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Keywords

appealleasebankruptcychapter 7 bankruptcyhazardous waste

indemnityleasebankruptcyhazardous waste

Related Cases

In re Jensen, 127 B.R. 27, 33 ERC 1597, 25 Collier Bankr.Cas.2d 214, 21 Bankr.Ct.Dec. 1183, Bankr. L. Rep. P 73,995

Facts

The Jensens owned Jensen Lumber Company (JLC), which used fungicide tanks in its manufacturing process. After a state inspection revealed hazardous waste at the site, the Jensens filed for Chapter 7 bankruptcy without listing any cleanup claims. The state later sought recovery for cleanup costs, leading the Jensens to file an adversary proceeding to determine if the state's claim was discharged in their bankruptcy. The bankruptcy court initially ruled in favor of the state, prompting the Jensens to appeal.

The Jensens individually wholly-owned Jensen Lumber Company (“JLC”), whose manufacturing process included dipping logs in fungicide tanks. DHS generally seeks indemnity for cleanup costs incurred related to the fungicide tanks, which remained on property (the “site”) leased and later abandoned in bankruptcy by JLC.

Issue

When did the State of California's claim for hazardous waste cleanup costs arise for purposes of bankruptcy, and was it discharged in the Jensens' Chapter 7 bankruptcy?

This case requires us to determine when claims arise for purposes of bankruptcy, specifically claims under CERCLA and HSA.

Rule

A claim for purposes of bankruptcy is defined broadly under 11 U.S.C. § 101(4), encompassing rights to payment that may be contingent or unmatured. The timing of when a claim arises can depend on the debtor's conduct or the relationship between the debtor and creditor.

A claim for purposes of bankruptcy is defined at 11 U.S.C. § 101(4) (1988) as follows: (4) “claim” means— (A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.

Analysis

The court analyzed the timing of the claim's origination, concluding that the state's claim arose at the time of the actual or threatened release of hazardous waste, which occurred before the Jensens filed for bankruptcy. The court rejected the argument that a claim only arises when cleanup costs are incurred, emphasizing that the definition of a claim includes contingent rights to payment.

Following the foregoing examination of each theory, we hold the DHS's claim arose for purposes of the Jensens' bankruptcy at the time of actual or threatened release of the hazardous waste, or based upon the debtors' conduct.

Conclusion

The Bankruptcy Appellate Panel reversed the bankruptcy court's decision, holding that the State of California's claim for cleanup costs was discharged in the Jensens' bankruptcy because it arose prepetition.

Based upon the Board letter dated February 2, 1984, threatened release of the hazardous waste involved here clearly occurred prior to filing of the Jensens' individual bankruptcy on February 13, 1984.

Who won?

The Jensens prevailed in the case because the appellate court determined that the state's claim for cleanup costs was discharged in their bankruptcy, as it arose before the bankruptcy filing.

The Jensens filed an adversary proceeding on April 24, 1989, to determine that the DHS's claim for cleanup costs was discharged in the Jensen's individual bankruptcy.

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