by Claude ("Chip") Bowles
This article examines one of
the most important areas of litigation involving environmental obligations in
bankruptcy -- whether environmental clean-up orders issued by state or federal
authorities constitute claims for purposes of the Bankruptcy Code and,
therefore, may be discharged by a debtor under the Bankruptcy Code.
Excerpt:
One of the core concepts of
bankruptcy law is what constitutes a "claim" for purposes of the
Bankruptcy Code. 11 U.S.C. § 101(5) [an annotated version of this statute is available to lexis.com
subscribers] defines a claim as:
(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; or
(B) right to an equitable remedy for breach of performance if such breach gives
rise to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured, or unsecured.
Issues under subsections (A) and (B) arise frequently in cases involving
Environmental Liability litigation. This article examines one of the most
important issues which arise in the context of determining whether a potential
Environmental Liability is a claim: do governmental injunctions, orders and
other actions constitute claims?
Are Environmental Obligations Claims?
One of the most important areas of litigation involving environmental
obligations in bankruptcy is whether environmental clean-up orders issued by
state or federal authorities constitute claims for purposes of the Bankruptcy
Code and, therefore, may be discharged by a debtor under the Bankruptcy Code.
Ohio v. Kovacs
The leading case and one of the earliest addressing the issue is Ohio v.
Kovacs, 469 U.S. 274 (1985). [an enhanced version of this opinion is available to lexis.com subscribers
/ unenhanced version available from lexisONE Free Case Law].
Kovacs was the CEO of Chem-Dyne Corp., and other entities (collectively
"Chem-Dyne"), which operated an industrial and hazardous waste
disposal site near Cincinnati, Ohio. In 1976, the State of Ohio sued Kovacs and
Chem-Dyne for violations of numerous Ohio environmental laws. In 1979, Kovacs,
both in his individual capacity and on behalf of Chem-Dyne, entered into an
agreed injunction ("Injunction") under which he and Chem-Dyne were
required to: (1) not to further pollute the air or water, (2) not bring more
industrial and toxic waste into the Chem-Dyne site, (3) remove and properly
dispose of certain toxic waste on the Chem-Dyne site, and (4) pay Ohio $75,000
as compensation for damage to wildlife in the state.
Kovacs and Chem-Dyne failed to comply with the Injunction and Ohio obtained the
appointment of a receiver who took possession of all of Kovacs and Chem-Dyne's
assets and to clean up the Chem-Dyne site. After the receiver was appointed and
took possession of the Chem-Dyne site, Kovacs filed an individual chapter 11
bankruptcy which was ultimately converted to a chapter 7 liquidation case. In
Kovacs' bankruptcy case, Ohio filed an adversary proceeding seeking a
determination that Kovacs' personal obligations under the Injunction were not
discharged in his chapter 7 bankruptcy cases. The bankruptcy, district court
and Sixth Circuit Court of Appeals all ruled against Ohio finding that under
the facts of this case, Ohio was seeking a monetary obligation against Kovacs
which was a dischargeable claim. The Supreme Court granted certiorari to
determine the dischargeability of Kovacs' obligations under the Injunction.
[footnotes omitted]
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Claude
R. ("Chip") Bowles (Ch. 9, "Environmental
Issues in Bankruptcy") is a member of the Louisville, Kentucky, office of
Greenebaum Doll & McDonald PLLC, where he concentrates his practice in the
area of bankruptcy law, distressed asset sales, professional compensation,
ethical issues in bankruptcy and workout situations, representation of
non-attorney professionals and debtor and creditor rights. Mr. Bowles is a
Director of the American Bankruptcy Institute, a member of the ABI Grant
Committee, and serves as Co-Editor of the American Bankruptcy Institute's
Journal Ethics Column. He also has served as Chair of the American Bankruptcy
Institute's Chapter 11 Professional Fee Study. Mr. Bowles is a graduate of the
University of Kentucky (B.A., 1981) and the University of Kentucky College of
Law (J.D., 1984).