nor-wesco indemnification under the policy.

The DER requested compliance with its Order in the Commonwealth Court of Pennsylvania. On August 13, 1986, the Commonwealth Court granted the DER’s motion for a preliminary injunction and ordered Norwesco to comply with the DER’s administrative Order during the pendency of the appeal before the EHB. Norwesco has appealed the Commonwealth Court Order to the Pennsylvania Supreme Court. Norwesco has also filed the instant Application for a Stay of the Commonwealth Court Order in this Court.

At the trial on Norwesco’s Application for Stay, the Debtor introduced a two-page letter from Moody and Associates, Inc., an engineering and consulting firm. Moody estimates that the cost of a permanent water system will be $133,000, exclusive of the cost of the site acquisition, modifications to individual home plumbing, relands-caping, etc. The Debtor alleges that it does not have the assets necessary to provide a permanent water system. If the insurance company does not indemnify it for the costs of a permanent water system, the Debtor may be forced to liquidate. The Court has not reviewed the defenses available to the insurance company. The defenses may be different with regard to the individual Belmar claimants than the DER.

Although the DER did not contest this estimate, the DER reminds the Court that Norwesco has not filed the required plan with the DER, and the DER desires to evaluate the plan and costs when it is submitted as a plan.

ANALYSIS

A. Jurisdiction

The DER asserts that the Bankruptcy Court lacks jurisdiction under the Eleventh Amendment to the United States Constitution. It also claims that the Commonwealth is immune from suit in the federal courts in the absence of a waiver of that immunity. This Court holds that if Nor-wesco’s obligation to build a permanent water system is a “debt” within the meaning of the Bankruptcy Code (“Code”), then the Bankruptcy Court clearly would have jurisdiction. 11 U.S.C. § 106(c) provides:

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68 B.R. 123, 16 Collier Bankr. Cas. 2d 145, 1986 Bankr. LEXIS 5121, 15 Bankr. Ct. Dec. (CRR) 668, Counsel Stack Legal Research, https://law.counselstack.com/opinion/norwesco-development-corp-v-pennsylvania-department-of-environmental-pawb-1986.