ELR Citation: ELR 20147
No(s). 91-25505 (Bankr. E.D. Va. Apr 20, 1993)

The court holds that a bank's environmental remediation costs, which stem from its cleanup of contaminated property in which it held a security interest, are entitled to administrative expense priority under Bankruptcy Code §503(b)(1)(A) in the debtor's Chapter 11 bankruptcy proceeding. The court first holds than an obligation to remediate the contamination at the site exists, because the pollution the debtor caused was in excess of state regulations and in violation of state law. The court next holds that the bank is not precluded from recovering its remediation costs by its failure to notify the responsible state agency or its failure to pursue formal action to compel cleanup of the site. The state agency typically relies on industry to determine whether cleanup is necessary, and, based on testimony about the extent of the contamination, the agency would have ordered remediation in this case. Finally, the court holds that the costs the bank incurred in cleaning up the property are entitled to administrative expense priority by virtue of Bankruptcy Code §503(b)(1)(A). The contamination occurred both pre- and post-petition, the bank incurred the costs to remedy the contamination, and, following the exception set forth by the U.S. Supreme Court in Midlantic National Bank v. New Jersey Department of Environmental Protection, 16 ELR 20278 (1986), the court holds that the bank's costs were actual and necessary to bring the estate into compliance with state law and to eliminate a threat to public health and safety.

Counsel for Plaintiff
Joseph R. Mayes, Richard E. Biemiller
Wolcott, Rivers, Wheary, Basnight & Kelly
1100 One Columbus Ctr., Virginia Beach VA 23462
(804) 497-6633

Counsel for Defendant
Donna J. Hall
Clark & Stant
One Columbus Ctr., Virginia Beach VA 23462
(804) 499-8800