IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 97-30423
_____________________
In The Matter Of: CRYSTAL OIL COMPANY,
Debtor.
-----------------------------------------
LOUISIANA DEPARTMENT OF ENVIRONMENTAL
QUALITY; OLIN CORPORATION,
Appellants,
versus
CRYSTAL OIL COMPANY,
Appellee.
_________________________________________________________________
Appeals from the United States District Court for the
Western District of Louisiana
_________________________________________________________________
October 20, 1998
Before POLITZ, Chief Judge, REAVLEY, and JOLLY, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
This bankruptcy appeal arises from a decision that the
environmental damage claims of the Louisiana Department of
Environmental Quality (“LDEQ”) against Crystal Oil Company
(“Crystal”) were discharged by LDEQ’s failure to bring its claim
prior to the bar date established in the bankruptcy proceeding.
For the reasons set forth below, we find no error on the part of
the district court.
I
From 1926 to 1965, Crystal Oil Refining Corporation
(“CORC”)owned a plot of land known as the “Shoreline site.” CORC
transferred a parcel of land, including the Shoreline site, to Olin
Mathieson Chemical Corporation in 1965. At that point, CORC
transferred all land records associated with the Shoreline site.
In 1966, CORC merged into Roberts Company. Roberts Company
personnel assumed management responsibilities for the new company,
which was renamed Crystal Oil Company, the appellee in this case.
On February 25, 1986, LDEQ received a citizen complaint about
the Shoreline site. An employee working for the emergency response
team of LDEQ investigated the site. He discovered oil oozing out
of the ground, tanks above ground with problems, and gathering
lines with problems. He also noticed a rusted sign bearing
“Crystal Oil Company” at the edge of the site. The employee made
an initial investigation and sent a report to the abandoned and
inactive site division of LDEQ.
What followed is what can only be described as a profoundly
problematical conversation for the parties concerned--LDEQ and
Crystal. In May 1986, Nathan Clements of the abandoned and
inactive site division of LDEQ made a phone call to Crystal and
spoke with Pat Eddings, the security/environmental compliance
officer. Eddings subsequently sent a memorandum summarizing the
conversation to Caskey, Crystal’s corporate secretary:
2
Records indicate that a Crystal Oil Company owned the
property in the 1930's and a Mr. C.M. Leonard (ph) was
president until 1937. He purchased the property as an
individual and operated it as the Leonard Company until
they took bankruptcy. The property may have reverted
back to Crystal. Ownership, after that, is unknown. It
is now owned by the Mandeville or Manville Corporation.
Mr. Clements request [sic] to know if it was our “Crystal
Oil Company”. If so, did Crystal build or purchase the
original refinery. If so when? What was refined? Where
and to whom did we sell it? Did we later regain control
and operations?
. . . .
You may want to use caution in releasing any information
as there could be environmental problems.
D.EXH.90. Eddings received a response from Caskey, who concluded
that, based on a search of in-house records, Crystal had not owned
the land. Eddings did not respond to Clements until Clements
initiated further contact.
When Clements called again, Eddings agreed to send a letter
responding to Clements questions. On October 22, 1986, after
another round of deliberation with Caskey, Eddings sent the
following letter, which is Crystal’s final and only written
response to LDEQ’s inquiry:
At the request of Mr. Nathan Clements a research was
made of available records now in possession of Crystal
Oil Company relative to Shoreline Refinery that operated
at one time in North Louisiana, Caddo Parish.
3
Please be advised that no information was found
indicating this company ever owned or operated such a
facility.
Trial EXH D-92.
It is worth reflecting for a moment on the nature of the
communication between LDEQ and Crystal. From the information
available, it is apparent that LDEQ knew that there was a
significant environmental problem that could result in liability to
previous owners of the land. LDEQ also knew, from performing a
title search, that the land had been owned by CORC. Finally, LDEQ
suspected that Crystal was CORC’s successor corporation. However,
because multiple Crystal Oil companies existed, it could not be
certain. For whatever reason, Clements did not inform Eddings of
the environmental problem. Instead, Clements asked a series of
questions designed to elicit the one missing piece of information
Clements needed, that Crystal was the successor corporation.
Eddings, on the other hand, we can assume to be well aware
that his company was in fact the successor to CORC. As Eddings’s
memorandum to Caskey makes clear, he was also aware that a call
from LDEQ raised the possibility that Crystal could be liable for
environmental problems on the land. What Eddings did not know was
whether Crystal actually was the company that owned the Shoreline
site. Thus, in his own guarded manner, Eddings ultimately
responded to the query by answering that, after a search of
available records, he had no information to indicate that Crystal
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owned the Shoreline site. At the end of this round of
communication, neither party had obtained any useful information.
Eddings did not have any sense of the what, if any, liability
Crystal could be subject to if it owned the Shoreline site.
Clements, on the other hand, still had not obtained the crucial
piece of information he was seeking--whether Crystal was the
successor company to CORC.
Crystal incorrectly concluded that it did not own the site
because the relevant documents were in off-site storage and were
not searched. On appeal, the appellants, LDEQ and Olin (“LDEQ, et
al.”), do not contend that Crystal acted in bad faith in responding
to Clements’s query. Indeed, given the clear potential for an
adversarial relationship between the parties, Crystal’s reply to
this opening salvo is a diligent response to LDEQ’s query. There
was no effort to follow up by LDEQ. Indeed, Crystal did not hear
from LDEQ again on this matter for over nine years. In January of
1996, however, Crystal received a letter informing it that it was
a potentially responsible party for remediation of the Shoreline
site.
But other events had occurred in the nine-year interim. On
October 1, 1986, Crystal had filed for Chapter 11 relief in the
United States Bankruptcy Court for the Western District of
Louisiana. The bankruptcy court set the claims bar date for
5
October 31, 1986. Crystal published a notice of its bankruptcy in
the national edition of The Wall Street Journal and mailed notice
of the claims bar date to hundreds of known creditors, including
the Louisiana State Department of Conservation, a sister agency of
LDEQ. On December 31, 1986, the bankruptcy court entered an order
confirming Crystal’s reorganization plan.
Crystal did not list LDEQ as a creditor on its bankruptcy
schedules or send LDEQ notice of the claims bar date. It is
disputed whether Crystal’s environmental compliance department
informed LDEQ officials of its bankruptcy during discussions about
ownership.
Environmental response activities at the Shoreline site were
transferred to the United States Environmental Protection Agency
(the “EPA”) in early 1988. The site was then transferred back to
LDEQ in November 1990. Because the EPA had secured the site and
LDEQ’s resources were limited, LDEQ deferred action on the site
until 1996. At that time, an inspection of the Shoreline site
revealed the following:
The site is an approximate 50 acre tract which housed an
abandoned oil refinery and which now appears as a
waste/sludge field, portions of which have been
characterized as a hazardous substance due to
corrosivity . . . . The property consists of acres of
contaminated soil with evidence that groundwater is
contaminated. The site also contains piles of refinery
sludge placed in an unlined surface impoundment at the
site. The sludge is refinery unit sludge which is common
to refineries such as the one Crystal allowed to be
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operated on its property and is a recognized waste in the
process of petroleum production refining.
R. 799-800.
On April 19, 1996, Crystal filed a motion to reopen its
bankruptcy case, seeking to enforce the confirmation order against
LDEQ by asserting that any claims of LDEQ had been discharged.
Olin Corporation (“Olin”) intervened in support of LDEQ because it
was also listed as a potentially responsible party for the
Shoreline site and wanted to preserve any contribution claims
against Crystal. After a two-day hearing, the bankruptcy court
held that the claims arose before confirmation and were
dischargeable, denying LDEQ’s request to file late claims. On
February 28, 1997, the United States District Court consolidated
LDEQ’s appeal and Olin’s appeal into one proceeding. The district
court affirmed the bankruptcy court. LDEQ and Olin timely
appealed. The EPA and the Louisiana Department of Transportation
and Development filed amicus curiae briefs on behalf of LDEQ,
raising substantially the same arguments as LDEQ and Olin.
II
On appeal, LDEQ, et al., raise three issues. First, they
argue that the bankruptcy and district courts erred in concluding
that a pre-petition bankruptcy claim existed. The bankruptcy court
held that the liability for the Shoreline site constituted a
“claim” within the meaning of the Bankruptcy Code. 11 U.S.C.
7
§ 101(5). Using the “fair contemplation” test set forth in In re
National Gypsum Co., 139 B.R. 397 (N.D. Tex. 1992) (Sanders, J.),
the court concluded that LDEQ’s claim arose before confirmation of
the plan because LDEQ knew at the time of the bankruptcy filing
that Crystal was a former owner of the contaminated site, making
the claim dischargeable. LDEQ, et al., contend that the courts
misapplied this test, and no “claim” existed at the time of
bankruptcy.
Second, LDEQ, et al., argue that the bankruptcy and district
courts erred in holding that LDEQ was given adequate notice. The
bankruptcy court found that LDEQ was not a known claimant and,
thus, received adequate constructive notice of the bankruptcy.
LDEQ, et al., contend that this finding was error because LDEQ was
a known claimant and due process dictates that actual notice was
required.
The third and final argument made by LDEQ, et al., is that the
bankruptcy and district courts erred in holding that the nine-year
delay in filing a claim did not qualify as “excusable neglect.”
LDEQ, et al. argue that, by considering the requisite factors of
prejudice to the debtor, the circumstances of this case amount to
excusable neglect, entitling LDEQ to file a late claim.
8
III
The first question we address is whether LDEQ’s environmental
liability claim against Crystal arose prior to the confirmation of
Crystal’s reorganization plan for bankruptcy purposes. We have
considered the various standards that have been suggested for the
analysis of this question, and are persuaded that the analysis set
forth in the Seventh Circuit’s decision in In re Chicago,
Milwaukee, St. Paul & Pac. R.R. Co., 974 F.2d 775 (7th Cir. 1992)
(“Chicago I”), is correct. That case discusses most of the
relevant cases in this highly specialized area of the law,1 and
synthesizes them to a rational and coherent rule. Under the test
ultimately employed by the court in Chicago I, a regulatory
environmental claim will be held to arise when “a potential . . .
claimant can tie the bankruptcy debtor to a known release of a
hazardous substance.” 974 F.2d at 786. In this case, then, the
question is whether, at the time of bankruptcy, LDEQ could have
ascertained through the exercise of reasonable diligence that it
1
Note that the Fifth Circuit has never issued an opinion in
this precise area, and, at least as to the issues in this case, has
not adopted either the somewhat elaborate rule of In re National
Gypsum, 139 B.R. 397 (N.D. Tex. 1992), nor the blunt standard of In
re Chateaugay Corp., 944 F.2d 997 (2d Cir. 1991). Although this
conclusion is contrary to the intimations of some of the briefs and
the determination of the bankruptcy court, it is well supported by
a close reading of Judge King’s opinion in Lemelle v. Universal
Mfg. Co., 18 F.3d 1268 (5th Cir. 1994), the source of the purported
adoption. That case did not involve environmental regulatory
claims at all, and only looked to National Gypsum and Chateaugay
for first principles.
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had a claim against Crystal for a hazardous release at the
Shoreline site.
We agree with the bankruptcy court that LDEQ became aware of
the hazardous release in question before the close of Crystal’s
bankruptcy case. LDEQ, et al., present two arguments to the
contrary. First, they contend that LDEQ did not have actual
knowledge of a hazardous substance. Second, they contend that,
even if LDEQ had known of such a substance, LDEQ could not have
tied Crystal to its release. We shall address each argument in
turn.
LDEQ, et al., contend that although LDEQ had found oil oozing
out of the ground at the Shoreline site, they had not found a
hazardous substance, as that term is defined in state and federal
definitions of the word. 42 U.S.C. § 9601(14); LSA-R.S.
30:2272(4)(c)(Supp. 1996) formerly LSA-R.S. 20:1149.42(4)(c)(Supp.
1976 to 1986). However, although state and federal definitions
exclude “crude oil” from the definitions of hazardous substances,
they do not exclude waste oil. As the description of the
environmental problems with the Shoreline site, supra Part I, makes
clear, it is waste oil that makes up the corrosive sludge that
qualifies as a hazardous substance at issue here. The bankruptcy
court found, as a matter of fact, that LDEQ’s investigator observed
waste oil rather than crude oil at the site. This finding is not
10
clearly erroneous. Because LDEQ knew about a hazardous substance
that constituted an environmental violation, we hold that it was
enough to put them on notice of the claim under the broad
definition of that term applicable in bankruptcy law.
The second argument LDEQ, et al., make is that they could not
have known Crystal was the successor to CORC given Crystal’s denial
that it owned the property. Thus, LDEQ could not tie Crystal to
the release of the hazardous substance. Although the evidence on
this point was mixed, and included the troubling fact that Crystal
provided LDEQ with inaccurate information, it is difficult to find
the court’s decision to have been clearly in error. The bankruptcy
court concluded that LDEQ had searched the conveyance records for
Caddo Parish and obtained information tying Crystal to the
property. R. at 955-6. Although LDEQ had not ascertained for
certain that Crystal was the successor company, it clearly was in
the process of investigating Crystal. If Crystal’s response had
included a factual misrepresentation that misled LDEQ into
believing Crystal was not CORC’s successor, then there might be a
basis for concluding that LDEQ believed it could not tie Crystal to
the release of the hazardous substance. Crystal, however, made no
such misrepresentation. Instead, it provided LDEQ with no
conclusive information at all. The Louisiana Secretary of State
assures that mergers and name changes like that which occurred here
11
are matters of public record that can be easily ascertained in a
document search, so the old name should have been enough to put
LDEQ on the right trail that would have led to Crystal. We
therefore find no error in the bankruptcy court’s holding that
LDEQ’s claim was pre-petition.
IV
The next question we must answer is whether Crystal provided
LDEQ with adequate notice of its bankruptcy by publishing it in
The Wall Street Journal.2 Under the Supreme Court’s longstanding
jurisprudence, the debtor must provide actual notice--not notice by
publication--to all “known creditors” in order to achieve a legally
effective discharge of their claims. City of New York v. New York,
N.H. & H.R. Co., 344 U.S. 293, 296 (1953). As the Supreme Court
has further explained, however, “known creditors” include both
those claimants actually known to the debtor, as well as those
whose identities are “reasonably ascertainable.” Tulsa
Professional Collection Serv., Inc. v. Pope, 485 U.S. 478, 490
(1988). A creditor is “reasonably ascertainable” if it can be
discovered through “reasonably diligent efforts.” Mennonite Bd. of
2
There is also a subsidiary question of whether Crystal might
have given LDEQ actual notice in the first place. LDEQ concedes
that Crystal did give actual notice to the Louisiana Department of
Conservation, and, in In re Jensen, 955 F.2d 925 (9th Cir. 1993),
notice to a “sister agency” was held to be sufficient in the
environmental regulatory context. As we conclude that actual
notice is not necessary in this case, we need not address this
issue.
12
Missions v. Adams, 462 U.S. 791, 798 n.4 (1983). In a somewhat
similar case, the Third Circuit held that such efforts need
generally include only a careful search of the debtor’s own
records, and that environmental claimants whose claims are not
discoverable therein or otherwise apparent are not “known
creditors” for bankruptcy purposes. Chemetron Corp. v. Jones, 72
F.3d 341, 346-48 (3d Cir. 1995). In reaching this holding, the
Chemetron court stressed that claimants must be reasonably
ascertainable, not reasonably foreseeable. Id. at 348. As we read
these cases, in order for a claim to be reasonably ascertainable,
the debtor must have in his possession, at the very least, some
specific information that reasonably suggests both the claim for
which the debtor may be liable and the entity to whom he would be
liable.
LDEQ, et al., make three arguments challenging the bankruptcy
court’s finding on this issue: (1) Crystal was involved in the oil
business throughout the state and had dealt previously with
environmental agencies and thus should have contemplated a claim by
LDEQ; (2) Crystal intentionally avoided listing LDEQ as a creditor
and providing notice; and (3) Because LDEQ had contacted Crystal
about the Shoreline site, LDEQ was a “reasonably ascertainable”
creditor, and thus a known creditor, entitled to actual notice.
13
The first two arguments can be dispensed of easily. With
respect to the first argument, based on the standard we articulate
above, there can be no basis for concluding that a debtor is
required to send notices to any government agency that possibly may
have a claim against it. The second argument, that Crystal
intentionally avoided listing the LDEQ as a creditor despite an
outstanding amount of $135.36 owed to the Air Quality Division of
LDEQ, was adequately addressed by the bankruptcy court. We find no
error.
The last argument advanced by LDEQ, et al., that because
Crystal received a phone call from LDEQ, it had information that
should have led it to conclude that LDEQ had a claim, is a closer
issue. It is undisputed that LDEQ contacted Crystal, identified
itself, and asked about the site in question. Crystal looked into
the records it had on hand, and erroneously (but in good faith as
far as this record or the contentions of the parties indicate)
concluded that it had had no relationship with that property. The
bankruptcy court held that this inquiry was reasonably diligent,
because the only records that would have revealed the connection
were ancient ones in long-term storage.
As LDEQ did not give Crystal any other reason to think that
there might be a claim against it, the bankruptcy court reasoned
that LDEQ was not a reasonably ascertainable creditor. It has been
14
argued in the briefs, however, that LDEQ informed Crystal during
its inquiries that the prior record title holder to the site was
CORC. Because we must assume that a company has knowledge of the
companies for which it is a successor company, if LDEQ did provide
this information, Crystal would have been on notice that whatever
problems there were at the site, they would eventually be brought
to Crystal’s door.
The bankruptcy court also concluded that, regardless of
Crystal’s knowledge of its link to the site, LDEQ’s inquiry did not
put it on notice that there were any environmental problems there
in the first place. That finding also is open to interpretation in
the light of Eddings’s memorandum concerning LDEQ’s inquiry that
warned to “use caution in releasing any information as there could
be environmental problems.” Thus, it appears arguable that LDEQ
might well have been a readily ascertainable creditor deserving
actual notice.
Although the evidence could go either way, this is entirely an
issue of fact, and our standard of review is therefore one of clear
error. We hold that there is no basis in either the testimony or
the written documents describing Clements’s contact with Eddings to
lead us to conclude that the bankruptcy court’s findings are
clearly erroneous. The bankruptcy court considered the internal
memoranda written by Eddings and Caskey along with the testimony of
Eddings on this issue. That testimony is clearly consistent with
15
the bankruptcy court’s finding that Eddings was never given enough
information by Clements to believe that Crystal could be liable for
a claim. LDEQ did not present any written or testimonial evidence
that might have shed some other light on the conversation between
Clements and Eddings. Thus, while reasonable minds could differ on
this issue, we must conclude, based on the bankruptcy court’s
findings, that LDEQ was not a reasonably ascertainable claimant and
therefore only entitled to public notice. In sum, the record
supports the bankruptcy court’s finding that the information in the
possession of Crystal, that is the written memoranda and
correspondence related to LDEQ’s contact with Crystal and Crystal’s
officers’ recollections of that contact, did not suggest that there
was a hazardous waste claim for which Crystal would be liable to
LDEQ.
V
The final issue we must address is whether LDEQ should
nonetheless be allowed to file a late claim on the basis of
excusable neglect. We can see no merit to this argument. Under
Pioneer Investment Services Co. v. Brunswick Associates L.P., 507
U.S. 380 (1993), the court must consider prejudice to the debtor,
length of the delay, and reason for the delay in determining
whether the claimant’s neglect was excusable. In this case, the
bankruptcy court correctly determined that: (1) the prejudice to
the debtor would be high, (2) the length of the delay (nine years)
16
was quite long, and (3) the reason for the delay (LDEQ’s lack of
funds) was unconvincing. In the light of these findings, we cannot
say that LDEQ should be allowed to file a nine-year late claim.
VI
In summary, we hold that LDEQ’s environmental liability claim
against Crystal arose pre-petition for bankruptcy purposes because
LDEQ had enough information through which it could have tied
Crystal to a known release of a hazardous substance at the point
that they found the “Crystal Oil” signs on the property. Despite
its phone call to Crystal, LDEQ was not a reasonably ascertainable
creditor for bankruptcy purposes, and the notice by publication
that it received was therefore sufficient to subject its claim to
discharge in bankruptcy. Finally, LDEQ’s decade-long delay in
bringing its claim was not excusable neglect.
In closing, we should note that this case presented complex
issues resolved only by relying on the factual determinations
reached by the bankruptcy court. We recognize that the bankruptcy
court was confronted with factual disputes presenting close calls
and that reasonable minds may differ over their outcome. In
bankruptcy cases, however, we owe substantial deference to the
bankruptcy court’s findings of fact. Here, the factual findings
are not clearly erroneous and, given those findings, it is clear
that the bankruptcy court did not err in reaching the conclusions
that it reached.
17
In accordance with the above-stated reasons, the judgment of
the district court is therefore
A F F I R M E D.
18