Bankruptcy Estimation of CERCLA Claims: The Process and the Alternatives
By Joel M. Gross and Suzanne Lacampagne
INTRODUCTION
Both the Bankruptcy Code and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) deal with “discharges” and with concepts of adequate protection. One fundamental difference between them, the ability to estimate future claims, has led to much judicial and scholarly debate and some real-life litigation challenges.
Bankruptcy laws rest on the assumption that all of a debtor's liabilities at the time of filing can be liquidated readily so that all creditors can share in the debtor's assets. When necessary to allow a bankruptcy action to move forward with little delay, the Bankruptcy Code encourages the estimation of unliquidated claims. Underlying CERCLA, however, is a competing assumption: Determining the ramifications of the long history of hazardous substance disposal and release—and the associated liabilities of responsible parties—is an evolutionary process. Sites presenting potential risks to the public health and environment must first be identified and preliminarily assessed and then, if necessary, studied in depth.
Appropriate responses must then be evaluated, selected, implemented and in many cases periodically reviewed for effectiveness. Once clean-up decisions have been made, the site's impact on natural resources must also be assessed so that actions for restoration or replacement of damaged resources can proceed. Significantly, CERCLA delays litigation over response activities until those activities have occurred—the effect of the statute's crucial “clean up first, litigate later” philosophy.
The Bankruptcy Code understandably encourages “guesstimates” for unknown costs and activities in order to bring them within the purview of the bankruptcy. CERCLA, on the other hand, encourages and even mandates a careful and methodical decision-making process for determining the extent of cleanup required. This Article will explore that inconsistency. First, it will review response procedures and liabilities under CERCLA and analyze developing case law on the issue of when a CERCLA cost recovery claim arises. Next, it will discuss how those concepts were actually applied in a recent, remarkable estimation hearing during which a bankruptcy court estimated the federal government's claims at three CERCLA sites. Finally, the article will explore alternatives to the CERCLA estimation hearing and discuss how one creative alternative has been implemented in a number of seminal settlements in this area.
Both the Bankruptcy Code and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) deal with “discharges” and with concepts of adequate protection. One fundamental difference between them, the ability to estimate future claims, has led to much judicial and scholarly debate and some real-life litigation challenges.
Bankruptcy laws rest on the assumption that all of a debtor's liabilities at the time of filing can be liquidated readily so that all creditors can share in the debtor's assets. When necessary to allow a bankruptcy action to move forward with little delay, the Bankruptcy Code encourages the estimation of unliquidated claims. Underlying CERCLA, however, is a competing assumption: Determining the ramifications of the long history of hazardous substance disposal and release—and the associated liabilities of responsible parties—is an evolutionary process. Sites presenting potential risks to the public health and environment must first be identified and preliminarily assessed and then, if necessary, studied in depth.
Appropriate responses must then be evaluated, selected, implemented and in many cases periodically reviewed for effectiveness. Once clean-up decisions have been made, the site's impact on natural resources must also be assessed so that actions for restoration or replacement of damaged resources can proceed. Significantly, CERCLA delays litigation over response activities until those activities have occurred—the effect of the statute's crucial “clean up first, litigate later” philosophy.
The Bankruptcy Code understandably encourages “guesstimates” for unknown costs and activities in order to bring them within the purview of the bankruptcy. CERCLA, on the other hand, encourages and even mandates a careful and methodical decision-making process for determining the extent of cleanup required. This Article will explore that inconsistency. First, it will review response procedures and liabilities under CERCLA and analyze developing case law on the issue of when a CERCLA cost recovery claim arises. Next, it will discuss how those concepts were actually applied in a recent, remarkable estimation hearing during which a bankruptcy court estimated the federal government's claims at three CERCLA sites. Finally, the article will explore alternatives to the CERCLA estimation hearing and discuss how one creative alternative has been implemented in a number of seminal settlements in this area.
