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D.N.J.: CERCLA Cleanup Costs Not Subject to the Automatic Stay Provision of the US Bankruptcy Code

Following a previous Third Circuit decision, the United States District Court for the District of New Jersey recently confirmed that corporations cannot stay in personam claims for environmental cleanup costs under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA,” also known as “Superfund”) by declaring bankruptcy.

In U.S. v. Alsol Corp., 2014 U.S. Dist. LEXIS 1179 (D.N.J. Jan. 2, 2014), the EPA brought suit under CERCLA against several defendants, alleging that they were responsible for the costs associated with remedial work conducted at a contaminated site in New Jersey. The remediation costs for this site exceeded $3 million, before either interest or ongoing expenses were taken into account.

After this suit began, two of the defendant corporations filed for bankruptcy. Under the United States Bankruptcy code, such a filing would normally provide an automatic stay of the commencement or continuation of a judicial action against a debtor that had been or could have been brought before the start of the bankruptcy proceeding. The purpose of this stay is to give the debtor a “breathing spell” from creditors racing to collect against debts, and to provide for an orderly division of assets. However, this stay has several exceptions, including claims brought by a “governmental unit” to enforce its regulatory power. 11 U.S.C. §362 (b)(4).

The District Court followed the Third Circuit’s holding in U.S. v. Nicolet, Inc., 857 F.2d 202 (1990), that in personam actions for the collection of CERCLA cleanup costs fall into this regulatory power exception to a bankruptcy stay. In doing so, the court recognized that this stay provision was ripe for abuse by debtors seeking to frustrate governmental actions by declaring bankruptcy, especially in cases of environmental contamination liability. The Court reasoned that the goals of environmental protection embodied in CERCLA outweigh the interests of bankrupt debtors, noting that “enforcement of the environmental protection laws merits a higher priority than the debtor’s rights to a ‘cease fire’…”

This is an important development for current and former owners and operators of property believed to be impacted by releases of hazardous substances. Additionally, individuals and organizations pursuing bankruptcy or reorganization must consider their cleanup obligations as ongoing despite the application of a bankruptcy stay to other of their financial obligations.

The attorneys at Lieberman Blecher & Sinkevich P.C., who regularly assist clients with environmental issues that arise in the context of CERCLA and related environmental statutes, will be closely following the developments in this area of the law. Our team of environmental lawyers are experienced in both litigation and remediation issues. We have assisted many clients in managing potential CERCLA liability and responding to CERCLA litigation.

 

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