Environmental Obligations and the Code's Definition of "Claims"

Whether an environmental obligation constitutes a "claim" as that term is defined by the Bankruptcy Code is a significant issue because only a "claim" is potentially subject to discharge. Here, Adam P. Strochak, of Weil, Gotshal & Manges LLP, examines cleanup costs, administrative and judicial cleanup orders, and fines and penalties. This analysis is an excerpt from the Collier monograph on environmental Issues in bankruptcy cases.
In enacting the Bankruptcy Code in 1978, Congress took a broad view of what constitutes a claim to ensure that all legal obligations of the debtor, no matter how remote or contingent will be able to be dealt with in the bankruptcy case. Thus, claim is broadly defined to include any 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. Courts accordingly have given an expansive reading of the term claim.
Cleanup Costs
Obligations to pay cleanup costs under federal and state environmental programs may constitute claims against the bankruptcy estate within the meaning of section 101(5) of the Bankruptcy Code. EPA, state governments and private citizens can seek reimbursement for incurring cleanup costs from certain categories of responsible parties under environmental statutes, such as CERCLA and RCRA. Debtors' monetary obligations to governmental units and private parties that arise under these statutes can constitute dischargeable prepetition claims. For example, the Court of Appeals for the Second Circuit concluded in In re Chateaugay Corp. that an obligation to pay the EPA for cleanup costs under CERCLA is a dischargeable claim in bankruptcy, whenever the obligation is based on prepetition conduct resulting in the release or threatened release of hazardous substances.
Administrative and Judicial Cleanup Orders--Injunctions
The Bankruptcy Code's broad definition of a claim also reaches certain types of debtors' obligations under administrative and judicial cleanup orders. Federal and state governments may enforce environmental laws not only by punishing offenders, but by ordering compliance through the issuance of direct administrative orders or by seeking injunctive relief in court. Section 101(5)(B) of the Bankruptcy Code specifies that a claim includes a right to an equitable remedy for breach of performance if such breach also gives rise to a right to payment. For purposes of determining whether an injunctive remedy under environmental cleanup statutes constitutes a claim within the meaning of section 101(5), courts generally distinguish between those that prohibit a polluting activity and those that create a right to payment. If an environmental injunction is not a claim, either the debtor will be required to comply or the obligation passes through to the reorganized entity.