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MONTH-IN-BRIEF (Feb 2021)

Bankruptcy and Finance

Discharges Into The Environment May Not Be Discharged In Bankruptcy

By Michael Enright

Some of the most puzzling issues in bankruptcy cases concern when a claim arose, whether before, during or after the bankruptcy case.  The treatment of the claim may differ considerably depending on whether it is a purely prepetition claim, an administrative claim, or one that did not exist until afterwards, and may not be affected by the bankruptcy case at all. Environmental claims are among the trickiest, and have generated diverse and interesting decisions about when the claim arose, the nature of the claimant’s relationship to the debtor, when the claimant realized it had a claim and its notice of the bankruptcy proceedings. A recent opinion related to the Tronox chapter 11 case sorts through these issues in the environmental claim context. In Tronox, Inc. v. Andarko Petroleum, Corp., Case No. 14-CV-5495 (S.D.N.Y. February 19, 2021), the court was called upon to determine the scope of a permanent injunction entered in 2014 in the Tronox chapter 11 case in connection with the $5 billion settlement of environmental liabilities. The settlement and injunction protected Andarko from direct and derivative claims. But in 2020, a property owner 5 miles away from an Andarko site in Louisiana filed a complaint in the Western District of Louisiana alleging environmental harm, including claims against Anadarko related to releases of creosote. Andarko moved in the Tronox bankruptcy case to enforce the injunction against the property owner.  The property owner responded that the contamination was not discovered until 2019, so his claims did not even first arise until long after resolution of the original bankruptcy petition and, as a result, are not derivative claims that “were or could have been asserted” by the plaintiffs in the lawsuits that were the basis for the 2014 settlement. The court reviewed the thicket of precedent regarding when tort claims arise for bankruptcy purposes, with particular attention to environmental claims, but also considering significant product liability rulings, such as the GM ignition switch holdings. Ultimately, the court held that for bankruptcy purposes, a claim arises from a debtor’s pre-petition conduct that causes post-petition injury if such claim (1) “arose before the filing of the petition or resulted from pre-petition conduct fairly giving rise to the claim” and (2) there is “some minimum contact” or “relationship” between debtor and claimant “such that the claimant is identifiable.” (citing In re Motors Liquidation, f/k/a GM).  Applying this test, the court noted that Anadarko and the property owner had no prepetition contact or relationship in which the parties knew liability could arise. “A Super Fund designation and a single-line listing in voluminous bankruptcy documents of a site over five miles from the [owner’s] property is insufficient to establish such a relationship.” The court went on to note that if some prior relationship was uncovered during further proceedings, this conclusion could be revisited, but denied the injunction.  The decision merits attention for anyone interested in when a claim arises in the tort context and how that determination may affect the treatment of the claim and its characterization for purposes of the impact of settlement injunctions and discharge in a bankruptcy case.

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