case analysis of Signature
Combs INC v. US (WD Tenn. 2003)
Facts:
MDL claims Plaintiffs’ claims were discharged in their Chapter 11
bankruptcy reorg. Court denies MDL’s motion for judgment on the
pleadings. Comprehensive Environmental Response, Compensation, and
Liability ACT (CERCLA), plaintiffs want to recover response costs
incurred at a superfund site charged by the EPA and Arkansas.
(contribution).
Issue:
Are the claims by plaintiff barred by MDL’s chapter 11 petition and
discharge?
Holding:
Court adopts the fair contemplation standard. Does not violate 5th
amendment and Bankruptcy notice requirements.
MDL failed to show that the claims of the EPA were discharged!
Right
to Payment Approach:
1. D falls w/in one of the 4 categories of responsible parties. 2.
Hazardous substances are disposed at a facility. 3. There is a relase
or threatened release of hazardous substances from the facility into
the environment, and 4. The release causes the incurrence of response
costs including removal activities and enforcement activities related
thereto. Debtor’s CERCLA liability will be discharged only if all 4
exist prior to bankruptcy.
Underlying
Act Approach:
Pre bankruptcy claim subject to the code’s discharge provisions
exist so long as the underlying polluting act occurred prior to the
debtor’s bankruptcy. Evades those who don’t know yet about the
behavior.
Debtor-Creditor
Relationship Approach:
Any CERCLA liability is discharged if the creditor and debtor began a
relationship before the debtor filed for bankruptcy, so long as the
underlying act occurred before the bankruptcy petition was filed.
EPA ought to know, so they have a relationship.
Fair
Contemplation Approach:
A contingent CERCLA claim arises pre-petition only if it is “based
upon pre-petition conduct that can fairly be contemplated by the
parties at the time of the debtors’ bankruptcy.” Reasonable
diligence that it had a claim against the debtor for a hazardous
release. Claim accrues earlier than the right to payment standard
b/c the potential claimant need not incure response costs for a
contingent claim to arise under this standard.
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