United States v. Apex Oil Co., Inc.
69 ERC 1658, 39 Envtl. L. Rep. (Envtl. Law Inst.) 20189, 579 F.3d 734 (2009)
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Rule of Law:
An equitable cleanup order under the Resource Conservation and Recovery Act (RCRA) is not a dischargeable 'claim' in bankruptcy because the statute does not provide the government with an alternative right to monetary payment. The fact that compliance with the injunction will impose a substantial cost on the debtor does not convert the equitable obligation into a dischargeable 'right to payment' held by the creditor.
Facts:
- A corporate predecessor of Apex Oil Company owned an oil refinery in Hartford, Illinois.
- Operations at the refinery created a massive underground 'hydrocarbon plume' consisting of millions of gallons of oil.
- This plume contaminated the local groundwater and emitted hazardous fumes that entered homes in the area.
- Apex Oil Company no longer has its own refining capabilities and would have to hire an outside company to perform any cleanup.
- In 1986, Apex Oil Company filed for Chapter 11 bankruptcy and had its reorganization plan confirmed by the bankruptcy court.
Procedural Posture:
- The Environmental Protection Agency (EPA) filed suit against Apex Oil Company in the U.S. District Court for the Southern District of Illinois.
- The EPA sought an injunction under the Resource Conservation and Recovery Act (RCRA) to compel Apex to clean up a contaminated site in Hartford, Illinois.
- Following a 17-day bench trial, the district court judge granted the injunction, ordering Apex to perform the cleanup.
- Apex Oil Company, as appellant, appealed the district court's grant of the injunction to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does an equitable cleanup order under the Resource Conservation and Recovery Act (RCRA), which does not authorize monetary relief in lieu of performance, constitute a 'claim' dischargeable in bankruptcy under 11 U.S.C. § 101(5)(B)?
Opinions:
Majority - Posner, Circuit Judge.
No, an equitable cleanup order under RCRA does not constitute a 'claim' dischargeable in bankruptcy. Under the Bankruptcy Code, an equitable remedy is only a dischargeable 'claim' if the breach of performance also 'gives rise to a right to payment.' This means the claimant must have the option to accept a monetary payment as an alternative to the debtor's performance. The court reasoned that the relevant statute, RCRA, does not authorize the government to demand or receive monetary relief; it only authorizes injunctions compelling cleanup. The court rejected Apex's argument that the cost of complying with the injunction creates a 'right to payment,' explaining that this interpretation would render nearly all equitable decrees dischargeable, which is contrary to the Bankruptcy Code's structure. The court distinguished Ohio v. Kovacs, where the state's appointment of a receiver had already converted the cleanup obligation into a search for money, from this case, where the government seeks only the performance of the cleanup itself.
Analysis:
This decision significantly strengthens the government's ability to enforce environmental laws against companies that have undergone bankruptcy reorganization. It clarifies that a polluter's obligation to remediate environmental damage is an enduring duty that cannot be erased simply because the company has reorganized its finances, so long as the underlying environmental statute only provides for injunctive relief and not a monetary alternative. The case firmly establishes that the financial cost of complying with an injunction does not transform the injunction into a monetary 'claim' for bankruptcy purposes. This precedent limits the utility of Chapter 11 as a tool for corporations to shed long-term environmental liabilities, thereby ensuring that responsible parties remain accountable for cleanup.
