ELR Citation: ELR 20635
No(s). 581-906 (Bankr. N.D. Ohio Jan 3, 1985)

The court holds that costs incurred to clean up a waste site under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) are administrative expenses that the Environmental Protection Agency (EPA) may recover from the estate of the bankrupt site owner, but not from funds in which another creditor holds a security interest. After removing hazardous materials from a facility formerly owned by and containing the wastes of the bankrupt T.P. Long Chemical Company, EPA seeks reimbursement from the assets of the estate, including funds in which BancOhio holds a security interest.

The court first holds that expenses incurred by EPA to clean up a release constitute administrative expenses under the Bankruptcy Code. Though the estate's trustee is not an owner or operator of the facility under CERCLA, since he does not hold title to the property and has conducted no business there, the estate itself is nevertheless liable under CERCLA. The court holds that the waste EPA cleaned up cannot be deemed to have been automatically abandoned and so severed from the estate under Bankruptcy Code §554(c), since the bankruptcy proceedings were not closed. Also, CERCLA liability would be unaffected by abandonment, since such liability is not simply a function of present ownership. In fact, CERCLA §107(e)(1) provides that an owner cannot avoid liability through an ostensible conveyance of the property. Further, the court holds that the trustee may not voluntarily abandon the property under Bankruptcy Code §544. Stressing that CERCLA's generator liability provisions were enacted to protect the public from hazardous waste damages, the court invokes the judicially created public policy exception to §544. Finally, the court holds that EPA's expenses incurred in removing the estate's wastes were actual necessary costs of preserving the estate, allowable as administrative expenses.

The court then considers whether EPA may recover cleanup costs from funds subject to BancOhio's security interest. EPA's performance of the cleanup duty, which was originally imposed on the trustee, enables EPA to stand in the trustee's shoes in seekeing to recover expenses from BancOhio. In that position, EPA may recover from a secured creditor if it acted for the benefit of that creditor. EPA's actions did not benefit BancOhio's collateral, since the valuable part of the collateral had been converted to cash at the time of the cleanup and the waste remaining had no value worthy of preservation. EPA's actions did benefit the bank as a member of the general public, but that benefit is unrelated to the bank's creditor status. As security holder, the bank is not an insurer of the risks caused by the collateral. Nor is the bank liable under CERCLA. Even if the bank had repossessed the property, it would not be an owner or operator under CERCLA so long as it refrained from participating in management. Therefore, EPA did not discharge a liability of the bank. Finally, the court holds that EPA could not recoup expenses as a matter of equity, since it would be inequitable to compel an innocent party to bear the risk of all damage caused by its collateral.

Counsel for Plaintiffs
Alan Ross, Ass't U.S. Attorney
Suite 500, 1404 E. 9th St., Cleveland OH 44114
(216) 942-4389

Roger Grimes
U.S. EPA, Office of the Regional Counsel, Region V
230 S. Dearborn, 16th Fl., Chicago IL 60604
(312) 886-4247

Counsel for Defendants
Frederick Corns
Roderick, Myers & Linton
300 Centran Bldg., Akron OH 44308
(216) 434-3000

Emanuel Mazur
813 Centran Bldg., Akron OH 44308
(216) 434-8156

Harold Corzin
Meador, Corzin & Lowrey
2770 W. Market St., Akron OH 44313
(216) 867-5310

Terry Steel
1900 First National Tower, Akron OH 44308
(216) 384-1160