Midlantic National Bank v. New Jersey Department of Environmental Protection

PETITIONER: Midlantic National Bank
RESPONDENT: New Jersey Department of Environmental Protection
LOCATION: Rhode Island District Court

DOCKET NO.: 84-801
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Third Circuit

CITATION: 474 US 494 (1986)
ARGUED: Oct 16, 1985
DECIDED: Jan 27, 1986

ADVOCATES:
A. Dennis Terrell - on behalf of the petitioner in No. 84-801
Mary Carol Jacobson - on behalf of the respondent in No. 84-801
Robert Hermann - on behalf of the respondents in No. 84-805
William F. Mc Enroe - on behalf of the petitioner in No. 84-805
William F. McEnroe - for petitioner in No. 84-805

Facts of the case

Question

Media for Midlantic National Bank v. New Jersey Department of Environmental Protection

Audio Transcription for Oral Argument - October 16, 1985 in Midlantic National Bank v. New Jersey Department of Environmental Protection

Warren E. Burger:

We will hear arguments first this morning in Midlantic National Bank against New Jersey Department of Environmental Protection.

Mr. McEnroe, you may proceed whenever you are ready.

William F. Mc Enroe:

Mr. Chief Justice, and may it please the Court, this case presents to the Court the question of the scope of the abandoned tower rented to a trustee in bankruptcy under Section 554(a) of the Bankruptcy Code.

That section provides that after notice and a hearing, a trustee may abandon a property of the estate that is burdensome to the estate or of inconsequential value to the estate.

The specific issue here is whether the trustee may abandon property where it is uncontroverted that that property is both burdensome and of inconsequential value, but where abandonment is opposed by governmental agencies on environmental grounds.

The debtor in this case, Quanta Resources Corporation, was engaged in the business of recycling waste oils.

They operated sites in New York and New Jersey.

In 1981, it was determined that there existed on both sites substantial quantities of oil that were contaminated with PCB's.

In July of 1981, Quanta ceased its operations.

At the time it ceased its operations, there were already in effect orders from the states of New York and New Jersey requiring Quanta to clean up the sites and to take other remedial actions.

In October, 1981, Quanta filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code.

Those proceedings were converted to a Chapter 7 liquidation in November, and Thomas J. O'Neill was appointed trustee.

Upon his appointment as trustee, Mr. O'Neill undertook an analysis of the property of the estate similar to the procedure outlined by this Court in its decision in Ohio versus Kovaks.

He obtained appraisals of the property, searches as to judgments and liens, and also estimates of the cleanup costs for the sites.

It was determined that the cleanup costs would far exceed the value of the property that is in question in this case.

It was also determined that because of the liens against the property, even if the property were cleaned up, there would be no value to the estate.

Under those circumstances, the trustee had no alternative.

He was obligated by the duties of a trustee under the Bankruptcy Code to seek authorization to abandon.

The Bankruptcy Court held that he succeeded in establishing the grounds of burdensome and inconsequential value and granted the application to abandon.

The District Court also upheld that decision, holding that the language of Section 554(a) was very clear, and once the trustee had established the standards of burdensome and inconsequential value, the Court could not look to any additional conditions on the trustee's right to abandon.

That decision, however, was reversed by the Third Circuit.

Both the Third Circuit and the respondents in this case contend that the right of abandonment pursuant to Section 554(a) is not unconditional.

They contend that Section 554(a) codified a body of pre-Code law that imposed certain conditions upon the trustee's right of abandonment, and specifically a public safety or public purpose doctrine.

William H. Rehnquist:

Mr. McEnroe, what are the legal consequences of the bankruptcy law of abandonment, insofar as the title to the property goes?

If the bankruptcy judge approves abandonment, does that mean that title... where does title then go?

William F. Mc Enroe:

In this particular case, the property can be abandoned to anyone with a possessory interest.

In this case it would be abandoned back to the debtor, Quanta Resources Corporation, and it would remain in that corporation.

William H. Rehnquist:

Are there liens on the property?

William F. Mc Enroe:

Well, there are two different properties.

In New York there is real property containing the oil.