OHIO v. KOVACS
Legal provision: Bankruptcy Code, Bankruptcy Act or Rules, or Bankruptcy Reform Act of 1978
ORAL ARGUMENT OF E. DENNIS MUCHNICKI, ESQ. ON BEHALF OF THE PETITIONER
Chief Justice Warren E. Burger: We'll hear arguments next in Ohio v. Kovacs.
You may proceed whenever you're ready, counsel.
E. Dennis Muchnicki: Thank you, Mr. Chief Justice, may it please the Court, this matter is before the Court pursuant to a petition filed by the people of the State of Ohio, seeking a writ of certiorari to the United States Court of Appeals for the Sixth Circuit.
The people of Ohio seek reversal of the determination that a bankruptcy court may discharge the duty of a debtor to comply with the state court injunction to abate a public health hazard by cleaning up a hazardous waste... a toxic waste facility.
In this argument, Ohio wishes to make three basic points.
First, as a matter of public policy, the decision below treats the goals of the bankruptcy system as absolute values which transcend virtually every other matter of public policy, including the protection of public health and safety.
Secondly, as to the factual context of this case, Ohio is not before this Court seeking compensation for past harm or expenses, but rather we are attempting to prevent future harm by obtaining compliance with an injunction to abate an ongoing nuisance and health hazard.
Unidentified Justice: It's been abated now, hasn't it?
E. Dennis Muchnicki: No, it has not, Your Honor.
The drums... the drums that were... the materials that were in the drums or that remain in the drums have been removed, but the most serious problem that still exists is the pollution of the ground water which is used by the City of Hamilton for its water supply.
And right now, as a result of the past practices on that site, the soils of the site are so thoroughly saturated with toxic wastes that they are now an ongoing source of pollution, that every day more pollution is leaching into the ground water and you have a continuing violation.
Unidentified Justice: Is the receiver still in possession?
E. Dennis Muchnicki: The receiver is still in possession.
Unidentified Justice: And Kovacs is out of possession.
E. Dennis Muchnicki: The receiver has equitable possession.
Kovacs still has partial title to the... legal title to the site.
Unidentified Justice: But the receiver is in charge of the site, I take it.
E. Dennis Muchnicki: Yes.
Although right now, actually, US FPA is exercising authority jointly with him.
But the receiver, under the state court order, has equitable possession of the site.
Unidentified Justice: But Kovacs couldn't literally carry out the terms of the injunction.
He couldn't enter the premises and take charge of it and carry out acts that he thought were justified.
E. Dennis Muchnicki: You mean now?
Unidentified Justice: Yes.
E. Dennis Muchnicki: No, he could not.
Unidentified Justice: Because the State dispossessed him of the property by putting a receiver in charge.
E. Dennis Muchnicki: --They created... they put the receiver in equitable possession of the property.
Unidentified Justice: Well, I know, but he's the one that sooner or later took some steps, but then the United States took some steps and removed the toxic wastes from the surface.
Is that right?
E. Dennis Muchnicki: The waste that remained--
Unidentified Justice: Well, what did the receiver want from Kovacs but money?
E. Dennis Muchnicki: --What the receiver wants and what the people of the State of Ohio want is completion of that cleanup.
Unidentified Justice: I know, but is the receiver... the receiver is in charge of it.
What does he want from Kovacs?
He doesn't want any physical help from him or any advice.
They want money.
E. Dennis Muchnicki: They may--
Unidentified Justice: Maybe they should get it for that, but isn't that what they want from him?
E. Dennis Muchnicki: --What he wants is the performance of certain acts which probably wouldn't require the expenditure of money.
Unidentified Justice: Well, what acts do they want him to do?
They don't want him to do anything.
They just want money.
E. Dennis Muchnicki: Well, they want the acts of removal of the soils and--
Unidentified Justice: Yes, but he can't perform those acts because the receiver is in charge.
E. Dennis Muchnicki: --That's true; he cannot.
Unidentified Justice: Well, then what do you want out of him?
E. Dennis Muchnicki: --He may be able, with the receiver's agreement... and the receiver would be happy to have him come in and do those things... it's not where the receivers will not let him on the site.
The receiver would be more than happy to have him come back.
In fact, that's what we're trying to obtain.
Unidentified Justice: But the receiver would be as happy as he could be if he just paid over the money.
E. Dennis Muchnicki: The receiver... he would not be paying money to the receiver.
I think he would probably be paying the money to a contractor to do the work.
Unidentified Justice: Nevertheless--
E. Dennis Muchnicki: And that, in and of itself... that is the situation.
But that is not a factor which is dispositive of the issue, because as to the third point which we wish to make in this case... as to the interpretation of the word "claim", Ohio's position is based on both the language of the code and the legislative history, whereas the decision below finds support neither in the code language nor in the legislative history.
Unidentified Justice: --You stated that the receiver would be very happy to help him do all these things.
Where do we find that out?
Does the record show willingness to cooperate?
E. Dennis Muchnicki: Yes.
Well, the receiver joined in the original motion to have the state court hold a hearing to determine the extent of Mr. Kovacs's further obligations.
That was the hearing which the bankruptcy court held... stayed.
So the receiver was trying to bring Mr. Kovacs before the court so that he could get further instructions from the court, both through the receiver and Mr. Kovacs.
Unidentified Justice: Has the receiver any responsibility for the cleanup?
E. Dennis Muchnicki: The receiver effectively is the alter ego of Mr. Kovacs.
Unidentified Justice: Does he have responsibility to effect the cleanup... the receiver?
E. Dennis Muchnicki: Yes.
Unidentified Justice: Is that by force of the injunction?
E. Dennis Muchnicki: That is by force of the order appointing him.
He is specifically appointed with the directive to implement the cleanup contained in the injunctions.
And the order appointing receiver, then, had an injunction, a continuing injunction against Mr. Kovacs to cooperate with the receiver.
The net effect is the receiver would supervise it.
Unidentified Justice: Where is that injunction?
Is that a separate injunction from what it was... it's still the same injunction that was issued against Kovacs originally, isn't it?
E. Dennis Muchnicki: Yes, it is.
Well, there is the original injunction and then the order appointing the receiver--
Unidentified Justice: Right.
E. Dennis Muchnicki: --repeats the original injunction and then has also another injunction in it, stating Mr. Kovacs is to continue to cooperate with the receiver in implementing the injunction.
Unidentified Justice: But the receiver has got the responsibility for cleaning it up.
E. Dennis Muchnicki: The receiver and Mr. Kovacs have the responsibility.
There is nothing in the order appointing receiver which says Mr. Kovacs no longer has that responsibility.
Unidentified Justice: Is the order in the--
E. Dennis Muchnicki: It is in the Appendix.
Unidentified Justice: --In the printed Appendix?
E. Dennis Muchnicki: Yes.
There's... anyhow, the order... in other words, it adds the receiver to the cleanup effort.
It does not subtract Mr. Kovacs.
And that's a critical factor.
Unidentified Justice: Does the record tell us whether Mr. Kovacs has or has not cooperate with the receiver?
E. Dennis Muchnicki: The record indicates that when Ohio... the State and the receiver wish to bring Mr. Kovacs into the state court.
Mr. Kovacs asked the bankruptcy court to prevent that proceeding from going forward.
And we certainly--
Unidentified Justice: Well, but I'm asking about the cleanup.
In the cleanup activities, in which I guess he's ordered to cooperate with them, does the record show whether he has or has not cooperated?
E. Dennis Muchnicki: --The record would show that he has not cooperated in coming back to the state court the way the receiver wanted him to, to further define his responsibilities.
So we would say yes, the record indicates that he has not been cooperative.
Unidentified Justice: But all he wouldn't do, he wouldn't cooperate in the receiver trying to find out what his post-bankruptcy income was.
E. Dennis Muchnicki: Correct.
Unidentified Justice: Well, that hasn't got anything to do with the cleanup of the site.
E. Dennis Muchnicki: Well, I think it does, because as you have just suggested yourself--
Unidentified Justice: Well, I know, but this is his bootstrapping.
Assuming you've got a right just to the money, then you ought to have a right to find out what his income is.
E. Dennis Muchnicki: --Correct.
Unidentified Justice: But I don't know that that's such a failure to cooperate in the cleanup.
E. Dennis Muchnicki: Well, it has basically stopped the cleanup effort.
And as of now, there has been no further... there has been no cooperation from Mr. Kovacs to the receiver as of this time.
Now, turning to the first issue which we wish to put before the Court, and that is the basic policy matter that's presented by this case... now, in reviewing the decisions below, we see that in all of the decisions, there is not one reference or one expression of concern for this interest of the State to clean up the site and protect the public.
Unidentified Justice: Was the situation exactly the same at the time you appeared before the Sixth Circuit as it is today?
E. Dennis Muchnicki: --No.
Unidentified Justice: And did you make the same arguments, or what was the status then?
E. Dennis Muchnicki: The status then was the drums had not removed from the surface either.
Other than that... and I don't think we were aware of the extent of the ground water contamination.
Unidentified Justice: So you didn't really argue before the Sixth Circuit the ground water contamination and so forth?
E. Dennis Muchnicki: We did... yes, we did, Your Honor.
We argued, first of all, that the drums were there and they, in themselves, were a hazard.
And we were pretty sure, because of the past operational practices and stuff leaching into the soil, that there was ground water contamination, and we did point out the soil was contaminated and had to be removed.
Yet, in the opinion below, or in all three of the opinions, there is no discussion of that interest.
The sole focal point is on the interest of the debtor.
It treats bankruptcy, basically, as an absolute right where the bankruptcy judge basically determines the relevance of the rest of the United States Code, or in the laws of the states.
It's as though bankruptcy is always the supreme policy.
Now, the Third Circuit, in the recent Penn Terra case, recognizes that on its face, the bankruptcy code recognizes that there are other policies which at times are to prevail... one of which, specifically referenced, is protection of the environment.
In the automatic statutory stay provisions, Congress said we did not want to interfere with the states and their police power enforcement activities; in the removal provisions, so that you cannot remove an enforcement action to the bankruptcy court; in 28 USC 959B, there is a specific provision requiring trustees to operate in compliance with state law.
In the legislative history of section 105 dealing with discretionary stays, there is specific reference to the fact that any discretionary injunction must protect the legitimate interest of the state in its law enforcement.
Thus, in Penn Terra, they recognized that the bankruptcy code is one title of the United States Code; it does not overrule everything else.
Similarly, the court below did not recognize the repeated holdings of this Court which have held that there will not be a preemptive effect created... preemption of state regulation, absent clear and expressed congressional language.
And in the bankrupt--
Unidentified Justice: Mr. Muchnicki, when you're talking here, you're talking basically about the dischargability of a claim in bankruptcy, aren't you?
E. Dennis Muchnicki: --We are talking about whether the duty to comply with the injunction is a claim in bankruptcy.
Unidentified Justice: And therefore can be discharged.
E. Dennis Muchnicki: Correct.
Unidentified Justice: Well, certainly, the first place you'd look for that is the bankruptcy court.
I mean the thing comes up under the bankruptcy statute, not under any other statute.
E. Dennis Muchnicki: That is correct, Your Honor.
But in determining whether the... after you look at the code and you see the definition of claim, one then has to say is this obligation a claim.
And what is the effect of that interpretation, particularly when there's no indication anywhere in either the language of the code or in the legislative history that injunctions to abate nuisances were to be construed as a claim.
Unidentified Justice: But if you say it's not a claim, then presumably Ohio is not entitled to share with other general creditors in the bankrupt's estate.
Wouldn't that be the case?
E. Dennis Muchnicki: Yes.
If something is not a claim, you would not share in the estate.
That is correct.
Unidentified Justice: Do you really what that sort of result here?
E. Dennis Muchnicki: Yes, we do, to a certain... here's... yes, we do, because it may wind up that, in fact, we do wind up sharing in the estate, in that the estate has to be used to comply with the law.
We are not a... we do not have a claim that we fit within the priorities.
Now, for past expenditures... for example, if we were able to do the cleanup and had a bill, that bill might be a claim.
But in terms of having ongoing problems, that is not a claim.
Unidentified Justice: Under law, could the State move in and undertake this and then, a little bit late, seek to get reimbursement?
E. Dennis Muchnicki: It is unclear on that.
I think Ohio law provides for a lien on the property, that's all.
Unidentified Justice: For what?
E. Dennis Muchnicki: A lien on the property.
Unidentified Justice: Just a lien, not some positive action?
E. Dennis Muchnicki: Right.
Unidentified Justice: Normally, in most states, if there is a fire, for example, and a building is imposing a hazard after the fire is over, falling debris and collapsing walls, there is inherent authority in the local governments to go in and take care of it if the owners don't.
Now, isn't there something like that in Ohio?
E. Dennis Muchnicki: --Yes, and what you get is a lien on the property.
Unidentified Justice: Well, a lien isn't going to take care of the toxic wastes.
Are you saying Ohio has no authority to go in and do this?
E. Dennis Muchnicki: --I think it is not a question of authority, Your Honor; it is a question of ability.
We don't have the ability to do it.
Unidentified Justice: Well, you can hire people to do it.
The city council doesn't go out and tear the walls down of a partially burned building, but they hire somebody to do it if the owner doesn't do it.
E. Dennis Muchnicki: The fact of the matter is, if you look at the situation, I'll give you an example of what Ohio is facing with leached toxic waste sites.
We have 28 sites right now on the national priority list.
We have 23 more that are being evaluated for placement on it.
We have 800 more that we are still investigating.
We don't have the money to clean those all up.
Unidentified Justice: Well, doesn't your answer to the Chief Justice's question suggest that Ohio is not prevented by anything except lack of money from cleaning up this site, and what you're really concerned about here is money.
E. Dennis Muchnicki: Well, yes, money will be required to take up the site.
But what we are concerned about is how Congress treated this, and what did Congress decide in terms of the definition of claim?
And I think when you look at that language, the claim is to find, in terms of equitable remedies, and whether we can compel the debtor to perform the injunction, the definition of claim for equitable remedy says
"an equitable remedy for breach of performance, if the breach gives rise from an alternative right to payment. "
Now, to begin with, the breach of performance is a contractual phrase.
It does not refer to violations of law.
Indeed, when you think about the difference between a contractual situation where two people voluntarily agree to do something, in this situation where the public has not agreed to have Mr. Kovacs impose his obligations on the people of Hamilton, you can see it's a whole different thing than the breach of performance we talk about in contracts.
Similarly, here we do not have an alternative right to payment.
Any payment would be made to effectuate the injunction.
In fact, the court below even recognizes, and Mr. Kovacs recognizes in his brief, that any payment made here is not an alternative to performance; it is to facilitate the performance.
So we have a completely different situation than the contract, which is the example in the legislative history.
And when you search through the legislative history or the language of the code, there is nothing which suggests that an injunction to evade an ongoing threat is dischargable in bankruptcy.
Indeed, the language is clearly to the contrary, as is the legislative history.
Unidentified Justice: Could I ask you if... do I read this order appointing the receiver correctly, that it did order the Defendants to pay over to the Division of Wild Life $75,000?
E. Dennis Muchnicki: Yes, and that's not at issue there.
We agree that's a claim.
Unidentified Justice: And that is dischargable?
E. Dennis Muchnicki: Yes.
Unidentified Justice: And, hence, based on that claim, you couldn't try to collect from his post--
E. Dennis Muchnicki: With regard to that 75--
Unidentified Justice: --So what money are you asking from him?
E. Dennis Muchnicki: --What we're trying to do is get him to perform the acts required by the injunction which are not at claim.
The monetary obligation to pay the fine fits under the right to payment part of the definition of claim.
We're talking about the equitable obligation.
Unidentified Justice: Of course, some things are claims but they aren't dischargable--
E. Dennis Muchnicki: That's true.
Unidentified Justice: --under the Bankruptcy Act.
E. Dennis Muchnicki: That's true.
Unidentified Justice: That isn't part of your case here?
E. Dennis Muchnicki: That is not presented here.
Unidentified Justice: But when you say you want performance from him, you don't actually want this particular individual to come down to the site with a pick and shovel and start digging himself?
E. Dennis Muchnicki: No, that's true.
Unidentified Justice: You want him to put up the money required by the injunctive decree so that some contractor can be hired to do it?
E. Dennis Muchnicki: I'd say that's correct.
Unidentified Justice: So the receiver can do it, because the receiver has the obligation to carry out the terms of this injunction.
That's what it says.
E. Dennis Muchnicki: So does Mr. Kovacs.
Unidentified Justice: Well, I just said what the receiver--
E. Dennis Muchnicki: But the receiver has no funds.
He has nothing also.
Unidentified Justice: --So he wants money?
E. Dennis Muchnicki: Yes.
Unidentified Justice: The receiver has certain inherent authority to credit of the estate, doesn't he?
E. Dennis Muchnicki: There is nothing left in the estate.
Unidentified Justice: Nothing at all?
E. Dennis Muchnicki: Not in the estate that is run by the receiver.
There was some in the bankruptcy estate.
Unidentified Justice: Can I ask you one question?
Is the obligation that you want to have immune from being discharged, is that part of the order appointing the receiver of February 4, 1980?
E. Dennis Muchnicki: Yes.
Unidentified Justice: Which paragraphs of that order do you say are not--
E. Dennis Muchnicki: --The injunction to cooperate with the receiver which I believe is paragraph--
Unidentified Justice: --Where is that?
I always have trouble finding exactly where--
--I think the closest thing to it is that he's supposed to let the receiver into the site and not interfere with his efforts to clean it up.
I don't see any order to cooperate.
E. Dennis Muchnicki: --It's on page JA-15.
And the middle injunction: to fully cooperate with the receiver in the performance of such duties, and referring to the duty to implement the injunction.
I'd like, if there are no further questions--
Unidentified Justice: I have one, actually.
Now, would the State be prohibited by the judgment and orders of the Sixth Circuit from proceeding against Kovacs for contempt for any prior failure to comply with the injunction?
E. Dennis Muchnicki: --We believe that that would be the case.
Certainly, to give you--
Unidentified Justice: Why do you say that?
E. Dennis Muchnicki: --Well, Your Honor, let me give you an example of what we encountered previously in the bankruptcy court.
The first time we appeared... when we filed the mere motion requesting... for the hearing to determine what his current status was, and then the debtor moved for imposition of the stay, the bankruptcy judge... his first question was why he should not hold me in contempt.
And I didn't feel I had done anything other than ask for a hearing, an informational hearing.
And the bankruptcy judge made it quite clear that he construed this to be very broad, and therefore I tend to think that if I were to file a motion to hold Mr. Kovacs in contempt, that would be viewed as an attempt to compel him to pay and the bankruptcy court would find me--
Unidentified Justice: Well, I guess we don't know that.
At least the Sixth Circuit in its opinion said that if Ohio had elected to have a money penalty assessed against Kovacs for the environmental damage he caused, we would have faced a different question, and that would not have been subject to the automatic stay.
E. Dennis Muchnicki: --The Sixth Circuit did say that.
But even if we go into that penalty, it does not accomplish the cleanup which is necessary to protect the public, and I think that is our primary concern here.
Chief Justice Warren E. Burger: Ms. Oberly.
ORAL ARGUMENT OF KATHRYN A. OBERLY, ESQ. ON BEHALF OF THE UNITED STATES GOVERNMENT
Kathryn A. Oberly: Thank you, Mr. Chief Justice, and may it please the Court, some of the Court's questions to the counsel for the State of Ohio indicate what we think is one of the mistakes made by the Court of Appeals in--
Unidentified Justice: Do you think we're falling into the same error that the Court of Appeals fell into?
Kathryn A. Oberly: --Yes, Your Honor, I think you're headed in that direction.
The principal mistake seems to be in assuming that it makes no difference to the State or to the Federal Government in an enforcement action whether we get compliance with the injunction or whether we get money.
In fact, it makes a significant difference.
Hazardous waste sites are quite complex to clean up.
They require years of effort, long-term monitoring, and the important purpose that an injunction serves, that money doesn't serve, is that it keeps the responsible party present and under the supervision of the court until the cleanup is accomplished.
What Respondent is essentially arguing for and what the Sixth Circuit agreed with is a buyout of your obligations under the injunction which does not protect the public, because we don't know at the time of the buyout whether or not the amount that the injunction is exchanged for will be sufficient to protect the public health in the long term.
Unidentified Justice: Before these waste dumps were opened and operated, did they secure a license of some kind from the State?
Kathryn A. Oberly: Not in this case, Your Honor.
New dumps now do have to be permitted under federal law, and presumably Ohio has comparable state law.
But that is not the case--
Unidentified Justice: Is the Ohio state law something since this event arose?
Kathryn A. Oberly: --Yes, Your Honor, it is.
But both federal and state law impose basically strict liability for leaving hazardous wastes behind, even if it was done before the new permitting requirements.
Unidentified Justice: But if ultimately there isn't any money anywhere in the private source to do this, where lies the obligation?
Kathryn A. Oberly: Well, the obligation still lies with the responsible party, but then it falls to the public to pick up the tab for the responsible party is--
Unidentified Justice: Because the State allowed them to do it, either by license or by leave.
Kathryn A. Oberly: --The State didn't allow them to do it.
He just did it.
Unidentified Justice: Well, you say they license them now, though?
Kathryn A. Oberly: Yes, because we've all learned a lot more about the problem.
But in the meantime, Congress has also chosen to impose liability for past disposal practices that are currently harming the public.
And that's what we have--
Unidentified Justice: I think you would like us to judge the case as though a receiver had never been appointed, and I think that may be the right way of judging it, because then the question would be, is he still subject to the obligations of the injunction?
And then the question would be, can you go around and find assets of his to carry out a duty that could never be discharged in bankruptcy?
Kathryn A. Oberly: --That's correct.
And I don't think the appointment of the receiver makes any differences.
Unidentified Justice: I think you have to address that.
You certainly didn't in your brief.
Kathryn A. Oberly: Well, Your Honor, it doesn't change the fact that Kovacs is under an obligation to clean up.
Unidentified Justice: It does change the fact that his obligation under the injunction has been taken over the receiver and all the receiver wants from him is money.
Kathryn A. Oberly: The receiver wants him to help to perform.
One of the aspects of the injunction appointing the receiver is that he not interfere with the receiver.
We submit that he has--
Unidentified Justice: He doesn't interfere with him by... he interferes with him unless he pays the money.
Kathryn A. Oberly: --No, he has done more than that.
When he filed for bankruptcy, Your Honor, he essentially put the receiver into bankruptcy because the receiver had control of his assets under this order, but the receiver didn't want to go into bankruptcy.
And so Kovacs has actively... Respondent has actively interfered with the receiver's ability to carry out the injunction by taking the assets that the receiver was supposed to have.
Unidentified Justice: And what do you draw from that in terms of the receiver's ability to collect... to get money from him out of his post-bankruptcy earnings?
Kathryn A. Oberly: That he's made it impossible by getting a ruling from the bankruptcy court that this debt is dischargeable and therefore the receiver has no assets, whether pre-bankruptcy or post-petitioner earnings, that he can use to effectuate this cleanup.
Unidentified Justice: Do you say this is a debt, or is it something else?
Kathryn A. Oberly: No, Your Honor.
We agree with Ohio that it is not a debt that was intended to be covered by the bankruptcy code.
The code, we feel, was intended to deal with basically contractual and commercial obligations, and this is a classic example of something that is not contractual.
The public didn't contract with Mr. Kovacs.
There is no contract at all here.
There's a breach and defiance, if you will, of a state court injunctive order.
That is not, in our view, something the bankruptcy code was intended to address.
Unidentified Justice: Well, neither... the Court of Appeals certainly didn't agree with that, and neither did the bankruptcy court.
Kathryn A. Oberly: We wouldn't be here if we didn't think those courts were wrong, Your Honor.
Unidentified Justice: Well, I know, but you are essentially saying that the federal court is wrong in construing Kovacs's obligation under state law.
And what are we supposed to do--
Kathryn A. Oberly: First, of all, Your Honor, one of the problems with this case is that, since the bankruptcy proceedings began, Ohio has been prevented from going back to the state court--
Unidentified Justice: --Do you think the bankruptcy court thought that Kovacs was in... what you claim is that he was in contempt of court by filing the petition of bankruptcy.
He was interfering with the receiver contrary to the injunction.
Kathryn A. Oberly: --We think that he was.
The bankruptcy court disagreed.
Unidentified Justice: I know.
But the federal court obviously didn't think so.
Kathryn A. Oberly: That's correct.
Unidentified Justice: And obviously, under state law, he was not in violation.
Kathryn A. Oberly: The state court hasn't had an opportunity... no court has... no federal court in this proceeding has addressed what the state court would think has happened to its injunction.
Unidentified Justice: Well, what the state court... but I'm sure that the bankruptcy court must have considered what Kovacs's obligations were under state law.
Kathryn A. Oberly: There's nothing... excuse me, Your Honor, but there is nothing in this opinion of the bankruptcy court, the district court, or the Sixth Circuit to indicate that those courts thought that Kovacs's obligation had been satisfied.
Instead, they said--
Unidentified Justice: I didn't say that.
Kathryn A. Oberly: --What they said was that--
Unidentified Justice: I didn't say that.
Do you think they thought he was in violation of the injunction to file the bankruptcy petition?
Kathryn A. Oberly: --They didn't address that, although the State asked them to.
But it wasn't addressed by any of the courts.
What they said was that this injunction can be cashed in for money.
And if it can be cashed in for money, it's a debt dischargable under that bankruptcy code.
Unidentified Justice: Suppose the District Court had addressed it and said, yes, we think Mr. Kovacs is in violation of the state court injunction.
What would they have done then?
Kathryn A. Oberly: I think they should have abstained to the state court to determine the scope of his obligations.
Unidentified Justice: Exactly.
Well, then, so they rejected the claim that he was in violation of his injunction.
Kathryn A. Oberly: Without writing an opinion explaining they were doing that.
Unidentified Justice: Well, they rejected it nevertheless.
So we're supposed to disagree with them on what his obligations were under--
Kathryn A. Oberly: No.
I think that what's most important is that the state court that issued this injunction and the order appointing a receiver be given an opportunity to decide whether Kovacs has discharged his obligations and whether or not he's interfered with the receiver.
And I don't think it's appropriate to have bankruptcy judges, who have no expertise in environmental obligations, determining whether or not that state court injunction has been satisfied.
Unidentified Justice: --May I ask... assuming that we have two insolvent people here, apparently, both Kovacs and the State of Ohio.
Supposing both had hundreds of millions of dollars, had all the money in the world to do the work, could the injunctive obligation then be cashed in to--
Kathryn A. Oberly: No, Your Honor.
We would take the position it can't.
First of all, we don't have all the money in the world.
Unidentified Justice: --No, but why couldn't Ohio do the cleanup and say pay us back?
Kathryn A. Oberly: --For two reasons that I gave.
The first is that you can't really estimate what the cost of cleanup is going to be at the time an injunction is entered, and so an injunction--
Unidentified Justice: But you know it by the time you do the work.
Kathryn A. Oberly: --No, you may not, Your Honor, because 20 years from now, you may find out that the remedial measures you took, the containment measures to clean up ground water, your monitoring of ground water, proves that the problem hasn't been solved.
And if you've left the Defendant buy out on day one, the State and the public are left holding the bag for any additional remedial measures that aren't covered.
Unidentified Justice: Do you think a person who gets, in this sort of situation, who has millions and millions of dollars, there is no way in the world he can discharge his obligation by paying the State whatever they think is necessary?
Kathryn A. Oberly: I think that's correct.
We do in federal cases sometimes settle for money at the outset, but the releases are worded in such a way that if it turns out the money we settled for is not adequate to protect the problem down the road, five years from now or ten years from now we discover the contamination has spread and it's not been sufficiently contained or removed, we have drafted a consent decree that keeps those defendants on the hook, so to speak, and does not release them for their original buy-out amount.
And the reason is that neither the Federal Government... we have three insolvent parties here.
Neither the Federal Government, nor Ohio, nor Mr. Kovacs has enough money to deal with what is an enormous problem, not just at this site, but nationwide.
And I would like--
Unidentified Justice: Ms. Oberly, this is sort of like ships passing in the night.
Wouldn't you be satisfied if the State of Ohio was free to go into a local court and say, look, your obligation under the injunction, your obligation to clean up is not a claim, and the federal court hasn't said it is.
You're under an order to clean up, and you're still under the order.
Now, get with it and work or face contempt.
Now, let's assume the State of Ohio was perfectly free to do that.
Would you be satisfied?
Kathryn A. Oberly: --I may have missed the first part.
But if Ohio were free to go back into state court and seek contempt, say either do it, either perform, or we're going to hold you in contempt?
Yes, we would be satisfied, but--
Unidentified Justice: Well, I suggest to you that all the Court of Appeals did is say the receiver is trying to get money, just get money from the Defendant, and not trying to force him to go clean up himself.
They're trying to get money from him, get money from out of his post-bankruptcy earnings, and they just focused on that.
Kathryn A. Oberly: --My time is expired, but--
Unidentified Justice: You may answer, of course.
Kathryn A. Oberly: --If I may answer the question, I think that is the fundamental error in this case in equating an injunction to do a specific act with just a desire to get money.
Ohio doesn't want the money.
Ohio wants Kovacs or the receiver to perform the injunctive obligation.
Unidentified Justice: I think the Court of Appeals is talking about the money, not about the obligation.
Kathryn A. Oberly: That's correct, and that was--
Unidentified Justice: Not about the obligation.
Kathryn A. Oberly: --That was its error, because by talking about money, it was able to say, because we're talking about money, this is a debt that is dischargable under the bankruptcy code.
Unidentified Justice: If all it was doing was talking about the money, it wouldn't... they weren't saying that the State of Ohio cannot enforce the obligations under the injunction.
Kathryn A. Oberly: They've discharged and approved the discharge of the entire injunction.
So I don't see how Ohio would have any basis for going back into state court on a contempt motion when the underlying has been discharged.
Unidentified Justice: Ms. Oberly, I also would like to ask one more thing.
Do you think that the bankruptcy judge has jurisdiction to determine how the Ohio courts would view the obligation of Kovacs under the injunction, and the extent to which performance has been given or not?
Kathryn A. Oberly: I think, if he has jurisdiction, and I have my doubts about that, I think it would be something he should abstain.
Unidentified Justice: Is there something in the bankruptcy code presently that tells the bankruptcy judge what the judge should do in those circumstances?
Kathryn A. Oberly: It says that Ohio, or a person in Ohio's position can file a motion for abstention.
But then it also provides that denial of that motion is not reviewable by appeal or otherwise.
Unidentified Justice: Right.
And it isn't mandatory that the bankruptcy judge abstain.
Kathryn A. Oberly: That's correct.
But in the new bankruptcy 1984 statute that was passed this summer... it provides that when a bankruptcy court is called upon to decide matters involving laws in addition to the bankruptcy code, that those can go directly to the district court, Federal District Court.
That still would not solve my problem, because I believe this belongs in state court to determine the extent of Kovacs's obligations under the injunction.
But if we at least get it in a court that's slightly more familiar with balancing bankruptcy against environmental obligations, then I don't think that that--
Unidentified Justice: But there's nothing in the bankruptcy code, either under the new amendments or otherwise, that would require sending it back to the state court.
Kathryn A. Oberly: --That's correct.
If I may say one other thing, the Super Fund, which is a code name for a federal statute that's been passed several years ago to provide money to clean up hazardous waste sites, has been entered into this case or injected into this case somewhat late, and no one has really properly briefed it, and I leave it up to the Court, but it may be that the Court would wish further briefing or a memo about the effect of Super Fund and federal monies.
Since I have not had time to address it, probably the other parties won't either.
It may be helpful to the Court for someone to submit something else on that issue.
We would be happy to do so.
Chief Justice Warren E. Burger: Very well.
Mr. Caldwell, we'll count on you to clear these matters up for us now.
ORAL ARGUMENT OF DAVID A. CALDWELL, ESQ. ON BEHALF OF THE RESPONDENTS
David A. Caldwell: Mr. Chief Justice, may it please the Court, I think in analyzing this obligation, there is really only one point in time which is relevant, and that is on the date of bankruptcy, September 2, 1980.
It matters little what the nature of the obligation was a year before that.
The only critical thing is what obligation did the bankrupt owe on the date of bankruptcy.
You recall by that time, the Chem-Dyne site had been in the possession of a receiver for nearly eight months, and also in possession of all of Mr. Kovacs's then existing assets.
Now, this receivership was imposed in order to enforce the agreed judgment entry of July 1979.
Whether we call that judgment entry injunction or whatever, it's clear that it came about as a result of an agreed settlement of a disputed lawsuit.
The State of Ohio, with all of its expertise in July of 1979, made a value judgment that they should accept the agreement of Bill Kovacs to pay for some dead fish and to remove the waste stored on the surface of the site, period.
And the entry recites that that is a compromise, et cetera, et cetera.
And the Attorney General admits that that agreement was made in full satisfaction of the obligations of Kovacs.
Now, admittedly, the obligation to clean up the surface was not performed by Mr. Kovacs.
That's why the receiver was appointed.
Unidentified Justice: I don't see anything in the settlement or the order appointing the receiver or anything else that released Kovacs from his obligations under the injunction.
David A. Caldwell: No, except that it replaced--
Unidentified Justice: I know the receiver undertook to do it.
David A. Caldwell: --The receiver is ordered to do it, and it's a little hard to visualize these two arm-wrestling over who has control of the site.
And, as a matter of fact, the first thing the receiver did was fire Mr. Kovacs as president of Chem-Dyne.
He was out of a job.
Now, it's a little difficult as a practical attorney to imagine that Mr. Kovacs, out of possession--
Unidentified Justice: Well, that's all well and good, but I don't see anything... if the state had... if the receiver quit or he was discharged and receivership liquidated, do you think Mr. Kovacs would have any remaining obligations under the--
David A. Caldwell: --No, I do not, because I think the--
Unidentified Justice: --You think it was agreed that the receiver would take it over.
David A. Caldwell: --I think that's the natural consequence of it, because the receiver took all of his assets, both personal and corporate, and the court then ordered the receiver to apply those assets to the cleanup.
And I think it's--
Unidentified Justice: Well, do you think that's the source of the Court of Appeals' observation that Kovacs cannot personally clean up the waste he wrongfully released into Ohio waters?
He cannot perform the affirmative obligations properly imposed upon him by the State court?
David A. Caldwell: --Well, I think that's--
Unidentified Justice: Is that because the receiver had the job, or what?
David A. Caldwell: --I think it's a necessary characteristic, if you're talking about an obligation here that involves the expenditure of millions of dollars, you're talking about a human being who has a family to support, and you take everything he owns; can you imagine any State court, after the money is all gone, holding him in contempt because he doesn't quit his job in New Jersey and come back here and clean up that site?
I think that would be an aberration in equity jurisprudence.
I think, realistically--
Unidentified Justice: Well, of course, Kovacs didn't exactly live up to his obligations either.
David A. Caldwell: --Well, there's no question.
Unidentified Justice: He didn't pay over the $75,000.
David A. Caldwell: No question about it, and no question that that's an obligation--
Unidentified Justice: Instead, he filed for bankruptcy.
David A. Caldwell: --He failed to cooperate by filing bankruptcy.
He availed himself with the fresh start that is the very spirit of the bankruptcy laws.
The State has ignored the fact that throughout this... and I've never seen an answer to it... that what the State settled for here was the surface cleanup.
Now, they obviously found later that some of these chemicals that seeped into soil and so on, obviously what they found out was that maybe they didn't make such a good deal.
Well, that's all well and good, but I don't think the State of Ohio can now be heard to say you, Kovacs, have to clean up the soil underneath.
And the real significance of this is that everything Kovacs was obligated to do has now been performed, and the cost of that is liquidated, and there's no question that that obligation, that bill, is dischargable in bankruptcy.
The only difference, in effect, between now and back in September of 1980 is that now the obligation is liquidated.
We have a dollar figure.
The money has been spent.
And we know that claims in bankruptcy are dischargable, not based on the fact of whether they're liquidated or unliquidated.
Unidentified Justice: But your opponent claims that Kovacs's obligations under the injunction haven't been fully performed.
Do you disagree with that?
David A. Caldwell: I certainly do.
I certainly do.
Kovacs didn't settle for digging up all the soil on the site.
He settled for moving 850,000 gallons of liquids and 4,000 barrels, period.
Unidentified Justice: Well, what if we disagree with you on that, that the obligations are not completely discharged under the injunction?
What would you say then about this ability to collect money?
David A. Caldwell: I think, even if you disagree, that the whole obligation of Kovacs is now performed, you're still looking at a money obligation.
All of it may not be liquidated as of today, but it's still something that somebody else is going to do.
Unidentified Justice: Well, is that a question that ought to be addressed by some court, somewhere along the line, the extent to which under the State court injunction, there is a continuing obligation of some kind?
And it just looks, at least from the opinions below, that nobody addressed that question.
No court yet has really looked at that.
Now, where should that be addressed, and who has the jurisdiction to do it?
David A. Caldwell: Well, since the adoption of the 1978 Code, the determination of the dischargability of bankruptcy claims has been pretty well lodged in the Federal court.
Now, back when I started practice, you could run through bankruptcy and then later sue on it in State court, and the State court would determine whether that claim was discharged.
Well, that practice--
Unidentified Justice: --Well, shouldn't part of the inquiry encompass, at least at the first level by the bankruptcy judge, the extent to which Ohio would say there is a continuing obligation remaining under the injunction?
Is that an appropriate inquiry to be made?
David A. Caldwell: I don't think that's a matter of state law, Your Honor.
Unidentified Justice: Ms. Oberly reads the Court of Appeals opinion and the opinion below as indicating that any equitable obligation imposed upon Kovacs is dischargable and has been discharged.
Do you read the opinions the same way?
Do you read the bankruptcy court's ruling and the Court of Appeals' ruling as effectively disposing of and ending any obligation of Kovacs under the injunction?
David A. Caldwell: Oh, yes; I think so, because--
Unidentified Justice: So you say that a court has addressed it, namely, the Court of Appeals and the Bankruptcy Court?
David A. Caldwell: --Your Honor, we're looking--
Unidentified Justice: Well, yes or no?
David A. Caldwell: --Pardon?
They're looking at the same facts everyone else is looking at, that the thing that brought this matter into court was a motion of the State, seeking to garnish my client's wages.
Now, he describes it in all different evasive things, but we call that a judgment debtor exam in Ohio.
Unidentified Justice: The Assistant Attorney General told us that since these problems arose, Ohio law now requires some kind of a license for waste dumps and that sort of thing?
David A. Caldwell: I'm sure that's true.
Unidentified Justice: Does it also require them to put up a bond to cover situations like this?
And did it apply?
David A. Caldwell: I'd have to defer to my colleague, but that's a typical State regulatory scheme.
Unidentified Justice: But it didn't apply at the time?
David A. Caldwell: No.
This site began, really, in the infancy, just on the eve of real environmental awareness, and Ohio... I don't know whether it was behind anywhere else... but there was no licensing required at that time.
Unidentified Justice: Counsel, in the old classical case where you are enjoined from maintaining your wall or your bridge over my property, and you go into bankruptcy, that discharges that?
David A. Caldwell: I think not.
The cost of taking it down may well be an obligation to the State.
But you don't acquire the future right to maintain your bridge or the future right to conduct an activity to pollute it, certainly.
That's not discharged.
Unidentified Justice: The job was you were ordered to take it down, and you say you can't take it down because you're bankrupt.
David A. Caldwell: I think that obligation might well be discharged.
Unidentified Justice: You got any cases for that?
David A. Caldwell: No, Your Honor.
None of us have any cases on that portion.
But I have not seen, and we researched this, of course, at the lower level, any cases that hold a person may be held in contempt where the performance is financially impossible.
I mean you reach the point where you're talking about involuntary servitude.
If there is an equitable obligation today, would anybody require the man to quit his job, come back to Ohio where he has no employment, to do something that costs millions of dollars when he has not the money to do it?
I can't believe that.
Unidentified Justice: Well, about a child support decree?
I mean certainly--
David A. Caldwell: Child support, there's a clear example of the differentiation here.
That, of course, is specifically non-dischargable.
It's an obligation that's capable, presumably capable of being met out of weekly wages, and Congress determined... Congress determined that obligation is not dischargable.
Unidentified Justice: --But I was addressing myself to your insistence that because he has no money and is in New Jersey... has moved to New Jersey from Ohio... therefore, who in his right mind would suggest he ought to perform his duties under the Ohio injunction?
I don't think that's a very appealing argument.
David A. Caldwell: Well, the appeal... maybe I didn't state it properly... is the possibility of doing.
We're talking about something that's infinitely impossible.
Unidentified Justice: You're saying that if he were cited for contempt, the Ohio court in Butler County would probably say no, you're not in contempt because it's impossible for you to perform?
David A. Caldwell: That's right, just as in child support cases, you can't find in contempt the quadraplegic who can't earn any money to pay child support.
When we're talking about a multimillion dollar obligation against a wage earner, you have the same result.
Unidentified Justice: Mr. Caldwell, can I ask you a question, please?
Assume we didn't have the complex facts we have here.
We had a simple case in which somebody polluted a large area of land and the Environmental Agency went into court and got an order that said clean it up, do whatever you have to to clean it up.
And they started to work, trying to clean it up, and they ran out of money and went into bankruptcy, but there was no settlement, no completion, they don't know how much more it would cost to just have that kind of general open-ended obligation.
In your view, would that... and then the man was broke, and moved to New Jersey, as this man did.
Would that be dischargable?
David A. Caldwell: I think it would.
Unidentified Justice: That's basically the same case in your judgment.
David A. Caldwell: I think it is.
Now, the State and the Federal Government have indicated many times, over and over in this case, that the rulings of the court below are seriously hampering the enforcement efforts of the State and Federal Government.
And I say that that simply is not so.
You look at this case; they succeeded in putting Mr. Kovacs out of business in very short order, taking all of his assets and applying them to the cleanup.
Now, what would be the consequences of reversal?
Would it really accomplish what the State claims they're seeking, if they could garnish Mr. Kovacs's wages once a month?
Would that really--
Unidentified Justice: Forever, apparently.
David A. Caldwell: --Forever.
Would that ever really make a dent in the environmental problem in the country?
Unidentified Justice: Well, it might, of course, serve as a deterrent to other people who might otherwise think that they had to do to get out from under one of these State court injunctions is to file for bankruptcy, and then it's over.
And so if there is a lingering effect, even if Mr. Kovacs can't begin to pay the real cost of this thing, if he has to pay something, whatever the court determines is appropriate and that can be paid, maybe that is a deterrent.
That's the question.
David A. Caldwell: I'm sorry.
Your Honor, the word "deterrent" to me, as a lawyer, always brings about the criminal laws, not the bankruptcy laws.
And we have criminal laws--
Unidentified Justice: --No, not the bankruptcy law.
We're talking, aren't we, about the continuing effect of the State court injunction for the removal or prevention of pollution.
We're not really talking about the bankruptcy.
David A. Caldwell: --I know what you're saying, Your Honor, but I think it's always been the philosophy that the bankruptcy laws are not to be used as a deterrent.
Any deterrent effect of any of these laws is to be brought about by prosecuting criminals.
Unidentified Justice: Yes, but we're really talking about whether the bankruptcy, the automatic stay provision of the bankruptcy law extends to cover a State pollution injunction in some of its permanent features and aspects.
I think the State injunction, for instance, said that the Defendant... that Mr. Kovacs and his employees were permanently enjoined from causing anything injurious to the health and property of individuals in the public.
And that would be a theoretically permanent continuing type obligation.
David A. Caldwell: That is to refrain from future acts, certainly.
We're not talking about the automatic stay today.
We're talking about dischargeability.
But there's no question you can't buy the right to continue to pollute.
But at any rate, the State really cannot demonstrate any real hindrance to the enforcement efforts through the decisions of the lower court.
In fact, as one of Your Honors pointed out, a reversal would prevent them from participating in any future corporate liquidation.
Unidentified Justice: But the State's point is that if your client doesn't pay for it, they have to pay for it.
David A. Caldwell: Well, that isn't really--
Unidentified Justice: That's the State's position.
David A. Caldwell: --I know.
That isn't really true.
The whole toxic waste situation cannot be belittled certainly.
It was a product of American industry.
Mr. Kovacs didn't cause the toxic waste problem.
Unidentified Justice: We all know that.
David A. Caldwell: Through the suits against the generators, the courts have recognized that industry as a whole should bear the cost, and they are as a practical matter in this case.
Suits against the companies generating this waste have already been settled, which paid for the cleanup of the surface.
Unidentified Justice: United States brought those suits, I take it.
David A. Caldwell: That's right.
Unidentified Justice: And they settled them and the money has been used to clean up the surface.
David A. Caldwell: Right.
They settled with some companies.
Some of them didn't settle.
Presumably, they'll get the cost of the rest of it from these companies.
Now that cost is, of course, passed on.
But I don't think a realistic answer to the problem is denying an individual a discharge in bankruptcy, because it isn't going to bring about the result that the State desires, the needs in this matter.
Unidentified Justice: Well, why should, though, the... you really don't think that these kind of equitable obligations to perform are just normally dischargable in bankruptcy, do you?
David A. Caldwell: Well, if you're talking about an affirmative obligation to do something--
Unidentified Justice: I suppose claims under contracts are discharged, even though they could be specifically enforced.
David A. Caldwell: --If Kovacs had filed bankruptcy in September 1979 instead of '80, we might have a different question.
But that isn't the fact in this case.
Unidentified Justice: What changed it in '80?
David A. Caldwell: In '80, he's already out of possession and there's no--
Unidentified Justice: The receiver is in possession.
David A. Caldwell: --Right.
Unidentified Justice: And you've made the settlement.
David A. Caldwell: That's right.
The cost of it is ascertained.
As a matter of fact, it's been paid by someone else.
Unidentified Justice: So if the day after the injunction was entered he filed for bankruptcy, and the question came up of dischargeability, you would be taking a different position.
David A. Caldwell: Depending on which side it was on.
Unidentified Justice: Well, I'm asking you whether your position is whether, ordinarily, equitable obligations like this are dischargable?
David A. Caldwell: You can certainly make an argument that they are dischargable.
The legislative history which has been quoted in here, more in the State's brief and ours, tends to indicate that what Congress was concerned about was the dischargability of an obligation relating to future conduct.
Don't do this in the future.
Unidentified Justice: Well, if what you have suggested to us... and your colleague, your friend seemed to imply the same thing... the cost of meeting this problem is going to run into millions or hundreds of millions.
David A. Caldwell: No question.
Unidentified Justice: Then, isn't the question of dischargability in bankruptcy really academic, unless this man wins a billion dollar lottery or something?
David A. Caldwell: Well, you may be correct, Your Honor.
I know that in my experience it's much easier to avoid paying a $10 million judgment than it is a $1,000 judgment.
And my client is not an irresponsible person.
If he were, he would have moved to Australia by now.
He is going on... he has a background in chemical engineering.
He has a right to a discharge, and he's interested in protecting his right.
To give the State of Ohio the right to destroy his life by garnishing his wages every month or so would deny him that right.
That's really what we're talking about.
It's academic in the sense that a reversal will never give the State what it wants unless the Attorney General is somebody out of Charles Dickens.
It could only be a punitive thing; it couldn't achieve anything of worthwhile value in cleaning up the environment.
Unidentified Justice: May I ask a factual question?
I understood Ms. Oberly to say that he has, in fact, been discharged.
The discharge is already complete.
Is that right?
I thought it was--
He has been granted a discharge.
He has been.
And it's a total discharge with no continuing obligation of any kind?
David A. Caldwell: Well, I think the answer to that question depends on--
Unidentified Justice: This case.
David A. Caldwell: --the decision of this Court.
Unidentified Justice: Well, that's right.
But if the judgment, if the judgment is affirmed, there is a discharge.
David A. Caldwell: Then this obligation will fall under the discharge; yes.
Unidentified Justice: Any obligation under the injunction... except not to--
David A. Caldwell: I don't think if he goes back to Hamilton, Ohio and starts dumping anything into the river again--
Unidentified Justice: --No.
David A. Caldwell: --I think he will have no further monetary obligation to pay money into the--
Unidentified Justice: Or to do anything to clean up the site if it still needs cleaning up.
David A. Caldwell: --I think that's right.
Now, there is one--
Unidentified Justice: And that's the result of the opinions below.
David A. Caldwell: --Yes.
One point that was raised in the State's reply brief that we, of course, couldn't address, and that was the suggestion that if this case is affirmed, this property will revert to Mr. Kovacs's possession, and he'll be free to go back in business.
Well, that, of course, is absurd.
The State court receiver has the power of sale, and presumably he will sell the property to satisfy whatever remaining financial obligations there are.
Unidentified Justice: Didn't the bankruptcy court take charge of the property in the hands of the receiver?
David A. Caldwell: No, they did not.
Unidentified Justice: So Kovacs's property was never committed to paying his bills?
David A. Caldwell: Well, you have to remember, you have a piece of property, the toxic nature of it being notorious all over the Midwest; do you really think that any--
Unidentified Justice: Did the trustee... was there a trustee appointed?
David A. Caldwell: --A trustee was appointed.
Unidentified Justice: Did he abandon the property?
David A. Caldwell: Not formally, but he wouldn't touch it with a ten-foot pole.
Unidentified Justice: So anyway, it was never listed as a part of the assets of the estate?
Because it's not an asset.
David A. Caldwell: I'm not sure of that.
I'm not sure of that.
Unidentified Justice: Well, was it an asset if it was loaded with the stuff?
David A. Caldwell: --Pardon?
Unidentified Justice: Was it an asset if you can't sell it?
David A. Caldwell: Well, I guess anything is an asset.
Unidentified Justice: Well, nevertheless, the property is still in possession of the receiver?
David A. Caldwell: Oh, yes.
Unidentified Justice: Never was a turnover ordered.
David A. Caldwell: No.
The bankruptcy trustee didn't want that property.
Unidentified Justice: So the receiver is still in possession.
David A. Caldwell: Right.
Unidentified Justice: And it's not part of the bankrupt estate?
David A. Caldwell: Well, the bankruptcy court has not dealt with it, and as I say, no trustee wants to grab it until it's cleaned up.
Unidentified Justice: Well, the trustee has been discharged, hasn't he?
David A. Caldwell: No, I don't think so.
Unidentified Justice: May I ask a follow-up to a question Justice Rehnquist asked earlier?
If you prevail in this case and this obligation, whatever it is, is treated as a claim within the meaning of the bankruptcy statute, then does that mean that the State is a general creditor to the extent it has a monetary demand on your client?
David A. Caldwell: You mean to share in the bankruptcy estate?
Unidentified Justice: Maybe there's nothing there; I don't know.
Is there in that estate?
David A. Caldwell: I don't think there is that estate, simply because the State court receiver had spent everything that there was in the way of assets by the time he went bankrupt.
Chief Justice Warren E. Burger: Your time has expired, counsel.
If you have a fact statement to make, you make it; yes.
E. Dennis Muchnicki: Two fact statements.
First of all... and if the Court would wish, I will send them a copy.
Apparently the receiver intends to file a motion to terminate the receivership next week.
He no longer has the money to pay for his bond.
If you wish, I will supply a copy of that to the Court.
Unidentified Justice: The Court should be provided with a copy.
E. Dennis Muchnicki: He simply has nothing left, and he can't even pay for his receivership bond anymore.
Unidentified Justice: He wants discharge, then.
E. Dennis Muchnicki: Yes.
Unidentified Justice: What's he going to do with the property?
E. Dennis Muchnicki: The property will revert, I would assume, to Mr. Kovacs because here is the--
Unidentified Justice: Or to the trustee in bankruptcy.
E. Dennis Muchnicki: --Well, here is the status of the property.
The property... the Chem-Dyne is owned by Hierco Realty, which is a partnership; it was part of the bankruptcy.
The partners of Hierco Realty are Mr. Kovacs and the Chem-Dyne Corporation which is not in the bankruptcy.
The net effect is that neither the bankruptcy trustee nor the State court receiver could figure out who owned the property or who had it, but the bankruptcy trustee said he didn't want it.
Unidentified Justice: Who owns Chem-Dyne?
E. Dennis Muchnicki: The Chem-Dyne Corporation, all the stock is owned by Kovacs, but the stock--
Unidentified Justice: It shouldn't have been too hard to figure out who owned the property.
E. Dennis Muchnicki: --I think on that suggestion, that would certainly show where it is.
Also, as to whether there was a turnover action, in fact, the bankruptcy trustee did file a turnover action--
Unidentified Justice: What happened?
E. Dennis Muchnicki: --against the receiver, and the receiver had to turn over the most important thing, being like the tank trucks and the pumps and the things that he was using to do the cleanup.
Unidentified Justice: Now, are these facts in the record that was before the Court of Appeals?
E. Dennis Muchnicki: No, that was not in the record.
That happened after.
Unidentified Justice: Should we not decide the case on the same record they did?
E. Dennis Muchnicki: Well, I was simply responding to the factual question that was raised.
Unidentified Justice: I know, but the inference was previously given that the property would revert, and I just couldn't see... understand that.
E. Dennis Muchnicki: Well, it would be my understanding, what the receiver apparently intends to do is to file a motion to dissolve it, and at that point the property will go back to Mr. Kovacs.
But I will provide the Court with whatever--
Unidentified Justice: Whatever factual information you provide, it would be more helpful to the Court if it's provided as an agreed statement of what the facts are.
Whether it's relevant to the decision of this case remains to be seen.
E. Dennis Muchnicki: --Thank you, Your Honor.
We'll attempt to do that.
Chief Justice Warren E. Burger: Thank you, counsel.
The case is submitted.