ELR Citation: ELR 20278
No(s). s. 84-801, -805 (U.S. Jan 27, 1986)

The Court holds that a bankruptcy trustee may not abandon a hazardous waste site when such abandonment would violate reasonable state health and safety laws. The Court notes that before enactment of the Bankruptcy Reform Act in 1978, the courts had judicially limited the trustee's power of abandonment to protect legitimate state or federal interests. When Congress codified the abandonment power in §554 of the 1978 Act, it presumably also included the corollary limitations. Nothing in bankruptcy law grants a trustee the power to contravene public health and safety laws; in fact, in many areas of the bankruptcy law where the common law has not created a limitation, Congress has expressly required the trustee to yield to governmental health and safety interests. Congress made the limitations express only where the Bankruptcy Reform Act differed significantly from the existing law, and the lack of express limitations in the abandonment section does not imply that no limitations exist at all. Section 959(b), which requires the trustee to abide by state law when managing the estate, is further evidence that Congress did not intend the bankruptcy laws to preempt all state laws. The concern that Congress has shown in recent years for toxic pollution problems gives additional support to the conclusion that Congress did not intend to implicitly overturn the long-standing restrictions on the common-law abandonment power. In light of all this, the Court rules that a bankruptcy court may not allow an abandonment without imposing conditions to protect public health and safety, and a trustee may not abandon property in contravention of reasonable health and safety laws. The Court reserves judgment on whether some laws might be so onerous as to impermissibly interfere with bankruptcy adjudication and notes that the exception to the abandonment power is narrow and does not encompass situations where the violation blamed on abandonment is speculative or indeterminate.

A four-Justice dissent argues that §554 and its legislative history make no mention of limits on the abandonment power in favor of state interests, and the case law preceding § 554 did not create a broad or well-established exception to abandonment. Also, it notes that limiting abandonment frustrates a purpose of the bankruptcy laws—to protect the estate for the creditors—and that in the instant case abandonment might actually have promoted the public welfare by forcing the state to care for the site. It characterizes the state's interest as monetary as well as regulatory and argues that limits on abandonment should not be invoked where they would effectively alter the statutory priorities for creditors' claims.

[The Third Circuit cases affirmed here appear at 14 ELR 20563 and 20572.]

Counsel for Petitioner
A. Dennis Terrell
Shanely & Fisher
131 Madison Ave., Morristown NJ 07960-1979
(201) 285-1000

Counsel for Respondent
Irwin I. Kimmelman, Attorney General
Richard S. Engle, Deputy Attorney General
R.J. Hughes Justice Complex, CN112, Trenton NJ 08625
(609) 292-4925