Juniper Development v. Kahn
Case Date: 05/04/1993
Docket No: 92-1040
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May 4, 1993 ____________________ No. 92-1040 IN RE HEMINGWAY TRANSPORT, INC., ET AL., Debtors, ______ JUNIPER DEVELOPMENT GROUP, ETC., ET AL., Appellants, v. HERBERT C. KAHN, ETC., Appellee. _____________________ No. 92-1095 IN RE HEMINGWAY TRANSPORT, INC., ET AL., Debtors, ______ JUNIPER DEVELOPMENT GROUP, ETC., ET AL., v. HERBERT C. KAHN, ETC., Appellant. _____________________ No. 92-1289 IN RE HEMINGWAY TRANSPORT, INC., ET AL. Debtors, ______ JUNIPER DEVELOPMENT GROUP, ETC., ET AL., Appellants, v. HERBERT C. KAHN, ETC., Appellee. _____________________ No. 92-1290 IN RE HEMINGWAY TRANSPORT, INC., ET AL., Debtors, ______ JUNIPER DEVELOPMENT GROUP, ETC., ET AL., Appellees, v. HERBERT C. KAHN, ETC., Appellant. _____________________ APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Rya W. Zobel, U.S. District Judge] ___________________ ____________________ Before Torruella, Cyr and Boudin, Circuit Judges. ______________ ____________________ Roy P. Giarrusso with whom Louis N. Massery and Cooley, Manion, ________________ ________________ _______________ Moore & Jones, P.C. were on brief for appellants. ___________________ William F. Macauley with whom Martin P. Desmery and Craig and ___________________ _________________ __________ Macauley were on brief for appellee. ________ Martin P. Desmery for trustee appellee in cross-appeal. _________________ ____________________ ____________________ CYR, Circuit Judge. The bankruptcy court disallowed CYR, Circuit Judge. ______________ the contingent claim Juniper Development Group ("Juniper") filed against the consolidated chapter 7 estate of Hemingway Transport, Inc. ("Hemingway") and Bristol Terminals, Inc. ("Bristol") for anticipated response costs for the removal and remediation of hazardous substances discovered on property previously purchased by Juniper from the Hemingway-Bristol chapter 11 estate. Jun- iper's companion claim for cleanup-related attorney fees was disallowed as well. The district court affirmed and Juniper appeals. The chapter 7 trustee ("trustee") cross-appeals the allowance of Juniper's priority claim for past cleanup costs as an administrative expense. I I BACKGROUND BACKGROUND __________ Between 1963 and 1982, Hemingway and Bristol continu- ously owned or operated a trucking business conducted from a twenty-acre parcel of land located in Woburn, Massachusetts ("facility").1 In May 1980, the Massachusetts Department of Environmental Quality Engineering (DEQE) discovered seventeen corroded drums leaching a semi-solid, tar-like substance onto a 13.8 acre "wetlands" area at the facility. DEQE informed Heming- way that the substance contained petroleum constituents. DEQE ____________________ 1Hemingway began business operations at the facility shortly after acquiring it in 1963. In 1974, Hemingway sold the facility to Woburn Associates, but continued to occupy it under a lease- back arrangement with Woburn. In 1980, Bristol, a wholly owned Hemingway subsidiary, acquired the facility from Woburn. 4 received assurances from Hemingway that the drums would be removed. The drums were still at the facility when DEQE conduct- ed its last site inspection, in August 1982. In July 1982, Hemingway and Bristol filed chapter 11 petitions. With the approval of the bankruptcy court, appellant Juniper, a local land developer, purchased the facility from debtor-in-possession Bristol for $1.6 million on April 29, 1983. Prior to the purchase, Juniper's representatives conducted an on- site inspection but did not walk the wetlands area where DEQE had discovered the drums; Juniper contends that the area was sub- merged at the time. Seven months after the sale, the Hemingway- Bristol chapter 11 reorganization proceeding was converted to a chapter 7 liquidation proceeding, and a chapter 7 trustee was appointed. In April 1985, drums containing various solvents and pesticides classified as "hazardous substances" under the Compre- hensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. 9601-9657, 9601(14) (1981), were dis- covered at the facility, in the same wetlands area, by the United ____ ________ ____ States Environmental Protection Agency ("EPA"). The following December, Juniper, then the "owner" of the facility, received notice that the EPA considered Juniper a "potentially responsible party" ("PRP") under CERCLA, see id. 9607(a). Shortly thereaf- ___ ___ ter the EPA issued an administrative order requiring Juniper to remove the hazardous substances from the facility at its own 5 expense. See id. 9606. Juniper claims $92,088 in response ___ ___ costs incurred pursuant to the EPA administrative order.2 Juniper initiated an adversary proceeding against the Hemingway-Bristol estate for CERCLA response costs already incurred under the EPA administrative order and for future response costs required to complete the anticipated cleanup and remediation. Initially, the bankruptcy court denied the trust- ee's motion for summary judgment on Juniper's CERCLA claim. The court determined that Juniper's CERCLA claim, if ultimately allowed, would be entitled to priority payment from the chapter 7 estate as an administrative expense of the chapter 11 estate, since Juniper's exposure to CERCLA liability had arisen from its postpetition agreement to purchase the facility from the chapter 11 estate. In re Hemingway Transp., Inc., 73 B.R. 494, 505 _______________________________ (Bankr. D. Mass. 1987) (citing Reading Co. v. Brown, 391 U.S. 471 ___________ _____ (1968)).3 ____________________ 2Juniper alleges that an engineering firm was paid $30,208 to remove the drums; an environmental consulting firm was paid $7,880 to monitor the removal action; and a law firm was paid $54,000 to ensure adequate compliance with the EPA order. In April 1988, EPA demanded $2.1 million in CERCLA contribu- tion from Juniper for costs incurred by EPA in assessing and evaluating the site. The PRP notice advised that Juniper would be notified of future "cleanup response costs" as well. In February 1989, EPA sent PRP notices to Hemingway and Bristol, as former owner-operators of the facility. See infra note 9. ___ _____ 3Although count I of the original Juniper complaint did not assert a right to CERCLA contribution, when the trustee's motion for summary judgment on count I was denied the bankruptcy court allowed Juniper to amend count I to assert a claim for contribu- tion under 42 U.S.C. 9607(a). In re Hemingway Transp., 73 B.R. _______________________ at 507-08. See also infra note 20. The court entered summary ___ ____ _____ judgment for the trustee on count II, which alleged a breach of warranty by Bristol, and on Count III, which sought rescission of 6 The trustee renewed the motion for summary judgment on Juniper's claim for future response costs, and moved for recon- ______ sideration of the "administrative expense priority" ruling pre- viously entered by the bankruptcy court. The bankruptcy court then disallowed Juniper's claim for future response costs, ______ pursuant to Bankruptcy Code 502(e)(1)(B), 11 U.S.C. 502(e)- (1)(B), on the ground that Juniper was the holder of a contingent CERCLA contribution claim based on a debt owed EPA for which Juniper, Hemingway, and Bristol were jointly and severally liable, in connection with which Juniper had yet to incur any liability by the time of the allowance of its claim. In re _____ Hemingway Transp., Inc., 105 B.R. 171, 176-78 (Bankr. D. Mass. ________________________ 1989). The bankruptcy court reaffirmed its earlier ruling entitling Juniper to administrative expense priority on its claim for past response costs. ____ Following trial on Juniper's $92,088 claim for CERCLA response costs previously incurred, the bankruptcy court ruled that Hemingway and Bristol were responsible parties "liable" to the EPA, as they either owned or operated the facility at the ____________________ the land-sale agreement on the ground of fraudulent misrepresen- tation. As to count II, the bankruptcy court held that Juniper had forfeited any right to recover for breach of warranty by representing in the contract that it had "made all such inspec- tions of the premises as [it] wishe[d] to make." Id. at 506. As ___ to count III, the bankruptcy court held that Juniper failed to allege fraud with the requisite particularity. Id. (holding that ___ Massachusetts law requires more than proof of the seller's nondisclosure of a known defect; it requires proof that the seller deliberately concealed, or prevented the buyer from discovering, known defects). Juniper does not challenge this bankruptcy court ruling. 7 time a passive "disposal" of hazardous substances occurred at the facility. In re Hemingway Transp., Inc., 108 B.R. 378, 380 _______________________________ (Bankr. D. Mass. 1989) (holding that CERCLA liability arising from "disposal" need not result from affirmative acts, but encompasses "leaking" of previously deposited waste during PRP's ownership) (citing United States v. Waste Indus., Inc., 734 F.2d _____________ __________________ 159, 164 (4th Cir. 1984)). Significantly, however, the bankrupt- cy court noted no evidence that Hemingway or Bristol, notwith- standing their continuous ownership or possession of the facility for a period of twenty years, either generated or deposited hazardous wastes at the facility. Id. at 380. ___ The bankruptcy court allowed Juniper's claim for past response costs in the amount of $38,763 as an administrative expense entitled to priority payment, id. at 382, but disallowed ___ the $54,000 claim on the ground that attorney fees are not recoverable in a private action under 42 U.S.C. 9607(a)(4)(B). Id. at 383. Juniper appealed the rulings disallowing its claim ___ for future response costs and for attorney fees. The trustee cross-appealed the order allowing Juniper's $38,763 priority claim for administrative expense. The district court affirmed. In re Hemingway Transp., Inc., 126 B.R. 656 (D. Mass 1991). _____________________________ II II DISCUSSION DISCUSSION __________ A. Juniper's Appeal: Disallowance of Future A. Juniper's Appeal: Disallowance of Future Response Costs (11 U.S.C. 502(e)(1)(B). Response Costs (11 U.S.C. 502(e)(1)(B). _______________________________________ 1. The Intersection of CERCLA and the Bankruptcy Code. 1. The Intersection of CERCLA and the Bankruptcy Code. __________________________________________________ 8 Juniper finds itself stranded at the increasingly crowded "intersection" between the discordant legislative ap- proaches embodied in CERCLA and the Bankruptcy Code. See In re ___ _____ Chateaugay Corp., 944 F.2d 997, 1002 (2d Cir. 1991). CERCLA's _________________ settled policy objectives, reemphasized in the Superfund Amend- ments and Reauthorization Act of 1986 ("SARA"), prominently include the expeditious cleanup of sites contaminated or threat- ened by hazardous substance releases which jeopardize public health and safety, and the equitable allocation of cleanup costs among all potentially responsible persons ("PRPs"). See United ___ ______ States v. Cannons Eng'g Corp., 899 F.2d 79, 90-91 (1st Cir. ______ ____________________ 1990); see also B.F. Goodrich Co. v. Murtha, 958 F.2d 1192, 1198 ___ ____ _________________ ______ (2d Cir. 1992). The PRP class broadly encompasses, inter alia, _____ ____ past and current owners or operators of a contaminated facility. See 42 U.S.C. 9607(a). To foster CERCLA's primary objective ___ promotion of spontaneous private cleanup initiatives all PRPs are deemed strictly liable for the total response costs required to remediate the contaminated facility. See United States v. ___ ______________ Kayser-Roth Corp., 910 F.2d 24, 26 n.3 (1st Cir. 1990), cert. _________________ ____ denied, 111 S. Ct. 957 (1991). Strict liability is normally both ______ joint and several. See O'Neil v. Picilli, 883 F.2d 176, 178 (1st ___ ______ _______ Cir. 1989), cert. denied, 493 U.S. 1071 (1990); see also New York ____ ______ ___ ____ ________ v. Shore Realty Corp., 759 F.2d 1032, 1042 (2d Cir. 1985).4 And __________________ ____________________ 4The defendant in an EPA enforcement action would have an especially heavy burden to establish that the shared responsibil- ity of the PRPs is divisible, so as to elude imposition of joint and several liability. Cf. O'Neil, 883 F.2d at 178-79 ("[R]e- ___ ______ 9 the EPA is invested with broad administrative discretion to compel PRPs to undertake immediate cleanup measures, a preroga- tive largely insulated from judicial review at the pre-enforce- ment stage. See 42 U.S.C. 9606; see also 42 U.S.C. 9613(f) ___ ___ ____ (PRPs who settle with EPA are immune from subsequent contribution ____________________ sponsible parties rarely escape joint and several liability [because] it is [often] impossible to determine the amount of environmental harm caused by each party."); see also United ___ ____ ______ States v. Chem-Dyne Corp., 572 F. Supp. 802, 808-10 (S.D. Ohio ______ _______________ 1983). However, in a CERCLA contribution action among responsi- _____ ble parties who are jointly and severally liable, the burden of proof is less demanding, though the court nevertheless may undertake a comparable allocation of the relative responsibili- ties of the joint obligors. See 42 U.S.C. 9613(f)(1) ("[T]he ___ court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate."); see ___ also Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d ____ _______________________________ ______________ 86, 90 (3d Cir. 1988), cert. denied, 488 U.S. 1029 (1989). In ____ ______ approaching these divisibility and apportionment determinations, the courts have relied on various guideposts, including the legislative history in general, and the so-called "Gore Factors" in particular: (i) the ability of the parties to demonstrate that their contribution to a discharge, release or disposal of a hazardous waste can be distinguished; (ii) the amount of the hazardous waste involved; (iii) the degree of toxicity of the hazardous waste involved; (iv) the degree of involvement by the parties in the generation, transportation, treatment, storage, or disposal of the hazardous waste; (v) the degree of care exercised by the parties with respect to the hazardous waste concerned, taking into account the characteristics of such hazardous waste; and (vi) the degree of cooperation by the parties with Federal, State or local officials to prevent any harm to the public health or the environment. Environmental Transp. Sys., Inc. v. Ensco, Inc., 969 F.2d 503, _________________________________ ___________ 508-09 (7th Cir. 1992) ("Gore factors" provide a nonexhaustive but valuable roster of equitable apportionment considerations) (quoting United States v. A & F Materials Co., Inc., 578 F. Supp. _____________ _________________________ 1249, 1256 (S.D. Ill. 1984)). 10 claims); In re CMC Heartland Partners, 966 F.2d 1143, 1148 (7th _____________________________ Cir. 1992). At the same time, however, CERCLA section 9613(f) is aimed at promoting equitable allocations of financial responsi- bility by authorizing PRPs subjected to pending or completed EPA enforcement actions under 42 U.S.C. 9606 and 9607(a)(4)(A) to initiate private actions for full or partial contribution from ____________ nonsettling PRPs by way of impleader or an independent action. See 42 U.S.C. 9613(f).5 Thus, targeted PRPs, relying on the ___ ultimate financial accountability of more "culpable" PRPs, are encouraged to initiate prompt response efforts, at their own expense, in cooperation with the EPA. See H.R. Rep. No. 253, ___ 99th Cong., 1st Sess. 80, reprinted in 1986 U.S.C.C.A.N. 2835 _____________ ("Private parties may be more willing to assume the financial responsibility for some or all of the cleanup if they are assured that they can seek contribution from others."); In re Dant & _____________ Russell, Inc., 951 F.2d 246, 248 (9th Cir. 1991). _____________ ____________________ 5Section 9613(f)(1) provides: Any person may seek contribution from any other person who is liable or potentially liable under section [9607(a)], during or following any civil action under section [9606] or under section [9607(a)]. Such claims shall be brought in accordance with this section and the Federal Rules of Civil Procedure, and shall be governed by Federal law. In resolving contribution claims, the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate. Nothing in this subsection shall diminish the right of any person to bring an action for contribution in the absence of a civil action under section [9606] or section [9607]. 42 U.S.C. 9613(f). 11 On the other hand, Bankruptcy Code 502(e)(1)(B) often serves to forestall CERCLA's intended equitable allocation of responsibility, as occurred in this case when the bankruptcy court disallowed Juniper's estimated claim for $6.2 million in anticipated future CERCLA response costs. Section 502(e)(1)(B) provides, in pertinent part: [T]he court shall disallow any claim for reimbursement or contribution of an entity [viz., Juniper] that is liable with the debt- ____ or [Hemingway-Bristol] on or has secured, the claim of a creditor [EPA], to the extent that . . . . (B) such claim for reimbursement or con- tribution is contingent as of the time of allowance or disallowance of such claim for reimbursement or contribution . . . . 11 U.S.C. 502(e)(1)(B). There can be little doubt that, but for section 502(e)(1)(B), the Hemingway-Bristol estate would share some measure of financial responsibility for the anticipat- ed $6.2 million in future response costs on which the Juniper claim is based. Nevertheless, section 502(e)(1)(B) would mandate disal- lowance of the Juniper claim against the Hemingway-Bristol chapter 7 estate if Juniper is jointly liable with the Hemingway- Bristol estate on the same "debt" for estimated future CERCLA ____ response costs to EPA, and Juniper's right to payment on its claim denominated a claim for reimbursement or contribution remained "contingent" at the time of its disallowance. See In re ___ _____ 12 Provincetown-Boston Airlines, 72 B.R. 307, 309 (Bankr. M.D. Fla. ____________________________ 1987). The bankruptcy court, citing In re Charter Co., 862 F.2d _________________ 1500 (11th Cir. 1989), held that the Juniper claim met all three criteria for disallowance under section 502(e)(1)(B). First, Juniper denominated its claim as one for "indemnification" or "contribution." But see infra note 22. Second, Juniper and ___ ___ _____ Hemingway-Bristol are "liable" to the EPA for future CERCLA response costs (hereinafter: the "EPA debt") because all three entities were designated PRPs by the EPA. Third, the Juniper claim is "contingent" because the EPA has issued no further cleanup orders against Juniper; hence, additional cleanup of the facility may not be required. In re Hemingway Transp., 105 B.R. ___ _______________________ at 177-78. 2. Applicability of Section 502(e)(1)(B) to CERCLA Claims. 2. Applicability of Section 502(e)(1)(B) to CERCLA Claims. ______________________________________________________ Section 502(e)(1)(B) was enacted for one purpose "to prevent[] competition between a creditor and his guarantor for ___________ _______ _ ________ ___ ___ _________ the limited proceeds of the estate." H.R. Rep. No. 595, 95th Cong., 1st Sess. 354 (1977); S. Rep. No. 989, 95th Cong., 2d Sess. 65 (1978) (emphasis added). Normally, section 502(e)(1)(B) is invoked against claims based on debts or obligations arising from voluntary contractual relationships. Even in the context of a CERCLA-based, quasi-"tort" obligation, however, the practical need for section 502(e)(1)(B) is evident; that is, but for section 502(e)(1)(B), see infra note 6, an estimation of Juni- ___ _____ per's claim for anticipated response costs, see 11 U.S.C. 502- ___ (c)(1), would entitle Juniper to share in the distribution of the 13 insolvent chapter 7 estate under Bankruptcy Code 726(a), 11 U.S.C. 726(a), see, e.g., In re Butterworth, 50 B.R. 320, 322 ___ ____ _________________ (Bankr. W.D. Mich. 1984), notwithstanding that its claim remained "contingent" until such time (if ever) as EPA were to call upon Juniper to pay any future CERCLA response costs incurred for further cleanup or remediation of the facility. The Code's expansive definition of "claim" permits automatic allowance of most "contingent" claims, see Bankruptcy ___ Code 101(4), 502(a), 11 U.S.C. 101(4), 502(a), against a chapter 7 estate upon timely filing, see id. 501, 726; Fed. R. ___ ___ Bankr. P. 3002(c). The bankruptcy court simply estimates the amount of the claim for purposes of its allowance, see id. ___ ___ 502(c)(1), discounting its value to reflect the uncertainty of the contingency, in order to enable the holder to share in the distribution of the insolvent estate.6 On the other hand, where ____________________ 6Under CERCLA 9607(a)(4)(B), see pp. 32-35 infra, "contri- ___ _____ bution" relief is restricted to damages for past response costs ____ (i.e., costs already "incurred"). On the other hand, section ____ 9613(g)(2) authorizes a declaratory judgment action to determine liability for response costs which "will be binding on any subsequent action or actions to recover further response costs or damages," a form of relief plainly encompassed within Juniper's amended complaint. See In re Chateaugay Corp., 944 F.2d at 1008 ___ ______________________ (noting that, notwithstanding CERCLA's ban on pre-enforcement judicial review, a bankruptcy court may estimate CERCLA claims pursuant to Bankruptcy Code 502(c)(1), "with ultimate liquida- tion of the claims to await the outcome of normal CERCLA enforce- ment proceedings"). A "contingent" claim predicated on an otherwise valid declaratory judgment entered pursuant to sec- tion 9613(g)(2) would be subject to estimation. See Bankruptcy ___ Code 502(c)(1), 11 U.S.C. 502(c)(1) ("There shall be estimat- ed for purposes of allowance under this section . . . any contin- gent or unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the administration of the case. . . ."). 14 the filing of a contingent claim for contribution or reimburse- ment entails risk that the assets of the chapter 7 estate will be exposed to "double-dipping" by holders of the same underlying claim against the estate, section 502(e)(1)(B) mandates disal- lowance of the contingent claim. The sole purpose served by section 502(e)(1)(B) is to preclude redundant recoveries on iden- tical claims against insolvent estates in violation of the fundamental Code policy fostering equitable distribution among all creditors of the same class. The "double-dipping" threat in the present case would result from the allowance and estimation of Juniper's contingent claim, and the allowance of an EPA claim, for the same future CERCLA response costs against the chapter 7 estate. Section 502(e)(1)(B) is a fair and reasonable measure as applied against a contract guarantor or surety. Confronted with the prospect that its contingent claim for reimbursement or contribution against a chapter 7 debtor estate may be subject to disallowance under section 502(e)(1)(B), an entity may elect to cause its contingent contract claim to become "fixed" prior to disallowance, see Bankruptcy Code 502(e)(2), by itself satisfy- ___ ing the debt due the creditor of the debtor estate, leaving the entity as the sole holder of a claim against the estate based on that debt.7 See, e.g., In re Baldwin-United Corp., 55 B.R. 885, ___ ____ __________________________ ____________________ 7Section 502(e)(2) provides: A claim for reimbursement or contribution of such an entity that becomes fixed after the commencement of the case shall be determined, and shall be allowed under 15 895 (Bankr. S.D. Ohio 1985). On the other hand, the section 502(e)(2) "fixing" option presents an especially difficult dilemma for an owner or operator of a targeted facility, such as Juniper, involved in a Superfund contribution action. The onerous CERCLA remediation process may take years to complete, leaving PRPs holding the bag; that is, holding unallowable ___________ contingent claims for contribution or reimbursement against the chapter 7 estate, claims typically totaling millions of dollars. In such circumstances, section 502(e)(1)(B) may operate to pre- clude innocent PRPs from recovering CERCLA response costs from a chapter 7 estate even though the estate clearly is responsible for all or part of the environmental contamination. If the EPA opts to refrain from participating in any distribution from the chapter 7 estate, as it may do simply by not filing a proof of claim, Juniper may end up as the only potential EPA enforcement- action target still left standing and solvent.8 Thus, sometimes ____________________ subsection (a), (b), or (c) of this section, or disal- lowed under subsection (d) of this section, the same as if such claim had become fixed before the date of the filing of the petition. 11 U.S.C. 502(e)(2). 8EPA enforcement actions generally are excepted from the automatic stay provisions. See Bankruptcy Code 362(b)(4), 11 ___ U.S.C. 362(b)(4); New York v. Exxon Corp., 932 F.2d 1020, 1024- ________ ___________ 25 (2d Cir. 1991). Even were the EPA to reduce to judgment its claim for prepetition damages against the chapter 7 debtors, however, the judgment would not be enforceable against the debtors' estate except through the normal claim allowance pro- cess. See Bankruptcy Code 362(b)(5), 11 U.S.C. 362(b)(5). ___ Moreover, corporate debtors cannot receive a discharge, see id. ___ ___ 727(a)(1), 11 U.S.C. 727(a)(1) ("The court shall grant the debtor a discharge, unless . . . the debtor is not an individual . . . ."). Consequently, virtually all such chapter 7 proceed- 16 the fundamental policy embodied in Bankruptcy Code 502(e)(1)(B) may promote an expeditious administration of the chapter 7 estate, see In re American Continental Corp., 119 B.R. 216, 217 ___ _________________________________ (Bankr. D. Ariz. 1990), at the expense of a fundamental CERCLA policy: the equitable allocation of environmental cleanup costs among all responsible parties. Although section 502(e)(1)(B) may have been devised primarily with contract-based codebtor relationships in mind _________ (e.g., guaranties, suretyships), however, its language ("liable ____ with") has been found too plain and inclusive to exempt "joint and several" tort-based obligations from disallowance, see, e.g., ___ ____ In re American Continental, 119 B.R. at 217; In re Pacor, Inc., ___________________________ _________________ 110 B.R. 686, 688 (E.D. Pa. 1990); In re Wedtech Corp., 87 B.R. ___________________ 279, 284 (Bankr. S.D.N.Y. 1988), and the Bankruptcy Code else- where carves out no exception for this variety of co-obligation. Moreover, even though CERCLA and SARA postdate the enactment of Bankruptcy Code 502(e), and plainly envision private rights of action for CERCLA contribution as inducements to spontaneous private cleanup efforts by PRPs, neither environmental statute alludes to the Bankruptcy Code, let alone exempts CERCLA contri- bution claims from the Code's normal claim procedures. Thus, notwithstanding the purposive liberality with which courts are to construe CERCLA's remedial provisions, see Kayser-Roth, 910 F.2d ___ ___________ at 26 ("'[W]e will not interpret section 9607(a) in any way that ____________________ ings end with the debtor in dissolution and its corporate cup- board bare. 17 apparently frustrates the statute's goals.'") (citation omitted), Bankruptcy Code 502(e)(1)(B) obliges a construction consistent with its plain terms. See Norwest Bank Worthington v. Ahlers, ___ _________________________ ______ 485 U.S. 197, 206 (1988) ("[W]hatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of the Bankruptcy Code."). Finally, we discern no inherent incompatibility between section 502(e)(1)(B) and the congressional policies underlying CERCLA, such as might enable a court reasonably to conclude that Congress implicitly exempted CERCLA co-obligation claims. Although on occasion section 502(e)(1)(B) may impede CERCLA's subsidiary policy of promoting equitable allocations of environ- __________ mental cleanup costs among responsible parties, pre-"fixing" disallowance does not conflict with CERCLA's primary goal _______ encouraging targeted PRPs to initiate cleanup efforts as expedi- tiously as practicable in the expectation that their contingent claims may become "fixed" in time for allowance against the debtor estate. See In re Charter Co., 862 F.2d at 1504 (noting ___ _________________ obvious environmental benefit from efforts to "fix" contingent claims prior to the closing of the bankruptcy case); see also ___ ____ supra note 7. _____ Accordingly, we conclude that Congress did not exempt CERCLA claims from disallowance under section 502(e)(1)(B). 3. Burdens of Proof in Section 502(e)(1)(B) Litigation. 3. Burdens of Proof in Section 502(e)(1)(B) Litigation. ___________________________________________________ In the litigation of a section 502(e)(1)(B) objection 18 to a contingent claim, however, the proper allocation of burdens of proof and production may be decisive. A proof of claim which comports with the requirements of Bankruptcy Rule 3001(f) con- stitutes prima facie evidence of the validity and amount of the _____ _____ claim. See Fed. R. Bankr. P. 3001(f). The interposition of an ___ objection does not deprive the proof of claim of presumptive validity unless the objection is supported by substantial evi- ___________ ____ dence. Norton Bankruptcy Law & Practice, Bankruptcy Rules at 191 _____ ________________________________ ________________ (1992); see also In re Beverages Int'l, Ltd., 50 B.R. 273, 276 ___ ____ ____________________________ (D. Mass. 1985). Once the trustee manages the initial burden of producing substantial evidence, however, the ultimate risk of nonpersuasion as to the allowability of the claim resides with the party asserting the claim. See Bankruptcy Rules, at 191-92; ___ ________________ see also In re VTN, Inc., 69 B.R. 1005, 1006 (Bankr. S.D. Fla. ___ ____ _______________ 1987). In the present case, therefore, the chapter 7 trustee was required to come forward with substantial evidence that Juniper's claim is one for CERCLA "contribution," which would implicate two related questions: (1) whether Hemingway-Bristol is contingently "liable" to the EPA for future response costs, and (2) whether Juniper is "liable" to the EPA on the same "debt." 4. Hemingway-Bristol "Liability" on Joint Obligation. 4. Hemingway-Bristol "Liability" on Joint Obligation. _________________________________________________ At the time it allowed Juniper's claim for past res- ____ ponse costs, the bankruptcy court determined that Hemingway- Bristol had owned or operated the facility when the passive "disposal" of hazardous substances occurred and that Hemingway- 19 Bristol had actual knowledge of the presence of the leaking barrels. Hence, Hemingway-Bristol is a "covered person," strict- ly liable to the EPA for future response costs pursuant to 42 U.S.C. 9607(a)(4)(A). Juniper nonetheless suggests that the term "liable with" should be interpreted in light of the singular legislative purpose underlying the section 502(e)(1)(B) contingent claim disallowance provision. Like any other claim for contribution, says Juniper, its claim for future CERCLA response costs could pose no "double-dipping" threat were the EPA, for whatever reason, not to participate in any distribution from the chapter 7 estate. Moreover, the EPA has elected not to assert a claim against the estate, despite considerable prodding by Juniper. Rather, the EPA repeatedly has manifested its intention to forego any immediate claim against the chapter 7 estate in favor of administrative enforcement actions against other PRPs, such as Juniper.9 The trustee responds that the literal language of section 502(e)(1)(B) directs disallowance of the codebtor's [Juniper's] contingent claim even though the creditor [EPA] has not filed a proof of claim by the time the codebtor's claim is considered for allowance. Section 502(e)(1) directs disallowance of the claim of a codebtor who is liable with the debtor on the "claim of a ______ ____ ___ ______ ____________________ 9In a May 1987 letter to Juniper, the EPA suggested that it had already exercised its discretion to refrain from asserting an enforcement action against the chapter 7 estate, at least as of that time. Two years later, however, the EPA sent PRP notices to Hemingway and Bristol. 20 creditor." The pivotal terms "claim" and "creditor" are defined. A "claim" is 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." Bankruptcy Code 101(4), 11 U.S.C. 101(4) (emphasis added). A "creditor" is an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor." Id. 101- ___ (9), 301 ("The commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter."). The EPA presumably holds a prepetition claim against the chapter 7 estate, since its contingent "right to payment" accrued while Bristol and Hemingway owned or operated the facili- ty at which the hazardous waste "disposal" occurred. Cf. In re ___ _____ Chateaugay, 944 F.2d at 1002-06 (EPA claim for CERCLA response __________ costs is a prepetition claim if the contamination occurred prior to the petition, without regard to when EPA discovered contamina- tion, or incurred response costs). Although section 502(e)(1)(B) plainly does not require that a creditor's right to payment be evidenced by a timely proof of claim, or a previously allowed claim, see In re Wedtech Corp., 85 B.R. 285, 289 (Bankr. S.D.N.Y. ___ ___________________ 1988), it is nonetheless incumbent on the trustee to produce sub- stantial evidence of the existence of a right to payment on the part of the creditor. The co-liability clause in section 502(e)(1), viz., ___ 21 "liable with the debtor," interpreted in light of its singular purpose, might permit allowance of a non-fixed codebtor claim for CERCLA contribution if the creditor were foreclosed from partici- __________ pating in any distribution from the estate under Bankruptcy Code 726(a). Nevertheless, though we reject the trustee's conten- tion that the EPA might yet demonstrate "excusable neglect" war- ranting an extension of time to file a proof of claim,10 we must examine other means which may remain open to EPA's parti- cipation in any chapter 7 distribution. The EPA may participate in a distribution to unsecured creditors under section 726(a)(2)(C) if it was never scheduled as a "creditor" of the estate, and had no actual knowledge of the proceedings in time to file a proof of claim. See In re Global ___ ____________ Precious Metals, Inc., 143 B.R. 204, 205-06 (Bankr. N.D. Ill. ______________________ 1992) (chapter 7).11 Thus, a remote "double-dipping" prospect ____________________ 10In a chapter 7 case, proofs of claim must be filed within ninety days after the first date set for the first meeting of creditors. Fed. R. Bankr. P. 3002(c). See In re Chirillo, 84 ___ _______________ B.R. 120, 122 (Bankr. N.D. Ill. 1988). Since the EPA could no longer satisfy any of the six conditions for extension of the ninety-day bar date set forth in Bankruptcy Rule 3002(c), it is precluded from asserting a timely proof of claim against the chapter 7 estate. See Fed. R. Bankr. P. 9006(b)(1). Rule ___ 9006(b) plainly precludes resort to Rule 9006(b)(1) to extend a time period prescribed in Rule 3002(c), except "to the extent and under the conditions stated in [Rule 3002(c)]." Id. at 9006(b)- ___ (3). 11Bankruptcy Code 726(a)(2)(C) provides for "payment of any allowed unsecured claim, other than a claim of a kind speci- fied in paragraph (1), (3), or (4) of this subsection, proof of which is . . . tardily filed under section 501(a) of this title, if (i) the creditor that holds such claim did not have notice or actual knowledge of the case in time for timely filing of a proof of such claim under section 501(a) of this title; and (ii) proof of such claim is filed in time to permit payment of such claim." 22 would remain if Juniper's claim were to be allowed, as it is conceivable that EPA might yet file an allowable claim.12 In this case, however, the harsh results occasioned by Bankruptcy Code 502(e)(1)(B) are mitigable through recourse to Bankruptcy Code 501(c), which provides that, "[i]f a creditor does not timely file a proof of such creditor's claim, the debtor or the trustee may file a proof of such claim." See also Fed. R. ___ ____ Bankr. P. 3004. Although section 501(c) is permissive ("may file"), rather than mandatory, and is designed principally to prevent creditors from depriving debtors of the benefit of a discharge under Bankruptcy Code 727, 11 U.S.C. 727, cf. supra ___ _____ note 8, in these circumstances there are sound reasons to require the chapter 7 trustee to shoulder the initial burden of filing a surrogate claim in behalf of the EPA as a precondition to obtain- ____________________ 11 U.S.C. 726(a)(2)(C). The appellate record does not disclose whether EPA was listed as a creditor. In addition, it is con- ceivable, though unlikely, that EPA's CERCLA claim might be entitled to share in any subordinate distribution under section 726(a)(3), as an "allowed unsecured claim proof of which is tardily filed," even if EPA was scheduled, or had actual notice of the case prior to the bar date. See In re Melenyzer, 140 B.R. ___ _______________ 143, 156 n.42 (Bankr. W.D. Tex. 1992) (chapter 7). 12Of course, the bankruptcy court might condition its allowance of a codebtor's claim on the ultimate failure of the creditor to file a proof of claim. See Bankruptcy Code 502(j), ___ 11 U.S.C. 502(j) ("A claim that has been allowed or disallowed may be reconsidered for cause."). Instead of automatic disal- lowance, some courts have suggested that the bankruptcy court sharply discount the codebtor's claim to offset this all-or- nothing contingency, or direct that any distribution to the codebtor be placed in trust, to be expended only to reduce the common debt. See In re Allegheny Int'l., Inc., 126 B.R. 919, 924 ___ ____________________________ (W.D. Pa. 1991), aff'd, 950 F.2d 721 (3d Cir. 1991). However, _____ these options find little support in the categorical language of section 502(e)(1)(B). 23 ing simultaneous disallowance of Juniper's contingent claim under section 501(e)(1)(B). First, even if the chapter 7 trustee were to decline to act as an EPA surrogate, Juniper could force the trustee's hand. Under a parallel Code provision, Juniper itself would be permit- ted to file a surrogate claim for the EPA. See Bankruptcy Code ___ 501(b), 11 U.S.C. 501(b) ("If a creditor [EPA] does not timely file a proof of such creditor's claim, an entity [Juniper] that is liable to such creditor with the debtor . . . may file a proof of such claim.").13 Were it to resort to the surrogate- claim procedure, Juniper would be required to show simply that ____________________ 13The equitable considerations underlying the section 501(b) surrogate-claim procedure have been described as follows: Section 501(b) and Rule 3005 protect the codebtor against the danger that the creditor, faced with the bankruptcy of the prime debtor, might decide to rely on the solvency of the codebtor and therefore, to abstain from filing a proof of claim. In such a case, while there might be a prospect of securing at least partial satisfaction from the assets of the debtor, the credi- tor would forego this possibility and merely proceed with his claim against the codebtor. By the time the creditor decided to take such action, any period fixed for the filing of claims might have elapsed. Indeed, the debtor's estate might have been fully administered by the trustee so that the codebtor would be left without the possibility of even partial reimbursement to the extent he has satisfied the claim of the debt- or's creditor. The debtor's discharge would remove the possibility that his codebtor could secure indemni- fication from him at some future time. . . . [T]he unwillingness of th[e] creditor to take the necessary steps in the administration of bankruptcy to insure . . . participation [in distribution of the debtor's assets] would not deny the ability of the codebtor to do so. See Lawrence D. King, Collier on Bankruptcy 509.02, at 509-6 ___ ______________________ (15th ed. 1991) [hereinafter Collier on Bankruptcy]. _____________________ 24 "the original debt [due EPA by Hemingway-Bristol would] be diminished by the amount of the distribution [to the EPA on the surrogate claim]." Fed. R. Bankr. P. 3005(a). Of course, even this modest burden would be obviated if the surrogate claim were to be superseded by the EPA's filing of its own proof of claim. See id. 14 ___ ___ More importantly, mandatory resort to the trustee's option to file a surrogate proof of claim under section 501(c) more readily comports with the allocation of the burden of proof under section 502(e)(1)(B), which would require the trustee to come forward with substantial support for the section 502(e)- ___________ (1)(B) objection to Juniper's proof of claim, and hence, substan- tial evidence that Hemingway and Bristol were "liable" to the EPA. See supra Section II.A.3. In addition, the trustee has ___ _____ title and ready access to the debtors' records, see Bankruptcy ___ Code 521(4), 11 U.S.C. 521(4) ("[D]ebtor shall . . . surren- der to trustee all property of the estate, including books, documents, records, and papers . . . ."); In re Bentley, 120 B.R. _____________ ____________________ 14Although the EPA can no longer file a "timely" proof of claim now that the bar date has passed, see supra note 10, its ___ _____ forbearance triggers the trustee's and Juniper's rights to file a proof of claim in EPA's behalf. Under Bankruptcy Rules 3004 and 3005(a), the trustee and Juniper normally would have only thirty days from the bar date |